Before the 
FEDERAL COMMUNICATIONS COMMISSION 
Washington, D.C. 
DA 95-1928 
In the Matter of 
Bell Atlantic Telephone Companies 
Revisions to Tariff F.C.C.No. 10 
Rates, Terms, and Regulations 
for Video Dialtone Service in 
Dover Township, New Jersey 
) 
) 
) 
) 
) 
) 
) 
) 
) 
Transmittal Nos. 741, 786 
CC Docket No. 95-145 
ORDER DF.SIGNATING ISSUF.S FOR INVE.5TIGATION 
Adopted: September 8, 1995; 
Filine Schedule: 
Direct Case: October 26, 1995 
Oppositions/Comments: November 30, 1995 
Rebuttal: December 20, 1995 
By the Chief, Common Carrier Bureau: 
Released: September 8, 1995 
TABLE OF CONTENTS 
Para. No. 
I. IN"1'RODUCTION . . • • . • . • • • . • • . . • • • • . . • . . . . . . • • • • . . • • . . . • . • . . • . . 1 
D. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 
ill. ISSUES DF.SIGNATED FOR INVF.STIGATION • • • • • • • • • • • • • • • • • • • • • • • • S 
A. Ce>st and bte Issu.es • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 6 
1. Identification of Dedicated Costs • • • • • • • • • • • • • • • • • • • . • • • • • 11 
2. Incremental Costs ~iated with Shared Primary Plant • • • • • • • 15 
3. Allocation of Non-incremental Shared Primary Plant 
Costs • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 20 
4. Identification of Reasonably Identlf"uable Non-Primary 
Plant Costs • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 28 
S. Overhead I..oadinp • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 33 
6. Calculation of a Channel Utilization Factor • • • • • • • • • • • • • • • • • 37 
2024 
7. Other C«>St and Rate Issu.es • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 40 
B. Tariff Te.rm W-Ues • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •••••• 
1. Volume and Term Discounts ........................... . 
2. Termination Liability ................................ . 
3. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
4. Minimum Service Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . 
S. Correction of Service Problems ......................... . 
44 
44 
47 
S2 
SS 
SS 
IV. PROC.ED'URAL MA TIERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 
A. Filin.g Scbeclules and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 
B. Ex Parte Reciuirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 
C. Paperwork Reduction Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 
V. ORDERIN'G CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 
I. INTRODUCTION 
1. On June 9, 1995, the Common Carrier Bureau (Bureau) released an Order which, 
inter alia, suspended for one day the video dialtone (VD'I) tariff filed by Bell Atlantic for 
service in Dover Township, New Jersey, initiated an investigation into the lawfulness of the tariff, 
and imposed an accounting order. 1 In that Order the Bureau stated that we would investigate Bell 
Atlantic's video dialtone tariff for Dover Township to detennine whether the rates Bell Atlantic 
proposes to charge programmers will cover the costs of the video dialtone system and whether 
the tenns and conditions of the tariff are reasonable. 2 In this Order, the Common Carrier Bureau 
designates issues in an investigation of the rates, terms, and regulations of Transmittal Nos. 741 
and 786 for the provision of video dialtone service in Dover Township, New Jersey. By 
addressing the issues designated in this Order, the Bureau generally seeks infonnation to resolve 
in this investigation the following two questions: (1) whether the rates in the Dover Township 
video dialtone tariff are adequately justified and (2) whether the terms in the Dover Township 
video dialtone tariff are reasonable. 
l Bell Atlantic Telephone Cos. Revisions to Tariff F.C.C. No. 10 Rates, Tenns, and 
Regulations, Order, DA 95-1285 (released June 9, 1995)(Suspension Order). 
2 Id. at, 4. 
2025 
II. BACKGROUND 
2. On January 27, 1995, Bell Atlantic filed Transmittal No. 741, later revised by 
Transmittal No. 786, which introduced the first tariff for a commercial video dialtone service 
offering. The video dialtone offering provides access to Bell Atlantic's broadband network for 
the transmission of video programming and other services offered by video programming and 
information providers (programmers). 3 When deployed and operational, the video dialtone system 
will transport video signals of programmers on a common carrier, nondiscriminatory basis to the 
potential end-user subscribers' premises in the service area. 4 The Dover Township video dialtone 
system consists of fiber optic transport facilities, using fiber-to-the-curb architecture, and 
associated signal processing equipment. This system will also use copper and coaxial cables for 
the final link to the end-users' premises. 5 The system is capable of delivering up to 384 channels 
of video capacity at 6 Megabits per second per channel. 6 
3. Petitions to reject or, in the alternative, suspend and investigate were filed against the 
rates , terms, and conditions of Transmittal No. 741 by ten parties.7 Many petitioners claim that 
Bell Atlantic failed to provide sufficient cost information to (1) satisfy the requirements of the 
3 The Bell Atlantic Telephone Cos. Transmittal No. 741, Description and Justification at 
1-1 (filed January 27, 1995)("Trans. 741 D&J"). 
4 Id. 
5 Id. 
6 Id. at 1-1, 1-2. One Megabit is the equivalent of one million bits. As a comparison to 
the 6 Megabits per second transmission speed offered by Bell Atlantic's fiber-to-the-curb 
video dialtone architecture in Dover Township, Bell Atlantic transmits at a rate of 1.5 
Megabits-per second using Asymmetric Digital Subscriber Line (ADSL) technology 
transmitting on copper twisted pair wiring in its video dialtone trial in FaiJfax, Virginia. 
The Bell Atlantic Telephone Cos. Transmittal No. 742, Description and Justification at 
1-2 (filed January 27, 1995) ("Bell Atlantic Arlington Video Dialtone D&J"). 
7 Petitions were filed by the Atlantic Cable Coalition (ACC); AT&T Corporation (AT&T); 
Cablevision Systems Corporation (Cablevision); Adelphia Communications Corporation, 
Comcast Cable Communications, Inc., Cox Enterprises, Inc. , and Jones lntercable, Inc. 
(Joint Petitioners); Viacom Inc. (Viacom); the National Cable Television Association 
(NCTA);Lenfest West,Inc.,LenComm,Inc.,and Suburban Cable TV Co. ,Inc. (Lenfest); 
MCI Telecommunications Corporation (MCI); Association of America' s Public Television 
Stations (APTS); and the New Jersey Cable Telephone Association (NJCTA). Broadband 
Technologies, Inc. (Broadband) filed in support of the Bell Atlantic Transmittal No. 741 . 
2026 
Video Dia/lone Reconsideration Order" and (2) to enable a proper analysis of the proposed 
rates. 9 Petitioners also claim that Bell Atlantic did not reasonably assign either the direct costs 
of video dialtone or a reasonable proportion of overhead costs as directed in the Video Dialtone 
Reconsideration Order for the purpose of setting video dialtone rates. 10 Petitioners also 
contend that many of the tenns and conditions of Bell Atlantic ' s tariff for video dialtone service 
in Dover Township, New Jersey , are unreasonable and discriminatory. 11 For example, several 
petitioners claim that the volume and tenn discounts and the tennination liability tenns of the 
tariff favor affiliate programmers at the expense of other potential programmers. 12 
4. Based on an analysis of the substantial record developed during the initial review of 
Bell Atlantic ' s Transmittal Nos. 741 and 786, the Bureau concluded that the proposed video 
dialtone tariff did not warrant rejection because it is not patently unlawful. 13 The Bureau further 
concluded, however, that Bell Atlantic' s tariff does raise questions of lawfulness with respect to 
its cost allocation methods, rate levels, and various tenns and conditions governing its provision 
of video dialtone service significant enough to warrant a one day suspension of the Transmittals, 
imposition of an accounting order, and commencement of an investigation.14 Specifically, the 
Bureau held that the Commission will detennine through the investigation whether: (1) Bell 
Atlantic ' s proposed cost allocation method properly assigns the cost of its facilities between 
wholly dedicated video dialtone costs, wholly dedicated telephony costs, and shared costs; 15 (2) 
Bell Atlantic has accurately assigned the incremental costs associated with shared plant that were 
8 Telephone Company-Cable Television Cross-Ownership Rules, Section 63.54-63.58,CC 
Docket No. 87-266, Memorandum Opinion and Order on Reconsideration and Third 
Funher Notice of Proposed Rulemaldng, 10 FCC Red 244, 343-46 (1994) (11 214-
20) (Video Dia/lone Reconsideration Order). 
