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TELECOM DECISION
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Ottawa, 30 November 1990
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Telecom Decision CRTC 90-27
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BELL CANADA - 1990 CONSTRUCTION PROGRAM REVIEW
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Table of Contents
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I INTRODUCTION
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II 1990 VIEW OF THE CONSTRUCTION PROGRAM
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A. Usage Categories
1. Demand Category Expenditures
2. Programs Category Expenditures
3. Replacement Category Expenditures
4. Support Category Expenditures
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B. Demand and Programs Usage Categories
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C. Switching Equipment Modernization Program
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D. Local Automatic Message Accounting Program
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E. Implementation of Fibre Optic Facilities
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F. DMS Switch Supernode Option
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G. Extension of Service to Unserved Communities
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H. The CPR Process
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I. Conclusion
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I INTRODUCTION
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In CRTC Telecom Public Notice 1990-2, 12 January 1990, the Commission announced that it would conduct a review of the construction program of Bell Canada (Bell). On 23 January, Bell filed the 1990 View of its construction program for the years 1990 to 1994, inclusive (the 1990 View), along with other information that the Commission had requested. The review meeting was held on 5 and 6 June 1990. It followed a preliminary meeting at which Bell gave a presentation on network survivability.
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Participants in the 1990 construction program review (CPR) included the Government of Ontario (Ontario), the Government of Quebec (Quebec), Unitel Communications Inc. (Unitel) and Rogers Cable T.V. Limited (RCTV). These parties filed comments regarding the reasonableness of the construction program on 18 July 1990. Bell filed its reply to comments on 8 August 1990.
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II 1990 VIEW OF THE CONSTRUCTION PROGRAM
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A. Usage Categories
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The following table summarizes Bell's construction program by usage category:
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1990 1991 1992 1993 1994
($ millions
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Usage Category
Demand 1614.6 1630.2 1619.0 1634.0 1660.0
Programs 432.4 494.1 512.0 531.0 500.0
Replacement 114.1 124.5 136.0 148.0 158.0
Support 228.9 222.0 224.0 227.0 230.0
Total 2390.0 2470.8 2491.0 2540.0 2548.0
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On 18 May 1990, Bell filed an update to the 1990 View (the 1990 View Update). The 1990 View Update indicated variations in forecast expenditures for the years 1990 and 1991, reflecting a reallocation of capital funds from the demand category to the programs category. The revised figures for these years are as follows:
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1990 1991
($ millions)
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Demand
1990 View 1614.6 1630.2
1990 View Update 1595.1 1600.3
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Programs
1990 View 432.4 494.1
1990 View Update 451.9 524.0
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In the 1990 View, Bell anticipated significant expenditures in 1990 and 1991 for fibre optic facilities in the access network. In the 1990 View Update, Bell reduced the capital expenditures on fibre projected for 1990 and 1991 by $49.4 million. This reduction was attributed to the company's decision to defer deployment of fibre in the access network until new product lines are available sometime between 1992 and 1994. This decrease in demand expenditures allowed the company to reallocate capital funds to the programs category.
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Bell has established a new program, Local Automatic Message Accounting (LAMA), scheduled to begin in 1990 and to end in 1991. It entails construction expenditures of $12.8 million and $13.6 million for 1990 and 1991, respectively. Additional expenditure allocations in the Switching Equipment Modernization (SEM) and Switching Equipment Modernization - Intertoll (SEM-I/T) programs are the result of advancing, from 1992-93 to 1991, the replacement of four analogue switches in the Quebec region.
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1. Demand Category Expenditures
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The demand category includes planned expenditures required to meet the requests of new and existing customers for a wide variety of telecommunications services. These expenditures are required to provide switching facilities, a variety of transmission facilities and station or terminal equipment. Specifically, this category includes expenditures for exchange facilities, exchange station apparatus, exchange station connections, large private branch exchange (PBX) equipment, intertoll facilities, data facilities, data station equipment, and other facilities for the provision of special service offerings.
