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*****************************************************                                   News media information  202 / 418-0500
                                            Fax-On-Demand  202 / 418-2830
                                            Internet:  http://www.fcc.gov
                                                        ftp.fcc.govPUBLIC
                                                                   NOTICE
                                                                         
                                        Federal Communications Commission
                                                         1919 M St., N.W.
                                                   Washington, D.C. 20554
                                                                         
                                                                         
                                                               DA 98-217
                                       Released February 27, 1998

                State Forward-Looking Cost Studies
              for Federal Universal Service Support
                 CC Docket Nos. 96-45 and 97-160

     In the Universal Service Order, the Commission concluded that states could submit
forward-looking economic cost studies as the basis for calculating federal universal service high
cost support for non-rural carriers in lieu of using the federal mechanism for determining federal
universal service high cost support for non-rural carriers.  The Commission adopted specific
criteria to guide the states as they conduct those studies.  The Commission will review each study
submitted by a state, along with applicable comments.  If the Commission finds that a state cost
study meets the specified criteria, the Commission will approve such study for use in calculating
federal support for non-rural eligible telecommunications carriers in rural, insular, and high cost
areas in accordance with the Universal Service Order.  If a state cost study fails to meet the
criteria adopted in the Universal Service Order, or if a state does not submit a study, the
Commission will determine non-rural carriers' forward-looking economic cost of providing
universal service in that state according to the Commission's forward-looking cost methodology.

     In this Public Notice, we set forth the information we need to evaluate whether a state's
cost study complies with the criteria set forth in the Universal Service Order.  To enable the
Commision to make its determination in a timely fashion, we also set forth the manner in which
this information should be presented.  This uniform filing format, developed with the assistance
of the Joint Board, is to be used by all states submitting cost studies, and should simplify and
standardize the submission and review of state cost studies for the Commission, the states, and
other interested parties.

                   I.  Instructions for Filing

     State cost study submissions must consist of a text document and two spreadsheets, as
described below.  The text document and one spreadsheet are included in this Public Notice.  All
responses must also include the outputs, in spreadsheet form, discussed below.  To facilitate our
review of state submissions, states are required to file their submissions in electronic form.  We
encourage states to file via electronic mail, but submissions may also be made in diskette form. 
The staff of the Common Carrier Bureau will post electronic mail filings on the Commission's
home page on the World Wide Web within 48 hours of their receipt.  Diskette submissions will be
posted on the World Wide Web as soon as practicable.

Electronic Mail Submissions.  Submissions consist of a WordPerfect document, containing the
text questions, and an Excel spreadsheet, containing the format for the standardized submission of
inputs, discussed below.  Submissions must also include a spreadsheet containing the cost study's
outputs in the format discussed below.  Templates for the text document and the inputs
spreadsheet document required for state submissions can be downloaded from the Commission's
home page on the World Wide Web at http://www.fcc.gov/ccb/universal_service/welcome.html. 
In the text document, states are to type in their response to each question beneath the question in
the electronic template.  In the inputs spreadsheet, states are to fill in the indicated column(s) in
the provided template spreadsheet.  For the outputs submission, states are to provide an electronic
spreadsheet in the format discussed below.  The completed documents, in the same versions of
Excel and WordPerfect as the provided templates, should be included as attachments to a single
piece of electronic mail and sent via the Internet to <lbridge@fcc.gov>.  The subject line of the
message should identify the state making the filing.  States filing by electronic mail should monitor
the Commission's universal service home page and, if their submission does not appear within 48
hours of the time it was sent, call Leo Bridge of the Common Carrier Bureau's Universal Service
Branch at (202) 418-7377.

Diskette Submissions.  Submissions consist of a WordPerfect document, containing the text
questions, and an Excel spreadsheet, containing the format for the standardized submission of
inputs, discussed below.  Submissions must also include a spreadsheet containing the cost study's
outputs in the format discussed below.  Templates for the text document and the inputs
spreadsheet document required for state submissions can be downloaded from the Commission's
home page on the World Wide Web at http://www.fcc.gov/ccb/universal_service/welcome.html. 
In the text document, states are to type in their response to each question beneath the question in
the electronic template.  In the inputs spreadsheet, states are to fill in the indicated column(s) in
the provided template spreadsheet.  For the outputs submission, states are to provide an electronic
spreadsheet in the format discussed below.  The completed documents, in the same versions of
Excel and WordPerfect as the provided templates, are to be submitted in electronic form by
delivering the files on 3.5" computer diskettes to the Office of the Secretary, Federal
Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C.  20554.  If
the entire submission will not fit on a single diskette, states should divide the submission in a
logical fashion onto the smallest practicable number of diskettes.  The diskettes should be
numbered consecutively and each diskette should also state the total number of diskettes in the
submission (e.g., "disk 1 of 3").  A cover letter must accompany diskette submissions, and should
indicate the number of diskettes in the submission.  An additional copy of the diskette and cover
letter should also be provided to Sheryl Todd, Common Carrier Bureau, 2100 M Street, N.W.,
Room 8611, Washington, D.C.  20037.

