NUMBER RESOURCE OPTIMIZATION Page 6

a. Background

1. As we explained above, thousands-block number pooling involves the allocation of blocks of sequential telephone numbers within the same NXX code to different service providers, and possibly different switches, within the same rate center. In the future, allocations will be accomplished via a Pooling Administrator, who coordinates the allocation of thousands blocks to a particular service provider with the NPAC SMS. Under the current system, entire NPA-NXXs (10,000 numbers) are allocated to, and therefore associated with, a given switch or carrier. Thousands-block number pooling requires modifying the association between an NPA-NXX and the service provider for the purpose of routing calls. Once the association between the NPA-NXX code and the service provider is modified for purposes of call routing, an alternative to using the first six digits of the called number to route the call must be found.
2. Since the release of the Pennsylvania Numbering Order, the telecommunications industry has developed detailed guidelines governing the technical and administrative functioning of thousands-block number pooling. To implement thousands-block pooling, the industry has proposed employing the Intelligent Network/Advanced Intelligent Network (IN/AIN) system used for LNP.
3. The Committee-T1, sponsored by the Alliance for Telecommunications Industry Solutions (ATIS), has drafted detailed technical requirements (T1S1.6 Thousands-Block Number Pooling Technical Requirements) for thousands-block pooling. The T1S1.6 Thousands-Block Pooling Technical Requirements address number pooling within an existing rate center within an NPA, utilizing the LRN method for LNP. The T1S1.6 Thousands-Block Number Pooling Technical Requirements also define the Switching System, Number Portability Database, and other requirements for thousands-block number pooling in LNP-capable wireline networks. Moreover, the T1S1.6 Thousands-Block Number Pooling Technical Requirements describe the network prerequisites that must be met for thousands-block number pooling to function properly, thousands-block number pooling technical requirements, and network impacts of thousands-block number pooling.
4. As stated above, an LRN is a unique ten-digit number assigned to each central office switch to identify each Point of Interconnection in the network for call routing purposes. The LRN then serves as a network address. The first six digits of the LRN (i.e., the NPA-NXX) are used to route calls to numbers that have been ported. A number is ported when a carrier other than the carrier assigned the NPA-NXX associates its LRN with the phone number for routing purposes, and this same carrier is responsible for terminating the call to the ported number. When an individual telephone number is ported, a record associating the ported number with the LRN of the appropriate service provider's switch is created and stored in the former carrier's LNP SCP database, via downloads from the local Service Management System (SMS). Any service provider routing a call to the ported number would do so by querying the database to determine the LRN that corresponds to the dialed telephone number, and routing the call to the switch identified by that LRN. The LRN architecture, therefore, provides a practical alternative to using the first six digits of the called number to route the call.
5. The LRN database structure can be used to route calls to customers who have been assigned telephone numbers from a pool, because, just like with ported numbers, the NPA-NXX of a pooled number no longer necessarily indicates the switch or service provider associated with the service. To facilitate call routing when LRN LNP is utilized for number pooling, the entire population of pooled numbers in the pooling area, and associated LRNs, must be stored in all of the LNP SCP databases that service providers use to store LRN information for numbers ported from their networks. Thus, thousands-block number pooling can only be implemented where LRN LNP has been deployed.
6. When a number is ported, carriers must utilize software in the NPAC system to download and store the telephone number and associated LRN. Thousands-block number pooling can be performed with NPAC Release 1.4, 2.0 or 3.0. NPAC Release 1.4 is a customized software release for the Illinois pooling trial, which stores data in carriers’ SCP database one record at a time. NPAC Release 3.0, which is scheduled for testing by the NPAC in June 2000, and will be released to service providers in July 2000, includes efficient data representation (EDR). EDR allows an LRN to be associated with a block of one thousand numbers as a single record. Because EDR allows one thousand numbers to be downloaded and stored in a service provider’s database as a single record, instead of one-thousand records, it is expected to significantly extend a carrier’s SCP capacity for thousands-block number pooling.
7. In the Notice, we sought comment on whether we should adopt the T1S1.6 proposed technical requirements for thousands-block number pooling as the standard for a national pooling architecture, or in the alternative, whether we should direct the NANC to recommend technical standards for thousands-block number pooling once such standards have been adopted by the American National Standards Institute (ANSI). In addition, we sought comment on whether there are any technical issues with respect to thousands-block number pooling that have not been identified, such as potential impacts on private branch exchange equipment, or that remain to be resolved, and whether it is necessary for the Commission to direct or request resolution of these issues.
8. The INC has also drafted guidelines relating to the duties of the Pooling Administrator and entities requesting numbers from the Pooling Administrator. The INC Pooling Guidelines propose an architecture in which a Pooling Administrator functions essentially as another carrier, requesting numbering resources from the NANP in order to maintain a sufficient inventory of thousands blocks for allocation to carriers within a rate area. Carriers desiring blocks of numbers within a rate area request those blocks from the Pooling Administrator, rather than the NANPA. Under these guidelines, numbering resources will be available for assignment from both contaminated and uncontaminated thousands blocks contained in the industry inventory pool. Where thousands-block pooling has not been implemented, or is not in use by a service provider, the service provider must continue to apply directly to the CO Code Administrator for numbering resources.
9. In the Notice, we sought comment on whether this arrangement should be the model for thousands-block number pooling administration. We also sought comment on whether this general method of administration satisfies parties that may be taking numbers in thousands blocks from a pool as well as those that continue to take whole NXXs. In particular, we asked whether this model sufficiently addresses concerns about the impartial administration of the numbering resource.

