ARCHIVED - Letter

Ottawa, 7 July 2011

File No.: 8678-C12-201107714

BY E-MAIL

Dallas Yeulett
Senior Manager, Regulatory Compliance
Northwestel Inc.
P.O. Box 2727
Whitehorse, YT
Y1A 4Y4
regulatoryaffairs@nwtel.ca

RE:  Review of price cap regulatory framework for Northwestel Inc. and related matters, Telecom Notice of Consultation 2011-302 – Requests for information

Dear Mr. Yeulett:

Pursuant to the procedure set out in paragraph 31 of Review of price cap framework for Northwestel Inc. and related matters, Telecom Notice of Consultation CRTC 2011-302, 6 May 2011, as amended by Telecom Notice of Consultation 2011-302-1, 22 June 2011, attached are requests for information addressed to Northwestel Inc.

Reponses to these requests for information are to be filed with the Commission and sent to all parties by 2 August 2011.

Yours sincerely,

Original signed by:

John Macri,
Director
Telecommunications Policy

cc:   Christine Bailey, CRTC, (819) 997-4557, christine.bailey@crtc.gc.ca

Attachment

Services, Baskets, Constraints and Rates

1201.   Indicate whether the proposed $2.00 increase to the monthly rates for residential access service applies only to residential individual line service.

1202.   Refer to the response to interrogatory NWTel(CRTC)06May11-203. Provide the supporting details and calculations used to determine the 2010 average monthly bill for optional services for each of Band D and Band H1.

1203.   Refer to the response to interrogatory NWTel(CRTC)06May11-205. Provide explanations for the changes in the revenues by basket for the period 2007 to 2010.

1204.   At paragraph 29 of its evidence, Northwestel requested that residential and business optional features be removed from the Other Capped services basket and be included in the Uncapped services basket, arguing that the market is mature and any significant rate increases would likely result in a decline in demand.

• a)  Explain how, in the absence of facilities-based local competition, prices for residential and business optional features would be constrained.
  
• b)  Provide the company’s rationale in support of its statement that the market for optional features is mature in light of the fact 29 communities currently do not have access to these features.

1205.   Refer to the response to interrogatory NWTel(CRTC)06May11-207. In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002, the Commission determined that adjustments were to be made to recognize the expiry of certain time-limited exogenous events for the large incumbent local exchange carriers (ILECs).

Provide the company’s views on each of the following possible adjustments which could be used to eliminate Northwestel’s one-time exogenous adjustment:

• a)  reducing the rates for business access services; and
• b)  reducing the amount of subsidy.

Subsidy

1301.  In Price cap regulation for Northwestel Inc., Telecom Decision CRTC 2007-5, 2 February 2007 (Telecom Decision 2007-5), the Commission considered that, in calculating the local service subsidy, an implicit contribution amount of $4 should be used for Northwestel’s Band H1 because access to optional local services was not extended to 29 smaller communities as part of the Northwestel SIP in 2000.

In its submission in this proceeding, Northwestel proposed a new SIP to provide enhanced calling features to the remaining 29 communities, which would result in Northwestel being able to provide call management services and custom calling features to all communities in Band H1.

If enhanced calling features become available to all subscribers, should Northwestel’s deemed implicit contribution amount be increased to $5 (i.e. the amount used for all other ILECs)? Provide supporting rationale for the company’s response.

1302.   At paragraph 46 of its evidence, Northwestel proposed that it have the ability to increase residential access service rates by $2 in 2012 and then by inflation starting in 2014.

Provide Northwestel’s views on deeming the residential access rate increases for subsidy calculation purposes starting in 2014, regardless of whether the company actually increases its residential local rates, similar to the treatment of all other ILECs.

1303.   Provide Northwestel’s views on each of the following options for receiving its subsidy.  For each option, the response should include the type of subsidy calculation information (e.g. NAS, local rates) that would be provided to the Commission and an indication of when the information would be provided:

• a)  a fixed annual subsidy amount in the final revenue-percent charge decision applied retroactively to the beginning of the year; and
  
• b)  a subsidy per NAS amount in the final revenue-percent charge decision applied retroactively to the beginning of the year to monthly Band H1 residential NAS information filed by Northwestel with the Central Fund Administrator.

Service Improvement Plan

1501.   Refer to the response to interrogatory NWTel(CRTC)06May11-501. As part of its proposed SIP to extend enhanced calling features to the remaining 29 communities, Northwestel included the replacement of existing DMS-10 switches in the communities of Gjoa Haven, Faro, and Aklavik. The company stated that these switches have reached end-of-life status. 

• a)  Explain why the replacement of these three switches should not be treated as a modernization/replacement plan as part of its capital plan to be recovered from normal business operations.
• b)  Provide updates to Attachments 1 and 3 of the above noted interrogatory response excluding the replacement cost of the existing DMS-10 switches for these three communities, but including just an estimate of the cost of provisioning these switches for enhanced calling features.

1502.   Refer to the response to interrogatory NWTel(CRTC)06May11-501. Northwestel indicated that it received numerous letters from communities requesting access to Call Display. Of the 29 communities included in the company’s proposed SIP to provide enhanced calling features, aside from the community of Gjoa Haven, which other communities have made similar requests in the past 5 years?

1503.   Refer to the response to interrogatory NWTel(CRTC)06May11-501, Attachment 1, page 3 of 3. Reconcile the statement made that the demand forecast is based on a 3-year implementation schedule while of the remainder of the interrogatory response refers to an implementation schedule of 2 years. Provide a revised implementation schedule, if appropriate, based on an implementation schedule of 2 years.

1504.   Refer to the response to interrogatory NWTel(CRTC)06May11-501. As part of its proposed SIP, Northwestel included the replacement of a subscriber radio access network in Northern British Columbia (SR500 System).

• a)  The company stated that this network needed to be replaced, in part, due to obsolete equipment. Explain why the SR500 System replacement should not be treated as a modernization/replacement plan as part of its capital plan to be recovered from normal business operations.
• b)  Refer to Attachment 2 of the above noted interrogatory response. Northwestel indicates there are no incremental revenues or expenses associated with the SR500 System replacement. Explain why there would be no maintenance/expense savings resulting from the replacement of this obsolete network.

1505.    Refer to the response to interrogatory NWTel(CRTC)06May11-501, Attachment 1, page 3 of 3.

• a)  Provide a revision to Attachment 1 of the response which reflects an increase in the average revenue per unit of $1.00 per month.
  
• b)  Explain, with supporting rationale, why the billing and collection factor provided in that response was used.
  
• c)  Provide the company’s actual billing and collection costs as a percentage of revenues for the years 2009 and 2010.

Costing

1601.   Refer to Northwestel’s evidence, Appendices 4 b), d) and e), “Detailed summary of Phase II costs”.

• a)  Provide details, with supporting rationale, of the resource inclusions in each of the cost categories in these Appendices, identifying the major components.
  
• b)  Provide the economic parameters (e.g. cost of capital, cost of debt, cost increase factors, productivity improvement factors, revenue miscellaneous tax factor) and the study period used in the cost study to estimate the Phase II costs.
  
• c)  Provide the Residential NAS for Band H1 for each year of the study period. Specify if the NAS is a year-end value or an average for each year.
  
• d)  Provide an electronic spreadsheet that includes the detailed calculations and all formulas to illustrate how the costs in the above noted Appendices were estimated.

1602.     Refer to Northwestel’s evidence, Appendix 4 b), “Toll Connect Facilities”.

• a)  Provide the demand in minutes assumed for each year of the study period. Confirm that the demand is the all-carrier demand. If the demand is not all-carrier, explain why not and what the demand reflects.
  
• b)  Provide a revised carrier access tariff (CAT) rate based on the inclusion of all toll connect costs (i.e., terrestrial and satellite) for business and residence, showing all calculations.
  
• c)  For each of the years 2008 to 2010, provide the forecasted toll demand used in the company’s submission that led to Telecom Decision 2007-5. Provide the actual toll demand for each of these years.

1603.   Refer to Northwestel’s evidence, Appendix 4 c), “Proposed Carrier Access Tariff (CAT)”, where the company proposed a CAT rate that excluded the residential toll connect satellite costs based on the percentage of residential toll satellite traffic. Provide the time period (e.g. weeks, months) that billed satellite toll minutes were analysed to estimate the percentage of residential toll satellite traffic costs.

1604.  Refer to Northwestel’s evidence, Appendix 4 e), “Residential service – Detailed summary of Phase II costs”, where the company provided a comparison of residential service Phase II costs by cost category for “2006 Results” and “2010 Results”.

• a)  With respect to Capital Causal to Service - Software costs, provide a breakdown of the proposed cost into the major components included in this category and explain the functionality provided by each component.  The response should also provide the source and vintage of the capital unit costs, as well as the retrospective capital increase factors and productivity increase factors that were used to estimate the capital unit costs from the vintage year to the first year of the study.
  
• b)  For the Expenses Causal to Demand categories i) Maintenance and ii) Advertising, Sales management and Billing, provide a breakdown of the proposed costs into the major components included in each of these categories, indicating the vintage of the data used. Explain, with supporting rationale, the changes between the 2006 and the 2010 costs for each of these categories. The response should provide details and supporting rationale of the changes in costing methodology and assumptions, if any, between the 2006 and the 2010 cost studies. Provide an electronic spreadsheet that includes the detailed calculations and formulas to illustrate how the 2006 and 2010 costs were estimated for each year of the study period, including the unit costs and the applicable cost drivers.
  
• c)  For the Expenses Causal to Demand category “Other”, provide a breakdown of the proposed costs into major components included in this category, indicating the vintage and source of data used. The response should provide details and supporting rationale of the changes in costing methodology and assumptions, if any, between the 2006 and the 2010 cost studies.
  
• d)  For the Expenses Causal to Demand category “Other Drop”, provide a breakdown of the proposed costs into components included in this category. The response should provide the details and supporting rationale of changes in costing methodology and assumptions, if any, between the 2006 and the 2010 cost studies. Provide the vintage of data used. Provide an electronic spreadsheet that includes the detailed calculations and formulas to illustrate how the 2006 and 2010 costs were estimated for each year of the study period, including the unit costs and the applicable cost drivers.
• e)  Refer to the Capital Causal to Demand category “Outside Plant Equipment”.

• i.  Provide a breakdown of the components included in this category. The response should provide details and supporting rationale for changes in costing methodology and assumptions, if any, between the 2006 and the 2010 cost studies. The response should also provide the source and vintage of the capital unit costs and retrospective capital increase factor and productivity increase factor that were used to estimate the capital unit costs from the vintage year to the first year of the study.
  
• ii.  Indicate if a sample was used to estimate the total outside plant cost for residential PES outside plant costs for Band H1. If a sample was used, provide the sample size and explain how costs were weighted to capture the costs of all the communities in Band H1. If not, explain how the outside plant costs for Band H1 were estimated with supporting rationale.
  
• iii.  When estimating the annual cash flow in the study period, were the following factors considered and how they were applied: SIP access and non-SIP access capital unit costs, cost drivers, working fill factors, cable sizes, loop length, productivity and cost increase factors.
  
• iv.  Indicate if “replacement cost new” was used to develop the costs in this category. If not, explain with supporting rationale how the capital unit costs were developed.

1605.   Refer to Northwestel’s evidence, Appendix 4 g), “SIP I Ongoing subsidy requirement”. Provide a description of the resource inclusions in each of the cost categories indicated in the response. Confirm that the costs referenced in Appendix 4 g) are not included in the costs reflected in Appendices 4 b), c), d) and e).

1606.   Refer to Northwestel’s evidence, Appendix 4 a), “Illustrative Diagram” and explain, with supporting rationale, why Whitehorse, Yellowknife and Fort Nelson class 4/5 switches have “0% of toll connect costs”. Indicate the number of Class 4 (access tandem) switches the company has and the location of each of these switches.

1607.   Refer to Northwestel’s evidence, Appendix 4 e), “Residential service detailed Summary of Phase II costs Band H1”. In addition, refer to the response to interrogatory NWTel(CRTC)06May11-501, Attachment 2 which provides the costs for the Upper Halfway region SIP.

• a)  Confirm if “replacement costs new” was included in determining the Band H1 costs and the Upper Halfway region costs.
  
• b)  Confirm whether the Band H1 costs include the Upper Halfway region costs. If not, indicate which costs were used in estimating the residential PES costs in Appendix 4 e).
• c)  If in response to part b) above, the Band H1 costs include the Upper Halfway region costs, provide the proposed adjustment to the SIP subsidy calculation necessary to exclude any double counting.

See paragraph 125 of Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291, 3 May 2011.

Date modified:

2011-07-07