Telus 2006 Annual Report Download - page 22

Regulation of local services
TELUS is subject to regulation as an ILEC in Alberta, B.C. and in eastern Québec and as a
CLEC in other areas of Canada.
Price cap regulation
Price cap regulation applies to a basket of local services provided by ILECs. The current price
cap basket structure has 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. The current price cap period is scheduled to end on May 31, 2007 for
TELUS’ ILEC operations in Alberta and B.C. and on July 31, 2007 for TELUS’ ILEC operations
in eastern Québec. For specific details on price cap constraints, see Note 4 to the Annual
Consolidated Financial statements, on page 77 of the Financial Review in TELUS’ 2006 Annual
Report.
In May 2006, the CRTC released Public Notice 2006-5 and initiated a review of the current price
regulation regime for the purpose of establishing the parameters for the next price cap period
beginning June 1, 2007. TELUS proposed a single price cap for its ILEC operations in B.C.,
Alberta and Québec. This review was completed in November 2006 and the CRTC is expected
to render its decision in this proceeding by the end of April 2007.
On February 16, 2006, the CRTC released Decision 2006-9 and determined that the funds that
had accumulated in TCC’s and TELUS Québec’s deferral accounts in the current price cap
period should be used to extend broadband service in rural and remote areas (95 per cent) and
to enhance access to telecommunications services for disabled persons (5 per cent). The
CRTC also determined that the recurring balance in the deferral accounts and the required
productivity adjustment to the residential services basket on June 1, 2006 will be passed on to
residential customers in non high-cost serving areas through reduced rates. As a result, no new
funds will be added to these deferral accounts.
On September 1, 2006, TCC filed its proposal for broadband expansion and service
enhancement for the disabled with the CRTC. On September 22, 2006, the Federal Court of
Appeal granted the Consumers Association of Canada and the National Anti-Poverty
Organization leave to appeal CRTC Telecom Decision 2006-9. These consumer groups are
expected to ask the Court to direct rebates to local telephone subscribers, rather than have the
accumulated deferral account funds used for purposes determined by the CRTC, as noted
above. Bell Canada was also granted leave to appeal Decision 2006-9 on the grounds that the
CRTC would exceed its jurisdiction to the extent it approves rebates from the deferral account.
These matters are expected to be heard in 2007.
Subsequently, on November 30, 2006, the CRTC issued Public Notice 2006-15 to examine in
greater detail the ILECs’ proposals to dispose of the funds in their deferral accounts.
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