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Order CRTC 2000-1090
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Ottawa, 4 December 2000
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Nexicom Telephones Inc. - Local rate increases to reduce the reliance on subsidies
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Reference: Tariff Notice 20
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The Commission approves rate increases to local residential and business services effective 1 January 2001 to bring local rates closer to costs and reduce the independents' reliance on subsidies from long distance service providers.
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1.
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In Review of contribution regime of independent telephone companies in Ontario and Quebec, Telecom Decision CRTC 99-5, dated 21 April 1999, the Commission directed the independent companies whose contribution requirement exceeded 25% of their total revenue requirement to file proposals detailing how they intended to reduce their subsidy requirement to no more than 25% by the year 2002.
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2.
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In Telecom Order CRTC 99-1184, dated 21 December 1999, the Commission directed Nexicom Telephones to increase its monthly residential service rates by $2, effective 1 January 2000, to reduce its subsidy requirement towards the 25% contribution objective.
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3.
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On 1 March 2000, Nexicom Telephones filed its proposal as well as Tariff Notice 20 on 26 May 2000. In TN 20, Nexicom Telephones requested an additional increase to monthly residential service rates of $3 effective 31 December 2000.
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4.
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Nexicom Telephones also planned to request an additional $5 increase to monthly residential service rates effective 31 December 2001 to achieve the 25% contribution objective by the year 2002.
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Comments
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5.
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Nexicom Telephones issued billing inserts informing customers of proposed rate increases to residential service and the potential for rate increases to business service. The billing insert notified customers of their right to provide comments on the company's proposal.
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6.
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All comments received from customers opposed rate increases. Customers noted that local rates had been increased on many occasions in the past few years. Customers also noted that they did not benefit from the same choice of toll providers and toll rate options available to customers in more urban areas.
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Commission determinations
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Local rate increases
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7.
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Decision 99-5 noted that reliance on high levels of toll contribution by the independents is generally due to residential and, in some cases, business local access rates that do not recover their costs.
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8.
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Decision 99-5 stated, among other things, that the independents should consider increasing local rates to bring rates closer to costs and reduce their reliance on contribution subsidies.
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9.
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To encourage the independents to increase their revenues from sources other than residential local rates, Decision 99-5 capped proposed increases to monthly local residential service rates at $5 in 2000 and an additional $5 in 2001.
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10.
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The Commission is of the view that services that are below costs should share the burden of attaining the contribution objective set out in Decision 99-5.
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11.
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Nexicom Telephones did not propose to increase its business rates. Nexicom Telephones submitted that its business service was compensatory when taking revenues from options, features, and service charges into consideration.
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12.
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To determine whether a specific service is compensatory or not, the Commission considers that revenues from other services (such as options, features and service charges) should not be included.
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13.
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Since Nexicom Telephones does not currently have Phase II costing to compare to service- specific revenues, the Commission considers that average total local and access broad service category Phase III costs, compared to service- specific revenues, are an appropriate means to measure whether or not business service rates are compensatory.
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14.
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Based on Phase III cost information provided by Nexicom Telephones, the Commission determines that business service rates are not compensatory. The Commission considers that it would be in the public interest to increase Nexicom Telephone's business rates by the same amount as residential rates, or up to the level where business rates are compensatory, to recover the cost of providing that service.
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15.
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As noted above, Nexicom Telephones already increased monthly residential service rates by $2 on 1 January 2000.
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16.
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The Commission considers that an additional increase of $3 to monthly residential service rates is appropriate. The Commission also considers it appropriate that monthly business service rates be increased by $5.
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17.
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The Commission directs Nexicom Telephones to increase monthly local residential service rates by $3 effective 1 January 2001. In addition, the Commission directs Nexicom Telephones to increase monthly local business service rates by $5 effective 1 January 2001.
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18.
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The Commission directs Nexicom Telephones to file forthwith revised tariff pages that reflect the determinations made above.
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Changes to the contribution regime
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19.
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The Commission notes that Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000, changes the subsidy requirement calculation for the small independent telephone companies. Starting in 2002, the subsidy requirement will no longer be calculated on a Phase III basis. Decision 2000-745 will target subsidies to the high-cost serving areas based on Phase II costing principles.
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20.
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The Commission nevertheless considers that the independents should continue to bring rates closer to cost and reduce their reliance on subsidies.
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21.
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The Commission will consider what further local rate increases, if any, are needed to reduce subsidy requirements for the independents in the context of the proceeding to implement the new contribution collection regime for such companies.
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Secretary General
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This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca
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