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 APPENDIX  B 
 METHODOLOGY  FOR  ESTIMATING  OUTSIDE  PLANT  COSTS 

 I.  Introduction 
 1.  Section  II  in  this  appendix  explains  in  specific  detail  the  regression  equations  and  the  adjustments  to  these  equations  for  estimating  the  input  values  adopted  in  this  Order  for  structure  and  cable 
 costs.  These  regression  equations  and  these  adjustments  are  set  forth  in  this  appendix  on  the  following  tables:  Table  I.,  labeled  "Regression  Equations  Derived  From  RUS  Data  For  Estimating  Cable  And 
 Structure  Costs;"  Table  II.,  labeled  "Adjustments  To  Regression  Equations  Derived  From  RUS  Data  For  Estimating  Cable  And  Structure  Costs;"  and  Table  III.,  labeled  "Regression  Equations  Derived  From 
 Non-  Rural  LEC  Data  For  Estimating  Cable  Costs." 
 2.  Section  III  illustrates  use  of  the  Huber  methodology  to  derive  reasonable  estimates  for  24-  gauge  aerial  copper  cable  costs.  1  This  illustration  uses  the  diagram  in  this  appendix  labeled  "Scatter 
 Diagram  Of  24-  Gauge  Aerial  Copper  Cable  Cost  And  Size  With  The  Huber  Regression  Line."  This  diagram  shows  RUS  cable  cost  observations  for  24-  gauge  aerial  copper  cable  and  the  regression  line  fit  to 
 these  observations  by  using  the  Huber  methodology.  It  also  uses  the  frequency  distribution  in  this  appendix  set  forth  on  Table  IV.,  labeled  "Frequency  Distribution  Of  Huber  Weights  For  24-  gauge  Aerial 
 Copper  Cable  Cost."  This  frequency  distribution  shows  the  number  of  aerial  copper  cable  observations  to  which  the  Huber  methodology  assigns  particular  weights. 

 3.  Section  IV  demonstrates  that  the  Huber  methodology  generally  does  not  have  a  statistically  significant  impact  on  the  level  of  the  material  costs  reflected  in  the  cable  cost  estimates 
 adopted  in  this  Order.  This  finding  provides  support  for  the  large  LEC  buying  power  adjustment  reflected  in  these  estimates.  This  finding  is  supported  by  the  statistical  information  set  forth  in  this 
 appendix  on  Table  V.,  labeled  "Analysis  Of  Coefficient  For  Cable  Size  Variable  In  The  Huber  Regression  Equations." 

 II.  Regression  Equations  For  Estimating  Outside  Plant  Structure  Costs 
 A.  Regression  Equations  Derived  From  RUS  Data  For  Estimating  Cable  And  Structure  Costs 

 4.  Table  I,  labeled  "Regression  Equations  Derived  From  RUS  Data  For  Estimating  Cable  And  Structure  Costs,"  sets  forth  the  regression  equations  adopted  in  this  Order  for  estimating  the  cost  of: 

 1  We  used  Stata  Statistical  Software:  Release  5  (Stata)  to  perform  the  calculations  needed  to  estimate  the 
 regression  equations  adopted  in  this  Order  for  cable  and  structure  costs.  Stata  has  a  robust  regression  methodology  that  uses  formulas  developed  by  P.  J.  Huber,  R.  D.  Cook,  A.  E.  Beaton  and  J.  W.  Tukey.  We  used  this  methodology 

 to  estimate  the  regression  equations  for  cable  and  structure  costs.  We  refer  to  this  regression  methodology  as  the  Huber  methodology.  See  StataCorp.,  Stata  Reference  Manual,  Release  5,  vol.  3,  P-  Z,  168-  173  (College  Station, 
 TX:  Stata  Press,  1997). 
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 (1)  24-  gauge  aerial  copper  cable;  (2)  24-  gauge  underground  copper  cable;  (3)  24-  gauge  buried  copper  cable  and  structure;  (4)  aerial  fiber  cable;  (5)  underground  fiber  cable;  (6)  buried  fiber  cable  and  structure; 
 (7)  poles;  and  (8)  underground  structure.  These  regression  equations,  other  than  the  equations  for  poles  and  underground  structure,  are  developed  by  revising  the  regression  equations  for  cable  and  structure 
 costs  developed  by  Gabel  and  Kennedy  in  the  NRRI  Study.  2  The  regression  equations  adopted  in  this  Order,  other  than  the  equation  for  poles,  are  estimated  by  using  the  Huber  methodology  with  RUS  data. 
 The  regression  equations  in  the  NRRI  Study  3  are  developed  by  using  ordinary  least  squares  (OLS)  with  RUS  data.  4  The  regression  equation  for  poles  adopted  in  this  Order  is  the  regression  equation  for  poles  in 
 the  NRRI  Study.  The  regression  equation  adopted  in  this  Order  for  poles  is  not  estimated  by  using  the  Huber  methodology  because  the  Huber  regression  for  poles  is  not  statistically  significant  at  the  five 
 percent  level. 
 5.  Column  A  identifies,  by  type  of  cost,  the  regression  equations  adopted  in  this  Order.  Set  forth  in  columns  B,  D,  F,  H,  J,  L,  and  N  are  the  intercepts  and  the  slope  coefficients  reflected  in  these 
 regression  equations.  The  coefficients  set  forth  in  these  columns  for  these  regression  equations  are  for  the  variables  that  indicate  the  size  of  a  cable,  5  density  zone,  6  soil  surface  texture,  7  bedrock  type,  8  combined 

 2  There  is  no  regression  equation  for  underground  structure  in  the  NRRI  Study.  The  regression  equation  for 
 underground  structure  adopted  in  this  Order  was  developed  after  the  NRRI  Study  was  published. 
 3  These  regression  equations  are  set  forth  in  the  NRRI  Study  at  58,  Table  2-  16  (24-  gauge  aerial  copper  cable 
 cost);  60,  Table  2-  19  (24-  gauge  underground  copper  cable  cost);  41,  Table  2-  7  (24-  gauge  buried  copper  cable  and  structure  cost);  59,  Table  2-  18  (aerial  fiber  cable  cost);  61,  Table  2-  20  (underground  fiber  cable  cost);  49,  Table  2- 

