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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TELECOMMUNICATIONS COMMISSION
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT:
Review of regulatory framework for Northwestel Inc. /
Examen du cadre de réglementation
applicable à Norouestel Inc.
HELD AT: TENUE À:
Convention Centre Centre des congrès
High Country Inn High Country Inn
4051 4th Avenue 4051, 4e rue
Whitehorse, Yukon Whitehorse (Yukon)
July 11, 2006 Le 11 juillet 2006
Transcripts
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
Contents.
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Transcription
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Telecommunications Commission
Conseil de la radiodiffusion et des
télécommunications canadiennes
Transcript / Transcription
Review of regulatory framework for Northwestel Inc. /
Examen du cadre de réglementation
applicable à Norouestel Inc.
BEFORE / DEVANT:
Richard French Chairperson / Président
Helen del Val Commissioner / Conseillère
Barbara Cram Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Ronald Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Madeleine Bisson Secretary / Secrétaire
Peter McCallum/ Legal Counsel /
Leanne Bennett Conseillers juridiques
HELD AT: TENUE À:
Convention Centre Centre des congrès
High Country Inn High Country Inn
4051 4th Avenue 4051, 4e rue
Whitehorse, Yukon Whitehorse (Yukon)
July 11, 2006 Le 11 juillet 2006
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PREVIOUSLY AFFIRMED: SCOTT ROBERTS 284 / 2007
AFFIRMED: RAY HAMELIN
PREVIOUSLY AFFIRMED: MURIEL CHALIFOUX
AFFIRMED: JODY WOODLAND
Examination by Northwestel 284 / 2009
Examination by Consumers Groups 285 / 2021
Examination by UCG 345 / 2472
Examination by Government of Yukon 413 / 2962
Examination by the Commission 480 / 3443
EXHIBITS / PIÈCES JUSTICATIVES
PAGE / PARA
TELUS-2 Globe and Mail article - 277 / 1956
identified as No. 8
TELUS-3 Yukon Statistical Review 2004 278 / 1957
Annual Report - identified as
No. 20
TELUS-4 2006 NWT Socio-Economic Scan - 278 / 1958
identified as No. 21
CRTC-1 Document entitled "Questions 280 / 1976
from CRTC Staff re Costing"
CRTC-2 Document entitled "Questions 280 / 1976
from CRTC Staff re Depreciation"
PIAC-3 Northwestel Actual/Forecast 287 / 2041
Operating Revenues and NCF Funding
for 2002-2007
PIAC-4 Estimate of Northwestel fixed and 298 / 2126
common costs recovered through 25%
mark-up
PIAC-5 Fixed structures - Based on 301 / 2154
NWTel(CRTC) 10APR06-1601 -
Attachment 2
TELUS-5 Document entitled "Proposed Switch 476 / 3419
Connect Rate"
NWTEL-3 Operating Expenses 2001-2005 479 / 3440
(Requested by UCG)
ERRATA
Monday, July 10, 2006 / le 10 juillet 2006
Volume 1
Throughout transcript:
"Krauss" s/b "Kraus"
"NorthwesTel" s/b "Northwestel"
Page Line/ligne
22 16 "Raychuck" s/b "rate shock"
24 23 "Northwestel" s/b "Northwest"
30 24 "Articom" s/b "Ardicom"
113 4 "Going‑in, period" s/b "going‑in period"
114 24 "MS CHALIFOUX:" s/b deleted
128 22 "MR. WALKER:" s/b "MR. ROBERTS: "
143 16 "MR. RONDEAU:" s/b "THE CHAIRPERSON: "
164 16 "MS CHALIFOUX:" s/b "MS KRAUS: "
165 1 "MS CHALIFOUX:" s/b "MS KRAUS: "
182 16 "$0.37" s/b "$0.0037"
183 25 "brand NSI" s/b "BRAND and NSI"
184 3 "brand" s/b "BRAND"
188 19 "MR. CHALIFOUX:" s/b "MR. WALKER: "
189 5 "MS KRAUSS:" s/b "MS CHALIFOUX: "
189 19 "MS KRAUSS:" s/b "MS CHALIFOUX: "
191 3 "MS KRAUSS:" s/b "MS CHALIFOUX: "
192 10 "programs" s/b "forbearance"
210 23 "Dakuakada" s/b "Dakwakada"
211 5 "Self‑service" s/b "Cell service"
215 22 "Sabie" s/b "Sabia"
223 7 "MR. WALKER:" s/b "MR. RYAN: "
223 16 "MR. RYAN: " s/b "MR. WALKER: "
223 17 "MR. WALKER:" s/b "MR. RYAN: "
224 24 "MR. WALKER:" s/b "MR. RYAN: "
225 21 "MR. WALKER:" s/b "MR. RYAN: "
225 24 "MR. RYAN: " s/b "MR. WALKER: "
226 6 "MR. WALKER:" s/b "MR. RYAN: "
241 14 "the average" s/b "de‑averaged"
245 10 "appointed" s/b "a point of"
263 2 "that is charged" s/b deleted
266 10 "MR. WALKER:" s/b "MR. ROBERTS: "
269 3 "self‑service" s/b "cell service"
269 4 "self‑service" s/b "cell service"
269 6 "self‑service" s/b "cell service"
ADDENDA
Page Line/ligne
132 4 "wireline NAS rates" s/b
"wireline NAS penetration rates"
132 10 "that is just one service" s/b
"that this just one service"
229 4 "draw net fund" s/b
"draw on the National Contribution Fund"
Whitehorse, Yukon / Whitehorse (Yukon)
‑‑‑ Upon resuming on Tuesday, July 11, 2006
at 0900 / L'audience reprend le mardi
11 juillet septembre 2006 à 0900
LISTNUM 1 \l 1 \s 19501950 THE CHAIRPERSON: Order, please. A l'ordre, s'il vous plaît.
LISTNUM 1 \l 11951 Ladies and gentlemen, this morning I'm informed that vital questions of a preliminary nature have to be discussed by a wide diversity of parties, including Telus, Northwestel and the CRTC.
LISTNUM 1 \l 11952 Madame la secrétaire...?
LISTNUM 1 \l 11953 THE SECRETARY: Yes. It is regarding the exhibits.
LISTNUM 1 \l 11954 For the record, the opening statements for each participant were numbered as Exhibit No. 1 for that party.
LISTNUM 1 \l 11955 Also, Telus exhibits as at the cross‑examination period were numbered as follows:
LISTNUM 1 \l 11956 Document No. 8, identified No. 8 by Telus, is an ad in the Globe and Mail article. It is numbered Exhibit No. 2.
EXHIBIT TELUS-2: Globe & Mail article, identified as No. 8
LISTNUM 1 \l 11957 THE SECRETARY: Exhibit No. 3 will be the document referred as Document No. 20, Yukon Statistical Review 2004 Annual Report.
EXHIBIT TELUS-3: Yukon Statistical Review 2004 Annual Report - Identified as No. 20
LISTNUM 1 \l 11958 THE SECRETARY: Exhibit No. 4, document referred as Document No. 21, 2006 NWT Socioeconomic Scan.
EXHIBIT TELUS-4: 2006 NWT Socio-Economic Scan - identified as No. 21
LISTNUM 1 \l 11959 THE SECRETARY: That's it.
LISTNUM 1 \l 11960 THE CHAIRPERSON: That's it. Very exciting.
LISTNUM 1 \l 11961 Northwestel, I understand you have something preliminary?
LISTNUM 1 \l 11962 MR. ROGERS: Just a very minor point, Mr. Chairman.
LISTNUM 1 \l 11963 I have indicated to the Commission counsel that we have gone through the transcript from yesterday and relatively minor and uncontentious errors appear, as is quite common in the transcript. What we propose to do is consolidate all of that and provide the Commission, the court reporters and all parties in the room a hard copy or a soft copy of those changes and they can review them. We will do that later today.
LISTNUM 1 \l 11964 THE CHAIRPERSON: Thank you, Mr. Rogers.
LISTNUM 1 \l 11965 Telus...?
LISTNUM 1 \l 11966 UNIDENTIFIED SPEAKER: No thank you, Mr. Chairman.
LISTNUM 1 \l 11967 THE CHAIRPERSON: No preliminaries from Telus?
LISTNUM 1 \l 11968 Thank you.
LISTNUM 1 \l 11969 Mr. McCallum...?
LISTNUM 1 \l 11970 MR. McCALLUM: Yes, thank you, Mr. Chair.
LISTNUM 1 \l 11971 Yesterday we passed informally to Northwestel two proposed CRTC exhibits. The Secretary now has a number of copies of these proposed exhibits which she will make available and distribute.
LISTNUM 1 \l 11972 We have attempted to determine if Northwestel can respond to the proposed staff interrogatories.
LISTNUM 1 \l 11973 There are two sets. One is entitled "Questions From CRTC Staff Re Costing" and the second is called "Questions From CRTC Staff Re Depreciation".
LISTNUM 1 \l 11974 I am informed that Northwestel is able to respond to all of the questions in the two documents, one the costing document and the second one the depreciation document, by the 21st of July 2006, with one exception. That is Question No. 7 on the costing document, but which time they have undertaken to get back by the 28th of July, which is the following Friday.
LISTNUM 1 \l 11975 So if acceptable to all, I would propose that these be introduced as exhibits in the record. I might propose that the costing document be Exhibit No. 1 and the depreciation document be Exhibit No. 2.
