Letter
File Number: 8663-C12-200600066
Ottawa, 2 June 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 - Additional Interrogatories
Dear Mr. Roberts:
Attached are additional interrogatories associated with Review of regulatory framework for Northwestel Inc. , Telecom Public Notice CRTC 2006-1, 17 January 2006 . Reponses to these interrogatories are to be filed with the Commission, and served on the interested parties to this proceeding, by 23 June 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.
2 June 2006
Regulatory framework
Components of a price regulation framework
2101 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1101A), page 3 of 5. Northwestel noted that ".the 1998 costs were normalized by estimating the impact on calculated AECs [annual equivalent costs] of changes in key study parameters - the discount rate, the income tax rate, and VCC [variable common cost] factor." Provide the detailed calculations to demonstrate how the estimated percent reductions were determined for each of the key parameters noted above, including the percentage reduction related to asset life changes, identify all underlying assumptions.
2102 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1101B), page 4 of 5. Northwestel submitted that one of the major cost differences between the 1998 and the 2006 studies was the result of the costs of the new billing and customer care system. The company also noted that the cost components were incremental and additive to the cost of provisioning residential service in Northwestel in the study period 2006 to 2010 as compared to the situation that existed in 1998. Provide the following:
a) a description of the new billing and customer care system, including, the reasons for implementing the new system and the intended benefits, the initial and ongoing costs, and the amount of annual savings resulting from the system it replaced;
b) the year the new system was implemented;
c) the annual costs per network access service (NAS), by type of cost, for each year since the year of implementation through to 2006; and
d) the impact on the company's overall productivity improvement since implementation, along with related rationale.
2103 Refer to response to interrogatory NWTel(CRTC)30Jan06-104, revised. Provide the detailed calculation, including all assumptions, to demonstrate how the 2.0% inflation rate used in determining the productivity offset was calculated.
Capital plan, service improvement plan and quality of service
Capital plan and service improvement plan
2201 Refer to Northwestel's Evidence, dated 20 March 2006 (Northwestel's evidence), Attachment VIII, pages 4 to 7, which addresses the recovery of the costs associated with the recently completed SIP.
a) In the Phase II cost study to support the company's completed service improvement plan (SIP), the company identified an annual cost of $9.1 million. Confirm that the opening value of $58.648 million in total capital expenditures as at 1 January 2006 used in the SIP Phase II cost study is the summation of the historical capital costs associated with the Switching, Internet, Toll, and Transport investments over the period 2001 to 2005.
b) Provide a revised opening value to this SIP Phase II cost study based on the unamortized value of the Switching, Internet, Toll, and Transport investments as of 1 January 2006 using the Discounted Service Potential method consistent with the costing determinations set out in Decision 98-22. [1] Provide supporting detailed calculations, and assumptions.
c) Recalculate this SIP Phase II cost study using the 1 January 2006 revised opening value (unamortized value) for Switching, Internet, Toll, and Transport equipment based on the response to part (b) above, and provide a revised SIP annual cost assuming that the study period is equal to the weighted average plant lives of the associated SIP plant (or using the life estimates of the major plant categories as a proxy).
d) Provide the company's views of using this alternative methodology to determine the remaining plant value of these historical capital expenditures as at 1 January 2006 . Specifically, indicate whether the revised SIP annual cost in part (c) above more appropriately captures the ongoing costs of this SIP, and if not why not.
2202 Refer to the response to interrogatory NWTel(CRTC)30Jan06-203 in which Northwestel has forecast a total capital plan of $38.4 million in 2006 and $36.7 million in 2007. Further, refer to the response to interrogatory NWTel(CRTC)10Apr06-1208 in which Northwestel is proposing a SIP starting in 2008 with total capital expenditures of $23.4 million.
Assume that the company will maintain a forecasted $38 million level of annual capital spending in the period 2008 to 2010.
a) Provide a detailed analysis as to whether the proposed SIP expenditures of $7 million in 2008, $9 million in 2009, and $7 million in 2010 can be integrated into the total capital plan such that supplemental funding would not be required.
b) Indicate whether the roll-out period could be extended to five years (2008 to 2012) to reduce the annual level of the proposed SIP capital expenditures. Provide the same detailed analysis as that in part (a) above to determine whether supplemental funding would not be required.
