WPC_ 2MBVRvZ3|x7jC:,ynXj\  P6G;XPCourierTimes New RomanTimes New Roman BoldTimes New Roman ItalicTimes New Roman Bold ItalicCG TimesCourier BoldL8ddddX`(`lD4l\DDD4DDDDDDdDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddxHxxHvppDXd<"dxtldpxxdHP LaserJet 5Sidd) RM 518_1nal)HPLAS5SI.PRSXj\  P6G;\K!zXP2BKX2 X-#X\  P6G;ɒP#X01Í ÍX01Í Í#Xj\  P6G;ynXP#"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN%7777777777>>>0eOIIOD>OO%*ODaOO>OI>DOOgOOD%%37%07070%777V7777%*77O77055;%;3%%%%%%%%%7%7O0O0O0O0O0aHI0D0D0D0D0%%%%O7O7O7O7O7O7O7O7O7O7O0O7O6O7O7O7>7O0O0O0I0I0I;I0OED0D0D0D0O7O7O7O;O7O;O7%%7%%%7M>;;O7DD,D%D%DO7AO7O7O7O7aOI%I%I%>*>*>*>;D.DD3O7O7O7O7O7O7gOO;D0D0D0O7D%O7>*D%O7E77%%WMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN(BB(37%07777j7#TT7!#TT7T!%%007n&&Bn77lBTn(nBB(AZZ>>n%07\n!"IIIITTenn7TnB@;7>lBBn7"i~'^5Fg\\>>>\g0>03\\\\\\\\\\>>ggg\yyyyyF\yrrygryyrr>3>g\>\\Q\Q>\g33\3g\\\FF3gQy\QF>(>g>0gg>>>0>>>>>>\>\3y\y\y\y\y\yQyQyQyQyQF3F3F3F3g\\\\ggggrQy\\\\rQ\r\y\y\y\yQyQygyQyQyQyQyQ\\\g\ggF3F\F>F\gggy\r3r_r>rFr3ggg\\yFyFyFgFgFgFggrcr3rgggggggyrgrFrFrF\r>ggFr>r\0\\=3=WddddddddddddddddddddddddddddddddddddddddNBnnB\\F\\\\\\07\7>\7>>\\\??n\\pBnnBigg>\\7"yyyy\nyc\gnn\"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDdDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddxHxxHvppDXd<"dxtldpxxd2i K; Z CourierTimes New RomanTimes New Roman BoldTimes New Roman ItalicTimes New Roman Bold ItalicCG Times"i~'^5>M\\>>>\}0>03\\\\\\\\\\>>}}}\rryrr>Qygyrr\grrggF3FM\>\\Q\Q3\\33Q3\\\\FF3\QyQQFI3Ic>0cM>>>0>>>>>>\>\3r\r\r\r\r\yyQrQrQrQrQ>3>3>3>3y\\\\\\\\\gQr\\\\gQ\r\r\r\r\yQyQycyQnrQrQrQrQ\\\c\c\>3>\>>>\\ccyQg3gBg>g;g3y\jy\y\\\yrFrFrF\F\F\FccgBg3gM\\\\\\ygcgFgFgF\g>y\\Fg>g\n0\\=(=WddddddddddddddddddddddddddddddddddddddddNBnnB_\F\\\\\\3;\7;\7>>gg\??n\\nBnnBb\\>g\7"yyyy\njc\}nn\HP LaserJet 5Sidd) RM 518_1nal)HPLAS5SI.PRSx  @\K!zX@2HKKgKK"i~'^5>I\\>>>\g0>03\\\\\\\\\\33gggQyyrg>Frgygrr>3>T\>Q\Q\Q>\\33\3\\\\>F3\\\\QX%Xc>0cT>>>0>>>>>>\>\3QQQQQwyQrQrQrQrQ>3>3>3>3\\\\\\\\\\Q\Z\\\g\QQQyQyQycyQtrQrQrQrQ\\\c\c\>3>\>>>\gcc\r3rIr>r>r3\l\\\\y>y>y>gFgFgFgcrMr3rT\\\\\\crQrQrQ\r>\gFr>\t0\\=!=WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNBnnBT\>Q\\\\\3;\7;\7>>QQ\??n\\nBnnBmgg>Q\7"yyyy\njc\gnn\"i~'^5>g\\>>>\g0>03\\\\\\\\\\>>ggg\yyrF\yrgyy>3>j\>\gQgQ>\g3>g3g\ggQF>g\\\QI(I_>0_j>>>0>>>>>>\>g3\\\\\QyQyQyQyQD3D3D3D3g\\\\gggg\\g\\\\pg\\\QQ_QyQyQyQyQ\\\_\gjF3FgF>Fgg__gy3ySy>yIy3ggg\\QQQgFgFgFg_y^y>yjgggggg_yQyQyQgy>ggFy>\0\\=2=WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNBnnBa\>\\\\\\7>\7>\7>>\\\??n\\nBnnBsgg>\\7"yyyy\nlc\gnn\"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d"";3<<{=a4TechnicalTechnical Document Style8bv{ 2  a.   a1TechnicalTechnical Document StyleF!<  ?  I.   a7TechnicalTechnical Document Style(@D i) . a8TechnicalTechnical Document Style(D a) . 2OD33>f?ejCCDoc InitInitialize Document Stylez   0*0*0*  I. A. 1. a.(1)(a) i) a) I. 1. A. a.(1)(a) i) a)DocumentgPleadingHeader for Numbered Pleading PaperE!n    X X` hp x (#%'0*,.8135@8:qtoc 2toc 2;` hp x (#` !(#B` !(#B` hp x (#toc 3toc 3<` hp x (#` !(# ` !(# ` hp x (#toc 4toc 4=` hp x (# !(#  !(# ` hp x (#toc 5toc 5>` hp x (#h!(# h!(# ` hp x (#2z?t@v/vAvBxtoc 6toc 6?` hp x (#!(#!(#` hp x (#toc 7toc 7@ toc 8toc 8A` hp x (#!(#!(#` hp x (#toc 9toc 9B` hp x (#!(#B!(#B` hp x (#2C{D1}EOFvmindex 1index 1C` hp x (#` !(# ` !(# ` hp x (#index 2index 2D` hp x (#` !(#B` !(#B` hp x (#toatoaE` hp x (#!(# !(# ` hp x (#captioncaptionF 2GlHrI.Jl!_Equation Caption_Equation CaptionG endnote referenceendnote referenceH heading 3heading 3IX` hp x (#` p x (# ` p x (#X` hp x (#footerfooterJX` hp x (#`  (##Xv6X@CX@##XP\  P6QXP#`  (#X` hp x (#2ӐKlL+MlINheaderheaderKX` hp x (#`  (##Xx6X@DQX@##XP\  P6QXP#`  (#X` hp x (#footnote textfootnote textLX` hp x (#` p x (#` p x (#X` hp x (#Indent .5Indent .5MX` hp x (#` p x (##Xx6X@DQX@##XP\  P6QXP#` p x (#X` hp x (#Indent 1Indent 1NX` hp x (#` p x (#` p x (#X` hp x (#2ǤOP@ f bepage numberpage numberO11#Xx6X@DQX@##XP\  P6QXP#QuoteQuotePX` hp x (#` p x (#",tB^ f ^;C]ddCCCdCCCCddddddddddCCY~~vCN~sk~CCCddCYdYdYCdd88d8ddddJN8ddddYYdYd4dddddCddddddddd8YYYYYY~Y~Y~Y~YC8C8C8C8ddddddddddYdddddsdXdXXXddx|X~d~d|XdddddddC8ddddCdoddd|8|H~d|8|8dtddddHHdlLlLlLkd|H|8~ddddddddXXXd~ddkd~ddxCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCYQQddddddFddddFCChhd44ddxxdddvooChdF"dhd9dCCxCddoddCdYds]xUvdYYCCCCx~oxoY~NYdYC8YooYdYxsdxdd~YYxoxxx~CdxYxxxxCCdddddddxCsdYC\   pxtll\tll@\@\`L<?xxx,x6X@`7X@2a=5,u&a\  P6G;&P 2e=5,&e4  pG;&y.X80,ɒX\  P6G;P 7jC:,ynXj\  P6G;XP7nC:,\4  pG;<r5ddd,Nd6X@`7@<[*PPP,6MP6X@`7@[*PPP,iMP `72d]<?xxx,x6X@`7X@2a=5,u&a\  P6G;&P 2e=5,&e4  pG;&y.X80,ɒX\  P6G;P 7jC:,ynXj\  P6G;XP7nC:,\4  pG;<r5ddd,Nd6X@`7@<[*PPP,6MP6X@`7@[*PPP,iMP `7?xxx,ix `7Xs4ddd,igd `7#X\ recover costs. AT&T December 23 Petition at 30. These alterna S- S-#&a\  P6G;u&P#yxdddy [Federal Communications Commission`_(#DA 98151 Њ#X\  P6G;ɒP#X01Í ÍX01Í Í#&a\  P6G;u&P#   P3Before the  FEDERAL COMMUNICATIONS COMMISSION  S-Washington, D.C. 20554 ă  S`-x` `  hh@hpp  xx DA 98151  S-In the Matter of hh)@h x` `  hh)  S-Tariffs Implementing hh)@hCC Docket No. 97250  S-Access Charge Reform hh) x` `  hh)  S -  ORDER DESIGNATING ISSUES FOR INVESTIGATION  S -k AND ORDER ON RECONSIDERATION TP  S -xAdopted: January 28, 1998hh@hppReleased: January 28, 1998  SX-Direct Case Date:  February 27, 1998  S0-Opposition/Comment Date: March 16, 1998  S-Rebuttal Date:  March 23, 1998 By the Chief, Common Carrier Bureau:  S@-  TABLE OF CONTENTS TP Paragraph No. X(#P  S-I.xIntroduction`"(#R1  SP-II.xCommon Line Issues`"(#R3  S-III.xMethodology for Calculating Exogenous Cost Changes xFor Line Ports and End Office Trunk Ports`p"(#L36  S-IV.xTransport Adjustment Issues`p"(#L53  S8-V.xRecovery of New Universal Support Obligations`p"(#L91  S -VI.xReconsideration of Decision to Suspend and Investigate Puerto Rico xTelephone Company's Tariff Filings`p"(#L98  Sp#-VII.xProcedural Matters`"(#F102  S %-VIII.xOrdering Clauses`"(#F108 "&0*((n("Ԍ S- I. INTRODUCTION ă  S-x1. On December 30, 1997, we released the Access Charge Reform Tariffs Suspension Order,$u {O-ԍ Tariffs Implementing Access Charge Reform, CC Docket No. 97250, Memorandum Opinion and Order,  {O-DA 972724 (Com. Car. Bur., rel. Dec. 30, 1997) (Access Charge Reform Tariffs Suspension Order). See also Memorandum Opinion and Order, DA 98125 (Com. Car. Bur., rel. Jan. 23, 1998) (suspending 14 transmittals and incorporating their review into this investigation).  S-which, inter alia, suspended for one day the access tariffs implementing the Access Charge Reform  Sd-Proceeding^du {O -Ѝ Access Charge Reform, CC Docket No. 96262, First Report and Order, 12 FCC Rcd 15982 (1997)  {O -(Access Charge Reform Order); Order on Reconsideration, 12 FCC Rcd 10119 (1997); Second Order on  {OL -Reconsideration, 12 FCC Rcd 16606 (1997) (collectively, Access Charge Reform Proceeding). filed by several incumbent local exchange carriers (LECs), imposed an accounting order, and initiated an investigation into the lawfulness of a number of issues raised by these tariff filings. We concluded that the access tariffs filed by all price cap LECs raised significant questions of  S-lawfulness that warranted investigation.mu yOh-ԍ Those carriers were: Aliant Communications Company (Aliant); Ameritech Operating Companies (Ameritech); Bell Atlantic Operating Companies (Bell Atlantic); BellSouth Telecommunications, Inc. (BellSouth); Cincinnati Bell Telephone Company (CBT); Citizens Telecommunications Companies (Citizens); Frontier Telephone Companies [Frontier Communications of Minnesota and Iowa, and Frontier Telephone of Rochester] (Frontier); GTE Telephone Operating Companies (GTOC) and GTE Systems Telephone Companies (GSTC) (collectively GTE); New York Telephone and New England Telephone and Telegraph Company (NYNEX); Southern New England Telephone Company (SNET); Southwestern Bell Telephone Company (SWBT), Pacific Bell and Nevada Bell (collectively, SBC); Sprint Local Telephone Companies (Sprint LTCs); and US West Communications, Inc. (US West).m We also concluded that provisions in the access tariffs filed by the Puerto Rico Telephone Company (PRTC) and Beehive Telephone Company raised questions of  S-lawfulness that warranted investigation.u yO-ԍ Beehive Telephone Company is the subject of a separate investigation and will not be addressed further in this Order.  SN -x2. In this Order, we designate for investigation issues regarding: nonprimary residential line counts, the methodology for calculating exogenous cost changes for line ports and end office trunk ports, Central Office Equipment maintenance and marketing cost exogenous adjustments, tandemswitched transport rates, the removal of costs from and calculation of the transport interconnection charge, and universal service support exogenous adjustment for all price cap LECs; the base factor portion revenue requirement for six price cap LECs; the attribution of tandem switching revenue requirement to SS7 costs for Bell Atlantic and US West; the inclusion of STP port costs in the SS7 revenue requirement for SWBT, Pacific Bell, and Nevada Bell; and the line counts used to determine common line rates for Ameritech, CBT, and US West. In addition, on our own motion, we reconsider our decision to suspend and investigate PRTC's tariff filings, Transmittal Numbers 24, 25, and 27. "n0*&&PPs"Ԍ S-0<$I J:\ACCESFIL.198\II-B.DLH 0Z II. COMMON LINE ISSUES ă  S- A.XNonprimary Residential Line Issues (#  S`- 1.` ` Background  S-3. Before January 1, 1998, the access charge rules permitted price cap LECs to recover their permitted common line revenues through a combination of a flatrated Subscriber Line Charge (SLC)  S-and a perminute carrier common line (CCL) charge.u yO( -#X\  P6G;ɒP#э SLCs are also referred to as enduser common line charges (EUCLs). The SLC was capped at $3.50 per month for residential and singleline business users and, since July 1, 1997, at $9.00 per month perline for  Sp-multiline business (MLB) users.)pXu {Oh -#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 15999. The MLB SLC cap was raised from $6.00 to $9.00  {O2 -on July 1, 1997, pursuant to the Access Charge Reform Order. Id. at 16014.) To the extent that permitted common line revenues were not recovered in the SLC, they were recovered through the CCL charge, which was assessed on the IXCs.  S -The Access Charge Reform Order modified the way the price cap LECs recover their common line revenues. As of January 1, 1998, a price cap LEC's common line revenues are recovered through: (1) a SLC assessed on endusers; (2) a flat, perline charge assessed on the IXC to whom the access line is presubscribed, referred to as the presubscribed interexchange carrier charge (PICC); and (3) a per S -minute CCL charge assessed on IXCs. u {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16005. The PICC will recover common line revenues that exceed the  SZ-SLC ceilings, subject to a ceiling.ZFu {O@-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16005. Over time, the PICC ceilings will increase for all subscriber lines,  S2-and the SLC ceilings will increase for MLB and nonprimary residential lines. 2u yO-#X\  P6G;ɒP#э 47 C.F.R. 69.152(e)(2)(ii), 69.152(k), 69.153(c)(2), 69.153(d)(1)(ii), and 69.153(d)(2)(ii). The perminute CCL charge will be phased out once all permitted common line revenues can be recovered through the two flatrated charges.  S-4. As of January 1, 1998, the SLC cap for nonprimary residential lines was adjusted from the lesser of the perline average common line costs allocated to the interstate jurisdiction and $3.50, to  SB-the lesser of the incumbent LEC's average perline interstateallocated costs and $5.00.p Bh u yOJ-#X\  P6G;ɒP#э 47 C.F.R. 69.152(e).p Both the MLB and nonprimary residential line SLC caps will be adjusted for inflation beginning January 1,  S-1999.9 X u yO"-#X\  P6G;ɒP#э 47 C.F.R. 69.152(k). The SLC cap for nonprimary residential lines will also be increased on January 1, 1999 by $1.00, and be increased by $1.00 each year thereafter beginning on July 1, 2000. 47 C.F.R. 69.152(e)(2)(ii).9 The PICC was capped for the first year at $1.50 for nonprimary residential lines and $2.75 for MLB lines. For primary residential and singleline business lines, the PICC was capped at $0.53 per month, beginning January 1, 1998. " 0*&&PP"Ԍ S-ԙ5. The Commission's purpose in restructuring the rate system was to provide for recovery of  S-nontraffic sensitive costs through flat fees, such as the SLC and PICC. u {O@-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 15998. To the extent that the LECs' nonprimary residential line counts are too low, IXCs will be overcharged (and certain end users will be charged less than they could be) because the SLC for nonprimary residential lines has a higher  S`-ceiling than the SLC for primary residential service. `Zu yOZ-#X\  P6G;ɒP#э The overcharge occurs because the IXCs pay the costs in excess of the ceiling through PICCs and the CCL charge, so the higher the ceiling, the less cost the IXCs are required to pay. To the extent this results in higher perminute  S8-CCL charges, it is contrary to the costcausation principles set forth in the Access Charge Reform  S-Order.u {Od -#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16004.  S-6. The Access Charge Reform Order, however, did not provide definitions of primary and  S-nonprimary residential lines.Du {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16016. The Commission noted in that Order its intention to develop such definitions in the Universal Service rulemaking proceeding by the end of 1997, too late for  SN -implementation as of January 1, 1998.N u {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16016. On September 5, 1997, the Commission released a Notice of  S& -Proposed Rulemaking seeking comment on how to define primary residential lines.& h u {O.-#X\  P6G;ɒP#э In re Defining Primary Lines, CC Docket No. 97181, Notice of Proposed Rulemaking, 12 FCC Rcd  {O-13647 (1997) (Primary Lines NPRM). The Commission  S -discussed several possible definitions, including defining the primary residential line as the primary  S -line of an individual subscriber, of a residence, of an individual household, or by using another basis. u {O:-#X\  P6G;ɒP#э Primary Lines NPRM, 12 FCC Rcd at 13651.  