9 ACC Petition at 5-8; Cablevision Petition at 8-10; NCTA Petition at 9-10; Joint Petition 
at 8; Joint Petition, filed May 15, 1995, at 3; MCI Petition at 6; AT&T Petition at 4-10. 
10 Suspension Order at 11 25-49, citing Video Dia/lone Reconsideration Order at 
345-46 (11217-20). 
11 Suspension Order at 1150-78. 
12 Id. at 1160-67. 
13 Id. at 14. 
14 Id. 
15 Id. at 1 24. Wholly dedicated video dialtone costs refer to investment and expense 
related exclusively to providing video dialtone service. Shared costs refer to investment 
and expense related to providing video dialtone and other services on a joint or common 
basis. 
2027 
incurred to provide video dialtone service; 16 (3) Bell Atlantic reasonably allocated the shared plant 
costs not attributable as incremental to telephony or video (unidentified shared plant costs), (4) 
Bell Atlantic accurately identified other reasonably identifiable costs of video dialtone; 17 (5) Bell 
Atlantic 's overhead loading factor is sufficient to allow video dial tone to recover a reasonable 
proportion of overhead costs; 18 and (6) the terms and conditions of the tariff are reasonable and 
nondiscriminatory. 19 
ID. ISSUES DESIGNATED FOR INVESTIGATION 
5. We hereby designate the following issues for investigation and request the following 
specific items of information: 
A. Cost and Rate ls.sues 
6. Backwund. In the Video Dia/lone Reconsiderarion Order, the Commission 
stated that video dialtone tariff rates would be examined under the local exchange carrier (LEC) 
price cap "new services test. "20 The Commission made· clear that LECs would be required "to 
submit with their video dialtone tariffs a more detailed and complete identification of direct costs• 
than they would otherwise submit for new service filings. 21 This more stringent showing was 
established, in part, due to the incentive that LECs may have to understate the direct costs of 
video dialtone service. 
7. In the Bureau's initial analysis of Bell Atlantic's cost support, we raised the issue of 
whether Bell Atlantic' s rates would cover the direct costs of video dialtonc. 22 In the Suspension 
Order, we stated that "[t]he material submitted by Bell Atlantic on the record is sufficient to 
permit the Commission to determine that the cost allocation methodology proposed by Bell 
Atlantic has been followed" and that the tariff filing docs not appear to be patently unlawful. 23 
16 Id. at 127. 
17 Id. at 11 33, 44. 
18 Id. at 1148-49. 
19 Id. at 1160-78. 
20 Video Diallone Reconsiderarion Order, 10 FCC Red at 340 (1206). 
21 Id. at 344-45 (1216). 
22 Suspension Order at 121. 
23 Id. at 1 24. 
2028 
The Bureau, however, also stated that an investigation was necessary to detennine whether Bell 
Atlantic's cost assignment methodology was itself reasonable. 
8. Bell Atlantic's assignment of costs between telephony and video dialtone service is 
relevant and important despite the fact that Bell Atlantic is under price cap regulation because 
there are situations where an improper cost assignment to telephony services could affect the rates 
charged for those services. Z4 Although under a system of pure price caps that had no residual 
rate-of-return features, carriers' costs of providing a service would not affect rate levels, the 
Commission has not adopted a pure price caps regime for all LECs at this time.25 Under the 
interim price caps plan adopted by the Commission this year, LECs were permitted to choose 
from three options. Two of those options would require LECs to share part or all of their 
earnings above specified rate-of-return benchmarks and would pennit them to increase their 
interstate rates if their earnings fell below the specified benchmark. 26 Although Bell Atlantic 
24 The price cap method of regulation differs significantly from the more traditional rate-of­
return regulation. A rate-of-return system limits the profit carriers can earn on their 
investment. A pure price caps regime, instead, regulates the price that carriers may 
charge for their services. This regulatory regime encourages carriers to increase their 
productivity and thereby maximize their profits. In the Maner of Price Cap Perfonnance 
Review for Local Exchange Carriers, CC Docket No. 94-1 , First Repon and Order, 
FCC 95-132 at 11 1-7 (rel. April 7, 1995)(LEC Interim Price Cap Peifonnance 
Review). 
25 Under a pure price caps regulatory system, rates for services are set based on historic 
prices, inflation, exogenous costs (costs outside the control of the carrier), and an X factor 
that reflects reductions in unit costs relative to inflation, without regard to any particular 
carrier's costs in providing the service. Thus, if a carrier increased its efficiency .by 
reducing the cost of providing the service and thereby increased its profits, a pure price 
caps regime would allow the carrier to keep 100 percent of the increased profits. 
26 Under the price caps system as implemented by the Commission, unless a carrier has 
selected the highest X factor of 5.3 percent, the carrier must share with ratepayers a 
portion of its profits above a certain benchmark and share all profits above another 
benchmark. At present, LECs selecting the lowest X factor of 4.0 percent will be 
required to share 50 percent of their earnings from 12.25 percent up to 13.25 percent and 
to share 100 percent of their earnings above 13.25 percent. LECs selecting the middle 
option X factor of 4. 7 percent will be required to share 50 percent of their earnings from 
12.25 percent up to 16.25 percent and 100 percent of their earnings above 16.25 percent. 
LECs selecting either of the two lower X factors are also pennitted to make a low-end 
adjustment if their earnings fall below 10.25 percent in a year. ~allows LECs earning 
below 10.25 percent rate-of-return to raise their price cap indices and thus grants them 
further flexibility to raise their rates. LECs selecting the 5. 3 percent X factor option have 
no sharing obligations and are not entitled to a low-end adjustment. LEC Interim Price 
Cap Peifonnance Review at 120. 
2029 
-chose the no-sharing option under the Commission's interim plan, 17 the Commission has not yet 
adopted a long-term plan. 
9. In the Video Dialtone Reconsideration Order, the Commission tentatively 
concluded that to further protect interstate telephone ratepayers from improper cross-subsidization 
a separate price cap basket for video dialtone services may be necessary. 21 The Commission 
stated that this would prevent local telephone companies from off setting a price reduction for 
video dialtone service with an increase in rates for other regulated interstate services. 29 On 
February 15 , 1995, the Commission released a Notice of Proposed Rulemaking (NPRM) to 
address the treatment of video dialtone services under the Commission's price caps system of 
regulation. 30 In the NPRM the Commission requested comment on whether a separate basket 
should be created for video dialtone serVices. 
