ARCHIVED -  Telecom Decision CRTC 86-13

Telecom Decision

Ottawa, 8 July 1986

Telecom Decision CRTC 86-13

BRITISH COLUMBIA TELEPHONE COMPANY - 1985 CONSTRUCTION PROGRAM REVIEW

I INTRODUCTION

In CRTC Telecom Public Notice 1985-53, dated 2 August 1985 (Public Notice 1985-53), the Commission announced that it would conduct a review of the construction program of British Columbia Telephone Company (B.C. Tel). On 1 October 1985, the company filed its 1986-1990 five-year plan along with other information which the Commission had requested. On the same date, B.C. Tel filed its criteria for one-way extended area service (EAS) in compliance with the Commission's direction in British Columbia Telephone Company - General Increase in Rates, Telecom Decision CRTC 85-8, 30 April 1985 (Decision 85-8). The review meeting was held on 26 and 27 November 1985 in Vancouver, British Columbia.

Participants in this review included the Association of Competitive Telecommunications Suppliers (ACTS), the Consumers' Association of Canada (CAC), the Federated Anti-poverty Groups of British Columbia and the British Columbia Old Age Pensioners Organization (FAPG et al), and Radio Service Engineers Limited (RSEL). Comments from these parties were filed on 28 January 1986 and reply comments from B.C. Tel were filed on 18 February 1986.

II THE CAPITAL PLAN - PLANNING AND METHODS DOCUMENT

The document entitled Capital Plan - Planning and Methods describes how the capital plan is developed, analyzed, and monitored; the plant provisioning process; and the relationship between the capital plan and efficiency and quality of service. In response to the Commission's request in Public Notice 1985-53, B.C. Tel submitted an update to the 21 September 1984 revision of this document dated 23 September 1985. The company submitted the update with its 1986-1990 five-year plan, on 1 October 1985.

The Commission has reviewed these changes and, apart from a discrepancy in forecast periods, finds them acceptable. The company changed the forecast period from 7 years to 6 years in one case and from 5 years to 7 years in another. When it was asked for the reasons for these changes, B.C. Tel stated that its policy is to forecast the current year plus five additional years and undertook to clarify the wording with regard to forecast periods in the next edition of the document.

III UTILIZATION OF CENTREX SWITCHES

Aggregate centrex utilization was 71.3% in 1984 and 64.0% in 1985 compared with 83.6% for digital central offices in 1984. ACTS submitted that this evidence shows that B.C. Tel is overprovisioning for centrex. ACTS stated that this overprovisioning is due to both the aggressively competitive positioning of the centrex service, called integrated business service (IBS) by B.C. Tel, in the competitive terminal market and the lack of centrex software for the GTD-5 switch.

In its reply comments, B.C. Tel stated that while a combined switch may be economical where the requirement for IBS is small, B.C. Tel's IBS applications are for very large customers. The company noted that in Vancouver, the capacity of one entire switch has already been exceeded. B.C. Tel stated that utilization of centrex tends to be more erratic than that of central offices: the addition or deletion of one major customer on a centrex switch can change the utilization significantly; central office growth generally occurs a line or two at a time whereas changes in assignment to centrex switches tend to occur in larger quantities. In view of the very large size of the two IBS customers, the company does not believe the IBS switches to be over provisioned.

The Commission notes that, while aggregate utilization of digital central offices was 83.6% in 1984, the individual utilizations varied between the ranges of 70%-75% and 95%-100% with a standard deviation of 26.4%. The Commission also notes that centrex utilization fell within one standard deviation of the mean. The Commission considers this level of utilization to be reasonable and, accordingly, finds B.C. Tel's provisioning of centrex switches to be reasonable.

IV COMPARISONS OF ACTUAL EXPENDITURES WITH FORECAST EXPENDITURES

In preparing its budget, B.C. Tel estimates its expenditures for each project by class of plant for each project and then allocates the estimated expenditures for each project to the applicable program usage categories. To compare actual expenditures to the budget by usage category, B.C. Tel prorates the actual expenditures in the same ratios as those used for budgeted expenditures. In interrogatory BC TEL(RSEL)Oct.21/85-107, RSEL asked why the company does not record actual expenses by usage category. B.C. Tel responded that because the allocation of money to programs is subjective in many cases, field forces are not able to allocate time or materials to programs accurately. B.C. Tel gave the example that a person replacing step-by-step equipment with digital equipment could not determine whether a given piece of work should be growth or modernization ; therefore, he would have to allocate these costs using program percentage allocations in the capital program management system. The company submitted that this would produce the same result as its prorating system. The company stated that the prorating process has not been evaluated by its auditors.

