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Telecom Order

Ottawa, 17 October 1997
Telecom Order CRTC 97-1490
On 28 February 1997, Bell Canada (Bell) filed for approval a Phase III/Split Rate Base (SRB) Update report for use in the production of its 1996 Phase III/SRB results.
File No.: 96-2202
1. The Phase III/SRB Manual Update report was filed, with explanations, in accordance with Proposed Revisions to the Phase III Manual Update Procedure, Telecom Letter Decision CRTC 89-26, 1 December 1989, Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, Review of Phase III of the Cost Inquiry, Telecom Decision CRTC 94-24, 18 November 1994 (Decision 94-24) and Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21).
2. Bell's Update report included proposed tariff classifications for new services; a new methodology for the assignment of Outside Plant - Copper investment (BSCC 73.070); a new methodology for the assignment of Outside Plant - Fibre for investment that existed as of 31 December 1994; the cancellation and merging of the existing Outside Plant - Fibre study for post-31 December 1994 investment (BSCC 73.072) with BSCC 73.070 to be called Outside Plant - Copper, Fibre and Structures, additions and deletions of field codes and other housekeeping matters related to the proposed investment study revisions.
3. On 21 March 1997, comments were filed by AT&T Canada Long Distance Services Company (AT&T Canada LDS) and by the Canadian Cable Television Association (CCTA) and on 4 April 1997, Bell submitted its reply.
4. In their comments, AT&T Canada LDS and CCTA claimed that Bell had provided insufficient detail and specifically had not provided adequate rationale on why certain studies needed to be updated and directional impacts had not been provided in accordance with the requirements of Decision 94-24 or sufficient assignment rationale for certain facilities.
5. In its reply, Bell submitted that it had met the requirements of Decision 94-24 by providing a full discussion of the rationale for each proposed change and noted that it had not included an assessment of the directional impact since it did not expect the proposed changes to be significant.
6. The Commission notes that Decision 94-24 defined significant changes to be those that modify category definitions or are expected to have a significant impact on contribution rates, competitive category results or the assignment of investment, revenues or costs by Broad Service Category (BSC).
7. The Commission also notes that Bell did provide the estimated impact on cost assignments for its proposed Outside Plant - Copper and Outside Plant - Fibre studies and the assignment of its investment in Walk-in Cabinets in its reply comments.
8. Based on the information submitted by Bell, the Commission considers that the proposed changes are not significant and that the level of detail provided by Bell is consistent with Decision 94-24.
9. AT&T Canada LDS and CCTA questioned why, after 14 years, Bell had reopened its Outside Plant - Copper study since the associated plant ratios in the past have been considered by Bell to be sufficiently stable as to not warrant revision.
10. Both AT&T Canada LDS and CCTA submitted that the proposed revisions were flawed since the allocation of toll-related investment field codes (included in the study) would be based on a methodology that relies on SRB ratios rather than the current procedure which assigns all of this investment directly to the Competitive segment.
11. In reply, Bell stated that the study, frozen since 1982, was reopened because it did not reflect adjustments for changes in the provisioning and use of copper cable facilities caused by Extended Area Service (EAS) expansion.
12. Bell indicated that the existing methodology did not reflect the fact that as fibre facilities were installed in the interoffice network, interoffice copper pairs were increasingly reassigned for use in the feeder portion of the access network or removed and retired and that the copper cable facilities currently remaining in the interoffice network are associated with LD-1 carrier technology, which has been rendered obsolete by the introduction of fibre optics.
13. With respect to the alleged inappropriate allocation of certain toll-related investment field codes, Bell stated that continued assignment of this investment directly to the Competitive segment would be inappropriate since a large portion of these facilities have been redirected for use in EAS trunks and Access (Utility segment) and submitted that the assignment of this investment was originally based on intended use and no adjustments were made for changes.
14. The Commission considers that the present Outside Plant - Copper investment study based on a Stentor settlement study frozen since 1982 is not representative of current usage and should be replaced.
15. The Commission notes that the new methodology assigns the investment to the SRB segments at the field code level on the basis of facilities and their use.
16. In the Commission's view, Bell's revised Outside Plant - Copper methodology is appropriate and more realistically takes into account the current use of network plant facilities.
17. The Commission notes that Bell has proposed a new methodology to assign Outside Plant - Fibre cable investment applicable only to existing aerial, underground, submarine and buried cable fibre investment in place as of 31 December 1994.
18. The proposed methodology assigns the investment to the Utility and Competitive segments based on a study of the company's fibre facilities and the services assigned to these facilities to replace the present procedure which assigns this investment to both segments in the same proportion as the fibre optics transmission system (FOTS) terminal working circuit assignments contained in the company's Fibre Optics Transmission System (BSCC 73.056) investment study.
