ARCHIVED - Decision CRTC 2001-694

Decision CRTC 2001-694

Ottawa, 16 November 2001

Interim approval for revised unbundled loop-service order charges

Reference: 8643-C12-06/00

Table of contents

Paragraph

Summary

Background

1

Position of Bell Canada et al.

11

Interim decision

14

Revised rate structure

15

Separate variable-rate charges for business
and residence loops

20

Revised loop-service order costs

21

Costing assumptions

23

CLEC loop market shares

24

Bell Canada's customer premises visit rates and related costs

27

Bell Canada's order-processing costs

30

Bell Canada's receive-inquiries costs

33

Bell Canada's systems-support costs

34

Bell Canada's CLEC-specific cost estimates

35

Aliant Telecom's and MTS's cost estimates

38

Conclusion

42

Summary

The Commission approves, on an interim basis, revised unbundled loop-service order charges for Bell Canada, Aliant Telecom and MTS. The revised rates incorporate updated cost information, changes to certain costing assumptions, and a modified rate structure to improve the recovery of the associated loop-service order costs.

In addition, the Commission establishes a process to allow Bell Canada, Aliant Telecom and MTS to comment on the interim rates approved in this decision.

For TELUS Communications Inc. and Saskatchewan Telecommunications, the Commission's preliminary view is that they should use Bell Canada's revised fixed-rate and variable-rate loop-service order charges. The Commission also establishes a separate process that invites these two companies to comment on this approach.

Background

1.

In Telecom Decision CRTC 98-22, Final rates for unbundled local network components, dated 30 November 1998, the Commission set unbundled loop rates. One aspect of the decision focused on service order charges that the incumbent local exchange carriers (ILECs) would charge when a competitive local exchange carrier (CLEC) ordered loops. These transactions involve two types of service order charges: a fixed-rate charge and a variable-rate charge. The latter is applied on the basis of the number of loops requested in the CLEC order.

2.

The Commission ordered reductions to the fixed-rate service charges for loop orders in Telecom Decision CRTC 99-15, Unbundled local loop fixed-rate service order charges, dated 29 September 1999. In Decision 99-15, the Commission also ordered that the ILECs separate the fixed-rate service charges into "business" and "residence" components. This would more closely align costs to rates. For Bell Canada, the Commission set the fixed-rate service charges at $100 and $50 per order, respectively. For the other ILECs, the Commission set the charges at $80 and $40, respectively.

3.

In paragraph 21 of Decision 99-15, the Commission considered 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, or substitute, 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.

4.

The current rates for the (per-loop) variable-rate component are $37.50 for Bell Canada; $28.50 for TELUS Communications Inc. (TCI), NBTel Inc. and NewTel Communications Inc.; and $24.75 for Island Telecom Inc., Maritime Tel & Tel Limited (MTT) and MTS Communications Inc. These rates were set in Decision 98-22.

5.

On 23 June 2000, Bell Canada filed Tariff Notice 6488 to seek the Commission's approval of changes to retail service connection charges. Bell Canada's service connection costs filed to support TN 6488 were significantly lower than those noted in previous applications.

6.

Given these significantly lower costs, in a letter dated 3 October 2000, the Commission asked Bell Canada, on behalf of itself, Aliant Telecom Inc. (formerly Island Tel, MTT, NBTel, and NewTel) and MTS (collectively, Bell Canada et al.), and TCI, to show cause why they should not adopt lower fixed-rate loop service charges of $60 for business loop orders and $40 for residence loop orders, as well as a lower variable-rate service charge of $20.

7.

In response, by letter dated 3 November 2000, TCI found that the proposed show cause rates, as noted in paragraph 6, were appropriate. TCI noted that the Commission had previously considered it appropriate to rely on Bell Canada's loop service order costs as a reasonable estimate of costs ("proxy") for other ILECs in setting the fixed-rate and variable-rate service order charges.

8.

In a letter dated 10 November 2000, Bell Canada et al. submitted that the proposed show cause rates should not be adopted. Bell Canada et al. provided cost evidence to support its submission. This is discussed in paragraphs 11 to 13.

9.

In a letter dated 22 December 2000, the Commission established, on an interim basis, the loop service order rates listed in paragraphs 2 and 4 (above). The Commission noted that Bell Canada's cost evidence in its 10 November submission regarding loop service order charges revealed differences in certain cost inclusions and treatment by comparison with the company's retail service order costs. The Commission decided to review these differences.

10.

