ARCHIVED -  Telecom Letter Decision CRTC 93-12

Telecom Letter Decision

Ottawa, 30 July 1993

Telecom Letter Decision CRTC 93-12

To: AGT Limited

Bell CanadaBC TELThe Island Telephone Company LimitedMaritime Telegraph and Telephone Company LimitedNewfoundland Telephone Company LimitedThe New Brunswick Telephone Company Limited

Re: Information Requirements for Competitive Toll Filings by the Telephone Companies

In Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992 (Decision 92-12), the Commission recognized that, with the introduction of competition in the toll market, the respondent telephone companies would have a justifiable right to expect prompt action by the Commission on applications involving the newly competitive services. Consequently, the Commission established criteria for granting ex parte interim approval to competitive toll filings from these companies.

In the Commission's view, the criteria relevant for the granting of interim ex parte approval embody considerations that are also relevant in making final determinations. Subject to any considerations concerning unjust discrimination or undue preference, those criteria are:

(1) the proposed rates must be compensatory; and

(2) either:(a) the proposed rates will result in an insignificant reduction in contribution; or

(b) any significant reduction in contribution amounts to the elimination of surplus revenues.

In Telecom Order CRTC 93-618, 30 July 1993, the Commission has denied applications by the companies noted above for approval of tariff revisions proposing the merging of Advantage, Advantage Plus and, in some cases, WATS. In that Order, the Commission stated that it considers that having to ask interrogatories to address issues or gather economic information that an applicant could reasonably have been expected to address or provide at the time of submitting a competitive toll filing creates unnecessary delays. The Commission further stated that the onus should be on the applicant to file the necessary information to enable the Commission to determine that the concerns underlying the criteria referred to above have been satisfactorily addressed. Finally, the Commission stated that, in light of the increasing requirement for expeditious disposition of competitive toll filings, it thus intends to place greater reliance on information provided with the applications and to resort less frequently to the interrogatory process.

In order to provide greater certainty to the companies involved, the Commission is setting out, in the Appendix to this Letter Decision, the minimum information it requires in support of competitive toll filings from the telephone companies. For the most part, these requirements provide a consolidation of the information already filed to varying extents from application to application and in response to Commission interrogatories. However, the Commission is of the view that setting out these requirements will contribute to a more expeditious treatment of toll filings.

Allan J. Darling
Secretary General

Information Requirements for Competitive Toll Filings by the Telephone Companies

(1) For a new service:

- a net present value (NPV) Study (conforming with Telecom Decision CRTC 79-16, Inquiry into Telecommunications Carriers' Costing and Accounting Procedures - Phase II: Information Requirements for New Service Tariff filings, 28 August 1979) for each company unless all revenues associated with the service are subject to settlement, in which case a single Stentor NPV Study covering all Stentor member intra and non-intra traffic, in conjunction with a contribution impact analysis for each company, would be acceptable;

For other tariff revisions:

- a contribution impact analysis for each company;

The contribution impact analyses referred to above should be in traditional revenue requirement terms and should be in a format similar to that provided by Bell Canada with the Advantage/WATS merge filing (Tariff Notices 4711 and 4712).

(2) By way of support for (1):

(A) a description of each of the Reference and Alternate Plans;

(B) a description of the target market and a description of the nature of the demand quantities included in each of the Reference and Alternate Plans;

(C) a description of and justification for assumptions concerning telco/competitor price differentials under each of the Reference and Alternate Plans;

(D) the weighted average percentage price change represented by the proposed rates or, in the case of a new discount toll service, the average effective discount;

(E) a disaggregation of the revenue impact in the first 3 years into its major components (reprice loss, market share retention, price-related demand stimulation, non-price demand stimulation, etc.);

(F) a description of and justification for the demand elasticities assumed, along with a discussion as to how the assumed elasticities reconcile with any differing estimates filed by the company for similar services or in other proceedings, such as the annual proceeding to establish competitor contribution charges, revenue requirement proceedings, etc.;

(G) a description of and justification for any other non-price demand stimulation assumed;

(H) a description of any market share retention factors calculated or assumed or of any other market share loss assumptions/forecasts;

(I) in cases where the reprice loss for the first full year represents, by itself, more than 10 basis points in terms of the company's rate of return on common equity:

(i) a description of and justification for assumptions used in the choice-demand model (or any similar model), along with a discussion as to how these assumptions reconcile with any differing assumptions filed in the context of other proceedings, such as the annual proceeding to establish competitor contribution charges, the Interexchange Competition proceeding, revenue requirement proceedings, etc.;

(ii) a discussion of the reasonableness of the market share retention factors (or other market share loss assumptions/forecasts) and a reconciliation of these factors, assumptions or forecasts with other market share loss forecasts filed by the telephone company on the record of those other proceedings;

(iii) a discussion of the sensitivity of the contribution impact forecasts to the use of different market share retention factors (or other market share loss assumptions/forecasts) and sensitivity analyses (Alternate minus Reference Plan NPV and Pro-Forma Income Statement in the case of an NPV study and a revised contribution impact analysis otherwise) assuming market share retention factors equal to half those in the base case and a discussion of why the company's base case assumptions are to be preferred;

(iv) in cases where the elasticity is significantly higher (in absolute terms) than -0.7, sensitivity analyses, as described above, assuming an elasticity of -0.7; and

(v) a discussion of the sensitivity of the contribution impact forecasts to the use of any other non-price demand stimulation parameter and sensitivity analyses assuming the absence of any such stimulation.

(3) A discussion as to whether the negative contribution impact amounts to the elimination of forecast surplus revenues and, if not, a discussion of the potential impact on local rates and the appropriateness of proposed rate reductions in light of that potential impact.

(4) Evidence that the proposed rates are compensatory.

(5) (A) An indication in the application as to whether the contribution impact was reflected in the company's filing in the annual contribution proceeding; and

(B) in cases where the filing was not included in the company's filing in the annual contribution proceeding, an estimate of the cumulative impact on the competitor contribution charge of the toll filing in question and previously filed toll applications that were not included in the contribution filing.