RSEL expressed the view that the subjective prorating of actual expenditures and the lack of an audit of the prorating process raises concerns about the accuracy of the capital plan itself and the reliability of the Construction Program Review (CPR) process. RSEL submitted that the Commission, in an effort to prevent the weakening of interveners' confidence in the integrity of the CPR process, should direct the company to have auditors evaluate the prorating system. RSEL also submitted that the results of such an evaluation should be filed with the Commission for consideration by the parties during a future CPR meeting.

In the Commission's view, B.C. Tel's example is illustrative of the fact that the allocation of money to programs would often be subjective, of necessity. The Commission considers, therefore, that the procedure of allocating the actual expenditures to usage categories using the same ratios that were used to allocate the estimated expenditures to usage categories is acceptable and that there is no need to have this procedure audited. Accordingly, the Commission finds that B.C. Tel's prorating process is reasonable.

V INFLATION

CAC expressed its concern about B.C. Tel's ability to forecast inflation, pointing out that the company's forecast of cost increase factors for 1985 will likely prove to be higher than the actual factors by over 2%. CAC maintained that the Commission must act to stem B.C. Tel's forecasting errors. CAC's reasoning was that if actual inflation is less than forecast, the company will earn excess profits because a future test year is used to establish the rate base and therefore rates for service are based on the forecast rate of inflation, among other things. Accordingly, CAC recommends that the overall forecast inflation be reduced from 5% to 3.5%.

In its reply comments, B.C. Tel stated that its inflation estimates are used only when specific price information is not available. The company argued that, as virtually all costs of projects making up the plan in the current year (1986) have been based on actual quotations or other reliable cost information, changing the inflation rate assumption for 1986 will not change the level of capital expenditures for 1986. B.C. Tel also argued that CAC's suggestion of basing future estimates of inflation solely on the existing rate of inflation would be irresponsible. The company noted that it has been argued in the past that its inflation is not equal to the consumer price index (CPI) but is unique to the telephone industry.

The Commission agrees with CAC that forecasting errors can influence the rate base but it is of the view that an error in the forecast of cost increase factors would not have a significant effect on the rate of return realized by the company. The Commission considers that a 2% reduction in the cost increase factor would reduce 1986 expenditures and the 1986 rate base by $7 million at the very most. This would represent less than 3/10 of 1% of B.C. Tel's $2.2 billion rate base.

The Commission considers, however, that the appropriate forum for dealing with the impact of inflation forecasts on revenue requirements is a general rate proceeding.

VI PURCHASING

All of the participants had comments related to B.C. Tel's purchasing of equipment. These comments fell into two categories: those concerning the practices themselves and those concerning equipment choice. ACTS noted that the Commission, in British-Columbia Telephone Company, General Increase in Rates, Telecom Decision CRTC 81-3, 29 January 1981, stated that it would review the company's procurement practices in the context of a CPR proceeding and requested that a knowledgable witness be present at the next CPR.

ACTS argued that a more detailed review of the tendering procedure is required in those cases where Microtel is the successful supplier. It also argued that B.C. Tel should be required to explain in detail the extent of joint purchasing by Telecom Canada and to present evidence to satisfy the Commission that such joint purchases do not adversely affect the subscribers of B.C. Tel.

FAPG et al expressed concern that the relationship between B.C. Tel and GTE Service Corporation predisposes the company to violate its purchasing procedures.

CAC argued that the performance of the GTD-5 switch is inferior to that of the DMS-100. CAC submitted that B.C. Tel should review its commitment to GTD-5 switches and requested the Commission to direct B.C. Tel to conduct a comprehensive performance analysis of available switches of other types. ACTS submitted that the Commission should do an audit of the election process which lead to the standardization upon the GTD-5 to satisfy itself that an independent evaluation was made. ACTS also submitted that the Commission should require the company to provide status reports on the development of the GTD-5's integrated services digital network (ISDN) capability. RSEL recommended that the Commission encourage the carriers and interveners to work towards common comparison standards for equipment performance. FAPG et al suggested that B.C. Tel could compare the performance of its switches with Bell Canada's switch performance using a list of factors begun in Volume I, page 165 of the transcript of this proceeding and finalized in Exhibit BCT-CPR 85-25, 18 December 1985. It also suggested that as a next step, a list of all switches, each switch's utilization rate and an enumeration of each of the factors relating to each switch be prepared. FAPG et al added that B.C. Tel should obtain a similar list from Bell Canada to permit closer examination of this matter next year.

In its reply comments, B.C. Tel stated that it is not aware of any evidence that its written procurement practices have not been followed. The company maintained that since the procedures went into effect at the end of 1979, it has followed the tendering procedure irrespective of whether the product was available from Microtel. B.C. Tel also stated that it participates in the Telecom Canada tendering process when it is beneficial to do so with regard to such items as quantity discounts or technical compatibility requirements. In the company's opinion, the proceeding on purchasing policy which is in progress is the proper forum to resolve the majority of the issues concerned with equipment purchases. Regarding the availability of expert witnesses, B.C. Tel suggested that, in future, ACTS participate in the interrogatory process so that the company can carry out the appropriate research and provide a more complete answer.

With respect to the relationship between B.C. Tel and GTE Service Corporation, B.C. Tel stated that it has never interpreted the agreement in the manner indicated by FAPG et al. The company maintained that it has developed and follows its own purchasing policy.

Regarding the adoption of the GTD-5, the company noted that in making this choice, it had followed its purchasing procedures. B.C. Tel contended that it is at the equipment selection stage that cost comparisons are meaningful and not at the stage of providing additions. In respect of common comparison standards for equipment performance, the company stated that it has identified the problems that arise with such comparison standards and contended that any attempt to make these comparisons would prove to be frustrating and unproductive for all concerned. B.C. Tel submitted that it would not be prudent to embark on a course of equipment performance comparisons until it could be determined that the desired results are achievable, that there is a purpose defined, and that such a course could affect purchasing direction.

In the Commission's view, the purchasing practices proceeding is the proper forum for the consideration of B.C. Tel's purchasing practices as such. Accordingly, consideration of these practices will be undertaken in that proceeding.

With regard to equipment choice questions, the Commission notes that it has been approximately five years since B.C. Tel committed itself to the GTD-5 equipment. The Commission is of the view that the company should review its original decision to determine whether the GTD-5 is still the most cost-effective equipment for new installations. Accordingly, B.C. Tel is directed to prepare a study on the selection of switching equipment for new class 5 switch installations for presentation at the 1986 CPR.

The Commission shares the concerns of the interested parties who proposed equipment performance comparisons and will continue to pursue this matter.

VII CAPITAL PLAN 1986-1990

A. Usage Categories

The following table summarizes B.C. Tel's capital program by usage category.

1986 1987 1988 1989 1990
Usage Category ($ millions)

Primary Telephone Service 176.5 163.2 163.0 168.5 161.6
Modernization 93.8 80.4 59.1 68.5 128.6
Service Improvement 18.0 14.5 16.2 21.9 21.4
Operating Improvement 32.1 36.2 23.2 17.5 14.3
Administrative Support 38.3 27.7 27.3 26.3 27.5
Total/Total 358.7 322.0 288.8 302.9 353.4

1. Primary Telephone Service

The primary telephone service category consists of programs that are necessary to provide and maintain network plant and equipment to meet present and projected demand for existing telecommunications services. For the years 1986 and 1987, the capital expenditures forecast in the 1985 view are 18.6% less than those forecast in the 1984 view. The Commission notes that this reduction compares with the company's demand forecasts which have also been reduced; in the 1985 view, the line growth forecast and the billed long distance messages forecast are, respectively, 20% and 19% less than those in the 1984 view.

2. Modernization

The modernization category consists of programs for replacing obsolete equipment with modern technology. For the years 1986 and 1987, the capital expenditures forecast in the 1985 view are 19.9% greater than those forecast in the 1984 view. This increase is due mainly to two adjustments: advancing the date of replacement of the crossbar toll switch in Vancouver from 1989 to 1988, and introducing the facility grooming program.

