ARCHIVED -  Telecom Decision CRTC 85-10

Telecom Decision

Ottawa, 25 June 1985

Telecom Decision CRTC 85-10

INQUIRY INTO TELECOMMUNICATIONS CARRIERS' COSTING AND ACCOUNTING PROCEDURES: PHASE III - COSTING OF EXISTING SERVICES

For related documents see: CRTC Telecom Public Notices 1981-41, 15 December 1981; 1982-4, 22 January 1982; 1982-5, 28 January 1982; 1982-25, 19 May 1982; 1982-38, 3 September 1982; 1984-22, 30 April 1984; 1984-42, 23 August 1984; and Telecom Decisions CRTC 82-2, 26 February 1982; 82-8, 17 September 1982 as well as the Reports of the Inquiry Officer of 30 April 1984 and 14 August 1984.

Table of Contents

I Background

II The Commission's Determinations Regarding Certain Recommendations and Conclusions set
out in the Report

A. Introduction
B. General Matters
1. Special Costing Studies
2. Minimum Revenue Requirement Tests
3. Fixed Common Costs
4. Access Category Costs
5. Prescription of Service Categories
6. Recovery of Access Costs
7. Prescription of Telesat's Service Categories
8. Modifications to Phase II Information Requirements

C. Specific Phase III Costing Methods

1. Bell and B.C. Tel
2. NET and TNT
3. CNCP
4. Telesat

III The Commission's Decisions Regarding the Recommendations and Conclusions
set out in the Report

IV Implementation

A. Submission of Documents
1. Bell and B.C. Tel
2. NET and TNT
3. Telesat
B. Submission of Reports
1. Bell and B.C. Tel
2. NET and TNT
3. CNCP
4. Telesat
C. Submission of Costing Manuals

V Conclusion of the Cost Inquiry

I BACKGROUND

In CRTC Telecom Public Notice 1984-22, 30 April 1984 (Public Notice 1984-22), the Commission announced that the Report of the Inquiry Officer with respect to the Inquiry into Telecommunications Carriers' Costing and Accounting Procedures: Phase III - Costing of Existing Services (the Report) had been submitted to it by Mr. Kenneth L. Wyman, the CRTC's Senior Executive Director, Operations (the Inquiry Officer), and, at the same time, released to the public.

Public Notice 1984-22 also set out the procedures to be followed for the balance of the Phase III proceeding. Parties of record were invited to file written comments on the Report with the Commission and serve them on all other parties on or before 14 June 1984. Reply comments were to be filed by 6 July 1984 and, on 17 July 1984, a public hearing was to be held to hear oral argument.

In its written comments of 14 June 1984, British Columbia Telephone Company (B.C. Tel) requested that, should the Commission not accept its preferred Five-Way Split costing method, the company not be required to adopt the modified Revenue Settlement Plan (RSP) costing method as recommended in the Report until the Commission had fully satisfied itself as to the adequacy of B.C. Tel's Management Information and Cost Accounting System (MICA). B.C. Tel proposed MICA as an alternative method suitable for regulatory service costing purposes.

Subsequently, on 10 July 1984, the Commission advised all parties of record that it had decided to postpone the public hearing announced in Public Notice 1984-22 and referred the question of whether the Commission should re-open the fact finding stage of Phase III of the Cost Inquiry for a full investigation into the merits of MICA to the Inquiry Officer. The Report of the Inquiry Officer with respect to British Columbia Telephone Company's Management Information and Cost Accounting System was submitted to the Commission on 14 August 1984. It recommended that the Commission not re-open the fact finding stage of the Phase III proceeding.

In CRTC Telecom Public Notice 1984-42, 23 August 1984 (Public Notice 1984-42), the Commission announced its decision to accept this recommendation and rescheduled the public hearing to commence 18 September 1984. Parties of record were invited to make oral submissions in the form of argument on the Report before the Executive Committee of the Commission. These submissions were to be based on the matters raised in their written comments filed on 14 June and 6 July 1984 respectively. Parties were also permitted to make oral submissions on MICA.

The hearing of oral argument, which lasted two days, was held before Commissioners John E. Lawrence (Chairman), André Bureau, Monique Coupal, Rosalie A. Gower, Paul H. Klingle and Jean-Pierre Mongeau. Commissioner Klingle's term on the Commission expired 31 March 1985 and, accordingly, this decision has been taken by Commissioners Lawrence, Bureau, Coupal, Gower and Mongeau.

The following appeared or were represented at the hearing: Bell Canada (Bell); B.C. Tel; Canadian Business Telecommunications Alliance, Canadian Business Equipment Manufacturers' Association, the Canadian Manufacturers' Association, the Ontario Hospital Association, the Telephone Answering Association of Canada, the Association of Competitive Telecommunications Suppliers (collectively CBTA et al); Consumers' Association of Canada (CAC); CNCP Telecommunications (CNCP); Director of Investigation and Research, Combines Investigation Act (the Director); Government of Ontario (Ontario); National Anti-Poverty Organization (NAPO); New Brunswick Telephone Company Ltd (N.B. Tel); NorthwesTel Inc. (NET); Telesat Canada (Telesat); and Terra Nova Telecommunications Inc. (TNT).

Written submissions were also received from three parties, Canadian Federation of Communications Workers (CFCW), Mr. Carlyle Gilmour and Government of Quebec (Quebec), who did not make oral arguments.

A. Introduction

In their written submissions and oral arguments on the Report, parties commented on the recommendations of the Inquiry Officer, which were consolidated in Chapter XIII, at pages 210-217 of the Report, as well as on certain conclusions contained in the Report. These conclusions related to the eventual need to establish minimum revenue requirement tests for broad categories of existing competitive services (Report, pages 75-76), the selection of a suitable approach to recover the costs assigned to the access category (Report, page 92), the suitability of developing costs of usage-sensitive facilities based only on peak period demand information (Report, pages 116-119 and 165), the need for additional submissions before determining the method to assign financial expenses and income taxes among the prescribed categories (Report, pages 167-168) and how the Commission should proceed with its consideration of the carriers' Phase II costing manuals (Report, pages 206-207).

The Commission has reviewed and considered the Report, its recommendations and the conclusions noted above in the light of the parties' written comments and oral arguments. The Commission has decided to modify or elaborate on a number of the recommendations and conclusions contained in the Report. The Commission's determinations with respect to such matters are set out in Sections B and C of this Part of the decision. Otherwise, the Commission has accepted the Report's recommendations and conclusions. Part III sets out the Commission's decisions with respect to all of the Report's recommendations and the conclusions noted above.

