DE 96-420
                           FREEDOM RING, L.L.C.
              Petition Requesting that Incumbent LECs Provide
                  Customers with a Fresh Look Opportunity
                      Order Establishing Methodology 
                    for Calculating Termination Charges
                         O R D E R   N O.  22,877
                              March 23, 1998
               On December 8, 1997, the Commission issued Order
     No. 22,798 (Order) in this docket, granting customers of New
     England Telegraph and Telephone Company d/b/a Bell Atlantic
     (Bell Atlantic) a Fresh Look opportunity pursuant to certain
     conditions.  One of the conditions requires that a customer
     choosing to terminate its long-term contract with Bell
     Atlantic will be subject to termination charges "in an
     amount equal to the price the customer would have paid for
     service if the customer had taken a term offering for the
     length of time the contract has actually run, minus the
     amount the customer has actually paid."  Order at pages
     25-26.  The Order provided that the Commission Staff (Staff)
     and Bell Atlantic and Freedom Ring Communications, L.L.C.
     (Freedom Ring) would propose, by January 15, 1998, a
     methodology for calculating termination charges.
               Discussions among the parties and Staff resulted
     in agreement on the methodology for calculating termination
     charges for long-term special contracts and for termination
     of long-term contracts reached pursuant to tariff (long-term
     tariffed contracts).  However, the parties and Staff
     disagreed on a critical input to the calculation, i.e., the
     capital cost factor.  Therefore, on January 15, 1998, Staff
     filed a memorandum describing the agreed upon methodology
     for long-term special contracts, including the positions
     taken by each of the parties with regard to the capital cost
     factor, as well as Staff's recommendation on the capital
     cost factor.  In addition, Staff requested that the
     Commission grant a one week extension for parties to file
     comments on Staff's memorandum.  The Commission granted the
     extension and, on January 22, 1998, Bell Atlantic and
     Freedom Ring filed their comments.
          A.   Methodology
               The proposed methodology compares two separate
     streams of cash flows. One stream includes the cash flow
     generated according  to the original terms and conditions of
     a special contract between a commercial customer and Bell
     Atlantic up to the time of contract termination, including
     the capital cost factor in dispute. The second stream
     includes the cash flow generated pursuant to a revised set
     of contract terms and conditions, again, including the
     capital cost factor. The revisions adjust the customer's
     payment schedule and Bell Atlantic's expenses to reflect the
     actual time period of the contract.  The difference between
     the two cash flow streams is then adjusted upward to reflect
     the time value of money or the interest Bell Atlantic would
     have earned on the cash flows generated under a shorter
     contract period.  The result of these calculations is the
     proposed termination charge.
               For example, a customer making payments under a
     seven- year contract who elects to exercise its "Fresh Look"
     opportunity pursuant to Order No. 22,798 and terminates the
     existing contract at the end of three years would request
     Bell Atlantic to re-calculate the payment terms as if the
     contract were for a three- year period. The difference
     between the two payments is then adjusted to reflect
     interest foregone by Bell Atlantic.  
          B.   Capital Cost Factor
               The one disputed issue in the calculations is the
     magnitude of the capital cost factor to be applied.  A
     capital cost factor is made up of depreciation, income taxes
     and return on capital invested by Bell Atlantic in order to
     deliver telecommunication services under a special contract.
     The termination charge is highly sensitive to this input
               Bell Atlantic proposes a capital cost factor that
     incorporates one additional year beyond that actually
     identified in each contract.  Thus, in the hypothetical
     example cited above, Bell Atlantic would use a capital cost
     factor for four- and eight-year term contracts rather than
     those for the actual three- and seven-year term contracts. 
     Bell Atlantic argues that the extra year of capital cost is
     justified because it is the average length of time,
     according to Bell Atlantic, to re-use salvageable equipment. 
     Bell Atlantic avers that at the time long-term special
     contracts are negotiated, the Company routinely utilizes the
     proposed higher capital cost factors.  Therefore, Bell
     Atlantic argues that the higher factors should be utilized
     in this calculation.
               Freedom Ring, on the other hand, argues against
     using any time period beyond the actual terms of the
     contracts.  According to Freedom Ring, any capital cost
     factor in excess of the actual terms of the contracts would
     enable Bell Atlantic to double recover its costs.  Double
     recovery would occur, according to Freedom Ring, because the
     cost of capital already accounts for risks of early
     termination, including idle facilities.  Further, Freedom
     Ring argues that using more than the actual term of the
     contracts is unsupported by any evidence on the record.  As
     a result of the added costs of providing Bell Atlantic with
     enhanced cost recovery, competitive local exchange carriers
     (CLECs) will be unable to offer competitively priced
     services.  Using the hypothetical example in Staff's January
     15, 1998 memorandum, such a termination liability, according
     to Freedom Ring, represents a 40% penalty.  Bell Atlantic's
     reported margin on Centrex service is approximately 25%. 
     Therefore, the Bell Atlantic proposal will eliminate any
     margin for CLECs, effectively eliminating the incentive for
     CLECs to compete in New Hampshire.  Freedom Ring argues that
     an 11% termination charge is sufficient to allow Bell
     Atlantic to recover legitimate capital costs without
     discouraging CLECs from competing.  The 11% termination
     charge can be achieved by utilizing the actual terms of
     contracts.  In the hypothetical example, the termination
     charge as calculated by Freedom Ring, would be $18,373. 
