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 Federal  Communications  Commission  DA  00-  2459 
 FEDERAL  COMMUNICATIONS  COMMISSION  Washington,  D.  C.  20554 
 December  11,  2000 


 Ms.  Sandra  Wagner 
 Vice  President    Federal  Regulatory 
 SBC  Telecommunications,  Inc. 
 1401  I  Street,  NW,  Suite  1100 
 Washington,  DC  20005 


 RE:  SBC/  Ameritech  Merger  Order,  CC  Docket  No.  98-  141,  ASD  File  No.  99-  49 
 Dear  Ms.  Wagner: 
 In  the  SBC/  Ameritech  Merger  Order  the  Commission  adopted  a  carrier-  to-  carrier  performance 
 plan  that  requires  SBC  to  make  payments  to  the  U.  S.  Treasury  should  it  fail  to  meet  certain  performance 
 standards.  1  The  carrier-  to-  carrier  performance  plan  was  developed,  inter  alia,  to  ensure  that  SBC 
 incumbent  local  exchange  carriers  (ILECs)  provide  the  same  quality  of  service  to  competitive  local 
 exchange  carriers  (CLECs)  as  they  provide  to  themselves.  Under  the  plan,  a  parity  test  or  a  benchmark  test 
 is  used  to  determine  whether  SBC  has  met  specific  performance  standards.  Generally,  the  parity  test  is 
 used  where  SBC  provides  similar  services  on  a  retail  basis  and  to  CLECs;  the  benchmark  test  is  used 
 where  there  is  no  retail  analogue  for  the  service  that  SBC  provides  to  CLECs.  Under  either  test,  if  SBC 
 were  to  fail  to  meet  a  performance  standard  for  three  consecutive  months  (or  six  of  12  months  in  a  calendar 
 year),  it  must  calculate  a  payment  based  upon  a  formula  incorporating  three  factors:  (1)  the  number  of 
 occurrences  for  the  performance  measurement;  (2)  the  extent  to  which  SBC  failed  to  meet  the  standard;  and 
 (3)  a  specified  value  that  reflects  the  relative  importance  of  the  performance  measurement.  2  These 
 payments  provide  a  strong  financial  incentive  for  SBC  to  improve  its  service. 


 In  recent  months  SBC  and  Bureau  staff  have  discussed  implementation  issues  relating  to  the 
 carrier-  to-  carrier  performance  plan.  Several  questions  have  been  raised  during  these  discussions  on  how 
 the  parity  and  benchmark  performance  tests  are  to  be  applied  and  how  the  payment  calculations  are  to  be 
 made.  This  letter  provides  guidance  regarding  these  questions. 


 1  Applications  of  Ameritech  Corp.,  Transferor,  and  SBC  Communications,  Inc.,  Transferee,  For  Consent  to 
 Transfer  Control  of  Corporations  Holding  Commission  Licenses  and  Lines  Pursuant  to  Sections  214  and  310(  d)  of 
 the  Communications  Act  and  Parts  5,  22,  24,  25,  63,  90,  95,  and  101  of  the  Commissions  Rules,  CC  Docket  98- 
 141,  Memorandum  Opinion  and  Order,  14  FCC  Rcd  14,712,  Appendix  C,    23-  24  (1999)  (  SBC/  Ameritech 
 Merger  Order  or  Merger  Order);  see  id.  at  Appendix  C,  Attachment  A. 


 2  Id.  at  Appendix  C,  Attachment  A,  A-  116    A-  117. 
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 Payment  Calculations 
 1.  Where  SBCs  total  payments  under  the  Merger  Conditions  exceed  the  Merger  Conditions  cap, 
 should  SBC  apply  state  payments  (as  credits)  to  the  total  payment  amount  or  to  the  capped 
 amount? 


