2. Background

In Decision (D.) 06-03-025, we established final unbundled network element (UNE) rates for Verizon. The rates adopted in D.06-03-025 replace interim rates adopted previously. Those interim rates are subject to true-up once the permanent rates have been established.

In adopting the permanent UNE rates, the Commission evaluated two cost models. Verizon proposed UNE rates based on a model known as VzCost that it had recently developed to use in UNE costing proceedings. The Joint Commentors proposed UNE rates based on the latest version of the HAI Model, known as HM 5.3. After careful review of the competing cost models, the Commission found that although both models contain flaws, the Verizon model is not forward-looking because it attempts to replicate Verizon's embedded network configuration and fails to efficiently size and deploy current technology. With regard to HM 5.3, the Commission found that the method it uses to model various elements is reasonable. Moreover, the Commission was able to modify most inputs and assumptions. Thus, the Commission modified many inputs and assumptions in HM 5.3 and then used the modified model run to set Verizon's UNE rates.