Before the Federal Communications Commission Washington, D.C ) ) ) ) REPLY

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1 Before the Federal Communications Commission Washington, D.C In the Matter of National Exchange Carrier Association, Inc. Tariff F.C.C. No. 5 ) ) ) ) Transmittal No REPLY In the above-referenced tariff transmittal, the National Exchange Carrier Association, Inc. (NECA) proposed to revise its special access rates in response to the exit of fifteen rate-of-return carriers affiliated with Consolidated Communications, Inc., Frontier Communications Corporation, and Windstream Corporation from the NECA pools during the 2012/2013 tariff period. 1 The proposed special access rate changes also included the effects of the Commission s June 15, 2012 Order permitting Eastex Telephone Cooperative (Eastex) to unfreeze its separations category relationships. 2 By petition dated August 31, 2012, AT&T has requested the Commission suspend and investigate NECA s tariff transmittal. 3 AT&T claims that NECA s revenue projection for the withdrawing carriers is unreasonable, and claims NECA s estimate of 1 NECA Tariff F.C.C. No. 5, Section 17.3, 17.4, 17.5, Transmittal No (filed Aug. 24, 2012). The potential need to refile special access rates if the rate of return affiliates of these carriers were to withdraw from NECA s tariff was discussed in NECA s 2012 annual access tariff filing. NECA Tariff F.C.C. No. 5, Volume 5, at 14, Transmittal No (filed June 18, 2012) (2012 Annual Access Tariff Filing). 2 See Petition by Eastex Telephone Cooperative, Inc. Pursuant to 47 C.F.R Sections 36.3, , , , , and for Commission Approval to Unfreeze Part 36 Category Relationships, CC Docket No , Order, DA , 1 (rel. June 15, 2012) (Eastex Order). 3 NECA Tariff F.C.C. No. 5, Transmittal No. 1358, Petition of AT&T Corporation for Suspension and Investigation (filed Aug. 31, 2012) (AT&T Petition). 1

2 growth in these carriers revenues is inconsistent with information they submitted to support their own tariff filings. 4 With respect to Eastex, AT&T claims the proposed increase in revenue requirement is unjustified, and points out in this regard that the projected effects of the cost re-categorization is substantially higher than estimates previously submitted by Eastex in connection with its waiver request. 5 AT&T further argues that NECA failed to reflect reductions in Eastex switched access revenue requirement resulting from its re-categorization of costs to special access. 6 AT&T claims that Eastex may, as a result, double-recover its interstate switched access revenue requirement from the interstate recovery mechanism. 7 AT&T s petition fails to raise any substantial question of lawfulness regarding NECA s proposed tariff rates and should accordingly be denied. 8 As shown herein, NECA s revenue projections are consistent with those filed by the withdrawing companies. Further, NECA s revenue forecast for the withdrawing carriers is also correct and represents reasonable growth in special access revenue, not 50 percent as AT&T claims. Finally, NECA shows that its estimate of the projected impact of Eastex cost recategorization on NECA s revenue requirement was reasonable, and that any necessary corrections to the switched access revenue requirement, ARC rates, and CAF-ICC 4 Id. at Id. at Id. at 5. 7 Id. at 6. 8 Section 1.773(a)(1) of the Commission s rules, 47 C.F.R (a)(1), requires parties seeking investigation, suspension or rejection of a tariff filing show that the proposed tariff revisions raise substantial questions of lawfulness. American Broadcasting Cos. v. FCC, 662 F.2d 155 (2nd Cir. 1981). 2

3 revenues for the 2012/2013 test period can be addressed by the Commission more appropriately in the context of its investigation of NECA s 2012 annual access tariff filing. 9 I. NECA S ESTIMATES OF NET REVENUE REDUCTIONS ARE REASONABLE AND CONSISTENT WITH PRIOR PROJECTIONS. AT&T contends NECA is seeking significant increases in special access rates to compensate for fifteen rate-of-return carriers affiliated with three price cap carriers exiting the NECA pools. 10 According to AT&T, NECA s filing assumes the withdrawing carriers would have contributed approximately $67 million to the NECA pool while withdrawing approximately $33 million. 11 Noting that these companies previously filed tariff revisions specifying contributions of approximately $45 million to the NECA pools, AT&T questions whether this apparent 50 percent increase in projected special access revenues is justified. 12 AT&T mistakenly assumes, however, that the $67 million per year revenue projection described in NECA s filing was NECA s projection of actual billed revenues for these companies. In fact, this projection represented the amount of revenues the withdrawing companies would realize if they billed at NECA s June 2012 undiscounted rates, and as such represented only an intermediate step in NECA s calculation of 9 Investigation of Certain 2012 Annual Access Tariffs, WC Docket No , WCB/Pricing No , Order Designating Issues for Investigation, DA (rel. Aug. 31, 2012) (Designation Order). 10 AT&T Petition at Id. 12 Id. 3