S -The Primary Lines NPRM also sought comment on how to identify primary residential lines once a definition was in place. The Commission has not yet issued an order resolving the issues raised in the  S`-Primary Lines NPRM. ":V 0*&&PP;"Ԍ S- 7. In their tariff filings, price cap LECs identified the following percentage of line counts as  S-nonprimary residential and BRI ISDN lines:,u yO@-#X\  P6G;ɒP#э These figures are yearly line counts (number of lines times 12). BRI ISDN lines are assessed the nonprimary residential SLC even if the customer is a multiline business or if it is a residential customer's only line.,  S-XFigure 1. Ratio of NonPrimary Residential and BRI ISDN to All Residential and SingleLine Business  S-Ameritech` `  10.69%  S-U S West` `  10.18%  S-Bell Atlantic` `  10.14%  S-Sprint LTCs` `  9.54%  Sp-SWBT` `  8.87%  SH -BellSouth` `  8.70%  S -NYNEX` `  7.69%  S -Nevada Bell` `  7.47%  S -SNET` `  6.31%  S -CBT` `  5.79%  S -Frontier` `  4.77%  SX-GTE` `  4.74%  S0-Aliant` `  4.38%  S-PacBell ` `  3.34%  S-Citizens` `  2.62%  S-Average` `  8.22%  S@-  2.` ` Pleadings  S-` ` a. Petitions and Comments  S-8. AT&T contends that some of the LECs' nonprimary residential line counts are too low. u yO`-#X\  P6G;ɒP#эAT&T also argues that, because the Commission decided not to define primary and nonprimary lines, it should either provide definitions or eliminate the distinction altogether for the purpose of determining the level of SLCs and PICCs to be applied. Eliminating this distinction, argues AT&T, would obliterate any "gamesmanship" in nonprimary SLC counts, and would allow the Commission to allow LECs to charge a SLC for both categories sufficient to recover costs. AT&T December 23 Petition at 30. These alternatives would require rulemaking beyond the scope of this tariff investigation. AT&T estimated in its December 23 pleading that 1020 percent of residential enduser common lines are nonprimary residential, compared to the LECs' 8.22 percent average. AT&T bases its estimate on LEC ex parte submissions, Census Bureau data, and figures from the Hatfield Model filed with the  S-Commission in other proceedings.qu yO8%-#X\  P6G;ɒP#э AT&T December 23 Petition at 31.q According to AT&T, the price cap LECS collectively have underestimated the nonprimary residential line count by 84 million. This results in the price cap"( 0*&&PP." LECs collecting $126 million per year too little in SLC revenue and $81 million per year too little in  S-PICC revenue at capped rates.qu yO@-#X\  P6G;ɒP#э AT&T December 23 Petition at 31.q AT&T argues that these allegedly low nonprimary residential line counts result in an improper increase of line counts to the primary residence or single line business categories, and ultimately results in IXCs being overcharged these amounts in contravention of the  S`-Commission's policy goals.w`Xu yOX-#X\  P6G;ɒP#э AT&T December 11 Petition at 39.w AT&T contends that, as a result of these alleged understatements, the  S8-Commission should investigate all the price cap LECs' SLC demands.w8u yO -#X\  P6G;ɒP#э AT&T December 11 Petition at 40.w  S-9. MCI contends that GTE has failed to define nonprimary lines in its Access Charge Reform  S-Tariff filing, in contravention of section 61.2 of the Commission's rules.xXxu yO -#X\  P6G;ɒP#э MCI's argument relies on section 61.2 of the Commission's rules, which states, in full, that "[i]n order to remove all doubt as to their proper application, all tariff publications must contain clear and explicit explanatory statements regarding the rates and regulations." 47 C.F.R. 61.2.x According to MCI, without a definition of nonprimary lines, it is impossible to evaluate whether the PICC and SLC counts used in GTE's rate development are reasonable, and equally impossible for GTE's customers to determine  SL -the application of the nonprimary PICC and SLC.pL u yO-#X\  P6G;ɒP#э MCI December 10 Petition at 14.p MCI also contends that the definitions set forth  S$ -by the LECs are inconsistent, and some are unreasonably vague.p$ ( u yO-#X\  P6G;ɒP#э MCI December 23 Petition at 21.p  S -`` ` b. Replies  S - 10. The LECs generally dispute AT&T's contention that because SLC demand is lower than AT&T estimated`, LECs' counts of nonprimary residential lines are incorrect. They contend that their definitions of primary and nonprimary residential lines are reasonable, and that their line counts are  S -appropriately based upon actual data, such as billing records.   u yOd-#X\  P6G;ɒP#э Aliant December 29 Reply at 5; Bell Atlantic December 18 Reply at 19; BellSouth December 29 Reply at 1415; CBT December 29 Reply at 7; Citizens December 29 Reply at 3; Frontier December 17 Reply at 7; GTE December 17 Reply at 15; SNET December 29 Reply at 5; SWBT December 29 Reply at 14; US West December 29 Reply at 7. Further, Citizens and GTE both state that their relatively low nonprimary line counts reflect the fact that secondary lines have not  S-penetrated the more rural parts of the United States.u yO"-#X\  P6G;ɒP#э Citizens December 29 Reply at 3; GTE December 17 Reply at 16; GTE December 29 Reply at 10. Bell Atlantic and SWBT contend it is premature to investigate the definitions of primary and nonprimary residential lines until the Commission issues"00*&&PP"  S-an order pursuant to the Primary Lines NPRM.u yOh-#X\  P6G;ɒP#э Bell Atlantic December 29 Reply at 9; SWBT December 29 Reply at 14. Once an order is issued, SWBT states that the LECs can review and adjust their tariffs in order to comply. In addition, Bell Atlantic and Frontier support the elimination of the primary/nonprimary residential line distinction, and Bell Atlantic otherwise recommends that the Commission consider a trueup mechanism to be employed after sufficient billing  Sb-data are available.bXu yOZ-#C\  P6UɒP#э Bell Atlantic December 18 Reply at 20; Frontier December 17 Reply at 7.  S- 11. Bell Atlantic, CBT, and GTE also contend that AT&T presents no evidence of low nonprimary residential line counts, but relies on generalized data and the Hatfield Model, which they  S-argue is inappropriate and produces grossly inaccurate estimates of subscriber lines. u yOJ -#X\  P6G;ɒP#э Bell Atlantic December 18 Reply at 19; CBT December 29 Reply at 7; GTE December 17 Reply at 15. AT&T's contentions, according to Bell Atlantic, are based upon a "hodgepodge of conjectural sources" which  Sr-should not be accorded any weight.v!rxu yO-#X\  P6G;ɒP#э Bell Atlantic December 29 Reply at 9.v  S" - 12. As for MCI's contention that the LECs' definitions are not consistent, BellSouth states that this would be expected, as the Commission has not set forth any definitions, and has left it to the  S -price cap LECs to devise their own.s" u yOz-#X\  P6G;ɒP#э BellSouth December 29 Reply at 14.s CBT argues that MCI's contention that the definitions filed by  S -the price cap LECs are vague is not supported.l# u yO-#X\  P6G;ɒP#э CBT December 29 Reply at 7.l  SZ-` 3.` ` Discussion  S - 13. Based on a review of the record, we conclude that investigation of the definitions used by some price cap LECs to` identify primary and nonprimary residential lines is warranted. We further find that, for all price cap LECs, the line counts for primary and nonprimary residential lines warrant investigation.  SB- 14. The Commission has not yet adopted a uniform nationwide definition of primary and nonprimary residential lines. Our purpose here is to determine whether the definitions that price cap LECs did use are reasonable, and whether these definitions were applied consistently and in a reasonable manner in calculating the number of primary and nonprimary residential lines. Once the Commission promulgates a definition in the Universal Service docket, the price cap LECs may be required to make prospective adjustments in order to comply with the new definition.  S*-15. We have found several problems with price cap LECs' definitions of primary versus nonprimary residential lines. SWBT defines its primary residential service as "the local exchange service"( #0*&&PPz"  S-provided as the primary residential service under the general or local exchange service tariffs."{$u yOh-#X\  P6G;ɒP#э SWBT Tariff F.C.C. No. 73, 2.7.{ We note that SWBT does not use the term "line" in its definition, and that in defining "primary" residential service as the "primary" residential service in its tariffs, its definition is completely circular. We tentatively conclude that this definition is unreasonable. BellSouth has a similar problem with  S`-circularity in its definition, and we tentatively conclude that its definition is unreasonable as well.\%`Xu yOX-#X\  P6G;ɒP#э BellSouth's definition of a primary residential line is as follows: XX` ` This term denotes the Residential Local Exchange Service line ... provided by the Telephone Company ... which is assessed the Primary Residential PICC or EUCL Charge.x` \ SNET's definition is so vague that it is not possible to determine on its face how it distinguished  S-between primary and nonprimary lines.&u yO -#X\  P6G;ɒP#э SNET Tariff F.C.C. No. 49, 4.1.3.E. SNET's definition for residential telephone exchange service is as follows: XX` ` When an end user is provided a residence Telephone Exchange Service by the Telephone Company, the Primary Residence Subscriber rate set forth in Section 4.1.4(a) ... applies to the first local residence exchange line. Each additional local residence exchange line will be billed the Nonprimary residence rate set forth in Section 4.1.4(d). x` There is no definition or explanation of how the first local residence exchange line is determined. Without this information, we have no knowledge of how SNET determines primary versus nonprimary residential lines. For these reasons, we require BellSouth, SNET, and SWBT to explain fully their definitions of primary and nonprimary residential lines, including any assumptions that went into these definitions, and invite them, in their direct cases, to submit modified, expanded, or clarified definitions as necessary. These price cap LECs should make clear what lines these definitions include and the manner in which they would be identified, such as by account number(s), billing number(s), customer name, location, or by whatever sorting method the LEC chose to use. Regarding MCI's allegations directed at GTE's definitions, we find that GTE did provide definitions of primary and nonprimary residential lines, and we decline to investigate the question of  S -what definition GTE used to identify these lines at this time.' hu {O-#X\  P6G;ɒP#э See GTOC Transmittal No. 1123, tariff section 13.10(B); GSTC Transmittal No. 226, tariff section 4.6.7(A), both filed on November 26, 1997.  S -16. The nonprimary residential line counts are lower than we would have expected, given various published estimates and LEC public statements regarding the growth of second line  S0-penetration.($0u {O#-#X\  P6G;ɒP#э See, e.g., Cincinnati Bell, Inc. More Than a Phone Company: Billing and Teleservices Drive Growth, Salomon Brothers, November 28, 1997. This study included estimates for secondary line penetration for  {O$%-Ameritech, Bell Atlantic, BellSouth, CBT, PacBell, SWBT, and U S West. See also Telephony Financials, Communications Daily (January 22, 1998). Recent industry analyses suggest that secondary line penetration averages 19 percent for"0(0*&&PP" several large price cap LECs. Bell Atlantic recently announced that it had achieved additional  S-residential line penetration of 19 percent in a 13-state region.)u {O@-#X\  P6G;ɒP#э See Telephony Financials, Communications Daily (January 22, 1998). PacBell stated as early as mid1996 that nearly 20 percent of its residential customers had more than one access line, and that it was  S-experiencing growth of 152 percent for additional residential lines.*Zu {O-#X\  P6G;ɒP#э Pacific Telesis Inside Line, Issue No. 90 at 2 (July 15, 1996). The percentages of lines that price cap LECs report in their tariff filings as nonprimary residential lines are much lower than these estimates of additional line penetration and additional line growth would indicate. Most notably,  S-PacBell reports only 3.34 percent of nonMLB lines as nonprimary residential or BRI ISDN lines.q+u {O -#X\  P6G;ɒP#э See Figure 1, supra.q On average, price cap LECs identify only 8.22 percent of nonMLB lines as nonprimary residential or BRI ISDN lines. We tentatively conclude that all price cap LECs may have under identified nonprimary residential and BRI ISDN lines. Low nonprimary residential line percentages could be due to definitions that do not reasonably identify nonprimary residential lines, or to the way in which the  SH -definitions are applied.},H ~u yOf-#X\  P6G;ɒP#э For example, Bell Atlantic used a sample of all subscriber lines in New Jersey to represent the proportion of nonprimary residential line counts in the Bell Atlantic region. Bell Atlantic December 18 Reply at 20. This methodology yielded a nonprimary residential line count that appears to be roughly half of that presented by Bell Atlantic in public statements. Other LECs claimed that they used actual data, but did not indicate if residential line counts were made using incomplete samples within service areas or were inclusive of company records.} We therefore designate for investigation, for all price cap LECs, both the question whether the LECs used reasonable definitions of nonprimary lines and the question whether these definitions were applied in a reasonable manner.  S -17. We therefore require each price cap LEC to identify the number of lines in each of the following categories: (1) primary residential lines; (2) singleline business lines; (3) nonprimary residential lines; and (4) BRI ISDN lines. In addition, using the worksheets attached as Appendix B, each price cap LEC's direct case must delineate what, how, and in which order data were sorted and used in accordance with its definition to arrive at the primary and nonprimary residential line count totals submitted pursuant to this order. We also direct each price cap LEC to include in its direct case an explanation of why its definition is reasonable.  Sh- B.PICC and SLC Demand Amounts  S- 1.` ` Background  S-18. SLCs are assessed upon end users that subscribe to local exchange telephone service or  S-Centrex service in order to recover price cap common line revenues.- u {O6$-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16016; 47 C.F.R. 69.152(a). PICCs are assessed perline" -0*&&PP" upon the subscriber's presubscribed interexchange carrier, in part to recover common line revenues not  S-recovered from the SLC charges.j.u yO@-#X\  P6G;ɒP#э 47 C.F.R. 69.153(a).j  S-19. The maximum PICCs are determined by dividing common line and other revenues  S`-permitted under our price cap rules by lines in use, subject to the PICC ceilings.g/`Xu yOX-#X\  P6G;ɒP#э 47 C.F.R. 69.153.g The maximum per S8-minute CCL charges the price cap LECs can recover is the lower of: (1) the perminute rate that would recover annual common line revenues permitted less the maximum amounts allowed to be  S-recovered under sections 69.152 and 69.153.g0u yOp -#X\  P6G;ɒP#э 47 C.F.R. 69.154.g This calculation requires the price cap LECs to include in their calculations the maximum SLC and PICC revenues they may recover, regardless of whether they actually assess the charges. If a LEC does not include all of the lines it is permitted to charge a PICC in making its calculations, the PICC determined using the formula in section 69.153 will be too high because residual revenues will be divided by too few lines. Additionally, if the PICCs are above the PICC caps, the residual used to determine the perminute CCL charge pursuant to the formula in section 69.154(a) will also be too high. Thus, if the price cap LECs do not include in their PICC and maximum CCL charge calculations all the SLCs and PICCs they are entitled to assess, the IXCs will be overcharged to the extent that these SLCs and PICCs are not included.  SX- 2.` ` Pleadings  S-` ` a . Petitions and Comments  S-20. Sprint LTCs contend that Ameritech estimated that the number of multiline businesses and Primary Rate Interface (PRI) ISDN lines subject to the PICC is significantly lower than the  Sh-number of lines subject to the SLC, with no explanation provided for this discrepancy.w1hxu yO-#C\  P6UɒP#э Sprint LTCs December 23 Petition at 2.w AT&T and MCI contend that the LECs' SLC and PICC line counts should be identical, because the SLC charges  S-and the PICC both seek to recover the same costs.w2u yO-#X\  P6G;ɒP#э AT&T December 11 Petition at 37.w None of the LECs' SLC counts equal their PICC counts. AT&T contends that Ameritech, for example, filed PICC counts 2,281,343 lower than its SLC counts. Further, Ameritech's PICC counts for Lifeline services were 24,626 lower that its SLC counts for those services. According to MCI, Ameritech also identifies significantly fewer Centrex PICCs  Sx-than Centrex SLCs.p3xu yO"-#C\  P6UɒP#э MCI December 10 Petition at 13.p Several other LECs, according to AT&T, filed tariffs where the SLC counts  SP-exceeded their PICC counts.4P( u yO%-#X\  P6G;ɒP#э AT&T December 23 Petition at 27. These LECs include BellSouth, Bell Atlantic, GSTC, GTOC, NYNEX, PacBell, Nevada Bell, SWBT, and SNET."P 40*&&PP"Ԍ S-ԙ`` ` b. Replies  S-21. Ameritech provides four reasons that it claims contribute to its SLC count being higher than its PICC count. Ameritech` initially argued that Lifeline end user lines not presubscribed to an IXC were not included in the PICC primary residence demand. Ameritech has since revised its tariff filing, and now includes PICCs for Lifeline customers in its primary residence demand. Ameritech also argues that its demand for Centrex SLCs and PICCs are equal, contrary to MCI's allegation. Ameritech states that Centrex PICC demand is divided between Centrex with eight or fewer lines and Centrex with more than eight lines. The sum of these two PICC numbers equals SLC demand for  S-Centrex.s5u yO -#C\  P6UɒP#э Ameritech December 17 Reply at 19.s Further, Ameritech contends that, for multiline businesses, its SLC demand is higher  Sp-because it does not assess PICC charges for those services that are inwardonly.s6pXu yOh -#X\  P6G;ɒP#э Ameritech December 17 Reply at 19.s According to Ameritech, these services do not receive a dial tone and cannot originate calls. Further, they are not presubscribed to IXCs, not by choice, but due to the nature of the service. Ameritech argues that it would be unreasonable to assess a PICC on a service for which the end user cannot select a primary IXC. Furthermore, to the extent that Ameritech determines that there are other types of lines that are unable to select a presubscribed carrier and for which it will not assess a PICC, Ameritech states that it will achieve less PICC revenue than calculated in its filing, and that the resulting loss will fall on it  SX-and not on any IXC.s7Xu yO-#X\  P6G;ɒP#э Ameritech December 29 Reply at 10.s Finally, Ameritech states that its MLB and PRI ISDN PICC counts are lower than the corresponding SLC line counts, because each PRI ISDN service application is assessed five  S-SLCs but only one PICC.s8xu yO -#C\  P6UɒP#э Ameritech December 17 Reply at 19.s  S- 3.` ` Discussion  Sh-22. All the LECs' filed PICC line counts that were higher than the SLC counts,9hu yO-#X\  P6G;ɒP#э For example, for the tariffs filed on November 26, 1997 the price cap LECs that filed at that time showed 17,935,159 more PICC demand than SLC demand. with the exception of Ameritech. Ameritech set forth four factors explaining why its SLC count was higher than its PICC count. The remaining price cap LECs explained that their PICC counts were higher" ` 90*&&PPD"  S-than their SLC counts because they do not assess a SLC on official or concession lines..:Zu {Oh-#X\  P6G;ɒP#э For example, see BellSouth December 17 Reply at 36. Official lines are those lines used by the telephone company; concession lines are used by telephone company employees. Bell Atlantic December 18 Reply at 17. . We have  S-concluded that the explanations based upon official and concession lines are reasonable.t;Xu yOb-#X\  P6G;ɒP#э A PICC charge is assessed per line, upon the subscriber's presubscribed interexchange carrier. 47 C.F.R. 69.153(a). As to these LECs' official lines, the LECs state that they are a subscriber of local exchange service, and that they presubscribe these lines to interexchange carriers.t  S-23. The Commission has concluded that where Lifeline customers elect toll blocking and thus do not presubscribe to an IXC, the PICC should be recovered from the lowincome program of the  S8-universal service support mechanisms. <$8 u {O -#X\  P6G;ɒP#э In re FederalState Joint Board on Universal Service; Access Charge Reform, Price Cap Performance  {O -Review for Local Exchange Carriers, Transport Rate Structure and Pricing, End User Common Line Charge, Fourth Order on Reconsideration in CC Docket No. 9645, Report and Order in CC Docket Nos. 9645, 96262, 941, 91213, 9572, CC Docket Nos. 9645, 96262, 941, 91213, 9572 (rel. December 30, 1997), at 119.  The lines of these customers should, therefore, be included in the PICC count. Ameritech's latest tariff filing complies with our rules in this respect, so no investigation of this issue is required. We also find that Ameritech's position that its Centrex PICC  S-and SLC counts are identical is correct.  Sp-24. Ameritech does not assess a PICC on lines that are inwardonly, arguing that these lines cannot originate calls. It does assess a SLC on these lines, and a CCL charge for calls terminated on  S -these lines. We believe that CBT, GTE, and US West also do not assess a PICC on inwardonly lines. CBT assesses a SLC and terminating CCL charge, but does not include inwardonly lines in its PICC demand. GTE does include these lines in its PICC demand for purposes of calculating its maximum PICC and CCL charge. US West does not assess an interstate SLC or an interstate PICC on inwardonly lines, and does not include these lines in its SLC or PICC demand.  S0-25. There is no provision in the Access Charge Reform Order that exempts inwardonly lines  S -from being included in the SLC and PICC counts.=  u yO-#X\  P6G;ɒP#э We note that these lines are assessed a SLC, pursuant to section 69.152(a), which states that a SLC is assessed upon end users that subscribe to local exchange service. For inwardonly lines that do not have a presubscribed interexchange carrier (PIC), the LEC is permitted to assess the PICC upon the end S-user.j>N u yO -#X\  P6G;ɒP#э 47 C.F.R. 69.153(b).j We therefore tentatively conclude that Ameritech and CBT are required by the Commission's rules to include those lines in their SLC and PICC counts. We seek comment on this tentative conclusion. We direct these LECs to include in their direct cases an explanation as to why their practices with respect to determining PICC demand should be considered reasonable and consistent  S-with the Access Charge Reform Order. " >0*&&PP%"Ԍ S-26. We require US West to include in its direct case its rationale as to why it is reasonable to exclude inwardonly lines from the development of common line rates. Further, US West must identify in its direct case the portion, if any, of the costs of these lines that is assigned to the interstate jurisdiction. If a portion of these costs is assigned to the interstate jurisdiction, US West must include in its direct case an explanation of how these costs are recovered in interstate rates, and how US West's treatment of these lines in computing common line rates is consistent with the Commission's Part 69 rules. If none of these costs is assigned to the interstate jurisdiction, US West must explain how this is consistent with the Commission's Part 36 rules.  S-27. Further, we tentatively conclude that Ameritech's position that each PRI ISDN service application should be counted as five SLCs, but only one PICC, is not reasonable for purposes of  SH -calculating Ameritech's tariff rates. The Access Charge Reform Order concluded that price cap LECs  S" -could assess five PICCs on each PRI ISDN service, not just one.?" u {O -#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16033. For purposes of calculating its maximum CCL charge, we tentatively conclude that Ameritech's PRI ISDN SLC and PICC line counts  S -should be identical.@Z Zu yO-#X\  P6G;ɒP#э Our tentative conclusion addresses only the SLC and PICC counts for developing tariff rates. Ameritech, if it so desires, is not required to assess the PICC, although this will result in it not recovering all of the common  {O\-line revenues that price cap regulation permits. Access Charge Reform Order, 12 FCC Rcd at 16033. We seek comment on this tentative conclusion. We direct Ameritech to include  S -in its direct case an explanation as to why its practice is reasonable and consistent with the Access  S -Charge Reform Order.  S6-28. In addition, we direct Ameritech, CBT, and US West to submit with their direct cases line counts recalculated in accordance with the tentative conclusions set forth above.  S-0<$I J:\ACCESFIL.198\II-B.DLH 0 C.XAdjustment of Common Line Revenues Because of Historic Understatement of BFP.(#  Sn-  1.` ` Background  SF- 29. Prior to January 1, 1998, the common line revenues permitted by the Commission's price  S-cap rules were recovered through the flatrated SLC and the perminute CCL charge.A|u {O-ԍ For a more complete explanation of the SLC and CCL charges, see Section II.A, supra. A portion of  S-the common revenue requirement, referred to as the base factor portion (BFP),mBXu yO|-ԍ The BFP is defined in Part 69 as that portion of an incumbent LEC's common line revenue requirement that remains after exclusion of specified investments and expenses. 47 C.F.R. 69.501(e). Section 69.502 also provides that special access surcharge revenues shall be deducted from the BFP. 47 C.F.R. 69.502.m is used to establish the relative levels of interstate SLC and CCL charges, as well as the PICC charges. Because the ceilings limit per-line charges, some portion of permitted common line revenues has been recovered in the per-minute CCL charges in each of the past price cap tariff periods (1991-1997) and in the current tariff period (1997/98). " . B0*&&PP\"Ԍ30. A price cap LEC's maximum CCL charge is determined, in part, from the last calendar  S-year's (baseperiod's) aggregate common line basket revenues.PCu yO@-ԍ 47 C.F.R. 61.45(c), 61.46(d).P Any increase in aggregate common line revenues is carried forward into the following year. This further increases future CCL charges  S-and aggregate common line revenues. In the 1997 Annual Tariff Investigation Order, the Commission stated that for a price cap LEC that routinely develops unbiased perline BFP revenue requirement forecasts, the price cap formula adjusts the CCL rate in a manner intended to generate the remainder  S-of the common line revenues permitted under price caps not recovered from SLCs.DXu {O -ԍ  In the Matter of 1997 Annual Access Tariff Filings, Memorandum of Opinion and Order, CC Docket No.  {O -97149 (rel. December 1, 1997) FCC 97403 at  100 (1997 Annual Tariff Investigation Order). The Commission stated that an incumbent LEC that has consistently understated its perline BFP revenue requirement over the course of several years has also consistently and correspondingly inflated its maximum CCL rate. A price cap LEC uses its prior year's total common line revenues as the starting point in computing its CCL rate. If the price cap LEC understates its perline BFP revenue requirement, thereby inflating its aggregate common line revenues in a given year, the price cap formula  S" -automatically builds this inflation into its CCL rate for the upcoming year. The increase to a LEC's aggregate common line revenues is compounded each year a price cap LEC understates its perline BFP revenue requirement. As the effects of this overstatement compound each year, the maximum CCL charge becomes increasingly inflated, generating revenues that exceed the common line revenues  S -intended to be permitted under price caps.4E u {O-ԍ Id. 4  S2-` 2.` ` Pleadings  S- 31. AT&T and MCI argue that the Commission should investigate all tariffs of Bell Atlantic,  S-NYNEX, GTOC,` the Sprint LTCs, SWBT, and U S West because, as found in the 1997 Annual Tariff  S-Investigation Order,xFFu {Oz-ԍ 1997 Annual Tariff Investigation Order, at 21, 102.x these carriers have underestimated their BFP revenue requirements and thereby  Sn-have overstated their CCL rates since 1991.Gnu yO-#X\  P6G;ɒP#э AT&T December 23 Petition at 34; MCI December 23 Petition at 22. AT&T calculates that the LECs' CCL errors forced  SF-IXCs to pay $500 million to $1 billion in excess charges over the past seven years, and argues that, unless corrected, the overcharge will continue. AT&T states that the only remaining issues are: (1) the amount by which the LECs' past (and current) total common line and CCL revenues have been (and are) overstated as a result of the LECs' past downward bias in perline BFP revenues requirements; and (2) how the LECs' current PCIs and CCL rates should be adjusted to remedy that  S~-overstatement.pH~h u yO#-#X\  P6G;ɒP#э AT&T December 23 Petition at 5.p AT&T applied the Commission's methodology to U S West. According to AT&T, the impact of the past understatement of perline BFP revenue requirements on the CCL rates amounts to an overpayment by AT&T of $218 million from 1991 through 1997. On a going forward basis, AT&T states that US WEST's total common line revenues are still overstated by $18 million. AT&T" H0*&&PPz" contends that an accurate quantification of the effect of the LECs' overstatements of current CCL rates will require an extensive examination of the rates since 1991. AT&T argues that price cap LECs that  S-historically have understated their BFP revenue requirements (Bell Atlantic, NYNEX, GTOC, the  S-Sprint LTCs, SWBT, and U S West) should be ordered to pay the appropriate refunds.KIXu yO-ԍ AT&T December 23 Petition at 7. AT&T's request for refunds based on rates in effect prior to January 1, 1998, is not an appropriate subject for this investigation. This investigation is limited to questions concerning rates currently in effect and does not extend to cover past periods.K  S8-32. AT&T states that the 1997 Annual Tariff Investigation Order required Bell Atlantic to re S-compute its tariff year 1997 perline BFP forecast, and issue necessary refunds.rJu yO -#X\  P6G;ɒP#э AT&T December 23 Petition at 67.r It argues that Bell Atlantic has refused to comply, insisting that its 1997/1998 projection of perline BFP revenue requirement was correct and refuses to make corrections to its estimates or issue refunds.  