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In the Matter of PRESCRIPTION OF PROCEDURES FOR SEPARATING AND ALLOCATING PLANT INVESTMENT, OPERATING EXPENSES, TAXES, AND RESERVES BETWEEN THE INTRASTATE AND INTERSTATE OPERATIONS OF TELEPHONE COMPANIES

 

Docket No. 17975

 

FEDERAL COMMUNICATIONS COMMISSION

 

16 F.C.C.2d 317 (1969)

 

RELEASE-NUMBER: FCC 69-65

 

January 29, 1969 Adopted

 


 

BY THE COMMISSION: COMMISSIONER JOHNSON DISSENTING AND ISSUING A STATEMENT.

 

1. This proceeding is an outgrowth of the general investigation (docket No. 16258) into the lawfulness of the charges of the Bell System companies for interstate and foreign communications services and other related matters. That proceeding was instituted by our order of October 27, 1965. As part of that proceeding we considered the propriety of the principles and procedures set forth in the NARUC-FCC separations manual for separating the Bell System's plant, expenses, taxes, and reserves between its interstate and intrastate operations. We also considered proposals for revisions of the principles and procedures advanced by the Bell System and other parties. On July 5, 1967, the Commission issued its interim decision and order in docket No. 16258 in which it accepted and prescribed the separations manual's methods as appropriate with the exception of the methods applicable to the allocation of subscriber plant. At the same time, the Commission rejected the various proposals for revisions to the manual and adopted new principles and procedures for the separation of subscriber plant. A detailed discussion of the background of the jurisdictional separations problem, as well as the rationale for various methods of separations, are contained in paragraphs 240 through 322 of our July 5, 1967, interim decision and order and are incorporated herein by reference.

 

2. In response to various petitions for reconsideration, the Commission, on September 14, 1967, released its memorandum opinion and order on reconsideration by which it stayed the effect of its prescribed plan and reconstituted the so-called technical experts group n1 to consider improvements or refinements which might be made in the prescribed [*318] plan. This technical experts group considered the Commission's prescribed plan, a new plan proposed by the Bell System, and various suggested modifications of the latter. The participants could not agree on the acceptability of any one plan. A report dated November 15, 1967, was filed which set out the different positions of the parties.

 

n1 The technical experts group was formed by direction of the telephone committee at a prehearing conference on July 11, 1966, in docket No. 16258 for the purpose of endeavoring to narrow the issues and devising other means of expediting consideration of separations, pursuant to the Commission's memorandum opinion and order issued Apr. 11, 1966. It consisted of representatives of all parties who submitted separations proposals pursuant to the telephone committee's order issued Apr. 22, 1966, and members of the Commission's staff.

 

3. On January 24, 1968, the Commission adopted a further memorandum opinion and order in docket No. 16258 in which the separations methods prescribed by its July 5, 1967, interim decision were reaffirmed and made final for the purpose of determining the Bell System's interstate revenue requirements in docket No. 16258. At the same time, the Commission noted certain questions raised in the technical experts group's report with respect to the Commission's plan. We also took cognizance of the policy of this Commission to cooperate with the telephone industry and the National Association of Regulatory Utility Commissioners (NARUC) in the development of separations methods and, in particular, the special interests of the State commissions in the matter of jurisdictional separations. In order to give full consideration to the views held by those affected by the prescription of procedures for jurisdictional separations and to evaluate any alternate plans together with the Commission's plan, the Commission adopted on the same date the notice of proposed rulemaking instituting this separate proceeding for the purpose of prescribing separations procedures for the future.

 

4. Comments of interested parties in response to the notice of proposed rulemaking were due on February 26, 1968, and reply comments were due on or before March 12, 1968. These dates were extended to March 12 and March 27, 1968, respectively, in our order of February 13, 1968, in response to a request of the NARUC.

 

5. Timely comments have been filed by the Bell System; the Independent Telephone Group (consisting of United States Independent Telephone Association, G.T. & E. Service Corp., United Utilities, Inc., and the National Telephone Cooperative Association); the Western Union Telegraph Co.; the National Association of Regulatory Utility Commissioners; the networks (consisting of American Broadcasting Cos., Inc., Columbia Broadcasting System, Inc., and National Broadcasting Co., Inc.); General Services Administration for the Executive Agencies of the United States; California Public Utilities Commission; District of Columbia Public Service Commission; Iowa State Commerce Commission; Kansas State Corporation Commission; Montana Railroad Commission; New Jersey Board of Public Utilities Commissioners; North Carolina Utilities Commission; West Virginia Public Service Commission; Wisconsin Public Service Commission and cities of Los Angeles, San Francisco, and San Diego. Reply Comments have been filed by the Bell System; the Independent Telephone Group; the Western Union Telegraph Co.; the networks; California Public Utilities Commission; and District of Columbia Public Service Commission.

 

INTEREXCHANGE PLANT

 

6. Historically, two methods have been used for the separations of interexchange circuit plant to determine the allocation of the cost of this plant between State and interstate jurisdictions. The first plan was contained in the 1947 edition of the separations manual and remained in effect until 1956 as a method for the allocation of the interexchange circuit plant. Under the 1947 plan, the book cost of the circuits used wholly for a single service was assigned directly to that service. The book cost of circuits used jointly for both services was allocated between services on the basis of relative use measured by the conversation-minute-miles of traffic for each service using the facilities jointly.

 

7. In July 1956, the Modified Phoenix plan was introduced as the method for the separations of Bell's interexchange circuit plant and is currently in use. The Modified Phoenix plan procedures apply to the allocation of the book costs of interexchange circuit plant of the associated companies of the Bell System used primarily for message toll service. For purposes of the allocation, this plan treats all Bell System toll lines plant, both Associated Company and Long Lines, which is located in a given State and which is used to serve subscribers in that State, as if such plant were jointly used to render both intrastate and interstate services. Thus, the plan averages the lower unit costs of Long Lines plant, used only for interstate service, with the higher unit costs of Associated Company plant, used to provide both services, and thereby assigns an increased amount of costs of this plant to interstate. The Commission's July 5, 1967 decision in docket No. 16258 concluded that the use of the Modified Phoenix plan should continue as the procedure for the jurisdictional separations of Bell's interexchange circuit plant.

 

8. The Bell System, in the general investigation, proposed changes in the procedures for jurisdictional separations of interexchange circuit plant. Thus, it proposed elimination of the Modified Phoenix plan and a return to methods generally consistent with the procedures of the 1947 separations manual used prior to 1956. It also urged elimination of broad averaging of line haul and terminal costs and the adoption of a method that would determine such costs separately for each segment. Another proposed change was the designation of circuits used for one service only to include circuits handling traffic for another service so long as the use by the other service did not exceed 5 percent of the total usage of the circuits. These proposals were opposed by the State commissions, through the NARUC, and others. The Commission did not accept the changes proposed by the Bell System. In short, the Commission concluded that on the basis of the considerations then advanced there was not adequate justification for overturning a separations principle of 11 years standing. With respect to elimination of broad averaging, we held that the refinement sought was not necessary for the purpose of jurisdictional separations.

