**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

In the Matter of )

) CC Docket No. 99-35

Long-Term Telephone Number Portability )

Tariff Filings of )

)

Ameritech Operating Companies ) Transmittal Nos. 1186, 1187

)

GTE System Telephone Companies ) Transmittal No. 271

)

GTE Telephone Operating Companies ) Transmittal No. 1190

)

Pacific Bell ) Transmittal No. 2029

)

Southwestern Bell Telephone Company ) Transmittal No. 2745

)

**ORDER DESIGNATING ISSUES FOR INVESTIGATION**

**Adopted: February 26, 1999 Released: February 26, 1999**

Direct Case Date: March 29, 1999

Oppositions/Comment Date: April 13, 1999

Rebuttal Date: April 23, 1999

By the Deputy Chief, Common Carrier Bureau:

**I. INTRODUCTION**

On January 29, 1999, the Competitive Pricing Division (Division)
released the *Long-Term Number Portability Suspension Order,*[^1] which,
*inter alia,* suspended for one day the long-term telephone number
portability tariff filings filed by incumbent local exchange carriers
(LECs), imposed an accounting order, and initiated an investigation into
the lawfulness of a number of issues raised by these tariff filings. We
concluded that the tariffs filed by the incumbent LECs raised
significant questions of lawfulness that warranted investigation.[^2] In
this Order, we designate for investigation the issues discussed below.

**II. RECOVERY OF OSS COSTS**

**A. Background**

In the *Third Report and Order,* the Commission concluded that
carrier-specific costs directly related to providing number portability
are limited to costs carriers incur specifically in the provision of
number portability services.[^3] In that light, the Commission
recognized that modifications to Operations Support Systems (OSS) would
provide a wide range of services and features that are unrelated to the
provision of number portability and that are recoverable in the LECs\'
rates for other services.[^4] The order makes clear that only the
incremental portion of such modifications or upgrades that is directly
related to number portability functions is eligible for inclusion in the
number portability cost recovery mechanism.[^5]

In the *Cost Classification Order,* the Common Carrier Bureau (Bureau),
acting pursuant to authority delegated to it by the Commission in the
*Third Report and Order*, defined incremental OSS costs as the
difference between the costs of the OSS upgrades without the number
portability functionality and the total cost of the upgrades with the
number portability functionality.[^6] Only the difference in costs is an
eligible number portability cost.[^7] The *Cost Classification Order*
directed the incumbent LECs to distinguish costs that fall under the
narrow definition of number portability with respect to OSS from costs
incurred to adapt other systems to implement number portability, such as
repair and maintenance, billing, or order processing systems.[^8]
Moreover, even where an upgrade to OSS meets the two-part test set out
in the *Cost Classification Order*,[^9] the Bureau required incumbent
LECs to make a special showing to establish the portion of any upgrade
to OSS that should be attributed to number portability. Specifically,
the *Cost Classification Order* directed incumbent LECs to show that all
avoided costs and incremental revenues made possible by the upgrade will
not cover the upgrade.[^10]

**B. Petitions**

AT&T sought to suspend and investigate the tariff filings of Ameritech,
GTOC, GSTC, and SWBT because they include costs incurred to modify
internal OSS systems for functions such as preordering, ordering,
billing, maintenance and repair, and 911 systems.[^11] AT&T alleges that
SWBT\'s operating expenses include approximately \$39 million in excess
costs.[^12]

**C. Replies**

Ameritech contends that its OSS costs meet the requirements of the *Cost
Classification Order*.[^13] Ameritech states that it has distinguished
the OSS costs that were for the narrowly defined portability functions,
as required by the *Cost Classification Order*, and explains in detail
why each cost was required to provide number portability, and how it was
involved in the provision of number portability.[^14] GTE states that it
has sought to recover only those expenses associated with OSS that
enable customers to retain their telephone numbers when they switch
providers without degradation of service, in compliance with the
Commission\'s determination in the *First Report and Order*.[^15] GTE
also states that any expenses for changes to OSS that could provide
support for other products or services were not included.[^16]

SBC contends that AT&T\'s claim that it has recovered \$39 million in
excess costs for operating expenses associated with end office tandem
investments and OSS investments is erroneous and the result of AT&T\'s
inaccurate reading of the Charts 1 and 2A that SWBT provided with its
tariff filing.[^17]

**D. Discussion**

As a preliminary matter, we note that several carriers, as indicated
below, submitted extensive confidential cost material with their
filings. This confidential material was not discussed or explained
either in the public Description and Justification accompanying the
filings or in any confidential narrative accompanying the confidential
cost materials. We require the carriers to supply a narrative
explanation of how costs were developed in the confidential filings
already filed, as well as in any other confidential filings to be made
as part of their direct cases. These narratives will be subject to the
same confidentiality arrangements as the confidential filings.[^18]

In their confidential cost support, GSTC and GTOC appear to have
miscalculated their costs by improperly inflating expenditures
anticipated after 1999. They also appear to have used an improperly high
rate of return by compounding the rate of return monthly, producing an
annual percentage rate above the 11.25 percent authorized in the *Third
Report and Order*. We direct GSTC and GTOC to correct these errors or to
explain why their methods are correct.

In the *Number Portability Suspension Order*, we concluded that
investigation of the incumbent LECs\' OSS costs is warranted. The number
portability tariff filings demonstrate that several incumbent LECs have
included a substantial portion of OSS costs as number portability costs.
For example, Ameritech seeks to recover costs incurred to equip its
systems and network to perform ordering, provisioning, maintenance and
repair, billing and 911 calls for ported numbers.[^19] GSTC and GTOC
also claim a substantial amount of OSS costs in their tariff filings for
modifications to existing ordering, maintenance and repair, and 911
systems.[^20] Based on our review of the record and the tariff filings,
we here designate for investigation the issue of whether the Ameritech,
GSTC, GTOC, Pacific, and SWBT number portability tariffs include costs
the LECs incurred to adapt other OSS systems to number portability, in
addition to the incremental portion of OSS upgrades that is directly
related to number portability. We also designate whether the OSS costs
Ameritech, GSTC, GTOC, Pacific, and SWBT claim in their number
portability tariffs are reasonable.

We direct Ameritech, GSTC, GTOC, Pacific, and SWBT to file as part of
their direct cases an itemized list of OSS costs, arranged by functional
area (for example, provisioning, maintenance, repair, billing, etc.).
For each OSS modification or augmentation, the LECs must provide: (1)
the total cost; (2) the cost assigned to number portability; (3) the
cost allocations among number portability services; (4) an explanation
of how each OSS modification relates to performing queries; (5) an
explanation of how each OSS modification relates to porting numbers
between carriers; (6) an explanation of how each OSS modification
relates to any other number portability function; (7) the basis for cost
allocations between number portability and non-number portability
services; and (8) the basis for cost allocations among number
portability services. For functions other than provisioning of number
portability, LECs should explain with specificity why they believe a
particular OSS modification or upgrade qualifies as eligible under the
*Cost Classification Order*.

We further direct the LECs to explain for each OSS modification the
manner in which it alters the nature of the task or function previously
performed, and why this alteration is necessary \"for the provision of
portability.\" In addition, some OSS costs appear related to revising
OSS systems to perform 10-digit translations. LECs should identify these
costs and demonstrate that they will not benefit CLASS services, area
code overlays, or other services. In the alternative, LECs should show
how costs were allocated among services that benefit from the changes.

**III. CALCULATION OF SIGNALLING AND SWITCHING COSTS**

**A. Background**

In the *Cost Classification Order,* the Bureau found that allowing
embedded investments to be eligible number portability costs would
amount to recovery of costs the LECs already recover through standard
recovery mechanisms.[^21] For this reason, we found it reasonable to bar
recovery of costs incurred by LECs prior to long-term number portability
implementation.[^22]

**B. Petitions**

AT&T alleges that Ameritech, Pacific, and SWBT have included embedded
costs in calculating the incremental costs of number portability for
their signalling and switching capacity, contrary to the *Cost
Classification Order*.[^23] Specifically, AT&T contends that Ameritech
multiplied an estimate of its new incremental traffic by an average cost
to support the additional traffic on its network.[^24] AT&T also
contends that Pacific and SWBT calculated an average cost per query
figure that is employed in their end-user and query rates.[^25]

**C. Replies**

Ameritech responds that the cost model used to calculate number
portability signalling costs only looked at the average incremental,
forward-looking costs of supporting new number portability traffic and
does not reflect embedded costs.[^26] Ameritech states that it has
identified the cost to be allocated to number portability by determining
the additional equipment, facilities or capacity required to support the
new number portability generated traffic.[^27]

SBC states that the charge used for SWBT\'s queries was developed
through the use of the Switching Cost Information System (SCIS) and the
Common Channel Signalling Cost Information System (CCSCIS) cost models,
which represent forward-looking incremental costs associated with demand
placed on the SS7 network by the next number portability query.[^28] SBC
argues that the charge only recovers the direct incremental costs
associated with implementing number portability and querying the number
portability database.[^29] SBC contradicts AT&T\'s assertion that
Pacific calculated the costs of number portability and added the
purported costs of its internal queries. SBC states that both SWBT and
Pacific incur costs for their own queries in the same manner as costs
are incurred for queries performed for other carriers, and that they
will recover the costs of their own queries through the end-user
charge.[^30]

**D. Discussion**

Our review of Ameritech\'s tariff filing shows that, while they used an
\"LNP Cost Tracking System\" to track actual and planned expenditures
for most components of their long-term number portability costs, they
used the CCSCIS cost model to estimate SS7 Signalling costs.[^31]
Ameritech\'s SS7 signalling costs appear to be a significant component
of Ameritech\'s total long-term number portability costs, as well as
significantly larger than other carriers\' SS7-related costs. Pacific
and SWBT\'s tariff filings show that they used the SCIS and CCSCIS
models, rather than actual and planned expenditures, to identify
long-term number portability costs related to both signalling and
switching.[^32]

We find that Ameritech, Pacific, and SWBT\'s use of cost models, rather
than actual expenditures, raises substantial issues of lawfulness that
warrant investigation. It is not clear that the use of these cost models
does not result in the inclusion of some embedded costs for which
recovery is already provided through other recovery mechanisms.
Moreover, it is not clear that such models accurately estimate the
actual additional costs incurred for the provision of local number
portability. The use of these models may be inconsistent with the *Cost
Classification Order* requirement that only incremental costs may be
recovered through these federally authorized charges. We find,
therefore, that the use of the cost models raises issues that warrant an
investigation.

Based upon a review of the tariff filings, we here designate for
investigation whether Ameritech\'s use of CCSCIS to estimate its
signalling costs of number portability results in the inclusion of some
embedded costs and, therefore, produces an inaccurate estimate of
Ameritech\'s actual number portability costs. We also designate for
investigation whether SWBT and Pacific\'s use of the SCIS and CCSCIS
cost models to estimate switching and signalling costs results in the
inclusion of some embedded costs and, therefore, produces an inaccurate
estimate of their actual number portability costs.

We direct Ameritech, Pacific, and SWBT to file as part of their direct
cases actual expenditures, including expenditures to date and planned
actual expenditures within the recovery period, for the number
portability costs that they estimated using CCSCIS or SCIS. The
companies must explain the basis of each calculation of actual
expenditures.

Where Ameritech, Pacific, and SWBT intend to continue to rely on the
information produced by the cost models in support of their tariffs, we
further direct the LECs to explain how the use of cost models would
produce more accurate estimates of the incremental costs generated by
number portability than would be produced by an analysis of actual and
planned expenditures. These LECs also must demonstrate that the use of
the models does not produce double recovery of embedded costs already
being recovered through other cost recovery mechanisms. This
demonstration must also include, at a minimum, a comparison of the
model\'s calculation of average costs of number portability-type queries
and the model\'s incremental costs of these queries. The LECs also must
demonstrate their total network switching and signalling costs with and
without long-term number portability, or explain why their models cannot
do so.

With regard to both costs derived from cost models and costs produced
from an analysis of actual expenditures, we also direct the LECs to
identify costs for all land, buildings, administration, and maintenance
expenses that are claimed. The LECs should identify costs that were
derived either from model output or an allocation factor applied to
actual costs on the basis that new investment has an impact on overall
requirements. The cost documentation provided with the LECs\' tariffs
shows that some end-office and tandem switch costs appear related to
reprogramming switches to perform 10-digit translations. We require the
LECs to identify these costs and demonstrate that other services will
not benefit from such reprogramming. In the alternative, LECs should
show how costs were allocated, using either a cost model or actual
expenditures, to the services that benefit from reprogramming.

**IV. CALCULATION OF OVERHEADS**

**A. Background**

In the *Third Report and Order*, the Commission held that \"carriers may
identify as carrier-specific costs directly related to providing
long-term number portability only those incremental overheads that they
can demonstrate they incurred specifically in the provision of long-term
number portability.\"[^33] The Bureau interpreted the Commission\'s
requirement in the *Cost Classification Order* to require that only new
overhead costs are eligible for recovery through the federal charge
mechanisms and that no allocation of embedded overheads is
permitted.[^34] The Bureau required, therefore, that the incumbent LECs
must demonstrate that any incremental overheads claimed are actually new
costs incremental to and resulting from the provision of number
portability.[^35] With regard to the use of overhead allocation factors
in determining number portability costs, the Bureau also stated that the
use of unbundled network element overhead factors may serve as a useful
check on the reasonableness of the incumbent LECs\' incremental overhead
allocations.[^36]

**B. Petitions**

AT&T argues that Pacific\'s use of a 21 percent overhead factor, the
same factor used in state proceedings for pricing unbundled network
elements (UNEs), is markedly higher than the factors used by the other
incumbent LECs in their number portability tariff filings.[^37] AT&T
acknowledges that the Bureau held that the use of overhead allocation
factors set by state commissions for UNEs would serve as a useful guide
for reviewing the reasonableness of incremental overhead
allocations.[^38] AT&T argues that it would be unreasonable to permit
one incumbent LEC to establish a significantly higher overhead rate for
its number portability tariff than the rates employed by other incumbent
LECs absent a compelling showing that the incumbent LECs\' incremental
overhead costs for number portability were in fact higher.[^39]

**C. Replies**

SBC argues that the incremental overhead factor used by Pacific is
appropriate and that AT&T, in prior filings, has endorsed the use of the
overhead allocation factors used in the states to price UNEs.[^40] SBC
further argues that since the *Cost Classification Order* fails to set
forth a methodology to be used in determining incremental overheads,
Pacific used the factor deemed reasonable by the Bureau\'s order.[^41]
SBC states that the factor Pacific used is the overhead allocation
factor for UNE pricing that is pending before the California Public
Utility Commission.[^42]

**D. Discussion**

Our review of the tariff filings also shows that Pacific used a 21
percent allocation factor, the same factor used in state proceedings for
UNEs, to allocate overhead costs to number portability services.[^43]
SWBT\'s Description and Justification states that it accepts the loading
factors used in the state proceedings for UNEs as a reasonable
allocator.[^44] SWBT also calculated incremental overhead attributable
to number portability using the weighted average factor used to develop
loading factors in the state UNE proceedings.[^45]

Although Pacific and SWBT have stated that the use of the same
allocation factors used in the state proceedings to price unbundled
network elements is reasonable, we conclude that the use of these UNE
factors may include general overhead costs that do not comport with the
requirements of the *Cost Classification Order*. The *Cost
Classification Order* required the incumbent LECs to base their
incremental allocation factors for number portability on information
derived from a special study rather than solely on the allocation
factors used in state interconnection proceedings. The Bureau concluded
that \"the use of incremental allocation factors determined through a
special study \[of retail common costs\] is a reasonable method of
determining incremental overheads associated with number
portability.\"[^46] The Bureau referred to the overhead allocation
factors used by state commissions to price UNEs as \"a useful check on
the reasonableness\" of incremental overhead allocations.[^47]

We note that SWBT stated in its tariff filing that it \"does not believe
it to be practical to conduct a special study similar to that proposed
by Ameritech and cited in the Cost Order.\"[^48] We find, however, that
the Pacific overhead allocation factor of 21 percent is substantially
higher than the overhead allocation factors used by the other incumbent
LECs. We, therefore, find that Pacific\'s use of a 21 percent allocation
factor and SWBT\'s use of a weighted average factor, in the absence of a
special study or other information to confirm that these factors
represent the incremental overheads attributable to number portability,
raises issues of lawfulness that warrant an investigation. We designate
for investigation whether Pacific\'s use of the overheads proposed to
state commissions for unbundled network elements in calculating
incremental overhead costs attributable to number portability is
reasonable. We also designate whether SWBT\'s use of the weighted
average factor in calculating incremental overhead attributable to
number portability is reasonable.