2203 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1208. Northwestel is proposing to replace or upgrade a number of switches, specifically switch models DMS10-T and DMS10-400E, in the proposed SIP.
a) Confirm that these switches are manufacture discontinued and unsupported. If so, provide a detailed description on how the company currently maintains these switches. Also, provide a detailed description of the proposed replacements or upgrades along with supporting rationale.
b) Provide the company's views of an alternate plan to minimize the cost of the proposed SIP, where only a small number of switches are replaced or upgraded, with the retired switches being used as spares for the remaining switches.
Rates
2401 Refer to the responses to interrogatories NWTel(CRTC)Jan06-401, Attachment 2, and NWTel(CRTC)10Apr06-1303, Attachment 1 and Attachment 3.
a) For the years 2005, 2006 and 2007, provide:
i) the toll revenues, split between the residential and the business customers, for the basic toll schedule and for each existing toll plan; and
ii) the residential and the business average revenue per minute (ARPM), including all calculations and assumptions. Reconcile the minutes used to derive the ARPM with the originating minutes for peak and off-peak periods provided in the response to NWTel(CRTC)30Jan06-503, Attachment 1.
b) Provide for the proposed toll plans the toll revenues for 2007 split between residential and business customers.
c) Provide the justification for the adjustment factor used in the response to interrogatory NWTel(CRTC)10Apr06-1303, Attachment 3, to convert conversation minutes to billed minutes.
2402 Refer response to interrogatory NWTel(CRTC)10Apr06-1303, Attachments 1 and 3. Using the current rates for 2006 and the 2006 demand provided in Attachment 3, calculate toll revenues for 2006 and reconcile these revenues with the total 2006 revenues reported in Attachment 1 of the above noted interrogatory response.
2403 Refer to Northwestel's evidence, Appendix V, which identifies the company's proposed rate changes, and the response to interrogatory NWTel(CRTC)10Apr06-1303, Attachment 1, which provides a breakdown of toll revenues. For Tariff Item 3002.302.5, i) identify the rate elements associated with this item; ii) identify any proposed changes to these rate elements; and iii) provide the rationale and assumptions to support the revenue change between 2006 and 2007.
2404 Refer to the response to interrogatory NWTel(CRTC)30Jan06-102, in which Northwestel outlines its proposed service basket structure and constraints. Provide the company's views on including residential enhanced calling features and voice mail services in Basket E - Other Capped Service and limiting the annual increases on the services included in this basket to any previously approved rate for the same service offered by another incumbent local exchange carrier (ILEC).
2405 In Revised regulatory framework for the small incumbent local exchange carriers , Telecom Decision CRTC 2006-14, 29 March 2006 , the Commission determined that no explicit productivity offset would be established for the small incumbent local exchange carriers in addition to capping the rates for the services in each of the residential and business primary exchange services baskets at existing levels. Provide the company's view, with supporting rationale, on the appropriateness of using a similar methodology for Northwestel, where the company's residential and business service rates would be capped at the going-in rate levels.
2406 Refer to the responses to interrogatories NWTel(CRTC)Jan06-401, Attachment 2, and NWTel(CRTC)10Apr06-1404, page 3, under the heading Wireless Service Provider. The company stated "[a]s a result of this analysis, the Company is proposing to decrease the line side rates to reflect the relative pricing for line-side versus trunk-side rates in the South".
Indicate whether or not the proposed line-side rates cover Northwestel's cost for the service. If yes, provide an estimate of the mark-up reflected in the proposed rates.
Competition
Local competition
2501 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1501. Northwestel states that a major part of implementing LNP [local number portability] would be attributable to the costs of CCS7 [common channel signalling 7], which is required for LNP. Northwestel adds that the vast majority of its exchanges do not currently have CCS7.
a) Indicate which of Northwestel's exchanges currently have CCS7 and whether Northwestel plans to have CCS7 available in other exchanges within the next three years.
b) For those exchanges where CCS7 is currently available, provide a breakdown of all costs that Northwestel would need to incur to ensure that facilities-based local competition is available.
Long distance competition
2501 Refer to Northwestel's evidence, paragraph 252. Provide the company's best estimate of the percentage of toll minutes that could be lost due to bypass and arbitrage in 2007 and 2008 if the transport rate remains at the per-minute rate indicated in paragraph 251 of the submission. Specify how the bypass or arbitrage would be implemented (e.g., the use of dedicated access lines).
