ARCHIVED -  Telecom Decision CRTC 95-9

Telecom Decision

Ottawa, 26 May 1995

Telecom Decision CRTC 95-9

AGT LIMITED - PHASE III MANUAL: COMPLIANCE WITH PUBLIC NOTICE 94-41 AND ORDER 93-20

I BACKGROUND

On 30 September 1994, AGT Limited (AGT) filed its Phase III Manual for the Commission's approval, together with an initial set of unaudited results for the calendar year 1993 and two copies of its accounting manual, in accordance with Order and Guidelines for the Filing of the Phase III Manual by AGT Limited, Telecom Order CRTC 93-20, 13 January 1993 (Order 93-20). Pursuant to that Order, AGT attached reports on Revenue/Cost Matching, Access Studies and Official Telephone Service (OTS).

In its report on OTS, AGT qualified the reliability of the data employed in its OTS adjustment. The company indicated that it has made improvements to its records process and is implementing a new billing system, which will improve the accuracy of its OTS calculation.

In AGT - Phase III Manual, Telecom Public Notice CRTC 94-41, 7 October 1994, the Commission directed AGT to serve a copy of its Phase III Manual and 1993 unaudited results on interested parties. On 9 December 1994, Unitel Communications Inc. (Unitel), City of Calgary (Calgary) and Northline Telecommunications Inc. (Northline) filed comments with respect to the Manual and the related reports, addressing the following issues: (1) the application of the directions in Review of Phase III of the Cost Inquiry, Telecom Decision CRTC 94-24, 18 November 1994 (Decision 94-24), (2) the classification of Service Finder Service, (3) the treatment of outside plant fibre investment (BSCC 73.072), (4) the assignment of operator intercept expense (BSCC 75.620), (5) the assignment of business sales expenses (BSCC 75.640.01), (6) the assignment of Telecentre expense (BSCC 75.640.04), (7) the assignment of billing and collection expenses (BSCC 75.640.05), (8) Common category assignments, (9) the level of detail provided with respect to OTS, and (10) the 1993 shortfalls in the Competitive Network (CN) and Competitive Terminal - Multi-Line & Data (CT-MD) categories. AGT filed its reply on 5 January 1995.

II CONCLUSIONS

AGT's Phase III Manual sets out detailed procedures for the assignment of all of the company's revenues, investments and expenses to Broad Service Categories (BSCs) and reporting categories. The Commission examined each individual procedure in AGT's Manual for compliance with the general and specific requirements of the Guidelines established in Order 93-20.

With respect to Unitel's submissions, the Commission notes that the directions in Decision 94-24 applicable to AGT relate to the production of 1994 Phase III results. For the purposes of producing 1994 results, AGT is to update its Manual accordingly.

Unitel also commented on the assignment of Service Finder Service. Unitel contended that the associated revenues and costs should be assigned to the CN category, in view of AGT's initial position that the service is a competitive offering. The Commission is not persuaded that this service should be assigned to the Monopoly Local (ML) category. Rather, the Commission considers that the costs and revenues of Service Finder Service are more appropriately assigned to the CN category. AGT is directed to assign the service accordingly.

With respect to the treatment of outside plant fibre investment, Unitel contended that, without weighting for distance, costs will be over-allocated to the Access and the ML categories. The Commission notes that, for Phase III purposes, AGT amended the Stentor Settlement Plan (SSP) approach, which is based solely on circuit quantities, by implementing ratios that use consolidation areas as a proxy for cable-length weighting. However, it is not clear to the Commission to what extent AGT's use of consolidation areas or Unitel's proposed cable-length weighting approach would improve the accuracy of the study results over the SSP approach. Therefore, AGT is directed to file, by 31 October 1995, a report detailing its initial evaluations on ratios developed using cable-length weighting and its reasons for adopting ratios developed on a consolidation area basis. Pending a review of that report, the Commission considers it appropriate to grant interim approval to AGT's outside plant fibre investment assignment procedures for purposes of producing 1994 results.

Unitel submitted that operator intercept expense should be assigned to BSCs on the basis of traffic. However, the Commission considers AGT's proposed assignment of these expenses to the ML category to be in compliance with Phase III Guidelines.

The Commission also considers AGT's proposed assignment of commercial quotations expense for unsuccessful sales efforts to be appropriate. In addition, the Commission regards as invalid the parallel drawn by Unitel between AGT traffic studies and the network design activities of Bell Canada (Bell).

The Commission notes Unitel's comments regarding the assignment methodology in the Service Order Study used to assign Telecentre expense to various BSCs, and in particular Unitel's concerns with respect to AGT's assignment of certain of these expenses to Access. Unitel submitted that AGT's approach conflicted with the company's assignment of service orders for Edmonton Telephones Corporation (Ed Tel), which are directly assigned to the Competitive Toll (Toll) category. Unitel submitted that it is not clear whether AGT assigns any of its service order expense related to basic long distance service to the Toll category.

The Commission notes that, for the assignment of Telecentre expense, AGT modified its Service Order Study to reflect time spent processing subscriptions to long distance savings plans. Further, AGT was directed in Order 93-20 to assign Ed Tel service order activity expense to the Toll category (since activities related to Ed Tel customers pertain to the provision of toll services).

