ARCHIVED -  Telecom Decision CRTC 98-22

Ottawa, 30 November 1998

Telecom Decision CRTC 98-22

FINAL RATES FOR UNBUNDLED LOCAL NETWORK COMPONENTS

File Nos.: 8740-S1-0516/97 and
8740-T10-0948/97

TABLE OF CONTENTS
Paragraph Numbers
SUMMARY

I.BACKGROUND 1

II.DISPOSITION OF TARIFF FILINGS 4

1.Loop Rate Comparisons 4
1.1 Benchmarking 4
1.2 Subjective Factors 15

2.Unbundled Loop Costs and Rates 22
2.1 Economic Study Methodology 22
2.2 Cost Inclusions 54
2.3 Rates Where no CLEC Demand has Been Forecast 87
2.4 Integrated Digital Loop Carrier (IDLC) System Issues 92

3.Loop Service Charges and Connecting Link Service Rates 121
3.1 Loop Service Charges 121
3.2 Connecting Link Service Rates 140

4.Other Matters 158
4.1 Type C Loops 158
4.2 Interexchange Carrier Access to Unbundled Loops 163

4.3 Bundled Service Offerings 166
4.4 Imputation Test Issues 169

4.5 CCS7 Signalling Services 170
4.6 Industry Notification Service 178
4.7 Other Unbundled Components 184

III.IMPLEMENTATION 186

ATTACHMENT

SUMMARY

This Decision establishes final rates for the unbundled components granted interim approval in Decision 97-8.

Pursuant to Decision 97-8, these rates are set to recover the associated incremental costs, including a mark-up of 25%.

Determinations concerning rates for the unbundled components reflect several cost adjustments required to remove certain cost inconsistencies among incumbent local exchange carriers (ILECs), along with modifications to certain cost methods and assumptions used to determine the ILECs' unbundled loop costs. The cost adjustments relate primarily to the following: (a) the use of the discounted service potential approach to calculate the terminal value of plant at the end of the study period (section 2.1.3); (b) the use of lengthened plant lives (section 2.1.5); (c) reductions to the forecast of certain operational expenses such as billing and collection (section 2.2.1); (d) for BC TEL, Island Tel and MT&T, the inclusion of additional productivity improvements for certain expenses (section 2.2.2); (e) the inclusion of cost reductions for integrated digital loop carrier (IDLC) system costs (section 2.4.2); (f) reduced loop service charges (section 3.1); and (g) reduced connecting link charges (section 3.2). The approved rates for the unbundled components determined in this Decision are provided in the Attachment.

BC TEL, NBTel, Island Tel and NewTel proposed to offer loops served from IDLC systems at the ILEC's remote serving module, while Bell, TCI, MTS and MT&T proposed to provision loops to competitive local exchange carriers (CLECs) at the wire centre in such cases. BC TEL, NBTel, Island Tel and NewTel submitted that the total capital costs of the required IDLC overlay systems to permit loop extraction at the wire centre would be prohibitive, equivalent to a monthly surcharge of between $1 to $6 per subscriber. Consistent with Decision 97-8 directives, with the exception of NBTel, loops are to be provided on a common basis at the wire centre level. Due to the excessive cost impacts of the IDLC overlay network solution for NBTel, NBTel will not be subject to this requirement at this time. Loops that would otherwise be served from IDLC systems in NBTel's territory are to be made available at the remote serving module as proposed by NBTel. The availability of loops to CLECs at NBTel's wire centres will be addressed in response to a CLEC request for access at a wire centre for IDLC loops within NBTel's territory.

I BACKGROUND

1.On 30 July 1997, Stentor Resource Centre Inc. (Stentor), under Tariff Notice (TN) 516, filed its proposed tariff pages and supporting cost information for Type A and B local loops, CCS7 interconnection, connecting links for co-location, Central Office Code Administration, Message Relay Service (MRS) and 9-1-1 Service (collectively, the unbundled components) on behalf of BC TEL, Bell Canada (Bell), The Island Telephone Company Limited (now called Island Telecom Inc.) (Island Tel), Maritime Tel & Tel Limited (MT&T), MTS NetCom Inc. (MTS), NBTel Inc. (NBTel) and NewTel Communications Inc. (NewTel) as directed by the Commission in paragraph 136 of Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8). On 30 September 1997, Stentor, under TN 516A, filed revised proposed Type A and B unbundled loop rates and costs for Island Tel and MTS. On 30 July 1997, TELUS Communications Inc. (TCI), under TN 948, filed its own tariff pages for the unbundled components. On 23 January 1998, TCI, under TN 948A, filed revised proposed Type A and B unbundled loop rates and costs to reflect revisions to its rate band structure.

2.A Type A loop is an analogue transmission path which extends from the customer network interface to the incumbent local exchange carrier's (ILEC's) loop termination point (i.e., the distribution frame or other designated distribution device located in the ILEC's central office building or equivalent) and supports the transmission of a voice-grade signal of approximately 3 kHz usable bandwidth. A Type B loop is a digital transmission path which extends from the customer network interface to the ILEC's loop termination point and supports the transmission of an Integrated Services Digital Network (ISDN) basic rate interface type signal.

3.Comments were submitted by Call-Net Enterprises Inc., (Call-Net), MetroNet Communications Corp. (MetroNet), AT&T Canada Long Distance Services Company (AT&T Canada LDS), Clearnet Communications Inc. (Clearnet) and Canadian Cable Television Association (CCTA) on 9 March 1998. Stentor filed reply comments on 30 March 1998 on behalf of all Stentor companies, including TCI.

II DISPOSITION OF TARIFF FILINGS

1. Loop Rate Comparisons

1.1 Benchmarking

4.In its comments, Call-Net presented comparisons of the proposed unbundled loop rates to various benchmarks, including United-States (U.S.) loop rates. Call-Net also submitted that, based on a cursory analysis of the different factors that affect costs for unbundled loops in Canada and the U.S., there is no significant difference between U.S. and Canadian cost drivers. Call-Net concluded that its tables illustrate that the proposed unbundled loop rates are unreasonable.

5.In response, Stentor noted that, in order to perform a meaningful benchmarking analysis, it is important to compare like elements to like elements. Stentor submitted that although the capital components and operational procedures to provision unbundled loops in the U.S. and Canada may be similar, the costs of provisioning unbundled loops may vary dramatically between the two countries. These differences are due to factors such as differences in supplier prices, labour costs, loop density, loop lengths, network/geographic terrain and differences in costing methodology. Stentor submitted that indeed, it is just such factors that lead to differences in costs and consequently prices among the ILECs. In addition, differences in climate and terrain between Canada and the U.S. are well known and these differences will affect dramatically the costs associated with installing and maintaining unbundled loops.

6.The Commission considers that the significant factors affecting loop costs are loop length, loop density, supplier prices and labour costs. The Commission considers that a significant degree of variability among the ILECs may exist with respect to supplier prices and labour costs and that similar variability may arise with U.S. comparisons. The Commission further considers that Call-Net has presented no data which illustrates that the average loop length and density associated with its U.S. examples are similar to the loop lengths and densities for its Canadian examples. The Commission concurs with Stentor that Call-Net has not provided information from which one could conclude that the U.S. data represents a meaningful reasonableness check of the proposed unbundled loop rates.

7.The Commission further considers that there are numerous other factors that affect unbundled loop costs. These include the feeder/distribution ratio, the cable construction mix for feeder and distribution (i.e., aerial, buried and underground), the circuit mix (i.e., copper loaded or unloaded, pair gain systems) and cable gauges and sizes, along with adjustments for loops that are deployed on integrated remote systems.

8.Based on its own comparisons of the ILECs' unbundled loop costs with cost estimates for retail primary exchange service (PES), Call-Net submitted that Bell's and MTS' unbundled loop costs do not have the same relationship to retail service costs as the other ILECs. Call-Net accordingly proposed that, in addition to other cost changes, the Commission make a 20% downward adjustment on a band-by-band basis to the cost per loop resulting from Bell's and MTS' loop costing process.

9.In response, Stentor submitted that this downward adjustment should be rejected. Stentor first noted that the information recently submitted to the Commission comparing the band-by-band unbundled loop costs with the corresponding band-by-band access portion of Bell's PES costs was filed in confidence. Stentor further submitted that, when the impact of the incremental capital required to extract loops served through integrated digital loop carrier (IDLC) systems and the additional operating expenses associated with competitive local exchange carriers (CLECs) are excluded, Bell's unbundled loop costs are similar in magnitude to the access portion of Bell's PES costs. Stentor also submitted that similar conclusions would be maintained for MTS.

10.The Commission concurs with Stentor's analysis that the proposed unbundled loop costs are similar in magnitude to the access portion of Bell's PES costs when the impact of the incremental capital required to extract loops served through IDLCs and the additional operating expenses associated with CLECs are considered. As a result, the Commission does not consider that a 20% downward adjustment to Bell's and MTS' loop costs would be justified.

11.In its comments, MetroNet submitted that the cost of providing a loop in rate band A and in rate band B should be the same or very close, and that in those rate bands where new entrants may provide their own loops, the ILECs have proposed significantly lower unbundled loop rates.

12.In response, Stentor noted that the unbundled loop cost characteristics were determined based on a sample of loops by geographic rate band, where the loop sample indicated that the average loop length and average loop characteristics (feeder/distribution ratio, cable construction mix, circuit mix, etc.), varied significantly by rate band.

13.The Commission disagrees with MetroNet's submission that the cost of providing a loop in rate band A and rate band B should be expected to be the same or very close. As discussed above, loop costs can vary due to a number of factors such as loop length, loop density, supplier prices, labour costs and loop characteristics, and, as a result, the loop costs filed by the ILECs can be expected to vary among rate bands and across ILECs.

14.The Commission is of the view that in order to undertake a valid benchmarking approach to assess the reasonableness of the proposed unbundled loop rates, it would be necessary to compare like components to like components. The Commission considers that the interveners' various comparisons of the proposed unbundled loop rates to various retail rates and to various rates for loops in the U.S. do not provide a like-to-like comparison and thus are of little value in determining the reasonableness of the proposed unbundled loop rates. The Commission therefore does not find it appropriate to make an adjustment to the proposed rates for unbundled loops on the basis of the interveners' benchmarking submissions.

1.2 Subjective Factors

15.In their comments, AT&T Canada LDS and Call-Net submitted that broadly-based entry cannot occur at the unbundled loop rates proposed in this proceeding. Call-Net submitted that, based on the proposed rates, CLECs would be unable to economically provide local service to residential and small business markets, and with the retail rates and portable subsidy levels already established, rates for the ILECs' unbundled loops, if left unadjusted, would effectively bar competitive entry. Call-Net urged the Commission to critically scrutinize the costing information and, where it must exercise its judgment, to err on the side of facilitating competitive entry.

