MICHIGAN PUBLlC. SERVICE COHHlSSlO~

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1 .. COUNSELLORS AT LAW lol N. MAIN, SUITE 535 ANN ARBOR, MICHIGAN TELEPHONE: (734) FACSIMILE: (734) May 6,2004 MICHIGAN PUBLlC SERVICE COHHlSSlO~ Via Hand Delivery Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 6545 Mercantile Way Lansing, MI Re: In the matter of the Complaint of the Michigan Pay Telephone Association, et al. against Ameritech Michigan and GTE North, Inc. Case No. U Dear Ms. Kunkle: Enclosed for filing regarding the above-captioned matter please find the original and 15 copies of SBC Michigan's Answer to Complainants' Application for Rehearing and Proof of Service. If you should have any questions, please contact me. Thank you. MAHlmb Enclosures cc: Hon. Barbara A. Stump Parties of Record LANSING Very truly yours, 3 Michael ~.'~olmes Sgrrldsn", "","an Michael A. Holmes Dlglfally rtgned by %%E: Hdmes, c=us Date asou C o u n s e l l o r s A t L a w DETROIT B L O O M F I E L D H I L L S L A N S I N G G R A N D R A P I D S A N N A R B O R W A S H I N G T O N. D.C.

2 STATE OF NIICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION MAY - b 2004 In the Matter of the complaint of MICHIGAN PAY TELEPHONE ASSOCIATION Case No. U et al. against AMERITECH MICHIGAN and GTE NORTH INCORPORATED MICNIGAH PUBLIC SERVICE COMHlSSlON The Michigan Pay Telephone Association, et al. v. Complainants - Appellants, Supreme Court Case No Michigan Bell Telephone Company d/b/a Ameritech Michigan, a Michigan corporation, And GTE North Incorporated, a Wisconsin Corporation, Court of Appeals Case No and Respondents - Appellees, Michigan Public Service Commission, Appellee. SBC MICHIGAN'S ANSWER TO COMPLAINANTSf APPLICATION FOR REHEARING

3 FILED TABLE OF CONTENTS CTION THE MPTA'S ARGUh4ENTS ON "REHEARING" ARE IMPROPERLY RAISED, UNSUPPORTED BY THE RECORD, AND CONTRARY TO MICHIGAN LAW....4 A. Complainants' "Individual Service" Argument Ignores Both The Evidence Of Record And The Commission's Order... 4 B. Dr. Curriers "Aggregate" Payphone Operations Overhead Loading Analysis Is Appropriate And Was Justified Below The Commission's Determination As To Usage Sensitive Services Is Reasonable And Supported By The Evidence Of Record... 8 C. Complainants' Arguments Against The Overhead Methodologies Utilized By SBC Michigan Were Previously Made And Properly Rejected The Commission's Comparison Of SBC Michigan's IPP Rates And Services To Its Business Line Rates And Services Is Reasonable Analysis That Has Not Been Foreclosed By The Wisconsin Order D. The Direct Cost Studies Relied Upon By Dr. Currie Are Appropriate And Complainants' Arguments To The Contrary Have Been Repeatedly Rejected In This Case E. The MPTA's Cost Recovery Arguments Are Improperly Raised And Contrary To Law CONCLUSION... 15

4 Michigan Bell Telephone Company, d/b/a SBC Michigan ("SBC Michigan"), submits this answer to the Application for Rehearing ("Application") of the Commission's Opinion and Order issued March 16, 2004 in this docket ("Order") filed on April 15, 2004 by Complainants the Michigan Pay Telephone Association ("MPTA") et al. ("Complainants"). For the reasons that follow, the Application should be denied. I. INTRODUCTION In its March 8, 1999 Opinion and Order in this docket, the MPSC dismissed the MPTA's Complaint, finding that it was "not persuaded that the MPTA's approach is required by the new services test or that its results are preferable to the rates now in place." There, the MPSC affirmed that SBC Michigan's IPP rates were reasonable, did not recover an excessive amount of overhead, and satisfied the FCC's New Services Test ("NST"). March 8, 1999 Order, p. 8. In this remand, the MPSC was asked to re-evaluate its determination in light of the FCC's Wisconsin Order.' After considering the additional evidence offered on remand, the Commission concluded in its March 16, 2004 Order that its original determination was correct; SBC Michigan's IPP rates are consistent with the IVST and do not recover an excessive amount of overhead loadings (with one exception regarding the EUCL charge discussed below). The Commission's ultimate conclusion that SBC Michigan's IPP line rates are consistent with the NST is fully supported by the record and the law and it need not be reexamined. 1 In the Matter of Wisconsin Public Service Commission; Order Directing Filings, CCBICPD No 00-01, Memorandum Opinion and Order, FCC (January 3 1,2002).

5 Complainants "Application for Rehearing" merely re-argues many issues that have already been raised, fully briefed, and decided on numerous instances in this case. Additionally, much of the Application asks the Commission for further direction and clarification concerning how SBC Michigan and Verizon should calculate the refunds ordered. SBC Michigan will not spend any time responding to the refund calculation issues in this Application, except to point out that it had no problems understanding or following the Commission's Order in preparing the Refund Report filed with the Commission on April 16, 2004.~ The Refund Report submitted by SBC Michigan fully complies with the Order. For example, SBC Michigan calculated the refunds using both the interstate SLC and intrastate EUCL charges in making the revenue to cost comparisons. SBC Michigan will respond to any objections to the Refund Report at the appropriate time. Each of the MPTA's arguments on rehearing has been raised, considered, and rejected: (1) the purported need to separately analyze each individual payphone feature sold to IPPs under the NST (call screening, answer supervision, etc.) rather than the aggregate services and features sold to MPTA members (Application, pp 6, 13-14); (2) the NST must be applied to usage services (Application, p 6); (3) deduction of the state EUCL as well as the federal SLC from SBC Michigan's line rates (Application, pp 11-13); (4) the Commission's ability to use a comparison of SBC's IPP rates to its business line access rates as one factor in judging the reasonableness (Application, p 16); (5) whether the direct cost studies utilized by SBC Michigan in this docket were appropriate (Application, pp 18-20); and, (6) the proper interpretation of the As pointed out in the Refund Report, SBC Michigan respectfully disagrees with the requirement to pay refunds of any kind in this case, and with the Commission's interpretation of the Wisconsin Order as requiring the IPP line rates to be reduced by the amount the intrastate EUCL charge (as opposed to the federal SLC), provides a recovery of overhead loadings in excess of that permitted by the NST.

6 comparable services approach to the NST from the FCC's Physical Collocation Tariff Order (Application, pp 21-23). SBC Michigan has briefed each of these issues a number of times in this docket, ad both the Commission and the ALJ had the opportunity to review those arguments. The mere fact that the Commission did not agree with the MPTA's arguments in its Order is a reason for the Commission to grant rehearing so that the MPTA can rehash these issues once again. The Commission has repeatedly noted that petitions for rehearing are not simply an opportunity to express disagreement with a Commission order. As the Commission has stated, Rule 403 of the Commission's Rules of Practice and Procedure, 1992 AACS, R , provides that a petition for rehearing may be based on claims of error, newly discovered evidence, facts or circumstances arising after the hearing, or unintended consequences resulting from compliance with the order. A petition for rehearing is not merely another opportunity for a party to argue a position or to express disagreement with the Commission's decision. Unless a party can show the decision to be incorrect or improper because of errors, newly discovered evidence, or unintended consequences of the decision, the Commission will not grant rehearing. '. Because Complainants' Rehearing Application in this case is nothing more than a reargument of previously rejected positions,4 it should be denied. 3 4 In the matter, on the Commission's Own Motion, to Establish Permanent Interconnection Arrangements Between Basic Local Exchange Providers, Order Denying Rehearing, MPSC Case Nos , et al. (November 14, 1996) at 2; see also, In the Matter, on the Commission's Own Motion, to Consider Revisions to the Procedures Designed to Prohibit Switching an End User of a Telecommunications Provider to Another Provider Without the Authorization of the End User, Order Denying Rehearing, MPSC Case No. U (December 20, 2001) at 2; In the Matter of the Application of The Detroit Edison Company for Authority to Implement a Power Supply Cost Recovely Plan in its Rate Schedules for 2000 Metered Jurisdictional Sales of Electricity, Order Denying Rehearing, MPSC Case No. U (October 29,2001) at 3. The sole exception to this general statement is Complainants' attempt to get the Commission to "clarify" that portion of the Order requiring a refund. As explained below, however, rehearing on this issue is unwarranted because the "unintended consequences" complained of by Complainants have not come to pass and in fact are refuted by SBC Michigan's Refund Report prepared at the Commission's direction.

7 11. THE MPTA'S ARGUMENTS ON "REHEARING" ARE IMPROPERLY RAISED, UNSUPPORTED BY THE RECORD, AND CONTRARY TO MICHIGAN LAW A. Complainants' "Individual Service" Argument Ignores Both The Evidence Of Record And The Commission's Order The MPTA first argues the Commission must "clarify and specifically order" the LEC apply the Commissiofiapproved overhead methodologies on each particular service provided to the IPPs including, but not limited to, the access line, usage, restricted coin access, call screening, call blocking and answer supervision.5 Application, p. 13. According to Complainants, the "rates assessed the IPPs" on individual services must be "capped at the specific overhead percentage adopted." Application, p. 6. The MPTA is wrong for two reasons. First, the Order found only that SBC Michigan's IPP line rates, including the recovery of the intrastate EUCL charge warranted any adjustments. The Commission found (expressly) in the case of usage rates, and (implicitly) for individual payphone features, that SBC Michigan satisfied tk NST and no rate adjustments for those services or features were needed. Second, SBC Michigan demonstrated compliance with the NST for the overhead loadings recovered for usage rates by using a separate comparable services test from that used for the IPP lines. JntraLATA toll usage was used as a comparable service for local usage, and SBC Michigan provided testimony of Dr. Currie that the usage services (such as local usage) did not recover overheads greater than those of the comparable intralata toll usage. The Commission 5 The Application then states that the Complainants have provided the Commission with such analysis at Exhibit 1. However, this analyses contains nothing regarding restricted coin access, call screening, call blocking, and answer supervision. 4

8 agreed with and adopted this approach. At no time did the Commission suggest that the same NST compliant percentage overhead loading calculated for IPP line rates had to be applied to usage services. The MPTA's argument in this regard is inconsistent with both the record in the case, as well as the Commission's Order. Simply put, the h/lpta's arguments were raised, considered, and rejected by the Commission. "Mere disagreement" with the Commission's decision does not justify rehearing. B. Dr. Currie's "Aggregate" Payphone Operations Overhead Loading Analysis Is Appropriate And Was Justified Below The MPTA also argues in its Application for Rehearing that SBC Michigan erred by using an "average overhead" (reached by deducting aggregate direct costs of SBC Michigan's competing payphone operations from its aggregate revenues) to the IPP line rates when applying the comparable services methodology under the NST. Application, pp. 6, Complainants' argument generally stems from the fact that, as applied in the Physical Collocation Tariff Order, the comparable services methodology examined specific, individual services (DS-1 and DS-3 services). However, as explained by Dr. Currie, the Physical Collocation Order was not issued in he context of the payphone industry, but rather involved facilities terminating at locations using physical collocatioea situation that is not analogous to the present one. Nonetheless, it is undeniable that the FCC found in the Payphone Orders and Wisconsin Order that comparable services for physical collocation could also be used in the context of the NST. The FCC also explained, in its Wisconsin Order, that the NST is a "flexible approach" and that differing methodologies may be used so long as they are justified. Wisconsin Order, 77 52,58. Dr. Currie, in this proceeding, did justify his decision to use SBC Michigan's own payphone operations as comparable services and to examine certain IPP services collectively

9 rather than on an individual basis. Dr. Currie explained that his approach is consistent with the NST because the NST intends that overhead loading factor on comparable services be developed and performed on complete services, not individual rate elements. 17 Tr 2106 (citing the FCC's Virtual Collocation Tariff Suspension Order, IT[ 17-18). Moreover, this approach is consistent with the comparative services methodology explained in Paragraph 309 of the Physical Collocation Tarzff Order: [I]n order to apply our overhead loading policy, we must identify the LEC interstate access services that are comparable to those access services offered by the interconnectors to their customers using expanded interconnection. Comparable services are those for which the LEC and the interconnector compete or potentially compete for the same customers. After identifying the comparable services, we compare the overhead loadings reflected in the rates for the comparable services with the overhead loadings assigned to the physical collocation services. If the overhead loading factors reflected in the rates for the comparable services are lower than the overhead loading factors reflected in the rates for the physical collocation tariff services, we must determine whether the differences are justified. In this case, Dr. Cunie identified the comparable services (e, the smart and dumb lines, local usage, etc.) and concluded that the services he used in his analysis were payphone services for which SBC Michigan and Complainants compete or potentially compete for the same customers. Dr. Currie then calculated the overhead loading recovered by SBC Michigan's payphone operations, determining SBC Michigan's direct TELRIC costs of its Michigan operations and subtracting those direct costs from the revenues of its payphone operations. The resulting difference was stated as a percentage: SBC Michigan's payphone operations recovered an overhead margin above direct costs.6 SBC Michigan then compared the overhead loadings in SBC Michigan's IPP services with the loadings of SBC Michigan's own public payphone unit, 6 The specific number is confidential and in the record. 6

10 and provided testimony showing that the overhead loading recovered in the aggregate by SBC Michigan's IPP services did not exceed that recovered by SBC Michigan's payphone operations. As explained by Dr. Currie, the approach taken by SBC Michigan in this proceeding was necessary under the Physical Collocation Tariff Order because: (1) as explained above, the comparable services in this case are really single services with multiple capabilities; (2) IPPs and SBC Michigan's payphone unit both compete on packages of services rather than individual services (18 Tr 1280); (3) taken on an individual level, most of the individual services were not "competitive" comparable services (18 Tr4 2207); and (4) SBC Michigan simply did not have available any detailed information on each specific payphone location at issue or on the comparative rates paid by end users for different types of calls placed at SBC Michigan and IPP payphones. 18 Tr Additionally, Dr. Currie explained that most individual service components would not be "comparable services" in any event, but that the bundles of services examined by Dr. Currie (the smart line and dumb line, for example) & have comparable, competitive counterparts. Importantly, Complainants never denied in this case that there is a meaningful relationship between the IPP services at issue and the payphone services provided by SBC Michigan (which directly compete with those offered by the IPPs). IVor were Complainants able to establish that it was even possible for SBC Michigan to apply the Physical Collocation Tariff Order in the manner they deem necessary, given the unique context of the payphone industry. Because SBC Michigan did what was required by the Physical Collocation Tariff Order to the greatest extent possible, and because SBC Michigan provided unrebutted testimony explaining why slight deviations were necessary, Complainants' arguments here must be rejected.

11 Complainants opposed Dr. Currie's approach in each brief submitted in this remand proceeding, citing the same reasons then that they cite now on rehearing. Complainants, quite simply, disagree with using SBC Michigan's own payphone operations as a comparable service for purposes of the NST. Complainants' disagreement with the Commission's decision, however, does not warrant rehearing. The Commission ultimately concluded that Dr. Currie's approach was reasonable and consistent with the letter and intent of the NST. The Commission's decision is supported by the evidence7 as well as by federal law; that decision should stand. 1. The Commission's Determination As To Usage Sensitive Services Is Reasonable And Supported By The Evidence Of Record Complainants also argue that rehearing should be granted because the Order does not specify that the NST must be applied to usage sensitive services. Application, p. 6. Complainants allege that SBC Michigan did not provide "a single piece of evidence to support [its] usage sensitive service rates" in its May 1997 compliame filings. Application, p. 7. Complainants' arguments are misleading and ignore the evidence of record. Moreover, these arguments were advanced by Complainants below and addressed by the ALJ and the Commission. For these reasons, rehearing must be denied. 7 What could be more comparable than looking at the overhead margins recovered by SBC Michigan's payphone operations with MPTA operations when both compete to persuade premise owners to place their payphone at a particular location? Given the appropriateness of that comparison and the true nature of the competition for payphone locations, as explained by Dr. Currie in his testimony, the development of an overall aggregate overhead loading for SBC Michigan's payphone operations is entirely appropriate.

12 The fact is that SBC Michigan provide evidence in this remand proceeding showing that intralata toll usage is a comparable service for local usage and that the overhead margins recovered by local usage are consistent with those recovered by toll usage. Dr. Currie specifically testified that the overhead loading recovered in local usage rates was below the lowest overhead loading in SBC Michigan's toll rates, even accounting for volume and term discounts. 18a Tr (Conf.). This evidence was uncontroverted. Complainants made no attempt to discredit Dr. Currie's testimony, evaluate SBC Michigan's intralata toll rates or costs, or challenge the comparability of intralata toll usage to local usage for purposes of the NST. The rates and associated overheads recovered of intralata toll and local usage are comparable. The Commission's determination that this satisfies the NST for local usage rates is entirely proper. C. Complainants' Arguments Against The Overhead Methodologies Utilized By SBC Michigan Were Previously Made And Properly Rejected Complainants next criticize SBC Michigan's overhead methodologies used in this docket. Methodology, however, is at the heart of this proceeding and Complainants have criticized that 8 9 In other words, Complainants want the same overhead loading developed for the IPP line rates to apply to local usage. Dr. Currie used different comparable services to justify the line rates from those for local usage. Dr. Currie did not use SBC Michigan's payphone unit revenues and costs as the comparable service for local usage. He used intralata toll service, and as such the appropriate overhead for comparison is that for toll service. Complainants also include interzone message rates in their tables in Exhibit 1 to the Application. This is the first time interzone usage has been raised as an issue in this proceeding. Moreover, interzone messages are merely one type of intralata toll calling-those generally with calling distances of 20 miles or less. As a subcategory of intralata toll usage, interzone calling rates recover overhead amounts comparable to other jntralata toll calls of longer distances. Thus, the NST would be satisfied also for these calls.

13 methodology at each stage and been rejected by the MPSC. Complainants are merely re-arguing the same issue over and over again.. Complainants have not offered any new evidence or proof of "error" justifying rehearing, and as such rehearing must be denied. Nonetheless, SBC Michigan will again respond briefly to Complainants' claims. SBC Michigan disagrees with Complainants' arguments that: (1) the Commission erred in citing its earlier business line rate comparison as additional proof that SBC Michigan's IPP rates are reasonable and consistent with the NST (Application, pp ); (2) SBC Michigan relied on cost study information that was purportedly "rejected" by the Commission (Application, p. 17); (3) the comparable services methodology utilized by Dr. Currie in this proceeding is inconsistent with the requirements in the Wisconsin Order (Application, pp ; and (4) SBC's rates result in an "over recovery of costs." Complainants' third argument (criticizing Dr. Currie's use of aggregate information in applying the comparable services methodology) has already been addressed above. The remaining three arguments are addressed below. 1. The Commission's Comparison Of SBC Michigan's IPP Rates And Services To Its Business Line Rates And Services Is Reasonable Analysis That Has Not Been Foreclosed By The Wisconsin Order Complainants once again take exception to the Commission's conclusion that it "may compare business line rates with IPP rates as one factor to be examined in its assessment of whether the companies' IPP rates comply with the NST." Application, p. 16 (quoting Order, p. 12 (emphasis added)). According to Complainants, "any" business line comparison is "directly counter to" the Wisconsin Order. First, this argument was advanced and rejected by the Commission. Complainants have offered no new evidence or justification for rehashing this issue; rehearing should be denied.

