14. Physical Collocation

14.1. Physical Collo 1

SBC-CA's proposes that the Physical Collocation Appendix contain the "sole and exclusive" terms for MCIm to obtain physical collocation from SBC-CA pursuant to §251(c)(6) of the Act. SBC-CA also proposes that MCIm "waives any right" to purchase physical collocation from SBC-CA's tariff.

MCIm says the dispute here is the same as in GT&C Issue 10. MCIm asserts it should be permitted to purchase from either the ICA or an approved tariff.

Discussion

MCIm's proposal is adopted.

This issue is the same as GT&C 10. For all the reasons stated above for GT&C 10, the same outcome is adopted.

SBC-CA argues here that the Physical Collocation Appendix consists of approximately 63 single-spaced pages of thoroughly negotiated, fully comprehensive and mostly agreed-to language that is a modern collocation appendix reflecting current law and the best thinking of both parties. Even if true, SBC-CA fails to show that MCIm negotiated away its right to obtain the rates, terms and conditions for physical collocation otherwise available by tariff. MCIm's proposal is adopted.

14.2. Physical Collo 2

SBC-CA says yes, proposing more specific language than that in the GT&C. SBC-CA asserts it seeks a reasonable limitation of liability specific to collocation that addresses the unique circumstances of collocation.

MCIm says no, arguing that SBC-CA's proposal is duplicative of the comprehensive and agreed-upon language in the GT&C.

Discussion

SBC-CA's proposed language is adopted, with the exception of §§ 3.1.2 and 3.1.4.

The 2001 ICA contains general liability and limitation of liability provisions in the GT&C (e.g., § 28), with specific terms in individual Appendices (e.g., Appendix Collocation § 16). This approach was reasonable for the 2001 ICA, and remains so for the 2006 ICA. As SBC-CA says, the liability and limitation of liability provisions in the GT&C are more general, and do not address the unique risks of liability presented in collocation arrangements.

Regarding these unique risks, SBC-CA's proposed collocation language reciprocally and equitably limits each party's collocation liability to an amount equivalent to the proportionate monthly charge to the collocator for the period of the mistakes, omissions, interruptions, delays or errors, or defects in transmission. (Proposed § 3.1.1.) SBC-CA points out-and MCIm does not deny-that SBC-CA's proposed collocation liability limitation closely tracks MCIm's own tariff regarding liability limitation with respect to MCIm's own CLEC customers. (SBC-CA' Opening Brief, page 217, citing MCIm's California CLEC tariff, Cal. P.U.C. Schedule CLC 6-T, Section 1, Original Sheet 12.) As a result, the specific limitation of liability SBC-CA proposes for collocation with MCIm does not put MCIm at unfair risk vis a vis its own customers, but merely provides SBC-CA with reasonable protection in this unique collocation environment. Also, as discussed more below, this treatment is reasonably similar to that in the 2001 ICA regarding liability limitation for Line Information Data Base (LIDB) and CNAM (Calling Name) database services.

In addition, SBC-CA's proposal here for the 2006 ICA Physical Collocation Appendix § 3.2 is similar in concept, and the language largely parallel, to that contained in the 2001 ICA Appendix Collocation § 16.53 This was reasonable in 2001, and continues to be so here. It improves on the language by clearly providing that the terms are reciprocal.

MCIm argues that SBC-CA has failed to meet its burden to prove that any proposed special terms here do not conflict with or are duplicative of those in the proposed GT&C. Specifically, MCIm says §§ 3.1.2 and 3.1.4 are redundant of GT&C § 15.3, and § 3.1.3 modifies or is redundant with GT&C § 16.1. In support, MCIm cites the 2001 FAR, wherein the Arbitrator rejected a proposed clause finding that "Pacific does not meet its burden of proof that the standard indemnity language in the GT&C is not adequate to cover this appendix." (MCIm Reply Brief, page 20, citing FAR in A.01-01-010 (filed July 16, 2001) at page 66.)

MCIm is partially right. The 2001 FAR adopted Pacific's proposed language for §§ 7.1 and 7.2 (limiting Pacific's liability to the revenue received from LIBD and CNAM database services), but rejected it for § 7.8 (which would have required MCIm to indemnify Pacific for claims related to a failure to block calling name information). The rejection for § 7.8 was based on Pacific failing to meet its burden to show the standard GT&C language was inadequate.

Similarly here, § 3.1.3 proposed by SBC-CA is adopted. It is not redundant of GT&C § 16.1, since § 3.1.3 refers to all applicable agreements and tariffs while GT&C § 16.1 refers to this ICA (e.g., see "this Agreement" in §§ 16.1(a) and (b).)

