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Public Notice
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Ottawa, 30 January 1987
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Public Notice CRTC 1987-27
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CAPITAL EXPENDITURE FILINGS, CABLE TELEVISION REGULATIONS, 1986
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For Related Documents please refer to Public Notices CRTC 1986-182 and CRTC 1986-184 dated 1 August 1986.
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In response to many requests, the Commission wishes to clarify for holders of Class 1 and Class 2 licences for broadcasting receiving undertakings those items which the Commission considers fall within the definition of capital expenditure set out in subsection 18(5) of the Cable Television Regulations, 1986 (the regulations), and the form of the appropriate documentation referred to in subparagraph 18(7)(b)(iii) of the regulations.
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Capital Expenditures
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Subsection 18(5) of the regulations defines "capital expenditure", for the purpose of subsection 18(6), as those capital costs that a licensee estimates will be incurred for the purchase or capital lease of its head end or distribution system to the extent that these capital costs relate to the reception, processing or distribution of the basic service. Accordingly, capital expenditures for head end components and distribution system plant, including private and leased microwave facilities, will be considered as falling within the definition.
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Examples of items which the Commission does not consider to fall within the definition for the purpose of subsection 18(6) of the regulations are: land, buildings (including land improvements), furniture and fixtures, automobiles, trucks, computers, new subscriber drops and devices, test equipment, tools, cable casting/local program production equipment and leasehold improvements (except those relating to head end and distribution). Licensees wishing to include these and other types of expenditures in their rate filings are reminded that subsection 18(8) of the regulations is the subsection under which to proceed.
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It should be noted that the Commission is planning to propose, as soon as possible, amendments to the definition of "capital expenditure" contained in subsection 18(5) of the regulations so as to include the replacement of existing subscriber drops to upgrade the quality of service provided and also the purchase of equipment used exclusively for community programming to enhance the quality or quantity of community programming. Licensees are reminded that these items should not be included in any increases, notices or filings under subsections 18(6) and 18(7) of the regulations unless and until the amendment comes into effect, at which time the Commission will issue a Public Notice.
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The Commission affirms that, generally, there is a need for cost separation where costs are associated with the reception, processing or distribution of both basic and discretionary services in order to ensure that basic service subscribers do not subsidize discretionary services. These cost separation procedures should be as simple and economical as possible. In the specific case of filings for capital expenditure based increases pursuant to the provisions of subsections 18(5) and 18(6) of the regulations, and continuing current practice, the Commission expects such filings to exclude new incremental capital costs which relate specifically and solely to the provision of discretionary services. It should be noted that discretionary services used in this context may include both programming and non-programming services.
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Appropriate Documentation
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Subparagraph 18(7)(b)(iii) of the regulations prohibits a licensee from implementing an increase to its basic monthly fee by an amount permitted pursuant to subsection 18(6) unless it sends to the Commission appropriate documentation to justify the proposed increase. The Commission considers appropriate documentation to comprise, at a minimum, the following:
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(1) To permit the Commission to verify the calculations employed in the notice, as described in subparagraph 18(7)(b)(ii) of the regulations, which has been or will be sent to all subscribers in the system, a statement indicating the number of subscribers in the system.
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(2) To ensure that the proposed capital expenditures are eligible,
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(a) budgets specifying the amounts to be spent on each proposed capital expenditure project, and
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(b) sufficient detailed information which will describe each project so as to allow the Commission to determine that the purpose of the expenditure does in fact conform to the regulation requirement;
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and
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(3) To ensure that licensees do not obtain double credit for any proposed capital expenditure, a declaration substantially as follows:
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I, (Name, title, address), on behalf of (Name of licensee), declare that none of the costs which are being claimed herein as capital expenditures as defined in subsection 18(5) of the Cable Television Regulations, 1986 have been included in any previous application or filing under conditions of licence or regulations in effect prior to August 1, 1986, or under subsections 18(6) to 18(9) of the Cable Television Regulations, 1986.
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Where costs being included under a proposed capital expenditure plan have been used in whole or in part to justify a previous application or filing for an increase in monthly subscriber rates, the licensee should, instead of filing the above-mentioned declaration, indicate which specific projects and related costs were previously included in which previous application or filing, and the year in which the projects and related costs were to be incurred.
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Subsequent Documentation
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To ensure that authorized capital expenditure proposals have been carried out, when the licensee has undertaken to make certain capital expenditures in connection with an increase in monthly subscriber rates granted under conditions of licence or regulations in effect prior to August 1, 1986, or taken under subsection 18(6) or 18(8) of the regulations, the Commission intends to require completion of a declaration which will be incorporated in the Annual Return - Cable Television. In that declaration, the licensee will be required to indicate, by capital expenditure project, the actual amounts spent in relation to the fiscal year reported in the annual return which will enable the Commission to review actual results and to assess any future filings under this subsection of the regulations.
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Fernand Bélisle Secretary General
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