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Ottawa, 7 September 1990
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Telecom Decision CRTC 90-20
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BELL CANADA AND BRITISH COLUMBIA TELEPHONE COMPANY - TERMS OF REFERENCE FOR ACCESS STUDIES
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I BACKGROUND
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In Access Studies: Preliminary Terms of Reference, CRTC Telecom Public Notice 1989-48, 11 October 1989, (Public Notice 1989-48) the Commission set out preliminary terms of reference and announced a proceeding to determine final terms of reference for access studies to be undertaken by Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel).
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Public Notice 1989-48 reflected the Commission's conclusions, in Bell Canada and British Columbia Telephone Company - Phase III Manuals: Compliance with CRTC Telecom Public Notice 1986-54 and Telecom Order CRTC 86-516, Telecom Decision CRTC 88-7, 6 July 1988 (Decision 88-7), regarding: the growing demand for the recognition of costs in the setting of rates, including the possibility of distinctive rates for access arrangements; the need for detailed information concerning the costs associated with various types of access arrangements and with various groups of users of such arrangements; and the consequent requirement that the costs associated with the Phase III Access category be separated into specified subcategories, representing specific types of service and specific groups of users.
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Based on these conclusions, in Decision 88-7 the Commission announced its intention to establish terms of reference for studies that would provide relevant breakdowns of the Phase III Access category costs. As provided for in Decision 88-7, meetings were held between Commission staff and representatives of Bell and B.C. Tel to draft preliminary terms of reference. These preliminary terms of reference were issued in Public Notice 1989-48.
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Public Notice 1989-48 outlined the procedure to establish the final terms of reference. Bell and B.C. Tel were made parties to the proceeding and each were directed to file comments on the preliminary terms of reference by 24 November 1989. Interveners' comments on the preliminary terms of reference and on the Bell and B.C. Tel submissions were to be filed by 27 December 1989. Bell and B.C. Tel filed reply comments by 25 January 1990.
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Twenty-two parties registered as interveners. Comments were received from Canadian Business Telecommunications Alliance (CBTA), CNCP Telecommunications, now carrying on business as Unitel Communications Inc. (Unitel), Government of British Columbia (BCG), Marathon Telecommunications Corporation, Maritime Telegraph and Telephone Company, Limited (MT&T) and the Canadian Bankers' Association.
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II DISPOSITION OF PRELIMINARY TERMS OF REFERENCE
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A. General
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The preliminary terms of reference issued in Public Notice 1989-48 include preliminary study objectives, preliminary study guidelines and four questions relating to definitional and study process issues.
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The Commission considers one principal objective of the access studies to be to develop an appropriate disaggregation of the Phase III Access category. Another principal objective is to enhance each company's capability to undertake economic studies that provide detailed cost information with respect to specific arrangements of access facilities. Accordingly, the preliminary terms of reference reflect a requirement for studies that develop both economic and embedded costs. Consequently, the Commission has developed final terms of reference that are specific to these two general types of cost information.
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Both Bell and B.C. Tel provided comments on each objective, guideline and definitional question. The comments of interested parties were generally less extensive and related only to selected aspects of the preliminary terms of reference. The Commission's findings concerning each of the preliminary study objectives and study guidelines as well as two of four definitional questions follow in Sections B, C and D. The other two definitional questions are dealt with in Part IV of this Decision.
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The final terms of reference are presented in Part III of this Decision.
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B. Preliminary Study Objectives
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1. To enhance the informationsystems that identify the physical characteristics (e.g. technology employed, band width, geography/ topography, length and density of loops) of the company's access arrangements.
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Bell stated its intention to use an existing Local Enhanced Network Access (LENA) information system to provide information related to the physical characteristics of its loop plant. A description of this system was provided in the company's submission. Bell also stated that the degree to which enhancement of this system would be required could not be determined until specific study requirements were identified.
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B.C. Tel expressed the need for a more definitive determination of the nature of the various components of plant required to provide access. B.C. Tel indicated that, to achieve this objective, a significant effort would be required to enhance existing systems and data bases.
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The Commission considers that this preliminary objective provides an adequate description of the study requirements relating to the physical characteristics of access loop plant. Since interdependencies exist in the data requirements for the two types of cost information, the Commission has incorporated this objective into the final terms of reference for access studies relating to both economic and embedded costs.
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2. To document how the study's information systems can be employed to identify the economic costs of the company's access arrangements by class of customer (e.g. residential/ business, urban/rural) and by type of service (e.g. public switched telephone network/dedicated/ facilities leased by competitors).