LISTNUM 1 \l 11976 Thank you, Mr. Chairman.
EXHIBIT CRTC-1: Document entitled "Questions from CRTC Staff re Costing"
EXHIBIT CRTC‑2: Document entitled "Questions from CRTC Staff re Depreciation"
LISTNUM 1 \l 11977 MR. RYAN: Mr. Chairman, I would like to speak to that issue, if I may.
LISTNUM 1 \l 11978 THE CHAIRPERSON: Yes, Mr. Ryan.
LISTNUM 1 \l 11979 MR. RYAN: If my recollection is correct ‑‑ and I'm sorry, I don't have the document in front of me to verify it ‑‑ I think final argument is due on the 21st of July.
LISTNUM 1 \l 11980 I am anticipating that the questions to be raised by the Commission are of some importance or they wouldn't raising them at all. It would be, I think, appropriate if we had a chance to look at those responses before we were asked to file final argument.
LISTNUM 1 \l 11981 THE CHAIRPERSON: Mr. McCallum?
LISTNUM 1 \l 11982 MR. McCALLUM: Would you have any idea how long you might need ‑‑ it being recognized, of course, that some of the answers might be provided in confidence. So what you may see is an abridged version of some of them.
LISTNUM 1 \l 11983 I would also note that some of them refer to documents where confidentiality has been claimed already by various parties.
LISTNUM 1 \l 11984 Could you give an estimate of what you might require and perhaps after that Mr. Rogers could give his comments.
LISTNUM 1 \l 11985 MR. RYAN: I wouldn't be looking for anything other than an opportunity to have some idea of what the questions and answers are. I appreciate at this stage many of the questions posed might lead to answers that are confidential.
LISTNUM 1 \l 11986 Of course, that in itself raises the issue of whether confidentiality is appropriately claimed.
LISTNUM 1 \l 11987 I would have thought that something in the order of 72 hours would be perfectly adequate for us to review and either raise any issues we have about confidentiality with the Commission, in which case some ad hoc solution might be found, or we could incorporate, as we see fit, the information that has been provided into our final argument, or to at least take it into account before filing our final argument.
LISTNUM 1 \l 11988 It is possible Mr. Rogers might be able to accelerate the delivery of these answers by 72 hours in order to permit us to stick with the original schedule for final argument.
LISTNUM 1 \l 11989 MR. ROGERS: Mr. Chairman, one thing that might affect this is that Mr. Ryan hasn't actually seen the interrogatories yet.
LISTNUM 1 \l 11990 THE CHAIRPERSON: Indeed. And I'm not sure. Has he seen them now? No.
LISTNUM 1 \l 11991 MR. ROGERS: So he is hardly in a position to know how much it might affect his argument.
LISTNUM 1 \l 11992 THE CHAIRPERSON: Exactly.
LISTNUM 1 \l 11993 MR. ROGERS: And further to Mr. McCallum's comment, certainly from what I have seen, many of the interrogatories posed relate to matters which have already been examined on previously in prior rounds by the Commissions, and responses to certain of those interrogatories were filed in confidence and that confidentiality was not challenged.
LISTNUM 1 \l 11994 So perhaps Mr. Ryan may be given an opportunity to review the interrogatories and we might revisit the issue of timing at lunch time.
LISTNUM 1 \l 11995 THE CHAIRPERSON: I agree.
LISTNUM 1 \l 11996 Is that satisfactory, Mr. Ryan?
LISTNUM 1 \l 11997 MR. RYAN: Perfectly satisfactory, Mr. Chairman.
LISTNUM 1 \l 11998 THE CHAIRPERSON: I don't think there are any other preliminary matters.
LISTNUM 1 \l 11999 Madame la Secrétaire. En anglais bien sûr.
LISTNUM 1 \l 12000 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 12001 We would like to invite now the Finance Panel from Northwestel.
‑‑‑ Pause
LISTNUM 1 \l 12002 MR. ROGERS: Mr. Chairman, I will briefly introduce the panel before they are sworn. Then they can be sworn and we will do the direct.
LISTNUM 1 \l 12003 This is the Finance Panel of Northwestel. The Chair of this panel is Mr. Ray Hamelin, CFO of the Company.
LISTNUM 1 \l 12004 With him is Muriel Chalifoux, who was on the prior panel, AVP Carrier and Regulatory; Mr. Scott Roberts, Director of Regulatory Framework; and Jody Woodland, Senior Business Analyst.
LISTNUM 1 \l 12005 Providing back‑up to the panel in the row behind them is Sheldon Schmidt, Senior Financial Analyst; Norm Eady, Manager of Fixed Assets; and Kate Warner, Business Analyst.
LISTNUM 1 \l 12006 The panel is ready to be affirmed.
LISTNUM 1 \l 12007 THE SECRETARY: Thank you.
PREVIOUSLY AFFIRMED: SCOTT ROBERTS
AFFIRMED: RAY HAMELIN
PREVIOUSLY AFFIRMED: MURIEL CHALIFOUX
AFFIRMED: JODY WOODLAND
LISTNUM 1 \l 12008 THE SECRETARY: Thank you very much.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 12009 MR. ROGERS: Mr. Hamelin, was the finance evidence and associated interrogatories therewith prepared by you or under your direction?
LISTNUM 1 \l 12010 MR. HAMELIN: It was, yes.
LISTNUM 1 \l 12011 MR. ROGERS: Do you have any corrections or additions to make to that evidence at this time?
LISTNUM 1 \l 12012 MR. HAMELIN: No, I do not.
LISTNUM 1 \l 12013 MR. ROGERS: To your information and belief, is that evidence accurate and true?
LISTNUM 1 \l 12014 MR. HAMELIN: Yes, it is.
LISTNUM 1 \l 12015 MR. ROGERS: Thank you.
LISTNUM 1 \l 12016 The panel is available.
LISTNUM 1 \l 12017 THE CHAIRPERSON: Thank you, Mr. Rogers.
LISTNUM 1 \l 12018 Madam Secretary.
LISTNUM 1 \l 12019 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 12020 The first party for cross‑examination is the Consumer Groups.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 12021 MS LOTT: Good morning, Mr. Chairman, members of the panel, and good morning to you.
LISTNUM 1 \l 12022 My name is Sue Lott. I am legal counsel for the Consumer Groups, and that represents today the Consumers' Association of Canada and the National Anti‑Poverty Organization.
LISTNUM 1 \l 12023 To my right is Andrew Briggs, who is a consultant and is working with us, as well, and who will help me through this again today.
LISTNUM 1 \l 12024 I wonder if you could tell me what rate of return Northwestel is proposing to use to establish your going‑in rates.
LISTNUM 1 \l 12025 MR. HAMELIN: It will be 10.5 percent.
LISTNUM 1 \l 12026 MS LOTT: What is the basis for the use of 10.5 percent in setting the going‑in rates?
LISTNUM 1 \l 12027 MR. HAMELIN: We thought it would be appropriate to view this proposal as a package and to continue on with the unique regulatory framework that we have currently to assess, for going‑in rates, what the ROR should be, and 10.5 percent was deemed appropriate by management.
LISTNUM 1 \l 12028 MS LOTT: Could you undertake to provide the current yield on Government of Canada long‑term bonds?
LISTNUM 1 \l 12029 MR. HAMELIN: Yes, we could. Could you give me a moment, please?
‑‑‑ Pause
LISTNUM 1 \l 12030 MR. HAMELIN: I believe it is 5.25 percent.
LISTNUM 1 \l 12031 MS LOTT: My understanding is that that was the forecast long‑term bond rate provided by your expert. What I am looking for in my question is the current yield on Government of Canada bonds.
LISTNUM 1 \l 12032 MR. HAMELIN: Do you have an idea of the maturity you are looking for ‑‑ 10 years, 20 years?
LISTNUM 1 \l 12033 MS LOTT: Thirty years.
‑‑‑ Pause
LISTNUM 1 \l 12034 MS LOTT: If you would like to take that on as an undertaking, that would be fine.
LISTNUM 1 \l 12035 MR. HAMELIN: It changes every day. We would have to go and check.
LISTNUM 1 \l 12036 MS LOTT: So you will undertake to find that for me, the current yield on Government of Canada long‑term bonds for 30 years?
LISTNUM 1 \l 12037 MR. HAMELIN: Absolutely, we will find that for you.
LISTNUM 1 \l 12038 MS LOTT: Thank you.
LISTNUM 1 \l 12039 I would like to move now to some questions related to the National Contribution Fund. For that, we have prepared an exhibit, and that exhibit is entitled, "Table 2: Northwestel Actual/Forecast Operating Revenues and NCF Funding for 2002‑2007."
LISTNUM 1 \l 12040 I think that has been provided.
LISTNUM 1 \l 12041 THE SECRETARY: That is Exhibit No. 3.
EXHIBIT PIAC‑3: Northwestel Actual/Forecast Operating Revenues and NCF Funding for 2002‑2007
LISTNUM 1 \l 12042 MS LOTT: Exhibit No. 3. Thank you.
LISTNUM 1 \l 12043 Do you have that in front of you?
LISTNUM 1 \l 12044 MR. HAMELIN: No, I don't.
LISTNUM 1 \l 12045 MS LOTT: It was provided to your counsel.
