Telecom Order

Ottawa, 31 May 1999

Telecom Order CRTC 99-475

In the matter of the filing of the 1997 Phase III/Split Rate Base (SRB) results by Bell Canada, BC TEL, TELUS Communications Inc., MTS Communications Inc., NBTel Inc. (NBTel), Maritime Tel & Tel Limited (MT&T), Island Telecom Inc. (Island Tel) and NewTel Communications Inc. (the companies).

File No.: 8638-C12-01/97

1.In accordance with various Commission decisions, the companies are required to file their Phase III/SRB results by 30 September of the following calendar year.

2.The companies were unable to file their 1997 Phase III/SRB results on or before 30 September 1998, because, among other things, the Commission had not disposed of their proposed assignment procedures for costs associated with broadband-capable equipment and facilities, as the record with respect to the issue of transfer prices was not complete.

3.These procedures, set out in Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 and in Telecom Order CRTC 97-144, 31 January 1997 (Order 97-144), provide that the companies are to assign all costs associated with joint-use broadband-capable equipment and facilities, such as Fibre Optics Transmission Systems (FOTS), to the Competitive segment and to use transfer pricing to reflect usage by the Utility segment.

4.In a letter dated 30 October 1998, comments were sought on the appropriateness of using the assignment procedures for costs associated with broadband-capable equipment and facilities approved in Order 97-144 for use in 1996 for purposes of finalizing the companies' 1997 Phase III/SRB results.

5.The companies, except MT&T, Island Tel and NBTel, responded that the production of 1997 Phase III/SRB results using the approved 1996 SRB ratios could be accomplished without a material impact on their SRB results and would permit them to file these results without further delay.

6.MT&T, Island Tel and NBTel submitted that they would prefer to continue using their proposed inter-segment transfer pricing in the production of their 1997 Phase III/SRB results.

7.The Canadian Cable Television Association submitted that there is no reason to finalize the 1997 Phase III/SRB results using inappropriate methodologies and that finalizing the results should be delayed until the correct methodologies, including transfer pricing, are approved and in place.

8.Because the record with respect to the determination of the transfer prices remains incomplete, the Commission is concerned that the finalization and filing of the companies' 1997 Phase III/SRB results have been significantly delayed and this delay complicates the companies' administration of the 1998 and 1999 Phase III/SRB results.

9.The Commission notes that the launching of new broadband initiatives, as originally envisaged by the companies, has not materialized.

10.The Commission further notes that increases in the annual assignment of FOTS costs to the companies' Utility segments for the years 1995 through 1997 have not been material.

11.Further, the Commission notes that the companies' 1997 Phase III/SRB results will not be used for contribution rate setting.

12.The Commission is satisfied that, with respect to the companies' 1997 Phase III/SRB results, the usage-based cost assignment methodology approved for use in 1995 and 1996 will protect Utility subscribers from bearing any undue costs associated with the deployment of broadband-capable equipment and facilities.

13.The Commission further notes that the use of the approved 1996 SRB ratios would permit the timely finalization and filing of the companies' 1997 Phase III/SRB results.

14.In light of the above, the Commission directs the companies to:

a) use their approved 1996 SRB ratios to produce their 1997 Phase III/SRB results; and

b) file their 1997 Phase III/SRB results within 30 days of this Order.

Secretary General

This document is available in alternative format upon request and may also be viewed at the following Internet site: www.crtc.gc.ca