Funding for provision of service to high-cost serving areas
Phase II costs
2601 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1603 Attachment 1.
a) Identify the components included in the capital causal to service -hardware for Toll Connect Facilities - Satellite and Toll Connect Facilities - Terrestrial.
b) Indicate which components provided in response to part a) above reflect rates based on long term contracts.
2602 Assume that a cost based switch connect rate for the entire territory is developed such that it includes toll connect facilities.
a) Provide revised switch connect costs and a switch connect rate that includes the toll connect facilities costs provided in response to interrogatory NWTel(CRTC)10Apr06-1603, Attachment 1. Provide the company's view on whether the use of this revised switch connect rate would be appropriate, and in particular, whether it would be consistent with the switching and aggregation (S&A) rate of $0.028 per minute, which included toll connect transport costs as indicated in response to interrogatory NWTel(CRTC)10Apr06-1602C).
b) Assuming that the revised switch connect rate provided in response to part a) above is adopted, provide the impact on the company's proposal including: i) changes to the company's proposed toll rates; ii) changes to the toll average revenue per minute for each of residence and business; iii) changes to the toll settlement revenue; and iv) changes to the annual subsidy requirements.
c) Refer to the response to interrogatory NWTel(CRTC)10Apr06-1404, Attachment 3. Provide a revised toll imputation test and toll free imputation test in the same format used in Attachment 3, assuming that the revised switch connect rate provided in response to part a) above is adopted.
2603 Refer to the response to interrogatory NWTel(CRTC)30Jan06-603, Attachment 1.
a) Confirm that the column headings under Exchange Size (i.e., <500, >500 <1500, >1500 <5000 and 5000+) refer to total NAS. If not, explain to what the values refer.
b) For outside plant equipment costs:
i) explain with supporting rationale the differences between the outside plant costs for residence and business indicating if these costs are recorded in separate accounts in the company's accounting system; and
ii) for each of the above proposed exchange sizes identified in a) above, for each of the territories/province, provide the company's best estimate of the average loop lengths per exchange size.
c) For drop maintenance costs:
i) explain how the drop maintenance unit costs for residence and business are estimated. If the company has developed its cost estimates based on accounting information, indicate if these costs are recorded in separate accounts in the company's accounting system. If not, indicate how these costs are assigned to residence and business; and
ii) provide the derivation of residential drop maintenance unit cost per NAS provided in Attachment 1 to the above-noted interrogatory response with supporting rationale.
d) For drop installation costs:
i) explain how the drop installation unit costs for residence and business are estimated. If the company has developed its cost estimates based on accounting information, indicate if these costs are recorded in separate accounts in the company's accounting system. If not, indicate how these costs are assigned to residence and business; and
ii) provide the derivation of the residential drop installation unit cost per NAS provided in Attachment 1 to the above-noted interrogatory response with supporting rationale.
2604 Refer to the response to interrogatory NWTel(CRTC)30Jan06-602, Attachment 1, revised 1 May 2006 .
a) With respect to costs causal to service:
i) confirm whether or not these costs relate to the customer care system; and
ii) describe the components included for each of hardware and software costs. Explain the methodology used to estimate and assign these costs to residence and business PES services. Provide, with supporting rationale, the life estimates assumed for each of hardware and software assets.
b) With respect to maintenance expense:
i) identify the components included in the maintenance costs (e.g. travel, labour, material, freight). Provide the company's best estimate of the percentages for each of these components included in the total maintenance costs;
ii) explain how the maintenance unit costs for residence and business are estimated. Indicate if these costs are recorded in separate accounts in the company's accounting system. If not, indicate how these costs are assigned to residence and business; and
iii) provide the derivation of the residential maintenance cost per NAS.
c) With respect to sales management and billing costs, provide the components included in each category (e.g. billing systems operational costs, systems modification costs, product management, business office representatives). Provide the methodology and detailed calculation used to assign these costs to residence and business. Provide a breakdown of the sales management and billing costs per NAS.
d) Provide a table, in the same format of Attachment 1 of the above-noted interrogatory, using an average distribution working fill factor of 50% for distribution plant.
