Before the

Federal Communications Commission

Washington, D.C. 20554

+----------------------------------+----+------------------------------+
| In the Matter of                 | )  | CC Docket No. 80-286         |
|                                  |    |                              |
| Jurisdictional Separations       | )  |                              |
| Reform and                       |    |                              |
|                                  | )  |                              |
| Referral to the Federal-State    |    |                              |
| Joint Board                      | )  |                              |
+----------------------------------+----+------------------------------+

**REPORT AND ORDER**

Adopted: January 13, 2004 Released: January 16, 2004

By the Commission:

# introduction

1.  In this Report and Order, we adopt modifications to the Commission's
    Part 36 Jurisdictional Separations Rules to conform those rules to
    revisions to the Part 32 Uniform System of Accounts adopted in the
    Commission's 2000 Biennial Regulatory Review.[^1] The Part 36
    modifications we adopt today will not have any effect on the
    assignment of costs and revenues to the state and interstate, but
    rather are merely ministerial in nature.

# BACKGROUND

2.  Jurisdictional separations is the process by which incumbent local
    exchange carriers (ILECs) apportion regulated costs between the
    intrastate and interstate jurisdictions.[^2] Jurisdictional
    separations is the third step in a four-step regulatory process that
    begins with an ILEC's accounting system and ends with the
    establishment of rates for the ILEC\'s interstate and intrastate
    regulated services. First, carriers record their costs, including
    investments and expenses, into various accounts in accordance with
    the Uniform System of Accounts (USOA) prescribed by Part 32 of the
    Commission's rules.[^3] Second, carriers assign the costs in these
    accounts to regulated and nonregulated activities in accordance with
    Part 64 of the Commission's rules to ensure that the costs of
    non-regulated activities will not be recovered in regulated
    interstate service rates.[^4] Third, carriers separate the regulated
    costs between the intrastate and interstate jurisdictions in
    accordance with the Commission's Part 36 separations rules, which
    currently are subject to an interim freeze.[^5] Finally, carriers
    apportion the interstate regulated costs among the interexchange
    services and rate elements that form the cost basis for their
    interstate access tariffs.[^6] Carriers perform this apportionment
    in accordance with Part 69 of the Commission's rules.[^7] The
    intrastate costs that result from application of the Part 36 rules
    form the foundation for state determination of carriers' intrastate
    rate base, expenses, and taxes.

3.  There are two classes of incumbent LECs for accounting purposes:
    Class A and Class B.[^8] Carriers with annual revenues from
    regulated telecommunications operations that are equal to or above
    an indexed revenue threshold are classified as Class A; those
    falling below that threshold are considered Class B.[^9] Class A
    carriers, prior to the changes adopted in the *Phase 2 Order*, were
    required to maintain 296 Class A accounts, which provide more
    detailed records of investment, expense, and revenue than the 113
    Class B accounts that Class B carriers are required to maintain. The
    primary difference in the number of accounts is that many of the
    Class A detailed accounts are aggregated into summary accounts under
    Class B.[^10] Also, for some accounts, carriers are required to
    maintain additional subaccounts. The more generalized level of
    accounting required under Class B was established to accommodate
    smaller carriers, which number over 1,300.[^11]

4.  In the *Phase 2 Order*, the Commission eliminated certain Part 32
    accounts and established several new subaccounts. With regard to
    Class A carriers, the *Phase 2 Order* eliminated all Class A summary
    accounts from Part 32 of the Commission's rules.[^12] The *Phase 2
    Order* also eliminated several accounts from both Class A and Class
    B accounting.[^13] In addition, the Commission established several
    new subaccounts. For example, in the account for digital electronic
    switching (Account 2212) the Commission established new subaccounts
    for circuit switching and packet switching (Accounts 2212.1 and
    2212.2, respectively).[^14]

5.  In the *Further Notice* accompanying the *Phase 2 Order*, the
    Commission tentatively concluded that revisions to Part 36 would be
    necessary to reflect the modifications to Part 32. With regard to
    the elimination of summary accounts, the Commission recognized that
    changes would be necessary to ensure that the Part 36 rules
    reference the appropriate detailed accounts that previously were
    separated based on summary accounts.[^15] While the Commission
    stated that the newly-created subaccounts would continue to be
    separated in accordance with existing Part 36 rules, the Commission
    sought comment on whether the creation of these subaccounts
    warranted any Part 36 modifications. The Commission further stated
    that, although it believed the Part 32 revisions would have only a
    "ministerial impact" on Part 36, it welcomed input from the
    Federal-State Joint Board on Jurisdictional Separations (Joint
    Board). The Commission specifically indicated that, if commenters
    identified impacts that would require changes to Part 36 beyond
    merely ministerial revisions, it would refer the proposed changes to
    the Joint Board for its consideration.[^16]

# discussion

6.  We conclude that it is necessary to adopt modifications to the
    Commission's Part 36 rules consistent with the changes made to the
    Part 32 rules in the *Phase 2 Order*. With regard to the elimination
    of certain Part 32 accounts, we find that modifying the Part 36
    rules to reflect the elimination of such accounts ensures that the
    Part 32 references contained in Part 36 are accurate. Because the
    costs recorded in the newly created subaccounts continue to be
    jurisdictionally separated in the Part 36 rules at the higher
    account level, we find that modifications to the Part 36 rules are
    not necessary in connection with these new subaccounts.[^17] We
    therefore modify the Commission's Part 36 rules as set forth in
    Appendix C to reflect the revised Part 32 accounting rules as
    adopted in the *Phase 2 Order*.[^18]