S-  Sr- 33. Bell Atlantic, GTE, SWBT, the Sprint LTCs, and U S West state that their BFP  SJ -calculations are fully consistent with the methodology adopted by the Commission in the 1997 Annual  S$ -Tariff Investigation Order.K$ xu yO<-ԍ Bell Atlantic December 23 Reply at 10; GTE December 23 Reply at 2; SWBT December 23 Reply at 11; the Sprint LTCs December 23 Reply at 2; and U S West December 23 Reply at 3. U S West claims that the Commission has effectively prescribed the CCL  S -rates that the carriers have filed in this proceeding by prescribing the perline BFP revenue  S -requirement that the carriers use to determine the CCL rates.JL u yOF-ԍ U S West December 23 Reply at 3.J Bell Atlantic states that in calculating  S -the CCL, there is no carry forward effect from prior years.WM ` u yO-ԍ Bell Atlantic December 23 Reply at 11, n. 15.W GTE argues that AT&T's analysis ignores the fact that some carriers have historically priced their CCL rates substantially below the permitted cap and any overearnings during that period would have been reflected in the sharing  S6-mechanisms in place.KN6 u yO-ԍ GTE December 23 Reply at 3, n. 6.K GTE further states that AT&T's claim that LECs must adjust their PCI values  S-to reflect a restatement of SLC and CCL rates for each year since 1991, is without justification.O u {O.-ԍ Id. at 3; SWBT December 23 Reply at 12; and the Sprint LTCs December 23 Reply at 2.  S-!34. Bell Atlantic states that its tariffs already included the specific correction required by the  S-Commission's 1997 Annual Tariff Investigation Order. Moreover, states Bell Atlantic, using the  Sp-Commission's methodology would have no impact on BFP costs; thus, no changes were required.PPpu yO"#-ԍ Bell Atlantic December 23 Reply at 11.P  SH-"HP0*&&PP"Ԍ S- b3.` ` Discussion  S-"35. In the 1997 Annual Tariff Investigation Order, the Commission found that Bell Atlantic, NYNEX, GTEb, SWBT, the Sprint LTCs, and U S West had consistently underestimated their perline  Sb-BFP revenue requirement forecasts.bQbu {O-ԍ 1997 Annual Tariff Investigation Order, at  6.b In that order, the Commission stated that "a LEC that has  S:-consistently understated its perline BFP revenue requirement over the course of several years has also  S-consistently and correspondingly inflated its maximum CCL rate."@RZu {O -ԍ Id. at  101.@ The Commission did not, however, order reductions to PCIs to remove this effect because the record did not provide sufficient information to allow calculation of such reductions. We tentatively conclude that the current maximum CCL rates of Bell Atlantic, NYNEX, GTE, SWBT, the Sprint LTCs, and U S West are unreasonably high due to past understatement of perline BFP revenue requirement. At this time, we direct each of these carriers to provide, as part of its direct case, a recalculation of its maximum common line revenues, using the CCL Recalculation Methodology employed by AT&T in its December 23 Petition. We seek comment on this proposed methodology. We also seek comment on whether this proposed methodology should be adjusted to account for specific instances in which price cap LECs have priced their CCL charges below the permitted cap or have reduced their PCIs for a tariff year because of sharing. Additionally, we invite LECs to submit alternative methodologies that in their view may present a more accurate calculation of their maximum common line revenues.  S-_M III. METHODOLOGY FOR CALCULATING EXOGENOUS COST CHANGES FOR LINE  S- PORTS AND END OFFICE TRUNK PORTS ĐlU  Sj- A. Background  S-#36. In the Access Charge Reform Order, the Commission concluded that, consistent with principles of costcausation and economic efficiency, nontraffic sensitive (NTS) costs associated with  S-local switching should be recovered on a flatrated basis.Su {OX-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16035. Specifically, the Commission found that the costs of the lineside port (including the line card, protector, and main distribution frame) are NTS, and thus should be recovered through flat-rated charges. Accordingly, for price cap LECs, the Commission reassigned all line-side port costs as of January 1, 1998 from the Local Switching category of the TrafficSensitive basket to the Common Line basket rate elements, which include the  S-SLC and the flat-rated PICC.DTZ~u {O""-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16035. NTS costs of lineside ports had previously been recovered through perminute local switching charges assessed under section 69.106 of the Commission's rules, 47 C.F.R.  69.106.D The Commission directed all price cap LECs to include in their tariff filings implementing the Order an exogenous downward adjustment to the TrafficSensitive basket, 47 C.F.R.  61.42(d)(2), and corresponding exogenous upward adjustment to the Common Line Interstate"T0*&&PP" Access Elements basket, 47 C.F.R.  61.42(d)(1), to reflect the recovery of the interstate NTS costs of  S-line-side ports from the Common Line rate elements.Uu {O@-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16037.  S-  S-$37. The Commission also found in the Access Charge Reform Order that the costs of a dedicated trunk port (including the trunk card and DS1/voice-grade multiplexers, if needed) should be recovered on a flat-rated basis from the carrier purchasing the dedicated trunk terminated by that  S-port.VZu {O -#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16036. The Commission concluded that, in order to ensure that these purchasers of dedicated trunks do not pay the costs of shared trunk ports that they do not use, the costs of shared trunk ports should  S-be recovered on a per-minuteofuse basis from the users of common transport trunks. Therefore, for price cap LECs, the Commission reassigned all trunk port costs in the TrafficSensitive basket from the Local Switching category to a new "trunk ports" category, and established separate rate elements  SJ -within this category for dedicated trunk port costs and shared trunk port costs.WJ u {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16036. See also 47 C.F.R.  61.42(e)(1). %38. In addition, the Commission required each price cap LEC to conduct a cost study to  S -determine the geographically-averaged portion of local switching costs that is attributable to line-side  S -ports and to dedicated trunkside ports.X ~u {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16037.č The Commission took note of the estimate by the United States Telephone Association (USTA) that six percent of the costs of an analog switch and 51 percent  SZ-of the costs of a digital switch are NTS.YZu {O -#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16038, citing USTA Comments, Attachment 2 at 31. The Commission did not, however, establish a fixed percentage of local switching costs that price cap LECs must reassign to the Common Line basket or to the newlycreated Trunk Cards and Ports service category. In light of the widely varying estimates in the rulemaking record, the Commission instead concluded that the NTS portion of local switching  S-costs likely varies among LEC switches.Zu {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16036.  Sj-&39. In the tariffs filed pursuant to the Access Charge Reform Order, most price cap LECs compute the exogenous cost adjustments for line ports and end office trunk ports by: (1) using the Switching Cost Information System (SCIS) model (or a similar switching cost model), or estimating material prices and installation and engineering costs without using a switching cost model, to compute line port investment, end office trunk port investment, and total end office switch investment (which includes line port investment and end office trunk port investment); (2) dividing line port investment and end office trunk port investment by total end office switch investment to obtain ratios of total switching investment; (3) developing a revenue requirement for the Local Switching category within the TrafficSensitive basket based on an after tax rate of return of 11.25 percent; and (4) multiplying the ratios of line port investment and end office trunk port investment to total switching investment by the revenue requirement for the Local Switching category."4 Z0*&&PP["Ԍ'40. Other price cap LECs compute the exogenous cost adjustments for line ports and end office trunk ports by: (1) using a switching cost model, or estimating material prices and installation and engineering costs without using a switching cost model, to develop investment for a single line port or end office trunk port; (2) developing annual cost factors for local switching, including an annual cost factor for the cost of capital based on an aftertax rate of return of 11.25 percent; (3) multiplying investment for a single line port or end office trunk port by the annual cost factors to obtain the annual cost for a single line port or end office trunk port; (4) measuring the total demand for line ports or end office trunk ports; and (5) multiplying the annual cost for a single line port or end office trunk port by the total demand for line ports or end office trunk ports.  Sp- `B. Pleadings  S -(41. MCI and AT&T note that price cap LECs have applied the port cost percentages that they  S -derived from their cost models` to the Part 69 local switching revenue requirements that they developed  S -using data reports from the Automated Reporting Management Information System (ARMIS).[ u yO8-#X\  P6G;ɒP#э AT&T December 11 Comments and Petition at 1112; MCI December 10 Comments at 34; MCI December 10 Petition at 3. These commenters argue that price cap LECs should have applied their port cost percentages to their local switching revenues under price caps, which are substantially higher than the LECs' ARMIS revenue  SX-requirements.\X u yO-#X\  P6G;ɒP#э AT&T December 11 Comments and Petition at 1112; AT&T December 23 Pacific and Nevada Comments at 78; MCI December 10 Comments at 34; MCI December 10 Petition at 3. For example, AT&T contends that SNET's local switching revenue under price caps is  S0-$102.1 million, whereas its revenue requirement is $63.6 million.]0xu yOH-#X\  P6G;ɒP#э AT&T December 11 Petition and Comments at 1112. AT&T also argues that the  S-application of the line port percentages to local switching revenues is necessary to "equitably distribute  S-any over earnings or under earnings to the line port."~^u yO-#X\  P6G;ɒP#э AT&T December 11 Petition and Comments at 10.~  S-)42. According to these commenters, if price cap LECs had applied the line port percentages derived from their cost models to their actual local switching revenues, the amount of line port dollars moved from the Local Switching category to the Common Line basket would be substantially  S-greater._u yOP-#X\  P6G;ɒP#э AT&T December 11 Comments and Petition at 1112; MCI December 10 Comments at 4. To demonstrate this point, AT&T provides data indicating that the percentage of line port exogenous costs to current local switching band revenues for the Regional Bell Operating Companies (RBOCs) is significantly lower than the line port cost percentage identified in the RBOCs' cost  S-studies.`( u yOh#-#X\  P6G;ɒP#э AT&T December 11 Petition and Comments at 11, Exhibit A. For example, AT&T states that Ameritech's line port investment percentage is 27%, while its percentage of line port exogenous costs to local switching revenues is 17.2%. AT&T also states  SP-that BellSouth's line port investment percentage is 30.8%, while its percentage of line port exogenous"P `0*&&PP"  S-costs to local switching revenues is 21.2%.au yOh-#X\  P6G;ɒP#э AT&T December 11 Petition and Comments at 11, Exhibit A. In addition, AT&T claims that if price cap LECs had  S-applied the trunk port percentages derived from their cost models to their actual local switching revenues, the amount of trunk port dollars moved from the Local Switching category to the new trunk  S-port elements would be substantially greater. AT&T contends that the percentage of trunk port exogenous costs to current local switching band revenues for RBOCs is significantly lower than the  S8-trunk port cost percentage identified in the RBOCs' cost studies.b8Xu yO0-#X\  P6G;ɒP#э AT&T December 11 Petition and Comments at Exhibit A.  S-  S-*43. Price cap LECs reply that the application of port investment percentages to the 1996  S-ARMIS local switching revenue requirement complies with the text of the Access Charge Reform  S-Order, which requires price cap LECs to remove line port and trunk port costs from the local  St-switching category.c$tu yO -#X\  P6G;ɒP#э Ameritech December 17 Reply at 34; Bell Atlantic December 18 Reply at 6; BellSouth December 17 Reply at 23; CBT December 17 Reply at 3; SWBT December 17 Reply at 3; SBC December 29 Reply at 6; U S  {O-West December 17 Reply at 45; Frontier December 17 Reply at 3. These LECs cite Access Charge Reform  {OV-Order, 12 FCC Rcd 15982, 16006, 1603540.  Price cap LECs note that the shift of line port costs, rather than actual revenues,  SL -is consistent with the Part 69 rules on basic and complex line port costs adopted in the Access Charge  S& -Reform Order.d& u yO-#X\  P6G;ɒP#э Bell Atlantic December 18 Reply at 6; BellSouth December 17 Reply at 23. ġ Price cap LECs also note that section 69.306(d) of the Commission's rules states  S -that line port costs shall be assigned to the Common Line basket, and section 69.157 of the Commission's rules states that the costs of Integrated Services Digital Network (ISDN) line ports (and  S -similar services) shall be recovered through a separate end user charge. e d u {O-#X\  P6G;ɒP#э See Bell Atlantic December 18 Reply at 6; BellSouth December 17 Reply at 23; Frontier December 17  {O~-Reply at 3. See also 47 C.F.R.  69.306(d), 69.157.  