b. Discussion

10. As we stated earlier, we believe that uniform technical requirements are essential for the successful rollout of thousands-block number pooling. In this regard, several parties recommend that we adopt the T1S1.6 Technical Requirements for Thousands-Block Number Pooling. The T1S1.6 Technical Requirements provide a comprehensive and an informative reference of the technical requirements for thousands-block number pooling implementation in LNP-capable wireline networks. These requirements are the result of an extensive industry effort and represent a broad-based consensus of various industry segments. Therefore, we adopt the T1S1.6 Technical Requirements as the technical standard for a national thousands-block number pooling mechanism.
11. We agree with many service providers and the NANC that the inclusion of EDR in the pooling software used for thousands-block number pooling is critical for a nationwide pooling architecture. Thousands-block number pooling requires carriers to modify significantly the manner in which they account for their inventory of telephone numbers, including changing their Operations Support Systems (OSSs) and retraining their staff. With a national thousands-block pooling rollout, we envision the porting of a large volume of thousands blocks. As stated above, we do not endorse at this time the adoption of NPAC 3.0 as the software for the national thousands-block number pooling architecture, but we believe that the incorporation of EDR in such software, or in thousands-block number pooling software developed by other entities with this EDR feature, is significant because it will reduce the strain on the network from the large volume of number porting that is likely to occur once thousands-block number pooling is implemented.
12. We also conclude that the nationwide implementation of thousands-block pooling requires detailed guidelines governing its administration. The INC has drafted detailed guidelines and specifications describing the procedures to be followed for the administration of thousand-block number pooling. Several commenters support the INC Thousand Block Pooling Guidelines as the model for thousands-block number pooling administration. Other parties, however, express concern about the industry drafting these guidelines and a possible competitive disadvantage to CLECs based on the premise that they are drafted to favor incumbent LECs. Upon our review of the Thousand Block Pooling Guidelines, we believe that the administration model that the INC has articulated sufficiently addresses concerns about the neutral administration of the numbering resource. We also believe that this model does not discriminate between service providers that may be taking numbers in thousands blocks from a pool as well as those that continue to take whole NXX codes. We note that the INC Pooling Guidelines complement our choice of implementing a nationwide thousands-block number pooling rollout. We therefore direct the industry and the national Pooling Administrator to follow the INC Pooling Guidelines relating to the functioning of the Pooling Administrator and entities requesting numbering resources from the Pooling Administrator. We reserve the right, however, to direct the incorporation of modifications to the Guidelines as and when necessary. In addition, anything that we mandate in this or subsequent orders that alters the Thousand Block Pooling Guidelines, shall supersede the guidelines, and must be followed by the Pooling Administrator.

4. Public Safety Impacts

13. In the Notice, we solicited comment on whether the National Emergency Number Association (NENA)-recommended standards, as well as the T1S1.6 recommended restriction on the porting of E911 routing numbers, are sufficient to ensure the reliable provision of E911 service where thousands-block number pooling is implemented. We sought this information because several commenters to the NANC Report expressed concern about thousands-block number pooling’s impact on the provision of E911 services, and upgrades and changes to E911 systems if thousands-block number pooling is implemented.
14. In response to comments received from the NENA community regarding the potential problems with implementing thousands-block number pooling in a geographic area beyond the traditional rate center, we conclude that each thousands block pool should be confined to a rate center, which denotes the smallest geographic area used to distinguish rate center boundaries. Thus, each rate center would contain a separate pool of numbering resources. This architecture will allow the maintenance of current wireline call rating mechanisms associating an NXX with a particular geographic area (i.e., rate center).
15. Because thousands-block number pooling will be limited to the traditional rate center area, we do not envision widespread disruption to E911 service in this country. Moreover, we also note that the T1S1.6 did not specifically identify any impact on the provision of E911 service associated with the implementation of thousands-block number pooling in their Technical Requirements for thousands-block number pooling. We do, however, ask that routing numbers to which E911 calls are translated not be ported. If the routing number to which the E-911 calls are translated is ported, we ask that a new 911-routing number be assigned to the recipient switch, if necessary. Therefore, we conclude that the NENA-recommended standards, as well as the T1S1.6 recommended restriction on the porting of E911 routing numbers are sufficient to ensure the reliable provision of E911 service where thousands-block pooling is implemented.
16. Commenters also recommended that NeuStar’s Interactive Voice Response (IVR) unit be implemented nationally to address telephone company identification problems. IVR is a system that would enable a PSAP (public service access point) to access the NPAC data, which indicates what company owns each ported telephone number. Because of its potential impact on accessibility to telecommunications services, we decline to address the nationwide implementation of IVR in this Report and Order. We do, however, reserve the right to implement this requirement in future proceedings.

