**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+----+------------------------------+
| In the Matter of                 | *  | WC Docket No. 02-269         |
|                                  | *) |                              |
| Federal-State Joint Conference   | ** | CC Docket No. 00-199         |
|                                  |    |                              |
| On Accounting Issues             | *  | CC Docket No. 80-286         |
|                                  | *) |                              |
| 2000 Biennial Regulatory Review  | ** | CC Docket No. 99-301         |
| --                               |    |                              |
|                                  | *  |                              |
| Comprehensive Review of the      | *) |                              |
| Accounting                       | ** |                              |
|                                  |    |                              |
| Requirements and ARMIS Reporting | *  |                              |
|                                  | *) |                              |
| Requirements for Incumbent Local | ** |                              |
|                                  |    |                              |
| Exchange Carriers: Phase II      | *  |                              |
|                                  | *) |                              |
| Jurisdictional Separations       | ** |                              |
| Reform and                       |    |                              |
|                                  | *  |                              |
| Referral to the Federal-State    | *) |                              |
| Joint Board                      | ** |                              |
|                                  |    |                              |
| Local Competition and Broadband  | *  |                              |
| Reporting                        | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
+----------------------------------+----+------------------------------+

**REPORT AND ORDER**

**Adopted: June 22, 2004 Released: June 24, 2004**

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

**TABLE OF CONTENTS**

Paragraph No.

[I. INtroduction and background 1](#introduction-and-background)

[II. DISCUSSION 6](#discussion)

[A. Modifying Part 32 Accounts 6](#modifying-part-32-accounts)

[*1.* *Reinstatement of Account 5230, Directory Revenue*
6](#reinstatement-of-account-5230-directory-revenue)

[*2.* *Reinstatement of Accounts 6621, 6622, and 6623*
9](#reinstatement-of-accounts-6621-6622-and-6623)

[*3.* *Reinstatement of Separate Depreciation and Amortization Accounts
6561-6565*
15](#reinstatement-of-separate-depreciation-and-amortization-accounts-6561-6565)

[*4.* *Addition of New Accounts* 19](#addition-of-new-accounts)

[B. Affiliate Transactions Rules 34](#affiliate-transactions-rules)

[*1.* *Fair Market Value Comparisons for Assets Totaling Less Than
\$500,000*
35](#fair-market-value-comparisons-for-assets-totaling-less-than-500000)

[*2.* *Establishment of Floor and Ceiling Threshold*
36](#establishment-of-floor-and-ceiling-threshold)

[*3.* *Prevailing Price Treatment Threshold*
40](#prevailing-price-treatment-threshold)

[*4.* *Modification of the Centralized Services Exception to the
Estimated Fair Market Value Rule*
44](#modification-of-the-centralized-services-exception-to-the-estimated-fair-market-value-rule)

[*5.* *Nonregulated to Nonregulated Transactions*
47](#nonregulated-to-nonregulated-transactions)

[*6.* *Intra-Holding Company ILEC-to-ILEC Transfers of Assets or
Services*
48](#intra-holding-company-ilec-to-ilec-transfers-of-assets-or-services)

[C. Reporting Requirements and Other Matters
51](#reporting-requirements-and-other-matters)

[*1.* *ARMIS 43-07, Table II, "Loop Sheath Kilometers" vs. "Sheath
Kilometers"*
51](#armis-43-07-table-ii-loop-sheath-kilometers-vs.-sheath-kilometers)

[*2.* *ARMIS Report 43-07 Broadband Infrastructure Reporting*
54](#armis-report-43-07-broadband-infrastructure-reporting)

[*3.* *Definition of ILEC* 58](#definition-of-ilec)

[D. Other Issues Raised in the Notice
63](#other-issues-raised-in-the-notice)

[III. PROCEDURAL MATTERS 65](#procedural-matters)

[A. *Ex Parte* Requirements 65](#ex-parte-requirements)

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

[C. Final Regulatory Flexibility Act Certification
67](#final-regulatory-flexibility-certification)

[IV. ORDERING CLAUSES 73](#ordering-clauses)

**APPENDIX A -- PARTIES FILING COMMENTS AND REPLY COMMENTS**

**APPENDIX B -- FINAL RULES**

# INtroduction and background

1.  In this Order, we address recommendations made by the Federal-State
    Joint Conference on Accounting Issues (Joint Conference) in a report
    filed with the Commission on October 9, 2003.[^1] The Commission
    sought comment on the Joint Conference's recommendations in a
    *Notice of Proposed Rulemaking* (*Notice*) released on December 23,
    2003.[^2] Comments were due by January 30, 2004, and replies by
    February 17, 2004.

2.  On September 5, 2002, the Commission convened the Joint Conference
    "to provide a forum for an ongoing dialogue between the Commission
    and the states in order to ensure that regulatory accounting data
    and related information filed by carriers are adequate, truthful,
    and thorough."[^3] The Commission found that the "Joint Conference
    will provide a focused means by which we and interested state
    commissions may conduct an open dialogue, collect and exchange
    information, and consider initiatives that will improve the
    collection of adequate, truthful, and thorough accounting data for
    regulatory purposes."[^4] In charging the Joint Conference with the
    task of reexamining federal and state accounting and reporting
    requirements, the Commission noted that the Joint Conference has a
    broad mandate to perform its work, including the ability to
    recommend additions to, or eliminations of, accounting
    requirements.[^5]

3.  On November 12, 2002, the Commission released an order suspending
    implementation of four previously-adopted accounting and
    recordkeeping rules to allow the Joint Conference time to review
    these rules before carriers were required to implement them.[^6]
    These rules had been adopted in 2001 in the *Phase II Report and
    Order* in which the Commission had eliminated many Part 32 accounts,
    defined incumbent local exchange carriers (ILECs) subject to its
    accounting rules, streamlined its affiliate transaction rules and
    revised some of its ARMIS reporting requirements.[^7]

4.  On December 12, 2002, as part of its comprehensive review of the
    Commission's accounting and reporting requirements, the Joint
    Conference issued a Public Notice requesting comment on a broad
    range of regulatory accounting issues.[^8] The Joint Conference also
    sought comment on four groups of specific issues related to the
    *Phase II Report and Order*: (1) certain accounts that had been
    requested by states but not adopted by the Commission; (2) changes
    to the affiliate transaction rules; (3) the accounting and
    recordkeeping rules that were suspended by the Commission in its
    November 12, 2002 Order; and (4) the issues raised by the
    outstanding petitions for reconsideration of the *Phase II Report
    and Order*.[^9]

5.  In its report, the Joint Conference makes several recommendations
    related to the issues it raised in its December 12, 2002 Public
    Notice. It also makes recommendations on other accounting-related
    matters. In this Order, we adopt some of the Joint Conference's
    recommendations, and we resolve the outstanding petitions for
    reconsideration of the *Phase II Report and Order*. [^10]

# DISCUSSION

## Modifying Part 32 Accounts

### Reinstatement of Account 5230, Directory Revenue

6.  In the *Phase II Report and Order,* we consolidated several revenue
    accounts, including Account 5230, Directory revenue, into Account
    5200, Miscellaneous revenue.[^11] The Joint Conference recommends
    that we reinstate Account 5230 as a separate Part 32 account. It
    maintains that directory revenues are created through a separate and
    distinct line of business and as such should be accounted for
    separately. The Joint Conference emphasizes that distinguishing
    directory revenues from other revenues is important for states that
    impute these revenues to the carrier's regulated operations in
    computing revenue requirements. The Joint Conference indicates that
    this practice is followed by some states using alternative
    regulation plans, as well as by states that continue to use
    rate-of-return regulation.[^12] AT&T, NASUCA, and Wisconsin support
    the Joint Conference's recommendation.[^13]

7.  The United States Telephone Association (USTA) and the Regional Bell
    Operating Companies (RBOCs) oppose reinstating Account 5230 as a
    separate account.[^14] BellSouth argues that there is no need for a
    separate Part 32 account because carriers can provide directory
    revenue information directly to the states.[^15]

8.  We conclude that this account should be reinstated, in light of its
    continued significance in state ratemaking processes.[^16] Because
    our previous action consolidating the Directory revenue account into
    Account 5200, Miscellaneous revenue, has not yet been implemented,
    retaining Account 5230 will not impose any new burdens on carriers.
    Therefore, we reinstate Account 5230, Directory revenue.

### Reinstatement of Accounts 6621, 6622, and 6623

9.  The Joint Conference recommends that the Commission reverse its
    decision in the *Phase II Report and Order* to consolidate Account
    6621, Call completion services, Account 6622, Number services, and
    Account 6623, Customer services, into a single account---Account
    6620, Services---and its decision to establish wholesale and retail
    subaccounts for Account 6620. It recommends that the Commission
    consider other measures to achieve the Phase II goals of:
    (1) recognizing an increased importance of the wholesale versus
    retail distinction as competition develops in the local exchange
    market; and (2) assisting the states in developing unbundled network
    element (UNE) rates that properly reflect the costs of providing a
    wholesale service. As an alternative, the Joint Conference suggests
    consolidation of Accounts 6621 and 6622 and retention of Account
    6623 as a separate account with wholesale and retail subaccounts for
    Account 6623 only. It also suggests, as another alternative,
    modification of ARMIS reporting to provide wholesale/retail
    percentages for Account 6623 instead of requiring subaccounts.[^17]

10. In their petition for reconsideration of the *Phase II Report and
    Order*, BellSouth, SBC and Verizon seek elimination of the
    newly-created wholesale and retail subaccounts, arguing that they
    are not necessary in the public interest, they conflict with
    existing regulations, and they would be burdensome to
    implement.[^18] Verizon estimates that it would take at least four
    to six months to structure and conduct the studies necessary to
    allocate Account 6620 expenses between wholesale and retail
    subaccounts, costing close to \$3.5 million in additional
    implementation costs, and over \$2.5 million per year in ongoing
    costs.[^19] BellSouth estimates that it would cost approximately
    \$12.5 million and take 18 months to implement these changes.[^20]
    They argue that the accounting costs to be included in the wholesale
    and retail subaccounts will not be comparable to the forward-looking
    costs included in UNE cost studies.[^21] In addition, they argue
    that many of the costs included in the consolidated account,
    specifically those costs related to call completion services
    (Account 6621) and number services (Account 6622), are unrelated to
    UNE pricing because the services are not required to be offered at
    UNE rates.[^22]

11. In opposition, AT&T states that contrary to the petitioners'
    arguments, wholesale and retail costs are relevant to the pricing of
    UNEs. AT&T states that while UNE pricing is based on TELRIC, UNE
    pricing reflects common costs, loading factors and other overhead
    costs attributable to the costs of operating a wholesale
    network.[^23] AT&T argues that the petitioners' assertion of the
    burden related to the creation of the wholesale and retail
    subaccounts is untimely and consists of nothing more than bald,
    unsupported assertions without explanation or analysis.[^24]

12. In response to the Joint Conference's recommendation, AT&T and
    Wisconsin support retaining the consolidated Account 6620 and the
    wholesale and retail subaccounts.[^25] SBC, USTA and Verizon also
    support retaining the consolidated Account 6620, but oppose both the
    subaccounts and the reporting of wholesale/retail data.[^26]
    BellSouth, on the other hand, supports reinstating Accounts 6621,
    6622 and 6623, and opposes the subaccounts and the reporting of
    wholesale/retail data.[^27] SBC states that if the Commission
    determines there is a federal need for wholesale/retail data, it
    should reinstate the separate accounts and create wholesale/retail
    subaccounts for Account 6623 only.[^28]

13. While BellSouth acknowledges that reporting wholesale/retail data as
    a percentage in ARMIS would be less burdensome than the use of
    subaccounts, it states that the Commission must still assess whether
    this alternative is necessary.[^29] Verizon estimates that it would
    take at least three months to develop and implement a process to
    report the wholesale percentages for Account 6623 in ARMIS, and that
    such reporting would cost close to \$1 million per year in on-going
    costs.[^30] Wisconsin argues that if the Commission adopts ARMIS
    reporting of wholesale/retail data instead of subaccounts, ILECs
    should report the percentages on an individual state basis for
    disaggregated Accounts 6621, 6622, and 6623.[^31]

14. Based on the comments, we reinstate Accounts 6621, 6622, and 6623
    and require wholesale/retail information only for Account 6623. In
    the *Phase II Report and Order*, we took two separate actions with
    respect to these accounts. First, we consolidated them into Account
    6620, as part of our decision to greatly reduce the number of Class
    A accounts required for customer operations expense and corporate
    operations expense.[^32] Second, we decided to require wholesale and
    retail subaccounts in Account 6620 because "the wholesale versus
    retail distinction is important for customer service because the
    per-line expenditures for customer service are higher at the retail
    level."[^33] Upon reconsideration, we find that the combination of
    these two actions has produced an unnecessarily burdensome and
    overbroad subaccount requirement. We see no regulatory need for
    wholesale/retail information regarding call completion services
    (Account 6621) or number services (Account 6622). In addition, the
    record before us indicates that reporting wholesale/retail
    percentages in ARMIS would both satisfy regulatory needs and be less
    burdensome than creating subaccounts. Accordingly, we do not require
    wholesale/retail information for Accounts 6621 and 6622. We also
    decide not to require ILECs to create wholesale and retail
    subaccounts for Account 6623. We will instead require that ILECs
    report their wholesale and retail percentages for Account 6623,
    Customer services, in the ARMIS 43-03 report. This approach will be
    far less burdensome than the creation of subaccounts, and will
    provide wholesale and retail information for the Commission and the
    states for those costs that are most relevant. Reporting in ARMIS
    43-03 will result in identification of the wholesale and retail
    percentages on a state-by-state basis. This is consistent with the
    Commission's determination in the *Phase II Report and Order* that
    wholesale/retail information is important for development of UNE
    rates, which are set by the states.[^34]

### Reinstatement of Separate Depreciation and Amortization Accounts 6561-6565

15. The Joint Conference recommends that the Commission reverse its
    decision to consolidate the following accounts into Account 6560,
    Depreciation and amortization expense: Accounts 6561, Depreciation
    expense---telecommunications plant in service; Account 6562,
    Depreciation expense---property held for future telecommunications
    use; Account 6563, Amortization expense---tangible; Account 6564
    Amortization expense---intangible; Account 6565, Amortization
    expense---other.

