20031205Million Testimony.pdf

Mary S. Hobson , ISB #2142
Stoel Rives LLP
101 S. Capitol Blvd., Suite 1900
Boise , ID 83702-5958Telephone: [phone]Facsimile: (208) 389 - 904 0
mshobson~stoel .com
RECEIVED FILED
~~.
~~ NOY 12 Pr; 4: 42
iu
UTILITIES COt"H'1ISSIOr;
Adam L. Sherr (WSBA #25291)
Qwest
1600 7 th Avenue - Room 3206
Seattle, WA 98191
Te 1 ephone : ( 2 0 6 ) 3 98 - 2 5 0 7Facsimile: [phone]
asherr~qwest . com
Attorneys for Qwest Corporation
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)
CASE NO.
QWE-01-
DIRECT TESTIMONY OF
Teresa K. Million
QWEST CORPORATION
November 12, 2003
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TESTIMONY INDEX
I. IDENTIFICATION OF WITNESS .............................. 1
II.PURPOSE OF TESTIMONY ................................. 3
III. TELRIC PRINCIPLES .................................... 8
A. SUMMARY OF TELRIC PRINCIPLES ...........................................................................................
B. THE TELECOMMUNICATIONS ACT AND FCC ORDER.................................................................. 18
IV. THE TELRIC STUDIES IN GENERAL
.. .
. . . . . . . . . . . . . . . . . . . . . 25
V. THE QWEST INTEGRATED COST MODEL ....................... 29
A. ICM MODEL DESCRIPTION ......................................................................................................
B. ICM RESULTS .............................................................................................................
:..........
C. ICM MODULES ......................................................................
:..............................:~'.....~::.
1. The Loop Module........................................................
~...................................................
2. The Switching Module
.......................................................................................................
3. Transport Module
.................................... ..............................~........... ...................... ..........
4. Capital Cost Module
.........................................................................................................
5. Expense Factors Module...................................................
:..............................................
VI.THE ENHANCED NONRECURRING COST STUDIES (ENRC) ....... 61
VII. OTHER METHODOLOGY ISSUES
....... ~.~ . . . . . . . . . . . . . . . . . .
A. FILL FACTORS.......................................................................................................................
B. COST OF MONEY ....................................................................................................................
C. DEPRECIATION LIVES..............................................................................................................
VIII.THE TELRIC STUDIES
...............
................. 75
A. THE ICM ELEMENTS """"""""""""""""""""""""""""""""""""""""""""""'"................
1. UNE Loop Deaveraging.....................
~..............................
................................................ 78
2. Switching..........................................................
.................................................................
3. Transport..............................................
.............................................................................
4. Other UNEs Calculated in ICM.........................................................................................
B. THE SEPARATE COST STUDIES................................................................................................
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1. The UNE Remand Studies
...............................................................................................
2. Other Stand Alone Cost Studies....................................................................................... 9 5
C. CUSTOMER TRANSFER CHARGE ............................................................................................11 0
IX.LINE SHARING
......................
.................. 111
COLLOCATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126
XI.CONCLUSION.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144
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I. IDENTIFICATION OF WITNESS
Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS AND
POSITION WITH QWEST CORPORATION.
A. My name is Teresa (Terri) Million.
business address is 1801 California Street, Room 2050,
Denver, Colorado 80202. I am employed by Qwest Services
Corporation as a Staff Director in the Public Policy
organization.In this position , I am responsible for
preparing testimony and testifying ~bout Qwest
Corporation s cost studies in a variety of regulatory
proceedings.
Q. WHAT IS YOUR EDUCATIONAL BACKGROUND AND
PROFESSIONAL EXPERIENCE?
A. I received a Juris Doctor from the University of
Denve~, College of Law in 1994 and am licens~d to practice
law in the state of Colorado.I also have a Master of
Business Administration from Creighton University and a
degree in Animal Science from the Uni versi ty of Ari.zona.
I have more than 20 years experience in the
telecommunications industry with an emphasis in tax and
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regulatory compl iance.began my career with Qwest,
(formerly Northwestern Bell Telephone Company and U S WEST)
1983.Between 1983 and 1986 administered Shared
Network Facilities Agreements between Northwestern Bell and
AT&T that emanated from di vesti ture.I held a variety of
posi tions wi thin the U S WEST, Inc. tax department over the
next ten years, including tax accounting, audit, and state
and federal tax research and planning.In 1997, I assumed
a position with responsibility for affiliate transac~ions
compliance, specifically compliance with section 27.2 of the
Telecommunications Act of 1996 (the "Act"47 U.
!!i272.In September 1999, I began my current assignment as
a cost witness.In this position , I am responsible for
managing cost issues, developing cost methods and
representing Qwest in proceedings before regulatory'
commissions.
Q. HAVE YOU PREVIOUSLY APPEARED BE~ORE THE IDAHO
PUBLIC UTILITIES COMMISSION?
A. This is the first docket in which I have appeared
in Idaho.
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Q. HAVE YOU TESTIFIED BEFORE OTHER STATE REGULATORY
COMMISSIONS?
A. Yes.I have presented cost testimony before
commissions on the issue of determining rates for unbundled
network elements ("UNEs ) in Arizona, Montana, New Mexico,
South Dakota , Washington and Wyoming.In addition , I have
submitted testimony related to section 272 of the Act in
Arizona, Colorado and Nebraska.I have also filed cost
testimony in Colorado related to Operator Services.
II.PURPOSE OF TESTIMONY
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. The purpose of my testimony is to present Qwest' s
Idaho recurring and nonrecurring incremental cost data for
unbundled network elements and interconnection services.
These- data are utilized as the basis for Qwest' s pricing
recommendations as presented in my Exhibit No.
While Qwest believes that its cost studies produce
appropriate Total Element Long Run Incremental Cost
TELRIC"results under the FCC'priclng rules,Qwest
recognizes that in many cases the FCC and state commissions
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have accepted a range of prices for unbundled elements that
have been deemed reasonable for purposes of TELRIC.
Therefore , although Exhibit No.1 represents Qwest' s TELRIC
advocacy in this cost proceeding, I also present, in
supplemental testimony, Attachment A to th~ Motion for
Approval of Negotiated Rates ("Motion for Approval") which
contains a list of UNE prices that have been agreed upon
during negotiations with Commission Staff.
Q. WHY ARE YOU FILING THESE COST STUDIES AT THIS
TIME?
A. Qwest originally filed testimony and cost studies
in this docket on June 29 , 2001.Since that time, to
assist in negotiating with Commission Staff to reach
agreement on a large number of UNE rates, Qwest has
provided a variety of cost study runs reflecting d~fferent
depreciation lives and costs of capital.Qwest also tiled
supplemental testimony to make certain corrections and/or
revisions to its original filing.As a result; Qwest has
provided a large amount of data representing many different
steps along the way to the present.
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In the meantime, Qwest has updated .several of its cost
studies and models to reflect more current data , added a
number of UNEs to the list of elements that were not a part
of the original filing, and calculated more current
factors.Thus, when Qwest and Commission Staff reached
agreement on the first set of rates included in the initial
phase of negotiation , it was agreed that Qwest would
withdraw all of its original testimony and cost studies and
models and replace them with testimony, cost studies and
models that reflect the changes, correctio~s and updates
that have occurred~n the interim.
. -
Q. IF QWEST IS PRESENTING NEW COST RESULTS, DOES IT
INTEND TO SEEK RATES FOR ALL UNES?-o
A. Yes.Exhibit No.1 reflects ~~ TELRIC rates for
all UNEs as produced by Qwest' s cost studies 'and models.
Qwest intends to seek rates for all of .the UNEs contained
in Exhibit No.However , Attachment A to the Motion for
Approval , which is the same document that is attached to my
supplemental testimony as Exhibit No.3 0, reflects rates
that have been agreed upon by Qwest and Commission Staff
during negotiations.For those elements , Qwest asks the
Commission to adopt the rates presented in Attachment A.
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In addition, Qwest has executed an agreement with the
Commission that it will not seek rates in this cost docket
that are higher than its "benchmarked" rates for certain
elements.Benchmarking was the process Qwest followed
during the 271 filings to establish rates that reflected a
range that the TELRIC principles would produce using a
methodology developed by the FCC.It allowed the
Commission to establish rates for Idaho based on the
relationship of the rates produced by the FCC's Synthesis
Model ("SM") for Idaho to the rates it produced for a state
(Colorado) whose rates had been the subj ect of a TELRIC
proceeding.Al though the Commission will see that Qwest'
cost studies produce TELRIC based rates that are higher
than the benchmark rates, Qwest is not seeking rates higher
than the benchmark rates at this time.
Q. PLEASE DESCRIBE THE COST MODELS AND STUDIES THAT
YOU ARE PROVIDING AS A PART OF THIS TESTIMONY.
A. My testimony introduces and describes the Qwest
Integrated Cost Model ("ICM"The ICM is an integrated
cost model that calculates the recurring TELRIC for the
maj or unbundled network elements and interconnection
services.Addi tionally, I present Qwest' s proposal for
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deaveraging of the UNE loop, introduce the Qwest
collocation model and Line Sharing collocation study, and
discuss other recurring cost studies that are not part of
the ICM.The Collocation Model is an integrated model that
calculates both recurring and nonrecurring TELRIC for the
maj or collocation services.In addition , I present a
variety of stand-alone cost studies for collocation
services such as Space Optioning and Space Reservation.
I also introduce and describe the Qwest Enhanced
Nonrecurring Cost Studies ("ENRC") and present Qwest'
Idaho nonrecurring costs.The ENRC calculates the
nonrecurrlng TELRIC for all UNEs and interconnection
services.A complete listing of Qwest' s cost studies , by
exhibi t number and cost study ID number , is provided at the
end of this testimony in the Index of ~xhibits.
Q. ARE OTHER QWEST WITNESSES' PROVIDING TESTIMONY
REGARDING COST ISSUES?
A. Yes.Dick Buckley provides testimony that
describes in detail the methodology and assumptions
incl uded in the Loop Module of the ICM.
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Q. HAS QWEST FILED COPIES OF EACH TELRIC STUDY,
ALONG WITH DETAILED STUDY DOCUMENTATION?
A. Yes.My non-confidential cost study workpapers
(Exhibi t Nos. 2 - 24) are provided electronically on
compact disc ("CD") including copies of each cost study.
The electronic documentation also includes all cost study
calculations (e., excel spreadsheets) and methodology
descriptions.In addition, the workpapers include the
supporting investment and expense cost models (along with
user manuals) 'Used to calculate investments and expenses in
the studies.Using the workpapers, interested parties will
be able to follow the cost study calculations in each
TELRIC study, and replicate the Qwest TELRIG results, if
desired.
III. TELRIC PRINCIPLES
Summary of TELRIC Principles
Q. PLEASE SUMMARIZE THE OVERALL ECONOMIC PRINCIPLES
THAT ARE APPLIED IN QWEST' S TELRIC STUDIES.
A. The Qwest TELRIC studies identify the forward-
looking direct costs that are caused by the provision of an
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interconnection service or network element in the long run
plus the incremental cost of shared facilities and
operations.These studies identify total element costs -
the average incremental cost of providing the entire
quantity of the elements in the network.The assumptions,
methods , and procedures used in Qwest' s cost studies are
designed to yield the forward-looking replacement costs of
reproducing the telecommunications network, considering the
most efficient,least-cost technologies that are currently
available.
Q. HOW IS THE CONCEPT OF LONG RUN CONSIDERED IN TH~
QWEST TELRIC STUDIES?
A. The Qwest TELRIC studies consider a time period
over which all inputs are variable. In this context, long
run does not relate to a specific period of time (e. g.,
five years, ten years, etc.) but refers to a time period
long enough that all inputs,including investments , are
variable.From a practical standpoint, th~s means that in
a long run study all investments related to the network
In the Matter of Implementation of the Local Competition provisions in
the Telecommunications Act of 1996 , FCC 96-325, CC Docket Nos. 96-
95-185, First Report and Order at ~ 692 (Rel. August 6 , 1996) ("First
Report and Order
) .
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element are considered variable, and the costs associated
with these investments are included in the TELRIC study
resul ts.
Q. PLEASE EXPLAIN HOW THE TELRIC STUDIES IDENTIFY
REPLACEMENT COSTS FOR THE TOTAL ELEMENT.
A. The Qwest TELRIC studies consider the costs of a
network that is "built from scratch," assuming the existing
These long runlocation of network "nodes " or switches.
studies identify the total "replacement" costs of serving
all current and anticipated demand, rather than the costs
of adding equipment to an existing network to meet a small
increment in demand.Thus, the studies consider the
efficiencies associated with building a network to serve
total demand, assuming a single carrier.
In the Qwest TELRIC studies , the increment studied is the
total quantity of the network element.Ther~fore , the
studies calculate the average cost for all units of output,
rather than the marginal cost of the next or last unit of
output.
Q. PLEASE EXPLAIN HOW THE FORWARD-LOOKING CONCEPT IS
CONSIDERED IN THE QWEST TELRIC STUDIES.
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A. The Qwest TELRIC studies identify the forward-
looking costs that are likely to be incurred in the future,
These studies consider the least - cost, forward-looking
technologies and methods of operations that are currently
available and practical to deploy in the network , given
current and anticipated demand for the total element
Thus, in calculating appropriate TELRIC costs it is
important to consider , as Qwest has, what is currently
being deployed in the system , as well as, what will be used
by the competitor on a forward-looking basis.
Q. IS IT IMPORTANT THAT TELRIC STUDIES CONTAIN
REALISTIC FORWARD-LOOKING ASSUMPTIONS?
A. Yes,A TELRIC study must provide a realistic
estimate of forward-looking costs.In fact , in its
recently released TELRIC NPRM2 the FCC t~ntatively 'conclud~.s
" '
that "our TELRIC rules should more clo~ely account for the
real-world attributes of the routing and topography of an
incumbent's network in the development of' forward-looking
costs. "Thus , a TELRIC study must provide an estimate of
In the Matter of Review of the Commission s Rules Regarding the
Pricing of Unbundled Network Elements and the Resale of Service by
Incumbent Local Exchange Carriers Notice of Proposed Rulemaking, WC
Docket No. 03-173, ~ 52 (ReI. September 15 , 2003) ("TELRIC NPRM"
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the forward-looking costs that Qwest or any efficient
carrier would be likely to incur in the future without
losing sight of the real-world attributes of the existing
network.Consistent with this standard, the Qwest TELRIC
studies use the latest technologies and methods of
operations that are currently available.Only technologies
that are commercially available and that are currently
being deployed in the industry today are included in the
studies.The studies do not rely. on technologies that
might be available in the future.There is too much
uncertainty about unproven, potential technologies to
permi t their use in cost studies , incJ.1:1ding uncertainty
about whether the technologies will actually become
available, the potential cost of the technologies, and th~
potential uses of the technologies.
Nor do the studies rely exclusively' on "state~of-the-art"
techn0logies that may be available, but are impractical to
deploy in every situation.For example , fiber-based DS1
- '
technologies are considered to be "state-of-the-art.
However, in circumstances where utilization is low (e ,
g.,
there is demand for only 1 or 2 DS1s at an end-user
location) and is not likely to increase in the foreseeable
future, it is impractical to deploy fiber rather than
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copper-based DS1s.This is because a fiber-based DS1
technology, such as OC3 , provides capacity for 84 DS1s at
only one location unless appropriate additional electronics
and fiber are deployed in multiple end-user locations.The
cost of fiber and these electronics causes fiber-based
architectures to be far more costly than copper on a per-
DS1 basis in low demand situations.
Some parties may advocate the use of a theoretical, least-
cost TELRIC methodology that employs unrealistic
assumptions to produce low cost estimates, such as assuming
high demand for DS1s at each end-user location to justify
an all-fiber network.The Commission should rej ect these
fantasy cost" estimates , because pricing based on these
studies would prevent Qwest from recovering, its legitimate
realistic costs (e, g" by either not assumi?g enough cost
for necessary electronics or by overstatipg system
utili1i":ation) .No firm could continue to invest in
infrastructure if it were forced to sell its services based
on "fantasy" costs that are below the actual costs the firm
incurs to build the infrastructure.
In its TELRIC studies , Qwest uses current market prices to
determine the costs for equipment and materials.Placement
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costs are based on the expenditures that the network
organization currently incurs to perform the relevant
functions , based on actual contracts with vendors that work
with Qwest in Idaho.Expense factors are based on
currently incurred costs adjusted for known or anticipated
changes.Each assumption is designed to reflect the
forward-looking cost of placing the network.
Q . CAN YOU PROVIDE SOME EXAMPLES OF HOW APPROPRIATE
FORWARD-LOOKING TECHNOLOGIES ARE CONSIDERED IN QWEST'
TELRIC STUDIES?
A, Yes,In developing investment costs, Qwest
models forward-looking, least-cost network designs.For
example , the ICM Loop Module described by Mr. Buckley
considers the least-cost , forward-looking mix of coppe~,
fiber and integrated pair gain equipment.Thus, the model
considers not just "state-of-the-art" 't~chnology (e.
fiber), but also the "least-cost" way of providing the
element in a given network applic~tion.For unbundl'
loops, copper facilities represent the least-cost
technology for shorter loops and where demand is relatively
low , while fiber and electronics represent the least-cost
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technology for longer loops and where demand is relatively
high.
The Switching Module of ICM develops switching investment
for each service, using only digital switch technology.
The switching module does not use older, less efficient
technologies, such as analog switching equipment.In the
Transport Module, interoffice facilities are modeled
assuming 100% fiber and Synchronous Optical Network
SONET") based equipment.Signaling costs are developed
based on the forward-looking equipment in a Sign~ling
System 7 ("SS7") network.
The Qwest TELRIC studies also consider forward-looking
operating expenses, Qwest adj usts its recent expense
information to develop annual cost factors that estimate
forward-looking costs.Using historical information as a
starting point, Qwest adjusts its expense factors to
account for future efficiencies and expected
inflationary/deflationary price impacts.
3 This is accomplished via the "estimated cost savings " and "inflation
inputs in the Expense Factor Module.
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Q. YOU MENTIONED THAT TELRIC STUDIES IDENTIFY DIRECT
COSTS AND THE COST OF SHARED FACILITIES AND OPERATIONS.
PLEASE DEFINE EACH OF THESE TERMS.
A. Direct costs are the costs that would be avoided
if the network element o~ service were not offered,Direct
(i.e., costs thatcosts include both volume sensitive costs
vary with the volume of a network element or service)and
volume-insensitive costs (i.e. ,costs that are caused by a
network element or service, but do not vary with volume)
Shared costs are the costs that are ca~sed by the provi~ion
of a group of services.Both direct and shared costs are
included in a TELRIC study,consistent with the FCC'
definition of TELRIC in the First Report and Order.
4 At paragraph 682 of the First ' Report and brd~r, "the FCC stated
" "
conclude that, under a TELRIC methodology, incumbent LECs I p~ices for
interconnection and unbundled network elements: shall recover-the
forward-looking costs directly attributable to the specified element
as weli as a reasonable allocation of forward-looking common costs.
. Directly attributable forward-looking costs include the incremental
costs of facilities and operations that are dedic~ted to the element.
Such costs typically include the investment costs and expenses relatedto primary plant used to provide that element. Directly attributable
forward-looking costs also include the incremental costs of shared
facilities and operations. Those costs shall be attributed to specific
elements to the greatest extent possible. For example, the costs of
conduits shared by both transport and local loops, and the costs of
central office facilities shared by both local switching and tandem
switching, shall be attributed to specific elements in reasonable
proportions. More broadly, certain shared costs that have
conventionally been treated as common costs (or overheads) shall be
attributed directly to the individual elements to the greatest extent
possible. "
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Q. DO THE QWEST TELRIC STUDIES IDENTIFY COMMON
COSTS?
A. Yes,As discussed above, Qwest' s studies
identify the TELRIC for each element, which includes the
direct and shared costs,In addition , these studies
separately identify an allocation of forward-looking common
overhead costs.These costs (e., legal , planning,
executive, etc.) are not associated with a specific network
element , but represent general costs of doing business.
These are real costs that Qwest will efficiently incur on _
forward-looking basis , and that must be recovered in UNE
prices,In fact , the FCC's First Report and Order states
specifically that "under a TELRIC methodo l.ogy,' incumbent
LECs ' prices for interconnection and unbundled network
elements shall recover the forward-lo6ki~g costs directly
attributable to the specified element,- as well 'as a
reasonable allocation of forward-looking, common c~stS.
Q. H9W ?HOULD THE QWEST TELRIC STUDIES BE UTILIZED
IN THIS PROCEEDING?
5 First Report and Order at ~ 682.
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A. The Commission should use the TELRIC data
presented in my testimony as the basis for setting prices
collocation and interconnection services.Thatfor UNEs,
is,these data,including an allocation of common costs,
provide the Commission with the appropriate TELRIC basis
for determining the prices contained in Qwest' s Statement
of Generally Available Terms Exhibit A.TheSGAT" )
TELRIC rates produced by Qwest' s cost studies are presented
in my Exhibi t No.
The Telecommunications Act and FCC Order
Q. WHAT DOES THE TELECOMMUNICATIONS ACT OF 1996 SAY
ABOUT COSTS AND PRICES?
A. The Act states that prlces for network elements
shall be "nondiscriminatory,bas~d or). costs " and "may
include a reasonable profit". 7
6 Nevertheless Qwest recognizes that a range of prices exists for
unbundled elements that have been deemed reagonable for purposes of
TELRIC. Thus: Qwest and Commission Staff have reached agreemept on UNE
prices that both parties believe represent UNE rates within a range of
TELRIC as determined in other Qwest states where TELRIC principles have
been examined. The UNE prices for a large number of elements were
agreed upon by the parties through negotiations between Qwest
Commission Staff and are reflected in Attachment A to the Motion for
Approval.
7 47 USC ~252 (d) (1) .
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Q. IS QWEST' TELRIC METHODOLOGY IN COMPLIANCE WITH
THE ACT?
A. Yes.
Q. DID THE FCC ESTABLISH COSTING AND PRICING RULES
IN ITS FIRST REPORT AND ORDER?
A. Yes.The FCC proposed costing and pricing rules
in its First Report and Order , released on August 8, 1996.
In these rules, the FCC established overall TELRIC
- .
principles and specified a TELRIC methodology.
Q. DO QWEST' TELRIC STUDIES FOLLOW A METHODOLOGY
THAT IS CONSISTENT WITH THE FCC'S TELRIC RUL~S?
A. Yes.The Idaho TELRIC data filed by Qwest in
this proceeding are consistent with:the FCC' g TELRIC
principles, as def ined in the FCC's First Report and Order.
For example , the TELRIC studies are consistent with the
following principles:
Under a TELRIC methodology, incumbent LECs I prices
for interconnection and unbundled network elements
shall recover the forward-looking costs directly
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attributable to the specified element , as well as a
reasonable allocation of forward-looking common
costs. "(~682)
Per-unit costs shall be derived from total costs
using reasonably accurate "fill factors (estimates
of the proportion of a facility that will be
IIfilledll with network usage) that is, the per-unit
costs associated with a particular element must be
deri ved by dividing the total cost associated with
the element by a reasonable proj ection of the actual
total usage of the element. "( ~682)
Directly attributable . costs shall be
attributed to spe~ific elements to the greatest
extent possible.. More broadly, certain shared
costs that have conventionally been tre~ted as
common costs (or overheads)shall be attributed
directly to the individual elements to the greatest
extent possible. (~682)
The forward-looking pricing methodology for
interconnection and unbundled network elements
should be based on costs that assume that wire
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centers will be placed at the incumbent LEC '
current wire center locations , but that the
reconstructed local network will employ the most
efficient technology for reasonably foreseeable
capacity requirements.(~ 685)
In a TELRIC methodology, the "long run " used shall
be a period long enough that all costs are treated
as variable and avoidable.(~ 692)
An appropriate calculation of TELRIC will include a
depreciation rate that reflects the true changes i~
economic value of an asset and a ,cost of capital
that appropriately reflects the risks incurred by an
(~ 703)investor. "
Q. HAS THE FCC RECENTLY PROVIDED FuRTHER GUIDANq~
WITH RESPECT TO THE TELRIC RULES?
In its Triennial Review Order ("TRO,,)8 theA, Yes.
FCC,in addition to addressing unbundling requirements for
In the Matter of Review of the Section 251 Unbundling Obligations
Incumbent Local Exchange Carriers, Implementation of the Local
Competi tion Provisions of the Tel ecommuni ca tions Act of 1996
Deployment of Wireline Services Offering Advanced Telecommunications
Capability, CC Docket Nos. 01-338,96-98-147 , Triennial Review
Order at ~ 669 , (ReI. August 21 , 2003) ("Triennial Review Order
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UNEs, reiterates that "TELRIC equates the current market
value of the existing network that could provide all the
services its current network provides, to meet reasonably
foreseeable demand, using the least-cost , most efficient
technology currently available.The FCC also provides
clarification of the TELRIC rules with respect to two
issues; cost of capital and depreciation.
First , with regard to the cost of capital the FCC clarifies
that "states should establish a cost of capital that
reflects the competitive risks associated with the risks of
participating 9 in the competitive market assumed bx: TELRIC.
The FCC further clarified that the risk of losing customers
to other facilities-based carriers should be reflected in
TELRIC prices, and specifically rej ected AT&T's claim that
states are limited to considering only the actual
competitive risk the ILEC currently faces in providing
UNEs . -In rejecting AT&T's claim the FCC stated that such
an approach would "reduce artificial~y the value of the
ILEC network and send improper pricing signals to
. ,,
competltors.
Id. at 681.
10 Id. at 682.
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Second, with regard to depreciation, the FCC clarified that
(t) he rate of depreciation over the useful life should
reflect the actual decline in value that would be
anticipated in the competitive market TELRIC assumes. ,,
This allows an ILEC to use economic depreciation rates to
calculate its TELRIC costs and accelerate recovery of
initial capital outlay for an asset over its life to
reflect any anticipated decline in the asset's value.
Q. DID THE FCC'S TRIENNIAL REVIEW ORDER PROVIDE ANY
OTHER GUIDANCE WITH RESPECT TO THE PROVISION OF UNES?
. '
A. Yes,The TRO , issued on Augus t 2 1 , 2 003
discusses at length the standqrd to be used to determine
whether CLECs are impaired without acce(3s t:o certain UNEs.
In some cases the FCC has directed the- state commissions to
conduct reviews to make such determinat.ions at a local
level.These reviews will be conducted in' proceedings that-
are separate from the cost docket.For other elements, the
FCC determined that CLECs are not impaired without access
to those elements.Thus , the FCC effectively eliminated
the obligation for ILECs to provide certain network
11 Id. at 689.
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elements at TELRIC rates pursuant to section 251 of the Act
of 1934 , as amended,
Q. IS QWEST REMOVING THOSE ELEMENTS FROM ITS SGAT
EXHIBIT A IN THE CONTEXT OF THE CURRENT COST DOCKET?
A. No.Attachment A to the Motion for Approval
includes agreed upon rates for a large number of UNEs that
Qwest filed costs for in it~ original filing in this cost
docket.Among the elements listed in that document are
rates for elements such as OCn transport, OCn loops, which
were removed from the list of elements that Qwest has an
obligation to provide under section 251.In addition , my
Exhibit No.1 contains TELRIC based rates for all of the
elements in Qwest' s original filing including the unbundled
packet switching elements that were removed from the list
The components of the network that Qwest is noof UNEs,
longe;- obliga~ed to provide as UNEs under the Act is not
limi ted to those identified above , however,Qwest is in
the process of identifying all the impacts of the TRO and
is beginning the process of renegotiating its
interconnection agreements to implement the change of law
created by the TRO.While Qwest is not removlng any
elements from those 1 isted in Attachment A and Exhibit No.
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1 at this time , Qwest wants to be clear that the TELRIC
rates it is agreeing to in this proceeding are for the sole
purpose of pricing these elements until the rates change or
become effective under the renegotiated agreements.Thus,
wi th regard to prices for network elements that th~ FCC has
found are no longer subj ect to the provisions of section
251, a CLEC will only be able to obtain those elements
until its interconnection agreement is amended to eliminate
those elements as UNEs.
IV. THE TELRIC STUDIES IN GENERAL
Q. YOU SAID THAT THE TELRIC DATA FORM THE BASIS FOR
RECURRING AND NONRECURRING COSTS.PLEASE DEFINE THESE
COSTS.
A. Recurring costs are the ongoing costs associated
wi th providing a service or network element:Recurring
costs are generally investment-related and include both
capital costs and operating expenses.These costs are
often presented as a cost per-month or per-unit of usage
(e,, minute of use) and are incurred throughout the time-
period the service or network element is provided to a
customer.
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Nonrecurring costs are the one-time costs associated with
establishing a servlce or network element.Nonrecurring
costs are generally activity or transaction-related and are
calculated by multiplying the length of time necessary to
perform an activity by a specified labor rate.
Q. PLEASE EXPLAIN HOW RECURRING COSTS ARE CALCULATED
IN THE TELRIC STUDIES PRESENTED IN IDAHO.
A. All Qwest cost studies in Idaho employ the same
basic procedures to arrive at a monthly recurring TELRIC
cost estimate:
1. Define the Network Element or Service.While
Qwest's cost studies anticipate replacement of the
entire network , the cost analyst works with product
management and technical staff to define each of the
elements or services to be studied.This step
includes identification of all the network
components that are needed to provide particular
elements or services , and an estimation of total
demand for the element or service , including Qwest'
own demand.
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The investment required2. Development of Investment.
to provide the service or element includes the
actual vendor prices for material and equipment,
plus the cost to place the equipment, including
Determination of thecapitalized labor costs.
correct amount of investment is key to the accuracy
of any predictive cost model.Therefore, in
addition to utilizing actual vendor information, and
contractor or internal placement costs, Qwest relies
on sound engineering practices to model the amount
of investment necessary to provide a given service
at a particular level of usage or demand.
3. Estimation of Investment-related Capital Costs.
Capital costs comprise a large portion of total
service cost , and the level of capital cost is
impacted by the depreciation lives for the relevant
plant accounts and the weighted cost of debt and
equi ty capi ti::tl .Investment - related capital costs
(depreciation and cost of money)in Idaho are based
on FCC prescribed rates.For example, Qwest uses
the FCC prescribed rate of 11.25% for cost of money,
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4. Estimation of Operating Costs.Operating expenses
are estimated, in most cases, utilizing annual cost
factors.Investment-related operating expenses
(e. g., maintenance expense) are calculated based on
annual cost factors that are applied to investment,
while other operating expenses (e. g., marketing
expenses) are normally calculated based on factors
that are applied to the investment-related costs.
These cost factors consider the historic
relationships between expenses and investment that
the Company has experienced in the past i adj usted
for inflation/deflation and productivity increases.
These operating expenses are added to the capital
costs to provide the TELRIC for the network element.
An appropriate share of common costs is allocated to
the TELRIC costs to yield the total cost (TELRIC
plus Common) .
After costs have been5, Validation of Results.
estimated, these data are reviewed and cross-checked
wi th other cost data to assure reasonableness.
Resul ts are compared across states and across
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servlces.TELRIC results may also be compared with
cost results derived from other cost models.
Q. HOW DOES THE DEVELOPMENT OF NONRECURRING COSTS
DIFFER FROM DEVELOPMENT OF RECURRING COSTS?
A. Nonrecurring costs are generally expense-based
and result from the development of direct costs associated
with the tasks necessary to perform a one-time activity.
Similar to the process described above, the tasks
associated with establishing particular services or
elements are identified by product management.Time
required to perform tasks are modeled , probabilities are
assigned to reflect the likelihood that an activity will
take place, and the result is mul tipl ied by appropriate
labor rates to develop the direct costs of the activity.
Operating expenses are added to the direct expenses to
provide the TELRIC for the network element,Finally, a
share of common costs is applied to produce "TELRIC plus
Common" nonrecurring costs.
V. THE QWEST INTEGRATED COST MODEL
PLEASE BRIEFLY DESCRIBE THE INTEGRATED COST
MODEL ICM"
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A. The ICM is a cost model developed by Qwest that
lS designed to estimate the recurring TELRIC for UNEs and
Exhibit No.The ICM producesinterconnection services.
recurring costs for the major UNEs and interconnection
services, including the unbundled loop, switching,
transport and other elements listed below in Section VIII
of my testimony.
Q. PLEASE DESCRIBE THE KEY DESIGN FEATURES OF THE
ICM.
A. The ICM calculates the costs for UNEs using the
same basic methodological approach that is used for all
Qwest's TELRIC models and studies.However , the LCM
addresses past criticisms of Qwest' s TELRIC models and
incorporates several stand-alone modules into a single
model that is:
simple and user friendly.The model can be run on
most windows-based personal computers. 12 It contains
a "point and click" interface that is easily
navigated by the user.The user can view results
study assumptions, study inputs, etc., and make
12 See documentation for specific computer requirements.
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changes when desired.A user can run a new TELRIC
study, based on the user s specifications, in a
relatively short period of time,In sum, the ICM is
an easy to use model that does not require users to
be trained as model "experts.Any interested party
can run the model by following the user guide
instructions.
The model makes it easyThe I CM is an open mode 1 .
for the user to view the study inputs, calculation
processes, and output results.All aspects of the
model are open to investigation by the user -
eliminating any "black box " concerns.
The ICM is integrated.In the past, costs for
different UNEs had to be calculated in separate
For example, switching costs weremodels.
calculated via the Switching Cost Model ("SCM") and
Windows Personal Computer Cost Calculator ("WINPC3"
Loop costs were calculated using themodels.
Regional Loop Cost Analysis Program ("RLCAP") and
Transport costs were calculated in aWINPC3.
separate transport model.Wi th ICM , costs for the
major UNEs, including the loop, switching and
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transport, are calculated in the same easy-to-use
ICM replaces WINPC3 and performsintegrated model,
the functions previously provided through separate
The integrated nature of the ICMruns of WINPC3.
assures that all annual cost factors are applied
consistently.
ICM Model Description
Q. IS QWEST PROVIDING A MANUAL THAT PROVIDES A
DETAILED DESCRIPTION OF THE ICM AND ITS MOD~ES?
Qwest is filing the ICM User Manual,A. Yes.
located on the CD in the documentation folder under the ICM
model, which instructs the user about how ICM operates.
This manual contains detailed instructions for running ICM
including, for example, how to change inputs to the model.
This manual also provides detailed documentation that
describes each of the five ICM modules (i, e ., switching,
loop, transport, capital costs and expense factors).
Q. HOW IS THE ICM DESIGNED TO OPERATE?
A. The ICM runs each of the modules and inserts the
resul ts from each module into the Output Workbook.The
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Output Workbook uses the results of each module , along with
special study inputs , to calculate the TELRIC for each UNE
First, investment -relatedand interconnection service.
factors are applied to investments to provide the
investment-related monthly costs (e. g., depreciation , cost
of money, income tax and maintenance) for each UNE and
interconnection service.Second, the expense-related
factors are applied to the investment-related costs to
yield the monthly cost for operating expenses, such as
product management and network operations and support.
Third, the Output Workbook sums all of the monthly costs to
Finally, theprovide the monthly TELRIC for the UNE~
Output Workbook provides an allocation of common costs
(e.g., executive, planning, other general and
administrative expenses) to each UNE and interconnection
service.