5. Administration

a. Inventory of Numbers

17. According to the Thousand Block Pooling Guidelines, the industry inventory is a reservoir of unallocated thousands blocks administered by the Pooling Administrator for purposes of assignment to certified service providers participating in thousands-block number pooling. The service provider inventory is defined as the inventory of all geographic NANP telephone numbers distributed by the thousands-block number Pooling Administrator to a code or block holder and reported as assigned numbers. In the Notice, we sought comment on whether a nine-month inventory of numbers in both the industry inventory and the service provider inventory, as proposed in the Thousands Block Pooling Guidelines, is appropriate to assure adequate access to numbering resources, while avoiding potential waste of the resources by permitting numbers to lie unused for long periods of time. According to the Guidelines, the Pooling Administrator would attempt to maintain thousands-blocks in the pool sufficient for a nine-month inventory, and each service provider would maintain sufficient resources within its individual inventory to last for nine months.
18. Inventory refers to all telephone numbers distributed, assigned, or allocated to a service provider, or to a Pooling Administrator for the purpose of establishing or maintaining a thousands-block number pool. We believe that a six-month inventory is appropriate and sufficient to assure adequate access to numbering resources, and will reduce the potential waste of unused numbering resources. Several commenters have suggested nonetheless that a nine-month inventory of numbers in both the industry inventory and service provider inventory is appropriate. We are persuaded by this aspect of the states’ proposed modifications to the INC Thousand Block Pooling Guidelines and, therefore, adopt a six-month inventory of numbers in both the industry inventory and service provider inventory. Many state public utility commissions have also taken steps in the context of state number pooling trials to avoid potential waste of numbering resources by requiring a maximum six-month inventory of numbers in both the industry inventory and service provider inventory. We also are persuaded by NeuStar’s representation that as the thousands-block Pooling Administrator in the state thousands-block number pooling trials, it could maintain a six-month inventory of numbers in each pool.

b. Donation of Thousands-Blocks

19. As discussed in the Notice, the NANC Report and the INC Thousand Block Pooling Guidelines contemplate the donation of thousands-blocks already assigned to a service provider to the pool. Both the NANC Report and INC Number Pooling Report recommend that carriers donate thousands-blocks with up to a ten percent threshold contamination level to a pool within a rate center. Contamination occurs when at least one telephone number is not available for assignment. In the Notice, we asked whether setting a ten percent contamination threshold would harm a particular segment of the industry. We also sought comment on MediaOne’s proposal to set a twenty-five percent contamination threshold for ILECs and a ten percent threshold for CLECs to compensate for the perceived competitive advantage in favor of ILECs because of the ILECs’ numbering resources resulting from their historical monopoly status.
20. We conclude that we should adopt a uniform contamination threshold for all carriers to avoid a discriminatory impact on any particular segment of the telecommunications industry. We decline to adopt the recommendations made by MediaOne and other carriers that different contamination thresholds should apply for each industry segment because of the potential competitive impact of such unequal treatment. We also find that donation of thousand-blocks with up to a ten percent contamination threshold has the potential to add significant numbering resources in areas where thousands-block number pooling has been implemented. Thus, consistent with the INC Thousand Block Pooling Guidelines, we require all carriers to donate all thousands-blocks that have a less than ten-percent contamination level to the thousands-block number pool for the rate center from which the numbering resources are assigned. We clarify, however, that carriers participating in thousands-block number pooling will be allowed to retain at least one thousands-block per rate center, even if the thousands-block is less than ten percent contaminated, as an initial block or "footprint" block so that it may provide service to its customers within the rate center. Carriers will also be allowed to retain a sufficient number of thousands-blocks to meet its six-month projection forecast. We also clarify that numbers assigned to customers from donated thousands-blocks that are contaminated will be ported back to the donating carrier to enable it to continue to provide service to those customers.

6. Federal Cost Recovery Mechanism

21. Section 251(e)(2) requires that "[t]he cost of establishing telecommunications numbering administration arrangements and number portability shall be borne by all telecommunications carriers on a competitively neutral basis as determined by the Commission." Based on our conclusion in the Notice that thousands-block number pooling is a numbering administration function that is subject to the Commission's authority under section 251(e)(2), we sought comment on the appropriate distribution and recovery mechanism for thousands-block number pooling costs.
22. In this Report and Order, we adopt cost recovery principles that are similar to those established for number portability. We conclude that the technical requirements of thousands-block number pooling and number portability are very similar, and thus, adopting different methods of cost recovery would create an unnecessary administrative burden on the carriers and the numbering administrator. For example, both number portability and thousands-block number pooling require the administrative services of a neutral third party to maintain the databases. Also, the thousands-block number Pooling Administrator will require updates from the number portability databases. In addition, the modifications to a carrier's network that are necessary to implement thousands-block number pooling will involve the same, or similar hardware and software modifications that were required to implement number portability, thus creating the same or similar types of costs. Moreover, in the LNP Third Report and Order we noted that number portability would facilitate thousands-block number pooling to help forestall telephone number exhaust.
23. We establish a competitively neutral federal cost recovery frame work for thousands-block number pooling. In this regard, we adopt three categories of thousands-block number pooling costs and determine how those costs should be allocated in each category. We, however, do not establish a cost recovery mechanism in this Report and Order for shared industry and carrier-specific costs directly related to thousands-block number pooling because the record does not contain adequate information regarding the range and magnitude of incremental costs that carriers will incur to implement thousands-block number pooling. Thus, any determination of an appropriate cost recovery mechanism without information regarding the amount and/or magnitude of incremental costs that are associated with thousands-block number pooling implementation would be speculative. For this reason, we also issue a Further Notice seeking comment on the shared industry and carrier-specific incremental costs of thousands-block number pooling and cost studies to quantify those incremental costs.

