Telecom Decision CRTC 2002-56
Ottawa, 12 September 2002
Framework for the expansion of local calling areas
Table of contents
Background (Paragraph 1)
EAS approach (Paragraph 2)
Expanded LCA case-by-case approach (Paragraph 5)
Public proceeding required (Paragraph 10)
Comments received in response to Public Notice 2001-47 (Paragraph 12)
Canadian telecommunications policy objectives (Paragraph 17)
Commission analysis and determinations (Paragraph 18)
- The need to establish a new framework (Paragraph 18)
- Community of interest criterion (Paragraph 27)
- Distance criterion (Paragraph 34)
- Compensation for increased operating costs (Paragraph 40)
- Compensation for foregone toll revenues (Paragraph 47)
- Subscriber plebiscites (Paragraph 67)
- Paying for subscriber plebiscites (Paragraph 74)
Conclusions: General principles and criteria, and process for creating expanded LCAs (Paragraph 78)
- General principles and criteria for expanded LCAs (Paragraph 78)
Process for creating an expanded LCA (Paragraph 79)
The EAS approach (Paragraph 80)
In this decision, the Commission maintains the existing extended area of service (EAS) criteria to assess applications for EAS as these criteria continue to be appropriate in certain circumstances.
The Commission also announces a new framework for the expansion of local calling areas (LCAs). Under this new framework, the Commission establishes general principles and criteria for expanded LCAs to address changing circumstances, the evolving competitive telecommunications market and the increased demand to extend toll-free calling to areas encompassing multiple exchanges, particularly as a result of municipal amalgamations.
The new framework sets out the criteria for assessing applications for expanded LCAs and the general principles of compensation for increased operating costs, foregone toll revenues and the costs of conducting subscriber plebiscites.
The Commission finds that incumbent local exchange carriers (ILECs) and competitors should be compensated for foregone toll revenues resulting from the expanded LCA for a limited period of time. Customers in the expanded LCA will be charged a temporary surcharge to cover these costs. The Commission is of the preliminary view that it is reasonable that ILECs and competitors be compensated for three years' worth of foregone toll revenues. In this decision, the Commission initiates a follow-up proceeding whereby interested parties will have an opportunity to comment on this preliminary view.
In this decision, the Commission addresses the fact that there is no specific regime for EAS in the operating territory of Northwestel Inc. (Northwestel). The Commission approves an EAS framework for Northwestel that is identical to Bell Canada's. The Commission also finds that the new principles and criteria for the creation of expanded LCAs will apply in Northwestel's operating territory. The Commission is prepared to consider variations on a case-by-case basis, in light of the unique circumstances in Northwestel's operating territory.
1. Historically, the Commission has considered applications for the expansion of toll-free calling areas using two approaches. The first approach, based on established extended area of service (EAS) criteria, has generally been applied to proposals to extend toll-free calling between two exchanges. The second, the expanded local calling area (LCA) case-by-case approach, has generally been applied in circumstances where the EAS criteria could not be met but the Commission nevertheless considered expanded toll-free calling to be in the public interest. These cases usually related to expanded toll-free calling between two or more exchanges.
2. The Commission generally permitted EAS between two single exchange areas where the following EAS criteria were met:
- there was a demonstrated community of interest (the COI) for creating the EAS. The COI was determined on the basis of the calling pattern between the relevant exchanges. The COI criterion was considered to have been met when the percentage of customers in one exchange who placed at least one toll call per month to the other exchange surpassed a defined threshold within a given period;
- the distance between the exchange rate centres did not exceed a specific distance (the distance criterion); and
- all subscribers whose basic local rates increased as a result of the proposed EAS had the opportunity to vote (the plebiscite) and over 50% of those who have voted were in favour of the proposal.
3. The distance criterion was included because, with older technologies, distance had a significant impact on the costs of implementing EAS. In some cases, these costs were recovered from the general body of subscribers of the carrier involved, and the distance criterion served to limit the financial impact on those subscribers who did not benefit from the introduction of the EAS.
