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Telecom Decision
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Ottawa, 15 August 1986 |
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Telecom Decision CRTC 86-16 |
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SUPPORT STRUCTURES AND RELATED ITEMS - PUBLIC
PROCEEDING ON RATES |
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For related documents see: CRTC Telecom Public
Notices 1985-12,
1985-44 and
1985-64. |
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Table of Contents |
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I Introduction |
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II Regulatory Objectives
A. Background
B. Positions of Parties
C. Discussion and Conclusions |
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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 |
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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 |
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V Partial Systems
A. Positions of Parties
B. Discussion and Conclusions |
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VI Repair and Maintenance Rates and Engineering
Search Fees
A. Engineering Search Fees
B. Repair and Maintenance Rates |
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VII Attachment of Service Drops to Third Party
Poles
A. CCTA's Position
B. Bell's Position
C. Discussion and Conclusions |
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VIII Other Factors
A. Fairness to Telephone and Cable Subscribers
B. Rate Stability and Subscriber Impact |
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IX Tariff Filings |
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I INTRODUCTION |
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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): |
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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) |
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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: |
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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) |
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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. |
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The Commission noted the interim nature of the
approach to rates it adopted in Decision 77-6 as follows: |
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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) |
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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: |
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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) |
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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: |
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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) |
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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. |
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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. |
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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. |
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The Commission incorporated the following
related matters into this proceeding: |
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(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. |
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(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. |
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(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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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II REGULATORY OBJECTIVES |
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A. Background |
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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. |
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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. |
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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. |
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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. |
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B. Positions of Parties |
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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. |
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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. |
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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. |
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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. |
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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. |
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C. Discussion and Conclusions |
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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). |
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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: |
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The Commission considers that definition of a
new service is indeed a pragmatic one and includes substantial additions and
alternatives to existing services. |
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In the Phase III Decision, the Commission
decided, among other things, that: |
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(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. |
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(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. |
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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. |
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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. |
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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: |
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(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. |
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(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. |
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(3) The costing and rating methodologies adopted
by the Commission should provide for public review. |
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(4) The costing and rating methodologies adopted
by the Commission should be understandable to an informed party. |
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(5) The costing and rating methodologies adopted
by the Commission should minimize the amount of subjective judgment required. |
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(6) The rating methodology adopted by the
Commission should incorporate the notion of fairness to both cable and
telephone subscribers. |
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(7) The rating methodology adopted by the
Commission should be capable of incorporating non-cost considerations such as
rate stability and customer impact. |
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III COSTING AND RATING APPROACHES |
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A. CCTA's Approach |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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B.C. Tel submitted that the CCTA approach is no
more understandable, calculable or auditable than B.C. Tel's approach. |
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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. |
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B. Terra Nova's Approach |
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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. |
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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. |
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Ontario supported Terra Nova's formulary
approach. |
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C. Bell's Approach |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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D. B.C. Tel's Approach |
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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. |
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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. |
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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. |
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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. |
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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. |
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E. Discussion and Conclusions |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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: |
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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. |
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"Lessee's facilities" are defined in article 4,
paragraph 4 of the contract to include cable terminations. |
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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. |
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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. |
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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. |
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C. Discussion and Conclusions |
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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. |
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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. |
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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. |
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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. |
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VIII OTHER FACTORS |
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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. |
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The Commision believes that these factors are
important considerations in the setting of just and reasonable rates. |
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A. Fairness to Telephone and Cable Subscribers |
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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. |
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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. |
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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. |
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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: |
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(a) 51% of Bell owned poles are jointly used; |
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(b) approximately 42% of the joint use poles are
owned by Bell; and |
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(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. |
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B. Rate Stability and Subscriber Impact |
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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. |
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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: |
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(a) the level which recovers the incremental
costs and makes a contribution at the level of the contribution ceiling
attributed to the service; or |
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(b) 110% of the rates in effect at the time of
filing of proposed rates. |
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For the PSA service offered by Bell, rates to be
proposed, using the methodologies prescribed in this decision, shall not
exceed the lower of: |
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(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 |
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(b) 110% of the rates in effect at the time of
filing of proposed rates. |
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IX TARIFF FILINGS |
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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. |
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Fernand Bélisle
Secretary General |