ARCHIVED -  Telecom Decision CRTC 93-10

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Telecom Decision

Ottawa, 26 July 1993
Telecom Decision CRTC 93-10
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, the Commission announced that it would conduct a review in order to obtain and assess information related to the provisioning and use of Official Telephone Service (OTS) by Bell Canada (Bell) and BC TEL. Following that review, the Commission issued Bell Canada and British Columbia Telephone Company - Official Telephone Service, Telecom Decision CRTC 92-16, 18 September 1992 (Decision 92-16), accepting the report of the review team, which was appended to the Decision. Certain OTS-related matters that had been deferred pending the completion of the review were also addressed in the Decision.
In Decision 92-16, the Commission also directed Bell and BC TEL to file, by 31 January 1993, status reports and updates to their OTS Adjustment Studies. These reports and updates were filed on 29 January 1993. On 12 March 1993, the Commission issued Bell Canada and British Columbia Telephone Company Official Telephone Service, Telecom Public Notice CRTC 93-30, inviting comment on (1) OTS classification criteria, (2) proposed modifications to the OTS Adjustment Study procedures, and (3) BC TEL's proposal to modify the inclusions in the salary and wage ratios it uses to assign OTS expense to Phase III Broad Service Categories. Unitel Communications Inc. (Unitel) filed comments on 3 May 1993. Bell and BC TEL filed reply comments on 17 May 1993.
Both Bell and BC TEL filed proposed Phase III Manual updates indicating the telecommunications services that they proposed be included in OTS.
In its update, Bell defines OTS as tariffed telecommunications services used by the company to administer its business and to conduct field trials. Bell includes service charges and fractional charges, but specifically excludes:
(1) non-tariffed equipment;
(2) facilities and services used to monitor and maintain the operational integrity of the networks; and
(3) switched services used to route customer message traffic to and from networks.
Bell further states that the OTS service adjustment in regard to field trials will only include tariffed services.
BC TEL's description of OTS parallels Bell's, with the exception that BC TEL lists the non-tariffed equipment that is to be excluded. BC TEL noted that these non-tariffed equipment items will not appear in its final Phase III OTS compilations, but that it has included these additional explanatory notes in response to Decision 92-16, which directed BC TEL to exclude non-tariffed equipment items.
Unitel raised concerns with respect to the wording of BC TEL's OTS classification criteria. In particular, it submitted that the exclusions related to switched services used to route customer traffic to and from networks should be more explicit. Unitel also stated that both companies should be directed to provide more precise wording that would exclude field trials provided to customers.
In accordance with Decision 92-16, Bell and BC TEL filed comments and proposals on the merits of modifying the method of calculating OTS Provided costs for the Access and Monopoly Local (ML) Categories, taking into account a proposal filed by BC TEL on 28 March 1991 and deferred by the Commission in Telecom Order CRTC 91-685.
The Access and ML Categories have significant revenue/cost mismatches, caused in particular by the assignment of all primary exchange service revenues to ML, while the significant costs of providing this service are assigned to Access. Since current procedures for determining the cost of OTS Provided use the Access Category cost per dollar of revenue, the cost of Access OTS is overstated.
Bell noted that the Access and ML Categories combined show a shortfall and that the greater part of this shortfall is probably due to the provision of residence primary exchange service, which would not form part of OTS. Further, the company stated that it believes that, by tariff value, a majority of the company's Access and ML OTS have a revenue/cost relationship of about 1/1. Accordingly, Bell proposed that the tariff value of OTS Provided for the Access and ML Categories be converted to cost using a cost per dollar of revenue that is fixed at $1.00. The effect of this proposal would be to lower the estimate of the cost of Access OTS Provided and raise the cost of ML OTS Provided. In the company's view, this is more representative of the actual cost of OTS.
Bell also stated that, when Access subcategory information becomes available, it will show OTS assigned to the Access-Business and Access-Other subcategories and will isolate the costs associated with residence primary exchange service. Bell was of the view that this may facilitate a further modification in the valuation of Access and ML OTS based on the cost per dollar of revenue of the subcategories.