4. The requirement for a plebiscite was modified by the Commission in BC TEL - Expansion of toll-free calling and restructuring of local rates in the Lower Mainland, Telecom Decision CRTC 93-7, 29 June 1993 (Decision 93-7). In that decision, the Commission concluded that only subscribers in exchanges where the residential individual line rate would increase by more than $1 per month as a result of implementing an EAS proposal would have the opportunity to vote on the proposal (the "one dollar rule"). A simple majority of respondents had to vote in favour of the proposal before it could be implemented. As a result of Decision 93-7, the "one dollar rule" became the accepted Commission practice in considering applications for the expansion of toll-free calling areas.
Expanded LCA case-by-case approach
5. While the Commission has continued to apply the EAS criteria, it has also allowed expansions of LCAs involving two or more exchanges in circumstances where it was not practicable to apply the EAS criteria.
6. In Bell Canada - Neighbourhood calling plan, Telecom Decision CRTC 92-22, 9 December 1992 (Decision 92-22), the Commission denied an application by Bell Canada for an expanded LCA. At the same time, the Commission indicated that it would be prepared to consider departures from the EAS criteria for the creation of toll-free calling areas provided certain considerations were taken into account. The considerations identified included the principle that the incremental costs of such departures should be borne primarily by the subscribers within the affected regions. The Commission further stated that subscribers faced with a local rate increase should have the opportunity, through some form of vote, to express their views on the proposal in question. The Commission also noted that it would be appropriate for the region or municipality affected by the proposal to bear some of the costs of conducting such a vote.
7. Subsequent to Decision 92-22, the Commission considered applications for the creation of expanded LCAs that departed from the EAS criteria on a case-by-case basis.
8. In Telecom Order CRTC 99-908, 20 September 1999 (Order 99-908), the Commission denied BC TEL's application to extend toll-free calling between 19 exchanges within 20 municipalities in the Greater Vancouver Regional District (GVRD) based on its finding that the proposed rates would yield revenues in excess of what the Commission considered to be reasonable compensation. However, given the public interest considerations in permitting the proposed expanded LCA, the Commission invited BC TEL to file an amended application based on the framework set out in the order.
9. In the framework outlined in Order 99-908, the Commission determined that it would be appropriate to compensate BC TEL for the costs associated with the proposal, including the cost of modifying its network and its foregone toll revenues. In addition, the Commission stated that, if the proposed local rate increases for residential customers were in excess of $1 per month, BC TEL would be required to hold a plebiscite consistent with the plebiscite guidelines set out in Decision 93-7. The Commission further stated that, if the amended proposal was accepted by customers, BC TEL should be compensated for the costs of the plebiscite. In Telecom Order CRTC 99-1034, 28 October 1999, the Commission approved BC TEL's revised proposal. Given that BC TEL's proposed increase of the local residential rates did not exceed $1 per month, a plebiscite was not required.
Public proceeding required
10. In Order CRTC 2001-336, 27 April 2001, the Commission denied three applications by TELUS Communications Inc. (TELUS) to expand the LCAs in the Cariboo and the central Okanagan regions and to add two telephone exchanges to the current GVRD LCA, citing the need to establish general principles for extended toll-free calling. In particular, the Commission noted that, without established and specific criteria for allowing expanded local calling in exchanges that do not qualify under the existing EAS criteria, the resulting patchwork of decisions could, in combination, have a significant impact on the evolution and maintenance of competitive telecommunications markets. The Commission further indicated that it was necessary to establish a framework that would balance the desire of customers for expanded local calling with the possible adverse impact on competition.
11. Accordingly, the Commission issued Framework for the expansion of local calling areas and related issues, Public Notice CRTC 2001-47, 27 April 2001 (Public Notice 2001-47), to initiate a proceeding to establish general principles and criteria to be applied in considering applications for the expansion of LCAs.
Comments received in response to Public Notice 2001-47
12. The Commission received comments from the following incumbent local exchange carriers (ILECs) and associations representing ILECs: Aliant Telecom Inc. (Aliant Telecom), Bell Canada on behalf of itself and MTS Communications Inc. (Bell Canada and MTS), Northwestel Inc. (Northwestel), the Ontario Telecommunications Association (OTA), O.N.Telcom, SaskTel Telecommunications (SaskTel), Télébec ltée on behalf of itself and Northern Telephone Limited (Télébec and Northern), and TELUS.