4 contribution losses. 13 Since the withdrawing companies were large contributors with low-retention ratios, they were placed in low rate bands, and thus would not have been expected to realize $67 million in revenues for services billed at the applicable banded rates. Their actual projected revenue for purposes of NECA s tariff filing was $50.7 million. 14 II. AT&T S CLAIMS REGARDING THE IMPACTS OF EASTEX COST RE-CATEGORIZATION DO NOT JUSTIFY SUSPENSION AND INVESTGATION OF NECA S SPECIAL ACCESS TARIFF. AT&T claims that NECA has failed to explain the significant increase in projected revenue requirement impacts of Eastex cost re-categorization from amounts described in Eastex original petition for waiver. 15 AT&T also argues NECA failed to provide adequate information relating to corresponding reductions in Eastex switched 13 In developing revenue forecasts for tariff rate filings, NECA first creates a pool-wide revenue projection based on a deflated series, i.e., a constant rate series at rates with all companies revenues rescaled to place them in a uniform (undiscounted) rate band category. This projection is then compared to the total pool pool revenue requirement projection to calculate the average rate change for To develop new rate band placements for the test period, NECA then places all companies into the uniform rate band at the proposed average rate for special access. NECA then develops retention ratios for each study area and reassigns each study area to a specific rate band for A comparison of each revenue projection is included in Table 1, attached. 14 It appears filings submitted by the three price cap carriers, on which AT&T relies, included test period revenue estimates based on annualized July 2011 through April 2012 data. NECA s projection for the test period, in contrast, included special access data for the entire twelve-month period from July 2011 June 2012, adjusted for rate changes and rate-band shifts in prior years. The resulting constant price history, shown in attached Table 2, explains differences between NECA s projections and those incorporated by the withdrawing companies. 15 AT&T Petition at 5 (claiming that Eastex original estimates showed a $2.5 million increase in pool settlements, versus a projected impact of $8.1 million in NECA s tariff filing). 4

5 access revenue requirement. Such information is necessary, according to AT&T, to assure Eastex does not double-recover costs shifted between categories. As a threshold matter, AT&T is mistaken in comparing Eastex projection of a net increase in its total interstate revenue requirement after re-categorization with NECA s projection of an increase in special access revenue requirement after re-categorization. A valid comparison would show a significantly smaller increase in the net interstate revenue requirement (i.e., $6.5 million vs. $8.1 million). 16 The Commission should also bear in mind that the revenue requirement impacts set forth in Eastex petition were based on analyses of cost study data from 2009, the most recent available at the time the petition was filed. 17 A number of significant changes have occurred, and are continuing to occur, in the telecommunications industry during the period covered by Eastex cost data and the test period reflected in NECA s tariff. These include continued growth in special access services, including broadband services, and continued investment in special access facilities by Eastex and other carriers needed to meet this demand. These factors, as well as NECA s use of more detailed 16 Information comparing Tariff Review Plan (TRP) data for Eastex set forth in NECA s annual access tariff filing and its data incorporating revenue requirement impacts following re-categorization is shown in attached Table Jurisdictional Separations and Referral to the Federal-State Joint Board, CC Docket No , Petition by Eastex Telephone Cooperative, Inc. For Waiver of 47 C.F.R. Sections 36.3, , , , and to Unfreeze Part 36 Category Relationships, at 8-9 (filed May 25, 2011). 5

6 forecasting techniques in preparation for the 2012 annual tariff filing, all contributed to a higher impact estimate than initially predicted in Eastex petition. 18 AT&T s assertions regarding the need to suspend NECA s special access filing in order to account for potential impacts on switched access revenue requirements (and related adjustments to ARC rates and Eligible Recovery amounts) are also unfounded. 19 AT&T correctly notes in this regard that the Commission recently took action to suspend the ARC rates contained in NECA s annual access tariff filing, 20 and is undertaking an investigation into a number of issues related to calculation of baseline switched access revenues, intrastate rate reductions and related calculations of Eligible Recovery amounts. 21 The Commission can fully address any concerns regarding potential double recovery of switched access revenue requirements, ARC rates and Eligible Recovery amounts for the 2012/2013 test period in the context of that proceeding. Accordingly, there is no need to suspend NECA s proposed special access rate adjustments on this basis. 18 As shown in Table 3, however, total company revenue requirements for Eastex remain essentially unchanged as a result of re-categorization. 19 AT&T Petition at Id. at 4 (citing July 3, 2012 Annual Access Charge Filings, WCB/Pricing No , Order, DA , 5 (rel. July 2, 2012)). 21 Designation Order 1, 8. AT&T is incorrect in suggesting, however, that suspension of the special access rate increase proposed in NECA Transmittal No would be consistent with the Commission s suspension of the 2012 annual access tariff filings. In fact, the special access rates proposed in NECA s June 18, 2012 annual tariff filing were permitted to become effective on the scheduled date and are not subject to Commission investigation. 6