 10  (buried  fiber  cable  and  structure  cost);  52,  Table  2-  12  (pole  cost). 
 4  None  of  the  regression  equations  adopted  in  this  Order  has  a  variable  that  indicates  the  presence  of  a  second 
 cable  at  the  same  location.  The  regression  equations  in  the  NRRI  Study,  other  than  the  equation  for  poles,  have  a  variable  that  indicates  the  presence  of  a  second  cable  at  the  same  location.  The  regression  equations  adopted  in  this 

 Order  for  poles,  underground  structure,  buried  copper  cable  and  structure,  and  buried  fiber  cable  and  structure  have  a  variable  that  indicates  the  presence  of  a  high  water  table.  The  regression  equation  in  the  NRRI  Study  for  poles 
 and  buried  fiber  cable  and  structure  have  a  variable  that  indicates  the  presence  of  a  high  water  table.  The  regression  equation  in  the  NRRI  Study  for  buried  copper  cable  and  structure  does  not  have  this  variable. 

 5  The  cable  size  variable  is  used  in  the  regression  equations  for  estimating  the  cost  of  24-  gauge  aerial  copper 
 cable,  24-  gauge  underground  copper  cable,  24-  gauge  buried  copper  cable  and  structure,  aerial  fiber  cable,  underground  fiber  cable,  and  buried  fiber  cable  and  structure.  It  has  values  that  equal  the  number  of  copper  cable 

 pairs  in  the  24-  gauge  copper  cable  regression  equations  and  the  number  of  fiber  cable  strands  in  the  fiber  cable  regression  equations. 

 6  The  density  zone  variable  is  used  in  the  regression  equations  for  24-  gauge  buried  copper  cable  and  structure 
 cost  and  buried  fiber  cable  and  structure  cost.  It  has  a  value  of  1  if  a  buried  cable  is  installed  in  density  zone  2;  0  if  a  buried  cable  is  installed  in  density  zone  1. 

 7  The  variable  that  indicates  soil  surface  texture  is  used  in  the  regression  equation  for  pole  cost.  It  has  values  that 
 range  from  0  for  normal  soil,  to  1  for  soft  soil,  to  3  for  hard  soil.  See  NRRI  Study  at  16  and  46,  Table  2-  8. 
 8  The  variable  that  indicates  bedrock  type  is  used  in  the  regression  equation  for  pole  cost.  It  has  values  that  range 
 from  0  for  normal  rock,  to  1  for  soft  rock,  to  2  for  hard  rock.  These  bedrock  types  are  at  a  depth  of  48  inches.  See 
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 bedrock  and  soil  type,  9  and  the  presence  of  a  high  water  table.  10  Columns  C,  E,  G,  I,  K,  M,  and  O  display  the  t-  statistics  used  to  measure  the  statistical  significance  of  these  intercepts  and  coefficients.  Column  P 
 displays  the  F-  statistics  used  to  measure  the  statistical  significance  of  these  regression  equations.  Column  O  displays  the  number  of  observations  in  the  data  used  to  estimate  these  equations. 

 6.  The  coefficients  for  the  variable  that  indicates  the  size  of  the  cable  in  the  regression  equations  for  24-  gauge  copper  cable  cost  and  fiber  cable  cost  do  not  reflect  the  adjustments  adopted  in 
 this  Order  for  large  LEC  buying  power.  The  intercepts  and  the  coefficients  in  these  equations  do  not  reflect  splicing  and  LEC  engineering  costs  because  these  costs  are  not  reflected  in  the  RUS  data  from 
 which  these  equations  are  derived.  The  intercepts  and  the  coefficients  for  the  water,  soil,  and  bedrock  indicator  variables  in  the  regression  equations  for  structure  costs  do  not  reflect  LEC  engineering  costs 
 because  these  costs  are  not  reflected  in  the  RUS  data  from  which  these  equations  are  derived.  The  intercept  and  the  coefficients  for  the  water,  soil,  and  bedrock  indicator  variables  in  the  regression  equation 
 for  pole  costs  do  not  reflect  costs  for  anchors,  guys,  and  other  pole-  related  items  because  these  costs  are  not  reflected  in  the  RUS  data  from  which  this  equation  is  derived. 

 B.  Adjustments  To  Regression  Equations  Derived  From  RUS  Data  For  Estimating  Cable  And  Structure  Costs 
 7.  Table  II,  labeled  "Adjustments  To  Regression  Equations  Derived  From  RUS  Data  For  Estimating  Cable  And  Structure  Costs,"  sets  forth  adjustments  to  the  regression  equations  adopted  in  this 
 Order  for  estimating  costs  for  24-  gauge  copper  cable,  fiber  cable,  and  structure.  The  equations  that  reflect  these  adjustments,  i.  e.,  the  adjusted  equations,  are  used  for  estimating  the  cost  of:  (1)  24-  gauge  aerial 
 copper  cable;  (2)  24-  gauge  underground  copper  cable;  (3)  24-  gauge  buried  copper  cable;  (4)  aerial  fiber  cable;  (5)  underground  fiber  cable;  (6)  buried  fiber  cable;  (7)  aerial  structure;  (8)  underground  structure; 
 and  (9)  buried  structure. 
 8.  Column  A  identifies,  by  type  of  cost,  the  adjusted  equations  used  to  derive  the  cable  and 

 NRRI  Study  at  16  and  44,  Table  2-  8. 
 9  The  combined  bedrock  and  soil  type  variable  is  used  in  the  regression  equations  for  24-  gauge  buried  copper 
 cable  and  structure  cost,  buried  fiber  cable  and  structure  cost,  and  underground  structure  cost.  It  is  the  sum  of  separate  variables  for  surface  soil  texture  and  bedrock  type  at  a  depth  of  36  inches.  See  NRRI  Study  at  45,  Table  2- 

 8.  The  value  of  the  variable  that  indicates  surface  soil  texture  ranges  from  0  for  normal  soil,  to  1  for  soft  soil,  to  3  for  hard  soil.  See  NRRI  Study  at  16  and  46,  Table  2-  8.  The  value  of  the  variable  that  indicates  bedrock  type  ranges 
 from  0  for  normal  rock,  to  1  for  soft  rock,  to  2  for  hard  rock  at  a  depth  of  36  inches.  See  NRRI  Study  at  16  and  44,  Table  2-  8.  Accordingly,  the  value  of  the  variable  for  the  combined  bedrock  and  soil  type  indicator  ranges  from  0 
 where  there  are  normal  surface  soil  texture  and  normal  bedrock  at  a  depth  of  36  inches  to  5  where  there  are  hard  surface  soil  texture  and  hard  bedrock  at  a  depth  of  36  inches. 

 10  The  variable  that  indicates  the  presence  of  a  high  water  table  is  used  in  the  regression  equations  for  24-  gauge 
 buried  copper  cable  and  structure  cost,  buried  fiber  cable  and  structure  cost,  pole  cost,  and  underground  structure  cost.  It  has  values  that  range  from  0  for  the  absence  of  a  high  water  table,  to  1  for  the  presence  of  a  high  water 

 table.  This  variable  assumes  that  a  high  water  table  has  a  depth  of  five  feet  or  fewer.  See  NRRI  Study  at  12,  16  and  46,  Table  2-  8. 
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 structure  costs  adopted  as  input  values  in  this  Order. 
 9.  Column  B  displays  the  intercepts  in  the  adjusted  equations.  In  the  adjusted  equations  for  the  cost  of  aerial  and  underground  24-  gauge  copper  cable,  fiber  cable,  and  structure,  the  intercepts  are 
 those  in  the  regression  equations  for  these  costs.  The  intercepts  in  the  adjusted  equations  for  24-  gauge  buried  copper  cable  and  buried  fiber  cable  represent  the  fixed  cost  of  buried  copper  cable  and  the  fixed 
 cost  of  buried  fiber  cable,  respectively.  The  intercepts  in  the  regression  equations  for  24-  gauge  buried  copper  cable  and  structure  and  buried  fiber  cable  and  structure  represent  the  fixed  cost  of  buried  copper 
 cable  and  structure  and  the  fixed  cost  of  buried  fiber  cable  and  structure,  respectively,  in  density  zone  1.  The  fixed  cost  of  24-  gauge  buried  copper  cable  used  as  the  intercept  in  the  adjusted  equation  for  24-  gauge 
 buried  copper  cable,  approximately  $.  46  per  foot,  is  derived  by  subtracting  from  the  intercept  in  the  regression  equation  for  24-  gauge  buried  copper  cable  and  structure,  approximately  $1.16  per  foot,  the 
 value  of  the  fixed  cost  for  buried  structure  in  density  zone  1  adopted  in  this  Order,  $.  70  per  foot.  The  fixed  cost  of  fiber  cable  used  as  the  intercept  in  the  adjusted  equation  for  fiber  cable,  approximately  $.  47 
 per  foot,  is  derived  by  subtracting  from  the  intercept  in  the  regression  equation  for  buried  fiber  cable  and  structure,  approximately  $1.17  per  foot,  the  $.  70  per  foot  fixed  cost  adopted  for  buried  structure  in  density 
 zone  1.  The  intercept  in  the  adjusted  equation  for  buried  structure  represents  the  fixed  cost  of  buried  structure  in  density  zone  1.  The  fixed  cost  of  buried  structure  in  density  zone  1  used  as  the  intercept  in 
 the  adjusted  equation  for  buried  structure  is  the  $.  70  per  foot  fixed  cost  adopted  for  buried  structure  in  density  zone  1. 

 10.  Column  C  displays  the  coefficients  for  the  cable  size  variable  in  the  adjusted  24-  gauge  copper  and  fiber  cable  equations.  In  the  adjusted  equations  for  the  cost  of  aerial  and  underground  24- 
 gauge  copper  cable  and  fiber  cable,  the  coefficients  for  the  cable  size  variable  are  those  for  this  variable  in  the  regression  equations  for  these  costs.  In  the  adjusted  24-  gauge  copper  cable  equation,  the  coefficient 
 for  the  cable  size  variable  is  the  coefficient  for  this  variable  in  the  24-  gauge  buried  cable  and  structure  regression  equation.  In  the  adjusted  24-  gauge  fiber  cable  equation,  the  coefficient  for  the  cable  size 
 variable  is  the  coefficient  for  this  variable  in  the  buried  fiber  cable  and  structure  regression  equation. 
 11.  Column  D  displays  the  large  LEC  buying  power  adjustment  factors.  These  factors  are  applied  to  the  coefficients  for  the  cable  size  variable  in  the  adjusted  copper  and  fiber  cable  equations. 
 Column  E  displays  the  values  of  the  coefficients  for  these  cable  size  variables  in  these  equations,  as  adjusted  to  reflect  large  LEC  buying  power. 

 12.  Columns  F,  G,  and  H  display  the  coefficients  for  the  density  zone,  bedrock  indicator,  and  combined  soil  and  bedrock  indicator  variables  in  the  adjusted  structure  equations.  In  the  adjusted 
 equations  for  the  cost  of  aerial  and  underground  structure,  these  coefficients  are  those  for  these  variables  in  the  regression  equations  for  these  costs.  In  the  adjusted  buried  structure  equation,  these  coefficients  are 
 those  for  these  variables  in  the  24-  gauge  buried  copper  cable  and  structure  regression  equation.  The  coefficients  for  the  water  and  soil  indicator  variables  in  the  structure  regression  equations  are  not  reflected 
 in  the  adjusted  equations  because  the  value  for  these  variables  is  set  equal  to  zero  to  estimate  structure  costs  used  as  input  values. 

 13.  Column  I  displays  the  loading  factors  used  to  reflect  splicing  costs  in  the  cable  cost  estimates  for  24-  gauge  copper  cable  and  fiber  cable. 
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 14.  Column  J  displays  the  loading  factor  used  to  reflect  LEC  engineering  costs  in  the  structure  cost  estimates. 
 15.  Column  K  displays  the  flat  dollar  loading  used  to  reflect  LEC  engineering  costs  in  the  cable  cost  estimates  for  24-  gauge  copper  cable  and  fiber  cable. 
 16.  Column  L  displays  the  adjusted  equations  used  to  estimate  costs  for  aerial,  underground,  and  buried  24-  gauge  copper  and  fiber  cable,  buried  and  underground  structure,  and  poles. 
 17.  Columns  M-  O  display  adjustments  to  the  adjusted  pole  equation.  These  adjustments  add  to  the  cost  of  poles  the  costs  for  anchors,  guys,  and  other  pole-  related  items,  including  LEC  engineering 
 costs  associated  with  these  additional  items,  and  convert  per  pole  costs,  inclusive  of  costs  for  anchors,  guys,  and  other  pole-  related  items,  i.  e.,  aerial  structure  costs,  to  per  foot  costs.  Column  M  displays  the 
 costs  for  anchors,  guys,  and  other  pole-  related  items  for  density  zones  1  and  2  ($  32.98  per  pole),  density  zones  3-  7  ($  49.96  per  pole),  and  density  zones  8  and  9  ($  60.47  per  pole).  11  Column  N  displays  the 
 loading  factor  used  to  reflect  LEC  engineering  costs  in  the  costs  for  anchors,  guys,  and  other  pole-  related  items.  Column  O  displays  the  distance  between  poles  used  to  calculate  aerial  structure  cost  per  foot  for 
 density  zones  1  and  2  (250  feet  per  pole),  density  zones  3  and  4  (200  feet  per  pole),  density  zones  5  and  6  (175  feet  per  pole),  and  density  zones  7-  9  (150  feet  per  pole). 

 18.  Column  P  displays  the  adjusted  equation  used  to  estimate  aerial  structure  cost  per  foot,  including  poles,  anchors,  guys,  and  other  pole-  related  items. 
 19.  We  illustrate  how  the  adjusted  equations  are  used  to  develop  the  input  values  adopted  in  this  Order  by  calculating  the  cost  for  a  100-  pair  24-  gauge  aerial  copper  cable.  Column  L  sets  forth  the 
 adjusted  equation  used  to  develop  the  input  values  adopted  in  this  Order  for  24-  gauge  aerial  copper  cable.  The  adjusted  equation  set  forth  in  column  L  for  24-  gauge  aerial  copper  cable  is  as  follows:  12 

 A1  =  (B1  +  (E1)(#  of  Prs.))(  1  +  I1)  +  K1 
 where: 
 A1  =  24-  gauge  aerial  copper  cable  cost  per  foot;  B1  =  the  intercept  for  24-  gauge  aerial  copper  cable  in  dollars  per  foot; 
 E1  =  the  coefficient,  adjusted  for  buying  power,  in  dollars  per  pair  per  foot,  for  the  variable  that  represents  the  number  of  24-  gauge  aerial  copper  cable  pairs; 
 I1  =  the  splicing  loading  for  24-  gauge  aerial  copper  cable  expressed  as  a  percentage; 
 11  These  costs  for  anchors,  guys,  and  other  pole-  related  items  are  based  on  the  costs  for  these  items  in  rural, 
 suburban,  and  urban  areas  derived  by  Gabel  and  Kennedy  in  the  NRRI  Study.  See  NRRI  Study  at  51,  Table  2-  11. 
 12  Set  forth  on  Table  II  in  specific  columns  and  on  specific  rows  are  the  values  for  the  intercepts,  coefficients 
 (including  the  adjusted  coefficients  for  the  cable  size  variable),  splicing  loadings,  and  LEC  engineering  loadings  reflected  in  the  adjusted  equations  used  to  estimate  structure  and  cable  costs.  The  specific  column  is  identified  by  a 

 letter.  The  specific  row  is  identified  by  a  number.  B1,  for  example,  refers  to  the  value  set  forth  in  column  B  on  row  1. 
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 K1  =  the  LEC  engineering  loading  for  24-  gauge  aerial  copper  cable  in  dollars  per  foot. 
 20.  By  substituting  into  the  above  equation  for  24-  gauge  aerial  copper  cable  the  values  from  Table  II  for  the  intercept,  adjusted  coefficient  for  the  cable  size  variable,  splicing  loading,  and  LEC 
 engineering  loading,  and  the  number  of  cable  pairs  in  this  example,  100,  we  obtain  the  following  estimate  for  the  cost  of  a  100-  pair  24-  gauge  aerial  copper  cable: 

 A1  =  (1.014907  +  (.  008329)(  100))(  1  +  .094)  +  .19 
 =  (1.014907  +  .8329)(  1.094)  +  .19 
 =  (1.847807)(  1.094)  +  .19 
 =  2.021501  +  .19 
 =  $2.21  per  foot. 
 We  adopt  this  estimate  as  the  input  in  the  model  for  the  cost  of  a  100-  pair  24-  gauge  aerial  copper  cable. 
 C.  Regression  Equations  Derived  From  Non-  Rural  LEC  Data  For  Estimating  Cable  Costs 

 21.  We  adopt  in  this  Order  a  methodology  to  derive  estimates  of  26-  gauge  copper  cable  costs  from  24-  gauge  copper  cable  costs.  We  first  estimate  by  using  the  Huber  methodology  with  RUS  data  the 
 cost  for  24-  gauge  copper  cable  for  each  cable  size.  13  We  then  obtain  by  using  the  Huber  methodology  with  certain  non-  rural  LEC  data  estimates  of  the  cost  for  24-  gauge  copper  cable  and  26-  gauge  copper 
 cable  for  each  cable  size.  14  We  next  divide  the  24-  gauge  copper  cable  cost  estimate  derived  from  the  non-rural  LEC  data  into  the  estimate  for  26-  gauge  copper  cable  cost  derived  from  these  data  for  each  cable 
 size.  The  result  is  a  ratio  of  26-  gauge  copper  cable  cost  to  24-  gauge  copper  cable  cost  for  each  cable  size.  15  Finally,  we  multiply  this  ratio  by  the  estimate  of  the  cost  for  24-  gauge  copper  cable  derived  from 
 the  RUS  data  to  obtain  the  cost  for  26-  gauge  copper  cable  for  each  cable  size.  16  We  adopt  these  estimates  as  inputs  for  26-  gauge  copper  cable  costs  in  the  SM. 