13. Various competing telecommunications entities also commented. These were: AT&T Canada Corp. and AT&T Canada Telecom Services Company (AT&T Canada), Call Link Telesolutions (Call Link), Call-Net Enterprises Inc. (Call-Net), Futureway Communications Inc. (Futureway), and RSL COM Canada Inc. (RSL COM).
14. Submissions were also received from: the City of Greater Sudbury, the City of Ottawa, Ministčre de la Culture et des Communications (Gouvernement du Québec), the Hamilton Chamber of Commerce, the Competition Bureau, the Public Interest Advocacy Centre on behalf of Action Réseau Consommateur, the Consumers' Association of Canada, and Fédération des associations coopératives d'économie familiale (PIAC et al.), and the Tatlayoko Think Tank (TTT).
15. In addition, the Commission received approximately 500 letters, including petitions, from individuals, municipal governments and organizations from various regions throughout Canada.
16. The Commission wishes to thank the many interveners for their participation in this public process.
Canadian telecommunications policy objectives
17. In developing general principles and criteria for creating expanded LCAs, the Commission must balance the various objectives of the Canadian telecommunications policy set out in section 7 of the Telecommunications Act, and in particular:
section 7(a): to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;
section 7(b): to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;
section 7(f): to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective;
section 7(h): to respond to the economic and social requirements of users of telecommunications services.
Commission analysis and determinations
The need to establish a new framework
Positions of the parties
18. Most parties submitted that the current principles and criteria for creating expanded toll-free calling areas need to be revised in order to make them more relevant to today's competitive marketplace. Parties noted that customer and municipal frustration was growing where there was an inability to establish toll-free local calling within municipal boundaries.
19. The ILECs noted that, in the new competitive environment for long-distance service, they can no longer accurately measure the COI since they cannot determine the traffic between exchanges for calls provided by alternate providers of long distance services (competitors).
20. Aliant Telecom indicated that the current EAS criteria could still be applicable in its operating territories. Futureway indicated that there had not been many successful EAS applications in the last few years.
21. Call-Net submitted that the expansion of LCAs forecloses competition for toll calling between exchanges that were previously separate LCAs. The Competition Bureau and Futureway argued that expanding LCAs would likely have the effect of increasing the ILECs' market power by transferring traffic from the more competitive toll market to the less competitive local service market where ILECs maintain a relatively larger market share. RSL COM submitted that expanded LCAs should only be allowed in those exchanges where it can be shown that there is no competition and where, in the future, there will be no competitive alternatives.
22. Many individuals, as well as some municipalities, argued that competitive optional toll calling plans were not adequate substitutes for expanded LCAs. PIAC et al. submitted that the interest of customers should be the primary consideration in the provision of expanded LCAs rather than the interest of service providers. Approximately 95% of the submissions received from individuals and organizations supported a more liberal approach to the expansion of LCAs.
23. The Commission considers that the application of the existing EAS criteria continues to be appropriate in certain circumstances, particularly where there is no competition, and is accordingly, prepared to consider applications on the basis of these criteria.
24. However, the Commission recognizes the growing concerns among telecommunications users and the industry with respect to the case-by-case approach that is used when assessing applications for the creation of expanded LCAs. The Commission acknowledges that there is a need to establish a new framework that takes into account the realities of the competitive marketplace. The Commission also considers that competitive optional toll calling plans are not perfect substitutes for expanded LCAs.
25. The Commission expects an increased demand by local, municipal and regional governments for expanded LCAs encompassing multiple exchanges as a result of municipal amalgamations, the need for regional economic development and cohesion, and the desire to eliminate customer confusion in dealing with numerous exchanges. In the Commission's view, this lends further support to the need to establish general principles and criteria that may be applied to cases involving multiple exchanges as the traditional EAS criteria are only suitable in cases involving two exchanges.
26. In the sections that follow, the Commission establishes general principles and criteria, and the process for the expansion of LCAs with a view to balancing the interests of consumers and the realities of the competitive marketplace. The elements to be examined are: the COI criterion; the distance criterion; compensation for increased operating costs; compensation for foregone toll revenues; subscriber plebiscites; and compensation for subscriber plebiscites. The Commission notes that the new general principles and criteria, and the process set out in this decision, would not be applicable in cases where the existing EAS criteria are applied.
