ARCHIVED - Telecom Commission Letter - 8663-C12-200600066

Letter

File Number: 8663-C12-200600066

Ottawa, 10 April 2006

By E-mail

REGULATORYAFFAIRS@nwtel.ca

Mr. Scott Roberts
Assistant Vice-President, Carrier and Regulatory Affairs
Northwestel Inc.
P.O. Box 2727
Whitehorse, YT
Y1A 4Y4

Re: Review of regulatory framework for Northwestel Inc, Telecom Public Notice CRTC 2006-1

Dear Mr. Roberts:

Pursuant to the procedures set out in Review of regulatory framework for Northwestel Inc., Telecom Public Notice CRTC 2006-1, 17 January 2006, attached are interrogatories associated with this proceeding.

Reponses to these interrogatories are to be filed with the Commission, and served on the interested parties to this proceeding, by 1 May 2006. Responses are to be received, and not merely sent, by this date.

Yours sincerely,

Original signed by

John Macri
Director, Financial and Regulatory Matters

c.c.:    C. Bailey, CRTC (819) 997-4557

Attachment 1

INTERROGATORIES TO NORTHWESTEL INC.

10 April 2006

Regulatory framework

Components of a price regulation framework

1101 Refer to the response to interrogatory NWTel(CRTC)30Jan06-104, page 3 of 4.   Northwestel stated that it ".has submitted its suggested methodology incorporating normalization of 1998 costs and the inclusion of SIP [service improvement plan] access expenditures in the 2006 cost base for residential PES [primary exchange service]."

a) Provide supporting calculations for the 1998 residential service cost of $42.52 and the normalized 1998 residential service cost of $40.10 in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-602, Attachment 1. In addition, provide the methodology used to normalize the costs, including all calculations and underlying assumptions used. Identify any differences related to technology, and costing methodology and assumptions that were used to develop the cost estimate of $42.52 as compared to the cost estimate of $56.04.

b) Provide detailed explanations for each line item provided in response to part a) above to account for the 39.8 percent cost increase for 2006 over 1998.

c) Provide a revised calculation for the 2006 cost estimate to exclude the SIP access expenditures.

d) Explain why the years 1998 through 2006 were chosen for this comparison.

1102 Refer to the response to interrogatory NWTel(CRTC)30Jan06-103, page 1 of 2. Northwestel indicated that the company is ".concerned that the GDP-PI [gross domestic product - price index] may not adequately reflect input cost increases associated with large-scale resource sector projects (which occur on a cyclical basis in the North)." Provide other appropriate measures of inflation that may be available, and explain why these measures are more representative of Northwestel's operating territory than GDP-PI.

1103 Refer to the response to interrogatory NWTel(CRTC)30Jan06-105.

a) Northwestel submitted that an exogenous factor (Z-factor) should be a component of the price regulation framework and proposed the following criteria for consideration of Z-factor adjustments:

i) legislative, judicial or administrative actions which are beyond the control of the company; or

ii) events or actions which are specific to the telecommunications industry; or

iii) events or actions which are specific to Northern Canada; and

iv) have a material impact on the company.

Provide the company's rationale for not requiring that all criteria be met in order for the event to be considered eligible for exogenous treatment.

b) Northwestel submitted that assignment of a Z-factor to the competitor services basket might be appropriate in some circumstances, and should be considered on a case-by-case basis. Elaborate on the circumstances under which the assignment of Z-factors to the competitor services basket may be appropriate for Northwestel.

c) Northwestel stated that, ".as noted in NWTel(CRTC)30Jan06-103, the Company is particularly concerned by the potential impacts of large resource sector projects on Northwestel and the cost of its inputs. For example, the Mackenzie Valley Gas Pipeline may be constructed in the period 2008-2011. In its peak construction phase, the project is anticipated to employ up to 7,000 workers at various work camps, compared to the population of Yellowknife of 19,000, which will have a significant impact on labour demand and labour supply.   Northwestel proposes that the best approach for addressing impacts of this nature is through the exogenous factor."

Provide further justification for such an approach given that Northwestel would likely generate additional revenues and benefits from such projects that would possibly offset the additional input costs. The company should also address how such events or actions are unique to Northwestel when compared to similar non-exogenous events or actions for the other incumbent local exchange carriers (ILECs).