7.  We disagree with those commenters who claim that the modifications
    to Part 36 we adopt in this order should have been referred to the
    Joint Board.[^19] As an initial matter, we note that, although the
    Commission specifically invited comment from the Joint Board in
    order to identify any substantive impact on Part 36, the Joint Board
    did not file comments. Moreover, contrary to the claims by NARUC and
    the state of Oregon, the Part 32 changes do not require either
    reinitialization of the frozen category percentages or the
    identification of new jurisdictional allocators for the newly
    created subaccounts.[^20] The changes we adopt here are purely
    ministerial in nature and will not have any effect on jurisdictional
    cost allocations. For example, section 36.352 of the Commission's
    rules provides that Class A summary Account 6510 (Other Property
    Plant and Equipment Expenses) shall be separated based on the
    separation of Account 2001 (Telecommunications Plant in
    Service).[^21] Because the *Phase 2 Order* eliminated Class A
    summary Account 6510, section 36.352 is revised to direct Class A
    carriers to perform jurisdictional separations for detailed Accounts
    6511 and 6512, rather than the summary Account 6510. Account 6510
    was a summary of Accounts 6511 and 6512. Accounts 6511 and 6512,
    however, will continue to be separated based on Account 2001
    (Telecommunications Plant in Service) as was Account 6510.[^22] The
    basis for conducting separations and the allocation between the
    jurisdictions remains the same. Similarly, as noted above with
    regard to subaccounts, no Part 36 changes are needed because the
    existing Part 36 rules separate costs at the account level, not the
    subaccount level. We therefore conclude that referral to the
    Federal-State Joint Board on Separations was not necessary in this
    instance.

8.  Finally, we take this opportunity to correct certain typographical
    errors in Part 36 of our rules. We change the reference at the end
    of section 36.126(e)(2) from section 36.156 to section 36.155 and
    remove two references to "@@Q02" from 36.321(a).[^23] We also modify
    sections 36.631(a), (c) and (d) to correct typographical errors in
    the dates that these provisions became applicable.[^24]

# procedural issues

## Paperwork Reduction Act Analysis

9.  The decision herein has been analyzed with respect to the Paperwork
    Reduction Act of 1995, Pub. L. 104-13. This order merely modifies
    account references in Part 36 to conform to the Part 32 revisions
    adopted in the *Phase 2 Order* to ensure that all account references
    in Part 36 are consistent with the Uniform System of Accounts. We
    find, therefore, that the modifications to Part 36 adopted in this
    order do not impose new or modified recordkeeping requirements or
    burdens on the public.

## Final Regulatory Flexibility Certification

10. The Regulatory Flexibility Act of 1980, as amended (RFA),[^25]
    requires that a regulatory flexibility analysis be prepared for
    notice-and-comment rule making proceedings, unless the agency
    certifies that "the rule will not, if promulgated, have a
    significant economic impact on a substantial number of small
    entities."[^26] The RFA generally defines the term "small entity" as
    having the same meaning as the terms "small business," "small
    organization," and "small governmental jurisdiction."[^27] In
    addition, the term "small business" has the same meaning as the term
    "small business concern" under the Small Business Act.[^28] A "small
    business concern" is one which: (1) is independently owned and
    operated; (2) is not dominant in its field of operation; and (3)
    satisfies any additional criteria established by the Small Business
    Administration (SBA).[^29]

11. In this Order, we adopt modifications to Part 36 Jurisdictional
    Separations Rules to conform those rules to the revisions to the
    Part 32 Uniform System of Accounts adopted in our 2000 Biennial
    Regulatory Review.[^30] As indicated in our Initial Regulatory
    Analysis, our modifications to Part 36 are due to the consolidation
    of several accounts that are also used in Part 36.[^31] The
    alternative to not making these modifications would be that Part 36
    would reference Part 32 accounts that are eliminated effective
    January 1, 2003. The modifications of Part 36 to conform to the
    revised Part 32 are necessary to eliminate the potential for
    confusion that may occur as a result of inconsistent account
    references. The conforming amendments to the Part 36 jurisdictional
    rules are a result of the consolidation of Part 32 accounts.

12. The modifications we adopt are ministerial in nature and merely
    conform Part 36 account references to the Part 32 Uniform System of
    Accounts. These ministerial modifications do not have a significant
    economic effect on any entities and only clarify existing Commission
    rules. Therefore, we certify that the requirements of this Report
    and Order will not have a significant economic impact on a
    substantial number of small entities.

13. The Commission will send a copy of this Report and Order, including
    a copy of this Final Regulatory Flexibility Certification, in a
    report to Congress pursuant to the Congressional Review Act.[^32] In
    addition, the Report and Order and this final certification will be
    sent to the Chief Counsel for Advocacy of the SBA and will be
    published in the Federal Register.[^33]

# ordering clauses

14. Accordingly, IT IS ORDERED that, pursuant to sections 1, 4, 201-205,
    215, and 218-220 of the Communications Act of 1934, as amended, 47
    U.S.C. sections 151, 154, 201-205, 215 and 218-220, Part 36 of
    Communication's rules, 47 C.F.R. Part 36, IS AMENDED as described
    above and in Appendix C below.

15. IT IS FURTHER ORDERED that, pursuant to 5 U.S.C § 553(d) and section
    1.427(a) of the Commission's rules, 47 C.F.R § 1.427(a), Part 36 of
    the Commission's rules, 47 C.F.R. Part 36, IS AMENDED as set forth
    Appendix C hereto, effective 30 days after publication in the
    Federal Register. We will, however, permit carriers to implement
    Part 36 changes as of January 1, 2003.

16. IT IS FURTHER ORDERED that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this Report and Order, including the Final Regulatory
    Flexibility Certification, to the Chief Counsel for Advocacy of the
    Small Business Administration.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch Secretary

**Appendix A -- List of subaccounts added to Part 32 pursuant to the
Phase 2 Order**

+-----------------------------------+-----------------------------------+
| **Existing Part 32 Account**      | **New Subaccounts**               |
+-----------------------------------+-----------------------------------+
| Account 2212 -- Digital           | Account 2212.1 -- Circuit         |
| electronic switching              |                                   |
|                                   | Account 2212.2 -- Packet          |
+-----------------------------------+-----------------------------------+
| Account 2232 -- Circuit equipment | Account 2232.1 -- Electronic      |
|                                   |                                   |
|                                   | Account 2232.2 -- Optical         |
+-----------------------------------+-----------------------------------+
| Account 6212 -- Digital           | Account 6212.1 -- Circuit         |
| electronic switching expense      |                                   |
|                                   | Account 6212.2 -- Packet          |
+-----------------------------------+-----------------------------------+
| Account 6232 -- Circuit equipment | Account 6232.1 -- Electronic      |
| expense                           |                                   |
|                                   | Account 6232.2 -- Optical         |
+-----------------------------------+-----------------------------------+
| Account 6620 -- Services          | Account 6620.1 -- Wholesale       |
|                                   |                                   |
|                                   | Account 6620.2 -- Retail          |
+-----------------------------------+-----------------------------------+