     However, the cost of capital factor recommended by Bell
     Atlantic results in a termination charge of $174,159.
               Staff proposes a compromise position, utilizing a
     capital cost factor based on the actual contract term plus
     six months.  For the hypothetical example, Staff's
     calculation results in a termination charge of $43,931.  In
     support of its proposal, Staff argues that the compromise
     strikes a balance between the competing interests of
     compensating Bell Atlantic for its investments and that of
     fostering competition in New Hampshire's local
     telecommunications market.
               Consistent with the special contract methodology,
     Staff and the parties agreed that termination charges for
     long-term tariffed contracts should be equal to the future
     monetary value of the differences in customer payments
     between the original tariffed service and rates customers
     would have been charged over a shorter time period. 
     However, because Bell Atlantic does not offer a Centrex
     service for less than seven year periods in New Hampshire,
     it was necessary to devise a method for creating a proxy New
     Hampshire rate based upon "Centrex Plus", a Massachusetts
     Centrex service with variable payment terms.
               The parties and Staff agreed the proxy rate should
     be established by applying the difference between various
     "Centrex Plus" payment plans, expressed as a ratio, to the
     New Hampshire seven-year rate.  Applying the ratio to the
     New Hampshire seven year rate, creates a proxy rate which
     equates to the payment the customer would have paid over a
     shorter period. 
               Bell Atlantic filed a spread sheet matrix
     computing the termination liability for New Hampshire
     Centrex service, using the above methodology (Attachment I,
     p. 1).  When considering whether to take advantage of Fresh
     Look, in most instances a prospective customer can calculate
     exact termination charges by using Attachment I. 
     Attachment I, p. 1 shows that the proxy rate for Central
     Office Common Equipment, Vintage I, Schedule A charges is 4%
     higher for a five-year term than for the tariffed charges
     (for the seven-year term).  The increase allows Bell
     Atlantic to recover its capital costs over the shorter time
     period.  The interest foregone by Bell Atlantic is then
     computed by calculating the future value of the difference
     between the seven-year and five-year payments using an
     interest rate of .99384 percent.
               Applying the same calculation to other components
     of the Centrex service, the termination charge for a 15-line
     Centrex service would be $524.79 for a customer electing to
     terminate a seven-year tariffed contract at the end of five
     years.  The termination charge assumes a 15-line Centrex
     service within .5 miles from the wire center and includes an
     access line component (conduit and network access) and a
     feature component.  See Attachment I, p. 2. 
               Our decision to grant a limited Fresh Look
     opportunity is "intended to provide an opportunity for
     competition to flourish, not to punish Bell Atlantic for
     past actions which may have anti-competitive consequences in
     the present...(it is therefore) crafted to ensure that when
     and if a customer decides to accept the opportunity, Bell
     Atlantic is not deprived of the reasonably anticipated
     benefit of its bargain".  Order at page 18.  The calculation
     of termination charges must balance those two goals.  We
     ordered the Parties and Staff to propose a methodology which
     would accomplish the balance, directing that customers be
     "subject to termination charges equal to the price the
     customer would have paid for service if the customer had
     taken a term offering for the length of time the contract
     has actually run, minus the amount the customer has actually
     paid."  Id. at p. 26.
               We find that the methodology proposed by the
     parties and Staff for both long-term special contracts and
     long-term tariffed contracts, as described above, complies
     with our Order No. 22,798.  We further find that the capital
     cost input factor proposed by Staff best meets our goal of
     balancing the interests of competition and Bell Atlantic's
     right to retain the reasonably anticipated benefit of its
     contractual bargain.  The amount of time necessary for Bell
     Atlantic to find a new customer capable of using the
     salvageable equipment formerly used by the Fresh Look
     customer cannot be determined in advance.  Therefore, six
     months is a reasonable compromise of Bell Atlantic's claim
     for one year or Freedom Ring's claim for no additional time
     beyond the actual term.  
          Attachment I calculates the termination charge for
     customers who terminate a contract after 12, 24, 36, 48, 60
     or 72 months.  The future value calculation should be
     computed using the actual number of months the customer has
     had service.  We will direct Bell Atlantic to file a matrix
     which includes factors for each month from on to 60. 
     Customers who have had service for more than 60 months are
     not eligible for fresh look because they do not have two
     years remaining on the contract. 
               Based upon the foregoing, it is hereby 
               ORDERED, that the methodologies proposed for
     calculating the termination charges for long-term special
     contracts and long-term tariffed contracts are APPROVED;     
      and it is
               FURTHER ORDERED, that the cost of capital factor
     for calculating termination charges for long-term special
     contracts shall be based on the actual term plus six months;
     and it is
               FURTHER ORDERED, that Bell Atlantic file a matrix
     which calculates termination charges for each month, from
     one to 60, for each tariffed Centrex service.
               By order of the Public Utilities Commission of New
     Hampshire this twenty-third day of March, 1998.
        Douglas L. Patch    Bruce B. Ellsworth          Susan S.
            Chairman           Commissioner                  Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary
NOTE: Attachment 1 is available by calling the Commission
(603-271-2431).  You can receive a copy by fax or mail.