Decision No. C97-739
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO
DOCKET NO. 96A-331T
re: The Investigation and suspension of tariff sheets filed by u s west COMMUNICATIONS, inc. with Advice Letter No. 2617, regarding tariffs for interconnection, local termination, unbundling and resale of services.
Mailed Date: July 28, 1997
Adopted Date: July 16, 1997
I. BY THE COMMISSION 3
A. Procedural Background 3
B. Reciprocal Compensation 6
C. Changes to Section 3 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17). 12
D. Collocation 13
E. Changes to Section 5 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17). 16
F. Tandem Switching Compensation 16
G. True-up of Interim Rates to Permanent Rates 17
H. Late Payment Fee 19
I. Operator Services/Directory Assistance 20
J. Changes to Section 7 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17). 22
K. E-911 23
L. Cost Models for Pricing Interconnection and Unbundled Network Elements 24
M. Cost Model Assumptions 28
N. Issues generally affecting all cost estimates 29
1. Network Operations Expenses 29
2. Corporate Overheads 29
3. Depreciation Lives 30
4. Cost of Capital 31
O. Issues that specifically affected determination of the pricing of the loop UNE: 32
1. Placement Costs 32
2. Structure Sharing 33
3. Fill Factors 34
4. Drop Investment 34
5. Percentage of Aerial Plant 35
6. Treatment of DS1 and DS3 Facilities 35
7. Loop Demultiplexing at the Central Office 35
P. Determination of the Statewide Average Loop Cost 37
Q. Deaveraging of the Statewide Loop Costs 41
R. Depreciation Reserve Deficiency 49
S. TMN Architecture 51
T. Unbundled Network Elements 55
U. Line Conditioning Charge 59
V. Recurring Rates and Nonrecurring UNEs Rates 61
1. Local Switching 62
2. Transport Rates 64
3. Common Channel Signaling Access Capability 65
4. Self Provisioning the EICT 66
W. Resale 67
a. Treatment of specific services. 83
b. Treatment of services in general. 86
c. Public Access Lines 88
d. Centrex Plus. 89
e. Customer transfer charge. 89
f. Slamming. 90
g. Construction charges. 90
X. Residual Unbundling Charge 91
Y. Other Tariff Changes 101
II. RULING ON OUTSTANDING MOTIONS 109
III. ORDER 109
1. USWC’s Position and Proposed Tariff
In Section 3, of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its terms, conditions, and rate structure for reciprocal compensation. Reciprocal compensation is a mechanism whereby USWC would bill another CLEC for terminating the call of a CLEC customer to a USWC customer. In a reciprocal manner, a CLEC would be entitled to receive compensation from USWC for a call originated by a USWC customer and terminated with a CLEC customer. Under the USWC proposal, local traffic call termination, local traffic transport, and local transit traffic(4) would be subject to reciprocal compensation.(5) USWC witness Johnson states that the Commission’s Rule 4 CCR 723-39-4.8 (“Rule 4.8”) is in direct conflict with Section 252(d)(2)(A) of the Telecommunications Act of 1996 (“Act”) and therefore, the Commission should reject the interim bill and keep rule. Under Rule 4.8, bill and keep will be maintained until the earlier of (1) three years after the effective date of the rule (July 1, 1999) or (2) six months after the implementation of a number portability database.
a. CTA opposes the implementation of call termination, call transport, and call transit charges to the small LECs(6) in Colorado. CTA contends that the proposed tariff changes supplant the compensation arrangement established by the Commission in the Local Calling Area Plan (“LCAP”) and Community of Interest Calling Plan (“CICP”)(7), and if USWC were permitted to collect reciprocal compensation charges from small LECs, USWC would be “double dipping.” Under LCAP and CICP, the small LECs exchange local traffic without the need to measure or charge.
b. According to CTA, the small LECs currently cannot measure the local terminating traffic to determine which originating local carrier to bill. Moreover, until the Commission resolves how the additional capital costs associated with measuring local traffic will be funded and recouped, bill and keep should remain in place for the exchange of non-competitive local traffic. While CTA philosophically agrees with the transit call charge, it proposes a mechanism allowing the small LECs to opt out. Under the CTA proposal, CLEC calls which terminated in a small LEC territory would be treated as if they terminated in USWC territory. This would allow USWC to calculate transport and termination charges and collect or pay them to the CLEC.
c. Staff disagrees with USWC’s reading of the Act regarding a prohibition on the use of bill and keep for call termination. Staff believes that bill and keep should be applied for call termination of CLEC traffic, as well as small LEC traffic, during the interim time period of Rule 4.8. Furthermore, Staff disagrees with USWC including a $0.0019 per minute component in the end office termination charge to recover an alleged $275 million depreciation reserve deficiency. This issue is discussed infra. Staff witness Klug also suggested for the implementation of peak and off-peak rates for call termination.
d. As for call transport charges, Staff believes bill and keep should be used. However, call transport charges should apply to local calls that transit the USWC network from one CLEC to another CLEC. These transit charges would be recovered from a tandem switching rate and a tandem transmission rate. As with the call termination rate, USWC included a $0.0019 per minute component to recover an alleged $275 million depreciation reserve deficiency. Staff disagrees with this inclusion. Staff also advocates the use of a peak and off-peak rate for tandem switching. The primary reason for the difference in the tandem transmission rates between Staff and USWC was due to USWC’s use of economic depreciation lives versus Staff’s use of Commission approved depreciation lives.(8)
e. For small LEC to small LEC calls which transit the USWC network, Staff believes the tandem switching charge should be zero. Staff argues this is appropriate since the small LECs are not competing with USWC for the provision of local exchange traffic.(9)
The CLEC’s generally support bill and keep. For example, AT&T recommends that bill and keep be used for transport and termination provided traffic is reasonably balanced, i.e., within 5-10%. Moreover, it believes the Staff transit proposal for treating CLECs different than small LECs is discriminatory. TCG believes bill and keep should prevail. WorldCom notes that the USWC tariff should provide for bill and keep consistent with Commission Decision No. C96-655 in Docket No. 96S-233T.
f. We agree with WorldCom that the Commission addressed bill and keep in Decision No. C96-655, pp. 37-39. No new arguments were presented in this case to make us change our previous ruling regarding bill and keep as an interim measure. However, some additional clarification is necessary in light of the arguments presented. With respect to transit calls, we accept CTA’s argument that the small LECs do not currently have the measurement equipment necessary for reciprocal compensation and it will take time to acquire and install such equipment. Therefore, the Commission will permit the small LECs to continue with their current compensation mechanism consistent with 4 CCR 723-39-4.8.(10) As a result, for any call which transits the USWC network which originated with a small LEC and terminated with either another small LEC or a CLEC there shall be no compensation to USWC for call transport. On the other hand, for any call which transits the USWC network, originating with a CLEC and terminating with either another CLEC or a small LEC, USWC shall receive call transport compensation. This treatment for transit calls will continue until the termination of bill and keep as set forth in 4 CCR 723-39-4.8. As for the capital costs and their recovery associated with local call measurement equipment for small LECs, we believe this should be addressed in a separate proceeding.
g. The Commission notes that in the FCC, in its First Report and Order, FCC 97-158, In the Matter of Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers, Transport Rate Structure and Pricing, and End User Common Line, concluded that the FCC should not mandate a peak-rate pricing structure for local switching. The FCC stated that significant practical difficulties may make it difficult or impossible to establish and enforce a rational, efficient, and fair peak-rate structure.
h. As for the Staff’s proposal for peak and off-peak switching rates, we will deny the request because we believe the record was insufficient for the Commission to properly consider whether such a change is justified. The Commission does not believe CLEC local switching rates should be carved-out for peak and off-peak pricing when the other services such as IXC access, which have a significant impact on USWC’s switching facilities, would not be subject to peak pricing.
C. Changes to Section 3 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
7. In light of our decision regarding call termination, USWC shall make the following changes to its tariff:
a. Section 3.1, Sheet 1 - Description. This section will be revised to indicate that bill and keep shall continue in accordance with Rule 4.8.
b. Section 3.4(A)1(a), Sheet 5 - Rate Structure. This section shall also be revised to indicate that bill and keep shall continue in accordance with Rule 4.8. Likewise, the language concerning the five percent traffic balance and joint traffic audits shall be removed.
c. Section 3.4(A)1(b), Sheet 5 - Rate Structure. This section shall be removed. The Commission has previously ruled in the arbitration decisions that enhanced service traffic is local traffic and should not be exempted from reciprocal compensation mechanisms.
d. Section 3.4(A)2(b), Sheet 6 - Rate Structure. This section shall be clarified to indicate that the CLEC’s rates for transport rate elements need not be the same as USWC’s transport rates.
e. Section 3.4(A)2(c), Sheet 6 - Rate Structure. This section shall include a DS0 level direct-trunked transport facility.
f. Section 3.4(C), Sheet 7 - Rate Structure. This section shall include a statement that the small LECs are exempt from transit traffic charges during the interim bill and keep period under 4 CCR 723-39-4.8.
g. Section 3.6, Sheet 8 - Measuring Local Interconnection Minutes. This section shall include a definition of the method for measuring originating interconnection minutes for the CLECs that are purchasing unbundled local switching.
1. USWC’s Position and Proposed Tariff
In Section 5 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its proposed terms and conditions for collocation. In Section 10.2, Sheets 4 and 5, of the same tariff, USWC filed its proposed collocation rates. These proposed rates are based on forward-looking Total Element Long-Run Incremental Cost (“TELRIC”) plus an allocation of forward-looking common costs. USWC has included rates for each element of collocation for both physical and virtual collocation. USWC witness Johnson in rebuttal testimony pointed out that the Company’s existing interstate collocation rates are for virtual collocation, while the Act requires rates for physical collocation. He agreed with Staff that it makes no sense to have a CLEC purchase collocation space for interstate service based on virtual collocation tariffs while purchasing collocation space for intrastate service based on physical collocation tariffs. Therefore, USWC believes the Commission should establish one set of rates which will be used for both intrastate and interstate collocation.
Staff witness Klug also noted that USWC has different collocation rates in its interstate and intrastate tariffs. Accordingly, he recommended that USWC develop one set of rates and apportion revenues and costs based on usage. He suggested that a percent of local use factor should be developed for each CLEC collocated space where equipment is collocated that provides interstate and intrastate access. Mr. Klug stated that Staff supports the USWC proposed collocation rates except: Staff proposed that the Quote Preparation Fee be $1,684 instead of the $2,111.27 as proposed by USWC. Staff’s figure is the current amount in USWC’s interstate collocation tariff. Staff also proposed slightly lower rates for the monthly 2- and 4-wire, Digital Service EICT, DS1 and DS3 EICT, DS0 Switched Link, DS1 and DS3 Switched Transport, DS1 and DS3 EICT Regeneration, and the 48 volt power/amp charge.
In general, AT&T’s proposed collocation rates are slightly lower than the USWC figures. AT&T offered rates for cable splicing, both fiber and copper; hourly rates for engineering, installation, maintenance, inspectors and training; equipment bays rentals, per shelf; 48 volt power cable at various amperage; and a series of rental rates depending on square footage, wirecage or hardwall, height of wall, central or stand alone HVAC, and AC or DC power. AT&T also believes the Quote Preparation Fee should be zero since it is included in other charges.
The Commission agrees with USWC that only one set of collocation rates should be used for both intrastate and interstate collocation. Furthermore, we approve the USWC collocation rates with two exceptions. First, we adopt the Staff’s 48 volt power/amp per month charge of $16.20. Second we adopt the AT&T rate for copper splicing of $91.27 per splice. We note that in Section 10.2(A)2, Sheet 5, USWC has proposed rental space charges based on three different zones, but has failed to describe those zones.(11) USWC is directed to include a description of these zones in its compliance tariff filing to this order. The collocation rates are shown on Attachment 1 to this order.
E. Changes to Section 5 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
8. In light of our decision regarding collocation rates, USWC shall make the following changes to its tariff:
a. Section 5.2(M), Sheet 3 - Virtual Collocation. This section shall be removed.
b. Section 5.3(C), Sheet 4 - Virtual Collocation. The words “transmission equipment” shall be removed from the last sentence.
c. Section 5.4(A)7, Sheet 7 - Collocation Rate Elements. Language will be included to allow a CLEC to self-provision the Expanded Interconnection Channel Termination as discussed infra. this order.
d. Section 5.4(A)8, Sheet 7 - Collocation Rate Elements. Language will be included requiring USWC to attempt to minimize the distance between its equipment and the CLEC’s equipment.
In its Closing Brief, WorldCom alleges that USWC continues to misread and misrepresent the FCC’s Local Competition Order with respect to the treatment of CLEC’s switches and networks. USWC witness Johnson testified that a CLEC may receive tandem compensation only if the CLEC’s switch performs tandem functions and switches to remote central offices. The Commission has previously ruled on this matter in the MFS arbitration decisions agreeing with USWC and we decline to change our ruling.(12)
G. True-up of Interim Rates to Permanent Rates
During the 1996 legislative session, the General Assembly adopted House Bill 96-1010 (“HB 1010”). This statute mandates that the Commission adopt the tariffs necessary to begin competition in the local exchange market on July 1, 1996. In particular, HB 1010 instructed the Commission to conduct expedited proceedings on proposed interim tariffs for unbundled facilities or functions, interconnection, services for resale, and local number portability. On May 31, 1996, USWC filed under protest Advice Letter No. 2610 containing its proposed interim rates. Pursuant to HB 1010, the interim rates are subject to true-up to the final rates from this case. In Decision No. C96-655, the Commission stated that the appropriate interest rate to be used in the true-up process will be established after permanent tariffs have been established.
Staff witness Enright proposes a two-tier interest rate for the true-up process. The first tier interest rate would be the Customer Deposit Interest Rate(13) (“CDIR”) and the second tier interest rate would be 16.012%.(14) Staff proposes that the CDIR would apply to both bills or refunds during the first 60 days from the billing statement. Starting on the 61st day, the interest rate would increase to the second tier. Staff also recommends that if a refund is due to a CLEC, USWC would issue a check or a bill credit on a one-time basis. However, for payments due USWC, the CLEC would have the opportunity to pay USWC over the period of time during which it purchased interconnection elements until the date of the true-up.
USWC does not oppose the use of the CDIR, but believes that establishing a true-up interest rate based on the statutory interest rate would help eliminate incentives for a party to attempt to delay payment. Furthermore, it opposes the asymmetrical time period proposed by Staff since it believes this treatment is unfair to USWC.
e. We agree with Staff that a two-tier interest rate as proposed is appropriate. We believe the CDIR should be used for either refunds or payments for services purchased during the interim rate period. Instead of using the 16.012% interest rate, however, the Commission will adopt a 1.5% per month interest rate consistent with the late payment fee discussed infra.
f. We also reject the Staff’s asymmetrical time period proposal. The Commission believes a 30 day grace period should be provided for both payments and refunds. Then, beginning on the 31st day, the applicable interest rate will be 1.5% per month. The 30 day grace period will begin on the date the rates from this order become final.