Capital plan, service improvement plan and quality of service

Capital plan and service improvement plan

1201 Refer to the response to interrogatory NWTel(CRTC)30Jan06-206.   The company stated that it is in the early stages of evaluating the potential for Internet protocol (IP) network services, including Voice over Internet Protocol (VoIP) services in the North, and, other than for an IP virtual private network (VPN) service, no detailed deployment plans existed. Provide the results of the latest net present value (NPV) study to support the expenditures for VPN service.

1202 Refer to Northwestel Inc.'s Evidence, dated 20 March 2006, (Northwestel's evidence), Government-Induced Market Disruptions, paragraphs 46 to 62. Northwestel stated that competitors had secured funding from various sources totalling $40.4 million to provide broadband services to 56 communities in Northwestel's serving territory.

a) Provide a table listing the 56 communities identified by Northwestel, which are or will be served by competitors. The table should identify those communities served by Northwestel by satellite and by other technologies. In addition, provide the total network access services (NAS) for each community, the total NAS served by satellite, the total NAS served by other technologies, and the overall total NAS.

b) For the communities identified in part a) above, indicate whether it would be feasible to jointly engineer with the competitors and Industry Canada to share satellite bandwidth to each community, with the view to optimizing satellite bandwidth and generating a savings in annual expenses for Northwestel.

c) For the communities identified in part a) above, provide the total forecast revenues separately for local, toll, and low-speed Internet access services for the year 2006.

d) Provide a detailed description of how the impact of the competition in the 56 communities has been taken into account when planning Northwestel's 2006 view of its capital plan, indicating any reductions in projected spending.   If the impact has not been taken into account, explain why not.

e) Provide a detailed description of how the impact of competition in the 56 communities has been taken into account when planning Northwestel's new proposed SIP described in Northwestel's evidence, Section 10, SIP Proposal, paragraphs 344 to 353, indicating any reductions in projected spending. If the impact has not been taken into account, explain why not.

1203 Refer to the responses to interrogatories NWTel(CRTC)30Jan06-201 and NWTel(CRTC)30Jan06-203. Northwestel is forecasting negative growth for NAS. Provide justification for the capital expenditures for local growth, specifically projects 1.1.4, 1.1.5, 1.1.6, 1.1.7, 1.1.8, 1.1.10, and 1.1.12.

1204 Refer to the responses to interrogatories NWTel(CRTC)30Jan06-202 and NWTel(CRTC)30Jan06-203.   Northwestel is forecasting low growth for toll traffic.   Provide justification for the capital expenditures for toll growth, specifically projects 2.1.1 and 2.1.48.

1205 Refer to the response to interrogatory NWTel(CRTC)30Jan06-203.   Provide justification for the capital expenditures for data growth and data modernization, specifically projects 3.1.1, 3.1.2, 3.1.5, 3.1.11, 3.1.13, 3.1.14, 3.1.15, and 3.2.2.

B) Provide the most recent NPV study for project 3.2.2, New Digital Communication Network.

1206 Refer to the response to interrogatory NWTel(CRTC)30Jan06-203, Attachment 3b. Provide justification for the capital expenditures for project 4.4.47, Software System Upgrades & Licensing.

1207 Refer to Northwestel's evidence, Appendix VIII Revised, page 6 of 7. The company stated that the total capital expenditures associated with each SIP category, by asset code, were considered as one-time capital expenditures at the beginning of the study and the present worth of annual costs (PWAC) and annual equivalent costs (AEC) were determined. Provide a detailed description of how the company determined each PWAC and AEC.