 22.  Table  III,  labeled  "Regression  Equations  Derived  From  Non-  Rural  LEC  Data  For  Estimating  Cable  Costs,"  sets  forth  regression  equations  derived  from  the  non-  rural  LEC  data  for:  (1)  24- 
 13  More  technically,  we  obtain  from  these  RUS  data  an  estimate  of  the  expected  value  of  the  cost  for  24-  gauge 
 copper  cable  for  each  cable  size. 
 14  More  technically,  we  obtain  from  these  non-  rural  LEC  data  estimates  of  the  expected  value  of  the  cost  for  24- 
 gauge  copper  cable  and  26-  gauge  copper  cable  for  each  cable  size. 
 15  More  technically,  we  obtain  from  these  non-  rural  LEC  data  a  ratio  of  an  estimate  of  the  expected  value  for  26- 
 gauge  copper  cable  cost  to  an  estimate  of  the  expected  value  for  24-  gauge  cable  cost  for  each  cable  size. 
 16  More  technically,  we  obtain  an  estimate  of  the  expected  value  for  26-  gauge  copper  cable  cost. 
6
 B-  7 
 gauge  aerial  copper  cable;  (2)  24-  gauge  underground  copper  cable;  (3)  24-  gauge  buried  copper  cable;  (4)  26-  gauge  aerial  copper  cable;  (5)  26-  gauge  underground  copper  cable;  and  (6)  26-  gauge  buried  copper 
 cable.  We  use  these  regression  equations  to  develop  the  ratios  of  26-  gauge  copper  cable  costs  to  24-  gauge  copper  cable  costs  used  to  derive  the  cost  for  26-  gauge  copper  cable.  Column  A  identifies  these 
 regression  equations  by  type  of  copper  cable  cost.  Set  forth  in  columns  B  and  D  are  the  intercepts  and  the  slope  coefficients  reflected  in  these  regression  equations.  Columns  C  and  E  display  the  t-  statistics  used  to 
 measure  the  statistical  significance  of  these  intercepts  and  coefficients.  Column  F  displays  the  F-  statistics  used  to  measure  the  statistical  significance  of  these  regression  equations.  Column  G  displays  the  number 
 of  observations  in  the  data  used  to  estimate  these  equations.  Column  H  shows  the  regression  equations  derived  from  the  non-  rural  LEC  data  for  estimating  costs  for  24-  gauge  and  26-  gauge  copper  cable. 

 23.  These  regression  equations  are  derived  from  ex  parte  data  on  24-  gauge  and  26-  gauge  copper  cable  costs  submitted  by  Sprint  and  Aliant,  data  on  these  cable  costs  submitted  by  BellSouth  with 
 its  comments,  17  and  the  BCPM  default  values  for  these  cable  costs.  These  regression  equations  are  developed  by  using  the  Huber  methodology.  Using  the  Huber  methodology  with  non-  rural  LEC  data  to 
 estimate  cable  costs  for  24-  and  26-  gauge  copper  cable  costs  is  consistent  with  use  of  this  methodology  to  estimate  24-  gauge  copper  cable  costs  from  the  RUS  data.  The  regression  equations  derived  from  non-rural 
 LEC  data  use  the  number  of  copper  cable  pairs  as  the  sole  independent  variable.  Using  the  number  of  copper  cable  pairs  as  the  sole  independent  variable  in  these  regression  equations  is  consistent  with 
 using  this  variable  as  the  sole  independent  variable  in  the  regression  equations  for  24-  gauge  copper  cable  costs  estimated  from  the  RUS  data. 

 24.  In  this  Order,  we  find  it  reasonable  to  rely  on  the  non-  rural  LEC  data  for  calculating  the  ratio  of  the  cost  for  24-  gauge  copper  cable  to  that  for  26-  gauge  copper  cable  but  not  for  calculating  the 
 absolute  cost  for  24-  gauge  copper  cable  and  26-  gauge  copper  cable.  18  As  discussed  in  this  Order,  we  find  that  the  non-  rural  LEC  data  is  not  a  reliable  measure  of  absolute  costs.  Notwithstanding  this  finding,  we 
 conclude  that  it  is  reasonable  to  use  the  non-  rural  LEC  data  to  determine  the  relative  value  of  the  cost  for  24-  gauge  copper  cable  to  that  for  26-  gauge  copper  cable.  We  find  that  it  is  reasonable  to  conclude  that 
 each  LEC  used  the  same  methodology  to  develop  both  24-  gauge  and  26-  gauge  copper  cable  costs.  Accordingly,  any  bias  in  the  costs  for  24-  gauge  and  26-  gauge  copper  cable  that  results  from  using  a  given 

 17  See  BellSouth  Inputs  Further  Notice  comments,  Exhibit  1.  BellSouth  submitted  separate  copper  cable  costs 
 for  nine  study  areas.  We  calculate  the  weighted  average  of  these  copper  cable  costs  for  each  cable  size  based  on  the  number  of  access  lines  in  each  study  area.  We  include  this  weighted  average  cable  cost  for  BellSouth  for  each  cable 

 size  in  the  non-  rural  LEC  data  from  which  we  derive  24-  gauge  and  26-  gauge  copper  cable  costs.  By  using  a  weighted  average,  the  regression  equations  derived  from  the  non-  rural  LEC  data  do  not  reflect  a  disproportionate 
 number  of  observations  for  BellSouth  compared  to  the  number  of  observations  for  the  other  non-  rural  LECs  for  which  costs  are  reflected  in  these  data.  The  cable  costs  reflected  in  the  data  for  these  other  LECs  are  either 
 company-  wide  costs  or  an  average  for  multiple  study  areas.  In  either  case,  there  is  a  single  observation  for  each  of  these  companies  for  a  given  cable  size  for  24-  gauge  and  26-  gauge  copper  cable  cost.  By  reflecting  the  weighted 
 average  cost  for  BellSouth  in  the  data,  there  is  only  one  observation  for  BellSouth  for  a  given  cable  size  for  24-  gauge  and  26-  gauge  copper  cable  cost. 

