20031205Buckley Direct Testimony.pdf

Mary S. Hobson, ISB #2142
Stoel Rives LLP
101 S. Capitol Blvd., Suite 1900
Boise, ID 83702-5958Telephone: [phone]Facsimile: [phone]
Adam L. Sherr (WSBA #25291)
Qwest
1600 7 th Avenue - Room 3206Seattle, WA 98191Telephone: [phone]Facsimile: [phone]
Adam. Sherr~Qwest. com
Attorneys Representing Qwest Corporation
F~ECEIVED
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NOV 12 Pr; 4: 3'
!~' 0 i) LIC
UTILI liES CmH'JiSSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF DETERMINING PRICES
FOR UNBUNDLED NETWORK ELEMENTS (UNEs)
IN QWEST CORPORATION'S STATEMENT OF
GENERALLY AVAILABLE TERMS (SGAT)
DIRECT TESTIMONY OF
DICK BUCKLEY
QWEST CORPORATION
NOVEMBER 12, 2003
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CASE NO.
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TESTIMONY OF DICK BUCKLEY
TABLE OF CONTENTS
I. INTRODUCTION
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II. GENERAL..................................................................................................
III. PLACEMENT COSTS
............................................................................
IV. SHARING
...............................................................................................
VI. PLANT MIX
...........................................................................................
V. FILL FACTORS
......................................................................................
VI. CONCLUSION
.......................................................................................
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INTRODUCTION
PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND CURRENT
POSITION.
My name is Dick Buckley. My business address is 1801 California St. #2040, Denver
Colorado. I am employed by Qwest Corporation as a Manager-Loop Cost Analysis.
PLEASE STATE YOUR BACKGROUND AND QUALIFICATIONS.
In 1978, I received a B.S. in Business Administration with an emphasis in Finance from
the University of Northern Colorado. I joined Qwest (Mountain Bell) in 1980 in the Cost
Rates and Regulatory Matters (CRRM) department as a Cost Analyst in the area of data
and supplemental terminal products. In 1983 , I assumed responsibility for non-recurring
costing and for implementing the Dual Element non-recurring cost structure. In 1986, I
moved into cost analysis of the local loop and assisted in the development of the Regional
Loop Cost Analysis Program (RLCAP) and the current Qwest loop program, LoopMod.
My present responsibilities include local loop cost modeling and analysis, as well as
providing subject matter expert support on local loop costing in regulatory proceedings.
WHAT IS THE PURPOSE OF YOUR TESTIMONY?
The purpose of my testimony is to provide information concerning the updates and
changes to the Loop module (LoopMod) of the Integrated Cost model (ICM) that Qwest
implemented in the release of LoopMod Version 2.1. LoopMod replaces the RLCAP
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V3.5 model that Qwest (then U S WEST) filed in the 1997 Idaho AT&T Arbitration. I
also discuss the rationale underlying the input assumptions that Qwest has used
developing the investments for the loop and drop portions of the local loop unbundled
network element in its TELRIC study.
II.GENERAL
WHY ARE COST MODELS USED, AS OPPOSED TO EMBEDDED
INFORMATION, TO ESTABLISH THE COSTS FOR THE LOCAL LOOP?
The Telecommunications Act of 1996 established pricing standards for the rates that may
be charged by ILECs to local service competitors for interconnection and unbundled
network elements. The FCC developed various pricing rules to implement the Act.
Those rules dictate the use of a forward-looking economic cost methodology based on the
total element long-run incremental cost (TELRIC) of the element. The TELRIC
requirement precludes the use of historical costs in establishing rates. Cost models (such
as Qwest's LoopMod) estimate the costs that would be incurred by an efficient provider
of network elements using the costs for current technologies and the economies
achievable by the ILEC.
PLEASE DESCRIBE THE LOOPMOD MODEL.
LoopMod is an investment development program designed by Qwest. The purpose of
LoopMod is to produce the investment for a subscriber loop and drop wire that can be
I Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified as amended in scattered sections of
Title 47, United States Code).
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used as a basis for developing costs used in pricing decisions. LoopMod calculates the
investments for loop and drop wire based on standard engineering loop designs, vendor
prices and placement cost estimates. These investments include the costs associated with
the materials, construction and engineering that are required to build loop plant from the
central office to a subscriber. The investment amounts that the model uses are based
primarily on data specific to Idaho. For example, the quantity of lines in service, the
prices charged by contractors for outside plant construction activities and the distribution
area data are unique to Idaho. After LoopMod calculates the investment, the results can
be converted to monthly costs used to make pricing decisions for the unbundled loop.
WHAT ARE THE KEY ELEMENTS IN QWEST'S ASSUMPTIONS RELATING
TO NETWORK DESIGN THAT ARE USED IN LOOPMOD?
There are two key cost drivers in Qwest's network design assumptions for developing
Idaho-specific loop plant investment: 1) distance and 2) population density. Feeder
investments are affected directly by the amount of distance from a serving central office
(CO) to an end user. Longer distances require the placement of more feeder plant than
shorter distances. Population density affects the type of outside plant and placement
methods that can be used and also influences the selection of the distribution design for
an area. The density of the Distribution Area (DA) is a function ofthe size of the serving
area and the number of customers within the area. Higher density provides for greater
economies of scale. For example, in feeder, higher density allows the use of larger
cables, while in distribution, higher density results in shorter cabling.