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The 1989 View and the 1990 View Update forecasts of capital expenditures allocated to the demand category for the years 1990 and 1991 are as follows:
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1990 1991 Total
($ millions)
1989 View 1608.4 1590.0 3198.4
1990 View Update 1595.1 1600.3 3195.4
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In the 1990 View Update, the total expenditures forecast for the years 1990 and 1991 are slightly less than in the 1989 View. These planned expenditures represent 65.7% of the total expenditures forecast for this two-year period and are only 0.5% higher than the actual expenditures in the demand category for the years 1988 and 1989.
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For the two-year period 1990-1991, the 1990 View forecast of Network Access Services Net Gain (NASNG) is 3.1% greater than in the 1989 View, and the forecast of Long Distance Message (LDM) volume is 7.2% greater. Forecast expenditures were correspondingly higher. These expenditures were reduced in the 1990 View Update by $19.5 million in 1990 and $29.5 million in 1991, as a result of the decision to defer deployment of fibre optic technology in the access network. Copper-based facilities, which entail a lower expenditure level, will be used in lieu of fibre. Customer demand for service over the four-year period common to both Views is expected to be slightly lower than anticipated in the 1989 View.
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2. Programs Category Expenditures
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The programs category includes planned expenditures for various modernization projects such as the replacement of obsolete facilities with more up-to-date and reliable equipment, the installation of state-of-the-art measuring devices, and the provisioning of modern centralized operations and maintenance centres. The company undertakes these projects in order to meet changing customer requirements, to improve both quality of service and operational efficiency, to reduce costs and to protect the long-term viability of the network. Major programs have been established for the modernization of exchange and intertoll switching equipment, transmission equipment and urban outside plant facilities, as well as the implementation of common channel signalling 7 (CCS 7).
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The 1989 View and the 1990 View Update forecasts of capital expenditures allocated to the programs category for the years 1990 and 1991 are as follows:
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1990 1991 Total
($ millions)
1989 View 400.1 405.0 805.1
1990 View Update 451.9 524.0 975.9
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In the 1990 View Update, the expenditures forecast for the years 1990 and 1991 are 21.2% greater than in the 1989 View. These planned expenditures represent 20.1% of the total expenditures forecast for this two-year period and are approximately 37.1% higher than the actual expenditures in the programs category for the years 1988 and 1989. Forecast expenditures in the 1990 View Update exceed the 1990 View by $19.5 million in 1990 and by $29.9 million in 1991. During the period 1990 to 1993, inclusive, the company has accelerated the SEM program from 450,000 to 660,000 working lines replaced per year. The company has introduced eight new programs since the 1989 View. Throughout the current forecast period, the planned annual expenditures in the programs category represent approximately 20% of total annual expenditures.
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3. Replacement Category Expenditures
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The replacement category includes expenditures arising from the need to replace plant that is, or will be, out of service because of damage or wear. It also provides for relocations required by an external agency such as a highway authority when the company's plant obstructs construction activity. Replacement activities are not individually predictable, but the level of overall expenditures in this category is relatively stable from year to year.
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The 1989 View and the 1990 View forecasts of expenditures allocated to the replacement category for the years 1990 and 1991 are as follows:
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1990 1991 Total
($ millions)
1989 View 112.1 126.0 238.1
1990 View 114.1 124.5 238.6
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In the 1990 View, the expenditures forecast for the years 1990 and 1991 are slightly greater than in the 1989 View. These planned expenditures represent 4.9% of the total expenditures forecast for this two-year period and are 15.8% higher than the actual expenditures in the replacement category for the years 1988 and 1989.
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4. Support Category Expenditures
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The support category includes expenditures to provide administrative support facilities for the company's operations. It is broken down into four sub-categories: administrative land and buildings; furniture and office equipment; general purpose computers; and motor vehicles and other work equipment.