Community of interest criterion
Positions of the parties
27. The City of Ottawa submitted that social or municipal community of interest should be deemed to exist whenever the provincial legislature creates a single municipality. The City of Hamilton added that a municipality should not be required to meet calling pattern criteria in order to demonstrate the COI.
28. TELUS, Futureway and PIAC et al. were of the view that the Commission should consider a request from a local government that represents customers in the affected exchanges as sufficient proof of the COI. TELUS added that local and regional governments are in the best position to assess and determine the social, economic and cultural COI of their region and, therefore, their region's needs for expanded local calling.
29. Bell Canada and MTS stated that the Commission should only consider a request by a municipal government as proof of the COI if accompanied by a survey of a representative group of customers in the proposed expanded LCA showing support for such an application.
30. PIAC et al., TELUS and SaskTel argued that the creation of amalgamated municipalities should not be an automatic trigger for an ILEC to undertake a LCA expansion.
31. RSL COM considered that the COI could still be measured if all competitors were required to place toll statistics and traffic patterns on the record of a particular application.
32. The Commission recognizes the difficulties associated with the existing methodology for measuring the COI under the existing EAS criteria. In particular, the Commission notes that the traditional COI criterion is difficult to measure where there are multiple carriers offering toll services in an ILEC's operating territory. In addition, with the amalgamation of cities and municipalities, the methodology for measuring the traditional COI criterion in exchange areas becomes impracticable when applied to determine the calling pattern within expanded municipal boundaries involving numerous telephone exchanges.
33. The Commission considers that local, municipal and regional governments are in a good position to assess the COI within their communities. Accordingly, the Commission will accept requests from the appropriate local, municipal or regional governments as evidence of the COI in establishing a particular expanded LCA.
Positions of the parties
34. Bell Canada and MTS, TELUS, the TTT and PIAC et al. submitted that the criteria for expanding LCAs should apply equally to rural and urban areas. TELUS stated that the distance criterion could not address the growing needs of both rural and urban regions. It added that the distance criterion is biased against rural areas.
35. TELUS and OTA were of the view that distance should not be a defining criterion for expanding LCAs. The City of Ottawa argued that there should be no distance criterion in situations involving amalgamated municipalities.
36. RSL COM considered that the distance criterion limits the extent to which ILECs may change their territories into one large free calling area thereby diminishing competition and regaining a monopoly of the toll market.
37. The Commission notes that, with new technologies, the distance between exchange rate centres may be less of a concern than it was in the past.
38. The Commission recognizes that a proposed expanded LCA may be in the public interest, regardless of distance. In particular, the Commission notes that municipal and regional boundaries may encompass areas of different sizes and that a specific distance criterion may not fairly reflect the needs of subscribers in such circumstances.
39. Given the above, the Commission finds that the distance criterion will not apply when considering applications for expanded LCAs.
Compensation for increased operating costs
Positions of the parties
40. Aliant Telecom, Bell Canada and MTS, SaskTel, TELUS, Northwestel, Télébec and Northern, the OTA, RSL COM and the City of Ottawa submitted that ILECs should be compensated for the operating costs associated with providing expanded LCAs. They added that this should include any incremental capital costs such as those associated with switching and trunking, ongoing operational costs and any foregone switching and aggregation revenues.
41. Futureway and Call-Net noted that they would also incur increased operating costs as a result of competitive pressures to match any increase in the ILEC's LCAs. Futureway added that the Commission should initiate a process to study the impacts of expanded LCAs on competitive local exchange carriers (CLECs).
42. The Commission recognizes that there are both increased operating costs and savings associated with expanded LCAs. The migration of the previous toll traffic of the ILEC and competitors to the ILEC's local trunks will likely require an expansion of the ILEC's trunking capacity between exchanges. The Commission notes, however, that the net incremental increase in operating expenses in past applications have generally not been significant. Operating savings for the ILEC are realized through reduced toll billing and collection costs.
43. The Commission considers that it is appropriate to compensate ILECs in those circumstances where there is a material increase in net incremental operating costs as a result of the implementation of an expanded LCA.