In response to interrogatories, Bell provided in confidence the cost/revenue relationships developed, using Phase II costing principles, as the basis for its proposed use of a cost per dollar of revenue of $1.00. The data employed in the development of the cost/revenue relationships reflects a significant portion of the services being used. Bell confirmed in response to an interrogatory that this value is an interim cost pending the outcome of the Phase III Access studies, which will determine costs by subcategories.
BC TEL did a simple consolidation of the Access and ML Categories and calculated a cost per dollar of revenue of $1.73. BC TEL submitted that, for the purposes of calculating the OTS cost per dollar of revenue, the consolidation of the two Categories more properly addresses the requirement that Phase III be based on causal costing. Further, BC TEL agreed with Bell that OTS is analogous to the Business Class subcategory of the consolidated Access and ML Categories. The company submitted that, when sufficient information exists to determine the proper level of Phase III costs in the ML Category causally attributable to the Business Class, such costs should be incorporated into the OTS Provided calculations.
Unitel expressed concerns related to Bell's proposal to use $1.00 as a cost per dollar of revenue, and submitted that the Commission should question the use of Phase II type costs in this respect. Unitel stated that Bell had not included all services in its cost/revenue relationships and that the mix of services used in the calculation will change over time.
Unitel noted that the disaggregation of the Access Category would be of assistance to Bell in determining the cost/revenue ratio of OTS Access services; however, until such time as this costing information becomes available, the Commission should resist any changes to the OTS methodology that will not enhance the accuracy of OTS costing.
BC TEL proposed to exclude the salaries and wages of operators and outside occupational personnel, who use OTS very infrequently, from the development of the salary and wage ratios used to assign OTS Consumed. Bell concurred with BC TEL's proposal.
The Commission is of the view that the OTS classification criteria set out by the companies meet the requirements enunciated in the OTS review report. BC TEL's proposed update also complies with Decision 92-16 in that it excludes non-tariffed equipment previously included in OTS through the use of pseudo-tariffs. Thus, BC TEL's proposal eliminates the need for revenue and expense adjustments for the related Business Terminal Equipment. Accordingly, the Commission accepts the classification criteria proposed by the companies. However, the Commission also considers that Bell and BC TEL should maintain sufficient information outlining OTS inclusions and exclusions in their respective working level guidelines to meet audit and review requirements.
The Commission does not consider that Bell's interim approach to improve the match between the Access and ML cost per dollar of revenue used to determine the Cost of OTS Provided is appropriate at this time. Phase III Access subcategory costs will become available on an audited basis in 1994. Following an assessment of these costs, it may be appropriate to consider whether further refinements to the costing process are warranted. In the meantime, it is the Commission's view that the simple consolidated approach proposed by BC TEL is the better option for improving the costs of OTS Provided.
The Commission concurs with the proposal to exclude operators and outside occupational forces from the salary and wage ratios used to assign OTS Consumed. Exclusion of these groups will better reflect the actual usage of OTS by employees and reduce the OTS costs assigned to Access.
In light of the above, the Commission directs Bell and BC TEL to:
(1) implement the classification criteria contained in their proposed updates to their respective Phase III Manuals and to maintain documentation at the working level sufficient to serve as a guideline for the preparation of annual studies and for audit and review purposes;
(2) implement BC TEL's proposal for developing the Access and ML cost per dollar of revenue to be used in determining the cost of OTS Provided for the production of 1992 Phase III results; and
(3) implement BC TEL's proposal with respect to the development of salary and wage ratios used to assign OTS Consumed for the production of their 1992 Phase III results.
The Commission also considers that AGT Limited, The New Brunswick Telephone Company Limited, Maritime Telegraph & Telephone Company Limited and Newfoundland Telephone Company Limited should take into account this approach to OTS classification and assignment in the development of their respective Phase III Manuals.
Allan J. Darling
Secretary General

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