However, also similar to the 2001 finding, SBC-CA fails to show how § 3.1.2 (limiting liability for indirect, special, consequential or specific other damages) is different than GT&C § 15.3. SBC-CA fails to show how § 3.1.4 (providing unlimited liability for willful misconduct or gross negligence) is different than GT&C § 15.3.

Therefore, SBC-CA's proposed language is adopted, except for §§ 3.1.2 and 3.1.4.

14.3. Physical Collo 3

SBC-CA proposes clauses that require certain things in addition to the insurance required in GT&C § 5. Specifically, MCIm must have all risk property insurance coverage on a full replacement cost basis insuring all of collocator's property. That insurance must release SBC-CA from liability for risks that are customarily included in standard all risk casualty insurance. The insurance policy must contain a waiver of subrogation against SBC-CA. Also, MCIm must require all contractors to have similar insurance.

MCIm proposes one clause that says the insurance provisions of GT&C § 5 shall apply and are incorporated by reference.

Discussion

SBC-CA's proposed clauses are adopted.

The 2001 ICA contains substantially similar provisions as those now proposed by SBC-CA. (2001 ICA, Appendix Collocation, §§ 23.1.6 and 23.2.) For example, they both require all risk property coverage on a full replacement cost basis insuring all of MCIm's property, a release of SBC-CA for risks customarily included in an all risk policy, and a waiver of subrogation against SBC-CA. No new or different fact or law justifies a change.

MCIm argues that a reference to GT&C § 5 is all that is necessary. This is incorrect. GT&C § 5 requires certain liability insurance (i.e., worker's compensation, commercial general liability, automobile). SBC-CA's proposal here, however, like that in the 2001 ICA involves insurance policies and terms beyond those in GT&C § 5. For example, GT&C § 5 requires commercial general liability insurance with minimum limits. In contrast, SBC-CA's proposed Physical Collocation § 5.8.1.1 specifically requires all risk property insurance on a full replacement cost basis.

Moreover, as SBC-CA shows, proposed Physical Collocation § 5.8 does not address liability insurance, which is the focus of GT&C § 5. Thus, the two sections are not redundant, as claimed by MCIm.

Interestingly, some insurance portions of the 2001 ICA were moved from Appendix Collocation to the GT&C portion of the 2006 ICA. For example:

LINE NO.

ELEMENT

2001 ICA

APP COLLO §

2006 ICA

GT&C §

1

General Liability

23.1.1

5.3

2

Automobile

23.1.2

5.4

3

Worker's Compensation

23.1.3

5.2

Two sections from the 2001 ICA Appendix Collocation were not moved: § 23.1.6 (all risk full replacement cost coverage, release of SBC-CA, waiver of subrogation) and § 23.2 (MCIm may elect to buy coverage knowing SBC-CA has no liability). MCIm fails to convincingly show, however, that these two terms from the 2001 ICA should not be continued in the 2006 ICA, or are adequately addressed in GT&C § 5. Theoretically, either party could have proposed that these terms be moved to GT&C § 5, as were others, but that is not what is presented in this arbitration. It is appropriate, however, to retain these two terms from the 2001 ICA in the 2006 ICA and, on balance, SBC-CA's proposal is superior than the one made by MCIm.

Therefore, SBC-CA's proposal is adopted.

14.4. Physical Collo 5

SBC-CA says yes, proposing more specific language than that in the GT&C. SBC-CA asserts it seeks appropriate indemnification applicable to the unique circumstances of collocation.

MCIm says no, arguing that SBC-CA's proposal is duplicative of, or conflicts with, the comprehensive and agreed-upon language in the GT&C.

Discussion

SBC-CA's proposed clauses are adopted, for the same reasons discussed above with Physical Collocation Issues 2 and 3 (e.g., similar provisions contained in 2001 ICA; separate treatment in Physical Collocation Appendix addresses unique circumstances of collocation without being duplicative; improved language clearly providing that terms are reciprocal).

14.5. Physical Collo 6

SBC-CA says no, and proposes that the sections offered by MCIm be "intentionally omitted." According to SBC-CA, MCIm is currently billed for collocation power based upon the amount of power that MCIm ordered and that SBC-CA provisioned to satisfy that order. This method has been approved in California and several SBC states based on MCIm's advocacy (with AT&T) of the Collocation Cost Model (CCM). As a compromise, SBC-CA proposes that (1) MCIm submit a power reduction collocation application to change its fuse size during a maintenance window and/or (2) SBC-CA agree not to bill MCIm for 50% of the power that SBC-CA makes available to MCIm in a backup mode.