 

9. The Bell System in this proceeding, now supported by the NARUC, has renewed its proposal for elimination of the Modified Phoenix plan and adoption of methods generally similar to those contained in the 1947 edition of the separations manual. However, the [*320] present Bell proposal retains the broad averaging features, including the use of average cost per circuit mile in each study area, as required by the current edition of the manual. It provides for the assignment of costs of circuits used wholly in interstate or intrastate operations directly to their respective operation and the allocation of the costs of jointly used circuits among the operations on the basis of conversation-minute-miles of traffic for each operation. In this respect, Bell has modified its previously proposed method for classification of circuits where other use of a circuit did not exceed 5 percent. Its instant proposal provides for apportionment of the costs of any circuit whose use is not confined entirely to a single service.

 

10. Those parties seeking herein the elimination of the Modified Phoenix plan advance the following reasons in support thereof:

 

(1) The methodology required by the Modified Phoenix plan is not consistent, in principle, with the methodology now used for separating exchange plant. The latter procedures are premised on the principle that traffic sensitive plant should be apportioned on the basis of actual or relative use. Interexchange circuit plant is clearly traffic sensitive.

 

(2) The Modified Phoenix procedures are incompatible with current technology and foreseeable future technological advances, e.g., the use of communications satellites for domestic long haul communications.

 

(3) Compared to the situation existing at the time of the adoption of Modified Phoenix, short haul toll operations of the associated companies are now benefiting cost-wise much more from technological advances and to this extent there is now less justification to equate the economic benefits of said advances through the averaging of the costs of short haul plant of the associated companies with the costs of longer haul plant of Long Lines, which is used exclusively for interstate operations.

 

(4) Contrary to the original rationale for Modified Phoenix, Bell System toll lines plant is not engineered and operated as an entity to serve customers in a State, but, rather is engineered and operated to serve customers in other States as well.

 

(5) The plan results in an artificial overstatement in interstate book costs of about $500 million currently and the amount is increasing. Moreover, the plan produces and erratic and inequitable distribution in benefits among the States (i.e., 70 percent of the benefits inure to 12 States which would otherwise account for only 40 percent of the book costs). This disproportion is also increasing with time.

 

11. In addition to Bell and the NARUC, the States of New Jersey and North Carolina, in their individual capacities, favor the elimination of Modified Phoenix. The elimination is opposed by the Independent Telephone Group, Western Union, GSA, and, in their individual capacities, by the States of California, Iowa, Kansas, Montana, West Virginia, and Wisconsin, and by the cities of Los Angeles, San Francisco, and San Diego. Those who oppose the elimination rest their opposition principally on the argument that the toll lines plant in each State is engineered and operated as an entity and that the low cost high volume routes are dependent on the high cost low volume routes.

 

12. The separations procedures proposed in this proceeding by the Bell System and the NARUC are substantially changed from the procedures advocated by the Bell System in F.C.C. docket No. 16258. Under the previous proposal costs would be determined separately for line haul and terminal equipment. The present proposal, as already noted, contemplates continuation of the broad averaging of the line haul and terminal costs of interexchange plant in each study area. In the previous proposal, a circuit was assigned wholly to one service where other traffic on the circuit did not exceed 5 percent of the total usage of the circuit. This is eliminated in the present proposal. Circuits used wholly in one service are directly assigned to that service. Circuits carrying more than one service will be allocated between services on the basis of proportionate use. The previous proposal was opposed by the NARUC whereas the present proposal is supported by the NARUC and, hence, the majority of the State commissions. The previous proposal shifted $175 million in revenue requirements from interstate to intrastate. By the present proposal, this amount is reduced to $118 million.

 

13. We have carefully considered the arguments advanced by the parties advocating retention of the existing procedures for separating interexchange plant. In doing so, we have also reexamined, in light of current conditions, the rationale on which the adoption of these procedures was premised. We have also considered the importance of designing cost allocation procedures so as to assign book costs to those services which are responsible for incurring them and that the principle of actual use is the best means of assigning such costs except where it can be demonstrated that adherence to actual use will not result in a fair and equitable apportionment. Upon the basis of these considerations we have concluded that reversion to the actual use principles and procedures similar to those contained in the 1947 separations manual applicable to interexchange circuit plant is necessary and appropriate at this time.

 

14. A principal argument to sustain the Modified Phoenix plan has been that telephone plant is engineered and operated as an entity and that, therefore, the averaging of the costs of Long Lines terminating plant used exclusively in interstate service with the costs of Associated Co. plant is warranted. There is no dispute that the telephone system functions as an integrated entity and that each operating component must have technical compatibility with all others. While this may be true as a generality, it tends to oversimplify the picture and to obscure the fact that substantial amounts of facilities are devoted exclusively to one or the other of the services, State or interstate. We think it is essential, in the light of present day technological considerations, that the book costs of these facilities be assigned to the service which is responsible for them.

 

15. Nor is there any dispute that the cost averaging of Modified Phoenix was designed to lessen the disparity between costs and revenue requirements applicable to intrastate and interstate services, respectively. However, current operating data make it apparent that the Modified Phoenix plan is no longer producing its desired effects except in a most generalized, but unbalanced, fashion. It is further apparent [*322] that under current conditions the plan is now operating to introduce gross distortions in the relative costs of interexchange plant being assigned to State and interstate services and that such cost distortions can have undesirable economic consequences.

 

16. Thus, it appears that since 1956, when Modified Phoenix was adopted, Associated Co. interexchange message circuit plant book costs have actually increased about 100 percent. However, the portion of such total book costs now being assigned to the interstate jurisdiction by virtue of the application of Modified Phoenix has increased 175 percent. This, in part, is the result of the more rapid growth of lower cost Long Lines plant relative to the growth of higher cost Associated Co. Plant. What is significant, however, is the progressive nature of the growing disproportionate assignment of Associated Co. interexchange costs to interstate operations -- a trend which has no relationship whatsoever to the actual use being made of Associated Co. plant for State and interstate services.

 

17. This distortion is compounded by the disproportionate effect of the Modified Phoenix plan among the several States. For example, 70 percent of the additional book costs which are assigned to the interstate service because of the procedures of the Modified Phoenix plan are distributed among only 12 States. On the basis of actual use, or in other words, without the cost averaging introduced by the Modified Phoenix plan, the 12 States would account for only 40 percent of the book costs allocated to interstate. This disproportionate distribution, which is largely attributable to the happenstance of the location and physical routing of Long Lines plant, casts serious doubt on the current validity of the Modified Phoenix procedures. It also casts doubt on their efficacy in realizing the objective of the plan to lessen disparity between State and interstate revenue requirements.