USWC’s Position and Proposed Tariff
In Section 2 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its proposed terms and conditions for payment arrangements. Under the USWC proposal, a late payment charge would apply to all billed balances not paid within 30 days after the bill date shown on the invoice. The late payment interest rate would be 1.5% per month or 18% per year. USWC could discontinue processing orders for failure by the CLEC to make full payment within 30 days of the bill date, and could also disconnect for failure by the CLEC to make full payment within 60 days of the bill date.
Staff does not believe the proposed tariff is in compliance with Commission Rule 4 CCR 723-2-9.2, which requires the due date shown on the bill to be at least 10 days after the date of the bill issuance or five days after the date of mailing, whichever is later. Furthermore Staff notes that USWC usually bills for non-usage sensitive services in advance and usage sensitive in arrears. Therefore, if USWC intends to apply the same billing philosophy to its interconnection and unbundling charges, Staff recommends that USWC be directed to state in its tariff that, if the billing for non-usage sensitive elements is done in advance, the late payment fee should not commence for 60 days from the bill date.
We agree with USWC witness Johnson’s rebuttal testimony that Staff is attempting to apply rules which govern end-users to telecommunications providers. The Commission believes it is common commercial practice to impose late payment fees on delinquent accounts. We concur with USWC that 30 days is an appropriate time period in which to pay a bill without penalty, and that, starting on the 31st day, a late payment fee of 1.5% per month is appropriate.
I. Operator Services/Directory Assistance
In Section 7 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its proposed terms and conditions(15) for such items as Directory Assistance, Directory Listing, Busy Line Verification and Interrupt, and Operator Services. The rates USWC proposes are based on TELRIC plus an allocation of common costs.
Staff noted that USWC did not propose any rates for mainstream operator services: Calling Card - Mechanized, Calling Card - Operator Assisted, Connect to Directory Assistance, Operator Station Call, and Person-to-Person Call. Staff further noted that Section 7.7(C) states that “Pricing for Toll and Assistance Operator Services shall be determined on a case-by-case basis, upon request.” Staff disagrees with the pricing of these services on a case-by-case basis. Staff proposes that these mainstream operator services be priced at TELRIC plus an allocation of common costs. Staff did not contest the Busy Line Verify and the Busy Line Verify and Interrupt rates. However, Staff disagreed with the proposed $0.36 charge for Directory Assistance. Staff witness Armstrong argued that the rate should be $0.21 based on the information the Company provided with Advice Letter No. 2611.
The Company agreed with Staff’s recommended rates for mainstream operator services, but disagreed with the proposed Directory Assistance charge. USWC stated that the $0.21 Interexchange Carrier (“IXC”) rate in Advice Letter No. 2611 was based on new labor rates that were negotiated between USWC and the Communications Workers of American in a bargaining agreement specifically for IXC directory assistance. According to USWC this is a negotiated contract with its labor union; USWC would violate the agreement if it were to direct any other traffic to the IXC offices. The rate USWC proposes here is based on using the same operator labor rates it utilizes for the provision of its own operator services.
We agree with Staff that mainstream operator service should not be priced on a case-by-case basis. Consequently we will approve the rates proposed by Staff for mainstream operator services and the rates for the Busy Line Verify and the Busy Line Verify and Interrupt as proposed by USWC. We find the USWC argument regarding non-IXC directory assistance calls persuasive. As a result, we approve the $0.36 charge for Directory Assistance. The operator services and directory assistance charges are shown on Attachment 2 to this order.
J. Changes to Section 7 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
In light of our decision regarding operator services and directory assistance, USWC shall make the following changes to its tariff:
g. Section 7.1(A)3, Sheet 1 - Signaling Access to Call-Related Databases. Additional language shall be included to indicate that STP Ports can be used for transit to other CLECs as a separate item as discussed infra this order.
h. Section 7.4(D), Sheet 5 - Directory Assistance Service. This section shall be removed.
i. Section 7.5(C)1, Sheet 9 - Directory Listing. The TRA believes the tariff should provide the CLEC the ability to provide directory information to USWC in a nonmechanized format. TRA indicates that the price of compiling directory information into a standardized mechanized format as specified by USWC could be prohibitively expensive for smaller resellers. The Commission will deny TRA’s request. We believe that compliance with standardized mechanized format is a cost of business which all new entrants should have to bear.
j. Section 7.7(C), Sheet 11 - Toll and Assistance Operator Services. This section shall remove the reference to assistance operator services.
9. Staff witness Klug points out that USWC does not propose any charges to the CLECs for access to E-911 service, but presumes a CLEC will also bill the Public Safety Answering Point (“PSAP”) operator to recover the CLEC’s portion of the costs of providing E-911. Mr. Klug states that this is a radical departure from current provisions of E-911 service and is in violation of the Commission’s rules.(16)
10. On rebuttal Mr. Johnson clarified that the CLECs will provision E-911 for their customers, interconnect with USWC and send USWC a bill for their portion of the service, just as the small LECs do today. USWC will then bill via the tariff the governing body. Mr. Johnson notes that the third party USWC has contracted with to manage the E-911 database will charge USWC for the additional services provided to update the database and to accommodate a greater level of changes resulting from service by CLECs.
11. Based on the USWC clarifications, we believe the issues surrounding E-911 in this case have been resolved. No further actions are necessary by the Commission and no tariff modifications by USWC are required at this time.
BB. Cost Models for Pricing Interconnection and Unbundled Network Elements
On August 8, 1996, the FCC issued the First Report and Order. The FCC found that a forward-looking Total Element Long-Run Incremental Cost (“TELRIC”) cost methodology based on a network which assumes that wire centers will be placed at the incumbent LEC’s current wire center locations and that the reconstructed network will employ the most efficient technology for reasonably foreseeable capacity requirements would comply with the Act.(17) The FCC also concluded that under a TELRIC methodology, incumbent LEC’s prices for interconnection and unbundled network elements would recover the forward-looking costs directly attributable to the specified elements, as well as a reasonable allocation of forward-looking common costs.(18) On October 15, 1996, the United States Court of Appeals for the Eighth Circuit stayed the pricing and costing provisions of the FCC order, including the rules regarding TELRIC costing and pricing. Both State Commissions and incumbent LECs requested the stay. The State Commissions objected to the FCC’s adoption of “national pricing rules” in its order, while the incumbent LECs objected to, among other things, the portions of the FCC order that required the incumbent LEC to price unbundled network elements (“UNE”) at TELRIC.
a. USWC supports the Commission’s use of TELRIC principles, but believes TELRIC should be used to determine the price floor of UNE. According to the Company, once the Commission has determined the TELRIC costs, it must then step outside the hypothetical world of TELRIC and verify that the ultimate price set for a UNE will be sufficient to allow recovery of the current or actual costs to provide the service or element. Thus the Commission should also consider embedded or fully distributed costs studies to ensure that the price for UNE is set sufficiently above TELRIC in order to allow for the recovery of embedded investments and common costs of the Company.
b. To advance this position, USWC sponsored summaries and results of forward-looking TELRIC studies, which included an allocation of common costs, that it had performed to support its proposed rates for interconnection and UNEs. In particular, USWC focused on justification of its proposed loop rates which were based on its Regional Loop Cost Analysis Program (“RLCAP”) model results sponsored through USWC witness Fleming. A summary of the results for a loop analysis from an embedded cost study was provided through USWC witness Elder(19) for the purposes of providing another viewpoint for validation of the USWC TELRIC analysis. Mr. Fleming also provided results from the Benchmark Cost Model version 2.2 (“BCM 2”) to substantiate USWC’s TELRIC analysis.(20)
c. In contrast, AT&T argues that interconnection and UNE prices should not be based upon embedded or historical costs, since this would be “pro-competitor” instead of “pro-competition”, but rather only TELRIC costs as defined by the FCC order. Consequently, AT&T/MCI witness Klick sponsored a forward-looking TELRIC study based on the Hatfield Model (version 3.0), which AT&T requests that the Commission adopt for setting interconnection and UNE rates. The remaining CLEC participants in the case did not advocate a specific cost model. Instead some proposed rates which they believe are appropriate for certain interconnection or UNEs. For example, TCG witness Montgomery argued that the Commission interim loop figure of $18.00 may be quite close to the rate at which the market will work. WorldCom witness Porter recommended use of the FCC proxy figure for Colorado of $14.97 for the statewide average loop rate.
d. In using the models to set rates in this proceeding, Staff Witness Armstrong recommended that the Commission, rather than relying upon any one modeling methodology, consider and balance all available data.(21) Staff did not present its own cost model but performed sensitivity analyses of the RLCAP model with varying assumptions to determine its estimate of the appropriate price for the loop UNE. For some other network elements, Staff also developed cost estimates using USWC cost models with different input assumptions, primarily for depreciation expenses.
Within these costs models are numerous structural and input assumptions that affect the resulting costs determined by the models. In this proceeding, the results of a multitude of costing analyses have been presented in testimony supporting such results as the basis for pricing interconnection and UNE rate elements. In response to this testimony, numerous witnesses have critiqued these studies. For the sake of brevity, we will not separately address in this decision each issue brought forth regarding assumptions in cost modeling.(22) However, we will briefly address several issues that helped to guide our decision regarding the appropriate rates to assign to the various interconnection and UNE elements. Generally, these issues can be categorized as input assumptions, although a few of them could be thought of as model structural issue (i.e., AT&T’s DS1/DS3 algorithm), that affected the issue of primary contention in this proceeding: the pricing of the loop UNE. In essence, we agree with the testimony of various witnesses the input assumptions constitute the main difference in the results from the cost models.(23) The following paragraphs provide a brief description of the more prominent assumptions that we weighed in developing the recurring rates ordered in this decision.
DD. Issues generally affecting all cost estimates
e. The TELRIC models of USWC, including RLCAP, use state specific maintenance expenses and Company wide trends of productivity and inflation.
f. AT&T claims that the USWC methodology for estimating maintenance expenses merely adopts past inefficiencies of a monopoly. In contrast, the Hatfield model assumes that network operations expenses will be cut in half from their current levels since the need for non-plant specific maintenance will be reduced in recognition of the likely efficiencies of a competitive market.
g. Staff also expressed concern with the manner in which USWC calculated the maintenance expense, among others, within its TELRIC studies when noting that the reliance on historical data trends may lead to inflated levels of expenses. Staff also believed there was an apparent double counting of maintenance expenses between recurring and nonrecurring cost elements in the USWC TELRIC analysis.(24)
h. Similarly, USWC uses analysis of its historical overhead costs to determine a forecast based on inflation and productivity estimates. USWC objects to the overhead factor assumption used by AT&T and claims that AT&T should have at least used a factor of 18.7% based on historical data.
i. Again, AT&T argues that use of historically derived factors is inappropriate in a forward-looking cost model. Within the Hatfield model, an overhead factor of 10.4%, based upon a regression analysis of local exchange carriers financial information and a study of competitive telecommunications companies, is used. AT&T claims the comparable percentage embedded within the USWC TELRIC models is about twice this figure.
j. USWC’s TELRIC models, including RLCAP, use depreciation lives based primarily on the Technologies Futures Inc. (“TFI”) report. This report suggests that technology, competition, and new services are driving the lives of telephone assets. USWC adjusts the TFI data to fit its perceived experience and account profiles in proposing depreciation rates to regulatory bodies.(25) For this proceeding, USWC has adopted shorter lives for its metallic cable accounts than it normally uses or proposes. In particular, these lives are shorter than the 1994 depreciation represcription lives the Commission recently approved for USWC(26). As a result of these shortened lives, the Company believes it has a depreciation reserve deficiency which it should be allowed to recover. The depreciation reserve deficiency is discussed infra.
aa. AT&T objects to the depreciation expense calculations of USWC. It argues that the depreciation lives and methodology used by the FCC are, in essence, forward-looking and notes that the 1995 FCC authorized adjusted depreciation rate would be appropriate for use.(27) In contrast to the USWC cost studies, the Hatfield model sponsored by AT&T uses the 1994 Commission prescribed lives which were the result of the 1994 represcription process involving the FCC. Staff also recommends the use of the 1994 Commission prescribed lives through witnesses Armstrong and Enright.
bb. Generally, the USWC TELRIC cost studies, particularly the RLCAP model, use a 11.4% cost of capital. USWC argues that this is based on a “market” cost of capital approach. Instead of using the book values for debt and equity to determine the percentage of these components in the capital structure, USWC proposes that the percentages be based on their market values as of December 31, 1995. Furthermore, USWC updated the costs of these capital items--7.5% for debt and 12.85% for common equity.
cc. The Hatfield model used a 10.01% default value. According to AT&T/MCI witness Zepp, this figure is very close to the mid-point range of forward-looking cost of money for the seven Regional Bell Operating Companies as estimated by Bradford Cornell.
dd. Staff used the weighted cost of capital of 10.78% from USWC’s Alternative Form of Regulation case, Docket No. 90A-665T.
EE. Issues that specifically affected determination of the pricing of the loop UNE:
ee. USWC’s RLCAP model utilizes, among other things, the following input assumptions for placement costs: an average cost of boring of $11.44 per foot(28); 20% placement in undeveloped areas and 80% in developed areas; rear lot placement; and current estimated construction costs.
ff. In contrast AT&T’s Hatfield model utilizes buried distribution cable installation costs of $1.77 per foot in low-density areas to $45.00 per foot in high-density areas(29); Census Block Groups as the bases for density zones; lot length of 4X width instead of 2X width(30); and, according to AT&T, more realistic construction costs since the Bain Report(31) demonstrates that USWC’s construction costs are 20% above market.
gg. Staff takes exception to the USWC trenching cost assumptions in its sensitivity analysis of the RLCAP model. Mr. Armstrong notes that in a previous docket(32) USWC’s undeveloped/developed percentage of 20%/80% percent were reversed with 20% in difficult areas and 80% in easy areas. He also disagrees with the Company changing from its engineering broad gauge(33) method to its new method. Staff believes USWC made this change because the PRICER model is used to add or reinforce facilities as opposed to replicating existing facilities.
The RLCAP model assumes that in urban areas USWC will have no trenching or placement costs 18% of the time. While, the Hatfield model assumes USWC will have no placement costs 66% of the time, on average.
The USWC RLCAP model uses actual fill factors of 63% for feeder facilities and 25-40% for distribution facilities. The Hatfield model uses a feeder fill factor range of 65-80% and a distribution fill factor range of 50-70%. Staff disagrees with the USWC RLCAP fill factors and believes USWC should be using engineering objective measures instead of actual experience. As a result, Staff used fill factors of 60% for very small central offices, 70% for small central offices, 75% for medium central offices, and 80% for large central offices. This compares to the USWC percentages of 46.6%, 58.2%, 63.3%, and 65.4%, respectively. Additionally, Mr. Armstrong used an estimate based loosely on data presented in the Hatfield model and data provided by the Utah Division of Public Utilities study for the feeder and distribution portions of the network.
USWC believes the drop lengths and cost per drop used in the Hatfield model are unrealistic. It believes that using lots which were 4X width instead of 2X width results in shorter drop lengths than are realistic. Likewise, by dividing the drop investment by either 2 or 3 pair of lines instead of 1.2(34) the cost per drop investment is inappropriately lowered.