44. The Commission notes that compensation through the use of surcharges in specific exchanges often results in the application of many different rates in an ILEC's operating territory. The Commission considers that it is generally preferable to adopt a simplified company-wide rate structure. The Commission finds that the most appropriate method of compensation is to treat any material increase in net incremental operating costs as an exogenous adjustment of local rates. While this company-wide rating approach could result in local rate increases for subscribers who do not benefit from the expansion of the LCA, the Commission does not expect that these increases, if any, would be substantial.
45. Accordingly, where a proposal to expand an LCA results in a material increase in net incremental operating costs, the Commission will consider applications by ILECs to treat the increase as an exogenous adjustment in accordance with the regulatory framework applicable to the ILEC involved, as follows:
- for ILECs subject to Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002, the application for any exogenous adjustment will be in accordance with paragraphs 667 and 668 of that decision;
- for the small independent ILECs subject to Regulatory framework for the small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001, the application for any exogenous adjustment will be in accordance with paragraph 17 of that decision; and
- for Télébec ltée and TELUS Communications (Québec) Inc., the exogenous adjustment will be in accordance with paragraph 273 and 274 of Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43, 31 July 2002.
46. The Commission notes thatit is currently examining interconnection issues between various carriers in the proceeding initiated by Trunking arrangements for the interchange of traffic and the point of interconnection between local exchange carriers, Public Notice CRTC 2001-126, 19 December 2001. Accordingly, the Commission finds that there is no need to consider Futureway's request that the Commission initiate a proceeding to study the impact of expanded LCAs on CLECs at this time.
Compensation for foregone toll revenues
Positions of the parties
47. Aliant Telecom, Bell Canada and MTS, Northwestel, SaskTel, Télébec and Northern, and TELUS were of the view that ILECs should be compensated for foregone toll revenues resulting from expanded LCAs and that competitors should not.
48. Bell Canada and MTS submitted that the toll revenues associated with the affected toll service prior to the expansion of the LCA represent the fair market value of the expanded LCA. TELUS argued that it would not be just and reasonable to have its shareholders bear the costs of LCA expansion and that compensation for foregone toll revenues would merely ensure that there are no disincentives for ILECs to expand LCAs.
49. In support of their position that competitors should not be compensated, Bell Canada and MTS as well as Télébec and Northern argued that competitors are at liberty to make whatever changes are necessary in their operations and offerings to adjust to expanded LCAs. SaskTel was of the view that while expanded LCA calling converts long distance revenues into local revenues, it does not necessarily reduce competitive opportunities. Bell Canada and MTS submitted that the local rate increases in the expanded LCA create opportunities for competitors to increase margins and become more competitive in those exchanges. TELUS, Bell Canada and MTS added that any method for compensating competitors would be onerous and difficult to administer.
50. AT&T Canada, Call Link, Futureway, the City of Ottawa, RSL COM and PIAC et al. submitted that ILECs should not be compensated for lost toll revenues.
51. The City of Ottawa and the OTA were of the view that neither the ILECs nor the competitors should be compensated for their lost toll revenues. The City of Ottawa submitted that Order 99-908, relating to the GVRD expanded LCA, was not a precedent for allowing the ILECs to recover foregone toll revenues since the Commission had qualified its decision by stating it was applicable to "these specific circumstances".
52. RSL COM, Call-Net and the City of Ottawa were of the view that there should be no favoured class of telecommunications service provider as this would amount to unjust discrimination and an unreasonable preference. AT&T Canada, Call Link, Futureway and RSL COM submitted that if ILECs are compensated for lost toll revenues, all toll providers should be treated similarly.
53. O.N.Telcom submitted that, if an expanded LCA were approved in its toll operating territory, it would lose toll revenues with no option to recover these losses from increases in local rates. O.N.Telcom argued that it should therefore be compensated for lost toll revenues.
54. Bell Canada and MTS, TELUS, SaskTel and PIAC et al. submitted that affected customers should bear all costs associated with the expansion of a LCA. The City of Hamilton considered that rate increases among exchanges should be proportional to the increase in the number of lines accessed and that increases should be equal among business and residential subscribers.