 

18. Another argument advanced to support retention of Modified Phoenix has been that the cost averaging provided for therein is justified by the degree to which Long Lines route mileage represents plant jointly owned by Long Lines and the Associated Companies. To the extent that this may be a valid justification for treating all such plant as if it were used jointly for State and interstate services, it is significant that between 1954 and 1967 the proportion of Long Lines route miles which were derived from plant jointly owned with the Associated Companies decreased from 73 percent to 55 percent of total Long Lines route miles. In 1967, 52 percent of Long Lines terminating circuit miles were, in fact, on wholly owned Long Lines routes. In any case, with respect to jointly used facilities, it appears that, in a sense, each of the services contributes to the whole and that an appropriate measure of such contribution is the relative use of such facilities in each service applied to the actual costs associated with such facilities.

 

19. Under all the foregoing circumstances, we conclude that the Modified Phoenix plan is not producing fair and equitable results but rather gross distortions in cost allocation and that it is timely and necessary to revert to the actual use principles and procedures similar to those contained in the 1947 separations manual as the basis for assigning the costs of interexchange circuit plan. We also conclude that elimination of the Modified Phoenix plan and reversion to actual or [*323] relative use as the basis for allocating circuit plant will establish consistency with the treatment we have prescribed for the allocation of exchange plant, namely, that such plant that is traffic sensitive should be allocated on the basis of actual or relative use. Since interexchange plant capacity is geared to traffic volume, it is traffic sensitive. Finally, we conclude that with the rapid development and advancement of new and competing technologies, it is important that the separation procedures used for determining the interstate and intrastate revenue requirements not obscure the true economic facts and advantages of each technology. The artificial assignment of costs to one service or another, as occurs under the Modified Phoenix plan, tends to obscure the basis for objective comparison. This is of more than theoretical concern today as we expect to be confronted in the near future with the problems of making sound determinations as to where and how, if at all, the satellite facilities to provide domestic communications services would be feasible and economical, having in mind, among other things, the total costs of alternative means of supplying similar services over like distances. However, it should be noted that this discussion is related to procedures for jurisdictional separations only and should not be construed as indicating the methods we believe to be proper for the purpose of making allocations of total interstate services nor for the determination of costs for competitive services. n2

 

n2 Insofar as any transfers of property between Long Lines and Associated Companies may affect the intrastate and interstate revenue requirements, the Commission has ample statutory authority to oversee this matter and to prevent possible abuses.

 

EXCHANGE PLANT

 

20. As noted above, the Commission in its July 5, 1967 interim decision accepted and prescribed the principles and procedures of the separations manual (including the revisions of the Denver plan), except those applicable to subscriber plant. With respect to this class of plant, we reashed the following conclusions:

 

(a) Actual use, although a relevant factor, is not the sole factor to be considered for the allocation of subscriber plant costs. This is because subscriber plant is not traffic sensitive. The plant is installed largely for the purpose of providing subscribers with a constantly available access to and from the exchange and long distance telephone networks. Thus, the cost and capacity of the plant involved is not determined by the amount of its use.

 

(b) The charge per toll message, which is a characteristic feature of all toll rate schedules has in itself a deterrent effect on the actual use of subscriber plant. This is in contrast with the lack of deterrent in the exchange rate schedules which generally are based on flat or unmeasured rates.

 

(c) There is a further deterrent to use of subscriber plant in the toll rate structure which results from the fact that the charge per toll call increases with distance and conversation time. This deterrent effect of distance is enhanced in the case of interstate use of subscriber plant because on the average the interstate length of haul is greater than the average length of haul of intrastate toll calls.

 

(d) While distance gives an element of value to long distance calls and the greater cost has a restrictive effect on toll usage, procedures for the separations of costs of subscriber plant based solely on the concept of distance are not acceptable.

 

21. On the basis of the foregoing conclusions and exercising our considered judgment in light of all of the considerations then before [*324] us, we adopted a new two-part formula for the jurisdictional separations of the costs of the Bell System's subscriber plant. The formula was designed to take account of actual use of such plant for interstate services, as well as the deterrent effect on such use produced by the measured rate feature of the interstate toll schedule. The actual use is reflected in the first part of the formula which provides that a portion of the costs of the Bell System's subscriber plant allocated to the interstate message toll service shall be determined by applying to the study area book costs of subscriber plant the interstate SLU factors as measured by the ratio of interstate holding time minutes to total holding time minutes-of-use applicable to traffic originating and terminating in the study area. The deterrent effect is reflected in the second part of the formula which provides that an additive factor of 200 percent of the nationwide annual average interstate SLU factor for the total telephone industry be applied uniformly to the Bell System's subscriber plant costs in each study area. The amounts thus determined are added together to produce the total apportionment of subscriber plant costs to interstate.

 

22. In the instant proceeding, the Commission's July 5 plan for subscriber plant received the support of the Independent Telephone Group, Western Union, GSA, the States of California, Iowa, Kansas, Montana, West Virginia, and Wisconsin, and the cities of Los Angeles, San Francisco, and San Diego. n3 Objections to the July 5 plan were made by NARUC, Bell, the States of New Jersey and North Carolina and the District of Columbia. The Bell System has submitted an alternative plan herein which has received the endorsement of the NARUC, and which we will discuss hereinafter.

 

n3 Most of these parties advocated modification of the plan with respect to the District of Columbia because of its geographical situation.

 

23. The essence of the objections to the Commission's July 5 plan may be described as follows:

 

(a) The use of the same additive factor in each study area to compensate for the deterrent effect of the toll rate schedules ignores the fact that the degree of the deterrent is affected in each study area by such characteristics as its geographical location and community of interest with other parts of the Nation.

 

(b) The use of a single uniform factor does not adequately reflect the increasing deterrent effect of the toll rate schedule as the calling distances increase.

 

(c) Because the plan uses a flat percentage figure, it offers no incentive for the development of additional interstate business in a given study area.

 

(d) It produces inequitable results among the States.

 

24. In an effort allegedly designed to meet these objections, the Bell System, supported by the NARUC, has proposed herein the adoption of a revised plan for the allocation of the cost of subscribed plant. This plan consists of a three-part formula, part A is the same as the first part of the Commission's plan, i.e., study area interstate SLU factor times study area book costs. Part B is the same as one-half of the additive portion of the Commission's plan, i.e., 100 percent of the average nationwide interstate SLU factor times study area book costs. Part C of the Bell's proposal would increase the second half of the Commission's additive factor from 100 percent to 160 percent and would apply this portion of the additive factor in accordance with the following formula:

 

[*325] (a) Total industry subscriber plant book costs assigned interstate by part B; times

 

(b) Study area interstate holding time minutes divided by total industry interstate holding time minutes; times

 

(c) Average interstate initial period station rate at study area average length of haul divided by total industry average interstate initial period station rate at nationwide average length of haul; times

 

(d) Additive factor of 160 percent.

 

25. The Bell System contends that the plan which it proposes for the separation of costs of subscriber plant retains the best features of the Commission's plan and largely alleviates the alleged deficiencies. Thus, Bell alleges it retains the Commission's plan in both part A of its plan which reflects the actual use of subscriber plant and in part B of its plan which uses 100 percent of the nationwide average interstate SLU factor. As we will set forth hereinbelow, we also accept parts A and B of the Bell proposal. We, therefore, turn now to an analysis of the third part of Bell's plan.

 

26. The third part of Bell's proposal is quite complex and introduces several questionable concepts which we will discuss separately. The first concept is the use of nationwide, industrywide, average book costs. The effect of this aspect of the Bell formula is to develop an average total industry subscriber plant book cost per minute of use. This average book cost is then used to determine the additional amount of book costs assigned to interstate operations in each study area by the third part of the formula. As is pointed out by the Independent Telephone Group and California, who object to this feature of Bell's plan, it penalizes a study area with lower than average costs. Thus, it would appear that this concept is contrary to one of Bell's primary arguments in support of part C of its plan, i.e., that it would "reflect each study area's contribution to the total interstate enterprise."

 

27. Secondly, it is to be noted that Bell supports items (b) and (c) of its formula on the ground that they provide an incentive to each study area to make a greater contribution to interstate business and rewards success by increasing the interstate share of the study area costs. Bell further argues that increased calling pursuant to such an incentive would tend to reduce unit subscriber costs for both intrastate and interstate users. The Independent Telephone Group opposes this concept, stating that the determination of a telephone company's interstate costs should be derived by separating that company's book costs and not by rewards, incentives, or contributions. We agree with the Independent Telephone Group and do not believe that it is proper to base such an important aspect of separations primarily on an incentive factor of this type. However, we recognize that, if a proposed separations formula is otherwise fully supportable as reasonable from a cost allocation standpoint, appropriate consideration may well be given to factors which would tend to increase use or to decrease the average cost of handling calls. Unfortunately, Bell has not shown how implementation of the third part of their plan would provide such an incentive to use or which entities or users would be induced to make additional calls. Certainly there is no incentive to the interstate user since this feature of the formula by transferring costs from the intrastate to [*326] interstate jurisdiction would tend to increase total interstate costs. If the idea is to provide an incentive to the telephone companies to somehow bring about an increase in interstate calling or to increase the average length of interstate calls or length of conversation, or all three, we agree that the incentive concept would have merit. However, Bell has not shown, nor can we see, how the third component of Bell's plan would accomplish or even facilitate these objectives.

 

28. Aside from the foregoing, it must be borne in mind that the basic premise for an allowance in excess of actual SLU is the fact that usage of subscriber plant for interstate traffic is deterred by the combination of the unit charge and increasing initial rate as distance increases. The incentive approach which relates allocation to increased use rather than to barriers to use is diametrically opposed to the concept that there should be compensation for the existing deterrents to use and is therefore not an appropriate means for fixing additional allocation of subscriber plant.

 

29. The third weakness in the Bell plan results from the arbitrary and contrived nature of the 160 percent factor -- 60 percent above that proposed by the Commission in its plan -- which Bell would assign to the third part of its basic formula. This additional 60 percent appears to be premised primarily, if not solely, on the position that it would improve the results of the separations plan as among the various States. We should like to make it clear that the revisions in separations we are striving for herein are designed to remove existing inequities and to establish procedures which are reasonable and fair with respect to all jurisdictions. Since one of the basic reasons for elimination of Modified Phoenix was that it produced inequitable results and erratic distribution of interstate revenue requirements among the States, it is to be expected that the correction of this inequity would necessarily have different effects on different jurisdictions. Similarly, the application of the Denver plan procedures resulted in an irrational distribution of benefits among the various States. Correction of both of these inequities will necessarily increase benefits to those who received too little previously and decrease benefits to those who had received too much previously. We do not believe that in correcting past inequities we should adopt a plan arbitrarily designed to maintain the status quo with respect to all jurisdictions and thereby give unwarranted benefits to some, if not many, jurisdictions. The elimination of one series of inequities should not be the basis for creation of a new series of inequities. For all of these reasons we cannot accept the Bell proposal.

 

30. Although we are unable, for the reasons outlined above, to adopt the Bell System proposal as an acceptable method for the jurisdictional apportionment of subscriber plant, we are of the opinion that our July 5 plan can be improved by certain modifications or refinements that will make its application more equitable for all study areas. Thus, we believe that there is merit to the criticism of the use of a single uniform additive for all study areas. While the additive factor was intended, properly, to compensate for the deterrent to actual use of subscriber plant inherent in the toll rate structure, we recognize that the application of the same factor in each and every study area can [*327] produce some questionable results in particular study areas. For, as pointed out by Bell, the degree of the deterrent varies from study area to study area depending upon the geographical location of the particular study area and its community of interest with the rest of the Nation's telephone subscribers. In other words, subscribers situated in the central areas of the United States cannot make toll calls at the maximum rates of the interstate schedule, and such subscribers would find the toll rate schedule in this respect to be less of a deterrent to use of subscriber plant than subscribers situated on the east or west coasts. Also, subscribers in large population centers located close to each other, but separated by State boundaries, would tend to have a high calling rate between them and hence make greater toll use of the subscriber plant than subscribers located in large population centers at greater interstate distances from other population centers. These, and other considerations, necessarily affect the calling habits of toll subscribers and result in different usage patterns of exchange plant from study area to study area. Therefore, such considerations cannot adequately be reflected by a single flat nationwide additive factor designed to compensate for the deterrent effect of the interstate toll rate schedule on interstate use of subscriber plant.

 

31. Moreover, our further analysis of the July 5 plan indicates that it warrants adjustment in another respect. As interstate rates are reduced the deterrent to use of exchange plant for interstate calling is likewise reduced. Therefore, the additive factor, which is intended to compensate for the deterrent, should also have a decreasing effect. However, as formulated by our July 5 plan, the additive factor will have the opposite effect as interstate rates are reduced and will, in itself, require an increasing allocation of subscriber plant costs to the interstate jurisdiction. In other words, with a nationwide reduction in interstate rates, there will tend to be a decrease in the deterrent effect of toll charges and an increase in the nationwide interstate SLU factor. However, under our July 5 plan, with its 200 percent additive factor, interstate revenue requirements would be increased by a greater allocation of plant and expenses. Thus, a factor which should have decreasing importance as deterrents are removed would have a disproportionately increasing effect. Over an extended period of time, this would defeat the spirit and intent of the additive and could unduly burden the interstate jurisdiction with excessive allocations of subscriber plant costs.

 

32. We believe that our concerns in the above respects, which are shared by a number of respondents in this proceeding, can be met by a modification of our July 5 formula. All respondents are in apparent agreement with our July 5 plan insofar as it provides for measuring, in each study area, actual interstate use of subscriber plant on the basis of interstate subscriber line usage (SLU). Thus, we will continue to use the study area SLU factor for the first part of our formula. As recommended by the Bell plan, we will also provide for an additive of 100 percent instead of 200 percent of nationwide interstate SLU as the second part of the formula. In doing so we give recognition to the fact that subscriber plant, wherever located, is available to interstate operations generally for the origination and termination of interstate long distance calls. It also recognizes that the single interstate toll rate [*328] schedule applies uniformly throughout the continental United States and, therefore, by virtue of this factor alone, exerts a restrictive effect on the actual use of subscriber plant in all study areas. However, to respond to the concerns that the degree of the deterrent of the toll rate schedule is not entirely the same from study area to study area because of the considerations peculiar to each study area as discussed in paragraph

30, above, we are providing, as the third part of our formula, for a second additive consisting of a midified study area SLU factor to be applied to study area book costs of subscriber plant. This modified SLU factor will consist of the study area SLU factor multiplied by the ratio of the average interstate initial period station rate at the study area average interstate length of haul to the nationwide composite total toll initial period station rate at the nationwide average length of haul for all toll traffic for the total telephone industry. The use of a modified SLU factor in this fashion will provide a reasonable measure of the deterrent effects on interstate toll use of subscriber plant in a particular study area resulting from the conditions affecting such toll usage which are peculiar to such study area as discussed above. It will also relate compensation for the deterrent effect reasonably to the effect itself. Thus, as the relative deterrent decreases the relative compensation would tend to decrease, and when the relative deterrent effect increases so will the compensation.