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HOW IS THE LOOP DESIGN SEGMENTED?
Each loop design is divided into two sections: feeder cable and distribution cable.
shown in the diagram in Exhibit 28, feeder is the main facility leaving the central office.
The feeder is typically a large copper cable or a fiber facility. If the facility is fiber, it is
used to connect electronics at the central office with electronics at a location on the feeder
route.Feeder cables are often placed within conduit, and they are designed to be
reinforced periodically. Distribution plant consists of smaller cables that connect to the
feeder plant at a Serving Area Interface (SA!) or cross-connect box. As the name implies
these cables distribute pairs from the feeder plant to the customer locations. In most
cases, the distribution cables are buried directly into the ground. A small percentage of
the distribution cables are placed through the use of aerial plant, although the use of aerial
plant has generally been on the decline in recent years. In addition to the SA! and the
cables, distribution plant includes pedestals or customer terminals, drop or service wires
and network interfaces.The terminals serve as a connection point between the
distribution cables and the drop wire. The drop wire is the piece of distribution plant that
runs directly to a customer s premises. The network interface device (NID) provides the
connection between the drop and the inside wiring at a customer s premises.
HOW DOES THE MODEL ARRIVE AT AN APPROPRIATE FEEDER DESIGN?
The model employs an economic mix of copper and fiber facilities based on user-selected
breakpoints. The breakpoints determine the distances at which the model transitions
between technologies and placement assumptions. Each route in each wire center is
analyzed to determine the amount of demand and the distance that demand is from the
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serving central office. This approach in LoopMod is an enhancement from the average
wire center group feeder designs used in RLCAP V3.5. This route-specific information is
used in conjunction with the breakpoint between copper and fiber to size the required
electronics and cable facility. The design inputs determine the appropriate distances at
which outside plant is placed in conduit systems versus buried placement in both urban
and rural settings. The model also allows the user to differentiate costs for urban-buried
placement versus rural-buried placement.Urban-buried feeder utilizes trenching
activities appropriate for a more densely populated area, while the model uses a greater
degree of lower cost plowing techniques to place rural-buried feeder. After the feeder
plant is determined for each route, the quantity for each equipment type and the length by
cable demand (fibers or pairs) and placement mode is added to the study total. Once all
plant requirements are determined, the model' applies the cable sizing factors to the
demand to select the appropriate cables. The model then develops investments for the
total feeder plant and divides the total investment by the working lines to determine an
investment amount per line.
HOW DOES THE MODEL ARRIVE AT AN APPROPRIATE DISTRIBUTION
DESIGN?
Qwest developed distribution plant profiles based on the Qwest Network distribution
architectures. The guidelines for these architectures conform to the industry "serving area
concept" design. The distribution area is a concise geographic area. It has a single
interface point, and it typically serves 200 to 600 locations. The distribution cabling is a
single gauge and is free of multiple assignments. The primary pairs are permanently
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assigned to a location and are cut off beyond the assignment point.LoopMod
incorporates five distribution designs or density groups. Exhibit 29 provides a visual
representation of the type of densities reflected in these distribution density groups.
These designs represent: (1) high rise buildings, (2) multi-building / multi-tenant
scenarios, (3) single family homes with standard lot sizes, (4) single family homes with
larger lots and (5) rural serving areas. Each individual Idaho Distribution Area (DA) is
mapped to one of the Density Group (DG) designs based on the size of the DA (area in
square miles) and the number of customer locations and based on information relating to
the size and type of terminals included in the DA. The area information is also used to
adjust the cable length data for the distribution designs that are lot size oriented (DG3
DG4 and DG5). The adjusted distribution designs thus reflect the unique density that
exists within each DA.After the model processes each DA, it weights the
investments together based on their proportionate share of total working lines. By using
this weighting, the actual Idaho-specific occurrence of distribution designs is reflected in
the loop investments. This is another enhancement from the RLCAP V3.5 model used
earlier in Idaho. The investments for the distribution plant are added to the feeder
investments to determine the total outside plant investments.To arrive at the total
investment for an unbundled loop, ICM also adds investments associated with loop
unbundling at the central office.
WHAT ARE THE KEY INPUTS ASSOCIATED WITH THE MODEL?
There are numerous inputs that have an impact on the final investment developed by
LoopMod, but three of the key cost drivers are:
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Cable placing activities
Structure sharing percentages
Plant mix
These inputs are discussed more fully later in my testimony. Care must be taken to
ensure consistency in the assumptions made with regard to these inputs. In addition, the
assumptions must reflect the reality of what costs a carrier will face if it were replacing
the Idaho telephone network in the world as it exists today - - with buildings, houses
roads, and other structures still in place. It would make little sense to develop a business
case on building a network and ignore the environment in which it will be built. The
numbers would not provide the information necessary to make an intelligent decision on
the profitability of the project.
HAS QWEST ATTEMPTED TO VALIDATE THE COST ESTIMATES THAT
LOOPMOD PRODUCES?
