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Letter
File Number: 8678-C12-200605553
Ottawa, 8 August 2006
By Electronic mail
Mr. David E. Palmer
Director, Regulatory Matters
Bell Canada
110 O'Connor Street
7 th Floor
Ottawa , ON K1P 1H1
Email: bell.regulatory@bell.ca
Re: Review of price cap framework, Telecom Public Notice 2006-5
Dear Mr. Palmer:
Pursuant to the procedures set out in Review of price cap framework, Telecom Public Notice CRTC 2006-5, 9 May 2006 , attached are interrogatories for the Companies (Bell Aliant Communications, Limited Partnership, Bell Canada and Saskatchewan Telecommunications) associated with this proceeding.
Responses to these interrogatories are to be filed with the Commission, and served on all the interested parties to this proceeding, by 6 September 2006 .
Yours sincerely,
(Original signed by)
John Macri,
Director, Financial and Regulatory Affairs
Telecommunications
Attachment
cc. Bob Noakes, CRTC, 819-997-4429 bob.noakes @CRTC.gc.ca
Attachment Page 1 of 6
Components of Price Cap Plans
1101 Refer to the response to interrogatory The Companies(CRTC)24May06-101. The Companies state that their proposal does not contemplate reliance on any measure of inflation. In the event that the Commission considers it appropriate to use an explicit measure of inflation as part of the pricing constraints, comment on the continued appropriateness of using the chain weighted Gross Product-Price Index as published by Statistics Canada. Should the Companies consider that another inflation measure would be more appropriate, provide detailed information, including studies, to support the Companies' view. Indicate to which basket(s) the inflation factor should apply.
1102 Refer to the response to interrogatory The Companies(CRTC)24May06-102. The Companies state that their proposed pricing constraints are not based on a formulaic approach involving the use of an X-factor to govern changes in prices. In the event that the Commission considers it appropriate to use an X-factor as part of the pricing constraints, comment on the continued appropriateness of using the 3.5% productivity factor. Should the Companies consider that another productivity level would be more appropriate, provide detailed information including studies, to support the Companies' view. Indicate to which basket(s) the productivity factor should apply.
Services, Baskets and Pricing Constraints
1201 Refer to paragraph 132 of the Companies' submission which states the following:
The Companies suggest that existing Category I Competitor Services, and their prices, be maintained until the reviews described above have been completed.
a) Refer to the Commission staff letter dated 14 July 2003 regarding Phase II costing information requirements, where it was indicated that all ILECs would be expected to file Competitor Service cost studies that exclude the application of inflation and productivity factors within the study period and that under this approach, the revised Competitor Service rate resulting from the revised cost study would be subject to the annual I-X pricing constraint. Explain with supporting rationale, why it would no longer be necessary to reflect ongoing rate changes to capture the effects of annual inflation and productivity related to Category I Competitor Services.
b) If the Commission was to determine it appropriate to continue to apply a pricing constraint equal to inflation less the productivity offset (I-X) to ILEC services assigned as Category I Competitor Services, provide the Companies' comments on the continued appropriateness of using the 3.5% productivity factor for Category I Competitor Services. Should the Companies consider that another productivity level would be more appropriate for Category I Competitor Services, provide detailed information including studies to support this view.
Attachment Page 2 of 6
1202 Provide a schematic diagram of the Companies' proposed price cap structure, including any pricing constraints.
1203 Refer to paragraph 101 of the Companies' submission. The Companies proposed that residential (PES) primary exchange services could be uncapped whenever customers for these services in an exchange have available at least one facilities-based alternative (offered by a wireline or fixed wireless provider) or an alternative offered by a carrier using unbundled facilities offering residential local service .
For each of Bell Aliant Regional Communications, Limited Partnership, Bell Canada and Saskatchewan Telecommunications, provide a list of alternate providers of residential PES by exchange. Indicate the technology employed by the alternate provider that serve these exchanges.
1204 Refer to paragraph 103 of the Companies ' submission. The Companies proposed that business PES could be uncapped where customers for business PES in any exchange have available one facilities-based alternative (offered by a wireline or fixed wireless provider) or alternatives provided by a carrier using unbundled facilities.
For each of Bell Aliant Regional Communications, Limited Partnership, Bell Canada and Saskatchewan Telecommunications, provide a list of alternate providers of Business PES by exchange. Indicate the technology employed by the alternate provider that serve these exchanges.
1205 Refer to paragraph 104 of the Companies ' submission. The Companies proposed that larger capacity (e.g., Megalink service) could be uncapped when at least one facilities-based provider or an alternative carrier using unbundled facilities or CDN services in the exchange offers an equivalent digital trunk service
For each of Bell Aliant Regional Communications, Limited Partnership, Bell Canada and Saskatchewan Telecommunications, provide a list of alternate providers of Megalink service (or a like large capacity service) by exchange.
1206 The Companies have proposed that, for the next price cap regime, services be classified into one of 5 service groups (i.e., Connectivity Services, Emergency, Public Safety, and Protection Services, Competitor Services, Discretionary Services and Bundled Services).
Refer to paragraph 56 of the Companies' submission where it is stated that " with regard to services which provide connectivity to the network, and wherever market forces are sufficient to protect customers, all prices will be uncapped."
In terms of the Companies' proposed basket structure, indicate to which basket connectivity services would be assigned once the service has met the Companies' proposed uncapping test.
