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‘XЖ'да ААРX ае(и зд yOœ'дб#єXє\  PŽ6G;Щ’єP#бУ УСрьСFederal Communications CommissionƒС`С(#gСFCC 98Љ279Ф Фƒ д Ш дкyxАˆdddyк(еа Шщ ад9f%ђз )ЌJ:\APD\HICOST\PLATFORM\PART1A.CUR) з9да щщ авŒ I. A. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a)ŒвУ Уб#Xjє\  PŽ6G;ynXP#бСрvьfСб#єXє\  PŽ6G;Щ’єP#бBefore theƒ СрЩ ьѓСFEDERAL COMMUNICATIONS COMMISSIONƒ д yOБœ'дСрaь7СWashington, D.C. 20554Ф Фб#Xjє\  PŽ6G;ynXP#бƒ д ‘XbЉ4дIn the Matter ofСИ И чССССhhCССРРqС) СŠСС` ` ЙССИ И чССССhhCССРРqС) д ‘X4Љ4дFederalЉState Joint Board onСhhCССРРqС)СŸССppЮСCC Docket No. 96Љ45 д ‘XЉ4дUniversal ServiceСИ И чССССhhCССРРqС) СŠСС` ` ЙССИ И чССССhhCССРРqС) д ‘XяЉ4дForwardЉLooking Mechanism СhhCССРРqС)СŸССppЮСCC Docket No. 97Љ160 д ‘XиЉ4дfor High Cost Support forСССhhCССРРqС) д ‘XС Љ4дNonЉRural LECsСИ И чССССhhCССРРqС)У У д ‘X“ Ж'дСрњьСFIFTH REPORT & ORDERФ Фƒ Adopted: October 22, 1998С`(#СReleased: October 28, 1998ƒ By the Commission: Commissioner FurchtgottЉRoth approving in part, dissenting in part, and issuing a statement. д ‘XђЖ4дСрЉь-СУ УTABLE OF CONTENTSФ ФƒС`а!(#šСУУparaФФƒ д ‘XлЉ4ндааXА` И hРpШ xа (#€%и'0*ˆ,р.813ш5@8˜:№ЄЄд {Ol"Ж'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8888, para. 201.gж In д “XfЉ4дthe УУUniversal Service OrderФФ, the Commission stated that, once states have taken steps to identify the subsidies implicit in intrastate rates, the Commission may reassess the amount of federal support that is necessary to achieve the Act's goals. In response to issues raised by commenters and the state Joint Board members, the Commission referred back to the Joint д ‘X а4дBoard questions related to how federal support should be determined.ж#’ аЄЄд {O(Ж'д УУSee Referral OrderФФ. УУSee alsoФФ Formal Request for Referral of Designated Items by the State Members of the РР 254 FederalЉState Joint Board on Universal Service, CC Docket No. 96Љ45, filed March 11, 1998.ж For example, theд"  *#x-'*'*``"д Joint Board is reviewing how best to determine the support amount, given the forwardЉlooking cost of providing the supported services in an area, and the appropriate share to be provided д ‘Xва4дby the federal mechanism.жT$ЪвЄЄд {OKЖ'д УУSeeФФ УУReferral OrderФФ at para. 4.Tж Although many of the proposals under consideration by the Joint Board and pending before the Commission on reconsideration might alter some of those four steps, the proposals would generally still require the Commission to adopt a mechanism for determining the forwardЉlooking cost of providing the supported services. д “X_Љ4дСŠСи16.и С` ` ЙСIn the УУUniversal Service OrderФФ, the Commission concluded that two industryЊproposed models, HAI and BCPM, that had been submitted for consideration in the д “X3Љ4дproceeding that led up to the УУOrderФФ were not sufficiently accurate for adoption as the federal cost mechanism, but that the two models should continue to be considered and developed д ‘X а4дfurther.жl%Ъ ZЄЄд {OЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8909Љ8910, para. 245.lж д ‘Xй Љ4дСŠСи17.иС` ` ЙСThe Commission stated that it might consider, for the federal mechanism, alternative algorithms and approaches submitted by parties other than the model sponsors or д ‘XЋ а4дthat could be generated internally by Commission staff.жO&ZЋ ьЄЄд yOHЖ'д УУФФFederalЉState Joint Board on Universal Service, ForwardЉLooking Mechanism for High Cost Support for д {Oœ'дNonЉRural LECs, CC Docket Nos. 96Љ45, 97Љ160УУФФ, УУFurther Notice of Proposed RulemakingФФ (УУFurther Notice)ФФ, 12 FCC Rcd 18514 at 18532, paras. 35Љ36 (1997).Oж The Commission noted that one possible outcome of this approach would be development of a hybrid or synthesis model that combines selected components of different models with additional components and algorithms д ‘Xfа4дdrawn from other sources.ж^'ЪfЄЄд {O%Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18532, para. 35.^ж The Commission presently has three models before it: (1) the д ‘XOа4дBenchmark Cost Proxy Model, Version 3.0 (BCPM);ж (XO ЄЄд yO Ж'д Submission to CC Docket Nos. 96Љ45 and 97Љ160 by BellSouth Corporation, BellSouth Telecommunications, Inc., U S WEST, Inc., and Sprint Local Telephone Company (BCPM proponents), dated Dec. 11, 1997 (BCPM Dec. 11 submission). ж (2) the HAI Model, Version 5.0a д ‘X8а4д(HAI);жЁ) 8Р ЄЄд yOЉЖ'д Letter from Richard N. Clarke, AT&T, to Magalie Roman Salas, FCC, dated Dec. 11, 1997 (HAI Dec. 11 submission). HAI was submitted by AT&T and MCI (HAI proponents). Versions of HAI filed before February 3, 1998, were known as the Hatfield Model. The proponents refer to the February 3, 1998 submission as HAI. We refer to this model as HAI throughout this Report and Order.Ёж and (3) the Hybrid Cost Proxy Model, Version 2.5 (HCPM).жF*ь8ЈЄЄд yO‘#Ж'даа HCPM was developed by Commission staff members William Sharkey, Mark Kennet, C. Anthony Bush, Jeff Prisbrey, and Commission contractor Vaikunth Gupta of Panum Communications. Common Carrier Bureau д {O!%œ'дAnnounces Release of HCPM Version 2.0, УУPublic NoticeФФ, DA 97Љ2712 (rel. Dec. 29, 1997) (УУPublic Notice д {Oы%œ'дReleasing HCPM 2.0ФФ). United States Government MemoУ УФ Ф from W. Sharkey, FCC, to Magalie Roman Salas, д yOЕ&œ'дFCC, dated Feb. 6, 1998 (УУФФHCPM Feb. 6 submission).Fж д"8 \*x-'*'*``"дŒСŠС ХyХ д ’XщЖ4дУ УззB.СŠСУУFurther NoticeФФ and the Model Development ProcessФ Фзз СŠС д “XМЉ4дСŠСи18.и С` ` ЙСIn a July 18, 1997 УУFurther Notice of Proposed RulemakingФФ, the Commission established a multiЉphase plan to develop a federal mechanism that would send the correct д “Xа4дsignals for entry, investment, and innovation.ХyХжS+ЪЄЄд {O Ж'д УУFurther NoticeФФ, 12 FCC Rcd 18514. Sж The УУFurther NoticeФФ divided questions related д “X{а4дto the cost models into "platform design" issues and "input value" issues.ж],ъ{ZЄЄд yO† Ж'д Generally, there is a platform component for each portion of the exchange network being modeled. Examples of platform design issues are the method of distributing customers within a geographic area, the establishment of switch capacity limitations, and the routing of feeder and distribution cables. Examples of input values are the price of various network components, their associated installation and placement costs, and capital д {OІ œ'дcost parameters such as debtЉequity ratios. УУSee Further NoticeФФ, 12 FCC Rcd at 18516Љ18, paras. 17Љ18.]ж The УУFurther д “XfЉ4дNoticeФФ subdivided the platform issues into four topic groups, and sought comment on each group separately in order to develop a focused dialogue among interested parties. The four groups were: (1) customer location platform issues; (2) outside plant design platform issues; (3) switching and interoffice platform issues; and (4) general support facilities, expenses, and д ‘X а4дall inputs issues.жX-Ъ ЄЄд {OЩЖ'д УУSee Further NoticeФФ, 12 FCC Rcd at 18514.Xж д “Xо Љ4дСŠСи19.и С` ` ЙСIn the УУFurther NoticeФФ, we also requested that parties provide information about the platform design and input values that would allow the mechanism developed in this proceeding to estimate the forwardЉlooking cost of nonЉrural carriers in Alaska and insular д “X›а4дareas.ж.›žЄЄд {OъЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18518Љ19, para. 4. In the УУUniversal Service OrderФФ, the Commission rejected the suggestion of Puerto Rico Telephone Co. (PRTC) that nonЉrural carriers serving insular areas should be treated in the same manner as rural carriers and allowed to postpone their conversion to the forwardЉlooking д {ODœ'дeconomic cost methodology. УУSeeФФ УУUniversal Service OrderФФ, 12 FCC Rcd at 8946, para. 315. The Telecommunications Regulatory Board of Puerto Rico has requested the Commission to delay conversion to a д {Oжœ'дforwardЉlooking cost mechanism in Puerto Rico for a transition period "of no less than three years." УУSeeФФ Letter from Phoebe Forsythe Isales, Telecommunications Regulatory Board of Puerto Rico, to William Kennard, FCC, д yOhœ'дdated April 22, 1998 УУФФУУФФУУФФat 2. The Commission does not address this issue today but intends to review the record and make a determination at a later date. ж In addition, the Commission indicated in the УУFurther NoticeФФ that, in selecting a federal mechanism, we might consider alternative approaches to BCPM and HAI, such as the development of a hybrid model that combines components of BCPM or HAI with each other д ‘XXа4дor with algorithms drawn from other sources.жe/ЪXtЄЄд {O}#Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18531Љ32, paras. 34Љ38.eж After reviewing the comments received in д “XAЉ4дresponse to the УУFurther NoticeФФ, tУУФФhe Common Carrier Bureau released two public notices as guidance to parties wishing to submit cost models for consideration as the federal д ‘Xа4дmechanism.жn0’^ЄЄд yOЬ'Ж'д Guidance to Proponents of Cost Models in Universal Service Proceeding: Switching, Interoffice Trunking, д {O”(œ'дSignaling, and Local Tandem Investment, УУPublic NoticeФФ, DA 97Љ1912 (rel. Sep. 3, 1997) (УУSwitching andд"”(/x-'*'*РРЉ(У"д д {Oœ'дTransport Public NoticeФФ); Guidance to Proponents of Cost Models in Universal Service Proceeding: Customer д {OZœ'дLocation and Outside Plant, УУPublic NoticeФФ, DA 97Љ2372 (rel. Nov. 13, 1997) (УУCustomer Location & Outside д {O$œ'дPlant Public NoticeФФ).nж The Bureau's guidance provided recommendations on the platform design ofд" ю0x-'*'*``Ю"д д ‘Xа4дthe customer location, outside plant, switching, and transport components of a cost model.ж1ЪюЄЄд {OŸЖ'д УУSwitching and Transport Public NoticeФФ; УУCustomer Location & Outside Plant Public NoticeФФ.ж д ‘XвЉ4дСŠСи20.иС` ` ЙСDuring the course of the model development process, proponents of BCPM and HAI submitted a series of revisions to model components and intermediate output data. In a д “XЄЉ4дУУPublic NoticeФФ released on November 13, 1997, the Bureau requested that model proponents by December 11, 1997 submit versions of their model platforms that incorporated the Bureau's д ‘Xxа4дguidance.жo2Ъx€ЄЄд {OЉ Ж'д УУCustomer Location & Outside Plant Public NoticeФФ at section III.oж The Bureau stated its expectation that the Commission would evaluate the models д ‘Xaа4дsubmitted at that time to select the platform for the federal mechanism.жo3ЪaЄЄд {O$Ж'д УУCustomer Location & Outside Plant Public NoticeФФ at section III.oж Updated versions of д ‘XJа4дBCPM, HAI, and HCPM were filed with the Commission on December 11, 1997.ж‚4ЪJЄЄЄд {OŸЖ'д BCPM Dec. 11 submission; HAI Dec. 11 submission; УУPublic Notice Releasing HCPM 2.0ФФ.‚ж On August 7, 1998, HCPM released a clustering algorithm to group customers into serving д ‘X а4дareas.жу5” 6 ЄЄд {OЖ'д УУSee ФФCommon Carrier Bureau Seeks Comment On Model Platform Development, УУPublic NoticeФФ, DA 98Њд {OЭœ'д1587 (rel. Aug. 7, 1998) (УУPlatform Public NoticeФФ) at 4.уж The Bureau has continued to receive minor refinements to all three models.ж)6Z ’ ЄЄд {O_Ж'д Minor revisions have been made to the HAI and HCPM December 1998 model submissions. УУSeeФФ Letter from Richard Clarke, AT&T, to Magalie Roman Salas, FCC, dated February 3, 1998 (HAI Feb. 3 Submission); д yOёœ'дУУФФHCPM Feb. 6 submission.)ж СŠС д ‘Xю Ж'дУ УззC.СŠСФ ФззУ УDesign of a ForwardЉLooking Wireline Local Telephone NetworkФ ФУУФФ д ‘XР Љ4дСŠСи21.иС` ` ЙСTo understand the assumptions made in the models, it is necessary to д ‘XЉ а4дunderstand the layout of the current wireline local telephone network.жz7ZЉ ДЄЄд yOЖ'д We also note that technologies such as wireless are likely to become more important over time in providing universal service and we will review suggestions for incorporating such technologies into the forwardЊд {Ož œ'дlooking cost estimates. УУSee, e.g.ФФ, Western Wireless Corp. УУPlatform Public NoticeФФ comments 3Љ6.zж In general, a telephone network must allow any customer to connect to any other customer. In order to accomplish this, a telephone network must connect customer premises to a switching facility, ensure that adequate capacity exists in that switching facility to process all customers' calls that are expected to be made at peak periods, and then interconnect that switching facility with other switching facilities which routes the call to its destination. A "wire center" is the location of a switching facility, and there are geographic boundaries that define the area in which all customers are connected to a given wire center. By requiring the models to use д “XёЉ4дexisting incumbent LEC wire center locations, the УУUniversal Service OrderФФ imposed someд"ё ж7x-'*'*``Хн"д д ‘Xа4дuniformity in the models' network design.ж%8ZЄЄд {OyЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8913 para. 250. Criterion 1 requires that a model must include incumbent LECs' wire centers as the center of the loop network and the outside plant should terminate at incumbent LECs' current wire centers.%ж д ‘XвЉ4дСŠСи22.иС` ` ЙСWithin the boundaries of each wire center, the wires and other equipment that д “XЛЉ4дconnect the central office to the customers' premises are known as УУoutside plantФФ. Outside plant can consist of either copper cable or optical fiber cable or a combination of optical fiber д ‘Xа4дand copper cable, as well as associated electronic equipment. Copper cableж9XъЄЄд yO* Ж'д Copper cable can also be used, under other circumstances, to carry a digital signal that is incompatible with telephone equipment. For example, both BCPM and HAI use TЉ1 on copper technology, which involves a digital signal on copper wire. ж generally carries an analog signal that is compatible with most customers' telephone equipment, but thicker, more expensive cables must be used to carry signals over greater distances. Optical fiber cable carries a digital signal that is incompatible with most customers' telephone equipment, but the quality of the signal degrades significantly less with distance compared to a signal carried on copper wire. Generally, when a neighborhood is located too far from the wire center to be served with copper cables alone, an optical fiber cable will be deployed to a point within the neighborhood, where a piece of equipment will be placed that converts the digital signal carried on optical fiber cable to an analog, electrical signal that is compatible with customers' telephones. This equipment is known as a digital loop carrier remote terminal, or DLC. Because of the cost of DLCs, the models are designed so that a single DLC is shared among a number of customers. From the DLC, copper cables of varying gauge extend to all of the customer premises in the neighborhood. Where the neighborhood is close enough to the wire center to serve entirely on copper cables, a copper trunk connects the wire center to a central point in the serving area, called the serving area interface (SAI), and copper cables will then connect the SAI to the customers in the serving area. The portion of the loop plant д “XЉ4дthat connects the central office with the SAI or DLC is known as the УУ"feeder" plantФФ, and the portion that runs from the DLC or SAI throughout the neighborhood is known as the д “XѓЉ4дУУ"distribution" plantФФ. д ‘XЧЉ4дСŠСи23.иС` ` ЙСA model's estimate of the cost of serving the customers located within a given wire center's boundaries includes the model's calculation of switch size, the lengths, gauge, and number of copper and fiber cables, and the number of DLCs required. These factors depend, in turn, on how many customers the wire center serves, where the customers are located within the wire center boundaries, and how they are distributed within neighborhoods. Particularly in rural areas, some customers may not be located in neighborhoods at all but, instead, may be scattered throughout outlying areas. In general, the models divide the area served by the wire center into smaller areas that will be served from a single DLC, known as д “Xа4д"УУserving areasФФ."жu:   ЄЄд yOЪ&Ж'д The models generally locate customers within some portion of the serving area, within which distribution plant is constructed; this is known as the "distribution area." For the sake of analysis, we also consider the cable that connects each distribution area to the DLC to be distribution cable. We adopt this definition of distribution plant for the sake of consistency. HAI considers the cable between a DLC and a distribution area to beд"")9x-'*'*РР-)У"д distribution plant. HAI Dec. 11 submission, Model Description at 17. While noting that this cable "would typically be considered distribution cable," BCPM classifies it as feeder. BCPM Dec. 11 submission, Model Methodology at note 32. The difference in the model proponents' terminology does not affect our analysis of д yOшœ'дthe models.У УФ Фuж All cable within a serving area, with the exception of that which connects aд" А:x-'*'*``Ы"д DLC to a central office, is considered distribution plant. д ‘XвЉ4дСŠСи24.иС` ` ЙСThe model proponents agree that forwardЉlooking design requires that wire centers be interconnected with one another using optical fiber networks known as д ‘XЄа4дSynchronous Optical Network (SONET) rings.жђ;шЄАЄЄд yO Ж'д SONET is a set of standards for optical (fiber optic) transmission. It was developed to meet the need for transmission speeds above the T3 level (45 Mbps) and is generally considered the standard choice for д yO• œ'дtransmission devices used with broadband networks. BCPM Dec. 11 submission, Model Methodology at 68. У УФ ФAs discussed below, HCPM only contains the modules necessary to locate customers and compute the cost of outside plant.ђж The infrastructure to interconnect the wire centers is known as the "interoffice" network, and the carriage of traffic among wire centers is д “XvЉ4дknown as "УУtransportФФ." УУФФIn cases where a number of wire centers with relatively few people within their boundaries are located in close proximity to one another, it may be more economical to use the switching capacity of a single switch to process the calls of the customers in the boundaries of all the wire centers. In that case, a fullЉcapacity switch (known as a "host") is placed in one of the wire centers and less expensive, more limitedЊcapacity switches (known as "remotes") are placed in the other wire centers. The remotes are then connected to the host with interoffice facilities. Switches that are located in wire centers with enough customers within their boundaries to merit their own fullЉcapacity switches and that do not serve as hosts to any other wire centers are called "standЉalone" switches. д ‘X’Љ4дСŠСи25.иС` ` ЙСThe models under consideration in this proceeding differ in several important ways in estimating the forwardЉlooking cost of designing a telephone network. For example, the three models in this proceeding rely on different sets of data and assumptions to ascertain д ‘XMа4дthe number of customers in each wire center and the geographic location of those customers.жb<ЪM` ЄЄд {O^Ж'д УУSeeФФ Appendix A for complete description of models.bж The models also use different methods to calculate switch size, the size, type, and number of д ‘XЉ4дfiber and copper cables, and the routing of those cables. У УФ Фд9f%ђз )ЏJ:\APD\HICOST\PLATFORM\PART1A.CUR) з9д д ‘XёЖ'дд;f%ђз +ЌJ:\APD\HICOST\PLATFORM\NEWCRIT1.CUR+ з;дб#Xjє\  PŽ6G;ynXP#бУ УСрŽь–СззIII. CUSTOMER LOCATION AND OUTSIDE PLANT DESIGNФ Фззƒ д ‘XУЉ4дСŠСи26.иС` ` ЙСУУФФWe first consider the customer location and outside plant algorithms of BCPM, д “XЌЉ4дHAI, and HCPM in light of the criteria identified in the УУUniversal Service OrderФФ. As the д “X—Љ4дBureau pointed out in the УУOutside Plant Public NoticeФФ, the criteria suggest that the models "should be considered both from an engineering perspective, to ensure that the network д “XkЉ4дprovides the type and quality of service specified in the УУ[Universal Service] OrderФФ, and from an economic perspective, to ensure that the network design minimizes costs and maximizes д ‘X?а4дefficiency."жW=Ъ?ђ ЄЄд {Oт(Ж'д УУOutside Plant PublicФФУУ NoticeФФ at 4.Wж We conclude that the customer location and outside plant platform of theд"?„ =x-'*'*``"д federal mechanism should consist of a synthesis of the best ideas presented by the model proponents, including HAI's use of geocoded customer location data, BCPM's use of the road network to estimate the locations of customers for whom no geocode data are available, HCPM's approach to identifying customer serving areas based on natural clusters of customers, and HCPM's ability to design plant to the precise customers locations within each д ‘XЉ4дserving area.У УФ Ф д ‘X_Ж'дУ УззA.СŠСФ ФУ УBackgroundззФ Ф д ‘X1а4дСŠСи27.иС` ` ЙСУУФФУУФФOutside plant, or loop plant,жв>’1ЄЄд yOЊ Ж'д A carrier's loop plant is the entire network infrastructure between the switching office and the customer's д {Or œ'дpremises. УУSee supraФФ section II.C.вж rather than switching and interoffice transport д ‘X а4дplant, constitutes the largest portion of total network investment, particularly in rural areas.ж?Ш "ЄЄд yOэ Ж'д For example, in both HAI and BCPM, loop plant represents over 70 percent of total network investment. ж Engineering assumptions about outside plant significantly affect service quality. The design of outside plant facilities depends heavily on the location of customers relative to the wire center. Thus, the most significant portions of network costs will be determined using the model's customer location module, which locates customers, and the outside plant design module, which designs the network efficiently to serve those customers. The models' outside plant modules thus are closely associated with their customer location modules. Each model has developed an algorithm for locating customers as well as an outside plant design module. We therefore must evaluate the respective proposals and determine the most appropriate method to locate customers. д “XЉ4дСŠСи28.иС` ` ЙСAfter the УУOutside Plant Public NoticeФФ was released, the model proponents submitted customer location and outside plant modules that use a variety of data sources, assumptions, and algorithms. The new versions of both models are significant improvements over earlier versions. A detailed description of the technical design of each model proposal is set forth in Appendix A. д ‘X•Ж'дУ УззB.СŠСDiscussionззФ Ф д ‘XgЉ4дСŠСи29.иС` ` ЙСIn this section, УУФФwe identify the combination of data and algorithms that locate customers and design outside plant to serve those customers in a way that best meets the д “X9а4дcriteria identified in the УУUniversal Service OrderФФ.жg@Ъ9ВЄЄд {Oœ"Ж'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8913, para. 250.gж As an initial matter, we observe that all д ‘X$а4дthree models design a network that is capable of providing the supported services.ж„A\$DЄЄд yO%Ж'д УУФФHAI Dec. 11 submission, Model Description at 1Љ2; BCPM Dec. 11 submission, Model Methodology at д {Oс%œ'д17Љ18; C.A. УУФФBush et al., УУComputer Modeling of the ForwardЉLooking Economic Cost of Local Exchange д {OЋ&œ'дTelecommunications Networks: An Optimization ApproachФФ, June 1, 1998 (HCPM June 1 Report) at 2.„ж We also conclude, as explained below, that each of the models meets a reasonable standard for ensuring that the network designed does not impede the provision of advanced services. д"іh Ax-'*'*``ін"дŒд ‘XЉ4д™СŠСи30.иС` ` ЙСWe identify five distinct aspects of the customer location and loop design portions of a cost model that can have a significant bearing on the model's ability to estimate д ‘Xва4дthe leastЉcost, mostЉefficient technology for serving a particular area.жtBЪвЄЄд {OKЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8913, para. 250, criterion 1.tж These include: (i) the extent to which the model uses actual customer location data to locate customers, (ii) the method of determining customer locations in the absence of actual data, (iii) the algorithms employed to group customers into serving areas, (iv) the model's ability to design plant directly to the customer locations within the serving area, and (v) adherence to sound engineering and cost minimization principles in both the design of distribution plant within each serving area and the design of feeder plant to connect each serving area to the associated central office. д ‘X Ж4д У УСŠСзз1.С` ` ЙСDetermining Customer LocationззФ Ф д ‘Xе Љ4дСŠСи31.иС` ` ЙСEach model has a method for determining where customers are located. The issues raised are whether to use actual geocode data, to the extent they are available, and what method to use for determining surrogate customer locations where geocode data are not д ‘Xа4дavailable.ж_CXZЄЄд yO›Ж'д Although surrogating methods, and even customer location data provided by the Census Bureau, constitute geocode data, for purposes of clarity, we will use the term "geocode" data to refer only to actual precise latitude and longitude data, unless we specifically refer to the data as "surrogate geocode" data._ж We conclude that HAI's proposal to use actual geocode data, to the extent that they are available, is the preferred approach, and BCPM's proposal that we use road network information to determine customer location where actual data are not available, provides the most reasonable method for determining customer locations. д ‘XЉ4дСŠСи32.иС` ` ЙСThe starting point that all three models use in determining customer location is publicly available information from the Census Bureau, which provides the number of д ‘Xяа4дcustomers within each Census Block (CB).ж1DшяzЄЄд yOЖ'д A CB is the smallest geographic unit for which the Census Bureau collects information. Defined by the Census Bureau in 1990, CBs vary in shape and size, although a CB may be no smaller than 40,000 square feet or, if the CB is bounded entirely by roads, 30,000 square feet. CBs must be bounded by at least one road, and may also be bounded by railroads, bodies of water, other visible physical and cultural features, and legal boundaries. U.S. Census Bureau's Geographic Reference Manual, Chapter 11, at 11Љ9 Љ 11Љ11.1ж Thus, at a minimum, each model has information about the number of customers within a specified geographic area. In urban areas, CBs tend to be relatively small, and often contain only one city block. In rural areas, however, CBs typically are much larger. It is therefore important to have a reasonable method for determining customer locations more precisely within the CB. д ‘XeЉ4дСŠСи 33.иС` ` ЙСУУUse of Geocode DataФФ. Only HAI includes a specific proposal for using actual latitude and longitude data to identify customer locations. Many commenters from across the spectrum of the industry agree that geocode data that identify the actual geographic locations of customers are preferable to algorithms intended to estimate customer locations based solelyд" * Dx-'*'*``"н"д д ‘Xа4дon such information as Census data.ж‚E"ЄЄд {OyЖ'д УУSeeФФ AT&T Sept. 11, 1998 comments at 3; Bell Atlantic Aug. 28, 1998 comments at 3; GTE Aug. 28, 1998 comments at 5; MCI Aug. 28, 1998 comments at 2; Aliant Sept. 2, 1997 comments at 2; Ameritech Sept. 2, 1997 comments at 6; AT&T Sept. 2, 1997 comments at 7Љ8; RUS Sept. 2, 1997 comments at 2; AT&T Sept. 10, 1997 reply comments at 12Љ13. ‚ж We agree with Ameritech that proxy techniques for estimating customer locations are unnecessary and inappropriate for companies that can д ‘Xва4дidentify the actual customer dispersion of their customers with geocode data.жJFШвВЄЄд yO5Ж'д Ameritech Sept. 2 comments at 6.Jж We conclude that a model is most likely to select the leastЉcost, mostЉefficient outside plant design if it uses the most accurate data for locating customers within wire centers, and that the most accurate data for locating customers within wire centers are precise latitude and longitude coordinates for those customers' locations. д ‘XHЉ4дСŠСи!34.иС` ` ЙСУУФФRecent public comment demonstrates support for the use of accurate geocode д ‘X1а4дdata in the federal mechanism when available.жыG|1BЄЄд {O$Ж'д УУSee, e.g.,ФФ AT&T Aug. 28, 1998 comments at 3; Bell Atlantic Aug. 28, 1998 comments at 3; BellSouth et al. Aug. 28, 1998 comments at AЉ2; GTE Aug. 28, 1998 comments at 5; MCI Aug. 28, 1998 comments at 2. At earlier stages of this proceeding, some commenters opposed using geocode data in the federal mechanism based on the assertion that the geocode data that presently exist for rural areas had not been made available for public д {OFœ'дreview and may, therefore, be insufficient and unreliable. УУSee, e.g.,ФФ GTE Sept. 2, 1997 comments at 11Љ12; Bell Atlantic Sept. 10, 1997 reply comments at 3Љ4; GTE Sept. 10, 1997 reply comments at 4Љ5; SBC Sept. 10, 1997 reply comments at 6Љ7.ыж УУФФУУФФAt present, the only geocode data in the record of this proceeding are those prepared for the HAI model by the HAI sponsors' д ‘X а4дconsultants, PNR Associates (PNR).жКH † ЄЄд yO:Ж'д Pursuant to the Commission's Protective Order, PNR has recently made available the underlying geocode data for inspection by interested parties.Кж Many commenters recognize that, in addition to the current sources of geocode data, more comprehensive geocode data are likely to be available д ‘Xе а4дin the future.ж I6 е оЄЄд {OdЖ'д УУSeeФФ Aliant Sep. 2 comments at 2; RUS Sep. 2 comments at 2; Letter from Orren E. Cameron III, RUS, to д {O.œ'дOffice of the Secretary, FCC, dated Sep. 12, 1998 (RUS Sep. 12 УУex parteФФ) at 1; Letter from David N. Porter, д {Oјœ'дWorldCom, to William F. Caton, FCC, dated Oct. 16, 1998 (WorldCom Oct. 16 УУex parteФФ) at 2Љ3. We have д {OТœ'дasked nonЉrural carriers to provide information about the extent to which they have geocode data today. УУSee, д {OŒœ'дe.g.,ФФ Letter from A. Richard Metzger, Jr., FCC, to Carolyn Hill, ALLTEL, dated Mar. 24, 1998. In response to this request, a few commenters such as Aliant, Bell Atlantic, and PRTC indicate that they currently maintain little or no geocode data. Others such as Ameritech, Cincinnati Bell, GTE, and SBC indicate that they geocode from 33% to 99% of their customers. The majority of commenters indicate that their geocode success rates decrease in rural areas. In a Public Notice released on May 4, 1998, the Common Carrier Bureau sought comment more generally on issues regarding the current and future availability of geocode data. Common д {O>$œ'дCarrier Bureau Requests Further Comment on the ForwardЉLooking Economic Cost Mechanism, УУPublic NoticeФФ, д {O%œ'дDA 98Љ848 (rel. May 4, 1998) (УУPublic Notice Requesting Further CommentФФ) at 3Љ4. The responses to this public notice did not include any concrete alternative sources of geocode data. ж Nevertheless, some commenters still question whether PNR's geocode data set д ‘XО а4дshould be used in the federal mechanism.жJЪО мЄЄд {OK(Ж'д УУSee, e.g.,ФФ BellSouth et al. Aug. 28, 1998 comments at AЉ2; GTE Aug. 28, 1998 comments at 6Љ7.ж We note that our conclusion that the model should use geocode data to the extent that they are available is not a determination of theд"Ї nJx-'*'*``н н"д accuracy or reliability of any particular source of that data. We anticipate, however, that a reasonable source of verifiable geocode data can be determined at the inputs stage of this д ‘Xва4дproceeding.жKювЄЄд yOKЖ'д The record in this proceeding indicates that several incumbent LEC's maintain their own geocode data and that alternative methods such as use of global positioning satellite (GPS) technology and E911 data may be д {Oлœ'дviable alternatives. УУSee, e.g.ФФ, BCPM Joint Sponsors УУPublic Notice Requesting Further CommentФФ comments at 3Њд {OЅœ'д4; SBC УУPublic Notice Requesting Further CommentФФ comments at 4Љ5; AT&T/MCI УУPublic Notice Requesting д {Ooœ'дFurther CommentФФ reply comments at 5; ITC УУPublic Notice Requesting Further CommentФФ reply comments at 3. ж At a minimum, PNR's data is now available for review, and interested parties may comment upon and suggest improvements to the accuracy of that database. Thus, while we conclude that the federal mechanism should use geocode data to the extent available, we do not in this Order adopt a particular source of geocode data. The final choice of what source or sources of geocode data to use in determining customer location will be decided at д ‘X_а4дthe inputs phase of this proceeding.жXLА_~ЄЄд yOŽ Ж'д For example, Ameritech has geocoded a majority of its customer locations. Ameritech has used Bellcore's Loop Engineering Information System (LEIS), which identifies the addresses of where a customer's circuits terminate and the count of each circuit type, to geocode customer locations, and recommends MapInfo's MapMarker v3.0 software for the geocoding process. Ameritech Sept. 2 comments at 6Љ7. According to Aliant, one database provider, BLR, has stated that it can provide at a reasonable cost household and business geocodes that are 90% accurate. Xж д ‘X1Љ4дСŠСи"35.иС` ` ЙСУУФФУУФФWe also conclude that the federal mechanism should not discard geocode data д ‘X а4дin favor of surrogating below some "break point" percentage in each CB.жYMЪ і ЄЄд {OСЖ'д УУSeeФФ BCPM Aug. 28, 1998 comments at A2ЉA3.Yж The BCPM sponsors contend that actual geocode data should be used in conjunction with surrogate data only when the percentage of customer locations in a given area for whom precise geocode д ‘Xе а4дdata are known is above 80 percent.жkNЪе ˆ ЄЄд {OЖ'д BCPM Joint Sponsors УУPlatform Public NoticeФФ comments at AЉ3.kж The BCPM sponsors suggest that the combined use of actual and surrogate customer locations below this threshold will lead to clusters with д ‘XЇ а4д"unnatural distributions."жkOЪЇ ЄЄд {OrЖ'д BCPM Joint Sponsors УУPlatform Public NoticeФФ comments at AЉ7.kж The BCPM sponsors have provided no concrete evidence or statistical support for their position that significant anomalies will result from mixing actual and surrogate geocode points, nor provided adequate justification for the proposed level of the break point. We find that actual geocode data, to the extent available, provide the most reliable customer location information. BCPM has not persuaded us that geocode data should be discarded simply because the available geocode data for a given area may be limited. We therefore decline to adopt BCPM's suggestion that the model use surrogate geocode data in д ‘Xа4дinstances where only low percentages of actual geocode data are available.жЇP’ЌЄЄд {Oc%Ж'д УУSee alsoФФ AT&T УУPlatform Public NoticeФФ reply comments at 2Љ3; MCI УУPlatform Public NoticeФФ reply comments at 3.Їж д ‘XиЉ4дСŠСи#36.иС` ` ЙСУУФФУУSurrogate Location MethodologyФФ. Where actual customer location information is unavailable, the models must use other means to identify customer locations. Each modelд"СPx-'*'*``н"д has developed a method for determining the location of customers in the absence of geocoded customer location data. д ‘XЛЉ4дСŠСи$37.иС` ` ЙСУУФФIn the absence of geocoded customer data, HAI distributes all "surrogate" customers uniformly around the boundaries of a CB. The HAI proponents contend that this distribution results in a conservative placement of customers because it assumes they are д ‘Xvа4дmaximally separated from one another.жYQШvЄЄд yOяЖ'д HAI Feb. 3 submission, Model Methodology at 30.Yж д ‘XHЉ4дСŠСи%38.иС` ` ЙСУУФФ BCPM uses CB data and a grid approach that allocates customers to microgrids using road network data, based on the assumption that customers are located along roads. The BCPM proponents argue that many roads lie in the interior of CBs, not just along CB boundaries, and that customer location correlates with roads. Information about the correlation between "road mileage" and "housing units" presented by the BCPM proponents д ‘Xе а4дfor the state of Kentucky suggests that customers tend to live near roads.жRъе XЄЄд yOоЖ'д For example, the BCPM proponents state that approximately 37% of all roads in Kentucky are in the interior of CBs. The BCPM proponents contend that, in Kentucky, the correlation between the road mileage and the housing units in a CB is as low as 78%, in density ranges with less than five customers, and as high as 93%, д {O6œ'дin density ranges with between 20 and 200 customers. BCPM Jan. 9 УУex parteФФ, Review of the Hatfield Customer Location Approach at 2.ж BCPM also notes д ‘XО а4дthat most rights of way follow roads.жИS’О ЄЄд yOyЖ'д Letter from Glen Brown, US West, to Magalie Roman Salas, FCC, dated March 3, 1998 (US West March д {OAœ'д3 УУex parteФФ) at 2Љ3.Иж д ‘XЉ4дУУФФУУФФСŠСи&39.иС` ` ЙСIn the absence of geocode data, HCPM locates customers based on CBЉlevel data by assuming that customers are distributed evenly across a square grid cell with the same area as the average size of a CB in the wire center. д ‘X4Љ4дСŠСи'40.иС` ` ЙСRecent comments in this docket support the use of road network to place д ‘Xа4дsurrogate customer locations.жˆTЪd ЄЄд {O2Ж'д УУSee, e.g.,ФФ Bell Atlantic Aug. 28, 1998 comments at 3; GTE Aug. 28, 1998 comments at 5Љ6.ˆж We conclude that, in the absence of precise customer location data, BCPM's rationale of associating road networks and customer locations provides the most д ‘Xяа4дreasonable approach in determining customer locations.жЊU’яі ЄЄд {O–!Ж'д УУSee, e.g.,ФФ AT&T Aug. 28, 1998 comments at 3; Bell Atlantic Aug. 28, 1998 comments at 3; GTE Aug. 28, 1998 comments at 5Љ6.Њж We find that BCPM's assumption that customers generally live along roads is reasonable. Moreover, we find that BCPM's method of associating customers with the distribution of roads is more likely to correlate to actual customer locations than uniformly distributing customers throughout the CB, as HCPM proposes, or uniformly distributing customers along the CB boundary, as HAI proposes. HCPM's surrogating method, for example, would be more likely than the other two models to locate customers in uninhabitable areas such as bodies of water or national parks. As BCPM notes, HAI's surrogating method might well associate customer locations in ditches, bodies ofд"NP Ux-'*'*``Љн"д д ‘Xа4дwater, or other uninhabitable areas that may constitute CB boundaries.жKVЪЄЄд {OyЖ'д BCPM Jan. 30 УУex parteФФ at 7.Kж Moreover, HAI's method of placing surrogate locations along CB boundaries may result in the identification of false customer clusters, as surrogates from adjoining CBs are placed near one another along д ‘XЛа4дthe common CB boundary.жQW\ЛZЄЄд {OЦЖ'д У УФ ФУУSeeФФ Bell Atlantic УУPlatform Public NoticeФФ comments at 4; Ben Johnson Assoc. УУPlatform Public NoticeФФ д {Oœ'дcomments at 5. УУSee infraФФ section III.B.2. for a discussion of grouping customers into serving areas based on natural customer clustering patterns.Qж In addition, we note that BCPM has taken steps to identify and exclude certain types of roads or road segments that are unlikely to be associated with д ‘Xа4дcustomer locations.жёX~ЄЄд yOМ Ж'д BCPM Dec. 11 submission, Model Methodology at 26 n.18. For example, road data in BCPM 3.0 exclude road segments such as tunnels or underpasses, highway access ramps, and alleys for service vehicles.ёж We also note that the proponents of HAI have recently proposed a road surrogate methodology premised on the rationale that customers locations correspond to д ‘X_а4дroads.жМY”_жЄЄд {OцЖ'д УУSeeФФ Letter from Michael Lieberman, AT&T, to Magalie Roman Salas, FCC, dated March 2, 1998 (AT&T д {OАœ'дMarch 2 УУex parteФФ).Мж Therefore, we adopt BCPM's proposal to use road network information as the basis for locating within a CB boundary customers whose precise locations are unknown. д ‘X Љ4дСŠСи(41.иС` ` ЙСWe adopt BCPM's set of guidelines for excluding from the surrogating process the types of roads and road segments (such as interstate highways, bridges, and onЉ and offЊramps) that are unlikely to be associated with customer locations. Beyond these conclusions, we do not select a particular algorithm in this Order for placing surrogate points along roads. We conclude that the selection of a precise algorithm for placing road surrogates pursuant to these conclusions should be conducted in the inputs stage of this proceeding as part of the process of selecting a geocode data set for the federal mechanism. д ‘XbЖ4дСŠСУ Узз2. С` ` ЙСAlgorithms employed to group customers into serving areasФ Фзз д ‘X4Љ4дСŠСи)42.иС` ` ЙСOnce customer locations have been identified, each model must determine how to group and serve those customers in an efficient and technologically reasonable manner. A д “XЉ4дmodel will most fully comply with the criteria in the УУUniversal Service OrderФФ if it uses customer location information to the full extent possible in determining how to serve multiple customers using a single set of electronics. Moreover, the model should strive to group д ‘XУЉ4дcustomers in a manner that will allow efficient service. УУФФ As discussed below, we conclude that a clustering approach, as first proposed by HAI in this proceeding, is superior to a gridЉbased methodology in modeling customer serving areas accurately and efficiently. In addition, we conclude that the federal high cost mechanism should use the HCPM clustering module. д ‘XPЉ4дСŠСи*43.иС` ` ЙСThe model proponents have identified two methods ЉЉ clustering and gridding ЉЊfor grouping customers into serving areas. HAI identifies groups of customers based on theirд"92 Yx-'*'*``lн"д д ‘Xа4дproximity to one another to create "clusters" of customers.жцZ ЄЄд yOyЖ'д Clusters that contain five or more lines are defined as "main clusters," and clusters with one to four lines are "outlier clusters." While the HAI documentation generally refers to the number of "customer locations" to define whether a cluster is a main or an outlier cluster, the model actually determines the type of cluster based д yOбœ'дon the number of lines. УУФФHAI Dec. 11 submission, Model Description at n.8 and 27Љ29.цж HAI defines a "serving area" as a main cluster and those outlier clusters in close proximity. BCPM determines serving areas by means of a multiЉstep process that begins by placing grids over a map of CBs that make д ‘XЛа4дup a wire center.жU[ЪЛАЄЄд {O Ж'д УУ ФФУУSeeФФ Appendix A for more detail.Uж Once the grids are populated with customer location data, serving areas are determined based on technological limitations such as the number of lines that can be served from a single DLC. Although it originally proposed a gridding approach, HCPM д ‘Xvа4дsubsequently developed a clustering algorithm.жГ\’vBЄЄд {Oi Ж'д C.A. Bush, et al., УУThe Hybrid Cost Proxy Model Customer Location and Loop Design ModulesФФ, July 1, 1998 (HCPM July 1 Report) at 5. Гж д “XHЉ4дУУФФСŠСи+44.иС` ` ЙСУУФФTo meet the УУUniversal Service Order'sФФ criteria, a clustering algorithm should group customer locations into serving areas in an efficient manner to minimize costs while д ‘X а4дmaintaining a specified level of network performance quality.ж#]Z œЄЄд {OiЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8913Љ15, para. 250 (model must assume leastЉcost, mostЊefficient, and reasonable technology for providing the supported services; model's loop design should not impede the provision of advanced services).#ж This is consistent with actual, efficient network design. In other words, an efficient service provider would design its network using the most efficient method of grouping customers, in order to minimize costs. д ‘XР Љ4дУУФФСŠСи,45.иС` ` ЙСУУФФThe advantage of the clustering approach to creating serving areas is that it can identify natural groupings of customers. That is, because clustering does not impose arbitrary serving area boundaries, customers that are located near each other, or that it makes sense from a technological perspective to serve together, may be served by the same facilities. There are two main engineering constraints that must be accounted for in any clustering approach to grouping customers in service areas. Clustering algorithms attempt to group customers on the basis of both a distance constraint, so that no customer is farther from a DLC than is permitted by the maximum distance over which the supported services can be provided on copper wire, and on the basis of the maximum number of customers in a serving area, which depends on the maximum number of lines that can be connected to a DLC remote terminal. д ‘XЌЉ4дСŠСи-46.иС` ` ЙСУУФФIn contrast, the chief advantage of the gridding approach is its simplicity. Placing a uniform grid over a populated area, and concluding that any customers that fall within a given grid cell will be served together, is simpler to program than an algorithm that д ‘XgЉ4дidentifies natural groupings of customers. УУФФThe simplicity of the gridЉbased approach, however, can generate significant artificial costs. Because a simple grid cannot account for actual groupings of customers, grid boundaries may cut across natural population clusters. Serving areas based on grids may therefore require separate facilities to serve customers thatд""О ]x-'*'*``<н"д are in close proximity, but that happen to fall in different grids. The worstЉcase scenario would involve a natural cluster of customers that, given distance and engineering constraints, could be served as a single serving area but that happened to be centered over the intersection of a set of grid lines, as shown below. кy!5 $ > Ц ШШШШ> ў 0*xddˆimage6.bmp 5 $ yк д$АА(#(#vААv v !v :$д д!v :д д!v :д д!v :д д!v :д д!v :д д!v :д д!v :д д!v :д д!v :д д!v :д д!v :д дААv v bАА(#(#д This would result in the division of the natural population cluster into four serving areas instead of one. As a result, a gridding approach cannot reflect the most costЉeffective method д “XЉ4дof distributing customers into serving areas. In order best to meet the УУUniversal Service д “XёЉ4дOrder'sФФ criteria, we conclude that the federal mechanism should use a clustering methodology, rather than a gridЉbased methodology, to determine serving areas. д ‘XЎЉ4дСŠСи.47.иС` ` ЙСУУФФHaving determined that a clustering approach should be used, we must determine which clustering approach to adopt for use in the federal mechanism. Two types of д ‘X€а4дclustering algorithms have been proposed in this proceeding, agglomerative and divisive.жн^”€ЄЄд {OљЖ'д Statisticians have studied a wide variety of clustering methods. УУSee generallyФФ Brian S. Everitt, УУCluster д {OУœ'дAnalysisФФ (Arnold: London, 3rd ed. 1993).нж The HAI clustering algorithm is a "nearest neighbor" algorithm, a type of agglomerative approach, which forms clusters by joining customer locations to the nearest adjacent location in a sequential fashion. The HCPM sponsors have developed a divisive algorithm that they describe as tending " to create the smallest number of clusters and is also by far the most д ‘X а4дefficient algorithm in terms of computer run-time."жB_Ш $ЄЄд yOт"Ж'д HCPM July 1 Report at 6.Bж д ‘XпЉ4дСŠСи/48.иС` ` ЙСУУФФThe agglomerative approaches to clustering, including the HAI nearest neighbor algorithm, work as follows. Initially, each location constitutes its own individual cluster. This initial state is modified by merging the two closest clusters together, reducing the total number of clusters by one. This modification is repeated until merging is no longer feasible from an engineering standpoint. In the HAI nearest-neighbor algorithm, distance is measured from the two customer locations that are closest together. The HAI nearest-neighbor methodдXl$Д_x-'*'*``ж"н3v ў :Б!{> Ц €‹ Xд contains an additional constraint that no customer locations are joined if the distance between them is more than two miles. д ‘XЛЉ4дСŠСи049.иС` ` ЙСУУФФIn the divisive approach advocated by HCPM, all customer locations initially are grouped in a single cluster. If one or more engineering constraints are violated, the original cluster is divided into a new "parent" cluster and a "child" cluster. Customer locations are added to the child cluster until it is full, i.e., until no more locations can be added without violating the line count and maximum distance constraints. This process continues until the original cluster has been subdivided into a set of clusters that conform to the line count and maximum distance constraints. д ‘X Љ4дСŠСи150.иС` ` ЙСУУФФThe clustering module developed by the HCPM sponsors includes several optimization routines that seek to lower the cost of constructing distribution areas by reassigning certain customer locations to different clusters. One routine, called "simple reassignment," reassigns a customer location to a different cluster if the location is closer to that cluster's center. The routine operates sequentially, taking account of both the maximum distance and line count constraints. After the reassignment, cluster centers are re-computed and the routine is repeated. The process continues until no more reassignments can be made. The second routine, called "full optimization," considers customer locations one by one. It measures the effect each customer location has on the location of cluster centers, and moves a location from one cluster to another if the total distance from all customer locations to their cluster centers is reduced. The routine moves the customer location that gives the most distance reduction at each step. It continues until no more distance reduction is possible. СŠС д ‘XиЉ4дСŠСи251.иС` ` ЙСУУФФWhile some commenters express concern that the HCPM clustering algorithm has not undergone extensive review, most agree that the HCPM clustering algorithm д ‘XЊа4дintroduces innovations and improvements over previous models.жу`”ЊЄЄд {O#Ж'д УУSeeФФ AT&T УУPlatform Public NoticeФФ comments at 5; Bell Atlantic УУPlatform Public NoticeФФ comments at 2; д {Oэœ'дGTE УУPlatform Public Notice ФФcomments at 17.уж For example, Bell Atlantic notes that HCPM's ability to limit redistribution of customers from their geocoded locations by assigning them to small microgrids is a substantial improvement over the approaches of д ‘Xeа4дHAI and BCPM.жcaЪe$ЄЄд {O:Ж'д Bell Atlantic УУPlatform Public NoticeФФ comments at 2.cж GTE contends that the HCPM clustering algorithm is a significant д ‘XNа4дimprovement over the HAI clustering approach.жZbЪNЖЄЄд {OЕ!Ж'д GTE УУPlatform Public NoticeФФ comments at 17.Zж д ‘X Љ4дСŠСи352.иС` ` ЙСУУФФWhile we are cognizant of the concern expressed by commenters that the HCPM clustering algorithm has been available for review for a more limited time than the HAI clustering algorithm, we note that the HCPM clustering algorithm and test data have д ‘Xла4дbeen made available for public comment.жIcЪлHЄЄд {Oд'Ж'д УУSeeФФ HCPM July 1 Report. Iж Commission staff have met with and discussedд"лкcx-'*'*``Ќ"д д ‘Xа4дissues relating to HCPM with the model sponsors and interested parties.жd”ЄЄд {OyЖ'д УУSee, e.g.ФФ, Ameritech Sept. 18, 1998 УУex parteФФ meeting; BCPM sponsors Sept. 3, 1998 УУex parteФФ meeting; д {OCœ'дGTE Sept. 17, 1998 УУex parteФФ meeting; HAI sponsors Sept. 16, 1998 УУex parteФФ meeting.ж The BCPM sponsors have performed an initial analysis of the HCPM clustering algorithm and while they suggest certain improvements to the HCPM clustering algorithm, no major flaw has been д ‘XЛа4дidentified.ж‰eЪЛ$ЄЄд {OЖ'д Letter from Whit Jordan, BellSouth, to Magalie Roman Salas, FCC,УУ ФФdated September 2, 1998.‰ж У УФ ФMoreover, we observe that clustering algorithms, including in particular the divisive algorithm that HCPM employs, are a generally accepted and thoroughly tested part of д ‘Xа4дstatistical theory.ж—f"ЖЄЄд {Oє Ж'д УУSee generallyФФ Brian S. Everitt, УУCluster AnalysisФФ (Arnold: London, 3d ed. 1993). УУSee alsoФФ J.C. and G.J.S. Ross, "Minimum Spanning Trees and Single Linkage Cluster Analysis," 18 Applied Statistics 54Љ64 (1969) (observing the close connection between clustering theory and traditional operations research problems involving shortest path problems).—ж д ‘X_Љ4дСŠСи453.иС` ` ЙСУУФФWe find that the HCPM clustering algorithm provides the leastЉcost, mostЊefficient method of grouping customers into serving areas. The HCPM clustering algorithm tends to create the smallest number of clusters and is more efficient in terms of computer runЊд ‘X а4дtime.ж?gШ  ЄЄд yOkЖ'д HCPM July 1 Report. ?ж The divisive algorithm has greater ability to minimize costs while conforming to technological constraints and network quality standards. By considering at all times the most efficient assignment of a customer to a particular cluster, HCPM's divisive clustering algorithm ensures that customers will be served at the least cost possible. In establishing the д ‘XО Љ4дleastЉcost, mostЉefficient method of grouping customers into serving areas, we note that УУФФfixed costs (i.e., those that do not vary with the number of lines) associated with DLC terminal devices in serving areas militate in favor of selecting an algorithm that generates a small number of large clusters rather than a larger number of small clusters. On the other hand, with a small number of clusters, the average distance of a customer from a central point of a cluster, and consequently the variable costs associated with cable and structures, tends to be greater than it would be if there were more clusters. In lowЉdensity rural areas, it is likely that fixed costs will be the most significant cost driver. Consequently, a clustering algorithm such as HCPM's that generates the smallest number of clusters should provide the leastЉcost, mostЉefficient method of determining customer serving areas in rural areas. In addition, a practical advantage of the divisive algorithm is that it runs in a small fraction of the time required for the agglomerative approaches. Hence it is more compatible with the criterion д ‘XЊа4дthat the model platform be available for review.ж\hЪЊ0 ЄЄд {O‹#Ж'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8915.\ж У УФ ФTherefore, we conclude that HCPM's clustering algorithm is superior to alternative algorithms designed to group customers into serving areas and adopt it for use in the federal mechanism. д ‘XNЖ'дУ УСŠСзз3.С` ` ЙСOutside plant designФ Фзз д “X Љ4дСŠСи554.иС` ` ЙСУУФФIn designing outside plant, a model will most fully comply with the УУUniversalд" Т hx-'*'*``cн"д д “XЉ4дService Order'sФФ criteria if it designs a network that reflects as accurately as possible the available data on customer locations, adheres to sound engineering and forwardЉlooking, costЊminimizing principles, and does not impede the provision of advanced services. We conclude д “XНЉ4дthat HCPM's outside plant design algorithms best meet the criteria developed in the УУUniversal д “XЈЉ4дService Order,ФФ including the requirement that the technology assumed in the model is the д ‘X“а4д"leastЉcost, mostЉefficient, and reasonable technology for providing the supported services."жsiЪ“ЄЄд {O Ж'д УУУУФФФФУУUniversal Service OrderФФ, 12 FCC Rcd at 8913, para. 250.sж We therefore conclude that the federal mechanism should incorporate HCPM's outside plant design algorithm. д ‘X7Ж'дСŠСС` ` ЙСУ Уa.СИ И чСDesigning plant to customer locationsФ Ф д ‘X Љ4дУ УФ Ф д ‘X Љ4дСŠСи655.иС` ` ЙСУУФФWe first consider the manner in which each of the models designs outside plant once customer location and serving areas have been identified. After selecting a model that determines customer locations as accurately as possible and identifies efficient serving areas, it is important that the model design a network that takes the greatest advantage of that information. Thus, the model's method of designing outside plant should provide the best estimation of the design of outside plant to customer locations. д ‘XhЉ4дСŠСи756.иС` ` ЙСУУФФThe HCPM loop design modules build loop plant directly to individual microgrids in which customers are located. The microgrids that HCPM is able to design д ‘X:а4дclosely reflect the underlying customer locations.ж”j\:ZЄЄд yOEЖ'д In the version of HCPM released most recently, the default for the microgrids was set at 360 square feet, д {O œ'дbut the size of the microgrids is userЉadjustable. УУSeeФФ C.A. Bush et al., УУThe Hybrid Cost Proxy Model Customer д {Oзœ'дLocation and Loop Design ModulesФФ, July 1, 1998 at 3. УУSee alsoФФ HCPM June 1 Report at 3.”ж If an accurate source of geocoded customer locations is used, the model is capable of building plant directly to every customer д ‘X а4дlocation with an error of no more than a few hundred feet for any individual customer.жHkШ ~ЄЄд yO;Ж'д УУФФHCPM June 1 Report at 3.Hж У УФ Ф д ‘XоЉ4дСŠСи857.иС` ` ЙСУУФФBy contrast, HAI and BCPM design outside plant by modifying the distribution areas so that they have square or rectangular dimensions and relocating customers so that they are distributed uniformly within the distribution area. In doing so, HAI and BCPM discard or distort customer location data. For example, although BCPM initially locates customers based on road network information, these customers are subsequently relocated into a square distribution area that is smaller than the quadrant in which the road network containing these д ‘XTа4дcustomers is located.жlxШTЄЄд yO$Ж'д BCPM determines the amount of road network in each microgrid based on topographically integrated geographic encoding and referencing files (TIGER) from the U.S. Census Bureau. BCPM then allocates customers to microgrids based on the relative proportions or roads in the microgrids. BCPM divides the serving area grids into four quadrants. Each serving area grid, and each quadrant in a serving area grid, is made up of microgrids. The point where the quadrants meet is the microgrid corner that is closest to the road centroid of the grid. BCPM uses the microgrids' road network data to create distribution areas within each quadrant that contains roads. BCPM uses the microgrids' customer data to identify the number of customers in the quadrantд"У(kx-'*'*РРП(У"д that should be placed in the quadrant's distribution area. ж HAI's approach of designing plant to simplified customer locationsд"TXlx-'*'*``["д within rectangularized serving areas, instead of to actual customer locations, could result in a systematic underestimation of outside plant costs. Sprint has observed that HAI's simplification of actual clusters to rectangles can result in an underestimation of plant costs. Sprint has shown that, under certain circumstances, HAI's conversion of actual clusters into rectangular distribution areas results in a shorter maximum cable length ЉЉ and thus a lower д ‘Xа4дcost of service ЉЉ within the rectangularized cluster than in the actual, underlying cluster.жVmюXЄЄд yO–Ж'д У УФ ФLetter from Pete Sywenki, Sprint, to Magalie Roman Salas, FCC, dated April 17, 1997 (Sprint April 17 ex parte). After this problem was identified, HAI proposed modifications to their algorithms that they contended д {O& œ'дwould resolve this problem. УУSeeФФ Letter from Chris Frentrup, MCI, to Magalie Roman Salas, FCC, dated April д {O№ œ'д23, 1998 (MCI April 23 УУex parteФФ); Letter from Richard Clarke, AT&T, to Magalie Roman Salas, FCC, dated д {OК œ'дMay 5, 1998 (AT&T May 5 УУex parteФФ) at 2. У УФ ФVж Commission staff analysis has also revealed that HAI's approach to distributing customers evenly within its rectangularized serving areas can also result in a systematic underestimation in less dense areas when compared to the cost of constructing plant to serve the underlying д ‘X1а4дcustomer locations within the clusters.ж­n’1ЄЄд {O№Ж'д УУSeeФФ Memorandum from Jeffrey Prisbrey, FCC, to Magalie Roman Salas, FCC, CC Docket Nos. 96Љ45 and 97Љ160 (filed May 13, 1998).­ж BCPM's approach of designing plant to square customer serving areas that are significantly smaller than the areas over which the customers are actually distributed is likely to have similar infirmities. д ‘Xе Љ4дСŠСи958.иС` ` ЙСУУФФ The HAI model also sacrifices accuracy by assuming that customers are dispersed uniformly within its distribution areas. As a result, the boundaries of HAI's distribution areas are unlikely to correlate exactly with the boundaries of the clusters, so some д ‘Xа4дcustomers located inside a cluster may be shifted beyond the boundaries of that cluster.жЖoBh ЄЄд yOЉЖ'д HAI retains the geocode data to build distribution plant to, and within, outlier clusters, however. In an outlier cluster, HAI generally assumes that customers' lots fall in a straight line along a "road." The two customers located farthest from one another are linked by cable (or "primary subscriber road cable"). Customers within one drop length of the primary cable are served by drop wire off of the primary cable. Customers further than one drop length from the primary cable are served by secondary subscriber road cable that connects to the primary cable. Road cable from the nearest main cluster runs to the middle of the primary cable. HAI Feb. 13 д {OYœ'дУУex parteФФ at att. 2.УУФФ HAI will therefore build the cable within an outlier cluster and the cable that runs between clusters more accurately if customer locations are identified more accurately with geocode data. Жж д ‘Xyа4дCommenters have criticized this "squaring up" of cluster areas to create distribution areas,жŒpШyrЄЄд yOœ!Ж'д HAI actually creates rectangular distribution areas, while BCPM creates square distribution areas.Œж as well as the assumption that customers are uniformly distributed throughout the distribution area. We agree that inaccuracies may be introduced by modifying the geographical boundaries of distribution areas and the location of customers within those areas for purposes of constructing outside plant. д ‘XяЉ4дСŠСи:59.иС` ` ЙСThe models also have other elements that help ensure that an adequate amount of plant is constructed. For example, all three models categorize the terrain where plant is being built based on factors that affect the difficulty of building plant, such as soil type, depthд"Сpx-'*'*``1н"д to bedrock, and slope. HAI uses multipliers to reflect increased costs in areas with difficult terrain. BCPM uses separate structure cost tables for each of three terrain categories to reflect higher cost in more difficult areas. HCPM incorporates BCPM's approach. We find that the federal model should account for terrain factors in determining structure costs. For the reasons stated elsewhere in this Order, we conclude that the federal platform should employ HCPM's outside plant algorithms, which take terrain factors into account in determining the cost of outside plant. д ‘XHЉ4дСŠСи;60.иС` ` ЙСThus, both BCPM and HAI, by relocating customers so as to distribute them uniformly in square or rectangular distribution areas, create an apparent systematic downward bias in the required amount of distribution plant that is constructed in less dense areas. In contrast, HCPM's outside plant design algorithm is capable of designing plant directly to, or very nearly to, precise customer locations and thus should generate estimates of distribution plant that are sufficient to reach actual customer locations. HCPM therefore has a significant advantage in estimating sufficient outside plant over HAI and BCPM in its ability to avoid the distortions associated with adjusting customer locations to establish square or rectangular distribution areas. This is particularly important for ensuring that the federal mechanism estimates the cost of a sufficient amount of plant. By designing plant to serve actual customer locations instead of simplified representations of customer locations, HCPM is substantially more likely to estimate the correct amount of plant necessary for providing the supported services. As a result, HCPM's outside plant cost estimates are likely to reflect more accurately the forwardЉlooking cost of providing the supported services and thus comport д “Xа4дmore fully with the УУUniversal Service OrderФФ's criteria.жЦq’ЄЄд {OЖ'д УУSee Universal Service OrderФФ, 12 FCC Rcd at 8913, para. 250, criterion 1 (a model's average loop length should reflect those of the incumbent carrier).Цж д ‘XкЖ'дУ УСŠСС` ` ЙСb. СИ И чСCФ ФУ Уost minimization principlesФ Ф д ‘XЌЉ4д СŠСи<61.иС` ` ЙСУУФФWe conclude that the outside plant module should be able to perform optimization routines through the use of sound network engineering design to use the most costЉeffective forwardЉlooking technology under a variety of circumstances, such as varying д ‘Xgа4дterrain and density.жŠrЪg"ЄЄд {O:Ж'д HCPM user documentation at 2. УУSee Universal Service OrderФФ, 12 FCC Rcd at 8913, para. 250.Šж Each of the three model proponents has made some effort to consider alternative plant designs and select the most economical approach, or to place limits on investment in certain circumstances in order to control costs. The ability of a model to perform optimization routines is a significant factor in its ability to estimate the leastЉcost, д “X Љ4дmostЉefficient technology under a variety of conditions, as the first criterion in the УУUniversal д “Xіа4дService OrderФФ requires.ж|sZіДЄЄд yO[%Ж'д УУФФTo the extent that a model does not explore different loop architectures and select the leastЉcost alternative, the Bureau recommended that model proponents explain and justify the model's assumptions and д {Oы&œ'дengineering rules of thumb. УУSee Customer Location and Outside Plant Public NoticeФФ at section II.A. |ж For example, assuming that the price of fiber cable or DLC electronics continues to drop, an optimizing model might shift the mix of fiber and analog copper towards fiber and away from copper. д"Ъ жsx-'*'*``‰н"дŒд ‘XЉ4д™СŠСи=62.иС` ` ЙСУУФФHAI and BCPM have made efforts to incorporate cost minimization principles into their respective approaches. Both models permit main feeder routes to be angled towards areas of population concentration in order to reduce feeder costs. BCPM also economizes the cost of DLC equipment in the central office by connecting multiple DLC remote terminals with a single central office terminal where possible, and limits distribution investment by limiting total distribution plant within a distribution area to the total road distance in the area. In HAI, for feeder plant that is less than 9,000 feet in length, the model chooses between fiber or copper cable technologies based on lifeЉcycle cost minimization. In determining plant mix, HAI also can choose between aerial and buried plant based in part on the alternative with the д ‘X1а4дlower lifeЉcycle cost.жtX1ЄЄд yOЊ Ж'д The benefit of the optimization of plant mix may be constrained by particular zoning requirements, however. We contemplate future modifications of the outside plant module and will consider this issue at that time.ж We have concerns, however, that the effectiveness of these cost minimization principles are tempered by their practicality in actual use. For example, the angling of feeder routes toward population centers without regard to considerations such as rights of way may lead to significantly lower cost estimates than are practicable in reality. More importantly, however, neither HAI nor BCPM would recompute the type of technology deployed in response to a change in relative input prices, a key feature of ensuring that costs are minimized, subject to technological and service quality constraints. д ‘XyЉ4дСŠСи>63.иС` ` ЙСУУФФIn contrast, HCPM selects the optimal type, number, and placement of DLCs, which are sized based on the number of lines served. For example, in a distribution area with 400 lines, HCPM would determine, based on input values for equipment prices, whether it is more economical to place one DLC with a maximum capacity of 500 lines or two DLCs each д ‘XЉ4дwith a maximum capacity of 250 lines. УУФФУ УФ ФHCPM also considers the relative costs of placing various feeder technologies (fiber or TЉ1 on copper) and selects the most economical technology. HCPM further selects the lowest relative cost of different feeder routings. д ‘XСЉ4д СŠСи?64.иС` ` ЙСУУФФHCPM uses an algorithm developed for network planning purposes in both its feeder and distribution segments. This algorithm selects a feeder or distribution routing network by weighing the relative benefits of minimizing total route distance (and therefore structure costs) and minimizing total cable distance (and therefore cable investment and maintenance costs.) HCPM also selects technologies (e.g., fiber vs. copper, aerial vs. buried) on the basis of annual cost factors that account for both operating expenses and capital д ‘X7а4дexpenses over the expected life of the technology.жкu"7шЄЄд yOа!Ж'д While the optimization routines in previous versions of HCPM considered only firstЉinstalled costs, HCPM 2.5 allows optimization based on lifecycle costs. The user must provide lifecycle costs for HCPM to perform the relevant optimization routines, however, because HCPM does not contain an expense module that д {O($œ'дwould calculate maintenance costs. У УФ ФHCPM Feb. 6 submission; УУsee also ФФУУinfraФФ App. A.кж д ‘X Љ4дСŠСи@65.иС` ` ЙСУУФФIn reviewing the current models, we conclude that HCPM's explicit optimization routines are superior to those in BCPM and HAI. In addition, because the platform that we adopt for the federal mechanism may be in place for a significant time period during which relative costs may change, the impact of optimization may increase inд"Ф вux-'*'*``bн"д importance over time. д ‘XвЉ4дСŠСиA66.иС` ` ЙСWe do not agree, as some parties have argued, that the models' outside plant design parameters should be verified by comparing the design of the model networks in specific locations to the design of incumbent LECs' existing plant in those locations in all д ‘Xа4дcases.жБv’ЄЄд {OЖ'д УУSee, e.g.,ФФ Ameritech outside plant comments at 2Љ4; GTE outside plant comments at 2Љ3; Bell Atlantic outside plant comments at 6.Бж While we recognize that certain factors such as terrain, road networks, and customer locations are fixed, the design of the existing networks under these conditions may not represent the leastЉcost, mostЉefficient design in some cases. The Commission, in the д “XHЉ4дУУUniversal Service OrderФФ, adopted the Joint Board's recommendation that universal service support should be based on forwardЉlooking economic costs. Existing incumbent LEC plant д ‘X а4дis not likely to reflect forwardЉlooking technology or design choices.жUwЪ "ЄЄд {Oя Ж'д УУSeeФФ AT&T outside plant comments at 5.Uж Instead, incumbent LECs' existing plant will tend to reflect choices made at a time when different technology options existed or when the relative cost of equipment to labor may have been different than it is today. Incumbent LECs' existing plant also was designed and built in a monopoly environment, and therefore may not reflect the economic choices faced by an efficient д ‘XЉ а4дprovider in a competitive market.жkxЪЉ ДЄЄд {OЖ'д УУSee Universal Service OrderФФ, 12 FCC Rcd at 8899, para. 224.kж Although we do not believe that a forwardЉlooking platform can meaningfully be verified by comparing its network to an embedded network, we note that the platform is only one of many considerations used to set actual levels of support. д ‘XMЖ'дСŠСС` ` ЙСУ Уc. СИ И чСService QualityФ Ф д “XЉ4дСŠСиB67.иС` ` ЙСУУФФУ УФ ФThe УУUniversal Service OrderФФ's first criterion specifies that a model should not д “X а4д"impede the provision of advanced services."жvyЪ FЄЄд {OЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8913, para. 250, criterion one.vж In the УУUniversal Service OrderФФ, УУФФthe Commission disallowed a model's use of loading coils because their use may impede highЊд ‘Xоа4дspeed data transmission.ж3zЪоиЄЄд {OgЖ'д УУId.ФФ3ж During the model development process, the Bureau recommended that model proponents "demonstrate how their models permit standard customer premises equipment (CPE) available to consumers today, such as 28.8 Kbps or 56 Kbps modems, to perform at speeds at least as fast as the same CPE can perform on the typical existing д ‘X‚а4дnetwork of a nonЉrural carrier."ж\{Ъ‚j ЄЄд {O$Ж'д УУOutside Plant Public NoticeФФ at section II.B.\ж The BCPM proponents propose that testing a model network's capability to support data transmission over a 28.8 Kbps modem is a "conservative approach" to identifying whether a model may impede advanced services because network access at 28.8 Kbps is "widely available today in urban areas" and "modem speeds of 33.6д"=ќ {x-'*'*``­н"д д ‘Xа4дKbps and even 56 Kbps are becoming more and more common."жw|ШЄЄд yOyЖ'д BCPM Dec. 11 submission, BCPM3 Designs the Most Efficient Proxy Network at 2.wж We agree that a reasonable standard for ensuring that a model's network does not impede the provision of advanced services would ensure the reasonable performance of 28.8 Kbps modems. We find that proponents of the BCPM, HAI, and HCPM have demonstrated that their models allow 28.8 modems to work at reasonable rates, which will permit all customers to have access to highЉspeed data transmission. д ‘XvЉ4дУ УззФ Ф д ‘X_Ж'дУ УСŠС4.С` ` ЙСMaximum Copper Loop LengthФ Ф д ‘X1Љ4дУ УСŠСФ ФиC68.иС` ` ЙСWe now turn to the issue of the maximum loop length that the federal mechanism should permit. We note that, in making this determination, we must examine whether the models use the leastЉcost, most efficient, and reasonable technology while not д ‘Xь а4дimpeding the provision of advanced services.жq}Ъь XЄЄд {OѕЖ'д УУSeeФФ УУUniversal Service OrderФФ, 12 FCC Rcd at 8913, para. 250.qж HAI and BCPM proponents disagree on the maximum loop length over which a copper loop will carry a signal of appropriate quality, without the use of expensive electronics. The HCPM sponsors state that an 18,000 foot copper loop is capable of meeting current Bellcore standards, but they otherwise take no д ‘Xа4дposition on the appropriate length of copper loops.ж‘~ЪъЄЄд {O+Ж'д УУSeeФФ HCPM documentation at 3. HCPM also allows the user to adjust the maximum copper loop length.‘ж The maximum copper loop length will affect the model's cost estimates because a longer loop length will permit more customers to be served from a single DLC. As noted above, reducing the number of DLCs tends to reduce the overall cost. In the models, the "fiberЉcopper crossЉover point" determines when carriers д ‘X4а4дwill use fiber cable instead of copper cable.жgX4|ЄЄд yOaЖ'д For example, a copper/fiber crossover of 12,000 feet requires placing copper in the feeder if the maximum loop length from the wire center to all customers within the serving area is less than 12,000 feet. If the loop length for any customer exceeds 12,000 feet, fiber is placed in the feeder to serve all customers.gж BCPM asserts that Bell Labs standards call for д ‘Xа4дloops not to exceed 12,000 feet.ж €”œЄЄд {OjЖ'д У УФ ФBCPM 3.1 April 30 Model Methodology at 18, УУciting Outside Plant Systems: Outside Plant Engineering д {O4œ'дHandbookФФ, Lucent Technologies, Bell Labs Innovations (doc. 900Љ200Љ318, Lucent 1996) at 13Љ1. ж The proponents of BCPM further assert that copper loops longer than 13,600 feet will require the use of an expensive extendedЉrange line card in the DLC to provide advanced services, the additional cost of which will outweigh the cost savings from using longer loops. Taking into consideration loading and resistance, the BCPM default д ‘XСа4дprovides that loop lengths that exceed 12,000 feet will be fiber cables.ж@ZСј ЄЄд yOj#Ж'д BCPM Dec. 11 submission, Model Methodology at 40. BCPM allows the user to adjust the copper/fiber д {O2$œ'дbreak point between 6,000 feet and 18,000 feet, given 3,000 foot increments. УУSee alsoФФ BCPM 3.1 submission dated April 30, 1998, Model Methodology at 18.@ж HAI contends that copper lengths may extend to 18,000 feet using only a slightly more expensive line card in the DLC. д “XeЉ4дСŠСиD69.иС` ` ЙСThe Commission sought comment on this issue in the УУFurther NoticeФФ and aд"ex-'*'*``ѓн"д д “Xа4дУУPublic Notice Requesting Further CommentФФ.жЩ‚”ЄЄд {OyЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18,548Љ18,552 paras. 84Љ89. УУSee alsoФФ УУФФУУPublic Notice Requesting Further д {OCœ'дCommentФФ at 4. Щж A few commenters contend that use of the HAI standard would impede access to advanced services and violate Carrier Serving Area д ‘Xда4д(CSA) design standards.ж%ƒ\д$ЄЄд {OЉЖ'д УУSee, e.g.,ФФ GTE УУPublic Notice Requesting Further CommentФФ reply comment at 11Љ13; ITC УУPublic Notice д {Osœ'дRequesting Further CommentФФ reply comment at 3Љ4; USTA УУPublic Notice Requesting Further CommentФФ comment at 2.