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ARCHIVED - Telecom Decision CRTC 86-16 | CRTC
 

Telecom Decision

  Ottawa, 15 August 1986
  Telecom Decision CRTC 86-16
  SUPPORT STRUCTURES AND RELATED ITEMS - PUBLIC PROCEEDING ON RATES
  For related documents see: CRTC Telecom Public Notices 1985-12, 1985-44 and 1985-64.
  Table of Contents
  I Introduction
  II Regulatory Objectives
A. Background
B. Positions of Parties
C. Discussion and Conclusions
  III Costing and Rating Approaches
A. CCTA's Approach
B. Terra Nova's Approach
C. Bell's Approach
D. B.C. Tel's Approach
E. Discussion and Conclusions
  IV Support Structures
A. Incremental Costs
1. Background
2. Costs Due to Loss in Productivity
3. Administrative/Marketing Costs
4. Other Incremental Costs Components
B. Fixed Structure Costs
C. The Recovery of Fixed Structure Costs
1. Positions of Parties
2. Discussion and Conclusions
  V Partial Systems
A. Positions of Parties
B. Discussion and Conclusions
  VI Repair and Maintenance Rates and Engineering Search Fees
A. Engineering Search Fees
B. Repair and Maintenance Rates
  VII Attachment of Service Drops to Third Party Poles
A. CCTA's Position
B. Bell's Position
C. Discussion and Conclusions
  VIII Other Factors
A. Fairness to Telephone and Cable Subscribers
B. Rate Stability and Subscriber Impact
  IX Tariff Filings
  I INTRODUCTION
  In Bell Canada, Tariff for the Use of Support Structures by Cable Television Licensees, Telecom Decision CRTC 77-6, 27 May 1977 (Decision 77-6), the Commission stated in regard to rates proposed by Bell Canada (Bell) for its support structure offering (SSO):
  rates for services offered under this tariff should be sufficient to recover the full costs of providing them, consisting of the causally attributable costs and an adequate contribution to the common costs, calculated in a reasonable manner. (p. 27)
  In Decision 77-6, the Commission found neither Bell's proposed costing method nor the method suggested by the Canadian Cable Television Association (CCTA) to be acceptable in developing rates and concluded as follows:
  In the long term, the Commission believes that rates for support structures can only be established with complete confidence after fuller study based on access to appropriate data, collected in the light of the factors set out above. (p. 29)
  The factors listed in Decision 77-6 were the need for some degree of rate stability, the equivalence of pole and conduit rates, the impact on subscribers of both the telephone and cable companies, and the need to be able to monitor certain aspects of the service such as demand, revenues and costs.
  The Commission noted the interim nature of the approach to rates it adopted in Decision 77-6 as follows:
  In the absence of such data, however, and in the face of immediate requirements, the Commission has decided to exercise its best judgment on appropriate rate levels to cover a period of time sufficient to permit some degree of stability in the rate structure and to permit the development of data which could be used to provide a more refined calculation in subsequent years. (p. 29)
  In British Columbia Telephone Company, Tariff For The Use Of Support Structures By Cable Television Licensees, Telecom Decision CRTC 78-6, 28 July 1978 (Decision 78-6), the Commission approved a tiered rate structure for providing support structure services depending upon the type of facility employed. However, the Commission noted:
  in approving the tier structure proposed, the Commission does so without prejudice to the rights of interested parties to submit alternate approaches at subsequent applications. (p. 19)
  Further, in Decision 78-6, the Commission noted that the principle that cable operators would be expected to cover all causally attributable costs and make an adequate contribution to the common costs was not seriously challenged by any party. Regarding the method proposed by British Columbia Telephone Company (B.C. Tel) for determining a cable licensee's share of costs for joint use poles, the Commission stated:
  In adopting the average ratio of telephone cables to coaxial cable on any given pole as the sole criterion for determining the cable licensees' share in the annual cost of book investment, the Commission believes that the Company placed due reliance on one factor which, while relevant, should not have been employed to the exclusion of all others. The Commission accepts the submissions of the CCTA witnesses who stated that other factors, such as cable weight, revenue potential, and proprietary interest, while not in themselves conclusive, were at least relevant and should have been considered. (pp. 19-20)
  In February 1983, the Commission received an application from Terra Nova Telecommunications Inc. (Terra Nova) for approval of tariffs providing for the introduction of cable support structure service.
  Terra Nova's proposed rates were based on the methodology employed by Newfoundland Light and Power, which is regulated by the Board of Commissioners of Public Utilities of Newfoundland and Labrador. Under this methodology, rates are set on the basis of the average annual carrying costs of the plant as computed from the previous year's data. The computation of the average annual carrying costs includes rate of return, depreciation, income tax, maintenance and administrative cost components. The method used for allocating the average annual carrying cost on joint use poles is to assign it in proportion to subscriber penetration. In Telecom Order CRTC 84-79, the Commission directed Terra Nova to utilize a rating structure incorporating rates lower than those derived from the Terra Nova methodology.
  Since Decision 77-6, the methodology to be applied, in the long term, in establishing rates for support structures and related items provided to cable television licensees by the federally regulated carriers has remained unresolved. In CRTC Telecom Public Notice 1985-44, Support Structures and Related Items - Public Proceeding on Rates, 26 July 1985, (Public Notice 1985-44), the Commission initiated the current proceeding to resolve that matter.
  The Commission incorporated the following related matters into this proceeding:
  (i) On 13 August 1984, the Commission received an application from CCTA requesting the Commission to reduce the rates of engineering search fees (Item 4920 of Bell's General Tariff). Bell filed its answer to CCRA's application on 13 September 1984 and CCTA filed its reply on 24 September 1984. On 19 November 1984, the Commission requested Bell to provide certain additional information. This information was filed on 10 December 1984, and CCTA filed its reply comments on 21 December 1984.
  (ii) In Tariff Notices 1448, dated 26 November 1984, and 1834, 29 November 1985, Bell applied for rate increases to become effective 1 January 1985 and 1 January 1986 respectively, for the hourly rates for repair and maintenance of Partial Cable Distribution Systems (Item 4910 of Bell's General Tariff). In CRTC Telecom Public Notice 1985-12, dated 18 February 1985, the Commission invited comments on Tariff Notice 1448. Comments opposing the proposed rate increase were received from CCTA on 20 March 1985. Reply comments from Bell were received on 1 April 1985.
  (iii) Subsequent to Public Notice 1985-44, the Commission received a request from CCTA on 15 August 1985 that the issue of service drops from poles owned by third parties under Bell's Partial System Arrangement (PSA) be included as an item for specific consideration in this proceeding. On 4 September 1985, the Commission advised CCTA that it considered this issue to be included within the scope of the proceeding set out in Public Notice 1985-44.
  In Public Notice 1985-44, the Commission announced that Bell, B.C. Tel and Terra Nova (the carriers) would be considered parties to this proceeding and that other parties wishing to participate in a public hearing should so advise the Commission by 30 August 1985. Notices of intention to participate were received from the following parties: Allarcom Limited, Inc., Avalon Cablevision Ltd., Cablenet Limited, Câblestrie Inc., Câblevision Vidéotron Ltée., CCTA, CCTA-B.C. Region, CF Cable TV Inc., CNCP Telecommunications, Consumers' Association of Canada, CUC Limited, Delta Cable Television Ltd., 'edmonton telephones', Government of Ontario (Ontario), MacLean Hunter Cable TV Limited, Northgate Cable TV Limited, Rogers Cablesystems Inc., Rogers Cable TV - Vancouver, SaskTel, Shaw Cablesystems (B.C.) Ltd., and Western Cablevision Ltd.
