ARCHIVED -  Public Notice CRTC 1996-132

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Public Notice

 Ottawa, 2 October 1996
 Public Notice CRTC 1996-132


 Following a Public Hearing commencing 5 February 1996, the Commission issued Public Notice CRTC 1996-60, dated 26 April 1996, which sets out the access rules applicable to the carriage by broadcasting distribution undertakings of programming services offered by licensed and exempt programming undertakings.
 With regard to access rates for exempt programming undertakings, the Commission concluded in Public Notice CRTC 1996-60 that a simple formula could be developed to calculate the appropriate access rates for the provision of channel capacity to exempt programming undertakings, and that the appropriate methodology to use in establishing such rates would be to base them on those operating and capital costs that are attributable to providing that capacity. As there was insufficient evidence at the hearing to permit any determination of whether there should be a single access rate for the entire cable industry or a number of different rates for different groups of cable undertakings, the Commission stated that it intended: (i) to carry out its own detailed study to identify those operating and capital costs that are attributable to the provision of channel capacity; and (ii) to determine if there is a relationship between the level of those costs, the number of subscribers in a particular system and the system's channel capacity. The Commission stated that, based on the results of its study, it would make a preliminary determination as to whether a single access rate is appropriate for the entire cable industry, or if different access rates are justified for systems of different sizes to take into account differences in their cost structures.
 The Commission further indicated that it would make available for public comment the results of the study, including the specific costs that it would consider applicable to the cost of providing channel capacity, and the calculations and rationale employed to establish the appropriate access rates, following which it would make its final determination on access rates for the cable industry.
 The Commission has now completed its study and proposes the following:

1. Operating and capital costs attributable to the provision of exempt service channel capacity

 At a public hearing held in February 1990, the Commission considered a proposal from the Canadian Cable Television Association (CCTA) to establish cost separation procedures for recording the operating and capital costs applicable to a cable distribution undertaking's carriage of non-programming services.
 Following extensive discussion at that hearing with the CCTA and other interested parties, the Commission, in adopting the CCTA proposal, concluded that all costs incurred by a cable distribution undertaking should be allocated to the various services that it distributes on the basis of cost causation. The Commission also concluded that, with the exception of any incremental costs specifically related to a particular service, the common facilities operating costs and an undertaking's net investment in distribution plant and subscriber drops, all costs incurred by the undertaking are causal to the basic service and, as such, should be allocated in full to the basic service. As the common facilities operating costs and investment in plant and drops are not causal to the basic service, but rather, are incurred in common for the provision of the undertaking's basic, discretionary and non-programming services, these costs are considered to be costs of providing the various services and should be allocated among all of the services accordingly.
 After examining the various submissions and comments by parties to the 5 February 1996 public hearing, including submissions addressing the applicability of the cost categories contained in the cost separation procedures, the Commission is satisfied that the conclusions with respect to cost causation that were arrived at following the February 1990 public hearing remain valid. Moreover, the Commission considers that the cost categories identified as applicable to the cost of carrying non-programming services are equally applicable to the provision of channel capacity to exempt programming undertakings.
 In this regard, the Commission proposes that the costs attributable to the provision of analog and digital channel capacity to an exempt programming undertaking would include:
 (a)  any incremental costs specifically related to the carriage of the service offered by the exempt programming undertaking;
 (b)  all common facilities operating costs, (ie: system powering, plant leasing, pole attachment, duct rental, maintenance materials, salaries and asset-based taxes); and
 (c)  the depreciation expense related to the distribution plant and subscriber drops in use at the end of the broadcast year, as well as that related to any decoders that are required by subscribers to receive the service of the exempt programming undertaking, and which are in use at the end of the broadcast year.
 In addition to these costs, the Commission considers that a further amount, equal to 23% of the cable undertaking's net year-end fixed asset investment in distribution plant, subscriber drops and decoders, is justified to allow the undertaking a reasonable return on capital, interest and taxes.
 As all of the costs related to access to channel capacity will be accrued in the common operating expenses, the distribution system and the subscriber drops, the Commission proposes that a single combined access rate be applied to both analog and digital carriage for the reason that a combined access rate will be simpler to maintain and will not result in different rates for the same service merely because it is carried on an analog basis as opposed to a digital basis or vice versa.
 The access rate for a single channel for a particular broadcast year would then be calculated by taking the total of the annual common facilities operating costs and depreciation expense related to the distribution plant, subscriber drops and decoders, and adding an amount equal to 23% of the net fixed asset investment in distribution plant, subscriber drops and decoders that are in use at the end of the broadcast year. This total amount would then be divided by the total combined analog and digital capacity at the end of the broadcast year to arrive at the annual combined access rate per channel. This amount would be further divided by 12 times the number of basic service subscribers in order to arrive at the monthly combined access rate per subscriber.