3. Service Improvement

The service improvement category consists of programs that are undertaken to provide new or improved customer services. For the years 1986 and 1987, the capital expenditures forecast in the 1985 view are 35.0% less than those forecast in the 1984 view. This change is due to the deletion of some projects, the reduction of activity on others, and the creation of new projects. The project called local value added service has been deleted until such time as specific services, demand, and time frame can be established. New projects include ISDN, broadband transmission services, and public communications services. Projects with reduced activity include custom calling and remote call forwarding, computer communication networks, service to remote communities, radio telephone automation, rural service, electronic messaging, automated calling card service (ACCS), local measured service (LMS) and satellite services.

4. Operating Improvement

The operating improvement category consists of programs that are undertaken to improve the operating efficiency of the company. For the years 1986 and 1987, the capital expenditures forecast in the 1985 view are 8.8% greater than those forecast in the 1984 view. This increase is due to the addition of one new project called network performance enhancements (high performance routing) as well as minor adjustments in the activity rate of a number of other projects. Projects with increased activity include automatic remote line testing, air conditioning, Daisy (Directory assistance and intercept system) enhancements, and regional network control centres. Projects with decreased activity which restrained the increase in forecast expenditures include fire protection, subsurface conversion, common channel signalling, and network support systems. The forecast was affected by the transfer of the serving area concept program to the modernization category.

5. Administrative Support

The administrative support category consists of programs necessary to provide and maintain plant or equipment necessary to support operational needs. For the years 1986 and 1987, the capital expenditures forecast in the 1985 view are 3.5% less than those forecast in the 1984 view. This reduction is due to the deferment of some land purchases, the cancellation of some warehouse and plant center expansions, and its continuing program to equip its automobile fleet with smaller vehicles. During the review meeting, B.C. Tel stated that the flight operations hanger which was forecast for the year 1986 had been cancelled. FAPG et al submitted that the Commission should take this decrease in expenditures, amounting to $400,000, into account in its decision.

B. Integrated Services Digital Network

ISDN is a new program in the service improvement category which requires the evolution of B.C. Tel's network to provide customers with services using end-to-end digital capability. It would permit customer selection and control of discrete and integrated voice, data and video services for which a switching and access network, conditioned for these capabilities, would be required. B.C. Tel maintained that the program was established in recognition of the emerging demand for services which require a network with digital capability, distributed intelligence and the capability to allow the provisioning of discrete and integrated services over the customer access network. The company also stated that investment will be market driven and will be focused on the provisioning of electronics and fiber optics in the customer access loop. The forecast expenditures are as follows:

1986 1987 1988 1989 1990
($ millions)

2.1 3.9 7.1 2.3 12.5

B.C. Tel stated that these estimates are based on preliminary planning costs and that refinements would be made based on future analysis of market potential and economic viability. Field trials and initial implementation are planned for the 1986 to 1987 time frame.

CAC, FAPG et al and RSEL asserted that ISDN is being driven by technology, that the demand for these services has not been confirmed by the company, and that the company has not established firm plans for these expenditures. Accordingly, these parties recommended that the expenditures for ISDN be disallowed at this time. FAPG et al also requested that a costing method be developed to ensure that those subscribers who do not use this service do not subsidize it. CAC suggested that, should the company wish to pursue ISDN, it should submit its plans for consideration at the next construction program review. RSEL suggested that the company should take a "wait and see approach pending the results of field trials by other telephone companies.

In its reply comments, B.C. Tel stated that ISDN is technology driven to the extent that it is practical to associate ISDN with the basic technical capability of the integrated digital network which is largely in place and which was itself developed to improve performance and reduce cost on B.C. Tel's network. The company contended that it is both positive and appropriate to initiate a program designed to provide new digital services to both residence and business customers. B.C. Tel acknowledged that ISDN-compatible customer premises equipment is currently not widely available and noted that the rate at which it would provide ISDN access lines and core network capacity would match the growth in number of customers' terminal devices. The company also stated that a number of technical, operational, administrative and maintenance issues must be identified and resolved before ISDN capability can be deployed to any significant degree in the access portion of the B.C. Tel network. According to B.C. Tel, these issues can be addressed most effectively through ISDN access technology trials which it proposes to conduct starting in 1986. In regard to the suggestion that these expenditures be disallowed, the company contended that the exclusion of programs from the capital plan until each is fully studied and cost justified would be to the detriment, exclusively, of the Commission and interested parties by depriving them of any advance knowledge of such programs. B.C. Tel argued that deferment of 1986 and 1987 ISDN-associated expenditures would amount to a denial that technology, the network and the market place are evolving and will continue to evolve at an accelerating rate. The company stated that ISDN projects will not be submitted for approval until they can be supported with adequate market and economic analyses and that no trials will be undertaken until the Commission has been informed.

In Decision 85-8, the Commission said:

The company is reminded that a primary purpose of the CPR is to review, in detail, the
expenditures planned for the first two years of the Five-year Capital Plan. Accordingly, in
future, the Commission will expect all expenditures planned for these two years to be fully
defined and all economic studies for all major capital projects proposed for construction during
this interval to be complete.

The Commission notes that the $6 million of expenditures for 1986 and 1987 are primarily for an ISDN trial to identify and resolve technical, administrative and maintenance issues and it is satisfied that B.C. Tel's submission of this program forecast complies with Decision 85-8. The Commission notes further that an economic evaluation will be undertaken before the major expenditures in the last three years of the plan are undertaken. The Commission agrees with B.C. Tel that removal of these expenditures would be a denial that technology, the network and the market place are evolving at an accelerating rate.

The Commission considers the development of a costing method to be premature. However, the Commission notes that, in the future, if all new installations are ISDN compatible, there would be added costs even for those connections which are for basic service. The Commission considers, therefore, that costing procedures may be required in order to ensure that the subscriber of basic telephone service is not subsidizing ISDN services.

In light of the public interest in this program, B.C. Tel is directed to prepare a presentation on ISDN for the 1986 CPR.

C. Facility Grooming

The facility grooming program is in the modernization category and provides capital to condition the customer access network to accept digital technology. It will be a phased program which will allow the introduction of ISDN. The expected transmission requirements of ISDN technology will be met through the use of the serving area concept (SAC) design program, which has been transferred from the operating improvement category, and by the introduction of electronics and fibre optics. SAC was developed in 1979 to provide a more cost effective method of designing outside plant.

B.C. Tel established its SAC conversion program in 1979 and expects to have converted the outside plant associated with central offices having over 4000 lines by 1993. As shown in the table below, most of the expenditures in the facility grooming program are for SAC.

1986 1987 1988 1989 1990
($ millions)

SAC 9.3 11.9 12.0 12.7 13.9
Other 1.4 3.0 3.5 5.0
Total 9.3 13.3 15.0 16.2 18.9

FAPG et al argued that, for the same reasons as those described under ISDN, facility grooming expenditures should be disallowed. RSEL argued that only the portion of facility grooming not associated with SAC should be disallowed by the Commission and that the company should take a "wait and see" approach as recommended with ISDN.

In its reply comments, B.C. Tel stated that the major portion of this program is for SAC which is independent of ISDN. It added that the other portion of the program which is related to ISDN will be justified as part of any ISDN undertaking.

The Commission notes that for 1986 and 1987, all but $1.4 million are for SAC and that B.C. Tel has undertaken to justify any ISDN related expenditures prior to project approval.

D. Common Channel Signalling

Common channel signalling is in the operating improvement category. B.C. Tel maintained that common channel signalling is more efficient than conventional signalling and provides flexibility which will allow the provision of new services and features more economically. The forecast expenditures for this program are as follows:

1986 1987 1988 1989 1990
($ millions)

0.90 15.0 13.8 10.5 9.5

RSEL submitted that at the present time only Microtel and GTE Service Corporation would benefit from the common channel signalling through the sales of the specialized equipment required to provide common channel signalling capability, and there is no clear indication of any substantial benefit to the general body of subscribers. RSEL strongly recommended that the Commission disallow the expenditure associated with this program.

In its reply comments, B.C. Tel stated that common channel signalling will provide several benefits: a reduction in the number of toll circuits required because of the reduced set up time per call; the capability to offer enhanced 800 services; the capability to offer a whole range of call management services; and additional network control features to enhance network management. The company also stated that telecommunications networks world wide will be adopting common channel signalling and that it would be unrealistic, impractical and costly for B.C. Tel not to participate.

The Commission agrees with the benefits of common channel signalling as described by B.C. Tel but notes that an economic study has not yet been completed. However, considering the low forecast of expenditures for 1986, the Commission does not consider this to be a serious problem provided that the study is prepared and the results presented at the 1986 CPR.

E. Automated Calling Card Service (ACCS)

ACCS is in the service improvement category. It will allow the customer to make calling card calls from touch phones without the need of operator assistance. The company maintained that ACCS will slow the rate of growth of the operator work force, decrease fraud and improve customer service.

RSEL stated that guests in hotels and motels served by step-by-step exchanges will not be able to access ACCS, no matter how advanced their PBX's may be. RSEL maintained that this includes all the guests of hotels and motels in the North Vancouver (98) exchange and the Trinity (87) exchange.

In its reply comments, B.C. Tel stated that customers in step-by-step exchanges, including North Vancouver and Trinity, will be able to access ACCS.

The Commission agrees with B.C. Tel, but notes that the ability to limit fraud depends on the existence of an automatically accessible database which may not exist at present.

F. Local Measured Service (LMS)

LMS is in the service improvement category. The stated objective of this program is to have an LMS trial in one or more exchanges. The trial would be designed to determine if LMS is in the best interests of the company and its customers and would be contingent upon Commission approval. The forecast expenditures for this program are $414,000 in 1988.

FAPG et al submitted that, as the company has no firm plans for LMS, this expenditure should be disallowed. FAPG et al stated that LMS involves policy issues on the universality of service and that including it in the Capital Plan bypasses all necessary public and political debate.

In its reply comments, B.C. Tel stated that both the company and the Commission are on record to the effect that no LMS field trial or implementation will take place until after the completion of a public proceeding on LMS.

The Commission notes that this expenditure is budgeted for 1988, beyond the first two years of the capital plan. Hence, from the Commission's viewpoint, the expenditure is not yet required to be fully defined or to be supported by an economic study. The Commission also notes that any proposed market trial must be approved by the Commission before it may be implemented.

G. Public Communication Services

This program is in the service improvement category. B.C. Tel stated that it provides for a trial of a credit card phone system in the Burrard area during 1986. If the trial proves successful, the company plans to reconfigure the switching system processor to allow processing of calls from other areas. The forecast expenditures are as follows:

1986 1987 1988 1989 1990
($million)

0.4 0.3 Nil 0.1 0.02

FAPG et al submitted that these expenditures should be disallowed for 1986 and 1987. FAPG et al maintained that there is a legal problem under the Consumer Protection Act, with respect to the credit cards, and that the legislation would have to be amended before the service could be a viable option for the consumers.

In its reply comments, B.C. Tel stated that the calling cards issued by the company to its customers are not credit cards and that, therefore, the Consumer Protection Act is not applicable.

In the Commission's view, the legal arguments as to whether or not these cards are credit cards or calling cards does not affect the reasonableness of the forecast capital expenditures.

H. Conclusion

Having considered all the evidence before it, the Commission finds B.C. Tel's 1986 to 1990 capital plan to be reasonable.

VIII EXTENDED AREA SERVICE

In Decision 85-8, the Commission considered that the company had not provided an adequate explanation of the basis for determining whether EAS will be provided to telephone exchanges. It expressed the view that clear and precise criteria are desirable in order that all B.C. Tel subscribers may be treated in a fair and equitable manner. Accordingly, the company was directed to provide further information on this matter at the CPR meeting in the Fall of 1985.

As requested in Public Notice 1985-53, B.C. Tel provided further information in this regard with the 1985 view of its construction program. The company also responded to further Commission interrogatories dated 21 October 1985, prior to the review meeting of 26 November 1985, and it provided further information at the review meeting itself.

The company stated that its EAS decision model is centred around the concept of measuring the dependence of the community containing the originating exchange on the community containing the terminating exchange.

This dependence is defined and measured in terms of telephone access to basic and discretionary needs. Basic needs are defined as the following: life support, education, government services, employment, professional services and shopping for non-discretionary goods and services. Discretionary needs, on the other hand, are considered to be entertainment, recreation, social affiliations and shopping for specialty goods.

The company stated that its EAS decision model was developed in the following manner. Local customer service managers filled out "community dependence surveys" on 153 toll routes involving exchanges which could be considered for one-way EAS with other exchanges. The company stated that these routes were selected because at least 150 routes were needed to build and validate the model and because they provided the necessary range of traffic activity and distance between originating and terminating exchanges. In each case, the manager completed the survey using a 5-point rating scale to score each "need" in order to assess the extent to which customers in the originating exchange depended on services which are located in the terminating exchange. The company stated that it compared toll traffic volumes to the community dependence data using statistical analysis techniques.