To determine whether the allocation factors used by Pacific and SWBT
include only the incremental overheads attributable to number
portability, we direct Pacific and SWBT to provide their actual
incremental overheads using an approach similar to the approach employed
by Ameritech as described in the *Cost Classification Order*.[^49]

**V. ALLOCATION OF NUMBER PORTABILITY**

**COSTS AMONG NUMBER PORTABILITY SERVICES**

**A. Background**

The Bureau provided specific, detailed guidance to the LECs in the *Cost
Classification Order* as to the proper method of allocating eligible
number portability costs between the end-user and query service charges.
First, the Bureau determined the proper allocation of costs incurred for
specific number portability services. The Bureau stated that incumbent
LECs should allocate any portion of eligible number portability costs
that is incurred specifically to provide N-1 query services to the N-1
query services.[^50] Where the incumbent LECs intend to establish
several types of N-1 query services, the Bureau directed that the LECs
allocate the eligible number portability costs incurred specifically to
provide each type of query service to that particular service.[^51]
Similarly, the Bureau directed the incumbent LECs to allocate costs
incurred only to provide number portability functions to end-users to
the end-user charge.[^52]

The Bureau also determined the proper allocation of any remaining
eligible number portability costs.[^53] Generally, the Bureau directed
the incumbent LECs to allocate these remaining costs on the basis of the
capacity requirements for each type of service.[^54] For incumbent LECs
that elect to provide several types of N-1 query services, the Bureau
directed that allocation of costs should be made to each service on the
basis of the capacity requirements for the service.[^55]

**B. Discussion**

The incumbent LECs\' number portability tariff filings show that each
LEC has allocated eligible number portability costs in a different
manner. Ameritech agrees that relative capacity is more cost-causative
than relative usage but contends that it has no evidence that traffic
characteristics of number portability queries will vary in a way that
will place different demands on capacity per average unit of
traffic.[^56] For this reason, Ameritech allocated eligible number
portability costs between the end-user charge and the query service
charges using projected usage as a surrogate for capacity.[^57]

GSTC and GTOC allocated costs to the number portability services using
the following method. First, the total busy query capacity of all number
portability service control points was calculated. Next, the busy hour
queries for each query service were divided by the busy hour capacity to
determine the percent of busy hour capacity. Finally, the total number
portability costs were multiplied by the percent of busy hour capacity
to determine the amount of number portability costs to be applied to
each service.[^58]

Pacific and SWBT allocated SS7 connection, SS7 links, and standard
signal transfer point routing costs to the query services based on busy
hour demand, as well as on the cost of equipment dedicated to
queries.[^59] Pacific and SWBT allocated implementation costs and the
unrecovered costs of 1998 queries by their customers to the end-user
charge.[^60]

To determine whether each incumbent LEC has allocated number portability
costs consistent with the determinations made by the Bureau in the *Cost
Classification Order,* we designate for investigation the issue of
whether Ameritech, GSTC, GTOC, Pacific and SWBT\'s methods of allocating
number portability costs between the end-user and query service charges
are reasonable.

We direct Ameritech, GSTC, GTOC, Pacific, and SWBT to provide more
complete explanations of their bases for allocating number portability
costs among services and why their methods are reasonable. In
particular, Pacific and SWBT should address the question of whether it
is reasonable to assign all \"implementation costs\" to the end-user
surcharge. In addition, we direct the LECs to submit as part of their
direct cases the worksheet described in the *Cost Classification Order*,
and specifically to include the allocation of each cost among the number
portability services as required by the order.[^61] The LECs must
include sufficient data and calculations to show the assumptions used to
allocate the costs of shared facilities, such as costs of the shared
regional databases and links.

**VI. QUERY SERVICES COSTS AND CHARGES**

**A. Background**

The Commission determined that incumbent LECs may query calls for N-1
carriers, either by arrangement or by default, and may recover from the
N-1 carrier their carrier-specific costs directly related to providing
prearranged and default query services in a federally tariffed
query-service charge.[^62] The Commission also required carriers to
indicate in the cost support section of their tariffs that portion of
their carrier-specific costs that is attributable to the number
portability services they provide end-users, and that portion
attributable to the number portability query services they provide on
behalf of other carriers.[^63] As discussed in detail above, the *Cost
Classification Order* required incumbent LECs to allocate any portion of
eligible number portability costs that is incurred specifically to
provide N-1 query services directly to those services.[^64] The Bureau
also determined that remaining eligible number portability costs should
be allocated to each service on the basis of the capacity requirements
for each service.[^65]

In addition, the Bureau recognized in the *Cost Classification Order*
that some incumbent LECs query all calls, even in NXXs where no
telephone number has been ported, and charge end-users and carriers for
whom they perform query services accordingly.[^66] The Bureau directed
the incumbent LECs to state in their supporting documentation whether
their demand assumptions included performing queries for all calls in
NXXs where no number had been ported and to explain why it is necessary
to query all calls in this situation.[^67]

**B. Petitions**

AT&T recommends that the Bureau investigate Pacific and SWBT\'s
inclusion of several \"nonrecurring\" charges for default query
services. Specifically, AT&T states that both Pacific and SWBT have
failed to adequately explain why they must impose certain charges each
month when processing a customer\'s bill for default query
services.[^68] AT&T notes that the other incumbent LECs have not
proposed similar \"nonrecurring\" charges.[^69]