10. Infoonation Request. We direct Bell Atlantic to provide the Commission all of the 
material that was redacted from Bell Atlantic' s May 5, 1995 cost study material.31 In addition, 
Bell Atlantic must provide the remaining projected costs that will be incurred in completing and 
operating the system. Such projections should cover, at a minimum, from now until the time in 
which demand for the service is projected to mature. Further, Bell Atlantic must provide its 
forecasts of demand for video dialtone services under the tariff for the same time period. Bell 
Atlantic must also provide the dollar amounts of the investment expenses, taxes and other costs 
and cost components associated with the video dialtone service and explain the methodology used 
to derive these amounts. Pursuant to the Commission' s Video Dialtone Reconsideration 
Order, Bell Atlantic is required to record its video dialtone costs in subsidiary Part 32 accounting 
records. 32 The booked portion of the video dialtone costs should be readily available from these 
records. 
27 Bell Atlantic Telephone Cos. 1995 Annual Price Cap Filing, Transmittal No. 777, 
Description and Justification at 2-2 (filed May 9, 1995). 
28 Video Dialtone Reconsideration Order, 10 FCC Red at 323-24, 347 (,, 167, 
222-23). 
29 Id. 
30 In the Matter of Price Cap Performance Review for Local Exchange Carriers; Treatment 
of Video Dialtone Services Under Price Cap Regulation, CC Docket No. 94-1 , Notice 
of Proposed Rulemaking, 10 FCC Red 3141 (1995). 
31 The Bell Atlantic Telephone Cos. Transmittal No. 741 - Amended (filed May 5, 
1995)("Trans. 741-Amended") . 
32 Video Dialtone Reconsideration Order, 10 FCC Red at 325-26 (,, 172 - 73); see 
also Responsible Accounting Officer Letter 25 (RA.O 25) , 60 Fed. Reg. 19,591(April19, 
1995). 
2030 
l 
-..... ........... _________________ ___ 
1. Identification of Dedicated Costs 
11. Backeround. In the Suspension Order, the Bureau stated that an investigation 
would permit a determination as to whether "Bell Atlantic properly assigns the cost of its 
facilities among dedicated video dialtone, dedicated telephony, and shared plant. "33 In order to 
evaluate properly Bell Atlantic's cost assignment methodology, the Bureau needs to conduct an 
in-depth financial and technical analysis of Bell Atlantic' s video dialtone system. 
Issue A: Has Bell Atlantic reasonably ~igned the costs as.wciated with 
primary plant among wholly dedicated video dialtone costs, wholly 
dedicated telephony costs, and shared costs? 
12. Infonnation Reguest. We thus direct Bell Atlantic to provide the dollar amounts of 
the dedicated video dialtone investment, dedicated telephony investment, and shared investment 
for the Dover Township service offering, including related capital costs and cost components. 
Bell Atlantic must also provide the total dollar amount of projected plant construction and related 
capital costs and cost components that will be dedicated to video or telephony or shared. 
13. We also direct Bell Atlantic to provide a block diagram detailing the major hardware 
components and buildings involved in the video dialtone system from the programmer's premises 
to the end-user customer. This diagram should include: the signal generator and lines, fiber and 
coaxial lines, super trunk transmitter, supcrtrunk receiver, lightguided terminating equipment, 
digital cross-connects, multiplexers, serving wire center (SWC), video serving office, video 
distribution office (VDO), and host digital terminal (HDT). Bell Atlantic shall also provide a 
detailed map of the video dialtone service area that shows the locations of the remote HDT units 
and provides distance measurements between the various major equipment pieces. For each item 
of this list, Bell Atlantic should include the unit investment, number of units, and the resultant 
investment, as well as capital costs and cost components. This information will aid the 
Commission in determining wbcthcr Bell Atlantic has accurately and reasonably identified the 
dedicated costs of video dialtone service, the dedicated costs of telephony, and shared plant costs. 
14. Bell Atlantic should also show what the effects on dedicated cost calculations would 
be if facilities that only incurred de minimis use by a second service were considered to be 
totally dedicated to the primary service. Specifically, we direct Bell Atlantic to consider 
equipment which has 10 percent or less of its total usage, as measured by minutes of use, from 
a secondary service to be wholly dedicated to the primary servi~. 34 To assist the Commission 
33 
34 
Suspension Order al 1 24. 
The Commission has previously held that joint use facilities may be treated as dedicated 
to one service if all but one of the multiple services using that facility make only de 
minimis use of it. Specifically, in 1989, the Commission held that special access lines 
carrying both state and interstate traffic should be regulated as intrastate facilities if the 
2031 
in analyzing the 10 percent minimum usage assignment scheme, Bell Atlantic shall provide an 
estimation of the breakdown of minutes of use of shared equipment between telephony and video 
dialtone services. This minimum usage assignment technique would essentially modify the 
standard definition of shared equipment, which would "exclude from [the shared category] costs 
that are clearly de minimis or costs related to plant that will have only occasional common 
use. "35 The proposed methodology would result in a service carrying the entire costs of 
equipment in which that service dominates the usage. Bell Atlantic may also discuss why such 
a methodology based on minutes of use of shared equipment by telephony and video dialtone 
services is inappropriate for assigning equipment costs and why equipment, incurring only a de 
minimis use by a second service, should still be classified as shared investment. 
2. Incremental Costs Associated with Shared Primary Plant 
15. Background. In the Video Dialrone Reconsideration Order, the Commission 
held that the direct costs of video dialtone must include "any incremental costs that are associated 
with shared plant used to provide video dialtone and other services, that is, costs of shared plant 
that are caused by the carrier's decision to offer video dialtone service. "36 The Commission also 
stated that "we will scrutinize the basis on which those costs are identified and included in the 
proposed charges for video dialtone service. "37 
16. In the Suspension Order, we stated that it would be incorrect to categorize all 
changes to the present telephony system as incremental to video dialtone because the telephone 
network is constantly being upgraded, and Bell Atlantic may have undertaken some or most of 
these improvements even if it bad not decided to deploy video dialtone. 38 We seek here to 
determine the improvements to shared primary plant that are attributable to Bell Atlantic's 
decision to provide video dialtone. 
amount of the interstate traffic was only de minimis. The Commission held that 
interstate traffic was deemed to be de minimis when it amounted to 10 percent or less 
of the total traffic on a special access line. In the Matter of MTS and WA TS Market 
Structure, Amendment of Part 36 of the Commission's Rules and Establishment of a Joint 
Board, Decision and Order, 4 FCC Red 5660 (1989). 
35 In the Matter of Separation of costs of regulated telephone service from costs of 
nonregulated activities. Amendment of Part 31, the Uniform System of Accounts for 
Class A and Class B Telephone Companies to provide for nonregulated activities and to 
provide for transactions between telephone companies and their affiliates, CC Docket No. 
86-111, Repon and Order, 2 FCC Red. 1298, 1339, n .. 499 (1987). 
36 Video Dialrone Reconsideration Order, 10 FCC Red 345 (1217). 
37 Id. 
38 Suspension Order at 127. 
2032 
Is.sue B: Do Bell Atlantic's rates reflect the incremental costs of shared 
primary plant caused by its decision to off er video dialtone 
service in Dover Township, New Jersey? 
17. lnfoonation Reguest. To assist the Commission in evaluating Bell Atlantic· s 
allocation of shared investment, Bell Atlantic submit the following information. First, it must 
submit the dollar amount of the shared investment used to provide video dialtone and telephony 
services on a joint or common basis in Dover Township, as well as related capital costs and cost 
components. Second, Bell Atlantic must submit the projected shared costs that will be incurred 
in completing and operating the system, as well as related capital costs and cost components. 
