Sec. 61.48  Transition rules for price cap formula calculations.

    (a) Dominant interexchange carriers subject to price cap regulation 
shall file initial price cap tariffs May 17, 1989, to be effective July 
1, 1989.
    (b)(1) In connection with the initial price cap tariff filing 
described in paragraph (a) of this section, each PCI, API, and SBI shall 
be assigned an initial value prior to adjustment of 100, corresponding 
to the costs and rates in effect as of December 31, 1988.
    (2) The PCI and API for offerings under Sec. 61.42(b)(3) shall be 
assigned a value equal to 100, corresponding to

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rates in effect as of August 1, 1991. Dominant interexchange carriers 
subject to price cap regulation shall file new business basket index 
levels with the first business basket tariff transmittal that is filed 
subsequent to the effective date of this rule.
    (c) Local exchange carriers subject to price cap regulation shall 
file initial price cap tariffs not later than November 1, 1990, to be 
effective January 1, 1991.
    (d)(1) In connection with the initial price cap filing described in 
paragraph (c) of this section, each PCI, API, and SBI shall be assigned 
an initial value prior to adjustment of 100, corresponding to the costs 
and rates in effect as of July 1, 1990.
    (2) Carriers electing price cap regulation under Sec. 61.41(a)(3) of 
this part in a year after 1991 shall file initial price cap tariffs not 
later than April 2 of the year of election, to be effective on July 1 of 
the year of election. Each PCI, API, and SBI shall be assigned an 
initial value prior to adjustment of 100, corresponding to the costs and 
rates in effect as of January 1 of the year of election.
    (e) In connection with the initial price cap filing described in 
paragraph (c) of this section, initial PCI calculations shall be made 
without adjustment for any changes in inflation or productivity. Annual 
price cap filings incorporating the full values of the GNP-PI and 
productivity offsets will commence April 2, 1991, with a scheduled 
effective date of July 1, 1991.
    (f) Local exchange carriers specified in Sec. 61.41(a) (2) or (3) 
shall, in their initial price cap filings described in paragraph (c) of 
this section, adjust their PCIs through use of an exogenous cost factor 
to account for the represcription of the rate of return, effective 
January 1, 1991.
    (g) Local Transport Restructure--Initial Rates. Local exchange 
carriers subject to price cap regulation shall set initial transport 
rates, as defined in Sec. 69.2(tt) of this chapter, according to the 
requirements set forth in Secs. 69.108, 69.110, 69.111, 69.112, 69.124, 
and 69.125 of this chapter.
    (h) Local Transport Restructure--Price Cap Transition Rules--(1) 
Definitions. The following definitions apply for purposes of paragraph 
(h) of this section:
    Effective date is March 4, 1994.
    Initial restructured rates are rates that are (or should have been) 
effective on the transport restructure date;
    Revenue weight of a given group of services included in a basket, 
service category, or subcategory is the ratio of base period demand for 
the given service rate elements included in the basket, service 
category, or subcategory priced at initial restructured rates, to the 
base period demand for the entire group of rate elements comprising the 
basket, service category, or subcategory priced at initial restructured 
rates; and
    Transport restructure date is the date on which local exchange 
carriers' initial transport rates, as defined in Sec. 69.2(tt) of this 
chapter, became effective.
    (2) Trunking Basket PCI and API. (i) On the effective date, the PCI 
value for the trunking basket, as defined in Sec. 61.42(d)(3), shall be 
computed by multiplying the API value for the special access basket on 
the day preceding the transport restructure date, by a weighted average 
of the following:
    (A) The ratio of the PCI value that applied to the special access 
basket on the day preceding the transport restructure date, to the API 
value that applied to the special access basket on the day preceding the 
transport restructure date, weighted by the revenue weight of the 
special access services included in the trunking basket; and
    (B) The ratio of the PCI value that applied to the traffic sensitive 
basket on the day preceding the transport restructure date, to the API 
value that applied to the traffic sensitive basket on the day preceding 
the transport restructure date, weighted by the revenue weight of the 
transport services included in the trunking basket.
    (ii) On the effective date, the API value for the trunking basket 
referred to in Sec. 61.42(e)(2) shall be equal to the API value for the 
special access basket on the day preceding the transport restructure 
date.
    (3) Service Category and Subcategory Pricing Bands for Flat-Rated 
Transport and Special Access. From the effective

