ARCHIVED -  Telecom Decision CRTC 94-18

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Telecom Decision

Ottawa, 14 September 1994
Telecom Decision CRTC 94-18
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 approved the application of Unitel Communications Inc. (Unitel) to provide public switched interexchange voice services in the operating territories of Bell Canada (Bell), BC TEL, The Island Telephone Company Limited (Island Tel), Maritime Tel and Tel Limited (MT&T), The New Brunswick Telephone Company Limited (NBTel) and Newfoundland Telephone Company Limited (Newfoundland Tel). The Commission also liberalized the rules governing resale and sharing, and extended those rules to apply to the services of Island Tel, MT&T, NBTel and Newfoundland Tel.
Based on information filed in the proceeding leading to Decision 92-12, the Commission established contribution charges applicable to facilities-based carriers and to resellers. The Commission also directed that, in December of each year, the above-noted telephone companies were to provide estimates of appropriate contribution charges to come into effect on 1 April of the following year.
In Contribution Charges Effective 1 April 1993, Telecom Decision CRTC 93-11, 29 July 1993 (Decision 93-11), the Commission approved revised per-minute contribution charges effective on a final basis 1 April 1993. The Commission also concluded that: (1) conversation minutes provide a more appropriate measure of demand to be used in the calculation of per-minute contribution than billed minutes, (2) revisions to the mechanism adopted in Decision 92-12 for calculating contribution charges would be beyond the scope of the proceeding, (3) in future contribution charge proceedings, the Commission would examine historical variances in the forecasting of contribution charges and parties would be required to file evidence regarding their forecasting accuracy, and (4) competitors having at least 0.5% of market share in the previous year would be required to file historical and forecasted demand information.
In AGT Limited - Interconnection of Interexchange Carriers and Related Resale and Sharing Issues, Telecom Decision CRTC 93-17, 29 October 1993 (Decision 93-17), the Commission approved the interconnection of interexchange carriers (IXCs) to the network of AGT Limited (AGT) and the resale and sharing of AGT's telecommunications services, under the general terms and conditions established in Decision 92-12. The Commission noted in Decision 93-17 that, in the future, AGT would be made a party to the annual proceeding for establishing contribution charges.
In AGT, BC TEL, Bell, Island Tel, MT&T, NBTel, and Newfoundland Tel - 1994 Contribution Charges, Telecom Public Notice CRTC 93-66, 3 November 1993 (Public Notice 93-66), the Commission initiated a proceeding to consider whether changes to the contribution charges of the telephone companies would be required for the year 1994. The telephone companies were directed to file proposed contribution charges based on their 1994 Phase III (or equivalent) forecasts. The Commission also made interim, effective 1 January 1994, the contribution charges approved in Decision 93-11.
In Review of Phase III, Telecom Public Notice CRTC 94-16, 16 March 1994 (Public Notice 94-16), the Commission indicated that the contribution charges established in the 1994 contribution charge proceeding would remain interim, pending a decision in the Phase III Review proceeding.
The Commission received comments from AGT; Stentor Resource Centre Inc. (Stentor), on behalf of BC TEL, Bell, Island Tel, MT&T, NBTel and Newfoundland Tel; Sprint Canada Inc. (SCI); Unitel; and Westel Telecommunications Ltd. (Westel). Reply comments were filed by AGT, Stentor, Unitel and Westel. Parties raised a number of issues concerning the financial forecasts upon which the telephone companies' proposed contribution charges are based, the overall size of the toll market, market share estimates and the contribution mechanism.
The Commission findings with respect to these issues are set-out below. As indicated in Public Notice 94-16, the Commission is also making an interim determination, based on the evidence presented in this proceeding, regarding the appropriate contribution charges for 1994. Final contribution charges will be established following the Commission's decision in the Review of Phase III proceeding.