Third, Bell Atlantic must submit this information the signal generator and lines, fiber and coaxial 
lines, super trunk transmitter, supertrunk receiver, lightguided terminating equipment, digital 
cross-connects, multiplexers, SWC, video serving office, VDO, and HDT, including the resultant 
total costs. Bell Atlantic should explain the methodology used to derive these amounts. As noted 
above, the booked portion of the shared investment should appear in subsidiary accounting 
records at the Part 32 level. 39 
18. Bell Atlantic must also show what portion of these shared cost and cost components 
are (1) incrementally caused by the provision of video dialtone service, (2) incrementally caused 
by the provision of telephony service, or (3) unidentifiable as either (1) or (2). 
19. Further, to assist the Commission in determining what, if any, costs of the broadband 
network in Dover Township are incremental to the provision of video dialtone service, Bell 
Atlantic should provide a technical and detailed functional description of the broadband network 
that would be deployed without the video dialtone system.40 In particular, Bell Atlantic should 
provide the costs of a HDT, an optical network unit (ONU), drop facilities (loop facilities 
between the ONU and the end-user premises), and quad current limiter, for such a broadband 
system without video dialtone capabilities. Bell Atlantic should also describe the differences, if 
any, between the equipment used in the broadband network deployed in Dover Township and a 
broadband network without video dialtone service and the effect of such differences on cost. 
39 Video Diallone kconsiderarion Order, 10 FCC Red at 325-26 (,, 172-73); see 
also RAO 25. 
40 Bell Atlantic claims that it is "required by [New Jersey] state regulatory commitments to 
upgrade its network to be capable of providing both advanced voice and new broadband 
services" throughout the state of New Jersey. Bell Atlantic Reply, filed March 6, 1995, 
at 11. · 
2033 ' 
-3. Allocation of Non-incremental Shared Primary Plant Costs 
20. Backeround. In the Video Diallone Reconsideration Order, the Commission 
identified three primary goals of its video dialtone policies: (1) facilitating competition in the 
provision of video services, (2) promoting efficient investment in the national telecommunications 
infrastructure, and (3) fostering the availability to the American public of new and diverse sources 
of video programming. 41 The Commission also stated that LECs were expected to include in 
direct costs a reasonable allocation of shared primary plant costs that could not be directly or 
solely attributed to video dialtone. The Commission held that it would carefully examine the 
basis on which those costs are identified.42 The Commission also stated that LECs would bear 
the burden of justifying any extremely low allocation of unidentified shared primary plant costs 
(i.e., not identified as incremental to telephony or video dialtone service) to video dialtone and 
that it would likely not accept a zero percent allocation as reasonable. 43 In rev.iewing the 
reasonableness of Bell Atlantic's allocation of the non-incremental shared primary plant costs to 
video dialtone, as well as alternative approaches other parties may advance, we will assess their 
relative effectiveness in advancing the Commission's goals. 
21. Bell Atlantic computed a percentage factor for allocating non-incremental plant 
investment between video dialtone and telephony based on the relative incremental plant costs 
incurred to provide telephony and video dialtone services from the HDT to the end-user 
customers' residence. This allocation technique ignored the costs of the dedicated telephony and 
dedicated video networks prior to connection to the HDT. Specifically, Bell Atlantic isolated the 
incremental costs of video (V), the incremental costs of telephony (T), and the non-incremental · 
costs of the shared plant installed between the HDT and the end-user customers' premises. Bell 
Atlantic then calculated the ratio of the proportion of incremental video costs to total incremental 
costs of shared plant (V/(V +T)), and used this ratio to determine the non-incremental costs of 
shared plant to be assigned to video services. This methodology yielded an allocation of 
approximately 28 percent of the non-incremental costs of shared plant investment to video 
dial tone and approximately 72 percent to telephony. 
22. In their petition, the Joint Petitioners suggest that the allocation method used by Bell 
Atlantic is flawed and does not appropriately allocate video dialtone costs. The Joint Petitioners 
argue that, in determining what they characterize as "common costs" to be allocated to video 
dialtone, Bell Atlantic uses the cost of system components that it has identified as dedicated to 
video or telephony. The Joint Petitioners claim that this technique is totally dependent upon the 
specific design of the system and does not form a rational basis for the allocation of what the 
41 Video Dialtone Reconsideration Order, 10 FCC Red at 248 (, 3). 
42 Id. at 345 (, 218). 
43 Id. 
2034 
petitioners characterize as "common costs. "44 Citing a study conducted by Dr. David Reed which 
found that 43 percent of the direct costs of an integrated telephone/video dialtone network are 
attributable to the provision of video services, the Joint Petitioners argue that a 50/50 allocation 
of common costs between video and telephony is the bare minimum necessary for Bell Atlantic 
to recover the direct costs of video dialtone service. 4' 
23. In the Suspension Order, the Bureau observed that Bell Atlantic ' s allocator of non­
incremental shared costs to video dialtone service is based on only a small portion of direct costs. 
We held that although the allocation methodology chosen by Bell Atlantic was not patently 
unlawful, any technique that relies so heavily on such a small portion of the network to calculate 
a ratio for allocating all non-incremental shared costs for the entire integrated system, requires 
investigation. 46 In this case, changing the classification of only a few pieces of equipment to or 
from the incremental telephony or video categories would have resulted in dramatic shifts in the 
allocation of shared non-incremental costs. nus demonstrates the significant impact of the 
assignment of a relatively small number of pieces of equipment on the calculation of the allocator 
and thus requires investigation of the reasonableness of this allocation scheme as outlined below. 
Issue C: Is Bell Atlantic's method of computin& a ratio to allocate the 
costs of non-incremental shared primary plant costs of the Dover 
Township integrated system reasonable and does it advance the 
Commission's video dialtone goals? 
24. Infonnation Reguest. To . assist the Commission in evaluating Bell Atlantic' s 
allocation methodology, we require that Bell Atlantic provide calculations using other allocators 
and also provide the underlying cost components of those calculations. First, we direct Bell 
Atlantic to provide the cost figures and calculations using an allocator based on the ratio of the 
sum of all dedicated and incremental costs of video dialtone service in Dover Township to the 
sum of all dedicated and incremental costs of telephony and video dialtone services in Dover 
Township. (These costs will have been provided by Bell Atlantic in response to Issues A and B, 
discussed previously.) Since this allocator is based upon the dedicated costs and incremental 
costs of the entire network, the impact of any individual equipment assignment decisions on the 
value of the allocation ratio should be lessened. This allocator differs from Bell Atlantic's 
allocation methodology because the allocator is calculated based on the costs of the entire 
network instead of focusing solely on the shared portion of the network. 
44 Joint Petition, filed May 15, 1995, Attachment A at 3-4. 
45 Joint Petition, filed May 15, 1995, at 4 , n. 10, citing David P. Reed, Residential Fiber 
Qptic Networks. An En&ineerine and Economic Analysis (Artec House, 1992). 
46 Suspension Order at , 33. 
2035 
25. Second, Bell Atlantic must provide cost and rate figures and calculations based on 
a scheme that allocates 50 percent of non-incremental shared primary plant costs to video dialtone 
and 50 percent to telephony, as suggested by some parties. This allocation technique would 
require the services that be!tefit from the non-incremental portion of the shared network to 
recover equally the costs of that portion of the facility. 
26. The costs of non-incremental shared primary plant, by definition, cannot be allocated 
between the two services based on cost-causative principles. In the Video Dialtone 
Reconsideration Order, the Commission authorized the Bureau to consider the effect of price 
changes on video dialtone demand in detennining the allocation of the costs of shared plant and 
overheads. 47 We thus direct Bell Atlantic to include in its direct case its best estimates of the 
effects on rates and the resulting demand for video dialtone services of increasing the allocation 
of non-incremental shared primary plant costs to video dialtone along a range from the 28 percent 
it has proposed up to and including the 50 percent allocation proposed by the Joint Petitioners. 