On 26 January 2001, the Commission issued interrogatories to Bell Canada et al. Responses were filed on 8 March 2001. Bell Canada et al. updated its cost estimates. Cost estimates were provided for detailed service order activity for each of the business and residence loops, and for CLEC-specific and ILEC-specific loop orders. Bell Canada et al. also provided all-carrier cost estimates under a scenario where only the per-loop driven costs were included in the per-loop variable-rate component, and removed from the per-order fixed-rate component.

Position of Bell Canada et al.

11.

In its 10 November 2000 submission, Bell Canada et al. made several points regarding the business fixed-rate service order charges. The retail unit cost information in TN 6488 was provided on a per-line basis. Under this proposed retail tariff structure, this service charge is proposed for each service connection. In the proceeding that resulted in Decision 98-22, the business loop service order costs were provided on the basis of an assumed number of lines per order. Therefore, they suggested that, to make the two sets of data comparable, business service order costs noted in TN 6488 that are driven on a per-loop basis (i.e., loop-driven costs) must be restated to reflect the same number of loops per service order. According to Bell Canada et al., once the costing data are restated for proper comparative purposes, there is no basis for the proposed business fixed-rate charge of $60 per order. Moreover, the business fixed-rate charges of $100 per-order for Bell Canada and $80 per-order for Aliant Telecom and MTS that were set in Decision 99-15 do not cover the companies' incremental costs.

12.

With respect to the residence fixed-rate service order charge, Bell Canada et al. submitted that recent evidence continues to support the existing approved rate rather than the Commission's proposed show cause rate.

13.

With respect to the variable-rate service order charge, Bell Canada et al. submitted that the current charges are a function of labour unit costs, time estimates to perform the required activities, and how often each activity occurs. Bell Canada et al. further submitted that although no updated cost information is available, based on the cost information in TN 6488, there is no reason to believe that any change would be sufficient to justify any decrease in the per-loop charge.

Interim decision

14.

The interim rates set out in this decision are based on the Commission's analysis of all the information filed during this proceeding, including the new cost evidence furnished in response to the 26 January 2001 interrogatories. In addition, the Commission considers it appropriate to adopt the revised rate structure that is set out in this decision. The Commission will make its final determinations based on the record to date in addition to the record developed pursuant to the process set out in paragraphs 45 to 48 below.

Revised rate structure

15.

Under the current definitions, the fixed-rate per-order charge is applied to each order. The charge recovers the costs of processing service orders, including receiving inquiries, order processing and dispatch. This rate element also includes the recovery of several loop-driven activities and costs such as distribution frame work, loop assignment, loop testing and coordination, and outside installation activities. The costs for the latter loop-driven activities depend on the assumed number of loops in the order.

16.

The Commission notes that there will be either an under-payment or over-payment of the associated fixed-rate service order costs when the number of loops in a specific CLEC order differs from the assumed number of loops underlying the fixed-rate per-order charge.

17.

By contrast, the variable-rate per-loop charge only recovers the additional cost elements incurred by the ILEC to provide loop service to the CLEC. This rate component strictly captures loop-driven activities and is applied in addition to the fixed-rate charge, based on the number of loops in the CLEC order. The Commission notes that under the all-carrier approach, the unit cost of the variable-rate component equates to the CLEC-specific unit cost reduced to reflect the percentage of loop-order demand by CLECs (market share) relative to the all-carrier loop demand. The Commission further notes that the all-carrier variable-rate costs that were proposed by Bell Canada and subsequently approved by the Commission in Decision 98-22 relied on an estimate by Bell Canada of the CLEC loop market share for the business market.

18.

In light of the above, the Commission considers that it would be appropriate to restructure the loop service order rates. In this revised structure, the variable-rate component is designed to recover all per-loop-driven costs. Correspondingly, the fixed-rate component is revised to strictly recover the per-order-driven costs. Under this revised structure, the loop service order charges will no longer depend on an assumed number of loops per order. This will more accurately recover the per-loop driven costs, which vary depending on the number of loops in each CLEC order.

19.

In the cost update that was submitted in response to the 26 January 2001 interrogatories, Bell Canada identified two new activities. These activities were Engineering Circuit Design and DMS (digital multiplex system) Input Group. The costs for these activities were classified as CLEC-specific costs under the per-order fixed-rate component. The Commission considers that these costs depend on the number of loops in the order. The Commission therefore considers that these costs should be captured under the variable-rate component rather than the fixed-rate component.

Separate variable-rate charges for business and residence loops

20.