Price cap LECs state that their calculation of the shift in line port costs is consistent with section 61.45 the Commission's rules  S`-on exogenous cost treatment.f` u {O-#X\  P6G;ɒP#э CBT December 17 Reply at 3; GTE December 17 Reply at 6.  See 47 C.F.R.  61.45. In addition, price cap LECs note that the shift of line port costs to the  S8-Common Line basket is consistent with the Commission's common line rate development rules.g8R u {O*-#X\  P6G;ɒP#э Ameritech December 17 Reply at 4. See also Bell Atlantic December 18 Reply at 6. Specifically, price cap LECs state that section 69.104(c) of the Commission's rules directs that common line recovery be based upon a determination of common line Base Factor Portion (BFP)  S-revenue requirement per line.hu {OD"-#X\  P6G;ɒP#э See Ameritech December 17 Reply at 4; Bell Atlantic December 18 Reply at 6. See also 47 C.F.R.  69.104(c). Price cap LECs also assert that the calculation of line and trunk port  S-cost shifts on a revenue requirement basis is consistent with the revenue requirement treatment given">h0*&&PP" to the Central Office Equipment (COE) maintenance expense adjustment and the revised allocation of  S-General Support Facilities (GSF).iu yO@-#X\  P6G;ɒP#э Ameritech December 17 Reply at 5; BellSouth December 17 Reply at 2324; CBT December 17 Reply at 5.  S-+44. In addition, Ameritech states that in past proceedings the Commission has accepted  S`-exogenous cost changes calculated on a revenue requirement basis, including exogenous cost changes  S8-for excess deferred taxes and the investment tax credit.tj8 u yO-#X\  P6G;ɒP#э Ameritech December 17 Reply at 45.t Ameritech also notes that in Exhibit A of  S-AT&T's December 11 Petition and Comments, Column A is labelled "Current Local Switching Revenues" but the entry for Ameritech represents the entire TrafficSensitive revenue as it existed  S-prior to the 1997 Annual Filing.rku yO -#X\  P6G;ɒP#э Ameritech December 17 Reply at 5.r Ameritech argues that, accordingly, the line port and trunk port  S-percentage exogenous changes resulting from AT&T's calculations are understated. SNET contends  Sp-that it did not apply a line port percentage derived from SCIS to the Part 69 local switching revenue  SH -requirement, but rather multiplied unit revenue requirements by base year demand quantities.mlH @u yO(-#X\  P6G;ɒP#э SNET December 17 Reply at 3.m   S -,45. Furthermore, the Sprint LTCs state that, contrary to the assertions of MCI and AT&T, applying a line port cost percentage to local switching revenues under price caps does not result in a costbased reallocation of line port costs. The Sprint LTCs explain that this methodology would  S -permanently assign a portion of the difference between current revenues and line port costs to the Common Line basket, and therefore defeat the goal of access reform to require the costcauser to be  S0-the costpayer.vm0u yO-#X\  P6G;ɒP#э Sprint LTCs December 17 Reply at 12.v GTE states, in response to AT&T's assertion that the application of the line port percentages to local switching revenues is necessary to "equitably distribute any over earnings or under earnings to the line port," that sharing of over earnings is not relevant. According to GTE, under the original price cap plan it is the total interstate jurisdictional level, as opposed to the individual service  S-category, which dictates over earnings.ln` u yO-#X\  P6G;ɒP#э GTE December 17 Reply at 7.l Thus, GTE asserts that AT&T's method would effectively result in a return to monitoring rates on the basis of individual returns within service categories even  S@-though the Commission recently eliminated any sharing obligation from the price cap plan.lo@ u yO -#X\  P6G;ɒP#э GTE December 17 Reply at 7.l  S- bC.Discussion  S--46. In the Access Charge Reform Order, the Commission adopted rules stating that price cap  Sz-LECs shall assign "lineside portb costs" to the Common Line rate element and that price cap LECs  ST-shall "separate from the projected annual revenues for the Local Switching element those costs"T o0*&&PP"  S-projected to be incurred for ports... on the trunk side of the local switch."pu {Oh-#X\  P6G;ɒP#э 47 C.F.R.  69.306(d), 69.106(f)(1) (italics added). See also Access Charge Reform Order, 12 FCC  yO2-Rcd at 1603536. In calculating the exogenous cost adjustments required by these rules, price cap LECs interpreted "costs" to mean "Part  S-69 revenue requirements."q"u {Or-#X\  P6G;ɒP#э See, e.g., Ameritech December 17 Reply at 35; Bell Atlantic December 18 Reply at 56; BellSouth December 17 Reply at 2224. These LECs also claim that this revenue requirement should be calculated using the allowed rate of return for local exchange carriers under rate of return regulation, 11.25 percent. In contrast, AT&T and MCI interpret "costs" to mean "price cap permitted revenues," and argue that the price cap LECs should have calculated their exogenous cost changes on the basis of  S-these revenues.r|u {O, -#X\  P6G;ɒP#э See AT&T December 11 Comments and Petition at 1112; AT&T December 23 Pacific and Nevada Comments at 79; MCI December 10 Comments at 34; MCI December 10 Petition at 4.  .47. As an initial matter, we note that the Commission has never adopted by rulemaking a single methodology for computing exogenous cost changes that result from a reallocation of cost recovery among price cap service categories, baskets, or rate elements. It is therefore appropriate for us to determine the proper methodology for these exogenous cost changes in a tariff investigation under Section 204 of the Communications Act, 47 U.S.C.  204. Accordingly, we seek comment and make tentative conclusions below regarding the relevant legal and policy considerations. /48. When a LEC entered price cap regulation in 1991, each rate element was based on the Part 69 revenue requirement and targeted to earn an 11.25 percent rate of return. Over time, through operation of the price caps formulas, rates have diverged from those original allocated costs. Price cap regulation has allowed carriers that reduced their costs to keep all or some of the earnings they gained by being more efficient. Moreover, price cap regulation allowed carriers a measure of pricing flexibility within baskets to raise and lower rates on particular rate elements without reference to the revenue requirements originally recovered through those rate elements, or to the revenue requirement that would result today from application of the Part 69 cost allocation rules. After seven years of price caps, it is likely that Part 69 revenue requirements have a very attenuated relationship to the  S@-costs actually recovered through any particular rate element. Therefore, we tentatively conclude that revenues, and not Part 69 revenue requirements, are the best measure of the costs recovered through a particular price cap rate element. We seek comment from all interested parties on this tentative conclusion. 049. If, after reviewing the record in response to this designation order, we conclude that the  SP-Access Charge Reform Order required that LECs use revenue requirement, rather than revenues, to make the exogenous cost changes, we tentatively conclude that actual basket earnings must be used to calculate that revenue requirement. Using actual earnings to divide the costs of local switching into three separate components for future recovery produces an equitable and reasonable distribution of the earnings reflected in the one local switching rate by spreading them proportionately over the three new components. We seek comment from all interested parties on this tentative conclusion."r0*&&PP"ԌX(# 150. We believe that the best method for moving rate elements or services out of a basket or service category would be a method that left exactly zero permitted revenues in the basket or service category after all services or rate elements were removed. If the price cap LECs' methodologies were  S`-applied seriatim to each service in a price cap basket for purposes of removing those services from the basket, the basket would have permitted revenues left after all services were removed, if the basket had been earning returns in excess of 11.25 percent. On the other hand, if the basket had been earning less than 11.25 percent, there would be insufficient permitted revenues for all of the services. The result of having zero revenues in the basket or service category after all services are removed can be accomplished by using revenues, as we tentatively conclude is preferable, or by using revenue requirements calculated on the basis of actual basket earnings. We seek comment on this approach. 251. Furthermore, we seek comment on whether the methodology discussed here for ports  S -should also be applied to the other reallocations required by the Access Charge Reform Order. Parties should quantify the results of using this method consistently for all such reallocations. In addition, parties dispute the extent to which precedent exists that governs or should govern the method to be applied here. We direct each LEC to include in its direct case a comprehensive list of all the exogenous adjustments it has made since it entered price cap regulation that had the purpose of reallocating costs among baskets, categories, rate elements, or between price cap and non price cap services. LECs should list the method used in each instance. 352. Finally, if costs are reallocated using revenues as a surrogate for costs, we tentatively conclude that common line rate development should be done in the following manner. Price cap LECs should use local switching revenues for the purpose of determining the amount of exogenous cost adjustments to the TrafficSensitive and Common Line baskets, but price cap LECs should use  S-their Part 69 revenue requirements to recalculate the BFP, because the BFP is still calculated pursuant  S-to fullydistributed embedded costs and revenue requirements.su {O\-#X\  P6G;ɒP#э See 47 C.F.R.  69.501(e) and 69.502. We seek comment from all interested parties on this tentative conclusion.  ST-,  IV. TRANSPORT ADJUSTMENT ISSUES  S- A. XWhether the Price Cap LECs are Attributing Too Large a Fraction of Their Tandem  S-Switching Revenue Requirement to SS7 Costs. (#  S-  S- 1.` ` Background  S<-453. The Access Charge Reform Order requires that SS7 costs that are recovered by the TIC  S -be removed from the TIC and allocated to the traffic sensitive basket.`t Zu {O$-ԍ Access Charge Reform Order, 12 FCC Rcd at 16284.`,  S -" t0*&&PPe""Ԍ S-` 2.` ` Pleadings  S-554. MCI contends that several LECs are attributing too large a fraction of their tandem switching revenue requirement to SS7`, thereby overallocating costs to the traffic sensitive basket and  S`-minimizing the facilitiesbased TIC, that can be avoided by using competitive transport.Hu`u yO-ԍ MCI December 23 Petition at 8.H For  S8-example, MCI charges that Bell Atlantic has overstated its SS7 costs.3v8Xu {O0-ԍ Id.3 MCI states that the  S-Commission's First Transport Order indicated that SS7related costs are estimated to represent no more than approximately ten percent of the total tandem revenue requirement. It notes that while most LECs are attributing less than ten percent of their tandem switching revenue requirement to SS7, Bell  S-Atlantic is attributing 28 percent to SS7.;wu {O$ -ԍ Id. at 89.; MCI rejects Bell Atlantic's claim that its SS7 costs are high because it has deployed SS7 exclusively at tandems, noting that the Commission found in the  SJ -Local Transport Order that LECs generally classify SS7 costs as Category 2 tandem switching  S$ -investment.x$ |u {O@-ԍ Id. citing In the Matter of Transport Rate Structure and Pricing, CC Docket No. 91213, Report and  {O -Order and Further Notice of Proposed Rulemaking, 7 FCC Rcd 7006, 7019 (1992) (Local Transport Order). Further, MCI requests that Bell Atlantic explain the disparity between its previous  S -statements to the Commission concerning the level of its SS7 costs and its current estimates.3y u {Ot-ԍ Id.3  S -655. MCI argues that while the price cap LECs, including Ameritech, BellSouth, and GTE, have adjusted the overall tandem switching revenue requirement for the change in PCI since 1993 as  S\-required by the Access Charge Reform Order, they have not adjusted the revenue requirement for SS7  S6-in a similar fashion.Hz6j u yO@-ԍ MCI December 10 Petition at 8.H MCI argues that the LECs should be required to compute the percentage of tandem switching attributable to SS7, and then apply this percentage to the overall tandem switching  S-revenue requirement computed pursuant to the Access Charge Reform Order.3{ u {O-ԍ Id.3 756. MCI further argues that several price cap LECs, including SWBT, PacBell and Nevada, have failed to deduct STP port costs from their SS7 revenue requirements even though these costs  SH-have never been part of the TIC.I|H u yOt"-ԍ MCI December 23 Petition at 10.I MCI believes that the failure to exclude signalling transfer points (STP) port costs explains why these companies are attributing more than ten percent of their overall" |0*&&PPq" tandem switching revenue requirement to SS7. MCI urges the Commission to investigate these LECs'  S-tariffs to ensure that only costs formerly recovered by the TIC have been removed from the TIC.:}u {O@-ԍ Id. at 11.:  S-857. MCI argues that U S West has used the wrong SS7 cost figure in computing the residual  S`-tandem switching revenue requirement.4~`Zu {OZ-ԍ Id. 4 It notes that even though U S West computed the correct SS7 revenue requirement on Workpaper 7, it used a higher Workpaper 12 figure when it computed its tandem switching revenue requirement. MCI asserts that U S  S-West should be required to correct this error.3u {Ot -ԍ Id.3  S-   S-958. The LECs disagree with MCI that their SS7 costs are overstated.}~u {O-ԍ See, e.g., CBT December 17 Reply at 9; Bell Atlantic December 18 Reply at 14.