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The 1989 View and the 1990 View forecasts of expenditures allocated to the support category for the years 1990 and 1991 are as follows:
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1990 1991 Total
($ millions)
1989 View 219.4 229.0 448.4
1990 View 228.9 222.0 450.9
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In the 1990 View, the expenditures forecast for the years 1990 and 1991 are slightly greater than in the 1989 View. These planned expenditures represent 9.3% of the total expenditures forecast for this two-year period and are 6.1% higher than the actual expenditures in the support category for the years 1988 and 1989.
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B. Demand and Programs Usage Categories
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Quebec noted that, in previous CPRs, it has sought to gain a better understanding of the differences between the Quebec and Ontario regions. Quebec stated its view that, in this CPR, the information provided by Bell was not sufficiently precise to enable a better understanding of the differences. Quebec referred specifically to the information provided by Bell to explain the substantial regional differences in the cost per kilometre of fibre optic facilities, and to its request for an indication of the average distance between switching centres in each region.
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Bell noted that Quebec had expressed concerns regarding the relative expenditures in the two regions in previous CPRs. Bell stated that its principal objective in allocating capital funds to the demand category is to ensure quality service to all subscribers at reasonable cost. Bell noted that the factors affecting the cost differences between the regions have been reviewed in previous CPRs and found by the Commission to be realistic and valid.
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For the Ontario and Quebec regions, Quebec calculated unit cost per kilometre values for access fibre facilities based on data provided by the company. At the review meeting, Quebec requested an explanation of the difference between unit costs in each region. The Commission notes that Bell was not able to provide a detailed response.
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The Commission continues to be of the view that the significant number of regional differences makes it virtually impossible to establish a meaningful comparison of unit costs or expenditure ratios for the provisioning of facilities in the Ontario and Quebec regions. It also considers that various factors cause the costs of providing service in each region to differ.
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The Commission considers the unit cost values presented by Quebec, apparently calculated as the ratio of total actual fibre expenditures to the number of kilometres of access fibre, to be well in excess of realistic cost levels. Accordingly, the Commission is of the view that Quebec's computations of unit costs per kilometre for the provisioning of fibre access facilities do not represent the marginal cost of adding facilities in the two regions.
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With respect to the geographical differences between the regions, Bell stated in the 1989 CPR that, on average, central offices in the Ontario region are farther apart. Thus, the circuits interconnecting the offices are longer. At the review meeting, Quebec requested that Bell provide an approximate value of the average distance between central offices in each region. The company subsequently responded that it does not record this information.
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The Commission is of the view that it would be possible to compute the average distance between central offices for each region. The Commission recognizes that such a computation would require substantial effort, in view of the large number of switches involved. Nevertheless, the Commission believes that Bell should provide some support for its claim that the average distance between central offices in Quebec is greater than in Ontario. Accordingly, Bell is directed to file, and to serve on the parties to this CPR, by 14 January 199l, a report on the difference between Ontario and Quebec in the average distance between central offices. At future CPR meetings, the company will be expected to substantiate more fully claims or assertions of this nature.
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Quebec also noted the increased forecast expenditure allocations in the programs category. Quebec stated that, if this trend were to continue, its concern with respect to the pace of modernization activity in the Quebec region would be diminished somewhat. Quebec also noted that funding for the major programs will be increased.
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C. Switching Equipment Modernization Program
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Quebec was concerned that the manner in which the SEM program is implemented would disadvantage the Quebec region because it would increase the proportion of step-by-step (SXS) lines in Quebec, relative to the company as a whole. Quebec suggested that this imbalance would require corrective action.
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In reply, Bell stated that the funding for the SEM program is allocated to each region on the basis of its fraction of Network Access Services (NAS). Each year, the company selects the specific switches that it will modernize in each region in accordance with corporate SEM guidelines and the specific business needs of the regions. Bell noted that the guidelines are sufficiently flexible to allow it to select, in each region, the individual switches that will optimize the benefits of its modernization program. Bell submitted that this may result in a different ratio of SXS to other technology in each region. Bell argued that to constrain the allocation of SEM funding on the basis of particular switch technology would likely result in a selection of switches that would not maximize SEM benefits in each region.
