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Ottawa, 18 September 1992
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Telecom Decision CRTC 92-16
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BELL CANADA AND BRITISH COLUMBIA TELEPHONE COMPANY - OFFICIAL TELEPHONE SERVICE
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I THE OFFICIAL TELEPHONE SERVICE REVIEW
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In Unitel Communications Inc. v. Bell Canada and British Columbia Telephone Company - Official Telephone Service and Phase III Competitive Network Category Results, Telecom Decision CRTC 91-18, 28 November 1991 (Decision 91-18), the Commission dealt with an application by Unitel Communications Inc. (Unitel), dated 4 December 1990, requesting that an oral hearing be convened to consider issues identified in its application, including its submission that Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel) have made excessive use of Official Telephone Service (OTS).
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In Decision 91-18, the Commission disposed of all OTS-related issues except the level of OTS usage by Bell and B.C. Tel. The Commission observed that it is important that it have a high level of confidence that the level of costs for OTS is appropriate. The Commission observed that the provisioning of OTS is a complex business issue, raising considerations related to operating efficiency and the evolution of technology. The Commission considered it more appropriate to conduct an on-site review of the provisioning and use of OTS by Bell and B.C. Tel than to convene a public hearing.
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The Commission stated that the objectives of the OTS review were to obtain and assess information relating to:
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(1) the specific criteria used to distinguish between services and equipment used in the management and administration of the business and those used for monitoring, surveillance or other operational aspects of the business;
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(2) the types and quantities of facilities and services used, the purposes for which they are used and the basis for determining the specific facilities or services utilized; and
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(3) company processes related to the initiation, approval and implementation of new or additional OTS usage.
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The Commission indicated that the primary purpose of the OTS review was to provide it with sufficient information to make meaningful determinations concerning the level of costs incurred for OTS and the degree to which the incurring of those costs contributes to the overall operating efficiency of the companies.
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The Commission stated that it would issue a report in mid-1992 following completion of the OTS review. Appropriate further action, including the possibility of a public proceeding, would be considered at that time.
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By letter dated 29 November 1991, the Commission initiated the OTS review, requesting Bell and B.C. Tel to provide the documentation, guidelines and relevant support data used to compile the 1989 and 1990 OTS Adjustment Study results filed with their annual Phase III Results for 1989 and 1990. The materials requested were filed by Bell and B.C. Tel.
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On-site OTS reviews were conducted at B.C. Tel in Burnaby, British Columbia, from 10 to 14 February 1992, and at Bell in Toronto, Ontario, from 24 to 28 February 1992, by a Review Team comprising Commission staff. The Review Team held two additional meetings with Bell at its Hull and Montréal locations on 3 March and 14 May 1992, respectively, to obtain further information.
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The Review Team's observations and recommendations are set out in "The Official Telephone Service CRTC Review Team Report" (OTS Report), dated 22 June 1992, appended to this decision. The Commission has reviewed this report and accepts in full the Review Team's recommendations. Accordingly, the Commission directs:
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(1) Bell and B.C. Tel to file by 31 January 1993 a Phase III update that:
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(a) clarifies the definition of OTS for incorporation into each company's Phase III Manual and that provides adequate detail to permit validation of the Phase III results as required for the following:
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(i) the inclusion of service charges and fractional charges;
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(ii) the exclusion of non-tariffed equipment;
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(iii) the exclusion of facilities and equipment which are used to monitor and maintain the operational integrity of the networks; and
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(iv) the exclusion of switched services which are used to route customer message traffic to and from various networks; and
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(b) defines the procedures to be used in OTS compilations for field trials (recognizing that only the tariffed portions of a service are to be included in OTS).
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(2) Bell and B.C. Tel to file by 30 June 1993 individual or joint reports that: (a) provide(s) reasons supporting the apparently anomalous results for the total OTS tariff value in the companies' respective Access Categories; or
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(b) identify(ies) the changes required in the companies' respective OTS procedures to determine the appropriate total OTS tariff value in the Access Category.
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(3) Bell to file in January 1993, 1994 and 1995 annual status reports with respect to its action plan and timetable for reconciling its OTS Customer Master Files (CMFs).
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(4) Bell to implement its plan to include all appropriate non-recurring charges in its OTS compilations for data and voice services in its audited 1993 and 1994 Phase III results, respectively.
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(5) B.C. Tel to file by 31 January 1993 a final "Task Force Report" which:
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(a) confirms the completion of the reconciliation of its OTS CMFs with in-place services and equipment; and
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(b) includes the date on which it plans to complete the reconciliation of the in-placeequipment with its asset records.
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(6) B.C. Tel:
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(a) to modify its OTS procedures to exclude all non-tariffed internal use equipment from its OTS compilations, by no later than its audited 1993 Phase III Results; and
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(b) to review its criteria for classifying facilities (located in places such as test centres) used to access testing, monitoring and surveillance systems and to exclude any facilities that may be defined as non-OTS from the OTS compilations, by no later than its audited 1993 Phase III Results.II OUTSTANDING OTS-RELATED MATTERS
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A. Telecom Order 91-685On 28 March 1991, B.C. Tel filed, pursuant to Telecom Letter Decision CRTC 89-26, 1 December 1989 (Letter Decision 89-26), its Phase III Manual update report which included a proposal to revise its OTS Adjustment Study by modifying the method of calculating the OTS Provided costs for the Access and Monopoly Local (ML) Categories. In support of its proposal, B.C. Telsubmitted that the cost per dollar of revenue relationship of the Access Category is skewed by the absence of revenues that are allocated to ML due to bundled rates. This leads to an overestimation of the cost of OTS provided by Access.
