[Federal Register Volume 62, Number 152 (Thursday, August 7, 1997)]
[Proposed Rules]
[Pages 42457-42469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20958]
[[Page 42457]]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 54 and 69
[CC Docket No. 96-45; 97-160; FCC 97-256]
Federal-State Board on Universal Service and Forward-Looking
Mechanism for High Cost Support for Non-Rural LECs
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: On July 18, 1997, the Commission adopted a Further Notice of
Proposed Rulemaking (FNPRM) to establish a forward-looking mechanism to
determine high cost support for non-rural local exchange carriers
(LECs). In the FNPRM, the Commission seeks further comment on the
platform design and input variables the Commission should adopt in a
forward-looking economic cost mechanism to estimate the costs of the
telephone network necessary to provide universal service to high cost
areas.
DATES: Interested parties may file comments concerning the platform
designs of the switching, interoffice trunking, signaling, and local
tandem components on or before August 8, 1997, and parties should
submit corresponding reply comments on or before August 18, 1997.
Comments concerning the platform design features determining customer
location, including the geographic unit for cost calculations and the
algorithm measuring customer distribution and line counts, should be
submitted on or before September 2, 1997, and reply comments regarding
these components should be submitted on or before September 10, 1997.
Comments discussing the platform-design issues relating to outside
plant investment, including the algorithms determining plant mix,
installation and cable costs, drop lengths, structure sharing, the
fiber-copper cross-over point, digital loop carriers, and the wireless
threshold must be submitted on or before September 24, 1997, with reply
comments submitted on or before October 3, 1997. Comments discussing
all platform issues not otherwise addressed, including the components
addressing general support facilities, expenses, and support areas, and
all input values issues must be submitted by October 17, 1997, with
reply comments due on or before October 27, 1997.
ADDRESSES: Parties should send their comments or reply comments to
Office of the Secretary, Federal Communications Commission, 1919 M
Street, N.W., Room 222, Washington, D.C. 20554. Parties should also
send copies of their comments to the individuals listed on the Service
List included as Attachment A. Parties should also file one copy of any
documents filed in this docket with the Commission's copy contractor,
International Transcription Services, Inc., 1231 20th Street, N.W.,
Washington, D.C. 20036. Comments and reply comments will be available
for public inspection during regular business hours in the FCC
Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C.
20554. Commenters may also file informal comments or an exact copy of
formal comments electronically via the Internet at http://
gullfoss.fcc.gov/cgi-bin/websql/cgi-bin/comment/comment.hts>. Only one
copy of electronically-filed comments must be submitted. A commenter
must note whether an electronic submission is an exact copy of formal
comments on the subject line. A commenter also must include its full
name and Postal Service mailing address its submission.
Parties are also asked to submit their comments and reply comments
on diskette. Such diskette submissions are in addition to and not a
substitute for the formal filing requirements addressed above. See
section IV. C., paragraph 90, under Supplementary Information for
further details. Parties submitting diskettes should submit them to
Sheryl Todd of the Common Carrier Bureau, 2100 M Street, N.W., Room
8611, Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: Valerie Yates, Legal Counsel, Common
Carrier Bureau, (202) 418-1500, or Sheryl Todd, Common Carrier Bureau,
(202) 418-7400.
SUPPLEMENTARY INFORMATION: This is a summary of the FNPRM adopted and
released by the Commission on July 18, 1997. The full text of this
FNPRM is available for inspection and copying during normal business
hours in the FCC Reference Center (Room 239), 1919 M St., NW,
Washington, DC.
The FNPRM divides the issues related to developing model platform
components and input values into four broad groups, and establishes a
series of comment and reply comment deadlines that, together, create a
staged approach to the model development process during which the
Common Carrier Bureau, acting pursuant to delegated authority, will
provide guidance to the model proponents.
The FNPRM requests comment on platform and input issues related to
the following groups of issues: switching, interoffice trunking,
signaling, and local tandem investment; customer location; outside
plant design and investment; and other miscellaneous issues including
general support facilities, depreciation, expenses, and support areas.
The FNPRM also requests comment on how the Commission should determine
the measure of local usage that should be included in the definition of
universal service.
Summary of Notice of Proposed Rulemaking
I. Modeling Forward-Looking Economic Cost
1. Introduction. In the May 1997 Report and Order on Universal
Service the Federal Communications Commission adopted a plan for
establishing universal service support mechanisms for rural, insular,
and high cost areas that will replace the current patchwork of implicit
subsidies with explicit support based on the forward-looking economic
cost of providing supported services. The Commission adopted a forward-
looking economic cost methodology that will calculate universal service
support in four steps. First, the Commission will estimate the forward-
looking economic costs of providing universal service in rural,
insular, and high cost areas. Second, the Commission established a
nationwide revenue benchmark calculated on the basis of average revenue
per line. Third, the Commission will calculate the difference between
the forward-looking economic cost and the benchmark. Fourth, federal
support will be 25 percent of that difference, corresponding to the
percentage of loop costs allocated to the interstate jurisdiction. The
Commission further decided to use forward-looking economic cost studies
conducted by state commissions that choose to submit such cost studies
to determine universal service support.
2. In the Universal Service Order, the Commission concluded that
support for universal service should be based on the forward-looking
economic cost of constructing and operating the network facilities and
functions used to provide the services. The Commission additionally
concluded that a state could elect to submit its own cost study to
calculate the level of universal service support available to carriers
in its state, if the state's study meets the criteria outlined in the
Order. That study must be based on forward-looking economic cost
principles, be supported by publicly available data and computations,
and be the same cost
[[Page 42458]]
study that is used by the state to determine intrastate universal
service support levels pursuant to section 254(f). In the Order, the
Commission asked states to elect, by August 15, 1997, whether they will
conduct their own forward-looking economic cost studies. States that
elect to conduct such studies must file them with the Commission on or
before February 6, 1998.
3. The Commission is currently considering two models, BCPM and
Hatfield, to use as a mechanism to calculate forward-looking economic
cost for providing universal service. The BCPM and Hatfield models
produce dramatically different results, even when modeling a network
over the same geographic area, because of differences in both their
platform design and their input values. Both models are composed of
modules representing the different components of an exchange network.
These components include customer location, outside plant investment,
switching, interoffice trunking, signaling, and local tandem
investment, general support facilities, depreciation, other expenses,
and the support area. Each module consists of related platform design
assumptions and input values. The Commission concluded in the Order
that the Commission would select a platform by the end of 1997, and
that the Commission would select a complete mechanism, including
inputs, by August 1998. The Commission's methodology will be
implemented on January 1, 1999. In the FNPRM, the Commission has
adopted specific procedures and documentation requirements to allow the
Commission, state regulators, and the parties to compare and validate
the models most effectively.
4. The Commission expects that all future submissions of the
platforms of the two models will be flexible enough to incorporate
revisions within the individual component algorithms. Because the
design features for the components vary in complexity, the Commission
concludes that a graduated submission and review process will permit
the Commission, the states, and the public, to evaluate all features
thoroughly. The Commission concludes that, besides affording the
Commission sufficient time to evaluate the more complex platform
components, requiring proponents to present individual components for
final submission in stages will prevent constant revisions of an entire
platform from disrupting the evaluation process.
A. Procedures for Revising the Models
5. Staged Platform Submission Schedule. The Commission requires
that comments concerning the platform design of the switching,
interoffice trunking, signaling, and local tandem components must be
submitted on or before August 8, 1997, and that parties should submit
corresponding reply comments on or before August 18, 1997. Comments
concerning the platform design features determining customer location,
including the geographic unit for cost calculations and the algorithm
measuring customer distribution and line counts, must be submitted to
the Commission on or before September 2, 1997 and reply comments
regarding these components must be submitted on or before September 10,
1997. Comments discussing the outside plant investment components,
including the algorithms determining plant mix, installation and cable
costs, drop lengths, structure sharing, the fiber-copper cross-over
point, digital loop carriers, and the wireless threshold must be
submitted on or before September 24, 1997, with reply comments
submitted on or before October 3, 1997. Comments discussing all
platform issues not otherwise addressed, including the components
addressing general support facilities, expenses, and support areas must
be submitted by October 17, 1997, with reply comments due on or before
October 27, 1997.
6. Commission Guidance. Before and during the initial comment and
reply comment periods, the Commission intends to hold one or more
public workshops on particular model platform components. Further,
prior to the Commission's adoption of a particular platform in December
1997, the Common Carrier Bureau will issue orders and public notices on
a regular basis explaining its analysis of the model submissions and
industry comments and selecting particular design features. The
Commission will work with the states throughout this process so that
the selected mechanism reflects the concerns of state regulatory
authorities in developing forward-looking economic cost methodologies
for state universal service programs or for cost studies to be
submitted in this proceeding.
7. Inputs Submission. Although the Commission has stated its
intention to select default input values by August 1998, it must
receive the proponents' input submissions in order to evaluate a
model's performance. The Commission requires that comments regarding
all input values be submitted by October 17, 1997. Reply comments must
be submitted by October 27, 1997. In addition, commenters should
provide explanation and documentation of their suggestions in order to
establish that their suggestions are reasonable, accurate, and reflect
forward-looking cost.
8. Additional Revision Procedures. The Commission requests that the
current models be modified, if necessary, to generate output reports
that: (a) Show costs by element of the network; (b) disaggregate study
area expenses, investments, taxes, and return according to USOA
accounts; and (c) calculate study area support as the difference
between CBG cost and the benchmark for every CBG in a study area.