14 Second, Complainants are mistaken. The business line comparison is not only reasonable, it is permissible under the Wisconsin Order. As explained by SBC Michigan in its Reply to Exceptions in this case, the FCC in its Wisconsin Order did not strictly "prohibit" the Commission from comparing IPP rates to other rates approved by the Commission. The Wisconsin Order merely rejected the LEC Coalition's argument that a payphone rate is presumptively "reasonable" under the NST if it is set by applying the same markup over direct costs as is incorporated in the BOC's business line rates. Wisconsin Order, Furthermore, the FCC noted in the Wisconsin Order that it has foreclosed the consideration of such rates. Such consideration is particularly appropriate in cases such as this one, where: (I) the MPSC concluded that the applicable rates and services are comparable under the unique circumstances that exist in Michigan; and (2) the comparison to business line rates is not the o& proof offered to show that SBC Michigan's rates comply with the NST. And, the MPTA's claim that state commissions can never compare IPP rates to other rates, for any purpose, is contrary to the FCC's repeated statements that commissions and BOCs should be permitted flexibility in applying the NST. Wisconsin Order, 7 52 (recognizing that the FCC's pricing requirements "do not mandate uniform overhead loading, provided that the loading methodology as well as any deviation from it is justified"), 758 (recognizing that the NST is a "flexible approach to calculating BOCs' overhead allocation for intrastate payphone line rates"). Finally, the Commission, in 1999 and agiin in its Order, based its conclusions solely on a comparison of SBC Michigan's IPP rates to its business line rates, but rather on a totality of

15 the evidence of record.1 Even if the Commission finds that rehearing is appropriate on this issue, and agrees with the MPTA that a comparison between business line and IPP line rates does not presumptively establish the reasonableness of SBC Michigan's IPP rates, there are a number of other factors-&., SBC's original cost data and testimony, as well as SBC Michigan's supplemental comparative services analysis-that support the Commission's ultimate conclusion on remand. Thus, the Commission's Order would be no different were it to "modify its findings" on this issue. For this reason as well, rehearing should be denied. D. The Direct Cost Studies Relied Upon By Dr. Currie Are Appropriate And Complainants' Arguments To The Contrary Have Been Repeatedly Rejected In This Case The MPTA claims that the TSLRIC studies relied upon by SBC Michigan in this proceeding were rejected by the Commission and later substantially modified. Application, pp The MPTA made the same argument in its prior briefs in this docket, and its arguments were consistently rejected, and for good cause-the MPTA is wrong. As the ALJ correctly noted in her PFD, SBC did not "admit" that its TSLRIC cost studies were rejected by the Commission, but rather explained that "the Commission accepted SBC Michigan's... earlier O Complainants argue in their Application that the NST does not allow the Commission to "apply to payphone service rates whatever overhead is incorporated nto its business rates." Application, p. 17. That is not, however, what has been done here. At no time has the Commission used the business rate comparison as a surrogate for NST analysis, and nothing in the FCC's Wisconsin Order strictly prohibits the Commission from using business line rates as a "reality check." In fact, in this remand proceeding, both the Commission as well as SBC Michigan went to a lot of work to analyze Dr. Currie's comparative services analysis. The overhead resulting from this analysis was not "whatever overhead is incorporated into [SBC Michigan's] business rates" but rather an overhead that is comparable to SBC Michigan's own payphone unit's rates. The business line analysis is simply another layer of support showing that SBC Michigan's payphone line rates are in fact reasonable and consistent with the NST.