Q. DOES THE ICM ALLOW THE USER TO MODIFY INPUTS?
The ICM provides input forms for each ofA. Yes,
the modules, which allow the user to change key input
The input forms display the default value forassumptions.
each input item and allow the user to override these values
For example , the Loop Module provides inputif desired.
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forms that allow the user to view the default values that
are used to reflect how often different placement methods
are used to place buried cable and, if desired, to change
those values to reflect different assumptions about
placement methods. After all desired changes are made to
the inputs, the user can easily rerun the ICM to produce
UNE cost results based on the new user assumptions.
ICM Resul ts
Q. DOES ICM PROVIDE UNE COST RESULTS THAT REFLECT
THE PROPER APPLICATION OF TELRIC PRINCIPLES?
The ICM and its modules contain recommendedA. Yes.
default inputs.For example, as described below in Section
VII of my testimony, the ICM utilizes fill factors that are
designed to provide a "reasonable proj ection of actual
total usage of the element," as required by the FCC. 14
addition, my discussion of the ICM modules, in the current
section, explains how the key inputs are determined.
the model is run with these inputs, it produces results, as
delineated in Exhibit No.1, that properly reflect the
13 Mr, Buckley provides a thorough discussion of Loop Module inputs in
his testimony.14 First Report and Order at ~ 682.
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TheTELRIC principles described earlier in my testimony.
ICM model, using the default inputs, provides a proper
estimate of the recurring TELRIC for UNEs in Idaho.These
results should be used by the Commission as a barometer for
determining the reasonableness of Qwest' s recurring prices.
ICM Modules
1. The Loop Module
Q. DO YOU PLAN TO DESCRIBE THE ICM LOOP MODULE IN
YOUR TESTIMONY?
Mr. Buckley provides a detailed descriptionA. No.
of the ICM Loop Module in his testimony.
2. The Switching Module
General Description
Q. PLEASE BRIEFLY DESCRIBE THE SWITCHING MODULE OF
ICM THAT IS USED TO CALCULATE SWITCHING COSTS.
A. The Switching Module of the ICM calculates costs
using the Switching Cost Model ("SCM") program, which is
incorporated into the ICM.The purpose of SCM is to
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calculate the unit investments for local and tandem
switching usage, and various types of switch ports.Once
the SCM calculates the investments for these elements , the
ICM Output Workbook converts these investments into costs
(e.g., a monthly cost per port and a per minute cost for
switching usage)
The SCM is contained entirely in a single Excel workbook,
labeled "SCM Core," which is included in the "Switch"
folder within the ICM.SCM, Version Xl. 01, represents a
significant departure from the SCM that has been filed
previously in Idaho and other states.While the new
version of the SCM follows the same methodological
principles as previous versions of the SCM, the model is
now much simpler and easier audit since entirely
contained one Excel workbook without any complicated
macros visual basic programming.
While the overall SCM workbook is labeled as "SCM Core," it
may be characterized as containing four modules:SCM Core,
SCM Calls, SCM Usage and SCM Ports.I will briefly
describe these modules below.
Q. HOW IS THE DATA FROM THE SCM USED IN THE ICM?
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A. The Switching Module calculates switching
investments for local switching usage, tandem switching
usage, line ports and trunk ports.These investments are
converted to monthly or per minute of use costs in the ICM
Output Workbook.
It is important to note that the SCM calculates investments
based on an analysis of every switch location in Idaho and
considers the forward-looking digital switch technology
that would be used in each location.The model also
incorporates specific input data for each switch location
(e.g., number of lines).Thus, the SCM produces an Idaho-
specific switching investment data based on a computation
of the specific investments for every switch location in
Idaho.
SCM Modules
Q. PLEASE BRIEFLY DESCRIBE SCM CORE.
A. SCM Core calculates unit investments by switching
functional category ("FCAT"SCM Core uses discounted
vendor prices and ratios that enable it to partition these
vendor prices into functional categories.Both the prices
and the partitioning ratios may be input by the user.The
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investment for each functional category is then divided by
its demand to provide a unit cost for each function
performed by the switch.For each switch in Idaho, SCM
Core produces costs for FCATs such as the:
Investment per analog line
Investment per processor millisecond
Investment per network Centi-Call Second ("CCS"
Investment per 3 -port conference circuit
The SCM Core methodology is described in more detail in the
SCM User Manual provided on the CD in the ICM documentation
folder (see pages 3 - 5) .
Q. PLEASE BRIEFLY DESCRIBE SCM CALLS.
A. SCM Calls develops the busy hour ("BH") unit
investments for various types of calls:
Line line
Line trunk
Trunk to line
Trunk to trunk
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For each type of call, SCM Calls calculates the investment
per BH call set up and the investment per conversation CCS.
These calculations use SCM Core FCAT outputs along with
multiplier algorithms (e.g., how much of an FCAT is
consumed to set up a specific type of call) These BH
usage investments are then used by the SCM Usage Module.
The SCM Calls methodology is described in more detail in
the SCM User Manual provided on the CD in the ICM
documentation folder (see pages 5-7).
Q. PLEASE BRIEFLY DESCRIBE SCM USAGE.
A. SCM Usage utilizes the BH call set up and
conversation CCS investments from SCM Calls to compute the
annual per call and per conversation minute investments for
switching.These investments are then input into the ICM
Outputs Workbook, where they are converted into a switching
cost per minute of use.The SCM Usage methodology is
described in more detail in the SCM User Manual provided on
the CD in the ICM documentation folder (see page 8).
Q. PLEASE BRIEFLY DESCRIBE SCM PORTS.
A. SCM Ports calculates the investment for various
types of ports, using the FCAT data from SCM Core.For
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example, the "UNE Line Port" investment is developed based
on the "MDF COE Investment (i. e., main distribution frame
central office equipment investment),Analog Line
Investment, If Digital Line Investment" and "Processor per
Working Line " FCATS.SCM Ports develops an investment per
analog line ("MDF COE Investment" plus "Analog Line
Investment" FCATs) and an investment per digital line
Digital Line Investment" FCAT) and weights these
investments based on the percentage of analog versus
digital lines.The "Processor per Working Line" FCAT is
added to this to derive the "UNE Line Port" investment,
which is used as an input into the ICM Output Workbook.
The SCM Ports methodology is described in more detail in
the SCM User Manual provided on the CD in the ICM
documentation folder (see page 8).
Q. DOES THE SCM CALCULATE THE COST OF FEATURE
INVESTMENT?
A. Yes.SCM Ports calculates the investment for
vertical switching feature hardware.In the ICM Outputs
Workbook, these features investments are added into the
investment for ports, and converted to a monthly cost.For
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example, the standard line port UNEs include the cost of
standard feature hardware.
Swi tch parti tioning
Q. DOES THE SCM CONSIDER THE LATEST SWITCH VENDOR
CONTRACTS?
A. Yes.If run with the Qwest default equipment
price inputs, which I will discuss below, the SCM
incorporates the latest contracts between Qwest and switch
vendors,
Q. HOW DOES QWEST PAY VENDORS FOR SWITCHING
EQUIPMENT VIA THESE CONTRACTS?
A, Today, Qwest pays for a large portion of
switching equipment on a "per line 15 or "per trunk" basis.
However, it is important to understand that while Qwest
pays for a large portion of switching equipment on a per
line basis, in the long run, the costs of the switch are
caused by the usage of various switch components.In the
long run , increases in switch usage lead to increases in
15 While vendors charge Qwest for equipment on a per line basis, the perline price increases as usage (e., CCS) increases.
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swi tching costs , and decreases in usage will lead to
decreases in costs.
Q. WHY IS THIS THE CASE?
A. Regardless of how a switch vendor charges Qwest
for switching equipment, the switch must be engineered, not
only based on the number of lines , but also based on the
anticipated usage of those lines.As busy hour usage
(calls or CCS) increases or decreases, the traffic
sensitive portions of the switch are engineered to handle
the increase or decrease in traffic.More busy- hour usage
means more switch fabric, trunks, conference circuits,
interacti ve announcements and processors, etc.Less busy
hour usage means less switch fabric , trunks, conference
circui ts, interactive announcements and processors, etc.
While line ports are dedicated to a customer, the trunk and
switch fabric components of the switch are shared by all
customers.I f the average usage per port increases, the
usage-sensitive portions of the switch must be engineered
to accommodate this.The key point here is that some
portions of the switch are, in fact, engineered based on
usage, not lines.
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In the long run , even if a vendor were to recover all of
its costs via a per line charge , it would have to recover
the additional costs it would incur to accommodate more
usage.For example, assume that Vendor A is charging Qwest
for all switching equipment on a per line basis.When
Vendor A sets this price , the price per line is designed to
compensate the vendor for all of the switching equipment it
installs-both the costs that are engineered based on lines
and the costs that are engineered based on usage.Thus , if
the anticipated usage per line increases, the amount of
usage sensitive equipment (i. e., trunks, talk paths through
the switch fabric, etc.) provided by the vendor would
increase.If the vendor wants to be compensated for the
increased traffic-sensitive investment it provides, when
the current contract expires the vendor will increase the
price per line.The key point is this:I f the usage per
ine increases, the vendor would have to provide more
equipment, and in the long run, it would increase its price
per line.Thus , any long run cost analysis like TELRIC
would need to consider this fact in the development of
costs.
Thus, even if all vendor charges to Qwest were entirely on
a per line basis-which they are not-it would be wrong to
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assign all- switching costs in a TELRIC study to lines.
the long run, usage impacts the costs of a large portion of
the switch.It is for this reason that the Qwest SCM uses
a partitioning methodology to assign costs to the functions
that the switch provides.
Q. PLEASE DESCRIBE THE SCM PARTITIONING METHODOLOGY.
A. As described on page 4 of the SCM User Manual
provided on the CD , the total price for each switch in
Idaho is determined based on current vendor switch
contracts.The total price for each switch is then
partitioned into the various FCATs using forward-looking,
long run cost-based ratios,These ratios reflect the
percent of the total switch price that is driven, in the
long run, by the basic switch functions (e., trunk
terminations, line usage, conference circuit usage, etc.
That is, increases in the demand for each of these
functions leads to increases in the amount of switching
investment required.The costs of the switch must
therefore be associated with these functions, if the
principle of cost-causation is to be properly reflected.
Even with a per line contract, the costs of switching are
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related to these functions in the long run,Thus, In a
TELRIC study, switch partitioning is required.
Please refer to the SCM User Manual for further discussion
of the partitioning methodology.In particular , pages 13-
14 of this document provide an example that demonstrates
how partitioning ratios are applied in the SCM.
Q. HOW ARE THE PARTITIONING RATIOS DEVELOPED?
A. The ratios are developed based on a model switch.
The list price of the equipment components of a model
switch are determined based on current vendor list prices.
Then , based on the function that each equipment component
provides, the total list price of the model switch can be
partitioned into the list price associated with the various
switch functions.For each function, a partitioning ratio
is then developed by dividing the list price associated
with each function by the total list price.
Swi tching Inputs
Q. WHAT ARE THE KEY INPUTS TO THE SWITCHING MODULE?
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A. The key inputs in the Switch Module of ICM
include the prices for switching equipment (e. g., the prlce
per analog line port, the TR303 Integrated Digital Loop
Carrier ("IDLC") 16 price per DS1 port , and the end office
trunk price per DS1 port) and the line and trunk fills
(e. g., analog line fill , TR303 IDLC fill)
Q. PLEASE DESCRIBE THE SWITCHING PRICE INPUTS.
A. The swi tch pri~e inputs, for each switch vendor
include the following:
Analog line price per analog port
TR303 IDLC DS1 price per DS1 port
End office trunk price per DSO port
Tandem trunk price per DSO port
Non- IDLC basic rate interface ("BRI") price per
BRI port - both for hardware and software
Primary rate interface ("PRI") price per PRI
port - both for hardware and software
MDF caE price per OE (i. e., office equipment)pair
16 "TR303" is an industry-standard reference for a type of digital loop
equipment.
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MDF COE price per OSP (i. e., outside plant)pair
These are user changeable inputs.The ICM user may
override the default values for these vendor price inputs.
However the default values represent the current vendor
prices.
Q. PLEASE DESCRIBE THE ICM FILL INPUTS.
A. "Fill" is an industry term for the assumed
utilization to be placed on a piece of investment (e. g. ,
switching equipment) when determining the unit cost.This
is important to consider because capacity that is purchased
but not used must be recovered with revenue generated from
that capacity that is used.The ICM includes several
switching fill inputs (expressed as a percentage of
utilization), including inputs for "analog line fill" and
TR303 IDLC fill.These inputs recognize that utilization
varies by type of equipment.For example, analog line
equipment serving analog loops has a very different fill
than IDLC equipment serving integrated digital loops.The
Qwest default fill inputs represent an estimate of the
forward-looking fill that is likely to be achieved in the
long run for each type of equipment.
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Q. HOW IS THE QWEST DEFAULT INPUT FOR ANALOG LINE
FILL DETERMINED?
A. For analog lines, Qwest estimates a forward-
looking fill of 80%, or a 20% allowance on average for
spare capacity.This spare capacity includes
administrative spare, which is needed to operate the
network efficiently.The administrative spare includes
lines for defective ports and lines that are used for
testing, repair and maintenance.
The spare capacity also includes idle dedicated lines.
existing customers move, their previous residences or
offices remain vacant for some period of time.Rentals, in
particular , experience numerous periods of vacancies.
During the times these residences or businesses are vacant,
it is frequently less costly to leave the telephone service
in place as opposed to disconnecting the service only to
reconnect it when the next customer moves in.This
practice of leaving lines connected to the switch reduces
costs by eliminating the function of disconnecting and
reconnecting lines to the switch , and improves service.
This is the least cost, most efficient means of running a
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telephone business, but it will result in some unutilized
ines .
Spare analog lines also result from CCS limitations.
some instances, the ability to utilize the total line
termination capacity of the line units is constrained by
customers exceeding the CCS capacity of the line units.
When switches are initially purchased line units are
selected with a line to CCS ratio that has enough CCS
capacity to handle the forecasted CCS load that the lines
terminated on a line unit are expected to produce in the
busy hour.If this capacity is exceeded, the company
cannot simply add more CCS capacity to its line units,
since the line to CCS capacity ratio cannot be changed once
the switch is installed.In order to prevent blocking, the
company must purchase more line units and move lines off of
the existing line units to the newly installed line units.
This leaves some line ports on the existing line units
unutilized.
Finally, spare capacity must be installed to serve
anticipated line growth.Capacity is installed in a switch
in order to meet the forecasted demand for an engineering
period of 18 to 30 months.To initiate, engineer , install
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and test switch capacity additions more often than this is
more costly than purchasing enough capacity to last until
the end of the engineering period.As a result, there is
enough spare capacity immediately after a job is completed
such that the anticipated growth in demand can be met until
the end of the engineering period.This spare capacity
gradually approaches zero as the end of the engineering
period gets closer.
The current analog fill for switches in Qwest is 75%.The
80% default input represents a conservative estimate of
forward-looking fill.
Q. HOW IS THE QWEST DEFAULT INPUT FOR TR303 IDLC
EQUIPMENT FILL DETERMINED?
A. Qwest estimates that the forward-looking fill for
IDLC loops will be 56%.This spare exists on a forward-
looking basis due to the nature of IDLC equipment.IDLC
loops are carried over systems (i. e., remote terminals
RTs")) with capacities of 96, 192 , 672 or 1344 loops.
For technical reasons, when an IDLC RT is initially
installed, the switch to which it is connected must be
fully equipped to handle the capacity of the RT.For
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example, if a 672 capacity RT is installed, enough TR303
DS1 ports (which connect the IDLC RT to the switch) must be
installed in the switch to accommodate the usage load that
all 672 lines would put on the switch.That is, the switch
must be engineered to accommodate the maximum capacity of
the RT even if only part of that capacity is required
initially.Thus, when the 672 capacity RT is installed, it
will not be fully utilized.However , if the full 672 lines
are ever to be used in the future , the capacity between the
RT and the switch must be purchased and reserved when the
RT is initially installed.For example , assume existing
demand over an IDLC system is 350 loops.In this case, the
IDLC equipment in the switch must still be engineered to
handle 672 loops.In this example, the TR303 IDLC fill
would be 350/672 = 52%.
The Qwest default TR303 IDLC fill of 56% is developed based
on data developed in the Loop Module.The Loop Module
presented by Mr. Buckley designs a forward-looking network
with IDLC equipment.Based on this forward-looking design,
Qwest has developed an IDLC fill that is calculated in a
manner similar to the 52% in the above example.
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Transport Module
General Description
Q. PLEASE DESCRIBE THE TRANSPORT MODULE.
A. The Transport Module is used to estimate the
investment in transmission and channel termination
equipment needed to provide transport between two switching
offices.The Transport Module calculates dedicated and
switched transport costs.
Q. WHAT IS INCLUDED IN THE TRANSMISSION (MILEAGE
SENSITIVE) INVESTMENT?
A. The transmission investment includes the cost of
fiber facilities and intermediate multiplexing equipment.
Q. WHAT IS INCLUDED IN THE TERMINATION (FIXED)
INVESTMENT?
A. Channel termination investment includes the
electronic equipment located at the switch location (where
the route originates and terminates) that converts
electronic signals into optical signals, as well as the
equipment used to multiplex or de-multiplex a signal.
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Q. WHAT DATA IS USED BY THE TRANSPORT MODULE TO
ESTIMATE TRANSPORT COSTS?
A. The Transport Module calculates costs using the
following files and data:
Point pair files - These files include all
combinations of routes between any two wire centersin Idaho. These data include originating and
terminating wire centers and number of circuits
connect ing them.
The SONET transport model contains three forward-looking transport configurations: point-to point,linear , and ring.