Time Warner petitioned the Commission to suspend Pacific and SWBT\'s
number portability tariffs, alleging that the carriers have not
clarified whether they intend to impose default query charges on all
calls to NXXs in which no telephone number has been ported.[^70] Time
Warner urges the Commission to investigate and declare unlawful any
tariff that imposes default query charges on calls to NXXs with no
ported numbers.[^71] AT&T also argues that Pacific and SWBT should not
be permitted to charge for default queries performed before a number has
been ported in an NXX.[^72] According to AT&T, SWBT and Pacific\'s
tariff filings also fail to comply with the *Cost Classification
Order\'s* requirement that incumbent LECs include an explanation as to
why it is necessary to query all calls in this situation.[^73]

**C. Replies**

SBC contends that the \"nonrecurring\" charges proposed by Pacific and
SWBT will occur only one time, or one time each month if the carrier
chooses never to prearrange for query service.[^74] SBC states that if
carriers prearrange for query service this charge will not be imposed.
SBC argues that where an N-1 carrier chooses not to prearrange its
queries and, as a result, causes default queries each month, the
incumbent LEC has little choice in how to recover the additional costs
that are caused by the default queries.[^75] SBC concedes that it
omitted the explanation of the charge from the tariff filing, but states
that it is willing to revise the tariff language to clarify that the
charge will only be billed to N-1 carriers who have not prearranged with
either SWBT or Pacific to perform queries on the carrier\'s behalf.[^76]

SBC further contends that the query service charges included in Pacific
and SWBT\'s tariffs are consistent with the *Cost Classification
Order*.[^77] SBC argues that the issue of whether an incumbent LEC may
query all calls to NXXs where a number has not been ported was resolved
in the *Third Report and Order.*[^78] SBC states that the *Third Report
and Order* requires carriers to query all interswitch calls to an NXX
once number portability is available for that NXX, to determine whether
or not the terminating customer has ported a number.[^79] SBC argues
that the incumbent LECs must begin to translate their networks and must
query the number portability database well before the first order to
port a number is received, if the work is to be completed within the
five-day period prescribed by the industry.[^80]

**D. Discussion**

We note that Pacific\'s tariff states that several nonrecurring charges
need to be applied to recover the costs of establishing a bill for
default and prearranged queries and for establishing the customer
connection to Signal Transfer Points (STPs) for database queries.[^81]
SWBT\'s tariff filing states that default billing charges were developed
to recover costs associated with establishing a billing account to bill
carriers for default queries handled by the SWBT database.[^82]

Based on a preliminary investigation of the tariff filings, we find that
Pacific and SWBT have not provided adequate explanations or
documentation to support a nonrecurring charge for their query services.
Moreover, Pacific and SWBT\'s supporting documentation does not identify
additional costs created by billing for default queries on a monthly
basis. The monthly \"nonrecurring\" charge for default queries appears
to be a recurring charge that Pacific and SWBT will impose for the
purpose of encouraging companies to request prearranged queries, and not
for the purpose of covering costs that result from providing default
query services. We find that Pacific and SWBT\'s inclusion of a monthly
\"nonrecurring\" charge for their query services raises substantial
issues of lawfulness that warrant an investigation. We designate for
investigation whether SWBT and Pacific\'s monthly \"nonrecurring\" query
service charges are reasonable.

We also note that Pacific proposes monthly \"nonrecurring\" charges for
database access that appear to be imposed when actual usage cannot be
measured. No other carrier proposes a similar charge, and Pacific does
not provide a sufficient explanation for the existence or level of this
charge. We also designate for investigation whether this monthly
\"nonrecurring\" charge for database access is reasonable. We direct
Pacific to file in its direct case a full explanation of the
circumstances under which this charge might arise and a justification of
both its necessity and level. This explanation should include the reason
usage measurement is not feasible and an explanation of why the proposed
charge is an appropriate and reasonable proxy for measured usage. We
direct Pacific to file a full explanation and justification for the
other proposed \"nonrecurring\" charge, identified as a cost component
of prearranged queries, as well as proposed tariff language that will
clarify precisely when and under what circumstances this charge will
apply.

Pacific and SWBT\'s tariff filings state that they have provisioned
their networks so that on the date an NXX is shown in the Local Exchange
Routing Guide (LERG) to be number portable, each company will begin
charging N-1 carriers a query charge for all unqueried calls to that
NXX.[^83] Both Pacific and SWBT will begin billing the end-user charge
to all end-users that use a particular switch when the first NXX in a
switch is shown in the LERG as number portable.[^84]

We do not read the *Third Report and Order* as mandating, as SBC
implies, that carriers must query all calls where number portability is
available, even in NXXs where no numbers have been ported. In the *Cost
Classification Order*, we directed incumbent LECs to explain why it is
necessary to query each call to an NXX where a number has not been
ported.[^85] Our review of the tariff filings indicates that neither
Pacific nor SWBT has provided an adequate explanation as to why it must
query each call to a particular NXX before a number has been ported from
or to that particular NXX. We therefore designate for investigation
whether Pacific and SWBT\'s demand calculations, which include queries
for calls to NXXs where a number has not been ported, are reasonable. We
direct Pacific and SWBT to provide a detailed explanation as to why
their systems are required to operate in this fashion and state why no
other alternatives exist. Pacific and SWBT also should explain the
differences between their systems and those of other LECs, such as
Ameritech, that have not found it necessary to query all calls. The
explanations must include a statement as to whether their proposed
demand calculations include: (1) queries made on intraswitch calls; (2)
queries on interswitch calls in NXXs where a number has been ported; and
(3) queries made on interswitch calls in NXXs where a number has not
been ported.

