ARCHIVED -  Letter

Ottawa, 6 September 2012

File No.: 8661-N1-201207720

By Email

Mr. Dallas Yeulett
Senior Manager, Regulatory Compliance
Northwestel Inc.
PO Box 2727
Whitehorse, Yukon
Y1A 4Y4
regulatoryaffairs@nwtel.ca

Dear Mr Yeulett:

RE: Part 1 Application for the recovery of local competition start-up costs

On 22 June 2012, the Commission received a Part 1 Application by Northwestel Inc. (Northwestel).  In its application, Northwestel requested approval for exogenous factor adjustments of its capped baskets to allow for the recovery of costs associated with the implementation of local competition.  In support of its application, Northwestel provided separate cost studies estimating the costs it expects to incur to implement Local Number Portability (LNP) and Local Network Interconnection and component unbundling (LNI).

The Commission is also in receipt of interventions from the Government of the Northwest Territories (GNWT), the Public Interest Advocacy Centre and Consumers’ Association of Canada (PIAC/CAC), the Utilities Consumers’ Group (UCG), and the Yukon Government (YG), as well as reply comments from Northwestel.

Paragraph 28(1)(a) of the Canadian Radio-television and Telecommunications Commission Rules of Practice and Procedure provides that the Commission may request parties to file information or documents where needed.

Northwestel is requested to provide comprehensive answers, including rationale and any supporting information, to the attached questions by 27 September 2012.

Parties may provide comments on Northwestel’s response by 11 October 2012.

Northwestel may provide reply comments by 18 October 2012.

Yours sincerely,

‘Original signed by M. Murray’

Michel Murray
Director, Regulatory Implementation
Telecommunications

c.c.: Dave Heffernan, GNWT, dave_heffernan@gov.nt.ca
John Lawford, PIAC, lawford@piac.ca
Roger Rondeau, UCG, rrondeau@northwestel.net
Lisa Badenhorst, YG, lisa.badenhorst@gov.yk.ca
Joseph Cabrera, CRTC, (819) 934-6352, joseph.cabrera@crtc.gc.ca

Attach.

ATTACHMENT

Local Competition

Refer to Attachment 1 of the company’s 22 June 2012 submission titled “Calculation of Northwestel’s local competition start-up costs (Local Network Interconnection)”:

1. Refer to Table 1 and, using a Microsoft Excel spreadsheet, provide details of how the annual cash flows were developed for each of the line items (e.g. Carrier Service, Regulatory & Legal Processes, Maintenance, Network Cost, Technical processes).  The spreadsheet should provide the detailed calculations and assumptions used to develop the annual cash flows for each line item by providing details such as: hours, labour unit costs, unit costs and demand, tariff rates (indicating tariff item number(s)), cost increase factors (CIFs), expense increase factors (EIFs) and productivity improvement factors (PIFs) used to develop the annual cash flows.
2. Refer to Table 1 line item labeled “Plant Management-Processes and Training” and paragraph 14 of Attachment 1.  Explain with supporting rationale the differences between the costs for processes and training required to manage unbundled local network components (such as local loops) and those costs that would be covered under the company’s unbundled local loop rates.
3. Refer to Table 1 line item labeled “Maintenance”.  Explain with supporting rationale why the maintenance expense factor provided in page 10 of Attachment 1 based on Northwestel’s plant in service would be appropriate for estimating the maintenance costs in this study, considering that Northwestel’s plant in service would consist of equipment of different vintages.
4. Refer to Table 1 line item labeled “Network and Plant-access to Unbundled Network Facilities”, and paragraph 18 of Attachment 1:
   1. Provide the time estimates and blended labour rate used to estimate these costs.  Explain with supporting rationale how the time estimates were developed.
   2. Explain how the blended labour rate was estimated.
   3. Provide the life estimate and average working fill factors assumed for these capital costs in the study.
5. Refer to Table 1 line item labeled “Network Cost”, and paragraph 18 of Attachment 1:
   1. Provide the time estimates and blended labour rate used to estimate these costs.  Explain with supporting rationale how the time estimates were developed.
   2. Explain how the blended labour rate was estimated.
   3. Provide the life estimate and average working fill factors assumed for these capital costs in the study.
6. Refer to «Table 1 category “Network Cost-Software” and paragraph 18 of
   Attachment 1:
   1. Provide the time estimates and blended labour rate used to estimate these costs.  Explain with supporting rationale how the time estimates were developed.
   2. Explain how the blended labour rate was estimated.
   3. Indicate whether the 9-1-1 service that the company proposed to offer to CLECs’ end-customers is basic 9-1-1 or enhanced 9-1-1 service.  If it is enhanced 9-1-1 service, provide an estimate of the additional software costs incurred by the company, if any, with supporting rationale.
   4. Provide the life estimate for software capital costs included in the study.
7. Refer to page 6 of the Northwestel application where the company states:

   “Northwestel expects a significant number of communities to experience some form of local competition, and expects line-side interconnection will be the primary method of interconnection.  Northwestel will be required to establish Points of Interconnection in these communities and to establish Digital Exchange Access services to accommodate line-side interconnection arrangements.  As such, these set-up costs have been included in the cost recovery studies, as outlined in the Attachments.”

   1. Confirm that the costs associated with establishing Digital Exchange Access (DEA) services to accommodate line-side interconnection arrangements are included in Attachment 1, identifying the line item(s) in Table 1 where these costs have been included and the amounts.  If not, identify where all of these costs are captured.  Further, identify the costs to establish DEA service at each location.
   2. Explain, with supporting rationale, why the costs to establish DEA services, which is a retail service, should be included in the costs to implement local competition.
   3. Provide an estimate of the revenues the company expects to collect from DEA line-side interconnection arrangements over the life of the study.
   4. Explain, with supporting rationale, whether the estimated revenues from DEA line-side interconnection arrangements should be factored into the overall cost study.
   5. Indicate whether Northwestel can provide line-side interconnection arrangements using services other than DEA service, identifying such services and their availability in the communities where Northwestel expects that line-side interconnection will be the primary method of interconnection.
8. In its reply comments, Northwestel identified that $1.35M in LNI costs could be reduced if a competitor enters a community after the completion of the company’s Network Modernization Plan.  Comment on the appropriateness of removing this amount from consideration of the present request for exogenous adjustment pending the Commission’s review of the company’s modernization plan.

Local Number Portability

Refer to Attachment 2 of the company’s 22 June 2012 submission titled “Calculation of Northwestel’s local competition start-up costs (Local Number Portability)”:

1. Refer to Table 1 and, using a Microsoft Excel spreadsheet, provide details of how the annual cash flows were developed for each of the line items (e.g. Plant Management-Process and Training, Carrier service group, Network cost - software, Billing, Plant Management - Systems Upgrades).  The spreadsheet should provide the detailed calculations and assumptions used to develop the annual cash flows for each line item by providing details such as: hours, labour unit costs, unit costs and demand, CIFs, EIFs and PIFs used to develop the annual cash flows.
2. Refer to Table 1 line item labeled “Maintenance”.  Explain with supporting rationale why the maintenance expense factor provided in page 7 of Attachment 2, based on Northwestel’s plant in service, would be appropriate for estimating the maintenance costs in this study, considering that Northwestel’s plant in service would consist of equipment of different vintages.
3. Refer to Table 1 line item labeled “Network Cost-Hardware” and paragraph 20 of Attachment 2:
   1. Provide a breakdown of the capital costs required for new Signal Transfer Point (STP) hardware by major component.  The response should provide rationale as to why it is necessary for Northwestel to provision STP hardware in order to allow CLECs to offer LNP and, also, indicate how much additional traffic is expected at the STPs due to CLECs offering LNP.
   2. Indicate the life estimate and average working fill factor for this capital equipment assumed in the study.
   3. Indicate whether the company has its own STPs.  If yes, provide their locations.  If a third party STP is being used explain why new hardware is being included in the study.
4. Refer to Table 1 line item labeled “Network costs-Software”:
   1. Provide the software cost for each of the five locations along with the type of switch currently in place and the vintage of the switch.  If there are cost differences between locations, explain with supporting rationale why there are costs differences.
   2. Provide the life estimate for software capital costs assumed in the study.
5. Refer to Table 1 line items labeled “Billing”, “PIC/CARE”, “Plant Management-Systems Upgrades” and “Project Management”. Indicate whether these costs would change if local number portability were to be provided in additional locations.

Date modified:

2012-09-06