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                                Before the
                     FEDERAL COMMUNICATIONS COMMISSION
                          Washington, D.C.  20554
                  DA 98-151
In the Matter of  )
                  )
Tariffs Implementing    )     CC Docket No. 97-250
Access Charge Reform    )
                  )
ORDER DESIGNATING ISSUES FOR INVESTIGATION
AND ORDER ON RECON             SIDERATION
      Adopted:  January 28, 1998                       Released:  January 28, 1998
Direct Case Date:       February 27, 1998
Opposition/Comment Date:      March 16, 1998
Rebuttal Date:    March 23, 1998
By the Chief, Common Carrier Bureau:
TABLE OF CONTENTS
Paragraph No.
I.    Introduction                                                        1
II.   Common Line Issues                                                  3
III.  Methodology for Calculating Exogenous Cost Changes
      For Line Ports and End Office Trunk Ports                          36
IV.   Transport Adjustment Issues                                        53
V.    Recovery of New Universal Support Obligations                      91
VI.   Reconsideration of Decision to Suspend and Investigate Puerto Rico
      Telephone Company's Tariff Filings                                 98
VII.  Procedural Matters                                                102
VIII. Ordering Clauses                                                  108
                             I.  INTRODUCTION
      1.  On December 30, 1997, we released the Access Charge Reform Tariffs Suspension Order,
which, inter alia, suspended for one day the access tariffs implementing the Access Charge Reform
Proceeding filed by several 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 access tariffs filed by all price cap LECs raised significant questions of
lawfulness that warranted investigation.  We also concluded that provisions in the access tariffs filed
by the Puerto Rico Telephone Company (PRTC) and Beehive Telephone Company raised questions of
lawfulness that warranted investigation.
      2.  In this Order, we designate for investigation issues regarding:  non-primary residential line
counts, the methodology for calculating exogenous cost changes for line ports and end office trunk
ports, Central Office Equipment maintenance and marketing cost exogenous adjustments, tandem-
switched transport rates, the removal of costs from and calculation of the transport interconnection
charge, and universal service support exogenous adjustment for all price cap LECs; the base factor
portion revenue requirement for six price cap LECs; the attribution of tandem switching revenue
requirement to SS7 costs for Bell Atlantic and U S West; the inclusion of STP port costs in the SS7
revenue requirement for SWBT, Pacific Bell, and Nevada Bell; and the line counts used to determine
common line rates for Ameritech, CBT, and U S West.  In addition, on our own motion, we
reconsider our decision to suspend and investigate PRTC's tariff filings, Transmittal Numbers 24, 25,
and 27.
                          II. COMMON LINE ISSUES
A.    Non-primary Residential Line Issues
      1.    Background
      3.  Before January 1, 1998, the access charge rules permitted price cap LECs to recover their
permitted common line revenues through a combination of a flat-rated Subscriber Line Charge (SLC)
and a per-minute carrier common line (CCL) charge.  The SLC was capped at $3.50 per month for
residential and single-line business users and, since July 1, 1997, at $9.00 per month per-line for
multi-line business (MLB) users.  To the extent that permitted common line revenues were not
recovered in the SLC, they were recovered through the CCL charge, which was assessed on the
IXCs.  The Access Charge Reform Order modified the way the price cap LECs recover their common
line revenues.  As of January 1, 1998, a price cap LEC's common line revenues are recovered
through: (1) a SLC assessed on end-users; (2) a flat, per-line charge assessed on the IXC to whom the
access line is presubscribed, referred to as the presubscribed interexchange carrier charge (PICC); and
(3) a per-minute CCL charge assessed on IXCs.  The PICC will recover common line revenues that
exceed the SLC ceilings, subject to a ceiling.  Over time, the PICC ceilings will increase for all
subscriber lines, and the SLC ceilings will increase for MLB and non-primary residential lines.  The
per-minute CCL charge will be phased out once all permitted common line revenues can be recovered
through the two flat-rated charges.
      4.  As of January 1, 1998, the SLC cap for non-primary residential lines was adjusted from
the lesser of the per-line average common line costs allocated to the interstate jurisdiction and $3.50,
to the lesser of the incumbent LEC's average per-line interstate-allocated costs and $5.00.  Both the
MLB and non-primary residential line SLC caps will be adjusted for inflation beginning January 1,
1999.  The PICC was capped for the first year at $1.50 for non-primary residential lines and $2.75
for MLB lines.  For primary residential and single-line business lines, the PICC was capped at $0.53
per month, beginning January 1, 1998.
      5.  The Commission's purpose in restructuring the rate system was to provide for recovery of
non-traffic sensitive costs through flat fees, such as the SLC and PICC.  To the extent that the
LECs' non-primary residential line counts are too low, IXCs will be overcharged (and certain end
users will be charged less than they could be) because the SLC for non-primary residential lines has a
higher ceiling than the SLC for primary residential service.  To the extent this results in higher per-
minute CCL charges, it is contrary to the cost-causation principles set forth in the Access Charge
Reform Order.
      6.  The Access Charge Reform Order, however, did not provide definitions of primary and
non-primary residential lines.  The Commission noted in that Order its intention to develop such
definitions in the Universal Service rulemaking proceeding by the end of 1997, too late for
implementation as of January 1, 1998.  On September 5, 1997, the Commission released a Notice of
Proposed Rulemaking seeking comment on how to define primary residential lines.  The
Commission discussed several possible definitions, including defining the primary residential line as
the primary line of an individual subscriber, of a residence, of an individual household, or by using
another basis.  The Primary Lines NPRM also sought comment on how to identify primary
residential lines once a definition was in place.  The Commission has not yet issued an order
resolving the issues raised in the Primary Lines NPRM.
      7.  In their tariff filings, price cap LECs identified the following percentage of line counts as
non-primary residential and BRI ISDN lines:
      Figure 1.     Ratio of Non-Primary Residential and BRI ISDN to All Residential
                    and Single-Line Business
Ameritech    10.69%
U S West     10.18%
Bell Atlantic10.14%
Sprint LTCs    9.54%
SWBT           8.87%
BellSouth      8.70%
NYNEX   7.69%
Nevada Bell    7.47%
SNET    6.31%
CBT     5.79%
Frontier       4.77%
GTE     4.74%
Aliant  4.38%
PacBell        3.34%
Citizens       2.62%
Average        8.22%
      2.     Pleadings
      a.     Petitions and Comments
      8.  AT&T contends that some of the LECs' non-primary residential line counts are too low.
AT&T estimated in its December 23 pleading that 10-20 percent of residential end-user common lines
are non-primary residential, compared to the LECs' 8.22 percent average.  AT&T bases its estimate
on LEC ex parte submissions, Census Bureau data, and figures from the Hatfield Model filed with the
Commission in other proceedings.  According to AT&T, the price cap LECS collectively have
underestimated the non-primary residential line count by 84 million.  This results in the price cap
LECs collecting $126 million per year too little in SLC revenue and $81 million per year too little in
PICC revenue at capped rates.  AT&T argues that these allegedly low non-primary residential line
counts result in an improper increase of line counts to the primary residence or single line business
categories, and ultimately results in IXCs being overcharged these amounts in contravention of the
Commission's policy goals.  AT&T contends that, as a result of these alleged understatements, the
Commission should investigate all the price cap LECs' SLC demands.
      9.  MCI contends that GTE has failed to define non-primary lines in its Access Charge
Reform Tariff filing, in contravention of section 61.2 of the Commission's rules.  According to
MCI, without a definition of non-primary lines, it is impossible to evaluate whether the PICC and
SLC counts used in GTE's rate development are reasonable, and equally impossible for GTE's
customers to determine the application of the non-primary PICC and SLC.  MCI also contends that
the definitions set forth by the LECs are inconsistent, and some are unreasonably vague.
      b.     Replies
      10.  The LECs generally dispute AT&T's contention that because SLC demand is lower than
AT&T estimated, LECs' counts of non-primary residential lines are incorrect.  They contend that
their definitions of primary and non-primary residential lines are reasonable, and that their line counts
are appropriately based upon actual data, such as billing records.  Further, Citizens and GTE both
state that their relatively low non-primary line counts reflect the fact that secondary lines have not
penetrated the more rural parts of the United States.  Bell Atlantic and SWBT contend it is
premature to investigate the definitions of primary and non-primary residential lines until the
Commission issues an order pursuant to the Primary Lines NPRM.  Once an order is issued, SWBT
states that the LECs can review and adjust their tariffs in order to comply.  In addition, Bell Atlantic
and Frontier support the elimination of the primary/non-primary residential line distinction, and Bell
Atlantic otherwise recommends that the Commission consider a true-up mechanism to be employed
after sufficient billing data are available.
        11.  Bell Atlantic, CBT, and GTE also contend that AT&T presents no evidence of low non-
primary residential line counts, but relies on generalized data and the Hatfield Model, which they
argue is inappropriate and produces grossly inaccurate estimates of subscriber lines.  AT&T's
contentions, according to Bell Atlantic, are based upon a "hodgepodge of conjectural sources" which
should not be accorded any weight.
      12.  As for MCI's contention that the LECs' definitions are not consistent, BellSouth states
that this would be expected, as the Commission has not set forth any definitions, and has left it to the
price cap LECs to devise their own.  CBT argues that MCI's contention that the definitions filed by
the price cap LECs are vague is not supported.
      3.     Discussion
      13.  Based on a review of the record, we conclude that investigation of the definitions used by
some price cap LECs to identify primary and non-primary residential lines is warranted.  We further
find that, for all price cap LECs, the line counts for primary and non-primary residential lines
warrant investigation.
      14.  The Commission has not yet adopted a uniform nationwide definition of primary and
non-primary residential lines.  Our purpose here is to determine whether the definitions that price cap
LECs did use are reasonable, and whether these definitions were applied consistently and in a
reasonable manner in calculating the number of primary and non-primary residential lines.  Once the
Commission promulgates a definition in the Universal Service docket, the price cap LECs may be
required to make prospective adjustments in order to comply with the new definition.
      15.  We have found several problems with price cap LECs' definitions of primary versus non-
primary residential lines.  SWBT defines its primary residential service as "the local exchange service
provided as the primary residential service under the general or local exchange service tariffs."  We
note that SWBT does not use the term "line" in its definition, and that in defining "primary"
residential service as the "primary" residential service in its tariffs, its definition is completely
circular.  We tentatively conclude that this definition is unreasonable.  BellSouth has a similar
problem with circularity in its definition, and we tentatively conclude that its definition is
unreasonable as well.  SNET's definition is so vague that it is not possible to determine on its face
how it distinguished between primary and non-primary lines.  For these reasons, we require
BellSouth, SNET, and SWBT to explain fully their definitions of primary and non-primary residential
lines, including any assumptions that went into these definitions, and invite them, in their direct cases,
to submit modified, expanded, or clarified definitions as necessary.  These price cap LECs should
make clear what lines these definitions include and the manner in which they would be identified,
such as by account number(s), billing number(s), customer name, location, or by whatever sorting
method the LEC chose to use.  Regarding MCI's allegations directed at GTE's definitions, we find
that GTE did provide definitions of primary and non-primary residential lines, and we decline to
investigate the question of what definition GTE used to identify these lines at this time.
      16.  The non-primary residential line counts are lower than we would have expected, given
various published estimates and LEC public statements regarding the growth of second line
penetration.  Recent industry analyses suggest that secondary line penetration averages 19 percent
for several large price cap LECs.  Bell Atlantic recently announced that it had achieved additional
residential line penetration of 19 percent in a 13-state region.  PacBell stated as early as mid-1996
that nearly 20 percent of its residential customers had more than one access line, and that it was
experiencing growth of 152 percent for additional residential lines.  The percentages of lines that
price cap LECs report in their tariff filings as non-primary residential lines are much lower than these
estimates of additional line penetration and additional line growth would indicate.  Most notably,
PacBell reports only 3.34 percent of non-MLB lines as non-primary residential or BRI ISDN lines.
On average, price cap LECs identify only 8.22 percent of non-MLB lines as non-primary residential
or BRI ISDN lines.  We tentatively conclude that all price cap LECs may have under identified non-
primary residential and BRI ISDN lines.  Low non-primary residential line percentages could be due
to definitions that do not reasonably identify non-primary residential lines, or to the way in which the
definitions are applied.  We therefore designate for investigation, for all price cap LECs, both the
question whether the LECs used reasonable definitions of non-primary lines and the question whether
these definitions were applied in a reasonable manner.
      17.  We therefore require each price cap LEC to identify the number of lines in each of the
following categories: (1) primary residential lines; (2) single-line business lines; (3) non-primary
residential lines; and (4) BRI ISDN lines.  In addition, using the worksheets attached as Appendix B,
each price cap LEC's direct case must delineate what, how, and in which order data were sorted and
used in accordance with its definition to arrive at the primary and non-primary residential line count
totals submitted pursuant to this order.  We also direct each price cap LEC to include in its direct
case an explanation of why its definition is reasonable.
B.    PICC and SLC Demand Amounts
      1.     Background
      18.  SLCs are assessed upon end users that subscribe to local exchange telephone service or
Centrex service in order to recover price cap common line revenues.  PICCs are assessed per-line
upon the subscriber's presubscribed interexchange carrier, in part to recover common line revenues
not recovered from the SLC charges.
      19.  The maximum PICCs are determined by dividing common line and other revenues
permitted under our price cap rules by lines in use, subject to the PICC ceilings.  The maximum
per-minute CCL charges the price cap LECs can recover is the lower of: (1) the per-minute rate that
would recover annual common line revenues permitted less the maximum amounts allowed to be
recovered under sections 69.152 and 69.153.  This calculation requires the price cap LECs to
include in their calculations the maximum SLC and PICC revenues they may recover, regardless of
whether they actually assess the charges.  If a LEC does not include all of the lines it is permitted to
charge a PICC in making its calculations, the PICC determined using the formula in section 69.153
will be too high because residual revenues will be divided by too few lines.  Additionally, if the
PICCs are above the PICC caps, the residual used to determine the per-minute CCL charge pursuant
to the formula in section 69.154(a) will also be too high.  Thus, if the price cap LECs do not include
in their PICC and maximum CCL charge calculations all the SLCs and PICCs they are entitled to
assess, the IXCs will be overcharged to the extent that these SLCs and PICCs are not included.
      2.     Pleadings
      a.     Petitions and Comments
      20.  Sprint LTCs contend that Ameritech estimated that the number of multi-line businesses
and Primary Rate Interface (PRI) ISDN lines subject to the PICC is significantly lower than the
number of lines subject to the SLC, with no explanation provided for this discrepancy.  AT&T and
MCI contend that the LECs' SLC and PICC line counts should be identical, because the SLC charges
and the PICC both seek to recover the same costs.  None of the LECs' SLC counts equal their
PICC counts.  AT&T contends that Ameritech, for example, filed PICC counts 2,281,343 lower than
its SLC counts.  Further, Ameritech's PICC counts for Lifeline services were 24,626 lower that its
SLC counts for those services.   According to MCI, Ameritech also identifies significantly fewer
Centrex PICCs than Centrex SLCs.  Several other LECs, according to AT&T, filed tariffs where
the SLC counts exceeded their PICC counts.
      b.     Replies
      21.  Ameritech provides four reasons that it claims contribute to its SLC count being higher
than its PICC count.  Ameritech initially argued that Lifeline end user lines not presubscribed to an
IXC were not included in the PICC primary residence demand.  Ameritech has since revised its tariff
filing, and now includes PICCs for Lifeline customers in its primary residence demand.  Ameritech
also argues that its demand for Centrex SLCs and PICCs are equal, contrary to MCI's allegation.
Ameritech states that Centrex PICC demand is divided between Centrex with eight or fewer lines and
Centrex with more than eight lines.  The sum of these two PICC numbers equals SLC demand for
Centrex.  Further, Ameritech contends that, for multi-line businesses, its SLC demand is higher
because it does not assess PICC charges for those services that are inward-only.  According to
Ameritech, these services do not receive a dial tone and cannot originate calls.  Further, they are not
presubscribed to IXCs, not by choice, but due to the nature of the service.  Ameritech argues that it
would be unreasonable to assess a PICC on a service for which the end user cannot select a primary
IXC.  Furthermore, to the extent that Ameritech determines that there are other types of lines that are
unable to select a presubscribed carrier and for which it will not assess a PICC, Ameritech states that
it will achieve less PICC revenue than calculated in its filing, and that the resulting loss will fall on it
and not on any IXC.  Finally, Ameritech states that its MLB and PRI ISDN PICC counts are lower
than the corresponding SLC line counts, because each PRI ISDN service application is assessed five
SLCs but only one PICC.
        3.       Discussion
        22.  All the LECs' filed PICC line counts that were higher than the SLC counts,  with the
exception of Ameritech.  Ameritech set forth four factors explaining why its SLC count was higher
than its PICC count.  The remaining price cap LECs explained that their PICC counts were higher
than their SLC counts because they do not assess a SLC on official or concession lines.  We have
concluded that the explanations based upon official and concession lines are reasonable.
      23.  The Commission has concluded that where Lifeline customers elect toll blocking and thus
do not presubscribe to an IXC, the PICC should be recovered from the low-income program of the
universal service support mechanisms.  The lines of these customers should, therefore, be included
in the PICC count.  Ameritech's latest tariff filing complies with our rules in this respect, so no
investigation of this issue is required.  We also find that Ameritech's position that its Centrex PICC
and SLC counts are identical is correct.
      24.  Ameritech does not assess a PICC on lines that are inward-only, arguing that these lines
cannot originate calls.  It does assess a SLC on these lines, and a CCL charge for calls terminated on
these lines.  We believe that CBT, GTE, and U S West also do not assess a PICC on inward-only
lines.  CBT assesses a SLC and terminating CCL charge, but does not include inward-only lines in its
PICC demand.  GTE does include these lines in its PICC demand for purposes of calculating its
maximum PICC and CCL charge.  U S West does not assess an interstate SLC or an interstate PICC
on inward-only lines, and does not include these lines in its SLC or PICC demand.
      25.  There is no provision in the Access Charge Reform Order that exempts inward-only lines
from being included in the SLC and PICC counts.  For inward-only lines that do not have a
presubscribed interexchange carrier (PIC), the LEC is permitted to assess the PICC upon the end-
user.  We therefore tentatively conclude that Ameritech and CBT are required by the Commission's
rules to include those lines in their SLC and PICC counts.  We seek comment on this tentative
conclusion.  We direct these LECs to include in their direct cases an explanation as to why their
practices with respect to determining PICC demand should be considered reasonable and consistent
with the Access Charge Reform Order.
      26.  We require U S West to include in its direct case its rationale as to why it is reasonable
to exclude inward-only lines from the development of common line rates.  Further, U S West must
identify in its direct case the portion, if any, of the costs of these lines that is assigned to the interstate
jurisdiction.  If a portion of these costs is assigned to the interstate jurisdiction, U S West must
include in its direct case an explanation of how these costs are recovered in interstate rates, and how
U S West's treatment of these lines in computing common line rates is consistent with the
Commission's Part 69 rules.  If none of these costs is assigned to the interstate jurisdiction, U S West
must explain how this is consistent with the Commission's Part 36 rules.
      27.  Further, we tentatively conclude that Ameritech's position that each PRI ISDN service
application should be counted as five SLCs, but only one PICC, is not reasonable for purposes of
calculating Ameritech's tariff rates.  The Access Charge Reform Order concluded that price cap LECs
could assess five PICCs on each PRI ISDN service, not just one.  For purposes of calculating its
maximum CCL charge, we tentatively conclude that Ameritech's PRI ISDN SLC and PICC line
counts should be identical.  We seek comment on this tentative conclusion.  We direct Ameritech to
include in its direct case an explanation as to why its practice is reasonable and consistent with the
Access Charge Reform Order.
      28.  In addition, we direct Ameritech, CBT, and U S West to submit with their direct cases
line counts recalculated in accordance with the tentative conclusions set forth above.
C.    Adjustment of Common Line Revenues Because of Historic Understatement of BFP.
      1.     Background
      29.  Prior to January 1, 1998, the common line revenues permitted by the Commission's
price cap rules were recovered through the flat-rated SLC and the per-minute CCL charge.  A
portion of the common revenue requirement, referred to as the base factor portion (BFP), is used to
establish the relative levels of interstate SLC and CCL charges, as well as the PICC charges.
Because the ceilings limit per-line charges, some portion of permitted common line revenues has been
recovered in the per-minute CCL charges in each of the past price cap tariff periods (1991-1997) and
in the current tariff period (1997/98).
      30.  A price cap LEC's maximum CCL charge is determined, in part, from the last calendar
year's (base-period's) aggregate common line basket revenues.  Any increase in aggregate common
line revenues is carried forward into the following year.  This further increases future CCL charges
and aggregate common line revenues. In the 1997 Annual Tariff Investigation Order, the Commission
stated that for a price cap LEC that routinely develops unbiased per-line BFP revenue requirement
forecasts, the price cap formula adjusts the CCL rate in a manner intended to generate the remainder
of the common line revenues permitted under price caps not recovered from SLCs.  The
Commission stated that an incumbent LEC that has consistently understated its per-line BFP revenue
requirement over the course of several years has also consistently and correspondingly inflated its
maximum CCL rate.  A price cap LEC uses its prior year's total common line revenues as the
starting point in computing its CCL rate.  If the price cap LEC understates its per-line BFP revenue
requirement, thereby inflating its aggregate common line revenues in a given year, the price cap
formula automatically builds this inflation into its CCL rate for the upcoming year.  The increase to a
LEC's aggregate common line revenues is compounded each year a price cap LEC understates its per-
line BFP revenue requirement.  As the effects of this overstatement compound each year, the
maximum CCL charge becomes increasingly inflated, generating revenues that exceed the common
line revenues intended to be permitted under price caps.