Investments - This file contains material costs for
equipment used in the network. These data are
based on Qwest' s current vendor contracts.
Investment Profiles - This file contains the
distribution of transport configurations used in themodel. These profiles vary by the size of the wire
centers where the point pairs terminate.
These data are described in more detail in the Transport
Module of the ICM user manual included on the compact disc.
Q. PLEASE EXPLAIN THE GENERAL METHODOLOGY USED TO
CALCULATE TRANSPORT MODEL INVESTMENTS.
A. For every point pair (i. e., any combination of
connections between two wire centers) in Idaho, the
transport model calculates investment per circuit for
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channel termination equipment, fiber optic facilities, and
intermediate multiplexing equipment.The investments
associated with each point pair are sorted into mileage
bands. For each mileage band , the model calculates fixed
(termination) and distance sensitive (transmission)
investments.These investments are converted into costs in
the ICM in a worksheet labeled the Output Workbook.
Transport Module Inputs
Q. WHAT ARE THE KEY INPUTS IN THE TRANSPORT MODULE?
A. The key inputs in the Transport Module are the
utilization , or fill factors and the vendor costs for
various types of equipment (e. g., the cost per foot for
fiber or the cost of a fiber distribution panel) .
Q. HOW ARE THE RECOMMENDED DEFAULT UTILIZATION
FACTORS DEVELOPED?
A. The utilization factors for D4 channel banks,
M1/3 multiplexers (multiplexers that change signals from
DS1 to DS3 or vice versa), and fiber terminals are
developed from data in the TIRKS ("Trunk Integrated Record
Keeping System ) database.TIRKS is a system Qwest uses
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for order control and integrated record keeping that allows
for highly mechanized provisioning of complex design
services.The TIRKS database is a repository for the
inventory, capacity and utilization information related to
services such as SONET-based interoffice facilities.The
utilization factors are calculated based on the demand for,
and capacity of , the equipment tracked in TIRKS.The
Transport Module allows different utilization inputs
depending on whether the traffic is switched or dedicated.
The utilization factors for fiber and conduit are developed
using information provided by subject matter experts in
Qwest's network organization.
Q. HOW ARE THE INVESTMENT DEFAULTS USED IN THE
TRANSPORT MODULE DEVELOPED?
A. The default material investments used in the
Transport Module for the equipment and facilities described
above are found in vendor contracts or price lists.The
material investments for the standard transport
configurations are determined by engineers whose job it is
to develop the transport configurations currently in use at
Qwe st.Thus, the material prices used as defaults in the
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ICM reflect the current prlces that Qwest must pay vendors
to purchase equipment used to provide transport.
Q. DO YOU RECOMMEND THE USE OF THE DEFAULT INPUT
VALUES FOR TRANSPORT?
A. Yes.The default input values in the Transport
Module are generated from actual vendor contracts and price
lists, using currently deployed transport configurations
developed by subject matter experts , and relying on
capacity and utilization information from TIRKS.Qwest
believes the data obtained from these sources are the most
current and forward-looking data available.
Capital Cost Module
Q. WHAT ARE THE KEY INPUTS IN THE CAPITAL COST
MODULE?
A. The key inputs to the Capital Cost Module are
cost of money and depreciation lives.The ICM allows the
user to select either Qwest's economic or state-prescribed
cost of capital , or to enter a specific cost of equity,
cost of debt and debt to equity ratio.The ICM also allows
the user to select the Qwest economic, state-prescribed or
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FCC-prescribed depreciation 1 i ves and network salvage
values, or to change the depreciation lives and net salvage
for every plant account.The user can also choose either
Equal Life Group or straight-line depreciation.I will
discuss depreciation and cost of money later in my
testimony.
Expense Factors Module
General Description
Q. DOES THE ICM INCORPORATE AN ENHANCED PROCESS FOR
THE CALCULATION OF ANNUAL EXPENSE FACTORS?
A. Yes.The Factors Module of ICM includes several
enhancements that make it easy to und~rstand the factor
application process and to audit the results.
In the enhanced Factors Module:
Expenses and investments are pulled directly from
standard accounting reports;
User-defined efficiency and inflation inputs can beselected;
The factor calculation process starts with standard
accounting report results (i.e., the books of thefirm). Directly assigned costs (i. e., costs that
are directly assigned to elements) and costs that
are not applicable to TELRIC studies are removed.
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These reductions are explicitly displayed in theFactors Module. This provides the user with a clear
understanding of which costs are included and which
costs are not included in the factors;
All calculations are contained in one set of
worksheets.
Q. DO THE ENHANCEMENTS TO THE EXPENSE FACTORS MODULE
MAKE IT EASIER TO ENSURE THAT DOUBLE COUNTING OF COSTS DOES
NOT OCCUR
A. Yes.The factors model is designed to help the
user ensure that double counting (or omission) of expenses
does not occur.The cost factors are based on historical
cost relationships, 17 and use the books of account as a
starting point.All costs on the books of Qwest are
accounted for - costs are explicitly removed if directly
assigned in another study or if not applicable to TELRIC
studies.The user can clearly see the total costs (booked
costs), the removed costs, and the costs that remain in the
factors.Thus , for example, the user can see that the
business office costs that are separately identified in a
nonrecurring cost study are removed from the factors and
not double-counted.
17 As noted above, factors are adjusted to account for
inflation/deflation and efficiency gains.
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Q. DOES THE ICM EXPENSE FACTOR MODULE ENSURE
CONSISTENCY OF FACTOR APPLICATION?
A. Yes.Prior to the development of an integrated
cost model , cost analysts had to apply cost factors
separately each cost study.While the analysts have
al ways sought ensure that factors were consistently
applied across studies the ICM makes this process much
easier.Since the costs for all UNEs and interconnection
services developed in ICM are calculated in the same
module, the user can be assured that the cost factors are
consistently applied to all UNEs and interconnection
services.
Expense Factor Module Inputs
Q. PLEASE DESCRIBE THE KEY FACTORS MODULE INPUTS.
A. The key inputs to the Factors Module are the
efficiency and inflation/deflation factors.In the Factors
Module input screen , the user may input a "Cost Savings
Value" and an "Inflation Rate.The Cost Savings Value
estimates the gains expected in producti vi ty or efficiency,
while the Inflation Rate estimates the amount of inflation
(or deflation) anticipated.These values can be appl ied on
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an account-specific basis, or applied uniformly to all
accounts.
Q. PLEASE DESCRIBE HOW THE QWEST DEFAULT FOR THE
COST SAVINGS VALUE IS DEVELOPED.
A. The "Cost Savings Value " input is designed to
reflect efficiency gains.This input is based on the X-
Factor productivity estimates on page 55 of CC Docket No.
97-159 (the "Price Caps " docket) .The base expenses are
at a 2001 level , so this input reflects estimated
efficiency gains resulting from increased labor
productivity and improved technologies for a two-year
period (2001 to 2003) The calculation of Qwest' s cost
savings value is a weighted average of the X-Factor
productivity estimates reported by the FCC, AT&T and the
United States Telephone Association ("USTA") in the Price
Caps docket.It results in a two-year efficiency gain of
10.25% .This default percentage was selected as an
aggressive estimate of future efficiency, relative to
Qwest's historical trends.
18 In the Ma t ter of: Pri ce Cap Performance Revi ew for LECs, CC Docket
No. 94-1, Fourth Report and Order; and Access Charge Reform CC Docket
No, 96-262 , Second Report and Order, (Released May 21 , 1997).
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Q. PLEASE DESCRIBE HOW THE QWEST DEFAULT FOR THE
INFLATION FACTOR IS DEVELOPED.
A. The 10.01% inflation input is based on the Wage &
Salary Index prepared by the economic consulting firm, Joel
Popkin and Company.The value represents an estimate of
inflation between 2001 and 2003, based on Qwest-specific
circumstances including Qwest' s union labor contract and
compensation and benefits practices.Qwest's inflation
rate is a reasonable input because it appropriately
represents the environment in which Qwest must operate.
Q. DO YOU RECOMMEND USE OF THE DEFAULT INPUTS FOR
EFFICIENCY AND INFLATION?
A. Yes.I believe that these inputs reasonably
reflect anticipated gains in efficiency and an inflation
value appropriate for use in forward-looking cost models
and studies that take into effect the environment in which
Qwest operates.
VI.THE ENHANCED NONRECURRING COST STUDIES (ENRC)
Q. PLEASE BRIEFLY DESCRIBE THE ENRC.
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A, The ENRC is a collection of cost studies
developed by Qwest designed to estimate the nonrecurring
TELRIC for all UNEs and interconnection services.(Exhibit
No.The ENRC calculates nonrecurring costs for
provisioning and installation activities based on the
probabilities of occurrence of the tasks performed and the
estimated time to accomplish each function.The time
estimates and probabilities for each task are presented in
detail in the ENRC workpapers.
Q. IS QWEST PROVIDING A MANUAL THAT PROVIDES A
DETAILED DESCRIPTION OF THE ENRC?
A. Yes.Qwest is filing the ENRC user manual
located on the CD in the "Models " folder with the
Nonrecurring model , which instructs the user about how to
make changes to inputs.
Q. HOW IS THE ENRC DESIGNED?
A. The ENRC calculates the direct nonrecurring costs
for each liNE and interconnection service based on time
estimates to perform tasks, probabilities that tasks will
be performed, and labor rates associated with each job
function.ENRC then applies expense factors to the direct
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nonrecurring costs to provide the TELRIC for each UNE and
interconnection service.Finally, an allocation of common
costs is assigned to each nonrecurring cost element
resul ting in the TELRIC based nonrecurring costs reflected
on Exhibit No.
Q. DOES THE ENRC ALLOW THE USER TO MODIFY INPUTS?
A. Yes.ENRC allows the user to view the work
times , probabilities, and labor rates and to adjust these
values if desired.After all desired changes are made to
the inputs, the user can easily recalculate the ENRC to
produce cost results based on the new user assumptions.
Q. DOES THE ENRC PROVIDE UNE COST RESULTS THAT
REFLECT THE PROPER APPLICATION OF TELRIC PRINCIPLES?
A. Yes.The ENRC contains inputs based on Qwest' s
current experience in processing orders and provisioning
network plant.The Qwest nonrecurring TELRIC studies
identify the forward-looking, nonrecurring costs that Qwest
is likely to incur in provisioning UNEs.These studies
consider the actual processing and provisioning activities
that are either in place today or are scheduled to be
implemented , rather than theoretical provisioning methods
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based on future hypothetical technologies or networks that
are not currently deployed.It includes changes
anticipated by subject matter experts in processing and
provisioning.It also includes certain assumptions and
expectations, although not the costs, for mechanization
based on the development of Operations Support Systems
OSS") interfaces for use by the CLECs.I f the studies
use these assumptions they produce results , delineated in
Exhibit No.1, that properly reflect the TELRIC principles.
These results should be used by the Commission as a
barometer for determining the reasonableness of Qwest' s
nonrecurring prices as agreed upon and reflected in
Attachment A to the Motion for Approval.
Q. PLEASE DESCRIBE THE PROCESS QWEST USES TO
VALIDATE THE ASSUMPTIONS AND INPUTS USED IN ITS MODELS.
A. Qwest utilizes a variety of approaches to ensure
the reasonableness of its TELRIC estimates and assumptions.
For example, component prices are taken directly from
vendor quotes with Idaho specific loadings (e.g., sales
tax) applied.Placement costs contained in Qwest' s loop
costing model are developed from actual network coptracts
wi th Idaho vendors.Assumptions are verified through
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discussions with internal experts about actual construction
experiences and vendor bid responses, along with other
relevant data.Since TELRIC, by its very nature,
represents a rebuild of the total network , it is critical
that all relevant available information be used to confirm
model assumptions, inputs and logic.Qwest's cost analysts
also spend extensive time reviewing cost data for related
UNEs and for the same UNEs in other states to ensure that
the models ' results are within a range of reasonableness.
As described by Mr. Buckley, Qwest has compared its TELRIC
loop costs with loop cost data from other sources to assure
that the results of the TELRIC study for the unbundled loop
are reasonable.
VII. OTHER METHODOLOGY ISSUES
Q. WHAT METHODOLOGY ISSUES WILL YOU DISCUSS IN THIS
SECTION OF YOUR TESTIMONY?
A. In this section of my testimony, I will address
three general methodology issues:
Fill factors
19 However, as noted above, Qwest is not seeking loop rates that are
higher than the benchmarked loop rates previously established for
Idaho.
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Cost of Money
Depreciation
These issues are relevant' to all equipment -based costs
produced by the ICM.
Fill Factors
Q. PLEASE DESCRIBE THE TYPES OF FILL FACTORS THAT
COULD BE USED TO MODEL COSTS.
A. As I explained earlier in my testimony, "fill" is
an industry term for the assumed utilization to be placed
on a piece of investment (e. g., loop plant or a switch)
when determining the unit cost.There are two types of
fill" that have been widely discussed in arbitration and
cost proceedings: obj ecti ve and actual fill.
Obj ecti ve fill" has historically been used to refer to the
maximum utilization of a facility that can be achieved
before reinforcement becomes necessary.The percentage for
objective fill is usually something less than 100% because
some capacity is set aside for maintenance and
administrative purposes.
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Forward-looking "actual fill" is the utilization that is
actually proj ected to be experienced for the investment and
is typically lower than the objective fill because of
practical realities of network management and expected
usage.
Q. WHY IS THE PROPER USE OF FILL FACTORS AN
IMPORTANT ISSUE?
A. If fill factors are improperly applied in a
TELRIC study, the results may be significantly over or
understated.That is , the study results are highly
sensitive to the fill factors that are used.
Q. WHAT TYPES OF FILL FACTORS ARE UTILIZED IN
QWEST'S TELRIC STUDIES?
A. In the Qwest cost studies, loop, switching, and
transport investments are calculated using ICM inputs that
reflect proj ected actual fill factors.This same approach
is used in Qwest' s other cost studies, as well.
Q. COULD THE COMPANY EVER OPERATE AT AN OBJECTIVE
FILL LEVEL?
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A. Not efficiently,As explained previously,
objective fill refers to the fill level at relief, i.e.,
the point at which demand for access to the network
requires the company to reinforce facilities.If Qwest
operated at objective fill , it would need to add facilities
each time new demand for the facility arose - a scenario
that is clearly impractical and unnecessarily expensive.
For example , it would be extremely inefficient and
expensive to add single or small units of switching
capaci ty on demand.Instead, switching capacity is added
in large "lumps.This represents the long-run , least-cost
method of provisioning.Thus, the efficient switching
network will always function at a level well below
objective fill.
Q. WHY DO THE QWEST TELRIC STUDIES UTILIZE PROJECTED
ACTUAL FILL, RATHER THAN OBJECTIVE FILL, IN COST
CALCULATIONS?
A. For establishing prices that are based on cost,
the use of objective fill would prevent a full recovery of
costs.For example, assume a company places a 100 pair
cable at a cost per pair of $100.The total cost of the
cable would be $10 000.Let's further assume that the
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proj ected actual usage of this facility is anticipated to
be 65%, or 65 of the 100 lines, and that the objective fill
for the facility is 85%.The unit cost calculated using an
85% objective fill per customer is $118 ($100/pair divided
by 85%) and the unit cost calculated using the 65%
projected actual fill per customer is $154 ($100/pair
divided by 65%) .The shortfall using an 85% objective fill
is illustrated below:
Shortfall
Amount to Be Recovered $10,000
Amount Recovered at $118 with 65 Pairs $ 7 670 330
Amount Recovered at $154 with 65 Pairs $10,000
In this scenario, service is actually provided to 65
customers.I f service is provided to these customers, the
entire $10 000 would be recovered only if the price were
set at $154.If the price were set at $118, based on costs
derived from an obj ecti ve fill , the firm would recover only
$7670, leaving a $2330 shortfall.This represents roughly
23% of the original $10 000 investment.
No business could survive if it continued to invest in
equipment with no expectation that the costs of the
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investment would be recovered.That is , no firm could
invest $10,000 with the expectation it would only be able
to recover $7670.Thus, it is critical that projected
actual fill levels be utilized in TELRIC studies.
Q. DOES THE FCC'S FIRST REPORT AND ORDER REQUIRE THE
USE OF PROJECTED ACTUAL FILL FACTORS?
A. Yes.The FCC's First Report and Order stated
that:
Per-unit costs shall be derived from total
costs using reasonably accurate fill factors
(estimates of the proportion of a facility that
will be "filled" with network usage); that is, the
per-unit costs associated with a particular element
must be derived by dividing the total cost
associated with the element by a reasonable
proj ection of the actual total usage of the
element. (emphasis added)
The use of projected actual fill factors results in a
TELRIC that more nearly reflects the cost of actually
providing a UNE or an interconnection service in Qwest' s
operating environment.
Q. COULD QWEST MAINTAIN ITS NETWORK WITH ACTUAL FILL
LEVELS APPROACHING OBJECTIVE FILL LEVELS?
20 First Report and Order at ~ 682.
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A. No.If fill factors are set too high , Qwest' s
ability to provide service to customers on demand is
adversely impacted.For example, if Qwest were to engineer
its loop feeder network so that actual fill levels would
approach the 1 eve 1 objective fill there would
high probability that facilities would not be available
upon customer request , resulting in held orders.This
would not be in the best interests of Idaho consumers.
view of the FCC's pronouncements relating to fill factors,
Qwest believes that in this proceeding the Commission
should adopt the realistic proj ected fill factors that
Qwest is utilizing in its studies.
Please refer to Mr. Buckley s testimony for a further
discussion of the treatment of fill in the TELRIC
calculations for the unbundled loop.
Cost of Money
Q. PLEASE BRIEFLY DISCUSS THE FORWARD-LOOKING COST
OF CAPITAL.
