BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION
	


In the Matter of the Pricing Proceeding for Interconnection, Unbundled 
Elements, Transport and Termination, and Resale 

In the Matter of the Pricing Proceeding for Interconnection, Unbundled 
Elements, Transport and Termination, and Resale for U S WEST Communications, 
Inc.

In the Matter of the Pricing Proceeding for Interconnection, Unbundled 
Elements, Transport and Termination, and Resale for GTE Northwest Incorporated	)
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	)	    Docket No. UT -960369
		 (Phase II)
		
		
		Docket No. UT-960370
		 (Phase II)
		
		
		Docket No. UT-960371
		 (Phase II)



RESPONSIVE TESTIMONY OF MARK S. REYNOLDS

on behalf of

U S WEST COMMUNICATIONS, INC.






August 20, 1998

\\sealaw1\user\landerl\public\phase2\0904test\reynolds.doc

RESPONSIVE Testimony of Mark S. Reynolds
Docket Nos. UT-960369, UT-960370, UT-960371 
Page 



Q. PLEASE STATE YOUR NAME, POSITION, EMPLOYER, AND BUSINESS ADDRESS.
A. My name is Mark S. Reynolds.  I am employed by U S WEST as Director - 
Regulatory Affairs.  My business address is Room 3206, 1600 - 7th Avenue, 
Seattle, WA 98191.

Q. WHAT IS THE PURPOSE OF YOUR RESPONSIVE TESTIMONY?
A. I will address the testimony filed on July 9, 1998 by AT&T witnesses Arlene 
Starr and Page Montgomery.

Q. MS. STARR CLAIMS THAT COMMON COSTS MUST BE BASED ON EFFICIENT ECONOMIC 
COSTS, NOT ON HISTORICAL OR EMBEDDED COMMON COSTS. Starr testimony at 3, lines 
16-18.  ARE U S WEST’S COMMON COSTS BASED ON EFFICIENT ECONOMIC COST?
A. Yes.  Although U S WEST’s common and attributable factors are based on the 
historical relationship between these costs and direct costs, U S WEST adjusts 
these factors for future trends and known events to ensure that they are 
forward-looking in nature.  This was explained by U S WEST witness Ed Freye 
during Phase I of this proceeding.  (Tr. 1958).  This manner of determining 
common overheads is far more accurate than basing U S WEST’s costs on AT&T 
common overheads as the Hatfield model does.

Q. MS. STARR, CITING DR. CORNELL, FURTHER STATES THAT “. . . THE COMMON COSTS 
THAT ARE APPROPRIATE TO RECOVER IN PRICES FOR UNEs ARE ONLY THE EFFICIENT COSTS 
OF OPERATING AT WHOLESALE, NOT RETAIL.” Starr testimony at 3, lines 18-20.  
WOULD YOU PLEASE COMMENT?
A. Common costs, by definition, are not assignable to any particular type of 
service.  Even Dr. Cornell can’t change this basic tenet of cost determination.

Q. MS. STARR TAKES ISSUE WITH THE COMMISSION’S DETERMINATION OF ITS $17.00 
UNBUNDLED LOOP COST, IN PART, BECAUSE THE CALCULATION USED POINT ESTIMATES FROM 
THE BCPM AND RLCAP MODELS.  MS. STARR INTIMATES THAT THIS IS INAPPROPRIATE 
BECAUSE “. . . THERE WERE NUMEROUS PROBLEMS FOUND IN THE BCPM AND RLCAP MODELS. 
Starr testimony at 5, line 18 to 6, line 2; at 7, lines 1-11.  WOULD YOU PLEASE 
COMMENT?
A. U S WEST understands this phase of the proceeding to be limited to 
addressing pricing proposals, not to evaluating cost models, which was 
accomplished in Phase I.  U S WEST will honor the Commission’s directive in the 
Eighth Supplemental Order not to reargue cost issues from Phase I.  
Accordingly, I will not take this opportunity to point out the major errors 
detected in the Hatfield Model in Phase I.

Q. DOES DR. MONTGOMERY ALSO QUESTION THE COMMISSION’S $17.00 LOOP COST?
A. Yes.  Similar to Ms. Starr, Dr. Montgomery refuses to acknowledge that the 
Commission’s estimate includes certain non-quantifiable costs associated with 
each of its point estimates for the respective models.  Additionally, the 
Commission clearly articulates that it did not include overhead costs for the 
Hatfield model or common costs for RLCAP.  (Eighth Supplemental Order, ¶ 251).