} For example, CBT states that its SS7 investment and costs have been categorized to the Local Switching Access Element since before it went to price caps, and therefore SS7 costs are already being recovered from the  S -Traffic Sensitive Basket.E u yO-ԍ CBT December 17 Reply at 9.E Thus, CBT points out that it does not have any SS7 exogenous costs.G u yO`-ԍ CBT December 29 Reply at 34.G Bell Atlantic states that its SS7 costs, as a percentage of its tandem switching revenue requirement, are  S -not out of line with the percentages of other LECs.P 0 u yO-ԍ Bell Atlantic December 18 Reply at 13.P Bell Atlantic points out that the amount of SS7 costs will vary based on the number of tandems, the costs of the tandems, and the size of the area  S -served.4 u yO-ԍ Id. at 14.4 Bell Atlantic also disagrees with MCI that it did not explain how it derived its SS7 costs. It refers to its Description & Justification in its TRP, which it believes explains the derivation of the tandem revenue requirement attributable to SS7. U S West argues that it used the appropriate figures  S-in determining its tandem switching revenue requirement.JP u yO-ԍ U S West December 17 Reply at 4.J :59. In general, the LECs also disagree with MCI that they are required to adjust the costs of SS7 components of the tandem switching revenue requirement to reflect PCI adjustments since  Sh-1993.hu {O#-ԍ See, e.g., SWBT December 17 Reply at 4; BellSouth December 17 Reply at 16; and U S West December 17 Reply at 6. They contend that there is no requirement in the Access Charge Reform Order to make such"h:0*&&PP"  S-adjustments.3u {Oh-ԍ Id.3 Sprint LTCs, however, agree with MCI that SS7 costs should be adjusted to reflect past X S-factor reductions before they are removed from the tandem revenue requirement.XZu yO-ԍ Sprint LECs December 17 Reply at 2; Exh. 313.X ;60. With respect to MCI's concern that STP port costs were not removed from the STP revenue requirement, SWBT argues that the Commission did not specify this requirement. Therefore MCI is incorrect that the $2.9 million transfer of STP port costs to the new STP port termination  S-service category should be deducted from the SS7 costs and removed from the TIC.9u {Or -ԍ Id. at 5.9 Aliant states that it excluded the costs of STP ports in developing the STP revenue requirement and the exogenous  S-adjustment.H|u yO-ԍ Aliant December 17 Reply at 4.H  SH -` 3.` ` Discussion <61. Based on our review of the price cap LECs' tariff filings, we find in general that, except for Bell Atlantic, U S West, SWBT, `PacBell, and Nevada, the cost support provided by the price cap LECs for the removal of SS7 costs does not raise substantial questions of lawfulness that warrant investigation. We are, however, concerned that while Bell Atlantic is attributing 28 percent of its tandem switching revenue requirement to SS7, most price cap LECs are attributing less than 10  S0-percent of their tandem switching revenue requirement to SS7 costs. As MCI pointed out, the Local  S -Transport Order determined that SS7 related costs represent no more than approximately 10 percent of  S-the total tandem revenue requirement.] u {O-ԍ See Local Transport Order, 7 FCC Rcd at 7019.] In addition, we are unable to determine whether U S West used the correct SS7 cost figure in computing its residual tandem switching revenue requirement. Thus, we require Bell Atlantic and U S West to provide cost studies justifying the amount that was removed from the TIC as SS7 costs. In particular, Bell Atlantic and U S West must provide detailed information substantiating the amount of SS7 costs that were originally allocated to the TIC. We also require detailed information regarding any additional SS7 costs that were incorporated into the TIC during the period January 1, 1994 to December 31, 1997. Furthermore, Bell Atlantic and U S West should provide detailed information regarding any trueup to SS7 costs due to exogenous cost adjustments in the trunking basket. =62. We are also concerned that SWBT, PacBell, and Nevada have included STP port costs in their SS7 revenue requirement even though, as MCI notes, these costs have never been part of the TIC. We tentatively conclude that these price cap LECs should be required to deduct STP port costs from the SS7 revenue requirement if STP port costs have been included in the dedicated signalling rate element, and ask comment as to this conclusion."0*&&PP-"Ԍ S-ԙ B.XWhether Price Cap LECs made the proper COE Maintenance and Marketing Cost  S-Adjustments to the TIC. (#  S- 1.` ` Background  S8->63. In the Access Charge Reform Order, the Commission required the LECs to identify the amount of Central Office Equipment (COE) maintenance that has been misallocated to the trunking  S-and common line baskets, and to move these amounts to local switching.Nu {OR-ԍ Access Reform Order, at 16078.N In addition, the LECs were required to remove their Account 6610 marketing expenses from all access rate elements that are  S-not purchased by and marketed to retail customers.=Zu {O -ԍ Id. at 16122.=  SJ -` 2.` ` Pleadings ?64. AT&T contends that both these adjustments require a downward adjustment to the TIC, and that the LECs must allocate` these exogenous cost amounts to the TIC as it existed prior to July 1, 1997 in order to ensure that an excessive amount of the COE maintenance reallocation and the  S -marketing expense reallocation are not credited to the facilitiesbased TIC.J u yO-ԍ AT&T December 11 Petition at 32.J AT&T contends that no LECs have used the June 30, 1997 TIC in their adjustment process. For example, it argues that PacBell and Nevada have not used their June 30, 1997 TIC in the adjustment process and  S -consequently have made a $5 million error.] |u yO&-ԍ AT&T December 23 PacBell and Nevada Comments at 15.] In addition, AT&T asserts that, except for SWBT and BellSouth, LECs have failed to apply both the COE maintenance and marketing exogenous cost  S-adjustment to the TIC.3 u {Of-ԍ Id.3 Thus, AT&T urges the Commission to require all LECs to apply the impact of their COE maintenance and marketing exogenous adjustments on the residual and facilitiesbased  Sj-TIC as of June 30, 1997.4ju {O-ԍ Id. 4 @65. In reply, Frontier and Bell Atlantic disagree with AT&T that LECs were required to allocate exogenous changes for both COE maintenance expense and marketing expense to the TIC  S-based upon the TIC as it existed on June 30, 1997.p0 u yO"-ԍ Frontier December 17 Reply at 5; Bell Atlantic December 18 Reply at 8.p Frontier states that while the Access Charge  S-Reform Order directs price cap LECs to remove marketing expenses from the switched access portion of the trunking basket, it does not mention using the TIC as it existed on June 30, 1997. Thus, Frontier states that it allocated its marketing expense exogenous change by switched revenues as of the"V 0*&&PP"  S-last PCI update.Du yOh-ԍ Frontier December 18 at 5.D Moreover, it argues that the Access Charge Reform Order does not require that COE maintenance expense be targeted to service bands, because the Part 69 allocation rules do not correspond to the price cap bands and there is no methodology for allocating COE maintenance among  S-the bands.3Xu {O-ԍ Id.3 Therefore, Frontier states it treated COE maintenance as a basket level exogenous  Sb-change in the trunking basket, which affects all bands in the trunking basket, including the TIC.9bu {O-ԍ Id. at 6.9 A66. Regarding AT&T's claim that it did not remove marketing and central office equipment maintenance expenses from the TIC, Bell Atlantic argues that it complied with the requirements of the  S-Access Charge Reform Order by: (1) removing marketing expenses only from services that were not provided to end users; and (2) removing a portion of the COE maintenance costs from the TIC corresponding to the change in the TIC service band index upper limit that resulted from the  SL -exogenous adjustment to the trunking basket.RL |u yOh-ԍ Bell Atlantic December 17 Reply at 910.R  S -` 3.` ` Discussion B67. Based on our review of the price cap LECs' tariff filings, we are unable to determine whether the price cap` LECs have properly removed from the TIC marketing expenses and COE maintenance expenses. Accordingly, we direct the price cap LECs to provide supporting documentation justifying the amount that was removed from the TIC as COE maintenance and marketing expenses. In particular, the price cap LECs must provide detailed information substantiating the amount of COE maintenance and marketing costs that were removed from the trunking basket, and the portion of that amount that was removed from the TIC. Price cap LECs should explain their theory for determining the portion removed from the TIC. We seek comment on whether the portion removed from the TIC should be based on the relative revenues in each category or the relative switched access revenues in each category, or on a more detailed analysis of the source of the costs. C68. In addition, we tentatively conclude that the price cap LECs must allocate these exogenous cost changes to the TIC as it existed prior to July 1, 1997. Otherwise, the targeting effect that occurred in the July 1, 1997 tariffs could skew the amount of reallocation costs ascribed to the facilitiesbased TIC. We seek comment on this tentative conclusion. "T 0*&&PP"Ԍ S- C.XWhether the Price Cap LECs Properly Estimated the Impact on the TIC Arising from  S-the Use of Actual Minutes of Use Rather than Assumed 9000 Minutes of Use (#  S- 1. ` ` Background  S8-D69. The Access Charge Reform Order directed incumbent LECs to use actual minutes of use (MOUs) per circuit rather than an assumed 9000 minutes of use to develop their tandemswitched  S-transport rates.cu {OR-ԍ Access Charge Reform Order, 12 FCC Rcd at 1607172.c Based on the record before the Commission showing that LECs' actual circuit loadings were substantially lower than 9000 MOUs, the Commission found that the continued use of the 9000 MOU assumption has contributed to the level of the noncost based TIC and was no longer  Sr-reasonable.3rZu {Ol -ԍ Id.3 The Commission therefore directed incumbent LECs to develop common transport rates based on the relative number of DS1 and DS3 circuits in use in the tandemtoend office, and to use actual voicegrade circuit loadings, geographically averaged on a studyareawide basis, that each LEC  S -experienced based on the prior year's annual use.4 u {O-ԍ Id. 4 The Commission directed incumbent LECs to use  S -any increase in tandemswitched transport revenues to decrease the TIC.3 ~u {O-ԍ Id.3 E70. The price cap LECs' tariff filings reveal that average tandem usage in the BOCs' study areas is over 11,000 minutes per trunk. As a result, the recalculated transport rates for the BOCs are lower than their previouslyexisting rates. The price cap LECs attribute the lower rates to the LECs' use of circuit loading greater than 9000 minutes and to their current DS1 and DS3 rates, which are generally lower than they were in 1993 when the initial common transport rates were developed. Consequently, the price cap LECs made exogenous adjustments that remove revenue from the tandemswitched transport category and add that revenue to the TIC in the amount of $57.3 million.  SB-` 2.` ` Pleadings F71. AT&T and MCI contend that price cap LEC use of TIC revenues to finance reductions in  S-common transport rates` is contrary to the Access Charge Reform Order's expectation that the LECs'  S-recalculation of transport rates would result in higher common transport rates and reduce the TIC.mu yOT -ԍ MCI December 23 Petition at 1316; AT&T December 11 Petition at 18.m MCI notes that U S West, SWBT, the Sprint LTCs, and certain other price cap LECs have computed reinitialized tandem switched transport rates that are lower than their existing tandem switched transport rates, and are now proposing to increase their TIC in the amount of the tandem switched  S-transport revenue decrease.Iu yOD%-ԍ MCI December 23 Petition at 13.I AT&T identifies PacBell and Nevada Bell as having improperly estimated the impacts on the TIC arising from the use of actual volumes rather than presumed"0 0*&&PP["  S-volumes.]u yOh-ԍ AT&T December 23 PacBell and Nevada Comments at 9. ] MCI argues that the Commission should not permit the reinitialization of tandem switched transport rates to increase the TIC SBI upper limit. In particular, it contends that there is  S-nothing in the Access Charge Reform Order that permits a decrease in common transport revenues to increase the TIC, and that any increase in the TIC would be contrary to the Commission's stated goal  Sb-to "establish a mechanism to reduce and eliminate the TIC."{bXu {OZ-ԍ Id. at 14, citing Access Charge Reform Order, 12 FCC Rcd at 1607178.{ MCI and AT&T argue that the price cap LECs should be required to reduce the TIC by the amount of any revenue increase if the reinitialized rates exceed existing rates, but if the reinitialized rates are less than existing rates, no  S-adjustment to the TIC SBI upper limit should be made.eu yOt -ԍ MCI Petition at 15; AT&T PacBell and Nevada Comments at 10.e  G72. In reply, the LECs argue that they have calculated their common transport rates consistent  Sr-with the Commission's rules and that those rates are presumed reasonable.rzu {O-ԍ See, e.g., BellSouth December 17 Reply at 1213; Ameritech December 17 Reply at 1112; and CBT December 17 Reply at 7. Aliant states that it never made any statements to the Commission regarding actual minutes of use per trunk and, in any event, the LECs are required to develop transport rates in accordance with the methodology adopted in the  S -Access Charge Reform Order.H u yOn-ԍ Aliant December 17 Reply at 5.H Ameritech explains that its recalculated tandem switched transport rates, which are lower than its existing rates, are the logical result of higher fibertocopper circuit  S -weighing and lower DS1 and DS3 rates than were in place in its 1993 filing.O d u yO-ԍ Ameritech December 17 Reply at 1112.O H73. GTE points out that its average MOUs represent "total actual voicegrade minutes of use"  S4-as required by Section 69.111(c)(1) of the rules.F4 u yO-ԍ GTE December 17 Reply at 10.F It notes that the MOU information provided in the  S -Access Charge Reform NPRM represented traffic flowing from the serving wire center to the access tandem or access minutes as opposed to traffic flowing from the end office to the access tandem, which includes not only access minutes, but local and toll minutes as well. GTE explains that in those instances where the common transport rates declined, the residual transport costs were allocated to the TIC. According to GTE, revenues not recovered in the existing common transport facility and termination rates are recovered though an upward revision of the TIC to comply with the price cap  S-rate structure requirement of revenue neutrality within the trunking baskets.: u {OB#-ԍ Id. at 10.: I74. Finally, BellSouth argues that any analysis of whether revenues have shifted back to the TIC must take into account the revenues associated with the new common transport multiplexers. "0*&&PP" BellSouth argues that when its reinitialized common transport revenues are combined with the transport multiplexer revenues, the net effect is a shift in revenues from the TIC to common  S-transport.Lu yO-ԍ BellSouth December 17 Reply at 13.L  S`- 3.