B. General Matters

1. Special Costing Studies

The Inquiry Officer recommended at page 35 of his Report that the Commission, in arriving at its Phase III decision, should not require that the costing method prescribed for Phase III be adaptable, in the future, to studies of revenue/cost relationships at a more disaggregated level than for a small number of broad categories.

However, the Inquiry Officer noted that this recommendation did not preclude the Commission from requesting special studies of the revenue/cost relationships of individual or small groups of existing services if warranted by particular circumstances. In this regard, he recommended that such special studies should be kept to a small number and be generally limited to individual existing services or small groupings of existing services which do not make extensive use of common facilities and personnel. Further, he recommended that the costing methodology for any special studies should be prescribed by the Commission depending upon the circumstances of the particular case, consistent with the principle of cost causation.

With the exception of CNCP, parties generally accepted these recommendations. Bell specifically recommended that any required special studies of either smaller groupings of services or individual services should be based on current and prospective rather than embedded costs. Likewise, B.C. Tel argued that current costs are the only relevant costs for those services offered in a truly competitive environment. CNCP argued that, should special studies of small groupings of existing services be limited to those services which do not make extensive use of common facilities and personnel, there would be no regulatory check on predatory pricing of individual network services such as, for example, Telpak and Datapac services.

Having considered this matter, the Commission accepts the recommendation that requires Phase III costing methods to be adaptable, in the future, to permit regular studies and reports on the revenue/cost relationships for only a small number of broad categories. In this regard, the Commission notes that these regular reports could not be expected to identify the costs of individual services but rather would be a means of identifying the extent, if any, to which broad categories of competitive services are being cross-subsidized by other broad categories as well as a means of identifying what contribution is being made by each broad service category towards the recovery of any common costs.

The Commission finds the Report's recommendations regarding special studies to be acceptable, except for the recommended limitation of such studies to those services which do not make extensive use of common facilities and personnel. In the Commission's view, this limitation, as a prescribed feature of all special studies, is too restrictive in that its application would generally permit special studies only for competitive terminal services. Consequently, the Commission has omitted this limitation in its decision with respect to the appropriate features of special studies.

2. Minimum Revenue Requirement Tests

In support of the recommendation that the Phase III costing approach should prescribe the use of embedded costs alone, the Inquiry Officer concluded, at pages 75 and 76 of his Report, that such information could assist the Commission in establishing minimum revenue requirement tests for broad categories of existing competitive services. Further, it was stated that the purpose of these tests would be to ensure that the carriers' shareholders rather than its monopoly service subscribers are held accountable for any shortfalls between the revenues and the embedded costs of the competitive categories.

Bell and B.C. Tel argued that, should such tests be used, the shareholders should also be allowed to retain any competitive revenues in excess of embedded costs.

The Commission has decided that determinations as to whether minimum revenue requirement tests for broad categories of existing competitive services should be established and used are not necessary at this time and would be more appropriately made in the context of general rate proceedings after Phase III costing information becomes available.

3. Fixed Common Costs

At page 81 of the Report, the Inquiry Officer recommended that the Commission should accept an assignment of costs to a terrestrial carrier's common category only if it is satisfied that the carrier has provided adequate empirical evidence demonstrating that such costs are fixed. At page 202 of the Report, a similar requirement was noted for Telesat.

Bell agreed that a justification of the assignment of costs to the common category is required and indicated a willingness to work with the Commission to demonstrate that such costs are not causally related to a particular broad category. B.C. Tel argued that a remainder test should be applied whereby those costs not amenable to rational assignment on the basis of causality are defined as fixed common costs. The Director argued that the Commission, in its decision, should place a stringent onus on the carriers to demonstrate that the common category costs are fixed and should establish specific criteria to test whether this onus is being met.

The Commission has concluded that the carriers must provide adequate empirical evidence that costs assigned to the common category are fixed. Accordingly, in the Commission's view, the type of remainder test proposed by B.C. Tel would not be adequate. The Commission considers that there is not sufficient information available, at this time, to define an appropriate empirical test with related criteria. Therefore, as specified in Part IV of this decision, each carrier will be required to submit a report to the Commission which identifies a proposed empirical approach to be used in demonstrating that those costs assigned to its common category are fixed.

4. Access Category Costs

The Report's three recommendations with respect to the access category were "that the appropriate treatment of network access costs should be to include them in a separate access cost category" (page 92); that "this access cost category should include all non-usage sensitive common costs associated with the provision of loop and other facilities to provide network access to local, toll, and certain competitive network services" (page 93); and that "the access cost category should be defined to include the costs of definition (2) loops provided by the telephone companies to their competitors, as well as the costs of such dedicated loops used by the telephone companies for their own competitive services when the rates for such dedicated loops have been unbundled [but] where the rates for dedicated loops used by the telephone companies solely to provide their own competitive network services have not been unbundled, ... the costs of such dedicated loop facilities should be assigned to their competitive network services category" (page 96).

Parties generally agreed with the first two recommendations, although Bell suggested that the access category should also include the costs of non-traffic sensitive central office equipment and associated non-capital costs. The Commission agrees that such costs should be included and, noting that there was no objection to Bell's suggestion, has decided to modify the recommendations accordingly.

With reference to the third recommendation, CNCP argued that including the costs of dedicated loops used by the telephone companies in their respective access categories would understate those companies' competitive network service costs in relation to CNCP's comparable costs. CNCP therefore recommended that the costs of providing dedicated loops to telephone company subscribers should be removed from the access category regardless of whether the rates are bundled or unbundled under existing tariff arrangements. During oral argument, Bell agreed with this proposition. However, CNCP recommended that the costs of such dedicated loops, once removed from the access category, should be assigned to the telephone company's other services category whereas Bell suggested that these costs be assigned to its competitive network services category. In related comments, the Director argued that the concept of non-usage sensitive costs should be developed in the Commission's decision with a recognition that not all access costs may be so characterized and that, if access costs may be associated directly with the provision of competitive network services, they should be so assigned.

The Commission agrees that the assignment of costs associated with dedicated loops should not be contingent on whether carriers' tariffs are bundled or unbundled. At the same time, the Commission considers that all such costs are appropriately included in the access category because dedicated loops, whether used by subscribers or competitors of the telephone companies, or whether used in connection with monopoly or competitive network services, are provided on a monopoly basis by the telephone companies. Accordingly, the Commission has concluded that all access arrangements provided by the telephone companies should be costed and included in the access category of each company. As a result, the third recommendation referred to above is not accepted.

The Commission considers that it would nevertheless be desirable to identify those revenues and costs associated with the provision of dedicated loops by Bell and B.C. Tel to their respective subscribers and competitors. As specified in Part IV of this decision, Bell and B.C. Tel are required to submit a report to the Commission describing a proposed methodology to identify such revenues and costs.