A. Gross Receipts Tax (GRT)
Decision 92-12 addressed the matter of whether competitors would be allowed to deduct contribution payments to Bell from their GRT bases. The Commission noted that the status of the competitors under the relevant Ontario and Quebec legislation may not be resolved prior to their entry into the long distance market. Accordingly, in order to ensure parity in the treatment of the GRT for Bell and its competitors, the Commission considered that an interim adjustment was required to reduce the monthly contribution payments by the competitors to Bell until their status under the legislation was resolved. The Commission approved an adjustment of 6% for the GRT, stating that the adjustment would be discontinued should competitors be permitted to deduct contribution payments for tax purposes prior to calculating the GRT payable.
Stentor submitted that the adjustment of 6% to the calculation of contribution in respect of the GRT should be eliminated. Stentor pointed out that Unitel has advised that, for the Province of Quebec, Unitel is deducting contribution payments to determine its tax liability. With respect to Ontario, Stentor submitted that, while the amount accrued for GRT in Unitel's financial statements was filed in confidence, Unitel's GRT liability in Ontario is apparently minuscule, thus making the adjustment irrelevant.
Unitel contended that it would be inappropriate and mathematically incorrect to modify the current GRT adjustment. Unitel based this submission on its view that the Phase III treatment of the GRT is inappropriate, resulting in a Toll category surplus that does not reflect the full cost associated with GRT.
The Commission notes that the issue with respect to the GRT adjustment in this proceeding is whether the provinces allow deduction of contribution payments by competitors from their GRT bases, thus triggering the elimination of the adjustment.
The evidence indicates that Unitel is deducting contribution payments to determine its tax liability in Quebec, while the matter of deductibility remains unresolved in Ontario. In view of the deductibility of contribution payments from the tax base in Quebec, the Commission is of the view that a reduction to the 6% GRT adjustment is warranted. With respect to this matter, Stentor noted that Bell's 1992 operating revenues and its 1992 GRT expense are both attributable approximately one third to Quebec and two thirds to Ontario. Stentor stated that, as a consequence, the 6% GRT deduction should be reduced to 4%. On this same matter, Unitel advised that its Quebec revenues account for only 17% of its total revenues, and submitted that any adjustment to the GRT deduction should reflect this fact.
The contribution charge to which the GRT adjustment of 6% is applied is derived from the revenue and expense forecasts of Bell. The GRT adjustment reduces the contribution charges payable by both IXCs and resellers. To the extent that one-third of Bell's revenues are earned in Quebec and one-third of Bell's GRT expense is incurred in Quebec, the Commission considers it appropriate to reduce the GRT adjustment by one third, or two percentage points, to 4%.
B. Contribution Rate Reduction
The proposed 1994 contribution charges filed by the telephone companies are based on their Phase III (or equivalent) forecasts and are lower than the charges approved in Decision 93-11. However, Stentor submitted that reductions to prevailing contribution rates are unwarranted at this time. Stentor further submitted that, if the Commission should determine that contribution rate reductions are warranted, such reductions should not exceed those embodied in the proposed 1994 contribution charges. In addition, Stentor argued that the contribution mechanism established in Decision 92-12 should be reviewed and revised to more effectively maintain the Access subsidy. Stentor made these submissions on the basis of its view that:
(1) the contribution regime established by Decision 92-12 is not working as envisaged; and
(2) the revenues generated by contribution charges are insufficient to recover the displaced contribution.
Unitel submitted that Stentor's claim that contribution rates are insufficient to recover displaced contribution is groundless. Unitel stated that Stentor's position is based on the difference between the actual 1993 contribution revenues reported in this proceeding and the contribution revenue that Stentor expected to collect according to its 1993 forecast of competitor minutes.
In Public Notice 93-66, the Commission noted its conclusion in Decision 93-11 that a consideration of revisions to the contribution charge mechanism, such as the reduction of contribution discounts, the increase of minutes per trunk used in the conversion of the per-minute rate into a rate per interconnecting circuit, and the Direct Access Line (DAL) loading factor and surcharge, was beyond the scope of that proceeding. In addition, Public Notice 93-66 advised that the 1994 contribution charge proceeding should be confined to an examination of contribution estimates and supporting information, as was the case for the 1993 proceeding. Although not formally applying for the elimination of the discounts set out in the mechanism for the calculation of contribution charges, Stentor recommended that the charges produced by the calculation be ignored in favour of last year's higher rates, based on its view that the contribution regime is not working and the discounts are too high. The Commission therefore considers that Stentor's proposal raises a matter (contribution discounts) that was excluded from the scope of this proceeding. Accordingly, the Commission rejects Stentor's proposal.