1208 Refer to Northwestel's evidence, Section 10, Service Improvement Plan Proposal, paragraphs 344 to 353.

a) Provide a breakdown of the proposed capital expenditures by year and by program, specifically (1) microwave radio system replacement, (2) replacement of obsolete switching systems, (3) conversion from satellite to terrestrial radio, and (4) satellite equipment upgrade.

b) Provide a list of communities to be served by the new SIP, the quantity of residential and non-residential NAS in each community, and the total residential and non-residential NAS.

c) Indicate whether the company proposes to request additional funding to support this proposal.   If so, provide rationale and a detailed Phase II cost study to support the additional funding. If the company proposes to receive funding from the National Contribution Fund (NCF) for this proposal, provide rationale as to why the company should receive funding for that portion used by non-residential NAS, given that only residential NAS are eligible to receive a subsidy from the NCF.

d) Refer to the response to part c) above. Propose a methodology, with supporting rationale to separate the residential and non-residential portions. Using this methodology, recalculate the Phase II cost study provided in response to part c) above to include those assets associated only with provision of service to residential customers, and indicate the reduced level of additional funding.

e) Explain why the company categorizes this proposal as a SIP rather than a modernization program given that the company generally meets the Basic Service Objective.

f) Indicate whether the company could 1) extend the lives of the switches and transport systems in question, or 2) share capacity on competitor transport facilities, instead of implementing its SIP proposal in whole or in part.

1209 Refer to the response to interrogatory NWTel(CRTC)30Jan06-204, page 3 of 4.   Provide the amount and descriptions for the increase in capital expenditures for the Fort Fitzgerald project along with supporting rationale.

Quality of service

1210 A) Provide, for the first quarter of 2006, the company's quality of service (Q of S) indicators in the same format as that provided in the response to interrogatory NWTel(CRTC)30Jan06-212.

B) If the company encountered any significant Q of S problems in the first quarter of 2006, provide detailed descriptions of the problems and solutions employed to correct these problems.

Finance, revenues and expenses

1301 In Implementation of price cap regulation and related issues , Telecom Decision CRTC 98-2, 5 March 1998 (Decision 98-2) and Implementation of price regulation for Télébec and TELUS Québec , Telecom Decision CRTC 2002-43, 31 July 2002 (Decision 2002-43), the starting point for the going-in revenue requirement was generally the financial forecast for the year prior to the implementation of price cap regulation.   Furthermore, adjustments were made for items such as the impact of expenses, rate initiatives proposed or implemented during the first year of the price cap, and the estimated impact of any rate proposals implemented at the initiation of price cap regulation.

Refer to Northwestel's evidence, Appendix VI, pages 1 to 10.

a) Provide Northwestel's view, with supporting rationale, as to why it should not use a going-in revenue requirement methodology that is generally based on the methodology used in Decisions 98-2 and 2002-43.

b) Provide a schedule for Northwestel's going-in revenue requirement in the same format as the column under the heading "company's proposal" in Table 1 of Decision 2002-43. The starting point should be the supplemental funding of $9.8 million approved in Northwestel Inc. - Supplemental funding requirement for 2006 , Telecom Decision CRTC 2006-10, 24 February 2006 . The company's adjustments should include the financial impact of specific proposals such as the elimination of the bundled carrier access tariff (CAT) rate, the implementation of the switch connect rate, rate rebalancing, and the additional subsidy from the NCF as proposed by the company. In addition, the company may make proposals for the disposition of any remaining going-in revenue requirement balance.

1302 Refer to the response to interrogatory NWTel(CRTC)30Jan06-309, Attachment 1.   Provide for each of the years 2005 and 2006, the breakdown of the toll revenues between the CAT and the other components.   With respect to the 2006 CAT revenue component, provide the supporting calculations showing the minutes and the CAT rate by major components. In addition, provide the revenues and the change in revenues, with supporting calculations, that would have resulted if the proposed switch connect rate had been in effect for 2006.

1303 Refer to Northwestel's evidence, Appendix VI, page 5, and the response to interrogatory NWTel(CRTC)30Jan06-401.

a) Provide, with supporting calculations, a breakdown of toll revenues in Northwestel's evidence, Appendix VI, page 5 by the tariff components listed in the response to interrogatory NWTel(CRTC)30Jan06-401, Attachment 1, and reconcile any difference between the toll revenues in this schedule and the toll revenues provided in the company's evidence for 2006 and 2007.

b) In the response to interrogatory NWTel(CRTC)30Jan06-401, Attachment 2A, in the section identifying "message toll services", the company has provided information showing the change in revenues resulting from its proposed rates.   Provide a reconciliation for this change in the message toll revenues compared to the change in revenues from 2006 to 2007 of approximately $5.5 million identified in Northwestel's evidence, Appendix VI, page 5.

c) Provide a reconciliation of the changes in revenues from the 2006 and the 2007 forecasts in Northwestel's evidence, Appendix VI, page 5, with the estimated incremental revenues for 2007 listed in the response to interrogatory NWTel(CRTC)30Jan06-401, Attachment 2A.

