COM/LYN/TJL/epg* Mailed 5/22/2002

Decision 02-05-042 May 16, 2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Joint Application of AT&T Communications of California, Inc. (U 5002 C) and WorldCom, Inc. for the Commission to Reexamine the Recurring Costs and Prices of Unbundled Switching in Its First Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050.	Application 01-02-024 (Filed February 21, 2001)
Application of AT&T Communications of California, Inc. (U 5002 C) and WorldCom, Inc. for the Commission to Reexamine the Recurring Costs and Prices of Unbundled Loops in Its First Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050.	Application 01-02-035 (Filed February 28, 2001)
Application of The Telephone Connection Local Services, LLC (U 5522 C) for the Commission to Reexamine the Recurring Costs and Prices of the DS-3 Entrance Facility Without Equipment in Its First Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050.	Application 01-02-034 (Filed February 28, 2001)

INTERIM OPINION ESTABLISHING INTERIM RATES FOR PACIFIC BELL TELEPHONE COMPANY'S UNBUNDLED LOOP AND UNBUNDLED SWITCHING NETWORK ELEMENTS

Table of Contents

Title Page

INTERIM OPINION ESTABLISHING INTERIM RATES FOR PACIFIC BELL TELEPHONE COMPANY'S UNBUNDLED LOOP AND UNBUNDLED SWITCHING NETWORK ELEMENTS 11

I. Summary 22

II. Background 33

A. Applications for Annual UNE Reexamination 33

B. The Scoping Memo for the 2001 UNE Reexamination 55

C. The Issue of Competing Models 66

D. Motion for Interim Relief 88

III. Interim Rates are Warranted 1010

IV. Pacific Should be Sanctioned for Failure to Comply with the ALJ's Discovery Rulings 2020

V. Interim Rates for Unbundled Loops 2424

A. Joint Applicants Proposal 2424

B. Response 2626

C. Discussion 2626

1. Line Growth 2626

2. Infill Growth vs. Plant Extension 3131

3. DLC Equipment Costs 3535

4. Loop Expenses 3838

5. Summary of Loop Changes 4141

VI. Interim Rates for Unbundled Switching 4242

A. Joint Applicants' Proposal 4242

B. Amended Proposal 4545

C. Responses 4646

D. Discussion 4848

VII. True Up 5252

VIII. Categorization 5353

IX. Comments on Draft Decision 5353

A. General Comments of Pacific 5454

B. Inflation Adjustment 5555

C. Alleged Error Regarding Shared and Common Costs 5656

D. True-Up Comments 5858

E. Use of Synthesis Model 5959

F. Sanctions Against Pacific 5959

G. Deaveraged Loop Prices 6060

H. ISDN and Centrex Ports 6161

Table of Contents

Title Page

Findings of Fact 6262

Conclusions of Law 6868

ORDER 7171

APPENDIX A

APPENDIX B

I. Summary

This proceeding, known as the "UNE Reexamination," was initiated following formal requests by carriers interconnected with Pacific Bell Telephone Company (Pacific) for the Commission to reexamine certain prices that Pacific Bell charges competitors who purchase "unbundled network elements" (UNEs). Through purchase of these UNEs, competitors are able to use portions of Pacific's network. By this decision, we grant in part a motion for interim relief filed by AT&T Communications of California, Inc. (AT&T) and WorldCom, Inc. (WorldCom) (hereinafter referred to as "Joint Applicants") and we set interim rates for two UNEs, namely unbundled loops and unbundled local and tandem switching. We find that interim rates are necessary due to delays in this proceeding caused by inadequacies in Pacific's cost study filing and the need to examine competing cost models.

For unbundled loops, we adopt an interim discount of 15.1% from Pacific's current loop price for the basic (2-wire) loop, which results in an interim loop rate of $9.93.¹ We apply this discount to the deaveraged loop rates adopted in Decision (D.) 02-02-047. Joint Applicants had requested a 36% reduction, based on a trend analysis of 1994 and 2000 loop cost data using the HAI Model version 5.2a (HAI model or HAI). After considering comments on this approach, we have made adjustments to the HAI model. Specifically, we altered Joint Applicants' line counts to reflect physical facilities rather than "voice grade equivalents." Also, we removed the effects of the investment/expense factor approach from the HAI trend analysis by holding expenses per loop constant. The analysis leading to the discount noted above is contained in Appendix B.

For unbundled switching, we adopt the recommendation of Joint Applicants that we impose an interim rate based on a proposal by SBC-Ameritech for switching rates in Illinois. As a result, we apply a 69% discount to current local switching rates and a 79% reduction to current tandem switching rates. The adopted rates are set forth in Appendix A.

This proceeding will remain open to set final UNE rates for unbundled loops and unbundled switching. The interim rates adopted in this order are subject to adjustment, either up or down, from the effective date of this order until final rates are adopted.

Through this interim order, we also dismiss Application 01-02-034, filed by The Telephone Connection Local Services LLC, which requested review of Pacific's costs for the DS-3 entrance facility without equipment.