2. Single rate for the industry or multiple access rates

 For the purpose of determining whether there is a relationship between the operating and capital costs identified as attributable to providing channel capacity, the number of subscribers and channel capacity of a particular system, the Commission examined the detailed basic service operating expenses, gross fixed assets, net fixed assets, accumulated depreciation and depreciation expense in each fixed asset category as reported in the 1993, 1994 and 1995 Statistics Canada Annual Returns of each Class 1 cable undertaking. Six undertaking groupings were established, based on subscribership levels, as follows: those having between 6,000 and 10,000; 10,001 and 20,000; 20,001 and 40,000; 40,001 and 80,000; 80,001 and 120,000; and those having more than 120,000 subscribers. The data for each individual cable undertaking were allocated to the appropriate category according to the total number of subscribers reported by the undertaking as at August 31 of each of the three broadcast years in question.
 Using this data and the proposed methodology for calculating the access rate, the applicable rate for each subscriber range was calculated (see the 1995 data in the Appendix to this notice).
 In the Commission's view, an examination of the average access rates for each undertaking grouping does not reveal sufficient variation among the rates calculated for the individual groupings within a broadcast year, or between broadcast years, to warrant the use of multiple access rates for the industry. This being the case, the Commission proposes to establish a single access rate for the entire industry that would be based on the highest calculated access rate for the six groupings of Class 1 distribution undertakings in the 1995 broadcast year. The resulting rate would remain in effect for a period of three (3) years, after which time the most recent annual return data would be reviewed and the rate adjusted as necessary. For the 1996, 1997 and 1998 broadcast years, the access rate for both analog and digital capacity would amount to $0.152 per subscriber per month.
 In addition to the information set out in the Appendix, all of the calculations employed to establish the appropriate access rate are available for public examination at the Commission's offices during normal business hours.

3. The published access rate to be a maximum rate

 In determining the actual rate paid by a service provider to a given distributor, the Commission considers that a distributor should be able to reflect, for example, the penetration rates of given tiers, the attractiveness of channel position or the distribution on restricted (versus unrestricted) channels. At the same time, the approach adopted should minimize the frequency with which the parties might seek recourse to the Commission's dispute resolution procedures, which have now been extended to include providers of exempt programming services in the Access Policy announced on 26 April 1996.
 Given the desirability of allowing market forces to influence the rate as much as possible, the Commission proposes to establish the published access rate as a cap, with the parties permitted to negotiate actual contract rates up to the maximum calculated level. In the Commission's view, this approach permits both useful reliance upon market forces and a reasonable expectation that parties will be able to negotiate access rates without excessive reliance upon Commission intervention. The Commission emphasizes that it expects parties to agree to terms that reflect the various circumstances noted above.
 Written comments on these proposals should be filed with the Secretary General, CRTC, Ottawa, Ontario K1A 0N2, by Monday, 2 December 1996.
 While receipt of comments will not be acknowledged, all written comments received by the above date will be taken into account by the Commission in making a final determination on the proposals set out in this notice.
 Allan J. Darling
Secretary General



Access Rates
(1995 Annual Return Data)

Subscriber Range (000's)   6-10 10-20 20-40 40-80 80-120 + 120
Average Common Facilities Operating Costs $ 207,281 252,290 507,505 869,195 1,135,104 3,585,695
Add: Standard Depreciation (4) $ 193,250 413,797 913,899 2,310,124 4,051,731 10,007,982
23% Return on Net Fixed Assets (NFA) (5) $ 232,035 489,538 1,139,043 2,674,696 4,798,279 11,505,895
Total Revenue Required $ 632,566 1,155,625 2,560,447 5,854,015 9,985,114 25,099,552
÷ Channel Capacity @ Year End   45 51 56 56 67 61
÷ Average Total Mixed Subscribers   7,947 14,278 28,526 57,419 101,568 231,312
÷ 12 months   12 12 12 12 12 12
= Access Rate per Subscriber per Month   14.7¢ 13.2¢ 13.3¢ 15.2¢ 12.2¢ 14.8¢
(1) Gross Fixed Assets (GFA): Distribution + Drops $ 2,635,441 5,480,304 11,839,256 29,000,280 52,246,636 126,519,050
(2) GFA in (1) as % of GFA: All Assets for all systems in the subscriber range   68.7% 71.8% 78.9% 79.0% 82.8% 79.0%
(3) Net Fixed Assets (NFA): Distribution + Drops $ 1,008,847 2,128,426 4,952,361 11,629,112 20,862,082 50,025,632
(4) = % in (2) x Total average standard depreciation for all systems in the subscriber range
(5) 23% x NFA in (3)

Date Modified: 1996-10-02

Date modified: