Multi-Association Group (MAG) Plan

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Federal Communications Commission DA 01- 2871

Before the

Federal Communications Commission Washington, D. C. 20554

In the matter of

Mult i- Associat ion Group (MAG) Plan for

Regulation of Interstate Services of Non- Price

Cap Incumbent Local Exchange Carriers and

Interexchange Carriers

Federal- State Joint Board on Universal

Service

Access Charge Reform for Incumbent Local

Exchange Carriers Subject to Rate- of- Return

Regulation

Prescribing the Authorized Rate of Return for

Interstate Services of Local Exchange Carriers

December 17, 2001, MAG Access Charge

Tariff Filings

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CC Docket No. 00- 256

CC Docket No. 96- 45

CC Docket No. 98- 77

CC Docket No. 98- 166

CCB/ CPD 01- 23

DECLARATORY RULING

Adopted: December 11, 2001 Released: December 11, 2001

By the Chief, Common Carrier Bureau:

1. In the recent Rate- of- Return Access Charge Reform Order, 1 the Commission

reformed the access charge and universal service rules as they apply to local exchange carriers

(LECs) subject to rate- of- return regulation. Some of these LECs have questioned whether one of

these revisions � the reallocation of costs recovered through the transport interconnection charge

(TIC) � could theoretically result in negative transport rates in certain circumstances. With this

declaratory ruling, we clarify the proper reallocation of the TIC provided for in section 69.415 of

the Commission�s rules. 2

tioned whether one of

these revisions � the reallocation of costs recovered through the transport interconnection charge

(TIC) � could theoretically result in negative transport rates in certain circumstances. With this

declaratory ruling, we clarify the proper reallocation of the TIC provided for in section 69.415 of

the Commission�s rules. 2

2. Rate- of- return LECs develop tariffed rates based on estimates of revenue

requirements and demand. For the larger rate- of- return LECs, the demand and revenue

requirements are projected amounts for the period to be covered by the tariff. Smaller LECs �

1 Multi- Association Group (MAG) Plan for Regulation of Interstate Services of Non- Price Cap Incumbent Local

Exchange Carriers and Interexchange Carriers, CC Docket No. 00- 256, Second Report and Order and Further

Notice of Proposed Rulemaking, FCC 01- 304 (rel. Nov. 8, 2001) (� Rate- of- Return Access Charge Reform Order�).

2 47 C. F. R. � 69. 415.

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those with fewer than 50,000 lines and that do not participate in the National Exchange Carrier

Association pool � are permitted to develop costs and demand based on historical data from the

preceding two years, rather than projecting their costs and demand for the tariff period. For

LECs that file their own tariffs and have fewer than 50,000 lines, the tariffs are in effect for two

years. Thus, the rates in effect during the 2000- 2001 tariff period were based on 1997- 1998

historical cost data

on historical data from the

preceding two years, rather than projecting their costs and demand for the tariff period. For

LECs that file their own tariffs and have fewer than 50,000 lines, the tariffs are in effect for two

years. Thus, the rates in effect during the 2000- 2001 tariff period were based on 1997- 1998

historical cost data. Once a carrier sets its rates, a carrier�s revenues from the service in question

are a function of the actual demand for the service, and thus may be higher or lower than the

revenue requirement reflected in the underlying cost data.

3. In the Rate- of- Return Access Charge Reform Order, the Commission eliminated

the TIC as an access charge rate element. 3 The Commission concluded that the costs previously

recovered through the TIC should be reallocated among all access categories, including

transport, and adopted a new rule, section 69.415, to implement this reallocation. 4 The

Commission, however, limited the amount of transport costs that could be reallocated as a result

of the elimination of the TIC to a rate- of- return LEC's TIC revenues during the twelve months

ending June 30, 2001. 5 This limitation was designed to preclude rate- of- return LECs from

increasing the costs recovered through the TIC, which would permit them to lower their transport

rates and to reallocate more costs to the common line category, thereby potentially increasing the

costs recovered through the interstate common line support mechanism.

0, 2001. 5 This limitation was designed to preclude rate- of- return LECs from

increasing the costs recovered through the TIC, which would permit them to lower their transport

rates and to reallocate more costs to the common line category, thereby potentially increasing the

costs recovered through the interstate common line support mechanism.