Yes. There have been a variety of steps taken to validate the LoopMod results. First, the
Law and Economics Consulting Group (LECG), under the guidance of Dr. Robert Harris
conducted an extensive review of the model's economic rationales, program logic, and
level of documentation. LECG recommended the addition of documentation such as cell
notes and explanations of the sources for various model inputs. In general, they agreed
with the modeling approach utilized by LoopMod. In addition, the LoopMod results were
compared to various other studies of local loop investment in an effort to determine if
they are within a range of reasonableness. The comparative investments are summarized
below:
Investment
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Qwest TELRIC $1292
LoopMod - Loop only $1249
Revised HAl Model 5.0a - Loop only $1520
BCPM (Capped) - Loop only $1474
BCPM (Uncapped) - Loop only $2069
The data provides evidence that Qwest's studies produce reasonable estimates of the
average investment for a local loop.
WHAT CHANGES DID QWEST MAKE TO UPDATE LOOPMOD?
The changes include simple updates of data (such as material prices, loop quantities),
mechanical adjustments (sharing percentages, placement activities by Density Group),
and changes to make the model more user ftiendly. These changes will be discussed in
detail later in my testimony. I have listed below the most notable of these adjustments.
Updated user screens
Increased user variability of inputs
User adjustable sharing percentages
Updated investments and contract placing costs
Route-specific feeder modeling
State-specific distribution design weightings
Distribution designs adjusted to each DA
2 This number includes central office Main Distribution Frame investments in addition to the loop facilities.
3 The HAl data was developed using the HAl Model 5.0a with the inputs revised to more closely reflect those
utilized in the LoopMod program.
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Buried placement cost by Density Group and Feeder location
Elimination of cost calculations (now in the Integrated Cost Model)
III.PLACEMENT COSTS
WHAT ARE CABLE PLACEMENT COSTS?
Cable placement costs are the costs of placing cable in the ground or on poles. These
costs, along with the costs of splicing and other labor-related activities, are the single
largest component of outside plant costs. On average, more than 60% of Qwest's total
investment in buried cable is related to the cost of placing the cable.
WHAT TYPES OF WORK ACTIVITIES ARE INVOLVED IN CABLE
PLACEMENT?
Consistent with actual engineering practices, LoopMod includes four methods for placing
buried cable.These methods are trenching, plowing, boring, and cut and restore.
Trenching involves digging a trench, placing the cable directly into the trench and back-
filling the trench. The plowing method places cable by directly plowing it into the ground
without digging a trench. Boring involves the use of equipment that literally bores
through the ground and pulls the cable through the opening in situations where, for
example, cable must pass underneath a road, a sidewalk or a yard. The advantage of
directional boring is that it avoids the costs and disruption that arise from tearing up
roads, sidewalks, yards, and other structures. "Cut and restore" involves placing cable by
digging up roads, yards, and other structures and then restoring those structures after the
cable has been placed.
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In addition LoopMod includes subcategories that further differentiate these
activities. For trenching, LoopMod identifies different costs for trench and backfill
rocky trench and hand dig. For plowing, LoopMod includes different costs for standard
plowing, rocky plowing and plowing with hydro/broadcast seed restoration. The "cut and
restore" category has different costs for concrete, asphalt, and sod.
WHAT DETERMINES WHICH TYPE OF PLACEMENT ACTIVITY WILL BE
USED WHEN BUILDING OUTSIDE PLANT FACILITIES?
The primary determinant is typically density. For instance, ifburied cable is being placed
in a low-density area, along a county road with few obstacles, it is very likely that the
construction crew will be able to plow the cable. In a new subdivision, before curbs
gutters and landscaping are placed, trenching machines can be used for standard trench
and backfill placement.Once the density increases (e.g. a mature suburban
neighborhood), placement activities such as boring need to be used to avoid damaging
streets, sidewalks and landscaping. If boring is not used, then cut and restore techniques
must be used to repair areas disturbed during the trench work.
WHAT CHANGES DID QWEST MAKE TO THE MODEL RELATING TO
BURIED CABLE PLACEMENT ACTIVITIES AND COSTS?
LoopMod V2.1 contains two significant changes from earlier versions relating to the
placement of buried cable. First, the program now recognizes the use of contractors to
place cable in the buried environment. (The activity costs contained in the program are
taken from the current network contracts with vendors who perform placement of buried
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plant in Idaho.) The second change is the disaggregation of the placement costs by
Density Group and by Feeder-Urban versus Feeder-Rural. (This reflects the impact that
density has on the placement methods that an engineer would choose.) Accordingly, each
of the categories of buried plant (Density Group 1 (DGl), DG2, DG3 , DG4, DG5
Feeder-Urban and Feeder-Rural) now has its own placement activity matrix, and
therefore, reflects the percentage of trenching, boring, cut and restore asphalt, etc. that is
reasonable for the associated density. The default values in LoopMod Version 2.1 are
attached as Exhibit 27 to my testimony.
DID QWEST MAKE CERTAIN ASSUMPTIONS WHEN IT DERIVED THE
PLACEMENT COSTS USED IN THE LOOPMOD MODEL?