**Appendix B -- List of Eliminated Part 32 Accounts and Revised Part 36
Account Reference**

  ----------------------------------- -----------------------------------
  **Eliminated Part 32 Class A        **Revised Part 36 Account Reference
  Accounts**                          for Class A telephone companies**

  Electro-mechanical Switching-2215   Non-digital Switching-2211
                                      (Sections 36.121 and 36.125)

  Accumulated                         Accumulated Amortization-Capital
  Amortization-Tangible-3400          Leases-3410: (Sections 36.501 and
                                      505)

  Basic Local Service Revenue-5000    Basic Area Revenue-5001 (Sections
                                      36.201, 36.211, and 36.212)

  Network Support- 6110               Network Support --6112, 6113, and
                                      6114 (Sections 36.301, 36.310, and
                                      36.311)

  General Support Expenses-6120       General Support Expenses-6121,
                                      6122, 6123, and 6124 (Sections
                                      36.301, 36.310, and 36.311)

  Central Office Switching            Central Office Switching
  Expenses-6210                       Expenses-6211 and 6212 (Sections
                                      36.112, 36.301, 36.310, 36.321, and
                                      36.392 (Sections 36.112, 36.301,
                                      36.310, 36.321, and 36.392)

  Central Office Transmission         Central Office Transmission
  Expenses-6230                       Expenses-6231 and 6232 (Sections
                                      36.112, 36.301, 36.310, 36.321, and
                                      36.392)

  Information Origination/Termination Information Origination/Termination
  Expenses-6310                       Expenses-6311, 6341, 6351, and 6362
                                      (Section 36.112, 36.301, 36.310,
                                      36.331, and 36.392)

  Cable and Wire Facilities           Cable and Wire Facilities
  Expenses-6410                       Expenses-6411, 6421, 6422, 6423,
                                      6424, 6426, 6431, and 6441
                                      (Sections 36.112, 36.301, 36.310,
                                      36.341, and 36.392)

  Other Property Plant and            Other Property Plant and
  Equipment-6510                      Equipment-6511 and 6512 (Sections
                                      36.301, 36.351, and 36.352)

  Network Operations Expenses-6530    Network Operations Expenses-6531,
                                      6532, 6533, 6534, and 6535
                                      (Sections 36.112, 36.301, 36.351,
                                      36.353, and 36.392)

  Marketing Expenses-6610             Marketing Expenses-6611 and 6613
                                      (Sections 36.112, 36.301, 36.371,
                                      36.372, and 36.392)

  Executive and Planning-6710         General and Administrative-6720
                                      (Sections 36.301, 36.391 and
                                      36.392)

  Operating Taxes-7200                Operating Taxes-7210, 7220, 7230,
                                      7240, and 7250 (Sections 36.301 and
                                      36.411)
  ----------------------------------- -----------------------------------

  ----------------------------------- -----------------------------------
  **Eliminated from both Class A and  **Revised Part 36 Account
  B Accounting**                      Reference**

  Investment in nonaffiliated         Other noncurrent assets-1410
  companies-1402                      (Section 36.172)

  Accumulated                         Accumulated Amortization-Capital
  Amortization-Intangible-3500 and    Leases-3410 (Section 36.505)
  Other-3600                          

  Network Services Access             Network Access Revenues-5081, 5082,
  Revenues-5080 and 5084              and 5083 (Sections 36.201, 36.211,
                                      and 36.213)
  ----------------------------------- -----------------------------------

**Appendix C - FINAL RULES**

For the reasons discussed in the preamble, the Federal Communications
Commission amends 47 CFR part 36 as follows:

**PART 36 -- JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, EXPENSES,
TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES**

1\. The authority citation for continues to read as follows:

Authority: 47 U.S.C. 154(i), and 154(j) and 220 as amended, unless
otherwise noted.

2\. Amend § 36.112 by revising paragraph (a) to read as follows:

**[§ 36.112]{.underline} [Apportionment procedures.]{.underline}**

\(a\) The costs of the general support facilities of Class A Companies
(which are defined in part 32 of the Commission\'s Rules) are
apportioned among the operations on the basis of the separation of the
costs of the combined Big Three Expenses which include the following
accounts:

Plant Specific Expenses

Central Office Switching Expenses\-- Accounts 6211 and 6212

Operators Systems Expenses\--Account 6220

Central Office Transmission Expenses\-- Accounts 6231 and 6232

Information Origination/Termination Expenses\-- Accounts 6311, 6341,
6351, and 6362

Cable and Wire Facilities Expenses\-- Accounts 6411, 6421, 6422, 6423,
6424, 6426, 6431, and 6441

Plant Non‑Specific Expenses

Network Operations Expenses---Accounts 6531, 6532, 6533, 6534, and 6535

Customer Operations Expenses

Marketing\-- Account 6611 and 6613

Services\--Account 6620

3\. Amend § 36.121 by revising paragraph (a) to read as follows:

**[§ 36.121]{.underline} [General.]{.underline}**

(a) The costs of central office equipment are carried in the following
    accounts:

Central Office Switching \...\...\...\...\...\...\.... Account  2210

Non-digital Switching\...\...\...\...\...\...\...\.... Account  2211

Digital Electronic Switching\...\...\...\...\.... Account  2212

Operator Systems \...\...\...\...\...\...\...\...\...\...\.... Account  2220

Central Office‑‑Transmission\...\...\...\...\.... Account  2230

Radio Systems \...\...\...\...\...\...\...\...\...\...\...\.... Account  2231

Circuit Equipment \...\...\...\...\...\...\...\...\...\.... Account  2232

4\. Amend § 36.124 by revising paragraphs (a) and (c) to read as
follows:

**[§ 36.124]{.underline} [Tandem switching equipment---Category
2.]{.underline}**

\(a\) Tandem switching equipment is contained in Accounts 2210, 2211,
and 2212. It includes all switching equipment in a tandem central
office, including any associated tandem switchboard positions and any
intertoll switching equipment. Intertoll switching equipment includes
switching equipment used for the interconnection of message toll
telephone circuits with each other or with local or tandem telephone
central office trunks, intertoll dial selector equipment, or intertoll
trunk equipment in No. 5 type electronic offices. Equipment, including
switchboards used for recording of calling telephone numbers and other
billing information in connection with customer dialed charge traffic is
included with Local Switching Equipment‑‑Category 3.

\* \* \* \* \*

\(c\) Effective July 1, 2001, through June 30, 2006, study areas subject
to price cap regulation, pursuant to §61.41 of this chapter, shall
assign the average balances of Accounts 2210, 2211, and 2212 to Category
2, Tandem Switching Equipment based on the relative percentage
assignment of the average balances of Account 2210, 2211, 2212, and 2215
to Category 2, Tandem Switching Equipment during the twelve month period
ending December 31, 2000.

5\. Amend § 36.125 by revising paragraphs (a) and (h) to read as
follows:

**[§ 36.125]{.underline} [Local switching equipment---Category
3.]{.underline}**

\(a\) Local switching equipment is included in accounts 2210, 2211, and
2212. It comprises all central office switching equipment not assigned
other categories. Examples of local switching equipment are basic
switching train, toll connecting trunk equipment, interlocal trunks,
tandem trunks, terminating senders used for toll completion, toll
completing train, call reverting equipment, weather and time of day
service equipment, and switching equipment at electronic analog or
digital remote line locations. Equipment used for the identification,
recording and timing of customer dialed charge traffic, or switched
private line traffic (e.g. transmitters, recorders, call identity
indexers, perforators, ticketers, detectors, mastertimes) switchboards
used solely for recording of calling telephone numbers in connection
with customer dialed charge traffic, or switched private line traffic
(or both) is included in this local switching category. Equipment
provided and used primarily for operator dialed toll or customer dialed
charge traffic except such equipment included in Category 2 Tandem
Switching Equipment is also included in this local switching category.
This includes such items as directors translators, sender registers, out
trunk selectors and facilities for toll intercepting and digit
absorption. Special services switching equipment which primarily
performs the switching function for special services (e.g. switching
equipment, TWX concentrators and switchboards) is also included in this
local switching category.

\* \* \* \* \*

\(h\) Effective July 1, 2001, through June 30, 2006, study areas subject
to price cap regulation, pursuant to § 61.41 of this chapter, shall
assign the average balances of Accounts 2210, 2211, and 2212 to Category
3, Local Switching Equipment, based on the relative percentage
assignment of the average balances of Account 2210, 2211, 2212, and 2215
to Category 3, during the twelve month period ending December 31, 2000.

6\. Amend § 36.126 by revising paragraph (e)(2) to read as follows:

**[§ Section 36.126]{.underline} [Circuit equipment---Category
4.]{.underline}**

\* \* \* \* \*

\(e\) \*\*\*

\(1\) \*\*\*

\(2\) Interexchange Circuit Equipment Used for Wideband Service-Category
4.22-This category includes the circuit equipment portion of
interexchange channels used for wideband services. The cost of
interexchange circuit equipment in this category is determined
separately for each wideband channel and is segregated between message
and private line services on the basis of the use of the channels
provided. The respective costs are allocated to the appropriate
operation in the same manner as the related interexchange cable and wire
facilities described in § 36.155.

\* \* \* \* \*

7\. In § 36.172, revise the section heading to read as follows:

**[§ 36.172]{.underline} [Other noncurrent assets---Account
1410.]{.underline}**

\* \* \* \* \*

8\. Revise § 36.201 to read as follows:

**[§ 36.201]{.underline} [Section arrangement.]{.underline}**

\(a\) This subpart is arranged in sections as follows:

General \...\...\...\...\...\...\...\...\...\..........................\...\...\...\...\...\...\...\...\..... 36.202

Operating Revenues: \...\...\...\...\...\...............\...\...\...\...\...\...\...\...\...\...\.... 36.211

Basic local services revenue\--Account 5000 (Class B telephone
companies);

Basic area revenue\--Account 5001 (Class A telephone
companies).......................36.212

Network Access Revenues‑‑Accounts 5081 thru 5083\...\...\...\.... 36.213

Long Distance Message Revenue‑‑Account 5100............\..... 36.214

Miscellaneous Revenue‑‑Account 5200\...\...\............\...\...\...\...\... 36.215

Uncollectible Revenue‑‑Account 5300\...\...\...\........\...\...\...\...\...\.... 36.216

Certain Income Accounts:

Other Operating Income and Expenses‑‑Account 7100\...\...\..... 36.221

Nonoperating Income and Expenses‑‑Account 7300\...\...\...\...\... 36.222

Interest and Related Items‑‑Account 7500\...\...\...\...\...\...\...\...\...\.... 36.223

Extraordinary Items‑‑Account 7600\...\...\...\....................\...\.... 36.224

Income Effect of Jurisdictional Ratemaking Differences---Account
7910\.... 36.225

9\. Amend § 36.202 by revising paragraph (b) to read as follows:

**[§ 36.202]{.underline} [General.]{.underline}**

\(a\) \*\*\*

\(b\) Except for the Network Access Revenues, subsidiary record
categories are maintained for all revenue accounts in accordance with
the requirements of Part 32. These subsidiary records identify services
for the appropriate jurisdiction and will be used in conjunction with
apportionment procedures stated in this manual.

10\. Revise § 36.211 to read as follows:

**[§ 36.211]{.underline} [General.]{.underline}**

\(a\) Operating revenues are included in the following accounts:

Account Title                                          Account No.

