10 Mar 03 Coalition comment

Petrinl

Informations

• Publié par: Enne
• Nombre de lectures: 14
• Langue: English

Extrait

Teresa Griffin-Muir
thVice President, Vice-présidente 112 Kent Street, 14 Floor
Regulatory Affairs des Affaires réglementaires Ottawa, Ontario K1P 5P2
Business Bureau : 613-239-1877 112, rue Kent, 14e étage
Facsimile Télécopieur : 613-239-1879 Ottawa (Ontario) K1P 5P2
E-mail: Courriel : [e-mail]

10 March 2003 By Email and by Courier



Mr. Alexander Himelfarb
Clerk of the Privy Council and
Secretary of the Cabinet
Langevin Block, 80 Wellington Street
Ottawa, Ontario
K1A 0A3

Dear Sir:

Subject: Canada Gazette – Notice No. DGTP-003-03, 8 February 2003
Petition to the Governor in Council from TELUS Communications Inc.
under Section 12 of the Telecommunications Act to Vary Telecom Decision
CRTC 2002-67 TELUS Communications Inc. – Application to Review and Vary
Decision 2000-745 and Decision 2001-238.

These comments are filed by AT&T Canada Corp. on behalf of itself, Call-Net Enterprises Inc.
and Rogers Wireless Inc. (collectively referred to herein as "the Competitive Coalition") in
response to a Petition to the Governor in Council filed by TELUS Communications Inc.
(TELUS) on January 22, 2003, pursuant to Section 12 of the Telecommunications Act.

Yours truly,

Original signed by Teresa Griffin-Muir.

Attachment

c.c.: Canadian Radio-television and Telecommunications Commission
Industry Canada
TELUS Communications Inc.In the Matter of Canada Gazette Part I,
February 8, 2003
Telecommunications Act Notice
No. DGTP-003-03


Petition of Telus Communications Inc. to
Her Excellency the Governor in Council
Dated January 22, 2003


Application to Vary
Telecom Decision CRTC 2002-67
Telus Communications Inc. – Application
to review and vary Decision 2000-745
And Decision 2001-238



Comments of AT&T Canada Corp., Call-Net
Enterprises Inc. and Rogers Wireless Inc.



March 10, 2003
Table of Contents



EXECUTIVE SUMMARY ......................................................................................1
A. INTRODUCTION........................................................................................9
B. THE NATURE OF PHASE II COSTING...................................................10
C. THE CRTC’S DECISION TO REVISE TELUS’ COST INPUTS IS
CORRECT ...............................................................................................13
Average Working Fill Factor.....................................................................13
Loop Maintenance Expenses...................................................................17
Functional Operating Expenses ...............................................................19
D. THE DETERMINATIONS APPEALED BY TELUS...................................21
Telus is Wrong When It States That The CRTC Failed To Have Regard for
Telus’ Company-Specific Costs21
This Is Not An Appropriate Case For Review By Way of Petition.............22
Telus Is Incorrect to Assert That Its Rates Must Be Based On Its
Company-Specific Costs..........................................................................24
Telus’ Approach Ignores The Need To Balance Policy Objectives ..........28
The CRTC Has Already Initiated A Public Proceeding To Assess The
Reliability Of Phase II Costing..................................................................31
E. TELUS’ PETITION IS CONTRARY TO PUBLIC POLICY........................33
The Implications of Granting Telus’ Petition.............................................33
Negative Impact on Other ILECs and on Telephone Subscribers in Other
Parts of Canada .......................................................................................34
Impact on Competing Wireline Carriers ...................................................35
Impact on Wireless Carriers.....................................................................36
Overall Impact on Investment in the Canadian Telecom Industry ............37
Telus Does Not Need or Deserve This Windfall.......................................38
F. CONCLUSION .........................................................................................40
EXECUTIVE SUMMARY

1. In Decision 2002-67, the CRTC denied an application by Telus to vary Decisions
CRTC 2000-745 (Changes to the Contribution Regime) and 2001-238 (Restructured
bands, revised loop rates and related issues). Decision 2001-238 dealt with the manner
in which the CRTC calculates the cost of providing local telephone services in the
operating territories of the largest incumbent local exchange carriers (ILECs).