5. Prescription of Service Categories

At pages 99 and 100 of the Report, certain categories for the submission of Phase III revenue/cost information are prescribed for Bell, B.C. Tel, NET and TNT.

Four matters relating to these categories were dealt with by the parties in their comments. First, with respect to the necessity of adding an access revenue category, Bell submitted that, to establish meaningful revenue/cost comparisons, it would be necessary to unbundle the local rate and then match the access service costs to the corresponding access service revenues. Noting that the Commission had already required unbundled tariffs for the access components of certain competitive network services, B.C. Tel argued that it would be appropriate to add an access revenue category to the prescribed Phase III categories, notwithstanding that the question of whether such unbundling should be done for other services was a matter for the Commission to determine in the future. Likewise, both CBTA et al and Quebec considered the establishment of an access revenue category to be appropriate.

Second, with respect to the relationship between the access category and the other categories, Bell observed that the Report, by placing access costs in the monopoly category, had identified such costs as causal to the provision of local and toll services. In contrast, CAC argued that the access costs should be a subset of the common category in recognition that competitive services also utilize such access facilities and to prevent participants in future rate cases from arguing that Phase III of the Cost Inquiry had concluded that monopoly services should recover all access costs.

Third, with respect to the recommended category for other services, Bell stated that it anticipated some difficulty in establishing the costs for such a category and that, in its view, the advantages of separately identifying the revenues and costs for such services would not justify the effort required. However, B.C. Tel accepted the recommendation for a category for other services and stated that the company foresaw little difficulty in segregating its revenues and costs.

Fourth, with respect to the recommended nomenclature for the broad categories, CBTA et al suggested that the terms monopoly and competitive not be used because they may not be fitting in the future and meanwhile could be seen as a prejudgment by the Commission of the extent to which competition may or may not be permitted in regard to any of the broad categories of services. Similarly, the Director noted the difficulty of classifying services as either monopoly or competitive and suggested a definition for competitive services which recognized not only the existence of, but also the potential for, competition.

With respect to the first matter, the Commission has concluded that it is appropriate that the Phase III costing methodology contain a category for access revenues notwithstanding that, based on current tariff arrangements, the amount of assignable revenues will be small.

With respect to the relationship between the access category and other categories, the Commission notes its earlier determination to include the costs of all access facilities in the access category. In light of that determination, it follows that the access category prescribed for purposes of Phase III should be kept separate and distinct from all other categories.

With regard to the other services category, the Commission considers that it would be desirable to have such costs separately identified rather than mixed with those in the common category. Accordingly, the Commission has decided to accept the Inquiry Officer's recommendation on this matter.

Finally, with regard to the nomenclature for the Phase III categories, the Commission considers that the terms monopoly and competitive continue to be apt in light of the basic concerns underlying the Phase III proceeding.

6. Recovery of Access Costs

The Inquiry Officer concluded at page 92 of his Report that the recovery of the costs associated with the recommended access category was beyond his terms of reference. Moreover, he concluded that to employ a method to allocate such costs among other broad service categories, as suggested by certain parties, would be inconsistent with his prior recommendation that the Phase III methodology should not include the development of rules to allocate fixed common costs. Therefore, the Report concluded that the appropriate recovery of access costs was a matter to be determined by the Commission in rate proceedings based on regulatory rating objectives and market conditions rather than in the regulatory costing process.

Bell contended in this connection that it would be necessary to unbundle the local service rate to generate revenues that match the access category costs. CBTA et al stated it was essential in the long run to unbundle all tariffs for those services using the access facilities and submitted that the only approach to the recovery of access costs which meets the principle of cost causation is to develop an average loop cost to be paid by the subscriber who orders such facilities and thus causes them to be put in service.

CAC argued that the recovery of access costs associated with non-dedicated local loops was the single most critical problem in telephone costing. However, CAC argued against the creation of an access service charge, characterizing it as the first step towards local measured service which, in CAC's view, should be considered on its own merits. In addition, CAC recommended rejection of CBTA et al's proposal for an average loop cost which, in its view, assumes inappropriately that residential subscribers should bear a share of the cost of upgrading access facilities to meet the needs of those requiring a blend of voice, data, text and image communication services.

The Commission agrees with the Inquiry Officer that, as in the case of costs assigned to the common category, the recovery of access costs is not a costing issue and it is not appropriate to develop costing rules to allocate such costs among other broad service categories. However, as discussed above in subsection 5, the Commission has decided that it is appropriate for the telephone companies to establish a category for access revenues. To the extent that unbundled rates for access facilities now exist, the resultant revenues will go towards the recovery of the access costs. Whether the unbundling of existing tariffs should be developed as a general method for the recovery of all or a major portion of the access costs is a matter for the Commission's determination in the future. Meanwhile, costs in excess of revenues associated with the access category will be recovered by appropriate contributions from the other prescribed categories as may be determined by the Commission from time to time.

7. Prescription of Telesat's Service Categories

At page 201 of his Report, the Inquiry Officer recommended the prescription of certain broad categories for the submission of Phase III revenue/cost information by Telesat.

The Commission notes that no party to the proceeding objected to this recommendation. However, the Commission has reviewed the recommendation in light of Telesat Canada - Final Rates for 14/12 GHz Satellite Service and General Review of Revenue Requirements, Telecom Decision CRTC 84-9, 20 February 1984 and decided that the proposed categories for Telesat should be changed to permit identification of space segment revenues and costs for 14/12 GHz service and 6/4 GHz service separately.

8. Modifications to Phase II Information Requirements

At pages 206 and 207 of his Report, the Inquiry Officer concluded that there was insufficient evidence on the record to make any recommendations regarding possible changes to the information requirements prescribed by the Commission in Inquiry into Telecommunications Carriers' Costing and Accounting Procedures Phase II: Information Requirements for New Service Tariff Filings, Telecom Decision CRTC 79-16, 28 August 1979 (Decision 79-16). Therefore, the Report suggested that the Commission should proceed with its consideration of the Phase II manuals submitted by the carriers.

The Commission agrees with these conclusions, while recognizing that certain of the directives specified in Decision 79-16 may warrant review.

C. Specific Phase III Costing Methods

1. Bell and B.C. Tel

In Chapters VIII and IX of the Report, two costing methods proposed for Phase III purposes with respect to Bell and B.C. Tel were described and assessed by the Inquiry Officer. One was the Five-Way Split Study method and the other was the method used to determine these carriers' recoverable assigned costs under the RSP.

