Prevailing Market Price (PMP)

FCC requirements

For a transaction to qualify for PMP valuation, more than 50 percent (25% effective 2002) of a particular product or service must be provided to third parties. The 50 percent (25% effective 2002) threshold is on a product-by-product or service-by-service basis, rather than on a product line or service line basis.

Exception transactions with 272 and Advanced Services Affiliates: In the case of transactions for services subject to section 272 (of the Telecommunications Act of 1996), a BOC may record such transactions at PMP regardless of whether the 50 percent (25% effective 2002) threshold has been satisfied. This exception may also apply to transactions between ILECs and Advanced Services Affiliates. Legal or AICO must be consulted before applying this exception.

Frequency

Validation of PMP must occur at least on a biennial basis, or when a new contract arrangement has been entered into with an affiliate or when a significant change occurs relative to the quantity of a product or service sold.

Methodology

As stated in Section I, it is the responsibility of the Service Provider to obtain the supporting documentation documenting the transaction is eligible to qualify for PMP.

Examples of supporting documentation reflecting more than 50 percent (25% effective 2002) of a particular product or service is provided to third parties include but are not limited to, the following:

· Sales Reports

· Invoices

· Standard Contracts

· Revenue Reports in cases where prices are universal

Products or Services provided from the ILEC to a non-regulated affiliate

The Service Provider must provide the appropriate documentation to Affiliate Billing for billing purposes.

Products or Services provided from a non-regulated affiliate to the ILEC

The Service Provider must review supporting documentation with AICO for concurrence the transaction is eligible to qualify for PMP.

Section III

Development of Fully Distributed Cost (FDC)

FCC Requirements

Cost allocation standards are set forth in Part 32 and Part 64 of the FCC rules which require the use of the attributable cost method of cost allocation, and compliance with the FCC requirements for affiliates' rate base development. Development of fully distributed cost requires the identification of direct and indirect costs, common overhead and a return on investment. FCC 96-150 currently permits an 11.25% rate of return. However, in the event a jurisdictional commission wishes to impose their singular judgement on the ROI, refer to the State Affiliate Pricing Requirements in the Affiliate Transaction Policy located

http://baimsa.verizon.com/corporate/regcompl/atp/index.shtml.

For further financial reference in conjunction with the FDC calculation, please refer to APM3 located on the Affiliate Billing intranet site http://baimsa.bellatlantic.com/corporate/fincomp/cb/fun/abhtml/html/abpolicy.htm

Frequency

The FDC calculation is to be performed whenever a new contract arrangement has been entered into with a non-regulated affiliate. The FDC calculations on existing arrangements should be reviewed annually, or when any material change to the ILEC's/non-regulated affiliate's cost structure has occurred.

Section IV