Before the

**Federal Communications Commission**

#### Washington, D.C. 20554 {#washington-d.c.-20554 .unnumbered}

In the Matter of )

)

2000 Biennial Regulatory Review \-- )

Comprehensive Review of the )

Accounting Requirements and ) CC Docket No. 00-199

ARMIS Reporting Requirements for )

Incumbent Local Exchange Carriers: )

Phase 2 and Phase 3 )

#### NOTICE OF PROPOSED RULEMAKING {#notice-of-proposed-rulemaking .unnumbered}

Adopted: October 12, 2000 Released: October 18, 2000

**Phase 2 Comment Date: December 21, 2000**

**Phase 2 Reply Comment Date: January 30, 2001**

**Phase 3 Comment Date: January 30, 2001**

**Phase 3 Reply Comment Date: February 28, 2001**

By the Commission:

###### TABLE OF CONTENTS {#table-of-contents .unnumbered}

[paragraph]{.underline}

I.  INTRODUCTION 1

II. BACKGROUND 4

III. PHASE 2 - STREAMLINING MEASURES 10

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A.  Part 32 Accounting Rules 14

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1.  Chart of Accounts 15

2.  Other Regulatory Relief 21

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a.  Inventories 22

b.  Charges to Plant Accounts 23

c.  Contributions 25

d.  Additional USTA Proposals 27

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3.  Affiliate Transactions 28

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a.  Eliminate requirement for fair market value comparison for asset
    transfers

> under \$500,000 32

b.  Establish ceiling and floor for recording transactions 35

c.  Exempt nonregulated to nonregulated transactions from affiliate
    transactions rules 36

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4.  Incidental Activities 39

5.  Expense Limits 40

6.  Additional Modifications to Cost Allocation Manual Requirements 43

7.  Classification of Companies 44

8.  Cost Allocation Forecasts 45

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B.  ARMIS Reporting Requirements 46

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1.  ARMIS Reports 43-01, 43-02, 43-03, and 43-04 56

2.  ARMIS Reports 43-07 and 43-08 64

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C.  Relief for Mid-Sized Carriers 80

> 1\. Reduced Cost Allocation Manual Procedures 81
>
> 2\. Streamlined ARMIS Reporting Requirements 84

IV. PHASE 3 - LONG TERM TRANSITION TO DEREGULATION 87

V.  PROCEDURAL ISSUES 99

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A.  Ex Parte Presentations 99

B.  Regulatory Flexibility Analysis 100

C.  Paperwork Reduction Act 101

D.  Comment Filing Procedures 102

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VI. ORDERING CLAUSES 107

APPENDIX 1 -- Part 32 Class A Accounts

APPENDIX 2 -- Part 32 Class B Accounts

APPENDIX 3 -- Class A Accounts Proposed To Be Eliminated

APPENDIX 4 -- Class A Accounts on Which We Seek Comment

APPENDIX 5 -- States' Proposals

APPENDIX 6 -- USTA's Proposals

APPENDIX 7 -- Initial Regulatory Flexibility Analysis

# INTRODUCTION

1.  In 1999, the Commission initiated a two-phased comprehensive review
    of its accounting rules and the related reporting requirements for
    incumbent local exchange carriers (LECs) to keep pace with changing
    conditions in the competitive telecommunications industry.[^1] In
    Phase 1, which concluded with our *Phase 1 Report and Order*,[^2] we
    adopted Part 32 accounting rule changes and reporting reform
    measures for the Automated Reporting Management Information System
    (ARMIS) that could be implemented quickly. After reviewing the
    issues and our accounting and reporting rules, we realize that our
    comprehensive review requires more than the two-phased process
    initially contemplated when we established this proceeding. Thus, in
    this item, we commence Phase 2, to seek comment on further
    accounting and reporting reform measures that may be implemented in
    the near term, and Phase 3, to consider the appropriate indicia for
    more significant deregulation in this area.[^3]

2.  Commencement of Phase 2, that is also part of our biennial
    regulatory review process,[^4] is particularly appropriate at this
    time given the recent changes in the telecommunications industry and
    recent changes in regulatory requirements for the largest incumbent
    LECs. For example, after initiating this comprehensive review in
    April 1999, carriers are entering markets from which they were
    previously barred, *e.g.*, Bell operating companies entering the
    long-distance market. Regulatory requirements have also recently
    changed with the Commission's significant restructuring of price cap
    incumbent LECs' access rates for the next five years. [^5] The
    Commission's accounting rules and ARMIS reporting requirements have
    played a changing role in the evolving telecommunications markets,
    from the pre-divestiture period to the present era of emerging
    competition. In this Notice of Proposed Rulemaking, we continue our
    efforts to reduce regulatory burdens on the industry by seeking
    comment on various measures to eliminate or streamline existing
    accounting and reporting requirements.

3.  In this Notice, we seek comment on whether and how to streamline
    significantly the existing accounting and reporting requirements.
    Specifically, we seek comment on:

-   Our proposal to eliminate one-fourth of the Class A accounts in Part
    32 of our rules;

-   The United States Telecom Association's (USTA's) proposal to
    eliminate the remaining Class A accounts;

-   Eliminating inventory requirements in sections 32.1220(h) and
    32.2311(f) of our rules;

-   Eliminating the threshold requirements in section 32.2003(b) of our
    rules;

-   Whether we should allow carriers to adopt SFAS-116 for federal
    accounting purposes;

-   Revising our affiliate transactions rules to (1) eliminate the
    requirement for a fair market value comparison for asset transfers
    under \$500,000; (2) establish a ceiling and floor for recording
    transactions; and (3) exempt nonregulated to nonregulated
    transactions from affiliate transactions rules;

-   Our proposal to eliminate the "treated traditionally" requirement
    from "incidental activities;"

-   Modifying our expense limit rules;

-   Whether section 32.11 should be amended to be limited to incumbent
    LECs;

-   USTA's proposal to eliminate section 64.901(b)(4) of our rules;

-   Our proposal to simplify the reporting requirements for both large
    incumbent LECs and mid-sized incumbent LECs by eliminating or
    revising ARMIS Reports: 43-01 (Annual Summary Report); 43-02 (USOA
    Report); 43-03 (Joint Cost Report); 43-04 (Separations and Access
    Report); 43-07 (Infrastructure Report); and 43-08 (Operating Data
    Report);

-   Our proposal to eliminate cost allocation manual (CAM) filing
    requirements for mid-sized carriers;

-   Raising the income threshold that determines which companies are
    required to file certain ARMIS reports; and

-   Whether there are triggers for more drastic deregulation of
    accounting and reporting requirements in a competitive marketplace.

# BACKGROUND

4.  Under the Commission\'s rules, incumbent LECs record their costs and
    revenues in the Uniform System of Accounts (USOA).[^6] The USOA
    provides a financial based system maintained in sufficient detail to
    facilitate recurrent regulatory decision making.[^7] This data has
    been used in analyzing a variety of policy issues such as universal
    service support, consolidations and mergers, affiliate transactions,
    service quality, and infrastructure development, as well as focussed
    areas such as network reliability, rate development, depreciation,
    rates of return, and industry trends. The states historically have
    relied upon Part 32 accounts, rather than imposing different
    accounting requirements.

5.  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
    the indexed revenue threshold, currently \$114 million, are
    classified as Class A; those with annual revenues from regulated
    telecommunications operations that are below the threshold are
    considered Class B.[^9] Class A carriers \-- SBC Communications,
    Inc., Qwest, Verizon, and BellSouth Corporation \-- are required to
    maintain 296 Class A accounts,[^10] which provide more detailed
    records of investment, expense, and revenue than the 113 Class B
    accounts that Class B carriers are required to maintain.[^11] The
    Class A accounts are listed in Appendix 1. The more generalized
    level of accounting required under Class B was established to
    accommodate smaller carriers, which number over 1,200.[^12] The
    Class B accounts are listed in Appendix 2.

6.  Although we acknowledge that there may be alternative ways to
    achieve their underlying purposes, Part 32 accounting data are
    currently used for various regulatory purposes. For example, this
    accounting data is used in our cost allocation procedures under Part
    64.[^13] Part 32 accounting data are also required for
    jurisdictional separations under Part 36. The dual system of federal
    and state regulation reflected in the Communications Act requires
    the separation of common carrier costs and revenues between
    interstate and intrastate operations. USOA data is used to allocate
    costs between the interstate and intrastate jurisdictions.[^14]

7.  The accounting data reported in Part 32 accounts are also currently
    used to determine interstate access charges. Prior to the adoption
    of price cap regulation in 1991, access charges for all incumbent
    LECs were governed by Part 69 access charge rules. The USOA
    continues to be used, even with the Commission's adoption of price
    cap regulation for many incumbent LECs.[^15] For example, data
    recorded in uniform accounts are used to adjust price cap indices
    upward if a price cap carrier earns returns below a specified level
    in a given year. Price cap carriers may also seek exogenous
    adjustments based on actual cost changes. Accounting costs are used
    to define claims for exogenous adjustments. In addition, a price cap
    LEC may petition the Commission to set its rates above the levels
    permitted by the price cap indices based on a showing that the
    authorized rate levels will produce earnings that are so low as to
    be confiscatory.[^16]

8.  Finally, USOA data also is currently used to calculate high cost
    support in the Universal Service Program. Under our universal
    service rules, the cost basis used in determining high cost support
    for rural carriers differs from that used for non-rural carriers.
    Both approaches, however, rely on our uniform system of accounts.
    For a rural carrier, high cost support is based on the extent to
    which its average cost per loop exceeds the nationwide average cost
    per loop for all carriers. For a non-rural carrier, high cost
    support is also based on relative cost per loop. That cost is
    determined, however, based either on actual booked costs or on the
    prescribed forward-looking cost model.

9.  As with the development of the Part 32 USOA, the ARMIS system was
    designed to facilitate the Commission's decision making efforts and
    to eliminate undue reliance on ad hoc information requests and
    special studies. ARMIS is an automated reporting system developed by
    the Commission in 1987 for collecting financial, operating, service
    quality, and network infrastructure information from certain
    incumbent LECs.[^17] ARMIS contains eight reports, including four
    financial reports: ARMIS 43-01 (Annual Summary Report), ARMIS 43-02
    (USOA Report), ARMIS 43-03 (Joint Cost Report),[^18] and ARMIS 43-04
    (Separations and Access Report); and four non-financial reports:
    ARMIS 43-05 (Service Quality Report), ARMIS 43-06 (Customer
    Satisfaction Report), ARMIS 43-07 (Infrastructure Report), and ARMIS
    43-08 (Operating Data Report). As discussed in more detail below,
    there are 52 incumbent LECs that file ARMIS reports containing
    financial and operating data.[^19] These ARMIS filings provide
    information on carriers serving more than 90 percent of the nation's
    telephone customers.[^20]

# PHASE 2 - STREAMLINING MEASURES 

10. This Notice of Proposed Rulemaking commences Phase 2 of our
    comprehensive review proceeding to examine reform of the accounting
    and ARMIS reporting requirements for incumbent LECs, and is part of
    our biennial regulatory review under section 11 of the
    Communications Act of 1934, as amended (Communications Act).
    Pursuant to that statute, the Commission, in every even-numbered
    year beginning in 1998, must review all regulations that apply to
    the operations and activities of any provider of telecommunications
    service and "determine whether any such regulation is no longer
    necessary in the public interest as the result of meaningful
    economic competition between providers of such service."[^21]
    Consistent with this directive, we undertook a biennial review of
    the Commission\'s accounting and reporting requirements in 1998,
    which resulted in streamlining a number of accounting and ARMIS
    reporting requirements.[^22]

11. In 1999, we initiated this comprehensive review proceeding to
    examine further reform measures and announced a two-phased approach
    that would address immediate and long-term reform.[^23] We adopted a
    number of immediate reform measures in our *Phase 1 Report and
    Order.*[^24] We realize now that further immediate reform measures
    may be warranted at this time, as we consider long-range reform.
    Thus, in Phase 2, we seek comment on immediate accounting and
    reporting reform measures that are appropriate now, and in Phase 3,
    we seek comment on appropriate indicia for more significant
    deregulation in this area. Our actions to implement immediate
    reforms will not slow down our long-range plans for accounting and
    reporting deregulation. We envision that Phase 2 and Phase 3 will
    proceed concurrently. Accordingly, we seek comment on both immediate
    and long-term reform measures.

12. During this comprehensive review, we have worked closely with the
    National Association of Regulatory Utility Commissioners (NARUC),
    state commissions, and the industry. We are also working with the
    states to eliminate overlap of federal and state reporting
    requirements, as well as eliminating unnecessary reporting
    requirements. Under section 220(i) of the Communications Act, the
    Commission must notify the state commissions before modifying the
    chart of accounts and must allow the states a reasonable opportunity
    to present their views.[^25] Even without this statutory
    requirement, we recognize the state commissions' significant
    expertise with accounting and cost allocation issues and would
    invite their recommendations. Initially, we held a series of
    teleconferences with representatives of state commissions and the
    industry.[^26] In addition, we held five public meetings or
    workshops that were attended, either in person or by conference
    call, by the industry (incumbent LECs and interexchange carriers),
    state commission staff, the General Services Administration, the
    Rural Utilities Services, and consumer advocates.[^27]

13. In the following sections, we set forth proposals for the second
    phase of our comprehensive review and seek comment on streamlining
    accounting rules and ARMIS reporting requirements for Class A
    carriers.[^28] We also set forth a separate proposal for
    streamlining our accounting and reporting requirements specifically
    for mid-size carriers. In addition to commenting on these proposals,
    commenters are encouraged to propose any additional recommendations
    for action. In the third phase of our comprehensive review, we seek
    comment on specific issues and long-term proposals as we continue to
    move to a more deregulatory environment.

## Part 32 Accounting Rules

14. In the *Phase 1 Report and Order*, we eliminated the expense matrix
    filing requirement; allowed carriers to reduce the cost allocation
    manual (CAM) audit requirement from an annual financial statement
    audit to a biennial attestation engagement;[^29] relaxed our
    affiliate transactions requirements for services; eliminated the
    15-day pre-filing requirement for certain CAM changes; eliminated
    the 30-day notification requirement for establishment of temporary
    or experimental accounts; allowed carriers to record contingent
    liabilities without our review; eliminated the reclassification
    requirement for certain property held for future use; and eliminated
    the reclassification requirement for certain plant under
    construction. In this Notice of Proposed Rulemaking, we seek comment
    on further revising our Part 32 chart of accounts, our affiliate
    transactions rules, and our expense limits rules.

## 1. Chart of Accounts {#chart-of-accounts .unnumbered}

15. As explained above, incumbent LECs are required to maintain Part 32
    accounts at either the Class A or Class B level. The largest
    carriers \-- SBC Communications, Inc., Qwest, Verizon, and BellSouth
    Corporation \-- are required to maintain Class A accounts, while the
    remaining incumbent LECs maintain their accounts at the Class B
    level. [^30]

16. In this Notice of Proposed Rulemaking, we seek comment on
    modifications to the Uniform System of Accounts to reduce burdens on
    Class A carriers. We propose retaining the current Class B account
    structure for the incumbent LECs currently reporting at the Class B
    level. We seek comment on specific proposals from both the industry
    and the states to streamline and modify the USOA. Specifically, USTA
    has requested that we uniformly adopt Class B accounting for all
    carriers.[^31] USTA contends that Class A accounting is not needed
    for jurisdictional separations, price caps, or universal service
    mechanisms. The states, in contrast, have asked us to add additional
    accounts to track information for various purposes.[^32] USTA also
    proposes that we eliminate several subaccounts[^33] and
    Jurisdictional Difference Accounts[^34] that Class B carriers
    currently must report.[^35] USTA contends that carriers should not
    be required to maintain subaccounts or subsidiary records that are
    not necessary to meet business requirements. In addition, USTA
    contends that the Jurisdictional Difference Accounts are not needed
    because they are not used for federal regulatory oversight and the
    information in these accounts is also provided to the states. We
    seek comment on these proposals.

17. In considering USTA's request to use Class B accounts for all
    carriers, we have found many instances where Class B accounting
    would appear to meet the Commission's data needs. We agree with USTA
    that fewer prescribed accounts such as we now require for Class B
    carriers would reduce the carriers' regulatory reporting burdens.
    Therefore, we propose to eliminate approximately one-fourth of the
    current Class A accounts. [^36] Based on our examination of the
    various accounts, we believe there is no continuing need for
    carriers to record their costs in these accounts. We have listed
    these Class A accounts in Appendix 3. We seek comment on whether
    eliminating these accounts would undermine our ability to meet our
    statutory mission.

18. We also seek comment on the remaining three-fourths of Class A
    accounting. These accounts are listed in Appendix 4. In particular,
    we seek comment on the impact of eliminating the Class A account
    structure for network plant and related asset and expense
    accounts,[^37] and how that would affect our ongoing mission. We
    seek comment on whether using Class B accounting for all carriers
    would provide sufficient information for our purposes. Commenters
    should address the impact this rule modification would have on
    universal service mechanisms and anything else they deem relevant.
    For example, we note that there may be a continuing need for network
    plant and related accounts at the Class A level in order to maintain
    and use the universal service model we utilize in administering the
    universal service high cost fund for non-rural carriers.[^38] For
    instance, Class A accounting requires that switching equipment be
    accounted for by technology (*i.e.*, analog electronic switching,
    digital electronic switching, and electro-mechanical switching)
    whereas Class B combines all switching technologies in one account.
    The universal service high cost model currently determines the cost
    of providing digital switching equipment using Class A central
    office equipment accounts. We seek comment on how we could avoid
    serious distortions in the digital switching cost estimates if all
    types of switching equipment were combined as they are in Class B
    accounts.

19. In addition, Class A accounting data may be used by the states on a
    comparative basis in state UNE pricing proceedings. We seek comment
    on the prevalence and frequency of such state use. Commenters should
    also address whether states could find or develop alternative
    sources of data for this purpose. Part 32 organizes
    telecommunications costs in a manner that allows a logical mapping
    of these costs to telecommunications rate structures. Switching
    costs, for example, currently are tracked separately from transport
    costs under our Part 32 rules. This cost distinction permits the
    carriers\' use of separate rate structures for switching and
    transport UNEs, thus facilitating the states\' efforts to compare
    costs and rates for each UNE. Part 32 creates uniformity among
    telecommunication carriers, allowing state regulators to compare and
    benchmark the UNE costs and rates of carriers operating in various
    states. Such uniformity also benefits carriers operating in more
    than one jurisdiction. Part 32 provides the level of cost detail
    that is used in forward-looking cost studies. For example, estimates
    of operating costs for digital switches can be derived from Class A
    accounts in Part 32, thus enabling the states to evaluate
    forward-looking switching costs without the distortion that could
    result if all types and vintages of switches were combined into one
    account. Consequently, state and federal regulators may use uniform
    and detailed accounting data when setting rates, even when those
    rates are based on forward-looking costs. Commenters should discuss
    whether reporting at the Class B level would provide sufficient
    detail to identify costs for various rate elements and services such
    as collocation, UNEs, interconnection, and long term number
    portability.

20. In contrast to USTA's proposal, in our teleconferences and public
    workshops, state staff advocated adoption of new accounts to meet
    their data needs to implement the 1996 Act[^39] and to keep pace
    with changes in technology and the regulatory environment.[^40] They
    reason that new accounting information is needed to follow the rate
    of deployment and cost of new technologies, to evaluate prices for
    UNEs and resold services, to determine separated jurisdictional
    costs, to provide more details for state access revenues, and to
    provide insight into issues related to reciprocal compensation,
    state universal service support, and collocation.[^41] We seek
    comment on whether and, if so, specifically how we should amend Part
    32 to add these new accounts. Commenters should discuss whether
    specific accounts are needed and provide detailed analysis as to
    what regulatory purpose the new information would serve. Commenters
    should also address and quantify, to the extent possible, the
    regulatory burdens associated with establishing and maintaining
    these new accounts. We also seek comment on whether these new
    accounts should be required for both Class A and Class B carriers.