Bell Atlantic should also show the effects on rates and demand for video dialtone service of using 
the allocator discussed in paragraph 24, above. 
27. Along with the two required demonstrations of allocator methodologies, Bell Atlantic 
may submit analysis for any other technique that Bell Atlantic believes would assist the 
Commission. Bell Atlantic should also explain why its allocation methodology results in a more 
reasonable allocation of non-incremental shared primary plant costs than do the other allocation 
methods. Bell Atlantic may also include any studies that show how an increase in price would 
affect the demand for video dialtone services, or how each allocator is likely to affect the 
anticipated overall revenue generated by video dialtone. Such showings could also demonstrate 
how different allocators may affect the competitiveness of video dialtone with other video 
services. 
4. Identification of Reasonably Identifiable Non-Primary Plant Costs 
28. Backaound. In the Video Dialtone Reconsideration Order, the Commission 
stated that, in calculating the direct costs of video dialtone service, carriers must include costs in 
accounts which may traditionally have been included in overhead if those costs are reasonably 
identifiable as incremental costs of video dialtonc service. 41 As illustrative examples of such 
accounts, the Commission listed "land, buildings, network administration, testing, engineering, 
plant operations administration, product management, sales, advertising, customer services, and 
legal. u49 
47 Video Dialtone Reconsideration Order, 10 FCC Red at 346 (1220). 
48 Id. 
49 Id. 
2036 
29. We stated in the Suspension Order that, despite this clear direction by the 
Commission, Bell Atlantic did not identify any of the costs in many of the listed accounts as 
direct costs of video dialtone. We held at that time that we could not reject as patently 
unreasonable Bell Atlantic's contention that cenain costs were unidentifiable as incremental to 
video dialtone or that it would be unreasonable to allocate such costs as incremental to video 
dialtone. so We stated, however, that an investigation of these assertions is warranted. 51 
Issue D: Has Bell Atlantic identified as direct costs of video dialtone all 
costs in other accounts (other than primary plant accounts) that 
are reasonably identifiable as incremental costs of video 
dialtone service? 
30. Infoonation Reguest. We direct Bell Atlantic to identify as accurately as possible the 
video dialtone component of the following direct costs: network operations expenses; network 
administration expenses; testing expenses (as opposed to component testing which should already 
be part of component costs); plant operations; administration expenses; engineering expenses; 
customer operations expenses;52 and corporate operations expenses. 53 Bell Atlantic must identify 
the direct costs for those support functions that utilize time reporting tracking mechanisms and 
show the effect of allocating cost to video dialtone based on these mechanisms. When the cost 
of support functions cannot be reasonably identified as direct costs of video dialtone or telephony, 
they should be clearly identified as shared and allocated as overhead, as discussed in Section 5, 
"Overhead Loadings," below. 
31 . Further, Bell Atlantic must provide the costs of the pre1iminary planning for video 
dialtone and the development expenses incurred prior to the approval of the Dover Township 
Section 214 authorization. Bell Atlantic must also identify those preliminary planning and 
development expenses that were incurred only for the Dover Township service and separate them 
from those that benefit all of Bell Atlantic' s video dialtone service offerings. Of those 
preliminary expenses that benefit more than just the Dover Township offering, Bell Atlantic 
should identify the amounts and explain the methodology used to assign a portion of these costs 
to the Dover Township offering. 
50 Suspension Order at , 44. 
51 Id. 
52 Customer operations expenses should be separately identified as marketing, product 
management, sales, product advertising, and customer services. 
53 Corporate operations expenses should be separately identified as legal, accounting and 
finance, executive and planning, procurement, research and development, information 
management, and other general and administrative. 
2037 
32. Also, to the extent that Bell Atlantic believes that it cannot isolate all video dialtone 
start-up costs, it should explain in detail how its failure to do so, nonetheless, is consistent with 
the Commission 's directions in the Video Dialrone Reconsideration Order.s. 
S. Overhead Loadings 
33. Backeround. In the context of video dialtone, the Commission is concerned that 
LECs may have an incentive to apply unreasonably low overhead loadings. Thus, in the Video 
Dia/tone Reconsideration Order, the Commission stated that it would require a strong 
justification from carriers for extremely low overhead allocations and would not likely accept a 
zero percent allocation as reasonable. ss Although the Commission required carriers to obtain a 
reasonable contribution to overhead costs from video dialtone services, it also did not intend to 
burden the new service with such high overhead loadings as to make the service non-competitive 
in the marketplace. The Commission thus allowed carriers to submit claims and projections of 
demand that would support lower overhead contributions. '6 An adequate contribution to overhead 
is necessary to assure that video dialtone rates satisfy the requirements of the Video Diallone 
Reconsideration Order. s7 
34. In the Suspension Order, the Bureau stated that the overall overhead .lo.ading 
factor• of 1. 2 that Bell Atlantic used for the Dover Township video dialtone service was not 
patently unlawful because the rates for the service were above the direct costs. 59 We also stated 
that although not patently unlawful, an overhead loading factor of 1.2 was low enough to warrant 
investigation. While we recognize that volume and term discounts are common business practice, 
the Bureau found particularly questionable the 1. 06 overhead loading factor that Bell Atlantic 
applied to its discounted rates for programmers purchasing 24 channels on a five year term. We 
held that this low overhead particularly required an investigation into the reasonableness of the 
rate. 60 
54 Video Diallone Reconsideration Order, 10 FCC Red at 345 (, 219). 
55 Id. at 346 (1220). 
56 Id. 
57 Id. 
58 The overhead loading factor is used to inflate the direct costs (which do not include 
overhead costs) of a service to the fully allocated costs (which do include overhead costs) 
of a service. 
59 Suspension Order at 1 48. 
60 Id. at 149. 
2038 
Issue E: Is the overall overhead loading factor used by Bell Atlantic for 
the video dialtone service in Dover Township, New Jersey 
reasonable? 
35. Infonnation Request. In order to detennine the reasonableness of Bell Atlantic's 
overhead loading, we require Bell Atlantic to provide comparisons of the video dialtone overhead 
loading with that of other new services. Bell Atlantic may also provide, as suggested in the 
Video Dialtone Reconsideration Order, claims and projections of demand in conjunction 
with the proposed rates, that support the conclusion that a higher overhead loading factor would 
weaken the competitive viability of the video dialtone service. 61 
Issue F: Is Bell Atlantic's overhead loading factor for volume and term 
discounts reasonable? 
36. Infonnation Regpest. We also concluded in the Suspension Order that the 1.06 
overhead loading for the 24-channel, 5-year tenn discount appeared low and warranted 
investigation. We thus require Bell Atlantic to provide information that would justify such a 
discount from the standard rate. The infonnation should identify any lower costs of providing 
a longer tenn or larger volume service or otherwise establish why the discount is warranted by 
comparison to other circumstances where such discounts are offered. The estimated effect of 
such discounts on demand and marketability should also be provided. 
6. Calculation of a Channel Utilization Factor 
37. Backmund. Bell Atlantic's Section 214 Authorization for Dover Township requires 
it to provide at least 384 channels for video dialtone service. 62 Bell Atlantic stated in the Section 
214 proceeding that it planned to offer three types of video dialtone service over the system: 
multicast, narrowcast, and pointcast services. 63 This tariff introduces multicast and narrowcast 
services. Bell Atlantic plans to offer pointcast services within a year, when the necessary 
61 Video Diallone Reconsideration Order, 10 FCC Red at 346 (1220). 
62 New Jersey Bell Telephone Company, File No. W-P-C 6840, 9 FCC Red 3677, 3690 
(1994) (172(d)) (Dover 214 Order). 
63 See Dover 214 Order, 9 FCC Red at 3679, n 9 (1 5). Multicast service provides 
programming to all homes passed by the system (defmed as "broadcast" in this tariff). 
Narrowcast service provides programming to all homes passed in selected geographic 
areas within the system (tenned as "cells" in this tariff). Pointcast service provides 
specific programming to a specific end-user subscriber (this is sometimes defmed as "on­
demand" services). Id. 
2039 
equipment is available. 64 In this tariff, Bell Atlantic used capacity costing to allocate the costs 
of the network among the various services that will be deployed over the facilities. 65 Bell 
Atlantic divided the cost of the network by 38366 to calculate the cost per channel and then 
multiplied the result by the number of channels Bell Atlantic estimated would be necessary to 
provide the tariffed service (304 channels). 67 Bell Atlantic claims that future pointcast services 
will provide the additional revenue needed to recover the cost of the remaining 79 channels. 61 
38. We held in the Suspension Order that Bell Atlantic' s revenue projections may be 
reasonable, given the need for new technology prior to the delivery of pointcast services, but that 
an investigation was necessary to complete an evaluation of Bell Atlantic's cost recovery plans. 
We also stated that "[w]hen system demand is expected to be a function of several services, it 
is incumbent upon the carrier to provide the Commission with more than just a listing of the 
kinds of services that are expected to occupy the current capacity. "69 Carriers must provide 
demand projections for the future services, estimates of rates that may be charged, available 
· business plans, and estimates of the costs associated with the provision of the services. 70 
64 See Letter from Joseph J. Mulieri, Bell Atlantic Director- FCC Relations, to David Nall, 
Deputy Chief, Tariff Division, Common Carrier Bureau, May 16, 1995, at 5, n. 6 
(Mulieri Letter); Bell Atlantic Reply to the NJCTA Petition, filed May 25, 1995, 
Attachment A. 
65 According to Bell Atlantic, "capacity costing is nonnally equivalent to long run 
incremental cost - the accepted measure of cost for capital equipment." Bell Atlantic 
claims that when equipment is expected to have multiple uses, capacity costing avoids 
charging the first service for costs of the entire system. Capacity costing instead spreads 
the costs over all the users of the facilities based on actual use. Mulieri Letter at 3. 
66 The cost. of the gateway channel, which is a common channel to all programmers, is 
recovered through the rates for the other 383 channels on the system and thus it is not 
included in the calculation. 
67 Bell Atlantic Reply, filed May 19, 1995, at Attachment B. 
68 Bell Atlantic Reply to the NJCT A Petition, filed May 25, 1995, Attachment A at 1. Bell 
Atlantic claims that its business plans call for deployment of asynchronous transfer mode 
(ATM) equipment necessary for pointcast service in 1996 and expansion of such services 
in 1997. Id. 
69 Suspension Order at , 38. 
70 Id. 
2040 
wueG: Is Bell Atlantic's channel utilization factor reasonable to use 
to isolate the costs for the services presently being tariffed 
from costs associated with other video dialtone services that may 
be provided i΅ the future over the same facilities? 
39. Infonnation Reguest. In determining the channel utilization factor's reasonableness 
we must evaluate cost and revenue estimates for future services that will use that capacity. 
Without such estimates it is unclear whether such services reasonably can be expected to recover 
the costs of the remaining channels of capacity. Thus, in order to detennine if Bell Atlantic· s 
capacity costing is appropriate, we require Bell Atlantic to provide specific inf onnation on how 
it plans to use the remaining 79 channels available after deployment of broadcast and narrowcast 
services. We therefore require Bell Atlantic to provide an estimate of revenues from these 
unallocated channels, the projected costs associated with the deployment of pointcast services, and 
the anticipated rates for pointcast services. These estimates should be accompanied by an 
appropriately detailed explanation of the basis for the projections. 
7. Other Cost and Rate wues 
40. Back&round. In the Suspension Order, the Bureau held that several other cost 
issues also required further investigation. First, we stated that the rate Bell Atlantic imputed to 
itself for use of the poles and conduit should not be lower than that charged to third parties. We 
held that since the regulated rates are not supposed to be less than the additional costs of 
providing pole attachments, allowing Bell Atlantic to impute a lower charge could have 
anticompetitive effects and result in unreasonable discrimination and subsidization of the video 
dialtone service. 71 Second, we stated that although the functional differences between DS3 
service and video dialtone access link service may justify the rate disparities, an investigation 
would allow the Commission to conduct a more detailed assessment of the impact of the technical 
differences on rates. 72 Third, the Bureau held that although Bell Atlantic has unbundled 
interconnection to the video dialtone platform to the extent required under the Dover Pan 69 
Waiver Order,13 due to the complexity of the issues, the rates for such interconnection still 
require investigation as to their reasonableness. 74 
71 Suspension Order at 1 57. 
72 Id. at 1 56. 
73 The Bell Atlantic Telephone Cos. , Petition for Expedited Waiver of Part 69 of the 
Commission's Rules to Offer Video Dialtone Service in Dover Township, New Jersey, 
DA 95-1282 (Com. Car. Bur. rel. June 9 , 1995) (Dover Pan 69 Waiver Order) . 
74 Suspension Order at 198. 
2041 
Issue H: Is Bell Atlantic's imputed charge for use of poles and conduit 
reasonable? 
41. Infonnation Reguest. As we stated in the Suspension Order,15 the rate imputed by 
Bell Atlantic to itself for its pole and conduit use should not be lower than that charged to third 
parties, since the regulated rates for use of poles and conduit are supposed to be not less than the 
additional costs of providing pole attachments. 76 The rates should also not exceed "an amount 
detennined by multiplying the percentage of total usable space, or the percentage of total duct 
or conduit capacity, which is occupied by the pole attachment by the sum of the operating 
expenses and actual capital costs of the utility attributable to the entire pole, duct, conduit, or 
right-of-way. "77 Allowing Bell Atlantic to impute to itself charges that are lower than those 
charged to competitors would result in video dialtone not recovering the full costs of the service 
offering. Thus, in order to allow the Commission to determine whether Bell Atlantic has 
properly imputed to itself charges for use of the poles and conduit, we require Bell Atlantic to 
state the rates that it charges other firms for use of those facilities as well as the rates that it has 
imputed to itself for the provision of video dialtone. Bell Atlantic may also submit any 
justification that it might have for differences between those rates. 
Issue I: Is the difference between Bell Atlantic's rates for DS3 service 
and video dialtone a~ link service reasonable? 
42. Infounation Regpest. The video dialtone access link provides a programmer with a 
connection from its point of presence within the service area to the Bell Atlantic video 
distribution office. 71 Although the functional differences stated by Bell Atlantic between video 
dialtone access link service and DS3 service may indeed justify differences in rates, the cost basis 
for the specific rates charged for video dialtone access link service must still ~ explained. We 
therefore require Bell Atlantic to provide a comparison between the costs of DS3 service and that 
of the video dialtone access link and describe material technical differences between the two 
services and the specific cost savings that result from use of a video dialtone access link rather 
than a DS3 service. 
75 Id. at 157. 
76 Id., citing 41 U.S.C. § 224. 
77 Id. 
78 Bell Atlantic D&J at 1-2. 
2042 
--.... ........ _____________________ _ 
mueJ: Are Bell Atlantic's rates for interconnection reasonable? 