55. Northwestel and the TTT submitted that affordability of telecommunications services in rural or remote areas is a key matter of concern. Northwestel argued that a more reasonable approach would be to broaden the recovery base to include all customers in its operating territory. The TTT submitted that access to the Central Fund might be required to offset the costs associated with expanded LCAs in certain communities.
56. RSL COM argued that ILECs could compensate competitors for foregone toll revenues by allocating a percentage of the incremental LCA revenues to each competitor based on the percentage of foregone toll revenues in the affected exchanges. Call-Net proposed that instead of compensating competitors for foregone toll revenues, the ILECs should reduce rates for local facilities and services provided to competitors.
57. The City of Ottawa submitted that it would not be fair for a toll provider to be compensated forever based on the foregone toll revenues estimated at one point in time. In this regard, it noted that the toll market is ever changing and that it was conceivable that a carrier that carries toll traffic in a region at this time might not carry any toll traffic a few years later or that prices charged today would be much lower a few years from now.
58. The Commission notes that, in its previous decisions allowing expanded LCAs, only ILECs were compensated for foregone toll revenues. The Commission, however, recognizes that, since these earlier decisions, the competitors have made significant investments and gained noticeable market share in the toll market.
59. The Commission remains of the view that it is reasonable for the ILECs to be compensated for the foregone toll revenues resulting from expanded LCAs. In addition, the Commission does not consider that the competitors' position in the market allows them to modify service offerings and rates in order to recover their foregone toll revenues. The Commission also considers that any regime should treat all entities fairly. Accordingly, the Commission concludes that compensation is to be paid to both ILECs and competitors for foregone toll revenues resulting from expanded LCAs.
60. The Commission considers that the recovery of foregone toll revenues for an indefinite period is unreasonable as the telecommunications market continues to change with respect to its technology, the prices, and the number of competitors and their market share. Furthermore, the Commission is of the view that to compensate ILECs and competitors on a permanent basis based on the market picture at one point in time could lead to customers overpaying for the expanded LCA service. The Commission, therefore, concludes that ILECs and competitors should only be compensated for a fixed period of time (the compensation period).
61. Given that foregone toll revenues represent the major cost component associated with the expansion of an LCA, the Commission is of the view that subscribers who benefit from an expanded LCA should bear the costs associated with foregone toll revenues. Accordingly, the Commission concludes that the subscribers within the expanded LCA will pay the costs associated with foregone toll revenues through a temporary monthly surcharge to be collected for a period equal to the compensation period.
62. The ILECs will be expected to file an economic study at the time they file an application for expanded LCA which will identify the foregone toll revenues and the proposed temporary monthly surcharges applicable to local subscribers. The foregone toll revenues per annum will be estimated on the basis of the billing by all long distance service providers for long distance calls originating and terminating in the affected exchanges during the year prior to the filing of the application. When developing any proposed temporary monthly surcharges, the ILEC is to consider the current local network access lines of both the ILEC and the CLECs within the affected exchanges.
63. The Commission finds that the appropriate mechanism for gathering the necessary information for the purpose of determining the amount of foregone toll revenues and the temporary surcharges is as follows:
- the ILEC carrier services group (CSG) will have the responsibility to notify the competitors that operate in the affected exchanges;
- the CSG will request from the affected competitors, prior to the initiation of an economic study, the necessary information for the purpose of determining the amount of compensation and the temporary subscriber surcharge; and
- the affected competitors will provide evidence of the previous year's long distance billing within the affected exchanges as well as the current local network access service (NAS) count in the affected exchanges.
64. The CSGs will be responsible for managing the payment of compensation to the affected competitors.
65. ILECs will collect any approved temporary surcharges from its local subscribers. For the purpose of compensating ILECs and competitors who provide toll services, CLECs will be assumed to be billing their local service customers the same temporary surcharges. Accordingly, the amount of compensation for foregone toll revenues to be paid to an affected CLEC within any of the affected exchanges will be reduced to take into account the amount of revenues that are deemed to have been earned by the CLEC through the collection of temporary surcharges. The total amount to be recovered per annum by ILECs through temporary surcharges will be equal to the total estimated amount of foregone toll revenues in that year minus the total amount of revenues per annum that are deemed to have been collected by CLECs in the affected exchanges. The Commission notes that some toll competitors who operate as CLECs may be net contributors in that the amount that is deemed to have been collected through the temporary surcharges may exceed their foregone toll revenues. This difference would be owed to the CSG for the purpose of compensating other telecommunications entities.