## 2. Other Regulatory Relief {#other-regulatory-relief .unnumbered}

21. In the USTA petition and during our workshops, the carriers raised
    several other areas that would provide additional regulatory relief
    by generally loosening restrictions in our current rules. We seek
    comment on these areas, which are discussed in the following
    paragraphs. In addition, we seek comment on any other areas that may
    provide similar relief.

## a. Inventories {#a.-inventories .unnumbered}

22. Section 32.1220(h) of the Commission's rules,[^42] provides that
    inventories of material and supplies shall be taken during each
    calendar year and the adjustments to this account shall be charged
    or credited to Account 6512, Provisioning expense. Section
    32.2311(f) of the Commission's rules requires an annual inventory of
    all station apparatus in stock included in this account.[^43] In its
    petition for rulemaking, USTA proposes that GAAP requirements should
    be the basis for performing these inventories instead of the
    detailed inventory requirements in the rules and that companies
    should be able to perform inventories based on risk assessment and
    on existing controls.[^44] We seek comment on whether we should
    adopt USTA's proposal to eliminate these inventory requirements.

## b. Charges to Plant Accounts {#b.-charges-to-plant-accounts .unnumbered}

23. Section 32.2003(b) of the Commission's rules allows carriers to
    charge directly to the appropriate plant accounts the cost of any
    construction project that is estimated to be completed and ready for
    service within two months from the date on which the project was
    begun.[^45] In addition, this section allows carriers to charge
    directly to the plant accounts the cost of any construction project
    for which the gross additions to the plant are estimated to amount
    to less than \$100,000. The purpose of this rule is to allow
    carriers to record short-term and small-cost construction projects
    directly to the plant accounts without having to first record these
    costs in the Construction Work-in-Progress accounts.

24. In its petition for rulemaking, USTA contends that the cost of
    construction should be calculated using GAAP and that management
    judgment and materiality should form the basis of the criteria for
    determining the status of construction.[^46] USTA argues that
    arbitrary thresholds, such as the two month/\$100,000 thresholds,
    are not appropriate for price cap LECs. We seek comment on whether
    we should eliminate the threshold requirements in section
    32.2003(b), modify the thresholds, or keep the thresholds.
    Commenters are invited to propose alternative ways of satisfying the
    underlying goals of these requirements.

## c. Contributions {#c.-contributions .unnumbered}

25. In June 1993, the Financial Accounting Standards Board (FASB)
    adopted Statement of Financial Accounting Standards No. 116
    (SFAS-116), \"Accounting for Contributions Received and
    Contributions Made.\" SFAS-116 requires companies to record in the
    current period a liability and related expense for unconditional
    pledges to make contributions in future years. Prior to adoption of
    SFAS-116, companies would record such pledges annually as they were
    made. The Common Carrier Bureau (Bureau) notified carriers, after
    BellSouth Telecommunications, Inc., filed a notice of intent to
    adopt SFAS-116, [^47] that carriers should not adopt SFAS-116 for
    federal accounting purposes.[^48] The Bureau was concerned that
    adoption of SFAS-116 for federal accounting purposes would allow
    carriers to increase reported costs and prices based on pledges
    rather than actual contributions.

26. We conclude that we should revisit this issue. Adopting SFAS-116 may
    make sense for financial accounting purposes because this accounting
    treatment better informs investors about the impact of a company\'s
    commitments on the financial condition of the company. We are
    concerned, however, that adoption of SFAS-116 could necessitate an
    exogenous price cap adjustment permitting carriers to recover the
    entire amount of pledged contributions as an exogenous cost in the
    year the accounting change is adopted. We seek comment on whether we
    should allow carriers to adopt SFAS-116 for federal accounting
    purposes.

## Additional USTA proposals

27. USTA has presented several additional proposals to further
    streamline our accounting and reporting requirements.[^49] USTA
    proposes that we eliminate the section 32.5280(c) subsidiary record
    requirement.[^50] This rule section requires carriers to maintain
    separate subsidiary categories for nonregulated revenue recorded in
    Account 5280, Nonregulated operating revenue.[^51] USTA contends
    that this subsidiary record requirement is unnecessary. In addition,
    USTA requests that we simplify deferred tax accounting by allowing
    carriers to book the Account 1437, Deferred tax regulatory asset,
    net of Account 4361, Deferred tax regulatory liability. USTA
    requests that carriers be permitted to eliminate the requirement to
    calculate the gross up for the tax on tax effect. USTA contends that
    this would bring the regulatory books closer to the financial books.
    USTA proposes that we eliminate detailed requirements for property
    record additions, retirements, and recordkeeping. USTA contends that
    detailed property records do not impact the establishment of access
    rates and only serve to require LECs to maintain an extraordinary
    array of records. USTA also proposes that we eliminate the section
    32.16 requirement for notification and approval to implement new
    accounting standards prescribed by the Financial Accounting
    Standards Board (FASB).[^52] USTA claims that the FASB provides a
    process through which proposed changes in GAAP are exposed for
    debate, discussion, and evaluation. Finally, USTA proposes that the
    Commission clarify that section 252(e) agreements are treated the
    same as tariffed services in Part 64 cost allocation rules. We seek
    comment on these proposals.

##  {#section .unnumbered}

## 3. Affiliate Transactions {#affiliate-transactions .unnumbered}

28. In 1987, the Commission adopted affiliate transactions rules to
    protect ratepayers of regulated telecommunications services from
    bearing the costs and risks associated with a carrier\'s
    nonregulated activities.[^53] The affiliate transactions rules set
    forth the procedures that all incumbent LECs, other than average
    schedule companies, must use in recording transactions between
    regulated entities and nonregulated affiliates.[^54] The risk of
    cost misallocation is increased when carriers engage in transactions
    with nonregulated affiliates. The affiliate transactions rules
    discourage such misallocation of costs by requiring carriers to
    reflect appropriate valuation techniques in recording the transfer
    of assets and the provision of services between regulated entities
    and their nonregulated affiliates. After Congress adopted the 1996
    Act, the Commission revised its long-standing affiliate transactions
    rules in order to implement the numerous statutory provisions
    prohibiting cross-subsidization.[^55]

29. In the *Accounting Safeguards Order*, the Commission concluded that
    its revised affiliate transactions rules would promote competition
    by preventing LECs from using their market power in local exchange
    services to obtain an anti-competitive advantage in other
    markets.[^56] The Commission amended the affiliate transactions
    rules for assets and services provided by a carrier to its affiliate
    and services received by a carrier from its affiliate. Under these
    rules, such transactions are to be valued at publicly available
    rates, if possible.[^57] The publicly available rates, in order of
    precedence, are (1) an existing tariff rate, (2) (for services only)
    a publicly-filed agreement or statements of generally available
    agreements, or (3) a qualified prevailing price valuation.[^58] To
    qualify for prevailing price treatment, at least 50 percent of sales
    of the subject asset or service must be to third parties.[^59] USTA
    proposes that the Commission revise section 32.27(d) to decrease the
    threshold from 50 percent to 25 percent for use of prevailing price
    in valuing affiliate transactions.[^60] USTA contends that this
    proposed change in threshold would be consistent with a more
    competitive environment. We seek comment on USTA's proposal.

30. Under our rules, if a transaction cannot be valued at publicly
    available rates, it must be valued based on a comparison of
    cost[^61] and fair market value. If a comparison is used, the
    carrier must make a good faith determination of fair market
    value.[^62] If the regulated company receives the asset or service
    from the nonregulated affiliate, the carrier must record the
    transaction at the lower of cost or market value.[^63] On the other
    hand, if the carrier sells the asset or service to its nonregulated
    affiliate, it must record the transaction on its books at the higher
    of cost or market.[^64] There is an exception to the estimated fair
    market value rule for services received by a carrier from its
    affiliate that exists solely to provide services to members of the
    carrier's corporate family. These services are recorded at fully
    distributed cost.[^65] USTA proposes that we expand this exception
    to the estimated fair market value rule to include all centralized
    services, regardless of whether the services are from a separate
    affiliate.[^66] USTA argues that this rule change would permit
    carriers to recognize the benefit of shared administrative services.
    We seek comment on this proposal.

31. Commenters should discuss any other proposals to modify our
    affiliate transactions rules. We also seek comment on three
    modifications discussed below that would reduce the accounting
    burdens associated with our affiliate transactions rules. Two of
    these modifications would reduce the requirements related to the
    lower of cost or market value analysis for affiliate transactions,
    and the third would exempt transactions between a carrier's
    nonregulated activity and a nonregulated affiliate.

## a. Eliminate requirement for fair market value comparison for asset transfers under \$500,000 {#a.-eliminate-requirement-for-fair-market-value-comparison-for-asset-transfers-under-500000 .unnumbered}

32. As discussed above, our current rules require carriers to record the
    value of an asset according to a hierarchy. If there is no tariff
    price for the asset, and the transfer does not qualify for
    prevailing price treatment, the carrier must compare the asset's net
    book cost to its fair market value and value it at the higher of the
    two if the transfer is from the (regulated) carrier, and at the
    lower of the two if the transfer is to the (regulated) carrier.[^67]
    Carriers must make a good faith determination of the asset's fair
    market value.[^68]

33. In the *Phase 1 Report and Order*, we eliminated the requirement
    that carriers make a good faith determination of fair market value
    for services where the total annual value of that service is less
    than \$500,000.[^69] We noted that below that threshold the
    administrative cost and effort of making such a determination would
    outweigh the regulatory benefits of a good faith determination of
    fair market value. In such cases, the service should be recorded at
    fully distributed cost, and carriers should continue to report such
    transactions in their CAMs and ARMIS reports.[^70]

34. We seek comment on whether such an exemption for assets would be
    appropriate and whether the potentially burdensome cost analyses
    outweighs the benefits to ratepayers. We propose to extend the
    exemption to assets and no longer require carriers to perform the
    net book cost/fair market value comparison for asset transfers
    totaling less than \$500,000 per year.[^71] We seek comment on our
    proposal.[^72] Commenters should discuss specifically the burdens,
    financial or otherwise, of performing the comparison for assets and
    the potential harm, if any, to ratepayers.

## b. Establish ceiling and floor for recording transactions {#b.-establish-ceiling-and-floor-for-recording-transactions .unnumbered}

35. As discussed above, for certain transactions carriers must compare
    the cost of the service or asset to market value.[^73] If the
    carrier is the recipient of the asset or service, it must be
    recorded on the carrier's books at the lower of cost or market. If
    the carrier is the provider, it must be recorded at the higher of
    cost or market. We seek comment on whether ratepayers would be
    harmed if carriers had flexibility to use the higher or lower of
    cost or market valuation as either a floor or ceiling. If ratepayers
    would be harmed if carriers had this flexibility, we seek comment on
    alternative methods for addressing such harm. We propose to give
    carriers flexibility in valuing these transactions by allowing the
    higher or lower of cost or market valuation to operate as either a
    floor or ceiling, depending on the direction of the transaction. If,
    for example, the transaction were from the carrier to the
    nonregulated affiliate, the higher of cost or market valuation would
    function as the floor amount, *i.e.*, the carrier could value the
    asset or service at that amount or higher. If the transaction were
    from the nonregulated affiliate to the carrier, the lower of cost or
    market valuation would function as the ceiling, *i.e.*, the carrier
    could value the asset or service at that amount or lower. Therefore,
    if a carrier purchased an asset from one of its nonregulated
    affiliates with a net book cost of \$750,000 and a fair market value
    of \$1,000,000 (and no tariff rate or prevailing price), our current
    rules would require the carrier to book the asset at \$750,000,
    which is the lower of cost or market. Our proposed rule, on the
    other hand, would allow the carrier to record the asset at a maximum
    of \$750,000. We seek comment on our proposal. Commenters should
    address any potentially anti-competitive effects if we implement
    ceilings and floors for transactional valuations, as well as any
    benefits that would result from this approach.

## c. Exempt nonregulated to nonregulated transactions from affiliate transactions rules {#c.-exempt-nonregulated-to-nonregulated-transactions-from-affiliate-transactions-rules .unnumbered}

36. Our affiliate transactions rules apply to all transactions between
    carriers and their nonregulated affiliates that affect the carrier's
    regulated books of account.[^74] This means that many transactions
    involving nonregulated assets and services are subject to our
    affiliate transactions rules.[^75] For example, when a carrier sells
    an asset used exclusively in its nonregulated operations to its
    nonregulated affiliate, the asset must be valued according to our
    affiliate transactions rules. The asset is subject to two separate
    levels of accounting safeguards against subsidization: first, when
    the carrier ensures, pursuant to Part 64, that the asset is recorded
    as a nonregulated cost, and second, when the asset is valued
    according to our affiliate transactions rules.

37. It is now the time to revisit this issue in light of the changes in
    the CAM audits process. In the *Phase 1 Report and Order*, we
    permitted the large incumbent LECs to obtain an attest examination
    every two years, covering the prior two-year period,[^76] in lieu of
    an annual financial audit. Such attests should be performed by
    independent auditing firms in accordance with the standards of the
    American Institutes of Certified Public Accountants and as further
    directed by the Chief, Common Carrier Bureau. As part of this attest
    examination, we required the independent auditor to provide the
    Commission with the CAM audit program at least 30 days prior to the
    commencement of the audit. We stated that in the event additional
    steps are necessary, we will communicate this to the independent
    auditor within 30 days and attempt to minimize the burden of any
    necessary changes. This review will permit the Commission's auditors
    to review the audit program and, if necessary, work with the
    independent auditors to eliminate potential problems in advance.

38. We propose that our affiliate transactions rules should not apply to
    nonregulated activities transferred from the carrier's nonregulated
    operations to its nonregulated affiliate.[^77] We seek comment on
    whether the independent CAM attestation process or alternative
    measures can be relied upon to ensure that there is no ratepayer
    harm. We also seek comment on whether it matters how the carrier
    values its transaction to its nonregulated affiliate because our
    Part 64 rules ensure that the asset is recorded as nonregulated. We
    seek comment on our proposal. Commenters should discuss whether
    removing these transactions from our affiliate transactions rules
    could result in potential ratepayer harm.

## 4. Incidental activities {#incidental-activities .unnumbered}

39. Section 32.4999(l) provides that revenues from minor nontariffed
    activities that are an outgrowth of the carrier 's regulated
    activities may be recorded as regulated revenues under certain
    conditions. This provision obviates the need to make the detailed
    cost allocations that would otherwise be required to remove the
    costs of the nonregulated activity from regulated costs[^78][^79]
    Essentially, the revenues from the activity are used to reduce the
    carrier's revenue requirement rather than removing the costs to
    reduce the carrier's revenue requirement. These activities, referred
    to as "incidental activities," must satisfy four criteria: (1) be an
    outgrowth of regulated operations; (2) have been treated
    traditionally as regulated; (3) be a non-line-of business activity;
    and (4) result in revenues that, in the aggregate, represent less
    than one percent of total revenues for three consecutive
    years[^80][^81] Carriers must list their incidental activities in
    their CAM[^82][^83] but may not add new incidental activities
    because of the second criterion above. Carriers filed their first
    CAMs over ten years ago[^84][^85] During this decade, the list of
    incidental activities has been static. We seek comment on whether
    eliminating the "treated traditionally" requirement would harm
    ratepayers. We note that the three remaining criteria provide
    safeguards that the incidental-activities exception will not be
    abused. We seek comment on whether we should modify the three
    remaining criteria. Commenters advocating modifications to these
    three criteria should address how such changes would provide
    adequate safeguards against abuse. We propose to relax the "treated
    traditionally" requirement to allow carriers the flexibility to add
    new incidental activities. Under this proposal, the three other
    criteria would remain unaffected. We seek comment on whether
    relaxing this criterion is appropriate. Commenters should describe
    any additional activities that would qualify as incidental under our
    proposed rule. In addition, commenters should address whether, under
    our proposal, carriers could classify a new nonregulated activity as
    incidental and subsequently reclassify it as nonregulated thereby
    forcing ratepayers to bear the risk of nascent nonregulated
    ventures.

## 5. Expense Limits {#expense-limits .unnumbered}

40. Section 32.2000(a)(4) of the Commission's rules requires that the
    cost of individual items of equipment, classifiable to Account 2112,
    Motor vehicles; Account 2113, Aircraft; Account 2114, Tools and
    other work equipment; Account 2122, Furniture; Account 2123, Office
    equipment; and Account 2124, General purpose computers, costing
    \$2,000 or less or having a life of less than one year, shall be
    charged to the applicable expense accounts, except for personal
    computers falling within Account 2124. Personal computers
    classifiable to Account 2124, with a total cost for all components
    of \$500 or less, are charged to the applicable Plant Specific
    Operations Expense accounts.[^86] Section 32.2000(a)(4) of the
    Commission's rules[^87] specifies an expense limit for most of the
    general support asset accounts.[^88]

41. The purpose of the expense limit is to reduce the cost of
    maintaining property records for the acquisition, depreciation, and
    retirement of a multitude of low-cost, high-volume assets. Increases
    in the expense limit are made periodically to recognize the effects
    of inflation, technological changes, and changes in the
    telecommunications regulatory environment. The expense limit in Part
    32 has been increased several times.[^89] In addition, Responsible
    Accounting Officer Letter No. 6, increased from \$200 to \$500 the
    limit for expensing the tools and test equipment included in the
    central office plant accounts.[^90]

42. We seek comment on whether the expense limit rules should be
    modified again. Specifically, we seek comment on whether we should
    raise the expense limit from \$500 to \$2,000 for both Account 2124,
    General support computers, and the tools and test equipment included
    in the central office plant accounts. Alternatively, we could extend
    the expense limit to include all the plant asset accounts, not just
    selected general support assets. We note that the expense limit
    would have to be the same for all carriers to allow the Commission
    to compare costs across companies when determining appropriate
    levels of Universal Service support. Commenters should discuss
    positive or negative impacts on maintaining continuing property
    records related to central office plant accounts if the expense
    limit were raised. Commenters should also address how we should
    treat the embedded investment in these accounts if the expense limit
    were raised.

## 6. Additional Modifications to Cost Allocation Manual Requirements {#additional-modifications-to-cost-allocation-manual-requirements .unnumbered}

43. Section 64.903 of the Commission's rules requires incumbent LECs
    with annual operating revenues from regulated telecommunications
    operations equal to or above a designated indexed revenue threshold,
    currently \$114 million,[^91] to file CAMs annually setting forth
    the cost allocation procedures that they use to allocate costs
    between regulated and nonregulated services.[^92] The companies with
    operating companies that exceed the indexed threshold are SBC
    Communications, Qwest, Verizon, and BellSouth Corporation (all
    filing based on Class A accounts) and Alltel, Cincinnati Bell,
    Citizens Telecom, Frontier, Sprint, and C-TEC (mid-size carriers,
    filing based on Class B accounts). USTA proposes that the Commission
    allow all carriers the option to allocate Part 64 costs at a Class B
    level.[^93] USTA contends that direct assignment of costs would not
    change if carriers moved from Class A to Class B accounting. We seek
    comment on this proposal and any alternative modifications to these
    requirements.[^94] Commenters should discuss any concerns that may
    affect the states due to cost allocations at the Class B level and
    address the potential for cost allocation distortions. Commenters
    should also discuss the benefits of such an approach.

## 7. Classification of Companies {#classification-of-companies .unnumbered}

44. Section 32.11 of the Commission\'s rules divides companies into two
    categories for accounting purposes: Class A and Class B.[^95]
    Carriers with annual revenues from regulated telecommunications
    operations that are equal to or above the indexed revenue threshold,
    currently \$114 million, are classified as Class A; those with
    annual revenues from regulated telecommunications operations that
    are below the threshold are classified as Class B.[^96] Currently,
    we apply these requirements to incumbent LECs only. We seek comment
    on whether section 32.11 should be amended so that its requirements
    explicitly pertain only to incumbent LECs, as defined in section
    251(h) of the Communications Act, and any other companies that the
    Commission designates by order.

