ARCHIVED - Telecom Commission Letter - 8620-C12-200509846

Letter

Ottawa, 19 September 2005

Our File:  8663-C12-200509846
               8663-C136-200509201

BY E-MAIL:

Mr. Tim DeWeerd, President
Ontario Telecommunications Association (OTA)

Mr. Yvon Brunelle, President
Association des Compagnies de Téléphone du Québec (ACTQ)

Mr. Hans Nilsson, President
Canadian Alliance of Publicly-Owned Telecommunications Systems (CAPTS)

Mr. Michel Laurent, President
Société d'Administration des Tarifs d'Accès des Télécommunicateurs (SATAT)

Mr. Michel Gilbert , Director-Regulatory Affairs
NorthernTel, Limited Partnership

Re: Telecom Public Notice CRTC 2005-10 - Review of regulatory framework for the small incumbent local exchange carriers (PN 2005-10) - Interrogatories

Pursuant to the procedures set out in PN 2005-10, please find interrogatories associated with this proceeding in the attachment to this letter.  

Reponses to these interrogatories are to be filed with the Commission, and served on the parties to this proceeding, by 17 October 2005 .

Yours sincerely,

Original signed by

John Macri
Director, Financial & Regulatory Matters

K. Taylor - CRTC, (819) 997-1849

Attachment

Rates and Services

100.  For each small incumbent local exchange carrier (SILEC), provide for the years 2002 to 2005 the actual/estimated capped services revenues broken down into:  

(a)  capped residential primary exchange services (PES) (i.e., first basket);

(b)  capped business PES (i.e., second basket); and  

(c)  capped other services (i.e., fourth basket).  

101.  For each SILEC, provide for each residence PES assigned to the first basket (e.g., individual line including all mandatory local services) and for each of the years 2002 to 2005, all rates in effect as at 1 April of each year, as well as current rates.  

102.  For each SILEC, provide for each business PES assigned to the second basket (e.g., individual line including all mandatory local services) and for each of the years 2002 to 2005, all rates in effect as at 1 April of each year, as well as current rates.

103.  For each SILEC, provide for each local optional service feature and optional service package assigned to the fourth basket (e.g., call management features, custom calling features and voice mail, call management packages, etc.) the rate in effect as at 1 April 2002 and 31 August 2005.   Include the penetration rate (i.e., percentage of access lines which subscribe to at least one optional feature) by optional feature/package identified, if available.

104.  At paragraph 17 of the Canadian ITC Joint Task Force proposal, the SILECs proposed that any unused local rate increases identified in the April 2005 annual price filing should continue to be carried forward into the new regime.  

(a)  Provide supporting rationale for the proposal.

(b)  For each SILEC with accumulated unused local rate increases for the years 2002 to 2005, provide the total amount of unused rate increases.

(c)  In the event that a SILEC has not used its accumulated rate increase potential during the next price regulation period, provide the SILECs' views, with supporting rationale, as to whether these unused credits should expire at the end of the regime.

(d)  Comment on the appropriateness of the Commission requiring that any carry-forward rate increases should be implemented before the start of the next price cap period.  

105.  The rates for services in the fourth basket are currently capped at any already approved rate for the same service provided by the large ILECs.

(a)  Explain how the SILECs' proposal would protect consumers of these services.

(b)  Referring to the variable productivity offset factor proposed for the baskets of primary exchange services (i.e., first and second baskets) at paragraph 15 of the Canadian ITC Joint Task Force proposal, comment on the appropriateness of also applying this factor to the fourth service basket.

(c)  Comment on the appropriateness of applying a rate element constraint (either in dollar or percentage terms) as added protection for consumers to the fourth service basket.

Productivity  

200.  At paragraph 14 of the Canadian ITC Joint Task Force proposal, it is stated that ". there is no corroborative evidence to suggest that the SILECs are not already operating at or very near peak productivity or that productivity opportunities even exist for these companies ."

(a)  Provide any evidence available that supports that the SILECs are operating at or very near peak productivity.

(b)  In the event that the Commission deems that a productivity factor should be an appropriate component of the SILECs' next price regulation framework, comment on the appropriateness of implementing a 3.5% productivity offset, as used for the large incumbent local exchange carriers in HCSAs, for the residential (i.e., first basket), business (i.e., second basket) and other capped basket (i.e., fourth basket).

Quality of service

400.  At paragraph 35 of the Canadian ITC Joint Task Force proposal, it is proposed that the existing floor of 25,000 subscribers be increased to 100,000 subscribers before quality of service reporting is required.    

(a)  Provide a list of SILECs that would be affected by this modification.  

(b)  Explain the link between the SILECs' proposal and the level of competition which currently exists in the exchanges of the SILECs.    

(c)  Explain why the modification proposed ".would provide further relief to the SILECs, particularly those companies who operate in disparate geographic territories as explained in detail in paragraph 31 ".

Contribution

500.  For each SILEC, provide the following information, as at 31 December 2004 and 31 July 2005 , both electronically and in hard-copy, in table format.  