%ж The HAI proponents disagree, and contend that there is no support for the claim that a 18,000 foot cooper loop is too long to support advanced services such as д ‘XІа4дISDN and Asymmetric Digital Subscriber Line (ADSL).жœ„ІHЄЄд yOŸ Ж'д ADSL is a modem technology that transforms ordinary phone lines into highЉspeed digital lines for Internet access.œж The HAI proponents note that there are two ADSL standards, ADSL1 and ADSL2. The HAI proponents contend that no д ‘Xxа4дcommenter alleges that the facilities modeled by HAI are unable to support ADSL1.жv…Ъx ЄЄд {OЩЖ'д AT&T/MCI УУPublic Notice Requesting Further CommentФФ reply comments at 9.vж Although the HAI proponents admit that their plant design cannot support ADSL2 using a loop length of 18,000 feet, they argue that the higher speed of ADSL2 is not a component of basic service supported by universal service. д ‘X Љ4дСŠСиE70.иС` ` ЙСWe conclude that the federal mechanism should assume a maximum copper loop length of 18,000 feet. The record supports the finding that a platform that uses 18,000 foot loopЉlengths will support at appropriate quality levels the services eligible for universal д ‘XР а4дservice support.ж`†^Р 2 ЄЄд {OЃЖ'д УУSee, e.g.,ФФ У УФ ФAT&T/MCI Jan. 23, 1998 УУex parteФФ at 6; AT&T/MCI Jan. 5, 1998 УУex parteФФ at 8 (УУcitingФФ УУBellcore д {Omœ'дNotes on the NetworkФФ, SRЉ2275, December 1997 at 7Љ71); AT&T/MCI Dec. 23, 1997 УУex parteФФ; WorldCom Oct. д {O7œ'д16, 1997 УУex parteФФ.`ж Although BCPM has presented evidence that the provision of some, highЊbandwidth advanced services may be impaired over 18,000Љfoot loops, we conclude that the BCPM sponsors have not presented credible evidence that the 18,000 foot limit will not provide service at an appropriate level, absent the use of expensive DLC line cards. We also disagree with BCPM's interpretation of the Bell Labs standards manual. The publication states, in pertinent part, that "[d]emands for sophisticated services are requiring the outside plant network to support services ranging from lowЉbit rate transmission to highЉbit rates. To meet this demand, a digital subscriber carrier is being placed into the network starting at д ‘Xа4д12,000 feet from the serving [wire center]."жП‡’X ЄЄд {O#Ж'д УУOutside Plant Systems: Outside Plant Engineering HandbookФФ, Lucent Technologies, Bell Labs Innovations (doc. 900Љ200Љ318, Lucent 1996) at 13Љ1.Пж The document is referring to the design of digital loop carrier systems and related outside plant that will "accommodate a wide range of д ‘Xка4дtransmission applications including voice, data, video, sensor control, and many others."ж3ˆЪкВЄЄд {O='Ж'д УУId.ФФ3ж This design standard seems to exceed the service quality standards for universal service. We find that the public interest would not be served by burdening the federal universal serviceд"ЌDˆx-'*'*``ƒн"д support mechanism with the additional cost necessary to support a network that is capable of delivering very advanced services, to which only a small portion of customers currently д ‘Xва4дsubscribe.жP‰ЪвЄЄд {OKЖ'д УУSeeФФ 47 U.S.C. РР 254(c)(1)(B).Pж Accordingly, we conclude that the federal mechanism should assume a maximum copper loop length of 18,000 feet. ззд;f%ђз +эJ:\APD\HICOST\PLATFORM\NEWCRIT1.CUR+ з;д д ‘XЖ'дд9f%ђз )ЌJ:\APD\HICOST\PLATFORM\SWITCH.CUR) з9дУ УСр ьТСIV. SWITCHING AND INTEROFFICE FACILITIESƒ д ‘X_Ж'дззA.ТXŠТBackgroundФ ФззЦ(#Ц д ‘X1Љ4дСŠСиF71.и С` ` ЙСWe now examine the switching and interoffice transport algorithms of HAI and д “X а4дBCPM in light of the relevant criteria identified in the УУUniversal Service OrderФФ.жŠX ZЄЄд yO% Ж'д HCPM did not contain an algorithm to estimate switching and interoffice transport prior to February 1998. The HCPM switching module that was subsequently developed was never subject to public comment and we do not consider it here.ж д “Xю Љ4дСŠСиG72.и С` ` ЙСIn the УУUniversal Service OrderФФ, the Commission found УУФФthat estimating the cost of switching presented significant unresolved problems in terms of the cost models' ability to д “XТ а4дprovide an associated cost for each network function.жf‹ЪТ zЄЄд {OэЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8909 para. 244.fж In the УУFurther NoticeФФ, the Commission sought comment on the issues that affect the algorithms for switching, including: д ‘X–а4дwhether the type of switch chosen affects cost, switch capacity constraints, and switch costs.жkŒЪ– ЄЄд {OSЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18,560Љ18,568 paras. 121Љ138.kж д “XЉ4дThe УУSwitching and Transport ФФУУPublic NoticeФФ established several guidelines relating to switching, the design of the interoffice network, and interoffice cost attributable to providing д ‘XSа4дsupported services.жoЪSžЄЄд {OЂЖ'д УУФФУУФФУУSwitching and Transport Public NoticeФФ at 2Љ6УУФФ.oж The Bureau guidelines established that: (1) the models should permit individual switches to be identified as host, remote, or standЉalone; (2) switching investment costs should be separately estimated for host, remote, and standЉalone switches; (3) models should include switch capacity constraints; and (4) models should accommodate an interoffice network that is capable of connecting switches designated as hosts and remotes in a way that is compatible with the capabilities of equipment and technology that are available today and д ‘XЩа4дare consistent with current engineering practices.жЖŽ"Щ0 ЄЄд {OЊ"Ж'д УУSwitching and Transport Public NoticeФФ at 4Љ6. Switches can be designated as either host, remote, or standЉalone switches. Both a host switch and a standЉalone switch can provide a full complement of switching services without relying on another switch. A remote switch relies on a host switch to supply a complete array of switching functions and for interconnection with other switches.Жж We find that the new versions of both д ‘XВа4дindustry sponsored models are significant improvements over earlier versions.жЃВЄЄд yO}'Ж'д Detailed descriptions of the switching and interoffice transport algorithms of HAI and BCPM are provided in Appendix A. Ѓж д"› rx-'*'*```н"дŒд ‘XЉ4дСŠСиH73.и С` ` ЙСIn its default mode, BCPM 3.0 generates its inputs for switch cost based on a д ‘Xща4дregression of switch investment costs using Switching Cost Information System (SCIS)жрщЄЄд yObЖ'д SCIS is a computerized switching cost model developed by Bellcore to establish the costs and prices of certain switchЉrelated services in state proceedings and before the Commission.рж and д ‘Xва4дSwitching Cost Model (SCM)жs‘Шв ЄЄд yOЃЖ'д SCM is a cost model developed by US West for determining switching costs.sж data. Switch costs are assumed to vary with lines, trunks, д ‘XЛа4дminutes of use and calls (BHCCS and BHCA).жž’ ЛАЄЄд yO Ж'д For example, if the coefficient for lines is $300 and for trunks is $100 and the switch serves 1,000 lines and 100 trunks, then the switch investment for these two categories would be $300 times 1,000 lines plus $100 times 100 trunks which equals $310,000. "BHCCS" is the acronym for busyЉhour hundreds of call seconds. "BHCA" is the acronym for busyЉhour call attempts.žж BCPM also uses outputs from SCIS and SCM to allocate switch costs to functional categories, including the categories attributable to д ‘Xа4дuniversal service.ж!“Z˜ЄЄд yOжЖ'д BCPM identifies six "functional categories": Processor related cost; Line termination (MDF and д {Ožœ'дprotector); Line port cost; Line CCS usage; Trunk CCS usage; and, SS7. УУSeeФФ BCPM Dec. 11 submission, Model Methodology at 57.!ж It is also possible to supply inputs to be used in place of the SCISЉ and SCMЉgenerated input values, both for generating switch cost estimates and for allocating costs to functional categories. BCPM identifies host and remote switches by incorporating existing hostЉremote relationships as revealed in Bellcore's Local Exchange Routing Guide (LERG) database. BCPM also permits the substitution of a userЉsupplied cost curve that would not specifically identify switches as host, remote, or standЉalone. д ‘Xь Љ4дСŠСиI74.и С` ` ЙСThe HAI switching and interoffice module computes investment for end office switching, tandem switching, signaling, and interoffice transmission facilities. HAI divides the cost of the switch into fixed costs and usage costs, and allocates all fixed costs, and a portion of usage costs, to the cost of universal service. In its default mode, HAI assumes a д ‘Xа4дblended configuration of switch technologies to develop switching cost curves.ж[”ШК ЄЄд yOћЖ'д HAI Feb. 3 submission, Model Description at 58. [ж HAI also allows the user the option of designating, in an input table, specific wire center locations that house host, remote, and standЉalone switches. When the hostЉremote option is selected, switching curves that correspond to host, remote, and standЉalone switches are used to determine the appropriate switching investment. The LERG could be used to provide these inputs. д ‘XяЖ'дУ УззB. СŠСDiscussionФ Фзз д ‘XСЉ4дСŠСиJ75.и С` ` ЙСWe conclude that the federal universal service mechanism should incorporate, д ‘XЊа4дwith certain modifications, the HAI 5.0 switching and interoffice facilities module.жD•"ШЊJ ЄЄд yOЅ&Ж'д We note that Commission staff has developed interface software that will integrate HCPM's outside plant design module with the remainder of the HAI module, including HAI's outside plant design module. This д {O5(œ'дinterface has been made available to the public for review and comment. УУФФУУSee Platform Public NoticeФФ. No commenters found fault with the interface. Accordingly, we conclude that this interface software should be usedд"џ(”x-'*'*РР)У"д in the platform of the federal mechanism.Dж We findд"Њ!X•x-'*'*``5"д д “Xа4дthat HAI's module satisfies the relevant criteria set forth in the УУUniversal Service OrderФФжk–ЪXЄЄд {O Ж'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8913Љ8915 para. 250.kж and д ‘XыЉ4дwould be simpler to implement than BCPM's module.У УФ Ф In our evaluation of the switching modules in this proceeding, we note that, for universal service purposes, where cost differences caused by differing loop lengths are the most significant cost factor, switching costs are less significant than they would be in, for example, a cost model to determine unbundled network element switching and transport costs. д “XaЉ4дСŠСиK76.иУ УС` ` ЙСФ ФWe find that both models meet the УУUniversal Service OrderФФ's requirement that a model assume the leastЉcost, mostЉefficient and reasonable technology to provide the supported services. Both models assume the use of modern, highЉcapacity digital switches, д “X Љ4дand interconnect switching facilities with stateЉofЉtheЉart SONET rings. The УУFurther NoticeФФ recommended that the federal mechanism should be capable of separately identifying host, remote, and standЉalone switches and of distributing the savings associated with lowerЉcost д “Xл а4дremote switches among all lines in a given hostЉremote relationship.ж@—\л ъЄЄд {OvЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18560Љ18561, para. 122. As noted in the УУFurther NoticeФФ, incumbent LECs' depreciation filings suggest that frequent deployment of remote switches is evidence that they are often д {Oœ'дthe most economical choice. УУId.ФФ@ж In the УУFurther NoticeФФ, we requested "engineering and cost data to demonstrate the most costЉeffective deployment of switches in general and hostЉremote switching arrangements in particular," and sought comment on "how to design an algorithm to predict this deployment pattern." No party has developed an algorithm that will determine whether a wire center should house a standЉalone, host, or remote switch. As noted above, however, both models can incorporate either a single blended cost curve that assumes a mix of host, remote, and standЉalong switches, or use the д ‘X<Ж4дLERG to assume the existing deployment of switches and hostЉremote relationships. У У Ф ФIn the inputs stage of this proceeding we will weigh the benefits and costs of using the LERG database to determine switch type and will consider alternative approaches by which the selected model can incorporate the efficiencies gained through the deployment of hostЉremote д ‘XрЉ4дconfigurations.У УФ Ф д ‘XВЉ4дСŠСиL77.иУ УС` ` ЙСФ ФBoth models also permit a significant amount of flexibility to ensure the allocation of a reasonable portion of the joint and common costs of the switching and interoffice functions to the cost of providing the supported services. As discussed below, however, BCPM's allocation methodology would introduce an additional degree of complexity to the inputs stage of this proceeding that we conclude is not administratively justified in light of the potential marginal gains in accuracy. We find that HAI's switching and interoffice д “X(Љ4дmodules satisfy the УУUniversal Service OrderФФ's requirements to associate and allocate the costs of the network elements and functionalities necessary to provide the supported services, and do so in a less complex manner than BCPM's module, while still providing a degree of detail that is sufficient for the accurate computation of costs for federal universal service purposes. д ‘XЗ!Љ4дУ УСŠСФ ФиM78.иУ УС` ` ЙСФ ФWe also find that HAI's switching module more fully satisfies the requirementд"З!"—x-'*'*``L н"д that data, computations, and assumptions be available for review and comment. HAI's modules use a spreadsheet program that reveals all computations and formulas, allows the user to vary input costs, and provides a simple, userЉadjustable allocation factor. BCPM also uses a spreadsheet program that reveals its computations and formulas, but its default costs and allocation factors are based on results from the proprietary SCIS and SCM models, and the defaults used to generate the results that BCPM uses in its modules have not been placed on д ‘Xvа4дthe record in this proceeding.ж˜˜"vЄЄд yOяЖ'д On September 21, 1998, the BCPM sponsors offered to make the SCIS and SCM models available for д {OЗœ'дinspection by interested parties pursuant to protective order. Sprint Sept. 21, 1998, УУex parteФФ. The BCPM sponsors did not, however, propose to make available the companyЉspecific inputs that they used to generate the input values used in BCPM.˜ж To minimize concerns regarding BCPM's use of proprietary data, the Commission could, in the inputs stage of the proceeding, substitute other inputs in place of the SCIS and SCM results for the cost amounts and allocation factors. Because the SCIS and SCM generate such detailed results, however, the process of trying to determine input values to replace the SCIS and SCM results would inject a significant degree of complexity into the inputs phase of this proceeding. We conclude that this additional complexity in the inputs phase is not justified by potential gains in accuracy. As noted above, we find that HAI's modules compute and allocate switching and interoffice costs with a degree of accuracy that is sufficient for the computation of federal universal service costs and in a manner that more readily provides for public review. д ‘XyЉ4дСŠСиN79.и С` ` ЙСWe find that both models generally satisfy the requirement that each network function and element necessary to provide switching and interoffice transport is associated with a particular cost, though HAI satisfies the criterion more thoroughly than BCPM. AT&T contends that the BCPM 3.0 signaling network calculations indicate no explicit modeling of д ‘Xа4дsignaling costs.жK™ЪВЄЄд {O€Ж'д AT&T Jan. 6 УУex parteФФ at 22.Kж In BCPM, signaling costs used to develop perЉline investments are provided through a user input table that its proponents assert reflects the cost of building a д ‘Xяа4дmodern SS7 network.ж[šШяDЄЄд yOфЖ'д BCPM Dec. 11 submission, Model Methodology at 76.[ж The signaling cost for a wire center is based on a weighted average д ‘Xиа4дof residence and business lines associated with that wire center.ж[›ШидЄЄд yO]Ж'д BCPM Dec. 11 submission, Model Methodology at 76.[ж Users have the option of д ‘XСа4дusing the provided default values or entering their own values.ж[œШСd ЄЄд yOж!Ж'д BCPM Dec. 11 submission, Model Methodology at 76.[ж In contrast to HAI, which explicitly models the cost of signaling, BCPM 3.0 simply adds on a signaling cost to the cost д ‘X“а4дof switching based upon an input table of costs.ж[Ш“є ЄЄд yO8%Ж'д BCPM Dec. 11 submission, Model Methodology at 76.[ж Although this technically satisfies the criterion that any network function or element necessary to produce supported services must have an associated cost, we find that it is not likely to produce results that are as accurate as an estimate obtained through the explicit cost estimation used in HAI. The HAI 5.0 Switching and Interoffice Module computes signaling link investment to end office or tandemд"7#„ x-'*'*``­н"д links between segments connecting different networks. HAI always equips at least two signaling links per switch and computes the required SS7 message traffic according to call д ‘Xва4дtype and traffic assumptions.жZžШвЄЄд yOKЖ'д HAI Dec. 11 submission, Model Description at 57.Zж We therefore conclude that HAI employs a more reliable method of assigning an associated cost to the network functions or elements, such as switching and signaling, that are necessary to produce supported services. д ‘XvЉ4дСŠСиO80.иУ УС` ` ЙСФ ФThus, although we conclude that either model's switching and interoffice modules could be used to adequately model universal service costs for these functionalities, we conclude that the federal mechanism should incorporate the HAI modules. Moreover, parties recently have identified certain aspects of HAI's interoffice module with respect to which the progress of state proceedings has shown a need for minor changes in the model's coding. These changes were identified too late in the proceeding to be included in this Order. Because general agreement exists among the parties as to the need to make them, however, д ‘Xе а4дwe delegate to the Common Carrier Bureau the authority to make these changes.жHŸЪе XЄЄд {OоЖ'д УУSee also supraФФ para. 13.Hжд9f%ђз )ЈJ:\APD\HICOST\PLATFORM\SWITCH.CUR) з9д д ‘XЇ Ж'дд;f%ђз +ЌJ:\APD\HICOST\PLATFORM\NEWCRIT2.CUR+ з;да щщ аб#Xjє\  PŽ6G;ynXP#бУ УззСрЄ ьАСVФ ФУ У. EXPENSES AND GENERAL SUPPORT FACILITIESФ Фƒ д ‘XyЉ4дСŠСиP81.и С` ` ЙСWe now consider the algorithms of HAI and BCPM for calculating expenses д “XbЉ4дand general support facilities (GSF) costs in light of the УУФФcriteriaУУФФ identified in the УУUniversal д “XMЉ4дService OrderФФ. The most relevant of the criteria to expense and GSF issues is the ninth, which requires that the models make a reasonable allocation of joint and common costs. With this criterion, the Commission intended to "ensure that the forwardЉlooking economic cost [calculated by the federal mechanism] does not include an unreasonable share of the joint and д ‘Xѓа4дcommon costs for nonЉsupported services."ж ”ѓъЄЄд {OŽЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8915 para. 250, criterion 7. This criterion requires that "[a] д {OXœ'дreasonable allocation of joint and common costs must be assigned to the cost of supported services." УУIdФФ.ж Therefore, the platform of the federal mechanism must permit the reasonable allocation of joint and common costs for such nonЊд ‘XХЉ4дnetwork related costs as GSF, corporate overhead, and customer operations.У УФ Ф In addition, the criterion requires that "[t]he cost study or model must include the capability to examine and д ‘X—а4дmodify the critical assumptions and engineering principles."жgЁЪ—FЄЄд {OŽ Ж'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8915, para. 250.gж Therefore, it is important that the platform's method of calculating expenses and GSF costs must be sufficiently flexible. It is also important that we select model components that are compatible with one another to compute cost estimates in a reasonable time. In light of these considerations, we conclude that the platform for the federal mechanism should consist of HAI's algorithm for calculating expenses and GSF costs, as modified to provide some additional flexibility in calculating expenses offered by BCPM. д ‘XпЖ'дУ УA. СŠСBackgroundФ Ф д"Ш $иЁx-'*'*``Ан"дŒд ‘XЉ4дСŠСиQ82.и С` ` ЙСBoth HAI and BCPM include modules that compute the costs of expenses and GSF. GSF costs include the investment and expenses related to vehicles, land, buildings, and general purpose computers. Other expenses (that are not associated with GSF) include: plant specific expenses, such as maintenance of facilities and equipment expenses; plant nonЊspecific expenses, such as engineering, network operations, and power expenses; customer services expenses, such as marketing, billing, and directory listing expenses; and corporate operations expenses, such as administration, human resources, legal, and accounting expenses. д “XHЉ4дСŠСиR83.и С` ` ЙСIn theУУ Further NoticeФФ, the Commission sought comment on the appropriate assumptions that should be used in the platform design to compute the forwardЉlooking GSF д ‘X а4дinvestment and expenses attributable to the cost of providing the supported services.ж_ЂЪ ЄЄд {O• Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18569, para. 148._ж The Commission also sought comment on how to remove costs for nonregulated activities from costs for regulated activities in order to incorporate the appropriate amount of GSF investment д ‘Xз а4дand expenses in an estimate of the costs of providing the supported services.ж|Ѓиз ZЄЄд {OтЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18569, para. 148. We found in our УУAccess Charge Reform OrderФФ that the previous allocation of GSF costs enables incumbent LECs to recover through interstate access charges costs associated with the incumbent LECs' nonregulated billing and collection functions and tentatively concluded that д {O<œ'дsuch costs should not be recovered through regulated access charges. УУAccess Charge Reform OrderФФ at para. 411. We subsequently adopted changes to out Part 69 cost allocation rules for price cap LECs to require reductions in those carriers' price cap indices to ensure that regulated access rates do not recover GSF costs related to nonregulated billing and collection services. Access Charge Reform, Transport Rate Structure and Pricing, CC д {O^œ'дDocket No. 96Љ262, 91Љ213, УУThird Report and OrderФФ (rel. Nov. 26, 1997). In the УУFurther Notice, ФФwe similarly noted that universal service support should only provide for the regulated costs of local exchange service. д {O№œ'дУУFurther NoticeФФ at para. 145.|ж The Commission tentatively concluded that GSF expenses should vary by state with respect to land values because a large share of GSF expenses is attributable to the cost of land. д “X{Љ4дСŠСиS84.и С` ` ЙСIn the УУFurther NoticeФФ, the Commission also sought comment on how to д ‘Xfа4дestablish forwardЉlooking expenses in the selected federal mechanism.жfЄЪfњ ЄЄд {OЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18572 Љ18573, para. 157.fж The Commission specifically sought comment on which expenses should be calculated on a perЉline basis and which should be calculated as a percentage of investment. The Commission also sought comment on whether there are measures other than lines and investment to which specific д ‘X а4дexpenses should be tied.жЅЪ Œ ЄЄд {OG"Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18572, 18574Љ18577, paras. 157, 162, 165, 168, 171.ж With respect to plant specific expenses, the Commission sought comment on whether maintenance expense estimates should depend upon plant mix and, in particular, whether an increase in the use of aerial cable also increases maintenance expenses, and whether plant specific expenses should vary with such characteristics as climate or soil д ‘XЎа4дtype.ж_ІЪЎЄЄд {O}'Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18574, para. 162._ж In addition, the Commission asked commenters to identify the complete set ofд"Ў%АІx-'*'*``"д д ‘Xа4дforwardЉlooking expenses for which universal service support should be available.жuЇЪЄЄд {OyЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18574Љ18577, paras. 162, 165, 168, 171.uж д ‘XвЉ4дСŠСиT85.и С` ` ЙСThe prior version of BCPM (BCPM 1.1) estimated expenses on a perЉline basis and the prior version of HAI (HAI 3.1) calculated expenses as a percentage of investment. In д “XЄЉ4дthe УУFurther NoticeФФ, the Commission tentatively concluded that the selected mechanism should provide the user with the ability to calculate each category of expense based either on line д ‘Xxа4дcount or on other investment, at the user's election.жeЈЪxZЄЄд {Oƒ Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18572Љ18573, para. 157.eж The Commission also tentatively concluded that users should be able to use different expense estimates for small, medium, and д ‘XJа4дlarge companies, as BCPM allows.жeЉЪJьЄЄд {Oч Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18572Љ18573, para. 157.eж д ‘X Љ4дСŠСиU86.и С` ` ЙСThe new versions of both models are more flexible than earlier versions д ‘X а4дbecause they provide alternative means of calculating expenses.жЇЊ ~ЄЄд yO4Ж'д Detailed descriptions of the customer location and outside plant modules of HAI, BCPM, and HCPM are provided in Appendix A. Їж BCPM's Operating Expenses Module permits users to estimate operating expenses as either a perЉline amount or as a percentage of investment. HAI allows users to assign some categories of expenses д ‘XР а4д(general support, network operations, and variable overheads) on a perЉline basis.