## 8. Cost Allocation Forecasts {#cost-allocation-forecasts .unnumbered}

##   {#section-1 .unnumbered}

45. Section 64.901(b)(4) of the Commission's rules requires that
    carriers allocate the costs of central office equipment and outside
    plant investment between regulated and nonregulated activities based
    on a forecast of the relative regulated and nonregulated usage
    during a three calendar year period beginning with the current
    calendar year.[^97] The purpose of this rule is to avoid cost
    allocation distortions that could adversely affect regulated
    ratepayers. USTA has asserted that this rule is burdensome and
    unnecessary.[^98] We seek comment on USTA's proposal, whether
    elimination of the rule would adversely affect ratepayers, and
    whether there are other alternative forecasting methodologies.

## ARMIS Reporting Requirements

46. ARMIS provides the Commission with information to monitor industry
    developments and quantify the effects of proposed changes in policy
    and rules.[^99] ARMIS integrates the financial data required under
    Parts 32 (USOA), 64 (Joint Cost), 36 (Jurisdictional Separations),
    and 69 (Access Charges) in a logical and consistent manner. Related
    operating and infrastructure data are also reported in ARMIS for
    each reporting period. By regularly reporting accounting results and
    operating statistics on a consistent and uniform basis, ARMIS
    provides policymakers with a database for monitoring activities
    associated with the provision of telecommunications services and the
    development of the telecommunications infrastructure without having
    to rely on ad hoc information requests.

47. The information reported in ARMIS has facilitated analysis on a
    variety of broad policy issues such as universal service support,
    consolidations and mergers, affiliate transactions, service quality,
    and infrastructure development, as well as focused areas of study
    such as network reliability, rate development, depreciation, rate of
    return, and industry trends. Recently, ARMIS data were used to
    analyze the benefits of the CALLS plan to support the Commission's
    recent adoption of an integrated access reform rate structure and
    universal service support mechanism.[^100]

48. Various parties, such as other government agencies, interexchange
    carriers, consumers, and state regulators also rely on ARMIS data.
    The Commission and states have actively engaged in coordinated and
    cooperative efforts in developing many aspects of the ARMIS reports
    in order to establish a data tool that is useful in both the state
    and interstate jurisdictions. The detail and uniformity of data
    reported in ARMIS provide a valuable tool for the many states that
    rely on the Commission's accounting system under Part 32. Such
    information is used in numerous state proceedings to support state
    policy decisions on issues such as cost allocations, pricing, and
    service quality.

49. ARMIS is provided to the Commission in eight reports. The level of
    reporting and the carriers required to file vary with each ARMIS
    report. Below is a chart summarizing (1) the name of the ARMIS
    Report; (2) the level of reporting required; and (3) the carriers
    required to file each report.

+-----+-------+-------+-------+-------+-------+-------+-------+-------+
| *   | **43  | **43  | **43  | **43  | **43  | **43  | **43  | **43  |
| *AR | -01** | -02** | -03** | -04** | -05** | -06** | -07** | -08** |
| MIS |       |       |       |       |       |       |       |       |
| RE  | **A   | *     | **    | **    | **Se  | **    | **In  | *     |
| POR | nnual | *USOA | Joint | Separ | rvice | Custo | fra** | *Oper |
| T** | Summ  | Rep   | Cost  | ation | Qual  | mer** |       | ating |
|     | ary** | ort** | Rep   | &     | ity** |       | **S   | D     |
|     |       |       | ort** | Acc   |       | *     | truct | ata** |
|     |       |       |       | ess** |       | *Sati | ure** |       |
|     |       |       |       |       |       | sfact |       |       |
|     |       |       |       |       |       | ion** |       |       |
+-----+-------+-------+-------+-------+-------+-------+-------+-------+
| Le  | Study | Oper  | Study | Study | Ho    | Ho    | Ho    | Oper  |
| vel | Area  | ating | Area  | Area  | lding | lding | lding | ating |
| of  |       | Co    |       |       | Co./  | Co./  | Co./  | Co    |
| Rep |       | mpany |       |       | Study | Study | Study | mpany |
| ort |       |       |       |       | Area  | Area  | Area  |       |
| ing |       |       |       |       |       |       |       |       |
+-----+-------+-------+-------+-------+-------+-------+-------+-------+
| IL  | All   | All   | All   | All   | All   | Mand  | Mand  | All   |
| ECs | car   | car   | car   | car   | price | atory | atory | car   |
| t   | riers | riers | riers | riers | cap   | price | price | riers |
| hat |       |       |       |       | car   | cap   | cap   |       |
| F   | at or | at or | at or | at or | riers | car   | car   | at or |
| ile | above | above | above | above |       | riers | riers | above |
|     | thre  | thre  | thre  | thre  |       |       |       | thre  |
|     | shold | shold | shold | shold |       |       |       | shold |
+-----+-------+-------+-------+-------+-------+-------+-------+-------+

50. Currently, of approximately 1,300 incumbent LECs, 52 have annual
    revenues exceeding the \$114 million threshold and, thus, must file
    financial ARMIS reports (*i.e*., 43-01, 43-02, 43-03 and 43-04).
    Thirty of these incumbent LECs consist of the operating companies of
    Verizon, SBC Communications, Inc., BellSouth Corporation, and Qwest.
    [^101] These 30 incumbent LECs report financial data on a Class A
    basis. The other 22 carriers are Cincinnati Bell and C-TEC, and
    affiliates of Sprint, Alltel Corporation, Frontier Corporation, and
    Citizens Telecom.[^102] These 22 incumbent LECs file on a Class B
    basis.[^103] The non-financial ARMIS reports are filed by carriers
    as follows: the 43-05 Service Quality report is filed by all price
    cap incumbent LECs;[^104] the 43-06 and 43-07 Reports are filed by
    mandatory price cap incumbent LECs;[^105] and the 43-08 Operating
    Data Report is filed by all carriers exceeding the annual revenue
    reporting threshold.[^106]

51. Since its inception in 1987, the Commission has made several changes
    to update and streamline ARMIS reporting requirements. Recent
    actions to implement provisions of the 1996 Act resulted in improved
    definitions, descriptions, and instructions for many of the ARMIS
    reports, and reduced reporting requirements for mid-sized
    carriers.[^107] We also reduced ARMIS filing requirements for all
    carriers.[^108] Most recently, in Phase 1 of this proceeding, we
    worked closely with NARUC and state commissions and further
    streamlined the ARMIS requirements.

52. Specifically, in Phase 1, we granted relief to all carriers by
    significantly reducing the reporting requirements of the ARMIS 43-02
    USOA Report.[^109] We noted that the ARMIS 43-02 Report was one of
    the most voluminous reports in ARMIS and that a significant
    reduction in the reporting burden imposed on carriers could be
    achieved through eliminating unnecessary requirements and
    simplifying the ARMIS 43-02 Report. Thus, in Phase 1, we revised
    Table C-3 of ARMIS 43-02 Report to include carrier's operating
    states; eliminated Tables C-1, C-2, and C-4 from the ARMIS 43-02
    Report; eliminated nine of twelve reporting items from Table C-5 of
    ARMIS 43-02 Report and established new threshold levels for two
    reporting items; eliminated seven of fifteen reporting items from
    the Table B Series of ARMIS 43-02; and eliminated three of seven
    reporting items from the Table I Series of ARMIS 43-02, established
    new threshold reporting levels for items reported in Tables I-6 and
    I-7, and eliminated reporting requirements for Academia. We stated
    that we would fully consider broader and more extensive streamlining
    measures in Phase 2.[^110]

53. At the initial workshops to consider reform measures that could be
    considered in Phase 2, the large incumbent LECs presented proposals
    to delete or streamline various ARMIS requirements. In addition, the
    mid-sized carriers presented proposals on further measures that
    could be considered to specifically address requirements imposed on
    smaller and rural incumbent LECs. Interested parties, including
    other government agencies, interexchange carriers, and consumer
    groups along with Commission and state staff members participated in
    discussions with the industry about their proposals.

54. Based on the discussions and concerns raised in these workshops, in
    this Notice we are proposing revisions to the following ARMIS
    Reports: 43-01 (Annual Summary Report); 43-02 (USOA Report); 43-03
    (Joint Cost Report); 43-04 (Separations and Access Report); 43-07
    (Infrastructure Report); and 43-08 (Operating Data Report).[^111] As
    set forth below, our proposed recommendations seek to eliminate or
    substantially simplify the reporting requirements for both large
    incumbent LECs and mid-sized incumbent LECs. We seek comment on our
    proposed recommendations. We are also looking for ways to provide
    easier input and access to the ARMIS reports and invite comment on
    how we can best achieve a more user-friendly ARMIS system. In
    addition, we set forth a separate proposal addressing reporting
    requirements for mid-sized carriers. We seek comment on the separate
    proposal for mid-sized carriers and ask commenters to address
    whether the proposed abbreviated filing requirement is sufficient
    and whether different reporting requirements for large incumbent
    LECs and mid-sized incumbent LECs, as proposed, is justified. To the
    extent ARMIS reports are used by states and other parties, we seek
    comment on whether those parties can obtain enough information for
    their purposes from alternative sources. In particular, commenters
    should address whether state-imposed or other non-federal reporting
    can be used to generate sufficient data for these parties' purposes.

55. We have attached the proposal presented by the large incumbent LECs
    as Appendix 6 to this Notice and seek comment on the industry's
    proposal as it relates to the ARMIS 43-01, 43-02, 43-03, 43-04,
    43-07, and 43-08 Reports.[^112] USTA contends that this proposal
    would be less burdensome and addresses some of the concerns
    expressed by the Commission and the state staffs in the public
    meetings. We specifically seek comment from the states on how that
    industry's proposal, if implemented, would affect their ongoing
    activities.

## 1. ARMIS Reports 43-01, 43-02, 43-03, and 43-04 {#armis-reports-43-01-43-02-43-03-and-43-04 .unnumbered}

56. The ARMIS 43-01 Annual Summary Report consists of Table-I, a highly
    aggregated and comprehensive view of the carriers' financial and
    cost allocation data; and Table-II, a summary of demand in minutes
    of use and billable access lines. All carriers at or above the
    annual revenue reporting threshold[^113] file the 43-01 Report on a
    study area basis. The report is filed on either a Class A or Class B
    level depending on the level of the carrier's aggregate annual
    revenues.[^114] Table-1 summarizes accounting, joint costs,
    jurisdictional separations, and access charges data. Generally,
    Table-I summarizes the carrier's costs and revenues as reported in
    the Part 32 accounts (43-02 USOA Report), and shows the allocation
    of costs between regulated and non-regulated activities (43-03 Joint
    Cost Report), the separation of regulated costs between state and
    interstate jurisdictions, and the interstate costs used to support
    access elements (43-04 Separations and Access Report). We seek
    comment on whether there are alternative sources for this data.

57. We propose to eliminate the requirement to file ARMIS 43-01, Table-I
    for all carriers filing at the Class A level.[^115] We propose to
    generate this table from information provided in other financial
    ARMIS reports and to post the report electronically with the
    carrier's annual ARMIS filing. Under this proposal, carriers would
    be relieved from reporting information that can otherwise be derived
    from other financial ARMIS reports. At the same time, useful summary
    information would be made available to policy makers and interested
    parties. We seek comment on this proposal. We are also considering
    eliminating Table-II, from the ARMIS 43-01 requirements. We propose
    to eliminate the reporting of all Common Line Demand Minutes of Use
    (*i.e*., premium and non-premium). We seek comment on retaining the
    sections for Switched Traffic Sensitive Demand Minutes of Use and
    Common Line Demand Billable Access Lines. This information about
    traffic on the carrier's network may be needed for decisions
    concerning jurisdictional separations, subscriber line charges, the
    deployment and cost of Lifeline service, and other universal service
    issues. The information we propose to retain would be added to the
    ARMIS 43-04 in conjunction with row 9010 (Total Billable Access
    Lines). We seek comment on this proposal and on any alternative
    proposals for achieving these purposes.

58. The ARMIS 43-02 Report (Part 32 -- USOA Report) contains the
    financial operating results of the carriers' telecommunications
    operations for every account in Part 32. All carriers at or above
    the annual revenue reporting threshold file the 43-02 Report on an
    operating company basis. This report is filed on either a Class A or
    Class B level depending on the level of the carrier's aggregate
    annual revenues. This Report collects information about the
    carrier's ownership (Table C Series), balance sheet (Table B
    Series), and income statement accounts (Table I Series). Information
    collected in Tables B and I provide data about the carrier's
    financial accounts, including overall investment and expense levels,
    affiliate transactions, property valuations, and depreciation rates.
    In Phase 1, we significantly reduced the reporting requirements for
    Tables C, B, and I. In this Notice, we seek comment on eliminating
    the filing of ARMIS 43-02, Table I-1 (Income Statement Accounts) for
    all carriers filing at the Class A level. Table I-1 collects data on
    the carrier's revenues, expenses, and net income for the reporting
    period. We propose to eliminate the requirement for carriers to file
    Table I-1 and to generate this table from information provided in
    the other financial ARMIS reports. As with our proposal for
    eliminating Table-I from the 43-01 Report, this proposal would
    provide relief to carriers from reporting information that can
    otherwise be derived from other ARMIS reports.

59. The ARMIS 43-03 Joint Cost Report contains the allocation of the
    carriers' revenues, expenses, and investments between regulated and
    nonregulated activities. All carriers at or above the annual revenue
    reporting threshold file the 43-03 Report on a study area basis.
    This report is filed on either a Class A or Class B level depending
    on the level of the carrier's aggregate annual revenues. We propose
    to reduce the number of columns currently reported on the 43-03
    Report by eliminating the distinction between "SNFA and Intra-co.
    Adjustments" and "Other Adjustments." We propose to combine these
    columns into one column entitled "Adjustments." We seek comment on
    this proposal.

60. In order to implement our proposal to eliminate the requirement to
    file ARMIS 43-01, Table I and ARMIS 43-02, Table I-1, for the
    largest incumbent LECs, we note that collection of some additional
    data will be needed in the ARMIS 43-03 Reports. Therefore, we are
    proposing to include in ARMIS 43-03, the collection of data for
    Account 1402 (Investment in Non-Affiliate Companies); Account 1437
    (Deferred Tax Regulatory Asset); Account 4341 (Net deferred tax
    liability adjustment); Account 4361 (Deferred tax regulatory
    liability); and the account series (7410 through 7450) for Account
    7400 (Non-operating Taxes). In addition, we propose the addition of
    4 rows for collecting information on the number of employees (rows
    830, 840, 850, and 860). We note that these data are currently
    required in ARMIS 43-02, Table I-1, but not in any other ARMIS
    report. Without this information, summary reports could not be
    accurately generated, and we would lack data that we have
    historically used to meet our ongoing activities. For instance, this
    data would be used to evaluate price cap incumbent LECs' claims for
    cost recovery through low-end adjustments, above-cap filings, or
    other recovery claims.[^116] The data we currently gather could be
    used to evaluate such cost recovery issues. We seek comment on this
    proposal and whether any additional data would be needed to meet our
    ongoing needs.

61. The ARMIS 43-04 Separations and Access Report contains data
    regarding the separation of carriers' regulated revenues and costs
    between the state and interstate jurisdictions and allocation of
    interstate amounts among the access charge categories. All carriers
    at or above the annual revenue reporting threshold file the 43-04
    Report on a study area basis. One of the primary purposes of the
    separations process is to prevent incumbent LECs from recovering the
    same costs in both the interstate and intrastate jurisdictions. Due
    to statutory, technological, and market changes in the
    telecommunications industry, today's network architecture and
    service offerings differ from the network and services used to
    define the cost categories appearing in our current Part 36
    separations process. We note that the Federal-State Joint Board has
    currently recommended an interim five-year freeze on separations
    activities as it continues to further consider more comprehensive
    separations reform.[^117] Until such time as the Commission takes
    action on the Joint Board's recommendation, we will not propose
    changes that would affect separations data.

62. We propose some revisions to the 43-04 Report, however, that we do
    not believe will affect the separations data. We propose to reduce
    the number of columns by eliminating the column for "BFP" (*i.e*.,
    the base factor portion) and collecting this data in the existing
    column entitled "Total Common Line." We seek comment on this
    proposal. As noted above, our proposal to eliminate Table-II, from
    the ARMIS 43-01 requirements entails that we retain data collection
    of Switched Traffic Sensitive Demand Minutes of Use and Common Line
    Demand Billable Access Lines. In the event we decide, after
    reviewing the comments, to retain this data, we propose to add this
    information to the ARMIS 43-04 Report in conjunction with row 9010
    (Total Billable Access Lines). We seek comment on this proposal. We
    also propose that the carriers be required to identify the cost and
    revenue associated with their excluded services[^118] separately
    from the remainder of their access element data. This would enable
    us to review claims for low-end adjustments, above cap price
    filings, and other cost recovery claims that require evaluation of
    rate of return data.[^119] This could be accomplished either by
    adding a new column for excluded services or by adding the excluded
    services cost and revenue data to the billing and collection data in
    a renamed column. We seek comment on these proposals. Commenters
    also may propose alternative approaches that do not require carriers
    to identify the cost and revenue associated with their excluded
    services separately from the remainder of the access element data.

63. Finally, we note that Part 32 requires metallic and non-metallic
    subsidiary record categories for each of the cable investment and
    expense accounts. These subsidiary record categories are not
    reported to the Commission, but the data contained therein are used
    to calculate universal service support for non-rural carriers, and
    also are useful in other forward-looking cost studies. We propose to
    add rows to ARMIS 43-02 and 43-04 Reports to allow for the reporting
    of metallic and non-metallic cable investment and expense
    information. We seek comment on this proposal.

## 2. ARMIS 43-07 and 43-08 Reports {#armis-43-07-and-43-08-reports .unnumbered}

64. The ARMIS 43-07 Infrastructure Report and 43-08 Operating Data
    Report collects data about the physical and operating
    characteristics of the local exchange carriers' telephone network.
    ARMIS 43-07 collects data about the carrier's switching and
    transmission equipment, call set up time, and cost of total plant in
    service. ARMIS 43-08 collects data about the carrier's outside
    plant, access lines in service by technology and by customer, number
    of telephone calls, and billed access minutes. Together, these
    reports provide information about the make-up and operating
    capability of nearly 95 percent of the country's public local
    exchange telephone network.[^120] This information has been useful
    to policymakers at federal, state, and local levels, and provides
    critical data not available through other public sources. [^121] We
    seek comment on the continued need to collect this data at the
    federal level, or whether state-level collection or other sources
    would be sufficient. As reported in ARMIS, approximately 480 million
    telephone calls were carried over the public network in 1991. By
    1999, calls over the public telephone network reached almost 660
    million, an increase of almost 40 percent in traffic. This growth
    shows the increasing use of, and reliance on, the public network for
    communications throughout the country. We seek comment on whether
    such reliance should be considered when deciding whether to retain
    these reporting requirements.