(a)  Average primary exchange residential service monthly rate including touch-tone, message relay service, 9-1-1/E-9-1-1, service improvement plan (SIP) rate increase(s) and direct toll (DT) rate increase(s) (Column A);  

(b)  The amount of any SIP rate increase(s) included in (a) above and the decision/order number approving the increase(s) (Column B); and  

(c)  The amount of any DT rate increase(s) included in (a) above stemming from Decision 2005-3 and the decision/order number approving the increase(s) (Column C).  

501. For each SILEC and each wire centre/exchange within each SILEC serving territory, provide the following information, as at 31 December 2004 and 31 July 2005 , both electronically and in hard-copy, in table format.

(a)  Wire centre name (Column A);

(b)  Number of residential network access services (NAS) (Column B);

(c)  Total NAS (Column C); and

(d)  Band/sub-band (Column D).

502.  For each SILEC, provide the number of residential NAS and total NAS for the following dates, both electronically and in hard-copy, in table format.

(a)  31 December 2000 (Column A);

(b)  31 December 2001 (Column B);

(c)  31 December 2002 (Column C); and

(d) 31 December 2003 (Column D).

503.  For each SILEC, provide the monthly number of residential NAS and total NAS for calendar year 2004, both electronically and in hard-copy, in table format.

504.  In Decision 2000-745, the Commission determined that subsidy for the large ILECs would be calculated using actual primary exchange residential service monthly rates.

In Decision 2001-756, the Commission determined that the SILECs subsidy would be based upon the national weighted-average monthly residential local rate of $22.75.

(a)  Provide the SILECs' views, with supporting rationale, on the appropriateness of their subsidy being calculated based upon each of the following monthly residential local rate subsidy scenarios, where the SILEC local rates would exclude SIP and DT rate increases:

i)  using the current national weighted-average of $22.75;

ii)  using a revised national weighted-average local rate based on current large ILEC residential local rates; and

iii) using the actual SILEC-specific local rate, but not lower than $22.75.

(b)  Provide the SILECs' views, with supporting rationale, on any other proposal they may have with respect to the appropriate monthly residential local rate for subsidy calculation purposes.

505.  In Decision 2001-756, the SILECs' proxy PES costs were based upon the national average of the large ILECs' Phase II PES costs.   However, over the past four years, the large ILECs' Phase II PES costs in HCSAs have decreased by approximately 5% due to the annual cost adjustments (inflation less productivity).

(a)  Provide the SILECs' views, with supporting rationale, as to whether the SILECs' proxy PES costs should be adjusted to reflect the reductions in national average Phase II PES costs in HCSAs for the large ILECs.

(b) In the event the Commission determines that the SILECs' proxy PES costs should decrease, provide the amount of the decrease (either in dollar or percentage terms) that should be applied to the SILECs.

506.  At paragraph 36 of the Canadian ITC Joint Task Force proposal, the SILECs proposed that it would file its 31 July NAS information by 31 October of each year.

In Decisions 2002-34 and 2002-43, the Commission directed the large ILECs to file their 31 December subsidy information, including NAS, by 31 March of the following year.   Subsidy is then paid based upon the monthly NAS reported to the CFA with the requirement for an annual audit of the monthly NAS amounts reported to the CFA.

(a)  Provide the SILECs' views on filing their monthly NAS information with the CFA, so that the amount of subsidy received will depend upon the number of residential customers served specifically addressing among other things the issue of the CFA NAS audit requirement identified above.

(b)  Explain, with supporting rationale, why the SILECs are proposing to: (1) use its 31 July NAS information for subsidy calculation purposes; and (2) file the information with the Commission by 31 October.

(c)  Provide the SILECs' views on the filing of 31 December NAS information by 31 March, so that the information can be included into the final revenue-percent charge decision at the same time as the large ILECs, rather than requiring a separate process to be run to approve the subsidy amounts for the SILECs.

(d)  Provide the SILECs' views on the filing of previous calendar year's average actual monthly NAS information by 31 March, so that the information can be included into the final revenue-percent charge decision at the same time as the large ILECs, rather than requiring a separate process to be run to approve the subsidy amounts for the SILECs.

(e) Given the SILECs currently have six bands/sub-bands and many SILECs have multiple bands/sub-bands, provide the SILECs' views on filing their NAS information by wire centre, rather than band/sub-band.

507.  Given the SILECs proposed that subsidy amounts would be approved based upon NAS information filed annually, explain how the SILECs propose to deal with any subsidy that may be payable to a competitive local exchange carrier (CLEC) as it enters a given company's territory, specifically addressing among other things (a) the treatment of the Band F sub-bands, (b) the reporting of NAS and (c) possible changes to the SILECs' subsidy amounts as NAS changes occur.

508.  In the event that the Commission makes determinations that result in the SILECs receiving less subsidy than in 2005, should a transitional mechanism be implemented?

Local Competition

600.  At paragraph 31 of the Canadian ITC Joint Task Force proposal, the SILECs raise the issue of local competition.   The SILECs stated, in paragraph 32, that ". it would be an exaggeration to state that the SILECs are in favour of full local competition. ".