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Bell submitted that its information systems used to determine economic costs (i.e., Phase II costing procedures) are already well documented and have been reviewed extensively by the Commission. These systems would form the basis for development of economic costs for access arrangements. B.C. Tel also indicated that its capability to identify economic costs is an integral part of various information systems currently used. In its view, the documentation of how these systems would be used in conjunction with enhanced data base information to provide economic costs for access arrangements is an appropriate adjunct to the development of an access study capability.
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The Commission notes that this preliminary study objective reflects its requirement that each company enhance and document its capability to identify economic costs for access arrangements provided for various classes of customers and types of services. Accordingly, this preliminary study objective is included in the final terms of reference for access studies that identify economic costs.
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3. To develop, document and employ study methods that identify, for access subcategories specified by the Commission, the embedded costs associated with the provision and maintenance of access arrangements.
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Both Bell and B.C. Tel expressed the view that any development of embedded costs for access facilities should be restricted to a very limited number of subcategories. MT&T supported the views expressed by Bell and B.C. Tel.
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On the other hand, Unitel strongly recommended that all access costs, other than for individual or small groups of services, should be calculated from embedded costs. BCG submitted that the reasons for using embedded costs for the Phase III Access category are also valid for the subcategories of access.
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The Commission considers that the identification of embedded costs for specified subcategories of access facilities is an essential requirement of the access studies. Accordingly, this preliminary study objective is included in the final terms of reference for access studies that identify embedded costs. The Commission's findings concerning the subcategories of Access for which embedded costs are to be developed and the proposed methodology for the development of the subcategory embedded costs are discussed in Section D.
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4. To provide a basis for a comparative analysis of the relative values and the factors that contribute to differences in economic versus embedded costs, particularly for the specified access subcategories.
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Bell submitted that the utility of comparing economic and embedded costs is questionable because of the different methodologies used to generate each type of cost and noted differences in various aspects of the two costing processes. In Bell's view, it is not feasible to perform meaningful comparisons between specific economic and specific embedded costs, but it might be possible to obtain a general qualitative indication of the factors which contribute to differences.
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B.C. Tel maintained that since its development of embedded costs for subcategories would depend on translating current cost information into embedded cost terms by means of empirical ratios, any comparative analysis would appear to be redundant. MT&T's view corresponded with that of B.C. Tel.
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Taking into account these comments and recognizing the principle objectives of the proposed access studies, the Commission concludes that there is no need to include this preliminary study objective in the final terms of reference.
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5. To provide a basis for assessment of the cost impact of deploying new technologies for access arrangements.
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Bell submitted that such cost impact assessments are presently being done and that Phase II concepts and principles are used to identify these cost impacts. B.C. Tel commented similarly.
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The Commission agrees that the existing Phase II procedures used by Bell and B.C. Tel have the capability to assess the cost impact of deploying new technologies and that these systems can be used to examine these effects for specified access arrangements. In the Commission's view, this requirement is inherent in the final terms of reference for access studies that identify economic costs and it is therefore not necessary to include it as a specific requirement for these studies.
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6. To develop information systems that can be used, in conjunction with Phase II study methods, as a basis for the ongoing development and rationalization of cost-related rates for those access arrangements required by subscribers to the company's competitive network services and by other service providers.
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Bell submitted that it already has information systems with the capability to cost various access arrangements and that it expects to adapt these systems as required to provide economic costs for access arrangements which may be specified by the Commission. B.C. Tel submitted that the access studies are a necessary step in examining the issues related to cost-related rates and indicated its intention to develop systems that will provide such information.
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The Commission considers that this preliminary objective identifies a necessary capability of those access studies that identify economic costs. Accordingly, this preliminary study objective is implicitly incorporated into the final terms of reference for access studies that identify such costs.
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7. To provide a basis for the identification of stranded investment (e.g. resulting from developments in technology or changes in market structure).
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Both Bell and B.C. Tel indicated that with existing depreciation practices, coupled with regular and frequent reviews of asset service lives and the implementation of appropriate depreciation rates, it was unlikely that significant amounts of stranded investment would exist.
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The Commission notes that, if changing circumstances result in stranded investment, steps must be taken to appropriately identify such investment and, in particular, to decide on what approach should be adopted to recoup any unamortized components of this investment. Therefore, the Commission does not consider that providing a basis for the identification of this investment is a primary requirement for the access studies. Accordingly, this preliminary study objective is not included in the final terms of reference.