The information provided in response to the 26 January 2001 interrogatories revealed significant differences in the ILECs' own per-loop service order costs for a residence loop, compared to those for a business loop. Examples of these differences between business and residence costs were noted in the customer premises visit rates and time estimates required to complete certain activities such as distribution frame work and outside installation activities. Furthermore, differences in the business and residence variable-rate service costs under the all-carrier approach would occur as a result of the different CLEC loop market shares expected for business and residence (as discussed in paragraphs 24 and 26). Therefore, the Commission considers that the continued use of an average per-loop rate for both business and residence loops, which is based on the combined business and residence service costs, is inappropriate and should be discontinued. Accordingly, the Commission considers it appropriate to adopt separate business and residence charges for the per-loop variable-rate service order charge.

Revised loop-service order costs

21.

Based on the information filed in this proceeding, the Commission considers that the loop service order costs should also be revised to:

The corresponding revised rates for the restructured fixed-rate and variable-rate components reflect the revised costs discussed above. These rates are shown in paragraph 42.

Costing assumptions

23.

The Commission has reviewed the cost estimates and assumptions furnished in response to the 26 January 2001 interrogatories. In its development of estimates of the all-carrier unit costs under the restructured rate components, the Commission has incorporated certain adjustments to the cost information proposed by the ILECs. The Commission has also adjusted the premise visit rates and the forecasts of the CLEC loop demand market shares for unbundled business and residence loops.

CLEC unbundled loop market shares

24.

The Commission considers the proposed forecasts of business CLEC unbundled loop market shares submitted by Aliant Telecom and MTS to be reasonable. By contrast, the Commission considers that Bell Canada's proposed forecasts of the CLEC business unbundled loop demand are too high given the actual levels of CLEC unbundled loop market shares in the business local market served through the use of Bell Canada-provided loops. The Commission's view of the rates, as set out below, is based on a CLEC unbundled loop market share estimate of 10 percent. This estimate represents the CLEC unbundled loop market share of Bell Canada's local business market served through the use of Bell Canada-provided unbundled loops in three years' time. The Commission notes that its lower estimate of Bell Canada's business CLEC unbundled loop market share is more than double the estimates proposed by Aliant Telecom and MTS.

25.

Based on this lower CLEC unbundled loop market share, Bell Canada's variable-rate charge for business loops would be reduced to approximately one-third of the current charge. Given the CLEC unbundled loop market share forecast for Aliant Telecom and MTS, the variable-rate charges for these two ILECs would be reduced to even smaller fractions of their current variable-rate charges.

26.

Bell Canada's, Aliant Telecom's and MTS's proposed CLEC market shares attained in the residence local market served through the use of Bell Canada-provided unbundled loops market shares were forecast to be zero. The Commission notes that, for the purposes of loop-service order charges, the loop demand from residential customers in multi-unit dwellings is currently classified as "business". Accordingly, the proposed residence CLEC unbundled loop market shares are lower than they would be if the residential multi-unit dwelling loop demand was classified as "residence". However, the Commission considers that the zero market share forecasts of residence CLEC unbundled loop demand are too low. Therefore, the Commission considers that forecasts of five percent for Bell Canada and two percent for Aliant Telecom and MTS are more appropriate.

Bell Canada's customer premises visit rates and related costs

27.

The Commission's view of Bell Canada's costs reflects the premises visit rates adopted in Decision 99-15 for business and residence loops. The lower visit rates are based on the 1997 demand levels provided by Bell Canada in TNs 6200 and 6213. At that time, the service-charge rate structure included separate visit charges for a service connection requiring a visit, under Bell Canada's business and residence multi-element service charges.

28.

The Commission considers that the recent increases in the visit rates are not due to the offering of the unbundled loop service. In the Commission's view, the increases are associated with retail considerations. Since 1997, the Commission has approved changes to Bell Canada's business multi-element service charge rates; a separate charge is no longer applied for visits associated with a service connection order. Now, there is less of a disincentive for a premises visit. Furthermore, given the increased competitive pressures in the local business market, a visit could support retail marketing and sales support activities.

29.

Service-order cost categories affected by this change include "establish-service connection" and dispatch activities. With respect to Bell Canada's establish-service connection costs, the Commission's view further reflects reductions to the proposed time estimates associated with the field technician per-order-driven activities. Under this view, the assumed time estimates are closer, although still higher, than those provided by Bell Canada in Attachment 2 of the response to interrogatory The Companies(CRTC)12Mar99-7 TN516.

Bell Canada's order-processing costs

30.