4. Based on inquiries from rate- of- return carriers concerning the implementation of

the Rate- of- Return Access Charge Reform Order, we have learned that some rate- of- return LECs

are interpreting section 69.415 as requiring them to reallocate transport costs based on all of their

TIC revenues between July 1, 2000, and June 30, 2001, in all circumstances. For some of these

carriers, these TIC revenues are greater than their transport revenue requirement because, in

some cases, the demand during the twelve- month period ending June 30, 2001, was significantly

higher than the demand that had formed the basis of the rate setting process that resulted in their

existing transport revenue requirements. In such cases, TIC revenues would exceed the transport

revenue requirement, potentially resulting in negative transport rates. Thus, some parties have

questioned whether the Commission intended for them to file tariffs with negative transport rates

when it adopted section 69.415.

ss that resulted in their

existing transport revenue requirements. In such cases, TIC revenues would exceed the transport

revenue requirement, potentially resulting in negative transport rates. Thus, some parties have

questioned whether the Commission intended for them to file tariffs with negative transport rates

when it adopted section 69.415.

5. With this declaratory ruling, we clarify how the TIC should be reallocated under

section 69.415. Paragraph (a) of Section 69.415 provides that �[ b] eginning January 1, 2002,

non- price cap local exchange carriers shall reallocate a portion of the costs otherwise assigned to

the transport category to the common line, local switching, information, and special access

elements.� This language makes clear that the costs to be reallocated are �a portion� of the costs

otherwise assigned to the transport category. The rule does not, however, specify the derivation

of the amount of costs that are to be allocated from the transport category, only that a portion are

to be reallocated. The Commission made clear in the Rate- of- Return Access Charge Reform

Order that the amount to be reallocated was the costs that otherwise would have been recovered

by the TIC. For example, in paragraph 76, the Commission stated that it was reallocating the

allocated from the transport category, only that a portion are

to be reallocated. The Commission made clear in the Rate- of- Return Access Charge Reform

Order that the amount to be reallocated was the costs that otherwise would have been recovered

by the TIC. For example, in paragraph 76, the Commission stated that it was reallocating the

3 Rate- of- Return Access Charge Reform Order at paras. 98- 104.

4 47 C. F. R. � 69. 415.

5 47 C. F. R. � 69. 415( b).

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costs contained in the TIC to other access rate elements, 6 and in paragraph 100, the Commission

referred to �spreading the costs currently recovered through the TIC.� 7 As discussed above in

paragraph 3 of this order, the Commission also adopted a limitation on the maximum amount of

the TIC to be reallocated and codified that limitation in paragraph (b) of section 69.415. 8 Rather

than reading paragraph (b) as a limitation, several carriers appear to be interpreting paragraph (b)

as the amount to be reallocated in all circumstances, even where the limit has not been reached.

Consistent with the text of the Rate- of- Return Access Charge Reform Order, the �amount to be

reallocated� language in paragraph (b) refers to the amount that would otherwise be recovered

through the TIC. Paragraph (b) then proceeds to establish a limit on the amount to be reallocated

from the transport category. The limit is clearly intended to preclude LECs from gaming the

reallocation process, as noted above, not to establish the amount to be reallocated where the limit

has not been reached

would otherwise be recovered

through the TIC. Paragraph (b) then proceeds to establish a limit on the amount to be reallocated

from the transport category. The limit is clearly intended to preclude LECs from gaming the

reallocation process, as noted above, not to establish the amount to be reallocated where the limit

has not been reached. The December 17, 2001, tariff filing, therefore, should reallocate the costs

recovered by any interconnection charge included in a carrier�s tariff, subject to the limitation

contained in section 69.415( b), and should not contain a negative transport rate.

6. Accordingly, IT IS ORDERED, pursuant to Sections 4( i) and (j) and 201 of the

Communications Act of 1934, as amended, 47 U. S. C. �� 154( i) and (j) and 201, and Sections

0.91, 0.291, and 1.2 of the Commission�s rules, 47 C. F. R. �� 0. 91, 0.291, and 1.2, that this

declaratory ruling IS ADOPTED.

FEDERAL COMMUNICATIONS COMMISSION

Dorothy T. Attwood

Chief, Common Carrier Bureau

6 Rate- of- Return Access Charge Reform Order at para. 76.

7 Rate- of- Return Access Charge Reform Order at para. 100.

8 Paragraph (b) provides: �The amount to be reallocated is limited to the total revenues recovered through the

interconnection charge assessed pursuant to section 69.124 for the 12- month period ending June 30, 2001.� 47

C. F. R. � 69.415( b).

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