The two methods were assessed on the basis of the objectives and criteria established by the Commission in CRTC Telecom Public Notice 1981-41, dated 15 December 1981 (Public Notice 1981-41), in which the Commission announced the commencement of the Phase III proceeding. Proposed Phase III costing approaches and related information requirements were to meet the objectives of assisting the Commission:

(1) to assess whether rates for competitive services are compensatory in the sense that
revenues resulting from the provision of such services cover the costs of providing them; and

(2) to determine the extent to which the contributions made to the overall revenue requirement
of carriers by monopoly services as a whole and by certain categories of competitive services
are above or below cost.

In addition to achieving these objectives, the Commission considered that a costing method suitable for its regulatory purposes should meet the following criteria:

(1) it should be sufficiently flexible to take into account the introduction of new services and
the unbundling or other restructuring of the tariffs for existing services;

(2) it should be adaptable in the future to permit studies to be made, upon request by the
Commission, of revenue/cost relationships on a more disaggregated level than the broad
categories of services proposed in this Public Notice;

(3) it should be auditable by the Commission in the sense that the costs attributed by the
method to various service categories can be verified on an ongoing basis against a reliable
source of data such as the carriers' accounting records; and

(4) it should be as simple and economical as possible to implement, maintain and monitor,
consistent with these criteria and the objectives stated above.

Based on the Inquiry Officer's conclusion that an RSP based costing method would meet both of the objectives and all four of the criteria, whereas the Five-Way Split method would not likely satisfy the important criterion of auditability, the Report recommended at page 177 that the Commission should direct Bell and B.C. Tel to develop an RSP based costing method.

Several parties including CBTA et al, CFCW, CNCP, the Director, Ontario and Quebec supported the Report's recommendation.

The Director argued that the procedures used in the existing RSP to derive costs provide a superior starting point for developing a Phase III costing method. In this regard, the Director noted that these procedures are auditable in that the investment costs are derived from and are traceable to actual plant records.

CNCP agreed with the Report's conclusion that the cross-checking of RSP procedures by member companies of Telecom Canada would facilitate the auditability of that approach and submitted that its use for service costing was consistent with the Commission's view, as expressed in Bell Canada, British Columbia Telephone Company and Telesat Canada: Increases and Decreases in Rates for Services and Facilities Furnished on a Canada-Wide Basis by Members of the TransCanada Telephone System, and Related Matters, Telecom Decision CRTC 81-13, 7 July 1981 (Decision 81-13), regarding the desirability of developing service cost information that was congruent with that used for revenue settlement purposes. CNCP also noted that neither Bell nor B.C. Tel disputed the Report's conclusion that it was unlikely the costs of modifying the RSP would be excessive. Further, CNCP argued that no objection as to the cost of implementing a modified RSP based method is justified simply on the basis that both Bell and B.C. Tel have incurred considerable expense in developing and implementing the Five-Way Split method.

With respect to adoption of the Five-Way Split method, CBTA et al and the Director argued that its particular use of the underlying Planning Systems disqualify it as an acceptable category costing method. CBTA et al submitted that it is virtually impossible to derive the factors used in the Planning Systems from the companies' accounting systems and suggested this was a critical flaw given the Commission's criterion of auditability. CBTA et al also argued that verification of the judgements used in the Planning Systems would be beyond the field of competence of auditors.

The Director argued that the critical deficiency in the Five-Way Split method was the derivation of assignment factors. The Director maintained that no empirical evidence was presented to demonstrate that derivation of these factors using models designed for planning purposes bore any relationship with the actual use of the network facilities and other resources.

In their written comments, Bell, B.C. Tel and N.B. Tel rejected the Report's recommendation and argued in favour of the Five-Way Split method, pointing out that it was operational and that the Report had endorsed the major principles and concepts which underlie it. In particular, Bell and B.C. Tel noted the Report's conclusion that the Five-Way Split method had a number of positive features which made it suitable for the costing of existing services, such as its level and scope of cost inclusions and its peak period costing approach.

Bell and B.C. Tel maintained that the Five-Way Split method is auditable. While acknowledging that there are more engineering judgements required in the Five-Way Split method than in an RSP based method, Bell asserted that there is no significant difference between the two in terms of assessing the reasonableness of these judgements. In this regard, Bell argued that the Report had significantly underestimated the complexity of the engineering judgements as well as the extent of computer expertise that would be required in connection with an RSP based approach. Further, N.B. Tel argued that the required modifications to the RSP would cause the existing RSP audit procedures to be ineffective. Both Bell and B.C. Tel suggested that the Commission conduct further investigations to resolve the question of whether the Five-Way Split method is auditable before reaching its decision on which of the two methods is more suitable for Phase III regulatory purposes.

Bell also argued that its Five-Way Split method is better suited than an RSP based method to performing category cost studies on a forward test year basis in that it can be readily adjusted to changes in the telecommunications environment. Bell suggested that changes in telecommunications technology, rate structure and the method of offering services could make the historical RSP usage ratios inapplicable and the absence of a systematic way of translating these changes in demand into changes in usage ratios in the RSP could hamper the estimation of cost/revenue information in a forward test year.

Finally, Bell and B.C. Tel pointed to a number of significant areas in which the existing RSP method would require modification in order to develop a costing methodology consistent with the general costing principles recommended in the Report. Bell observed that adoption of the Five-Way Split method by the Commission would eliminate the need for additional submissions and further discussions, possibly in the context of a technical committee, regarding the modifications required to the existing RSP costing method.

In considering the relative merits of the two costing methods, the Commission took into account the Inquiry Officer's finding that an RSP based costing method would meet both of the objectives and all four of the criteria, whereas the Five-Way Split method, while meeting both objectives and three of the criteria, would not likely satisfy the criterion of auditability. As well, it took into account the suggestion by Bell and B.C. Tel that the Commission conduct further investigations to resolve the question of whether the Five-Way Split method is auditable before reaching its decision on which of the two methods is more suitable for Phase III regulatory purposes. In view of the fact that further investigation of the auditability of the Five-Way Split method would be costly and time-consuming, the Commission was of the view that it would be preferable to first assess the relative merits of the two methods on the basis that both meet the auditability criterion. In taking this approach, the Commission recognized that, should the Five-Way Split method be found to be the more suitable, it would be necessary to complete the further investigations regarding auditability before a final determination could be made.

In the course of its deliberations as to which of the two methods would be the more suitable, the Commission elaborated a number of factors based on the objectives and criteria established in Public Notice 1981-41 which, in its view, would provide an appropriate framework for this assessment. As indicated below, the Commission considered the relative importance of each of these factors and how, based on the record of the proceeding, the two methods compare with respect to each. In light of these considerations, the Commission concludes that the more suitable Phase III costing method for use by Bell and B.C. Tel is an RSP based costing method.

