[]{#__RefHeading___Toc532006702 .anchor}Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

In the Matter of )

)

2000 Biennial Regulatory Review \-- )

Comprehensive Review of the ) CC Docket No. 00-199

Accounting Requirements and )

ARMIS Reporting Requirements for )

Incumbent Local Exchange Carriers: )

Phase 2 )

)

Amendments to the Uniform System ) CC Docket No. 97-212

of Accounts for Interconnection )

)

Jurisdictional Separations Reform and ) CC Docket No. 80-286

Referral to the Federal-State Joint Board )

)

Local Competition and Broadband Reporting ) CC Docket No. 99-301

**REPORT AND ORDER IN CC DOCKET NOS. 00-199, 97-212, AND 80-286**

**FURTHER NOTICE OF PROPOSED RULEMAKING IN CC DOCKET NOS. 00-199,
99-301, AND 80-286**

Adopted: October 11, 2001 Released: November 5, 2001

By the Commission: Chairman Powell, Commissioners Abernathy and Martin
issuing separate statements; Commissioner Copps approving in part and
dissenting in part and issuing a statement.

**Comment Date (Issue A): Sixty days from date of publication in the
Federal Register**

**Reply Comment Date (Issue A): Ninety days from date of publication in
the Federal Register**

**Comment Date (Issue B): Thirty days from date of publication in the
Federal Register**

**Reply Comment Date (Issue B): Forty-five days from date of publication
in the Federal Register**

TABLE OF CONTENTS

Paragraph no.

Before the [1](#__RefHeading___Toc532006702)

I. INTRODUCTION [3](#introduction)

II\. BACKGROUND [6](#background)

A. Accounting Requirements [6](#accounting-requirements)

B. Reporting Requirements [8](#reporting-requirements)

C. History of this Proceeding [9](#history-of-this-proceeding)

D. Ongoing State Role in Revisions to the Uniform System of Accounts
[10](#ongoing-state-role-in-revisions-to-the-uniform-system-of-accounts)

III\. DISCUSSION [11](#discussion)

A. Class A Accounts [12](#class-a-accounts)

1\. Class A Accounts Being Eliminated or Consolidated
[13](#class-a-accounts-being-eliminated-or-consolidated)

2\. Class A Accounts Maintained [18](#class-a-accounts-maintained)

3\. The States' Proposals for New Class A Accounts
[25](#the-states-proposals-for-new-class-a-accounts)

B. Streamlining the Class B Accounts
[32](#streamlining-the-class-b-accounts)

C. Other Regulatory Relief Applicable to All Carriers
[34](#other-regulatory-relief-applicable-to-all-carriers)

1\. Regulatory Relief Provided in Full
[34](#regulatory-relief-provided-in-full)

a\. Inventories [34](#inventories)

b\. Contributions [35](#contributions)

c\. Section 252(e) agreements [35](#section-252e-agreements)

2\. Regulatory Relief Provided in Part
[36](#regulatory-relief-provided-in-part)

a\. Affiliate transactions rules [36](#affiliate-transactions-rules)

b\. Section 32.5280(c) subsidiary record requirement
[42](#section-32.5280c-subsidiary-record-requirement)

c\. Accounts 1437 and 4361 [43](#accounts-1437-and-4361)

d\. Expense limits [43](#expense-limits)

e\. Incidental activities [44](#incidental-activities)

f\. Allocation of costs at Class B level
[45](#allocation-of-costs-at-class-b-level)

g\. Section 32.16 requirement for implementing new accounting standards
[46](#section-32.16-requirement-for-implementing-new-accounting-standards)

3\. Current Rules Maintained [47](#current-rules-maintained)

a\. Charges to plant accounts [47](#charges-to-plant-accounts)

b\. Continuing property records [48](#continuing-property-records)

c\. Cost allocation forecasts [49](#cost-allocation-forecasts)

4\. Classification of Companies [50](#classification-of-companies)

D. ARMIS Reporting Requirements [51](#armis-reporting-requirements)

1\. Background [51](#background-1)

2\. ARMIS Report 43-01 (Annual Summary Report)
[53](#armis-report-43-01-annual-summary-report)

3\. ARMIS Report 43-02 (USOA Report)
[54](#armis-report-43-02-usoa-report)

4\. ARMIS Report 43-03 (Joint Cost Report)
[55](#armis-report-43-03-joint-cost-report)

5\. ARMIS Report 43-04 (Separations and Access Report)
[56](#armis-report-43-04-separations-and-access-report)

6\. ARMIS 43-07 (Infrastructure Report)
[59](#armis-43-07-infrastructure-report)

7\. ARMIS 43-08 (Operating Data Report)
[66](#armis-43-08-operating-data-report)

E. Relief for Mid-Sized Carriers [68](#relief-for-mid-sized-carriers)

1\. Cost Allocation Manuals [70](#cost-allocation-manuals)

2\. ARMIS Reporting Requirements [71](#armis-reporting-requirements-1)

3\. Regulatory Classification of Mid-Sized Carriers
[72](#regulatory-classification-of-mid-sized-carriers)

4\. Waivers for Roseville and CenturyTel
[73](#waivers-for-roseville-and-centurytel)

IV\. FURTHER NOTICE OF PROPOSED RULEMAKING
[74](#further-notice-of-proposed-rulemaking)

A. Phase III (CC Docket No. 00-199 and 99-301)
[74](#phase-iii-cc-docket-no.-00-199-and-99-301)

B. Conforming Amendments to Part 36 Separations Rules (CC Docket No.
80-286)
[79](#conforming-amendments-to-part-36-separations-rules-cc-docket-no.-80-286)

V. PROCEDURAL ISSUES [80](#procedural-issues)

A. Ex Parte Presentations [80](#a.-ex-parte-presentations)

B. Paperwork Reduction Act Analysis
[80](#b.-paperwork-reduction-act-analysis)

C. Regulatory Flexibility Act [81](#c.-regulatory-flexibility-act)

D. Comment Filing Procedures [81](#d.-comment-filing-procedures)

VI\. ORDERING CLAUSES [82](#ordering-clauses)

APPENDIX A -- Parties Filing Comments and Reply Comments
[84](#appendix-a-parties-filing-comments-and-reply-comments)

APPENDIX B -- List of eliminated Class A accounts
[87](#appendix-b-list-of-eliminated-class-a-accounts)

APPENDIX C -- Revised list of Class A accounts
[89](#appendix-c-revised-list-of-class-a-accounts)

APPENDIX D -- Revised list of Class B accounts
[92](#appendix-d-revised-list-of-class-b-accounts)

APPENDIX E -- Data for High-Cost Model Inputs Purposes
[94](#appendix-e-data-for-high-cost-model-inputs-purposes)

Subpart B---General Instructions [96](#subpart-bgeneral-instructions)

Sheet Accounts [96](#sheet-accounts)

Accounts [97](#accounts)

Subpart G---Glossary [98](#subpart-gglossary)

Product management and sales [147](#product-management-and-sales)

Product advertising [147](#product-advertising)

5\. Part 54 -- UNIVERSAL SERVICE [170](#part-54-universal-service)

VII\. Part 64 of Title 47 of the C.F.R. is amended as follows:
[172](#part-64-of-title-47-of-the-c.f.r.-is-amended-as-follows)

PART 64 - MISCELLANEOUS RULES RELATING TO COMMON CARRIERS
[172](#part-64---miscellaneous-rules-relating-to-common-carriers)

APPENDIX G -- FCC Report 43-04 Table I -- Separations and Access Table
[179](#__RefHeading___Toc532006769)

b\. General Support Facilities [179](#general-support-facilities)

A. Final Regulatory Flexibility Analysis
[192](#a.-final-regulatory-flexibility-analysis)

B. Initial Regulatory Flexibility Analysis
[195](#b.-initial-regulatory-flexibility-analysis)

# INTRODUCTION

1.  In this order, we undertake the Commission's second comprehensive,
    biennial review of the accounting rules and the Automated Reporting
    Management Information System (ARMIS) reporting requirements that
    apply to incumbent local exchange carriers (LECs). In so doing, we
    expand on the deregulatory initiative that the Commission began two
    years ago in its first, statutorily mandated review and streamlining
    of these rules. [^1] This effort is driven, most immediately, by
    section 11 of the Communications Act of 1934 (Communications Act),
    which requires that we review every two years those regulations that
    are "no longer necessary in the public interest as the result of
    meaningful economic competition between providers of"
    telecommunications service.[^2]

2.  We read section 11 to require a review of our regulations with an
    eye toward achieving Congress's goal, in the 1996 Act, [^3] of a
    truly "pro-competitive, deregulatory" national policy framework for
    the telecommunications industry.[^4] We recognize that any
    unnecessary regulation places a corresponding, unnecessary burden on
    the carriers that are subject to it. Furthermore, we have attempted,
    in this review, to be mindful that the national marketplace in which
    the regulated LECs operate continues to move toward a competitive
    model. Below, we attempt to strike an appropriate balance between
    the operations of the free market and a continuing need for some
    regulation. Accordingly, we do not flash cut to complete
    deregulation today. Rather, we endeavor to remove only those
    accounting and reporting regulations that are outdated or
    unnecessary.

3.  Many of the regulations that we review in this order survive from
    the time of the government-sanctioned monopoly provider, when the
    Commission's main function was rate regulation, which required
    extensive accounting and reporting information. Under the direction
    of the 1996 Act, we are moving to an environment in which
    competition will be the main force that sets rates. Thus, we come to
    our statutory task with the approach that we will not retain a
    particular regulation unless it advances a valid regulatory
    interest. The focus of much of our policymaking has shifted to
    implementing the mandates of the 1996 Act in such areas as local
    competition, universal service, and the deployment of advanced
    services, particularly in rural areas.

4.  Below, we adopt changes to our accounting rules that reflect a
    sharpened focus on ongoing regulatory needs in the areas of
    competition and universal service. Moreover, the changes we adopt
    today recognize the importance of changing technology with an eye
    toward identifying ways in which we can minimize the regulatory
    burdens and distortions that could undermine the development and
    deployment of such technology.

5.  Our review leads us to four major accounting and reporting reforms.
    First, we substantially consolidate and streamline Class A
    accounting requirements. Second, we relax certain aspects of our
    affiliate transactions rules. Third, we significantly reduce the
    cost of regulatory compliance with our cost allocation rules for
    mid-sized carriers. [^5] And finally, we reduce the ARMIS reporting
    requirements for both large and mid-sized LECs. More specifically,
    we:

-   Reduce the number of Class A accounts in Part 32 of our rules by
    forty-five percent, maintaining only those currently used in ongoing
    regulatory activities under the Communications Act and the 1996 Act;

-   In response to state requests, establish new subaccounts for circuit
    and packet under digital switching, electronic and optical
    subaccounts under circuit equipment, and wholesale and retail
    subaccounts under services;

-   Reduce the current Class B accounts in Part 32 of our rules by 27
    percent;

-   Eliminate certain inventory requirements in our rules;

-   Allow carriers to adopt Statement of Financial Accounting Standard
    (SFAS) 116 for federal accounting purposes;

-   Revise the affiliate transactions rules so that carriers are not
    required to do a fair market comparison for asset transfers that
    total less than \$500,000;

-   Give carriers the flexibility to use the higher or lower of cost or
    market valuation as a ceiling or floor in valuing transactions with
    affiliates;

-   Eliminate the need to do a fair market valuation in situations where
    third party sales amount to greater than 25 percent of total sales
    volume for that asset or service;

-   Simplify how carriers record nonregulated revenues in the Uniform
    System of Accounts;

-   Simplify deferred tax accounting;

-   Modify our expense limit rules to include central office tools and
    test equipment in the \$2000 expense limit;

-   Simplify how carriers separate regulated from nonregulated costs by
    permitting carriers to treat as regulated revenues certain
    activities that are not regulated;

-   Simplify the preparation of cost allocation manuals for Class A
    carriers by permitting them to allocate certain costs at the Class B
    level;

-   Permit carriers to treat rates in interconnection agreements as
    tariffed rates for purposes of our cost allocation rules;

-   Eliminate the requirement to do a revenue study analyzing the effect
    of proposed accounting standards changes prior to implementing those
    changes;

-   Amend our accounting rules to expressly limit them to incumbent
    LECs;

-   Modify ARMIS reporting for the large incumbent LECs to eliminate
    obsolete reporting requirements and to capture technological
    changes;

-   Significantly streamline ARMIS 43-04, the Separations and Access
    Report, by reducing the report from 64 to 7 pages;

-   Eliminate the cost allocation manual (CAM) filing requirements and
    the biennial attestation requirement for mid-sized LECs; and

-   Significantly simplify the reporting requirements for mid-sized
    incumbent LECs by eliminating the requirement that they file ARMIS
    43-02, 43-03 and 43-04 Reports.

6.  In adopting these rule changes, we have attempted to steer a course
    that avoids both deregulation simply for its own sake and the
    countervailing temptation to retain rules that may no longer be
    necessary. Thus, we decline to adopt the proposal of the USTA to
    move even the largest LECs to the less detailed, Class B system of
    accounting. As we describe below, this decision is motivated by our
    conclusion that the higher level of detail of Class A accounts is
    necessary for the Commission to continue meeting its statutory
    obligations with respect to universal service. For similar reasons,
    we have chosen not to fully collapse the Class A accounts to the
    extent that USTA has advocated.

7.  In addition, we adopt a Further Notice of Proposed Rulemaking
    addressing certain issues. Specifically, we:

-   Seek to further develop the record on the appropriate circumstances
    for elimination of accounting and reporting requirements for
    incumbent local exchange carriers, including whether some or all
    requirements should be eliminated by a date certain;

-   Seek comment on whether certain ARMIS information would more
    appropriately be collected through other means such as ad hoc data
    requests or our Local Competition and Broadband Data Gathering
    Program; and

-   Seek comment on conforming amendments to our separations rules,
    necessitated by our modifications to the Uniform System of Accounts.

# BACKGROUND

## Accounting Requirements

8.  Under the Commission\'s Part 32 rules, incumbent LECs record their
    costs and revenues in the Uniform System of Accounts (USOA).[^6] The
    USOA was intended to provide a financial-based system maintained in
    sufficient detail to facilitate recurrent regulatory decision
    making.[^7] Part 32 originated at a time when regulators were
    required or inclined to organize telecommunications costs in a
    manner that allowed a logical mapping of these costs to
    telecommunications rate structures. The states historically have
    relied upon our Part 32 accounts, rather than imposing different
    accounting requirements that might serve similar purposes.

9.  There have been 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 \$117 million, are
    classified as Class A; those falling below that threshold are
    considered Class B.[^9] Class A carriers -- SBC, Qwest, Verizon, and
    BellSouth -- have been 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 more generalized level
    of accounting required under Class B was established to accommodate
    smaller carriers, which number over 1,300.[^12]

10. The Commission has used Part 32 accounting data for various
    regulatory purposes. For example, these data are used to allocate
    costs between regulated and nonregulated activities under Part
    64.[^13] Part 32 accounting data are also used in 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 are used to accomplish this
    jurisdictional allocation.

11. USOA data are currently used to calculate universal service support,
    which enables carriers serving high-cost and rural areas to provide
    local service at affordable rates.[^14] Non-rural carriers receive
    support based on the forward-looking economic cost of providing the
    services eligible for support, as determined by the Commission's
    universal service cost model. The Commission used accounting data to
    develop many of the input values used in the model. Rural carriers
    currently receive support based on their embedded costs, as
    reflected in their accounts.[^15]

12. Finally, 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.[^16] 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.[^17] For example, in their
    2001 annual access tariff filing, several carriers sought exogenous
    adjustments.[^18] 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. [^19]

## Reporting Requirements

13. 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.[^20]
    ARMIS was designed to provide federal and state 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.

14. ARMIS contains ten separate reports. The following chart
    summarizes (1) the name of the ARMIS Report; (2) the level of
    reporting required; and (3) the incumbent LECs required to file each
    report.

<table>
<colgroup>
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td><strong>ARMIS Report</strong></td>
<td><p><strong>43-01</strong></p>
<p><strong>Annual Sum-mary</strong></p></td>
<td><p><strong>43-02</strong></p>
<p><strong>USOA Report</strong></p></td>
<td><p><strong>43-03</strong></p>
<p><strong>Joint Cost Report</strong></p></td>
<td><p><strong>43-04</strong></p>
<p><strong>Sep. &amp; Access</strong></p></td>
<td><p><strong>43-05</strong></p>
<p><strong>Service Quality</strong></p></td>
<td><p><strong>43-06</strong></p>
<p><strong>Cust. Satisfac-tion</strong></p></td>
<td><p><strong>43-07</strong></p>
<p><strong>Infra-Struct.</strong></p></td>
<td><p><strong>43-08</strong></p>
<p><strong>Oper. Data</strong></p></td>
<td><p><strong>495A</strong></p>
<p><strong>Forecast of Invest-ment Usage</strong></p></td>
<td><p><strong>495B</strong></p>
<p><strong>Actual Usage of Invest-ment</strong></p></td>
</tr>
<tr class="even">
<td>Level of report-ing</td>
<td>Study area</td>
<td>Opera-ting co.</td>
<td>study area</td>
<td>study area</td>
<td>holding co./ study area</td>
<td>holding co./ study area</td>
<td>holding co./ study area</td>
<td>opera-ting co.</td>
<td>study area/ consol. access tariff area/ oper. co.</td>
<td>study area/ consol. access tariff area/ oper. co.</td>
</tr>
<tr class="odd">
<td>LECs that file</td>
<td>All LECs at or above thresh-old</td>
<td>All LECs at or above thresh-old</td>
<td>All LECs at or above thresh-old</td>
<td>All LECs at or above thresh-old</td>
<td>All price cap LECs</td>
<td>Manda-tory price cap LECs</td>
<td>Manda-tory price cap LECs</td>
<td>All LECs at or above thresh-old</td>
<td>All LECs at or above thresh-old</td>
<td>All LECs at or above thresh-old</td>
</tr>
</tbody>
</table>

15. Currently, only 52 out of over 1300 incumbent LECs are required to
    file ARMIS reports on an annual basis.[^21] Class A carriers are
    required to file four ARMIS reports that collect financial
    information: ARMIS 43-01, which is a summary report, ARMIS 43-02,
    which collects basic accounting information, ARMIS 43-03, which
    collects information on how costs are allocated between regulated
    and nonregulated activities, and ARMIS 43-04, which collects
    information about how costs are allocated between the federal and
    state jurisdictions.[^22] Supporting data for the ARMIS 43-03 Report
    are collected in two reports: Form 495A (Forecast of Investment
    Usage Report) and Form 495B (Actual Usage of Investment Report). The
    ARMIS 43-05 Service Quality report is filed by all price cap
    incumbent LECs.[^23] The ARMIS 43-06 Customer Satisfaction Report
    and ARMIS 43-07 Infrastructure Report are filed by mandatory price
    cap incumbent LECs.[^24] The ARMIS 43-08 Operating Data Report is
    filed by all Class A incumbent LECs.[^25] These ARMIS filings
    provide information on incumbent LECs serving more than 90 percent
    of the nation's telephone customers.

## History of this Proceeding

16. In Phase 1 of this comprehensive review of accounting and reporting
    requirements, the Commission streamlined the Part 32 accounting
    rules and ARMIS reporting requirements by, *inter alia*, reducing
    the total number of Class A accounts and subaccounts by over 50
    percent.[^26] The Commission also reduced the reporting requirements
    for the ARMIS 43-02 USOA Report by revising certain tables,
    eliminating several other tables, and establishing new threshold
    levels for certain reporting items.

17. In the Phase 2 *Notice*, the Commission sought comment on proposals
    to further revise the accounting rules and ARMIS reporting
    requirements in the near term by streamlining the chart of accounts,
    revising the affiliate transactions rules, modifying other
    accounting rules, and streamlining the ARMIS reporting
    requirements.[^27]

18. Subsequent to the release of the *Notice*, the Commission adopted
    the recommendation of the Federal-State Joint Board on Separations
    to impose an interim freeze of Part 36 category relationships and
    jurisdictional allocation factors for price cap carriers and
    allocation factors for rate-of-return carriers. [^28] As directed by
    the Commission, the Common Carrier Bureau sought comment on
    streamlining ARMIS 43-04, the Separations and Access Report. [^29]

19. In the Phase 3 *Notice*, adopted concurrently with the Phase 2
    *Notice*, the Commission undertook a broader examination of Part 32
    and ARMIS reporting requirements to determine what additional
    deregulatory changes should be made as competition develops in the
    local exchange market. We will address Phase 3 issues in a
    subsequent order in this docket.

## Ongoing State Role in Revisions to the Uniform System of Accounts 

20. Under our system of dual regulation, the Commission and the states
    work together as partners.[^30] Section 220 of the Communications
    Act provides states a unique partnership role in developing the
    uniform system of accounts.[^31] Through this partnership, the
    Commission has developed an accounting system that almost every
    state uses.[^32] For example, the State of Alaska uses our USOA to
    determine local service rates as well as for evaluating unbundled
    network element (UNE) and interconnection rate proposals and
    arbitrations.[^33] Alaska also uses the USOA to determine intrastate
    access charges, evaluate the allocation of the Alaska Universal
    Service Fund support, and evaluate proposed tariffs.[^34]

21. Uniformity provides efficiency to the regulatory process for both
    federal and state regulators because regulators need only have
    expertise in one accounting system.[^35] Uniformity among states
    allows regulators or other interested parties to compare and
    benchmark the costs and rates of incumbent carriers operating in
    various states. [^36] A comparative analysis of these costs could be
    hindered, at least to some extent, if that data were too aggregated.
    At a reduced level of detail, data could mask important
    inter-company differences in the utilization of various technologies
    and deployment of various types of plant. One goal of our reform of
    accounting and reporting requirements is to determine whether those
    regulatory benefits are outweighed by the burdens imposed on
    carriers and ratepayers.

22. We recognize that our federal accounting system has a significant
    impact on state regulatory processes. The Commission has
    specifically sought the input of the states in this proceeding.
    Prior to the Phase 2 *Notice*, we held a series of teleconferences
    to seek input from the states in crafting proposals for the Phase 2
    *Notice*. Subsequently, 24 state commissions[^37] and the National
    Association of Regulatory Utility Commissioners (NARUC) filed
    comments, reply comments, or *ex parte* comments in Phase 2 of this
    proceeding. We have found the input of our state colleagues to be
    very valuable throughout this process. We are committed to
    soliciting further state input as we continue to streamline our
    accounting and reporting requirements.

# DISCUSSION

23. In this order, we streamline many of our accounting rules and
    reporting requirements. As a preliminary matter, we note that
    several commenters observe that the record fails to provide any
    evidence of meaningful economic competition for local exchange
    services. [^38] We are not, however, limiting our analysis to
    whether meaningful economic competition exists and therefore rule
    changes may be justified under the standard in section 11. Instead,
    we are going beyond section 11 to determine whether our accounting
    rules should be revised and streamlined to serve the public interest
    and how we can revise these rules to have validity today. We note
    that most of the rule changes adopted herein, including the addition
    of new accounts, are listed as proposals in our *2000 Biennial
    Regulatory Review Report*.[^39] In addition, we have the inherent
    authority to consider at any time whether our rules should be
    repealed or modified; thus, we need not make a finding in this
    proceeding that meaningful economic competition exists in order to
    make rule changes. Considering whether other factors, such as
    technological changes or changes in the law, may have made certain
    regulations appropriate for modification is an efficient use of our
    resources.[^40]

24. Below, we discuss the streamlining that we accomplish in the chart
    of accounts first with respect to Class A accounts and then with
    respect to Class B accounts. Next, we detail the additional,
    substantial regulatory relief that we afford all of the carriers
    subject to our accounting rules. Following that, we review the
    changes we adopt for the ARMIS reporting system. Finally, we respond
    to the unique concerns of the smaller Class A, or mid-sized,
    carriers, providing these entities further relief in both their
    accounting and their reporting requirements.

## Class A Accounts

25. Currently, there are 296 Class A accounts. In the *Notice*, the
    Commission proposed to eliminate one-fourth of the Class A
    accounts.[^41] Specifically, the Commission proposed to retain the
    Class A account structure for network plant and related asset and
    expense accounts[^42] and, for all other accounts, to consolidate
    the chart of accounts to Class B accounts. The Commission also
    sought comment on USTA's proposal to adopt Class B accounting for
    all carriers.[^43] Commenters agreeing with USTA's proposal contend
    that Class A accounts are not needed for any regulatory
    purpose.[^44] Many commenters, particularly state commissions,
    disagree with USTA's proposal to completely eliminate Class A
    accounting.[^45] After reviewing the record, we sought further
    comment on additional consolidating, to reduce 296 Class A accounts
    to 178 Class A accounts.[^46]

26. Based on our review of the current USOA and the comments received in
    this proceeding, we conclude that our existing Class A accounting
    system can be significantly streamlined. We conclude that we can
    reduce the number of Class A accounts by forty-five percent, from
    296 to 164 accounts. In particular, we conclude that we can
    substantially streamline the number of financial accounts. We also
    consolidate a number of current plant expense accounts, while
    preserving those accounts that the Commission and the state
    commissions use for ongoing regulatory activities. We add several
    new subaccounts to meet new needs.

### Class A Accounts Being Eliminated or Consolidated

27. After reviewing the record, we conclude that we can reduce the
    number of Class A accounts, as proposed in the *Notice* and *June 8
    Public Notice*, with some modifications. We are consolidating many
    of the financial accounts as well as some of the plant accounts. At
    the same time, arguments raised by some of the commenters persuade
    us to retain some of the accounts we proposed to eliminate. We
    remain open to future additional consolidation of Class A accounts
    in the event that future proponents provide more persuasive support
    that such consolidation is acceptable or appropriate than exists on
    the record before us here.

28. *Telecommunications Plant in Service -- Cable and wire facilities
    assets.* In the *June 8 Public Notice*, we proposed to consolidate
    Account 2423, Buried cable, Account 2424, Submarine cable, and
    Account 2425, Deep sea cable, as well as the corresponding expense
    accounts: Account 6423, Buried cable expense, Account 6424,
    Submarine cable expense, and Account 6425, Deep sea cable expense.
    Several commenters disagree with this proposal.[^47] New York
    contends that the elimination of the submarine cable account would
    jeopardize its ability to conduct depreciation studies and to
    evaluate depreciation reserves.[^48] Sprint opposes incorporating
    the submarine and deep sea accounts into the underground or buried
    cable accounts, thereby "contaminating" the underground and buried
    cable accounts with these expenses, because the underground and
    buried cable accounts are important in determining loop costs.[^49]

29. Based on these comments, we consolidate Account 2425, Deep sea cable
    into Account 2424, Submarine cable and consolidate Account 6425,
    Deep sea cable expense into Account 6424, Submarine cable expense.
    We note, however, that submarine and deep sea cables have plant
    characteristics dissimilar to buried cable. For example, the
    maintenance expenses can be much higher for deep sea cable than for
    buried cable.[^50] Buried cable costs are used to develop inputs for
    the universal service high-cost model for non-rural carriers. The
    model does not include submarine or deep sea cable as an input
    value, so including buried cable in the same account would inflate
    maintenance expenses for buried cable. Accordingly, we have decided
    that the submarine and deep sea cable accounts should not be
    combined with buried cable because this could distort buried cable
    costs.

30. *Current liabilities*. In the *June 8 Public Notice*, we proposed
    consolidating Accounts 4010 and 4020 into one account \-- Account
    4000, Current accounts and notes payable. This proposal would
    eliminate Account 4040, Customers' deposits. Oregon and New
    Hampshire disagree with this proposal, contending that they require
    detailed information relating to the balance of customer
    deposits.[^51] Illinois also opposes our proposal, arguing that
    Account 4030, Advance billing and payments, provides information
    that is useful in identifying and tracking unearned revenue.[^52]

31. Based on our review of the record, we will consolidate Account 4010,
    Accounts payable and Account 4020, Notes payable into new Account
    4000, Current accounts and notes payable. We also will consolidate
    Account 4030, Advance billing and payments; Account 4050, Current
    maturities-long-term debt; and Account 4060, Current
    maturities-capital leases; and Account 4120, Other accrued
    liabilities into Account 4130, Other current liabilities. We will
    retain Account 4040 as a separate account, as that account is a
    current Class B account. The net result of this action is that Class
    A carriers will record liabilities in an identical fashion to Class
    B carriers, which is the relief sought by USTA.

32. *Local network services revenues*. In the *Notice*, the Commission
    proposed consolidating the Local network services revenue accounts
    (Accounts 5001 through 5069) into Account 5000, Basic local service
    revenue.[^53] Several commenters disagree with our proposal to
    aggregate these revenue accounts.[^54]

33. After consideration of these comments, we consolidate these accounts
    into three accounts as follows: Accounts 5001 through 5004 will be
    consolidated into Account 5001, Basic area revenue; Account 5040,
    Private line revenue will remain disaggregated; and Accounts 5050
    through 5069 will be consolidated into Account 5060, Other basic
    area revenue. [^55] We do not further consolidate these accounts at
    this time in deference to the states' concerns that a separate
    breakdown of basic revenue from private line revenue serves state
    regulatory needs. [^56] We encourage states to consider, however,
    alternative means to gather such information.[^57] Therefore, for
    the time being, we are retaining these accounts.

34. *Network access service revenues*. In the *June 8 Public Notice*, we
    proposed to eliminate Account 5084, State access revenue. Some
    commenters argue that if we eliminate Account 5084 (State access
    revenue) and require these revenues to be included in Accounts
    5081-5083 (end user, switched, and special access revenues), we must
    modify the ARMIS 43-04 Report so that the state and interstate
    amounts are reported separately. [^58] Otherwise, in the absence of
    alternative approaches, neither the federal nor state commissions
    will be able to track the respective jurisdictional revenues.

35. We agree that we can eliminate Account 5084 as long as we require
    the proper reporting of jurisdictional revenues in ARMIS. Therefore,
    we eliminate Account 5084,[^59] and adopt conforming reporting
    changes in the ARMIS 43-04 report.[^60]

36. *Miscellaneous revenues*. In the *Notice*, the Commission proposed
    consolidating the miscellaneous revenue accounts (Accounts 5230
    through 5270) into Account 5200, Miscellaneous revenue.[^61]
    Commenters argue that Account 5230, Directory revenue should be
    retained because of outstanding proceedings at the state and federal
    levels. [^62] We recognize that directory revenue is generally a
    separate line of business, not miscellaneous revenue. Nevertheless,
    we are not persuaded that there continues to be regulatory benefit
    from a federal perspective associated with maintaining directory
    revenue separately from miscellaneous revenue. State commenters have
    raised legitimate state concerns about retaining data on directory
    revenues separately. We note that nothing we decide today restricts
    state commissions from receiving these data from carriers when
    state-specific reasons require them to do so. Therefore, on balance,
    we are adopting the proposal in the *Notice* and consolidating
    Accounts 5230 through 5270 into Account 5200.

37. *Plant nonspecific operations expense*. In the *June 8 Public
    Notice*, we proposed consolidating the depreciation and amortization
    expense accounts (Accounts 6561 through 6565) into Account 6560,
    Depreciation and amortization expenses. Commenters oppose our
    proposal, contending that Account 6562, Depreciation
    expense-property held for future telecommunications use is important
    in state rate cases. [^63]

38. We recognize that this account may be important to state regulators
    in cases where property held for future telecommunications use is
    excluded from the rate base. We note, however, that the amount in
    this account for year 2000, for all Bell Operating Companies (BOCs)
    combined, was \$168,000, which is less than .001 percent of the
    depreciation expense.[^64] Due to the *de minimis* nature of this
    account, we will adopt our proposal to consolidate these
    depreciation accounts. We expect, however, that companies will
    provide these records to the state commissions, if needed for state
    rate cases.

39. *Customer operations expense* and *corporate operations expense*. We
    proposed to consolidate the Class A level expense Accounts 6610
    through 6790, into Accounts 6610, 6620, and 6720.[^65] WorldCom
    objects to our proposal, contending that these accounts are used in
    the determination of wholesale and retail rates and are major
    components of the forward-looking cost model used in the Universal
    Service Program.[^66] With two minor modifications, we adopt this
    proposal.

40. After reviewing the record, we conclude that Account 6790, Provision
    for uncollectible notes receivable is not properly included in
    general and administrative because it relates to bad debts, not
    general and administrative expenses. General and administrative
    expenses are used to develop inputs for the high cost model for
    universal service purposes and should not include any expenses
    related to bad debts. Therefore, we will retain Account 6790,
    Provision for uncollectible notes receivable. In addition, we agree
    with WorldCom that, for universal service modeling purposes, we
    should retain Account 6613, Product advertising. Section
    214(e)(1)(B) requires that all eligible telecommunications carriers
    must "advertise the availability of \[the universal-service
    supported\] services and the charges therefor using media of general
    distribution."[^67] Because these advertising costs are required
    costs to providing the universal-service supported services, the
    expenses recorded in Account 6613 are required to develop inputs for
    the universal service model. If we eliminated this account as
    proposed in the *Notice,* all costs associated with marketing,
    product management, and sales would be recorded in the same account
    as product advertising expenses. This could inflate the
    forward-looking costs of the supported services. Maintaining product
    advertisement expenses separately will eliminate this problem and,
    thus, we do not eliminate Account 6613 as we proposed.

41. Other than Accounts 6790 and 6613, we adopt our proposals to
    consolidate the customer operations expense and corporate operations
    expense accounts, as set forth in the *June 8 Public Notice*. As a
    result, Accounts 6611 and 6612 will be consolidated into Account
    6611, Product management and sales; Accounts 6621 through 6623 will
    be consolidated into Account 6620, Services, with subaccounts for
    wholesale and retail; Accounts 6710 through 6728 will be
    consolidated into Account 6720, General and administrative. Accounts
    6613, Product advertising and Account 6790, Provision for
    uncollectible notes receivable will remain disaggregated.

42. Based on our review of the record, particularly the comments filed
    by state commissions, we conclude that the other Class A accounts
    that we proposed for elimination in the *Notice* and the *June 8
    Public Notice* are not vital to our regulatory mission. We are
    therefore consolidating 296 Class A accounts into 164 Class A
    accounts because we no longer need the level of detail provided in
    those accounts. As technology and the regulatory environment
    changes, the need for accounting detail changes as well. Appendix B
    contains a list of the eliminated Class A accounts. Appendix C is
    the revised list of Class A accounts.

43. In the *Notice*, we also sought comment on USTA's proposal to
    eliminate the subaccounts in Account 2123, Office equipment. Based
    on our review, we conclude that the subaccounts can be eliminated.
    One of the subaccounts, Account 2123.2, is used to identify the
    investment in the telephone company's internal telecommunications
    system. The other subaccount, Account 2123.1, contains the other
    office support equipment. We agree with USTA that these subaccounts
    are no longer necessary. There are two subaccounts in Account 2231,
    Radio systems that identify distinct technologies: one includes the
    carrier's ownership interest in satellites and its investment in
    earth stations, the other records investment in other radio
    facilities. We conclude that these subaccounts are no longer needed
    in order to differentiate between these investments. In addition, we
    agree with USTA that the subaccounts in Account 2215,
    Electro-mechanical switching can be eliminated. These subaccounts
    distinguish between three types of electro-mechanical switches:
    step-by-step switching, crossbar switching, and other
    electro-mechanical switching. The investment in Account 2215 is
    minimal. We are combining this account with Account 2211, Analog
    switching and eliminating the subaccounts.

### Class A Accounts Maintained

44. As noted above, the USOA has served various regulatory purposes over
    the years. We acknowledge that both our regulatory framework and the
    marketplace have changed significantly since the USOA was originally
    adopted.[^68] Nonetheless, state and federal policymakers have an
    ongoing need for carriers to continue maintaining certain of the
    Class A accounts so that we may carry out our regulatory mission, as
    described below. We therefore reject USTA's proposal to adopt Class
    B accounting for all carriers.

45. First, we conclude that it is necessary to retain the Class A
    accounts relating to network plant and related asset and expense
    accounts to continue the Commission's administration of the
    universal service high-cost support mechanism. Currently, data
    collected in the Class A accounts and reported through ARMIS are
    critical to the calculation of high-cost support for non-rural
    carriers. In 1999, the Commission adopted a cost model to estimate
    non-rural carriers' forward-looking cost of providing the supported
    services, and concluded that support should be based on those cost
    estimates. At that time, the Commission used the USOA Class A
    accounting information to develop certain inputs used in the model.
    Aggregation of the Class A accounting information into consolidated
    Class B accounts would result in distortions in the cost estimates
    and could prevent the Commission from developing accurate inputs.
    For example, the high-cost model for non-rural carriers requires the
    development of expense factors for outside plant. Class A accounting
    requires that outside plant be accounted for by type of plant
    (*i.e*., poles, aerial cable, underground cable, buried cable,
    etc.), whereas Class B consolidates all outside plant into a single
    account, cable and wire facilities. Because different outside plant
    types typically have different operating expense factors,
    aggregating outside plant into one Class B account would cause
    distortions in the outside plant cost estimates generated by the
    high-cost model.[^69]

46. Second, we currently use certain of the Class A accounts in
    administering our price cap regulation regime. Access charges of
    price cap LECs were originally based on levels existing at the time
    they entered price caps; the prices, however, have been adjusted
    annually pursuant to formulae set forth in Part 61 of the
    Commission's rules. Price cap indices are adjusted upward if a price
    cap carrier earns returns below a specified level in a given
    year.[^70] We recognize, however, that several incumbent LECs have
    obtained pricing flexibility and thus have waived low-end formula
    adjustments. [^71] Price cap carriers may also seek exogenous
    adjustments based on actual cost changes.[^72] The Commission
    typically uses Class A cost information from ARMIS in evaluating
    submissions from carriers seeking exogenous adjustments. Obtaining
    such information through ad hoc data requests would be very
    difficult in the compressed 15-day tariff review process. In
    addition, the Commission utilizes Class A cost information to
    evaluate proposed tariff revisions. For instance, the Commission
    utilized such information to evaluate a carrier's cost justification
    filed in support of a proposed increase in collocation rates after
    suspending that tariff.[^73] Finally, the Commission has commenced a
    cost study to assess the need for increases in the subscriber line
    charge (SLC) above the five-dollar threshold that went into effect
    on July 1, 2001.[^74] While we could use ad hoc data requests to
    obtain information to evaluate the submissions we receive from the
    incumbent LECs, this could impair our ability to perform meaningful
    trend analysis. As a result, even after the adoption of price cap
    regulation, Class A accounting data is utilized by the Commission in
    setting access rates, although we recognize that we could adopt
    alternative approaches in the future. For these reasons, we find
    that maintaining the disaggregated Class A level of detail for
    network plant and related asset and expense accounts in the Uniform
    System of Accounts is a useful tool, at least for the time being, to
    provide the cost data needed for analysis of these issues. [^75]

47. Third, this Commission and the states currently use certain Class A
    information to update depreciation ranges. Price cap carriers may
    use the Commission's life and salvage factor ranges to compute their
    depreciation rates rather than file detailed depreciation studies.
    Ranges are updated periodically to keep them in line with
    technological, demand, and competitive changes.[^76] Commenters
    observe that the lack of Class A plant account information would
    inhibit the Commission's ability to update depreciation ranges and
    the states' ability to assess the depreciation ranges because there
    would be no plant account information on which to base the update.
    [^77] In addition, this lack of specific data for plant accounts
    could jeopardize the states' ability to conduct depreciation studies
    and evaluate depreciation reserves, unless alternative approaches
    were developed.[^78] New York, for example, uses our Class A plant
    accounts to set the intrastate depreciation rates for all
    carriers.[^79]

48. Fourth, federal and state regulators currently use the information
    maintained in Class A Account 2411, Poles, to resolve disputes over
    maximum permitted rates for access to poles, ducts, conduits, and
    rights-of-way.[^80] As the National Cable Television Association
    (NCTA) observes, [^81] the current pole attachment formulae rely on
    Class A accounting data.[^82] Pole rents are determined by the Class
    A Account 2411; under USTA's proposal to eliminate all Class A
    accounts, a discrete account for pole investment would no longer be
    publicly available.[^83] Reliance on publicly available information
    has allowed pole owners and attaching parties to resolve rate issues
    without Commission involvement, which is a cost-savings benefit to
    utilities, cable operators, other attaching parties, and the
    Commission.[^84]

49. Fifth, state regulators use Class A account information relating to
    network plant to determine appropriate pricing for UNEs pursuant to
    section 251. Commenters argue that it is critical to have the
    account detail at the Class A level to establish proper rates for
    UNEs.[^85] State commenters and other parties in this proceeding
    argue that without detailed cost data, regulators and other parties
    cannot develop cost models or evaluate cost studies provided by the
    carriers.[^86]

50. Two of the essential market-opening provisions of the 1996 Act are
    sections 251(c)(3) and 251(c)(6) of the Communications Act,
    relating, respectively, to the provision of UNEs and physical
    collocation.[^87] The Commission regards the appropriate pricing of
    UNEs to be particularly important in promoting efficient
    competition. The ability of a competing carrier to use UNEs, and
    combinations of UNEs, is essential to promote efficient competition
    in the local exchange market.[^88] The states assert an ongoing
    regulatory need for more disaggregated cost information, at the
    Class A level, to assist their evaluation of incumbent LEC cost
    submissions when developing rates for UNEs and collocation.
    Moreover, Class A information from the USOA, will be used by the
    Commission itself in cases where the Commission preempts the state
    commission under section 252(e)(5) of the Communications Act.[^89]
    In particular, state regulators, or the Commission, may compare
    incumbent LEC cost submissions with USOA cost information obtained
    from other incumbent LECs or they may compare current cost
    information with recent ARMIS filings to determine whether there are
    any unusual increases or decreases in certain accounts.[^90] Without
    such ready access to Class A accounting or some similar level of
    accounting detail, for plant-specific, customer, and corporate
    expense disaggregated accounts, regulators would be at a
    disadvantage in evaluating cost studies prepared by the incumbent
    LECs because the incumbent LECs would be the only parties with
    access to disaggregated cost data.[^91] This could significantly
    compromise regulators' ability to implement the local competition
    mandates of the 1996 Act.[^92]

51. Plant accounts are an important indicator of a company's
    investments.[^93] As illustrated below, disaggregation of these
    accounts at the Class A level, or some similar level of accounting
    detail, enables regulators to determine a carrier's costs in
    different contexts. For example, without this level of detail,
    regulators would not have data readily available regarding
    construction of the various types of outside plant because all
    outside cable and wire investments for both fiber and copper cable
    located aerial, underground, or buried are aggregated into one
    account under Class B.[^94] This distinction is important due to
    different costs associated with installation and maintenance of the
    three different types of outside cable.[^95] If the three types of
    outside cable were aggregated into one Class B account, it would be
    difficult to analyze a company's outside plant costs. Outside plant
    costs are important for several reasons. For example, we have used
    outside plant costs in the development of inputs to the universal
    service high-cost model for non-rural carriers. Because of cost
    differences, we use six different sets of input values in the model
    for cable costs depending on whether the cable is aerial,
    underground, or buried and copper or fiber for each of the three
    types of plant. Moreover, certain outside plant costs, not presently
    available in Class B accounts, are required to compute just and
    reasonable pole attachment rates, a responsibility shared between
    the states and the Commission. We intend to develop a further record
    on whether alternative means of obtaining such information would be
    adequate to meet our ongoing federal regulatory needs. Based on that
    record and the development of alternative mechanisms, the Commission
    could later determine that such aggregation is acceptable in the
    Uniform System of Accounts.[^96]

52. The Class A or some similar level of detail is also needed to
    distinguish costs associated with metallic cable from fiber
    (nonmetallic cable). Otherwise, lower maintenance costs for fiber
    would be mixed in with higher maintenance costs for metallic cable,
    creating artificially high maintenance costs.[^97] The universal
    service high-cost model for non-rural carriers uses expense factors
    for copper cables that are developed separately from those for fiber
    cables. These outside plant costs should therefore remain
    disaggregated at the Class A level, absent a determination that
    countervailing or other factors not addressed sufficiently here make
    such aggregation acceptable.

53. In addition, estimates of operating costs for digital switches can
    be derived from Class A accounts in Part 32, enabling the states or
    other parties to evaluate forward-looking switching costs when
    developing UNE rates without the distortion that would result if all
    types and vintages of switches were combined into one account.[^98]
    We use digital switching costs in various contexts, including the
    development of inputs to the universal service high-cost model for
    non-rural carriers. Because the model estimates forward-looking
    costs, it includes only digital switches. We use investment and
    expense data for digital switches to develop input values. Use of
    aggregated Class B accounts would aggregate analog electronic
    switching (Account 2211), digital electronic switching (Account
    2212), and electro-mechanical switching (Account 2215), thereby
    distorting input values in the high-cost model. Again, we may
    conclude in the future that this level of disaggregation in the USOA
    is no longer necessary, if we or the states develop alternative
    sources of such information to meet federal or state regulatory
    needs.

54. Thus, at least at present, the Commission and the states have an
    ongoing regulatory need to maintain the Class A accounts for network
    plant and related asset and expense accounts. We conclude that these
    regulatory needs outweigh the potential costs of maintaining the
    accounts at this level of detail. We are not convinced that
    maintaining Class A accounting for the network plant and related
    asset and expense accounts is unduly burdensome, particularly in
    light of the streamlining reforms adopted in this Order.[^99]
    Incumbent LECs maintain many more than the Class A accounts in their
    own accounting systems and even the smallest incumbent LECs use
    Class A accounting which is required for Rural Utility Service (RUS)
    loans.[^100] For the reasons discussed above, we therefore decline
    at this time to adopt USTA's proposal to eliminate Class A
    accounting in its entirety.

55. We also decline to adopt USTA's proposal to eliminate subaccounts
    1220.1 and 1220.2.[^101] USTA, Sprint, and Verizon contend that
    carriers should not be required to maintain subaccounts or
    subsidiary records that are not necessary to meet business
    requirements.[^102] We find that these subaccounts continue to serve
    federal regulatory needs. The information recorded in subaccount
    1220.1, Materials and supplies, is used by the Commission in almost
    all tariff proceedings and in investigations to calculate materials
    and supplies overhead factors.[^103] If these subaccounts were
    eliminated, the Commission would lack the information to calculate
    such overheads, and would therefore be hampered in its ability to
    critically evaluate the submissions of the carrier. This information
    is also used in state UNE ratemaking proceedings.

56. We do, however, adopt USTA's proposal to eliminate the subaccounts
    under Account 1406, Nonregulated investments. At present, large
    incumbent LECs record very few transactions in Account 1406. Thus,
    we believe that requiring subaccounts for permanent investment,
    receivable/payable, and current net income or loss is unnecessary.

### The States' Proposals for New Class A Accounts

57. Many commenters, particularly the state commissions, argue generally
    that the new accounts listed in the *Notice* and the *June 8 Public
    Notice* would be appropriate and necessary to maintain an up-to-date
    accounting system.[^104] Commenters observe that changes in the
    industry and the ongoing implementation of local competition should
    be reflected in the chart of accounts through both additions and
    deletions.[^105] Commenters propose adding new accounts to recognize
    revenues and costs for items such as UNEs, collocated facilities,
    interconnection agreements, reciprocal compensation, universal
    service fund transactions, and to recognize meaningful subcategories
    of digital electronic switches and cable and wire facilities.[^106]
    Ohio CC and NASUCA observe that the information in the proposed new
    accounts would be used by state commissions, state consumer
    advocates, and other stakeholders.[^107] Incumbent LECs oppose
    adding these new accounts.[^108] BellSouth, for example, contends
    that, despite the net reduction in accounts, the added burden
    created by the additional accounts and subaccounts will far outweigh
    any positive effects of the elimination of other accounts.[^109]
    Verizon observes that state commissions should require carriers to
    report the data required to meet the state's regulatory needs,
    regardless of whether the Commission streamlines the Part 32
    accounts.[^110] After consideration of the record, we conclude that
    at this time we will only adopt new Class A subaccounts for circuit
    and packet digital electronic switching, electronic and optical
    circuit equipment, and wholesale and retail services.[^111]

58. *Circuit and packet switching subaccounts*. In the *June 8 Public
    Notice*, we proposed to add two subaccounts, for circuit and packet
    switching, to the digital switching accounts.[^112] We note that
    circuit and packet switching equipment has substantially different
    functions, designs, and cost structures. The addition of these
    subaccounts would assist federal and state regulators, as these
    subaccounts will be used to develop and assess forward-looking cost
    studies for UNE pricing as well as for developing inputs to the
    high-cost model for universal service support. Under our current
    rules, packet switches need not be unbundled except under limited
    circumstances. We are sensitive to the concerns of states that the
    accounts for digital electronic switching and digital electronic
    expense not be distorted by the inclusion of costs incurred to
    deploy packet-based switches. For example, new packet switching
    equipment may have substantially different maintenance expenses than
    the older circuit switches. If we do not disaggregate the plant and
    maintenance expenses in the digital switching accounts, the
    forward-looking cost factors will be based on combined data from
    circuit and packet technologies. This could lead to an overstatement
    of the forward-looking costs, and UNE rates for switching that are
    too high. As a result, we adopt our proposal to add two subaccounts
    for circuit and packet switching under Account 2212, Digital
    electronic switching and Account 6212, Digital electronic switching
    expense.

59. We are not persuaded that because a switch could have both packet
    and circuit elements, it would be difficult or costly to implement
    the new subaccounts.[^113] As with the introduction of any new
    technology, there is a period of time in which the old technology
    coexists with the new. We are not requiring carriers to allocate the
    cost of a multi-functional switch between the two subaccounts.
    Rather, consistent with existing Commission precedent in other
    contexts, a switch that has both packet and circuit switching
    capabilities should be accounted for in the subaccount that reflects
    its predominant use.

60. *Optical switching,* In the *June 8 Public Notice*, we proposed to
    add Account 2213, Optical switching and Account 6213, Optical
    expense.[^114] After reviewing the record, we agree with the
    incumbent LEC commenters that adding the optical switching account
    is premature because the technology has not yet developed to the
    point where widespread deployment is imminent.[^115]

61. *Electronic and optical circuit equipment subaccounts*. In the *June
    8 Public Notice*, we proposed adding subaccounts to segregate
    electronic and optical in the circuit equipment accounts.[^116] As
    we discussed above, as new technologies are deployed, it is critical
    that cost models be updated to properly calculate the forward
    looking cost of the relevant facility. We understand that carriers
    are increasingly deploying fiber in their networks and deploying
    electronic circuitry that provides a conversion between electronic
    and optical transmission. For the same reasons we adopt circuit and
    packet switching subaccounts, we adopt subaccounts for electronic
    and optical circuit equipment under Account 2232, Circuit equipment
    and Account 6232, Circuit equipment expense. These new subaccounts
    will help prevent the distortion of operating expense factors.
    Optical technology equipment may have substantially lower
    maintenance expense than the electronic equipment. The addition of
    subaccounts to disaggregate optical from electronic circuit
    equipment would provide federal and state regulators more refined
    data to develop and assess forward-looking cost studies for UNE
    pricing as well as for developing inputs to the high-cost model for
    universal service support. This new optical account would be used,
    for instance, to record investments and expenses relating to optical
    splitters. Circuit equipment that converts electronic signals to
    optical signals or optical signals to electronic signals shall be
    categorized as electronic.

62. *Switching Software.* We decline to add a subaccount to the
    intangible asset account for switching software.[^117] The
    intangible asset account currently has subsidiary record categories
    for general purpose computer software and network software. [^118]
    We see no regulatory need at this time to separately track
    investment in switching software in a new subaccount.

63. *Loop and Interoffice Transport.* We decline to add subaccounts to
    central office transmission, cable and wire facilities, and
    information origination/termination accounts for loop and
    interoffice transport. We recognize that some commenters argue that
    these subaccounts would allow the refinement of cost models that
    estimate forward-looking costs of unbundled transport and
    loops.[^119] While it may be useful to have this disaggregated
    information, we find that allocating these costs to separate
    subaccounts would be overly burdensome because, in some cases, both
    loop and interoffice transport would be carried on the same cable
    facility.[^120]

64. *Wholesale and retail subaccounts.* In the *Notice*, the Commission
    sought comment on adding subaccounts for wholesale and retail.[^121]
    We conclude that we should create new subaccounts to existing
    Account 6620, Services, to separately record expenses associated
    with retail and wholesale services. The wholesale versus retail
    distinction is important for customer service because the per-line
    expenditure for customer service is higher at the retail
    level.[^122] Moreover, we anticipate that the wholesale/retail
    distinction will increase in importance as competition develops in
    the local exchange market. Adding these new subaccounts will assist
    the states in developing UNE rates that properly reflect the costs
    of providing a wholesale service. Therefore, we adopt the proposal
    in the *Notice* to add retail and wholesale subaccounts to Account
    6620, Services. We are not persuaded by those commenters that argue
    that the burden of adding the subaccounts outweighs any potential
    benefits.[^123] These commenters have not quantified this burden.
    Moreover, we anticipate that the wholesale/retail distinction will
    increase in importance as competition develops in the local exchange
    market.

65. *Interconnection-related Revenues and Expenses*. We decline to adopt
    new Class A accounts for UNEs, resale, reciprocal compensation, and
    other interconnection arrangements.[^124] Commenters argue that
    these new accounts would allow policymakers to monitor technology
    deployment, collocation, interconnection, and resold services.[^125]

66. The Form 477 already provides information on the extent of local
    competition.[^126] In the *Local Competition and Broadband Data
    Gathering Program*, service providers file data on a Form 477,
    giving the Commission information on the status of local competition
    and the deployment and availability of broadband services to
    discrete geographic areas.[^127] Service providers that meet the
    relevant reporting threshold file data on a state-by-state basis and
    also report a list of zip codes in which they have at least one
    customer for local exchange telephone service. Although this program
    collects a more limited amount of information than the proposed Part
    32 interconnection accounts, it covers a broader range of providers
    than the incumbent LECs. Based on the current record, we conclude
    that the information collected through the *Local Competition and
    Broadband Data Gathering Program* provides a way to monitor the
    extent of local competition, and we do not need at this time to add
    new USOA revenue accounts for UNE revenue, resale revenue, and
    reciprocal compensation in order to assess the status of local
    competition.

67. We note that incumbent LECs currently record UNE revenues in Account
    5240, Rent revenue, which we now consolidate into Account 5200,
    Miscellaneous revenue.[^128] Moreover, we understand that incumbent
    carriers currently record reciprocal compensation receipts in
    Account 5084, State access revenues, an account we eliminate today.
    Henceforth, revenues derived from both UNEs and reciprocal
    compensation should be recorded as part of Account 5200. Nothing in
    this order is intended to preclude states from requiring carriers to
    maintain subsidiary records or subaccounts for UNE revenues or
    reciprocal compensation revenues. We expect that carriers will
    provide disaggregated information regarding such revenues if states
    request such information.

68. We also decline to establish a new account to record resale
    revenues. Incumbent LECs currently record resale revenues in the
    various accounts where they record the revenues derived from various
    retail services.[^129] We conclude, based on the record before us,
    that it could be unduly burdensome for incumbent LECs to segregate
    all of their resale revenues into a separate account. Moreover, we
    conclude that no compelling case has been made that the regulatory
    need for this new revenue account outweighs the burdens associated
    with its creation.

69. With respect to proposed new expense accounts, we note at the outset
    that our rules and the statute itself otherwise require that
    incumbent carriers document these costs pursuant to the mandates of
    sections 251 and 252 of the Communications Act. For example, the
    Communications Act clearly requires that incumbent LECs offer
    services for resale and access to unbundled network elements at
    cost-based rates. This "bottom-up" approach involves, in many cases,
    cost studies or other detailed examinations that use current cost
    information as the starting point for determining forward-looking
    costs. Thus, based on the record before us here, we find there is
    insufficient support to justify imposing new Class A accounts to
    record the expenses associated with UNEs, resale, reciprocal
    compensation, and other interconnection arrangements. Nevertheless,
    we expect to continue monitoring this issue closely.

70. We see no need to create a new account for UNE expenses. Commenters
    suggest that this account would record amounts incurred when an
    incumbent LEC purchases a UNE from another carrier, such as when the
    incumbent purchases UNEs from an adjacent LEC to expand into
    neighboring territories, or when an incumbent purchases UNEs to
    provide service out-of-region. This account also could record
    expenses incurred by an incumbent LEC in leasing facilities from a
    CLEC within the incumbent LEC's service area. The concern expressed
    by the states is that these expenses not be recorded in the
    incumbent LEC's current expense accounts, because that would distort
    forward-looking cost studies for UNE pricing by overstating the
    relationship of operating expenses to plant.[^130]

71. Our sense is that, at present, incumbent LECs are not incurring a
    significant amount of these expenses. Moreover, incumbent LECs have
    asserted that they do not include these costs in their regulated
    costs at all,[^131] which would appear to address the states'
    primary concern that these costs not distort the accounts used for
    regulated costs. Therefore, we see no need to establish these new
    accounts, and direct incumbent LECs not to record these costs in
    their regulated accounts.

72. Similar considerations pertain to expenses associated with an
    incumbent LEC's purchase of resold services from another incumbent
    LEC. Assuming that the incumbent LECs are not presently recording
    such expenses as regulated expenses, there is no danger that expense
    accounts used to develop UNE prices are being distorted. We direct
    carriers not to include these costs, if any, in their regulated
    expense accounts.

73. In addition to the above proposals listed in the *Notice*, two
    commenters suggest adding subaccounts to identify affiliated and
    nonaffiliated amounts in several accounts. Specifically, Wisconsin
    proposes to add subaccounts for affiliated and nonaffiliated amounts
    to the following accounts: Account 1120, Cash and equivalents;
    Account 1215, Other receivables -- net (a proposed new account);
    Account 1408, Sinking funds; and Account 4025, Accounts and notes
    payable (a proposed new account).[^132] Wisconsin contends that
    these subaccounts should be identified due to the section 272(b)(5)
    requirement for arm's length transactions with affiliates.[^133] We
    note that several of the accounts being consolidated into these
    accounts currently require subsidiary record categories to be
    maintained so that carriers may separately report the amounts
    contained therein that relate to affiliates and nonaffiliates. We
    will continue to require subsidiary record categories for the
    consolidated accounts to the extent required in the past. We note
    that there has been no requirement for such subsidiary record
    categories for Account 1408, and none will be added.

74. *Universal service support*. We decline to amend Part 32 by adding
    new universal service expense and revenue accounts.[^134] At the
    outset, we note that we already collect from all carriers
    information on amounts recovered from end users for state or federal
    universal service contributions in FCC Form 499-A Telecommunications
    Reporting Worksheet.[^135] We therefore see no need to separately
    track this information from a smaller universe of carriers through
    the USOA.

75. Moreover, we currently have a proceeding to reform how universal
    service contributions are assessed and how these costs are recovered
    from consumers.[^136] One of the options that the Commission could
    adopt in that proceeding would be to limit the amount that carriers
    could recover from each end user to the amount they contribute to
    universal service. Although we decline to prejudge that option here,
    we note that a separate revenue account for universal service might
    not be necessary if that option were, after considering other
    options, adopted. In the meantime, we believe it makes little sense,
    and that it would be unduly burdensome, to add a new universal
    service revenue account that we might eliminate soon thereafter.
    Thus, we decline to amend Part 32 by adding such an account. We also
    note that there is no need to adopt a universal service expense
    account, as the amounts that carriers contribute to support
    universal service are readily available from the Universal Service
    Administrative Company (USAC).

## Streamlining the Class B Accounts

76. When the Commission adopted Part 32, a two-tiered system was
    retained so that smaller carriers would have a less burdensome
    accounting system than the carriers with annual revenues in excess
    of the revenue threshold. Currently, we have 113 Class B accounts.
    In our *June 8 Public Notice*, we sought comment on reducing the
    number of Class B accounts to 89.[^137] The proposed consolidation
    of Class B accounts corresponded to our proposal to consolidate
    Class A accounts. For example, we proposed to consolidate Accounts
    1180 through 1210, which are both A and B accounts. The RUS urges us
    not to eliminate any of the Part 32 accounts below the existing
    Class B level of detail.[^138] RUS argues that further streamlining
    at this time could result in insufficient information for the
    Commission, state regulators, and the RUS to make informed decisions
    that impact the telecommunications industry.[^139] For example, the
    RUS loans funds to carriers and requires more disaggregated
    liability information to assess its risk exposure. In addition, some
    of the collapsed information could be relevant in state
    rate-of-return proceedings. Oregon also disagrees with our proposal
    in several respects, and notes that if we eliminate certain Class B
    accounts, it will require Class B carriers in Oregon to continue to
    report this information.[^140]

77. After reviewing the record, we conclude that our Class B account
    consolidation should correspond with our Class A account
    consolidation. Permitting aggregation of our Class A accounts
    without similarly aggregating the corresponding Class B accounts
    would be contrary to our intent to adopt a less burdensome
    accounting system for the Class B carriers.[^141] We remain open to
    further streamlining Class B accounts in the event future proponents
    can demonstrate that such streamlining is acceptable or appropriate
    more persuasively than we find on the record before us here.

78. In the *Notice*, the Commission sought comment on USTA's proposal to
    eliminate the Jurisdictional Difference Accounts (accounts 1500,
    4370, and 7910) that Class B carriers currently must report.[^142]
    After careful review, we agree with the states of Oregon and
    Wisconsin that the jurisdictional difference accounts should not be
    eliminated.[^143] A number of states are required by state law to
    use the federal USOA.[^144] If we were to eliminate these accounts
    at the federal level, those states would have no means to track any
    variances in ratemaking practices between the federal and state
    jurisdictions. For example, states use these accounts to record
    differences related to state-mandated depreciation rates and special
    state accounting requirements. These differences cannot be recorded
    to the plant accounts, because this would distort future state
    depreciation determinations. To the extent state practices vary,
    carriers must comply with those state rules, so there should be
    little incremental burden in determining the net difference in state
    and federal accounts. Accordingly, we will retain the jurisdictional
    difference accounts.

## Other Regulatory Relief Applicable to All Carriers

79. In the *Notice*, we sought comment on a variety of additional,
    proposed measures to provide carriers, both Class A and Class B,
    with meaningful relief from many other accounting requirements. As
    set out in this section, we have adopted, in full or in large part,
    the great majority of these proposed changes to our rules.

### Regulatory Relief Provided in Full

#### Inventories

80. Commission rule 32.1220(h), requires that inventories of material
    and supplies be taken during each calendar year and that adjustments
    to this account be charged or credited to Account 6512, Provisioning
    expense.[^145] Section 32.2311(f) of the Commission's rules requires
    an annual inventory of all station apparatus in stock included in
    this account.[^146] We sought comment on USTA's proposal to
    eliminate the detailed inventory requirements in the rules and
    instead permit companies to perform inventories based on risk
    assessment and on existing controls.[^147] In the *Notice*, the
    Commission sought comment on whether to adopt USTA's proposal to
    eliminate these inventory requirements. Only one commenter disagreed
    with this proposal, observing that inventory records are often of
    low priority and may be significantly out-of-date.[^148] Other
    commenters addressing this issue support eliminating these inventory
    requirements.[^149]

81. We conclude that companies should have the latitude to determine the
    appropriate inventory validation methodology based on risk
    assessment.[^150] In this case, considering the small percentage of
    the total physical assets involved, the level of effort and cost
    incurred to ensure the integrity of asset values should be
    commensurate with the level of financial risk involved.[^151]
    Surrogate measures such as inventory cycle counts and statistical
    sampling measures may be more cost effective for a carrier than a
    complete physical inventory.[^152] We therefore adopt USTA's
    proposal and revise sections 32.1220(h) and 32.2311(f) to eliminate
    the annual inventory requirement.

#### Contributions

82. We adopt, for federal accounting purposes, 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 when the contributions were made. In 1994, shortly
    after FASB adopted SFAS-116, the Common Carrier Bureau (Bureau)
    informed carriers not to adopt SFAS-116 for federal accounting
    purposes.[^153] In the *Notice*, the Commission sought comment on
    adopting SFAS-116 for federal accounting purposes.[^154]

83. Our primary concern is the effect such a rule could have on the
    carriers' rates. As commenters note, our adoption of SFAS-116 would
    allow carriers to record increased expenses in a given year to
    reflect contributions pledged for future years. In turn, the
    Commission's exogenous cost rules, which allow carriers under price
    caps to increase their interstate rates to reflect cost increases
    caused by accounting changes, would allow carriers to recover the
    entire amount of the pledged contributions as an exogenous cost in
    the year the accounting change is adopted.[^155] Adopting SFAS-116,
    however, would establish an accounting rule that would be consistent
    with GAAP. The Commission's rules require financial records to be
    kept in accordance with GAAP, to the extent permitted by our system
    of accounts.[^156] Our goal is to bring our accounting rules into
    conformity with GAAP, to the extent consistent with our regulatory
    needs. Accordingly, we adopt SFAS-116 for federal accounting
    purposes and direct the Bureau to monitor the carriers' accounting
    treatment of contributions to determine whether implementation of
    SFAS-116 has a significant impact on rates.

#### Section 252(e) agreements

84. In the *Notice*, the Commission sought comment on USTA's proposal
    that the Commission clarify that section 252(e) agreements are
    treated the same as tariffed services in Part 64 cost allocation
    rules.[^157] USTA's proposal was supported by incumbent LEC and
    state commenters.[^158] Based on the record before us, we adopt
    USTA's proposal. Accordingly, to the extent a carrier provides a
    non-tariffed service to its nonregulated operations pursuant to a
    section 252(e) agreement, that service will be recorded to
    nonregulated operations at the amount of that service as set forth
    in an interconnection agreement approved by a state commission
    pursuant to section 252(e).

### Regulatory Relief Provided in Part

#### Affiliate transactions rules

85. 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.[^159] 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.[^160] The underlying
    policy concern is that 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 follow appropriate valuation
    techniques in recording the transfer of assets and the provision of
    services between regulated entities and their nonregulated
    affiliates.

86. After Congress adopted the 1996 Act, the Commission revised its
    long-standing affiliate transactions rules in order to implement the
    statutory provisions prohibiting cross-subsidization. In the
    *Accounting Safeguards Order*, the Commission modified the affiliate
    transactions rules to provide greater protection against
    subsidization of competitive activities by subscribers to regulated
    telecommunication activities.[^161] 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,
    such as the market for in-region interLATA service.[^162] 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.[^163] 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.[^164] 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.[^165] Carriers must make a good faith determination of the
    asset's fair market value.[^166] As discussed below, we take a
    number of steps to simplify our affiliate transactions rules so that
    carriers have greater flexibility in how they price transactions
    with affiliates.

##### Eliminate requirement for FMV comparison for asset transfers under \$500,000

87. We revise our affiliate transactions rules to eliminate the
    requirement that carriers make a fair market value comparison for
    assets when the total annual value of that asset is less than
    \$500,000. As discussed above, our current affiliate transactions
    rules require all carriers to record the value of an asset according
    to a hierarchy. In the *Phase 1 Report and Order*, the Commission
    eliminated the requirement that carriers make a good faith
    determination of fair market value for services when the total
    annual value of that service is less than \$500,000.[^167] The
    Commission 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.

88. In the *Notice*, the Commission proposed a conforming exemption for
    assets.[^168] Under the proposal, carriers would not be required to
    perform the net book cost/fair market value comparison for asset
    transfers totaling less than \$500,000 per year. For assets within
    this exception, carriers would use net book cost instead of fair
    market value. This exception would be on a product-by-product basis
    similar to the services-by-services basis on which we base the
    services threshold. The exception would apply "going forward," so
    that the net book cost/fair market value comparison would be
    required once the total amount of transfers (*i.e*., total net book
    cost) for a given product line in a given year exceeds \$500,000.

89. Contrary to the assertions of some commenters,[^169] we are not
    persuaded that we should adopt a \$1 million threshold for making
    the net book cost/fair market value determinations. The purpose of
    this threshold is to avoid the situation where the cost of
    determining fair market value would outweigh the regulatory benefits
    of such a determination. Commenters advancing the \$1 million
    threshold have not presented any persuasive arguments justifying
    that \$1 million is the appropriate threshold. Furthermore, these
    commenters have not provided any evidence of the costs involved in
    conducting the net book cost/fair market value comparison.

90. We conclude that the threshold should be the same for both assets
    and services. In the *Phase 1 Report and Order*, the Commission
    adopted a \$500,000 threshold for services, balancing the desire to
    provide accounting relief while not creating an exception so large
    that it would swallow the rule. We now adopt a similar rule for
    assets, which eliminates an incentive for companies to turn "assets"
    into "services." In both cases, the threshold should be applied to
    the aggregate transactions, for a given affiliate. Carriers,
    therefore, will not be required to perform the net book cost/fair
    market value comparison for the first \$500,000 of asset transfers,
    on a product-by-product basis, per year, per affiliate. In such
    cases, the asset should be recorded at net book cost. The net book
    cost/fair market value comparison would be required on a prospective
    basis once the total amount of asset transfers for a given product
    line in a given year exceeds \$500,000.[^170] Carriers (except
    average schedule companies) will reflect these transactions in their
    CAMs as well as ARMIS reports, if ARMIS filing is required. Adopting
    this \$500,000 threshold exception for each affiliate will reduce
    the burden of performing the net book cost/fair market value
    comparison.

##### Establish floor and ceiling for recording transactions

91. In the *Notice*, the Commission sought 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. As
    discussed above, for certain transactions carriers must compare the
    cost of the service or asset to market value.[^171] 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.
    The Commission proposed giving 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.[^172]

92. We agree with those commenters that argue that this proposal would
    not harm ratepayers because it would permit the regulated carrier to
    either pay less or charge more to the nonregulated affiliate for the
    service or asset. [^173] We recognize that adopting a ceiling and
    floor for recording affiliate transactions could potentially have an
    anti-competitive effect. [^174] It seems unlikely, however, that a
    transaction would have such an effect, particularly if the
    transaction is *de minimis* and is not priced below incremental
    cost. [^175] We therefore adopt the proposal in the *Notice* to give
    carriers flexibility 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. Carriers can use the ceiling or
    floor in transactions with affiliates, as long as such transaction
    complies with the Communications Act, Commission rules and orders,
    and is not otherwise anti-competitive.[^176]

##### Prevailing price treatment

93. In the *Notice*, the Commission sought comment on USTA's proposal to
    revise the prevailing price definition.[^177] The prevailing price
    describes a price at which a company offers an asset or service to
    the general public. Under our current rules, to qualify for
    prevailing price treatment, greater than 50 percent of sales of the
    subject asset or service must be to third parties.[^178] USTA
    proposes that the Commission revise section 32.27(d) to decrease the
    threshold from greater than 50 percent to 25 percent for use of
    prevailing price in valuing affiliate transactions.[^179]

94. After reviewing the record, we adopt USTA's proposal.[^180] The
    purpose of the Commission's threshold is to ensure that sufficient
    transactions occur with unaffiliated parties to produce a reasonable
    surrogate of a true market price. If the percentage of third-party
    business is *de minimis*, there can be no assurance that the price
    agreed upon by the carrier and its affiliates represents the true
    market price or that the amount of sales represents a significant
    influence on the carrier's pricing decisions.[^181] Our general
    approach is to ask whether a particular company conducts a
    substantial portion of its transactions with unaffiliated third
    parties outside of the corporate family; if so, it is reasonable to
    presume that firm is indeed pricing those transactions in a
    marketplace environment and that this level of sales does
    significantly influence the carrier's pricing policy. We are
    skeptical that it is a sustainable strategy for a firm significantly
    to underprice transactions with 25 percent of its customers in order
    to be able to record transactions at that price with an affiliate.
    As USTA observes, a lower threshold would be consistent with a more
    competitive environment.[^182] We will grant the relief requested by
    USTA and will monitor the situation to determine whether this
    modification has any unintended consequences.

##### Centralized services exception to estimated fair market value rule

95. In the *Notice*, the Commission sought comment on USTA's proposal to
    expand the current exception to the estimated fair market value rule
    to include "all services provided by a carrier or its affiliate(s)
    where the service is provided solely to members of the carrier's
    corporate family."[^183] Under our current affiliate transactions
    rules, if a transaction cannot be valued at publicly available
    rates, it must be valued based on a comparison of cost and fair
    market value. [^184] If a comparison is used, the carrier must make
    a good faith determination of fair market value.[^185] If the
    regulated company purchases the asset or service from a nonregulated
    affiliate, the carrier must record the transaction at the lower of
    cost or market value.[^186] On the other hand, if the carrier sells
    the asset or service to a nonregulated affiliate, the carrier must
    record the transaction at the higher of cost or market.[^187] The
    Commission adopted this valuation rule in the *Accounting Safeguards
    Order* to ensure that the transactions between the carriers and
    their nonregulated affiliates take place on an "arm's length" basis,
    guarding against cross-subsidization of competitive services by
    subscribers to regulated services. [^188]

96. The exception USTA seeks to expand provides that when an incumbent
    carrier purchases services from an affiliate that exists solely to
    provide services to members of the carrier's corporate family, the
    carrier may record the services at fully distributed cost rather
    than applying the cost or market rule. When the Commission adopted
    this exception in the *Accounting Safeguards Order*, it explained
    that the narrow exception to the general rule was justified because
    an affiliate that provides services solely to the incumbent
    carrier's corporate family is established to take advantage of
    economies of scale and scope. The benefits of such economies of
    scale and scope are reflected in the affiliate's costs and are
    ultimately transferred to ratepayers through transactions with the
    incumbent carrier for such services valued at fully distributed
    costs.[^189] Requiring incumbent carriers to perform fair market
    valuations for such transactions would increase the cost to
    ratepayers while providing limited benefit.[^190]

97. USTA proposes that we expand the current exception to the estimated
    fair market value rule to include "all services provided by a
    carrier or its affiliate(s) where the service is provided solely to
    members of the carrier's corporate family."[^191] Under USTA's
    proposal, an affiliate could have one service that is offered solely
    to the corporate family, which USTA proposes would be subject to the
    exception, and other services that are subject to market valuation
    studies because they are offered to third parties. USTA also
    suggests an alternative: "All services provided by an affiliate that
    exists primarily to serve members of the carriers' corporate family
    (provides over 50 percent) and individual services provided by an
    ILEC primarily to members of a carriers' corporate family (provides
    over 50 percent) shall be recorded at fully distributed cost."[^192]
    Most commenters addressing this issue support USTA's proposal to
    expand the exception to the estimated fair market value rule.[^193]

98. We are not persuaded at this time that we should expand the scope of
    the exception to the valuation rule. The Commission adopted the
    exception in order to relieve incumbent carriers from performing a
    fair market valuation in circumstances where the burdens outweighed
    the benefits. If, as USTA proposes, the exception is applied based
    on an individual service being offered solely to the corporate
    family, while other services of the affiliate are subject to market
    valuation studies because they are offered to third parties, the
    risk of improper cross-subsidization increases. For example, if an
    affiliate offers several services of which only one is provided
    solely within the corporate family and subject to the exception, the
    carrier would need to assign costs between the excepted service and
    the other services. Such allocations could shift costs between
    services offered outside the corporate family and services offered
    to the incumbent carrier. This increased risk of cost shifting
    applies equally to USTA's alternative proposal wherein the exception
    would apply to affiliates that exist primarily to serve members of
    the carrier's corporate family and to individual incumbent LEC
    services provided primarily to the carrier's corporate family. This
    risk of cost shifting between third party services and the incumbent
    carrier's services does not exist when the exception applies only to
    affiliates offering service within the corporate family.

99. There are several potential ramifications of cost misallocations
    arising out of affiliate transactions. First, the affiliate
    transactions rules apply to rate-of-return carriers as well as price
    caps carriers. Second, there are price caps carriers that can still
    avail themselves of low-end adjustments. Third, cost misallocations
    could impact the development of pricing for new services by price
    cap carriers. Fourth, even in the event that federal ratepayers are
    protected from cost misallocations by the imposition of price caps
    or CALLS, state ratepayers can be affected. Inappropriate shifting
    of costs from nonregulated activities to regulated activities would
    result in inflated regulated costs prior to separations. After the
    separations process, those inflated costs would flow to the state
    jurisdiction, and eventually would be recovered from state
    ratepayers. Although we do not adopt USTA\'s and BellSouth\'s
    proposal to broaden the centralized services exception, in an
    attached Further Notice of Proposed Rulemaking, we seek further
    comment on this rule and potential alternatives.

##### Exempt nonregulated to nonregulated transactions from the affiliate transactions rules

100. Our affiliate transactions rules apply to all transactions between
     carriers (except for average schedule companies) and their
     nonregulated affiliates that affect the carrier's regulated books
     of account.[^194] Transactions involving nonregulated assets and
     services are subject to our affiliate transactions rules.[^195] In
     the *Notice*, the Commission proposed that the affiliate
     transactions rules should not apply to nonregulated activities
     transferred from the carrier's nonregulated operations to its
     nonregulated affiliate.[^196] We defer action on this proposal, as
     it raises broader issues that should be considered in a more
     comprehensive fashion. [^197]

#### Section 32.5280(c) subsidiary record requirement

101. In the *Notice*, the Commission sought comment on USTA's proposal
     to eliminate the section 32.5280(c) subsidiary record
     requirement.[^198] This rule requires carriers to maintain
     subsidiary record categories for each nonregulated revenue item
     recorded in Account 5280, Nonregulated operating revenue.[^199]
     USTA contends that this subsidiary record requirement is
     unnecessary.

102. We conclude that we can simplify the manner in which incumbent LECs
     record their nonregulated revenues, but stop short of eliminating
     section 32.5280(c) altogether. Account 5280 may include revenues
     from services that are still regulated at the state level.[^200] In
     addition, in the *Accounting Safeguards Order*, the Commission
     concluded that BOC-provided interLATA telecommunications services,
     although regulated services, should be treated like nonregulated
     activities for federal accounting purposes.[^201] We conclude that
     we do not need incumbent LECs to break out each nonregulated
     revenue item. Rather, we modify section 32.5280(c) so that LECs may
     group their nonregulated revenues into two groups: one subsidiary
     record for all the revenues from regulated services treated as
     nonregulated for federal accounting purposes pursuant to Commission
     order and the second for all other nonregulated revenues. In the
     event further detail is required, we can request carriers to break
     out these nonregulated revenues by subsidiary.

#### Accounts 1437 and 4361

103. In the *Notice*, the Commission sought comment on USTA's proposal
     to simplify deferred tax accounting by allowing carriers to book
     Account 1437, Deferred tax regulatory asset net of Account 4361,
     Deferred tax regulatory liability. USTA argues that carriers should
     be permitted to eliminate the requirement to calculate the gross up
     for the tax on tax effect.[^202] Commenters addressing this issue
     contend, and we agree, that netting Accounts 1437 and 4361 would
     simplify deferred tax accounting.[^203] We, therefore, revise
     sections 32.1437 and 32.4361 accordingly to reflect this change. We
     do not, however, agree with USTA that the requirement to gross-up
     for the tax on tax effect should be eliminated. The regulatory
     asset and liability accounts, as well as the tax gross up on the
     accounts, were incorporated into the USOA to allow carriers to
     adopt the GAAP method of accounting for income taxes without
     affecting rates or the IRS normalization requirements. We believe
     that eliminating the tax on tax gross up would cause us to possibly
     violate the IRS normalization rules with respect to investment tax
     credit and excess deferred tax amounts. Accordingly, we will retain
     the tax on tax gross up requirement in Part 32.

#### Expense limits

104. We revise the expense limit rules to include tools and test
     equipment located in the central office in the \$2000 expense
     limit. Section 32.2000(a)(4) of the Commission's rules requires
     that the cost of individual items of equipment with a cost of
     \$2000 or less or having a life of less than one year, classifiable
     in specified accounts, shall be charged to the applicable expense
     accounts rather than capitalized.[^204] The expense limit reduces
     the cost of maintaining property records for the acquisition,
     depreciation, and retirement of a multitude of low-cost,
     high-volume assets. This expense limit applies to equipment
     classifiable in 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, 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. We have periodically increased the expense limit due to
     the effects of inflation, technological changes, and changes in the
     telecommunications regulatory environment.[^205] 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.[^206]

105. In the *Notice*, the Commission sought comment on whether the
     expense limit rules should be modified again. Specifically, the
     Commission sought comment on raising the expense limit from \$500
     to \$2000 for both Account 2124, General support computers and the
     tools and test equipment included in the central office plant
     accounts.

106. We conclude that the tools and test equipment located in the
     central office should be included in the \$2000 limit because these
     assets are virtually the same as the tools and test equipment
     located in the general support function.[^207] Moreover, tools and
     test equipment are generally individual units rather than
     components of a larger unit. Therefore, we are revising our expense
     limit rules to include the central office tools and test equipment.

107. We conclude that we should not increase the expense limit to \$2000
     for personal computers. As several commenters observe,
     circumstances have not changed significantly since 1997, and an
     extension of the expense limit to all plant accounts is not
     warranted.[^208] Moreover, commenters assert that personal
     computers and peripheral equipment generally cost less than \$1000
     and increasing the expense limit to \$2000 would result in very
     little, if any, capitalization of these assets.[^209] We conclude
     that personal computers should be subject to a special limit
     because of the nature of these assets. Individual personal
     computers are made up of relatively low cost components, such as
     the monitor, keyboard, and CPU, that should be looked at as a
     single unit for purposes of applying the expense limit. Moreover,
     although relatively low cost individually, personal computers are
     part of larger networks within each company and represent
     substantial investments. These investments should be capitalized.
     Accordingly, we do not revise the rules regarding personal
     computers.

#### Incidental activities

108. We adopt the proposal in the *Notice* to eliminate the "treated
     traditionally" requirement from incidental activities. Under
     section 32.4999(l) of the Commission's rules, revenues from minor
     nontariffed activities that are an outgrowth of the carrier's
     regulated activities may be recorded as regulated revenues under
     certain conditions.[^210] These activities, known as "incidental
     activities," must: (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.[^211]

109. Accounting for incidental activities as regulated revenues obviates
     the need to make detailed cost allocations to remove the costs of
     the nonregulated activity from regulated costs. Carriers must list
     their incidental activities in their CAM.[^212] They may not add
     new incidental activities because of the "treated traditionally"
     criterion. In the *Notice*, the Commission proposed eliminating the
     "treated traditionally" criterion. This would permit carriers to
     add to their incidental activities, provided that the remaining
     three criteria were satisfied. We find that the three remaining
     criteria provide sufficient safeguards to prevent misuse of the
     incidental activities exception. This modification will result in a
     lessened regulatory burden as new incidental activities are
     identified.[^213]

110. We are not persuaded that the one-percent revenue ceiling should be
     raised.[^214] Incidental activity accounting allows carriers to
     avoid the burden of full nonregulated activity accounting for minor
     activities that are an outgrowth of their regulated activities.
     Incidental activity accounting has not been permitted for an
     activity that is a separate line of business. A separate line of
     business must be accounted for as a nonregulated activity
     regardless of its size. The one-percent ceiling recognizes that an
     activity that begins as an incidental activity may grow into a
     separate line of business that requires accounting as a
     nonregulated activity. For example, one percent of Verizon's total
     revenues exceeds \$400 million. If Verizon had an incidental
     activity with revenue greater than that, it would raise a question
     of whether it should be accounted for as a separate line of
     business. Moreover, if the one-percent limit is reached and a
     carrier has several incidental activities, it would only be
     necessary to remove from incidental activity accounting the
     activity or activities that would drop the total incidental
     activities to less than one percent.

#### Allocation of costs at Class B level

111. 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,[^215] to file cost allocation manuals annually setting
     forth the procedures that they use to allocate costs between
     regulated and nonregulated services.[^216] In the *Notice*, we
     sought comment on USTA's proposal that the Commission allow all
     carriers the option to allocate Part 64 costs at a Class B
     level.[^217]

112. We decline to adopt USTA\'s proposal to allow all carriers to
     allocate all part 64 costs at the Class B level. We conclude that
     it is necessary to continue to require Class A carriers to allocate
     costs at the Class A level for the limited number of Class A
     accounts needed for the administration of the universal service
     high-cost support mechanism as set forth in Appendix E.[^218] As
     discussed above, the Commission uses Class A accounting information
     to develop certain input values used in the universal service model
     and, therefore, we retain certain Class A accounts relating to
     network plant and related asset and expense accounts. Universal
     service support for non-rural carriers is based on the
     forward-looking cost of providing the supported services. Input
     values are derived using a carrier\'s regulated costs. For example,
     a Class A carrier that uses fifty percent of its fiber facilities
     and eighty percent of its copper facilities to provide regulated
     services currently reports the allocation associated with each type
     of plant. Under USTA\'s proposal, however, carriers\' would merely
     report an aggregate allocation amount for all outside plant in a
     single account, which would cause distortions in the model\'s
     outside plant cost estimates.

#### Section 32.16 requirement for implementing new accounting standards

113. In the *Notice*, the Commission sought comment on USTA's proposal
     to eliminate the section 32.16 requirement for notification and
     approval to implement new accounting standards prescribed by the
     Financial Accounting Standards Board (FASB). Section 32.16 of the
     Commission's rules requires carriers to revise their records and
     accounts to reflect new accounting standards prescribed by FASB.
     This section provides that Commission approval of a change in an
     accounting standard shall automatically take effect 90 days after a
     carrier notifies the Commission of its intention to follow a new
     standard and files a revenue requirement study for the current year
     analyzing the effects of the accounting standards changes. [^219]
     USTA argues that incumbent LECs should be permitted to simply adopt
     new FASB standards, without Commission review and without
     performing any revenue requirement studies.[^220]

114. We are not persuaded that we should eliminate our ability to
     determine whether it is appropriate for carriers to implement
     accounting changes. Accounting standard changes often raise
     questions regarding exogenous treatment under price cap rules and
     that when they do, cost data must be available to resolve such
     issues. [^221] Several commenters disagree with USTA's position,
     observing that mere compliance with GAAP does not ensure compliance
     with the Commission's rules.[^222] Commenters argue, and we agree,
     that the prior review period permits the Commission to ensure
     uniformity in LEC accounting practices and allows the Commission to
     assess the implications of GAAP changes for LEC revenue
     requirements.[^223]

115. We agree with the RUS that GAAP standards frequently allow several
     options or alternatives to implement accounting changes.[^224] We
     believe that the 90-day period is sufficient for the Commission's
     accounting staff to review GAAP changes to determine what guidance
     should be given to carriers. Sometimes this guidance can be done
     easily in the form of an RAO letter.[^225] At other times,
     rulemakings are necessary to implement accounting changes.[^226] It
     is, however, important for the Commission's staff to know how those
     changes are being implemented.

116. For these reasons, we retain the requirement for carriers to notify
     the Commission of their intentions to adopt a FASB change and how
     the carrier intends to implement this change. We eliminate,
     however, the requirement to provide a revenue requirement study. We
     agree with USTA that this requirement is burdensome and that there
     are alternative methods for assessing the revenue effects of these
     changes.

### Current Rules Maintained 

#### Charges to plant accounts

117. Section 32.2003(b) is an exception to the general rule that
     construction costs are recorded in Construction Work-in-Progress
     accounts until the construction project is completed. It 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.[^227] 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
     exception 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. This exception is acceptable for Commission purposes
     because it has no material affect on carrier cost or rates, and it
     is acceptable under GAAP because GAAP's definition of materiality
     is more lenient than the Commission's.

118. The *Notice* sought comments on USTA's proposal that carriers
     should be permitted to determine materiality for plant
     work-in-progress accounting.[^228] In particular, USTA sought
     additional flexibility to record construction projects in the
     relevant account rather than a work-in-progress account.

119. We decline to accept USTA's proposal because allowing carriers to
     set their own materiality levels for deciding when construction
     costs and assets should be capitalized would give carriers an
     incentive to capitalize large dollar amounts of uncompleted
     construction. Our current rules ensure that carriers have an
     opportunity to earn the authorized rate of return on the interstate
     portion of all investment they make in the telephone network, while
     reducing the amount recovered from ratepayers for assets under
     construction during the period in which they are under
     construction.[^229] The revenue requirement offset method
     effectively limits the amount that current ratepayers pay for
     assets prior to their placement into service. [^230] Moreover,
     allowing carriers to establish their own materiality level for
     capitalizing plant work in progress accounting, as proposed, would
     eliminate the uniformity and consistency in reporting that Part 32
     strives to achieve. Consistency and uniformity in carriers' books
     of accounts should be maintained so that we can readily compare
     their regulatory operating results. We, therefore, decline to adopt
     USTA's proposal.

#### Continuing property records

120. In the *Notice*, the Commission sought comment on USTA's proposal
     to eliminate detailed requirements for property record additions,
     retirements, and recordkeeping. The property records consist of
     continuing property records (CPR) and all supplemental records
     necessary to provide the property record details required by the
     Commission.[^231] Many commenters contend that the property records
     are necessary to ensure that the network plant accounts accurately
     reflect those assets in service. [^232] We concur and decline to
     adopt USTA's proposal.

121. CPR records provide data for cost allocations studies used in state
     regulatory proceedings. In addition, these records provide
     material-only costs for accounting for transfers, reallocations,
     and adjustments of plant.[^233] State regulators rely heavily on
     the CPR records in their local ratemaking processes. [^234] The
     attached Further Notice of Proposed Rulemaking seeks comment on
     whether there are alternative avenues for states to gather whatever
     information pertaining to property records they need for state
     regulatory proceedings, and whether there are any federal or state
     regulatory needs served by our CPR rules that cannot be met through
     alternative mechanisms. The Further Notice also seeks comment on
     eliminating the CPR rules in three years.

#### Cost allocation forecasts

122. The Commission's cost allocation rules require that costs be
     allocated between regulated and nonregulated activities. Carriers
     are required to assign costs directly to regulated and nonregulated
     activities, whenever possible. Costs that cannot be directly
     assigned are known as "shared" or "common costs" and are allocated
     between regulated and nonregulated use based on a hierarchy of
     principles. 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.[^235] The policy consideration
     underlying this rule recognizes that investment decisions are made
     in anticipation of future use. In the *Notice*, the Commission
     sought comment on USTA's proposal to eliminate the forecast use
     rule.[^236]

123. USTA argues that LECs should be allowed to allocate costs of common
     central office and outside plant investment on the basis of actual
     usage.[^237] USTA states that actual usage cost allocations
     increase accuracy and avoid costly burdens.[^238] USTA also argues
     that forecasting nonregulated usage of shared central office and
     outside plant is obsolete with the introduction of interconnection
     agreements.[^239] The states and other commenters argue that USTA's
     proposal to eliminate the forecast use rule for allocating joint
     investments between the carrier's regulated operations and
     nonregulated "start up" operations would result in the
     over-allocation of nonregulated costs to the LECs' regulated
     activities.[^240] GSA agrees and further states that unless a
     forward-looking allocation procedure is maintained, plant additions
     to provide nonregulated services will be consistently allocated
     incorrectly.[^241]

124. We decline to adopt USTA's proposal to eliminate the forecast use
     rule for allocating joint investments between the carrier's
     regulated and nonregulated operations. We conclude that the
     forecast use rule remains a valuable tool in allocating the costs
     of shared facilities fairly. Because investment in central office
     equipment and outside plant is made in anticipation of future
     usage, the allocation of such investment between regulated and
     nonregulated activities should be based on that anticipated
     usage.[^242] If allocation were based on current usage instead, an
     underallocation of central office equipment and outside plant to
     nonregulated activities could result whenever the usage associated
     with those activities increases over a period of several
     years.[^243] Moreover, to the extent there is an overallocation of
     costs to the regulated books, that overallocation will flow through
     to the states through separations. As a consequence, ratepayers
     would be bearing a portion of the costs of deploying networks used
     to provide nonregulated activities in the future. We therefore find
     that the three-year peak forecast method is a reasonable approach
     to allocating joint and common costs. As a result, we will continue
     to require that carriers allocate these costs based on forecasted
     usage.

125. Based on the record before us, it does not appear that it will be
     unduly burdensome to maintain the existing forecast rule. The
     current rules do not require a forecast of usage for all
     facilities; rather, only investment in facilities that are shared
     between regulated and nonregulated uses are subject to the forecast
     rule. The vast majority of central office and cable investment
     already is directly assigned (and therefore not subject to the
     forecast rule).[^244] Moreover, other rule changes that we adopt
     today may affect what investment is subject to the forecast rule.
     As set forth above,[^245] we are amending our cost allocation rules
     to provide that, to the extent a carrier provides a non-tariffed
     service to its nonregulated operations, that service will be
     recorded to nonregulated operations at the price set for that
     service or facility as set forth in an interconnection agreement
     approved by a state commission pursuant to section 252(e). As a
     result of this modification to our cost allocation rules, carriers
     may be able to directly assign costs to nonregulated activities in
     more instances, so that fewer costs will remain in the pool of
     common costs that must be allocated based on a three-year forecast
     of anticipated usage.

### Classification of Companies

126. As we have discussed above, rule 32.11 divides companies into Class
     A and Class B for accounting purposes. This rule does not state
     that our accounting rules apply only to incumbent LECs. Rather, the
     rule merely speaks in terms of "companies." Currently, we apply
     these requirements to incumbent LECs only, because they are the
     dominant carriers in their markets.[^246] In the *Notice*, the
     Commission sought 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.[^247] None of the commenters opposed the proposal to revise
     section 32.11 to apply to incumbent LECs.[^248]

127. We adopt the proposal in the *Notice* to revise section 32.11 of
     the Commission's rules to specifically apply to incumbent LECs and
     any other companies that the Commission designates by order.
     Section 32.11 was adopted at a time when there were no competitive
     local exchange carriers; the language in the rule presumably was
     intended to refer to the carriers that existed at the time, which
     were the incumbent LECs. Now that new carriers have entered the
     local exchange market, we will conform our rules to today's
     marketplace and replace the term "companies" with "incumbent LEC."

## ARMIS Reporting Requirements

### Background

128. ARMIS is an automated reporting system developed by the Commission
     to collect financial, operating, service quality, and network
     infrastructure information that carriers are required to collect
     under Commission rules. As previously noted, ARMIS reports 43-01,
     43-02, 43-03, and 43-04 contain financial information of carriers
     with annual operating revenues that are equal to or above the
     indexed revenue threshold, currently \$117 million.[^249] In
     particular, ARMIS 43-01 summarizes the carriers' accounting and
     cost allocation data prescribed in Parts 32, 36, 64, 65, and 69 of
     the Commission's rules, ARMIS 43-02 collects basic accounting
     information, ARMIS 43-03 collects information on how costs are
     allocated between regulated and nonregulated activities, and ARMIS
     43-04 collects information on how costs are separated between the
     federal and state jurisdictions. Supporting data for the ARMIS
     43-03 Report currently are collected in two reports: Form 495A
     (Forecast of Investment Usage Report) and Form 495B (Actual Usage
     of Investment Report). The remaining four ARMIS reports contain
     non-financial information. Of the four, two are at issue in this
     proceeding: ARMIS Report 43-07 (Infrastructure Report) and ARMIS
     Report 43-08 (Operating Data Report), which collect information
     about the physical and operating characteristics of the incumbent
     local exchange carriers.[^250]

129. ARMIS provides policymakers with one mechanism for monitoring
     activities associated with the provision of telecommunications
     services and the development of the telecommunications
     infrastructure. Moreover, it allows regulators to perform these
     functions without having to rely on ad hoc information requests.
     Government agencies, interexchange carriers, CLECs, state
     regulators, [^251] and other parties currently rely on ARMIS
     data.[^252]

130. In the *Phase 1 Report and Order*, the Commission reduced the
     reporting requirements of the ARMIS 43-02 USOA Report.[^253]
     Specifically, the Commission 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 the Academia reporting requirements.

131. In the *Notice*, the Commission sought comment on eliminating
     several tables and line items from certain ARMIS Reports.[^254] The
     Commission also sought comment on USTA's proposal to eliminate most
     of ARMIS reporting.[^255] In particular, USTA proposed to combine
     the ARMIS 43-01, 43-02, 43-03, and 43-04 into one report, and have
     carriers report only at the aggregated operating company level.

132. USTA contends that consolidating the ARMIS reports would
     substantially reduce the volume and complexity of the current ARMIS
     financial reports and significantly minimize the reporting
     burden.[^256] BellSouth supports USTA's proposal and contends that
     the Commission can monitor accounting costs through the revised
     report proposed by USTA, and that the Commission should eliminate
     ARMIS 43-07 and 43-08 because monitoring the network infrastructure
     is no longer needed in today's competitive environment.[^257]
     According to BellSouth, if incumbent LECs do not provide the
     services demanded by their customers, those customers will "vote
     with their feet" and obtain services from a competitor.[^258]
     Verizon also argues that the Commission should adopt USTA's
     proposal and contends that ARMIS is an overly burdensome relic of
     regulation that is contrary to the de-regulatory goals of the 1996
     Act.[^259]

133. The states and other commenters oppose USTA's proposal, contending
     that the ARMIS reports are important to understand the incumbent
     LECs' local exchange and exchange access operations, both
     financially and technically.[^260] Commenters observe that ARMIS
     data are collected in a uniform and standard format so that all
     states and the public have efficient and reliable access to data
     they use currently to establish UNE prices, interconnection rates,
     and universal service support.[^261]

134. Although we recognize that there could be alternative federal or
     state mechanisms that would adequately address the most important
     of the Commission's regulatory activities, no such mechanisms are
     presently in place. In the absence of alternative federal or state
     mechanism(s),[^262] USTA's proposal to eliminate state-by-state
     ARMIS information would destroy the utility of ARMIS to states that
     wish to compare cost information of the incumbent LEC in their
     state to that incumbent LEC's costs in other states.[^263] For
     these reasons, we do not adopt USTA's proposal at this time. We do,
     however, streamline several ARMIS reports, as described below. We
     direct the Common Carrier Bureau to implement programming changes
     to effectuate the modifications adopted below.

### ARMIS Report 43-01 (Annual Summary Report)

135. The ARMIS 43-01 Annual Summary Report summarizes the carriers'
     accounting and cost allocation data prescribed in Parts 32, 36, 64,
     65, and 69 of the Commission's rules.[^264] It 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 incumbent
     LECs with annual operating revenues for the preceding year equal to
     or above the indexed revenue threshold file the 43-01 Report[^265]
     on a study area basis.[^266]

136. 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 nonregulated 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). In the
     *Notice*, the Commission proposed eliminating the requirement to
     file Table I for all carriers filing at the Class A level. The
     Commission proposed 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.

137. The Commission also proposed eliminating the requirement to file
     Table II. The Commission proposed to eliminate the reporting of all
     Common Line Demand Minutes of Use (*i.e*., premium and non-premium)
     and retain the sections for Switched Traffic Sensitive Demand
     Minutes of Use and Common Line Demand Billable Access Lines, which
     would be added to the ARMIS 43-04 in conjunction with row 9010
     (Total Billable Access Lines).

138. In the next section of this Report and Order, we adopt streamlined
     ARMIS reporting for mid-sized incumbent LECs, and no longer require
     them to file ARMIS 43-02, 43-03, and 43-04 Reports. If we were to
     eliminate Tables I and II from ARMIS 43-01, we would no longer have
     certain information from mid-sized carriers that we currently need
     for various regulatory purposes. Because we cannot generate the
     information for mid-sized incumbent LECs in any other manner, we do
     not adopt our proposal to eliminate filing Tables I and II. [^267]
     Therefore, ARMIS 43-01 will continue to include Tables I and II.
     With respect to Table II, we adopt our proposal to eliminate the
     Common Line Minutes of Use (rows 2010, 2020, 2030, and 2040). The
     remaining eight rows (2050, 2060, 2090, 2100, 2110, 2120, 2140,
     and 2150) will remain in Table II. Rows 2100, Residence Lifeline
     Access Lines and 2110, Residence Non-Lifeline Access Lines are
     needed by the Commission to track support amounts USAC pays to
     qualifying companies. In addition, all of these eight rows are
     needed by the Commission to verify data received in tariff filings
     by the CALLS companies.

### ARMIS Report 43-02 (USOA Report)

139. The ARMIS 43-02 Report provides the annual operating results of the
     carriers' telecommunications operations for every account in
     Part 32. All incumbent LECs with annual operating revenues for the
     preceding year equal to or above the indexed revenue threshold file
     the 43-02 Report on an operating company basis. The 43-02 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
     provides data about the carrier's financial accounts, including
     overall investment and expense levels, affiliate transactions,
     property valuations, and depreciation rates. In the *Phase 1 Report
     and Order*, the Commission significantly reduced the reporting
     requirements for Tables C, B, and I.

140. In the *Notice*, the Commission proposed to eliminate 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. The Commission proposed to generate this table from
     information provided in the other financial ARMIS reports. In order
     to implement the proposal to eliminate the requirement to file
     ARMIS 43-02, Table I-1 for the largest incumbent LECs, the
     Commission proposed to include in ARMIS 43-03: the collection of
     data for Account 1402 (Investment in Non-Affiliate Companies) and
     the account series (7410 through 7450) for Account 7400
     (Non-operating Taxes).[^268] In addition, the Commission proposed
     the addition of 4 rows for collecting information on the number of
     employees (rows 830, 840, 850, and 860).[^269] These data are
     currently required in ARMIS 43-02, Table I-1, but not in any other
     ARMIS report. The Commission anticipated that this proposal would
     provide relief to carriers from reporting information that can
     otherwise be derived from other ARMIS reports. USTA and Verizon,
     however, contend that adopting the proposal would be unnecessarily
     complicated and not provide any administrative relief.[^270]
     Because it would be administratively difficult for us to effectuate
     this proposal at this time, we do not adopt the proposal in the
     *Notice* to have the Commission generate Table I-1 of the ARMIS
     43-02 Report.

141. In the *Notice,* the Commission also proposed to add rows to ARMIS
     43-02 to allow for the reporting of metallic and non-metallic cable
     investment and expense information.[^271] Carriers already maintain
     this information in subsidiary record categories for each of the
     cable investment and expense accounts. The subsidiary record
     categories are not reported to the Commission, but the data are
     used for various purposes, such as inputs to the Commission's
     universal service high cost model for non-rural carriers as well as
     other forward-looking cost studies.[^272] Given our desire to
     explore whether there are alternative sources for this information
     other than annual ARMIS filings,[^273] we do not think it makes
     sense at this time to add these rows to ARMIS. For these reasons,
     we do not adopt the proposal in the *Notice* and add rows to ARMIS
     Report 43-02, tables for the reporting of metallic and non-metallic
     cable investment and expense.

### ARMIS Report 43-03 (Joint Cost Report)

142. The ARMIS 43-03 Report contains the allocation of the carriers'
     revenues, expenses, and investments between regulated and
     nonregulated activities. All incumbent LECs with annual operating
     revenues for the preceding year equal to or above the indexed
     revenue threshold file the 43-03 Report on a study area basis. In
     the *Notice*, the Commission proposed 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" and combining these columns into one column entitled
     "Adjustments."[^274] USTA and Verizon agree with this
     proposal.[^275] Verizon observes that approximately 0.2 percent of
     all adjustments appeared in the "SNFA and Intra-co. Adjustments"
     column.[^276] We find that there does not appear to be a
     significant regulatory need to retain the "SNFA and Intra-co.
     Adjustments" column. We therefore are adopting the proposal to
     combine the two columns into one for the 43-03 Report. We also make
     a conforming change to the 43-01 Report.

### ARMIS Report 43-04 (Separations and Access Report)

143. We revise the ARMIS 43-04 (Separations and Access) Report[^277] to
     reduce the data required to be reported during the interim freeze
     of certain jurisdictional cost categories and allocation factors
     prescribed in Part 36[^278] of the Commission's rules.[^279]
     Carriers will file this revised ARMIS 43-04 Report on April 1,
     2002, and on an annual basis thereafter for the duration of the
     freeze.

144. Part 36 of the Commission's rules provides procedures for incumbent
     LECs to separate their regulated costs between the intrastate and
     interstate jurisdictions. In 1997, the Commission initiated a
     comprehensive reform of the jurisdictional separations procedures
     to ensure that they met the objectives of the 1996 Act, and to
     consider reforms needed due to changes in the law, technology, and
     the market structure of the telecommunications industry. [^280] In
     May 2001, the Commission adopted the recommendation of the
     Federal-State Joint Board to impose an interim freeze of certain
     jurisdictional cost categories and allocation factors for price cap
     carriers and the allocation factors only for rate-of-return
     carriers.[^281] The freeze will be in effect for five years (from
     July 1, 2001 to June 30, 2006) or until the Commission has
     completed comprehensive reform of the rules for jurisdictional
     separations, whichever comes first.

145. In the *Separations Freeze Order*, the Commission concluded that
     incumbent LECs should report results of jurisdictional separations
     in a streamlined ARMIS 43-04 Report.[^282] Pursuant to instructions
     of the Commission, the Common Carrier Bureau released a Public
     Notice on June 22, 2001, seeking comment on a proposed streamlined
     ARMIS 43-04 Report.[^283]

146. Generally, commenters were supportive of the proposed streamlined
     report. They did, however, raise several specific issues discussed
     below.

147. Currently, the report contains cost and revenue data as well as
     allocation factors. The report is organized so that the cost and
     revenue data are followed by the corresponding allocation factors.
     The proposed, simplified report eliminates many of the allocation
     factor rows, thereby making it less clear which factors apply to
     which costs and revenues. SBC suggests placing the cost and revenue
     data in one table and the allocation factors in a second table. SBC
     and GSA argue that this would improve the report by making it
     clearer which allocation factors apply to which cost and revenue
     data.[^284] We agree with the parties that the proposed, simplified
     report would be improved if the links between the cost, revenues,
     and allocation factors were clearer. We find, however, that SBC's
     suggestion would lead to a lengthier report, since many of the cost
     and revenue rows are also allocation factors and would therefore
     have to appear in both tables. We find that the links can be
     improved without lengthening the report by continuing the use of
     only one table, and revising the ARMIS software so that, when an
     ARMIS user selects a specific cost or revenue row, the program will
     show the row number of the corresponding allocation factors.
     Furthermore, this can be accomplished without requiring the ARMIS
     filers to segregate their cost, revenue, or allocation factors or
     by requiring that they submit certain of the data more than once.
     We therefore direct the Bureau to make the necessary ARMIS program
     changes.

148. AT&T proposes that we retain the separate identification of traffic
     sensitive services as local switching and local transport.[^285]
     AT&T contends that access customers will be unable to conduct
     proper cost analysis of traffic sensitive rates without separate
     local switching and local transport data.[^286] We agree with AT&T
     that these two categories for traffic sensitive plant and expenses
     should be retained. One reason for doing so is that this cost
     detail would be needed under a new approach to intercarrier
     compensation on which the Commission recently sought comment.[^287]
     Under this compensation proposal, carriers would use a bill and
     keep arrangement that requires them to recover local switching
     costs from their own customers. Local transport costs, however,
     would continue to be recovered partly through intercarrier
     compensation. Accordingly, this plan calls for access charges to be
     retained for local transport but not for local switching. The
     Commission\'s ability to monitor and evaluate local transport
     access rates would be greatly hindered if it could not identify and
     track local transport costs separately from local switching costs.

149. A second reason for retaining these two cost categories is that
     this cost detail might be needed in any future reform of our access
     charge rules. We do not anticipate implementing major changes to
     our access charge rules for price cap carriers for several years
     because the CALLS plan established interstate access rate levels
     for the period July 1, 2000 through June 30, 2005.[^288] As the
     Commission recently stated, however, one of our long-term goals is
     to develop a uniform regime for all forms of intercarrier
     compensation, including interstate access. For price cap incumbent
     LECs, this means that we will need to revisit access charge rules
     when the CALLS plan expires in four years. For all other incumbent
     LECs, the Commission has under consideration various issues
     relating to access reform and universal service.[^289] We believe
     it would be premature to consolidate the local switching and local
     transport categories before these issues are resolved.

150. We also received comment regarding removing certain rows from the
     proposed report. SBC suggests removing all the equal access rows
     and instead requiring that the data be reported in the appropriate
     accounts.[^290] Our separations rules require maintaining the equal
     access costs separate from the investment and expense
     accounts.[^291] Several incumbent LECs still have costs in these
     equal access accounts. Removing these rows, as SBC proposes, would
     require revising our separations rules, which is outside the scope
     of this proceeding.

151. Sprint proposes that we delete row 1213 "% Interstate Category 3
     COE-Allocation." Sprint argues, and we agree, that this row is
     duplicative of row 1216 "# Dial Equipment Minutes."[^292] We adopt
     Sprint's suggestion, and delete row 1213.

152. USTA and Sprint argue that the data reported in the "OTHER DATA"
     section of the ARMIS 43-04 Report should be eliminated.[^293] They
     contend that the data in this section are available from other
     sources or can be calculated from other available data. GSA argues
     for retention of this section, stating that ARMIS reports are
     published on a more timely basis than other sources and that ARMIS
     is supported by a user friendly data base program available through
     the Internet.[^294] We have reviewed the data reported in this
     section and find that it can be obtained from other sources that
     will adequately serve our data needs. Accordingly, we eliminate the
     "OTHER DATA" section of the ARMIS 43-04 report.

153. We also received suggestions to make revisions based on the Part 32
     rule changes proposed in the *Notice* in CC Docket No.
     00-199.[^295] GSA proposes that rows 4010, Network access service
     revenues-End user; 4011, Network access service revenues-Switched;
     4012, Network access service revenues-Special; and 4013, Network
     access service revenues-State include state and interstate
     revenues.[^296] We agree with the GSA that the elimination of
     Account 5084, State access revenue, as proposed in the *June 8
     Public Notice*, require such a conforming change to ARMIS 43-04
     Report. Because Account 5084, State access revenue is consolidated
     with Account 5081, End-user revenue; Account 5082, Switched access
     revenue; and Account 5083, Special access revenue, we will need
     disaggregated reporting of jurisdictional revenues in ARMIS. We
     note however, that the changes to Part 32 adopted in the Report and
     Order in CC Docket 00-199 will not be in effect until the April 1,
     2003 ARMIS filing. Therefore, we are not making that change to the
     ARMIS 43-04 Report in this Report and Order. Additional revisions
     to the ARMIS 43-04, to reflect the Part 32 rule changes in CC
     Docket No. 00-199, will be adopted in the annual ARMIS Order for
     the April 1, 2003 ARMIS filings.

154. We received proposals to change the descriptions of various rows
     and column "c." Sprint recommends numerous changes to the rows,
     which we adopt, with some modifications.[^297] USTA proposes that
     column "c" should be labeled "non-interstate" instead of "state" to
     avoid confusion.[^298] We do not adopt this proposal.
     Jurisdictional separations is the process by which incumbent LECs
     apportion regulated costs between interstate and intrastate
     jurisdictions. Therefore, columns "c" and "d" are properly labeled
     "state" and "interstate." "State" and "intrastate" are
     interchangeable for these purposes, particularly when we are using
     abbreviations throughout for labeling rows and columns. We see no
     point in introducing "non-interstate," a lengthier label, to
     replace "state" in this instance.

155. We are also deleting rows 1523, 3251, 4065, 4110, 8012, and 8017
     because they are redundant. Row 1523 is the same as row 1393; row
     3251 is the same as row 2194; rows 4065, 8012, and 8017 are the
     same as row 2131; and row 4110 is the sum of rows 4066, 4076, 4080,
     and 4090, less 4100. We are adding row 3021, needed as an allocator
     for other rows; row 5042, needed to summarize "IOT-Other" expense;
     and row 5050, needed to report directly assigned "IOT-CPE" expense.

156. Finally, USTA indicates that as part of the process of identifying
     dial equipment minutes, as required for Part 36 separations and
     reported in the 43-04 Report, the carriers make special studies to
     calculate local call volumes that are required to be reported in
     the 43-08 Operating Data Report. They suggest that "as a result of
     the adoption of the separations freeze, these special studies will
     also be frozen,\" and, therefore, rather than report the same
     information on future reports, \"local call\" data should be
     eliminated from the 43-08 Report. We disagree with this conclusion.
     The *Separations Freeze Order* applies only to Part 36 category
     relationships and jurisdictional allocation factors. The Order does
     not apply to the local call volumes as reported on the 43-08 Report
     and/or their means of development.

157. We therefore adopt the streamlined ARMIS 43-04 Table I-Separations
     and Access Table, attached as Appendix G. This revised ARMIS 43-04
     will be filed on April 1, 2002, and on an annual basis thereafter,
     for the duration of the separations freeze.

### ARMIS 43-07 (Infrastructure Report)

158. The ARMIS 43-07 Report collects data about the carrier's switching
     and transmission equipment, call set up time, and cost of total
     plant in service. This report is prescribed for every mandatory
     price cap carrier.[^299] The report is filed on a study area and
     holding company level. The report captures trends in telephone
     industry infrastructure development under price cap regulation.
     Policymakers at the federal and state levels use this information,
     which is critical data not available through other public sources.
     The ARMIS 43-07 Report is a data source for a number of Commission
     publications. For example, on an annual basis, the Commission
     publishes the *Statistics of Communications Common Carriers* and
     *Infrastructure of Local Operating Companies*. The Commission also
     publishes on a biannual basis, *Monitoring Reports on Universal
     Service*. These reports are generated from publicly available data,
     including data reported in carriers' annual ARMIS 43-07
     submissions.

159. USTA, Verizon, and BellSouth contend that we should eliminate the
     43-07 Report because it is obsolete.[^300] USTA argues that with
     increased competition and alternative networks providing
     telecommunications services, the 43-07 is irrelevant and no longer
     serves a useful purpose.[^301] USTA contends that it would be more
     cost effective and efficient to use data requests should this
     information be needed.[^302]

160. We agree that some of the current reporting requirements are
     redundant or outmoded, but we decline to eliminate the ARMIS 43-07
     in its entirety at this time. The information collected in ARMIS
     43-07 provides the Commission with information about the
     infrastructure \-- capacity, and operating characteristics of the
     vast majority of the nation's wireline network \-- basic
     infrastructure information on carriers that provide service to 93
     percent of the Nation's customers.[^303] While there may be no need
     to collect such data in the long term, there is continued utility
     in collecting such data through this mechanism in the short term to
     evaluate the effects of public policy choices on those carriers
     that play a critical role in our national economy and to calibrate
     our actions. We recognize that adequate information for regulatory
     purposes could be generated through state or regional activities or
     through our *Local Competition and Broadband Data Gathering
     Program*, and we intend to develop a record on whether this is a
     preferred approach.[^304] Thus, at this time, we will limit our
     streamlining to those current reporting requirements that are
     redundant or that have clearly outlived their usefulness.

161. [Table I - Switching Equipment]{.underline}. In the *Notice*, the
     Commission proposed to eliminate the collection of outdated
     information and to collect information on newer technologies. In
     Table I (Switching Equipment), the Commission proposed to eliminate
     all reporting requirements for electromechanical switches (rows
     0130-0141).[^305] Ohio CC and NASUCA oppose the elimination of
     information on electromechanical switches, and argue that until
     there are no electromechanical switches remaining in the public
     switched network, it remains an important element of the
     network.[^306] Other commenters, however, agree with our proposal
     to eliminate the collection of these data.[^307] We note that for
     the year 2000, the total for all reporting companies of
     electromechanical switches was zero. We conclude that there is
     little value in requiring carriers to continue to report that they
     have no electromechanical switches. Therefore, we adopt the
     proposal in the *Notice* and eliminate all reporting requirements
     for electromechanical switches (rows 0130-0141).

162. The Commission also proposed to eliminate reporting requirements
     for analog stored-program-control (ASPC) and digital
     stored-program-control (DSPC) switches except for the total number
     of switches and lines served (retain rows 0150, 0160, 0170 and
     0180; eliminate rows 0151-0155, 0161, 0171-0175, and 0181). We find
     that there is no regulatory need for carriers to report
     percentages, as the Commission or any interested party can easily
     calculate them. Therefore, we are eliminating rows 0151, 0153,
     0155, 0161, 0171, 0173, 0175, and 0181. For the year 2000, the
     total reported in row 154 (ASPC Tandems) was two. We find that
     there is little value in requiring carriers to continue to report
     such a minimal quantity. Therefore, we are eliminating row 0154.
     There is also no need to require carriers to report row 0152 (ASPC
     Local Switches), which is substantially the same as the Total ASPC
     switches in row 0150; therefore, we are eliminating row 0152.
     Similarly, because row 0170 is substantially the sum of row 0172
     plus row 0174, we are eliminating rows 0172 and 0174. In
     conclusion, we are adopting the proposal in the *Notice* to
     eliminate rows 0151-0155, 0161, 0171- 0175, and 0181.

163. Additionally, the Commission proposed to eliminate all reporting
     requirements related to equal access and touch-tone capabilities
     (rows 0190-0221).[^308] Ohio CC and NASUCA oppose the elimination
     of information on equal access and touch-tone capabilities. They
     argue that, until equal access and touch-tone capability are
     universal, it will be important to know where in the public
     switched network they are unavailable.[^309] We note that for the
     year 2000 virtually all the reporting carriers' access lines had
     equal access and touch-tone capability. We conclude that there is
     little value in continuing to require these carriers to report the
     data regarding touch-tone capability and equal access.[^310]
     Therefore, we adopt the proposal in the *Notice* and eliminate all
     such reporting requirements (rows 0190-0221).

164. The Commission also proposed to eliminate reporting of information
     related to Signaling System 7 (SS7)[^311] and integrated services
     digital network (ISDN)[^312] capabilities except to retain
     information concerning total switches, lines, local switches, and
     tandems equipped with SS7 and ISDN capabilities.[^313] Commenters
     agree that this information is no longer needed for our current
     regulatory needs.[^314] There is no need for carriers to report
     percentages, as the Commission or any interested party can easily
     calculate them. Therefore, we are eliminating rows 0231, 0233,
     0235, 0237, 0241, 0247, 0251, 0257, 0271, 0281, 0291, and 0301.

165. In addition, we note that most switches equipped with SS7-394
     capability are also equipped with SS7-317 capability; therefore,
     the data reported in the interLATA and intraLATA rows for switches
     and tandems in this section are almost identical. Having carriers
     report information in both the row for SS7-394 capability and the
     row for SS7-317 capability appears to be superfluous. Therefore, we
     are eliminating rows 0234, 0236, 0246, and 0256. We are renaming
     row 0230 "Total switches equipped with SS7." We are renaming row
     0240 "Local switches equipped with SS7" and row 0250 "Tandems
     equipped with SS7." We conclude that there is no need to continue
     reporting the number of lines with SS7 service because that is
     essentially the same as row 0120. Therefore, we eliminate row 0232.

166. In the *Notice*, the Commission sought comment on whether its
     monitoring program should include information on new technologies
     that indicate how carriers are upgrading the public switched
     network. [^315] The Commission sought comment on whether to include
     information for switches capable of transmitting the asynchronous
     transfer mode (ATM) protocol in Table I. The Commission also sought
     comment on including data on switched multi-megabit data service
     (SMDS), internet routers, and frame relay service[^316] in Table I.
     These services, widely offered to business customers for
     high-volume usage, are high-speed data telecommunications services
     built upon packet-switching technology.

167. USTA contends that we should not add this information to the ARMIS
     43-07, but that this should be collected from all providers through
     the *Local Competition and Broadband Data Gathering Program*.[^317]
     USTA's arguments are far from trivial. The Communications Act
     mandates the creation and promotion of a multi-provider local
     service environment in which all providers will deploy newer
     technologies. To the extent the Commission is concerned with
     monitoring the deployment of such technologies, it may be more
     appropriate for the Commission to collect the appropriate
     information comprehensively, and we therefore seek comment on this
     possibility in the attached Further Notice of Proposed Rulemaking.
     We also acknowledge that such comprehensive efforts, such as the
     *Local Competition and Broadband Data Gathering Program* are more
     likely than ARMIS reporting to balance carefully the regulatory
     need for the information against the burdens that reporting
     requirements impose on carriers, particularly newer entrants. To
     date, we have not yet fully evaluated whether it is more
     appropriate to track these newer technologies through ARMIS or
     through the *Local Competition and Broadband Data Gathering
     Program* or to address our deployment concerns through other means.
     Any such examination would have to involve our state commission
     colleagues and any interested parties. In the meantime, we decline
     to impose additional ARMIS requirements that would fall
     disproportionately on one segment of the industry.

168. [Table II - Transmission Facilities]{.underline}. Table II 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 study area of the
     carrier. The information is not disaggregated by Metropolitan
     Statistical Areas (MSA) and non-MSA, as Table I is. The deployment
     of new technologies and new services in rural areas has been a
     matter of particular concern for the Commission and other
     policymakers, and we are trying to better understand the provision
     of services in these areas.[^318] In the *Notice*, the Commission
     sought comment on whether to add columns for MSA and non-MSA in
     Table II. USTA and Verizon argue that it would be extremely
     burdensome for LECs to report by MSA and non-MSA on Table II.[^319]
     Ohio CC and NASUCA and Wyoming support the proposal to have
     carriers report by MSA and non-MSA.[^320]

169. Transmission facilities are a critical component in the
     provisioning of new services to rural areas. We cannot compare
     rural and urban infrastructure development using information as
     currently reported in ARMIS 43-07. The commenters persuade us,
     however, that such disaggregation of these data would require
     incumbent LECs to undertake labor intensive and costly studies. At
     this time, we are not persuaded that the benefits of having these
     data in a more disaggregated form would justify the expense
     involved in such an undertaking.

170. 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. In the
     *Notice*, the Commission proposed to change 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. [^321] We conclude that this
     information would be more useful for policymakers and interested
     parties if it were narrowed to local loop facilities connecting
     customers to their service offices. Therefore, we now change the
     title to "Loop Sheath Kilometers" and limit the collection of data
     to local loop facilities.

171. In the second section of Table II, \"Interoffice Working
     Facilities,\" total circuit links are reported for baseband, analog
     carrier, and digital carrier. In the *Notice*, the Commission
     sought comment on whether to eliminate the reporting requirements
     that further distinguish baseband, analog, and digital (rows 0331,
     0332, 0333, 0350, 0351, 0352, 0360, 0361, 0362, 0363).[^322] AT&T
     contends that we should not eliminate these data because they are
     essential for benchmarking and monitoring purposes.[^323] It
     appears, however, that these data are often reported in an
     inconsistent manner by the carriers, and therefore are not reliable
     for benchmarking purposes.[^324] We find that there is no
     significant regulatory need to retain the subcategories in rows
     0331 through 0363. Therefore, we eliminate these rows.