65. Our monitoring through ARMIS has provided us with information to
    assess the condition of the country's network infrastructure and has
    permitted us to make informed decisions to protect against
    degradations and outmoded network capabilities. While the ARMIS
    43-07 and 43-08 Reports were designed to achieve this purpose, our
    review reveals that many of the reporting requirements may have
    outlived their usefulness. We believe that significant revisions to
    these reports are in order. We seek comment on the elimination of
    obsolete data and also the collection of data related to new
    technologies. We note that the Commission currently has underway an
    effort to collect data concerning broadband deployment.[^122] The
    information collected through the *Local Competition and Broadband
    Data Gathering Program*, however, is not a substitute for the
    information collected in the ARMIS 43-07 and 43-08 Reports and was
    designed to be complementary to other Commission data gathering
    efforts, including ARMIS. [^123] The *Local Competition and
    Broadband Data Gathering Program* will provide the Commission with
    information on local competition and the deployment of advanced
    services in the United States; in contrast, the information
    collected in ARMIS provides the Commission with basic information
    about the infrastructure, capacity, and operating characteristics of
    the nation's network. We seek comment on whether this distinction is
    meaningful and on the extent to which ARMIS data is needed in light
    of our newer broadband data gathering efforts.

66. The reductions proposed in the following sections would eliminate
    approximately half of the reporting requirements that are currently
    imposed on carriers by the ARMIS 43-07 and 43-08 Reports. We seek
    comment on whether gathering information about the deployment of
    newer technologies would assist us in carrying out our mission of
    ensuring a competitive environment, while ensuring universal
    service. We seek comment on whether we should collect data on newer
    technologies to assist us in achieving our stated objectives of
    ensuring that incumbent LECs maintain and upgrade their network
    infrastructure for all consumers. We recognize that additional
    collections must be carefully designed to balance our need for
    information with the need to reduce burdens imposed on carriers. We
    seek comment on how burdensome the requirements we consider would be
    if imposed. Commenters should discuss whether the additional
    information concerning these newer technologies are appropriate
    indicators of the carriers' efforts to upgrade and invest in
    technologies that provide improved service to their customers and
    promote efficiencies and cost savings.

67. Finally, we seek comment on ways to improve reporting requirements
    for infrastructure and operating data in ARMIS. We seek comment on
    whether the ARMIS 43-07 and 43-08 Reports could be made more
    efficient in terms of use and reporting by combining some or all
    requirements. We note, however, that although there is a close
    relationship between these reports, there are some notable
    differences. Generally, the 43-07 Report collects information on
    measure of capacity while the 43-08 Report collects information on
    what is in-service. Further, the 43-07 Report is only filed by
    mandatory price cap incumbent LECs and is reported at the study area
    (jurisdiction) and holding company levels.[^124] The 43-08 Report is
    filed by all carriers at or above the revenue reporting threshold
    and is reported at the operating company level.[^125] We ask
    commenters to make specific recommendations as to the nature of any
    proposed changes in format and collection of data. We seek comment
    on whether and how ARMIS should be modified to enable us to perform
    trend analysis, provide rate and tariff analysis, make relevant
    comparisons among companies, and monitor the effects of company
    mergers and acquisitions, and whether the purposes of such analyses
    could be achieved through alternative means.

## a. ARMIS 43-07 -- Infrastructure Report {#a.-armis-43-07-infrastructure-report .unnumbered}

68. In ARMIS 43-07 Infrastructure Report we propose to eliminate the
    collection of outdated information and propose to collect
    information on newer technologies. Our intent is to collect basic
    relevant facts about the deployment of new technologies, not to
    expand significantly our monitoring program. In Table I (Switching
    Equipment), we propose to eliminate all reporting requirements for
    electromechanical switches (rows 130-141). We further propose to
    eliminate reporting requirements for analog stored-program-control
    and digital stored-program-control switches except for the total
    number of switches and lines served (retain rows 150, 160, 170 and
    180; eliminate rows 151-155, 161, 171-175, and 181). We also propose
    to eliminate all reporting requirements related to equal access and
    touch tone capabilities (rows 190-221). We seek comment on these
    proposals. We also propose to eliminate reporting of information
    related to SS7 and ISDN capabilities except to retain information
    concerning total switches, lines, local switches, and tandems
    equipped with SS7 and ISDN capabilities (eliminate rows 231, 233,
    235, 237, 241, 247, 251, 257, 271, 281, 291, and 301). We seek
    comment on this proposal.

69. To the extent commenters conclude that our broadband data gathering
    program is inadequate for this purpose, we seek comment on whether
    our monitoring program should include information on new
    technologies that indicate the degree that carriers are upgrading
    the network. We seek comment on including information for switches
    capable of transmitting the ATM protocol in Table I, and on the
    characteristics of ATM that carriers should provide in this report.
    Switched multi-megabit data service ("SMDS"), internet routers, and
    frame relay service are high-speed data telecommunications services
    built upon packet-switching technology. These services are widely
    offered to business customers for high-volume usage. We seek comment
    on whether carriers should report data on SMDS, internet routers,
    and frame relay services in Table I and on which characteristics of
    switches used to provide SMDS, internet routers, and frame relay
    services carriers should report.

70. Table II (Transmission Facilities) collects information about
    components of the network that are used to carry voice, video, and
    data traffic. Data reported in Table II provide information about
    transmission facilities for the total operating area of the carrier,
    and does not distinguish between urban and rural areas. The
    deployment of new technologies and new services in rural areas has
    been a matter of particular concern for the Commission.[^126]
    Transmission facilities, are perhaps, the most critical component in
    the provisioning of new services to rural areas. However, because
    the reporting carriers do not distinguish between rural and urban
    transmission facilities, the Commission cannot compare rural and
    urban infrastructure development based on the current reported
    information. Therefore, we seek comment on modifying Table II to
    require carriers to report data by Metropolitan Statistical Areas
    (MSA) and non-MSA.[^127] We seek comment on whether this distinction
    will assist the Commission and other interested parties in measuring
    the deployment of advanced telecommunications infrastructure in
    rural areas. We also seek comment on whether this or alternative
    proposals would be best considered in the context of the broadband
    data gathering proceeding.

71. In the first section of Table II, \"Sheath Kilometers,\" carriers
    report data on transmission facilities within their operating areas.
    Carriers use either analog or digital technology on copper wire,
    coaxial cable, fiber, radio, and other media. We seek comment on
    changing the title "Sheath Kilometers" to "Loop Sheath Kilometers"
    and to narrow the collection of data to only local loop facilities
    connecting customers to their serving offices.

72. In the second section of Table II, \"Interoffice Working
    Facilities,\" total circuit links are reported for baseband, analog
    carrier, and digital carrier. We seek comment on whether we should
    eliminate the reporting requirements that further distinguish
    baseband, analog, and digital (rows 331, 332, 333, 350, 351, 352,
    360, 361, 362, 363). We believe we can simplify the reporting
    requirements and obtain relevant information by requiring only the
    total circuit links for copper, radio, and fiber. We also note that
    optical carrier facilities, such as synchronous optical networks
    (SONET) are currently being deployed by the incumbent LECs. This
    technology will increasingly play a role in improving the
    transmission capacity of the network. We seek comment on whether we
    should include categories for optical carrier facilities and
    non-optical carrier facilities. Commenters should address
    definitional and other characteristics that would be useful if
    collection of data on this technology is implemented. We also seek
    comment on whether this or alternative proposals would be best
    considered in the context of the broadband data gathering
    proceeding.

73. In the third section of Table II, \"Loop Plant-Central Office
    Terminations,\" carriers report total working channels and total
    equipped channels. Under each category, there is a requirement for
    reporting six subcategories (copper, baseband, analog carrier,
    digital carrier, fiber digital carrier, and other). We seek comment
    on whether we should eliminate the reporting of six subcategories of
    equipped channels, and retain only the total of equipped channels.
    We seek comment on whether data about new technologies used in the
    local loop that provide high-capacity transmission facilities closer
    to subscribers would assist the Commission and the states in
    monitoring the deployment of new services and how that technology
    affects the development of competition. Commenters should discuss
    which categories of data would provide an accurate picture of
    deployment without placing an undue administrative burden on the
    reporting incumbent LECs. We also seek comment on whether this or
    alternative proposals would be best considered in the context of the
    broadband data gathering proceeding.

74. In the fourth section of Table II, "Other Transmission Facility
    Data," we propose to eliminate reporting of information that is no
    longer useful (fiber strands terminated at the customer premises at
    the DS-0 rate; and fiber strands terminated at the customer premises
    at the DS-2 rate). We seek comment on including information on
    hybrid fiber-copper loop interface locations, number of customers
    served from these interface locations, xDSL customer terminations
    associated with hybrid fiber-copper loops, and xDSL customer
    terminations associated with non-hybrid loops. Such data could
    provide a meaningful indication of carrier\'s efforts to upgrade the
    network. Commenters should discuss any other specifics that may
    provide a better indicator of this aspect of the network. We also
    seek comment on whether this or alternative proposals would be best
    considered in the context of the broadband data gathering
    proceeding.

75. In Table III (LEC Set-up Time Reporting), information is provided
    about incumbent LEC call set-up time for calls delivered by the
    incumbent LEC to interexchange carriers. Incumbent LEC call set-up
    time measures the time from when the customer completes dialing
    until the call reaches an interexchange carrier. We note that the
    need for this data was largely driven by problems arising from the
    change from a multi-frequency to the SS7 protocol. Our review of the
    data shows that most of these problems have been solved. Thus, we
    propose to eliminate this table. We seek comment on this proposal.

76. In Table IV (Additions and Book Costs), carriers report data
    concerning total access lines in service, access line gain, and
    total gross capital expenditures. This information provides data as
    it relates to carriers' actions to maintain and upgrade the network.
    We seek comment on whether there is continued need to collect this
    information by the federal government, as opposed to states or other
    entities. We seek comment on whether the information collected in
    this table is available from other data reported in ARMIS, and if
    so, whether there is a need for duplication. Specifically, we ask
    commenters to comment on whether the information on number of access
    lines is the same information reported in the 43-08 Report and
    whether the data on gross capital expenditures is the same
    information reported in the 43-02 Report, Table B-1.

## b. ARMIS 43-08 -- Operating Data Report {#b.-armis-43-08-operating-data-report .unnumbered}

77. The ARMIS 43-08 tables, which collect data on an operating company
    level by state, provide us with the ability to assess trends in
    investment in physical plant and to benchmark among carriers. We
    seek comment on the continued importance of such assessments and on
    whether there are alternative methods for achieving the goals
    underlying these assessments. We believe there are a number of areas
    in the ARMIS 43-08 Report where unnecessary data can be eliminated
    and where necessary data can be collected more efficiently. We seek
    comment on whether we can eliminate the reporting requirements in
    Table 1.A (Outside Plant Statistics -- Cable and Wire Facilities),
    that distinguish among aerial, underground, buried, submarine, deep
    sea, and intrabuilding cable plant (columns d -- o). We note that
    some carriers have suggested that we use information on relative
    sheath miles in aerial, underground, and buried cable as a basis for
    determining the relative amount of these types of facilities used in
    the forward looking model for calculating universal service support
    for non-rural carriers.[^128] In Table 1.B (Outside Plant Statistics
    -- Other), we propose to eliminate the reporting of information on
    satellite channels and video circuits for carriers' radio relay and
    microwave systems (columns be, bj, bm). We believe that data
    collected in these areas may no longer provide important information
    relevant to our policy analysis. We seek comment on these proposals.
    We ask commenters proposing to retain this information to discuss at
    what point would collection of data no longer be necessary. For
    instance, radio relay systems, except in 11 states, are 100 percent
    digital. We seek comment on whether some threshold level of
    deployment would provide a basis for eliminating the need for
    information, and if so, what an appropriate threshold level would
    be.

78. In Table II (Switched Access Lines in Service by Technology), we
    propose to eliminate the distinction between analog and digital
    lines, and require carriers to report the total of main access
    lines, PBX and Centrex units, and Centrex extensions (retain columns
    cc, cd, and ce on a total basis; and eliminate columns cf, cg, and
    ch). Our experience reveals that, while the data derived from these
    columns provide us with important information, the information may
    be more useful and collected more efficiently if provided on a total
    basis. We seek comment on these proposals and on the continued
    importance of collecting switched access line data generally.

79. In Table III (Access Lines in Service by Customer), we propose to
    narrow the information collection to total number of Business Access
    Lines (Single-Line and Multi-Line) and Residential Access Lines
    (Lifeline/Non-Lifeline and Primary/Non-Primary). We believe that the
    level of detail required in this table may not be necessary and that
    collection on a total basis may be sufficient for us to meet our
    responsibilities. We propose to collect data on private lines
    providing intrastate service. We note that this information is used
    to calculate forward-looking costs for universal service
    purposes.[^129] We seek comment on whether this information is
    available from any other public source. We also seek comment on
    whether Special Access Lines (Analog and Digital) (columns dk
    and dl) provide accurate information about the carriers' provision
    of special access lines. Specifically, we seek comment on whether
    there is a need for clarification of this reporting requirement. For
    instance, would redefining this collection as Customer Private Line
    Terminations (Broadband and Narrowband) or some other designation
    result in more accurate reporting by carriers? We note that there
    has been much controversy over the use of the term "Special Access
    Lines," resulting in inconsistent reporting by carriers. We seek
    comment on the use of this term and whether a more meaningful
    definition or term would be appropriate. We also ask commenters to
    discuss whether the use of terms in other ARMIS reports should be
    revised or clarified in order to be consistent with any change made
    in this report.

## Relief for Mid-Sized Carriers

80. In various proceedings, we have recognized the different needs of
    the mid-sized carriers. For example, in the *ARMIS Reductions Report
    and Order*, we reduced ARMIS filing requirements for mid-sized
    carriers. We noted that staff analysis and usage of the data
    provided in the ARMIS tables had mostly been limited to the largest
    incumbent LECs because they have the greatest opportunities and
    incentives for shifting costs between services.[^130] Similarly, in
    the *Accounting Reductions Report and Order*, we allowed mid-size
    incumbent LECs to submit CAMs based on the Class B system of
    accounts and an attestation every two years.[^131] We concluded,
    based on our experience with mid-sized LECs, that we could maintain
    the necessary degree of oversight and monitoring to protect
    consumers' interests while imposing the less administratively
    burdensome requirements on such carriers.[^132] In this Notice of
    Proposed Rulemaking, we propose more significant reductions for
    mid-sized carriers than we have proposed for large incumbent LECs as
    described above. In our public meeting with the mid-sized carriers,
    they suggested that we treat mid-sized Class A carriers as Class B
    carriers. This would eliminate all CAM requirements and ARMIS
    filings for such carriers. We seek comment on this proposal. As an
    alternative, we propose to eliminate mandatory annual CAM filings
    and biennial CAM audits for these carriers. Instead, the mid-sized
    carriers would file only an annual certification with the
    Commission. We also propose raising the indexed revenue threshold
    from \$114 million to \$200 million. The net effect for mid-sized
    carriers would be that several carriers will be classified as Class
    B carriers, and therefore not subject to any reporting requirements,
    and the balance of the mid-sized carriers will be subject only to
    very minimal reporting requirements. We also propose eliminating all
    financial reporting for mid-sized carriers except the 43-01 (Summary
    Report). We seek comment on adoption of these proposals for
    mid-sized carriers.

## Reduced Cost Allocation Manual Procedures

81. Section 64.903 of the Commission's rules requires incumbent LECs
    with annual operating revenues from regulated telecommunications
    operations equal to or above a designated indexed revenue threshold,
    currently \$114 million,[^133] to file CAMs annually setting forth
    the cost allocation procedures that they use to allocate costs
    between regulated and nonregulated services.[^134] The companies
    with operating companies that exceed the indexed threshold are SBC
    Communications, Qwest, Verizon, and BellSouth Corporation (all
    filing based on Class A accounts) and Alltel, Cincinnati Bell,
    Citizens Telecom, Frontier, Sprint, and C-TEC (mid-size carriers,
    filing based on Class B accounts). Roseville and Century Telephone
    now have annual revenues that exceed the indexed revenue threshold
    but under our current rules would not be required to file
    until 2001. Carriers required to file CAMs are also required to
    engage independent auditors to perform an audit.[^135] In the
    *Accounting Reductions Report and Order*, we revised the audit
    requirement from an annual financial audit to an attest engagement
    every two years.[^136] Thus, carriers with aggregate revenues below
    \$7 billion[^137] but equal to or above the indexed revenue
    threshold (currently \$114 million) are currently required to file
    CAMs annually based on Class B accounts and obtain an attest audit
    every two years, covering the prior two-year period. Carriers with
    operating revenues below the indexed revenue threshold are not
    required to file a CAM or conduct CAM audits.

82. We seek comment on ways to further reduce regulatory burdens on
    mid-sized incumbent LECs. We propose to eliminate the requirement
    that mid-sized incumbent LECs file their CAMs on an annual basis. We
    seek comment on whether these carriers should be required to
    maintain cost allocation manuals in the format set forth in section
    64.903 of our rules,[^138] even if they do not file those CAMs with
    the Commission. Commenters should quantify the costs of maintaining
    a CAM in accordance with the requirements of section 64.903, and
    suggest any modifications to that rule they deem appropriate. As an
    alternative, the mid-sized carriers could file a certification with
    the Commission stating that they are complying with section 64.901
    of the Commission's rules. Under this proposal, the certification
    would be signed, under oath, by an officer of the incumbent LEC, and
    filed with the Commission on an annual basis. In addition, we
    propose to eliminate the requirement for an attestation engagement
    every two years. The Common Carrier Bureau would have the authority
    to request further information or order an audit of the carrier's
    books to ensure they are in compliance with our cost allocation
    requirements. We seek comment on these proposals.

83. We further seek comment on whether our definition of mid-sized
    incumbent LECs should be re-examined. We note that a few carriers
    have recently crossed the indexed revenue threshold, although they
    are significantly smaller than the majority of mid-sized LECs. We
    propose to increase the indexed revenue threshold from \$114 million
    to \$200 million.[^139] Under this proposal, carriers with operating
    revenues below \$200 million would not be required to maintain a CAM
    or file a certification. We seek comment on our proposal. Carriers
    should discuss whether, alternatively, the threshold should be based
    on holding company revenues instead of operating company revenues,
    with a corresponding change in threshold.

## Streamlined ARMIS Requirements

84. We propose to eliminate the ARMIS 43-02, 43-03, and 43-04 reporting
    requirements for mid-sized carriers. We recognize that mid-sized
    carriers often have limited resources and have financial
    transactions that are generally smaller and fewer in number than the
    larger incumbent LECs. The cost of regulatory compliance may
    disproportionately impact the mid-sized carriers filing the more
    detailed ARMIS 43-02, 43-03, and 43-03 reports.

85. We seek comment on retaining the reporting requirement that
    mid-sized carriers report ARMIS 43-01 (Summary Report), which
    presents information in a highly aggregated form. We ask commenters
    to specifically address the costs and benefits of requiring certain
    mid-size carriers to file the ARMIS 43-01 Summary Report,
    particularly in light of the previous proposal to eliminate ARMIS
    43-02, 43-03, and 43-04. To the extent we find obvious errors or
    inconsistencies, we have the ability to request further information
    from the carrier that will clarify and address such issues. We also
    seek comment on the costs and benefits of retaining the requirement
    that carriers at or above the threshold continue to file operating
    data in the ARMIS 43-08 Report.

86. We further propose to reduce the requirements in ARMIS 43-01 by
    eliminating the distinction between "SNFA and Intra-co. Adjustments"
    and "Other Adjustments." We propose to combine these columns into
    one column entitled "Adjustments." We propose to reduce the number
    of columns by eliminating the column for "BFP" and collecting this
    data in the existing column entitled "Total Common Line." Finally,
    we propose to either add a new column for 'excluded services' or add
    excluded services cost and revenue data to the billing and
    collection data in a renamed column. This would enable us to
    reconcile their rate of return filings[^140] with their accounting
    data. We seek comment on these proposals, and on whether it would be
    appropriate to extend all or part of this relief to larger carriers.

# PHASE 3 - LONG TERM TRANSITION TO DEREGULATION

87. The 1996 Act directed the Commission to "provide for a
    pro-competitive, de-regulatory, national policy framework."[^141] As
    regulatory, technological, and market conditions continue to change,
    the Commission must consider more drastic changes to existing
    accounting and reporting requirements. We thus seek to undertake a
    broader examination of Part 32 and ARMIS requirements with the goal
    of determining what additional changes can be made as competition
    develops, and assessing ultimately what, if any, specific accounting
    and reporting requirements are necessary when local exchange markets
    become sufficiently competitive.

