DSL Tariff & Special Access Considerations

DSL Tariff & Special Access Considerations

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Agenda DSL Rates New DSL Rate Band Assignments Rationale For Band Assignments Rate Band Reassignments Special Access & DSL Issues New Special Access Rates NECA Pool Basics Rate Developments Procedures For Exiting The Pool 3

NECA DSL Tariff update

New DSL Rate Bands NECA Issued New DSL Rate Bands & Rates Effective 7/1/2015 Before: 17 Rate Bands Now: 50 Rate Bands 675 Companies Continue to Participate 53 Companies Exited NECA s DSL Tariff in 2015 5

New DSL Rates Wide Range of Rates WPP 3 Yr Was Now 1/6 Voice/Data $9.27 $1.15 Rate Band 1 $26.64 $29.22 Rate Band 17 $NEW $118.68 Rate Band 50 1/6 Data Only $50.54 $6.27 Rate Band 1 $134.44 $159.41 Rate Band 17 $NEW $647.37 Rate Band 50 6

New DSL Rates Wide Range of Rates WPP 3 Yr Was Now 3/15 Voice/Data $13.73 $1.70 Rate Band 1 $36.51 $43.29 Rate Band 17 $NEW $175.80 Rate Band 50 3/15 Data Only $53.36 $6.62 Rate Band 1 $141.92 $168.29 Rate Band 17 $NEW $683.44 Rate Band 50 7

DSL Band Assignments Wide Assignment of Rate Bands No Company Assigned to RB1 or RB2 One Company Assigned to RB3 Bulk of Companies Assigned to RB9-18 No Company Assigned beyond RB25 For Voice/Data 34 Companies assigned RB40-47 For Data Only 8

Rationale For Band Assignment Reassigned Costs from Special Access to DSL Examined Costs and Demand to Make Band Assignments Forecast vs. Historical Rate Band Previously Assigned On Forecast Under forecasting Stress On Pool Trending from Historical Reporting 2011 to 2013 Right Sized Band Assignment Moved Companies Closer to Actual Costs 9

Band Reassignment Limited Number Telcos Offered Band Reassignment Contributor vs. Recipient Very Limited Offer Around 13 Companies Rate Band Buy Down Allows Company to Offer DSL at Lower Banded Rate Reduced Rate of Return Company s Proposed Rates & Direct Costs Limited Offering 10

Special Access & DSL Issues

Special Access & DSL Issues Traffic Sensitive Actual Pool Rate of Return 2007 2011 avg. = 10.78% 2012 = 7.49% 2013 = 7.11% (final true-up pending in 2015) 2014 = 8.87% (true-up pending in 2016) 2015 = 9.79% (and declining) What is the actual revenue impact to companies of a rate of return below the authorized level? 12

Rate of Return Impact Current ROR Authorized ROR Variance Access Lines 6,000 6,000 DSL Lines 1,500 1,500 Interstate Special Access Circuits 250 250 SA/DSL Interstate Rate Base 2,000,000 2,000,000 Rate of Return X 7.50% X 11.25% Return on Rate Base 150,000 225,000 (75,000) 13

Special Access Issues Special Access Interstate Tariff Rate Changes NECA Tariff effective 7/1/15 produced drastic reductions in many services and rate bands Total Special Access Revenue Requirement Significant reduction in Special Access offset by increases in DSL Transmission More accurate forecasts of costs NECA is taking a closer look at member forecasts, and requesting adjustments where costs have varied Increased from 24 to 50 Rate Bands All but 5 (17-21) saw rates decrease Very few companies above Rate Band 24 14

New Special Access Rates Wide Range of Rates DS1 Rates Was Now Chan Term $56.37 $20.46 Rate Band 1 Chan Mileage $3.49 $1.27 63% Decrease CMT $18.09 $6.57 Chan Term $286.80 $250.28 Rate Band 9 Chan Mileage $17.75 $15.49 12% Decrease CMT $92.06 $80.34 Chan Term $632.45 $654.58 Rate Band 21 Chan Mileage $39.14 $40.51 3.5% Increase CMT $203.01 $210.11 15

New Special Access Rates DS1& DS3- Average of approximately RB1-63.7% RB11-7.7% RB21 +3.5% RB2-56.9% RB12-5.8% RB22-13.4% RB3-46.1% RB13-4.2% RB23-26.8% RB4-42.7% RB14-2.8% RB24-32.9% RB5-32.6% RB15-1.5% RB6-25.5% RB16 -.50% RB7-20.2% RB17 +.50% RB8-16.0% RB18 +1.3% RB9-12.7% RB19 +2.15% RB10-10.0% RB20 +2.86% 16

New High Cap Rates Ethernet Rate Average of approximately. RB1-74.0% RB11-36.4% RB21-27.7% RB2-66.9% RB12-35.1% RB22-40.3% RB3-62.9% RB13-34.0% RB23-49.5% RB4-60.5% RB14-33.0% RB24-53.8% RB5-53.6% RB15-32.1% RB6-48.7% RB16-31.4% RB7-45.0% RB17-30.7% RB8-42.1% RB18-30.1% RB9-39.8% RB19-29.6% RB10-38.0% RB20-29.1% 17

Special Access Issues Special Access Interstate Tariff Rate Changes Historically, costs had continued to increase Demand shifts from high volume TDM circuits to High Capacity Ethernet Circuits, decreasing overall demand Company shifted between rate bands All of this historically contributed to special access rate increases 18

Current Issues with Special Access The Challenge Rate Development based on Prospective demand and costs February forecasts need to be accurate they have not been..because its hard to be accurate Demand for special circuits often changes beyond our control - timing and circuit type Trading T-1 s for Ethernet significantly impacts the amount of revenue generated for the pool 19

NECA Pool Basics Special Access DSL Interstate Rate Base $1,250,000 $750,000 Authorized Rate of Return X 11.25% X 11.25% Return on Rate Base $140,625 $84,375 Interstate Expenses $1,359,375 $515,625 Interstate Revenue Req. $1,500,000 $600,000 20

NECA Pool Basics Special Access Interstate Service 250 Circuits 1,500 Customers Tariff Rate $750/circuit $20/End User Months 12 months 12 months Revenue Generated $2,250,000 $360,000 Revenue Requirement per cost study DSL $1,500,000 $600,000 Net Pool Recipient/(Contributor) ($750,000) $240,000 21

NECA Pool Basics Special Access Interstate Service 150 Circuits 1,500 Customers Tariff Rate $750/circuit $40/End User Months 12 months 12 months Revenue Generated $1,350,000 $630,000 Revenue Requirement per cost study DSL $1,500,000 $600,000 Net Pool Recipient/(Contributor) $150,000 ($30,000) 22

NECA Pool Participation Analysis Things to consider about NECA Pool participation: What is your forecasted revenue requirement and projected revenue to be reported to the pool Consider which of the pools the company is net contributor versus net recipient Consider who the company s major customer is and rate impacts Special access is it a subsidiary? DSL primary customer of the ILEC is the ISP 23

Special Access Tariff Analysis When filing a company specific tariff, we transfer the risk of changes in our company from the pool to ourselves Change in Costs Change in Demand We need to accurately forecast for at least the next 2 years to make sure we understand the risks 24

Things to Consider Net Recipient vs. Net Contributor No need to consider Switched Access Forecasts Level of Risk Revenue Requirement Demand Regulatory burden of maintaining company specific tariff or RT&C Default position should be to stay in the tariff/pool 25

Tariff/Pool Exit Procedures

NECA Traffic Sensitive (TS) Pool Exit Notify NECA of TS Pool exit by March 1 st Exit becomes effective July 1 st TS Pool exit impacts: Switched Access Rates Special Access Rates Wholesale DSL Rates ARC Rates Does NOT impact NECA Section 17.1 rates: SLC, FUSC, Line Ports 27

Individual Interstate TS Access Tariff FCC Rule 61.39 (if less than 50,000 access lines) Requires rate development based on historical costs and historical demand Tariff terms and conditions reference applicable NECA tariff sections Tariff Section 17 contains company-specific rates based on rate development calculations Filed with FCC on June 15 th New Interstate Tariff becomes effective on July 1 st assuming no objections or suspensions 28

Individual Interstate TS Access Tariff Switched access rates based on current NECA rates times NECA provided factor per FCC Rule 51.909(a) Special access rates based on latest annual revenue requirement divided by latest annual demand units Wholesale DSL rates, if not de-tariffed, based on latest annual revenue requirement divided by latest annual demand units ARC rates set per FCC Transformation Order 29

Individual Interstate TS Access Tariff Switched access terminating end office rate updated annually based on FCC Transformation Order $0.0050 effective July 1, 2016 $0.0007 effective July 1, 2019 $0.0000 effective July 1, 2020 Special access rates, including Wholesale DSL if not detariffed, updated every other year (odd years) based on preceding two years revenue requirement and demand units ARC rates updated annually, based on FCC Transformation Order 30

NECA DSL Tariff Exit Allowed by FCC Wireline Broadband Order 1 Can be done without exiting NECA TS Pool Notify NECA of DSL Tariff exit by March 1 st Exit becomes effective July 1 st Notify following parties by May 15 th FCC Governor s Office State Commission Department of Defense Send copies of notification letters to NECA 1 CC Docket No. 02-33 released September 23, 2005 31

NECA DSL Tariff Exit Create Terms, Conditions, and Rates document to be published on Company website and available in business office Wholesale DSL rates based on current annual revenue requirement Wholesale DSL rates cannot produce more revenue than revenue requirement (i.e., cannot over-earn) 32

Thank you!