Parties providing the models under consideration shall provide the
Commission with a clear and comprehensive programmers' flow chart
because the current models are unclear as to how the calculations are
being made. The Commission also requests that the models be revised, if
necessary, to employ the NECA telephone company study area names and
identification codes in all subsequent revisions. In addition, to
enable the Commission and commenters to manage their resources most
effectively, the Commission requests that the parties submitting models
give the Commission and commenters reasonable advance warning of the
approximate date when they expect to release a new version of a model.
Also, if a party intends to release a new version of a model that is
designed to work with a software or hardware product that differs from
the previous version, the Commission requests that party give the
Commission and others reasonable advance notice of what hardware and
software they must secure to operate and evaluate the new version of
the model. Finally, the Commission requests that a party that releases
a new version of a model clearly indicate the major changes that have
been made, and, in particular, any additions to the model. The
Commission requests that the model proponents file complete
documentation including all third-party information, studies, and
surveys used by the models. The Commission understands that some of
this information is proprietary and cannot be released to the public,
and encourages parties to use the Commission's procedures for
submitting proprietary information to the Commission wherever
necessary.
9. The models under consideration do not presently include any
information on Alaska and insular areas. In the Order, however, the
Commission
[[Page 42459]]
concluded that non-rural carriers in Alaska and the insular areas begin
receiving support based on a forward-looking mechanism at the same time
as other non-rural carriers (i.e., January 1, 1999). Accordingly, the
Commission asks that parties discuss the input values or model design
features that would allow the mechanism adopted in this proceeding to
determine support for non-rural carriers in Alaska and insular areas.
10. Hybrid Models. The Commission will determine the design
components of the platform and input values that will most accurately
estimate carriers' forward-looking economic costs for the mechanism
that it will adopt. Although they share some design features, BCPM and
Hatfield differ in many respects and possess different strengths and
weaknesses. The Commission encourages the proponents of Hatfield and
BCPM to refine their models by incorporating portions of the other's
model where appropriate. Whether the Commission chooses to create its
own model or whether it relies upon a model developed by the industry,
the Commission seeks comment on the ramifications of combining features
of the two models. The Commission seeks comment on whether alternative
platform components or assumptions, not currently included in either
Hatfield or BCPM, could be incorporated into Hatfield, BCPM, or a
hybrid model created by the Commission.
B. Platform Design Components and Input Values
i. Customer Location
11. Geographic Unit. A geographic unit is the size of the serving
area over which cost is calculated. The Commission seeks comment on
whether it should adopt an area smaller than a CBG as the geographic
unit for customer location and cost calculation in the platform design.
The Commission seeks comment on whether using CBGs, CBs, or grid cell
data would allow the Commission to calculate the cost of providing
universal service more accurately and would better target support.
Advocates of using geographic units smaller than CBGs should also
discuss the technical feasibility of their proposal and the
availability of relevant data at the proposed level of detail.
12. Distribution of Customers. Customers may be clustered in towns,
spread uniformly over regions, or otherwise distributed across CBGs. In
dealing with the distribution of customers, the models use algorithms
to project the customer distribution within a geographic unit in order
to estimate the cost of the outside cables required to serve customers.
In general, BCPM uses a uniform customer distribution algorithm, which
assumes that customers are spread evenly across an entire CBG. In rural
areas, BCPM eliminates areas from the CBG data that are more than 500
feet from any road, based on its assumption that households are located
within 500 feet of a road. Several commenters criticized the assumption
present in BCPM that households are evenly distributed across a
geographic unit. In contrast to BCPM, Hatfield uses a clustering
algorithm. The Hatfield algorithm first removes the empty space within
each CBG by removing CBs when census data indicates that they do not
contain any population. In low-population-density CBGs, the Hatfield
algorithm clusters 85 percent of the population within a town. For
dense areas, Hatfield uses a clustering algorithm that establishes two
clusters if more than fifty percent of the CBG is empty and four
clusters where 50 percent or less of the CBG is empty. Finally, in CBGs
where the line density is so high that customer locations must
necessarily be ``stacked,'' the Hatfield algorithm assumes that the
population lives in multi-unit dwellings.
13. The Commission tentatively concludes that a clustering
algorithm would more accurately distribute customers within some CBGs
and would consequently generate more accurate estimates of loop length
and, therefore, of the cost of the outside plant. Furthermore, the
Commission tentatively concludes that, if a model presumes that
customers are clustered, the accuracy of the position of the population
cluster relative to the wire center is important to an accurate
prediction of the necessary support amount. The Commission therefore
tentatively concludes that the selected mechanism should calculate
population clusters' proximity to wire centers with more precision that
the models currently permit. The Commission seeks comment on these
tentative conclusions and also seeks comment on how BCPM's uniform
distribution algorithm and Hatfield's clustering algorithm could be
modified to provide more accurate information regarding the locations
of customers. The Commission also seeks comment on how to improve both
models' accuracy in assigning CBGs to serving wire centers.
14. The Commission seeks comment on whether, instead of the methods
currently used by either Hatfield or BCPM, an alternate method should
be used to locate population in carrier serving areas. Generally, the
Commission seeks comment on whether loop lengths should be more closely
linked with actual loop statistics. The Commission seeks comment on
whether a method that combines actual geographical maps, census data,
and the location of the serving wire centers would estimate customer
location, and therefore costs, better than the algorithms currently
used by the models. The Commission specifically seeks comment on
whether the following proposal would be a more accurate method by which
to estimate the distribution of customers. In relation to locating
residential population, the Commission notes that census data provide
the number of households within a CB as well as internal point
coordinates and polygon vertex coordinates. The Commission seeks
comment on what currently available commercial mapping software, if
any, could be used to identify the location of customers in all CBs
within a service territory. The Commission further seeks comment on
whether a model should impose a uniform grid over an ILEC's service
territory in order to create subscriber population clusters,
determining the size of the cluster according to the technology
constraints of electronic systems that are used to provide universal
service, such as Asymmetric Digital Subscriber Line (ADSL) and High bit
rate Digital Subscriber Line (HDSL) technologies, rather than basing
cluster sizes on census data. The Commission seeks comment on whether
this approach is more representative of the engineering design of a
network because it does not rely on census-mapping conventions. The
Commission seeks comment on whether this proposal could be incorporated
into either Hatfield, BCPM, or any hybrid model that the Commission may
develop. The Commission also seeks comment on whether any alterations
in either BCPM or Hatfield would be necessary to incorporate this
proposal into either model or a potential hybrid model.
15. Line Count. The selected mechanism must estimate a line count
at the wire center, CBG, or CB level if the Commission concludes that
cost estimates should be developed at those levels. Both models use a
``closing factor,'' i.e. a ratio of line counts, as provided by the
NECA and ARMIS databases, compared to the models' estimates, to adjust
the estimates produced by their algorithms to reflect the actual ILEC
line counts. Neither model clearly discloses the closing factors for
all lines that are used in their line count calculations. Because
reliable line counts are necessary for
[[Page 42460]]
determining accurate cost estimates, it appears that reasonable
estimates of the number of lines in each CBG, CB, or grid cell are
necessary to calculate universal service support, even if the
Commission decides to provide support on a wire center basis. The
Commission tentatively concludes that the sizes and uses of models'
closing factors should be evident to the user so that they may be
evaluated. The Commission seeks comment on whether the selected
mechanism should adopt a maximum closing factor of 10 percent, as
suggested by the state members of the Joint Board. The Commission also
seeks comment on whether other data sources could be used to enhance
the models' algorithms or be used to create an alternative method for
determining line counts. The Commission seeks comment on whether, for
example, the Commission should assign business lines to geographic
units by using commercially produced maps that give the coordinates of
all businesses located in the U.S. along with their employment by
standard industrial classification (SIC) code. The Commission seeks
comment on whether such a method should use some multiple of the
employment data to estimate the number of business lines in each grid
block. Alternatively, the Commission seeks comment on whether there are
any databases that use zip code information or precise latitude and
longitude (geo-coding) information that could be used to improve the
line-count estimation process.
16. Interested parties may file comments on all issues regarding
customer location on or before September 2, 1997, and reply comments on
or before September 10, 1997.
ii. Outside Plant Investment
17. Outside plant investment includes every part of an ILEC's
network infrastructure connecting the wire center to customer
locations.
18. Plant Mix. The outside plant consists of a mix of aerial,
underground, and buried cable. It appears that while both models have
made many improvements, the failure of both BCPM and Hatfield to
incorporate terrain factors into their plant-mix tables seriously
undermines the accuracy of the outside plant costs predicted by each
model. The Commission finds that an efficient carrier will vary its
plant mix according to the population density of an area. The
Commission, therefore, tentatively concludes that the assignment of
plant mix defined by the selected mechanism should reflect both terrain
factors and line density zones. Specifically, the Commission
tentatively concludes that relatively more feeder and distribution
cable should be assigned to aerial installation for all population
density groups in wire centers characterized by ``hard rock''
conditions than those in wire centers with other terrain conditions.
The Commission seeks comment on these tentative conclusions. The
Commission also seeks comment on identifying the terrain that would
lead an efficient firm to minimize forward-looking costs by using
aerial plant and on whether climate conditions, such as the possibility
that a hurricane will destroy aerial plant, will affect an efficient
carrier's decision to deploy aerial plant.