C. Effective Date of 1994 Contribution Charges and Retroactive Adjustments
By letter dated 17 September 1993, Unitel requested that 1994 contribution charges be approved effective 1 January 1994 and that, to that end, existing contribution charges be made interim effective 1 January 1994. In Public Notice 93-66, the Commission made existing contribution charges interim effective 1 January 1994, but deferred a final decision on the effective date for new contribution charges until parties had an opportunity to comment on the issue.
During the proceeding, Unitel submitted that the Commission intended in Decision 92-12 that contribution charges would become effective 1 April of each year. It believed that the Commission chose 1 April as the effective date because the Commission was of the view, at that time, that the contribution review proceeding could be completed in time for an effective date of 1 April, avoiding the need for interim contribution charges. Unitel suggested that it has not proven possible for the Commission to commence and complete a review of contribution charges in advance of 1 April. It noted that, last year, reply comments were not filed until 14 May and a decision was not issued until 29 July. Unitel also pointed out that proposed contribution charges are based on telephone company forecasts related to the calendar year and submitted that competitors' contribution payments should relate to or match the period for which the contribution requirement has been calculated. For these reasons, and because a delay in the effective date results in overpayments by competitors, Unitel proposed that the Commission adopt 1 January 1994 as the effective date for revised contribution charges.
Westel agreed with Unitel that contribution payments should match the period for which they are calculated, and requested that the Commission make 1994 contribution rates effective 1 January 1994. SCI did not address the issue of the effective date, but advised that it supports the Commission's decision to make 1994 contribution charges interim as of 1 January 1994.
Stentor submitted that a modification to the effective date of the contribution charges represents a change to Decision 92-12 and that there is no indication in Decision 92-12 that such a change was contemplated. Stentor submitted that, if the Commission contemplates a change to Decision 92-12 with respect to the effective date for contribution rates, it should also consider other matters, such as the DAL surcharge and the Commission's estimates of minutes per circuit.
AGT submitted that any change to the effective date of contribution charges should be made only as part of a complete reconsideration of the Commission's contribution policies and the contribution mechanism, taking into account all relevant and material developments since Decision 92-12. AGT also submitted that such a change in the effective date of contribution charges would create further pressure on the ability of telephone companies to meet their revenue requirements.
It is evident that it has not proven possible for the Commission to issue a final decision on contribution charges in advance of 1 April. Further, since the final contribution charges are based on forecasts for a calendar year, making final rates effective 1 January 1994 would, in the Commission's view, seem reasonable. Finally, the Commission does not accept the views of Stentor and AGT that a modification to the effective date would require the Commission to consider modifications to the mechanism for the calculation of contribution.
Westel submitted that, in this Decision, the Commission should order an immediate interim adjustment retroactive to January 1 in order to avoid an extension to the period during which the telephone companies employ contribution overpayments "as a cost-free source of capital at the expense of the new entrants". In its view, "any inconvenience experienced by the telephone companies in having to make two retroactive adjustments is far outweighed by the adverse consequences" to emerging long-distance competition "inherent in perpetuating the period during which the entrants unnecessarily finance the operations of the telephone companies".
Stentor was of the view that retroactive adjustments to the approved rates should commence with final approval of the contribution rates, most likely to occur with the decision associated with Public Notice 94-16, and not with the interim approval in this proceeding. Stentor submitted that the process of retroactive adjustments to contribution payments is a complex manual task involving several weeks of work for some companies.