` ` Discussion  S-J75. Before the Access Charge Reform Order, section 69.111(c) stated that: XX` ` "tandemswitched transport rates generally shall be presumed reasonable if the telephone company bases the charges on a weighted perminute equivalent of directtrunked transport DS1 and DS3 rates that reflect the relative number of DS1 and DS3 circuits used in the  S" -tandemtoend office links . . . , calculated using a loading factor of  S -9000 minutes of use per month per voicegrade circuit."U Xu yO-ԍ 47 C.F.R.  69.111(c). (Italics added).U x` `Section 69.111(c)(1) now states that: XX` ` "[t]hrough June 30, 1998, tandemswitched transport transmission charges generally shall be` presumed reasonable if the telephone company bases the charges on a weighted perminute equivalent of directtrunked transport DS1 and DS3 circuits used in the tandemto S-end office links . . . , calculated using the total actual voicegrade  S-minutes of use, geographically averaged on a studyareawide basis, that the incumbent local exchange carrier experiences based on the  SJ-prior year's annual use."XJu yO-ԍ 47 C.F.R.  69.111(c)(1). (Italics added).X x` The Commission adopted the new rule based on evidence in the record presented by the LECs showing that the actual traffic levels for many LECs was substantially lower than 9000 minutes of use  S-per month.cxu {O-ԍ Access Charge Reform Order, 12 FCC Rcd at 1607071.c The Commission found that use of the 9000minute assumption had caused revenues to be assigned to the TIC that would have been assigned to switched transport rates if actual MOU had been used to develop those rates in 1993. The Commission expected that use of actual MOU would cause an increase in tandemswitched transport rates, and directed that increase to be offset by a decrease in the TIC. Instead, LECs have decreased their tandemswitched transport rates and increased the TIC. K76. Based on our review of the price cap LEC tariff filings and the associated pleadings, it appears that all of the price cap LECs' transport rates between the tandem switch and the end office"j 0*&&PP" did indeed decline when LECs based those rates on the actual MOUs per voicegrade circuit rather than the previously assumed 9000 MOUs. The LECs have chosen to make up the difference between the new and old revenues by increasing the TIC. It appears that a portion of the rate reductions is due to the fact that the price cap LECs not only replaced the 9000 minutes of use assumption with actual data in performing their calculations, but also took into account decreased DS1 and DS3 rates as well as lower transport costs resulting from new technology. L77. When the Commission ordered price cap LECs to recalculate rates for the common transport portion of tandemswitched transport using actual minutes of use for circuit loading rather  S-than assuming 9000 minutes of use per month,iu {O -ԍ Access Charge Reform Order, 12 FCC Rcd at 1607071.i it was for the purpose of removing from the TIC any revenues attributable to the use of that particular assumption when the TIC was first established. The Commission did not contemplate that price cap LECs would adjust any other inputs into the calculation to reflect current data. Such an approach serves to generate additional TIC, which was not the Commission's intention. M78. We recognize that the Commission did not amend section 69.111(c) of the Commission's  S -rulesC Zu yOz-ԍ 47 C.F.R.  69.111(c).C to state explicitly that 1993 data rather than current data should be used for other elements of the formula in that section of the Commission's rules. That rule, however, must be read in context  S0-with section 69.1(c)A0u yO-ԍ 47 C.F.R.  69.1(c).A of the Commission's rules, which states that section 69.111(c) only applies to price cap LECs for purposes of computing initial charges for new rate elements. Thus, the amendment to section 69.111(c) applies only to rateofreturn carriers, which recalculate their tandemswitched transport rates each year with updated data. They continue to do so under the amended rule, but replacing the 9000 minutes of use assumption with actual minutes. We tentatively conclude that price cap carriers should not recalculate their tandemswitched transport rates pursuant to section 69.111(c). We seek comment on this conclusion.  S-N79. Further, we tentatively conclude that to satisfy the Access Charge Reform Order, the price cap LECs should recalculate tandemswitched transport rates using the same data that was used when they were first established in 1993, except using actual minutes of use for circuit loading, rather than assuming 9000 minutes of use per month. They then should compare those rates to the 1993 rates to determine the amount of the TIC that was attributable to using the 9000 minutes of use assumption. They should then determine what percentage of the original TIC was therefore attributable to the 9000 minutes of use assumption and make an exogenous adjustment to their June 30, 1997 TIC SBI by that percentage. LECs should make a corresponding exogenous adjustment to their tandemswitched transport SBIs, based on the percentage of tandemswitched transport revenue attributable to the 9000 minutes of use assumption. We seek comment on this approach, or on any other alternative approach a company requests the Commission consider. We also seek comment on whether price cap LECs should be permitted to increase their TIC, or whether they should only be permitted to reduce their TIC. If price cap LECs were not permitted to increase their TIC to reflect actual minutes of use" z0*&&PP!" above 9,000, then none of the SBIs in the trunking basket would be affected by the use of actual minutes.  S-O80. We reject BellSouth's claim that the Access Charge Reform Order included the cost of multiplexers in the reinitialization of tandemswitched transport rates when 9000 minutes of use was replaced by actual minutes of use as the divisor in the transport rate formula. The methodology used in the calculation of the tandemswitch transport rate is based only on the weighted average of DS1 and DS3 rates and does not include the cost of multiplexers. Nevertheless, we seek comment on whether multiplexer costs on the end office and serving wire center side are relevant in the computation of the tandemswitch transport rate. LECs should demonstrate that the weighted (by total DS1 and DS3 lines) average of DS1 and DS3 rates divided by actual minutes of use per voicegrade circuit is affected by the multiplexers at the tandem switch.  S - D.XWhether the Price Cap LECs Correctly Recalculated the Residual and FacilitiesBased  S -TIC Amounts (#  S - 1.` ` Background  S2-P81. The Access Charge Reform Order requires incumbent LECs to separate their TIC revenues between the portion of the TIC that is facilitiesrelated and that portion of their TIC that  S-cannot be associated with any identifiable cost element the residual TIC.cu {OL-ԍ Access Charge Reform Order, 12 FCC Rcd at 1608184.c They are to reassign the facilitiesrelated TIC revenue to facilitiesbased charges in three stages, beginning January 1, 1998. The price cap LECs are required to target to the residual TIC the price cap reductions arising in any price cap basket as a result of the application of the "GDPPI minus X factor" formula until the per SD-minute TIC is eliminated.=DZu {O>-ԍ Id. at 16081.= Q82. As an initial step, incumbent LECs were required to compute their anticipated residual TIC by excluding revenues that were expected to be reassigned on a costcausative basis to facilities S-based charges in the future.=u {O0-ԍ Id. at 16083.= Beginning with their July 1, 1997 tariff filings, price cap LECs were required to apply "GDPPI minus Xfactor" adjustments to their anticipated residual TIC. Price cap LECs unable to ascertain the amount of their residual TIC for their tariffs effective on July 1, 1997  S,-were required to use an amount equal to 50 percent of their current TIC.3,~u {OJ!-ԍ Id.3 Finally, in their tariffs effective January 1, 1998, the price cap LECs were required to recalculate the residual TIC targeted in their July 1, 1997 tariffs, eliminate any excess targeting that resulted in a larger PCI reduction to the" 0*&&PP=" TIC SBI than was required to eliminate the perminute interconnection charge, and then to direct all  S-necessary exogenous adjustments to their PCIs and SBIs to reverse the effects of excess targeting.<u {O@-ԍ Id.at 16084.<  S-` 2.` ` Pleadings R83. AT&T contends that Ameritech, Bell Atlantic, CBT, NYNEX, and Sprint LTCs failed to abide by the Commission's` directive and provide adequate workpapers showing whether TIC reversal  S-is necessary.XZu yO -ԍ AT&T December 11 Petition at 27 and Exhibit J.X AT&T also argues that BellSouth, GSTC, GTOC, Frontier, SWBT, and U S West  S-used the July 1, 1997 TIC instead of the June 30, 1997 TIC.:u {OJ -ԍ Id. at 29.: AT&T claims that, as a result, these  S-LECs have failed to determine whether a TIC trueup to reverse the excess Xfactor is required.[|u {O-ԍ Id. at 30; AT&T December 23 Petition at 11.[ S84. AT&T maintains most of the LECs failed to identify all of the facilitiesbased TIC  S -removals in their TIC recalculation.4 u {O-ԍ Id. 4 AT&T charges that except for GSTC, GTOC, and the Sprint LTCs, the LECs did not use all of the exogenous TIC costs in their recalculations, resulting in an  S -overstatement of TIC rates of approximately $50 million in the aggregate.J u yO-ԍ AT&T December 23 Petition at 11.J T85. AT&T also points out that despite the Commission's intent that price cap LECs use the calculation of the remaining facilitiesbased portion of the TIC to be reallocated for completing the chart CAP1, Line 690, BellSouth was the only LEC to use the same figure in its Workpaper and in CAP1, Line 690. AT&T states that the Commission should require other LECs to follow BellSouth's  S-example.l0 u yO-ԍ AT&T December 11 Petition at 31; AT&T December 23 Petition at 10. l U86. AT&T identifies additional errors in the TIC recalculation methodologies used by the  Sh-price cap LECs.Ih u yO -ԍ AT&T December 23 Petition at 9.I AT&T contends that some price cap LECs, including Nevada Bell, PacBell, SWBT, US West and BellSouth, used the Annual Filing Proposed TIC revenue instead of the Annual Filing Current TIC revenues to recalculate the new residual TIC. Finally, AT&T is concerned that GSTC and GTOC have improperly increased their TIC in some of their service areas. Therefore,"!P 0*&&PPR" AT&T requests that the Commission require all the price cap LECs to recalculate their residual TIC  S-amounts by using the AT&T recalculation methodology.:u {O@-ԍ Id. at 12.:  S-V87. In response, the price cap LECs' claim that they have recalculated the TIC correctly.Zu {O-ԍ See, e.g., Aliant December 17 Reply at 67; CBT December 17 Reply at 8; and SNET December 17 Reply at 4. For example, Ameritech and SWBT state that they did not perform a separate trueup calculation to determine whether they may have excess targeting of PCI adjustments to the residual TIC because it  S-was not necessary.iu yOd -ԍ Ameritech December 17 Reply at 17; SWBT December 17 Reply at 7.i BellSouth argues that the Access Charge Reform Order does not require the use of the June 30, 1997 TIC and, in any event, because it did not have any excess targeting to the TIC,  S-its calculations produce the same amount regardless of which of the two dates is used.ODu yO-ԍ BellSouth December 17 Reply at 1314.O W88. US West, Ameritech, and Frontier contend that they considered all exogenous  SJ -adjustments in determining TIC rates.J u {O-ԍ See, e.g., U S West December 29 Reply at 6; Ameritech December 29 Reply at 7; and Frontier December 29 Reply at 1. Bell Atlantic argues that it need not recalculate the targeting of the residual TIC because the residual TIC in the Bell Atlantic region is larger than the Xfactor  S -reductions that were incorporated into the July 1 tariffs.O . u yO-ԍ Bell Atlantic December 29 Reply at 7.O X89. GTE agrees with AT&T that it did not compare the recalculated TIC to the actual  S -targeted TIC revenues.E u yO-ԍ GTE December 29 Reply at 4.E Furthermore, while it acknowledges that it may have understated its TIC revenues by approximately $9.5 million and overstated its common line and traffic revenues by  S2-approximately $9.5 million, it notes that the net revenue impact by jurisdiction is zero.32N u {O -ԍ Id.3 Therefore, GTE states that while it is willing to make these adjustments in a compliance filing, "fine tuning the TIC analysis at this time is unnecessary since the unitary transport revenues will change in the 1998  S-annual price cap filing."9u {O:"-ԍ Id. at 5.9 ""r0*&&PP"Ԍ S-` 3.` ` Discussion  S-Y90. We have reviewed the price cap LECs' tariff filings of December 17, 1997 and their calculation of the residual and` facilitiesbased TIC amounts. We agree with AT&T that in some cases, the price cap LECs have not demonstrated that they calculated these amounts correctly. We note, however, that most price cap LECs still have a nonfacilities residual TIC. These companies, therefore, could not have overtargeted their July 1997 Xfactor reduction to the TIC. We tentatively conclude that the AT&T workpaper format for the TIC recalculation will properly determine the transport costs that are to be removed from the TIC and the facilitiesbased portion of the TIC. Accordingly, we direct the price cap LECs that no longer have a nonfacilities residual TIC, which are PacBell and certain of the United, Frontier, and GTE operating companies, to recalculate the removal of TIC costs and the facilitiesbased portion of the TIC using the worksheet provided by AT&T in its  S -December 23 petition.t u {O -ԍ See Exhibit TIC Recalculation, page 1, in AT&T December 23 Petition.t We seek comment on our proposed use of the AT&T worksheet for this purpose. Further, these price cap LECs must include in their direct case a justification of the methodology used to calculate these amounts.  SX-.<$I J:\ACCESFIL.198\IV.DDA .  