Telus 2005 Annual Report Download - page 26

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TCC is subject to regulation as an ILEC in Alberta, B.C. and in eastern Québec. On July 31,
2002, the CRTC issued Decision 2002-43 adopting the first price cap regulatory regime for
TELUS Communications (Québec) similar to the manner adopted in Decision 2002-34 for the
larger ILECs. Local competition in the incumbent operating territory of TELUS Québec was
allowed in September 2002 following Telecom Order CRTC 2001-761.
In other areas of Canada, TELUS operates as a CLEC. TELUS has received regulatory approval
to operate as a CLEC in Brampton, Burlington, Chatham, Cooksville, Guelph, Hamilton, Kanata,
Kingston, Kitchener, London, Malton-Mississauga, Oakville, Oshawa, Ottawa-Hull, Roxboro,
St. Catherines, Thornhill, Toronto, Unionville, and Windsor in the province of Ontario; in
Boucherville, Chicoutimi, Chomedey, Drummondville, Ile Perrot, Le Gardeur, Lac-Mégantic,
Lévis, Longueuil, Lorretville, Montréal, Pont-Viau, Québec City, Rivière-du-Loup, Saint-
Hyacinthe, Saint-Jovite, Saint-Vincent-de-Paul, Sainte-Genevière, Sainte-Rose, Sainte-Thérèse,
Sherbrooke, and Trois-Rivières in the province of Québec; and in Regina and Saskatoon in the
province of Saskatchewan.
Price cap regulation
Price cap regulation applies to a basket of local services provided by ILECs. On May 30, 2002,
the CRTC issued Decision 2002-34 and established a second four-year price cap regulation
period. This four-year price cap regulation period was extended to five years by the CRTC in
Decision 2005-69. The CRTC modified the price cap basket structure and established multiple
baskets for price capped services. In the initial four-year price cap period, there was one overall
price cap basket and three sub-baskets. The current price cap basket structure has seven separate
baskets for residential services in non high-cost serving areas, residential services in high-cost
serving areas, business services, other capped services, competitor services, services with frozen
rates and payphones. While TELUS has a degree of flexibility to raise and lower rates in
response to market pressures, prices within baskets are capped using a formula that depends on
the relationship between the inflation rate as measured by the chain-weighted Gross Domestic
Product Price Index and an estimate of the telephone companies’ productivity gains, which the
CRTC has set at 3.5 per cent for each year of the current price cap regulation regime, irrespective
of the unique operating conditions of each telephone company. On average, rates for basic
residential services should not increase unless inflation goes above 3.5 per cent whereas business
services rates are allowed to increase by the annual inflation rate. Initially, the CRTC
established a four-year price cap period, but in Decision 2005-69, the Commission added a fifth
year to the price cap period. The current price cap period is scheduled to end on May 31, 2007.
The rates for payphone services will remain at current levels until the CRTC reviews payphone
service policy issues. For specific details on price cap constraints, see Note 3 to the Annual
Consolidated Financial statements, on page 72 of the Financial Review in TELUS’ 2005 Annual
Report.
TELUS Québec became subject to price cap regulation in 2002, after previously being regulated
on a rate of return basis. In Decision 2002-43, issued on July 31, 2002, the CRTC established a
regulatory framework for TELUS Québec that is directly comparable to the price cap regulation
regime set out in Decision 2002-34 for the large ILECs. In Decision 2005-70, the CRTC
extended the price regulation period for TELUS Québec so that it now ends on July 31, 2007.