OT - Cellphone billing

[Christopher Browne]

On 2/28/08, James Knott <james.knott-bJEeYj9oJeDQT0dZR+AlfA at public.gmane.org> wrote:
> Christopher Browne wrote:
> > On Thu, Feb 28, 2008 at 11:12 PM, James Knott <james.knott-bJEeYj9oJeDQT0dZR+AlfA at public.gmane.org>
> wrote:
> >
> >> Christopher Browne wrote:
> >> > On Thu, Feb 28, 2008 at 10:28 PM, James Knott <james.knott-bJEeYj9oJeDQT0dZR+AlfA at public.gmane.org>
> wrote:
> >> >
> >> >> Lennart Sorensen wrote:
> >> >> > On Thu, Feb 28, 2008 at 10:37:43AM -0500, William Muriithi wrote:
> >> >> >
> >> >> >> This is what I have found in any other country I have visited
> beside N
> >> >> >> America. Communication cost can get really low as just paying
> the
> >> >> >> minimum fee to retain the number active. And as long as you have
> some
> >> >> >> money on the phone, the numer is your for an year.
> >> >> >>
> >> >> >
> >> >> > Here it can cost $5 per month to have voice mail service. There
> it is
> >> >> > included free in your anual minimum use cost. Of course voicemail
> >> >> > really costs the company nothing if they already have the
> equipment so
> >> >> > the $5 per month is pure profit.
> >> >>
> >> >> Why would they already have that equipment? A company buys
> equipment
> >> >> with the idea of generating revenue with it and that same equipment
> has
> >> >> to be amortized over several years. Where does the money to
> amortize it
> >> >> come from?
> >> >>
> >> >
> >> > A peculiar thing happened in the US over the last few years: A whole
> >> > bunch of companies went aggressively after cellular market dominance.
> >> > And a bunch FAILED. That's part of why Nortel has gone through near
> >> > death throes - they sold equipment to these companies, and geared up
> >> > for expansion based on that, only to see the companies die. Cisco is
> >> > suffering from the same thing, albeit to a lesser degree.
> >> >
> >> > At any rate, what happened after the business failures was that a
> >> > whole pile of cellular infrastructure leaped onto the US market at
> >> > fire sale prices. A side-effect of this is that successors could buy
> >> > up "world class" infrastructure for a song, and thereby have near-zero
> >> > cost for this sort of thing.
> >> >
> >> > Canada did not see anything like the same sort of
> >> > cut-throat-to-the-point-of-bleeding-out competition, so the cellular
> >> > sellers, here, actually paid for the equipment that they are using.
> >> > Mind you, eventually the cost is amortized, and some of the fees that
> >> > they charge do become lies.
> >> >
> >>
> >> Once that equipment is paid for & depreciated, it becomes a tax
> >> liability to keep it in service. At least, that's what I recall from
> >> when I was planning equipment installs for Unitel. Also, these days
> >> equipment depreciates fast! Take Rogers, for example. They originally
> >> started out with analog gear, then the old "TDMA" and now GSM (also
> >> TDMA) and they've already started moving to the next generation. On
> >> the other side, the carrier gear is quickly moving from TDM or ATM to IP
> >> switching. So, that's 3 or 4 network builds in the about 20 years
> >> they've been in the cell phone business.
> >>
> >
> > No, it's NOT a "tax liability to keep it in service." No more than it
> > would be a "tax liability" to keep a car in service for a couple more
> > years.
> >
> > The phone companies tend to be *so* profitable that their perspective
> > on things tends to deviate from what many would consider rational.
> >
>
> You're talking to someone who used to work for Unitel. When I left, in
> Jan 95, they were losing something on the order of $1M/day! I'd hardly
> call that profitable. Back in the days when I was in planning for them,
> I was spending something on the order of $6-7 million per year on new
> hardware. There were several other planners doing similar. As for tax
> liabilities, what happens when you tell Rev Can that a piece of hardware
> has a, for example, 10 year life, base your taxes on that and then keep
> it in service for 15 or 20 years?

What happens is nothing.  CRA doesn't give a rip how long you intend
to use a piece of hardware.

Pointedly. you don't get to tell them "Oh, I'll depreciate it over 10
years."  Indeed, if you look at Schedule 1 of a T2 tax return, you'll
discover that whatever you reported as depreciation on your financial
statements gets ADDED BACK to income.  That is, whatever amount you
might report as depreciation is REJECTED by the government.

Instead, THEY impose the rates for a deduction they call "Capital Cost
Allowance."

They tell you something like: "Oh, that's data centre infrastructure
equipment, CCA class 46.   For tax purposes, you will be claiming CCA
(Capital Cost Allowance) of 30% of the remaining value each year.
(Except in year 1, in which you claim half that, or 15%.)"

Class 46 is pretty new; back when I used to do hundreds of tax returns
per year, the CCA rates on computer-like stuff was more usually
something like 20%, but the Department of Finance is obviously
continuing to add to the legislation over time.

They have therefore imposed a "depreciation calculation," and there is
no reason for them to need to care how long you keep a particular
asset in service.

Keeping a phone switch in service for 20 years rather than 10 probably
mostly means that you save some money on the capital cost of buying
switches.

There's no magical "for tax purposes, suddenly magic happens" thing here.
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