 SBC  should  apply  payments  it  makes  under  state  performance  measurement  plans  as  a  credit  to  the 
 related  payment  cap  set  forth  under  the  Merger  Conditions.  3  An  example  is  illustrative:  Assume  that 
 under  the  Merger  Conditions,  SBC  fails  to  meet  specified  performance  standards  established  for  Illinois  in 
 December  2000,  and  as  a  result  owes  a  total  of  $3  million.  The  Merger  Conditions,  however,  cap  SBC's 
 payments  for  Illinois  at  $2.  53  million  per  month.  4  If  SBC  is  also  liable  under  the  Illinois  performance  plan 
 for  $1  million,  SBC  should  deduct  the  $1  million  it  pays  under  the  Illinois  plan  from  the  $2.  53  million  cap 
 imposed  by  the  Merger  Conditions.  SBC's  net  payment  to  the  U.  S.  Treasury  would  then  be  $1.  53  million.  5 


 2.  Under  what  type  of  state  performance  measurements  plans  may  SBC  claim  payment  credits? 
 SBC  may  take  credits  for  amounts  paid  under  state  performance  plans  that  monitor  SBCs  service 
 to  CLECs.  6  SBC  should  not  claim  credits  for  state-  imposed  payments,  bill  credits  or  price-  cap  reductions 
 associated  with  its  quality  of  service  to  end-  users.  7 


 3.  Should  the  second  component  of  the  payment  calculation    the  extent  to  which  SBC  misses  the 
 performance  standard    be  limited  to  100%  regardless  of  whether  SBC  misses  this  performance 
 standard  by  a  higher  percent? 


 No.  Under  the  Merger  Conditions,  there  is  no  limiting  factor,  or  cap,  imposed  on  the  element  of 
 the  calculation  that  measures  the  extent  to  which  SBC  misses  a  performance  standard.  Indeed,  capping  this 
 factor,  which  could  exceed  100%  in  cases  where  SBC  seriously  underperforms,  would  be  inconsistent  with 
 the  Commissions  objective  to  provide  an  incentive  to  SBC  to  provide  excellent  service  to  the  CLECs. 


 3  Id.  at  Appendix  C,  Attachment  A,    12.  See  also  id.  at    378  (payments  are  subject  to  state-  specific  caps  with  a 
 credit  for  amounts  paid  to  states  and  competitive  LECs  under  state-  imposed  performance  monitoring  plans  or 
 under  liquidated  damages  provisions  of  interconnections  agreements.)  (footnote  omitted);  see  id.  n.  706  (citing 
 SBC/  Ameritech  Aug.  27  1999  Ex  Parte  stating  that  caps  are  applied  with  a  credit  for  payments  made  under  state 
 performance  plans). 


 4  Id.  at  Appendix  C,  Attachment  A,  A-  124. 


 5  At  this  time,  SBC  has  indicated  that  it  may  incur  payment  obligations  under  state  commission  plans  only  in 
 Arkansas,  Illinois,  and  Ohio.  SBC  may  also  claim  credits  for  payments  made  under  interconnection  agreements. 


 6  See  SBC/  Ameritech  Merger  Order  at    378.  SBC  may  also  deduct  payments  made  under  interconnection 
 agreements.  See  id. 
 7  See,  e.  g.,  id.  (allowing  SBC  credits  for  amounts  paid  to  states  and  competitive  LECs  under  state-  imposed 
 performance  monitoring  plans  []);  id.  at    377  (stating  that  the  goal  of  the  performance  plan  is  to  ensur[  e]  that 
 SBC/  Ameritechs  service  to  telecommunications  carriers  will  not  deteriorate  as  a  result  of  the  merger  []. 
 (emphasis  added));  id.  n.  706  (noting  commenters  objection  that  caps  are  inadequate  to  discourage  [SBC]  from 
 providing  substandard  service  to  competitors.  (emphasis  added)). 
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 4.  If  SBC  is  required  to  make  a  payment  for  failure  to  meet  a  standard  (i.  e.,  failing  to  meet  the 
 monthly  ideal  value  for  that  standard  for  three  consecutive  months),  8  how  should  the  second 
 component  of  the  payment  calculation    the  extent  to  which  the  performance  standard  was  missed 
   for  parity  measurements  expressed  as  averages  or  means  be  calculated  for  purposes  of 
 determining  SBCs  payment  obligation? 


