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Telecom Decision CRTC 2007-90

Ottawa, 21 September 2007

Follow-up to Telecom Decision 2007-27 - Determinations with respect to the cap for residential local rates in forborne high-costs serving areas and the subsidy calculation

Reference: 8638-C12-200708191

In this Decision, the Commission changes the residential local rate cap in high-cost serving areas (HCSAs) at the time of forbearance. The Commission also determines that, subject to certain conditions, the incumbent local exchange carriers may increase residential local rates in HCSAs after forbearance is granted.

Introduction

1. In Telecom Decision 2006-15, as amended by the Governor in Council's Order Varying Telecom Decision CRTC 2006-15, P.C. 2007-532, 4 April 2007 (modified Telecom Decision 2006-15), the Commission determined that residential local rates for the incumbent local exchange carriers (ILECs) would be capped at approved tariffed rates when forbearance was granted. The Commission also determined that in high-cost serving areas (HCSAs), if an ILEC's residential local rate is set below the tariffed rate applicable at the time forbearance was granted, the tariffed rate at the time of forbearance would be used to determine the ILEC's average residential rate for subsidy calculation purposes.

2. In Telecom Decision 2007-27, the Commission noted that the determinations made in that Decision might have an impact on the determinations made in modified Telecom Decision 2006-15 with respect to the cap for residential primary exchange service rates in HCSAs and the subsidy calculation.

3. In Telecom Decision 2007-27, the Commission initiated a follow-up process wherein parties were requested to provide their comments on the Commission's preliminary view on these issues, which are as follows:

  1. change the cap at the time forbearance is granted from the tariffed rate to the rate being imputed for subsidy calculation purposes; and
  2. continue to impute HCSA local rate increases for the ILECs after forbearance is granted until the band no longer receives subsidy or the $30 target is reached.

4. The Commission received comments from Bell Aliant Regional Communications, Limited Partnership and Bell Canada (collectively, Bell Canada et al.); Cogeco Cable Canada Inc., Quebecor Media Inc. on behalf of its affiliate Videotron Ltd., Rogers Cable Communications Inc., and Shaw Communications Inc. (collectively, the Cable Companies); MTS Allstream Inc.; Saskatchewan Telecommunications; Télébec, Limited Partnership; and TELUS Communications Company. The record of the proceeding closed with Bell Canada et al.'s reply comments, dated 28 June 2007.

5. The issues in this proceeding are as follows:

  1. Whether the cap on residential local rates in HCSAs at the time forbearance is granted should be changed from the tariffed rate to the imputed rate used in the subsidy calculation;
  2. Whether local rate increases should continue to be imputed in the subsidy calculation after forbearance is granted; and
  3. Whether the Commission should initiate a proceeding to address the issue of de-averaged rates in the subsidy calculation.

I. Whether the cap on residential local rates in HCSAs at the time forbearance is granted should be changed from the tariffed rate to the imputed rate used in the subsidy calculation

6. All parties supported the Commission's preliminary view with respect to changing the cap on residential local rates in HCSAs at the time forbearance is granted from the tariffed rate to the rate being imputed for subsidy calculation purposes. The Cable Companies noted that, without this change, forbearance would reverse the progress made to eliminate the subsidy requirement.

Commission's analysis and determinations

7. The Commission notes that in the event that an ILEC does not take all the HCSA residential local rate increase(s) available to it prior to forbearance, changing the cap at the time forbearance is granted to the imputed rates will give the ILEC the opportunity to increase its forborne residential local rate(s) in HCSAs to the rate(s) being imputed for subsidy calculation purposes.

8. Accordingly, the Commission determines that the cap on residential local rates in HCSAs at the time that forbearance is granted is to be changed from the tariffed rate to the rate being imputed for subsidy calculation purposes.

II. Whether local rate increases should continue to be imputed in the subsidy calculation after forbearance is granted

9. All parties supported the Commission's preliminary view with respect to continuing to impute residential local rate increases in HCSAs after forbearance is granted until the band no longer receives subsidy or the $30 target is reached. The Cable Companies noted that, without this change, forbearance would potentially reverse, or at least slow down, the progress made to eliminate the subsidy requirement.

Commission's analysis and determinations

10. For those bands that receive subsidy where the forborne residential local rate is below $30, the Commission considers that the ILEC should impute residential local rate increases, effective 1 June of each year, based upon the HCSA residential rate element constraint, to each individual HCSA residential local rate used in the subsidy band-average rate calculation, regardless of whether the ILEC actually increases rates, as this would lead to a reduction in the amount of subsidy.

11. However, for those bands where the subsidy per residential network access service (NAS) amount has been reduced to zero or the individual residential local rate is above $30, the Commission considers that the ILEC's forborne residential local rate(s) in HCSAs should be capped at the imputed rate(s). In that regard, the Commission considers that capping residential local rates in HCSAs that are forborne is consistent with its determination to cap residential local rates in modified Telecom Decision 2006-15.

12. Accordingly, the Commission determines that the ILECs are to impute HCSA residential local rate increases after forbearance is granted for subsidy calculation purposes, until the band no longer receives subsidy or the individual residential local rate is above $30. The Commission determines that once the band no longer receives subsidy or the individual residential local rate is above $30, forborne individual residential local rate(s) in HCSAs will be capped at the imputed rate(s).

13. The Commission notes that, as a result of its determinations with regard to the first two issues, the ILECs will be able to move residential local rates in HCSAs closer to the costs of providing that service.

III. Whether the Commission should initiate a proceeding to address the issue of de-averaged rates in the subsidy calculation

14. Bell Canada et al. submitted that a separate proceeding should be initiated to address the issue of how the impact of rate de-averaging would be taken into account in determining the average residential local rate used for subsidy calculation purposes when rate de-averaging occurred within an exchange where the rate was above $30 at the time of forbearance.

Commission's analysis and determinations

15. In Telecom Decision 2007-27, the Commission determined that for those bands where the subsidy per residential NAS amount had been reduced to zero or the individual residential local rate was above $30, the ILECs were not required to impute a rate increase. However, the Commission also determined that individual residential local rates used to determine the band-average residential local rates for subsidy calculation purposes had to include any rate increases actually taken by the ILEC.

16. The Commission notes that the purpose of the requirement to track the rate increases actually taken by an ILEC, when it does not have to impute the rate increase, is to ensure that the ILEC calculates and uses the correct company-specific band-average residential local rate in its subsidy calculations. This will ensure that the ILEC does not receive more subsidy from the National Contribution Fund than it is entitled to receive.

17. Given that the ILECs are aware of the tracking requirements, the Commission considers that the ILECs should take them into consideration when they set their rates. The Commission considers that no further action should be taken on this matter at this time.

Secretary General

Related documents

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