******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington D.C. 20554 In the Matter of ) CC Docket No. 98-14 ) Number Portability Query Services ) ) Ameritech Tariff F.C.C. No. 2, ) CCB/CPD 98-26 Transmittal No. 1149, as Amended ) ) Bell Atlantic Tariff F.C.C. No. 1, ) CCB/CPD 98-25 Transmittal No. 1041 ) ) Pacific Bell Tariff F.C.C. No. 128, ) CCB/CPD 98-23 Transmittal Nos. 1927 and 1973 ) ) Southwestern Bell Tariff F.C.C. No. 73, ) CCB/CPD 98-17 Transmittal Nos. 2638 and 2694; ) Order Designating Issues for Investigation Adopted: June 17, 1998 Released: June 17, 1998 Direct Case Date: July 1, 1998 Opposition and Comment Date: July 10, 1998 Rebuttal Date: July 17, 1998 By the Chief, Competitive Pricing Division: I. Introduction 1. In this order, we designate for investigation issues regarding the long-term number portability query service tariffs of Ameritech Operating Companies (Ameritech), Bell Atlantic Telephone Companies (Bell Atlantic), Pacific Bell Telephone Company (Pacific Bell), and Southwestern Bell Telephone Company (Southwestern Bell). II. Background 2. An inability of customers to retain their telephone numbers when changing local service providers hampers the development of local competition. Section 251(b)(2) of the Communications Act of 1934, as amended, seeks to remove this impediment to competition by requiring all local exchange carriers (LECs), both incumbents and new entrants, "to provide, to the extent technically feasible, number portability in accordance with requirements prescribed by the Commission." To prevent the cost of providing number portability from itself becoming a barrier to local competition, section 251(e)(2) requires that "[t]he cost of establishing number portability shall be borne by all telecommunications carriers on a competitively neutral basis as determined by the Commission." 3. In the First Report and Order (Order), the Commission promulgated performance criteria that long-term number portability solutions must meet, required local exchange carriers to implement long- term number portability through a system of regional databases managed by neutral third party administrators, and established a schedule for the phased deployment of long term number portability. In the Second Report and Order, the Commission approved the industry's "N minus one" (N-1) querying protocol, and the North American Numbering Council's Location Routing Number (LRN) operational standard. Under LRN architecture, each customer's telephone number is matched in one of seven databases with an LRN that identifies the switch that currently serves that telephone number. Neutral third parties, called local number portability administrators, will administer these regional databases. When a customer changes from one LEC to another, the carrier that wins the customer will "port" the customer's number from the former carrier by electronically transmitting (uploading) the new LRN to the administrator of the relevant regional database. This will pair the customer's original telephone number with the LRN for the switch of the new carrier, allowing the customer to retain the original telephone number. The regional database administrators will electronically transmit (download) LRN updates to carriers responsible for routing telephone calls. When a carrier routes an interswitch telephone call to a location where number portability is available, the carrier will "query" this downloaded data to determine the LRN for the switch that serves the terminating telephone number of the call. Under LRN, the N-1 carrier will be responsible for the query, "where 'N' is the entity terminating the call to the end user, or a network provider contracted by the entity to provide tandem access." Thus, the N-1 carrier for a local call will usually be the calling customer's LEC; the N-1 carrier for an interexchange call will usually be the calling customer's interexchange carrier. Rather than perform its own querying, an N-1 carrier may arrange for other carriers or third parties to provide querying services for them. The Commission determined in the Second Report & Order that an incumbent LEC may charge an N-1 carrier for performing queries on the N-1 carrier's behalf pursuant to such an arrangement. 4. The Commission also noted in the Second Report & Order that when an N-1 carrier fails to ensure that a call is queried, the call might be routed by default to the LEC that originally served the telephone number, usually an incumbent LEC. If the customer has switched carriers, the LEC that originally served the customer incurs costs in querying and redirecting the call. This could happen, for example, if there is a technical failure in the N-1 carrier's ability to query, or if the N-1 carrier fails to ensure that its calls are queried, either through its own query capability or through an arrangement with a third party. The Commission determined that if an incumbent LEC performs queries on default-routed calls, the incumbent LEC may charge the N-1 carrier for performing this function. The Commission determined further that it would "allow LECs to block default-routed calls, but only in specific circumstances when failure to do so is likely to impair network reliability." The Commission also said that it would "require LECs to apply this blocking standard to calls from all carriers on a nondiscriminatory basis." 5. In the tariffs that are the subject to this investigation, Ameritech, Bell Atlantic, Pacific Bell, and Southwestern Bell propose to provide number portability query services to other carriers on a prearranged or default basis. The Competitive Pricing Division (Division) of the Common Carrier Bureau concluded that these tariffs raised substantial questions of lawfulness, suspended each transmittal for one day, and set them for investigation. On May 12, 1998, the Commission released an order in its long term number portability cost recovery proceeding promulgating rules governing long-term number portability cost recovery. Under those rules, incumbent local exchange carriers may recover their carrier- specific costs directly related to providing long-term number portability by establishing in tariffs filed with the Commission a monthly number-portability end user charge to commence no earlier than February 1, 1999, and a number portability query-service charge that applies to carriers. The Commission determined that the number portability query-service charge may recover only carrier-specific costs directly related to providing long-term number portability that the incumbent local exchange carrier incurs to provide long-term number portability query service to carriers on a prearranged and default basis. To assist in the evaluation of carriers' end user charge tariffs, which are likely to be filed later this year or in early 1999, the Commission solicited comments on ways to apportion the different types of joint costs used to provide number portability and other services, and delegated authority to the Common Carrier Bureau to determine appropriate methods for apportioning joint costs among portability and non-portability services. III. Issues Designated for Investigation A. Development of Charges 6. As noted, under the Cost Recovery Order incumbent LECs may recover from N-1 carriers in a federally tariffed query-service charge their carrier-specific costs directly related to providing prearranged and default query services. Carriers may not use general overhead loading factors, but may include any incremental overhead cost that they can demonstrate they incurred specifically in the provision of long-term number portability. In the cost justification for their proposed tariffs, Ameritech, Bell Atlantic, Pacific Bell, and Southwestern Bell have included general overhead loading factors. 7. In addition, the carriers have included a variety of other costs, including, among others, OSS, SS7 and switching costs. Carriers have generally failed to show adequately that the costs they propose to recover in their query service charges are costs directly related to providing prearranged and default query services. For example, none of the carriers distinguished the OSS costs incurred directly for the provision of portability from those incurred to support other functions, such as maintenance or directory services. It is not clear how SS7 costs were allocated between portability services and other services. More generally, to the extent carriers propose to base charges on a portion of joint or common costs used to provide both number portability query services and other non-number portability services, carriers have failed to provide an adequate explanation of why the portion allocated to query services is reasonable or constitutes a direct cost of providing number portability query service. Accordingly, we designate for investigation whether the carriers' proposed query service charges are based on costs directly related to providing number portability query services. 8. We also designate for investigation whether the carriers' proposed allocations of total number portability costs to query services are reasonable. Thus, Pacific Bell and Southwestern Bell state without any justification or support that they allocated 15 percent of total number portability costs to query service charges. Ameritech bases some allocations of general number portability costs to query services on an engineering study which is not in the record. Ameritech states that it allocated certain other costs to query service charges based on demand forecasts of the proportion of queries to be made on behalf of other carriers. Bell Atlantic appears to achieve an equivalent result by dividing its query costs by total query demand, thus assigning the same cost per query to internal and external demand. While using demand forecasts might present a reasonable method of allocating costs to query service charges, we are not persuaded that carriers' demand forecasts supporting the proposed rates are reasonable, as discussed below. Accordingly, these carriers in their initial tariff filings have not justified the allocation of total number portability costs to the proposed query service charges. 9. We also designate for investigation whether the carriers' methodologies and assumptions used to develop their proposed rates are reasonable. For example, Bell Atlantic develops total unit costs for its various query services and then establishes rates by marking up these costs. The markups range from zero to 54 percent. Bell Atlantic does not explain these markups or their variation among services. Similarly, as part of its End Office Query charge, Bell Atlantic also includes transport charges "incurred to re-originate the call from the End Office to the Access Tandem and hand-off the call to the appropriate carrier." This transport component is over three times the query component. The resulting End Office Query rate is approximately five times the Tandem Office Query rate. Bell Atlantic does not explain the development of this transport component or what proportion of end office queries are projected to require this transport service, and no other carrier includes such a component or establishes different rates for Tandem and End Office queries. Pacific Bell and Southwestern Bell have not explained why their "non- recurring" billing charges need to be applied each month to default carriers, and have not adequately justified the level of this charge. Pacific also proposes substantial non-recurring charges for pre-arranged database services, but has not explained what costs are incurred nor adequately justified these rate levels. We note that no other carrier has proposed similar charges. We also note that charges for some query services vary widely among carriers. For example, Ameritech's proposed tandem query charge is 3.6 times that of Southwestern Bell. In addition, none of the carriers have adequately identified and explained listed "investments" in the descriptions and justifications accompanying their tariff filings. Consequently, we cannot evaluate the extent to which these investments are direct costs of providing portability. Bell Atlantic provides many worksheets, but has not explained them or shown that its calculations include only the costs of providing portability services. In particular, they include substantial amounts of "embedded network investment," the costs of which may be already recovered in other rates. 10. In order to meet their burden under Section 204(a)(1) of the Act to show the reasonableness of the proposed charges, carriers must fully show the assumptions, methodologies, allocations, and specific costs supporting their proposed query service charges. Carriers in their Direct Cases must identify each cost proposed to be recovered, explain why it is a direct cost of providing number portability query service, and explain the methodology by which any portion of a joint or common cost is allocated to query service charges. All investments that are included in the direct cost of providing number portability must be clearly identified and explained. Carriers should state any assumptions they make regarding any portion of the query cost calculation including, but not limited to, assumptions about depreciation, cost of capital, and taxes. B. Demand Development 11. Ameritech bases its demand forecasts on current terminating traffic volumes. It assumes: (1) that the three largest IXCs will perform their own queries, (2) that it will provide query services to the next three largest IXCs through the first half of 1998, and (3) that it will provide query services to wireless carriers through 1999. Bell Atlantic makes the same assumptions, and additionally assumes that competitive LECs will be building their own number portability databases. Bell Atlantic estimates its own query demand based on its interswitch traffic and on a projection of intra-office queries, which is based on its assessment of the impact of local competition. Pacific Bell and Southwestern Bell similarly base their demand forecasts on assumptions about the number of terminating telephone calls by IXCs, wireless carriers, and LECs that have not deployed querying capacity in their own networks, as well as assumptions about the number of terminating calls from their own line side customers. Given that there is no specific past experience on which to base demand for query services, carriers will need to make assumptions about future demand. Carriers in this instance, however, present their projections without adequately explaining how they were developed. Accordingly, we designate as an issue for investigation whether the carriers' demand forecasts are reasonable. C. Blocking Unqueried Traffic 12. As noted, the Commission determined that carriers may block default routed traffic where the traffic could impair network reliability. Ameritech proposes to block both prearranged and default query traffic where the processing of the query would threaten to disrupt the operation of its network and impair network reliability. We designate for investigation whether Ameritech may block prearranged traffic as well as default traffic, and whether the proposed blocking of traffic based on disruption of its network comports with the blocking standard in the Second Report and Order. D. Information Disclosure for Prearranged Query Service 13. Ameritech proposes to require carriers that request prearranged query services to provide separate, rolling, three-month estimates of the volume of traffic they intend to deliver to Ameritech end offices and tandem offices, including total monthly traffic, maximum busy hour volumes, and the Ameritech switch over which they intend to route this traffic. Ameritech has not adequately explained why it needs this level of information or why it would not suffice for the requesting carrier to provide a more simple estimate of the quantity of query service it requests, such as by specifying in the aggregate how much unqueried traffic they will deliver to end offices and how much to tandem offices. We are concerned that some of this information may be competitively sensitive for competing local service providers. Accordingly, we designate for investigation whether Ameritech's information requirements in this regard are reasonable. E. Imposing Query Charges for All Number Portability NXXs 14. Bell Atlantic, Pacific Bell, and Southwestern Bell plan to assess a default query charge on unqueried calls delivered to any NXX designated as number portable. We understand this to mean that these carriers propose to assess the default query service charge for calls to NXXs where the carrier has the capability to query, and may actually be querying all calls, but does not have a need to do so in order to correctly route calls because no number in fact has been ported from that NXX. We designate as an issue for investigation whether imposing query charges on calls to number portable NXXs is reasonable given the absence of a need to query if no number has ported from an NXX. We solicit comment on whether it would be reasonable to require incumbent LECs to recover all of their query service costs associated with all NXXs only in NXXs from which a number has ported, and what rate levels for query services would result from such a recovery mechanism. IV. Information Requirements 15. In responding to the issues we designate for investigation, the LECs subject to this investigation should present their costs in terms of the categories the Commission developed in the Cost Recovery Order, i.e. shared costs, carrier-specific costs directly related to providing number portability, and carrier-specific costs not directly related to providing number portability. Direct Cases should break investment and expense estimates into these categories, and should identify costs with sufficient specificity to allow the Commission and other parties to evaluate them. V. Procedural Matters A. Filing Schedules 16. The Commission will conduct this investigation as a notice and comment proceeding under CC Docket No. 98-14. Ameritech, Bell Atlantic, Pacific Bell, and Southwestern Bell are the companies subject to this investigation. 17. These parties shall file their direct cases no later than July 1, 1998. The direct cases must present the parties' positions with respect to the issues described in this order. Parties may file pleadings responding to the direct cases no later than July 10, 1998. Such pleadings must be captioned "Oppositions to Direct Case" or "Comments on Direct Case." The companies that file Direct Cases may each file a "Rebuttal" to oppositions or comments no later than July 17, 1998. 18. Parties shall file an original and six copies of all pleadings with the Secretary of the Commission. In addition, parties shall file two copies of any such pleadings with the Competitive Pricing Division, Common Carrier Bureau, Room 518, 1919 M Street, N.W., Washington, D.C. 20554. Parties shall also deliver one copy of such pleadings to the Commission's commercial copying firm, International Transcription Service Inc., 1231 20th Street N.W., Washington, DC 20036. Members of the general public who wish to express their views in an informal manner regarding the issues in this investigation may submit one copy of their comments to the Office of the Secretary, Federal Communications Commission, 1919 M Street N.W., Room 222, Washington, D.C. 20554. All comments should specify the docket number of this investigation. 19. The Commission will consider all relevant and timely pleadings. In reaching a decision, the Commission may take into account information and ideas not contained in pleadings, provided that the public file contains such information or a writing containing the nature and source of such information, and provided that the order notes reliance on such information. B. Ex Parte Requirements 20. This tariff investigation is a "permit-but-disclose proceeding" and subject to the "permit-but-disclose" requirements under Section 1.1206(b) of the rules, 47 C.F.R.  1.1206(b), as revised. We remind parties making oral ex parte presentations that they must file memoranda summarizing their presentations. These summaries must explain the substance of the presentation and not merely list the subjects the parties discussed. Complying with the rules generally requires more than a one or two sentence description of the views and arguments the parties presented. See 47 C.F.R. 1.1206(b)(2), as revised. Section 1.1206(b) sets forth additional rules pertaining to oral and written presentations. C. Paperwork Reduction Act 21. The Commission has analyzed this Designation Order in accordance with the provisions of the Paperwork Reduction Act of 1980, as amended by the Paperwork Reduction Act of 1995, and found that the order does not establish a new or modified form, or impose information collection requirements on the public. Implementation of any new or modified requirements will be subject to approval by the Office of Management and Budget as prescribed by the Act. VI. Ordering Clauses 22. IT IS ORDERED that, pursuant to Sections 4(i), 203(c), 204(a), 205, and 403 of the Communications Act, 47 U.S.C.  154(i), 203(c), 204(a), 205, and 403, and the authority delegated by Sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R.  0.91, 0.291, the issues set forth in this Order ARE DESIGNATED FOR INVESTIGATION. 23. IT IS FURTHER ORDERED that Ameritech, Bell Atlantic, Pacific Bell, and Southwestern Bell SHALL FILE direct cases addressing the issues designated above no later than July 1, 1998. 24. IT IS FURTHER ORDERED that pleadings responding to the direct cases SHALL BE FILED no later than July 10, 1998, and must be captioned "Opposition to" or "Comment on" specific local exchange carriers' direct cases. 25. IT IS FURTHER ORDERED that Ameritech, Bell Atlantic, Pacific Bell, and Southwestern Bell MAY FILE "Rebuttals" to oppositions and comments no later than July 17, 1998. FEDERAL COMMUNICATIONS COMMISSION Jane E. Jackson Chief, Competitive Pricing Division Common Carrier Bureau