A. The cost of capital (cost of money) represents
the weighted average cost of debt and equity and represents
a return on the forward-looking, least-cost investment that
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is included in a TELRIC analysis.To be correct, this cost
of capital must be calculated by factoring in an
appropriate measure of risk.As competition enters the
market, Qwest' s risk increases,This will be reflected in
Qwest's cost of capital , which will increase with increased
risk.
Q. ABOVE YOU DISCUSSED THE FCC'S GUIDANCE IN THE
TRIENNIAL REVIEW ORDER REGARDING COST OF MONEY.HAS THE
FCC DETERMINED A FORWARD-LOOKING COST OF MONEY UNDER THIS
STANDARD?
A. Yes,The FCC recently concluded an
interconnection arbi tration21 in the state of Virginia in
which it determined that the appropriate forward-looking
cost of money for Verizon would be 13.068 percent.This
determination was based on a 7.86 percent cost of debt, a
14.37 percent cost of equity and a capital structure that
is 20 percent debt and 80 percent equity.Because the FCC
21 In the Matter of petition of WorldCom , Inc. Pursuant to Section
252 (e) (5) of the Communications Act for Preemption of the Jurisdiction
of the Virginia State Corporation Commission Regarding Interconnection
Disputes with Verizon Virginia Inc., and for Expedited Arbitration and
In the Matter of petition of AT&T Communications of Virginia Inc.
Pursuant to Section 252 (e) (5) of the Communications Act for Preemption
of the jurisdiction of the Virginia Corporation Commission Regarding
Interconnection Disputes With Verizon Virginia Inc., CC Docket Nos. 00-218 and 00-251, Memorandum Opinion and Order at ~ 104 (ReI. August 29,2003) ("Virginia Arbitration Order
) .
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was conducting what it described as a "baseball
arbitration" between Verizon and AT&T/WorldCom, it adopted
the 12.95 percent overall cost of capital proposed by
Verizon as the rate closest to its 13.068 percent
calculation.
Q. HAS QWEST USED A FORWARD-LOOKING COST OF MONEY IN
ITS TELRIC CALCULATIONS?
A. No.Because of the FCC's discussion of this
issue in both the TRO and the Virginia Arbitration Order
Qwest believes that a forward-looking cost of money that
takes into account the risks faced in a competitive market
is appropriate for use in TELRIC studies.Conservatively,
this would mean a cost of money of at least 12.95 percent.
However , in this proceeding to avoid a protracted debate
over the appropriate cost of money Qwest provides a cost
that is highly conservative based on Qwest' s current
projections: 11.18 percent.Qwest believes this is the
minimum acceptable rate based on Qwest' s level of risk
going forward and the FCC's current guidance on the
subj ect .
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Depreciation Lives
Q. PLEASE BRIEFLY DISCUSS FORWARD-LOOKING
DEPRECIATION.
A. Forward-looking TELRIC studies must consider the
real economic depreciation lives of plant and equipment.
These lives must reflect how long the plant and equipment
is actually expected to be used on a going-forward basis
based on the competitive telecommunications environment.
I f prices are to be based on a forward-looking cost, these
costs should not reflect historical depreciation rates.
Proper forward-looking depreciation lives should be based
on useful lives that are often shorter than historical
lives.The use of artificially long equipment lives
understates depreciation expense, and effectively impairs
the recovery of costs.As discussed above, this approach
to depreciation was confirmed by the FCC in its Triennial
Review Order.In addition, although the FCC adopted FCC
lives in the Virginia Arbitration Order, it again discussed
the appropriateness of using economic depreciation lives.
22 Id. at 121.
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Q. WHAT DEPRECIATION LIVES HAS QWEST USED IN ITS
TELRIC STUDIES?
A. Qwest has used forward-looking economic
depreciation lives in its TELRIC studies based on the lives
reflected in its current financial reporting.These lives
are similar to the economic lives contained in the March
1997 Second Settlement and Stipulation.In the case of
the investment accounts used to develop direct costs, most
of Qwest's current economic lives are the same as those
prescribed by the Commission and in some cases the
Commission-prescribed lives are actually shorter than those
utilized by Qwest in its studies.In the case of the
investment accounts that reflect support assets , Qwest' s
current economic lives for financial reporting purposes are
generally shorter than those prescribed by the Idaho
Commission in 1997.
VIII.THE TELRIC STUDIES
Q. PLEASE BRIEFLY DESCRIBE THE TELRIC STUDIES THAT
QWEST IS SPONSORING IN THIS DOCKET.
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A. Qwest is presenting recurring and nonrecurring
costs for UNEs and interconnection services, collocation
line sharing and ancillary services.In this filing,
address the recurring costs for most UNEs and
interconnection services, including the unbundled loop,
swi tching and transport.I also address the nonrecurring
costs for all of the UNEs and interconnection services
filed, plus line sharing, collocation , and the permanent
deaveraging of the UNE loop.
Q. HOW WILL YOU STRUCTURE YOUR DISCUSSION OF THE
SEPARATE TELRIC STUDIES?
A. I will address each of the enumerated elements
individually and, where applicable, discuss the TELRIC
studies associated with each issue.
The ICM Elements
Q. PLEASE BRIEFLY DESCRIBE THE ICM UNE ELEMENTS.
A. As described earlier, the ICM produces, recurring
TELRIC data for the following elements:
23 In the Matter of the Applications of U S WEST Communications, Inc.
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Unbundled Loop (including extension technology)
Swi tching
Local Switching (port and usage)
Tandem Swi tching
Transport
Tandem Switched Transport
Direct Trunked Transport
Shared Transport
Entrance Facilities
Multiplexing
Unbundled Dedicated Interoffice Transport
UDIT" )
Extended - UDIT ("EUDIT"
Database Services (8XX Database and LIDB)
Signaling
Daily Usage Record File
Category 11 Records
The results produced in ICM for these UNEs are displayed in
Exhibit No.
for Authority to Increase Its Rates and Charges for Regulated Title Services Case No, USW-96-S, Second Settlement and Stipulation (March, 1997).
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UNE Loop Deaveraging
Q. WHAT IS QWEST PROPOSING FOR UNE LOOP DEAVERAGING
IN THIS DOCKET?
A. Qwest is proposing a three-zone, cost-based, wire
center deaveraging approach using the cost results from the
Loop Module of the ICM.(Exhibi t No.This approach is
the same as that used in Idaho today for the benchmarked
loop rates.
Q. HOW WERE THE COSTS FOR THE THREE ZONES
DETERMINED?
A. Qwest used the Loop Module to determine loop
investment by wire center.The investments were then
converted to cost by wire center in ICM.The wire centers
were then ranked , by cost, and zones were established based
on the recommendations of Commission Staff.A weighted
average cost was then calculated for each zone using
Qwest's current line counts for each wire center.The
weighted average costs were then grouped by zone to produce
an average cost for each zone.
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The statewide average loop cost uslng the ICM $28.81.
The statewide average loop rate based on the benchmark
$20.21.
Q. WHAT ARE THE DEAVERAGED ZONE RATES DETERMINED BY
THIS INFORMATION?
A. The deaveraged unbundled loop costs/rates
produced in ICM are:
Zone $21.
Zone 2 $34.
Zone $59.
Statewide Average $28,
The deaveraged unbundl ed loop rates that result from the
benchmark loop rate are:
Zone 1 $15.
Zone 2 $23.
Zone 3 $40.
Statewide Average $20.
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Swi tching
Q. DOES QWEST'S ICM PRODUCE TELRIC RESULTS FOR
SWITCHING?
A. Yes.ICM produces recurring costs for line and
trunk ports and for local and tandem switching usage.
Described in more detail in the "Summary of Results " tab in
ICM (Exhibit No.2), the various types of unbundled ports
provide access to the basic functionality of the switch
well as access to interoffice services.Local and tandem
swi tching costs are determined on a minute of use (MOU)
basis for terminating traffic to an end office switch and
for switching a call through a local tandem switch
respectively.
Transport
Q. DOES QWEST'S ICM PRODUCE A TELRIC FOR SHARED
TRANSPORT?
A. Yes.ICM produces a recurring cost for shared
transport.Shared transport, as defined by the FCC
represents access to an ILEC's shared interoffice
facilities (i., facilities that carry traffic ~etween
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ILEC central offices) at costs that reflect the
efficiencies of the ILEC.Shared transport is available
only in conjunction with unbundled switching, due to the
fact that switches perform the important gatekeeper
function for access to the shared transport network.
The recurring costs for shared transport are included in
the results summary of the ICM in Exhibit No.
Q. IS QWEST FILING A NONRECURRING COST STUDY FOR
SHARED TRANSPORT AT THIS TIME?
A. No.When a CLEC purchases shared transport, it
must also purchase an unbundled switch port and switch
usage,Qwest has not identified any additional
nonrecurring costs for shared transport beyond the
nonrecurring costs associated with unbundled switching.
the future , if any unique shared transport nonrecurring
costs are identified , Qwest may file a nonrecurring cost
study.
24 Switches include the routing tables that route traffic over theshared transmission network. Without this switch function, shared
transport could not be provided.
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Q. PLEASE BRIEFLY DESCRIBE HOW SHARED INTEROFFICE
FACILITIES ARE DIFFERENT FROM DEDICATED INTEROFFICE
FACILITIES.
A. Interoffice transport includes the facilities
that provide links between all of the central offices on
the Qwest network (i. e., both tandem and end office
switches) .Dedicated interoffice facilities are set aside
specifically for the full use of one customer or set of
customers and cannot be shared by traffic from multiple
customers.Shared interoffice facilities are not dedicated
to a specific customer , but are designed and engineered to
handle switched traffic from all customers,Shared
interoffice facilities, when used in connection with
standard routing tables and central office switches
provide shared access to all of Qwest' s switches.
Q. PLEASE COMPARE THE SHARED TRANSPORT TELRIC WITH
THE DIRECT TRUNKED TRANSPORT ("DTT" ) AND TANDEM SWITCHED
TRANSPORT ("TST") TELRIC STUDIES THAT QWEST IS FILING IN
THIS PROCEEDING.
A. The shared transport, TST and DTT TELRIC stu9ies
all develop transport investment utilizing the Qwest
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Transport Model.Thus, investments of all three are
developed using the same basic TELRIC costing approach.
However , the shared transport study is different from the
DTT and TST studies because shared transport is a distinct
offering that is defined differently than TST and DTT.The
cost results reflect these differences.
Direct trunked transport represents a dedicated path
between two switching offices.A DTT 1 ink is not shared by
multiple customers and does not carry POTS switched
traffic.Tandem switched transport represents a shared
interoffice path between tandem swi tch and an end office-
TST does not carry switched traffic directly between two
end offices.
The shared transport cost study identifies the weighted per
minute of use cost for three types of interoffice calls
that utilize the common switched network:
1. Direct end office to end office- These calls are
directly routed between the originating and
terminating local end offices, and are not routed
through a tandem switch.
2. End office to end office via local tandem- These
calls are routed from the originating end office to
a tandem switch , and from the tandem switch to theterminating local end office.
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3. End office to access tandem- These calls are routed
from the originating local end office to the access
tandem.
The shared transport TELRIC study separately calculates the
per minute of use " costs for each of the three types of
calls.The minute of use costs for each call type are
weighted together based on Qwest trunk data, resulting in a
single shared transport minute of use cost.
Please refer to the Transport Module documentation for a
complete description of the cost methodology used to
produce the TELRIC for each type of transport.
Other UNEs Calculated in ICM
Q. PLEASE BRIEFLY DESCRIBE THE DAILY USAGE RECORD
FILE.
A. The Daily Usage Record File offering is defined
as a cost per record and includes the cost for assembly and
editing of the usage records, along with end office usage
measurement.In addition , the cost per record includes the
25 The shared transport study weights the three types of calls based on
the number of trunks in the Qwest network that are: (1) local end
office to local office, (2) local end office to local tandem and (3)
local end office to access tandem.
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costs associated with the development of the service,
amort i zed over five years.
Q. PLEASE EXPLAIN WHAT A CATEGORY 11 RECORD IS.
A. "Category 11 Records " are messages that provide
mechanized record formats that can be used to exchange
access usage information between Qwest and a CLEC.The
Category 11 cost study identifies the data transmission
costs, assembly and editing, and labor costs associated
wi th producing each record.
The Separate Cost Studies
Q. WHAT OTHER RECURRING AND/OR NONRECURRING COST
STUDIES DO YOU PRESENT?
A. My testimony presents separate cost studies for
additional recurring elements not yet integrated into the
ICM.In addition, as discussed above in Section VI , the
ENRC studies calculate the nonrecurring costs for all UNEs
and interconnection services.The ENRC does not calculate
costs for collocation or line sharing.However , the ENRC
does calculate the cost for line sharing installation.The
following elements will be presented in this section:
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UNE Platform POTS (new and existing service)
Digital-capable Loop (DS1 and DS3)
Distribution Subloop
DS1 Capable Feeder Loop
Building Cable
Unbundled Dark Fiber (loop and interoffice)
Q. ARE ANY OF THE ELEMENTS MENTIONED ABOVE ELEMENTS
THAT RESULTED FROM THE FCC'UNE REMAND ORDER?
A. Yes.A number of the elements that are presented
in this filing are listed as UNEs as a result of the FCC'
UNE Remand Order. For example, the FCC concluded that the
list of loop-related UNEs includes digital capable loops
(also referred to as high capacity loops), subloops
building cable (inside wire), and dark fiber.However, as
discussed above , as a result of the recently released TRO
the FCC removed from the list of UNEs high capacity.
elements such as OCn capable loops.In addition , the UNE
Platform, or UNE-, is the result of the FCC's discussion
relating to UNE combinations in the UNE Remand Order.The
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future of the UNE-P elements and Qwest' s obligation to
provide them at TELRIC rates is the subject of additional
proceedings under the TRO.
The UNE Remand Studies
Q. WILL QWEST PRESENT A RECURRING TELRIC STUDY FOR
THE UNE PLATFORM ("UNE-
A. No.The UNE platform consists of either 1) UNEs
already existing in combination to serve existing
customers, or 2) combinations of UNEs not previously
combined to serve new customers , to the extent facilities
are available.Individual recurring UNE rates exist for
the elements that make up the UNE-P and will apply for UNE
combinations therefore , there is no need to file
addi tional recurring cost studies in support of UNE-
DOES QWEST SEPARATELY STATE THE COST OF
UNBUNDLED LOOP GROOMING FROM THE COST OF THE UNE LOOP?
Yes.Qwest recognizes that unbundled loop
grooming. is not relevant in the case of UNE-P, thus, when
26 Third Report and Order and Fourth Further Notice of Proposed
Rulemaking, CC Docket No. 96-98, In the Matter of Implementation of the
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the individual , recurring UNE rates are summed to reflect
UNE-P, the grooming charge is not included in the UNE-
rate.However, the loop grooming charge is added to the
unbundled loop rate that applies when the loop is provided
but Qwest's switch is not used.
Q. WILL QWEST SUBMIT NONRECURRING COST STUDIES FOR
THE UNE PLATFORM?
A. Yes.While individual nonrecurring UNE rates
also exist for the elements that make up the UNE platform,
the one-time activities associated with the conversion or
connection of the UNE platform differ from the activities
associated with connection of each individual element.
Therefore, Qwest has developed nonrecurring cost studies to
reflect the specific acti vi ties and times related to
conversion and connection of UNE platforms.(Exhibi t No.
3 )
Q. PLEASE DESCRIBE THE UNE - P POTS NONRECURRING COSTS
FOR EXISTING SERVICES.
Local Competition Provisions of the Telecommunications Act of 1996,
ReI. November 5 , 1999.
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A. The UNE-P POTS nonrecurring cost study identifies
the nonrecurring costs that Qwest incurs to convert an
existing POTS service customer to UNE-P POTS.The costs
are identified separately for mechanized and manual orders,
and include the order-related costs incurred by the
Interconnect Service Center ("ISC") as detailed in the
(Exhibi t No.ENRC.These are the same costs Qwest
incurs to transfer existing customers to the CLEC in the
case of resold services.
Q. PLEASE DESCRIBE THE UNE-P POTS NONRECURRING COSTS
FOR NEW SERVICE.
A. The UNE-P POTS nonrecurring cost study also
identifies the nonrecurring costs that Qwest incurs to
provide new service via UNE-P to a CLEC.In this
situation , the customer location does not have existing
service.The costs are identified separately for
mechani zed and manual orders.These costs include the
order-related costs for activities performed by the ISC and
the Loop Provisioning Center ("LPC"These costs also
include placing jumpers in the central office and if
necessary, dispatching field technicians.
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Q. IS QWEST PRESENTING TELRIC STUDIES FOR HIGH
CAPACITY OR DIGITAL CAPABLE LOOPS?
A, Yes.Qwest is presenting recurring and
nonrecurring costs for high capacity loops.High capacity
loops include DS1 and DS3 capable loops.A DS1 capable
loop provides a digital transmission path from a network
interface in a Qwest serving wire center ("SWC") to the
network interface at the end user s designated premises
wi thin the serving area of the SWC.A DS3 capable loop
provides a similar digital transmission path at a higher
transmission rate than the DS1.The DS3 capable loop is
configured as a channel on a fiber-based system.The
recurring costs associated with DS1 and DS3 capable loops
are attached as part of Exhibit No; The cost studies
used to develop these costs develop statewide average rates
for DS1 and DS3 capable loops.The studies also develop
deaveraged rates for DS1 and DS3 capable loops based on the
same zones Qwest is proposing for the unbundled loop.
The nonrecurring costs for DS1 and DS3 capable loops are
included in the results summary of ENRC in Exhibit No.
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Q. ARE OCN CAPABLE LOOPS CONSIDERED HIGH CAPACITY
LOOPS?
