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Before the
               Federal Communications Commission
                     Washington, D.C. 20554
In the Matter of
Southwestern Bell Telephone
Company's Permanent Cost Allocation
Manual for the Separation of
Regulated and Nonregulated Costs
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     ASD 99-25
                             ORDER
     Adopted:  July 27, 2000            Released:  July 28, 2000
  By the Chief, Accounting Safeguards Division:
               I.INTRODUCTION AND BACKGROUND
1.On March 29, 1999, SBC Communications, Inc. ("SBC") filed revisions to Southwestern Bell
Telephone Company's ("SWBT's") cost allocation manual ("CAM") to reflect proposed changes in its
time reporting procedures for installation and maintenance technicians.  On July 10, 2000, SWBT filed
additional modifications to its revised CAM.  We hereby approve SWBT's proposed CAM revisions,
       subject to certain conditions as described below.
2.In the Joint Cost Order the Commission established a mechanism for separating the costs of
regulated telephone services from the costs of nonregulated services.  The purpose of the Joint Cost
Order was to ensure that a carrier's regulated operations do not improperly subsidize its nonregulated
activities.  The Commission established two separate but complementary sets of rules, one which
governs how carriers allocate their costs between regulated and nonregulated activities and the other
which governs transactions between carriers and their affiliates.  The Commission required that carriers
file CAMs setting out in detail the manner in which they propose to implement both the cost allocation
                and affiliate transaction rules.
3.For carrier activities that are labor intensive, such as the installation and maintenance
activities, an accurate time reporting system is essential to ensure that a carrier's costs are recorded in the
proper accounts and cost pools and, therefore, are allocated properly between a carrier's regulated and
nonregulated activities.  Most carrier employees prepare activity reports for all of their work.  In recent
years, however, carriers have developed procedures in which only a sample of their installation and
maintenance technicians prepare activity reports.  These carriers have proposed such procedures
                           primarily
to reduce their administrative costs.  Generally, we have approved the use of such streamlined
procedures when a carrier has demonstrated that they provide adequate accuracy for accounts and cost
                             pools.
                       IV.DISCUSSION
5.On March 29, 1999, SWBT submitted CAM revisions in which it proposed sample-based time
reporting procedures for its installation and maintenance technicians.  These procedures, which SWBT
refers to as its technician activity statistical sampling ("TASS") process, relied on both regression
analysis and statistical sampling techniques to determine account and cost pool amounts.  Both
Commission staff and an independent auditor reviewed this proposal.  The independent auditor and the
Commission staff made various recommendations for improvements to the TASS process.
6.On July 10, 2000, SWBT filed additional CAM revisions.  In this filing SWBT proposed to
implement most of the recommendations of the independent auditor and Commission staff.  Our review
finds that SWBT's July 10, 2000 CAM revisions are appropriate; however, in order to ensure that its
CAM will provide reliable accounting results, we will require that SWBT make two additional revisions
to both its TASS process and CAM.  First, SWBT must select at least 1,000 valid sample jobs per state
per month on which to base its statistical testing.  Second, as recommended by Deloitte and Touche,
SWBT must improve its controls regarding TASS software changes and must amend its System
               Administration Binder accordingly.
                                7.Therefore, we approve SWBT's proposed CAM revisions and permit SWBT to implement its
TASS process effective August 1, 2000, subject to these conditions.  Our approval of SWBT's CAM
revision is limited to the use of the statistical sampling method described in SWBT's submissions and
SWBT must not make any changes to its TASS process without prior written approval.  Furthermore, as
part of its CAM audit or attestation review under Part 64.904 of the commission's rules, we require
SWBT to direct its independent auditor to conduct additional procedures to test and review the TASS
                            process.
                   VIII. ORDERING CLAUSE
9.Accordingly, IT IS ORDERED, pursuant to Sections 4(i), 4(j), 201, 202, and 220 of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 201, 202, and 220, and Sections
0.91 and 0.291 of the Commission's rules, 47 C.F.R.  0.91 and 0.291, that Southwestern Bell
Telephone Company's July 10, 2000, cost allocation manual revisions pertaining to Section VII, Time
Reporting ARE APPROVED and effective August 1, 2000, subject to the conditions in paragraphs 5
                          and 6 above.
                         FEDERAL COMMUNICATIONS COMMISSION
                         Kenneth P. Moran
                         Chief, Accounting Safeguards Division