## Decisions of Regulatory Agencies 

The business of the Bell Canada companies is affected by decisions made by various regulatory agencies, includ- ing the CRTC. For example, many of the decisions of the CRTC try to balance requests from competitors for access to facilities, such as the telecommunications networks, switching and transmission facilities, and other network infrastructure of incumbent telephone companies, with the rights of the incumbent telephone companies to compete rea- sonably freely. There is a risk that such decisions of the CRTC, and in particular the decisions dealing with prices at which we must provide such access, may adversely affect our business and results of operations. 

## Competitor Digital Network Service 

The CRTC released Decision 2005-6 on February 3, 2005, regarding Competitor Digital Network (CDN) services. This decision deter- mined the rates, terms and conditions for the provision of digital network services by Bell Canada and the other incumbent telephone compa- nies to their competitors. 

Government of Alberta, Bell Canada has agreed to have the network completed and accepted by the Government of Alberta by the end of September 2005. There is a risk that we could incur higher than cur- rently anticipated costs in completing the acceptance of the network by the Government of Alberta. 

## Changes to Wireline Regulation 

## Second Price Cap Decision 

In May 2002, the CRTC issued decisions relating to new price cap rules that will govern incumbent tele- phone companies for a four-year period starting in June 2002. These decisions: 

• set a 3.5% productivity factor on many capped serv- ices, which may require the Bell Canada companies to reduce prices for these services 

• extended price cap regulation to more services 

• reduced the prices that incumbent telephone compa- nies can charge competitors for services 

• set procedures for enforcing standards of service quality 

• effectively froze rates for residential services. 

The CRTC also established a deferral account and, on March 24, 2004, initiated a public proceeding inviting proposals on the disposition of the amounts accumulated in the accounts of the incumbent telephone companies during the first two years of the price cap period. 

The total balance in Bell Canada’s and Aliant’s deferral accounts at December 31, 2004 was estimated to be approximately $202 million. 

On May 19, 2004, Bell Canada filed its proposal, as part of the public proceeding initiated by the CRTC on March 24, 2004, asking for approval to use some of the funds in its deferral account to implement the fol- lowing initiatives: 

• expand its broadband services to certain areas that are not economically viable to serve under its commer- cial broadband program 

• reduce rates for some of its optional local services 

• implement network upgrades required to support Bell Canada’s High Probability of Call Completion feature. This feature would give designated calls on the Bell Canada network a higher probability of com- pletion under normal network loads and when the Public Switched Telephone Network (PSTN) is busy and experiencing call blocking conditions. 

On January 28, 2005, Aliant filed its proposal for the disposition of any amounts in its deferral account. Its proposal included: 

• funding of rate reductions in response to competitive pressures 

• recovery of funds used to deploy telecommunications devices for the deaf for payphones pursuant to a CRTC directive 

• funding E9-1-1 enhancements in Atlantic Canada 

• recovery of costs and lost revenue resulting from a number of events that were beyond its control. 

It is expected that this proceeding will close in the second half of 2005. 

If the CRTC does not approve these proposals, there is a risk that the funds in Bell Canada’s and Aliant’s deferral accounts could be used in a way that could have a negative financial effect on them. 

## Competitor Digital Network Service 

The CRTC’s decision concerning CDN services includes many changes that will affect both Bell Canada and Aliant as providers of CDN services in their respective operating territories and as buyers of those services elsewhere in Canada. The CRTC has determined that the scope of CDN services should be broadened from access elements only to also include intra-exchange facilities, inter-exchange facilities in certain metro- politan areas, channelization and co-location links (expanded CDN services). However, other than for the access and link components, the CRTC determined that these expanded CDN services should not be priced as essential facilities but will be priced to include “appro- priate mark-ups” so as to encourage competitors to construct their own facilities. 

There are two important financial aspects to note in this decision. First, the reduced prices for the expanded CDN services are to be applied on a going-forward basis only, and Bell Canada will be compensated for the resulting revenue losses from the deferral account. Secondly, Bell Canada will also be compensated, through the deferral account, for both the retroactive and the future application of reduced rates for the CDN services currently tariffed. The incumbent tele- phone companies are required to file the estimated drawdown from the deferral account with the CRTC within 30 days of this decision. 