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In Telecom Order CRTC 91-685, 22 May 1991 (Telecom Order 91-685), the Commission found acceptable B.C. Tel's Phase III Manual updates, but deferred acceptance of the company's proposed OTS Adjustment Study update, pending further assessment and review.
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B. Telecom Order 92-580
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On 31 March 1992, B.C. Tel filed, pursuant to Letter Decision CRTC 89-26 entitled Proposed Revisions to the Phase III Manual Update Procedure dated 1 December 1989, its Phase III Manual update report, which also included a proposal to revise its OTS Adjustment Study procedures. B.C. Tel proposed that it continue to use total company rather than area salary and wage ratios as set forth in Telecom Decision CRTC 89-12 entitled Bell Canada and British Columbia Telephone - Phase III Matters and Related Issues (Decision 89-12), dated 15 September 1989. B.C. Tel submitted that a structural reorganization in the last quarter of 1991 had eliminated the areas as organizational units. Therefore, in B.C. Tel's view, there was no advantage in calculating OTS by areas for just one year (1991) or fraction thereof.
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In Telecom Order CRTC 92-580, 6 May 1992 (Telecom Order 92-580), the Commission granted interim approval to B.C. Tel's proposal, pending completion of the Commission's OTS review. The Commission recognized that B.C Tel's 1991 Phase III OTS results would not be in compliance with the principle of causality adopted in Decision 89-12. The Commission considered, however, that interim approval was appropriate and necessary since B.C. Tel required some type of process in order to complete its 1991 Phase III Summary Results.
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The Commission notes that the use of area salary and wage ratios was approved in Decision 89-12 as a result of a proposal by B.C. Tel to separate its operations into nine units and identify the cost value of the OTS used by each unit. During the proceeding leading to Decision 89-12, it was B.C. Tel's position that, since employees use telephone services in the performance of their work, it is appropriate that the cost of those services be assigned to the Broad Service Categories (BSCs) in the same proportion as the employees' salaries and wages. Further, the company stated that while an identifiable linkage exists at any level, operating unit salaries and wages are more accurate than corporate salaries and wages.
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In light of the observations madeduring the OTS review, the Commission is of the view that the OTS reporting mechanisms currently used by the company provide the necessary details to aggregate OTS by organizational units other than areas, and that the causal-based approach adopted in Decision 89-12 should be feasible.
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C. B.C. Tel's Account C479
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In its March 1992 Phase III update report, B.C. Tel also clarified the methodology it uses to determine the OTS revenue for its internal use data and teletype apparatus account C479, which contains equipment that is not provided under tariff arrangements.
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The Commission notes that the investment in this account is directly assigned to the Competitive Terminal-Multiline and Data Category. The Commission considers that this internal use investment should be assigned using an associated approach, in a manner similar to the Investment in the Phase III Furniture and Office Equipment Investment Study methodology.
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D. Conclusions
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In light of the above, the Commission directs:(1) Bell and B.C. Tel to file by 31 January 1993 a joint report on the merits of modifying the method ofcalculating the OTS provided costs for the Access and ML Categories, taking into account B.C. Tel's proposal of 28 March 1991 for which approval was deferred in Telecom Order 91-685;
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(2) B.C. Tel to file by 31 January 1993:
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(a) a report that identifies and assesses the feasibility of alternative approaches to allocate the OTS Consumed (used by each BSC) to the BSCs (taking into account the rationale accepted in Decision 89-12 that a more discrete approach than corporate salaries and wages should be employed); and
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(b) an alternative approach for assigning investment in its account C479 which is not provided under tariffs, that assigns Investment by BSC in a manner similar to the Phase III Furniture and Office Equipment Investment Study methodology.
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III GENERAL CONCLUSIONS
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Based on the observations and recommendations set out in the OTS Report, the Commission is satisfied that:
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(a) Bell and B.C. Tel haveundertaken activities to increase the management controls of OTS; and
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(b) the procedures now in place provide reasonable assurance that these carriers have adequate procedures to achieve their management objectives with respect to incurring and control of OTS costs.
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At the same time, the Commission is also of the view that it does not have adequate information to make meaningful determinations concerning the level of costs incurred for OTS, nor the degree to which the incurring of those costs is contributing to the overall operating efficiency of the two companies. However, the Commission is of the view that compliance by Bell and B.C. Tel with the directives contained in this Decision will lead to (1) definitive guidelines for the services comprising OTS; (2) consistency in the derivation of OTS costs; and (3) an appropriate basis for reviewing OTS costs.
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Following consideration of the documentation to be filed by Bell and B.C. Tel on 31 January 1993, the Commission will prescribe an appropriate process for interested parties to comment on OTS classification criteria and proposed modifications to the existing OTS Adjustment Study procedures.
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Allan J. Darling
Secretary General
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Appendix
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