ARCHIVED - Telecom Decision CRTC 2002-29

Telecom Decision CRTC 2002-29

Ottawa, 1 May 2002

MTS Communications Inc. - Review and vary application regarding the rebanding decision

Reference: 8662-M3-03/01

Summary

In a review and vary application, MTS Communications Inc. (MTS) alleged that, in the rebanding decision (Decision CRTC 2001-238), the Commission made an error in determining MTS's residential primary exchange costs for band E. MTS submitted that, due to this error, calculations to develop its total subsidy requirements for 2002 are $4 million lower than expected.

The Commission concludes that its calculation was not erroneous, and that MTS has failed to demonstrate that there is substantial doubt as to the correctness of the rebanding decision. Therefore, the Commission denies the application by MTS.

The application

On 20 June 2001, MTS Communications Inc. (MTS) filed an application, pursuant to section 62 of the Telecommunications Act, requesting the Commission to review and vary the residential primary exchange service (PES) costs determined for MTS's band E in Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, 27 April 2001 (the rebanding decision).

MTS alleged that there is substantial doubt as to the correctness of the rebanding decision due to an error in fact regarding the correct and consistent method of applying the Commission's determinations for calculating MTS's loop and residential PES costs in band E.

Under the proposal submitted by MTS in its review and vary application, the residential PES capital costs for band E is calculated by determining separate costs for copper loop plant, fibre loop plant and other plant costs, such as inter-office trunking and switching. With respect to the residential PES copper loop capital cost calculation for band E, MTS proposed to apply separately the band D per-metre cost for copper loop feeder plant to MTS's band E feeder loop length, and to apply the band D per-metre cost for copper loop distribution plant to MTS's band E distribution loop length.

MTS submitted that its recalculation of PES costs in bands A, B, C, D and G fell within 2% of the Commission's restated monthly equivalent costs. However, in the case of band E, the differences between MTS's calculation of its PES costs and that of the Commission fell well outside this margin of error. MTS submitted that this difference is entirely due to the Commission's method of adjusting loop costs in band E to reflect band D per-metre costs.

MTS submitted that as a result of this error, the per-network access service residential PES costs determined for MTS's band E are too low, and that the Commission has understated MTS's total subsidy requirement by approximately $4 million based on current residential rates.

The Commission did not receive any comments on this application.

Commission findings

In the rebanding decision, the Commission approved a revised band structure and revised per-band unbundled loop rates that competitive local exchange carriers pay to lease the unbundled loops of each incumbent local exchange carrier (ILEC). The Commission also determined residential PES costs by band for the purpose of calculating the subsidy requirement of each ILEC under the national subsidy mechanism.

With respect to MTS's band E, in Appendix 2 of the rebanding decision, the Commission determined that the amount of $44.78 would be used as the monthly residential PES cost for the purpose of calculating MTS's subsidy requirement.

This amount was determined by making certain adjustments to the band E cost information provided by MTS during the proceeding leading to the rebanding decision. Since the Commission found that the proposed costs for band E were too high relative to the costs for other bands, one of the adjustments made by the Commission was to bring MTS's per-metre capital cost for band E into line with that proposed by MTS for band D. This adjustment,which was explained in paragraph 141 of the rebanding decision. The adjustment relied on the band D capital cost characteristics to determine an estimate of the band E capital costs, and was derived by applying the band D per-metre average loop capital cost to the band E total loop length. Total loop length comprises the sum of the feeder and distribution loop lengths. In making the adjustment, the Commission relied on the average loop cost data available on the record of the proceeding, which reflected the weighted-average loop costs associated with residence and non-residence loops.

The Commission notes that under MTS's calculation submitted in its review and vary application, as outlined in paragraph 3 above, MTS applied separate band D per-metre loop capital costs for copper loop feeder and distribution plant to MTS's respective band E feeder and distribution loop lengths. MTS takes issue with the Commission's method of applying the overall band D per-metre loop capital costs to the total band E loop length. However, MTS similarly relies on the band D capital cost copper characteristics to determine an estimate of MTS's band E copper loop capital costs.

The Commission also notes that MTS's revised calculation produces a capital cost estimate for residential PES in band E that is virtually the same as MTS's own initial estimate proposed for that band, as provided in its response to the interrogatories from the Commission issued on 30 January 2002. In the Commission's view, MTS has failed to demonstrate that its proposed recalculation, which is an estimate for band E based on band D costs, is more appropriate than the estimate for band E developed by the Commission in the rebanding decision, which brings band E costs more in line with the costs for other MTS bands.

Commission determination

In light of the above, the Commission finds that it did not make an error of fact in its calculation of MTS's band E residential PES costs in the rebanding decision. The Commission concludes that MTS has failed to demonstrate that there is substantial doubt as to the correctness of the rebanding decision and hereby denies MTS's application.

In August 2001, Bell Canada asked the Commission to consider revised PES cost estimates that were higher than the amounts determined for Bell Canada in the rebanding decision. Subsequently, the Commission issued CRTC to review revised loop and primary exchange service cost filings, Public Notice CRTC 2001-119, 30 November 2001 (PN 2001-119).

In the PN 2001-119 proceeding, the Commission will review the methods and assumptions used to determine the capital costs by band for the loop and PES services of each ILEC, including MTS. This process will provide the opportunity to examine MTS's detailed cost assumptions and methods associated with PES in band E.

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