ARCHIVED -  Telecom Order CRTC 97-144

Telecom Order

Ottawa, 31 January 1997

Telecom Order CRTC 97-144

References: 96-2193, 96-2194, 96-2202 to 96-2207

WHEREAS, in Decision 95-21, the Commission established cost assignment and reporting requirements for the treatment of new broadband investment and related expenses to ensure that, during the period of transition to price cap regulation, Utility segment subscribers would be protected from the risk associated with the telephone companies' new broadband initiatives;

WHEREAS, with respect to cost assignment procedures, the Commission found in Decision 95-21 that, with certain exceptions, the most appropriate treatment for broadband initiatives was to require the telephone companies to assign to the Competitive segment all new investments and related expenses incurred after 31 December 1994 (the start of the split rate base regime) which are associated with the deployment of fibre optic cable, coaxial cable, opto-electrical equipment, asynchronous transfer mode (ATM) switches and video servers;

WHEREAS, with respect to reporting requirements in Decision 95-21, the Commission directed that, at least during the transitional period prior to price cap regulation, the telephone companies should identify and track for each of the Utility and Competitive segments: (1) all capital investment and expenses associated with new broadband initiatives, i.e., those incurred after 31 December 1994 and (2) capital expenditures associated with the ongoing deployment of Fibre Optic Transmission Systems (FOTS) facilities in the access network and the metropolitan inter-office portion of the trunk network;

WHEREAS, in Decision 95-21, the telephone companies were directed to file the following information, as a separate submission with their regular 15 January 1996 Phase III Updates: (1) (a) a detailed description of any contemplated changes to Phase III costing studies to reflect the capture and assignment of all new broadband capital expenditures and expenses, (b) a proposed supplementary schedule to be included with actual and forecast Phase III results and (c) updated Phase III Manuals with respect to broadband (FOTS) facilities; and (2) a detailed description of the proposed methodology for tracking and reporting investments, expenses and transfer price payments related to the provision and use of broadband access facilities;

WHEREAS, in response to Commission directives in Decision 95-21, the telephone companies filed for approval their Phase III Update reports containing proposed revisions to Phase III cost assignment procedures to address the requirements set out in Decision 95-21 for the assignment of broadband investment and expenses between the Utility and Competitive segments, and, as well, Bell, Island Tel, MT&T, NewTel and TCI filed for approval proposed supplementary schedules;

WHEREAS, in its Phase III Update, NBTel proposed to assign all broadband and FOTS investment to the Competitive segment;

WHEREAS AT&T Canada Long Distance Services Company (AT&T Canada) (formerly Unitel Communications Company) and the Canadian Cable Television Association (CCTA) filed comments, to which the telephone companies filed reply comments;

WHEREAS the Commission notes that Decision 95-21 requires that all costs associated with broadband equipment and facilities must be assigned to the Competitive segment, except for those costs associated with equipment and facilities that are or will become used and useful entirely for the provision of Utility segment services within 12 months of the in-service placement;

WHEREAS Decision 95-21 stipulated that in instances where Utility segment services are provided through the shared use of broadband equipment and facilities assigned to the Competitive segment, the Competitive segment is to charge a transfer price to the Utility segment;

WHEREAS, as noted above, in Decision 95-21, in instances where the telephone companies were to use transfer pricing between the Utility and Competitive segments, the telephone companies were directed to file, at least 120 days prior to the effective date, proposed tariffs for the transfer prices;

WHEREAS the telephone companies, except NBTel, proposed to assign fibre cable placement and support structure costs associated with spare and shared support structures to the Utility and Competitive segments based on the relative strand or working circuit usage by the respective segments;

WHEREAS the telephone companies, except NBTel, proposed to assign the costs associated with fibre cable facilities, which are used jointly to provide both Utility and Competitive services, to the respective segments on a relative strand or working circuit usage basis, with any costs associated with spare FOTS cable facilities to be assigned to the Competitive segment;

WHEREAS the telephone companies, except NBTel, similarly proposed to assign the costs associated with FOTS terminal equipment and plug-in units, including spare capacity on FOTS terminal equipment based on the relative usage of the equipment by the respective segments on a working circuit basis;

WHEREAS the telephone companies, except NBTel, were of the view that transfer pricing should only be required when FOTS equipment and facilities are used to provide, on a shared basis, both Utility and new Competitive broadband services and stated that, given that they are currently not using FOTS equipment and facilities to provide new broadband services and had no immediate plans to do so, there was no need to file tariffs for transfer prices;