                        II.  Text Document

     A.   General and Supporting Information

          1.  State

          2.  Date of Filing

          3.  Contact Person & Telephone Number (also include electronic mail address if
     available)

          4.  Hardware Requirements (i.e., disk space, memory requirements, etc.)

          5.  Software Requirements (i.e., operating system and version, spreadsheet software
     and version, etc.)

          6.  General Description of Study (identify whether study is based on the Benchmark
     Cost Proxy Model (BCPM) or HAI Model (identify version), a study or model
     prepared by a local exchange carrier (LEC), a state study or model for pricing
     unbundled network elements, or other source)

          7.  Supporting Information

          (a)  Please provide supporting information that includes a detailed description of the
     proposed cost study and all underlying data, formula, computations, and software
     associated with the study.  The documentation should include a complete listing of
     algorithms and formulas used in the study and in any pre-processing modules.  The
     supporting information should begin with an overview of the basic approach taken in the
     cost study, including the study's general methodology and basic assumptions.   (Note: If
     the state cost study is a version of a cost model that is already being considered by the
     Commission as the basis for determining federal high cost support, it is not necessary to
     provide all underlying documentation; if the proposal contains changes to the algorithms
     or inputs of a model under consideration by the Commission, however, such changes must
     be clearly documented.)
 
          (b) Please identify the sources of all underlying data used in the study and state whether
     these sources are included with this filing. If not, explain why not.

     B.   Demonstration That the Cost Study Fulfills the Order's Criteria for State Cost
     Studies

               Criterion 1:   The technology assumed in the cost study must be the least-cost, most-efficient,
               and reasonable technology for providing the supported services that is currently
               being deployed.  A model, however, must include the incumbent LECs' wire
               centers as the center of the loop network and the outside plant should terminate
               at incumbent LECs' current wire centers.  The loop design incorporated into a
               forward-looking economic cost study or model should not impede the provision
               of advanced services.  For example, load coils should not be used because they
               impede the provision of advanced services.  Wire center line counts should
               equal actual incumbent LEC wire center line counts, and the study's or model's
               average loop length should reflect the incumbent carrier's actual average loop
               length.

          (a) Describe the network technology for which costs are computed, including switch types
     used, feeder and distribution technology, digital loop carrier devices, and other electronics,
     if any; type of interoffice technology; and any assumptions, such as maximum copper loop
     lengths or copper resistance constraints.

          (b) Explain how this technology is the least-cost, most-efficient, and reasonable
     technology currently being deployed for providing the supported services that are reflected
     in your study.  Are technology determinations based on engineering practice rules of
     thumb or explicit optimization processes?  If relying on engineering practices, provide any
     studies that show that these practices result in a least-cost network.  Describe any
     optimization routines or engineering rules of thumb that are used in the study to achieve a
     least-cost, most-efficient, and reasonable network design.  In your response, please answer
     the following questions:

                    (1)  Describe how the study determines whether feeder, sub-feeder, and
          distribution plant should consist of fiber or copper, and whether electronics, such a
          T-1 carrier system, are used in the feeder and sub-feeder plant.  Also, please
          describe the gauge(s) of copper considered in the study.

                    (2) Describe how the model determines the feeder and subfeeder paths that
          connect distribution areas to the wire center.  Does the model rely on current
          feeder paths or does the model choose a different path?  If the study or model
          determines feeder paths, describe the algorithm that determines the feeder path. 
          Similarly, a model will connect customer locations within a distribution area to the
          serving area interface.  Does the model employ an optimization routine or employ
          a rule of thumb for determining distribution routes?

                    (3)  Describe how the study determines whether cable should be placed as either
          aerial, underground (conduit), or buried.  Please identify whether the study
          assumes that plant mix decisions will be affected by zoning restrictions and, if so,
          how.