88. Our accounting and reporting safeguards were largely implemented to
    support Commission policies intended to prevent dominant carriers
    from taking unfair advantage of their monopolistic control over loop
    facilities and access to the local exchange network. As the local
    exchange industry becomes more competitive, we expect that our needs
    for accounting and reporting information will diminish. At the same
    time, we must be careful not to eliminate requirements that are
    necessary to promote universal service, foster efficient
    competition, and protect consumers before significant market changes
    occur. [^142]

89. In this section, we seek comment on what roadmap we should follow
    for accounting and reporting deregulation. Specifically, we seek
    comment on whether there are certain triggers that will allow the
    Commission to significantly modify or relieve certain accounting and
    reporting requirements that currently apply to incumbent LECs. Is
    there a point at which the Commission should completely eliminate
    its accounting and reporting requirements? Is that point when all
    local exchange carriers become non-dominant? [^143] Alternatively,
    should individual carriers be relieved of accounting and reporting
    requirements as they individually become non-dominant? How would
    this Commission make such a finding of non-dominance? How should the
    Commission proceed if an incumbent remains dominant for certain
    services, but not others? How should deregulation occur if some
    carriers are deemed non-dominant, but other carriers, such as rural
    carriers, remain dominant? Is there a basis for eliminating or
    modifying our accounting and reporting requirements on an industry
    wide basis, even if some carriers retain market power?

90. We also ask commenters to address the effect of BOCs receiving
    section 271 authorizations to provide in-region interLATA services.
    We seek comment on whether certain accounting requirements should
    sunset when the section 272 separate affiliate requirements sunset
    for a given carrier in a particular state, and if so, which specific
    requirements should be eliminated. Would it be administratively
    practical for accounting and reporting requirements to be reduced or
    eliminated on a state-by-state basis?

91. We seek comment on whether achieving pricing flexibility[^144]
    should be a trigger for relaxing accounting and reporting
    requirements and if it would be administratively practical because
    pricing flexibility is granted on a market by market basis. If so,
    which specific requirements should be modified or eliminated?

92. We note that other carriers, such as competitive LECs (CLECs),
    interexchange carriers, cable companies providing telephony, and
    wireless carriers, are not subject to our accounting and reporting
    requirements.[^145] We seek comment on whether this asymmetric
    regulation makes sense as we move to a more competitive environment.
    What is the policy rationale for subjecting one type of carrier to
    accounting and reporting requirements when other carriers are not
    subject to such requirements? Do the current accounting and
    reporting requirements imposed on incumbent LECs impede their
    ability to compete with other market participants? Commenters should
    quantify any monetary or other impact of our current requirements.

93. We note that a number of incumbents, both large and small, have
    begun to compete as CLECs outside of their traditional service
    areas. [^146] Moreover, a number of incumbents are offering bundled
    packages of offerings -- such as voice, Internet access, wireless,
    and long distance -- in competition with other carriers. How should
    our accounting and reporting requirements evolve as carriers no
    longer remain in their historical line of business?

94. The requirements under consideration in this proceeding fall into
    two general areas. First, our accounting rules largely prescribe how
    incumbent LECs record and allocate costs. Second, our ARMIS
    reporting rules require that certain carriers report to the
    Commission on an annual basis various information, both financial
    and nonfinancial. We seek comment on whether it makes sense to
    relieve carriers from reporting requirements, while maintaining our
    existing accounting requirements. Compliance with certain
    requirements may be critical to protecting ratepayers from
    subsidizing nonregulated services, but the Commission may not need
    information on an annual basis on how specific carriers are
    complying with such requirements. How would the Commission's mission
    be affected if it were to gather information on a less frequent, or
    more ad hoc, basis?

95. Our accounting and reporting requirements already recognize that the
    burdens of compliance may outweigh the benefits for small and
    mid-size incumbent LECs. The vast majority of incumbents with fewer
    than two percent of the nation's access lines are not required to
    file in ARMIS today, even though they have historically been
    dominant in their relevant markets. In the 1996 Act, Congress
    explicitly recognized that smaller and rural carriers might face
    unique circumstances warranting lesser regulatory
    requirements.[^147] Regardless of what actions we take with respect
    to the larger carriers, should deregulation proceed in a different
    fashion, for companies with fewer than two percent of access lines?
    Commenters should address with specificity what deregulatory
    measures are appropriate for smaller carriers and what safeguards
    are necessary to ensure that consumers' interests are protected.

96. We note that our accounting and reporting rules were designed to
    provide uniform accounting data to be used to support tariffed
    prices, to provide information concerning the financial condition of
    incumbent local exchange carriers, and to serve as an efficient
    system for both management and federal and state regulators. As
    carriers were allowed to provide nonregulated services without the
    need for structural separations, the accounting and reporting rules
    served the additional public policy goal of ensuring that the
    ratepayers of regulated services did not bear the costs and risks of
    nonregulated activities. As our universal service system developed,
    the accounting and reporting rules also served the policy of
    ensuring proper cost data on which to base a system of sufficient
    universal service support. Comments addressing triggers for
    accounting and reporting deregulation should also discuss these
    policy underpinnings, how these policies have changed over time, and
    how these policies can be maintained when more drastic deregulation
    of accounting and reporting occur.

97. Section 220 of the Communications Act states that the Commission
    shall prescribe a uniform system of accounts for use by telephone
    companies.[^148] Sections 260 and 271 through 276 of the
    Communications Act require a certain amount of accounting safeguards
    in place to either ensure that transactions between Bell operating
    companies (BOCs) and their affiliates or nonregulated activities are
    accomplished without cost misallocations and that these transactions
    are performed on an arm's length basis.[^149] Section 254(k)
    specifically states that the Commission, with respect to interstate
    services, and the states, with respect to intrastate services, shall
    establish any necessary cost allocation rules, accounting
    safeguards, and guidelines to ensure that services included in the
    definition of universal service bear no more than a reasonable
    allocation of joint and common costs of facilities used to provide
    these services.[^150] These legislative accounting safeguards were
    mandated to ensure that the pro-competitive goals of the
    Communications Act could be realized. Moreover, section 1 of the
    Communications Act established as one purpose to ensure "a rapid,
    efficient, Nation-wide, and world-wide wire and radio communication
    service with adequate facilities and reasonable charges."[^151] We
    seek comment on how we can best achieve these mandates keeping in
    mind the ultimate goal of a deregulatory national telecommunications
    policy framework.

98. We ask commenters to discuss whether and how the Commission and the
    states can carry out their respective statutory mandates without
    uniform and accurate accounting and reporting information.
    Specifically, commenters should address how jurisdictional
    separations could be implemented without Part 32 accounting data.
    Commenters should also discuss how any system of universal service
    support could be implemented without the Commission receiving
    uniform accounting data. Commenters should address how this
    Commission could assess the state of the network without ARMIS
    information. Finally, we ask commenters to discuss how the
    Commission and states could address cost issues in various
    proceedings such as long-term number portability, interconnection,
    pole attachments, and collocation without uniform and accurate
    accounting data.

# PROCEDURAL ISSUES

## Ex Parte Presentations

99. This is a permit but disclose rulemaking proceeding. *Ex parte*
    presentations are permitted, except during the Sunshine Agenda
    period, provided that they are disclosed as provided in the
    Commission\'s rules. *See generally* 47 C.F.R. §§ 1.1202, 1.1203,
    and 1.1206.

## Initial Regulatory Flexibility Analysis

100. As required by the Regulatory Flexibility Act (RFA),[^152] the
     Commission has prepared an Initial Regulatory Flexibility Analysis
     (IRFA) of the possible significant economic impact on small
     entities by the policies and rules proposed in this Notice. The
     IRFA is set forth as Appendix 7. Written public comments are
     requested on the IRFA. These comments must be filed in accordance
     with the same filing deadlines for comments on the rest of this
     Notice and they must have a separate and distinct heading,
     designating the comments as responses to the IRFA. The Consumer
     Information Bureau, Reference Information Center, will send a copy
     of this Notice, including the IRFA, to the Chief Counsel for
     Advocacy of the Small Business Administration.[^153] In addition,
     the Notice and IRFA (or summaries thereof) will be published in the
     Federal Register.[^154]

## Paperwork Reduction Act

101. As part of our continuing effort to reduce paperwork burdens, we
     invite the general public to take this opportunity to comment on
     information collections contained in this Notice of Proposed
     Rulemaking, as required by the Paperwork Reduction Act of 1995,
     Pub. L. No. 104-13. Public and agency comments are due at the same
     time as other comments on this Notice of Proposed Rulemaking.
     Comments should address: (a) whether the proposed collection of
     information is necessary for the proper performance of the
     functions of the Commission, including whether the information
     shall have practical utility; (b) the accuracy of the Commission\'s
     burden estimates; (c) ways to enhance the quality, utility, and
     clarity of the information collected; and (d) ways to minimize the
     burden of the collection of information on the respondents,
     including the use of automated collection techniques or other forms
     of information technology.

## Comment Filing Procedures

102. Pursuant to sections 1.415 and 1.419 of the Commission\'s rules, 47
     C.F.R. §§ 1.415, 1.419, interested parties may file comments on
     Phase 2 on or before December 21, 2000, and reply comments on or
     before January 30, 2001. For Phase 3, interested parties may file
     comments on or before January 30, 2001, and reply comments on or
     before February 28, 2001. Comments may be filed using the
     Commission\'s Electronic Comment Filing System (ECFS) or by filing
     paper copies.[^155]

103. Comments filed through the ECFS can be sent as an electronic file
     via the Internet to \<http://www.fcc.gov/e-file/ecfs.html\>.
     Generally, only one copy of an electronic submission must be filed.
     If multiple docket or rulemaking numbers appear in the caption of
     this proceeding, however, commenters must transmit one electronic
     copy of the comments to each docket or rulemaking number referenced
     in the caption. In completing the transmittal screen, commenters
     should include their full name, Postal Service mailing address, and
     the applicable docket or rulemaking number. Parties may also submit
     an electronic comment by Internet e-mail. To get filing
     instructions for e-mail comments, commenters should send an e-mail
     to ecfs@fcc.gov, and should include the following words in the body
     of the message, \"get form \<your e-mail address.\" A sample form
     and directions will be sent in reply.

104. Parties who choose to file by paper must file an original and four
     copies of each filing. If more than one docket or rulemaking number
     appear in the caption of this proceeding, commenters must submit
     two additional copies for each additional docket or rulemaking
     number. All filings must be sent to the Commission\'s Secretary,
     Magalie Roman Salas, Office of the Secretary, Federal
     Communications Commission, 445 12th Street, S.W., Washington, D.C.
     20554.

105. Parties who choose to file by paper should also submit their
     comments on diskette. These diskettes should be submitted to:
     Ernestine Creech, Accounting Safeguards Division, 445 12th Street,
     S.W., Washington, D.C. 20554. Such a submission should be on a
     3.5-inch diskette formatted in an IBM compatible format using Word
     or compatible software. The diskette should be accompanied by a
     cover letter and should be submitted in \"read only\" mode. The
     diskette should be clearly labeled with the commenter\'s name,
     proceeding (including the docket number, in this case CC Docket No.
     00-199, type of pleading (comment or reply comment), date of
     submission, and the name of the electronic file on the diskette.
     The label should also include the following phrase \"Disk Copy -
     Not an Original.\" Each diskette should contain only one party\'s
     pleadings, preferably in a single electronic file. In addition,
     commenters must send diskette copies to the Commission\'s copy
     contractor, International Transcription Service, Inc., 1231 20th
     Street, N.W., Washington, D.C. 20037.

106. Written comments by the public on the proposed and/or modified
     information collections are due on or before thirty days after the
     date of publication in the Federal Register. Written comments must
     be submitted by the Office of Management and Budget (OMB) on the
     proposed and/or modified information collections on or before 60
     days after date of publication in the Federal Register. In addition
     to filing comments with the Secretary, a copy of any comments on
     the information collections contained herein should be submitted to
     Judy Boley, Federal Communications Commission, Room 1-C804, 445
     12th Street, S.W., Washington, DC 20554, or via the Internet to
     jboley@fcc.gov and to Edward Springer, OMB Desk Officer, 10236
     NEOB, 725 - 17th Street, N.W., Washington, D.C. 20503.

# ORDERING CLAUSES

107. Accordingly, IT IS ORDERED that, pursuant to the authority
     contained in sections 4(i), 4(j), 11, 201(b), 303(r), and 403 of
     the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i),
     154(j), 161, 201(b), 303(r), and 403, this Notice of Proposed
     Rulemaking IS ADOPTED.

108. IT IS FURTHER ORDERED that the Commission\'s Consumer Information
     Bureau, Reference Information Center, SHALL SEND a copy of this
     Notice of Proposed Rulemaking, including the Initial Regulatory
     Flexibility Analysis, to the Chief Counsel for Advocacy of the
     Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

**APPENDIX 1**

###### PART 32 CLASS A ACCOUNTS {#part-32-class-a-accounts .unnumbered}

1130 Cash

1140 Special cash deposits

1150 Working cash advances

1160 Temporary investments

1180 Telecommunications accounts receivable

1181. Accounts receivable allowance-

telecommunications

1190 Other accounts receivable

1191 Accounts receivable allowance-other

1200 Notes receivable

1201 Notes receivable allowance

1210 Interest and dividends receivable

1220 Inventories

Materials and supplies

Property held for sale or lease

1290 Prepaid rents

1300 Prepaid taxes

1310 Prepaid insurance

1320 Prepaid directory expenses

1330 Other prepayments

1350 Other current assets

1401 Investments in affiliated companies

1402 Investments in nonaffiliated companies

1406 Nonregulated investments

Permanent investment

Receivable/payable

Current net income or loss

1407 Unamortized debt issuance expense

1408 Sinking funds

1410 Other noncurrent assets

1437 Deferred tax regulatory asset

1438 Deferred maintenance & retirements

1439 Deferred charges

1500 Other jurisdictional assets-net

2001 Telecommunications plant in service

2002. Property held for future

telecommunications use

2003. Telecommunications plant under

construction

2005 Telecommunications plant adjustment

2006 Nonoperating plant

2007 Goodwill

2111 Land

2112 Motor vehicles

2113 Aircraft

2114 Tools and other work equipment

2121 Buildings

2122 Furniture

2123 Office equipment

Office support equipment

Company communications equipment

2124 General purpose computers

2211 Analog electronic switching

2212 Digital electronic switching

2215 Electro-mechanical switching

Step-by-step switching

Crossbar switching

Other electro-mechanical switching

2220 Operator system

2231 Radio system

Satellite and earth station facilities

Other radio facilities

2232 Circuit equipment

2311 Station apparatus

2321 Customer premises wiring

2341 Large private branch exchanges

2351 Public telephone terminal equipment

2362 Other terminal equipment

2411 Poles

2421 Aerial cable

Nonmetallic cable

Metallic cable

2422 Underground cable

Nonmetallic cable

Metallic cable

2423 Buried cable

Nonmetallic cable

Metallic cable

2424 Submarine cable

Nonmetallic cable

Metallic cable

2425 Deep sea cable

Nonmetallic cable

Metallic cable

2426 Intrabuilding network cable

Nonmetallic cable

Metallic cable

2431 Aerial wire

2441 Conduit systems

2681 Capital leases

2682 Leasehold improvements

2690 Intangibles

3100 Accumulated depreciation

3200. Accumulated depreciation-held for future

telecommunications use

3300 Accumulated depreciation-nonoperating

3410. Accumulated amortization-capitalized

leases

3420. Accumulated amortization-leasehold

improvements

3500 Accumulated amortization-intangible

3600 Accumulated amortization-other

4010 Accounts payable

4020 Notes payable

4030 Advance billing & payments

4040 Customers' deposits

4050 Current maturities-long-term debt

4060 Current maturities-capital leases

4070 Income taxes-accrued

4080 Other taxes-accrued

4100. Net current deferred operating income

taxes

4110. Net current deferred nonoperating income

taxes

4120 Other accrued liabilities

4130 Other current liabilities

4210 Funded debt

4220 Premium on long-term debt

4230 Discount on long-term debt

4240 Reacquired debt

4250 Obligations under capital leases

4260 Advances from affiliated companies

4270 Other long-term debt

4310 Other long-term liabilities

4320. Unamortized operating investment tax

credits-net

4330. Unamortized nonoperating investment tax

credits-net

4340. Net noncurrent deferred operating income

taxes

4341 Net deferred tax liability adjustments

4350. Net noncurrent deferred nonoperating

income taxes

4360 Other deferred credits

4361 Deferred tax regulatory liability

4370. Other jurisdictional liabilities & deferred

credits-net

4510 Capital stock

4520 Additional paid-in-capital

4530 Treasury stock

4540 Other capital

4550 Retained earnings

5000 Basic local service revenue

5001 Basic area revenue

5002 Optional extended area revenue

5003 Cellular mobile revenue

5004 Other mobile services revenue

5040 Local private line revenue

5050 Customer premises revenue

5060 Other local exchange revenue

5069 Other local exchange revenue settlements

5080 Network access revenue

5081 End user revenue

5082 Switched access revenue

5083 Special access revenue

5084 State access revenue

5100 Long distance message revenue

5110 Unidirectional long distance revenue

5111 Long distance inward-only revenue

5112 Long distance outward-only revenue

5120 Long distance private network revenue

5121. Subvoice grade long distance private

network revenue

5122. Voice grade long distance private network

revenue

5123. Audio program grade long distance private

network revenue

5124. Video program grade long distance private

network revenue

5125. Digital transmission long distance private

network revenue

5126. Long distance private network switching

> Revenue

5128 Other long distance private network

revenue

5129. Other long distance private network

revenue settlements

5160 Other long distance revenue

5169 Other long distance revenue settlements

5230 Directory revenue

5240 Rent revenue

5250 Corporate operations revenue

5260 Miscellaneous revenue

5261 Special billing arrangements revenue

5262 Customer operations revenue

5263 Plant operations revenue

5264 Other incidental regulated revenue

5269 Other revenue settlements

5270 Carrier billing and collection revenue

5280 Nonregulated operating revenue

5300 Uncollectible revenue

5301 Uncollectible revenue-telecommunications

5302 Uncollectible revenue-other

6110 Network support expenses

6112 Motor vehicle expense

6113 Aircraft expense

6114 Tools and other work equipment expense

6120 General support expenses

6121 Land & building expense

6122 Furniture & artworks expense

6123 Office equipment expense

6124 General purpose computers expense

6210 Central office switching expenses

6211 Analog electronic expense

6212 Digital electronic expense

6215 Electro-mechanical expense

Step-by-step switching

Crossbar switching

Other electro-mechanical switching

6220 Operator systems expense

6230 Central office transmission expense

6231 Radio systems expense

Satellite and earth station facilities

Other radio facilities

6232 Circuit equipment expense

6310. Information origination/termination

expenses

6311 Station apparatus expense

6341 Large private branch exchange expense

6351. Public telephone terminal equipment

expense

6362 Other terminal equipment expense

6410 Cable & wire facilities expense

6411 Poles expense

6421 Aerial cable expense

Nonmetallic cable

Metallic cable

6422 Underground cable expense

Nonmetallic cable

Metallic cable

6423 Buried cable expense

Nonmetallic cable

Metallic cable

6424 Submarine cable expense

Nonmetallic cable

Metallic cable

6425 Deep sea cable expense

Nonmetallic cable

Metallic cable

6426 Intrabuilding network cable expense

Nonmetallic cable

Metallic cable

6431 Aerial wire expense

6441 Conduit systems expense

6510. Other property, plant & equipment

expense

6511. Property held for future

telecommunications use expense

6512 Provisioning expense

6530 Network operations expenses

6531 Power expense

6532 Network administration expense

6533 Testing expense

6534 Plant operations administration expense

6535 Engineering expense

6540 Access expense

6560 Depreciation & amortization expenses

6561. Depreciation expense-telecommunications

plant in service

6562. Depreciation expense-property held for future telecommunications

6563 Amortization expense-tangible

6564 Amortization expense-intangible

6565 Amortization expense-other

6610 Marketing

6611 Product management

6612 Sales

6613 Product advertising

6620 Services

6621 Call completion services

6622 Number services

6623 Customer services

6710 Executive and planning

6711 Executive

6712 Planning

6720 General and administrative

6721 Accounting and finance

6722 External relations

6723 Human resources

6724 Information management

6725 Legal

6726 Procurement

6727 Research and development

6728 Other general and administrative

6790 Provision for uncollectible notes receivable

7100 Other operating income & expenses

7110 Income from custom work

7130. Return from nonregulated use of regulated

facilities

7140 Gains & losses from foreign exchange

7150. Gains & losses from the disposition of

land & artworks

7160 Other operating gains & losses

7200 Operating taxes

7210 Operating investment tax credits-net

7220 Operating Federal income taxes

7230 Operating state & local income taxes

7240 Operating other taxes

7250. Provision for deferred operating income

taxes-net

7300 Nonoperating income & expense

7310 Dividend income

7320 Interest income

7330 Income from sinking & other funds

7340. Allowance for funds used during construction

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7350. Gains or losses from the disposition of certain property

