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Tollgrade Communications, Inc.     Correspondence

August 31, 2005

Larry Spiregal

Assistant Director

Securities and Exchange Commission

Washington D.C. 20549

    Re:

    Tollgrade Communications, Inc.

Form 10-K for Fiscal Year Ended December 31, 2004

Filed on March 3, 2005

Form 10-Q for Fiscal Quarter Ended March 26, 2005

File No. 0-27312

Dear Mr. Spiregal,

This letter sets forth the responses of Tollgrade Communications, Inc. (the “Company”) to the
comments made in your July 25, 2005 letter. Each of these comments are set forth below, organized
in the same manner and order and format as your letter, with the staff comments in italics and our
responses immediately following.

Revenue Recognition, page 25

    1.

    Please tell us and give specific examples of when revenue recognition for hardware
sales may require your judgment. Also, disclose these critical judgments that may impact
your revenue recognition.

Tollgrade Response:

In most situations recognition for hardware sales does not require judgment. Listed below are
examples, although infrequent, in which decisions related to revenue recognition or hardware sales
may require judgment:

    •

    Judgment is required in situations where contingencies are noted by the customer in our
written customer acceptances in initial sales applications.

    Our internal policy requires that we obtain written acceptance from the customer for each
specific customer situation where new products are sold. Although infrequent, from time to time
a customer will note a contingency in the acceptance letter pertaining to a particular sale. In
these situations the Company must use its judgment to determine the level of importance of such
contingency and whether the related revenue should be recognized. The Company’s general
practice is that, if based on the circumstances at hand and if it cannot be determined that the
matter is clearly

    inconsequential and perfunctory, then it is deemed to be consequential and revenue is deferred
until the contingency is resolved.

    •

    Judgment is also required when hardware is only one of the deliverables as part of a
multi-element sale.

    On occasion, certain transactions involve multiple elements including hardware, software and/or
services. This includes situations in which software or services are essential to the
functionality of the hardware elements. We follow the requirements of SAB 104 and EITF 00-21
in determining our course of action with regard to recording revenues related to any
deliverable of a multi-element system sale and in determining objective and reliable evidence
of fair value. Judgments must be made on whether undelivered elements which include hardware,
software or services on multiple element sales are essential to the functionality of the
system, as well as the extent of contractual obligation created on the customer’s part for
those elements that have been delivered. If all of the essential multi-elements are not
delivered we would not recognize revenue.

    We will enhance our disclosures to incorporate these concepts in our December 31, 2005 Form
10-K as follows:

Revenue Recognition

“We market and sell test system hardware and related software to the telecommunications and cable
television industries. The Company follows Staff Accounting Bulletin (SAB) 104, “Revenue
Recognition” for hardware and software sales. This bulletin requires, among other things, that
revenue should be recognized only when title has transferred and risk of loss has passed to a
customer with the capability to pay, and that there are no significant remaining obligations of the
Company related to the sale. The bulk of our hardware sales are made to RBOCs and other large
customers. Delivery terms of hardware sales are predominantly FOB origin. Where title and risk of
loss do not pass to the customer until the product reaches the customer’s delivery site, revenue is
deferred unless the Company can objectively determine delivery occurred before the end of the
applicable reporting period. Revenue is recognized for these customers upon shipment against a
valid purchase order. We reduce collection risk by requiring letters of credit or other payment
guarantees for significant sales to new customers and/or those in weak financial condition.

For perpetual software license fee and maintenance revenue, we follow the AICPA’s Statement of
Position (SOP) 97-2, “Software Revenue Recognition.” This statement requires that software license
fee revenue be recorded only when evidence of a sales arrangement exists, the software has been
delivered, and a customer with the capacity to pay has accepted the software, leaving no
significant obligations on the part of the Company to perform. We require a customer purchase order
or other written agreement to document the terms of a software order and written, unqualified
acceptance from the customer prior to revenue recognition. In certain limited cases, however,
agreements