 

33. In our best judgment and with full consideration of all the facts and arguments before us in this proceeding, we are convinced that the procedures for the jurisdictional separation of telephone plant that we are prescribing herein are fully warranted and produce fair and equitable results for all parties affected thereby. n4 We wish to stress again that there is no means of precise mathematical measurement of the amounts necessary to give effect to all of the factors under consideration in this proceeding. In the area of jurisdictional separations, it is necessary to make acceptable compromises between complex procedures which are costly to effectuate and less precise methods which are generally equitable and have the advantage of simplicity and ease of application. This is particularly appropriate since informed judgment of necessity has such a substantial impact on the overall results.

 

n4 These procedures, and our prescription thereof, are not designed to apply to Alaska and Hawaii in view of the substantially different conditions existing in the case of these States.

 

SUBSIDIARY ALLOCATION PROCEDURES

 

34. To effectuate our conclusions we are adopting and prescribing the principles and procedures contained in the April 1963 separations manual including the 1964 and 1965 addenda thereto as modified by the revisions in those procedures adopted herein for the allocation of the costs of interexchange circuit plant and subscriber plant. A more precise description of the prescribed revisions is contained in the attached appendix A for interexchange circuit plant and for subscriber plant. These revisions describe the procedures for the allocation of only the book costs of plant in these categories. The allocation of reserves and expenses that are directly related to such book costs shall be accomplished [*329] in a manner consistent with the procedures set forth for the allocation of book costs.

 

35. There are certain other traffic and commercial expenses (specified in app. A) which are now apportioned on the same basis as the book cost of subscriber plant. No revisions in the procedures for separating these expenses have been proposed and the revenue requirement effect of the various plans considered in this record have been calculated on the basis of continuing the apportionment of these expenses under the existing procedures. Since the Denver plan procedures will no longer be applied for the separations of subscriber plant, and in view of the relatively minor effect of these expenses on the overall amounts assigned to interstate, we do not deem it necessary to continue the calculations required to apportion these expenses by the method now being used even if they were otherwise found to be justified. Furthermore, the deterrent effect concept discussed herein as supporting the subscriber plant separations method which we are prescribing does not appear to be applicable to these expense items. In view of the nature of these expenses and after consideration of the historical treatment accorded them for separations purposes, we are of the opinion that subscriber line usage is an appropriate basis for apportioning such expenses and we are therefore prescribing such procedures as set forth in appendix A.

 

PROCEDURAL QUESTIONS

 

36. Both California and the Independent Telephone Group have requested, in their comments, that the matter of separations be designated for an evidentiary hearing before a final determination is made herein. California is primarily concerned n5 that if it is proposed that any plan other than the original plan set forth in our decision and order be adopted, further evidentiary hearings should be held so that any such new plan would be subjected to cross-examination in order to afford the States concerned full due process. It is to be noted we are following the same procedures in adopting the separation plan herein as we did in adopting the plan set forth in our interim decision, which California now supports as fully justified by the record in that case. In each case we arrived at a plan which reflects our informed judgment, based on all of the data before us, as to the plan which is most reasonable and feasible in the current circumstances. We specifically considered the need or requirement for cross-examination on the record before the adoption of our original plan in our memorandum opinion and order on reconsideration in docket No. 16258 and found that it was not required (see par. 47-49 of the memorandum opinion and order).

 

n5 California suggests the possible inaccuracy of the Bell System figures relating to results of the various separation methods. It states that no one during the course of docket No. 16258 had access to the work papers underlying such figures. An examination of the record of that docket fails to disclose any unsatisfied request, made on the record, that the Bell System make such work papers available for inspection by California or anyone else.

 

37. The Independent Telephone Group is primarily concerned with the application of the Modified Phoenix plan to the independents. It alleges that the independents should be in the same position as the Bell companies insofar as the application and implementation of the Modified [*330] Phoenix plan is concerned. Since we have now provided for the elimination of that plan insofar as the Bell companies are concerned, it would appear to us that this basic argument of the independents is no longer applicable.

 

38. Aside from the foregoing, it is to be noted that this entire question of separations has been considered both at great length and in great depth for a period of well over 2 years. All interested parties, including the independents, participated fully in the proceedings in docket No. 16258, in the meetings and deliberations of the Technical Experts Group, and in the filings in the instant proceeding. Thus, all parties has ample opportunity to make their views known, to propose their own separations plans, and to comment on the proposals of other parties. We stress, as has been set forth hereinabove, that the plan adopted herein is designed, insofar as an exchange plant is concerned, to improve the plan we originally adopted and to satisfy legitimate criticisms which have been made with respect to that plan. Insofar as interexchange plant is concerned, we have determined, on further review and because of the fast pace and vast scope of technical change, to eliminate the Modified Phoenix plan so that we may have available appropriate and accurate data with respect to the costs of long-distance transmission facilities on the basis of which we can make informed decisions regarding the relative merits of alternative facilities which are becoming available. Under all of these circumstances we cannot find that considerations of equity require, or that any useful purpose would be served, by now setting this matter for further formal evidentiary hearing. We therefore deny the above described requests that this matter be set for further evidentiary hearing.

 

CONCLUSIONS

 

39. We are aware that a major change in jurisdictional separations of the type we are prescribing herein can have substantial effects on the various jurisdictions, particularly since intrastate telephone rates have for several years been based on revenue requirement calculations, computed in accordance with the separations procedures contained in the Modified Phoenix and Denver plans. Immediate and full implementation of the procedures we are prescribing herein, for the separation of both subscriber plant and interexchange plant costs, could have considerable impact in a number of jurisdictions where intrastate revenue requirements would be increased. This is inevitable where corrective action is being taken to remove deep-seated inequities in the existing procedures. We believe that the appropriate method in dealing with this problem is not the selection of a factor designed solely to maintain a status quo as Bell has proposed by its plan. Following this course of action will simply result in creating a new series of inequities. We believe, on the other hand, that it is reasonable and appropriate to minimize the immediate impact on the revenue requirement position of individual States by phasing the implementation of our prescribed plan over a period of time. Accordingly, in our order herein we will provide for the elimination of one-half of the calculated effect of Modified Phoenix upon the effective date of this report and order [*331] and the elimination of the remainder over the following 12 months. The net effect of the first stage of this phased plan will be to shift revenue requirements of abour $94 million from Bell's intrastate to its interstate operations. This is about the same amount as was transferred to interstate operations under our original plan. As experience has shown, the allocation of subscriber plant to interstate will increase in sufficient amount to substantially offset the remaining effect of the elimination of Modified Phoenix by the end of 1969. Accordingly, it would appear that as a result of such phasing of the elimination of Modified Phoenix, this plan will tend to minimize the effect of these revisions in separations procedures on intrastate revenue requirements.