19. The Commission directs the models' proponents to justify fully
the default values they selected for their outside-structure plant mix,
noting that recent installations of outside structure may more closely
meet forward-looking design criteria than do historical installations.
The Commission seeks comment on these issues and encourages parties to
file documentation supporting suggestions to alter either Hatfield or
BCPM's input values or default assumptions concerning plant mix. The
Commission also seeks comment on the input values that will accurately
reflect the level of impact that varying terrain conditions have on
costs.
20. Installation and Cable Costs. The forward-looking economic cost
mechanism must estimate the cost of installing wire and cable
facilities as part of the overall cost of building a network to provide
supported services. These costs can be expected to vary by soil type
and line density zone. The default values for installation costs
included in BCPM and Hatfield represent their proponents' estimates of
the total cost of installing wire and cable facilities. Both BCPM and
Hatfield make assumptions about soil conditions and population density
to estimate the cost of installing buried and underground cable.
Specifically, the models use different numbers of density zones. It
appears that a greater number of density zones helps identify high and
low cost areas more accurately; too many density zones, however, would
make the data calculations too complex. The Commission tentatively
concludes that the selected mechanism should specify costs for
installation of aerial cable, buried cable, and underground cable that
incorporate terrain factors and line density zones. The Commission
seeks comment on this tentative conclusion.
21. In the Majority State Members' Second Report, state members
expressed preference for BCPM's approach because they found that
Hatfield's approach did not adequately account for the effect of
different types of installation activity on outside plant costs, and
because using a multiplier will overestimate costs in some areas and
underestimate costs in other areas. Based on the majority state
member's recommendations, the Commission tentatively concludes that the
selected mechanism should adopt BCPM's approach of prescribing
additional costs to account for additional expenses caused by difficult
terrain, rather than Hatfield's approach of using cost multipliers. The
Commission seeks comment on this tentative conclusion, on how this
tentative conclusion would affect cost estimates, and on the
appropriate input values for such additional expenses. In addition, the
Commission seeks comment on the majority state members' conclusion that
it is not reasonable to assume, as Hatfield does, that an installer
could simply increase its use of distribution cable by 20 percent to
avoid burying cable in difficult soil conditions.
22. The Commission tentatively concludes that the selected
mechanism should specify costs per foot for conduit installation that
vary by line density zone, as proposed in both BCPM and Hatfield. The
Commission also tentatively concludes that the mechanism should define
density zones based on lines per square mile, as in Hatfield. The
Commission seeks comment on these tentative conclusions and on the
number of density zones that should be included in the selected
mechanism. The Commission invites comment on how to calculate forward-
looking economic costs of conduit installation and welcomes data on any
recent conduit installations, including conduit installed for purposes
other than the construction of telephone networks.
23. The Commission tentatively concludes that materials and
installation costs should be separately identified by both density zone
and terrain type. The Commission seeks comment on the default input
values that the selected mechanism should use, and asks parties to
present supporting cost data. The Commission seeks comment on the
accuracy of the values in BCPM's cost tables and of Hatfield's cost
multipliers, and encourages parties to submit company records or other
industrial data to support their position. The Commission also seeks
comment on the cost of installing aerial, buried, and underground
cable, regardless of whether it is used to provide telephone service,
and encourage parties to submit detailed cost data on any recent cable
installations. In addition, the Commission seeks comment on whether
[[Page 42461]]
it would be possible to use national statistical averages of contractor
construction prices and independent verification of the cost of
installation of distribution plant to verify these costs. The
Commission also seeks comment on whether a labor cost variable should
be incorporated into the selected mechanism.
24. Because the Commission has received no documentation confirming
that feeder and distribution cable installation costs should differ,
the Commission tentatively concludes that the selected mechanism will
adopt Hatfield's assumption that such costs are identical. The
Commission seeks comment on this tentative conclusion and encourage
parties to submit documentation in support of their positions.
25. Drops. A drop is the connection between a residence or business
and the distribution cable. In BCPM and Hatfield, several cost elements
are combined under the general heading of drops. These cost elements
include the cost of the copper or fiber loop that extends from the
distribution cable to the residence or business, the terminal and
splice investment, and the pedestal costs. BCPM estimates the drop
length as the distance from the corner of the residential lot to the
center of the residential lot. Hatfield assigns pre-determined loop
lengths for each of seven density zones. The lengths are longer in low
density areas than elsewhere. In general, the drop lengths are longer
in BCPM than in Hatfield.
26. The Commission seeks comment on whether the selected mechanism
should estimate drop lengths or should incorporate predetermined drop
length assumptions. The Commission also seeks comment on the accuracy
of Hatfield's assumed drop lengths. Because an efficient carrier's
network must include drops in order to provide the supported services,
the Commission tentatively concludes that the selected mechanism will
determine the forward-looking economic cost of drops, including
installation, terminal, splice, and pedestal costs. The Commission
invites comment on the accuracy of the estimated costs of these items
under the proposed models.
27. Structure Sharing. Structure sharing describes the practice of
sharing facilities such as poles, trenches, and conduits with other
utilities. BCPM assumes that an efficient telecommunications carrier
will not benefit very much from sharing. BCPM's default input values
assign between 50 and 100 percent of the costs of the poles and between
80 and 100 percent of the cost of trenches and conduits used by
telephone companies to those companies. The Hatfield model assumes
utilities will engage in substantial sharing; for the most part,
Hatfield's default input values assign between 25 percent and 50
percent of the costs of shared facilities to telephone companies. Both
models alter the percentages of costs they assume will be shared
depending on the type of structure (buried, conduit, or aerial) and on
the line density zone.
28. Because it appears that an efficient carrier would vary its
sharing levels according to installation activity and terrain, as BCPM
assumes, the Commission tentatively concludes that the selected
mechanism should adopt BCPM's categories for installation activities
and terrain conditions. The Commission seeks comment on BCPM's
estimates for the relative frequency for each type of installation
activity. The Commission tentatively concludes that the selected
mechanism should also include line density zones in its estimates of
sharing and the Commission seeks comment on whether, because it
tentatively concludes above that Hatfield's line density zones are
superior, the selected mechanism should use Hatfield's line density
zones to estimate sharing. The Commission seeks comment on how BCPM's
assumptions would need to be altered to accommodate Hatfield's line
density zones.
29. The Commission tentatively concludes that Hatfield incorrectly
assumes that carriers benefit from sharing for such cable and that the
selected mechanism will assign 100 percent of costs to the telephone
company for cable that is buried using a cable plow. The Commission
also tentatively concludes that Sprint's suggested value of 66 percent
is an acceptable aggregate default input value for the percent of costs
assigned to the telephone company for all other shared facilities. The
Commission also seeks comment on AT&T's contention that changes to the
regulatory climate will increase the extent to which carriers are
required or are willing to share structures.
30. Loop Design. The loop plant constitutes a significant part of
the network cost that the models calculate. The two models, however,
differ greatly in their assumptions regarding loop design and
standards. In selecting the loop design components for the selected
mechanism, the Commission seeks to implement its conclusion that the
mechanism employ the least-cost, most-efficient and reasonable
technology for providing the supported services and the Act's provision
that universal service support be sufficient. The Commission will
consider fiber-copper cross-over point, loop standards, and digital
loop carriers in its selection process.
31. Fiber-Copper Cross Over Point. The fiber-copper cross-over
point determines when carriers will use fiber cable instead of copper
cable in their feeder plant. In addition, a carrier's decision
regarding the fiber-copper cross-over point will affect whether that
carrier uses loading coils, because loading coils are used to extend
the viable length of copper cable.
32. The Joint Board recommended that the choice between fiber and
copper should reflect the least-cost method of placing loop facilities,
and the Commission agreed in the Order that ``the technology assumed
must be the least-cost, most-efficient, and reasonable technology'' and
that the ``model must include the capability to examine and modify the
critical assumptions and engineering principles * * * includ[ing] * * *
fiber-copper cross-over points * * * '' Neither the BCPM nor Hatfield
proponents have submitted studies showing whether their cross-over
points are designed to reflect the Commission's least-cost criterion.
33. The Commission tentatively concludes, based on the comments of
NCTA/ETI and the recommendation of the majority state members of the
Joint Board, that the BCPM maximum cross-over default value should be
set at 18,000 feet rather than 12,000 feet, and seek comment on this
tentative conclusion. The Commission seeks comment on whether the BCPM
fiber/copper cross-over point can also be set at 18,000 feet when the
copper loop length is extended to 18,000 feet. The Commission also
seeks comment on the impact on the costs for digital loop carriers of
their decision regarding the appropriate fiber-copper cross-over point.
34. Loop Standards. WorldCom contends that the Commission should
specify one of more loop design standards in order to create greater
certainty in loop modeling process. WorldCom states that the two loop
standards that the Commission should consider are the Revised
Resistance Design (RRD) and the Carrier Serving Area (CSA) Standards.
WorldCom contends that because the CSA standard will also enable LECs
to offer video dialtone services, which would have significant
commercial value, the universal service fund should not pay for LEC
entry into this new market against competitors that would not receive
universal service funding. The Commission seeks comment on whether
[[Page 42462]]
it should adopt any loop design standards in the forward-looking
economic cost mechanism, and if so, which standard should be adopted.
