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Telecom Letter Decision
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Ottawa, 30 September 1992
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Telecom Letter Decision CRTC 92-9
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To: Teleglobe Canada Inc.Interested Parties
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Re: Follow-up to Telecom Decision CRTC 91-21
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In Teleglobe Canada Inc.- Regulation After the Transitional Period, Telecom Decision CRTC 91-21, 19 December 1991, the Commission directed Teleglobe Canada Inc. (Teleglobe) to file the following information by 28 February 1992:
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(1) a report that would assist the Commission in assessing the reasonableness of the projected
costs of competitive gateway switches;
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(2) a report on the development of alternative indicators of network efficiency that would enable
better assessment of the reasonableness of the five-year capital plan; and
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(3) a report dealing with several issues related to Teleglobe's switch utilization.
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The Commission has reviewed the report filed (in confidence) by Teleglobe in response to the first direction noted above, and accepts the company's submission that it is purchasing the most cost-effective gateway switch. Accordingly, the Commission finds that Teleglobe's switch unit cost is reasonable.
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In response to the second direction noted above, Teleglobe proposed three new performance indicator ratios, namely:
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(1) Switching Circuits in Use to Total Switching Circuits
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(2) Derived Cable Circuits in Use to Total Derived Cable Circuits
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(3) Thousand Paid Minutes to Total Derived Circuits
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Teleglobe also supplied, with a supporting rationale, proposed target utilization levels. These were 58% for the switching circuit ratio, 47% for cable circuits in use, both calculated on a three year forward average. The revenue target was 157,000 paid minutes per circuit per year.
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The Commission has examined Teleglobe's three proposed performance indicators and concludes that they would be useful in examining the reasonableness of the capital plan. It therefore accepts the indicators for reporting at this time. Teleglobe stated that it intends to review longer averaging periods (four or five years) for the first two indicators. The Commission encourages such a continual review of performance indicators, including the appropriate averaging period. The Commission expects Teleglobe to calculate the performance indicators for previous years using historical data, and to continue providing year-by-year utilization data on an historical basis.
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The Commission has not yet fully assessed the benchmarks for cable utilization and paid minutes per circuit, and will continue to evaluate these items in future Construction Program Reviews (CPR). The Commission is also of the view that busy-hour minutes as a percentage of total minutes could prove a useful indicator. Accordingly, Teleglobe is directed to report, in the next CPR, on the feasibility of employing this ratio.
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In response to the third direction, Teleglobe filed a report intended to provide (1) a clarification of the basis for provisioning, (2) an explanation of "three years growth plus two years extra", and (3) a demonstration that the company is employing the most economic engineering interval.
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In its report, Teleglobe stated that equipment provisioning for all network elements is based on forecast busy season demand, with due allowance for peak periods. Teleglobe stated that it would be uneconomic to provision on the basis of peak demand. However, if ignored, peak demand would overload the gateway switches and stop call processing. Teleglobe indicated that it implements temporary circuits in consultation with international partners, to partially accommodate traffic peaks. Teleglobe further stated that additional capacity is constrained by available facilities and by the abilities of overseas partners to match its efforts. Teleglobe stated that temporary circuits added during the Christmas peak period constitute the largest requirement and during this peak can, in some years, require most or all of the capacity reserve at a specific location.
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Teleglobe stated that switch provisioning entails long lead times and, therefore, cannot be tailored to peaks. The company indicated that it provisions on a basis of forecasted normal demand for a three-year period, plus an additional reserve. Teleglobe stated that the reserve allows for traffic forecast variances, pre-assignments to take advantage of overseas windows of opportunity, peak period traffic loads, and test circuit requirements. Teleglobe refers to this allowance as "two years extra", because it considers the 20% additional reserve roughly equivalent to two years' normal growth.
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Teleglobe stated that it has not specifically studied the economic engineering interval for the provision of switches. Teleglobe noted that the network has only four switches, each having its own individual characteristics and growth demands. As a result, application of a generalized economic model is not practical. The company noted that planning occurs on a case-by-case basis, and that it has determined three years as the optimum provisioning interval. This interval was chosen based on the following factors: (1) the implementation interval from identification of a requirement is about three years; (2) high start-up costs for each extension encourage minimizing the number of extensions; (3) the risk of technological change increases beyond three years; (4) the need to minimize any switch disruptions associated with extensions, and (5) staff limitations on concurrent extensions on each switch.
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Teleglobe added that, in the recent past the network has converted to digital transmission and switching, and evolved to common channel signalling. Teleglobe stated that there is almost no hardware compatibility between the new and old signalling equipment. Teleglobe noted that it has addressed this problem by selecting the shortest possible interval for significant extension, to avoid overprovisioning equipment that would quickly become redundant.
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Teleglobe indicated its willingness to make a detailed presentation on this subject at the preliminary meeting of the next CPR.
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Based on the evidence before it, the Commission is not yet persuaded that Teleglobe's switch provisioning plan is reasonable. Teleglobe has not filed any economic or other substantive evidence in support of its three-year implementation interval and the claimed reasons supporting its selection. The Commission is of the view that these concerns could be addressed, as suggested by Teleglobe, in a presentation reviewing switch provisioning. Teleglobe is therefore directed to provide such a presentation at its next CPR public meeting or other suitable public hearing.
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The Commission also notes that Teleglobe has not indicated what limits switch capacity (processor, frames or circuit cards), nor the period during which the company measures utilization. The Commission is of the view that this information is essential to the evaluation of utilization and accordingly directs Teleglobe to provide it in the next CPR.
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Allan J. Darling
Secretary General
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