The Commission accepts Stentor's view that the process of retroactive adjustments to contribution charges is complex and requires significant effort. However, the Commission is of the view that a delay in the retroactive adjustment required to reflect the rates approved in this Decision would have a negative impact on the cash flows of entrants and resellers.In light of the above, the interim contribution charges established in this Decision are made effective 1 January 1994. The telephone companies are directed to undertake forthwith interim contribution adjustments retroactive to that date. Final contribution rates will be established, effective 1 January 1994, following the Commission's decision in the Phase III Review proceeding. Final adjustments will be made at that time. Also, in future years, the Commission will adjust contribution charges as of 1 January in each year.
D. Companies' 1994 Forecasts, Impact of Tariff Filings
SCI argued that it is forced to rely on the telephone companies' Budget Views, Phase III forecasts and market assumptions as the basis for deriving its single largest cost component. SCI believed that, because these key inputs are generated by the telephone companies and remain largely beyond public scrutiny, the telephone companies have both the opportunity and the incentive to overstate the contribution charges required from competitive long distance providers. SCI also pointed out that the companies are not infallible when it comes to forecasting costs or demand.
SCI also stated that the telephone companies have not taken into account certain tariff filings and rate changes in their 1994 contribution filings. To the extent that the contribution impact of a particular tariff filing is not reflected or is partially reflected in the annual contribution calculation, competitors will be at an immediate and significant disadvantage vis-à-vis the telephone companies.
Westel concurred with SCI on the latter point, stating in reply argument that the companies should be required to recalculate contribution taking into account proposed toll rate changes.
AGT noted that its forecasts are based on its Budget View. Further, AGT stated that the Budget View forms the basis of its business plan and that it would be contrary to sound business practice to allow that Budget View to be influenced by the possible impact it may have on the level of contribution rates payable by competitors. AGT maintained that the Budget View is the best available forecast upon which to base the calculation of contribution rates. Stentor also noted that the companies' 1994 financial projections are based on the companies' Budget Views and are fundamental to the companies' operations and strategic planning activities.
Stentor submitted that, in the development of the Budget Views, the companies cannot precisely predict each rate change that they may apply for, much less the Commission's response to such applications. It also noted that there will be deviations from the Budget Views for other reasons, for example, the changing state of the economy, market shares, expenditure programs and Phase III categorizations.
Further, these changes could affect contribution rates in both directions.
The Commission accepts the submissions of Stentor and AGT on these matters. The Budget Views are a component of the companies' own financial information and management systems; they are not prepared solely for contribution purposes. Further, the Commission considers that the variances between the 1993 contribution rates set last year based on the companies' forecasts were within an acceptable range of the actual 1993 values filed in this proceeding. Accordingly, the Commission accepts the companies' Budget Views as the bases for the determination of 1994 contribution charges. Further, the Commission does not consider it necessary to adjust the proposed contribution charges to take into account tariff filings that were not anticipated by the companies in the development of their 1994 Budget Views.
E. Entrants' Minutes, Market Share and Total Market Size
In Stentor's view, the telephone companies' estimates of the total market minutes are, in aggregate, approximately the same as Unitel's. However, Stentor submitted that, because the telephone companies continue to generate the vast majority of minutes in the market and are in a better position to forecast their own minutes, the telephone companies' forecasts are more accurate than Unitel's. AGT also argued that its estimates of the total market should be accepted, rather than Unitel's, for similar reasons. Stentor also compared the telephone companies' estimates of entrants' line 8a minutes with those of the entrants and found the difference to be small.
Unitel stated that Bell's and BC TEL's estimates of the telephone companies' minutes were understated. Unitel was also of the view that the telephone companies applied a price elasticity of demand for entrants that was too low and, as a result, understated the total market minutes. Unitel submitted that Bell's estimate of total market minutes for line 9 in the contribution calculation should be increased by 3.8%, the difference between Bell's and Unitel's estimate. Unitel also submitted that BC TEL's estimates of total market minutes for line 9 should be increased by 3%. Unitel did not argue for any changes to the total market minute estimates of the Atlantic telephone companies or AGT.
