SWB
September 26, 2000
TABLE OF CONTENTS
DOCKET NO. 22954
APPLICATION OF SOUTHWESTERN
BELL TELEPHONE COMPANY FOR
ALTERNATE UNIVERSAL EMERGENCY
NUMBER SERVICE (9-1-1) TARIFF,
PURSUANT TO P.U.C. SUBST. R. § 26.433
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PUBLIC UTILITY COMMISSION
OF TEXAS
SOUTHWESTERN BELL TELEPHONE COMPANY
DIRECT TESTIMONY OF THOMAS J. MAKAREWICZ
Page
Direct Testimony ........................................................................................................ 2
Appendix A – Summary of Education and Work Experience ................................... 9
Schedule 1 - Confidential Information, Previously Provided Under Seal
E9-1-1 Network LRIC Study ............................................................................. 12
Schedule 2 - Confidential Information, Previously Provided Under Seal
Texas 9-1-1 Universal Emergency Number Services Long Run Incremental
Cost (LRIC) Study ............................................................................................ 13
Schedule 3 - Confidential Information, Previously Provided Under Seal
E9-1-1 Database Management System (DBMS) and Automatic
Location Identification Service Adjunct (ALISA) Platform Study ....................... 14
1
DOCKET NO. 22954
SOUTHWESTERN BELL TELEPHONE COMPANY
DIRECT TESTIMONY OF THOMAS J. MAKAREWICZ
1
Q.
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
2
A.
My name is Thomas J. Makarewicz. My address is One Bell Center, Room 38-Y05, St. Louis, Missouri.
3
4
Q.
BY WHOM ARE YOU EMPLOYED AND WHAT IS YOUR POSITION?
5
A.
I am employed by SBC Telecommunications, Inc. as Associate Director-Cost
6
Analysis. SBC Telecommunications, Inc. provides services to Southwestern Bell
7
Telephone Company (SWBT), including regulatory and cost study support.
8
9
Q.
WHAT ARE YOUR RESPONSIBILITIES AS ASSOCIATE DIRECTOR-COST
ANALYSIS?
10
A.
I am responsible for:
11
1.
Coordinating the development of cost methods and the production of cost
12
studies that identify the forward-looking economic costs SWBT incurs in
13
providing its services and elements;
14
2.
Testifying to cost studies in state regulatory proceedings.
15
16
Q.
HAVE YOU PREPARED AN APPENDIX WHICH SUMMARIZES YOUR
EDUCATIONAL BACKGROUND AND WORK EXPERIENCE?
17
A.
Yes. Please see (Makarewicz) Appendix A.
18
Q.
WHAT IS THE PURPOSE OF YOUR TESTIMONY?
19
A.
The purpose of my testimony is to present the cost study used by
20
Mr. Thomas J. Latino in developing the rates for SWBT's proposed unbundled
21
E9-1-1 tariff.
22
Incremental Cost Study 2000 July 2000" (E9-1-1 Network LRIC Study), is
23
confidential. This study will be introduced into evidence under seal at the hearing
24
as (Makarewicz) Schedule No. 1.
The cost study labeled, "Texas E911 Network Long Run
2
Docket No. 22954
(Makarewicz) Direct Testimony
1
There are two additional confidential cost studies that supply inputs to the E9-1-1
2
Network LRIC Study.
3
Emergency Number Services Long Run Incremental Cost Study July 1998 1998-
4
2000" (9-1-1 Universal Emergency Number Services LRIC Study), provides the
5
trunk and loop costs associated with E9-1-1 transport facilities. This study is
6
confidential and will be introduced into evidence under seal at the hearing as
7
(Makarewicz) Schedule No. 2.
8
The second additional study, "Texas E911 DBMS and ALISA Platform Cost
9
Study 1998-2000 (Regulated Components)" (E9-1-1 DBMS and ALISA Platform
10
Study) provides the costs associated with the E9-1-1 Selective Router. This is
11
confidential and will be introduced into evidence under seal at the hearing as
12
(Makarewicz) Schedule No. 3.