                    (4)  Does the study incorporate wireless technology?  If so, please describe how.

                    (5)  Does the study incorporate host-remote switching configurations?  If so, how? 
          In your explanation, please discuss how host locations are identified and how costs
          are allocated among customers in wire centers that are part of host-remote
          relationships.

          (c) Describe how the study incorporates assumptions that the incumbent LECs' wire
     centers are the center of the loop network and that the outside plant terminates at the
     incumbent LECs' current wire centers. 

          (d) Describe how the loop design incorporated into the study does not impede the
     provision of advanced services while still meeting the criterion in (b), above.

          (e)  Describe how distances are measured in the model (e.g., does the model use airline
     distances, adjusted airline distances, rectilinear distances, or road distances)?   Please
     identify in each portion of the model in which a particular distance metric is used and why
     that metric was selected.  

          (f)  Do wire center line counts equal actual incumbent LEC wire center line counts? If so,
     and if a closing factor is used to achieve this equality, describe the size of the closing
     factor and how it is used in the study.  If the study's wire center line counts do not equal
     actual incumbent LEC wire center line counts, explain why not.  

          (g)  Does the study's average loop length reflect the incumbent LEC's actual average loop
     length? If not, explain why not.

          (h) Please describe how the study determines customer location.  Specify the data that
     were used to determine the number and location of customers.  In addition, please
     describe in detail if the study locates customers in grids, clusters, census blocks, census
     block groups, or other areas smaller than a wire center.  How does the study identify
     serving areas?

          (i) How does the cost study determine the cost of the outside plant from the wire center to
     the customer locations identified in (g)?  Does the cost study estimate the costs of a
     forward-looking network, or does the cost study rely on a loop length study?  If the cost
     study relies on a loop length study, please describe how the cost study relies on the loop
     length study and provide the loop length study as part of the documentation provided in
     response to II.(7)(a), above, including a discussion of the sampling methods used in the
     loop length study.  Also, if a loop length study is used to estimate forward-looking costs,
     please compare the mix of loop technologies in the loop length study sample to the mix of
     technologies in the loops assumed by the cost study.  If the mix of loop technologies
     assumed in the cost study is based on the mix of technologies in the sample, please justify
     the use of this assumption.  

          (j)  If the cost study meets criterion 1 in any way not captured by (a) through (h), please
     explain.

               Criterion 2:   Any network function or element, such as loop, switching, transport, or
               signaling, necessary to produce supported services must have an associated
               cost.

          (a)  Does the study contain costs associated with all network functions or elements (such
     as loop, switching, transport, or signaling) necessary to produce supported services?

          (b)  What non-supported services, if any, are currently included in your cost study, and are
     the costs associated with provision of advanced services included in your calculation of
     cost?

          (c)  If the cost study meets criterion 2 in any way not captured by (a) and (b), please
     explain.

               Criterion 3:   Only long-run forward-looking economic cost may be included.  The long-run
               period used must be a period long enough that all costs may be treated as
               variable and avoidable.  The costs must not be the embedded cost of the
               facilities, functions, or elements.  The study or model, however, must be based
               upon an examination of the current cost of purchasing facilities and
               equipment, such as switches and digital loop carriers (rather than list prices).

          Describe how the costs used in the study represent long-run, forward-looking costs.  In
     particular, describe and verify how the costs of facilities and equipment used in the study
     reflect the current costs of purchasing those facilities and equipment.

               Criterion 4:   The rate of return should be either the authorized federal rate of return on
               interstate services, currently 11.25 percent, or the state's prescribed rate of
               return for intrastate services.

          (a)  What rate of return is used in the cost study?

          (b)  Please provide an explanation of the basis for the rate of return used if it is different
     from the authorized federal rate of return on interstate services.  If available, please
     identify any documents (e.g., commission orders) supporting the value used in the study. 

          (c)  If the cost study meets criterion 4 in any way not captured by (a) and (b), please
     explain.

               Criterion 5:   Economic lives and future net salvage percentages used in calculating
               depreciation expense should be within the FCC-authorized range and use
               currently authorized depreciation lives.
          
          Please identify the depreciation rates and future net salvage percentages used in the cost
     study.

               Criterion 6:   The cost study or model must estimate the cost of providing service for all
               businesses and households within a geographic region.  This includes the
               provision of multi-line business services, special access, private lines, and
               multiple residential lines.  The inclusion of multi-line business services and
               multiple residential lines will permit the cost study or model to reflect the
               economies of scale associated with the provision of these services.