Basic local service revenue (Class B telephone companies)....5000

Basic Area Revenue (Class A telephone companies)......\...\.... 5001

Network Access Revenues:

End User Revenue \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... 5081

Switched Access Revenue \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 5082

Special Access Revenue \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 5083

Long Distance Message Revenue \...\...\...\...\...\...\...\...\...\...\...\...\...\.... 5100

Miscellaneous Revenue \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 5200

Uncollectible Revenue \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... 5300

11\. In § 36.212, revise the section heading to read as follows:

**[§ 36.212]{.underline} [Basic local services revenue---Account 5000
(Class B telephone companies); Basic area revenue---Account 5001 (Class
A telephone companies).]{.underline}**

\* \* \* \* \*

12\. Amend § 36.213 by revising paragraphs (a), (b), and (c) to read as
follows and by removing paragraphs (d) and (e):

**[§ 36.213]{.underline} [Network access revenues.]{.underline}**

\(a\) End User Revenue‑‑Account 5081. Revenues in this account are
directly assigned on the basis of analysis and studies.

\(b\) Switched Access Revenue‑‑Account 5082. Revenues in this account
are directly assigned on the basis of analysis and studies.

\(c\) Special Access Revenue‑‑Account 5083. Revenues in this account are
directly assigned on the basis of analysis and studies.

13\. Amend § 36.216 by revising paragraph (a) to read as follows:

**[§ 36.216]{.underline} [Uncollectible revenue---Account
5300.]{.underline}**

\(a\) The amounts in this account are apportioned among the operations
on the basis of analysis during a representative period of the portion
of Account 1171, Allowance for doubtful accounts, related to
telecommunications billing.

14\. Revise § 36.301 to read as follows:

**[§ 36.301]{.underline} [Section arrangement.]{.underline}**

\(a\) This subpart is arranged in sections as follows:

General \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 36.301 and 36.302.

Plant Specific Operations Expenses:

General \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... 36.310.

Network Support/General Support Expenses‑‑Accounts 6110 and 6120 (Class
B Telephone Companies); Accounts 6112, 6113, 6114, 6121, 6122, 6123, and
6124 (Class A Telephone Companies)...\...\...\... 36.311.

Central Office Expenses‑‑Accounts 6210, 6220, 6230 (Class B Telephone
Companies); Accounts 6211, 6212, 6220, 6231, and 6232 (Class A Telephone
Companies) ............................................ 36.321

Information Origination/Termination Expenses\--Account 6310 (Class B
Telephone Companies); Accounts 6311, 6341, 6351, and 6362 (Class A
Telephone
Companies)\...\...\...\...\...\...\...\...\...\...\...\...\.... 36.331.

Cable and Wire Facilities Expenses‑‑Account 6410 (Class B Telephone
Companies); Accounts 6411, 6421, 6422, 6423, 6424, 6426, 6431, and 6441
(Class A Telephone Companies)...............\...\..... 36.341.

Plant Nonspecific Operations Expenses:

General \...\...\...\...\...\...\...\...\...\...\...\...\................................... 36.351.

Other Property Plant and Equipment Expenses‑‑Account 6510 (Class B
Telephone Companies); Accounts 6511 and 6512 (Class A Telephone
Companies)............\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 36.352.

Network Operations Expenses‑‑Account 6530 (Class B Telephone Companies);
Accounts 6531, 6532, 6533, 6534, and 6535 (Class A Telephone
Companies)\.... 36.353.

Access Expenses‑‑Account 6540\...\...\...\...\...\...\...\...\...\...\...\...\...\... 36.354.

Depreciation and Amortization Expenses‑‑Account 6560\.... 36.361.

Customer Operations Expenses:

General \...\...\...\...\...\................................................... 36.371.

Marketing‑‑Account 6610 (Class B Telephone Companies); Accounts 6611 and
6613 (Class A Telephone Companies)
........................................... 36.372.

Services‑‑Account 6620............................ \...\...\...\...\..... 36.373.

Telephone Operator Services \...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... 36.374.

Published Directory Listing \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... 36.375.

All Other \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 36.376.

Category 1‑‑Local Bus. Office Expense\...\...\...\...\...\...\...\...\... 36.377.

Category 2‑‑Customer Services (Revenue Accounting)\... 36.378.

Message Processing Expense \...\...\...\...\...\...\...\...\...\...\...\...\...\... 36.379.

Other Billing and Collecting Expense\...\...\...\...\...\...\...\...\...\... 36.380.

Carrier Access Charge Billing and Collecting Expense\... 36.381.

Category 3‑‑All other Customer Service Expense\...\...\..... 36.382.

Corporate Operations Expenses:

General \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... 36.391.

General and Adminstrative Expenses‑‑Account 6720.... 36.392.

Operating Taxes‑‑Account 7200 (Class B Telephone Companies); Accounts
7210, 7220, 7230, 7240, and 7250 (Class A Telephone
Companies)\...\...\..... 36.411 and 36.412.

Equal Access Expenses \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 36.421.

15\. Amend § 36.310 by revising paragraph (a) to read as follows:

**[§ 36.310]{.underline} [General.]{.underline}**

\(a\) Plant specific operations expenses include the following accounts:

Network Support Expenses \..... Account 6110 (Class B Telephone
Companies); Accounts 6112, 6113, and 6114 (Class A Telephone Companies)

General Support Expenses \...\... Account 6120 (Class B Telephone
Companies); Accounts 6121, 6122, 6123, and 6124 (Class A Telephone
Companies).

Central Office Switching Expenses\...Account 6210 (Class B Telephone
Companies); Accounts 6211 and 6212 (Class A Telephone Companies)

Operator System Expenses\...\...\...\...\...\...\...\...\...\...\.... Account 6220

Central Office Transmission Expenses.........\..... Account 6230 (Class
B Telephone Companies); Accounts 6231 and 6232 (Class A Telephone
Companies).

Information Origination/Termination Expenses\... Account 6310 (Class B
Telephone Companies); Accounts 6311, 6341, 6351, and 6362 (Class A
Telephone Companies).