WHEREAS NBTel stated that, given that it has assigned all broadband-related costs incurred both before 1 January 1995 and, on and after 1 January 1995, directly to the Competitive segment, FOTS equipment and facilities are used to provide Utility services at no cost to the Utility segment and, consequently, there is no need to use transfer pricing;

WHEREAS CCTA was of the view that NBTel's proposed approach would allow the company to exclude the incremental costs associated with FOTS equipment and facilities in its imputation test for local services, given that it had chosen not to allocate any of these costs to the Utility segment nor to charge a transfer price to the Utility segment for the use of such equipment and facilities;

WHEREAS in 1996 Contribution Charges, Telecom Decision CRTC 96-11, 10 December 1996, the Commission stated that the telephone companies' existing fibre and other related broadband-capable investment and related expenses assigned to the Utility segment prior to 1 January 1995 would remain so assigned barring any change in the use of that investment by the other segment and considered that NBTel's FOTS investment that has been assigned to the Utility segment before 1 January 1995 should remain so assigned;

WHEREAS the Commission agrees with AT&T Canada and CCTA that in those instances where broadband-capable equipment and facilities are used jointly to provide both Utility and Competitive services (regardless of whether the Competitive services are existing services or new broadband services), all of the associated costs must be assigned to the Competitive segment and transfer pricing tariffs must be filed;

WHEREAS the Commission notes that where new feeder fibre strands and the associated terminal and plug-in equipment are used on a dedicated basis to provide Utility and Competitive segment services separately, even though all of the strands may be contained in the same fibre cable, and that in these instances, the costs associated with the specific equipment and facilities used entirely to transport Utility services can be assigned to the Utility segment without any requirement for transfer pricing;

WHEREAS the Commission notes that there are instances where new feeder fibre strands and the associated terminal and plug-in equipment are used jointly to provide both Utility and Competitive services on a shared basis, and that it is for this type of application that all associated costs should be assigned directly to the Competitive segment and transfer pricing employed;

WHEREAS, in instances where support structure facilities are used for fibre cable facilities in which new fibre strands are used on a shared basis to transport both Utility and Competitive segment services, transfer pricing would be applicable for all of the telephone companies, including NBTel;

WHEREAS, in specific instances where broadband overlay facilities would require the use of existing support structure facilities that were assigned to the Utility segment as of 1 January 1995, BC TEL, Bell, Island Tel, MT&T and NBTel are required to provide a detailed explanation as to why the Competitive segment should not pay the Utility segment the approved access to support structure rates in the event that they no longer consider this method to be feasible;

WHEREAS, in view of TCI's statement that it is not using any new broadband infrastructure installed after 1 January 1995 to provide both Utility segment and new broadband services, the company is not required to provide an explanation as long as the circumstances described above do not arise;

WHEREAS in Decision 95-21 the telephone companies were directed to file in their Phase III Update reports a detailed description of the proposed methodology for tracking and reporting investments, expenses and transfer price payments related to the provision and use of new broadband access facilities;

WHEREAS the telephone companies, except BC TEL, submitted that because there was no requirement to file transfer prices at present, there was no need to file a proposed methodology for tracking and reporting transfer price payments between the two segments;

WHEREAS BC TEL proposed a tracking methodology based on its Official Telephone Service system which is used to perform inter-segment billing for telephone services used by the company for operating purposes;

WHEREAS CCTA submitted that, except for BC TEL, the telephone companies should be directed to disclose whether any new broadband investment incurred after 31 December 1994 is being shared between the Competitive and Utility segments and, if so, to file the appropriate tariffs for transfer prices with an outline of the supporting methodology;

WHEREAS the Commission notes that, although TCI is not planning to use FOTS equipment and facilities for the provision of new broadband services, there are instances within the company's operating territory that involve the joint-use of such equipment and facilities to provide both Utility and Competitive segment services on a shared basis and, consequently there is a requirement to employ transfer pricing and to track these payments;

WHEREAS the Commission concludes that, except for BC TEL, the telephone companies are to file a detailed description of a proposed methodology for tracking and reporting transfer price payments and that, at the same time, the telephone companies, including BC TEL, are to propose a level of detail for reporting transfer price payments (for example, reporting the revenues and costs at a level of detail at which the transfer prices are applied);