2. The CRTC used these costs in accordance with the regime established in Decision
2000-745 to determine the amount of “contribution” required by the ILECs to subsidize
their provision of local telephone service in high cost areas where the ILECs’ costs
exceed the rates the CRTC permits them to charge. These costs were reviewed in
Decision 2001-238 in order to set the rate charged by the ILECs for “local loops” – the
name given to the telephone lines running from the ILECs’ switches to their customers’
premises.

3. In its Petition, Telus has questioned the CRTC’s ruling on three cost elements
(among many) that the CRTC reviewed in rendering Decision 238. Telus has asked the
Governor in Council to vary the CRTC’s determinations with respect to the
reasonableness of Telus’ estimates for these cost items and to order the CRTC to
recalculate both the amount of the subsidy and the rate for Telus’ local loops using Telus’
estimates.

4. As discussed in detail in the main body of its comments, the Competitive
Coalition strongly opposes Telus’ Petition and urges the Governor in Council to reject it.

5. Contrary to what Telus suggests in its Petition, Phase II costing is not an exact
science. It involves many judgment calls on important cost inputs and economic
variables because it is a forward-looking study of projected costs. This includes
estimating demand for the service in question over a forward-looking period of 5, 10 or
more years (depending on the study period which is based typically on the life of the 2
equipment), estimating cost changes over this period due to productivity improvements
and inflation, forecasting capital related costs such as depreciation, interest rates and
return on equity, apportioning variable costs of providing several services over a common
network to the specific service in question, estimating labour rates and a host of other
forward looking costs.

6. Despite the fact that there is a complex set of guidelines in place for conducting
Phase II cost studies, the CRTC has learned from years of experience in monitoring and
reviewing the ILECs’ reported Phase II costs and their Phase II cost studies, that there is
plenty of room for error in these studies and forecasts. In addition, the ILECs have an
economic incentive to overstate their costs in order to increase their returns or impede
their competitors’ entry into the local exchange market. These incentives arise out of the
fact that the subsidy to Telus will increase as its Phase II costs of providing local
telephone service increase. Similarly, higher Phase II costs for local telephone service
and local loops would mean increased subsidies and increased revenues for Telus and
increased costs for its competitors.

7. Any attempt to do so would ignore the subjective nature of the judgment calls and
economic forecasts inherent in establishing Phase II costs, as well as the CRTC’s
statutory mandate to assure itself that the resultant rates are just and reasonable.

8. The implications of granting Telus’ petition are significant and would run counter
to the principles of Canadian telecommunications policy enshrined in section 7 of the
Telecommunications Act, as well as the requirement in section 27 of the Act for all rates
to be just and reasonable.

9. Approval of Telus’ Petition would result in a huge windfall to Telus, in the order
of $850 million over the four year period of the second price cap plan, during which time
Telus is seeking increased contribution and unbundled local loop payments. This money
would flow to Telus from other ILECs in Canada, such as Bell Canada, as well as from
the wireless industry, competing local and long distance service providers and other 3
telecommunications service providers.

10. One of the perverse implications of granting Telus’ Petition would be to increase
the level of subsidy flowing from other regions of Canada to Alberta and British
Columbia. This increased subsidy to Albertans and British Columbians will be
shouldered to a large extent by telephone subscribers in other parts of Canada. This
would cost other ILECs, such as Bell Canada, hundreds of millions of dollars in transfer
payments to Telus.

11. The distortionary effects of granting Telus’ Petition would be doubly felt by
Telus’ wireline competitors, including AT&T Canada and Call-Net, which lease local
loops from Telus. If Telus’ Petition were granted, not