Letter
Ottawa, 10 August 2007
File No.: 8652-C12-200704636
BY E-MAIL
Mr. Willie Grieve
Vice President, Public Policy & Regulatory Affairs
TELUS Communications Inc.
10020-100 Street NW, 21st Floor
Edmonton, Alberta
T5J 0N5
regulatory.affairs@telus.com
Dear Mr. Grieve:
Re: Review of certain Phase II costing issues - Telecom Public Notice CRTC 2007-4,
30 March 2007
On 30 March 2007 , the Commission issued Review of certain Phase II costing issues , Telecom Public Notice CRTC 2007-4, 30 March 2007 (Public Notice 2007-4) and initiated a proceeding to review certain Phase II costing issues.
In accordance with the procedure set out in paragraph 23 of Public Notice 2007-4, TELUS Communications Inc. is requested to provide responses to the attached interrogatories by 7 September 2007 . Interrogatory responses are also to be served on all parties to the proceeding by the same date.
Yours sincerely,
'Original signed by P.Godin'
Paul Godin
Director General
Competition, Costing and Tariffs
Telecommunications
Attachment
cc: Yvan Davidson, CRTC (819) 953-5414 yvan.davidson@crtc.gc.ca
ATTACHMENT
TELUS Communications Inc.
Direct/Indirect Expenses
1101 Further to the response to part e) of TELUS(CRTC)25May07-101,
a) Provide the company's current estimate of its per-line monthly maintenance expense used for Phase II cost study purposes, excluding and including portfolio expenses, for each of the following services, specifying the year.
• i. residential primary exchange service (PES)
• ii. residential wholesale Internet ADSL service
• iii. business PES
The response should, for each of the above services, identify in detail the ABC-derived direct and indirect maintenance activities that are included and the assignment methodologies used to assign the associated expenses to the service [O1] , and provide and describe the associated unit costs used in the development of these maintenance expenses, if any. The response should further provide the portfolio factors used.
b) Provide the company's estimate of its per-line monthly maintenance expense used for Phase II cost study purposes based on the company's expense estimation approach prior to the ABC system, (for example in the year 2001 or 2002) for each of the following services, specifying the year.
• i. residential PES
• ii. residential wholesale Internet ADSL service
• iii. business PES
The response should, for each of the above services, identify in detail the direct and indirect maintenance activities that are included and the assignment methodologies used to assign the associated expenses to the service, and provide and describe the associated unit costs used in the development of these maintenance expenses, if any. The response should further provide a list of the portfolio activities and expenses that are included.
c) For each of residential PES, residential wholesale Internet ADSL service and business PES, provide the detailed rationale for any significant differences (i.e. in excess of 20%) between the per-line maintenance expense estimates provided in response to parts a) and b) above.
1102 Refer to the response to part c) of TELUS(CRTC)25May07-101 in which the company has identified the services for which service-specific expense unit costs have been developed from the ABC system. Provide a comprehensive list and description of the company's current expense unit costs by service that have been developed from its ABC system for Phase II cost study purposes; the response should provide the current unit cost values, the vintage of the underlying expense data, and the associated drivers.
1103 Refer to the response to part d) of TELUS(CRTC)25May07-101 regarding other uses of ABC data.
a) Provide a comprehensive list and description of the company's current corporate average expense unit costs and associated drivers that have been developed from its ABC system for Phase II cost study purposes; the response should provide the current unit cost values, the vintages of the underlying expense data, and the associated drivers;
b) Further to the response to part a) above, provide a comprehensive list and description of other corporate average expense unit costs that are currently used for Phase II cost study purposes that have been developed prior to the ABC system, if any. If the company currently uses any such unit costs, it should provide the current unit cost values, a list of the activities included and description for each unit cost, the vintages of the underlying expense data, and the associated drivers; the company should also confirm that each of these unit costs exclude activities and expenses that would be included in the company's current portfolio expense factors.