      2.     Pleadings
      31.  AT&T and MCI argue that the Commission should investigate all tariffs of Bell Atlantic,
NYNEX, GTOC, the Sprint LTCs, SWBT, and U S West because, as found in the 1997 Annual
Tariff Investigation Order, these carriers have underestimated their BFP revenue requirements and
thereby have overstated their CCL rates since 1991.  AT&T calculates that the LECs' CCL errors
forced IXCs to pay $500 million to $1 billion in excess charges over the past seven years, and argues
that, unless corrected, the overcharge will continue.  AT&T states that the only remaining issues are:
(1) the amount by which the LECs' past (and current) total common line and CCL revenues have
been (and are) overstated as a result of the LECs' past downward bias in per-line BFP revenues
requirements; and (2) how the LECs' current PCIs and CCL rates should be adjusted to remedy that
overstatement.  AT&T applied the Commission's methodology to U S West.  According to AT&T,
the impact of the past understatement of per-line BFP revenue requirements on the CCL rates
amounts to an overpayment by AT&T of $218 million from 1991 through 1997.  On a going forward
basis, AT&T states that US WEST's total common line revenues are still overstated by $18 million.
AT&T contends that an accurate quantification of the effect of the LECs' overstatements of current
CCL rates will require an extensive examination of the rates since 1991.  AT&T argues that price cap
LECs that historically have understated their BFP revenue requirements (Bell Atlantic, NYNEX,
GTOC, the Sprint LTCs, SWBT, and U S West) should be ordered to pay the appropriate refunds.
      32.  AT&T states that the 1997 Annual Tariff Investigation Order required Bell Atlantic to re-
compute its tariff year 1997 per-line BFP forecast, and issue necessary refunds.  It argues that Bell
Atlantic has refused to comply, insisting that its 1997/1998 projection of per-line BFP revenue
requirement was correct and refuses to make corrections to its estimates or issue refunds.
      33.   Bell Atlantic, GTE, SWBT, the Sprint LTCs, and U S West state that their BFP
calculations are fully consistent with the methodology adopted by the Commission in the 1997 Annual
Tariff Investigation Order.  U S West claims that the Commission has effectively prescribed the
CCL rates that the carriers have filed in this proceeding by prescribing the per-line BFP revenue
requirement that the carriers use to determine the CCL rates.  Bell Atlantic states that in calculating
the CCL, there is no carry forward effect from prior years.  GTE argues that AT&T's analysis
ignores the fact that some carriers have historically priced their CCL rates substantially below the
permitted cap and any overearnings during that period would have been reflected in the sharing
mechanisms in place.  GTE further states that AT&T's claim that LECs must adjust their PCI values
to reflect a restatement of SLC and CCL rates for each year since 1991, is without justification.
      34.  Bell Atlantic states that its tariffs already included the specific correction required by the
Commission's 1997 Annual Tariff Investigation Order.  Moreover, states Bell Atlantic, using the
Commission's methodology would have no impact on BFP costs; thus, no changes were required.
      3.     Discussion
      35.  In the 1997 Annual Tariff Investigation Order, the Commission found that Bell Atlantic,
NYNEX, GTE, SWBT, the Sprint LTCs, and U S West had consistently underestimated their per-line
BFP revenue requirement forecasts.   In that order, the Commission stated that "a LEC that has
consistently understated its per-line BFP revenue requirement over the course of several years has also
consistently and correspondingly inflated its maximum CCL rate."  The Commission did not,
however, order reductions to PCIs to remove this effect because the record did not provide sufficient
information to allow calculation of such reductions.  We tentatively conclude that the current
maximum CCL rates of Bell Atlantic, NYNEX, GTE, SWBT, the Sprint LTCs, and U S West are
unreasonably high due to past understatement of per-line BFP revenue requirement.  At this time, we
direct each of these carriers to provide, as part of its direct case, a recalculation of its maximum
common line revenues, using the CCL Recalculation Methodology employed by AT&T in its
December 23 Petition.  We seek comment on this proposed methodology.  We also seek comment on
whether this proposed methodology should be adjusted to account for specific instances in which price
cap LECs have priced their CCL charges below the permitted cap or have reduced their PCIs for a
tariff year because of sharing.  Additionally, we invite LECs to submit alternative methodologies that
in their view may present a more accurate calculation of their maximum common line revenues.
III.  METHODOLOGY FOR CALCULATING EXOGENOUS COST CHANGES FOR LINE
                    PORTS AND END OFFICE TRUNK PORTS
A.    Background
      36.  In the Access Charge Reform Order, the Commission concluded that, consistent with
principles of cost-causation and economic efficiency, non-traffic sensitive (NTS) costs associated with
local switching should be recovered on a flat-rated basis.  Specifically, the Commission found that
the costs of the line-side port (including the line card, protector, and main distribution frame) are
NTS, and thus should be recovered through flat-rated charges.  Accordingly, for price cap LECs, the
Commission reassigned all line-side port costs as of January 1, 1998 from the Local Switching
category of the Traffic-Sensitive basket to the Common Line basket rate elements, which include the
SLC and the flat-rated PICC.  The Commission directed all price cap LECs to include in their tariff
filings implementing the Order an exogenous downward adjustment to the Traffic-Sensitive basket, 47
C.F.R.  61.42(d)(2), and corresponding exogenous upward adjustment to the Common Line
Interstate Access Elements basket, 47 C.F.R.  61.42(d)(1), to reflect the recovery of the interstate
NTS costs of line-side ports from the Common Line rate elements.
      37.  The Commission also found in the Access Charge Reform Order that the costs of a
dedicated trunk port (including the trunk card and DS1/voice-grade multiplexers, if needed) should be
recovered on a flat-rated basis from the carrier purchasing the dedicated trunk terminated by that
port.  The Commission concluded that, in order to ensure that these purchasers of dedicated trunks
do not pay the costs of shared trunk ports that they do not use, the costs of shared trunk ports should
be recovered on a per-minute-of-use basis from the users of common transport trunks.  Therefore, for
price cap LECs, the Commission reassigned all trunk port costs in the Traffic-Sensitive basket from
the Local Switching category to a new "trunk ports" category, and established separate rate elements
within this category for dedicated trunk port costs and shared trunk port costs.
      38.  In addition, the Commission required each price cap LEC to conduct a cost study to
determine the geographically-averaged portion of local switching costs that is attributable to line-side
ports and to dedicated trunk-side ports.  The Commission took note of the estimate by the United
States Telephone Association (USTA) that six percent of the costs of an analog switch and 51 percent
of the costs of a digital switch are NTS.  The Commission did not, however, establish a fixed
percentage of local switching costs that price cap LECs must reassign to the Common Line basket or
to the newly-created Trunk Cards and Ports service category.  In light of the widely varying estimates
in the rulemaking record, the Commission instead concluded that the NTS portion of local switching
costs likely varies among LEC switches.
      39.  In the tariffs filed pursuant to the Access Charge Reform Order, most price cap LECs
compute the exogenous cost adjustments for line ports and end office trunk ports by:  (1) using the
Switching Cost Information System (SCIS) model (or a similar switching cost model), or estimating
material prices and installation and engineering costs without using a switching cost model, to
compute line port investment, end office trunk port investment, and total end office switch investment
(which includes line port investment and end office trunk port investment); (2) dividing line port
investment and end office trunk port investment by total end office switch investment to obtain ratios
of total switching investment; (3) developing a revenue requirement for the Local Switching category
within the Traffic-Sensitive basket based on an after tax rate of return of 11.25 percent; and (4)
multiplying the ratios of line port investment and end office trunk port investment to total switching
investment by the revenue requirement for the Local Switching category.
      40.   Other price cap LECs compute the exogenous cost adjustments for line ports and end
office trunk ports by:  (1) using a switching cost model, or estimating material prices and installation
and engineering costs without using a switching cost model, to develop investment for a single line
port or end office trunk port; (2) developing annual cost factors for local switching, including an
annual cost factor for the cost of capital based on an after-tax rate of return of 11.25 percent; (3)
multiplying investment for a single line port or end office trunk port by the annual cost factors to
obtain the annual cost for a single line port or end office trunk port; (4) measuring the total demand
for line ports or end office trunk ports; and (5) multiplying the annual cost for a single line port or
end office trunk port by the total demand for line ports or end office trunk ports.
B.    Pleadings
      41.  MCI and AT&T note that price cap LECs have applied the port cost percentages that
they derived from their cost models to the Part 69 local switching revenue requirements that they
developed using data reports from the Automated Reporting Management Information System
(ARMIS).  These commenters argue that price cap LECs should have applied their port cost
percentages to their local switching revenues under price caps, which are substantially higher than the
LECs' ARMIS revenue requirements.  For example, AT&T contends that SNET's local switching
revenue under price caps is $102.1 million, whereas its revenue requirement is $63.6 million.
AT&T also argues that the application of the line port percentages to local switching revenues is
necessary to "equitably distribute any over earnings or under earnings to the line port."
      42.  According to these commenters, if price cap LECs had applied the line port percentages
derived from their cost models to their actual local switching revenues, the amount of line port dollars
moved from the Local Switching category to the Common Line basket would be substantially
greater.  To demonstrate this point, AT&T provides data indicating that the percentage of line port
exogenous costs to current local switching band revenues for the Regional Bell Operating Companies
(RBOCs) is significantly lower than the line port cost percentage identified in the RBOCs' cost
studies.  For example, AT&T states that Ameritech's line port investment percentage is 27%, while
its percentage of line port exogenous costs to local switching revenues is 17.2%.  AT&T also states
that BellSouth's line port investment percentage is 30.8%, while its percentage of line port exogenous
costs to local switching revenues is 21.2%.  In addition, AT&T claims that if price cap LECs had
applied the trunk port percentages derived from their cost models to their actual local switching
revenues, the amount of trunk port dollars moved from the Local Switching category to the new trunk
port elements would be substantially greater.  AT&T contends that the percentage of trunk port
exogenous costs to current local switching band revenues for RBOCs is significantly lower than the
trunk port cost percentage identified in the RBOCs' cost studies.
      43.  Price cap LECs reply that the application of port investment percentages to the 1996
ARMIS local switching revenue requirement complies with the text of the Access Charge Reform
Order, which requires price cap LECs to remove line port and trunk port costs from the local
switching category.  Price cap LECs note that the shift of line port costs, rather than actual
revenues, is consistent with the Part 69 rules on basic and complex line port costs adopted in the
Access Charge Reform Order.  Price cap LECs also note that section 69.306(d) of the
Commission's rules states that line port costs shall be assigned to the Common Line basket, and
section 69.157 of the Commission's rules states that the costs of Integrated Services Digital Network
(ISDN) line ports (and similar services) shall be recovered through a separate end user charge.
Price cap LECs state that their calculation of the shift in line port costs is consistent with section
61.45 the Commission's rules on exogenous cost treatment.  In addition, price cap LECs note that
the shift of line port costs to the Common Line basket is consistent with the Commission's common
line rate development rules.  Specifically, price cap LECs state that section 69.104(c) of the
Commission's rules directs that common line recovery be based upon a determination of common line
Base Factor Portion (BFP) revenue requirement per line.  Price cap LECs also assert that the
calculation of line and trunk port cost shifts on a revenue requirement basis is consistent with the
revenue requirement treatment given to the Central Office Equipment (COE) maintenance expense
adjustment and the revised allocation of General Support Facilities (GSF).