172. The Commission also sought comment on including categories for
     optical carrier facilities and non-optical carrier facilities.
     [^325] Optical carrier facilities, such as synchronous optical
     networks (SONET) are currently being deployed by the incumbent
     LECs. Ohio CC and NASUCA support requiring carriers to report this
     information.[^326] After reviewing the record, we are not convinced
     that our ARMIS reports are appropriate for tracking the deployment
     of SONET. SONET equipment, *i.e.*, terminal multiplexers and
     add/drop multiplexers, comprise a major portion of interoffice
     facilities. It is also present in loop facilities where it supports
     digital metallic or fiber loops. SONET physical topologies include
     point-to-point, linear, tree, and ring configurations. Due to
     SONET's widespread use in diverse configurations, our ARMIS reports
     may not be adequate to track the deployment of SONET. Therefore, we
     decline to add categories for these facilities at this time.

173. 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). In the
     *Notice*, the Commission sought comment on whether to eliminate the
     reporting of six subcategories of equipped channels, and retain
     only the total of equipped channels.[^327] GSA argues, and we
     agree, that these subcategories should not be eliminated at this
     time because the relationship of working channels to equipped
     channels is important in the analysis of copper plant utilization.
     Together with financial information, such analysis is used in
     determining appropriate forward-looking depreciation lives for
     present use in developing inputs to our high cost model for our
     universal service purposes and state use in UNE cost studies.[^328]
     Therefore, we are retaining the subcategories in these rows in
     ARMIS, pending further exploration of alternative means of
     gathering such information.

174. In the *Notice*, the Commission proposed to eliminate reporting of
     fiber strands terminated at the customer premises at the DS-0 rate
     (row 0481) and fiber strands terminated at the customer premises at
     the DS-2 rate (row 0483) from the fourth section of Table II,
     "Other Transmission Facility Data."[^329] AT&T argues that these
     data are essential for benchmarking and monitoring purposes.[^330]
     We agree that as a general matter this information can be helpful;
     however, virtually no incumbent LEC reports the termination of DS-2
     level services at the customer premises, and therefore row 0483
     does not provide useful information. We conclude that row 0483
     should be eliminated. We also conclude that row 0481 (DS-0 rate)
     should be eliminated. DS-0 level services are generally bundled
     into DS-1 size packages, and by capturing the required information
     at the DS-1 level, we do not need to collect the information at the
     DS-0 level. Row 0482 (DS-1) will be renamed, because fiber is
     terminated at customer premises at the DS-3 level or greater, and
     referring to fiber terminations at the DS-1 level is inaccurate.

175. The Commission also sought comment on adding 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 information is
     not presently collected through any federal reporting program.
     WorldCom argues that this report should be updated with the
     reporting of digital loop carrier deployment and other changes in
     the local loop plant.[^331] We find that the addition of these rows
     to ARMIS would help satisfy an immediate and pressing need to
     assess the penetration of fiber in the local loop and gauge the
     development of broadband infrastructure. Hybrid architectures will
     likely become increasingly important in providing broadband
     services and are directly relevant to current criticisms by new
     entrants that the new architectures are systematically diminishing
     their ability to provide competing DSL service to end-user retail
     customers. We conclude that there is a present federal regulatory
     need, at least for the near term, to collect such data to evaluate
     the effects of our public policy decisions and to consider whether
     more market-oriented approaches are appropriate. Therefore, we are
     adding the following rows to ARMIS: "Hybrid Fiber/Metallic Loop
     Interface Locations,"[^332] "Switched Access Lines Served from
     Interface Locations,"[^333] "Total xDSL Terminated at Customer
     Premises,"[^334] and "xDSL Terminated at Customer Premises via
     Hybrid Fiber/Metallic Interface Locations."[^335] As set forth in
     the attached Further Notice, we seek comment on whether we should
     collect this information as part of our *Local Competition and
     Broadband Data Gathering Program*, rather through ARMIS.

176. [Table III - ILEC Call Set-up Time.]{.underline} In Table III,
     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. This information was important when carriers used
     different signaling systems, but now that SS7 is predominant, there
     is little difference among LECs. In the *Notice*, the Commission
     proposed to eliminate this table.[^336] AT&T argues that these
     publicly available data are important for interexchange carriers
     (IXCs) seeking to monitor the performance of LECs in the provision
     of access services.[^337] We are not persuaded, and conclude that
     this information is no longer significant.[^338] Therefore, we
     eliminate Table III.

177. [Table IV - Additions and Book Costs]{.underline}. In Table IV,
     carriers report data concerning total access lines in service,
     access line gain, and total gross capital expenditures. This
     information provides data on carriers' actions to maintain and
     upgrade the network. The data in this table are at the study-area
     level. Similar data in the ARMIS 43-02 Report are available at
     either the operating-company or company-study-area (state) level,
     but are not directly comparable to these data. In the *Notice*, the
     Commission sought comment on whether to continue to collect this
     information.[^339] AT&T argues that these data are essential for
     benchmarking and monitoring purposes.[^340] We conclude that we can
     eliminate the filing of this table because similar data are
     available in other ARMIS reports or can be generated by reference
     to other ARMIS reports.

### ARMIS 43-08 (Operating Data Report)

178. The ARMIS 43-08 Report 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. All incumbent
     LECs with annual operating revenues for the preceding year equal to
     or above the indexed revenue threshold file the 43-08 Report on an
     operating company basis. USTA, BellSouth, and Verizon argue that we
     should eliminate Report 43-08 altogether, because it is
     obsolete.[^341] USTA contends that the definitions for the 43-08,
     Table III are becoming more ambiguous as the public switched
     network evolves toward a data platform.[^342] USTA observes that in
     a high bandwidth network, the concept of DS0 equivalents is no
     longer viable.[^343] Other commenters contend that 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.[^344] Oregon also
     states that it periodically uses ARMIS 43-08 to obtain information
     about access lines in other jurisdictions.[^345] After careful
     consideration of these competing views, we conclude that some of
     the information in ARMIS 43-08 is of little value and thus we
     eliminate certain categories of this report as follows.

179. [Table I.A -- Outside Plant Statistics -- Cable and Wire
     Facilities]{.underline}. In the *Notice*, the Commission sought
     comment on whether to 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). After reviewing the
     record, we conclude that columns d through i, n, and o are useful
     and should not be eliminated. As WorldCom and GSA observe, this
     information concerning network maintenance and upgrading is
     utilized to develop inputs to the high cost model for universal
     service purposes and to develop inputs to models used to determine
     forward-looking economic costs in state UNE ratemaking proceedings.
     [^346] Pending further exploration of alternative means of
     gathering such information, we believe we should retain this
     reporting requirement in ARMIS to meet ongoing federal and state
     regulatory needs. [^347] Columns j, k, l, and m, however, can be
     eliminated because little, if any, data are reported for these
     categories. Therefore, we are only eliminating columns j, k, l, and
     m.

180. [Table I.B - Outside Plant Statistics -- Other]{.underline}. In the
     *Notice*, the Commission proposed to eliminate the reporting of
     information on satellite channels and video circuits for carriers'
     radio relay and microwave systems (columns be, bj, bm). Due to
     changes in technology, data collected in these areas no longer are
     relevant to our policy analysis on various issues. Therefore, we
     are eliminating these three columns.

181. [Table II - Switched Access Lines in Service by
     Technology]{.underline}. In the *Notice*, the Commission proposed
     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).[^348]
     WorldCom contends that we should not eliminate this information
     because it is required to estimate forward-looking costs in the
     Commission's synthesis model and in other forward-looking cost
     models.[^349] After reviewing the record, we conclude that this
     information would be more useful if provided on a total basis,
     instead of disaggregated by analog and digital. Due to changes in
     technology, data collected in some of these areas are trivial and
     no longer provide relevant information. Therefore, we are adopting
     the proposal in the *Notice*, and eliminating the distinction
     between analog and digital by eliminating columns cf, cg, and ch.

182. [Table III - Access Lines in Service by Customer]{.underline}. In
     the *Notice*, the Commission proposed 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).[^350] For example, the synthesis model
     uses data concerning single-line business, multi-line business,
     payphone, residential, and special (special access) in determining
     wire center costs, for universal service purposes.[^351] The
     Commission also sought comment on whether Special Access Lines
     (Analog and Digital) (columns dk and dl) provide accurate
     information about the carriers' provision of special access lines
     and whether there is a need for clarification of this reporting
     requirement.

183. After reviewing the record, we conclude that extensive structural
     changes to Table III are warranted. We eliminate the column for
     Mobile Access Lines, because little, if any, data are reported for
     this category. The revised table will also contain new columns
     matching the revised data requirements, discussed above. Columns
     "Single Line Business Access Lines" and "Multiline Business Access
     Lines" will be under the "Business Switched Access Lines" heading.
     Columns "Lifeline Access Lines," "Non-Lifeline Primary Access
     Lines," and "Non-Lifeline Non-Primary Access Lines" will be under
     the "Residential Switched Access Lines" heading. A column "Local
     Private Lines" is added. Finally, we conclude that the instructions
     and definitions for columns dk and dl are sufficiently clear and
     that there is no need to revise or clarify them.

## Relief for Mid-Sized Carriers 

184. As previously noted, the Commission uses an indexed revenue
     threshold to determine which carriers are classified as Class A and
     which carriers are classified as Class B. Class A companies are
     defined as companies having annual revenues from regulated
     telecommunications operations that are equal to or above the
     indexed revenue threshold.[^352] That revenue threshold is
     currently \$117 million.[^353] Class A carriers are required to
     keep their accounts at a greater level of detail, file CAMs with
     the Commission, have those CAMs audited by an independent auditor,
     and file ARMIS reports.[^354] Class B carriers, in contrast, may
     keep their accounts at a more aggregated level of detail, are not
     required to file CAMs, are not required to have their CAMs audited
     by an independent auditor, and are not subject to ARMIS financial
     reporting requirements.[^355]

185. Today there are over 1300 incumbent LECs in the country. Of those,
     the Class A carriers are the BOCs (the operating companies of
     Verizon, SBC, BellSouth, and Qwest) and the operating companies of
     ALLTEL, Cincinnati Bell, Citizens Communications, Sprint, C-TEC,
     Roseville, and CenturyTel. The BOCs have 87.6 percent of the
     incumbent LECs' access lines, while the remaining Class A companies
     collectively have 6.1 percent of the incumbent LECs' access lines.
     Thus, all the Class A companies have 93.7 percent of the incumbent
     LECs' access lines. The remaining companies are classified as Class
     B; collectively they have 6.3 percent of the incumbent LECs' access
     lines.

186. There is a significant variation in the size and scope of the
     operating companies that currently are classified as Class A.[^356]
     In general, the BOCs are significantly larger than the remaining
     Class A companies.[^357] The operating company of BellSouth had
     annual revenues reported in ARMIS of over \$17.6 billion. The
     operating company of Qwest had annual revenues reported in ARMIS of
     over \$11.5 billion. The largest SBC operating company,
     Southwestern Telephone Company, had annual revenues of over \$12.4
     billion.[^358] The largest Verizon operating company, Verizon-New
     York Telephone, had annual revenues of over \$8.1 billion.[^359]
     The revenues of the mid-sized companies range from over \$114.9
     million for Roseville to over \$1.4 billion for Sprint-Florida (an
     operating company of Sprint).[^360] Likewise, in terms of access
     lines, the BOCs range from over 25.4 million (BellSouth) to 193,992
     (Verizon Mid-States), while the access lines of the remaining Class
     A companies (mid-sized companies) range from over 2.2 million for
     Sprint-Florida to 124,453 for Roseville.[^361]

187. In recognition of the differences between the mid-sized companies
     and the BOCs, the Commission has differentiated between these
     carriers in terms of accounting and reporting requirements. For
     example, in the *ARMIS Reductions Report and Order*, the Commission
     reduced ARMIS filing requirements for mid-sized carriers, defined
     as a carrier whose operating revenue equals or exceeds the indexed
     revenue threshold, and whose revenue when aggregated with the
     revenues of any LEC that it controls, is controlled by, or with
     which it is under common control is less than \$7 billion.[^362]
     Specifically, the Commission permitted mid-sized carriers to file
     financial ARMIS reports at a Class B level of detail. Similarly, in
     the *Accounting Reductions Report and Order*, the Commission
     allowed mid-sized incumbent LECs to submit CAMs based on Class B
     accounts and to obtain an attestation every two years in lieu of an
     annual financial audit.[^363] In that proceeding, the Commission
     concluded that it could maintain the necessary degree of oversight
     and monitoring to protect consumers' interests while imposing the
     less administratively burdensome requirements on such
     carriers.[^364]

188. In the *Notice*, the Commission proposed further reductions in
     accounting and reporting requirements for the mid-sized carriers.
     The Commission proposed to eliminate mandatory annual CAM filings
     and biennial CAM attestation engagements for mid-sized
     carriers.[^365] Under this proposal, the mid-sized carriers would
     instead file an annual certification with the Commission. As an
     alternative, the Commission sought comment on reclassifying the
     mid-sized carriers as Class B carriers.[^366] The Commission also
     sought comment on raising the indexed revenue threshold \-- the
     dividing line between Class A carriers and Class B carriers \-- to
     \$200 million.[^367]

189. As discussed below, we conclude that we can significantly lighten
     regulatory burdens for mid-sized carriers by adopting the proposals
     in the *Notice* to eliminate mandatory CAM filings and attestation
     audits for mid-sized carriers. We also significantly streamline
     ARMIS reporting for the mid-size companies. The net effect of the
     reforms we adopt today, coupled with measures already taken, will
     be to treat the mid-sized carriers like Class B companies in
     virtually all respects. We decline to formally reclassify the
     mid-sized carriers as Class B companies, however, as that action
     would impact our ability to administer the universal service
     high-cost support mechanism for non-rural carriers. Finally, we
     address the status of Roseville and CenturyTel, mid-sized carriers,
     which crossed the indexed revenue threshold in 1999, and became
     subject to ARMIS reporting and CAM requirements in 2000.

### Cost Allocation Manuals

190. We adopt the proposal in the *Notice* to eliminate the annual CAM
     filing for mid-sized carriers. Under section 64.901 of the
     Commission's rules, all carriers (except average schedule
     companies) must separate regulated from nonregulated costs. While
     mid-sized carriers no longer will be required to annually file a
     CAM, they, like all other carriers, must be prepared to produce
     documentation of how they separate regulated from nonregulated
     costs to the Bureau, upon request. To ensure that the carrier has
     adequate procedures in place to separate the costs of their
     nonregulated activities from their regulated operations, in
     accordance with our rules, carriers are always free to seek
     guidance from the Common Carrier Bureau.

191. We also adopt the proposal in the *Notice* to eliminate the
     requirement that CAMs of mid-sized carriers be subject to an attest
     audit every two years. Instead of requiring mid-sized carriers to
     incur the expense of a biennial attestation engagement, they will
     file a certification with the Commission stating that they are
     complying with section 64.901 of the Commission's rules. The
     certification must be signed, under oath, by an officer of the
     incumbent LEC, and filed with the Commission on an annual basis.
     Such certification of compliance represents a less costly means of
     enforcing compliance with our cost allocation rules.

192. We emphasize that all incumbent LECs (except average schedule
     companies) remain subject to our cost allocation rules, which are
     increasingly important as more carriers diversify into competitive
     ventures. Indeed, one commenter argues that certain mid-sized
     carriers may have a larger percentage of operations in
     non-regulated activities than do some of the largest LECs. [^368]
     The action we take today seeks merely to reduce the costs
     associated with ensuring compliance with our cost allocation rules.
     We are aware that some mid-sized carriers have more limited
     resources than the larger companies, and that the cost of
     regulatory compliance may disproportionately impact these carriers.
     These carriers account for a small fraction of the nation's access
     lines. These rule changes \-- eliminating the annual CAM filing and
     the biennial attestation engagement \-- should significantly reduce
     the mid-sized carriers' costs in complying with the Commission's
     cost allocation rules. We note, however, that pursuant to section
     220(c), the Commission has the authority to request further
     information or order an audit of any carrier's books to ensure
     compliance with our cost allocation requirements.

### ARMIS Reporting Requirements

193. In the *Notice*, the Commission proposed eliminating the ARMIS
     43-02, 43-03, and 43-04 reporting requirements for mid-sized
     carriers.[^369] The Commission also sought comment on the costs and
     benefits of requiring mid-size carriers to file ARMIS 43-08.[^370]
     In addition, the Commission sought comment on eliminating all ARMIS
     filing for mid-sized carriers.[^371] Commenters opposing the
     proposal to eliminate these reports for mid-sized carriers contend
     that this information is needed by state commissions, state
     consumer advocates, and other parties in reviewing the operations
     of mid-sized carriers.[^372] On the other hand, several commenters
     urge the Commission to eliminate all ARMIS filings for mid-size
     carriers.[^373] CBT argues that mid-sized carrier data are an
     insignificant portion of the ARMIS data collected, and the
     Commission should not require mid-sized carriers to file any ARMIS
     reports.[^374] Roseville and Iowa Telecom contend that preparing
     and filing ARMIS reports for the first time will require
     substantial personnel and monetary resources.[^375] Sprint, the
     largest of the mid-sized carriers, contends that its annual, fully
     loaded cost for preparing ARMIS reports is \$250,000.[^376]

194. We recognize that some of the mid-sized carriers have financial
     transactions that are generally smaller and fewer in number than
     the larger incumbent LECs. We also note that although we have
     already streamlined the ARMIS reporting requirement for mid-sized
     carriers, by permitting them to file ARMIS at the more aggregated
     Class B level, the cost of filing ARMIS reports may be higher for
     the mid-sized carriers, on a per line basis, than for the larger
     Class A companies. We are also aware that while mid-sized companies
     have the same incentives and opportunities for shifting costs
     between services, our federal regulatory focus has primarily been
     on the larger LECs that comprise most of the access lines. We
     therefore conclude that it is appropriate at this time to provide
     additional reporting relief to mid-sized carriers. In balancing the
     carriers' costs and our regulatory needs, we conclude that the
     mid-sized carriers will no longer be required to file the ARMIS
     43-02, 43-03, or 43-04 Reports.[^377]

195. We are not persuaded, however, that we should eliminate ARMIS
     reporting altogether for the mid-sized carriers. Our primary
     concern is to preserve our ability to obtain information used to
     compute non-rural carrier universal service high-cost support. We
     retain at this time the requirement that mid-sized carriers file
     the ARMIS 43-01and 43-08 Reports. Information in these reports is
     utilized to develop inputs to the high cost model for universal
     service purposes and develop inputs to models used to determine
     forward-looking economic costs in state UNE ratemaking proceedings.
     For example, the line count input values used in the universal
     service model include special access lines, which are currently
     reported in the ARMIS 43-08 Report. Similarly, the switching input
     values include company-specific telephone call data, which are
     reported only in the ARMIS 43-08 Report. We intend to initiate a
     proceeding in the near future to examine how often and to what
     extent the high cost model inputs should be revised and updated. In
     that proceeding, we intend to explore alternatives to ARMIS
     reporting as a means of obtaining the data necessary to generate
     inputs used in the universal service cost model.

196. We note that in addition to information contained in ARMIS Reports
     43-01 and 43-08, the Commission has used other accounting
     information from mid-sized carriers to develop inputs for the
     universal service model. While mid-sized carriers no longer are
     required to report certain information in ARMIS, we expect those
     companies will maintain sufficient information to be able to
     produce the data set forth in Appendix E, upon request.

197. In addition, mid-sized incumbent LECs should continue to maintain
     subsidiary record categories to provide the data currently provided
     in the Class A accounts, which are necessary to calculate just and
     reasonable pole, duct, conduit, and right-of-way attachment rates
     pursuant to section 224 of the Communications Act.[^378] These
     carriers must report this information, necessary for the Commission
     and interested parties to calculate and verify attachment rates, in
     ARMIS, so that the information is publicly available and
     verifiable.

198. We recognize that the states may need certain information from
     these carriers in order to carry out their regulatory duties and
     responsibilities.[^379] Nothing in this decision is intended to
     preclude a state from imposing its own reporting requirements to
     review the operations of the mid-size companies. Moreover, we
     recognize that the costs and benefits of regulatory compliance may
     be weighed differently at the state level.

### Regulatory Classification of Mid-Sized Carriers

199. By our actions today, mid-sized carriers will be treated like Class
     B carriers in virtually all respects. In light of the regulatory
     relief granted to all mid-sized carriers, we see no reason to
     modify the current indexed revenue threshold of \$117 million,
     which is the dividing line between Class A and Class B
     companies.[^380] No party in this proceeding has presented any
     persuasive justification for why the threshold should be adjusted
     to \$200 million, or some higher figure.[^381] We will continue to
     monitor developments in the marketplace, however, to ensure that
     our current definitional framework does not inadvertently create
     unintended consequences.

200. We grant ITTA's request that we index the \$7 billion threshold
     that divides the mid-sized carries and the larger Class A carriers.
     [^382] In 1996, we indexed the threshold between Class A and Class
     B carriers to implement the directive of the 1996 Act that the
     Commission adjust our existing revenue requirement to account for
     inflation in classifying carriers under section 32.11 and in
     establishing reporting requirements pursuant to Part 43.[^383]
     Subsequently, in 1999, we streamlined our regulatory treatment for
     the smaller Class A carriers by creating a new classification
     within Class A for the mid-sized carriers.[^384] We now conclude it
     would be analytically consistent with section 402(c) to henceforth
     index for inflation the revenue threshold that separates the larger
     Class A carriers and the mid-sized carriers.

201. We decline to redefine mid-sized carrier based on the two-percent
     of access lines standard suggested by several commenters.[^385] We
     historically have used revenues as the dividing line between larger
     and smaller companies, and we see no need at this time to depart
     from that practice. With the rule changes adopted today, we ensure
     that the mid-sized carriers will be subjected to lightened
     regulatory burdens.

### Waivers for Roseville and CenturyTel

202. Due to the significant changes adopted in this Report and Order to
     our Chart of Accounts and the reporting requirements for mid-sized
     carriers, we are waiving, on our own motion, the ARMIS reporting
     requirements and CAM attestation requirements for Roseville and
     CenturyTel for the years 2000 and 2001. These two mid-sized
     companies have yet to file ARMIS reports for 2000.[^386] Without a
     waiver, these companies would be required to prepare ARMIS reports
     for the years 2000 and 2001 based on our old chart of accounts. The
     ARMIS reports filed on April 1, 2003 (*i.e.*, for year 2002) will
     be based on the new chart of accounts adopted in this report and
     order.

203. The Commission may grant a waiver of its rules for good cause
     shown.[^387] Waiver of the Commission\'s rules is appropriate only
     if special circumstances warrant a deviation from the general rule
     and such deviation will serve the public interest.[^388] Roseville
     and CenturyTel are the only Class A companies that have not yet
     filed an initial ARMIS report. These companies have been granted an
     extension of time in which to file. We find that this particular
     situation, where our rules have changed before the parties have
     complied under old rules, is a special circumstance. Without a
     waiver, these companies would file ARMIS reports for the years 2000
     and 2001 based on our old chart of accounts, and then file ARMIS
     reports for year 2002 based on our new chart of accounts. We find
     that in this case, special circumstances warrant a deviation of the
     general rule and the deviation will serve the public interest.
     Under these circumstances, it would be an inefficient use of
     resources to prepare ARMIS reports for the years 2000 and 2001
     based on our old chart of accounts. A deviation of our general
     rule, in order to allow these two companies to file their initial
     ARMIS reports on April 1, 2003, under the new chart of accounts
     adopted in this Report and Order, would serve the public interest.
     The resources the companies would otherwise use in setting up their
     computer systems under the old chart of accounts can be used
     instead on service to their customers.

204. Similarly, we are also waiving our requirements for a CAM
     attestation for these mid-sized incumbent LECs. The attestation
     cannot take place until the ARMIS reports are prepared. We cannot,
     therefore, require a CAM attestation until after the ARMIS reports
     are filed and a CAM attestation will no longer be required of
     mid-sized companies under our rules adopted in this Report and
     Order. Therefore, we are waiving the ARMIS reporting requirements
     for Roseville and CenturyTel, and the CAM attestation requirement,
     for the years 2000 and 2001.

# FURTHER NOTICE OF PROPOSED RULEMAKING

## Phase III (CC Docket No. 00-199 and 99-301)

205. Concurrent with the adoption of the Phase 2 *Notice,* the
     Commission also undertook a broader examination of the roadmap for
     accounting and reporting deregulation.[^389] The Commission
     recognized that as regulatory, technological, and market conditions
     change in the future, it must consider more fundamental changes to
     the accounting and reporting requirements. The Commission sought
     comment on whether there are certain triggers that would allow it
     to significantly modify or relieve accounting and reporting
     requirements that currently apply to incumbent local exchange
     companies. Among other things, the Phase 3 *Notice* sought comment
     on whether accounting and reporting requirements should be
     eliminated when carriers become non-dominant. The Commission also
     sought 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 whether achieving
     pricing flexibility should be a trigger for relaxing accounting and
     reporting requirements.

206. We remain fully committed to moving forward with Phase 3 of this
     proceeding. In our view, the question is not whether further
     deregulation should occur, but rather when. We are skeptical of
     assertions that these requirements should continue for the
     indefinite future. As competition continues to develop, the
     original justifications for our accounting and reporting
     requirements may no longer be valid. Even apart from the changing
     nature of the marketplace, there is a substantial question whether
     some of the rules we retain today impose burdens unnecessarily. And
     as formerly distinct sectors of the communications industry
     continue to converge, there is reason to reexamine the
     justifications for imposing detailed accounting and reporting
     requirements on only one class of competitors. With these
     considerations in mind, we now seek to refresh the Phase 3 record
     in light of the findings made and actions taken today. We look
     forward to working closely with the states, incumbent carriers, and
     other interested parties in this endeavor as we continue our
     examination of these issues.

207. As set forth above in the Phase 2 *Report and Order*, state
     regulators have articulated current regulatory needs to maintain
     certain Class A accounts and ARMIS filing requirements for various
     purposes, including assisting their work in promoting local
     competition, developing appropriate prices for unbundled network
     elements, and conducting local ratemaking proceedings. While the
     Commission also uses some of this information, in administering our
     current support mechanisms, for example, we identified in the
     foregoing order a number of accounts and requirements that appear
     no longer necessary for federal purposes: Account 5040, Private
     line revenue; Account 5060, Other basic area revenue; Account 1500,
     Other jurisdictional assets -- net; Account 4370, Other
     jurisdictional liabilities and deferred credits -- net; and Account
     7910, Income effect of jurisdictional ratemaking differences --
     net. We believe that, if we cannot identify a federal need for a
     regulation, we are not justified in maintaining such a requirement
     at the federal level. At the same time, however, we recognize that
     an immediate end to such requirements could cause severe problems
     for state regulators. We would thus like to work with the states to
     arrange an orderly transition to a mechanism in which states
     undertake responsibility for collecting this information. We
     tentatively conclude that we should leave these federal
     requirements in place for a period of three years to enable states
     to develop alternative means of gathering this information, after
     which the federal requirements would terminate. We seek comment on
     this proposal. Commenters should address whether three years is a
     sufficient amount of time to transition from federal to state
     information gathering mechanisms. Commenters should also address
     whether it would be necessary for each state to set up its own
     mechanism or whether states might work collectively to set up a
     mechanism to collect information for multiple states. We understand
     that some states are required by state law to mirror federal
     accounting requirements. We ask that those states identify
     themselves and describe the precise nature of their state statutory
     constraints. We also seek comment on whether, rather than
     sunsetting these federal requirements, there are other means to
     reform federal requirements that serve only state regulatory needs.

208. For our other accounting and reporting requirements, we continue to
     have a federal need for this information, such as administering our
     current support mechanisms for universal service and price cap
     regulation. While we believe that the benefits of continuing these
     federal requirements, at present, outweigh the potential burdens,
     our assessment of that calculation is likely to change as
     technological and market conditions continue to evolve. Although
     the sufficiency of alternative mechanisms to obtain the requisite
     information is not apparent on the record before us, we seek
     comment on alternatives to our current accounting and reporting
     requirements. We also encourage our state colleagues to consider
     alternative sources of such information at the state level. There
     may well come a time in the relatively near future when we conclude
     that there is no ongoing federal need to maintain these
     requirements at the federal level. We seek comment on these
     tentative views.

209. In addition to addressing the questions previously raised in the
     Phase 3 *Notice*, we ask commenters to consider whether any of
     these accounting and reporting requirements should sunset by a date
     certain, such as three or five years in the future. In particular,
     should we sunset the remaining Class A accounts by a date certain?
     Should we maintain our practice of imposing different accounting
     requirements on classes of carriers based on their size? If so, and
     we allow Class A carriers to shift to Class B accounting, are there
     additional accounts that should be eliminated from the Class B
     system for small and mid-sized carriers by a date certain? Should
     the requirement to maintain either Class A or Class B accounts be
     replaced with a rule requiring adherence to generally accepted
     accounting principles (GAAP)? Should any or all of our ARMIS
     reporting requirements sunset by a date certain? We encourage
     commenters to discuss the implications of any accounting reforms
     they recommend on the appropriate scope of ARMIS reporting
     obligations. To the extent commenters argue that certain Part 32 or
     Part 64 rules, or reporting requirements imposed pursuant to 47
     U.S.C. § 43.21, should not sunset by a date certain, they should
     identify with specificity which rules should remain in place and
     provide a full analysis of the justification for that rule, on a
     rule-by-rule basis.

210. What would be the advantages and disadvantages of adopting any of
     these sunset approaches, as opposed to concluding that requirements
     should be eliminated only upon the attainment of certain indices
     associated with the development of a competitive marketplace? For
     example, if we were to eliminate Class A accounts or shift to a
     policy of relying on GAAP, could we develop accurate inputs for our
     universal service cost model by relying on specific, ad hoc data
     requests?[^390] Moreover, what impact would elimination by a date
     certain of accounting and reporting rules have on attainment of
     statutory goals, such as the preservation and advancement of
     universal service and ensuring that pole attachment rates are just
     and reasonable? Could we satisfy other federal regulatory needs by
     making data requests on an as-needed basis and relying on other
     existing data collection mechanisms, such as the *Local Competition
     and Broadband Data Gathering Program*? If we ultimately decide not
     to sunset certain rules, but instead eliminate those rules only
     upon attainment of certain indices associated with competition,
     what costs would be imposed on both regulators and the industry by
     future administrative proceedings to determine whether those
     triggers have been met, particularly if proceedings were undertaken
     on a carrier-by-carrier basis?

211. We also seek comment from state commissions and all other
     interested parties on whether ARMIS information (particularly
     infrastructure data) would be better captured through the *Local
     Competition and Broadband Data Gathering Program* rather than in
     ARMIS, as discussed above in paragraphs 162, 169, and 177. This
     program seeks to develop the Commission's understanding of the
     deployment and availability of broadband services and the
     development of local telephone service competition in order to
     comply with section 706 of the 1996 Act.[^391] The *Local
     Competition and Broadband Data Gathering Program* was established
     for a five-year period, unless the Commission acts to extend it. We
     seek comment on the costs and benefits associated with collecting
     infrastructure information through the *Local Competition and
     Broadband Data Gathering Program* for all affected parties,
     including potential filers and federal, state, and local
     regulators. In particular, we seek comment on whether information
     currently collected in ARMIS 43-07 should instead be collected
     through the *Local Competition and Broadband Data Gathering
     Program*, which imposes a reporting obligation on a larger universe
     of carriers. In addition, we seek comment on collecting such data
     through the *Local Competition and Broadband Data Gathering
     Program*, but requiring only the mandatory price cap companies to
     report. We also seek comment on whether we should require all
     filers in the *Local Competition and Broadband Data Gathering
     Program* to report 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. Lastly, we seek comment on
     whether to gather information on new technologies that indicate how
     carriers are upgrading the public switched network, *e.g.*,
     information for switches capable of transmitting ATM protocol, and
     data on SMDS, internet routers, and frame relay service, through
     our *Local Competition and Broadband Data Gathering Program*.

212. In addition, we seek comment on eliminating our rules for
     continuing property records (CPR), specifically section 32.2000(e)
     and (f).[^392] As discussed in the foregoing order, our CPR rules
     largely serve the interests of state regulators.[^393] States
     assert that they have an ongoing need for this information in order
     to support state ratemaking proceedings. We seek comment on whether
     there are alternative avenues for states to gather whatever
     information pertaining to property records they need for state
     regulatory proceedings. Incumbent LECs are subject to a number of
     other regulatory constraints and appear to have ample incentives to
     maintain a detailed inventory of their property.[^394] Moreover,
     the record shows that our detailed requirements, which include
     rigid rules for recording property, impose substantial burdens on
     incumbent LECs.[^395] In light of all these factors, we tentatively
     conclude that we should eliminate our detailed CPR rules in three
     years. We seek comment on this proposal. Commenters should address
     whether there are any federal or state regulatory needs served by
     our CPR rules that cannot be met through alternative mechanisms. We
     also seek further comment on the costs and burdens of maintaining
     these CPR rules. Additionally, commenters should address whether
     three years is too little or too much time for states that rely
     upon the existence of federal CPR rules to transition to
     alternative mechanisms. Commenters should include an analysis of
     the costs and benefits of maintaining the CPR rules for a different
     length of time.

213. We also seek comment on alternative approaches to streamline our
     CPR rules. In particular, in earlier comments in this proceeding,
     Verizon proposed that we should eliminate most of our CPR
     requirements, but retain the requirement that property records
     be (1) subject to internal accounting controls; (2) auditable; (3)
     equal in the aggregate to the total investment reflected in the
     financial accounts; and (4) maintained for the life of the
     property.[^396] Moreover, Verizon suggested that CPR rules should
     provide that (1) records be maintained by original cost where
     appropriate, and otherwise, be maintained using averages or
     estimates; (2) average costs may be used for plant consisting of a
     large number of similar units, and units of similar size and type
     within each specified account may be grouped; and (3) in cases
     where the actual original cost of property cannot be ascertained,
     such as pricing for inventory for the initial entry of a continuing
     property record or the pricing of an acquisition for which the
     continuing property record has not been maintained, the original
     cost may be estimated. In cases where estimates are used, any
     estimate shall be consistent with accounting practices in effect at
     the time the property was constructed. We seek comment on the
     advantages and disadvantages associated with this proposal.

214. Finally, we seek to refresh the record on our affiliate
     transactions rules. We note that these rules were created at a time
     when all incumbent LECs were subject to rate-of-return
     regulation.[^397] To what extent do these rules remain necessary
     for price cap carriers? Do price cap carriers that have obtained
     pricing flexibility, and have thus waived low-end formula
     adjustments, retain any incentive or ability to engage in improper
     cost-shifting or cross-subsidization? What impact, if any, would
     elimination of these rules for price cap carriers have on state
     ratemaking processes? What impact would there be on carriers if we
     elect to retain these rules?

215. Even if we eliminate some or all of our current
     affiliate-transactions rules for price-cap carriers, should we
     maintain those rules, or adopt revised rules, to govern
     transactions that are subject to section 272 of the Communications
     Act?[^398] Section 272(b)(2) requires that the affiliate required
     by that section maintain "books, records, and accounts in the
     manner prescribed by the Commission which shall be separate from
     the books, records, and accounts maintained by the Bell operating
     company of which it is an affiliate."[^399] Section 272(b)(5)
     requires that the separate affiliate conduct all transactions with
     the Bell operating company "on an arm's length basis."[^400] The
     nondiscrimination requirement found in section 272(c) requires the
     BOC to "account for all transactions with an affiliate . . . in
     accordance with accounting principles designed by or approved by
     the Commission."[^401] Section 272(e)(4) specifies that the BOC may
     provide interLATA facilities or services to its interLATA affiliate
     if such services or facilities are made available to all carriers
     at the same rates and on the same terms and conditions, and so long
     as the costs are appropriately allocated."[^402] What would be the
     advantages or disadvantages of applying one set of rules to
     transactions between BOCs and their section 272 affiliates and
     another set of rules (or no rules) to other transactions between
     incumbent LECs and other types of affiliates? How would this be
     implemented in situations where an affiliate engages in some
     activities that are subject to section 272 and other activities
     that are not?

216. Even if we decline to make broad changes to our affiliate
     transactions rules, we may wish to adopt additional minor reforms
     along the lines of the those in the foregoing Phase II Report and
     Order. In particular, we seek further comment on the proposal of
     USTA and BellSouth to modify the centralized service exception to
     the affiliate transactions rules. That rule states that all
     services received by a carrier from an affiliate that exists solely
     to provide services to members of the carrier's corporate family
     shall be recorded at cost. For these types of affiliates, no fair
     market valuations are required. USTA and BellSouth have argued that
     this rule is too restrictive, imposes large costs on carriers to
     comply, and can cause an affiliate to lose its overall exemption
     from fair market valuation of all of its services if one service is
     provided outside of the corporate family.[^403] USTA and BellSouth
     argue that, rather than applying the exception on an
     affiliate-by-affiliate basis, the exception should be applied on a
     service-by-service basis. This would allow carriers to record
     services provided solely within the corporate family at fully
     distributed cost without fair market valuation, whether or not the
     affiliate also provided other services outside the corporate
     family.

217. We seek comment on a possible *de minimis* exception that would
     mitigate some of the harsh consequences of our current rules raised
     by BellSouth.[^404] We ask commenters to address whether the
     Commission should adopt a threshold of \$500,000 for services
     provided by an affiliate outside the corporate family. If the
     Commission adopted such a threshold, an affiliate could provide up
     to \$500,000 in services outside the corporate family without
     causing other services it provides solely to the corporate family
     to undergo fair market valuation. We also ask if there is a
     different appropriate dollar value threshold. Alternatively, we
     seek comment on whether the exception should be based on a
     percentage of transactional volume of the service. For example, if
     a service is provided outside the corporate family and the
     transactional volume amounts to only five or ten percent of all of
     the affiliate's services volume, should transactions within the
     corporate family remain exempt from the fair market valuation
     requirement? If the Commission adopts a percentage threshold,
     should that threshold be five percent, ten percent, or some other
     percentage?

## Conforming Amendments to Part 36 Separations Rules (CC Docket No. 80-286)

218. The revisions to the Chart of Accounts described in this Report and
     Order affect our Part 36 jurisdictional separations rules in minor
     respects, as our Part 36 rules are defined in terms of existing
     accounts. Most of the Part 32 revisions in the attached Order
     consolidate Class A accounts to the Class B level. We tentatively
     conclude that the elimination of Class A summary accounts will
     require clarifying revisions to Part 36. For example, the
     elimination of Account 6110, Network support expense, from Class A
     accounting will require sections 36.310 and 36.311 of the
     Commission's rules to be revised to reflect Network support
     expenses as the sum of accounts 6112, 6113, and 6114. In contrast,
     Class B accounting will retain Account 6110. Therefore sections
     36.310 and 36.311 will remain intact for Class B carriers, but must
     be revised to clarify that the use of Account 6110 is for Class B
     carriers only.[^405]

219. We also tentatively conclude that other changes to Part 36 are
     required as a result of the elimination of Accounts 2215, 3500,
     3600, 5000, 5080, 5084, and 6710 from both Class A and Class B
     accounting.[^406] The Part 36 sections referencing these accounts
     will require revisions to reflect the respective accounts now
     utilized. We propose to revise, wherever necessary, those Part 36
     sections affected by the revisions adopted in this Report and
     Order. We seek comment on these proposed conforming amendments.

220. As set forth above, we adopt subaccounts for five existing
     accounts: 2212, Digital electronic switching; 2232, Circuit
     equipment, 6212, Digital electronic switching expense; 6232,
     Circuit equipment expense; and 6620, Services. For now, these
     accounts will continue to be separated in accordance with current
     Part 36 rules, including the requirements of the *Separations
     Freeze Order*, and are subject to the conforming Part 36 amendments
     proposed in the preceding paragraph. We seek comment on whether the
     creation of subaccounts warrants any modification to the
     separations treatment of these accounts.

221. Commenters should also suggest any additional particular Part 36
     rules that should be revised, how they should be revised, and which
     Part 32 modification in this Order forms the basis for each
     suggested revision. We also seek comment on interplay of the recent
     *Separations Freeze Order* with any suggested revisions.[^407]

222. Finally, although we believe that the effect of the revisions to
     the Chart of Accounts will have merely ministerial impact on our
     Part 36 rules, we welcome input from the Federal-State Joint Board
     on Separations on these issues.[^408]

# PROCEDURAL ISSUES

## A. Ex Parte Presentations {#a.-ex-parte-presentations .unnumbered}

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

## B. Paperwork Reduction Act Analysis {#b.-paperwork-reduction-act-analysis .unnumbered}

224. *Final Paperwork Reduction Act Analysis*. The decision herein has
     been analyzed with respect to the Paperwork Reduction Act of 1995,
     Pub. L. 104-13, and found to impose new or modified recordkeeping
     requirements or burdens on the public. Implementation of these new
     or modified reporting or recordkeeping requirements will be subject
     to approval by the Office of Management and Budget (OMB) and will
     go into effect upon announcement in the Federal Register of OMB
     approval.

## C. Regulatory Flexibility Act {#c.-regulatory-flexibility-act .unnumbered}

225. As required by the Regulatory Flexibility Act (RFA),[^409] the
     Commission has prepared both a Final Regulatory Flexibility
     Analysis (FRFA) and an Initial Regulatory Flexibility Analysis
     (IRFA) of the possible significant economic impact on small
     entities by the policies and rules proposed in this Further Notice
     of Proposed Rulemaking and the rules adopted in this Report and
     Order. Both the FRFA and the IRFA are set forth in Appendix H.
     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 Further Notice of Proposed Rulemaking
     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 Report and
     Order and Further Notice of Proposed Rulemaking, including the FRFA
     and IRFA, to the Chief Counsel for Advocacy of the Small Business
     Administration.[^410] In addition, the Report and Order and Further
     Notice of Proposed Rulemaking and FRFA and IRFA (or summaries
     thereof) will be published in the Federal Register.[^411]

## D. Comment Filing Procedures {#d.-comment-filing-procedures .unnumbered}

226. 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 or
     before sixty days from date of publication in the Federal Register
     (for issue A) and thirty days from date of publication in the
     Federal Register (for issue B), and reply comments on or before
     ninety days from date of publication in the Federal Register (for
     issue A) and forty-five days from date of publication in the
     Federal Register (for issue B). Comments may be filed using the
     Commission\'s Electronic Comment Filing System (ECFS) or by filing
     paper copies.[^412]

227. 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.

228. 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.

229. 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
     Nos. 00-199, 99-301, and 80-286, 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, Qualex International, Portals II, 445 12th Street,
     SW, Room CY-B402, Washington, DC, 20554.

230. 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

231. Accordingly, IT IS ORDERED that, pursuant to sections 1, 4,
     201-205, 215, and 218-220 of the Communications Act of 1934, as
     amended, 47 U.S.C. sections 151, 154, 201-205, 215, and 218-220,
     Parts 32 and 64 of the Commission's rules, 47 C.F.R. Parts 32 and
     64, are amended as described above and in Appendix F below.

232. IT IS FURTHER ORDERED that, pursuant to section 220(g) of the
     Communications Act of 1934, as amended, 47 U.S.C. § 220(g), changes
     to our Part 32, System of Accounts, adopted in this Report and
     Order shall take effect six months after publication in the Federal
     Register following OMB approval, unless a notice is published in
     the Federal Register stating otherwise. We will, however, permit
     carriers to implement Part 32 accounting changes as of January 1,
     2001.

233. IT IS FURTHER 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. sections 154(i),
     154(j), 161, 201(b), 303(r), and 403, this Further Notice of
     Proposed Rulemaking in CC Docket Nos. 80-286, 99-301, and 00-199 IS
     ADOPTED.

234. IT IS FURTHER ORDERED that the proceeding in CC Docket No. 97-212
     is TERMINATED.

235. IT IS FURTHER ORDERED THAT, pursuant to the authority contained in
     sections 1, 4(i), 4(j), 201-205, 215, and 218-220 of the
     Communications Act of 1934, as amended, 47 U.S.C. sections 151,
     154(i), 154(j), 201-205, 215, and 218-220, that FCC Report 43-04,
     the Separations and Access Report IS REVISED, as set forth above
     and in Appendix G to this Report and Order, effective for filings
     due April 1, 2002.

236. IT IS FURTHER ORDERED THAT, pursuant to the authority contained in
     sections 1, 4(i), 4(j), 201-205, 215, and 218-220 of the
     Communications Act of 1934, as amended, 47 U.S.C. sections 151,
     154(i), 154(j), 201-205, 215, and 218-220, that revisions to FCC
     Report 43-01, the Annual Summary Report; FCC Report 43-02, the USOA
     Report; FCC Report 43-03, the Joint Cost Report; FCC Report 43-07,
     the Infrastructure Report; and 43-08, the Operating Data Report as
     set forth above, shall be effective for filings due April 1, 2003.

237. IT IS FURTHER ORDERED THAT, pursuant to the authority contained in
     section 0.291 of the Commission's rules, 47 C.F.R. § 0.291, that
     the Common Carrier Bureau IS DELEGATED authority to implement all
     changes to ARMIS reporting as above set forth.

238. IT IS FURTHER ORDERED that the Commission's Consumer Information
     Bureau, Reference Information Center, SHALL SEND a copy of this
     Report and Order and Further Notice of Proposed Rulemaking,
     including the two Regulatory Flexibility Analyses, to the Chief
     Counsel for Advocacy of the Small Business Administration.

     FEDERAL COMMUNICATIONS COMMISSION

     Magalie Roman Salas

     Secretary

# APPENDIX A -- Parties Filing Comments and Reply Comments {#appendix-a-parties-filing-comments-and-reply-comments .unnumbered}

**[Parties filing initial comments in CC Docket No.
00-199]{.underline}**

ALLTEL Communications Corporation (ALLTEL)

AT&T Corporation (AT&T)

BellSouth Corporation (BellSouth)

Cincinnati Bell Telephone Company (CBT)

Florida Public Service Commission (Florida)

General Services Administration (GSA)

Idaho Public Service Commission (Idaho)

Iowa Telecommunications Services, Inc. (Iowa Telecom)

Independent Telephone and Telecommunications Alliance (ITTA)

Maryland Public Service Commission (Maryland)

Montana Public Service Commission (Montana)

National Association of Regulatory Utility Commissioners (NARUC)

Nebraska Public Service Commission (Nebraska)

New York State Department of Public Service (New York)

North Carolina Utilities Commission -- Public Staff (North Carolina
Public Staff)

Ohio Consumers' Counsel and the National Association of State Utility
Consumer Advocates (Ohio CC and NASUCA)

Public Utility Commission of Oregon (Oregon)

Qwest Corporation (Qwest)

Roseville Telephone Company (Roseville)

Rural Utilities Service (RUS)

Sprint Corporation (Sprint)

TDS Telecommunications Corporation (TDS)

United States Telecom Association (USTA)

Utah Public Service Commission and the Utah Division of Public Utilities
(Utah)

Verizon Communications, Inc. (Verizon)

Washington Utilities and Transportation Commission (Washington)

Public Service Commission of Wisconsin (Wisconsin)

WorldCom, Inc. (WorldCom)

Wyoming Public Service Commission (Wyoming)

**[Parties filing reply comments in CC Docket No. 00-199]{.underline}**

Regulatory Commission of Alaska (Alaska)

ALLTEL

Association for Local Telecommunications Services (ALTS)

AT&T

BellSouth

California Public Utilities Commission (California)

Federal-State Joint Board on Separations

GSA

Illinois Commerce Commission (Illinois)

ITTA

NARUC

National Cable Television Association (NCTA)

Ohio CC and NASUCA

Public Utilities Commission of Nevada (Nevada)

Qwest

Sprint

USTA

Verizon

Virginia State Corporation Commission (Virginia)

WorldCom

XO Communications, Inc. (XO Communications)

######## Parties filing comments to June 8 Public Notice {#parties-filing-comments-to-june-8-public-notice .unnumbered}

BellSouth

GSA

New York

Ohio Consumer's Counsel (Ohio CC)

Oregon

RUS

SBC Communications, Inc. (SBC)

Sprint

USTA

Verizon

Wisconsin

WorldCom

######## Parties filing reply comments to June 8 Public Notice {#parties-filing-reply-comments-to-june-8-public-notice .unnumbered}

GSA

New Hampshire Public Utilities Commission (New Hampshire)

Ohio CC

Sprint

USTA

Verizon

######## Ex parte filings {#ex-parte-filings .unnumbered}

ALTS and XO Communications, July 26, 2001

BellSouth, August 2, 2001

Washington, August 16, 2001

Illinois, August 24, 2001

Nebraska, August 27, 2001

South Dakota Public Utilities Commission, August 27, 2001 (South Dakota)

AT&T, August 29, 2001

New Mexico Public Regulation Commission, August 30, 2001 (New Mexico)

NCTA, August 31, 2001

North Dakota Public Service Commission, August 31, 2001 (North Dakota)

Utah, August 31, 2001

North Carolina Utilities Commission, September 4, 2001 (North Carolina)

NARUC, September 6, 2001

Florida, September 6, 2001

Maryland, September 7, 2001

New Hampshire, September 7, 2001

Qwest, September 10, 2001

Michigan Public Service Commission, September 14, 2001 (Michigan)

Indiana Utility Regulatory Commission, September 21, 2001 (Indiana)

NARUC, September 26, 2001

USTA, September 28, 2001

Kansas Corporation Commission, October 2, 2001 (Kansas)

California, October 2, 2001

Competitive Telecommunications Association, October 3, 2001 (CompTel)

Michigan, October 3, 2001

239. NASUCA, October 4, 2001

NARUC, October 4, 2001

# APPENDIX B -- List of eliminated Class A accounts {#appendix-b-list-of-eliminated-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

1290 Prepaid rents

1300 Prepaid taxes

1310 Prepaid insurance

1320 Prepaid directory expenses

1330 Other prepayments

1401 Investment in affiliated companies

1402. Investments in nonaffiliated companies

1406.1 Permanent investment

2.  Receivable/payable

3.  Current net income or loss

1407 Unamortized debt issuance expense

1408 Sinking funds

1437 Deferred tax regulatory asset

1439 Deferred charges

1.  Office support equipment

2.  Company communications equipment

2215 Electro-mechanical switching

Step-by-step switching

Crossbar switching

Other electro-mechanical switching

2231.1 Satellite and earth station facilities

2231.2 Other radio facilities

2425 Deep sea cable

Nonmetallic cable

Metallic cable

3420 Accumulated amortization---leasehold

improvement

3500 Accumulated amortization---intangible

3600 Accumulated amortization---other

4010 Accounts payable

4020 Notes payable

4030 Advance billing and payments

4050 Current maturities---long-term debt

4060 Current maturities---capital leases

4120 Other accrued 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

4360 Other deferred credits

5000 Basic local service revenue

5002 Optional extended area revenue

5003 Cellular mobile revenue

5004 Other mobile services revenue

5050 Customer premises revenue

5069 Other local exchange revenue settlements

5080 Network access revenue

5084 State access 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

5301 Uncollectible revenue-telecom

5302 Uncollectible revenue-other

6110 Network support expense

6120 General support expenses

6210 Central office switching expenses

6215 Electro-mechanical expense

Step-by-step switching

Crossbar switching

Other electro-mechanical switching

6230. Central office transmission expense

      1.  Satellite and earth station facilities

      2.  Other radio facilities

6310 Information origination/termination

expense

6410 Cable and wire facilities expense

6425 Deep sea cable expense

Nonmetallic cable

Metallic cable

6510 Other property, plant and equipment

expenses

6530 Network operations expenses

6561 Depreciation expense---

Telecommunications plant in service

6562 Depreciation expense---property held for future telecommunications
use

6563 Amortization expense---tangible

6564 Amortization expense---intangible

6565. Amortization expense---other

6610 Marketing

6612 Sales

6621 Call completion services

6622 Number services

6623 Customer services

6710 Executive and planning

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 the disposition of land and artworks

7160 Other operating gains and losses

7200 Operating taxes

7310 Dividend income

7320 Interest income

7330 Income from sinking and other funds

7340 Allowance for funds used during

construction

7350 Gains and losses from the disposition of certain property

7360 Other nonoperating income

7370 Special charges

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

7510 Interest on funded debt

7520 Interest expense---capital leases

7530 Amortization of debt issuance expense

7540 Other interest deductions

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

# APPENDIX C -- Revised list of Class A accounts {#appendix-c-revised-list-of-class-a-accounts .unnumbered}

1120 Cash and equivalents

1170 Receivables

1171 Allowance for doubtful accounts

1220 Inventories

1220.1 Materials and supplies

1220.2 Property held for sale or lease

1280 Prepayments

1350 Other current assets

1406 Nonregulated investments

1410 Other noncurrent assets

1438. Deferred maintenance, retirements, and

other 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

2124 General purpose computers

2211 Non-digital switching

2212. Digital electronic switching

      1.  Circuit

      2.  Packet

2220 Operator systems

2231 Radio systems

2232. Circuit equipment

      1.  Electronic

      2.  Optical

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

Metallic

2422 Underground cable

Nonmetallic

Metallic

2423 Buried cable

Nonmetallic

Metallic

2424 Submarine and deep sea cable

Nonmetallic

Metallic

2426 Intrabuilding network cable

Nonmetallic

Metallic

2431 Aerial wire

2441 Conduit systems

2681 Capital leases

2682 Leasehold improvements

2690 Intangibles

Network software

General purpose computer software

3100 Accumulated depreciation

3200 Accumulated depreciation\--held for future

telecommunications use

3300 Accumulated depreciation nonoperating

3410 Accumulated amortization---capitalized

leases

4000 Current accounts and notes payable

4040 Customers' deposits

4070 Income taxes\--accrued

4080 Other taxes\--accrued

4100 Net current deferred operating income

taxes

4110 Net current deferred nonoperating income

taxes

4130 Other current liabilities

4200 Long term debt and funded debt

4300 Other long term liabilities and deferred

credits

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

4361 Deferred tax regulatory adjustments---net

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

5001 Basic area revenue

5040 Private line revenue

5060 Other basic area revenue

5081 End user revenue

5082 Switched access revenue

5083 Special access revenue

5105 Long distance message revenue

5200 Miscellaneous revenue

5280 Nonregulated operating revenue

5300 Uncollectible revenue

6112 Motor vehicle expense

6113 Aircraft expense

6114 Tools and other work equipment expense

6121 Land and building expenses

6122 Furniture and artworks expense

6123 Office equipment expense

6124 General purpose computers expense

6211 Non-digital switching expense

6212. Digital electronic switching expense

      1.  Circuit

      2.  Packet

6220 Operator systems expense

6231 Radio systems expense

6231. Circuit equipment expense

      1.  Electronic

      2.  Optical

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

Metallic

6422 Underground cable expense

Nonmetallic

Metallic

6423 Buried cable expense

Nonmetallic

Metallic

6424 Submarine and deep sea cable expense

Nonmetallic

Metallic

6426 Intrabuilding network cable expense

Nonmetallic

Metallic

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

6540 Access expense

6560. Depreciation and amortization expenses

6611 Product management and sales

6613 Product advertising

6620 Services

6620.1 Wholesale

6620.2 Retail

6720. General and administrative

6790 Provision for uncollectible notes

receivable

7100 Other operating income and expenses

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

7300 Nonoperating income and expense

7400 Nonoperating taxes

7500 Interest and related items

7600 Extraordinary items

7910 Income effect of jurisdictional ratemaking

differences -- net

7990 Nonregulated net income

# APPENDIX D -- Revised list of Class B accounts {#appendix-d-revised-list-of-class-b-accounts .unnumbered}

1120 Cash and equivalents

1170 Receivables

1171 Allowance for doubtful accounts

1220 Inventories

1220.1 Materials and supplies

1220.2 Property held for sale or lease

1280 Prepayments

1350 Other current assets

1406 Nonregulated investments

1410 Other noncurrent assets

1438 Deferred maintenance and retirements

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 3410 Accumulated
amortization---capitalized

leases

4000 Current accounts and notes payable

4040 Customers' deposits

4070 Income taxes---accrued

4080 Other taxes---accrued

4100 Net current deferred operating income

taxes

4110 Net current deferred nonoperating income

taxes

4130 Other current liabilities

4200 Long term debt and funded debt

4300 Other long term liabilities and deferred

credits

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

4361 Deferred tax regulatory adjustments---net

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

5081 End user revenue

5082 Switched access revenue

5083 Special access revenue

5105 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 expenses

6220 Operator systems expense

6230 Central office transmission expense

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

6720 General and administrative

6790 Provision for uncollectible notes

receivable

7100 Other operating income and expenses

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

differences--net

7990 Nonregulated net income

# APPENDIX E -- Data for High-Cost Model Inputs Purposes  {#appendix-e-data-for-high-cost-model-inputs-purposes .unnumbered}

2111 Land

2112 Motor vehicles

2113 Aircraft

2114 Tools and other work equipment

2121 Buildings

2122 Furniture

2123 Office equipment

2124 General purpose computers

2212 Digital electronic switching

2220 Operator systems

2232 Circuit equipment

2362 Other terminal equipment

2411 Poles

2421 Aerial cable

Nonmetallic

Metallic

2422 Underground cable

Nonmetallic Metallic

2423 Buried cable

Nonmetallic

Metallic

2426 Intrabuilding network cable

Nonmetallic

Metallic

2441 Conduit systems

6112 Motor vehicle expense

6113 Aircraft expense

6114 Tools and other work equipment expense

6121 Land and building expenses

6122 Furniture and artworks expense

6123 Office equipment expense

6124 General purpose computers expense

6212 Digital electronic switching expense

6232 Circuit equipment expense

6411 Poles expense

6421 Aerial cable expense

Nonmetallic

Metallic

6422 Underground cable expense

Nonmetallic

Metallic

6423 Buried cable expense

Nonmetallic

Metallic

6426 Intrabuilding network cable expense

Nonmetallic

Metallic

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

6613 Product advertising

6620 Services

6620.1 Wholesale

6620.2 Retail

6720 General and administrative

#  {#section .unnumbered}

**APPENDIX F -- FINAL RULES**

**Part 32 of title 47 of the C.F.R. is amended as follows:**

PART 32 -- UNIFORM SYSTEM OF ACCOUNTS FOR TELECOMMUNICATIONS COMPANIES

The authority citation for part 32 continues to read as follows:

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

Table of Contents, Part 32---Uniform System of Accounts for
Telecommunications Companies is revised to read as follows:

PART 32---UNIFORM SYSTEM OF ACCOUNTS FOR TELECOMMUNICATIONS COMPANIES

**Subpart A---Preface**

Sec.

32.1 Background.

32.2 Basis of the accounts.

32.3 Authority

32.4 Communications Act.

#  Subpart B---General Instructions {#subpart-bgeneral-instructions .unnumbered}

32.11 Classification of companies.

32.12 Records.

32.13 Accounts---general.

32.14 Regulated accounts.

32.15 \[Reserved\]

32.16 Changes in accounting standards.

32.17 Interpretation of accounts.

32.18 Waivers.

32.19 Address for reports and correspondence.

32.20 Numbering convention.

32.21 Sequence of accounts.

32.22 Comprehensive interperiod tax allocation.

32.23 Nonregulated activities.

32.24 Compensated absences.

32.25 Unusual items and contingent liabilities.

32.26 Materiality.

32.27 Transactions with affiliates.

**Subpart C---Instructions for Balance**

#  Sheet Accounts {#sheet-accounts .unnumbered}

32.101 Structure of the balance sheet accounts.

102. Nonregulated investments.

32.103 Balance sheet accounts for other than

regulated-fixed assets to be maintained.

32.1120 Cash and equivalents.

32.1170 Receivables.

32.1171 Allowance for doubtful accounts.

32.1220 Inventories.

32.1280 Prepayments.

32.1350 Other current assets.

32.1406 Nonregulated investments.

32.1410 Other noncurrent assets.

32.1438 Deferred maintenance and retirements.

1500. Other jurisdictional assets -- net.

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2000. Instructions for telecommunications

plant accounts.

32.2001 Telecommunications plant in service.

32.2002 Property held for future

telecommunications use.

32.2003 Telecommunications plant under

construction.

32.2005 Telecommunications plant adjustment

32.2006 Nonoperating plant

32.2007 Goodwill.

32.2110 Land and support assets.

32.2111 Land.

32.2112 Motor vehicles.

32.2113 Aircraft.

32.2114 Tools and other work equipment.

32.2121 Buildings.

32.2122 Furniture.

32.2123 Office equipment.

32.2124 General purpose computers.

32.2210 Central office switching.

32.2211 Non-digital switching.

32.2212 Digital electronic switching.

32.2220 Operator systems.

32.2230 Central office---transmission.

32.2231 Radio systems.

32.2232 Circuit equipment

32.2310 Information origination/termination.

32.2311 Station apparatus.

32.2321 Customer premises wiring.

32.2341 Large private branch exchanges.

32.2351 Public telephone terminal equipment

32.2362 Other terminal equipment

32.2410 Cable and wire facilities.

32.2411 Poles.

32.2421 Aerial cable.

32.2422 Underground cable.

32.2423 Buried cable.

32.2424 Submarine and deep sea cable.

32.2426 Intrabuilding network cable.

32.2431 Aerial wire.

32.2441 Conduit systems.

32.2680 Amortizable tangible assets.

32.2681 Capital leases.

32.2682 Leasehold improvements.

32.2690 Intangibles.

32.3000 Instructions for balance sheet

accounts---Depreciation and

amortization.

