ARCHIVED -  Telecom Letter Decision CRTC 92-12

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Telecom Letter Decision

Ottawa, 11 December 1992
Telecom Letter Decision CRTC 92-12
Mr. Jacques C.P. Bellemare
DirectorRegulatory MattersTeleglobe Canada Inc.1000 de la Gauchetière Street WestMontréal, QuebecH3B 4X5
Re: Procedures for the Approval of Budgeted Foreign Exchange Rates
Dear Mr. Bellemare:
In Telecom Letter Decision CRTC 90-10, 22 June 1990 (Letter Decision 90-10), the Commission approved procedures for the approval of the budgeted foreign exchange rates for Special Drawing Rights and U.S. dollars to be used by Teleglobe Canada Inc. (Teleglobe) in conjunction with its Rate Stability Account (RSA). These procedures require Teleglobe to submit to the Commission, on or about 1 July of each year, (1) a list of the sources of external forecasts (i.e., expert forecasts) and the method to be used in calculating its annual budgeted foreign exchange rates, (2) a calculation of preliminary exchange rate forecasts using the data available from these sources at the time, and (3) the expected publication dates of the data to be used in the final forecast. The Commission reviews the method and the sources, and approves them once any concerns that it may have are satisfied. The company files for Commission approval, by 1 November, final foreign exchange rate forecasts based on the approved sources and method, but incorporating the most recent data available.
In accordance with this procedure, on 9 July 1992, Teleglobe filed an application requesting approval of the method and the sources to be used in calculating its forecast of foreign exchange rates for its 1993 budget. By letter dated 22 September 1992, the Commission approved Teleglobe's proposed method and sources.
On 14 October 1992, Teleglobe filed an application to amend the procedures for the approval of budgeted foreign exchange rates. In its application, Teleglobe proposed that it be permitted to select its budgeted foreign exchange rates from within a range. This range would be bounded on one side by the rates determined from a consensus of "expert forecasts", as is the company's current practice. The other boundary would consist of a weighted-average of the twelve monthly open market rates for the purchase of foreign exchange contracts for the upcoming budget year (the forward rate). The final forecast foreign exchange rates chosen from within the range would be a function of several factors, including the degree of revenue hedging felt to be appropriate by Teleglobe management. The company stated that this proposal would facilitate hedging, when appropriate, without imposing on subscribers what it considered might, in some circumstances, be a considerable risk premium.
Teleglobe proposed that it continue to file for approval, by 1 July of each year, the method and sources to be used in developing its "expert forecast" exchange rates. It submitted that approval should no longer be required for its final budgeted foreign exchange rates. Rather, the company would file, by 15 November of each year, detailed documentation regarding its updated "expert forecasts", the forward exchange rates, and the weighting employed in the calculation of its final budgeted foreign exchange rates.
The Commission considers it appropriate that Teleglobe continue to file documentation in July of each year. Further, this filing should remain subject to Commission approval, as set out in Letter Decision 90-10.
With respect to the setting of Teleglobe's final budgeted exchange rates, the Commission notes Teleglobe's evidence with respect to the nature of forward rates and accepts its position that such rates are unbiased estimators of future exchange rates. Accordingly, in years when Teleglobe adopts the forward rates as its final budgeted foreign exchange rates, the Commission considers it sufficient that the company so notify it by 30 November and that it provide supporting documentation. Similarly, in instances where the weighting of expert rates and forward rates used to calculate the budgeted rates is consistent with the proportion of hedging planned by Teleglobe for the year, the company is directed simply to notify the Commission, providing supporting documentation, by 30 November.
However, if, in calculating its budgeted foreign exchange rates, Teleglobe employs a weighting of expert and forward rates that differs materially from the degree of hedging planned, it is to submit to the Commission, by mid-November of each year, a description of the method it proposes to use in calculating the budgeted foreign exchange rates, together with complete supporting documentation. The Commission will review that submission and will issue a determination on an expedited basis, once any concerns it may have are satisfied.
The Commission notes that, for the submission of 1993 budgeted foreign exchange rates, it will not be possible to meet the filing dates set out above. The Commission directs Teleglobe to notify it forthwith of the budgeted foreign exchange rates that it intends to use for 1993, and to provide supporting documentation. The Commission will apply the criteria set out above as to the approval of those rates.
Allan J. Darling
Secretary General
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