ARCHIVED - Telecom Decision CRTC 2014-627

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Ottawa, 5 December 2014

File number: 8695-C12-201402685

Final 2014 revenue-percent charge and related matters

The Commission approves on a final basis, effective 1 January 2014, a 2014 contribution collection revenue-percent charge of 0.55% and the 2014 subsidy per residential network access service (NAS) amounts for the incumbent local exchange carriers (ILECs).

In addition, the Commission approves on an interim basis, effective 1 January 2015, a 2015 contribution collection revenue-percent charge of 0.56% and the 2015 subsidy per residential NAS amounts for the ILECs.

The subsidies approved in this decision will assist in keeping residential local telephone service rates in high-cost serving areas at just and reasonable levels.

Introduction

1. During the 1990s, through a series of proceedings and decisions, the Commission opened up various telecommunications markets to competition, including the local telephone market, to enhance the Canadian telecommunications system and to give Canadians the benefits of competition. The Commission also established a subsidy regime, whereby money collected from telecommunications companies is used to subsidize residential telephone service. This subsidy regime helps to keep residential local telephone service rates just and reasonable, as required by subsection 27(1) of the Telecommunications Act.
2. In Decision 2000-745, the Commission modified the subsidy regime to introduce a national revenue-based contribution collection mechanism and a new methodology for calculating the subsidy afforded to high-cost serving areas (HCSAs)^{Footnote 1} in the territories of the incumbent local exchange carriers (ILECs).^{Footnote 2}
3. Contribution is paid into a national fund, known as the National Contribution Fund (NCF), by telecommunications service providers (TSPs), or groups of related TSPs, that have $10 million or more in Canadian telecommunications service revenue. Subsidy is then paid out to the ILECs, who are also TSPs, for providing residential telephone service in regulated HCSAs. While non-ILEC TSPs only pay into the fund, the ILECs can be either net payers into the fund or net receivers from the fund, depending on how much they have to pay in and how much they are entitled to receive each month.
4. Annually, the Commission finalizes the subsidy amounts/rates to be paid to ILECs providing residential telephone service in regulated HCSAs. In order to provide this subsidy, the Commission establishes a final revenue-percent charge to ensure that the amount of money collected is sufficient to meet the subsidy payments. The Commission also sets interim contribution and subsidy amounts/rates for the following year, so that the subsidy regime can continue to pay the ILECs’ subsidy until the following year’s contribution and subsidy amounts/rates are finalized.
5. In Telecom Decision 2013-630, the Commission set, on an interim basis for 2014, a revenue-percent charge of 0.53% and the subsidy per residential network access service (NAS) amounts for the ILECs.
6. The Commission received submissions from the ILECs, namely Bell Aliant Regional Communications, Limited Partnership (Bell Aliant), Bell Canada, MTS Inc. (MTS), Saskatchewan Telecommunications (SaskTel), Télébec, Limited Partnership (Télébec), and TELUS Communications Company (TCC) (collectively, the large ILECs), the small ILECs,^{Footnote 3} and Northwestel Inc. (Northwestel). The Commission also received a submission from Canadian Telecommunications Contribution Consortium Inc. (CTCC).^{Footnote 4} The public record of this proceeding, which closed on 18 September 2014, is available on the Commission’s website at www.crtc.gc.ca or by using the file number provided above.
7. The Commission addresses the following matters in this decision:
   • the estimated national subsidy requirement for 2014;
   • the final 2014 revenue-percent charge;
   • the final 2014 and interim 2015 subsidy payments from the NCF;
   • the interim 2015 revenue-percent charge; and
   • the excess NCF funds after processing the December 2014 data-month.