Yes, Qwest assumed that the model should reflect the cost of:
extending service to all of its current Idaho customers; and
using the type of cable placing techniques that an outside plant engineer
would use to build a replacement network in Idaho.
As the first assumption suggests, the model is designed to determine the forward-looking
costs of all loops, not just those placed in any given year.
HOW DO THESE ASSUMPTIONS AFFECT CABLE PLACEMENT COSTS?
In developing the forward-looking cost of a telecommunications network designed to
serve all customers, the model must recognize the world as it currently exists. The model
includes all the current lines in service so as to recognize the economies of scale that
would be achieved by a single service provider.The model also uses the latest
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technologies so as to include the efficiencies those technologies provide. The model must
also recognize the methods that would be required to place the new technologies and
economically sized facilities. Most of the houses in Qwest's Idaho service territory are in
neighborhoods that are already developed. These neighborhoods have streets, driveways
fences, sprinkler systems and landscaping. A company that wishes to replace or build a
new network to serve these households would need to negotiate around, through or under
these obstacles to place its cable facilities.This would require the use of special
construction techniques, such as "cut and restore" for asphalt or concrete, boring, "cut
and restore" for sod and hand trenching. These techniques increase the cost of placing the
cable. The Qwest TELRIC model was designed to reflect these realities of placing cable
in developed neighborhoods. On the other hand, the model also includes the use of low
cost placement, such as cable plowing, where the density allows the use of those methods.
WOULD A FORWARD-LOOKING MODEL PRODUCE COSTS THAT ARE
GREATER THAN THE HISTORICAL COSTS?
It depends on the circumstances. The forward-looking cost of building facilities will
include some economies over those costs that were incurred when the facilities were
originally placed. This is because in a forward-looking network, the feeder routes are
designed to meet the total current demand, plus a reasonable amount of growth.
contrast, from a historical perspective, feeder was placed to meet demand for up to five
years, after which it had to be reinforced. A forward-looking model, such as LoopMod
will not reflect these reinforcement costs, because the modeling design will size the
feeder to accommodate all current demand, plus reasonable growth.Similarly, the
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outside plant network design in the model reflects the optimal use of the latest electronic
circuit equipment. This equipment often is less expensive than equipment that Qwest
used in the past and has greater capabilities than some of the equipment currently in use
in the Qwest network.
Despite these potential cost reductions, the forward-looking costs of a network
nevertheless could be higher than historical costs because labor is generally more
expensive today than it was historically. Moreover, copper cable prices are commodity-
driven rather than technology driven. In other words, cable prices are more likely to
change based on the commodity cost of copper rather than on technological changes in
the cable itself. This is in contrast to the cost decreases or feature enhancements that
technological innovations have brought to the computer (or network switching) industry.
The Qwest models attempt to reflect both the economies and diseconomies that would
occur if the network were rebuilt. Inconsistent treatment of these various economies and
diseconomies would lead to erroneous results.
HOW ARE THESE ECONOMIES AND DISECONOMIES REFLECTED IN THE
LOOPMOD?
The economies and diseconomies are reflected primarily through the treatment of four
variables:
Loop lengths;
Feeder design;
Technology; and
Placement costs.
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The purpose of the model will determine how it treats these variables. The variables will
differ between a model used for embedded analysis of the network and one that is used to
determine the costs for a total replacement. For example, if a model is used to estimate
the cost of adding new lines to the network, the loop lengths will be longer than those of
the existing lines. This is because growth tends to occur on the undeveloped outskirts of
the service area. Most of the areas in close proximity to the central offices have been
developed. Similarly, feeder routes are frequently reinforced as new lines are added to
the network. A model designed to estimate the cost of adding new customers to the
network would reflect the economies of building primarily in the undeveloped areas but
would also include the diseconomies of longer loops and feeder cables sized to serve only
the new lines.
Conversely, a model designed to estimate the total cost of rebuilding the network
such as a TELRIC model, would have different characteristics. LoopMod contains the
economies of the latest technologies and of cables sized to serve the total demand. It also
includes the universe of loop lengths, not just those being placed for the lines being added
to the network. To maintain consistency of assumptions, though, LoopMod recognizes
that placement costs will be different in mature, developed areas than they are in new
growth areas. The four variables above must be treated in a manner that is internally
consistent in order for a cost model to produce meaningful results. For example, one
cannot assume the cost to install plant in a new area while including the loop lengths for
the existing customers.
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HOW DOES FEEDER DESIGN DIFFER BETWEEN NEW CONSTRUCTION
AND A COST MODEL THAT ASSUMES A TOTAL REBUILD OF THE
NETWORK?
In the embedded network, feeder routes are frequently reinforced to meet grOWIng
demand. These reinforcements are designed to allow for approximately two to three
years of additional growth. A new network would be built to account for all lines at once.
Feeder routes would be designed and constructed for the universe of customers
eliminating the periodic reinforcement costs that occur in expanding the existing network.
Building one feeder system to serve all customers optimizes the economies of scale that
can be achieved, reducing the cost per customer. LoopMod includes these economies in
the feeder cable designs.
HOW WOULD PLACEMENT COSTS VARY BETWEEN NEW
CONSTRUCTION IN AN EXISTING NETWORK AND A COMPLETE
REPLACEMENT OF THE NETWORK?