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The Commission considers that the company has responded satisfactorily to Quebec's concern regarding the implementation of SEM in the Quebec region.
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Ontario suggested that the List of Switching Entities, which is filed annually as part of the CPR documentation, should be augmented to indicate which digital switches are equipped with the Supernode option, CCS 7 or LAMA. Ontario also suggested that the data be provided in machine-readable form to an interested party, upon request.
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Bell responded that the CPR process would not be well served by providing the data in machine- readable form. Bell stated that additional work and administrative complexity would result. Bell also expressed a number of concerns related to the format of information provided on diskette, the additional maintenance required to retain data in both electronic and paper formats and the translation requirements arising from the use of different systems and formats by various parties. Bell submitted that placing meaningful summaries on the record would be of greater benefit to participants than providing more detailed data.
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The Commission agrees with Ontario that it would be useful to indicate switch features on the list. Bell is therefore directed to revise the List of Switching Entities, commencing with the 1991 CPR, to provide an indication of which switches are equipped with the Supernode option, CCS 7 or LAMA. The Commission considers, however, that the need to provide the data in machine-readable form has not been demonstrated. As a result, the Commission will not require the company to provide the data in machine-readable form, unless the parties to future reviews can provide fuller justification.
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D. Local Automatic Message Accounting Program
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In the 1990 View Update, Bell stated that it had initiated the LAMA program following its decision to defer fibre expenditures and to reallocate capital funds from the demand category to the programs category. LAMA, which collects call billing data at the local switch, provides a number of benefits, such as reductions in toll switch central processing unit utilization, reductions in toll trunk terminations, and major toll connect reductions. These reductions are made possible by LAMA's new routing configurations and Local Dynamic Routing (LDR) capability. The economic study results provided at the review meeting indicate that equipping all new digital switch installations with LAMA and retrofitting existing DMS-100 switches by year-end 1991 would result in a net present value (NPV) of $19.7 million.
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The forecast expenditures for LAMA conversion during 1990 and 1991 are as follows:
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1990 1991 Total
($ millions)
12.8 13.6 26.4
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At the review meeting, Bell undertook to provide additional information requested by Unitel with respect to the LAMA economic study. Bell responded to these requests for further information on 20 June 1990. Unitel subsequently indicated that it was satisfied with the company's response.
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Ontario commented that introducing LAMA fundamentally changes the traditional boundary between the local and toll sectors of the network. In Ontario's view, the possibility of routing toll calls over local facilities raises a number of issues, such as proper allocation of costs among the categories established in Phase III of the Cost Inquiry. Ontario noted that these issues extend well beyond the bounds of the CPR.
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Unitel contended that there are deficiencies in the economic study report that could not be addressed prior to the review meeting, since program details were only provided with the filing of the 1990 View Update, after completion of the interrogatory process. Unitel submitted that Bell did not provide evidence of a need for the LAMA program or adequate economic justification to support its implementation and substantiate its reasonableness.
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Unitel also expressed the concern that the introduction of LAMA could have an impact on its application to provide public long distance voice telephone services. Unitel claimed that LAMA would eliminate the availability of the Automatic Number Identification (ANI) feature at the class 4 toll switch. Unitel noted that, in its application, it described interconnection at Bell's class 4 toll switch as its preferred form of access. Unitel's application also outlines the need for answer supervision information, and calling line identification or ANI, to be forwarded by the class 4 switch to the Unitel toll switch for billing purposes. Unitel contended that the absence of ANI at the class 4 toll switch would present a significant problem. Based on its interpretation of information provided at the review meeting, Unitel was of the view that Bell could continue to provide ANI at the class 4 toll switch at no additional cost.