WHEREAS, as noted above, the telephone companies, except NBTel, proposed to assign fibre cable placement and support structure costs associated with spare and shared support structures to the Utility and Competitive segments based on the relative strand or working circuit usage;

WHEREAS, as a result of the regulatory treatment described in Decision 95-21, the Commission notes that spare capacity in fibre facilities is to be assigned to the Competitive segment;

WHEREAS the Commission notes that, while Decision 95-21 did not specify a separate cost assignment requirement for the costs associated with fibre cable placement and support structures, these and other costs are considered part of the investment and related expenses associated with the deployment of fibre and, therefore, the Commission concurs with AT&T Canada and CCTA that these costs should be treated in the same manner as the fibre cable material costs;

WHEREAS the Commission finds that, except for NBTel, the telephone companies' proposals for the assignment of fibre cable placement and support structure costs do not comply with the requirements of Decision 95-21;

WHEREAS the telephone companies, except NBTel, proposed to assign the costs associated with FOTS terminal equipment and plug-in units, including spare capacity on FOTS terminal equipment, in accordance with the current Phase III/Split Rate Base (SRB) investment study methodology which is based on the relative usage of the equipment by the respective segments on a working circuit basis;

WHEREAS Bell, NewTel and TCI pointed out that FOTS terminal and plug-in equipment is installed with very short provisioning intervals and, accordingly, spare capacity is not an issue;

WHEREAS BC TEL submitted that its proposed assignment methodology, which is based on circuit usage of active FOTS facilities, ensures that only a pro rata portion of the total cost is assigned to the Utility segment;

WHEREAS the Commission agrees with the telephone companies that there is no spare capacity associated with plug-in units, given that these units are installed only as required and, therefore, the Commission considers that the telephone companies' proposals to use their proposed methodologies for the assignment of costs associated with FOTS plug-in units are appropriate;

WHEREAS, given that NBTel has assigned all costs associated with FOTS equipment and facilities, including FOTS terminal and plug-in equipment installed on and after 1 January 1995, directly to the Competitive segment, and provided the company continues to do so, there would be no requirement to develop an assignment methodology for FOTS terminal equipment costs;

WHEREAS, although the provisioning intervals for FOTS terminal equipment are quite short, the Commission does not agree that spare capacity in terminal equipment is non-existent because, in some instances, all of the terminal equipment plug-in slots may not be equipped with plug-in units;

WHEREAS the Commission concludes that proper determination of FOTS terminal equipment spare capacity is essential in order to properly determine the portion of the total costs which can be assigned to the Utility segment and the incremental cost to provide Utility segment services (i.e., transfer price) and that, as a general principle, this determination should take into account the ultimate potential design capacity of the FOTS terminal equipment in relation to its actual proportional use by the Utility segment;

WHEREAS the Commission finds that, except for NBTel, the telephone companies' proposed assignment procedures for the costs associated with FOTS terminal equipment do not comply with the Decision 95-21 directive that all spare capacity of broadband-capable equipment and facilities must be assigned directly to the Competitive segment;

WHEREAS, notwithstanding the Commission's findings that, other than NBTel, the telephone companies' proposed procedures, as described above, do not comply with Decision 95-21, the Commission is prepared to accept for the purposes of producing 1995 and 1996 Phase III/SRB results on a timely basis, the telephone companies' proposed procedures for fibre cable placement and support structure costs and for FOTS terminal equipment costs;

WHEREAS the Commission considers that using the telephone companies' proposed procedures for 1995 and 1996, described in the preceding paragraph, would not have a significant impact on the telephone companies' local/access shortfalls in light of the fact (1) modifications to the telephone companies' proposed procedures would only affect a portion of the FOTS costs for 1995 and 1996 and (2) the total amount of FOTS investment proposed to be assigned to the Utility segment for 1995 and 1996 is not significant;

WHEREAS, in those instances where fibre is used jointly to provide Utility and Competitive segment services, as referred to earlier in this Order, the telephone companies are to use the rates for access to support structures approved in Access to Telephone Company Support Structures, Telecom Decision CRTC 95-13, 22 June 1995 (Decision 95-13), to account for the portion of the support structure costs for fibre used to provide Utility segment services;

WHEREAS the Commission concludes that, except for NBTel, the telephone companies are to file revised study methodologies to assign fibre cable placement and support structure costs in the same manner as the fibre cable material costs;

