BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554 APR 1 2
In the Matter Of
CC Docket No. 80-286
CC Docket No. 96-45
COMMENTS OF ITCS, INC. IN RESPONSE TO THE COMMISSION'S
NOTICE OF PROPOSED RULEMAKING AND NOTICE OF INQUIRY
Amendment of Part 36 of The
Commission's Rules And
Establishment of a Joint Board
April 12.1996
David A. Irwin
Irwin, Campbell & Tannenwald, P.C.
1730 Rhode Island Ave., N.W.
Washington. D.C. 20036
(202) 728-0400
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
In the Matter Of
Amendment of Part 36 of The
Commission's Rules And
Establishment of a Joint Board
CC Docket No. 80-286
CC Docket No. 96-45
COMMENTS OF ITCS, INC. IN RESPONSE TO THE COMMISSION'S
NOTICE OF PROPOSED RULEMAKING AND NOTICE OF INQUIRY
GENERAL ISSUES RELATING TO HIGH-COST ASSISTANCE
ITCS. Inc.. an economic cost consultant to independent telephone companies serving
America's great rural hinterland. by Counsel, on behalf of Chariton Valley Telephone
Company, Columbine Telephone Company. Cunningham Telephone Company, ETEX
Telephone Cooperative, Filer Mutual Telephone Co. - Idaho, Filer Mutual Telephone Co. -
Nevada, Mokan Dial, Inc. - Kansas, Mokan Dial, Inc. - Missouri, South Central
Telecommunications of Kiowa, South Central Telephone Association - Kansas, South
Central Telephone Association -Oklahoma, Tri-County Telephone Association, Inc., TCT
West. Inc. and Wiggins Telephone Association, respectfully comment as follows':
Each of the above-listed telephone companies serve very rural, remote and sparselv
populated areas. In each case, these telephone companies initiated service after 1950 and the
initiation of service to the public was made possible bv virtue of governmental policies
promoting Universal Service.
Introduction: Universal Service Funding has Worked Historically: Because the
Commission has historically sought to promote and protect Universal Service in rural areas
through the Universal Service Fund ("USF") and the dial equipment minute ("DEM")
weighing support mechanisms, rural Americans have benefitted from new and improved
service. Indeed, the manner in which the United States has achieved and maintained
Universal Service is envied in both developed and developing nations. But. promoting and
protecting Universal Service has become considerably more difficult in today's era of
competition and advancing telecommunications technologies and applications.
In the context of modernizing Universal Service policies, the Telecommunications
Act of 1996 requires the FCC to undertake a very fine balancing act. On the one hand the
Act was passed to promote competition in all markets including local exchange telephone
services. On the other hand, Congress sought to craft it legislation to require the FCC to
maintain and indeed promote Universal Service. It is notable that the Act was drafted in this
manner because it recognizes that when competition was introduced into the rail. bus and
airline industries. rural areas lost out. Instead of rural areas gaining through the process of
competition these important infrastructure industries dried up or left the public with onlv
token service. Consequently, the FCC does not have the option of willv nilly forgetting
about the historic effects of competition on rural, insular and high cost areas under the
Telecommunications Act of 1996. This is so. because Congress charged the FCC with the
difficult responsibility of reconciling diametrically opposed economic principles. Put
another way, Congress makes clear that Universal Service is socially beneficial, but the fact
of life is that it mav not be economically beneficial to the service provider in the absence of
USF support.
It is in this context that Commentors submit, that the likelihood of competitors
coming into rural exchange areas, makes it ever more important that there be adequate
industry, support mechanisms to ensure that vital telephone services in rural America remain
affordable to the public and at rate levels that are reasonably comparable to rates charged for
similar services in urban areas. It is the public. not the incumbent LECs nor the would-be
competitors that the FCC is charged to protect through Universal Service support.
The Telecommunications Act of 1996 provided for some novel and interesting
concepts for Universal Service. The concepts of "quality service" is interesting, but
undefined. "Quality service" can only be realized when a company is dedicated to quality.
In rural. insular. and hiah cost areas. such quality comes onlv at a premium to the service
supplier. But. ostensibly. this is the price competitors were willing to pay for the opportunity
to bring competition to the local exchange under the Telecommunications Act. Therefore.
there should be no qualms about the FCC implementing the Act in totality. Thus, it is
incumbent upon the FCC to insure that "quality service" continue in areas that currently have
it, further to ensure that areas that do not have such service be provided with it in the future.
It is a known fact that cellular service does not provide the same clarity of
conversation as we have come to enjoy from landline telephony. Does cellular service
therefore constitute service of inferior quality? It is also a fact that the United Telephone
Company and US West, two large company proponents of the Census Block Group Plan,
have a reputation for poor service in rural. insular and high cost areas. And, isn't it ironic
that these two known service quality abusers (even under rate of return regulation) would
now propose a system (Census Block Group Plan) that would compensate them for providing
service in name only, -- allow them to receive revenues under the Census Block Group Plan
without requiring them to invest monev into areas that want for quality service. There is
public record that these companies have been perverting the system under rate of return
regulation bv not investing in the rural areas; and now thev propose to debauch a new svstem
-- Census Block Groups -- to milk their service areas to enhance their bottom lines until their
rural exchange areas become devoid of telephone service. Given the track record of these two
companies and their modem day "competitieve mindset," it is fair to conclude that they have
little or no intent to rebuild the decrepit telephone plant in their rural areas, but rather Just to
collect USF for as long as possible. In contrast, the independent telephone companies that
have spent a lifetime of hard work and reinvested their earnings in providing "quality
service" in the rural. insular and high cost areas, would be required to live with some
arbitrary and irrelevant estimate of the cost of providing service, which in the small high-cost
areas they serve mav leave the public disadvantaged. Consequently, Commentors submit
that it is imperative that anv USF funding be cost based, so that service providers become
obligated to first install the plant as a condition precedent to receiving anv USF.
Commentors further submit that surrogate funding such as the Census Block Group Plan
inherently does not require a commitment to service (rather it would promote abuses); in fact
it would destroy Universal Service contrary to the intent of the Telecommunications Act of
1996.
The concepts of "affordability." "rates that are reasonably comparable to rates
charged for similar services in urban areas" and "a provider of ... services shall provide such
services to its subscribers in each State at rates no higher than rates charged to its subscribers
in an,,, other State" require a different wav of approaching and calculating Universal Service
Funding. The current svstem falls short in providing the proper base for developing the
underlying rates and the Census Block Group Plan does not accurately estimate the true
amount of funding required to maintain Universal Service. These concepts require that the
costs of the underlying purchased services. access charges and wholesale rates for resold
services also be priced to be affordable and at "rates that are reasonably comparable to rates
charged for similar services in urban areas". This concept is critical. When the access
charges and wholesale rates for resold services are at a level that does not permit
"affordability" or "rates that are reasonably comparable to rates charged for similar services
in urban areas" and these are requirements that must be adhered to. the competitive providers
will not provide service in these areas. It is just economics. At that point one of two things
will happen. the service will be provided above "affordable" or "reasonably comparable
rates" which is contrarv to the letter as well as the intent of the Act, or in the alternative the
service will not be provided at all which is also contrarv to the letter and spirit of the Act.
The concepts of "affordability," "rates that are reasonably comparable to rates charged for
similar services in urban areas" and "a provider of .. services shall provide such services to
its subscribers in each State at rates no higher than rates charges to its subscribers in anv
other State" can only be implemented when the underlying service provider receives the
Universal Service Funding from a source that takes into consideration all of the factors that
cause high costs. This information only, resides at the interstate level and more specifically
at NECA. Should the Universal Service Fund be other than totally interstate, then we would
have to deal with the issue of average state costing. States such as Wvoming. North Dakota
and South Dakota with low densities. would have much larger statewide average costs than
would states such as New Jersey and Rhode Island. How could there be "rates that are
reasonably comparable to rates charged for similar services in urban areas" utilizing onlv
state universal service fund data instead of an interstate universal service fund or in the
alternative utilizing a combination of a state and interstate universal service fund. Utilizing
both a state and interstate universal service funds would make "rates that are reasonably
comparable to rates charged for similar services in urban areas" and from State to State
nearly impossible to implement.