Both Unitel and Calgary commented with respect to the assignment of billing and collection expense. To the extent that customer payment input, investigation, account inquiries and security deposit expense is equivalent to the Centralized Mail Remittance (CMR) costs for Bell and BC TEL, AGT is directed to comply with the treatment of CMR costs established in Decision 94-24. For the purposes of producing 1994 results, the Commission accepts AGT's proposal to assign special billing services expense based on composite revenue ratios. However, AGT is to include in its 31 October 1995 update submission an assessment of alternative approaches for special billing expense that avoid the use of composite BSC revenue ratios.

Unitel submitted that it would be more appropriate to assign credit card expense to the BSCs on the basis of revenue ratios to which actual credit card purchases are booked. However, the Commission agrees with AGT that a detailed study is not warranted and that the use of composite ratios to assign this expense to BSCs is acceptable.

With respect to Unitel's comments regarding collection expense, the Commission agrees that this expense should be assigned based on composite revenue ratios.

With respect to Calgary's proposals, the Commission notes that issues related to economies of scope, which exist in areas such as billing and collection, are being addressed in the proceeding initiated by Implementation of Regulatory Framework - Split Rate Base, 1995 Contribution Charges, Broadband Initiatives and Related Matters, Telecom Public Notice CRTC 94-52, 1 November 1994.

The Commission notes that AGT's percentage of total operating expense assigned to the Common category exceeds that of all other Stentor companies that file Phase III results. The Commission also notes Unitel's concerns with respect to certain specific proposed assignments to the Common category. The Commission agrees with Unitel that the specific expenses in question can be causally related to particular BSCs and should not be assigned to the common category. Accordingly, AGT is directed to assign long-term strategic plan expense for competitive markets to the BSC of the associated competitive market. Regulatory and Intercarrier expense associated with AGT's intercarrier affairs, Ed Tel relations and the Unitel hearing are to be assigned to the BSC of the appropriate interexchange services. AGT is also directed to assign Northwestel Inc. (Northwestel) and Ed Tel settlement expense based on the BSCs of the interconnection services being settled. In addition, the Commission is directing AGT (below) to file a report reviewing the accounts now assigned to the Common category and providing an assessment on the causal links of these accounts to BSCs.

With respect to Calgary's comments regarding the accuracy of AGT's OTS records, the Commission notes that AGT has implemented changes, including a new billing system in 1995, which will further improve the accuracy of its OTS records. However, the Commission considers it appropriate to direct AGT (below) to file a status report identifying the improvements made to date. The company is also to identify which, if any, of these improvements could be adopted for the study year 1994.

As to Unitel's and Northline's comments regarding the shortfalls in the CN and CT-MD categories, the Commission is directing (below) that AGT submit a report on the specific steps being taken by the company on a going-forward basis to ensure that these categories do not remain in a shortfall position.

Having examined AGT's Phase III Manual, the Commission finds the procedures contained in it to be in compliance with Order 93-20, subject to the directions noted above and a final determination with regard to the items listed in the Appendix to this Decision. With regard to those items, AGT is to provide justification or further explanation concerning its procedures and assignments.

In light of the above, the Commission approves AGT's Phase III Manual subject to (1) resolution of the items noted in the Appendix, (2) review of the outside plant fibre investment report, (3) review of the company's report on the assignment of expenses to Common, (4) reassignment of Service Finder Service to the CN category, (5) modification of the assignment of certain billing and collection expenses, and (6) modification of the assignment of expenses for long-term strategic planning for competitive markets, accounting for the settlement of interconnection facilities of Northwestel and Ed Tel, and the regulatory and intercarrier activities associated with AGT's interexchange services.

In addition, the Commission notes that AGT's Manual reflects the tariffs, accounts and procedures used to produce 1993 results. In the Commission's view, the Manual documentation must be made current in order to ensure the accuracy of the 1994 results. Accordingly, AGT is directed to file for Commission approval, by 10 July 1995, an update to its Manual reflecting all revisions to its tariffs, accounts and procedures, as well as any other changes relevant to the production of 1994 results. Copies are to be served on interested parties by the same date.

AGT is directed to include in the same update submission: (1) the explanations required by the Appendix to this Decision, (2) a re-assignment of revenues and costs for Service Finder Service to the CN category, (3) modification of the assignment of collection expense and CMR equivalent expenses in BSCC 75.640.05, (4) a report reviewing the accounts now assigned to the Common category and assessing the causal links of these accounts to BSCs, (5) re-assignment of long term strategic plan expense for competitive markets, (6) re-assignment of regulatory expense associated with AGT's intercarrier affairs, Ed Tel relations and the Unitel hearing, (7) re-assignment of Northwestel and Ed Tel settlement accounting expense, (8) a status report on the improvements to the OTS records made to date, indicating which, if any, of those improvements could be adopted for 1994, (9) a report on the specific steps being taken by the company on a going-forward basis to ensure that the CN and CT-MD categories do not remain in a shortfall position, and (10) amended procedures to comply with the directions and determinations in Decision 94-24 that apply to AGT.