SCI and Westel also submitted that the telephone companies' estimates should be increased to reflect past under-forecasting, recent Commission decisions and price elasticity assumptions.
In reply, Stentor asserted that it did not underestimate the size of the total market, and maintained that it is in the best position to estimate the size of the market. In response to Unitel, Stentor stated that its use of the lower price elasticity of demand for entrants is justified on the grounds that the entrants will be capturing primarily business traffic. Further, in Stentor's view, Unitel's proposal to rely on its own forecasts of total market minutes only where that estimate is higher than the telephone companies' is self-serving and should be dismissed.
AGT noted that the Commission has in the past accepted contribution calculations based on the telephone companies' assumed price elasticity. AGT also submitted that the entrants have an incentive to reduce contribution rates by manipulating the telephone companies' forecasts.
Stentor was of the view that information filed by entrants would be more useful in developing toll forecasts if it was made available earlier. Stentor proposed that entrants and telephone companies provide historical information on a quarterly basis. Entrants should also provide reconciliations of line 8a minutes with conversation minutes, including adjustments for DALs, resold WATS and double counting. Westel objected to any requirement that entrants provide historical information earlier than mid-November. In its view, this would not significantly add to the quality of information and could provide Stentor with competitively sensitive information.
In assessing the reasonableness of the estimates of entrants' minutes, market share and total market size, the Commission has relied on the information filed by both the telephone companies and the entrants. As noted earlier, the Commission considers the telephone companies' Budget Views to be acceptable for the determination of 1994 contribution charges.
The telephone companies estimated entrants' minutes based on market share using the Choice Demand Model with some adjustments to the input parameters to reflect changes in the market conditions since the 1993 contribution charge proceeding. The entrants estimated their own minutes based on historical information, customer base and expected demand growth.
The Commission notes that Bell's and BC TEL's estimates of entrants' minutes are somewhat less than those submitted by the entrants. In addition, Bell's estimate of Unitel's minutes is substantially higher than Unitel's own estimate, while Bell's estimate for resellers is substantially lower than resellers' estimates. The Commission notes that, in this proceeding, Bell made adjustments to the input assumptions in the Choice Demand model that would lower resellers' market share and increase Unitel's market share.
The Commission is of the view that, with respect to Bell's territory, Unitel's and SCI's estimates of their own minutes should be accepted. The Commission is concerned that the total of resellers' estimates of their own minutes may be overstated, but generally expects the resellers to obtain substantially more minutes than forecast by Bell. The Commission expects Unitel to have fewer minutes than estimated by Bell, reducing any adjustment required to account for Bell's underestimation of resellers' minutes. Further, the Commission considers that an additional adjustment is necessary for price elasticity of demand since, in the Commission's judgement, the application of a price elasticity of -0.7 by the telephone companies has understated the entrants' minutes. The introduction of equal access and increasing price competition in the business market is expected to cause competitors to focus increasingly on the residential market. Taking these factors into account, the Commission has increased Bell's estimate of entrants' line 8a minutes by 2%.
Based on a similar analysis, the Commission is of the view that BC TEL's estimate of entrants' minutes is also understated. In particular, the Commission notes that BC TEL's estimate is based on the same price elasticity as Bell's. Taking these factors into account, the Commission has increased BC TEL's estimate of entrants' minutes in line 8a by 4%.
The Commission does not consider that any adjustments are necessary to the estimates of entrants' minutes provided by the Atlantic telephone companies and AGT. While these estimates are somewhat higher than those submitted by the entrants, adjustments to account for the differences would not have a significant impact on the contribution calculation.
Finally, Stentor proposed that entrants provide historical information on a quarterly basis, including a reconciliation of contribution minutes with conversation minutes. The Commission notes that the entrants filed 1993 quarterly estimates of line 8a minutes in November 1993, more than two months prior to the date for the filing of further information by all parties. In the Commission's view, this time interval provided sufficient opportunity for parties to assess these estimates and take them into consideration in preparing their own data. The Commission does not consider that the filing of historical information on a quarterly basis would add any information of significant value to the contribution charge proceeding. In addition, the Commission considers that it will be sufficient for entrants to provide a reconciliation of contribution minutes with conversation minutes in response to the Commission's initial interrogatories in subsequent contribution charge proceedings.