LISTNUM 1 \l 12046 MR. HAMELIN: Is it entitled Northwestel Actual Forecast Operating Revenues?
LISTNUM 1 \l 12047 MS LOTT: And NCF funding for...
LISTNUM 1 \l 12048 MR. HAMELIN: Right. I have it now, thanks.
LISTNUM 1 \l 12049 MS LOTT: You have that now. Thank you. Okay.
LISTNUM 1 \l 12050 This is an exhibit that is similar to the table 1 that we used yesterday in front of the marketing panel where we were looking at the revenue forecast, but we have now summarized some of these lines and added on funding from the national contribution fund, as you can see from the table, those are lines 20 down.
LISTNUM 1 \l 12051 MR. HAMELIN: Yes, I see that.
LISTNUM 1 \l 12052 MS LOTT: You see that. Okay.
LISTNUM 1 \l 12053 So if we look at lines 22 to 23, these are showing proposed funding, if we go over to column J, proposed funding in 2007 from the national contribution fund, and line 21, as you can see, provides the level of funding, that's entitled supplemental funding from the prior years before 2007.
LISTNUM 1 \l 12054 Do you follow the table?
LISTNUM 1 \l 12055 MR. HAMELIN: Yes, I do.
LISTNUM 1 \l 12056 MS LOTT: Okay. So, in total, if we look across over the yearly periods there we can see that the level of the national contribution funding is proposed to rise from approximately 10 million per annum to about over 43 million and that's ‑‑ I'm looking at line 24, column J, starting in 2007.
LISTNUM 1 \l 12057 You see where I'm looking?
LISTNUM 1 \l 12058 MR. HAMELIN: Yes, I see that.
LISTNUM 1 \l 12059 MS LOTT: Okay. And at line 26 we have the NCF funding to increase from approximately 6 percent of Northwestel's total revenue requirement to 27 percent in 2007.
LISTNUM 1 \l 12060 And you see that, again line 26 ‑‑
LISTNUM 1 \l 12061 MR. HAMELIN: Yes, I see that.
LISTNUM 1 \l 12062 MS LOTT: ‑‑ columns H and J?
LISTNUM 1 \l 12063 So my question would be: How is this level of funding expected to change over time and by what magnitude?
LISTNUM 1 \l 12064 MR. HAMELIN: In the future you mean?
LISTNUM 1 \l 12065 MS LOTT: Yes.
LISTNUM 1 \l 12066 MR. ROBERTS: Is this with regard to the period of the price cap ‑‑ the price cap period, the four‑year price cap period?
LISTNUM 1 \l 12067 MS LOTT: Sure, that would be fine.
LISTNUM 1 \l 12068 MR. HAMELIN: I don't think it's going to change much because what we are talking about in 2007 is a cost‑based subsidy.
LISTNUM 1 \l 12069 In fact, of the three different elements of the subsidy that we are talking about, the SIP program subsidy we believe is ‑‑ I believe it's been suggested that it remains constant, as does the toll connect subsidy ‑‑ and we can talk more about that.
LISTNUM 1 \l 12070 The only one that would vary in the cost‑based subsidy would be the Res PES element of the total subsidy. I believe the suggestion is that it be based on the NAS count as per down south every year.
LISTNUM 1 \l 12071 The other element that you see, recovery of DRD, that's simply due to a change in methodology to be consistent with the telcos down south. That would be filed on an annual basis and I believe that it's ‑‑ it hovers above the 3 million mark in both 2007, 2008 and then it drops significantly in 2009 and 10.
LISTNUM 1 \l 12072 MS LOTT: Well, you have made reference to the cost‑based subsidy as indicated in the table here of 39.4 million for 2007.
LISTNUM 1 \l 12073 Can you just confirm for me again what you were just saying, what this consists of?
LISTNUM 1 \l 12074 MR. HAMELIN: There are three main elements to this subsidy. One is the SIP portion of the subsidy, which is $11.4 million. I should add that $5.4 million of SIP is also included in the Res PES subsidy. So in effect, if you just take that piece, add it together, almost $17 million is due to the SIP program that we commenced in 2001.
LISTNUM 1 \l 12075 You know, just for the record, just to make things clear on this, this is the carrying costs of the SIP program, $85 million was spent. Now, for us, that is worth at least two years' worth of the total capital expenditure of this company or third of its net asset base. We mentioned yesterday that would be about $3 billion I think for Telus. I think any which way you count it it is a big number for us.
LISTNUM 1 \l 12076 Seventeen million dollars out of the $39 million cost‑based subsidy is 40 percent of new carrying costs that this company is incurring since 2001. I just wanted to make that point clear. This has all things to do with connecting, providing basic service of objectives to a very difficult market.
LISTNUM 1 \l 12077 The second element toll connect is $10.8 million. That has to do with connecting the local switches to the toll switches and Mr. Woodland can talk at length about that in detail, if need be. The Res PES study of $17.2 million, which includes the $5.4 million of SIP due to access that I mentioned, that is exactly the same methodology as down south.
LISTNUM 1 \l 12078 So what we are talking about are two exceptions to down south, is the toll connect piece and the SIP piece, SIP being $17 million of it since 2001.
LISTNUM 1 \l 12079 MS LOTT: Okay, thank you for that. My question flowing from that though is isn't the National Contribution Fund intended to be used to subsidize local service in high‑cost serving areas?
LISTNUM 1 \l 12080 MR. HAMELIN: That is certainly ‑‑ in principle, yes.
LISTNUM 1 \l 12081 MR. ROBERTS: I might add that that is one element of it. Currently, Northwestel has supplemental funding from the National Contribution Fund and that would represent not only the portion that you identified, but I guess a broader non‑specific subsidy. Other companies have also had I guess a broader application of funds from the National Contribution Fund. And I would note in passing here that the Commission's powers with regard to I guess having a Contribution Fund are set out in 46.5 of the Act and it doesn't refer specifically to local service and high‑cost serving areas, but rather to meeting the basic service objective, which I would suggest ‑‑
LISTNUM 1 \l 12082 MS LOTT: Well, that was going to be my question, yes, wasn't the ‑‑
LISTNUM 1 \l 12083 MR. HAMELIN: ‑‑ which I would suggest is broader.
LISTNUM 1 \l 12084 MS LOTT: ‑‑ wasn't the supplemental funding implemented to assist you in meeting your basic service objectives?
LISTNUM 1 \l 12085 MR. ROBERTS: Basic service, yes, which I would add, under 99.16, includes access to toll services amongst other things.
LISTNUM 1 \l 12086 MS LOTT: Just one minute please.
LISTNUM 1 \l 12087 MR. ROBERTS: In fact, if it is of assistance, at paragraph 24 of Telecom Decision 99.16, the elements of basic service objective are set out. Would you like me to share or..?
LISTNUM 1 \l 12088 MS LOTT: That is fine, thank you. I will just be a minute, thank you.
LISTNUM 1 \l 12089 I would like to know whether the CRTC permitted the small ILECs to recover any shortfall in toll interconnection revenues in Decision 2005‑3.
LISTNUM 1 \l 12090 MR. ROBERTS: I am sorry, could you please repeat it?
LISTNUM 1 \l 12091 MS LOTT: Did the CRTC permit the small ILECs to recover any shortfall in the toll interconnection revenues in Decision 2005‑3?
LISTNUM 1 \l 12092 MR. ROBERTS: I am not aware of them doing so, no.
LISTNUM 1 \l 12093 MS CHALIFOUX: I think though, just to be clear, the nature of Northwestel's toll connect facilities are quite unique and the Commission has even recognized that we may not be able to recover those facilities via traditional means and in fact assign those costs to our monopoly access category from a Phase 3 perspective.
LISTNUM 1 \l 12094 But again, just to be clear, we have got ‑‑ toll connect in the case of Northwestel consists of thousands of kilometres of microwave, 42 satellite‑based communities. Again, this is to serve a population base of 110,000 people. So there really is no comparison when you are talking toll connect facilities to SILECs.
LISTNUM 1 \l 12095 You cannot compare Northwestel to ILECs. We have quite a unique high‑cost network and the Commission has recognized the challenges that Northwestel faces in trying to recover that network through traditional means.
LISTNUM 1 \l 12096 MR. ROBERTS: In fact, again in 99‑16, Telecom Decision CRTC 99‑16, at paragraph 62 they specifically recognize that Northwestel may not have the means to achieve the basic service objective under similar terms and conditions to other southern telcos and they further at paragraph 68 provided for the treatment of toll connecting facilities, i.e. facilities between our class 4s and class 5s as monopoly access under Phase 3.
LISTNUM 1 \l 12097 To put this into context, treatment as monopoly access under the traditional regime, the historic regime, meant that it was eligible for subsidy.
LISTNUM 1 \l 12098 MS LOTT: Well, just for the record, I will read you the extract from that decision, paragraph 92. It states:
"The Commission notes that the NCF was established to subsidize local service in high‑cost serving areas and considers that it should not be used to subsidize any shortfall in the toll interconnection revenues of the small ILECs." (As read)
LISTNUM 1 \l 12099 MR. ROBERTS: Again, I would reiterate that in 99‑16 the Commission provided for unique treatment of Northwestel's circumstances addressing our specific challenge with regard to toll connecting trunks. So I would suggest that that would apply to the other telcos in Canada but consistent with paragraph 62 of Telecom Decision CRTC 99‑16 it would not apply to Northwestel.