In the RLCAP model, USWC assumes that the percentage of aerial plant in urban areas would be no higher than its current statewide average of 14%. The Hatfield model assumes that for USWC’s distribution facilities in low-density areas 25% would be aerial cable, and in the high-density areas 85% would be aerial cable.(35)
According to USWC, the Hatfield model treats DS1s and DS3s as the equivalent of 24 and 672 voice grade copper loops. In doing so, USWC contends that the Hatfield model adds 483,625 lines to the USWC line count in Colorado and thus decreases the average cost per unbundled loop. USWC claims that many of these lines are dedicated for private networks and therefore not properly included within the line counts for customers using the public switched network. AT&T counters that the additional line count is appropriate when trying to model a cost per circuit for customers at the DS0 level.
7. Loop Demultiplexing at the Central Office
hh. Within its cost study for the loop, USWC assumes that an analog two-wire loop will be provided even when the facility path for the loop is over digital loop carrier. As noted within the testimony of Staff witness Armstrong, this additional cost, in the form of multiplexing and frame connection, when using digital loop carrier is only necessary if the CLEC requires disaggregation of the DS1 signal of the digital loop carrier into separate analog equivalent circuits.(36) AT&T also objects to adding the cost of this additional equipment to the average cost of the loop. It categorizes this additional cost as unnecessary and an example of “reverse engineering” by USWC which forces service quality degradation on the CLECs.(37)
ii. In response, USWC acknowledges that certain forward-looking technologies could be used to allow CLECs direct access to DS1 circuits in the central office environment but questions the cost-effectiveness of some of these options. USWC also notes that the additional multiplexing costs are averaged across all loops.(38)
The Commission declines to adopt a specific cost model in this proceeding for the purposes of calculating the appropriate rate for the loop or any other UNE or interconnection rates. While some parties have advocated strict adherence to the pricing rules of the FCC, others have noted that such requirements on State Commissions are under court stay and that the Commission should weigh many factors in its determination of such rates. In this regard we note that our decision does not rely upon the pricing requirements of the FCC’s First Report and Order. However, the cost studies proposed by the parties in this proceeding were each touted by their proponents as being consistent with the TELRIC principles espoused by the FCC. Therefore, our rate determinations are at least based upon data presented as being consistent with the FCC TELRIC principles. However, our main emphasis is in determining rates which we believe are just and reasonable based on the cost evaluations presented in this proceeding.
FF. Determination of the Statewide Average Loop Cost
12. As advocated by their proponents, the USWC RLCAP model produces a monthly loop cost of $27.79 based on the assumptions made by the Company including approximately $3.65 in monthly cost for central office multiplexing to provide individual analog loops. The investment cost associated with this loop is approximately $975. The Hatfield model produces a monthly loop cost of $17.03 from an investment base of approximately $644 based on the assumptions made by AT&T. The Staff estimated the monthly loop cost at approximately $15.90, including the central office multiplexing requirement assumption of USWC. This monthly cost is based upon an assumed loop investment requirement of about $555 per loop. USWC also introduced various comparisons to recent construction costs and an analysis of embedded cost. Although USWC maintained that recent construction costs per loop were in the range of $1,100-1,200, AT&T claimed that this number was more likely about $700.(39) While the embedded cost analysis of USWC claimed an investment level of about $1,000 per line, we note that the outside plant value was about $670 and about $900 when including all allocated central office investment.
13. As for the cost model assumptions of USWC, we find that the placement cost, in terms of the percentage of cable requiring boring, is too high and the fill factor assumption used by USWC is too low. Rather than using an assumption of 50% boring and fill factors in the range of 63%, we believe a boring ratio of 25% and 80% fill factors are more appropriate. (The latter adjustment is particularly reasonable relative to the 5-year horizon used by USWC in designing its cost models.) Overall, these adjustments could provide a downward adjustment in the range of 10-15% in the USWC recurring loop cost through lowering the expected investment base. We also find that the depreciation and capital cost expenses used by the Company are overstated. Assuming a 10.4% cost of money and depreciation expenses more consistent with the 1995 FCC represcription, it appears that the recurring loop cost estimate of the Company could be reduced in the range of 15-20%. We also believe that the forward-looking costs of maintaining the network should decrease as advocated by AT&T.(40) We find that this could reduce the loop cost estimates in the range of five plus percent. We also agree with numerous parties that the overhead estimates used by USWC are quite liberal in assuming additional costs to be added to that of costs of the physical plant. An adjustment in the range of 10% of the loop cost for this factor would appear reasonable and warranted.
14. As for the cost model assumptions of AT&T, we believe that several adjustments to the calculation of the investment base for the recurring loop cost of the Hatfield model are warranted. First, the assumed level of structure sharing is too high. We find that sharing in the range of 20-30% would be more reasonable. Adjusting the calculations of USWC witness Fitzsimmons for this assumption, it appears an upwards adjustment in the Hatfield base of about 19% is reasonable. As determined by Mr. Fitzsimmons, additional upward adjustments for the drop investment (about 14%) for the assumption of the percentage of aerial plant (5-10%) and the inclusion of DS1/DS3 facilities (10-15%) are found reasonable.
15. Based on these determinations, it appears that a range of reasonableness of the cost of the loop, without inclusion of the central office multiplexing cost assumptions of USWC, is in the range of $16.50-$19.00 on an equivalent investment base.(41) We find that a statewide average cost of $18.00 per loop is a reasonable determination within this range. To this, when appropriate, we add a monthly cost of $2.65 to account for a statewide average of the cost to demultiplex loops into an analog two wire circuit at the USWC central office. Based on this review, the Commission will establish $20.65 as the unbundled loop cost. (This figure is also essentially the USWC 1995 embedded cost per loop in Colorado determined in Mr. Armstrong’s exhibits.)
16. Additionally, the Commission finds that a CLEC shall continue to have the ability to access loops at the digital cross-connect as was ordered by this Commission in Docket No. 96S-233T.(42) This would include situations when integrated digital loop carrier (“IDLC”) is used and is serving sufficient numbers of loops for CLEC customers, to allow direct access from multiplexing equipment as described by AT&T witness Lynott.(43) However, as described by USWC witness Schmidt, access by this means would be subject to the technical capabilities of the available USWC equipment and any additional costs associated with facilities not normally used for providing loop facilities. USWC shall also include language in its tariff that it will cooperate with CLECs to aggregate CLEC served loops into DS1s where CLECs have obtained sufficient customers to aggregate in this fashion.
GG. Deaveraging of the Statewide Loop Costs
a. As stated by USWC witness Hatzenbuehler(44), the Company does not favor geographic deaveraging of interconnection and network element rates until it has had an opportunity to deaverage the prices of USWC’s retail basic exchange services. Otherwise, the Company believes there will be a mismatch between unbundled loop rates and the rates for basic exchange service which would create opportunities for arbitrage. Through USWC witness Johnson(45), the Company did concede that the deaveraged loop proposal put forth by Staff witness Armstrong was more reasonable than the loop deaveraging proposals put forth by the CLECs. As stated by Mr. Johnson, if loop deaveraging is pursued in this docket, the structure of the Staff proposal is acceptable to the Company.
b. The testimony of USWC witness Johnson(46) also summarized the position of the Company regarding the proposal by AT&T to further unbundle the tariff rate into functional components (i.e. feeder, distribution, etc.). Basically, USWC witness Johnson acknowledged that the CLECs and USWC have agreed that subloop unbundling should be handled through a Bona Fide Request ("BFR") process but disagree on the extent of that process. USWC opposes the setting of rates for subloop unbundling as advocated by AT&T because it believes that the facilities environment associated with individual loops can differ. Hence costs and, consequently, rates may differ. Therefore, in the viewpoint of USWC witness Johnson, it makes no sense to tariff prices for uniquely different situations.
Staff witness Armstrong(47) notes that the FCC concluded that rates for interconnection and unbundled elements must be geographically deaveraged and that three zones are presumptively sufficient to reflect geographic cost differences. Additionally according to the FCC, States may, but need not, use existing density-related zones the FCC had devised in its Expanded Interconnection proceeding.(48) However, Mr. Armstrong also noted that the geographic deaveraging portion of the FCC order has been stayed by the Eighth Circuit Court. Nevertheless he advocates a modest entry into geographic deaveraging with a more complete evaluation of the appropriate level of geographic deaveraging as time and competition progress. His proposal would be an application of the current USWC exchange base rate area and zone rate structure. Under his proposal, in the base rate areas, the rate for unbundled loops would be the statewide average for all loops as determined in this proceeding. For unbundled loops outside the base rate area, USWC should be allowed to charge the residential incremental zone charges that are currently contained in its local exchange tariff. Finally, he also recommends that the Commission not employ class of service distinctions (i.e. business and residence) on these zone charges.
c. AT&T argues for geographic deaveraging of loop rates, but disagrees with the proposal by Staff witness Armstrong to use the existing retail zone rates and structure. As reasons for its objection to the Staff proposal, AT&T opines that: 1) the current retail zone charges are based upon historical costs and were set in a rate-of-return proceeding(49); therefore, the Staff proposal will not provide the proper price signals to encourage facilities-base competition; 2) using a statewide average within the base rate zone provides no deaveraging by density zones as required by the FCC; 3) because the statewide average loop costs presented in this proceeding already include the cost of service outside the base rate areas, USWC will be overcompensated by allowing zone charges in the manner proposed by Staff; and 4) the historical zones do not coincide with the likely geographic areas eligible for universal service fund support. AT&T believes the Commission can only assure efficient entry and competitive neutrality by rejecting Staff’s proposal and moving immediately to loop deaveraging by the nine density zones computed by the Hatfield model.
d. In addition to the nine density zones, the model also separates the loop into four functions: Network Interface Device (“NID”), Loop Distribution, Loop Concentrator/Multiplexer, and Loop Feeder.
e. Although its Statement of Position dealt mainly with the question of geographic deaveraging of the loop, AT&T also continued to advocate functional unbundling of the loop. As presented by AT&T witness Baker, AT&T advocates that the fully bundled loop product proposed by USWC should be further disaggregated into its functional components with prices as shown in Exhibit 33 which would be used when AT&T requests disaggregated loop components through the BFR process.
WorldCom witness Porter(50) also recommended that prices for interconnection and unbundled elements be geographically deaveraged. This proposal is based on a statewide average loop cost of $14.97, which is the FCC proxy estimate for Colorado, and a statewide average loop length of 10,896 feet. By dividing the two, the average cost per foot is $0.1374. Mr. Porter then develops three zones--one for wire centers having loops with an average length of less than 9,000 feet, another zone for wire centers having loops with an average length between 9,000 and 12,000 feet, and one for wire centers having loops with an average length greater than 12,000 feet. Under this method, the Zone 1 loop cost is $9.47; Zone 2 is $14.31; and Zone 3 is $27.34.
a. Various parties have requested or proposed some measure of deaveraging the rate for the statewide average loop. The FCC pronouncements(51) on geographic deaveraging have been used by some parties as one rationale for requiring loop deaveraging. Other parties have noted that the FCC directives are currently stayed by court order. With respect to deaveraging the statewide average loop rate, the Commission believes this should be done to a limited extent based on the record in this proceeding and our legislative directive to promote a competitive telecommunications environment. Although we believe that our order meets the general intent of the FCC for geographically deaveraged rates relative to the loop, we place no specific reliance on this requirement within the First Report and Order in setting such rates in this proceeding.(52)
b. We are persuaded by some portions but reject other portions of the arguments presented by Staff, USWC and AT&T.(53) First, we agree that loops can and should be geographically deaveraged to a certain extent. We agree with Staff and USWC that the existing zone rating system structure currently provides the most appropriate structure for this deaveraging.(54) Within that structure, we agree with AT&T that rates should, to the extent possible from the current record, reflect costs, and that the costs assigned to the outer zones should not be included within the base zone rate. The Commission also finds that the deaveraged loop should be separated into functions similar to those advocated by AT&T. We believe that this will tend to minimize controversy over the proper charges for use of cabled facilities when undergoing evaluation in the BFR process for subloop unbundling. This is consistent with our prior observation in the arbitration proceedings(55) that such an evaluation appears to be more related to a determination of access to rather than use of the conductors.(56)
c. In determining the geographic deaveraged loop costs, we relied upon the loop cost analysis presented in this proceeding, which included data disaggregated by density (See Exhibit 24 [JCK-1 and 4 of that exhibit] and Exhibit 3 [Exhibit 4 and Appendix 7 of that exhibit). In comparing the density zones presented in these analyses, we have assumed that the types of developments most likely found in current zones outside of the base rate area reflect rural and large suburban areas which would comprise in the range of 5% to 8% of the current access lines of USWC(57), and which, from our experience, is similar to the conditions found in developing this rate structure in Docket No. 90S-544T. Primarily using the Colorado loop cost results contained in Appendix 7 of Exhibit 3, with adjustments consistent with our determination of the statewide average loop cost(58), we calculate an average zone charge for use within the base zone and each outer zone. Instead of the previously discussed statewide average loop rate of $18.00, without the central office multiplexing for providing voice grade pairs as proposed by USWC, this rate is now disaggregated into a rate of $17.00 within the current base rate area, $24.00 in the current Zone 1, $36.00 in current Zone 2, and $82.00 in current Zone 3.
d. Next, using proportional assignments of the loop costs among the functions developed by AT&T in Exhibit 33(59) and our previously described zone assumptions, we have calculated a reasonable approximate assignment of the loop cost between the NID, distribution, and feeder sections of the loop. We have not attempted to separately include a category for loop concentration/multiplexing costs, which was proposed by AT&T, since the AT&T analysis defines those within the overall feeder category as stated in Exhibit JCK-1 of Exhibit 24. At this time, it is also not obvious from this record as to how loop concentration would be used as a network element separate from that of the corresponding feeder cable plant.(60) In essence, we leave the question of a separate multiplexing rate element, and means of connection and maintenance of the subloop components for such a connection plus any additional costs for such access to the cable facilities of USWC, for resolution between the Company and the CLECs within the BFR process. However, the following elements shall comprise the rates for use of subloop elements of the NID, distribution and feeder. Such rate elements assume the distinction between feeder and distribution plant is defined at the designated serving area interface (“SAI”) or feeder/distribution interface (“FDI”). The rate elements, by zone and function are as follows, including reference to any additional necessary central office multiplexing as previously discussed pursuant to the statewide average loop cost:
| Base Rate Area |
Zone 1 |
Zone 2 |
Zone 3 |
|
| Feeder |
$8.67 |
$8.88 |
$17.62 |
$60.68 |
| Distribution |
7.65 |
14.40 |
17.62 |
20.50 |
| NID |
.68 |
.72 |
.76 |
.82 |
| Subtotal (Loop Only) |
17.00 |
24.00 |
36.00 |
82.00 |
| CO Multiplexing (As required) |
2.65 |
2.65 |
2.65 |
2.65 |
| Total |
$19.65 |
$26.65 |
$38.65 |
$84.65 |
e. The rate for 4-wire service (loop only) shall be twice the 2-wire loop presented above.
f. USWC shall revise its proposed tariffs to include the preceding rate data and terms and conditions.
