File Number: 8678-C12-200605553
Ottawa, 29 September 2006
By Electronic mail
Mr. Terry Connolly
Director, Regulatory Matters
TELUS Communications Company
10020 - 100 Street N.W.
31 st Floor
Edmonton , AB T5J 0N5
Re: Review of price cap framework , Telecom Public Notice CRTC 2006-5 - Additional Interrogatories
Dear Mr. Connolly:
Attached are additional interrogatories associated with this proceeding.
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 John Macri)
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 TELUS(CRTC)8Aug06-1201(b) where TELUS states that one reason for its proposal that Category I service rates should be frozen at current levels is that it believes that Commission-mandated Phase II costs have led to rates that are too low for many of these services and that further reductions in rates through application of an I-X constraint would exacerbate these market distortions.
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 new price cap regime the Commission would not continue to review Phase II costs in the situation described in interrogatory TELUS(CRTC)8Aug06-1201(b) and in situations where Phase II costs of a Category I Competitor Service have changed since the associated rates were last approved.
2102 Refer to Attachment I of response to interrogatory TELUS(CRTC)8Aug06-1101 (the Attachment).
a) In Table 1 of the Attachment, the annual distribution occupancy change is estimated to be -1.16%. By contrast, in Table 2 of the Attachment, the historical change in distribution occupancy is estimated to be -0.7% for Alberta and -2.3% for B.C.. Compare the input data used to develop the values in these tables and explain the relationship between the distribution occupancy results of these two tables.
b) Refer to Section 3.3: Distribution Occupancy and Distribution Costs of the Attachment. For B.C., provide the input data, calculations and explanations used to estimate the forecasted distribution occupancy for the periods January 2006 to January 2007, and January 2007 to January 2008. For B.C., provide a sample calculation to show how the forecasted distribution occupancy information is used to develop the cost changes in Table 8 of the Attachment.
c) Explain why the cost elasticity with respect to occupancy in Table 2 of the Attachment is zero.
d) Refer to Tables 6 and 7 of the Attachment.
(i) Explain how the unit Maintenance Cost for residential service, used to estimate Historical Unit Cost changes, is calculated.
(ii) For B.C., provide sample calculation, indicating the types of costs and the sources of data, used to estimate the Historical Unit Cost changes for residential Maintenance and Functional Operating Expense (FOE) Unit Costs for the year 2005.
(iii) With respect to the regression analysis used to determine the cost elasticity factor for Residential Maintenance and FOE unit costs, define and identify the sources of data for the cost, demand and year variables used in the equation. Further, provide the regression parameters obtained from this analysis (e.g., regression co-efficients, etc.).
(iv) Explain why the regression analysis was done on a combined Maintenance & FOE basis, instead of individually.
e) Refer to Tables 8 and 9 of Section 4: Phase II Cost Growth Results of the Attachment.
For Alberta , for each of the years 2007 and 2008, provide the following:
(i) the calculations to show how the annual Phase II cost changes for Access Loop and FOEs are derived from the results provided in the previous Tables (e.g., due to changes in distribution occupancy as per Table 4) of the Attachment; and
(ii) the calculations to explain how the Phase II Cost Changes for the Total Service Cost are derived from the individual Table 8 Inputs (i.e., Access Loop, Switching, Maintenance and FOEs).
2103 Refer to Tables 4 to 11 of the response to interrogatory TELUS(CRTC)8Aug06-1101.
a) Re-estimate the Phase II Cost Changes for Alberta Residential PES shown in Table 8 for the following sensitivity analysis scenarios:
(i) the cost elasticity with respect to occupancy in Table 4 is changed from 0.29 for Alberta to 0.4 and from 0.14 for B.C. to 0.4.
(ii) the cost elasticity with respect to NAS for Alberta and B.C. in Tables 6 and 7 is changed from 0.46 to 0.70; and
(iii) the cost elasticity with respect to NAS for Alberta and B.C. in Tables 6 and 7 is changed from 0.46 to 0.90.
b) Refer to Tables 8, 9 and 10. Provide, for the following scenario, a revised estimate for both the X-factor and the Phase II cost changes of Residential PES for each of Alberta and B.C., and Alberta plus B.C. where the cost elasticity with respect to occupancy in Table 4 is changed from 0.29 for Alberta to 0.4 and from 0.14 for B.C. to 0.4, and the cost elasticity with respect to NAS for Alberta and B.C. in Tables 6 and 7 is changed from 0.46 to 0.70
c) Tables 8, 9 and 10 are based on the assumption that TELUS primary lines will decrease by three percentage points per year through 2011. Provide TELUS ' response to the scenario described in part b) of this interrogatory above assuming instead that TELUS' primary lines will decline by two percentage points per year through 2011 .