LISTNUM 1 \l 12100 MS LOTT: Okay.
LISTNUM 1 \l 12101 MR. HAMELIN: Just the distance we are talking about for these interconnections, I think the figure we have is over 7,000 kilometres. It is twice the distance between Ottawa and Victoria, both back and forth. So I don't think there is any ILEC that would come even close to this kind of concept and geography and density and so on.
LISTNUM 1 \l 12102 MS LOTT: Okay, thank you for that.
LISTNUM 1 \l 12103 I wanted to move on to look at the issue of mark‑up, the level of mark‑up included in the proposed subsidy calculation.
LISTNUM 1 \l 12104 My understanding here is that the ‑‑ I have prepared an exhibit here which is called the "Estimate of Northwestel fixed and common costs" ‑‑ that should be the second exhibit in the package that was given to you. As I said, it is entitled "Estimate of Northwestel fixed and common costs recovered through 25 percent mark‑up."
LISTNUM 1 \l 12105 MR. HAMELIN: I have it.
LISTNUM 1 \l 12106 MS LOTT: Do you have that in front of you?
LISTNUM 1 \l 12107 MR. HAMELIN: I do.
LISTNUM 1 \l 12108 MS LOTT: Okay. So my understanding is that the subsidy calculations, as you have said here, include a mark‑up of 25 percent on costs. The CRTC typically permits 15 percent for other ILECs.
LISTNUM 1 \l 12109 So what we have done here on this table is that we estimated the total fixed and common costs for Northwestel based on a 25 percent mark‑up using its total revenues as follows. So you can see there that we have started with the 2006 total forecast operating revenues of $154 million and we have added to that. In the second line, we have divided by 1 plus the 25 percent mark‑up, which is 1.25.
LISTNUM 1 \l 12110 And then in the third line we have achieved the 2006 total, excluding the mark‑up, which is $123 million.
LISTNUM 1 \l 12111 Are you following my ...?
LISTNUM 1 \l 12112 MR. HAMELIN: Well, I see what you have done, yes.
LISTNUM 1 \l 12113 MS LOTT: Okay.
‑‑‑ Pause
LISTNUM 1 \l 12114 MS LOTT: So the fourth line being the estimate of the fixed and common costs, that would be line "D", being $30,808,000, which is implied in your total revenues.
‑‑‑ Pause
LISTNUM 1 \l 12115 MS LOTT: Are you in agreement with my math?
LISTNUM 1 \l 12116 MR. WOODLAND: Your math is correct.
LISTNUM 1 \l 12117 MS LOTT: Okay. Thank you.
‑‑‑ Pause
LISTNUM 1 \l 12118 MS LOTT: So is this ‑‑
LISTNUM 1 \l 12119 MR. HAMELIN: If you could just give us a moment, please?
LISTNUM 1 \l 12120 MS LOTT: Sure.
LISTNUM 1 \l 12121 COMMISSIONER CRAM: Excuse me, I just needed to clarify something, Ms Lott.
LISTNUM 1 \l 12122 MS LOTT: Yes.
LISTNUM 1 \l 12123 COMMISSIONER CRAM: Is this a separate exhibit?
LISTNUM 1 \l 12124 MS LOTT: This is ‑‑
LISTNUM 1 \l 12125 COMMISSIONER CRAM: I know I have the document in front of me, but I just need to know for the record whether it is Consumers Groups Exhibit 4 or part of page 2 of Consumers Groups Exhibit 3.
LISTNUM 1 \l 12126 MS LOTT: My apologies, it should be a separate exhibit, Exhibit 4.
EXHIBIT PIAC-4: Estimate of Nothwestel fixed and common costs recovered through 25% mark‑up
LISTNUM 1 \l 12127 THE SECRETARY: It is noted as Exhibit No. 4.
LISTNUM 1 \l 12128 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 12129 Just for the record so we have the same thing.
LISTNUM 1 \l 12130 MS LOTT: Yes, to clarify. Absolutely, yes.
LISTNUM 1 \l 12131 We stapled them together just for ease of distribution.
LISTNUM 1 \l 12132 I will give you a minute there before I ask my question.
‑‑‑ Pause
LISTNUM 1 \l 12133 MS LOTT: Mr. Chairman, I just wanted to apologize for the delay here. We did hand out copies of these exhibits yesterday to counsel for Northwestel, but something might have happened in translation.
LISTNUM 1 \l 12134 THE CHAIRPERSON: Well, that suggests to me that you don't need to apologize, Ms Lott.
‑‑‑ Pause
LISTNUM 1 \l 12135 MR. HAMELIN: So you have a question?
LISTNUM 1 \l 12136 MS LOTT: Yes, I do. I just wanted to make sure you were ready for me to go. Okay.
LISTNUM 1 \l 12137 My question is: Is this the total level of fixed and common costs?
LISTNUM 1 \l 12138 MS CHALIFOUX: I'm sorry, which number are you referring to? The top there? The total...?
LISTNUM 1 \l 12139 MS LOTT: The $30.8 million.
LISTNUM 1 \l 12140 MS CHALIFOUX: Well, if you use sort of the hypothesis that generally all rates times a 25 percent mark‑up equals your revenue, then that is the ballpark of what is required.
LISTNUM 1 \l 12141 MS LOTT: Just to confirm what you have said there, that is the total level. You are confirming that that is the total level of fixed and common costs?
LISTNUM 1 \l 12142 MS CHALIFOUX: If you are looking for a proxy, that could be deemed to be a proxy.
‑‑‑ Pause
LISTNUM 1 \l 12143 MS LOTT: I would like to move to the bottom part of the exhibit that you have in front of you. That bottom half is entitled "Northwestel Identifiable Fixed and Common Costs".
LISTNUM 1 \l 12144 So it is the same table, just the bottom half of it.
LISTNUM 1 \l 12145 You are seeing where I am fixing there? Okay.
LISTNUM 1 \l 12146 So a second area of fixed and common costs...
LISTNUM 1 \l 12147 Just to explain what we have here, in Northwestel the interrogatory response to CRTC‑310, Attachment 10, identifies common operating and administration expenses of $9.5 million. That is what we have listed here in the Common Operating Expenses line and the Common Administrative Expenses line and the Total Common Costs line of $9.4 million.
LISTNUM 1 \l 12148 Do you follow my reference there?
LISTNUM 1 \l 12149 MS CHALIFOUX: Yes, I am following along.
LISTNUM 1 \l 12150 MS LOTT: So the second area of fixed and common costs is the fixed structures which were identified in CRTC‑1601, Attachment 2, and reproduced here in another exhibit, which I will ask you to pull out, which is the third exhibit that we have prepared here.
LISTNUM 1 \l 12151 That is entitled "Fixed Structures Based on Northwestel CRTC‑1601, Attachment 2".
LISTNUM 1 \l 12152 Do you see that in the next ‑‑ it should be the next one behind the ‑‑
LISTNUM 1 \l 12153 THE CHAIRPERSON: We will call it Exhibit 5.
LISTNUM 1 \l 12154 MS LOTT: Thank you.
EXHIBIT PIAC‑5: Fixed structures - Based on NWTel(CRTC)10Apr06-1601- Attachment 2
LISTNUM 1 \l 12155 MS CHALIFOUX: Yes, we have that one here.
LISTNUM 1 \l 12156 MS LOTT: If we could focus on that one right now, I wonder if you could tell me what services make use of these assets that are listed.
LISTNUM 1 \l 12157 MS CHALIFOUX: The nature of these investments, if you look here as an example, generating plants ‑‑ perhaps I could step back to give you an illustration.
LISTNUM 1 \l 12158 Northwestel has 137 microwave radio stations. So for each of these 137 microwave stations there would be a tower foundation. Many of these sites need to be self‑generated power so you would have a generating plant on site.
LISTNUM 1 \l 12159 Fifty‑two sites have no road access and need to be maintained and fuelled by helicopters, so you would see a helicopter pad.
LISTNUM 1 \l 12160 Actually, for an illustration, if you look at our opening argument we provided a picture of one of our microwave sites, Fraser, B.C., and you can see quite clearly there a lot of what we are talking about here.
LISTNUM 1 \l 12161 You can see a tower. You can see a helicopter pad. So these are microwave stations.
LISTNUM 1 \l 12162 Many services use these. Many services ride on a microwave itself, but there is a large fixed component.
LISTNUM 1 \l 12163 So when you are looking at service‑specific costing, causal costing ‑‑ and Mr. Woodland can elaborate here ‑‑ you look at costs that going forward vary with demand; so demand for data, demand for toll.
LISTNUM 1 \l 12164 But because these fixed costs do not vary ‑‑ they are by nature fixed ‑‑ it is the mark‑up component that you apply on top of your Phase 2 costing which provides a suitable recovery towards these costs.
LISTNUM 1 \l 12165 MR. WOODLAND: I can expand on Ms Chalifoux's answer by noting that, for instance, duct systems are used by any services that ride on outside plant. So that would include the connection end of data circuits. It would include local service.
LISTNUM 1 \l 12166 Batteries are used, effectively, by every service that the company offers. Batteries are part of the power system in any one of our facilities, whether it is a microwave site or a central office.
