§ 54.301   Local switching support.

   (a) Calculation of local switching support. (1) Beginning January 1, 1998
   and ending December 31, 2011, an incumbent local exchange carrier that has
   been designated an eligible telecommunications carrier and that serves a
   study area with 50,000 or fewer access lines shall receive support for local
   switching costs using the following formula: The carrier's projected annual
   unseparated local switching revenue requirement, calculated pursuant to
   paragraph (d) of this section, shall be multiplied by the local switching
   support  factor. Beginning January 1, 2012 and ending June 30, 2012, a
   rate-of-return carrier, as that term is defined in § 54.5 of this chapter,
   that is an incumbent local exchange carrier that has been designated an
   eligible telecommunications carrier and that serves a study area with 50,000
   or fewer access lines and is not affiliated with a price cap carrier, as
   that term is defined in § 61.3(aa) of this chapter, shall receive support for
   local switching costs frozen at the same support level received for calendar
   year 2011, subject to true-up. For purposes of this section, local switching
   costs shall be defined as Category 3 local switching costs under part 36 of
   this chapter. Beginning January 1, 2012, no carrier that is a price cap
   carrier,  as  that  term is defined in § 61.3(aa) of this chapter, or a
   rate-of-return carrier, as that term is defined in § 54.5 of this chapter,
   that is affiliated with a price cap carrier, shall receive local switching
   support. Beginning July 1, 2012, no carrier shall receive local switching
   support.

   (2) Local switching support factor. (i) The local switching support factor
   shall be defined as the difference between the 1996 weighted interstate DEM
   factor, calculated pursuant to § 36.125(f) of this chapter, and the 1996
   unweighted interstate DEM factor.

   (ii) If the number of a study area's access lines increases such that, under
   § 36.125(f) of this chapter, the weighted interstate DEM factor for 1997 or
   any successive year would be reduced, that lowered weighted interstate DEM
   factor shall be applied to the study area's 1996 unweighted interstate DEM
   factor to derive a new local switching support factor. If the number of a
   study  area's access lines decreases or has decreased such that, under
   § 36.125(f) of this chapter, the weighted interstate DEM factor for 2010 or
   any successive year would be raised, that higher weighted interstate DEM
   factor shall be applied to the study area's 1996 unweighted interstate DEM
   factor to derive a new local switching support factor.

   (3) Beginning January 1, 1998, the sum of the unweighted interstate DEM
   factor, as defined in § 36.125(a)(5) of this chapter, and the local switching
   support factor shall not exceed 0.85. If the sum of those two factors would
   exceed 0.85, the local switching support factor shall be reduced to a level
   that would reduce the sum of the factors to 0.85.

