December 10, 2012 - 12:00 pm

Please provide comments to the issue below as part of the 2012 WCB cost model virtual workshop for inclusion in the record. Comments are moderated for conformity to the workshop's guidelines.


The Commission required that the HCPM calculate the average cost of serving lines to at least the wire center level. The USF/ICC Transformation Order requires that the Connect America Phase II cost model be capable of calculating cost "on a census block or smaller basis"—a much more granular level.

Connect America Cost Model: To allocate costs within a census block, the first version of the CACM (CACM v.1) uses a "cost causation" allocation method where the fraction of shared costs is allocated according to the number of customers attached to each line.

In the Model Design Public Notice, the Bureau proposed to model the costs associated with the entire network, and then assign shared costs between eligible and ineligible areas. The Bureau sought comment on the appropriate methodology for allocating costs between these areas. The Bureau noted in the Model Design Public Notice that cost allocations can be problematic, and the "subtractive" method—determining the costs of supported areas by taking the cost of both supported and unsupported areas and then subtracting the cost of the unsupported areas—could be too complicated to calculate. Although some commenters urged the Bureau to adopt the subtractive approach, none have proposed a computationally tractable method for actually implementing such an approach.

A potentially workable approach to the subtractive method may be the following. First, use a cost allocation method like that used in CACM v.1 to define the following three footprints: (1) areas that are commercially viable, (2) areas that are eligible for the Remote Areas Fund, which are too high in cost to be supported through Connect America Phase II, and (3) areas that are eligible for Phase II support. These footprints would be determined by setting two thresholds and using the cost-per-block calculated using the allocation method. Then, using the subtractive approach to calculate the support amount in each area could be relatively straightforward, requiring only two calculations (commercially viable alone and commercially viable + eligible areas).

Depending on the thresholds that are chosen to set the three footprints, the cost of serving eligible areas may exceed or fall short of the $1.8 billion budget once the subtractive method is applied. If this occurs, it would be necessary to use different thresholds to determine the three footprints and re-run the subtractive method.

Questions for Comment

  1. Is there any reason to deviate from a "cost causation" allocation method like that used in CACM v.1 to calculate the support amount in each area?
  2. Should the Bureau adopt the subtractive method proposed above in the final version of the Connect America Cost Model?


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