43. Infonnation Reguest. Unbundling the rates for the access link element of the video 
dialtone service affords other access service providers an opportunity to compete with Bell 
Atlantic for the provision of this service. Fair competition can only occur if Bell Atlantic ' s rates 
reflect its costs. Otherwise, competition for access services would be illusory because Bell 
Atlantic could subsidize its access services with higher rates for non-competitive network 
offerings. Bell Atlantic offers programmers three types of access link services: (l) from the 
programmers' point of presence to the VDO, (2) from the SWC to the VDO, or (3) 
interconnection directly at the VDO (no access link service).79 Programmers purchasing either 
access link service (2) or (3) are charged a collocation interconnection charge. In order to allow 
the Commission to determine the reasonableness of the rates for interconnection, we require Bell 
Atlantic to provide cost information justifying the collocated interconnection charge for 
interconnection at the SWC and the monthly virtual collocation interconnection charge for 
interconnection at the VDO. ao 
B. Tariff Term mues 
1. Volume and Term Discounts 
44. Backmund. Volume and term discounts are common business tools and generally 
recognized to be in the public interest. In the video dial tone context, however, such offerings can 
be unreasonable if they are used to discriminate unduly against certain programmers. For 
example, if a LEC were to offer discounts that only one programmer was capable of utilizing, 
such discounts could be used to favor one programmer over others. 
45. In the Suspension Order, we concluded, based on the record, that volume and term 
discounts were in the public interest to the extent that such discounts were reasonable. The 
Bureau also held that an investigation of the volume and term discounts was warranted to ensure 
that they are not used to discriminate among programmers. 11 
79 Id. at 1-2 - 1-4. 
80 Id. at 1-1 - 1-4. 
81 Suspension Order at 1162,63. 
2043 
Is.sue K: Are Bell Atlantic's volume and term discounts for video dialtone 
service in Dover Township, New Jersey, unreasonably 
discriminatory? 
46. Infonnation Request. We thus require that Bell Atlantic demonstrate that its volume 
and tenn discounts are not unduly discriminatory and do not unreasonably favor certain 
programmers. Bell Atlantic should also explain why it has offered only a five year tenn discount 
and not tenns of shorter duration that might be more attractive to a wider group of programmers. 
2. Termination Liability 
4 7. Backmund. Termination liability provisions raise concern because they may be used 
to discriminate against certain programmers. In particular, severe termination liabilities could 
render it vinually impossible for many programmers to utilize the volume and term discounts. 
These risks have special importance in the video dialtone context because the offering is new and 
untested and there is a greater possibility of programmers suffering business failure. 12 
48. In the Suspension Order, we held that Bell Atlantic's liability terms for early 
tennination of video dialtone service agreements appeared to be unduly restrictive and required 
investigation into their reasonableness. The terms raising particular concern for the Bureau were 
the 100 percent liability for early termination, the limitation on the ability of programmers to 
cancel service if Bell Atlantic failed to deliver adequate service, and the 90 day limit for 
programmers to find replacement programmers and mitigate the damage to Bell Atlantic. 
ls.sue L: Are Bell Atlantic's liability provisions for early termination of 
senice agreements reasonable? 
49. Infonnation Request. We direct Bell Atlantic to justify why each of the above terms 
is reasonable. Specifically, we require that Bell Atlantic provide a detailed showing of why a 
tenn imposing liability for 100 percent of the remaining contract amount is reasonable. Bell 
Atlantic should provide examples of tariffs or contracts, for other services, in which such 100 
percent liability is a condition of the offering. 
82 Many petitioners claim that, since vidOO dialtone is a new and unproven technology, the 
five year term is a very risky business proposition that can only be exercised by an 
affiliate programmer of Bell Atlantic. An affiliate is able to accept the risk because any 
liability terms imposed for early termination would merely result in imputed charges to 
the affiliate. These imputed charges would arguably be cost-less transactions to the 
affiliate because they may result in only accounting changes rather than the actual transfer 
or loss of money. Id. at 1 64. 
2044 
-50. Bell Atlantic should also explain why, especially for a new and untested service like 
video dialtone, it is reasonable to limit termination without liability for inadequate service to 
situations where Bell Atlantic fails to deliver service to more than 5 percent of the programlnCFs 
subscribers for more than one hour per day for more than 30 days in any 90 day period, or there 
is a continual outage of more than 5 days affecting more than 5 percent of the programmer's 
subscribers, and the programmer gives Bell Atlantic written notice within 30 days of such 
failure. 83 Also, Bell Atlantic should explain why early termination without liability in situations 
where programmers lose a specified percentage of subscribers due to Bell Atlantic's service 
problems, is unreasonable to implement. 
51 . Bell Atlantic also shall justify why a 90 day limit on finding a replacement 
programmer is reasonable and why mitigation is permitted only if the programmer, not Bell 
Atlantic or someone else, finds a replacement. It appears that under the present liability 
conditions, a programmer terminating its service prior to expiration of its contract would be liable 
for 100 percent of the charges remaining under the agreement. If Bell Atlantic was able to fill 
100 percent of the channel capacity of the system, and thus eliminate the argument that future 
customers would have merely taken the remaining unused capacity, then Bell Atlantic would be 
receiving double recovery for the channels that were left unused by the terminating programmer 
and subsequently leased by a new programmer. Since Bell Atlantic has only 79 available 
channels remaining on its system, reaching 100 percent capacity docs not appear to be unrealistic. 
Thus, Bell Atlantic must explain why double recovery is not likely and why certain protections 
against double recovery, at least in situations where 100 percent of channel capacity has been 
filled, are not necessary. · 
3. Interest Rate 
52. Back&round. The Bureau held, in the Suspension Order, that it was concerned 
about Bell Atlantic' s proposed interest rate not in terms of the specific rate proposed ( 0.937 
percent per month for late payments) , but rather that Bell Atlantic was charging different interest 
rates to customers of different services without adequate justification. We held that Bell 
Atlantic's rationale behind this difference in interest rate charges -- that it reflected current costs 
of capital -- required investigation." Also, the Bureau stated in the Suspension Order that, 
the Channel Reservation Deposit (CRD) section of Bell Atlantic' s video dialtonc tariff made no 
provision for payment of interest on the deposits Bell Atlantic holds. We held that an 
investigation is required into the reasonableness of the interest rate provisions in this tariff. 15 
83 The Bell Atlantic Telephone Cos. Transmittal No. 786, at 2nd Revised Page 16 (filed June 
8 , 1995) ("Trans. 786"). 
84 Suspension Order at , 72. 
85 Id. 
2045 
Issue M: Is the difference in the interest 
Atlantic charges video dialtone 
service customers reasonable? 
rate for late payments Bell 
service customers and ace~ 
53. Infonnation Reguest. Bell Atlantic charges its access tariff customers a nine percent 
interest rate for late charges , while video dialtone customers would be required to pay 11.25 
percent for late payments. This disparity in rates raises questions of preferential treatment by 
Bell Atlantic of access customers at the expense of video dialtone customers. Consequently, we 
direct Bell Atlantic to justify why it is reasonable to charge access service customers less for late 
payments than video dialtone customers. 
Issue N: Is it reasonable for Bell Atlantic not to pay interest on deposits 
it holds under the Channel Reservation Deposit? 
54. lnfonnation Reguest. Bell Atlantic, in the Channel Reservation Deposit portion of 
Transmittal 7 41 , required that all programmers reserving channel capacity on the Dover Township 
video dialtone system pay a deposit of $1, 800 per channel to Bell Atlantic. 16 Bell Atlantic has 
not paid any of the programmers interest on the money that Bell Atlantic holds under the CRD. 