35. Digital Loop Carriers. Digital loop carriers (DLCs) connect
fiber feeder cables and copper loops. DLCs transform electric signals
carried on the copper loops into optical signals carried on fiber lines
and vice versa. Most large DLCs can assign multiple subscriber lines to
a single electronic channel rather than assigning one channel per
subscriber line. Both Hatfield and the BCPM assume that, when they are
to be used, DLCs would be one of two sizes, depending upon the number
of subscriber lines connected to them. BCPM assumes the larger DLC will
be used for more than 672 subscriber lines. Hatfield, by contrast,
switches to the larger DLC at 384 subscriber lines, but allows
adjustment of this level as a variable.
36. Although both Hatfield and BCPM assume extensive deployment of
DLCs, their cost estimates differ significantly. The Commission seeks
comment on the models' assumptions regarding the number of subscriber
lines that should trigger the use of a large DLC. The Commission also
requests comment on whether the models should consider use of DLCs of
more than two sizes; the Commission particularly seeks comment on
whether DLCs smaller than those used in the model are available and
under what circumstances such smaller DLCs might be used. The
Commission also requests comment on the impact of the fiber-copper
cross-over on the number and size of DLCs needed in the network.
37. The Commission seeks comment on whether the models should also
compare the cost of extending fiber to fewer points in the CBG, placing
larger DLCs at those points, and running copper to customers including
the possible additional cost of repeater electronics on the longer
copper loops. The Commission seeks discussion of how to calculate the
forward-looking economic cost of DLCs. Parties should discuss whether
the models' current inputs for these costs are reasonable, as well as
Sprint's proposed BCPM modification.
38. Wireless Threshold. Once the level of support a carrier will
receive is determined, the carrier may use whatever technology it
prefers to provide the supported services; the level of support it
receives is not dependent upon the technology it uses. Both BCPM and
Hatfield, however, estimate the costs of providing the supported
services using engineering assumptions based on wireline technology.
39. In light of the contention by RUS that wireless service does
not necessarily cost less than $10,000.00 per loop, the Commission
seeks comment on whether the cost of a loop should be capped at
$10,000.00 in all cases. The Commission agrees with the wireless
commenters that, to the extent practical, the selected mechanism should
estimate the cost of providing the supported services using wireless
technology in areas where wireless technology is likely to be the
least-cost, most efficient technology. The Commission notes, however,
that it has received almost no information regarding how to estimate
such costs, or the criteria that the selected mechanism should use to
determine whether wireline or wireless service is more economical.
Thus, the Commission seeks comment on the feasibility of including an
additional component in the mechanism that would compare the cost of
providing service via a wireless network with the cost of providing
service via a wireline network and would choose the lowest-cost
technology to calculate the costs of providing the supported services.
The Commission seeks comment on whether, because wireless companies
must currently determine whether it is economical for them to enter a
particular market, wireless companies have already developed such
models. The Commission strongly encourages commenters supporting the
inclusion of engineering assumptions regarding wireless technology in
the mechanism to submit models or other assumptions that they believe
should be included. The Commission further encourages commenters to
submit data about the cost and types of wireless networks and their
components in support of their suggestions, and reminds commenters that
any wireless component that might be added to the selected mechanism
must also meet the Commission's criteria.
40. The Commission notes that BCM was first filed with the
Commission in December 1995. The Commission seeks comment on the length
of time necessary to develop a mechanism that compares the cost of
wireless engineering with the cost or wireline engineering.
Specifically, the Commission seeks comment on whether modeling wireless
technology would be less complex than modeling wireline technology, and
therefore whether a wireless platform could be developed by December
1997, and a complete mechanism, including inputs, by August 1998, in
accordance with the Commission's schedule. In the alternative, the
Commission seeks comment on whether the development of a competitive
bidding mechanism would be a better way to capture the differing costs
between wireline and wireless technology.
41. Because the Commission is uncertain whether or not it will be
able to develop a mechanism that includes the cost of wireless
technology within their schedule, it seeks comment on whether basing
support amounts on the cost of wireline technology will be consistent
with section 254 and with the Commission's universal service goals. The
Commission tentatively concludes that providing support based on the
cost of a wireless network to provide the supported services would meet
the statutory directive that support be ``sufficient.'' The Commission
seeks comment on this tentative conclusion. The Commission also seeks
comment on whether basing support solely on wireline costs, when
wireless technology may offer a less expensive option, would be
consistent with the Commission's conclusion that the mechanism should
use the least-cost, most-efficient technology available. The Commission
additionally seeks comment on whether the models should include
assumptions that would consider microwave, satellite, or other non-
wireline technologies in situations where such technologies could allow
the provision of universal service more cost-effectively than wireline
technology.
42. Additional Outside Plant Input Value Issues. The Commission
must determine what input values it should use for the following
components of outside plant: manholes, poles, anchors, guys, aerial
cable, and building attachments, network interface devices, service
area interfaces, and fill factors. The Commission seeks data
demonstrating the forward-looking economic cost for each component,
including materials and installation, for inclusion in the selected
mechanism.
43. Poles, Anchors, Guys, Aerial Cable, and Building Attachments.
The Commission seeks comment on what the accurate input values should
be for the forward-looking economic cost of materials and installation
for poles. The Commission seeks comment on the reasonableness of the
type of materials chosen by each model. The Commission also seeks
comment on whether installation costs for poles should vary with
terrain. Commenters should submit cost documentation in support of
their suggested input values. The Commission also seeks comment on
whether BCPM's materials and installation cost estimates for anchors
and guys are accurate, and whether
[[Page 42463]]
Hatfield's pole materials and installation costs are sufficient to
cover the cost of anchors and guys. The Commission also seeks comment
on whether the selected mechanism should identify separately costs for
poles, guys, and anchors. Parties should submit cost data in support of
their suggested input values. Because both models include them, the
Commission tentatively concludes that the selected mechanism should
include pole spacing input values. The Commission seeks comment on this
tentative conclusion and on the pole spacing input values that we
should use. In light of the models' similar input values, the
Commission seeks comment on whether the models' input values for these
costs are accurate or on whether averaging the two sets of input values
would provide an accurate calculation of these costs. Commenters should
submit cost documentation in support of their suggested input values.
44. The Commission tentatively concludes that the selected
mechanism should include feeder and distribution cable costs for both
copper and fiber. The Commission seeks comment on the forward-looking
costs of copper and fiber cable. The Commission specifically seeks
comment on whether, as the BCPM proponents contend, buried cable and
underground cable are less expensive than aerial cable. Commenters
should submit cost documentation in support of their suggested input
values.
45. Network Interface Devices. A network interface device (NID) is
a device that connects the wiring that belongs to a customer, and is
located inside a customer's premises, to the loop facilities outside a
customer's premises. The Commission tentatively concludes that it
should prescribe NID costs in the selected mechanism. The Commission
tentatively concludes that Hatfield correctly separates the cost of
protection blocks from the cost of the NID, and correctly distinguishes
between the cost of a residential NID and a business NID, and that the
selected mechanism should incorporate these distinctions. The
Commission seeks comment on these tentative conclusions, and on the
correct input values that should be used for NID and related costs.
Such comments should be supported with cost data wherever possible.
46. Service Area Interfaces. The Service Area Interface (SAI) is
the physical interface between distribution and feeder cable. The SAI
is usually located outside buildings, but is located inside buildings
when the feeder plant terminates in the basement of a high-rise
building. The Commission tentatively concludes that the selected
mechanism should include the cost of SAI for various cable sizes, and
should assume different costs for indoor and outdoor cable as Hatfield
does. The Commission seeks comment on this tentative conclusion. In
light of the wide disparities in SAI costs assigned by the mechanisms,
the Commission seeks comment on the forward-looking economic costs of
SAIs, and encourages parties to submit additional data on these costs.
47. Fill Factors and Utilization. A cable fill factor is the
percentage of the total usable capacity of cable that is expected to be
used rather than the amount available in reserve. The Commission notes
that, over time, the models' estimates for fill factors have converged.
The Commission seeks comment on the fill factor that should be used for
the selected mechanism. In light of the similarities between the
models, the Commission seeks comment on whether their input values are
accurate and how the differences between the values may be reconciled.
The Commission encourages parties to submit engineering data or other
relevant documentation in support of the fill factor that they favor.
48. Dates for Comments on Outside Plant Investment. Interested
parties may file comments regarding the design of the outside plant
investment components, including the algorithms determining plant mix,
installation and cable costs, drop lengths, structure sharing, the
fiber-copper cross-over point, digital loop carriers, and the wireless
threshold on or before September 24, 1997, and reply comments on or
before October 3, 1997. Interested parties may file comments regarding
all input values regarding outside plant input investment on or before
October 17, 1997, and reply comments on or before October 27, 1997.
iii. Switching
49. Mix of Host, Stand-Alone, and Remote Switches. Switches can be
designated as either host switches, stand-alone switches, or remote
switches. Both a host switch and a stand-alone switch can provide a
full complement of switching services without relying on another
switch. A remote switch relies on a host switch to supply a complete
array of switching functions and for interconnection with other
switches. Proponents of both models claim that they detect no
difference in switching costs based on the type of switch used, and
therefore their models do not distinguish among the different switch
types. A review of 1996 depreciation filings, however, shows that large
ILECs are purchasing fewer host switches and more remote switches.