1. Federal/State Jurisdiction

1. In the Notice, we concluded that thousands-block number pooling is a numbering administration function and tentatively concluded that section 251(e)(2) of the Communications Act of 1934, as amended, authorizes the Commission to provide an exclusively federal distribution and recovery mechanism for both intrastate and interstate costs of thousands-block number pooling. We further tentatively concluded that under an exclusively federal numbering administration cost recovery mechanism, the incumbent LECs' numbering administration costs, including costs associated with thousands-block number pooling, will not be subject to separations.
2. We conclude that the costs of numbering administration, specifically the costs of thousands-block number pooling, will be recovered through an exclusively federal recovery mechanism. We agree with parties who maintain that the Commission has authority to provide an exclusively federal distribution and recovery mechanism for the intrastate and interstate costs of thousands-block number pooling. We also believe that an exclusively federal cost recovery and distribution mechanism will further the policy goal of ensuring that numbering administration costs are not in conflict with the pro-competitive goals of the Act. In addition, an exclusively federal cost recovery mechanism for thousands-block number pooling will enable the Commission to satisfy most directly its competitively neutral mandate, and will minimize the administrative and enforcement difficulties that might arise if jurisdiction over numbering administration cost recovery were divided. We also note that no party has proposed a methodology which would ensure that numbering administration costs are recovered on a competitively neutral basis when carriers operate under different recovery mechanisms.
3. We also adopt our tentative conclusion that the costs of thousands-block number pooling are not subject to separations under the exclusively federal cost recovery mechanism. As a federal cost recovery mechanism, the costs incurred are interstate costs, so there are no intrastate costs to be allocated to the state jurisdiction. Therefore, we will allow incumbent LECs to recover all their qualifying costs for thousands-block number pooling under the federal cost recovery mechanism we establish. We note, however, that the implementation and administration of national thousands-block number pooling will not be effective immediately. Until national thousands-block number pooling is implemented and a federal cost recovery mechanism authorized, states may use their current cost recovery mechanisms to ensure that the carriers recover the costs of thousands-block number pooling implementation and administration in the meanwhile. Costs incurred by carriers to implement state-mandated thousands-block number pooling are intrastate costs and should be attributed solely to the state jurisdiction.

1. Competitively Neutral Requirement

1. We tentatively concluded in the Notice that the plain language of section 251(e)(2) requires that the costs of thousands-block number pooling implementation be borne by all telecommunications carriers on a competitively neutral basis. We sought comment on whether the two-part test we adopted in the number portability proceeding to determine whether carriers should bear the costs of number portability on a competitively neutral basis is applicable to thousands-block number pooling. Specifically, we tentatively concluded that the costs of thousands-block number pooling: (a) should not give one provider an appreciable, incremental cost advantage over another when competing for a specific subscriber; and (b) should not have a disparate effect on competing providers' abilities to earn a normal return.
2. We apply the two-part test we established in the LNP Third Report and Order to determine whether the carriers' costs are borne on a competitively neutral basis. In that order, we concluded that section 251(e)(2) requires us to ensure that the costs of number portability do not affect the ability of carriers to compete and to attract subscribers. We applied the "normal return" prong of the test to all carriers, not just carriers that compete for end-user customers. Several commenters support the application of the two-part test to determine whether carriers should bear the costs of thousands-block number pooling, and no party has demonstrated that this test would create an unreasonable or unjust result. Therefore, we conclude that the costs of numbering administration, including thousands-block number pooling, do not affect the ability of carriers to compete. As such, the costs of thousands-block number pooling: (a) should not give one provider an appreciable, incremental cost advantage over another when competing for a specific subscriber; and (b) should not have a disparate effect on competing providers' abilities to earn a normal return. Also, consistent with our position in the LNP Third Report and Order, we conclude that section 251(e)(2) does not exclude any class of carriers and that all telecommunications carriers must bear numbering administration costs on a competitively neutral basis.
3. We also conclude that the competitive neutrality requirement does not require the Commission to ensure that carriers recover all of the costs expended for thousands-block number pooling implementation and administration. We note that neither the application of the two-part test to thousands-block number pooling costs nor our interpretation of section 251(e)(2) guarantees any particular return or requires the Commission to guarantee that carriers recover all their thousands-block number pooling costs. Section 251(e)(2) requires that the Commission select a method of cost recovery that ensures that carriers bear the costs on a competitively neutral basis, in comparison with the way other carriers bear the same costs. In the LNP First Report and Order, the Commission stated that Congress’s competitive neutrality mandate requires the Commission to depart from cost-causation principles when doing so is necessary to ensure "that the costs of number portability borne by each carrier do not affect significantly any carrier’s ability to compete with other carriers for customers in the marketplace."