To implement the Act changes are required in the current system. The current svstem
of DEM Weighting and Gross Allocator leaves the companies in rural insular and high cost
areas with access rates at two to five times the access rates of their counterparts in urban
areas in both the interstate and intrastate jurisdictions. The Census Block Group Plan does
not provide for underlying access rates that "... are reasonably comparable to rates charged
for similar services in urban areas" because the Plan cannot accurately predict the cost of
providing service in every Census Block Group. For small companies in rural. insular and
high cost areas, where the Census Block Group Plan underestimates the amount of USF, it
would have a devastating effect on the incumbent provider. And, because there would not
be sufficient funding, no other provider would be willing to provide service and Universal
Service would be destroyed, contrary to the provisions of the 1996 Act.
The current system is lacking and unable to resolve these issues for the follow-
ing reasons:
1. USF is calculated independently of the Cost Study. Therefore. the total of USF and the
Cost Study revenues seldom if ever equal one. They almost alwavs equal less than one
or more than one. This type of scenario allows for "gaming the system.
2. The current USF funding mechanism is calculated to leave rural. insular and high cost
areas with high costs and rates that are higher than the nationwide average. because the
support does not start flowing until costs are greater than 115% of the nationwide
average.
3. The current USF funding mechanism also has a two vear delay in providing funding
for new investment.
4. The current Dial Equipment Minute weighting factor is a form of Universal Service that
leaves the rural. insular and high cost areas with very high access rates because it
allocates the most of the switch revenue requirement to the access area and not to a
separate fund.
5. The current transport allocation method does not take into consideration the high cost of
providing transport in rural, insular and high cost areas. 1 1
6. The current system does not consider the fact that rural subscribers use only about one
half to two thirds of the minutes per access line per month that are utilized on a
nationwide average basis, because rural subscribers generally have verv small local
calling areas. So even if the cost per access line were exactlv the same the cost per
minute of use would be double the cost per minute of use in urban areas. This issue must
be addressed under the new Act.
The Census Block Group methodology is lacking, and unable to resolve these issues for the
following reasons:
1. The Census Block Group methodology promotes "gaming the svstem". A companv has
only to be the provider of service to get Universal Service Funding. Such funding is
based on the amount of funding for each access line in the Census Block. not on the true
cost of providing the service nor on the dedication to quailty of service. Currently. it
takes an abnormal amount of time first to define the lack of "quality service" and then
to institute action to require additional investments. During all this time the Census
Block Plan would provide additional funding for the incumbent provider, whereas under
a cost based plan the incumbent would only get paid on the investments made. Those
Census Blocks that have sufficient cost built in will have a potential for a large number
of service providers while those Census Blocks that have less than sufficient cost built
into their Census Blocks will not draw a competitor and will tax the existing provider.
Carrying this a step further. within a Census Block, the provider will serve those
customers that are closest to the backbone cable (where the greatest profits are found)
and be more reluctant to provide service to the area furthest from the backbone cable (the
lower profitability). At least under a cost based svstem there is an incentive to provide
service to the subscribers on the outer fringes of the serving areas.
The Census Block Plan does not take into consideration the usage per access line that is
so essential to "rates that are reasonably comparable to rates charged for similar services
in urban areas."
Set forth below, Commentors propose a "Per Minute of Use Universal Service Plan"
that, if adopted, would allow for implementation of everv aspect of Section 254 of the
Telecommunications Act of 1996.
