Opinion ID: 757345
Heading Depth: 2
Heading Rank: 3

Heading: Tandem Switch Charges

Text: 57 The IXC petitioners next argue that the FCC's decision to retain non-cost-based tandem switching charges is arbitrary, capricious, inconsistent with the Commission's policy, and a violation of the D.C. Circuit's order in CompTel. They contend that the FCC failed to explain its decision to allocate overhead expenses--those not directly attributed to a particular service--to the tandem-switched transport relied upon by smaller long-distance carriers in a manner different from the way in which overhead costs are allocated to the direct-trunked transport relied upon by AT & T, and failed to remedy the discriminatory results of this decision. The FCC's Part 69 allocation rules, 15 according to the IXC petitioners, do not distribute the LECs' overhead proportionately among interstate service categories. These rules allocate a predominant share of overhead to switched access (including switched transport), while special access (including direct-trunked transport) is assigned comparatively little overhead. The IXC petitioners claim that the FCC failed to consider new cost data, failed to gather additional information in light of the CompTel remand, and failed to undertake any type of empirical review of tandem switching costs and overhead before reaching its conclusion in the Order. The FCC's explanation that it is reasonable to have set overhead loadings for tandem switching consistently with the overhead loadings for local switching misses the point, according to the IXC petitioners. Order p 203. Finally, they object to the Commission's decision to reassign some TIC costs to the tandem switching charge as exacerbating the problem, and to the FCC's reliance on market forces to reduce the tandem switch charges to cost as unreasonable and without supporting evidence. 58 After reviewing the FCC's revisions to the transport rate structure, including those associated with tandem-switched transport, we conclude that they lie well within the agency's authority and discretion, are consistent with Congress's cost-causation goal, and reflect a reasonable outcome in light of that goal. In CompTel, the D.C. Circuit ordered the FCC to substantiate that its current method of allocating overhead is cost-based, or choose a method that is. 87 F.3d at 536. The Commission reviewed its Part 69 cost allocation rules, made some changes that it determined would produce a reasonable allocation of interstate costs, and concluded that no alternative that had been suggested by the responding parties during the rulemaking proceeding would ensure a more accurate cost allocation. See Order pp 202-205. The IXC petitioners do not criticize any particular rule of Part 69, but rather assert that the effect of these allocation rules as a whole is a discriminatory underallocation of overhead to special access and an overallocation of overhead to other access elements including tandem switching. The IXC petitioners, however, do not present any direct evidence of this alleged disparity in allocation. As the FCC explained in the Order, these rules established category revenue requirements that included overheads allocated generally based on relative costs. Id. p 203. It further stated: 59 We find that it is reasonable to have set overhead loadings for tandem switching consistently with the overhead loadings for local switching, and disagree with those parties that argue that there is no cost justification for the current allocation of overheads to the tandem switch. The direct costs of both kinds of switching are fundamentally the same in that both types of switches are comprised of ports and a switching matrix. By contrast, the direct costs of transmission consist of outside plant and circuit equipment and certain central office equipment. So long as consistent overhead loading methodologies were used across switching functions, and across transmission functions, we find that a reasonable cross-over is established for access customers between direct-trunked transport and tandem-switched transport. As competition develops, we can also rely on market forces to pressure incumbent LECs to allocate overheads among rate elements in economically efficient ways. 60 Id. In other words, the Commission concluded that similar access functions should receive similar overhead loadings. The Commission reasonably determined that there was no need to change the overhead loading attributed to tandem-switching because the current methods allocate overhead in a reasonable, cost-based manner. Id. p 202. The Commission's conclusion that each of the Part 69 cost allocation rules refined or adopted in the Order is reasonable and based on cost-causative principles, and its explanation for this belief, lead us to conclude that the agency's new rules for the computation of tandem switching charges are not arbitrary and capricious and are not in violation of the D.C. Circuit's order in CompTel.