provide for automatic customer acceptance after the passage of time from a pre-determined event and
we have relied on these provisions for an indication of the timing of revenue recognition. In
isolated cases for orders of custom software, or orders that require significant software
customization, such as that associated with our contract with Lucent for test gear deployment in
Saudi Arabia, we employ contract accounting using the percentage-of-completion method, whereby
revenue is recognized based on costs incurred to date compared to total estimated contract cost in
accordance with SOP 81-1, “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts.” The revenue for orders with multiple deliverables such as hardware,
software and/or installation or other services may be separated into stand-alone fair values if not
already documented in the purchase order or agreement and where list prices or other objective
evidence of fair value exists to support such allocation, in accordance with the provisions of
Emerging Issues Task Force (EITF) Issue 00-21, “Accounting for Revenue Arrangements with Multiple
Deliverables”. Revenue will not be recognized for any single element until all elements considered
essential to the functionality of the delivered elements under the contract are delivered and
accepted.

The recognition of revenue under EITF 00-21 requires certain judgment by management. If any
undelivered elements, which can include hardware, software or services, are essential to the
functionality of the system as defined in the contract, revenue will not be recorded until all of
the items considered essential are delivered as one unit of accounting. Our internal policy
requires that we obtain a written acceptance from our customers for each specific customer
situation where new products are sold. Revenue will not be recorded until written acceptance is
received from the customer. Although infrequent, in some situations contingencies will be noted by
the customer on the written acceptance. In these situations, management will use judgment to
determine the importance of such contingencies for recognizing revenue related to the sale. The
Company’s general practice is to defer revenue recognition unless these contingencies are
inconsequential.”

Intangible Assets and Goodwill, page 26

    2.

    Please revise your disclosure to specifically discuss the estimates made in testing
for impairment of your goodwill and other intangible assets. Also discuss how you test
for impairment.

Tollgrade Response:

    •

    Goodwill

We test for the impairment of goodwill at each December 31, unless we determine that a material
interim triggering event had occurred which would require immediate remeasurement. To date,
since the adoption of SFAS 142, there have been no such triggering events.

Management has determined that the Company has only one reporting unit. As a result, the
Company uses the fair market value of its NASDAQ traded shares to determine the value of the
Company’s net equity for purposes of evaluating the recoverability of goodwill. There have been
no estimates used in this process. The Company’s disclosure in the Intangible Asset and
Goodwill section (page 26) of the MD&A in our 10-K states that, “We have determined that we
have only one reporting unit and have completed testing for goodwill impairment by comparing
the aggregate market value of the Company’s stock with our book carrying value, including
goodwill.”

Management will enhance its disclosure within the MD&A section in the December 31, 2005 Form
10-K as follows:

“Goodwill is reviewed for impairment whenever events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. Statement of Financial Accounting
Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, requires goodwill and
intangible assets with indefinite useful lives to be reviewed at least annually. We have
determined that we only have one operating unit and test goodwill for impairment by comparing
the aggregate market value of the Company’s issued and outstanding common stock using the
average stock price over a 12 month period with our book carrying value. This calculation has
indicated that the average stock price and, thus, market value of the Company is below our book
carrying value. However, there have been a number of individual dates during 2005 in which the
stock price, and thus, market value of the Company, was above the book value. Additionally, the
stock price of the Company does not reflect any control premium that would be paid to acquire
control of the Company. Therefore, we believe this is a temporary decline and not a triggering
event under SFAS 142. If this continues into the future and we do not have supporting evidence
to indicate otherwise, we could have an impairment charge. If these conditions continue to
exist, we will obtain a third party independent valuation to support the goodwill value
currently reflected in the financial statements or to determine the impairment charge that
would be required to be recognized.”

    •

    Intangible Assets

Indefinite
Lived Intangible Assets

We test for the impairment of indefinite lived assets at each December 31, unless we determine
that a material interim triggering event had occurred which would require immediate
remeasurement. To date, since the adoption of SFAS 142, there have been no such triggering
events. Management’s impairment analysis includes estimates for future revenues based on
current forecasts for an ongoing period of approximately ten years. The impairment analysis
also includes a tax rate based on the current period effective rate. The cost of goods sold,
operating expense and discount rates in the impairment analysis are based on rates used in an
independent valuation performed during the appraisal of the indefinite lived assets and are
updated for changes in facts and circumstances that would impact the business and the
assumptions used. If the

carrying amount of the indefinite lived intangible asset exceeds its fair value an impairment
loss will be recognized in an amount equal to that excess.

