ARCHIVED - Telecom - Commission Letter - 8000-C12-24/02 - CLECs rates for interconnection service

Ottawa, 18 June 2003

File No.:  8652-T42-01/01

By facsimile

 To:  Attached Distribution List

 Re:  Economic parameters and tax rates filed with cost studies

In the proceeding concerning TELUS Communications Inc. (TELUS) Tariff Notice 320, TELUS claimed confidentiality for certain information including economic parameters and tax rates used in the economic study.  In response to a public disclosure request from an intervener, Commission staff stated that TELUS was to disclose economic parameters and tax rates on the public record.

The data elements, which were placed on the public record, are as follows:
 

·       Cost of Capital

·       Cost of Debt

·       Cost of Equity

·       Debt Ratio

·       Income Tax Rate

·       Large Corporation Tax Rate

·       Miscellaneous Capital Tax Rate

·       Revenue Miscellaneous Tax Rate

·       Variable Common Cost

Upon providing additional information on the public record, TELUS stated:

 "In ordering the disclosure of this information the Commission has determined that this information is not confidential.  Accordingly, the Company is of the position that, in the interest of consistency and equitable treatment, the Commission should direct that all economic study provisions that accompany ongoing tariff applications should disclose such financial parameters."

By letter dated 13 August 2001, the other large telephone companies were asked to comment on the position submitted by TELUS.  Bell Canada replied on behalf of itself and Aliant Telecom Inc., MTS Communications INC., Saskatchewan Telecommunications and Télébec ltée (collectively the Companies).  Bell Canada noted that the Rate of Return on Equity for Utility Segment services as well as tax rates are routinely disclosed when the Companies file tariff applications.

Bell Canada further stated that starting in the year 2001, for Bell Canada, the Revenue Miscellaneous Tax Rate has been replaced by the Gross Receipts Tax Rate and the Tax Rate on Telecommunications, Gas and Electricity.

However, Bell Canada considered the following economic parameters to be confidential when filing tariff applications:
 

·       Cost of capital

·       Cost of debt

·       Debt ratio

·       Variable Common Cost Factor(VCCF); and

·       Rate of Return on Non-Utility Segment Services.

Bell Canada submitted that except for the VCCF, these parameters are prospective values that reflect the manner in which the Companies plan to conduct the business from a financial perspective.  Bell Canada further submitted that disclosure of these parameters on the public record would permit existing and potential competitors to compare the cost of financing with those of the Companies and, as a result, would assist such competitors in formulating more effective business and investment strategies to the competitive detriment of the Companies, thereby causing specific direct harm to the Companies.  The Companies further submitted that although the public interest may be served by the Commission having such information, the relationship between service of the public interest and the disclosure of such information to competitors is considerably more tenuous.

With respect to the VCCF, Bell Canada submitted that it is used to estimate a service's portion of the Companies' respective variable common costs.  Bell Canada submitted that disclosure of the VCCF, when combined with publicly available service-specific costs, can be used to provide a reliable estimate of a portion of each Company's specific causal costs.  Bell Canada argued that the disclosure of the VCCF would enable existing and potential competitors to formulate or improve strategic marketing and pricing activities to the Companies' detriment, thereby causing specific direct harm to the Companies.  Bell Canada stated that the Companies recognize that, in some instances, disclosure of the VCCF may be appropriate.  However, mandated disclosure in all instances would not be appropriate.

Bell Canada submitted that although it may be administratively convenient to declare that the financial parameters must always be disclosed, as suggested by TELUS, the Companies submit that a more appropriate determination would be to declare these variables confidential in all cases.  In the alternative, the Companies submitted that they favour a continuation of the present process, wherein the Commission determines on a case-by-case basis whether, when challenged, particular information that had been submitted in confidence should be disclosed on the public record.

Bell Canada submitted that one of the factors that the Commission takes into account in making its disclosure determinations is the degree of competition in a particular market, where it may be expected that the greater the degree of competition, the greater the specific harm that would result from disclosure.  Thus, in Bell Canada's view, it would not be reasonable for the Commission to establish a blanket ruling requiring disclosure of economic parameter information, as the degree of competition related to specific tariff applications can vary widely.

No party objected to the disclosure of tax rates.  In its comments Bell Canada distinguished between the Rate of Return on Equity for Utility Segment Services and the Rate of Return on Equity for Non-Utility Segment Services.  In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 the Commission determined that the distinction between the Utility Segment and the Competitive Segment no longer had relevance.  Rather the meaningful distinction is between tariffed and forborne services.  Accordingly the Rate of Return which is relevant to the issue of disclosure in this proceeding is that used with respect to tariffed services.

It is noted that the economic parameters which were placed on the record by TELUS, and which are the subject of comments regarding disclosure, are not service-specific parameters.  These parameters are used as inputs for the purposes of establishing the costs of a wide range of services.   Accordingly staff considers that it is appropriate to consider through a blanket ruling whether it is appropriate that these parameters should always be disclosed in respect of all services for which these parameters are employed.

A factor relevant to the assessment of harm is the expected usefulness of the information at issue to parties in furthering their competitive position.  In this regard, an important consideration is the degree to which the information at issue is disaggregated.  Generally speaking, the more aggregated the information, the less the likelihood that harm will flow from its disclosure.

As stated in the foregoing, the economic parameters in question are used for the purpose of costing a wide range of services.  In staff's view there is strong public interest in the public disclosure of these parameters to facilitate parties' participation in proceedings concerning the proposed rates for tariffed services.  Staff also considers that the economic parameters in question are highly aggregated and that, hence, the harm is significantly attenuated.  On balance, staff considers that the public interest in disclosure outweighs the likely specific direct harm stemming from such disclosure.

Accordingly in future tariff applications the companies identified in the attached distribution list are to place on the public record the economic parameters and tax rates, as appropriate, identified below:
 

·       Cost of capital

·       Cost of debt

·       Cost of equity

·       Debt ratio

·       Variable Common Cost Factor(VCCF)

·       Gross Receipts Tax rate

·       Tax rate on Telecommunications, Gas and Electricity

·       Income Tax rate

·       Large Corporation Tax rate

·       Miscellaneous Capital Tax rate

·       Revenue Miscellaneous Tax rate

 

Yours sincerely,

Original signed by

 

Shirley Soehn
Executive Director
Telecommunications

Attach.

 

c.c.    Fred Rancher - CRTC, (819) 997-3498