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In Bell's view, Unitel's comments indicated some confusion with respect to the availability of ANI and the costs of providing it. Bell suggested that this confusion was due to a misinterpretation of its evidence. Bell reiterated the different requirements for passing ANI for "1+" and "0+" dialed calls from a local office equipped with LAMA. Bell noted that, with the exception of operator-assisted calls, there could be additional costs associated with the provision of ANI at the class 4 switch. Bell stated that it would be prepared to discuss, in the proceeding dealing with Unitel's application to provide public long distance telephone services, the costs associated with the provision to a facilities-based carrier of ANI at class 4 toll offices.
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Bell considered unfounded Unitel's argument that there is insufficient information to justify the LAMA program. Bell stated that, in addition to the economic study report, the presentation on network survivability described and explained various network evolution initiatives. These include reductions in toll connect trunks and trunk terminations resulting from the introduction of LAMA, and network survivability enhancements made possible by the implementation of dynamic routing. Bell noted that Unitel was satisfied with its response to requests for further information regarding the LAMA economic study.
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The Commission recognizes that Unitel's concern that the introduction of LAMA could eliminate the availability of ANI at some of Bell's switches might be valid. However, the Commission is of the opinion that the LAMA program should be evaluated on the basis of the costs incurred and the benefits that would accrue. The Commission is of the view that the company has provided sufficient economic justification for the implementation of LAMA and does not consider necessary the submission of further information relating to the economic study. The Commission does not agree with Unitel's contention that the information provided by Bell is insufficient to enable a proper assessment of the program.
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E. Implementation of Fibre Optic Facilities
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At the review meeting, Bell stated that the deployment of fibre optic technology in the access network is currently limited to feeder cable facilities. Bell also stated that, by the mid-1990s, the SEM program will be near completion and that fibre optic facilities will have achieved a high degree of penetration in the interoffice and intertoll networks. Bell indicated that, at that time, it would consider establishing a major program for increasing the deployment of fibre in the access network. The 1990 View forecast expenditures for fibre optic facilities are as follows:
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1990 1991 1992 1993 1994
($ millions)
Access Facilities 66.2 53.6 26.0 31.0 36.0
Interoffice Facilities 70.6 80.9 63.3 63.9 65.9
Intercity Facilities 87.0 53.0 54.1 37.0 42.0
Total 223.8 187.5 143.4 131.9 143.9
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RCTV suggested that an incentive other than basic telephone service, such as the provision of competitive video services requiring broadband capability, might underlie Bell's decision to accelerate the deployment of fibre technology in the access network. RCTV submitted that the information provided by the company is not sufficiently detailed to permit an analysis of the use of fibre facilities in the access network. RCTV noted that Bell field engineering staff conduct "present worth of annual costs" (PWAC) studies to determine whether fibre or copper technology is the most economic means of providing feeder cable facilities. RCTV stated, however, that it is corporate staff who control the extent of the use of each of these technologies. RCTV concluded that fibre provisioning in the access network relates in part to the company's strategic objectives. RCTV therefore questioned the cost-effectiveness of deploying fibre technology in the feeder network at this time. In support of its argument, RCTV noted that planned expenditures of approximately $25 million in 1990 and $35 million in 1991 for fibre access facilities were replaced by expenditures of approximately $5 million in each of these years for copper facilities, resulting in a net decrease of approximately $50 million in demand expenditures for the two years.
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RCTV and Ontario addressed Bell's inability to discuss in detail at the review meeting its submission to the Department of Communications (DOC) on Local Distribution Telecommunications Networks (Canada Gazette Notice DGTP-09-89). Both parties were of the view that this inability indicated a deficiency in the CPR record with respect to the company's future plans for fibre deployment. RCTV submitted that the CPR process should examine the company's plans for fibre expenditures over the next ten years. RCTV requested that additional witnesses with relevant expertise be available at future review meetings. RCTV further submitted that the company should be required to provide more detailed information regarding the current criteria for the deployment of fibre optics in the feeder network.
