File Number: 8678-C12-200605553
Ottawa, 29 September 2006
By Electronic mail
Mr. David E. Palmer
Director, Regulatory Matters
110 O'Connor Street
7 th Floor
Ottawa , ON K1P 1H1
Re: Review of price cap framework , Telecom Public Notice CRTC 2006-5 - Additional Interrogatories
Dear Mr. Palmer:
Attached are additional interrogatories associated with this proceeding for the Companies (Bell Aliant Communications, Limited Partnership, Bell Canada and Saskatchewan Telecommunications).
Responses to these interrogatories are to be filed with the Commission, and served on all the interested parties to this proceeding, by the start of the oral public hearing on 10 October 2006
(Original signed by)
Director, Financial and Regulatory Affairs
cc: Bob Noakes, CRTC, 819-997-4429, bob.noakes @crtc.gc.ca
Components of Price Cap Plans
2101 Refer to the response to interrogatory The Companies(CRTC)8Aug06-1102, page 11 of 13, where the Companies proposed three separate adjustments to the 2005 X-factor of 3.2% to determine the proposed revised X-factor of -1.6 % for the year 2006. The three adjustments consisted of (1) a lowering of the average working fill factor (AWFF) value (impact of -1.2%); (2) a lowering of the demand in low cost bands (impact of -2.4%); and (3) additional expenditures for customer retention/acquisition (impact of -1.2%).
(a) Provide the associated calculations, including any assumptions/rationale, to support the Companies' proposed downward X-factor adjustments associated with each of the following:
i) the lowering of the AWFF values;
ii) the lowering of the demand in low cost bands; and
iii) the additional expenditures for customer retention/acquisition.
b) Confirm that a lowering of demand will lead to a lowering of the AWFF. If so, explain if and how the company has made an explicit provision in its X-factor adjustment associated with the lowering of the AWFF to ensure that the impact of the AWFF reduction due to forecast demand reductions would not be double counted. If not, explain why not.
c) Refer to the response to interrogatory The Companies(CRTC)8Aug06-1102, pages 12 and 13. Explain why the impact on the X-factor due to the lowering of the demand in low cost bands is assumed to decrease in each of the years 2007 (impact of -1.9%) and 2008 (impact of -1.5%) compared to 2006 (impact of -2.4%).
2102 Refer to page 11 of 13 of the response to interrogatory The Companies(CRTC)8Aug06-1102, where the Companies proposed an X-factor of -1.6 % for the year 2006.
a) For each of the years 2006, 2007 and 2008, provide a revised X-factor value for each of the following changes in assumptions:
i) the 2005 X-factor value is calculated to reflect the average annual percent unit cost change over the period 1998 (i.e., the commencement of local competition) to 2005;
ii) the Companies' proposed adjustment associated with the lowering of the AWFF to determine the 2006 X-factor value is revised by reducing the proposed change in AWFF by 50% (specify the historical annual AWFF value changes, along with the annual AWFF decreases assumed over the forecast period under this scenario);
iii) the Companies' proposed adjustment associated with the lowering of the demand in low cost bands to determine the 2006 X-factor value is revised by reducing the Companies' proposed demand changes by 50%; specify the historical annual demand value changes, along with the annual demand losses assumed over the forecast period under this scenario; and
iv) the Companies' proposed adjustment associated with the lowering of the demand in low cost bands to determine the 2006 X-factor value is revised by adjusting the Companies' proposed demand changes to reflect anticipated market share losses of business and residential lines (specify the annual demand losses assumed over the forecast period under this scenario).
b) For each of the years 2006, 2007 and 2008, provide a revised X-factor value combining a)i), ii) and iii) above.
2103 Comment on whether future productivity improvements can be expected for switching and transport cost components due to the deployment of Internet Protocol (IP) technologies into the Companies' networks. For each of the years 2006, 2007 and 2008, provide the Companies' estimate of the additional change in productivity as a result of the deployment of IP technologies into the Companies' networks, with supporting assumptions and rationale. Provide the Companies' views of including an additional adjustment for this anticipated change in productivity.
2104 Refer to Table 1 of the response to interrogatory The Companies(CRTC)8Aug06-1102 that provides the annual incremental unit cost changes associated with residential PES over the period 1988 to 2005.
a) Confirm that the incremental unit costs used in this analysis are developed based on Phase II causal incremental costs principles. If not, explain how the costing methods used differ from Phase II costing methods, with supporting rationale.
b) With respect to BCE Inc.'s income trust restructuring in 2006, confirm that, strictly from a Phase II costing perspective, the impact of this restructuring for entities that are part of the income trust would be to reduce the level of income tax costs to be included in Phase II cost studies.
c) For the entities that are part of the income trust, describe and quantify the changes in Phase II income tax costs and other financial parameters that would be expected as a result of this income trust restructuring.
d) For the entities that are part of the income trust, provide an estimate of the impact on the annual percent change in the residential PES unit cost resulting from any changes in c) above for the period 2005/2006 that would arise as a result of the income trust restructuring.
e) For these entities, provide the Companies' views of including an additional adjustment to the X-factor to take account of the anticipated changes in productivity due to the PES unit costs changes in d) above.