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C. Preliminary Study Guidelines
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1. The study approach may extend or alter the definition of access used for Phase III purposes because that definition, for particular customer classes, may capture only a subset of the required access facilities.
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Both Bell and B.C. Tel discussed the difference that may exist between access as defined for the Phase III Access category versus specific configurations of access facilities required to provide certain services. In many instances, a specific access arrangement may include elements in addition to those already included in the Phase III Access category. Bell maintained that there is no need to change the existing Phase III definition of access for studies that disaggregate the Phase III Access category costs, whereas for studies that identity economic costs, unique definitions would be required for each case. BCG expressed a similar view.
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B.C. Tel maintained that the access study capability should be structured to develop the costs for any potential definition of access. On this basis, the facilities encompassed in the Phase III definition of access would be one particular subset of the company's access arrangements.
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In the Commission's view, the primary purpose of the access studies that identify embedded costs is to provide a disaggregation of the Phase III Access category costs. Therefore, the Commission has concluded that the definition of access for these studies must be consistent with the Phase III definition used to calculate the total Access category costs. However, the primary purpose of the access studies that identify economic costs is to identify the total access related costs associated with specific services or groups of users. In this instance, the Commission has concluded that the definition of access for these services must take into account the particular configuration of access arrangements required to provide the services being considered.
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Accordingly, the final terms of reference reflect these two conclusions.
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2. The information systems and study methods shall be designed to identify both economic and embedded costs associated with the provision and maintenance of access arrangements.
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Generally, all parties recognized the potential requirement for both economic and embedded costs associated with the provision and maintenance of access facilities, although significantly diverging views were expressed regarding the degree to which each costing methodology should be applied.
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The Commission notes that this preliminary study guideline is incorporated into the final terms of reference in that they identify specific requirements for both economic and embedded cost information.
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3. The information systems and study methods shall have sufficient flexibility to address questions, both now and in the future, concerning the physical characteristics and costs of the company's access arrangements.
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Bell submitted that its existing information systems are generally capable of addressing questions regarding access arrangements both now and in the future. B.C. Tel agreed that such flexibility is a desirable systems design objective and the degree to which it can be achieved will facilitate the production of study information.
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The Commission considers that this preliminary study guideline is primarily applicable to the information systems and study methods associated with the development of economic cost data. Accordingly, this general requirement is included in the final terms of reference for access studies that identify economic costs.
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4. To the extent that any additional study methods to identify economic costs are required, those methods shall complement and be consistent with existing Phase II economic study methods.
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Both carriers indicated their intention to enhance their existing costing systems to identify economic costs for access arrangements. Moreover, any modification or extension required to these systems for costing access arrangements would be consistent with Phase II concepts and principles.
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The Commission considers that this preliminary study guideline is applicable only to access studies that identify economic costs and that it is inherent in the final terms of reference for such studies.
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5. The information systems and study methods shall be designed and maintained in a manner that permits the production of study results on a periodic basis.
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Both carriers expressed their intention to design systems with the capability to produce results on a periodic basis. Both carriers also expressed the view that the requirement for periodic production of study results should be carefully considered and kept to a minimum.
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The Commission considers that the periodic production of economic cost data for a specific group of access arrangements will not generally be required. The requirement for this data will normally relate to the Commission's need to examine a specific situation with a corresponding specific definition of cost information and timing requirements. On the other hand, the Commission considers that the ability to monitor, on a periodic basis, the Phase III Access category embedded costs, subdivided into the specified subcategories, is essential.
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Accordingly, the Commission has modified this preliminary guideline and included it in the final terms of reference as a requirement to calculate embedded cost data for the specified subcategories of Access and to report these results as a supplement to the annual submission of Phase III results.
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D. Definitional and Process Considerations
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The preliminary terms of reference issued in Public Notice 1989-48 also invited comment in the form of answers to four questions related to definitional and process aspects of the access studies. Two of these questions concern study implementation activities and are addressed in Part IV of this Decision.
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The other two questions relate to the third preliminary study objective which envisages the development, documentation and employment of study methods that identify, for access subcategories specified by the Commission, the embedded costs associated with the provision and maintenance of access arrangements.
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1. What Access subcategories should be specified?
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CBTA submitted that issues associated with long distance competition, rate rebalancing and Centrex service would benefit from access studies. In CBTA's view, access costs should be divided between competitive, business monopoly, residential monopoly and Centrex with each of these categories subdivided between urban and rural service. BCG maintained that, in principle, embedded costs should be disaggregated to the lowest level possible, consistent with the Phase III framework and objectives.