 

40. Appendix A attached hereto is designed to serve as an addendum to the April 1963 edition of the separations manual which, with the 1964 and 1965 addenda thereto, are hereby incorporated by reference into part 67 of our rules and regulations. Although appendix A does not set forth specific language as substitute for various paragraphs of the manual and the 1965 addendum, we believe appendix A with the discussion in this report and order adequately describes the separations procedures we are prescribing. We expect our staff to meet informally with the NARUC separations subcommittee, representatives of the industry and any other parties having an interest in this matter, for the purpose of drafting revisions to the manual to incorporate therein the changes we are adopting in this report and order. Furthermore, we are well aware that because of the increasingly rapid changes in telephone technology and innovations in service offerings and rate structure, the jurisdictional separations procedure we are prescribing and incorporating in our rules will require continuing review and possible revisions on occasions in the light of changed conditions in the industry. In this connection we intend to continue our cooperation with the NARUC, as in the past, in the conduct of joint studies and reviews of jurisdictional separations matters. In fact the Commission will look to these joint studies as the prime forum for continued analysis of separations procedures and the source of proposals for their refinement, improvement or modification in light of actual experience and technological changes. Any proposed revision in the prescribed procedures which may result from such studies or which may be advocated by any other interested party will be considered on a public record in accordance with the rulemaking provisions of the Administrative Procedure Act.

 

Accordingly, It is ordered, That, pursuant to the provisions of sections 4(i), 221(c) and 221(d) of the Communications Act of 1934, as amended, the NARUC-FCC separations manual, together with its various addenda and as modified by the procedures described in appendix A hereto, is hereby adopted and prescribed as the procedures which shall hereafter be used in the separation of investment, operating expenses, taxes and reserves between the interstate and intrastate operations of telephone companies; and it is further ordered, effective January 1, 1969, That title 47 of the "Code of Federal Regulations" is amended by the issuance of a new part 67 as contained in appendix B hereto, which incorporates by [*332] reference into the Commission's rules as part 67 thereof, the aforesaid separations manual and its addenda, including the 1969 addendum as contained in appendix A hereto; and it is further ordered, That this proceeding Is terminated.

 

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.

 


 

DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

 

One of the prime responsibilities of the Federal Communications Commission is to insure that its actions serve to encourage and promote the creation of the telephone system best suited to serve all the needs of the Nation. In fulfilling that responsibility the Commission must articulate the goals and purposes it seeks to serve, consider the alternatives for the achievement of those goals, and choose the most feasible alternative. I have previously indicated my concern about the lack of knowledge of the social and economic consequences of the Commission's decisions regarding telephone regulation -- and even its disinclination to consider those decisions in the light of these consequences.

 

With regard to separations I noted in July 1967: "[The] socialeconomic-political implications of charging costs to one telephone user rather than another are questions the Commission has been able to give less consideration than I think desirable in evaluating the alternative separations procedures available to us." A.T. & T., 9 F.C.C. 2d 30, 127 (1967). And when this rulemaking was opened I urged: "[We] should direct the FCC staff to come forward with a well-thoughtout, economically rational separations analysis, not taking into account the political pressures and reactions of those whom changes would affect.

 

Presumably there are several policy alternatives available to us -- depending on the assumptions and objectives to be achieved by such a plan. Then, after the Commission had arrived at its best judgment from adequate examination of the policy matters involved, rulemaking could be proposed." A.T. & T., 11 F.C.C. 2d 493, 503 (1968). Insofar as I can discern the past year and one half since the July 1967 decision has brought no progress in the directions I then thought to be necessary.

 

Jurisdictional separations is an important matter for the Commission, the Bell System, potential competitors to Bell, the States, their [*336] regulatory authorities -- and the 200 million Americans who must pay the bill, and depend upon the telephone system. Separations procedures have a profound impact on dividing the costs of the Bell System, assignment of costs to users, and, ultimately, the prices users pay for the services they buy. Exchange service and long distance service may be more or less costly as a result of separations decisions -- with a profound influence on the functioning of our society.

Jurisdictional separations is an inherently arbitrary undertaking: the dividing among regulatory authorities constituted along State lines of an industry that is designed as a national system, its parts interdependent and constructed to serve a whole Nation. One need only look to the history of separations for illustration of the wide variation in procedures that at one time or another have constituted the conventional wisdom on this subject. The point to be drawn from this review is that justification for a particular methodology must be sought elsewhere than the pseudointellectual metaphysics of the Charleston Plan, Denver Plan, Modified Phoenix, and 100 percent to 200 percent of SLU.

 

Historically, the separations problem has not been addressed within the framework of public policy objectives of communications regulation, nor has it involved a thorough consideration of the consequences of alternative separations methods. Separations procedures involve arbitrary cost allocations which traditionally have been made on the basis of informal negotiations, out of the public eye, in accord with the criteria of political expediency. For Bell, separations procedures merely transfer revenues and costs from one pocket to another. If revenues appear too high in interstate services, and a rate cut seems likely, it can shift some additional costs to the interstate side of the business and make rates of return look lower. The State commissioners (many of whom must stand election) want to avoid having to raise rates to the home owners, and therefore seek to shift as much cost as possible away from their regulatory jurisdiction. The FCC wants to avoid trouble with NARUC (the association of State commissioners) and the Congress. Within this framework the Bell System has been able to exert dominant influence over the resulting separations methods because of its singular dominance in dealing with the diverse and fragmented regulatory authorities of 50 States and one Federal commission. The procedures that have been undertaken and the events that have developed since the Commission's July 1967 decision, together with the new separations proposal, demonstrate a continuation of the unhappy tradition of separations analysis. Just as in the past, the separations proposal is devoid of consideration of any social or public policy objectives, and lacks a thorough analysis of the economic and social consequences of the change.

 

The Commission's role prior to the formal July 1967 decision and proceeding was to participate in negotiations between the parties involved -- Bell, the States, and others -- and then to not disapprove the separations procedures worked out by others. The procedures are embodied in a one-volume manual which consists more of exhortation than of detailed procedures. Detailed procedures are embodied in a multi-volume Bell manual prepared for its own use. Whatever one might [*337] say of the history of FCC involvement in separations, it can scarcely be accused of regulatory enthusiasm. In one instance Bell made an administrative shift in its own internal procedures which resulted in a change in separations results involving millions of dollars without changing the separations manual. n1

 

n1 Gabel, "Development of Separations in the Telephone Industry," p. 69-70 (1967).