Q. DR. MONTGOMERY INFERS THAT INTERCONNECTION WITH CLECS FREES UP CAPACITY ON 
THE INCUMBENT LEC’S NETWORK. Montgomery testimony at 8, lines 5-15.  DO YOU 
AGREE?
A. Not necessarily.  Much local traffic is currently direct trunked between end 
offices.  Interconnection with CLEC’s at local tandem switches, the most 
prevalent point of interconnection, requires the re-routing of this direct 
trunked traffic to tandem trunk groups.  Because tandem trunk groups are 
typically used in overflow situations, the new traffic additions have not been 
forecast, causing the need for network expansion.  The incumbent LEC is now 
faced with stranded capacity on its direct trunk groups between end offices and 
a need to expand capacity between end offices and tandem switches.  This could 
hardly be considered a “benefit” or “cost savings” as espoused by Dr. 
Montgomery.

Q. IN DISCUSSING HOW U S WEST DETERMINED ITS TELRIC “ATTRIBUTED COST,” MS. 
STARR OPINES THAT, “[I]N REALITY [U S WEST] HAD JUST [MOVED] THE “COMMON COSTS” 
CATEGORY TO THE DIRECT ATTRIBUTED COST PART OF TELRIC.” Starr testimony at 9, 
lines 1-4.  DO YOU AGREE WITH MS. STARR’S REPRESENTATION OF U S WEST’S 
METHODOLOGY?
A. In part, yes; however, I would not characterize U S WEST’s attributed cost 
analysis as “just moving” the cost from one category to the other.  U S WEST 
employed appropriate cost causation principles in the cost attribution 
process.  This is consistent with the FCC directive that Ms. Starr quotes on 
page 4 of her testimony.  The FCC clearly stated that “[A] properly conducted 
TELRIC methodology will attribute costs to specific elements to the greatest 
possible extent, which will reduce common costs.  (CC Docket No. 96-98, First 
Report and Order, FCC 96-325 [rel. Aug. 8, 1996] ¶ 695).

Q. MS. STARR SUGGESTS THAT THE COMMISSION’S $17.00 ESTIMATE DOES NOT INCLUDE 
HATFIELD JOINT AND COMMON COSTS NOR U S WEST’S COMMON COSTS. Starr testimony at 
9, lines 8-15.  DO YOU AGREE WITH MS. STARR’S CONCLUSION?
A. Yes, I do.  Ms. Starr, however, leaves out the fact that the Commission also 
excludes attributable and common costs from the BCPM model.  In my direct 
testimony I carefully point out that in order to load the Commission’s $17.00 
estimate with joint and common 

costs, three factors must be averaged from the three models to ensure full cost 
recovery.  Ms. Starr appropriately points out that the Commission’s estimate is 
missing the 4.05% common factor for U S WEST and an overhead factor for 
Hatfield.  Accordingly, using U S WEST’s calculation of the BCPM joint and 
common cost factors explained in Bench Request No. 4, U S WEST averaged the U S 
WEST factor of 4.05%, Staff’s 20% attributed/common factor for Hatfield, and 
the BCPM factor of 20.53% to determine and average the overhead factor of 
14.86%.  When applied to the $17.00 loop cost, this factor yields a “fully 
loaded” loop cost of $19.53. 

Q. DO YOU AGREE WITH MS. STARR’S REPRESENTATION THAT U S WEST HAS INCLUDED 
“ADDITIONAL” ATTRIBUTED COSTS? Starr testimony at 9, lines 17-23.
A. No.  As the previous response explains, U S WEST appropriately adds the 
average common and/or attributed costs that were missing from the Commission’s 
$17.00 estimate.  Both the Commission and AT&T acknowledge the U S WEST and 
Hatfield factors, and U S WEST has submitted its documentation for the BCPM 
estimates.

Q. DO YOU AGREE WITH MS. STARR THAT PROFIT SHOULD BE EQUATED TO THE RETURN ON 
INVESTMENT INCLUDED IN FORWARD-LOOKING COST STUDIES? Starr testimony at 14, 
lines 1-2.
A. Not necessarily.  Because the Commission’s ordered costs are well below 
those filed by U S WEST from U S WEST’s perspective, it is debatable that there 
is any return in the revised estimates.  Notwithstanding this issue, however, U 
S WEST’s proposed mark-up was based on ensuring that interconnection and UNE 
elements also provide contribution like most of the other services, which also 
use the common network.  There is no reason why U S WEST’s other customers 
should bear an inequitable burden of network support.

Q. MS. STARR AGAIN CLAIMS THAT U S WEST ADDS ATTRIBUTED COST TO THE COMMISSION’
S “COST” ESTIMATES WHICH ALREADY INCLUDED U S WEST’S ATTRIBUTED COST. Starr 
testimony at 16, lines 14-21; at 17, lines 1-2.  DO YOU AGREE?
A. No.  I have already explained the process U S WEST conducted with respect to 
determining attributable and common cost for the Commission’s $17.00 loop 
estimate.  Ms. Starr conveniently references no other cost element with respect 
to this allegation.

Q. DO YOU AGREE WITH MS. STARR’S EXPLANATION OF WHAT IS CONTAINED IN U S WEST 
COSTS AND PRICES? Starr testimony at 17, lines 4-17. 
A. No.  U S WEST’s direct costs appropriately include administrative expenses, 
sales expenses, product management expenses and business fees directly 
associated with the service being studied.  These are all costs that are 
incurred as a direct result of offering the 

service.  Furthermore, attributable costs are also costs that can be associated 
with offering the service.  U S WEST’s attributed cost analysis is consistent 
with the FCC directive to attribute costs to specific elements to the greatest 
degree possible.  (CC Docket No. 96-98, First Report and Order, FCC 96-325 
[rel. Aug. 8, 1996] ¶ 695).  Finally, in accordance with the Act, U S WEST is 
entitled to recover all its costs, including common costs, associated with the 
provision of network elements, and a reasonable profit.

Q. MS. STARR CLAIMS THAT U S WEST’S PROPOSAL FOR FEATURES DISREGARDS THE 
COMMISSION’S EIGHTH SUPPLEMENTAL ORDER AND SHOULD NOT BE ALLOWED. Starr 
testimony at 18, lines 1-9.  DO YOU AGREE?
A. No.  Consistent with the Order, U S WEST’s tariff includes no additional 
charges for features over and above the switched line port rate.

Q. DO YOU AGREE THAT THE EIGHTH CIRCUIT COURT’S OPINION THAT MS. STARR QUOTES 
SUPPORTS THE CONCEPT THAT VERTICAL FEATURES SHOULD BE INTEGRATED INTO THE LOCAL 
SWITCHING RATE ELEMENT? Starr testimony at 19, lines 18-24; at 20, lines 1-3.
A. No.  The Opinion clearly states that “. . . we believe that the FCC 
reasonably concluded that features qualify as network elements that are subject 
to these unbundling requirements of the Act.”  This is certainly different from 
the notion that features should be bundled with the switching element.

Q. DO YOU AGREE WITH MS. STARR’S INTERPRETATION OF THE EIGHTH CIRCUIT COURT’S 
ORDER WITH REGARD TO THE UNBUNDLED LOOP NONRECURRING CHARGE? Starr testimony at 
20, lines 5-20; at 21, lines 1-7.
A. No, and I also disagree with the nonrecurring charge that Ms. Starr 
references.  First, I don’t agree that the Commission’s statement regarding the 
cost of disconnection constituted a requirement that U S WEST split the 
nonrecurring loop charge.  U S WEST does not recover any of its other 
nonrecurring charges on this basis.  Furthermore, the rate that Ms. Starr 
references is not the proposed rate that U S WEST has filed for the element.  
The $41.73 non-recurring cost that U S WEST filed is contained on page 2 of 
Exhibit MSR-2.  The rate of $51.94 is consistent with the TELRIC cost ordered 
by the Commission, and contains an appropriate share of attributed and common 
costs.

Q. DOES U S WEST AGREE WITH THE RECOMMENDATION THAT INP COSTS BE RECOVERED IN A 
SIMILAR MANNER TO THE RECENT FCC METHODOLOGY? Montgomery testimony at 16.

