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Telecom Order
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Ottawa, 3 June 1994
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Telecom Order CRTC 94-614
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IN THE MATTER OF an application by the Municipality of Metropolitan Toronto (Metro) dated 7 April 1993 filed pursuant to section 66 of the National Telecommunications Powers and Procedures Act (now section 62 of the Telecommunications Act) requesting that the Commission review and rescind or vary several local channel decisions.
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WHEREAS Metro requested that the Commission order Bell Canada (Bell) to file amendments to General Tariff CRTC 6716 Item 950 (local channels) at rate levels approved in Telecom Order CRTC 92-241 and also to file amendments to a Special Facilities Tariff (SFT) Item for Metro (Item F-1004) at rate levels approved in Telecom Order CRTC 90-1463 (Order 90-1463;
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WHEREAS Metro submitted, among other things, that its requests were warranted on the grounds that: (a) it is an error of fact to presume that local channel rates have not been generating a contribution surplus since the rate increases approved in Telecom Decision CRTC 90-9 (Decision 90-9), (b) the 1989 Rate Viability study which supported Bell's assertion, in the proceeding leading to Decision 90-9, that local channels are not compensatory contains errors of fact concerning terminal values and redeployment timing/non-fungibility;
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WHEREAS Metro submitted that these alleged errors of fact create substantial doubt as to the correctness of the decisions to increase local channel rates (and SFT Item F-1004) beyond the levels approved in Decision 90-9;
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WHEREAS Bell filed comments on 28 May 1993 and Metro filed reply comments on 30 July 1993, including what the Commission considered to be new evidence;
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WHEREAS Bell filed further comments on 20 August 1993 and Metro filed further reply comments on 15 September 1993;
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WHEREAS the Commission finds that Metro has not established grounds to review or vary Order 90-1463, which approved rate increases for SFT Item F-1004;
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WHEREAS the Commission notes in this regard that Metro's request for a review and variance of Order 90-1463 appear to be based on alleged errors in evidence filed in support of Bell's requests for General Tariff local channel rate increases;
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WHEREAS the Commission notes that this evidence was not considered in the proceeding that lead to Order 90-1463;
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WHEREAS Metro submitted that it is an error of fact to find that local channel rates at or above those approved since Decision 90-9 have not been compensatory;
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WHEREAS, in support of its application, Metro commissioned a study by Professors T. A. Wilson and M. A. Fuss of the University of Toronto (the Wilson/Fuss study) which claimed that Metro's local channels are not cross-subsidized by the general body of subscribers because Bell is earning a rate of return on its embedded investment in local channel plant above its allowable rate of return on equity;
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WHEREAS Bell noted that the Commission has recognized on a number of different occasions that the proper and appropriate approach to use in determining service level profitability is an economic study;
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WHEREAS Bell submitted that the procedures it uses in performing an economic analysis to determine the appropriateness of rates at a service specific level are in accordance with the Directives set out in Telecom Decision CRTC 79-16 (Phase II Directives) which were the subject of extensive regulatory scrutiny;
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WHEREAS the Commission considers that the appropriate approach to use in determining service level profitability for local channels is an economic study;
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WHEREAS the Wilson/Fuss study submitted that it is inappropriate to discount the terminal value using a nominal discount rate, which includes a significant anticipated inflation factor, while failing to adjust the terminal value of the plant for price inflation over the study period;
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WHEREAS Bell submitted that whether one is studying the introduction of a new service or the restructuring of rates for an existing service, the same economic principles apply, including those associated with the estimation of a terminal value;
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WHEREAS in view of the uncertainty associated with an estimate of the market value of a facility at the end of a study period, the Commission determined, in Telecom Decision CRTC 79-16, that the net book value would be used to approximate the terminal value;
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WHEREAS the Commission is of the view that the method used by Bell to determine the terminal value is appropriate;
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WHEREAS Metro submitted that it was an error of fact to accept Bell's submission in the 1989 Rate Viability study that virtually all of Metro's local channel facilities are fungible;
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WHEREAS, among other things, the Wilson/Fuss study submitted that a substantial percentage of the plant used by Metro is not fungible under any circumstances and that another portion of Metro's plant is highly unlikely to be fungible because it is located in areas where the population and employment are stable;
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WHEREAS the Wilson/Fuss study submitted that, in areas where the population and employment remain stable, local loops would be effectively non-fungible;
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WHEREAS Bell submitted that the level of non-fungibility associated specifically with Metro is irrelevant for drawing conclusions relating to the General Tariff;
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WHEREAS Bell submitted that lower employment does not mean the loss of telephone service, and the lack of population growth does not prevent, for example, second lines to households or expansion of communications in existing businesses;
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WHEREAS the Commission considers the proposition that employment and population levels are determinants of local plant fungibility to be unsubstantiated;
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WHEREAS Metro submitted that it would be an error of fact to accept the assumption, made by Bell in the 1989 Rate Viability study, that local channel facilities and equipment, if released, would be quickly redeployed in other services;
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WHEREAS Bell submitted that to delay the reuse of facilities beyond the one year assumed in the 1989 Rate Viability study would not adversely affect the study's conclusions;
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WHEREAS the Commission is of the view that delaying the reuse of fungible facilities beyond the one year assumed in the 1989 Rate Viability study would not materially affect the study results;
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WHEREAS the Commission has considered Metro's application in light of all of the information received, including Bell's comments, and Metro's replies;
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WHEREAS the Commission finds that Metro has not established any of the grounds required for a review and variance of the decisions made since Decision 90-9 regarding Bell's General Tariff local channel rates; and
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WHEREAS the Commission generally denies all requests made by Metro which are not specifically dealt with in this Order -
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IT IS HEREBY ORDERED THAT:
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The application submitted by Metro to review and vary the Commission decisions listed above with respect to Bell's General Tariff and SFT local channel rates is denied.
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Allan J. Darling
Secretary General
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