[Federal Register Volume 62, Number 24 (Wednesday, February 5, 1997)]
[Proposed Rules]
[Pages 5373-5375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2502]



47 CFR Parts 36, 51, 61 and 69

[CC Docket Nos. 96-45, 96-262, and 96-98; DA 97-56]

Implementation of the Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Request for comment on staff analysis of economic cost proxy 


SUMMARY: The Common Carrier Bureau of the Federal Communications 
Commission here seeks comment on

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issues raised by its January 9, 1997 Staff Analysis of economic cost 
computer models submitted in connection with several pending 
proceedings implementing the Telecommunications Act of 1996.

DATES: Comments in response to the Public Notice are due February 3, 
1997,1 and replies are due February 14, 1997.

    \1\ Note: This document was received at the Office of the 
Federal Register on January 28, 1997.

ADDRESSES: Commenters must file an original and four copies of their 
comments with the Office of the Secretary, Federal Communications 
Commission, Room 222, 1919 M Street, N.W., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: David A. Konuch, 202-418-0199 or Brad 
Wimmer, 202-418-1847.

SUPPLEMENTARY INFORMATION: Released: January 9, 1997.

Commission Staff Releases Analysis of Forward-Looking Economic Cost 
Proxy Models

    Comment Date: February 3, 1997.
    Reply Comment Date: February 14, 1997
    1. This past year, the Commission has undertaken proceedings on 
universal service, interstate access charge reform, and local exchange 
competition to overhaul our current regulations in light of the 
Telecommunications Act of 1996. In each proceeding the Commission has 
examined the use of cost proxy models as a regulatory tool to estimate 
forward-looking economic costs of providing telephone service. Today 
the Commission Staff released a staff analysis intended to stimulate 
discussion of criteria for the evaluation, and use, of forward-looking 
cost proxy models in determining universal service support payments, 
cost-based access charges, and interconnection and unbundled network 
element pricing. The Common Carrier Bureau (``Bureau'') here is seeking 
comment on the issues raised in the paper. The record gathered in 
response to this paper may at a future date be associated with the 
official record of certain pending rulemakings to which it may be 
relevant and may be used to support Commission determinations in those 
rulemakings. These rulemakings are Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45, Access Charge Reform, CC Docket 
No. 96-262, and Implementation of the Local Competition Provisions of 
the Telecommunications Act of 1996, CC Docket No. 96-98.
    2. The staff's analysis begins with a methodological discussion of 
the criteria for evaluating an economic cost model. These criteria 
include: (1) Adherence to a forward-looking costing methodology; (2) 
the ability to measure the cost of a narrowband network; (3) 
consistency with independent cost evidence; (4) potential for 
independent evaluation of model algorithms and input assumptions; and 
(5) flexibility to vary user input choices. The Bureau seeks comment on 
these design criteria, and other issues, including whether a proxy 
model should estimate the cost of a network capable of delivering 
broadband services as well as traditional narrowband services. In 
commenting on the above issues and any others that commenters regard as 
useful in evaluating the models, commenters should identify the 
criteria they believe are the most important and the basis for their 
position. Further, commenters should discuss whether and to what extent 
the models in the record, or any models submitted subsequently, satisfy 
these criteria.
    3. The paper also contains a detailed analysis of the structure and 
input requirements of existing proxy models. With regard to model 
structure, the paper examines various issues including: (1) The use of 
existing local exchange carrier wire centers; (2) the geographic unit 
of analysis used by model proponents in designing their networks; (3) 
the specification of demand for business and special access lines; and 
(4) the specification of network elements included in a model and the 
services those elements are capable of providing. The paper also 
analyzes the engineering assumptions made by existing models submitted 
in one or more of the rulemakings listed above in determining levels of 
forward-looking investment, with particular attention directed to 
feeder and distribution routes, fill factors, investment in structures, 
and switching investment. Finally, the paper considers those models' 
treatment of capital expenses, operating expenses, and joint and common 
costs. Commenters should use this analysis as a basis for their 
comments on existing proxy models. For instance, do the models include 
loop plant investment sufficient to meet demand? In addition, based on 
its analysis thus far, the Commission staff believes that varying any 
one of a number of input factors of the models, such as the cost of 
capital or the depreciation rate, may greatly affect the resulting 
prices or support payment amounts. The Bureau seeks comment on this 
view, and on which inputs are most critical to the soundness of the 
prices generated by the models. Should the Commission take steps to set 
specific inputs such as depreciation rates, capital costs, treatment of 
taxes, joint and common costs, and expenses, and, if so, how?
    4. The staff's analysis attempts to identify the modeling 
assumptions and inputs that are most likely to have a significant 
impact on estimated costs. Where appropriate, commenters should 
indicate whether they agree or disagree with this analysis. In the case 
of model input choices, commenters can, if desired, recommend either 
specific input values or specific methodologies that could be used to 
select an appropriate input. In some cases, the staff analysis 
indicates areas in which alternative modeling approaches would be 
desirable, and commenters are asked to describe in detail such 
alternatives whenever possible. While commenters are invited to address 
any aspect of existing or future proxy models, particular attention 
should be paid to the following areas identified in the staff analysis: 
(1) The appropriate choice of fill factors and the treatment of 
structure costs; (2) methodologies for determining the appropriate 
forward-looking cost of capital and rate of depreciation; (3) 
alternative methodologies that models could use to estimate forward-
looking operating expenses; and (4) sources of independent evidence 
that could be used to choose model inputs and verify model outputs.
    5. The staff's analysis also considers several questions about the 
potential uses of models in pending proceedings on universal service, 
access reform and element pricing. For instance, could a single model, 
or combination of models, be used for multiple regulatory objectives, 
i.e., in determining cost-based access charges as part of a 
prescriptive approach to access reform and in setting both 
interconnection and unbundled element prices and universal service 
support levels? The Federal-State Universal Service Joint Board has 
already recommended that the models before it undergo refinement before 
they may be used to set universal service support levels. Similarly, 
the staff's analysis suggests that each of the models would need to be 
modified before it alone could be used to set cost-based access charges 
or to estimate network facilities' costs, and the Bureau seeks comment 
on this view. As an alternative to choosing a single model or set of 
models, could a hybrid model be developed that would employ the most 
successful features and assumptions contained in individual models? The 
Bureau also seeks comment on the different design assumptions that 
commenters believe can or should be

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used in models used for different purposes. For instance, commenters 
that believe the modeling of the economic cost of providing network 
facilities or access costs can or should differ from the modeling of 
the economic costs of providing the services receiving universal 
service support should describe their reasons, including in part the 
differences in network investments required. Specifically, they should 
identify any costs included in unbundled elements that are directly 
attributable to unsupported services. More broadly, the Bureau seeks 
comment on whether the various inputs to the models, such as rate of 
return and depreciation, can or should differ for these different 
    6. The Bureau looks forward to receiving comments and working with 
all interested parties in developing reasonable approaches to using 
economic cost models as tools in resolving the various critical 
telecommunications policy issues described above. The comments should 
be filed on or before February 3, 1997, with reply comments due 
February 14, 1997. Commenters must file an original and four copies of 
their comments with the Office of the Secretary, Federal Communications 
Commission, Room 222, 1919 M Street, N.W., Washington, D.C. 20554. 
Comments should reference CPD Docket No. 97-2. Commenters should send 
one copy of their comments to the Commission's copy contractor, 
International Transcription Service, Room 140, 2100 M Street, N.W., 
Washington, D.C. 20037. Comments will be available for public 
inspection during regular business hours in the FCC Reference Center, 
Room 239, 1919 M Street, N.W., Washington, D.C. 20554.
    7. Parties are also asked to submit comments on diskette. Such 
diskette submissions would be in addition to and not a substitute for 
the formal filing requirements addressed above. Parties submitting 
diskettes should submit them to Wanda M. Harris, Competitive Pricing 
Division, Common Carrier Bureau, 1919 M Street, N.W., Room 518, 
Washington, D.C. 20554. Such a submission should be on a 3.5 inch 
diskette in an IBM compatible format using WordPerfect 5.1 for Windows 
software in a ``read only'' mode. The diskette should be clearly 
labelled with the party's name, proceeding, and date of submission. The 
diskette should be accompanied by a cover letter.

List of Subjects

47 CFR Part 36

    Communications common carriers, Telephone, Uniform System of 

47 CFR Part 51

    Communications common carriers, Telephone.

47 CFR Part 61

    Communications common carriers, Tariffs, Telephone.

47 CFR Part 69

    Access charges, Communications common carriers, Telephone.

Federal Communications Commission.

William F. Caton,
Acting Secretary.
[FR Doc. 97-2502 Filed 2-4-97; 8:45 am]