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Bell and B.C. Tel, on the other hand, submitted that, for studies identifying embedded costs, the subcategories of access should be restricted to access to monopoly services and access to competitive services. Bell maintained that these subcategories would provide sufficient disaggregation to satisfy Phase III objectives and that a subdivision of access embedded costs to the degree suggested by other interested parties would be inappropriate and impractical. B.C. Tel submitted that its proposed subcategories reflect considerations of feasibility, significant differences, usefulness and effectiveness. Moreover, both Bell and B.C. Tel noted that in Inquiry into Telecommunications Carriers' Costing and Accounting Procedures: Phase III - Costing of Existing Services, Telecom Decision CRTC 85-10, 25 June 1985, it was accepted that "the Commission... should not require that the costing method prescribed for Phase III be adaptable, in the future, to studies of cost/revenue relationships at a more disaggregated level than for a small number of broad categories".
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The Commission accepts that, in most circumstances, special studies of small groups of services would identify economic costs rather than embedded costs. However, in the Commission's view, the carriers' proposed access to monopoly services should be subdivided into residential access and business access. In support of this view, the Commission notes that the application of rating principles over many years has resulted in distinctive exchange tariffs for residential as compared to business subscribers. Should future circumstances require the recovery of access costs, in whole or in part, by a separate set of tariffs, this historical relationship would likely be reflected in the establishment of distinctive access tariffs for residential and business subscribers.
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Accordingly, for purposes of the access studies that identify embedded costs, the Commission considers there is a need for three subcategories: Residential Access, Business Access and Other Access. These three subcategories are defined in general terms in the final terms of reference in Part III of this decision. The detailed definition of these three subcategories will be determined in the Detailed Definition Process prescribed in Part V of this decision.
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2. What general approach should be adopted as the basis for the study methods required to identify embedded costs for the access subcategories?
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Bell submitted that a feasible general approach to identifying embedded costs for its access subcategories would be to derive investment ratios and apply these ratios to the Phase III Access category investment. Bell proposed to develop these ratios from its LENA information system for the outside plant component of access and, to the extent possible, to use existing Phase III methodologies for the remainder of the access investment. For non-investment related expenses, Bell proposed to review the degree to which existing Phase III methods could be modified and to undertake further studies to develop any required new methods. The general approach outlined by B.C. Tel was consistent with Bell's proposed methodology. Both companies stressed that the proposed methodologies were considered feasible for the disaggregation of Access category costs into the two proposed subcategories and that the feasibility of other disaggregations had not been assessed.
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The Commission accepts that there is limited potential to directly apply existing Phase III methodologies to disaggregate the Access category and finds the approaches outlined by the carriers to be generally acceptable. It is also recognized that the practicality of the proposed methodologies has not been assessed relative to the Commission's requirement to disaggregate the Phase III Access category costs into three, rather than two, subcategories. However, the Commission considers that the proposed methodologies have the potential to meet its requirements in this regard. Accordingly, the Commission directs that any further development of the carriers' proposed methodologies to meet this degree of disaggregation of embedded costs should be determined in the Detailed Definition Process prescribed in Part V of this decision.
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III FINAL TERMS OF REFERENCE
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Based on the preceding considerations, the following are the final terms of reference for the access studies to be carried out by Bell and B.C. Tel.
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A. Enhanced Capability to Undertake Studies That Identify Economic Costs of Access
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1. Existing information systems that identify the physical characteristics (e.g. technology employed, band width, geography/topography, length and density of loops) of the company's access arrangements shall be enhanced and documented.
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2. These information systems shall have sufficient flexibility to address questions concerning the physical characteristics and economic costs of the company's access arrangements by class of customer, and by type of service.
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3. A specific access study undertaken to identify economic costs may extend or alter the Phase III Access definition to appropriately capture the subset of facilities pertinent to that access study.
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B. Access Studies That Identify Embedded Costs
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1. Existing information systems that identify the physical characteristics (e.g. technology employed, band width, geography/topography, length and density of loops) of the company's access arrangements shall be enhanced and documented.
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2. Procedures, methods and information systems capable of subdividing the plant investment, revenues and costs associated with the Phase III Access category into the three subcategories of Access as specified below, shall be developed and documented.
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3. The revenues and costs assigned to the Phase III Access category shall be subdivided into three subcategories, subject to specific definition during the Detailed Definition Process, as follows:
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(i) Residential Access shall include all carrier provided facilities and equipment defined as Access and required to provide residential subscribers with access to the public switched telephone network.