7360 Other nonoperating income

7370 Special charges

7400 Nonoperating taxes

7410 Nonoperating investment tax credits-net

7420 Nonoperating Federal income taxes

7430 Nonoperating state & local income taxes

7440 Nonoperating other taxes

7450. Provision for deferred nonoperating

income taxes-net

7500 Interest and related items

7510 Interest on funded debt

7520 Interest expense-capital leases

7530 Amortization of debt issuance expense

7540 Other interest deductions

7600 Extraordinary items

7610 Extraordinary income credits

7620. Extraordinary income charges

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7630. Current income tax effect of extraordinary

items-net

7640. Provision for deferred income tax effect of

extraordinary items-net

7910. Income effect of jurisdictional ratemaking differences-net

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7990. Nonregulated net income

# Account Total 296 {#account-total-296 .unnumbered}

**APPENDIX 2**

**PART 32 CLASS B ACCOUNTS**

1120 Cash and equivalents

1180 Telecommunications accounts receivable

1181. Accounts receivable allowance\--telecommunications

1190 Other accounts receivable

1191 Accounts receivable allowance\--other

1200 Notes receivable

1201 Notes receivable allowance

1210 Interest and dividends receivable

1220 Inventories

Materials and supplies

Property held for sale or lease

1280 Prepayments

1350 Other current assets

1401 Investment in affiliated companies

1402 Investments in nonaffiliated companies

1406 Nonregulated investments

Permanent investment

Receivable/payable

Current net income or loss

1407 Unamortized debt issuance expense

1408 Sinking funds

1410 Other noncurrent assets

1437 Deferred tax regulatory asset

1438 Deferred maintenance and retirements

1439 Deferred charges

1500 Other jurisdictional assets\--net

2001 Telecommunications plant in service

2002. Property held for future telecommunications use

2003. Telecommunications plant under

construction

2005 Telecommunications plant adjustment

2006 Nonoperating plant

2007 Goodwill

2110 Land and support assets

2210 Central Office\--Switching

2220 Operator systems

2230 Central office\--Transmission

2310 Information origination/termination

2410 Cable and wire facilities

2680 Amortizable tangible assets

2690 Intangibles

3100 Accumulated depreciation

3200. Accumulated depreciation\--Held for future telecommunications use

3300 Accumulated depreciation\--nonoperating

3400 Accumulated amortization\--tangible

3500 Accumulated amortization\--intangible

3600 Accumulated amortization\--other

4010 Accounts payable

4020 Notes payable

4030 Advance billing and payments

4040 Customer's deposits

4050 Current maturities\--long-term debt

4060 Current maturities\--capital leases

4070 Income taxes\--accrued

4080 Other taxes\--accrued

4100. Net Current Deferred Operating Income

Taxes

4110. Net Current Deferred Nonoperating Income Taxes

4120 Other accrued liabilities

4130 Other current liabilities

4210 Funded debt

4220 Premium on long-term debt

4230 Discount on long-term debt

4240 Reacquired debt

4250 Obligations under capital leases

4260 Advances from affiliated companies

4270 Other long-term debt

4310 Other long-term liabilities

4320. Unamortized operating investment tax credits\--net

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4330. Unamortized nonoperating investment tax credits\--net

```{=html}
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```
4340. Net noncurrent deferred operating income taxes

4341 Net deferred tax liability adjustments

4350. Net noncurrent deferred nonoperating income taxes

4360 Other deferred credits

4361 Deferred tax regulatory liability

4370. Other jurisdictional liabilities and deferred credits\--net

4510 Capital stock

4520 Additional paid-in-capital

4530 Treasury stock

4540 Other capital

4550 Retained earnings

5000 Basic local service revenue

5080 Network access revenue

5081 End user revenue

5082 Switched access revenue

5083 Special access revenue

5084 State access revenue

5100 Long distance message revenue

5200 Miscellaneous revenue

5280 Nonregulated operating revenue

5300 Uncollectible revenue

6110 Network support expense

6120 General support expenses

6210 Central office switching expense

6220 Operator system expense

6230 Central office transmission expenses

6310. Information origination/termination

expense

6410 Cable and wire facilities expenses

6510. Other property, plant and equipment

expenses

6530 Network operations expenses

6540 Access expense

6560. Depreciation and amortization expenses

6610 Marketing

6620 Services

6710 Executive and planning

6720 General and administrative

6790 Provision for uncollectible notes receivable

7100 Other operating income and expense

7200 Operating taxes

7300 Nonoperating income and expense

7400 Nonoperating taxes

7500 Interest and related items

7600 Extraordinary items

7910. Income effect of jurisdictional ratemaking difference\--net

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7990. Nonregulated net income

## Account Total 113 {#account-total-113 .unnumbered}

**APPENDIX 3**

**CLASS A ACCOUNTS WE PROPOSE TO ELIMINATE**

1130 Cash

1140 Special cash deposits

1150 Working cash advances

1160 Temporary investments

1290 Prepaid rents

1300 Prepaid taxes

1310 Prepaid insurance

1320 Prepaid directory expenses

1330 Other prepayments

5001 Basic area revenue

5002 Optional extended area revenue

5003 Cellular mobile revenue

5004 Other mobile services revenue

5040 Local private line revenue

5050 Customer premises revenue

5060 Other local exchange revenue

5069 Other local exchange revenue settlements

5110 Unidirectional long distance revenue

5111 Long distance inward-only revenue

5112 Long distance outward-only revenue

5120 Long distance private network revenue

5121. Subvoice grade long distance private

network revenue

5122. Voice grade long distance private network

revenue

5123. Audio program grade long distance private

network revenue

5124. Video program grade long distance private

network revenue

5125. Digital transmission long distance private

network revenue

5126. Long distance private network switching

> revenue

5128 Other long distance private network

revenue

5129. Other long distance private network

revenue settlements

5160 Other long distance revenue

5169 Other long distance revenue settlements

5230 Directory revenue

5240 Rent revenue

5250 Corporate operations revenue

5260 Miscellaneous revenue

5261 Special billing arrangements revenue

5262 Customer operations revenue

5263 Plant operations revenue

5264 Other incidental regulated revenue

5269 Other revenue settlements

5270 Carrier billing and collection revenue

5301. Uncollectible revenue---

telecommunications

5302 Uncollectible revenue\--other

6611 Product management

6612 Sales

6613 Product advertising

6621 Call completion services

6622 Number services

6623 Customer services

6711 Executive

6712 Planning

6721 Accounting and finance

6722 External relations

6723 Human resources

6724 Information management

6725 Legal

6726 Procurement

6727 Research and development

6728 Other general and administrative

7110 Income from custom work

7130. Return from nonregulated use of regulated

facilities

7140 Gains and losses from foreign exchange

7150 Gains and losses from land and artwork

7160 Other operating gains and losses

7310 Dividend income

7320 Interest income

7330. Income from sinking and other funds

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```
7350. Gains or losses from the disposition of

certain property

7410 Nonoperating investment tax credit\--net

7420 Nonoperating Federal income taxes

7430 Nonoperating state and local income taxes

7440 Nonoperating other taxes

7450. Provision for deferred nonoperating

income taxes\--net

7610 Extraordinary income credits

7620 Extraordinary income charges

7630. Current income tax effect of extraordinary

items\--net

7640. Provision for deferred income tax effect of

extraordinary items\--net

# Account Total 77  {#account-total-77 .unnumbered}

**APPENDIX 4**

**CLASS A ACCOUNTS ON WHICH WE SEEK COMMENT**

2111 Land

2112 Motor vehicles

2113 Aircraft

2114 Tools and other work equipment

2121 Buildings

2122 Furniture

2123 Office equipment

Office support equipment

Company communications equipment

2124 General purpose computers

2211 Analog electronic switching

2212 Digital electronic switching

2215 Electro-mechanical switching

Step-by-step switching

Crossbar switching

Other electro-mechanical switching

2231 Radio systems

Satellite and earth station facilities

Other radio facilities

2232 Circuit equipment

2311 Station apparatus

2321 Customer premises wiring

2341 Large private branch exchanges

2351 Public telephone terminal equipment

2362 Other terminal equipment

2411 Poles

2421 Aerial cable

Nonmetallic cable

Metallic cable

2422 Underground cable

Nonmetallic cable

Metallic cable

2423 Buried cable

Nonmetallic cable

Metallic cable

2424 Submarine cable

Nonmetallic cable

Metallic cable

2425 Deep sea cable

Nonmetallic cable

Metallic cable

2426 Intrabuilding network cable

Nonmetallic cable

Metallic cable

2431 Aerial wire

2441 Conduit systems

2681 Capital leases

2682 Leasehold improvements

3410 Accumulated amortization-capitalized

leases

3420 Accumulated amortization-leasehold

improvements

6112 Motor vehicle expense

6113 Aircraft expense

6114 Tools and other work equipment expense

6121 Land and building expense

6122 Furniture and artworks expense

6123 Office equipment expense

6124 General purpose computers expense

6211 Analog electronic expense

6212 Digital electronic expense

6215 Electro-mechanical expense

Step-by-step switching

Crossbar switching

Other electro-mechanical switching

6231 Radio systems expense

Satellite and earth station facilities

Other radio facilities

6232. Circuit equipment expense

6311 Station apparatus expense

6341. Large private branch exchange expense

6351 Public telephone terminal equipment

expense

6362 Other terminal equipment expense

6411 Poles expense

6421 Aerial cable expense

Nonmetallic cable

Metallic cable

6422 Underground cable expense

Nonmetallic cable

Metallic cable

6423 Buried cable expense

Nonmetallic cable

Metallic cable

6424 Submarine cable expense

Nonmetallic cable

Metallic cable

6425 Deep sea cable expense

Nonmetallic cable

Metallic cable

6426 Intrabuilding network cable expense

Nonmetallic cable

Metallic cable

6431 Aerial wire expense

6441. Conduit systems expense

6511 Property held for future

telecommunications use expense

6512 Provisioning expense

6531 Power expense

6532 Network administration expense

6533 Testing expense

6534 Plant operations administration expense

6535 Engineering expense

6561 Depreciation expense-telecommunications

plant in service

6562. Depreciation expense-property held for

future telecommunications

6563 Amortization expense-tangible

6564 Amortization expense-intangible

6565 Amortization expense-other

7210 Operating investment tax credits-net

7220 Operating Federal income taxes

7230 Operating state and local income taxes

7240. Operating other taxes

7250 Provision for deferred operating income

taxes-net

7340 Allowance for funds used during

construction

7370. Special charges

7360 Other nonoperating income

7510 Interest on funded debt

7520 Interest expense-capital leases

7530 Amortization of debt issuance expense

7540 Other interest deductions

####### Account Total: 116  {#account-total-116 .unnumbered}

####### APPENDIX 5 {#appendix-5 .unnumbered}

######  {#section-2 .unnumbered}

###### States' Proposed New Part 32 Accounts to Meet Changing Regulatory Needs {#states-proposed-new-part-32-accounts-to-meet-changing-regulatory-needs .unnumbered}

Add subaccounts to the digital electronic switching account for:

Packet switches

Asynchronous transfer mode switches

Add a subaccount to the intangible asset account for:

Switching software

Add subaccounts to central office transmission, cable and wire
facilities, and information origination/termination accounts for:

Loop

Interoffice transport

Add a subaccount to the end user revenue account for:

Subscriber line charges

Add subaccounts to the switched access revenue account for:

> Access revenue received from calls originating and terminating from
> the carrier's network

Add subaccounts to the state access revenue account for:

Switched access

Special access

Subscriber line charges

Add subaccounts to customer operations expense for:

Wholesale

Retail

Add subaccounts to deferred operating income taxes for:

Federal

State and Local

Add new revenue and expense accounts for:

Reciprocal compensation

Federal universal service fund support

State universal service fund support

Resale

Wholesale

Collocation

###### APPENDIX 6 {#appendix-6 .unnumbered}

**USTA'S ARMIS Reporting Proposals**

USTA proposes streamlining the following items:

1.  Combine ARMIS 43-01, 02 \[B1, I1\], 03 and 04 (See USTA June 9
    letter); allow reporting at OTC level (Operating Telephone Company)
    for majority of data (Proposed Table III, Separations and Access
    would be by study area).

2.  Eliminate ARMIS 43-02 Schedules B4 and I2. (Note: USTA also proposed
    elimination of B12, which was eliminated in Phase 1.)

3.  Modify required nonregulated adjustment threshold from \$1 million
    per holding company to \> \$1 million or 2% nonregulated expense;
    require aggregation of only material dollars rather than every
    dollar.

4.  Eliminate ARMIS 43-07, Infrastructure Report

5.  Streamline ARMIS 43-08, Operating Data Report -- Eliminate tables of
    access lines (2) and traffic data (see USTA Letter).

6.  Eliminate ARMIS 495/A and 495/B Reports.

7.  One definition for "access lines" should be used. (Billable Access
    lines currently in ARMIS 43-01).

APPENDIX 7

INITIAL REGULATORY FLEXIBILITY ANALYSIS

As required by the Regulatory Flexibility Act (RFA),[^156] the
Commission has prepared this Initial Regulatory Flexibility Analysis
(IRFA) of the possible significant economic impact on small entities by
the policies and rules proposed in this Notice of Proposed Rulemaking.
Written public comments are requested on this IRFA. Comments must be
identified as responses to the IRFA and must be filed by the deadlines
for comments on the Notice of Proposed Rulemaking provided above in
section V.D. The Commission will send a copy of the Notice of Proposed
Rulemaking, including this IRFA, to the Chief Counsel for Advocacy of
the Small Business Administration (SBA).[^157] In addition, the Notice
of Proposed Rulemaking and IRFA (or summaries thereof) will be published
in the Federal Register.[^158]

**A. Need for, and Objectives of, the Proposed Rules**

The Commission has initiated this proceeding to determine whether it
should streamline or modify the current accounting and reporting
requirements. This Notice of Proposed Rulemaking consists of Phase 2 and
Phase 3 of the Commission's comprehensive review of the accounting and
reporting requirements. This Notice of Proposed Rulemaking seeks to
reduce accounting and reporting requirements, while furthering the
Commission's goals of promoting universal service, fostering efficient
competition, and protecting consumers.

**B. Legal Basis**

The legal basis for the action as proposed for this rulemaking is
contained in sections 4(i), 4(j), 11, 201(b), 303(r), and 403 of the
Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j),
161, 201(b), 303(r), and 403.

**C. Description and Estimate of the Number of Small Entities to which
the Proposed Rules May Apply**

The RFA directs agencies to provide a description of, and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted.[^159] The RFA generally
defines \"small entity\" as having the same meaning as the term \"small
business,\" \"small organization,\" and \"small governmental
jurisdiction.\"[^160] In addition, the term \"small business\" has the
same meaning as the term \"small business concern\" under the Small
Business Act, unless the Commission has developed one or more
definitions that are appropriate to its activities.[^161] Under the
Small Business Act, a \"small business concern\" is one that: (1) is
independently owned and operated; (2) is not dominant in its field of
operation; and (3) meets any additional criteria established by the
SBA.[^162]

We have included small incumbent local exchange carriers (LECs) in this
present RFA analysis. As noted above, a \"small business\" under the RFA
is one that, *inter alia*, meets the pertinent small business size
standard (*e.g*., a telephone communications business having 1,500 or
fewer employees), and \"is not dominant in its field of
operation.\"[^163] The SBA\'s Office of Advocacy contends that, for RFA
purposes, small incumbent LECs are not dominant in their field of
operation because any such dominance is not \"national\" in scope.[^164]
We have therefore included small incumbent LECs in this RFA analysis,
although we emphasize that this RFA action has no effect on the
Commission's analyses and determinations in other, non-RFA contexts.

The SBA has developed a definition of small entities for telephone
communications companies other than radiotelephone companies. The SBA
has defined a small business for Standard Industrial Classification
(SIC) categories 4812 (Radiotelephone Communications) and 4813
(Telephone Communications, Except Radiotelephone) to be small entities
when they have no more than 1,500 employees.[^165] The Census Bureau
reports that, there were 2,321 such telephone companies in operation for
at least one year at the end of 1992.[^166] All but 26 of the 2,321
non-radiotelephone companies listed by the Census Bureau were reported
to have fewer than 1,000 employees. Thus, even if all 26 of those
companies had more than 1,500 employees, there would still be 2,295
non-radiotelephone companies that might qualify as small entities or
small incumbent LECs. It seems certain that some of these carriers are
not independently owned and operated, but we are unable at this time to
estimate with greater precision the number of wireline carriers that
would qualify as small business concerns under SBA\'s definition.
Consequently, we estimate that fewer than 2,295 small telephone
communications companies other than radiotelephone companies are small
entities or small incumbent LECs that may be affected by the proposed
rules, if adopted.

More specifically, the proposed changes to the accounting and reporting
requirements in sections III.A.1, III.A.6, and III.B would only affect
Class A companies, *i.e.,* companies with annual revenues from regulated
telecommunications operations that are equal to or above the indexed
revenue threshold, currently \$144 million. Presently, these companies
are SBC Communications, Quest, Verizon, BellSouth Corporation,
Cincinnati Bell, C-TEC, Sprint, Alltel Corporation, Frontier
Corporation, and Citizens Telecom. These companies would not be
considered "small entities" under the SBA definition. Therefore, it is
extremely unlikely that any of the 2,295 small entity telephone
companies would be affected by the proposals in section III.A.1,
III.A.6, and III.B.

The proposals discussed in section III.A.2, 3, 4, 5, 7, and 8 could
affect all local exchange carriers. Some of these companies may be
considered "small entities" under the SBA definition. Therefore, it is
possible that some of the 2,295 small entity telephone companies may be
affected by the proposals in section III.A.2, 3, 4, 5, 7, and 8.

The proposals discussed in section III.C would affect only mid-sized
carriers, *i.e.*, Class A carriers with aggregate revenues below \$7
billion but equal to or above the indexed revenue threshold (currently
\$144 million). These companies would not be considered "small entities"
under the SBA definition. Therefore, it is extremely unlikely that any
of the 2,295 small entity telephone companies would be affected by the
proposals in section III.C.

The proposals discussed in section IV could affect all local exchange
carriers. Some of these companies may be considered "small entities"
under the SBA definition. Therefore, it is possible that some of the
2,295 small entity telephone companies may be affected by the proposals
in section IV.

**D. Description of Proposed Reporting, Recordkeeping, and Other
Compliance Requirements**

This Notice of Proposed Rulemaking seeks to further reduce accounting
and reporting requirements for Class A companies. In this Notice of
Proposed Rulemaking, the Commission seeks comment on eliminating
one-fourth of the Class A accounts from the Part 32 chart of accounts,
reducing ARMIS reporting requirements, and streamlining other accounting
rules. These proposals, if adopted, would result in fewer accounting
requirements and reduced ARMIS reporting requirements for Class A
companies. In some instances, the Commission seeks comment on whether
additional accounts should be added to the Part 32 Chart of Accounts, to
reflect changes in technology and new requirements under the
Telecommunications Act of 1996.[^167] None of these proposals apply to
small entities because they are not subject to these reporting
requirements. As mentioned in section C, above, Class A companies are
not small businesses, so these reporting and record-keeping requirements
will not affect small entities.

In addition, in section III.A.2, 3, 4, 5, 7, and 8, the Notice of
Proposed Rulemaking seeks comment on: streamlining inventory
requirements in sections 32.1220(h) and 32.2311(f); changing the
threshold requirements in section 32.2003(b); adopting SFAS-116 for
federal accounting purposes; and modifying the affiliate transactions
rules, the definition of "incidental activities," our expense limit
rules, and cost allocation manual requirements. These proposals, if
adopted, could affect both Class A and Class B companies, including
small entities. If adopted, these proposals could significantly reduce
the federal regulatory accounting requirements and costs associated with
these requirements for the affected companies, including the small
entities.

In section III.C, the Notice of Proposed Rulemaking also seeks comment
on simplifying reporting requirements and eliminating cost allocation
manual filing requirements for mid-sized carriers, including any small
entities. This proposal, if adopted, would greatly reduce the reporting
requirements and costs associated with these requirements for these
companies, including any small entities.

In section IV, the Notice of Proposed Rulemaking seeks comment on
triggers for more significant deregulation of accounting and reporting
requirements for all carriers in a competitive marketplace, including
small entities. Once the marketplace is competitive, regulatory
accounting and reporting requirements and costs associated with these
requirements for all carriers, including small entities may be greatly
diminished, if not eliminated.

**E. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered**

The RFA requires an agency to describe any significant alternatives that
it has considered in reaching its proposed approach, which may include
the following four alternatives (among others): (1) the establishment of
differing compliance or reporting requirements or timetables that take
into account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance or
reporting requirements under the rule for small entities; (3) the use of
performance, rather than design, standards; and (4) an exemption from
coverage of the rule, or any part thereof, for small entities.[^168]

The rule changes proposed in this Notice of Proposed Rulemaking are
reductions in our accounting requirements and ARMIS reporting
requirements for Class A companies (*i.e.*, carriers with annual
revenues from regulated telecommunications operations that are equal to
or above the indexed revenue threshold, currently \$144 million). These
rule changes, as discussed in sections III.A.1, III.A.6, III.B, and
III.C, only affect Class A companies and would not have a significant
economic impact on small entities because the Class A companies, as
identified in section C above, are not small entities. The remaining
rule changes proposed in the Notice of Proposed Rulemaking may affect
all LECs. Our proposals, if adopted, would streamline the accounting and
reporting rules and would significantly lessen regulatory requirements
for all carriers, including small entities. This should produce a
significant economic benefit to small entities. Alternatives considered
for small entities subject to our accounting and reporting requirements,
were to maintain our current rules or to consider changes proposed in
this Notice of Proposed Rulemaking on a case-by-case basis in ongoing
proceedings where related accounting changes may properly be considered
within the scope of such proceedings. We believe that streamlining our
current rules, however, would reduce regulatory burdens on carriers,
including small entities. In section IV of the Notice of Proposed
Rulemaking, we discuss eliminating accounting rules and reporting
requirements as the local exchange market becomes competitive. This
would result in a further reduction in the regulatory burden on small
entities.

**F. Federal Rules that May Duplicate, Overlap, or Conflict With the
Proposed Rule**

None.

[^1]: ^?^ \"Common Carrier Bureau Announces Initiative to Undertake
    Comprehensive Review of Part 32 and ARMIS Requirements,\" *Public
    Notice*, 14 FCC Rcd 6345 (1999). The initial workshop to solicit
    ideas on streamlining accounting and reporting rules took place on
    April 21, 1999. \"Common Carrier Bureau Announces Agenda for Initial
    Workshop for Phase 1 of the Comprehensive Review of Accounting and
    Reporting Requirements and Treatment of Ex Parte Presentations in
    Related Proceedings,\" *Public Notice*, 14 FCC Rcd 6746 (1999).
    *See* Comprehensive Review of the Accounting Requirements and ARMIS
    Reporting Requirements for Incumbent Local Exchange Carriers: Phase
    1, CC Docket No. 99-253, *Notice of Proposed Rulemaking*, FCC 99-174
    (rel. July 14, 1999).

[^2]: Comprehensive Review of the Accounting Requirements and ARMIS
    Reporting Requirements for Incumbent Local Exchange Carriers: Phase
    1, CC Docket No. 99-253, *Report and Order*, 15 FCC Rcd 8690 (2000)
    (*Phase 1 Report and Order*).

[^3]: ^?^ We recognize that we may need to adopt additional streamlining
    measures before Phase 3 is concluded.

[^4]: ^?^ *See* 47 U.S.C. § 161.

[^5]: ^?^ *See* Access Charge Reform, CC Docket No. 96-262, *Sixth
    Report and Order in CC Docket Nos. 96-262 and 94-1, Report and Order
    in CC Docket No. 99-249, and Eleventh Report and Order in CC Docket
    No. 96-45*, FCC 00-193 (rel. May 31, 2000) (*CALLS Report and
    Order*). The measures were proposed by the Coalition for Affordable
    Local and Long Distance Service (CALLS), a group that included AT&T,
    SBC, Bell Atlantic (now Verizon), BellSouth, GTE (now Verizon), and
    Sprint.

[^6]: ^?^ 47 C.F.R. Part 32. The establishment of a uniform system of
    accounts is mandated by section 220(a)(2) of the Communications Act.
    47 U.S.C. § 220(a)(2).

[^7]: ^?^ *See* Revision of the Uniform System of Accounts and Financial
    Reporting Requirements for Class A and Class B Telephone Companies
    (Parts 31, 33, 42, and 43 of the FCC's Rules), CC Docket No. 78-196,
    *Report and Order*, 60 Rad. Reg. 2d (P&F) 1111 (1986) (creating Part
    32 of the Commission's rules).

[^8]: ^?^ 47 C.F.R. § 32.11.

[^9]: ^?^ *See* \"Annual Adjustment of Revenue Threshold,\" *Public
    Notice*, DA 00-971 (rel. May 3, 2000) (adjusting annual indexed
    revenue threshold to \$114 million).

[^10]: ^?^ Other Class A carriers include Alltel Corporation, Frontier
    Corporation, Citizens Telecom, Cincinnati Bell, C-TEC, and Sprint.
    We have already taken measures to lighten accounting requirements
    for these mid-sized companies, however, and thus allow them to
    report on a Class B level. *See* 1998 Biennial Regulatory Review --
    Review of ARMIS Reporting Requirements, CC Docket No. 98-117, 14 FCC
    Rcd 11443, 11449, ¶ 11 (1999) (*ARMIS Reductions Report and Order*).

[^11]: ^?^ The difference in the number of accounts is that many of the
    Class A accounts are aggregated into summary accounts under Class B.

[^12]: ^?^ We recognize that small carriers often have limited resources
    and have financial transactions that are smaller and fewer in number
    than the larger incumbent LECs. For example, in the *Joint Cost
    Order* we applied our cost allocation standards and affiliate
    transactions rules to all local exchange carriers, but exempted the
    smaller carriers from the potentially burdensome enforcement
    provisions, *e.g.*, CAM annual filing, an annual independent audit,
    and reporting requirements. *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, ¶¶ 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).

[^13]: ^?^ The Commission's rules under Part 64 require that joint costs
    incurred in providing regulated and nonregulated services be
    allocated so that regulated services do not subsidize nonregulated
    services.

[^14]: ^?^ We note that the Federal-State Joint Board on Separations has
    recommended an interim five-year freeze of Part 36 category
    relationships and jurisdictional allocation factors for price cap
    carriers and allocation factors only for rate-of-return carriers.
    *See* Jurisdictional Separations Reform and Referral to the
    Federal-State Joint Board, CC Docket No. 80-286, *Recommended
    Decision*, FCC 00J-2 (rel. July 21, 2000); "Comment Sought on
    Recommended Decision Issued by Federal-State Joint Board on
    Jurisdictional Separations," CC Docket No. 80-286, *Public Notice*,
    DA 00-1865 (rel. Aug. 15, 2000).

[^15]: ^?^ The Commission required price cap regulation for the BOCs and
    GTE, and permitted other incumbent LECs to elect price cap
    regulation. Policy and Rules Concerning Rates for Dominant Carriers,
    CC Docket No. 87-313, *Second Report and Order*, 5 FCC Rcd 6786
    (1990).

[^16]: ^?^ All these cost recovery mechanisms remain in place even under
    recent access charge reform measures. *See* *CALLS Report and
    Order.*

[^17]: ^?^ *See* Automated Reporting Requirements for Certain Class A
    and Tier 1 Telephone Companies (Parts 31, 43, 67, and 69 of the
    FCC's Rules), CC Docket No. 86-182, *Order*, 2 FCC Rcd 5770 (1987),
    *modified on recon.*, *Order on Reconsideration*, 3 FCC Rcd 6375
    (1988). In 1990, the Commission modified and added reporting
    categories for service quality and infrastructure development. *See*
    Policy and Rules Concerning Rates for Dominant Carriers, *Second
    Report and Order*, CC Docket No. 87-313, 5 FCC Rcd 6786, 6827-30
    (1990).

[^18]: ^?^ Supporting data for the ARMIS 43-03 Report is collected in
    Form 495A (Forecast of Investment Usage Report) and Form 495B
    (Actual Usage of Investment Report).

[^19]: ^?^ Over 1,200 incumbent LECs -- the smaller carriers that do not
    exceed the indexed revenue threshold -- do not file ARMIS reports
    today.

[^20]: ^?^ This information was derived from the *Universal Service Fund
    1999 Submission of 1998 Study Results by the National Exchange
    Carrier Association, Inc.*, dated October 1, 1999.

[^21]: ^?^ 47 U.S.C. § 161.

[^22]: ^?^ *See* 1998 Biennial Regulatory Review -- Review of ARMIS
    Reporting Requirements, CC Docket No. 98-117, 14 FCC Rcd 11443
    (1999) (*ARMIS Reductions Report and Order*); 1998 Biennial
    Regulatory Review -- Review of Accounting and Cost Allocation
    Requirements, CC Docket No. 98-81, 14 FCC Rcd 11396 (1999)
    (*Accounting Reductions Report and Order*).

[^23]: ^?^ *See supra* note 1.

[^24]: *See supra* note 2.

[^25]: ^?^ Section 220(i) provides that "\[t\]he Commission, before
    prescribing any requirements as to accounts, records, or memoranda,
    shall notify each State commission having jurisdiction with respect
    to any carrier involved, and shall give reasonable opportunity to
    each such commission to present its views, and shall receive and
    consider such views and recommendations." 47 U.S.C. § 220(i).

[^26]: ^?^ The first Phase 2 teleconference was held on December 8,
    1999. Among the states participating in our meetings were Florida,
    Indiana, Maine, New York, Ohio, Oregon, Tennessee, Utah, Vermont,
    West Virginia, and Wisconsin.

[^27]: ^?^ The first public workshop was held on April 11, 2000. *See*
    "Common Carrier Bureau Announces a Series of Workshops for Phase 2
    of the Comprehensive Review of Accounting and Reporting
    Requirements," *Public Notice*, DA 00-754 (rel. Apr. 5, 2000).

[^28]: ^?^ The adoption of accounts proposed herein would result in
    necessary amendments to our Part 36 jurisdictional separations
    rules. Pursuant to section 410(c) of the Communications Act, if we
    adopt our proposals in a subsequent Report and Order, we will refer
    any issues pertaining to jurisdictional separations to the
    Federal-State Joint Board on Separations established in CC Docket
    No. 80-286 for preparation of a recommended decision on these
    matters.

[^29]: ^?^ Carriers may, at their option, continue to have an annual
    financial statement audit.

[^30]: ^?^ *See supra* paragraph 5. The other Class A carriers, the
    mid-size carriers Alltel Corporation, Frontier Corporation, Citizens
    Telecom, Cincinnati Bell, C-TEC, and Sprint, report on a Class B
    level.

[^31]: ^?^ *See* June 9, 2000 letter from Linda Kent, United States
    Telecom Association, to JoAnn Lucanik and Tim Peterson, Accounting
    Safeguards Division, Common Carrier Bureau, FCC ("USTA Letter"), at
    Attachment A. A list of Class B accounts is set forth in Appendix 2.

[^32]: ^?^ Appendix 5 contains a list of the states' proposals.

[^33]: ^?^ Specifically, subaccounts 1220.1, 1220.2, 1406.1, 1406.2,
    2131.1, 2123.2, 2215.2, 2215.3, 2231.1, and 2231.2.

[^34]: ^?^ Accounts 1500, 4370, and 7910.

[^35]: ^?^ *See* USTA Letter at Attachment A.

[^36]: ^?^ In Phase 1, we reduced the total number of Class A accounts
    and subaccounts by over 50 percent.

[^37]: ^?^ Network and related asset accounts are comprised of Accounts
    2111-2682 and the related accumulated depreciation and amortization
    accounts in the 3000 series. Related expense accounts are all plant
    specific and plant non-specific accounts included in Accounts
    6111-6565.

[^38]: ^?^ *See, e.g.*, Federal-State Joint Board on Universal Service,
    Forward-Looking Mechanism for High Cost Support for Non-Rural LECs,
    CC Docket No. 97-160, *Tenth Report and Order*, FCC 99-304 (Nov. 2,
    1999) (*USF 10^th^ R&O*) at ¶ 83. In the universal service
    proceedings, the Commission acknowledged that the costs of network
    plant vary considerably by type of facility and by type of
    construction. The Commission determined that, if the model is to
    derive reasonable cost estimates for the wide variety of exchanges
    that exist, it must use accurate cost data that contain the proper
    amount of detail. For example, for the outside plant portion of the
    network which represent the largest segment of loop costs, Class A
    accounting provides data for each major type of cable construction
    (*i.e.*, aerial, buried, and underground) as well as for the major
    type of cable (*i.e.*, fiber and copper). It also provides separate
    accounts for the major types of outside plant structures (*i.e.*,
    poles and underground conduit). From these building blocks the model
    is able to derive costs for the wide array of exchanges which the
    incumbent LECs serve. *See* *USF 10^th^ R&O* at ¶¶ 341-376.

[^39]: ^?^ Telecommunications Act of 1996, Pub. L. No. 104-104, 110
    Stat. 56 (1996) (1996 Act). The 1996 Act amended the Communications
    Act of 1934 (Communications Act).

[^40]: ^?^ As noted above, state commission staff from eleven states
    participated in our public workshops. *See supra* note 25.

[^41]: ^?^ Appendix 5 contains a list of the states' proposals.

[^42]: ^?^ 47 C.F.R. § 32.1220(h).

[^43]: ^?^ Section 32.2311(f), 47 C.F.R. § 32.2311(f), provides: An
    annual inventory shall be taken of all station apparatus in stock
    that are included in this account. The number of such station
    apparatus item as determined by this inventory, together with the
    number of all other station apparatus items included in this
    account, shall be compared with the corresponding number of station
    apparatus items as shown by the respective control records. The
    original cost of any unreconciled differences thereby disclosed
    shall be adjusted through Account 3100, Accumulated Depreciation.
    Appropriate verifications shall be made at suitable intervals and
    necessary adjustment between this account and Account 3100 shall be
    made for all station apparatus included in this account.

[^44]: ^?^ USTA Petition for Rulemaking -- 2000 Biennial Regulatory
    Review (filed August 11, 1999) ("USTA Petition") at 24 & Attachment
    at 2.

[^45]: ^?^ 47 C.F.R. § 32.2003(b).

[^46]: ^?^ USTA Petition, Attachment at 6.

[^47]: ^?^ BellSouth wanted to adopt SFAS-116 in order to conform to
    GAAP.

[^48]: ^?^ Notification of Intent to Adopt Statement of Financial
    Accounting Standards No. 116 (SFAS-116), "Accounting for
    Contributions Received and Contributions Made," AAD 94-156, *Order*,
    10 FCC Rcd 1567 (1994).

[^49]: ^?^ These proposals are set forth in the USTA Letter at
    Attachment A.

[^50]: ^?^ *See* 47 C.F.R.§ 32.5280(c).

[^51]: ^?^ Account 5280, Nonregulated operating revenue is an account
    maintained by Class A and Class B carriers.

[^52]: ^?^ This issue was discussed in our *Accounting Reductions Report
    and Order*, 14 FCC Rcd at 11413, ¶ 35.

[^53]: ^?^ *See* *Joint Cost Order*, *supra* note 12.

[^54]: ^?^ *See* 47 C.F.R. § 32.27.

[^55]: ^?^ *See* Accounting Safeguards under the Telecommunications Act
    of 1996, CC Docket No. 96-150, *Report and Order*, 11 FCC Rcd 17539,
    17638-39, ¶ 218 (1996) (*Accounting Safeguards Order*), *recon.*,
    *Order on Reconsideration in CC Docket No. 96-150*, 14 FCC Rcd 11396
    (1999), *Second Order on Reconsideration*, 15 FCC Rcd 1161 (2000).

[^56]: ^?^ *Accounting Safeguards Order*, 11 FCC Rcd at 17638-39, ¶ 218.

[^57]: ^?^ Services received by a carrier from its affiliate that exist
    solely to provide services to members of the carrier's corporate
    family shall be recorded at fully distributed cost. 47 C.F.R. §
    32.27(c).

[^58]: ^?^ 47 C.F.R. § 32.27(c).

[^59]: ^?^ 47 C.F.R. § 32.27(d).

[^60]: ^?^ *See* USTA Letter at Attachment A.

[^61]: ^?^ Net book cost for assets and fully distributed cost for
    services. Net book cost is the original cost of an asset adjusted by
    the associated valuation reserves (*e.g.*, accumulated depreciation,
    deferred taxes). Fully distributed cost is the cost determined in a
    manner that complies with the standards and procedures for
    apportionment of joint and common costs between the regulated and
    nonregulated operations of the carrier. *See* 47 C.F.R. § 64.901(b).

[^62]: ^?^ Carriers may make good faith determinations based on
    "appraisals, catalogs listing similar items, competitive bids,
    replacement cost of an asset, and net realizable value of an asset."
    *Accounting Safeguards Order*, 11 FCC Rcd at 17610, ¶ 154.

[^63]: ^?^ 47 C.F.R. § 32.27(b) -- (c).

[^64]: ^?^ *Id.*

[^65]: ^?^ 47 C.F.R. § 32.27(c).

[^66]: ^?^ *See* USTA Letter at Attachment A.

[^67]: ^?^ 47 C.F.R. § 32.27(b).

[^68]: ^?^ *Id*.

[^69]: ^?^ *Phase 1 Report and Order*, 15 FCC Rcd at 8701, ¶ 20.

[^70]: ^?^ *Id*.

[^71]: ^?^ The exemption would be applied on a product-by-product basis
    and would apply "going forward" so that the comparison would be
    required once the total amount of transfers for a given product line
    in a given year exceeds \$500,000.

[^72]: ^?^ Our proposal is limited to the situation where the
    (regulated) carrier sells or purchases the asset to or from the
    nonregulated affiliate and there is no discernable market price.

[^73]: ^?^ 47 C.F.R. § 32.27(b) -- (c).

[^74]: ^?^ 47 C.F.R. § 32.27(a). Nonregulated activities are recorded in
    the regulated books of account when they involve use of assets and
    resources also used in regulated activities. 47 C.F.R. § 32.23(c).

[^75]: ^?^ *See, e.g.,* Citizens Utilities Company Permanent Cost
    Allocation Manual for the Separation of Regulated and Nonregulated
    Costs, *Memorandum Opinion and Order*, 11 FCC Rcd 4676 (Com. Car.
    Bur. 1996).

[^76]: ^?^ If the carrier chooses an attest engagement instead of a
    financial audit, we require that the attest engagement be an
    examination engagement and that it provide a written communication
    that expresses an opinion that the systems, processes, and
    procedures applied by the carrier to generate the results reported
    pursuant to 43.21(e)(2) comply with the *Joint Cost Orders* in CC
    Docket No. 86-111 and the *Accounting Safeguards Order* in CC Docket
    No. 96-150 and the Commission's rules, including sections 32.23,
    32.27, 64.901, and 64.903.

[^77]: ^?^ Carriers must list their nonregulated activities in Section
    II of their CAMs. *See* Responsible Accounting Officer Letter 19, 6
    FCC Rcd 7536 (1991).

[^78]: ^.^

[^79]: ^?^ For example, in its CAM filed on December 31, 1993, Citizens
    Utilities Company (Citizens) listed six activities that it treated
    as incidental: land and building space rental, pole contact and
    conduit space rental, incidental custom work, operator services not
    covered by tariff, customer list sales for equal access, and scrap
    material. *See* Citizens Utilities Company Permanent Cost Allocation
    Manual for the Separation of Regulated and Nonregulated Costs, AAD
    94-6, *Memorandum Opinion and Order*, 10 FCC Rcd 16, 17, ¶ 9 (1994).

[^80]: ^.^

[^81]: ^?^ *See* 47 C.F.R. § 32.4999(l); *Joint Cost Order*, 2 FCC Rcd
    at 1308, ¶ 78.

[^82]: ^,^

[^83]: ^?^ 47 C.F.R. § 64.903(a).

[^84]: ^.^

[^85]: ^?^ *See Joint Cost Order*, 2 FCC Rcd at 1328, ¶ 233.

[^86]: ^?^ 47 C.F.R. § 32.2000(a)(4).

[^87]: ^?^ 47 C.F.R. § 32.3000(a)(4).

[^88]: ^?^ The general purpose support asset accounts are: Account 2110,
    Land; Account 2112, Motor vehicles; Account 2113, Aircraft; Account
    2114, Tools and other work equipment; Account 2121, Buildings;
    Account 2122, Furniture; Account 2123, Office equipment; and Account
    2124, General purpose computers. Section 32.2000(a)(4) applies to
    all but the Land and Building accounts.

[^89]: ^?^ The limit was raised from \$25 to \$50 in 1974, *see*
    Amendment of Part 31 (Uniform System of Accounts for Class A and
    Class B Telephone Companies) to Increase the Monetary Limit Where
    Capitalization is Appropriate from \$25 to \$50, Docket No. 20110,
    *Report and Order*, 47 FCC 2d 1153 (1974), from \$50 to \$200 in
    1981, *see* Amendment of the Uniform System of Accounts to Increase
    the Dollar Limit for Expensing Minor Items, CC Docket No. 81-273,
    *Report and Order*, 87 FCC 2d 1137 (1988), from \$200 to \$500 in
    1988, *see* Revision to Amend Part 31, Uniform System of Accounts
    for Class A and Class B Telephone Companies as it Relates to the
    Treatment of Certain Individual Items of Furniture and Equipment
    Costing \$500 or Less, CC Docket No. 87-135, *Report and Order*, 3
    FCC Rcd 4464 (1988), and from \$500 to \$2000, Revision to Amend
    Part 32, Uniform System of Accounts for Class A and Class B
    Telephone Companies to Raise the Expense Limit for Certain Items of
    Equipment from \$500 to \$2000, CC Docket No. 95-60, *Report and
    Order*, 12 FCC Rcd 7566 (1997) (*Expense Limit Order*). In the
    *Expense Limit Order*, we specifically excluded from the \$2000
    expense limit all personal computer components falling within
    Account 2124, General purpose computers. The cost of operating
    system software was excluded from the \$500 expense limit for
    personal computers. *See Accounting Reductions Report and Order*, 14
    FCC Rcd at 11420, ¶ 50.

[^90]: ^?^ Responsible Accounting Officer Letter 6, Part 32, Uniform
    System of Accounts for Class A and Class B Carriers - Item Lists, 4
    FCC Rcd 1965 (revised Feb. 13, 1989, rel. Feb 27, 1989).

[^91]: ^?^ *See* \"Annual Adjustment of Revenue Threshold,\" *Public
    Notice*, DA 00-971 (rel. May 3, 2000) (adjusting annual indexed
    revenue threshold to \$114 million).

[^92]: ^?^ 47 C.F.R. § 64.903.

[^93]: ^?^ *See* USTA Letter at Attachment A.

[^94]: ^?^ We are also seeking comment on additional CAM streamlining,
    for mid-sized carriers, in section III.C.

[^95]: ^?^ 47 C.F.R. § 32.11.

[^96]: ^?^ *See* \"Annual Adjustment of Revenue Threshold,\" *Public
    Notice*, DA 00-971 (rel. May 3, 2000) (adjusting annual indexed
    revenue threshold to \$114 million).

[^97]: ^?^ 47 C.F.R. § 64.901(b)(4).

[^98]: ^?^ *See* USTA Letter at Attachment A.

[^99]: ARMIS was developed to allow the Commission to administer
    accounting, cost allocation, jurisdictional separations, and access
    charge rules. The ARMIS data are used for various regulatory
    functions and also permit the Commission to determine whether joint
    costs incurred in providing regulated and nonregulated services are
    properly allocated, which is useful and necessary for monitoring the
    application of our joint cost rules. ARMIS data are relied upon by
    many state commissions and used by the public.

[^100]: ^?^ *See* *CALLS Report and Order*, Graph 1 -- Total Access
    Revenue for Price Cap Carriers (Discounted Present Values), Graph 2
    -- Total Access Revenue for Price Cap Carriers, and Graph 3 -- Toll
    Prices Per Minute for Residential Customers.

[^101]: ^?^ The 30 incumbent LECs include Verizon (19 operating
    companies); SBC Communications, Inc. (9 operating companies);
    BellSouth Corporation; and Qwest.

[^102]: ^?^ The 22 incumbent LECs include Cincinnati Bell, C-TEC, Sprint
    (13 operating companies), Alltel Corporation (5 operating
    companies), Frontier Corporation (1 operating company), and Citizens
    Telecom (1 operating company).

[^103]: ^?^ *See ARMIS Reductions Report and Order*, 14 FCC Rcd at
    11449, ¶ 11.

[^104]: ^?^ There are 99 price cap carriers subject to service quality
    reporting requirements. They are Verizon (23 operating companies);
    SBC Communications, Inc. (9 operating companies); BellSouth
    Corporation; Qwest; Sprint (17 operating companies); Frontier (26
    operating companies); Citizens (21 operating companies); and
    Cincinnati Bell.

[^105]: ^?^ There are 34 mandatory price cap incumbent LECs that are
    subject to customer satisfaction and infrastructure reporting
    requirements. They are Verizon (23 operating companies); SBC
    Communications, Inc. (9 operating companies); BellSouth Corporation;
    and Qwest.

[^106]: ^?^ These are the same 52 incumbent LECs that file the financial
    reports.

[^107]: *See ARMIS Reductions Report and Order*, 14 FCC Rcd at 11449, ¶¶
    11-12.

[^108]: ^?^ *Id.* at 11449-53, ¶¶ 11-17. For instance, we permitted
    Class A mid-sized incumbent LECs to use the more streamlined Class B
    accounts for reporting financial data in ARMIS. *See supra* note 98.

[^109]: ^?^ *Phase 1 Report and Order*, 15 FCC Rcd at 8706-718, ¶¶
    32-57.

[^110]: ^?^ *Id.* at 8707, ¶ 34.

[^111]: ^?^ In this proceeding, we are not seeking comment on changes to
    the ARMIS 43-05 (Service Quality Report) or the ARMIS 43-06
    (Customer Satisfaction Report). Through the ARMIS 43-05 Report, the
    Commission, state commissions, and the public monitor trends in the
    quality of service provided by price cap LECs. The ARMIS 43-06
    Report reflects the results of customer satisfaction surveys
    conducted by carriers, capturing trends in service quality as
    measured by the perception of residential, small business, and large
    business customers. We intend to seek comment on issues relating to
    service quality reporting in an upcoming proceeding.

[^112]: ^?^ These proposals were presented during the public workshops
    (*see* par. 12, *supra*) and in the USTA Letter.

[^113]: ^?^ Carriers with annual revenues from regulated
    telecommunications operations that are equal to or above the indexed
    revenue threshold, currently \$114 million, are classified as Class
    A; those with annual revenues from regulated telecommunications
    operations that are below the threshold are classified as Class B.
    All Class A companies are subject to ARMIS reporting requirements.

[^114]: ^?^ We streamlined the reporting requirements for mid-sized
    incumbent LECs where the incumbent LEC, together with its
    affiliates, has aggregate annual revenues of less than \$7 billion.
    These Class A carriers are eligible to file on a Class B level. *See
    ARMIS Reductions Report and Order*, 14 FCC Rcd at 11449, ¶ 11.

[^115]: ^?^ This recommendation would affect the 30 large incumbent LECs
    that file financial reports, *i.e.*,Verizon (19 operating
    companies); SBC Communications, Inc. (9 operating companies);
    BellSouth Corporation; and Qwest.

[^116]: ^?^ Under the recent access reform measures we took in the
    *CALLS* *Report and Order*, price cap incumbent LECs retain the
    right to recover costs through low-end adjustments, above-cap
    filings, or other recovery mechanisms.

[^117]: ^?^ *See supra* note 14.

[^118]: ^?^ *See* 47 C.F.R. § 61.42(f).

[^119]: ^?^ *See* 47 C.F.R. § 65.600.

[^120]: ^?^ *See* Table 2.3 of *Statistics of Communications Common
    Carriers* at p. 20.

[^121]: ^?^ The ARMIS 43-07 and 43-08 Reports are data sources for a
    number of Commission publications. On an annual basis, the
    Commission publishes the *Statistics of Communications Common
    Carriers* and *Quality of Service Reports*. The Commission also
    publishes on a biannual basis, *Monitoring Reports on Universal
    Service*. The Monitoring Reports are unique in that they include
    information on every local telephone company in the nation. They are
    generated from publicly available data, including data reported in
    carriers annual AMRIS submissions.

[^122]: ^?^ *See* Local Competition and Broadband Reporting, CC Docket
    No. 99-301, *Report and Order*, 15 FCC Rcd 7717 (2000) (*Local
    Competition and Broadband Data Gathering Program*).

[^123]: ^?^ *Id*. While the data gathering efforts in the *Local
    Competition and Broadband Data Gathering Program* cover a broader
    range of providers than ARMIS (*e.g*., large and small providers,
    and entities other than incumbent local exchange carriers), it
    collects only a very limited amount of information from each
    reporting firm and no data at all on such subjects as revenues and
    service quality. In contrast, ARMIS collects much more detailed data
    from each reporting carrier but only from the small number of
    incumbent LECs that are regulated as possessing substantial market
    power. As noted, the Local Competition and Broadband Data Gathering
    Program was designed as a complementary, and non-duplicative, data
    gathering effort.

[^124]: ^?^ There are 34 mandatory price cap incumbent LECs that are
    subject to the infrastructure reporting requirements.

[^125]: ^?^ There are 52 incumbent LECs that have annual revenues
    exceeding the \$114 million threshold.

[^126]: ^?^ *See, e.g*., Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to all Americans in a Reasonable and
    Timely Fashion, and Possible Steps to Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996*,* CC
    Docket No. 98-146, *Notice of Inquiry*, FCC 00-57 (rel. Feb. 18,
    2000).

[^127]: ^?^ While the *Local Competition and Broadband Data Gathering
    Program* collects data on a zip code basis, showing where the
    broadband is being deployed to at least one customer, the
    information does not provide a distinction between rural and
    non-rural areas.

[^128]: ^?^ *See, e.g.*, *USF 10^th^ R&O* at ¶¶ 231-235.

[^129]: ^?^ *See* Federal-State Joint Board on Universal Service,
    *Report and Order*, 12 FCC Rcd 8776 (1997) at ¶ 250.

[^130]: ^?^ *See* *ARMIS Reductions Report and Order*, 14 FCC Rcd at
    11449, ¶ 12. We also denied a petition for forbearance filed by the
    Independent Telephone and Telecommunications Alliance (ITTA), on the
    grounds that ITTA had not demonstrated that the three requirements
    of section 10 of the Communications Act had been satisfied. *Id.* at
    11459 - 465, ¶¶ 29 - 39. As a result, the mid-size carriers are not
    totally free of reporting requirements as they had sought; instead,
    they are subject to reduced reporting requirements.

[^131]: ^?^ *See Accounting Reductions Report and Order*, 14 FCC Rcd at
    11406 - 07, ¶¶ 21 - 22. We also denied a petition for forbearance
    filed by ITTA, on the grounds that ITTA had not demonstrated that
    the three requirements of section 10 of the Communications Act had
    been satisfied. *Id.* at 11407 - 410, ¶¶ 23 - 29. As a result, the
    mid-size carriers are not totally free of our accounting and audit
    requirements as they had sought; instead, they are subject to
    reduced requirements.

[^132]: ^?^ *Id.* at 11406 - 407, ¶¶ 21 - 22.

[^133]: ^?^ *See* \"Annual Adjustment of Revenue Threshold,\" *Public
    Notice*, DA 00-971 (rel. May 3, 2000) (adjusting annual indexed
    revenue threshold to \$114 million).

[^134]: ^?^ 47 C.F.R. § 64.903.

[^135]: ^?^ 47 C.F.R. § 64.904.

[^136]: ^?^ *Accounting Reductions Report and Order*, 14 FCC Rcd at
    11406 - 07, ¶ 21.

[^137]: ^?^ The \$7 billion threshold is not indexed for inflation
    annually, but is a fixed threshold that the Commission monitors on a
    regular basis.

[^138]: ^?^ 47 C.F.R. § 64.903.

[^139]: ^?^ The revenue threshold would continue to be indexed and
    adjusted on an annual basis.

[^140]: ^?^ *See* 47 C.F.R § 65.600.

[^141]: ^?^ Joint Statement of Managers, S. Conf. Rep. No. 104-230,
    104^th^ Cong., 2^nd^ Sess. 1 (1996).

[^142]: ^?^ In 1998, incumbent LECs had 96.5 percent of the local
    service revenues. Competitive access providers and CLECs had a
    combined 2.4 percent share of the revenues in this market. Resellers
    and other carriers had the remaining 1.1 percent. *See* Trends in
    Telephone Service, Table 9.1, March 2000 (Industry Analysis
    Division, Common Carrier Bureau).

[^143]: ^?^ We note that when we declared AT&T non-dominant, it no
    longer was required to file several ARMIS-like reports. *See* Motion
    of AT&T to be Reclassified as Non-Dominant, *Order*, 11 FCC Rcd 3271
    (1995).

[^144]: ^?^ *See, e.g.,* Access Charge Reform, CC Docket No. 96-262,
    *Fifth Report and Order and Further Notice of Proposed Rulemaking*,
    14 FCC Rcd 14221 (1999).

[^145]: ^?^ Section 32.11 is not expressly limited to incumbent LECs,
    but the Commission applies these requirements to incumbent LECs
    only.

[^146]: ^?^ Both SBC and Ameritech, and Bell Atlantic and GTE made
    commitments to compete out-of-region that the Commission relied on
    in granting approval to their respective applications for transfer
    of control. *See, e.g.*, Applications of Ameritech Corp.,
    Transferor, and SBC Communications Inc., Transferee, for Consent to
    Transfer Control of Corporations Holding Commission Licenses and
    Lines Pursuant to Sections 214 and 310(d) of the Communications Act
    and Parts 5, 22, 24, 25, 63, 90, 95, and 101 of the Commission's
    Rules, CC Docket No. 98-141, *Memorandum Opinion and Order*, FCC
    99-279, (rel. Oct. 8, 1999); Application of GTE Corporation and Bell
    Atlantic Corporation, CC Docket No. 98-184, *Memorandum Opinion and
    Order*, FCC 00-221 (rel. June 16, 2000).

[^147]: ^?^ *See, e.g.,* 47 U.S.C. § 251(f)(2).

[^148]: ^?^ 47 U.S.C. § 220.

[^149]: ^?^ 47 U.S.C. §§ 260, 271 - 276. Section 274 has already sunset,
    47 U.S.C. § 274(g)(2). Section 275 sunsets next year (*i.e.*, five
    years from the date of enactment of the 1996 Act), 47 U.S.C. §
    275(a)(1). Section 272(a)(2)(A), (B) sunsets on a state-by-state
    basis three years after the date such Bell operating company or
    affiliate is authorized to provide interLATA services in a
    particular state under section 271(d), unless the Commission extends
    the three-year period by rule or order, 47 U.S.C. § 272(f)(1).

[^150]: ^?^ 47 U.S.C. § 254(k).

[^151]: ^?^ 47 U.S.C. § 151.

[^152]: ^?^ *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. § 601 *et
    seq.*, has been amended by the Contract With America Advancement Act
    of 1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II
    of the CWAAA is the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA).

[^153]: ^?^ *See* 5 U.S.C. § 603(a).

[^154]: ^?^ *Id.*

[^155]: ^?^ *See* Electronic Filing of Documents in Rulemaking
    Proceedings, 63 Fed. Reg. 24,121 (1998).

[^156]: ^?^ *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. § 601 *et
    seq*., has been amended by the Contract With America Advancement Act
    of 1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II
    of the CWAAA is the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA).

[^157]: ^?^ *See* 5 U.S.C. § 603(a).

[^158]: ^?^ *See id.*

[^159]: ^?^ 5 U.S.C. § 603(b)(3).

[^160]: ^?^ 5 U.S.C. § 601(6).

[^161]: ^?^ 5 U.S.C. § 601(3) (incorporating by reference the definition
    of \"small business concern\" in 5 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 in the Federal Register.\"

[^162]: ^?^ 15 U.S.C. § 632.

[^163]: ^?^ 5 U.S.C. § 601(3).

[^164]: ^?^ *See* letter from Jere W. Glover, Chief Counsel for
    Advocacy, SBA, to William E. Kennard, Chairman, FCC (May 27, 1999).
    The Small Business Act contains a definition of \"small business
    concern,\" which the RFA incorporates into its own definition of
    \"small business.\" *See* U.S.C. § 632(a) (Small Business Act); 5
    U.S.C. § 601(3) (RFA). SBA regulations interpret \"small business
    concern\" to include the concept of dominance on a national basis.
    13 C.F.R. § 121.102(b). Since 1996, out of an abundance of caution,
    the Commission has included small incumbent LECs in its regulatory
    flexibility analyses. *See*, *e.g*., *Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996*, CC
    Docket, 96-98, First Report and Order, 11 FCC Rcd 15499, 16144‑45
    (1996).

[^165]: ^?^ 13 C.F.R. § 121.201, SIC Code 4813.

[^166]: ^?^ *1992 Census* at Firm Size 1-123.

[^167]: ^?^ Telecommunications Act of 1996, Pub. L. No. 104-104, 110
    Stat. 56 (1996) (1996 Act). The 1996 Act amended the Communications
    Act of 1934 (Communications Act).

[^168]: ^?^ 5 U.S.C. § 603(c).