1304 Refer to the responses to interrogatories NWTel(CRTC)30Jan06-309, Attachment 1 and NWTel(CRTC)30Jan06-401, Attachment 1.   Restate the revenues for 2006 in the response to interrogatory NWTel(CRTC)30Jan06-401, Attachment 1, by listing the tariff number, tariff item, tariff rate description, and the 2006 revenues using the same major categories identified in the response to interrogatory NWTel(CRTC)30Jan06-309, Attachment 1, as well as total revenues for each major category. Reconcile any differences in revenues between the two responses for each major category.

1305 Refer to the response to interrogatory NWTel(CRTC)30Jan06-401, Attachment 2A.   Provide detailed supporting calculations for the estimated incremental revenues for 2007 for message toll services, digital private line - transmission service, digital private lines - North customer volume pricing, carrier access tariff, and public cellular services.

Depreciation

1306 In Price cap regulation and related issues, Telecom Decision CRTC 97-9, 1 May 1997, the Commission determined that any depreciation reserve deficiency (DRD) would be amortized, for regulatory purposes, using the core composite average remaining service life of the company's assets. Using this approach, the amortization of the DRD would be on a straight-line basis for regulatory purposes, thus ensuring that the amount included in the going-in rates would not change relative to the amounts reflected in the rates for subsequent years of the price cap plan.

Refer to the response to interrogatory NWTel(CRTC)30Jan06-315A).

a) Provide the following information in tabular format for each Account/Depreciation category, assuming implementation of the company's proposed service lives effective 1 January 2007, and based on the estimated average remaining life (ARL) as at 1 January 2007:

i) Depreciation life characteristics;
ii) Account/Depreciation category capital balance;
iii) Whole life depreciation amount;
iv) ARL;
v) Remaining life adjustment amount [viii) divided by iv)];
vi) Actual reserve balance;
vii) Theoretical reserve balance;
viii) Account/Category over/under accrual [vi) minus vii)];
ix) Reserve variance expressed as a percentage of the actual reserve [viii) divided by vi)]; and
x) Category/Account depreciation [iii) minus v)].

b) Provide the electronic spreadsheet used to estimate the information provided in response to part a) above.   The spreadsheet should include all formulas where applicable.

1307 Provide, in tabular format, the same information requested in interrogatory NWTel(CRTC)10Apr06-1306a) for asset code 60 - Cable - Aerial/Underground, for the five-year period commencing 1 January 2007, incorporating an average service life (ASL) of 1) 22 years and 2) 24 years, respectively.

Rates

1401            Refer to the response to interrogatory NWTel(CRTC)30Jan06-102, Attachments 1 and 2.

a)         Provide the total actual revenues for the year 2005 and the total estimated revenues, based on existing rates, for the year 2006 for each service basket proposed by Northwestel.

b)         Provide the total estimated revenues for the years 2006 and 2007 using the revised rates identified by Northwestel in the response to interrogatory NWTel(CRTC)30Jan06-401, for each service basket proposed by Northwestel.

1402            Refer to the response to interrogatory NWTel(CRTC)30Jan06-102, page 9 of 10.   Comment on the appropriateness of assigning basic toll to a separate basket that does not include basic calling features and residential voice messaging.

1403            In the response to interrogatory NWTel(CRTC)30Jan06-102, Northwestel proposed that the price constraint on residential enhanced calling features and voice mail should be a maximum rate increase of $1 per year on each service item or benchmarked to a pre-existing Commission approved rate for another phone company.

                    Indicate, with supporting rationale, whether Northwestel's proposal of a maximum rate increase of $1 per year would apply to a chosen benchmarked pre-existing Commission approved rate.