1104 Refer to Attachment 3 to the response to TELUS(CRTC)25May07-101 PN 2007-4.
a) For each of Incremental Direct expenses CB8, CB9, CB10, BB8, BB9 and BB10, provide a list of the activities and costs that are included, and the associated service assignment/attribution methodologies used, if any. The response should explain how the activities and costs are attributed between the wireline basic services and other company services (e.g., wireline enhanced data and wireless services) with supporting rationale, and should identify each of these non- "wireline basic local" services.
b) For each of the Incremental Indirect expenses aCB1, bBB1, aCB3 and bBB3, provide a list of the activities and costs that are included, and the associated service assignment/attribution methodologies used, if any. The response should explain how the activities and costs are attributed between the wireline basic services and other company services (e.g., wireline enhanced data and wireless services) with supporting rationale, and should identify each of these non-"wireline basic local" services.
c) For each of Shared Within Product Portfolio expenses sCB1, sCB2 and sCB3, provide a list of the activities and costs that are included, and the associated service assignment/attribution methodologies used, if any. The response should explain how the activities and costs are attributed between the wireline basic services and other company services (e.g., wireline enhanced data and wireless services), with supporting rationale and should identify each of these non-"wireline basic local" services.
d) For each of Fulfill service, Assure service and Provision infrastructure categories, identify the activities assigned/attributed to each of Incremental Direct and Shared within Product Portfolio, and provide the distinguishing factors that led the company to assign/attribute the associated expenses between Incremental Direct and Shared within Product Portfolio, with supporting rationale.
e) For each of IT, HR and Real Estate categories, identify the activities assigned to Incremental Indirect, and provide the reasons that led the company to assign expenses as Incremental Indirect rather than Shared within Product Portfolio.
f) Provide a description of all the activities and expenses associated with Market Management and Network Operations (EPP Category) and T&O/Network Operations (Common).
1105 Refer to the response to TELUS(CRTC)25May07-102 , in which TCC stated that it does not typically use LUCs and that in the thirty major studies filed since 2005, 95% of labour-related expenses have been estimated without the use of LUCs. Further in its response to interrogatory TCI(CRTC)18Jul06-1, TCC stated :
'' Where standard labour rates are used, TELUS' financial reporting system is used in the development of both the Group A and B labour costs. Group A is derived directly, while the ABC model is used to calculate the Group B factor. In both cases the rates are calculated annually based on reported financial data. The May 2002 Phase II manual does not reflect TELUS' current Group A and B categorizations, which follow generally accepted accounting practices. ''
a) Identify the different LUCs that have been used by TCC in its Phase II cost studies filed with the Commission over the 2004-2006 period and provide the associated LUC values broken down into Group A and Group B components; further, for each LUC describe the Group A and Group B functions that were included, indicating the vintage of the underlying ABC data used.
b) With respect to the LUCs identified in response to part a) above, provide a description of the methods used to calculate each of the Group A and Group B components, including a list of all the expenses included in each component and a description of each expense.
c) In the event that LUCs are used in the development of costs for future Phase II study purposes (e.g. associated with new services), confirm that the company would rely on the above-described methodology to develop its LUCs; if not, provide detailed explanations on how the company would develop its LUCs.
Portfolio Expenses
1202 Refer to the responses to The Companies(CRTC)25May07-205 part d), TELUS(CRTC)25May07-205 part d), MTS Allstream(CRTC)25May07-205 part c) and SASKTEL(CRTC)25May07-202 part d) in which each company identified its activities that vary with the scale of a service portfolio or a group of portfolios.
Further refer to the response to Bell(Telus)25May07-5, in which Bell Canada submitted that if the Commission deems that portfolio expenses should be included in Phase II costs, then regulatory symmetry requires that portfolio expenses should be treated in the same manner across companies.
Assume that the Commission were to identify certain expenses as portfolio expenses - that are incurred on behalf of a service portfolio, or group of portfolios, but which cannot be attributed explicitly to any specific service within that group - that are to be included in the development of a portfolio expense factor to estimate portfolio expenses in Phase II cost studies in a manner that is consistent across the companies. Comment on the appropriateness of including the expenses associated with each of the following categories of portfolio expenses in the development of the portfolio expense factor.
i. Marketing and Sales* (e.g. development and management of marketing, promotion, and sales programs),
ii. Maintenance and Provisioning*
iii. IS/IT expenses* (e.g. operation and management of systems),
iv. Network Operations* (e.g. operation and management of network including monitoring of the network),
v. Network Design and Development* (e.g. engineering planning and technology development)
* Note that the above portfolio expenses are to exclude expenses already classified as direct, indirect or VCC expenses and to also exclude expenses associated with the development and testing of products/services not yet introduced.
a) For each category of portfolio expense defined above, identify the activities and provide the associated annual expenses using the company's current expense data; further provide the expenses associated with the development and testing of new products/services that have been excluded.
b) Provide the company's estimate of the portfolio expense factor based on the formula shown below, reflecting the portfolio expenses provided in response to part a) above:
Portfolio Portfolio expenses
Expense = _________________________________________
Factor Company's direct and indirect expenses
c) Provide the company's views on whether it incurs any other types of expenses (in addition to those identified above) that it considers to also be portfolio in nature and that should also be included in the calculation of the portfolio expense factor. If so, using the formula provided in part b) above provide a revised estimate of the portfolio factor reflecting these additional portfolio expenses.
d) Provide the company's views with supporting rationale, on the development of portfolio factor(s) across ILECs that is(are) based on:
i. a single composite portfolio factor that includes all of the company's portfolio expenses,
ii. multiple portfolio factors i.e., portfolio factor for individual portfolios or groups of portfolios.
If the company prefers the development of multiple factors rather than a single portfolio factor, provide the company's estimate of its portfolio factors by individual portfolio or groups of portfolios in response to parts b) and c) above. The response should provide the supporting methodology and assumptions.
e) Provide the company's view on the frequency of update of the portfolio expense factor(s).
1202 Refer to Page 2 of Appendix 3 of TCC's position paper dated 4 May 2007 . On page 2 of Appendix 3, TCC provided the current values of its portfolio factors for Phase II cost study purposes.
a) Provide the company's previous estimates of its portfolio factors specifying the vintage year of the underlying ABC data used. The response should provide explanations for significant differences between the two vintages of portfolio factors.
b) For each of Basic Local and Basic Data values identified on page 2 of Appendix 3, provide the derivation explaining how each of the current Product Portfolio, Product Group, Line of Business and Total Portfolio factors are calculated.
c) Explain if and how the portfolio factors may change when new portfolios are created or if existing portfolios are rearranged due to reorganizations.
d) In response to TELUS(CRTC)25May07-202, the company stated that it uses the demand drivers to estimate portfolio expenses associated with portfolios that contain homogeneous units of demand. Identify each of these portfolios, and, for each portfolio, provide the associated expense per unit developed specifying the units of demand, with supporting rationale.
e) Further to the response to part d) above, using the format of page 2, Appendix 3 of TCC's position paper dated 4 May 2007, provide revised estimates of portfolio factors for each portfolio that contains non-homogeneous units of demand, if any.
Asset Lives
1401 Refer to the response to TELUS(CRTC)25May07-402 where the company provided updated depreciation studies for several asset classes. With reference to the response to TELUS(The Companies)25May07-25, TCC submitted that some of the earlier studies still included dispersion analysis while the more recent studies did not. In that same response, TCC further submitted that the depreciation amounts for financial reports are based on the average life only and, that for a particular historical year's expenditures; the annual depreciation amount equals the gross value divided by the asset life until the asset is fully depreciated.
a) Identify the asset classes for which the depreciation studies do not make use of dispersion analysis.
b) For each of the asset classes identified in response to part a) above, provide the justification for the survivor curves proposed by the company in Appendix 5 of its position paper dated 4 May 2007 .
1402 Refer to the response to TELUS(CRTC)25May07-402, Attachment 1, page 1 of 4. Provide detail rationale for the company's proposed ASL for asset class A20.
Date Modified: 2007-08-10
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