**VII. GENERIC UPGRADES**

**A. Background**

In the *Third Report and Order*, the Commission recognized that some
upgrades to the carriers\' networks would enhance their services
generally, and at least some portion of such upgrade costs is not
directly related to providing number portability.[^86] The Bureau
acknowledged the impact of general upgrades on the entire LEC network
and required that the incumbent LECs distinguish between eligible number
portability costs that are recoverable through the federal number
portability charges from general upgrade costs in their number
portability tariff filings.[^87] The Bureau concluded that general
network upgrade costs should not be recovered through the federal number
portability charges.[^88]

**B. Discussion**

The Bureau\'s initial review of Pacific and SWBT\'s tariff filings
reveals that the LECs have included costs for software generics, which
appear to be general network upgrades, without adequate
justification.[^89] Pacific and SWBT\'s tariff filings raise questions
of reasonableness and lawfulness that warrant an investigation. We
designate whether Pacific and SWBT\'s use of generic software upgrade
costs is reasonable and whether these costs have been calculated
correctly. We direct Pacific and SWBT to explain the methodology used to
calculate generic upgrade costs and the allocation of costs between the
number portability and non-number portability services.

**VIII. JURISDICTIONAL SEPARATIONS**

**A.Background**

In the *Third Report and Order*, the Commission found that section
251(e) authorizes the Commission to provide the distribution and
recovery mechanism for all the costs of providing long-term number
portability.[^90] The Commission concluded that an exclusively federal
recovery mechanism for long-term number portability will minimize the
administrative and enforcement difficulties that might arise were
jurisdiction over long-term number portability divided.[^91] The
Commission noted that under the exclusively federal number portability
cost recovery mechanism, incumbent LECs\' number portability costs will
not be subject to jurisdictional separations.[^92]

**B.Discussion**

Although the Commission established an exclusively federal recovery
mechanism for long-term number portability in the *Third Report and
Order*, some LECs may have included, or may be including, some or all of
these costs in their jurisdictional separations procedures. To the
extent long-term number portability costs have been assigned to the
intrastate jurisdiction, those costs also may have been recovered
through intrastate rates. Recovery in the federal jurisdiction may,
thus, constitute double recovery. Similarly, to the extent long-term
number portability costs are assigned to the intrastate jurisdiction
prospectively, and LECs seek to recover those costs through intrastate
rates, recovery in the federal jurisdiction would constitute double
recovery.

We designate as an additional issue the question of what separations
treatment and what intrastate ratemaking treatment may have been or may
be accorded long-term number portability costs. We direct the LECs to
file an explanation of how prior year costs related to long-term number
portability implementation were treated with respect to jurisdictional
separations. The LECs should demonstrate that the long-term number
portability costs booked in past periods and included in the development
of federal number portability charges have not been recovered already in
the state jurisdiction. Alternatively, the LECs should explain how state
ratepayers will be made whole if the Commission allows federal recovery
of costs previously assigned to the intrastate jurisdiction and included
in the state ratemaking process. We also direct the LECs to file an
explanation of how costs related to long-term number portability
implementation will be treated prospectively with respect to
jurisdictional separations. The LECs should demonstrate that long-term
number portability costs included in the development of federal number
portability charges will not be recovered prospectively in the state
jurisdiction.

**IX. PROCEDURAL MATTERS**

**A. Filing Schedules**

This investigation will be conducted as a notice and comment proceeding.
We have designated CC Docket No. 99-35. The following companies are the
parties designated to this investigation: Ameritech, GSTC, GTOC,
Pacific, and SWBT.

These parties shall file their direct cases no later than March 29,
1999. The direct cases must present the parties\' positions with respect
to the issues described in this Order. Pleadings responding to the
direct cases may be filed no later than April 13, 1999, and must be
captioned \"Oppositions to Direct Case\" or \"Comments on Direct Case.\"
The companies may each file a \"Rebuttal\" to oppositions or comments no
later than April 23, 1999.

An original and six copies of all pleadings shall be filed with the
Secretary of the Commission. In addition, parties shall file two copies
of any such pleadings with the Competitive Pricing Division, Common
Carrier Bureau, 445 12th Street, S.W., 5th Floor, Washington, D.C.
20554. Parties shall also deliver one copy of such pleadings to the
Commission\'s commercial copying firm, International Transcription
Service, Inc., 1231 20th Street, NW, Washington, DC 20036. Members of
the general public who wish to express their views in an informal manner
regarding the issues in this investigation may do so by submitting one
copy of their comments to the Office of the Secretary, Federal
Communications Commission, 445 12th Street, S.W., Room 222, Washington,
D.C. 20554. Such comments should specify the docket number of this
investigation. Parties are also encouraged to submit their pleadings
electronically through the Electronic Tariff Filing System.

All relevant and timely pleadings will be considered by the Commission.
In reaching a decision, the Commission may take into account information
and ideas not contained in pleadings, provided that such information or
a writing containing the nature and source of such information is placed
in the public file, and provided that the fact of reliance on such
information is noted in the order.

**B. *Ex Parte* Requirements**

This tariff investigation is a \"permit‑but‑disclose proceeding\" and
subject to the \"permit‑but‑disclose\" requirements under section
1.1206(b) of the rules, 47 C.F.R. § 1.1206(b), as revised. Persons
making oral *ex parte* presentations are reminded that memoranda
summarizing the presentation must contain a summary of the substance of
the presentation and not merely a listing of the subjects discussed.
More than a one or two sentence description of the views and arguments
presented is generally required.[^93] Other rules pertaining to oral and
written presentations are set forth in section 1.1206 (b), as well.