32.3100 Accumulated depreciation.

32.3200 Accumulated depreciation\--held for

future telecommunications use.

32.3300 Accumulated depreciation

nonoperating.

32.3410 Accumulated amortization---capitalized

leases.

32.3999 Instructions for balance sheet

accounts---liabilities and stockholders'

equity.

32.4000 Current accounts and notes payable.

32.4040 Customers' deposits.

32.4070 Income taxes---accrued.

32.4080 Other taxes---accrued.

32.4100 Net current deferred operating income

taxes.

32.4110 Net current deferred nonoperating

income taxes.

32.4130 Other current liabilities

32.4200 Long term debt and funded debt

32.4300 Other long term liabilities and deferred

credits.

32.4320 Unamortized operating investment tax

credits---net.

32.4330 Unamortized nonoperating investment

tax credits---net.

32.4340 Net noncurrent deferred operating

income taxes.

32.4341 Net deferred tax liability adjustments.

32.4350 Net noncurrent deferred nonoperating

income taxes.

32.4361 Deferred tax regulatory adjustments---

net.

32.4370 Other jurisdictional liabilities and

deferred credits---net.

32.4510 Capital stock.

32.4520 Additional paid-in capital.

32.4530 Treasury stock.

32.4540 Other capital.

32.4550 Retained earnings.

**Subpart D---Instructions for Revenue Accounts**

32.4999 General.

32.5000 Basic local service revenue.

32.5001 Basic area revenue.

32.5040 Private line revenue.

32.5060 Other basic area revenue.

32.5081 End user revenue.

32.5082 Switched access revenue.

32.5083 Special access revenue.

32.5105 Long distance message revenue.

32.5200 Miscellaneous revenue.

32.5280 Nonregulated operating revenue.

32.5300 Uncollectible revenue.

**Subpart E---Instructions for Expense**

#  Accounts {#accounts .unnumbered}

32.5999 General.

32.6110 Network support expense.

32.6112 Motor vehicle expense.

32.6113 Aircraft expense.

32.6114 Tools and other work equipment

expense.

32.6120 General support expenses.

32.6121 Land and building expenses.

32.6122 Furniture and artworks expense.

32.6123 Office equipment expense.

32.6124 General purpose computers expense.

32.6210 Central office switching expenses.

32.6211 Non-digital switching expense.

32.6212 Digital electronic switching expense.

32.6220 Operator systems expense.

32.6230 Central office transmission expense.

32.6231 Radio systems expense.

32.6232 Circuit equipment expense.

6310. Information origination/termination

expense.

32.6311 Station apparatus expense.

32.6341 Large private branch exchange

expense.

32.6351 Public telephone terminal equipment

expense.

32.6362 Other terminal equipment expense.

32.6410 Cable and wire facilities expenses.

32.6411 Poles expense.

32.6421 Aerial cable expense.

32.6422 Underground cable expense.

32.6423 Buried cable expense.

32.6424 Submarine and deep sea cable expense.

32.6426 Intrabuilding network cable expense.

32.6431 Aerial wire expense.

32.6441 Conduit systems expense.

32.6510 Other property, plant and equipment

expenses.

32.6511 Property held for future

telecommunications use expense.

32.6512 Provisioning expense.

32.6530 Network operations expenses.

32.6531 Power expense.

32.6532 Network administration expense.

32.6533 Testing expense.

32.6534 Plant operations administration

expense.

32.6535 Engineering expense.

32.6540 Access expense.

32.6560 Depreciation and amortization

expenses.

6610. Marketing.

6611. Product management and sales

32.6613 Product advertising

32.6620 Services.

32.6720 General and administrative.

32.6790 Provision for uncollectible notes

receivable.

**Subpart F---Instructions for Other Income Accounts**

32.6999 General.

32.7099 Content of accounts.

32.7100 Other operating income and expenses.

32.7199 Content of accounts.

32.7200 Operating taxes.

32.7210 Operating investment tax credits -- net.

32.7220 Operating Federal income taxes.

32.7230 Operating state and local income taxes.

32.7240 Operating other taxes.

32.7250 Provision for deferred operating

income taxes -- net.

32.7299 Content of accounts.

32.7300 Nonoperating income and expense.

32.7399 Content of accounts.

32.7400 Nonoperating taxes.

32.7499 Content of accounts.

32.7500 Interest and related items.

32.7599 Content of accounts.

32.7600 Extraordinary items.

32.7899 Content of accounts.

32.7910 Income effect of jurisdictional

ratemaking differences -- net.

32.7990 Nonregulated net income.

#  Subpart G---Glossary {#subpart-gglossary .unnumbered}

32.9000 Glossary of terms.

Section 32.11 Classification of companies is revised to read as follows:

**§ 32.11 Classification of Companies.**

\(a\) For purposes of this section, the term "company" or "companies"
means incumbent local exchange carrier(s) as defined in section 251(h)
of the Communications Act, and any other carriers that the Commission
designates by Order.

\(b\) For accounting purposes, companies are divided into classes as
follows:

\(1\) Class A. Companies having annual revenues from regulated
telecommunications operations that are equal to or above the indexed
revenue threshold.

\(2\) Class B. Companies having annual revenues from regulated
telecommunications operations that are less than the indexed revenue
threshold.

\(c\) Class A companies, except mid-sized incumbent local exchange
carriers, as defined by § 32.9000, shall keep all the accounts of this
system of accounts which are applicable to their affairs and are
designated as Class A accounts. Class A companies, which include
mid-sized incumbent local exchange carriers, shall keep Basic Property
Records in compliance with the requirements of §§ 32.2000(e) and (f) of
this part.

\(d\) Class B companies and mid-sized incumbent local exchange carriers,
as defined by § 32.9000, shall keep all accounts of this system of
accounts which are applicable to their affairs and are designated as
Class B accounts. Mid-sized incumbent local exchange carriers shall also
maintain subsidiary record categories necessary to provide the pole
attachment data currently provided in the Class A accounts. Class B
companies shall keep Continuing Property Records in compliance with the
requirements of §§ 32.2000(e)(7)(A) and 32.2000(f) of this part.

\(e\) Class B companies and mid-sized incumbent local exchange carriers,
as defined by § 32.9000 of this part, that desire more detailed
accounting may adopt the accounts prescribed for Class A companies upon
the submission of a written notification to the Commission.

\(f\) The classification of a company shall be determined at the start
of the calendar year following the first time its annual operating
revenue from regulated telecommunications operations equals, exceeds, or
falls below the indexed revenue threshold.

Section 32.13 Accounts---general is amended by deleting paragraph (a)(1)
and redesignating paragraphs (a)(2) and (a)(3) as (a)(1) and (a)(2).

Section 32.14 Regulated accounts is amended by revising paragraph (e) to
read as follows:

**§32.14 Regulated accounts.**

\* \* \* \* \*

\(e\) All costs and revenues related to the offering of regulated
products and services which result from arrangements for joint
participation or apportionment between two or more telephone companies
(e.g., joint operating agreements, settlement agreements, cost-pooling
agreements) shall be recorded within the detailed accounts. Under joint
operating agreements, the creditor will initially charge the entire
expenses to the appropriate primary accounts. The proportion of such
expenses borne by the debtor shall be credited by the creditor and
charged by the debtor to the account initially charged. Any allowances
for return on property used will be accounted for as provided in Account
5200, Miscellaneous revenue.

> \* \* \* \* \*

Section 32.16 Changes in accounting standard is amended by revising
paragraph (a) to read as follows:

**§ 32.16 Changes in accounting standard.**

\(a\) The company\'s records and accounts shall be adjusted to apply new
accounting standards prescribed by the Financial Accounting Standards
Board or successor authoritative accounting standard-setting groups, in
a manner consistent with generally accepted accounting principles. The
change in an accounting standard will automatically take effect 90 days
after the company informs this Commission of its intention to follow the
new standard, unless the Commission notifies the company to the
contrary. Any change adopted shall be disclosed in annual reports
required by § 43.21(f) in the year of adoption.

\* \* \* \* \*

Section 32.24 Compensated absences is amended by revising paragraph (b)
to read as follows:

**§32.24 Compensated absences.**

\* \* \* \* \*

\(b\) With respect to the liability that exists for compensated absences
which is not yet recorded on the books as of the effective date of this
part, the liability shall be recorded in Account 4130, Other current
liabilities, with a corresponding entry to Account 1438, Deferred
maintenance, retirements and other deferred charges. This deferred
charge shall be amortized on a straight-line basis over a period of ten
years.

\* \* \* \* \*

Section 32.27 Transactions with affiliates is revised to read as
follows:

**§32.27 Transactions with affiliates.**

\(a\) Unless otherwise approved by the Chief, Common Carrier Bureau,
transactions with affiliates involving asset transfers into or out of
the regulated accounts shall be recorded by the carrier in its regulated
accounts as provided in paragraphs (b) through (f) of this section.

\(b\) Assets sold or transferred between a carrier and its affiliate
pursuant to a tariff, including a tariff filed with a state commission,
shall be recorded in the appropriate revenue accounts at the tariffed
rate. Non-tariffed assets sold or transferred between a carrier and its
affiliate that qualify for prevailing price valuation, as defined in
paragraph (d) of this section, shall be recorded at the prevailing
price. For all other assets sold by or transferred from a carrier to its
affiliate, the assets shall be recorded at no less than the higher of
fair market value and net book cost. For all other assets sold by or
transferred to a carrier from its affiliate, the assets shall be
recorded at no more than the lower of fair market value and net book
cost.

\(1\) *Floor*. When assets are sold by or transferred from a carrier to
an affiliate, the higher of fair market value and net book cost
establishes a floor, below which the transaction cannot be recorded.
Carriers may record the transaction at an amount equal to or greater
than the floor, so long as that action complies with the Communications
Act of 1934, as amended, Commission rules and orders, and is not
otherwise anti-competitive.

\(2\) *Ceiling*. When assets are purchased from or transferred from an
affiliate to a carrier, the lower of fair market value and net book cost
establishes a ceiling, above which the transaction cannot be recorded.
Carriers may record the transaction at an amount equal to or less than
the ceiling, so long as that action complies with the Communications Act
of 1934, as amended, Commission rules and orders, and is not otherwise
anti-competitive.

\(3\) *Threshold.* For purposes of this section carriers are required to
make a good faith determination of fair market value for an asset when
the total aggregate annual value of the asset(s) reaches or exceeds
\$500,000, per affiliate. When a carrier reaches or exceeds the
\$500,000 threshold for a particular asset for the first time, the
carrier must perform the market valuation and value the transaction on a
going-forward basis in accordance with the affiliate transactions rules
on a going -forward basis. When the total aggregate annual value of the
asset(s) does not reach or exceed \$500,000, the asset(s) shall be
recorded at net book cost.

\(c\) Services provided between a carrier and its affiliate pursuant to
a tariff, including a tariff filed with a state commission, shall be
recorded in the appropriate revenue accounts at the tariffed rate. Non-
tariffed services provided between a carrier and its affiliate pursuant
to publicly-filed agreements submitted to a state commission pursuant to
section 252(e) of the Communications Act of 1934 or statements of
generally available terms pursuant to section 252(f) shall be recorded
using the charges appearing in such publicly-filed agreements or
statements. Non-tariffed services provided between a carrier and its
affiliate that qualify for prevailing price valuation, as defined in
paragraph (d) of this section, shall be recorded at the prevailing
price. For all other services sold by or transferred from a carrier to
its affiliate, the services shall be recorded at no less than the higher
of fair market value and fully distributed cost. For all other services
sold by or transferred to a carrier from its affiliate, the services
shall be recorded at no more than the lower of fair market value and
fully distributed cost.

\(1\) *Floor*. When services are sold by or transferred from a carrier
to an affiliate, the higher of fair market value and fully distributed
cost establishes a floor, below which the transaction cannot be
recorded. Carriers may record the transaction at an amount equal to or
greater than the floor, so long as that action complies with the
Communications Act of 1934, as amended, Commission rules and orders, and
is not otherwise anti-competitive.

\(2\) *Ceiling*. When services are purchased from or transferred from an
affiliate to a carrier, the lower of fair market value and fully
distributed cost establishes a ceiling, above which the transaction
cannot be recorded. Carriers may record the transaction at an amount
equal to or less than the ceiling, so long as that action complies with
the Communications Act of 1934, as amended, Commission rules and orders,
and is not otherwise anti-competitive.

\(3\) *Threshold.* For purposes of this section, carriers are required
to make a good faith determination of fair market value for a service
when the total aggregate annual value of that service reaches or exceeds
\$500,000, per affiliate. When a carrier reaches or exceeds the
\$500,000 threshold for a particular service for the first time, the
carrier must perform the market valuation and value the transaction in
accordance with the affiliate transactions rules on a going-forward
basis. All services received by a carrier from its affiliate(s) that
exist solely to provide services to members of the carrier\'s corporate
family shall be recorded at fully distributed cost.

\(d\) In order to qualify for prevailing price valuation in paragraphs
(b) and (c) of this section, sales of a particular asset or service to
third parties must encompass greater than 25 percent of the total
quantity of such product or service sold by an entity. Carriers shall
apply this 25 percent threshold on an asset-by-asset and
service-by-service basis, rather than on a product-line or service-line
basis. In the case of transactions for assets and services subject to
section 272, a BOC may record such transactions at prevailing price
regardless of whether the 25 percent threshold has been satisfied.

\(e\) Income taxes shall be allocated among the regulated activities of
the carrier, its nonregulated divisions, and members of an affiliated
group. Under circumstances in which income taxes are determined on a
consolidated basis by the carrier and other members of the affiliated
group, the income tax expense to be recorded by the carrier shall be the
same as would result if determined for the carrier separately for all
time periods, except that the tax effect of carry-back and carry-forward
operating losses, investment tax credits, or other tax credits generated
by operations of the carrier shall be recorded by the carrier during the
period in which applied in settlement of the taxes otherwise
attributable to any member, or combination of members, of the affiliated
group.

\(f\) Companies that employ average schedules in lieu of actual costs
are exempt from the provisions of this section. For other organizations,
the principles set forth in this section shall apply equally to
corporations, proprietorships, partnerships and other forms of business
organizations.

Section 32.101 Structure of the balance sheet accounts is revised to
read as follows:

**§32.101 Structure of the balance sheet accounts.**

The Balance Sheet accounts shall be maintained as follows:

Account 1120, Cash and equivalents, through Account 1500, Other
jurisdictional assets\--net, shall include assets other than
regulated-fixed assets.

Account 2001, Telecommunications plant in service, through Account 2007,
Goodwill, shall include the regulated-fixed assets.

Account 3100, Accumulated depreciation through Account 3410, Accumulated
amortization---capitalized leases, shall include the asset reserves
except that reserves related to certain asset accounts will be included
in the asset account. (See §§ 32.2005, 32.2682 and 32.2690.)

Account 4000, Current accounts and notes payable, through Account 4550,
Retained earnings, shall include all liabilities and stockholders
equity.

Section 32.103 Balance sheet accounts for other than regulated-fixed
assets to be maintained is revised as follows:

**§ 32.103 Balance sheet accounts for other than regulated-fixed assets
to be maintained.**

BALANCE SHEET ACCOUNTS

  ---------------------------------- ------------------ ------------------
  Account Title                      Class A account    Class B account

  Current Assets                                        

  Cash and equivalents               1120               1120

  Receivables                        1170               1170

  Allowance for doubtful accounts    1171               1171

  Supplies:                                             

  Material and supplies              1220               1220

  Prepayments                        1280               1280

  Other current assets               1350               1350

  Noncurrent Assets                                     

  Investments:                                          

  Nonregulated investments           1406               1406

  Other noncurrent assets            1410               1410

  Deferred charges:                                     

  Deferred maintenance, retirements  1438               1438
  and other deferred charges                            

  Other:                                                

  Other jurisdictional assets-net    1500               1500
  ---------------------------------- ------------------ ------------------

Section 32.1120 Cash and equivalents is revised to read as follows:

**§ 32.1120 Cash and equivalents.**

\(a\) This account shall include the amount of current funds available
for use on demand in the hands of financial officers and agents,
deposited in banks or other financial institutions and also funds in
transit for which agents have received credit.

> \(b\) This account shall include the amount of cash on special
> deposit, other than in sinking and other special funds provided for
> elsewhere, to pay dividends, interest, and other debts, when such
> payments are due one year or less from the date of deposit; the amount
> of cash deposited to insure the performance of contracts to be
> performed within one year from date of the deposit; and other cash
> deposits of a special nature not provided for elsewhere. This account
> shall include the amount of cash deposited with trustees to be held
> until mortgaged property sold, destroyed, or otherwise disposed of is
> replaced, and also cash realized from the sale of the company\'s
> securities and deposited with trustees to be held until invested in
> physical property of the company or for disbursement when the purposes
> for which the securities were sold are accomplished.
>
> \(c\) Cash on special deposit to be held for more than one year from
> the date of deposit shall be included in Account 1410, Other
> noncurrent assets.

\(d\) This account shall include the amount of cash advanced to
officers, agents, employees, and others as petty cash or working funds
from which expenditures are to be made and accounted for.

> \(e\) This account shall include the cost of current securities
> acquired for the purpose of temporarily investing cash, such as time
> drafts receivable and time loans, bankers\' acceptances, United States
> Treasury certificates, marketable securities, and other similar
> investments of a temporary character.
>
> \(f\) Accumulated changes in the net unrealized losses of current
> marketable equity securities shall be included in the determination of
> net income in the period in which they occur in Account 7300, Other
> Nonoperating Income and Expense.

\(g\) Subsidiary record categories shall be maintained in order that the
entity may separately report the amounts of temporary investments that
relate to affiliates and nonaffiliates. Such subsidiary record
categories shall be reported as required by part 43 of this
Commission\'s Rules and Regulations.

Section 32.1130 Cash is deleted.

Section 32.1140 Special cash deposits is deleted.

Section 32.1150 Working cash advances is deleted.

Section 32.1160 Temporary investments is deleted.

Section 32.1170 Receivables is added to read as follows:

**§ 32.1170 Receivables.**

\(a\) This account shall include all amounts due from customers for
services rendered or billed and from agents and collectors authorized to
make collections from customers. This account shall also include all
amounts due from customers or agents for products sold. This account
shall be kept in such manner as will enable the company to make the
following analysis:

\(1\) Amounts due from customers who are receiving telecommunications
service.

\(2\) Amounts due from customers who are not receiving service and whose
accounts are in process of collection.

\(b\) Collections in excess of amounts charged to this account may be
credited to and carried in this account until applied against charges
for services rendered or until refunded.

> \(c\) Cost of demand or time notes, bills and drafts receivable, or
> other similar evidences (except interest coupons) of money receivable
> on demand or within a time not exceeding one year from date of issue.

\(d\) Amount of interest accrued to the date of the balance sheet on
bonds, notes, and other commercial paper owned, on loans made, and the
amount of dividends receivable on stocks owned.

\(e\) This account shall not include dividends or other returns on
securities issued or assumed by the company and held by or for it,
whether pledged as collateral, or held in its treasury, in special
deposits, or in sinking and other funds.

\(f\) Dividends received and receivable from affiliated companies
accounted for on the equity method shall be included in Account 1410,
Other noncurrent assets, as a reduction of the carrying value of the
investment.

\(g\) This account shall include all amounts currently due, and not
provided for in (a)-(g) above such as those for traffic settlements,
divisions of revenue, material and supplies, matured rents, and interest
receivable under monthly settlements on short-term loans, advances, and
open accounts. If any of these items are not to be paid currently, they
shall be transferred to Account 1410, Other noncurrent assets.

\(h\) Subsidiary record categories shall be maintained in order that the
entity may separately report the amounts contained herein that relate to
affiliates and nonaffiliates. Such subsidiary record categories shall be
reported as required by part 43 of this Commission\'s Rules and
Regulations.

Section 32.1171 Allowance for doubtful accounts is added to read as
follows:

**§ 32.1171 Allowance for doubtful accounts.**

\(a\) This account shall be credited with amounts charged to Accounts
5300, Uncollectible revenue, and 6790, Provision for uncollectible notes
receivable to provide for uncollectible amounts related to accounts
receivable and notes receivable included in Account 1170, Receivables.
There shall also be credited to this account amounts collected which
previously had been written off through charges to this account and
credits to Account 1170. There shall be charged to this account any
amounts covered thereby which have been found to be impracticable of
collection.

\(b\) If no such allowance is maintained, uncollectible amounts shall be
charged directly to Account 5300, Uncollectible revenue or directly to
Account 6790, Provision for uncollectible notes receivable, as
appropriate.

\(c\) Subsidiary record categories shall be maintained in order that the
entity may separately report the amounts contained herein that relate to
affiliates and nonaffiliates. Such subsidiary record categories shall be
reported as required by part 43 of this Commission\'s Rules and
Regulations.

Section 32.1180 Telecommunications accounts receivable is deleted.

Section 32.1181 Accounts receivable allowance---telecommunications is
deleted

Section 32.1190 Other accounts receivable is deleted.

Section 32.1191 Accounts receivable allowance---other is deleted.

Section 32.1200 Notes receivable is deleted.

Section 32.1201 Notes receivable allowance is deleted.

Section 32.1210 Interest and dividends receivable is deleted.

Section 32.1220 Inventories is amended by revising paragraphs (g) and
(h) to read as follows:

§ 32.1220 Inventories.

\* \* \* \* \*

\(g\) Interest paid on material bills, the payments of which are
delayed, shall be charged to Account 7500, Interest and related items.

\(h\) Inventories of material and supplies shall be taken periodically
or frequently enough for reporting purposes, as appropriate, in
accordance with generally accepted accounting principles. The
adjustments to this account shall be charged or credited to Account
6512, Provisioning expense.

\* \* \* \* \*

Section 32.1280 Prepayments is revised to read as follows:

**§ 32.1280 Prepayments.**

\(a\) This account shall include:

\(1\) The amounts of rents paid in advance of the period in which they
are chargeable to income, except amounts chargeable to
telecommunications plant under construction and minor amounts which may
be charged directly to the final accounts. As the term expires for which
the rents are paid, this account shall be credited monthly and the
appropriate account charged.

\(2\) The balance of all taxes, other than amounts chargeable to
telecommunication plant under construction and minor amounts which may
be charged to the final accounts, paid in advance and which are
chargeable to income within one year. As the term expires for which the
taxes are paid, this account shall be credited monthly and the
appropriate account charged.

\(3\) The amount of insurance premiums paid in advance of the period in
which they are chargeable to income, except premiums chargeable to
telecommunications plant under construction and minor amounts which may
be charged directly to the final accounts. As the term expires for which
the premiums are paid, this account shall be credited monthly and the
appropriate account charged.

\(4\) The cost of preparing, printing, binding, and delivering
directories and the cost of soliciting advertisements for directories,
except minor amounts which may be charged directly to Account 6620,
Services. Amounts in this account shall be cleared to Account 6620 by
monthly charges representing that portion of the expenses applicable to
each month.

\(5\) Other prepayments not included in (1)-(4) above except for minor
amounts which may be charged directly to the final accounts. As the term
expires for which the payments apply, this account shall be credited
monthly and the appropriate account charged.

Section 32.1290 Prepaid rents is deleted.

Section 32.1300 Prepaid taxes is deleted.

Section 32.1310 Prepaid insurance is deleted.

Section 32.1320 Prepaid directory expenses is deleted.

Section 32.1330 Other prepayments is deleted.

Section 32.1350 Other current assets is revised to read as follows:

**§ 32.1350 Other current assets.**

This account shall include the amount of all current assets which are
not includable in Accounts 1120 through 1280.

Section 32.1401 Investments in affiliated companies is deleted.

Section 321402 Investments in nonaffiliated companies is deleted.

Section 32.1406 Nonregulated investments is amended by deleting
paragraph (b).

Section 32.1407 Unamortized debt issuance expense is deleted.

Section 32.1408 Sinking funds is deleted.

Section 32.1410 Other noncurrent assets is revised to read as follows:

**§32.1410 Other noncurrent assets.**

\(a\) This account shall include the acquisition cost of the company\'s
investment in equity or other securities issued or assumed by affiliated
companies, including securities held in special funds (sinking funds).
The carrying value of the investment (securities) accounted for on the
equity method shall be adjusted to recognize the company\'s share of the
earnings or losses and dividends received or receivable of the
affiliated company from the date of acquisition. (Note also Account
1170, Receivables, and Account 7300, Nonoperating income and expense.)

> \(b\) This account shall include the acquisition cost of the
> Company\'s investment in securities issued or assumed by nonaffiliated
> companies and individuals, and also its investment advances to such
> parties and special deposits of cash for more than one year from date
> of deposit.

\(c\) Declines in value of investments, including those accounted for
under the cost method, shall be charged to Account 4540, Other capital,
if temporary and as a current period loss if permanent. Detail records
shall be maintained to reflect unrealized losses for each investment.

\(d\) This account shall also include advances represented by book
accounts only with respect to which it is agreed or intended that they
shall be either settled by issuance of capital stock or debt; or shall
not be subject to current cost settlement.

\(e\) Amounts due from affiliated and nonaffiliated companies which are
subject to current settlement shall be included in Account 1170,
Receivables.

\(f\) This account shall include the total unamortized balance of debt
issuance expense for all classes of outstanding long-term debt. Amounts
included in this account shall be amortized monthly and charged to
account 7500, Interest and related items.

> \(g\) Debt Issuance expense includes all expenses in connection with
> the issuance and sale of evidence of debt, such as fees for drafting
> mortgages and trust deeds; fees and taxes for issuing or recording
> evidences of debt; costs of engraving and printing bonds, certificates
> of indebtedness, and other commercial paper; fees paid trustees;
> specific costs of obtaining governmental authority; fees for legal
> services; fees and commissions paid underwriters, brokers, and
> salesmen; fees and expenses of listing on exchanges, and other like
> costs. A subsidiary record shall be kept of each issue outstanding.

\(h\) This account shall include the amount of cash and other assets
which are held by trustees or by the company\'s treasurer in a distinct
fund, for the purpose of redeeming outstanding obligations. Interest or
other income arising from funds carried in this account shall generally
be charged to this account. A subsidiary record shall be kept for each
sinking fund which shall designate the obligation in support of which
the fund was created.

\(i\) This account shall include the amount of all noncurrent assets
which are not includable in (a)-(h) above.

> \(j\) A subsidiary record shall be kept identifying separately common
> stocks, preferred stocks, long-term debt, advances to affiliates, and
> investment advances. A subsidiary record shall also be kept
> identifying special deposits of cash for more than one year from the
> date of deposit. Further, the company\'s record shall identify the
> securities pledged as collateral for any of the company\'s long-term
> debt or short- term loans or to secure performance of contracts.

\(k\) Subsidiary record categories shall be maintained in order that the
entity may separately report the amounts contained herein that relate to
the equity method and the cost method. Such subsidiary record categories
shall be reported as required by part 43 of this Commission\'s Rules and
Regulations.

Section 32.1437 Deferred tax regulatory assets is deleted.

Section 32.1438 Deferred maintenance and retirements is renamed and
revised to read as follows:

**§32.1438 Deferred maintenance, retirements and other deferred
charges.**

> \(a\) This account shall include such items as:
>
> \(1\) The unprovided-for loss in service value of telecommunications
> plant for extraordinary nonrecurring retirement not considered in
> depreciation and the cost of extensive replacements of plant normally
> chargeable to the current period Plant Specific Operations Expense
> accounts. These charges shall be included in this account only upon
> direction or approval from this Commission. However, the company\'s
> application to this Commission for such approval shall give full
> particulars concerning the property retired, the extensive
> replacements, the amount chargeable to operating expenses and the
> period over which in its judgment the amount of such charges should be
> distributed.

\(2\) Unaudited amounts and other debit balances in suspense that cannot
be cleared and disposed of until additional information is received; the
amount, pending determination of loss, of funds on deposit with banks
which have failed; revenue, expense, and income items held in suspense;
amounts paid for options pending final disposition.

\(3\) Cost of preliminary surveys, plans, investigation, etc., made for
construction projects under contemplation. If the projects are carried
out, the preliminary costs shall be included in the cost of the plant
constructed. If the projects are abandoned, the preliminary costs shall
be charged to Account 7300, Nonoperating income and expense.

\(4\) Cost of evaluations, inventories, and appraisals taken in
connection with the acquisition or sale of property. If the property is
subsequently acquired, the preliminary costs shall be accounted for as a
part of the cost of acquisition, or if it is sold, such costs shall be
deducted from the sale price in accounting for the property sold. If
purchases or sales are abandoned, the preliminary costs included herein
(including options paid, if any) shall be charged to Account 7300.

Section 32.1439 Deferred charges is deleted.

Section 32.2000 Instructions for telecommunications plant accounts is
amended by revising paragraphs (a)(2), (a)(4), (b)(2)(i), (b)(2)(iii),
(b)(2)(iv), (c)(2)(x), (c)(2)(xiii), (d)(2)(i), (d)(4), (d)(5),
(f)(3)(i), (g)(3), (g)(5), (h)(3), and (j) as follows:

**§ 32.2000 Instructions for telecommunications plant accounts.**

> \(a\) \* \* \*
>
> \(2\) The telecommunications plant accounts shall not include the cost
> or other value of telecommunications plant contributed to the company.
> Contributions in the form of money or its equivalent toward the
> construction of telecommunications plant shall be credited to the
> accounts charged with the cost of such construction. Amounts of non-
> recurring reimbursements based on the cost of plant or equipment
> furnished in rendering service to a customer shall be credited to the
> accounts charged with the cost of the plant or equipment. Amounts
> received for construction which are ultimately to be repaid wholly or
> in part, shall be credited to Account 4300, Other long-term
> liabilities and deferred credits; when final determination has been
> made as to the amount to be returned, any unrefunded amounts shall be
> credited to the accounts charged with the cost of such construction.
> Amounts received for the construction of plant, the ownership of which
> rests with or will revert to others, shall be credited to the accounts
> charged with the cost of such construction. (Note also Account 7100,
> Other operating income and expense.)
>
> \(3\) \* \* \*
>
> \(4\) The cost of the individual items of equipment, classifiable to
> Accounts 2112, Motor vehicles; 2113, Aircraft; 2114, Tools and other
> work equipment; 2122, Furniture; 2123, Office equipment; 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, shall be charged to the applicable Plant
> Specific Operations Expense accounts. The cost of tools and test
> equipment located in the central office, classifiable to central
> office asset accounts 2210-2232 costing \$2000 or less or having a
> life of less than one year shall be charged to the applicable Plant
> Specific Operations Expense accounts. If the aggregate investment in
> the items is relatively large at the time of acquisition, such amounts
> shall be maintained in an applicable material and supplies account
> until items are used.
>
> \(b\) \* \* \*
>
> \(2\) \* \* \*
>
> \(i\) The amount of money paid (or current money value of any
> consideration other than money exchanged) for the property (together
> with preliminary expenses incurred in connection the acquisition)
> shall be charged to Account 1438, Deferred maintenance, retirements,
> and other deferred charges.
>
> \(ii\) \* \* \*

\(iii\) Accumulated Depreciation and amortization balances related to
plant acquired shall be credited to Account 3100, Accumulated
depreciation, or Account 3200, Accumulated depreciation\--held for
future telecommunications use, or Account 3410, Accumulated
amortization\-- capitalized leases and debited to Account 1438.
Accumulated amortization balances related to plant acquired which
ultimately is recorded in Accounts 2005, Telecommunications plant
adjustment, Account 2682, Leasehold improvements, or Account 2690,
Intangibles shall be credited to these asset accounts, and debited to
Account 1438.

\(iv\) Any amount remaining in Account 1438, applicable to the plant
acquired, shall, upon completion of the entries provided in paragraphs
(b)(2) (i), (ii) and (iii) of this section, be debited or credited, as
applicable, to Account 2007, Goodwill, or to Account 2005,
Telecommunications plant adjustment, as appropriate.

> \(3\) \* \* \*
>
> \(c\) \*\* \*
>
> \(2\) \* \* \*

\(x\) Allowance for funds used during construction (\"AFUDC\"\')
provides for the cost of financing the construction of
telecommunications plant. AFUDC shall be charged to Account 2003,
Telecommunications plant under construction, and credited to Account
7300, Nonoperating income and expense. The rate for calculating AFUDC
shall be determined as follows: If financing plans associate a specific
new borrowing with an asset, the rate on that borrowing may be used for
the asset; if no specific new borrowing is associated with an asset or
if the average accumulated expenditures for the asset exceed the amounts
of specific new borrowing associated with it, the capitalization rate to
be applied to such excess shall be the weighted average of the rates
applicable to other borrowings of the enterprise. The amount of interest
cost capitalized in an accounting period shall not exceed the total
amount of interest cost incurred by the company in that period.

\(xi\) \* \* \*

\(xiii\) "Indirect construction costs" shall include indirect costs such
as general engineering, supervision and support. Such costs, in addition
to direct supervision, shall include indirect plant operations and
engineering supervision up to, but not including, supervision by
executive officers whose pay and expenses are chargeable to Account
6720, General and administrative. The records supporting the entries for
indirect construction costs shall be kept so as to show the nature of
the expenditures, the individual jobs and accounts charged, and the
bases of the distribution. The amounts charged to each plant account for
indirect costs shall be readily determinable. The instructions contained
herein shall not be interpreted as permitting the addition to plant of
amounts to cover indirect costs based on arbitrary allocations.

\(xiv\) \* \* \*

\(d\) \* \* \*

> \(2\) \* \* \*

\(i\) Retirement units: This group includes major items of property, a
representative list of which shall be prescribed by this Commission. In
lieu of the retirement units prescribed with respect to a particular
account, a company may, after obtaining specific approval by this
Commission, establish and maintain its own list of retirement units for
a portion or all of the plant in any such account. For items included on
the retirement units list, the original cost of any such items retired
shall be credited to the plant account and charged to Account 3100
Accumulated Depreciation, whether or not replaced. The original cost of
retirement units installed in place of property retired shall be charged
to the applicable telecommunications plant account.

\(ii\) \* \* \*

> \(4\) The accounting for the retirement of property, plant and
> equipment shall be as provided above except that amounts in Account
> 2111, Land, and amounts for works of art recorded in Account 2122,
> Furniture, shall be treated at disposition as a gain or loss and shall
> be credited or debited to Account 7100, Other operating income and
> expense, as applicable. If land or artwork is retained by the company
> and held for sale, the cost shall be charged to Account 2006,
> Nonoperating plant.

\(5\) When the telecommunications plant is sold together with traffic
associated therewith, the original cost of the property shall be
credited to the applicable plant accounts and the estimated amounts
carried with respect thereto in the accumulated depreciation and
amortization accounts shall be charged to such accumulated accounts. The
difference, if any, between the net amount of such debit and credit
items and the consideration received (less commissions and other
expenses of making the sale) for the property shall be included in
Account 7300, Nonoperating income and expense. The accounting for
depreciable telecommunications plant sold without the traffic associated
therewith shall be in accordance with the accounting provided in §
32.3100(c) of this subpart.

> \(e\) \* \* \*
>
> \(f\) \* \* \*
>
> \(3\) \* \* \*
>
> \(i\) Unit identification. Cost shall be identified and maintained by
> specific location for property record units contained within certain
> regulated plant accounts or account groupings such as Land, Buildings,
> Central Office Assets, Motor Vehicles, garage work equipment included
> in Account 2114, Tools and other work equipment, and Furniture. In
> addition, units involved in any unusual or special type of
> construction shall be recorded by their specific location costs (note
> also § 32.2000(f)(3)(ii)(B) of this subpart.
>
> \(ii\) \* \* \*
>
> \(g\) \* \* \*

\(3\) Acquired depreciable plant. When acquired depreciable plant
carried in Account 1438, Deferred maintenance, retirements and other
deferred charges, is distributed to the appropriate plant accounts,
adjusting entries shall be made covering the depreciation charges
applicable to such plant for the period during which it was carried in
Account 1438.

> \(4\) \* \* \*
>
> \(5\) Upon direction or approval from this Commission, the company
> shall credit Account 3100, Accumulated depreciation, and charge
> Account 1438, Deferred maintenance**,** retirements and other deferred
> charges, with the unprovided-for loss in service value. Such amounts
> shall be distributed from Account 1438 to Account 6560, Depreciation
> and amortization expense over such period as this Commission may
> direct or approve.

\(h\) \* \* \*

> \(3\) Amortization charges shall be made monthly to the appropriate
> amortization expense accounts and corresponding credits shall be made
> to accounts 2005, 2682, 2690, and 3410, as appropriate. Monthly
> charges shall be computed by the application of one-twelfth to the
> annual amortization amount.
>
> \(4\) \* \* \*
>
> \(j\) Plant Accounts to be Maintained by Class A and Class B telephone
> companies as indicated:

  ------------------------- ----------------------- -----------------------
  Account Title             Class A Account         Class B Account

  Regulated Plant                                   

  Property, plant and                               
  Equipment:                                        

  Telecommunications plant  \(1\) 2001              \(1\) 2001
  in service                                        

  Property held for future  2002                    2002
  telecommunications use                            

  Telecommunications plant  2003                    2003
  under construction-short                          
  term                                              

  Telecommunications plant  2005                    2005
  adjustment                                        

  Nonoperating plant        2006                    2006

  Goodwill                  2007                    2007

  TELECOMMUNICATIONS PLANT                          
  IN SERVICE (TPIS)                                 

  TPIS-General support                              
  assets:                                           

  Land and support assets   .....                   2110

  Land                      2111                    .....

  Motor vehicles            2112                    .....

  Aircraft                  2113                    .....

  Tools and other work      2114                    .....
  equipment                                         

  Buildings                 2121                    .....

  Furniture                 2122                    .....

  Office equipment          2123                    .....

  General purpose computers 2124                    .....

  TPIS-Central Office                               
  assets:                                           

  Central Office-Switching  .....                   2210

  Non-digital switching     2211                    .....

  Digital electronic        2212                    .....
  switching                                         

  Operator systems          2220                    2220

  Central                   .....                   2230
  Office-Transmission                               

  Radio systems             2231                    .....

  Circuit equipment         2232                    .....

  TPIS-Information                                  
  origination/termination                           
  assets:                                           

  Information origination   .....                   2310
  termination                                       

  Station apparatus         2311                    .....

  Customer premises wiring  2321                    ......

  Large private branch      2341                    ...
  exchanges                                         

  Public telephone terminal 2351                    ......
  equipment                                         

  Other terminal equipment  2362                    .....

  TPIS-Cable and wire                               
  facilities assets:                                

  Cable and wire facilities .....                   2410

  Poles                     2411                    .....

  Aerial cable              2421                    .....

  Underground cable         2422                    .....

  Buried cable              2423                    .....

  Submarine and deep sea    2424                    .....
  cable                                             

  Intrabuilding network     2426                    ......
  cable                                             

  Aerial wire               2431                    .....

  Conduit systems           2441                    ......

  TPIS-Amortizable assets:                          

  Amortizable tangible      .....                   2680
  assets                                            

  Capital leases            2681                    .....

  Leasehold improvements    2682                    .....

  Intangibles               2690                    2690
  ------------------------- ----------------------- -----------------------

> \(1\) Balance sheet summary account only.

Section 32.2003 Telecommunications plant under construction is amended
by revising paragraph (c) to read as follows:

**§ 32.2003 Telecommunications plant under construction.**

> \* \* \* \* \*
>
> \(c\) If a construction project has been suspended for six months or
> more, the cost of the project included in this account may remain in
> this account so long as the carrier excludes the original cost and
> associated depreciation from its ratebase and ratemaking
> considerations and reports those amounts in reports filed with the
> Commission pursuant to 43.21(e)(1) and 43.21(e)(2) of this chapter. If
> a project is abandoned, the cost included in this account shall be
> charged to Account 7300, Nonoperating income and expense.
>
> \* \* \* \* \*

Section 32.2005 Telecommunications plant adjustment is amended by
revising subparagraphs (1), (2), ( 3), and (4) of paragraph (b) to read
as follows:

**§ 32.2005 Telecommunications plant adjustment.**

> \* \* \* \* \*
>
> \(b\) \* \* \*

\(1\) Debit amounts may be charged in whole or in part, or amortized
over a reasonable period through charges to Account 7300, Nonoperating
income and expense, without further direction or approval by this
Commission. When specifically approved by this Commission, or when the
provisions of paragraph (b)(3) of this section apply, debit amounts
shall be amortized to Account 6560, Depreciation and amortization
expense.

\(2\) Credit amounts shall be disposed of in such manner as this
Commission may approve or direct, except for credit amounts referred to
in paragraph (b)(4) of this section.

\(3\) The amortization associated with the costs recorded in the
Telecommunications plant adjustment account will be charged or credited,
as appropriate, directly to this asset account, leaving a balance
representing the unamortized cost.

\(4\) Within one year from the date of inclusion in this account of a
debit or credit amount with respect to a current acquisition, the
company may dispose of the total amount from an acquisition of telephone
plant by a lump-sum charge or credit, as appropriate, to Account 6560
without further approval of this Commission, provided that such amount
does not exceed \$100,000 and that the plant was not acquired from an
affiliated company.

Section 32.2007 Goodwill is amended by revising paragraph (a) to read as
follows:

**§ 32.2007 Goodwill.**

\(a\) This account shall include any portion of the plant purchase price
that cannot be assigned to specifically identifiable property acquired
and such amount should be identified as "goodwill". Such amounts
included in this account shall be amortized to

Account 7300, Nonoperating income and expense, on a straight line basis
over the remaining life of the acquired plant, not to exceed 40 years.

\* \* \* \* \*

Section 32.2111 Land is amended by revising paragraphs (f) and (g) to
read as follows:

**§ 32.2111 Land.**

\* \* \* \* \*

\(f\) Installments of assessments for public improvement, including
interest, if any, which are deferred without option to the company shall
be included in this account only as they become due and payable.
Interest on assessments which are not paid when due shall be included in
Account 7500, Interest and related items.

\(g\) When land is purchased for immediate use in a construction
project, its cost shall be included in Account 2003, Telecommunications
plant under construction, until such time as the project involved is
completed and ready for service.

\* \* \* \* \*

Section 32.2123 Office equipment is amended by deleting paragraph (b).

Section 32.2210 Central office---switching is revised to read as
follows:

**§ 32.2210 Central office---switching.**

This account shall be used by Class B companies to record the original
cost of switching assets of the type and character required of Class A
companies in Accounts 2211 through 2212.

Section 32.2211 Analog electronic switching is renamed and paragraph (a)
is revised to read as follows:

**§ 32.2211 Non-digital switching.**

\(a\) This account shall include:

\(1\) Original cost of stored program control analog circuit-switching
and associated equipment.

\(2\) Cost of remote analog electronic circuit switches.

\(3\) Original cost of non-electronic circuit-switching equipment such
as Step-by-Step, Crossbar, and Other Electro-Mechanical Switching.

\* \* \* \* \*

Section 32.2212 Digital electronic switching is amended by revising
paragraph (a), redesignating paragraph (b) as paragraph (e), and adding
new paragraphs (b), (c), (d) as follows:

**§ 32.2212 Digital electronic switching.**

\(a\) This account shall include the original cost of stored program
control digital switches and their associated equipment. Included in
this account are digital switches which utilize either dedicated or non-
dedicated circuits. This account shall also include the cost of remote
digital electronic switches. The investment in digital electronic
switching equipment shall be maintained in the following subaccounts:

1.  Circuit

2.  Packet

\(b\) *2212.1 Circuit.* This subaccount shall include the original cost
of digital electronic switching equipment used to provide circuit
switching. Circuit switching is a method of routing traffic through a
switching center, from local users or from other switching centers,
whereby a connection is established between the calling and called
stations until the connection is released by the called or calling
station.

\(c\) *2212.2 Packet.* This subaccount shall include the original cost
of digital electronic switching equipment used to provide packet
switching. Packet switching is the process of routing and transferring
information by means of addressed packets so that a channel is occupied
during the transmission of the packet only, and upon completion of the
transmission the channel is made available for the transfer of other
traffic.

\(d\) Digital electronic switching equipment used to provide both
circuit and packet switching shall be recorded in the above subaccounts
based upon its predominant use.

\(e\) Switching plant excludes switchboards which perform an operator
assistance function and equipment which is an integral part thereof. It
does not exclude equipment used solely for the recording of calling
telephone numbers in connection with customer dialed charged traffic,
dial tandem switchboards and special service switchboards used in
conjunction with private line service; such equipment shall be
classified to the particular switch that it serves.

Section 32.2215 Electro-mechanical switching is deleted.

Section 32.2231 Radio systems is revised to read as follows:

**§ 32.2231 Radio systems.**

\(a\) This account shall include the original cost of ownership of radio
transmitters and receivers. This account shall include the original cost
of ownership interest in satellites (including land-side spares), other
spare parts, material and supplies. It shall include launch insurance
and other satellite launch costs. This account shall also include the
original cost of earth stations and spare parts, material or supplies
therefor.

\(b\) This account shall also include the original cost of radio
equipment used to provide radio communication channels. Radio equipment
is that equipment which is used for the generation, amplification,
propagation, reception, modulation, and demodulation of radio waves in
free space over which communication channels can be provided. This
account shall also include the associated carrier and auxiliary
equipment and patch bay equipment which is an integral part of the radio
equipment. Such equipment may be located in central office building,
terminal room, or repeater stations or may be mounted on towers, masts,
or other supports.

Section 32.2232 Circuit equipment is amended by revising paragraphs (a)
and (b), redesignating paragraphs (b) and (c) as (e) and (f), and adding
new paragraphs (b), (c), and (d) as follows:

**§ 32.2232 Circuit equipment.**

\(a\) This account shall include the original cost of equipment which is
used to reduce the number of physical pairs otherwise required to serve
a given number of subscribers by utilizing carrier systems,
concentration stages or combinations of both. It shall include equipment
that provides for simultaneous use of a number of interoffice channels
on a single transmission path. This account shall also include equipment
which is used for the amplification, modulation, regeneration, circuit
patching, balancing or control of signals transmitted over interoffice
communications transmission channels. This account shall include
equipment which utilizes the message path to carry signaling information
or which utilizes separate channels between switching offices to
transmit signaling information independent of the subscribers\'
communication paths or transmission channels. This account shall also
include the original cost of associated material used in the
construction of such plant. Circuit equipment may be located in central
offices, in manholes, on poles, in cabinets or huts, or at other company
locations. The investment in circuit equipment shall be maintained in
the following subaccounts:

2232.1 Electronic

2232.2 Optical

\(b\) *2232.1 Electronic*. This subaccount shall include the original
cost of electronic circuit equipment.

\(c\) *2232.2 Optical*. This subaccount shall include the original cost
of optical circuit equipment.

\(d\) Circuit equipment that converts electronic signals to optical
signals or optical signals to electronic signals shall be categorized as
electronic.

\(e\) This account excludes carrier and auxiliary equipment and patch
bays which are includable in Account 2231, Radio Systems. This account
also excludes such equipment which is an integral component of a major
unit which is classifiable to other accounts.

\(f\) Subsidiary record categories shall be maintained in order that the
company may separately report the amounts contained herein that relate
to digital and analog. Such subsidiary record categories shall be
reported as required by part 43 of this Commission\'s Rules and
Regulations.

Section 32.2311 Station apparatus is amended by revising paragraph (f)
as follows:

**§ 32.2311 Station apparatus.**

\* \* \* \* \*

\(f\) Periodic asset verification, as prescribed by generally accepted
accounting principles, shall be taken of all station apparatus in stock
that are included in this account. The number of such station apparatus
items as determined by this verification 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 adjustments between this
account and Account 3100 shall be made for all station apparatus
included in this account.

\* \* \* \* \*

Section 32.2424 Submarine cable is renamed and paragraph (a) is revised
to read as follows:

**§ 32.2424 Submarine & deep sea cable.**

\(a\) This account shall include the original cost of submarine cable
and deep sea cable and other material used in the construction of such
plant. Subsidiary record categories, as defined below, are to be
maintained for nonmetallic submarine and deep sea cable and metallic
submarine and deep sea cable.

\* \* \* \* \*

Section 32.2425 Deep sea cable is deleted.

Section 32.2682 Leasehold improvements is amended to revise paragraph
(c) as follows:

**§ 32.2682 Leasehold improvements.**

\* \* \* \* \*

\(c\) Amounts contained in this account shall be amortized over the term
of the related lease. The amortization associated with the costs
recorded in the Leasehold improvement account will be credited directly
to this asset account, leaving a balance representing the unamortized
cost.

Section 32.2690 Intangibles is amended to read as follows:

**§ 32.2690 Intangibles.**

\(a\) This account shall include the cost of organizing and
incorporating the company, the original cost of government franchises,
the original cost of patent rights, and other intangible property having
a life of more than one year and used in connection with the company\'s
telecommunications operations.

\(b\) Class A companies, except mid-sized incumbent local exchange
carriers, shall maintain subsidiary records for general purpose computer
software and for network software. Subsidiary records for this account
shall also include a description of each class of all other tangible
property.

\(c\) The cost of other intangible assets, not including software,
having a life of one year or less shall be charged directly to Account
6560, Depreciation and Amortization Expense. Such intangibles acquired
at small cost may also be charged to Account 6560, irrespective of their
term of life. The cost of software having a life of one year or less
shall be charged directly to the applicable expense account with which
the software is associated.

\(d\) The amortization associated with the costs recorded in the
Intangibles account will be credited directly to this asset account,
leaving a balance representing the unamortized cost.

\(e\) This account shall not include any discounts on securities issued,
nor shall it include costs incident to negotiating loans, selling bonds
or other evidences of debt, or expenses in connection with the
authorization, issuance, sale or resale of capital stock.

\(f\) When charges are made to this account for expenses incurred in
mergers, consolidations, or reorganizations, amounts previously included
in this account on the books of the various companies concerned shall
not be carried over.

\(g\) Franchise taxes payable annually or more frequently shall be
charged to Account 7240, Operating other taxes.

\(h\) This account shall not include the cost of plant, material and
supplies, or equipment furnished to municipalities or other governmental
authorities when given other than as initial consideration for
franchises or similar rights. (Note also Account 6720, General &
administrative.).

> \(i\) This account shall not include the original cost of easements,
> rights of way, and similar rights in land having a term of more than
> one year. Such amounts shall be recorded in Account 2111, Land, or in
> the appropriate outside plant account (see Accounts 2411 through
> 2441), or in the appropriate central office account (see Accounts 2211
> through 2232).

Section 32.3000 Instructions for balance sheet accounts---Depreciation
and amortization is amended to read as follows:

**§ 32.3000 Instructions for balance sheet accounts---Depreciation and
amortization.**

(a) \* \* \*

> \(2\) Subsidiary records shall be maintained for Accounts 2005, 2682,
> 2690, and 3410 in accordance with § 32.2000(h)(4) of this subpart.

\(b\) Depreciation and Amortization Accounts to be Maintained by Class A
and Class B telephone companies, as indicated

  --------------------------- ----------------------- -----------------------
  Account title               Class A account         Class B account

  Depreciation and                                    
  amortization:                                       

  Accumulated depreciation    3100                    3100

  Accumulated                 3200                    3200
  depreciation-Held for                               
  future telecommunications                           
  use                                                 

  Accumulated                 3300                    3300
  depreciation-Nonoperating                           

  Accumulated                 3410                    3410
  amortization-Capitalized                            
  leases                                              
  --------------------------- ----------------------- -----------------------

Section 32.3100 Accumulated depreciation is amended by revising
paragraph (b) and (d) to read as follows:

**§ 32.3100 Accumulated Depreciation.**

\* \* \* \* \*

\(b\) This account shall be credited with depreciation amounts
concurrently charged to Account 6560, Depreciation and amortization
expenses. (Note also Account 3300, Accumulated
Depreciation\--Nonoperating.)

> \(c\) \* \* \*

\(d\) This account shall be credited with amounts charged to Account
1438, Deferred maintenance, retirements, and other deferred charges, as
provided in

§ 32.2000(g)(4) of this subpart. This account shall be credited with
amounts charged to Account 6560 with respect to other than relatively
minor losses in service values suffered through terminations of service
when charges for such terminations are made to recover the losses.

Section 32.3200 Accumulated depreciation---held for future
telecommunications use is amended by revising paragraph (b) to read as
follows:

**§ 32.3200 Accumulated depreciation---held for future
telecommunications use.**

\* \* \* \* \*

\(b\) This account shall be credited with amounts concurrently charged
to Account 6560, Depreciation and amortization expenses.

Section 32.3300 Accumulated depreciation---nonoperating is amended by
revising paragraph (b) and (c) to read as follows:

**§ 32.3300 Accumulated depreciation---nonoperating.**

\* \* \* \* \*

\(b\) This account shall be credited with amortization and depreciation
amounts concurrently charged to Account 7300, Nonoperating income and
expense.

\(c\) When nonoperating plant not previously used in telecommunications
service is disposed of, this account shall be charged with the amount
previously credited hereto with respect to such property and the book
cost of the property so retired less the amount chargeable to this
account and less the value of the salvage recovered or the proceeds from
the sale of the property shall be included in Account 7300, Nonoperating
income and expense. In case the property had been used in
telecommunications service previous to its inclusion in Account 2006,
Nonoperating Plant, the amount accrued for depreciation thereon after
its retirement from telecommunications service shall be charged to this
account and credited to Account 3100, Accumulated depreciation, and the
accounting for its retirement from Account 2006 shall be in accordance
with that applicable to telecommunications plant retired.

Section 32.3400 Accumulated amortization is deleted.

Section 32.3410 Accumulated amortization---capital leases is amended by
revising paragraph (b) and (c) to read as follows:

**§ 32.3410 Accumulated amortization---capital leases.**

\* \* \* \* \*

\(b\) This account shall be credited with amounts for the amortization
of capital leases concurrently charged to Account 6560, Depreciation and
amortization expenses. (Note also Account 3300, Accumulated
Depreciation\-- Nonoperating.)

\(c\) When any item carried in Account 2681 is sold, is relinquished, or
is otherwise retired from service, this account shall be charged with
the cost of the retired item. Remaining amounts associated with the item
shall be debited to Account 7100, Other operating income and expenses,
or Account 7300, Nonoperating income and expense, as appropriate.

Section 32.3420 Accumulated amortization---leasehold improvements is
deleted.

Section 32.3500 Accumulated amortization---intangibles is deleted.

Section 32.3600 Accumulated amortization---other is deleted.

Section 32.4000 Instructions for balance sheet accounts---liabilities
and stockholders' equity is redesignated as section 32.3999 and revised
to read as follows:

**§ 32.3999 Instructions for balance sheet accounts---liabilities and
stockholders' equity.**

Liabilities and Stockholders\' Equity Accounts to be Maintained by Class
A and Class B telephone companies

  ----------------------- ----------------------- -----------------------
  Account Title           Class A account         Class B account

  Current liabilities:                            

  Current accounts and    4000                    4000
  notes payable                                   

  Customer's Deposits     4040                    4040

  Income taxes\--accrued  4070                    4070

  Other taxes-accrued     4080                    4080

  Net Current Deferred    4100                    4100
  Nonoperating Income                             
  Taxes                                           

  Net Current Deferred    4110                    4110
  Nonoperating Income                             
  Taxes                                           

  Other current           4130                    4130
  liabilities                                     

  Long-term debt:                                 

  Long Term debt and      4200                    4200
  Funded debt                                     

  Other liabilities and                           
  deferred credits:                               

  Other liabilities and   4300                    4300
  deferred credits                                

  Unamortized operating   4320                    4320
  investment tax                                  
  credits-net                                     

  Unamortized             4330                    4330
  nonoperating investment                         
  tax credits-net                                 

  Net noncurrent deferred 4340                    4340
  operating income taxes                          

  Net deferred tax        4341                    4341
  liability adjustments                           

  Net noncurrent deferred 4350                    4350
  nonoperating income                             
  taxes                                           

  Deferred tax regulatory 4361                    4361
  adjustments\--net                               

  Other jurisdictional    4370                    4370
  liabilities and                                 
  deferred credits-net                            

  Stockholder\'s equity:                          

  Capital stock           4510                    4510

  Additional paid-in      4520                    4520
  capital                                         

  Treasury stock          4530                    4530

  Other capital           4540                    4540

  Retained Earnings       4550                    4550
  ----------------------- ----------------------- -----------------------

Section 32.4000 Current accounts and notes payable is added to read as
follows:

**§ 32.3400 Current accounts and notes payable.**

\(a\) This account shall include:

\(1\) All amounts currently due to others for recurring trade
obligations, and not provided for in other accounts, such as those for
traffic settlements, material and supplies, repairs to
telecommunications plant, matured rents, and interest payable under
monthly settlements on short-term loans, advances, and open accounts. It
shall also include amounts of taxes payable that have been withheld from
employees\' salaries.

(2) Accounts payable arising from sharing of revenues.

\(3\) The face amount of notes, drafts, and other evidences of
indebtedness issued or assumed by the company (except interest coupons)
which are payable on demand or not more than one year or less from date
of issue.

\(b\) If any part of an obligation, otherwise includable in this account
matures more than one year from date of issue, it shall be included in
Account 4200, Long term debt and funded debt, or other appropriate
account.

\(c\) The records supporting the entries to this account shall be kept
so that the company can furnish complete details as to each note, when
it is issued, the consideration received, and when it is payable.

\(d\) Subsidiary record categories shall be maintained for this account
in order that the company may separately report the amounts contained
herein that relate to nonaffiliates and affiliates. Such subsidiary
record categories shall be reported as required by Part 43 of this
Commission\'s Rules and Regulations.

Section 32.4010 Accounts payable is deleted.

Section 32.4020 Notes payable is deleted.

Section 32.4030 Advanced billing and payments is deleted.

Section 32.4040 Customer's deposits paragraph (b) is amended to read as
follows:

**§ 32.4040 Customer's deposits.**

\* \* \* \* \*

\(b\) Advance payments made by prospective customers prior to the
establishment of service shall be credited to Account 4130, Other
current liabilities.

Section 32.4050 Current maturities---long term debt is deleted.

Section 32.4060 Current maturities---capital leases is deleted.

Section 32.4070 Income taxes---accrued is amended and revised to read as
follows:

**§ Section 32.4070 Income taxes---accrued.**

\(a\) This account shall be credited or charged and the following
accounts shall be charged or credited with the offsetting amount of
current year income taxes (Federal, state and local) accrued during the
period or adjustments to prior accruals:

7220 Operating Federal Income Taxes

7230 Operating State and Local Income Taxes

7400 Nonoperating Taxes

7600. Extraordinary Items

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(b) If significant, current year income taxes paid in advance shall be
    reclassified to Account 1280, Prepayments.

    Section 32.4080 Other taxes---accrued is amended and revised to read
    as follows:

**§ 32.4080 Other taxes---accrued.**

\(a\) This account shall be credited or charged and Account 7240,
Operating Other Taxes, or 7400, Nonoperating Taxes, or, for payroll
related costs, the appropriate expense accounts shall be charged or
credited for all taxes, other than Federal, State and local income
taxes, accrued or adjusted for previous accruals during the period.
Among the taxes includable in this account are property, gross receipts,
franchise, capital stock, social security and unemployment taxes.

\(b\) Taxes paid in advance of the period in which they are chargeable
to income shall be included in the prepaid taxes Account 1280,
Prepayments, or 1410, Other Noncurrent Assets, as appropriate.

Section 32.4110 Net current deferred nonoperating income taxes is
amended by revising paragraph (c) and (f) to read as follows:

**§ 32.4110 Net current deferred nonoperating income taxes.**

\* \* \* \* \*

\(c\) This account shall be debited or credited with the amount being
credited or debited to Account 7400, Nonoperating taxes, in accordance
with that account\'s description and § 32.22 of Subpart B.

\(d\) \* \* \*

\(e\) \* \* \*

\(f\) This account shall be debited or credited with the amount being
credited and debited to Account 7600, Extraordinary Items.

\* \* \* \* \*

Section 32.4120 Other accrued liabilities is deleted.

Section 32.4130 Other current liabilities is amended and revised to read
as follows:

**§ 32.4130 Other current liabilities.**

\(a\) This account shall include:

\(1\) The amount of advance billing creditable to revenue accounts in
future months; also advance payments made by prospective customers prior
to the establishment of service. Amounts included in this account shall
be credited to the appropriate revenue accounts in the months in which
the service is rendered or cleared from this account as refunds are
made.

\(2\) The amount (including any obligations for premiums) of long-term
debt matured and unpaid without any specific agreement for extension of
maturity, including unpresented bonds drawn for redemption through the
operation of sinking and redemption fund agreements.

\(3\) The current portion of obligations applicable to property obtained
under capital leases.

\(4\) The amount of wages, compensated absences, interest on
indebtedness of the company, dividends on capital stock, and rents
accrued to the date for which the balance sheet is made, but not payable
until after that date. Accruals shall be maintained so as to show
separately the amount and nature of the items accrued to the date of the
balance sheet.

\(5\) Matured rents, dividends, interest payable under monthly
settlements on short-term loans, advances, and open accounts shall be
included in Account 4000.

\(6\) All other liabilities of current character which are not included
in Account 4000 through 4110.

Section 32.4200 Long term debt and funded debt is added to read as
follows:

**§ 32.4200 Long term debt and funded debt.**

(a) This account shall include:

> \(1\) The total face amount of unmatured debt maturing more than one
> year from date of issue, issued by the company and not retired, and
> the total face amount of similar unmatured debt of other companies,
> the payment of which has been assumed by the company, including funded
> debt the maturity of which has been extended by specific agreement.
> This account shall also include such items as mortgage bonds,
> collateral trust bonds, income bonds, convertible debt, debt
> securities with detachable warrants and other similar obligations
> maturing more than one year from date of issue.
>
> \(2\) The premium associated with all classes of long-term debt.
> Premium, as applied to securities issued or assumed by the company,
> means the excess of the current money value received at their sale
> over the sum of their book or face amount and interest or dividends
> accrued at the date of the sale.
>
> \(3\) The discount associated with all classes of long-term debt.
> Discount, as applied to securities issued or assumed by the company,
> means the excess of the book or face amount of the securities plus
> interest or dividends accrued at the date of the sale over the current
> money value of the consideration received at their sale.
>
> \(4\) The face amount of debt reacquired prior to maturity that has
> not been retired. Gain or loss shall be recognized at the time of
> reacquisition by credits or charges to Account 7300, Nonoperating
> income and expense, except that material gains or losses shall be
> treated as extraordinary. (See Account 7600, Extraordinary items.)
>
> \(5\) The noncurrent portion of obligations applicable to property
> obtained under capital leases. Amounts subject to current settlement
> shall be included in Account 4130, Other current liabilities.
>
> \(6\) The amount of advance from affiliated companies. Amounts due
> affiliated companies which are subject to current settlement shall be
> included in Account 4000.
>
> \(7\) Investment advances, including those represented by notes.
>
> \(8\) Long-term debt not provided for elsewhere.

\(b\) Subsidiary records shall be maintained for each issue. The
subsidiary records shall identify the premium or discount attributable
to each issue.

\(c\) Premiums and discounts on long-term debt recorded in this account
shall be amortized monthly by the interest method and charged or
credited, as appropriate, to Account 7500, Interest and related items.

\(d\) Debt securities with detachable warrants shall be accounted for in
accordance with generally accepted accounting principles.

\(e\) Securities maturing in one year or less, including securities
maturing serially, shall be included in Account 4130, Other current
liabilities.

Section 32.4210 Funded debt is deleted.

Section 32.4220 Premium on long term debt is deleted.

Section 32.4230 Discount on long term debt is deleted.

Section 32.4240 Reacquired debt is deleted.

Section 32.4250 Obligations under capital leases is deleted.

Section 32.4260 Advances from affiliated companies is deleted.

Section 32.4270 Other long-term debt is deleted.

Section 32.4300 Other long-term liabilities and deferred credits is
added to read as follows:

**§ 32.4300 Other long-term liabilities and deferred credits.**

\(a\) This account shall include amounts accrued to provide for such
items as unfunded pensions (if actuarially determined), death benefits,
deferred compensation costs and other long-term liabilities not provided
for elsewhere. Subsidiary records shall be maintained to identify the
nature of these items.

\(b\) This account shall include the amount of all deferred credits not
provided for elsewhere, such as amounts awaiting adjustment between
accounts; and revenue, expense, and income items in suspense.

Section 32.4310 Other long-term liabilities is deleted.

Section 4330 Unamortized nonoperating investment tax credits---net is
amended to read as follows:

**§ 32.4330 Unamortized nonoperating investment tax credits\--net.**

\(a\) This account shall be credited and Account 7400, Nonoperating
Taxes, shall be debited with investment tax credits generated from
qualified expenditures related to other operations which the company has
elected to defer rather than recognize currently in income.

\(b\) This account shall be debited and Account 7400 credited with a
proportionate amount determined in relation to the useful book life of
the property to which the tax credit relates.

Section 32.4341 Net deferred tax liability adjustments is amended to
read as follows:

**§ 32.4341 Net deferred tax liability adjustments.**

\(a\) This account shall include the portion of deferred income tax
charges and credits pertaining to Account 32.4361, Deferred tax
regulatory adjustments\--net.

(b) \* \* \*

> \(2\) Reclassification attributable to changes in tax rates (Federal,
> state and local). As tax rates increase or decrease, the offsetting
> debit or credit will be recorded in Account 4361 as required by
> paragraph (a) of this section.

\* \* \* \* \*

Section 32.4350 Net noncurrent deferred nonoperating income taxes is
amended to read as follows:

**§ 32.4350 Net noncurrent deferred nonoperating income taxes.**

\* \* \* \* \*

\(b\) This account shall be credited or debited, as appropriate, and
Account 7400, Nonoperating Taxes, shall reflect the offset for the tax
effect of revenues from other operations and extraordinary items and
nonoperating expenses which have been included in the determination of
taxable income, but which will not be included in the determination of
book income or for the tax effect of nonoperating expenses and
extraordinary items and nonoperating income which have been included in
the determination of book income prior to the inclusion in the
determination of taxable income.

\(c\) \* \* \*

\(d\) \* \* \*

\(e\) This account shall be charged or credited with the contra amount
recorded to Account 7600, Extraordinary items, in accordance with §
32.22 of subpart B.

\* \* \* \* \*

Section 32.4360 Other deferred credits is deleted.

Section 32.4361 Deferred tax regulatory liability is renamed Deferred
tax regulatory adjustments---net and revised to read as follows:

**§ 32.4361 Deferred tax regulatory adjustments\--net.**

\(a\) This account shall include amounts of probable future revenue for
the recovery of future increases in taxes payable and amounts of
probable future revenue reductions attributable to future decreases in
taxes payable. As reductions or reversals occur, amounts recorded in
this account shall be reduced or increased, with a contra entry being
made to Account 4341, Net deferred tax liability adjustments.

\(b\) This account shall also be adjusted for the impact of prospective
tax rate changes on the deferred tax liability for those temporary
differences underlying its existing balance.

Section 32.4540 Other capital is amended to read as follows:

**§ 32.4540 Other capital.**

This account shall include amounts which are credits arising from the
donation by stockholders of the company\'s capital stock, capital
recorded upon the reorganization or recapitalization of the company and
temporary declines in the value of marketable securities held for
investment purposes. (See also Account 1410, Other noncurrent assets).

**Subpart D\--Instructions for Revenue Accounts**

Section 32.4999 General is amended by eliminating paragraph (f)(2) and
(g)(3), redesignating paragraph (g)(4) as (g)(3), and revising
paragraphs (c), (d), (e), (g)(2), (h), (i)(1), and (n) to read as
follows:

**§ 32.4999 General**

\* \* \* \* \*

\(c\) *Commissions*. Commissions paid to others or employees in place of
compensation or salaries for services rendered, such as public telephone
commissions, shall be charged to Account 6620 Services, and not to the
revenue accounts. Other commissions shall be charged to the appropriate
expense accounts.

\(d\) *Revenue recognition*. Credits shall be made to the appropriate
revenue accounts when such revenue is actually earned. When the billing
cycle encompasses more than one accounting period, adjustments are
necessary to properly recognize the revenue applicable to the current
accounting period under report. Revenues recorded under the terms of
two-tier contracts or other variable payment plans should be deferred,
if necessary, and recognized ratably with expenses over the terms of the
related contract. Any amounts deferred shall be credited to Account
4300, Other long-term liabilities and deferred credits.

\(e\) *Contractual arrangements*. Charges and credits resulting from
activities associated with the provisions of regulated
telecommunications services shall be recorded in a manner consistent
with the nature of the underlying contractual arrangements. The charges
and credits resulting from expense sharing or apportionment arrangements
associated with the provision of regulated telecommunications services
shall be recorded in the detailed regulated accounts. Charges and
credits resulting from revenue settlement agreements or other revenue
pooling arrangements associated with the provision of regulated
telecommunications services shall be included in the appropriate revenue
accounts. Those charges and credits resulting from contractual revenue
pooling and/or sharing agreements shall be recorded in each prescribed
revenue account and prescribed subsidiary record categories thereof to
the extent that each is separately identifiable in the settlement
process. It is not intended that settlement amounts be allocated or
generally spread to the individual revenue accounts where they are not
separately identifiable in the settlement process. When the settlement
amounts are not identifiable by a revenue account they shall be recorded
in Account 5060, Other basic area revenue, 5105, Long distance message
revenue, or 5200, Miscellaneous revenue, as appropriate.

\(f\) \* \* \*

\(2\) \[Deleted\]

\(g\) \* \* \*

\(2\) The revenue section of this system of accounts shall be comprised
of six major groups\--Local Network Services Revenues, Network Access
Services Revenues, Long Distance Network Services Revenues,
Miscellaneous Revenues, Nonregulated revenues, and Uncollectible
Revenues, which shall be considered as a revenue group for the purposes
of the construction of the system.

\(3\) Accounts shall be maintained as prescribed in this Section subject
to the conditions described in section 32.13 of subpart B. In certain
instances, subsidiary record categories may be required below the
account level by this system of accounts or by Commission order.

\(4\) \[Deleted\]

\(h\) *Local Network Services revenues*. Local Network Services revenues
(Accounts 5001-5060) shall include revenues derived from the provision
of service and equipment entirely within the basic service area. That
area is defined as the normal boundaries for local calling plus Extended
Area Service (EAS) boundaries as they apply to that service. It includes
revenues derived from both local private network service and local
public network services as well as from customer premises facilities
services. Local revenues include associated charges such as one-time
service connection or termination charges and secondary features such as
call waiting.

(i) *Network Access revenues*. (1) Network Access revenues (Accounts
    5081-5083) shall include revenues derived from the provision of
    exchange access services to an interexchange carrier or to an end
    user of telecommunications services beyond the exchange carrier\'s
    network.

> (i)(2) \* \* \*

(j) \* \* \*

(k) \* \* \*

(l) \* \* \*

(m) \* \* \*

\(n\) Revenue accounts to be maintained.

  ----------------------- ----------------------- -----------------------
  Account Title           Class A account         Class B account

  Local Network Services                          
  Revenues:                                       

  Basic local service                             5000
  revenue                                         

  Basic area revenue      5001                    .....

  Private line revenue    5040                    .....

  Other basic area        5060                    **.....**
  revenue                                         

  Network Access Service                          
  Revenues:                                       

  End User Revenue        5081                    5081

  Switched access revenue 5082                    5082

  Special Access revenue  5083                    5083

  Long Distance Network                           
  Services Revenues:                              

  Long distance message   5105                    5105
  revenue                                         

  Miscellaneous Revenues:                         

  Miscellaneous revenue   5200                    5200

  Nonregulated Revenues:                          

  Nonregulated operating  5280                    5280
  revenue                                         

  Uncollectible Revenues:                         

  Uncollectible revenue   5300                    5300
  ----------------------- ----------------------- -----------------------

Section 32.5000 Basic local service revenue is amended to read as
follows:

**§ 32.5000 Basic local service revenue.**

Class B telephone companies shall use this account for revenues of the
type and character required of Class A companies in Accounts 5001
through 5060.

Section 32.5001 Basic area revenue is amended to read as follows:

**§ 32.5001 Basic area revenue.**

\(a\) This account shall include revenue derived from the provision of
the following:

> \(1\) Basic area message services such as flat rate services and
> measured services. Included is revenue derived from non-optional
> extended area services. Also included is revenue derived from the
> billed or guaranteed portion of semi-public services.
>
> \(2\) Optional extended area service.
>
> \(3\) Cellular mobile telecommunications systems connected to the
> public switched network placed between mobile units and other stations
> within the mobile service area.
>
> \(4\) General radio telecommunications systems connected to the public
> switched network placed between mobile units and other stations within
> the mobile service area, as well as revenue from mobile radio paging,
> mobile dispatching, and signaling services.

\(b\) Revenue derived from charges for nonpublished number or additional
and boldfaced listings in the alphabetical section of the company\'s
telephone directories shall be included in Account 5200, Miscellaneous
revenue.

\(c\) Revenue from private mobile telephone services which do not have
access to the public switched network shall be included in Account 5200,
Miscellaneous revenue.

Section 32.5004 Other mobile services revenue is deleted.

Section 32.5040 Local private line revenue is renamed as follows:

**§ 32.5040 Private line revenue.**

Section 32.5050 Customer premises revenue is deleted.

Section 32.5060 Other local exchange revenue is renamed and revised to
read as follows:

**§ 32.5060 Other basic area revenue.**

\(a\) This account shall include:

\(1\) Revenue from the provision of secondary features which are
integrated with the telecommunications network such as call forwarding,
call waiting and touch-tone line service. Also included is revenue
derived from the provision of public announcement and other record
message services, directory assistance and other call completion
services (excluding operator assisted basic long distance calls), as
well as revenue derived from central office related service connection
and termination charges, and other non-premise customer specific charges
associated with public network services. This account shall also include
local revenue not provided for in other accounts.

\(2\) Charges and credits resulting from contractual revenue pooling
and/or sharing agreements for tariffed local network services only when
they are not separately identifiable by local network services revenue
accounts in the settlement process. (See also § 32.4999(e) of this
subpart.) To the extent that the charges and credits resulting from a
settlement process can be identified by Local Network Services Revenue
account they shall be recorded in the applicable account.

\(3\) Revenue derived from tariffed information origination/termination
plant. Included is revenue derived from the provision under leasing
arrangements of tariffed customer premises equipment (CPE), terminal
equipment, station apparatus and large private branch exchanges as well
as tariffed nonrecurring charges related solely to station apparatus.
Also included are all tariffed charges for customer premises activities
and facilities not related solely to station apparatus.

Section 32.5069 Other local exchange revenue settlements is deleted.

Section 32.5080 Network access revenue is deleted.

Section 32.5081 End user revenue is revised to read as follows:

**§ 32.5081 End user revenue.**

\(a\) This account shall contain federally and state tariffed monthly
flat rate charge assessed upon end users.

\(b\) Subsidiary record categories shall be maintained in order that the
company may separately report amounts related to federal and state
tariffed charges.

Section 32.5082 Switched access revenue is revised to read as follows:

**§ 32.5082 Switched access revenue.**

\(a\) This account shall consist of federally and state tariffed charges
assessed to interexchange carriers for access to local exchange
facilities.

\(b\) Subsidiary record categories shall be maintained in order that the
company may separately report the amounts contained herein that relate
to limited pay telephone, carrier common line, line termination, local
switching, intercept, information, common transport and dedicated
transport. The subsidiary records shall also separately show the federal
and state tariffed charges. Such subsidiary record categories shall be
reported as required by part 43 of this Commission\'s Rules and
Regulations.

Section 32.5083 Special access revenue is revised to read as follows:

**§ 32.5083 Special access revenue.**

\(a\) This account shall include all federally and state tariffed
charges assessed for other than end user or switched access charges
referred to in Account 5081, End user revenue, and Account 5082,
Switched access revenue.

\(b\) Subsidiary record categories shall be maintained in order that the
company may separately report the amounts contained herein that relate
to recurring charges, nonrecurring charges and surcharges. The
subsidiary records shall also separately show the federal and state
tariffed charges. Such subsidiary record categories shall be reported as
required by part 43 of this Commission\'s Rules and Regulations.

Section 32.5084 State access revenue is deleted.

Section 32.5100 Long distance message revenue is renumbered and revised
to read as follows:

**§ 32.5105 Long distance message revenue**

This account shall include revenue derived from message services that
terminate beyond the basic service area of the originating wire center
and are individually priced. This includes those message services which
utilize the public long distance switching network and the basic
subscriber access line. It also includes those long distance calls
placed from mobile and public telephones, as well as any charges for
operator assistance or special billing directly related to the
completion of a specific call. This account shall also include revenue
derived from individually priced message services offered under calling
plans (discounted long distance) which do not utilize dedicated access
lines, as well as those priced at the basic long distance rates where a
discounted toll charge is on a per message basis. Any revenue derived
from monthly or one-time charges for obtaining calling plan services
shall be included in this account. This account includes revenue derived
from the following services:

\(a\) Long distance services which permit unidirectional calls to a
subscriber from specified services areas (multipoint-to-point service).
These calls require the use of dedicated access lines connecting a
subscriber\'s premises and a designated central office. These dedicated
access lines are generally separate from those required for the
subscriber to place outward calls. The call is billed to the subscriber
even though it is generally initiated by the subscriber\'s customer or
correspondent.

\(b\) Long distance services which permit the subscriber to place
telephone calls from one location to other specified service areas
(point-to-multipoint service). These calls are completed without
operator assistance and require the use of a dedicated access line. The
dedicated access line is generally separate from those required for
inward message services and cannot be used to place calls within the
basic service area or calls outside the selected service areas. Outward
calls are screened and blocked to determine whether the calls are within
an authorized service area.

\(c\) Services extending beyond the basic service area that involve
dedicated circuits, private switching arrangements, and/or predefined
transmission paths, whether virtual or physical, which provide
communications between specific locations (e.g., point-to-point
communications). Service connection charges, termination charges,
rearrangements and changes, etc., shall be included in this account.
Revenue derived from associated administrative and operational support
services shall also be included in this account.

\(1\) Narrow-band analog private network circuits and facilities
furnished exclusively for record forms of communications, such as
teletypewriter, teletypesetter, telewriter, ticker, Morse, signaling,
remote metering, and supervisory services.

\(2\) Private network circuits and facilities (including multipurpose
wide-band) which provide voice grade services for the transmission of
analog signals. It includes revenue from services such as voice, data
and telephoto communication, as well as remote metering, supervisory
control, miscellaneous signaling and channels furnished for the purpose
of extending customer\--provided communications systems. It includes
revenue from the provision of facilities between customer premises and
(a) a serving office, (b) a carrier distribution point or (c) an
extension distribution channel.

\(3\) Private network circuits and facilities furnished for audio
program transmission purposes, such as radio broadcasting, sound
recording (wired music) and loud speaker services. It includes revenue
from the provision of facilities for the transmission of analog signals
between customer premises and (1) a serving office, (2) a carrier
distribution point or (3) an extension distribution channel furnished in
connection with such services. It also includes revenue from facilities
furnished to carry the audio portion of a television program if
furnished under separate audio rates. If the rate for television program
services includes both the picture and sound portion of the
transmission, the revenue shall also be included in this account.

\(4\) Private network circuits and facilities furnished for television
program transmission purposes, such as commercial broadcast and
educational or private television services. It includes revenue from the
provision of facilities for the transmission of analog signals between
customer premises and (a) a serving office, (b) a carrier distribution
point or (c) an extension distribution channel furnished in connection
with such services. It also includes revenue from both the picture and
sound portions of transmission for television program service when
provided under a combined rate schedule.

\(5\) The provision of circuits and facilities for the transmission of
digital signals only.

\(6\) The provision of common user channels and switching capabilities
used for the transmission of telecommunication signals between three (3)
or more points in the network. Also included is revenue derived from the
provision of basic switching and transfer arrangements used to connect
private line channels.

\(7\) Charges and credits resulting from contractual revenue pooling
and/or sharing agreements for tariffed long distance public network
services and for tariffed long distance private network services.

Section 32.5110 Unidirectional long distance revenue is deleted.

Section 32.5111 Long distance inward-only revenue is deleted.

Section 32.5112 Long distance outward-only revenue is deleted.

Section 32.5120 Long distance private network revenue is deleted.

Section 32.5121 Subvoice grade long distance private network revenue is
deleted.

Section 32.5122 Voice grade long distance private network revenue is
deleted.

Section 32.5123 Audio program grade long distance private network
revenue is deleted.

Section 32.5124 Video program grade long distance private network
revenue is deleted.

Section 32.5125 Digital transmission long distance private network
revenue is deleted.

Section 32.5126 Long distance private network switching revenue is
deleted.

Section 32.5128 Other long distance private network revenue is deleted.

Section 32.5129 Other long distance private network revenue settlements
is deleted.

Section 32.5160 Other long distance revenue is deleted.

Section 32.5169 Other long distance revenue settlements is deleted.

Section 32.5200 Miscellaneous revenue is revised to read as follows:

**§ 32.5200 Miscellaneous revenue**

\(a\) This account shall include revenue derived from the following:

\(1\) Alphabetical and classified sections of directories including fees
paid by other entities for the right to publish the company\'s
directories. It includes the classified section of the directories, the
sale of new telephone directories whether they are the company\'s own
directories or directories purchased from others. It also includes
revenue from the sale of specially bound telephone directories and
special telephone directory covers; amounts charged for additional and
boldface listings, marginal displays, inserts, and other advertisements
in the alphabetical of the company\'s telephone directories; and charges
for unlisted and non-published telephone numbers.

\(2\) Rental or subrental to others of telecommunications plant
furnished apart from telecommunications services rendered by the company
(This revenue includes taxes when borne by the lessee). It includes
revenue from the rent of such items as space in conduit, pole line space
for attachments, and any allowance for return on property used in joint
operations and shared facilities agreements. The expense of maintaining
and operating the rented property, including depreciation and insurance,
shall be included in the appropriate operating expense accounts. Taxes
applicable to the rented property shall be included by the owner of the
rented property in appropriate tax accounts. When land or buildings are
rented on an incidental basis for non-telecommunications use, the rental
and expenses are included in Account 7300, Nonoperating income and
expense.

\(3\) Services rendered to other companies under a license agreement,
general services contract, or other arrangement providing for the
furnishing of general accounting, financial, legal, patent, and other
general services associated with the provision of regulated
telecommunications services.

\(4\) The provision, either under tariff or through contractual
arrangements, of special billing information to customers in the form of
magnetic tapes, cards or statements. Special billing information
provides detail in a format and/or at a level of detail not normally
provided in the standard billing rendered for the regulated telephone
services utilized by the customer.

\(5\) The performance of customer operations services for others
incident to the company's regulated telecommunications operations which
are not provided for elsewhere. (See also §§ 32.14(e) and 32.4999(e) of
this part.)

\(6\) Contract services (plant maintenance) performed for others
incident to the company's regulated telecommunications operations. This
includes revenue from the incidental performance of nontariffed
operating and maintenance activities for others which are similar in
nature to those activities which are performed by the company in
operating and maintaining its own telecommunications plant facilities.
The records supporting the entries in this account shall be maintained
with sufficient particularity to identify the revenue and associated
Plant Specific Operations Expenses related to each undertaking. This
account does not include revenue related to the performance of operation
or maintenance activities under a joint operating agreement.

\(7\) The provision of billing and collection services to other
telecommunications companies. This includes amounts charged for services
such as message recording, billing, collection, billing analysis, and
billing information services, whether rendered under tariff or
contractual arrangements.

\(8\) Charges and credits resulting from contractual revenue pooling
and/or sharing agreements for activities included in the miscellaneous
revenue accounts only when they are not identifiable by miscellaneous
revenue account in the settlement process. (See also § 32.4999(e) of
this subpart.) The extent that the charges and credits resulting from a
settlement process can be identified by miscellaneous revenue accounts
they shall be recorded in the applicable account.

\(9\) The provision of transport and termination of local
telecommunications traffic pursuant to section 251(c) and Part 51 of
these rules.

\(10\) The provision of unbundled network elements pursuant to section
251(c) of the Communications Act and Part 51 of these rules.

\(11\) This account shall also include other incidental regulated
revenue such as:

\(i\) Collection overages (collection shortages shall be charged to
Account 6620, Services.)

\(ii\) Unclaimed refunds for telecommunications services when not
subject to escheats;

\(iii\) Charges (penalties) imposed by the company for customer checks
returned for non-payment;

\(iv\) Discounts allowed customers for prompt payment;

\(v\) Late-payment charges;

\(vi\) Revenue from private mobile telephone services which do not have
access to the public switched network; and

\(vii\) Other incidental revenue not provided for elsewhere in other
Revenue accounts.

**(12) Any definitely known amounts of losses of revenue collections due
to fire or theft, (i) at customers' coin-box stations, (ii) at public or
semipublic telephone stations, (iii) in the possession of collectors en
route to collection offices, (iv) on hand at collection offices, and (v)
between collection offices and banks shall be charged to Account 6720,
General and Administrative.**

Section 32.5230 Directory revenue is deleted.

Section 32.5240 Rent revenue is deleted.

Section 32.5250 Corporate operations revenue is deleted.

Section 32.5260 Miscellaneous revenue is deleted.

Section 32.5261 Special billing arrangements revenue is deleted.

Section 32.5262 Customer operations revenue is deleted.

Section 32.5263 Plant operations revenue is deleted.

Section 32.5264 Other incidental regulated revenue is deleted.

Section 32.5269 Other revenue settlements is deleted.

Section 32.5270 Carrier billing and collection revenue is deleted.

Section 32.5280 Nonregulated operating revenue is amended to revise
paragraph (c) as follows:

**§ 32.5280 Nonregulated operating revenue.**

\* \* \* \* \*

\(c\) Separate subsidiary record categories shall be maintained for two
groups of nonregulated revenue as follows: one subsidiary record for all
revenues derived from regulated services treated as nonregulated for
federal accounting purposes pursuant to Commission order and the second
for all other revenues derived from a nonregulated activity as set forth
in (a).

Section 32.5300 Uncollectible revenue is revised to read as follows:

**§ 32.5300 Uncollectible revenue.**

This account shall be charged with amounts concurrently credited to
Account 1170, Receivables.

Section 32.5301 Uncollectible revenue---telecommunications is deleted.

Section 32.5302 Uncollectible revenue---other is deleted.

Section 32.5999 General is amended by deleting paragraph (a)(3),
redesignating (a)(4) as (a)(3), and revising paragraphs (b)(4), (c), and
(g) as follows:

**§ 32.5999 General.**

> \(a\) \* \* \*
>
> \(3\) \[Deleted\]
>
> \(4\) redesignated to read (a)(3)

(b)\* \* \*

> \(4\) In addition to the activities specified in paragraph (b)(3) of
> this section, the appropriate Plant Specific Operations Expense
> accounts shall include the cost of personnel whose principal job is
> the operation of plant equipment, such as general purpose computer
> operators, aircraft pilots, chauffeurs and shuttle bus drivers.
> However, when the operation of equipment is performed as part of other
> identifiable functions (such as the use of office equipment, capital
> tools or motor vehicles) the operators\' cost shall be charged to
> accounts appropriate for those functions. (For costs of operator
> services personnel, see Account 6620, Services, and for costs of test
> board personnel see Account 6533.)

\(c\) Plant Nonspecific Operations Expense. The Plant Nonspecific
Operations Expense accounts shall include expenses related to property
held for future telecommunications use, provisioning expenses, network
operations expenses, and depreciation and amortization expenses.
Accounts in this group (except for Account 6540, Access expense, and
Account 6560, Depreciation and amortization expense) shall include the
costs of performing activities described in narratives for individual
accounts. These costs shall also include the costs of supervision and
office support of these activities.

\(d\) \* \* \*

\(e\) \* \* \*

\(f\) \* \* \*

\(g\) *Expense accounts to be maintained.*

+-----------------------+-----------------------+-----------------------+
| Account Title         | Class A account       | Class B account       |
+-----------------------+-----------------------+-----------------------+
| Income Statement      |                       |                       |
| Accounts              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Plant specific        |                       |                       |
| operations expense:   |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Network support       |                       | 6110                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Motor Vehicle Expense | 6112                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Aircraft expense      | 6113                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Tools and other work  | 6114                  | ....                  |
| equipment expense     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| General support       |                       | 6120                  |
| expenses              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Land and Building     | 6121                  | ....                  |
| expenses              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Furniture and         | 6122                  | ....                  |
| artworks expense      |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Office equipment      | 6123                  | ....                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| General purpose       | 6124                  | ....                  |
| computers expense     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Central Office        |                       | 6210                  |
| switching expense     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Non-digital switching | 6211                  | ....                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Digital electronic    | 6212                  | ....                  |
| switching expense     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Operators system      | 6220                  | 6220                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Central office        |                       | 6230                  |
| transmission expenses |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Radio systems expense | 6231                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Circuit equipment     | 6232                  | ....                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Information           |                       | 6310                  |
| or                    |                       |                       |
| igination/termination |                       |                       |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Station apparatus     | 6311                  | ....                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Large private branch  | 6341                  | ....                  |
| exchange expense      |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Public telephone      | 6351                  | ....                  |
| terminal equipment    |                       |                       |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Other terminal        | 6362                  | ....                  |
| equipment expense     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Cable and wire        |                       | 6410                  |
| facilities expenses   |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Poles expense         | 6411                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Aerial cable expense  | 6421                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Underground cable     | 6422                  | ....                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Buried cable expense  | 6423                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Submarine and deep    | 6424                  | ....                  |
| sea cable expense     |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Intrabuilding network | 6426                  | ....                  |
| cable expense         |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Aerial wire expense   | 6431                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Conduit systems       | 6441                  | ....                  |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Plant nonspecific     |                       |                       |
| operations expense:   |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Other property plant  |                       | 6510                  |
| and equipment         |                       |                       |
| expenses              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Property held for     | 6511                  | ...                   |
| future                |                       |                       |
| Telecommunications    |                       |                       |
| use expense           |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Provisioning expense  | 6512                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Network operations    |                       | 6530                  |
| expenses              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Power expense         | 6531                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Network               | 6532                  | ....                  |
| administration        |                       |                       |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Testing expense       | 6533                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Plant operations      | 6534                  | ....                  |
| administration        |                       |                       |
| expense               |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Engineering expense   | 6535                  | ....                  |
+-----------------------+-----------------------+-----------------------+
| Access expense        | 6540                  | 6540                  |
+-----------------------+-----------------------+-----------------------+
| Depreciation and      | 6560                  | 6560                  |
| amortization expenses |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Customer operations   |                       |                       |
| expense:              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Marketing             |                       | 6610                  |
+-----------------------+-----------------------+-----------------------+
| ### Product m         | 6611                  |                       |
| anagement and sales { |                       |                       |
| #product-management-a |                       |                       |
| nd-sales .unnumbered} |                       |                       |
+-----------------------+-----------------------+-----------------------+
| ### Product adve      | 6613                  |                       |
| rtising {#product-adv |                       |                       |
| ertising .unnumbered} |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Services              | 6620                  | 6620                  |
+-----------------------+-----------------------+-----------------------+
| Corporate operations  |                       |                       |
| expense:              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| General and           | 6720                  | 6720                  |
| administrative        |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Provision for         | 6790                  | 6790                  |
| uncollectible notes   |                       |                       |
| receivable            |                       |                       |
+-----------------------+-----------------------+-----------------------+

Section 32.6110 Network support expenses is revised to read as follows:

**§ 32.6110 Network support expenses.**

> \(a\) Class B telephone companies shall use this account for expenses
> of the type and character required of Class A companies in Accounts
> 6112 through 6114.
>
> \(b\) Credits shall be made to this account by Class B companies for
> amounts transferred to Construction and/or other Plant Specific
> Operations Expense accounts. These amounts shall be computed on the
> basis of direct labor hours.

Section 32.6112 Motor vehicle expense is amended by revising paragraph
(b) as follows:

**§ 32.6112 Motor vehicle expense.**

\* \* \* \* \*

\(b\) Credits shall be made to this account for amounts transferred to
Construction and/or to other Plant Specific Operations Expense accounts.
These amounts shall be computed on the basis of direct labor hours.

Section 32.6113 Aircraft expense is amended by revising paragraph (b) as
follows:

**§ 32.6113 Aircraft expense.**

\* \* \* \* \*

\(b\) Credits shall be made to this account for amounts transferred to

Construction and/or to other Plant Specific Operations Expense accounts.

These amounts shall be computed on the basis of direct labor hours.

Section 32.6114 Tools and other work equipment expense is amended by
revising paragraph (b) as follows:

**§ 32.6114 Tools and other work equipment expense.**

\* \* \* \* \*

\(b\) Credits shall be made to this account for amounts related to

special purpose vehicles and other work equipment transferred to

Construction and/or to other Plant Specific Operations Expense accounts.

These amounts shall be computed on the basis of direct labor hours.

Section 32.6120 General support expenses is revised to read as follows:

**§ 32.6120 General support expenses.**

Class B telephone companies shall use this account for expenses of

the type and character required of Class A companies in Accounts 6121

through 6124.

Section 32.6124 General purpose computers expense is revised to read as
follows:

**§ 32.6124 General purpose computers expense.**

This account shall include the costs of personnel whose principal job is
the physical operation of general purpose computers and the maintenance
of operating systems. This excludes the cost of preparation of input
data or the use of outputs which are chargeable to the accounts
appropriate for the activities being performed. Also excluded are costs
incurred in planning and maintaining application systems and databases
for general purpose computers. (See also § 32.6720, General and
administrative.) Separately metered electricity for general purpose
computers shall also be included in this account.

Section 32.6210 Central office switching expenses is revised to read as
follows:

**§ 32.6210 Central office switching expenses.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A companies in Accounts 6211
through 6212.

Section 32.6211 Analog electronic expense is renamed and revised to read
as follows:

**§ 32.6211 Non-digital switching expense.**

This account shall include expenses associated with non-digital
electronic switching and electro-mechanical switching.

Section 32.6212 Digital electronic expense is renamed and revised to
read as follows:

**§ 32.6212 Digital electronic switching expense.**

\(a\) This account shall include expenses associated with digital
electronic switching. Digital electronic switching expenses shall be
maintained in the following subaccounts:

1.  Circuit

2.  Packet

    \(b\) *6212.1 Circuit*. This subaccount shall include expenses
    associated with digital electronic switching equipment used to
    provide circuit switching.

    \(c\) *6212.2 Packet*. This subaccount shall include expenses
    associated with digital electronic switching equipment used to
    provide packet switching.

    Section 32.6215 Electro-mechanical expense is deleted.

    Section 32.6230 Central office transmission expense is revised to
    read as follows:

**§ 32.6230 Central office transmission expense.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A companies in Accounts 6231 and
6232.

Section 32.6231 Radio systems expense is amended by deleting paragraph
(b).

**§ 32.6231 Radio systems expense.**

(a) \* \* \*

(b) \[Deleted\]

    Section 32.6232 Circuit equipment expense is revised to read as
    follows:

**§ 32.6232 Circuit equipment expense.**

\(a\) This account shall include expenses associated with circuit

equipment. Circuit equipment expenses shall be maintained in the
following subaccounts:

1.  Electronic

6232.2 Optical

\(b\) *6232.1 Electronic*. This subaccount shall include expenses
associated with electronic circuit equipment.

\(c\) *6232.2 Optical*. This subaccount shall include expenses
associated with optical circuit equipment.

Section 32.6310 Information origination/termination expenses is revised
to read as follows:

**§ 32.6310 Information origination/termination expenses.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A telephone companies in Accounts
6311 through 6362.

Section 32.6410 Cable and wire facilities expenses is revised to read as
follows:

**§ 32.6410 Cable and wire facilities expenses.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A companies in Accounts 6411
through 6441.

Section 32.6424 Submarine cable expense is renamed and revised to read
as follows:

**§ 32.6424 Submarine and deep sea cable expense.**

\(a\) This account shall include expenses associated with submarine and
deep sea cable.

\(b\) Subsidiary record categories shall be maintained as provided in §
32.2424 (a) of subpart C.

Section 32.6425 Deep sea cable expense is deleted.

Section 32.6510 Other property, plant and equipment expenses is revised
to read as follows:

**§ 32.6510 Other property, plant and equipment expenses.**

Class B telephone companies shall use this account for expenses of the

type and character required of Class A companies in Accounts 6511 and

6512\.

Section 32.6512 Provisioning expense is revised to read as follows:

**§ 32.6512 Provisioning expense.**

\(a\) This account shall include costs incurred in provisioning

material and supplies, including office supplies. This includes

receiving and stocking, filling requisitions from stock, monitoring and

replenishing stock levels, delivery of material, storage, loading or

unloading and administering the reuse or refurbishment of material. Also

included are adjustments resulting from the periodic inventory of
material and supplies.

\(b\) Credits shall be made to this account for amounts transferred to

construction and/or to Plant Specific Operations Expense. These costs

are to be cleared by adding to the cost of material and supplies a

suitable loading charge.

Section 32.6530 Network operations expense is revised to read as
follows:

**§ 32.6530 Network operations expense.**

Class B telephone companies shall use this account for expenses of

the type and character required of Class A companies in Accounts 6531

through 6535.

Section 32.6560 Depreciation and amortization expenses is revised to
read as follows:

**§ 32.6560 Depreciation and amortization expenses.**

\(a\) This account shall include:

\(1\) The depreciation expense of capitalized costs in Accounts 2112
through 2441, inclusive.

\(2\) The depreciation expense of capitalized costs included in Account
2002, Property held for future telecommunications use.

\(3\) The amortization of costs included in Accounts 2681, Capital
leases, 2682, Leasehold improvements, and Account 2690, Intangibles.

\(4\) The amortization of costs included in Account 2005,
Telecommunications plant adjustment, and lump-sum write-offs of amounts
of plant acquisition adjustment as provided for in § 32.2005(b)(4) of
Subpart C.

\(b\) Subsidiary records shall be maintained so as to show that
character of the amounts related to plant acquisition adjustments.

Section 32.6561 Depreciation expense---telecommunications plant in
service is deleted.

Section 32.6562 Depreciation expense---property held for future
telecommunications is deleted.

Section 32.6563 Amortization expense---tangible is deleted.

Section 32.6564 Amortization expense---intangible is deleted.

Section 32.6565 Amortization expense---other is deleted.

Section 32.6610 Marketing is revised to read as follows:

**§ 32.6610 Marketing.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A companies in Accounts 6611-6613.

Section 32.6611 Product management is renamed and revised to read as
follows:

**§ 32.6611 Product management and sales.**

\(a\) This account shall include:

\(1\) Costs incurred in performing administrative activities related to
marketing products and services. This includes competitive analysis,
product and service identification and specification, test market
planning, demand forecasting, product life cycle analysis, pricing
analysis, and identification and establishment of distribution channels.

\(2\) Costs incurred in selling products and services. This includes
determination of individual customer needs, development and presentation
of customer proposals, sales order preparation and handling, and
preparation of sales records.

Section 32.6612 Sales is deleted.

Section 32.6620 Services is amended by adding two subaccounts and is
revised to read as follows:

**§ 32.6620 Services.**

\(a\) This account shall include:

\(1\) Costs incurred in helping customers place and complete calls,
except directory assistance. This includes handling and recording;
intercept; quoting rates, time and charges; and all other activities
involved in the manual handling of calls.

\(2\) Costs incurred in providing customer number and classified
listings. This includes preparing or purchasing, compiling, and
disseminating those listings through directory assistance or other
means.

\(3\) Costs incurred in establishing and servicing customer accounts.
This includes:

\(i\) Initiating customer service orders and records;

\(ii\) Maintaining and billing customer accounts;

\(iii\) Collecting and investigating customer accounts, including

collecting revenues, reporting receipts, administering collection

treatment, and handling contacts with customers regarding adjustments of

bills;

\(iv\) Collecting and reporting pay station receipts; and

\(v\) Instructing customers in the use of products and services.

\(b\) This account shall also include amounts paid by interexchange

carriers or other exchange carriers to another exchange carrier for

billing and collection services. Subsidiary record categories shall be

maintained in order that the entity may separately report interstate and

intrastate amounts. Such subsidiary record categories shall be reported

as required by Part 43 of this Commission\'s Rules and Regulations.

(c) Class A companies, except mid-sized incumbent local exchange
    carriers, shall maintain the following subaccounts for expenses
    recorded in this account:

> 6620.1 Wholesale
>
> 6620.2 Retail

\(1\) *6620.1 Wholesale*. This subaccount shall include costs associated
with telecommunications services provided for resale to other
telecommunications carriers.

\(2\) *6620.2 Retail*. This subaccount shall include costs associated
with telecommunications services provided to subscribers who are not
telecommunications carriers.

Section 32.6621 Call completion services is deleted.

Section 32.6622 Number services is deleted.

Section 32.6623 Customer services is deleted.

Section 32.6710 Executive and planning is deleted.

Section 32.6711 Executive is deleted.

Section 32.6712 Planning is deleted.

Section 32.6720 General and administrative is revised to read as
follows:

**§ 32.6720 General and administrative.**

This account shall include costs incurred in the provision of general
and administrative services as follows:

\(a\) Formulating corporate policy and in providing overall
administration and management. Included are the pay, fees and expenses
of boards of directors or similar policy boards and all board-designated
officers of the company and their office staffs, e.g., secretaries and
staff assistants.

\(b\) Developing and evaluating long-term courses of action for the
future operations of the company. This includes performing corporate
organization and integrated long-range planning, including management
studies, options and contingency plans, and economic strategic analysis.

\(c\) Providing accounting and financial services. Accounting services
include payroll and disbursements, property accounting, capital
recovery, regulatory accounting (revenue requirements, separations,
settlements and corollary cost accounting), non-customer billing, tax
accounting, internal and external auditing, capital and operating budget
analysis and control, and general accounting (accounting principles and
procedures and journals, ledgers, and financial reports). Financial
services include banking operations, cash management, benefit investment
fund management (including actuarial services), securities management,
debt trust administration, corporate financial planning and analysis,
and internal cashier services.

\(d\) Maintaining relations with government, regulators, other companies
and the general public. This includes:

\(1\) Reviewing existing or pending legislation (See also Account 7300,
Nonoperating income and expense, for lobbying expenses.);

\(2\) Preparing and presenting information for regulatory purposes,

including tariff and service cost filings, and obtaining radio licenses

and construction permits;

\(3\) Performing public relations and non-product-related corporate

image advertising activities;

\(4\) Administering relations, including negotiating contracts, with
telecommunications companies and other utilities, businesses, and
industries. This excludes sales contracts (See also Account 6611,
Product management and sales.); and

\(5\) Administering investor relations.

\(e\) Performing personnel administration activities. This includes:

\(1\) Equal Employment Opportunity and Affirmative Action Programs;

\(2\) Employee data for forecasting, planning and reporting;

\(3\) General employment services;

\(4\) Occupational medical services;

\(5\) Job analysis and salary programs;

\(6\) Labor relations activities;

\(7\) Personnel development and staffing services, including

counseling, career planning, promotion and transfer programs;

\(8\) Personnel policy development;

\(9\) Employee communications;

\(10\) Benefit administration;

\(11\) Employee activity programs;

\(12\) Employee safety programs; and

\(13\) Nontechnical training course development and presentation.

\(f\) Planning and maintaining application systems and databases for
general purpose computers.

\(g\) Providing legal services. This includes conducting and
coordinating litigation, providing guidance on regulatory and labor
matters, preparing, reviewing and filing patents and contracts and
interpreting legislation. Also included are court costs, filing fees,
and the costs of outside counsel, depositions, transcripts and
witnesses.

\(h\) Procuring material and supplies, including office supplies. This
includes analyzing and evaluating suppliers\' products, selecting
appropriate suppliers, negotiating supply contracts, placing purchase
orders, expediting and controlling orders placed for material,
developing standards for material purchased and administering vendor or
user claims.

\(i\) Making planned search or critical investigation aimed at discovery
of new knowledge. It also includes translating research findings into a
plan or design for a new product or process or for a significant
improvement to an existing product or process, whether intended for sale
or use. This excludes making routine alterations to existing products,
processes, and other ongoing operations even though those alterations
may represent improvements.

\(j\) Performing general administrative activities not directly charged
to the user, and not provided for above. This includes providing general
reference libraries, food services (e.g., cafeterias, lunch rooms and
vending facilities), archives, general security investigation services,
operating official private branch exchanges in the conduct of the
business, and telecommunications and mail services. Also included are
payments in settlement of accident and damage claims, insurance premiums
for protection against losses and damages, direct benefit payments to or
on behalf of retired and separated employees, accident and sickness
disability payments, supplemental payments to employees while in
governmental service, death payments, and other miscellaneous costs of a
corporate nature. This account excludes the cost of office services,
which are to be included in the accounts appropriate for the activities
supported.

Section 32.6721 Accounting and finance is deleted.

Section 32.6722 External relations is deleted.

Section 32.6723 Human resources is deleted.

Section 32.6724 Information management is deleted.

Section 32.6725 Legal is deleted.

Section 32.6726 Procurement is deleted.

Section 32.6727 Research and development is deleted.

Section 32.6728 Other general and administrative is deleted.

Section 32.6790 Provision for uncollectible notes receivable is revised
to read as follows:

**§ 32.6790 Provision for uncollectible notes receivable.**

This account shall be charged with amounts concurrently credited to

Account 1170, Receivables.

Section 32.6999 General is revised to read as follows:

**§ 32.6999 General.**

\(a\) Structure of the Other Income Accounts. The Other Income

Accounts are designed to reflect both operating and nonoperating income

items including taxes, extraordinary items and other income and expense

items not properly included elsewhere.

\(b\) Other Income Accounts Listing.

  ----------------------- ----------------------- -----------------------
  Account Title           Class A Account         Class B Account

  Other operating income                          
  and expense:                                    

  Other operating income  7100                    7100
  and expense                                     

  Operating taxes:                                

  Operating taxes                                 7200

  Operating investment    7210                    ....
  tax credits-net                                 

  Operating Federal       7220                    ....
  income taxes                                    

  Operating State and     7230                    ....
  Local income taxes                              

  Operating other taxes   7240                    ....

  Provision for deferred  7250                    ....
  operating income                                
  taxes\--net                                     

  Nonoperating income and                         
  expense:                                        

  Nonoperating income and 7300                    7300
  expense                                         

  Nonoperating taxes:                             

  Nonoperating taxes      7400                    7400

  Interest and related                            
  items:                                          

  Interest and related    7500                    7500
  items                                           

  Extraordinary items     7600                    7600

  Jurisdictional                                  
  Differences and                                 
  non-regulated income                            
  items:                                          

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

  Nonregulated net income 7990                    7990
  ----------------------- ----------------------- -----------------------

Section 32.7099 Content of accounts is deleted.

Section 32.7100 Other operating income and expenses shall be revised to
read as follows:

**§ 32.7100 Other operating income and expenses.**

\(a\) This account shall be used to record the results of transactions,
events or circumstances during the periods which are incidental or
peripheral to the major or central operations of the company. It shall
be used to record all items of an operating nature such as incidental
work performed for others not provided for elsewhere. Whenever
practicable the inflows and outflows associated with a transaction,
event or circumstances shall be matched and the result shown as a net
gain or loss. This account shall include the following:

\(1\) Profits realized from custom work (plant construction) performed
for others incident to the company\'s regulated telecommunications
operations. This includes profits from the incidental performance of
nontariffed construction activities (including associated engineering
and design) for others which are similar in nature to those activities
which are performed by the company in constructing its own
telecommunications plant facilities. The records supporting the entries
in this account for income and custom work shall be maintained with
sufficient particularity to identify separately the revenue and costs
associated with each undertaking.

\(2\) Return on investment for the use of regulated property plant and
equipment to provide nonregulated products and services.

\(3\) All gains and losses resulting from the exchange of foreign
currency. Transaction (realized) gains or losses shall be measured based
on the exchange rate in effect on the transaction date. Unrealized gains
or losses shall be measured based on the exchange rate in effect at the
balance sheet date.

\(4\) Gains or losses resulting from the disposition of land or
artworks.

\(5\) Charges or credits, as appropriate, to record the results of
transactions, events or circumstances which are of an operational
nature, but occur irregularly or are peripheral to the major or central
operations of the company and not provided for elsewhere.

Section 32.7110 Income from custom work is deleted.

Section 32.7130 Return from nonregulated use of regulated facilities is
deleted.

Section 32.7140 Gains and losses from foreign exchange is deleted.

Section 32.7150 Gains and losses from the disposition of land and
artworks is deleted.

Section 32.7160 Other operating gains and losses is deleted.

Section 32.7200 Operating taxes is revised to read as follows:

**§ 32.7200 Operating taxes.**

Class B telephone companies shall use this account for operating taxes
of the type and character required of Class A companies in Accounts 7210
through 7250.

Section 32.7210 Operating investment tax credits---net is amended by
revising paragraph (b) as follows:

**§ 32.7210 Operating investment tax credits\--net.**

\* \* \* \* \*

\(b\) This account shall be credited and Account 4320 shall be charged

ratably with the amortization of each year\'s investment tax credits
included in Account 4320 for investment services for ratemaking
purposes. Such amortization shall be determined in relation to the
period of time used for computing book depreciation on the property with
respect to which the tax credits relate.

Section 32.7240 Operating other taxes is amended by revising paragraph
(d), (e), and (g) as follows:

**§ 32.7240 Operating other taxes.**

\* \* \* \* \*

\(d\) Interest on tax assessments which are not paid when due shall be

included in Account 7500, Interest and related items.

\(e\) Taxes paid by the company under tax-free covenants on indebtedness
shall be charged to Account 7300, Nonoperating income and expense.

\(f\) \* \* \*

\(g\) Taxes on rented telecommunications plant which are borne by the

lessee shall be credited by the owner to Account 5200, Miscellaneous
revenue, and shall be charged by the lessee to the appropriate Plant
Specific Operations Expense account.

Section 32.7299 Content of accounts is deleted.

Section 32.7300 Nonoperating income and expense is revised to read as
follows:

§ 32.7300 Nonoperating income and expense.

\(a\) This account shall be used to record the results of transactions,
events and circumstances affecting the company during a period and which
are not operational in nature. This account shall include such items as
nonoperating taxes, dividend income and interest income. Whenever
practicable, the inflows and outflows associated with a transaction or
event shall be matched and the result shown as a net gain or loss. This
account shall include the following:

\(1\) Dividends on investments in common and preferred stock, which is
the property of the company, whether such stock is owned by the company
and held in its treasury, or deposited in trust including sinking or
other funds, or otherwise controlled.

\(2\) Dividends received and receivable from affiliated companies
accounted for on the equity method shall be included in Account 1410,
Other noncurrent assets, as a reduction of the carrying value of the
investments.

\(3\) Interest on securities, including notes and other evidences of
indebtedness, which are the property of the company, whether such
securities are owned by the company and held in its treasury, or
deposited in trust including sinking or other funds, or otherwise
controlled. It shall also include interest on cash bank balances,
certificates of deposits, open accounts, and other analogous items.

\(4\) For each month the applicable amount requisite to extinguish,
during the interval between the date of acquisition and date of
maturity, the difference between the purchase price and the par value of
securities owned or held in sinking or other funds, the income from
which is includable in this account. Amounts thus credited or charged
shall be concurrently included in the accounts in which the securities

are carried.

\(5\) Amounts charged to the telecommunications plant under construction
account related to allowance for funds used during construction. (See §
32.2000(c)(2)(x).)

\(6\) Gains or losses resulting from:

\(i\) The disposition of land or artworks;

\(ii\) The disposition of plant with traffic;

\(iii\) The disposition of nonoperating telecommunications plant not
previously used in the provision of telecommunications services.

\(7\) All other items of income and gains or losses from activities not
specifically provided for elsewhere, including representative items such
as:

\(i\) Fees collected in connection with the exchange of coupon bonds for
registered bonds;

\(ii\) Gains or losses realized on the sale of temporary cash
investments or marketable equity securities;

\(iii\) Net unrealized losses on investments in current marketable
equity securities;

\(iv\) Write-downs or write-offs of the book costs of investment in
equity securities due to permanent impairment;

\(v\) Gains or losses of nonoperating nature arising from foreign
currency exchange or translation;

\(vi\) Gains or losses from the extinguishment of debt made to satisfy
sinking fund requirements;

\(vii\) Amortization of goodwill

\(viii\) Company's share of the earnings or losses of affiliated
companies accounted for on the equity method; and

\(ix\) The net balance of the revenue from and the expenses (including
depreciation, amortization and insurance) of property, plant, and
equipment, the cost of which is includable in Account 2006, Nonoperating
plant.

\(8\) Costs that are typically given special regulatory scrutiny for
ratemaking purposes. Unless specific justification to the contrary is
given, such costs are presumed to be excluded from the costs of service
in setting rates.

\(i\) Lobbying includes expenditures for the purpose of influencing

public opinion with respect to the election or appointment of public

officials, referenda, legislation, or ordinances (either with respect to
the

possible adoption of new referenda, legislation or ordinances, or repeal

or modification of existing referenda, legislation or ordinances) or

approval, modification, or revocation of franchises, or for the purpose

of influencing the decisions of public officials. This also includes

advertising, gifts, honoraria, and political contributions. This does

not include such expenditures which are directly related to

communications with and appearances before regulatory or other

governmental bodies in connection with the reporting utility\'s existing

or proposed operations;

\(ii\) Contributions for charitable, social or community welfare

purposes;

\(iii\) Membership fees and dues in social, service and recreational or

athletic clubs and organizations;

\(iv\) Penalties and fines paid on account of violations of statutes.

This account shall also include penalties and fines paid on account of

violations of U.S. antitrust statutes, including judgements and payments

in settlement of civil and criminal suits alleging such violations; and

\(v\) Abandoned construction projects.

\(9\) Cash discounts on bills for material purchased shall not be
included in this account.

Section 32.7310 Dividend income is deleted.

Section 32.7320 Interest income is deleted.

Section 32.7330 Income from sinking and other funds is deleted.

Section 32.7340 Allowance for funds used during construction is deleted.

Section 32.7350 Gains or losses from the disposition of certain property
is deleted.

Section 32.7360 Other operating income is deleted.

Section 32.7370 Special charges is deleted.

Section 32.7399 Content of accounts is deleted.

Section 32.7400 Nonoperating taxes is revised to read as follows:

**§ 32.7400 Nonoperating taxes.**

This account shall include taxes arising from activities which are not a
part of the central operations of the entity.

\(a\) This account shall be charged and Account 4330, Unamortized
nonoperating investment tax credits\--net, shall be credited with
investment tax credits generated from qualified expenditures related to
other operations which the company has elected to defer rather than
recognize currently in income.

\(b\) This account shall be credited and Account 4330 shall be charged
with the amortization of each year\'s investment tax credits included in
such accounts relating to amortization of previously deferred investment
tax credits of other property or regulated property, the amortization of

which does not serve to reduce costs of service (but the unamortized
balance does reduce rate base) for ratemaking purposes. Such
amortization shall be determined with reference to the period of time
used for computing book depreciation on the property with respect to
which the tax credits relate.

\(c\) This account shall be charged and Account 4070, Income
taxes\--accrued, shall be credited for the amount of nonoperating
Federal income taxes and state and local income taxes for the current
period. This account shall also reflect subsequent adjustments to
amounts previously charged.

\(d\) Taxes shall be accrued each month on an estimated basis and
adjustments made as more current data becomes available.

\(e\) Companies that adopt the flow-through method of accounting for
investment tax credits shall reduce the calculated provision in this
account by the entire amount of the credit realized during the year. Tax
credits, other than investment tax credits, if normalized, shall be
recorded consistent with the accounting for investment tax credits.

\(f\) No entries shall be made to this account to reflect interperiod
tax allocation.

\(g\) Taxes (both Federal and state) shall be accrued each month on an
estimated basis and adjustments made as later data becomes available.

\(h\) This account shall be charged and Account 4080, Other
taxes\--accrued, shall be credited for all nonoperating taxes, other
than Federal, state and local income taxes, and payroll related taxes
for the current period. Among the items includable in this account are
property, gross receipts, franchise and capital stock taxes. This
account shall also reflect subsequent adjustments to amounts previously
charged.

(i) This account shall be charged or credited, as appropriate, with
    contra entries recorded to the following accounts for nonoperating
    tax expenses that has been deferred in accordance with § 32.22 of
    subpart B:

4110 Net Current Deferred Nonoperating Income Taxes

4350 Net Noncurrent Deferred Nonoperating Income Taxes

\(j\) Subsidiary record categories shall be maintained to distinguish
between property and nonproperty related deferrals and so that the
company may separately report the amounts contained herein that relate
to Federal, state and local income taxes. Such subsidiary record
categories shall be reported as required by part 43 of this
Commission\'s

Rules and Regulations.

Section 32.7410 Nonoperating investment tax credits---net is deleted.

Section 32.7420 Nonoperating Federal income taxes is deleted.

Section 32.7430 Nonoperating state and local income taxes is deleted.

Section 32.7440 Nonoperating other taxes is deleted.

Section 32.7450 Provision for deferred nonoperating income taxes---net
is deleted.

Section 32.7499 Content of accounts is deleted.

Section 32.7500 interest and related items is revised to read as
follows:

**§ 32.7500 Interest and related items.**

\(a\) This account shall include the current accruals of interest on all
classes of funded debt the principal of which is includable in Account
4200, Long term debt and funded debt. It shall also include the interest
on funded debt the maturity of which has been extended by specific
agreement. This account shall be kept so that the interest on each class
of funded debt may be shown separately in the annual reports to this
Commission.

\(b\) These accounts shall not include charges for interest on funded
debt issued or assumed by the company and held by or for it, whether
pledged as collateral or held in its treasury, in special deposits or in
sinking or other funds.

\(c\) Interest expressly provided for and included in the face amount of
securities issued shall be charged at the time of issuance to Account
1280, Prepayments, and cleared to this account as the term expires to
which the interest applies.

\(d\) This account shall also include monthly amortization of balances
in Account 4200, Long-term debt and funded debt.

\(e\) This account shall include the interest portion of each capital

lease payment.

\(f\) This account shall include the monthly amortization of the
balances in Account 1410, Other noncurrent assets.

\(g\) This account shall include all interest deductions not provided
for elsewhere, e.g., discount, premium, and expense on notes maturing
one year or less from date of issue.

\(h\) A list of representative items of indebtedness, the interest on
which is chargeable to this account, follows:

\(1\) Advances from affiliated companies;

\(2\) Advances from nonaffiliated companies and other liabilities

\(3\) Assessments for public improvements past due;

\(4\) Bond coupons, matured and unpaid;

\(5\) Claims and judgments;

\(6\) Customers\' deposits;

\(7\) Funded debt mature, with respect to which a definite agreement as
to extension has not been made;

\(8\) Notes payable on demand or maturing one year or less from date of
issue;

\(9\) Open accounts;

\(10\) Tax assessments, past due; and

\(11\) Discount, premium, and issuance expense of notes maturing one
year or less from date of issue.

Section 32.7510 Interest on funded debt is deleted.

Section 32.7520 Interest expense---capital leases is deleted.

Section 32.7530 Amortization of debt issuance expense is deleted.

Section 32.7540 Other interest deductions is deleted.

Section 32.7599 Content of accounts is deleted.

Section 32.7600 Extraordinary items is revised to read as follows:

**§ 32.7600 Extraordinary items.**

\(a\) This account is intended to segregate the effects of events or
transactions that are extraordinary. Extraordinary events and
transactions are distinguished by both their unusual nature and by the
infrequency of their occurrence, taking into account the environment in
which the company operates. This account shall also include the related
income tax effect of the extraordinary items.

\(b\) This account shall be credited and/or charged with nontypical,
noncustomary and infrequently recurring gains and/or losses which would
significantly distort the current year\'s income computed before such
extraordinary items, if reported other than as extraordinary items.

\(c\) This account shall be charged or credited and Account 4070, Income
taxes\--accrued, shall be credited or charged for all current income tax
effects (Federal, state and local) of extraordinary items.

\(d\) This account shall also be charged or credited, as appropriate,
with a contra amount recorded to Account 4350, Net noncurrent deferred
nonoperating income taxes or Account 4110, Net current deferred
nonoperating income taxes for the income tax effects (Federal, state and
local) of extraordinary items that have been deferred in accordance with
§ 32.22 of Subpart B.

Section 32.7610 Extraordinary income credits is deleted.

Section 32.7620 Extraordinary income charges is deleted.

Section 32.7630 Current income tax effect of extraordinary items---net
is deleted.

Section 32.7640 Provision for deferred income tax effect of
extraordinary items---net is deleted.

Section 32.9000 Glossary of terms is amended by revising the definition
of *Mid-sized incumbent local exchange carrier* to read as follows:

**§ 32.9000 Glossary of terms.**

\* \* \* \* \*

*Mid-sized incumbent local exchange carrier* is a carrier whose annual
revenue from regulated telecommunications operations equals or exceeds
the indexed revenue threshold and whose revenue when aggregated with the
revenues of any local exchange carrier that it controls, is controlled
by, or with which it is under common control is less than \$7 billion
(indexed for inflation as measured by the Department of Commerce Gross
Domestic Product Chain-type Price Index (GDP-CPI)).

\* \* \* \* \*

Part 43 of Title 47 of the C.F.R. is amended as follows:

**PART 43-REPORTS OF COMMUNICATION COMMON CARRIERS AND CERTAIN
AFFILIATES**

1\. The authority citation for Part 43 continues to read as follows:

**Authority: 47 U.S.C. 154; Telecommunications Act of 1996, Pub. L.
104-104, secs. 402(b)(2)(B), (c), 110 Stat. 56 (1996) as amended unless
otherwise noted. 47 U.S.C. 211, 219, 220 as amended.**

2\. Section 43.21 Annual reports of carriers and certain affiliates is
amended by revising paragraph (e) to read as follows:

**§ 43.21 Annual reports of carriers and certain affiliates.**

\* \* \* \* \*

\(e\) Each incumbent local exchange carrier, except mid-sized incumbent
local exchange carriers, as defined by § 32.9000 with annual operating
revenues equal to or above the indexed revenue threshold shall file, no
later than April 1 of each year:

\(1\) \* \* \*

\(2\) \* \* \*

\(3\) \* \* \*

In addition to the amendment set forth above, Section 43.21 is amended
by revising all references to "Each local exchange carrier" in
paragraphs (f) through (j) to read "Each incumbent local exchange
carrier".

\(k\) \* \* \*

Part 51 of Title 47 of the C.F.R. is amended as follows:

**PART 51 - INTERCONNECTION**

**Subpart G Resale**

1.  The authority citation for Part 51 continues to read as follows:

Authority: 47 U.S.C. §161

2\. Section 51.609 Determination of avoided retail costs is amended by
revising paragraphs (c)(1),(2) and (3) and (d) to read as follows:

**§ 51.609 Determination of avoided retail costs.**

\* \* \* \* \*

( c) \* \* \*

\(1\) Include, as direct costs, the costs recorded in USOA accounts
6611(product management and sales), 6613 (product advertising) and 6620
(Services) (Secs. 32.6611, 32.6613 and 32.6620 of this chapter);

\(2\) Include, as indirect costs, a portion of the costs recorded in
USOA accounts 6121-6124 (general support expenses), 6720 (corporate
operations expenses), and uncollectible telecommunications revenue
included in 5300 (uncollectible revenue) (Secs. 32.6121-32.6124, 32.6720
and 32.5300 of this chapter); and

\(3\) Not include plant-specific expenses and plant non-specific
expenses, other than general support expenses (Secs. 32.6112-32.6114,
32.6211-32.6560 of this chapter).

\(d\) Costs included in accounts 6611, 6613 and 6620 described in
paragraph (c) of this section (Secs. 32.6611, 32.6613 and 32.6620 of
this chapter) may be included in wholesale rates only to the extent that
the incumbent LEC proves to a state commission that specific costs in
these accounts will be incurred and are not avoidable with respect to
services sold at wholesale, or that specific costs in these accounts are
not included in the retail prices of resold services. Costs included in
accounts 6112-6114 and 6211-6560 described in paragraph (c) of this
section (Secs. 32.6112-32.6114, 32.6211-32.6560 of this chapter) may be
treated as avoided retail costs, and excluded from wholesale rates, only
to the extent that a party proves to a state commission that specific
costs in these accounts can reasonably be avoided when an incumbent LEC
provides a telecommunications service for resale to a requesting
carrier.

\* \* \* \* \*

Part 54, Subpart D of Title 47 of the C. F. R. is amended as follows:

### Part 54 -- UNIVERSAL SERVICE

Subpart D -- Universal Service Support for High Cost Areas

1\. The authority citation for Part 54 continues to read as follows:

Authority: 47 U.S.C. §§ 1,4(i) 201, 205, 214, and 254

2\. Section 54.301 Local switching support is amended by revising the
table in paragraph (b), and revising paragraphs (c)(2), (c)(5), and
(d)(4) to read as follows:

**§ 54.301 Local switching support.**

\* \* \* \* \*

(b) \* \* \*

I

Telecommunications Plant in Service
(TPIS)\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-- Account 2001

Telecommunications
Plant---Other\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
Accounts 2002, 2003, 2005

General Support
Assets\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
2110

Central Office
Assets\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Accounts
2210, 2220, 2230

Central Office-switching, Category 3 (local switching)\-\-\-\-\--Account
2210, Category 3

Information Origination/termination
Assets\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account 2310

Cable and Wire Facilities
Assets\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
2410

Amortizable Tangible
Assets\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
2680

Intangibles\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
2690

II

Rural Telephone Bank (RTB)
Stock\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-- Included in
Account 1410

Materials and
Supplies\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
Account 1220.1

Cash Working Capital
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
Defined in 47 CFR 65.820(d)

III

Accumulated
Depreciation\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
Account 3100

Accumulated
Amortization\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included
in Accounts 2005, 2680,

> 2690, 3410

Net Deferred Operating Income
Taxes\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Accounts
4100, 4340

Network Support
Expenses\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6110

General Support
Expenses\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6120

Central Office Switching, Operator Systems, and
\-\-\-\-\-\-\-\-\-\-\-\-\-\--Accounts 6210, 6220, 6230

Central Office Transmission Expenses

Information Origination/Termination
Expenses\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-- Account 6310

Cable and Wire Facilities
Expenses\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6410

Other Property, Plant and Equipment Expenses
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account 6510

Network Operations
Expenses\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6530

Access Expense
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6540

Depreciation and Amortization
Expense\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account 6560

Marketing
Expense\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6610

Services
Expense\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6620

Corporate Operations
Expense\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
6720

Operating
Taxes\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Accounts
7230, 7240

Federal Investment Tax
Credits\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--
Account 7210

Provision for Deferred Operating Income
Taxes-Net\-\-\-\-\-\-\-\-\-\--Account 7250

Allowance for Funds Used During
Construction\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included in Account 7300

Charitable
Contributions\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included
in Account 7300

Interest and Related
Items\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
7500

IV

Other Non-Current
Assets\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included
in Account 1410

Deferred Maintenance and
Retirements\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included
in Account 1438

Deferred
Charges\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included
in Account 1438

Other Jurisdictional Assets and
Liabilities\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Accounts 1500,
4370

Customers'
Deposits\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Account
4040

Other Long-Term
Liabilities\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--Included
in Account 4300

(c) \* \* \*

\(2\) Telecommunications Plant\--Other (Accounts 2002, 2003, 2005);
Rural Telephone Bank (RTB) Stock (included in Account 1410); Materials
and Supplies (Account 1220.1); Cash Working Capital (Sec. 65.820(d) of
this chapter); Accumulated Amortization (Included in Accounts 2005,
2680, 2690, 3410); Net Deferred Operating Income Taxes (Accounts 4100,
4340); Network Support Expenses (Account 6110); Other Property, Plant
and Equipment Expenses (Account 6510); Network Operations Expenses
(Account 6530); Marketing Expense (Account 6610); Services Expense
(Account 6620); Operating Taxes (Accounts 7230, 7240); Federal
Investment Tax Credits (Accounts 7210); Provision for Deferred Operating
Income Taxes\--Net (Account 7250); Interest and Related Items (Account
7500); Allowance for Funds Used During Construction (Included in Account
7300); Charitable Contributions (included in Account 7300); Other
Non-current Assets (Included in Account 1410); Other Jurisdictional
Assets and Liabilities (Accounts 1500, 4370); Customer Deposits (Account
4040); Other Long-term Liabilities (Included in Account 4300); and
Deferred Maintenance and Retirements (Included in Account 1438) shall be
allocated according to the following factor:

Account 2210 Category 3÷Account 2001.

\(3\) \* \* \*

\(4\) \* \* \*

\(5\) Corporate Operations Expenses (Account 6720) shall be allocated
according to the following factor:

\[\[Account 2210 Category 3 ÷ (Account 2210 + Account 2220 +

Account 2230)\]\] x (Account 6210 + Account 6220 + Account 6230)\] +

\[(Account 6530 + Account 6610 + Account 6620) x (Account 2210 Category

3 ÷ Account 2001)\] ÷ (Account 6210 + Account 6220 +

Account 6230 + Account 6310 + Account 6410 + Account 6530 + Account 6610

\+ Account 6620).

\(6\) \* \* \*

(d) \* \* \*

\(4\) Federal income tax attributable to COE Category 3 shall be
calculated using the following formula; the accounts listed shall be
allocated pursuant to paragraph (c) of this section:

\[Return on Investment attributable to COE Category 3 -- Included in
Account 7300 -

Account 7500-Account 7210)\] x \[Federal Income Tax Rate ÷ (1 -

Federal Income Tax Rate)\].

\* \* \* \* \*

# Part 64 of Title 47 of the C.F.R. is amended as follows:

# PART 64 - MISCELLANEOUS RULES RELATING TO COMMON CARRIERS  {#part-64---miscellaneous-rules-relating-to-common-carriers .unnumbered}

**Subpart I Allocation of Costs**

1\. The authority citation for Part 64 continues to read as follows:

Authority: 47 U.S.C. §161

2\. Section 64.901 Allocation of costs is amended by revising paragraph
(b)(1) to read as follows:

**§ 64.901 Allocation of costs.**

\* \* \* \* \*

b\. \* \* \*

\(1\) Tariffed services provided to a nonregulated activity will be
charged to the nonregulated activity at the tariffed rates and credited
to the regulated revenue account for that service. Nontariffed services,
offered pursuant to a section 252(e) agreement, provided to a
nonregulated activity will be charged to the nonregulated activity at
the amount set forth in the applicable interconnection agreement
approved by a state commission pursuant to section 252(e) and credited
to the regulated revenue account for that service.

\* \* \* \* \*

3\. Section 64.903 Cost allocation manuals is amended by revising
paragraph (a) to read as follows:

**§ 64.903 Cost allocation manuals.**

\(a\) Each incumbent local exchange carrier having annual revenues from
regulated telecommunications operations that are equal to or above the
indexed revenue threshold (as defined in § 32.9000 of this chapter)
except mid-sized incumbent local exchange carriers is required to file a
cost allocation manual describing how it separates regulated from
nonregulated costs. The manual shall contain the following information
regarding the carrier's allocation of costs between regulated and
nonregulated activities:

\* \* \* \* \*

4\. Section 64.904 Independent audits is amended by deleting paragraphs
(b) and (c) and revising paragraph (a) to read as follows:

**§ 64.904 Independent audits.**

(a)Each carrier required to file a cost allocation manual shall elect to
either (1) have an attest engagement performed by an independent auditor
every two years, covering the prior two year period, or (2) have a
financial audit performed by an independent auditor every two years,
covering the prior two year period. In either case, the initial
engagement shall be performed in the calendar year after the carrier is
first required to file a cost allocation manual.

(b)The attest engagement shall be an examination engagement and shall
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) of this chapter comply
with the Commission\'s Joint Cost Orders issued in conjunction with CC
Docket No. 86-111, the Commission\'s Accounting Safeguards proceeding in
CC Docket No. 96-150, and the Commission\'s rules and regulations
including §§ 32.23 and 32.27 of this chapter, § 64.901, and § 64.903 in
force as of the date of the auditor\'s report. At least 30 days prior to
beginning the attestation engagement, the independent auditors shall
provide the Commission with the audit program. The attest engagement
shall be conducted in accordance with the attestation standards
established by the American Institute of Certified Public Accountants,
except as otherwise directed by the Chief, Common Carrier Bureau.

(c)The biennial financial audit shall provide a positive opinion on
whether the applicable data shown in the carrier\'s annual report
required by § 43.21(e)(2) of this chapter present fairly, in all
material respects, the information of the Commission\'s Joint Cost
Orders issued in conjunction with CC Docket No. 86-111, the
Commission\'s Accounting Safeguards proceeding in CC Docket No. 96-150,
and the Commission\'s rules and regulations including §§ 32.23 and 32.27
of this chapter, and § 64.901, and § 64.903 in force as of the date of
the auditor\'s report. The audit shall be conducted in accordance with
generally accepted auditing standards, except as otherwise directed by
the Chief, Common Carrier Bureau. The report of the independent auditor
shall be filed at the time that the carrier files the annual reports
required by § 43.21(e)(2) of this chapter.

\(b\) \[Removed\]

\(c\) \[Removed\]

5\. Section 64.905 Annual certification is added to read as follows:

**§ 64.905 Annual certification.**

A mid-sized incumbent local exchange carrier, as defined in § 32.9000,
shall file a certification with the Commission stating that it is
complying with § 64.901 of the Commission's rules. The certification
must be signed, under oath, by an officer of the mid-sized incumbent
LEC, and filed with the Commission on an annual basis at the time that
the mid-sized incumbent LEC files the annual reports required by §
43.21(e)(2) of this chapter.

Part 65 of Title 47 of the C.F.R. is amended as follows:

**PART 65 - INTERSTATE RATE OF RETURN PRESCRIPTION PROCEDURES AND
METHODOLOGIES**

**Subpart C Exchange Carriers**

1\. The authority citation for Part 65 continues to read as follows:

Authority: 47 U.S.C. §161

2\. In Section 65.300(a) remove the words \"in excess of 100 million\"
and add, in their place, the words \"equal to or above the indexed
revenue threshold as defined in Section 32.9000.\"

3\. In Sections 65.302, 65.303, 65.304, remove the words \"of 100
million or more\" and add, in their place, the words \"equal to or above
the indexed revenue threshold as defined in Section 32.9000".

4\. Section 65.450 Net Income is amended by revising paragraphs
(a),(b)(1), (b)(2)and (d) to read as follows:

**§ 65.450 Net Income.**

\(a\) Net income shall consist of all revenues derived from the
provision of interstate telecommunications services regulated by this
Commission less expenses recognized by the Commission as necessary to
the provision of these services. The calculation of expenses entering
into the determination of net income shall include the interstate
portion of plant specific operations (Accounts 6110-6441), plant
nonspecific operations (Accounts 6510-6560), customer operations
(Accounts 6610-6620), corporate operations (Accounts 6720-6790), other
operating income and expense (Account 7100), and operating taxes
(Accounts 7200-7250), except to the extent this Commission specifically
provides to the contrary.

> \(b\) \* \* \*

\(1\) Gains related to property sold to others and leased back under
capital leases for use in telecommunications services shall be recorded
in Account 4300 (Other long-term liabilities and deferred credits) and
credited to Account 6560 (Depreciation and Amortization Expense) over
the amortization period established for the capital lease;

\(2\) Gains or losses related to the disposition of land and other
nondepreciable items recorded in Account 7100 (Other operating income
and expense) shall be included in net income for ratemaking purposes,
but adjusted to reflect the relative amount of time such property was
used in regulated operations and included in the rate base; and

\(3\) \* \* \*

\(c\) \* \* \*

> \(d\) Except for the allowance for funds used during construction,
> reasonable charitable deductions and interest related to customer
> deposits, the amounts recorded as nonoperating income and expenses and
> taxes (Accounts 7300 and 7400) and interest and related items (Account
> 7500) and extraordinary items (Account 7600) shall not be included
> unless this Commission specifically determines that particular items
> recorded in those accounts shall be included.

5\. Section 65.820 Included items is amended by revising paragraphs (a)
and (c) to read as follows:

**§ 65.820 Included items.**

\(a\) *Telecommunications Plant*. The interstate portion of all assets
summarized in Account 2001 (Telecommunications Plant in Service) and
Account 2002 (Property Held for Future Use), net of accumulated
depreciation and amortization, and Account 2003 (Telecommunications
Plant Under Construction), and, to the extent such inclusions are
allowed by this Commission, Account 2005 (Telecommunications Plant
Adjustment). Any interest cost for funds used during construction
capitalized on assets recorded in these accounts shall be computed in
accordance with the procedures in Sec. 32.2000(c)(2)(x) of this chapter.

\(b\) \* \* \*

\(c\) *Noncurrent Assets*. The interstate portion of Class B Rural
Telephone Bank stock contained in Account 1410 and the interstate
portion of assets summarized in Account 1410 (Other Noncurrent Assets)
and Account 1438 (Deferred Maintenance, Retirements and Deferred
Charges), only to the extent that they have been specifically approved
by this Commission for inclusion (Note: The interstate portion of assets
summarized in Account 1410 should not include any amounts related to
investments, sinking funds or unamortized debt issuance expense). Except
as noted above, no amounts from accounts 1406-1500 shall be included.

\* \* \* \* \*

6\. Section 65.830 Deducted items is amended by revising paragraphs
(a)(3), (a)(4), and (c) to read as follows:

**§ 65.830 Deducted items.**

\(a\) \*\*\*

(a)(3) The interstate portion of other long-term liabilities in (Account
4300 Other long-term liabilities and deferred credits) that were derived
from the expenses specified in Sec. 65.450(a).

(a)(4) The interstate portion of other deferred credits in (Account 4300
Other long-term liabilities and deferred credits) to the extent they
arise from the provision of regulated telecommunications services. This
shall include deferred gains related to sale-leaseback arrangements.

> \(b\) \* \* \*

\(c\) The interstate portion of other long-term liabilities included in
(Account 4300 Other long-term liabilities and deferred credits) shall
bear the same proportionate relationships as the interstate/intrastate
expenses which gave rise to the liability.

Part 69, Subparts A through E of Title 47 of the C.F.R. is amended as
follows:

**PART 69 ACCESS CHARGES**

1\. The authority citation for Part 69 continues to read as follows:

Authority: 47 U.S.C. §§154, 201, 202, 203, 205, 218, 220, 254, 403

2\. Section 69.2 Definitions is amended by revising paragraphs (j) and
(z) to read as follows:

**§ 69.2 Definitions.**

\* \* \* \* \*

\(j\) *Corporate Operations Expenses* are included in General and
Administrative Expenses (Account 6720);

\* \* \* \* \*

\(z\) *Net Investment* means allowable original cost investment in
Accounts 2001 through 2003, 1220 and the investments in nonaffiliated
companies included in Account 1410, that has been apportioned to
interstate and foreign services pursuant to the Separations Manual from
which depreciation, amortization and other reserves attributable to such
investment that has been apportioned to interstate and foreign services
pursuant to the Separations Manual have been subtracted and to which
working capital that is attributable to interstate and foreign services
has been added;

\* \* \* \* \*

3\. Section 69.302 Net Investment is amended by revising paragraph (a)
to read as follows:

**§ 69.302 Net Investment.**

\(a\) Investment in Accounts 2001, 1220 and Class B Rural Telephone Bank
Stock booked in Account 1410 shall be apportioned among the
interexchange category, billing and collection category and appropriate
access elements as provided in Secs. 69.303 through 69.309.

\* \* \* \* \*

4\. Section 69.409 Corporate operations expenses (Accounts 6710 and
6720) is amended by changing the section title to read as follows:

**§ 69.409 Corporate operations expenses (included in Account 6720).**

\* \* \* \*

[]{#__RefHeading___Toc532006769 .anchor}APPENDIX G -- FCC Report 43-04
Table I -- Separations and Access Table

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 32%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 1 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i---separations-and-access-table">TABLE I
- SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
</tbody>
</table>

EQUAL ACCESS

  ---- ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
  30   Total Equal Access                     N/A         N/A         N/A   N/A   N/A
       Investment                                                                 

  40   Total Equal Access                     N/A         N/A         N/A   N/A   N/A
       Accumulated                                                                
       Depreciation                                                               

  44   Total Equal Access                     N/A         N/A         N/A   N/A   N/A
       Curr. Def. Oper. Income                                                    
       Tax                                                                        

  46   Total Equal Access                     N/A         N/A         N/A   N/A   N/A
       Non-Curr. Def. Oper.                                                       
       Income Tax                                                                 

  83   \# Equal Access Minutes                N/A   N/A   N/A   N/A   N/A   N/A   N/A
       of Use                                                                     

  84   Total Equal Access                     N/A         N/A         N/A   N/A   N/A
       Expenses                                                                   
  ---- ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----

**TELECOMMUNICATIONS PLANT IN SERVICE**

#### General Support Facilities

  ------ ----------------------- ----- ----- ---- ----- ----- ----- ----- ----- ----- -----
  1000   GSF Investment                                                               

  1001   GSF Inv. Allocation                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Basis -- Class A Cos.                                                        
         -- Big 3 Exp.                                                                

  1002   GSF Inv. Allocation                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Basis -- Class B Cos.                                                        
         -- Inv. Amts.                                                                

  1003   GSF Inv. -- Part 69     N/A   N/A                                            
         Allocation Basis                                                             
  ------ ----------------------- ----- ----- ---- ----- ----- ----- ----- ----- ----- -----

Central Office Equipment (COE)

  ------ ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
  1112   COE Cat. 1 --                          N/A         N/A         N/A   N/A   
         Switchboard Inv.                                                           

  1129   COE Cat. 1 -- Service                  N/A                     N/A   N/A   
         Observing Boards Inv.                                                      

  1154   COE Cat. 1 -- Auxiliary                N/A         N/A         N/A   N/A   
         Service Boards Inv.                                                        

  1168   COE Cat. 1 -- Traffic                  N/A                     N/A   N/A   
         Service Position System                                                    
         Inv.                                                                       

  1170   Total COE Cat. 1                       N/A                     N/A   N/A   
         Investment                                                                 

  1201   COE Cat. 2 Tandem                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Switching Inv. -- Dir.                                                     
         Assg. Msg.                                                                 

  1202   COE Cat. 2 Tandem                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Switching Inv. -- Joint                                                    
         Use                                                                        

  1203   \# Tandem Minutes of                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Use                                                                        

  1204   Total COE Cat. 2                       N/A                     N/A   N/A   
         Investment                                                                 

  1212   Total COE Cat. 3                                                     N/A   
         Investment                                                                 

  1216   \# Dial Equipment                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Minutes of Use                                                             

  1220   COE Cat. 4.11 -- WDBD                  N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch Line Ckt Eqpt --                                                      
         DA PL                                                                      

  1222   COE Cat. 4.11 -- WDBD                  N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch Line Ckt Eqpt --                                                      
         Joint Use                                                                  

  1223   \# WDBD Minutes of Use                 N/A   N/A   N/A   N/A   N/A   N/A   N/A

  1224   Total COE Cat. 4.11 --                 N/A   N/A                     N/A   
         WDBD Exch. Line Ckt.                                                       
         Eqpt. Inv.                                                                 

  1230   COE Cat. 4.12 Basic                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trunk Ckt. --                                                        
         Dir. Assg. -- PL                                                           

  1231   COE Cat. 4.12 Basic                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trunk Ckt. --Dir.                                                    
         Assg. -- Msg                                                               

  1232   COE Cat. 4.12 Basic                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trunk Ckt. --                                                        
         Joint Use                                                                  

  1233   \# Exchange Trunk                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Minutes of Use                                                             

  1234   Total COE Cat. 4.12                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Basic Exch. Trunk Ckt.                                                     
         Eqpt. Inv.                                                                 

  1240   COE Cat. 4.12 Special                  N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trk. Ckt. -- Dir.                                                    
         Assg. -- PL                                                                

  1250   COE Cat. 4.12 WDBD                     N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trk. Ckt. -- Dir.                                                    
         Assg. -- PL                                                                

  1252   COE Cat. 4.12 WDBD                     N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trunk Ckt. --                                                        
         Joint Use                                                                  

  1254   Total COE Cat. 4.12                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         WDBD Exch. Trunk Ckt.                                                      
         Eqpt.                                                                      

  1260   Total COE Cat. 4.12                    N/A                           N/A   
         Exch. Trunk Ckt. Eqpt.                                                     
         Inv.                                                                       

  1274   COE Cat. 4.13 Basic                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Ckt. Eqpt. --                                                        
         Dir. Assg. PL                                                              
  ------ ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 32%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 2 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i---separations-and-access-table-1">TABLE
I - SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
<tr class="even">
<td>1275</td>
<td>COE Cat. 4.13 Basic Exch. Ckt. Eqpt. – Joint Use</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1276</td>
<td>% Loop Allocation Factor</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1277</td>
<td>Total COE Cat. 4.13 Basic Exch. Ckt. Eqpt.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1280</td>
<td>Tot. COE Cat. 4.13 Spl. Exch. Ckt. Eqpt.– Dir. Assg. PL</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1290</td>
<td>Total COE Cat. 4.13 Exch. Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td></td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1300</td>
<td>Total COE Cat. 4.1 – Exch. Line Ckt. Eqpt.</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="even">
<td>1310</td>
<td>Total COE Cat. 4.21 IX Ckt. Eqpt. Furnished to Others</td>
<td></td>
<td>N/A</td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>1320</td>
<td>COE Cat. 4.22 WDBD IX Ckt. Eqpt. – Dir. Assg. PL</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1322</td>
<td>COE Cat. 4.22 WDBD IX Ckt. Eqpt. – Joint Use</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1323</td>
<td># Conversation Minute Kilometers</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1324</td>
<td>Total COE Cat. 4.22 WDBD IX Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>1336</td>
<td>COE Cat. 4.23 Basic IX Ckt. Eqpt. – Dir. Assg. PL</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1338</td>
<td>COE Cat. 4.23 Basic IX Ckt. Eqpt. – Joint Use</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1339</td>
<td># Conversation Minutes</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1342</td>
<td>Total COE Cat. 4.23 Basic IX Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1350</td>
<td>COE Cat. 4.23 Spl. IX Ckt. Eqpt. - Dir. Assg. PL</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1370</td>
<td>Total COE Cat. 4.23 IX Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>1380</td>
<td>Total COE Cat. 4.2 IX Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="even">
<td>1392</td>
<td>COE Cat. 4.3 Host/Remote Ckt. Eqpt. – Joint Use</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1393</td>
<td># Minutes of Use Kilometers</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1394</td>
<td>Total COE Cat. 4.3 COE – Host/Remote Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>1400</td>
<td>Total COE Cat. 4 – COE Ckt. Eqpt. Inv.</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="even">
<td>1410</td>
<td>Total COE Investment</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
</tbody>
</table>

Information Origination/Termination (IOT) Equipment

  ------ ------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
  1420   IOT Cat. 1 -- Other IOT                     N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Inv.                                                                            

  1425   IOT Cat. 1 -- Other IOT - N/A   N/A               N/A   N/A   N/A         N/A   N/A
         Part 69 Allocation                                                              

  1426   \# Equivalent Lines       N/A   N/A               N/A   N/A   N/A         N/A   N/A

  1428   Total IOT Cat. 1                                  N/A   N/A   N/A         N/A   N/A
         Investment                                                                      

  1430   IOT Cat. 2 New Cust.                  N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Premises Eqpt. - Dir.                                                           
         Assg. State                                                                     

  1440   Total Information                                 N/A   N/A   N/A         N/A   N/A
         Origination/Termination                                                         
         Investment                                                                      
  ------ ------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Cable and Wire Facilities (C&WF)

  ------ ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
  1454   C&WF Cat. 1 - Exch.                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Line -- Dir. Assg. PL                                                      

  1455   C&WF Cat. 1 - Exch.                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Line -- Joint Use                                                          

  1460   Total C&WF Cat. 1 --                         N/A   N/A   N/A         N/A   N/A
         Exch. Line Inv.                                                            

  1470   C&WF Cat. 2 -- Exch.                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Trunk -- Dir. Assg. PL                                                     

  1471   C&WF Cat. 2 -- Exch.                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Trunk -- Dir. Assg.                                                        
         Msg.                                                                       

  1472   C&WF Cat. 2 -- Exch.                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Trunk -- Joint Use Msg.                                                    

  1474   Total C&WF Cat. 2 --                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Exch. Trunk Inv.                                                           

  1480   C&WF Cat. 2 - WDBD --                  N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Dir. Assg. PL                                                              

  1481   C&WF Cat. 2 - WDBD --                  N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Dir. Assg. Msg.                                                            

  1484   Total C&WF Cat. 2 --                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Wideband Inv.                                                              

  1485   Total C&WF Cat. 2                      N/A                           N/A   
         Investment                                                                 
  ------ ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 32%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 3 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i---separations-and-access-table-2">TABLE
I - SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
<tr class="even">
<td>1496</td>
<td>C&amp;WF Cat. 3 Interexchange – Dir. Assg. PL</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1497</td>
<td>C&amp;WF Cat. 3 Interexchange – Dir. Assg. Msg.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>1498</td>
<td>C&amp;WF Cat. 3 Interexchange – Joint Use Msg.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1510</td>
<td>Total C&amp;WF Cat. 3 – Interexchange Inv.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="even">
<td>1522</td>
<td>C&amp;WF Cat. 4 Host/Remote – Joint Use Msg.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>1524</td>
<td>Total C&amp;WF Cat. 4 – Host/Remote Inv.</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="even">
<td>1530</td>
<td>Total Cable &amp; Wire Facilities Investment</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>1540</td>
<td>Total Telephone Plant Investment - All Categories</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

###### Tangible and Intangible Assets {#tangible-and-intangible-assets .unnumbered}

  ------ ----------------------- ----- ----- ---- ----- ----- ----- ----- ----- ----- -----
  2001   Tangible Assets --                                                           
         Capital Leases -- GSF                                                        

  2003   Tangible Assets --                                                     N/A   
         Capital Leases -- CO                                                         
         Sw.                                                                          

  2013   Tangible Assets --      N/A   N/A                                            
         Capital Leases -- For                                                        
         Pt. 69 Alloc.                                                                

  2020   Total Tangible Assets                                                        
         -- Capital Leases                                                            

  2070   Tangible Assets --                       N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Leasehold Improvements                                                       
         -- GSF                                                                       

  2130   Tangible Assets         N/A   N/A                                            
         Leasehold Imp. -- For                                                        
         Pt. 69 Alloc.                                                                

  2131   Combined Investment per N/A   N/A                                            
         Part 69.309                                                                  

  2140   Total Tangible Assets                                                        
         -- Leasehold                                                                 
         Improvements                                                                 

  2150   Total Tangible Assets                                                        

  2160   Intangible Assets                                                            

  2161   Tel. Plant In Service                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         less Intangible Assets                                                       
  ------ ----------------------- ----- ----- ---- ----- ----- ----- ----- ----- ----- -----

Other TelecommunicationS Plant

  ------ ----------------------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---
  2190   Property Held for                                                      
         Future                                                                 
         Telecommunications Use                                                 

  2191   Telecommunications                                                     
         Plant under                                                            
         Construction                                                           

  2193   Telecommunications                                                     
         Plant Adjustment                                                       

  2194   Telecommunications                                                     
         Plant in Service                                                       

  2203   Total Other Plant                                                      
         Investment                                                             

  2210   Rural Telephone Bank                                                   
         Stock                                                                  

  2224   Materials and Supplies                                                 

  2230   Cash Working Capital    N/A   N/A                                      

  2240   Total Other Investment                                                 

  2250   FCC Investment          N/A   N/A                                      
         Adjustment                                                             

  2260   Total                                                                  
         Telecommunications                                                     
         Plant Investment                                                       
  ------ ----------------------- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---

RESERVES AND DEFERRALS

  ------ ----------------------- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
  3000   Res./Def. -- Other                N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Jurisdictional Assets                                                       

  ------ ----------------------- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----

Accumulated Depreciation

  ------ ----------------------- ---- ---- ---- ---- ----- ----- ----- ---- ----- -----
  3010   Res./Def. -- Accum.                                                      
         Deprec. -- GSF                                                           

  3020   Res./Def. -- Accum.                                                N/A   
         Deprec. -- CO Sw. Eqpt.                                                  

  3021   Res./Def. -- CO                                                    N/A   
         Switching Inv. for                                                       
         Allocation                                                               

  3030   Res./Def. -- Accum.                                                N/A   
         Deprec. -- Opr.Svc.                                                      
         Eqpt.                                                                    

  3040   Res./Def. -- Accum.                                                N/A   
         Deprec. -- CO Ckt.                                                       
         Eqpt.                                                                    

  3050   Res./Def. -- Accum.                         N/A   N/A   N/A        N/A   N/A
         Deprec. -- IOT                                                           
  ------ ----------------------- ---- ---- ---- ---- ----- ----- ----- ---- ----- -----

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 32%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 4 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i---separations-and-access-table-3">TABLE
I - SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
<tr class="even">
<td>3060</td>
<td>Res./Def. – Accum. Deprec. – C&amp;WF</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>3070</td>
<td>Res./Def. – Accum. Deprec. – Prop. Held for Future Use</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>3080</td>
<td>Total Accumulated Depreciation</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

**Accumulated Amortization**

  ------ ----------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---
  3090   Res./Def. -- Accum.                                                   
         Amort. Capital Leases -                                               
         GSF                                                                   

  3100   Res./Def. -- Accum.                                             N/A   
         Amort. Capital Leases -                                               
         CO Sw. Eqpt.                                                          

  3150   Total Accum. Amort. --                                                
         Capital Leases                                                        

  3220   Total Accum. Amort. --                                                
         Leasehold Improvements                                                

  3230   Total Accumulated                                                     
         Amortization --                                                       
         Tangible Assets                                                       

  3240   Res./Def. -- Accum.                                                   
         Amort. -- Intangible                                                  
         Assets                                                                

  3250   Res./Def. -- Other                                                    
         Accum. Amort.                                                         

  3260   Total Accumulated                                                     
         Amortization --                                                       
         Intangible Assets                                                     

  3270   Total Accumulated                                                     
         Amortization                                                          
  ------ ----------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- ---

Net Current Deferred Operating Income Taxes

  ------ ----------------------- ---- ---- ---- ---- ----- ----- ----- ---- ----- -----
  3280   Res./Def. -- Current                                                     
         Def. Oper. Inc. Tax --                                                   
         GSF                                                                      

  3290   Res./Def. -- Current                                               N/A   
         Def. Oper. Inc. Tax --                                                   
         CO Sw. Eqpt.                                                             

  3300   Res./Def. -- Current                                               N/A   
         Def. Oper. Inc. Tax --                                                   
         Opr. Svc. Eqpt.                                                          

  3310   Res./Def. -- Current                                               N/A   
         Def. Oper. Inc. Tax --                                                   
         CO Ckt. Eqpt.                                                            

  3320   Res./Def. -- Current                        N/A   N/A   N/A        N/A   N/A
         Def. Oper. Inc. Tax --                                                   
         IOT                                                                      

  3330   Res./Def. -- Current                                               N/A   
         Def. Oper. Inc. Tax --                                                   
         C&WF                                                                     

  3332   Res./Def. -- Other                                                       
         Current Def. Oper. Inc.                                                  
         Tax                                                                      

  3340   Total Net Current                                                        
         Deferred Operating                                                       
         Income Tax                                                               
  ------ ----------------------- ---- ---- ---- ---- ----- ----- ----- ---- ----- -----

Net Non-current Deferred Operating Income Taxes

  ------ ----------------------- ---- ---- ---- ---- ----- ----- ----- ---- ----- -----
  3350   Res./Def. -- Noncurr.                                                    
         Def. Oper. Inc. Tax --                                                   
         GSF                                                                      

  3360   Res./Def. -- Noncurr.                                              N/A   
         Def. Oper. Inc. Tax --                                                   
         CO Sw. Eqpt.                                                             

  3370   Res./Def. -- Noncurr.                                              N/A   
         Def. Oper. Inc. Tax --                                                   
         Opr. Svc. Eqpt.                                                          

  3380   Res./Def. -- Noncurr.                                              N/A   
         Def. Oper. Inc. Tax --                                                   
         CO Ckt Eqpt.                                                             

  3390   Res./Def. -- Noncurr.                       N/A   N/A   N/A        N/A   N/A
         Def. Oper. Inc. Tax --                                                   
         IOT                                                                      

  3400   Res./Def. -- Noncurr.                                              N/A   
         Def. Oper. Inc. Tax --                                                   
         C&WF                                                                     

  3402   Res./Def. -- Other                                                       
         Noncurrent Def. Oper.                                                    
         Income Tax                                                               

  3410   Total Net Noncurrent                                                     
         Deferred Operating                                                       
         Income Tax                                                               
  ------ ----------------------- ---- ---- ---- ---- ----- ----- ----- ---- ----- -----

Other Jurisdictional Liabilities, Deferred Credits and Reserve
Adjustment

  ------ ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
  3420   Res./Def. -- Other                  N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Jurisdictional                                                                
         Liabilities                                                                   

  3421   Res./Def. -- FCC        N/A   N/A                                             
         Reserve Adjustment                                                            

  3422   Res./Def. -- Customer                                                         
         Deposits                                                                      

  3423   Res./Def. -- Other                                                            
         Deferred Credits                                                              

  3430   Total Reserves and                                                            
         Deferrals                                                                     
  ------ ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

**OPERATING REVENUES AND CERTAIN INCOME ACCOUNTS**

###### Operating Revenues {#operating-revenues .unnumbered}

  ------ ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
  4000   Basic Local Service                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Rev. -- PL                                                                 

  4001   Basic Local Service                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Rev. -- Foreign                                                            
         Exchange                                                                   

  4002   Basic Local Service                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Rev. -- WDBD Message                                                       
  ------ ----------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 32%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 5 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i---separations-and-access-table-4">TABLE
I - SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
<tr class="even">
<td>4004</td>
<td>All Other Basic Local Service Rev.</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>4005</td>
<td>Total Basic Local Service Revenue</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td></td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4010</td>
<td>Network Access Service Rev. – End User</td>
<td></td>
<td>N/A</td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>4011</td>
<td>Network Access Service Rev. – Switched Access</td>
<td></td>
<td>N/A</td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4012</td>
<td>Network Access Service Rev. – Special Access</td>
<td></td>
<td>N/A</td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>4013</td>
<td>Network Access Service Rev. – State Access</td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4014</td>
<td>Total Network Access Service Revenue</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>4020</td>
<td>Long Distance Message Rev. – Wideband</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4022</td>
<td>Long Distance Message Rev. – Private Line</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>4023</td>
<td>Long Distance Message Rev. – Other</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4024</td>
<td>Total Long Distance Message Service Revenue</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td></td>
</tr>
<tr class="odd">
<td>4030</td>
<td>Misc. Rev. – Directory</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4031</td>
<td>Misc. Rev. – Billing and Collections</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="odd">
<td>4032</td>
<td>Misc. Rev. – All Other</td>
<td></td>
<td></td>
<td></td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
<td>N/A</td>
</tr>
<tr class="even">
<td>4033</td>
<td>Total Miscellaneous Revenue</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>4040</td>
<td>Uncollectible Revenue</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>4050</td>
<td>Total Revenue</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

Certain Income Accounts

  ------ ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
  4060   Other Operating Income        N/A         N/A   N/A   N/A   N/A   N/A   N/A   N/A
         -- Foreign Exchange                                                           
         Service                                                                       

  4061   Other Operating Income                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         -- Directly Assigned                                                          

  4062   Other Operating Income                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         -- Joint Use                                                                  

  4064   Total Other Operating   N/A   N/A                                             
         Income -- Part 69                                                             

  4066   Total Other Operating                                                         
         Income                                                                        

  4070   Allowance for Funds                                                           
         used during                                                                   
         Construction                                                                  

  4072   Social and Community                                                          
         Welfare Contributions                                                         

  4076   Total Non-operating                                                           
         Income & Expenses                                                             

  4080   Interest Paid --                                                              
         Capital Leases                                                                

  4090   Extraordinary Items                                                           

  4100   Income Effect                       N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Jurisdictional                                                                
         Rate-making Difference                                                        

  4120   Total Operating                                                               
         Revenues (plus)                                                               
         Jurisdictional Diff.                                                          
  ------ ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

**OPERATING EXPENSES**

###### Plant Specific Operations Expense {#plant-specific-operations-expense .unnumbered}

  ------ ----------------------- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----
  5000   Network Support Expense                                                     

  5010   General Support Expense                                                     

  5013   Total Network & General                                                     
         Support Expense                                                             

  5026   Total COE Expense                                                     N/A   

  5042   Other IOT Expense                             N/A   N/A   N/A         N/A   N/A

  5050   CPE Expense -- Dir.               N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Assg.                                                                       

  5060   Total IOT Expense                             N/A   N/A   N/A         N/A   N/A

  5076   Total C&WF Expense                                                    N/A   

  5080   Total Plant Specific                                                        
         Operations Expense                                                          
  ------ ----------------------- ---- ---- ----- ----- ----- ----- ----- ----- ----- -----

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 32%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 4%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 6 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i-separations-and-access-table">TABLE I –
SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
</tbody>
</table>

###### Plant Nonspecific Operations Expense {#plant-nonspecific-operations-expense .unnumbered}

  ------ --------------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----
  6000   Other Property Plant and                                                 N/A   
         Equipment Expense                                                              

  6010   Network Operations Expense                                               N/A   

  6012   Access Expense -- Directly                 N/A   N/A   N/A   N/A   N/A   N/A   
         Assigned                                                                       

  6020   Depreciation Exp. -- GSF                                                       

  6030   Depreciation Exp. -- CO Sw.                                              N/A   
         Eqpt.                                                                          

  6040   Depreciation Exp. -- Opr.                                                N/A   
         Svc. Eqpt.                                                                     

  6050   Depreciation Exp. -- CO                                                  N/A   
         Ckt. Eqpt.                                                                     

  6060   Depreciation Exp. -- IOT                         N/A   N/A   N/A         N/A   N/A

  6070   Depreciation Exp. -- C&WF                                                N/A   

  6080   Depreciation Exp. -- Plant                                                     
         Held for Future Use                                                            

  6090   Total Depreciation Expense                                                     

  6100   Amortization Exp. - Capital                                                    
         Leases -- GSF                                                                  

  6110   Amortization Exp. --                                                     N/A   
         Capital Leases -- CO Sw.                                                       
         Eqpt.                                                                          

  6160   Total Amortization Exp. --                                                     
         Capital Leases                                                                 

  6230   Total Amortization Exp. -                                                      
         Leasehold Improv. -- GSF                                                       

  6240   Total Amortization                                                             
         Expense - Tangible Assets                                                      

  6250   Amortization Expense --                                                        
         Intangible Assets                                                              

  6252   Other                                                                          
         Depreciation/Amortization                                                      
         Expense                                                                        

  6254   Total Other                                                                    
         Depreciation/Amortization                                                      
         Expense                                                                        

  6260   Total                                                                          
         Depreciation/Amortization                                                      
         Expense                                                                        

  6270   Total Plant Nonspecific                                                        
         Operations Expense                                                             
  ------ --------------------------- ---- ---- ---- ----- ----- ----- ----- ----- ----- -----

Customer Operations Expense

  ------ ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
  6998   Marketing Exp. -- Dir.                    N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Assg.                                                                         

  6999   Marketing Exp. --                         N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Allocated                                                                     

  7000   Total Marketing Expense                                                 N/A   

  7001   Current Billing                           N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Analysis                                                                      

  7002   Combined Investment for N/A   N/A                                       N/A   
         Part 69                                                                       

  7052   \# Weighted Standard    N/A   N/A         N/A         N/A         N/A   N/A   
         Work Seconds                                                                  

  7060   Total Telephone                           N/A         N/A         N/A   N/A   
         Operator Service                                                              
         Expense                                                                       

  7070   Directory Exp. --                   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Classified -- Dir.                                                            
         Assg.                                                                         

  7073   Directory Exp. --                         N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Alphabetical                                                                  

  7074   \# Subscriber Line                        N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Minutes-of-Use                                                                

  7075   Directory Expense --                      N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Foreign -- Dir. Assg.                                                         

  7076   Total Directory Expense                   N/A   N/A   N/A         N/A   N/A   N/A

  7220   Other Cust. Svc. Exp.                                                         
         -- Cat. 1 -- Local Bus.                                                       
         Ofc. Exp.                                                                     

  7290   Other Cust. Svc. Exp.                                                         N/A
         -- Cat. 2 -- Rev.                                                             
         Acctg. Exp.                                                                   

  7300   Other Cust. Svc. Exp.                                                         
         -- Cat. 3 -- Customer                                                         
         Svc. Exp.                                                                     

  7310   Total Other Customer                                                          
         Services Expense                                                              

  7320   Total Customer                                                                
         Operations Expense                                                            
  ------ ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Corporate Operations Expense & FCC Expense Adjustment

  ------ ----------------------- ---- ---- ----- ---- ---- ---- ---- ---- ----- -----
  7330   Corp. Oper. Exp. -- EAS           N/A                            N/A   N/A
         -- Dir. Assg. Exchange                                                 

  7331   Corporate Operations                                                   
         Exp. -- All Other                                                      
  ------ ----------------------- ---- ---- ----- ---- ---- ---- ---- ---- ----- -----

<table>
<colgroup>
<col style="width: 5%" />
<col style="width: 31%" />
<col style="width: 7%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 5%" />
<col style="width: 6%" />
<col style="width: 7%" />
<col style="width: 6%" />
<col style="width: 5%" />
<col style="width: 4%" />
<col style="width: 6%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10">FCC Report 43-04</td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">ARMIS ACCESS REPORT</td>
<td colspan="2"></td>
</tr>
<tr class="odd">
<td colspan="10"></td>
<td colspan="2"></td>
</tr>
<tr class="even">
<td colspan="10">COMPANY: XXXXXXXXXXXXXX</td>
<td colspan="2">XXXX Version</td>
</tr>
<tr class="odd">
<td colspan="10">STUDY AREA: XXXXXXXXXXXX</td>
<td colspan="2">SUBMISSION XXX</td>
</tr>
<tr class="even">
<td colspan="10">PERIOD: From: mm yyyyy To mm yyyyy</td>
<td colspan="2">TABLE I</td>
</tr>
<tr class="odd">
<td colspan="10">COSA: XXXX</td>
<td colspan="2">PAGE 7 of 7</td>
</tr>
<tr class="even">
<td colspan="12"><h5 id="table-i-separations-and-access-table-1">TABLE I
– SEPARATIONS AND ACCESS TABLE</h5>
<p>(Dollars in thousands, except where noted, i.e. #, %)</p></td>
</tr>
<tr class="odd">
<td rowspan="2">ROW</td>
<td rowspan="2">Category</td>
<td rowspan="2">Subject to Separation</td>
<td rowspan="2">State</td>
<td rowspan="2">Interstate</td>
<td rowspan="2">Common Line</td>
<td colspan="3">Traffic Sensitive</td>
<td rowspan="2"><p>Special</p>
<p>Access</p></td>
<td rowspan="2"><p>Billing &amp;</p>
<p>Collection</p></td>
<td rowspan="2">IX</td>
</tr>
<tr class="even">
<td>Switch</td>
<td>Transport</td>
<td>Total</td>
</tr>
<tr class="odd">
<td></td>
<td>(a)</td>
<td>(b)</td>
<td>(c)</td>
<td>(d)</td>
<td>(i)</td>
<td>(j)</td>
<td>(l)</td>
<td>(n)</td>
<td>(o)</td>
<td>(q)</td>
<td>(r)</td>
</tr>
<tr class="even">
<td>7334</td>
<td>Total Corporate Operations Expense</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td>7350</td>
<td>FCC Expense Adjustment</td>
<td>N/A</td>
<td>N/A</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td>7351</td>
<td>Total Operating Expense</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

Operating Taxes

  ------ ----------------------- ----- ----- ---- ----- ----- ----- ----- ----- ----- -----
  8000   Operating Taxes --                                                           
         State and Local Income                                                       

  8001   Approximate Net Taxable                                                      
         Income -- SIT                                                                

  8002   Oper. Taxes -- Other                     N/A   N/A   N/A   N/A   N/A   N/A   N/A
         State and Local -- Dir.                                                      
         Assg.                                                                        

  8003   Oper. Taxes -- Other                     N/A   N/A   N/A   N/A   N/A   N/A   N/A
         State and Local --                                                           
         Joint Use                                                                    

  8005   Oper. Taxes -- Other    N/A   N/A                                            
         State and Local -- Pt.                                                       
         69                                                                           

  8007   Total State & Local                                                          
         Taxes                                                                        

  8010   Operating Taxes --                                                           
         Fixed Charges                                                                

  8011   Operating Taxes -- Net                   N/A   N/A   N/A   N/A   N/A   N/A   N/A
         Investment                                                                   

  8013   Operating Taxes -- IRS                                                       
         Income Adjustment                                                            

  8014   Operating Taxes -- FCC  N/A   N/A                                            
         Taxable Income                                                               
         Adjustment                                                                   

  8015   Operating Taxes --                                                           
         Amortization of Invest.                                                      
         Tax Credit                                                                   

  8018   Operating Taxes -- FCC  N/A   N/A                                            
         Invest. Tax Credit                                                           

  8020   Operating Taxes --                                                           
         Federal Income Tax                                                           

  8021   Approximate Net Taxable                                                      
         Income -- FIT                                                                

  8030   Total Operating Taxes                                                        
  ------ ----------------------- ----- ----- ---- ----- ----- ----- ----- ----- ----- -----

RETURN DATA

  ------ ----------------------- ----- ----- ---- ---- ---- ---- ---- ---- ----- -----
  8040   Return Data -- Average                                                  
         Net Investment                                                          

  8041   Return Data -- Net      N/A   N/A                                 N/A   N/A
         Return                                                                  

  8042   \% Return Data -- Rate  N/A   N/A                                 N/A   N/A
         of Return                                                               
  ------ ----------------------- ----- ----- ---- ---- ---- ---- ---- ---- ----- -----

**Note:** The symbol "#" preceding the applicable row description would
indicate items that are not dollars or percentages (e.g., minutes of
use, conversation minutes, minutes of use kilometers, etc.) The symbol
"%" preceding the applicable row description indicates items to be
entered as a percent (e.g. rate of return).

**APPENDIX H -- Regulatory Flexibility Analyses**

# A. Final Regulatory Flexibility Analysis {#a.-final-regulatory-flexibility-analysis .unnumbered}

240. As required by the Regulatory Flexibility Act (RFA),[^413] an
     Initial Regulatory Flexibility Analysis (IRFA) was incorporated in
     the Notice of Proposed Rulemaking and the *June 8 Public Notice*
     seeking further comment in this proceeding. [^414] The Commission
     has prepared this Final Regulatory Flexibility Analysis (FRFA) of
     any possible significant economic impact on small entities by the
     adoption of rules in the attached Report and Order.

241. *Need for, and Objectives of, this Report and Order*. Under our
     rules, there are two classes of incumbent LECs for accounting
     purposes: Class A and Class B.[^415] Carriers with annual revenues
     from regulated telecommunications operations that are equal to or
     above the indexed revenue threshold, currently \$117 million, are
     classified as Class A; those falling below that threshold are
     considered Class B.[^416] Class A carriers (operating companies of
     SBC, Qwest, Verizon, and BellSouth) have been required to maintain
     296 Class A accounts,[^417] which provide more detailed records of
     investment, expense, and revenue than the 113 Class B accounts that
     Class B carriers are required to maintain.[^418] The more
     generalized level of accounting required under Class B was
     established to accommodate smaller carriers. In the attached Report
     and Order, the Commission streamlines the Class A and Class B
     accounts[^419] and ARMIS reporting requirements for incumbent LECs,
     [^420] and further reduces the accounting and reporting
     requirements for mid-sized incumbent LECs. [^421] In addition, this
     Report and Order eliminates the certain inventory requirements;
     allows carriers to adopt SFAS-116 for federal accounting purposes;
     eliminates the requirement for a fair market value comparison for
     asset transfers under \$500,000; eliminates the "treated
     traditionally" requirement from "incidental activities"; modifies
     the expense limit rules to include central office tools and test
     equipment in the expense limit; and amends section 32.11 of the
     Commission's rules to expressly limit the rule to incumbent LECs.
     [^422] Finally, the Commission modifies the ARMIS reporting
     requirements to eliminate out-of-date requirements and to add
     reporting for new technologies. These rule changes generally reduce
     the accounting and reporting requirements for all incumbent LECs.
     [^423]

242. *Summary of Significant Issues Raised by Commenters*. No comments
     were received in response to the IRFA in the Notice of Proposed
     Rulemaking or the IRFA in the *June 8 Public Notice*. Several
     commenters, in the initial comments in this proceeding, suggested
     completely eliminating ARMIS reporting for mid-sized LECs. [^424]

243. *Description and Estimate of the Number of Small Entities to which
     the Rules Will 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.[^425] To estimate the number of small entities that may be
     affected by the proposed rules, we first consider the statutory
     definition of \"small entity\" under the RFA. The RFA generally
     defines \"small entity\" as having the same meaning as the term
     \"small business,\" \"small organization,\" and \"small
     governmental jurisdiction.\"[^426] 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.[^427] 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 Small Business
     Administration (SBA).[^428]

244. The Commission has Number range level0Number range level1Number
     range level2Number range level3Number range level4Number range
     level5Number range level6Number range level7included small
     incumbent LECs [^429] in this present RFA analysis. 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.\"[^430] 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.[^431] We have therefore
     included small incumbent LECs in this RFA analysis, although we
     emphasize that this RFA action has no effect on Commission analyses
     and determinations in other, non-RFA contexts.

245. [Number range level0Number range level1Number range level2Number
     range level3Number range level4Number range level5Number range
     level6Number range level7Wireline carriers (incumbent
     LECs)]{.underline}*.* According to Trends in Telephone Service,
     there were 1,335 incumbent local exchange carriers filing the FCC
     Form 499-A on April 1, 2000.[^432] Of these carriers, 1,037 had, in
     combination with affiliates, 1,500 or fewer employees and 298 had,
     in combination with affiliates, more than 1,500 employees.[^433]
     Some of these carriers may not be independently owned or 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 there are fewer than 1,037 wireline small entities
     that may be affected by the rules adopted in the Report and Order.

246. The changes to the accounting and reporting requirements in this
     Report and Order, are for the most part, reductions in the
     Commission's accounting and reporting requirements. These rule
     changes could affect all incumbent local exchange carriers. Some of
     these companies may be considered "small entities" under the SBA
     definition. Therefore, it is possible that some of the 1,037 small
     entity telephone companies may be affected by the rule changes. The
     increased ARMIS reporting requirements will only affect the Bell
     Operating Companies, none of which are small entities. There are
     several new subaccounts adopted in this Report and Order for Class
     A carriers, although the total number of accounts is substantially
     reduced. These new subaccounts are Class A subaccounts, and will be
     maintained by the Bell Operating Companies only.

247. *Description of Projected Reporting, Recordkeeping, and Other
     Compliance Requirements*. This Report and Order generally reduces
     accounting and reporting requirements for all incumbent local
     exchange companies. These rule changes will result in fewer
     accounting and reporting requirements for all incumbent local
     exchange carriers, including small entities. This Report and Order
     has several new accounting and ARMIS reporting requirements that
     apply to the Bell Operating Companies only. For instance, the
     Report and Order adds several Class A subaccounts; however, these
     will be maintained by the largest incumbent LECs (*i.e.,* Bell
     Operating Companies) only. Small entities will not have any
     additional accounting or ARMIS reporting requirements.[^434]

248. *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.[^435]

249. This Report and Order significantly reduces accounting and
     reporting requirements for the smaller (*i.e*., "mid-sized")
     incumbent LECs, which may include small entities. Specifically, the
     Report and Order eliminates the cost allocation manual filing
     requirements and biennial attestation requirement for mid-sized
     LECs.[^436] In addition, the Report and Order eliminates the
     requirement that mid-sized LECs file ARMIS 43-02, 43-03, and 43-04
     Reports. [^437] Generally, the rule changes adopted herein result
     in fewer accounting and reporting requirements for all incumbent
     LECs (except for several new accounting and ARMIS reporting
     requirements that apply to the Bell Operating Companies only).
     Several commenters suggested completely eliminating ARMIS reporting
     for mid-sized carriers. [^438] The Commission rejected that
     alternative primarily due to the need to obtain information used to
     compute non-rural carrier universal service high-cost support. The
     Commission retains the requirement that mid-sized carriers file the
     ARMIS 43-01and 43-08 Reports. Data in these reports are used to
     develop inputs to the high cost model for universal service
     purposes and develop inputs to models used to determine
     forward-looking economic costs in UNE ratemaking proceedings.

250. *Report to Congress.* The Commission's Consumer Information Bureau,
     Reference Information Center shall include a copy of this Report
     and Order and Final Regulatory Flexibility Analysis in a report to
     be sent to Congress pursuant to the Congressional Review Act.[^439]
     In addition, the Commission will send a copy of the Report and
     Order, including the Final Regulatory Flexibility Analysis, to the
     Chief Counsel for Advocacy of the Small Business Administration. A
     copy of the Report and Order, including the Final Regulatory
     Flexibility Analysis (or summaries thereof) will also be published
     in the Federal Register.[^440]

# B. Initial Regulatory Flexibility Analysis {#b.-initial-regulatory-flexibility-analysis .unnumbered}

251. As required by the Regulatory Flexibility Act (RFA), [^441] the
     Commission has prepared this present Initial Regulatory Flexibility
     Analysis (IRFA) of the possible significant economic impact on
     small entities by the policies and rules proposed in this Further
     Notice of Proposed Rulemaking (Further Notice). 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 this Further Notice, which are set out in paragraphs
     226-230 of the Report and Order and Further Notice of Proposed
     Rulemaking. The Commission will send a copy of this Further Notice,
     including this IRFA, to the Chief Counsel for Advocacy of the Small
     Business Administration (SBA). [^442] In addition, this Further
     Notice and IRFA (or summaries thereof) will be published in the
     Federal Register. [^443]

252. *Need for, and Objectives of, the Proposed Action.* The Commission
     has initiated this Further Notice to seek comment on whether we
     should sunset our accounting and reporting rules; whether ARMIS
     information, particularly infrastructure data, would be better
     captured in the Local Competition and Broadband Data Gathering
     Program instead of through ARMIS; eliminating or streamlining our
     rules for continuing property records and our affiliate
     transactions rules; and what, if any, conforming amendments the
     Commission should make to its Part 36 rules to reflect the
     revisions to the Part 32 rules set forth in the attached Report and
     Order. The first issue, which discusses in general terms sunsetting
     our accounting rules, would not increase the reporting or
     recordkeeping requirements for small entities. The third and fourth
     issues, regarding streamlining or eliminating our continuing
     property records rules and our affiliate transactions rules, would
     probably not significantly affect small entities. Our proposals in
     these two areas would, if adopted, result in decreasing
     recordkeeping requirements and reducing the number of fair market
     value estimations. The fifth issue merely seeks to conform Part 36
     to the rule changes adopted in the Report and Order. The second
     issue, however, would probably impact small entities. The second
     issue addresses the means by which the Commission collects ARMIS
     data, particularly infrastructure data. The Commission seeks
     comment on whether such collection should be implemented through
     the Local Competition and Broadband Data Gathering Program instead
     of through ARMIS. Under the Local Competition and Broadband Data
     Gathering Program, facilities-based service providers with at least
     250 full or one-way broadband lines or wireless channels in a given
     state complete applicable portions of the Form 477 for that state
     and local exchange carriers with 10,000 or more local telephone
     service lines, or fixed wireless channels, in a state must complete
     the applicable portions of the Form 477 for each state in which
     they serve 10,000 or more subscribers. This is a larger group of
     service providers than the 30 mandatory price cap LECs that file
     infrastructure reporting requirements. [^444] The objective for
     this proposed action -- to collect this data from smaller
     companies, in addition to the Bell Operating Companies -- would be
     to give the Commission more information about the infrastructure of
     these companies*.*

253. *Legal Basis.* The legal basis for the action as proposed for this
     rulemaking is contained in sections 1-5, 10, 11, 201-205, 215,
     218-220, 251-271, 303(r), 332, 403, 502, and 503 of the
     Communications Act of 1934, as amended, 47 U.S.C. §§ 151-155, 160,
     161, 201-205, 215, 218-220, 251-271, 303(r), 332, 403, 502, and
     503.

254. *Description and Estimate of the Number of Small Entities to which
     the Proposed Action May Apply.* The Commission seeks comment on
     whether it should revise its rules so that data collection in
     ARMIS, particularly infrastructure data, should be collected
     pursuant to the Local Competition and Broadband Data Gathering
     Program. Under the Local Competition and Broadband Data Gathering
     Program, facilities-based service providers with at least 250 full
     or one-way broadband lines or wireless channels in a given state
     complete applicable portions of the Form 477 for that state. In
     addition, local exchange carriers with 10,000 or more local
     telephone service lines, or fixed wireless channels, in a state
     must complete the applicable portions of the Form 477 for each
     state in which they serve 10,000 or more subscribers. Currently, 30
     mandatory price cap LECs file infrastructure reporting
     requirements. [^445] Fifty-two LECs file the financial ARMIS
     reports. [^446] Additional LECs are subject to service quality
     reporting requirements. [^447] Thus, if ARMIS information were
     captured pursuant to the Local Competition and Broadband Data
     Gathering Program, the data would be collected from more entities
     than from which the ARMIS data are collected today. [^448] The
     Commission sets out below a description of the types of entities
     that could possibly be required to comply with the proposed
     reporting

255. 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.[^449] To estimate the
     number of small entities that may be affected by the proposed
     rules, we first consider the statutory definition of \"small
     entity\" under the RFA. The RFA generally defines \"small entity\"
     as having the same meaning as the term \"small business,\" \"small
     organization,\" and \"small governmental jurisdiction.\" [^450] 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. [^451] 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.
     [^452] Recently, the SBA has defined a small business for "wired
     telecommunications carriers," "paging," "cellular and other
     wireless telecommunications," and "telecommunications resellers" to
     be small entities when they have no more than 1,500 employees.
     [^453]

256. The most reliable source of information regarding the total numbers
     of common carrier and related providers nationwide, as well as the
     numbers of commercial wireless entities, appears to be data derived
     from filings made in connection with the Telecommunications
     Reporting Worksheet (FCC Form 477).[^454] According to data in the
     most recent report, there are 4,822 interstate service
     providers.[^455] These providers include, *inter alia*, local
     exchange carriers, wireline carriers and service providers,
     interexchange carriers, competitive access providers, operator
     service providers, pay telephone operators, providers of telephone
     toll service, providers of telephone exchange service, and
     resellers.

257. Number range level0Number range level1Number range level2Number
     range level3Number range level4Number range level5Number range
     level6Number range level7We have included small incumbent LECs
     [^456] 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.\"[^457] 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.[^458] We have therefore
     included small incumbent LECs in this RFA analysis, although we
     emphasize that this RFA action has no effect on Commission analyses
     and determinations in other, non-RFA contexts.

258. [Number range level0Number range level1Number range level2Number
     range level3Number range level4Number range level5Number range
     level6Number range level7Total Number of Telephone Companies
     Affected]{.underline}*.* The Commission's Industry Analysis
     Division of the Common Carrier Bureau complies a report, Trends in
     Telephone Service, based on data from various sources, including
     the FCC Form 499-A worksheets filed by telecommunications carriers.
     According to Trends in Telephone Service, there were 4,822 service
     providers filing the FCC Form 499-A on April 1, 2000. Of these
     carriers, 3,875 had, in combination with affiliates, 1,500 or fewer
     employees and 947 had, in combination with affiliates, more than
     1,500 employees.[^459] These numbers contains a variety of
     different categories of carriers, including local exchange
     carriers, interexchange carriers, competitive access providers,
     cellular carriers, mobile service carriers, operator service
     providers, pay telephone operators, personal communications service
     (PCS) providers, covered specialized mobile radio (SMR) providers,
     and resellers. It seems certain that some of those telephone
     service firms may not qualify as small entities or small incumbent
     LECs because they are not \"independently owned and
     operated.\"[^460] For example, a PCS provider that is affiliated
     with an interexchange carrier having more than 1,500 employees
     would not meet the definition of a small business. It seems
     reasonable to conclude, therefore, that fewer than 3,875 telephone
     service firms are small entity telephone service firms or small
     incumbent LECs that may be affected by the decisions and rules
     proposed in the Further Notice.

259. [Number range level0Number range level1Number range level2Number
     range level3Number range level4Number range level5Number range
     level6Number range level7Wireline carriers (incumbent
     LECs)]{.underline}*.* According to Trends in Telephone Service,
     there were 1,335 incumbent local exchange carriers filing the FCC
     Form 499-A on April 1, 2000. Of these carriers, 1,037 had, in
     combination with affiliates, 1,500 or fewer employees and 298 had,
     in combination with affiliates, more than 1,500 employees.[^461]
     Some of these carriers may not be independently owned or 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 there are fewer than 1,037 wireline small entities
     that may be affected by the decisions and rules proposed in the
     Further Notice.

260. [Other wireline carriers (other than incumbent LECs)]{.underline}.
     According to Trends in Telephone Service, there were 496 fixed
     local service providers, other than incumbent LECs, filing the FCC
     Form 499-A on April 1, 2000. Of these carriers, 439 had, in
     combination with affiliates, 1,500 or fewer employees and 57 had,
     in combination with affiliates, more than 1,500 employees.[^462]
     These companies include competitive access providers, competitive
     local exchange providers, resellers, and other local exchange
     carriers. Some of these carriers may not be independently owned or
     operated, but we are unable at this time to estimate with greater
     precision the number of wireline carriers (other than incumbent
     LECs) that would qualify as small business concerns under SBA\'s
     definition. Consequently, we estimate that there are fewer than 439
     wireline small entities (other than incumbent LECs) that may be
     affected by the decisions and rules proposed in the Further Notice.

261. [Wireless telecommunications service providers]{.underline}.
     According to Trends in Telephone Service, there were 1,495 wireless
     service providers filing the FCC Form 499-A on April 1, 2000. Of
     these carriers, 989 had, in combination with affiliates, 1,500 or
     fewer employees and 506 had, in combination with affiliates, more
     than 1,500 employees.[^463] The wireless service providers include
     cellular, PCS, SMR, paging and messaging service, SMR dispatch,
     wireless data service providers, and other mobile service
     providers. Some of these carriers may not be independently owned
     and operated; however, we are unable at this time to estimate with
     greater precision the number of wireless carriers and service
     providers that would qualify as small business concerns under
     SBA\'s definition. Consequently, we estimate that there are fewer
     than 989 small entity "cellular and other wireless
     telecommunications" providers that may be affected by the rules
     proposed in the Further Notice.

262. [Payphone service providers]{.underline}. According to Trends in
     Telephone Service, there were 758 payphone service providers filing
     the FCC Form 499-A on April 1, 2000. Of these carriers, 755 had, in
     combination with affiliates, 1,500 or fewer employees and 3 had, in
     combination with affiliates, more than 1,500 employees.[^464] Some
     of these companies may not be independently owned and operated;
     however, we are unable at this time to estimate with greater
     precision the number of payphone service providers that would
     qualify as small business concerns under SBA\'s definition.
     Consequently, we estimate that there are fewer than 755 small
     entity payphone service providers that may be affected by the rules
     proposed in the Further Notice.

263. [Toll service providers]{.underline}. According to Trends in
     Telephone Service, there were 738 toll service providers filing the
     FCC Form 499-A on April 1, 2000. Of these carriers, 656 had, in
     combination with affiliates, 1,500 or fewer employees and 82 had,
     in combination with affiliates, more than 1,500 employees.[^465]
     The toll service providers include interexchange carriers, operator
     service providers, prepaid calling card providers, satellite
     service providers, toll resellers, and other toll carriers. Some of
     these carriers may not be independently owned and operated;
     however, we are unable at this time to estimate with greater
     precision the number of toll service providers that would qualify
     as small business concerns under SBA\'s definition. Consequently,
     we estimate that there are fewer than 656 small entity toll service
     providers that may be affected by the rules proposed in the Further
     Notice.

264. *Description of Proposed Reporting, Recordkeeping, and Other
     Compliance Requirements.* The Further Notice seeks comment on
     whether ARMIS information, particularly infrastructure data, would
     be better captured in the Commission's *Local Competition and
     Broadband Data Gathering Program*. Pursuant to the current *Local
     Competition and Broadband Data Gathering Program*, certain
     providers of broadband services and of local telephone services
     must complete FCC Form 477, which collects data on their deployment
     of those services.[^466] Specifically, under the *Local Competition
     and Broadband Data Gathering Program*, facilities-based service
     providers with at least 250 full or one-way broadband lines or
     wireless channels in a given state complete applicable portions of
     the FCC Form 477 for that state. In addition, local exchange
     carriers with 10,000 or more local telephone service lines, or
     fixed wireless channels, in a state must complete the applicable
     portions of the Form 477 for each state in which they serve 10,000
     or more subscribers. These reporting entities may include more
     companies than the incumbent LECs currently reporting in ARMIS.

265. Currently, 30 mandatory price cap LECs, the operating companies of
     Verizon, BellSouth, SBC, and Qwest, file infrastructure reporting
     requirements. The financial ARMIS reports are filed by 52 local
     exchange carriers. [^467] Additional LECs are subject to service
     quality reporting requirements; however, service quality reporting
     issues are not addressed in this proceeding.[^468] Thus, if ARMIS
     information were captured pursuant to the *Local Competition and
     Broadband Data Gathering Program*, the data may be collected from
     more entities than from which the ARMIS data is collected
     today.[^469] The Further Notice also seeks comment on whether the
     data discussed in paragraphs 67, 160, and 167 of the attached
     Report and Order should be captured in the *Local Competition and
     Broadband Data Gathering Program*, instead of ARMIS.

266. Number range level0Number range level1Number range level2Number
     range level3Number range level4Number range level5Number range
     level6Number range level7Number range level0Number range
     level1Number range level2Number range level3Number range
     level4Number range level5Number range level6Number range level7
     *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.[^470]

267. The Further Notice seeks comment on whether the Commission should
     sunset the accounting and reporting rules; whether ARMIS
     information, particularly infrastructure data, would be better
     captured in the *Local Competition and Broadband Data Gathering
     Program* instead of through ARMIS; and what, if any, conforming
     amendments the Commission should make to its Part 36 rules to
     reflect the revisions to the Part 32 rules set forth in the
     attached Report and Order. The first, third, and fourth issues,
     which seek comment on reducing accounting and reporting
     requirements in the future and discusses sunsetting accounting
     rules and reporting requirements, would not increase reporting or
     recordkeeping requirements for small entities. The fifth issue
     merely seeks to conform Part 36 to the rule changes adopted in the
     Report and Order. This is needed due to the consolidation of
     several Class B accounts that are also used in Part 36. The
     alternative to conforming our Part 36 rules would be not to
     streamline the Part 32 rules. Without the Part 32 rule changes,
     there would be no need to conform the Part 36 rules. The Part 32
     rule changes in the attached Report and Order, however, represent a
     significant reduction in both Class A and Class B accounts.
     Therefore, conforming amendments to the Part 36 jurisdictional
     separations rules would be a result of the consolidation of Part 32
     accounts and should not be a significant economic impact on small
     entities.

268. The data collection issue, however, would probably have a reporting
     and recordkeeping requirement small entities. This issue addresses
     the means in which the Commission collects ARMIS data, particularly
     infrastructure data. The Commission seeks comment on whether such
     collection should be implemented through the *Local Competition and
     Broadband Data Gathering Program* instead of through ARMIS.
     Currently, the *Local Competition and Broadband Data Gathering
     Program* does not collect infrastructure data, and any rule change
     adopted to expand that program in order to collect data currently
     collected in ARMIS may involve information collection from more
     entities, including small entities. With respect to minimizing the
     significant economic impact on small entities, the Commission could
     reduce the data requested from the rows currently reported in the
     relevant ARMIS reports. Any such reporting on the part of small
     entities would, however, be an increase over the current reporting
     requirement, as these entities do not currently report ARMIS
     infrastructure data at all. With respect to significant
     alternatives, the Commission could continue to collect such
     information in ARMIS. Currently, the infrastructure data in ARMIS
     43-07 are collected from 30 mandatory price cap carriers (operating
     companies of Verizon, SBC, BellSouth, and Qwest.) The Commission
     does not collect this information from other, smaller entities. If
     the Commission does not adopt such a rule change, small entities
     will not be affected. Alternatively, the Commission could adopt the
     rule change but specify that the data collection applies only to
     the mandatory price cap companies. We seek comment on these
     options.

269. Federal Rules that may Duplicate, Overlap, or Conflict With the
     Proposed Rules. None.

[^1]: ^?^ *See* 1998 Biennial Regulatory Review -- Review of ARMIS
    Reporting Requirements, CC Docket No. 98-117, *Report and Order*, 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, *Report and Order*, 14
    FCC Rcd 11396 (1999) (*Accounting Reductions Report and Order*).

[^2]: ^?^ 47 U.S.C. §161.

[^3]: ^?^ Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.
    56 (1996) (1996 Act). The 1996 Act amended the Communications Act.

[^4]: ^?^ Joint Statement of Committee of Conference, S. Conf. Rep. No.
    230, 104^th^ Cong. 2d Sess. 113 (1996).

[^5]: ^?^ A mid-sized incumbent LEC is a carrier whose operating revenue
    equals or exceeds the indexed revenue threshold and whose revenue
    when aggregated with the revenues of any LEC that it controls, is
    controlled by, or with which it is under common control is less than
    \$7 billion.

[^6]: ^?^ 47 C.F.R. Part 32. The Part 32 USOA replaced the former Part
    31 USOA on January 1, 1988. 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).

[^8]: ^?^ 47 C.F.R. § 32.11.

[^9]: ^?^ *See* "Annual Adjustment of Revenue Threshold," *Public
    Notice*, DA 01-903 (rel. April 11, 2001) (adjusting annual indexed
    revenue threshold to \$117 million).

[^10]: ^?^ Other Class A carriers include ALLTEL, Citizens
    Communications, Cincinnati Bell, C-TEC, Sprint, Roseville, and
    CenturyTel. We have already taken measures to reduce accounting
    requirements for mid-sized companies and allow them to maintain
    their accounts on a Class B level. *See ARMIS Reductions Report and
    Order*, 14 FCC Rcd at 11449, ¶ 11.

[^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]: ^?^ The Commission has recognized 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*, the Commission applied 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 and
    common costs incurred in providing regulated and nonregulated
    services be allocated so that regulated services do not subsidize
    nonregulated services.

[^14]: ^?^ The 1996 Act codified the Commission's historical commitment
    to promote universal service to ensure that all Americans have
    access to affordable, quality telecommunications services. In
    section 254 of the Communications Act, Congress directed the
    Commission, after consultation with the Joint Board, to preserve and
    advance universal service in the competitive environment that
    Congress envisioned by establishing specific, predictable, and
    sufficient support mechanisms. In the *Universal Service Order*, the
    Commission adopted a plan to replace the historical universal
    service support mechanisms with new support mechanisms that will be
    sustainable in an increasingly competitive marketplace. *See*
    Federal-State Joint Board on Universal Service, CC Docket No. 96-45,
    *Report and Order*, 12 FCC Rcd 8776 (1997) (*Universal Service
    Order*). Among other things, the Commission agreed with the Joint
    Board that federal universal service support should be based on the
    forward-looking cost of constructing and operating the network used
    to provide the supported services, rather than each carrier's
    embedded costs. *Universal Service Order*, 12 FCC Rcd at 8888, ¶
    199.

[^15]: ^?^ Although the Commission has determined that all carriers will
    eventually receive universal service support based upon their
    forward-looking costs, it has delayed application of a
    forward-looking cost model to determine support for rural carriers
    to allow them ample time to adjust to changes in support
    calculations that would result from such a transition. In the
    meantime, the Commission has permitted rural carriers to continue to
    receive support based on their embedded costs. *See* Federal‑State
    Joint Board on Universal Service, Multi‑Association Group (MAG) Plan
    for Regulation of Interstate Services of Non‑Price Cap Incumbent
    Local Exchange Carriers and Interexchange Carriers*,* *Fourteenth
    Report and Order, Twenty‑Second Order on Reconsideration, and
    Further Notice of Proposed Rulemaking in CC Docket No. 96‑45, Report
    and Order in CC Docket No. 00‑256*, FCC 01‑157 (rel. May 23, 2001)

[^16]: ^?^ The Commission required price cap regulation for the Bell
    Operating Companies and GTE, and permitted other incumbent LECs to
    elect price cap regulation. *See* Policy and Rules Concerning Rates
    for Dominant Carriers, CC Docket No. 87-313, *Second Report and
    Order*, 5 FCC Rcd 6786 (1990).

[^17]: ^?^ An exogenous adjustment allows a carrier to increase its
    prices to recover costs imposed on it by governmental or
    administrative action beyond its control.

[^18]: ^?^ *See, e.g.,* Ameritech Operating Companies 2001 Annual
    Filing, Transmittal No. 1270, Description and Justification, section
    2; BellSouth 2001 Annual Access Charge Tariff Filing, Transmittal
    No. 592, Description and Justification, section 6; Pacific Bell
    Telephone Company 2001 Annual Filing, Transmittal No. 37,
    Description and Justification, section 2; Qwest Corporation 2001
    Price Cap Revisions Tariff Filing, Transmittal No. 76, Description
    and Justification, section 2.2.

[^19]: ^?^ All these cost recovery mechanisms remain in place even under
    recent access charge reform measures. *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*, 15 FCC Rcd 12962 (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*.*

[^20]: ^?^ *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 added reporting categories for
    service quality and infrastructure development. *See* Policy and
    Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313,
    *Second Report and Order*, 5 FCC Rcd 6786, 6827-30 (1990).

[^21]: ^?^ Specifically, 52 incumbent LECs have annual operating
    revenues exceeding the indexed revenue threshold and file financial
    ARMIS reports. These incumbent LECs include the operating companies
    of Verizon (19 operating companies); SBC (9 operating companies);
    BellSouth; and Qwest. The other 22 incumbent LECs are considered
    mid-sized carriers. They are Cincinnati Bell (1 operating company),
    C-TEC (1 operating company), Sprint (13 operating companies), ALLTEL
    (5 operating companies), and Citizens Communications (2 operating
    companies).

[^22]: ^?^ The largest incumbent LECs file such reports using Class A
    accounting information, while the 22 mid-sized incumbent LECs report
    at the Class B level.

[^23]: ^?^ There are 93 price cap LECs subject to service quality
    reporting requirements. They are Verizon (19 operating companies);
    SBC (9 operating companies); BellSouth (1 operating company); Qwest
    (1 operating company); Sprint (17 operating companies); Citizens
    Communications (45 operating companies); and Cincinnati Bell (1
    operating company).

[^24]: ^?^ There are 30 mandatory price cap incumbent LECs that are
    subject to customer satisfaction and infrastructure reporting
    requirements. They are Verizon (19 operating companies); SBC (9
    operating companies); BellSouth (1 operating company); and Qwest (1
    operating company).

[^25]: ^?^ Specifically, the same 52 incumbent LECs that have annual
    operating revenues exceeding the indexed revenue threshold and file
    the financial reports.

[^26]: 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*). Specifically, in Phase 1, the
    Commission eliminated the expense matrix filing requirement; allowed
    carriers to reduce the CAM audit requirement from an annual
    financial statement audit to a biennial attestation engagement;
    relaxed the affiliate transactions rules 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 Commission review; eliminated the
    reclassification requirement for certain property held for future
    use; and eliminated the reclassification requirement for certain
    plant under construction.

[^27]: ^?^ 2000 Biennial Regulatory Review -- Comprehensive Review of
    the Accounting Requirements and ARMIS Reporting Requirements for
    Incumbent Local Exchange Carriers: Phase 2 and Phase 3, CC Docket
    No. 00-199, *Notice of Proposed Rulemaking*, FCC 00-364 (rel. Oct.
    18, 2000) (*Notice*). Twenty-nine parties filed comments and 21
    parties filed reply comments in Phase 2. Appendix A contains a list
    of the commenters and their abbreviated names. After reviewing the
    comments, the Commission sought further comment on streamlining
    Class A and Class B accounts. *See* "Commission Seeks Further
    Comment in Phase 2 of the Comprehensive Review of the Accounting
    Requirements and ARMIS Reporting Requirements for Incumbent Local
    Exchange Carriers," *Public Notice*, DA 01-1403 (rel. June 8, 2001)
    (*June 8 Public Notice*). Twelve parties filed comments and six
    parties filed reply comments to the *June 8 Public Notice*. These
    comments are referred to herein as "PN Comments" and "PN Reply
    Comments."

[^28]: ^?^ Jurisdictional Separations and Referral to the Federal-State
    Joint Board, CC Docket No. 80-286, *Report and Order*, FCC 01-162
    (rel. May 22, 2001) (*Separations Freeze Order)*.

[^29]: ^?^ *See* "Common Carrier Bureau Seeks Comment on Proposed
    Streamlined ARMIS 43-04 (Jurisdictional Separations) Report," CC
    Docket No. 80-286, *Public Notice*, DA 01-1496 (rel. June 22, 2001)
    (*ARMIS 43-04 Public Notice*).

[^30]: ^?^ *See* GSA Reply Comments at 5*.*

[^31]: ^?^ Section 220(i) of the Communications Act 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).

[^32]: ^?^ *See, e.g.,* Oregon Comments at 1; Wisconsin Comments at 4;
    ALTS Reply Comments at 10; Washington Comments at 2; Indiana Sept.
    21, 2001 *ex parte* at 2. Wisconsin observes that many states have
    different levels of regulation and in some cases the incumbent LECs
    are still subject to rate-of-return regulation where the accounting
    needs may be greater. Wisconsin Comments at 4.

[^33]: ^?^ Alaska Reply Comments at 3. The State of Alaska requires
    incumbent LECs with annual revenues of \$5 million or more to
    maintain their accounting records using the USOA Class A accounts.
    *Id.* According to Alaska, the USOA structure serves as the most
    useful and efficient tool for overseeing the fair and efficient
    implementation of competition, as well as to evaluate local service
    rates in the absence of competition. *Id*.

[^34]: ^?^ *Id.*

[^35]: ^?^ *See, e.g.*, Oregon Comments at 2; Wisconsin Comments at 4;
    North Carolina Public Staff Comments at 3; Washington Comments at 2;
    Alaska Reply Comments at 4; Virginia Reply Comments at 1. Indiana
    observes that "requiring carriers to file the same form of report
    gives comparability between states that may not otherwise be
    possible." Indiana Sept. 21, 2001 *ex parte* at 2.

[^36]: ^?^ *See* Applications of NYNEX Corporation, Transferor, and Bell
    Atlantic, Transferee, for Consent to Transfer Control of NYNEX
    Corporation and its Subsidiaries, File No. NSD-L-96-10, 12 FCC Rcd
    19985, 19994, ¶ 16 (1997).

[^37]: ^?^ The states of Alaska, California, Florida, Idaho, Illinois,
    Indiana, Kansas, Maryland, Michigan, Montana, Nebraska, Nevada, New
    Hampshire, New Mexico, New York, North Carolina, North Dakota,
    Oregon, South Dakota, Utah, Virginia, Washington, Wisconsin, and
    Wyoming.

[^38]: ^?^ *See, e.g.,* AT&T Comments at 1 & Reply Comments at 2-5; XO
    Communications Reply Comments at 3; NARUC Comments at 4; ALTS Reply
    Comments at 6-7; Ohio CC and NASUCA Joint Reply Comments at 2-3;
    Ohio CC PN Reply Comments at 2. Qwest, on the other hand, contends
    that competition in the provision of interstate access services is
    robust, and it is those services on which the Commission should
    focus. Qwest Reply Comments at 8-9. *See also* Verizon Reply
    Comments at 4-5 (Verizon-east has provided over 2 million unbundled
    loops and over 2 million interconnection trunks to competitors.)

[^39]: ^?^ *See* 2000 Biennial Regulatory Review, CC Docket No. 00-175,
    *Report*, FCC 00-456 (rel. Jan. 14, 2001) at ¶ 21 & note 23 (*2000
    Biennial Regulatory Review Report*).

[^40]: ^?^ *See* *2000 Biennial Regulatory Review Report* at ¶ 19.

[^41]: ^?^ *See Notice* at ¶ 17.

[^42]: ^?^ Network and related asset accounts consist 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. The network and related asset accounts we proposed to
    retain, Accounts 2111-2682, include the Class A accounts for land,
    motor vehicles, aircraft, tools and other work equipment, buildings,
    furniture, office equipment, general purpose computers, analog
    electronic switching, digital electronic switching,
    electro-mechanical switching, operator systems, radio systems,
    circuit equipment, station apparatus, customer premises wiring,
    large private branch exchanges, public telephone terminal equipment,
    other terminal equipment, poles, aerial cable, underground cable,
    buried cable, submarine cable, deep sea cable, intrabuilding network
    cable, aerial wire, conduit systems, capital leases, and leasehold
    improvements.

[^43]: ^?^ *Notice* at ¶ 16.

[^44]: ^?^ *See, e.g.,* BellSouth Comments at 4.

[^45]: ^?^ *See, e.g.,* AT&T Comments at 2-3 & Reply Comments at 6-9;
    AT&T Aug. 29, 2001 *ex parte* at 2; Florida Comments at 4; GSA
    Comments at 3 & Reply Comments at 6; Idaho Comments at 4; Maryland
    Comments at 3; NARUC Comments at 4-5 & Reply Comments at 2-7; New
    York Comments at 1-2; North Carolina Public Staff Comments at 3;
    Ohio CC and NASUCA Joint Comments at 5 & Reply Comments at 3-5; Ohio
    CC PN Reply Comments at 3; Oregon Comments at 1-4; RUS Comments at
    2; Sprint Comments at 8; Utah Comments at 2; Wisconsin Comments at
    6; Alaska Reply Comments at 4-5; ALTS Reply Comments at 4-5;
    California Reply Comments at 2; Virginia Reply Comments at 1;
    WorldCom Reply Comments at 1-3; XO Communications Reply Comments at
    9-14; North Carolina Sept. 4, 2001 *ex parte* at 1-2; New Mexico
    Aug. 30, 2001 *ex parte* at Appendix; Illinois Aug. 24, 2001 *ex
    parte* at 1-2; NARUC Sept. 6, 2001 *ex parte* at Appendix A; North
    Dakota Aug. 31, 2001 *ex parte* at 1; Utah Aug. 31, 2001 *ex parte*
    at Appendix, p.1; Indiana Sept. 21, 2001 *ex parte*; Michigan Sept.
    14, 2001 *ex parte*; Maryland Sept. 7, 2001 *ex parte*; New
    Hampshire Sept. 7, 2001 *ex parte* at 1. Several states filed brief
    comments, concurring with the comments filed by NARUC. *See, e.g.,*
    Illinois Comments at 1-2; Montana Comments at 1; Nebraska Comments
    at 1; Washington Comments at 1-2.

[^46]: ^?^ *See* *June 8 Public Notice*.

[^47]: ^?^ *See, e.g.*, New York PN Comments at 2; Sprint PN Comments at
    2-3; GSA PN Reply Comments at 7; Ohio CC PN Reply Comments at 4;
    AT&T Aug. 29, 2001 *ex parte* at 3; New Hampshire Sept. 7, 2001 *ex
    parte* at 2; CompTel Oct. 3, 2001 *ex parte;* NASUCA Oct. 4, 2001
    *ex parte* at 4. Verizon, on the other hand, contends that there is
    no further need to break out these accounts because they share the
    same depreciation schedule as the other buried cable investment.
    Verizon PN Reply Comments at 4. Verizon also contends that
    eliminating this detail will have no practical impact, especially in
    light of the separations freeze under which the Class B accounts
    that combine all cable and wire will be assigned to categories based
    on frozen category relationships. *Id.* Notwithstanding depreciation
    or separations issues, we conclude that it is important to prevent
    including other expenses in the underground and buried cable
    accounts because such inclusion could distort loop costs of which
    underground and buried cable are important factors.

[^48]: ^?^ New York PN Comments at 2.

[^49]: ^?^ Sprint PN Comments at 2-3.

[^50]: ^?^ When a maintenance problem develops in a deep-sea cable, the
    expense of locating and repairing the cable is much greater than for
    buried cable.

[^51]: ^?^ Oregon PN Comments at 1; New Hampshire PN Reply Comments at
    3; New Hampshire Sept. 7, 2001 *ex parte* at 2. *See also* AT&T Aug.
    29, 2001 *ex parte* at 2.

[^52]: ^?^ *See* Illinois Aug. 24, 2001 *ex parte* at 2.

[^53]: ^?^ These accounts are Account 5000, Basic local service revenue;
    Account 5001, Basic area revenue; Account 5002, Optional extended
    area revenue; Account 5003, Cellular mobile revenue; Account 5004,
    Other mobile services revenue; Account 5040, Local private line
    revenue; Account 5050, Customer premises revenue; Account 5060,
    Other local exchange revenue; Account 5069, Other local exchange
    revenue settlements.

[^54]: ^?^ *See, e.g.,* AT&T Comments at 3 & Reply Comments at 9; New
    York Comments at 1 & PN Comments at 1; GSA Comments at 4; GSA PN
    Comments at 2-3 & PN Reply Comments at 6; WorldCom Comments at 2 &
    PN Comments at 3; Ohio CC PN Reply Comments at 4; New Hampshire
    Sept. 7, 2001 *ex parte* at 2-3.

[^55]: ^?^ *See* WorldCom Comments at 2 & PN Comments at 3. *See also*
    Ohio CC PN Reply Comments at 4. The GSA also proposes that we
    consolidate these accounts: Account 5010, Area revenue; Account
    5020, Mobile services revenue; Account 5040, Local private line
    revenue; and Account 5050, Other local services revenue. GSA
    Comments at 4 & PN Comments at 3.

[^56]: ^?^ *See, e.g.,* AT&T Comments at 3 & Reply Comments at 9; New
    York Comments at 1 & PN Comments at 1; GSA Comments at 4; GSA PN
    Comments at 2-3 & PN Reply Comments at 6; WorldCom Comments at 2 &
    PN Comments at 3; Ohio CC PN Reply Comments at 4; New Hampshire
    Sept. 7, 2001 *ex parte* at 2-3.

[^57]: ^?^ *See* Further Notice of Proposed Rulemaking at paragraph 207.

[^58]: ^?^ GSA PN Comments at 3 & PN Reply Comments at 6; WorldCom PN
    Comments at 2; Sprint PN Reply Comments at 2. Illinois recommends
    retaining Account 5084, State access revenue, as the best method of
    tracking and reporting state revenues. Illinois Aug. 24, 2001 *ex
    parte* at 2.

[^59]: ^?^ Because we are eliminating the state access revenue account,
    we decline to add subaccounts to the state access revenue account
    for switched access, special access, and subscriber line charge
    accounts, as proposed by the states. Wisconsin proposes adding two
    subaccounts to Account 5081, End user revenue: Subscriber line
    charge (SLC) and Non-SLC. Wisconsin Comments at Attachment A, p. 9.
    Wisconsin also proposes adding two subaccounts to Account 5082,
    Switched access revenue: Flat-rate (PICC) and Usage-based. *Id.* In
    addition, Wisconsin proposes adding five subaccounts, to Account
    5084, State access revenue: SLC (end user), Non-SLC, PICC,
    Usage-based switched access, and special access. *Id.* *See also*
    Wisconsin PN Comments at 3; New Hampshire PN Reply Comments at 4.
    Commenters argue that these new subaccounts would be useful in
    analytical studies, such as in determining whether there is movement
    toward recovering nontraffic-sensitive costs via fixed charges and
    traffic sensitive costs via usage-based charges. *See, e.g.,* GSA
    Comments at 5; Ohio CC and NASUCA Joint Comments at 6; Oregon
    Comments at 2; Wisconsin Comments at Attachment A, p.9; Ohio CC PN
    Comments at 5 & Reply Comments at 5. Verizon, however, argues that
    this would be difficult to administer due to the variety of rate
    structures in different states. Verizon Comments at 3. *See also*
    USTA Comments at 11.

[^60]: ^?^ *See* Section III.D.5, *infra*.

[^61]: ^?^ These accounts are Account 5230, Directory revenue; Account
    5240, Rent revenue; Account 5250, Corporate operations revenue;
    Account 5260, Miscellaneous revenue; Account 5261, Special billing
    arrangements revenue; Account 5262, Customer operations revenue;
    Account 5263, Plant operations revenue; Account 5264, Other
    incidental regulated revenue; Account 5269, Carrier billing and
    collection revenue.

[^62]: ^?^ *See* Ohio CC and NASUCA Joint Comments at 4 (*citing*
    Petition of US West Communications, Inc. for an Accounting Order,
    Washington Utilities and Transportation Commission Docket No.
    UT-980948, Fourteenth Supplemental Order and Order Denying Petition
    (2000) (holding that Yellow Pages publishing activity had not been
    transferred permanently to US West's affiliate for regulatory
    purposes and that the state commission could continue the practice
    of attributing -- imputing -- to US West a portion of the earnings
    of its affiliate from publishing the Yellow Pages); Ohio CC PN
    Comments at 4. *See also* Washington Aug. 16, 2001 *ex parte* at 1;
    New Hampshire Sept. 7, 2001 *ex parte* at 3. New York, Utah, and
    AT&T also argue that we should not consolidate these miscellaneous
    revenue accounts. New York PN Comments at 1-2; Utah Comments at 1;
    AT&T Aug. 29, 2001 *ex parte* at 2;

[^63]: ^?^ New Hampshire PN Reply Comments at 3; Oregon PN Comments
    at 1. Illinois contends that we should retain Account 6562,
    Depreciation expense for property held for future use and Account
    6563, Amortization expense-intangible. Illinois Aug. 24, 2001 *ex
    parte* at 2. Illinois explains that states, including Illinois, that
    use rate-of-return regulation would benefit from separate
    identification of amortization of intangible expense because these
    costs require special scrutiny. *Id.* Sprint also disagrees with our
    proposal, arguing that it is important to retain the detail accounts
    as potential tools for maintaining a check on the accuracy of RBOC
    cost studies. Sprint PN Comments at 3.

[^64]: ^?^ *See* ARMIS 43-02 Report, Balance Sheet Tables.

[^65]: ^?^ These accounts are Account 6611, Product management; Account
    6612, Sales; Account 6613, Product advertising; Account 6620,
    Services; Account 6621, Call completion services; Account 6622,
    Number services; Account 6623, Customer services; Account 6710,
    Executive and planning; Account 6711, Executive; Account 6712,
    Planning; Account 6720, General and administrative; Account 6721,
    Accounting and finance; Account 6722, External relations; Account
    6723, Human resources; Account 6724, Information management; Account
    6725, Legal; Account 6726, Procurement; Account 6727, Research and
    development; Account 6728, Other general and administrative; and
    Account 6790, Provision for uncollectible notes receivable. In the
    *June 8 Public Notice*, we proposed to consolidate Account 6710,
    Executive and planning into Account 6620, Services.

[^66]: ^?^ WorldCom Comments at 2 & PN Comments at 3-4. New York
    observes that consolidating the corporate operating expenses into
    one account would make regulatory audits more difficult and time
    consuming to conduct. New York PN Comments at 2. *See also* Utah
    Comments at 1; California Reply Comments at 2; Ohio CC PN Reply
    Comments at 4; New Hampshire Sept. 7, 2001 *ex parte* at 3. Illinois
    proposes retaining Account 6622, Number services, because a separate
    account would be useful in identifying directory related expenses.
    Illinois Aug. 24, 2001 *ex parte* at 2. Oregon suggests combining
    Accounts 6711 and 6710 and Accounts 6721 through 6728 into two
    accounts. Oregon PN Comments at 1. Illinois also opposed
    consolidating the 6700 accounts into one account because such a
    consolidation would make it difficult for state regulators to
    identify expenses that should not be borne by competitive carriers.
    Illinois Aug. 24, 2001 *ex parte* at 3. For example, Account 6722,
    External relations contains costs for non-product related corporate
    image advertising that Illinois does not allow to be recovered from
    ratepayers or carriers. *Id.*

[^67]: ^?^ 47 U.S.C. § 214(e)(1)(B).

[^68]: ^?^ The Part 32 USOA replaced the former Part 31 USOA on January
    1, 1988.

[^69]: ^?^ We note, however, that the need for such Class A accounting
    information to develop inputs for the high-cost model may change as
    the model evolves. In the *10^th^ Report & Order*, the Commission
    recognized that the model must evolve as technology and other
    conditions change. *See* Federal-State Joint Board on Universal
    Service, Forward-Looking Mechanism of High-Cost Support for
    Non-Rural LECs, CC Docket No. 97-160, *Tenth Report and Order*, 14
    FCC Rcd 20156, 20170, ¶ 28 (1999) (*10^th^ Report and Order*),
    *aff'd sub nom.* Qwest v. FCC (10^th^ Cir.), file nos. 99-9546,
    99-9547, 00-9505 (July 31, 2001). The Commission committed to
    initiating a proceeding to study, among other things, how often the
    inputs data should be updated and how the model itself should change
    to reflect changing circumstances. In addition, the Commission
    stated its intent to initiate a review, with the Federal-State Joint
    Board on Universal Service, of the operation of the high-cost
    support mechanism for non-rural carriers on or before January 1,
    2003. We intend in the near future to initiate a proceeding to
    examine how often and to what extent the high-cost model inputs
    should be revised and updated. To the extent that we, in our review
    of the model and its cost inputs, conclude that certain inputs
    should be eliminated or modified, we intend to make corresponding
    modifications to the accounting requirements to continue our efforts
    to streamline the accounting and reporting requirements.

[^70]: ^?^ *See, e.g.,* Southwestern Bell 1999 Annual Access Charge
    Tariff Filing, Transmittal No. 2763, Citizens Telephone Company,
    1998 Annual Access Charge Tariff Filing, Transmittal No. 49;
    GTE-Kentucky Telephone Company, 1998 Annual Access Charge Tariff
    Filing, Transmittal No. 248.

[^71]: ^?^ *See, e.g.*, Sprint Petition for Pricing Flexibility for
    Special Access and Dedicated Transport Services, CCB/CPD No. 01-04,
    *Memorandum Opinion and Order*, DA 01-1279 (rel. May 25, 2001);
    BellSouth Petition for Pricing Flexibility for Special Access and
    Dedicated Transport Services, CCB/CPD No. 00-20, *Memorandum Opinion
    and Order*, DA 00-2793 (rel. Dec. 15, 2000); Petition of Ameritech
    Illinois, *et al*. for Pricing Flexibility, CCB/CPD No. 00-26,
    Petition of Pacific Bell Telephone Company for Pricing Flexibility,
    CCB/CPD No. 00-23, Petition of Southwestern Bell Telephone Company
    for Pricing Flexibility, CCB/CPD No. 00-25, *Memorandum Opinion and
    Order*, DA 01-670, (rel. Mar. 14, 2001); Verizon Petitions for
    Pricing Flexibility for Special Access and Dedicated Transport
    Services, CCB/CPD No. 00-24, 00-28, *Memorandum Opinion and Order*,
    DA 01-663, (rel. Mar. 14, 2001).

[^72]: ^?^ An exogenous adjustment allows a carrier to increase its
    prices to recover costs imposed on it by governmental or
    administrative action beyond its control. It is typical for
    incumbent LEC annual access tariffs to include exogenous
    adjustments. *See, e.g.,* Ameritech Operating Companies 2001 Annual
    Filing, Transmittal No. 1270, Description and Justification, section
    2; BellSouth 2001 Annual Access Charge Tariff Filing, Transmittal
    No. 592, Description and Justification, section 6; Pacific Bell
    Telephone Company 2001 Annual Filing, Transmittal No. 37,
    Description and Justification, section 2; Qwest Corporation 2001
    Price Cap Revisions Tariff Filing, Transmittal No. 76, Description
    and Justification, section 2.2.

[^73]: ^?^ *See* Bell Atlantic Telephone Companies Revisions in Tariff
    FCC Nos. 1 and 11, CC Docket No. 01-140, *Order Terminating Tariff
    Investigation*, FCC 01-278 (rel. Sept. 26, 2001).

[^74]: ^?^ *See CALLS Report and Order*, 15 FCC Rcd at 12994, ¶ 83;
    "Initiation of Cost Review Proceeding for Residential and
    Single-Line Business Subscriber Line Charge (SLC) Caps," CC Docket
    Nos. 96-262, 94-1, *Public Notice*, DA 01-2163 (rel. Sept. 17,
    2001).

[^75]: ^?^ All of these cost recovery mechanisms remain in place even
    under recent access charge reform measures. *See CALLS Report and
    Order.*

[^76]: ^?^ Price cap carriers may seek waivers from the Commission's
    depreciation requirements if they meet certain conditions. *See*
    1998 Biennial Regulatory Review -- Review of Depreciation
    Requirements for Incumbent Local Exchange Carriers, CC Docket No.
    98-137, *Report and Order and Memorandum Opinion and Order*, 15 FCC
    Rcd 242 (1999).

[^77]: ^?^ *See, e.g.,* Florida Comments at 5; Idaho Comments at 4;
    Maryland Comments at 3-4; NARUC Comments at 5; Utah Comments at 2;
    XO Communications Reply Comments at 11-12; North Carolina Sept. 4,
    2001 *ex parte* at 2; Maryland Sept. 7, 2001 *ex parte* at Appendix.

[^78]: ^?^ *See, e.g.,* Idaho Comments at 4; Florida Comments at 5;
    Maryland Comments at 3; NARUC Comments at 5; New York Comments at 2;
    ALTS Reply Comments at 9; AT&T Reply Comments at 8; XO
    Communications Reply Comments at 11-12.

[^79]: ^?^ New York Comments at 2.

[^80]: ^?^ *See* 47 U.S.C. § 224; 47 C.F.R. § 1.1401-1.1418; Amendment
    of Rules and Policies Governing Pole Attachments, CS Docket No.
    97-98, *Report and Order*, 15 FCC Rcd 6453 (2000), *aff'd in
    pertinent part* Consolidated Partial Order on Reconsideration, FCC
    01-170, 16 FCC Rcd 12103 (2001). *See also* Florida Comments at note
    2; Idaho Comments at 4; Maryland Comments at 3; NARUC Comments at 5
    & Reply Comments at 3-4; ALTS Reply Comments at 8-9; AT&T Reply
    Comments at 7; North Carolina Sept. 4, 2001 *ex parte* at 2.

[^81]: ^?^ *See* NCTA Reply Comments at 3-5.

[^82]: ^?^ *See* Amendment of Rules and Policies Governing Pole
    Attachments, CS Docket No. 97-98, *Report and Order*, 15 FCC Rcd
    6453 (2000).

[^83]: ^?^ *See* NCTA Reply Comments at 4; XO Communications Reply
    Comments at 12. NCTA states that the following accounts are
    necessary for calculation of pole and conduit rental: Account 2001,
    Telecommunications plant in service; Account 2411, Poles; Account
    2441, Conduit systems; Account 4100, Net current deferred operating
    income taxes; Account 4340, Net noncurrent deferred operating income
    taxes; Account 6411, Poles expense; Account 6441, Conduit systems
    expense; Account 6710, Executive and planning; Account 6720, General
    and administrative; Account 7200, Operating taxes. NCTA Aug. 31,
    2001 *ex parte*.

[^84]: ^?^ *See* NCTA Reply Comments at 5; XO Communications Reply
    Comments at 12. NCTA states that the following accounts are
    necessary for calculation of pole and conduit rental: Account 2001,
    Telecommunications plant in service; Account 2411, Poles; Account
    2441, Conduit systems; Account 4100, Net current deferred operating
    income taxes; Account 4340, Net noncurrent deferred operating income
    taxes; Account 6411, Poles expense; Account 6441, Conduit systems
    expense; Account 6710, Executive and planning; Account 6720, General
    and administrative; Account 7200, Operating taxes. NCTA Aug. 31,
    2001 *ex parte*. We agree that these accounts are necessary and must
    be maintained and reported in ARMIS. However, for purposes of the
    pole attachment formulas, because Account 6720 (General &
    Administrative) has been amended to include Account 6710, once this
    order is implemented, parties to pole attachment disputes may
    substitute Account 6720 for the sum of previous Accounts 6710 and
    6720. Also, Account 7200, which has been eliminated may be
    substituted by using the individual Accounts 7210 to 7250 inclusive.
    Also, Class A carriers must report their pole rental expense, which
    reduces the pole owner's maintenance expense (Account 6411) in the
    pole attachment formula. (This would also apply to conduit if any
    conduit rental expense was included in Account 6441). Class A
    carriers must also continue to file the pole and conduit-specific
    information in current ARMIS Report 43-02, Tables B-5, for Account
    3100, Lines 0490 (depreciation reserve for total plant in service),
    0390 (depreciation reserve for pole plant, Account 2411), and 0470
    (depreciation reserve for conduit, Account 2441) and Table B-7 -
    depreciation rate for poles, Account 2411 and depreciation rate for
    Conduit, Account 2441 as well as the information contained in
    current ARMIS Report 43-08 Table 1.A, Equivalent Number of Poles;
    Conduit System Trench Km and Conduit System Duct Km. In addition,
    Class A carriers must maintain and report pole and conduit-specific
    information related to Accounts 4100 (net current deferred operating
    income taxes) and Account 4340 (net noncurrent deferred operating
    income taxes). Finally, we note that in certain cases, where a
    complaint is filed against a utility concerning the charges for
    non-traditional attachments, additional information may be required
    to calculate a maximum rate.

[^85]: ^?^ *See, e.g.,* Florida Comments at 4; Idaho Comments at 4;
    Maryland Comments at 3; NARUC Comments at 4-5; Ohio CC and NASUCA
    Joint Comments at 5 & Reply Comments at 4; Utah Comments at 2; AT&T
    Comments at 4 & Reply Comments at 7; Alaska Reply Comments at 3;
    ALTS Reply Comments at 8; California Reply Comments at 2; GSA Reply
    Comments at 7; Virginia Reply Comments at 1; WorldCom Reply Comments
    at 3; XO Communications Reply Comments at 6, 10; Maryland Sept. 7,
    2001 *ex parte* at Appendix.

[^86]: ^?^ *See, e.g.,* Idaho Comments at 4; NARUC Comments at 5; North
    Carolina Public Staff Comments at 3; Utah Comments at 2; Sprint
    Comments at 2; ALTS Reply Comments at 9; XO Communications Reply
    Comments at 10.

[^87]: ^?^ Section 251(c)(3) requires incumbent LECs to "provide
    nondiscriminatory access to network elements on an unbundled basis
    at any technically feasible point, on rates, terms, and conditions
    that are just, reasonable, and nondiscriminatory." 47 U.S.C. §
    251(c)(3). Section 251(c)(6) requires incumbent LECs to "provide, on
    rates, terms, and conditions that are just, reasonable, and
    nondiscriminatory, for physical collocation of equipment necessary
    for interconnection or access to unbundled network elements at the
    premises of the local exchange carrier." 47 U.S.C. § 251(c)(6).
    Section 252 of the Communications Act, 47 U.S.C. § 252, sets forth
    the procedures by which telecommunications carriers may request and
    obtain interconnection and unbundled network elements from an
    incumbent LEC.

[^88]: ^?^ We note that pursuant to the section 251(c)(3) requirements,
    incumbent LECs are providing increasing numbers of unbundled network
    elements to competitive LECs (CLECs). They provided over 5.2 million
    UNE loops in the last six months of 2000, compared to over 3.2
    million six months earlier. *See* Industry Analysis Division, *Local
    Telephone Competition: Status as of December 31, 2000*, (rel. May
    2001).

[^89]: ^?^ *See, e.g.*, Petition of WorldCom, Inc. Pursuant to Section
    252(e)(5) of the Telecommunications Act of 1996 for Expedited
    Preemption of the Virginia State Corporation Commission Regarding
    Interconnection Disputes with Verizon and Expedited Arbitration, CC
    Docket No. 00-218, filed Oct. 26, 2000; "Pleading Cycle Established
    for Comments on Section 252(e) Petition filed by WorldCom, Inc.," CC
    Docket No. 00-218, *Public Notice*, 15 FCC 20456 (2000).

[^90]: ^?^ *See, e.g.,* AT&T Comments at 3-4 & Reply Comments at 6-7;
    Florida Comments at 4; Idaho Comments at 4; Maryland Comments at 3;
    NARUC Comments at 4-5; North Carolina Public Staff Comments at 3;
    Ohio CC and NASUCA Joint Comments at 5; Sprint Comments at 8; Utah
    Comments at 1-2; California Reply Comments at 2; XO Communications
    Reply Comments at 10.

[^91]: ^?^ *See, e.g.,* AT&T Comments at 3-4; Florida Comments at 5-6;
    Idaho Comments at 4; Maryland Comments at 4; NARUC Comments at 5;
    Sprint Comments at 8; Utah Comments at 1-2; ALTS Reply Comments at
    9; XO Communications Reply Comments at 10; Illinois Aug. 24, 2001
    *ex parte* at 1-2; North Carolina Sept. 4, 2001 *ex parte* at 1-2.

[^92]: ^?^ In the accompanying Further Notice of Proposed Rulemaking, we
    seek comment on whether state commissions can develop alternative
    sources of such information in the future.

[^93]: ^?^ *See* California Reply Comments at 2.

[^94]: ^?^ *See, e.g.,* Florida Comments at 4-5; Idaho Comments at 4;
    Maryland Comments at 3; NARUC Comments at 5; RUS Comments at 2;
    Sprint Comments at 8, Utah Comments at 2; AT&T Reply Comments at 7;
    California Reply Comments at 2; Maryland Sept. 7, 2001 *ex parte* at
    Appendix.

[^95]: ^?^ Aerial cable (Account 2421) is strung between poles above
    ground and has lower installation costs but higher maintenance
    costs. Underground cable (Account 2422) is placed underground within
    conduits, and buried cable (Account 2423) is placed underground
    without conduit. Underground and buried cable have higher
    installation costs than aerial cable, but may have lower maintenance
    costs. A carrier will determine whether to use aerial, underground,
    or buried cable based on factors such as the geographic distribution
    of the population and the terrain.

[^96]: ^?^ *See* Further Notice of Proposed Rulemaking.

[^97]: ^?^ *See* Sprint Comments at 8.

[^98]: ^?^ *See* XO Communications Reply Comments at 11.

[^99]: ^?^ *See, e.g.,* Florida Comments at 6; Idaho Comments at 4-5;
    Maryland Comments at 4; NARUC Comments at 5 & Reply Comments at 7;
    New York Comments at 2; North Carolina Public Staff Comments at 3
    ("most of the small ILECs regulated by the NCUC use the Class A
    accounting system"); Utah Comments at 2; ALTS Reply Comments at 11;
    Ohio CC and NASUCA Reply Comments at 2; XO Communications Reply
    Comments at 8-9; New Hampshire PN Reply Comments at 2; Nebraska Aug.
    27, 2001 *ex parte* at 1; North Carolina Sept. 4, 2001 *ex parte* at
    2; Maryland Sept. 7, 2001 *ex parte* at Appendix. The State of
    Oregon observes that most of the complaints it receives about
    accounting burdens are related to confidentiality or nonregulated
    activities, and audits have shown that companies keep more details
    than they usually offer to regulators. Oregon Comments at 3. Even
    BellSouth admits that if it were "allowed to set up its own set of
    accounts it would still capture and record the information that it
    needs to effectively operate a business. This information would in
    all likelihood very much resemble the information that BellSouth
    currently captures today." BellSouth Reply Comments at 4.

[^100]: ^?^ The RUS provides financing and technical advice to about 825
    rural local exchange carriers. *See* RUS PN Comments at 1.

[^101]: ^?^ *See* USTA Letter at Attachment A.

[^102]: ^?^ *See* Sprint Comments at 7; Verizon Comments at 6; USTA
    Comments at 8-9.

[^103]: ^?^ Subaccount 1220.2, Property held for sale or lease, is not
    included in such calculations and therefore must be accounted for
    separately.

[^104]: ^?^ *See, e.g.,* Florida Comments at 6; Oregon Comments at 2;
    Utah Comments at 4; Maryland Comments at 6-7; North Carolina Public
    Staff Comments at 3; NARUC Comments at 6 & Reply Comments at 4; Ohio
    CC and NASUCA Joint Comments at 5-6; Wisconsin Comments at 6;
    WorldCom Comments at 3-4; Idaho Comments at 5; California Reply
    Comments at 2; ALTS Reply Comments at 11-12; GSA Reply Comments at
    9; Nebraska Aug. 27, 2001 *ex parte* at 1; Illinois Aug. 24, 2001
    *ex parte* at 2; AT&T Aug. 29, 2001 *ex parte* at 1-2; NARUC Sept.
    6, 2001 *ex parte* at Appendix A, pp.3-5; Washington Aug. 16, 2001
    *ex parte* at 1; North Carolina Sept. 4, 2001 *ex parte* at 3-4; New
    Mexico Aug. 30, 2001 *ex parte* at Appendix, p.2; North Dakota Aug.
    31, 2001 *ex parte* at 1; Indiana Sept. 21, 2001 *ex parte* at 1-3;
    Maryland Sept. 7, 2001 *ex parte* at Appendix; New Hampshire Sept.
    7, 2001 *ex parte* at 1-2; Kansas Oct. 2, 2001 *ex parte*; South
    Dakota Aug. 27, 2001 *ex parte* (explaining that the accounts listed
    in the *June 8^th^ Public Notice* reflected a compromise between
    accounting streamlining and the strong needs of state regulators for
    modest updating of new technologies and nascent competition-related
    accounts.)

[^105]: ^?^ *See, e.g.,* Oregon Comments at 1; North Carolina Public
    Staff Comments at 3; Wisconsin Comments at 6; Indiana Sept. 21, 2001
    *ex parte* at 1-3. Oregon explains that detariffing, deregulation,
    and new technologies have increased the need for some reporting
    requirements and account details and reduced the need for other
    information Oregon Comments at 1. Idaho also notes that rapid growth
    in Internet traffic, packet switching, digital subscriber line
    services, and UNEs has forced the industry to increasingly rely on
    the incumbent LEC's network; monitoring of the incumbent LECs'
    costs, investments, and cost allocation practices is important.
    Idaho Comments at 3.

[^106]: ^?^ *See, e.g.,* Florida Comments at 6; GSA Comments at 5; MD
    Comments at 6-7; NC Public Staff Comments at 3; NARUC Comments at 6
    & Reply Comments at 5; Ohio CC and NASUCA Joint Comments at 6; Utah
    Comments at 4-5; Wisconsin Comments at 6-7; ALTS Reply Comments at
    11; WorldCom Reply Comments at 4-5; GSA PN Comments at 4-5; Ohio CC
    PN Comments at 5-6; WorldCom PN Comments at 2; New Hampshire PN
    Reply Comments at 3-4; Illinois Aug. 24, 2001 *ex parte* at 2; AT&T
    Aug. 29, 2001 *ex parte* at 1-2; NARUC Sept. 6, 2001 *ex parte* at
    Appendix A, pp. 3-5; Washington Aug. 16, 2001 *ex parte* at 1; North
    Carolina Sept. 4, 2001 *ex parte* at 3-4; New Mexico Aug. 30, 2001
    *ex parte* at Appendix, p.2; North Dakota Aug. 31, 2001 *ex parte*
    at 1; Indiana Sept. 21, 2001 *ex parte* at 1-3; Maryland Sept. 7,
    2001 *ex parte* at Appendix; New Hampshire Sept. 7, 2001 *ex parte*
    at 1-2.

[^107]: ^?^ Ohio CC and NASUCA Joint Comments at 6; Ohio CC PN Comments
    at 7.

[^108]: ^?^ *See, e.g.*, Verizon Comments at 3-4 & Reply Comments at
    5-6; USTA Comments at 9-12 & Reply Comments at 10-11; BellSouth
    Comments at 5; Qwest Comments at 2-4.

[^109]: ^?^ BellSouth PN Comments at 2.

[^110]: ^?^ Verizon PN Reply Comments at 2.

[^111]: ^?^ We note that we continue to look at all of these issues in
    Phase 3. States, of course, are free to revisit these issues in the
    course of that proceeding. Commenters urge us to create new
    accounts, or subaccounts, to better track costs associated with
    specific UNEs, such as loops and switching. *See, e.g.,* North
    Carolina Public Staff Comments at 3; OCC and NASUCA Joint Comments
    at 6; Wisconsin Comments at Attachment A, pp. 3, 11; GSA PN Comments
    at 4-5; & PN Reply Comments at 4-5; AT&T Aug. 29, 2001 *ex parte* at
    1; NARUC Sept. 6, 2001 *ex parte* at Appendix A, p. 5; North
    Carolina Sept. 4, 2001 *ex parte* at 3; New Mexico Aug. 30, 2001 *ex
    parte* at Appendix, p.2.

[^112]: ^?^ The digital switching accounts are: Account 2212, Digital
    electronic switching and Account 6212, Digital electronic expense.
    Several commenters supported this proposal. *See, e.g.*, GSA PN
    Comments at 5 & PN Reply Comments at 5; Utah Aug. 31, 2001 *ex
    parte* at Appendix, p.3; Maryland Sept. 7, 2001 *ex parte* at
    Appendix; New Hampshire Sept. 7, 2001 *ex parte* at 2; NASUCA Oct.
    4, 2001 *ex parte* at 2-3.

[^113]: ^?^ Verizon PN Comments at 7; USTA PN Comments at 4; USTA Sept.
    28, 2001 *ex parte.* Carriers currently maintain accounts for packet
    and circuit switches, for their own purposes.

[^114]: ^?^ Several commenters supported this proposal. *See, e.g.*, GSA
    PN Comments at 4-5; Utah Aug. 31, 2001 *ex parte* at Appendix, p.3;
    Maryland Sept. 7, 2001 *ex parte* at Appendix; New Hampshire Sept.
    7, 2001 *ex parte* at 2; NASUCA Oct. 4, 2001 *ex parte* at 2-3.

[^115]: ^?^ USTA PN Comments at 4; Verizon PN Comments at 7. BellSouth
    contends that it will cost between \$1.0 and \$1.2 million to
    implement this change. BellSouth PN Comments at 2. SBC also argues
    that this change would require additional costs. SBC PN Comments at
    4.

[^116]: ^?^ The Circuit equipment accounts are Account 2232, Circuit
    equipment and Account 6232, Circuit equipment expense. *See* New
    Hampshire Sept. 6, 2001 *ex parte* at 2-3 (stating that the addition
    of these subaccounts would recognize the evolution that is occurring
    in telecommunications today and will provide regulators with
    necessary information). *See also* NASUCA Oct. 4, 2001 *ex parte* at
    2-3.

[^117]: ^?^ Several commenters supported this proposal. *See, e.g.,* GSA
    PN Comments at 5. Incumbent LEC commenters opposed this. *See,
    e.g.,* Sprint Comments at 9.

[^118]: ^?^ In the *Accounting Reductions Report and Order*, 14 FCC Rcd
    at 11419, ¶ 49, the Commission required carriers to establish and
    maintain subsidiary record categories for general purpose computer
    software and network software within the intangible asset account.
    The Commission noted that the cost of software upgrades and
    enhancements would continue to be expensed or capitalized in
    accordance with GAAP. *Id.* We will amend section 32.2690 to clarify
    this requirement.

[^119]: ^?^ *See, e.g.,* WorldCom Comments at 3-4; GSA Comments at 4-5;
    North Carolina Public Staff Comments at 3; Wisconsin Comments at
    Attachment A, p.4 & PN Comments at 4; New Hampshire PN Reply
    Comments at 4.

[^120]: ^?^ *See, e.g.,* CBT Comments at 5; Sprint Comments at 9-10;
    Verizon Comments at 3 & Reply Comments at 5; USTA Comments at 10-11
    & Reply Comments at 10; USTA PN Reply Comments at 5. Verizon
    observes that cost studies are more than adequate to develop loop
    and interoffice transport costs. Verizon Comments at 3. Sprint
    observes that the recent freeze of Part 36 category relationships
    for price cap carriers stabilizes these investments and reduces the
    significance of analyzing loop and transport allocations. Sprint PN
    Reply Comments at 2.

[^121]: ^?^ *See Notice* at Appendix 5. Several commenters supported
    this proposal. *See, e.g.,* GSA Comments at 5; Oregon Comments at 2;
    New York Comments at 1; Wisconsin Comments at Attachment A, pp.
    14-15 & PN Comments at 4; GSA PN Comments at 5 & PN Reply Comments
    at 6; New Hampshire PN Reply Comments at 4; Washington Aug. 16, 2001
    *ex parte* at 1; NARUC Sept. 6, 2001 *ex parte* at App. A, pp.5-6;
    AT&T Aug. 29, 2001 *ex parte* at 2.

[^122]: ^?^ This is because CLECs (wholesale customers) do most of the
    customer service functions themselves.

[^123]: ^?^ *See, e.g.,* Sprint Comments at 9-10; USTA Comments at 11 &
    Reply Comments at 11; Verizon PN Reply Comments at 4; USTA PN Reply
    Comments at 5.

[^124]: ^?^ On October 7, 1997, we released a Notice of Proposed
    Rulemaking in CC Docket No. 97-212, proposing, *inter alia*, new
    Part 32 accounts and subsidiary recordkeeping requirements to record
    the revenues and expenses related to providing and obtaining
    interconnection arrangements and access to unbundled network
    elements. *See* Amendments to Uniform System of Accounts for
    Interconnection, CC Docket No. 97-212, *Notice of Proposed
    Rulemaking*, 12 FCC Rcd 16577 (1997). GTE Service Corporation, MCI
    Telecommunications, Corp., Ameritech, Public Utilities Commission of
    Ohio, Cox Communications, Inc., BellSouth, and United States
    Telephone Association filed comments in that docket. Ameritech filed
    reply comments. The issues raised in that proceeding are resolved
    here; therefore, we are terminating CC Docket No. 97-212.

[^125]: ^?^ *See, e.g.,* Florida Comments at 6; Maryland Comments at
    6-7; New York Comments at 1; North Carolina Public Staff Comments at
    3; NARUC Comments at 6 & Reply Comments at 5; Idaho Comments at 5;
    Wisconsin Comments at 6; Wisconsin PN Comments at 3; GSA Comments at
    5; GSA PN Comments at 4; ALTS Reply Comments at 11; WorldCom
    Comments at 3 & Reply Comments at 4-5; WorldCom PN Comments at 2-3;
    Ohio CC and NASUCA Joint Comments at 6; Ohio CC PN Comments at 5 &
    Reply Comments at 5; New Hampshire PN Reply Comments at 3; North
    Dakota Aug. 31, 2001 *ex parte* at 1; Utah Aug. 31, 2001 *ex parte*
    at Appendix, p.2; Maryland Sept. 7, 2001 *ex parte* at Appendix; New
    Hampshire Sept. 7, 2001 *ex parte* at 2; Kansas Oct. 2, 2001 *ex
    parte*; CompTel Oct. 3, 2001 *ex parte*; NASUCA Oct. 4, 2001 *ex
    parte* at 4; California Oct. 2, 2001 *ex parte* at 1-2; Indiana
    Sept. 21, 2001 *ex parte* at 1-3. Indiana explains that currently
    resale revenues are classified by the incumbent LECs as "rent,"
    which does nothing to assist the states and the Commission in
    monitoring the extent of local competition (in this case, through
    resale of bundled services). Indiana Sept. 21, 2001 *ex parte* at
    1-2. NARUC explains that revenues the incumbent LEC receives from
    UNEs or resale would show trends in competition. NARUC Sept. 6, 2001
    *ex parte* at Appendix A, pp. 3-4.

[^126]: ^?^ Verizon PN Reply Comments at 3-4.

[^127]: ^?^ *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*). This program
    seeks to develop the Commission's understanding of the deployment
    and availability of broadband services and the development of local
    telephone service competition in order to comply with section 706 of
    the 1996 Act. The *Local Competition and Broadband Data Gathering
    Program* was established for a five-year period, unless the
    Commission acts to extend it.

[^128]: ^?^ USTA Sept. 6, 2001 *ex parte*

[^129]: ^?^ *Id.*

[^130]: ^?^ *See, e.g.,* NARUC Sept. 6, 2001 *ex parte* at Appendix A,
    p. 4.

[^131]: ^?^ USTA Sept. 6, 2001 *ex parte.*

[^132]: ^?^ Wisconsin Comments at Attachment A, pp. 1, 2, 5; Wisconsin
    PN Comments at 3 & Attachment A, pp. 1, 2, 5. *See also* New
    Hampshire PN Reply Comments at 3. USTA disagrees with this proposal.
    *See* USTA PN Reply Comments at 6.

[^133]: ^?^ Wisconsin Comments at Attachment A, p. 1.

[^134]: ^?^ We note that several commenters, primarily state
    commissions, contend that we should adopt a new account for
    universal service support revenues. *See, e.g.*, North Carolina
    Public Staff Comments at 3; Ohio CC and NASUCA Joint Comments at 6;
    Ohio CC PN Comments at 5 & Reply Comments at 5; Wisconsin Comments
    at 7 & PN Comments at 3; GSA Comments at 5; WorldCom Comments at 3;
    NARUC Reply Comments at 5; New Hampshire PN Reply Comments at 4;
    North Dakota Aug. 31, 2001 *ex parte* at 1; Utah Aug. 31, 2001 *ex
    parte* at Appendix, p.2; Indiana Sept. 21, 2001 *ex parte* at 1-3;
    Maryland Sept. 7, 2001 *ex parte* at Appendix; New Hampshire Sept.
    7, 2001 *ex parte* at 2; Kansas Oct. 2, 2001 *ex parte*; California
    Oct. 2, 2001 *ex parte* at 2; NARUC Sept. 6, 2001 *ex parte* at
    Appendix A, pp. 4-5. NARUC states that expense and revenue accounts
    must be created for universal service programs to ensure that
    carriers' universal service billing rates reflect the needs of the
    programs. *Id.* NASUCA argues that this is the proceeding where the
    Commission should create a new revenue account for universal
    service, which would be preliminary to any final determinations in a
    separate universal service proceeding. *See* NASUCA Oct. 4, 2001 *ex
    parte* at 3. Based on a review of the record, it appears that some
    commenters had a different view of what information these accounts
    would capture than what we intended. Ohio CC and NASUCA observe that
    in Ohio, the recipient of the largest amount of federal high cost
    universal service support includes that amount in Account 5082,
    Switched access revenue, and this account is allocated entirely to
    the interstate jurisdiction, despite the fact that the purpose of
    the support is to keep local rates low. *See* Ohio CC and NASUCA
    Joint Comments at 6 & note 9. This argument presumes that a USF
    revenue account would track revenue (support) received from USAC,
    rather than revenue received from end-users.

[^135]: ^?^ NARUC observes that the FCC Form 499-A Telecommunications
    Reporting Worksheet is not audited. NARUC Sept. 6, 2001 *ex parte*
    at Appendix A, p. 4.

[^136]: ^?^ *See* Federal-State Joint Board on Universal Service, CC
    Docket No. 96-45, *Notice of Proposed Rulemaking*, FCC 01-145 (rel.
    May 8, 2001).

[^137]: ^?^ Specifically, we proposed to eliminate the following Class B
    accounts: Account 1180, Telecommunications accounts receivable;
    Account 1181, Accounts receivable allowance -- telecommunications;
    Account 1190, Other accounts receivable; Account 1191, Accounts
    receivable allowance -- other; Account 1200, Notes receivable;
    Account 1201, Accounts receivable allowance; Account 1210, Interest
    and dividends receivable; Account 1401, Investment in affiliated
    companies; Account 1402, Investments in nonaffiliated companies;
    Account 1407, Unamortized debt issuance expense; Account 1408,
    Sinking funds; Account 1439, Deferred charges; Account 3400,
    Accumulated amortization -- tangible; Account 3500, Accumulated
    amortization -- intangible; Account 3600, Accumulated amortization
    -- other; Account 4010, Accounts payable; Account 4020, Notes
    payable; Account 4030, Advance billing and payments; Account 4040,
    Customers deposits; Account 4050, Current maturities -- long-term
    debt; Account 4060, Current maturities -- capital leases; Account
    4120, Other accrued liabilities; Account 4130, Other current
    liabilities; Account 4210, Funded debt; Account 4220, Premium on
    long-term debt; Account 4230, Discount on long-term debt; Account
    4240, Reacquired debt; Account 4250, Obligations under capital
    leases; Account 4260, Advances from affiliated companies; Account
    4270, Other long-term debt; Account 4310, Other long-term
    liabilities; Account 4360, Other deferred credits; Account 5084,
    State access revenue; Account 6710, Executive and planning; and
    Account 6790, Provision for uncollectible notes receivable.

[^138]: ^?^ RUS PN Comments at 1.

[^139]: ^?^ *Id.* The RUS states that aggregation below the Class B
    level of detail will provide insufficient information to enable it
    to carry out its mission required by the Rural Electrification Act
    in an efficient and effective manner while maintaining its fiduciary
    duty to the taxpayer. *Id.*

[^140]: ^?^ Oregon PN Comments at 2-3.

[^141]: ^?^ Consistent with our actions with respect to Class A
    accounts, we are not consolidating some of the accounts we proposed
    to consolidate in the *Notice* or *June 8 Public Notice*; *e.g.*,
    Account 4040, Customers deposits. Such accounts, which are both
    Class A and Class B accounts, will not be consolidated for either
    class.

[^142]: ^?^ *See* June 9, 2000 letter from Linda Kent, USTA to JoAnn
    Lucanik and Tim Peterson, Accounting Safeguards Division, Common
    Carrier Bureau, FCC ("USTA Letter") at Attachment A. *See also* USTA
    PN Comments at 3.

[^143]: ^?^ *See, e.g.,* Oregon Comments at 4; Oregon PN Comments at 1;
    Wisconsin Comments at Attachment A, pp. 2, 7, 17. *See also* Ohio CC
    PN Reply Comments at 4.

[^144]: ^?^ *See* Further Notice of Proposed Rulemaking at paragraph
    207.

[^145]: ^?^ 47 C.F.R. § 32.1220(h).

[^146]: ^?^ 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.

[^147]: ^?^ *See* *Notice* at ¶ 37; USTA Petition for Rulemaking -- 2000
    Biennial Regulatory Review (filed August 11, 1999) ("USTA Petition")
    at 24 & Attachment at 2.

[^148]: ^?^ Wyoming Comments at 2.

[^149]: ^?^ Sprint Comments at 11; Verizon Comments at 6; USTA Comments
    at 12.

[^150]: ^?^ Sprint Comments at 11.

[^151]: ^?^ *Id.* Sprint notes that its material and supplies and
    station apparatus inventory balances stated as a percent of total
    physical assets are less than one quarter of one percent and one
    half of one percent, respectively. *Id.*

[^152]: ^?^ *Id.*

[^153]: ^?^ 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 (Com.Car.Bur. 1994). Under our rules, carriers may
    implement changes in accounting standards after 90 days, unless
    directed otherwise by the Commission.

[^154]: ^?^ *Notice* at ¶ 26.

[^155]: ^?^ Utah Comments at 3; AT&T Comments at 5-6; WorldCom Reply
    Comments at 5-6. Sprint also observes that a carrier under price cap
    regulation could "bunch up" future years' contributions in one year
    and that allowing a "lumpy" expense would violate good regulatory
    policy by causing a price increase solely due to the timing of
    pledges. Sprint Comments at 12. Sprint suggests that we not allow a
    carrier to adopt SFAS-116 until that carrier elects pricing
    flexibility. *Id.* at 13.

[^156]: ^?^ 47 C.F.R. § 32.12.

[^157]: ^?^ *See Notice* at ¶ 27.

[^158]: ^?^ *See, e.g.,* Oregon Comments at 5; Wisconsin Comments at 10;
    Sprint Comments at 14; Verizon Comments at 9.

[^159]: ^?^ *See* *Joint Cost Order*.

[^160]: ^?^ *See* 47 C.F.R. § 32.27.

[^161]: ^?^ Accounting Safeguards under the Telecommunications Act of
    1996, CC Docket No. 96-150, *Report and Order*, 11 FCC Rcd 17539
    (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). A subsidy
    occurs when the reasonable costs associated with a service are not
    covered by the revenues generated by that service, but are instead
    covered by revenues generated by one or more other services. *See
    Accounting Safeguards Order*, 11 FCC Rcd at 17541-42 & n.4, ¶ 1.

[^162]: ^?^ *See id.* at 17638-39, ¶ 218.

[^163]: An exception to this rule is that services received by a carrier
    from its affiliate that exists solely to provide services to members
    of the carrier's corporate family shall be recorded at fully
    distributed cost. *See* 47 C.F.R. § 32.27(c).

[^164]: ^?^ 47 C.F.R. § 32.27(c).

[^165]: ^?^ 47 C.F.R. § 32.27(b).

[^166]: ^?^ *Id*.

[^167]: ^?^ *Phase 1 Report and Order*, 15 FCC Rcd at 8701, ¶ 20.

[^168]: ^?^ *See* *Notice* at ¶ 34.

[^169]: ^?^ *See, e.g.,* Sprint Comments at 14-15; Verizon Comments at
    9; USTA Comments at 17-18.

[^170]: ^?^ This is similar to how the threshold applies to services. If
    carriers were not allowed to look at asset or service transactions
    prospectively, all transactions would have to be analyzed for fully
    distributed cost and fair market value. The exception that we adopt
    here would then be illusory.

[^171]: ^?^ 47 C.F.R. § 32.27(b) -- (c).

[^172]: ^?^ For example, if 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
    incumbent 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. The
    proposal in the *Notice*, on the other hand, would allow the carrier
    to record the asset at any price up to \$750,000.

[^173]: ^?^ *See, e.g.,* Sprint Comments at 15; GSA Comments at 6; USTA
    Comments at 18-19.

[^174]: ^?^ *See* Wyoming Comments at 2-3; Wisconsin Comments at 13.

[^175]: ^?^ For dominant carriers, Commission rules prohibit pricing
    below incremental cost to prevent predatory pricing. *See* Policy
    and Rules Concerning Rates for Dominant Carriers, CC Docket No.
    87-313, *Second Report and* Order, 5 FCC Rcd 6786, 6824, ¶ 310
    (1990) (requiring price to exceed average variable cost, used as a
    surrogate for incremental cost). *Also see* Amendments to Part 69 of
    the Commission's Rules Relating to the Creation of Access Charge
    Subelements for Open Network Architecture, CC Docket No. 89-79,
    *Memorandum Opinion and Order on Second Further Reconsideration*, 7
    FCC Rcd 5235, 5237, ¶ 12 (1992) (requiring price of a new service to
    exceed direct costs). The Commission has not extended those rules to
    non-dominant carriers. Economists explain that such carriers would
    have nothing to gain by pricing an entire product line below
    incremental cost because they could not recoup their losses. *See*
    F. M. Scherer, *Industrial Market Structure and Economic
    Performance, Second Edition* (Chicago: Rand McNally, 1980), 335-40.

[^176]: ^?^ We note that section 272(b)(5) of the Communications Act
    requires arm's length transactions between a BOC and its section 272
    affiliate. 47 U.S.C. § 272(b)(5). Recording a transaction at the
    higher or lower of cost or market as a floor or ceiling may not meet
    our definition of "arm's length," and therefore may not be used in
    transactions where arm's length transactions are required under the
    Communications Act or otherwise required by Commission rule or
    order.

[^177]: ^?^ *See Notice* at ¶ 29.

[^178]: ^?^ 47 C.F.R. § 32.27(d). Under our current rules, if third
    party sales are less than 50 percent, there is no prevailing price
    and the asset or service must be valued based on a comparison of
    cost and fair market value.

[^179]: ^?^ *See* USTA Letter at Attachment A.

[^180]: ^?^ Sprint and BellSouth support USTA's proposal. *See* Sprint
    Comments at 14; BellSouth Sept. ?, *ex parte*.

[^181]: ^?^ *Id.* at ¶ 134. *See* Wisconsin Comments at 11.

[^182]: ^?^ USTA Comments at 16.

[^183]: ^?^ *See* USTA Comments at 17.

[^184]: ^?^ We use 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).

[^185]: ^?^ 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.

[^186]: ^?^ 47 C.F.R. § 32.27(b) -- (c).

[^187]: ^?^ *Accounting Safeguards Order*, 11 FCC Rcd at 17607, ¶ 147*.*

[^188]: ^?^ Prior to adopting the *Accounting Safeguards Order*, our
    valuation rules required a carrier to record services sold to a
    nonregulated affiliate at the carrier's fully distributed cost. This
    applied even when the fully distributed cost was less than the fair
    market value. Under such circumstances, the carrier would obtain a
    smaller profit from the transaction with the affiliate than it could
    receive from a third party for the same service. In addition,
    carriers were required to record services purchased from a
    nonregulated affiliate at the affiliate's fully distributed cost,
    even if the fully distributed cost was higher than the fair market
    value. As a result, ratepayers may have been harmed if a carrier's
    smaller profits or increased costs were reflected in the rates for
    telecommunications services. In addition, competitors for
    non-regulated services may have been harmed if the valuation methods
    for affiliate transactions induced carriers and their affiliates to
    use services that were not competitive to subsidize non-regulated
    services, thereby putting competitors to a disadvantage. The
    Commission concluded that such valuation rules might not be
    consistent with the section 272(b)(5) requirement that transactions
    be conducted "on an arm's length basis." *Id.*

[^189]: ^?^ *Id.*

[^190]: ^?^ *Id.*

[^191]: ^?^ *See* USTA Comments at 17.

[^192]: ^?^ *See* USTA Reply Comments at 15.

[^193]: ^?^ *See, e.g.,* CBT Comments at 6-7; ITTA Comments at 24;
    Verizon Comments at 9-10. *See also* BellSouth August 2, 2001 *ex
    parte.* NASUCA opposes weakening our affiliate transactions rules.
    *See* NASUCA Oct. 4, 2001 *ex parte* at 2.

[^194]: ^?^ 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).

[^195]: ^?^ *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).

[^196]: ^?^ Carriers must list their nonregulated activities in Section
    II of their CAMs. *See* Responsible Accounting Officer Letter 19, 6
    FCC Rcd 7536 (1991).

[^197]: ^?^ We note, however, that commenters addressing this issue
    supported the proposal. *See, e.g.,* Sprint Comments at 15-16; GSA
    Comments at 6; Verizon Comments at 9; USTA Comments at 19.

[^198]: ^?^ *Notice* at ¶ 27; 47 C.F.R. § 32.5280(c).

[^199]: ^?^ Account 5280, Nonregulated operating revenue is an account
    maintained by Class A and Class B carriers.

[^200]: ^?^ *See* Oregon Comments at 4; RUS Comments at 2.

[^201]: ^?^ *Accounting Safeguards Order*, 11 FCC Rcd at 17572-73,
    17652-55, ¶¶ 73-76, 251-57.

[^202]: ^?^ USTA Comments at 13.

[^203]: ^?^ *See, e.g.,* Oregon Comments at 4; Wisconsin Comments at 8;
    Sprint Comments at 13; Verizon Comments at 8; USTA Comments at 13.

[^204]: ^?^ 47 C.F.R. § 32.2000(a)(4).

[^205]: ^?^ 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.

[^206]: ^?^ 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).

[^207]: ^?^ *See, e.g.,* Florida Comments at 9; NARUC Comments at 7;
    Idaho Comments at 6; Wisconsin Comments at 14; Sprint Comments at
    17; GSA Comments at 7 & Reply Comments at 13; Verizon Comments at
    10; USTA Comments at 20.

[^208]: ^?^ *See, e.g.,* Florida Comments at 9; NARUC Comments at 7;
    Idaho Comments at 6.

[^209]: ^?^ *See, e.g.,* Florida Comments at 9; NARUC Comments at 8;
    Idaho Comments at 6. *See also* GSA Reply Comments at 13.

[^210]: ^?^ 47 C.F.R. § 32.4999(l).

[^211]: ^?^ *See* 47 C.F.R. § 32.4999(l); *Joint Cost Order*, 2 FCC Rcd
    at 1308, ¶ 78. For example, in its CAM filed on December 31, 1993,
    Citizens Utilities Company 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 Separations of Regulated and Nonregulated Costs, AAD 94-6,
    *Memorandum Opinion and Order*, 10 FCC Rcd 16, 17, ¶ 9 (1994).

[^212]: ^?^ 47 C.F.R. § 64.903(a).

[^213]: ^?^ GSA Comments at 7 & Reply Comments at 12-13. Sprint,
    Verizon, and USTA also support the proposal. *See* Sprint Comments
    at 16; Verizon Comments at 10; USTA Comments at 19-20.

[^214]: ^?^ *See* Sprint Comments at 16.

[^215]: ^?^ *See* \"Annual Adjustment of Revenue Threshold,\" *Public
    Notice*, DA 01-903 (rel. Apr.11, 2001) (adjusting annual indexed
    revenue threshold to \$117 million).

[^216]: ^?^ 47 C.F.R. § 64.903.

[^217]: ^?^ *See* *Notice* at ¶ 43; USTA Letter at Attachment A.

[^218]: ^?^ *See* Appendix E.

[^219]: ^?^ In the *Accounting Reductions Report and Order*, the
    Commission liberalized this rule by requiring a revenue study only
    for the current year, rather than for three years into the future.
    In that proceeding, the Commission declined to adopt the suggestion
    that price cap incumbent LECs should be allowed to adopt new
    standards without notification. *See Accounting Reductions Report
    and Order*, 14 FCC Rcd at 11413, ¶ 35.

[^220]: ^?^ USTA Comments at 14.

[^221]: ^?^ The Commission's exogenous cost rules allow carriers under
    price caps to increase their interstate rates to reflect cost
    increases caused by accounting changes.

[^222]: ^?^ *See, e.g.,* AT&T Comments at 4-5 & Reply Comments at 11;
    WorldCom Comments at 4-5; Sprint Comments at 13-14; RUS Comments at
    3; GSA Reply Comments at 10-11.

[^223]: ^?^ *See, e.g.,* WorldCom Comments at 4; Wisconsin Comments at
    9.

[^224]: ^?^ RUS Comments at 3.

[^225]: ^?^ *See, e.g.,* Responsible Accounting Officer Letter 31, Cost
    Allocation Manual Audit Requirements for Large Incumbent Local
    Exchange Carriers, DA 00-2385, (rel. Dec. 21, 2000).

[^226]: ^?^ *See, e.g.,* *Accounting Reductions Report and Order*, 14
    FCC Rcd at 11416-420, ¶¶ 42-51 (adopting GAAP with respect to
    accounting for computer software costs).

[^227]: ^?^ 47 C.F.R. § 32.2003(b).

[^228]: ^?^ *Notice* at ¶ 24. *See also* USTA Petition, Attachment at 6.

[^229]: ^?^ *See* Utah Comments at 2.

[^230]: ^?^ In 1995, the Commission adopted the revenue requirement
    offset method for construction projects to allow carriers to earn
    the authorized rate of return on all construction projects and to
    conform accounting for Allowance for Funds Used During Construction
    (AFUDC) to GAAP. Under the revenue requirement offset method,
    Telephone Plant Under Construction (TPUC) is included in the rate
    base during the construction period and the AFUDC is recognized as
    part of that cost of construction. To prevent double recovery, the
    current year's AFUDC is treated as a revenue amount for ratemaking
    purposes. For cost of service companies, this credit reduces the
    carrier's revenue requirement. *See* Accounting and Ratemaking
    Treatment for the Allowance for Funds Used During Construction
    (AFUDC), CC Docket No. 93-50, *Report and Order*, 10 FCC Rcd 2211,
    2213, ¶ 10 (1995).

[^231]: ^?^ 47 C.F.R. § 32.2000(e)(3).

[^232]: ^?^ *See, e.g.,* Florida Comments at 7; Idaho Comments at 5;
    Maryland Comments at 4; NARUC Comments at 6; Oregon Comments at 4
    (if proposal is adopted, OPUC will require carriers to maintain the
    information); ALTS Reply Comments at 12; AT&T Reply Comments at
    10-11; XO Communications Reply Comments at 14-15; NASUCA Oct. 4,
    2001 *ex parte* at 4. NASUCA observes that our CPR rule is
    consistent with the Foreign Corrupt Practices Act of 1977 that
    applies to any domestic firm engaged in business with a foreign
    entity. *Id.*

[^233]: ^?^ *See, e.g.,* Florida Comments at 7; Maryland Comments at 4;
    NARUC Comments at 6; Idaho Comments at 5.

[^234]: ^?^ *See, e.g.,* Florida Comments at 7; NARUC Comments at 6;
    Idaho Comments at 5; California Reply Comments at 2-3; ALTS Reply
    Comments at 12; AT&T Reply Comments at 11.

[^235]: ^?^ 47 C.F.R. § 64.901(b)(4).

[^236]: ^?^ *Notice* at ¶ 45. USTA contends that this rule is
    burdensome, but has not quantified the burden.

[^237]: ^?^ USTA Comments at 21.

[^238]: ^?^ *Id*. at 22.

[^239]: ^?^ USTA Sept. 28, 2001 ex parte at 8.

[^240]: ^?^ *See, e.g.,* Florida Comments at 8; Utah Comments at 3-4;
    Maryland Comments at 5; North Carolina Public Staff Comments at 4;
    NARUC Comments at 7; Ohio CC and NASUCA Joint Comments at 7; Idaho
    Comments at 5; GSA Comments at 9 & Reply Comments at 14; NASUCA Oct.
    4, 2001 *ex parte* at 2.

[^241]: ^?^ GSA Comments at 9.

[^242]: ^?^ *See* NARUC Aug. 17, 2001 *ex parte* at 9.

[^243]: ^?^ For example, if an incumbent LEC deploys fiber and coaxial
    cable transmission facilities and equipment; signal generation,
    reception, and control equipment; broadband switching equipment; and
    operations support systems in anticipation of providing cable
    service in the future, but allocates costs based only on current
    usage, the costs of that equipment will be disproportionately
    allocated to the regulated local exchange service, rather than the
    nonregulated activity. *See* NARUC Sept. 6, 2001 *ex parte* at
    Appendix, p.6.

[^244]: ^?^ Verizon and Qwest report direct assignment of central office
    and outside plant of 97 percent and 95 percent, respectively;
    therefore, only 3 percent and 5 percent of their investment is
    subject to the forecast rule. USTA March 29, 2001 *ex parte*. Our
    ARMIS data show that both Verizon and Qwest reported direct
    assignment of central office and outside plant of 95 percent for
    year 2000.

[^245]: ^?^ *See* section III.C.1.(c).

[^246]: ^?^ In Implementation of the Telecommunications Act of 1996, CC
    Docket No. 96-193, *Report and Order*, 12 FCC Rcd 8071, 8095, ¶ 53
    (1997), we specifically excluded non-incumbent LECs from CAM and
    ARMIS filing requirements.

[^247]: ^?^ *Notice* at ¶ 44.

[^248]: ^?^ *See, e.g.,* ALTS Reply Comments at 5; XO Communications
    Reply Comments at 16-17 (arguing that CLECs enter the local exchange
    and exchange access markets in competition with other providers and
    without control of bottleneck facilities).

[^249]: ^?^ The 30 large incumbent LECs that file financial reports are
    Verizon (19 operating companies), SBC (9 operating companies),
    BellSouth (1 operating company), and Qwest (1 operating company).

[^250]: ^?^ The ARMIS Report 43-07 is required for the 30 mandatory
    price cap incumbent LECs: SBC (9 operating companies), Verizon (19
    operating companies), Qwest (1 operating company), and BellSouth (1
    operating company). The ARMIS Report 43-08 is required by the same
    52 incumbent LECs that file the financial reports: SBC (9 operating
    companies), Verizon (19 operating companies), Qwest (1 operating
    company), BellSouth (1 operating company), Cincinnati Bell (1
    operating company), C-TEC (1 operating company), Sprint (13
    operating companies), ALLTEL (5 operating companies), and Citizens
    Communications (2 operating companies). Roseville and CenturyTel
    have also passed the indexed revenue threshold and would be required
    to file ARMIS 43-08 this year, under the current rules.

[^251]: ^?^ For a list of state proceedings in which ARMIS data were
    used from January 1997 to July 1998, *see* *ARMIS Reductions Report
    and Order*, 14 FCC Rcd at 11456-457, ¶ 24 & n. 56.

[^252]: ^?^ *See, e.g.,* Florida Comments at 11 (stating that "the only
    publicly available source of accounting data and information is that
    reported in ARMIS"); Idaho Comments at 7; Maryland Comments at 6;
    NARUC Comments at 4, 9 & Reply Comments at 7; North Carolina Public
    Staff Comments at 5; Oregon Comments at 6; Utah Comments at 4;
    Wisconsin Comments at 16; Wyoming Comments at 3-4; ALTS Reply
    Comments at 10; AT&T Comments at 4, 8 & Reply Comments at 13; GSA
    Comments at 10 & Reply Comments at 16; RUS Comments at 2; WorldCom
    Comments at 8 & Reply Comments at 7-8; Alaska Reply Comments at 4;
    California Reply Comments at 3; NCTA Reply Comments at 5-7; Ohio CC
    and NASUCA Reply Comments at 9.

[^253]: ^?^ *Phase 1 Report and Order* at ¶¶ 32-57.

[^254]: ^?^ ARMIS Reports 43-05 and 43-06 are under examination in a
    separate proceeding. *See* 2000 Biennial Regulatory Review --
    Telecommunications Service Quality Reporting Requirements, CC Docket
    No. 00-229, *Notice of Proposed Rulemaking*, 15 FCC Rcd 22113
    (2000). Through ARMIS Report 43-05, the Commission, state
    commissions, and the public monitor trends in the quality of service
    provided by price cap LECs. The ARMIS Report 43-06 contains the
    results of customer satisfaction surveys conducted by the price cap
    LECs.

[^255]: ^?^ *See* *Notice* at Appendix 6.

[^256]: ^?^ USTA Comments at 23.

[^257]: ^?^ BellSouth Comments at 6.

[^258]: ^?^ *Id.*

[^259]: ^?^ Verizon Comments at 11.

[^260]: ^?^ *See, e.g.,* Florida Comments at 10-11; Idaho Comments at 7;
    Maryland Comments at 5-6; ALTS Reply Comments at 4; AT&T Reply
    Comments at 12-13; California Reply Comments at 3-4 ; AT&T Aug. 29,
    2001 *ex parte* at 2; NARUC Sept. 6, 2001 *ex parte* at App. A, p.7;
    North Carolina Sept. 4, 2001 *ex parte* at 4; Utah Aug. 31, 2001 *ex
    parte* at Appendix, p.3; Maryland Sept. 7, 2001 *ex parte* at
    Appendix; Michigan Oct. 3, 2001 *ex parte* at 1-2.

[^261]: ^?^ *See, e.g.,* Florida Comments at 11; Idaho Comments at 7;
    Maryland Comments at 6; Alaska Reply Comments at 4; California Reply
    Comments at 3-4; Ohio CC and NASUCA Reply Comments at 9; NASUCA Oct.
    4, 2001 *ex parte* at 2. NASUCA observes that the overwhelming
    majority of all UNE inputs begin with Class A accounts which are
    then forecasted into a future time period that is used to determine
    forward looking costs. *Id.* Michigan observes that ARMIS data were
    used to defend its decisions on a claim that the Michigan
    Telecommunications Act is confiscatory before the US District Court
    for the Eastern District of Michigan in Civil Action No. 00-73207.
    Michigan Oct. 3, 2001 *ex parte* at 2.

[^262]: ^?^ *See* Further Notice of Proposed Rulemaking.

[^263]: ^?^ *See, e.g.,* Florida Comments at 11; Idaho Comments at 7;
    NARUC Comments at 11; Maryland Comments at 6; North Carolina Public
    Staff Comments at 5; Utah Comments at 4; WorldCom Reply Comments at
    6; NARUC Sept. 6, 2001 *ex parte* at App. A, p.7; North Carolina
    Sept. 4, 2001 *ex parte* at 4; New Mexico Aug. 30, 2001 *ex parte*
    at Appendix, p.2; Utah Aug. 31, 2001 *ex parte* at Appendix, p.3;
    Michigan Oct. 3, 2001 *ex parte* at 2.

[^264]: ^?^ 47 C.F.R. Parts 32, 36, 64, 65, and 69.

[^265]: ^?^ Mid-sized incumbent LECs currently may file ARMIS reports at
    the Class B level, starting with the 1999 reporting year. *See ARMIS
    Reductions Report and Order*, 14 FCC Rcd at 11449, ¶ 11.

[^266]: ^?^ A study area is a geographic segment of an incumbent LEC's
    telephone operations. Generally, a study area corresponds to the
    LEC's service territory within a state.

[^267]: ^?^ USTA and Verizon contend that the proposal to generate Table
    I and eliminate Table II is hardly worth the effort and would
    provide no administrative relief. *See* USTA Comments at 23; Verizon
    Comments at 11.

[^268]: ^?^ *Notice* at ¶ 60.

[^269]: ^?^ *Id.*

[^270]: ^?^ USTA Comments at 24; Verizon Comments at 11. WorldCom does
    not support the elimination of Table I-1. WorldCom Comments at 5-6.

[^271]: ^?^ Several commenters support this proposal. *See, e.g.,*
    WorldCom Comments at 6 & Reply Comments at 7; GSA Comments at 11 &
    Reply Comments at note 53; AT&T Reply Comments at 14.

[^272]: ^?^ This information has been provided to the Commission
    pursuant to ad hoc data requests.

[^273]: ^?^ *See* Further Notice of Proposed Rulemaking at paragraph
    208.

[^274]: ^?^ *Notice* at ¶ 59.

[^275]: ^?^ USTA Comments at 24; Verizon Comments at 12.

[^276]: ^?^ Verizon Comments at 12.

[^277]: ^?^ FCC Report 43-04 Table I-Separations and Access Table is
    attached as Appendix G.

[^278]: ^?^ 47 C.F.R. Part 36.

[^279]: ^?^ On May 22, 2001, the Commission adopted the recommendation
    of the Federal-State Joint Board to impose an interim freeze. *See*
    Jurisdictional Separations Reform and Referral to the Federal-State
    Joint Board, CC Docket No. 80-286, *Report and Order*, FCC 01-162
    (rel. May 22, 2001) (*Separations Freeze Order*).

[^280]: ^?^ *See* Jurisdictional Separations Reform and Referral to the
    Federal-State Joint Board, CC Docket No. 80-286, *Notice of Proposed
    Rulemaking*, 12 FCC Rcd 22120 (1997).

[^281]: ^?^ *See* *Separations Freeze Order* at ¶ 2.

[^282]: ^?^ *Id.* at ¶¶ 45-46.

[^283]: ^?^ *See* "Common Carrier Bureau Seeks Comment on Proposed
    Streamlined ARMIS 43-04 (Jurisdictional Separations) Report," CC
    Docket No. 80-286, *Public Notice*, DA 01-1496 (rel. June 22, 2001)
    (*ARMIS 43-04 Public Notice*). We received five comments and four
    reply comments. ALLTEL Communications, Inc. (ALLTEL), General
    Services Administration (GSA), SBC Communications, Inc. (SBC),
    Sprint Corporation (Sprint), and United States Telecom Association
    (USTA) filed initial comments. AT&T Corporation (AT&T), GSA, SBC,
    and USTA filed reply comments.

[^284]: ^?^ SBC Comments at 3; GSA Reply Comments at 6.

[^285]: ^?^ AT&T Reply Comments at 1-2.

[^286]: ^?^ *Id.* at 2.

[^287]: ^?^ *See* Developing a Unified Intercarrier Compensation Regime,
    CC Docket No. 01-92, *Notice of Proposed Rulemaking*, FCC 01-132
    (rel. Apr. 27, 2001) (*Intercarrier Compensation NPRM*).

[^288]: ^?^ *See* *CALLS Report and Order*.

[^289]: ^?^ *See* Multi-Association Group (MAG) Plan for Regulation of
    Interstate Services of Non-Price Cap Incumbent Local Exchange
    Carriers and Interexchange Carriers, CC Docket No. 00-256, *Notice
    of Proposed Rulemaking*, FCC 00-448 (rel. Jan. 5, 2001).

[^290]: ^?^ SBC Comments at 2.

[^291]: ^?^ 47 C.F.R. § 36.421.

[^292]: ^?^ *Id.*

[^293]: ^?^ USTA Comments at 3; Sprint Comments at 3-4.

[^294]: ^?^ GSA Reply Comments at 5.

[^295]: ^?^ Following the *Notice*, we sought further comment on Part 32
    streamlining in a Public Notice. *See* *June 8 Public Notice*.

[^296]: ^?^ GSA Comments at 3-4.

[^297]: ^?^ Sprint Comments at 6-7. GSA supports Sprint's proposals. GSA
    Reply Comments at 6.

[^298]: ^?^ USTA Comments at 3.

[^299]: ^?^ Originally, the BOCs and GTE; now SBC, Verizon, Qwest, and
    BellSouth.

[^300]: ^?^ USTA Comments at 25-26; Verizon Comments at 12; BellSouth
    Comments at 6-7.

[^301]: ^?^ USTA Comments at 25.

[^302]: ^?^ *Id.*

[^303]: ^?^ The State members of the Joint Board on Separations urge the
    Commission to continue accounting mechanisms that support ARMIS
    Report 43-04 and to retain ARMIS Reports 43-07 and 43-08 because the
    information in those reports is necessary to evaluate separations
    reform measures. Joint Board Reply Comments at 2-3. They note that
    one option for separations reform would be to assign directly all
    facilities based upon the location of those facilities in the
    network; the state members say that it would be difficult to
    evaluate this alternative without information similar to the
    infrastructure report and the detailed Part 32 sub-account data.
    *Id.* at 3.

[^304]: ^?^ *See* Further Notice of Proposed Rulemaking. *But see*
    Michigan observes that information obtained on broadband deployment
    by the Michigan Economic Development Corporation from the Commission
    was either insufficient or restricted by non-disclosure agreements.
    Michigan Oct. 3, 2001 *ex parte* at 2.

[^305]: ^?^ *Notice* at ¶ 68.

[^306]: ^?^ Ohio CC and NASUCA Joint Comments at 8.

[^307]: ^?^ *See, e.g.,* WorldCom Comments at 7; GSA Comments at 11;
    NARUC Comments at 12; Idaho Comments at 7; Florida Comments at 11.

[^308]: ^?^ In our *ARMIS Reductions Report and Order*, we eliminated 55
    rows pertaining to equal access from ARMIS Report 43-04, because the
    nearly complete transition to equal access reduced our need to
    monitor its deployment. *See ARMIS Reductions Report and Order*, 14
    FCC Rcd at 11450-451, ¶¶ 14-15.

[^309]: ^?^ Ohio CC and NASUCA Joint Comments at note 11.

[^310]: ^?^ BellSouth agrees that reporting information on the
    availability of touch-tone services is not useful. BellSouth
    Comments at 6.

[^311]: ^?^ SS7 provides a means for networks and interoffice switches
    to communicate with each other using digital links outside the voice
    channel.

[^312]: ^?^ ISDN technology provides the service protocols and channel
    designations for digital services to customers and can convey voice,
    data, or compressed video. Basic rate interface ISDN are provided as
    two 64-kilobit data channels and one 16-kilobit control channel
    associated with each basic rate access line. Primary rate interface
    ISDN provides the capacity of twenty-three 64-kilobit data channels
    and one 64-kilobit control channel.

[^313]: ^?^ *Notice* at ¶ 68.

[^314]: ^?^ WorldCom Comments at 7; BellSouth Comments at 6.

[^315]: ^?^ *Notice* at ¶ 69. Several commenters supported this
    proposal. *See, e.g.,* Utah Comments at 4; Ohio CC and NASUCA Joint
    Comments at 9; North Carolina Public Staff Comments at 5; NARUC
    Comments at 12; Idaho Comments at 7-8; Florida Comments at 11-12;
    Maryland Sept. 7, 2001 *ex parte* at Appendix.

[^316]: ^?^ Frame relay service is a high-speed packet-switching
    technology used to communicate digital data between, among other
    things, geographically dispersed local area networks (LANs).

[^317]: ^?^ USTA Comments at 26.

[^318]: ^?^ *See* *Local Competition and Broadband Data Gathering
    Program*, 15 FCC Rcd 7717 (2000).

[^319]: ^?^ USTA Comments at 26; Verizon Comments at 11.

[^320]: ^?^ Ohio CC and NASUCA Joint Comments at 9; Wyoming Comments at
    4.

[^321]: ^?^ USTA contends the majority of LECs do not have the ability
    to collect these data solely for loop plant. USTA Comments at 26.

[^322]: ^?^ *Notice* at ¶ 72.

[^323]: ^?^ AT&T Comments at 8. *See also* Ohio CC and NASUCA Joint
    Comments at 8.

[^324]: ^?^ A review of these data suggests that the reporting carriers
    are not reporting the same things. Therefore, the data are not
    comparable.

[^325]: ^?^ *Notice* at ¶ 72.

[^326]: ^?^ Ohio CC and NASUCA Joint Comments at 9.

[^327]: ^?^ *Notice* at ¶ 73.

[^328]: ^?^ *See, e.g.,* GSA Comments at 12; AT&T Comments at 8.

[^329]: ^?^ *Notice* at ¶ 74.

[^330]: ^?^ AT&T Comments at 8.

[^331]: ^?^ WorldCom Comments at 8. *See also* Maryland Sept. 7, 2001
    *ex parte* at Appendix (arguing that we should upgrade ARMIS to
    collect information on new technologies and upgrades and investments
    in switching and transmission capacity that are critical components
    of the carriers' network infrastructure).

[^332]: ^?^ "Hybrid Fiber/Metallic Loop Interface Locations" will
    contain the number of locations other than central office locations
    where an interface between fiber cable and copper pairs or coaxial
    cable exists. This will include fiber to the curb locations, fiber
    to the pedestal locations, and other similar locations with a
    fiber/metallic interface capable of providing broadband services.

[^333]: ^?^ "Switched Access Lines Served from Interface Locations" will
    contain the number of switched access lines reported in row 0120
    that are physically routed through the interface locations reported
    in "Hybrid Fiber/Metallic Loop Interface Locations."

[^334]: ^?^ "Total xDSL Terminated at Customer Premises" will contain
    the total number of incumbent LEC provided working digital
    subscriber lines terminated at customers' premises locations. This
    will include lines provided over metallic loop facilities and lines
    provided over a combination of fiber and metallic loop facilities.
    This will also include lines terminating in either incumbent
    LEC-provided or customer-provided termination equipment. Only those
    lines that are totally provided by the incumbent LECs are included.

[^335]: ^?^ "xDSL Terminated at Customer Premises via Hybrid
    Fiber/Metallic Interface Locations" will contain the number of
    customer-premises-terminated working digital subscriber lines that
    are provided through a hybrid fiber/metallic interface location
    included in "Hybrid Fiber/Metallic Loop Interface Locations." This
    will include only those lines that are provided at least partially
    on fiber facilities.

[^336]: ^?^ *Notice* at ¶ 75.

[^337]: ^?^ AT&T Comments at 8.

[^338]: ^?^ WorldCom Comments at 7.

[^339]: ^?^ *Notice* at ¶ 76.

[^340]: ^?^ AT&T Comments at 8.

[^341]: ^?^ USTA Comments at 26; BellSouth Comments at 6 & Reply
    Comments at 7; Verizon Comments at 12.

[^342]: ^?^ USTA Comments at 26.

[^343]: ^?^ *Id.*

[^344]: ^?^ *See, e.g.,* AT&T Comments at 8; WorldCom Reply Comments at
    7-8. NCTA observes that columns in Table I.A for Equivalent number
    of poles (v), Conduit system trench Km (w), and Conduit system duct
    Km (x) are needed for calculation of pole and conduit rental. *See*
    NCTA Aug. 31, 2001 *ex parte.*

[^345]: ^?^ Oregon Comments at 6.

[^346]: ^?^ WorldCom Comments at 8; GSA Comments at 12.

[^347]: ^?^ *See* Further Notice of Proposed Rulemaking at paragraphs
    208-211.

[^348]: ^?^ *Notice* at ¶ 77.

[^349]: ^?^ WorldCom Comments at 8.

[^350]: ^?^ *Notice* at ¶ 79.

[^351]: ^?^ *Id.*

[^352]: ^?^ 47 C.F.R. § 32.11(a)(1).

[^353]: ^?^ *See* \"Annual Adjustment of Revenue Threshold,\" *Public
    Notice*, DA 01-903 (rel. Apr. 11, 2001) (adjusting annual indexed
    revenue threshold to \$117 million). The classification of a company
    is determined at the start of the calendar year following the first
    time its annual operating revenue from regulated operations equals,
    exceeds, or falls below the indexed revenue threshold. 47 C.F.R. §
    32.11(e).

[^354]: ^?^ More specifically, a carrier files ARMIS Reports 43-01,
    43-02, 43-03, 43-04, and 43-08 when the carrier's annual operating
    revenues for the preceding year equals to or exceeds the indexed
    revenue threshold. Similarly, a carrier with annual operating
    revenues for the preceding year that is equal to or exceeds the
    indexed revenue threshold must file a CAM and have the CAM audited.
    These reporting requirements are based on total, not regulated,
    operating revenues. *See* Implementation of the Telecommunications
    Act of 1996, CC Docket No. 96-193, *Report and Order*, 12 FCC Rcd
    8071, 8102, ¶ 68 (1997).

[^355]: ^?^ In the *Joint Cost Order*, the Commission adopted cost
    allocation standards and affiliate transactions rules for all LECs
    (with the exception of average schedule companies) but exempted the
    smaller companies from the requirement to file a cost allocation
    manual and an annual independent audit. *See* *Joint Cost Order*, 2
    FCC Rcd at 1304, ¶ 47.

[^356]: ^?^ The following Class A revenues are from 2000 ARMIS data.

[^357]: ^?^ There are a few exceptions, such as Nevada Bell (an
    operating company of SBC) and Verizon Mid-States (an operating
    company of Verizon), which are smaller than many of the mid-sized
    companies.

[^358]: ^?^ All of the SBC operating companies, combined, reported over
    \$38.5 billion in 2000 revenues.

[^359]: ^?^ All of the Verizon operating companies, combined, reported
    over \$41.2 billion in 2000 revenues.

[^360]: ^?^ All of the Class A Sprint operating companies, combined,
    reported approximately \$5.3 billion in 2000 operating revenues.
    Sprint also has Class B companies, which combined had approximately
    \$128 million in operating revenues. We also note that Roseville has
    now passed the indexed revenue threshold and is considered a
    mid-sized carrier.

[^361]: ^?^ All of the Class A Sprint operating companies, combined,
    reported over 7.8 million access lines. Sprint's Class B operating
    companies had 356,250 access lines.

[^362]: ^?^ *See* *ARMIS Reductions Report and Order*, 14 FCC Rcd at
    11449, ¶ 12.

[^363]: ^?^ *See Accounting Reductions Report and Order*, 14 FCC Rcd at
    11406 - 07, ¶¶ 21 - 22.

[^364]: ^?^ *Id.*

[^365]: ^?^ *Notice* at ¶ 82.

[^366]: ^?^ *Id.* at ¶ 80.

[^367]: ^?^ *Id.* at ¶ 83.

[^368]: ^?^ *See* AT&T Comments at 10.

[^369]: ^?^ *Notice* at ¶ 84.

[^370]: ^?^ *Id*. at ¶ 85. Commenters did not specifically address this
    issue.

[^371]: ^?^ *Id.* at ¶ 80.

[^372]: ^?^ *See, e.g.,* Ohio CC and NASUCA Joint Comments at 11; AT&T
    Comments at 9-10; WorldCom Comments at 10; Idaho Comments at 7;
    Oregon Comments at 7; Wisconsin Comments at 22-23; NARUC Reply
    Comments at 7.

[^373]: ^?^ *See, e.g.*, Sprint Comments at 2; CBT Comments at 8-11;
    ALLTEL Comments at 3 (requesting no CAM or ARMIS requirements for
    the ALLTEL companies); Roseville Comments at 8-9; ITTA Comments at
    8; USTA Comments at 27.

[^374]: ^?^ CBT Comments at 10-11.

[^375]: ^?^ Roseville Comments at 3-5; Iowa Telecom Comments at 4.
    Roseville estimates (for its initial ARMIS filing) that it will take
    4,690 hours, or \$272,000. Roseville Comments at 4-5.

[^376]: ^?^ Sprint Comments at 4. Clearly this is not an insignificant
    sum, however, it is only 0.048 percent of Sprint's annual revenue.
    Ohio CC and NASUCA Joint Reply Comments at 10.

[^377]: ^?^ As previously noted, ARMIS 43-05 (filed by all price cap
    LECs) and 43-06 (filed by mandatory price cap LECs) are under
    examination in a separate proceeding and are not affected by our
    decision today.

[^378]: ^?^ *See Accounting Reductions Report and Order*, 14 FCC Rcd at
    11404-05, ¶ 15.

[^379]: ^?^ *See, e.g.*, Maryland Comments at 5-6; NARUC Reply Comments
    at 7.

[^380]: ^?^ The threshold between Class A and Class B will continue to
    be indexed annually in accordance with our current rules.

[^381]: ^?^ *See* Sprint Comments at 5 (\$400 million); TDS Comments at
    7-8 (\$500 million); Roseville Comments at 10 (same); Iowa Telecom
    Comments at 2-3 (\$750 million).

[^382]: ^?^ ITTA Comments at 16.

[^383]: ^?^ *See* Implementation of the Telecommunications Act of 1996,
    CC Docket No. 96-193, *Order and Notice of Proposed Rulemaking*, 11
    FCC Rcd 11716, 11721-22, ¶¶ 10-12 (1996) (adopting interim rules to
    comply with the section 402(c) requirement that we adjust the
    revenue thresholds for inflation and that the adjustments take
    effect on February 8, 1996). Permanent rules were subsequently
    adopted in Implementation of the Telecommunications Act of 1996, CC
    Docket No. 96-193, *Report and Order*, 12 FCC Rcd 8071, 8089-092, ¶¶
    36-44 (1997).

[^384]: ^?^ *See Accounting Reductions Report and Order*, 14 FCC Rcd at
    11403-04, ¶ 14 .

[^385]: ^?^ *See* ALLTEL Comments at 10; Roseville Comments at 4-5; ITTA
    Comments at 8-16; CBT Comments at 8. We do not agree with ITTA that
    the use of a two percent standard in section 251(f)(2) of the
    Communications Act "represents Congress's view of a proper
    differentiation between large ILECs with substantial resources that
    require heightened Commission regulation and scrutiny, and small and
    mid-size ILECs," *see* ITTA Comments at 11, and therefore the
    Commission should use the two percent standard in defining Class A
    and Class B carriers for accounting purposes. Section 251(f)(2) of
    the Communications Act permits carriers with fewer than two percent
    of the Nation's subscriber lines installed in the aggregate
    nationwide to petition a state commission for a suspension or
    modification of interconnection requirements in section 251(b) or
    (c). 47 U.S.C. § 251(f)(2). This section has no application to the
    CAM and ARMIS filing threshold. *See* Implementation of the
    Telecommunications Act of 1996, CC Docket No. 96-193, *Report and
    Order*, 12 FCC Rcd 8071, 8102-03, ¶ 69 (1997).

[^386]: ^?^ These carriers sought, and were granted, extensions of time
    in which to file ARMIS reports. *See* Roseville Telephone Company
    Request for an Extension of Time to File ARMIS Reports, ASD File No.
    00-43, *Order*, 15 FCC Rcd 24093 (Com.Car.Bur. 2000); CenturyTel,
    Inc. and CenturyTel of Washington, Inc. Request for Extension of
    Time to Submit Cost Allocation Manual Attestation Reports and File
    ARMIS Reports, ASD File No. 00-45, *Order*, 16 FCC Rcd 1493
    (Com.Car.Bur. 2000).

[^387]: ^?^ 47 C.F.R. § 1.3.

[^388]: ^?^ *See* United States Telephone Association Petition for
    Waiver of Part 32 of the Commission\'s Rules, *Order*, 13 FCC Rcd
    214 (Com. Car. Bur. 1997) (*citing* *Northeast Cellular Tel. Co. v.
    FCC*, 897 F.2d 1164 (D.C.Cir. 1990) (*Northeast Cellular*); *WAIT
    Radio v. FCC*, 418 F.2d 1153 (D.C.Cir. 1969), *cert. denied* 409
    U.S. 1027 (1972) (*WAIT Radio*).

[^389]: ^?^ *See Notice* at ¶¶ 87-98.

[^390]: ^?^ We intend to initiate a proceeding in the near future to
    examine how often and to what extent the high-cost model inputs
    should be revised and updated. To the extent that the data necessary
    to generate inputs used for the universal service high-cost model
    may be provided through other means than ARMIS, we intend to
    consider such alternatives in that proceeding. To the extent we
    conclude in that proceeding that certain inputs should be eliminated
    or modified, we would consider the need for corresponding revisions
    to our accounting and reporting requirements.

[^391]: ^?^ Various issues pertaining to the *Local Competition and
    Broadband Data Gathering Program*, such as confidentiality, are
    raised in a pending proceeding. *See* Local Competition and
    Broadband Reporting, CC Docket No. 99-301, *Second Notice of
    Proposed Rulemaking*, FCC 01-19 (rel. Jan. 19, 2001).

[^392]: ^?^ 47 C.F.R. §§ 32.2000(e) and (f).

[^393]: ^?^ *See* paragraph 121.

[^394]: ^?^ For example, the Foreign Corrupt Practices Act requires
    companies to maintain adequate accounting records and devise and
    maintain an adequate system of internal accounting controls. *See*
    Qwest Oct. 3, 2001 *ex parte.*

[^395]: ^?^ Verizon Comments at 8.

[^396]: ^?^ *Id.*

[^397]: ^?^ Our affiliate transactions rules were adopted in 1987 to
    protect ratepayers of regulated telecommunications services from
    bearing the costs and risks associated with a carrier's nonregulated
    activities. *See* *Joint Cost Order*. The Commission revised the
    affiliate transactions rules to implement the statutory prohibitions
    against cross-subsidization in the 1996 Act. *See Accounting
    Safeguards Order*; 47 C.F.R. § 32.27.

[^398]: ^?^ 47 U.S.C. § 272.

[^399]: ^?^ 47 U.S.C. § 272(b)(2).

[^400]: ^?^ 47 U.S.C. § 272(b)(5).

[^401]: ^?^ 47 U.S.C. § 272(c).

[^402]: ^?^ 47 U.S.C. § 272(e)(4).

[^403]: ^?^ *See* USTA Comments at 16-17; BellSouth Sept. 6, 2001 *ex
    parte* at 2.

[^404]: ^?^ *See* BellSouth Sept. 21, 2001 *ex parte*.

[^405]: ^?^ *See* 47 C.F.R. §§ 36.310-311. Other sections of Part 36
    affected include those sections currently referring to the following
    accounts; 6120, 6210, 6230, 6310 , 6410, 6510, 6530, 6610, and 7200.
    *See* 47 C.F.R. §§ 36.321, 331, 341, 351, 352, 353, 352, 371, 372,
    and 411. Elimination of these accounts from Class A accounting will
    require these Part 36 sections to be updated in accordance with the
    Class A accounting changes adopted in this Report and Order. The
    current Part 36 use of these accounts will remain for Class B
    carriers, however, revisions to Part 36 are required to reflect that
    these accounts are for Class B carriers only.

[^406]: ^?^ *See* 47 C.F.R. §§ 36.121, 124, 125, 201, 211, 212, 213,
    501, and 505.

[^407]: ^?^ On May 22, 2001, the Commission adopted an interim freeze of
    the Part 36 category relationships and jurisdictional cost
    allocation factors for price cap carriers and allocation factors
    only for rate-of-return carriers. Jurisdictional Separations and
    Referral to the Federal-State Joint Board, CC Docket No. 80-286,
    *Report and Order*, FCC 01-162 (rel. May 22, 2001) (*Separations
    Freeze Order)*.

[^408]: ^?^ Should commenters identify impacts that would require
    changes to Part 36 beyond merely ministerial revisions, we would
    refer such issues to the Joint Board for its consideration

[^409]: ^?^ *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).

[^410]: ^?^ *See* 5 U.S.C. § 603(a).

[^411]: ^?^ *Id.* §§ 603(a), 604(b).

[^412]: ^?^ *See* Electronic Filing of Documents in Rulemaking
    Proceedings, 63 Fed. Reg. 24,121 (1998).

[^413]: ^?^ *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).

[^414]: ^?^ 2000 Biennial Regulatory Review -- Comprehensive Review of
    the Accounting Requirements and ARMIS Reporting Requirements for
    Incumbent Local Exchange Carriers: Phase 2 and Phase 3, CC Docket
    No. 00-199, *Notice of Proposed Rulemaking*, FCC 00-364 (rel. Oct.
    18, 2000) (*Notice*). The Commission sought further comment on
    streamlining Class A and Class B accounts. *See* "Commission Seeks
    Further Comment in Phase 2 of the Comprehensive Review of the
    Accounting Requirements and ARMIS Reporting Requirements for
    Incumbent Local Exchange Carriers," *Public Notice*, DA 01-1403
    (rel. June 8, 2001) (*June 8 Public Notice*).

[^415]: ^?^ 47 C.F.R. § 32.11.

[^416]: ^?^ *See* "Annual Adjustment of Revenue Threshold," *Public
    Notice*, DA 01-903 (rel. Apr. 11, 2001) (adjusting annual indexed
    revenue threshold to \$117 million).

[^417]: ^?^ Other Class A carriers include ALLTEL, Citizens
    Communications, Cincinnati Bell, C-TEC, Sprint, Roseville, and
    CenturyTel. These carriers are "mid-sized" LECs. We reduced
    accounting requirements for mid-sized LECs and allow them to
    maintain their accounts on a Class B level. *See ARMIS Reductions
    Report and Order*, 14 FCC Rcd at 11449, ¶ 11.

[^418]: ^?^ The difference in the number of accounts is that many of the
    Class A accounts are aggregated into summary accounts under Class B.

[^419]: ^?^ *See* Report and Order at ¶¶ 27-43, 77.

[^420]: ^?^ *See id.* at ¶¶ 135-183.

[^421]: ^?^ *See id.* at ¶¶ 190-198.

[^422]: ^?^ *See id.* at ¶¶ 80-113.

[^423]: ^?^ No small entities are affected by the additional ARMIS
    reporting requirements. *See id.* at ¶ 175 describing the new rows
    to the ARMIS 43-07. The ARMIS 43-07 is filed by mandatory price cap
    carriers only (*i.e.*, SBC, Verizon, Qwest, and BellSouth). There
    are also several new subaccounts adopted in the Report and Order for
    Class A carriers, although the total number of accounts is
    substantially reduced. These new subaccounts are Class A
    subaccounts, and will be maintained by the Bell Operating Companies
    only. *See* Report and Order at ¶¶ 59-61, 75.

[^424]: ^?^ *See* Report and Order at ¶ 193.

[^425]: ^?^ 5 U.S.C. § 603(b)(3).

[^426]: ^?^ 5 U.S.C. § 601(6).

[^427]: ^?^ 5 U.S.C. § 601(3) (incorporating by reference the definition
    of \"small business concern\" in 15 U.S.C. § 632). Pursuant to 5
    U.S.C. § 601(3), the statutory definition of a small business
    applies \"unless an agency after consultation with the Office of
    Advocacy of the Small Business Administration and after opportunity
    for public comment, establishes one or more definitions of such term
    which are appropriate to the activities of the agency and publishes
    such definition in the Federal Register.\"

[^428]: ^?^ 15 U.S.C. § 632.

[^429]: ^?^ *See* 47 U.S.C. § 251(h) (defining "incumbent local exchange
    carrier").

[^430]: ^?^ 5 U.S.C. § 601(3).

[^431]: ^?^ 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* 15 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).

[^432]: ^?^ Trends in Telephone Service, Table 5.3, Number of
    Telecommunications Service Providers That are Small Businesses
    (Industry Analysis Division, Common Carrier Bureau, August 2001).

[^433]: ^?^ *Id.*

[^434]: ^?^ *See* footnote 423, *supra.*

[^435]: ^?^ 5 U.S.C. § 603(c).

[^436]: ^?^ *See* Report and Order at ¶¶ 190-192.

[^437]: ^?^ *See* *id.* at ¶¶ 193-198.

[^438]: ^?^ *See* *id.* at ¶ 193.

[^439]: ^?^ *See* 5 U.S.C. § 801(a)(1)(A).

[^440]: ^?^ *See* 5 U.S.C. § 604(b).

[^441]: ^?^ *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).

[^442]: ^?^ *See* 5 U.S.C. § 603(a).

[^443]: ^?^ *See id.*

[^444]: ^?^ There are 30 mandatory price cap incumbent LECs that are
    subject to ARMIS customer satisfaction and infrastructure reporting
    requirements. They are Verizon (19 operating companies); SBC (9
    operating companies); BellSouth (1 operating company); and Qwest (1
    operating company).

[^445]: ^?^ There are 30 mandatory price cap incumbent LECs that are
    subject to ARMIS customer satisfaction and infrastructure reporting
    requirements. They are Verizon (19 operating companies); SBC (9
    operating companies); BellSouth (1 operating company); and Qwest (1
    operating company).

[^446]: ^?^ Specifically, 52 incumbent LECs have annual operating
    revenues exceeding the indexed revenue threshold and file financial
    ARMIS reports. These incumbent LECs include the operating companies
    of Verizon (19 operating companies); SBC (9 operating companies);
    BellSouth; and Qwest. The other 22 incumbent LECs are considered
    mid-sized carriers. They are Cincinnati Bell (1 operating company),
    C-TEC (1 operating company), Sprint (13 operating companies), ALLTEL
    (5 operating companies), and Citizens Communications (2 operating
    companies). Unless granted a waiver or extension, Roseville and
    CenturyTel will be required to file certain ARMIS reports this year.
    The attached Report and Order reduces the ARMIS filing requirements
    for mid-sized carriers, but does not eliminate all ARMIS filing for
    these carriers.

[^447]: ^?^ There are 93 price cap LECs subject to service quality
    reporting requirements. They are Verizon (19 operating companies);
    SBC (9 operating companies); BellSouth (1 operating company); Qwest
    (1 operating company); Sprint (17 operating companies); Citizens
    Communications (45 operating companies); and Cincinnati Bell (1
    operating company).

[^448]: ^?^ As of December 31, 2000, incumbent LECs filed 165 state
    reports and CLECs filed 86 state reports, for a given state. In
    addition, wireless carriers filed 77 state reports, for a given
    state, as of December 31, 2000. *See* Local Telephone Competition:
    Status as of December 31, 2000 (Industry Analysis Division, Common
    Carrier Bureau, May 2001).

[^449]: ^?^ 5 U.S.C. § 603(b)(3).

[^450]: ^?^ 5 U.S.C. § 601(6).

[^451]: ^?^ 5 U.S.C. § 601(3) (incorporating by reference the definition
    of \"small business concern\" in 15 U.S.C. § 632). Pursuant to 5
    U.S.C. § 601(3), the statutory definition of a small business
    applies \"unless an agency after consultation with the Office of
    Advocacy of the Small Business Administration and after opportunity
    for public comment, establishes one or more definitions of such term
    which are appropriate to the activities of the agency and publishes
    such definition in the Federal Register.\"

[^452]: ^?^ 15 U.S.C. § 632. *See*, *e.g.*, *Brown Transport Truckload,
    Inc. v. Southern Wipers, Inc.*, 176 B.R. 82 (N.D. Ga. 1994).

[^453]: ^?^ 13 C.F.R. § 121.201, NAICS codes 51331, 51333, 51322, and
    51321.

[^454]: ^?^ FCC, *Carrier Locator: Interstate Service Providers*, Table
    1 (Oct. 2000) (*Carrier Locator*).

[^455]: ^?^ *Carrier Locator* at Table 1.

[^456]: ^?^ *See* 47 U.S.C. § 251(h) (defining "incumbent local exchange
    carrier").

[^457]: ^?^ 5 U.S.C. § 601(3).

[^458]: ^?^ 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* 15 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).

[^459]: ^?^ Trends in Telephone Service, Table 5.3, Number of
    Telecommunications Service Providers That are Small Businesses
    (Industry Analysis Division, Common Carrier Bureau, August 2001).

[^460]: ^?^ 15 U.S.C. § 632(a)(1).

[^461]: ^?^ Trends in Telephone Service, Table 5.3, Number of
    Telecommunications Service Providers That are Small Businesses
    (Industry Analysis Division, Common Carrier Bureau, August 2001).

[^462]: ^?^ *Id.*

[^463]: ^?^ *Id.*

[^464]: ^?^ *Id.*

[^465]: ^?^ *Id.*

[^466]: ^?^ *See* Local Competition and Broadband Reporting, CC Docket
    No. 99-301, *Report and Order*, 15 FCC Rcd 7717 (2000) (*Data
    Gathering Order*).

[^467]: ^?^ The operating companies of Verizon (19 operating companies);
    SBC (9 operating companies); BellSouth; and Qwest. The other 22
    incumbent LECs (mid-sized carriers) are Cincinnati Bell (1 operating
    company), C-TEC (1 operating company), Sprint (13 operating
    companies), ALLTEL (5 operating companies), and Citizens
    Communications (2 operating companies). The attached Report and
    Order reduces the ARMIS filing requirements for mid-sized carriers,
    but does not eliminate all ARMIS filing for these carriers.

[^468]: ^?^ There are 93 price cap LECs subject to service quality
    reporting requirements. They are Verizon (19 operating companies);
    SBC (9 operating companies); BellSouth (1 operating company); Qwest
    (1 operating company); Sprint (17 operating companies); Citizens
    Communications (45 operating companies); and Cincinnati Bell (1
    operating company).

[^469]: ^?^ *See* footnote 448, *supra*.

[^470]: ^?^ 5 U.S.C. § 603(c).