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In response to RCTV's concerns regarding the fibre provisioning process, Bell pointed out that its regional engineering staff evaluate specific projects using PWAC studies of the available technologies. Selection of the best alternative is based on consideration of economic criteria and the availability of capital. Bell stated, however, that factors such as technological advances and new product announcements may cause the company to re-evaluate its plans. Bell noted, for example, that following the announcement of the expected availability between 1992 and 1994 of the Synchronous Optical Network (SONET) product line, it had recognized that it could achieve additional savings by deferring some expenditures to take advantage of the lower costs and enhanced capabilities of these products. Accordingly, Bell had considered it prudent to defer certain expenditures for fibre in the access network previously planned for 1990 and 1991.
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In response to comments on the adequacy of the record concerning the company's plans for fibre deployment, Bell submitted that its responses with respect to the DOC submission were appropriate and sufficient for the purposes of the CPR. Moreover, Bell noted that, at the review meeting, RCTV's questioning on the submission had addressed research matters that were ruled to be beyond the scope of the proceeding. Regarding RCTV's suggestion to examine a ten-year planning period with respect to fibre expenditures, Bell stated that the CPR was established to review the company's projected capital expenditures over the five-year period covered by the budget forecast under review. Bell argued that looking beyond that period would increase the degree of uncertainty associated with such forecasts, and would require the development and consideration of expenditure forecasts that would be of little or no value.
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The Commission notes that the submission of economic evaluation or PWAC studies to justify forecast expenditures in the demand category has not generally been a requirement in the review process. The Commission also notes, however, that the deployment of fibre technology, particularly in the access network, has now become an issue. Bell is therefore directed to file with the Commission and to serve on the parties to this CPR, by 14 January 199l, the results of PWAC studies for three projects, representative of region and size, involving the installation of fibre optic facilities in the feeder portion of the access network. The Commission considers that Bell's explanation of the provisioning process for fibre plant facilities responds satisfactorily to RCTV's concern about the potential for decision-making conflict between field engineering staff and corporate staff.
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The Commission notes Bell's comments regarding the relevance to the CPR of detailed questioning on the company's submission to DOC. Regarding the suggestion that the CPR examine plans for fibre expenditures over a ten-year period, the Commission agrees with the company that extending the review process beyond the five-year forecast period would introduce a significant and unnecessary degree of uncertainty.
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In light of the concerns expressed about the company's plans for the deployment of fibre technology, the Commission is of the view that a presentation on this topic would be useful. Accordingly, Bell is directed to provide, at the preliminary meeting to the 1991 CPR, a presentation on the company's policy and its current and long-term plans for fibre provisioning, including the installation of fibre facilities in the access network.
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Ontario noted that the members of Telecom Canada are contemplating the introduction of a second national fibre optic transmission system and that Bell has already planned expenditures for 1990 and beyond. In Ontario's view, the record of the proceeding does not indicate that a second fibre optic route has been economically justified.
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Bell responded that the construction of a second fibre optic route was reviewed in the 1988 CPR. Bell noted that it filed, on 22 March 1990, a study addressing its portion of the Telecom Canada second high capacity route, as directed by the Commission in its decision in that proceeding. Bell also noted that this study evaluated alternatives to provide diversity for its portion of the second route. In addition, the company described the benefits of the second route with respect to network survivability and diversity in its presentation at the review meeting. Bell submitted that therefore this matter has been adequately addressed.
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The Commission notes that Bell based its determination that the second route should consist of a hybrid fibre optic/digital radio structure, divided into five major cross-sections, on the PWAC evaluation of fibre optic and digital radio alternatives. In the Commission's view, Bell's determination on the need for a second route is also based on the assumption that digital diversity is a current requirement. The Commission is not prepared to find reasonable the forecast expenditures associated with the company's portion of the second high capacity route, without further explanation by the company of the need to provide digital diversity at this particular time.
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F. DMS Switch Supernode Option
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Ontario noted that Bell has allocated forecast expenditures in the demand category for the installation of the Supernode option on existing DMS digital switches and for the provision of this feature on all new switch installations. Ontario submitted that the reasons for Supernode implementation are not completely clear from the information provided by Bell in the CPR.
