Telecom Commission Letter addressed to Stephen Schmidt (TELUS Communications Inc.)

Ottawa, 19 November 2018

Our reference: 1011-NOC2018-0214

BY EMAIL

Mr. Stephen Schmidt
Vice-President
Telecom Policy and Chief Regulatory Legal Counsel
Telecom Policy and Regulatory Affairs
Telus Communications Inc.
Floor 8, 215 Slater Street
Ottawa, ON  K1P 0A6
regulatory.affairs@telus.com

Re:Review of the price cap and local forbearance regimes, Telecom Notice of Consultation 2018-214 Footnote1 – Requests for information

Dear Mr. Schmidt

Pursuant to paragraph 39 of Telecom Notice of Consultation 2018-214, attached are requests for information from the Commission.

Certain requests for information in the Attachment refer to information filed in confidence with the Commission. An abridged version is provided for the public record.

Responses to these requests for information are to be filed with the Commission by 19 December 2018. The responses must be received, not merely sent, by that date.

Sincerely,

Original signed by

John Macri
Director, Policy Framework
Telecommunications Sector
c.c.: Christine Brock, CRTC, (873) 353-5852, christine.brock@crtc.gc.ca

Attach (1)

Requests for information addressed to Telus Communications Inc. (TCI)

  1. At paragraph 43 of its intervention, TCI proposed that rates for residential local primary exchange services (PES) in regulated non-high cost serving areas (non-HCSAs) be permitted to increase by the rate of inflation. At paragraph 30 of the Appendix to TCI’s intervention entitled Price Cap Regulation in Canadian Telecommunications: Balancing Competing Objectives, Dr. Dennis L. Weisman stated that the CRTC may opt to permit rates in regulated non-HCSAs to increase somewhat slower than the rate of inflation since rates are already compensatory.

    In light of Dr. Weisman’s statement that rates are already compensatory in regulated non-HCSAs, explain the rationale of TCI’s proposal to increase rates by inflation.

  2. At paragraph ES8 of Bell Canada et al.’s Footnote2 intervention and paragraph ES5 of Northwestel Inc.’s intervention, the companies proposed that, given the planned elimination of the local service subsidy, the regulated HCSA and non-HCSA baskets should be combined and share the same pricing constraints. Provide TCI’s views on i) whether it agrees with combining the regulated HCSA and non-HCSA baskets and ii) if so, what the pricing constraints should be for the new combined basket. Provide rationale to support TCI’s views.
  3. At paragraph 7 of its intervention, TCI set out its proposal with respect to changes to the current price cap regime. Provide the following information, with supporting calculations and assumptions, in tables similar to Tables 6 and 7 of Bell Canada et al.’s intervention:
    1. the impact of TCI's proposed monthly residence individual line PES rate increases; and
    2. the net impact of the subsidy loss and the revenue increases resulting from TCI’s proposal.
  4. Refer to paragraphs 22 to 28 of Bell Canada et al.’s intervention where they proposed to increase rates for regulated residential PES to the highest approved rate of $38.34. These increases would be phased in over time with annual increases limited to the lesser of i) 1/3 of the difference between the existing rate and the regulated target price or ii) $2.50 for the large incumbent local exchange carriers (ILECs) and $4.00 for the small ILECs. Bell Canada et al. also proposed that following a three-year transition period, the rate element constraint would be either i) inflation for those rates that would be at the proposed price ceiling or ii) $2.50 (large ILECs) or $4.00 (small ILECs) for the rates that would require a longer transition period, until all regulated rates are aligned at the price ceiling.

    Assume that Bell Canada et al.’s proposal is adopted with the following changes:

    • the price ceiling is set at $35.00 rather than $38.34;
    • the maximum allowable increase per year is $1.50 for all ILECs; and
    • the rate element constraint for rates at $35.00 and over is inflation.
    1. Provide, with supporting rationale, the company's views on this approach.
    2. Assuming that the Commission retains the price ceiling for stand-alone PES in forborne areas, provide the company's views on whether the price ceiling should be allowed to increase in the same manner to $35.00.
    3. Based on this approach, reproduce tables similar to Tables 6 and 7 of Bell Canada et al.'s intervention, with supporting calculations and assumptions.
  5. At paragraph 90 of its submission, TCI proposed that the Commission eliminate the obligation to serve for the company. TCI submitted that the imposition of this form of asymmetric regulation is no longer justified in a competitive environment in which local voice services are available through a range of technologies, including wireline, cable wireless, broadband, and satellite, from hundreds of suppliers.

    In Modern telecommunications services – The path forward for Canada’s digital economy, Telecom Regulatory Policy CRTC 2016-496, 21 December 2016 (Telecom Regulatory Policy 2016-496), the Commission determined that only ILECs were capable of providing access to local voice service for all customers in their respective exchanges. Given this situation, as well as the minimal presence of competitors in regulated exchanges, the obligation to serve for voice telephone service was retained for the ILECs.