19. The Commission notes that part of Decision 95-21 set out cost requirements for broadband-capable equipment and facilities (including FOTS equipment and facilities) placed in service after 31 December 1994.
20. Decision 95-21 also noted that existing fibre or other broadband-capable investments and related expenses assigned to the Utility segment on or before 31 December 1994 will remain so assigned.
21. The Commission notes that in their recent submissions in response to Telecom Order CRTC 97-144 with respect to proposed transfer pricing methodologies to account for inter-segment usage of broadband equipment and facilities, six of the Stentor member companies (all except Bell and TELUS Communications Inc. (TCI)) proposed to use transfer pricing for all broadband plant regardless of vintage.
22. The six Stentor members (other than Bell and TCI) proposed to assign all of the costs for FOTS equipment and facilities, including those placed in service prior to 1995, to the Competitive segment.
23. The Commission notes that Bell did not propose to assign all costs associated with pre-1995 FOTS equipment and facilities to the Competitive segment but did indicate that its proposed revised assignment procedures for Outside Plant - Fibre cable would apply to facilities placed prior to 31 December 1994 and that the assignments to the respective segments would be changed accordingly.
24. The Commission notes that the proposals set out in paragraphs 21 to 23 above have not yet been approved and considers that a full discussion of assignment methodologies and broadband transfer pricing proposals should take place before approving Bell's Outside Plant - Fibre cable investment assignment procedure.
25. As for the revision to the assignment of investment in Walk-In Cabinets in BSCC 73.070 (Outside Plant - Copper), the Commission notes that Bell established a new field code to track this type of investment and proposed to assign it entirely to the Utility segment since these cabinets contain cable vaults in the access network.
26. CCTA stated that the location of the cabinets is not relevant to the allocation of the associated investment and submitted that it would be more appropriate to assign this investment on the same basis as that associated with the cables running through these vaults, a method similar to that used to allocate other support structure costs such as poles and conduit.
27. CCTA also submitted that in order to confirm that the proposed allocation is appropriate, Bell should provide copies of its updated Accounting Manual pages that describe this investment and explain the changes in the network that necessitate the use of Walk-In Cabinets.
28. In reply, Bell stated that Walk-In Cabinets are placed in the access network and only house Utility segment facilities and that if the use of these facilities were to change in the future, the company would propose a new assignment methodology.
29. In the Commission's view, the Walk-In Cabinets are associated only with cables transporting Utility segment traffic and, accordingly, the associated investment should be assigned to the Utility segment.
30. The Commission notes that Bell indicated in its submission that it was in the process of re-engineering the Phase III/SRB process applicable to the 1996 and 1997 SRB results and that all Stentor Settlement Plan (SSP) studies have been frozen as a consequence of replacing the SSP with the new Stentor Settlement Arrangement wherein embedded investment studies are no longer performed.
31. CCTA stated that the use of frozen studies implies that a significant portion of Bell's investment would be allocated using studies that have not been updated and expressed concern about the accuracy of results using old and possibly unrepresentative data.
32. CCTA submitted that Bell should be directed to explain how it will ensure that the use of ratios derived from these frozen SSP studies remains appropriate and will reflect current usage.
33. In reply, Bell stated that it shared CCTA's concern and that, as part of its SRB re-engineering initiative, it plans to propose and implement revised study methodology for the SRB study of 1997.
34. The Commission notes that the changes introduced by Bell, as a result of its SRB re-engineering initiative for the SRB study of 1996, relate primarily to operating expense and Bell has indicated that it plans to introduce the balance of its proposed changes, related mainly to investment studies, for the SRB study of 1997.
35. Although Bell has not yet filed its update submission outlining its proposed changes to various investment studies, the Commission concurs that an alternate methodology will be required with the elimination of updates to the SSP studies.
36. Although the revised study methodologies submitted in this application are applicable to the production of the company's 1996 Phase III/SRB results, the Commission notes that these results will not be filed until 31 December 1997 but will be incorporated in Bell's forecast of its 1997 Phase III/SRB results to be used to establish the going-in rates under the price caps regime commencing 1 January 1998.
37. In the Commission's view, Bell's response to the concerns raised by CCTA is satisfactory.
38. In light of the foregoing, the proposed Phase III/SRB Manual update report, except for the proposed Outside Plant - Fibre investment study, filed by Bell is approved.
39. The Commission will address Bell's Outside Plant - Fibre investment study proposal as part of its assessment of the Stentor companies' submissions on transfer pricing pursuant to Telecom Order 97-144.
40. The amended pages to the Phase III/SRB Manual of the company which are to include all updates approved in this Order that are relevant to the production of the 1996 Phase III/SRB results, are to be filed with the Commission within 30 days of the date of this Order.
41. Copies of the amended pages to Bell's Phase III/SRB Manual are to be served on interested parties by the same date.
Laura M. Talbot-Allan
Secretary General
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