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Bell responded that, since this matter had been discussed in detail at the review meeting, it considered Ontario's comments unfounded.
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In the Commission's view, the information provided in this proceeding is sufficient to permit an assessment of the reasonableness of the company's plans for implementing the Supernode option on DMS switches.
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G. Extension of Service to Unserved Communities
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In response to information requested by the Commission, Bell identified 155 communities with an estimated 30 or more dwellings in the Ontario and Quebec regions that do not receive primary exchange service. Bell indicated that five of these communities are now served by toll telephone, and that one is served by Regional Communication Service. Bell indicated further that three of the communities are still in the planning phase and so have not requested service.
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Bell indicated that it plans to serve, before year-end 1991, 97 of the remaining 146 communities without telephone service, and that primary exchange service is the most likely serving option for almost all of these communities. The company noted that the number of requests for service that it receives from a community is a main criterion influencing its decision to provide service to that community. Bell also noted that the communities not scheduled to receive telephone service by the end of 1991 are composed mainly of cottages.
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It nevertheless remains of concern to the Commission that one-third of the communities in the Ontario and Quebec regions identified by Bell are not scheduled to have any access to telephone service by the end of 1991. Accordingly, the Commission intends to pursue with Bell, through the CPR process, the question of the company's plans for providing access to telephone service for these communities.
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H. The CPR Process
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Ontario noted that, when the CPR process was initiated, the capital plan could be assessed on the basis of expenditure level and cost-effectiveness of services provided. Ontario expressed the concern that, in light of ongoing developments, the CPR process may no longer be sufficiently effective. Ontario stated that telecommunications carriers have embarked on aggressive modernization programs involving rapid rollover to new technologies. Ontario was of the view that responding to demand in a cost-effective way, while still an important element of the capital budgeting process, is no longer the principal focus of Bell's investment strategy. Ontario argued that the construction program cannot be assessed in isolation from the Commission's other regulatory mechanisms, since it affects, among other things, Phase III results and revenue requirement. Ontario therefore urged the Commission to re-evaluate the current process in order to determine how it could be integrated with other regulatory processes to permit a broader and more informed assessment of the construction program.
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Quebec found that the 1990 CPR review meeting was not characterized by the flexibility and openness of previous meetings. Quebec sensed a reluctance on the part of the company to provide information beyond that already provided in interrogatory responses. Quebec stated that, in order to achieve the objectives of the CPR, the company must demonstrate flexibility and cooperation within the framework of the written responses to interrogatories and the discussion at review meetings. Quebec suggested that the process would be more effective if the principal company witness was assisted by regional representatives, who could reply with greater accuracy to specific questions.
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In response to these concerns, Bell stated that the CPR process should not attempt to deal with all manner of detailed technical, operational or policy issues, but should focus on the broad capital program. Bell submitted that the process has served its intended purpose. Bell argued that it is neither necessary nor appropriate to conduct it in conjunction with other proceedings, as suggested by Ontario, nor to add regional witnesses, as suggested by Quebec. Bell argued further that altering the scope of the CPR to address virtually any matter remotely related to projected expenditures could result in a longer and more complex process. In addition, it would make preparation for the review meeting extremely difficult. Bell suggested that particular concerns could be accommodated if they were identified prior to the review meeting. The company could then address them by giving a presentation at the review meeting.
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The Commission notes that participants have previously raised similar questions about the continuing relevance, effectiveness and appropriate scope of the CPR process, in particular during the 1987 and 1988 reviews for British Columbia Telephone Company.