LISTNUM 1 \l 12167 Generating plants would primarily be used by services that make use of the transport network, because most of our generating plant investment is there, although a substantial amount is also embodied in standby generation, and that can be at central offices as well.
LISTNUM 1 \l 12168 Inverters and converters are similar to batteries.
LISTNUM 1 \l 12169 Permanent buildings would tend to be central offices. Semi‑permanent buildings would tend to be buildings used for the transport network. So any service, whether it is IP, internet, data circuits, toll, that make use of the transport network would make use of those assets.
LISTNUM 1 \l 12170 Access roads and site clearance, again, are primarily involved with the transport network.
LISTNUM 1 \l 12171 Towers are primarily involved with the transport network, and services making use of that.
LISTNUM 1 \l 12172 Air conditioning and heating systems would apply to all buildings and, therefore, to all services.
LISTNUM 1 \l 12173 That should be sufficient.
LISTNUM 1 \l 12174 MS LOTT: Thank you.
LISTNUM 1 \l 12175 What is the total 2006 depreciation expense for these assets?
LISTNUM 1 \l 12176 I have a figure, but I wanted to confirm that I am correct with $4.464 million.
LISTNUM 1 \l 12177 MS CHALIFOUX: Yes, subject to check, but if you have that from our interrogatories, that would be the total depreciation accrual related to those assets.
LISTNUM 1 \l 12178 MR. WOODLAND: I would like to point out that these are very specific lines in the investment record that are considered part of fixed structures and considered part of fixed and common costs, but it is not a good way to look at the total of fixed and common costs related to investment that Northwestel has made. There is a big difference between recording an investment as part of the investment record aligned against a certain asset, and then the way it is treated in doing Phase 2 calculations to determine a Phase 2 cost going forward.
LISTNUM 1 \l 12179 So there are significant portions of the investment in all of the different asset classes that would be considered fixed.
LISTNUM 1 \l 12180 An example would be the central processing portion of the DMS‑100. In a few years we will have to upgrade that, at a cost of more than $2 million, and we will be upgrading that because the manufacturer no longer supports the version we have.
LISTNUM 1 \l 12181 The version of the central processing unit that we have already exceeds our needs. It has capacity far in excess of what we will ever put through it.
LISTNUM 1 \l 12182 The new server, at greater than $2 million, will exceed that by even more.
LISTNUM 1 \l 12183 I want to be very clear that the list you have provided here in your exhibit is far and away from being a complete list of fixed and common assets.
LISTNUM 1 \l 12184 MS LOTT: Let me remind you that I am taking your interrogatory response. This is your list.
LISTNUM 1 \l 12185 I wanted to confirm, as you have indicated, and we have produced it, that the fixed structures as a percentage of total represent 14 percent of total depreciation accruals versus 22 percent of total plan and service.
LISTNUM 1 \l 12186 Am I correct that that is what you produced in your response?
LISTNUM 1 \l 12187 MS CHALIFOUX: Yes, that appears to be correct.
LISTNUM 1 \l 12188 Many of these ‑‑ just the nature of these fixed structures is such that they do have lengthy lives.
LISTNUM 1 \l 12189 However, to go back to the point that Mr. Woodland made, yes, this is our list, but this list, to be clear, was to be illustrative of fixed structural costs.
LISTNUM 1 \l 12190 We also noted in our response to the interrogatory that there is also this fixed common investment, which Mr. Woodland was referring to, the nature of the CPU upgrade that he was referring to.
LISTNUM 1 \l 12191 Again, those aren't as easily identifiable at an asset code level. It was difficult to illustrate them; whereas the fixed structure cost ‑‑ clearly one can look at that and say, "Aha, that is, in essence, 100 percent fixed."
LISTNUM 1 \l 12192 Again, it was meant to illustrate a portion, and, more importantly, to illustrate the relative significance of that portion.
LISTNUM 1 \l 12193 MS LOTT: Thank you for that.
LISTNUM 1 \l 12194 I want to take us back, then, to the exhibit, the estimates of the Northwestel fixed and common costs, at the bottom half of that exhibit.
LISTNUM 1 \l 12195 If we combine that figure that you have confirmed there of the fixed structures depreciation expense of 4.5 million with the common expenses added up ‑‑ total common costs of 9.5 million, we have reached a total there of the total fixed structures and common costs of approximately 14 million.
LISTNUM 1 \l 12196 Do you follow what I have put in the bottom half of the table there?
LISTNUM 1 \l 12197 MS CHALIFOUX: Right. And that would be, again, a representation of only a component of the costs.
LISTNUM 1 \l 12198 Take the fixed structure, the nature of the investment is such that, you know, you also have to recover your normal financing costs, your normal carrying costs.
LISTNUM 1 \l 12199 There's interest expense, you know, a return in the taxes paid on that return, all the innocents, the carrying costs of that investment need to be recovered.
LISTNUM 1 \l 12200 So the mark‑up is intended to contribute towards all of those components not just the depreciation. And then on top of that, again, you have got these common elements that Mr. Woodland provided some good examples of.
LISTNUM 1 \l 12201 So, I mean, this is only a partial analysis and this is one of the challenges that Northwestel has. I mean, it's very difficult to go and provide a detailed qualitative analysis that sums magically to 25 percent.
LISTNUM 1 \l 12202 But, again, our main point there is that costs are significant and particularly relative to the ILECs and the small independent companies we are very unique.
LISTNUM 1 \l 12203 Just the example we were talking about previously, the extent of our microwave stations. no other company has that degree of inter‑toll facilities ‑‑ or inter‑network facilities, I should say, intra‑network facilities. Satellite, no other company has the degree of satellite that we have. There's just a number of examples that clearly indicate relative to others the need for a higher mark‑up.
LISTNUM 1 \l 12204 MR. WOODLAND: So this is just to be clear, the bottom half of your exhibit falls short of the representation of the total fixed and common costs of the company by the operating amounts that Ms Chalifoux identified with relation to the fixed structures, so it's missing interest costs, return and taxation on those and then, as well, is missing depreciation on the other asset classes that I mentioned and all of the operating, administrative expenses and interest and income tax and return that's associated with those assets as well.
LISTNUM 1 \l 12205 MS LOTT: I'm just wondering, based on what you said, if you could build that back up and add in those elements that you have just identified so that we can see what those are.
LISTNUM 1 \l 12206 MR. HAMELIN: Just as a comment, I don't believe that down south a 15 percent mark‑up was proven company‑by‑company in the sense of reconciling phase 2 studies with phase 3 embedded costs, originally started a long ‑‑ several ‑‑ I don't know exactly how long ago, but certainly a long time ago.
LISTNUM 1 \l 12207 It used to be 25 percent was the accepted norm, then further decisions came along whereby 15 percent became the norm.
LISTNUM 1 \l 12208 All we are suggesting is in the case of Northwestel, because we differ so significantly from not just the ILECs ‑‑ certainly all the ILECs down south, that 25 percent still would be required relative to those down south.
LISTNUM 1 \l 12209 THE CHAIRPERSON: Thank you, Mr. Hamelin, but you were asked another question.
LISTNUM 1 \l 12210 Do you think you could respond to the other question?
LISTNUM 1 \l 12211 MR. HAMELIN: I'm sorry, can you repeat the question?
LISTNUM 1 \l 12212 MS LOTT: Well, because one of your panellists has indicated what would make up the difference, added in to make up that estimate of 31 million in fixed and common costs and you have started to indicate what some of those would be, I'm just wondering if you could fill that in for us item by item and undertake to let us see what that would be.
LISTNUM 1 \l 12213 MR. WOODLAND: Not within the time frame of this hearing certainly. The entire costing department of Northwestel is sitting here in this chair and I have already committed the next few weeks to some interrogs.
LISTNUM 1 \l 12214 MS CHALIFOUX: I think again too, just to go back to some of the fundamentals of the costing, I mean, we don't have detailed service‑specific costing for all our services.
LISTNUM 1 \l 12215 So, you know, to do a detailed analysis one would need to go and say okay let us do phase 2 studies for all of our services and then let us see the residual, the fixed component that needs to be recovered.
LISTNUM 1 \l 12216 So this is to what Ray was alluding to, you know, many of the ILECs could possibly put some quantitative analysis for one service on the record, but certainly not for all of their services and nor could Northwestel undertake to do the same thing.
LISTNUM 1 \l 12217 MS LOTT: Well I guess my question would be that because you are asking for a 25 percent mark‑up on costs shouldn't the onus be on you to be able to specifically justify to us why that mark‑up should be there?
LISTNUM 1 \l 12218 MS CHALIFOUX: What we are trying to do is trying to clearly illustrate, if nothing else, the uniqueness and the relative merits of a higher mark‑up for Northwestel.
LISTNUM 1 \l 12219 MR. HAMELIN: I don't think that there is one SILEC that comes even close compared to Northwestel, particularly after Northwestel having spent a SIP program of the magnitude we are talking about, which just added to the cost base significantly. And there is virtually no chance of, particularly on that aspect of the investment, of getting any scale gains whatsoever.
LISTNUM 1 \l 12220 MR. WOODLAND: Just as an example of one fixed cost item. Northwestel has 570 diesel fuel tanks compared to 700 in the Bell consolidated trust, which is basically Bell's operations in Central and Eastern Canada outside Montreal, Toronto and Ottawa. For our 75 NAS then, we have one fuel tank for every 133 of them. The consolidated trust has one fuel tank for every 4,857 NAS, so that is a ratio of 36 times as many.