жёЋzР жЄЄд yOGЖ'д HAI 5.0a still calculates estimated expenses in these categories, however, according to the assumptions in the model, but the user can vary the proportion of total expenses that are assigned to loop network elements (i.e., network interface device, distribution, concentration, and feeder) based either on relative number of lines or on the relative amount of investment. At the request of Commission staff, HAI proponents subsequently modified their model so that expenses could be calculated on either a perЉline amount or as a percentage of д {O/œ'дinvestment. УУSeeФФ Letter from Chris Frentrup, MCI\WorldCom, to Magalie Roman Salas, FCC, dated September д yOљœ'д15, 1998.У УФ Фёж HAI also has added a worksheet that breaks out investments and expenses by Part 32 accounts for comparison purposes. Unlike BCPM, however, HAI does not allow users to calculate expenses for each Part 32 account category. Marketing expenses, for example, are excluded д ‘XdЉ4дin calculating customer operations expenses.У УФ ФУ У СŠСС` ` ЙС д ‘X6Ж'дB. СŠСDiscussion д ‘XЉ4дСŠСФ Ф д ‘XЉ4дСŠСиV87.и С` ` ЙС Although we sought comment on alternative measures for estimating forwardЊlooking GSF investment and other expenses, most commenters only address which expenses should be calculated on a perЉline basis and which expenses should be calculated as a д ‘XУа4дpercentage of investment.жsЌЪУЄЄд {OŒ&Ж'д УУSee, e.g., ФФAT&T/MCI comments at 24Љ31; Florida PSC comments at 3Љ7.sж We agree that the majority of expenses can be estimated accurately on the basis of either lines or investment. Other commenters argue, however, that GSF investment and other expenses should be based on ARMIS data for individual companiesд"•&ЊЌx-'*'*``9н"д д ‘Xа4дto ensure accuracy.жo­ШЄЄд yOyЖ'д GTE comments at 37Љ38; Puerto Rico Telephone Company comments at 4Љ5.oж GTE argues that, without empirical evidence, neither calculating д ‘Xща4дexpenses on a perЉline nor a perЉinvestment basis is entirely satisfactory.жhЎXщXЄЄд yOђЖ'д GTE comments at 41Љ46. Bell Atlantic argues that any proxy model that applies existing ratios to a new, hypothetical network will tend to produce inaccurate results simply because no one has attempted to budget the personnel and facilities needed to support such a network. Bell Atlantic comments, attachment at 5Љ6.hж GTE proposes a д ‘Xва4дtimeЉseries forecasting model, which it attaches to its comments.жEЏШвxЄЄд yOћЖ'д GTE comments, attachment 1.Eж While we find that most expenses can be estimated accurately based on either number of lines or investment, we agree that neither investment ratios nor perЉline calculations may be entirely satisfactory for estimating the forwardЉlooking costs of certain expenses. Further, we observe that many of the input questions regarding how best to calculate expenses will be resolved in the input selection stage of this proceeding, and find that the platform of the federal mechanism must д ‘XHа4дbe sufficiently flexible to allow for the correct resolution of these issues.жАшHЄЄд yOЖ'д In addition, no commenter suggests how we should separate costs for nonregulated activities from costs for regulated activities to determine the appropriate proportion of costs that should be supported by the federal mechanism and there is no conclusive evidence in the record on how joint and common costs should be allocated. As these questions are more appropriately answered during the input stage of this proceeding, we expect further review of this issue at that time. ж In this way, we д ‘X1а4дcan best ensure that the model will correctly allocate joint and common costsжsБЪ1И ЄЄд {OšЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8915, para 250, criterion 7.sж and includes д ‘X а4дsufficient flexibility to allow the modification and examination of critical assumptions.жsВЪ J ЄЄд {OЖ'д УУUniversal Service OrderФФ, 12 FCC Rcd at 8915, para 250, criterion 9.sж д ‘Xь Љ4дСŠСиW88.и С` ` ЙС The Florida Public Service Commission agrees with our tentative conclusion that the cost of land, which comprises a large portion of GSF, should vary by state in order to д ‘XО а4дreflect differing land values.жDГШО мЄЄд yOKЖ'д Florida PSC comments at 2.Dж In addition, the Florida Commission argues that, because of varying labor costs, stateЉspecific expenseЉtoЉinvestment percentages should be used to estimate plantЉspecific operating expenses and stateЉspecific perЉline values should be used to д ‘Xyа4дestimate plant nonЉspecific expenses.жLДШylЄЄд yO–!Ж'д Florida PSC comments at 4Љ5.УУФФLж We note that there may be other variables, in addition to land values and labor costs, that may vary by state, and find that the model should allow GSF and expense calculations to vary by state. Both models allow the user to make different assumptions by state, thus both models provide the same degree of flexibility in this regard. д ‘XЉ4дСŠСиX89.и С` ` ЙСBecause BCPM permits users to estimate all operating expenses (including GSF expenses) either as a perЉline amount or as a percentage of investment and to adjust these amounts easily, it is somewhat more flexible than HAI in this regard. Because the federal mechanism must be sufficiently flexible to accommodate the decisions we will be making inд"С'ќДx-'*'*``Эн"д д ‘XЉ4дthe input selection phase of this proceeding, the HAI developers У УФ Фhave made minor changes in their model so that expenses can be calculated on a perЉline or percentageЉofЉinvestment д ‘Xва4дbasis.жЖЕ’вЄЄд {OKЖ'д У УФ ФУУSeeФФ Letter from Chris Frentrup, MCI/WorldCom, to Magalie Roman Salas, FCC, dated September 15, д yOœ'д1998.У УФ Ф Жж As noted above, many of the issues regarding the appropriate method of calculating forwardЉlooking expenses will be resolved when we determine the input values that should be used in the federal mechanism. д “XvЉ4дСŠСиY90.и С` ` ЙСWe adopt our tentative conclusions in the УУFurther NoticeФФ with respect to GSF investment and other expenses and conclude that the federal mechanism should: (1) be capable of calculating GSF investment and expenses by state; (2) provide the user with the capability to calculate each category of expense based either on line count or investment ratios; and (3) permit users to use different ratios or perЉline amounts to calculate expenses д ‘X Љ4дfor different size companies. У УФ ФззWe also conclude that the combination of model components that the Commission selects in this Order should be capable of generating cost estimates for the supported services within a reasonable time. The model will not be used to make final support calculations until next year, but it is important that the Commission and the Universal Service Joint Board can use the selected platform in the near term in connection with the д “X’Љ4дissues that the Joint Board is considering in light of the УУReferral OrderФФ. д ‘XfЉ4дСŠСиZ91.и С` ` ЙСWe find that the HAI and BCPM modules for computing expenses and GSF are roughly comparable, and conclude that the federal mechanism should incorporate the HAI module. Although, as noted above, the BCPM module may be somewhat more flexible, and therefore create the possibility for somewhat more fineЉtuning at the inputs stage, we have thoroughly tested HAI's module and conclude that it generates accurate results. We also observe that expenses and GSF represent a small percentage of the total cost of providing the д ‘Xма4дsupported services.ж…ЖШм"ЄЄд yOЏЖ'д У УФ ФAs noted above, outside plant represents over 70 percent of total network investment.…ж We therefore conclude that the practical benefits of using the HAI module outweigh those of using the BCPM module and that, in the interest of administrative д ‘XЎа4дefficiency, the federal mechanism should incorporate HAI's expense and GSF module.жЗЎВЄЄд yOЖ'д We note that the HAI expense and GSF module is more easily integrated with the remainder of the model.жд;f%ђз +!J:\APD\HICOST\PLATFORM\NEWCRIT2.CUR+ з;д д ‘X€Ж'дд8f%ђз (ЌJ:\APD\HICOST\PLATFORM\SEC-V.CUR( з8дУ УСр}ь?СФ ФУ УззVI. CONCLUSIONФ Фƒ д ‘XRЉ4дСŠСи[92.и С` ` ЙСIn this Order, we select a platform for the federal mechanism to estimate nonЊrural carriers' forwardЉlooking cost to provide the supported services. To generate the most accurate estimates possible, we have selected the best components from the three models on the record. The model components selected are all generally available to the parties, and a software interface to merge the selected components is also available on the Commission's д ‘Xпа4дWorld Wide Web site.жoИЪп ЄЄд {Oš(Ж'д У УФ ФУУSeeФФ http://www.fcc.gov/Bureaus/Common_Carrier/Other/hcpm.oж Thus, the federal platform is available for use by states, otherд"п(œИx-'*'*``Ќ"д д “XЉ4дinterested policymakers, and the public. Pursuant to the plan established in the УУFurther Notice д “XыЉ4дof Proposed RulemakingФФ, we will continue to evaluate model input values with the intention of selecting inputs for the federal platform at a later date. Once input values have been selected, the federal platform will be used to generate cost estimates. д ‘X‘Ж4дСр ьЁСУ УVII. Ф ФУ УPROCEDURAL MATTERS AND ORDERING CLAUSESФ Фззƒ д ‘XcЖ'дУ УззA.СŠСFinal Regulatory Flexibility Act CertificationФ Фзз д ‘X5а4дСŠСи\93.и С` ` ЙСThe Regulatory Flexibility Act (RFA)жtЙZ5ЄЄд {OЎ Ж'дб#єXє\  PŽ6G;Щ’єP#б УУб#єXє\  PŽ6G;Щ’єP#бSee ФФ5 U.S.C. РР 601 УУet seq.ФФ The RFA was amended by the "Small Business Regulatory Enforcement Fairness Act of 1996" (SBREFA), Title II of the Contract with America Advancement Act of 1996, Pub. L. 104Њ121, 110 Stat. 847 (1996) (CWAAA). tж requires a Final Regulatory Flexibility Analysis (FRFA) in rulemaking proceedings, unless we certify that "the rule will not, if д ‘X а4дpromulgated, have a significant economic impact on a substantial number of small entities."жfКШ ъЄЄд yOЂЖ'дб#єXє\  PŽ6G;Щ’єP#б 5 U.S.C. РР 605(b).fж It further requires that the FRFA describe the impact of the rule on small entities. The RFA generally defines "small entity" as having the same meaning as the term "small business д ‘XТ а4дconcern" under the Small Business Act, 15 U.S.C. РР 632.жЌЛшТ zЄЄд yOэЖ'дб#єXє\  PŽ6G;Щ’єP#б б#єXє\  PŽ6G;Щ’єP#б5 U.S.C. РР 601(3) (incorporating by reference the definition of "small business concern" in 15 U.S.C. РР 632). Pursuant to 5 U.S.C. РР 601(3), the statutory definition of small business applies "unless an agency after consultation with the Office of Advocacy of the Small Business Administration and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency д yO œ'дand publishes such definitions in the Federal Register."б#єxў6X@ЩЙ`7ћ ОX@#бЌж The Small Business Administration (SBA) defines a "small business concern" as one that "(1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional д ‘X}а4дcriteria established by the SBA.жdМШ}* ЄЄд yOXЖ'дб#єXє\  PŽ6G;Щ’єP#б 15 U.S.C. РР 632.dж Section 121.201 of the SBA regulations defines a small telecommunications entity in SIC code 4813 (Telephone Companies Except Radio Telephone) д “XOа4дas any entity with 1,500 or fewer employees at the holding company level.жhНШOК ЄЄд yOКЖ'дб#єXє\  PŽ6G;Щ’єP#б 13 C.F.R. РР 121.201.hж In the УУFurther д “X:Љ4дNotice of Proposed RulemakingФФ (УУFurther NoticeФФ) released July 18, 1997, the Commission considered regulatory flexibility issues relating to the selection of a mechanism to determine the forwardЉlooking economic costs of nonЉrural LECs for providing supported services, but certified that there was no significant economic impact on a substantial number of small д ‘Xра4дentities.жeОZрJ ЄЄд yOл$Ж'дб#єXє\  PŽ6G;Щ’єP#б FederalЉState Joint Board on Universal Service, ForwardЉLooking Mechanism for High Cost Support for д {OЃ%œ'дNonЉRural LECs, CC Docket Nos. 96Љ45, 97Љ160, УУFurther Notice of Proposed Rulemaking ФФ(УУFurther Notice)ФФ, 12 FCC Rcd at 18582Љ18583, paras. 183Љ185.eж The Commission found that nonЉrural LECs do not meet the criteria established by д ‘XЩа4дthe SBA to be designated as a "small business concern."жeПЪЩlЄЄд {Oц(Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18582Љ18583, para. 183.eж NonЉrural LECs are not smallд"Щ)ўПx-'*'*``Œ"д business concerns pursuant to the SBA guidelines because they are generally large corporations, affiliates of such corporations, or dominate in their field of operation. No comments were filed in response to the certification. д ‘XЄЉ4дСŠСи]94.и С` ` ЙСWe therefore certify, pursuant to section 605(b) of the RFA, that this Report and Order will not have a significant economic impact on a substantial number of small д ‘Xvа4дentities.жgРШvЄЄд yOяЖ'дб#єXє\  PŽ6G;Щ’єP#б 47 U.S.C. РР 605(b).gж The Office of Public Affairs, Reference Operations Division, will send a copy of this Certification, along with this Report and Order, in a report to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. РР 801(a)(1)(A), and to the Chief Counsel for Advocacy of the Small Business Administration, 5 U.S.C. РР 605(b). A copy of this final certification will also be published in the Federal Register. д ‘Xь Ж'дУ УззФ ФззУ УззB.ТXŠТOrdering ClausesФ ФззЦ(#Ц д ‘XО Љ4дСŠСи^95.и С` ` ЙСAccordingly, IT IS ORDERED, pursuant to sections 1, 4(i) and (j), and 254 of the Communications Act as amended, 47 U.S.C. РРРР 151, 154(i), 154(j), and 254, that the FIFTH REPORT & ORDER in CC Docket Nos. 96Љ45 and 97Љ160, FCC 98Љ279, IS ADOPTED, effective 30 days after publication of a summary in the Federal Register. д ‘XKЉ4дСŠСи_96.и С` ` ЙСIT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference Operations Division, SHALL SEND a copy of this Report and Order, including the Final Regulatory Flexibility Certifications, to the Chief Counsel for Advocacy of the Small Business Administration. СŠСС` ` ЙССИ И чССССhhCССРРqСFEDERAL COMMUNICATIONS COMMISSION СŠСС` ` ЙССИ И чССССhhCССРРqСMagalie Roman Salas СŠСС` ` ЙССИ И чССССhhCССРРqСSecretary д8f%ђз (ЌJ:\APD\HICOST\PLATFORM\SEC-V.CUR( з8д д"л*XРx-'*'*``^н"д д ‘XЖ'дг + гг@A-@гд9f%ђз )ЌJ:\APD\HICOST\PLATFORM\APPENA.CUR) з9да щщ агРгаадUдУ Уб#єXє\  PŽ6G;Щ’єP#бб#Xjє\  PŽ6G;ynXP#бAPPENDIX AФ Ф дˆьдаад\Ад д ‘XвЉ4дСŠСи‚`1.иС` ` ЙСThis appendix explains how the BCPM, HAI, and HCPM models collect information and then transform that information into forwardЉlooking investment and cost estimates. The explanation is divided into five sections: data collection and preprocessing; customer location; outside plant design; switching, signaling, and transport; and expense calculation. The BCPM and HAI models estimate costs for all categories, while HCPM does not provide switching, signaling, transport, and expense calculations. д ‘X1Љ4дСŠСи‚`2.иС` ` ЙСSection III of the Order compares how the three models group customers into geographic areas that will be served by common facilities. The number of customers in each geographic area depends on the distance between customers and the technical constraints of the facilities used to provide service. Section III also compares the outside plant design used by the three models to connect the customer to the wire center. This design specifies how feeder plant is built, how distribution areas are constructed, and what types of electronic equipment is used in conjunction with copper and fiber cables. Section IV compares how BCPM and HAI determine switch, transport, and signaling investment. Switch investment depends on the number of customers served, local usage, and whether the switch is a stand alone, host or remote switch. The wire centers are connected by a transport system. Both BCPM and HAI use SONET ring technology to connect the wire centers, and SS7 to provide signaling service. Summing the outside plant, switching, signaling, and transport investment generates an estimate of total network investment. Section V compares how BCPM and HAI calculate support investments such as general purpose computers to the network investment and then calculate capital costs and operating expenses. д ‘XиЖ'дУ У д ‘XСЖ'дI.СŠСData Sources and Model Preprocessing д ‘XЊЉ4дФ Ф д ‘X“Љ4дСŠСи‚`3.иС` ` ЙСThe customer location modules of the BCPM, HAI, and HCPM models each rely on external data sources to determine certain model input data. Each model uses input д ‘Xeа4дdata on the number of households and business lines reported by Census block,жДeЄЄд yOоЖ'д In some cases business line counts are reported at the Census block group or higher level and an allocation to Census blocks must be made.Дж the number of residential lines per household, the location of the switching office in each wire center and the boundaries of each wire center. In addition, each model is capable of using as input data the exact geocoded locations of individual customers, although only the HAI model proposes a source of this information. In response to the Bureau's recommendation that a model be capable of accepting wire center boundary data in standard Geographic Information System format, the proponents of each model state that their customer location algorithms can accept д ‘XФ а4дalternative wire center boundary data.жйшФ ЄЄд yO•%Ж'д BCPM Dec. 11 submission, Model Methodology at 3 (stating that BCPM can accept "any appropriately geocoded wire center boundary data"); HAI Dec. 11 submission, Model Description at 3 (stating that "[a]lternative data can be easily substituted" for the BLR data currently used by HAI); HCPM Release Notes at 1 (stating that "[w]ire center boundary data are currently preprocessed by a standard commercial GIS software package" and that "other packages can be substituted if they are deemed to contain more accurate data"). Onд"Е(x-'*'*РРЛ(У"д February 6, 1998 the HCPM released model outputs based on a set of publicly available wire center switch and boundary data.йж д"Ф + x-'*'*``;"дŒд ‘XЖ'д™СŠСУ УA.С` ` ЙСBCPMФ Ф д ‘XвЉ4дСŠСи‚`4.иС` ` ЙСThe complete set of preprocessing steps used by the BCPM is described in д ‘XЛа4дAppendix B of the BCPM 3.0 Model Documentation.жЎЛ ЄЄд yOŒЖ'д These steps describe both the use of input data and the assignment of customer locations to grids, as described in the next section.Ўж The preprocessing makes use of the mapping software MapInfo, data and software from PNR and Associates, Inc. (PNR) and Stopwatch Maps, and data from Business Locations Research (BLR). The end result is a set of commaЉseparatedЉvalue ascii text files which contain gridЉlevel information on the grid location, area, population, line counts, terrain characteristics, and location of the serving switch. Some additional files contain information on wire centers and CBG to grid cross reference data. д ‘X Љ4дСŠСи‚`5.иС` ` ЙСBCPM begins with 1990 Census data on the number of occupied and unoccupied dwellings in each census block, updated with 1995 Census statistics regarding д ‘Xе а4дhousehold growth.жGZе xЄЄд yOўЖ'д BCPM therefore identifies the cost of outside plant that serves both occupied and unoccupied dwellings. For a discussion of whether universal service requires that a model calculate the cost of serving both occupied д {OŽœ'дand unoccupied dwellings, УУsee ФФУУinfraФФ.Gж BCPM uses the statewide average number of additional (i.e., nonЊprimary) residential lines to estimate the number of additional lines in each census block. PNR provides BCPM with business line counts for each census block. BCPM uses data from BLR to determine wire center boundaries. The BCPM proponents state that, if a census block crosses a wire center boundary, housing and business data are apportioned to a wire center based on the proportion of land area, if a census block is less than 1/4 of a square mile, or on д ‘XKа4дthe proportion of roads, for larger census blocks.ж[ШKšЄЄд yO–Ж'д BCPM Dec. 11 submission, Model Methodology at 24.[ж д ‘XЖ'дСŠСУ УB.С` ` ЙСHAIФ Ф д ‘XяЉ4дСŠСи‚`6.иС` ` ЙСThe input data and preprocessing steps used in the HAI model are described in detail in section 5 of the model documentation for Release 5.0. The preprocessing steps, which include subsequent customer location algorithms, make use of data and software from PNR. HAI estimates of residential line counts are based on demographic probabilities д ‘X“а4дdeveloped by Claritas and PNR.жZШ“* ЄЄд yOn$Ж'д HAI Dec. 11 submission, Model Description at 22.Zж Business line counts are developed from a national Dun & Bradstreet (D&B) database that generates business locations and business lines based on such д ‘Xeа4дinformation as counts of employees and business type.ж]ШeК ЄЄд yOа'Ж'д HAI Dec. 11 submission, Model Description at 22Љ23.]ж HAI uses area code and telephone number prefix information (NPAЉNXX) for "backup and data scrubbing purposes whenд"N,J x-'*'*``Љн"д д ‘Xа4дanomalies arise in the BLR geographical assignment process."жмЄЄд yOyЖ'д For example, HAI suggests that anomalies can occur if one wire center falls completely within another wire center's boundaries. HAI Dec. 11 submission, Model Description at 23. мж д ‘XвЉ4дСŠСи‚`7.иС` ` ЙСHAI uses data, also purchased from PNR, to generate a database of geographic customer locations identifying, as precisely as possible, the actual latitude and longitude coordinates of each customer. PNR used, as its starting points, a large database of residential street addresses, based on information provided by a commercial bulk mailing firm, д ‘Xvа4дMetromail, and, for business locations, Dun & Bradstreet's database of business addresses.жк v ЄЄд yOG Ж'д The Metromail National Consumer Database (Metromail) has national household information such as deliverable postal addresses and phone numbers. It is compiled from telephone White Pages and such sources of information as new mover records, voter registration data, motor vehicle registration, mailЉorder respondent records, realty data, and home sales and mortgage transaction information. HAI documentation states that Metromail contains over 100 million households, or over 90% of the households reported by the Census Bureau д {O/œ'дfor 1995. MCI Sep. 30 УУex parteФФ at 13; HAI Dec. 11 submission, Model Description at 21Љ24; AT&T Dec. 24 УУex д {Oљœ'дparteФФ at 3У УФ Ф. The Dun & Bradstreet database includes information on more than 11 million business establishments gathered from sources like business principals, public records, industry trade tapes, associations, directories, government records, etc.кж д ‘XHЖ'дСŠСУ УC.С` ` ЙСHCPMФ Ф д ‘X Љ4дСŠСи‚`8.иС` ` ЙСHCPM is capable of utilizing geocoded data from any source, including either Census block data or individual geocoded points, that has been formatted according to Section 6 of the HCPM model documentation. The current default data source for customer locations is the HAI geocoded customer dataset, where actual geocodes are available, augmented with surrogates placed uniformly along roads following the BCPM approach. HCPM's wire center boundaries can also be derived from any source. СŠС д ‘XyЖ'дУ УII.СŠСCustomer LocationФ Ф д ‘XKЖ'дСŠСУ УA.С` ` ЙСBCPMФ Ф д ‘XЉ4дСŠСи‚`9.иС` ` ЙСBCPM's customer location algorithm is a multiЉstep process in which BCPM imposes a grid structure over the entire wire center boundary. BCPM divides the map of census blocks into rectangular "macrogrids" that are 1/25th of a degree latitude and д ‘Xиа4дlongitude.жЖ иє ЄЄд yO}"Ж'д BCPM proponents state that each macrogrid is approximately 12,000 feet by 14,000 feet. Because the distance between degrees latitude increases as one moves from the North Pole to the equator due to the curvature of the earth, the sizes of BCPM's grids will vary. For example, grids will be smaller in Alaska than in Puerto Rico. BCPM Dec. 11 submission, Model Methodology at 27Љ28 and note 16.Жж Each macrogrid is divided into sixtyЉfour microgrids that are 1/200th of a degree д ‘XСа4дlatitude and longitude.жД СмЄЄд yON'Ж'д BCPM proponents state that each microgrid is approximately 1,500 feet by 1,700 feet. BCPM Dec. 11 submission, Model Methodology at 25Љ26.Дж Next, BCPM uses census block information to decide how to assign customers in each census block to microgrids. For census blocks that lie wholly within oneд"Њ-4 x-'*'*``н"д microgrid, all of the customers in that census block are assigned to that microgrid. Many д ‘Xща4дcensus blocks, however, extend into more than one microgrid. If a census block is small,жГ щЄЄд yObЖ'д BCPM defines "small" census blocks as those with an area of less than 1/4 square mile. BCPM Dec. 11 submission, Model Methodology at 26.Гж but nevertheless overlaps more than one microgrid, then BCPM apportions customers in the census block to the microgrids based on the percentage of the census block's area that lies in д ‘XЄа4дeach microgrid.ж шЄ ЄЄд yOuЖ'д For example, if 20 percent of the total census block area falls into one microgrid and the remaining portion falls in a second microgrid, BCPM assumes that 20 percent of the total lines are located in the first microgrid, and 80 percent are located in the second microgrid. Census block data is allocated to microgrids based on relative land area only if the census block is less than 1/4 of a square mile, or less than 2,640 feet by 2,640 feet. BCPM Dec. 11 submission, Model Methodology at 26.ж If a census block is large, and overlays multiple microgrids, then BCPM apportions its customers to each microgrid according to the fraction of road network within each microgrid relative to the total amount of road network contained in all of the microgrids д ‘X_а4дin which the census block is located.