 

I have detailed my general objections to the specific separations proposals discussed by the majority -- and the concomitant adoption of the entire separations manual. But there are specific problems with the subscriber and interexchange plant proposals here prescribed. I do not care to elaborate on the subscriber plant formulas except to note the complete lack of rationale for the value of the ratios chosen. A substantial additional amount of cost is shifted from intrastate to interstate jurisdictions, enough to roughly balance what is to be done with interexchange plant, and to cause no embarrassment to Bell in either jurisdiction.

 

For interexchange plant, the Commission action here appears to provide Bell with substantial flexibility in terms of the assignment of plant among jurisdictions and service categories (message toll telephone versus private line). Further, the adopted separations procedures will be implemented by Bell via its division of revenue methodology over which the FCC cannot exercise effective control. In essence, it is adopting a separations methodolgy without knowing the extent to which the costs are manipulable by Bell in its implementation, or establishing effective control procedures so that the separations can be done by the Commission and not by Bell. The end result of the adoption of the proposal may be that it has moved to a point where the costs cannot be manipulated among jurisdictions by political pressures, as has been in the case in the past, but only by Bell within the adopted procedures. In either instance, public interest considerations are ignored.

 

The proposed change in the interexchange allocation methodology is justified by the necessity to eliminate the erratic or irrational distribution of benefits among the States. Inasmuch as the proposed plan allocates benefits among States in accordance with an arbitrary methodology dependent upon the age, density, and location, of plant as well as the particular assignment for usage, it does not change the basic problem of distribution of benefits. It simply distributes them in a different arbitrary manner.

 

The second principal argument for changing the interexchange allocation procedures is to obtain the costs necessary for an economic comparison among the different technologies. Such an argument must be entirely fallacious. Any comparison of technologies that is undertaken after cost elements are arbitrarily allocated among jurisdictions can certainly not be very useful. And there is no indication that if and when domestic satellites become an operational part of the domestic communications system, that jurisdictional separations problems of severe complexity will not be involved. The Commission's concern for Bell's ability to compete fairly is heartwarming -- would that we extended it to Bell's competitors.

 

[*338] Finally, we are dealing with an integrated plant that can be used alternatively for a wide variety of uses. Additions to it are based upon an aggregation of interrelated factors. The particular accounting cost of a particular item of plant in a particular location need not provide any indication of the true cost of providing the service that happens to be provided over that plant at any point in time.

 

In summary, it is clear that the separations problem is a complex one subject to strong political forces and vested interests. Inasmuch as a State line is an artificial boundary for separating jurisdictions, the cost allocations must remain inherently arbitrary. This leaves open significant discretion in cost allocation that can be used for good or ill -- that can be used to pursue the political desires of private parties and particular regulatory agencies, or that can be used to extend and broaden public interest considerations in accord with the social benefits and costs of allocating book cost to particular jurisdictions. Rather than take the broad view and use the discretion to further public interest objectives, the Commission continues to prefer the more familiar, if less intelligible, path. It is content to leave primary control in the hands of the Bell System for implementation in terms of its objectives.

 

The net result is that the Commission's action ends up granting to Bell in 1969 what it sought unsuccessfully in 1967. Today's grant is made for reasons which clearly do not provide justification to overrule conclusions reached then. Moreover, the Commission opinion ignores the only substantial independent academic works in the field -- both of which are strongly critical of the Commission's past failures and the specific proposals adopted here. One critic, a member of the present FCC staff, wrote two articles when he was on the staff of the Federal Power Commission in 1963. n2 The other analyst, long familiar with FCC actions in this area undertook his study as a Brookings Fellow -- a study published by the Michigan State University Institute of Public Utilities. n3 He notes:

 

n2 Bushnell, "Regulatory Responsibilities in Telephone Cost Allocation," Public Utilities Fortnightly, Nov. 7 and Nov. 21, 1963.

 

n3 Gabel, "Development of Separations Procedures in the Telephone Industry," p. 5, 126 (1967).

 

Other criteria might involve significant redistribution of telephone costs. The telephone industry is not renowned for its risk taking. Telephone regulators are prone to follow the industry pattern. Both the industry and its regulators have been reluctant to develop comprehensive cost allocation principles and aggressive pricing practices in terms of public policy objectives. Alternative separations treatment could reduce costs of local exchange service and, eventually, exchange rates, making possible a universal development of exchange services. Increased toll revenue requirements should be met not with higher rates, but by reduced unit charges.

* * *

We have concluded our chronology of telephone cost allocation methods. It should be clear that separations principles have been influenced strongly by the regulated utility, the American Telephone & Telegraph Co. It should be equally clear that the criticisms expressed herein are not primarily directed to the myths that have been generated to rationalize the "philosophy" of telephone separations. Nor is the primary question one of cost accounting method or of identifying separations principles with appropriate telephone engineering practice. Neither should separations be viewed merely as a subject of academic interest. The [*339] matter is one of sound public policy; what objectives are to be achieved and what separations methods are appropriate to achieve these objectives. Our criticism is that our public policy makers, fragmented and competitive, have been unable to arrive at a clear public direction.

 

It may well be that our critics are wrong -- that virtue and wisdom are served by the FCC's action. But does that not impose some obligation upon us to explain why we think so? And for the Common Carrier Bureau to fail to even mention these major studies, much less to deal with their arguments, does strike me as unnecessarily arrogant and professionally irresponsible. I dissent.

 


 

APPENDIX A

 

1969 ADDENDUM TO THE SEPARATIONS MANUAL

 

GENERAL

 

This addendum modifies and amends the procedures covered in the April 1963 separations manual and the 1964 and 1965 addenda thereto, to reflect the changes in separations set forth in the Federal Communications Commission Report and Order in docket No. 17975, dated January 29, 1969. These changes were prescribed by the FCC for jurisdictional purposes and cover revisions in procedures for the separation of interexchange circuit plant, subscriber plant and certain traffic and commercial expenses. The modifications to the separations manual and addenda are described below.

 

Part I. Interexchange Circuit Plant

 

For the purposes of jurisdictional separations the costs of interexchange circuit plant (interexchange outside plant, interexchange circuit equipment and associated land and buildings) in the area under study shall be assigned to categories and apportioned between interstate and intrastate operations as set forth below: n1

 

n1 The procedures set forth herein for the separation of interexchange circuit plant shall become fully effective Jan. 1, 1970. One-half of the effect of the Modified Phoenix plan procedures shall be eliminated as of Jan. 1, 1969 and one-twelfth of the remaining effect shall be eliminated each month of the year 1969.

 

A. Plant furnished to another company for interstate use.

 

This category comprises that plant provided for use by another company as an integral part of its facilities. This category includes such plant as sections of whole cables, complements in a cable, and circuit equipment associated with the other company's outside plant conductors and microwave systems. The total cost of the plant in this category is assigned directly to the interstate toll operation.

 

B. Broadband facilities used for private line services.

This category includes the plant used for private line services employing broadband transmission (e.g., video). The cost of the plant for each broadband facility is determined separately and assigned directly to the appropriate operation (State or interstate).