In addition, AGT is directed to file with its 31 October 1995 update submission: (1) a report detailing AGT's initial evaluation with respect to cable-length weighting for outside plant fibre investment and the reasons for basing its ratios on consolidation areas, and (2) an assessment of alternative approaches to assign special billing service expense that avoids the use of composite BSC revenue ratios.

With respect to AGT's reports, other than the OTS report, the Commission grants final approval to the company's Revenue/Cost Matching methodology, and defers the implementation of the Detailed Definition Process for the development of Access sub-categories pending determinations, in the proceeding initiated by Public Notice 94-52, regarding categories within the Utility segment.

The Commission considers that the requirements for the filing of actual and forecast results and the audit, update and review processes followed by Bell, BC TEL, Northwestel and Maritime Tel & Tel Limited should apply to AGT. Accordingly, the Commission directs AGT:

(1) to file audited actual Phase III results for the calendar year 1994, together with an audit report, by 30 September 1995, and annually thereafter by the same date;

(2) to file forecast results as will be prescribed by the Commission in the fall of 1995 in relation to the establishment of contribution charges;

(3) to implement the update process established in Bell Canada and British Columbia Telephone Company - Phase III Manuals: Compliance with CRTC Telecom Public Notice 1986-54 and Telecom Order CRTC 86-516, Telecom Decision CRTC 88-7, 6 July 1988 (Decision 88-7), as revised in Telecom Letter Decision CRTC 89-26, 1 December 1989, and in Decision 94-24; and

(4) to implement the audit processes prescribed in Decision 88-7.

With respect to the Phase III Manual review process prescribed in Decision 88-7, the Commission notes that its staff may conduct periodic reviews of the procedures contained in AGT's Phase III Manual.

Allan J. Darling
Secretary General

SUPPLEMENTARY SUBMISSIONS APPENDIX

A.Revenues

1. Directory Assistance Charge (Item GT 0230)

This service now includes charges for both local and long distance related directory assistance. Explain how local and long distance revenues will be split.

2. Emergency Reporting System (Item GT 0240)

Justify the proposal to assign part of this service to the Access category.

3. Megalink Service (Item GT 0288)

This service was introduced after the release of the Guidelines (Order 93-20). The tariff includes a flat monthly link connection charge by rate group for an optional PSTN connection and includes other optional link connection charges. Explain why the classification proposed does not include other categories in addition to the proposed Access category.

4. Public Cellular Mobile Radio Systems - Network Access (Item GT 0315)

The tariff for this service includes charges for a cellular link, cellular service network and assigned telephone numbers. Explain why the classification proposed does not include an Access component.

5. Public Radio Common Carrier - Network Access Service (Item GT 0320)

The tariff includes charges for a line link, line service network and assigned telephone numbers. Explain why the classification proposed does not include an Access component.

6. Semi-Public Telephone Service (Item GT 0345)

Justify the inclusion of Access in the classification of this service.

7. Service Charges (Item GT 0350)

Justify the company's inclusion of ML and CN classifications for this service.

8. Datapac Network Usage (Item CNT 1340.4)

Explain why the company used its revenue/cost matching methodology for this component of the service.

9. Megaroute Service (Item CNT 1400)

Explain why the company's revenue/cost matching methodology was applied to this service to transfer revenues from Access to CN.

10. Megastream Service (Item CNT 1405)

Explain why the company's revenue/cost matching methodology was applied to this service to transfer revenues from Access to CN.

11. Digital Network Access (Item CNT 1406)

This service was introduced after the release of the Guidelines. The tariff includes rates for access, local links, channelizing and intra-exchange channels. Explain why the classification proposed does not include CN for the intra-exchange channels.

12. Access Special Routing (Item CNT 1420)

This service was introduced after the release of the Guidelines. Explain the rationale for assignment of this service to the Access category.

13. Service Charges (Item CNT 1700)

Justify the company's inclusion of CN and ML classifications for this service.

14. Maintenance Diagnostic Charge (Item CNT 1820)

This service has been revised since the Guidelines were issued. Explain the rationale for assignment to CT-MD and Competitive Terminal - Other (CT-O).

15. Service Charges (Item CTT 2530)

Justify the company's inclusion of CN and ML classifications for this service.

B.Expenses

1. BSCC 75.640.02 - Advertising

Explain why the company is proposing to assign informational advertising expense using composite revenue BSC ratios, rather than using an invoice analysis.

2. BSCC 75.660.05 - Service Bureau Expense

Justify the company's assignment of Service Bureau expense using the corporate salary and wage ratio, rather than company records of consumption linked to individual account codes as proposed in the company's working papers.

3. BSCC 75.677 - Expenses Charged to Construction and Research & Development

The company proposes to use corporate Wage Ratio #3 for the assignment of expenses for construction projects and also for research and development projects. Explain why the company is not using labour charged to construction field codes from plant and engineering groups for the assignment of construction projects. Also, justify why analysis and classification is not being used for the assignment of research & development projects.