   (b) Submission of data to the Administrator. Until October 1, 2011, each
   incumbent  local exchange carrier that has been designated an eligible
   telecommunications carrier and that serves a study area with 50,000 or fewer
   access lines shall, for each study area, provide the Administrator with the
   projected total unseparated dollar amount assigned to each account listed
   below for the calendar year following each filing. This information must be
   provided to the Administrator no later than October 1 of each year. The
   Administrator shall use this information to calculate the projected annual
   unseparated local switching revenue requirement pursuant to paragraph (d) of
   this section.
   I
   Telecommunications Plant in Service (TPIS) Account 2001
   Telecommunications Plant—Other Accounts 2002, 2003, 2005
   General Support Assets Account 2110
   Central Office Assets Accounts 2210, 2220, 2230
   Central  Office-switching,  Category 3 (local switching) Account 2210,
   Category 3
   Information Origination/termination Assets Account 2310
   Cable and Wire Facilities Assets Account 2410
   Amortizable Tangible Assets Account 2680
   Intangibles Account 2690
   II
   Rural Telephone Bank (RTB) Stock Included in Account 1410
   Materials and Supplies Account 1220.1
   Cash Working Capital Defined in 47 CFR 65.820(d)
   III
   Accumulated Depreciation Account 3100
   Accumulated Amortization Included in Accounts 2005, 2680, 2690, 3410
   Net Deferred Operating Income Taxes Accounts 4100, 4340
   Network Support Expenses Account 6110
   General Support Expenses Account 6120
   Central Office Switching, Operator Systems, and Central Office Transmission
   Expenses Accounts 6210, 6220, 6230
   Information Origination/Termination Expenses Account 6310
   Cable and Wire Facilities Expenses Account 6410
   Other Property, Plant and Equipment Expenses Account 6510
   Network Operations Expenses Account 6530
   Access Expense Account 6540
   Depreciation and Amortization Expense Account 6560
   Marketing Expense Account 6610
   Services Expense Account 6620
   Corporate Operations Expense Account 6720
   Operating Taxes Accounts 7230, 7240
   Federal Investment Tax Credits Account 7210
   Provision for Deferred Operating Income Taxes-Net Account 7250
   Allowance for Funds Used During Construction Included in Account 7300
   Charitable Contributions Included in Account 7300
   Interest and Related Items Account 7500
   IV
   Other Non-Current Assets Included in Account 1410
   Deferred Maintenance and Retirements Included in Account 1438
   Deferred Charges Included in Account 1438
   Other Jurisdictional Assets and Liabilities Accounts 1500, 4370
   Customers' Deposits Account 4040
   Other Long-Term Liabilities Included in Account 4300

   (c) Allocation of accounts to switching. The Administrator shall allocate to
   local switching, the accounts reported pursuant to paragraph (b) of this
   section as prescribed in this paragraph.

   (1) General Support Assets (Account 2110); Amortizable Tangible Assets
   (Account 2680); Intangibles (Account 2690); and General Support Expenses
   (Account 6120) shall be allocated according to the following factor:

   Account 2210 Category ÷ 3 (Account 2210 + Account 2220 + Account 2230 +
   Account 2310 + Account 2410).

   (2)  Telecommunications Plant—Other (Accounts 2002, 2003, 2005); Rural
   Telephone  Bank  (RTB) Stock (included in Account 1410); Materials and
   Supplies (Account 1220.1); Cash Working Capital (Sec. 65.820(d) of this
   chapter); Accumulated Amortization (Included in Accounts 2005, 2680, 2690,
   3410); Net Deferred Operating Income Taxes (Accounts 4100, 4340); Network
   Support  Expenses  (Account 6110); Other Property, Plant and Equipment
   Expenses  (Account  6510); Network Operations Expenses (Account 6530);
   Marketing Expense (Account 6610); Services Expense (Account 6620); Operating
   Taxes (Accounts 7230, 7240); Federal Investment Tax Credits (Accounts 7210);
   Provision for Deferred Operating Income Taxes—Net (Account 7250); Interest
   and  Related  Items  (Account  7500);  Allowance for Funds Used During
   Construction (Included in Account 7300); Charitable Contributions (included
   in Account 7300); Other Non-current Assets (Included in Account 1410); Other
   Jurisdictional  Assets and Liabilities (Accounts 1500, 4370); Customer
   Deposits (Account 4040); Other Long-term Liabilities (Included in Account
   4300); and Deferred Maintenance and Retirements (Included in Account 1438)
   shall be allocated according to the following factor:

   Account 2210 Category 3 Account 2001.

   (3) Accumulated Depreciation for Central Office—switching (Account 3100
   associated with Account 2210) and Depreciation and Amortization Expense for
   Central Office—switching (Account 6560 associated with Account 2210) shall
   be allocated according to the following factor:

   Account 2210 Category 3 ÷ Account 2210.

   (4)  Accumulated Depreciation for General Support Assets (Account 3100
   associated with Account 2110) and Depreciation and Amortization Expense for
   General Support Assets (Account 6560 associated with Account 2110) shall be
   allocated according to the following factor:

   Account 2210 Category 3 ÷ Account 2001.