USWC seeks recovery of an alleged depreciation deficiency of $275 million(61) for its Colorado operations. It proposes to recover this deficiency from all switching minutes since, according to the Company, this would be a competitively neutral mechanism. The alleged deficiency is created by using regulatory accounting lives instead of economic lives. The economic lives are generally based on the TFI report.
e. None of the parties supported recovery of this alleged deficiency. AT&T considered this proposal a “revenue protection device”, and, according to AT&T/MCI witness King, the TFI study is flawed. Mr. King disagrees with the TFI assumption that the combined effect of technology, competition, and new service demand will force the incumbent LEC to retire their existing narrowband telecommunications networks in order to replace them with broadband integrated networks. Instead, he contends that the industry and USWC plant retirement rates are well below their depreciation rates thus demonstrating that they are not abandoning their existing narrow broadband networks.
f. Staff also disagreed with recovery of the alleged depreciation deficiency. It expressed concerns that USWC assumes all investment in each plant account, regardless of its location, use, or level of competitive pressures, will have a similar theoretical life. The Staff recommended that, until USWC can demonstrate actual retirements due to more accelerated economic depreciation as well as the cause or driver for this phenomenon, the Commission should reject the recovery of any depreciation reserve deficiency.
The Commission will reject the recovery of the alleged depreciation deficiency. We agree with Staff’s recommendation that until USWC can demonstrate that actual plant retirements are occurring due to shorter economic lives, we should not use the proposed economic lives.
g. AT&T witness Lynott argues that USWC’s cost modeling for its non-recurring charges is flawed. According to Mr. Lynott, USWC has “reversed engineered” its LIS-LINK cost studies by taking forward-looking technology and adding additional equipment which the forward-looking technology was intended to replace, thereby making the forward-looking technology appear obsolete and driving up costs. He expresses concern that USWC in its cost studies has modeled LIS-LINK as a designed service similar to Private Line as opposed to Plain Old Telephone Service (”POTS”).
h. Mr. Lynott suggests that USWC should be using the type of network architecture and platforms which are least cost, most efficient and available in the market today. He advocates that Operational Support Systems(62) (“OSS”) should follow the Telecommunications Management Network (“TMN”) generic requirements established by industry standards. Additionally, Mr. Lynott states CLECs should be able to have real-time read and write to telephone line number and loop assignment system, trouble ticket entry, and repair scheduling, as well as real-time read access to testing, loop and facility inventory database, and network surveillance systems.
i. USWC witness Notarianni explains that a POTS service order contains products and services(63) that are associated with a telephone number, while a designed service order is capable of handling products(64) that do not have a telephone number and require manual or coordinated handling. She believes that unbundled loops are best supported by the design services flow for several reasons: loops are not associated with telephone numbers; it is essential that service orders be routed to the systems that contain inventory information about loops and involved employees with the specialized training and experience to complete the provisioning--this only occurs with the design services flow; and unbundled loop inventory that connects the local loop to a meet point with the CLEC resides in Trunk Integrating Record Keeping System (“TIRKS”)--POTS orders are not routed to TIRKS. Ms. Notarianni also believes that the repair processes are best supported by the designed services order flow for the same reason that it best supports unbundled loops.
j. She takes exception to the six assumptions made by Mr. Lynott: (1) the CLEC must have real-time read and write access to loop and facility inventory databases and network surveillance systems; (2) no OSS manual invention is required in the processing of an unbundled loop request; (3) the order fulfillment process requires only manipulation of software translations; (4) no additional downstream OSS capacity is required in order to support the processing of CLEC requests; (5) the TMN architecture provides for an OSS environment that requires little or no manual interventions; and (6) providing an unbundled loop element is equivalent to any end-to-end POTS service that contains a loop.
aa. Ms. Notarianni states that read/write access to downstream OSS’s that provision and maintain the network are not currently provided to the USWC Service Representatives.(65) In order to process most unbundled loop requests from a CLEC, two orders must be issued: a disconnect order from the USWC facilities and a new connect order to the CLEC collocated equipment. Currently all of these orders require manual intervention. She also notes that software systems are subject to errors that may require manual intervention. As for the fulfillment process requiring only manipulation of software translations, Ms. Notarianni states these are nothing more than functional descriptions of idealistic systems for which design specifications do not exist and vendors are not currently developing. Next, she claims that USWC must continually size and adjust the capacity of its electronic interfaces and downstream OSSs to most efficiently meet the needs of its current business, as well as support the additional processing requirements expected from the CLECs. She disagrees that a TMN architecture requires little or no manual intervention. Moreover, OSS vendors continually choose not to adhere to the specifications of TMN.(66) Finally she claims there are many differences as to why an unbundled loop element is not equivalent to any end-to-end POTS service that contains a loop. These are: an unbundled loop is not directly identified by a telephone number; it may or may not be turned up for service at the time it is requested, and provisioning unbundled loops require coordination of connectivity of the circuit between multiple providers.
Although we believe the movement to standard industry platforms, such as TMN, will play an increasingly important role in the development of competition, we will reject the AT&T position as unreasonable for the setting of USWC’s nonrecurring rates in this case. The Commission believes it is premature to establish rates based on a platform that is not widely available and not reflective of the present or near term actual operating environment.
bb. In Section 10 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its rates and charges for nonrecurring charges (“NRC”) such as loop installation, loop testing, and NID installation. USWC claims that these rates are based on TELRIC derived costs with an allocation of common costs. USWC acknowledges that such cost estimates do not assume mechanized systems and that it may be years before such systems are in place. Furthermore, USWC is willing to readjust these rates when such a system is in place. USWC also notes that it has revised its NRC for additional loops to a premise because many of the costs will only be incurred once.(67) In USWC’s opinion, provisioning of unbundled loops will require a service order design flow similar to private line services as it does not have a telephone number associated with it.(68)
cc. AT&T vigorously objects to the NRCs developed by USWC. It argues that such charges can be a barrier to entry as was recognized by the FCC.(69) AT&T argues that the cost studies used by USWC are outdated, used unsubstantiated information, assumed inordinately long manual processing, travel times, and not based on mechanized processes as in the USWC cost estimates for its retail services.(70) AT&T also claims that the USWC NRC cost studies should be based on forward-looking network architecture. AT&T further argues that USWC’s proposed NRCs are discriminatory since they are much higher than similar rates for its retail services.
dd. TCG also recommends that the USWC NRCs not be accepted and echoes concerns similar to those of AT&T.
ee. Staff of the Commission addressed some of the proposed NRCs, but not all. In general the Staff believes the USWC NRCs are too high. As stated by Staff witness Armstrong, the NRCs proposed by USWC for the unbundled loop impose charges on the CLECs that are far and above similar work functions performed by USWC for its own customers. In his opinion, it would be only logical that nonrecurring costs for the provision of an unbundled loop would be similar to those costs for USWC to provide basic local exchange service. Mr. Armstrong notes that recently in Docket No. 96S-257T, the NRCs for USWC business and residential service were compared to the USWC cost studies and found to be fully compensatory. Mr. Armstrong recommends that the Commission set a NRC for the unbundled loop to be equivalent to that for USWC’s retail business service: $70 per installation.(71)
ff. Commission Findings
(1) We note that under Decision No. C96-655, we ordered USWC to use the $70.00 rate for business lines as the standard rate for initial installation of service for the loop UNE. In doing so, we found that the labor hours used within the service initiation cost studies were excessive, being on the order of two to four hours to process a single access line order from a CLEC. The record in this proceeding does not provide us with enough confidence to modify that conclusion.(72) Nonetheless, these are costs that should be recovered from CLECs. We generally agree with USWC that recovery should occur at the time of occurrence and at the time of disconnection.
(2) We are also cognizant of the argument of the CLECs that high NRCs can provide a barrier to competition, particularly if “churn” between competitors develops.(73) Staff has recommended that we continue to use a NRC equivalent to that for business service. We accept this proposal and also believe the revision in the USWC cost studies to reduce the estimated cost for additional lines on the same order is one which should be retained in setting the unbundled rates. Therefore, using the $70.00 figure as the base, we have proportionally reduced all the NRCs for loop installation proposed by USWC.
(3) For the installation of the basic loop, we find that a reasonable rate would be $70.00 for the first loop(74) and $40.00 for each successive loop on the same order, rather than the $70.00 figure currently used in the USWC tariffs pursuant to Docket No. 96S-233T for each additional loop. For installation with non-coordinated testing, the charge for the first loop shall be $112.00 and for each successive loop $60.00. For coordinated testing with installation, the charge for the first loop shall be $142.00 and for each successive loop $90.00. These charges for the first installation are similar to those that were ordered in Decision No. C96-655, but the charges for successive loops are less to reflect that some costs will only be incurred once when processing multiple loop orders.
(4) USWC also proposes a rate of $60.37 to install a NID for a CLEC. We note that the installed cost for the NID under the Hatfield Model was $30.00 while RLCAP uses a value of $23.00 to $40.00.(75) Consistent with our prior discussion regarding excessive overheads and labor hours, the installation cost for this element shall be reduced to $44.00. The nonrecurring loop rates are shown on Attachment 3 to this order.
1. USWC’s Position and Proposed Tariff
In Section 6 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its proposed terms and conditions for line conditioning(76). The $557.02 rate contained in Section 10 for the proposed nonrecurring charge is based on TELRIC cost plus an allocation of common costs.
Both AT&T and WorldCom argue that there should be no charge for line conditioning. They base this position on the belief that line conditioning would not be required in a forward-looking network since the latest technology would be deployed. WorldCom also argues that the line conditioning charge should be spread across all loops affected by the conditioning. Thus, if there are ten loops in a binder group and the CLEC only requested one unloaded(77) loop, it should be charged one-tenth the $557.02 line conditioning charge. WorldCom also argues that USWC will double recover the cost of line conditioning if it charges $557.02 to the first CLEC to unload one loop in a binder group and then charges a different CLEC the $557.02 to unload any other loops in that same binder group. AT&T contrasts the line conditioning charge to the USWC conditioning charge for ISDN tariff of $50.00 to demonstrate the unreasonableness of the proposed line conditioning charge.
We note that USWC’s explanation regarding the ISDN conditioning charge, (i.e., that this charge is lower because the Company averaged the conditioning costs over all ISDN lines(78) whether they needed conditioning or not), is not directly on point. ISDN line conditioning is not the same as load coil removal. As for the double recovery argument, USWC stated on rebuttal that, once a facility has been conditioned, no one will pay again for the same facility to be conditioned. This still presents a fairness concern. Therefore, the Commission has determined that no line conditioning charge will be imposed on loops with a length less than 18 kilofeet.(79) The per splice location charge shall be $85.00 and each additional splice location charge shall be $50.00. These charges are based on more realistic time estimates(80) as previously discussed regarding nonrecurring costs in this order. Finally, we agree with the Staff’s proposed tariff change that there should be no charge to a CLEC if USWC dispatches a technician and no load coils or bridge taps were removed due to inadequately maintained plant inventory records. Other tariff changes to Section 6 of Colo. P.U.C. Tariff No. 17 are discussed infra.
BBB. Recurring Rates and Nonrecurring UNEs Rates
In Section 10 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its rates and charges for recurring and nonrecurring UNEs. The underlying cost estimates for these rates by USWC is consistent with our prior discussion of TELRIC concepts. For these other elements, AT&T and Staff proposed for some, but not all the UNEs, recurring and nonrecurring rates. In addition to considering the rate proposals put forth by the parties, the Commission also weighed the relative significance of the rate element on an end-user customer of the CLEC. The recurring and nonrecurring UNE rates are shown on Attachment 4 to this order.
gg. For the local switching element, usage and port, USWC proposed a rate of $1.54 per month for the port and $.003083 per minute of usage (without the depreciation reserve amortization amount); Staff proposed a rate of $1.16 and $.00283; while AT&T proposed $.95 and .0016, respectively. In this instance, we accept the rate proposal of the Staff. It is adjusted downwards to account for the current Commission prescribed depreciation rates.
hh. USWC has proposed that switching features be priced at the retail resale rate since it continues to oppose the requirements of the FCC that the costs of switching include features and functions. In lieu of this proposal, USWC proposes to charge $1.03 per month for what it defines as Feature Group 1 (Custom Calling features and most Centrex features)and $5.31 for Feature Group 2 (Feature Group 1 plus Class features).(81) Staff has proposed a slight variation of the USWC feature packages by having three separate groups plus a total group that includes all of the other three groups. Staff proposed rates for these feature groups based on Commission approved depreciation lives. (82) In this instance, we will accept the rate proposal of USWC with the modification that the Custom Calling only group proposed by Staff also be included in the tariff at the rate proposed by Staff ($.50 per month).
ii. USWC has proposed nonrecurring rates of $112.07 per port and $28.58 for each additional port for the local switching element. Neither Staff nor AT&T had a specific counterproposal to the USWC analysis, although we could again infer that AT&T believes appropriate cost recovery is included within the recurring rate for this element. We note that the nonrecurring rate for this element determined in Docket No. 96S-233T was $16.00 per port, if ordered without an access line, and no charge if it was ordered at the same time as the loop. Without restating the analysis of nonrecurring costs for the loop, USWC has evidently included expenses for inordinately large amounts of time for employees to process such an order. Also, we again note that USWC includes significant overheads within its rate proposal. In this instance, we are persuaded that the time to process such a request may be slightly longer than that for a custom calling feature to which we compared it in Decision No. C96-655 and will set the rate for this function at $30.00 for the initial port without concurrent ordering of a loop, or $10.00 for each port ordered with the initial port or for each port ordered with a line.
jj. For Direct Trunked Transport recurring rates, we will accept the proposal of USWC(83) except for the DS0 rate element, for that element we will accept the proposal of Staff, which is the USWC proposal adjusted to account for Commission approved depreciation rates.(84) AT&T proposed a direct transport rate of $.00025 per minute for all data transmission levels (DS0-DS3), but did not provide sufficient elaboration on the impact of this proposal.
aaa. For tandem trunked transport and tandem switching, we will accept the rates proposed by USWC. For the entrance facilities associated with the transport rates, we will accept the depreciation adjusted rates proposed by Staff, including establishment of a DS0 entrance facility at a monthly rate of $32.43. We will accept the Staff proposed rates for DS3-DS1 and DS1-DS0 multiplexing. Again, the Staff proposed rates are based on the USWC cost studies but with use of Commission-approved depreciation rates. In terms of nonrecurring rates, in this instance, we will accept the rate proposal of USWC and include continuation of the $99.00 rate for a DS0 facility since no party proposed a different rate.