LISTNUM 1 \l 12221 THE CHAIRPERSON: I do think this point has been made. I would add, that what we are trying to get at here, as I understand Ms Lott, is the justification for raising the proportion of your revenue received from the National Contribution Fund from 6 percent to 27 percent in a one‑year step function. That too doesn't exist in the south.
LISTNUM 1 \l 12222 So now we are in a unique situation and we are asking really can you help us to understand why the figures that have been put forward by the consumer group are inadequate. And you have explained them in very general terms. I think what we are not looking for is a series of cost studies, we are looking for a more detailed and black and white explanation of what the inadequacies of this particular calculation in Exhibit 4 really are in your minds.
LISTNUM 1 \l 12223 Is it possible that you could provide us that in writing in a fairly short time period?
LISTNUM 1 \l 12224 MS CHALIFOUX: Well we could certainly ‑‑ just to actually clarify Exhibit 4 is the one with the calculations there of $13 million, is that..?
LISTNUM 1 \l 12225 MS LOTT: That is correct.
LISTNUM 1 \l 12226 MS CHALIFOUX: Okay.
LISTNUM 1 \l 12227 THE CHAIRPERSON: What items would have to be added in writing ‑‑ and you don't even have to put figures on them, if necessary.
LISTNUM 1 \l 12228 MS CHALIFOUX: Yes, we can certainly put figures to some and then others we would just note that these are the elements ‑‑
LISTNUM 1 \l 12229 THE CHAIRPERSON: I think that is fair, Ms Chalifoux. We are asking for a good faith attempt to try to explain in black and white why these ‑‑
LISTNUM 1 \l 12230 MS CHALIFOUX: ‑‑ to reconcile.
LISTNUM 1 \l 12231 THE CHAIRPERSON: ‑‑ why this data is inadequate.
LISTNUM 1 \l 12232 MS CHALIFOUX: Sure.
LISTNUM 1 \l 12233 MS LOTT: Absolutely, thank you.
LISTNUM 1 \l 12234 Okay, you are asking to recover a 25 percent mark‑up on residential costs through the National Contribution Fund. I am interested in knowing whether all other Northwestel services are making this level of recovery to its fixed common cost.
LISTNUM 1 \l 12235 MR. HAMELIN: I don't have in front of me all the costing studies by services, but certainly some services contribute more than others and..
LISTNUM 1 \l 12236 MS LOTT: Okay, I wonder if we could then maybe go through some of the services and I wanted to go back to a table that I provided actually yesterday to the marketing group, but I have also provided it for your convenience and it was identified as Exhibit 1 yesterday again in this group of exhibits that you would have been given. Do you have that in front of you? It says, Table 1, Northwestel Actual Forecast Operating Revenues for 2002 to 2007.
LISTNUM 1 \l 12237 MR. HAMELIN: Yes, I do.
LISTNUM 1 \l 12238 MS LOTT: Okay, so if I could go through that. I am interested in knowing here what services offered by Northwestel have rates that provide a mark‑up of at least 25 percent. For example, line 2 and 3, the business primary exchange ‑‑ sorry, line 2?
LISTNUM 1 \l 12239 MR. WOODLAND: Well clearly, residential does not in that we are seeking subsidy for the gap between its revenue and costs.
LISTNUM 1 \l 12240 MS LOTT: But the business primary exchange?
LISTNUM 1 \l 12241 MR. WOODLAND: We answered that in an interrog, less than 25 percent but it does require a mark‑up.
LISTNUM 1 \l 12242 MS LOTT: Okay.
LISTNUM 1 \l 12243 MR. ROBERTS: And I would add that the associated toll that those customers also take contributes a significant mark‑up, so if you look at the broader picture.
LISTNUM 1 \l 12244 MS LOTT: Okay.
LISTNUM 1 \l 12245 MR. WOODLAND: I think the point is really that on aggregate the services that provide revenue aside from the subsidies in our proposal, on aggregate they will be recovering 25 percent over costs.
LISTNUM 1 \l 12246 MS LOTT: Have you done cost studies for those?
LISTNUM 1 \l 12247 MR. WOODLAND: No, we have indicated that already.
LISTNUM 1 \l 12248 MR. ROBERTS: If I could maybe illustrate some other services as well. I think particularly relevant to this proceeding is that the CAT rate we are proposing now is cost‑based, switch connect rates to replace the CAT that is currently in force.
LISTNUM 1 \l 12249 The proposed switch connect rate, again, is cost‑based with a 25 percent mark‑up and that yields a rate of .825 cents per minute. The current rate is 7 cents and that rate represents a significant source of mark‑up of implicit contribution and, of course, we are maintaining, as reiterated throughout this proceeding, that this is not sustainable at this extreme level of contribution subsidy of mark‑up.
LISTNUM 1 \l 12250 Similarly, I would point to private wire services. Private wire services also taken by business are currently at a rate that equates to approximately $18,000 per month per T1 per DS1 from Whitehorse to Fort St. John, for instance.
LISTNUM 1 \l 12251 A comparable rate in a forborne market, presumably a cost‑based rate then, would be approximately $1,100 to $1,200, for instance, given specific quotes we have had from different parties from Fort St. John to Edmonton.
LISTNUM 1 \l 12252 So again, you can see the magnitude of mark‑up on these services and this is really at the heart of why we are proposing the rate restructuring that we are, because we are concerned about the sustainability of these very high mark‑ups going forward. They are making a disproportionate contribution to the costs here and again, in our view, they are just not sustainable.
LISTNUM 1 \l 12253 MR. HAMELIN: So what we are saying is in the end the proposal that we are presenting will be bringing down ‑‑ eliminating a lot ‑‑ to a great degree, I should say, the implicit subsidies. But in the end we feel we are not going far enough. There are still some implicit subsidies that will exist even after the rate proposals that we are proposing. The example you just got is quite a substantial one.
LISTNUM 1 \l 12254 MS LOTT: Okay. Just so that I can be quite specific here about services though, line 16, the total terminal, does that have rates that provide a mark‑up of at least 25 percent?
LISTNUM 1 \l 12255 MR. WOODLAND: We don't know that.
LISTNUM 1 \l 12256 MS LOTT: Okay. And how about line 18, which is the total "Other"?
LISTNUM 1 \l 12257 MR. WOODLAND: Again, not having performed Phase II studies on all the services, I can't answer that either.
LISTNUM 1 \l 12258 MS LOTT: Okay.
LISTNUM 1 \l 12259 MR. HAMELIN: I can say that under Phase III things like competitive terminals are still somewhat not compensatory and this comes as no real big surprise when you think of the nature of our territory.
LISTNUM 1 \l 12260 You will not find a Radio Shack or a Circuit City, or a McDonald's for that matter, when you are talking to most of our communities that we are serving. And so in the end we are the end provider of terminals, for example, and I wouldn't expect that you would see a compensatory 25 percent mark‑up.
LISTNUM 1 \l 12261 MS LOTT: Okay, thank you for that.
LISTNUM 1 \l 12262 I wanted to move on to a last area that I want to look at with you this morning and that is some questions around productivity.
‑‑‑ Pause
LISTNUM 1 \l 12263 MS LOTT: So my understanding is that Northwestel is proposing to be able to increase its primary exchange residential rates by inflation for price cap purposes and its costs by inflation for the high‑cost serving area subsidy calculation purposes since it is proposing a productivity offset or an "X" factor of 0 percent.
LISTNUM 1 \l 12264 Am I correct about that? That's what you are proposing?
LISTNUM 1 \l 12265 MR. HAMELIN: That's correct.
LISTNUM 1 \l 12266 MS LOTT: Does this mean that there is no annual productivity improvement?
LISTNUM 1 \l 12267 MR. ROBERTS: On a net basis we are suggesting that we would have a significant challenge in trying to gain a positive productivity on a net basis, given the challenges illustrated historically by costs.
LISTNUM 1 \l 12268 MS LOTT: So the answer is yes?
‑‑‑ Pause
LISTNUM 1 \l 12269 MR. ROBERTS: I believe so, yes.
LISTNUM 1 \l 12270 MS LOTT: All right.
‑‑‑ Pause
LISTNUM 1 \l 12271 MS LOTT: So if I can just confirm here that while you have filed productivity estimates of negative productivity ‑‑ I understand that that was ‑2.9 percent per annum ‑‑ you are now proposing a productivity offset of 0 percent.
LISTNUM 1 \l 12272 That's correct?
LISTNUM 1 \l 12273 MR. HAMELIN: That's correct.
LISTNUM 1 \l 12274 MR. WOODLAND: Well, if I may, just to be clear, we didn't file an estimate of ‑2.9 percent with regards to forward‑looking productivity estimates. That was simply the result of a calculation based on the last eight years worth of data that we have, which represents two points of data, 1998 and 2006.
LISTNUM 1 \l 12275 MR. ROBERTS: Going forward and arriving at our 0 percent "X" factor that's proposed, we relied on three basic factors for determining this as a reasonable proposal, reasonable and balanced.
LISTNUM 1 \l 12276 The first is the significant challenge that we have in making net productivity gains. I would suggest that the year‑over‑year study, what is it, 1998 versus 2006, for Res PES demonstrates the challenge in broad terms with regard to containing costs.