жЙ _аЄЄд yOрЖ'д Census block data is allocated to microgrids based on relative road lengths only if the census block is greater than 1/4 of a square mile, or greater than 2,640 feet by 2,640 feet. Road lengths are determined using actual road data from TIGER/Line files [Togographically Integrated Geographic Encoding and Referencing] from the U.S. Census Bureau. BCPM Dec. 11 submission, Model Methodology at 26.Йж д ‘X1Љ4дСŠСи‚` 10.иС` ` ЙСBCPM next identifies "ultimate" grids, which contain from one to sixtyЉfour д ‘X а4дmicrogrids. Ultimate grids are BCPM's equivalent of carrier serving areas.жHШ И ЄЄд yOƒЖ'д See Bell Notes to the Network.Hж The determination of ultimate grids is based on the population within the microgrids and assumptions about the technological limitations on the number of lines that can be served д ‘Xе а4дfrom a single serving area interface.жше H ЄЄд yOЮЖ'д Macrogrids with fewer than 1000 lines become ultimate grids. For other macrogrids, BCPM evaluates the number of lines in each microgrid and the neighboring microgrids. In general, microgrids are combined into final grids that serve at least 400 lines. There will be instances, however, in which the aggregation process will result in final grids that serve as few as 100 lines. No ultimate grid can be smaller than a microgrid, however. BCPM Dec. 11 submission, Model Methodology at 109.ж Ultimate grids can be as small as a microgrid in highly д ‘XО а4дpopulated areas, or as large as a macrogrid in sparsely populated areas.ж~ О јЄЄд yOg Ж'д Ultimate grids can therefore be as small as approximately 1,500 feet by 1,700 feet (one microgrid) and as large as approximately 12,000 feet by 14,000 feet (one macrogrid), although an ultimate grid may occasionally be larger if isolated grids are combined with a macrogrid. BCPM Dec. 11 submission, Model Methodology at 27Љ29 and note 20.~ж д ‘XЉ4дСŠСи‚` 11.иС` ` ЙСOnce the ultimate grid is determined, BCPM identifies the "road centroid" of д ‘Xyа4дthe ultimate grid and divides the grid into four quadrants that intersect at that point.жгyрЄЄд yO 'Ж'д The road centroid, in essence, marks the place within the ultimate grid with the greatest concentration of roads. BCPM Dec. 11 submission, Model Methodology at note 22.гж BCPM then determines the size and placement of a square "distribution area" within each ultimateд"b.8x-'*'*``›н"д grid quadrant, and assumes that the customers within that quadrant are evenly distributed on square lots within that square area. To determine the size of the distribution areas, BCPM first considers the total length of roads within the quadrant, and assumes that customers are located within 500 feet on either side roads. Therefore, BCPM multiplies the total number of feet of road network within each quadrant by 1000 feet (i.e., 500 feet on either side of the д ‘Xа4дroad) to calculate the size of the square distribution area within the quadrant.жdXЄЄд yOЖ'д At this stage, customers have already been distributed among the microgrids that make up the ultimate grids based on land area or the distribution of road network. Only quadrants that contain both roads and populated microgrids will have distribution areas. BCPM Dec. 11 submission, Model Methodology at note 22.dж BCPM then assumes that the square distribution area is centered at the road centroid of the quadrant. д ‘XHЉ4дСŠСи‚` 12.иС` ` ЙСThe BCPM proponents assert that, consistent with the Bureau's guidance, BCPM can incorporate geocode data with a minimum of preprocessing adjustments and with д ‘X а4дno changes to the model itself.ж€Ъ шЄЄд {OГЖ'д BCPM Dec. 11 submission, Model Methodology at 3; Sprint УУex parteФФ, Jan. 28, 1998.€ж Customers would be assigned to microgrids based on their exact geocoded location rather than on an algorithm that allocates Census blocks to microgrids based on area and information about the road network. After customers are assigned to microgrids in this way, the creation of ultimate grids would proceed as described above. In the case of partial geocoded customer location information, the BCPM sponsors indicate that the model would assign geocoded locations to "residual" customers (whose actual location is unknown) in every Census block by placing them uniformly on the road network in each д ‘Xyа4дCensus block.жhЪyzЄЄд {OЄЖ'д УУSeeФФ Appendix to Sprint УУex parteФФ, January 28, 1998.hж д ‘XKЖ'дСŠСУ УB.С` ` ЙСHAIФ Ф д ‘XЉ4дСŠСи‚` 13.иС` ` ЙСThe HAI model employs a clustering algorithm to aggregate customer locations into serving areas. Address data for residential locations are provided by Metromail, Inc. and д ‘Xяа4дfor business locations by Dun & Bradstreet.жZШя ЄЄд yOЌЖ'д HAI Dec. 11 submission, Model Description at 23.Zж Addresses are converted into geocoded customer locations by PNR using a software product by Qualitative Marketing Software called д ‘XСа4дCentrus Desktop.жZШСœЄЄд yO!Ж'д HAI Dec. 11 submission, Model Description at 24.Zж The geocoding process is accomplished by standardizing addresses to specifications defined by the United States Postal Service, and then determining geocodes corresponding to addresses by extrapolating from known geocoded locations, which typically occur at road intersections. Since not all customers have addresses, and not all addresses can be successfully geocoded by the above processes, the HAI model assigns "surrogate" geocode locations to residual (unlocated) customers within every Census block. The surrogate geocode locations are determined by uniformly distributing the residual customers in each Census block around the boundary of the block. д ‘XђЉ4дСŠСи‚` 14.иС` ` ЙСThe clustering algorithm used by PNR is a "nearest neighbor" agglomerativeд"ђ/, x-'*'*``н"д algorithm combined with a set of stopping rules. Conceptually the algorithm begins with a single location and repeatedly adds additional locations to form clusters as long as one of the following rules is not violated: (1) No point in a cluster may be more than 18,000 feet (based on right angle distance) from the centroid of the cluster. (2) No cluster may exceed 1800 lines in size. (3) No point in a cluster may be farther than two miles from its nearest neighbor in д ‘Xа4дthe cluster.жZШЄЄд yOЖ'д HAI Dec. 11 submission, Model Description at 26.Zж The first two rules are engineering constraints similar to those used by BCPM and HCPM in defining grids. The third rule is not based on engineering considerations. According the HAI proponents, it "is used to ensure that customer locations that are separated д ‘XHа4дby the given distance are not required to be clustered together."жZШHXЄЄд yOQ Ж'д HAI Dec. 11 submission, Model Description at 27.Zж д ‘X Љ4дСŠСи‚`15.иС` ` ЙСThe following specific steps are used to build clusters. First, the set of actual and surrogate geocode locations are "rasterized" into 150 foot square cells that overlay the д ‘Xь а4дgeographic rectangle covering the wire center boundary.жZШь шЄЄд yO…Ж'д HAI Dec. 11 submission, Model Description at 27.Zж That is, all customer locations that fall within a given 150 foot cell are aggregated and their location is assumed to be at the center of the cell for purposes of clustering. The nearest neighbor algorithm starts with a cluster defined by an arbitrarily chosen initial raster cell. It then inspects each of the four neighboring cells. If a neighboring cell is populated, the algorithm checks to see if any of the rules are violated, and if none are, the cell is added to the cluster. This process continues by examining in turn each newly added raster cell to see if additional neighbors can be added to the cluster. д ‘XЉ4дСŠСи‚`16.иС` ` ЙСWhen no additional points can be added to a given cluster by examining neighbors within a 150 foot radius, the algorithm moves to the next populated cell that is unclustered and repeats the above process. Whenever new locations cannot be added to clusters by looking for nearest neighbors at a given distance, the entire process is repeated by examining nearest neighbors located at a greater distance (in multiples of the raster cell size of 150 feet). The algorithm terminates when no additional points can be added to any cluster. д ‘X|Ж'дСŠСУ УC.С` ` ЙСHCPMФ Ф д ‘XNЉ4дСŠСи‚`17.иС` ` ЙСAlthough it originally proposed a gridding approach for aggregating customers д ‘X7а4дinto serving areas, HCPM subsequently developed a clustering algorithm.жГ’7xЄЄд {O`#Ж'д C.A. Bush, et al., УУThe Hybrid Cost Proxy Model Customer Location and Loop Design ModulesФФ, July 1, 1998 (HCPM July 1 Report) at 5. Гж HCPM's customer location algorithm operates in one of two ways depending on the customer location data source. If the data source contains individual geocoded customer locations, the HCPM clustering module (called CLUSTER) performs either an agglomerative or divisive cluster algorithm (depending on the userРРs choice) to determine serving areas. If the source contains Census block data, HCPM preprocesses the data to distribute customers uniformly throughoutд"Ф 0вx-'*'*``Ан"д a square equal in area to the Census block, with the center of the square set at the internal point of the Census block as identified in the Census data. After performing this preprocessing step, the cluster routine proceeds as noted above. д ‘XЄЉ4дСŠСи‚`18.иС` ` ЙСAfter performing the cluster analysis, the HCPM cluster module allows the user the option to Р РoptimizeРР the clusters it creates using two separate procedures. In simple reassignment, a customer location is reassigned from its original cluster to a new one if the location is closer to the new clusterРРs centroid. This process is repeated until no more reassignments can be made. In full optimization, customer locations are considered one by one. The effect each customer location has on centroid locations is measured, and customer locations are moved from one cluster to another if the total distance from customer locations to centroid locations is reduced. This process is repeated until no more distance reduction is possible. д ‘XО Љ4дСŠСи‚`19.иС` ` ЙСThe cluster module takes the maximum copper loop length and maximum number of lines as well as the type of clustering desired and the type and amount of optimization desired into account as userЉadjustable inputs. д ‘XbЉ4дСŠСи‚`20.иС` ` ЙСAfter the customer location data have been clustered, a separate module (called CLUSINTF) places a fine (square) grid over each cluster. The size of the grid (or Р РmicrogridРР) is determined by the user; the current default is 360 feet by 360 feet. The interface module determines the terrain adjustment of each cluster by looking up its value in a д ‘Xа4дtable, and also calculates the line density of each cluster and of the wire center as a whole.ж ЄЄд yOЖ'д Additionally, if the input data contain fractional lines as input, the interface (which reports out only integerЉvalued lines) performs a Р РtrueЉupРР to place fractional lines as appropriate within populated microgrids. ж д ‘XиЖ'дУ УIII.СŠСOutside Plant DesignФ Ф д ‘XЊЖ'дСŠСУ УA.С` ` ЙСBCPMФ Ф д ‘X|Љ4дСŠСи‚`21.иС` ` ЙСAs discussed above, BCPM considers each ultimate grid established by its customer location module to be a serving area. BCPM assumes that the DLC will be placed д ‘XNа4дat the road centroid of the ultimate grid.жяшN ЄЄд yO Ж'д BCPM Dec. 11 submission, Model Methodology at 38. Where the total length of feeder cable and all distribution cables in a serving area does not exceed the maximum practical distance for which copper cable may be used, BCPM would assume copper (rather than fiber) feeder cable. In that case, the feederЉdistribution interface would be a simple connection of the copper cables, rather than a DLC device. It would, however, be located in the same place.яж The model then calculates the design of the feeder plant from the central office to the DLC in each serving area. BCPM begins this process by assuming that each of four main feeder routes extends 10,000 feet due north, south, east, and д ‘X а4дwest, respectively, from the central office, into each quadrant of the wire center.ж[Ш аЄЄд yOŠ'Ж'д BCPM Dec. 11 submission, Model Methodology at 35.[ж Once the feeder routes extend beyond 10,000 feet from the central office, the model considers two possible feeder systems in every quadrant. If the line count in the center third of the quadrantд"л1` x-'*'*``Ќн"д is greater than 30 percent of the lines in the quadrant as a whole, a single main feeder route is used and the model user can select whether or not the main feeder cables angle toward the population centroid of the quadrant. If the line count in the center third of the quadrant does not exceed 30 percent of the quadrant's total, then the model constructs dual main feeder routes that extend toward the area of greatest population concentration in the outer thirds of the quadrant. The model computes total feeder distance for the quadrant under both scenarios and selects the option that minimizes total feeder distance for the quadrant. д ‘XHЉ4дСŠСи‚`22.иС` ` ЙСThe main feeder routes are connected to the DLCs in each serving area by subfeeder cables extending from the main feeder cable. Within 10,000 feet from the central office, subfeeders can run from the main feeder on any grid boundary, even if the ultimate grids have been sized at the smallest microgrid size possible (1/200th of a degree latitude or д ‘Xь а4дlongitude).ж[Шь ЄЄд yOe Ж'д BCPM Dec. 11 submission, Model Methodology at 37.[ж Beyond 10,000 feet from the central office, subfeeders are run on grid boundaries no more frequently than every 1/25th of a degree latitude or longitude. The size of the feeder cable is determined by the number of customer locations that the model has д ‘XЇ а4дdetermined to exist in the quadrant multiplied by a userЉadjustable "fill factor."жL XЇ XЄЄд yOАЖ'д Telephone engineers typically use fill factors to determine the number of "extra" lines that should be placed in a given cable. Extra lines are included to allow for future growth in lines, redundancy in the cable, and other situations in which extra capacity in the cable might be needed.Lж BCPM economizes on DLC costs by ensuring that the portion of the DLC equipment that is placed in the central office is connected to as many DLC remote terminals as its capacity will allow. д ‘XKЉ4дСŠСи‚`23.иС` ` ЙСBCPM divides its square distribution areas into lots and runs backbone (northЊд ‘X4а4дsouth) and branch (eastЉwest) distribution cable to each lot.ж[!Ш4xЄЄд yO]Ж'д BCPM Dec. 11 submission, Model Methodology at 44.[ж The size of the lots is determined by dividing the number of customers by the area of the distribution area. The final piece of the distribution network is the drop, which connects the branch cable to the network interface device at the customer premises. BCPM assumes that the length of the drop д ‘Xиа4дis one half of the diagonal width of the lot, capped at 500 feet.жФ"иЄЄд yO‘Ж'д BCPM Dec. 11 submission, Model Methodology at 44. The diagonal width of the lot is the distance from one corner of the square lot to the opposite corner.Фж As a final check on the reasonableness of the length of the distribution cable that BCPM has calculated, the model constrains the length of distribution cable within a quadrant to the total length of the roads in д “X“а4дthat quadrant.ж[#Ш“` ЄЄд yOЄ#Ж'д BCPM Dec. 11 submission, Model Methodology at 45.[ж Consistent with the direction provided in the УУCustomer Location & Outside д “X~Љ4дPlant Public NoticeФФ, BCPM also permits the model user to select an overall cap on perЉloop д ‘Xiа4дinvestment.ж[$Шi№ ЄЄд yO 'Ж'д BCPM Dec. 11 submission, Model Methodology at 47.[ж д"R2€ $x-'*'*``ан"дŒд ‘Xа4дСŠСи‚`24.иС` ` ЙСBCPM estimates plant mix based on the terrain and line density of the grid.ж]%ШЄЄд yOyЖ'д BCPM Dec. 11 submission, Model Methodology at 46. ]ж BCPM also adjusts the costs of cable placement based on the level of bedrock and the water д ‘Xва4дtable and the hardness of bedrock in the CBG in which the grid falls.ж[&ШвXЄЄд yOлЖ'д BCPM Dec. 11 submission, Model Methodology at 48.[ж д ‘XЄЖ'дСŠСУ УB.С` ` ЙСHAIФ Ф СŠС д ‘XvЉ4дСŠСи‚`25.иС` ` ЙСHAI uses a simplified algorithm for laying out distribution plant to customer locations. Clusters with five or more customers are called "main" clusters, while clusters with fewer than five customers are called "outliers." For main clusters and outlier clusters with more than one customer, HAI creates a rectangular "distribution area" centered on the д ‘X а4дgeographic center of the cluster, with the same area and aspect ratio of the cluster.жD'| шЄЄд yOГЖ'д The area of a cluster is actually the area of a "convex hull" of the cluster. A convex hull is determined by connecting all of the outer points in a cluster. The aspect ratio is the ratio of the NorthЉSouth length to the EastЉWest length, using the outermost points of a cluster. If a cluster has an aspect ratio of 2:1, HAI will therefore create a rectangle that has the same area as the cluster's convex hull and that has NorthЉSouth sides that д {Oгœ'дare twice as long as its EastЉWest sides. УУSeeФФ HAI Dec. 11 submission, Model Description at 27Љ28 and note 31. All clusters are assumed to have a minimum width so that an area can be identified for a cluster that is formed д {Oeœ'дby points laid out in a straight line. HAI Jan. 29 УУex parteФФ У УФ ФDж Customers in a cluster are assumed to be distributed in a uniform manner throughout the д ‘Xь а4дrectangle.жЧ(ь , ЄЄд yOЩЖ'д Thus, although HAI begins with geocodes for the precise locations of many customers, it does not actually construct outside plant to those precise locations.ЧжУ УФ ФУ УФ ФУ УФ Ф The number of lots is determined by dividing the area of the rectangle by the number of customers in a cluster, and rounding up as necessary to ensure that lot depth is twice as great as lot frontage. Backbone cables terminate one lotЉdepth inside the north and south boundaries of the rectangle. Similarly, branch cables run to within one lotЉwidth of the д ‘Xа4дeast and west sides of the rectangle.жZ)Ш„ ЄЄд yOХЖ'д HAI Dec. 11 submission, Model Description at 36.Zж д ‘XbЉ4дСŠСи‚`26.иС` ` ЙСУУФФIn the case of outlier clusters (fewer than five customers), HAI determines the distribution area and lot size as above, but the model assumes that customers in outlier clusters are distributed evenly along a "road" that is assumed to run through the geographic д ‘Xа4дcenter of the outlier cluster. Outlier clustersжu*ЪЄЄд {Oт"Ж'д For a definition of outlier clusters in HAI, УУsee supraФФ section III.B.uж are grouped in the same serving area as the nearest main cluster, and the centroid of the outlier cluster is connected to the centroid of the nearest main cluster by analog or T1 connections depending on the distance of the furthest customer in an outlier to the centroid of the main cluster. Outliers may be connected directly to the main cluster or indirectly through another outlier cluster. д ‘X“Љ4дСŠСи‚`27.иС` ` ЙСNear each customer's premises in both main and outlier clusters, a terminal connects a drop cable from the distribution cable to the network interface device located onд"|3І*x-'*'*``н"д the customer's premises. The model user may choose whether the model assumes that drop д ‘Xща4дcables are buried or aerial.жZ+ШщЄЄд yObЖ'д HAI Dec. 11 submission, Model Description at 39.ZжУУФФ Main clusters with total areas of less than 0.03 square miles and with line densities of more than 30,000 lines per square mile are assumed to be high rise residential buildings. The model assumes that distribution cable is riser cable inside each highЊrise building and that the feederЉdistribution interface is located in the basement of each д ‘Xа4дbuilding.жя,шXЄЄд yO–Ж'д HAI estimates the number of floors in a highЉrise by first estimating the size of the building's footprint by subtracting space for streets and sidewalks. HAI then determines how many floors of this size are needed to accommodate the number of households and businesses located in the building, assuming that each household uses 1500 square feet and, for businesses, each employee uses 200 square feet. HAI Dec. 11 submission, Model Description at 37.яж д ‘X_Љ4дСŠСи‚`28.иС` ` ЙСHAI assumes that feeder cable begins at the wire center and ends at the feederЊд ‘XHа4дdistribution interface in each serving area.жy-ШHЄЄд yOЖ'д A serving area is one main cluster and the outlier clusters associated with it.yж The model divides the wire center area into four quadrants and deploys feeder cable to every populated quadrant. Default directions for feeder emanating from the wire center are north, east, south and west (0, 90, 180, and 270 degrees.) At the model user's discretion, HAI can "steer" feeder routes towards the preponderance of main clusters within each quadrant. When this method is used, the resulting feeder length is increased by a userЉspecified multiplier to account for instances where rightsЉofЉway are unavailable along the straightЉline feeder route designed by the model. SubЉfeeder cables д ‘XЇ а4дbranch at right angles off of the main feeder route toward main clusters.жZ.ШЇ ˜ЄЄд yO№Ж'д HAI Dec. 11 submission, Model Description at 40.Zж д ‘XyЉ4дСŠСи‚`29.иС` ` ЙСFiber feeder technology is used if any one of the following five conditions is met: (1) total feeder and subfeeder distance from the wire center to the main cluster centroid exceeds the userЉadjustable threshold; (2) the lifeЉcycle cost of fiber is more economical than copper; (3) the length of the longest distribution cable run from the wire center to the farthest corner of a main cluster is greater than a userЉadjustable threshold; (4) there is at least one outlier cluster connected to the main cluster; or (5) the wireless investment cap is invoked, in д ‘Xяа4дwhich case fiber connects the radio sites to the wire center.ж‰/Ъя( ЄЄд {OШ Ж'д HAI Dec. 11 submission, Model Description at 39Љ40. The wireless cap is discussed УУinfra.ФФ‰ж Otherwise analog copper feeder cables are used. д ‘XЊЉ4дСŠСи‚`30.иС` ` ЙСThe HAI model permits the user to invoke a wireless investment cap which compares the cost of a wireline network to the cost of both a pointЉtoЉpoint wireless system and a broadcast wireless network. A user input, set by default at $7,500, determines pointЉtoЊpoint costs for a single user. A broadcast wireless system is assumed to have user specified fixed and perЉuser costs, which are set by default at $112,500 and $500 respectively. When the wireless cap option is invoked, the cost of a serving area is set equal to the minimum of the wireline cost, the pointЉtoЉpoint wireless cost, and the broadcast wireless cost.д" 4К /x-'*'*``cн"дŒд ‘XЖ'д™СŠСУ УC.С` ` ЙСHCPMФ Ф д ‘XвЉ4дСŠСи‚`31.иС` ` ЙСAs described above, HCPM locates customers within clusters. Each cluster is then divided into microgrids (up to 2500). In addition, every cluster contains at least one terminal location, or serving area interface (SAI), which defines the boundary between feeder and distribution plant. Distribution plant consists of the set of analog copper cables, structures, and other facilities such as network interface devices that are required to connect every customer location to the closest SAI. Feeder plant consists of the set of fiber, digital copper (T1 or xDSL), or analog copper cables and structures that connect every SAI to the central office. д ‘X Љ4дСŠСи‚`32.иС` ` ЙСHCPM locates an SAI within a cluster at the centroid of that cluster. Additional SAIs may also be located within the cluster to determine if annualized cost would be minimized through the addition of terminal nodes within a cluster; the current default method, however, is to locate no more than one SAI per cluster. If more than one SAI is specified and located within a cluster, one of the SAIs is designated Р РprimaryРР and interconnects with the feeder network; the remaining SAIs are interconnected with the primary SAI using xDSL on copper technology. From the SAIs, HCPM builds distribution plant to each populated microgrid within the cluster. д ‘X4Љ4дСŠСи‚` 33.иС` ` ЙСThe distribution plant is first designed using a simple ruleЉofЉthumb that is a variant of the Р РpinetreeРР topology. In this approach, vertical and horizontal distribution backbones are placed along alternate lattice lines in the grid structure of the cluster, gathering lines from each populated microgrid. A user option is to compare the cost of this ruleЉofЊthumb calculation with an alternative calculation, which uses a costЉminimizing variant of the д ‘XСа4дPrimжР0’СЄЄд {O:Ж'д Prim, R.C. (1957), Р РShortest Connection Networks and some Generalizations.РР УУBell Technical Journal д yOœ'дФФ38, pp. 1389Љ1401.Рж Р Рminimum spanning treeРР algorithm to connect each drop terminal with the SAI.жж1С"ЄЄд yO”Ж'д Since this alternative calculation requires additional computing time, the user can also determine a maximum line density above which the computation will not be performed.жж д ‘X“Љ4дСŠСи‚`!34.иС` ` ЙСThe feeder network, which connects every primary SAI to the central office, is also designed using a variant of the minimumЉcost spanning tree algorithm. Beginning at the central office, the algorithm builds a feeder network sequentially by examining both the cable and structure costs involved in attaching new nodes to the network. Lowest cost nodes are attached first. When each new node is attached, the connection is chosen that minimizes the cost of cable and structures that are required to connect that node to the central office using д ‘X а4дthe currently existing network.