Cable and Wire Facilities Expenses\...\...\...\...\...\..... Account 6410
(Class B Telephone Companies); Accounts 6411, 6421, 6422, 6423, 6424,
6426, 6431, and 6441 (Class A Telephone Companies).

\* \* \* \* \*

16\. In § 36.311, revise the section heading to read as follows:

**[§ 36.311]{.underline}
[Network Support/General Support Expenses‑‑Accounts 6110 and 6120 (Class
B Telephone Companies); Accounts 6112, 6113, 6114, 6121, 6122, 6123, and
6124 (Class A Telephone Companies).]{.underline}**

\* \* \* \* \*

17\. Amend § 36.321 by revising the section heading and paragraph (a) to
read as follows:

**[§ 36.321]{.underline} [Central office expenses‑‑Accounts 6210, 6220,
and 6230 (Class B telephone companies); Accounts 6211, 6212, 6220, 6231,
and 6232 (Class A telephone companies).]{.underline}**

\(a\) The expenses related to central office equipment are summarized in
the following accounts:

Central Office Switching Expense\...\...\...\...\...\...\..... Account 6210
(Class B telephone companies); Accounts 6211 and 6212 (Class A telephone
companies).

Operator Systems Expense \...\...\...\...........\...\...\...\... Account 6220

Central Office Transmission Expense\...\...\...\...\...\... Account 6230
(Class B telephone companies); Accounts 6231 and 6232 (Class A telephone
companies).

\* \* \* \* \*

18\. In § 36.331, revise the section heading to read as follows:

**[§ 36.331]{.underline} [Information origination/termination
expenses‑‑Account 6310 (Class B telephone companies); Accounts 6311,
6341, 6351, and 6362 (Class A telephone companies).]{.underline}**

\* \* \* \* \*

19\. In § 36.341, revise the section heading to read as follows:

**[§ 36.341]{.underline} [Cable and wire facilities expenses‑‑Account
6410 (Class B telephone companies); Accounts 6411, 6421, 6422, 6423,
6424, 6426, 6431, and 6441 (Class A telephone companies).]{.underline}**

\* \* \* \* \*

20\. Revise § 36.351 to read as follows:

**[§ 36.351]{.underline} [General.]{.underline}**

\(a\) Plant nonspecific operations expenses include the following
accounts:

Other Property Plant and Equipment Expenses\...\.... Account 6510 (Class
B telephone companies); Accounts 6511 and 6512 (Class A telephone
companies).

Network Operations Expenses\...\...\...\...\...\...\...\...\...\..... Account 6530
(Class B telephone companies); Accounts 6531, 6532, 6533, 6534, and 6535
(Class A telephone companies).

Access Expenses \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... Account 6540

Depreciation and Amortization Expenses\...\...\...\...\... Account 6560

21\. In § 36.352, revise the section heading to read as follows:

**[§ 36.352]{.underline} [Other property plant and equipment
expenses‑‑Account 6510 (Class B telephone companies); Accounts 6511 and
6512 (Class A telephone companies).]{.underline}**

\* \* \* \* \*

22\. In § 36.353, revise the section heading to read as follows:

**[§ 36.353]{.underline} [Network operations expenses‑‑Account 6530
(Class B telephone companies); Accounts 6531, 6532, 6533, 6534, and 6535
(Class A telephone companies).]{.underline}**

\* \* \* \* \*

23\. Revise § 36.371 to read as follows:

**[§ 36.371]{.underline} [General.]{.underline}**

\(a\) Customer Operations Expenses are included in the following
accounts:

Marketing \.....Account 6610 (Class B telephone companies); Accounts
6611 and 6613 (Class A telephone companies).

Services \.....Account 6620

24\. In § 36.372, revise the section heading to read as follows:

**[§ 36.372]{.underline} [Marketing‑‑Account 6610 (Class B telephone
companies); Accounts 6611 and 6613 (Class A telephone
companies).]{.underline}**

\* \* \* \* \*

25\. Revise § 36.391 to read as follows:

**[§ 36.391]{.underline} [General.]{.underline}**

\(a\) Corporate Operations Expenses are included in the following
account:

General and Administrative\.....Account 6720

26\. Amend § 36.392 by revising the section heading and paragraph (c) to
read as follows:

**[§ 36.392]{.underline} [General and administrative‑‑Account
6720.]{.underline}**

\*\*\*\*\*

\(c\) The expenses in this account are apportioned among the operations
on the basis of the separation of the cost of the combined Big Three
Expenses which include the following accounts:

Plant Specific Expenses

Central Office Switching Expenses\--Account 6210 (Class B Telephone
Companies); Accounts 6211 and 6212 (Class A Telephone Companies)

Operators Systems Expenses\--Account 6220

Central Office Transmission Expenses\--Account 6230 (Class B Telephone
Companies); Accounts 6231 and 6232 (Class A Telephone Companies)

Information Origination/Termination Expenses\--Account 6310 (Class B
Telephone Companies); Accounts 6311, 6341, 6351, and 6362 (Class A
Telephone Companies)

Cable and Wire Facilities Expense\--Account 6410 (Class B Telephone
Companies); Accounts 6411, 6421, 6422, 6423, 6424, 6426, 6431, and 6441
(Class A Telephone Companies)

Plant Non‑Specific Expenses

Network Operations Expenses\--Account 6530 (Class B Telephone
Companies); Accounts 6531, 6532, 6533, 6534, and 6535 (Class A Telephone
Companies)

Customer Operations Expenses

Marketing\--Account 6610 (Class B Telephone Companies); Accounts 6611
and 6613 (Class A Telephone Companies)

Services\--Account 6620

27\. In § 36.411, revise the section heading to read as follows:

**[§ 36.411]{.underline} [Operating taxes‑‑Account 7200 (Class B
Telephone Companies); Accounts 7210, 7220, 7230, 7240, and 7250 (Class A
Telephone Companies).]{.underline}**

\* \* \* \* \*

28\. Revise § 36.501 to read as follows:

**[§ 36.501]{.underline} [General.]{.underline}**

\(a\) For separations purposes, reserves and deferrals include the
following accounts:

Other Jurisdictional Assets‑‑Net\...\...\...\...\...\...\...\...\...\...\.... Account 1500

Accumulated Depreciation \...\...\...\...\...\...\...\...\...\...\...\...\...\... Account 3100

Accumulated Depreciation‑‑Property Held for Future

Telecommunications Use\...\...\...\...\...\...\...\...\...\...\...\...\...\.... Account 3200

Accumulated Amortization---Capital
Leases\...\...\...\...\... Account 3400 (Class B Telephone Companies);
Account 3410 (Class A Telephone Companies)

Net Current Deferred Operating Income Taxes\...\...\..... Account 4100

Net Noncurrent Deferred Operating Income Taxes\..... Account 4340

Other Jurisdictional Liabilities and Deferred Credits‑‑Net\...\..... Account 4370

29\. In § 36.505, revise the section heading to read as follows:

**[§ 36.505]{.underline} [Accumulated amortization‑‑Tangible‑‑Account
3400 (Class B Telephone Companies); Accumulated amortization\--Capital
Leases\--Account 3410 (Class A Telephone Companies).]{.underline}**

\* \* \* \* \*

30\. Amend § 36.631 by revising paragraphs (a), (c), and (d) to read as
follows:

**[§ 36.631]{.underline} [Expense adjustment.]{.underline}**

\(a\) Until December 31, 1987, for study areas reporting 50,000 or fewer
working loops pursuant to § 36.611(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of the
following:

\* \* \* \* \*

\(c\) Beginning January 1, 1988, for study areas reporting 200,000 or
fewer working loops pursuant to § 36.611(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of
paragraphs (c)(1) through (2). After January 1, 2000, the expense
adjustment (additional interstate expense allocation) for non-rural
telephone companies serving study areas reporting 200,000 or fewer
working loop pursuant to § 36.611(h) shall be calculated pursuant to §
54.309 of this Chapter or § 54.311 of this Chapter (which relies on this
part), whichever is applicable.

\(d\) Beginning January 1, 1988, for study areas reporting more than
200,000 working loops pursuant to § 36.611(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of
paragraphs (d)(1) through (4). After January 1, 2000, the expense
adjustment (additional interstate expense allocation) shall be
calculated pursuant to § 54.309 of this Chapter or § 54.311 of this
Chapter (which relies on this part), whichever is applicable.

\* \* \* \* \*

[^1]: 47 C.F.R Part 36. *See also 2000 Biennial Regulatory Review \--
    Comprehensive Review of the Accounting Requirements and ARMIS
    Reporting Requirements for Incumbent Local Exchange Carriers: Phase
    2*, *Amendments to the Uniform System of Accounts for
    Interconnection*, *Jurisdictional Separations Reform and Referral to
    the Federal-State Joint Board*, *Local Competition and Broadband
    Reporting*, CC Docket Nos. 00-199, 97-212, 80-286, 99-301, Report
    and Order in CC Docket Nos. 00-199, 97-212, and 80-286, Further
    Notice of Proposed Rulemaking in CC Docket Nos. 00-199, 99-301, and
    80-286*,* 16 FCC Rcd 19911 (2001)(*Phase 2 Order*). *See also
    Federal-State Joint Conference On Accounting Issues*, *2000 Biennial
    Regulatory Review \-- Comprehensive Review of the Accounting
    Requirements and ARMIS Reporting Requirements for Incumbent Local
    Exchange Carriers: Phase 2*, *Jurisdictional Separations Reform and
    Referral to the Federal-State Joint Board*, *Local Competition and
    Broadband Reporting*, WC Docket No. 02-269, CC Docket Nos. 00-199,
    80-286, 99-301, Order, FCC 02-309 (November 12, 2002)(suspending the
    consolidation of certain accounts until July 1, 2003). *See also
    Federal-State Joint Conference On Accounting Issues*, *2000 Biennial
    Regulatory Review \-- Comprehensive Review of the Accounting
    Requirements and ARMIS Reporting Requirements for Incumbent Local
    Exchange Carriers: Phase 2*, *Jurisdictional Separations Reform and
    Referral to the Federal-State Joint Board*, *Local Competition and
    Broadband Reporting*, WC Docket No. 02-269, CC Docket Nos. 00-199,
    80-286, 99-301, Order, FCC 03-141 (June 24, 2003) (extending the
    suspension of the consolidation of certain accounts until January 1,
    2004). *See also Federal-State Joint Conference On Accounting
    Issues*, *2000 Biennial Regulatory Review \-- Comprehensive Review
    of the Accounting Requirements and ARMIS Reporting Requirements for
    Incumbent Local Exchange Carriers: Phase 2*, *Jurisdictional
    Separations Reform and Referral to the Federal-State Joint Board*,
    *Local Competition and Broadband Reporting*, WC Docket No. 02-269,
    CC Docket Nos. 00-199, 80-286, 99-301, Order, FCC 03-325 (December
    23, 2003) (extending the suspension of the consolidation of certain
    accounts until June 30, 2004). The suspension of the consolidation
    of certain accounts has no effect on the modifications to Part 36 we
    adopt herein. We also note that, on October 9, 2003, the
    Federal-State Joint Conference on Accounting Issues released a
    report recommending that the Commission reinstate, *inter alia*,
    certain Part 32 accounts that were removed in the *Phase 2 Order*.
    *See Federal-State Joint Conference on Accounting Issues,*
    Recommendation by Joint Conference, WC Docket No. 02-269 (October 9,
    2003). *See also* *Federal-State Joint Conference On Accounting
    Issues*, *2000 Biennial Regulatory Review \-- Comprehensive Review
    of the Accounting Requirements and ARMIS Reporting Requirements for
    Incumbent Local Exchange Carriers: Phase II*, *Jurisdictional
    Separations Reform and Referral to the Federal-State Joint Board*,
    *Local Competition and Broadband Reporting*, WC Docket No. 02-269,
    CC Docket Nos. 00-199, 80-286, 99-301, Notice of Proposed
    Rulemaking, FCC 03-326 (December 23, 2003)(seeking comment on the
    Joint Conference's recommendation to reinstate certain accounts).