New "growth" distribution areas typically occur in undeveloped areas. In these areas
there are no roads, no sprinkler systems, no sidewalks, no landscaping, no fences, and
typically, no yards. As a result, placement of plant in these areas is less costly, and there
, is more opportunity to share the costs of the cable support structures (i.e. poles, trenches
and conduit systems). In existing developed areas, all these obstacles must be negotiated
around or under or replaced when the construction is completed.Obviously, this
significantly increases the costs of placing cable. LoopMod includes a percentage of
aerial plant that is based on what exists in the Qwest network today. This assumption
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reflects the fact that aerial plant is usually replaced with other aerial plant because of the
cost savings that result from the initial placement of aerial versus buried plant. However
it must be recognized that, as a percentage of total cable sheath mileage, aerial plant is in
decline. This is due to both aesthetics and maintenance concerns. Aerial plant is more
vulnerable to the elements and results in higher maintenance expenses and poorer service
quality for customers.
WOULD A LARGE PERCENTAGE OF THE NETWORK REPLACEMENT
CONSTRUCTION OCCUR IN NEW OR UNDEVELOPED AREAS?
The majority of the distribution construction would occur in developed areas if the
network were completely replaced. Feeder plant placement would also be more likely to
occur in developed areas in a network replacement. The percentage of lines that would be
in undeveloped areas is dependent on the planning period and the growth rate assumed in
the study and must be consistent with the other design assumptions.
WHY ARE THE DIFFERENCES IN THE CHARACTERISTICS OF NEW LOOP
CONSTRUCTION AND A REBUILD OF THE TOTAL NETWORK CRITICAL
IN DETERMINING REASONABLE COSTS?
It is the interplay between all of these variables that determines the reasonableness of the
cost estimates. If the assumptions are consistently applied, the resulting cost estimates
will be reasonable. The loop lengths and feeder design assumptions in a cost model
should reflect a rebuild of a total network to serve all Qwest customers in Idaho. The
cable placement costs must be consistent with these loop lengths and feeder design
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assumptions. In other words, if a study includes all of the customers with the associated
shorter average loop lengths and the economies of larger cable sizes, then the study must
include costs of placing plant in areas with streets, houses and landscaping. The inputs
must be consistent.
HOW DOES QWEST'S TELRIC MODEL ACCOUNT FOR OBST ACLES
ENCOUNTERED WHEN BUILDING FACILITIES IN DEVELOPED AREAS?
Qwest uses a combination of placement techniques to model the cost of building
networks in developed areas.The ICM interface allows the user to vary these
combinations as density changes. In rural areas, where less costly placement techniques
such as plowing are often employed, the model allows the use of these methods.
WHY IS PLOWING CABLE A LESS COSTLY PLACEMENT TECHNIQUE
THAN OTHER PLACEMENT METHODS?
Plowing is less labor-intensive than normal trenching, since the plow opens the trench
lays the cable, and backfills the trench in one operation. Plowing is used where there are
longer cable runs without obstacles.
HOW DOES LOOPMOD CALCULATE PLACEMENT COSTS IN DEVELOPED
URBAN AREAS?
In developed urban areas, LoopMod assumes the use of placing techniques, such as "cut
and restore" for sod
, "
cut and restore" for concrete
, "
cut and restore" for asphalt
directional boring and hand digging. These activities reflect the placement difficulties
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that would exist in mature neighborhoods. The levels of the activities were derived
through interviews with field engineers and further supported by Qwest's experience in
the Omaha Broadband Trial. The technical trial in Omaha involved placement of a
distribution network in mature neighborhoods.This provided real-world experience
relating to what methods of placement activities would be required for an ILEC to replace
plant or a new entrant to build facilities in developed areas. In Omaha, the construction
crews were forced to use directional boring to place over 65 percent of the new facilities
in order to circumvent obstacles in mature areas.As the Omaha experience
demonstrated, directional boring is appropriate when the cost of restoration, coupled with
customer dissatisfaction due to property damage, outweighs the additional cost of using
this placement technique. Qwest is not alone in employing this technique. Boring is a
common method of placing cable in urban areas to avoid the high cost of restoration and
the disruption that goes with it.
HAS QWEST GATHERED ANY OTHER INFORMATION THAT SUPPORTS
THE ASSUMPTIONS REGARDING USE OF BORING TO PLACE CABLE
DEVELOPED URBAN AREAS?
Yes. First, an article in the April 15, 1995 issue of America s Network (a periodical
written for engineers and managers responsible for design, deployment, operation and
maintenance of public network elements) estimated that in 1994, 25% of underground
utility placement was done via trenchless methods. In addition, the article cited an AT&T
project in Atlanta, Georgia in which Southern Boring, an AT&T subcontractor, placed
000 feet of underground cable using directional boring. The boring method was
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utilized because it avoided the "disruption and mess excavation would have caused." In
discussing the Qwest (then U S WEST) Omaha broadband project, the article further
stated that "directional boring may not completely replace other methods. Trenchers and
vibratory plows also played a part in the Omaha project and will continue to do most of
the work in unimproved areas free of utilities and where surface disturbance isn t a
factor" (emphasis added). Second, representatives of Qwest conducted an interview of
representatives of a cable television company in Bismarck, North Dakota.Their
experience in conducting a rebuild of the outside plant provided insight and support for
the mix of placement activities currently used in LoopMod. In the Bismarck rebuild
approximately 50% of the 220 miles of buried plant was placed using boring techniques.