The Commission's view of Bell Canada's order-processing cost is based on the company's proposed recent time estimates and unit cost data by sub-functionality as provided in the response to interrogatory The Companies(CRTC)26Jan01-1. However, the Commission's modifications include the removal of the "credit-check" and "inform customer of rates and charges" activities. The Commission's view is that these are retail activities. The Commission's modifications also reflect 50 percent reductions of the time and cost estimates associated with the "query address", "keying order information collected", and "establish due date" activities.

31.

Based on the above, the Commission notes that the revised order-processing cost estimate for a residence loop order is consistent with Bell Canada's estimate for the residence order processing cost associated with the unbundled loop functionality, which was provided in an attachment to Bell Canada et al.'s 10 November 2000 letter.

32.

In addition, the Commission's view of the business-loop order-processing cost is lower than Bell Canada's corresponding cost estimate, provided in an attachment to Bell Canada et al.'s 10 November 2000 letter. The Commission has recalculated this cost to ensure that the time and cost ratios between the business and residence orders are consistent with those recently proposed by Bell Canada for the order-processing activities: query address, keying order information collected, and establish due date. The Commission notes that additional time is expected to complete the business loop order because it is typically multi-line and more complex in nature, compared with the residence loop order.

Bell Canada's receive-inquiries costs

33.

The Commission's view of Bell Canada's "receive-inquiries" costs includes significant cost reductions for business loops by adopting a lower CLEC unit cost and using a lower estimate of the CLEC loop market share. Changes to the CLEC unit costs are forecast for both business and residence loops, based on Bell Canada's estimates of the CLEC 2001 loop costs per inquiry for business and residence, and the assumption that, on average, there will be one inquiry per order. The Commission notes that for loops provided to CLECs, the number of inquiries per-loop order that are handled by the ILEC business office can be expected to be lower than that associated with orders for the company's own loops, as CLECs receive and handle their own end-customer inquiries.

Bell Canada's systems-support costs

34.

The Commission expects that this type of expense will vary, depending on the level of activities and costs that are directly attributable to the fixed-rate component. The Commission's forecast of Bell Canada's systems-support expenses is similar to Bell Canada's proposed systems-support expenses relative to the forecast of directly-attributable fixed-rate service-order costs.

Bell Canada's CLEC-specific cost estimates

35.

The Commission's view also reflects significant reductions to Bell Canada's cost estimates for certain activities associated with CLEC-specific loops. This includes a 50 percent reduction in the time estimated to complete the CLEC loop pre-test activity. The Commission notes that this lower estimate is consistent with that forecast by NewTel in the proceeding that resulted in Decision 98-22. This activity involves testing the connecting link from the main distribution frame to the co-located CLEC. The Commission also notes that the time to test the company's own loops is several times lower.

36.

The Commission's view also reflects a significant reduction to Bell Canada's proposed distribution frame work costs associated with the CLEC-specific demand. The lower cost estimates result from incorporating a lower average time estimate to perform the CLEC-loop distribution frame work with the reduced CLEC market-share assumptions. The lower average of the CLEC-only time estimate for this activity reflects the use of Bell Canada's proposed time estimate for a certain percentage of the loops rather than for all loops. The percentage occurrence rate used is the same as that initially proposed by Bell Canada in the proceeding that resulted in Decision 98-22. For the remaining percentage of loops, the Commission considers that it is more appropriate to use a time estimate that is comparable to the company's time estimates for its own retail customers.

37.

In certain instances, the Commission notes that the ILEC estimates of the time to complete certain activities associated with CLEC loops (and thus the costs) are higher than the time to complete the same activities for the ILEC's own customers. For example, the ILECs forecast that the average time to perform the central-office frame work for a CLEC loop is several times greater than that required for its own customers. The Commission expects that, where the estimated time to complete a certain activity for the CLEC is significantly different from the time to complete that activity for itself, the ILEC should provide supporting justification, such as a time and motion study.

Aliant Telecom's and MTS's cost estimates

38.

The Commission notes that the recent all-carrier cost estimates that Aliant Telecom and MTS provided in response to interrogatory The Companies(CRTC)26Jan01-8 were based on Bell Canada's cost model. These estimates were modified to capture the differences in Aliant Telecom's or MTS's labour or other unit costs, as well as differences in the assumed ILEC/CLEC demand market shares. For example, under the rate restructure proposals provided in response to interrogatories The Companies(CRTC)26Jan01-7 and -8, the business fixed-rate per-order cost proposed by MTS for CLEC-only demand is based on the identical activities, occurrence rates and time estimates as those proposed by Bell Canada. Aliant Telecom used the same time estimates and occurrence rates for this rate component, although it did not include Bell Canada's proposed engineering circuit design activities.

