ARCHIVED - Telecom - Commission Letter - 8652-B2-01/02 - Use of an after-taxweighted average cost of capital (AT-WACC) in Phase II cost studies
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Ottawa, 22 July 2002 File No: 2002.8652.B2.01 BY TELECOPIER To: Interested Parties (Attached List) Re: Use of an after-tax weighted average cost of capital (AT-WACC) in Phase II cost studies On 17 July 2002, Bell Canada on behalf of itself, Aliant Telecom Inc., MTS Communications Inc. and Saskatchewan Telecommunications (SaskTel), (collectively the Companies) filed a letter pursuant to Part VII of the CRTC Telecommunications Rules of Procedure seeking Commission approval of a methodological change pertaining to the development of Phase II cost studies. Specifically, the Companies proposed the use of an after-tax weighted average cost of capital (AT-WACC) in Phase II cost studies instead of a cost of capital for which the cost of debt component is calculated on a pre-tax basis. The Companies requested that the Commission approve the AT-WACC approach in Phase II cost studies on the basis that it is a well-known and recognized approach to discounting (e.g., Mark Hirschey and James L. Pappas, Fundamentals of Managerail Economics, Fifth ed., Orlando: The Dryden Press, 1995, pp. 810-817), that this approach is used by the Companies for internal business decisions, and that the impact of using the AT-WACC approach is neither significant nor biased positively or negatively. The Companies noted that this new methodology has been used to develop the primary exchange service (PES) and loop costs filed on 28 June 2002 in the proceeding initiated by CRTC to review revised loop and primary exchange service cost filings, Public Notice CRTC 2001-119, 30 November 2001 (PN 2001-119). The Companies further noted that in its recent filing of PES and unbundled local loop costs in the context of the PN 2001-119 proceeding, Bell Canada showed that using the AT-WACC approach resulted in a very small increase in the monthly equivalent costs from 0.1% to 0.3% across bands. The Companies requested that the Commission approve the use of the AT-WACC approach in economic studies in time for the Companies to reflect the use of this approach in the Phase II cost studies that they will be filing in September in the context of certain follow-up items identified in Regulatory Framework for Second Price Cap Period Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34). In light of this, parties to the PN 2001-119 proceeding and to the proceeding initiated by Price cap review and related issues, Public Notice CRTC 2001-37, 13 March 2001 are requested to provide comments on this proposed methodological costing change by 7 August 2002. The Companies may provide their reply comments by 16 August 2002. Yours sincerely,
Shirley Soehn c.c.: Yvan Davidson CRTC (819) 953-5414 |
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