MCIm says yes, proposing clauses which allow MCIm to elect to be billed only for the power MCIm actually uses. MCIm says that this will increase its ability to use power more efficiently, such method is technically feasible, and its proposal ensures SBC-CA's cost recovery with the same level of security and safety as exist in SBC-CA's central offices today.

Discussion

SBC-CA's proposal is adopted.

Parties do not dispute that these costs are currently charged on a per amp ordered (fixed) basis. As discussed below, no new facts or law justify a change. Moreover, even if MCIm's proposal were desirable (which it is not), it is inadequately developed to justify its adoption at this time.

14.5.1. Cost Causation, Accuracy, Efficiency

Both parties argue that costs should be recovered in relationship to cost causation. The concept has merit. Parties disagree, however, on whether costs are largely (if not completely) variable or fixed, and therefore should be charged primarily (if not completely) based on units of consumption (i.e., largely a variable recovery) or monthly over time based on investment (i.e., largely a fixed recovery). Parties also dispute the resulting bill accuracy and efficiency.

SBC-CA makes the more convincing showing on the way these costs are incurred and should be recovered. In particular, SBC-CA contends it has incurred predominately fixed investment on behalf of MCIm to make the requested amount of power available regardless of how much power MCIm actually uses. In support, SBC-CA cites the FCC:

      "LECs rely primarily on batteries for DC power in their central offices, and it is not clear that the costs they incur for these batteries vary based on the specific amounts of power drawn, as opposed to the overall capacity that they are designed to support." (SBC-CA Opening Brief, page 225, citing FCC Second Report and Order (FCC 97-208, adopted June 9, 1997), emphasis deleted.)

Thus, it is reasonable to recover largely (if not exclusively) fixed costs by a monthly charge largely (if not exclusively) based on the amount of power that is ordered, and the overall needed capacity designed to support that service. This is consistent with current practice using the CCM.

MCIm contends that SBC-CA's proposal to continue charging on a non-metered basis causes inaccurate charges and inefficient use. In support, MCIm cites a study comparing power bills for non-metered and metered arrangements (in Texas and Illinois, respectively). MCIm says that the study shows two things.

First, MCIm says the data show that "where power usage is metered, MCIm's monthly charges for power vary by central office because charges are based on the actual power its collocation arrangement consumes on a per kilowatt basis." (MCIm Opening Brief, page 230, citing Exhibit 107, page 80.) This, however, is essentially a tautology. As MCIm says, the "charges vary because under the power metering rate structure implemented in Illinois MCIm pays only for power it actually consumes..." (MCIm Opening Brief, page 230.) Certainly bills based on consumption will vary when consumption varies. This does not show, however, whether the underlying SBC-CA costs are incurred on a fixed or variable basis, and whether the resulting bills cause (or do not cause) inaccurate charges and inefficient use relative to the underlying costs.

Second, MCIm reports the study shows that "the non-metered method of assessing power charges in Texas results in a substantially higher average monthly power charge per collocation arrangement when compared to Illinois." (MCIm Opening Brief, page 230, citing Exhibit 107, page 82.) According to MCIm, the study shows that consumption between collocation arrangements in Illinois varies by more than 500 times, but each arrangement would be assessed the same amount if not metered. Again, however, this does not show whether the underlying costs are incurred on a fixed or variable basis, and whether the resulting bills cause inaccurate charges and inefficient use relative to underlying costs. In fact, if the underlying costs are largely fixed and the same for each collocation arrangement in Illinois, bills varying by up to 500 times between these two collocation arrangements might reflect substantially inaccurate charges and result in inefficient use relative to incurred costs.

The theory that bill accuracy and economic efficiency are promoted when charges reflect costs is not disputed on this record. MCIm's evidence, however, does not support its claim that metered consumption promotes bill accuracy and economic efficiency. Charges are currently recovered on a per amp ordered basis, and no new fact or law justifies a change.

14.5.2. MCIm Proposal is Faulty

Even if MCIm's proposal were theoretically preferable (which it is not based on the way costs are incurred), it is faulty as proposed and not ready for adoption. For example, SBC-CA correctly shows that MCIm's proposed § 19.2.3 conflicts with agreed language in § 19.2.4. Specifically, § 19.2.3 provides for measurement of actual power usage once per quarter, that is in turn employed to prepare bills during the following quarter. In contrast, parties agree in § 19.2.4 to a DC Power Amperage Charge based on the amount of power ordered by MCIm. The agreed-upon language in § 19.2.4 does not provide for billing on the same basis as in § 19.2.3, and there is no reconciliation of the differences.

Further, MCIm's proposed § 19.2.3.1 conflicts with proposed § 19.2.3.2. In particular, § 19.2.3.1 provides for measurements of "actual power usage." Power usage is most often understood to be over a period of time. In contrast § 19.2.3.2 specifies that measurements "shall be taken once each quarter." MCIm explains here that this is at a moment in time.