A. Yes.However, as discussed above, the FCC has
removed OCn capable loops from the list of UNEs that an
ILEC is obligated to provide.Nevertheless, Qwest and
Commission Staff have reached agreement on statewide
average rates for OCn capable loops as included in
Attachment A to the Motion for Approval.Those rates will
be made available until such time as the rates change under
agreements that are being renegotiated with the CLECs.
Q. IS QWEST SUBMITTING RECURRING AND NONRECURRING
COSTS FOR SUBLOOP UNBUNDLING?
A. Yes.Qwest is submitting recurring and
nonrecurring costs for the distribution subloop.The
recurring costs for subloop are calculated in Exhibit No.
Qwest proposes that subloop unbundling be
geographically deaveraged on the same basis as the zones
that will be established by the Commission for UNE loops..
The prices reflected in my Exhibit No.1 for deaveraged
subloops are based on a calculation of the distribution
portion of the loop investment.The loop investment is
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developed in ICM (Exhibit No.2) on a "per zone " basis.
The feeder subloop is calculated in Exhibit No.5 as the
difference between total loop investment and the
distribution portion of the investment.The nonrecurring
costs for subloops are submitted as part of Exhibit No.
In addition, because it seems likely that a CLEC would want
to purchase larger increments of feeder capacity, Qwest has
also developed a cost for DS1 capable feeder.The DS1
capable feeder provides a digital transmission path from a
network interface in a Qwest serving wire center to the
Field Connection Point ("FCP"The cost for DS1 capable
feeder will be deaveraged, as well.(Exhibi t No.
Q. IS QWEST PRESENTING A TELRIC STUDY FOR BUILDING
CABLE?
A. Yes.Qwest believes that the building cable
subloop is the element CLECs appear most interested in.
Thus , Qwest has extracted the cost of building cable as a
sub-element of the distribution subloop and has developed
the cost for building cable as a separate element.The
building cable product will be provided on a "per pair"
basis at established Field Connection Point arrangements
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when the CLEC places outside plant to a building and wants
access to building cable through a building terminal.The
building cable study assumes that the CLEC or building
owner will place, at its expense, a common terminal or
cross-connect facility that Qwest will jumper to the Qwest
terminal and building cable.The building cable cost study
is included as part of the subloop cost study in Exhibit
No.
The rate for building cable will be an averaged per month,
per pair" rate rather than a deaveraged subloop rate.
other words , Qwest proposes a single rate for building
cable that will apply across all of Idaho s three zones.
This is because the nature of building cable is such that
its cost does not vary geographically.The building cable
rate does not include the cost of placing jumpers between
the CLEC-provided terminal and Qwest' s terminal.That cost
is a part of the cost of an FCP.As discussed above, Qwest
will also offer other types of subloop and inside wire on a
deaveraged basis according to the geographically deaveraged
zones.
Q. IS QWEST SUBMITTING TELRIC STUDIES FOR DARK
FIBER?
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A. Yes.Unbundled dark fiber ("UDF") consists of
two types, UDF - Loop and UDF - Interoffice.Qwest has
developed separate cost structures for each of these two
types of dark fiber.(Exhibi t No.In addition, the
dark fiber study calculated costs, which are the same as
the costs for UDF - Loop, for elements related to extended
unbundled dark fiber or E-UDF.
Costs for interoffice dark fiber are on a per-mile basis
consistent with the way that dedicated interoffice
transport is calculated.Costs for loop dark fiber are
calculated on a per-loop basis consistent with the way that
the loop cost is determined,UDF Loop provides a pair of
optical fibers (i. e., two fibers) between a wire center and
a customer location on which no electronic terminating
equipment is provided by Qwest.The fibers are connected
to a fiber distribution panel ("FDP") or functional
equivalent in the wire centers or customer locations.The
average fiber investment per loop is derived from the Loop
Model Version 2 ., which is included in my cost study
workpapers .The study develops the recurring cost for
three elements: the loop facility, termination at the wire
center and termination at the customer premise.The
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termination cost includes the cost to terminate the fibers
on an FDP.
The nonrecurring costs for dark fiber are included as part
of Exhibit No.
Other Stand Alone Cost Studies
Q. ARE YOU PRESENTING TELRIC STUDIES FOR VERTICAL
FEATURES?
A. No.The recurring costs for vertical features
are included in the costs developed in ICM (Exhibit No.
for switch ports.
Q. WHAT IS THE FCC'S POSITION ON VERTICAL FEATURES
AS SEPARATE UNES?
A. In its First Report and Order,27 the FCC stated
that it declined at that time to unbundle vertical features
from local switching costs.Although the FCC specifically
permitted the state to investigate whether vertical
features should be made separate UNEs, Qwest has not
27 First Report and Order at ~ 414.
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calculated recurring costs for vertical features separate
from the costs it calculates for local switch ports.
Q. HAS THE FCC TAKEN A DIFFERENT VIEW OF VERTICAL
FEATURES SINCE ITS FIRST REPORT AND ORDER?
A. It is not entirely clear.In its decision
denying Bell South's application for interLATA relief in
Louisiana,28 the FCC stated that a Bell Operating Company
BOC") could not limit the vertical features that a CLEC
could order.Instead, a BOC "must activate any vertical
feature or combination of vertical features requested by a
competing carrier unless the BOC can demonstrate to the
state commission , through clear and convincing evidence,
that activation of that particular combination of vertical
features is not technically feasible.This statement
implies that the FCC requires the BOCs to treat vertical
features individually as separate elements, at least for
purposes of provisioning.
On the other hand , in the UNE Remand Order the FCC
confirmed its definition of local switching in the First
28 In the Matter of Application of BellSouth Corporation , BellSouth
Telecommunications, Inc., and BellSouth Long Distance, Inc., for
Provision of In-Region, InterLATA Services in Louisiana, CC Docket No.
98-121, Memorandum Opinion and Order at ~ 219 (Rel. October 13,1998).
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Report and Order , noting that the "local switching element
includes all vertical features that the switch is capable
of providing, including customized routing functions, CLASS
features, Centrex and any technically feasible customized
routing functions.... ,,This statement implies that the FCC
is adhering to the view that vertical features should not
be unbundled from switching.However , it would be
inconsistent for the FCC to take the position that vertical
features must be treated as individual elements for
provisioning purposes, and at the same time require ILECs
to treat the nonrecurring costs of provisioning them on a
bundled basis with switching costs.
Q. WHAT LOGICAL CONCLUSION CAN BE DRAWN FROM THE
FCC'S POSITION?
A. The FCC's First Report and Order considered
vertical features as separate liNEs but decided not to
require that , they be unbundled at that time.However, the
FCC allowed the states to unbundle vertical features into
separate UNEs if they chose to do so.The Idaho Commi s s i on
did not unbundled vertical features in the AT&T
arbitration.The FCC now appears to require the treatment
29 UNE Remand Order at ~ 244.
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of vertical features on an individual basis for purposes of
provisioning.It is, therefore, logical to conclude that
while bundling may be appropriate for vertical features
wi th respect to recurring costs, for purposes of
provisioning (nonrecurring costs) they must be unbundled
from the switching element so that CLECs can purchase them
on an individual basis.It would be illogical to conclude
that CLECs could activate vertical features on an
individual basis while not allowing Qwest to charge the
CLEC the cost to provision them individually.Therefore
Qwest includes the recurring costs for vertical features in
the cost calculated in ICM (Exhibit No.2) for the
recurring cost of local switch ports, while the individual
nonrecurring costs to provision certain vertical features
are calculated separately in the ENRC (Exhibit No.3) .
ARE THERE OTHER COST DATA THAT YOU ARE FILING?
Yes.My testimony presents incremental cost
data for the following additional elements:
Access to Poles,Condui t s and Rights of Way
Direct CLEC to CLEC Connections
Low Side Channelization
I CNAM
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CLASS Call Trace
Unbundled Packet Switching
OSS Development & Enhancement
OSS Ongoing Operations
Q. HAS QWEST PREPARED A COST STUDY FOR THE USE OF
QWEST POLES AND CONDUIT BY CLECS?
A, Yes.The Pole and Conduit Attachment rental
study results are summarized in Exhibit No.This study
identifies the recurring annual charges f9r the use of
poles and conduit by CLECs.
Q. DO THESE STUDIES FOLLOW A TELRIC METHODOLOGY?
A. No.The Pole and Conduit Attachment costs
reflected in Exhibit No.1 are developed using a formula
that was defined by the FCC. 30 The FCC's requi red
methodology for poles and conduit is not based on a
forward-looking TELRIC costing approach; rather it is based
on historical book costs.
30 In the Matter of Amendment of Rules and Policies Governing PoleAttachmentsCC Docket No. 97-98 (ReI. April 3, 2000),
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Q. IS THE FCC METHODOLOGY THE BASIS FOR THE
RECURRING POLE AND CONDUIT ATTACHMENT RATES CONTAINED IN
ATTACHMENT A TO THE MOTION FOR APPROVAL?
A. No.Idaho is one of a handful of states that has
determined to retain jurisdiction over the rates for pole
and conduit attachments.Thus, the rates reflected in
Attachment A to the Motion for Approval for pole and
conduit attachments are rates that were agreed upon by
Qwest and Commission Staff as part of the negotiations
conducted earlier in this docket.
Q. HAS QWEST PREPARED COST STUDIES TO IDENTIFY THE
NONRECURRING COSTS ASSOCIATED WITH CLEC POLE AND CONDUIT
INQUIRIES?
A. Yes.The nonrecurring costs associated with
poles and conduits represent Qwest' s costs to determine the
availability of specific pole or conduit routes that a CLEC
might want to access.For example, inquiry fees include
engineering time to search Qwest' s routing databases.
Other fees include field inspections of the necessary
facilities, as well as time to make drawings of particular
facilities.Details of the tasks and task times included
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In each of the nonrecurring charges associated with poles
and conduits are included in the ENRC.(Exhibit No.
Q. PLEASE DESCRIBE DIRECT CLEC TO CLEC
INTERCONNECTION.
A. Direct CLEC to CLEC interconnection allows one
CLEC to directly interconnect with another CLEC within the
same Qwest central office. CLEC to CLEC connections are
also available when a CLEC with multiple collocations
within the same office wishes to connect those
collocations.CLEC to CLEC interconnect ion may involve
physical to physical, physical to virtual, or virtual to
virtual collocation.
Q. HAS QWEST PREPARED A COST STUDY FOR DIRECT CLEC
TO CLEC INTERCONNECTION?
A. Yes.Direct CLEC to CLEC interconnections will
include both recurring and nonrecurring costs.The cos t
study that I am sponsoring develops costs for the following
elements:
31 A CLEC can also order CLEC to CLEC cross connections, using an
intermediate distribution frame. This arrangement utilizes
Interconnection Tie Pairs (ITPs), the costs of which are part of theCollocation study.
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Quote Preparation Fee (nonrecurring)
Design Engineering and Installation (nonrecurring)
Cable Racking (recurring)
Virtual Connections (nonrecurring, if applicable)
Cable Hole - (nonrecurring, if applicable)
The results of the direct CLEC to CLEC interconnection
study are inc uded in Exhibi t No.
Q. HAS QWEST SUBMITTED A RECURRING STUDY FOR LOW
SIDE CHANNELIZATION CHANNEL PERFORMANCE?
A. Yes.Low Side Channelization" provides
transmission facilities between the customer-designated
premises and the serving wire center, the wire center where
the CLEC
facilities
No.
collocated , or multiplexing equipment.These
are available for Channel Performance.(Exhibit
Q. HAS QWEST PREPARED A COST STUDY FOR UNBUNDLED
INTERCONNECTION CALLING NAME (ICNAM) SERVICE?
A. Yes.ICNAM is a per-query switched access
service.ICNAM allows a CLEC to query Qwest' s Line
Information database and secure the listed name information
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for the requested telephone number for its end users.
(Exhibit No. 10)
Q. HAS QWEST SUBMITTED A COST STUDY FOR THE CLASS
CALL TRACE FEATURE?
A. Yes.CLASS Call Trace " is submitted as a
separate cost study.CLASS Call Trace allows end use
customers to automatically trace the last incoming call.
The central office switching feature investments for this
feature, including processor time, memory and hardware are
obtained from the Switching Cost Model.The CLASS Call
Trace cost study presents costs on a per-call-traced basis.
(Exhibit No. 11)
Q. PLEASE DESCRIBE QWEST' COSTS FOR UNBUNDLED
PACKET SWITCHING.
A. In its UNE Remand Order , at paragraph 313, the
FCC required packet switching to be unbundled in certain
circumstances when Qwest does not provide CLECs access to
remote terminal collocation.
In the situations where Qwest is required to offer packet
switching, Qwest provides unbundled packet switch interface
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ports at either a DS1 or DS3 level in the central office.
The ports are the physical entry points into the
Asynchronous Transfer Mode ("ATM") Cell Relay Service
Network and include the electronic equipment used in
connecting the channel to the ATM Cell Relay Service
Network.In addition , the service includes an unbundled
packet switch Customer Channel that provides the path from
the remote Digital Subscriber Line Access Multiplexer
DSLAM") to the interface port, including all
functionality of the DSLAM.I f the CLEC chooses to provide
its own facility from the DSLAM to the central office,
Qwest offers an alternative to the Customer Channel that
only provides the DSLAM functionality.The recurring costs
for these elements are calculated in Exhibit No. 12.
Q. ARE THERE NONRECURRING COSTS ASSOCIATED WITH
UNBUNDLED PACKET SWITCHING?
A. Yes.Nonrecurring costs for the work activities
involved in provisioning the DS1/DS3 ATM switch interface
ports necessary to connect the unbundled packet switch
customer channel are calculated in the ENRC.(Exhibit No.
3 )Nonrecurring costs are also calculated in the ENRC for
work activities necessary to connect the unbundled packet
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switch customer channel shared distribution subloop at an
established field connection point ("FCP") arrangement.
Q. DOES QWEST CONTINUE TO BE OBLIGATED TO PROVIDE
CLEC'S ACCESS TO UNBUNDLED PACKET SWITCHING?
A. No.As discussed above, on August 21 , 2003, the
FCC eliminated the obligation for ILECs to provide
unbundled packet switching at TELRIC rates with the
issuance of the TRO.Nevertheless, Qwest has calculated
rates for unbundled packet switching, as reflected in my
Exhibit No.1, which will be available to CLECs until such
time as their interconnection agreements are amended to
eliminate these elements as UNEs.
Q. HAS QWEST SUBMITTED A COST STUDY FOR OSS
DEVELOPMENT AND ENHANCEMENTS?
A. Yes.The OSS Development and Enhancements cost
is a startup cost caused by the requirement for Qwest to
develop electronic interfaces and modify existing
downstream OSS to provide CLECs with access to Qwest' s OSS.
These costs include the cost to establish the systems and
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interfaces that will be used for CLEC ordering processes.
Since these start-up costs are incurred in order to
facilitate CLEC orders, it makes sense to recover the costs
on a per CLEC order basis.Qwest has conservatively spread
these costs over 10 years of estimated order volumes.
Q. IS QWEST ENTITLED TO RECOVER START-
(DEVELOPMENT AND ENHANCEMENT) OSS COSTS?
A. Yes.First , the FCC confirmed in its UNE Remand
Order33 that OSS is considered a UNE under Section 251 of
the 1996 Act.In their comments, parties "argue (d) that
OSS qualifies as an independent unbundled network
element..." 34 Therefore , Qwest is entitled to seek recovery
for its OSS UNE costs as permitted under the Act.
Second , system modifications are required to provide access
to OSS.In discussing OSS as a UNE , the FCC confirmed that
it "also required incumbent LECs to make modifications
their OSS as necessary in order to offer nondiscriminatory
access to these functions, including access to interface
32 It is important to understand that these start-up costs do not
include the cost to process orders, once the systems are established.
33 UNE Remand Order at ~ 424.
34 Id. ~ 423.
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design systems." 35 The FCC described interface design
systems as "an electronic gateway used to electronically
access OSS information such as telephone number, address
validation, order receipt notice, etc.By identifying
OSS as a UNE, then obligating ILECs to provide electronic
interfaces and modify their ass to accommodate the CLECs
the FCC placed start-up costs for OSS development and
enhancement into the category of an ILEC' s recoverable UNE
costs.In addition, the FCC in ~ts recently released Line
Sharing Order supports this position. Qwest is also
seeking to recover the costs it will incur to modify its
OSS in support of line sharing in this proceeding.
Third, OSS costs relate solely to UNEs.In addition to
modifying and enhancing its existing OSS, Qwest has
provided electronic interfaces for preordering, ordering,
provisioning, maintenance and repair, and billing for the
sole purpose of enabling CLECs to enter the local market.
If not for the provisioning of the OSS UNE , the start-up
35 Id. ~ 421 (Emphasis added).
36 Id. ~ 421, see footnote 823,
37 The FCC states "We find that incumbent LECs should recover in their
line sharing charges those reasonable incremental costs of assmodificationthat are caused by the obligation to provide line sharing
as an unbundled network element.(Emphasis added). (Line SharingOrder ~ 144).
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costs that Qwest seeks to recover would not have been
incurred.Therefore, Qwest is entitled to seek recovery of
the start -up costs related to the OSS UNE.
Q. HAS QWEST PREPARED A COST STUDY FOR OSS
DEVELOPMENT AND ENHANCEMENT COSTS?
A. Yes. The OSS Development and Enhancement
nonrecurring cost of $11.38 per order is developed in
Exhibit No. 13.
Q. DOES QWEST PROPOSE TO CHARGE THE CLECS $11. 38 PER
ORDER TO RECOVER ITS OSS START-UP COSTS?
A. No.As agreed upon in its negotiations with
Commission Staff, Qwest proposes to charge the CLECs only
$5.00 per order for recovery of its OSS start-up costs.