LISTNUM 1 \l 12277 In addition, while we have had some, I guess, success in achieving productivity in specific areas we are also trying to deal with a number of items that go up. So it's a balancing act.
LISTNUM 1 \l 12278 We also have extremely low density on a comparative basis to other carriers which exacerbates our ability to benefit from economies of scale.
LISTNUM 1 \l 12279 In fact, we also have a very small base of operations. This small base results in individual events, perhaps like a damaged dish, a damaged tower, having significant impacts on our overall productivity.
LISTNUM 1 \l 12280 To differentiate again from other carriers, if you look at a circumstance that we had ‑‑
LISTNUM 1 \l 12281 MS LOTT: I will just remind you here, I didn't ask you why. I'm just asking you to confirm some of these numbers for me and just to make sure that I have total understanding here of your evidence.
LISTNUM 1 \l 12282 Am I correct that you have also updated that negative productivity estimate from your initial filings to correct for an error and the result is now a negative 3.2 percent per year?
LISTNUM 1 \l 12283 Am I correct about that?
LISTNUM 1 \l 12284 MR. WOODLAND: Yes.
LISTNUM 1 \l 12285 MS LOTT: Okay. Thank you.
LISTNUM 1 \l 12286 Now, by contrast the current productivity offset for the large ILECs as well as for Québec Tel and Télébec is 3.5 percent, which is significantly greater than your estimate or your proposed productivity offset.
LISTNUM 1 \l 12287 MR. HAMELIN: They didn't have to invest a third of their balance sheet to try and provide basic service objectives. That is one point.
LISTNUM 1 \l 12288 The second point is our systems have no scale essentially to allocate the costs as significantly as down south. So those two elements have caused a real distortion in productivity between 1998 and 2005.
LISTNUM 1 \l 12289 MS LOTT: Thank you.
LISTNUM 1 \l 12290 Just one moment.
‑‑‑ Pause
LISTNUM 1 \l 12291 MS LOTT: Am I correct here as well that that estimate is based on only two data points for residential Phase 2 costs providing service, 1998 versus 2006?
LISTNUM 1 \l 12292 Am I correct?
LISTNUM 1 \l 12293 MR. WOODLAND: That is correct.
LISTNUM 1 \l 12294 MS LOTT: How many data points does Northwestel use in deriving its productivity estimate?
LISTNUM 1 \l 12295 You indicated 1998 and 2006.
LISTNUM 1 \l 12296 MR. WOODLAND: Again, I will just reiterate that that is not an estimate of future productivity likelihoods. It is simply a calculation of the past eight years, the actual productivity over those past eight years.
LISTNUM 1 \l 12297 MR. ROBERTS: And if you would like me to elaborate as to how we came up with our forward looking productivity estimate, I would ‑‑
LISTNUM 1 \l 12298 MS LOTT: That is not in my list of questions.
LISTNUM 1 \l 12299 My question following that is: Doesn't that lack of data points limit the validity of the estimate?
LISTNUM 1 \l 12300 I believe you have indicated that in an interrogatory response to Telus.
LISTNUM 1 \l 12301 MR. WOODLAND: And I point out once again that that is not our estimate of future productivity factor. It is simply a calculation of the historical and is used primarily as an indication and an illustration of the cost challenges that Northwestel has faced, not necessarily those that we will face going forward.
LISTNUM 1 \l 12302 MS LOTT: Yes, we are interested in the historical.
LISTNUM 1 \l 12303 THE CHAIRPERSON: Wait a minute. The question was not that. The question was: Do you or do you not have confidence in the value of that study as an indicator for your future forecast?
LISTNUM 1 \l 12304 Did you or did you not concede that there might be problems with that study?
LISTNUM 1 \l 12305 That was the purpose of the question.
LISTNUM 1 \l 12306 MR. WOODLAND: If that was the purpose of the question, it wasn't clear.
LISTNUM 1 \l 12307 In that sense then, I would agree that the absence of additional data points makes it difficult to determine essentially the slope of the curve of Res PES costs over the period and in particular the slope of the curve close to the present day in terms of it being an indication of what the productivity factor might be in the future.
LISTNUM 1 \l 12308 The absence of intervening data points makes it hard to understand whether the curve went up and it is coming down now or was flat and then rose very quickly near the end and is still continuing to rise. Absolutely that is a problem with only having two data points.
LISTNUM 1 \l 12309 I will point out though that two data points, given that they are fairly far apart, that does smooth some of the possibly intervening spikes in costs in terms of what did actually happen over that eight‑year period.
LISTNUM 1 \l 12310 If those two data points had been two years apart and were that far apart, well, I wouldn't put very much reliance at all on the slope of the line. But given the distance apart that they were and the fact that they both performed to the best of our abilities following Phase 2 principles, as advised by our consultant, Leon Shufeld, we have every confidence in the individual numbers in both of those studies and what they represent in terms of the change in cost over that period of eight years.
LISTNUM 1 \l 12311 MR. ROBERTS: In addition, I would suggest that those numbers are very instructive with regard to illustrating how different we are from other telephone companies. I would suggest that no other telephone company would have a profile between two data points on their curve over such a long period as we have.
LISTNUM 1 \l 12312 So again it's I believe very illustrative of how different we are and how unique our circumstances are.
LISTNUM 1 \l 12313 MS LOTT: Does the 1998 cost estimate include the costs associated with Northwestel's recent service improvement plan program?
LISTNUM 1 \l 12314 MR. WOODLAND: No, it does not.
LISTNUM 1 \l 12315 MS LOTT: It doesn't; okay.
LISTNUM 1 \l 12316 MR. WOODLAND: That program started in 2001 and completed in 2005.
LISTNUM 1 \l 12317 MS LOTT: So it's in the 2006 numbers. Am I correct?
LISTNUM 1 \l 12318 MR. WOODLAND: That is correct.
LISTNUM 1 \l 12319 MS LOTT: Just one moment, please.
‑‑‑ Pause
LISTNUM 1 \l 12320 MS LOTT: My understanding, as well, is that there were a number of other adjustments that were made to the 1998 data for changes in income tax, interest rates, asset life changes, and the variable common cost factor.
LISTNUM 1 \l 12321 Am I correct about that?
LISTNUM 1 \l 12322 MR. WOODLAND: Yes.
LISTNUM 1 \l 12323 MS LOTT: In response to an interrogatory from the Consumer Groups, PIAC‑04(G) ‑‑ and I am looking at the bottom of page 3 of 4, going over to the top of page 4 of 4.
LISTNUM 1 \l 12324 Do you want to pull that out?
LISTNUM 1 \l 12325 MR. WOODLAND: I have it.
LISTNUM 1 \l 12326 MS LOTT: You have indicated there that the marginal cost data provided by Bell in the price cap proceeding, which led to Decision 2002‑34, included normalization‑like adjustments to assure cost data comparability over time.
LISTNUM 1 \l 12327 I note that you have a footnote referencing an interrogatory ‑‑ CRTC of the 16th of March 2001, 105, the price caps.
LISTNUM 1 \l 12328 Do you see that footnote reference you made?
LISTNUM 1 \l 12329 MR. WOODLAND: Yes.
LISTNUM 1 \l 12330 MS LOTT: In that interrogatory response, CRTC‑105, did Bell make any adjustments to its cost estimates over time for the items I have mentioned ‑‑ the income tax rates, the changes in interest rates, the changes in variable common cost factors, and the changes in asset lives?
‑‑‑ Pause
LISTNUM 1 \l 12331 MS LOTT: If you are not able to answer the question right away, not having the response in front of you, you could undertake it.
LISTNUM 1 \l 12332 The supposition I would make to you is that the answer is no, but we could make that subject to check.
LISTNUM 1 \l 12333 MR. WOODLAND: Subject to check, I will accept that.
LISTNUM 1 \l 12334 I think we should be clear that the normalization adjustments were made to try to put the results of the two studies on an equal footing and take out of the calculation the effects of factors that affect productivity that are not necessarily reproducible going forward.
LISTNUM 1 \l 12335 If you remove that and recalculate, we still end up with negative productivity over that period.
LISTNUM 1 \l 12336 It was really just for illustrative purposes. It highlights the extent of the cost changes for us over that period of time.
LISTNUM 1 \l 12337 But even without the normalization, we would still have negative productivity over that period.
LISTNUM 1 \l 12338 MS LOTT: Thank you.
LISTNUM 1 \l 12339 Just a moment, please.
‑‑‑ Pause
LISTNUM 1 \l 12340 MS LOTT: Now I would like to take what we have been talking about and establish what the productivity estimate would be, excluding the adjustments that were made by Northwestel to the 1998 data, excluding the SIP, and using currently approved asset lives.
LISTNUM 1 \l 12341 As you see, we have another exhibit for you here. I hope you have it. It is called, "Productivity Offset for Northwestel".
LISTNUM 1 \l 12342 MR. WOODLAND: I have it.
LISTNUM 1 \l 12343 MS LOTT: I don't know what exhibit number we are at, but I will leave that to the Commission.
LISTNUM 1 \l 12344 THE CHAIRPERSON: Are we at 6, Madam Secretary?
LISTNUM 1 \l 12345 THE SECRETARY: Yes, it is Exhibit No. 6.