Moreover, MCIm's language is likely to lead to disputes. The moment in time for the § 19.2.3.2 measurement is not specified. Based on the testimony here, it is likely parties will dispute whether the measurement was taken at a moment that represents peak, average, or non-peak usage. MCIm's proposal permits SBC-CA to challenge the measurement, but only with respect to the "accuracy of Collocator's BDFB [Battery Distribution Fuse Board] meter." (§ 19.2.3.4.) Challenges over meter accuracy are not understood to include challenges about the moment of the measurement.

MCIm's proposed language is silent on who installs the necessary equipment, where, and how costs are determined and paid. MCIm may seek that SBC-CA install the meter.54 If installed by SBC-CA, costs are to be paid by the Collocator (§ 19.2.3.6), but neither the exact costs to be paid nor the type of costs to be recovered are specified. This will most likely lead to dispute.55

For example, recoverable costs might be the total sum stated on an invoice of the actual accounting cost of the installation. Alternatively, they might be based on total element long run incremental cost (TELRIC), or another cost basis. Further, the investment cost might be annualized over time and, if annualized, might be annualized using either an economic or nominal carrying charge rate. They might be annualized over a few or great number of years. The interest and inflation rates for the annualization would likely be subject to dispute. The resulting charges may vary widely. Adopted language for this ICA, however, should, to the fullest extent possible, minimize or eliminate disputes. MCIm's proposed language fails to meet that goal.

Finally, rates may be designed to recover all appropriate costs on any basis (e.g., either variable or fixed). The evidence does not convincingly show that MCIm's proposed change would improve economic efficiency or in any other way improve upon the existing approach. Rather, on balance, MCIm's proposal shifts most of the financial, administrative and cost-recovery burden to SBC-CA, and potentially leaves SBC-CA's investment cost stranded.

14.5.3. Cost Reduction

MCIm's primary interest appears to be to reduce its power costs. This is accomplished in the 2006 ICA in two ways. First, parties have already agreed to language which reduces MCIm's bills by 50% from what they would otherwise have been by simply continuing to apply the method used in the 2001 ICA. (§ 19.2.4.) Second, MCIm may submit a power reduction request to reduce the fuse size in the BDFB.

Regarding this second approach, MCIm may elect to "fuse down" if it actually needs less power than previously ordered. If MCIm does not fuse down, it is likely because MCIm's power draw may vary, as explained by MCIm witness Starkey. (Reporter's Transcript, Volume 7, page 743.) Importantly, MCIm wants SBC-CA to have power available for MCIm should it be necessary for MCIm's use. SBC-CA incurs costs, however, to provide power for MCIm's actual and potential use, including standby power to be available for variations in power consumption. The evidence shows that MCIm ordered a specific amount of power, which SBC-CA is providing, and for which MCIm is now charged. No evidence shows that if unused by MCIm that SBC-CA may resell or otherwise use that power. In fact, SBC-CA notes that "fusing down" would at least allow some of SBC-CA's power plant investment on MCIm's behalf to be redeployed to another use. If not available for redeployment, however, the cost has been incurred for MCIm's actual and potential power use, and MCIm should pay for the amount of power ordered from SBC-CA.56

14.5.4. Conclusion

It is economically efficient and equitable for MCIm to pay the cost of the power resources that SBC-CA has provisioned for MCIm's, and that are reserved and directly available for MCIm's instantaneous use. SBC-CA's proposal is consistent with the approach used in the 2001 ICA, and this approach should be continued. No new facts or law justify a change.

Thus, SBC-CA's proposal is adopted.

53 For example, the 2001 ICA provides (in Appendix Collocation, § 16) that:

In nearly parallel language, SBC-CA proposes that the 2006 ICA (in Physical Collocation Appendix, § 3.2) state that:

54 "...SBC-CA should be required to deploy power metering equipment...MCIm's proposed language would give it the option of requesting that SBC-CA install a power meter..." (MCIm Opening Brief, page 225.)

55 MCIm says applicable rates may be taken from existing tariffs, citing, for example, the monthly charge for an increment of DC power from Pacific Bell Schedule Cal. P.U.C. No. 175-T, 1st revised 727. (MCIm Opening Brief, page 226.) SBC-CA, however, does not state an agreement to this proposal.

56 MCIm complains that "fusing down" is not a viable option since DC power is available only in specific increments. As SBC-CA points out, however, MCIm could request reduced minimums. That issue, however, is not presented for resolution in this arbitration.

Previous PageTop Of PageNext PageGo To First Page