    1. Explain what has changed since Telecom Regulatory Policy 2016-496 that would justify removing the obligation to serve for the ILECs. Provide any evidence and supporting rationale to support this view.
    2. If the Commission were to i) allow technological flexibility in the provision of local voice services in regulated exchanges and ii) remove the requirement to provide equal access where wireless technology is used to provide stand-alone PES, explain, with supporting rationale, whether the company would still consider that it should be relieved of its obligation to serve.
  6. The obligation to serve requires the ILECs to provide telephone service to (i) existing customers, (ii) new customers requesting service where the ILECs have facilities, and (iii) new customers requesting service beyond the limits of the ILECs’ facilities.
    1. For each of the years 2015 to 2017, provide the number of new customers that requested PES in regulated exchanges (i) where the company had facilities, and (ii) beyond the limits of the company's facilities.
    2.  For each of the years 2015 to 2017, provide the number of new customers that requested stand-alone PES in forborne exchanges (i) where the company had facilities, and (ii) beyond the limits of the company's facilities.
  7. Refer to the first bullet of paragraph 22 of TCI’s intervention. TCI submitted that to the extent that there are “additional services” sharing local lines with local exchange service, these “additional services” are competitive. Because they are competitive services, revenues they generate will normally be sufficient only to cover the costs of those services and a reasonable profit. “Additional services” cannot generate any excess profit on a non-transitory basis (i.e. profit above the normal return in a competitive market) to subsidize the provision of local service.
    1. Provide a list of the additional services that are sharing the local loop facilities used to provide local services.
    2. Provide evidence, including all assumptions and calculations, to support the statement that revenues generated will normally be sufficient only to cover costs of those services and a reasonable profit. In addition,
    1. provide the revenues and costs for each "additional service" utilizing the local loop facilities for each of the years 2015 to 2017, including all supporting calculations and assumptions; and
    2. specify whether any of the local loop costs have been attributed to these “additional services”, and if not, provide the  company’s views as to why these costs should not be attributed to these "additional services".
  8. Refer to the second bullet of paragraph 22 of TCI’s intervention. TCI submitted that many digital subscriber lines (DSL) in HCSAs are capable of providing only local exchange service and are not technically capable of providing Internet or other additional services dues to the long loop lengths.

    For the year ended 31 December 2017, provide the number and percentage of TCI’s DSL customers that:

    1. did not have access to Internet access services;
    2. had access to high-speed Internet access services (i.e. 1.5 megabits per second or less); and
    3. had access to broadband Internet access services (i.e. speeds greater than 1.5 megabits per second).
  9. Refer to paragraph 33 of TCI's intervention where the company stated that a common misconception regarding legacy services is that the net book value (NBV) always declines over time as assets depreciate and age. While this is true for some services, it does not hold true for copper-based services in high cost serving areas, including local residential primary exchange service. In these areas, NBV has declined only ## over the 7 years from December 2010 to December 2017, whereas the number of copper loops in service over the same 7 years has declined by 27%. Consequently, the NBV of copper cable plant per line in service has been increasing on average ## per year. As this is an aggregate over all business and residential services using those loops, this is a conservative figure when considering residential primary exchange service in isolation, which has, in fact declined by 40% over the same period.
    1. Provide the detailed calculations, including all assumptions, to support the company's statement separately for residential and business primary exchange services.
    2. What is the estimated useful life of the copper loop? Has the company recovered these investments? Explain with supporting rationale.
  10. Refer to paragraph 34 of TCI's intervention. TCI submitted that in addition to capital costs, non-capitalized maintenance costs (e.g. cable repair that does not require new capital) must also be considered. TCI further submitted that cost increases for maintenance are more aligned to labour inflation and the age of assets. In particular, it is reasonable to expect the annual maintenance of an asset increases with the asset's age. In light of the fact that total maintenance costs are increasing and copper loops in service are decreasing, it is reasonable to conclude that maintenance costs per line in service per year are increasing at an even faster rate than the average ##.
  11. Provide the detailed calculations, including all assumptions, to support the company’s statement that maintenance costs are increasing at an even faster rate than the average ##.

  12. Based on current rates, provide an updated cost study for residential local primary exchange services by HCSA band. The cost study should provide supporting rationale and details of the costing methodologies and assumptions used in developing the local primary exchange service by band.
  13. At paragraphs 69 to 75 of TCI’s intervention, the company proposed that, given the extensive adoption of wireless services and the fact that they are close substitutes for wireline voice services, the Commission should modify the local forbearance framework, specifically the residential and business competitor presence tests. It submitted that the tests should be modified to grant local forbearance if, in addition to the ILEC, there are other independent facilities-based telecommunications service providers, whether wireline or wireless service providers, offering local exchange services and capable of serving at least 75% of the number of residential local exchange service lines that the ILEC is capable of serving in a particular exchange.
    1. Identify which residential and business local exchanges would become eligible for forbearance under the company's proposed competitor presence tests. If the information is not available, provide separately the estimated number of eligible residential and business local exchanges based on TCI’s proposed competitor presence tests.
    2. According to the Commission's 2017 Communications Monitoring Report, Footnote3 mobile wireless services are available to 99.4% of the Canadian population. Provide the company's views, with supporting rationale, on setting the threshold for customers capable of being served by mobile wireless competitors at a higher level (e.g. 95% or even 100%). 
    3. Provide a response to part a) above assuming that the wireless competitor presence threshold is set at i) 95% and ii) 100%.
  14. Provide the total number of residential network access services in forborne exchanges that were served by the company as of 30 June 2018.
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