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by: Wireline Competition Bureau

October 1, 2012

Please provide comments to the issue below as part of the 2012 WCB cost model virtual workshop for inclusion in the record. Comments are moderated for conformity to the workshop’s guidelines.

Background

Hybrid Cost Proxy Model: The HCPM takes various approaches to calculating operating expenses. For plant-specific expenses, the HCPM adopted a four-step methodology for estimating expense-to-investment ratios using revised current-to-book ratios and ARMIS data from 1997 and 1998. In other words, plant-specific opex was derived from capex figures. The HCPM calculates corporate operations, customer service, and plant non-specific costs on a per-line basis, using ARMIS data. The model uses a regression to determine the portion of expenses attributable to the supported services (e.g., excluding special access, toll minutes, with additional adjustments as needed (e.g., removing non-supported expenses)). These calculations are made on a per-subscriber basis and assume a subscription base that is stable (or even growing). The HCPM calculates costs associated with local number portability (LNP) on a per-line basis. Costs for general support facilities (buildings, motor vehicles, and general purpose computers) are calculated as a ratio to total plant in service (TPIS), and then reduced to account for the fact that such facilities are shared among supported and non-supported services.

CQBAT: The CQBAT model calculates plant-specific expenses similarly to the HCPM by calculating plant-specific opex as a ratio to capex. However, instead of ARMIS data, CQBAT uses company average figures for plant and plant-specific operating expenses from third-party data sources like the National Exchange Carrier Association (NECA) to run a regression that determines weighting factors and the impact of scale using national averages, which appears to be a reasonable approach. CQBAT has five size categories to capture the impact of scale. To calculate plant non-specific expenses, general and administrative expenses, and overhead, the model determines weightings to plant or customers based on regression of data from third party data sources. In each case, CQBAT used data provided by ABC Coalition companies to validate the regressions. We note that only the model inputs are publicly available at this time; neither the underlying source data nor the regressions have been placed into the record.

Questions for Comment

  1. Is there any reason to deviate from CQBAT's approach to calculating opex?
  2. CQBAT does not appear to capture the cost of transport, because it assumes that all price-cap carriers benefit from tier one peering arrangements. Is this an appropriate assumption? If not, what cost should be assumed for the cost of transmitting data to and from the internet?

Sources

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