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date through the end of the tariff year, the following shall govern 
instead of Secs. 61.47(e) and 61.47(g)(1). The pricing bands established 
for the voice grade and high capacity service categories referred to in 
Secs. 61.42(e)(2)(i) and 61.42(e)(2)(iii) and the DS1 and DS3 service 
subcategories referred to in Secs.  61.42(e)(2)(iii)(A) and 
61.42(e)(2)(iii)(B), shall limit the pricing flexibility of the service 
category or subcategory, as reflected in its SBI, as follows:
    (i) The upper pricing band shall be a weighted average of the 
following:
    (A) The upper pricing band that applied to the special access 
services included in the category or subcategory on the day preceding 
the transport restructure date, weighted by the revenue weight of the 
special access services included in the category or subcategory; and
    (B) 1.05 times the SBI value for the special access services 
included in the category or subcategory on the day preceding the 
transport restructure date, weighted by the revenue weight of the 
transport services included in the category or subcategory.
    (ii) The lower pricing band shall be a weighted average of the 
following:
    (A) The lower pricing band that applied to the special access 
services included in the category or subcategory on the day preceding 
the transport restructure date, weighted by the revenue weight of the 
special access services included in the category or subcategory; and
    (B) 0.90 times the SBI value for the special access services 
included in the category or subcategory on the day preceding the 
transport restructure date, weighted by the revenue weight of the 
transport services included in the category or subcategory.
    (iii) On the effective date, the SBI value for the category or 
subcategory shall be equal to the SBI value for the corresponding 
special access category or subcategory on the day preceding the 
effective date.
    (4) Tandem-Switched Transport and Interconnection Charge SBIs. On 
the effective date, the SBIs for the tandem-switched transport and 
interconnection charge service categories defined in Sec. 61.42(e)(2) 
(v) and (vi) shall be assigned an initial value prior to adjustment of 
100, corresponding to the initial restructured rates in those 
categories.
    (5) Tandem-Switched Transport and Interconnection Charge Service 
Category Pricing Bands. From the effective date through the end of the 
tariff year, the following shall govern instead of Sec. 61.47 (g)(2) and 
(g)(3):
    (i) The upper pricing band for the tandem-switched transport service 
category shall limit the upward pricing flexibility for this service 
category, as reflected in its SBI, to two percent, measured from the 
initial restructured rates for tandem-switched transport. The lower 
pricing band for the tandem-switched transport service category shall 
limit the downward pricing flexibility for this service category, as 
reflected in its SBI, to ten percent, measured from the initial 
restructured rates for tandem-switched transport.
    (ii) The upper pricing band for the interconnection charge service 
category shall limit the upward pricing flexibility for this service 
category, as reflected in its SBI, to zero percent, measured from the 
initial restructured rate for the interconnection charge.
    (i) Transport and Special Access Density Pricing Zone Transition 
Rules--(1) Definitions. The following definitions apply for purposes of 
paragraph (i) of this section:
    Earlier date is the earlier of the special access zone date and the 
transport zone date.
    Earlier service is special access if the special access zone date 
precedes the transport zone date, and is transport if the transport zone 
date precedes the special access zone date.
    Later date is the later of the special access zone date and the 
transport zone date.
    Later service is transport if the special access zone date precedes 
the transport zone date, and is special access if the transport zone 
date precedes the special access zone date.
    Revenue weight of a given group of services included in a zone 
category is the ratio of base period demand for the given service rate 
elements included in the category priced at existing rates, to the base 
period demand for the entire group of rate elements comprising the 
category priced at existing rates.