1. Cost Categories

1. In the Notice, we sought comment on three categories for recovery of thousands-block number pooling administration costs: (1) shared industry costs, costs incurred by the industry as a whole (including NANP administrator costs, and enhancements to the number portability regional database); (2) carrier-specific costs directly related to thousands-block number pooling implementation (such as enhancements to carriers’ SCP, LSMS, SOA, and OSS systems); and (3) carrier-specific costs not directly related to thousands-block number pooling administration. The NANC also identified these cost categories as appropriate for thousands-block number pooling costs in its report. In addition, we tentatively concluded that section 251(e)(2)’s competitively neutral requirement applies only to the allocation and recovery of shared industry costs and carrier-specific costs directly related to the implementation of thousands-block number pooling, not to carrier-specific costs not directly related to thousands-block number pooling. Further, we sought comment on the tentative conclusion that because costs not directly related to providing thousands-block number pooling are not costs of thousands-block number pooling implementation, the Commission is not required to create special provisions for their recovery.
2. Furthermore, in the LNP Third Report and Order, we established definitions for the three cost categories described above as they applied to number portability cost recovery. We 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." Carrier-specific costs directly related to providing number portability were defined as costs carriers incur specifically in the provision of number portability services, such as for the querying of calls and the porting of telephone numbers from one carrier to another and considered, as subject to the competitive neutrality mandate of section 251(e)(2), all of a carrier's dedicated number portability costs, such as for number portability software and for the SCPs, and STPs reserved exclusively for number portability. We also defined carrier-specific costs directly related to the provision of number portability as that portion of a carrier's joint costs that is demonstrably an incremental cost that carriers incur in the provision of long-term number portability. Costs that carriers incur as an incidental consequence of number portability (Type 3), such as general network upgrades, were included in the definition of costs not directly related to the provision of number portability.
3. We adopt the three categories of thousands-block numbering pooling costs that we proposed in the Notice. We note commenters generally support the adoption of these the three categories, but disagree as to the categories of costs the carriers should be allowed to recover. We find that the similarities between the costs that will be incurred to implement thousands-block number pooling and the costs that have been identified for number portability compel us to adopt the same three cost categories, and apply their definitions to the costs of thousands-block number pooling.
4. We agree with US West and conclude that the costs resulting from the administration of thousands-block number pooling, specifically the costs incurred by the third party thousands-block number Pooling Administrator to build, operate and administer the database for thousands-block number pooling are shared industry costs. Furthermore, as we decided with regard to number portability, we conclude that these costs will become carrier-specific costs once they are distributed among telecommunications carriers. The method of allocating and recovering shared industry costs is discussed in detail below.
5. We further conclude that it is competitively neutral for carriers to recover the shared industry costs and carrier-specific costs directly related to thousands-block number pooling implementation. Finally, we adopt our tentative conclusion that carriers may not recover costs not directly related to providing thousands-block number pooling because these costs are not subject to the competitive neutrality requirement.