 Under  the  Merger  Conditions,  the  calculation  of  the  second  factor  for  parity  measurements 
 expressed  as  averages  or  means  (the  extent  to  which  the  performance  standard  was  missed)  should  be  made 
 by  comparing  each  of  the  three  months  actual  measurements  to  the  ideal  value  specified  for  the  most 
 recent  month  (i.  e.,  the  third  month).  9 


 5.  If  a  performance  measurement  is  disaggregated  into  more  than  one  performance  measurement 
 during  the  period  under  review  (i.  e.,  a  three  consecutive  month  period),  how  should  the  three-month 
 comparison  of  the  original  performance  measurement  be  conducted  for  purposes  of 
 determining  whether  SBC  has  incurred  a  payment  obligation  for  failure  to  meet  that  performance 
 measurement? 


 A  comparison  of  a  performance  measurement  for  three  consecutive  months,  where  during  this 
 period  a  performance  measurement  has  been  disaggregated  into  separate  performance  measurements, 
 should  be  conducted  by  re-  aggregating  the  relevant  measurements,  as  necessary,  to  conduct  valid 
 comparisons.  For  example,  if  performance  measurement  X  is  disaggregated  into  performance 
 measurements  X1  and  X2  in  the  second  month,  then  for  purposes  of  three  consecutive  month  review  period, 
 these  measurements  should  be  re-  aggregated  (combined)  into  the  original  performance  measurement  X  in 
 the  second  and  third  months.  This  would  permit  a  valid  comparison  for  all  three  months. 


 The  re-  aggregation  of  the  performance  measurement  for  the  period  under  review  is  only  to  be 
 undertaken  for  purposes  of  determining  whether  SBC  has  incurred  a  payment  obligation  for  failure  to  meet 
 the  original  performance  measurement.  The  disaggregated  performance  measurements  remain  separate  for 
 all  other  purposes.  Thus,  in  the  above  example,  it  would  not  be  necessary  to  re-  aggregate  the  X1  and  X2 
 measurements  in  the  fourth  and  subsequent  months  because  these  measurements  will  remain  disaggregated 
 for  valid  comparisons  in  the  months  following  the  initial  disaggregation  of  the  performance  measurement. 


 8  The  ideal  value  represents  the  minimal  level  of  service  SBC  could  provide  CLECs  within  a  given  month  and 
 state  without  owing  payments.  The  ideal  value  is  calculated  by  translating  the  critical-  z  into  the  units  being 
 measured  by  the  performance  measurement  (e.  g.,  days,  hours,  percentages). 


 9  Id.  at  Appendix  C,  Attachment  A,  A-  116    A-  117. 
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 Conducting  Parity  Tests 
 6.  Should  SBC  use  the  sample  variance  convention  or  the  population  variance  convention  10  to 
 determine  the  SBC  retail  variance  under  the  parity  test? 


 We  have  found  that  for  the  vast  majority  of  measurements  that  are  subject  to  the  parity  test,  the  sample  size  of  SBC  retail  data  is  large  enough  so  that  the  difference  in  variance  computed  by  the  two 
 conventions  is  de  minimis.  We  note  that  Texas  has  adopted  the  sample  variance  convention;  while  California  has  adopted  the  population  variance  convention.  Since  the  results  of  these  two  conventions  are 
 likely  to  be  nearly  identical,  SBC  may  use  the  sample  variance  convention  for  states  that  follow  the  Texas  requirements  (Arkansas,  Kansas,  Missouri,  Oklahoma,  Illinois,  Indiana,  Michigan,  Ohio,  and  Wisconsin) 
 and  the  population  variance  convention  for  states  that  follow  the  California  requirements  (California  and  Nevada).  This  approach  is  consistent  with  the  approach  in  the  Merger  Order  for  handling  changes  to  the 
 performance  measurements  11  and  should  ease  the  compliance  burden  for  SBC. 
 7.  In  conducting  parity  tests,  should  SBC  use  the  variance  computed  for  ILEC  to  CLEC  data  in 
 months  where  there  are  no  SBC  retail  data? 