Although, Qwest has already incurred the costs that it
seeks to recover in this proceeding and the cost evidence
supports the higher charge, Qwest recognizes that CLECs
entering the market in Idaho might have difficulty with the
higher rate.Of course, the lower rate would extend
Qwest's recovery period of the start -up costs to more than
ten years.Nevertheless, in order to ensure that the rate
for recovery of Qwest' s costs to develop OSS for use by the
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CLECs is perceived as reasonable, Qwest has proposed to
limit the rate to $5.00 per order as reflected in
Attachment A to the Motion for Approval and in Exhibit No.
Q. PLEASE DESCRIBE OSS ONGOING OPERATIONS.
A. OSS ongoing maintenance costs include the costs
of running the electronic interfaces that have been
developed for the CLECs, and updating or making minor
changes to those electronic interfaces ' software programs.
Costs for maintaining and operating the electronic
interfaces include the forward-looking costs of salaries
and expenses for people involved in making table updates,
resolving error conditions, initializing application
software, and other related tasks.
Q. IS QWEST ENTITLED TO RECOVER OSS ONGOING
MAINTENANCE COSTS FROM CLECS?
A. Yes.As noted above, OSS is a UNE, and Qwest is
entitled to seek recovery for its OSS UNE costs as
permitted under the Act.In addition , OSS ongoing
maintenance costs relate solely to UNEs, and should be
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recovered from CLECs-the cost causers,If the OSS UNE were
not provided, these costs would not be incurred.
Q. HAS QWEST PREPARED A COST STUDY FOR OSS ONGOING
OPERATIONS COSTS?
A. Yes.The OSS Ongoing Operations nonrecurring
cost of $1.40 per order is developed in Exhibit No. 14.
This rate has been agreed upon by Qwest and Commission
Staff and is reflected in Attachment A to the Motion for
Approval and in Exhibi t No.
Q. HAS QWEST PREPARED ANY OTHER TELRIC STUDIES FOR
RECURRING AND NONRECURRING UNE RATES?
A. Yes.Qwest has prepared TELRIC studies for the
customer transfer charge, line sharing and collocation as
described in more detail below.
Customer Transfer Charge
Q. HAS QWEST CONDUCTED A NONRECURRING TELRIC STUDY
FOR THE CUSTOMER TRANSFER CHARGE?
A. Yes.Qwest has submitted its nonrecurring costs
underlying the Customer Transfer Charge ("CTC"The CTC
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study is cost-based and reflects the tasks Qwest must
perform in the Interconnection Service Center ("ISC") when
an end-user customer switches from one local carrier to
another including when the customer switches from Qwest to
another local carrier.Tasks performed include changing
customer records to reflect the change in service provider.
As discussed above , the tasks performed for CTC, thus the
nonrecurring rates , are the same as those for UNE-P POTS
for existing customers.
The nonrecurring costs for CTC are included as part of
Exhibit No.
IX.LINE SHARING
Q. WHAT IS LINE SHARING?
A. Line sharing, which the FCC has defined as a UNE,
involves the separate provisioning of the high frequency
portion of the unbundled loop.In its "Line Sharing
Order" 38 the FCC adopted "a requirement that incumbent LECs
38 In the Matters of Deployment of Wireline Services Offering Advanced
Telecommunications Capabili ty and Implementation of the Local
Competition provisions of the Telecommunications Act of 1996, CC Docket
Nos. 98-147 and 98-, Third Report and Order in CC Docket No. 98-147
and Fourth Report and Order in CC Docket No. 98-98 (ReI, Dec. 9, 1999)
Line Sharing Order"
) .
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unbundle the high frequency portion of the loop to permit
competitive LECs to provide xDSL-based services by sharing
lines with the incumbent's voiceband services. ,,
Al though the FCC in the TRO removed line sharing from the
list of UNEs that ILECs are obligated to provide under the
Act, there is a transition period that applies to the line
sharing element. For CLECs already serving customers via
line sharing the TRO provides grandfathering of line-shared
lines at the rate charged by the ILEC prior to the
effective date of the order , until the next biennial
review, which commences in 2004.CLECs who wish to serve
new line sharing customers , effective October 2 , 2003, will
be subject to a three-year transition period.During this
period the CLECs will be required to pay for line sharing
at a rate of 25 percent of the recurring loop rate in the
first year , 50 percent in the second year, and 75 percent
in the third year. After the transition period the CLEC
may serve customers through a line splitting arrangement
with another CLEC, or by purchasing an entire loop from the
39 Id. at ~ 136.
40 Triennial Review Order at ~ 264.
41 Id. at ~ 265.
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ILEC, or through another negotiated arrangement with the
ILEC.
Qwest's calculated recurring line sharing rates for the
three-year transition period are reflected in Exhibit No.
Q. WHAT TYPES OF COSTS ARE ASSOCIATED WITH LINE
SHARING?
A. In its Line Sharing Order, the FCC identified "
types of direct costs that an incumbent LEC potentially
could incur to provide access to line sharing: 1) loops
OSS 3) cross connect 4) spl it ters and 5) 1 ine
condi t ioning . ,,
Q. HAS QWEST ESTIMATED THE COST TO INSTALL A SHARED
LOOP?
A. Yes.The nonrecurring costs associated with the
installation of a shared loop are calculated in the ENRC,
the results of which are summarized in Exhibit No.The
costs for installing a shared loop include order-processing
42 Line Sharing Order at ~ 136.
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costs at the ISC, along with the cost to connect jumpers in
the central office,
Q. HAS QWEST PREPARED A COST STUDY THAT IDENTIFIES
THE COLLOCATION COSTS ASSOCIATED WITH LINE SHARING?
The Qwest Line Sharing Collocation costA. Yes.
This studystudy results are summarized in Exhibit No 15.
identifies the costs associated with three basic line
sharing collocation options. These options relate to the
configuration of the splitter and associated cabling (cross
The costs for these options are the same costsconnects) .
that would apply in the case of line splitting arrangements
between two CLECs where Qwest is the facilitator.Briefly,
these configurations are:
Splitter in a common area relay rack or bay;
Splitter mounted on an intermediate distribution
frame;
Splitter mounted on a main distribution frame.
In the Qwest Line Sharing Collocation study, the costs for
each configuration include the cost of engineering, plus
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the applicable block and cabling costs.In each case, the
costs do not include the costs for the splitter itself.
Costs for the block and cabling are presented as a cost per
100 lines, while the engineering costs are presented on a
per order basis.
I will briefly describe the collocation cost study below.
Q. PLEASE BRIEFLY DESCRIBE THE ENGINEERING COSTS.
A. The engineering costs include the cost to
engineer a collocation job.These costs are based on 20
hours of engineering time and are the same regardless of
the line sharing option chosen.That is, each CLEC
ordering collocation for line sharing would be charged for
the recovery of this cost, regardless of which of the three
options are chosen.
Q. PLEASE BRIEFLY DESCRIBE THE FIRST COLLOCATION
OPTION.
43 A fourth alternative exists where the CLEC locates the splitter inits collocation area, With this alternative the CLEC would utilize
ITPs to and from its collocation area and Qwest would not incuradditional collocation costs.
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A. The first option assumes that the splitter is
located in a common area on a splitter bay.This option
requires costs with three principal cost components:
1. Splitter bay shelf - This includes the network bay,
aerial support and cable racking at the common
splitter location.
2. Cable from splitter to CLEC - There are two sub-
options, based on the CLEC's cabling (cross-connect)
The splitter can be connected via a dataneeds.
cable directly to the CLEC's collocation area
(Option 1A), or it may be connected to the 410 block
on the intermediate distribution frame ("IDF"
Either of these options may be chosen(Option 1B) .
if the CLEC has existing but unutilized tie cabling
(terminations) between the intermediate frame and
In those cases, thosethe collocation area.
connections can be used for the line sharing
connections without the ordering of additional
If the splitter isconnections from Qwest.
connected to the 410 block, the costs include the
costs associated with tying the cable to the block,
These arrangements are depicted in theetc.
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diagrams included in the line sharing collocation
study on the "Configurations " tab.(Exhibit No. 15)
3. Cable from splitter to IDF - Both options (Options
1A and 1B) include the cost of the two cables (voice
and voice/data) connecting the splitter with the
IDF.They also include cable and block expenses, as
depicted in the diagrams on the "Configurations
tab, in Exhibit No. 15.
With any of the versions of this option, the CLEC would
also need to purchase Interconnection Tie Pairs ("ITPs ) to
connect the IDF to the Main Distribution Frame ("MDF"), as
depicted in the third diagram on the "Configurations" tab
in Exhibit No. 15.
Q. PLEASE BRIEFLY DESCRIBE THE SECOND COLLOCATION
OPTION.
A. With the second option, the splitter is located
on the IDF.The CLEC may either connect via a data cable
directly between the splitter and the CLEC collocation area
(Option 2A) or it may connect via a data cable to the 410
block (Option 2B) on the IDF.The connection direct to the
collocation area includes costs to mount the splitter block
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and the cost of the cable between the splitter and the CLEC
collocation area.The connection from the IDF to the 410
block includes costs to mount the splitter block, the cost
of the cable between the splitter and the 410 block, and
the cost to tie the cable to the 410 block.These options
(Options 2A and 2B) are depicted on the "Configurations
tab, in Exhibit No. 15.
With both of these options, the CLEC would also need to
purchase ITPs to connect the IDF to the MDF , as depicted in
the two Option 2 diagrams on the "Configurations " tab in
Exhibit No 15.
Q. PLEASE BRIEFLY DESCRIBE THE THIRD COLLOCATION
OPTION.
A. with the third option, the splitter is located on
the MDF.The CLEC may either connect via a data cable
directly between the splitter and the CLEC collocation area
(Option 3A) or it may connect via a data cable to the 410
block (Options 3B) on the MDF.The connection direct to
the collocation area includes costs to mount the splitter
block and the cost of the cable between the splitter and
the CLEC collocation area.The alternative includes costs
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to mount the splitter block, the cost of the cable between
the splitter and the 410 block , and the cost to tie the
These options (Options 3A and 3B)cable to the 410 block.
are depicted on the "Conf igurations " tab in Exhibit No. 15.
with either of these options, the CLEC would not need to
purchase ITPs, since there is no connection between the MDF
and the IDF.
Q. DOES THE FCC DISCUSS THE TYPES OF SPLITTER
CONNECTIONS DESCRIBED ABOVE IN ITS LINE SHARING ORDER?
The FCC discusses the architecture for theA. Yes.
The FCC describedconnections to and from the splitters.
two common approaches:
The first approach is to cable the high
frequency band directly to the DSLAM, and the
second is to cable it to another MDF location
(or to an intermediate distribution frame (IDF)
location), and then- on to the DSLAM. The
second approach facilitates easy customer movesand changes as well as changes in the
customer s service providers and services. this situation, the splitter has three
connections to the MDF - one to terminate theloop, a second to terminate the voiceband
signal and a third to terminate the high
frequency loop spectrum....
44 Id. at ~~ 104 and 105.
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Q. PLEASE DESCRIBE THE FCC'S GUIDELINES FOR COSTS
RELATED TO THE VOICE/DSL SPLITTERS.
A. The FCC determined that LECs must either provide
splitters on behalf of the CLECs or allow CLECs to purchase
comparable splitters.Thus, when Qwest constructs the
splitter bay for the CLEC, the FCC allows Qwest to acquire
the splitter on behalf of the CLEC and pass-through a
charge to the CLEC equal to the cost of the splitter, plus
the cost to construct the bay and supporting structure.
The costs displayed in Exhibit No. 15, for the three
options discussed above, do not include the cost of the
The charge for the splitter is determinedsplitter.
separately, if and only if , Qwest acquires the splitter on
If it desires, the CLEC can choose tobehalf of the CLEC.
purchase the splitter itself, and provide it to Qwest for
Where the splitter is in the CLEC'installation.
collocation space (the fourth alternative), the CLEC would
purchase and install the splitter itself.
Q. ARE THE DESIGNS PROPOSED BY QWEST CONSISTENT WITH
THESE FCC REQUIREMENTS?
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The Qwest proposal provides CLECs withA. Yes.
several options, and is consistent with the FCC'
description of how splitter connections should be treated
in a line sharing environment.
Q. WHAT LINE SHARING OPERATIONAL SUPPORT SYSTEMS
COSTS DOES QWEST SEEK TO RECOVER IN THIS PROCEEDING?
A. As a component of the monthly charge for the line
sharing UNE , Qwest seeks to recover the OSS costs related
to implementing line sharing, as authorized by the FCC in
its Line Sharing Order. The OSS costs Qwest seeks to
The first component is therecover have two components.
cost for modifications to internal systems maintained by
The secondQwest and is estimated to be $870,720.
component is the direct expense that Qwest has incurred
with its outside vendors modi fy the many legacy systems
impacted by the requi remen t to provide line sharing.These
costs include a bid of $11.9 million from Telcordia for
systems modification and $56,000 for proj ect management
Because Qwest' s OSS functionprovided by another company.
45 At ~ 144 of the Line Sharing Order, the FCC stated, "We find that
incumbent LECs should recover in their line sharing charges those
reasonable incremental costs of OSS modification that are caused by the
obligation to provide line sharing as an unbundled network element.
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on a company-wide basis and support the entire 14 - state
region, these costs are incurred at a corporate level
Therefo~e, the OSS study forrather than a state level.
line sharing and the resulting OSS rate is determined on a
total company basis using total company demand for shared
CLECs competing in Idaho will pay their share oflines.
these costs on the basis of the number of lines actually
shared in the state.
please see the Line Sharing OSS cost study (Exhibit No. 16)
to review documentation of the calculation of the proposed
OSS rate associated with line sharing.
IS QWEST ENTITLED TO RECOVER OSS COSTS RELATED
TO THE LINE SHARING UNE?
The FCC has stated that ILECs must modifyA. Yes.
their operating support systems that are required for
reordering, ordering, provisioning, repair and maintenance,
The FCC also stated: and billing.
There is no dispute either that incumbent LECs will
need to modify their OSS systems somewhat in order to
implement line sharing, or that they will incur costs
in doing so. The question here is what the incumbent
46 Id. at ~ 142.
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LECs should be permitted to charge competitive LECs
for those required modifications.
It is clear, therefore, the FCC intended that ILECs be
. allowed to recover the additional costs for OSS related to
the line sharing UNE.
Q. ISN'T IT TRUE THAT THE COST TO MODIFY OSS SHOULD
BE RELATIVELY MODEST BECAUSE ILECS ~VE "ALREADY MODIFIED
THEIR OSS SYSTEMS TO ACCOMMODATE THEIR OWN XDSL
PRODUCTS...
" ?
The FCC was incorrect when it concluded' thatA. No.
an ILEC's systems modifications for its own xDSL products
would lessen the costs to modify its OSS for line sharing.
Line sharing creates very different requirements than those
Qwest has for provisioning xDSL service on its own loops.
When Qwest provides xDSL to its customer, there are two
services being provided, but there is still only one
In the case ofservice provider and one end-user customer.
line sharing, there are two unrelated service providers
(i. e., Qwest and the CLEC) and two customers (i. e ., the
end-user customer and the CLEC) .Qwest's systems were not
originally designed for multiple local service providers
47 Line Sharing Order at ~ 127.
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and multiple customers for a single loop.Thus, the OSS
modifications necessary for Qwest to be able to accommodate
line sharing for the CLECs are independent of modifications
it has made to meet its own needs as a single provider of
mul tiple services.
Even when the xDSL services are provided by a Qwest
affiliate, as part of the corporate family, common systems
are used to track the network and provision service for the
Qwest then bills the affiliate pursuant to thecustomer.
FCC's Affiliate Transactions rules under Part 32 for the
services (including systems) that it provides to the
If the affiliate requires any modifications toaffiliate.
Qwest systems to meet its own needs it pays for those
modifications separately, up front.
Q. WHAT RATE DOES QWEST PROPOSE TO USE FOR RECOVERY
OF ITS LINE SHARING OSS COSTS?
A. Qwest has calculated that the monthly recurring
costs for line sharing OSS result in a rate of $3.23 per
line for each line that is shared with a CLEC.This
approach to recovery of the OSS costs is based on guidance
from the FCC at paragraph 144 of the Line Sharing Order:
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We find that incumbent LECs should recover in
their line sharing charges those reasonable
incremental costs of OSS modification that are
caused by the obligation to provide line sharing
as an unbundled network element. We believe that
this guideline is consistent with the principle
set forth in the Local Competi tion First Report
and Order and incumbent LECs cannot recover
nonrecurring costs twice. We also reaffirm the
conclusions in the Local Competi tion First Report
and Order that the states may require incumbent
LECs in an arbitrated agreement to recover such
nonrecurring costs such as these incremental OSS
modification costs through recurring charges over
a reasonable period of time, and that
nonrecurring charges must be imposed in an
equitable manner among entrants. (Footnotes
omitted) .
Q. WHY DID THE FCC SUGGEST RECURRING RATES TO
RECOVER UP-FRONT COSTS FOR THE LINE SHARING OSS?
A. The FCC cited estimates from the ILECs that
ranged from three million to hundreds of millions of
dollars as the costs to modify OSS for line sharing.It is
likely that the FCC believed that because of the large
amount of cost required for such modifications, up-front
recovery of these costs could discourage line sharing.
remedy the problem, the FCC suggestion allows recurring
rates to distribute the cost over "a reasonable period of
Unfortunately, with the discontinuance of linetime.
sharing as a UNE, pursuant to the TRO, Qwest is likely to
recover only a fraction of the $12.8 million it spent to
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modify its systems to accommodate CLEC access to the high
frequency portion of a loop.
COLLOCATION
Q. WHAT COST DATA ARE PROVIDED IN THE COLLOCATION
MODEL?