Attachment Page 3 of 6
1207 At paragraph 81 of its submission, the Companies stated:
Where there are alternative facilities with the capacity to provide the equivalent services to those of the incumbent, the competitive discipline that the incumbent faces is not measured by the volume of customers that are actually served by competitors, but by the capacity of the alternative networks to expand the number of customers served in response to any pricing changes made by the incumbents. If an incumbent facing such a competitor should increase its prices above market levels, the competitor with spare capacity could offer the same customers service at a lower price and thereby force the incumbent to rescind its price increase.
At paragraph 83, the Companies further stated:
The supply capacity of competitors is indicative of the supply elasticities in the market and those elasticities are what provide constraints on the pricing behaviour of the ILECs. The same influence is present when competitors can rely upon unbundled network elements such as loops to provide alternative services.
a) Describe the specific market forces that would drive incumbents to increase prices in general and above market levels in particular.
b) Explain how the presence of an alternative facilities-based provider, as described above, who has facilities to provide telecommunications services but who has not entered the market for these services, can effectively constrain pricing of incumbent services.
1208 At paragraph 83 of its submission, the Companies stated:
The supply capacity of competitors is indicative of the supply elasticities in the market and those elasticities are what provide constraints on the pricing behaviour of the ILECs. The same influence is present when competitors can rely upon unbundled network elements such as loops to provide alternative services.
a) Explain how such supply elasticities constrain pricing of ILEC services. Provide any relevant evidence to support the Companies' view.
b) Explain with supporting rationale as to how this supply-side approach provides a proxy for other relevant market forces (e.g., demand side forces) in determining whether services should be uncapped.
1209 At paragraph 55 of its submission, the Companies proposed the following as Objective 3 for next price cap regime:
To adopt regulatory approaches, as necessary, that use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the previous objectives.
Attachment Page 4 of 6
At paragraph 108 of its submission, the Companies stated:
Implementation of the Companies' proposed test for uncapping local PSTN services would require the establishment of new reporting procedures that would enable the Commission to verify which Company services in each exchange meet the proposed test. While the Companies do collect publicly available information on competitor offerings, they cannot certify the accuracy or the currency of the information at any time. The most accurate and current information related to competitor local exchange service offerings would have to be obtained from the competitors themselves. The Companies propose that such information be collected by the Commission on a quarterly basis.
Explain how the approach proposed in paragraph 108 will achieve Objective 3 as specified in paragraph 55.
1210 At paragraph 60 of their evidence, the Companies stated that "the pricing constraints in the Companies' proposal would be too inflexible if the price regulation were in excess of two years."
a) Indicate the specific pricing constraints in the Companies' proposal that would be too inflexible to continue in effect beyond two years.
b) The Companies, in section 4.4 of their evidence, propose a test for uncapping regulated services. For each specific pricing constraint noted in a) above, provide supporting rationale for the Companies' position that the next price regime should not exceed two years in light of their complementary proposal that a regulated service become uncapped in an exchange, or on an inter-exchange route as appropriate, whenever alternative facilities are in place.
Rate De-averaging
1301 Refer to paragraph 55 of the Companies' submission. The Companies recommend the following three objectives for next price cap regime:
a) To render reliable and affordable services of high quality, accessible to both urban and rural area customers (Objective 1);
b) To rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives (Objective 2); and
c) To adopt regulatory approaches, as necessary, that use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the previous objectives (Objective 3).
Explain how the elimination of the rate de-averaging prohibition would help to meet objectives 1) and 3).
Attachment Page 5 of 6
1302 Refer to paragraph 62 of the Companies' evidence. The Companies have classified their services into the following groups:
- Connectivity Services
- Emergency, Public Safety, and Social Protection Services
- Competitor Services
- Discretionary Services
- Bundles
Explain how the Companies proposed rate de-averaging would be implemented, tracked and reported, including the impact on specific rate element and basket constraints.
1303 In Forbearance from the regulation of retail local exchange services , Telecom Decision CRTC 2006-15, 6 April 2006, paragraph 488, the Commission indicated that it was ".prepared to consider applications from an ILEC requesting the removal of the local winback rule in a relevant market when the applicant ILEC can demonstrate that it has lost 20 percent of its market share in that relevant market.".
Provide the Companies' view on a similar transitional measure with respect to the prohibition on rate de-averaging based on, among other things, a percent market share loss in that relevant market. Identify, with supporting rationale, the percentage market share loss level to justify this transitional measure.
Other
1401 Refer to paragraph 115 of the Companies` submission. The Companies have requested that the current exemption for Local Directory Assistance charges be removed for directory assistance calls made from public and semi-public telephones, and that a rate of $0.25 be applied for each such call.
a) Compare the Companies' proposal with that of current alternate payphone providers in Canada .
b) Provide justification for the removal of the exemption from the charge when calling from a public or semi-public telephone.
1402 Refer to paragraph 123 of the Companies` submission. The Companies' have proposed that for services whose prices are below cost, other than residential basic service in HCSAs, their prices should be permitted to increase upon a company's demonstration that the price(s) of the service is below underlying cost. In order that a company's incentive to address non-compensatory prices not be removed, the Companies further propose that the basket index be unaffected by price increases permitted for any services whose prices are below costs.
Attachment Page 6 of 6
a) For each of Bell Aliant Regional Communications, Limited Partnership, Bell Canada and Saskatchewan Telecommunications, provide a list of services currently below cost, its current tariffed rate, when and by how much the rate for the service last increased, the rate increase that would be required to recover the service's associated cost (if unavailable, provide an estimate), and the basket classification of the service under the current price cap regime.
b) Provide the Companies` views on the appropriateness of the Commission subjecting below cost services to a rate element constraint as part of the next regulatory framework.
Date Modified: 2006-08-08
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