Comment as to what form of local competition (i.e., resale, facilities-based, hybrid), with supporting rationale, should be permitted as part of the SILECs going-forward regulatory framework.  

601. At paragraph 34 of the Canadian ITC Joint Task Force proposal, the SILECs viewed the cost of providing Local Number Portability (LNP) as " a complication and a challenge" and "significant in both scope and cost ".

(a)  Provide, for each SILEC, the anticipated cost, with supporting calculations, to acquire, install and operate LNP capability within each SILEC territory.

(b)  Discuss whether alternative solutions, such as joint sharing of an LNP platform, can be identified that would reduce the burden of each individual SILEC providing LNP capability within its operating territory.

602.  The CRTC Interconnection Steering Committee (CISC) and the working groups established under the CISC umbrella have been an important part of the success of the roll-out of local competition in the territories of the large ILECs.  

(a)  What level of participation by the SILECs would be appropriate in CISC in order to implement the Commission's approved level of local competition policies to be approved in the territories of the SILECs?

(b)  When the Commission determines its policy of local competition in the territories of the SILECs, should the SILECs adopt all the operational procedures developed by CISC with respect to local competition, including the guideline documents and template agreements, since its inception?   Comment as to whether some other set of guidelines and agreements should be developed.   A listing of the guidelines and agreements can be found at: http://www.crtc.gc.ca/cisc/eng/ciscmanu.htm .

(c)  Comment as to whether the SILECs believe that the Commission should implement a modified approach to developing procedures to allow for the implementation of local competition in the territories of the SILECs. Explain in detail and justify what approach may be appropriate.

600.  In Applications by telephone companies to carry on Broadcasting Distribution Undertakings , Public Notice 1997-49, 1 May 1997 , (PN 1997-49), the Commission outlined the status for implementing the framework of local competition prior to any Broadcasting Distribution Undertaking (BDU) licenses being issued to telephone companies.   In particular, the Commission commented on the status of the framework concerning interconnection, unbundling, co-location, rate restructuring and local number portability.

The Commission concluded that it would be appropriate for the telephone companies to apply for BDU licenses as of the date of the co-location decision since the remaining portions of the framework would be in place by that date.   This was referred to as the "head start" rule.

Should the Commission adopt a similar "head start" rule for the SILECs?   If yes, indicate with supporting rationale, the elements discussed in PN 1997-49 that should be in place prior to allowing the SILECs to apply for BDU license.   If no, explain why not.

Proxy subsidy rates per NAS for Tax-exempt companies

700.  Refer to paragraph 11 of Public Notice 2001-61, where the Commission determined that the TSR would consist of the following four basic components:

(i)  the use of a national weighted average monthly residential PES rate;
(ii)  the use of national average monthly residential PES costs (based on HCSAs of the large ILECs) as a Phase II proxy for the cost component, taking into account the tax-exempt status of certain companies;
(iii)  a 15% mark-up on the PES cost component; and
(iv)  a fixed monthly amount of $5 per residential NAS as an implicit contribution amount generated by other local services.

Refer also to Attachment 2 of the Canadian ITC Joint Task Force proposal and to Appendix Q entitled "Conceptual Equations for calculating NPV" of Bell Canada 's Procedures Manual for Economic Studies of New Services, July 1986 (Appendix Q), which has been provided electronically.

(a)  Confirm that the proposed adjustment to the proxy subsidy rates of tax exempt SILECs set out in Decision CRTC 2001-756 is based on accounting data.   Explain how this adjustment removes the capital-related Phase II income tax costs for the tax-exempt SILECs in a manner that is consistent with Phase II costing principles (refer to Present Worth of Annual Costs (PWAC) calculation specified in the ILECs' Phase II Procedure s manuals (e.g., Appendix Q of Bell Canada's 1986 Procedure s Manual)).

(b)  Using the Phase II methodology as set out in Appendix Q of Bell Canada 's Procedure s Manual, which calculates the PWAC estimates that includes the associated capital-related Phase II income tax cost, calculate the PWAC for a one-time capital expenditure of $1000, for a tax-paying company under the following scenario.

    Income Tax Rate                               40%
    Debt Ratio                                        45%
    Effective Annual Cost of Debt              8%
    Effective Annual Cost of Capital          10%
    CCA Rate                                          5%
    Life Estimate                                     20 Years              

For the purpose of this calculation, ignore salvage as well as other expenses as shown in the equation in the 1986 Bell Canada Procedure s Manual (Appendix Q).

(c)  Re-calculate the PWAC under the scenario specified in question 700 (b) above, but assuming that the company is a tax-exempt company, and where the formula assumes that income tax rate equals zero.

(d)  Comment, with supporting rationale, on the use of an adjustment for a tax-exempt company that removes the capital-related Phase II income tax costs based on the Phase II PWAC results comparison between responses to questions 700 (b) and (c) above.

Date Modified: 2005-10-26