      44.  In addition, Ameritech states that in past proceedings the Commission has accepted
exogenous cost changes calculated on a revenue requirement basis, including exogenous cost changes
for excess deferred taxes and the investment tax credit.  Ameritech also notes that in Exhibit A of
AT&T's December 11 Petition and Comments, Column A is labelled "Current Local Switching
Revenues" but the entry for Ameritech represents the entire Traffic-Sensitive revenue as it existed
prior to the 1997 Annual Filing.  Ameritech argues that, accordingly, the line port and trunk port
percentage exogenous changes resulting from AT&T's calculations are understated.  SNET contends
that it did not apply a line port percentage derived from SCIS to the Part 69 local switching revenue
requirement, but rather multiplied unit revenue requirements by base year demand quantities.
      45.  Furthermore, the Sprint LTCs state that, contrary to the assertions of MCI and AT&T,
applying a line port cost percentage to local switching revenues under price caps does not result in a
cost-based reallocation of line port costs.  The Sprint LTCs explain that this methodology would
permanently assign a portion of the difference between current revenues and line port costs to the
Common Line basket, and therefore defeat the goal of access reform to require the cost-causer to be
the cost-payer.  GTE states, in response to AT&T's assertion that the application of the line port
percentages to local switching revenues is necessary to "equitably distribute any over earnings or
under earnings to the line port," that sharing of over earnings is not relevant.  According to GTE,
under the original price cap plan it is the total interstate jurisdictional level, as opposed to the
individual service category, which dictates over earnings.  Thus, GTE asserts that AT&T's method
would effectively result in a return to monitoring rates on the basis of individual returns within
service categories even though the Commission recently eliminated any sharing obligation from the
price cap plan.
C.    Discussion
      46.  In the Access Charge Reform Order, the Commission adopted rules stating that price cap
LECs shall assign "line-side port costs" to the Common Line rate element and that price cap LECs
shall "separate from the projected annual revenues for the Local Switching element those costs
projected to be incurred for ports... on the trunk side of the local switch."  In calculating the
exogenous cost adjustments required by these rules, price cap LECs interpreted "costs" to mean "Part
69 revenue requirements."  These LECs also claim that this revenue requirement should be
calculated using the allowed rate of return for local exchange carriers under rate of return regulation,
11.25 percent.  In contrast, AT&T and MCI interpret "costs" to mean "price cap permitted
revenues," and argue that the price cap LECs should have calculated their exogenous cost changes on
the basis of these revenues.
      47.  As an initial matter, we note that the Commission has never adopted by rulemaking a
single methodology for computing exogenous cost changes that result from a reallocation of cost
recovery among price cap service categories, baskets, or rate elements.  It is therefore appropriate for
us to determine the proper methodology for these exogenous cost changes in a tariff investigation
under Section 204 of the Communications Act, 47 U.S.C.  204.  Accordingly, we seek comment
and make tentative conclusions below regarding the relevant legal and policy considerations.
      48.  When a LEC entered price cap regulation in 1991, each rate element was  based on the
Part 69 revenue requirement and targeted to earn an 11.25 percent rate of return.  Over time, through
operation of the price caps formulas, rates have diverged from those original allocated costs.  Price
cap regulation has allowed carriers that reduced their costs to keep all or some of the earnings they
gained by being more efficient.  Moreover, price cap regulation allowed carriers a measure of pricing
flexibility within baskets to raise and lower rates on particular rate elements without reference to the
revenue requirements originally recovered through those rate elements, or to the revenue requirement
that would result today from application of the Part 69 cost allocation rules.  After seven years of
price caps, it is likely that Part 69 revenue requirements have a very attenuated relationship to the
costs actually recovered through any particular rate element.  Therefore, we tentatively conclude that
revenues, and not Part 69 revenue requirements, are the best measure of the costs recovered through
a particular price cap rate element.  We seek comment from all interested parties on this tentative
conclusion.
      49.  If, after reviewing the record in response to this designation order, we conclude that the
Access Charge Reform Order required that LECs use revenue requirement, rather than revenues, to
make the exogenous cost changes, we tentatively conclude that actual basket earnings must be used to
calculate that revenue requirement.  Using actual earnings to divide the costs of local switching into
three separate components for future recovery produces an equitable and reasonable distribution of the
earnings reflected in the one local switching rate by spreading them proportionately over the three
new components.  We seek comment from all interested parties on this tentative conclusion.
      50.  We believe that the best method for moving rate elements or services out of a basket or
service category would be a method that left exactly zero permitted revenues in the basket or service
category after all services or rate elements were removed.  If the price cap LECs' methodologies
were applied seriatim to each service in a price cap basket for purposes of removing those services
from the basket, the basket would have permitted revenues left after all services were removed, if the
basket had been earning returns in excess of 11.25 percent.  On the other hand, if the basket had been
earning less than 11.25 percent, there would be insufficient permitted revenues for all of the services.
The result of having zero revenues in the basket or service category after all services are removed can
be accomplished by using revenues, as we tentatively conclude is preferable, or by using revenue
requirements calculated on the basis of actual basket earnings.  We seek comment on this approach.
      51.  Furthermore, we seek comment on whether the methodology discussed here for ports
should also be applied to the other reallocations required by the Access Charge Reform Order.  Parties
should quantify the results of using this method consistently for all such reallocations.  In addition,
parties dispute the extent to which precedent exists that governs or should govern the method to be
applied here.  We direct each LEC to include in its direct case a comprehensive list of all the
exogenous adjustments it has made since it entered price cap regulation that had the purpose of
reallocating costs among baskets, categories, rate elements, or between price cap and non price cap
services.  LECs should list the method used in each instance.
      52.  Finally, if costs are reallocated using revenues as a surrogate for costs, we tentatively
conclude that common line rate development should be done in the following manner.  Price cap
LECs should use local switching revenues for the purpose of determining the amount of exogenous
cost adjustments to the Traffic-Sensitive and Common Line baskets, but price cap LECs should use
their Part 69 revenue requirements to recalculate the BFP, because the BFP is still calculated pursuant
to fully-distributed embedded costs and revenue requirements.  We seek comment from all
interested parties on this tentative conclusion.
                     IV.  TRANSPORT ADJUSTMENT ISSUES
A.    Whether the Price Cap LECs are Attributing Too Large a Fraction of Their Tandem
      Switching Revenue Requirement to SS7 Costs.
      1.     Background
      53.  The Access Charge Reform Order requires that SS7 costs that are recovered by the TIC
be removed from the TIC and allocated to the traffic sensitive basket.
      2.     Pleadings
      54.  MCI contends that several LECs are attributing too large a fraction of their tandem
switching revenue requirement to SS7, thereby overallocating costs to the traffic sensitive basket and
minimizing the facilities-based TIC, that can be avoided by using competitive transport.   For
example, MCI charges that Bell Atlantic has overstated its SS7 costs.  MCI states that the
Commission's First Transport Order indicated that SS7-related costs are estimated to represent no
more than approximately ten percent of the total tandem revenue requirement.  It notes that while
most LECs are attributing less than ten percent of their tandem switching revenue requirement to SS7,
Bell Atlantic is attributing 28 percent to SS7.  MCI rejects Bell Atlantic's claim that its SS7 costs
are high because it has deployed SS7 exclusively at tandems, noting that the Commission found in the
Local Transport Order that LECs generally classify SS7 costs as Category 2 tandem switching
investment.  Further, MCI requests that Bell Atlantic explain the disparity between its previous
statements to the Commission concerning the level of its SS7 costs and its current estimates.
      55.  MCI argues that while the price cap LECs, including Ameritech, BellSouth, and GTE,
have adjusted the overall tandem switching revenue requirement for the change in PCI since 1993 as
required by the Access Charge Reform Order, they have not adjusted the revenue requirement for SS7
in a similar fashion.  MCI argues that the LECs should be required to compute the percentage of
tandem switching attributable to SS7, and then apply this percentage to the overall tandem switching
revenue requirement computed pursuant to the Access Charge Reform Order.
      56.  MCI further argues that several price cap LECs, including SWBT, PacBell and Nevada,
have failed to deduct STP port costs from their SS7 revenue requirements even though these costs
have never been part of the TIC.  MCI believes that the failure to exclude signalling transfer points
(STP) port costs explains why these companies are attributing more than ten percent of their overall
tandem switching revenue requirement to SS7.  MCI urges the Commission to investigate these LECs'
tariffs to ensure that only costs formerly recovered by the TIC have been removed from the TIC.
      57.  MCI argues that U S West has used the wrong SS7 cost figure in computing the residual
tandem switching revenue requirement.  It notes that even though U S West computed the correct
SS7 revenue requirement on Workpaper 7, it used a higher Workpaper 12 figure when it computed its
tandem switching revenue requirement.  MCI asserts that U S
West should be required to correct this error.
      58.  The LECs disagree with MCI that their SS7 costs are overstated.  For example,  CBT
states that its SS7 investment and costs have been categorized to the Local Switching Access Element
since before it went to price caps, and therefore SS7 costs are already being recovered from the
Traffic Sensitive Basket.  Thus, CBT points out that it does not have any SS7 exogenous costs.
Bell Atlantic states that its SS7 costs, as a percentage of its tandem switching revenue requirement,
are not out of line with the percentages of other LECs.  Bell Atlantic points out that the amount of
SS7 costs will vary based on the number of tandems, the costs of the tandems, and the size of the
area served.  Bell Atlantic also disagrees with MCI that it did not explain how it derived its SS7
costs.  It refers to its Description & Justification in its TRP, which it believes explains the derivation
of the tandem revenue requirement attributable to SS7.  U S West argues that it used the appropriate
figures in determining its tandem switching revenue requirement.
      59.  In general, the LECs also disagree with MCI that they are required to adjust the costs of
SS7 components of the tandem switching revenue requirement to reflect PCI adjustments since
1993.  They contend that there is no requirement in the Access Charge Reform Order to make such
adjustments.  Sprint LTCs, however, agree with MCI that SS7 costs should be adjusted to reflect
past X-
factor reductions before they are removed from the tandem revenue requirement.
      60.  With respect to MCI's concern that STP port costs were not removed from the STP
revenue requirement, SWBT argues that the Commission did not specify this requirement.  Therefore
MCI is incorrect that the $2.9 million transfer of STP port costs to the new STP port termination
service category should be deducted from the SS7 costs and removed from the TIC.  Aliant states
that it excluded the costs of STP ports in developing the STP revenue requirement and the exogenous
adjustment.
      3.     Discussion
      61.  Based on our review of the price cap LECs' tariff filings, we find in general that, except
for Bell Atlantic, U S West, SWBT, PacBell, and Nevada, the cost support provided by the price cap
LECs for the removal of SS7 costs does not raise substantial questions of lawfulness that warrant
investigation.  We are, however, concerned that while Bell Atlantic is attributing 28 percent of its
tandem switching revenue requirement to SS7, most price cap LECs are attributing less than 10
percent of their tandem switching revenue requirement to SS7 costs.  As MCI pointed out, the Local
Transport Order determined that SS7 related costs represent no more than approximately 10 percent
of the total tandem revenue requirement.   In addition, we are unable to determine whether U S
West used the correct SS7 cost figure in computing its residual tandem switching revenue
requirement.  Thus, we require Bell Atlantic and U S West to provide cost studies justifying the
amount that was removed from the TIC as SS7 costs.  In particular, Bell Atlantic and U S West must
provide detailed information substantiating the amount of SS7 costs that were originally allocated to
the TIC.  We also require detailed information regarding any additional SS7 costs that were
incorporated into the TIC during the period January 1, 1994 to December 31, 1997.  Furthermore,
Bell Atlantic and U S West should provide detailed information regarding any true-up to SS7 costs
due to exogenous cost adjustments in the trunking basket.
      62.  We are also concerned that SWBT, PacBell, and Nevada have included STP port costs in
their SS7 revenue requirement even though, as MCI notes, these costs have never been part of the
TIC.  We tentatively conclude that these price cap LECs should be required to deduct STP port costs
from the SS7 revenue requirement if STP port costs have been included in the dedicated signalling
rate element, and ask comment as to this conclusion.
B.    Whether Price Cap LECs made the proper COE Maintenance and Marketing Cost
      Adjustments to the TIC.
      1.     Background
      63.  In the Access Charge Reform Order, the Commission required the LECs to identify the
amount of Central Office Equipment (COE) maintenance that has been misallocated to the trunking
and common line baskets, and to move these amounts to local switching.  In addition, the LECs
were required to remove their Account 6610 marketing expenses from all access rate elements that are
not purchased by and marketed to retail customers.
      2.     Pleadings
      64.  AT&T contends that both these adjustments require a downward adjustment to the TIC,
and that the LECs must allocate these exogenous cost amounts to the TIC as it existed prior to July 1,
1997 in order to ensure that an excessive amount of the COE maintenance reallocation and the
marketing expense reallocation are not credited to the facilities-based TIC.  AT&T contends that no
LECs have used the June 30, 1997 TIC in their adjustment process.  For example, it argues that
PacBell and Nevada have not used their June 30, 1997 TIC in the adjustment process and
consequently have made a $5 million error.  In addition, AT&T asserts that, except for SWBT and
BellSouth, LECs have failed to apply both the COE maintenance and marketing exogenous cost
adjustment to the TIC.  Thus, AT&T urges the Commission to require all LECs to apply the impact
of their COE maintenance and marketing exogenous adjustments on the residual and facilities-based
TIC as of June 30, 1997.
      65.  In reply, Frontier and Bell Atlantic disagree with AT&T that LECs were required to
allocate exogenous changes for both COE maintenance expense and marketing expense to the TIC
based upon the TIC as it existed on June 30, 1997.  Frontier states that while the Access Charge
Reform Order directs price cap LECs to remove marketing expenses from the switched access portion
of the trunking basket, it does not mention using the TIC as it existed on June 30, 1997.  Thus,
Frontier states that it allocated its marketing expense exogenous change by switched revenues as of
the last PCI update.  Moreover, it argues that the Access Charge Reform Order does not require
that COE maintenance expense be targeted to service bands, because the Part 69 allocation rules do
not correspond to the price cap bands and there is no methodology for allocating COE maintenance
among the bands.  Therefore, Frontier states it treated COE maintenance as a basket level
exogenous change in the trunking basket, which affects all bands in the trunking basket, including the
TIC.
      66.  Regarding AT&T's claim that it did not remove marketing and central office equipment
maintenance expenses from the TIC, Bell Atlantic argues that it complied with the requirements of the
Access Charge Reform Order by: (1) removing marketing expenses only from services that were not
provided to end users; and (2) removing a portion of the COE maintenance costs from the TIC
corresponding to the change in the TIC service band index upper limit that resulted from the
exogenous adjustment to the trunking basket.
      3.     Discussion
      67.  Based on our review of the price cap LECs' tariff filings, we are unable to determine
whether the price cap LECs have properly removed from the TIC marketing expenses and COE
maintenance expenses.  Accordingly, we direct the price cap LECs to provide supporting
documentation justifying the amount that was removed from the TIC as COE maintenance and
marketing expenses.  In particular, the price cap LECs must provide detailed information
substantiating the amount of COE maintenance and marketing costs that were removed from the
trunking basket, and the portion of that amount that was removed from the TIC.  Price cap LECs
should explain their theory for determining the portion removed from the TIC.  We seek comment on
whether the portion removed from the TIC should be based on the relative revenues in each category
or the relative switched access revenues in each category, or on a more detailed analysis of the source
of the costs.
      68.  In addition, we tentatively conclude that the price cap LECs must allocate these
exogenous cost changes to the TIC as it existed prior to July 1, 1997.  Otherwise, the targeting effect
that occurred in the July 1, 1997 tariffs could skew the amount of reallocation costs ascribed to the
facilities-based TIC.  We seek comment on this tentative conclusion.
C.    Whether the Price Cap LECs Properly Estimated the Impact on the TIC Arising from
      the Use of Actual Minutes of Use Rather than Assumed 9000 Minutes of Use
      1.     Background
      69.  The Access Charge Reform Order directed incumbent LECs to use actual minutes of use
(MOUs) per circuit rather than an assumed 9000 minutes of use to develop their tandem-switched
transport rates.  Based on the record before the Commission showing that LECs' actual circuit
loadings were substantially lower than 9000 MOUs, the Commission found that the continued use of
the 9000 MOU assumption has contributed to the level of the non-cost based TIC and was no longer
reasonable.  The Commission therefore directed incumbent LECs to develop common transport
rates based on the relative number of DS1 and DS3 circuits in use in the tandem-to-end office, and to
use actual voice-grade circuit loadings, geographically averaged on a study-area-wide basis, that each
LEC experienced based on the prior year's annual use.  The Commission directed incumbent LECs
to use any increase in tandem-switched transport revenues to decrease the TIC.
      70.  The price cap LECs' tariff filings reveal that average tandem usage in the BOCs' study
areas is over 11,000 minutes per trunk.  As a result, the recalculated transport rates for the BOCs are
lower than their previously-existing rates.  The price cap LECs attribute the lower rates to the LECs'
use of circuit loading greater than 9000 minutes and to their current DS1 and DS3 rates, which are
generally lower than they were in 1993 when the initial common transport rates were developed.
Consequently, the price cap LECs made exogenous adjustments that remove revenue from the
tandem-switched transport category and add that revenue to the TIC in the amount of $57.3 million.
      2.     Pleadings
      71.  AT&T and MCI contend that price cap LEC use of TIC revenues to finance reductions in
common transport rates is contrary to the Access Charge Reform Order's expectation that the LECs'
recalculation of transport rates would result in higher common transport rates and reduce the TIC.
MCI notes that U S West, SWBT, the Sprint LTCs, and certain other price cap LECs have computed
reinitialized tandem switched transport rates that are lower than their existing tandem switched
transport rates, and are now proposing to increase their TIC in the amount of the tandem switched
transport revenue decrease.   AT&T identifies PacBell and Nevada Bell as having improperly
estimated the impacts on the TIC arising from the use of actual volumes rather than presumed
volumes.   MCI argues that the Commission should not permit the reinitialization of tandem
switched transport rates to increase the TIC SBI upper limit.  In particular, it contends that there is
nothing in the Access Charge Reform Order that permits a decrease in common transport revenues to
increase the TIC, and that any increase in the TIC would be contrary to the Commission's stated goal
to "establish a mechanism to reduce and eliminate the TIC."  MCI and AT&T argue that the price
cap LECs should be required to reduce the TIC by the amount of any revenue increase if the
reinitialized rates exceed existing rates, but if the reinitialized rates are less than existing rates, no
adjustment to the TIC SBI upper limit should be made.
      72.  In reply, the LECs argue that they have calculated their common transport rates
consistent with the Commission's rules and that those rates are presumed reasonable.  Aliant states
that it never made any statements to the Commission regarding actual minutes of use per trunk and, in
any event, the LECs are required to develop transport rates in accordance with the methodology
adopted in the Access Charge Reform Order.  Ameritech explains that its recalculated tandem
switched transport rates, which are lower than its existing rates, are the logical result of higher fiber-
to-copper circuit weighing and lower DS1 and DS3 rates than were in place in its 1993 filing.
      73.  GTE points out that its average MOUs represent "total actual voice-grade minutes of
use" as required by Section 69.111(c)(1) of the rules.  It notes that the MOU information provided
in the Access Charge Reform NPRM represented traffic flowing from the serving wire center to the
access tandem or access minutes as opposed to traffic flowing from the end office to the access
tandem, which includes not only access minutes, but local and toll minutes as well.  GTE explains
that in those instances where the common transport rates declined, the residual transport costs were
allocated to the TIC.  According to GTE, revenues not recovered in the existing common transport
facility and termination rates are recovered though an upward revision of the TIC to comply with the
price cap rate structure requirement of revenue neutrality within the trunking baskets.
      74.   Finally, BellSouth argues that any analysis of whether revenues have shifted back to the
TIC must take into account the revenues associated with the new common transport multiplexers.
BellSouth argues that when its reinitialized common transport revenues are combined with the
transport multiplexer revenues, the net effect is a shift in revenues from the TIC to common
transport.
      3.     Discussion
      75.  Before the Access Charge Reform Order, section 69.111(c) stated that:
             "tandem-switched transport rates generally shall be presumed
             reasonable if the telephone company bases the charges on a weighted
             per-minute equivalent of direct-trunked transport DS1 and DS3 rates
             that reflect the relative number of DS1 and DS3 circuits used in the
             tandem-to-end office links . . . , calculated using a loading factor of
             9000 minutes of use per month per voice-grade circuit."
Section 69.111(c)(1) now states that:
             "[t]hrough June 30, 1998, tandem-switched transport transmission
             charges generally shall be presumed reasonable if the telephone
             company bases the charges on a weighted per-minute equivalent of
             direct-trunked transport DS1 and DS3 circuits used in the tandem-to-
             end office links . . . , calculated using the total actual voice-grade
             minutes of use, geographically averaged on a study-area-wide basis,
             that the incumbent local exchange carrier experiences based on the
             prior year's annual use."
The Commission adopted the new rule based on evidence in the record presented by the LECs
showing that the actual traffic levels for many LECs was substantially lower than 9000 minutes of use
per month.  The Commission found that use of the 9000-minute assumption had caused revenues to
be assigned to the TIC that would have been assigned to switched transport rates if actual MOU had
been used to develop those rates in 1993.  The Commission expected that use of actual MOU would
cause an increase in tandem-switched transport rates, and directed that increase to be offset by a
decrease in the TIC.  Instead, LECs have decreased their tandem-switched transport rates and
increased the TIC.
      76.  Based on our review of the price cap LEC tariff filings and the associated pleadings, it
appears that all of the price cap LECs' transport rates between the tandem switch and the end office
did indeed decline when LECs based those rates on the actual MOUs per voice-grade circuit rather
than the previously assumed 9000 MOUs.  The LECs have chosen to make up the difference between
the new and old revenues by increasing the TIC.  It appears that a portion of the rate reductions is
due to the fact that the price cap LECs not only replaced the 9000 minutes of use assumption with
actual data in performing their calculations, but also took into account decreased DS1 and DS3 rates
as well as lower transport costs resulting from new technology.
