Opinion ID: 1944130
Heading Depth: 1
Heading Rank: 1

Heading: Shared and Common Fixed Costs

Text: Verizon first claims that the Board erred in ordering it to include shared and common fixed costs in the price floor for services provided in the special contracts. Verizon claims that previous Board orders required only that special-contract prices exceed the TSLRIC, which Verizon claims the Board previously decided does not include shared and common fixed costs. Specifically, Verizon contends that Investigation into NET's Tariff Filing re: Open Network Architecture, No. 5713 (Vt.Pub. Serv.Bd. May 29, 1996) ( NET's Tariff Filing ), held that neither common costs nor shared fixed costs are properly included in TSLRIC. Thus, Verizon maintains that the Board arbitrarily and capriciously violated its own pricing rules by requiring Verizon to include common and shared fixed costs in the price floors for the five contracts at issue here. The Department of Public Service and Intervenor AT & T Communications of New England dispute Verizon's position. We begin by explaining that common and shared fixed costs are costs that are not associated with any particular product or service, such as land, buildings and other facilities, as well as legal and general administrative functions that would arise with or without the special contract. In contrast, service-specific costs are those costs directly caused by providing the service, in this case, the services specified in each special contract. Verizon's position is that the price floor should be determined by the cost of providing the special-contract service but that the individual special-contract customers should not have to bear any of the shared and common costs of the company because this would be inconsistent with prior Board decisions. Accordingly, we turn next to the Board precedent. In NET's Tariff Filing, the Board held that the retail prices charged by incumbent local exchange carriers should include the TSLRIC and an appropriate mark-up for common costs and accounting profits. Id. at 41 (holding that the incumbent local exchange carrier's retail prices should be set according to equation (1) on page 34, which states that the retail price for a local exchange equals TSLRIC plus a mark-up for common costs and accounting profits). Thus, contrary to Verizon's contention, NET's Tariff Filing did not hold that common costs are excluded from the price-floor equation. It is true that the Board's decision in this case could create some confusion because rather than reiterating the price-floor rule from NET's Tariff Filing  TSLRIC plus mark-up  it describes the price-floor as TSLRIC including a reasonable share of joint and common costs. Nonetheless, whether the shared and common fixed costs are included in TSLRIC or added to TSLRIC as a mark-up makes no difference in the final price-floor computation; it is a mere difference of nomenclature. Thus, we find no merit in Verizon's claim that the Board erred by including shared and common fixed costs in the calculation of TSLRIC in this case. The price-floor calculation was the same in NET's Tariff Filing, and it included shared and common fixed costs. Accordingly, we reject Verizon's contention that the Board arbitrarily and improperly contradicted its precedent by expanding upon the categories of costs that Verizon must include in the price floor. Further, requiring Verizon to impute the shared and common fixed costs in its special contracts is consistent with the Board's goal in creating pricing rules to encourage competition because it prevents Verizon from using revenues from monopoly services to subsidize special contracts subject to competition. Allowing Verizon to exclude overhead costs from special contracts would necessarily require Verizon's monopoly customers to cover these costs. As such, it would allow Verizon to subsidize its special contracts with monopoly revenues and would allow Verizon to undercut competitors that have no monopoly customers to subsidize their special contracts. Accordingly, Verizon's position is contrary to the Board's goals of promoting competition in telecommunications by creating a level playing field and preventing cost shifting to monopoly customers.