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    Special access zone date is the date on which a local exchange 
carrier tariff establishing divergent special access rates in different 
zones, as described in Sec. 69.123(c) of this chapter, becomes 
effective.
    Transport zone date is the date on which a local exchange carrier 
tariff establishing divergent switched transport rates in different 
zones, as described in Sec. 69.123(d) of this chapter, becomes 
effective.
    (2) Simultaneous Introduction of Special Access and Transport Zones. 
Local exchange carriers subject to price cap regulation that have 
established density pricing zones pursuant to Sec. 69.123 of this 
chapter, and whose special access zone date and transport zone date 
occur on the same date, shall initially establish density pricing zone 
SBIs and bands pursuant to the methodology in Sec. 61.47(h).
    (3) Sequential Introduction of Zones in the Same Tariff Year. 
Notwithstanding Sec. 61.47(h), local exchange carriers subject to price 
cap regulation that have established density pricing zones pursuant to 
Sec. 69.123 of this chapter, and whose special access zone date and 
transport zone date occur on different dates during the same tariff 
year, shall, on the earlier date, establish density pricing zone SBIs 
and pricing bands using the methodology described in Sec. 61.47(h), but 
applicable to the earlier service only. On the later date, such carriers 
shall recalculate the SBIs and pricing bands to limit the pricing 
flexibility of the services included in each density pricing zone 
category, as reflected in its SBI, as follows:
    (i) The upper pricing band shall be a weighted average of the 
following:
    (A) The upper pricing band that applied to the earlier services 
included in the zone category on the day preceding the later date, 
weighted by the revenue weight of the earlier services included in the 
zone category; and
    (B) 1.05 times the SBI value for the services included in the zone 
category on the day preceding the later date, weighted by the revenue 
weight of the later services included in the zone category.
    (ii) The lower pricing band shall be a weighted average of the 
following:
    (A) The lower pricing band that applied to the earlier services 
included in the zone category on the day preceding the later date, 
weighted by the revenue weight of the earlier services included in the 
zone category; and
    (B) 0.85 times the SBI value for the services included in the zone 
category on the day preceding the later date, weighted by the revenue 
weight of the later services included in the zone category.
    (iii) On the later date, the SBI value for the zone category shall 
be equal to the SBI value for the category on the day preceding the 
later date.
    (4) Introduction of Zones in Different Tariff Years. Notwithstanding 
Sec. 61.47(h), those local exchange carriers subject to price cap 
regulation that have established density pricing zones pursuant to 
Sec. 69.123 of this chapter, and whose special access zone date and 
transport zone date do not occur within the same tariff year, shall, on 
the earlier date, establish density pricing zone SBIs and pricing bands 
using the methodology described in Sec. 61.47(h), but applicable to the 
earlier service only.
    (i) On the later date, such carriers shall use the methodology set 
forth in paragraphs (a) through (d) of Sec. 61.47 to calculate separate 
SBIs in each zone for each of the following groups of services:
    (A) DS1 special access services;
    (B) DS3 special access services;
    (C) DS1 entrance facilities, DS1 direct-trunked transport, and DS1 
dedicated signalling transport;
    (D) DS3 entrance facilities, DS3 direct-trunked transport, and DS3 
dedicated signalling transport;
    (E) Voice grade entrance facilities, voice grade direct-trunked 
transport, and voice grade dedicated signalling transport;
    (F) Tandem-switched transport; and
    (G) Such other special access services as the Commission may 
designate by order.
    (ii) From the later date through the end of the following tariff 
year, the annual pricing flexibility for each of the subindexes 
specified in paragraph (i)(4)(i) of this section shall be limited to an 
annual increase of five percent or an annual decrease of fifteen 
percent, relative to the percentage change in

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the PCI for the trunking basket, measured from the levels in effect on 
the last day of the tariff year preceding the tariff year in which the 
later date occurs.
    (iii) On the first day of the second tariff year following the 
tariff year during which the later date occurs, the local exchange 
carriers to which this paragraph applies shall establish the separate 
subindexes provided in Sec. 61.47(h)(1), and shall set the initial SBIs 
for those density pricing zone categories that are combined (specified 
in paragraphs (i)(4)(i)(A) and (i)(4)(i)(C), (i)(4)(i)(B) and 
(i)(4)(i)(D), and (i)(4)(i)(E) and (i)(4)(i)(G) of this section) by 
computing the weighted averages of the SBIs that applied to the formerly 
separate zone categories, weighted by the revenue weights of the 
respective services included in the zone categories.
    (j) Video Dialtone Services. For local exchange carriers subject to 
price cap regulation, the video dialtone services basket, as designated 
in Sec. 61.42(d)(5), shall be established with an initial PCI and API 
level of 100 in the first annual price cap tariff filing following 
competition of the base period in which the initial video dialtone 
service was introduced. The initial value of 100 for the PCI and API for 
video dialtone service prior to adjustment of inflation and productivity 
shall correspond to the rates in effect just prior to the effective date 
of the annual filing in which rates for video dialtone service are 
initially included in the video dialtone basket.
    (k) Marketing expenses. In the January 1, 1998 price cap tariff 
filing, local exchange carriers shall establish the marketing expense 
basket designated in Sec. 61.42(d)(6) with an initial PCI and API level 
of 100. The initial value of 100 for the PCI and API for marketing 
expenses shall correspond to the marketing expenses described in 
Sec. 69.156(a) of this chapter.

[ 54 FR 19843 , May 8, 1989, as amended at  55 FR 42384 , Oct. 19, 1990;  56 FR 21617 , May 10, 1991;  56 FR 55239 , Oct. 25, 1991;  59 FR 10302 , Mar. 4, 
1994;  60 FR 19528 , Apr. 19, 1995;  60 FR 52346 , Oct. 6, 1995;  62 FR 31932 , June 11, 1997]

    Effective Date Note: At  62 FR 31932 , June 11, 1997, Sec. 61.48 was 
amended by adding paragraph (k), effective Jan. 1, 1998.