Bell Atlantic must explain to the Commission why it is reasonable for Bell Atlantic to hold over 
$500,000 from programmers, interest free, for what may be as long as 8-9 months.17 Bell 
Atlantic should also explain why, if the interest free provision is reasonable for the CRD, such 
a provision is not equally reasonable for late payments from programmers to Bell Atlantic. 
4. Minimum Service Requirement 
55. Backmund. In the Suspension Order, the Bureau stated that one of the goals of 
the Commission's video dialtone policies is to increase the diversity of video programming 
available to the public." We have in the past expressed concern that minimum service 
requirements do not further these goals. In the Ameritech Video Diallone 214 Order, we held 
that "[t]he ability of programmer-customers to provide programming on a less than full-time basis 
86 The Bell Atlantic Telephone Companies Tariff F.C.C. No. 10, Channel Reservation 
Deposit, DA 95-470 (rel. March 10, 1995). 
87 Bell Atlantic has received channel reservation deposits for 304 channels resulting in a total 
of $547 ,200 in deposits. Bell Atlantic received a large portion of this money in April of 
1995 at the time programmers could first reserve channel capacity. Bell Atlantic has also 
announced that it will begin to bill all programmers in January of 1996 (unless 
programmers begin to deliver service prior to that time). Thus, Bell Atlantic will be 
holding the deposits between March 1995 and January 1996 without paying interest to the 
programmers. Id. 
88· Suspension Order at , 75, citing Second Report and Order, 7 FCC Red at 5781 (, 
1). 
2046 
-. . . is an essential means of achieving that goal. "89 Although Ameritech argued that a one-year 
minimum service commitment was necessary to prevent market churn, we did not find that 
argument persuasive. 90 
56. Despite that fact that Bell Atlantic seeks to require only a 3-month minimum service 
commitment and not a full year, as Ameritech had proposed, the hann to part-time or one-time 
users remains the same. The three-month service commitment, although less onerous than longer 
service requirements, still places a significant burden upon part-time and one-time users. In fact , 
almost any minimum service requirement virtually elirn.inates the ability of such users from being 
assured carriage on the platform. They must instead rely on the potential development of a resale 
market, which does not have common carrier requirements, to provide adequate capacity. 
Issue 0 : Do the Commission's video dialtone policies require Bell Atlantic 
to serve part-time or one-time users and, if so, what are 
reasonable rates, terms, and conditions for part-time or one-time 
use of the video diahone system? 
57. Information Reguest. We require that Bell Atlantic justify why a 3-month minimum 
service agreement is necessary and reasonable. Bell Atlantic should also explain why the public 
would not benefit from providing part-time and one-time users with access to the video dialtone 
platform, even if such users are required to pay a higher rate for such access in order to 
compensate Bell Atlantic for any added costs incurred. 
S. Correction of Service Problems 
58. Backmrund. In the Suspension Order, the Bureau stated that Bell Atlantic has not 
adequately explained why a refund liability policy for outages less than four hours in duration 
is not reasonable. We held that an investigation is necessary to evaluate the reasonableness of 
the proposed outage time prior to refund liability. 91 
59. We believe that service outages have the potential to undermine the business 
relationships between programmers and their end-user customers. A shorter minimum outage 
period for refund liability would give programmers the double benefit of refunding end-users for 
their losses, while imposing a greater incentive on Bell Atlantic to restore service at the earliest 
possible tiine. Also, Bell Atlantic's requirement that programmers notify it of outage problems 
before beginning the clock instituting refund liability obligations appears to be unreasonable. 
89 Ameritech Operating Companies, Order and Authorization, WPC-6926-6930, 10 FCCRcd 
4101, 4118 at(, 30) (1995). 
90 Id. 
91 Suspension Order at, 78. 
2047 
mueP: Is Bell Atlantic's four-hour minimum outage period prior to 
issuing a service credit reasonable? Is it reasonable to require 
programmers to notify Bell Atlantic of service problems before 
the four-hour time limit begins to run? 
60. lnfonnation Reguest. We direct Bell Atlantic to justify why a four-hour minimum 
outage prior to refund liability is reasonable. Bell Atlantic should explain why, when it is aware 
of a problem that it knows it has a duty to resolve, the four-hour clock should not begin to run 
from the time Bell Atlantic is cognizant of the problem. 
IV. PROCEDURAL MATTERS 
A. Filing Schedules and Procedures 
61. This investigation will be conducted as a notiee and comment proceeding to which 
the procedures set forth in this Order shall apply. Bell Atlantic must file its direct case 
addressing each issue designated above no later than October 26, 1995. 
62. Pleadings responding to the direct case may be filed no later than November 30, 
1995 and must be captioned "Opposition to Direct Case" or "Comments on Direct Case." Bell 
Atlantic may file a "Rebuttal" to oppositions or comments no later than December 20, 1995. 
63. An original and seven copies of all pleadings must be filed with the Secretary of the 
Commission. In addition, one copy must be delivered to the Commission's commercial copying 
firm, International Transcription Service, Room 246, 1919 M Street, N.W., Washington, D.C. 
20054. Also, one copy must be delivered to the Tariff Division, Room 518, 1919 M Street, 
N.W. ,Washington, D.C.20554. Members of the general public who wish to express their views 
in an infonnal manner regarding the issues in this investigation may do so by submitting one 
copy of their comments to the Secretary, Federal Communications Commission, 1919 M Street, 
N.W.,Room 222, Washington, D.C.20554. Such comments should specify the docket number 
of this investigation. 
64. All relevant and timely pleadings will be considered by the Commission. ln reaching 
a decision, the Commission may take into account information and ideas not contained in the 
pleadings, provided such information or a writing containing the nature and source of such 
information is placed in the public file, and provided that the fact of reliance on such infonnation 
is noted in the order. 
2048 
B. Ex Parte Requirements 
65 . Ex pane contacts (i.e. , written or oral communications that address the procedural 
or substantive merits of the proceeding which are directed to any member, officer, or employee 
of the Commission who may reasonably be expected to be involved in the decisional process in 
this proceeding) are permitted in this proceeding until the commencement of the Sunshine Agenda 
p.eriod. The Sunshine Agenda period terminates when a final Order is released and the final 
Order is issued. Written ex pane contacts and memoranda summarizing oral ex pane contacts 
must be filed on the day of the presentation with the Secretary and Commission employees 
receiving each presentation. For other requirements, see generally Section 1.1200 er seq. of 
the Commission's Rules, 47 C.F.R.§§ l.1200er. seq. 
C. Paperwork Reduction Act 
66. The collection of information in this Designation Order is not subject to the 
provisions of Section 3507 of the Paperwork Reduction Act of 1995, as amended. 
V. ORDERING CLAUSES 
67. IT IS ORDERED that, pursuant to Sections 4(i), 4(j) , 20l(b), 203(c), 204(a), 205, 
and 403 of the Act, 47 U.S.C.§§ 154(i), 154(j), 20l(b), 203(c), 204(a), 205, and 403, the issues 
set forth in this Order ARE DESIGNATED FOR INVESTIGATION. 
68. IT IS FURTIIER. ORDERED that the Bell Atlantic Telephone Cos. SHALL BE a 
party to this proceeding. 
69. IT IS FURTIIER. ORDERED that the Bell Atlantic Telephone Cos. SHALL 
INCLUDE, in its direct case, a response to each request for information that it is required to 
answer in this Order. 
FEDERAL COMMUNICATIONS COMMISSION 
Kathleen M .H. Wallman 
Chief, Common Carrier Bureau 
2049