ARCHIVED -  Telecom Order CRTC 99-940

Telecom Order

Ottawa, 30 September 1999

Telecom Order CRTC 99-940

In the matter of the methodology to be used to assign costs associated with the deployment of broadband-capable equipment and facilities, including underlying support structures, by Bell Canada (Bell), BC TEL, Island Telecom Inc. (Island Tel), MTS Communications Inc. (MTS), Maritime Tel & Tel Limited (MTT), NBTel Inc. (NBTel), NewTel Communications Inc. (NewTel) and the former TELUS Communications Inc. [now TELUS Communications Inc.] (TCI) (the companies).

File Nos.: 8638-C12-01/97; 8654-B2-02/98 and 8654-B2-01/97

1.In Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21), the Commission established for the companies, among other things, Phase III cost assignment procedures and reporting requirements associated with the treatment of broadband investment and related expenses in conjunction with the implementation of a split rate base (SRB) regulatory regime.

2.Decision 95-21 required the companies to assign to the Competitive segment all new costs (those incurred after 31 December 1994) associated with the deployment of broadband-capable equipment and facilities and stated that existing (pre-1 January 1995) fibre or other broadband-capable investments assigned to the Utility segment on the basis of relative usage would remain so assigned unless it was subsequently used to provide new broadband services.

3.Further, in Decision 95-21, the Commission directed the companies to charge a transfer price to the Utility segment in those circumstances where Utility segment services are provided through shared use of broadband facilities assigned to the Competitive segment.

4.Decision 95-21 also directed the companies to file Phase III Update reports to address any contemplated or necessary changes to these procedures in their Phase III/SRB Manuals in accordance with the requirements of Decision 95-21.

5.In their January 1996 Phase III Update submissions, all of the companies (except NBTel) proposed to continue to assign the costs associated with broadband equipment and facilities to the Utility and Competitive segments on a relative fibre strand or working circuit usage basis.

6.NBTel proposed to assign all broadband-related costs incurred before, on or after 1 January 1995 to the Competitive segment.

7.In Telecom Order CRTC 97-144 dated 31 January 1997 (Order 97-144) the Commission reiterated its directives in Decision 95-21 and stipulated that the companies were to assign all costs associated with underlying support structures directly to the Competitive segment and employ transfer pricing based on the access to support structure rates approved in Access to Telephone Company Support Structures, Telecom Decision CRTC 95-13, 22 June 1995 (Decision 95-13) to account for the portion of the support structure costs for fibre used to provide Utility segment services.

8.Order 97-144 also approved, for the years 1995 and 1996, the companies' proposed procedures for assigning costs associated with fibre cable placement and support structure equipment and facilities to the Utility and Competitive segments based on relative usage. In Telecom Order CRTC 99-475 dated 31 May 1999 the Commission approved the same procedures for 1997.

9.On 28 February 1997, Bell filed a Phase III/SRB Manual Update report that included a proposal to change the assignment methodology for costs associated with outside plant fibre facilities that were placed in service prior to 1995.

10.In Telecom Order CRTC 97-1490 dated 17 October 1997 (Order 97-1490), the Commission deferred disposition of Bell's revised Outside Plant-Fibre investment study and stated that it would address this proposal as part of its assessment of the companies' submissions on transfer pricing pursuant to Order 97-144.

11.In response to Order 97-144, between March and May 1997, all of the companies, except Bell and TCI, stated their intention to assign all costs associated with Fibre Optics Transmission Systems (FOTS) equipment and facilities, regardless of vintage, to the Competitive segment and to use inter-segment transfer pricing to charge the Utility segment for use of such assets.

12.Bell and TCI stated that they would assign joint-use broadband-capable equipment and facilities, commencing 1 January 1997, in accordance with the methodology specified in Order 97-144.

13.The companies (except Bell, TCI and MTS) proposed to assign related support structure costs to the Utility segment and to use the access to support structure rates to reflect Competitive segment use, contrary to Order 97-144.

14.Bell, TCI and MTS proposed to assign support structure costs to the Competitive segment and to use the access to support structure rates to reflect any Utility segment use in accordance with the requirements of Order 97-144.

15.AT&T Canada Corp. (AT&T Canada) and the Canadian Cable Television Association (CCTA) filed comments on the proposals, to which the companies filed reply comments.