**X. ORDERING CLAUSES**

**ACCORDINGLY, IT IS ORDERED** that, pursuant to sections 4(i), 4(j),
201(b), 203(c), 204(a), 205, and 403 of the Communications Act, 47
U.S.C. §§ 154(i), 154(j), 201(b), 203(c), 204(a), 205, and 403, and
sections 0.91 and 0.291 of the Commission\'s rules, 47 C.F.R. §§ 0.91,
0.291, the issues set forth in this Order **ARE DESIGNATED FOR
INVESTIGATION**.

**IT IS FURTHER ORDERED** that Ameritech Operating Companies, GTE
Telephone Operating Companies, GTE Systems Telephone Companies, Pacific
Bell, and Southwestern Bell Telephone Company **SHALL BE** parties to
this proceeding.

**IT IS FURTHER ORDERED** that each local exchange carrier that is a
party to this proceeding **SHALL INCLUDE**, in its direct case, a
response to each request for information that it is required to answer
in this Order.

FEDERAL COMMUNICATIONS COMMISSION

Yog R. Varma Deputy Chief, Common Carrier Bureau

[^1]: ^?^ *Long-Term Telephone Number Portability Tariff Filings,* CC
    Docket No. 99-35, Memorandum Opinion and Order, DA 99-265 (Comp.
    Pric. Div., rel. Jan. 29, 1999) (*Long-Term Number Portability
    Suspension Order*).

[^2]: ^?^ Those carriers were: Ameritech Operating Companies
    (Ameritech); GTE Telephone Operating Companies (GTOC) and GTE
    Systems Telephone Companies (GSTC) (collectively GTE); Southwestern
    Bell Telephone Company (SWBT) and Pacific Bell (Pacific)
    (collectively SBC). AT&T Corporation, Inc. filed petitions to reject
    or suspend the tariff filings of all of the incumbent LECs. *See*
    AT&T Petition to Reject or Suspend (filed Jan. 21, 1999) (AT&T
    Petition). Time Warner filed a petition to suspend SWBT and Pacific
    Bell\'s tariff filings. *See* Petition to Suspend for One Day and
    Set for Investigation (filed, Jan. 21, 1999) (Time Warner Petition).

[^3]: ^?^ *In the Matter of Long-Term Number Portability,* Third Report
    and Order, 13 FCC Rcd 11701, 11740 (para. 72) (1998) (*Third Report
    and Order*).

[^4]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11740 (para. 73).

[^5]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11740 (para. 73).

[^6]: ^?^ *In the Matter of Telephone Number Portability Cost
    Classification Proceeding*, Memorandum Opinion and Order, CC Docket
    No. 95116, DA 98-2534 at 11 (para. 23) (Com. Car. Bur. rel, Dec. 14,
    1998) (*Cost Classification Order*).

[^7]: ^?^ *Cost Classification Order* at 12 (para. 27).

[^8]: ^?^ *Cost Classification Order* at 7, 8 (paras. 12, 14).

[^9]: ^?^ Eligible number portability costs are costs that: (1) would
    not have been incurred \"but for\" the implementation of number
    portability; and (2) were incurred \"for the provision of\" number
    portability. *See Cost Classification Order* at 6 (para. 10).

[^10]: ^?^ *Cost Classification Order* at 13 (para. 29).

[^11]: ^?^ AT&T Petition at 4-5.

[^12]: ^?^ AT&T Petition at 12.

[^13]: ^?^ Ameritech Reply at 3.

[^14]: ^?^ Ameritech Reply at 3.

[^15]: ^?^ GTE Reply at 3.

[^16]: ^?^ GTE Reply at 4.

[^17]: ^?^ SBC Reply at 7.

[^18]: ^?^ *See* In the Matter of Long-Term Telephone Number Portability
    Tariff Filings, CC Docket No. 95-116, *Order*, DA 99-128 (para. 8)
    (Comp. Pric. Div., Jan. 8, 1999).

[^19]: ^?^ Ameritech Transmittal No. 1186, Description and Justification
    (D&J), Section B, \"Cost and Rate Structure Requirements\" at 6.

[^20]: ^?^ GSTC Transmittal No. 271, D&J, Section IV.C, \"OSS Costs\";
    GTOC Transmittal No. 1190, D&J, IV.C, \"OSS Costs.\"

[^21]: ^?^ *Cost Classification Order* at 9 (para. 18).

[^22]: ^?^ *Cost Classification Order* at 9 (para. 18).

[^23]: ^?^ AT&T Petition at 5-6.

[^24]: ^?^ AT&T Petition at 5.

[^25]: ^?^ AT&T Petition at 6.

[^26]: ^?^ Ameritech Reply at 5.

[^27]: ^?^ Ameritech Reply at 5, citing D&J at 7.

[^28]: ^?^ SBC Reply at 2-3.

[^29]: ^?^ SBC Reply at 2.

[^30]: ^?^ SBC Reply at 3.

[^31]: ^?^ Ameritech Transmittal No. 1186, D&J at 13, filed Jan.
    15,1999.

[^32]: ^?^ Pacific Transmittal No. 2029, D&J, Appendix E, \"Service Cost
    Development\"; SWBT Transmittal No. 2745, D&J, Appendix E, \"Service
    Cost Development.\"

[^33]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11740 (para. 74).

[^34]: ^?^ *Cost Classification Order* at 14-15 (para. 33).