[^2]: For purposes of section 251 of the Act, a local exchange carrier
    (LEC) is regarded as an "incumbent local exchange carrier" (ILEC)
    for a specific area if, on the date of enactment of the Act, the
    carrier provided telephone exchange service in that area and was
    deemed to be a member of the National Exchange Carrier Association,
    Inc. (NECA), or if the carrier "became a successor or assign" of
    such a member on or after that date. 47 U.S.C. § 251(h)(1). For
    purposes of this Report and Order, the term "carriers" refers to
    ILECs. Competitive local exchange carriers are not subject to the
    requirements of Part 36. *See* 47 C.F.R. Part 36.

[^3]: 47 C.F.R. Part 32.

[^4]: *See* 47 C.F.R. §§ 64.901-904.

[^5]: 47 C.F.R. Part 36. On May 22, 2001, the Commission adopted an
    interim freeze of the Part 36 category relationships and
    jurisdictional cost allocation factors for price cap carriers and
    allocation factors only for rate-of-return carriers. *Jurisdictional
    Separations and Referral to the Federal-State Joint Board*, CC
    Docket No. 80-286, Report and Order, 16 FCC Rcd 11382 (2001).

[^6]: Part 61 of the Commission's rules prescribes the procedures for
    filing and updating interstate tariffs. *See* 47 C.F.R. Part 61.

[^7]: 47 C.F.R. Part 69.

[^8]: 47 C.F.R. § 32.11.

[^9]: *See* "Annual Adjustment of Revenue Threshold," *Public Notice*,
    DA 02-957 (rel. April 26, 2002) (adjusting annual indexed revenue
    threshold to \$119 million).

[^10]: Summary accounts are those accounts used by Class A telephone
    companies to summarize for reporting purposes the contents of
    detailed accounts.

[^11]: *See* *Separation of Costs of Regulated Telephone Service from
    Costs of Nonregulated Activities*, Report and Order, CC Docket No.
    86-111, 2 FCC Rcd 1298, 1330-31, paras. 254-56 (1987) (*Joint Cost
    Order*), *recon*., 2 FCC Rcd 6283 (1987), *further recon.*, 3 FCC
    Rcd 6701 (1988), *aff\'d sub nom.* Southwestern Bell Corp. v. FCC,
    896 F.2d 1378 (D.C.Cir. 1990) (concluding that small carriers often
    have limited resources and have financial transactions that are
    smaller and fewer in number than the larger incumbent LECs.)

[^12]: *See Phase 2 Order,* para*.* 218.

[^13]: *See Phase 2 Order,* para*.* 219.

[^14]: *See Phase 2 Order*, paras. 58, 61, and 64. See Appendix A for a
    list of new subaccounts.

[^15]: For example, Account 6410 (Cable and Wire Facilities Expense) was
    used by Class A telephone companies to summarize for reporting
    purposes the contents of Accounts 6411 through 6441. Because the
    existing Part 36 rules refer to the summary Account 6410, the
    elimination of Account 6410 from Class A accounting requires that
    sections 36.310 and 36.341 of the Commission's rules be revised to
    reflect that Cable and Wire Facilities Expense is the sum of
    Accounts 6411 through 6441.

[^16]: *See Phase 2 Order*, para. 222, n. 408.

[^17]: *See* Verizon Comments at 2 (stating that the subaccounts created
    in the *Phase 2 Order* apply only to Class A accounts and because
    separations is designed to function at the less detailed Class B
    level, the addition of subaccounts to Class A accounts does not
    affect the separations process).

[^18]: Appendix B contains a list of the Part 32 accounts referenced in
    Part 36 that we modify to conform to the Part 32 Uniform System of
    Accounts effective thirty days after publication in the Federal
    Register and Appendix C contains our revised final rules.

[^19]: See NARUC Comments at 22-23, Oregon Comments at 11-12.

[^20]: *See* NARUC Comments at 22-23, Oregon Comments at 11-12 (arguing
    that the elimination of accounts and the introduction of new
    subaccounts may require more than a simple revision and for those
    carriers subject to a category and factor freeze, eliminating or
    introducing new categories may require reinitialization of the
    frozen category percentages and new subaccounts may require
    identification of new relative use or fixed jurisdictional
    allocators).

[^21]: *See* 47 C.F.R. § 36.352.

[^22]: Prior to the modifications adopted in the *Phase 2 Order*, for
    Class A telephone companies, Account 6510 summarized for reporting
    purposes the contents of detail Accounts 6511 and 6512. The modified
    account reference for Other Property Plant and Equipment Expenses we
    adopt today in Part 36 will state as follows: Other Property Plant
    and Equipment Expenses\--Account 6510 (Class B telephone companies);
    Accounts 6511 and 6512 (Class A telephone companies). *See* 47 C.F.R
    §§ 32.6510 and 36.352.

[^23]: *See* 47 C.F.R. §§ 36.126(e)(2) and 36.321(a).

[^24]: See 47 C.F.R. § 36.631(a), (c)-(d) (the correct year for §
    36.631(a) is 1987, the correct year for § 36.631(c)-(d) is 1988).

[^25]: The RFA, *see* 5 U.S.C. § 601 -- 612, has been amended by the
    Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
    Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).

[^26]: 5 U.S.C. § 605(b).

[^27]: 5 U.S.C. § 601(6).

[^28]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small-business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration and
    after opportunity for public comment, establishes one or more
    definitions of such term which are appropriate to the activities of
    the agency and publishes such definition(s) in the Federal
    Register."

[^29]: 15 U.S.C. § 632.

[^30]: *See Phase 2 Order*, paras. 23 to 78.

[^31]: *See Phase 2 Order*, Appendix H, para. 267.

[^32]: *See* 5 U.S.C. § 801(a)(1)(A).

[^33]: See 5 U.S.C. § 605(b).