16. The Joint Conference is concerned about an adverse impact on rate
    proceedings resulting from the lack of detail provided by the
    consolidated Account 6560. The Joint Conference states that although
    many jurisdictions have adopted alternative regulation plans, some
    of these plans are earnings-based, require refunds, or provide
    options to return to rate-of-return regulation if alternative
    regulation proves ineffective---and therefore, the Commission should
    retain the separate depreciation and amortization accounts.[^35]

17. NASUCA, RUS and Wisconsin favor retention of the depreciation and
    amortization expense accounts.[^36] Wisconsin states that it is
    required by statute to revise depreciation rates for
    telecommunications carriers on a biennial basis. Wisconsin also
    states that depreciation rates have been used in proceedings to
    determine UNE rates. Wisconsin asserts that, though not required at
    the federal level, it will require even Class B ILECs in its state
    to submit this level of detail in their annual reports to that state
    commission.[^37] USTA and the RBOCs oppose the restoration of these
    accounts.[^38]

18. We accept the Joint Conference's recommendation and reinstate the
    depreciation and amortization expense accounts. The local exchange
    industry is a capital-intensive industry, and plant assets
    constitute a major component of the costs of providing service. In
    the Commission's 1998 biennial review of its depreciation
    requirements, it stated that depreciation "constitutes 28 percent of
    incumbent LECs' total operating expenses, and is their largest
    single expense."[^39] Current available data indicates that this
    percentage has increased to 33 percent, and that depreciation
    expense remains the ILECs' largest single expense.[^40] Depreciation
    also is used in the calculation of UNE rates.[^41] We conclude,
    therefore, that depreciation expense should be maintained in
    discrete accounts and not commingled with amortization expenses.
    Because we deferred action on consolidating Accounts 6561-6565,[^42]
    reinstatement of the individual depreciation and amortization
    expense accounts will not cause any additional implementation
    burdens to carriers.

### Addition of New Accounts

19. The Joint Conference recommends that we add new Part 32 accounts
    for: (1) optical switching; (2) switching software; (3) loop and
    inter-office transport; (4) interconnection revenue; and
    (5) universal service revenue and expense. In this Order, as
    discussed below, we reject the Joint Conference's recommendation to
    add new Part 32 accounts. However, we do require ILECs to maintain
    subsidiary record categories to identify interconnection revenues.

20. [Optical Switching]{.underline}. The Joint Conference recommends
    that the Commission revise Part 32 to add a new account for optical
    switching. The Joint Conference believes that this account will
    provide useful data to the states and to the Commission in
    monitoring how optical switching technology is deployed throughout
    the telecommunications network.[^43]

21. AT&T, NASUCA, RUS and Wisconsin agree with the Joint Conference's
    recommendation to add a new account for optical switching.[^44] AT&T
    and Wisconsin state that this new account will provide useful data
    with respect to the deployment of advanced services in the
    marketplace and on how the ILECs' business models may be changing in
    an increasingly competitive environment.[^45] The RBOCs and USTA, on
    the other hand, disagree with the recommendation, stating that
    optical switching technology is not currently deployed in the
    marketplace, and thus, to add a new account for these switches makes
    no sense.[^46] We decide not to create a new Part 32 account for
    optical switching. Until there is substantial evidence that optical
    switches are actually being deployed in the network, a new account
    is unnecessary. It would be unduly burdensome to require the
    carriers to create an account for technology that is not currently
    being used. Therefore, we will not implement this Joint Conference
    recommendation.

22. [Switching Software Accounts]{.underline}. The Joint Conference
    recommends that the FCC revise Part 32 to add new investment and
    expense accounts to track software information associated with
    switching. The Joint Conference believes that information on
    switching software is needed to monitor technological development of
    the network, and would also be useful in developing UNE rates for
    switching.[^47]

23. Several commenters agree with the Joint Conference's recommendation
    to add new accounts for switching software. These parties believe
    that separately identifying switching software costs in a standalone
    Part 32 account will provide the Commission with the information
    necessary to determine a carrier's total switching costs, which is
    an increasingly important element in making UNE pricing
    determinations as well as in determining high-cost universal service
    support.[^48] The RBOCs and USTA oppose this recommendation. They
    contend that there is no federal need for switching software
    accounts because software costs are already segregated in Part 32
    Account 2690, Intangibles.[^49] We decide not to add new accounts
    for switching software. Switching software is already segregated in
    Account 2690 at the subsidiary record category level.[^50] It would
    be unduly burdensome to require the carriers to create a new account
    for switching software information in a Part 32 account when that
    information already is available in subsidiary record categories.
    When states need this information, they can request it from the
    carriers. Therefore, we do not implement this recommendation by the
    Joint Conference.

24. [Loop and Inter-Office Transport]{.underline}. The Joint Conference
    recommends that the Commission revise Part 32 to add new accounts
    for loop and inter-office transport. It states that contract prices
    and model algorithms are inputs needed to determine compliance with
    TELRIC pricing standards. To the extent that ILECs claim that UNE
    rates do not cover accounting costs, data separating loop costs from
    transport costs are needed to make comparisons to accounting costs.
    Additionally, if separate wholesale and retail companies are
    created, separate data for loop versus transport costs may be needed
    to develop transfer prices.[^51] NASUCA and Wisconsin support the
    Joint Conference's recommendation.[^52]

25. In the Phase II proceeding, we declined to add subaccounts for loop
    and interoffice transport to central office transmission, cable and
    wire facilities, and information origination/termination accounts.
    We acknowledged the potential usefulness of this disaggregated
    information, but concluded that allocating these costs to separate
    subaccounts would be overly burdensome because, in some cases, both
    loop and interoffice transport are carried on the same cable
    facility.[^53]

26. We agree with BellSouth and Verizon that recording plant in loop and
    interoffice transport accounts would be contrary to the design of
    our Part 32 accounting system.[^54] The Part 32 accounts reflect the
    actual investment, revenues and expenses incurred by ILECs. The
    Part 32 accounting system is not designed to reflect the allocation
    of investments and expenses among types of traffic or among
    services. With current technology, both types of traffic, loop and
    interoffice transport, may ride together on the same facilities. In
    order to maintain separate accounts for loop and interoffice
    transport, plant would have to be allocated between these two
    categories. The requested accounting change would require a massive
    restructuring of the current plant and plant-related expense
    accounts, which would be an extremely burdensome task for ILECs.
    Even the creation of subaccounts within the existing plant accounts
    would require extensive accounting system changes. Therefore, we
    decline to adopt the Joint Conference's recommendation, and do not
    add new Part 32 accounts for loop and inter-office transport.

27. [Interconnection Revenue]{.underline}. The Joint Conference
    recommends that we add a new Part 32 account for interconnection
    revenue with separate subaccounts for UNEs, resale, reciprocal
    compensation, and other interconnection revenues. The Joint
    Conference contends that data to account for sources of revenue are
    necessary to monitor the transition to a competitive marketplace. It
    claims this data will be of value in assessing how the
    interconnection processes further the development of local
    competition. It asserts that interconnection accounts would assist
    states in assessing local competition and whether such competition
    is getting a foothold in their states. This data could prove useful
    to states in formulating policy. The addition of these accounts
    would clearly help the states and the Commission better understand
    the degree of local competition and enable regulators to take steps
    to address issues that may be relevant to the state of local
    competition.[^55] NASUCA and Wisconsin support the Joint
    Conference's recommendation.[^56]

28. The RBOCs and USTA oppose the addition of new accounts and
    subaccounts for interconnection revenues.[^57] BellSouth states that
    resale revenue follows the service with which it is associated.
    BellSouth and Verizon claim that to segregate resale revenue into
    one subaccount would result in major changes to their accounting
    systems and to Part 36, Separations.[^58] They also question the
    states' logic for needing interconnection revenues to be reported
    separately.[^59]

29. In the Phase II proceeding, we consolidated Account 5240, Rent
    revenue, into Account 5200, Miscellaneous revenue.[^60] Because the
    rent revenue account was used to record UNE revenue, this change
    resulted in UNE revenue being recorded in the Miscellaneous revenue
    account. In addition, we eliminated Account 5084, State access
    revenues, which is where some carriers recorded reciprocal
    compensation revenue. We directed carriers to record these revenues
    as part of Accounts 5081, End user revenue, 5082, Switched Access
    revenue and 5083, Special access revenue. We also declined to
    establish a new account to record resale revenues. ILECs currently
    record resale revenues in the various accounts where they record the
    revenues derived from various retail services.[^61]

30. We agree that separately identifying interconnection revenues would
    be valuable in monitoring the development of local competition,
    allowing us to monitor changes in UNE revenues compared to other
    revenues, which could indirectly indicate changes in the number of
    ILEC customers. We also find, however, that some revenues,
    particularly resale revenue, cannot be easily redirected to a single
    account without major reprogramming since resale revenue follows the
    service sold. Therefore, we do not establish a separate account for
    interconnection revenue. Rather, we require that ILECs maintain
    subsidiary record categories for unbundled network element revenues,
    resale revenues, reciprocal compensation revenues, and other
    interconnection revenues in the accounts in which these revenues are
    currently recorded. We require ILECs to make this data available to
    the states and to us upon request. We believe that this subsidiary
    record requirement strikes a balance by achieving the goals of state
    and federal regulators, while minimizing the burden on ILECs.

31. [Universal Service Accounts]{.underline}. The Joint Conference
    recommends that the Commission add two new accounts to Part 32 to
    track federal universal service funds---a new Part 32 Universal
    Service Revenue account and a new Part 32 Universal Service Expense
    account. The Joint Conference believes that these new accounts will
    allow the Commission to specifically track federal universal service
    amounts and will help the Commission to better understand the
    federal universal fund programs and the effect these programs have
    on consumers. The Joint Conference states that with no specific
    accounts assigned, universal service revenues will be included in
    other Part 32 accounts where they will be indistinguishable from
    other revenue types.[^62]

32. AT&T, NASUCA, RUS and Wisconsin favor adding new accounts to Part 32
    to monitor Universal Service amounts. They state that these accounts
    will provide the Commission and the states with the information
    necessary to adequately track ILEC universal service activity.[^63]
    Conversely, the RBOCs and USTA argue that there is no federal need
    for this information. They state that the Commission already
    collects universal service information on FCC Form 499 and that this
    information is also available from USAC.[^64]

33. We decline to amend Part 32 by adding new universal service expense
    and revenue accounts. Currently, carriers record universal service
    support receipts in the revenue accounts for the service supported.
    Universal service support payments are recorded in Account 6540,
    Access expense.[^65] It would be administratively burdensome and
    costly for carriers to create new revenue and expense accounts, with
    subaccounts, to record universal service support receipts and
    payments. Moreover, as noted by the RBOCs and USTA, the Commission
    already collects universal service information on FCC Form 499, and
    additional information is available from USAC.

## Affiliate Transactions Rules

34. The Joint Conference considered whether the Commission should change
    its affiliate transactions rules, as codified in Section 32.27 of
    the Commission's rules.[^66] In its final report, the Joint
    Conference recommends changes to four areas of these rules, as
    discussed in the following paragraphs.

### Fair Market Value Comparisons for Assets Totaling Less Than \$500,000

35. The Joint Conference reviewed the Commission's Phase II decision to
    eliminate the need for carriers to make a fair market value
    comparison for assets totaling less than \$500,000 per affiliate,
    and it recommends that the rule stand, as amended.[^67] No
    commenters oppose the \$500,000 threshold for asset fair market
    value comparisons. Wisconsin, however, points out that it has
    adopted a lower threshold for small carriers in its state.[^68] We
    agree with the Joint Conference that this rule should be retained,
    as amended,[^69] because it reduces carrier burden, corresponds with
    our rule for services, and no party has pointed to any problems that
    might have arisen with respect to this rule change since the rule
    change took effect.

### Establishment of Floor and Ceiling Threshold

36. Prior to the Phase II proceeding, our rules required that where a
    carrier was the recipient of an asset or service, that asset or
    service was recorded on the carrier's books at the lower of cost or
    fair market value.[^70] If the carrier provided the asset or
    service, the carrier valued the transferred asset or service at the
    higher of cost or fair market value. In the Phase II proceeding, we
    modified these rules to permit carriers to use the higher or lower
    of cost or market valuation as either a floor or ceiling when
    valuing transactions between affiliates.[^71] The change approved in
    the *Phase II Report and Order* allows carriers to assign whatever
    value they deem appropriate for a transaction, as long as the value
    falls within the parameters of the adopted floor and ceiling. The
    effect of this rule change is to allow carriers greater flexibility
    in valuing these transactions.[^72]

37. The Joint Conference believes that allowing this type of flexibility
    permits too much discretion in the valuing of affiliate transactions
    by an ILEC. It maintains that a comparison with cost or fair market
    value should remain the touchstone of valuing these transactions. It
    argues that the "unfettered discretion" afforded by the newly
    approved floor and ceiling provisions of the Commission's rules
    provides "unrestrained" opportunities for anticompetitive
    manipulation of costs, revenues and earnings, which it believes are
    precisely the types of problems that led to the Joint Conference's
    creation.[^73] Thus, to deter such anticompetitive effects, the
    Joint Conference recommends that the Commission reverse its decision
    to allow ILEC discretion in valuing affiliate transactions as long
    as the valuation complies with a prescribed floor or ceiling.[^74]
    AT&T and Wisconsin support the Joint Conference's
    recommendation.[^75]

38. The RBOCs, Sprint, and USTA oppose the Joint Conference's
    recommendation.[^76] BellSouth claims that any concern regarding a
    link between the value of affiliate transactions and ILEC prices to
    end users is unfounded because under price cap regulation, ILEC
    customer prices no longer change when ILEC booked cost changes.[^77]
    BellSouth argues that under price cap regulation, whether the ILEC
    records affiliate transactions at either too low for a purchase or
    too high for a sale is irrelevant.[^78] SBC adds that ILECs'
    affiliate transactions are reported in the cost allocation manuals
    (CAMs) submitted annually to the Commission, and that the CAMs are
    subject to an independent audit every two years.[^79]

39. As we stated in the *Phase II Report and Order*, we continue to
    believe that permitting carriers to use a floor or ceiling when
    valuing transactions does not harm ratepayers because it permits the
    regulated carrier to pay less when buying from a nonregulated
    affiliate, and charge more when selling to a nonregulated
    affiliate.[^80] We recognize that permitting the use of a floor and
    ceiling for recording affiliate transactions could conceivably have
    an anticompetitive effect, although the use of price cap regulation
    ameliorates this concern for many carriers. It seems unlikely,
    however, that a transaction would have such an effect, particularly
    if the transaction is not priced below incremental cost. Further, we
    have safeguards in place to detect and deter anticompetitive
    conduct. Carriers must disclose their affiliate transactions in
    their annual CAM filings, and these transactions are audited every
    two years by independent auditors. We therefore reject the Joint
    Conference's recommendation. We reaffirm that carriers can use the
    floor or ceiling in transactions with affiliates, as long as such
    transactions comply with the Communications Act, the Commission's
    rules and orders, and are not otherwise anticompetitive.

### Prevailing Price Treatment Threshold

40. The Commission's affiliate transaction rules allow ILECs to use
    prevailing market price as a valuation method when recording
    transactions with affiliated companies.[^81] In order for a
    transaction to qualify for prevailing market price valuation, sales
    of a particular asset or service to third parties must comprise
    greater than 25 percent of the total quantity of such product or
    service sold by an entity. In the *Phase II Report and Order*, the
    Commission reduced the threshold for prevailing market price
    valuation from 50 percent to its current 25 percent level.[^82] The
    Joint Conference recommends that the Commission reinstate the 50
    percent threshold.[^83]

41. The Joint Conference argues that it is not uncommon for parties in
    commercial relationships to exchange mutual concessions in the sales
    of goods and services. It claims that ILECs frequently enter into
    partnership agreements and other contractual relationships with
    nonaffiliated third parties in which it could be advantageous for
    the ILEC to provide an asset or service to the third party at a
    favorable, below cost price. The ILEC may receive a similar
    concession on a product or service provided by the third party. In
    such a situation, an ILEC could strategically under-price a
    relatively small amount of a particular service or asset to gain an
    offsetting concession from the third party, and at the same time
    confer on its affiliate a competitive advantage. By under-pricing
    services or assets, the ILEC would be absorbing some of the cost and
    thereby lowering the affiliate's overall cost structure, to the
    overall benefit of the ILEC's holding company.[^84] AT&T supports
    the Joint Conference's position.[^85] Wisconsin suggests that in
    determining whether to increase the threshold from the current 25
    percent, the Commission should consider whether a lower percentage
    represents a significant influence over company pricing policy. If
    the Commission determines that 25 percent of an entity's business is
    insufficient to impose a significant influence over the entity when
    setting the prices it charges to an outside third party, then the
    Commission could either reinstate the 50 percent threshold or set
    the threshold at a level where the Commission believes there will be
    significant influence on the pricing.[^86]

42. The RBOCs, Sprint and USTA oppose this recommendation.[^87]
    BellSouth believes that the 25% threshold established by the
    Commission in the Phase II proceeding is more than sufficient to
    ensure that there is a market price, because it claims that it only
    takes one transaction between entities to establish a market
    price.[^88] Further, BellSouth argues that the Joint Conference's
    concerns regarding prevailing price apply to rate-of-return
    carriers. BellSouth urges the Commission not to modify its affiliate
    transactions rules for price cap ILECs in response to concerns about
    rate-of-return companies. Moreover, BellSouth contends that the
    Commission should not modify its rules for any ILECs, because these
    concerns can be addressed in individual ratemaking proceedings.[^89]

43. We decline to revisit our decision to lower the threshold for
    prevailing price valuation. We continue to believe that the 25
    percent threshold is adequate to establish a prevailing market
    price, and that it would unlikely be "a sustainable strategy for a
    firm significantly to under-price transactions with 25 percent of
    its customers in order to be able to record transactions at this
    price with an affiliate."[^90] Therefore, we will retain 25 percent
    as the threshold required to qualify for prevailing price valuation
    of sales of a particular asset or service to third parties.

### Modification of the Centralized Services Exception to the Estimated Fair Market Value Rule

44. Section 32.27(c)(3) of the Commission's affiliate transaction rules
    contains an exception to the valuation rules for transactions
    involving affiliates that provide services solely to members of the
    corporate family.[^91] This exception, referred to as the
    centralized services exception, permits ILECs to record all services
    received from such affiliates at fully distributed costs (FDC)
    without determining that the FDC is below fair market value. The
    Joint Conference recommends that the Commission eliminate the
    centralized services exception to the affiliate transactions rules,
    thereby making such transactions subject to the general rule
    requiring fair market value analysis.

45. The Joint Conference argues that the centralized services exception
    allows the carrier and its holding company an opportunity to have
    the carrier pay in excess of market prices for services obtained
    from an affiliate. According to the Joint Conference, the carrier
    may find it advantageous to show artificially high costs and, as a
    result, depressed earnings. The Joint Conference also argues that
    regulated carriers that record excessive costs for services from an
    affiliate can use those costs to justify excessive wholesale or
    retail rates.[^92]

46. We established the centralized services exception in the *Accounting
    Safeguards Order* to relieve the ILEC burden of performing fair
    market valuations for administrative services that they receive from
    affiliated services companies.[^93] These affiliated services
    companies exist solely to provide services to the corporate family
    and have no transactions with third parties. The services they
    provide often are tailored to the needs of the corporate family.
    BellSouth, Sprint, USTA and Wisconsin state that the Commission
    should retain the centralized services exception because the burdens
    of performing fair market valuations for these services outweigh the
    benefits.[^94] We agree with these commenters. In addition, the use
    of fully distributed cost to value these transactions is appropriate
    as a means of allowing all regulated and nonregulated affiliates to
    share the economies of scale and scope derived from the provision of
    these services on a centralized basis. Therefore, we will not modify
    the centralized services exception to the estimated fair market
    value rule.

### Nonregulated to Nonregulated Transactions

47. The Commission's affiliate transactions rules apply to all
    transactions between the carrier and its nonregulated affiliates,
    including transactions between a carrier's nonregulated operations
    and its nonregulated affiliates. In the Phase II proceeding, the
    Commission considered whether these activities between a carrier's
    nonregulated operations and its nonregulated activities should be
    exempt from its affiliate transactions rules, and determined that
    action on this issue should be deferred for a future
    proceeding.[^95] The Joint Conference considered whether the
    Commission should continue to defer action on this matter, and
    concluded that the Commission should take no additional action at
    this time.[^96] Although BellSouth and Verizon disagree, they
    provide no additional arguments than those already considered in
    previous proceedings.[^97] We will, therefore, adopt the Joint
    Conference's recommendation and take no action on this issue.

### Intra-Holding Company ILEC-to-ILEC Transfers of Assets or Services

48. The Joint Conference recommends that the Commission clarify its
    affiliate transactions rules to be applicable to transactions
    between ILECs within the same holding company, and that the fully
    distributed cost standard applies to such transactions. The Joint
    Conference believes that inapplicability of transfer pricing rules
    affords an opportunity for ILECs to manipulate their costs, revenues
    and earnings in a manner that could lead to inflated wholesale or
    retail rates or inaccurate reports of earnings by the ILECs. They
    also claim that the opportunity for cost manipulation could permit a
    holding company to artificially manipulate earnings among its ILECs
    as a means of gaming different regulatory issues in different
    states.[^98]

49. The RBOCs, Sprint, USTA and Wisconsin oppose the Joint Conference's
    recommendation.[^99] BellSouth contends that under price cap
    regulation, wholesale customer prices are forward-looking rather
    than historical.[^100] Sprint states that there is no record of
    ILECs using transfer pricing between ILECs to manipulate costs,
    revenues and earnings to justify this change, and if such evidence
    comes to light, it should be dealt with on an individual
    basis.[^101] Sprint further states that accounting for these
    transactions at the higher of fully distributed cost or fair market
    value would cause a dilemma. The selling ILEC would have to record
    the higher cost while the purchasing ILEC would record the lower
    cost, thus causing asymmetrical pricing records which would cause
    problems in consolidating financial records.[^102]

50. In the reconsideration order in the joint cost proceeding, we
    specifically clarified that our affiliate transactions rules do not
    apply to transactions between an ILEC and its regulated
    affiliates.[^103] We agree with Wisconsin and other commenters that
    we should not amend our rules to apply our affiliate transactions
    rules to transactions between ILECs within the same holding company.
    Our affiliate transactions rules were designed to prevent
    cross-subsidization between an ILEC and its nonregulated affiliates.
    The asymmetrical structure of our affiliate transactions rules,
    which record transfers out of regulation at the higher of cost or
    market value and transfers into regulation at the lower of cost or
    market value, was not designed for, and is not appropriate for,
    transactions between regulated entities. With respect to asset
    transfers, there are other mechanisms in place to guard against
    improper transfer pricing between regulated entities. Our Part 32
    rules are premised upon an original cost concept that requires
    regulated companies to record property, plant and equipment acquired
    from any regulated company at its original cost to that
    company.[^104] With respect to services, we decline to adopt a new
    affiliate transactions requirement in the absence of any evidence
    that such transactions have been, or are being, used for the
    manipulative purposes hypothesized by the Joint Conference.
    Therefore, the imposition of additional rules and procedures for
    transactions between carriers would be unduly burdensome without a
    corresponding benefit.

## Reporting Requirements and Other Matters

### ARMIS 43-07, Table II, "Loop Sheath Kilometers" vs. "Sheath Kilometers"

51. In the *Phase II Report and Order*, we changed the title of the
    first section of Table II of ARMIS 43-07 from "Sheath Kilometers" to
    "Loop Sheath Kilometers," which limited the collection of data on
    transmission facilities to only local loop facilities connecting
    customers to their serving offices. In adopting this revision, we
    stated that this information would be more useful for policy makers
    and interested parties if it were narrowed to local loop
    facilities.[^105] A petition for reconsideration of the *Phase II
    Report and Order* filed jointly by BellSouth, SBC and Verizon
    (Petitioners) requests that the Commission change the ARMIS 43-07,
    Table II reporting requirement back to sheath kilometers.[^106] The
    petitioners argue that they cannot gather the loop sheath kilometer
    information through their existing systems, and that the Commission
    has not stated why this change would be necessary in the public
    interest.[^107] The petitioners state that they would have to
    perform additional, time-consuming studies in order to separately
    identify loop sheath kilometers. They argue that the burden of
    separately recording loop sheath kilometers outweighs any
    benefits.[^108]

52. The Joint Conference takes no position on whether the Commission
    should collect the loop sheath kilometer data as adopted in
    Phase II, but it recommends that the Commission reinstate the
    reporting of sheath kilometer data that was collected before the
    change in Phase II.[^109] In its comments to the *Notice*, Wisconsin
    states that the Commission may wish to consider supplementing the
    loop sheath kilometer reporting requirement with the former sheath
    kilometer reporting requirement.[^110] USTA and Verizon state that
    the Commission has no need for the loop sheath kilometer data
    because it collects other data on loop facilities such as the number
    of loop lines. USTA and Verizon also state that the studies required
    to identify the loop segment would be very time-consuming and
    expensive.[^111]

53. We reinstate the original ARMIS 43-07 Table II sheath kilometer
    reporting requirement and eliminate the requirement for reporting
    loop sheath kilometers. All of the commenters express a need or
    preference for the reporting of sheath kilometers, and none of the
    commenters express strong support for the retention of the loop
    sheath kilometer reporting requirement. In addition, the petitioners
    have convincingly demonstrated in their comments that the burden of
    separately identifying sheath kilometers associated with loop
    facilities would be onerous. Therefore, we reinstate the original
    reporting requirements for sheath kilometers and change the title of
    Table II back to "Sheath Kilometers."