13
Copies of these three confidential studies have been provided to staff and
14
potential parties.
The first additional study, "Texas 911 Universal
15
16
Q.
WHAT COSTING METHODOLOGY WAS USED TO DEVELOP THE E9-1-1
COST STUDIES?
17
A.
In keeping with Texas costing requirements for retail services under PUC Subst.
18
R. § 26.215, the cost studies supporting the E9-1-1 tariff reflect the long run
19
incremental cost (LRIC) methodology. The LRIC establishes the price floor for
20
E9-1-1 service by identifying only the forward-looking economic costs that SWBT
21
directly incurs by offering E9-1-1 services.
22
studies, the E9-1-1 cost studies intentionally exclude shared and common costs
23
because shared costs are not directly attributable to E9-1-1, and, as such, are
24
not part of the economic price floor.
25
looking, all digital switching network and transport network to which SWBT
26
applies forward-looking capital cost and operating expense factors.
Consistent with all SWBT LRIC
Investment inputs assume a forward-
27
28
Q.
PLEASE GENERALLY DESCRIBE THE E9-1-1 NETWORK LRIC STUDY
(MAKAREWICZ) SCHEDULE NO. 1.
29
A.
Essentially, the E9-1-1 Network LRIC study measures the forward-looking costs
30
associated with network facilities required to provide 9-1-1 service, both wireline
3
Docket No. 22954
(Makarewicz) Direct Testimony
1
and wireless. In addition, the E9-1-1 Network LRIC study includes certain costs
2
developed specifically in response to the ordered E9-1-1 rate restructuring, as
3
well as recent technology developments and software enhancements. The cost
4
elements in this study match the 9-1-1 unbundled rate structure presented in
5
SWBT’s proposed E9-1-1 tariff.
6
As stated earlier, the E9-1-1 Network LRIC study uses inputs from two other
7
SWBT cost studies, the 9-1-1 Universal Emergency Number Services LRIC study
8
and the E9-1-1 DBMS and ALISA Platform study. The E9-1-1 Number Services
9
LRIC study provides the trunk and loop costs associated with E9-1-1 transport
10
facilities. The DBMS/ALISA study provides the costs associated with the E9-1-1
11
Selective Router.
12
13
Q.
PLEASE DESCRIBE THE SPECIFIC COST ELEMENTS IDENTIFIED IN THE
E9-1-1 NETWORK LRIC STUDY.
14
A.
Figure 1 provides a visual guide to the cost elements identified. The E9-1-1
15
Network LRIC study identifies only those cost elements labeled “A” through “I” in
16
Figure 1. Other network items displayed in Figure 1 (e.g., SWBT/CLEC end
17
offices, end user-to-End Office loops) are not part of E9-1-1 Network costs but
18
are depicted to give a complete image of how E9-1-1 calls are routed through the
19
network.
4
Docket No. 22954
(Makarewicz) Direct Testimony
FIGURE 1
E911 NETWORK COST COMPONENTS
E9-1-1 CONTROL OFFICE
A
B
C
E
9-1-1
D
C
S
E
L
E
C
T
I
V
E
C
R
O
U
T
E
R
C
9-1-1
PBX
D
9-1-1
D
SWBT
Serving Wire
Center
PSAP 1
F
G
I
H
ALI Database
SWBT
Serving Wire
Center
PSAP 2
F
I
G
H
TO:
- ALISA
- DBMS
- Data Kit Node
WIRELESS
9-1-1 CALL
ANI digits sent
A.
B.
C.
D.
E.