16 cost studies and supporting papers after requiring them to make various modifications." PFD, p 12. See also 1 1 Tr 16 (Conf.); 18 Tr 2183 (explaining that the TSLRIC studies relied upon here by SBC were ultimately approved with modifications). These U vintage studies used TSLRIC methodologies comparable to the cost studies filed by SBC Michigan with the Commission in this proceeding. Moreover, the Commission accepted SBC Michigan's earlier cost studies and supporting papers in the original proceeding in this docket, and its decision is - not subject to relitigation. Thus, the PFD was correct in noting that the MPTA's arguments on this issue "are beyond the scope of this limited proceedingu(pfd, p. 12), and the Commission was similarly correct refusing to accept SBC Michigan's cost analysis. For these reasons, Complainants' arguments on rehearing are improper and erroneous and they should be rejected. Moreover, the MPTA has ignored throughout this proceeding SBC Michigan's position that, if additional cost data is necessary to set new IPP rates (and SBC Michigan represented that a full-blown cost analysis was simply unfeasible given the schedule and the limited scope of this proceeding), the proper TSLRIC cost data to be used is not that which was introduced in U and U ', but rather is the new cost data introduced by SBC Michigan on May 2, 2003 in Case No. U The cost analysis submitted in U includes TSLRIC data for single business lines, the counterpart to the IPP "dumb" line most purchased by the MPTA members. That data shows SBC Michigan's TSLRIC costs have increased for the most part since the original proceeding in this docket, and that new IPP line rates based on current TSLRIC data could result in rate increases. What the MPTA proposed in this proceeding, on the other hand, is that the Commission adopt the cost analysis originally championed by MPTA witness l1 SBC argued that these cost studies are now outdated and that they "understate the forward-looking costs incurred by SBC today, because they rely on inputs which are not current for cost of money, economic lives and fill factors" 17 Tr 2103.

17 Mr. Starkey, which was not based on the data used by Mr. DiDominicus, but rather on Mr. Starkeys own version of cost studies that attempted to estimate what SBC Michigan's costs "should" be. The cost information supplied in this case by Mr. DiDominicus and Dr. Currie is at least based on actual SBC Michigan data and is much more accurate than that used by Mr. Starke-ven though it underestimates SBC Michigan's current costs of providing services to IPPs. E. The MPTA's Cost Recovery Arguments Are Improperly Raised And Contrary To Law Complainants next appear to argue that SBC Michigan should not be permitted to recover more than its shared and common costs. Application, pp Complainants claim that the overhead approved by the Commission in Case No. U would permit SBC to recover its shared and common costs, and thus that there is no need for a higher overhead than in U This argument was made in the MPTA's briefs in this docket and was rejected by the ALJ and the Commission. The MPTA is merely rearguing its point on "rehearing." More importantly, the MPTA here has merely recast its tired, previously rejected argument that only the UNE overhead loading approach to *plying the NST is permissible. This argument runs counter to the FCC's approval of, at a minimum, three different approaches to the NST (including the comparable services approach used by SBC Michigan), and the Commission's explicit previous rejection of Complainants' argument that the UNE approach is mandated. The MPTA's claim that its suggested rates would permit SBC Michigan to recover the shared and common costs incurred by SBC Michigan (Application, pp ) ignores that SBC Michigan is also edtled to recover a "reasonable overhead" in addition to its costs. Cost

18 recovery is only part of the equatioesbc Michigan must also be able to recover a profit on the services sold to IPPs. So long as the overhead in SBC Michigan's IPP rates is "reasonable" when compared to other competitive services (such as business services, SBC Michigan's own IPP services, toll services, etc.), those rates comply with the NST. Finally, the testimony of Dr. Cunie quoted by the MPTA at p. 22 of its Application its taken out of context. SBC Michigan's witness was responding to the MPTA's claim that the overhead loadings for unbundled network elements ("UNEs") must be used and that no other method of calculating overhead loadings is acceptable CONCLUSION In summary, Complainants have not met their burden for rehearing. They are simply rearguing issues that have been briefed and presented to the Commission on numerous previous occasions. If Complainants wish to dispute the merits of the Commission's decision, the proper avenue for such a dispute is amther appeal, not a "rehearing" application. For each and all of the reasons expressed above and in SBC Michigan's briefs filed in this remand proceeding, the Commission should reject Complainants' Application for Rekaring. Respectfully submitted, Joseph P. Tocco (P53548) SBC MICHIGAN 444 Michigan Avenue, Room 1750 Detroit, Michigan (313)