1. Shared Industry Costs. We tentatively concluded in the Notice that the shared industry costs of thousands-block number pooling implementation and administration are should be allocated and recovered through the existing NANPA fund formula. We also tentatively concluded that under section 251(e)(2), it is competitively neutral to allocate the shared industry costs of thousands-block number pooling implementation and administration among all telecommunications carriers in proportion to each carrier’s intrastate, interstate, and international end-user telecommunications revenues. The Notice further sought comment on whether the Commission has the authority to allocate the shared costs of thousands-block number pooling through a per-number charge, based on the quantity of numbers held by a carrier, or only to those carriers that receive thousands-blocks of numbers.
2. We agree with parties stating that the distribution and recovery mechanism for the costs of thousands-block number pooling should be recovered from all classes of telecommunications carriers according to the NANPA formula. We conclude that the allocation of shared industry costs only among the carriers that participate in thousands-block number pooling or through a per-number charge, based on the quantity of numbers held by a carrier, would not comply with the section 251(e)(2) requirement that all telecommunications carriers bear the cost of numbering administration on a competitively neutral basis. In particular, we believe that such a mechanism would penalize new CLECs and other carriers, such as CMRS and paging carriers, that require large quantities of numbers to provide their services. We further conclude that the costs of thousands-block number pooling be allocated to all telecommunications carriers in proportion to each carrier’s interstate, intrastate, and international telecommunication end-user revenues. Allocation of thousands-block number pooling costs according to a carrier’s interstate, intrastate, and international telecommunication end-user revenues is consistent with the established precedent for cost recovery for NANP administration using the NANPA formula, as well as our cost recovery mechanism for number portability. We recently determined that carrier contributions to NANPA based on end-user telecommunications revenues satisfy the competitive neutrality requirements of section 251(e). In addition, the shared costs for number portability are also collected by a neutral, third-party administrator based on allocations among carriers in proportion to their interstate, intrastate, and international telecommunication end-user revenues attributable to that region. Similar to our number portability cost recovery rules, which require carriers that do not have sufficient end-user revenues to pay $100 per year per region as their statutory share of shared number pooling costs, we require that carriers that do not have sufficient end-user revenues shall pay a minimum of $100 per year per region as their share of thousands-block number pooling costs. The record in this proceeding does not provide a reason to depart from our established precedent in this area. Therefore, shared industry costs, along with the other carrier-specific costs directly related to thousands-block number pooling, will be subject to the carrier-specific cost recovery mechanism to be established in a separate order.
3. Carrier-specific costs directly related to thousands-number pooling. In the Notice, we tentatively concluded that it is competitively neutral for carriers to bear and recover their own carrier-specific costs directly related to thousands-block number pooling implementation and administration. These costs include costs associated with updates to carriers’ networks (including LSMS, SCP, SOA, and OSS systems), as well as, each carrier’s allocated portion of shared industry costs as discussed above.
4. We conclude that requiring carriers to bear and recover their own carrier-specific costs is consistent with the competitive neutrality requirements in section 251(e)(2). Several parties concur, although there is disagreement as to how the costs should be recovered. We note that none of the parties support the alternative method that would add the carrier-specific costs to the shared industry costs and, then, allocate them through a revenue-based cost mechanism. A similar pooling-type method also was considered in the number portability proceeding, but was rejected because of the following disadvantages: (1) carriers would have less incentive to minimize costs because they would not realize all the savings achieved by providing number portability more efficiently; (2) carriers would not be responsible for any increasing cost inefficiencies; and (3) the Commission would be required to impose significant cost accounting and distribution mechanisms on both regulated and previously unregulated carriers. These disadvantages would also be present if the carrier-specific thousand-block number pooling costs were added to the shared industry costs and allocated according to revenue. Parties to this proceeding have not provided information to show us that this method is competitively neutral; therefore, we adopt our earlier conclusion that it is competitively neutral for carriers to bear and recover their own carrier-specific costs. We will address the issue of carrier-specific thousands-block number pooling cost recovery in detail in a subsequent order, but we establish the basic principles that apply to this category of costs below.
5. Carrier-specific costs not directly related to thousands-block number pooling. In the Notice, we tentatively concluded that carrier-specific costs not directly related to thousands-block pooling implementation should be borne by individual carriers as network upgrades and, as such, are not subject to the competitive neutrality requirements of section 251(e)(2). We sought comment on this conclusion and on alternative methods of recovering these costs.
6. We conclude, with support from several parties, that carrier-specific costs not directly related to thousands-block pooling implementation are not subject to the competitive neutrality requirements in section 251(e)(2). Thus, we find that each carrier should bear its carrier-specific costs not directly related to thousands-block number pooling implementation as network upgrades. Commenters agree that carrier-specific costs not directly related to thousands-block pooling are not subject to the competitive neutrality requirements of section 251(e)(2) and carriers should bear those costs as network upgrades. We reached a similar conclusion regarding carrier-specific costs not directly related to number portability in the LNP Third Report and Order, recognizing that carriers may incur a wide range of costs to provide telecommunications functions that are only incidentally related to number portability. The LNP Third Report and Order defined costs not directly related to number portability as costs carriers incur as an "incidental consequence of number portability." We reject the argument offered by BellSouth and SBC that we should allow carriers to recover all of the implementation costs for thousands-block number pooling in all three cost categories, including costs not directly related to thousands-block number pooling. We find that these costs are only incidentally related to thousands-block number pooling and the parties have not presented evidence to demonstrate that incidental costs of implementing number pooling should be recovered through a separate or special recovery mechanism. As such, we conclude that carriers are not allowed to recover carrier-specific costs not directly related to thousands-block number pooling implementation and administration through the cost recovery mechanism we establish in a separate order.

1. Recovery of Shared Industry and Direct Carrier-Specific Costs

1. In the Notice, we tentatively concluded that incumbent LECs subject to rate-of-return or price cap regulation may not recover their interstate carrier-specific costs directly related to thousands-block number pooling through a federal charge assessed on end-users, but may recover the costs through other cost recovery mechanisms. We requested detailed estimates of the costs of thousands-block number pooling and asked that commenters separate the estimates by category of costs. We also sought comment on the appropriate methodology for developing these and other cost estimates.
2. Several parties agree with the tentative conclusion that thousands-block number pooling costs should not be recovered through a federal charge assessed on end users, but should be recovered through access charges. Some commenters recommend that price cap LECs should be allowed to treat thousands-block pooling number costs as exogenous cost adjustments or, alternatively, place the costs in a new or existing price cap basket. Other parties, however, urge us to abandon our tentative conclusion because recovery through access charges would violate the competitive neutrality standard of section 251(e)(2).
3. We find that the amount and detail of the data provided in response to our request is insufficient for us to determine the amount and/or magnitude of the costs associated with thousands-block number pooling. Without sufficient cost data, it is difficult for us to determine the appropriate cost recovery mechanism for these costs. We, therefore, find it necessary to request additional cost information prior to making a final decision on the appropriate method of cost recovery. We seek further comment and cost studies that quantify shared industry and direct carrier-specific costs of thousands-block number pooling. We also seek comment and cost studies that take into account the cost savings associated with thousands-block pooling in comparison to the current numbering practices that result in more frequent area code changes.