[^35]: ^?^ *Cost Classification Order* at 14-15 (para. 33).

[^36]: ^?^ *Cost Classification Order* at 16 (para. 37).

[^37]: ^?^ AT&T Petition at 12.

[^38]: ^?^ AT&T Petition at 12.

[^39]: ^?^ AT&T Petition at 13.

[^40]: ^?^ SBC Reply at 8.

[^41]: ^?^ SBC Reply at 8.

[^42]: ^?^ SBC Reply at 8.

[^43]: ^?^ Pacific Transmittal No. 2029, D&J, Section 2.6 \"Rate
    Development\" at 13-14.

[^44]: ^?^ SWBT Tariff Filing, Transmittal No. 2745, D&J, Section 2.6
    \"Rate Development\" at 14.

[^45]: ^?^ SWBT Tariff Filing, Transmittal No. 2745, D&J, Section 2.6
    \"Rate Development\" at 14.

[^46]: ^?^ *Cost Classification Order* at 15 (para. 34).

[^47]: ^?^ *Cost Classification Order* at 16 (para. 37).

[^48]: ^?^ SWBT Tariff Filing, Transmittal No. 2745, D&J, Section 2.6
    \"Rate Development\" at 14.

[^49]: ^?^ *Cost Classification Order* at 15 (para. 34).

[^50]: ^?^ *Cost Classification Order* at 17 (para. 40).

[^51]: ^?^ *Cost Classification Order* at 17 (para. 40).

[^52]: ^?^ *Cost Classification Order* at 17 (para. 40).

[^53]: ^?^ Remaining eligible costs are those costs that are incurred by
    an incumbent LEC in general to establish and provide number
    portability service. These costs are not incurred specifically to
    provide a particular query service but are incurred to provide
    number portability as a whole.

[^54]: ^?^ *Cost Classification Order* at 17 (para. 41).

[^55]: ^?^ *Cost Classification Order* at 17 (para. 41).

[^56]: ^?^ Ameritech Transmittal No. 1186, D&J at 8.

[^57]: ^?^ Ameritech Transmittal No. 1186, D&J at 8.

[^58]: ^?^ GSTC Transmittal No. 271, D&J, Section V. \"Cost Study
    Explanation\" at 34; GTOC Transmittal No. 1190, D&J, Section V.
    \"Cost Study Explanation\" at 34.

[^59]: ^?^ Pacific Transmittal No. 2029, D&J, Section 2.5 \"Cost
    Development\" at 10-11; SWBT Transmittal No. 2745, D&J, Section 2.5
    \"Cost Development\" at 10-11.

[^60]: ^?^ Pacific Transmittal No. 2029, D&J, Section 2.5 \"Cost
    Development\" at 12; SWBT Transmittal No. 2745, D&J, Section 2.5
    \"Cost Development\" at 12.

[^61]: ^?^ *Cost Classification Order* at 20 (para. 49).

[^62]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11778-79 (para. 147).

[^63]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11778-79 (para. 147).

[^64]: ^?^ *Cost Classification Order* at 17 (para. 40).

[^65]: ^?^ *Cost Classification Order* at 17 (para. 41).

[^66]: ^?^ *Cost Classification Order* at 19 (para. 48).

[^67]: ^?^ *Cost Classification Order* at 19 (para. 48).

[^68]: ^?^ AT&T Petition at 9.

[^69]: ^?^ AT&T Petition at 10.

[^70]: ^?^ Time Warner Petition at 1.

[^71]: ^?^ Time Warner Petition at 1-2.

[^72]: ^?^ AT&T Petition at 8.

[^73]: ^?^ AT&T Petition at 8.

[^74]: ^?^ SBC Reply at 6.

[^75]: ^?^ SBC Reply at 6.

[^76]: ^?^ SBC Reply at 6-7 (citing *Third Report and Order*, 13 FCC Rcd
    11711, 11728-29 at paras. 15 and 46).

[^77]: ^?^ SBC Reply at 4.

[^78]: ^?^ SBC Reply at 5.

[^79]: ^?^ SBC Reply at 5.

[^80]: ^?^ SBC Reply at 5.

[^81]: ^?^ Pacific Transmittal No. 2029, D&J, Section 2.1, \"Cost
    Development\" at 5.

[^82]: ^?^ SWBT Transmittal No. 2845, D&J, Appendix E, \"Service Cost
    Development.\"

[^83]: ^?^ Pacific Transmittal No. 2029, D&J, Section 2.4, \"Demand
    Development\" at 9; SWBT Transmittal No. 2745, D&J, Section 2.4,
    \"Demand Development\" at 9.

[^84]: ^?^ Pacific Transmittal No. 2029, D&J, Section 2.4, \"Demand
    Development\" at 9; SWBT Transmittal No. 2745, D&J, Section 2.4,
    \"Demand Development\" at 9.

[^85]: ^?^ *Cost Classification Order* at 19 (para. 48).

[^86]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11740, para. 73.

[^87]: ^?^ *Cost Classification Order* at 5-6 (para. 9).

[^88]: ^?^ *Cost Classification Order* at 6 (para. 11).

[^89]: ^?^ Pacific Transmittal No. 2029, Confidential Cost Support,
    Chart 1; SWBT Transmittal No. 2745, Confidential Cost Support, Chart
    1.

[^90]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11720, para. 29.

[^91]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11720, para. 29.

[^92]: ^?^ *Third Report and Order*, 13 FCC Rcd at 11720, para. 29.

[^93]: ^?^ *See* 47 C.F.R. §1.1206 (b)(2), as revised.