 

C. All other interexchange facilities.

This category includes the costs of all interexchange plant facilities not assigned to categories A and B above. The facilities included in this category are used for the following classes of circuits:

 

(1) Interstate message circuits, i.e., message circuits carrying only interstate message traffic.

 

(2) State message circuits, i.e., message circuits carrying only State message traffic.

 

(3) Jointly used message circuits, i.e., message switching plan circuits other than those included in (1) and (2) above.

 

(4) Circuits used exclusively for TWX service.

 

(5) Circuits used for interstate private line services (excluding broadband circuits).

 

(6) Circuits used for State private line services (excluding broadband circuits).

 

The circuit equipment in this category is first segregated between (a) basic circuit equipment, i.e., that which performs functions necessary to provide and operate channels suitable for voice transmission (telephone grade channels), and (b) special service circuit equipment, i.e., that which is peculiar to special service circuits.

 

The costs of outside plant, basic circuit equipment and associated land and buildings in the area under study are combined, and an average cost per interexchange telephone circuit mile is developed and applied to the interexchange telephone circuit mileage counts of each of the above six classes of circuits.

 

The cost assigned to interstate message circuits and interstate private line circuits is assigned directly to the interstate operation.

 

The cost assigned to State message circuits and State private line circuits is assigned directly to the State operation.

 

The cost assigned to jointly used message circuits is apportioned between State operations and interstate operations on the basis of the relative number of conversation-minute-miles applicable to such facilities.

 

The cost assigned to TWX interexchange intertoll circuits which, by use, are assignable to a given operation, is assigned directly to the appropriate operation. The cost of TWX intertoll trunks used jointly for State and interstate operations is apportioned between the operations on the basis of the relative number of TWX connection-minute-miles applicable to such facilities. The cost of TWX remote access line interexchange circuits is apportioned between State and interstate operations on the basis of the relative number of TWX connection-minute-miles applicable to those facilities.

 

The cost of special service circuit equipment is segregated among TWX service, telegraph grade private line services and other private line services. The cost assigned to TWX service is apportioned between State and interstate operations on the same basis as that used for TWX intertoll trunks. The special service circuit equipment costs assigned to telegraph grade and other private line services are allocated between State and interstate operations on the basis of analyses of the use of this equipment for State and interstate private line services.

 

Insofar as the above modifications affect the apportionment of related items, consistent modifications are made in the treatment of such items.

 

The portions of the separations manual and addenda which are significantly affected as a result of the above are:

 

Section Part Paragraph

1 1 11.23, 11.231, table 1.

2 3 23.221, 23.51 through 23.5233.

2 4 24.02, 24.04 through 24.0441, 24.05 through 24.054.

 

Part II. Subscriber Plant

 

For the purposes of jurisdictional separations the costs of subscriber plant (subscriber line outside plant, subscriber line circuit equipment, station equipment and associated land and buildings) assigned to message telephone services shall be allocated to the interstate operations in each State or study area by the application of a factor to the study area message telephone subscriber plant book costs. This factor is comprised of the following:

 

A. Interstate subscriber line usage (SLU) representing the actual interstate use of subscriber plant as measured by the ratio of interstate holding time minutes-of-use to total holding time minutes-of-use applicable to traffic originating and terminating in the study area. (This factor will be derived in each study area in accordance with present procedures.)

 

Plus

 

B. Nationwide annual average interstate SLU for the total industry.

 

Plus

 

C. Modified study area interstate SLU, to be determined by an annual average study area interstate SLU multiplied by the ratio of (1) the average interstate initial period station rate at the study area average interstate length of haul to (2) the total industry average total toll initial period station rate at the nationwide average length of haul for all toll traffic for the total telephone industry.

Insofar as the above modifications affect the apportionment of related items, consistent modifications are made in the treatment of such items.

 

The portions of the separations menual and addenda which are significantly affected as a result of the above are:

Section Part Paragraph

1 1 11.22, table 1.

2 3 23.444.

2 4 24.03312.

2 5 25.24.

 

Part III. Traffic and Commercial Expenses

 

Certain traffic and commercial expenses which are indirectly related to subscriber plant, and which are more fully described below, shall for the purpose of jurisdictional separations be allocated among the operations in each State or study area on the basis of the relative number of subscriber line minutes-of-use applicable to each operation in the area under study. The traffic expenses referred to above are those in (a) customer instruction and miscellaneous, see par. 44.352 of separations manual, (b) "all other expense" or private branch exchange in operators' wages, see par. 44.4222 of separations manual, and (c) the "remaining expense" of public telephone expenses, see par. 44.82 of separations manual. The commercial expenses referred to above are the expense of alphabetical and street address directories and traffic information records included in directory expenses, see par. 45.713 of separations manual.

 

The portions of the separations manual and addenda which are significantly affected as a result of the above are:

Section Part Paragraph

1 1 Table 2.

4 4 44.352, 44.4222, 44.82.

4 5 45.713.

 

APPENDIX B

 

In chapter I of the 47 of the Code of Federal Regulations, a new part 67 is added to read as follows:

 

PART 67 -- JURISDICTIONAL SEPARATIONS

 

67.1 Separations manual; incorporation by reference.

 

(a) Jurisdictional separations of telephone companies' property costs, revenues, expenses, taxes and reserves are determined under principles and procedures set forth in the separations manual ("Standard Procedures for Separating Telephone Proerty Costs, Revenues, Expenses, Taxes and Reserves"), as amended by the Federal Communications Commission, which is hereby incorporated by reference into this part 67, pursuant to 5 U.S.C. 552(a) (1) and 1 CFR part 20. The contents of the manual, as incorporated by reference, include the April 1963 edition of the manual, 1964, 1965 and 1969 addenda, subsequent amendments of the manual adopted by the Federal Communications Commission, and subsequent editions of the manual authorized by the Federal Communications Commission. The principles and procedures set forth in the manual are designed primarily for use in the allocation of property costs, revenues, expenses, taxes and reserves between intrastate and interstate jurisdictions.

 

(b) The separations manual is published by the National Association of Regulatory Utility Commissioners (formerly the National Association of Railroad and Utilities Commissioners). Copies of the current edition of the manual, with current addenda and amendments, may be obtained at a cost of two dollars ($2) per copy, by writing to the Association, Post Office Box 684, Washington, D.C. 20044.

 

(c) Copies of the current edition of the separations manual, with current addenda and amendments, are available for inspection at the following locations:

 

Office of the Common Carrier Bureau Federal Communications Commission 1919 M Street NW. Washington, D.C.

 

Field Offices of the Common Carrier Bureau, Federal Communications Commission (as listed in 0.93 of this chapter)

 

Offices of the National Association of Regulatory Utility Commissioners ICC Building 12th Street and Constitution Avenue NW. Washington, D.C.

 

(d) An official historic file, containing a record of all changes in the separations manual from 1963 forward, is maintained in the offices of the Common Carrier Bureau, Federal Communications Commission, 1919 M Street NW., Washington, D.C., and is available for inspection at that location. Separations

 


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