3. Common Channel Signaling Access Capability
bbb. The rate proposals put forth by USWC and Staff for the Common Channel Signaling Access Capability (“CCSAC”) direct transport recurring rate elements are the same as both parties proposed for the Direct Trunked Transport rates. Our decision is the same in this instance. The USWC proposal is accepted except for the DS0 recurring rate. In that instance, we adopt the Staff proposal. For the recurring rates for entrance facilities and multiplexing, we will adopt the Staff proposal, similar to our decision regarding such rate elements for the transport UNE rate elements. Again, as with our decision for the transport rate elements, we will adopt the nonrecurring rates proposed by USWC except for the addition of the $99.00 rate for the DS0 facility. We will also accept the nonrecurring rates proposed by USWC for the first and each additional common channel signaling link.
ccc. For the Signaling Transfer Point (“STP”) port rate element, we note that USWC has proposed a rate of $214.66 per month, while Staff has proposed a depreciation adjusted rate of $168.51. In this instance, AT&T has proposed a rate for each message transitting the STP of $.00008 per message and for each Signaling Control Point (“SCP”) database dip a charge of $.00094 per message. In this instance, we again note that it is not clear from the USWC proposed tariff that the STP tariff language will allow for CLEC-to-CLEC transit traffic. We require that USWC amend its tariff to make clear the allowance of this type of usage. Furthermore, we will set a rate of $180.00 per month for this element plus a charge of $.00008 per message for the STP and $.00094 per message for use of the SCP, which shall be assessed once the total number of messages assessed under these rates through the STP reaches the equivalent of the $180.00 amount. These message rates are contingent upon the ability of USWC to measure and rate such messages across its network. Otherwise there shall be no per message charge.
Both TCG and AT&T recommend the Commission allow a CLEC to self provision the Expanded Interconnection Channel Termination (“EICT”). TCG argues that if it is not allowed to self provision the EICT, it will eliminate the ability of a CLEC to control as many of its own costs as possible. Moreover, TCG contends, the ability to self-provision the EICT provides a check against USWC prices set in this case. We agree with the arguments presented by TCG. The Commission believes the self provisioning of the EICT should be made available in a fashion similar to virtual collocation. By this we mean, that a CLEC will provide the equipment to USWC and USWC will either install or oversee the CLEC installation at the hourly labor rate in USWC’s collocation tariff.
1. Statutory Requirements - State and Federal
ddd. Section 40-15-503(2)(b)(IV), C.R.S., requires that the Commission adopt rules for the “terms and conditions for resale of services that enhance competition.” The Act also directs all local exchange carriers “not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on the resale of its telecommunications services.”(85) The Act places additional requirements on incumbent local exchange providers:
(A) to offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers; and (B) not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on the resale of such telecommunications service, except that a State commission may, consistent with regulations prescribed by the Commission under this section, prohibit a reseller that obtains at wholesale rates a telecommunications service that is available at retail only to a category of subscribers from offering such service to a different category of subscribers.(86)
eee. The Act further directs that “a State commission shall determine wholesale rates on the basis of retail rates charged to subscribers for the telecommunications service requested, excluding the portion thereof attributable to any marketing, billing, collection, and other costs that will be avoided by the local exchange carrier.”(87)
fff. The Commission promulgated rules relating to Resale of Regulated Telecommunications Services in Docket No. 95R-557T, Decision No. C96-351, setting out the conditions for resale applicable to all certified telecommunications providers that provide telecommunications exchange service in the State of Colorado. In those rules, the Commission defines a reseller as: “a certified provider of telecommunications services who purchases, pursuant to Commission-approved contract or effective tariff, telecommunications services from a facilities-based telecommunications provider and then offers the services, either by themselves as separate tariff offerings or in combination with other services, to an end-user.”(88)
ggg. HB 1010 provided for the establishment of temporary interim tariffs for all services relating to local competition, including resale.(89) These interim tariffs are part of Decision No. C96-655 in Docket No. 96S-233T; this order replaces those interim tariffs.
2. USWC’s Proposed Tariffs and Position
hhh. In Sections 9 and 10.5 of its Local Network Interconnection and Service Resale Tariff (Colorado P.U.C. No. 17), attached to Second Amended Advice Letter No. 2617, USWC filed its rates, terms, and conditions for resale. USWC also filed extensive testimony discussing the Company’s position on resale rates. In summary, that position is as follows:
(1) No resale of some services. The Company proposes that some of its services would not be available for resale including: Access Services; Grandfathered/Obsolete products and services (except to existing customers); Low-Income Telephone Assistance Programs; Special Promotions; Market Trials; Universal Emergency Number Service (911); Physically Impaired Service Programs; Enhanced Services; and Federally Deregulated Services. USWC’s justification for these treatments differs from service to service. For example, it argues that some, such as carrier access, should be on this list because they are not retail services provided to end-users. On the other hand, enhanced services should be exempt because they are not telecommunications services but rather information services. Grandfathered services should not be available for discount to anyone other than an existing customer because these services are being phased out.
(2) No discount to resellers on some services. USWC offers a second list of services which it suggests be available for purchase by resellers but with no discount. These include: Residential Basic Exchange; Centrex Plus; Directory Assistance; Operator Services; Optional Calling Plans; Private Line Transport; Negotiated Contracts; Volume or Term Discount Plans; Discounted Feature Packages; and Public Access Lines (“PALs”). The Company argues for this treatment of some services, e.g., residential basic exchange, alleging that because prices are below cost and it should not have to discount them further. It also argues that directory assistance and operator services should not be discounted because they are competitively provided, others should be similarly treated because they are already discounted (e.g., volume or term discount plans), or because they are provided as a wholesale service e.g., PALs.
(3) The proposed discounts to resellers of some services. USWC submitted two studies, both a TELRIC and an embedded avoided cost study. It proposes that resale discounts be taken only from the TELRIC study and that the embedded study be used just for comparison purposes and as an option if the Commission decides that it will rely upon historical, rather than forward-looking analysis. Both of these studies are disaggregated into a number of service categories with different discounts offered for each. The Company altered its exact recommendations during the course of this proceeding. Nevertheless, its final proposal, based upon its TELRIC avoided cost study, is(90):
| Service Category |
Discount % |
Retail Rate % |
| Residential Basic |
0.00 |
100.00 |
| Business Basic, PBX, ISDN |
14.60 |
85.40 |
| IntraLATA Toll, WATS, 800 Service |
29.15 |
70.85 |
| Features, Listings |
32.59 |
67.41 |
| Advanced Communications Services |
11.51 |
88.49 |
(4) Proposed discount calculations. USWC provides two avoided cost studies, one is a bottom-up study based upon forward-looking TELRIC while the other is a top-down study based upon historical data. Except for the forward-looking vs. historical difference, however, the two models employ similar methodologies. USWC is proposing that the TELRIC study be used for computing the discounts; the embedded study is offered for comparison purposes only and as an alternative should the Commission decide not to use a forward-looking study. The FCC rules indicate that a TELRIC study can be used to identify avoided costs if a similar cost methodology was used to set the rates from which the discounts will be subtracted. USWC argues that, since the Commission has considered both incremental and fully distributed costs in its rate making process in the past, it is entitled to base resale discounts on a TELRIC avoided cost study here.
(5) The TELRIC avoided cost study is disaggregated into several service categories to take account of the fact that the cost characteristics are not the same for all services. USWC does not rely upon the FCC avoided cost assumptions but rather employs assumptions specifically related to the Company’s operations in Colorado. For example, some accounts such as sales (6612) and product advertising (6613) are treated as entirely avoided, whereas others such as product management (6611) and customer services (6623) are assumed to be only partially avoided, the exact percentage depending upon the service category in question. Prorated shares of common costs and contribution are also included in avoided costs. Once the sum of direct and indirect avoided costs is computed, USWC divides that total for each service category by the total costs for that category, including capital costs, to determine the discount percentage.
(6) USWC’s embedded avoided cost study uses a similar methodology but applied to different data. Instead of focusing on forward-looking costs, it begins with the publicly available 1995 data from the Automated Report Management Information System (“ARMIS”) reports as well as the results from its internal Cost Allocation Accounting System (“CAAS”) and Cost Accounting Reporting System (“CARS”).
USWC argues that PALs are a wholesale service and so should not be subject to the concept of resale discounting. As a second position, it asserts that, even if the Commission decides that resale discounting should be applied to PALs, the percentage discount should be zero because no costs will be avoided since the costs are the same regardless of whether the lines are purchased by independent payphone providers (“IPPs”) or CLECs. If a zero discount is not acceptable, USWC’s final position is that the business basic exchange access line discount should be used.
(4) In Section 9.2.A.4 of its proposed tariff USWC states that “Centrex Plus is available only as a business system to single businesses for resale by CLEC’s, and may not be used as a toll aggregation tool.” This section implies three restrictions: 1) Centrex Plus can only be sold by resellers to single business customers; 2) Centrex Plus cannot be used by resellers as a toll aggregation tool; 3) Centrex Plus cannot be sold by resellers to residential customers. In addition, in Section 10.5.(D)1, USWC includes Centrex Plus in its list of services which will be available to resellers but at a zero discount off the retail rate.
(5) USWC justifies restricting the sale to single business customers by referring to the Act’s constraint that a service being sold at retail only to a certain category of customers cannot be offered by a reseller to a different category of customers.(91) Concerning the toll aggregation issue, USWC argues that toll aggregation may be inconsistent with the Act because it can result in USWC being forced to provide intraLATA presubscription before it has been authorized to offer interLATA service. USWC believes that resellers should not be allowed to sell Centrex Plus to residential customers for the same reason that it should be precluded from serving multiple business customers, namely, that USWC does not do so and thus it would constitute selling to a different category of customers than is done at the retail level. Finally, USWC defends its inclusion of Centrex Plus in a list of services available for resale but at no discount by arguing that it is already a discounted service and should not be “double discounted”.
In its proposed tariffs (Section 10.5.A), USWC proposes a customer transfer charge, a nonrecurring charge per customer switched from USWC to a reseller or from one reseller to another. The magnitude of the charge depends upon whether the customer is a residence or business, first line or additional line, and mediated or nonmediated access. The charges range from $11.16 to $22.20. These proposed charges are set equal to USWC’s TELRIC numbers plus a share of common costs. The incremental cost piece reflects both the cost of the work done during the conversion and the cost related to modifications to USWC’s internal operating support systems amortized over a five year period.
In Section 10.5.B of its proposed tariff, USWC includes a $100 nonrecurring charge for slamming, i.e., a charge to compensate USWC for switching an end-user back to another reseller or service provider when the original switch was either unauthorized or disputed by the end-user. The tariff indicates that there is no USOC associated with this charge
USWC proposes that the costs of construction necessitated by reseller requests be paid by the resellers themselves. The Company contends: If this is not done and if these facilities were stranded in the future, the Company will not be able to recover the costs. Moreover, USWC should not have to, in effect, capitalize the resellers and bear part of their business risk.
g. Other terms and conditions for resale service.
USWC further proposes a number of additional terms and conditions for resale including those related to ordering, maintenance, reseller responsibilities, directory listings, deposits, and billing.
Staff believes that the USWC proposal in this regard violates both the state and federal rules as well as this Commission’s decision in Docket No. 96S-233T. It disagrees with most of USWC’s exclusions and favors the much narrower list of exceptions articulated by the FCC. In particular, the Staff argues that, other than promotional offerings of less than ninety days, carrier access, and grandfathered services (except for existing customers), all retail, telecommunications services should be available for resale.
b. The proposed discounts to resellers of most services.
The Staff provided its own disaggregated, embedded, avoided cost study. From this study the Staff computed the following resale discount rates(92):
| Service Category |
Discount % |
| Residential basic exchange |
12 |
| Business basic exchange, PBX, ISDN, ACS, Centrex Plus |
17 |
| Toll |
17 |
| Features, listings |
42 |
| Private line |
21 |
The Staff believes that the embedded cost studies can be disaggregated to the level which USWC achieves without sacrificing reliability or accuracy and that, in doing so, important differences among service categories can be reflected in the results. Consequently, the Staff begins with the disaggregated model which was accepted by the Commission in Docket No. 96S-257T, with the fiber cable and the re-engineering adjustments which were disallowed in that docket, being removed. The Staff chooses to use FCC proxy discount factors in many instances instead of basing its calculations on USWC’s account-specific factors because the Staff finds the latter unsupported. After determining both the direct and indirect avoided costs, Staff then divides by the sum of expenses, interest, and taxes to calculate the discounts by service category. This discount, having been determined by dividing by costs preserves the rate of profit, whereas dividing by revenues preserves the dollar amount of profit. The Staff argues that USWC should not be allowed to preserve the dollar amount of profit, and, hence, that costs should be used as the divisor in computing the discount.
The Staff argues that the rates proposed by USWC represent a good starting point, but that the costs of modifying USWC’s operating support systems should be subtracted from all these rates because this cost will be better considered, along with other nonrecurring expenses associated without the move toward local exchange competition, in the Interconnection Cost Adjustment Mechanism (“ICAM”), Docket No. 97A-011T. Consequently, Staff proposes that the USWC rates minus this amortized cost be adopted as the customer transfer charges.
In the interim tariffs the Commission found that resellers should be treated the same as other customers and subject to USWC current construction charge tariffs. The Staff recommends that this procedure be incorporated into the permanent tariffs as well.
AT&T takes the position that all retail services, non-tariffed services, enhanced and deregulated services, grandfathered services, services offered on an individual contract basis, discounted services, and promotional offerings of greater than ninety days should be subject to resale. MCI contends that even promotions of less than ninety days must be offered for resale but with a zero discount.
Both AT&T and MCI submitted aggregate, embedded, avoided cost studies. Because of other differences in methodology, their discount rates differ. AT&T proposes using a 36.55% discount rate whereas MCI recommends a 19.40% rate.
(6) These parties argue: A disaggregated study should not be used because such a study must be based, at least in part, upon proprietary data which cannot be easily verified. Furthermore, it requires many arbitrary allocations of costs among service categories and a plethora of assumptions, all of which leads to results of questionable consistency and reliability. A TELRIC cost study is not satisfactory for calculating avoided costs in this circumstance. If USWC’s retail prices were efficient, using a TELRIC would be appropriate but, since they are not, avoided costs must also include retail cost inefficiencies and monopoly profits. To account for these items, one must use an embedded cost study. Moreover, the Act requires such a top-down approach unless the retail rates have been set using a TELRIC methodology. This has not been the case for USWC.
(7) AT&T’s and MCI’s models are different in significant ways. AT&T’s Simplified Avoided Retail Cost Model begins with publicly available ARMIS data. The model includes both intrastate and interstate costs that can be avoided. It assumes that the cost accounts for operator systems (6220), product management (6611), sales (6612), product advertising (6613), call completion (6621), number services (6622), customer services (6623), and uncollectibles (5301) are completely avoided. Once AT&T calculates the sum of direct and indirect avoided costs, it divides by total revenues to arrive at its overall discount recommendation.
(8) While MCI uses the ARMIS data as well, its methodology differs in ways which result in a lower overall discount rate. First, MCI includes only intrastate costs in its calculations. Concerning the percentages of particular cost accounts which are treated as avoided, MCI generally assumes that smaller percentages are avoided than does AT&T. Finally, MCI uses total cost, not revenue, as a divisor in the final discount rate calculation.
AT&T proposes that the charge be $0.45 for all types of customers and lines because such a switch can be achieved electronically and is analogous to switching interexchange carriers.
AT&T argues that, if the reseller requesting the construction must pay initially, other entrants and USWC should be made to share these costs if they benefit later on.