Suggesting that choices about switch type could affect the total cost
computed more than the models currently suggest, the Joint Board
expressed concern that the models did not distinguish among types of
switches. The Commission, therefore, tentatively concludes that the
selected mechanism should include an algorithm that will place host
switches in certain wire centers and remote switches in other wire
centers. Based on ILECs' decisions, as revealed in the depreciation
filings, to deploy more remote switches, the Commission tentatively
concludes that the host-remote arrangement is more cost-effective in
many cases than employing stand-alone switches. The Commission seeks
comment on this tentative conclusion, and urges parties to provide
engineering and cost data to demonstrate the most cost-effective
deployment of switches in general and host-remote switching
arrangements in particular. The Commission also seeks detailed comment
describing how to design an algorithm to predict this deployment
pattern. The Commission seeks comment on how to obtain information that
would verify or refute the assertion of the models' proponents that
there is no cost difference between host switches and remote switches.
50. Capacity Constraints. BCPM does not include any switch capacity
limitations, but Hatfield includes a number of switch capacity
constraints. The Commission tentatively concludes that the selected
mechanism should assign more than one switch to a wire center whenever
the mechanism predicts that any one of a set of capacity constraints
would be exceeded. The Commission seeks comment on this tentative
conclusion and on what capacity constraints the selected mechanism
should adopt. Parties are encouraged to provide technical data to
support any proposed capacity constraints.
51. Switch Costs. In the Order, the Commission agreed with the
state members of the Joint Board that estimating the switching
investment cost is a significant unresolved problem of the cost models.
Proponents of the models are apparently having difficulty acquiring
accurate estimates of switch costs because of the lack of public
information on those costs. The Joint Board concluded that the
convergence of the models' switch cost estimates should alleviate this
lack of information. They urged the Commission and its staff to perform
additional analysis and to
[[Page 42464]]
obtain more reliable switch cost information.
52. BCPM switching cost estimates are based on the results of a
survey of large ILECs that asked ILECs to report the switching costs
they use as inputs for ILEC Switching Cost Information System (SCIS)
model runs. BCPM model proponents estimated a switching curve based on
the answers to the survey. The Hatfield model combines public
information and information from other unnamed industry sources to
develop switching cost estimates. The model proponents fit a
logarithmic curve to three data points to determine the relationship
between switch-cost per line and switch-line size. Hatfield reduces the
per-line cost of the switch below the logarithmic curve by assuming
more efficient use of trunk and line cards.
53. Pursuant to the Joint Board's recommendation, Commission staff
examined information regarding switching costs from several sources.
The Commission's found data supports the models' assumptions, and imply
that the current switching costs of small companies should be higher
than the current switching costs of large companies. The Commission,
therefore, tentatively concludes that the selected mechanism should
incorporate the Commission staff's estimates of switching costs because
these estimates are based on filings with the Commission that record
actual ILEC switch purchases. The Commission seeks comment on this
tentative conclusion. The Commission also seeks comment on whether
there is an alternative data source for these costs that would provide
a better estimate of the current cost of switches. The Commission also
seeks comment on the reasonableness of using the default input values
from BCM2, as suggested by Sprint. In addition, the Commission seeks
comment on whether it should incorporate the cost of growth lines into
their switching cost estimate and, if so, how it should incorporate
these costs, and what data sources it should use for the cost of growth
lines.
54. Percent of Switch Assigned to Port and to Provision of
Universal Service. The models differ with respect to the percentage of
switch costs they assign to the port and the percentage of switch costs
that is assigned to the provision of universal service. The models
divide the switch investment between two basic functions: port and
usage. BCPM uses local-usage dial equipment minutes (DEM) to divide
switch costs between the costs of providing universal service and the
costs of providing all other services. In contrast, Hatfield assigns 30
percent of switch cost to port costs and assigns all of the port costs
to the cost of providing universal service. Hatfield further divides
the 70 percent of switch cost it assigns to usage between local traffic
and toll traffic on the basis of conversation minutes and includes the
cost of local traffic in the cost of universal service. The BCPM
proponents state that both models could be adjusted so that they assign
less than 100 percent of local usage to the provision of universal
service, and vary the portion of traffic sensitive access usage
assigned to the provision of universal service.
55. The Commission tentatively concludes that switch costs should
be divided between line-side port and usage costs. The Commission
tentatively concludes, however, not to adopt either of the models'
assumptions regarding the percentage of the switch investment that is
associated with the port. The Commission seeks comment on these
tentative conclusions and on whether it can use the information that
ILECs must file in response to their Access Charge Reform Order to
determine the percentage of the switch investment to be allocated to
the port function. The Commission also seeks comment on a reasonable
percentage of switch costs to include in the port function.
56. In light of the difficulty in obtaining information on
switching costs and the proportion of the switch to be included in the
port function, the Commission seeks comment on whether it should
undertake a detailed engineering study of several of the large host
switches currently being deployed by ILECs (such as the Nortel DMS-100
and the Lucent 5ESS) and associated remote switches and smaller
switches (such as the Nortel DMS-10) to ascertain what portions of the
switch equipment are associated with the port function. The Commission
seeks comment on whether such an engineering study could result in
useful information about the portions of switch that are associated
with the port function and the costs of that equipment. The Commission
also seeks comment on whether alternative data sources are available
for the purpose of estimating current switching cost. If so, the
Commission seeks comment on how to obtain and use that information. The
Commission tentatively concludes that all of the port cost and a
percentage of the usage cost are costs of providing universal service.
The Commission tentatively concludes that the percentage of the usage
cost that should be assigned to the cost of providing universal service
should be determined by the amount of local usage included in the
definition of supported services that it will adopt, as a percentage of
total usage that the model predicts on the network. The Commission
seeks comment on these tentative conclusions.
57. Interested parties may file comments on the platform design
relating to switching on or before August 8, 1997, and reply comments
on or before August 18, 1997. Interested parties may file comments on
the input values relating to switching on or before October 17, 1997,
and reply comments on or before October 27, 1997.
iv. Interoffice Trunking, Signaling, and Local Tandem Investment
58. The Commission recognizes two uses for interoffice trunking,
signaling, and local tandem facilities: (1) The completion of local
calls and (2) transport to an IXC point of presence (POP). Because
transport for interexchange service is not a supported service, the
selected mechanism will estimate only the cost of interoffice trunking,
signaling, and local tandem facilities used for the completion of local
calls. BCPM employs a simple multiplier to estimate the portion of
total interoffice trunking, signaling, and local tandem costs that
should be attributed to supported services. Hatfield treats these
facilities on a more disaggregated basis. Both models allow the user to
alter the input values to their transport equations. Because
interoffice trunking, signaling, and local tandem facilities are an
integral part of the network necessary to provide the supported
services, the Commission tentatively concludes that the selected
mechanism should calculate specific cost estimates for the interoffice
elements necessary to provide these functionalities. Because Hatfield's
platform design can generate cost estimates at this level of
specificity, but BCPM's cannot, the Commission tentatively concludes
that only Hatfield's platform is currently adequate in this regard. The
Commission seeks comment on this tentative conclusion and on the
accuracy of Hatfield's transport algorithm. The Commission also seeks
comment on the accuracy of the specific interoffice trunking,
signaling, and local tandem input values proposed by Hatfield.
59. Interested parties may file comments concerning design issues
on or before August 8, 1997, and reply comments on or before August 18,
1997. Interested parties may file comments on the issues relating to
input values on or before October 17, 1997, and reply comments on or
before October 27, 1997.
[[Page 42465]]
v. General Support Facilities
60. General support facilities (GSF) include the investment and
expenses related to vehicles, land, buildings, and general purpose
computers. General purpose computers comprise the largest share of the
investment and expenses in this category; buildings also comprise a
large share. BCPM computes investment in the GSF category for items
other than buildings as a percentage of all other plant investment.
Building investment is computed as a percentage of switching equipment
investment. BCPM sets GSF expenses at a fixed amount per line based on
data from its ILEC surveys. Hatfield also segregates some buildings
from the GSF category in computing GSF investment but, instead of
segregating all buildings as BCPM does, Hatfield only segregates
buildings that house switches (i.e., wire center buildings). To compute
GSF investment not related to wire center buildings that house
switches, Hatfield uses ARMIS data to compute a ratio of ILECs' GSF
investment to ILECs' total-plant-in-service investment. This ratio is
then applied to the total-plant-in-service investment that the model
computes to arrive at the amount of GSF investment not related to wire
center buildings. For investment in wire center buildings, Hatfield
uses a table of values based on a set number of square feet per switch
in use and number of lines served. For GSF expenses, Hatfield uses the
ARMIS ratios described above to reach an expense amount. The Commission
concluded in their Access Charge Reform Order that the current
allocation of GSF costs enables ILECs to recover through regulated
interstate access charges costs associated with the ILECs' nonregulated
billing and collecting functions.
61. The Commission requests comment on the appropriate platform
assumptions to compute GSF investment and expenses. The Commission
seeks comment on how it may remove costs for nonregulated activities
from costs for regulated activities to incorporate the appropriate
amount of GSF investment and expenses into a forward-looking mechanism.
