[Federal Register Volume 66, Number 28 (Friday, February 9, 2001)]
[Proposed Rules]
[Pages 9681-9682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3117]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 43 and 32

[CC Docket No. 98-137; CC Docket No. 99-117; AAD File No. 98-26; FCC 
00-396]


1998 Biennial Regulatory Review--Review of Depreciation 
Requirements for Incumbent Local Exchange Carriers, Ameritech 
Corporation Telephone Operating Companies' Continuing Property Records 
Audit, et al., GTE Telephone Operating Companies Release of Information 
Obtained During Joint Audit

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission declines to adopt the 
alternative proposal set forth in a Further Notice of Proposed 
Rulemaking issued on April 3, 2000 concerning conditions for price cap 
incumbent local exchange carriers (ILECs) to obtain relief from the 
Commission's depreciation requirements. In addition, the Commission 
declines to pursue further investigation into the continuing property 
record (CPR) audits of certain ILECs that are currently before the 
Commission.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW, TW-
A325, Washington, DC. 20554.

FOR FURTHER INFORMATION CONTACT: JoAnn Lucanik at (202) 418-0873.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order in CC Docket 99-137 and Order in CC Docket No. 99-117 
and AAD File No. 98-26. The full text of this Commission decision is 
available for inspection and copying during normal business hours in 
the FCC Reference Center (Room CY-A257), 445 12th Street, SW, 
Washington, DC 20554. The complete text may also be purchased from the 
Commission's copy contractor, International Transcription Service, 
Inc., 1231 20th Street, Washington, DC 20036, telephone (202) 857-3800.

Summary of the Order

    The alternative proposal set forth in the April 2000 FNPRM, 65 FR 
19725 (April 12, 2000), as an option for price cap ILECs to obtain 
freedom from the Commission's depreciation

[[Page 9682]]

requirements, generated a great deal of controversy among the parties. 
In particular, significant concerns were raised by state regulatory 
commissions, consumer groups, and industry participants about the 
effect that the proposed above-the-line accounting treatment would have 
on local and interstate rates, unbundled network element (UNE) and 
interconnection rates, and universal service support. Many parties 
commenting on this issue generally disagreed with an accounting 
treatment that would permit above-the-line amortization of the 
regulatory-to-financial book differential over a five-year period. They 
also argued that the proposed non-recovery commitment included as part 
of the proposed alternative did not provide adequate assurance that a 
significant amount of costs would be excluded from recovery in 
customers' rates and did not protect against carriers' potential 
understatement of earnings and rates of return. In addition, many 
parties raised issues about the potential impact of the proposed above-
the-line accounting treatment on state cost issues and argued that the 
non-recovery commitment proposed by the ILECs was not sufficient to 
assure that the amortized costs, particularly the intrastate portion, 
would be excluded from cost recovery.
    Our review of the record finds that the parties have raised 
sufficient concerns that warrant our taking a cautious approach in this 
matter. We are concerned about assertions that the proposed accounting 
alternative set forth in the April 2000 FNPRM, along with the ILECs' 
non-recovery commitment, lacks the inherent protections that are 
provided for in the waiver process we approved in the December 1999 
Order (which was not published in Federal Register). In light of the 
concerns expressed by various parties, particularly our state 
colleagues, we decline to adopt the proposed alternative set forth in 
the April 2000 FNPRM and instead maintain the status quo.
    In making a decision here we weigh the concerns expressed by the 
states heavily in the balance. We are reluctant to take action that 
could unfairly burden state proceedings, particularly when our December 
1999 Order provides a waiver process whereby carriers may seek 
additional relief from our depreciation prescription rules in the 
future without raising such concerns. In 1997, the Common Carrier 
Bureau's auditors began an audit of the CPRs of the largest ILECs, the 
RBOCs, to determine if their records were being maintained in 
compliance with the Commission's rules and to verify that property 
recorded in their accounts represented equipment used and useful for 
the provision of telecommunications services.
    We note that the audits of the carriers' CPRs were initiated more 
than three years ago. The telecommunications landscape has changed 
significantly since that time. Among other things, in a recent decision 
issued on May 31, 2000, we adopted reforms intended to accelerate 
competition in the local and long distance telecommunications markets 
and set the appropriate level of interstate access charges for the next 
five years (``May 2000 Access Reform Order'') (which was not published 
in the Federal Register). Specifically, we provided for an immediate 
reduction in access charges paid by long distance companies and removed 
implicit subsidies found in interstate access charges by converting 
them into explicit, portable, universal service support. In earlier 
actions to implement the 1996 Act, we took steps to move the price of 
long distance companies' access to local telephone networks towards 
levels that reflect costs. These actions have brought about significant 
reductions in access charges and major changes in the interstate rate 
structure that resolve historically complex issues (some dating back 
nearly two decades), in a manner that benefits consumers.
    In light of these recent reform measures, which in large part are 
only beginning to get underway, and the fact that the CPR audits were 
conducted prior to our implementation of these various reforms, we now 
decide not to pursue further investigation into the CPR audits and 
close the proceeding with regard to whether the CPRs reflected assets 
that were not purchased or used by the RBOCs in accordance with our 
rules. Further, we note that although we have made no decision 
concerning the findings stated in the CPR audits, we recognize that 
further investigation into the CPR audit matter will require a great 
deal of time and effort, and could prove to be a lengthy and costly 
proceeding for all participants. We wish to make clear, however, that 
our decision in this order does not preclude the states from 
investigating relevant state issues raised by the CPR audits.
    Finally, while we decline here to further pursue investigation into 
the CPR audits with regard to whether the CPRs reflected assets that 
were not purchased or used by the RBOCs in accordance with our rules, 
we remain concerned about the poor record keeping that these audits 
revealed. The Commission's auditors found, and the RBOCs did not 
seriously challenge, that the CPRs were not well maintained. Thus, we 
find that the RBOCs' CPRs were not maintained in accordance with our 
rules. Accordingly, we direct the Common Carrier Bureau to work with 
the RBOCs to evaluate and improve the accuracy of their property 
records and accounts to ensure compliance with our requirements going 
forward.

Conclusion

    The alternative proposal set forth in the April 2000 FNPRM has 
generated substantial controversy over whether it provides the same 
protections as provided in the December 1999 Order given the expressed 
concerns of our state colleagues, we decline to adopt it. Carriers 
remain free to seek relief under the waiver approach adopted in the 
December 1999 Order to obtain freedom from the Commission's 
depreciation requirements. Moreover, we have determined not to pursue 
further investigation into whether the RBOCs' CPRs reflected assets 
that were not purchased or used by the RBOCs in accordance with our 
rules and hereby close the CPR audit proceedings in this respect.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 01-3117 Filed 2-8-01; 8:45 am]
BILLING CODE 6712-01-U