Management will enhance its disclosure within the MD&A section in the December 31, 2005 Form
10-K as follows:

“The impairment calculation used by management for indefinite lived intangible assets uses
estimates based on discounted cash flows which include judgments related to future revenues,
tax rates, cost of goods sold, and operating expenses. These judgments are updated for changes
in facts and circumstances that would impact the business and the assumptions used.”

Definite
Lived Intangible Assets

Management assesses the impairment of its acquired definite lived intangible assets in
accordance with the provisions of Statement of Financial Accounting Standards No. 144 (“SFAS
144”), Accounting for the Impairment and Disposal of Long-Lived Assets. An impairment review is
performed whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. Factors the Company considers important which could trigger an impairment
review include, but are not limited to, significant under-performance relative to historical or
projected future operating results, significant changes in the manner of use of the acquired
assets or the strategy for the Company’s overall business, and significant industry or economic
trends. When the Company determines that the carrying value of the intangible assets may not be
recoverable based upon the existence of one or more of the above indicators, the Company
measures any impairment based on a discounted future cash flow method. Management will enhance
its disclosure within the MD&A section in the December 31, 2005 Form 10-K to include these
comments.

Results of Operations, page 28

    3.

    Please revise to discuss your cost of sales for the applicable periods.

Tollgrade Response:

We will include an explanation of the components and a discussion of cost of sales for the
applicable periods in the MD&A section of the September 24, 2005 Form 10-Q, the December 31, 2005
Form 10-K, as well as all future filings as follows:

“Cost of sales includes the charges associated with manufacturing activities. These costs consist
principally of product cost, salaries and wages, depreciation and amortization, rent expense, the
costs for shortages or obsolete inventory as well as warranty, and production overhead.”

Consolidated Statements of Operations, page 39

    4.

    If the caption “gross profit” excludes depreciation and amortization for property and
equipment directly attributed to the generation of revenue, we believe that this
presentation inappropriately reports a figure for income before depreciation and
amortization. As required by SAB 11:B, please revise your presentation to either
reclassify the applicable depreciation to “cost of sales” or remove the caption “gross
profit” and indicate the amount of applicable depreciation that is excluded from “cost of
sales.”

    Tollgrade Response:

Our gross profit includes depreciation and amortization for property and equipment directly
attributed to the generation of revenue. We believe our disclosure is appropriate.

Note 1. Goodwill and Purchased and Other Intangibles, page 43

    5.

    Please disclose how you perform the impairment test for goodwill and indefinite lived
assets. Also tell us how you considered the trend of declining revenues of your MCU
product line in your impairment analysis.

Tollgrade Response:

Please see our response in comment number 2 of this letter for a discussion of how management
performs the impairment test for goodwill and indefinite lived assets. We will expand our financial
statement disclosures in our December 31, 2005 Form 10-K to provide detail on how we perform the
impairment tests for goodwill and indefinite lived assets, as well as the estimates that are used,
based on concepts discussed in our response to comment number 2.

You also requested we inform you as to how the declining revenues of our MCU product line are
treated in our impairment analysis. Our MCU product line is but one product in our line-up of
telecom and cable test products that service the underlying testing market. Since we have
determined we have one reporting unit, MCU revenues are planned and forecasted along with each and
every other telecom and cable testing product in the Company’s portfolio. There is no goodwill or
indefinite lived assets that are recorded in the financial statements specifically associated to
the MCU product line. Hence the level of MCU product line activity is viewed as part of the
Company’s portfolio.

Note 1. Revenue Recognition, page 43

    6.

    Please tell us the circumstances that you recognize revenue other than FOB shipping
point.

Tollgrade Response:

The majority of the Company’s customers have contractual shipping terms that a