16.Call-Net also submitted that, based on its analysis of the potential revenues in residential areas and the costs to serve those areas, CLECs and ILECs alike would be unable to offer residential service if forced to bear these costs. Call-Net concluded that the Phase II costs used as the basis to set proposed loop rates are overstated in an effort to prevent CLECs from entering residential markets. Call-Net submitted that its inability to take advantage of the economies of scale associated with entry into the residential market could mean that Call-Net's entry into the small business market would become non-viable.

17.In response, Stentor submitted that Call-Net's analysis is flawed and represents yet another attempt to gain implicit price discounts. Stentor noted that Call-Net's analysis includes customer order charge costs without including the impact of any offsetting revenue stream, and that the impact of removing the customer order charge costs would mean that the total revenues would exceed total costs for all cases provided, with the exception of Bell's rate bands B, C and D examples and BC TEL's rate band D example.

18.Stentor further submitted that Call-Net's analysis fails to take into account the reasons why potential CLECs, especially integrated local and toll carriers such as Call-Net and AT&T Canada LDS, would enter the local residential market. Stentor submitted that since these carriers may enter the local residential market in order to increase their base of toll service subscribers, the analysis should also include forecast net additional revenues, including contribution, due to the potential entrants' entry into the local residential market.

19.Stentor also noted that Call-Net's comments concerning the reasonableness of the ILECs' proposed unbundled loop rates are premised on the assumption that residential rates recover the costs associated with providing residential services. Stentor submitted that this is a false assumption since, as adduced in numerous past proceedings, revenues for residential PES do not recover the costs of providing the service. Stentor submitted that therefore, conclusions regarding the reasonableness of the proposed unbundled loop rates based on comparisons with retail rates for residential service cannot be drawn.

20.Stentor further submitted that, in any event, what is at issue in this proceeding is whether or not the proposed unbundled loop rates are equal to the Phase II costs plus 25% in accordance with the Commission's directives contained in Decision 97-8.

21.The Commission concurs with Stentor that setting rates at the level required to make entrants profitable, if that level is below appropriate Phase II costs, would not encourage economically-efficient entry and would only serve to subsidize entrants. The Commission considers that the proper focus of this proceeding is to finalize the unbundled rates for local competition, in accordance with the principles set out in Decision 97-8. Accordingly, in this proceeding, the Commission must be satisfied as to the appropriate level of Phase II costs incurred by the ILECs in their provision of the unbundled components which are the subject of this proceeding.

2. Unbundled Loop Costs and Rates

2.1 Economic Study Methodology

2.1.1 Overall Study Approach

22.A number of interveners questioned the motives of Stentor in conducting the economic studies filed in support of the ILECs' proposed rates for the unbundled components. These interveners submitted that, for various reasons, the ILECs have a clear incentive to inflate loop costs and rates. Call-Net further submitted that ILECs have not been as diligent in investigating possible areas where unbundled loop costs may be lower than retail costs as they have been in assessing every conceivable area where loop costs may exceed retail costs.

23.Stentor submitted that the filed cost studies follow the Phase II methodology and directives stated in Inquiry into Telecommunications Carriers' Costing and Accounting Procedures - Phase II: Information Requirements for New Service Tariff Filings, Telecom Decision CRTC 79-16, 28 August 1979 (Decision 79-16) and reflect the prospective, incremental costs associated with the unbundled local network components. Stentor noted that the cost studies reflect a five-year study period, the use of an all-carrier approach, the net book value (NBV) end-of-study treatment, and incorporate productivity through the costing of growth technologies and the application of a productivity factor to expenses. Stentor further submitted that the proposed rates developed for the unbundled local network components represent Phase II costs plus a 25% mark-up, in accordance with Decision 97-8.

24.Stentor also stated that in a competitive market, the ILECs would have no incentive to establish an unrealistically high floor price, since unbundled loop rates that are too high would encourage CLECs to seek alternative sources of supply.

25.The Commission notes that the loop cost studies filed by the ILECs have been subjected to close scrutiny during this proceeding. The Commission is of the view that these cost studies, along with the supplemental information including cost sensitivity requests furnished in response to numerous interrogatories, are sufficient to render an informed decision regarding the appropriate level of rates.

2.1.2 Cost of Equity

26.A number of interveners noted that the loop costing studies did not make use of the mid-point of the allowed Utility segment return on equity (ROE) range. For instance, CCTA noted that the values of the ROE used by the ILECs to set the proposed rates are different from the values for the Utility ROE set in Implementation of Price Cap Regulation and Related Issues, Telecom Decision CRTC 98-2, 5 March 1998 (Decision 98-2). The interveners commenting on this issue proposed that, consistent with past precedents, the rate components proposed in this proceeding should be set based on the level of the rates that would result from using the Utility segment ROE levels approved in Decision 98-2.

27.In response, Stentor noted that the Commission's determinations regarding the Utility segment ROE levels in Decision 98-2 are for a 1997 test year and that the cost of capital used by the ILECs to determine the proposed rates contained in this proceeding reflects the ILECs' projection of the forward-looking expenditures they will incur to raise sufficient capital to provision the forecast levels of demand. Stentor submitted that the midpoint of the allowed Utility segment ROE range from Decision 98-2 has no bearing, therefore, on this cost of capital, since the ILECs are no longer regulated on a rate-of-return basis.

28.The Commission notes that the ILECs' Utility segment ROE level of 11% approved in Decision 98-2 was intended to approximate the cost of equity for the Utility segment at the outset of the four-year price cap period. The Commission considers that the Utility segment ROE of 11% represents an appropriate estimate of the cost of equity over the study period.

2.1.3 Terminal Value Calculation

29.Directive 5.9 of Decision 79-16 currently mandates that Phase II cost studies supporting all tariff filings calculate the end-of-study terminal value of capital based on the NBV method. This method assigns the NBV of the capital plant at the end of the study period.

30.Both CCTA and Call-Net proposed that the end of study terminal value calculation be based on the discounted service potential (DSP) approach to compute the costs used to set loop rates. The differences between the DSP and NBV methods arise as a result of the recognition of the time value of money under the DSP approach.

31.Stentor noted that in the proceeding associated with Phase II Costing Issues, Telecom Public Notice CRTC 95-19, 20 April 1995 (PN 95-19), it has recommended that Directive 5.9 be changed to require the use of DSP to calculate the terminal value of capital at the end of the study period. Stentor, however, submitted that since a decision on PN 95-19 has not yet been rendered, Phase II cost studies are still being done using the NBV methodology as required by Directive 5.9, and the costs used to set the proposed unbundled loop rates are consistent with the Phase II costs used to support pricing in studies done since 1979. Stentor also submitted that competitive equity calls for the use of consistent methodology. Stentor further submitted that the Call-Net recommendation calls for the Commission to make a decision on the NBV versus DSP issue before it and other Phase II issues are fully evaluated in the PN 95-19 process.

32.The Commission notes that Phase II cost studies supporting all tariff filings currently rely on the NBV methodology as mandated in Directive 5.9 of Decision 79-16 and that Stentor has determined the loop costs in accordance with such directives. The Commission also notes that the NBV methodology causes the annual equivalent costs to be higher compared to the economic costs calculated under the DSP approach.

33.The Commission notes that this specific Phase II issue was raised in the PN 95-19 proceeding. In that proceeding, none of the interested parties objected to Stentor's proposed end-of-study terminal value calculation based on the DSP approach. The City of Calgary commented that the Commission has approved this approach for Telesat Canada and that it does not object to the use of this method for determining the terminal value at the end of the study period.

34.In the PN 95-19 proceeding, Stentor submitted that the DSP approach is appropriate because: (1) the terminal value produced by the DSP approach is consistent with the remaining value of each individual resource as computed in a resource cost study, whereas the value produced by the NBV method is not; (2) the annual equivalent cost (AEC) of a capital item of plant is independent of the selected study period when the DSP approach is used whereas when the NBV method is used, the choice of the study period affects the AEC; (3) the DSP approach incorporates the time value of money in the evaluation of terminal value whereas time value of money is not considered when the NBV method is used; and (4) the DSP approach produces an end-of-study value which is consistent with the principle of opportunity cost, whereas the value produced by the NBV method is consistent with financial reporting requirements.

35.In the PN 95-19 proceeding, Stentor concluded that the end-of-study value computed using the DSP approach is based on economic principles and is preferred over the NBV method for purpose of Phase II studies. Stentor submitted that, accordingly, Directive 5.9 of Decision 79-16 should be changed to require the use of the DSP approach in Phase II costing in place of the currently-mandated NBV method.

36.The Commission agrees with Stentor that the proposed DSP method provides an appropriate economic measure of remaining plant value for the end-of-study terminal value to be used in Phase II costing studies, since, contrary to the NBV method, it relies on economic principles.

37.The Commission further notes that the intervening parties commenting on this issue in this proceeding proposed use of the DSP approach to calculate the end-of-study terminal values for the unbundled loop cost studies.

38.In light of the foregoing, the Commission modifies Directive 5.9 to read: "For plant and equipment resources that continue to be useful beyond the study period, terminal values at the end of the study period shall be equal to the unamortized value of capital calculated in accordance with the discounted service potential (DSP) approach." Accordingly, the DSP approach has been used by the Commission in this Decision for the end-of study terminal value calculation to determine unbundled loop costs.

2.1.4 Study Period

39.Stentor used a five-year study period to determine the proposed unbundled loop costs. Most interveners contended that a ten-year study period would be more suitable to capture the significant cash flows associated with the unbundled loops and to recognize the future productivity of capital cash flows.

40.Call-Net submitted that the provisioning of unbundled loops by the ILEC to its own end-customers beyond the five-year study period is a reason for running a study longer than five years. Call-Net also noted the reduction in the cost per unit which results from the use of a ten-year study period instead of a five-year period.

41.Stentor noted that in a competitive environment, study periods are often shorter, reflecting the fact that it is not feasible to make meaningful ten-year forecasts. Stentor submitted that this is of particular concern where the option of self-supply and the amount of time that essential facilities will remain essential is highly uncertain. In light of the new competitive environment for local services, which increases the risk of these services, Stentor submitted that a five-year study period is the most appropriate for the unbundled loop studies. Stentor also noted that the expected market share loss to CLECs reaches close to 15% to 20% for some ILECs by the fifth year. Stentor further submitted that despite the assertions by some interveners, all the significant cash flows associated with unbundled loops have been captured in the five-year study period.

42.Stentor also submitted that the decrease in the per-unit unbundled loop costs between the five-year and ten-year studies is not a reflection of the additional productivity impacts on capital beyond the initial five years, but instead reflects the impact of using the end-of-study terminal value calculation based on the NBV method. Under the NBV method, the annual equivalent costs decline with a longer study period.

43.The Commission agrees with Stentor's claim that the decrease in the per-unit unbundled loop costs between the five-year and ten-year studies is not a reflection of the additional productivity impacts on capital beyond the initial five years. Rather, the per-unit cost decrease primarily reflects the impact of using the end-of-study terminal value calculation based on the NBV method. Given that, as set out in section 2.1.3, the DSP approach to calculate the end-of-study terminal value is being adopted, the Commission considers that the per-unit unbundled loop costs based on a five-year study period would not be appreciably different from costs based on a ten-year study period.