Third, over the last year and a half, I visited several sites where contractors for AT&T
Broadband were upgrading and replacing cable plant. This work involved extensive use
of hand-dig, missile, and directional boring techniques.Last, an article in a recent
construction trade magazine highlighted an Iowa firm that had completed projects for
AT&T, McLeod, Qwest (then U S WEST) and other independent telecommunications
companIes.It stated that 60% of its' underground work was done using horizontal
directional drilling.
WHY SHOULD THIS COMMISSION ACCEPT THE PLACEMENT COSTS
CONTAINED IN THE QWEST TELRIC MODEL?
The Commission should accept LoopMod's placement costs and selection of placement
methods because:
They are based on the costs the company will actually incur to place facilities; and
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They are consistent with the other assumptions used in the model.
WOULD IT BE APPROPRIATE FOR THE COMMISSION TO USE A MODEL
THAT REFLECTS ONLY THE CHARACTERISTICS OF NEW LOOPS AND
AVOIDS RECOGNIZING THE HIGHER PLACEMENT COSTS ASSOCIATED
WITH LAYING CABLE IN DEVELOPED NEIGHBORHOODS?
, for the following reasons:
Such a model would not be consistent with TELRIC principles, because it would
address only the costs of new customers and not the costs for existing customers;
A growth model, using only the costs of adding lines to the existing network
would generally produce higher loop costs than a total network or TELRIC model.
This is due to the economies achieved in serving the entire universe of loop
customers. Costs from a growth model would not be representative of the costs to
serve the unbundled loop market.
IV.SHARING
WHAT IS MEANT BY THE TERM "SHARING" IN THE OUTSIDE PLANT
ENVIRONMENT?
Sharing in this context refers to the sharing of cable placement costs among multiple
utility companies. Structures that could be shared include poles for aerial cable, conduit
systems for underground cable, and trench for buried cable. For instance, in Idaho, Qwest
owns poles on which the power company attaches its cables. In addition, Qwest attaches
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its cables to poles owned by the power company. Agreements such as this allow each
company to avoid the cost of building pole structures and thereby, reduce costs. In new
subdivisions, where several facilities (cable television, telephone and power) are being
placed at the same time, trenching activity can be coordinated and the trenching costs can
be shared among the different providers.Sharing is a viable tool in the limited
circumstances where multiple providers are placing outside plant at the same time in the
same area or where, in the case of poles, the structure is accessible at any time.
IS STRUCTURE SHARING ALWAYS AN AVAILABLE OPTION?
No. For sharing to be feasible in placing buried cable, there must be a need for multiple
providers to access a certain area at approximately the same time. In the TELRIC studies
a major portion of the network is in areas that currently have power and cable television.
For those areas, a rebuild of the network will not involve sharing among multiple facility
providers, since the other providers already have their facilities in place. The rebuilds in
Omaha and Bismarck, mentioned earlier, yielded minimal trench sharing. In addition
there are certain placement techniques, such as plowing and boring, for which the
placement of multiple cables simultaneously is not as practical as with open trench. Even
pole lines have separation and clearance requirements that may preclude attachment to an
existing structure.
WHAT CHANGES DID QWEST MAKE TO THE LOOPMOD RELATING TO
SHARING THE COSTS OF PLACING FACILITIES?
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The ICM interface provides access to a structure sharing option that was added to
LoopMod. This option gives the user the ability to specify the percentage sharing for
aerial, underground, and buried placements. Within the buried environment, the sharing
assumptions can be further refined to address each placement activity for Feeder-Urban
Feeder-Rural and distribution cable within Density Group Density Group 2, Density
Group 3 , Density Group 4 and Density Group 5. The user can also adjust the amount of
structure sharing for buried drops in Density Groups 3, 4 and 5.
PLEASE SUMMARIZE THE SHARING INPUTS RECOMMENDED BY QWEST.
The summary below shows the percentage of the total cable plant placement costs that
will be incurred by the telephone company based on the Qwest default inputs. These
inputs are discussed in LoopMod Default Values document included as Exhibit 27. The
costs that the telephone company does not bear because of the use of these percentages
are assumed to be borne by other utility companies, such as power or cable television
providers.
Percent Incurred
By Qwest
Aerial 50%
Underground 95%
Buried Feeder-Urban 80%
Buried Feeder-Rural 80%
Buried DG 1 80%
Buried DG2 80%
Buried DG3 80%
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Qwest Corporation
Buried DG4 80%
Buried DG5 80%
The inputs that Qwest recommends assume that the opportunity to share will occur
primarily in undeveloped areas where a developer will provide the trench at no cost to the
company. In developed areas or areas where there is not a developer, the company will
bear the cost of trenching, and there will be little opportunity to share.
IS IT APPROPRIATE TO ASSUME QWEST WOULD ALWAYS SHARE WITH
OTHER TELECOMMUNICATIONS PROVIDERS?