### ARMIS Report 43-07 Broadband Infrastructure Reporting

54. In the *Phase II Report and Order*, we expanded the ARMIS Report
    43-07 to include information on: (1) hybrid fiber-copper loop
    interface locations; (2) number of customers served from the
    interface locations; (3) XDSL customer terminations associated with
    hybrid fiber-copper loops; and (4) XDSL customer terminations
    associated with non-hybrid loops. In adopting these revisions, we
    concluded that there was "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."[^112] We also sought
    comment in the further notice on whether we should in the future
    collect this information as part of the local competition and
    broadband data-gathering program, rather than through ARMIS.[^113]

55. In the petition for reconsideration filed jointly by BellSouth, SBC
    and Verizon, the petitioners request that the Commission require
    additional broadband infrastructure information to be reported on
    Form 477, rather than through ARMIS.[^114] The petitioners believe
    that broadband infrastructure data is proprietary information and
    should receive confidential treatment. The petitioners state that
    when the Commission adopted Form 477, it recognized that broadband
    data should be protected from public disclosure, and instituted
    procedures to make it easier to request confidential treatment on
    the 477.[^115] The petitioners state that the inclusion of
    additional broadband reporting requirements in ARMIS imposes unequal
    regulatory treatment on Class A ILECs because they would be the only
    providers reporting this information publicly.[^116] The petitioners
    argue that using Form 477 instead of ARMIS would allow the
    Commission to consider all broadband issues together, and would
    avoid subjecting Class A ILECs to potentially duplicative and
    conflicting reporting requirements.[^117] In opposing the petition,
    AT&T argues that shifting the reporting of fiber and DSL deployment
    to Form 477 would impose substantial new burdens on all other LECs
    that meet the Form 477 reporting threshold.[^118]

56. The Joint Conference recommends that the Commission deny the
    petition regarding the reporting of broadband infrastructure data in
    ARMIS Report 43-07. However, the Joint Conference also recommends
    that the Commission continue to evaluate whether the data collection
    should be expanded to a larger universe of carriers.[^119] In their
    comments to the *Notice*, Sprint, BellSouth and Verizon state that
    the broadband infrastructure data should be collected in the Form
    477,[^120] while AT&T states that this data should be collected
    through the ARMIS Report 43-07.[^121] Wisconsin states that the
    Commission should consider expanding this data collection to all
    filers of the Form 477.[^122]

57. We deny the petition for reconsideration. We have recently opened a
    rulemaking proceeding in which we propose to greatly improve the
    Form 477 data collection program.[^123] After completing that
    rulemaking proceeding, we will reevaluate the need to continue
    collecting ILEC broadband infrastructure data in ARMIS.

### Definition of ILEC

58. Section 32.11, Classification of companies,[^124] defines who is
    subject to our Part 32 accounting rules and recordkeeping
    requirements. In the *Phase II Report and Order*, we modified
    section 32.11 by making explicit that it applies only to ILECs and
    any other companies that we designate.[^125] We noted that the
    former language of section 32.11, adopted before there were
    "competitive local exchange carriers," applied the accounting rules
    and recordkeeping requirements to "carriers." However, the
    Commission stated that it actually applied section 32.11 only to
    ILECs because they are dominant carriers in their markets.[^126]

59. In revising the language regarding Part 32 applicability,[^127] we
    relied upon the definition of "ILEC" in section 251(h)(1) of the
    Communications Act: "the term 'incumbent local exchange carrier'
    means, with respect to an area, the local exchange carrier
    that---(A) on the date of enactment of the Telecommunications Act of
    1996, provided telephone exchange service in such area; and (B)(i)
    on such date of enactment, was deemed to be a member of the exchange
    carrier association pursuant to section 69.601(b)...; or (ii) is a
    person or entity that, on or after such date of enactment, became a
    successor or assign of a member described in clause (i)."[^128]

60. In a separate petition for reconsideration filed March 8, 2002, SBC
    requests that the Commission amend the definition of ILEC contained
    in section 32.11 of its rules by specifying that the rule does not
    apply to an ILEC's successor or assign.[^129] SBC asserts that the
    modified rule is overly broad and may include companies that are not
    dominant in their markets.[^130] SBC explains that under the revised
    section 32.11 definition, its advanced services affiliate, SBC
    Advanced Solutions, Inc. ("ASI"), a successor or assign company,
    would be considered dominant and subject to the Commission's Part 32
    accounting rules and ARMIS reporting requirements. SBC argues that
    ASI is nondominant, and should not be subject to Part 32.[^131] SBC
    further argues that the Commission's reliance on section 251(h) in
    defining dominant carriers subject to the accounting rules is
    misplaced because section 251(h) does not define dominant carriers.
    In opposing SBC's petition, AT&T states that SBC is wrong to argue
    that an ILEC's status under section 251(h) says nothing about
    whether it is dominant in the markets in which it operates. On the
    contrary, AT&T argues that as demonstrated in broadband proceedings
    before the Commission, ILECs in general, and SBC in particular,
    retain pervasive market power in the provision of broadband
    services.[^132]

61. The Joint Conference recommends that the Commission deny SBC's
    petition to change the definition of ILEC in section 32.11. The
    Joint Conference states that approval of the limited definition of
    an ILEC, as proposed by SBC, would provide ILECs with an
    inappropriate opportunity to avoid the statutory and regulatory
    obligations of ILECs by transferring a discrete service to a
    successor or assign, and should be denied.[^133] In its comments to
    the *Notice* in this proceeding, Wisconsin agrees with the Joint
    Conference's recommendation, and states that the Commission's
    accounting and recordkeeping requirements should be applied to all
    ILECs, with exceptions warranted in only highly unusual
    circumstances.[^134] BellSouth, SBC and Verizon disagree with the
    Joint Conference's recommendation, arguing that these rules should
    not apply to successor or assign companies that are not dominant in
    their markets.[^135]

62. We grant in part and deny in part SBC's petition to modify section
    32.11 of the Commission's rules. We will not exclude successor or
    assign companies from the definition of ILEC in section 32.11 of our
    rules, but we will amend section 32.11 to ensure that the rule does
    not sweep in successor and assign companies that are non-dominant in
    the markets in which they operate. We agree with the Joint
    Conference that inclusion of successor/assign prevents ILECs from
    transferring regulatory assets and operations out of their telephone
    companies to affiliates to avoid the Commission's Part 32 accounting
    rules and recordkeeping requirements. We will continue to include
    successor/assign in the definition of ILECs subject to the Part 32
    accounting and recordkeeping requirements because we believe that
    some successor/assign companies may be local exchange carriers that
    are dominant in their markets. We recognize, however, that
    section 32.11 in its present form does not address the situation
    when successors or assigns of ILECs are non-dominant in markets that
    they serve. We therefore modify section 32.11 by adding language to
    exclude from our accounting requirements successor or assign
    companies that are found to be non-dominant.

## Other Issues Raised in the *Notice*

63. As noted above, the Commission has suspended the implementation of
    four previously-adopted accounting and recordkeeping rules to allow
    the Joint Conference time to review them, and for the Commission to
    act upon the Joint Conference's recommendation.[^136] The suspension
    currently is effective through June 30, 2004.[^137] In the *Notice*,
    we sought comment on further delaying implementation until January
    1, 2005,[^138] which is the next date to coincide with the start of
    a fiscal year after six months' notice required by the Act for the
    rules to take effect.[^139] Commenters favor this proposal, because
    the affected carriers can avoid unnecessarily implementing the older
    set of rules only to implement the new ones adopted herein on
    January 1, 2005.[^140] Accordingly, we suspend the rule changes
    described above through December 31, 2004. Finally, we believe that
    the foregoing reasons also provide good cause for allowing this
    deferral to become effective before July 1, 2004 and on less than 30
    days' notice by publication in the Federal Register.[^141]

64. In response to the *Notice*, many commenters have included
    additional proposals and specific areas for investigation or study
    by the Joint Conference and the Commission. Commenters have
    requested that we address such issues as establishing different
    regulatory accounting requirements for rate-of-return and price cap
    carriers,[^142] eliminating continuing property recordkeeping,[^143]
    reinstating amortization reserve accounts,[^144] and various other
    regulatory accounting relief for the RBOCs. We appreciate the
    responses we have received. The Joint Conference and the Commission
    will continue to examine these issues.

65. We anticipate that this order will be published in the Federal
    Register on or before July 1, 2004. However, to ensure that carriers
    subject to the suspended accounting requirements have actual notice
    of the further deferral before its July 1, 2004 effective date, we
    are serving those entities by overnight mail.

# PROCEDURAL MATTERS

## *Ex Parte* Requirements

66. This proceeding will continue to be governed by
    "permit-but-disclose" *ex parte* procedures that are applicable to
    non-restricted proceedings under 47 C.F.R. § 1.1206. Parties making
    oral *ex parte* presentations are reminded that memoranda
    summarizing the presentation must contain a summary of the substance
    of the presentation and not merely a listing of the subjects
    discussed. More than a one- or two-sentence description of the views
    and arguments presented generally is required. *See* 47 C.F.R.
    § 1.1206(b)(2). Other rules pertaining to oral and written
    presentations are set forth in section 1.1206(b) as well. Interested
    parties are to file any written *ex parte* presentations in this
    proceeding with the Commission's Secretary, Marlene H. Dortch, 445
    12th Street, S.W., TW-B204, Washington, D.C. 20554, and serve with
    one copy: Pricing Policy Division, Wireline Competition Bureau,
    445 12th Street, S.W., Room 5-A452, Washington, D.C. 20554, Attn:
    Clifford Rand. Parties shall also serve with one copy: Best Copy and
    Printing, Inc., Portals II, 445 12^th^ Street, S.W., Room CY-B402,
    Washington, D.C. 20554, 1-800-378-3160, \<WWW.BCPIWEB.COM\>.

## Paperwork Reduction Act Analysis

67. This Order has been analyzed with respect to the Paperwork Reduction
    Act of 1995 and found to impose new or modified reporting and
    recordkeeping requirements or burdens on the public. Implementation
    of these new or modified reporting and recordkeeping requirements
    will be subject to approval by the Office of Management and Budget
    (OMB) as prescribed by the Act, and will go into effect upon
    announcement in the Federal Register of OMB approval.

## Final Regulatory Flexibility Certification

68. The Regulatory Flexibility Act of 1980, as amended (RFA),[^145]
    requires that a regulatory flexibility analysis be prepared for
    notice-and-comment rule making proceedings, unless the agency
    certifies that "the rule will not, if promulgated, have a
    significant economic impact on a substantial number of small
    entities."[^146] The RFA generally defines the term "small entity"
    as having the same meaning as the terms "small business," "small
    organization," and "small governmental jurisdiction."[^147] In
    addition, the term "small business" has the same meaning as the term
    "small business concern" under the Small Business Act.[^148] A
    "small business concern" is one which: (1) is independently owned
    and operated; (2) is not dominant in its field of operation; and (3)
    satisfies any additional criteria established by the Small Business
    Administration (SBA).[^149]

69. The SBA has developed a small business size standard for Wired
    Telecommunications Carriers, which consists of all such firms having
    1,500 or fewer employees.[^150] Under the Commission's rules, there
    are two classes of ILECs for accounting purposes: Class A and
    Class B. Carriers with annual revenues from regulated
    telecommunications operations that are equal to or above the indexed
    revenue threshold, currently \$123 million, are classified as Class
    A; those falling below that threshold are considered Class B. Class
    A carriers are required to maintain a more detailed level of
    accounts than Class B carriers. In addition, Class A carriers are
    required to file ARMIS Reports annually while Class B carriers are
    not subject to the ARMIS Reporting requirement. Class A carriers
    with annual revenues in excess of \$123 million but less than
    \$7.240 billion are classified as mid-sized carriers and are
    permitted to maintain accounts at the less detailed Class B level.
    The less detailed level of accounting required under Class B was
    established to accommodate smaller carriers and relieve them of the
    burdens associated with maintaining the more detailed level of
    accounts. The accounting and reporting requirements adopted by the
    Commission in this Report and Order are mandatory only for Class A
    non-mid sized carriers.[^151] These carriers have annual revenues in
    excess of \$7.240 billion, therefore it is likely that these
    companies employ more than 1,500 employees and are not small
    businesses under the SBA's definition for Wired Telecommunications
    Carriers.[^152]

70. In this Report and Order the Commission adopts the Joint
    Conference's recommendations to reinstate the following Part 32
    Class A accounts: Account 5230, Directory revenue, Account 6621,
    Call completion services, Account 6622, Number services, Account
    6623, Customer services, Account 6561, Depreciation
    expense---telecommunications plant in service; Account 6562,
    Depreciation expense---property held for future telecommunications
    use; Account 6563, Amortization expense---tangible; Account 6564
    Amortization expense---intangible; Account 6565, Amortization
    expense---other. These accounting changes are mandatory only for
    non-mid-sized Class A ILECs. The reinstatement of these accounts,
    however, will not impose any additional burden on non-mid-sized
    Class A ILECs because the Commission's prior action to aggregate the
    accounts has been suspended. Similarly, the Commission's
    reinstatement of the sheath kilometer reporting requirement in the
    ARMIS 43-07 will not impose any additional burden on non-mid-sized
    Class A ILECs. Non-mid-sized Class A ILECs are meeting these
    requirements at the current time, therefore the rule changes in this
    Report and Order will impose no economic burden.[^153]

71. Although the Commission declines to adopt any new accounts, it will
    require that non-mid-sized Class A ILECs maintain subsidiary record
    categories for unbundled network element revenues, resale revenues,
    reciprocal compensation revenues, and other interconnection revenues
    in the accounts in which these revenues are currently recorded. The
    use of subsidiary record categories allows carriers to use whatever
    mechanisms they choose, including those currently in place, to
    identify the relevant amounts as long as the information can be made
    available to state and federal regulators upon request. Also, the
    Commission is requiring the ARMIS reporting of the wholesale and
    retail percentages applicable to Account 6623, Customer services.
    The use of subsidiary record categories for interconnection revenue
    and the ARMIS reporting of wholesale retail percentages do not
    require massive changes to the ILECs' accounting systems and are far
    less burdensome alternatives than the creation of new accounts
    and/or subaccounts.[^154]

72. Even if there are mid-sized class A carriers or Class B carriers
    that are small businesses within the SBA's definition (i.e., with
    fewer than 1,500 employees) that may elect to comply with the rules,
    the impact of the rules is economically *de minimis* and negligible.
    As discussed above, compliance with the rules adopted herein imposes
    no new burdens. Accordingly, even if there is economic impact on any
    such small carrier, it is not significant. Therefore, we certify
    that the requirements of the Report and Order will not have a
    significant economic impact on a substantial number of small
    entities.

73. The Commission will send a copy of the Report and Order, including a
    copy of this Final Regulatory Flexibility Certification, in a report
    to Congress pursuant to the Congressional Review Act.[^155] In
    addition, the Report and Order and this final certification will be
    sent to the Chief Counsel for Advocacy of the SBA, and will be
    published in the Federal Register.[^156]

# ORDERING CLAUSES

74. 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. §§ 151, 154, 201-205, 215, and 218-220, Part 32 of the
    Commission's rules, 47 C.F.R. Part 32, IS AMENDED as described above
    and in Appendix B below.

75. 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,
    2005.

76. IT IS FURTHER ORDERED that pursuant to sections 1, 4, and 220 of the
    Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154, and
    220, and section 1.401 of the Commission's rules, 47 C.F.R. § 1.401,
    the Petition of BellSouth, SBC and Verizon for Reconsideration and
    the SBC Communications, Inc. Petition for Reconsideration are
    GRANTED in part, to the extent indicated herein, and DENIED in part.

77. 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. §§ 151, 154(i),
    154(j), 201-205, 215 and 218-220, FCC Report 43-07, the
    Infrastructure Report, IS REVISED as set forth above.

78. IT IS FURTHER ORDERED that pursuant to sections 1, 4(i), 4(j), 5(c),
    201, 202, 219 and 220 of the Communications Act of 1934, as amended,
    47 U.S.C. §§ 151, 154(i), 154(j), 155(c), 201, 202, 219 and 220,
    section 1.3 of the Commission's rules, 47 C.F.R. § 1.3, and sections
    553(b) and 553(d)(3) of the Administrative Procedure Act, 5 U.S.C.
    §§ 553(b), 553(d)(3), implementation of certain rule modifications
    described in paragraph 3, above, IS SUSPENDED from July 1, 2004
    through December 31, 2004.

79. 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, the
    Wireline Competition Bureau IS DELEGATED authority to implement all
    changes to ARMIS reporting as set forth above.

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

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

APPENDIX A -- PARTIES FILING COMMENTS AND REPLY COMMENTS

**[Comments in response to the *Notice*]{.underline}**

AT&T Corp. (AT&T)

BellSouth Corporation (BellSouth)

National Association of State Utility Consumer Advocates (NASUCA)

Public Service Commission of Wisconsin (Wisconsin)

Qwest Corporation (Qwest)

Rural Utilities Service (RUS)

SBC Communications Inc. (SBC)

Sprint Corporation (Sprint)

United States Telecom Association (USTA)

The Verizon Telephone Companies (Verizon)

**[Reply Comments in response to the *Notice*]{.underline}**

AT&T

BellSouth

Qwest

SBC

USTA

Verizon

**[Opposition to the BellSouth, SBC and Verizon Petition for
Reconsideration]{.underline}**

AT&T

**[Opposition to the SBC Petition for Reconsideration]{.underline}**

AT&T

APPENDIX B -- 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), 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**

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**

32.101 Structure of the balance sheet accounts.

32.102 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.

32.1500 Other jurisdictional assets---net.

32.2000 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.

32.3400 Accumulated amortization---tangible.

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.

32.5100 Long distance message revenue.

32.5200 Miscellaneous revenue.

32.5230 Directory revenue.

32.5280 Nonregulated operating revenue.

32.5300 Uncollectible revenue.

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

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.

32.6310 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.

32.6561 Depreciation expense---telecommunications plant in service.

32.6562 Depreciation expense---property held for future
telecommunications use.

32.6563 Amortization expense---tangible.

32.6564 Amortization expense---intangible.

32.6565 Amortization expense---other.

32.6610 Marketing.

32.6611 Product management and sales.

32.6613 Product advertising.

32.6620 Services.

32.6621 Call completion services.

32.6622 Number services.

32.6623 Customer 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**

32.9000 Glossary of terms.

Section 32.11 Classification of Companies is amended by revising
paragraph (a) 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. Incumbent local exchange carriers' successor or
assign companies, as defined in section 251(h)(1)(B)(ii) of the
Communications Act, that are found to be non-dominant by the Commission,
will not be subject to this Uniform System of Accounts.

\* \* \* \* \*

Section 32.27 Transactions with affiliates is amended by revising
paragraph (a) to read as follows:

**§ 32.27 Transactions with affiliates.**

(a) Unless otherwise approved by the Chief, Wireline Competition 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.

\* \* \* \* \*

Section 32.1280 Prepayments is amended by revising paragraph (d) to read
as follows:

**§ 32.1280 Prepayments.**

\* \* \* \* \*

\(d\) 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 6622,
Number services. These prepaid directory expenses shall be cleared to
Account 6622 by monthly charges representing that portion of the
expenses applicable to each month.

\* \* \* \* \*

Section 32.2000 Instructions for telecommunications plant accounts is
amended by revising paragraph (g)(5) to read as follows:

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

\* \* \* \* \*

\(g\) \* \* \*

\(5\) 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 6561, Depreciation
expense---Telecommunications plant in service, or Account 6562,
Depreciation expense---property held for future telecommunications use,
over such period as this Commission may direct or approve.

\* \* \* \* \*

Section 32.2005 Telecommunications Plant Adjustment is amended by
revising paragraphs (b)(1) and (b)(4) 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 6565, Amortization expense---other.

\(2\) \* \* \*

\(3\) \* \* \*

\(4\) 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 6565
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 32.2682 Leasehold improvements is amended by revising paragraph
(c) to read as follows:

**§ 32.2682 Leasehold improvements.**

\* \* \* \* \*

\(c\) Amounts contained in this account shall be amortized over the term
of the related lease. For Class A companies, except mid-sized incumbent
local exchange carriers, 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 by revising paragraph (c) to read
as follows:

**§ 32.2690 Intangibles.**

\* \* \* \* \*

\(c\) The cost of other intangible assets, not including software,
having a life of one year or less shall be charged directly to Account
6564, Amortization expense---intangible. Such intangibles acquired at
small cost may also be charged to Account 6564, 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.

\* \* \* \* \*

Section 32.3000 Instructions for balance sheet accounts---Depreciation
and amortization is amended by revising paragraph (b) to read as
follows:

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

\(a\) \* \* \*

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

+------------------------------------+----------------+----------------+
| Account title                      | Class A        | Class B        |
|                                    | account        | account        |
+------------------------------------+----------------+----------------+
| Depreciation and amortization:     |                |                |
+------------------------------------+----------------+----------------+
| > Accumulated depreciation         | 3100           | 3100           |
+------------------------------------+----------------+----------------+
| > Accumulated depreciation---Held  | 3200           | 3200           |
| > for future telecommunications    |                |                |
| > use                              |                |                |
+------------------------------------+----------------+----------------+
| > Accumulated                      | 3300           | 3300           |
| > depreciation---Nonoperating      |                |                |
+------------------------------------+----------------+----------------+
| > Accumulated                      |                | 3400           |
| > depreciation---Tangible          |                |                |
+------------------------------------+----------------+----------------+
| > Accumulated                      | 3410           |                |
| > depreciation---Capitalized       |                |                |
| > leases                           |                |                |
+------------------------------------+----------------+----------------+

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

**§ 32.3100 Accumulated depreciation.**

\* \* \* \* \*

\(b\) This account shall be credited with depreciation amounts
concurrently charged to Account 6561, Depreciation
expense---telecommunications plant in service. (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 6561 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 6562, Depreciation expense---property held for future
telecommunications use.

Section 32.3400 Accumulated amortization---tangible is revised to read
as follows:

**§ 32.3400 Accumulated amortization**---**tangible.**

\(a\) This account shall be used by Class B companies and shall include:

\(1\) the accumulated amortization associated with the investment
contained in Account 2681, Capital leases.

\(2\) the accumulated amortization associated with the investment
contained in Account 2682, Leasehold improvements.

\(b\) This account shall be credited with amounts for the amortization
of capital leases and leasehold improvements concurrently charged to
Account 6563, Amortization expense---tangible. (Note also Account 3300,
Accumulated depreciation---nonoperating.)

\(c\) When any item carried in Account 2681 or Account 2682 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 32.3410 Accumulated amortization---capitalized leases is amended
by revising paragraph (b) to read as follows:

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

\* \* \* \* \*

\(b\) This account shall be credited with amounts for the amortization
of capital leases concurrently charged to Account 6563, Amortization
expense---tangible. (Note also Account 3300, Accumulated
depreciation---nonoperating.)

\* \* \* \* \*

Section 32.4999 General is amended by revising paragraphs (c), (f) 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 6623, Customer services, and
not to the revenue accounts. Other commissions shall be charged to the
appropriate expense accounts.

\* \* \* \* \*

\(f\) *Subsidiary records---jurisdictional subdivisions and
interconnection.* Subsidiary record categories shall be maintained in
order that the company may separately report revenues derived from
charges imposed under intrastate, interstate and international tariff
filings. Class A carriers shall also maintain subsidiary record
categories in order that the companies may separately report
interconnection revenues derived from the following categories:
Unbundled network element revenues, Resale revenues, Reciprocal
compensation revenues, and Other interconnection revenues. Such
subsidiary record categories shall be reported as required by part 43 of
this Commission's Rules and Regulations.

\* \* \* \* \*

\(n\) *Revenue accounts to be maintained*.

+------------------------------------+----------------+----------------+
| Account Title                      | Class A        | Class B        |
|                                    | account        | account        |
+------------------------------------+----------------+----------------+
| Local network services revenues:   |                |                |
+------------------------------------+----------------+----------------+
| > Basic local service revenue      |                | 5000           |
+------------------------------------+----------------+----------------+
| > Basic area revenue               | 5001           |                |
+------------------------------------+----------------+----------------+
| > Private line revenue             | 5040           |                |
+------------------------------------+----------------+----------------+
| > Other basic area revenue         | 5060           |                |
+------------------------------------+----------------+----------------+
| 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 revenue    | 5100           | 5100           |
+------------------------------------+----------------+----------------+
| Miscellaneous revenues:            |                |                |
+------------------------------------+----------------+----------------+
| > Miscellaneous revenue            | 5200           | 5200           |
+------------------------------------+----------------+----------------+
| > Directory revenue                | 5230           |                |
+------------------------------------+----------------+----------------+
| Nonregulated revenues:             |                |                |
+------------------------------------+----------------+----------------+
| > Nonregulated operating revenue   | 5280           | 5280           |
+------------------------------------+----------------+----------------+
| Uncollectible revenues:            |                |                |
+------------------------------------+----------------+----------------+
| > Uncollectible revenue            | 5300           | 5300           |
+------------------------------------+----------------+----------------+

Section 32.5001 Basic area revenue is amended to revise paragraph (b) to
read as follows:

**§ 32.5001 Basic area revenue.**

\* \* \* \* \*

\(b\) 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 5230, Directory
revenue.

\* \* \* \* \*

Section 32.5200 Miscellaneous revenue is revised to read as follows:

**§ 32.5200 Miscellaneous revenue.**

This account shall include revenue derived from the following sources.
For Class B companies, this account shall also include revenue of the
type and character required of Class A companies in Account 5230,
Directory revenue.

\(a\) 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.

\(b\) 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. (See also Account 5230.)

\(c\) 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.

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

\(e\) 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.

\(f\) 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.

\(g\) 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 Section
32.4999(e)). 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.

\(h\) The provision of transport and termination of local
telecommunications traffic pursuant to section 251(c) and part 51 of
this chapter.

\(i\) The provision of unbundled network elements pursuant to section
251(c) of the Communications Act and part 51 of this chapter.

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

\(1\) Collection overages (collection shortages shall be charged to
Account 6623, Customer services);

\(2\) Unclaimed refunds for telecommunications services when not subject
to escheats;

\(3\) Charges (penalties) imposed by the company for customer checks
returned for non-payment;

\(4\) Discounts allowed customers for prompt payment;

\(5\) Late-payment charges;

\(6\) Revenue from private mobile telephone services which do not have
access to the public switched network; and

\(7\) Other incidental revenue not provided for elsewhere in other
Revenue accounts.

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

Section 32.5230 Directory revenue, a new account, is added.

**§ 32.5230 Directory revenue.**

This account shall include revenue derived from alphabetical and
classified sections of directories and shall also include fees paid by
other entities for the right to publish the company's directories. Items
to be included are:

\(a\) All revenue derived from the classified section of the
directories;

\(b\) Revenue from the sale of new telephone directories whether they
are the company's own directories or directories purchased from others.
This shall also include revenue from the sale of specially bound
directories and special telephone directory covers;

\(c\) Amounts charged for additional and boldface listings, marginal
displays, inserts, and other advertisements in the alphabetical section
of the company's telephone directories; and

\(d\) Charges for unlisted and non-published telephone numbers.

Section 32.5999 General is amended by revising paragraphs (b)(4), (c)
and (g) as follows:

**§ 32.5999 General.**

\* \* \* \* \*

\(b\) \* \* \*

\(4\) 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 Accounts 6621,
Call completion services, and 6622, Number 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
Accounts 6560 through 6565) 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        | Class B        |
|                                    | account        | account        |
+------------------------------------+----------------+----------------+
| Income Statement Accounts          |                |                |
+------------------------------------+----------------+----------------+
| Plant specific operations expense: |                |                |
+------------------------------------+----------------+----------------+
| > Network support expense          |                | 6110           |
+------------------------------------+----------------+----------------+
| > Motor vehicle expense            | 6112           |                |
+------------------------------------+----------------+----------------+
| > Aircraft expense                 | 6113           |                |
+------------------------------------+----------------+----------------+
| > Tools and other work equipment   | 6114           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > General support expenses         |                | 6120           |
+------------------------------------+----------------+----------------+
| > Land and building expenses       | 6121           |                |
+------------------------------------+----------------+----------------+
| > Furniture and artworks expense   | 6122           |                |
+------------------------------------+----------------+----------------+
| > Office equipment expense         | 6123           |                |
+------------------------------------+----------------+----------------+
| > General purpose computers        | 6124           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > Central office switching expense |                | 6210           |
+------------------------------------+----------------+----------------+
| > Non-digital switching expense    | 6211           |                |
+------------------------------------+----------------+----------------+
| > Digital electronic switching     | 6212           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > Operators system expense         | 6220           | 6220           |
+------------------------------------+----------------+----------------+
| > Central office transmission      |                | 6230           |
| > expenses                         |                |                |
+------------------------------------+----------------+----------------+
| > Radio systems expense            | 6231           |                |
+------------------------------------+----------------+----------------+
| > Circuit equipment expense        | 6232           |                |
+------------------------------------+----------------+----------------+
| > Information                      |                | 6310           |
| > origination/termination expense  |                |                |
+------------------------------------+----------------+----------------+
| > Station apparatus expense        | 6311           |                |
+------------------------------------+----------------+----------------+
| > Large private branch exchange    | 6341           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > Public telephone terminal        | 6351           |                |
| > equipment expense                |                |                |
+------------------------------------+----------------+----------------+
| > Other terminal equipment expense | 6362           |                |
+------------------------------------+----------------+----------------+
| > Cable and wire facilities        |                | 6410           |
| > expenses                         |                |                |
+------------------------------------+----------------+----------------+
| > Poles expense                    | 6411           |                |
+------------------------------------+----------------+----------------+
| > Aerial cable expense             | 6421           |                |
+------------------------------------+----------------+----------------+
| > Underground cable expense        | 6422           |                |
+------------------------------------+----------------+----------------+
| > Buried cable expense             | 6423           |                |
+------------------------------------+----------------+----------------+
| > Submarine and deep sea cable     | 6424           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > Intrabuilding network cable      | 6426           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > Aerial wire expense              | 6431           |                |
+------------------------------------+----------------+----------------+
| > Conduit systems expense          | 6441           |                |
+------------------------------------+----------------+----------------+
| Plant nonspecific operations       |                |                |
| expense:                           |                |                |
+------------------------------------+----------------+----------------+
| > Other property plant and         |                | 6510           |
| > equipment expenses               |                |                |
+------------------------------------+----------------+----------------+
| > Property held for future         | 6511           |                |
| > telecommunications use expense   |                |                |
+------------------------------------+----------------+----------------+
| > Provisioning expense             | 6512           |                |
+------------------------------------+----------------+----------------+
| > Network operations expenses      |                | 6530           |
+------------------------------------+----------------+----------------+
| > Power expense                    | 6531           |                |
+------------------------------------+----------------+----------------+
| > Network administration expense   | 6532           |                |
+------------------------------------+----------------+----------------+
| > Testing expense                  | 6533           |                |
+------------------------------------+----------------+----------------+
| > Plant operations administration  | 6534           |                |
| > expense                          |                |                |
+------------------------------------+----------------+----------------+
| > Engineering expense              | 6535           |                |
+------------------------------------+----------------+----------------+
| > Access expense                   | 6540           | 6540           |
+------------------------------------+----------------+----------------+
| > Depreciation and amortization    |                | 6560           |
| > expenses                         |                |                |
+------------------------------------+----------------+----------------+
| > Depreciation                     | 6561           |                |
| > expense---telecommunications     |                |                |
| > plant in service                 |                |                |
+------------------------------------+----------------+----------------+
| > Depreciation expense---property  | 6562           |                |
| > held for future                  |                |                |
| > telecommunications use           |                |                |
+------------------------------------+----------------+----------------+
| > Amortization expense---tangible  | 6563           |                |
+------------------------------------+----------------+----------------+
| > Amortization                     | 6564           |                |
| > expense---intangible             |                |                |
+------------------------------------+----------------+----------------+
| > Amortization expense---other     | 6565           |                |
+------------------------------------+----------------+----------------+
| Customer operations expense:       |                |                |
+------------------------------------+----------------+----------------+
| > Marketing                        |                | 6610           |
+------------------------------------+----------------+----------------+
| > Product management and sales     | 6611           |                |
+------------------------------------+----------------+----------------+
| > Product advertising              | 6613           |                |
+------------------------------------+----------------+----------------+
| > Services                         |                | 6620           |
+------------------------------------+----------------+----------------+
| > Call completion services         | 6621           |                |
+------------------------------------+----------------+----------------+
| > Number services                  | 6622           |                |
+------------------------------------+----------------+----------------+
| > Customer services                | 6623           |                |
+------------------------------------+----------------+----------------+
| Corporate operations expense:      |                |                |
+------------------------------------+----------------+----------------+
| > General and administrative       | 6720           | 6720           |
+------------------------------------+----------------+----------------+
| > Provision for uncollectible      | 6790           | 6790           |
| > notes receivable                 |                |                |
+------------------------------------+----------------+----------------+

Section 32.6560 Depreciation and amortization expenses is revised as
follows:

**§ 32.6560 Depreciation and amortization expenses.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A companies in Accounts 6561
through 6565.

Section 32.6561 Depreciation expense---telecommunications plant in
service, a new account, is added.

**§ 32.6561 Depreciation expense---telecommunications plant in
service.**

This account shall include the depreciation expense of capitalized costs
in Accounts 2112 through 2441, inclusive.

Section 32.6562 Depreciation expense---property held for future
telecommunications, a new account, is added.

**§ 32.6562 Depreciation expense---property held for future
telecommunications use.**

This account shall include the depreciation expense of capitalized costs
included in Account 2002, Property held for future telecommunications
use.

Section 32.6563 Amortization expense---tangible, a new account, is
added.

**§ 32.6563 Amortization expense---tangible.**

This account shall include only the amortization of costs included in
Accounts 2681, Capital leases, and 2682, Leasehold improvements.

Section 32.6564 Amortization expense---intangible, a new account, is
added.

**§ 32.6564 Amortization expense---intangible.**

This account shall include the amortization of costs included in Account
2690, Intangibles.

Section 32.6565 Amortization expense---other, a new account, is added.

**§ 32.6565 Amortization expense---other.**

\(a\) This account shall include only the amortization of costs included
in Account 2005, Telecommunications plant adjustment.

\(b\) This account shall also include lump-sum write offs of amounts of
plant acquisition adjustment as provided for in section 32.2005(b)(3) of
subpart C.

\(c\) Subsidiary records shall be maintained so as to show that
character of the amounts contained in this account.

Section 32.6620 Services is revised as follows:

**§ 32.6620 Services.**

Class B telephone companies shall use this account for expenses of the
type and character required of Class A companies in Accounts 6621
through 6623.

Section 32.6621 Call completion services, a new account, is added.

**§ 32.6621 Call completion services.**

This account shall include 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.

Section 32.6622 Number services, a new account, is added.

**§ 32.6622 Number services.**

This account shall include 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.

Section 32.6623 Customer services, a new account, is added.

**§ 32.6623 Customer services.**

\(a\) This account shall include costs incurred in establishing and
servicing customer accounts. This includes:

\(1\) Initiating customer service orders and records;

\(2\) Maintaining and billing customer accounts;

\(3\) Collecting and investigating customer accounts including
collecting revenues, reporting receipts, administering collection
treatment, and handling contacts with customers regarding adjustments of
bills;

\(4\) Collecting and reporting pay station receipts; and

\(5\) 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.

**Part 51 of title 47 of the C.F.R. is amended as follows:**

PART 51 -- INTERCONNECTION

Section 51.609 Determination of avoided retail costs is amended by
revising paragraphs (c)(1), (c)(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), 6621 (call
completion services), 6622, (number services), and 6623 (customer
services) (§§ 32.6611, 32.6613, 32.6621, 32.6622, and 32.6623 of this
chapter);

\(2\) \* \* \*

\(3\) Not include plant-specific expenses and plant non-specific
expenses, other than general support expenses (§§ 32.6112-6114,
32.6211-6565 of this chapter).

\(d\) Costs included in accounts 6611, 6613 and 6621-6623 described in
paragraph (c) of this section (§§ 32.6611, 32.6613, and 32.6621-6623 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 6211-6565 described in paragraph (c) of this
section (§§ 32.6112-32.6114, 32.6211-32.6565 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 65 of title 47 of the C.F.R. is amended as follows:**

PART 65 -- INTERSTATE RATE OF RETURN PRESCRIPTION PROCEDURES AND
METHODOLOGIES

Section 65.450 Net Income is amended by revising paragraphs (a) and
(b)(1) 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 6510-6565), customer operations
(Accounts 6610-6623), 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 6563, Amortization expense---tangible, over the
amortization period established for the capital lease;

\* \* \* \* \*

**STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS,**

**APPROVING IN PART, DISSENTING IN PART**

Re: *Federal-State Joint Conference on Accounting Issues, 2000 Biennial
Regulatory*

*Review---Comprehensive Review of the Accounting Requirements and ARMIS*

*Reporting Requirements for Incumbent Local Exchange Carriers: Phase
II,*

*Jurisdictional Separations Reform and Referral to the Federal-State
Joint Board,*

*Local Competition and Broadband Reporting (WC Docket No. 02-269, CC*

*Docket Nos. 00-199, 80-286, 99-301)*

Two years ago, I enthusiastically embraced the Commission's decision to
convene a Joint Conference on Accounting. Accounting depredations had
distressed the telecommunications industry and wreaked considerable
havoc on the economy as a whole. I believed then and believe now that
the cure for these problems lies in greater state and federal oversight,
not less.

I am pleased that today's decision puts in place several rule
modifications recommended by the Joint Conference. But I am troubled
that it does not go far enough. In particular, it broadly rejects key
recommendations concerning affiliate transactions. These recommendations
were designed to remedy rules that provide carriers with too much
discretion to value transactions between affiliates. This is precisely
the kind of discretionary accounting that led to such serious problems
in the financial sector and that raised concerns that led to development
of the Joint Conference.

The majority also dismisses recommendations for some new accounts
identified by the Joint Conference. These accounts are needed to get a
full picture of carrier investment and to ensure that prices reflect
actual costs. Both the States and the Commission use reported data to
develop an understanding of the plant, revenue and expenses of carriers
and to enable comparisons among companies and over time. States also use
this data to develop prices for network elements, to develop prices for
resold services and to conduct ratemaking proceedings. If the Commission
keeps to its current course, emphasizing only the federal purpose of
accounting data, the States' ability to carry out their statutory
responsibilities will be sharply curtailed at potential great cost to
consumers.

We have entered an era when more information---not less---is necessary
for consumer confidence and investor security. We have a duty to ensure
that the required system of accounts provides ***both*** state and
federal regulators with the information they need to discharge their
oversight obligations. This is the essence of a viable federal-state
partnership. It is also memorialized in the Communications Act. In
Section 220(i), Congress specifically directed the Commission to
consider the views and input of each state commission before prescribing
any accounting requirements. In Section 220(j), Congress directed the
Commission to investigate and report on the need for legislation to
define further or harmonize the powers of the Commission and of state
commissions with respect to accounting requirements. In today's Order,
the majority gives short shrift to the spirit of this partnership. They
show too little interest in the needs of the States and are reluctant to
acknowledge the expertise of the members of the Joint Conference. It
appears they prefer to inch along on our current track, casting off even
modest recommendations for reform as burdensome for carriers, without
considering the consequences of a system based on deficient information.
This is troubling because policies at both the state and federal level
are only as good as the data on which they are based. For these reasons,
I dissent in part.

The Joint Conference was asked to take a broad-based look at the
Commission's accounting policies. The convening Order directed the group
to ensure that accounting data are "adequate, truthful, and thorough."
It is time for the Joint Conference to embrace the full scope of this
duty and move forward with further recommendations. We have a broad
mandate and I hope we can meet it before the charter of the Joint
Conference expires. But we have far to go to amass a credible record. We
need to assess the adequacy of current requirements and question why
regular audits are not a feature of the Commission's core
responsibilities. We should ask how use of the Commission's authority to
inquire into the business management of carriers under Section 218 might
have helped us to identify recent corporate governance problems ranging
from capacity swaps to tactics to circumvent access charges. The
Commission also has specific requirements that carriers must comply with
concerning continuing property records. Although this issue has been
swept under the rug in the past, how can we approach TELRIC reform
without taking another look at these underlying issues of cost? I also
believe the Joint Conference should do more to memorialize the
federal-state partnership that is the essence of Section 220, abandoning
once and for all the misguided emphasis on federal purpose that the
Commission adopted in its *Phase II* decision.

I want to commend my colleagues on the Joint Conference for their
extensive efforts. They slogged through complex issues involving
accounts, subaccounts, separate affiliate rules and reporting
requirements. Through cooperative discussion we hashed out a reasonable
set of recommendations. Though not all of these recommendations are
adopted in this Order, I look forward to working with the members of the
Joint Conference on future endeavors. We have a duty to consider what
more needs to be done so that accounting data are comprehensive and
accurate. Our rules must be up to the high standards of corporate
governance and regulatory oversight that ratepayers across the country
have a right to expect in light of events over the past few years.

**STATEMENT OF\
COMMISSIONER KEVIN J. MARTIN,**

**APPROVING IN PART, CONCURRING IN PART**

*Re: Federal State Joint Conference on Accounting Issues, WC Docket
02-269; 2000 Biennial Regulatory Review, CC Docket No. 00-199;
Jurisdictional Separations Reform and Referral to the Federal-State
Joint Board, CC Docket No. 80-286; and Local Competition and Broadband
Reporting, CC Docket No. 99-301*

Today, the Commission acts on recommendations submitted by the
Federal-State Conference on Accounting. This Order only grants some of
the Joint Conference's recommendations, I approve in part and concur in
part in this item.

This Order reinstates several Part 32 Accounts that provide states with
the critical accounting information they need. The Order also requires
ILECs to maintain subsidiary records categories for unbundled network
element revenues, resale revenues, reciprocal compensation revenues and
other interconnection revenues in accounts in which these revenues are
currently recorded. Although this item does not go as far as requiring
companies to maintain this information in Part 32, this item does
require ILECs to make all this data available to the states and to this
Commission upon request. I am pleased to see the Commission listened to
the Joint Conference's call for the need to have access to this crucial
accounting information.

As I said when the Joint Conference filed its recommendation with the
FCC, I was concerned that the costs associated with providing
information related to certain affiliate transactions might outweigh the
benefits of getting that information. I feel the Commission could have
provided a tangible benefit to state regulators by approving some of the
crucial affiliate transactions recommendations without unduly burdening
the ILECs that would have to provide this information. For this reason,
I must concur with this part of today's Order.

**STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN,**

**APPROVING IN PART, DISSENTING IN PART**

Re: *Federal-State Joint Conference on Accounting Issues, 2000 Biennial
Regulatory*

*Review---Comprehensive Review of the Accounting Requirements and ARMIS*

*Reporting Requirements for Incumbent Local Exchange Carriers: Phase
II,*

*Jurisdictional Separations Reform and Referral to the Federal-State
Joint Board,*

*Local Competition and Broadband Reporting,* WC Docket No. 02-269, CC

Docket Nos. 00-199, 80-286, 99-301.

In 2002, the Federal-State Joint Conference on Accounting Issues was
established and charged with facilitating "cooperative federal and state
review of regulatory accounting and related reporting requirements in
order to determine their adequacy and effectiveness in the current
market and make recommendations for improvements." The need for Federal
and State policymakers to have access to thorough, accurate and reliable
information has been demonstrated in sharp relief over the past two
years. Strong accounting and reporting rules play a critical role in
protecting consumers and promoting investor confidence. The Joint
Conference took seriously its task and delivered to this Commission a
set of recommendations that reflected the considerable expertise and
breadth of experience possessed by its Federal and State members and
staff.

I support much of this Order and am pleased that it implements a number
of the recommendations of the Joint Conference. The item provides needed
certainty on those accounting and reporting items which have been
suspended since 2002. I am also pleased that the Commission makes
efforts to accommodate the Joint Conference's views in some areas where
the Order does not adopt the Joint Conference's recommendations in full.
For example, while the Order declines to adopt separate accounts for
interconnection revenues, it does require subsidiary accounts to address
in part the Joint Conference's concerns.

In other areas, however, this Order casts aside the recommendations of
the Joint Conference. Despite the Act's call for Federal-State
partnership on accounting and recordkeeping issues, this Order dismisses
several of the Joint Conference's requests for additional information
with promises to consider those issues in other proceedings. I expect
that the Commission will act expeditiously on these issues. Most
troubling is the Commission's dismissal of all of the Joint Conference's
recommendations on the affiliate transaction rules. Given this
Commission's increasing reliance on these safeguards, it strikes me as
unwise to discount wholly the Joint Conference's recommendations here.
For this reason, I dissent in part from the item.

Finally, I would like to thank the Federal and State members of the
Joint Conference for their dedication and contributions on these complex
issues.

[^1]: Letter from Federal-State Joint Conference on Accounting Issues to
    Marlene H. Dortch, Secretary, FCC (Oct. 9, 2003) (*Joint Conference
    Report*) (submitting proposed recommendations to Commission's
    accounting rules).

[^2]: *Federal-State Joint Conference on Accounting Issues, 2000
    Biennial Regulatory Review -- Comprehensive Review of the Accounting
    Requirements and ARMIS Reporting Requirements for Incumbent Local
    Exchange Carriers: Phase II, Jurisdictional Separations Reform and
    Referral to the Federal-State Joint Board, Local Competition and
    Broadband Reporting,* WC Docket No. 02-269, CC Docket Nos. 00-199,
    80-286, 99-301, Notice of Proposed Rulemaking, 18 FCC Rcd 26991
    (2003) (*Notice*). The Joint Conference report was attached to the
    *Notice* in its entirety as Appendix A.

[^3]: *Federal-State Joint Conference on Accounting Issues*, WC Docket
    No. 02-269, Order, 17 FCC Rcd 17025, 17025-27 paras. 1, 7 (2002)
    (*Convening Order*).

[^4]: *Id.* at 17026 para. 4.

[^5]: *Id.* at 17027 para. 7. The Joint Conference sought comment on a
    range of accounting and reporting issues in a Public Notice. *See
    Federal-State Joint Conference on Accounting Issues Request for
    Comment*, WC Docket No. 02-269, Public Notice, 17 FCC Rcd 24902
    (2002). In addition, the Joint Conference held a public hearing to
    gather information from a cross-section of telecommunications
    industry representatives. *See List of Panelists to Attend Public
    Hearing Held by the Federal-State Joint Conference on Accounting
    Issues*, Public Notice, 18 FCC Rcd 2532 (2003).

[^6]: *Federal-State Joint Conference on Accounting Issues,* Order, 17
    FCC Rcd 23243 (2002) (suspending implementation until July 1, 2003)
    (*First Suspension Order*). Subsequent orders have suspended
    implementation through June 30, 2004. *See Federal-State Joint
    Conference on Accounting Issues*, Order, 18 FCC Rcd 12636 (2003)
    (further suspending implementation until January 1, 2004) (*Second
    Suspension Order*); *Federal-State Joint Conference on Accounting
    Issues,* Order, 18 FCC Rcd 26988 (2003) (further suspending
    implementation through June 30, 2004) (*Third Suspension Order*).
    The following rule changes were suspended by these three orders:
    (1) consolidation of Accounts 6621 through 6623 into Account 6620,
    with subaccounts for wholesale and retail; (2) consolidation of
    Account 5230, Directory Revenue, into Account 5200, Miscellaneous
    Revenue; (3) consolidation of the depreciation and amortization
    expense accounts (Account 6561 through 6565) into Account 6560,
    Depreciation and Amortization Expenses; and (4) revised "Loop Sheath
    Kilometers" data collection in Table II of ARMIS Report 43-07.

[^7]: *2000 Biennial Regulatory Review -- Comprehensive Review of the
    Accounting Requirements and ARMIS Reporting Requirements for
    Incumbent Local Exchange Carriers: Phase II, Amendments to the
    Uniform System of Accounts for Interconnection; Jurisdictional
    Separations Reform and Referral to the Federal-State Joint Board;
    Local Competition and Broadband Reporting,* 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, 80-286, 16 FCC Rcd
    19913 (2001) (*Phase II Report and Order*).

[^8]: *Federal-State Joint Conference on Accounting Issues*, Public
    Notice, 17 FCC Rcd 24902 (2002).

[^9]: Petition of BellSouth, SBC and Verizon for Reconsideration of
    Report and Order in CC Docket Nos. 00-199, 97-212, 80-286 (filed
    Mar. 8, 2002) (Joint Petition); SBC Communications, Inc. Petition
    for Reconsideration at 1-3 (filed Mar. 8, 2002) (SBC Petition).

[^10]: *See* 47 C.F.R. § 32.27; *see Phase II Order*, 16 FCC Rcd at
    19946-52 paras. 85-100; *Accounting Safeguards Order*, 11 FCC Rcd at
    17582-17619 paras. 101-170. The Joint Conference also recommends
    that the Commission adopt, under our general authority, separate
    affiliate, accounting and auditing requirements focused on the
    in-region interLATA telecommunications service operations of the
    Bell Operating Companies (BOCs). *Joint Conference Recommendation*
    at 27-31. In May 2002, the Commission sought comment on a similar
    proposal in a proceeding devoted to considering the implications of
    the sunset of section 272 requirements. *Section 272(f)(1) Sunset of
    the BOC Separate Affiliate and Related Requirements*, WC Docket No.
    02-112, Further Notice of Proposed Rulemaking, 18 FCC Rcd 10914,
    10936-37 para. 46 (2003) (asking whether separate affiliate
    requirements are appropriate to apply to BOCs after sunset of
    section 272). The Joint Conference Recommendation has been entered
    into WC Docket No. 02-112 as an *ex parte* filing for consideration
    by the participants in that proceeding. Accordingly, the Joint
    Conference Recommendation on this subject will be resolved in WC
    Docket No. 02-112. *See Notice*, 18 FCC Rcd at 26993 n.9.

[^11]: 47 C.F.R. § 32.5200.

[^12]: Joint Conference Report at 9.

[^13]: AT&T Corp. (AT&T) Comments at 14-15; National Association of
    State Utility Consumer Advocates (NASUCA) Comments at 9; Wisconsin
    Comments at 5-6.

[^14]: BellSouth Corporation (BellSouth) Comments at 11-12; Qwest
    Corporation (Qwest) Comments at 14-15; USTA Comments at 7-8; The
    Verizon Telephone Companies (Verizon) Comments, Att. B at 1-2.

[^15]: BellSouth Comments at 11-12.

[^16]: 47 U.S.C. § 220(i). Section 220(i) reads as follows: "The
    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."
    *Id.*

[^17]: Joint Conference Report at 15.

[^18]: Joint Petition at 1.

[^19]: Joint Petition at 5; Verizon Comments at 4; SBC Comments, Att. A
    at 16.

[^20]: Joint Petition at 6; BellSouth Comments at 13 n.28.

[^21]: *Id.* at 4.

[^22]: *Id.*, citing *Implementation of the Local Competition Provisions
    of the Telecommunications Act of 1996*, Third Report and Order and
    Fourth Further Notice of Proposed Rulemaking, 15 FCC Rcd 3696, 3892
    para. 442 (1999) ("incumbent LECs need not provide access to
    \[operator services and directory assistance\] as an unbundled
    network element").

[^23]: AT&T Opposition to Joint Petition at 7.

[^24]: *Id.* at 8.

[^25]: AT&T Comments at 16; Wisconsin Comments at 6.

[^26]: SBC Comments at 6; USTA Comments at 8; Verizon Comments, App. B
    at 2.

[^27]: BellSouth Comments at 13.

[^28]: SBC Comments at 7.

[^29]: BellSouth Comments at 13.

[^30]: Verizon Comments, App. B at 5.

[^31]: Wisconsin Comments at 7.

[^32]: *Phase II Report and Order*, 16 FCC Rcd at 19927-28 paras. 39,
    41.

[^33]: *Id.* at 19938-39 para. 64.

[^34]: *Id.*

[^35]: Joint Conference Report at 15-16.

[^36]: NASUCA Comments at 10; Rural Utilities Service (RUS) Comments at
    2; Wisconsin Comments at 8. RUS believes that it would also be
    appropriate for the Commission to restore the associated
    amortization reserve accounts that were eliminated in the *Phase II
    Report and Order*. RUS Comments at 2. We will not address the
    reinstatement of the amortization reserve accounts in this
    proceeding. *See infra* Section E.

[^37]: Wisconsin Comments at 8-9.

[^38]: BellSouth Comments at 14; SBC Comments, Att. A at 13-14; USTA
    Comments at 7; Verizon Comments, Att. B at 5.

[^39]: *1998 Biennial Regulatory Review -- Review of Depreciation
    Requirements for Incumbent Local Exchange Carriers*, CC Docket No.
    98-137, Report and Order, ASD 98-91, Memorandum Opinion and Order,
    15 FCC Rcd 242, 244 para. 3 (1999).

[^40]: Federal Communications Commission, *Statistics of Communications
    Common Carriers*, Table 2.9 (Feb. 2004).

[^41]: *See supra* para. 17.

[^42]: *See supra* n.6.

[^43]: The Joint Conference also argues that accounting data with
    respect to optical switches is needed to properly estimate
    forward-looking switching costs for use in UNE pricing matters.
    Joint Conference Report at 17-18.

[^44]: AT&T Comments at 18; NASUCA Comments at 8; RUS Comments at 2;
    Wisconsin Comments at 10.

[^45]: AT&T Comments at 18; Wisconsin Comments at 10.

[^46]: BellSouth Comments at 18; Qwest Comments at 14; SBC Comments,
    Att. A at 10; USTA Comments at 11; Verizon Comments at 19, Att. B at
    7.

[^47]: *See* Joint Conference Report at 18-19.

[^48]: AT&T Comments at 18; NASUCA Comments at 8; RUS Comments at 2;
    Wisconsin Comments at 10.

[^49]: BellSouth Comments at 19; SBC Comments, Att. A at 10; USTA
    Comments at 11-12; Verizon Comments at 19, Att. B at 7-8.

[^50]: *See* 47 C.F.R. § 32.2690(b).

[^51]: *See* Joint Conference Report at 19.

[^52]: NASUCA Comments at 10-12; Wisconsin Comments at 11.

[^53]: *See Phase II Report and Order*, 16 FCC Rcd at 19938 para. 63.

[^54]: *See* BellSouth Comments at 20; Verizon Comments, Att. B at 8-10.

[^55]: *See* Joint Conference Report at 19-20.

[^56]: NASUCA Comments at 10-12; Wisconsin Comments at 12.

[^57]: BellSouth Comments at 15; Qwest Comments at 14-15; Verizon
    Comments, Att. B at 10-11.

[^58]: BellSouth Comments at 15; Verizon Comments, Att. B at 10-11.

[^59]: BellSouth Comments at 15-16; Verizon Comments, Att. B at 10-11.

[^60]: 47 C.F.R. § 32.5200.

[^61]: *See Phase II Report and Order*, 16 FCC Rcd at 19938-39 para. 64.

[^62]: Joint Conference Report at 21.

[^63]: AT&T Comments at 18; NASUCA Comments at 8; RUS Comments at 2;
    Wisconsin Comments at 13.

[^64]: BellSouth Comments at 16-17; SBC Comments, Att. A at 9; USTA
    Comments at 11-12; Verizon Comments, Att. B at 11-12.

[^65]: *Accounting for Universal Service Support Payments and Receipts*,
    RAO Letter 27 to Responsible Accounting Officer, 13 FCC Rcd 16567
    (1998).

[^66]: 47 C.F.R. § 32.27.

[^67]: *See* Joint Conference Report at 21-22.

[^68]: Wisconsin Comments at 13-15.

[^69]: *See* 47 C.F.R. § 32.27(b)(3).

[^70]: Generally, "cost" is the fully distributed cost (FDC) when
    valuing services, and is the net book cost (NBC) when valuing
    assets.

[^71]: *Phase II Report and Order*, 16 FCC Rcd at 19948 para. 92. *See*
    47 C.F.R. §§ 32.27(b)(1) and (2), 32.27(c)(1) and (2). When assets
    or services 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. As for the ceiling, when assets or services 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.

[^72]: *Phase II Report and Order*, 16 FCC Rcd at 19948 para. 92.

[^73]: Joint Conference Report at 23.

[^74]: *Id.*

[^75]: AT&T Comments at 20-21; Wisconsin Comments at 15-16.

[^76]: BellSouth Comments at 24; Qwest Comments at 14-15; SBC Comments
    at 7-8; Sprint Comments at 4-5; USTA Comments at 10-11; Verizon
    Comments at 15-16.

[^77]: BellSouth Comments at 24.

[^78]: *Id.* Also, BellSouth states that prices ILECs charge for UNEs
    are not directly affected by affiliate transactions. BellSouth
    explains that UNE prices are set by state regulators based on a
    forward-looking cost basis, and not on embedded booked costs. *Id.*
    at 25.

[^79]: SBC Comments at 8-9.

[^80]: *See Phase II Report and Order*, 16 FCC Rcd at 19948 para. 92.

[^81]: *See* 47 C.F.R. § 32.27(d).

[^82]: *Phase II Report and Order*, 16 FCC Rcd at 19949 paras. 93-94.

[^83]: Joint Conference Report at 23.

[^84]: *Id.* at 23-24.

[^85]: AT&T Comments at 21-22.

[^86]: Wisconsin Comments at 17.

[^87]: BellSouth Comments at 26; Qwest Comments at 14-15; SBC Comments
    at 7-8; Sprint Comments at 5; USTA Comments at 10-11; Verizon
    Comments at 15-16.

[^88]: BellSouth Comments at 26.

[^89]: *Id.*

[^90]: *Phase II Report and Order*, 16 FCC Rcd at 19949 para. 94.

[^91]: 47 C.F.R. § 32.27(3).

[^92]: Joint Conference Report at 25-26.

[^93]: *Implementation of the Telecommunications Act of 1996: Accounting
    Safeguards Under the Telecommunications Act of 1996*, CC Docket No.
    96-150, Report and Order, 11 FCC Rcd 71539 (1996) (*Accounting
    Safeguards Order*).

[^94]: BellSouth Comments at 27-29; Sprint Comments at 6-7; USTA
    Comments at 10-11; Wisconsin Comments at 11‑12.

[^95]: *Phase II Report and Order*, 16 FCC Rcd at 19952 para. 100.

[^96]: Joint Conference Report at 26.

[^97]: *See* BellSouth Comments at 28-29; Verizon Comments at 17-18.

[^98]: Joint Conference Report at 27.

[^99]: BellSouth Comments at 29; Qwest Comments at 14-15; SBC Comments
    at 7-8; Sprint Comments at 7; USTA Comments at 10-11; Verizon
    Comments at 18-19; Wisconsin Comments at 18.

[^100]: BellSouth Comments at 29.

[^101]: Sprint Comments at 7.

[^102]: *Id.*

[^103]: *See Separation of Costs of Regulated Telephone Service from
    Costs of Nonregulated Activities*, CC Docket No. 86-111, Report and
    Order, 2 FCC Rcd 1298, 1330-31 (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).

[^104]: *See* 47 C.F.R. § 32.2000(b)(1).

[^105]: *Phase II Report and Order*, 16 FCC Rcd at 19973 para. 170.

[^106]: *See* Joint Petition at 8.

[^107]: Joint Petition at 8.

[^108]: Joint Petition at 9.

[^109]: Joint Conference Report at 31.

[^110]: Wisconsin Comments at 18-19. In addition, Wisconsin notes that
    it currently obtains total fiber optic sheath miles from ILECs in
    annual reports filed with the Wisconsin Commission.

[^111]: USTA Comments at 10; Verizon Comments, Att. B at 16.

[^112]: *Phase II Report and Order*, 16 FCC Rcd at 19975 para. 175.

[^113]: *Id.* at 19986-87 para. 211

[^114]: Joint Petition at 10-11.

[^115]: *Id.* at 10.

[^116]: *Id.* at 10-11.

[^117]: *Id.* at 11.

[^118]: AT&T Opposition to Joint Petition at 10-11.

[^119]: Joint Conference Report at 32.

[^120]: Sprint Comments at 8; BellSouth Comments at 29-30; Verizon
    Comments, App. B at 14.

[^121]: AT&T Comments at 27.

[^122]: Wisconsin Comments at 19.

[^123]: *See Local Telephone Competition and Broadband Reporting*, WC
    Docket No. 04-141, CC Docket No. 99-301, Notice of Proposed
    Rulemaking and Order on Reconsideration, FCC 04-81 (rel. April 16,
    2004).

[^124]: *See* 47 C.F.R. § 32.11.

[^125]: *Phase II Report and Order*, 16 FCC Rcd at 19960-61 paras.
    126-127.

[^126]: *Id*.

[^127]: *Phase II and III Notice*, 15 FCC Rcd at 20587 para. 44.

[^128]: 47 U.S.C. § 251(h)(1).

[^129]: SBC Petition at 1-3 .

[^130]: *Id.* at 1-3.

[^131]: *Id.* at 3-4.

[^132]: AT&T Opposition to SBC Petition at 4-5.

[^133]: Joint Conference Report at 36.

[^134]: Wisconsin Comments at 19.

[^135]: BellSouth Comments at 30; SBC Comments at 9-11; Verizon
    Comments, Att. B at. 13.

[^136]: *See supra* note 6 and accompanying text.

[^137]: *Id.*

[^138]: *Notice*, 18 FCC Rcd at 26995 para. 8.

[^139]: *See* 47 U.S.C. § 220(g).

[^140]: *See, e.g.,* SBC Comments at 11; Verizon Comments at 27.

[^141]: The Administrative Procedure Act provides that a rule change may
    become effective before the usual 30 days' notice by publication in
    the Federal Register where "good cause" exists. 5 U.S.C. §
    553(d)(3).

[^142]: BellSouth Comments at 5.

[^143]: Verizon Comments at 20.

[^144]: RUS Comments at 2.

[^145]: The RFA, *see* 5 U.S.C. § 601 -- 612, has been amended by the
    Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
    Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).

[^146]: 5 U.S.C. § 605(b).

[^147]: 5 U.S.C. § 601(6).

[^148]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small-business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration and
    after opportunity for public comment, establishes one or more
    definitions of such term which are appropriate to the activities of
    the agency and publishes such definition(s) in the Federal
    Register."

[^149]: 15 U.S.C. § 632.

[^150]: 13 C.F.R. § 121.201, NAICS code 517110.

[^151]: The requirements would apply only to those Class B and mid-sized
    Class A carriers that elect to follow them pursuant to section
    32.11(e) of the Commission's rules. Any impact, which we find will
    not be significant economically, on these smaller carriers may be
    avoided at their option.

[^152]: To the extent any mid-sized Class A carriers (with annual
    revenue between \$123 million and \$7.240 billion) or Class B
    carriers (with annual revenue less than \$123 million) that
    voluntarily elect to comply with the requirements of this order
    employ fewer than 1,500 employees and are therefore small businesses
    under the SBA's definition, there is no significant economic impact
    on these companies. As discussed below, the rules adopted in this
    Report and Order merely require companies to continue following the
    current procedures, therefore there is no significant economic
    burden on any carrier, large or small.

[^153]: This is also true for mid-sized Class A carriers and Class B
    carriers that may be complying voluntarily with the Class A
    requirements -- these carriers are meeting the requirements at the
    current time so there will be no economic impact on them due to the
    adoption of the Report and Order.

[^154]: Similarly, there is no significant economic impact on mid-sized
    Class A carriers and Class B carriers that may be complying
    voluntarily with these requirements because the carriers can use
    mechanisms currently in place to identify the newly required
    information.

[^155]: *See* 5 U.S.C. § 801(a)(1)(A).

[^156]: *See* 5 U.S.C. § 605(b).