ж2 zЄЄд yO4%Ж'д The algorithm does not achieve a Р РglobalРР cost minimum because it is not able to take account of the impact that choosing a particular link will have on the cost of attaching future nodes as the algorithm proceeds.ж Distance computation can be done using either rectilinear distance or airline distance according to user option. In addition, Р Рjunction nodesРР are placed at points due north, south, east, and west of the central office along what would be the mainд"л5в2x-'*'*``…н"д д ‘Xа4дfeeder routes in a traditional Р РpinetreeРР feeder design.жD3XЄЄд yOyЖ'д Junction nodes are nodes that can be used as connection points but which have no line demand associated with them. Their use allows greater opportunities for sharing of structure costs than would be possible in a network without junction points. See HCPM documentation, pp. 14Љ15.Dж д ‘XвЉ4дСŠСи‚`"35.иС` ` ЙСAs part of the feeder design algorithm, HCPM calculates the feeder technology for each SAI that minimizes annualized cost subject to engineering constraints defined by the д ‘XЄа4дuser inputs.жN4XЄшЄЄд yO= Ж'д HCPM Dec. 23 additional information at 6; HCPM Feb. 6 submission. HCPM 2.5 considers lifecycle costs, including maintenance costs, in determining the leastЉcost alternative. Prior to February 6, 1998, HCPMРРs optimization routines considered firstЉinstalled, rather than lifecycle, costs.Nж The model also selects loop electronics by examining every feasible combination of large and small terminals and selecting the cost minimizing outcome. HCPM 2.5 modified its technology selecting algorithms to consider lifecycle costs instead of firstЊinstalled cost and made other significant enhancements to its algorithms for selecting the lowestЉcost technology in a given situation. д ‘X Ж'дУ УФ ФУ УIV.СŠСSwitching, Signaling, and TransportФ Ф д “Xь Љ4дСŠСи‚`#36.иС` ` ЙСIn the УУFurther NoticeФФ, the Commission sought comment on issues that affect д ‘Xз а4дthe algorithms for switching, interoffice trunking, signaling, and local tandem investment.УУФФжk5Ъз ЄЄд {OЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18,560Љ18,567 paras. 121Љ141.kж In д “XР Љ4дa УУPublic NoticeФФ released on September 3, 1997, the Common Carrier Bureau set forth its recommendations to the model proponents to ensure that their modules for calculating switching, interoffice trunking, signaling, and local tandem investment comply with all the д “X}а4дcriteria set forth in the УУФФУУUniversal Service OrderФФ.жx6\}šЄЄд yOШЖ'д Guidance To Proponents of Cost Models in Universal Service Proceeding: Switching, Interoffice д {Oœ'дTrunking, Signaling, and Local Tandem Investment, УУPublic NoticeФФ, CC Docket Nos. 96Љ45, 97Љ160, DA 97Љ1912, д {OZœ'д(rel. Sept. 3, 1997) at 2Љ6 (УУФФУУSwitching and Transport Public NoticeФФ)УУФФ.xж The УУSwitching and Transport ФФУУPublic NoticeФФ established several guidelines relating to switching, the design of the interoffice network, and д ‘XQа4дinteroffice cost attributable to providing supported services.жo7ЪQО ЄЄд {OРЖ'д УУФФУУФФУУSwitching and Transport Public NoticeФФ at 2Љ6УУФФ.oж The Bureau guidelines determined that: the models permit individual switches to be identified as host, remote, or standЉalone; switching investment costs should be separately estimated for host, remote, and standЉalone switches; that models include switch capacity constraints, and that the models should accommodate an interoffice network that is capable of connecting switches designated as hosts and remotes in a way that is compatible with the capabilities of equipment and д ‘XЧа4дtechnology that are "available today and current engineering practices."жЖ8"ЧP ЄЄд {OШ%Ж'д УУSwitching and Transport Public NoticeФФ at 4Љ6. Switches can be designated as either host, remote, or standЉalone switches. Both a host switch and a standЉalone switch can provide a full complement of switching services without relying on another switch. A remote switch relies on a host switch to supply a complete array of switching functions and for interconnection with other switches.Жж TУУФФУУФФhe Bureau also found that all of the lineЉside port costs and a percentage of usage costs should be assigned toд"А6:8x-'*'*``\н"д д ‘Xа4дthe cost of providing supported services.ж]9ЪЄЄд {OyЖ'д УУSwitching and Transport Public NoticeФФ at 4Љ6.]ж д ‘XвЖ'дСŠСУ УA.С` ` ЙСBCPMФ Ф д ‘XЄЉ4дСŠСи‚`$37.иС` ` ЙСУУФФBCPM 3.0 estimates separate switch investment costs for host, remote, and standЉalone switches. BCPM 3.0 determines whether each switch is a host, remote, or standЊalone by consulting data on current host, remote, and standЉalone switch deployment д ‘X_а4дcontained in the Local Exchange Routing Guide (LERG), a database maintained by Bellcore.жH:Ш_ZЄЄд yOj Ж'д BCPM Dec. 11 submission at 50.Hж д ‘XHа4дBCPM 3.0 deploys more than one switch if single switch capacity constraints are exceeded.ж[;ШHъЄЄд yOу Ж'д BCPM Dec. 11 submission, Model Methodology at 56.[ж д ‘X Љ4дСŠСи‚`%38.иС` ` ЙСBCPM 3.0 permits the model user to select from among four methods of determining investment per switch: (1) a BCPM default; (2) the audited LEC switching model (ALSM); (3) a stateЉspecific LEC model, if the user provides it; and (4) a userЉdefined д ‘Xе а4дmodel.ж^<Ше zЄЄд yOЖ'д BCPM Dec. 11 submission, Model Methodology at 58Љ61.^ж The BCPM default is based on a regression of switch investment costs using SCIS and SCM data. Switch costs are assumed to vary with lines, trunks, minutes of use and calls д ‘XЇ а4д(BHCCS and BHCA).ж*=XЇ ЄЄд yObЖ'д For example, if the coefficient for lines is $300 and for trunks is $100 and the switch serves 1,000 lines and 100 trunks, then the switch investment for these two categories would be $300 times 1,000 lines plus $100 times 100 trunks which equals $310,000.*ж д ‘XyЉ4дСŠСи‚`&39.иС` ` ЙСOnce total switching investment per wire center is determined, BCPM 3.0 divides total investment into functional categories based on cost drivers which include line д ‘XKа4дports, call duration and call setup.жš>K* ЄЄд yO&Ж'д BCPM Dec. 11 submission, Model Methodology at 57. Call duration is expressed in hundreds of call seconds (CCS).šж For the default switch investment, this division is based on regression results of the SCIS and SCM models. The final step is to determine the investment per line for all switch categories. Line port investment is allocated completely to the provision of supported services. For the other categories, the switch investment per unit of usage is translated into perЉline cost by multiplying usage investments by an estimate of д ‘Xиа4дusage per line.ж[?Ши‚ ЄЄд yO $Ж'д BCPM Dec. 11 submission, Model Methodology at 64.[ж Where there are hostЉremote systems, trunk and SS7 usage investment is shared among all users of the system. д ‘X“Љ4дСŠСи‚`'40.иС` ` ЙСIn the Transport Cost Proxy Model module, BCPM 3.0 estimates the transport cost per line based on SONET ring technologies. Inputs to this module include (1) LERG data that identify and locate the existing switching network; (2) a set of user specifiedд"e7?x-'*'*``н"д д ‘Xа4дthresholds on ring size;жю@ЄЄд yOyЖ'д For example, these inputs include among others: the maximum number of nodes per ring; airline miles to route miles factor; line to trunk factor. BCPM Dec. 11 submission, Model Methodology at 69.юж and (3) the number of access lines served by the switch as determined by the loop module. The model constructs a SONET ring for each hostЉremote configuration. It then connects each host or stand alone office to the tandem office. After the д ‘XЛа4дrings are designed, BCPM determines the appropriate bandwidth for each of the rings.жA Л ЄЄд yOŒЖ'д BCPM determines the appropriate bandwidth of the rings by analyzing the number of switched access lines served by the ring. After determining special access circuit needs, it builds the proper number of DS1 and DS0s to accommodate the ring's traffic. A Ring Size Table then finds the capacity of the ring. BCPM Dec. 11 submission, Model Methodology at 72.ж д ‘XЉ4дСŠСи‚`(41.иС` ` ЙСThe following algorithm is used for connecting nodes to a common source for both hostЉremote and hostЉstandЉalone tandem rings. First, a three node ring is created by interconnecting the source and the two nodes closest to the source. Next, the remaining nodes are placed in order in terms of increasing distance to the source. A new node is added to the ring by computing the increase in cost that would result if any given segment of the original ring were replaced by two new segments which connect the end points of that segment with the new node. A new ring is then formed by dropping the segment that minimizes the cost of adding the new node to the ring. The process continues until all nodes have been attached or the user specified maximum ring size is reached. д ‘XЇ Љ4дСŠСи‚`)42.иС` ` ЙСUser inputs determine both the number of rings constructed and the total investment required for each ring. The model next converts total investment into a cost per DS1, selects the appropriate mileage element, and computes the cost per common transport д ‘Xbа4дminute.ж[BШbЄЄд yOЖ'д BCPM Dec. 11 submission, Model Methodology at 73.[ж The transport investment results are provided for public switched network common transport on an individual ring basis, recognizing the use of existing LEC wire centers, mileage characteristic, and each ring's specific utilization. The common transport results are utilized in the development of the universal service fund monthly transport cost per line by д ‘Xа4дexchange.ж^CШ˜ЄЄд yOOЖ'д BCPM Dec. 11 submission, Model Methodology at 74Љ75.^ж д ‘XиЉ4дСŠСи‚`*43.иС` ` ЙСSignaling costs for use in developing per line investment for BCPM 3.0 are provided through a user input table that its proponents assert reflects the cost of building a д ‘XЊа4дmodern SS7 network.ж[DШЊ( ЄЄд yOƒ#Ж'д BCPM Dec. 11 submission, Model Methodology at 76.[ж The input table provides investments for residence and business lines for small, medium, and large companies. The signaling cost for a wire center is based on a weighted average of residence and business lines associated with that wire center. д ‘XNЖ4дСŠСУ УB.С` ` ЙСHAIФ Ф д ‘X Љ4дСŠСи‚`+44.иС` ` ЙСУУФФTo determine the number of switches needed in each wire center, HAI 5.0д" 8И Dx-'*'*``pн"д compares a number of factors that will affect the demands placed on a switch with capacity constraints. Switch capacity requirements depend upon the call volume that the switch must process during the busiest hour of the day (the "busy hour"). The number of call attempts that the switch must connect during the busy hour is generally expressed in busy hour call attempts (BHCAs), and the duration of those calls is expressed in busy hour hundred call seconds (BHCCS). Specifically, HAI compares the number of lines, BHCAs, and BHCCS to д ‘Xvа4дcapacity constraints.жЕE vЄЄд yOяЖ'д HAI Dec. 11 submission, Model Description at 50Љ51. HAI compares the BHCA produced by a mix of lines served by each switch with a userЉadjustable processor capacity (default set at a maximum of 600,000 BHCA, depending on the size of the switch). HAI compares the offered traffic, expressed as BHCCS with a userЉadjustable traffic capacity limit (default set at a maximum of 1,800,000 BHCCS). Еж If any of the capacity constraints are exceeded, HAI 5.0 adds д ‘X_а4дadditional switches.жMFX_АЄЄд yOР Ж'д If multiple switches are required in a wire center, they are sized equally to allow for maximum growth on each switch. For example, if a wire center serves 90,000 ports, HAI will compute the investment required for two 45,000Љport switches. HAI Dec. 11 submission, Model Description at 50.Mж Once the number of switches is determined, switch investment is д ‘XHа4дestimated using a single switch curve.жZGШHаЄЄд yOЩЖ'д HAI Dec. 11 submission, Model Description at 52.Zж This estimate is adjusted to reflect the effects of д ‘X1а4дdigital line carrier equipment ЉЉ reduced trunking requirements and port savings.жZHШ1` ЄЄд yOBЖ'д HAI Dec. 11 submission, Model Description at 53.Zж The monthly cost per line for switching is assumed to be the same for all lines in a study area. HAI assigns a percentage of total switch investment to the port and the remainder to usage. It separates usage costs associated with local traffic from those associated with other traffic on the basis of switched minutes of use. It then allocates the port and local traffic costs to д ‘XО а4дuniversal service.жDIШО № ЄЄд yO_Ж'д HAI Aug. 8 comments at 13.Dж д ‘XЉ4дСŠСи‚`,45.иС` ` ЙС HAI 5.0 is capable of estimating the cost of switching systems comprised of д ‘Xyа4дcombinations of host, remote, and standЉalone switches.жZJШy€ ЄЄд yOЊЖ'д HAI Dec. 11 submission, Model Description at 51.Zж The model allows the user to д ‘Xbа4дdecide whether each wire center houses a host, remote, or standЉalone switch.жZKШbЄЄд yO# Ж'д HAI Dec. 11 submission, Model Description at 18.Zж End office switching investment calculations obtain common equipment and perЉline investments for all three switch types from a userЉadjustable investment table, which contains end office д ‘Xа4дinvestment entries for both large and small LECs.жфL ЄЄд yOn$Ж'д HAI Dec. 11 submission, Model Description at 52. Switch investment is the sum of the common equipment costs plus the product of the per line costs and the model estimated line counts. фж HAI allocates the cost of hostЉremote systems equally across all lines in the system. If the user does not specify whether each switch is a remote, host or standЉalone, HAI will generate investments estimate based on its д ‘XиЉ4дdefault switch curve.СИ И чС д"С9јLx-'*'*``Эн"дŒд ‘XЉ4дСŠСи‚`-46.иС` ` ЙСIn calculating transport investments, HAI 5.0 determines the overall breakdown of traffic per subscriber according to the given traffic assumptions and computes the number of trunks required to carry this traffic. These calculations are based on the fractions of total traffic assumed for interoffice, local direct routing, local tandem routing, intraLATA direct д ‘XЄа4дand tandem routing, and access dedicated and tandem routing.жZMШЄЄЄд yOЖ'д HAI Dec. 11 submission, Model Description at 54.Zж These traffic fractions are applied to the total traffic generated in each wire center according to a mix of business and residential lines and appropriate perЉline offered load assumptions. HAI 5.0 computes the total offered load per wire center for various classes of trunks, e.g., local directЉrouted trunks. If the offered load exceeds the threshold, the computed number of trunks is the quotient of the total offered load divided by the userЉspecified maximum trunk occupancy. If the traffic load is less than the threshold, HAI 5.0 obtains the correct number of trunks using Erlang B д ‘X а4дassumptions and 1% blocking from a lookЉup table.жЇN  XЄЄд yO Ж'д HAI Dec. 11 submission, Model Description at 54. The traffic engineering threshold value is determined from the userЉspecified maximum occupancy value through another table that determines the number of trunks that will carry the specified maximum occupancy at 1% blocking. The threshold value is the product of the input maximum occupancy and the corresponding number of trunks.Їж д ‘Xе Љ4дСŠСи‚`.47.иС` ` ЙСHAI 5.0 assumes that, with some exceptions, all interoffice facilities take the form of a set of interconnected SONET fiber rings. The HAI interoffice network of rings д ‘XЇ а4дconsist of two ring classes: hostЉremote and tandemЉhostЉstandalone.жZOШЇ @ЄЄд yO˜Ж'д HAI Dec. 11 submission, Model Description at 54.Zж If the user invokes the feature that allows hosts and remotes to be specified, host/remote rings are used to interconnect remote switches to their serving host. TandemЉhostЉstandЉalone rings interconnect hosts and standЉalone wire centers to their serving tandem. д ‘X4Љ4дСŠСи‚`/48.иС` ` ЙСTo compute the set of interoffice rings for both hostЉremote and hostЉstand aloneЉtandem configurations, HAI 5.0 begins with a "star" network in which all wire centers are directly connected to their serving tandem via redundant paths. Each wire center is then examined to determine whether it is more advantageous to leave the wire center directly connected to the tandem or incorporate it into a ring. The algorithm used to construct the ring is similar to the algorithm used by the BCPM, except that HAI model adds a node to a ring only if the increase in cost to the ring (which includes both increased distance to attach the new node and increased multiplexing to handle additional traffic on the entire ring) is less than the cost of directly connecting the node to the tandem. Once HAI determines the total interoffice distances, it calculates the costs of installed cable and structure based upon userЊdefined inputs, the mix of different structure types, and the amount of structure sharing д ‘X7а4дbetween interoffice and feeder plant.жNPш7аЄЄд yOИ%Ж'д HAI Dec. 11 submission, Model Description at 56. To account for the structure sharing, HAI determines the smaller of the investment in feeder and the investment in interoffice facilities, and applies the userЉspecified sharing percentage to the smaller value to calculate the amount of shared structure investment. HAI then subtracts this amount of investment from both the interoffice and feeder investment, and reassigns it back to feeder and interoffice investments according to the relative amounts of investment in feeder versus interoffice.Nжд"7:€ Px-'*'*``8"дŒд ‘XЉ4д™СŠСи‚`049.иС` ` ЙСHAI computes signaling links for Signal Transfer Points (STP) to end office tandem "A links" and "C links" between STPs in a mated pair, and "D link" segments connecting the STPs of different networks. All links are assumed to be carried on the д ‘XЛа4дinteroffice rings.жZQШЛЄЄд yO4Ж'д HAI Dec. 11 submission, Model Description at 57.Zж HAI equips at least two signaling links per switch. It also computes required SS7 message traffic according to call type and traffic assumptions. User inputs define the number and length of ISDN User Part messages required to set up interoffice д ‘Xvа4дcalls.жРRvXЄЄд yO Ж'д HAI Dec. 11 submission, Model Description at 57 (Default values are six messages per interoffice call attempts to set up, with 25 octets per message).Рж Other inputs define the number and length of Transaction Capabilities Application Part (TCAP) messages required for database lookups, along with the percentage of calls requiring TCAP message generation. STP capacity is expressed as the total number of signaling links each STP in a mated pair can terminate (default value is 720 with an 80% fill д ‘X а4дfactor).жZSШ АЄЄд yO{Ж'д HAI Dec. 11 submission, Model Description at 57.Zж Signal Control Point (SCP) investment is expressed in terms of dollars of investment per transaction per second. The translation calculation is based on the fraction of calls requiring TCAP message generation. The total TCAP message rate in each LATA is д ‘Xе а4дthen used to determine the total SCP investment.жTе @ЄЄд yOЦЖ'д HAI Dec. 11 submission, Model Description at 58. The default SCP investment is $20,000 per transaction per second.ж д ‘XЇ Ж'дУ УV.СŠСExpensesФ Ф д “XyЉ4дСŠСи‚`150.иС` ` ЙСУУФФIn theУУ Further NoticeФФ, the Commission sought comment on the appropriate assumptions that should be used in the platform design to compute the forwardЉlooking general support facilities (GSF) investment and expenses attributable to the cost of providing д ‘X6а4дthe supported services.ж_UЪ6˜ЄЄд {OЖ'д УУFurther NoticeФФ, 12 FCC Rcd at 18,569 para. 148._ж The Commission also sought comment on how to establish forwardЊlooking expenses in the selected federal mechanism and specifically sought comment on which expenses should be calculated on a perЉline basis and which should be calculated as a д ‘Xёа4дpercentage of investment.жfVЪё* ЄЄд {OЬ Ж'д УУFurther NoticeФФ, 12 FCC Rcd at 18,572Љ18,573 para. 157.fж д ‘XУЉ4дСŠСи‚`251.иС` ` ЙСBoth HAI and BCPM estimate operating expenses and investment in GSF after the models calculate the cost of investment in outside plant, switching and transport. Both models calculate GSF investment as a function of total investment in plant. HAI assumes that certain operating expenses are closely linked to the number of lines, that other expenses are related more closely to the levels of their related investments, and calculates expenses д “XPЉ4дaccordingly, either as a function of related investment or as a function of demand, УУi.e.,ФФ either as a percentage of investment or as a perЉline amount. BCPM permits the user to estimate operating expenses as either a perЉline amount or as a percentage of investment. BCPMд"$;М Vx-'*'*``Šн"д default values are based upon perЉline amounts derived from`a survey of local exchange carriers. д ‘XЛЖ'дСŠСУ УA.С` ` ЙСBCPMФ Ф д ‘XЉ4дСŠСи‚`352.иС` ` ЙСУУФФAfter BCPM calculates the loop, switching, and interoffice plant investment д ‘XvЉ4дneeded for each grid, BCPM's У УФ ФУУФФSupport Plant Module and Operating Expenses Module calculate GSF investment and operating expenses. In addition, the Capital Cost Module develops annual capital cost factors that are applied to the investment categories developed in the other modules. д ‘X Љ4дСŠСи‚`453.иС` ` ЙСBCPM's У УФ ФУУФФSupport Plant Module calculates investment in network support (motor vehicles, special purpose vehicles, garage work equipment, other work equipment) and general support (furniture, office equipment, general purpose computers) by multiplying total investment (excluding support, land, and buildings) by userЉadjustable investment ratios. The default values are based on the historical expenseЉtoЉinvestment ratios for each of the seven investment categories. BCPM permits users to specify different support factors for small, medium, and large companies. BCPM's Switch Module calculates land and building investment using the historical ratio of average land or building investment to central office д ‘XKа4дinvestment.жWXKЄЄд yOФЖ'д Total Network Support is the sum of the following Part 32 accounts: 2112, 2214, 2115, 2116, and 2111 (Land). Total General Support is the sum of the following Part 32 accounts: 2122, 2123, 2124, and 2121 (Buildings).ж д ‘XЉ4дСŠСи‚`554.иС` ` ЙСBCPM's Operating Expenses Module permits users to estimate operating expenses as either a perЉline amount or as a percentage of investment. If a perЉline expense factor is specified, total operating cost for the relevant Part 32 account is a function of the number of access lines. If a percentЉofЉinvestment factor is specified, total operating expense is a function of investment, usually of investment in the relevant account. BCPM permits the user to vary operating expense estimates for small, medium, and large companies and to differentiate between operating expenses related to residential customers and those related to business customers. BCPM also subdivides expense accounts for cable and wire facilities to д ‘XeЉ4дdifferentiate among aerial, underground and buried, copper, and fiber cable.У УФ ФУ УФ Ф д ‘X7Љ4дСŠСи‚`655.иС` ` ЙСBCPM's Report Module estimates universal service support levels by combining investment costs, capital costs and operating expenses to generate monthly costs. BCPM then uses monthly costs to calculate, for a given benchmark, universal service support levels at the grid, wire center, company, or state level. д ‘XФ Ж'дСŠСУ УB.С` ` ЙСHAIФ Ф д ‘X–"а4дСŠСи‚`756.иС` ` ЙСУУФФHAI's Expense Module,жћX’–"шЄЄд {O/(Ж'д УУSeeФФ HAI Feb. 2 submission, Model Description at 64Љ74. HAI 5.0a contains four Expense Modules in order to allow the user to display results by line density range, by wire center, by CBG, or by cluster.ћж after receiving from the other HAI modules all theд"–"<BXx-'*'*``ѕ "д network investments, by type of network component necessary to provide unbundled network elements (UNEs), basic universal service, and network interconnection and carrier access in each study area, estimates the capital carrying costs associated with the investments and the costs of operating this network. Network related operating expenses include maintenance and network operations. NonЉnetwork related operating expenses include customer operations expenses, general support expenses, other taxes, uncollectibles and variable overhead expenses. д ‘XHЉ4дСŠСи‚`857.иС` ` ЙСPlantЉspecific networkЉrelated operations expenses are primarily maintenance expenses, and HAI calculates these as functions of their associated capital investments. HAI uses historic expense ratios calculated from balance sheet and expense account information reported in each carrier's ARMIS report. These expense ratios are applied to the investments developed by the Distribution, Feeder, and Switching and Interoffice Modules to derive associated operating expenses. NonЉplant specific expenses, such as network operations, on the other hand, are calculated in proportion to the number of access lines supported. HAI д “XЇ Љ4дestimates direct networkЉrelated expenses (УУi.e.,ФФ network support, central office switching, central office transmission, cable and wire, network operations) for all UNEs and these operating expenses are added to the annual capital carrying cost to determine total expenses associated with each UNE. HAI then uses specific forwardЉlooking expense factors to calculate the forwardЉlooking cost of these expenses. HAI derives the forwardЉlooking expense factor for digital switching and for central office transmission equipment from a New д ‘Xа4дEngland Telephone cost study.