Outgoing EO dedicated 9-1-1 trunk termination
EO to SR Trunking (interoffice and mileage)
Incoming trunk termination at SR
Incoming transport facility (trunk and loop)
Selective Routing capability (includes necessary portion
of DBMS and ALISA)
F. Outgoing dedicated trunk termination at SR
G. SR to PSAP outgoing transport facility (trunk and loop), same as D.
H. PSAP Make Busy circuit
I. Data Link between PSAP and ALI Database
5
Docket No. 22954
(Makarewicz) Direct Testimony
1
The cost elements were developed to match the disaggregated rate structure
2
SWBT is proposing for E9-1-1. For each of these elements, the study identifies
3
both recurring and nonrecurring costs. The cost/rate elements are as follows:
4

End Office to Selective Router trunks for delivery of Automatic Number
5
Identifications (ANIs), comprises the sum of (1) the outgoing End Office
6
dedicated 9-1-1 trunk termination (component A) that establishes the
7
communications path; (2) the interoffice trunk facility between the End Office
8
to 9-1-1 Control Office (component B); and (3) the incoming trunk termination
9
at the Selective Router in the Control Office (component C).
The study
10
identifies distinct costs for numerous arrangements of these trunking facilities,
11
depending on if the E9-1-1 call is wireline or wireless, and the entity that
12
controls the End Office and Selective Router. Component D identifies the
13
transport link when the 9-1-1 call is routed through something other than a
14
SWBT End Office.
15

Selective Routing functionality in the 9-1-1 Control Office (component E)
16
provides the capability to route a 9-1-1 call to the Public Safety Answering
17
Point (PSAP) authorized to respond to the emergency at the originating
18
number location.
19
translation costs plus the relevant portion of the DBMS and ALISA databases.
20

The Selective Router cost element includes all switch
Selective Router to PSAP, comprises the sum of: (1) the outgoing trunk
21
termination at the Selective Router (component F) that establishes the
22
outgoing communications path at the Control Office, and (2) the interoffice
23
trunk and loop facility between the Control Office and the PSAP (component
24
F, which is equivalent to component D above).
25

the incoming trunk group for night service.
26
27
28
PSAP Make Busy Circuit (component H) provides the capability to “busy out”

PSAP to Automatic Location Information (ALI) database circuits, comprises
the data link between the PSAP and the ALI database (component I).
6
Docket No. 22954
(Makarewicz) Direct Testimony
1
2
Q.
SOME OF THE COST ELEMENTS INCLUDE RECURRING
NONRECURRING COSTS. PLEASE EXPLAIN THE DIFFERENCE.
AND/OR
3
A.
Recurring costs are those that the Company repeatedly incurs, month after
4
month.
An example is the cost of physical facilities and related upkeep
5
expenses. Nonrecurring costs are those that the Company incurs one time, e.g.,
6
installing or disconnecting a service.
7
Q.
HOW WERE THE RECURRING COSTS DEVELOPED?
8
A.
Recurring costs apply to two main investment categories: switching (for Selective
Routing) and transport (for links into and out of the SR).
9
Switching costs
10
are based on forward-looking switching equipment specifically required to
11
provide 9-1-1 service. As is standard for LRIC studies, the recurring switching
12
costs assume a forward-looking, all digital switching network.
13
investment inputs, SWBT applied forward-looking annual cost factors (capital
14
costs and operating expenses) to convert total investments to annual costs.
15
Capital costs account for depreciation, cost of money and income taxes;
16
operating expenses cover ongoing plant maintenance, support assets and the
17
Texas PUC regulatory assessment.
18
Transport costs reflect investment data for Loop, Service Area Function, and Line
19
Haul.
20
customer’s premises to the serving wire center. Service Area Function (SAF)
21
investment includes equipment required to meet technical parameters of E9-1-1
22
loop. Line Haul investment represents interoffice facility equipment, including
23
channel terminating equipment (e.g., SONET electronics) and the facility itself
24
(e.g., fiber cable).
25
transport study, namely all fiber interoffice facilities and all digital channel
26
termination equipment. To the transport investment inputs, the study applies
27
annual cost factors to convert total investments to annual costs.
