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Ottawa, 7 August 1991
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Telecom Decision CRTC 91-12
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NORTHWESTEL INC. - 1990 CONSTRUCTION PROGRAM REVIEW
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I INTRODUCTION
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In CRTC Telecom Public Notice 1990-83, 6 September 1990, the Commission announced that it would conduct a review of the construction program (CPR) of Northwestel Inc. (Northwestel). The review was conducted in accordance with the procedures established in CRTC Telecom Public Notice 1982-48, 28 October 1982, by means of an analysis of the relevant documentation.
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On 31 October 1990, Northwestel filed the 1990 View of its construction program (1991-1995 forecast of capital expenditures), along with other information that the Commission had requested. Several parties registered to participate in the proceeding and, on 28 November 1990, interrogatories were addressed to Northwestel by the Government of Yukon and by the Commission. Northwestel filed responses to those interrogatories on 31 January 1991. No comments were filed on the reasonableness of Northwestel's construction program.
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II THE 1990 VIEW
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A. Overall Changes in the Construction Program
For the years 1991 and 1992, thetotal capital expenditures forecast in the 1990 View are 18.8% greater than those forecast in the 1989 View. This overall increase in planned expenditures is mainly due to higher allocations in the modernization and support categories to accommodate new projects added in the 1990 View.
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B. Usage Categories
The following table summarizes the 1990 View of Northwestel's forecast capital expenditures, by usage category, for each of the years 1991 to 1995:
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1991 1992 1993 1994 1995
($ thousands/milliers de dollars)
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Usage Category/
Catégorie d'utilisation
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Growth/Croissance 14549.4 19752.5 20788.5 16294.5 18887.7
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Modernization/ 9901.5 2074.4 3901.7 10015.4 7416.7
Modernisation
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Replacement/ 1262.5 798.1 678.1 692.3 698.9
Remplacement
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Support/Soutien 5160.6 3559.3 3128.6 3739.5 5184.5
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Total/Total 30874.0 26184.3 28496.9 30741.7 32187.8
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1. Growth Category
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The growth/demand category includes capital expenditures for projects required to meet annual incremental growth in subscriber demand for telecommunications services and involving minimal change to the existing methods for provision of service. For the years 1991 and1992, the expenditures forecast in the 1990 View are 5.3% less than those forecast in the 1989 View. This reduction in planned expenditures is mainly the result of reductions in the scope of certain projects, delays in certain projects and, to a lesser extent, revised cost estimates. Projects that significantly affect the planned expenditures allocated to the growth category throughout the current forecast period include the following: the ongoing provision of subscriber telephone equipment; the expansion of local service at various locations; the replacement of switching facilities in various exchanges; the replacement of toll switching facilities and expansion of local service in the Yellowknife exchange; the provision and expansion of exchange facilities at various small remote locations; the provision of DMS-100 switching facilities and Centrex service in the Yellowknife exchange in 1995; the provision of common channel signalling capability and features; the expansion of carrier multiplex equipment; the ongoing provision of automated mobile radiotelephone facilities; the provision of digital radio spurs on the Whitehorse-Inuvik microwave route; and the ongoing provisioning of earth station facilities.
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2. Modernization Category
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The modernization category includes capital expenditures for projects required to improve efficiency, reduce operating expenses and providenew services through the modernization of equipment and facilities. For the years 1991 and 1992, the expenditures forecast in the 1990 View are 68.7% greater than those forecast in the 1989 View. This substantial increase in the level of planned expenditures is mainly due to new modernization projects added in the 1990 View. Major new projects are the Alascom digital radio system involving the replacement of analogue microwave radio facilities with heavy route digital radio facilities and the upgrading of broadband satellite and solid state power amplifier facilities in Coppermine. Major projects that significantly affect the forecast expenditures allocated to the modernization category throughout the current forecast period are: the replacement of the class 4/5 GTD-5 switching facilities in the Whitehorse exchange; generic software updates at various exchanges; the replacement of analogue switching facilities in the Cassiar and Tuktoyaktuk exchanges; the Alascom digital radio project; and replacement of the Mills Lake-Fort Nelson and the Fort Simpson-Inuvik analogue radio systems with digital facilities.
