ARCHIVED - Telecom Commission Letter - 8638-C12-200602708

File Number: 8678-C12-200402313 and 8678-B2-200318049
8638-C12-200615586

Ottawa, 10 March 2006

By E-mail

To: interested parties to Public Notice 2004-1

Re: Follow up to Disposition of funds in the deferral accounts, Telecom Decision CRTC 2006-9: Broadband expansion proposals

1. Pursuant to Disposition of funds in the deferral accounts, Telecom Decision CRTC 2006-9, 16 February 2006 (Decision 2006-9), paragraph 199, the Commission stated that it would issue a letter outlining the requirements for filing broadband expansion proposals. Accordingly, the Attachment to this letter sets out those requirements.

2. As noted in Decision 2006-9, the incumbent local exchange carriers (ILECs) that wish to pursue broadband expenditures within their serving territory are to file their plans by 30 June 2006.

Yours sincerely,

'Original signed by L. Katz'

Len Katz
Executive Director
Broadcasting and Telecommunications

cc:   Hugh Thompson, CRTC (819) 953-6081
       Tom Vilmansen, CRTC (819) 997-9253

Attachment

The requirements for filing broadband expansion proposals are set out below.

Consistent with Decision 2006-9, the ILEC is to receive deferral account funding to expand broadband service to customer premises in communities located primarily in Bands E and F in high cost serving area exchanges where service is not available from any service provider and is not part of their existing commitments or previously planned roll-out.

The ILEC is not to include any locations where: (1) it already has announced the introduction of broadband services, (2) it already receives a subsidy for the provision of broadband services from other sources (e.g., provincial or federal government), or (3) it is obligated to provide broadband services pursuant to license or other regulatory conditions.

The process to approve the use of funds from the deferral account is set out in Section 5 below.

1. Broadband Roll-out Plan

The ILEC is to set out its forecast for its broadband roll-out plan, as indicated below in Tables 1 to 4.   [PW is present worth; PWAC is present worth annual costs]

Table 1
Broadband Roll-Out Plan (Company Total)

Table 2
Community-Specific General Information by Province

Table 3
Community-Specific Capacity and Capex Information by Province

Table 4
Community-Specific Sample; PW of Costs, Revenues and Recovery Information

Provide the roll-out period for the company's broadband expansion plan. If the ILEC requires more than four years to roll out its plan, the company is to provide justification.   The ILEC may also roll-out its plan in less than four years.

For Table 1, provide a breakdown of the PWAC of total costs into (1) backbone capital, (2) access capital, (3) co-location and meet point capital, and (4) expenses (maintenance and other).

Tables 2, 3 and 4 are to be sorted by Community Name in alphabetical order.

For Table 3, for Backbone Outside Plant-Total Capacity and for both Existing and Proposed Technology, the ILEC is to file the information requested in number of units (e.g., number of fibre strands or copper cable pairs). For Backbone Electronics-Total Capacity and for both Existing and Proposed Technology, the ILEC is to file the information requested by transmission speeds (e.g., DS-3, OC-12).

For Table 4, information is to be provided for 10 communities in each province, 5 that have the highest upfront capex per subscriber, and 5 that have the lowest upfront capex per subscriber.

The PW of the uneconomic portion of the project equals the present worth of the broadband Phase II costs (PWAC) less the present worth of the broadband revenues over a 15 year study period, beginning on 1 January 2007. This study period captures the timing of all cost and revenue cash flows associated with the projected broadband roll-out plan. This should equal the accumulated balance in the deferral account as of 1 January 2007.

The total drawdown from the deferral account for the broadband program is to be a lump sum on 1 January 2007. The total drawdown equals the PW of the uneconomic portion of the projects as identified in the study period. See the Cost Recovery section for more details.

The ILEC is required to provide a network schematic to describe each technology used in its plan. The ILEC is also required to provide serving area maps as available.

The proposed broadband services should be comparable to those provided in urban areas, i.e., comparable monthly subscriber rates, terms and conditions, upload and download speeds, and reliability.   The ILEC is required to provide these details in its proposal.

The ILEC is required to use least cost technology that meets the service requirements stated above for each project. The ILEC is required to consider the use of all suitable technologies for each project, specifically, Digital Subscriber Line (DSL), fibre, terrestrial radio, satellite radio, etc. The ILEC is required to provide detailed justification if it chooses not to use the least-cost technology for any project in order to fulfil the service requirements described above.