The Colorado Payphone Association argues that PALs should be available for resale and that the discount rate should be somewhere between 25% and 30%. Without this offering there will probably be no competition in this area for some time. CPA contends that the FCC has been fairly clear on this issue, namely, that it does not consider independent payphone providers to be telecommunications carriers.(93) From this it can be concluded that the IPPs should have the opportunity to purchase PALs from either USWC or a reseller and the latter should be able to buy the PALs from USWC at a discount. The reseller could not be an IPP itself but rather some telecommunications carrier.
iii. McLeod argues that USWC previously attempted to withdraw Centrex Plus so that it would not be available for resale to new customers, that the Commission rejected this request, and that now USWC is trying to achieve the same goal by allowing Centrex Plus to be resold but with terms and conditions that make it uneconomic for McLeod and others to do so. While it is true that the proposed tariffs would be applied equally to end-users and resellers alike, McLeod contends, they are structured in such a way as to uniquely disadvantage resellers. Even resellers willing to restrict their business to single, large corporate customers, will be disadvantaged because of the zero discount. If resellers are allowed to sell to multiple customers, the tariff structure would render such a sale uneconomic because each customer would have to purchase a common block, whereas an end-user with the same locations would only have to purchase the number of common blocks technically required which would be less than the number required for the reseller to purchase.
jjj. McLeod observes: These disadvantages to resellers contradict both federal and state legislation which require competition to be encouraged, barriers of entry to be removed, and constraints on resale in particular to be limited to ones which are reasonable and non-discriminatory. Furthermore, the FCC order states that “We do not believe that these or other efficient uses of technology should be discouraged through restrictions on the resale of flat-rated offerings to multiple end users, even if incumbent LECs have not always priced such offerings assuming these usage patterns.”(94) This is further evidence of the regulatory intent to permit such resale. Concerning USWC’s specific point about categories of customers, the Act allows states to “...prohibit a reseller that obtains at wholesale rates a telecommunications service that is available at retail only to a category of subscribers from offering such service to a different category of subscribers”(95) While USWC markets Centrex Plus primarily to large corporate customers, it is available to others, so the Commission should allow resale to a broader range of customers including small and medium size businesses and residences.
aaaa. Concerning toll aggregation, McLeod points out that this represents another act which USWC wishes to prevent resellers from engaging in while allowing its end-users to continue the exact same behavior, again as a way of discouraging resale of Centrex Plus. In its Statement of Position, McLeod quotes a 1995 FCC order which indicates that resellers will be allowed to use dedicated access facilities connected to the trunk side of a common block to reach an interexchange carrier for the purpose of transmitting interstate toll calls. There is nothing in the Act, passed subsequent to this ruling, that suggests that the FCC wished to override its previous ruling. Finally, McLeod observes that even though the reseller can designate the routing of traffic, this is not equivalent to intraLATA presubscription and so, therefore, a ban on toll aggregation should not be allowed as it simply represents another impediment to competition.
bbbb. Finally, McLeod argues that USWC’s proposal to apply a zero discount to Centrex Plus for resellers should be rejected as well. It is not clear that Centrex Plus can reasonably be thought of as a discounted service, but even if it can, this is no reason not to apply a resale discount. McLeod contends the two discounts are intended to reflect different phenomena and so are not duplicative.
(1) The Commission recognizes that resale is one way in which increased competition can be introduced into the telecommunications markets in Colorado, and that unnecessarily constraining resale may, therefore, inhibit the emergence of competition. Since both the Telecommunications Act and HB 1335 mandate us to promote competition, we must consider exempting a service from resale with great care. Furthermore, the FCC order requires the resale of all retail telecommunications services except for promotional offerings of less than ninety days in duration. In addition to this exception, we believe that carrier access should be exempt because it is not a retail service but is rather sold only to other telecommunications carriers. Grandfathered services should be handled as indicated in the FCC rules, namely, these services are available for resale only to existing customers. Enhanced services should be exempt only if they are information and not telecommunications services. Universal emergency number service (911) should be exempt as well. Other than these, all services which USWC proposes be either exempt from resale or offered but at a zero discount should, in fact, be available for resale with appropriate discounts.
(2) Our specific recommendations concerning these services are provided in the following table, except for PALs and Centrex Plus which are treated separately in subsequent sections:
| Service |
Recommended treatment |
| Access services |
Exempt from resale |
| Grandfathered services |
Exempt from resale except to existing customers |
| Low-Income telephone assistance programs |
Residential basic exchange discount |
| Special Promotions of more than 90 days |
Discount depending upon type of service |
| Market trials of more than 90 days |
Discount depending upon type of service |
| Universal emergency number service (911) |
Exempt from resale |
| Physically impaired service programs |
Discount depending upon type of service |
| Enhanced services |
Exempt only if they are information and not telecommunications services |
| Federally deregulated services |
Even though we do not set the rates for such services, they should be discounted depending upon the type of service as long as they are retail, telecommunications services |
| Residential basic exchange access lines |
Residential basic exchange discount |
| Directory assistance |
Miscellaneous discount if the service is being provided to end users, not carriers |
| Operator services |
Miscellaneous discount if the service is being provided to end users, not carriers |
| Optional calling plans |
Toll discount |
| Private line transport services |
Private Line discount for other than special access |
| Negotiated contract arrangements |
Zero discount |
| Volume /term discount plans |
Discount depending upon type of service |
| Discounted features package |
Features discount |
(3) Concerning the question of whether or not zone charges should be discounted, the Commission believes that they should not because avoided costs are the same regardless of loop length so no more should be deducted from the retail price of a longer loop than from a shorter one. Moreover, the zone charge does not represent a charge for a separate, identifiable service and so should not be discounted.
(3) The Commission carefully evaluated the avoided cost models offered by USWC, AT&T, MCI, and Staff before deciding to use Staff’s avoided cost calculations. We believe that the AT&T and MCI models, which rely solely upon the publicly available ARMIS data and which, as a result, are limited to deriving a single discount rate for all services, obscure the fact that the impact of the avoided cost calculations may differ among service categories. Each service category, if defined properly, may be rather homogeneous, while differing substantially from the others. This is borne out by the disaggregated studies of USWC and Staff. Moreover, we have had years of experience with relying upon such studies in numerous dockets; there is no reason not to do so here. Such studies do, of course, involve allocations of some costs in addition to the direct attribution of others but these allocations are by no means arbitrary. They are based upon well conceived principles.
(4) USWC requests that we use the discount rates from its TELRIC avoided cost study and argues that the FCC allows for reliance upon such a study if rates have been set using a similar methodology. While USWC asserts that it meets this requirement, we do not agree. In the last USWC general rate case, Docket No. 90A-544T (1991), the Commission ruled that USWC’s long run incremental cost studies were too flawed to be relied upon. On the other hand, the Commission primarily relied upon the Staff’s fully distributed cost study. It was only subsequent to that rate case, in 1993, that the Commission adopted its costing and pricing rules. These rules do include a role for Total Service Long Run Incremental Costs (“TSLRIC”), but they certainly do not establish a procedure by which prices are set on the basis of TSLRIC. Rather, TSLRIC are used to determine price floors for the various services; after that, the actual prices are set considering a great variety of factors. We do not believe that this history allows USWC to claim that it qualifies for the FCC exception under which TSLRIC or TELRIC studies may be used to estimate the resale discounts.
(5) The Commission also rejects the use of USWC’s embedded, avoided cost study as unreliable because, for example: (1) the study is based upon USWC’s 1995 CAAS/CARS results which were already rejected by the Commission in favor of the Staff’s study in Docket No. 96S-257T; (2) the study uses many factors to convert investments into recurring costs whose accuracy cannot be verified; and (3) the study underestimates the percentage of costs avoided in accounts such as product management and customer services for certain service categories.
(6) The Commission, therefore, proposes to use Staff’s disaggregated, embedded avoided cost calculations, adjusting only the residential result to account for our belief that Staff assumed that too much of the product management (6611), call completion (6621), and number services (6622) cost accounts will be avoided. We then divide Staff’s avoided costs by revenues, unlike Staff which utilizes an expense divisor. The Act, Section 252(d)(3) is clear on this matter; wholesale rates are to be derived by subtracting avoided costs from retail rates. Using a revenue divisor achieves this result whereas using an expense divisor does not.
(7) These calculations provide the following discounts which we will adopt:
| Service Category |
Discount % |
| Residential basic exchange |
13.0 |
| Business basic exchange,PBX,ISDN,ACS,Centrex Plus |
15.7 |
| Intrastate toll, WATS, 800 service |
15.0 |
| Features, listings |
31.6 |
| Private line |
21.4 |
(6) The overall discount, which will be applied to a miscellaneous category of services which do not fall within any of the above categories, is 16.8%
(7) These discount rates should be applied to all nonrecurring as well as recurring charges.
The Commission agrees with the Colorado Payphone Association that the FCC clearly states that PALs should be available for resale, but that the reseller cannot be an IPP itself. On the other hand, the majority agrees with USWC that its costs of selling PALs to CLECs will be no different from its costs of selling to IPPs, in other words, that the avoided costs will be zero. Consequently, the majority opinion is that resale of PALs should be allowed but with a zero discount.
The majority of the Commission believes that the constraints placed upon the resale of Centrex Plus by USWC in its proposed tariffs do not conform to either federal or state legislation and would impede the emergence of competition. The majority agrees with McLeod’s conclusions and the arguments supporting them. In particular, the proposed tariff language of Section 9.2.A.4 should be eliminated and Centrex Plus should be available for resale to small and medium size businesses and residences as well as larger businesses.
The Commission believes that the AT&T proposal of $0.45 is too low because the customer transfer between local exchange providers involves a more complicated process than the switching of interexchange carriers. On the other hand, we agree with Staff that considering the investment in operational support systems should not take place both here and in the ICAM docket because the potential for double counting results. A choice must be made and it is more logical to put this issue in the ICAM docket together with the consideration of other USWC nonrecurring expenses related to the transition to competition through resale and interconnection. Therefore, the Commission will consider the reimbursement for USWC’s costs of modifying its operational support systems in Docket No. 97A-011T and will adopt the Staff’s proposal here since its charges are based upon the remaining costs of a customer transfer.
The Commission views the $100 slamming charge proposed by USWC to be punitive, non-cost based, and inconsistent with USWC’s other transfer charges. We do believe, however, that USWC does incur some costs when switching an end-user back to his/her original provider, but that these costs are more accurately reflected by USWC’s customer transfer charges. Therefore, we recommend that these be the charges imposed on the perpetrator of the slamming and that they be paid to USWC. These charges are cost based and thus adequately compensate USWC for the switch. An actual deterrent/penalty for slamming could be a legitimate topic for Commission consideration in the future.
The Commission agrees with Staff that resellers should be subject to the same USWC construction charge tariffs as other customers and that USWC should change Section 2.8, Sheet 19 of its proposed tariffs to reflect this determination.
cccc. USWC argues that "sham unbundling" will undermine their revenues. USWC defines sham unbundling as the provision of a retail service solely through the purchase of its unbundled network element components. USWC contends that some retail services such as basic business and switched access are priced above cost in order to provide support for basic residential service, which is priced below cost.(96) USWC points out that the FCC mandates that unbundled element prices be cost based and does not place any restrictions on how UNEs can be utilized and combined by purchasing carriers. Given USWC's assertions about the price versus cost of the aforementioned retail services and the FCC's mandates on cost based rates for unbundled elements, a difference may arise between the wholesale price a CLEC is required to pay for basic business, switched access, or residential service and the price the CLECs would pay to provide the service by purchasing all of the unbundled elements that comprise such finished services.(97) USWC contends that when such a differential exists, the CLECs will engage in arbitrage between the unbundled and resold services. USWC maintains that under such conditions the CLECs will not purchase the "overpriced" bundled basic business and switched access services from USWC. Instead, USWC claims, the CLECs will engage in arbitrage by purchasing the lower priced unbundled element equivalent of basic business and switched access from USWC, and then resell that service to former USWC customers and pocket the difference for themselves. Further, USWC maintains that CLECs will be able to purchase resold residential service at a "low" resale rate.(98) USWC witnesses Dr. Harris, Mr. Johnson, and Mr. Hatzenbuehler claim this arbitrage will have several negative impacts including: allowing the resellers to circumvent the Joint Marketing Restrictions outlined in Section 271(e) of the Act(99), allowing IXCs to avoid paying switched access charges by purchasing the UNEs that comprise access services(100), inefficiently reducing USWC's market share(101), and reducing the contribution that business customers now make to support services priced below cost such as residential basic exchange.(102)
dddd. USWC also maintains that allowing or encouraging "sham unbundling" is not consistent with the intent of Congress when it passed the Act. Mr. Hatzenbuehler states, "Sham unbundling is a scenario that was never envisioned by Congress when it passed the Federal Act." USWC, on page 38 of its Statement of Position, asserts, "Had Congress intended to permit sham unbundling, it would have required incumbent LECs to provide resold services at cost based rates, and not based on the retail less avoided costs."