A. The Collocation Model provides cost data for
caged, cageless and virtual collocation, and includes
TELRIC data for the following collocation elements:
Standard Collocation:
Terminations
Collocation Entrance Facility
Cable Splicing
Power Usage
Security
Interconnection Tie Pairs (ITPs)
Cageless Collocation:
Space Construction
DC Power Cable
Space Rent
Quote Preparation Fee (QPF)
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Caged Collocation:
Space Construction
DC Power Cable
Grounding
Space Rent
Quote Preparation Fee (QPF)
Virtual Collocation:
Equipment Bay
Labor
Bay Space
Rent
Quote Preparation Fee (QPF)
The Collocation Model summary of results is included as
Exhibit No.1 7 of my testimony.
Q. DOES THE COLLOCATION MODEL CALCULATE RECURRING
AND NONRECURRING COSTS?
A. Yes.The Collocation Model calculates the
forward-looking recurring and nonrecurring incremental
costs for the collocation elements listed above.The
nonrecurring costs include the cost of installing equipment
on the CLEC side of the demarcation point.This equipment
is dedicated to CLECs and is not shared with Qwest.The
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nonrecurring cost elements include: terminations, the
entrance facility, fiber cable splicing, backup AC power
cable, space construction (including DC power cables),
construction of additional bays (cageless) and grounding
(caged) .
Recurring elements include the small ongoing costs
associated with maintaining the collocation equipment that
is dedicated to CLECs (e.g., terminations, power cables,
space construction), along with the investment-related
costs associated with equipment that is shared between
CLECs and Qwest.Recurring elements also include: DC power
plant, AC power feed usage, security cards, central office
synchronization, interconnection tie pair (ITP), space
rent, grounding (caged), and equipment bay (virtual).
Q. IS THE TREATMENT OF RECURRING AND NONRECURRING
COSTS IN THE COLLOCATION MODEL CONSISTENT WITH THE FCC'
COLLOCATION PRINCIPLES?
A. Yes.In its Second Report and Order in CC Docket
No. 93-162 , regarding pricing for collocation, the FCC set
out principles for determining whether a cost should be
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recovered through a nonrecurring charge.In Paragraph 32
of that order the FCC states:
While carriers typically recover investment costs
through recurring charges, we find that it is not
unreasonable for LECs to assess nonrecurring chargesto recover the cost of equipment. Inasmuch as
physical collocation is a new service, LECs may have
difficulty proj ecting either the length of time that
equipment will be used by an -interconnector or the
useful life of that equipment for depreciation
purposes. When a LEC imposes a recurring charge to
recover the depreciation of an asset over time,
overestimating the life of the equipment or the
length of time that an interconnector would use the
equipment could prevent the LEC from recovering the
total cost of its investment. We will not, however,
permit LECs to recover initially an amount greater
than the total installed cost of the equipment, plus
a reasonable overhead loading.
The FCC went on to say in paragraph 33:
We do not agree with ALTS' position that
nonrecurring charges developed in conformance with
these requirements constitute a barrier to entry.
To the extent that the equipment needed for expanded
interconnection service is dedicated to a particular
interconnector, we believe that requiring that
interconnector to pay the full cost of the equipment
up front is reasonable because LECs should not be
forced to underwrite the risk of investing in
equipment dedicated to the interconnectors use,
regardless of whether the equipment is reusable....
It is clear from these ordering paragraphs that the FCC
recognizes that LECs should not be held accountable for
underwriting all the risk of building an interconnector
The FCC established the costing principle thatnetwork.
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the cost of facilities constructed solely for the
provisioning of collocation (i. e. dedicated to collocation)
can be recovered through nonrecurring, up- front charges.
In fact, the order goes so far as to imply anything else
would result in an unreasonable transfer of the risk of
constructing a CLEC network to the ILEC that is providing
The Act was designed to give competitorscollocation.
access to critical network elements that were currently
This access to elements was consideredowned by the ILECs.
critical to meeting the competitive objectives of the Act.
Nowhere in the Act did Congress decide that it was also the
ILEC responsibility to finance a co-provider s entry into
Such a requirement would be unreasonable andthe market.
discriminatory.
Q. PLEASE EXPLAIN HOW THE DIRECT COLLOCATION COSTS
ARE DEVELOPED IN THE COLLOCATION MODEL.
A. The direct costs for the bulk of the collocation
cost elements are calculated based on inputs derived from
an analysis of the cost of actual collocation jobs in Qwest
In this analysis, Qwest analyzed everycentral offices.
item that was purchased and installed for a sample of 41
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The invoices were analyzed through acollocation jobs.
multi-step process as follows:
1. Each item of material that was billed to each job
was entered into a database;
2. Each item of material was classified into cost
categories that represent the various components of
collocation (i. e. cable racking, power cable,
support structure, etc.
3. The costs for placing each component of a
collocation job were calculated using standard
contract labor costs along with the number of units
being placed on each job, as determined from the
invoices;
4. The calculated labor costs were compared to the
actual invoiced labor charges to determine that they
were reasonable;
5. The labor costs were added to the material costs to
determine the total cost for each component of the
job;
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6. The cost for each component was assigned to each of
the appropriate collocation rate elements
7. The collocation rate element were designated as
being recoverable through a one-time nonrecurring
charge or a monthly recurring charge, based on the
cri teria discussed above
8. Nonrecurring cost elements that are shared among
collocators were prorated based on the anticipated
number of CLECs that would participate in the use of
those facilities
9. The results of the analysis were used as inputs to
the Collocation Model to develop the direct costs
associated with each collocation element.
Q. WHAT TYPES OF COLLOCATION JOBS WERE INCLUDED IN
THE SAMPLE?
A. The sample included only cageless collocation
Once the analysis of cageless costs was completed,jobs.
the assumptions were revised and the missing elements were
added to derive a standard cost for a caged collocation
Wherever possible, actual caged collocation data werejob.
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used in revising the assumptions or estimating the cost for
those components of a caged collocation job (e.g., the cost
of the cage) that are not found in cageless collocation
jobs.
Q. HOW DID QWEST TAKE INTO ACCOUNT THE COST
DIFFERENCES BETWEEN CAGELESS AND CAGED COLLOCATION?
A. A team of experts with experience in the
development, construction and cost analysis of collocation
activities reviewed the assumptions used in the cageless
cost study and agreed 'upon revisions to distances and other
inputs that would more appropriately reflect a standard
caged collocation environment.In addition , items such as
the cost of the cage and grounding were included in the
caged collocation cost study.
Q. HOW DO THE COLLOCATION CALCULATIONS ALLOW FOR
DIFFERENCES BETWEEN THE COSTS FOR VARIOUS COLLOCATION
DESIGNS?
A. Qwest gives collocators many options.For
example , a collocator may order several types of
terminations, and may order several different sizes of DC
power cable based on its specific power needs.To account
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for these variations in the requested facilities, Qwest
developed standard costs for terminations and power feeds.
These standard costs were modeled based on the
characteristics (i. e. material and labor costs and unit
quantities and standard distances and designs) found in the
41 jobs that were studied.These standard designs were
then adj usted to .account for any incremental cost or
savings that would be incurred if the design were altered.
Q. DOES QWEST'S COLLOCATION COST STUDY COMPLY WITH
FCC ORDERS REGARDING COLLOCATION?
A. Yes.Qwest's collocation study complies with FCC
Order CC Docket No. 98 -147 , which is sometimes referred to
as the Advanced Services Order and sometimes as the "706
rules. "This order primarily approaches collocation from a
perspective of determining what collocation elements need
to be offered and under what terms and conditions they
should be offered, rather than from a cost perspective.
However, the FCC does provide some direction regarding cost
methodology for site preparation.The FCC states:
For example, if an incumbent LEC implements
cageless collocation arrangements in a particular
central office that requires air conditioning and
power upgrades, the incumbent may not require the
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first collocating party to pay the entire cost of
site preparation." 48
Qwest's cost studies assume an average of 3 caged
collocators and 3 cageless collocators in each central
This assumption means that those costs related tooffice.
construction are divided by 3 in cases where a facility
(e. g., a cable rack) is used only by caged collocating
Where facilities are assumed to be shared by CLECsCLECs .
and Qwest, the costs are assumed to be limited to only
recurring charges, and are determined on a shared basis
This cost methodology is consistent withwi th all users.
the FCC's direction in its 706 rules.
DOES QWEST PRESENT ANY OTHER TELRIC STUDIES
RELATED TO THE PROVISION OF COLLOCATION IN IDAHO?
Qwest is presenting costs for a number ofYes.
additional collocation elements.
Q. WOULD YOU DESCRIBE THE BASIS OF THE COSTS FOR THE
SPACE AVAILABILITY REPORT?
The charge for the space availabilityA. Yes.
report applies on a "per office " basis each time a CLEC
48 Advanced Services Order at ~ 51.
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Costs for the spacerequests space for collocation,
availability report are based on costs Qwest incurs to
determine if space is available and result from work
performed in the Common Systems Planning Engineering Center
CSPEC") and the Infrastructure Availability Center
The tasks that are involved in developing and
( "
lAC"
) .
preparing these reports include verifying existing,
conditions in the central office, identifying available
The cost study entitledspace and processing the report.
Collocation: Space Inquiry (Exhibit No. 18) presents the
costs for the activities associated with producing the
space availability report.
Q. PLEASE DESCRIBE SPACE OPTIONING.
A. "Space Optioning" is an administrative fee for
the activities Qwest performs related to allowing CLECs to
hold options on collocation space for future needs.These
acti vi ties include processing of applications, determining
feasibili ty, common space engineering, records management,
and administration of the "first right of refusal" process.
The costs are presented in Exhibit No. 19.
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Q. HAS QWEST PRESENTED A COST STUDY FOR OCN
TERMINATIONS?
OCn Terminations provide an uninterruptedA. Yes.
path from the Collocation space to an existing fiber frame.
The connection will be designed from the collocation space
The CLEC andto the same fiber frame that Qwest uses.
Qwest will share the same fiber distributing frames for
similar types and speeds of equipment, where technically
There are four costfeasible and space permitting.
elements with a combination of recurring and nonrecurring
rates that are calculated within this cost study (Exhibit
No. 20) :
OCn Te~inations - Includes the costs for the bay,
panel, connector and cables required to provide an
uninterrupted path from the collocation space to an
existing fiber termination frame.
OCn Additional Connector - Includes the costs for
an additional connector, if requested.
OCn Cable Racking Shared - Includes the recurring
costs per 12 fibers for existing cable racking.
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OCn Cable Racking Dedicated - Includes the flat rate
dedicated cable racking costs for fiber terminations.
Q. PLEASE DESCRIBE THE COSTS ASSOCIATED WITH THE
CABLE AUGMENT QPF.
A. This product is only applicable for augments to
existing termination cables which are part of the
transmission facilities purchased by the CLEC for the
purpose of accessing UNEs within the central office where
The Cable Augment QPF is athe CLEC is collocated.
nonrecurring element that recovers the labor associated
wi th preparing an engineering quote when a CLEC requests a
collocation cable augment for existing terminations.
(Exhibit No. 21)
In order for the Cable Augment QPF to be applicable, the
following criteria must be satisfied:
Augment terminations must originate and terminate
within the same central office.
Augment terminations must originate from the same
location as existing terminations.
Augment terminations must terminate on the same
frame as existing terminations.
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Augment terminations must be of the same
transmission facility type (i.e., copper or fiber)
as existing terminations.
Augment terminations must be of the same signallevel (i.e., DSO , DS1, etc.) as existing
terminations.
The Cable Augment QPF does not include costs for the cable
itself, travel time, outside plant ("aSp"), real estate,
cable installation, cable procurement, database record
keeping (i. e., TIRKS and/or SWITCH), or any other CLEC
issues related to placing additional cable into an existing
termination.
Q. HAS QWEST SUBMITTED A COST STUDY FOR REMOTE
TERMINAL COLLOCATION?
Remote Terminal Collocation offers space inA. Yes.
available remote cabinets eliminating the distance
The rate element for thisconstraints on DSL providers.
space element is unitized on a Standard Mounting unit
SMU") basis and includes access to AC/DC power, heat
dissipation and terminations to the Feeder Distribution
The FDI termination rate element is pe~Interface ("FDI"
25-pairs and includes the termination blocks and cables.
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Elements calculated in the cost study (Exhibit No. 22)
include:
Space (per standard mounting unit) measured as 1.vertical inches. This nonrecurring rate is associated
wi th the cabinet space and recovers the cost of the
cabinet and all of the work and materials associated
with placement of the cabinet. The recurring rate
associated with the space recovers the maintenance of
the materials and equipment associated the cabinet
along with a portion of the costs required for the
power pedestal.
FDI Te~inations (per 25 pair). This nonrecurring
rate includes all costs associated with initial FDI
upgrade work required to provide the terminations
requested at the FDI. The recurring rate associated
wi th the FDI recovers the maintenance of the cable
between the FDI and the Remote Collocation cabinet, as
well as the maintenance of the terminations at theFDI. These charges will apply for both DSO and DS1.
Quote Preparation Fee (per request). This nonrecurring
rate recovers all costs associated with preparation of
the job quote.
Virtual Flat Charge (per service call). This
nonrecurring rate element includes costs associated
with the service order and follow-up time necessary
for each CLEC request for installation, maintenance,etc.
Virtual Engineering Labor Rate (per half hour)
nonrecurring rate element includes costs for the
planning and engineering of a CLEC's virtually
collocated equipment at the time of installation
change or removal.
This
Virtual Maintenance Labor Rate (per half hour). This
nonrecurring rate element includes costs for the labor
necessary for repair of out of service and/or service-
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affecting conditions and preventive maintenance of
virtually collocated equipment.
Virtual Installation Labor Rate (per half hour), This
nonrecurring rate element includes costs for theinstallation, change or removal of a CLEC's virtually
collocated equipment.
Virtual Training Labor Rate (per half hour). This
nonrecurring rate element recovers costs associated
wi th the training of Qwest personnel on a metropol i tan
service area basis provided by the vendor of the
CLEC's virtually collocated equipment, when that
equipment is different from Qwest-provided equipment.
Q. PLEASE DESCRIBE THE COSTS ASSOCIATED WITH THE
POWER REDUCTION CHARGES.
A. The Power Reduction/Power Off rate elements
permi t CLECs to reduce their power load requirements, to
completely power off power feed sets, or to restore power
in cases where power cables exist because power was
Costs are calculatedprovided to the location previously.
in the power reduction study (Exhibit No. 23) for the
following elements:
Quote Preparation Fee - a nonrecurring, per-request
rate for all power reduction or power off requests.
This rate element recovers the engineering, proj ect
management and administrative labor costs incurred
when performing the powering down or powering off
process.
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Power Reduction/Restoration ~ 60 Amps - a
nonrecurring, per- feed set rate for all power
reduction or restoration requests for power loads of
less than 60 Amps. This rate element includes the
costs associated with the technical labor incurred in
performing the powering-down process. The power
restoration charge is only applicable when the CLEC'
power cables exist.
Power Reduction/Restoration = 60 Amps - a nonrecurring
rate, per-feed set for all power reduction or
restoration requests for power loads equal to 60 Amps.
This rate includes costs associated with the technical
labor incurred in performing the powering-downprocess. The power restoration charge is only
applicable when the CLEC's power cables exist.
Power Reduction/Restoration ~ 60 Amps - a
nonrecurring, per- feed set rate for all Power
Reduction/Restoration requests for power loads greater
than 60 Amps. This rate includes costs associated
wi th the technical labor incurred in performing the
powering-down process. The power restoration charge
is only applicable when the CLEC's power cables exist.
Power Off - a nonrecurring, per-feed set rate for all
Power Off requests. This rate recovers costs
associated with the technical labor incurred in
performing the powering-off process.
BDFB/PBD Rent - a recurring, per-fuse set rate to
reserve fuse space on the battery distribution fuse
board ("BDFB"
Q. HAS QWEST PRESENTED A COST STUDY FOR TRANSFER OF
RESPONSIBILITY?
A. Yes. Collocation Transfer of Responsibility
refers to the transfer of a collocation site to an assuming
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Transfer of responsibility isCLEC from a vacating CLEC.
offered for caged physical collocations, cageless physical
All other types ofcollocations, and virtual collocations.
transfer of responsibility requests are handled on an
individual case basis ("ICB"
Calculation of the transfer of responsibility costs are
contained in Exhibit No. 24 and include a nonrecurring
assessment fee that represents the labor costs associated
with the transfer of the collocation site payable
regardless if the quote is accepted.In addition, there is
a nonrecurring network systems administration fee for the
labor costs associated with processing the interconnection
circuits.
Q. HAS QWEST REACHED AGREEMENT WITH COMMISSION STAFF
REGARDING THE RATES FOR COLLOCATION?
A. Yes.As part of the negotiation between the
parties, Qwest and Commission Staff have reached agreement
on the appropriate rates for all of the collocation
elements.These rates are set forth in Attachment A to the
Motion for Approval.
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XI.CONCLUSION
Q . PLEASE SUMMARI ZE YOUR TESTIMONY.
A. Qwest has a right under the Act to seek recovery
of the costs for the UNEs that it is required to provide to
the CLECs.Qwest's TELRIC studies properly apply the FCC'
For the UNEs and interconnectionTELRIC principles.
services included in this docket, I have submitted
recurring and nonrecurring TELRIC cost studies.The
Commission should use the TELRIC data summarized in Exhibit
No.1 and detailed in the cost study workpapers (Exhibit
Nos. 2-24) as its basis for determining UNE prices in this
This would allow the Commission to accept theproceeding.
prices that have been agreed upon by Qwest and Commission
Staff in negotiations conducted during the course of this
cost docket, as discussed in the Motion for Approval, as
reflected in Attachment A.
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes, it does.
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