   (5)  Corporate  Operations  Expenses (Account 6720) shall be allocated
   according to the following factor:

   [[Account 2210 Category 3 (Account 2210 + Account 2220 + Account 2230)]] ×
   (Account 6210 + Account 6220 + Account 6230)] + [(Account 6530 + Account
   6610 + Account 6620) × (Account 2210 Category 3 Account 2001)] (Account 6210
   + Account 6220 + Account 6230 + Account 6310 + Account 6410 + Account 6530 +
   Account 6610 + Account 6620).

   (6)  Central  Office  Switching,  Operator Systems, and Central Office
   Transmission Expenses (Account 6210, Account 6220, Account 6230) shall be
   allocated according to the following factor:

   Account 2210 Category 3 ÷ (Accounts 2210 + 2220 + 2230).

   (d) Calculation of the projected annual unseparated local switching revenue
   requirement.  The  Administrator  shall calculate the projected annual
   unseparated local switching revenue requirement by summing the components
   listed in this paragraph.

   (1) Return on Investment attributable to COE Category 3 shall be obtained by
   multiplying the average projected unseparated local switching net investment
   by the authorized interstate rate of return. Projected unseparated local
   switching net investment shall be calculated as of each December 31 by
   deducting  the  accumulated  reserves, deferrals and customer deposits
   attributable to the COE Category 3 investment from the gross investment
   attributable to COE Category 3. The average projected unseparated local
   switching  net investment shall be calculated by summing the projected
   unseparated local switching net investment as of December 31 of the calendar
   year following the filing year and such investment as of December 31 of the
   filing year and dividing by 2.

   (2)  Depreciation  expense  attributable to COE Category 3 investment,
   allocated pursuant to paragraph (c) of this section.

   (3) All expenses, excluding depreciation expense, collected in paragraph (b)
   of this section, allocated pursuant to paragraph (c) of this section.

   (4) Federal income tax attributable to COE Category 3 shall be calculated
   using the following formula; the accounts listed shall be allocated pursuant
   to paragraph (c) of this section:

   [Return on Investment attributable to COE Category 3—Included in Account
   7300—Account 7500-Account 7210)] × [Federal Income Tax Rate (1—Federal
   Income Tax Rate)].

   (e) True-up adjustment—(1) Submission of true-up data. Until December 31,
   2012, each incumbent local exchange carrier that has been designated an
   eligible telecommunications carrier and that serves a study area with 50,000
   or fewer access lines shall, for each study area, provide the Administrator
   with the historical total unseparated dollar amount assigned to each account
   listed in paragraph (b) of this section for each calendar year no later than
   12 months after the end of such calendar year

   (2) Calculation of true-up adjustment. (i) The Administrator shall calculate
   the historical annual unseparated local switching revenue requirement for
   each carrier when historical data for each calendar year are submitted.

   (ii)  The Administrator shall calculate each carrier's local switching
   support payment, calculated pursuant to 54.301(a), using its historical
   annual unseparated local switching revenue requirement.

   (iii) For each carrier receiving local switching support, the Administrator
   shall  calculate the difference between the support payment calculated
   pursuant to paragraph (e)(2)(ii) of this section and its support payment
   calculated using its projected annual unseparated local switching revenue
   requirement.

   (iv) The Administrator shall adjust each carrier's local switching support
   payment  by the difference calculated in paragraph (e)(2)(iii) of this
   section no later than 15 months after the end of the calendar year for which
   historical data are submitted.

   [ 63 FR 2126 , Jan. 13, 1998;  63 FR 33585 , June 19, 1998, as amended at  67 FR 13226 , Mar. 21, 2002;  67 FR 5701 , Feb. 6, 2002;  75 FR 17874 , Apr. 8, 2010;
    76 FR 73870 , Nov. 29, 2011;  77 FR 14302 , Mar. 9, 2012]

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