 18  We  discuss  the  rationale  for  using  non-  rural  LEC  data  to  calculate  relative  copper  cable  costs,  but  not  absolute 
 copper  cable  costs,  in  this  Order,  section  V.  C.  4.  b. 
7
 B-  8 
 methodology  is  likely  to  be  in  the  same  direction  and  of  a  similar  magnitude.  As  a  consequence,  cost  estimates  for  24-  gauge  and  26-  gauge  copper  cable  for  each  cable  size  developed  from  non-  rural  LEC  data 
 by  using  the  Huber  methodology  are  likely  to  be  biased  by  approximately  the  same  factor.  The  ratios  of  these  estimates  are  not  likely  to  be  affected  significantly  because  the  bias  in  one  estimate  approximately 
 cancels  the  bias  in  the  other  estimate  when  the  ratio  is  calculated. 
 25.  We  illustrate  how  we  calculate  the  costs  that  we  adopt  in  this  Order  for  26-  gauge  copper  cable  by  calculating  the  cost  for  a  100-  pair  26-  gauge  aerial  copper  cable.  As  explained  above,  we  derive 
 a  ratio  of  26-  gauge  copper  cable  cost  to  24-  gauge  copper  cable  cost  from  non-  rural  LEC  data  to  obtain  costs  for  26-  gauge  copper  cable.  To  calculate  this  ratio  for  a  100-  pair  aerial  copper  cable,  we  estimate 
 separately  from  non-  rural  LEC  data  the  cost  for  a  100-  pair  24-  gauge  aerial  copper  cable  and  a  100-  pair  26-  gauge  aerial  copper  cable.  We  first  estimate  the  numerator  of  this  ratio,  i.  e.,  the  cost  for  a  100-  pair  24- 
 gauge  aerial  copper  cable.  Column  H  shows  the  regression  equation  derived  from  non-  rural  LEC  data  for  estimating  the  cost  for  24-  gauge  aerial  copper  cable.  The  regression  equation  set  forth  in  column  H  for 
 24-  gauge  aerial  copper  cable  is  as  follows: 
 A1  =  B1  +  (D1)(#  of  Pairs) 
 where: 
 A1  =  24-  gauge  aerial  copper  cable  cost  per  foot;  B1  =  the  intercept  for  24-  gauge  aerial  copper  cable  in  dollars  per  foot; 
 D1  =  the  coefficient  in  dollars  per  pair  per  foot  for  the  variable  that  represents  the  number  of  24-  gauge  aerial  copper  cable  pairs. 

 26.  By  substituting  into  the  above  equation  for  24-  gauge  aerial  copper  cable  the  values  from  Table  III  for  the  intercept  and  the  coefficient  for  the  cable  size  variable,  and  the  number  of  cable  pairs  in 
 this  example,  100,  we  obtain  the  following  result  for  the  cost  of  a  100-  pair  24-  gauge  aerial  copper  cable: 
 A1  =  2.1548  +  (.  012393)(  100) 
 =  2.1548  +  1.2393 
 =  $3.39  per  foot. 
 27.  We  next  estimate  the  denominator  for  the  ratio  of  26-  gauge  aerial  copper  cable  cost  to  24-  gauge  aerial  copper  cable  cost  for  a  100-  pair  aerial  copper  cable,  i.  e.,  the  26-  gauge  aerial  copper  cable 
 cost  for  a  100-  pair  cable.  Column  H  shows  the  regression  equation  derived  from  non-  rural  LEC  data  for  estimating  the  cost  for  26-  gauge  aerial  copper  cable.  The  regression  equation  set  forth  in  column  H  for 
 26-  gauge  aerial  copper  cable  is  as  follows: 
 A4  =  B4  +  (D4)(#  of  Pairs)  where: 

 A4  =  26-  gauge  aerial  copper  cable  cost  per  foot;  B4  =  the  intercept  for  26-  gauge  aerial  copper  cable  in  dollars  per  foot; 
8
 B-  9 
 D4  =  the  coefficient  in  dollars  per  pair  per  foot  for  the  variable  that  represents  the  number  of  26-  gauge  aerial  copper  cable  pairs. 
 28.  By  substituting  into  the  above  equation  for  26-  gauge  aerial  copper  cable  the  values  from  Table  III  for  the  intercept  and  the  coefficient  for  the  cable  size  variable,  and  the  number  of  cable  pairs  in 
 this  example,  100,  we  obtain  the  following  result  for  the  cost  of  a  100-  pair  26-  gauge  aerial  copper  cable: 
 A4  =  2.385108  +  (.  008721)(  100) 
 =  2.385108  +  .8721 
 =  $3.26  per  foot. 
 29.  We  next  calculate  the  ratio  of  26-  gauge  copper  cable  cost  to  24-  gauge  copper  cable  cost  for  a  100-  pair  cable.  The  ratio  of  26-  gauge  copper  cable  cost  to  24-  gauge  copper  cable  cost  for  a  100-  pair 
 cable  is  .96  ($  3.26  per  foot  divided  by  $3.39  per  foot). 
 30.  Finally,  we  multiply  this  ratio  by  the  estimate  of  the  24-  gauge  copper  cable  cost  for  a  100-  pair  cable  derived  from  the  RUS  data,  $2.21  per  foot,  to  obtain  the  cost  for  a  100-  pair  26-  gauge 
 copper  cable,  $2.12  per  foot.  We  adopt  this  estimate  as  the  input  in  the  SM  for  the  cost  of  a  100-  pair  26-  gauge  aerial  copper  cable. 