      77.  When the Commission ordered price cap LECs to recalculate rates for the common
transport portion of tandem-switched transport using actual minutes of use for circuit loading rather
than assuming 9000 minutes of use per month, it was for the purpose of removing from the TIC
any revenues attributable to the use of that particular assumption when the TIC was first established.
The Commission did not contemplate that price cap LECs would adjust any other inputs into the
calculation to reflect current data.  Such an approach serves to generate additional TIC, which was
not the Commission's intention.
      78.  We recognize that the Commission did not amend section 69.111(c) of the Commission's
rules to state explicitly that 1993 data rather than current data should be used for other elements of
the formula in that section of the Commission's rules.  That rule, however, must be read in context
with section 69.1(c) of the Commission's rules, which states that section 69.111(c) only applies to
price cap LECs for purposes of computing initial charges for new rate elements.  Thus, the
amendment to section 69.111(c) applies only to rate-of-return carriers, which recalculate their tandem-
switched transport rates each year with updated data.  They continue to do so under the amended
rule, but replacing the 9000 minutes of use assumption with actual minutes.  We tentatively conclude
that price cap carriers should not recalculate their tandem-switched transport rates pursuant to section
69.111(c).  We seek comment on this conclusion.
      79.  Further, we tentatively conclude that to satisfy the Access Charge Reform Order, the
price cap LECs should recalculate tandem-switched transport rates using the same data that was used
when they were first established in 1993, except using actual minutes of use for circuit loading, rather
than assuming 9000 minutes of use per month.  They then should compare those rates to the 1993
rates to determine the amount of the TIC that was attributable to using the 9000 minutes of use
assumption.  They should then determine what percentage of the original TIC was therefore
attributable to the 9000 minutes of use assumption and make an exogenous adjustment to their June
30, 1997 TIC SBI by that percentage.  LECs should make a corresponding exogenous adjustment to
their tandem-switched transport SBIs, based on the percentage of tandem-switched transport revenue
attributable to the 9000 minutes of use assumption.  We seek comment on this approach, or on any
other alternative approach a company requests the Commission consider.  We also seek comment on
whether price cap LECs should be permitted to increase their TIC, or whether they should only be
permitted to reduce their TIC.  If price cap LECs were not permitted to increase their TIC to reflect
actual minutes of use above 9,000, then none of the SBIs in the trunking basket would be affected by
the use of actual minutes.
      80.  We reject BellSouth's claim that the Access Charge Reform Order included the cost of
multiplexers in the reinitialization of tandem-switched transport rates when 9000 minutes of use was
replaced by actual minutes of use as the divisor in the transport rate formula. The methodology used
in the calculation of the tandem-switch transport rate is based only on the weighted average of DS1
and DS3 rates and does not include the cost of multiplexers.  Nevertheless, we seek comment on
whether multiplexer costs on the end office and serving wire center side are relevant in the
computation of the tandem-switch transport rate.  LECs should demonstrate that the weighted (by total
DS1 and DS3 lines) average of DS1 and DS3 rates divided by actual minutes of use per voice-grade
circuit is affected by the multiplexers at the tandem switch.
D.    Whether the Price Cap LECs Correctly Recalculated the Residual and Facilities-Based
      TIC Amounts
      1.     Background
      81.  The Access Charge Reform Order requires incumbent LECs to separate their TIC
revenues between the portion of the TIC that is facilities-related and that portion of their TIC that
cannot be associated with any identifiable cost element -- the residual TIC.  They are to reassign the
facilities-related TIC revenue to facilities-based charges in three stages, beginning January 1, 1998.
The price cap LECs are required to target to the residual TIC the price cap reductions arising in any
price cap basket as a result of the application of the "GDP-PI minus X factor" formula until the per-
minute TIC is eliminated.
      82.  As an initial step, incumbent LECs were required to compute their anticipated residual
TIC by excluding revenues that were expected to be reassigned on a cost-causative basis to facilities-
based charges in the future.  Beginning with their July 1, 1997 tariff filings, price cap LECs were
required to apply "GDP-PI minus X-factor" adjustments to their anticipated residual TIC.  Price cap
LECs unable to ascertain the amount of their residual TIC for their tariffs effective on July 1, 1997
were required to use an amount equal to 50 percent of their current TIC.  Finally, in their tariffs
effective January 1, 1998, the price cap LECs were required to recalculate the residual TIC targeted
in their July 1, 1997 tariffs, eliminate any excess targeting that resulted in a larger PCI reduction to
the TIC SBI than was required to eliminate the per-minute interconnection charge, and then to direct
all necessary exogenous adjustments to their PCIs and SBIs to reverse the effects of excess
targeting.
      2.     Pleadings
      83.  AT&T contends that Ameritech, Bell Atlantic, CBT, NYNEX, and Sprint LTCs failed to
abide by the Commission's directive and provide adequate workpapers showing whether TIC reversal
is necessary.  AT&T also argues that BellSouth, GSTC, GTOC, Frontier, SWBT, and U S West
used the July 1, 1997 TIC instead of the June 30, 1997 TIC.  AT&T claims that, as a result, these
LECs have failed to determine whether a TIC true-up to reverse the excess X-factor is required.
      84.  AT&T maintains most of the LECs failed to identify all of the facilities-based TIC
removals in their TIC recalculation.  AT&T charges that except for GSTC, GTOC, and the Sprint
LTCs, the LECs did not use all of the exogenous TIC costs in their recalculations, resulting in an
overstatement of TIC rates of approximately $50 million in the aggregate.
      85.  AT&T also points out that despite the Commission's intent that price cap LECs use the
calculation of the remaining facilities-based portion of the TIC to be reallocated for completing the
chart CAP-1, Line 690, BellSouth was the only LEC to use the same figure in its Workpaper and in
CAP-1, Line 690.  AT&T states that the Commission should require other LECs to follow
BellSouth's example.
      86.  AT&T identifies additional errors in the TIC recalculation methodologies used by the
price cap LECs.  AT&T contends that some price cap LECs, including Nevada Bell, PacBell,
SWBT, U S West and BellSouth, used the Annual Filing Proposed TIC revenue instead of the Annual
Filing Current TIC revenues to recalculate the new residual TIC.  Finally, AT&T is concerned that
GSTC and GTOC have improperly increased their TIC in some of their service areas.  Therefore,
AT&T requests that the Commission require all the price cap LECs to recalculate their residual TIC
amounts by using the AT&T recalculation methodology.
      87.  In response, the price cap LECs' claim that they have recalculated the TIC correctly.
For example, Ameritech and SWBT state that they did not perform a separate true-up calculation to
determine whether they may have excess targeting of PCI adjustments to the residual TIC because it
was not necessary.  BellSouth argues that the Access Charge Reform Order does not require the use
of the June 30, 1997 TIC and, in any event, because it did not have any excess targeting to the TIC,
its calculations produce the same amount regardless of which of the two dates is used.
      88.  U S West, Ameritech, and Frontier contend that they considered all exogenous
adjustments in determining TIC rates.  Bell Atlantic argues that it need not recalculate the targeting
of the residual TIC because the residual TIC in the Bell Atlantic region is larger than the X-factor
reductions that were incorporated into the July 1 tariffs.
      89.  GTE agrees with AT&T that it did not compare the recalculated TIC to the actual
targeted TIC revenues.  Furthermore, while it acknowledges that it may have understated its TIC
revenues by approximately $9.5 million and overstated its common line and traffic revenues by
approximately $9.5 million, it notes that the net revenue impact by jurisdiction is zero.  Therefore,
GTE states that while it is willing to make these adjustments in a compliance filing, "fine tuning the
TIC analysis at this time is unnecessary since the unitary transport revenues will change in the 1998
annual price cap filing."
      3.     Discussion
      90.  We have reviewed the price cap LECs' tariff filings of December 17, 1997 and their
calculation of the residual and facilities-based TIC amounts.  We agree with AT&T that in some
cases, the price cap LECs have not demonstrated that they calculated these amounts correctly.  We
note, however, that most price cap LECs still have a non-facilities residual TIC.  These companies,
therefore, could not have overtargeted their July 1997 X-factor reduction to the TIC.  We tentatively
conclude that the AT&T workpaper format for the TIC recalculation will properly determine the
transport costs that are to be removed from the TIC and the facilities-based portion of the TIC.
Accordingly, we direct the price cap LECs that no longer have a non-facilities residual TIC, which
are PacBell and certain of the United, Frontier, and GTE operating companies, to recalculate the
removal of TIC costs and the facilities-based portion of the TIC using the worksheet provided by
AT&T in its December 23 petition.  We seek comment on our proposed use of the AT&T
worksheet for this purpose.  Further, these price cap LECs must include in their direct case a
justification of the methodology used to calculate these amounts.
V.  RECOVERY OF NEW UNIVERSAL SUPPORT OBLIGATIONS
A.    Background
      91.  A new funding mechanism for universal service was established in the Universal Service
Order.  Contributions to the universal service fund are made by all telecommunications carriers,
and the amount of the contribution is a percentage of end-user revenues.  In the Universal Service
Order, the Commission concluded that incumbent LECs may recover universal service contributions
via interstate mechanisms.  In the Access Charge Reform Order, the Commission stated that price
cap LECs may treat their contributions to the new universal service mechanisms as exogenous
changes to their price cap indices (PCIs).  The Commission held that the exogenous adjustment to
the PCI, however, should not be made across-the-board because price cap LECs do not recover
revenues from end users in all baskets.  The baskets containing end-user interstate revenues are the
common line, interexchange, and trunking baskets.  Price cap LECs electing to recover their
universal service obligation through interstate access charges must apportion the amount of the
exogenous adjustment among these three baskets on the basis of relative amounts of end-user
revenues.  In the trunking basket, certain service categories do not recover end-user revenues.
Accordingly, the Commission concluded that the service band indices for these service categories
should not be increased to reflect the exogenous adjustment to the PCI for the trunking basket.  To
reflect the exogenous adjustment to the trunking basket PCI, price cap LECs should, instead, increase
the service band indices for the remaining service categories in the trunking basket based on the
relative end-user interstate revenues generated in each service category.
B.    Pleadings
      92.  AT&T claims that Citizens has erroneously used the total baskets revenues for the
distribution of the universal service fund (USF), instead of distributing its USF obligation based on
the relative size of the end-user revenue in each basket.  AT&T contends that Ameritech has
underestimated its end-user revenues in the trunking basket for the distribution of USF, allocating to
the trunking basket only $291,029 of its USF exogenous cost out of a total of $111,505,176.
AT&T states that this misallocation results in a common line basket exogenous cost overstatement.
Ameritech's response is that it has correctly applied the full amount of the exogenous cost adjustment
among the common line, interexchange and trunking baskets.  AT&T contends that CBT has
overstated end-user revenues in the Common Line basket for the purpose of USF distribution and has
understated its end-user revenues in the IXC basket.  In its reply, CBT states it calculated its USF
contributions using FCC Form 457, which is the proper means to make its calculation.  AT&T
requests that the USF contributions of all price cap LECs be investigated.