66. As mentioned above, ILECs will impose temporary surcharges to recover the amount of foregone toll revenues for a fixed period equal to the compensation period. The Commission's preliminary view is that the ILEC and the affected CLECs should be compensated for their foregone toll revenues for a period of three years. The Commission hereby initiates a follow-up proceeding to allow parties to comment on this preliminary view regarding the length of the period for which foregone toll revenues will be compensated. Details of this follow-up proceeding are set out later in this decision.
Positions of the parties
67. SaskTel, O.N.Telcom, RSL COM, the Competition Bureau and PIAC et al. were of the view that a vote in the affected exchanges must take place and that a majority of subscribers must approve the expanded LCA.
68. Aliant Telecom, Bell Canada and MTS, and TELUS submitted that proposals for expanded LCAs should be subject to a subscriber plebiscite conducted in those exchanges where the residential local service rates would increase by more than $1 per month. TELUS added that the $1 threshold should be adjusted over time.
69. PIAC et al. argued that, given the difficulty in measuring the COI, it was increasingly important that any mandatory rate increase be approved by a majority of affected customers. TELUS stated that a vote provides a safeguard against a municipality or regional government being able to misrepresent the COI.
70. The municipalities were of the view that, since elected officials would be making the request for larger LCAs, it would not be necessary to hold a plebiscite. The City of Ottawa suggested that, where the proposed monthly surcharge for an expanded LCA exceeds $1, the Commission issue a public notice instead of ordering a plebiscite. The City of Ottawa also proposed that the $1 limit be adjusted for inflation.
71. Télébec and Northern submitted that customers are reluctant to vote for larger free calling areas because of the availability of low cost toll plans. The TTT added that LCA plebiscites usually fail because of differing perspectives regarding rate increases. Customers in core areas that may derive little benefit from a proposed larger LCA often vote against expanding the LCA.
72. The Commission considers that a plebiscite remains the most effective tool to assess subscribers' willingness to pay for an expanded LCA. The Commission does not consider that a motion from a local, municipal or regional government is a reasonable alternative to a plebiscite, since such motions may not represent all subscribers that would be affected by any potential rate increases within the ILEC's exchange boundaries.
73. The Commission is of the view that the "one dollar rule", established in Decision 93-7, is an appropriate safeguard protecting subscribers from significant rate increases without their input. The Commission therefore concludes that this rule should apply in the new framework. Accordingly, all residential subscribers whose residential individual line rate, including the temporary surcharge, would increase by more than $1 per month as a result of the proposed expansion of the LCA will have the opportunity to vote on the proposal. A simple majority of respondents must vote in favour of the proposal before it may be implemented.
Paying for subscriber plebiscites
Positions of the parties
74. A majority of the parties were of the view that subscribers benefiting from expanded LCAs should pay the costs of the plebiscite. SaskTel suggested that governments requesting expanded LCAs could possibly bear the cost of any vote or plebiscite.
75. The Commission notes that under rate of return regulation, ILECs were given the opportunity to recover the cost of any plebiscite regardless of its outcome. However, under price regulation, where the results of a plebiscite fail to support the proposed expanded LCA, the ILECs currently have no alternative but to bear the cost of the plebiscite. The Commission considers that it is not reasonable to expect ILECs to conduct plebiscites and assume the financial risk associated with the negative outcome of such plebiscites.
76. In Decision 92-22, the Commission indicated that it would be appropriate for the region or municipality affected by the proposal to bear some of the cost of conducting subscriber plebiscites. The Commission further notes that, in accordance with the principles and criteria set out in this decision, local, municipal or regional governments will have the benefit of initiating requests for expanded LCAs through the ILEC, without having to meet the traditional COI or distance criteria. Accordingly, the Commission is of the view that it is reasonable to expect the local, municipal or regional government benefiting from the expanded LCA to pay for any plebiscite that may be required to support such applications.
