Replacement Cost Data

In this section we describe the development of a network cost function from network investment data given to us by two firms. Firm provided data on one of its urban service regions containing 78,371 households. The urban region contains 10 service areas that each support a central office node which may be an end office switch or a remote switching unit.

Firm provided data on one of its rural service regions containing 6490 households. The rural region contains 4 service areas that also support a central office node in each area.

Although this study uses cost information from two providers, we are not trying to compare interactions between these two providers. The purpose of using the data from both firms is to develop a market cost function from a larger sample of service areas.

For both firms, the central office node can be either a central office switch or a remote access node. The remote nodes can provide single line and single party access to the first point of switching in the local exchange network. This definition of a service area is similar to the the definition that was used by Bellcore for defining Carrier Service Areas (CSA). In the Bellcore definition, the CSA can be served by Digital Loop Carriers which use T1 remote terminals to connect subscriber loops to central office equipment.[12] In our study we also include the Remote to Host cost, but the technology can be other than DLC systems.

Firm and Firm have given actual facility investment data and have provided the investment cost data in the form of 1993 U.S. dollar replacement costs. In other words, the cost data are the cost of purchasing new materials at the 1993 U.S. dollar value. Other studies which examine incremental access and usage costs have distributed investment costs over the average life of the investment.[5][3] They present the data in a cost per line per month format. Because we do not have usage costs, we do not levelize the replacement costs of the investments over any period. When the estimated cost function is used in the interactive model, which is described in later sections, the network costs are levelized over a period of 5 years. Here we present the data in the format of total network replacement costs in each service area.[7]

The network elements for basic telephony access which were included in this analysis is as follows.

• Distribution Link Cost: This is material cost of the cable from the host or remote node to the pedestal and the labor cost of installing the cable. A host is an end office switch. A remote node is a remote line concentrator or a remote switching concentrator.
• Host-to-Remote Costs includes cable, termination, and trunk facilities that connect hosts with simpler remote node.
• Switch and Software Costs includes the hardware cost of the host or remote node located at a Central Office (CO) site and distributes the software costs according to the number of lines served by this site. The remaining software costs are shared by the remote nodes that are connected to the host. The software costs are distributed from the main switches to the remote nodes because the remote nodes share some of the functionality of the main hosts.
• Drop Line Costs is a total cost for drop lines from the pedestal to the households. It is based on the number of pairs of lines multiplied by a cost per pair.

The details regarding how the cost data was collected is reported in another paper by Molka-Danielsen and Weiss.[7] However, we have one clarification. The Remote to Host Cost includes only the trunk costs between the a Remote Switch Concentrator (RSC) or a Remote Line Concentrator (RLC) and an end office switch. For all of the service areas that use RSC or RLC, these costs are placed under Switching Costs. The Remote to Host trunk costs for the last four service areas (K-N) could not be separated from the Distribution Link Costs, so they are included under that column.

The Total Network Replacement Cost was computed by summing the Distributed Link Cost, Remote to Host Cost, Distributed Switching and Software Cost and Drop Line Cost for each service area. These figures are presented in Table 1a and Table 1b.