Follow-up proceedings coming for small ILECs and Northwestel
OTTAWA — The CRTC issued two decisions Tuesday related to the phasing out of the local telephone service subsidy and the Commission’s associated review of the price cap and local forbearance regimes for Canada’s large incumbent local exchange carriers (Bell, Telus and SaskTel).
In 2018, in Telecom Regulatory Policy 2018-213, the Commission announced it would phase out the local telephone service subsidy over a three-year transition period from January 1, 2019 to December 31, 2021, through semi-annual reductions. At the same time, the Commission initiated a proceeding to review certain elements of the price cap and local forbearance regimes. In particular, the proceeding considered: whether compensation is necessary given the elimination of the local service subsidy; possible changes to the pricing constraints for residential local voice service rates; whether the exogenous factor mechanism should be eliminated; and possible changes to the local forbearance regimes for residential and business local exchange services.
In Telecom Regulatory Policy 2020-40, the Commission says the large ILECs failed to demonstrate the elimination of the local service subsidy requires some form of regulatory or financial compensation. The Commission says it considered whether there is evidence that local service rates would become unjust or unreasonable without compensation provided to the ILECs for the lost local service subsidy.
In the Commission’s view, “none of the ILECs provided the necessary information demonstrating that its costs of provisioning service in the HCSAs (high-cost serving areas) are such that rates are no longer just and reasonable.” In the proceeding’s notice of consultation, the ILECs were asked to provide the necessary data to support any claim that rates were not just and reasonable in the absence of the local service subsidy, the Commission notes.
“As a result, there is no convincing justification to support significant price cap changes, including increasing monthly residential primary exchange service (PES) rates to offset the loss of local service subsidy.”
In general, the large ILECs’ interventions had proposed increasing regulated residential PES rates in HCSAs to compensate for the elimination of the local service subsidy.
However, although the CRTC denied the ILECs’ request for compensation, it determined some modifications to their price cap regime is warranted. In particular, the Commission has decided the two residential services baskets (groups of services) should be merged into one, and the exogenous factor mechanism should be eliminated from the price cap regime.
Residential local voice services are assigned to two separate baskets: one for residential services in HCSAs and another for services in non-HCSAs. Currently, the rates for residential services in HCSAs are permitted to increase annually by the rate of inflation, but by no more than 5%. The rates for services in non-HCSAs have been capped generally at existing levels since 2007.
With the elimination of the local service subsidy in HCSAs, there is no practical reason to distinguish between HCSAs and non-HCSAs, the Commission says. “As a result, the associated price cap basket structure is no longer relevant. Merging the service baskets would provide, to a certain extent, additional opportunities for the companies to harmonize and restructure their residential service rates in their serving territories over time if they wish to do so. Additionally, from a regulatory perspective, a uniform rate may ease administration and reduce the associated regulatory burden.”
However, the Regulator considers it appropriate to implement a rate element constraint of 5%, to protect consumers against unreasonable rate increases. Therefore, in addition to deciding the two residential services baskets for the large ILECs will be combined, the Commission says the combined basket will be capped (i.e. the basket constraint is 0%), with an annual individual rate element constraint of 5%. These changes will take effect on June 1, 2020.
As for the exogenous factor mechanism being eliminated from the price cap regime for the large ILECs, the Commission says there have been few requests for exogenous adjustments in the last 10 years. Exogenous factors are legislative, judicial or administrative actions that are beyond the control of telecom companies but have a material impact on their business. The Commission says it is burdensome for both the industry and the Commission to have to monitor exogenous adjustments that must be removed once they have expired. As of Tuesday, the exogenous factor mechanism for the large ILECs is now eliminated, the Commission says. “However, large ILECs may still file an application with the Commission, with appropriate supporting rationale, proposing the recovery of extraordinary costs outside the price cap regime if they wish to do so,” the Commission writes.
With respect to the large ILECs’ local forbearance regime, the Commission says it is not convinced significant changes to the regime are warranted at this time. However, it determined the competitor quality of service criteria should no longer form part of the forbearance regime for residential and business local exchange services.
During its proceeding to review the price cap and local forbearance regimes, the CRTC considered the situation of Northwestel as a separate issue. Serving Canada’s remote northern communities, the Bell-owned company’s costs are generally higher in its serving territory than in the south and because the elimination of the local service subsidy will likely result in a material shortfall for Northwestel, the Commission will launch a more fulsome review specific to Northwestel, prior to the complete phase-out of the subsidy.
Pending the outcome of that review, Northwestel’s current price cap regime is extended, which means Northwestel’s residential PES rates in each of the residential services baskets in HCSAs and non-HCSAs will be permitted to increase annually by the rate of inflation, to a maximum of 5% per year.
A follow-up proceeding to the one examining the large ILECS’ price cap and local forbearance regimes to seek comments on what changes, if any, should be made to the small ILECs’ price cap and local forbearance regimes will also come.
Finally, in another Tuesday decision (Telecom Decision 2020-41) the CRTC denied the Independent Telecommunications Providers Association’s (ITPA) request to review and vary Telecom Regulatory Policy 2018-213, regarding the phase-out of the local service subsidy regime.
In its R&V application submitted in September 2018, ITPA requested the Commission overturn its decision to eliminate the local service subsidy and maintain it for at least 10 years, or until it could be eliminated organically.
The ITPA submitted there were errors in law and in fact in Telecom Regulatory Policy 2018-213, and that there was substantial doubt as to the correctness of the policy. The Commission decided it did not err in law and the ITPA failed to demonstrate there is substantial doubt as to the correctness of that policy decision.