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In British Columbia Telephone Company - 1987 Construction Program Review, Telecom Decision CRTC 88-12, 19 August 1988, the Commission stated that it conducts CPRs in the context in which they were established, and in accordance with enunciated objectives. The Commission noted that the process was designed to generate information that can be used to assess the reasonableness of the capital program. The Commission stated that interveners are invited to raise issues that could assist in making such a determination. The Commission also noted that the CPR process was established to deal specifically with capital planning, partly to relieve the general revenue requirement proceeding of a time-consuming and somewhat specialized subject and partly to ensure a thorough and regular review of the capital plan. The Commission expressed the concern that the exploration, within the CPR, of issues outside the scope of the process could deprive non-participants of an opportunity to comment on issues of concern to them. The Commission added that, inevitably, it must make judgements as to whether or not the process is adequate or appropriate for dealing with particular issues.
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In British Columbia Telephone Company - 1988 Construction Program Review, Telecom Decision CRTC 89-13, 6 November 1989, the Commission stated that requiring the company to provide additional witnesses would be warranted only if the existing process was not providing sufficient information to assess the construction program. The Commission also stated that it expects the company to supply witnesses with expertise relevant to the construction program and to any other area that the Commission has identified beforehand for review. The Commission concluded that the routine provision of additional witnesses at review meetings was unnecessary.
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The prime purpose of the Commission's review of the capital spending plans of a company is to ensure that expenditures are made cost-effectively to meet growth and to maintain, if not improve, the quality of service. The major tests that the Commission uses to assess the reasonableness of these plans were set out in Bell Canada - 1988 Construction Program Review, Telecom Decision CRTC 89-4, 22 February 1989, with respect to the assessment of the company's proposal to accelerate switching equipment modernization. In making an assessment as to reasonableness, the Commission does not generally question the demand forecast or the range of improvements suggested by the company, although these areas may be discussed at the review meeting. Demand forecasts and suggested improvements provide a frame of reference, and the assessment of reasonableness is based on the supporting economic justification of the projected expenditures. The Commission would demand specific additions to the plan only if they were deemed necessary in the public interest, for example, to provide facilities to unserved or underserved communities.
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The Commission is aware that investment decisions have a significant downstream impact on the revenue requirement and the distribution of costs and revenues among Phase III categories. In assessing the capital program, the Commission operates on the premise that, if growth is met using the technology that is most economical in the long-run, and if program expenditures have a positive NPV, the revenue requirement over the life of the investment should be minimized. The tests of reasonableness have been established on this basis.
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The Commission also recognizes that the company selects projects according to an internal set of priorities, taking into account factors such as competitive pressures, company resources and the availability of technology. The Commission accepts that the company must revise priorities from time to time in the light of changed circumstances. Nevertheless, the Commission expects an explanation of budget variances resulting from expenditure changes associated with revised priorities. The Commission is of the view that, unless there are gaps in providing service that are not addressed by the capital program, it is preferable to allow company management some latitude in establishing and modifying the projects that make up the construction program.
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The Commission notes that parties have opportunities throughout the review process to consider issues that relate to capital planning, through presentations, questions and discussion. However, the Commission believes that the thoroughness of the response to issues that, although relevant to the capital planning process, are ancillary to the assessment of the construction program, should be left to the company's discretion. The Commission considers that more detailed knowledge than that possessed by the expert witness on the capital program is unnecessary, unless pre-specified items are included in the CPR agenda.
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The Commission is of the view that the present framework for CPRs provides the opportunity to gather sufficient information to allow its tests of reasonableness to be applied. However, given that some parties have raised the issue of the appropriateness of the CPR process, the Commission will provide an opportunity for parties to discuss the process at the preliminary meeting in the 1991 Bell CPR. The Commission will invite interested parties to submit specific suggestions or other comments in written form, prior to the CPR meeting. The Commission will develop a procedure to facilitate discussion of this issue.
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I. Conclusion
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Having considered all of the evidence before it, the Commission finds reasonable Bell's 1990 View of the construction program, as modified by the 1990 View Update, with the exception of the planned capital expenditures associated with the company's portion of the Telecom Canada second high capacity route. Upon the receipt of a further explanation from the company of the need to provide digital diversity at this time, the Commission would be prepared to reconsider the reasonableness of these expenditures. Copies of that submission are to be served on parties to this proceeding.
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Allan J. Darling
Secretary General
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