C.  Discussion
      93.  We conclude that the price cap LECs' allocations of USF contributions among the
common line, interexchange, and trunking baskets warrant further review.  For each price cap LEC,
we calculated ratios of the USF contribution it allocates to the common line, interexchange, and
trunking baskets to its total USF contribution.  There is a large variance in these ratios among the
LECs.  For example, Ameritech and GTE allocate 0.26 percent and 1.17 percent of their total USF
contributions to the trunking basket, respectively.  Conversely, Aliant and Citizens allocate 25 and 23
percent of their total USF contributions to the trunking basket, respectively.   The variance in these
ratios is partially attributable to the price cap LECs using two different methodologies to allocate their
universal service obligations across price cap baskets.  The first method relies solely on the interstate
end-user revenues reported in column C of lines 34-47 of FCC Form 457, the Universal Fund
Worksheet, to determine price cap basket allocation factors.  The second method derives price cap
basket allocation factors by combining the interstate end-user service category revenue figures
summarized on form SUM-1 of the Tariff Review Plan with internal company billing records.  The
internal company billing records are used to determine the amount of interstate end-user revenues
generated by service categories within the trunking basket.
      94.  These two methodologies allocate different amounts of the universal service fund
obligation to individual price cap baskets for any given price cap LEC.  The amount of the universal
service obligation generated by a particular price cap basket depends on the methodology used.
      95.  In order to assess the merits of each of the two methodologies, we require all LECs to
submit explanations detailing why the methodology each has used more accurately reflects the
distribution of interstate end-user revenues across baskets.  As part of this explanation, each price cap
LEC must explain in detail the methodology it uses and any assumptions it makes to determine these
allocations.  Price cap LECs must report the interstate end-user revenues they derived from each
basket during the accounting period they used to calculate their universal service contribution.   If the
proportions of the USF contributions that LECs allocate for recovery from the common line,
trunking, and interexchange baskets differ from the proportions of the total interstate end-user
revenues they report for these baskets, they must explain the reason for this difference.  In addition,
we seek comment on whether there are any other methodologies superior to the two used by the price
cap LECs.  We also seek comment on whether we should require all price cap LECs to use the same
methodology and, if so, which methodology we should adopt.
      96.  Ameritech's allocation to the trunking basket of 0.26 percent of its USF exogenous
adjustment is derived from data on its FCC Form 457 that reports trunking basket interstate end-user
revenues of $1.2 million out of $469.2 million total interstate end-user revenues.  Ameritech,
however, has provided company records that show interstate end-user revenues generated within the
trunking basket of $67.7 million.  Ameritech does not explain, nor has it attempted to reconcile,
this discrepancy.  We require Ameritech to explain in detail in its direct case the reason for this
difference.
      97.  Lastly, Citizens must justify allocating a portion of its USF contribution to the traffic
sensitive basket, given the Commission's finding in the Access Reform Order that none of the service
categories in this basket generate, interstate end-user revenues.
VI.  RECONSIDERATION OF DECISION TO SUSPEND AND INVESTIGATE PRTC's
                             TARIFF FILINGS.
A.    Background
      98.  In the Access Charge Reform Order, the Commission concluded that the costs of
host/remote links not recovered by the current tandem switch transport rates and currently recovered
in the TIC should be included in the tandem switch transport category.
      99.  In its petition, AT&T argued that PRTC overstated its host/remote revenue requirement
for parts of its host/remote investment to be redistributed to the tandem switch termination and
tandem switch facilities rates.  AT&T attributed this overstatement to PRTC's development of an
annual carrying charge factor, which it states was wrongly applied to plant in service investment
rather than host/remote net plant.  AT&T determined that host/remote costs that are to be assigned to
the tandem switched transport rate elements must be reduced by about $3.8 million.
      100.  In the Access Charge Reform Suspension Order, we concluded that AT&T's petition
raised substantial questions of lawfulness regarding PRTC's proposed revenue requirement for its
host/remote central office equipment (COE) Category 4.3. investment and carrier cable and wire
facilities (C&WF) Category 4 investment that is to be redistributed to the tandem switch and tandem
switched facility rates.  Because the rates in question were interrelated with other rate changes
proposed by PRTC, we suspended and initiated an investigation of the entirety of PRTC's tariff
filings, Transmittal Numbers 24 and 25.
B.    Discussion
      101.  Pursuant to Sections 1.108 and 0.291 of the Commissions rules, we reconsider on our
own motion our decision to suspend and investigate PRTC's tariffs.  PRTC has revised the annual
carrying charge factor and the host/remote revenue requirement, and has filed a request for special
permission to correct Transmittal No. 25.  Accordingly, we decline to investigate PRTC
Transmittal Numbers 24, 25 and 27.
                         VII.  PROCEDURAL MATTERS
A.    Filing Schedules
      102.  This investigation will be conducted as a notice and comment proceeding.  We have
designated CC Docket No. 97-250.  The  following companies are the parties designated to this
investigation:  Aliant Communications Company, Ameritech Operating Company, Bell Atlantic
Telephone Companies, BellSouth Telecommunications, Inc., Frontier Communications of Minnesota
and Frontier Communications of  Iowa, Frontier Telephone of Rochester, GTE System Telephone
Companies, GTE Telephone Operating Company, Nevada Bell, New York Telephone and New
England Telephone and Telegraph Company, Pacific Bell, Southern New England Telephone
Company, Southwestern Bell Telephone Company, Sprint Local Telephone Companies, and U S West
Communications.
      103.  These parties shall file their direct cases no later than February 27, 1998.  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 March 16, 1998, 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 March 23, 1998.
      104.  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, Room 518, 1919 M Street, N.W., 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, 1919 M Street, N.W., Room 222,
Washington, D.C. 20554.  Such comments should specify the docket number of this investigation.
Parties are also encouraged to sumit their pleadings electronically through the Electronic Tariff Filing
System.
      105.  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
      106.  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.  Other rules pertaining to oral and written presentations are set
forth in Section 1.1206 (b), as well.
C.    Paperwork Reduction Act
      107.  The collections of information contained within are contingent upon approval by the
Office of Management and Budget, in accordance with the provisions of the Paperwork Reduction
Act, 44 U.S.C.  3506 et seq.
                          VIII.  ORDERING CLAUSES
      108.  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.
      109.  IT IS FURTHER ORDERED that the local exchange carriers listed in Appendix A of
this Order SHALL BE parties to this proceeding.
      110.  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.
      111.  IT IS FURTHER ORDERED that pursuant to Sections 0.91, 0.291 and 1.108 of the
Commission's rules, 47 C.F.R.  0.91, 0.291, 1.108,  we reconsider on our own motion our
decision in the Access Charge Reform Tariffs Suspension Order to suspend and investigate the tariff
revisions filed by Puerto Rico Telephone Company, Transmittal Numbers 24, 25 and 27.
      FEDERAL COMMUNICATIONS COMMISSION
      A. Richard Metzger, Jr.
      Chief, Common Carrier BureauAPPEN DIX A
Filings made by Local Exchange Carriers
   November 26, 1997
Ameritech Operating Companies                             Transmittal No. 1135
BellSouth Telecommunications, Inc.                        Transmittal No. 434
GTE System Telephone Companies                            Transmittal No. 226
GTE Telephone Operating Companies                         Transmittal No. 1123
Aliant Communications Company                             Tariff Review Plan
Ameritech Operating Companies                             Tariff Review Plan
Bell Atlantic Operating Companies                         Tariff Review Plan
BellSouth Telecommunications, Inc.                        Tariff Review Plan
Cincinnati Bell Telephone Company                         Tariff Review Plan
Citizens Telecommunications Companies                     Tariff Review Plan
Frontier Communications of Minnesota and Iowa             Tariff Review Plan
Frontier Telephone of Rochester                           Tariff Review Plan
GTE System Telephone Companies                            Tariff Review Plan
GTE Telephone Operating Companies                         Tariff Review Plan
NYNEX Telephone Companies                                 Tariff Review Plan
Southern New England Telephone Company                    Tariff Review Plan
Southwestern Bell Telephone Company                       Tariff Review Plan
Sprint Local Telephone Companies                          Tariff Review Plan
U S West Communications, Inc.                             Tariff Review Plan
   December 8, 1997
Nevada Bell                                               Tariff Review Plan
Pacific Bell                                              Tariff Review Plan
   December 17, 1997
Aliant Communications Company                             Transmittal No. 10
Ameritech Operating Companies                             Transmittal No. 1136
Bell Atlantic Operating Companies                         Transmittal No. 1016
BellSouth Telecommunications, Inc.                        Transmittal No. 435
Cincinnati Bell Telephone Company                         Transmittal No. 712
Citizens Telecommunications Companies                     Transmittal No. 42
Frontier Communications of Minnesota and Iowa             Transmittal No. 10
Frontier Telephone of Rochester                           Transmittal No. 2
GTE System Telephone Companies                            Transmittal No. 228
GTE Telephone Operating Companies                         Transmittal No. 1127
Nevada Bell                                               Transmittal No. 232
NYNEX Telephone Companies                                 Transmittal No. 477
Pacific Bell                                              Transmittal No. 1959
Puerto Rico Telephone Company                             Transmittal No. 24
Puerto Rico Telephone Company                             Transmittal No. 25
Southern New England Telephone Company                    Transmittal No. 704
Southwestern Bell Telephone Company                       Transmittal No. 2678
Sprint Local Telephone Companies                          Transmittal No. 44
U S West Communications, Inc.                             Transmittal No. 884
   December 19, 1997
Bell Atlantic Telephone Companies                         Transmittal No. 1017
Citizens Telecommunications Companies                     Transmittal No. 43
GTE System Telephone Companies                            Transmittal No. 230
GTE Telephone Operating Companies                         Transmittal No. 1128
Nevada Bell                                               Transmittal No. 233
Southern New England Telephone Company                    Transmittal No. 705
Southwestern Bell Telephone Company                       Transmittal No. 2679
   December 23, 1997
NYNEX Telephone Companies                                 Amended Transmittal No. 477
U S West Communications, Inc.                             Transmittal No. 885
   December 29, 1997
Bell Atlantic Telephone Companies                         Amended Transmittal No.
1016
   December 30, 1997
Sprint Local Telephone Companies                          Transmittal No. 46
U S West Communications, Inc.                             Transmittal No. 886
   January 20, 1998
Aliant Communications Company                             Transmittal No. 12
Ameritech Operating Companies                             Transmittal No. 1139
Bell Atlantic Operating Companies                         Transmittal No. 1023
Cincinnati Bell Telephone Company                         Transmittal No. 714
Citizens Telecommunications Companies                     Transmittal No. 45
Nevada Bell                                               Transmittal No. 235
NYNEX Telephone Companies                                 Transmittal No. 479
Pacific Bell                                              Transmittal No. 1966
Puerto Rico Telephone Company                             Transmittal No. 27
Southwestern Bell Telephone Company                       Transmittal No. 2684
U S West Communications, Inc.                             Transmittal No. 890
   January 22, 1998
Nevada Bell                                               Transmittal No. 236
Pacific Bell                                              Transmittal No. 1967
Southwestern Bell Telephone Company                       Transmittal No. 2686
Petitions and Comments
   The following parties filed petitions and comments against the January 1, 1998 Tariff Filings.
The names in parentheses are used for these parties throughout the Order.