WHEREAS the Commission recognizes that, in applying the Decision 95-21 directive, all spare capacity of broadband-capable equipment and facilities must be assigned directly to the Competitive segment, it could be impractical and burdensome for the telephone companies to take inventory of the amount of spare capacity in FOTS terminal equipment;

WHEREAS, nevertheless, the Commission concludes that the telephone companies, except NBTel, are to file a revised methodology for the assignment of costs associated with FOTS terminal equipment that is practicable and will reflect the principle set out in Decision 95-21, i.e., all costs associated with spare broadband capacity must reside in the Competitive segment;

WHEREAS the Commission considers that, once approved, the aforementioned assignment methodologies will be used to produce the telephone companies' 1997 Phase III/SRB results;

WHEREAS, as noted above, in Decision 95-21 the telephone companies were directed to file proposed supplementary schedules with their actual and forecast Phase III results;

WHEREAS Bell, Island Tel, MT&T, NewTel and TCI filed proposed supplementary schedules and BC TEL, MTS and NBTel did not file any proposed schedules;

WHEREAS AT&T Canada and CCTA stated that the proposed supplementary schedules that were filed provided either insufficient detail on investment, expenses and transfer pricing, or insufficient information for a proper assessment, and proposed their own formats for the supplementary schedule;

WHEREAS the Commission considers that, while the supplementary schedule formats proposed by AT&T Canada and CCTA are too extensive and the suggested level of detail is not required for purposes of assessing the annual SRB results for broadband costs, on the other hand, the proposed supplementary schedules filed by Bell, Island Tel, MT&T, NewTel and TCI do not provide sufficient detail;

WHEREAS the Commission finds that the telephone companies, except NBTel, are to file proposed supplementary schedules;

WHEREAS, given that NBTel proposed to assign all broadband and FOTS investment to the Competitive segment, the company is not required to file the proposed supplementary schedule noted above, as long as the company continues to assign all new broadband-related costs to the Competitive segment;

WHEREAS the Commission notes the filing requirements set out on pages 71 and 72 of Decision 95-21;

WHEREAS the Commission notes that there was limited information provided by the telephone companies at the time they filed their January 1996 Phase III updates on tracking of revenue and cost streams that arise where the function or facility of one segment is also required by the other segment;

WHEREAS the Commission considers that further detailed information is required, as set out in Decision 95-21, in order to ensure the auditability of the SRB results;

WHEREAS CCTA raised several company-specific issues;

WHEREAS the Commission considers that, in general, CCTA's concerns are addressed in the requirements as set out in this Order;

WHEREAS CCTA submitted that TCI's definition of new broadband applications was too narrow in that the company's proposed Competitive Database would include, for fibre costs identified as assignable directly to the Competitive segment, only costs associated with spare fibre facilities and drop and distribution fibre facilities;

WHEREAS the Commission considers that feeder facilities are a significant component of the access network and notes that fibre feeder facilities could be used to deliver new broadband services to subscribers;

WHEREAS the Commission is of the view that TCI's definition of new broadband applications should also encompass fibre facilities in the feeder portion of the access network and as a consequence, TCI's cost assignment procedures for spare, drop and distribution facilities should also include fibre feeder cable facilities;

WHEREAS CCTA stated that TCI's costing treatment of coaxial cable facilities was unclear and that TCI should be required to clarify its assignment procedures to ensure compliance with Decision 95-21;

WHEREAS the Commission considers that, given that TCI does not own any coaxial cable facilities, no revisions to its proposed cost assignment procedures for coaxial cable facilities are currently required, but that any broadband coaxial-related costs incurred by the company in the future should be assigned entirely to the Competitive segment;

WHEREAS with respect to CCTA's comments regarding Bell's proposed broadband market trials in London, Ontario and Repentigny, Quebec, the Commission notes that Bell's applications to conduct these broadband trials are being addressed in a separate proceeding and that Decision 95-21 requires any investment and related expenses associated with broadband market or technical trials be assigned directly to the Competitive segment;

WHEREAS CCTA stated that BC TEL did not provide any information with respect to the proposed assignment of costs associated with broadband-related equipment and facilities such as ATM switches, video servers and coaxial cable; and

WHEREAS the Commission notes that, in accordance with Decision 95-21, BC TEL would be required to assign to the Competitive segment any future costs associated with ATM switches, video servers and coaxial cable facilities -