eeee. Finally, in his Rebuttal Testimony, USWC witness Johnson expressed the Company's concern with what he characterized as Staff's deferral approach, "This is a situation where a known problem exists, where we can be certain that arbitrage and the loss of revenues via this arbitrage will occur."(103)
ffff. USWC proposes that the Commission prohibit the assembly of unbundled elements into a finished retail service. If the Commission does not restrict such assembly of unbundled elements, USWC requests that the Commission reduce the claimed arbitrage incentive by imposing a Residual Unbundling Charge (“RUC”). According to USWC witness Hatzenbuehler, "The rebundling charge would be assessed each time a CLEC purchases both the unbundled loop and unbundled switching network elements, and combines these elements in order to provide the equivalent of basic exchange service."(104) Mr. Hatzenbuehler explained how the rebundling charge would be calculated and the revenue impact of sham unbundling.(105) If the Commission rejects the RUC, USWC recommends the Commission discourage price arbitrage by requiring the CLECs to pay a price based on the retail price less the avoided cost discount when the CLEC recombines unbundled elements to create a service identical to a retail offering.(106)
gggg. According to Staff witness Winger, "Perhaps arbitrage as described by USWC may affect USWC's revenue streams and profit margins at some point in the future. But at the current time no one knows how much arbitrage there will be, if any. Nor does anyone know how much USWC may be harmed by arbitrage, if at all. . . . the losses claimed by USWC are speculative, unsubstantiated, and unmeasured."(107) Mr. Winger also contended that USWC has other options to mitigate or eliminate opportunities for arbitrage including: filing a general rate case, filing for changes to the rates for finished services set in this docket, documenting harm from price arbitrage, and revising its TELRIC studies of UNEs to include the costs identified by Dr. Harris and then applying for higher rates for these unbundled network elements.(108)
hhhh. Staff witness Armstrong pointed out that USWC has presented the "sham unbundling" argument at length in the consolidated Colorado arbitration dockets and at the FCC. He reminded the Commission that in Decision No. C96-1231 on page 68, the Commission rejected the Company's arguments relating to "sham unbundling".(109)
iiii. In its Statement of Position, Staff also pointed out that whether new entrants will be permitted to recombine unbundled elements into finished services is now before the courts, and contended that no one is certain of the eventual outcome of the litigation over the FCC's TELRIC forward-looking cost based pricing methodology. Staff claimed a RUC could be rendered unnecessary based upon the result of the 8th Circuit Court litigation.(110)
jjjj. Staff further claimed that the RUC would essentially negate any incentive a CLEC would have to purchase UNEs, since it could not obtain any price advantage over simply purchasing at wholesale for resale purposes. Staff concluded this could reduce any incentive for facilities-based competition in Colorado, and further, could preclude any price competition in the local telephone market.(111)
aaaaa. Staff and others point out that this Commission has active dockets relating to universal service, high cost fund, and access charge issues. According to Staff, the results in any one or more of these dockets could dramatically impact the embedded cost/RUC issue. Mr. Winger stated, "... the implementation of the CHCF may compensate USWC for some or all harm that might be caused by arbitrage."(112)
TCG witness Montgomery criticizes USWC's proposed rebundling charge on several grounds. First, he contended it is based on unsubstantiated speculation about the impact of "sham unbundling" on the Company's revenues streams: "USWC cannot prove that incremental cost pricing of unbundled elements would, alone, allow competitors to sufficiently undercut USWC's retail prices so that the Company's embedded revenue streams would be subject to greater than normal competitive risks."(113) Secondly, he contended, the proposed rebundling charge would not work as proposed by USWC since it could easily be avoided by a new entrant. Mr. Montgomery claimed a new entrant could simply acquire all of the unbundled elements necessary to provide a service, save one or two, and avoid the RUC.(114) Finally, Mr. Montgomery contended that USWC's proposed rebundling charge was not cost based.(115) He recommended the Commission review the effects of local competitive entry after a period of time sufficient to give it the data to accurately assess whether competition may someday cause the harms that USWC now claims.(116)
bbbbb. AT&T/MCI witness Dr. Lehr argues that the USWC contention that arbitrage is the only reason an entrant would purchase the unbundled equivalent of business service is incorrect. According to Dr. Lehr, "Purchasing UNEs affords opportunities to innovate and flexibility in network configuration which are not available when reselling a wholesale version of an existing US WEST service. Allowing entrants to flexibly combine UNEs is important to facilitate efficient entry strategies"(117) Dr. Lehr also contended that even if the intent was to arbitrage prices, such arbitrage would benefit consumers by driving down prices to more efficient levels.(118)
ccccc. AT&T/MCI witness Baker also objected to imposing any restrictions on the degree to which UNEs could be combined or to imposing any additional charges on the repackaging or combining of UNEs. Ms. Baker contended that, "From an economic perspective, when prices are set at cost for the elements, any combination of elements priced at the combined costs of the elements will also produce an economically efficient price."(119)
ddddd. The Commission is sensitive to the possible negative impacts that the difference between the prices established in this docket for unbundled elements and wholesale services may have on USWC. However, these possible negative effects must be weighed against the Commission's legislative mandates to reduce entry barriers and promote competition in the Colorado telecommunications market.(120) The Commission must also weigh the impacts of the many market, regulatory, and legal uncertainties surrounding the extent of potential effects of arbitrage.
eeeee. The Commission agrees with those who contend that the imposition of a RUC will have negative impacts on the incentives of CLECs to purchase unbundled elements and reduce their flexibility to combine and recombine elements as these new entrants pursue various entry strategies. We believe that in an efficient market the price of a “finished” service will move closer to the price of the combined rebundled elements comprising that service. This market arbitrage effect on price for comparable services is an anticipated result in an efficient market.
fffff. The Commission is also persuaded that the record in this case provides no empirical basis to determine the impact of competition and the harm caused by potential arbitrage on USWC.
ggggg. The Commission also agrees that imposing a RUC for the purpose of making up the potential revenue loss to USWC caused by arbitrage is complicated by the uncertainty of the outcome of universal service, high cost fund, and access charge issues.
hhhhh. Finally, the ongoing litigation over the ability of new entrants to recombine network elements into finished services and the FCC's TELRIC forward-looking cost based pricing methodology adds uncertainty to any attempt to determine the effect and potential for arbitrage.
iiiii. Therefore, the Commission will not impose any restrictions on the bundling of network elements apart from any incorporated in the Interconnection Tariff. Further, the Commission will not implement a RUC or require a CLEC to pay a price based on the retail price less the avoided cost discount when a CLEC recombines unbundled elements to create a service identical to a retail offering. However, as always, the Commission's goal is to balance the sometimes conflicting objectives of maintaining financially healthy firms capable of providing improved quality of service, fostering competition, assuring universal service/access, and protecting captive customers. In this spirit, the Commission will remain open to considering proposal for addressing, if appropriate, revenue loss to USWC caused by arbitrage adjusted prices.
In light of the discussion in this order, and to address the other comments by the parties, USWC will be directed to revise its tariff:
jjjjj. Changes to Section 1 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
Section 1.1(A), Sheet 1 - Application of Tariff. The last sentence will be changed to remove the phrase regarding the interchangability of CLEC and non-competing LECs and to indicate that, during the interim bill and keep time period, non-competing LECs will not be charged for terminating or transit calls.
aaaaaa. Changes to Section 2 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
(1) Section 2.1, Sheet 3 - Definitions. The last sentence of the proposed Tandem Office Switches shall be removed.
(2) Section 2.1, Sheet 4 - Definitions. Within the definition of Competitive Local Exchange Provider the phrase “after February 8, 1996” shall be removed.
(3) Section 2.1, Sheet 9 - Definitions. The definition of Resellers shall be the same as the definition contained in 4 CCR 723-40-2.4.
(4) Section 2.1, Sheet 11 - Definitions. The definition of Transit Traffic shall be included.
(5) Section 2.1, Sheet 11 - Definitions. The last sentence in the definition of Wire Center shall be removed.
(6) Section 2.2(B), Sheet 11 - Payment Arrangements. The phrase “After the three (3) month period” shall be removed.
(7) Section 2.2(D), Sheet 12 - Payment Arrangements. The word “within” shall be replaced with “after 30 days.”
(8) Section 2.2(E), Sheet 12 - Payment Arrangements. The section shall allow for non-payment of disputed charges without the CLEC being disconnected.
(9) Section 2.6(B)1(e), Sheet 15 - Cooperative Procedures. The phrase “nor shall they use these repair calls as the basis for internal referrals or to solicit customer or to market services” shall be added at the end of the first sentence.
(10) Section 2.6(C), Sheet 16 - Cooperative Procedures. The section shall be clarified to indicate that it does not apply to non-facilities-based resellers.
(11) Section 2.7, Sheets 17 and 18 - Bona Fide Request Process. The timeframes contained in this section will be changed to comport with the timeframes specified in Decision No. C96-1337 pp. 60-64 in Docket No. 96A-366T. Additionally all references to “days” shall be made on the same basis i.e., no mixing of business days, calendar days, and unspecified days within the tariff.
(12) Section 2.7(E), Sheet 17 - Bona Fide Request Process. This section shall be clarified so that USWC bears the burden of demonstrating why interconnection or access to unbundled elements are not technically feasible.
(13) Section 2.8, Sheet 19 - Network Interconnection Construction Charges. This section shall be rewritten to be consistent with the Commission’s ruling in Decision Nos. C96-1231 and C97-7 in Docket No. 96A-345T. In general, these decisions provide that there will be no construction charges for interconnection; for resale services the construction charges provided in Exchange and Network Service Tariff, Colo. P.U.C. No. 15, Section 4 can apply in the event of an extension, but not for a reinforcement; and any special construction will be assessed construction charges consistent with Access Service Tariff, Colo. P.U.C. No. 16, Section 5.1.3, Sheets 3 and 4.
(14) Section 2.25 (C), Sheet 29 - Rates and Charges - General. The beginning phrase “For resold services” shall be changed to “For the services subject to resale” and the last sentence of the section will be removed.
(15) Section 2.26, Sheet 30 - Audit Process. Language shall be added to this section for two audits: one for financial purposes and one for quality of service purposes. Likewise, language will be added to designate the Commission as a referee for any disputes which may arise during the audit process.
(16) Section 2.28, Sheet 32 - Call Completion from USWC Operators. This section as written ignores the Commission’s arbitration decisions which require USWC to provide unbranded service unless it can offer branded service to all competitors. USWC is directed to change the language in this section to be consistent with the Commission’s arbitration decisions regarding branding.
(17) Section 2.29, Sheet 32 - Directory Publication. This section as written ignores the Commission’s arbitration decision which requires USWC to offer on a nondiscriminatory basis directory publication services to CLECs on the same terms and conditions it has with its directory publishing subsidiary. USWC shall make appropriate corrections.
bbbbbb. Changes to Section 4 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17)
(1) Section 4.1, Sheet 1 - Description. This section shall be revised to indicate that interconnection may occur at any technically feasible point between USWC and a CLEC.
(2) Section 4.6, Sheet 2 - Points of Interface. This section shall include a DS0 level point of interface.
(3) Section 4.7(H), Sheet 4 - Trunking Requirements. This section shall be removed.
(4) Section 4.9(B), Sheet 6 - Interconnection Forecasting. This section shall be modified so that the forecasts shall cover an eighteen month period.
cccccc. Changes to Section 6 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
(1) Section 6.1(B), Sheet 1 - General. The sentence “USWC will not combine USWC’s Unbundled Loops with USWC’s Unbundled Switching Element to provide a finished service to the CLEC” shall be removed.
(2) Section 6.2(B), Sheet 2 - Description, Terms and Conditions. This section shall include a DS0 level of Tandem Switching Transport.
(3) Section 6.2(C)2(1), Sheet 3 - Description, Terms and Conditions. Language shall be added to indicate that no charge for conditioning will be imposed if no load coils are removed.
(4) Section 6.2(C)4, Sheet 4 - Description, Terms and Conditions. First, language will be added to indicate that access beyond the NID is provided on a nondiscriminatory basis consistent with right-of-ways. Second, the last sentence which begins “The Parties shall...” shall be removed.
(5) Section 6.2(C)5, Sheet 4 - Description, Terms and Conditions. Language shall be added to indicate that an unbundled loop can be furnished with or without multiplexing.
(6) Section 6.2(C)5, Sheet 4 - Description, Terms and Conditions. Language in this section shall be changed so that the installation date is consistent with applicable regulatory requirements.
(7) Section 6.2(C)6(j), Sheet 6 - Description, Terms and Conditions. First, the 24 months shall be changed to 18 months. Second, USWC shall eliminate the requirement relating to specific services and substitute technical requirements different than basic analog loops.
(8) Section 6.2(D)3(c), Sheet 9 - Description, Terms and Conditions. Language in this section shall be changed so that the following features are offered: Custom Calling, Custom Calling + Feature Group 1, and Custom Calling + Feature Group 1 + Feature Group 2.
dddddd. Changes to Section 8 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
(1) Section 8, Sheet 1 - Access to Operational Support Systems (OSS). This section will be expanded to include the available databases, a description of those databases, and required specifications in order to interface with those databases.
(2) Section 8.2(A) and 8.2(B) , Sheet 1 - OSS Interface Design. These paragraphs are the same; one shall be removed.
eeeeee. Changes to Section 9 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17)
(1) Section 9.1 (B) and (C), Sheet 1 - Description. USWC shall revise these sections for which services are and are not available for resale consistent with this order.
(2) Section 9.1 (D), Sheet 1 - Description. USWC shall remove the phrase “(including directory advertising charges associated with the customer’s telephone number).”
(3) Section 9.2 (A)4, Sheet 2 - Scope. This section shall be removed.
(4) Section 9.3 (A), Sheet 2 - Ordering and Maintenance. The last phrase in this section “...however, nothing in this Tariff, except as provided below, shall be deemed to prohibit USWC from discussing its products and services with the CLEC’s customers who call USWC for any reason.” shall be removed. Language from Section 9.3(H)3 shall be inserted in this section.
(5) Section 9.4 (D), Sheet 5 - Reseller Responsibilities. Language shall be inserted to state that the forecasts are for planning purposes only and shall not be used for deposit requirements.
(6) Section 9.5 (I), Sheet 7 - Rate Terms and Conditions. This section shall be rewritten to include a statement that unbranded services must be offered unless branded services can be offered.
ffffff. Changes to Section 10 of Local Network Interconnection and Service Resale Tariff (Colo. P.U.C. No. 17).
(1) In Attachments to this order are the Commission approved rates for USWC resulting from this case. We will not individually list each necessary change to the tariff.
(2) Section 10.1, Sheet 1 - Reciprocal Traffic Exchange. Language shall be added to indicate that Reciprocal Compensation does not apply during the interim bill and keep time period.
(3) Section 10.1(A)2(a), Sheet 1 - Reciprocal Traffic Exchange. This section shall include a DS0 level of Entrance Facility.
(4) Section 10.1(A)2(e), Sheet 2 - Reciprocal Traffic Exchange. This section will include a DS0 to DS1 level Multiplexing.
(5) Section 10.3(A), Sheet 6 - Access to Unbundled Elements. Language shall be included to show the various rates for each unbundled element.
(6) Section 10.4(b), Sheet 7 - Ancillary Services and Arrangements. First, section number 10.4 shall be changed to 10.3. Second, language will be included to show the various rates for switch features.
In prior oral rulings, we granted a number of motions. We now memorialize our rulings: The Second Motion for Leave to Intervene by Sprint Spectrum on April 3, 1997 will be granted; the Late Filed Motion to Strike Portions of the Rebuttal Testimony of U S WEST filed by AT&T on April 3, 1997 will be denied; the Late Filed Motion for Admission Pro Hac Vice by USWC on April 10, 1997 will be granted; and the Motion Pro Hac Vice by WorldCom on April 14, 1997 will be granted.
19. The tariff sheets filed by USWC Communications, Inc., pursuant to Advice Letter No. 2617 (Second Amended) filed on December 12, 1996, are hereby permanently suspended.
20. U S WEST Communications, Inc., is directed to file appropriate tariff sheets consistent with the above discussion. Such filing shall be made upon 30 days notice to the Commission as specified in § 40-3-104(1), C.R.S.. U S WEST Communications, Inc. shall submit revised tariffs within 30 days after a final order in this docket.
21. The Second Motion for Leave to Intervene by Sprint Spectrum on April 3, 1997 will be granted; the Late Filed Motion to Strike Portions of the Rebuttal Testimony of U S WEST Communications, Inc., filed by AT&T Communications of the Mountain States, Inc., on April 3, 1997 will be denied; the Late Filed Motion for Admission Pro Hac Vice by U S WEST Communications, Inc., on April 10, 1997 will be granted; and the Motion Pro Hac Vice by WorldCom, Inc., on April 14, 1997 will be granted.
22. The 20-day period provided for in § 40-6-114(1), C.R.S., within which to file applications for rehearing, reargument, or reconsideration begins on the first day following the mailed date of this decision.