, assuming widespread structure sharing with other telecommunications providers is
inconsistent with the other study assumptions, such as the assumption that the ILEC
serves the universe of potential customers.If there is widespread sharing between
multiple telecommunications providers than there would have to be multiple networks
each serving a portion of the customer population. The models do not reflect the lower
distribution utilizations that would occur in this environment.
WHAT PERCENTAGE OF BURIED CABLE PLACEMENT OCCURS IN JOINT
OR SHARED TRENCH TODAY?
Based on data from Qwest buried placement records, for the years 1995 to 1999 , Qwest
has been able to share trench for approximately 18% of the buried sheath footage placed.
This figure compares with the 20% being utilized as the recommended input in the ICM.
In fact, the actual data are optimistic, as they reflect the placement activities in a growth
environment, not the mix that would be achieved in a network rebuild. The standard
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input used in LoopMod is a very liberal estimate of the buried plant structure sharing that
would occur.Once again, if the advent of additional facilities-based providers is
interpreted as an opportunity to share trench in distribution plant, then there needs to be
recognition of the adverse impact on the utilization of Qwest distribution facilities.
Standard distribution design dictates building sufficient plant to serve every home in the
distribution areas. If a competitive entity is willing to share a trench in a sub-division, it
must have an expectation of also selling services on its own facilities, reducing the use of
Qwest distribution plant and increasing the costs per working line.
VI.PLANT MIX
WHAT IS MEANT BY PLANT MIX?
Plant mix refers to the relative percentages of the various types of cable placements (i.
aerial, buried and underground) assumed in the modeled network. The facility supporting
structures used for each type of placement drive a portion of the costs. The supporting
structures are poles, anchors, and guys for aerial cable, trench for direct buried cable, and
conduit systems for underground cable. Conduit systems include the trench, the ducts
and the splicing chambers.Each structure has its own unique costs and appropriate
application. Conduit systems are typically used in areas where there will be multiple
cables and where access to those cables will be necessary in the future. Areas with high
density such as urban centers or the neighborhoods surrounding wire centers are likely to
have conduit systems rather than directly buried cables. Directly buried cables will be
used in areas where it is unlikely that there will be a need for reinforcement. Examples
this are lower density feeder routes and distribution areas. Poles (aerial cable) were used
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throughout the network in the past, but are becoming a less frequently used structure.
This is for a variety of reasons. While aerial has lower first cost for placement, it is
subject to a higher percentage of maintenance problems due to its exposure to weather
rodents, and vandalism. Also, municipalities and homeowner groups are encouraging the
use of buried plant for aesthetic reasons.
WHAT PLANT MIX IS UTILIZED IN THE QWEST LOOP STUDIES?
The LoopMod designs designate underground placement for all cable within certain
distances of the central office. The distances vary by size of wire center. This reflects the
fact that density will decrease more rapidly in smaller wire centers than in larger wire
centers. The distance breakpoints for underground to buried feeder cable are: Very Small
wire centers - 1 000 feet; Small wire centers - 7 000 feet; Medium wire centers - 14 000
feet; and Large wire centers - 20 000 feet. Within the remaining plant mileage, LoopMod
uses an aerial percentage input to split the cable between buried and aerial. The default
input for aerial is 14%. Based on that input, if the model develops 1000 miles of cable
beyond the underground breakpoint, 140 miles of that cable would be assumed to be
aerial.
WHAT SUPPORT DOES QWEST HAVE FOR THE DEFAULT AERIAL
PERCENTAGE?
The aerial percentage is based on a Qwest-wide summary of cable sheath miles in service.
The data are separated by type of placement (aerial, building, underground, buried and
submarine) and by fiber versus copper. Data from an August 2000 report show that aerial
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comprises 13.8% of the total sheath miles for aerial and buried cable. The number for
December 1996 was 14.5%. While not a dramatic shift, this shows that the percentage of
aerial cable is generally decreasing and that it is highly unlikely that a network rebuild
would result in an increase in aerial plant.
FILL FACTORS
PLEASE BRIEFLY EXPLAIN WHAT FILL FACTORS ARE.
Fill factors, or utilization factors, are simply a relationship between the capacity of plant
that will be provided or constructed and the amount of that plant that will be used. The
feeder cable fill inputs to LoopMod are a maximum desired utilization at the point in time
when the cable is placed. The cable or equipment selected will have the additional
capacity associated with the fill or sizing factor as well as the additional capacity from
selecting discrete cable and equipment sizes. For example, a location that has demand for
60 working pairs would select a 100 pair cable based on the following calculation.
Demand (60 lines) divided by sizing factor (80%) equals 75 pair requirement. The next
larger cable would be a 100 pair facility. The effective fill would actually be 60% (60
working lines divided by 100 available pairs). The methodology is the same with Digital
Loop Carrier (DLC) equipment. The default sizing factor for both cable and DLC
systems is 80%. The line cards for the DLC systems are sized using a 90% factor, as they
can be more readily reinforced than cables and DLC systems.
ARE DISTRIBUTION FILL FACTORS USED IN THE LOOPMOD PROGRAM?