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3. Replacement Category
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The replacement category includes capital expenditures for projects required to replace, with similar plant, existing revenue producing equipment or facilities that are worn out or damaged beyond economical repair. For the years 1991 and 1992,the expenditures forecast in the 1990 View are 30% greater than those forecast in the 1989 View. This increase in planned expenditures is mainly due to the deferral of previously scheduled projects to the year 1991.
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4. Support Category
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The support category includes capital expenditures for projects required to provide equipment and facilities to support the company's overall operations. Items in this category do not directly produce revenue, and include office buildings, office equipment, vehicles, work equipment and general data processing computer systems. For the years 1991 and 1992, the expenditures forecast in the 1990 View are 179.5% greater than those forecast in the 1989 View. This substantial increase in the level of planned expenditures is mainly the result of new projects added in the 1990 View, as well as increases in the scope of some existing ongoing projects, particularly the provision of additional heavy work equipment. The major new projects added in the 1990 View are: the expansion of building security systems; the provision of uninterrupted power at various locations; the purchase of light duty vehicles, which previously had been leased; the provision of two replacement snow-track vehicles; reinforcement of the exchange building in Whitehorse; replacement of work crew accommodation facilities at various microwave sites; and the capitalization of various real estate items that were previously leased or expensed.
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C. Whitehorse-Inuvik Digital Radio Spurs Project
The 1990 View forecast expenditures for the Whitehorse-Inuvik Digital Radio Spurs project are as follows:
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1991 1992 1993 1994 1995
($ thousands/milliers de dollars)
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3622.5 8930.3 12935.6 7738.7 957.2
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In an interrogatory, the Commission asked Northwestel to provide the results of an economic evaluation to justify the substantial planned expenditures for this multi-phase project. In its response, Northwestel pointed out that the project has been delayed due to the environmental review process that must be completed prior to acquiring land use permits. Northwestel stated that economic justification for the initial phases of the project will be reviewed when the schedule can be clearly defined.
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Once the schedule for the Whitehorse-Inuvik Digital Radio Spurs project is defined, Northwestel is to conduct and file the results of an evaluation to justify economically the related planned expenditures. The Commission will make a determination on the reasonableness of the expenditures for this project after its assessment of the supporting evaluation.
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D. Construction Program Management Process
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As part of the 1990 CPR documentation, Northwestel filed an update, dated 29 October 1990, to its Construction Program Procedure document. This document describes the methodology used by the company to forecast, develop, manage and analyze its construction program. The update involved extensive revisions to the previous management document (dated 3 April 1984) to describe more accurately the current procedures employed by the company to develop and manage its construction program. The Commission has reviewed the changes to this document and finds them acceptable, with the exception that minor modifications are required with respect to utilization levels. These are discussed below.
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E. Actual and Forecast Utilization Levels
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The Commission notes that, with the exception of PABX/Key subscriber equipment and Telex Exchange facilities, the actual and forecast utilization levels for the company's network plant facilities are within the stated objective ranges, or very close to them. In an interrogatory response, Northwestel pointed out that PABX/Key systems and equipment are not maintained in inventory, but are ordered from the vendor once firm subscriber requirements are identified. Northwestel explained that there is rapid turnaround on procurement and that the only equipment not utilized is a small inventory of spares, maintained at a level of between one in ten and one in twenty. Thus the utilization level does not fall below 90%, which is the upper level of the current objective range.
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The utilization levels for Telex Exchange facilities are expected to be well below the objective range of 55%-80% in the latter years of the current forecast period. This decline is anticipated because the demand for Telex service is decreasing rapidly and the equipment is steadily being consolidated and retired. Northwestel stated that utilization objectives for this plant category are therefore no longer valid.
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The Commission is of the view that Northwestel should modify its utilization objective range for PABX/Key subscriber equipment to reflect more accurately the current provisioning process. The Commission agrees with the company that utilization objectives for Telex Exchange facilities are no longer valid or meaningful in light of the continued and rapid decrease in demand for this service. Accordingly, the Commission considers that utilization objectives for Telex Exchange facilities should be removed from Northwestel's Construction Program Procedure document.
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III CONCLUSION
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Having considered all of the evidence before it, the Commission finds reasonable Northwestel's construction program for the years 1991 to 1995, inclusive, with the exception of the forecast expenditures for the Whitehorse-Inuvik Digital Radio Spurs project. The Commission will make a determination as to the reasonableness of these expenditures following its assessment of the economic evaluation requested of the company.
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Allan J. Darling
Secretary General
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