IT IS HEREBY ORDERED THAT:

1. Subject to items (a) to (k) below, the telephone companies' proposed broadband-related Phase III Update submissions filed in January 1996 are approved:

(a) the telephone companies' proposed procedures for the assignment of fibre cable placement and support structure costs and the FOTS terminal equipment and plug-in unit costs are approved for use in the production of 1995 and 1996 Phase III/SRB results;

(b) the telephone companies, except NBTel, are directed to file a revised methodology for the assignment of fibre cable placement and support structure costs in the same manner as the Phase III treatment of fibre cable material costs, in their respective 1997 Phase III Update submissions, as noted in item 4 below;

(c) the telephone companies, except NBTel, are directed to file a revised methodology for the assignment of the costs associated with FOTS terminal equipment, in their respective 1997 Phase III Update submissions, as noted in item 4 below;

(d) in instances where fibre is used jointly to provide Utility and Competitive segment services, the telephone companies are directed to assign all the investment and costs incurred in 1997 for the placement of that fibre and underlying support structures to the Competitive segment and to file tariffs for transfer prices, by 1 April 1997, using the access to support structure rates approved in Decision 95-13 to account for the portion of the placement costs for fibre used to provide Utility segment services;

(e) in instances where support structure facilities are used for fibre cable facilities in which individual fibre strands are used on a shared basis to transport both Utility and Competitive segment services, the telephone companies are directed to use transfer pricing;

(f) in specific instances where broadband overlay facilities would require the use of existing support structure facilities that were assigned to the Utility segment as of 1 January 1995, BC TEL, Bell, Island Tel, MT&T and NBTel are required to provide a detailed explanation as to why the Competitive segment should not pay the Utility segment the approved access to support structures rate in the event that they no longer consider this method to be feasible;

(g) the telephone companies are directed to file tariffs for transfer pricing, by 1 April 1997, to reflect instances where FOTS equipment and facilities are jointly used for the provision of both Utility and
Competitive segment services (regardless of whether the Competitive services are existing services or new broadband services);

(h) the telephone companies, except BC TEL, are directed to file, by 1 April 1997, a detailed description of the proposed methodology for tracking and reporting transfer price payments and, by the same date, the telephone companies, including BC TEL are directed to file a proposed level of detail for reporting the transfer price payments, including comments on the appropriateness of reporting the revenues and costs at a level of detail at which the transfer price tariffs are applied;

(i) the proposed supplementary schedules filed by Bell, Island Tel, MT&T, NewTel and TCI are denied;

(j) the telephone companies, other than NBTel, are directed to file, in their next Phase III Update submissions, proposed supplementary schedules to include (i) annual and cumulative broadband-related investment (to date), on a total basis and disaggregated by major equipment and facility components for both the Utility and Competitive segments, and (ii) annual broadband-related expenses, disaggregated by depreciation and maintenance/repair for each segment; and

(k) TCI is directed to include fibre feeder cable facilities in its cost assignment procedures for spare, drop and distribution facilities.

2. The telephone companies are to file 1995 audited Phase III/SRB results by 1 April 1997.

3. The telephone companies are to file 1996 audited Phase III/SRB results by 31 December 1997 subject to any determinations resulting from Price Cap Regulation and Related Issues, Telecom Public Notice CRTC 96-8, 12 March 1996.

4. The telephone companies, except NBTel, are directed to file, in their respective 1997 Phase III Update submissions, the revised study methodologies, as set out in paragraph 1, by 2 June 1997.

5. With respect to the filing requirements set out on pages 71 and 72 of Decision 95-21, the telephone companies are directed to file, by 31 March 1997, a proposed format for the tracking of revenue and cost streams at the level of detail at which the tariffs are applied.

6. The amended pages to the telephone companies' Phase III Manuals which are to include all updates approved in this Order as well as all updates approved in Telecom Order CRTC 96-862, 9 August 1996, as amended by Telecom Order CRTC 96-862-1, 23 August 1996, and Telecom Order CRTC 96-863, 9 August 1996 that are relevant to the production of the 1995 Phase III/SRB results, are to be filed by 31 March 1997.

7. Copies of the amended pages to the telephone companies' Phase III Manuals are to be served on their respective Phase III interested parties by the same date.

Allan J. Darling
Secretary General