жTY\ЄЄд {O˜Ж'д HAI Feb. 2 submission, Model Description at 70 n. 69 (УУФФУУcitingФФ New England Telephone, УУФФУУ1993 New д {Obœ'дHampshire Incremental Cost Study,ФФ Provided in Compliance with New Hampshire Public Utility Commission Order Number 20, 082, Docket 89Љ010/85Љ185, March 11, 1991.Tж HAI computes a forwardЉlooking network operations value based on the corresponding ARMIS value. HAI computes total network operations expense as a perЉline additive value based on the ARMISЉreported total network operations expense divided by the number of access lines and deducts a userЉadjustable 50 percent of the resulting quotient to produce a forwardЉlooking estimate. д ‘X•Љ4дСŠСи‚`958.иС` ` ЙСHAI assigns nonЉnetwork related expenses to each density range, CBG, or wire center (depending on the unit of analysis chosen) based on the proportion of direct expenses (network expenses and capital carrying costs) for that unit of analysis to total expenses in each category. To calculate corporate overhead, HAI applies a userЉadjustable 10.4 percent д “X9Љ4дvariable support factor to the total costsУУФФ (УУi.e.,ФФ capital costs, networkЉrelated operations expenses and nonЉnetwork related operating expenses) estimated for unbundled network elements, as well as basic local service. To calculate investment for furniture, office equipment, general purpose computers, buildings, motor vehicles, garage work equipment, and other work equipment, HAI uses actual 1996 company investments to determine the ratio of investments in these categories of investment to total investment. The ratio is then multiplied by the network investment estimated by the model to produce the investment in general support equipment. The recurring costs ЉЉ capital costs and operating expenses ЉЉ of these items are then calculated in the same way as the recurring costs of other network components. A portion of general support costs is assigned to customer operations and corporate operationsд"l$=ьYx-'*'*``Џ"н"д according to the proportion of operating expenses in these categories to total operating expenses reported in ARMIS data. The remainder of costs is then assigned directly to UNEs. To calculate uncollectible revenues, HAI uses the ratio of uncollectible expenses to adjusted net revenue and applies a retail uncollectible factor to basic local telephone monthly service costs and uses a wholesale uncollectibles factor in the calculation of UNEs. д ‘XvЉ4дСŠСи‚`:59.иС` ` ЙСHAI bases the costs for basic local service on the cost of the UNEs constituting д “X_Љ4дthis service, УУi.e.,ФФ the loop, switch line port, local minutes portions of end office and tandem д ‘XJа4дswitching, transport facilities for local traffic, and the local portions of signaling costs.жЕZ’JЄЄд {OУ Ж'д On an optional basis, the usage sensitive cost of switched access use can be included as well. УУSeeФФ HAI Feb. 2 submission at 73 n.70.Еж In addition, HAI includes costs associated with retail uncollectibles, variable overheads, and certain other services required for basic local service, such as billing and bill inquiry, directory listings, and number portability costs, which are estimated on a perЉline basis. The model user can select the portions of nonЉtraffic sensitive UNEs to include in the supported basic local service. Specifically, the user can vary the proportion of total expenses that are assigned to loop network elements (i.e., network interface device, distribution, concentration, and feeder) based either on relative number of lines or on the relative amount of investment. HAI includes a worksheet that breaks out investments and expenses by Part 32 accounts for comparison purposes д ‘XMЉ4дСŠСи‚`;60.иС` ` ЙСTo calculate universal service support amounts, HAI compares the monthly cost per line in each density range, wire center, CBG or cluster to userЉadjustable benchmark monthly costs for local service. If the cost exceeds the benchmark, HAI calculates the total required annual support according to the number of primary residential lines, secondary residence lines, single line business lines, or public lines by density range, wire center, CBG or cluster. д"Ќ>"Zx-'*'*``™н"д д ‘XЖ'дг  гг@A-@гаадќ^ дУ УгZгSTATEMENT OF COMMISSIONER дˆьдаад\АдаааадАО дHAROLD FURCHTGOTTЉROTH DISSENTING IN PART дˆьдаад\Ад д “VЛЉ4дФ ФУУRe:ТXŠТForwardЉLooking Mechanism for High Cost Support for NonЉRural LECsФФУУ; Ц(#Ц СŠС(CC Docket Nos. 96Љ45, 97Љ160). д ‘XЉ4дФФ д ‘XvЉ4дУ УФ ФСŠСI want to express my appreciation to the staff who have worked so diligently to produce this internal model. I agree that this model has many benefits over either of the two industry submitted models, and I congratulate those involved for creatively incorporating the best aspects of both proposals. СŠСToday, the Commission takes the next step in its plan to determine, from here in Washington, D.C., the total cost of providing service to every high cost resident in the country and then use that estimate to determine the total amount of high cost universal service support that should be needed to ensure service to everyone. I question whether the Commission can use such a hypothetical model to determine the cost ЉЉ whether actual or forwardЉlooking ЉЉ of providing service to every individual, including those located in the remotest regions of our country. Moreover, I object to using a model to determine the total federal universal subsidy that is now needed or to distribute that subsidy among the states. Using a model for either of these purposes, as the Commission seems intent on doing, conflicts with the Telecommunication Act's mandate that we "preserve and advance" universal service and contradicts the Commission's promise to Congress last spring to the hold the States harmless ЉЉ i.e. guarantee that the adoption of a new federal universal service subsidy scheme would not result in any state receiving "less total interstate universal service support д ‘Xиа4дthan is currently provided through aggregate implicit and explicit federal subsidies."ждиЄЄд ’YQЖ4дб#XwЯОІ PьE37ћ Н|XP#бСŠСУУFederal State Joint Board on Universal ServiceФФ, CC Docket 96Љ45, April 10, 1998 д Y<Љ4дReport to Congress, FCC 98Љ67, at para. 197.б# єxў6X@ЩЙ`7ћ ОX@#бж For these reasons, I dissent in part from today's Order. д ‘XЊЉ4дУ УФ Ф СŠСI question, however, not that the model adopted today is superior to either model originally proposed, but the Commission's purpose in adopting a model at all. Indeed, as one fellow economist explained to me the other day, "but the model is good at evaluating relative costs" ЉЉ i.e. whether it costs more to provide service to residents of rural Montana than to residents of Minneapolis or even downtown Missoula ЉЉ "even if the model is not as good at determining absolute costs" ЉЉ i.e. how much it actually costs to provide service to a resident in either rural Montana or downtown Missoula. The problem is that it is the latter purpose ЉЉ determining an absolute cost of providing service to these areas and basing federal support on some percentage of that amount ЉЉ for which this agency seems intent on using the models. СŠСI am also concerned about adopting this model before the Joint Board has made its final recommendation. The issues related to the use of explicit federal universal serviceд"Q%?dx-'*'*``Œ#н"д support to reduce implicit federal support was raised in a request by the state Joint Board members and has been referred back to the Joint Board for further consideration. That issue seems necessarily to implicate the adoption of any model. СŠСI fear that we are being requested to focus on the minute details of one possible solution without stepping back to consider the simple outlines of a broad range of possible solutions. In particular, I fear that we are now focusing narrowly on how to apply a specific model to determine the total highЉcost support needed for nonЉrural telcos and how to allocate that amount between carriers or States when we have not even addressed the simple question of whether any model at all is necessary, or indeed even advantageous. Moreover, we seem to be focusing on how to improve the existing allocation of funds by giving more to some firms in some States and less to others thereby creating "winners" and "losers" when we could be making practically all consumers a "winner" by changing the way by which we raise funds. My reflections on these issues lead me to some tentative conclusions: ТXŠТ1. We do not need a federal model either to size or to allocate a fund for nonЉrural highЉcost carriers, nor is one advantageous; Ц(#Ц ТXŠТ2. We should place the federal model in the public domain to allow the States to incorporate StateЉspecific data and to use it as they see fit; andЦ(#Ц ТXŠТ3. We may be better able to improve consumer welfare by focusing on how we collect highЉcost support than on how to reallocate support among existing users.Ц(#Ц д ‘XСЖ4дУ УI.СŠСThe Commission does not need to adopt a federal model.Ф Ф д ‘X“Ж'дСŠСУ УA. The Commission should not adopt a model to distribute the current universal д ‘X|Ж4дservice support dedicated to nonЉrural carriers in highЉcost areas.Ф Ф Current federal universal service support for nonЉrural carriers in highЉcost areas is relatively small by national standards. For the Fourth Quarter of 1998, these funds are projected to be $253 million on an annualized basis, of which $140 million are for Puerto Rico. TwentyЉtwo States plus the District of Columbia, Guam, and the Virgin Islands receive no support. Of the twentyЉeight States that receive support, only two ЉЉ Alabama and North Carolina ЉЉ receive more than $10 million, and average support is much less than $5 million annually. Too much time and resources have been spent on the development of an extremely complicated model if the intent is only to use it to distribute this current amount of highЉcost support. СŠСMoreover, if the size of the federal nonЉrural highЉcost support fund is to remain the same or shrink, a model can only divide an everЉdwindling pie. Any gain from any possible economic efficiency from reallocation ЉЉ and I am skeptical that there are any such gains to be made ЉЉ would likely be substantially outweighed by the political costs associated with a fight between new "winners" ЉЉ States and carriers that would receive more money than before ЉЉ and new "losers" ЉЉ States and carriers that would receive less money than before. д"ѕ(@x-'*'*``ѓ&н"дŒд ‘XЖ'дСŠСУ УB. Unless the Commission breaks its promise to hold the states harmless at their current levels of "aggregate implicit and explicit support," the adoption of a model д ‘XвЖ4дwould only create a larger total amount of federal support.Ф Ф There is ample reason to believe that the overall size of the federal nonЉrural highЉcost support fund cannot easily shrink. Last April, the Commission indicated to Congress that, under new universal programs, we would hold carriers harmless. Specifically, the Commission indicated: ТXŠТ[W]e note that the preЉmay 1997 regulatory scheme created a de facto allocation of responsibility between the Commission and state commissions with respect t support for service to rural and high cost areas. The allocation of responsibility was defined by the separations rules, which placed 25 percent of booked loop costs in the interstate jurisdiction for most of the loop plant used by the nonЉrural LECs. . . . [W]e conclude that a strict, across the board rule that provides 25% of unseparated high cost support to the larger LECs might provide some states with less total interstate universal service support than is currently provided through aggregate implicit and explicit federal subsidies. The Commission will work to ensure that states do not receive less funding as we implement the high cost mechanisms under the 1996 Act. We find that no state should receive less federal high cost assistance than д ‘XKа4дit currently receives.ждKЄЄд ’YФЖ4дб#XwЯОІ PьE37ћ Н|XP#бСŠСУУFederal State Joint Board on Universal ServiceФФ, CC Docket 96Љ45, April 10, 1998 д YЏЉ4дReport to Congress, FCC 98Љ67, at para. 197.б# єxў6X@ЩЙ`7ћ ОX@#бж Ца Ц The plain language of this promise indicates that the Commission would ensure that States did not receive less in federal support than they do currently through explicit universal service funding and implicit support embedded in access charges. Thus, additionally allocating support using the model would allow States to choose the greater of what they would get under the model, or what they previously received through federal explicit and implicit support. СŠСSome here at the Commission argue that all that was promised last spring was to hold д “XeЉ4дthe States harmless as to the current УУexplicit ФФfund. The language quoted above, however, indicates that the Commission's commitment to hold the States harmless goes farther. Apparently, whether this holdЉharmless promise extends just to current explicit federal nonЊrural, highЉcost universal support but not to all implicit federal subsidies will be the subject of semantic games. My impression is that many carriers and States ЉЉ and indeed many Members of Congress ЉЉ believe that universal service programs promulgated by the Commission will hold both carriers and States harmless. Indeed, the statute itself speaks of the "preservation" of universal service, not its reallocation. СŠСStated slightly differently, in the minds of many, highЉcost support can only grow but not shrink. A related result is that if the relative allocation of highЉcost support changes as the result of a cost model, total support can only grow because of the holdЉharmless provisions.д"S%Adx-'*'*``™#н"дŒ™СŠСIf highЉcost support is to increase, I am skeptical that a model that applies only to nonЊrural carriers is practical. If universal service support is to increase, why should it increase only for nonЉrural, highЉcost carriers? Why not rural telcos as well? Or why not lowЉincome households? СŠСIn the end, other than the current allocation, I can see no viable allocation of nonЊrural, highЉcost support that does not raise more troubling questions than answers. Thus, I see no reason to use any cost model if the current allocation will ultimately be used. I fear, however, that the Commission may try to limit its hold harmless commitment to the current explicit universal service support, thereby reducing the total amount of federal universal support ЉЉ at least to some states. I cannot support such an attempt to reduce support when д ‘X а4дthe statute mandates that the Commission "preserve and advance" universal service.ж’щ ЄЄд Y| Ж4дб#XwЯОІ PьE37ћ Н|XP#бСŠС47 USCA section 254б# єxў6X@ЩЙ`7ћ ОX@#б’ж д ‘Xе Ж4дУ УСŠСC. Neither is this cost model the right tool for access charge reform.Ф Ф Some observers have suggested that a cost model may be useful for access charge reform. I fear that the same logical traps that apply to altering the allocation of nonЉrural highЉcost funds apply here as well. There will likely be substantial political consequences if carriers and States are not held harmless relative to current receipts and current expectations of reductions in those receipts ЉЉ based on expectations of future productivity factors. Thus, reallocation of access charges based on a cost model would only result in an expansion of those funds relative to current levels. Again, any proposed expansion of highЉcost support begs the question of why not expand other segments of universal service instead, such as lowЉincome households. In sum, the only viable allocation in the near term will be the current allocation. д ‘XСЖ'дУ УII.СŠСWhat should the Commission do with these cost models? д ‘X“Љ4дСŠСФ ФAs I have explained above, I don't believe that the cost models should be used to either size the universal service fund or to distribute money from the fund among the States. Fundamentally, what this Commission must decide is whether it believes that the current level of federal support (both explicit and implicit ЉЉ including access charges) is sufficient to support universal service. Even if the models can play a helpful role in determining relative costs between high cost and low cost areas, I am concerned that it is an inappropriate tool for determining the absolute cost of service to any particular area. Consequently, I question whether the models can determine the ultimate universal service subsidy needed. At present, I am not convinced that the total federal outlay is in excess of what is necessary; rather, I believe the Commission should hold the States harmless as to the amount that carriers currently receive. Thus, I do not support using the models to determine the size of universal service support. СŠСI do believe, however, that the models can play a valuable role in the debate on universal service. The models are a valuable tool that could be use at the State level to distribute universal service support to carriers within a State. I would support theд":&Byx-'*'*``v$н"д Commission releasing this model to the public, explicitly acknowledging the possible benefits of this model over both of the other proposals. States would then be free to use the federal model platform, modified as they see fit and with as many StateЉspecific inputs as any State feels is appropriate, to distribute universal service funds within a State. СŠСAlong those lines, I also object to this agencies continued efforts to perfect and maintain control of this model at the federal level. As I have described, I am unclear as to what purpose we in the federal jurisdiction can put this tool. While we may have provided a valuable service to states in developing this for their use, we cannot afford to continue to expend the time and resources necessary to further develop and maintain this tool. Especially since its most useful purpose is at the state level with state specific inputs. We should expeditiously seek to provide the model to the States and allow them to perform whatever additional work is necessary to use it as they see fit. д ‘XЇ Ж'дУ УIII.СŠСIt is more important for the Commission to act to improve consumer welfare by д ‘XЖ4дensuring that the universal service burden is not imposed through usageЉsensitive fees.Ф Ф СŠСUp until now, most of the Commission's efforts seem to be focused on either sizing or reallocating universal service support. I believe that the first step in universal service reform should focus on the collection of the universal service subsidy. Some consumers will win and some will lose if we develop new mechanisms to reallocate universal service, but practically all consumers may benefit if we move to a more rational form of collecting universal service fees. д ‘XСа4дСŠСA recent study by Jerry HausmanжжСЄЄд ’Y:Ж4дб#XwЯОІ PьE37ћ Н|XP#бСŠСJerry Hausman, УУTaxation by Telecommunications Regulation: The Economics of the EЊд ’Y%Љ4дRateФФ, (Washington, D.C. AEI Press, 1998).б# єxў6X@ЩЙ`7ћ ОX@#бж illustrates the enormous penalty that consumers pay when universal service is supported by taxes and fees on a usageЉsensitive basis. For example, for every dollar collected on fees assessed on longЉdistance service, such as access charges, consumers lose more than two dollars in welfare. СŠСThe solution is not to broaden the tax base because a broadened tax base, no matter how defined, will still impose usageЉsensitive fees. Instead, consumer would be much better off with a fixed assessment, such as a perЉline charge. This assessment could distinguish between business and residential customers. СŠСThere is ample legal precedent for a federal perЉline charge. The current SLC and PICC are assessed per line. There are several other reasons to use a perЉline charge, which I outline below. СŠС д ‘X#Ж4дУ УСŠСA. Fees must be in exchange for service.Ф Ф The FCC has the authority to levee fees, not taxes. For a payment to be a fee, there should be something tangible received in exchange. We should therefore define precisely those services and conditions thatд"Q%Cfx-'*'*``І#н"д telecommunications carriers (as the direct contributors to universal service) and consumers (as the indirect contributors to universal service) receive from the federal government and the FCC in particular. СŠСI believe that carriers and consumers do receive something from the FCC. In particular, the FCC administers or is responsible for: д ‘X_Љ4дСŠСa.С` ` ЙСNumbering system or addressability of telecommunications; д ‘XHЉ4дСŠСb.С` ` ЙСEnsuring access to an interstate telecommunications network; д ‘X1Љ4дСŠСc.ТА` ` ЙТEnsuring access to an interstate telecommunications network with nodes that have been expanded as the result of universal service (to highЉcost areas and lowЉincome households); and Ц(#` Ц д ‘Xь Љ4дСŠСd.С` ` ЙСFor carriers, a centralized system for the determination of payments. СŠСThere may be other services that the FCC performs, but any service that the FCC provides, I believe, is fixed in cost and is not usage sensitive. That is, the service that the FCC provides a carrier or a customer is the same whether a customer is making a oneЉminute or a oneЉhour interstate call. Consequently, any fee structure that the FCC might consider for universal service should be fixed for the sake of consistency with the fixity of the service provided. Moreover, any usageЉsensitive charge from the FCC, to the extent services provided are not usage sensitive, runs the risk of being a tax. д ‘XЖ4дУ УСŠСB. Federal fees should be consistent with the law. Ф ФThe federal government and the FCC cannot tax intrastate services. Moreover, the FCC has little or no authority to place universal service fees on entities that do not provide telecommunications services. Primary responsibility rests with telecommunications carriers, the same population that may become eligible carriers. д ‘X|Ж4дУ УСŠСC. Fees should be consistent with technology.Ф Ф A rational universal service fee must not only avoid being a tax, but it should also avoid being inconsistent with technology and market developments. Telecommunications markets are evolving rapidly with multiple services available to consumers. Some of these services are provided by telecommunications carriers subject to universal service fees; some services are available from other services. Consumers have opportunities to avoid usageЉsensitive fees by selecting service providers that are not technically telecommunications carriers. To the extent a universal service fee structure is inefficient, it will artificially accelerate the migration of traffic away from telecommunications carriers. СŠСFuture technologies are even more incongruent with usageЉ sensitive access fees. Telecommunications networks may well develop into predominantly packetЉswitched networks in which line access is not a particularly relevant concept. Within these packetЉswitched networks, determining what is interstate and what is not, and determining the identity and purpose of traffic, are impossible tasks. д ‘X (Ж'дУ УФ ФУ УСŠСD. A federal per line fee would ease the universal service burden over time and д ‘Xѕ(Ж4дallow for an easier transition.Ф Ф The number of lines has been growing rapidly in recentд"ѕ(Dx-'*'*``ѓ&ъ"д years. Thus, a flat per line universal service fee would produce increasing revenues every year. If we held the amount of federal universal service subsidy fixed at current levels, the burden that each subscriber carries would decrease each year. In addition, the Commission could consider phasing in the flat fee to take advantage of the growth in the number of lines. Moreover, a flat fee should reduce usage rates, thereby expanding demand for usageЉsensitive services, increasing carrier revenues, and ultimately reducing requirements for universal service support. д ‘X_Љ4дУ УФ Ф д ‘XHЖ'дУ УIV.СŠСConclusionФ Ф д ‘X Љ4дСŠС УУФФThe need to adopt a federal model necessarily means that the Commission is heading down one of three paths, none of which I could support. СŠСFirst, the Commission might not use the model to size or to distribute universal service funding. This is the path I would recommend, and to which I would ask then why do we need to officially adopt a model today and maintain it in the future. This exercise would be an unfortunate use of the Commissions time and resources. СŠСSecond, the Commission could use the model to size and distribute the universal service funds but also fulfill its commitment to hold the states harmless. Such actions, however, would thereby create a larger total federal universal service subsidy. Then I would ask why the rural carriers have not also had the opportunity to gain a larger share of support. СŠСThird, and most likely, the Commission will limit its holdЉharmless promise to the current explicit universal service fund, using the model to size and distribute the new high cost fund and to justify a net reduction in the current federal subsidy flow. In light of this agency's statutory mandate to preserve existing universal service and its own promise to Congress that it would hold the states harmless, I would object to such an attempt. СŠСUltimately, today's Commission action only begs the greater question of the allocation of universal service support between the federal and state jurisdictions, raising more questions about the Commission's direction than it provides answers. д9f%ђз )ЌJ:\APD\HICOST\PLATFORM\APPENA.CUR) з9д