The Commission also seeks comment on whether a more accurate GSF
computation would depend on factors tied to the cost of computers,
because much GSF investment and expense is for general purpose
computers. Assuming GSF investment is tied more closely to computer
costs, the Commission also seeks comment on whether the selected
mechanism should account for the increasing use of computers by
businesses generally. Also, because a large share of GSF expense is
attributable to the cost of land, the Commission tentatively concludes
that GSF expenses should vary by state with reference to differences in
land values. The Commission requests comment on this tentative
conclusion. Commenters should critique the assumptions regarding GSF
investment and expenses that are currently included in BCPM and
Hatfield. Commenters advocating a platform that requires an input ratio
to calculate GSF expenses should discuss what that input ratio level
should be, and provide supporting cost data if possible.
62. Interested parties may file comments regarding GSF issues on or
before October 17, 1997, and reply comments on or before October 27,
1997.
vi. Depreciation
63. Economic depreciation measures the periodic reduction in the
market value of an asset over time. When calculating depreciation
expenses, the models do not simulate the periodic reduction in the
market value of the assets. Rather, they use ``adjusted projected
lives'' to recover the current costs of the assets. Under this
approach, the annual depreciation charges associated with an asset are
computed by dividing the asset's current cost by its adjusted projected
life. A shorter life will increase the annual depreciation expense.
64. Commenters disagree on the depreciation rates to be used as
inputs to the models. In light of the Commission's conclusion that
depreciation should be computed within the range specified in their
rules, the Commission tentatively concludes that it should adopt, as an
input to their forward-looking cost mechanism, depreciation expenses
that reflect a weighted average of the rates authorized for carriers
that are required to submit their rates to us. The Commission requests
comment on this tentative conclusion. Further, the Commission seeks
comment on whether adjusted projected lives should reflect the asset
lives of facilities and equipment dedicated to providing only the
supported services or whether the asset lives should reflect a decision
to replace existing plant with plant that can provide broadband
services.
65. As noted in the Order, the Commission intends to issue a notice
of proposed rulemaking in the near future to consider changes to the
Commission's depreciation rules. The Commission cannot be certain,
however, that its new rules will be effective in time for states to
incorporate them in their cost studies, which they must file in
February 1998. Accordingly, the Commission tentatively concludes that
the Commission should use the range prescribed in the Commission's
current rules for purposes of this proceeding, with the understanding
that it could adjust the depreciation inputs to their mechanism in
light of the outcome of their depreciation rulemaking. The Commission
seeks comment on this tentative conclusion, and on whether the states
should also be permitted to adjust their cost studies to incorporate
any changes to the depreciation rules. In addition, the Commission asks
parties to discuss how the inclusion of depreciation rates in the
selected mechanism would be affected by changes in the Commission's
depreciation rules.
66. Interested parties may file comments on depreciation issues on
or before October 17, 1997, and reply comments on or before October 27,
1997.
vii. Expenses
67. BCPM estimates expenses on a per-line basis. These estimates
are derived from a survey of ILECs. BCPM permits users to vary expense
estimates for small, medium, and large companies, although the default
values for BCPM do not vary with company size. In general, Hatfield
estimates most expenses based on ARMIS data, expressed as ratios of
investment. BCPM estimates total expenses, as detailed above, at $11.34
per line per month. Hatfield's estimates of total expenses vary based
on investment or other costs.
68. The Commission seeks comment on how to establish forward-
looking expenses for the selected mechanism. The Commission seeks
comment on which expenses should be calculated on a per-line basis, as
BCPM does, and which should be calculated as a ratio of investment, as
Hatfield does. The Commission tentatively concludes that the selected
mechanism should provide the user with the capability to calculate each
category of expense based on either line count or other investment, at
the user's election, and request comment on this tentative conclusion.
The Commission also seeks comment on whether it should forecast
expenses and, if so, what forecasting technique it should use. The
Commission tentatively concludes that users should be able to use
different expense estimates for small, medium, and large companies, as
the BCPM allows. The Commission seeks comment on this tentative
conclusion. The Commission also seeks comment on whether there are
[[Page 42466]]
measures, other than lines and investment to which specific expenses
should be tied.
69. The Commission seeks comment on the accuracy of BCPM's default
input value of $11.34 per line, and urge the proponents of BCPM to
submit the survey upon which they base their expense inputs. The
Commission seeks comment on how this value should vary for small,
medium, and large companies. The Commission seeks comment on whether
the selected mechanism should use ARMIS data, data from a survey of
ILECs, or data from some other source.
70. Plant Specific Expenses. Plant specific expenses include such
expenses as maintenance of facilities and equipment expenses. BCPM
estimates the following plant specific expenses on a per-line basis:
network support (USOA Account 6110); general support (6120); Central
Office Equipment (COE) switching (6210); operator systems (6220); COE
transmission (6230); information origination/termination (6310); and
cable and wire facilities (6410). Hatfield estimates central office
switching expenses as a percentage of investment in digital switching
equipment, and circuit equipment expense as a percentage of investment
for all circuit equipment based on a New England Incremental Cost Study
rather than an ARMIS ratio of expenses to investment. Hatfield
estimates NID expense as a yearly per-line expense. Hatfield uses
separate expense ratios for aerial, buried, and underground cable,
while BCPM uses a per-line estimate for cable maintenance that does not
vary with the plant mix. Because the two models differ in their listing
of plant specific expenses, the two resulting expense estimates may not
be comparable. Neither model allows plant specific expenses to vary
with climate or soil type.
71. BCPM's default per-line per-month values for plant specific
expenses are: network support--$0.15; general support--$1.20; COE
switching--$0.34; operator systems--$0.01; COE transmission--$0.23;
information origination/termination--$0.07; and cable and wire
facilities--$2.76. Hatfield's default central office switching expense
factor is 2.69 percent of digital switching investment. Hatfield's
default circuit equipment expense factor is 0.015 percent of circuit
equipment investment. Hatfield's default for NID expenses is $1.00 per
line per year. The state Joint Board members recommend that plant
specific operating costs be calculated as a percentage of investment,
and suggest the following percentages: 3.5 percent for cable and wire;
2.8 percent for central office switching; and 2 percent for
transmission. The state members also recommend the use of nationwide
factors that do not vary by company.
72. The Commission seeks comment identifying and discussing the
complete set of forward-looking plant-specific expenses for which
universal service support should be available, and discussing whether
each of these expenses is best estimated on a per-line basis or by some
other method. The Commission seeks comment on whether the platforms of
BCPM and Hatfield are comparable with respect to their expense
assumptions, whether one of the two generates superior expense
calculations, or whether expense assumptions of the two should be
combined, either in one of the two existing models or in a hybrid
model, to estimate expenses most accurately. The Commission seeks
comment on what specific input values for each of these expenses should
be. In addition, the Commission seeks comment on whether maintenance
expense estimates should depend upon plant mix and, in particular,
whether an increase in the use of aerial cable also increases
maintenance expenses. The Commission also seeks comment on whether
plant specific expenses should vary with such characteristics as
climate or soil type.
73. Plant Non-Specific Expenses. Plant non-specific expenses
include such expenses as engineering, network operations, and power
expenses. BCPM estimates the following plant non-specific expenses on a
per-line basis: other property plant (USOA Account 6510); network
operations (6530); and access (6540). Hatfield calculates network
operations expense as a percentage of ARMIS-reported network operations
expense. BCPM's default per-line per-month plant non-specific expenses
are: other property plant--$0.03; network operations--$1.33; and access
$0.00. Hatfield's default value for network operations expense is 50
percent of ARMIS-reported network operations expense. Hatfield contends
that this percentage is reasonable because forward-looking network
operations expenses are significantly lower than ARMIS-reported
expenses for network operations. Hatfield asserts that ARMIS-reported
expenses reflect excessive staffing at end offices. The Commission
seeks comment on the complete set of forward-looking plant non-specific
expenses that should be covered by universal service support, and
whether the Commission should estimate each of these expenses on a per-
line basis or by some other method. The Commission also seeks comment
discussing what specific input values for each of these expenses should
be.
74. Customer Services. Customer services expenses include
marketing, billing, and directory listing expenses. BCPM estimates the
following customer services expenses on a per-line basis: marketing
(USOA Account 6610) and services (6620). Hatfield estimates the cost of
bill generation and billing inquiries for end users as a fixed, per-
line expense. Hatfield includes a per-line directory listing expense
and assigns local number portability expenses on a per-line basis.
Hatfield also assigns carrier-to-carrier customer service expenses
(associated with the provision of unbundled network elements) on a per-
line basis. Hatfield excludes marketing (USOA Account 6610) entirely.
BCPM's per-line per-month default values for customer services expenses
are: marketing--$0.35 and services--$2.42. State Joint Board members
suggest that BCPM's services expenses should be reduced 29 percent to
$1.75 to exclude operator services and directory assistance. They also
recommend excluding marketing expenses from the cost of supported
services. Hatfield's default per-line customer service expenses, which
are based on ARMIS data, are: billing--$1.22 per month; directory
listing--$0.15 per month; local number portability--$0.25 per month;
and carrier-carrier customer service--$1.69 per month. The Commission
seeks comment identifying and discussing the complete set of forward-
looking customer service expenses that should be covered by universal
service support, and whether each of these expenses is best estimated
on a per-line basis or by some other method. The Commission also seeks
comment on specific input values for each of these expenses.