7 III. CONCLUSION AT&T s petition fails to raise any substantial question of lawfulness regarding NECA s proposed tariff rates and should accordingly be denied. As shown above, NECA s revenue projections for the fifteen withdrawing companies are in fact consistent with those filed by the companies themselves. NECA s revenue forecast for the withdrawing carriers is also correct and represents reasonable growth in special access revenue, not 50 percent as AT&T claims. NECA s estimate of the projected impact of Eastex cost re-categorization on NECA s revenue requirement was also reasonable. Finally, suspension of NECA s special access rates is not necessary to permit any necessary corrections to switched access revenue requirements, ARC rates, or CAF-ICC revenues. Respectfully submitted, NATIONAL EXCHANGE CARRIER ASSOCIATION, INC. By: Richard A. Askoff Linda A. Rushnak Its Attorneys Teresa Evert, Senior Regulatory Manager 80 South Jefferson Road Whippany, NJ (973) September 6,

8 Table 1. Projections for Withdrawing Companies Test Period Projection Revenue at June 2012 Uniform Rate Revenue at Proposed Uniform Rate Revenue at Proposed Banded Rate $67,191,236 $55,503,100 $50,700,378 8

9 9

10 Table 3 Eastex TRP comparison - Data shown reflects Test Period 12/13 amounts Comparison of data filed June 18, 2012 vs. August 24, 2012 Study Area TRP Category Total Company June Total Company August Variance Common Line June Common Line August Variance Switched Access June Switched Access August Variance Special Access June Plant Specific 11,375,027 11,375,027-1,746,152 1,411,725 (334,427) 1,174,950 1,662, , ,107 2,399,397 2,011,290 Corporate Operations 6,049,915 6,049, , ,866 (53,431) 469, ,983 84, ,307 1,070, ,891 Expenses and Other Taxes 34,157,638 34,157,638-4,644,261 3,801,328 (842,933) 2,609,325 2,700,441 91,116 1,216,657 7,338,939 6,122,282 COE - Switching 10,895,048 10,895, ,047,695 3,030,001 (17,694) COE - Transmission 48,972,972 48,972,972-7,947,273 3,736,112 (4,211,161) 3,955,728 1,202,619 (2,753,109) 4,256,336 29,746,627 25,490,291 Cable and Wire Facilities 127,603, ,573,924 (29,951) 29,090,575 28,915,735 (174,840) 1,770, ,744 (1,548,590) 1,929,883 9,684,079 7,754,196 Total Plant in Service 212,397, ,367,676 (29,951) 41,966,109 36,999,376 (4,966,733) 9,936,905 5,045,012 (4,891,893) 7,006,270 44,658,594 37,652,324 Average Net Investment 70,606,644 70,576,693 (29,951) 12,971,582 10,334,566 (2,637,016) 4,230,467 2,175,964 (2,054,503) 2,991,910 19,596,754 16,604,844 Revenue Requirement 42,075,952 42,072,582 (3,370) 6,712,460 5,626,709 (1,085,751) 2,390,628 * 1,891,270 * (499,358) 1,617,985 9,737,298 8,119,313 * Switched Access Revenue Requirements are frozen according to provisions of the FCC's Transformation Order. Special Access August Variance 10

11 CERTIFICATE OF SERVICE I hereby certify that a copy of NECA s Reply was served this 6 th day of September 2012, by electronic filing, , and first class mail to the persons listed below. The following parties were served: Marlene H. Dortch Secretary Federal Communications Commission th Street, SW Washington, DC (via ETFS) Julie Veach Chief Wireline Competition Bureau Federal Communications Commission th Street, SW Washington, DC Julie.Veach@fcc.gov (via ) Victoria Goldberg Acting Division Chief Pricing Policy Division Wireline Competition Bureau th Street, SW Washington, DC Victoria.Goldberg@fcc.gov (via ) Christopher T. Shenk Sidley Austin LLP 1501 K St., N.W. Washington, D.C (202) (via facsimile and first class mail) Best Copy and Printing, Inc. Room CY-B th Street, SW Washington, DC fcc@bcpiweb.com (via ) By: /s/ Elizabeth R. Newson Elizabeth R. Newson

Before the Federal Communications Commission Washington, D.C ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Connect America Fund A National Broadband Plan for Our Future Establishing Just and Reasonable Rates for Local Exchange