6. Identification of Costs

1. We believe that the implementation of thousands-block number pooling as a means of preventing number exhaust will result in certain cost efficiencies that do not inure to carriers under other methods (e.g., area code splits and overlays, addition of another digit). We request that carriers determine their potential cost savings resulting from thousands-block number pooling by analyzing the avoided costs associated with thousands-block number pooling in comparison to the current practices that result in more frequent area code changes. The carriers also should include an analysis of the differences between the shared industry costs associated with thousands-block number pooling and the shared industry costs, if any, associated with the current practices that result in more frequent area code changes. The carriers should also exclude any thousands-block number pooling costs that they may have recovered through state implemented cost recovery mechanisms from this analysis. After determining their incremental costs of thousands-block number pooling, carriers should offset these costs by the cost savings that result from thousands-block number pooling which prolongs lives of area codes and avoids frequent area code changes.
2. Carriers should provide cost studies that assign costs according to the three categories we have adopted in this order: (1) shared industry costs; (2) carrier-specific costs directly related to thousands-block pooling; and (3) carrier-specific costs not directly related to thousands-block number pooling. The cost studies should also distinguish the costs of providing number portability from the costs of implementing thousands-block number pooling. We find that the need to distinguish thousands-block number pooling costs from other network upgrades and network changes associated with number portability is heightened by the fact that the changes to the network for both thousands-block number pooling and number portability are similar. Specifically, the same carriers that were required to update their networks to accommodate number portability are now required to make similar changes to implement thousands-block number pooling. Moreover, these carriers are also currently recovering number portability costs through a separate, number portability end-user charge. Under these circumstances, we find that it is equally as important to prevent the overrecovery of thousands-block number pooling and number portability costs as it is to prevent the recovery of costs that are not directly related to thousands-block number pooling.
3. We note that there are some types of costs that are incidental to the implementation and administration of thousands-block number pooling, and, therefore, may not be eligible for recovery. In the Cost Classification Order, the Bureau directed the LECs to use the "but for" test as a method of identifying eligible number portability costs. To demonstrate that costs are eligible for recovery through the federal number portability charges under the "but for" test, a carrier must show that the costs: "(1) would not have been incurred by the carrier ‘but for’ the implementation of number portability; and (2) were incurred ‘for the provision of’ number portability service. The Bureau reasoned that, based on the Third Report and Order language that only incremental costs of number portability should be recovered through the federal number portability charges, this test was consistent with the Commission’s narrow interpretation of "eligible number portability costs." Costs that a carrier incurs for general network upgrades or to adapt other systems to the presence of number portability in the LECs’ network were defined as costs not directly related to the provision of number portability. The Bureau’s goal was to prevent overcompensation of LECs for the costs of general network upgrades that are already recovered through standard price caps and rate-of-return mechanisms.
4. We find that the "but for" test used in the number portability proceeding should also be used by carriers to identify carrier-specific costs directly related to thousands-block number pooling implementation and administration. Our goal in this proceeding is similar to the Bureau’s goal in structuring the "but for" test to identify eligible costs of number portability—to prevent carriers from overrecovering both their number portability or thousands-block number pooling costs. We adopt, therefore, the two-part "but for" test described above as a method of identifying the costs that are directly related to thousands-block number pooling. Costs that both would not have been incurred by the carrier "but for" the implementation of thousands-block number pooling and were incurred "for the provision of" thousands-block number pooling are eligible for recovery and should be identified in the cost studies.
5. We note that in addition to meeting the requirements of the "but for" test, only new costs should be identified in the cost studies as carrier-specific costs directly related to thousands-block number pooling. We find that it is reasonable to bar recovery of costs incurred by incumbent LECs prior to number pooling implementation and conclude that permitting embedded investments to be eligible thousands-block number pooling costs would permit recovery of costs that are already subject to recovery through standard mechanisms. In the number portability proceeding, we classified the carrier-specific costs directly related to number portability into three basic categories: (1) dedicated number portability costs; (2) joint costs of number portability; and, (3) incremental overheads. These categories also apply to thousands-block number pooling costs and will assist carriers in identifying the costs that may be eligible for recovery.
6. Dedicated Costs. Dedicated thousands-block number pooling costs are the incremental costs of investments or expenses that are dedicated exclusively to the provision of thousands-block number pooling functions. These costs should be clearly identifiable since no allocation among services is necessary. Shared industry costs should be considered dedicated thousands-block number pooling costs and included in eligible thousands-block number pooling costs. LECs should identify only those costs that are demonstrably incremental costs incurred in the implementation and administration of thousands-block number pooling since existing cost recovery mechanisms already provide for the recovery of embedded costs.
