In today’s regulatory environment, federal and state rules may require the pricing of specific services at economic cost. Aside from any regulatory mandate, prudent business planning may well demand that you determine economic cost. "Economic cost" generally refers to forward-looking incremental costs, plus a portion of forward-looking joint and common costs. When developing these costs, companies must also keep up with federal and state mandates for pricing methodologies. Most methodologies — and the concepts associated with them — have constructed a complex and challenging cost determination maze for independent telecom providers, one in which every turn could bring a high potential for scrutiny by regulators, competitors, or both.

To assist clients in meeting these challenges, JSI can perform, review, or assist in the following studies:

• Long Run Incremental Cost (LRIC)
• Total Element Long Run Incremental Cost (TELRIC)
• Forward Looking Economic Cost (FLEC)

In general, the FCC’s stance has been toward a FLEC standard, comprising a combination of TELRIC and applicable forward-looking joint and common costs. Successor methodologies will likely come into existence based on modifications that reflect appellate court review or evolving federal and state policy. Among the uses of LRIC, TELRIC, TSLRIC, FLEC studies are the following:

• Performance of traditional inter-product subsidy tests;
• Creation and sale of company-specific software to calculate costs;
• Studies of individual products or an entire range of offerings;
• Development of prices for UNEs and local interconnection in a competitive environment;
• Establishment of reciprocal compensation agreements with CMRS providers;
• Development of collocation costs and prices;
• Calculation of intra-company facility leases;
• Design of negotiation strategies for interconnection; and 
• Maximization of joint and common cost recovery.

Other Cost Studies

In most cases, incremental cost refers to the additional costs (usually expressed as a cost per unit) that a company will incur as a result of expanding the output of a good or service by producing an additional quantity. Regulatory adherence and/or business imperatives may mandate that a particular service be priced at "incremental cost." JSI assistance in incremental cost studies includes the following:

• Establish price floors;
• Set transport and termination rates for interconnection of local traffic;
• Study costs of traditional service bundles, such as R-1 and B-1;
• Price subscriber list information (SLI) provided to directory publishers; and 
• Provide expert testimony as required.

Embedded/fully distributed cost (FDC) studies rely on embedded, or historic, accounting costs, such as operating expenses and depreciation. While JSI performs most of its FDC study work in the separations and access arena, we also perform embedded or FDC studies to meet targeted regulatory or business pricing needs, including the following:

• Develop direct, joint, and common costs for retail services, such as one-party residential vs. one-party business rates;
• Quantify costs for all regulated tariffed services;
• Estimate the cost of FCC network elements to prepare for competitive assessments;
• Supply software that will allow companies to update as needed; and 
• Provide expert testimony as required.

Avoidable cost studies focus on determining retail-related costs that a carrier may avoid in providing services at wholesale. JSI offers assistance in calculating wholesale discounts, according to FCC or state PUC definitions; justifying discounts; and preparing expert testimony.

For additional information on JSI’s economic and cost studies, please contact Douglas Meredith (dmeredith@jsitel.com) in JSI’s Salt Lake City office, at 801-294-4576.