 III.  Huber  Methodology 
 31.  We  find  in  this  Order  that  it  is  reasonable  to  use  the  Huber  methodology  to  develop  input  values  for  cable  and  structure  costs.  The  structure  and  cable  cost  inputs  used  in  the  SM  should  reflect 
 those  that  are  typical  for  cable  and  structure  for  a  number  of  different  density  and  terrain  conditions.  Otherwise,  the  model  may  substantially  overestimate  or  underestimate  the  cost  of  building  a  network. 
 The  Huber  methodology  produces  estimates  of  costs  that  are  typical  for  cable  and  structure  by  assigning  zero  or  less  than  full  weight  to  cable  and  structure  cost  observations  that  have  extremely  high  or 
 extremely  low  values.  At  the  same  time,  it  assigns  full  or  nearly  full  weight  to  closely  clustered  cable  and  structure  cost  observations. 

 32.  Use  of  the  Huber  methodology  to  derive  reasonable  estimates  from  RUS  data  is  illustrated  for  aerial  copper  cable  cost  on  the  diagram  labeled  "Scatter  Diagram  Of  24-  Gauge  Aerial 
 Copper  Cable  Cost  And  Size  With  The  Huber  Regression  Line"  and  on  the  frequency  distribution  set  forth  on  Table  IV,  labeled  "Frequency  Distribution  Of  Huber  Weights  For  24-  Gauge  Aerial  Copper  Cable 
 Cost."  The  scatter  diagram  shows  RUS  cable  cost  data  points  representing  combinations  of  aerial  copper  cable  costs  (measured  on  the  vertical  axis  in  dollars  per  foot)  and  cable  size  (measured  on  the  horizontal 
 axis  by  number  of  pairs).  It  also  shows  the  regression  line  that  the  Huber  methodology  fits  to  these  data  points.  The  algebraic  expression  of  this  line  explains  or  predicts  the  effects  on  aerial  copper  cable  costs 
 of  changes  in  cable  size.  19  The  observations  to  which  Huber  assigns  a  weight  that  is  less  than  .47  are 
 19  The  algebraic  expression  of  the  regression  line  for  24-  gauge  aerial  copper  cable  estimated  from  RUS  data  by 
 using  the  Huber  methodology  is  as  follows: 
9
 B-  10 
 identified  with  an  o;  those  to  which  it  assigns  a  weight  that  is  greater  than  .47  are  identified  with  an  *.  The  frequency  distribution  shows  the  number  of  aerial  copper  cable  observations  to  which  the  Huber 
 methodology  assigns  particular  weights. 
 33.  The  scatter  diagram  and  the  frequency  distribution  demonstrate  that  the  aerial  copper  cable  estimates  derived  by  using  the  Huber  methodology  with  RUS  data  reflect  most  of  the  information 
 contained  in  nearly  all  of  the  observations.  As  depicted  on  the  scatter  diagram,  the  majority  of  the  aerial  copper  cable  observations  are  clustered  closely  around  the  regression  line.  These  are  the  observations  to 
 which  Huber  assigns  the  greatest  weight  when  fitting  the  regression  line  to  the  data.  As  the  frequency  distribution  shows,  approximately  82  percent  of  the  aerial  copper  cable  observations  is  assigned  a  weight 
 of  at  least  .8.  This  large  majority  of  closely  clustered  observations  clearly  represents  typical  cable  costs.  The  minority  of  the  aerial  copper  cable  observations  lies  a  considerable  distance  from  the  regression  line. 
 These  are  the  observations  to  which  Huber  assigns  the  least  weight  when  fitting  the  regression  line  to  the  data.  As  the  frequency  distribution  shows,  approximately  18  percent  of  the  observations  is  assigned  a 
 weight  of  at  less  than  .8.  This  small  minority  of  observations  comprises  extremely  high  and  extremely  low  values  that  do  not  represent  typical  cable  costs.  The  scatter  diagram  also  shows  that  some  of  the 
 observations  that  receive  a  relatively  small  weight  lie  a  substantial  distance  above  the  regression  line  while  others  that  receive  such  weight  lie  a  substantial  distance  below  this  line.  This  demonstrates  that  the 
 Huber  methodology  excludes  or  assigns  less  than  full  weight  to  data  outliers  without  regard  to  whether  these  are  high  or  low  cost  observations. 

