CRTC to examine implementation of price regulation for Northwestel

Northwestel Inc.’s price regulations, supplemental funding and financial position will all come under review this year as the CRTC has initiated a proceeding to establish a new regulatory framework for the company. All resulting changes will take effect in 2007, according to the CRTC. " is very important because it definitely could help position Northwestel for future growth and revenue opportunities," Anne Kennedy, Northwestel’s public affairs director, tells Network Letter. "But it will also, depending on the outcome, change the way northerners now experience their telecommunications services." As the incumbent local exchange carrier for the Yukon, Northwest Territories, Nunavut and part of northern British Columbia, Northwestel operates under unique circumstances. It serves the largest operating territory in Canada, but provides only around 75,000 telephone lines to 96 communities, many of which are only accessible by air. Therefore, the difficulty of meeting the basic service objective (BSO) throughout this sparsely populated region has always been crucial in determining how the company is regulated. Because Northwestel’s entire 3.9 million square kilometre operating area has been designated "high-cost" by the CRTC, the company has been entitled to a high rate of funding in the past. And although subsidies are sure to remain part of Northwestel’s regulatory framework, the commission has asked whether the way amounts are currently calculated should be replaced by a cost-based methodology. Northwestel has also been asked to submit a specific funding amount and which services the money will cover, along with supporting cost studies. While Kennedy isn’t able to comment specifically on what will be included in Northwestel’s proposal to the commission, the need for sustained funding will be incorporated. "The supplementary funding continues to be vital for Northwestel’s operations," she says. "And that is to help us fulfill the objective for northerners to have comparable services at comparable rates to those enjoyed by telecommunications customers in the south." Over the last six years, notes Kennedy, Northwestel has invested over $80 million into its service improvement program, resulting in tremendous changes in its territory. Telephone service has been extended to un-served and underserved areas, the network has been upgraded and switching equipment has been improved. "The investment in the network improvements has brought with it opportunities to lower, or at least keep our operating expenses in line," adds Kennedy. "But we’ve also been able to, through workforce structure and improved technologies, maintain our workforce productivity." Also under examination is whether Northwestel’s current rate base/rate of return framework should be replaced with a price regulation arrangement next year. The commission has outlined that under a price-based structure, rather than earnings-based, the company must still be able to provide customers with access to reliable and affordable services, and have a "reasonable opportunity to earn a fair return." Should Northwestel suggest implementation of such a framework, they are to identify the length of the initial regulation period and if a transitional period is required. Since long-distance competition has been present in its territory since 2001, Northwestel is being asked if its financial situation should continue to be assessed on a total-company basis, or if the rate base should be split to reflect utility and competitive segments. Also, the commission is seeking comments regarding the current $0.07 per minute carrier access tariff on long distance competitors in the north. Along with the requests made of Northwestel, the commission is also seeking comment as to whether local competition should be allowed in the northern territory, and what conditions should be applied in that situation. In all instances, Northwestel seems prepared to make a case for a favourable regulatory framework. "We’ve been in discussion with the CRTC for a number of years and anticipated that this would be coming forward at some point," says Kennedy. "We’re optimistic that we’ll be able to put forward good arguments for our proposals." The review will carry on throughout the winter and spring, with a public hearing scheduled for July 10 in Whitehorse. Main Themes of Northwestel ReviewThe CRTC has requested that Northwestel answer the following questions in its proposed regulatory framework: Should the company move from a rate base/rate of return structure to a price regulation framework? Does the methodology used to determine Northwestel’s level of funding need to be altered? How much financial support is needed, and what services should be funded? Is it appropriate to split Northwestel’s rate base between utility and competitive segments when assessing its financial position? Are any changes required to CAT rate currently applied to Northwestel’s long distance competitors?

CRTC to examine implementation of price regulation for Northwestel

News | February 15, 2006

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