2105 Refer to interrogatory The Companies(CRTC)8Aug06-1201(a) (which refers to the Commission staff letter dated 14 July 2003 regarding the filing of Competitor Service cost studies that excluded the application of inflation and productivity factors within the study period) and to the Companies' response to this interrogatory that rates for Category I Competitor Services should remain at their current levels until a review of the regulatory framework regarding wholesale services has been undertaken.
While the issue of the continued application of I-X to Competitor Services is within the scope of this proceeding, the development of service rates is independent of price cap constraints and the Commission excluded the examination of the Phase II current costs for existing Competitor Services from the scope of this proceeding. In view of this, discuss why during the next price cap regime the Commission would not continue to review Phase II costs associated with Category I Competitor Services in the situation described in interrogatory The Companies(CRTC)8Aug06-1201(a) and in situations where Phase II costs of a Category I Competitor Service have changed since the associated rates were last approved.
2106 Refer to the Companies ' proposal described in paragraph 132 of its 10 July 2006 evidence where the Companies state that Category I Competitor Services rates should be maintained at current levels pending the completion of certain other regulatory reviews.
Discuss whether the Companies also propose that the price cap issue of an I-X constraint for Category I Competitor Services would be addressed at a subsequent date upon completion of those reviews.
Services, Baskets and Pricing Constraints
2201 A) Refer to Appendix A of Forbearance from the regulation of retail local exchange services , Telecom Decision CRTC 2006-15, 6 April 2006 (Decision 2006-15). Provide a map for each Local Forbearance Region (LFR) that identifies the exchange(s) that would meet the Companies proposed test for the uncapping of residential PES.
B) Refer to Appendix A of Decision 2006-15. Provide a map for each LFR that identifies the exchange(s) that would meet the Companies proposed test for the uncapping of business PES.
C) Describe what evidence a company would need to provide in order to demonstrate that its uncapping test has been met.
2301 Refer to the response to interrogatory The Companies(Union des consommateurs)08Aug06-1d) where the Companies stated that "there is substantial literature in support of the proposition that price discrimination can be good for customers, and economic efficiency." The Companies provided links to recent surveys in this regard.
Indicate whether the Companies consider that rate de-averaging and price discrimination are synonymous. Provide rationale and examples, as necessary, to support the Companies' response.
2401 Provide the Companies ' view, with supporting rationale, as to whether or not inflation and/or productivity adjustments should continue to be applied to the total subsidy requirement calculation.
2402 Provide the Companies view, with supporting rationale, on mandated residential local rate increases in high-cost areas in order to reduce the National Subsidy Requirement and the contribution collection revenue-percent charge. Specifically address (i) an annual local rate increase that could be considered reasonable, (ii) the number of annual local rate increases that could occur, and (iii) the maximum residential local service rate that could be allowed.
2403 Refer to the response to interrogatory The Companies(CRTC)8Aug06-1208b) where the Companies stated:
When the demand side conditions necessary to the establishment of a competitive market are well established, (as the Companies have demonstrated in the case of price capped services in Section 2 and Appendix 1 of their 10 July 2006 submission) the only further condition that is needed to establish that a market is competitive is the availability of alternative suppliers. The Companies' proposed test for uncapping services is based upon the availability of competitive alternatives and the capacity of the networks developed by those alternatives to reach more customers because these alternatives have already demonstrated that they can attract demand to their services. Thus, the test is not intended to provide a "proxy" for other relevant market forces.
A) Confirm whether the Companies' proposed uncapping test is premised on demand side conditions being in place.
B) If so, provide an itemized list of the demand side conditions that the Companies consider relevant to their proposal. For each condition, demonstrate with an example showing how the condition is well established.
2404 Refer to the response to interrogatory The Companies(Union des consommateurs)08Aug06-13a) and b) where the Companies stated in reference to its proposed uncapping test that:
...there are a number of jurisdictions in the U.S. and Canada where similar approaches using different specific criteria have been used to determine whether a service should be subject to some form of regulation.
Amongst other examples, the Companies stated:
In Arkansas , if another telecommunications service provider is providing basic local exchange service or switched access service within a price cap regulated company's local exchange area, the local exchange services of the ILEC are uncapped.
In Utah, basic residential services of the incumbent telecommunications carrier are uncapped provided another carrier is offering a service that includes the essential components of basic residential service at a price comparable to the incumbent's price in the area served by a central office of the incumbent.
Provide complete reference material that provides context for the above statements, in particular methodologies and findings that led to uncapping of the specific types of services.
2405 Refer to the response to interrogatory The Companies(MTS Allstream)8Aug06-5 where the Companies stated on page 3:
Limiting the pricing flexibility associated with new services discourages service innovation. An ILEC has little incentive to experiment with alternative pricing levels and plans for a new service when it knows in advance that any rate structure that it tries will then become entrenched in a regulatory system that confines future rate changes to a pre-determined formula that may not allow the rate changes needed in the market to occur.
Comment with supporting rationale as to whether the ability of a company to innovate is directly tied to pricing strategies.
2406 Refer to Section 184.108.40.206 of the Companies' 10 July 2006 submission which describes the Companies proposed test for uncapping Connectivity Services.
Explain with supporting rationale why this approach is, or alternatively is not, a bright-line test.
Date Modified: 2006-09-29