2605 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1603.
a) Outline the growth technologies, costing methods and assumptions used to determine the "prospective incremental growth technology costs" referred to in part A) of the above-noted response. The response should indicate with supporting rationale which capital components by asset class were based on prospective incremental growth technology costs [e.g. Earth Station (asset class 542), MW Digital Radio > 2GHz (asset class 541), and Fibre Optic Cable (asset class 120)].
b) Refer to Attachment 1, page 4 of 4, Toll Connect Facilities - NBV. Confirm whether or not the cost per minute provided was estimated using the net book value (NBV) feature of the economic model. If yes, provide a table, in the same format of this Attachment, assuming that the NBVs of the assets (specifying the year) are used to determine the costs of toll connect facilities. Provide all calculations showing how the NBVs of the assets were determined on a total-company basis. If no, provide all calculations showing how the NBV of the company's assets (specifying the year) were determined on a total company basis.
2606 Refer to the responses to interrogatories NWTel(CRTC)10Apr06-1604 and NWTel(CRTC)30Jan06-603. Using the Yukon territory as an example, provide the following:
a) the detailed calculations used to derive the loop installed first costs (IFC) per NAS for Yukon , by exchange size, provided in the response to interrogatory NWTel(CRTC)30Jan06-603. The response should indicate how the equations and unit costs (e.g. plant material cable, construction hardware, terminating and splicing, installation) provided in the response to interrogatory NWTel(CRTC)10Apr06-1604 are used to determine these loop IFCs per NAS. The response should provide the detailed calculations for each of SIP and Non-SIP IFCs;
b) the detailed calculations used to derive the central office equipment (COE) IFCs per NAS for Yukon , by exchange size, provided in the response to interrogatory NWTel(CRTC)30Jan06-603. The response should indicate how the COE components provided in the response to interrogatory NWTel(CRTC)10Apr06-1604B) are used to determine these COE IFCs per NAS;
c) the detailed calculations used to derive the residential loop operating expenditures (Opexp) per NAS, by exchange size, and COE Opexp per NAS by exchange size for Yukon provided in the response to interrogatory NWTel(CRTC)30Jan06-603. The response should indicate the components included in each of these unit costs; and
d) an indication if similar methodology and assumptions were used to derive the unit costs for the remaining provinces/territory. If not, outline the different cost assumptions and methodology used by province/territory.
2607 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1303, Attachment 5.
a) Explain how the total settlement minutes under column "2006 demand" are derived, and confirm whether or not the originating and terminating demand provided in Attachment 1 to the response to interrogatory NWTel(CRTC)30Jan06-503 were used to estimate settlement minutes. If yes, provide a reconciliation of settlement minutes with originating and terminating minutes with supporting rationale and assumptions. If no, indicate how the settlement minutes were estimated including the detailed calculations and the sources of data.
b) Confirm whether or not the demand under the column "2006 demand" used in the carrier access tariff (CAT) revenue calculations are for equal access minutes. If yes, reconcile this value with the equal access minutes provided in Attachment 1 to the response to interrogatory NWTel(CRTC)10Apr06-1505. If no, identify what minutes have been used in the calculation of the CAT revenues.
c) Confirm whether or not the transport rate is charged for each originating and terminating minute. If not, explain how the transport rate is applied.
2608 Refer to the responses to interrogatories NWTel(CRTC)30Jan06-603 and NWTel(CRTC)10Apr06-1606.
a) Confirm that only two wire centres have total NAS greater than 5,000, namely Yellowknife and Whitehorse, as stated in response to interrogatory NWTel(CRTC)1605, and that they meet the criteria of Band D (exchange =8,000 total NAS) set out in the interrogatory.
b) Using the capital and expense unit costs provided in Attachment 1 to the response to interrogatory NWTel(CRTC)30Jan06-603, under the column exchange size 5000+, provide revised residential loop and PES costs for Band D wire centres. [1] Comment on the appropriateness of determining Band D specific costs using this approach.
c) Using the capital and expense unit costs provided in Attachment 1 to the response to interrogatory NWTel(CRTC)30Jan06-603, the exchanges sizes under the columns: <500, and >500 <1500, provide revised residential loop and PES costs for wire centres that the company has classified as Band E wire centres. Comment on the appropriateness of determining Band E specific costs using this approach.
d) Using the unit cost per NAS under the columns exchange size >1500 <5000 provided in Attachment 1 to the response to interrogatory NWTel(CRTC)30Jan06-603, provide revised residential loop and PES costs for wire centres that the company has classified as Band F wire centres. Comment on the appropriateness of determining Band F specific costs using this approach.