F. Deductions from Non-Toll Revenue
Unitel stated that MT&T, NBTel and Newfoundland Tel have incorrectly adjusted their respective contribution requirements in the Non-Toll calculations. In addition to deducting contribution payments received directly from competitors, these companies also removed competitor contribution revenues received from the Stentor Settlement Plan (SSP). Further, Unitel stated that there is no corresponding reduction in the contribution requirement for the Stentor companies that are net payers into the SSP. For example, in Bell's contribution calculation, only the contribution revenue coming from direct payments by competitors have been deducted from Non-Toll revenue. In Unitel's view, this mismatch in the treatment of contribution revenue results in an overstatement of the telephone companies' contribution requirement and, ultimately, contribution charges that are too high. Unitel recommended that all Stentor companies use Bell's approach, removing only the contribution revenues received directly from competitors from Non-Toll revenue. Alternatively, Unitel suggested that Bell lower the contribution revenues deducted from Non-Toll revenues by the amount of Stentor settled contribution revenue.
Stentor asserted in its reply that, contrary to Unitel's interpretation, the Commission intended that all contribution payments, both direct payments from competitors and settled contribution revenues, be included in the adjustment to the Non-Toll deficit in the calculation of target contribution. Stentor submitted that all contribution revenue included in companies' Non-Toll revenue projections should be removed from the calculation of contribution. Stentor submitted that Bell also intended to remove the contribution revenue, in the amount of $3.3 million, that had been included in its Non-Toll revenue projections. In Stentor's view, the adjustments of MT&T, NBTel and Newfoundland Tel and the proposed revision to Bell's contribution payment deduction are appropriate. However, Stentor argued that an offsetting adjustment, resulting from certain reconciliations, was also appropriate.
The Commission is of the view that the impact of Stentor settled competitor contribution payment revenues should be reflected in the contribution revenues deducted from Non-Toll revenues. Accordingly, the Commission accepts the calculations of MT&T, NBTel and Newfoundland Tel, and has reduced the contribution revenues deducted from Bell's Non-Toll revenues by $3.3 million. The Commission does not accept Stentor's suggested offsetting adjustment, as it was introduced by Stentor in reply comment.
G. Start-up, and Switching and Aggregation Costs
Unitel addressed issues raised in Public Notice 94-16 with respect to the definition of the Phase III Access Broad Service Category (BSC), arguing that none of the start-up costs described by Bell are causal to Access, under the existing definition of Access. In particular, Unitel suggested the possible assignment of start-up costs to the Competitive Toll (CT) BSC. In its view, the inclusion of start-up costs in the Access category, and thus in the contribution calculation, would result in overpayments by entrants, given that the Commission determined in Decision 92-12 that IXCs would pay 30% of the start-up through tariff charges.
Unitel also submitted that BC TEL, unlike Bell, had excluded payments related to switching and aggregation charges and the start-up cost recovery payments from the Access BSC. Unitel argued that BC TEL's Non-Toll deficit should therefore be adjusted downward.
Unitel further proposed the creation of a new BSC to capture all the investment, expense and revenues for start-up and ongoing costs associated with the introduction of long distance competition.
Westel also objected to the inclusion of start-up costs in the Access category.
Stentor responded that these costs are causal to the service that provides Unitel's customers with access to Unitel's network. In its view, these costs are not caused by the Stentor companies' CT services; further, in Decision 92-12, the service was considered to be a bottleneck or monopoly-type service.Stentor noted that the companies reporting Phase III results have assigned their respective start-up costs and associated payments to the Phase III Access Contribution sub-category, which was established in the Access Study Guidelines in Telecom Order CRTC 92-529, 21 April 1992.