7. Joint Costs. Joint costs of thousands-block number pooling are incremental costs associated with new investments or expenses that directly support thousands-block number pooling and also support one or more non-number pooling functions. Our earlier number portability decisions are useful guidance in identifying this category of costs. We concluded in the LNP Third Report and Order that an incumbent LEC may treat as directly related to number portability only the "portion of a carrier's joint costs that is demonstrably an incremental cost carriers incur in the provision of long-term number portability." In the Cost Classification Order, the Bureau interpreted this language as requiring the LECs to subtract the cost of an item without the number portability functionality from the total costs of the item with the telephone number portability functionality. We adopt, in the context of thousands-block number pooling, the Bureau’s definition of joint costs for number portability and its interpretation of the Third Report and Order’s requirement that an incumbent LEC may treat as directly related to number portability only the portion of a carrier’s joint costs that is demonstrably an incremental cost incurred in the provision of number portability implementation. These costs as they relate to thousands-block number pooling should be included in the cost study.
8. The definition of joint costs that we adopt in this proceeding means that carriers should recognize only a portion of the joint costs of software generics, hardware, and OSS, SS7, or AIN upgrades as carrier-specific costs directly related to thousands-block number pooling. Some of the costs associated with changes to these systems to enable number pooling have already been made by the incumbent LEC during the implementation of number portability, which the LECs are recovering through the number portability charges. Moreover, the additional modifications required to implement thousands-block number pooling may also provide a wide range of services and features that are unrelated to number pooling implementation and that are recoverable by the LECs in their rates for other services. Where an upgrade meets the two-part eligibility test and is not dedicated solely to thousands-block number pooling implementation, the LEC should make a special showing in its cost study to establish the eligible thousands-block number pooling costs associated with the upgrade.
9. Incremental Overheads. Many of the same principles discussed above regarding identifying direct and joint costs also apply to eligible overhead costs of thousands-block number pooling. We recognized in the number portability proceeding that LECs may incur overhead costs in conjunction with providing number portability and determined that carriers may recovery only those incremental overheads that they can demonstrate they incurred specifically in the provision of number portability. The same rationale applies to thousands-block number pooling costs. We recognize that there are overhead costs associated with the implementation of thousands-block number pooling as a new function in the LECs’ networks. However, only new overhead costs that were incurred specifically in the implementation of thousands-block number pooling should be identified in the cost information LECs provide in response to this request.
10. The carriers should not include embedded overheads or use general overhead factors as part of the cost study. We noted with regard to number portability cost recovery that "[c]arriers already allocate general overhead costs to their rates for other services, and allowing general overhead loading factors . . . might lead to double recovery." This language is instructive in this proceeding. LECs are not precluded, however, from applying incremental overhead allocation factors to identify the incremental portion of overhead costs directly related to thousands-block number pooling.
11. Carriers that apply an incremental overhead allocation factor must include a detailed explanation of the method used to calculate the factor as well as the method used to arrive at the estimated overhead amount. In support of the reasonableness of these incremental overhead cost allocations, LECs may be requested to supply to the Commission any special study performed by the LEC, a list of overhead allocation factors used by states in any UNE pricing decision, a list of all overhead allocations used in the LEC’s other new service filings during 1998, 1999, and 2000, or three calendar years immediately preceding the LEC’s filing, and a list of the incremental overhead factors filed by the LEC for number portability services, if necessary in the course of this proceeding.
12. Dedicated costs are associated with incremental investment exclusively related to thousands-block number pooling. Joint costs are associated with investments used to provide more than one service. As part of their cost study, LECs must provide a worksheet for dedicated and joint costs, as defined in this Report and Order, that includes the following information: (a) required thousands-block number pooling function and modification; (b) Part 32 account; (c) gross dollar investment; and (d) the percent assigned to non-number pooling services. LECs should state the methods used to assign that investment, e.g., direct assignment or engineering studies. The thousands-block number pooling functions should include (as reported for each type of service): (a) shared industry costs; (b) service management system (SMS) signalling link; (c) signalling control point (SCP); (d) SCP link; (e) signalling transfer point (STP); (f) STP link; (g) signalling switching point (SSP); (h) end-office switches; (i) tandem switches; (j) operating support system (OSS) modifications for support of the narrowly defined number pooling implementation functions described above; and (k) OSS modifications supporting other functions that the LEC claims are for the implementation and administration of thousands-block number pooling. LECs also should include information in the worksheet that shows the cumulative cost savings resulting from thousands-block number pooling implementation compared to the current practices that result in more frequent area code changes, as well as the cost savings associated with each specific category or function outlined on the worksheet. The worksheet should exclude any costs the LECs may have recovered through state thousands-block number pooling cost recovery mechanisms. Finally, LECs should include other functions or subcategories of information that would assist us in our review of the costs that are being claimed.

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