The three most significant factors identified by the Commission in the course of its deliberations, and its considerations with respect to each, are as follows:

(1) The relative reliance of the two costing methods on empirical rather than computer simulated
data in the development of apportioning factors

The Commission notes that both costing methods develop their respective apportioning factors starting with similar company source documents. As noted in the Report, the RSP costing method generally uses this empirical information directly in the development of its apportioning factors. The Five-Way Split method, on the other hand, makes extensive use of computer simulation models which incorporate information taken from these documents to develop its apportioning factors. The Commission considers that a costing method which is designed to rely more extensively and directly on empirical information from source documents in the development of its apportioning factors is more suitable for regulatory costing purposes. Accordingly, with respect to this factor, the Commission considers that an RSP based costing method would be the more suitable method for its regulatory purposes.

(2) The complexity of the two costing methods and their relative ease of comprehension by
interested and informed parties

Five-Way Split method involves a larger number of engineering judgements and a more extensive use of computer modelling processes than is the case with an RSP based costing method. The Five-Way Split method is, therefore relatively more complex and more difficult to comprehend. In the Commission's view, it is desirable to adopt the costing method which is comparatively less complex and less likely to arouse continuing concerns among interested and informed parties regarding the appropriateness of both the procedures used and the results obtained. Accordingly, with respect to this factor, the Commission considers that an RSP based costing method would be the more suitable method for its regulatory purposes.

(3) The relative ease and expense of performing ongoing regular audits of the two costing
methods

As noted earlier, the Commission has proceeded with its assessment of the two costing methods on the basis that both meet the auditability criterion. The Commission considers, however, that, owing to its greater use of information taken directly from source documents and the smaller number of engineering judgements it requires to develop apportioning factors, the RSP costing method would likely be easier to audit on a regular basis. With regard to the expense of regular audits performed for regulatory purposes, the Commission notes that the RSP costing processes have been subject to regular audits performed by the member companies of Telecom Canada for a number of years. Many of those processes could be used without being changed in the modified RSP costing method for Phase III purposes. As well, many of the associated audit procedures could be used without modification. Finally, the Commission notes that there was no indication that the RSP costing method would become more difficult to audit as a result of modifications made for Phase III purposes. All of these considerations favour the adoption of the RSP costing method.

In addition to the above factors, the Commission identified an additional four factors which, while of somewhat less importance, were also taken into account by it in reaching its decision. They are as follows:

(1) The desirability of adopting a costing method congruent with the costing processes used for
revenue settlement purposes

As cited in the Report, parties such as CBTA et al and Ontario supported the Commission's conclusions in Decision 81-13 which indicated a preference for a costing method which could be used for both service costing and revenue settlement purposes. The Commission reaffirms that, in its view, it would be desirable to use similar costing procedures for both service costing and revenue settlement purposes. Using similar procedures to derive both these sets of costs would contribute, in the Commission's view, to a saving of both expense and effort as well as to more consistent regulatory decisions. Therefore, with respect to this factor the Commission considers that an RSP based costing method would be the more suitable method for its regulatory purposes.

(2) The flexibility of the two costing methods to take into account the introduction of new services
or the restructuring of existing services

The Inquiry Officer noted in his Report that there would be certain limitations on the extent to which the RSP costing method would be able to take into account the introduction of new services or major changes in the structure of tariffs. In particular, the Inquiry Officer first noted the limitation of the RSP costing method to take into account the introduction of new services on a forward-looking basis because of its use of historically based apportioning ratios. Second, the Inquiry Officer noted that the use of such ratios would severely limit the ability to identify forward test year results using the RSP costing method should major and rapid changes in the mix of demand for the carriers' services occur.

With respect to the first limitation, the Commission agrees with the Inquiry Officer's observation that, with the adoption of a Phase III costing method which is limited to the costing of a small number of broad categories, the introduction of new services would not likely have a substantial impact on the reliability of the forward-looking cost information for those few categories. Moreover, the impact, year by year, of such new services would be taken into account in the regular revisions of the historically based RSP apportioning ratios. Regarding the second limitation, the Commission accepts the Inquiry Officer's conclusion that the evidence in the proceeding has not demonstrated a strong likelihood of major and rapid changes in the mix of demand for the carriers' services.

As indicated earlier, the Commission has taken into account the Inquiry Officer's finding that both the Five-Way Split and RSP based costing methods would satisfy the requirement for flexibility. However, with respect to this factor, the Commission considers that the Five-Way Split method would be a more suitable method for its regulatory purposes.

(3) The adaptability of the two methods to produce results on a forward test year basis

The Commission considers that the Five-Way Split method is inherently better suited to producing results on a forward test year basis and notes that, as cited in the Report, Bell has already developed a methodology to produce Five-Way Split results on that basis. Therefore, while noting that Bell has outlined an approach whereby the RSP costing method could be adapted to produce forward test year results, with respect to this factor the Commission considers that the Five-Way Split method would be the more suitable method for its regula tory purposes.

(4) The extent and costs of the required one-time modifications to the two costing methods

Although both methods would require modifications to be consistent with the methodological framework approved in this decision, the Commission considers that the necessary modifications would be both more extensive and more costly for the RSP than for the Five-Way Split costing method. Therefore, while it considers that the necessary one-time costs of modifying the RSP costing method would not constitute an unreasonable regulatory expense given the significance of the Phase III methodology, with respect to this factor the Commission considers that the Five-Way Split method would be the more suitable for regulatory purposes.

2. NWT and TNT

At pages 183 and 184 of the Report, the Inquiry Officer recommended adoption of the costing approach proposed by NWT and TNT as a suitable starting point for their respective development of a Phase III category costing method. The Report also recommended that NWT and TNT provide a number of further submissions regarding certain aspects of their proposed approach.

No parties other than NWT and TNT commented on these recommendations. These carriers accepted the Report's recommendations and provided, in their comments, an initial response to the need for further submissions identified in the Report.

The Commission has decided to accept the Report's recommendation with respect to the costing method to be developed by NWT and TNT, in accordance with the implementation process and directives set out in Part IV of this decision.

3. CNCP

At pages 188 and 198 of the Report, the Inquiry Officer found certain positive features in CNCP's proposed costing method. However, specific deficiencies in the proposed methodology were identified by the Inquiry Officer, including an inadequate description of how CNCP's proposed blended cost approach could be used to derive forward test year results, the proposed development of rules to assign fixed common costs to the service categories in the costing process, the proposed assignment of the costs of usage-sensitive facilities to off-peak demand, and a lack of specificity with regard to CNCP's proposed assignment factors. Therefore, the Inquiry Officer recommended that, while the Commission should acknowledge the positive features in CNCP's proposed costing methodology, it should direct CNCP to submit a revised costing methodology proposal setting out its approach to correct the noted deficiencies.