75. Corporate Operations. Corporate operations expenses include
general, administrative, human resources, legal, and accounting
expenses. BCPM estimates the following corporate operations expenses on
a per-line basis: executive and planning (USOA Account 6710); general
and administrative (6720); and uncollectibles (6790). Hatfield
estimates corporate overhead expense as a percentage of total capital
costs and operations expenses. BCPM's per-line per-month default input
values for corporate operations expenses are: executive and planning--
$0.14; general and administrative--$2.15; and uncollectibles--$0.17.
Hatfield's default corporate overhead expense is 10.4 percent of the
total of capital costs and operations expenses. The Commission seeks
comment identifying and discussing the complete set of forward-
[[Page 42467]]
looking corporate operations expenses that should receive universal
service support, and whether each of these expenses is best estimated
on a per-line basis or by some other method. The Commission seeks
comment on what the specific input values for each of these expenses
should be.
viii. Other
76. Interested parties may file comments on the issues relating to
expenses on or before October 17, 1997, and reply comments on or before
October 27, 1997.
77. The Commission also seeks comment on any other issues related
to the platform and inputs to the forward-looking cost models that are
currently under consideration. Any such comments should be supported by
specific data and analysis of the models. The Commission seeks comment
on whether it should develop a method to adjust the costs estimated by
their cost mechanism on an annual basis, and if so how it should do so.
The Commission seeks comment on whether the adjustment mechanism should
be tied to inflation and include an offset similar to their price cap
mechanisms. Alternatively, the Commission seeks comment on whether it
should use the actual cost estimates provided by the selected mechanism
for a fixed number of years, and re-evaluate and modify the mechanism
at the end of that period. Interested parties may file comments on
these issues on or before October 17, 1997, and reply comments on or
before October 27, 1997.
C. Support Area
78. A support area is the geographic area used to determine
universal service support levels. The support area need not be the same
as the geographic area used by the selected mechanism to calculate the
cost of providing the supported services. The support area may be an
aggregation of those geographic areas used to determine cost. For
example, Hatfield uses CBGs to determine cost and density zones, which
are an aggregation of CBGs with similar line densities, to calculate
support. In the Order, the Commission concluded that support areas
should be no larger than wire centers. While the Commission agreed with
the Joint Board that the use of smaller support areas would allow for
better targeting of support and minimize the possibility of ``cream-
skimming,'' the Commission was uncertain that any mechanism that it
could adopt would accurately predict the number of customers in such
small areas.
79. To determine the level of support a particular carrier should
receive, the Commission must know the number of lines in the support
area. Carriers currently do not associate lines with a particular CBG,
CB, or grid cell. They do, however, keep records of the number of lines
served by each wire center. The Commission seeks comment on whether it
should provide support according to geographic areas other than the
geographic areas used to calculate cost. The Commission tentatively
concludes that the ability of carriers to associate lines with CBGs, or
other small areas will determine how the Commission defines support
areas in the future. The Commission seeks comment on the feasibility of
geo-coding households, as proposed by SBC and Sprint. Interested
parties may file comments on these issues on or before October 17,
1997, and reply comments on or before October 27, 1997.
II. Support for Local Usage
80. The Joint Board recommended that support for voice-grade access
to the public switched network should include a local usage component.
In the Order, the Commission agreed with the Joint Board that the
Commission should determine the measure of local usage to be supported
by federal universal service mechanisms. The Commission concluded that
``consumers might not receive the benefits of universal service support
unless we determine a minimum amount of local usage that must be
included within the supported services'' because carriers receiving
universal service support might charge high per-minute rates that
prevent service from being affordable. The Commission also observed
that, unless the definition of universal service includes a usage
component, carriers using technologies (such as wireless) that can
provide basic access relatively inexpensively but that entail higher
usage-based costs would have an artificial advantage over carriers
using technologies that have higher basic access costs and lower usage-
based costs.
81. The Commission tentatively concludes that a local usage
component should be included in the definition of universal service to
ensure that customers realize the benefits of universal service support
even if they cannot afford high per-minute charges. Failing to include
a local usage component in the definition of universal service would
create a bias in favor of carriers (such as wireless carriers) that
provide service with facilities that allow relatively inexpensive
access to the network but that have higher usage costs. This bias would
be exacerbated if the Commission later set support levels using
competitive bidding. Carriers able to provide relatively inexpensive
access could underbid competitors, yet customers might not receive
affordable service because of high usage-based charges.
82. The Commission seeks comment on the level of local usage that
should be included. The Commission could prescribe this level to be the
number of minutes per month used by the average customer subscribing to
flat-rate local service. Alternatively, the Commission could define the
level as the product of the average number of calls that are included
in carriers' measured-rate service and the average call length. The
Commission seeks comment on other potential ways to calculate the local
usage component. The Commission also seeks comment on whether it should
consider the impact of increased Internet usage on average call length
and, if so, how. Finally, the Commission requests comment on whether
the local usage component should differ for residential and business
service. Commenters submitting usage data are requested to segregate
those data between residential and business users.
83. The Commission also seeks comment on the connection, if any,
between the amount of usage that the models assume to determine
specifications such as switch size and average cost per minute, and the
amount of usage that should be supported as part of the definition of
universal service. The Commission tentatively concludes that no
necessary connection exists between these two measures of usage because
they serve different purposes within the support mechanisms. For
example, Hatfield currently determines per-minute switched cost based
on all usage (local and toll), but determines support based only on
local usage. Similarly, the Commission tentatively concludes that the
forward-looking economic cost methodology that it will employ should
consider all local usage to determine switching capacity and to compute
average cost per minute, and that it should determine the amount of
local service to include in the definition of universal service without
regard to these other measures of usage. Interested parties may file
comments on all of the issues relating to the level of local usage on
or before October 17, 1997, and reply comments on or before October 27,
1997.
[[Page 42468]]
Procedural Matters
III. Ex Parte Presentations
84. This is a non-restricted notice-and-comment rulemaking
proceeding. Ex parte presentations are permitted, except during the
Sunshine Agenda period, provided that they are disclosed as provided in
the Commission's rules. See generally 47 CFR 1.1202, 1.1203, 1.1206.
IV. Initial Regulatory Flexibility Act Certification
85. Section 603 of the Regulatory Flexibility Act (RFA)
1 requires an Initial Regulatory Flexibility Analysis (IRFA)
in notice and comment rulemaking proceedings, unless the Commission
certifies that ``the rule will not, if promulgated, have a significant
economic impact on a substantial number of small entities.''
2 It further requires that the IRFA describe the impact of
the proposed rule on small entities. The RFA generally defines ``small
entity'' as having the same meaning as the term ``small business
concern'' under the Small Business Act, 15 U.S.C. 632.3 The
Small Business Administration (SBA) defines a ``small business
concern'' as one that ``(1) is independently owned and operated; (2) is
not dominant in its field of operation; and (3) meets any additional
criteria established by the SBA.4 Section 121.201 of the
Small Business Administration regulations defines a small
telecommunications entity in SIC code 4813 (Telephone Companies Except
Radio Telephone) as any entity with 1,500 or fewer employees at the
holding company level.5 The Commission has determined that
the RFA is inapplicable to this FNPRM because the non-rural LECs
affected by the proceeding do not meet these criteria.
---------------------------------------------------------------------------
\1\ See 5 U.S.C. 601 et seq. The RFA was amended by the ``Small
Business Regulatory Enforcement Fairness Act of 1996'' (SBREFA),
Title II of the Contract with America Advancement Act of 1996,
Public Law 104-121, 110 Stat. 847 (1996) (CWAAA).
\2\ 5 U.S.C. 605(b).
\3\ 5 U.S.C. 601(3) (incorporating by reference the definition
of ``small business concern'' in 15 U.S.C. 632). Pursuant to 5
U.S.C. 601(3), the statutory definition of small business applies
``unless an agency after consultation with the Office of Advocacy of
the Small Business Administration and after opportunity for public
comment, establishes one or more definitions of such term which are
appropriate to the activities of the agency and publishes such
definitions in the Federal Register.''
\4\ 15 U.S.C. 632.
\5\ 13 CFR 121.201.
---------------------------------------------------------------------------
86. The Commission has not adopted a definition of a ``small LEC.''
Out of an abundance of caution, however, the Commission did include
rural LECs in the regulatory flexibility analysis accompanying the
Order as if rural LECs fell within the definition of ``small entity''
for regulatory flexibility purposes.6 The Commission notes
that the term ``rural'' LEC, which is statutorily defined, is based on
the population density of and number of access lines in the area
served.7 For purposes of this certification, however, the
Commission need not make a conclusive finding on whether the rural LECs
are small entities for purposes of the RFA, for even if rural LECs were
``small entities'' under the RFA, the Commission would still certify
that no regulatory flexibility analysis is necessary because none of
the proposals in the FNPRM, if adopted, would affect rural LECs. This
FNPRM seeks comment only on the mechanisms the Commission should use to
estimate the forward-looking economic costs that non-rural LECs would
incur to provide universal service in rural, high cost and insular
areas. In this FNPRM, the Commission does not consider or adopt a
forward-looking economic cost mechanism for rural LECs. As discussed in
the Final Regulatory Flexibility Analysis in the Order, the Commission
has permitted rural carriers to shift to a forward-looking economic
cost mechanism more gradually than larger carriers.8
---------------------------------------------------------------------------
\6\ Order at paras. 885, 892, 944-50. See also 13 CFR
121.902(b)(4).
