ARCHIVED - Telecom Decision CRTC 2002-30

Telecom Decision CRTC 2002-30

Ottawa, 1 May 2002

Saskatchewan Telecommunications - Review and vary application regarding the rebanding decision

Reference: 8662-S22-01/01

Summary

In a review and vary application, Saskatchewan Telecommunications (SaskTel) alleged that, in the rebanding decision (Decision CRTC 2001-238), the Commission made an error in determining SaskTel's buried copper cable cost adjustment. As a result, SaskTel suggested that the Commission inappropriately reduced SaskTel's unbundled loop rates and residential primary exchanges service (PES) costs in bands B to G.

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

The application

On 12 September 2001, Saskatchewan Telecommunications (SaskTel) filed an application, pursuant to section 62 of the Telecommunications Act, requesting the Commission to review and vary elements of Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, 27 April 2001 (the rebanding decision). SaskTel alleged that there is substantial doubt as to the correctness of the buried copper cable cost adjustments, described in paragraphs 138 and 161 of the rebanding decision, as these adjustments were made without adequate consideration of the impact of customer density on SaskTel's per-metre costs.

SaskTel argued that the per-metre unit cost will vary between bands and between incumbent local exchange carriers (ILECs) as a result of differences in the density of network access service (NAS) within an exchange. In SaskTel's submission, the Commission's buried copper cable cost adjustments fail to properly consider the impacts of customer density on SaskTel's per-metre costs and are inconsistent with previous determinations. In addition, SaskTel contended the Commission erred in fact by assuming that valid cost comparisons between ILECs could be undertaken at the aggregated per-metre unit cost level. SaskTel concluded that as a result, the Commission inappropriately reduced SaskTel's unbundled loop rates and residential primary exchange service (PES) costs in bands B to G.

SaskTel submitted that its own experience in providing access facilities in rural areas show that the length of the feeder facility increases in areas with low population density. SaskTel further submitted that the size of the feeder cable decreases with distance from the wire centre. However, many elements associated with cable installation costs are similar, as cable installation costs, including contractor charges and costs to obtain rights-of-way, do not vary. As a result, SaskTel contended that the per-metre loop cost rises as the cable size decreases.

SaskTel provided comparisons of three simplified test scenarios to illustrate that the per-metre cost for buried copper cable increases with reductions in cable size. SaskTel developed their test-scenario cost estimates by using the project-estimating tool that outside plant engineers use in SaskTel's day-to-day operations. The test scenarios calculated the development costs of constructing the buried copper portion of three different serving areas that have similar average loop lengths but varying customer densities.

In its application, SaskTel noted its view that the copper unit cost estimates that it filed in the proceeding are appropriate. SaskTel further submitted, however, that the rebanding decision proceeding provided the first opportunity for the Commission to examine SaskTel's Phase II costs of providing loops and primary exchange service. Given the importance of the Phase II costing results, SaskTel submitted that the appropriate solution is for the Commission to perform a further review of SaskTel's costing inputs and the methods used to develop the capital cost of buried copper.

SaskTel also submitted that this further examination will allow the Commission to assess SaskTel's cost estimates on their own merit, gain an assurance that these cost estimates are appropriate, or alternatively, gain an assurance that any adjustment to these costs appropriately reflect all of the factors that affect the costs of serving Saskatchewan's telecommunications market.

In its application, SaskTel noted that Bell Canada filed new PES cost information after the Commission issued the rebanding decision. SaskTel submitted that Bell Canada's new cost information was developed using revised loop characteristics, which, if adopted by the Commission, would have the effect of significantly increasing Bell Canada's loop and PES costs determined in the rebanding decision.

The Commission did not receive any comments on SaskTel's 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 use the unbundled loops of each 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.

In determining SaskTel's loop and residential PES capital costs, the Commission made a number of adjustments to SaskTel's proposed costing assumptions. One of these adjustments, which was explained in paragraphs 138 and 161 of the rebanding decision, consisted of reducing SaskTel's per-band per-metre unit cost estimates for buried copper cable. The per-metre unit cost levels were based on comparisons with those proposed by other ILECs. The levels were also selected such that they would be more uniform across bands.

The Commission notes that, in making the aforementioned adjustments, no specific formula was used to consider the effects of differences in density across bands. However, the adjustments made by the Commission reflected higher unit costs for the lower-density bands, and lower copper cable unit costs for the higher-density bands.

The Commission considers that the test scenario cost data developed by SaskTel and referred to in its review and vary application provides no basis for the suggestion by SaskTel that the copper loop unit costs used to develop cost estimates in the rebanding decision for bands B to C and bands E to G are unreasonable. The Commission notes that band D is not defined under SaskTel's banding structure. SaskTel's test scenarios only measure cost differences due to differences in the cable gauge and cable size requirements. However, as the Commission has noted previously, a number of other factors influence loop provisioning costs in a givenserving area.

In Final rates for unbundled local network components, Telecom Decision CRTC 98-22, 30 November 1998 (Decision 98-22), the Commission stated that the significant factors affecting loop costs are loop length, loop density, supplier prices and labour costs. The Commission also stated that there are many other factors that affect unbundled loop costs. These include the feeder/distribution ratio; the cable construction mix as among aerial, buried and underground cable for both feeder and distribution plant; the circuit mix as among copper loaded, copper unloaded and pair gain systems that produce additional channels between the central office and the customer's premises; and cable gauges and sizes. Further, adjustments may also be required for loops that are deployed on integrated remote systems.

The Commission considers that, while the per-metre costs generally vary across bands and ILECs as a result of differences in density, there are instances where the anticipated inverse relationship between the per-metre loop cost and density does not occur. For example, SaskTel's own cost evidence submitted in support of its application demonstrates a low correlation between per-metre costs and density when comparing band A with band C, and band F with band G.

A similar finding was observed by Bell Canada in the rebanding decision proceeding. Bell Canada conducted an analysis to determine whether a further disaggregation of its proposed bands B and C based on density was justified. The results of this analysis showed that there was a very small difference in costs across these disaggregated bands, and that splits of bands B and C were not warranted.

Commission determination

In light of the foregoing, the Commission considers that SaskTel has not demonstrated that there is substantial doubt as to the correctness of the rebanding decision relating to the buried copper cable cost adjustments. The Commission therefore denies SaskTel's application to review and vary the buried copper cable cost adjustments determined in the decision.

The Commission notes that in August 2001, Bell Canada asked the Commission to consider revised PES cost information. 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. This process will provide the opportunity to fully examine the detailed cost assumptions and methods associated with SaskTel's loop and residential PES capital costs.

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