CNCP did not specifically address the recommendation and conclusions pertaining to its proposed method. N.B. Tel commented simply that the principles of CNCP's costing method should be the same as those for the major telephone carriers.

The Commission has decided to accept the Report's recommendations with respect to the development by CNCP of a suitable Phase III category costing method, in accordance with the implementation process and directives set out in Part IV of this decision.

4. Telesat

At page 205 of the Report, the Inquiry Officer recommended that the Commission adopt Telesat's proposed costing approach as generally acceptable in relation to the development of a suitable Phase III category costing method. However, the Report rejected Telesat's proposed inclusion of revenues and costs for an historic period in its multi-year test period. Rather, the Report found it appropriate to include a value to be assigned to any previous investment which continued to be used to provide service. The Report also proposed that revenue/cost information should be submitted by Telesat, at least every three years, or whenever it applies for a general adjustment to its space segment rates, a general adjustment to its earth station rates, or a combination of these adjustments.

Other than Telesat itself, only CBTA et al and CNCP commented on these recommendations. CBTA et al found the method acceptable whereas CNCP argued that Telesat's costing method should be similar in principle to that proposed for terrestrial carriers. CNCP seriously questioned the auditability of Telesat's method, noting that the Commission will have to wait for the expiration of the multi-year period to ascertain whether Telesat's current forecasts of costs are accurate.

Telesat argued that CNCP's concern was unfounded and noted that the evidence had substantiated that its rate base is more volatile than that of other carriers under the Commission's jurisdiction and that the Report had consequently recommended the use of a multi-year test period in contrast to the single-year test period recommended for terrestrial carriers. Telesat also stressed the Report's observation that regulation of its rates since 1976 has not involved the determination of a corporate revenue requirement but rather the approval of rates for specific services supported by multi-year economic evaluation studies and that this approach was confirmed as being acceptable for rate-making purposes by the Commission in Decision 84-9.

Telesat supported the costing methodology proposed in the Report subject to the clarification of the appropriate reporting requirements, the treatment of previous investments which continue to be used to provide service and the term of the multi-year test period. With respect to the appropriate reporting requirements, Telesat proposed that information be submitted only every three years rather than at least every three years and whenever it applies for a general adjustment to its space segment rates, a general adjustment to its earth station rates, or a combination of these adjustments. Regarding the treatment of previous investments which continue to be used to provide service, Telesat proposed that the value assigned to such investment in any new economic study should equal the asset value established for the corresponding time period in the rating proposal to which it originally pertained. Finally, with regard to the multi-year test period, Telesat proposed that the Commission should clearly define the multi-year test period to be equivalent to the period for which the original rates were established.

Having considered these submissions, the Commission has decided to accept the Report's recommendation which found Telesat's proposed costing approach generally acceptable in relation to the development of a suitable Phase III category costing method, subject to the exclusion of historic cash flows from the multi-year test period.

The Commission also reviewed Telesat's proposed clarifications. With regard to the appropriate reporting requirements, the Commission has determined that, rather than require regular reports, it will be sufficient if Telesat submits Phase III revenue/cost information in support of any general adjustments in its space or earth segment rates, in support of any major investments in new facilities and otherwise upon the Commission's request.

With regard to the method by which a value will be assigned to any previous investment which continues to be used to provide service for inclusion in its multi-year studies, the Commission considers this matter can be more appropriately determined in the context of Telesat's pending application for approval of rate increases for 6/4 GHz space services under Tariff Notice 69.

However, with regard to the definition of a suitable multi-year test period, the Commission considers that further information is required. In addition, the Commission considers that additional information is necessary concerning the appropriate methodology to be used in combining the results of non-coincidental multi-year test period studies to ensure comparability of the revenue/cost information among the prescribed broad categories and the empirical approach to be used in substantiating that any costs assigned to the common category are fixed. Submissions to be made by Telesat concerning these matters are specified in Part IV of this decision.

The Commission's decisions with respect to all the recommendations and certain conclusions set out in the Report are as follows.

Decision 1

The objectives for the Phase III methodology are limited to the identification of service costs in an empirical sense, based on the principle of cost causation and do not include the development of rules to allocate any fixed common costs based on concepts of fairness. (Report, page 29)

Decision 2

The Phase III costing method prescribed for each carrier should be adaptable to regular studies of cost/revenue relationships for only a small number of broad categories which are, at this time, the categories identified in Decisions 7, 11 and 13 below. (Report, page 35)

Decision 3

Special studies of the cost/revenue relationships of individual or small groups of existing services may be required by the Commission from time to time. The costing methodology for any such studies will be prescribed by the Commission depending upon the particular circumstances in which the study is required and will be consistent with the principle of cost causation. (Report, page 35)

Decision 4

To satisfy the Phase III objectives and criteria, the regulatory costing of broad categories of existing monopoly and competitive services provided by each of the terrestrial carriers under the jurisdiction of the Commission will be based on an incremental embedded approach. Under this approach:

4.1 The terrestrial carriers shall provide information to the Commission which identifies the
embedded costs due to, or causally related to, the provision of the service categories
prescribed for regulatory purposes.

4.2 A separate common category shall be established to which any fixed common costs of the
regulated terrestrial carrier shall be assigned.

4.3 The assignment of costs to the separate common cost category will be acceptable only if the
Commission is satisfied that the terrestrial carrier has provided adequate empirical evidence
to demonstrate that such common costs are fixed.

4.4 The development of the costs associated with usage sensitive facilities shall be based upon
demand information which measures usage in the peak period as employed in the terrestrial
carrier's ongoing network provisioning processes.

4.5 The terrestrial carriers shall provide the Commission annually with information on the
cost/revenue relationships for broad categories of existing monopoly and competitive
services, based on the use of embedded cost information, for the most recent calendar year.
For general rate proceedings, such information shall also be provided on a forward test year
basis. (Report, page 81 for 4.1, 4.2, 4.3, and 4.5 and page 119 for 4.4).