In the Commission's view, it is premature to address any changes to assignment procedures by Phase III category until a decision has been issued with respect to the Phase III Review proceeding. The Commission concurs with Stentor that start-up and ongoing costs related to the introduction of long distance are currently appropriately assigned to the Phase III Access Contribution sub-category.
Nonetheless, with respect to excluding start-up costs for the purposes of calculating contribution, the Commission considers that there is merit in Unitel's position. In particular, the Commission concludes that the inclusion of start-up costs in the Non-Toll expenses for the calculation of 1994 contribution charges would result in an overpayment by the entrants. Accordingly, the Commission has removed start-up costs in the amounts of $12.0 million and $11.1 million from the Non-Toll costs for Bell and BC TEL, respectively, thereby reducing the Non-Toll deficit.
The Commission does not accept Unitel's position that the payment related to the start-up cost recovery should be included in the contribution calculations if the associated costs are to be removed. To do so would result in an underpayment by the entrants of the intended start-up cost recovery, as contribution charges would be further reduced by this inclusion. In the case of Bell, the Commission has removed from the calculation of 1994 contribution charges payments for the recovery of start-up costs amounting to $1.2 million.
Finally, the Commission considers that BC TEL should not have excluded payments related to switching and aggregation charges from Non-Toll revenues. Accordingly, the BC TEL Non-Toll deficit has been reduced by $2.88 million.
H. Advertising Expenses
Unitel indicated that Bell's and BC TEL's 1994 forecasted assignments of advertising expense to the CT category were understated. In its view, 80% of all Bell advertising expense increases since 1992 are associated with the CT category. Based on an explanation provided by BC TEL with its 1994 Phase III results, Unitel concluded that all of BC TEL's 1994 advertising increases should be attributed to the CT category.
Stentor replied that Unitel has misinterpreted explanations provided by Bell with the Phase III results. With respect to BC TEL, Stentor noted that adjustments to ratios for forecast purposes are only made as a result of significant changes in methodology, and not for budgetary estimates of spending. Stentor also noted that BC TEL did not indicate that all increases to advertising were due to increased competition in the long distance market.
The Commission has reviewed Bell's and BC TEL's forecasted advertising expense assignments and concludes that no changes are warranted at this time.
I. Sales Expense
Unitel submitted that both Bell and BC TEL have under-assigned sales expenses to the CT category.
Unitel submitted that it is realistic to assume that 80% of all of Bell's increases in sales activity since 1992 should be assigned to CT. Similarly, it submitted that BC TEL should adjust the assignment ratios, resulting in the assignment of an additional $10.7 million to CT.
As with advertising expenses, Stentor noted that the explanations provided in the Phase III results have been misinterpreted. Stentor indicated that BC TEL is following existing guidelines and no adjustments to historical ratios have been made.
The Commission has reviewed the submissions and available data relating to sales expense and concludes that no adjustments are warranted at this time. The Commission also notes that the business sales portion of this expense is being dealt with in the Phase III Review proceeding.
J. MT&T's Ratio of Phase III to Stentor Settlement Plan Toll Costs
Unitel argued that the proxy used to approximate MT&T's CT costs, established in Decision 92-12, is inaccurate. Unitel pointed out that the ratio used to estimate MT&T's 1992 CT costs is 1.08, whereas the ratio of CT to SSP Total Toll Costs derived from MT&T's actual 1992 Phase III results is 1.22. Unitel submitted that the use of the proxy instead of the actual ratio results "in a significant underestimation of MT&T's 1994 CT costs and consequently significant overestimation in the level of contribution required from competitors".
Stentor noted that MT&T does not yet have Phase III projections for 1994. MT&T's 1994 estimates are based on the methodology, established in Decision 92-12, for companies that did not produce Phase III results. Stentor further pointed out that the actual results Unitel is referring to are unaudited Phase III results for 1992. Therefore, Stentor submitted that Unitel's proposal that MT&T use these results for developing 1994 projections should not be considered.
The Commission is of the view that it is appropriate for MT&T to use the methodology set out in Decision 92-12, rather than its unaudited 1992 Phase III results, for the contribution calculation.