To the switch
Loop investment includes all equipment and cable to connect the
The standard forward-looking assumptions apply to the
28
Q.
HOW WERE THE NONRECURRING COSTS DEVELOPED?
29
A.
Nonrecurring costs represent the total labor expense required to install and
30
disconnect E9-1-1 service. The study identifies the time it takes to perform each
7
Docket No. 22954
(Makarewicz) Direct Testimony
1
required function and multiplies that time by the most recent labor rate of the
2
employee performing the function. For example, the study identifies relevant
3
work activities, job functions, and forward-looking times required to perform
4
switch translations, and then applies the relevant labor rate. Nonrecurring costs
5
also include right-to-use fees SWBT pays its vendors for use of E9-1-1 software.
6
7
8
Q.
EARLIER YOU MENTIONED COSTS WERE DEVELOPED EXPLICITLY IN
SUPPORT OF THE ORDERED E9-1-1 RATE RESTRUCTURING. PLEASE
DESCRIBE THESE COST ITEMS.
9
A.
The E9-1-1 Network LRIC study, (Makarewicz) Schedule No. 1, includes three
10
main categories of one-time nonrecurring, volume insensitive costs that enhance
11
9-1-1 service. The first category includes costs incurred to provide the 9-1-1
12
Customer Resolution Center. This Center provides a twenty-four hours a day,
13
seven days a week single point of contact for resolving 9-1-1 customer inquiries.
14
The second category includes costs incurred to make available 9-1-1 Network
15
Schematics. These are drawings and maps that illustrate current 9-1-1 service
16
arrangements specific to rate centers, cities, and counties. The third category
17
includes costs incurred for Contingency Plans.
18
consultation with 9-1-1 agencies to update, distribute and implement emergency
19
contingency plans.
These include annual
20
Q.
PLEASE SUMMARIZE YOUR TESTIMONY.
21
A.
My testimony provides an overview of network information flows and the cost
22
components identified in SWBT’s E9-1-1 cost studies.
23
forward-looking LRIC estimates for all relevant costs that SWBT incurs in offering
24
E9-1-1 service.
25
prices and establish the proper economic price floor.
The studies identify
These incremental costs support SWBT’s proposed E9-1-1
26
Q.
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
27
A.
Yes.
8
Docket No. 22954
(Makarewicz) Appendix A
SUMMARY OF EDUCATIONAL AND WORK EXPERIENCE
EDUCATION:
M.A., Economics, St. Louis University, St. Louis, Missouri (1986)
B.A., Economics and Philosophy, Rockhurst College, Kansas City, Missouri
(1982)
EMPLOYMENT AT SBC:
1999-present
SBC Telecommunications, Inc., St. Louis, Missouri
Position: Associate Director – Cost Analysis
Responsibilities: Participated in production of cost studies. Testified on
cost issues at state regulatory proceedings.
1998-1999
SBC Telecommunications, Inc., St. Louis, Missouri
Position: Associate Director – Economics
Responsibilities: Developed pleadings in state and federal proceedings,
represented Company positions before the FCC, and developed
economic positions on various regulatory matters.
1994-1998
Southwestern Bell Telephone, St. Louis, Missouri
Position: Area Manager – Market Planning
Responsibilities: Performed financial analysis of marketing initiatives for
SWBT’s wholesale services.
1992-1994
Southwestern Bell Corporation, St. Louis, Missouri
Position: Demand Analyst
Responsibilities: Developed econometric models to measure demand
and market characteristics for SBC subsidiary services.
1988-1992
Southwestern Bell Telephone, St. Louis, Missouri
Position: Manager – Economics
Responsibilities: Performed economic analysis and modeling to support
SWBT pleadings.
