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Telecom Public Notice
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Ottawa, 20 July 1988
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Telecom Public Notice CRTC 1988-31
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TELEGLOBE CANADA INC. - RATE OF RETURN OVER THE TRANSITIONAL PERIOD AND RATE STABILIZATION ACCOUNT
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BACKGROUND
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The Commission has closely monitored the financial performance of Teleglobe Canada Inc. (Teleglobe) during 1988 in order to ensure that, among other things, the tolls of the company would result in a rate of return that does not contravene provisions contained in the Direction to the CRTC on the Regulation of the New Corporation Resulting from the Reorganization of Teleglobe (the Direction). As part of its monitoring efforts, the Commission, letter dated 23 June 1988, asked Teleglobe to file a revised outlook for 1988 and 1989, as well as its plan to bring its expected rate of return on average common equity (ROE) for 1988 from a level substantially higher than the range provided for in the Direction down to a lower level. Teleglobe was also asked to comment specifically on the alternative of an average reduction of 10% in international telephone rates, effective 1 September 1988.
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On 4 July 1988, Teleglobe submitted a response to the Commission's letter of 23 June 1988. Teleglobe estimated that, with no rate decreases, its ROE would be 20.94% in 1988 and 18.03% in 1989. If its rates were reduced by 10% effective 1 September 1988, its ROE would be 15.48% in 1988 and negative 1.39% in 1989. The company proposed to lower rates by an average of 3.1%, effective 1 September 1988. The company also proposed to establish a Rate Stabilization Account (RSA) in 1988. Under these proposals, Teleglobe estimated that its ROE would be 15.56% and 14.15% in 1988 and 1989, respectively.
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On 8 July 1988, the company filed Tariff Notice 28, providing details of its proposed rate reductions. The proposed rates entailed, among other things, a weighted average reduction to international telephone service rates of 3.1%. In Telecom Letter Decision CRTC 88-5 issued today (Letter Decision 88-5), the Commission denied Tariff Notice 28 and directed Teleglobe to file proposed tariff revisions providing for an average 5% reduction to international telephone service rates, effective 1 September 1988.
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On 8 July 1988, the company also filed, in confidence, an application proposing to establish the RSA in 1988. An abridged version of the proposal was also filed for the public record. The company indicated that the purpose of the RSA is to smooth out the fluctuations in Teleglobe's income arising from fluctuations in foreign currencies and to minimize potential changes in its rates resulting from such fluctuations.
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Under the company's proposed RSA, budgeted exchange rates would be set before the beginning of the year. During the year, revenues would be recorded using these budgeted exchange rates. Any difference between the budgeted exchange rates and the actual exchange rates would be charged or credited to the RSA. In addition, Teleglobe has outstanding accounts with many foreign administrations, which are payable generally in Special Drawing Rights, but also in other currencies. Over the period that these accounts are outstanding, their values rise and fall depending on the exchange rates. The company is required by accounting rules to revaluate them monthly. Under Teleglobe's proposal, any "unrealized foreign currency gains or losses" thus created would also be charged or credited to the RSA. The amount in the RSA would be brought into income over 10 years. Teleglobe estimates that the RSA would amount to $16 million at 1988 year end, if established.
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Section 5(1)(a) of the Direction states follows:
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5(1) In approving tolls of the new corporation the Commission shall
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(a) accept as the allowed rate of return on common equity, on average over the transitional period [1988 to 1991, inclusive], a return that is within the range defined by the weighted average mid-point of the return allowed by the Commission on common equity of Bell Canada and British Columbia Telephone Company, and that mid-point plus 2 percent.
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In the Commission's view, there are a number of methods that could be used to administer the averaging provisions contained in section 5(1)(a). Accordingly, the Commission hereby initiates a public process to identify and consider such methods. The Commission understands that Teleglobe considers that its proposed RSA could an element of a mechanism designed to ensure compliance with the section. Therefore, the Commission also invites comments directed specifically towards Teleglobe's proposal for the establishment of an RSA.
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PROCEDURE
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1.Interested persons wishing to participate in this proceeding must notify the Commission of their intention to do so by writing to Mr. Fernand Bélisle, Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, by 12 August 1988. The Commission will distribute a complete list of such persons (interveners) and their addresses.
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2. Interveners may address interrogatories to Teleglobe. Interrogatories addressed to Teleglobe must be filed with the Commission and served on Teleglobe by 19 August 1988.
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3. Teleglobe is required to file interrogatory responses with the Commission and to serve them on all interveners by 19 September 1988.
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4. Requests by interveners for further responses to their interrogatories, specifying in each case why a further response is both relevant and necessary, and requests for disclosure of information for which confidentiality has been claimed, setting out the reasons for disclosure, must be filed with the Commission and served on Teleglobe by 26 September 1988.
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5. Teleglobe's response to requests for public disclosure and to requests for further responses must be filed with the Commission and served on the interveners by 3 October 1988.
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6. Intervener replies must be filed with the Commission and served on Teleglobe by 11 October 1988.
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7. The Commission intends to issue a written decision regarding requests for disclosure and requests for further responses on or about 14 October 1988.
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8. Teleglobe may file comments with the Commission, serving a copy on the interveners, by 28 October 1988.
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9. Interveners may file comments with the Commission, serving a copy on Teleglobe, by 25 November 1988.
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10. Teleglobe may file a reply with Commission, serving a copy on interveners, by 5 December 1988.
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11. The mailing addresses for the Commission and for Teleglobe are as follows:
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a) Mr. Fernand Bélisle
Secretary General
CRTC
Ottawa, Ontario
K1A 0N2
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b) Mr. Jules Lemay
Director
Regulatory and Corporate Analysis
Corporate Affairs Group
Teleglobe Canada Inc.
680 Sherbrooke Street West
Montréal, Québec
H3A 2S4
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12. Those documents noted in paragraphs 2 to 6, 8 and 9 above must be actually received, not merely mailed, by the specified date.
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13. Teleglobe's application and related documents may be examined at any of Teleglobe's business offices, or at the offices of the CRTC, Room 201, Central Building, Les Terrasses de la Chaudière, 1 Promenade du Portage, Hull, Québec, or Complex Guy Favreau, East Tower, 200 Dorchester Blvd. West, 6th floor, Montréal, Québec. A copy of the application may be obtained by any interested person upon request directed to the company at the address shown in paragraph 11 above.
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Fernand Bélisle
Secretary General
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