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(ii) Business Access shall include all carrier provided facilities and equipment defined as Access and required to provide business subscribers with access to the public switched telephone network.
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(iii) Other Access shall include all carrier provided facilities and equipment defined as Access and required to provide:
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a) dedicated access that is not connected to a telephone company central office;
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b) access to other than public switched telephone network services that is connected to a telephone company central office.
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4. Documented processes shall be used in the conduct of an annual study that identifies the Phase III Access category plant investment, revenues and costs associated with each of the three specified subcategories.
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5. Results of this annual study shall accompany the submission of both actual and forecast Phase III results in a supplementary supporting schedule as provided for in Decision 88-7.
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IV IMPLEMENTATION ISSUES
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Public Notice 1989-48 requested answers to one question related to the time interval required to complete the access studies and to another question related to the need for a monitoring procedure during the implementation of the studies.
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With respect to the first question, Bell submitted that the diverse requirements of the Commission will require a family of studies, within a general conceptual framework, using common costing approaches, data sources and computer systems. In Bell's view, specific outputs need to be defined before the required systems can be developed. As a result, Bell considered that a detailed definition phase is required prior to commencing the development of any systems for purposes of conducting access studies. Therefore, in Bell's view, questions relating to the time required for implementation cannot be addressed until this detailed definition phase is completed.
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B.C. Tel submitted that extensive effort would be required to create the data bases and design the systems required for these studies. It identified the potential to produce preliminary partial study results approximately two years after detailed definition and specification of output requirements have been finalized. B.C. Tel also identified that production of such preliminary results would require the diversion of some resources and extend the time required for the main systems development activities.
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The Commission agrees that the level of detail contained in the preliminary terms of reference is not sufficient to establish implementation intervals for the access studies. In the Commission's view, the Detailed Definition Process prescribed in Part V of this decision is an appropriate forum to develop the detailed requirements for these studies and to establish appropriate completion dates for such studies.
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The second question requested comments on whether a procedure to monitor each carrier's study efforts is desirable and, if so, what procedure should be adopted.
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Both Bell and B.C. Tel indicated that written implementation progress reports could be filed with the Commission on a periodic basis.
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The Commission directs that written progress reports be filed by each carrier at six month intervals starting after the Detailed Definition Process, as proposed in Part V of this decision, has been completed.
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V DETAILED DEFINITION PROCESS
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Both Bell and B.C. Tel indicated in their submissions that the level of detail in the preliminary terms of reference is not sufficient to proceed with the design and development of the systems required to carry out the access studies. Bell submitted that this detailed definition process could be similar to the process which took place prior to the formulation of the Commission's Guidelines for the filing of the Phase III Manuals.
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B.C. Tel expressed support for a detailed definition process as proposed by Bell and stated that the company has implicitly recognized such a process to be a prerequisite to any actual study. Unitel also considered that a definition phase is appropriate and that such phases should offer an opportunity for public comment.
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The Commission agrees that the requirements of the access studies must be defined in more detail before specific development activities are undertaken by the carriers. In the Commission's view, it is neither practical nor appropriate to include the required level of detail in the terms of reference. The preceding parts of this Decision have identified aspects of the access studies which require more detailed definition. Accordingly, the Commission accepts and approves the establishment of a Detailed Definition Process as proposed by the carriers for implementation of the access studies.
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To this end, Bell and B.C. Tel are each directed to file with the Commission by 22 October 1990 a report to initiate the Detailed Definition Process required for the access studies. Each carrier's report should outline its view of the general agenda of items to be resolved. The report should also identify the relative priority of the individual items requiring detailed definition and the carrier's views concerning the operational aspects of the Detailed Definition Process.
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Unitel urged the Commission to permit public comment on each stage of the study process.
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The Commission considers the primary purposes of the Detailed Definition Process to be (1) to reconcile the Commission's requirements for access cost information with the practical capabilities of the carriers' existing and potential data bases and information systems and (2) to develop schedules for implementation activities. These activities are to be undertaken jointly by Commission staff and representatives of Bell and B.C. Tel. The results of the Detailed Definition Process will be summarized by Commission staff in the form of study guidelines and issued for comment to parties who provided submissions on the preliminary terms of reference, prior to the Commission's consideration of such guidelines.
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Taking into account these comments, the Commission will approve and issue the detailed study guidelines to be followed by Bell and B.C. Tel. At the same time, a date for the submission of documentation and initial results relating to the subdivision of the Phase III Access category revenues and costs will be identified.
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Alain-F. Desfossés
Secretary General
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