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Order CRTC 2000-108
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Ottawa, 10 February 2000
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Phase III/SRB assignment methodology for broadband equipment and facilities
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File No.: 8638-C12-32/99
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1.
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In Telecom Order CRTC 99-940 dated 30 September 1999 (Order 99-940), the Commission approved for use by Bell Canada (Bell), BC TEL, TELUS Communications Inc. (TCI) and MTS Communications Inc. (MTS) a Phase III/Split Rate Base (SRB) methodology to assign 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.
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2.
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Order 99-940 also directed Maritime Tel & Tel Limited (MTT), Island Telecom Inc. (Island Tel), NBTel Inc. (NBTel), NewTel Communications Inc. (NewTel), Québec-Téléphone and Télébec ltée (Télébec) to show cause, within 21 days, as to why the usage-based cost assignment methodology for broadband-capable equipment and facilities including support structures approved for Bell, BC TEL, TCI and MTS should not apply to them.
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3.
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On 21 October 1999, MTT, Island Tel, NBTel, NewTel, Québec-Téléphone and Télébec filed their comments on the applicability of the approved usage-based cost assignment methodology. On 12 November 1999, Québec-Téléphone and Télébec filed reply comments.
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4.
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MTT, Island Tel, NBTel, and NewTel (the Maritime companies) submitted that they will make the necessary adjustments to their respective Phase III/SRB systems to assign 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. NBTel and NewTel indicated that they will file amended pages to their Phase III/SRB Manuals coincident with the filing of their 1998 Phase III results. MTT and Island Tel submitted that their Manuals currently assign all costs associated with broadband equipment and facilities in accordance with Order 99-940.
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5.
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In light of the required study effort, the Maritime companies proposed to file the required updated Phase III/SRB Manual pages and their respective 1998 Phase III/SRB results on or before 31 January 2000.
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6.
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Télébec stated that the usage-based cost assignment methodology was appropriate since it is more in line with Phase III cost causality principles and permits greater uniformity in the production of Phase III/SRB results among the telephone companies.
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7.
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Télébec stated that the implementation of the usage-based assignment methodology should start as of 1 January 1999 given the fact that its final contribution rate for 1998 was approved in Telecom Order CRTC 99-942 dated 30 September 1999 (Order 99-942) using the transfer pricing methodology established in Implementation of Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 97-21, 18 December 1997.
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8.
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Québec-Téléphone expressed a preference for retaining its transfer pricing methodology approved in Order 99-942 for purposes of finalizing its 1998 contribution rate and questioned why it was necessary to employ the same assignment methodology in 1998 and subsequent years as that approved for the former Stentor Resource Centre Inc. members.
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9.
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Québec-Téléphone stated that only an inventory of circuits used by the Utility segment is available because of changes made in the development of its transfer pricing methodology used in 1998. As a result, the systems used to calculate broadband assignment ratios based on usage were discontinued in 1998.
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10.
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Québec-Téléphone argued that: (a) its local and toll networks are completely integrated; (b) the additional work to produce results by Utility and Competitive segments on the basis of usage produces no corresponding benefit given that the transfer pricing methodology yields a lower Utility segment shortfall; and (c) effective in 1999, its new software driven information system no longer produces the same level of investment detail as that used in 1998.
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11.
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The Commission notes that Québec-Téléphone's preferred approach of assigning its broadband equipment and facilities entirely to the Competitive segment and using its inter-segment transfer pricing methodology to account for Utility segment usage was accepted in Order 99-942, but only for purposes of finalizing its 1998 contribution rate on the basis of the minimal change to the company's contribution requirement.
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12.
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At the same time, the Commission notes that Order 99-940 clearly specified that a usage-based assignment methodology, approved for use by Bell, BC TEL, TCI and MTS for purposes of allocating broadband equipment and facilities to the Utility and Competitive segments, was more appropriate and practical since it was consistent with general Phase III/SRB principles of cost causality.
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13.
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The Commission also notes that transfer prices can vary significantly from one company to the other and that the usage-based assignment method eliminates transfer pricing and account transfers between segments.
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14.
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With respect to the company's assertion that its approach has and would achieve a lower Utility segment shortfall, the Commission is of the view that there is no guarantee this will be maintained in the future. The Commission notes that the transfer pricing methodology used to produce the company's 1998 SRB results would be subject to an annual review coincident with Phase III/SRB Manual Update filings.
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15.
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With respect to the level of investment detail, the Commission notes that the company maintains investment detail by account code for its broadband-related fibre investment. As such, the company should have sufficient disaggregated information to develop assignment ratios on a going-forward basis.
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16.
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The Commission also notes that the company's records are sufficiently detailed to identify circuits used by the Utility segment. In the Commission's view, the company should be capable of performing a study of the remaining circuits to be assigned to the Competitive segment. In recognition of the additional time required to perform the required work, the Commission is of the view that, in the circumstances, it would be appropriate to allow the company to use its transfer pricing methodology for purposes of producing its 1999 Phase III/SRB results.
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17.
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In light of the current contribution methodology, the Commission remains of the view that a consistent costing methodology is appropriate and finds that, for the year 2000 and subsequent years, Québec-Téléphone should implement a relative use methodology for purposes of producing its Phase III/SRB results.
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18.
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The Commission also notes that Québec-Téléphone's Phase III/SRB procedures currently assign all other investment, which represents most of the company's investment base, to the Utility and Competitive segments on the basis of relative use.
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19.
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In light of the foregoing, the Commission:
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a) approves Québec-Téléphone's proposal to retain its inter-segmenttransfer pricingmethodology for the assignment of its broadband-capable equipment and facilities but only for the year 1999;
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b) directs Québec-Téléphone to implement, effective 1 January 2000, a relative use methodology for the assignment of all costs associated with the deployment of its broadband-capable equipment and facilities to the Utility and Competitive segments, and file with the Commission amended Phase III/SRB Manual pages on or before 31 March 2001. This methodology is to be used to produce the company's 2000 Phase III/SRB results to be filed by 31 October 2001;
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c) acknowledges the acceptance of the relative use methodology by MTT,Island Tel, NBTel and NewTel commencing 1 January 1998, directs the companies to employ this methodology effective 1 January 1998, and to file with the Commission amended Phase III/SRB Manual pages (as applicable) and their respective 1998 Phase III results within 30 days of the date of this order; and
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d) acknowledges the acceptance of the relative use methodology by Télébec commencing 1 January 1999, and directs the company to file with the Commission amended Phase III/SRB Manual pages on or before 31 March 2000 and employ this methodology in the production of its 1999 Phase III/SRB results to be filed by 31 October 2000.
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Secretary General
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This document is available in alternative format upon request and may also be viewed at the following Internet site: http://www.crtc.gc.ca
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