44.The Commission notes that some of the ILECs submitted that certain costs associated with IDLC overlay network systems are non-fungible. The Commission notes that to the extent that the IDLC overlay system costs are non-fungible, the per-unit costs would vary, depending on the length of the study period. The Commission considers that a five-year study period represents a suitable time frame to reflect the IDLC overlay system costs associated with the provision of the unbundled loop service.

45.In light of the above, the Commission is of the view that a five-year period represents an appropriate study period to determine the unbundled loop costs.

2.1.5 Economic Service Lives and Average Working Fill Factors (AWFF)

46.The economic lives for the major prospective loop capital plant used in the unbundled loop cost studies ranged from 10 years for copper feeder up to 20 years for copper distribution. Most interveners submitted that the economic life estimates assumed for the loop plant are too short. The Commission notes that information related to the AWFF was filed in confidence and that no intervener comment was submitted concerning this matter.

47.Call-Net recommended the use of economic lives for copper feeder and copper distribution of at least 16 and 22 years, respectively. CCTA indicated that an appropriate proxy for the economic life of these assets is the average service life (ASL), since an ASL approved by the Commission takes into account changes in cost and technology and is generally much shorter than an asset's historical life. CCTA noted that, for the same reasons, the U.S. Federal Communications Commission also uses information approved for depreciation purposes in its economic models. CCTA also submitted that the Commission's determinations on depreciation life characteristics in Decision 98-2 (i.e., the Decision issued pursuant to the proceeding associated with Implementation of Price Cap Regulation, 1997 Contribution Charges and Related Issues, Telecom Public Notice CRTC 97-11, 25 March 1997 (PN 97-11)) are the result of a comprehensive review of the ILECs' Utility assets. CCTA submitted that for all these reasons, the ASLs approved in Decision 98-2 should be used in the Stentor loop cost study.

48.Stentor noted that the economic life of an asset for the purposes of economic analyses under Phase II reflects the expected service life of equipment to be placed in the future. Stentor submitted that while it is true that the accounting plant lives (or ASLs) determined by the Commission in the PN 97-11 proceeding take into account technology substitution and reflect obsolescence, they still, nonetheless, apply to embedded plant, making them unsuitable for prospective studies.

49.The Commission notes that the determination of economic study plant lives involves a complex analysis of factors such as the physical asset life and technology substitution, in order to arrive at the appropriate balance between physical survivability and obsolescence. As a result, plant life estimates within the context of an economic study may be subject to a fair degree of variability. For example, Bell's estimate provided in this proceeding for the economic life of copper-distribution plant was revised downwards to 14 years, from the previous estimate of 18 years.

50.The Commission notes that its determinations concerning accounting plant lives (or ASLs) in Decision 98-2 involved a comprehensive review of the ILECs' Utility assets. The Commission further notes that there is a common conceptual basis for the ILECs' assumed economic lives and the accounting lives as recently approved in Decision 98-2, in that they both reflect estimates of local assets' physical lives, along with adjustments to reflect the impact of obsolescence and technology substitution.

51.In light of the above, the Commission considers it appropriate to use economic lives equal to the accounting service lives approved in Decision 98-2. Under these changes, using Bell's loop cost study as an example, the proposed economic life estimates for copper-feeder plant of 10 years and for copper-distribution plant of 14 years are revised to within the range of 16-21 years.

52.The Commission notes that BC TEL's AWFF associated with copper-distribution plant is significantly lower than any other AWFF estimate submitted in this proceeding. BC TEL stated that this AWFF estimate for its copper-distribution plant is an average of the tracked actual values. The Commission notes that loop capital costs were determined using the capacity costing approach, and through the use of the AWFF, this costing approach apportions the non-service-producing capacity to the per-unit cost of the service-producing capacity.

53.For the purpose of determining BC TEL's unbundled loop costs, the Commission finds BC TEL's copper-distribution plant AWFF estimate to be too low compared to other ILECs. The Commission finds that the AWFF estimate submitted by Bell, TCI, NBTel and NewTel for copper-distribution plant, would also be appropriate for BC TEL and should be used to estimate the AWFF associated with copper-distribution plant in BC TEL's territory.

2.2 Cost Inclusions

2.2.1 Functional Operating Expense Inclusions

54.In determining functional operating expenses (FOEs) related to service provisioning and billing and collection, the ILECs relied on corporate averages for its retail business customers.

2.2.1.1 Billing and Collection

55.The billing and collection (B&C) expenses represent the most significant FOE component of the ILECs' proposed monthly unbundled loop costs. Although similar per loop B&C expenses were forecast for all ILECs in the initial July 1997 filing, a revised B&C expense estimate subsequently provided by BC TEL based on updated cost information, reflected reductions in excess of 50%. The Commission notes that the B&C activities submitted by most ILECs are broken down into the following major categories: Process Billing Information, Process & Mail Statements Handle Billing Inquiries, Receive & Process Regular/Irregular Payments and Collect Overdue/Final Accounts.

56.Interveners, Call-Net in particular, made extensive submissions in their argument over the inclusions of FOEs and levels of inclusions that would be required in the provision of unbundled loops vis-à-vis retail exchange services. Call-Net's primary argument was that B&C is likely to be an important source of economies. In addition, Call-Net submitted that there are likely to be greater efficiencies in serving CLECs than in serving other large customers, given the greater sophistication of a CLEC relative to a typical retail customer, as well as efficiencies that will be achieved as a result of the detailed work being done on inter-carrier processes in the CRTC Interconnection Steering Committee (CISC). Call-Net further submitted that a CLEC's greater sophistication compared to a large business customer will result in economies related to handling billing inquiries and collection activities.

57.Stentor noted that there may be efficiencies in terms of mailing out invoices and receiving payments, but anticipated that these efficiencies would be offset by additional time related to billing queries and adjustments. Stentor also questioned Call-Net's assertion of economies in processing billing information and mailing and/or distributing statements, given that the final procedures for billing CLECs have not been finalized by the CISC. Stentor submitted that it expects that the billing information required for CLECs will be much more detailed than that of a business primary exchange service customer. Stentor submitted that, given that the finalized B&C procedures could possibly involve additional complexities not identified in the study, the cost estimate for retail services is a reasonable proxy.

58.Stentor submitted that there will be no economies realized in the area of handling billing inquiries and collection activities. Stentor noted that more inquiries related to billing inquiries from CLECs are expected compared to large business customers, especially considering that additional information will likely be contained on the bills. Stentor also submitted that the experience to date with large Carrier Services Group customers does not indicate the existence of the economies that Call-Net asserts.

59.The Commission notes Stentor's admission that ILECs have relied on corporate averages for their retail business customers as approximations of the B&C expenses which will be incurred in servicing CLECs, in the absence of experience in providing loops. The Commission is of the view that significant reductions in the B&C expense forecasts can be expected in the areas of Process & Mail Statements, Handle Billing Inquiries, and Collect Overdue/Final Accounts.

60.The Commission notes that the Process & Mail Statements expenses include the cost of stamps. This element should be reduced with respect to the CLEC offering. The Commission notes Stentor's admission that efficiencies may arise in terms of mailing out invoices and receiving payments.

61.With respect to handling billing inquiries and collection activities, the Commission concurs with Call-Net's submission that there are likely to be greater efficiencies in serving CLECs than in serving other large customers, due to the greater sophistication of CLECs relative to a typical retail business customer, as well as efficiencies that will be achieved as a result of the detailed work being done in the CISC on inter-carrier processes.

62.The Commission also considers that the proposed expense estimate for the activity Collect Overdue/Final Accounts is more reflective of an expense that is expected in providing service to a retail customer as opposed to the collection of overdue/final accounts from CLECs.

63.The Commission further notes that, under the all-carrier approach, the B&C expense estimates should represent a blended cost of the B&C activities associated with the combined CLEC and ILEC loop demand.

64.While the costing of the B&C function associated with CLEC demand is addressed through the use of the ILECs' retail business experience, along with certain adjustments to account for differences in providing unbundled loop service to CLECs, the Commission does not consider that the proposed costing of the B&C function associated with ILEC demand properly accounts for the removal of the retail B&C activities embodied in the ILECs' business PES cost estimates. The Commission considers that many, if not most, of the current B&C operations may be the result of considerations concerning B&C practices which apply in respect of end-customer billing.

65.The Commission considers that BC TEL's updated view of B&C expenses, which reflects reductions in excess of 50% from the initial July 1997 forecast based on business retail experience, provides further indication that B&C expenses associated with unbundled loop service are significantly less than those associated with business retail PES.

66.In light of the foregoing considerations, the Commission determines that the B&C expense forecast should be reduced to $0.90 for both loop Types A and B, within all rate bands and across all ILECs.

2.2.1.2 Service Provisioning and Maintenance

67.Call-Net submitted that most FOE activities should be reduced or eliminated from the unbundled loop cost estimates. Call-Net claimed that the following service provisioning activities should be excluded from the loop cost studies: assignment of lines, service order-testing and coordination, development of and operation of order fulfillment systems, order fulfillment - technical services and control and dispatch.

68.Stentor noted that retail services are provisioned using fully mechanized processes oriented towards the integration of bundled voice services and that these service-provisioning routines provide contiguous provisioning of orders from origination through to network activation. As a result, minimal intervention to the field and distribution frame work is required in cases where discrepancies are noted.

69.Stentor submitted that in the case of unbundled loops, however, additional coordination and provisioning is required because of the more intensive processes necessary to unbundle the loop component from the associated switching component. Stentor submitted that the additional intervention required at a number of steps in the provisioning process is reflected in the additional cost elements. Stentor also noted the additional activity required to coordinate the CLEC's inward order for the loop with the associated out order for the end-customer's present local service. Stentor submitted that it is important that the expenses related to these incremental service provisioning operations be identified, as they will be incurred by the ILECs. Stentor noted that because the associated per-unit expenses have been determined based on the all-carrier demand, they represent a small proportion of the total costs per loop, but are nevertheless significant, when viewed in total.

70.The Commission finds the ILECs' per loop service provisioning expense forecasts to be reasonable.

71.With respect to the proposed maintenance expenses, the Commission finds MTS' and TCI's maintenance expense forecasts to be too high compared to those of other ILECs. The Commission is of the view that MTS' and TCI's maintenance expense forecast, expressed as a percentage of the total capital loop plant, should not exceed 10%. Accordingly, where MTS' and TCI's proposed maintenance expense forecast exceeds 10% of the total capital loop plant, the Commission finds it appropriate to reduce this maintenance expense estimate to a level of 10% of the total loop plant capital.

2.2.1.3 Incremental Operations

72.The incremental operations causal to the provision of loops to CLECs identified in the unbundled loop studies include a number of activities such as the re-direction of CLEC Repair Calls, handling of CLEC customer calls at the Repair Service Bureau, the costs associated with a CLEC loop trouble report, cost of additional time required to coordinate restoration activity with the CLEC (includes repair, testing, verifying customer wire-outs, etc.) and the cost of additional time to coordinate cable re-arrangements with the CLEC such as road moves, cable relocation, etc.

73.With respect to the above-mentioned incremental operations, Call-Net submitted that the use of retail FOEs as a proxy for the inclusion of costs causal to the provision of loops to CLECs results in an overestimation of costs. Call-Net generally recommended that the incremental operation costs be reduced or excluded entirely from the unbundled loop cost estimates.

74.The Commission considers that Stentor's costing assumptions and expense estimates for the incremental operations required to provide CLEC loops, which mostly rely on the FOE experience developed for retail exchange services, are reasonable. While the expenses associated with these operations are small, they are nonetheless costs which, in the Commission's view, should be included in the unbundled loop service costs.

2.2.1.4 Other FOEs

75.Call-Net generally submitted that there are a number of other FOEs and/or incremental operating expenses that are not applicable, either in whole or in part, to the provision of unbundled local loops for CLECs and that therefore result in an over-estimation of costs. Call-Net proposed that the ILECs' incremental operating expense forecasts be reduced or excluded entirely from the unbundled loop cost studies. Examples of activities which Call-Net submitted should be excluded entirely from the loop cost studies are as follows: development and operation of service assurance systems, development and testing of new products and services, development and operation of marketing systems, development and operation of billing systems, development of distribution approach and methods, establishment of prices and preparation of tariff filings and advertising of products and services.

76.Stentor noted that the most economically viable means of handling CLEC requests for loops are the existing systems that the ILECs use to provide loops to themselves, with manual intervention and modifications as required. Stentor submitted further that the most reasonable proxies for those FOEs, that relate to providing loops to CLECs are the FOEs developed for retail exchange services. Stentor submitted that the ILECs have been extremely diligent in their efforts to isolate the FOEs relevant to the loop from those related to retail service as a whole and, in doing so, have excluded a significant number of activities related to retail exchange service. Stentor also submitted that these activities will benefit CLECs and retail customers alike, and that it is appropriate to reflect these activities in the unbundled loop cost studies.

77.The Commission notes that the forecasts of other FOEs and/or other incremental expenses are small in comparison to total unbundled loop costs. The Commission concurs with Stentor that these costs are nonetheless costs associated with the unbundled loop which should be included. The Commission, however, notes an anomaly with respect to the forecasts made by BC TEL and MTS for their advertising and product management expenses, as they are much higher than the forecast expenses by other ILECs for these items.

78.In determining the advertising expense estimate for the unbundled loop service, the Commission notes that both BC TEL and MTS relied on the unit cost developed for their PES studies. The Commission notes that, by contrast, the other ILECs relied on Bell's unit cost estimate of advertising expenses as a proxy. Bell's advertising expenses were estimated based on a campaign-by-campaign analysis such as the "Call Before You Dig" campaign that relates the relevant advertising expenses to the loop service.

79.In determining the product management expense estimate for the unbundled loop service, MTS assumed the unit cost developed for its PES study as a proxy. By contrast, BC TEL's loop product management FOE estimate was assumed to be approximately 25% of the product management expense forecast included in its PES study. The other ILECs relied on Bell's unit cost levels, assumed to be approximately 10% of the product management expense forecast included in Bell's PES study.

80.The Commission considers that only minimal levels of product management and advertising will be required for the unbundled loop service and, accordingly, finds BC TEL's and MTS' forecasts of product management and advertising expenses causal to the provision of unbundled loop service to be too high. The Commission is of the view that the per loop product management and advertising expense forecasts for BC TEL and MTS should be reduced to the levels forecast by the other ILECs.

2.2.2 Inclusion of Productivity

81.In the loop cost studies, productivity inclusion was effected through use of a mix of total implied productivity (TIP) factors for expenses and an assumption of growth technologies for the loop capital plant. The multi-year average ILEC-wide TIP factor represents a proxy in lieu of explicit estimates of the impact on long-run incremental costs of non capital-related productivity improvements.

82.MetroNet submitted that the Commission should take productivity into account when setting the rates for unbundled loops and recommended use of the 4.5% productivity offset used in the price cap index.

83.Stentor noted that the costs in each year of the five-year study period reflect the productivity applicable to that year. Stentor also noted that the 4.5% productivity offset for the price cap index includes the increase in productivity of embedded capital investment. Stentor submitted that there is no reason to expect that the increase in productivity of prospective capital investments consisting of more efficient growth technologies would be consistent with the 4.5% value based on less efficient embedded technologies. Stentor further submitted that the value of the productivity index and the price cap index represent an average value for all of the services subject to price cap regulation, and that this average may not apply equally to each of the constituent services. Stentor submitted that, for purposes of developing a service-based cost study, the effect of productivity should be specific to the service under study.

84.The Commission considers that the use of growth technologies with respect to the estimated capital investments, as proposed by Stentor, adequately reflects the increase in productivity for these investments.

85.The Commission notes that the productivity factors explicitly assumed in the loop cost studies apply only to the expenses and are either partially or wholly offset by the expense increase factors that are applied on a year-by-year basis.

86.The majority of the ILECs' proposed productivity factors were at or above 3.5%. The Commission considers that a productivity factor of 3.5% at a minimum can be expected for the annual loop cost expenses over the study period. For those ILECs proposing productivity factors below 3.5%, i.e., BC TEL, Island Tel and MT&T, the Commission has therefore employed an annual productivity improvement of 3.5% applicable to expense forecasts. This factor does not apply to B&C expenses since, for this category of expenses, explicit adjustments have been made.

2.3 Rates Where no CLEC Demand has Been Forecast

87.Unbundled loop rates were not filed for Bell's rate band D and TCI's rate band A, based on the view that no significant CLEC demand was expected to materialize in these rate bands.

88.Stentor noted that, should the Commission determine that the results based on the ILEC-only demand be used to set interim rates for unbundled loops in those rate bands where no CLEC demand has been forecast, Stentor and TCI could file revised tariff pages reflecting these rates co-incident with the filing of any tariff page revisions required as a result of the Commission's ruling in this proceeding. Stentor submitted that the initial rates based on the ILEC-only demand be maintained on an interim approval basis until the rates are revisited, should significant CLEC demand materialize.

89.Call-Net requested that the Commission direct that these interim rates be implemented as part of the overall implementation of the Commission's decision. Call-Net disagreed with Bell and TCI regarding the need to file revised rates based on the all-carrier approach, should significant CLEC demand materialize in these rate bands. Call-Net contended that the difference between loop costs based on ILEC-only demand and those determined on the basis of an all-carrier approach is too small to warrant the additional effort on the part of all parties.

90.The Commission notes that Decision 97-8 mandated the filing of unbundled loop rates for each ILEC. The Commission considers that an ILEC's view that significant CLEC demand may not arise in a particular rate band does not constitute proper justification for not filing loop rates for that band. The Commission agrees with Call-Net's view that maintenance of the rates on an interim approval basis would create uncertainty for the entrants regarding the rate to be ultimately paid.

91.In light of the above, the Commission considers it appropriate to determine rates for Bell's rate band D and TCI's rate band A in this Decision. The Commission notes that unbundled loop costs for Bell's rate band D and TCI's rate band A, based on ILEC-only demand were filed in response to interrogatories addressed by the Commission. The Commission has relied on this ILEC-only demand cost information, adjusted to reflect costs under the all-carrier approach, to determine the unbundled loop costs for Bell's rate band D and TCI's rate band A.

2.4. Integrated Digital Loop Carrier (IDLC) System Issues

92.In Decision 97-8, the Commission mandated that loops in the ILEC territories be unbundled and that rates for the unbundled components be set to recover the associated incremental costs and a 25% mark-up. NBTel, in conjunction with BC TEL, Island Tel and NewTel, took the position that in locations where loops would otherwise be provided using IDLC systems (hereinafter referred to as IDLC loops), it is not economically feasible to provide unbundled loops at the serving wire centre (or host switch). These four companies proposed an alternative implementation plan that would require CLECs to obtain IDLC loops at the remote serving module or terminal.

2.4.1 Unbundled Loop Access Proposal using IDLCs

93.A number of interveners suggested that the proposal advanced by BC TEL, Island Tel, NBTel and NewTel to provide unbundled loops at the IDLC terminal instead of at the host switch in cases where the unbundled loop is served from the IDLC, does not comply with Decision 97-8. Call-Net submitted that this proposal requires that CLECs be responsible for provisioning the portion of every IDLC loop between the host and the remote, or alternatively lease what amounts to loop facilities such as Digital Network Access (DNA) service from the ILECs at market-based rates rather than at rates based on the essential services pricing principle. In addition, Call-Net further submitted that under this proposal, the ILEC retail services would bear, through imputation, no mark-up on the portion of the loop between the host and the remote while the CLEC would bear considerably more than a 25% mark-up as a result of the mark-up that is embodied in DNA rates. Call-Net submitted that such a result violates the principles of competitive equity. Call-Net further submitted that the approach taken by BC TEL, NBTel, Island Tel and NewTel, gives the ILECs an incentive to stay with systems that require overlay solutions and not deploy modern IDLC systems.

94.Stentor submitted that in order for BC TEL, Island Tel, NBTel and NewTel to provide to CLECs an IDLC loop at the host switch, the incremental cost per CLEC loop would range from $5 per month to $1,650 per month. Stentor submitted that under the all-carrier approach, there is an implicit subsidy flowing from the ILECs' subscribers on a monthly basis for each and every IDLC loop that is provided to a CLEC. This subsidy represents the incremental monthly cost per loop that must be recovered from the ILECs' end-customers in order to provide IDLC loops to CLECs.

95.Stentor further noted that the proposal of BC TEL, Island Tel, NBTel and NewTel to offer the IDLC loop at the remote location (1) reduces the potential for inefficient network design, (2) minimizes the impact on the existing customer and network administration and operational support systems of these ILECs, (3) provides the best interoperability between the technology platforms in these ILECs' networks and those available to the CLECs, and (4) is the most cost effective way to comply with the Commission's directives to provide unbundled loops. Stentor further noted that Bell, MTS, MT&T and TCI may revisit the matter of loop provisioning with consideration given to the approach proposed by BC TEL, Island Tel, NBTel and NewTel, if circumstances should develop where the costs of providing IDLC loops to CLECs becomes prohibitive as a result of high concentrations of CLEC loops in areas served by remotes.

96.The Commission notes that, at paragraph 51 of Decision 97-8, the Commission stated that the rate charged for a service provided to competitors should not vary as a result of the underlying technologies chosen by the ILEC to provide the service and that, accordingly, rates charged to competitors for unbundled loops are not to vary according to the costs of unbundling a particular loop technology that is used in a particular location. The Commission added that ILECs may, however, include the costs of providing IDLC loops to CLECs in the overall loop costs underlying the revised local loop rates that the ILECs were directed to file in Decision 97-8.

97.The Commission notes that the proposed loop costs filed in this proceeding vary by ILEC depending on whether the IDLC overlay solution required to make loops available to CLECs at the wire centre is implemented or not. The Commission considers that the proposals submitted by BC TEL, NBTel, Island Tel and NewTel do not comply with Decision 97-8 since these ILECs do not propose to make IDLC loops available to CLECs at the wire centre. As discussed in section 2.4.3 below, due to the excessive cost impacts of the IDLC overlay solution in NBTel's territory, NBTel will not be subject to this requirement at this time, such that IDLC loops in NBTel's territory are to be made available at the remote serving module. The availability of loops to CLECs at NBTel's wire centres will be addressed in response to a CLEC request for access at a wire centre for IDLC loops within NBTel's territory.

2.4.2 Proposed Unbundled IDLC Loops

98.Call-Net contended that Stentor has not only overstated the cost of implementing an overlay solution for BC TEL, Island Tel, NBTel and NewTel, but that these costs have also been overstated for those ILECs proposing to unbundle loops at the host switch. CCTA commented on the high cost of extracting loops from IDLC remotes in NewTel and NBTel and in particular objected to the explicit costing and non-fungibility assumptions used. Call-Net submitted that switch remotes and IDLC systems have different capabilities with respect to the extraction of unbundled loops at the central office. Call-Net submitted that by imputing the limitations of certain IDLC systems (e.g., remote-line concentrating module (RLCM) system) to all IDLC systems, Stentor has overstated the number of situations where dedicated loops are not available and an overlay solution is required. Call-Net further submitted that by ignoring the existing network facilities that bypass the IDLC systems and that are used by the ILECs for services requiring dedicated loops, Stentor has further exaggerated the need for overlay solutions and has overestimated the additional capital expenditures for the overlay solution.

99.Call-Net also noted that many of the types of remote systems forecasted by the ILECs are well into their expected service life span and will be replaced as the demand for complex and high bandwidth services continue to increase. The replacement vehicles are the modern versions of IDLC systems that offer greater bandwidth and flexible channel management, including the capability of routing individual channels to more than one destination within the central office. Call-Net also submitted that these modern IDLC systems can provide access to unbundled loops for CLECs at the central office and they promise lower
overall costs and greater efficiency.

100.Stentor submitted that each of the ILECs have implemented and continue to implement IDLC systems where an IDLC system is determined to be the most economical system of providing local loops. The type of IDLC system deployed will reflect the requirements of that particular location as well as the provisioning practices and long term network planning specific to each ILEC.

101.Stentor submitted that for Bell and MT&T, the costs associated with extracting an individual loop for a CLEC reflect both the use of an overlay solution or non-dedicated hairpinning (i.e., a software bridging feature which provides connection to the CLEC loop via the host switch or equivalent electronic equipment), depending on the technology deployed. Stentor noted that hairpinning is typically suitable only for small quantities of loops, which raises availability issues as CLEC requirements grow. For MTS and TCI, the use of an overlay solution was the preferred approach, given the type of remotes deployed in their networks and concerns over the viability of other potential solutions, where they exist. For NBTel, NewTel and Island Tel, the vast majority of remote units are of the switch remote type, which will require an overlay system. By contrast, BC TEL utilizes switching technologies other than the DMS family, where the majority of their IDLC units, including switch remotes, do not allow access to the loops at the host switch. As a result, BC TEL would also require an overlay system.

102.Stentor submitted that a universal deployment of modern IDLC systems to replace existing remote units, irrespective of the other criteria used to determine deployment of IDLCs, would represent a very significant capital outlay for the ILECs and could not be justified when there is no guarantee of CLEC demand and mechanisms for cost recovery.

103.Stentor submitted that in the development of costs, the preferred approach is to do explicit costing, but in some cases this approach is not feasible or practical. Stentor further submitted that since NewTel and NBTel are able to develop a roll-out plan for the extraction of unbundled loops from IDLC systems and the solution requires putting in non-standard equipment, these ILECs developed the year by year cash flows required to deploy the DMS-1U equipment. Stentor argued that a capacity cost approach, which is an approximation of explicit costing, would yield similar results for NewTel and NBTel. The key difference between NewTel and NBTel and the other ILECs is that a cabinet DMS-1U is not standard equipment used by these ILECs, and, as such, the equipment has been modeled as non-fungible. Stentor submitted that if the CLEC does establish sufficient demand to build its own facilities, then the ILEC will have no other use of the overlay equipment in that area or anywhere else in ILEC territory. For NBTel and NewTel, this has been deemed to be the situation. Thus, it is reasonable for these two ILECs to have modeled the DMS-1U as non-fungible.

104.Stentor acknowledged that there may be other facilities deployed in areas where a remote is utilized. However, these facilities are used to provide services that require a dedicated channel and are generally very limited in availability. Moreover, these facilities were not provisioned to accommodate forecast CLEC demand. Further, these facilities are typically more costly than the standard provisioned loop. Given the advent of CLEC demand in areas where the remotes have been provisioned, each ILEC would have to evaluate the unbundled loop needs of both itself and the CLECs to determine the most efficient means of meeting those needs.

105.With respect to the ILECs' IDLC overlay cost estimates submitted in this proceeding, the Commission notes that the growth technologies assumed by the ILECs are based on the current remote technologies and do not propose use of modern IDLC systems. The Commission also notes Call-Net's submission that modern IDLCs can accommodate the unbundling of local loops at the host switch in a more cost efficient manner. The Commission considers that, to the extent that there is available capacity on existing network facilities that bypass the IDLC systems, this can be used as part of the IDLC overlay solution.

106.The Commission is of the view that more cost-efficient IDLC solutions can be expected to develop over the course of the five-year study period. The Commission finds that the incremental IDLC system capital-related cost estimates used to determine the unbundled loop costs should be reduced by 10%. The Commission notes that the incremental IDLC system costs filed by the ILECs relied on the NBV method to calculate the end-of-study terminal values. Since for BC TEL, Island Tel and NewTel, the incremental IDLC system costs were excluded from the loop cost studies but are now being included, the Commission considers it appropriate to include for these three ILECs, an additional reduction of 10% to reflect the use of the DSP approach for the end-of-study terminal value associated with IDLC costs.

107.The Commission notes that NBTel's outside plant costs were estimated using Bell's outside plant costing model adjusted to reflect termination at the IDLC remote location and adjusted to reflect NBTel's own loop length and cable construction mix. However, since the percentage of loops served by IDLCs in NBTel's territory is much greater than in Bell's, the Commission expects that NBTel's loop plant without IDLC systems will be made up of simpler, shorter and less costly loop configurations. Accordingly, the Commission considers that NBTel's proposed loop capital costs should be reduced by 10%.

2.4.3 IDLC Solution: Scope of Costs

108.Call-Net submitted that there is no substantial difference as between ILECs with respect to the economic feasibility of unbundling loops at the host switch.

109.Stentor submitted that in assessing the economic feasibility of unbundling loops at the host switch, it is not only the incremental cost over all loops that has to be taken into consideration but also the total capital investment required to furnish the unbundled loops to CLECs. Stentor submitted that the total capital investment for BC TEL, NBTel, Island Tel and NewTel is substantial, and that this equates to a monthly cost per CLEC unbundled loop of $5 to $30 for BC TEL, $7 to $165 for Island Tel, $76 to $1,650 for NBTel, and $20 to $55 for NewTel. According to Stentor, each of these ILECs would have to, in essence, impose a surcharge to recover from their own subscribers an additional $1 to $6 per month, if the Commission were to mandate unbundling loops at the host switch. In addition, Stentor submitted that under the current price cap regime for many of these ILECs, permitted local rate increases would be insufficient to ensure the recovery of these costs. This in turn would mean that the shareholders of these ILECs would be asked to shoulder the burden of cost recovery associated with a cost solely related to providing unbundled loops to a CLEC.

110.Stentor provided specific comments on the IDLC loop matter on behalf of NBTel, noting that, for this company, this issue is viewed to be the most significant matter in this proceeding. Stentor submitted that a high percentage of NBTel's feeder plant is provided through use of IDLCs as a result of its particular provisioning approach. NBTel's use of IDLCs, which commenced in the early 1980's, has evolved to a network architecture through which the entire province's access line base is served by eight host switches and 430 associated remotes. Stentor also submitted that as a result of NBTel's provisioning approach, an overlay network would be required throughout the entire province, thereby resulting in a substantial rebuild of the switching network.

111.Stentor submitted that NBTel's current IDLC configurations, which consist of remote switching centre/line group controllers (RSC/LGCs) and remote line concentrating module/line group controllers (RLCM/LGCs), are not amenable to voice channel extraction. Stentor submitted that NBTel's solution consists of deploying channel banks to construct a new path to provide for a separate loop termination at the host switch. Stentor claimed that NBTel's estimated cost of building such an overlay network is $38.5 million, which would place an unrecoverable burden on NBTel as an ILEC. Stentor also submitted that the option associated with the building of a $38.5 million overlay network undermines the cost savings achieved by NBTel's current network architecture and would lead to financial resources being deployed inefficiently. Recovering the cost of this overlay option from subscribers would require NBTel to impose a surcharge of $4 to $5 per access line. Stentor speculated that the financial consequences of the overlay spending would therefore likely fall unacceptably on NBTel's shareholders.

112.Stentor further noted that NBTel's deployment of its IDLC overlay network using DMS-1U equipment is based on service provisioning intervals being developed in the CISC Network Planning sub-working group which, for NBTel, means that it must be ready to provide service on demand. That being the case, if NBTel did not deploy the DMS-1U equipment ubiquitously, it would be unable to conform to the service intervals being developed in the CISC.

113.The Commission notes that NBTel, BC TEL, NewTel and Island Tel have all proposed to provide CLEC access to IDLC loops at the remote site, based on the view that it is not economically feasible to provide the overlay solution in light of the total capital investments required.

114.The total incremental capital-related cost estimates associated with the IDLC overlay solution to provide CLEC access to IDLC loops are $17.0 million for BC TEL, $8.4 million for Bell, $17.0 million for MTS, $0.3 million for TCI, $38.5 million for NBTel, $1.2 million for MT&T, $1.1 million for Island Tel and $2.2 million for NewTel. The Commission notes that the potential cost impacts of the IDLC overlay solution for NBTel, expressed on a monthly equivalent cost per residential subscriber, far exceed those of other ILECs.

115.Given the greater percentage of NBTel's loops served by IDLC systems, the Commission considers that NBTel's overlay solution would involve a much larger cost due to the extensive IDLC overlay network builds required in its territory. The Commission further notes that the overlay solution assumed by NBTel involves non-standard and non-fungible equipment. The Commission therefore agrees with Stentor that, in the case of NBTel, the capital investment required to provide unbundled loops to CLECs at the wire centre would be substantial. Furthermore, given the uncertainty of CLEC demand arising over the study period, this non-fungible investment could potentially become stranded investment. The Commission therefore accepts NBTel's proposal at this time to allow the provision of CLEC access to IDLC loops at the remote site, within its serving territory.

116.By contrast with NBTel, the Commission finds that the investment required for the IDLC overlay solution in the territories of BC TEL, NewTel and Island Tel would not be excessive. The Commission notes that the potential per residential subscriber cost impact of the IDLC overlay solution for BC TEL, NewTel and Island Tel is in fact less than MTS, which, unlike these three companies, is proposing to implement the IDLC overlay network solution. The Commission also notes that the IDLC overlay network solutions identified by BC TEL and Island Tel involve the use of fungible facilities.

117.In light of the above, the Commission considers that, contrary to the NBTel situation, there is no persuasive evidence to support the view that it is not economically feasible to provide the IDLC overlay network solution within the territories of BC TEL, NewTel and Island Tel.

2.4.4 Availability of Unbundled Loops using IDLCs

118.Call-Net indicated that CLECs would also require access to the loop at a remote site whenever a service could only be provided over a continuous metallic path. The example given by Call-Net is a metallic path for Internet access using asynchronous digital subscriber lines (ADSL). Call-Net submitted that a continuous metallic path is not available when a loop has transited an ILEC's remote terminal and that, accordingly, the CLEC would be left at a competitive disadvantage that could only be eliminated by providing CLEC access at the remote site.

119.Stentor objected to this suggestion with respect to ADSL since this service is not available to the ILECs' own retail customers served by remotes and submitted that Call-Net's request should be denied.

120.The Commission considers that Call-Net's request is equivalent to that of requiring ILECs to unbundle loops at the wire centre, and at the same time to unbundle loops at the remote site upon demand. The Commission considers that such request is not part of the loop unbundling requirement mandated in Decision 97-8.

3. Loop Service Charges and Connecting Link Service Rates

3.1 Loop Service Charges

121.The proposed unbundled loop service charges are broken down into a fixed-rate component and a variable-rate component. The fixed-rate component is intended to capture the costs of the relevant service order-related activities associated with a specific CLEC loop order, while the variable component is primarily intended to capture the additional cost elements that would be incurred by the ILECs to provide loop service to the CLEC. The service charge costs have been developed based on the all-carrier approach to costing. The majority of the concerns raised by interveners primarily related to the high level of costs of the proposed service charge components.

3.1.1 Variable-rate Service Charge

122.The variable-rate component of the loop service charge proposed by the ILECs includes a variety of activities such as loop assignment, loop pretest, discrepancy management, blocking service resolution, workforce management and service continuity coordination. Stentor submitted that this component captures the additional cost elements that will be incurred to provide loop service to a CLEC.

123.Call-Net submitted that unless most of the activities included in this rate element are removed, the use of retail FOEs related to this function as proxies will overestimate the costs of unbundled loops.

124.With respect to the loop pretest cost activity, Call-Net claimed that this activity is performed by the ILEC from the main distribution frame to the ILEC switch whenever a new PES customer is connected. Call-Net submitted that there is no pretest activity performed for CLECs that is incremental to the testing performed by the ILEC in respect of loops used for their retail services. In response, Stentor submitted that it identified the loop pretest cost as the cost of additional time required to verify continuity and testing with CLEC personnel from the CLEC point of presence to the ILEC's point of presence. The Commission considers it appropriate to include the cost of the loop pretest activity in the variable-rate service charge costs.

125.With respect to the proposed loop assignment cost activity, the Commission considers this function to be more closely related to the service order itself than to the number of loops within the order. The Commission notes that BC TEL, TCI and NBTel have not included this activity in the variable-rate cost component.

126.The Commission notes that the ILECs have all used a resource cost study approach which reflects a weighted average of the additional ILEC resources or activities required to provision a CLEC loop. The Commission considers that the ILECs' variable-rate service charge should be based on similar activities and time estimates. However, the Commission notes that a high degree of variability exists across the ILECs' proposed charges for this rate component. For instance, BC TEL's proposed variable-rate per loop charge is $29.75 in contrast with $76.60 for TCI. In the Commission's view, the differences in the proposed charges cannot be justified by expected differences in labour unit costs or ILEC-specific practices. The Commission therefore finds that such differences are inappropriate and, accordingly, considers that the variable-rate service charge component should be revised to reflect appropriate cost estimates for the service along with a 25% mark-up. Based on the Commission's cost analysis, the appropriate rates for the variable-rate service charge are as follows: $37.50 for Bell, $28.50 for BC TEL, TCI, NBTel and NewTel and $24.75 for Island Tel, MT&T and MTS.

127.The Commission's cost analysis primarily relies on an analysis of Bell's activities and associated cost data. This analysis reflects reductions to the assumed ILECs' time estimates for loop pretest (consistent with NewTel's estimate), reductions to the ILECs' time estimates for service continuity coordination (consistent with TCI's estimate), and the exclusion of the loop assignment cost element from the variable-rate component (consistent with the assumptions of BC TEL, TCI and NBTel). Based on these assumptions, the cost estimate for Bell's variable-rate component is reduced from $43.46 to approximately $30.00. For the remaining ILECs, the variable-rate costs are determined from Bell's cost estimate, adjusted for the differences in the average labour unit costs among the ILEC groupings of BC TEL/TCI/NBTel/NewTel and of Island Tel/MT&T/MTS.

3.1.2 Fixed-rate Service Charge

128.The fixed-rate component of the loop service charge proposed by most ILECs is broken down into the following major categories: Receive Inquiries - Business Customers, Process Orders - Business Office, Assign Lines, Establish Service Connection and Perform Distribution Framework Activities.

129.Most interveners claimed that the service order costs proposed for Type A and B loops are too high and exceed the retail rate in effect for similar activities performed for the ILECs' PES customers. CCTA also contended that there may be double-counting of the fixed common costs. Call-Net submitted that, for the following FOEs, the use of retail costs as a proxy will overstate loop costs as the retail activity will already have been handled by the CLEC: Receive Inquiries - Business Customers, Review and Approve Customer Credit and Process Orders - Business Office. Furthermore, with respect to the business office service order, Call-Net submitted that the costs associated with negotiating service orders are related primarily to data services and involve due dates, and that in light of matters negotiated in CISC groups such as service order intervals, this cost item should be removed. Call-Net further submitted that the following FOEs should also be excluded from the estimated costs of unbundled loops: Assign Lines, Dispatch Orders - Business, Service Order - Testing and Coordination.

130.Stentor submitted that it is incorrect to arrive at conclusions regarding the reasonableness of the proposed service charges based on comparisons between the proposed service order charges and the service order charges for retail services. Stentor noted that for retail services, it is not uncommon to recover a part of the costs associated with the service order through the monthly rates for the services in question, since the rates for retail service components are often set with the objective of maximizing the return from the entire service. Hence, the rates for individual tariff components are set based on consideration of what the market will bear, and it is not uncommon for the service charges for retail services to be non-compensatory.

131.Stentor submitted that, in contrast to developing service order charges for retail services, rates for services provided to CLECs are based on the pricing principles that promote economically efficient allocation of resources by recovering one-time costs via one-time charges and ongoing costs via monthly rates. Consistent with this pricing principle, Stentor submitted that for all ILECs, with the exception of TCI, all costs related to a service order are included in the service charge. In light of the above, Stentor submitted that it is not useful to draw a comparison between the service charges developed for unbundled loops and the retail PES multi-element service charges.

132.Stentor also submitted that there is no double-counting of fixed common costs, noting that for BC TEL, TCI, Bell and those ILECs using Bell FOEs as a proxy, the FOEs for service orders were derived through an activity-based process that includes overhead loadings. These loadings represent management and support costs related to upper management, which are distinct from fixed common costs. Stentor submitted that the activity-based process removes fixed common costs from the ILECs' expenses when developing unit costs, as noted in the manual on guidelines for FOEs related to PES.

133.Call-Net noted that the proposed fixed component of the service charge varies from a low of $25.74 in TCI territory to a high of $202.00 in NewTel territory and that Bell and BC TEL have proposed $196.00 and $202.00 respectively. Call-Net submitted that variations in labour rates are unlikely to explain the variation across the ILECs and that the only conclusion that can be drawn is that some ILECs' service order processes are efficient (e.g., TCI) and some are not (e.g., Bell). Call-Net claimed that it is inappropriate for CLECs to be forced to pay for inefficient service order processes, no matter how accurate the cost estimation, and recommended that the costs of the fixed components of the ILECs be capped at no more than double the TCI fixed cost component service charge, modified as necessary based on any additional FOE exclusions.

134.Stentor noted that in keeping with the philosophy endorsed by the Commission that costs should, where possible, be ILEC-specific, the service charges developed for unbundled loops reflect ILEC-specific labour rates and internal operational practices. Stentor submitted that the information related to these differences was provided in response to the interrogatory SRCI(CRTC)18Aug97-22 TN516, which indicates that, variations exist between the ILECs' results. Further, Stentor submitted that it has provided rates in accordance with the Commission's directives, by ILEC, based on Phase II costs plus a 25% mark-up. Stentor submitted that it is inconsistent with the Commission's directives to suggest that the lowest rate, which in the case of the fixed component of the service charge is that for TCI, should apply to all ILECs. Further, Stentor noted that unlike the other ILECs, TCI captures the cost of some service order-related functions through maintenance factors, which are applied to capital, and, as such, these costs are included in the monthly rate element rather than the service charge.

135.The Commission notes that large discrepancies exist among ILECs as between the current service charges applicable to retail business PES orders and those proposed for CLEC orders. For instance, Bell's proposed service charge for a CLEC loop order is $196.00 in contrast with its existing business PES order charges of $149.00, whereas TCI's proposed service charge for a CLEC loop order is $25.74 in contrast with its existing business PES service order charges of $60.00. With the exception of TCI, the Commission finds that the ILECs' proposed CLEC loop service order charges are generally much higher than the current business PES order service charges which implicitly include the additional customer premise visit charges.

136.With respect to Stentor's claim that current retail service charge rates may not be compensatory, the Commission notes that the Commission has in the past few years approved, especially for business PES, a number of rate increases associated with the service order charge element, moving rates closer to their costs.

137.The Commission notes that the service order cost estimates were determined based on resource cost studies. The Commission considers that this costing approach does not incorporate any productivity improvements beyond the activities that have been identified not to be causal to the provision of a CLEC loop. While a number of different internal operational practices will be required by the ILECs to provide loop service to CLECs, the Commission considers that this should be more than offset by order process efficiencies in several areas. For instance, the level of the assumed retail service order-related FOE activities is expected to be significantly reduced as numerous retail functions such as the handling of customer inquiries, the review and approval of customer credit and the order processing functions of the business office are undertaken by the CLEC. Also, certain order-processing matters relating to a CLEC loop order are expected to be streamlined, compared to a retail business PES order, as a result of the CISC process where several operational matters between local exchange carriers (LECs) are currently being resolved and standardized. The Commission further considers that some productivity improvements can be expected over time as experience is gained in the handling of CLEC loop service order processes and as facilities-based competition arises.

138.Notwithstanding the differences in the definitions of the business retail PES and the proposed loop service and the different internal operational practices for the loop service, the Commission finds the differences between the service charges applicable to the ILECs' business PES customers and those proposed by the ILECs (other than TCI) for the unbundled loop service, to be excessive.

139.The Commission concludes that fixed-rate service charges of $112.50 for Bell and $84.50 for the other ILECs are appropriate.

3.2 Connecting Link Service Rates

140.A connecting link is required to connect unbundled local loops from the ILEC's main distribution frame (MDF), or cross-connect panel, to the CLEC's co-located transmission equipment. The connecting link is provisioned on a 100-pair cable basis.

3.2.1 Connecting Link Service Charge

141.The proposed connecting link service charge rate varies by ILEC depending on the proposed rate and number of cable metres required. For instance, TCI's average connecting link service charge is based on an average distance of 45 metres and, at the proposed per metre rate of $11.75, would total $529 for a 100-pair cable, or $5.29 per loop. Conversely, Bell's average connecting link service charge, assuming an average distance of 92.5 metres and the proposed per metre rate of $67.00, would total $6,198 for a 100-pair cable, or $61.98 per loop. Bell's average connecting link service charge provisioned through an intermediate distribution frame (IDF), assuming an average distance of 122 metres and the proposed per metre rate of $94.25, would total $11,499 for a 100 pair-cable, or $115 per loop.

142.Call-Net contended that the cost of the cable used for connecting links should be roughly the same across the ILECs. CCTA submitted that the proposed connecting link rates would render local loops uneconomic. To support its claim, CCTA provided a calculation showing the impact of Bell's proposed service charges for connecting links for each link provisioned through an IDF (i.e., at a cost of $115 per loop) to be equivalent to adding another $1.42 to the monthly loop rate. When the proposed monthly maintenance charge is also included, this rises to an additional charge of $1.82 per loop per month. CCTA contended further that the relatively high connecting link rates are a result of Stentor's failure to apply the all-carrier approach to costing and rating of the connecting links. CCTA also rejected Stentor's claim that connecting links are required only by CLECs and that the all-carrier approach to rating and costing is thus reduced to a study of the CLEC-only demand, given their view that the ILECs require similar functionality in order to provision local loops to their own end-customers.

143.Stentor submitted that the variation in the proposed connecting link service charge rates across ILECs reflects the use of ILEC-specific material costs, labour rates and installation practices. Stentor further submitted that, in light of the fact that suppliers' contracts vary by ILEC, contrary to Call-Net's assertion, the cost of cable is not roughly similar across ILECs. Stentor also submitted that variances in material costs, installation practices and labour rates also vary by ILEC, which further causes diversity amongst the ILECs in the cost associated with connecting links.

144.In response to CCTA's submission that an all-carrier approach should be used, Stentor noted that when loops are terminated on an MDF and used to provide network access services, they are cross-connected at the MDF to an intra-office cable connected to the switch. This intra-office cabling is part of the switching costs, which were excluded from the unbundled loop study and hence are not recovered in the proposed unbundled loop rates. In contrast, unbundled loops leased to CLECs are connected at an MDF to a connecting link that routes them to the co-located transmission equipment. This equipment is then connected to the CLEC wire center. Within the CLEC wire center, the circuits carrying the loops are connected to a point of connection providing flexibility similar to an MDF and are then connected to the CLEC switch through intra-office cabling. It is this last bit of cabling connecting the CLEC frame to the CLEC switch which is equivalent to the connection between the ILEC frame and the ILEC switch. Consequently, Stentor argued that costs incurred by the CLECs for the provision of this cabling should be borne by the CLECs alone. Stentor reiterated that a study of connecting links performed using an all-carrier approach to costing is equivalent to performing a study utilizing only CLEC demand and hence, appropriate demand for costing connecting links is CLEC demand only.

145.The Commission notes that the connecting link functionality required by the ILEC for its network access services involves a single-pair cable connection from the ILEC's MDF to the ILEC's switch for each loop. In contrast, this functionality takes on a different form when provided to the CLEC, as the link providing the connection from the ILEC's MDF to the CLEC's co-located equipment is provisioned in increments of 100 (i.e., 100-pair cable and associated 100-pair terminating blocks). Further, the CLEC's equipment could be located a number of floors away from the MDF. The Commission considers that this intra-office cabling service provided between the ILEC's MDF and the co-located CLEC equipment is similar in nature to a co-location service functionality. The Commission concludes that it would be inappropriate to determine the connecting link costs and rates based on an all-carrier approach, where an average unit cost would be determined based on the combined ILEC and CLEC demand.

146.The Commission also notes, as indicated in the foregoing, the significant differences in the cost estimates that were submitted by the ILECs for the provision of standard intra-office cable.

147.While ILEC cost differences are expected to occur as a result of material costs, installation practices and labour rates, the Commission considers that the proposed ILEC service charges exhibit an unacceptably large variance. The Commission is of the view that these service charges should be determined on a flat rate basis, rather than on a per metre basis, and that the total service charge per 100 links should not exceed the level of $1,600. This rate ceiling assumes the use of an average service charge per metre of $32 and an average cable length of 50 metres, which, ignoring Bell's high-end and TCI's low-end service charge data, is representative of industry averages.

148.The Commission also notes that, while the connecting link cost studies have conservatively assumed that there is no re-use for this equipment, the connecting link cable may potentially be re-used by a new CLEC in the event that a CLEC vacates its co-location area and another CLEC moves into the same area.

3.2.2 Connecting Link Monthly Rates

149.Monthly rates per connecting link were proposed by the ILECs in order to recover the ongoing maintenance costs associated with these facilities.

150.Call-Net submitted that monthly charges for connecting links are justified solely on the basis of maintenance costs. Call-Net also submitted that the use of maintenance factors cannot be expected to accurately estimate the maintenance expense causal to a narrow service component such as connecting links and that it is likely inappropriate to do so. Call-Net further contended that the nature of connecting links is such that the maintenance required will in fact be virtually nil, unless the ILEC itself damages existing connecting links in the course of installing additional links. As a result, there is no justification for ongoing monthly rates at any level, and certainly not for those at the levels proposed by Bell, BC TEL and NBTel.

151.Stentor noted that where specific time estimates are available, maintenance expense would be developed based on the time estimate and the labour unit costs. For new services where the time estimates are not available, maintenance expenses may also be modeled based on the application of maintenance factors (i.e., applying a percent to the capital dollars, for each type of equipment). Maintenance costs for connecting links were calculated as a percentage of the installed and engineered cost of the 100-pair cable required for a connecting link. Stentor noted that not only do maintenance percentages vary by ILEC, reflecting ILEC specific maintenance practices, but that the capital cost of the link (to which the percentage is applied) also varies by ILEC, reflecting differences in average link length, cable costs, installation time and labour rates. Stentor submitted that its rates for connecting links are based on Phase II costs plus a 25% mark-up. Stentor further submitted that despite the fact that the resultant rate is relatively small, it is ludicrous for Call-Net to suggest that these costs are virtually nil and that there should be no monthly maintenance rate for connecting links.

152.The Commission considers that providing connecting links to CLECs will require a minimum of maintenance by the ILECs. The Commission finds it reasonable to cap the rate at $1.25 per month per 100 connecting links for this functionality, which is the level proposed by NewTel. The Commission notes that, based on the assumed average connecting link distance of 50 metres, the assumed charge per metre corresponds to $0.025 per metre per 100 links.

3.2.3 Requirement for an IDF

153.MetroNet claimed that Bell is attempting to have CLECs incur a disproportionate share of the costs of IDFs and that Bell in all likelihood would choose to connect CLEC links to an IDF in order to receive the higher charge. Call-Net contended that there is no rationale provided as to why the tie cable from an MDF should not extend to the CLEC's co-location area rather than Bell's IDF and that there is no demonstrated need to treat the CLEC's network element terminations in the same manner as Bell's in order to preserve the integrity of Bell's distribution frame system. Call-Net also submitted that the decision to run a CLEC connecting link via an IDF is a discretionary operation decision made by Bell, the cost of which should not be borne by CLECs. Bell should be free to incur additional costs for its own purposes, but CLECs should not be expected to finance that decision through higher monthly rates and service charges. Call-Net further submitted that for the purposes of rating, no distinction should be made between connecting links that involve an IDF and those that do not. Accordingly, all connecting links should be costed and rated as if they involved only an MDF and not an IDF.

154.In reply, Stentor noted that this issue arises only in the case of Bell, since Bell is the only ILEC which currently uses IDFs to relieve congestion in the central office. Stentor outlined that IDFs are utilized in offices that have a high concentration of terminal or network equipment. Stentor stated that an IDF is used, through use of interconnecting tie cables, with an MDF to form a distribution frame system. Stentor submitted that for both new and existing technologies, the use of an IDF in association with an MDF ensures frame system integrity. Stentor stated that, in addition, an IDF also performs vital distribution functions including the ability to interconnect channel bank circuits to all existing copper access loops.

155.Stentor further explained that in large urban complexes, the MDF is divided into two separate frames, one for odd numbered cable pairs and one for even numbered cable pairs. These frames are then zoned such that certain cable pairs are associated with certain switch terminations. Loops are therefore not universally available on a given MDF frame. Further it must be noted that, in offices where an IDF is used to terminate both voice and data services which are not directly connected to the switch, not all services are available at the MDF. A tie cable is run from the vertical side of the IDF to each zone of both the odd and even MDFs. This method of organizing frames within congested central offices enables Bell to grow the MDF in an efficient and practical manner and to relieve congestion at the MDF.

156.Stentor submitted that when a CLEC orders unbundled loops from Bell, it will also require a connecting link between the CLEC co-located transmission equipment and the MDF. Stentor further submitted that in an office such as that described above, Bell looked at two options: (1) require the CLEC to purchase connecting links (100 pair cables) on each of the even and odd frames; and (2) run the CLEC's connecting link from the co-location area to the IDF. The first option would require the CLEC to purchase more links and also aggravate the cabling congestion problems in these offices. Bell noted that this would add needless complexity to the MDFs and jeopardize the frame integrity. Bell also submitted that the second option would reduce the number of connecting links required by the CLEC as well as reduce the costs to the CLEC, and with the CLEC's connecting links terminating on the IDF, Bell would be able to assign any pair in the connecting link bundle to an unbundled loop served from any of the MDF zones.

157.The Commission considers that the adoption of Bell's preferred option 2, which is to run the CLEC's connecting link from the co-location area to the IDF, is appropriate, since this option will avoid additional complexity to Bell's MDFs and will minimize cabling congestion problems in these offices. The Commission notes that if option 2 is adopted in certain Bell central offices, then the point of connection for CLEC connecting links will be at the IDF and not at the MDF. However, the Commission considers that wherever option 2 is selected, the incremental costs associated with the IDF solution (compared to the MDF solution) are causal to Bell's own distribution frame operations. The Commission is therefore of the view that no distinction should be made between connecting links that terminate on an IDF or an MDF. Accordingly, the Commission finds that Bell's connecting link service charges and monthly rates set out in sections 3.2.1 and 3.2.2 are to apply for CLEC connecting links that terminate on either an IDF or an MDF.

4. Other Matters

4.1 Type C Loops

158.A Type C loop is a digital transmission path which extends from the customer network interface to the ILEC's loop termination point and supports the transmission of an ISDN primary rate interface type signal.

159.Call-Net submitted that it is incorrect to permit the ILECs to offer Type C loops under the same terms and conditions as Digital Network Access loops. Call-Net submitted that this is a holdover from the pricing principles established in Competition in the Provision of Public Long Distance Voice Telephone Service and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992, and as such should be abandoned. Call-Net requested further that the Commission direct the ILECs to file Type C loop rates in accordance with the essential services pricing principles within 60 days of the date of a decision in this proceeding.

160.Stentor noted that in Decision 97-8, the Commission concluded that to be essential, a facility, function or service must meet all three of the following criteria: (1) it is monopoly controlled; (2) a CLEC requires it as an input to provide services;
and (3) a CLEC cannot duplicate it economically or technically.

161.Stentor noted that, in many of the markets of the ILECs, competitive alternatives to Type C loops are being offered and successfully sold in large numbers. Stentor submitted, therefore, that in these markets, Type C loops are by definition not essential, as was concluded by the Commission in Decision 97-8. Accordingly, prices for these loops should be set at levels consistent with market pressure, rather than at regulatory driven levels. Stentor submitted that forcing the companies to make Type C loops available in these areas at Phase II costs plus a mark-up of 25% would enable resellers to resell the ILECs' Type C loops to the ILECs' retail customers at a discounted rate; this would force the ILECs to reduce their Type C loop rates in an effort to retain their retail customers. Stentor argued that these actions would in turn make it unattractive for existing and potential alternate facilities-based suppliers to offer competing Type C loops to end-customers, ultimately eliminating the facilities-based competition which the Commission ruled is necessary to ensure that the full benefits of competition are realized.

162.The Commission notes that in Decision 97-8, the Commission did not designate Type C loops as essential or required them to be priced in accordance with the essential services pricing principles. The Commission therefore finds it unnecessary to require the ILECs to file Type C loop rates in accordance with these pricing principles.

4.2 Interexchange Carrier Access to Unbundled Loops

163.AT&T Canada LDS stated that in Telecom Order CRTC 97-1818, 12 December 1997 (Order 97-1818), the Commission concluded that it would be appropriate to allow alternate providers of long distance service (APLDS) to acquire unbundled loops and connecting links at the same rates as they are made available to CLECs. AT&T Canada LDS noted that although the ILECs did alter their tariffs to permit APLDS to lease unbundled loops, these changes only permit APLDS to lease Type A loops. AT&T Canada LDS submitted that APLDS should also have access to unbundled Type B loops and that the ILECs should also make available to APLDS any new loop types that are made available to CLECs as a result of Telecom Order CRTC 98-108, 3 February 1998.

164.Stentor submitted that issues regarding interexchange carrier (IXC) access to unbundled loops are outside the scope of this proceeding and therefore that AT&T Canada LDS' request should be denied. Stentor noted further that, in a separate letter to the Commission dated 20 February 1998, it had already responded to AT&T Canada LDS' comments.

165.The Commission notes that the unbundled loop tariffs being considered were filed pursuant to the Commission's determinations in Decision 97-8. The Commission agrees with Stentor that issues regarding access by IXCs to unbundled loops are outside the scope of this proceeding.

4.3 Bundled Service Offerings

166. AT&T Canada LDS submitted that in Order 97-1818, the Commission stated that the facilities employed in providing local loops and AdvantageTM direct access lines (DALs) are substantially the same, and directed that where AdvantageTM services are provisioned using DALs in rate bands where loops are an essential facility, such services must be rated so as to recover the tariffed rate of an unbundled loop. AT&T Canada LDS further submitted that in Forbearance - Regulation of Toll Services Provided by Incumbent Telephone Companies, Telecom Decision CRTC 97-19, 18 December 1997 (Decision 97-19), the Commission stated that the ILECs' toll and toll free services granted forbearance in that decision could be bundled with ILEC local exchange services or other tariffed telecommunications services, but that when a forborne service is included in a new bundled service, the Phase II costs of the forborne service must be filed as part of the imputation test along with tariffed rates for below-cost single line residential exchange services. AT&T Canada LDS submitted, therefore, that the ILECs should be directed, on a going forward basis, to obtain Commission approval of the rates, terms and conditions of any forborne service which is provisioned using DALs and that this requirement should include bundled AdvantageTM services and local loops provided under customer specific arrangements.

167.Stentor noted that in Decision 97-19, the Commission forbore from the requirement for the ILECs to file rates for their AdvantageTM services. It argued that the decision on whether to forbear from regulating a service is made with regard to the nature of the service and the market in which that service is offered; the underlying technology or facilities used to provide that service is not relevant to that determination. Stentor submitted that AT&T Canada LDS' suggestion is based on a consideration irrelevant to forbearance, and would have the effect of bringing under regulatory scrutiny certain services forborne as a result of Decision 97-19. Accordingly, in Stentor's view, it should be rejected.

168.In Decision 97-19, the Commission forbore from the requirement for the ILECs to file rates for most AdvantageTM services. The Commission concurs with Stentor that the ILECs are not required to file an imputation test for a forborne service provisioned using DALs, since DALs represent an underlying facility used to provide service. The Commission notes, however, that in the event that an AdvantageTM service is packaged in a bundle with other ILEC tariffed services, an imputation test must be filed to demonstrate that the bundled service revenues exceed costs.

4.4. Imputation Test Issues

169.A number of parties provided submissions regarding the application of the imputation test for local access services.

170.The Commission notes that in a letter dated 27 November 1998, it has set out its determinations relating to the imputation test methodology for local services.

4.5 CCS7 Signalling Services

171.In this proceeding, revised rates were proposed for the CCS7 signaling link between the CLEC switch and the Stentor gateway STP (CCS7 A-link) and the associated CCS7 cross-connections.

172.Clearnet submitted that the ILECs have not included productivity impacts nor have they used the all-carrier approach to develop the costs filed in support of the proposed CCS7 A-Link signaling charges. Clearnet further argued that there is no basis for establishing unbundled tariff elements for any CCS7 interconnection arrangement, as Decision 97-8 clearly indicates that the cost of all CCS7 interconnection arrangements are to be shared.

173.Stentor noted that capital cash flows in the models were developed for high capacity and cost efficient growth technologies and thus include expectations of future productivity. Stentor also noted that at the time of performing the study, the forecast of ILEC A-Link requirements was zero. Stentor submitted that from an all-carrier approach, no ILEC demand means that study results based on CLEC demand are consistent with the all-carrier approach.

174.Stentor submitted that while the Commission did mandate the equal sharing of the costs of CCS7 links, it qualified that only the cost of links interconnecting CLEC signalling transfer points (STPs) and the ILEC CCS7 points of interconnection were to be shared. Stentor also noted that unbundled tariff elements were established for CCS7 A-links as directed by the Commission in Decision 97-8, and Clearnet's submission that there is no basis for establishing unbundled tariff elements for any CCS7 interconnection arrangement, is clearly without merit and should be disregarded.

175.In Transiting and Points of Interconnection, Telecom Order CRTC 98-486, dated 19 May 1997, the Commission found that a CCS7 A-link between a local switch and an STP is not a peer-to-peer relationship and that CCS7 A-links are thus not subject to cost sharing. Accordingly, this unbundled component is required to be provided under a tariff for which rates must be approved.

176.The Commission considers that the proposed resource cost study methodology provides study results consistent with the all-carrier approach, as costs do not vary depending on the demand forecast assumptions used.

177.The Commission notes that the resource costs filed in support of the monthly rates for the CCS7 A-link and CCS7 cross-connection elements rely on current growth technologies. The Commission considers that these cost estimates adequately consider the productivity improvements associated with capital investments. The Commission notes, however, that the service expense forecasts were determined using an activity-based costing approach and did not explicitly consider productivity improvements. The Commission considers that certain productivity improvements can be expected with respect to the ongoing maintenance and service provisioning activities and concludes that a 20% reduction to the expense forecast can be achieved for both the CCS7 A-link and the CCS7 cross-connection services over their respective study periods.

4.6 Industry Notification Service

178.Clearnet submitted that Stentor had not justified the very significant increases in the proposed rates for the Industry Notification service, and requested specifics. Clearnet also submitted that the proposed rates for Industry Notification should be calculated based on an all-carrier approach to rating, since Industry Notification constitutes an essential service.

179.Stentor submitted that both BC TEL and Bell performed Industry Notification for wireless service providers (WSPs) over the course of the year prior to the filing of Stentor TN 516. Based on this experience, they established that the time spent providing this service on a per NXX basis increased for both management and non-management personnel.

180.Stentor noted that the ILECs actually perform activities not needed by themselves in carrying out the Industry Notification service for CLECs and WSPs. Stentor also noted that considerable time was spent with inexperienced CLEC personnel and that there was no apparent reduction in this consultation role over the period in question. Actual experience enabled Bell and BC TEL to make adjustments to their time estimates and also permitted the other ILECs to reassess the time estimates in their particular operations. Stentor also noted that some labour cost adjustments were also applied for some ILECs in proposing the new rates.

181.Stentor submitted that Industry Notification is not an essential service, but indicated that the proposed rates were developed based on the all-carrier approach to rating and hence no further action is required.

182.The Commission considers that the ILECs' proposed rates for this service were developed based on the all-carrier approach. The Commission notes that Stentor's Industry Notification cost studies show large variations in costs across the ILECs, with MTS at $187 and Bell at $605. The Commission considers that this cannot be fully explained by differences in the activities required, the associated time estimates and/or labour unit costs. The Commission considers that cost reductions for this service can be expected as both ILECs and CLECs gain experience with this service. The Commission is of the view that it would be appropriate to cap the one-time service charge per central office code for Industry Notification at $500.

183.The Commission notes that a third party administrator is expected to take over the task of Industry Notification from the ILECs towards the end of 1998, at which point this tariff component would no longer be expected to apply.

4.7 Other Unbundled Components

184.The Commission notes that in this proceeding, ILEC rates were proposed for Riser Space, 9-1-1 Service, MRS and Central Office Code Administration. No objections were raised by interveners regarding these rates. The Commission considers that the proposed rates reflect the appropriate incremental costs plus a 25% mark-up.

185.With respect to the Riser Space rate element, the Commission further considers that, consistent with the application of the existing per metre Riser Space rate established for co-location arrangements, the proposed per metre Riser Space rate should only apply to the vertical distance in metres used by each CLEC connecting link. In the event that a CLEC's co-located equipment resides on the same floor as the ILEC's MDF, no Riser Space charges are to apply.

III IMPLEMENTATION

186.Based on the above considerations, the Commission finds the rates for the unbundled components contained in the Attachment to this Decision to be just and reasonable. These rates are approved on a final basis effective the date of this Decision. The Stentor member companies are directed to issue forthwith revised tariff pages reflecting the determinations made in this Decision.


Secretary General

This document is available in alternative format upon request.

Attachment