K. Alberta
Unitel repeated and elaborated on many of the points it made in its submission with regard to the request of Edmonton Telephones Corporation that the Commission review and vary Decision 93-17. Unitel's comments will be addressed in the Commission's decision with regard to that request.
Based on the foregoing, the Commission approves, on an interim basis, the following per-minute contribution charges for facilities-based carriers:RespondentCents/Minute/End
BC TEL 4.28
AGT 5.30
Bell 3.85
NBTel 4.35
MT&T 4.72
Island Tel 4.49
Newfoundland Tel 3.28
The detailed calculations are appended to this Decision. The appendix also contains the per-minute charges for resellers.
The Commission directs the telephone companies to issue tariff pages, indicating that approval is interim, based on the per-minute charges established in this Decision. The rates are to be applied back to 1 January 1994 and any necessary interim adjustments to amounts already billed made on an expeditious basis. The rates will remain interim until a decision is issued in the Phase III Review proceeding. Once final charges are established by the Commission, further adjustments may be required.
Allan J. Darling
Secretary General
Calculation of Contribution - 1994
BCTEL AGT Bell NBTel MTT Island Tel Nfld Tel
A. Contribution Requirement ($ Millions)
1. Phase III/or Equivalent Non-Toll Expenses
1696 1037.8 6635.6 316.6 416.3 52.8 208
2. Phase III/or Equivalent Non-Toll Revenues
1250.818 637.3 5077.8 209.7 285.5 39.2 132.9
Less Contribution Revenues
25.238 22.2 91.5 3 5.4 0.4 1.7
Less Start-Up Costs
-11.1 -10.8
3. Phase III/or Equivalent Non-Toll Deficit
-459.32 -422.7 -1638.5 -109.9 -136.2 -14 -76.8
4. Common/PUC
57.2 46.5 1 15.5 11.6 14.3 1.5 8.1
5. Settlement
-3.6 -19.7 -117.4 20.3 32.1 0.5 32.7
6. Level of Contribution Required
405.72 395.9 1640.4 78 89.8 12 36
B. Toll Minutes Calculation ($ Millions)
7. Resp. Switch Org & Term Mins
6023.9 4827.5 24721.2 1228.8 1261.3 177.1 744.3
8. (a) Entrant Switch Org & Term Mins
726.024 457.5 4124.472 48.8 87.6 13 38.7
(b) DALS Loading (Fixed Factor)
1.0979 1.1735 1.1636 1.1362 1.1589 1.0972 1.1186
(c) Entrant Switch + Non-Switch Org & Term Mins
797.1 536.9 4799.2 55.4 101.5 14.3 43.3
(d) Entrant Stim. Mins ratio to Total Mins (Fixed Factor)
0.0678 0.0678 0.0678 0.0678 0.0678 0.0678 0.0678
(e) Entrant Sw + Nsw Stim. Mins
54.0 36.4 325.4 3.8 6.9 1.0 2.9
9. Market Sw + Nsw Org & Term Mins w/o Entr. Stim.
6767.0 5328.0 29195.0 1280.5 1355.9 190.4 784.7
10. Contribution Per Minute Per End ($)
0.0600 0.0743 0.0562 0.0609 0.0662 0.0630 0.0459
C. Multiplicative Adjustments
11. Gross Receipts Tax
1 1 0.96 1 1 1 1
12. DAL Surcharge
1.02 1.02 1.02 1.02 1.02 1.02 1.02
13. Discount
0.75 0.75 0.75 0.75 0.75 0.75 0.75
14. Stim. Min Factor
0.9322 0.9322 0.9322 0.9322 0.9322 0.9322 0.9322
15. Contr. Per Min. Per End - FBC ($)
0.0428 0.0530 0.0385 0.0435 0.0472 0.0449 0.0328
16. Reseller Discount
0.7 0.7 0.7 0.7 0.7 0.7 0.7
(a) Contr. Per Min. Per End - Reseller
0.0299 0.0371 0.0269 0.0304 0.0330 0.0314 0.0230
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