1404            In the response to interrogatory NWTel(CRTC)30Jan06-401, Northwestel has proposed to decrease rates for:

i)          DS-1 Interexchange Network Service Channel charges;
ii)         Digital Private Line North Customer Volume Pricing Plan (CVPP);
iii)        Wireless Service Provider - Network Access;
iv)        Message Toll Services;
v)         Toll-Free per-minute rates; and
vi)        Teleconferencing charges.

                    For each service listed above, provide an economic (Phase II) cost study and the company's proposed rates using the same format as provided in the response to interrogatory NWTel(CRTC)30Jan06-602.   Provide a detailed description of the major components that are included in each specific line item for each category of costs identified in the economic study.

1405            Comment, with supporting rationale, on the appropriateness of Northwestel providing an economic study in support of applications for: 1) new services, 2) service rate reductions, 3) service bundles, and 4) rate increases above the Commission's approved rates for another company.

1406            Refer to the response to interrogatory NWTel(CRTC)30Jan06-405A)ii), Attachment 1.   Provide a list of the services included in the Optional Monopoly Services component.

Competition

Local competition

1501            At paragraph 341 of Northwestel's evidence, the company submitted that it would not be reasonable to impose or mandate facilities-based local service competition based on the framework developed in Local competition , Telecom Decision CRTC 97-8, 1 May 1997 , in Northwestel's operating territory.   In Revised regulatory framework for the small incumbent local exchange carriers , Telecom Decision CRTC 2006-14, 29 March 2006 (Decision 2006-14), the Commission set out a framework for local competition in the operating territories of the small incumbent local exchange carriers (SILECs).   In Decision 2006-14, the Commission determined, among other things, that it would permit competitive entry in the SILECs' territories by allowing the resale of their local services.   The Commission also found that a SILEC should only file proposed tariffs for competitor services if the SILEC received a bona fide request from a competitor.

                    Comment on the appropriateness of establishing a framework for local competition in Northwestel's operating territory similar to the one set out in Decision 2006-14.   Indicate what changes, if any, should be made to the framework in Decision 2006-14 to accommodate Northwestel's operating territory.  

1502            Comment on the appropriateness of establishing a local competition framework in exchanges within Northwestel's operating territory with more than 2,000 NAS.

1503            Comment on the appropriateness of mandating local service competition in Northwestel's territory, in light of the increased availability of broadband services in Northwestel's territory and the ability to provide VoIP service.

1504            In Finalization of quality of service rate rebate plan for competitors , Telecom Decision CRTC 2005-20, 31 March 2005 , the Commission finalized the Q or S rate rebate plan for competitors that applied to the large ILECs.  

In the event that the Commission should find it appropriate to mandate local service competition in Northwestel's territory and to require Northwestel to offer services to competitors, comment on the appropriateness of implementing a rate rebate plan similar to the one established for the large ILECs.

Long distance competition

1505            In Forbearance - Regulation of toll services provided by incumbent telephone companies , Telecom Decision CRTC 97-19, 18 December 1997 (Decision 97-19), the Commission found that toll services were comprised of the following two markets: (i) toll services and (ii) toll-free services.   In its evidence, Northwestel submitted that it would be appropriate for the Commission to forbear from the exercise of its powers with regard to regulating long distance services to the same extent, and subject to the same conditions, as for the other incumbent telephone companies.

a)         Clarify whether Northwestel's request for forbearance includes both the toll services market and the toll-free services market.

b)         If Northwestel's forbearance request also includes the toll-free services market, provide evidence to justify that each of the toll services and toll-free services markets are sufficiently competitive and that Northwestel does not have market power.

1506            In Decision 97-19, the Commission forbore from exercising its powers under sections 25 and 31 of the Telecommunications Act (the Act) with regard to the regulation of toll and toll-free services.   The Commission also decided to continue exercising its powers to impose certain conditions under section 24 of the Act.   The Commission further decided to continue exercising, in part, its powers in respect to just and reasonable rates and unjust discrimination under section 27 of the Act, and its powers to approve certain agreements and arrangements under section 29 of the Act.

In its evidence, Northwestel submitted that it would be appropriate for the Commission to forbear from the exercise of its powers with regard to regulating long distance services to the same extent, and subject to the same conditions, as for the other incumbent telephone companies.

With respect to toll services and, if applicable, toll-free services in Northwestel's operating territory, specify, with supporting rationale, which powers the Commission should retain under the Act, if the Commission should determine that it is appropriate to forbear from those services.

1507            In the response to interrogatory NWTel(CRTC)30Jan06-202, Attachment 3, Northwestel provided a forecast of equal access providers' total minute market share in 2006.   Northwestel also provided a forecast of equal access providers' total minute market share in 2007, based on Northwestel's proposed rates.

Explain, with supporting rationale, the year over year variation in Northwestel's forecast of equal access providers' total minute market share for the years 2005, 2006, and 2007.

1508      A)     Provide a list of all the licensed or exempt cable distribution undertakings owned by Northwestel Cable Inc. (Northwestel Cable), specifying which are licensed and which are exempt, together with the serving territory of the cable distribution undertakings.

              B)     Provide a list of all cable companies, if any, other than Northwestel Cable operating in Northwestel's territory.

Funding for provision of service to high-cost serving areas

Phase II costs

1601            Provide detailed calculations and justification for the proposed use of a 25 percent mark-up for the purpose of the subsidy calculations.

1602            Refer to the response to interrogatory NWTel(CRTC)30Jan06-407.   The company proposed a cost-based switch connect rate of $0.00825 per minute for its entire operating territory, excluding the toll transport component.   The proposed switch connect rate includes the switching and aggregation (S&A) costs of $0.005 per minute, plus a 25 percent mark-up on S&A costs of $0.00125 per minute, and the equal access (EA) start-up costs of $0.002 per minute.

a)         Provide a breakdown of the S&A costs of $0.005 per minute in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 2, table titled "Detailed Summary of Phase II Costs".   Identify the components included in each line item.

b)         Confirm that the total originating and terminating demand minutes were used to calculate the S&A cost of $0.005 per minute.   If not, explain what demand was used.

c)         Identify the changes in methodology and assumptions used in the company's proposed S&A rate of $0.0625 per minute (cost plus 25 percent mark-up) and the S&A rate of $0.028 per minute proposed in the proceeding leading to Long-distance competition and improved service for Northwestel customers, Decision CRTC 2000-746, 30 November 2000.

1603            Refer to the response to interrogatory NWTel(CRTC)30Jan06-606, Attachment 1, regarding toll connect transport costs.

a)         Confirm whether or not costs based on "replacement costs" were used to estimate toll connect transport costs.   If yes, provide the company's rationale for the use of "replacement costs" in light of the comments in paragraph 178 of Northwestel's evidence, where the company stated "[g]iven that Northwestel's toll connecting trunks are provisioned on a DS-1 basis . it is unlikely that any reduction in traffic volumes will result in a material change in the total costs."

b)         Provide a breakdown of the toll connect transport costs in the format of the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 2, table titled "Detailed Summary of Phase II Costs", identifying the components included in each line item.

c)         Provide the following for toll connect transport costs:

i)          a separate per-minute cost for each of the satellite related toll connect transport costs and terrestrial related toll connect transport costs;

ii)         a breakdown of these two per-minute cost estimates into capital and expenses;

iii)        identify the components included for each of the satellite and terrestrial capital and expense costs; and

iv)        the assumed percentage mix of the two types of facilities with supporting rationale.

d)         Provide a per-minute cost for toll connect transport costs using the net book value (NBV) approach identifying the assumptions used and the NBV of the facilities used in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-603, Attachments 2, table titled "Detailed Summary of Phase II Costs".

1604            Refer to the residential and business loop and central office equipment (COE) unit costs provided in the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 1.

a)         Provide the detailed calculations, methodology, assumptions, and supporting rationale used to derive each of the loop installed first costs (IFCs) per NAS indicating the sources of data used to develop the unit costs for each territory/province.   The response should indicate the material costs, engineering and installation costs, and other costs included in the IFCs, identifying the vintage of the unit costs.

b)         Provide a description of the components included in loop/COE IFCs (e.g. remotes, jumper wire interfaces, switch).

c)         In light of the decline in technology prices over time, identify and explain, with supporting rationale, the methodology and factors used to restate the loop/COE IFCs to the first year of the study period (i.e. 2006).