Decision 5

For the purpose of the Phase III costing methodology, the identification of cost/revenue relationships for certain services within the monopoly services category is an appropriate regulatory concern and therefore, the monopoly services category, as proposed in Public Notice 1981-41, shall be broken into separate revenue and cost categories for toll and local services. In addition, separate revenue and cost categories shall be established for all services and facilities used to provide access to monopoly and competitive network services. (Report, pages 12, 91 and 92)

Decision 6

The access category shall include all costs associated with the provision of protective devices at the subscriber's premises, the drop and block wires, the loops connecting each subscriber to a central office, the non-traffic sensitive costs associated with the termination of those loops at the central office main distribution frame and all costs associated with any station apparatus plant and related connection which are being provided on a monopoly basis. (Report, page 93)

Decision 7

The categories for which Bell, B.C. Tel, NWT and TNT shall submit revenue and cost information are as follows:

Revenue Categories

I Access
II Monopoly Local
III Monopoly Toll
IV Competitive Network
V Competitive Terminal
VI Other

Cost Categories

I Access
II Monopoly Local
III Monopoly Toll
IV Competitive Network
V Competitive Terminal
VI Other
VII Common

(Report, pages 99 and 100)

Decision 8

Costs in excess of revenues associated with the access category will be recovered by appropriate contributions from the other prescribed categories as may be determined by the Commission from time to time in general rate proceedings or otherwise. Access costs may in the future be recovered, in whole or in part, by a separate set of tariffs designed for that purpose. (Report, page 92)

Decision 9

A Phase III costing method based on the costing processes contained in Telecom Canada's RSP shall be developed by Bell and B.C. Tel for regulatory purposes in accordance with the implementation process and directives set out in Part IV of this decision. (Report, page 177)

Decision 10

A Phase III costing method based on the approach proposed by NWT and TNT shall be developed by them for regulatory purposes in accordance with the implementation process and directives set out in Part IV of this decision. (Report, page 183)

Decision 11

The categories for which CNCP shall, submit revenue and cost information are as follows:

Revenue Categories

I Monopoly
II Competitive Network
III Competitive Terminal
IV Other

Cost Categories

I Monopoly
II Competitive Network
III Competitive Terminal
IV Other
V Common

(Report, page 100)

Decision 12

A revised Phase III costing proposal shall be developed by CNCP for regulatory purposes in accordance with the implementation process and directives set out in Part IV of this decision. (Report, page 189)

Decision 13

The categories for which Telesat shall submit revenue and cost information are as follows:

Revenue Categories

I 6/4 GHz Space Segment
II 14/12 GHz Space Segment
III Earth Segment
IV Other

Cost Categories

I 6/4 GHz Space Segment
II 14/12 GHz Space Segment
III Earth Segment
IV Other
V Common

(Report, page 201)

Decision 14

A Phase III costing method for Telesat based on the approach proposed by it is accepted with a requirement that revenue/cost information be submitted, in support of any general adjustments in Telesat's space or earth segment rates, in support of any major investments in new facilities and otherwise upon the Commission's request. This costing method shall be developed by Telesat for regulatory purposes in accordance with the implementation process and directives set out in Part IV of this decision. (Report, page 205)

IV IMPLEMENTATION

The Commission has concluded that a more detailed implementation process than was recommended in the Report is required. The details of the implementation process for each carrier are set out below.

The Commission notes that there will necessarily be differences in the particular implementation of an RSP based category costing method by Bell and B.C. Tel. However, in order to minimize the number of differences, the Commission encourages Bell and B.C. Tel to establish suitable joint working arrangements during this implementation process. Likewise, NWT and TNT are encouraged to make similar arrangements between themselves.

A. Submission of Documents

Each carrier shall file with the Commission on or before 25 July 1985, the documents specified below. At the same time, the Commission requests each carrier to identify a representative who may be contacted should additional documents or clarifications be required during the implementation process.

1. Bell and B.C. Tel

The following documents are directed to be filed by Bell and B.C. Tel respectively.

(1) The most recent version of the Telecom Canada Administrative Practices (TCAPs), with an
identification of all major changes to the version of the TCAPs filed during the Phase III
proceeding on 4 January 1982.

(2) A schedule of all basic studies done by it in support of the current TCAPs identifying for each
basic study the frequency of update and the latest revision date.

(3) A copy of its flowcharts and worksheets including an identification of all necessary source
documents relating to each basic study identified in the schedule above.

(4) In the case of Bell, a copy of its current General Circulars 101.15, 101.16 and 301.2, and in
the case of B.C. Tel, a copy of its current accounting manual.

(5) In the case of Bell, an index of all analysis, report and budgetary control forms and
supplements, as presented in Bell(ONT)03Mar81-904, 905 and 906, with a brief description of
each item, and in the case of B.C. Tel, an index of all monthly, quarterly or annual reports
relating to its investments or expenses, similar in nature to those identified in
Bell(ONT)03Mar81-904, 905 and 906, with a brief description of each item.

(6) An index of all other periodic reports, methods and procedure guidelines used by it in
connection with its budgetary, accounting or monthly settlement information systems, with a
brief description of each item.

2. NWT and TNT

The following documents are directed to be filed by NWT and TNT respectively.

(1) A copy of its current Accounting Manuals, including:

a) a complete Accounting Procedures Manual with any existing flowcharts of its systems and
sub-systems;

b) a listing of all balance sheet, revenue, expense and income accounts including
sub-accounts and cost codes;

c) a listing of all plant asset codes; and

d) a content definition of each revenue, expense, income and plant asset account, sub-
account and cost code.

(2) The General Ledger trial balance showing the pre-closing balance of each account and
sub-account by cost code, as at 31 December 1984.

(3) The schedule of plant assets indicating, as at 31 December 1984, the following:

a) asset code;
b) class of plant descriptions;
c) gross plant value;
d) accumulated depreciation;
e) net plant value;
f) depreciation rate for 1984;
g) depreciation expense for 1984.

(4) A copy of each output report produced by its accounting/financial systems package, for
year-end 1984.

(5) A copy of each statistical data report which it intends to use in its proposed costing
processes, for year-end 1984.

(6) An organization chart indicating its present administrative and line management structure.

3. Telesat

The following documents are directed to be filed by Telesat:

(1) A copy of its Accounting Policy Manual.

(2) A copy of its code of accounts including those sections which identify cost centres, locations,
projects, customers and services.

(3) An index of all periodic reports, methods and procedure guidelines which it intends to use in
its proposed Phase III costing method, with a brief description of each item.

B. Submission of Reports

Each carrier shall file with the Commission, on or before 25 October 1985, the reports specified below.