19 DICKINSON WRIGHT PLLC SWi Rv. l6rw ""hn -J- Michael A. Holmes (P24071) Jennifer L. Frye (P57123) 2 15 South Washington Square, Suite 200 Lansing, Michigan (517) D~g~blly sfgned by M~chael A Holmes DN cn=mlchael A Holmes, =US Date '00' Dated: May 6,2004 LANSING ~02

20 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION HAY -b ZOO4 In the Matter of the complaint of MiCHH3AN PU MICHIGAN PAY TELEPHONE ASSOCIATION Case No. U SERV~CE COW~ et al. against AMERITECH MICHIGAN and GTE NORTH INCORPORATED The Michigan Pay Telephone Association, et al. v. Complainants - Appellants, Supreme Court Case No Michigan Bell Telephone Company d/b/a Ameritech Michigan, a Michigan corporation, Court of Appeals And GTE North Incorporated, a Wisconsin Case No Corporation, and Respondents - Appellees, Michigan Public Service Commission, Appellee. STATE OF MICHIGAN 1 1 ss COUNTY OF WASHTENAW 1 PROOF OF SERVICE L. Michele Brainerd, being first duly sworn, deposes and says she is employed at Dickinson Wright PLLC and that onmay 6,2004, she served a copy of SBC Michigan's Answer to Complainants' Application for Rehearing upon the parties listed below via and first class mail by depositing the same in a United States postal depository, enclosed in an envelope, bearing postage fully prepaid, plainly addressed as appears below: Counsel for the MPTA Henry T. Kelly Joseph E. Donovan Kelley Dqe & Warren LLP 333 West Wacker Drive, Suite 2600 Chicago, IL hkelly@kelleydrye.com Counsel for AT&T Communications Arthur J. LeVasseur George Hogg, Jr. Fischer, Franklin & Ford 3500 Guardian Building Detroit, MI levasseur@fischerfranklin.com

21 Leland Rosier Clark Hill P.L.C Woodlake Circle Okemos, MI Counsel for MPSC Staff Steven D. Hughey Michael Nickerson Assistant Attorney General 6545 Mercantile Way, Suite 15 Lansing, Michigan hugheys@michigan.gov Counsel for WorldCom Albert Ernst Dykema Gossett 800 Michigan National Tower Lansing, Michigan aernst@dykema.com James Denniston MCI Communications Corporation 205 N. Michigan Avenue Chicago, IL james.denniston@mci.com John J. Reidy, I11 AT&T Law & Government Affairs 222 W. Adams, Suite 1500 Chicago, Illinois jjreidy@att.com Counsel for GTE Harvey J. Messing Michael G. Oliva Loomis, Ewert, Parsley, Davis & Gotting, P.C. 232 S. Capitol Avenue, Suite 1000 Lansing, Michigan hjmessing@loomislaw.com Administrative Law Judge Barbara A. Stump Administrative Law Judge 6545 Mercantile Way Lansing, MI bstump@michigan.gov ~cheli 6;alnerd' L. Michele Brainerd ::.--~p Date 2W we, wnty u ~ m n /i '00' L. Michele Brainerd Subscribed and sworn to before me, a Notary Public in and for said County, this 6th day of May, Jacqueline K. Tinney!!,,?a---~l-y Dale 2CC MW P~,lbn,,,Unlmn Jacqueline Kay Tinney Wayne County, Michigan My Commission Expires: /06 Acting in Washtenaw County, Michigan LANSING