2104 Comment on whether future productivity improvements can be expected for switching and transport cost components due to the deployment of IP technologies into TELUS' networks. For each of the years 2006 to 2011, provide the company's estimate of the additional change in productivity as a result of the deployment of IP technologies into TELUS' networks, with supporting assumptions and rationale. Provide the company's view on the appropriateness of including an additional adjustment for this anticipated change in productivity.
2105 Assuming that TELUS is converted into an income trust in 2007.
a) Confirm that strictly from a Phase II costing perspective, the restructuring would have the effect of reducing the level of income tax cost payable component to be included in the Phase II incremental costs.
b) 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.
c) Provide revised Residential PES Phase II Cost changes as shown in Tables 8 and 9 of Attachment 1 to the response to interrogatory TELUS(CRTC)8Aug06-1101 that take into account any changes resulting from the impact of b) above. Based on this scenario, provide a revised estimate of the X-factor.
d) Provide TELUS' view of including an additional adjustment to the X-factor to take account of the anticipated changes in productivity due to the PES unit cost changes in c) above.
2106 A) Refer to the response to interrogatory TELUS(CRTC)8Aug06-1201(c). Assume that an I-X constraint, with a single value for X, continued to be applied to Competitor Services. Provide, with reasons, TELUS' proposed value for X and the approach TELUS used to determine it.
B) Assume that an I-X constraint was also applied to other applicable baskets. Provide with reasons TELUS' views on whether it would be appropriate to apply a uniform value for X across all baskets.
2107 Refer to TELUS ' proposal described in paragraphs 57 and 61 of its 10 July 2006 evidence where TELUS states that rates for Category I Competitor Services should be frozen at current levels pending the completion of certain other regulatory reviews.
Discuss whether TELUS also proposes that the price cap issue of an I-X constraint for Category I Competitor Services would be addressed at a subsequent date, upon the completion of those reviews.
Services, Baskets and Pricing Constraints
2201 Provide a schematic diagram of TELUS' proposed price cap basket structure, including any pricing constraints, in a format similar to that provided in response to interrogatory the Companies(CRTC)8Aug06-1202.
2202 (a) Refer to Appendix A of Forbearance from the regulation of retail local exchange services , Telecom Decision CRTC 2006-15, 6 April 2006 . Provide a map for each Local Forbearance Region that identifies the exchange(s) that would meet TELUS proposed competitive presence test for the uncapping of residential PES.
(b) Describe what evidence the company would need to provide in order to demonstrate that its uncapping test has been met.
2301 If Commission were to approve rate ranges as well as rate de-averaging for services within capped baskets, provide TELUS' view, with supporting rationale, as to how any such services should be treated for the purpose of calculating the average price index (API).
2302 A) If the Commission were to approve rate de-averaging for basic residential services within exchanges that do not meet the competitive presence test, provide TELUS' view, with supporting rationale, as to how rate changes would be implemented across the entire exchange:
i) Where the exchange has only one wire centre; and
ii) Where the exchange has multiple wire centres to serve all customers of the exchange.
B) For each case in part A) above, explain how the service basket index (SBI) and the API would be calculated. Provide examples if necessary.
2303 Explain how rate de-averaging could be implemented in a multi-wire centre exchange where only a portion of the exchange meets the TELUS competitive presence test for residential PES. Provide an example demonstrating the calculation of the SBI and API.
2401 In paragraph 48 of its 10 July 2006 Comments, TELUS proposed that the contribution level for residential PES be frozen at current levels (i.e., contribution per line by band) until the Commission completes its review of the Phase II costing methodology.
(a) Confirm that TELUS is proposing that there be no adjustments in the subsidy calculations to its costs for inflation, productivity and/or recovery of the revenue-percent charge, and the average revenue per line.
(b) Given that TELUS has proposed, for exchanges that do not pass competitive presence test, the individual rate element increase be no more than 5%, explain how TELUS would deal with increases in residential local service rates in high-cost areas in its subsidy calculations.
2402 Provide TELUS' 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 Section 184.108.40.206 of TELUS' 10 July 2006 submission which describes TELUS' proposed competitive presence test for uncapping Residential Primary Exchange Services (PES).
Explain with supporting rationale why this approach is, or alternatively is not, a bright-line test.
2405 Refer to the response to interrogatory TELUS( Calgary )8Aug06-9a) where TELUS described its understanding of market forces as:
Date Modified: 2006-09-29
Market forces result from the interaction of supply and demand (sellers and buyers) in the market.
Explain, with supporting rationale, how TELUS' competitive presence test takes demand into consideration.