39.

The Commission's view of the per-order costs and the per-loop costs for Aliant Telecom and MTS is consistent with the costing approach discussed in the previous paragraph. However, the Commission modified these costs to reflect the proposed rate restructuring and the various costing determinations discussed above.

40.

The Commission notes that its view of Aliant Telecom's fixed-rate and variable-rate costs reflect adjustments to the company's proposed labour unit costs. The Commission made these adjustments to recognize certain labour unit cost discrepancies that have been observed since the proceeding that resulted in Decision 98-22.

41.

For example, Aliant Telecom proposed an order-processing labour unit cost in the current proceeding that is significantly higher than that provided in response to a December 2000 interrogatory concerning the loop-selection proceeding. The Commission's view reflects the use of the December 2000 labour unit cost estimate. In another example, the Commission finds Aliant Telecom's proposed central-office labour unit cost to be higher than those proposed by Island Tel, NBTel, MTT and NewTel during the proceeding that resulted in Decision 98-22. The Commission's view reflects the average of the central office labour unit costs for Island Tel, NBTel, MTT and NewTel that were noted in the proceeding leading to Decision 98-22, plus 10 percent to account for wage increases since that time. The Commission considers that Aliant Telecom has not adequately justified the change in its estimates.

Conclusion

42.

In light of the above and based on all the information filed during this proceeding, the Commission approves, on an interim basis, the following fixed-rate and variable-rate service order charges, applicable to both Type A and B unbundled loops, for Bell Canada, Aliant Telecom and MTS, effective the date of this decision, pending the conclusion of the process set out below:

Fixed-rate

Business

Residence

Bell Canada

$46.50

$25.25

Aliant Telecom

$51.25

$28.25

MTS

$41.25

$23.00

Variable-rate

Bell Canada

$27.00

$17.00

Aliant Telecom

$24.50

$16.00

MTS

$20.00

$13.25

43.

These rates are based on each ILEC's corresponding loop-service order costs, including the variable common costs and revenue charge costs, plus a 25 percent mark-up. Based on these revised service charges, the Commission notes that Bell Canada's and Aliant Telecom's total loop-service order charge (the sum of the fixed-rate and variable-rate charges) for a CLEC order of two business loops would be nearly identical to the total of the proposed show cause rates as identified in paragraph 6.

44.

Bell Canada, Aliant Telecom and MTS are hereby directed to issue forthwith tariff pages in accordance with the determinations in this decision.

45.

Bell Canada, Aliant Telecom and MTS are invited to comment on the interim rates approved in this decision by 16 January 2002. If revised cost evidence is to be submitted regarding the loop service order rates, this should include updated cost information consistent with the format provided in the attachments of the response to interrogatory The Companies(CRTC)26Jan01-7. If an ILEC's revised cost proposal differs from the determinations concerning detailed costing assumptions set out in this decision, a separate cost proposal reflecting the above determinations is to be provided in addition to this proposal. Where the assumptions differ from the above costing determinations, the ILEC should provide detailed supporting justification.

46.

In the case of TCI, the Commission is of the preliminary view that it would be appropriate for TCI to use Bell Canada's revised fixed-rate and variable-rate service order charges as set out in paragraph 42 above. TCI is requested to comment by 5 December 2001 on the appropriateness of adopting these rates on an interim basis, effective 1 January 2002.

47.

The Commission notes that Saskatchewan Telecommunications participated in the rebanding proceeding where loop service costs and rates were examined and established by the Commission for SaskTel for the first time. However, SaskTel did not participate in this current proceeding. The Commission is also of the preliminary view that it would be appropriate for SaskTel to use Bell Canada's revised unbundled loop service order rates as set out in paragraph 42 above. SaskTel is therefore requested to comment by 5 December 2001 on the appropriateness of adopting these rates on an interim basis, effective 1 January 2002.

48.

The Commission will determine whether a further process is required once it has examined the submissions filed pursuant to paragraphs 45 to 47.

49.

The Commission further directs Bell Canada, Aliant Telecom, MTS, TCI and SaskTel to track unbundled loop-service order charges from this date forward. This will allow these companies to calculate any retroactive rate adjustments that the Commission may order in the event that the final rates are higher or lower than the interim rates.

Secretary General

This document is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca