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Telecom Decision

Ottawa, 29 September 1999
Telecom Decision CRTC 99-15
Unbundled Local Loop Fixed-Rate Service Order Charges
File No.: 8740-S1-0516/97
Summary
In this decision, the Commission denies Call Net's proposal for modifying the unbundled local loop fixed-rate service order charge. However, with the benefit of new costing information filed in this proceeding, the Decision establishes a new rate structure that better reflects the costs associated with the processing of local loop orders.
Background
1.On 15 December 1998, Call-Net Enterprises Inc. (Call-Net) filed an application seeking to clarify how the unbundled local loop fixed-rate service order charge applies to multiple loops orders. Call-Net requested that the Commission rule that the unbundled local loop fixed-rate service order charge applies only once in cases where multiple unbundled local loops are ordered provided that (1) the due dates are the same; (2) the unbundled local loops are of the same type; and (3) the unbundled local loops originate from the same wire centre.
2.Comments were submitted by Bell Canada (Bell), TELUS Communications Inc. (TCI), Island Telecom Inc. (Island Tel), Maritime Tel & Tel Limited (MTT), MTS Communications Inc. (MTS), NBTel Inc. (NBTel), NewTel Communications Inc. (NewTel) and BC TEL (collectively, the companies), MetroNet Communications Group Inc. and Call-Net. The Commission addressed two rounds of interrogatories to the companies concerning the fixed service order charge.
3.Call-Net submitted that the incumbent local exchange carriers' (ILECs) proposed method for applying the fixed service order charge would remove any meaningful opportunity for competitive entry in the vast majority of residence markets.
4.The Commission considers that the impact of the fixed-rate service order charge on the viability of entrants into local markets is not an appropriate consideration in determining rates. As stated in Final Rates for Unbundled Local Network Components, Telecom Decision CRTC 98-22, 30 November 1998 (Decision 98-22), and consistent with Local Competition, Telecom Decision CRTC 97-8, 1 May 1997, rates for unbundled local loops are to be set at levels that recover the companies' Phase II costs plus a 25% mark-up.
5.Call-Net submitted that based on its analysis, the application of the fixed service charge in the manner it advocates will not, in practical terms, compromise the ability of the ILECs to recover, at the existing fixed service order charges, any legitimate costs associated with requests for unbundled loops by competitive local exchange carriers (CLECs).
6.Call-Net submitted that this is because the cost component in question is small and would be either unaffected or marginally affected by multiple addresses.
7.Call-Net further submitted that the use of retail service order costs as proxies for loop-related service order costs overstates the true causal costs, thus providing ample margin to absorb any increases in costs due to multiple addresses.
8.In response, the companies submitted that Call-Net's arguments amount to a reiteration of the comments contained in its final arguments in the proceeding leading to Decision 98-22 and do nothing to demonstrate that a request for multiple unbundled local loops terminating at different addresses has no impact on the companies' cost per order.
9.The companies further submitted that it is reasonable to expect that the business local retail service order costs, representative of a highly efficient streamlined process, are a conservative proxy of the cost of CLEC unbundled local loop service orders.
10.The Commission does not agree with the companies that Call-Net's application involves a review and vary of the Commission's determination in Decision 98-22. The Commission notes that in Decision 98-22, it did not pronounce on the application of the fixed-rate service order charge, where multiple unbundled local loops are ordered.
11.The Commission finds that Call-Net has not provided persuasive evidence to substantiate its proposal that a request for multiple unbundled local loops terminating at different addresses would have no or only a marginal impact on the companies' costs per order.
12.The Commission notes that the practice of assigning one address per order has been accepted by the Ordering and Billing Group of the CRTC Interconnection Steering Committee (CISC) of which Call-Net is a participant and that such practice is contained in the Canadian Local Ordering Guidelines (C-LOG) that obtained industry consensus and received Commission approval.
13.The Commission further notes that this service order practice is not only a local provisioning practice but also a standard industry practice in North America.
14.Given the companies' practice of assigning one address per order consistent with the C-LOG, the Commission considers that a request for unbundled local loops for multiple customer premises will cause most service order activities to be incurred for each loop within the order.
15.The Commission also notes the companies' submission that to implement Call-Net's proposal would require the companies to undertake significant costs to revise the existing order processing systems and methods.
16.The Commission does not agree with Call-Net's specific proposal for modifying the fixed service order charges. However, the new costing information filed in this proceeding demonstrates that the rates currently charged for this service are no longer appropriate. The Commission therefore considers it necessary to modify them. Specifically, in order to more closely match rates to costs, 1) the charges should be disaggregated so as to establish separate rates for residential and business loops and 2) a number of the cost components filed in this proceeding should be revised.
17.In the proceeding which led to Decision 98-22, service order costs were not separately identified for business and residence loops. The reason given by the companies was that the loop service charges were developed based on the assumption that CLEC orders would impact the companies in the same manner as requests for local service from the companies' retail business customers. The companies further submitted that the activities and costs associated with processing a loop order are assumed to be identical whether there is CLEC-only demand or ILEC-only demand.
18.The Commission notes that the recent cost data furnished in this proceeding revealed that Bell's own service order costs associated with residence loops (based on ILEC-only demand) are considerably less than those associated with business loops; for instance, Bell's recent estimates of loop service order costs, excluding components that Bell considers to be retail in nature, are $67.98 for residential customers compared to $113.34 for business customers.
19.In response to a Commission interrogatory in this proceeding, the companies submitted that it is inappropriate to develop the fixed loop service order costs based on the costs for similar activities to provide local service to residential end-customers since the customer for unbundled local loops will be a CLEC and not the end-customer.
20.Nevertheless, in light of the large service order loop cost differences between business and residence customers filed by Bell, the Commission finds that the use of the All Carriers loop service order costs based on the ILEC's business retail service order costs does not appropriately reflect loop service order costs associated with residential demand. The Commission notes that the residential loop service order costs consist for the most part of loop service order costs associated with the ILEC-only residential demand.
21.In light of the foregoing, the Commission considers that, under the All Carriers approach, the costs for the current service order processes in use for the companies' residence retail local service, excluding the functions that are retail in nature, can be expected to provide a reasonable proxy for residential loop service order costs, in the same manner that costs for the current local business retail service order processes, excluding the functions that are retail in nature, can be expected to provide a reasonable proxy for business loop service order costs.
22.The Commission notes that, in this proceeding, Bell not only furnished service order cost estimates for residence demand, but also provided updated estimates of such costs for business demand. These updated estimates are significantly lower than those filed in the proceeding leading to Decision 98-22. For the most significant component, the Process Orders category, Bell reduced the cost estimate by approximately 50%.
23.Upon reviewing the cost information filed in this proceeding, the Commission considers it appropriate to modify Bell's loop service order cost estimates for most categories, notably Process Orders, Receive Inquiries, Dispatch Orders and Establish Service Connections.
24.As indicated in Decision 98-22, the Commission expects additional efficiency gains and other cost reductions in the order processing area from more efficient processes and opportunities for automation compared to the retail cost estimate and in light of the fact that operational matters between local exchange carriers are being resolved and standardized in the CISC. The Commission considers that Bell's revised estimate for this component does not reflect those further expected efficiency gains.
25.As further indicated in Decision 98-22, the Commission also expects significant reductions in the costs per loop for the Receive Inquiries category due to fewer inquiries per loop being handled by the ILEC's business office as end-customer activities are undertaken by CLECs. In this proceeding, Bell did not change the cost estimates for Receive Inquiries from those filed previously.
26.The Commission has also made significant changes to the Dispatch Orders and Establish Service Connections cost estimates, reflecting its view that there will be fewer premises visits than estimated by Bell.
27.On the basis of the above cost analysis, the Commission considers it appropriate to modify Bell's fixed-rate loop service order charges, reflecting the associated Phase II costs plus a 25% mark-up, to $100 for business loops and $50 for residence loops.
28.The Commission notes that the revised loop service order cost information based on updated retail service connection costs was only provided for Bell in this proceeding.
29.MTT, Island Tel, NBTel and NewTel submitted that, for the fixed service order charge, Bell's costing models and cost inclusions closely approximate the cost components that would be incurred by these companies and, therefore, Bell's costs provide the best proxy for these companies' unit costs.
30.BC TEL, TCI and MTS submitted that they were unable to provide the requested information, due either to lack of necessary resources or data or due to differences in definitions between the loop and retail service connection activities.
31.Given that the fixed service order costs are solely comprised of labour components, the Commission considers it appropriate to rely on Bell's detailed loop service order cost analysis as a benchmark, modified on the basis of the differences in labour unit costs among the other ILECs, to estimate the fixed service order charges for the non-Bell companies.
32.The Commission notes that there is relative uniformity of the labour unit costs for the non-Bell companies. In addition, the labour unit cost information is confidential. In the circumstances, the Commission considers it appropriate to set the fixed service order charges for the non-Bell companies based on Bell's costs and the difference between Bell's labour unit cost and the average labour unit cost of those other companies.
33.In light of the foregoing, the Commission considers it appropriate that fixed-rate service order charges be $80 for business loops and $40 for residence loops for all non-Bell companies.
34.TCI submitted that any Commission determination to adjust the fixed portion of the service charge must not be made in isolation of the (variable) per loop service charge component in order to ensure full cost recovery by the company for the service provided.
35.Based on the rates approved in this Decision, the Commission is of the view that TCI's combined fixed and variable service order charges will allow for the recovery of the associated service costs.
36.The Commission considers that a loop order originating from a multiple-dwelling unit (MDU) will typically consist of multiple loops and will have a degree of complexity that more closely matches the order process associated with a business loop compared to a residence loop. The Commission therefore finds that the application of the business loop service order charge to requests for one or more loops from the same MDU will allow for a more appropriate recovery of the associated service costs than that of the residential loop service order charge.
37.In light of all of the foregoing, the Commission finds that fixed-rate service order charges associated with business loops of $100 for Bell and $80 for the other companies and fixed-rate service order rates associated with residence loops of $50 for Bell and $40 for the other companies are just and reasonable and approves these rates effective the date of this decision.
38.This new rate structure is to replace the current final rates for this tariff element of $112.50 for Bell and $84.50 for the other companies.
39.The companies are hereby directed to amend the fixed-rate service order charges reflecting the above determinations, effective the date of this Decision, and to issue revised tariff pages within thirty days of this Decision.
Secretary General
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