Specifically, the Plan allows for:
(1) Quality services being available at just, reasonable and affordable rates;
(2) Access to advanced services;
(3) Customers in all regions of the Nation including low-income consumers and those
in rural, insular and high cost areas havina access to telecommunications and
information services;
(4) All telecommunications services should make an equitable and nondiscriminatory
contribution to the preservation and advancement of universal service;
(5) Specific, predictable and sufficient Federal and State mechanisms to preserve and
advance universal service;
(6) Access to advanced telecommunications services for schools, health care, and
libraries;
(7) Rates that are reasonably comparable to rates charged for similar services in urban
areas;
(8) Competitively and technology neutral assistance; and
(9) A method to promote toll and resale competition in rural areas while maintaining
the monopoly efficiencies of low densitv rural, insular and high cost areas.
Plan Summary
THE PER MINUTE OF USE UNIVERSAL SERVICE PLAN
THE PLAN AND THE SOLUTION
Establish a High Cost Fund for Low Usage/Density Common Line, Switching
and Transport Facilities.
I This plan establishes a level playing field that will promote competition in
rural areas.
This plan is usacye sensitive in that the higher the usage per access line the
lower the dependency on a Universal Service Funding- Mechanism. That is,
as usage goes up, the requirement for USF goes down.
3. This plan eliminates all other types of support such as Long Term Support,
DEM Weighing, RIC Charges. etc., except for Lifeline and Link-Up.
4. This plan helps maintain Nationwide Average Toll and Local Rates between
companies and regions because it provides for underlying rates that are
reasonably comparable to rates charged for similar services in urban areas.
Further. resultant lower access charges will promote robust IXC competition
for rural markets.
This Plan would applv to Rate of Return regulated companies and all companies
utilizing the current Jurisdictional Separations. Part 36 and could be adapted to rural areas
of price cap LECS. The Universal Service Fund would be calculated on a current basis.
along with the cost studv and would have to be trued up as part of the cost study. Funding
for the Universal Service Fund would be similar to the funding for the Telephone Relay
Svstem. From a Separations standpoint there are a few changes that would have to be made.
These are:
1 . Add an additional column to the cost separation output for the Universal
Service revenue requirement. This would be in addition to the current
Interstate, Intrastate and Local Jurisdictions.
2. Switching gross investment within the national average gross investment per
loop (or some percentage thereof) adjusted for usage would be allocated
jurisdictionally based on Switched Minutes of Use (SMOU) except for
switching investment allocated to Universal Service. SMOU uses the same
basic data as Subscriber Line Usage (SLU) except that it uses onlv one
switching minute of use for each local minute as compared to SLU that uses
two subscriber line minutes for each local minute. Switching gross
investment over the national average aross investment per loop (or some
percentage thereof) adjusted for usage would be directly assigned to the
Universal Service Jurisdiction.
Common Line gross investment within the national average gross investment
per loop (or some percentage thereof) adjusted for usace would be allocated
on the various jurisdictions based on SLU. except for Common Line
investment allocated to Universal Service. Common Line -ross investment
over the national average cross investment per loop (or some percentage
thereof) adjusted for usage would be direct]-,, assigned to the Universal
Service Jurisdiction.
4. Transport cross investment would include, Host/Remote. Exchange Trunk,
and interexchange Transport Facilities. Transport gross investment within the
national average gross investment per loop (or some percentage thereof)
adjusted for usage would be allocated to the various jurisdictions based on
actual usage bv investment type except for transport investment allocated to
Universal Service. Since transport has three different types of investment.
the usage in the cost study (for allocation on usage) would be proportional to
the total (i.e. Host/Remote Cable and Wire Facilities (C&WF) is 43% of total
transport facilities. then Host/Remote C&WF allocated on actual usage in
the cost studv would be 43% of the National average transport gross
investment per loop. Transport -ross investment over the national average
gross investment per loop (or some percentage thereof) adjusted for usage
would be directlv assigned to the Universal Service Jurisdiction.
5. Wideband Facilities (T1 and areater for Special Access). Wideband
Facilities investment within the national average gross investment per loop
would be allocated to the various jurisdictions based on actual usage except
for transport investment allocated to Universal Service. Wideband Facilities
gross investment over the national average gross investment per loop would
be directly assigned to the Universal Service Jurisdiction.
6. The Service Order Processing Charge would be allocated to all Jurisdictions
on the basis of SLU rather than being directly allocated to the Local
Jurisdiction. The Service Order Processing Charge benefits all jurisdictions
for new services and terminations of current service. Therefore. it is
inappropriate to allocate the full cost of Service Order Processing to local.
Further, cost per minute amounts are skewed to local if Service Order
Processing is allocated 100% to local.
Asset contra accounts and all expenses would continue to be allocated to the various
jurisdictions including Universal Service on the same basis (gross investment) and in the
same manner as thev are todav.
s shown below. NECA would develop the nationwide average gross investment per
access line for Common Line. Switching and Transport Facilities. These calculations
would be performed by- NECA. who would have access to this information on an annual
basis.
Total Nat'l Total LoopsAvg Cost
Investment (Incl. Spec Acc)Per Loop
Nat'l Acct 2210 $ 56,830,864,000 140,745,396$ 40'.78
Nat'l Acct 223O Cat 4.13 $ 18,890,878,000 14-').426.250$131.71
Nat'l Acct 1-410 Cat I.-', $ 109,076,807,000 14'.426,250$760.51
Nat'l Acct 22')O Transport $ 26,770,572,000 14').426.'-)50$186.65
Nat'l Acct '-)410 Transport $ 1').134.741,000 14').426.250$91.58
Total $ 1,5 74.2' )
(,Source: 199') NECA Data)
As shown beioA,, each companv would develop average costs per access line for
Common Line. SwitchinL- and Transport Facilities.
Co A Acct '-2 1 0 1,167.13 72.53')$ 460.77
Co A A cc t 2'-! '@ 0 Cat 4. 1 9').')972,567$ ')6.-')8
Co A Acct 241 0 Cat 1.3 3,543,764'-'. 5 6 7$ 1@'80.51
Co A Acct @-'-30 Transport $117,0942,567$45.61
Co A Acct @-41 0 TransportS1-@').4@-1--1,567$59.77
Total$5.074.81') $ 1,983.04
Co B Acct -21 0$')29.799650$507.38
Co B Acct 2-.' ) 0 Cat 4. 1 $19,129662$28.90
Co B Acct 241 0 Cat 1.3 $681,8966 6'-)$1,030.05
Co B Acct 2230 Transport $111,921662$169.06
Co B Acct 24 1 0 Transport $ 7.'-' ') 1662$ 56.'-)4
Total 1,179,976 $ 1.791.6' )
As shown below. develop the national averace usage per access line for switching
and circuit equipment using Switched Minutes of Use (SMOU) for switching and Subscriber
Line Usage (SLU) minutes of use for Common Line Equipment and appropriate usaee
factors for other equipment. These calculations would be performed by NECA. who would
have access to this information.
SLU Minutes of Use Total Loops Avg Ann Usage
Per Loop
Interstate 386.619.574.000
Intrastate 317,642.293.OOO
Local 1,949,477.731.000
Total 2,653,739,598,000 140.745.396 1 8.855
SMOU Minutes of Use Total Loops Avg Ann Usage
Per Loop
Interstate 386,619,574,000
Intrastate 317,642,293,000
Local 974,738,865,500
Total 1,679,000,732,500 140,745,396 11,929
Transport Minutes of Use Total Loops Avg Ann Usage
Per Loop
Interstate 386,619,574,000
Intrastate 17,642,293,000
Local 584,843,319,300
Total l,289,105,186,3OO 140,745,396 9.159
(NOTE: Local Transport Minutes - Extended Area Service - are assumed to be 60%
of SMOU or 30% of SLU minutes of use.)
As shown below. the average SLU and SMOU usage per company access line
1 is
developed on an individual company basis. Next. develop the company's percentage of
averacge usage per subscriber to the nationwide average usage per subscriber. The percent
developed will be used to adjust the company cost per loop for usage.
SLU Loops Avg_ Ann UsagePercent
Co A 30.627.793 2553 12'-,.09'-16 4 %
Co B 8.406,186 650 12,93369%
smou Loops Avg Ann UsaLePercent
Co A 4. 4 -') 6. 5'?- 8 '-'53@@ 9,6478 1 %
Co B 6.68').104 650 10,28286%
Transport Loops Avg Ann UsaizePercent
Co A 20.5)2.480 '-15 3 1) 8@1058 8 %
Co B -@.062,644 650 7,78985%
Assumincg that no universal service funding allocations will be provided for
companies with an average. usace adjusted cost per loop less than 115% of the national
avera2e cost per loop, the following is the usage adjustment.
Calculation of Universal Service Funding Allocations Amounts for Co A:
National Average Switch Investment per Loop allocated to the Cost Study [S 403.78
1.00 (High Cost Fund Differential) * .81 (SMOU Adj) = S 327.06 (Adj National
Average Investment for Six-itching per loop)]. Company A Average Switch
Investment per Loop [S 460.77 (Company A Avg) - S 327.061 S l33.71 (Company
Gross Switch Investment to High Cost Fund)
National Average Subscriber Investment per Loop allocated to the Cost Study
[$892.22 (National Avg for Subscriber Carrier & Cable) * 1.00 (High Cost Fund
Differential) * .64 (SLU Adj) = S 571.02 (Adj National Average Investment for
Subscriber Cable and Carrier per Loop)]. Company A Gross Investment in
Subscriber Cable and Carrier per Loop [S1,416.89 (Company A Avg) - $571.02
(Adj Nat'l Avg) = $845.87 (Company Gross Investment in Subscriber Cable and
Carrier per Loop Allocation to Universal Service Fund), [($845.87 * .036 (Cat 4.13 )
to Total CL) = $ 3O.45 (Universal Service Fund Allocation Per MTS Loop to Cat
4.13]. [($845.87 * .964 (Cat 1 C&WF to Total CL) = S815.42 (Universal Service
Fund Allocation Per MTS Loop of Cat I C&WF)].
National Average Transport Investment per Loop allocated to the Cost Stud-,, [S
278.23 (Nat'l Avg Cost for Transport Carrier & Cable) * 1.00 (High Cost Fund
Differential) * .88 (SLU Adj) 244.84 (Adj Nat'l Avg Investment in Transport per
Loop)]. Company A Gross Investment in Transport Cable and Carrier - [S 105.38
(Company' A Avg) - S 139.46 (Adj Nat'l Avg) = -S 0.00 (Company Gross Loop
Allocation to Universal Service Fund). NOTE: Because the Transport Gross
Investment per Loop allocated to Universal Service Fund is negative. the Subscriber
Gross Investment per Loop allocated to the Cost Study would be increased bv S
139.46 and the Subscriber Gross Investment per Loop allocated to the Universal
Service Fund would be decreased bv 139.46
RECAP FOR COMPANY A
Cost Per Loop Loops Cost Study Univ Serv Fund
Switching $327.06 2.533 $ 828,443
$133.71 2.5 338.687
Common LineS 571.02 2.567 S 1,465,808
$845.87 '-'. 5 6 7 S 2.1-/ I,-)48
Transport $ 105.')8 2.567 S 270,510
$-0.00 '-?. 5 6 7 $ -O-
Adj Corn Lin $ 1')9.46 @@.567 $ @)57,994
A4i Corn Lin $ -1')9.46 '-.567 ')57,994
TOTAL (Difference due to rounding) S 2,92'-),755 S 2.152.041
Calculation of Universal Service Funding Allocations Amounts for Co B:
National Average Switch Investment per Loop allocated to the Cost Studv [$ 40' ) .7 8
1.00 (High Cost Fund Differential) * .86 (SMOU Adj) '@47.'-)5 (Adj National
Averap-e Investment for Switching per loop)]. Companv B Average Switch
Investment per Loop [$ 507.3 8 (Companv A Avg) - $ 347.251 160. 1 -'I (Company
Gross Switch Investment to High Cost Fund)
National Average Subscriber Investment per Loop allocated to the Cost Study
[S892.22 (National Avg for Subscriber Carrier & Cable) * 1.00 (High Cost Fund
Differential) * .69 (SLU Adj) = $ 615.6') (Adj National Average Investment for
Subscriber Cable and Carrier per Loop)]. Company B Gross Investment in
Subscriber Cable and Carrier per Loop [$1,058.95 (Company B Avg) - $615.6'0
(Adj Nat'l Avg) = $443.')2 (Company Gross Investment in Subscriber Cable and
Carrier per Loop Allocation to Universal Service Fund), [($44).')2 * O'-?7 (Cat 4.1')
to Total CL) 11.96 (Universal Service Fund Allocation Per MTS Loop to Cat
4.13)], [($443.32 * .973 (Cat I C&-WF to Total CL) = S431.36 (Universal Service
Fund Allocation Per MTS Loop of Cat I C&WF)].
National Average Transport Investment per Loop allocated to the Cost Study [S
'@78.2') (-Nat'l Av5y Cost for Transport Carrier & Cable) * 1.00 (Hi!Zh Cost Fund
Differential) * .8--; (SLU Adj) = S '-')6.50 (Adj Nat'l Avg Investment in Transport per
Loop)]. Companv B Gross Investment in Transport Cable and Carrier - [S 2'--@.30
(Companv B Avg) - S 2')6.50 (Adj Nat'l Ava 0.00 (Company Gross Loop
Allocation to Universal Service Fund). NOTE: Because the Transport Gross
Investment per Loop allocated to UniversaJ Service Fund is nezative. the Subscriber
Gross Investment per Loop allocated to the Cost Study would be increased b-,- S
11.20 and the Subscriber Gross Investment per Loop allocated to the Universal
Service Fund would be decreased bv S 1 1.20
RECAP FOR COMPANY B
A Cost Per LoopLoops Cost Study Univ Sen, Fund
Switchiniz S 'j47.25650 S 2'?-5.713
S 160.1')650 S 104.084
Common Line S 615.63662 S 407.547
S 44).'))662 293.478
Transport S 225.')O662 $149,149
$-0.00662 $ -O-
Adj Corn Lin S 'I 1.20662 $7.414
Adj Corn Lin $- 11.20662 7.414
TOTAL (Difference due to rounding) $ 797.2')7 S 390.148
The purpose of the usage. adjustment is to reflect the average value associated with
each subscriber line on a nationwide basis to the value associated on a companv wide basis.
Subscribers usincg more minutes of use than the nationwide average have alreadv placed a
greater value on their telephone and would be willing to pay more for the facility. A higher
average usage per access line would generally reflect a larger calling area or some type of
plan for greater calling area. The usage adjustment will help keep the cost per minute of use
somewhat similar on a nationwide basis and encourage more usage or larger calling areas.
even if local rates have to rise to include a larger calling area. Currently larger calling areas
in rural areas can become too expensive for the subscriber due to the high costs allocated
from the intrastate jurisdiction. therebv leaving switching plant in rural areas under utilized.
Getting more usage per subscriber, will bring costs per unit down in rural areas and enhance
the value of telephone service on a national scale.
PUBLIC INTEREST
Advantages Of The Plan
1. This plan takes into account the usage per access line in developing the high
cost fund pavments. This would allow for local rates to be based on usage
(even though thev would be flat rated). This would also promote less
disparity in local rates between similar telephone companies and between
urban and rural areas.
2. This plan levels access rates to approximately $.O3 - $.05 per minute between
carriers and between Jurisdictions and makes the transport access charges
traffic insensitive. This should attract interexchange competition in the rural
toll market because the ability to "cherry pick" would be severely hampered
or eliminated. The cost for urban or rural access charges per minute would
be nearly the same.
3. This plan through the fact that as usage per access line increase, decreases the
amount taken from the Universal Service Fund would make all carriers
(Local and Interexchange) more responsible for Universal Service. Though
the use of flat rate calling plans and expanded calling areas the usage per
access line would increase and the Universal Service Fund requirement
would decrease.
4. This plan eliminates all other types of support such as Long Term Support.
DEM Weighincg, RIC Charges and etc. except for Lifeline and Link-Up.
This plan provides for Universal Service Funding on a current basis.
Therefore small companies with big expansion projects do not have to wait
for two vears to receive a return on the portion of their investment that is
allocated to USF. The plan would eliminate the need for the 5% Limitation
on the phase down of SPF.
6. This plan maintains an incentive for telephone companies to keep rural
America connected.
7. This plan would eliminate anv need for intrastate high cost funds.
8. This plan could be adapted to all rural areas, even those owned by large
LECS. The large LEC's could break out their costs based on investment in
urban (exchanges that are included in or touch any Metropolitan Statistical
Areas - MSA) exchanges and rural (non-MSA) exchanges on the same basis
as Part 36 Jurisdictional Separations Procedures. The USF funding for the
rural exchanges could be calculated in the same manner as the funding for
non-pnce cap companies. There would be no Universal Service Funding for
urban areas. only Lifeline and Link--Up funding calculated using a different
formula. This plan would eliminate much of the implicit Universal Service
Funding found today between urban and rural areas of the lar-e LECS.
The following color graphs, based on 1994 data, demonstrate the application
and effect of the Per Minute of Use Universal Service Plan.
Notes And Comments On The Graphs
The allocation of local loop cost to special access is based on the usage
adjusted common line gross investment. It appears reasonable to allocate
special access on an unadjusted basis or on the national average cost per loop.
Special access on an adjusted basis would onlv promote bypass.
2. Graph ITCS, Inc. GRB 7, shows companies 2, and I I with very high local
rates based on revenue requirement. It should be noted that all three of the
companies had transport gross investment allocated to the common line
because transport gross investment was below the national average adjusted
for usasge. Normally, no transport investment is included in the local
jurisdiction except for Exchange Trunk and some Host/Remote Facilities.
This could have a detrimental effect on some companies.
The gross investment for Tandem Switching was included with Local
Switching. It could have been broken out and included with transport gross
investment for calculation the USF allocations.
4.This plan currently does not include Exchange Wideband. Interexchange
Wideband, or Furnished Another Company Facilities.
5.This plan does not include pay phones - those required bv the State
Commission's as minimum service requirements. This plan could be
modified to include payphones required bv the State Commissions for the
provision of minimum service to rural areas.
a.Graph ITCS, Inc. - GRB I only includes the four major categories of
expenses shown. It does not include taxes or return.
b.Graph ITCS, Inc. - GRB 2 - 8 include all expenses including taxes and return.
c.Graph ITCS, Inc. - GRB 10 is the allocation of gross investment.
d. Graph ITCS. Inc. - GRB 8 is average local rates per top prior to any
reductions for other local revenues which may average approximately $5.00
per loop.
e. In addition to the transport problems noted for companies 2. 3 and I 1.
companies 2 and I I have high costs per loop and have taken or are taking
measures to remedv this situation. All three companies have high usage per
access lines of approximately 80% or more of the nationwide average usage
per access line. All three companies have large calling areas and little
intrastate intraLATA calling remaining after making the large calling areas
local calling.
f. Graph ITCS. Inc. - GPB 12 is the expenses per dollar invested in common
line. switching and transport onlv.
Respectfully Submitted,
David A. Irwin
Counsel for ITCS, Inc.
Irwin, Campbell & Tannenwald, P.C.
1730 Rhode Island Ave.. N.W.
Washington. DC 20036
(202) 728-0400
ITCS. Inc.
4775 Barnes Road. Suite M
Colorado Springs, Co. 80917
(719) 574-5120