  Evidence was filed by the carriers and CCTA by 30 September 1985. Interrogatories and comments on the evidence were filed by 28 October 1985. Replies to interrogatories were filed by 27 November 1985.
  On 3 December 1985, the Commission invited parties to comment on a request from Terra Nova that it not be required to attend the public hearing to be held in connection with this proceeding. At the suggestion of Bell, the Commission also invited parties to comment on whether the Commission should proceed with the public hearing scheduled to commence on 21 January 1986. Responses were received from Bell, B.C. Tel, Terra Nova, CCTA and Ontario. In support of its request, Terra Nova noted the limited amount of revenue it derives from support structure offerings. Bell and B.C. Tel submitted that a public hearing was not required and that additional information could be obtained instead through a further interrogatory process. Ontario and CCTA argued that a public hearing should be held. Ontario submitted that an oral hearing was in the public interest as a number of different costing approaches had been proposed by the parties. CCTA stated that it required an opportunity at a public hearing to call its own witnesses and to cross-examine telephone company witnesses in order to present adequately its own case.
  Having reviewed the submissions of the parties, and noting in particular the responses of CCTA and Ontario, the Commission decided that it was necessary to hold the public hearing as scheduled. However, the Commission decided not to require Terra Nova to attend the oral public hearing portion of this proceeding. Instead, the Commission provided for a further round of interrogatories to be addressed to Terra Nova.
  On 6 December 1985, CCTA filed with the Commission requests for further responses to certain interrogatories addressed to Bell and B.C. Tel and requests for public disclosure of certain information for which Bell had claimed confidentiality. On 13 December 1985, Bell and B.C. Tel each answered the CCTA requests. CCTA filed its reply on 20 December 1985. The Commission's decision on these requests, issued by letter on 7 January 1986, required Bell to place certain information, for which it had claimed confidentiality, on the public record by 14 January 1986.
  The public hearing was held in Hull, Quebec between 21 and 24 January 1986, with Bell, B.C. Tel, CCTA and Ontario participating. Parties filed final argument by 17 February 1986 and reply argument by 10 March 1986.
  II REGULATORY OBJECTIVES
  A. Background
  As noted on pages 1 and 2 of this decision, the Commission stated in Decision 77-6 that rates for SSO service should be sufficient to recover the full costs of providing them, consisting of the causally attributable costs and an adequate contribution to the common costs, calculated in a reasonable manner.
  In that same decision, the Commission noted that rates for SS0 service should also consider factors such as the need for rate stability, the equivalence of pole and conduit rates and the impact on subscribers of both the telephone and cable companies.
  In the Commission's view, the costing and rating methodologies must be considered separately. Once the costs have been determined using an approved costing methodology, the recovery of those costs can be addressed through the prescription of rates based on an approved rating methodology.
  In Public Notice 1985-44, the Commission stated that the objective of the current proceeding is to look into the methodology that should be applied in establishing rates for SSO service and specifically requested that parties address the methodology to be used in determining the costs of that service.
  B. Positions of Parties
  Both Bell and B.C. Tel submitted that the costing methodology should be based on the principle of cost causation, whereby only those costs directly caused by the provision of a service are attributable to that service.
  Bell further submitted that the rating methodology chosen should be flexible enough to address changes or reasonable developments in the nature of the service offering while at the same time offering some level of rate stability to the cable industry. Bell maintained that rate stability and a reasonable contribution are desirable objectives in striking appropriate rates for cable licensees.
  B.C. Tel contended that it is important for the Commission, if at all possible, to have a uniform costing methodology for all telephone services. It stated that, at the very least, telephone subscribers should not be burdened with incremental costs and that cable operators should pay fair compensation for their use of plant.
  CCTA stated in its evidence that the methodology developed should be fair to both cable and telephone subscribers and be understandable, easily calculated and readily audited.
  Ontario stated that the key objective in this proceeding is the determination of a rate setting methodology, relative to cable operators' use of carrier-owned support structures, which will result in adequate compensation being paid by cable operators to the federally regulated carriers. According to Ontario, the methodology should ensure that each of the parties be allocated a fair proportion of the costs of the facilities. Ontario also suggested that the methodology should minimize the amount of subjective judgment required and, where judgment is required, that it should maximize the extent to which the exercise of judgment can be publicly reviewed, debated and understood.
  C. Discussion and Conclusions
  The causal costing principle referred to by Bell and B.C. Tel has been clearly enunciated in Inquiry into Telecommunications Carriers' Costing and Accounting Procedures, Phase II: Information Requirements for New Service Tariff Filings, Telecom Decision CRTC 79-16, dated 28 August 1979, (Decision 79-16 or Phase II Decision) and in Inquiry into Telecommunications Carrier's Costing and Accounting Procedures: Phase III - Costing of Existing Services, Telecom Decision CRTC 85-10, dated 25 June 1985 (Decision 85-10 or Phase III Decision).
  In the Phase II Decision, the Commission adopted an incremental cost approach for the economic evaluation of new services. To ensure that all costs related to a new service are considered, the Commission directed that the resources required to provide the new service be identified and costed under the following four categories: direct, indirect, variable common and fixed common. The incremental costs are the costs of the direct, indirect and variable common resources. As noted in Decision 79-16, this approach for new services was adopted without prejudice to the debate on alternative costing methodologies for existing services. The extent to which the Phase II approach applies to existing services was addressed by the Commission as follows:
  The Commission considers that definition of a new service is indeed a pragmatic one and includes substantial additions and alternatives to existing services.
  In the Phase III Decision, the Commission decided, among other things, that:
  (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. They do not include the development of rules to allocate any fixed common costs based on the concepts of fairness.
  (2) 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.
  Within the context of this proceeding, the Commission considers that, as a first step, the principle of cost causation must be the basis for the attribution of costs to SSO and PSA services. This is consistent with the Commission's Decisions in Phases II and III of the Cost Inquiry.
  As SSO and PSA services have been offered for several years, the Commission does not consider them to fall within the definition of a new service as envisaged in the Phase II Decision. The Commission also notes that costs which are causal, within the context of broad service categories, may be common within the framework of the costing of an individual service. For example, fixed structure costs, which are common costs in the study of SSO and PSA services, are causal costs of the access category within the framework of the Phase III Decision. As a result, the Commission has not limited itself in this case to the identification and attribution of incremental costs with a contribution to fixed common costs as defined in the Phase II Decision.
  In light of the above and in recognition of the principles previously adopted by the Commission and summarized in Public Notice 1985-44, the Commission has made its determination on this matter with regard for the following objectives:
  (1) The costing methodology adopted by the Commission should be consistent with the principle of cost causation as adopted in the Phase II and Phase III Decisions.
  (2) The costing methodology adopted by the Commission should be flexible enough to address changes in key service parameters such as levels of demand and types of structures service used.
  (3) The costing and rating methodologies adopted by the Commission should provide for public review.
  (4) The costing and rating methodologies adopted by the Commission should be understandable to an informed party.
  (5) The costing and rating methodologies adopted by the Commission should minimize the amount of subjective judgment required.
  (6) The rating methodology adopted by the Commission should incorporate the notion of fairness to both cable and telephone subscribers.
  (7) The rating methodology adopted by the Commission should be capable of incorporating non-cost considerations such as rate stability and customer impact.
  III COSTING AND RATING APPROACHES
  A. CCTA's Approach
  CCTA proposed a rating formula based on two usage measures: for conduit and poles, the ratio of the space occupied by the cable licensee to the total useable space; and for strand, the percentage of the load bearing capacity used by the cable licensee. CCTA submitted that allocating to the cable licensees a portion of the carrying charges associated with the support structures would produce a just and reasonable rate. This rate, it suggested, would exceed the incremental costs associated with attachment by the cable licensees and would take into account the interests of both cable and telephone subscribers. CCTA argued that since the support structures are required to be put into place by the telephone companies for their services regardless of whether cable operators use them, and since the cable operators' use of support structures constitutes use of capacity not required by the telephone company on an existing facility, the suggested approach actually saves the telephone companies a significant percentage of the on-going costs that they would otherwise incur.
  CCTA recognized that its formulary approach to rate making is not fully consistent with the Commission's practice of establishing rates based on the incremental cost of providing services. However, it cited the following reasons for developing its approach. First, the incremental costs associated with the presence of coaxial cable on telephone company support structures have been small historically in relation to the overall rates.
  Second, the rate being developed is not one for a service being provided by the telephone company, but rather for the use of a telephone company facility. Third, the formulary approach has the added advantage of being calculated based on the telephone companies' existing systems of accounts, thus avoiding some of the drawbacks of incremental costing, including subjective judgments and internally-derived cost estimates and apportionments, the bases for which are generally shrouded by the telephone companies behind a veil of confidentiality.
  CCTA maintained that use of its formula would produce a rate which would cover the incremental costs of supplying the structures and make a reasonable contribution to common costs. It contended that its formula has the advantage of having a rational basis, of being easily applied and of providing predictability in support structure rates. CCTA also contended that its formulary approach is auditable and adaptable to changing circumstances.
  CCTA stated that it did not reject service costing as a means of testing the sufficiency of rates. Neither did it reject the Phase II costing principles as being inappropriate for determining incremental costs. However, it did object to the application of the Phase II costing methodology in determining rates. CCTA emphasized that it was proposing a rating methdology and not a costing methodology. It contended that the cost inputs employed in its formula are used to derive the rate for a service, not the cost of a service.
  Bell disagreed with CCTA's reasons for deviating from the incremental cost approach. With respect to the first reason, Bell noted that CCTA admitted that it only assumed that its approach would cover Bell's causal costs. With respect to the second, Bell submitted that, if the Commission were to apply a costing methodology to facilities that differed from the costing methodology applied to services, a debate may arise over the appropriate costing methodology for other services which could equally be considered as facilities. With respect to the third reason, Bell noted that the balancing of interests with respect to confidentiality invariably causes some dissatisfaction; but it submitted that this is not sufficient reason to depart from the principles of the Phase II Decision. With respect to subjective judgment, Bell noted that all the proposed costing methodologies before the Commission in this proceeding involve some degree of subjective judgment. Bell also noted that the CCTA methodology focuses on the cost of the structure itself rather than on the costs which are incurred in providing SSO and PSA services.
  B.C. Tel submitted that the CCTA approach is no more understandable, calculable or auditable than B.C. Tel's approach.
  Ontario supported the CCTA approach, maintaining that it is less complex than the Bell approach. It suggested that the costs are readily quantifiable, auditable and verifiable and that the only factor requiring subjective judgment would be the allocation factor. Ontario contended that the formulary approach would minimize the requirement for subjective judgment as well as the need for resultant ad hoc proceedings. It stated that the benefits of a formulary approach would outweigh the benefits of a value of service approach for all parties concerned.
  B. Terra Nova's Approach
  Terra Nova submitted that the criteria to be used in allocating costs for joint use facilities should be established according to the portion of useable space occupied by each party.
  CCTA found Terra Nova's methodology to be very similar to its own, the difference being the basis of allocating the annual operating expenses and capital carrying charges.
  Ontario supported Terra Nova's formulary approach.
  C. Bell's Approach
  Bell submitted that the appropriate costing methodology for SSO and PSA services would be one which reflects the causal costing principles set forth in Decision 79-16 and in Bell's resultant Procedures Manual for Economic Studies of New Services (Bell's Phase II Procedures Manual). Bell maintained that this approach recognizes the prospective, incremental, causally attributable costs associated with the provison of a service as being the relevant costs for economic evaluation purposes. With regard to the Commission's determination in Decision 77-6, as noted in the Introduction, Bell interpreted the "causally attributable costs" to be the prospective incremental direct, indirect and variable common costs as defined in Decision 79-16. It further interpreted "common costs" to be the fixed common costs as defined in the same decision.
  Bell contended that three aspects of costs need to be considered in establishing rates: the incremental causal costs, the costs which the cable licensee avoids by not having to build separate structures, and the costs of the structure components (i.e. poles, strand, conduit, and manholes) which are shared. Bell stated that it would use the prospective incremental causal costs to establish a floor price, as any rate below this level would result in the SSO and PSA services being subsidized by other services. Similarly, Bell would use the costs avoided by the cable licensee to establish a price ceiling as, in theory, any higher rate would motivate the licensee to build his own structures. Bell further stated that it would consider the costs of the shared support structure components, calculated using current capital costs, as one factor in determining the level of contribution to be paid by the licensee toward the fixed common costs.
  According to Bell, the following factors must be considered in determining the contribution to fixed common costs: the existing rates charged to cable licensees by Bell and other carriers; the rates which these licensees, in turn, charge for services supplied to their own subscribers; the impact of inflation; and the value of the offering to the licensees.
  Bell considered it more appropriate to set rates for the SSO and PSA services to recover a contribution to fixed common costs by using value of service considerations reflecting the market situation than by developing any arbitrary mathematical formula to recover fixed common costs.
  In Bell's view, the incremental causal costs associated with the provision of support structures should be recovered through recurring charges for poles, strand and conduit. Bell stated that uniform rates should be applicable to all support structure users. With respect to "make ready charges, engineering search fees and inspection charges", Bell submitted that the current rating approach is appropriate because these charges are not averaged into the recurring charges to cable licensees but are applied to specific jobs when work is required.
  Bell submitted that it is appropriate to maintain separate rates for poles and strand because cable licensees may use one or both of these types of structures to support their aerial plant. Bell also stated that the rates for conduit in its operating territory should continue to be the combined rates for pole and strand. It suggested that the Commission should focus on determining the basic costing and rating methodologies, leaving the components of the costing structure to the individual carriers to develop in the context of the geographical terrain and design and mix of support structure technologies in their particular regions. According to Bell, a value of service rating approach would allow the Commission and interested persons to assess the evolving market situation to determine appropriate rates. It would also allow Bell to meet its objectives of rate stability and of providing service to its customers at reasonable rates. Bell submitted that a causal costing approach, coupled with a flexible value of service pricing methodology, would result in fair and reasonable rates.
  CCTA was concerned with this approach in that rate increases could not be related to true costs and hence would be arbitrary. CCTA contended that Bell's approach is not readily calculable, auditable or understandable and that it would lead to unpredictable costing figures with subjective determinations.
  CCTA further contended that the lack of public scrutiny of those cost inputs for which the Commission has upheld Bell's claims of confidentiality, coupled with the high level of those costs, have made it difficult for the cable industry to support the reasonableness of the rates determined by Bell's approach. CCTA argued that, if the Commission endorses Bell's approach, the need for a public challenge to every future adjustment to the rates would be perpetuated.
  CCTA contended that Bell's approach would produce inflated costs which are based on subjective estimates and are therefore unverifiable. CCTA submitted that Bell's proposal to calculate a contribution to common costs based on value of service principles would ensure that the support structures rates remain open-ended and without a ceiling, and that no certainty as to future rates would be achievable.
  Ontario expressed concern about the amount of subjective judgment which would be generally required to make the Phase II principles operational. Specifically, Ontario cited the vast differences between Bell's incremental cost estimates and those of B.C. Tel. Ontario also argued that problems of judgment would be compounded by extensive claims of confidentiality.
  Ontario contended that Bell's proposal for calculation of the contribution to fixed common costs would require Bell to negotiate value of service on a company by company basis, thus complicating an assessment of the fairness and reasonableness of rates.
  D. B.C. Tel's Approach
  B.C. Tel maintained that the use of historic costs in the methodology which it has used for the past seven years is consistent with the costing methodology adopted in the Cost Inquiry. Accordingly, B.C. Tel submitted that no changes to its costing methodology are necessary.
  Like Bell, B.C. Tel linked incremental costs to a floor price and the costs avoided by the cable licensees to a ceiling. B.C. Tel contended that its telephone subscribers should not be burdened with incremental costs and should receive fair compensation for use of plant by cable licensees.
  B.C. Tel stated that its criteria for determining the cable licensees' share of support structure facilities are based upon the average ratio of telephone cable to coaxial cable. It submitted that these criteria are simple and can easily be determined from information already accessible from its books of account. Accordingly, B.C. Tel submitted that the ratio of telephone cable to coaxial cable is a reasonable and equitable basis for allocating a fair share of common costs to cable licensees. B.C. Tel contended that the use of these criteria results in an adequate contribution to common costs and is consistent with the Commission's rate objectives as set out in previous decisions.
  B.C. Tel submitted that a tiered rate structure is required for the following reasons. A tiered structure would recognize the major cost differences in the different types of facilites. It would more equitably distribute the cost burden between urban operators, who use more duct, and rural operators, who use aerial facilities. It would also lessen the need for rate case adjustments to correct revenue imbalances occurring as a result of more cablevision facilities being placed underground in the future.
  CCTA maintained that B.C. Tel's approach combined two entirely separate and inconsistent methodologies. The result, it argued, is that this approach produces high rates and is unadaptable to different support structures.
  E. Discussion and Conclusions
  As noted earlier, the Commission favours a rating approach which provides as objective a measure as possible as to the level of recovery of fixed structure costs. Further, in order to ensure that incremental costs are fully recovered, the Commission has concluded that an acceptable approach must include a determination of these costs.
  The CCTA formula does not incorporate any incremental cost components. However, CCTA stated that its approach results in a rate which recovers incremental costs. The CCTA argued that this was demonstrated when its methodology was applied to B.C. Tel's cost figures to produce a rate sufficient to recover incremental costs and to make a contribution to fixed costs.
  The Commission has not been convinced by CCTA's argument in that B.C. Tel's incremental costs did not incorporate the application of Phase II principles. Moreover, CCTA did not demonstrate its formula using fixed structure configurations such as strand, where the incremental costs may represent a significantly larger proportion of total costs than pole and conduit configurations.
  The Commission is of the view, however, that a formulary approach can be useful in determining the maximum contribution to be expected from a cable licensee towards the recovery of fixed structure costs.
  The Commission considers the Bell approach to be consistent with the Phase II and Phase III Decisions with respect to the application of the principle of cost causation. The Commission agrees with Bell that the recovery of incremental costs establishes a minimum floor price for the service. Further, the Commission agrees with the company that the use of prospective costs is appropriate in determining the incremental causally attributable costs. In the Commission's view, the use of prospective costs provides the methodology with the necessary flexibility to address changes in key service parameters, such as demand and structure configuration.
  With respect to the differences between Bell's incremental costs and those of B.C. Tel, the Commission notes that an initial difference has arisen because B.C. Tel has not applied the Phase II principles.
  B.C. Tel has not used prospective direct, indirect and variable common costs as defined in the Phase II Decision. Instead, the incremental costs computed by B.C. Tel are based on historical costs. A second major difference between Bell's and B.C. Tel's incremental costs arises in the estimate of lost crew minutes related to the lost productivity component of incremental costs. From the record of this proceeding, the Commission has concluded that this difference can be explained by the higher proportion of rear lot plant versus front lot plant in Bell's territory.
  The Commission is of the view that the use of the Phase II methodology in this case does not require the application of a large amount of subjective judgment on the part of the carriers. The Commission considers that the differences in incremental costs between the two companies are explainable and quantifiable and therefore are not attributable simply to differences in judgments.
  The Commission agrees with Ontario and CCTA that the transparancy of Bell's methodology is reduced by the confidentiality of some of the cost inputs. The Commission notes, however, that the cost inputs to the Bell methodology are the same type as those which Bell provides in support of filings for new competitive services. The Commission considers the congruence of the Bell methodology with the Phase II methodology to be more significant than the problems related to the confidentiality of some of the cost inputs.
  The Commission agrees with Bell that fixed structure costs should be taken into account in determining the level of contribution to be paid by the cable licensee toward fixed common costs. However, the Commission does not view the use of current replacement costs as appropriate for the fixed structure costs in question. The Commission considers that embedded costs provide a more appropriate measure of the costs associated with these structures.
  It is the Commission's intent to minimize, to the extent possible, the amount of subjective judgment required to establish SSO and PSA service rates. The Commission considers that the use of value of service criteria proposed by Bell requires an extensive amount of subjective judgment in the setting of these rates. The Commission is of the view that a more predictable and observable approach than that proposed by Bell is required plus to establish the most appropriate contribution to the recovery of fixed structure costs.
  In regard to B.C. Tel's proposed methodology, the Commission notes that it is different from Bell's in that:
  (1) incremental costs are not computed according to the Phase II approach;
  (2) fixed structure costs are computed on an embedded basis; and
  (3) the level of recovery of a contribution to fixed structure costs is set on the basis of a formulary approach which uses the ratio of cable licensees' coaxial cables to the total number of cables on the structures.
  The Commission further notes B.C. Tel's submission that a tiered rate structure is required for the different types of company facilities. In contrast, Bell's submission stated that the rates for conduit in Bell's territory should continue to be the combined rate for pole and strand.
  B.C. Tel's argument for tiered rates is largely based on the principle of fairness as between rural and urban operators. Bell's argument for equivalent rates for aerial and conduit facilities arises because cable licensees have little control over the structure provided by the carriers and receive equivalent service value from either facility. The Commission recognizes that there are different operational, technological and geographic realities between Bell's and B.C. Tel's operating territories.
  The Commission accepts the arguments of both Bell and B.C. Tel and concludes that rates for the conduit configuration may be set at a level equivalent to that of the aerial configuration. These rates are to be subject to the requirements that they recover the incremental costs and do not exceed the appropriate contribution ceiling as established in Section IV C. of this decision. Further, the Commission accepts B.C. Tel's existing rate structure within the conduit configuration. This recognizes differences between the types of facilities in use.
  In summary, the Commission makes the following determinations with respect to the principles to be applied to the costing and rating of SSO and PSA services:
  (1) At a minimum, the rate must recover the incremental costs attributable to the service. These incremental costs shall be computed in a manner consistent with the Phase II Decision.
  (2) Fixed structure costs, computed on an embedded basis, are to be determined to provide the basis for a contribution to their recovery. The maximum contribution, or contribution ceiling, which the Commission would consider fair and reasonable, shall be determined using a formulary approach based on the usage of the structures (see Section IV C.).
  (3) The carriers may use a tiered rate structure when circumstances so require.
  In these determinations, the Commission has treated the incremental costs and the fixed structure costs of both the SSO and PSA services as being mutually exclusive.
  IV SUPPORT STRUCTURES
  A. Incremental Costs
  1. Background
  Bell identified four components of incremental costs which could form the basis for determining a recurring rate for SSO service. These components are costs due to loss in productivity, administration costs, variable common costs, and costs due to income taxes and miscellaneous taxes.
  B.C. Tel identified three components of incremental costs: costs due to loss in productivity, marketing time, and unbilled costs.
  Terra Nova did not identify any incremental costs.
  2. Costs Due to Loss in Productivity
  This incremental cost is incurred when the carriers undertake work on their own facilities when cable licensees' coaxial cable and related equipment share the carriers' support structures. It is applicable to the strand and aerial (pole and strand) configurations and to the pole configuration only when the cable licensee's strand is located below the carrier's strand. There is no loss in productivity with the conduit configuration.
  As noted earlier, a significant difference between Bell's and B.C. Tel's incremental costs relates to their estimates of lost crew minutes.
  Bell estimated a weighted average loss of 21.4 minutes per crew per span while B.C. Tel estimated 2 minutes per a crew per span. B.C. Tel described its estimate as somewhat low, while Bell noted that its estimate is based on a rear lot outside plant configuration. Both companies cited the significantly higher proportion of rear lot plant in Bell territory as one reason why the Bell estimate is higher. Bell, however, could not quantify the proportion of its plant which is rear lot. Another reason given for the difference was that, in B.C. Tel territory, the cable licensees themselves are required to remove and subsequently replace their drop wires whenever cable lashing is to be performed by B.C. Tel. Bell submitted that the Commission must recognize these real physical and operational differences between the companies.
  Bell contended that the incremental costs due to loss in productivity were well described by various witnesses during the course of the public hearing, that there can be no doubt that the company incurs these costs and that they should be recovered in their entirety from the cable licensees.
  CCTA argued that Bell's estimate of lost productivity had been inflated by the use of rear lot configurations as the norm. CCTA contended that Bell had made subjective judgments in estimating the time lost and that this accounted for most of the discrepancy between the companies' figures.
  The Commission agrees with Bell and B.C. Tel that lost productivity is a legitimate incremental cost. The Commission considers B.C. Tel's estimate of 2 crew minutes per span to be inordinately small; conversely, Bell's estimate of 21.4 minutes appears to be too high, largely because it is based on the assumption of 100% rear lot plant in Bell territory. Since Bell could not provide quantitative information on the extent of rear lot plant in its territory, the Commission has exercised its best judgment and assumed that 50% of Bell's local distribution plant is rear lot. Therefore, the Commission has decided for the purposes of this proceeding that 10 minutes per crew per span is a more appropriate estimate of lost productivity due to the presence of cable licensees' coaxial cable on or below carrier aerial facilities.
  3. Administrative/Marketing Costs
  The incremental cost component associated with marketing and support staff directly identifiable with SSO service has been labelled "administrative" by Bell and "marketing" by B.C. Tel. It is related to such activities as billing, processing permits, and revising and updating associated operating methods. Bell submitted that the causally related administrative costs for SSO service are carefully documented and should be recovered in the recurring charges for the service.
  With regard to Bell's submission, CCTA argued that most administrative work is associated with the Engineering Search Fee functions and the Make Ready and Inspection functions, all of which are billed separately on a cost plus contribution basis. CCTA also argued that the inclusion of the component of variable common costs attributable to administration results in a double counting of the administrative costs included in labour and clerical unit cost loadings.
  Having reviewed the evidence on this matter, the Commission has determined that none of these costs are recovered through non-recurring charges. Accordingly, the Commission considers that an administrative/marketing cost is a legitimate component of incremental costs. With regard to the loadings in Bell labour rates, the Commission is of the view that, to maintain consistency with the Phase II decision, indirect resources and variable common costs should be included in the computation of incremental administrative/marketing costs.
  4. Other Incremental Cost Components
  The Commission accepts the variable common cost and tax components of the Bell submission and the unbilled costs component of the B.C. Tel submission. It views unbilled costs as those costs absorbed by B.C. Tel for relocations involving cable licensees' coaxial cable. It has also determined that inclusion of the variable common cost tax components is consistent with the Phase II methodology.
  B. Fixed Structure Costs
  Generally, all parties were in agreement as to the nature of the cost components to be included as fixed structure costs. The following six cost components were identified: maintenance, administration, depreciation, income tax, capital carrying charges and property taxes.
  In addition, Bell identified salvage, removal costs, and variable common costs.
  With respect to maintenance expenses, there were some differences in the proposed cost inclusions. B.C. Tel did not propose to include rearrangement charges from its maintenance accounts in the computation of maintenance costs, while Bell did. Further, B.C. Tel proposed to apply a standard loading percentage to the costs accumulated in the maintenance accounts of the applicable plant, so as to incorporate the costs of labour fringe benefits in the basic account data. Conversely, Bell, in addition to adding a loading for fringe benefits, proposed to include loadings for variable common costs, motor vehicle non-running expenses and group B expenses related to labour (related premises, relocation, travelling and stationery costs - see Bell's Phase II Procedures Manual: Appendix F). Terra Nova proposed to include both repair and rearrangement charges from its accounts, with no additional loading.
  In the Commission's view, rearrangement costs are properly included in the computation of maintenance costs when these costs are not recovered separately from the licensee.
  The Commission is of the view that Bell's additional loadings related to variable common costs, motor vehicles and group B expenses are only relevant in attempting to quantify the incremental costs of a service pursuant to the Phase II guidelines. In the context of computing fixed structure costs, the Commission considers that a basic wage loading which considers direct cost components is sufficient. (See Bell's Phase II Procedures Manual: Appendix F, for direct cost components.) The loading of indirect cost components is not considered appropriate for non-causal costs given their non-variability with the service output.
  The Commission accepts all the cost components for fixed structure costs proposed by the parties except as noted above with respect to the variable common cost component identified by Bell.
  C. The Recovery of Fixed Structure Costs
  1. Positions of Parties
  As noted earlier, Bell viewed the question of the recovery of fixed structure costs as a rating problem, where value of service criteria would be used as a basis for the recovery of a portion of fixed structure costs.
  B.C. Tel proposed an approach which is based on the average ratio of cable licensees' coaxial cables to telephone cables on B.C. Tel's aerial facilities. B.C. Tel's approach results in a 33% allocation of fixed structure costs to SSO service. In B.C. Tel's view, this approach provides an adequate contribution to the common costs and meets the objective of providing rate stability.
  CCTA proposed an approach based on two usage measures: for conduit and poles, the ratio of space occupied by the cable licensee to total usable space; and, for strand, the percentage of the load bearing capacity used by the cable licensee. For purposes of determining pole allocation, CCTA used a 35-foot pole with 5.5 feet buried and a clearance of 18 feet. The remaining portion of 11.5 feet, including the neutral space, was defined as the usable space. In regard to the neutral space, CCTA argued that it is usable and therefore should be considered as part of the usable space. For purposes of calculating the allocation factor, CCTA submitted that cable operators use, on average, one foot of space, resulting in an allocation factor of 8.7%. CCTA noted that the United States Federal Communications Commission adopted an allocation factor of 7.4%, based on an average of 13.5 feet of usable space.
  For the strand configuration, CCTA derived its proposed allocation factor by calculating the percentage of load bearing capacity of 6M strand that would be used by the suspension of a .500 coaxial cable. This approach results in an allocation factor of 2.3%.
  For the conduit configuration, CCTA derived its proposed allocation factor by calculating the percentage of the usable area occupied by a .500 coaxial cable. The usable area was estimated to be 60% of the area of a 3.5-inch duct. This approach results in an allocation factor of 4.6%.
  Under Terra Nova's approach, for telephone poles jointly used by the telephone company and a cable licensee, the usable space is shared equally. Terra Nova noted that approximately 89% of its poles are used only by itself and a cable licensee. Accordingly, Terra Nova proposed a 50% allocation factor. For the strand configuration, Terra Nova proposed an allocation factor of 33% on the basis that the most common situation in its territory is to carry one cable licensee's cable and two telephone cables on the strand. Terra Nova does not offer conduit facilities this service.
  2. Discussion and Conclusions
  The Commission considers that an identification of fixed structure costs is required to establish the contribution ceiling for the recovery of these costs.
  Further, the Commission is of the view that an identification of fixed structure costs is required which uses a formulary approach so as to assure an attribution of these fixed costs which minimizes subjective assessments. The Commission considers that the distinct advantages of a formulary approach lie in its predictability, ease of understanding and objectivity. The Commission notes that, with this approach being used to establish a contribution ceiling, a degree of flexibility will remain for the carriers and the Commission in determining rates for SSO and PSA services.
  The Commission is also of the view that the method of attributing fixed costs must take into account the particular structure configurations available through the tariffs. Accordingly, the Commission concludes that a determination of fixed structure costs is required for the following configurations:
  Pole alone
Strand alone
Aerial (Pole and Strand)
Conduit
  The pole alone and strand alone options are not applicable in B.C. Tel territory where cable licensees are required to use B.C. Tel strand. The conduit configuration is not currently available in Terra Nova's territory.
  As noted earlier, the fixed structure costs which are common costs in the study of SSO and PSA services are, within the framework of the Phase III Decision, causal costs to the access service category. The Commission notes that the Revenue Settlement Plan (RSP) based costing method, adopted in the Phase III Decision, allocates facilities used in common by services that fall within different service categories on the basis of relative.
  The Commission agrees with CCTA, Terra Nova and B.C. Tel that usage is a reasonable principle to apply in the calculation of the contribution to be made to fixed structure costs.
  During this proceeding, CCTA argued that no excess capacity should be apportioned to the cable licensees. CCTA submitted that, as a lessee of these facilities, the cable licensee should not be required to pay for any excess capacity costs. However, both B.C. Tel and Terra Nova suggested that excess capacity should be apportioned between users on the basis of relative usage.
  The Commission notes that, in the RSP-based Phase III costing method, excess capacity is to be apportioned between services on the basis of relative use. The Commission is of the view that a fair attribution of fixed structure costs to SSO and PSA services must, at the outset, apportion excess capacity in a reasonable manner given that the Commission is using the attributed costs as the basis for establishing a contribution ceiling for the recovery of fixed structure costs.
  Having reviewed the evidence before it, the Commission has concluded that the apportionment of excess capacity of support structures on the basis of relative usage is both fair and reasonable. Further, given the significant differences in excess capacity associated with each type of pole and the significantly different proportions of these two types of poles between carriers, the Commission has decided that the relative proportion of joint use and non-joint use poles must be taken into account.
  (a) Pole Alone
  In the pole alone configuration, the cable licensee provides its own strand. In practice, the cable licensee limits itself to one cable on its strand and the telephone company limits itself to three cables on its own strand.
  The Commission finds that measuring usage on the basis of the number of cables has the following advantages:
  i) it is readily measurable and understandable;
  ii) it is neutral to cable size and bandwidth, commensurate with the different signals carried by the cable and the telephone companies;
  iii) it can be consistently applied to different structure configurations; and
  iv) it provides a reasonable estimate of the usage of the facilities in question.
  The Commission has therefore decided that this is a reasonable approach.
  The Commision has therefore determined that 1/4 of the usable pole space allocated to communications should be assigned to the cable licensee. In the case of joint use poles, the space on the pole allocated to communications as opposed to electric power transmission, comprises the standard two feet of communication space and one foot of the communication working space of the neutral area of the pole.
  For non-joint use poles, the communications space is equivalent to the total usable space. Noting from the carrier submissions that poles of varying height are used, and further that different proportions of joint use and non-joint use poles are used, the Commission directs Bell and Terra Nova to develop a weighted average usable space on the basis of their total pole population. The following allocation formula is to apply for the pole alone configuration:
  % = No. of cable licensee cables in communication space X
Practical cable capacity of communication space
  Communication space X 100 = 1 X Communication space X 100
Weighted average usable space 4 Usable space
  Using the information available from the record of this proceeding, the Commission has calculated that this formula would yield a percent allocation of 15% for Bell and 22.9% for Terra Nova. The Commission has further calculated that, for joint use poles considered alone, the percent allocation would be 5.5% for Bell and 6.3% for Terra Nova.
  (b) Aerial (Pole and Strand)
  In the aerial configuration, the Commission has focused on the communication space on the pole, using the number of cable licensee cables over the practical cable capacity of the strand as the measure of usage. The practical cable capacity of the communication space is deemed to be three, as the installation of a second strand by the carrier is uncommon.
  The allocation formula is as follows:
  % Allocation =
  % = No. of cable licensee cables in communication space X
Practical cable capacity of communication space
  Communication space X 100 = 1 X Communication space X 100
Weighted average usable space 3 Usable space
  Using the information available from the record of this proceeding, the Commission has calculated that this formula would yield a percent allocation of 20% for Bell, 12.8% for B.C. Tel and 30.5% for Terra Nova.
  (c) Strand Only
  In the previous two configurations, pole only and aerial, the main fixed cost component related to the pole. In this configuration, only the strand is under consideration. Accordingly, the Commission has determined that applying the ratio of the number of cables to the practical strand limit is the reasonable measure of usage. This would yield an allocation of 33%.
  (d) Conduit
  With respect to conduit, the Commission agrees with B.C. Tel's approach which is based on the ratio of cable licensee cables to the total number of cables in a conduit. While the Commission accepts CCTA's point that telephone company cable is significantly larger than cable licensee cable, it considers that its approach to the treatment of excess capacity should not be waived in the case of conduit. In this regard, the Commission notes the carriers' practice of having at most two cables of their own in a conduit. In consideration of these factors, the Commission has decided that an allocation of 25% is reasonable.
  V PARTIAL SYSTEMS
  A. Positions of Parties
  Bell argued that a support structure component and a cable component should be used to determine the PSA service rate.
  Ontario largely agreed with Bell on this matter. However, it noted that it would not be necessary for the cable component to make a contribution to fixed costs, given the contribution which is built into the support structure component.
  CCTA argued that an approach which prices PSA service "slightly higher" than SSO service is warranted since Bell did not provide quantitative information on PSA service during this proceeding. CCTA further noted that PSA rate elements would include SSO rates for pole and strand, together with an element to reflect the unrecovered capital cost of the cable.
  B. Discussion and Conclusions
  The Commission does not regard the lack of quantitative data regarding PSA service as a compelling reason for establishing PSA rates at a "slightly higher" level. The Commission further notes that CCTA's comments on the general approach to be employed in determining PSA rates are similar to those of Ontario and Bell.
  The Commission is in agreement with Ontario on this matter. It agrees that PSA service should be viewed as comprising two components: the support structure component and the cable component.
  The support structure component should be rated as it is for SSO service. However, it should be uniformly recovered on a 'per metre of cable' basis for all PSA cable installations, including buried cable.
  With regard to the cable component, the Commission considers that the determination of costs should be consistent with the methodology identified for SSO service. This methodology involves the recovery of incremental costs and a contribution to fixed structure costs. However, as noted by Ontario, the SSO component takes care of the fixed structure costs associated with the cable. The remaining costs to be identified are the causal costs of the cable, not already identified as incremental costs in the support structure component.
  VI REPAIR AND MAINTENANCE RATES AND ENGINEERING SEARCH FEES
  A. Engineering Search Fees
  In its application of 13 August 1984, CCTA requested the Commission to reduce the rates for engineering search fees charged by Bell from $133.10 per hour to $78.52 per hour, which was the rate in effect between 1 July 1982 and 30 June 1983. CCTA also asked the Commission to direct Bell to refund the difference between that level and the amounts charged since 1 July 1983. In support of its request, CCTA submitted that Bell had failed to justify the increases beyond the generalizations that the higher rates were based on expenses incurred by the company and were calculated in accordance with the costing principles resulting from the Phase II Decision. CCTA further submitted that, during the period in question, there had been no improvement in the quality of service provided and that, given the impact of the Federal Government Restraint Program on wages and prices during this period, the rate of increase must be considered to be particularly excessive.
  In reply, Bell argued that the higher rates are just and reasonable. It stated that they are based on causal costs derived using the costing principles outlined in the Bell Canada Procedures Manual. According to Bell, the costs are averages for the engineering work performed and have been derived from the company's standard accounting records.
  Bell submitted that failure to set rates to recover all causal costs would create a situation in which cable companies, or other parties for whom work is to be performed, would be subsidized by Bell's other customers. Bell stated that, prior to August 1983, it had not fully recovered the causal costs because the following factors were not included in its calculations: unclassified time and associated loadings for pensions, benefits, premises, other support salaries, miscellaneous expenses, administrative services, corporate systems organization support, and general expense. Bell submitted that the addition of these causal cost components accounted for 49% of the $46.35 per hour increase effective 1 August 1983.
  Bell also indicated that, prior to 1 August 1983, only one billing rate was developed for all engineering functions. After 1 August 1983, causal costs were developed for five base groups: company engineering, real estate engineering, National Systems Group (NSG) engineering, NSG provisioning, and NSG national data network. The engineering search function is performed by Bell's engineering base group which is composed primarily of management reporting engineering personnel. This refinement in classification accounts for approximately 23% of the 1 August 1983 increase.
  Bell attributed the balance of the 1 August 1983 increase and the $8.23 per hour increase in 1984 to increases in its general level of costs of 12% between 1982 and 1983 and 6.6% between 1983 and 1984.
  In conclusion, Bell submitted that the Commission should reject CCTA's application for relief in its entirety.
  In reply, CCTA questioned the need to use management engineers in this function. It contended that engineering search functions could be performed easily by lesser trained individuals acting under an engineer's supervision.
  Having reviewed the positions of the parties, the Commission has determined that the rates for engineering search fees should be based on the causal costs calculated in accordance with the costing principles outlined in Bell's Phase II Procedures Manual. Accordingly, the Commission finds the rates for engineering search fees to be just and reasonable and denies CCTA's request to reduce the rates.
  B. Repair and Maintenance Rates
  In Tariff Notices 1448 and 1834, Bell proposed increases to the hourly labour and material rates for repair and maintenance of Partial Cable Distribution Systems. In these tariff notices, Bell stated its intent to apply these rates for all similar custom work activities, such as engineering searches. Bell also stated that the rates were developed in accordance with its Phase II Procedures Manual, noting that rates filed prior to 1982 had not been so developed.
  Finally, Bell submitted that the rates proposed for 1986 in Tariff Notice 1834 should be implemented as soon as possible.
  CCTA expressed concern over the level of cost loadings to the basic hourly wages. It argued that these loadings were inconsistent with the principle of cost causality. CCTA also expressed concern about the possibility of double counting between the recurring and the non-recurring costs with respect to certain loadings. CCTA noted that time sheets were not kept by all workers and concluded that this cast doubt on the accuracy of the cost estimates.
  The Commission is of the view that the rates for the repair and maintenance of Partial Cable Distribution Systems should be developed in accordance with Bell's Phase II Procedures Manual. The Commission has determined that the rates filed under Tariff Notices 1448 and 1834 conform with the procedures prescribed in the manual, and that the loadings are appropriate. Moreover, the Commission is satisfied that the rates do not reflect double counting. Accordingly, the Commission approves the rates in Tariff Notice 1834.
  VII ATTACHMENT OF SERVICE DROPS TO THIRD PARTY POLES
  A. CCTA'S Position
  CCTA took the position that it is Bell's responsibility under the PSA service tariff to provide all necessary access to third party poles, including those to which cable company service drops are attached. CCTA argued that Decision 77-6, and the practice over the past twenty-five years, support its position.
  Specifically, CCTA referred to page 31 of Decision 77-6, where, in support of its conclusion that the rate for PSA service is unduly low, the Commission made the following statement:
  Second, the partial system arrangement provides cable companies with the benefit of Bell Canada's easements, rights-of-way, and access to third party owned poles, all of which may \ require further negotiation under the support structure offering.
  Secondly, CCTA noted that since the introduction of PSA service twenty-five years ago, cable licensees obtaining PSA service have always dealt only with Bell. It also argued that the appropriate tariff provided for the use of poles for all purposes, whether or not third party poles have been involved and whether or not cable licensee service drops have been attached to the Bell cable on third party poles.
  CCTA also referred to an exhibit in the 1977 support structure proceeding, exhibit CCTA No. 17 in the present proceeding, which indicates that the payment by a cable licensee to Ontario Hydro under PSA service would be "nil", whether there was Bell cable along with the cable licensee cable on Ontario Hydro poles or not. Bell, in contrast, was shown as paying $3.00 per pole per year for cable licensee cable on Ontario Hydro poles.
  Finally, CCTA argued that Article XII(a) of the Joint Use Agreement between Bell and Ontario Hydro, in effect at the time of the 1977 proceeding, allowed Bell to permit cable licensees to attach their service drops to electrical utility poles. This Agreement also made Bell responsible to the electrical utility for such drops. CCTA argued that Bell, having amended its Joint Use Agreement with Ontario Hydro in March 1985, should not be able to "circumvent its responsibilities under the PSA in this unilateral matter".
  B. Bell's Position
  Bell stated that it is uncertain as to the extent of the Commission's jurisdiction in this matter, as the issue primarily relates to negotiations with electrical utilities not subject to the Commission's regulatory control. Having expressed this reservation, Bell further noted that it is incumbent upon the cable licensee to obtain the written consent of the electrical utility which owns the poles. Bell submitted that if the electrical utilities now wish to charge specifically for cable licensee owned service drops, this would be the utilities' prerogative. It stated that this is a matter which should be resolved by each cable licensee wishing to attach its own equipment to electrical utilities' facilities.
  Bell noted that if it were required to negotiate payment on behalf of the cable licensees for access to electrical utility poles, it would view the related costs as causal and incremental to the provision of PSA service. As such, the costs would have to be fully recovered through PSA service rates.
  In support of its position, Bell referred to Schedule No. 2, paragraph 7 of the contract between Bell and a cable operator for a partial cable distribution system. This reads as follows:
  In connection with the exercise of any rights or permission given under this contract to the Lessee to install, inspect, test, repair, maintain, replace, disconnect and remove the Lessee's facilities, the Lessee covenants and agrees that (1) it shall obtain at its own cost and expense the written consent to all such activities of all persons, firms or corporations having any joint ownership or right of joint use of any of the poles or closures proposed to be used by the Lessee, and shall furnish the Company, at Company's request with written evidence of having obtained such consent, and upon withdrawal of such consent will promptly remove all the Lessee's facilities placed thereon, or cease such activities and (2) it shall be liable for and shall indeminify the Company from all loss, costs (including legal costs), damages, expenses of every nature or kind arising out of any suit, action or proceeding in respect of any property arising out of the Lessee's facilities, their use and location.
  "Lessee's facilities" are defined in article 4, paragraph 4 of the contract to include cable terminations.
  In response to CCTA's submission regarding the practice of the last twenty-five years, Bell referred to article 7, paragraph 3 of the contract which states that failure of a party to enforce or insist upon compliance with a term of the contract shall not constitute waiver.
  With reference to the Joint Use Agreements between Bell and electricial utilities, Bell submitted that a cable licensee's aerial drop wires are not covered. In this regard, Bell referred to the March 1985 amendments to its Joint Use Agreement with Ontario Hydro.
  Bell maintained that the cable licensee is in the best position to negotiate its own charges for access to electrical utility owned poles for its own service drops. Bell further stated that its involvement in such negotiations would only add causal and incremental costs to the provision of PSA service.
  C. Discussion and Conclusions
  Prior to the 1985 amendments to the Joint Use Agreements between Bell and the electrical utilities, cable licensees could, in practice, attach their subscriber drops to the poles of the electrical utilities when they obtained PSA service from Bell. The cable licensees did not have to make any separate payment to the electrical utilities. Thus, in the Commission's view, Bell had implicitly granted permission to cable licensees to use third party support structures.
  The issue that is raised by CCTA's submission is whether, under the Joint Use Agreements recently amended to delete the provision by which Bell may permit a cable licensee to use the poles of an electrical utility, Bell or the cable licensee is responsible for obtaining the consent of the electrical utility for the attachment of its service drop to the third party poles and for making any resulting payments. The contract between a cable licensee and Bell for the provision of PSA service clearly provides that it is the responsibility of the cable licensee to obtain such consent. Further, in the Commission's view, the language of this contract precludes CCTA from arguing that Bell has waived this provision of the agreement.
  In the Commission's opinion, its jurisdiction does not extend to the electrical utilities. Therefore, it does not have the authority to require the electrical utilities to grant cable licensees access to their poles. Similarly, the Commission is of the view that its jurisdiction under section 320(11) of the Railway Act does not apply to the joint use agreements between Bell and the electrical utilities. Accordingly, the Commission has no power to review changes to these joint use agreements.
  In the Commission's view, the provisions of the PSA service contract between Bell and a cable licensee and the Joint Use Agreement between Bell and Ontario Hydro support Bell's position on the matter of attachment of service drops to third party poles. In any event, any charge paid by Bell to electrical utilities in respect of Bell allowing a cable licensee access to electrical utility owned poles would be, in the Commission's view, a causal cost to be recovered through the rates for PSA service. The Commission agrees with Bell that the cable licensee is in the best position to negotiate the charges for attaching its own service drops to electrical utility owned poles. Accordingly, the Commission considers this to be a matter for the cable licensees to pursue directly with the electrical utilities.
  VIII OTHER FACTORS
  In Part II of this decision, the Commission stated that fairness to telephone and cable subscribers, rate stability and customer impact were to be considerations in its determination of a rating methodology for the SSO and PSA services.
  The Commision believes that these factors are important considerations in the setting of just and reasonable rates.
  A. Fairness to Telephone and Cable Subscribers
  Under the existing Joint Use Agreements between Bell and Ontario Hydro and Bell and Hydro Québec, Bell has access to all poles covered by the agreements, even though Bell only owns 40% of the poles covered by the Ontario Hydro agreement and 45% of the poles covered by the Hydro Québec agreement. In effect, through these agreements, parties are sharing the costs of pole structures on a 60/40 and 55/45 basis.
  In British Columbia, the B.C. Tel agreement with B.C. Hydro provides for joint ownership of all poles under the agreement on a 60/40 basis with B.C. Tel owning 40% of each pole.
  The effect of the differences between the Bell and B.C. Tel arrangements as regards poles is significant when the fixed structure costs for poles on a per unit basis are compared for the two telephone companies. Because B.C. Tel's pole costs are spread over a larger number of units, the per unit pole costs are significantly lower even though the level of costs is equivalent.
  In Bell territory, under the methodology adopted by the Commission, cable company is faced with a higher contribution ceiling than in B.C. Tel territory. Consequently, the Commission has determined that, for purposes of setting the contribution ceiling, only 60% of Bell's total fixed structure costs for poles should be used. This 40% reduction in the fixed structure costs is based on the fact that:
  (a) 51% of Bell owned poles are jointly used;
  (b) approximately 42% of the joint use poles are owned by Bell; and
  (c) the application of these ratios indicates that the total number of Bell owned poles represents 60% of the total number of poles to which Bell has access.
  B. Rate Stability and Subscriber Impact
  The Commission has evaluated the potential impact of its decisions on the existing rates for SSO and PSA services using the quantitative data available from the record of this proceeding.
  To minimize the impact on cable subscribers and to ensure a degree of rate stability, the Commission has determined that the following rules shall apply. For the SSO service offered by all carriers under all structure configurations, rates to be proposed by the carriers, using the methodologies prescribed in this decision, shall not exceed the lower of:
  (a) the level which recovers the incremental costs and makes a contribution at the level of the contribution ceiling attributed to the service; or
  (b) 110% of the rates in effect at the time of filing of proposed rates.
  For the PSA service offered by Bell, rates to be proposed, using the methodologies prescribed in this decision, shall not exceed the lower of:
  (a) the level which recovers incremental costs and makes a contribution at the level of the contribution ceiling attributed to the aerial support structure configuration; or
  (b) 110% of the rates in effect at the time of filing of proposed rates.
  IX TARIFF FILINGS
  The carriers are directed to file proposed tariffs, together with supporting cost studies, for the SSO and PSA services that they offer, using the methodologies prescribed in this decision, by 31 October 1986.
  Fernand Bélisle
Secretary General
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