I. Summary
This proceeding, known as the "UNE Reexamination," was initiated following formal requests by carriers interconnected with Pacific Bell Telephone Company d/b/a SBC California (hereinafter SBC-CA)1 for the Commission to reexamine certain prices that SBC-CA charges competitors who purchase "unbundled network elements" (UNEs).2 By purchasing UNEs, competitors are able to use portions of SBC-CA's network to offer competitive local exchange services.
In this decision, the Commission adopts updated and final rates for the following UNEs: loops (including deaveraged rates for 2-wire, DS-1 and DS-3 loops), switching, dedicated transport, signaling system 7 (SS7) links, and the DS-3 entrance facility without equipment.3 The newly adopted rates for the most frequently discussed UNEs are:
Table 1
Adopted UNE Rates
UNE |
Adopted Rate4 |
Average 2-wire Loop |
$12.92 |
Average DS-1 Loop |
$45.75 |
Average DS-3 Loop |
$432.76 |
2-wire port |
$2.64 |
UNE-Platform5 |
$16.90 |
The rates in today's order replace interim rates for loops and switching that were set in Decision (D.) 02-05-042.6 The rates in today's order for other UNEs, namely dedicated transport, SS7 links, and the DS-3 entrance facility without equipment, replace rates originally adopted in D.99-11-050.
In adopting today's rates, the Commission considered two divergent cost models offered by the parties to this proceeding. SBC-CA proposed updated UNE rates based on a series of cost models that it has developed for use in the 13 states in which its parent corporation, SBC, operates. AT&T Communications of California, Inc. (AT&T) and WorldCom, Inc. (WorldCom) (hereinafter referred to as "Joint Applicants" or "JA") proposed updated UNE rates based on the latest version of the HAI Model, known as HM 5.3. The proposals of the parties differed greatly from each other and from the interim UNE rates currently in place as seen in the table below.7
Table 2
Comparison of Proposals
UNE |
SBC-CA Proposal |
JA Proposal |
Interim Rate8 |
Average 2-wire Loop |
$23.86 |
$5.24 |
$9.82 |
2-wire Port |
$3.13 |
$1.28 |
$0.83 |
Switching Usage |
$3.34 |
$1.57 |
$3.28 |
UNE-P |
$30.33 |
$8.09 |
$13.93 |
After careful review of the competing cost models filed by SBC-CA and JA, the Commission finds that it cannot rely on either model alone to set UNE rates because of flaws in both models. The principal flaws with SBC-CA's models are that they rely too heavily on SBC-CA's embedded network configuration and costs and that we are not able to modify many of its inputs to overcome this flaw. The principal flaws with HM 5.3 are that we did not agree with certain of its input assumptions, particularly those related to clustering of customers into distribution areas, certain labor inputs, and the interoffice transport network. We were unable to modify these particular input assumptions.
It was not possible, given the time constraints and the resources required by this proceeding, to fix all of the flaws identified in either model. Because both models were flawed, we could not rely on either model by itself to establish UNE rates. To the extent possible, the Commission has modified both models to run with common inputs. As we modified these models and their inputs to resolve the many disputes and to bring the models in line with Commission precedent, federal requirements, and additional rationale we develop herein, we found that the resulting cost outputs of the models converged. In a few cases, the results converged to the point of becoming nearly the same. The degree of this convergence provides us additional confidence that the rates we adopt today are valid results, given our charge in this proceeding.
Based on our observation that the divergent model results converged as we corrected them, we determine that reasonable UNE rates lie within the zone created by the two models' results. The Commission adopts the midpoint of this range for the final UNE rate.
Some of the key modeling inputs used for the Commission's model runs include a 9.9% cost of capital, asset lives based on those adopted by the Federal Communications Commission (FCC), and a 51.6% copper distribution fill factor. The Commission's model runs include several inputs and assumptions proposed by SBC-CA, including plant mix, labor rates, Lucent and Nortel switch vendor assumptions, and a 12,000-foot crossover point. Furthermore, today's order adopts a flat-rate structure for the switching UNE wherein all switching costs are incorporated into one flat monthly port price, as proposed by JA.
As set forth in D.02-05-042, SBC-CA must adjust, or "true up" the interim rates it charged for its UNEs to the new rates adopted in this order. In other words, SBC-CA must calculate whether the previous interim rates were higher or lower than these newly adopted rates, and whether it has over or under-collected the appropriate revenues for any UNEs it sold at interim rates.
Finally, this order modifies the annual nomination process originally established in D.99-11-050 to suspend further review of SBC-CA's UNEs until February 2007.
1 To avoid confusion, we will generally refer to Pacific Bell Telephone Company (Pacific) as SBC-CA because much of the record in this case references "SBC Pacific" and "SBC California" rather than Pacific. We will refer to the parent company of SBC-CA as simply, "SBC." 2 See Appendix D for a glossary of all acronyms used in this order. 3 See Appendix A for a complete list of the rates adopted in this order. 4 These rates include a 21% shared and common cost markup, as adopted in D.02-09-049. 5 UNE-Platform (UNE-P) refers to the combination of a 2-wire loop, 2-wire port, and switching UNEs. 6 All of SBC-CA's UNE rates were further adjusted by D.03-07-023, which implemented an adjustment to SBC-CA's shared and common cost markup. 7 For a complete comparison of the SBC-CA and JA UNE rate proposals, see Appendix B. 8 Interim rates initially adopted in D.02-05-042 and modified by D.03-07-023.
