Letter
Ottawa, 10 August 2007
File No.: 8652-C12-200704636
BY E-MAIL
Mr. David Palmer
Director, Regulatory Matters,
Bell Canada ,
110 O'Connor Street, 7th Floor
Ottawa, Ontario
K1P 1H1
bell.regulatory@bell.ca
Mr. David Hennessey
Manager - Regulatory Matters
Bell Aliant Communications, Limited Partnership
Fort William Building
P.O. Box 2110
St. John's, Newfoundland
A1C 5H6
regulatory@bell.aliant.ca
Dear Mr. Palmer and Mr. Hennessey:
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, Bell Aliant Communications, Limited Partnership and Bell Canada (the Companies) are 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
Bell Aliant Communications, Limited Partnership and Bell Canada
Direct/Indirect Expenses
1101 Further to the response to part e) of The Companies(CRTC)25May07-101,
a) Provide the Companies' current estimates of its per-line monthly maintenance expense used for Phase II cost study purposes for each of the following services, specifying the year.
i. residential primary exchange service (PES)
ii. wholesale Gateway ADSL Access 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 methodologies used to assign the associated expenses to the service [O1] , and provide and describe the associated unit costs and factors used in the development of these maintenance expenses, if any.
b) Provide the Companies' estimates 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 2000 or 2001) for each of the following services, specifying the year.
i. residential PES
ii. wholesale Gateway ADSL Access service
iii. business PES
The response should, for each of the above services, identify the maintenance activities that are included and the methodologies used to assign the associated expenses to the service, and provide and describe the associated maintenance factors and unit costs used in the development of these maintenance expenses.
c) For each of residential PES, wholesale Gateway ADSL Access service and business PES, provide the detailed rationale for any significant differences (i.e. in excess of 20%) between the per-line maintenance cost estimates provided in response to parts a) and b) above.
1102 Refer to the response to part c) of The Companies(CRTC)25May07-101 in which the Companies have identified the services for which OE service-specific unit costs have been developed from the ABC system. Provide a comprehensive list and description of the Companies' current 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 The Companies(CRTC)25May07-101 regarding other uses of ABC data.
a) Provide a comprehensive list and description of the Companies' current corporate average 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 unit costs that are currently used in Phase II cost studies that have been developed prior to the ABC system, if any. If the Companies currently use any such unit costs, it should provide the current unit cost values, a list of activities included and description for each unit cost, the vintages of the underlying expense data, and the associated drivers.
1104 Refer to the response of The Companies(CRTC)25May07-101 PN 2007-4. In the response to part b) of this interrogatory, Bell Canada identified three types of ABC-derived unit costs used in the development of its maintenance expenses. In Attachment 2 to the response to this interrogatory, Bell Aliant identified its methodology to develop OE unit costs including a variety of allocation methods applied to its ABC data.
a) For Bell Canada , for each of the three types of unit costs, 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) and identify each of these non-"wireline basic local" services, with supporting rationale.
b) For Bell Aliant, with respect to each of its maintenance unit costs, 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) and identify each of these non-"wireline basic local" services, with supporting rationale.
Portfolio Expenses
1201 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 (or demand-driven, service-driven expenses or VCC) 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 Companies' current expense data; further provide the expenses associated with the development and testing of new products/services that have been excluded.
b) Provide the Companies' estimates 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 Companies' direct and indirect expenses (or demand-driven
and service driven expenses)
c) Provide the Companies' 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.
b) Provide the Companies' 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 Companies' portfolio expenses,
ii. multiple portfolio factors i.e., portfolio factor for individual portfolios or groups of portfolios.
If the Companies prefer the development of multiple factors rather than a single portfolio factor, provide the Companies' estimate of their 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 Companies' view on the frequency of update of the portfolio expense factor(s).
1202 Refer to the response to Bell Canada(TELUS)25May07-5, in which Bell Canada submitted that portfolio expenses should be recovered from the prices only of the services in the portfolio (line of business) with which they are associated. With respect to portfolio expenses, provide the following:
a) identify each line of business for which the company incurs portfolio expenses;
b) for each line of business, for each portfolio expense, provide the activities and the associated expenses; and
c) for each line of business, identified in response to part a) above, provide an estimate of the portfolio expenses, based on the 2006 expense results; further provide an estimate of portfolio expenses expressed as a percentage of the demand-driven and service-driven expenses.
Variable Common Costs
1301 Refer to the response of The Companies(CRTC)25May07-301 where the Companies identified a number of activities that were previously categorized as VCC and which are now categorized as demand-driven or non-service specific. Confirm that the Companies' new proposed approach to classify its expenses into three categories, namely demand-driven, service-driven and non-service specific prevents it from identifying expenses that would be VCC in nature consistent with the definition specified in Decision 79-16. If so, provide the Companies' view on the use of the previous VCC factor as a proxy for estimating its current VCC expenses, consistent with other ILECs.
Asset Lives
1401 Refer to Attachment 1 of the Companies' position paper filed 4 May 2007, revised on 29 June 2007.
Update pages 1 to 3 to identify the proposed dispersion curves for each asset class and the study type as defined in note 1 of pages 4 to 6.
Date Modified: 2007-07-10
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