23. This Order is effective upon its Mailed Date.
B. ADOPTED IN Commissioners’ WEEKLY MEETING
THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF COLORADO
________________________________
________________________________
________________________________
Commissioners
(1)
g:\yellow\96A331T.716:lp - 07/25/97 11:27 AM
Consistent with the requirements of §40-15-503(2)(g)(I), USWC filed Advice Letter No. 2610 containing proposed interim tariffs for interconnection, unbundled facilities and elements, and resale. The Commission, in Decision No. C96-655 (dated June 25, 1996), approved modified interim tariffs for these services.
(2) Section 252 is part of the Telecommunications Act of 1996.
(3) In light of the amended proposed effective date, the maximum suspension period for the tariffs (pursuant to §40-6-111(1)(b)) expires on July 29, 1997.
(4) Transit traffic is the transport of traffic between two carriers by a third carrier.
(5) USWC supports waiving reciprocal call termination charges in a given month when the traffic between USWC and a particular CLEC is reasonably balanced, e.g., five percent. Balancing refers to the number of terminating minutes being approximately the same between two carriers.
(6) Within this order, the Commission will use the term “small LECs” to indicate the Independent Telephone Companies and the term CLECs (“Competitive Local Exchange Carriers”) to indicate telephone companies which will be in direct competition with USWC to provide local phone service.
(7) Under these two plans, small LEC customers’ toll calling patterns were examined and if such patterns met certain “community of interest” criteria, the local (toll free) calling area was expanded to include such areas.
(8) Although Staff witness Armstrong was not able to re-run the cost studies with the Commission approved rates for tandem transmission, he was able to re-run the cost studies for DS1 and DS3 direct transport. Staff then noted the percentage changes in rates between the economic lives and Commission approved lives for the DS1 and DS3 direct transport and applied these percentages to the fixed and mileage rates for tandem transmission.
(9) Once bill and keep is replaced, the Staff believes that USWC should charge the small LECs for local traffic exchange.
(10) If a small LEC can not comply with the timeline contained in Rule 4.8 it should file an application with the Commission seeking a waiver of the rule.
(11) On Exhibit S to Exhibit 17, there is reference to the zones being defined in NECA 4 Tariff. The Commission believes this is an inappropriate reference since an individual reviewing the USWC Colo. P.U.C. No. 17 Tariff should be able to find the zone descriptions without referencing a NECA tariff.
(12) See Decision Nos. C96-1185, pp. 21-22 and C96-1324, pp. 3-5.
(13) It is currently 5.19% annually.
(14) This is based on USWC current Access Service Tariff, Colo. P.U.C. No. 16, Section 2.4.1,(C)2a(2).
(15) The rates and charges for directory assistance, busy line verification, and busy line verification and interrupt are shown in Section 10, Sheet 10.
(16) See 4 CCR 723-29, Rules Prescribing the Provision of Emergency 9-1-1 Service for Emergency Telecommunications Service Providers, Basic Local Exchange Carriers.
(17) See ¶685, of FCC Decision 96-325.
(18) See ¶682, of FCC Decision 96-325.
(19) Mr. Elder’s testimony was adopted by USWC witness Gude.
(20) For further purposes of verification of the USWC TELRIC analysis, Mr. Fleming presented an analysis of the per loop costs associated with the 1995 and 1996 Colorado construction budgets for the Company.
(21) See Exhibit 36, pp. 24-26.
(22) Among others, for instance, See Exhibit 1, pp. 36-79; Exhibit 2, pp. 3-55; Exhibit 3, pp. 13-23, 26-31, 34-52; Exhibit 4, pp. 7-68; Exhibits 8-9 and 11-12, Exhibit 15, pp. 35-42; Exhibits 24-26 and 30-32; Exhibit 36, pp. 13-63; Exhibit 37, pp. 11-19 for testimony on the subject of modeling of recurring cost elements and the associated input assumptions.
(23) See, for instance, Exhibit 4, p 19.
(24) See Exhibit 36, pp. 45-47 and Exhibit 37, pp. 5-6.
(25) See Exhibit 5, pp. 2-4.
(26) See Decision No. C97-88, pp. 87-88.
(27) See Exhibit 27.
(28) This included both exempt materials and engineering costs. According to USWC, this compares to a range of contractor prices for boring of $8.25 to $26.62 per foot for two and four inch bores, respectively. However, these figures do not include exempt materials.
(29) AT&T/MCI witness Fassett testified that these figures are largely based on higher labor rates in the Eastern United States and, based on his discussions with contractors, placement costs in Colorado would be significantly less.
(30) AT&T acknowledges that the lot size and sheath mile output figures were incorrect, but AT&T/MCI witness Klick stated that corrected lot size error had a de minimus change in the results and the sheath mile mistake had no effect on the cost calculations.
(31) See Exhibit A.
(32) See Docket No. 96S-233T.
(33) USWC outside plant engineers utilize a pricing tool, “PRICER”, for estimating the costs of provided outside plant. This pricing tool utilizes average material costs and placement time intervals.
(34) The 1.2 figure represents a 20% “take rate” for additional lines per site which the Company says it experiences.
(35) See Exhibit JCK-1 of Exhibit 24, Appendix B, pp. 4-5.
(36) See Exhibit 36, pp. 60-61.
(37) See Exhibit 32.
(38) See Exhibit 4, pp. 60-61 and Exhibit 8, pp. 8-20.
(39) See Transcript V. 1, pp. 380-81.
(40) We also note that USWC has, in the past, advised this Commission that significant loop investments under the Rural Facilities Improvement Program (“RFIP”) have dramatically lowered trouble report rates in affected wire centers.
(41) For the loop, this would be approximately $730-775.
(42) See Decision No. C96-655, pp. 65-66.
(43) See Exhibit 32.
(44) See Exhibit 19, pp. 29-30.
(45) See Exhibit 18, pp. 30-31.
(46) Ibid., pp. 31-32.
(47) See Exhibit 36, pp. 52-54 and 61-62.
(48) See ¶764 and ¶765 of the FCC order in Docket 96-98.
(49) AT&T states the Act prohibits the use of such charges unless there is a showing that they are costs based, and this showing has not made in this proceeding.
(50) See Exhibit 45, pp. 26-28.
(51) See ¶¶764-765 of the First Report and Order.
(52) We also note, that except for the advocacy of deaveraging the rate for the loop, no party in this proceeding proposed to geographically deaverage rates for all other interconnection and unbundled network elements as evidently mandated by the FCC order. Based on the evidence presented in this proceeding, we might conclude that no meaningful cost difference exists by geographic zone for such rate elements.
(53) In considering geographic deaveraging, we are also addressing the request of WorldCom, but the methodology proposed by WorldCom appears less likely to equitably address the main rationale for such deaveraging (i.e. length and density) than the solution we adopt in this decision. Furthermore, the WorldCom calculations, without explanation, significantly diverge from the average loop length data presented in the loop cost studies in this proceeding. See Exhibit 12, pp. 13-14.
(54) We note that the current methodology has zone areas that vary with the line size of the central office serving the wire center, thereby providing a measurement of density within the mileage bands and loop lengths used to determine assessment of the zone rates.
(55) See Decision No. C97-592 in Docket No. 96A-366T, MCImetro Access Transmission Services, Inc. and U S WEST Communications, Inc. Interconnection Agreement, Section 25, p. 14.
(56) See Decision No. C96-1337, p. 60.
(57) This implies that all of the percentage of lines for the very low density area and about one-third to one-half of the lines in the low density category as shown on page 2 of Exhibit 4 of Exhibit 3 are in the outer zones.
(58) In particular, reductions in the cost data in Appendix 7 for adjustments in the maintenance expense and assumed overheads appeared appropriate to the extent described under our discussion of reasonable adjustments to the loop UNE cost.
(59) This data is based upon that presented in Exhibit 24.
(60) However, we clarify that concentration or multiplexing equipment as normally provided by USWC for its loop facilities (services) are averaged into the stated per loop feeder rates.
(61) During the hearing this figure was reduced to $248 million, See Exhibit E.
(62) The Operational Support Systems include, among other things, Pre-Service Ordering, Ordering, Provisioning, Repair, Maintenance, Billing, Performance Testing, and Disaster Recovery.
(63) Examples include call waiting and speed dialing.
(64) Examples include private lines, primary rate ISDN, interoffice trunk, feature group D, and HDLC.
(65) The one exception is a read capability to check loop facility availability for end-to-end services based on the USOC and Class of Service specified by the representative.
(66) Ms. Notarianni states that USWC currently only has two applications utilizing the TMN architecture. One of those systems took over 3 years to develop and cost over $4 million.
(67) See Exhibit 3, pp. 28-30.
(68) See Exhibit 13, pp. 2-3.
(69) See ¶ 750 the FCC’s First Report and Order.
(70) See Exhibit U.
(71) See Exhibit 36, pp. 84-85.
(72) Using the hourly labor rates proposed for collocation facilities by USWC (See Exhibit S of Exhibit 17) as a rough check of the reasonableness of the USWC NRC proposals, we still find an equivalent labor hour calculation in the range of 2-4 hours. Of course, these proposals contain the same problem with excessive overheads as discussed supra regarding our determination of the recurring monthly cost for the loop UNE.
(73) For a loop UNE NRC of $110 as proposed by USWC, over 24 months a CLEC could essentially view its loop cost as being approximately $5 per month higher than the recurring cost.
(74) In doing so, we draw no conclusions as to whether designating the loop UNE as a design service or the exclusion of TMN from the forward-looking cost studies is appropriate. Simply put, the NRC cost studies are too burdened by overheads and labor hours to be reasonable, especially if the CLECs resort to “sham unbundling” as alleged by USWC.
(75) See Exhibit 4, p. 13 of Exhibit 3.
(76) Line conditioning removes any load coils or bridge taps so that the line is capable of utilizing digital technologies such as HDSL.
(77) Unloading refers to the removing of load coils as part of line conditioning.
(78) Consequently, all ISDN customers pay a modest fee, rather than charging a large fee to only the loops requiring conditioning.
(79) See Exhibit 32, p. 31, that for loops less than 18 kilofeet no loading would occur and USWC cost study assumes 3 hours of engineering time for one load coil, 20 minutes of travel time, and 3 hours to remove the load coil.
(80) We note that this cost, by the assumptions of labor rates in Exhibit M of Exhibit 17, would provide about one hour for removal of load coils by the technician. This is similar to the USWC assumption, but removes most of the engineering time which should not directly vary with the number of coils removed.
(81) See Exhibit 17, pp. 23-26.
(82) See Exhibit 35, pp. 65-70.
(83) See Exhibit 17, p 27.
(84) See Exhibit 35, pp. 71-72.
(85) See Section 251(b)(1).
(86) See Section 251(c)(4).
(87) See Section 252(d)(3).
(88) See 4 CCR 723-40-2.4.
(89) See § 40-15-503(2)(g)(I), C.R.S..
(90) See Exh. C, p.1B in Exh. 18
(91) See Section 251(c)(4)(A).
(92) See Exh. 36, p. 72.
(93) See ¶876 of FCC Decision 96-325.
(94) See ¶963 of FCC Decision 96-325.
(95) See Section 251(c)(4)(A))(emphasis added).
(96) It should be noted that the Commission has disagreed with the USWC contention that basic residential service is priced below cost. For example, in Commission Decision No. C97-88 at pp. 43-44, the Commission found that, "Without the inclusion of local loop costs in the cost study, residential service is priced above its TSLRIC and in this sense cannot be said to be subsidized. ... Because USWC's TSLRIC study of residential and business basic service uses loop costs as part of the TSLRIC of basic service and because this is contrary to the Commission's Costing and Pricing Rule 4(2)(a)(iii), USWC's TSLRIC study did not persuade the Commission that residential rates are below cost and therefore subsidized by business rates."
(97) For example, In his Direct Testimony Mr. Hatzenbuehler estimated, using USWC proposals for unbundled element prices and wholesale discounts, that the business service resale rate would be $13.95 greater than a CLEC would pay to purchase all the unbundled elements that make up business service. See Exhibit 19, Attachment 5.
(98) According to USWC witness Dr. Harris, "If the retail price is low, especially if it is below cost, such as residential exchange service, the entrant can purchase the service on a resale basis below cost." See Exhibit 1, p. 32, ln 22-24.
(99) According to USWC witness Mr. Hatzenbuehler, "This section of the Act (Section 271(e)) restricts resellers from jointly marketing interLATA and local services in Colorado until February 8, 1999 or such until such time that USWC is authorized to provide interLATA services pursuant to Section 271(d). However, according to the FCC, this restriction does not apply to purchasers of unbundled network elements. Therefore, a reseller can avoid this restriction simply by purchasing all of the unbundled elements that comprise a service rather than purchasing the service via the resale provisions of the Act." See Exhibit 19, pp. 31-32, ln 22-6. USWC witness Dr. Harris also comments on this in Exhibit 1, p. 33.
(100) Hatzenbuehler, Exhibit 19, p. 32-33, ln 29-ln 2. Mr. Hatzenbuehler also stated: "Today, an interexchange carrier must pay access charges in order to originate and terminate long distance calls on the USWC network. With sham unbundling, all CLECs, including interexchange carriers can simply purchase the unbundled elements necessary to perform basic exchange functions, pretend to rebundle them and avoid access charges altogether." See Exhibit 19, p. 36, ln 17-21.
(101) According to USWC witness Dr. Harris, "In economic parlance, the FCC Order promotes "rate arbitrage," by which new entrants can exploit artificial pricing rules to game U S WEST, pay artificially low prices for U S WEST's services, and gain an enormous competitive advantage because U S WEST cannot reciprocate." See Exhibit 1, p. 32, ln 18-21.
(102) According to USWC witness Mr. Hatzenbuehler, "Thus, by purchasing the network elements, the new entrant can avoid the contributions used to support residence service that are contained in business wholesale rates paid via the Act's resale provisions" See Exhibit 19, p. 37, ln 25.
(103) See Exhibit 18, p. 16, ln 7-9.
(104) See Exhibit 19, p. 43, ln 19-21.
(105) For example, Mr. Hatzenbuehler calculated that given the prices proposed by USWC, USWC would receive approximately $13.95 less in revenue per line through sham unbundling than it would receive through resale rates. If USWC's prices were set at the USWC proposed level the rebundling charge would be $13.95 per occurrence. See Exhibit 19, p. 45, ln 6 and Attachment 5.
(106) See Exhibit 18, pp. 16-18.
(107) See Exhibit 38, p. 13, ln 1-4 and ln 21.
(108) See Exhibit 38, pp. 18-19.
(109) See Exhibit 36, p. 12, ln 6-11.
(110) See Staff's Statement of Position, p. 27.
(111) See Staff's Statement of Position, p. 26.
(112) See Exhibit 38, p. 13, ln 13.
(113) See Exhibit 43, p. 33, ln 14-16.
(114) See Exhibit 43, p. 37.
(115) See Exhibit 43, p. 36.
(116) See Exhibit 43, p. 38.
(117) See Exhibit 22, p. 72, ln 10-15.
(118) See Exhibit 22, p. 73, ln 6-12.
(119) See Exhibit 33, p. 15, ln 12-14.
(120) HB 1335 and Telecommunications Act of 1996.