LISTNUM 1 \l 12346 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 12347 MS LOTT: If we could look at this exhibit, what we have done here is shown Northwestel's productivity estimate, and the Consumer Groups have done an alternative derivation of a productivity estimate.
LISTNUM 1 \l 12348 We wanted to provide a comparison of Northwestel's estimate of productivity with that using unadjusted 1998 costs and 2006 costs, excluding the SIP and using current asset lives, and an inflation estimate, as you can see here, that we have put at 2.3 percent.
LISTNUM 1 \l 12349 I will now take you through this.
LISTNUM 1 \l 12350 MR. WOODLAND: If it will speed things up, I have reviewed the calculation and the mechanics of it are fine.
LISTNUM 1 \l 12351 MS LOTT: You are following my math on that?
LISTNUM 1 \l 12352 MR. WOODLAND: Yes.
LISTNUM 1 \l 12353 MS LOTT: Okay.
LISTNUM 1 \l 12354 MR. ROBERTS: If I may reiterate, that it's not our estimate of forward looking productivity.
LISTNUM 1 \l 12355 MS LOTT: Okay. So if I could just confirm that you would certainly agree to the alternate calculation that we have made here, the productivity estimate of ‑‑ yours of being ‑3.2 percent and the one we have derived at of 0.7 percent?
LISTNUM 1 \l 12356 MR. WOODLAND: Oh, I agree to the accuracy of the calculations, I don't necessarily agree with the assumptions ‑‑
LISTNUM 1 \l 12357 MS LOTT: Right.
LISTNUM 1 \l 12358 MR. WOODLAND: ‑‑ embedded in the notes.
LISTNUM 1 \l 12359 MS LOTT: Yes, thank you. Okay.
LISTNUM 1 \l 12360 MR. WOODLAND: In fact, I will note that I did my own calculation where if retaining normalization in the calculation I would come up with a productivity offset of ‑0.7.
LISTNUM 1 \l 12361 I have in my own notes an example of doing ‑‑ without normalization, or sorry, leaving SIP in with no normalization I would get a productivity factor of ‑1.8.
LISTNUM 1 \l 12362 So, I mean, there are different ways to package these things and I think the key is that if some other mechanism for calculating or forward estimate is used, that estimate can only legitimately be applied to the costs that were actually included in that calculation.
LISTNUM 1 \l 12363 I mean, I really don't think it makes sense to take SIP access costs out of residential PES ‑‑ there are many reasons for that and we'll probably get into at another point ‑‑ but if they were taken out, then the productivity factor could not be applied to those SIP, those NAS, I mean, it could only be applied to the NAS that were left behind.
LISTNUM 1 \l 12364 MS LOTT: Yes. I will just state that we'll leave that for argument that we will submit in due course of this hearing.
LISTNUM 1 \l 12365 So in estimating the level of productivity, Northwestel has used the incremental cost of residential service instead of a full total factor productivity study for the company as a whole.
LISTNUM 1 \l 12366 Am I correct about that?
LISTNUM 1 \l 12367 MR. HAMELIN: Absolutely.
LISTNUM 1 \l 12368 MS LOTT: Why was a total factor productivity study not conducted?
LISTNUM 1 \l 12369 MR. HAMELIN: Well, we just applied the same methodology that was used down south in calculating the Res PES productivity.
LISTNUM 1 \l 12370 When it comes to total productivity for the company, this differs very significantly. I mean, today what we have been using under the current regime is something that includes inflation, it includes load as a proxy, mostly being the growth in NAS, and the growth in NAS virtually is kind of nil these days, has been for several years ‑‑ in fact, we are projecting a decline next year ‑‑ minus 2 percent.
LISTNUM 1 \l 12371 Now, having said that, if I showed you the ‑‑ you know, the level of operating expenses from I would say five, six years in a row consecutively, you would see that expenses have been contained ‑‑ regardless of how you calculate the productivity, expenses have been contained to a growth of just about 1 percent max per year.
LISTNUM 1 \l 12372 I believe I have figures from 19 ‑‑ just a moment, please.
LISTNUM 1 \l 12373 For example, our operating expenses in 2001 were $72.9 million, the end of 2005 they are $75.9 million. That's merely a $3 million increase over four years.
LISTNUM 1 \l 12374 We are still at $78 million in 2007.
LISTNUM 1 \l 12375 THE CHAIRPERSON: Mr. Hamelin, do we already have that data?
LISTNUM 1 \l 12376 MR. HAMELIN: No ‑‑
LISTNUM 1 \l 12377 THE CHAIRPERSON: The longitudinal expense series?
LISTNUM 1 \l 12378 MR. HAMELIN: No, you ‑‑
LISTNUM 1 \l 12379 THE CHAIRPERSON: Perhaps, would it be reasonable if you could provide the data over the period in question?
LISTNUM 1 \l 12380 MR. HAMELIN: We have it very handy right now.
LISTNUM 1 \l 12381 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 12382 MR. HAMELIN: So my point is, on the total company basis you can see that expenses were constrained and contained very lately.
LISTNUM 1 \l 12383 Anyone else wants to...
LISTNUM 1 \l 12384 MR. WOODLAND: But specific to that total factor productivity methodology, Northwestel doesn't have the data required to do that. There is significant historical data I think over a 10‑year period and particular data, datum, data items are required in order to properly conduct that that aren't available in terms of being specific to Northwestel.
LISTNUM 1 \l 12385 I think there are a number of capital input factors, various national economic factors that aren't available and specific to Northwestel's environment as opposed to Canada as a whole.
LISTNUM 1 \l 12386 MR. HAMELIN: I hope I didn't confuse matters. I was talking about the productivity calculations under the current regime that we are in as opposed to maybe you are talking total factor productivity, that my colleagues talking..
LISTNUM 1 \l 12387 MS LOTT: That is right. Do you consider that the productivity estimate that you arrived at in the response to CRTC‑104 be revised to be representative of what would have been derived using a total factor productivity study for the company as a whole?
LISTNUM 1 \l 12388 MR. WOODLAND: Sorry, could you clarify?
LISTNUM 1 \l 12389 MS. LOTT: The productivity estimates that you produced in your response to the interrog from CRTC‑104 be revised, do you consider that that estimate is representative of what would have been derived had you been using a total factor productivity study for the company as a whole?
LISTNUM 1 \l 12390 MR. WOODLAND: Not having conducted that total factor productivity I really don't know. I mean, keep in mind that our recommended productivity factor is zero, not the result of that calculation. Whether or not a total factor productivity calculation would have come up with zero, I really can't say.
LISTNUM 1 \l 12391 MR. HAMELIN: One thing is for sure though, the costs that have been incurred, particularly since 2001, they are there to stay, they are part of our base right now.
LISTNUM 1 \l 12392 MS LOTT: Okay, thank you for that.
LISTNUM 1 \l 12393 Isn't it the case that offering additional services which share the existing inputs will result in an increase in productivity growth? Would you agree with that?
LISTNUM 1 \l 12394 MR. WOODLAND: Could you be more specific please?
LISTNUM 1 \l 12395 MS LOTT: Well, I guess the context I am looking at is trying to understand what economies of scope are and that those occur when a company is offering multiple services, experiences, but you have declined total average costs because of the number of services offered increases.
LISTNUM 1 \l 12396 MR. WOODLAND: In general that is true, to the extent that the investment can be used for other services. With respect to most of the investment that is in place for residential PES, as an example, that is less the case certainly than say transport investment.
LISTNUM 1 \l 12397 MS CHALIFOUX: And just to clarify as well, I mean the other side of the equation is obviously the corresponding combined output from those services, so again there you have to take that into consideration.
LISTNUM 1 \l 12398 MS LOTT: Maybe I will use a concrete example here. Do you offer high‑speed internet services, DSL services?
LISTNUM 1 \l 12399 MR. WOODLAND: Yes, we do.
LISTNUM 1 \l 12400 MS LOTT: And do both the local voice service and the DSL service make use of the same local loop?
LISTNUM 1 \l 12401 MR. WOODLAND: Yes, that is correct.
LISTNUM 1 \l 12402 MS LOTT: So the local loop would be the shared input in providing both the local voice and the DSL, is that correct?
LISTNUM 1 \l 12403 MR. WOODLAND: In a technical sense, yes. In a costing sense and in a rating sense and in a tariff sense, no. In the tariff sense the residential PES service pays for the loop and now what that does is it says that ADSL only has to be rated or costed without taking into account the loop and that is standard practice everywhere.
LISTNUM 1 \l 12404 MR. ROBERTS: In addition, I would note that quantity is a factor in determining the productivity leveraged and there is a significant impact in the other direction with regard to this and future productivity expectations.
LISTNUM 1 \l 12405 Again, I reiterate the market disruptions associated with the very broad Industry Canada initiatives of BRAND and NSI, they are effectively duplicating our local distribution and transport networks throughout the Northwest Territories, 31 of 33 communities, and 25 of 26 communities in Nunavut. Therefore, we can expect that with a competitive network, with essentially the competitor having a heavily subsidized cost of entry, that there will be significant displacement of services from our network.
LISTNUM 1 \l 12406 And so going forward in four years, if we were to calculate the unit costs of things like Res PES, given the fixed costs that are involved and the high proportion of fixed costs, we could actually see a large per unit cost increase.
LISTNUM 1 \l 12407 &n