9
Docket No. 22954
(Makarewicz) Appendix A
REGULATORY TESTIMONY:
Before the Kansas Corporation Commission, General Investigation into
Reciprocal Compensation for ISP Traffic, Docket No. 00-GIMT-1054-GIT, SWBT
cost witness, September 14, 2000.
Before the Connecticut Department of Public Utility Control, Southern New
England Telephone Co.’s Resale Migration cost filing, Docket No. 98-0901RE01, SNET cost witness, August 3, 2000
Before the Connecticut Department of Public Utility Control, Southern New
England Telephone Co.’s UNE Non-Recurring cost filing, Docket No. 00-03-19,
SNET cost witness, May 16-17, 2000.
Before the Connecticut Department of Public Utility Control, Southern New
England Telephone Co.’s UNE Recurring and Joint & Common cost filing, Docket
No. 00-01-02, SNET cost witness, May 1-2, 2000.
Before the Texas Public Utility Commission, MCI Arbitration, Docket No. 21791,
SWBT cost witness, April 17, 2000.
Before the Oklahoma Corporation Commission, Approval of SWBT’s Prepaid
Home Service Tariff filing, Cause No. 990000065, SWBT cost witness, March 1,
2000.
Before the Kansas Corporation Commission, SWBT’s IntraLATA Toll Dialing
Parity Cost Recovery filing, Docket No. 99-GIMT-712-GIT, SWBT cost witness,
October 5, 1999.
Before the Connecticut Department of Public Utility Control, Southern New
England Telephone Co.’s UNE Rebundled Services filing, Docket No. 99-03-13,
SNET cost witness, August 17, 1999.
Before the Connecticut Department of Public Utility Control, Southern New
England Telephone Co.’s Enhanced Provisioning Services filing, Docket No. 9902-07, SNET cost witness, April 28 and June 30, 1999.
Before the Connecticut Department of Public Utility Control, Southern New
England Telephone Co.’s UNE Non-Recurring Charge filing, Docket No. 98-0901, SNET cost witness, June 16, 1999.
Ex parte presentations before the FCC staff in 1990, 1994, 1995.
Affidavits filed at the FCC in 1998 (MCI PIC Complaint Case).
10
Docket No. 22954
(Makarewicz) Appendix A
PUBLICATIONS:
“Efficient Telecom Pricing: How Consumers Would Benefit,” Public Utilities
Fortnightly, March 15, 1996, pp. 26-28, 32.
“The Effectiveness of Low Income Telephone Assistance Programs:
Southwestern Bell’s Experience,” Telecommunications Policy, Vol. 15, No. 3,
June 1991, pp. 223-240.
“The Effect of Subscriber Line Charges on Residential Telephone Bills,”
Telecommunications Policy, Vol. 13, No. 4, December 1989, pp. 337-354 (with A.
Larson and C. Monson).
PROFESSIONAL CONFERENCE PRESENTATIONS:
Motorola Corp., Telecom Market Institute, Schaumburg, Illinois, Nov. 1998.
Michigan State University’s Institute of Public Utilities Annual Conference,
Williamsburg, Virginia, December 1997.
Rutgers University Advanced Workshop in Regulation and Public Utility
Economics, San Diego, California, July 1996, July 1990, and July 1989.
National Association of Regulatory Utility Commissioners (NARUC) Biennial
Regulatory Information Conference, Columbus, Ohio, September 1990.
11
Docket No. 22954
(Makarewicz) Schedule 1
Confidential Information
Previously Provided Under Seal
E9-1-1 Network LRIC Study
12
Docket No. 22954
(Makarewicz) Schedule 2
Confidential Information
Previously Provided Under Seal
Texas 9-1-1 Universal
Emergency Number Services Long
Run Incremental Cost Study (LRIC)
13
Docket No. 22954
(Makarewicz) Schedule 3
Confidential Information
Previously Provided Under Seal
E9-1-1 Database Management
System (DBMS) and Automatic
Location Identification Service
Adjunct (ALISA) Platform Study
14