Estimated national subsidy requirement for 2014

8. The national subsidy requirement is based on the sum of (1) the estimated HCSA total subsidy amount for the ILECs and (2) the administrative and operational costs of CTCC and the Central Fund Administrator (CFA).^{Footnote 5}

Estimated HCSA total subsidy amount for the ILECs

9. As stated earlier in this decision, ILECs receive subsidy for providing basic residential local telephone service in regulated HCSAs. This subsidy is based upon the monthly number of residential NAS in each ILEC HCSA band^{Footnote 6} and the corresponding subsidy per residential NAS amounts. The subsidy per residential NAS amounts are calculated annually and approved by the Commission. Each ILEC HCSA band subsidy per residential NAS amount, in simplified terms, is the net of the cost component less the revenue component. However, the calculations for these components can vary by ILEC or groups of ILECs.^{Footnote 7}

Large ILECs

10. The large ILECs are required to file, by 31 March of each year, their subsidy per residential NAS calculations.
11. The Commission has reviewed the 2014 subsidy calculations for the large ILECs, including MTS’ calculations based upon the determinations in Telecom Decision 2013-630,^{Footnote 8} and finds them to be in accordance with the directives set out in Telecom Decisions 2007-27 and 2007-60, and Telecom Regulatory Policy 2011-291.
12. The Commission estimates the 2014 total subsidy amount for the large ILECs to be $80.4 million.

Small ILECs

13. The small ILECs are required to file, by 15 April of each year, information for their subsidy per residential NAS calculations.
14. The Commission has reviewed the subsidy information filed by the small ILECs, finds it to be in accordance with the directives set out in Telecom Regulatory Policy 2011-291, and estimates the 2014 total subsidy amount for the small ILECs to be $13.3 million.

Northwestel

15. Northwestel is required to file, by 31 March of each year, its subsidy per residential NAS calculation.
16. In its 2014 subsidy calculation, Northwestel requested $20.5 million, which consisted of (1) $10.4 million in subsidy for residential NAS in its HCSA and (2) $10.1 million in ongoing funding related to the non-access portion of its service improvement program (SIP) that was completed in 2005.^{Footnote 9}
17. The Commission has reviewed Northwestel’s subsidy calculation and finds it to be in accordance with the directives set out in Telecom Regulatory Policies 2011-771 and 2013-711.

CTCC and CFA administrative and operational costs

18. The Commission received notification from CTCC that the estimated CTCC and CFA administrative and operational costs would be approximately $0.9 million for 2014. This amount has been included in the national subsidy requirement.

Estimated 2014 national subsidy requirement

19. In light of the above, the Commission estimates the total 2014 national subsidy requirement to be $115.1 million. The Commission notes that the decrease in the 2014 national subsidy requirement, when compared to 2013, is due to lower monthly subsidy per residential NAS amounts and fewer residential NAS being eligible for subsidy.

Final 2014 revenue-percent charge

20. The revenue-percent charge is calculated using the ratio of the national subsidy requirement to the estimated total contribution-eligible revenues of all TSPs that are required to contribute.
21. The Commission notes that, although the national subsidy requirement has decreased from the previous year, an increase to the 2014 revenue-percent charge, when compared to 2013, is required due to a continuing decrease in total contribution-eligible revenues. The Commission considers that a final 2014 revenue-percent charge of 0.55% would be appropriate to ensure the stability of the NCF.
22. Therefore, the Commission approves a final 2014 revenue-percent charge of 0.55%, effective 1 January 2014.

Final 2014 and interim 2015 subsidy payments from the NCF

Subsidy payments for the large ILECs

23. The Commission approves on a final basis, effective 1 January 2014, and approves on an interim basis, effective 1 January 2015, the monthly subsidy per residential NAS amounts for each HCSA band for the large ILECs as shown in Table 1.

Table 1

Final 2014 monthly subsidy per residential NAS amounts by HCSA band

n/a: not applicable

24. The Commission directs the CFA to adjust the distribution of monthly subsidy to reflect the final subsidy per residential NAS amounts for 2014. The Commission also directs the CFA to distribute the monthly subsidy on an interim basis, effective 1 January 2015.

Subsidy payments for the small ILECs

25. The Commission approves on a final basis, effective 1 January 2014, and approves on an interim basis, effective 1 January 2015, the monthly subsidy per residential NAS amounts for each HCSA band for the small ILECs as shown in Table 2.

Table 2

Final 2014 monthly subsidy per residential NAS amounts by HCSA band

British Columbia

Ontario

Quebec

n/a: not applicable

26. The Commission directs the CFA to adjust the distribution of monthly subsidy to reflect the final subsidy per residential NAS amounts for 2014. The Commission also directs the CFA to distribute the monthly subsidy on an interim basis, effective 1 January 2015.