AT&T Corp. (AT&T)
   December 11, 1997 Comments and Petition
   December 23, 1997 Petition on Rate-of-Return LECs
   December 23, 1997 Petition
   December 23, 1997 Comments on Pacific Bell and Nevada Bell
MCI Telecommunications Corporation (MCI)
   December 10, 1997 Petition
   December 10, 1997 Comments
   December 23, 1997 Petition
Sprint Communications Company, L.P. (Sprint)
   December 10, 1997 Comments
   December 23, 1997 Petition
Teleport Communications Group Inc. (TCG)
   December 23, 1997 Petition
Replies
Aliant Communications Company
   December 17, 1997 Reply
   December 29, 1997 Reply
Ameritech Operating Companies
   December 17, 1997 Reply
   December 29, 1997 Reply
Bell Atlantic Operating Companies
   December 18, 1997 Reply
   December 29, 1997 Reply
BellSouth Telecommunications, Inc.
   December 17, 1997 Reply
   December 29, 1997 Reply
Cincinnati Bell Telephone Company
   December 17, 1997 Reply
   December 29, 1997 Reply
Citizens Telecommunications Companies
   December 29, 1997 Reply
Frontier Telephone Companies [Frontier Communications of Minnesota and Iowa, and Frontier
Telephone of Rochester]
   December 17, 1997 Reply
   December 29, 1997 Reply
GTE Telephone Operating Companies and GTE Systems Telephone Companies
   December 17, 1997 Reply
   December 29, 1997 Reply
Puerto Rico Telephone Company
   December 29, 1997 Reply
Southern New England Telephone Company
   December 17, 1997 Reply
   December 29, 1997 Reply
Southwestern Bell Telephone Company, Pacific Bell and Nevada Bell
   December 17, 1997 Reply
   December 29, 1997 Reply
Sprint Local Telephone Companies
   December 17, 1997 Reply
   December 29, 1997 Reply
U S West Communications, Inc.
   December 17, 1997 Reply
   December 29, 1997 Reply
                                   Appendix B
                                     Page 1
                                   WORKSHEET
Using the codes and worksheets provided on Pages 2 and 3, indicate the
criteria used in determining line counts by following the examples on Page
4.
          I.  Line Count Data Formation        II. Line Count Data
          Identification
              (Use All that apply.)                (Report in
          Classification Sequence.)
  Data           Criteria
          Time
  Sources     Search     Collection     Period First
Second    Third  Fourth
Primary
Residential
Lines
Single Line
Business
Non-Primary
Residential
Lines
BRI - ISDN
Lines

                                   Appendix B
                                     Page 2
I.  LINE COUNT DATA FORMATION  - Include all that apply on Page 1.
Data Sources: Where did you get your information on line count data?
(D1)      Billing records.
(D2)      Account records other than billing.
(D3)      Specific USOC/CRIS Field Indicator (FID) or ADL designations.
(D4)      Inventory records.
(D5)      Maintenance records.
(D6)      Service order records.
(D7)      Plant or continuing property records.
(D8)      Results of estimates/projections based on study. (See below.)
(D9)      Provide full description of original source.
(D0)      Other: Explain source in detail.
Data Search: How did you calculate the totals reported for each of the line
count categories?
(S1)      Counted individual lines.
(S2)      Counted one line type (eg. PR Line)and subtracted from line count
          total.
(S3)      Counted lines from a sample of company records, then
          forecast/estimate. Explain methodology including:  Means of choosing
          sample (eg. Random, Systematic, etc.), Sample size, Forecast
          calculations and underlying assumptions including justification of
          sample representation.
(S4)      Results from  formal model used to estimate Line Demand.  Explain in
          detail including all Assumptions, Parameters, Factors, etc.
(S0)      Other: Explain in detail.
Data Collection:  At what level of aggregation was the data available?
(C1)      Per Service Area (LATA or Marketing Area)
(C2)      Per State
(C3)      Per Administrative/Customer Service Office
(C4)      Per Billing Office
(C5)      Per Central Office
(C6)      Per Area Code
(C7)      Per Local Exchange
(C8)      Per Remote Office
(C0)      Other.  Explain in detail.
Time Period of Data: What time frame does the line count represent?
(T1)      "Snapshot" - Specify Time Period.
(T2)      Average over time period. Specify time period.
(T0)      Other.  Explain in detail.
Additional Data Categories: Did you use any other type of data collection
criteria not mentioned above?
(O1)      Other.  Fully define. 
                                   Appendix B
                                     Page 3
II.       LINE COUNT DATA IDENTIFICATION - For each criteria used in determining
          your line counts, report in order or sequence of classification.
Location or Premise:  How was location used to classify lines?
(L1)      Residential/commercial building where lines are located  -  main
          structure address only.
(L2)      Residential/commercial address where lines are located including those
          separated by units, apartment, room, suite or other sub-classification
          for multiple unit addresses.
(L3)      Billing address - Includes L2 and other addresses where phone lines
          are not located  (eg. PO Box,  management company, administrative
          office.)
(L0)      Other location category. Explain in detail.
Customer Name: How was a name designation used to classify line count data?
(B1)      Customer/Subscriber - Full name.
(B2)      Customer/Subscriber - Last Name only.
(B3)      Customer/Subscriber - Other. Identify criteria.
Number Codes for Single Line Business and BRI-ISDN Lines: How was number
coding used to classify these types of lines?
(N1)      Billing Number identifies type of line.
(N2)      Account Number (if Different than Billing Number)identifies type of
          line.
(N3)      Other Number such as Invoice/Work Order/Service Order/Inventory Number
          in Numerical Order identifies type of line.
(N4)      Phone Number identifies type of line.
(N5)      Field Indicator identifies type of line.
(N0)      Other. Provide definition.
Number Codes for Primary and Non-Primary Residential Lines: How was number
coding used to classify these types of lines?
(A1)      Account or Billing Number - numerical order (cardinal ranking)of phone
          number prefix/suffix determines Primary Residential(PR)Line.
(A2)      Account or Billing Number - date of installation and then order of
          installation determines Primary Residential Line if multiple lines
          installed on same date.  Explain in detail how order is determined and
          who/what determines order.
(A3)      Account or Billing Number - date of installation determines Primary
          Residential Line, arbitrary determination of Primary Residential Line
          if multiple lines installed on same date.
(A4)      Assigned Number - Invoice/Work Order/Inventory Number -  numerical
          order (cardinal ranking)of phone number prefix/suffix determines
          Primary Residential Line.
(A5)      Assigned number - Numerical Invoice/Work Order/Inventory Number not
          determined by phone number - Date of installation and then order of
          installation determines Primary Residential Line if multiple lines
          installed on same date.  Explain in detail how order is determined and
          who/what determines order
(A6)      Customer designates Primary Residential Line.
(A7)      Each Phone Number/Line has an individual Account/Billing Number or
          Invoice/Work Order/Inventory Number.
(A0)      Other.  Explain in detail.
Residential Lines Identifier (not Categorized by Number)  -  If you used
another criteria or sorting method for residential lines, please indicate.
(R1)      All Residential Lines: - Numerical order of phone number prefix/suffix
          determines Primary Residential Line.
(R2)      All Residential Lines:  Designation of one line as Primary Residential
          Line where earliest date of installation then order of installation
          determines Primary Residential Line if multiple lines installed on
          same date.  Explain in detail how order is determined and who/what
          determines order.
(R3)      All Residential Lines:  Designation of Primary Residential Line is
          arbitrary.
(R4)      Field Identifier for Primary Residential Line.
(R5)      Other Residential Line classification.  Please define fully.                                   Appendix B
                                     Page 4
The following is an example Worksheet as in Page 1.
          I.  Line Count Data Formation        II. Line Count Data
          Identification
              (Use All that apply.)            (Report in
          Classification Sequence.)
  Data           Criteria
  Time
  Sources     Search     Collection     Period First
Second    Third  Fourth
  D5    S1      C5        T1
Example 1:           L3     B1      A1
Example 2:           B2     R2      L2
I. Line Count Data Formation -   The source and collection codes above
indicate that each individual line was counted at the central office from
company maintenance records as a snapshot of the Billing Cycle September 8
- October 5, 1996.
II. Line Count Data Identification
EXAMPLE 1 -   L3, B1, A1
The criteria codes above show that records were first sorted by billing
address, second by customer full name, and third  by account number.
Finally, the lowest telephone number was then classified as the Primary
Residential Line.
EXAMPLE 2 -   B2, R2, L2
This example shows that records were first sorted by customer last name,
second by counting all residential lines sorted by date of installation and
then order of installation, at each address where the lines are located.
Applying the selection criteria in Example 1 and Example 2 to the following
RESIDENTIAL LINE data set would yield the following Primary Residential
Line (P) and Non-Primary Residential Line (NP) count results.
              P/NP
Results
  Billing/       Line           Phone          Installation   Service/Inv.
Billing
Customer  Account No.    Location       NumbersDate (Order)   Work Order No.
Address    EX.1  EX.2
N.  Adams   555-1111 6789  123 Elm #1     555-1111       1/1/96  (1)    6789 -
1111 P.O.           P       P                                                   555-1112
1/1/96      (2)     6789 - 1112    Box 123        N       N
P.  Adams   555-2222 6789  123 Elm #1     555-2221       5/5/96         6789 -
2221 P.O.           P       N                                                   555-2222
4/5/96              6789 - 2222    Box 123        N       N
P.  Adams   555-3333 4567  123 Elm #2     555-3333       3/3/96         4567 -
3333 P.O.           P       P
                                                                                       Box 123
P.  Boyd-Adams      555-4444 5678  123 Elm #2     555-4444       4/5/96         5678 -
4444        P.O.           P       P                                            555-4448
7/5/96              5678 - 4448    Box 123        N       N
F.  Boyd-Adams      555-4447 5678  123 Elm #2     555-4447       5/5/96         5678 -
4447 P.O.           P       N
                                                                                       Box 123

                                   Appendix B
                                     Page 5
                                   WORKSHEET
Implementation of Definition - Based on your RESIDENTIAL LINE definitions,
please classify the data in the last column below as a P for Primary
Residential or NP for Non-Primary Residential lines.  You may add columns
and/or show additional criteria needed to illustrate the implementation of
your line definitions.
            Billing/       Line           Phone          Installation   Service/Inv.
Billing    P/NP
Customer    Account No.    Location       Numbers Date (Order)   Work Order No.
Address    Decision
N.  Adams   555-1111 6789  123 Elm #1     555-1111       1/1/96  (1)    6789 -
1111 P.O.                                                555-1112       1/1/96  (2)    6789 -
1112 Box 123
P.  Adams   555-2222 6789  123 Elm #1     555-2221       5/5/96         6789 -
2221 P.O.                                                               555-2222       4/5/96
6789 - 2222 Box 123
P.  Adams   555-3333 4567  123 Elm #2     555-3333       3/3/96         4567 -
3333 P.O.
                                                                                       Box 123
P.  Boyd-Adams      555-4444 5678  123 Elm #2     555-4444       4/5/96         5678 -
4444        P.O.                                                        555-4448       7/5/96
     5678 - 4448    Box 123
F.  Boyd-Adams      555-4447 5678  123 Elm #2     555-4447       5/5/96         5678 -
4447 P.O.
     Box 123