d)         Explain, with supporting rationale, the factors that contribute to the significant differences between the loop IFC per NAS(non-SIP) and the loop IFC per NAS(SIP), by province/territory for i) outside plant equipment and ii) transmission equipment for each exchange size.   The response should address factors such as differences in material and labour costs, working fill factors, and the methodology used to derive these costs.   In addition, provide the company's rationale for using the same loop IFC per NAS(SIP) for each territory/province in contrast with the specific unit costs used for loop IFC per NAS(non-SIP) in each territory/province.

e)         Explain with supporting rationale the differences in the OT [one-time] capital unit costs for British Columbia (BC) residential COE IFC per NAS by exchange size when compared to those of Yukon, Northwest Territories and Nunavut for: 1) COE Switching, 2) Land, Building and Other, and 3) Power.

f)          Provide the company's rationale for generally assuming the same Loop/COE Opexp [operating expenses] per NAS for each exchange size for costs such as maintenance, drop installation, and drop maintenance.   The response should address the impact on costs resulting from travel time, equipment type, costing assumptions and methodology used to assign costs among services.

g)         Provide the methodology, detailed calculations, sources of data, and supporting rationale used to develop the 2003 unit costs for drop maintenance, drop installation and maintenance costs in each territory/province for each exchange size.

1605            Refer to the response to interrogatory NWTel(CRTC)30Jan06-607.   Provide the revised residential loop cost per NAS and the revised residential PES cost per NAS in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 2, table titled "Detailed Summary of Phase II Costs" using the HCSA bands established in Restructured bands, revised loop rates and related issues , Decision CRTC 2001-238, 27 April 2001 (Decision 2001-238), modified as follows:

a)         Band D: total NAS (residence plus (business and other)) = 8,000;

b)         Band E: total NAS =1,500;

c)         Band F: total NAS >1,500 but <8,000; and

d)         Band G: remote [1] wire centre serving areas.

1606      A)     For each of the bands identified in interrogatory NWTel(CRTC)10Apr06-1605, provide the following:

i)          the assumed average loop length;

ii)         the assumed percentage copper loop distribution, copper feeder loop, and integrated digital loop carrier (IDLC) feeder loop;

iii)        the average working fill factors assumed for feeder plant, distribution plant and switching equipment;

iv)        capital unit costs per NAS for each band, for loop and PES, in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 1.   In addition, provide a breakdown of the capital costs between material, engineering and installation, and other (specify), and identify the vintage of the data and the methods and assumptions used to restate the unit costs to the first year of the study period.   Indicate whether or not adjustments were made to capital costs when demand declined, and if not, why not; and

v)         expense unit costs per NAS for each band, for loop and PES, in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 1.

              B)     Provide a revised Table of Wire Centre Areas and Densities in the same format as in the response to interrogatory NWTel(CRTC)30Jan06-601, Attachment 1, based on the revised banding structure.

              C)     Provide the total subsidy requirement for each of Bands D, E, F, and G identified above indicating each of the following components: 1) monthly cost of the band plus a 15 percent mark-up, 2) monthly $5 implicit revenues from local services, 3) the average monthly rate for the band, and 4) the total number of residential NAS in the band.

              D)     Provide a cost-sensitivity analysis for the revised residential loop cost per NAS and PES cost per NAS, for each of the bands identified in interrogatory NWTel(CRTC)10Apr06-1605, based on a minimum average working fill factor of 50 percent for distribution plant.

              E)     Provide the company's view on capping maintenance expenses at 10 percent of capital (20 percent for Band G), and operating expenses at $1.65/$2.50 per NAS for the Loop/PES, respectively, consistent with the determinations in Decision 2001-238, for the purposes of the subsidy calculation.

Subsidy calculation

1607            In the response to interrogatory NWTel(CRTC)30Jan06-610, Northwestel identified its average monthly residential PES rate to be $29.50, on 31 December 2005 .   In the response to interrogatory NWTel(CRTC)30Jan06-201, Northwestel proposed a $2.00 residential local rate increase in 2007.

Explain why Northwestel, in response to interrogatory NWTel(CRTC)30Jan06-612, is proposing to use $31.33 in its subsidy calculation instead of $31.50 ($29.50 + $2.00).