16.On 3 November 1998, the companies, AT&T Canada and CCTA were requested to comment on whether the original submissions of the companies (with the exception of NBTel) to assign support structure costs based on composite assignment ratios of related fibre and copper cable facilities placed after 1996 would be appropriate.

17.In response, Bell, TCI, MTS, and subsequently BC TEL, agreed that the original proposed assignment methodology based on usage would be appropriate.

18.NBTel, MTT, Island Tel and NewTel (the Atlantic telephone companies) reaffirmed their preference to assign all support structure costs to the Utility segment and use inter-segment transfer pricing based on the access to support structure rates approved in Decision 95-13.

19.In its 30 October 1998 Phase III/SRB Manual Update report, Bell included a proposal to eliminate the requirements for broadband costing that were prescribed in Decision 95-21 and Order 97-144.

20.Bell noted that the Beacon initiative was never implemented and, excluding its broadband trials, most of its increased investment in FOTS equipment and facilities from 1995 to 1997 related to inter-office and toll usage.

21.Bell also noted that in Price Cap Regulation and Related Issues, Telecom Decision CRTC 97-9, 1 May 1997 (Decision 97-9), the Commission stated that it would not require the companies to file specific broadband costing information effective 1 January 1998 and reaffirmed its submission that the incentive to over-invest under price cap regulation is reduced.

22.Bell submitted that the remaining broadband accounting and reporting requirements are no longer needed with the commencement of price caps and proposed, for the 1998 study year, to assign all investments associated with FOTS equipment and facilities and related support structures (including those placed in service during the years 1995 to 1997 inclusive) to the respective SRB segments based on the services they causally support which would negate the need for transfer pricing and for gross book transfers.

23.In its comments of 18 December 1998, CCTA submitted that Bell's proposal should be denied since, in CCTA's view, the companies still have an incentive to allocate as many costs as possible to the Utility segment.

24.CCTA submitted that elimination of broadband costing requirements would remove the safeguards for protection of Utility segment subscribers.

25.By letter dated 18 February 1999, Bell was requested to address (1) whether its proposal should be considered an application to review and vary Decision 95-21 and Order 97-144 and (2) the review and vary criteria, set out in Guidelines for Review and Vary Applications, Telecom Public Notice CRTC 98-6, 20 March 1998 (PN 98-6) if the Commission decides that Bell's proposal did constitute a review and vary application.

26.To the extent that they intended to treat their fibre and support structures in a way similar to that proposed by Bell, the other telephone companies were also requested to file submissions on the issues identified in paragraph 25 above.

27.On 10 and 11 March 1999, the companies filed comments and CCTA and Call-Net Enterprises Inc. (Call-Net) filed comments at the end of March. On 9 April 1999 Bell and on 12 April 1999 BC TEL and TCI jointly filed reply comments.

28.All the companies (except NBTel which did not address the review and vary criteria in its comments) submitted that Bell's proposal should be considered as a new application and not a review and vary of Decision 95-21 and Order 97-144.

29.CCTA submitted that Bell's proposal should be considered an application to review and vary Decision 95-21 and Order 97-144 and should be denied or reconsidered via a separate public process to prevent the companies from using the SRB Manual Update process as a means of circumventing fundamental public policy decisions.

30.Call-Net submitted that whether or not Bell's proposal represents an application to review and vary Decision 95-21 and Order 97-144 it is an application to review and vary the Commission's determination set out in paragraph 224 of Decision 97-9 that the telephone companies not be required to file broadband costing information as long as the procedures set out in Order 97-144 remain in place.

31.In Call-Net's view, until the Commission determines that Utility segment results will not be used to establish toll or other contribution to be collected, Bell's proposal should be denied and the existing cost assignment and transfer pricing procedures maintained.

32.The Commission notes that neither CCTA nor Call-Net addressed the criteria set out in PN 98-6 with respect to Decision 95-21 and Order 97-144.

33.Further, the Commission notes that the Phase III update process is a public process and that interveners had ample opportunity to make submissions on the matters raised in the updates.

34.Moreover, the Commission notes that the proceeding initiated by the letter of 18 February 1999 was sent to a large number of interested parties and that CCTA and Call-Net were the only parties, other than the companies, that chose to make submissions.

35.In the circumstances, the Commission does not consider these matters need be addressed again in a separate proceeding.

36.The Commission also notes that in their March 1999 comments, BC TEL, MTS and TCI supported Bell's 30 October 1998 proposal while the Atlantic telephone companies generally indicated that they did not intend to change the way they treat the assignment of fibre and support structures and continued to support the implementation of inter-segment transfer pricing.

37.The Commission notes that in PN 98-6, the Commission stated that where an application is based on new circumstances and does not call into question the original correctness of the relevant decision(s), it will generally be treated as a new application.

38.The Commission considers that in its application, Bell is not questioning the original correctness of Decision 95-21 and Order 97-144 but is relying on new circumstances since the issuance of those decisions, namely that the Beacon initiative has not materialized and the price cap regime is now in place, to question the appropriateness of continuing the assignment regime established for broadband in those determinations.

39.In the circumstances, the Commission considers that the Bell update does not constitute an application that the Commission review and vary Decision 95-21 and Order 97-144. The Commission also considers that Bell's proposal does not constitute an application to review and vary Decision 97-9 given that the paragraph identified by Call-Net was not integral to that Decision.

40.Given the fact that the Beacon initiative has not materialized and that the incentives to cross-subsidize between the Competitive and Utility segments are minimal under price caps, the Commission is of the view that the assignment methodology prescribed in Decision 95-21 and Order 97-144 is no longer necessary to protect Utility segment subscribers from bearing the risk associated with the companies' new broadband investment. In the Commission's view, consistent with general Phase III/SRB principles of cost causality, the assignment of all costs associated with the deployment of broadband-capable equipment and facilities to the Utility and Competitive segments on the basis of relative usage represents a more appropriate and practical methodology.

41.Given that the Atlantic telephone companies have not had a full opportunity to comment on these matters, the Commission considers that these companies should be given an opportunity to show cause as to why the usage-based cost assignment methodology should not apply to them.

42.Further, the Commission notes that in Implementation of Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 97-21, 18 December 1997, the Commission determined that the assignment of broadband investments incurred after 31 December 1997 was to be in accordance with the specific requirements set out in Decision 95-21 and further clarified in Order 97-144.

43.The Commission notes that Québec-Téléphone and Télébec ltée (Télébec) have not had an opportunity to provide comments on the applicability of Bell's proposed methodology to them.

44.In this regard, the Commission is of the view that Québec-Téléphone and Télébec should also be given an opportunity to show cause as to why the usage-based cost assignment methodology should not apply to them.

45.In light of the foregoing, the Commission orders that:

(a) Bell's revised Outside Plant investment study that proposed to change the assignment methodology for costs associated with outside plant fibre facilities placed in service prior to 1995, disposition of which was deferred in Order 97-1490, is hereby approved;

(b) The assignment of all costs associated with the deployment of broadband-capable equipment and facilities including support structures to the Utility and Competitive segments on the basis of relative usage is approved for use by Bell, BC TEL, TCI and MTS;

(c) Bell, BC TEL, TCI and MTS are directed to file their respective 1998 Phase III/SRB results by 29 October 1999;

(d) MTT, Island Tel, NBTel, NewTel, Québec-Téléphone and Télébec are directed to show cause, within 21 days, as to why the usage-based cost assignment methodology approved in (b) above should not apply to them;

(e) Interveners may file comments, serving copies on all other parties, by 4 November 1999;

(f) MTT, Island Tel, NBTel, NewTel, Québec-Téléphone and Télébec may file reply comments, serving copies on all other parties by 12 November 1999;

(g) MTT, Island Tel, NBTel and NewTel are to file their respective 1998 Phase III/SRB results 60 days after the Commission has made its determination on the show cause proceeding specified in (d) above;

(h) Québec-Téléphone and Télébec are to file their respective audited 1998 Phase III/SRB results 120 days after the Commission has made its determination in the show cause proceeding specified in (d) above;

(i) Bell, BC TEL, TCI and MTS are to file amended pages to their Phase III/SRB Manuals that reflect the revisions approved in this Order coincident with the filing of their 1998 Phase III/SRB results;

(j) MTT, Island Tel, NBTel, NewTel, Québec-Téléphone and Télébec are to file amended pages to their Phase III/SRB Manuals coincident with the filing of their 1998 Phase III results in accordance with the Commission's determination in the show cause proceeding; and

(k) Copies of the amended pages to all of the companies' Phase III/SRB Manuals are to be served on their respective Phase III interested parties by the same dates.

Secretary General

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