B.C. Tel stated that its results indicated a strong relationship between community dependence and traffic activity among local exchanges.

Consistent with its view that the type and degree of community dependence should determine whether or not one-way EAS should be provided to replace a toll route between exchanges, the company set out its EAS model as follows. A high score of dependence regarding basic needs would indicate an eligibility for EAS, with or without a high discretionary needs score. A high discretionary needs score with a low basic needs score would suggest that an optional calling plan would suffice. A low score for both basic and discretionary needs would indicate that no change is required.

The company set out examples which, it said, would illustrate the logic of basing its EAS model on the degree and type of community dependence. It suggested that, first, when needs analysis showed high dependence in terms of basic needs, the toll traffic pattern would likely be not only heavy but also universal: most subscribers in the originating exchange would call the terminating exchange. The company indicated that, in such a case, it could conclude that a route was eligible for EAS.

In its second example, it suggested that in contrast, when needs analysis showed a high dependence in terms of discretionary needs only, the toll traffic would likely still be heavy but it would originate from a minority of subscribers. In this case, the company could conclude that the route was eligible for an optional calling plan, rather than EAS.

The company stated that a method of identifying routes which are eligible for EAS required a form of needs analysis which would provide a fair and accurate index of basic and discretionary needs and avoid the arbitrary assignment of values which would result if the community dependence survey were the sole analytical method used. Using factor analysis techniques, B.C. Tel created a statistical index of needs to be applied to the data which has been gathered by means of the community dependence surveys. The company asserted that such an index would reflect community dependence more precisely than one which resulted from a simple average or a weighted average of needs values.

Having arrived at an EAS decision model, the development of which is described above, the company established the method by which it identifies routes which are eligible for EAS. Where an exchange-to-exchange toll route is being considered for EAS, the local customer service manager completes a community dependence survey. The results are entered into the statistical model described above to obtain indices of basic and discretionary needs, on the basis of which the degree of one community's dependence on the other is determined. If the degree of dependence is found to be high, the type of dependence is then scored; for example, a higher than average score on basic needs, irrespective of the discretionary needs score, indicates eligibility for non-optional one-way EAS.

Using this method, B.C. Tel identified 80 routes which were eligible for one-way non-optional EAS. Of the 80, 68 have been subjected to one-way EAS plebiscites. B.C. Tel reported that 60 one-way EAS routes have been approved by subscribers and 8 have not. (Of the 8 plebiscites which resulted in the rejection of EAS, the company plans to conduct 2 again in early 1986.) Consideration of an additional 12 routes was deferred in 1979 for various reasons: in 6 cases, B.C. Tel viewed the capital costs involved as prohibitive; in 2 cases, it found that the subscribers' calling needs would be met by other EAS routes; in another 3 cases, it decided to conduct plebliscites in 1986; and, in one case, EAS has since been implemented. In addition to the 80 originally eligible EAS routes, B.C. Tel has identified 5 further routes as being eligible for EAS. In one of these cases, EAS has been rejected by plebiscite.

With regard to capital costs, the company indicated that there is no specific guideline on the level of capital costs that the company considers prohibitive. B.C. Tel stated that, while an initial estimate of approximately $7 million was identified in 1979 to implement the original 80 EAS routes, subsequent decisions to defer routes were made by the areas in question based on an assessement of the availability of capital in a given year and/or future plans for network additions or rearrangements.

The company submitted that the method of analysis described above has satisfied the greatest number of needs while minimizing increases in the revenue requirement as well as the associated burden on the general body of subscribers.

Having reviewed the additional information provided by B.C. Tel in this proceeding, the Commission has a clearer appreciation of the approach employed by the company to determine which exchanges in its territory are eligible for one-way EAS. While the Commission is of the view that the company's general approach to determining EAS eligibility and implementation is acceptable, it considers that weaknesses still exist, particularly with regard to the application of the statistical model. As well, the Commission considers that the company is not sufficiently precise in how it decides on the application of capital in implementing EAS on eligible routes. Nonetheless, the Commission considers that it would not be appropriate to pursue these matters further at this time in view of the fact that the relationship between local rates and message toll rates is under scrutiny. Accordingly, for purposes of this decision, the Commission accepts the company's current approach.

Fernand Bélisle
Secretary General