If new technologies that meet the service and least-cost technology requirements are introduced in the market place during the roll-out of the program, the ILEC may re-engineer appropriate projects and report the details as part of its Reporting Requirements.

2. Cost Recovery

In paragraphs 193 and 197 of Decision 2006-9, the Commission stated that only the uneconomic portion of the project will be funded. As mentioned above, the formula to be used to determine the uneconomic portion of the project is as follows:

The uneconomic portion of the project equals the present worth of the broadband costs less the present worth of the broadband revenues over a 15 year study period.

Specifically, the broadband costs would include capital expenditures for additional backbone infrastructure, additional access infrastructure, co-location or external meet points, and equipment costs to support broadband Internet services. The broadband costs would also include ongoing retail activity costs, ongoing maintenance costs, and other appropriate costs (specify with supporting rationale).

Broadband revenues would include retail broadband Internet service revenues, wholesale broadband Internet service [Gateway Access Service/High Speed Access] revenues, broadband backbone service revenues (e.g., dark fibre), and other retail broadband service revenues, such as Wide Area Network, Voice over Internet Protocol, and Internet Protocol Television (specify).

The ILEC is to provide a detailed economic study to support the total amount to be drawn down from the deferral account using Phase II methodology.   In support of this study, the ILEC is to provide all assumptions, including the definition of a community and the demand and take rate assumptions, various capital assumptions (e.g., life estimates, vintage of installed First Costs, average working fill factors), and assumed retail/wholesale service rates.

The ILEC is not to include any community in the program if the present worth of the revenues exceeds the present worth of the costs, i.e., the proposal for that community is economic.

3. Cost studies for Competitor Service rates

The ILEC is to provide separate cost studies based on the General Tariff Economic Study Report Guidelines for the determination of Competitor Service rates for access to broadband backbone services, based on recovery of the ILEC's maintenance expenses only, with no mark-up.

4. Supplemental Plan

Given the limited amount of funds in an ILEC's deferral account, it is possible that not all communities that qualify for broadband expansion, pursuant to Decision 2006-9 and these guidelines, will be included in the company's proposal.   However, it is also possible that some communities listed in the ILEC's roll-out plan may not be approved for deferral account funding.

Accordingly, the ILEC is required to provide a supplemental plan with a list of communities that would qualify for broadband expansion pursuant to Decision 2006-9 and these guidelines, but were not included in the company's roll-out plan. This supplemental plan should be provided separately and include the information requested in Tables 1, 2 and 3. Communities should be prioritized in the order in which the company would wish to substitute them into the roll-out plan. The total upfront capex for this supplemental plan should be at least 10 percent of the total upfront capex included in the company's broadband proposal.

In the event that the Commission denies deferral account funding to one or more communities in the company's broadband proposal, communities in the supplemental plan may be substituted into the planned roll-out based on the priorities established by the company and the amount of funds available in the company's deferral account.

5. Reporting Requirements

Beginning in 2007, the ILEC is to provide, on 1 November of each year, an annual updated roll-out plan for the following calendar year (1 January to 31 December) based on the Commission-approved plan. Interested parties are to provide their comments by 15 November of each year.

In their comments, alternate broadband service providers are to state whether they are providing broadband services to any of the communities listed in the ILEC's 1 November updated annual roll-out plan, and identify each specific community in which it is providing these services.   The alternative broadband service providers are to also provide the size of the community and the number of subscribers being served. The technology used by alternate broadband service providers must meet the service requirements imposed on the ILEC (i.e., services comparable to those provided in urban areas in terms of rates, terms and conditions, speed, and reliability) in order for the community to be considered served.

If no alternative broadband service provider is providing services to any of the communities included in the ILEC's proposed annual roll-out plan, the Commission intends to approve the updated plan by 15 December of each year. The Commission will not approve funding from the deferral account for any community in which an alternative broadband service provider is providing services consistent with the above requirements at the time of the ILEC's 1 November updated roll-out plan.

Beginning in 2008, the ILEC is to provide, on 31 March of each year, a report showing the previous year's roll-out (1 January to 31 December), and providing supporting reasons for any changes to forecasted results.

The details of these reporting requirements will be announced at a later date.