 Under  the  Merger  Conditions,  parity  tests  must  be  based  on  the  SBC  retail  variance.  If  for  a  given  month  there  are  no  data  for  which  to  calculate  this  variance,  SBC  should  use  the  SBC  retail  variance  of  an 
 adjacent  month,  preferably  the  next  most  recent  month.  For  example,  if  no  data  are  available  for  month 
 one,  SBC  should  use  the  SBC  retail  variance  for  month  two.  12 


 8.  When  determining  whether  SBC  meets  the  parity  test  for  certain  measurements  that  are 
 expressed  as  ratios,  how  should  SBC  calculate  the  z-  score? 


 Some  performance  measurements  subject  to  the  parity  test  are  expressed  as  ratios,  e.  g.,  trouble 
 report  rates.  13  As  required  by  the  Merger  Conditions,  SBC  should  subtract  the  ILEC  ratio  from  the  CLEC 
 ratio  to  calculate  the  z-  score.  14 


 General 
 9.  Should  SBC  report  z-  scores  (and  calculate  payments)  for  performance  measurements  with  few 
 data  points? 


 10  The  sample  variance  is  the  sum  of  the  squared  deviations  from  the  mean,  all  divided  by  the  sample  size  minus 
 one.  The  population  variance  is  the  sum  of  the  squared  deviations  from  the  mean,  all  divided  by  the  population 
 size. 


 11  The  Merger  Order  requires  SBC  to  calculate  z-  scores  based  on  a  variance  (i.  e.,  a  measure  of  the  variability  or 
 spread  of  the  data).  Id.  at  Appendix  C,  Attachment  A,  A-  112. 
 12  Normally,  SBC  would  calculate  separate  CLEC  and  ILEC  variances.  If,  however,  there  are  no  ILEC  trouble 
 reports,  the  variance  will  be  0  and  no  z-  score  can  be  calculated. 


 13  Trouble  report  rates  can  be  calculated  by  dividing  the  number  of  trouble  reports  by  the  number  of  circuits 
 in  operation. 
 14  Id.  at  Appendix  C,  Attachment  A,  A-  113. 
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 Yes.  The  Merger  Conditions  set  forth  a  test  that  applies  specifically  to  performance 
 measurements  with  fewer  than  30  data  points.  15 


 10.  Should  SBC  allow  CLECs  to  independently  verify  SBCs  statistical  calculations  in  cases  for 
 performance  measurements  where  there  are  only  a  few  data  points? 


 Yes.  The  Merger  Conditions  require  SBC  to  allow  CLECs  to  validate  the  results  of  SBCs 
 performance  tests.  16  These  conditions  make  no  exceptions  where  the  performance  test  involves  few  data 
 points. 


 11.  Where  should  SBC  send  payments? 
 Payments  should  be  made  by  mailing  a  check  or  similar  instrument,  payable  to  the  order  of  the 
 Federal  Communications  Commission,  and  sent  to  the  Federal  Communications  Commission,  P.  O.  Box 
 73482,  Chicago,  Illinois  60673-  7482.  SBC  should  place  the  Merger  Order's  FCC  number  and  docket 
 number  on  the  check  as  well.  17 


 Please  do  not  hesitate  to  contact  me  if  I  can  be  of  further  assistance.  You  may  also  contact  Mark  Stone  in  the  Common  Carrier  Bureau  directly  at  (202)  418-  0816  for  further  information  on  this  matter. 


 Sincerely, 
 Carol  E.  Mattey 
 Deputy  Chief,  Common  Carrier  Bureau 


 CC:  Ms.  Christine  Jines,  SBC  Telecommunications,  Inc.  Ms.  Cassandra  Carr,  SBC  Telecommunications,  Inc. 


 15  Id.  at  Appendix  C,  Attachment  A,  A-  112. 
 16  Id.  at  Appendix  C,  Attachment  A,  A-  114. 
 17  Id.  at  Appendix  C,  Attachment  A,    13. 
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