 IV.  Analysis  Of  Coefficient  For  Cable  Size  Variable  In  The  Huber  Regression  Equations 
 34.  In  this  Order,  we  derive  equations  to  estimate  the  non-  rural  LECs'  labor  and  material  cost  for  cable.  We  derive  these  equations  by:  (1)  deriving  regression  equations  by  using  the  Huber 
 methodology  with  RUS  cable  cost  data  that  reflect  labor  and  material  costs;  and  (2)  adjusting  downward  the  coefficient  for  the  variable  that  represents  cable  size  in  these  regression  equations  to  reflect  the  buying 
 power  of  large  LECs  in  comparison  to  RUS  companies.  The  coefficient  for  the  variable  that  represents  cable  size  represents  the  additional  cost  for  an  additional  pair  of  cable  and  therefore  represents  cable 
 material  costs.  The  adjustment  to  this  coefficient  is  based  on  the  difference  between  the  average  cable  material  prices  that  Bell  Atlantic  and  the  RUS  companies  pay  for  different  cable  sizes.  The  RUS 
 companies'  average  cable  material  prices  are  calculated  by  using  unweighted  RUS  data.  Conversely,  the  Huber  methodology  used  to  estimate  the  regression  equations  assigns  zero  or  less  than  full  weight  to  data 
 points  that  have  extremely  high  or  extremely  low  values.  Below  we  demonstrate  that  the  Huber  methodology  generally  does  not  have  a  statistically  significant  impact  on  the  level  of  material  costs 
 reflected  in  the  cable  cost  estimates.  That  is,  in  general,  there  is  not  a  statistically  significant  difference 
 24-  gauge  aerial  copper  cable  cost  per  foot  =  1.014907  +  (.  009822)(  number  of  pairs). 
 In  this  regression  equation,  24-  gauge  aerial  copper  cable  cost  is  the  dependent  variable  for  which  a  value  is  measured  along  the  vertical  axis.  The  number  of  pairs  is  the  independent  variable  for  which  a  value  is  measured 
 along  the  horizontal  axis.  The  value  1.014907  is  the  intercept  of  the  regression  line.  It  is  the  point  at  which  the  regression  line  hits  the  vertical  axis.  It  measures  the  fixed  cost  for  24-  gauge  aerial  copper  cable.  The  value  .009822 
 is  the  slope  coefficient  of  the  regression  line.  It  is  the  slope  of  the  regression  line.  It  measures  the  additional  cost  for  one  additional  pair  of  24-  gauge  aerial  copper  cable. 
10
 B-  11 
 between  the  value  of  the  coefficient  for  the  cable  size  variable  in  the  regression  equations  estimated  by  using  the  Huber  methodology  and  the  value  of  this  coefficient  in  the  regression  equations  developed  in 
 the  NRRI  Study  by  using  OLS.  Accordingly,  the  buying  power  adjustment  for  material  is  based  on  averages  of  RUS  companies'  cable  material  prices  calculated  by  using  unweighted  RUS  data. 

 35.  Table  V,  labeled  "Analysis  Of  Coefficient  For  Cable  Size  Variable  In  The  Huber  Regression  Equations,"  displays  the  values  of  the  coefficient  for  the  cable  size  variable  in  the  regression 
 equations  estimated  from  RUS  data  by  using  the  Huber  methodology  in  this  Order  and  the  95  percent  confidence  interval  surrounding  the  value  of  this  coefficient  in  these  equations  in  the  NRRI  Study 
 estimated  from  these  data  by  using  OLS.  Except  for  24-  gauge  buried  copper  cable,  the  value  of  the  this  coefficient  estimated  by  using  the  Huber  methodology  lies  inside  the  95  percent  confidence  interval 
 surrounding  the  value  of  this  coefficient  in  these  equations  in  the  NRRI  Study  estimated  from  these  data  by  using  OLS.  That  is,  except  for  24-  gauge  buried  copper  cable,  the  value  of  the  cable  size  coefficient 
 estimated  by  using  the  Huber  methodology  lies  within  an  interval  that  contains  with  95  percent  certainty  the  true  value  of  the  OLS  cable  size  coefficient.  20  This  statistical  evidence  supports  a  finding  that  the 
 Huber  methodology  does  not  have  a  statistically  significant  impact  on  the  level  of  the  material  costs  reflected  in  the  cable  cost  estimates  derived  by  using  this  methodology.  21  The  cable  size  coefficient 
 obtained  by  using  the  Huber  methodology  for  buried  copper  cable  lies  outside  the  95  percent  confidence  interval  associated  with  the  cable  size  coefficient  obtained  by  using  OLS  for  buried  copper  cable.  This 
 supports  a  finding  that  the  Huber  methodology  does  have  a  statistically  significant  impact  on  the  level  of  the  material  costs  reflected  in  the  buried  copper  cable  cost  estimates.  22 

 20  Strictly  speaking,  over  a  large  number  of  different  samples,  95  percent  of  the  confidence  intervals  associated 
 with  different  OLS  estimates  of  the  cable  size  coefficient  are  expected  to  contain  the  true  value  of  the  OLS  cable  size  coefficient. 

 21  In  this  Order,  we  affirm  the  tentative  decision  in  the  Inputs  Further  Notice  to  use  conservatively  the  lower  of 
 the  buying  power  adjustments  for  aerial  and  underground  copper  cable  material  costs  as  the  adjustment  for  buried  copper  cable  material  costs  because  the  Huber  methodology  does  have  a  statistically  significant  impact  on  the 

 buried  copper  cable  material  costs  reflected  in  the  buried  copper  cable  cost  estimates.  See  this  Order,  section  V.  C.  4.  b. 

 22  The  specifications  for  the  copper  and  fiber  cable  regression  equations  in  the  NRRI  Study  differ  slightly  from 
 the  copper  and  fiber  cable  regression  equations  adopted  in  this  Order.  The  difference  in  the  specifications  does  not  alter  the  statistical  conclusions  regarding  the  impact  of  the  Huber  methodology  on  the  level  of  cable  material  costs 

 reflected  in  the  cable  cost  estimates.  We  estimated  by  using  OLS  copper  and  fiber  cable  regression  equations  for  which  the  specifications  matched  identically  those  for  the  copper  and  fiber  cable  regression  equations  estimated  by 
 using  the  Huber  methodology.  Again,  with  one  exception,  the  cable  size  coefficient  in  the  regression  equations  estimated  by  using  the  Huber  methodology  lies  inside  the  95  percent  confidence  interval  associated  with  the  cable 
 size  coefficient  in  the  regression  equations  with  the  identical  specifications  estimated  by  using  OLS.  The  one  exception  is  that  the  value  of  the  cable  size  coefficient  in  the  buried  copper  cable  and  structure  regression  equation 
 estimated  by  using  the  Huber  methodology  lies  outside  the  95  percent  confidence  interval  associated  with  the  cable  size  coefficient  in  the  buried  copper  cable  and  structure  regression  equation  with  the  identical  specification 
 estimated  by  using  OLS.  Again,  we  conclude  that  the  Huber  methodology  does  not  have  a  statistically  significant  impact  on  the  level  of  the  cable  material  costs  reflected  in  the  cable  cost  estimates  other  than  the  buried  cable  cost 
 estimates. 
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