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Qwest Corporation
LoopMod does not use fill factors in the standard distribution designs. The Qwest studies
assume a certain network design, two pairs or three pairs for each living unit depending
on where they are located (i., two pairs in rural and multi-family; three pairs in other
areas). The distribution cable is sized to reflect this assumption. The program develops a
total investment for each distribution area and then divides that by the number of working
lines. Thus, the fill is implicit in the calculation. It is not an input. This approach
consistent with the practices of the engineers who design the company s network.
COULD YOU REVISE THE DISTRIBUTION DESIGN IN THE MODEL IF YOU
WANTED TO REFLECT A DIFFERENT LEVEL OF UTILIZATION THAN
CURRENTLY PRODUCED BY THE MODEL?
Yes. The ICM interface allows the user to size distribution facilities based on a desired
fill. I would not recommend it that approach except for use in sensitivity tests. As
stated above, when engineers are designing distribution plant, they do not start with a
desired fill. They work with a design criteria of X pairs per site. Cable is then sized
based on the pairs per site and the number of homes passed. The actual distribution
utilization levels are the result of the actual demand experienced (working primary and
additional lines) in conjunction with the pairs per site used in the design. For example, a
street with 12 homes would require a 25 pair cable in a 2 pair per site design. The fill in
that instance would be the number of working primary lines plus the number of working
additional lines divided by the 25 available pairs. Assuming 12 primary lines and 3
additional lines for this example, the fill would be 60%. The model input is 2 pairs per
site. If a user wanted to achieve a 75% fill, the model would divide the demand by 75%
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and select a cable that is equal to or greater than that amount. In this example a 75% fill
would result in a cable requirement of 20 pairs. The model would still select a 25 pair
cable. In larger cables it is possible that the next smaller increment could be used. From
an engineering perspective, distribution design uses pairs per sites and the ultimate
number of sites in the distribution area. Fill levels are not an input to the process. By
contrast, in the actual network feeder plant is managed from a fill perspective (and
LoopMod contains a fill input for feeder cabling). This is because feeder plant is
designed to be reinforced periodically and is far more fungible or flexible in assignment.
Distribution is designed to avoid reinforcement and is more geographically or customer
specific.
WOULD CHANGES IN THE FILL FACTOR USING THIS APPROACH
SIGNIFICANTLY CHANGE THE COSTS PRODUCED BY THE MODEL?
No. Since the fill factor is only used to size cable, only the cost of that cable is affected.
A two pair facility does not cost twice as much as a one pair facility. Likewise, a 100 pair
cable is not twice as expensive as a 50 pair cable. A 100 pair cable costs $1.37 per foot
only $.37 more than the $1.00 cost of a 50 pair cable. Thus, increases in cable size do not
have a one-for-one impact on the costs produced by a model.
WHAT IS THE AVERAGE NUMBER OF ACCESS LINES IN USE PER
RESIDENCE CURRENTLY IN IDAHO?
According to data from the Qwest Integrated Forecasting Tool (1FT) as of December
2001 there were 1.1575 working lines per residence. The additional .1575 lines per
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location are the result of situations where a customer requires a second, third or even
fourth line. Thus, a three pair design allows the company to respond to demand for
additional pairs, regardless of where the demand exists in a neighborhood, with a
minimum of additional investment and without disruptive reinforcements. In addition to
being economically efficient, building distribution plant in this fashion is consistent with
the Qwest and the Idaho Commission s goal to minimize held orders.
VI.CONCLUSION
PLEASE SUMMARIZE YOUR TESTIMONY.
The loop module of the ICM program presented in this docket utilizes realistic network
designs and data inputs. There are changes to input data (contractor placing, updated
material prices), platform enhancements (user interfaces, increased access to variables)
and program refinements (route specific feeder, state specific distribution weightings
disaggregated placing activities, disaggregated drop data).The model's underlying
structure is based on valid engineering guidelines.The model develops a realistic
estimate of the investment for an unbundled loop. It does this in a consistent fashion
recognizing the economies of forward-looking technologies and feeder cable sizing used
in serving the universe of existing customer locations, while also including the placing
costs that would be incurred in a rebuild of the existing network or would be faced by a
new entrant. These assumptions are in concert with the TELRIC guidelines concerning
technology, access line demand and utilization levels. These inputs and assumptions are
discussed in detail in Exhibit 27 attached to this testimony. In addition, other program
information (interface screens and help text) is discussed in my Exhibits 25 and 26.
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DOES THIS CONCLUDE YOUR TESTIMONY?
Yes it does.
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CERTIFICATE OF SERVICE
I hereby certify that on this 12th day of November, 2003, I served the DIRECT TESTIMONY OF DICK
BUCKLEY as follows:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, ID 83720-0074
Phone: [phone]
Fax: [phone]
iiewell~puc.state.id.
Weldon Stutzman, Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, ID 83720-0074
Phone: [phone]
Fax: [phone]
wstutzm~puc.state. id. us
A vista Communications of Idaho
422 West Riverside - Suite 1O0-Skywalk
Spokane, W A 99201
David Harmon
Mary B. Tribby
AT&T Law Department
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Ray Hendershot
GVNW Inc. / Management
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Richardson & O'Leary
99 East State Street - Suite 200
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