e) For the exchanges which the company has classified as Band G, using the appropriate unit cost per NAS from either part c) or d) above, provide revised residential loop and residential PES costs for the wire centres that the company has classified as Band G wire centres. Comment on the appropriateness of determining Band G specific costs using this approach.
f) Based on the above banding structure and band-specific costs information, provide the revised residential subsidy per NAS and total annual subsidy showing all detailed calculations to derive the subsidy for each of bands D, E, F, G and the total subsidy.
g) Comment on the use of the above methodology to derive loop and PES costs by band [2] for Northwestel's operating territory
Subsidy calculation
2609 Refer to Northwestel's evidence, paragraph 176, where the company proposed that the subsidy methodology established in Changes to the contribution regime , Decision CRTC 2000-745, 30 November 2000 , should apply to the company.
a) Confirm, with supporting rationale, whether or not Northwestel is proposing to be able to increase its primary exchange residential service costs each year by the rate of inflation.
b) Confirm, with supporting rationale, whether or not Northwestel is proposing that a productivity offset be applied to its primary exchange residential service costs each year and, if so, what the productivity offset rate would be.
c) In the event that Northwestel decided not to take an allowed residential local rate increase, provide Northwestel's views, with supporting rationale, on each of the following:
i) the calculation of its annual subsidy calculation based upon the actual residential local rate being charged; and
ii) the calculation of its annual subsidy calculation based upon the maximum residential local rate that could be charged.
2610 In the response to interrogatory NWTel(CRTC)10Apr06-1607 , Northwestel identified that it had decreased its average monthly residential primary exchange ser ice (PES) rate by $0.17 to account for an extended area service (EAS) charge between Whitehorse and Marsh Lake .
a) Given that Marsh Lake does not appear in the list of locations in Attachment 1 to the response to interrogatory NWTel(CRTC)10Apr06-1606, identify which location in Attachment 1 includes Marsh Lake .
b) Provide the number of residential subscribers being charged (i) the Whitehorse monthly EAS rate of $0.48; and (ii) the Marsh Lake monthly EAS rate of $6.50.
2611 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1608. Provide the following:
a) the number of communities served that have access to call management services; and
b) the number of residential NAS that have access to call management services.
2612 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1608, pages 7 and 8, where Northwestel stated that Call Management Services remain unavailable in 34 of its central offices. Confirm that the average revenue per NAS and the average cost per NAS for the company's residential optional features were calculated based on the NAS that have access to these services.
2613 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1609.
a) Provide the number of (i) residential NAS and (ii) non-residential NAS that benefited from the SIP.
b) Provide a proposed methodology to split the company's estimated $11.4 million of SIP costs between residential and non-residential NAS and the breakdown of the $11.4 million of SIP costs related to (i) residential NAS and (ii) non-residential NAS that results from the proposed methodology.
c) Provide the company's views on how the non-residential SIP calculated in part a) above should be funded. The response should specifically address the possibility of foregoing a portion the proposed decreased to non-residential rates.
2614 Refer to the response to the interrogatory NWTel(CRTC)10Apr06-1610. Provide the following.
a) Northwestel's total residential NAS, by month, for the year 2005;
b) Northwestel's average monthly residential NAS for the year 2005;
c) Northwestel's views on whether it would prefer receiving subsidy based upon the filing of (i) monthly NAS with the Central Fund Administrator or (ii) annual NAS information with the Commission; and
d) Northwestel's views on having its subsidy calculation based upon fixed NAS information, and therefore a fixed subsidy amount, for the next four years.
2615 Refer to the response to interrogatory NWTel(CRTC)10Apr06-1612.
a) Provide a breakdown of the $10.8 million cost estimate for toll connect trunks between (i) residential NAS, and (ii) non-residential NAS. Provide the methodology, including all assumptions, used to provide this breakdown.
b) Provide the company's views on how it should fund the non-residential portion of the above toll connect trunk costs calculated in part a) above. The response should specifically address the possibility of foregoing a portion the proposed decreased to non-residential rates.
[1] Refer to paragraph 38 of Final rates for unbundled local network components, Telecom Decision CRTC 98-22, 30 November 1998 (Decision 98-22) as amended by Telecom Decision CRTC 98-22-1, 10 December 1998 .
[1] Provided in the response to interrogatory NWTel(CRTC)10Apr06-1606.
[2] Provided in the response to interrogatory NWTel(CRTC)10Apr06-1606.
Date Modified: 2006-06-02
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