77. The Commission further notes that, where a plebiscite is required, the ILEC must file either a specific proposed tariff as part of the application of the expanded LCA or a proposed general tariff for conducting plebiscites.
Conclusions: General principles and criteria, and process for creating expanded LCAs
General principles and criteria for expanded LCAs
78. In light of the above, the general principles and criteria for expanded LCAs, to be applied in cases where the traditional EAS criteria are not applied, can be summarized as follows:
- community of interest -A request from the appropriate local, municipal or regional governments is evidence of the COI;
- distance - The distance criterion does not apply;
- compensation for increased operating costs - ILECs may seek an exogenous adjustment to offset any material increase in net incremental operating costs;
- compensation for foregone toll revenues - ILECs may apply a temporary surcharge to be paid by subscribers within the expanded LCA in order to compensate the ILEC and affected competitors for foregone toll revenues. CLECs will be deemed to have collected the same approved temporary surcharge; and
- plebiscite - All residential subscribers whose residential individual line rate, including the temporary surcharge, would increase by more than $1 per month as a result of the proposed expansion of the LCA must have the opportunity to vote on the proposal. A simple majority of respondents must vote in favour of the proposal before it may be implemented. The cost of plebiscites will be paid by the local, municipal or regional governments.
Process for creating an expanded LCA
79. The following outlines the process for creating expanded LCAs under the new framework:
- the appropriate local, municipal or regional government(s) passes a motion to create an expanded LCA and presents this to the ILEC;
the ILEC performs an economic study to determine:
- its net incremental operating costs and any associated adjustments to recover any material net increase in operating cost;
- the amount of foregone toll revenues for the ILEC and competitors along with the associated temporary surcharges for the total foregone toll revenues.
- the local, municipal or regional government would decide, based on the economic study, whether or not to proceed;
- in the affirmative, the ILEC would file an application with the Commission. Interested parties would have the opportunity to comment; and
- if the proposal is approved by the Commission, any required plebiscite, paid for by the appropriate local, municipal or regional governments, would be conducted by the ILEC.
The EAS approach
80. As noted above, the Commission is prepared to consider applications for EAS on the basis of the existing EAS criteria and process, including the $1 rule. The new general principles, criteria and process set out in this decision would not be applicable in such circumstances.
Other matters: Expanded local calling in Northwestel's operating territory
81. Northwestel noted that creating expanded LCAs in its operating territory is expensive because of its reliance on satellite technology. Northwestel argued that, given the small size of northern communities, it was unrealistic to put the burden of cost recovery on the residents of one community. In Northwestel's view, it would be more reasonable to broaden the recovery base to include all customers in the operating territory.
82. The Yukon Government indicated that a number of factors should be considered in determining whether there is a COI for proposals affecting northern communities. These factors included toll-free access to the Internet, the availability of essential services, including medical and emergency services, calling patterns, as well as the position of the community and government.
83. The Commission notes that there is no specific regime for creating expanded LCAs in Northwestel's operating territory. The Commission finds that the new general principles, criteria and process for the creation of expanded LCAs will apply to Northwestel. The Commission is, however, prepared to consider applications that depart from these principles, criteria and process on a case-by-case basis in view of the unique circumstances in Northwestel's operating territory.
84. The Commission also finds it appropriate to establish EAS criteria for Northwestel and approves the same EAS criteria that are currently applicable in Bell Canada's operating territory. Accordingly, the Commission directs Northwestel to issue the appropriate tariffs forthwith.
Follow-up proceeding to determine the amount of compensation for foregone toll revenue
85. As indicated above, the Commission finds that it is reasonable to compensate ILECs and toll competitors for foregone toll revenues for a fixed period. Its preliminary view is that this compensation should be equal to three years worth of foregone toll revenues.
86. The Commission hereby initiates a proceeding calling for comments on this preliminary view. Parties who participated in the proceeding initiated by Public Notice 2001-47 may file comments with respect to the Commission's preliminary view regarding the length of the period for which foregone toll revenues should be compensated, serving copies on all other parties, by 15 October 2002. Parties may file reply comments with the Commission, serving a copy on those who filed comments, by 22 October 2002. Where a document is to be filed or served by a specific date, the document must be actually received, not merely sent, by that date.
This document is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca
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