Subsidy payments for Northwestel

27. The Commission approves on a final basis, effective 1 January 2014, and approves on an interim basis, effective 1 January 2015, a monthly subsidy per residential NAS amount of $45.56 for Northwestel's Band H1 and $10.1 million annually for ongoing SIP funding.
28. The Commission directs the CFA to adjust the distribution of monthly subsidy to reflect the final subsidy per residential NAS amount for 2014. The Commission also directs the CFA to distribute the monthly subsidy on an interim basis, effective 1 January 2015, plus one twelfth of the $10.1 million for ongoing SIP funding.

Interim 2015 revenue-percent charge

29. In Telecom Regulatory Policy 2014-187, the Commission determined that a national video relay service (VRS) would be implemented in Canada with funding being provided through the NCF.
30. By letter dated 21 August 2014, the pre-incorporation Interim Board of Directors of the Canadian Administrator of VRS filed an application requesting $2.6 million in annual funding for 2015 and that this funding be provided on a monthly basis. The Commission notes that a determination with respect to this application has not been issued yet.
31. To ensure that the appropriate amount of funding is available for VRS in 2015, the Commission considers that an interim 2015 revenue-percent charge of 0.56%, effective 1 January 2015, would be appropriate to ensure the continued stability of the NCF.
32. Therefore, the Commission approves on an interim basis a 2015 revenue-percent charge of 0.56%, effective 1 January 2015.

Excess NCF funds after processing the December 2014 data-month

33. In Telecom Decision 2007-98, the Commission approved revised procedures for the operation of the NCF that resulted in funds in excess of CTCC’s requested minimum balance being retained by the required contributors as uncalled contribution, rather than being held by the NCF as a cash surplus. In addition, the Commission indicated that it would direct the CFA to release the uncalled contribution at year-end because these amounts would not be needed by the NCF in that year.
34. The Commission notes that CTCC’s current requested NCF minimum balance is $5 million.
35. The Commission considers that any uncalled contribution in excess of the $5 million minimum balance after processing the December 2014 data-month is not required by the NCF and that the uncalled contribution can be released.
36. Accordingly, the Commission directs the CFA, after it has processed the December 2014 data-month, to release any 2014 uncalled contribution.

Secretary General

Related documents

• MTS Inc. - Application to review and vary Telecom Decision 2013-630 regarding MTS' subsidy rate component calculations, Telecom Decision CRTC 2014-391, 28 July 2014
• Video relay service, Telecom Regulatory Policy CRTC 2014-187, 22 April 2014
• Northwestel Inc. - Regulatory Framework, Modernization Plan, and related matters, Telecom Regulatory Policy CRTC 2013-711, 18 December 2013
• Final 2013 revenue-percent charge and related matters, Telecom Decision CRTC 2013-630, 27 November 2013
• Regulatory framework for the small incumbent local exchange carriers and related matters, Telecom Regulatory Policy CRTC 2013-160, 28 March 2013
• Northwestel Inc. - Review of regulatory framework, Telecom Regulatory Policy CRTC 2011-771, 14 December 2011
• Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291, 3 May 2011, as amended by Telecom Regulatory Policy CRTC 2011-291-1, 12 May 2011
• Revised procedures for the operation of the National Contribution Fund, effective January 2008, Telecom Decision CRTC 2007-98, 11 October 2007
• Follow-up to Decision 2007-27 - Show cause submission related to the application of the price cap regime to Télébec, Limited Partnership, Telecom Decision CRTC 2007-60, 30 July 2007, as amended by Telecom Decision CRTC 2007-60-1, 10 August 2007
• Price cap framework for large incumbent local exchange carriers, Telecom Decision CRTC 2007-27, 30 April 2007
• Price cap regulation for Northwestel Inc., Telecom Decision CRTC 2007-5, 2 February 2007
• Implementation of competition in the local exchange and local payphone markets in the territories of Société en commandite Télébec and the former TELUS Communications (Québec) Inc., Telecom Decision CRTC 2005-4, 31 January 2005
• Regulatory framework for the small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001
• Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, 27 April 2001, as amended by Decisions CRTC 2001-238-1, 28 May 2001, and 2001-238-2, 7 August 2001
• Changes to the contribution regime, Decision CRTC 2000-745, 30 November 2000

Date modified:

2014-12-05