nV. RECOVERY OF NEW UNIVERSAL SUPPORT OBLIGATIONS lU  S- A.Background  S-Z91. A new funding mechanism for universal service was established in the Universal Service  S-Order.4Zu {O-#X\  P6G;ɒP#э Federalstate Joint Board On Universal Service,  CC Docket No. 9645, Report and Order, 12 FCC Rcd  {OV-8776 (1997) (Universal Service Order);  Order on Reconsideration, 12 FCC Rcd 10095 (1997).4 Contributionsn to the universal service fund are made by all telecommunications carriers, and  Sl-the amount of the contribution is a percentage of enduser revenues. In the Universal Service Order, the Commission concluded that incumbent LECs may recover universal service contributions via  S-interstate mechanisms.u {Ot-#X\  P6G;ɒP#э Universal Service Order, 12 FCC Rcd at 9171. In the Access Charge Reform Order, the Commission stated that price cap LECs may treat their contributions to the new universal service mechanisms as exogenous changes to  S-their price cap indices (PCIs).Hu {O-#X\  P6G;ɒP#э Access Charge Reform Order, 12 FCC Rcd at 16147. The Commission held that the exogenous adjustment to the PCI, however, should not be made acrosstheboard because price cap LECs do not recover revenues from end users in all baskets. The baskets containing enduser interstate revenues are the common line,  SX-interexchange, and trunking baskets.XXu yO"-#X\  P6G;ɒP#э The enduser charges assessed on services in the common line basket are recovered through the SLC; in the interexchange basket, enduser charges are recovered through perminute toll charges; and in the trunking basket, end user charges are recovered through special access service provided directly to end users. Price cap LECs electing to recover their universal service obligation through interstate access charges must apportion the amount of the exogenous adjustment among these three baskets on the basis of relative amounts of enduser revenues. In the trunking"# 0*&&PPk"  S-basket, certain service categoriesu yOh-#X\  P6G;ɒP#э Tandemswitched transport, interconnection charge, and tandem switch signalling. 47 C.F.R.  61.42(e)(2)(v), (vi), and (vii). do not recover enduser revenues. Accordingly, the Commission concluded that the service band indices for these service categories should not be increased to reflect the exogenous adjustment to the PCI for the trunking basket. To reflect the exogenous adjustment to the trunking basket PCI, price cap LECs should, instead, increase the service band indices for the  S`-remaining service categories in the trunking basket` u yO -#X\  P6G;ɒP#э The four remaining service categories in the trunking basket are as follows: (1) voice grade entrance facilities, voice grade directtrunked transport, voice grade dedicated signalling transport, voice grade special access, WATS special access, metallic special access, and telegraph special access services; (2) audio and video service; (3) high capacity flatrated transport, high capacity special access, and DDS services; and (4) wideband  {O@ -data and wideband analog services. See 47 C.F.R.  61.42(e)(2)(i), (ii), (iii), (iv).  based on the relative enduser interstate revenues generated in each service category.  S- `B.Pleadings [92. AT&T claims that Citizens has erroneously used the total baskets revenues for the distribution of the` universal service fund (USF), instead of distributing its USF obligation based on the  SH -relative size of the enduser revenue in each basket.qH u yO-#X\  P6G;ɒP#э AT&T December 11 Petition at 41.q AT&T contends that Ameritech has underestimated its enduser revenues in the trunking basket for the distribution of USF, allocating to  S -the trunking basket only $291,029 of its USF exogenous cost out of a total of $111,505,176.q b u yO-#X\  P6G;ɒP#э AT&T December 11 Petition at 42.q AT&T  S -states that this misallocation results in a common line basket exogenous cost overstatement.q u yOb-#X\  P6G;ɒP#э AT&T December 11 Petition at 42.q Ameritech's response is that it has correctly applied the full amount of the exogenous cost adjustment  S -among the common line, interexchange and trunking baskets.s u yO-#X\  P6G;ɒP#э Ameritech December 17 Reply at 21.s AT&T contends that CBT has overstated enduser revenues in the Common Line basket for the purpose of USF distribution and has  S0-understated its enduser revenues in the IXC basket.q0u yO-#X\  P6G;ɒP#э AT&T December 11 Petition at 43.q In its reply, CBT states it calculated its USF  S-contributions using FCC Form 457, which is the proper means to make its calculation.u XJ!-#d6X@`7N@##Xj\  P6G;ynXP#э#X\  P6G;ɒP# CBT December 17 Reply comments at 1011. AT&T  S-requests that the USF contributions of all price cap LECs be investigated.Su yO#-ԍ Letter from Brian Masterson, Government Affairs Director, AT&T, to Magalie Roman Salas, Secretary, Federal Communications Commission, January 9, 1998, p. 3. "$0*&&PP"Ԍ S- `C. Discussion \93. We conclude that the price cap LECs' allocations of USF contributions among the common line, interexchange`, and trunking baskets warrant further review. For each price cap LEC, we calculated ratios of the USF contribution it allocates to the common line, interexchange, and trunking baskets to its total USF contribution. There is a large variance in these ratios among the LECs. For example, Ameritech and GTE allocate 0.26 percent and 1.17 percent of their total USF contributions to the trunking basket, respectively. Conversely, Aliant and Citizens allocate 25 and 23 percent of their total USF contributions to the trunking basket, respectively. The variance in these ratios is partially attributable to the price cap LECs using two different methodologies to allocate their universal service obligations across price cap baskets. The first method relies solely on the interstate end-user revenues reported in column C of lines 34-47 of FCC Form 457, the Universal Fund Worksheet, to determine price cap basket allocation factors. The second method derives price cap basket allocation factors by combining the interstate end-user service category revenue figures summarized on form SUM-1 of the Tariff Review Plan with internal company billing records. The internal company billing records are used to determine the amount of interstate end-user revenues generated by service categories within the trunking basket. ]94. These two methodologies allocate different amounts of the universal service fund obligation to individual price cap baskets for any given price cap LEC. The amount of the universal service obligation generated by a particular price cap basket depends on the methodology used. ^95. In order to assess the merits of each of the two methodologies, we require all LECs to submit explanations detailing why the methodology each has used more accurately reflects the distribution of interstate end-user revenues across baskets. As part of this explanation, each price cap LEC must explain in detail the methodology it uses and any assumptions it makes to determine these allocations. Price cap LECs must report the interstate end-user revenues they derived from each basket during the accounting period they used to calculate their universal service contribution. If the proportions of the USF contributions that LECs allocate for recovery from the common line, trunking, and interexchange baskets differ from the proportions of the total interstate end-user revenues they report for these baskets, they must explain the reason for this difference. In addition, we seek comment on whether there are any other methodologies superior to the two used by the price cap LECs. We also seek comment on whether we should require all price cap LECs to use the same methodology and, if so, which methodology we should adopt. _96. Ameritech's allocation to the trunking basket of 0.26 percent of its USF exogenous adjustment is derived from data on its FCC Form 457 that reports trunking basket interstate enduser revenues of $1.2 million out of $469.2 million total interstate enduser revenues. Ameritech, however, has provided company records that show interstate enduser revenues generated within the trunking  S -basket of $67.7 million._ u yOP#-ԍ Ameritech's December 17 Tariff Filing at Exh. 4, p.1._ Ameritech does not explain, nor has it attempted to reconcile, this discrepancy. We require Ameritech to explain in detail in its direct case the reason for this difference. ""%X0*&&PP$"Ԍ`97. Lastly, Citizens must justify allocating a portion of its USF contribution to the traffic sensitive basket, given the Commission's finding in the Access Reform Order that none of the service categories in this basket generate, interstate end-user revenues.  S8--<$I J:\ACCESFIL.198\V.BEN -f VI. RECONSIDERATION OF DECISION TO SUSPEND AND INVESTIGATE PRTC's  S-4TARIFF FILINGS. lU  S- A.Background  Sp-a98. In the Access Charge Reform Order, the Commission concluded that the costs of host/remote links not recovered by the current tandem switch transport rates and currently recovered in  S" -the TIC should be included in the tandem switch transport category.`" u {O -ԍ Access Charge Reform Order, 12 FCC Rcd at 16077.`  S -b99. In its petition, AT&T argued that PRTC overstated its host/remote revenue requirement for parts of its host/remote investment to be redistributed to the tandem switch termination and tandem  S -switch facilities rates.g Zu yO|-ԍ AT&T December 23 Petition on Rate of Return LEC Filings at 8.g AT&T attributed this overstatement to PRTC's development of an annual carrying charge factor, which it states was wrongly applied to plant in service investment rather than host/remote net plant. AT&T determined that host/remote costs that are to be assigned to the tandem  S -switched transport rate elements must be reduced by about $3.8 million.9 u {O-ԍ Id. at 9.9  S-c100. In the Access Charge Reform Suspension Order, we concluded that AT&T's petition raised substantial questions of lawfulness regarding PRTC's proposed revenue requirement for its host/remote central office equipment (COE) Category 4.3. investment and carrier cable and wire facilities (C&WF) Category 4 investment that is to be redistributed to the tandem switch and tandem  S-switched facility rates.f|u {O8-ԍ See Access Charge Reform Suspension Order at para. 10.f Because the rates in question were interrelated with other rate changes proposed by PRTC, we suspended and initiated an investigation of the entirety of PRTC's tariff filings, Transmittal Numbers 24 and 25.  S|- B.Discussion  S,-d101. Pursuant to Sections 1.108 and 0.291 of the Commissions rules,J,u yO"-ԍ 47 C.F.R.  0.291, 1.108.J we reconsider on our own motion our decision to suspend and investigate PRTC's tariffs. PRTC has revised the annual carrying charge factor and the host/remote revenue requirement, and has filed a request for special"&0*&&PPL"  S-permission to correct Transmittal No. 25.iu yOh-ԍ Application for Special Permission No 7, filed January 9, 1998.i Accordingly, we decline to investigate PRTC Transmittal  S-Numbers 24, 25 and 27.EXu {O-ԍ See n.1, supra.E  S`-.<$I J:\ACCESFIL.198\VI.DDA .  VII. PROCEDURAL MATTERS ă  S- A.Filing Schedules e102. This investigation will be conducted as a notice and comment proceeding. We have designated CC Docket No. 97250. The following companies are the parties designated to this investigation: Aliant Communications Company, Ameritech Operating Company, Bell Atlantic Telephone Companies, BellSouth Telecommunications, Inc., Frontier Communications of Minnesota and Frontier Communications of Iowa, Frontier Telephone of Rochester, GTE System Telephone Companies, GTE Telephone Operating Company, Nevada Bell, New York Telephone and New England Telephone and Telegraph Company, Pacific Bell, Southern New England Telephone Company, Southwestern Bell Telephone Company, Sprint Local Telephone Companies, and U S West Communications. f103. These parties shall file their direct cases no later than February 27, 1998. The direct cases must present the parties' positions with respect to the issues described in this Order. Pleadings responding to the direct cases may be filed no later than March 16, 1998, and must be captioned "Oppositions to Direct Case" or "Comments on Direct Case." The companies may each file a "Rebuttal" to oppositions or comments no later than March 23, 1998. g104. An original and six copies of all pleadings shall be filed with the Secretary of the Commission. In addition, parties shall file two copies of any such pleadings with the Competitive Pricing Division, Common Carrier Bureau, Room 518, 1919 M Street, N.W., Washington, D.C. 20554. Parties shall also deliver one copy of such pleadings to the Commission's commercial copying firm, International Transcription Service, Inc., 1231 20th Street, NW, Washington, DC 20036. Members of the general public who wish to express their views in an informal manner regarding the issues in this investigation may do so by submitting one copy of their comments to the Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554. Such comments should specify the docket number of this investigation. Parties are also encouraged to sumit their pleadings electronically through the Electronic Tariff Filing System. h105. All relevant and timely pleadings will be considered by the Commission. In reaching a decision, the Commission may take into account information and ideas not contained in pleadings, provided that such information or a writing containing the nature and source of such information is placed in the public file, and provided that the fact of reliance on such information is noted in the order. "!'0*&&PPF#"Ԍ S- aB.Ex Parte Requirements i106. This tariff investigation is a "permit-but-disclose proceeding" and subject to the "permit-but-disclose" requirementsa under Section 1.1206(b) of the rules, 47 C.F.R.  1.1206(b), as  Sa-revised. Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must contain a summary of the substance of the presentation and not merely a listing of the subjects discussed. More than a one or two sentence description of the views and arguments  S-presented is generally required.]u {OS-ԍ See 47 C.F.R. 1.1206 (b)(2), as revised. ] Other rules pertaining to oral and written presentations are set forth in Section 1.1206 (b), as well.  Ss- C.Paperwork Reduction Act j107. The collections of information contained within are contingent upon approval by the Office of Management and Budget, in accordance with the provisions of the Paperwork Reduction Act, 44 U.S.C. 3506 et seq.  S[-`1 VIII. ORDERING CLAUSES ă   S -k108. IT IS ORDERED that, pursuant to Sections 4(i), 4(j), 201(b), 203(c), 204(a), 205, and 403 of the Communications Act, 47 U.S.C.  154(i), 154(j), 201(b), 203(c), 204(a), 205, `and 403, and Sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R.  0.91, 0.291, the issues set forth  S-in this Order ARE DESIGNATED FOR INVESTIGATION .  SC-l109. IT IS FURTHER ORDERED that the local exchange carriers listed in Appendix A of  S-this Order SHALL BE parties to this proceeding.  S-m110. IT IS FURTHER ORDERED that each local exchange carrier that is a party to this  S-proceeding SHALL INCLUDE , in its direct case, a response to each request for information that it is required to answer in this Order.  S+-n111. IT IS FURTHER ORDERED that pursuant to Sections 0.91, 0.291 and 1.108 of the Commission's rules, 47 C.F.R.  0.91, 0.291, 1.108, we reconsider on our own motion our decision"(Z0*&&PP/"  S-in the " Access Charge Reform Tariffs Suspension Order to suspend and investigate the tariff revisions filed by Puerto Rico Telephone Company, Transmittal Numbers 24, 25 and 27. ` `  hh,FEDERAL COMMUNICATIONS COMMISSION ` `  hh,A. Richard Metzger, Jr. ` `  hh,Chief, Common Carrier Bureau" "J )0*&&PP "  S-X` hp x (#%'0*,.8135@8: