[Federal Register Volume 63, Number 205 (Friday, October 23, 1998)]
[Proposed Rules]
[Pages 56900-56903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28479]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32 and 43

[CC Docket No. 98-137; FCC 98-170]


Prescription of Interstate Depreciation Rates

AGENCY: Federal Communications Commission.

ACTION: Proposed rule, request for comments.

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SUMMARY: In this document, the Commission proposes to reduce or 
streamline further its depreciation prescription process by permitting 
summary filings and eliminating the prescription of depreciation rates 
for incumbent LECs, provided that the carrier uses depreciation factors 
that are within the ranges adopted by the Commission, expanding the 
prescribed range for the digital switching plant account, and 
eliminating salvage from the depreciation process. It also seeks 
comment on whether the Commission should permit carriers to set their 
own depreciation rates if they are willing to waive the automatic low-
end adjustment. These proposed modifications are designed to minimize 
the reporting burden on carriers and to provide incumbent LECs with a 
greater flexibility to adjust their depreciation rates while allowing 
the Commission to maintain adequate oversight. This NPRM seeks comment 
on whether the current procedures for protecting confidential 
information, are adequate or whether additional safeguards need to be 
adopted to protect information that carriers regard as confidential. 
The Commission invites commenters to submit information on the costs 
and benefits of the rules at issue in this proceeding and of its 
proposed modifications.

DATES: Comments are due on or before November 23, 1998 and reply 
comments are due on or before December 8, 1998. Written comments by the 
public on the modified information collections are due on or before 
November 23, 1998. Written comments must be submitted by the Office of 
Management and Budget (OMB) on the modified information collections on 
or before December 22, 1998.

ADDRESSES: One original and six copies of all comments and reply 
comments should be sent to the Commission's Secretary, Magalie Roman 
Salas, Office of the Secretary, Federal Communications Commission, 1919 
M Street, N.W., Room 222, Washington, D.C. 20554. All filings should 
refer to 1998 Biennial Regulatory Review--Review of Depreciation 
Requirements for Incumbent Local Exchange Carriers, CC Docket No. 98-
137, and FCC 98-170. Parties also may file comments electronically via 
the Internet at: <http://www.fcc.gov/e-file/ecfs.html>. Only one copy 
of an electronic submission must be submitted. In completing the 
transmittal screen, commenters should include their full name, Postal 
Service mailing address, and the docket number for this proceeding, 
which is CC Docket No. 98-137. Parties not submitting their comments 
via the Internet are also asked to submit their comments on diskette. 
Parties submitting diskettes should submit them to Ernestine Creech, 
Accounting Safeguards Division, 2000 L Street, N.W., Room 257, 
Washington, D.C. 20554. Such a submission should be on a 3.5 inch 
diskette formatted in an IBM compatible format using WordPerfect 5.1 
for Windows or compatible software. The diskette should be accompanied 
by a cover letter and should be submitted in ``read only'' mode. The 
diskette should be clearly labelled with the party's name, proceeding 
(including the docket number in this case, CC Docket No. 98-137), type 
of pleading (comment or reply comment), date of submission, and the 
name of the electronic file on the diskette. Each diskette should 
contain only one party's pleadings, preferably in a single electronic 
file. In addition, parties must send copies to the Commission's copy 
contractor, International Transcription Service, Inc., 1231 20th 
Street, N.W., Washington, D.C. 20037. In addition to filing comments 
with the Secretary, a copy of any comments on the information 
collections contained herein should be submitted to Judy Boley, Federal 
Communications Commission, Room 234, 1919 M Street, N.W., Washington, 
DC 20554, or via the Internet to [email protected], and to Timothy Fain, 
OMB Desk Officer, 10236 NEOB, 725--17th Street, N.W., Washington, DC 
20503 or via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: Thomas G. David, Attorney, Common 
Carrier Bureau, Accounting Safeguards Division, (202) 418-7116, or via 
the Internet at [email protected], or Wade Herriman, Common Carrier 
Bureau, Accounting Safeguards Division, (202) 418-0862. For additional 
information concerning the information collections contained in this 
NPRM contact Judy Boley at (202) 418-0214, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
document released on October 14, 1998. The full text of this document 
is available for public inspection during regular business hours in the 
FCC Reference Center, Room 239, 1919 M Street, N.W., Washington, D.C. 
20554. An electronic copy of the document also may be found on the 
Commission's Web Page at <www.fcc.gov/ccb/XXXXXXX.pdf>.

Paperwork Reduction Act

    This NPRM contains a modified information collection. The 
Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public and the Office of Management and 
Budget (OMB) to comment on the information collections contained in 
this NPRM, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. Public and agency comments are due at the same time as 
other comments on this NPRM; OMB notification of action is due December 
22, 1998. Comments should address: (a) whether the proposed collection 
of information is necessary for the proper performance of the functions 
of the Commission, including whether the information shall have 
practical utility; (b) the accuracy of the Commission's burden 
estimates; (c) ways to enhance the quality, utility, and clarity of the 
information collected; and (d) ways to minimize the burden of the 
collection of information on the respondents, including the use of 
automated collection techniques or other forms of information 
technology.
    OMB Approval Number: 3060-0168.
    Title: Reports of Proposed changes in Depreciation Rates--Section 
43.43.
    Type of Review: Proposed Revision of Existing Collection.

[[Page 56901]]

    Respondents: Business or other for profit.
    Number of Respondents: 11.
    Estimated Time per Response: 6000.
    Total Annual Burden: 66,000 Burden Hours.
    Estimated Cost Per Respondent: $0.
    Needs and Uses: In this NPRM the Commission proposes to reduce or 
streamline further its depreciation prescription process by permitting 
summary filings and eliminating the prescription of depreciation rates 
for incumbent LECs, provided that the carrier uses depreciation factors 
that are within the ranges adopted by the Commission, expanding the 
prescribed range for the digital switching plant account, and 
eliminating salvage from the depreciation process. It also seeks 
comment on whether carriers should be allowed to set their own 
depreciation rates.

Background

    1. Section 11 of the Communications Act requires the Commission, in 
every even-numbered year beginning in 1998, to review its regulations 
applicable to providers of telecommunications service to determine 
whether the regulations are no longer necessary in the public interest 
as a result of meaningful economic competition between providers of 
such service and whether such regulations should be repealed or 
modified.
    2. Although price caps regulation largely eliminated the direct 
link between costs and prices, a carrier's depreciation remains 
significant, even under current price cap rules, in the following 
situations: (1) a calculation of a low-end adjustment; (2) a 
recalculation of the productivity factor; (3) an exogenous cost 
determination; (4) a calculation of the Base Factor Portion that is 
used to determine how much a carrier can recover through End User 
Common Line charges; or (5) the cost support a carrier would have to 
provide if it proposed an Actual Price Index (``API'') higher than its 
Price Cap Index (``PCI''). In addition to these price cap effects, 
changes in depreciation expense may also affect prices or federal 
support payments through new mechanisms created to implement the 
Telecommunications Act of 1996. For example, the Commission required 
incumbent LECs to use depreciation factors within the FCC authorized 
ranges when calculating forward-looking economic costs for universal 
service high cost loop support purposes. Also, state commissions have 
required incumbent LECs to use interstate depreciation rates or life 
and salvage factors developed during the Commission's depreciation 
prescription process when calculating rates for interconnection or 
unbundled network elements. Finally, depreciation may play a role in a 
takings claim under the Fifth Amendment.

Issue for Comment

    3. In this NPRM, the Commission seeks comment on conditions under 
which carriers could set their own depreciation rates without 
compromising the Commission's oversight, even in the absence of full 
competition. In addition, the document proposal several options for 
streamlining these depreciation rules by eliminating all unnecessary 
regulatory requirements. The Commission invites commenters to submit 
information on the costs and benefits of the rules at issue in this 
proceeding and of the proposed modifications to those rules.
    4. The Commission seeks comment on BellSouth's proposal that 
carriers be allowed to set their own depreciation rates on the 
condition that they not seek an automatic low-end adjustment. The 
Commission also seeks comment on what additional conditions could be 
imposed to eliminate the need for depreciation prescription in the 
other contexts upon which the Commission relies on it. If the 
Commission can identify conditions that would eliminate the need for it 
to prescribe depreciation in the remaining situations identified in 
this document, the Commission proposes to allow carriers to set their 
own depreciation rates.
    5. In the event that the Commission continues to set some 
depreciation rates for some carriers, it tentatively concludes that the 
depreciation prescription requirements for incumbent LECs subject to 
the depreciation prescription process should be further streamlined by 
doing the following: (1) reducing the supporting documentation required 
for carriers selecting depreciation factors from within the prescribed 
ranges; (2) eliminating depreciation prescription for carriers that 
select depreciation factors within the ranges; (3) expanding the range 
of lives for digital electronic switching equipment; and (4) 
eliminating net salvage from the depreciation prescription process.

Filing and Prescription Procedures

    6. In this NPRM, the Commission proposes to reduce filings to four 
summary exhibits and the electronic data files used to generate them, 
provided carriers select depreciation factors from within the ranges 
and certify that their selections are consistent with their operations. 
The four summary exhibits are a comparison of existing and proposed 
depreciation rates; a comparison of existing and proposed annual 
depreciation expenses; a book and theoretical reserve summary; and the 
depreciation factors. The Commission further proposes that, if a 
carrier selects depreciation factors from within the ranges for all of 
its accounts, the Commission would permit the rates to go into effect 
without a prescription order. The Commission believes that its proposal 
to eliminate its prescription of depreciation rates under these 
conditions will save time and resources for both the Commission and 
incumbent LECs. It seeks comment on this proposal and on SBC's proposal 
that the Commission remove itself completely from the prescription of 
depreciation rates for price cap carriers.

Equipment Life Ranges

    7. The Commission expects that the retirement rates for the digital 
switching will continue to increase and therefore we propose to expand 
the range for digital switching equipment from a range of 16 to 18 
years to a wider range of 13 to 18 years. The Commission's proposal 
will permit a carrier that can support life estimates between 13 and 16 
years to select a new life estimate without an out-of-range filing. It 
requests comment on this proposal. The Commission has concluded that, 
except for the digital switching equipment account, it has no evidence 
indicating that the current ranges are either too long or too short. 
The Commission asks whether the ranges for any of the accounts other 
than digital switching require revision. Commenters proposing range 
changes should propose specific new ranges and should provide 
justifications for their proposals. The Commission also requests 
comment about whether the Commission's existing confidentiality 
procedures, contained in 47 CFR 0.457 and 0.459 of the Commission's 
rules, are adequate or whether additional safeguards need to be adopted 
to protect information that carriers regard as confidential.

Proposed Treatment for Salvage and Cost of Removal

    8. In order to calculate net salvage, carriers must estimate both 
gross salvage and cost of removal. Given the speculative nature of 
these estimates and the burdens associated with their calculation, the 
Commission tentatively concludes that the prescription of net salvage 
no longer serves a regulatory purpose and that eliminating that factor 
from the depreciation prescription formula would significantly reduce 
the regulatory burden of the depreciation

[[Page 56902]]

prescription process. Accordingly, the Commission proposes to eliminate 
the future net salvage factor from the depreciation formula and to 
record salvage and cost of removal as a current expense in the period 
incurred. Alternatively, the Commission could make the elimination of 
salvage from the depreciation formula optional, allowing each incumbent 
LEC the option to treat net salvage as either a current expense or a 
component of depreciation. The Commission seeks comment on these 
proposals.
    9. In commenting on the proposed removal of net salvage from the 
depreciation process, commenters should address the effect this change 
could have on the current depreciation rates, whether new rates should 
be prescribed, whether the elimination of salvage would require 
adjustment of depreciation reserves, and what accounting changes would 
be necessary to effectuate the change.
    10. The Commission tentatively concludes that, if it removes net 
salvage from the depreciation process, it should create a new account, 
Account 6566, Net cost of removal, to record both salvage receipts and 
removal costs incurred. The Commission also tentatively concludes that 
it should revise Secs. 32.3100, Accumulated depreciation, and 32.2000, 
Instructions for telecommunications plant accounts, to eliminate the 
provisions that salvage and cost of removal be recorded in the 
depreciation reserve account. The Commission requests comment on the 
tentative conclusions. The Commission also requests comment on whether 
it should require carriers to keep subsidiary record categories in 
Account 6566 for salvage and cost of removal.

Reporting Requirements for Mid-Sized LECs

    11. In separate proceedings on ARMIS and Accounting Biennial 
Review, the Commission proposes to create a category of mid-sized 
incumbent LECs that would be subject to a lighter regulatory burden 
than would be imposed on large incumbent LECs. Similarly, the 
Commission proposes in this proceeding, in addition to the streamlined 
processes proposed for all carriers, that mid-sized incumbent LECs not 
be required to file annual theoretical reserve studies. Because the 
Commission would continue to receive theoretical reserve studies from 
the largest incumbent LECs, which represent over 90 percent of the 
industry, this proposal would relieve these mid-sized companies of this 
regulatory burden without seriously encumbering the Commission's 
ability to monitor its depreciation prescription process. See 47 CFR 
43.43. To avoid unnecessary complexity, the Commission tentatively 
concludes that it should apply the definition of mid-sized LEC that is 
adopted in the ARMIS proceeding 1 to the Commission's 
depreciation prescription requirements. The Commission requests 
comments on this proposal.
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    \1\ ARMIS NPRM at 7. In that proceeding, we propose to 
streamline the depreciation prescription process for certain mid-
sized incumbent LECs based on the aggregate revenues of the 
incumbent LEC and any LEC that it controls, is controlled by, or is 
under common control with another LEC. If the aggregate revenues of 
these affiliated incumbent LECs are less than $7 billion, then each 
LEC within that group would be eligible to not file annual 
theoretical reserve studies. Incumbent LECs with individual annual 
operating revenues below the indexed revenue threshold would 
continue to be exempt from the Commission's depreciation 
prescription process.
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Low-End Adjustment

    12. The Commission seeks comment on whether it should permit 
carriers to set their own depreciation rates, as proposed by several 
incumbent LECs, or alternatively, whether such carriers should be 
permitted to do so only on the condition that they become ineligible 
for a low-end adjustment.

Conclusion

    13. The Commission tentatively concludes that the elimination of 
depreciation regulation at this time would have an adverse impact in 
several critical areas, including the calculation of universal service 
high cost loop support, takings claims, and the low-end adjustment. The 
Commission tentatively concludes that, if adopted, our proposal would 
eliminate all unnecessary depreciation prescription requirements and 
retain only those essential to the sound administration of the 
universal service high cost loop support and the achievement of the 
Commission's other regulatory goals. The Commission seeks comment on 
this tentative conclusion and solicits comment on SBC's alternative 
proposal that depreciation rates for price cap carriers should be based 
on ``economic analysis consistent with the procedures called for by 
Generally Accepted Accounting Principles (``GAAP'').'' The Commission 
also seeks comment on how it should determine when sufficient 
competition exists to allow it to eliminate the depreciation 
prescription process.

Procedural Issues

Ex Parte Presentations

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

Regulatory Flexibility Analysis

    15. The Regulatory Flexibility Act (``RFA'') requires that an 
initial regulatory flexibility analysis be prepared for notice-and-
comment rulemaking proceedings, unless the agency certifies that ``the 
rule will not, if promulgated, have a significant economic impact on a 
substantial number of small entities.'' See 5 U.S.C. Sec. 601 et seq., 
amended by the Contract With America Advancement Act of 1996, Public 
Law 104-121, 110 Stat. 847 (1996) (``CWAAA''). The RFA generally 
defines ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' 2 In addition, the term ``small business'' 
has the same meaning as the term ``small business concern'' under the 
Small Business Act. 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''). See 15 U.S.C. 632.
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    \2\ Id. Sec. 601(6).
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    16. This NPRM proposes to eliminate the prescription of 
depreciation rates for incumbent LECs in most cases, expand the 
prescribed range for the digital switching plant account, and eliminate 
salvage from the depreciation process. This NPRM also asks whether we 
should permit carriers to set their own depreciation rates if they are 
willing to waive their right to a low-end adjustment. The NPRM proposes 
to further reduce the reporting requirements for certain mid-sized 
incumbent LECs by eliminating their obligation to file an annual 
theoretical reserve study. Neither the Commission nor SBA has developed 
a definition of ``small entity'' specifically applicable to LECs. The 
closest definition under SBA rules is that for establishments providing 
``Telephone Communications, Except Radiotelephone,'' which is Standard 
Industrial Classification (``SIC'') code 4813. Under this definition, a 
small entity is one that, including affiliates of the entity, employs 
no more than 1,500 persons. See 13 CFR 121.201, SIC code 4813.
    17. The Commission certifies that the proposals in this NPRM, if 
adopted, will not have a significant economic impact

[[Page 56903]]

on a substantial number of small entities. Pursuant to long-standing 
rules, incumbent LECs with annual operating revenues exceeding the 
indexed revenue threshold must comply with the Commission's 
depreciation prescription process. This NPRM proposes to reduce certain 
of these depreciation requirements. These changes should be easy and 
inexpensive for incumbent LECs to implement and will not require costly 
or burdensome procedures. The Commission therefore expects that the 
potential impact of the proposal rules, if such are adopted, will be 
beneficial and will not amount to a possible significant economic 
impact on affected entities. If commenters believe that the proposals 
discussed in the NPRM require additional RFA analysis, they should 
include a discussion of these issues in their comments.
    18. The Commission's Office of Public Affairs, Reference Operations 
Division, will send a copy of this NPRM, including this initial 
certification, to the Chief Counsel for Advocacy of the Small Business 
Administration.

Ordering Clauses

    19. Accordingly, it is ordered that, pursuant to Sections 1, 4, 11, 
201-205, 215, 218, 220 and 403 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 154, 161, 201-205, 215, 218, 220 and 403 that 
notice is hereby given of proposed amendments to Parts 32 and 43 of the 
Commission's rules, 47 CFR Parts 32 and 43, as described in this Notice 
of Proposed Rulemaking.
    20. It is further ordered that the Commission's Office of Public 
Affairs, Reference Operations Division, shall send a copy of this 
Notice of Proposed Rulemaking, including the Initial Regulatory 
Flexibility Certification, to the Chief Counsel for Advocacy of the 
Small Business Administration.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-28479 Filed 10-22-98; 8:45 am]
BILLING CODE 6712-01-P