\7\ We define ``rural'' as those carriers that meet the
statutory definition of a ``rural telephone company'' set forth at
47 U.S.C. 153(37).
\8\ Order at paras. 885, 944-50.
---------------------------------------------------------------------------
87. The Commission therefore certifies, pursuant to section 605(b)
of the RFA, that these proposals would not have significant economic
impact on a substantial number of small entities.9 The
Commission will send a copy of this Certification, along with this
FNPRM, in a report to Congress pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A), and
to the Chief Counsel for Advocacy of The Small Business Administration,
5 U.S.C. 605(b). A copy of this initial certification will also be
published in the Federal Register.
---------------------------------------------------------------------------
\9\ 47 U.S.C. 605(b).
---------------------------------------------------------------------------
C. Deadlines and Instructions for Filing Comments
88. Pursuant to applicable procedures set forth in Secs. 1.415 and
1.419 of the Commission's rules, 47 CFR Secs. 1.415 and 1.419,
interested parties may file comments concerning the platform designs of
the switching, interoffice trunking, signaling, and local tandem
components must be submitted on or before August 8, 1997, and parties
should submit corresponding reply comments on or before August 18,
1997. Comments concerning the platform design features determining
customer location, including the geographic unit for cost calculations
and the algorithm measuring customer distribution and line counts, on
or before September 2, 1997, and reply comments regarding these
components should be submitted on or before September 10, 1997.
Comments discussing the platform-design issues relating to outside
plant investment, including the algorithms determining plant mix,
installation and cable costs, drop lengths, structure sharing, the
fiber-copper cross-over point, digital loop carriers, and the wireless
threshold must be submitted on or before September 24, 1997, with reply
comments submitted on or before October 3, 1997. Comments discussing
all platform issues not otherwise addressed, including the components
addressing general support facilities, expenses, and support areas, and
all input values issues must be submitted by October 17, 1997, with
reply comments due on or before October 27, 1997.
89. The Commission directs all interested parties to include the
name of the filing party and the date of the filing on each page of
their comments and reply comments. Comments and reply comments also
must clearly identify the specific portion of this Further Notice of
Proposed Rulemaking to which a particular comment or set of comments is
responsive. If a portion of a party's comments does not fall under a
particular topic listed in the outline of this Notice, such comments
must be included in a clearly labelled section at the beginning or end
of the filing. Irrespective of the length of their comments or reply
comments, parties shall include a table of contents in their
documents.10
---------------------------------------------------------------------------
\10\ Cf. 47 CFR Sec. 1.49(b).
---------------------------------------------------------------------------
90. Parties should send their comments or reply comments to Office
of the Secretary, Federal Communications Commission, 1919 M Street,
N.W., Room 222, Washington, D.C. 20554. Parties should also file one
copy of any documents filed in this docket with the Commission's copy
contractor, International Transcription Services, Inc., 1231 20th
Street, N.W., Washington, D.C. 20036. Comments and reply comments will
be available for public inspection during regular business hours in the
FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C.
20554. Commenters
[[Page 42469]]
may also file informal comments or an exact copy of formal comments
electronically via the Internet at http://gullfoss.fcc.gov/cgi-bin/
websql/cgi-bin/comment/comment.hts>. Only one copy of electronically-
filed comments must be submitted. A commenter must note whether an
electronic submission is an exact copy of formal comments on the
subject line. A commenter also must include its full name and Postal
Service mailing address in its submission. Parties are also asked to
submit their comments and reply comments on diskette. Such diskette
submissions are in addition to and not a substitute for the formal
filing requirements addressed above. Parties submitting diskettes
should submit them to Sheryl Todd of the Common Carrier Bureau, 2100 M
Street, N.W., Room 8611, Washington, D.C. 20554. Such a submission
should be on a 3.5 inch diskette formatted in an IBM compatible form
using WordPerfect 5.1 for Windows or compatible software. The diskette
should be submitted in ``read only'' mode. The diskette should be
clearly labelled with the party's name, proceeding, type of pleading
(comment or reply comments) and date of submission. Each diskette
should contain only one party's comments in a single electronic file.
The diskette should be accompanied by a cover letter.
Ordering Clauses
91. It is ordered, pursuant to Sections 1, 4(i) and (j), and 254 of
the Communications Act as amended, 47 U.S.C. Secs. 151, 154(i), 151(j),
and 254, that the Further Notice of Proposed Rulemaking is hereby
adopted and comments are requested as described above.
92. It is further ordered, pursuant to Secs. 0.91 and 0.291 of the
Commission's rules, 47 CFR 0.91, 0.291, that authority is delegated to
the Common Carrier Bureau to issue orders in this proceeding directing
model proponents to make certain changes in their models in order for
those models to remain under consideration in this proceeding.
List of Subjects
47 CFR Part 54
Universal service.
47 CFR Part 69
Communications common carriers.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Attachment A, Service List
The Honorable Reed E. Hundt, Chairman, Federal Communications
Commission, 1919 M Street, NW., Room 814, Washington, DC 20554
The Honorable Rachelle B. Chong, Commissioner, Federal
Communications Commission, 1919 M Street, NW., Room 844, Washington,
DC 20554
The Honorable Susan Ness, Commissioner, Federal Communications
Commission, 1919 M Street, NW., Room 832, Washington, DC 20554
The Honorable James H. Quello, Commissioner, Federal Communications
Commission, 1919 M Street, NW., Room 802, Washington, DC 20554
The Honorable Julia Johnson, State Chair, Chairman, Florida Public
Service Commission, 2540 Shumard Oak Blvd., Gerald Gunter Building,
Tallahassee, FL 32399-0850
The Honorable David Baker, Commissioner, Georgia Public Service
Commission, 244 Washington Street, SW., Atlanta, GA 30334-5701
The Honorable Sharon L. Nelson, Chairman, Washington Utilities and
Transportation Commission, 1300 South Evergreen Park Dr. SW., P.O.
Box 47250, Olympia, WA 98504-7250
The Honorable Laska Schoenfelder, Commissioner, South Dakota Public
Utilities Commission, State Capitol, 500 East Capitol Street,
Pierre, SD 57501-5070
Martha S. Hogerty, Missouri Office of Public Council, 301 West High
Street, Suite 250, P.O. Box 7800, Jefferson City, MO 65102
Tom Boasberg, Federal Communications Commission, Office of the
Chairman, 1919 M Street, NW., Room 814, Washington, DC 20554
Charles Bolle, South Dakota Public Utilities Commission, State
Capitol, 500 East Capitol Street, Pierre, SD 57501-5070
Deonne Bruning, Nebraska Public Service Commission, 300 The Atrium,
1200 N Street, P.O. Box 94927, Lincoln, NE 68509-4927
James Casserly, Federal Communications Commission, Commissioner
Ness's Office, 1919 M Street, NW., Room 832, Washington, DC 20554
Rowland Curry, Texas Public Utility Commission, 1701 North Congress
Avenue, P.O. Box 13326, Austin, TX 78701
Bridget Duff, State Staff Chair, Florida Public Service Commission,
2540 Shumard Oak Blvd., Tallahassee, FL 32399-0866
Kathleen Franco, Federal Communications Commission, Commissioner
Chong's Office, 1919 M Street, NW., Room 844, Washington, DC 20554
Paul Gallant, Commissioner Quello's Office, Federal Communications
Commission, 1919 M Street, NW., Room 802, Washington, DC 20554
Emily Hoffnar, Federal Staff Chair, Federal Communications
Commission, Accounting and Audits Division, Universal Service
Branch, 2100 M Street, NW., Room 8617, Washington, DC 20554
Lori Kenyon, Alaska Public Utilities Commission, 1016 West Sixth
Avenue, Suite 400, Anchorage, AK 99501
Debra M. Kriete, Pennsylvania Public Utilities Commission, North
Office Building, Room 110, Commonwealth and North Avenues, P.O. Box
3265, Harrisburg, PA 17105-3265
Sandra Makeeff, Iowa Utilities Board, Lucas State Office Building,
Des Moines, IA 50319
Philip F. McClelland, Pennsylvania Office of Consumer Advocate, 1425
Strawberry Square, Harrisburg, PA 17120
Thor Nelson, Colorado Office of Consumer Counsel, 1580 Logan Street,
Suite 610, Denver, CO 80203
Barry Payne, Indiana Office of the Consumer Counsel, 100 North
Senate Avenue, Room N501, Indianapolis, IN 46204-2208
Timothy Peterson, Deputy Division Chief, Federal Communications
Commission, Accounting and Audits Division, 2100 M Street, NW., Room
8613, Washington, DC 20554
James Bradford Ramsay, National Association of Regulatory Utility
Commissioners, 1100 Pennsylvania Ave., NW., P.O. Box 684,
Washington, DC 20044-0684
Brian Roberts, California Public Utilities Commission, 505 Van Ness
Avenue, San Francisco, CA 94102
Kevin Schwenzfeier, NYS Dept of Public Service, 3 Empire State
Plaza, Albany, NY 12223
Tiane Sommer, Georgia Public Service Commission, 244 Washington
Street, SW., Atlanta, GA 30334-5701
Sheryl Todd (plus 8 copies), Federal Communications Commission,
Accounting and Audits Division, Universal Service Branch, 2100 M
Street, NW., Room 8611, Washington, DC 20554
[FR Doc. 97-20958 Filed 8-6-97; 8:45 am]
BILLING CODE 6712-01-P