1. Bell and B.C. Tel

Bell and B.C. Tel are each directed to file a report on:

(1) the implementation of an RSP based costing method including those modifications to the
existing RSP costing processes identified in the Report at pages 161 to 170, identifying
consequent revisions and changes that are required to existing RSP procedures and
practices, outlining the approach to be followed in making such revisions and changes, and
identifying them in relation to the relevant TCAP procedures and accounts;

(2) its approach to substantiate, on an empirical basis, the fixed or non-causal nature of those
costs assigned to the common category;

(3) its method to identify those revenues and costs associated with dedicated loops provided by
it both to its competitive services' subscribers and to its competitors;

(4) the basis on which its financial expenses and income taxes should be assigned among the
prescribed Phase III categories using a RSP based costing method; and

(5) its method for determining a distinctive risk-adjusted cost of capital for each of the prescribed
Phase III categories.

2. NWT and TNT

NWT and TNT are each directed to file a report on:

(1) modifications to its costing method to take into account: the prescribed categories in Decision
7, the need to assign financial expenses and income taxes to the prescribed service
categories, the need to provide information on revenue/cost relationships on a forward test
year basis, and the need to ensure compatibility with Decision 4.4 with respect to the
development of costs associated with usage sensitive facilities;

(2) its approach to substantiate, on an empirical basis, the fixed or non-causal nature of those
costs assigned to the common category;

(3) its method for determining a distinctive risk-adjusted cost of capital for each of the prescribed
Phase III categories;

(4) its method for identifying and assigning spare capacity costs among the prescribed Phase III
categories; and

(5) in the case of TNT, the feasibility of adopting allocation procedures which correspond more
closely with those proposed by NWT.

3. CNCP

CNCP is directed to file a revised Phase III costing method proposal which shall include:

(1) an adequate description of how its blended cost approach would be adapted to a forward test
year;

(2) the assignment of fixed common costs to a separate common cost category;

(3) the development of the costs of usage-sensitive facilities, based upon the utilization of
demand data which represents usage in the peak period only; and

(4) a comprehensive description of the assignment factors proposed for use in relation to the
relevant accounts, together with a rationale for them.

4. Telesat

Telesat is directed to file a report on:

(1) the criteria considered appropriate for the selection of the commencement date for and
duration of multi-year test periods having regard to, among any other matters, the estimated
service life of assets used to provide service and the inclusion of the cost of major additional
investments required for the continuation of a service;

(2) the appropriate methodology to be used in combining the results of non-coincidental multi-
year test periods to ensure comparability of revenue/cost information among the categories
prescribed in Decision 13; and

(3) its approach to substantiate, on an empirical basis, that any costs assigned to the common
category are fixed.

C. Submission of Costing Manuals

Following its assessment of the documents and reports directed to be filed, including any further information that may be required, the Commission intends to issue orders regarding the preparation of Phase III costing manuals. At this time, the Commission intends that these orders will require each carrier to file complete Phase III costing manuals and an initial set of results for the most recent calendar year within six months from the date of the order.

V CONCLUSION OF THE COST INQUIRY

The terms of reference for the Cost Inquiry were published by the Canadian Transport Commission (CTC) on 21 September 1972. These terms of reference related to a number of matters, including determination of an appropriate rate base, treatment of deferred income taxes, methods of computing depreciation, accounting and reporting practices, as well as the development of an appropriate methodology for regulatory service costing. Consultants were retained by the CTC to assist it in the inquiry and a Technical Group was established to work with the consultants. During 1973 and 1974, nine volumes of reports were submitted by the consultants to the CTC. While the consultants made recommendations on the development of an appropriate service costing methodology for regulatory purposes, they also noted that the Technical Group had not reached a consensus on the major service costing issues.

The jurisdiction exercised by the CTC over federally regulated telecommunications carriers was transferred to the Commission on 1 April 1976. Specific responsibility for the Cost Inquiry was transferred by Orders in Council P.C. 1150 and P.C. 1443 on 18 May 1976 and 15 June 1976 respectively. Later, the Commission decided to deal with these matters in a multi-phase program of public hearings and decisions.

Phase I of the Cost Inquiry culminated in Inquiry into Telecommunications Carriers' Costing and Accounting Procedures Phase I: Accounting and Financial Matters, Telecom Decision CRTC 78-1, 13 January 1978 (Decision 78-1), as amended by Revision to Certain Directives Contained in Telecom Decision CRTC 78-1, Telecom Decision CRTC 79-4, 8 May 1979. In these decisions, the Commission set out its conclusions with regard to certain issues which it believed had to be settled before the complex problems of service costing could be resolved. These issues related to depreciation, the treatment of deferred taxes, the appropriate method of calculating the rate base and certain accounting procedures.

In Decision 78-1, at pages 21-22, the Commission also announced that it intended to schedule five phases of the Cost Inquiry as follows:

Phase II will deal with the establishment of the cost and related information that the
Commission will require to be filed in future by carriers under its jurisdiction in support of new
tariffs.

Phase III will establish the cost and related information to be required in support of rates for
competitive services in general rate applications. The Commission notes that the completion
of the first three phases will resolve a number of the problems that have been of the greatest
concern to many participants in the Cost Inquiry. It is intended that all three phases will be
completed by the end of 1978.

Phase IV will establish the information requirements to be filed in support of a carrier's general
rate increases and for rate structure changes.

Phase V will attempt to clear up miscellaneous issues such as rate of return and capital
structure as well as issues arising but remaining unresolved from earlier phases of the Inquiry.

Phase VI will establish reporting systems for the information to be filed with the Commission
by the carriers on an ongoing basis. These will include information relating to such areas as
quality of service and construction programmes as well as that arising out of the various
phases of the Inquiry.

Phase II of the Cost Inquiry, as announced, dealt with the cost and related information the Commission would require in support of the carriers' tariffs for new services and resulted in Decision 79-16. In that decision, the Commission approved a costing approach for new services.

Phase III of the Inquiry commenced on 15 December 1981 with the release of Public Notice 1981-41. In that notice, at page 6, the Commission indicated that the issues raised by Phase III were sufficiently complex that further work might be required following the proceeding to establish an operational costing method for each carrier. Nevertheless, the Commission indicated that it expected to be in a position to determine an appropriate course for the future of the Cost Inquiry and to reassess the six-phase program announced in Decision 78-1.

The six-phase program has been reviewed in light of the determinations and implementation process set out in this decision. The Commission has concluded that it is no longer necessary to continue the Cost Inquiry, or the remaining phases of it, as originally envisaged, in order to deal with any outstanding matters associated with the Inquiry. Such matters have either been dealt with in this decision or in other proceedings in the intervening years, or can be appropriately dealt with in separate proceedings in the future. Accordingly, while considerable work remains to be done to establish the carriers' operational Phase III costing methods, the Commission considers it appropriate at this time to announce that the Cost Inquiry initiated in 1972 by the CTC, together with the six-phase program announced in Decision 78-1, are hereby concluded.

Fernand Bélisle
Secretary General