A. No.  U S WEST does not agree with this recommendation.  The recent FCC 
solution for Local Number Portability (LNP) cost recovery is intended to 
recover very different types of cost than the interim number portability 
considered in Phase I of this docket.  The FCC described the costs in the Third 
Report and Order, ¶ 61:
In the Further Notice, the Commission tentatively divided the costs raised in 
this proceeding into three categories: “costs incurred by the industry as a 
whole” (i.e. shared costs), “carrier-specific costs directly related to 
providing number portability,” and “carrier-specific costs not directly related 
to number portability.”  The Commission tentatively defined shared costs as 
“costs incurred by the industry as a whole, such as those incurred by the 
third-party administrator to build, operate, and maintain the databases needed 
to provide number portability.  The Commission subcategorized the number 
portability costs of facilities shared by all carriers into: “(a) non-recurring 
costs, including the development and implementation of the hardware and 
software for the database; (b) recurring (monthly or annually) costs, such as 
the maintenance, operation, security, administration, and physical property 
associated with the database; and (c) costs for uploading, downloading, and 
querying number portability database information.

 The recommendation would also reopen the question of what are the appropriate 
INP costs, which this Commission has settled in the Eighth Supplemental Order, 
¶ 436.  The cost for INP has been by set by this Commission to be $1.50.

Q. PLEASE EXPLAIN HOW THE FCC PROPOSES TO RECOVER LNP COSTS.
A. The FCC is proposing an end user surcharge to be assessed for a 5-year 
period of time starting February 1999.  The charge will apply to end users 
within a Metropolitan Statistical Area (MSA) once conversion to LNP is complete 
or once a switch is converted to LNP capabilities.

Q. HOW DO THE LNP COSTS AND COST RECOVERY DIFFER FROM THE CURRENT INP?
A. LNP is obviously an industry-wide initiative to put into place an entirely 
new form of call routing based on information contained in databases.  Interim 
number portability is little more than “call forwarding” from the ILEC’s switch 
to the CLEC’s switch.  Initially most numbers will be ported from ILECs to 
CLECs, with the ILEC incurring costs for call forwarding and transport.  U S 
WEST is entitled to recovery of these costs in accordance with the Act.

Q. DR. MONTGOMERY CLAIMS THAT USING THE SAME COST ALLOCATION METHOD FOR INP AS 
LNP ELIMINATES ANY POSSIBLE INCENTIVES FOR ONE CATEGORY OF LEC, EITHER ILECs OR 
CLECs, TO FAVOR ONE FORM OF NUMBER PORTABILITY OVER ANOTHER. Montgomery 
testimony at 18, lines 1-11.  COULD YOU COMMENT?
A. U S WEST believes that the Act and the FCC envisioned the migration of INP 
to LNP once the long term database solution is operational.  INP may continue 
as a number portability solution in switches until LNP is available or in 
switches not selected for conversion to LNP.  It is clear that LNP is the only 
favored long term solution, and industry members will all be required to 
convert.

Q. DOES U S WEST AGREE WITH DR. MONTGOMERY’S REPRESENTATION OF THE FCC COST 
ALLOCATION MECHANISM?
A. No.  The FCC’s Third Report and Order does advocate an allocation of shared 
or Type I costs which I have stated above are costs incurred by the industry as 
a whole, such as those incurred by the third-party administrator to build, 
operate, and maintain the regional databases needed to provide number 
portability.  Users of the regional database must allocate these costs for 
purposes of company specific cost recovery.  U S WEST’s allocation of Type I 
costs combined with Type II or carrier-specific costs directly related to 
providing number portability will be the basis of the end user charge.  The 
allocated Type I costs are estimated to be less than 2% of U S WEST’s total LNP 
costs.  Clearly INP has no comparable Type I or shared costs that can be 
allocated among industry participants.

Q. DR. MONTGOMERY CLAIMS THAT WECA IS CURRENTLY USING A NEARLY IDENTICAL (TO 
THE FCC LNP ALLOCATION) END USER REVENUE ALLOCATOR TO SPREAD THE COSTS OF 
NUMBER PORTABILITY IN WASHINGTON. Montgomery testimony at 18, lines 1-11.  CAN 
YOU COMMENT?
A. Dr. Montgomery is mistaken in his understanding.  To the best of my 
knowledge, WECA has not adopted such an allocator.  WECA was considering 
adopting an allocator, but the FCC has issued its order in the interim, and 
WECA has not yet acted.  The only interim allocator which has been adopted is 
for the Western LLC, and this is only for the purpose of collecting funds to 
pay Lockheed Martin, for NPAC payments.  This has no bearing on and no 
relationship to INP costs.

Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes, it does.