          Describe how the study takes into account the cost of providing service for all businesses
     and households within a geographic region, including the provision of multi-line business
     services, special access, private lines, and multiple residential lines per household.

               Criterion 7:   A reasonable allocation of joint and common costs should be assigned to the
               cost of supported services. 
 
          Describe how the study's methodology assigns a reasonable allocation of joint and
     common costs to the cost of supported services.  What is the amount of common costs
     attributed to supported services, and what percentage does this represent of total common
     costs as identified in the study or model?  Please explain how this amount was determined. 
     Specifically, please identify how line-side port costs are identified as a portion of total
     switching costs.

               Criterion 8:   The cost study or model and all underlying data, formulae, computations, and
               software associated with the model should be available to all interested parties
               for review and comment.  All underlying data should be verifiable, engineering
               assumptions reasonable, and outputs plausible.

          (a)  Please identify any underlying data, formulae, computations, or software used in the
     study that are not available for review and comment, and explain why they are unavailable.

     (b) Please describe what steps were taken to determine that the study's outputs are 
          plausible.

          (c) Standardized presentation of outputs.  If the state cost study is based on a version of
     the HAI model, please file: the universal service calculation, cost summary, cost of
     network elements, and USOA detail breakdown (HAI 5.0 only) reports.  If the state cost
     study is based on a version of BCPM, please file: the area-wide summary, key elements,
     aggregate support summary and plant summary reports.  If the state cost study is based on
     neither BCPM nor HAI, please provide outputs in either of the BCPM or HAI formats
     just mentioned, or provide investment and expenses per study area by USOA accounts or
     ARMIS rows, and show whether and how cost calculations differ across geographic areas. 

          (d)  If the cost study meets criterion 8 in any way not captured by (a) through (c), please
     explain.

               Criterion 9:   The cost study or model should include the capability to examine and modify
               the critical assumptions and engineering principles.  These assumptions and
               principles include, but are not limited to, the cost of capital, depreciation rates,
               fill factors, input costs, overhead adjustments, retail costs, structure sharing
               percentages, fiber-copper cross-over points, and terrain factors.  

          (a)  Please describe the extent to which and how the user can examine and modify the cost
     study's critical assumptions and engineering principles.

          (b)  Standardized presentation of inputs.  Please provide the input values used in your cost
     study using the attached Excel spreadsheet document.  If your study uses input values that
     are not identified in the Excel document, please add them to the end of the list in the
     appropriate category.  You may also provide the standard presentation of inputs in
     electronic form in an identical spreadsheet prepared using any other commercially-
     available spreadsheet software.

          (c)  If the cost study meets criterion 9 in any way not captured by (a) and (b), please
     explain.

               Criterion 10:  The cost study or model must deaverage support calculations to the wire center
               serving area level at least, and, if feasible, to even smaller areas such as a
               Census Block Group, Census Block, or grid cell in order to target universal
               service support efficiently.

          (a)  Describe the manner in which the study disaggregates investment calculations to small
     geographic areas, such as wire centers, census block groups, census blocks, or grid cells
     and identify the level to which cost calculations are disaggregated.  For example, please
     describe how costs that are shared among customers in different geographic areas, such as
     feeder structures, are allocated.

     C.   Demonstration that the Cost Study Fulfills Other Requirements of the Universal
     Service Order

               1.   "In order for the Commission to accept a state cost study submitted to [the
          Commission] for the purposes of calculating federal universal service support,
          that study must be the same cost study that is used by the state to determine
          intrastate universal service support levels pursuant to section 254(f)."

          If your state has an intrastate universal service support mechanism for non-rural LECs,
     please demonstrate that the cost study being submitted for the purpose of calculating
     federal universal service support is the same cost study that will be used by your state to
     determine intrastate universal service support levels pursuant to Section 254(f) of the
     Telecommunications Act of 1996.

               2.   "We also encourage a state, to the extent possible and consistent with the above
          criteria, to use its ongoing proceedings to develop permanent unbundled
          network element prices as a basis for its universal service cost study."

          Please explain the interrelationship, if any, between this universal service cost study and
     the cost study that will be used by your state in developing permanent prices for
     unbundled network elements.

Action by the Chief, Common Carrier Bureau

Attachment (Inputs spreadsheet)

                             - FCC -