1608            In Decision 2000-745, the Commission determined that the use of a $5 per NAS per month common implicit subsidy target would provide local exchange carriers with an appropriate incentive to generate margins from the various residential local optional services.

In Regulatory framework for the small incumbent telephone companies , Decision CRTC 2001-756, 14 December 2001 , the Commission extended the $5 per NAS per month common implicit subsidy target to the SILECs.

a)         Explain why Northwestel's proposed implicit contribution amount is only set at its current margin amount and not the $5 per NAS per month implicit subsidy target deemed appropriate by the Commission in Decision 2000-745.

b)         Explain why Northwestel should be able to retain all of the benefits associated with increased margins and/or penetration with no downside risk.

c)         Provide an implicit contribution amount that could be used for Northwestel that would provide the company with the incentive to generate margins, as intended by the Commission in Decision 2000-745.

1609            In Decision 2001-238, the Commission determined that subsidies would not be extended to business service in high cost serving areas (HCSAs).   In its evidence, Northwestel proposed cost-based subsidies for primary exchange residence service.   The company also requested $11.4 million in funding for Northwestel's recently completed SIP.

Did any non-residential customers benefit from the recently completed SIP?   If so, provide the company's rationale as to why the NCF should fund that portion of the SIP that benefited non-residential customers.   Provide a proposal to 1) separate the SIP between residential and non-residential customers and 2) specify how the non-residential customers' portion should be funded.

1610            In Northwestel's evidence, the company stated that it supported the application of the Decision 2000-745 subsidy update process (i.e. filing an updated subsidy calculation by 31 March of each year).

In Decisions 2002-34 and 2002-43, the Commission directed the large ILECs to file their 31 December subsidy information, including NAS, by 31 March of the following year.   Subsidy is then paid based upon the monthly NAS reported to the Central Fund Administrator (CFA) with the requirement for an annual audit of the monthly NAS amounts reported to the CFA.

a)         Provide Northwestel's views on filing its monthly NAS information with the CFA and the related annual NAS audit report.

b)         Provide Northwestel's views on receiving monthly subsidy based upon its annual subsidy filing with the Commission (i.e. monthly amounts similar to how its current subsidy payments are made).

c)         In the event that Northwestel agrees with the process identified in part b), provide Northwestel's views, with supporting rationale, as to whether its 31 March subsidy filing and, therefore, its monthly subsidy amounts should be based upon:

i)          the previous calendar year's year-end NAS information; or

ii)         the previous calendar year's average actual monthly NAS information.

1611            In the event that the Commission determines that it is appropriate to allow local competition in Northwestel's operating territory, provide Northwestel's view on the subsidy reporting process that should be followed by a competitive local exchange carrier to receive subsidy.   Specifically address, among other things, (a) the reporting of NAS and (b) possible changes to Northwestel's subsidy as its NAS changes.

1612            I n Decision 2001-238, the Commission determined that subsidies would not be extended to business service in HCSAs.   Further, Northwestel's evidence, the company proposed cost-based subsidies for primary exchange residence service.

In the response to interrogatory NWTel(CRTC)30Jan06-606 , Northwestel provided costing information in support of its proposed toll connecting trunk funding amount.

a)         Confirm whether or not the toll connecting trunks are used to provide service to both residential and non-residential customers.

b)         Provide the total residential and non-residential NAS that use the toll connecting trunks.

c)         Is Northwestel proposing to receive funding for both the residential and non-residential customers' portion of the toll connecting trunks? If so, explain, with supporting rationale, why Northwestel should receive funding for the portion of its toll connecting trunks used by non-residential customers.   Propose a methodology, with supporting rationale, to separate the requested funding amount between the residential and non-residential customers.

d)         If the company is not proposing to receive funding for both the residential and non-residential customers' portion of the toll interconnecting trunks:

i)          confirm that Northwestel has not included any costs associated with non-residential customers in its response to interrogatory NWTel(CRTC)30Jan06-606; and

ii)            provide the methodology used by Northwestel to separate the cost of its toll connecting trunks between residential and non-residential customers.

[1] Remote bands contain the wire centres serving areas that have no year-around access and/or involve long travel time for purposes of maintenance (the company is to identify which criteria have been met).