[Federal Register Volume 64, Number 178 (Wednesday, September 15, 1999)]
[Rules and Regulations]
[Pages 50002-50009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23304]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 43 and 64

[CC Docket No. 98-81, ASD File No. 98-64, CC Docket No. 96-150, RM-
9341, FCC 99-106]


1998 Biennial Regulatory Review--Review of Accounting and Cost 
Allocation Requirements

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document streamlines the accounting requirements for mid-
sized incumbent local exchange carriers (LECs) whose aggregate annual 
revenues are less than $7 billion by allowing these companies, 
currently required to use Class A accounts, to use the more streamlined 
Class B accounts. The Commission also permits the mid-sized incumbent 
LECs to submit their cost allocation manuals (CAMs) based on the Class 
B system of accounts. In addition, mid-sized incumbent LECs will now 
only be required to obtain an attestation every two years, instead of 
an annual financial audit requiring a positive opinion. The Commission 
also eliminates several accounting requirements for all incumbent LECs. 
The Commission's objective in modifying the accounting and cost 
allocation rules is to minimize the reporting burden on incumbent LECs 
and improve the quality of the reported information.

DATES: This rule is effective November 15, 1999, except Sec. 32.2000(b) 
which contains information collection requirements and will not become 
effective until approved by the Office of Management and Budget. The 
Commission will publish a document announcing the effective date of 
this section.

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

FOR FURTHER INFORMATION CONTACT:
Mika Savir, Legal Branch, Accounting Safeguards Division, Common 
Carrier Bureau at (202) 418-0384 or Andy Mulitz, Chief, Legal Branch, 
Accounting Safeguards Division, Common Carrier Bureau at (202) 418-
0827.

SUPPLEMENTARY INFORMATION: This Report and Order in CC Docket No. 98-
81, ASD File No. 98-64, CC Docket No. 96-150, RM-9341, adopted on May 
18, 1999 and released on June 10, 1999, is available for inspection and 
copying during normal business hours in the FCC Reference Information 
Center (RIC), 445 12th Street, SW, TW-A325, Washington, D.C. 20554. The 
complete text may be purchased from the Commission's copy contractor, 
International Transcription Service, Inc., 1231 20th Street, N.W., 
Washington, D.C. 20036, (202) 857-3800.

Synopsis of Report and Order

I. Background

    1. As part of the biennial review under section 11 of the 
Communications Act, the Commission proposed to raise the threshold 
significantly for required Class A accounting, allowing mid-sized

[[Page 50003]]

incumbent LECs currently required to use Class A accounts to use the 
more streamlined Class B accounts. In addition, the Commission proposed 
to establish less burdensome CAM procedures for the mid-sized incumbent 
LECs and to reduce the frequency with which independent audits of the 
cost allocations based upon the CAMs are required. The Commission also 
proposed several changes to the Uniform System of Accounts (USOA) to 
reduce accounting requirements and to eliminate or consolidate accounts 
for all carriers. Finally, the Commission sought proposals for other 
accounts or filing requirements that could be reduced or eliminated.

II. Report and Order

A. Revenue Threshold for Determining Level of Reporting for Mid-Sized 
Incumbent LECs

    2. Under the Commission's rules there are two classes of incumbent 
LECs for accounting purposes: Class A and Class B. Carriers with annual 
operating revenues from regulated telecommunications operations equal 
to or above a designated indexed revenue threshold, currently $112 
million, are classified as Class A; those with annual operating 
revenues below the threshold are considered Class B. Generally, Class A 
accounts provide more detailed records of investment, expense, and 
revenue than the Class B accounts. In the Notice of Proposed Rulemaking 
(NPRM), 63 FR 45208 (Aug. 25, 1998), the Commission proposed to 
streamline accounting requirements for certain mid-sized incumbent LECs 
based on the aggregate revenues of the LEC and any LEC that it 
controls, is controlled by, or with which it is under common control. 
The Commission proposed that if the aggregate revenues of these 
affiliated incumbent LECs are less than $7 billion, then each incumbent 
LEC within that group would be eligible for Class B accounting, even if 
the annual operating revenue of any individual incumbent LEC equals or 
exceeds $112 million. The Commission adopts the proposal in the NPRM. 
Among incumbent LECs, this revision would limit Class A accounting to 
the Bell operating companies (BOCs) and GTE. All other incumbent LECs 
may use the Class B system of accounts. Carriers that qualify for Class 
B accounting may, at their discretion, maintain a Class A accounting 
structure upon the submission of written notification to the 
Commission. See 47 CFR 32.11.
    3. Pole Attachment Fees. In reviewing the rates charged by 
incumbent LEC owners of poles, ducts, conduits and rights-of-way, the 
Commission applies data taken from the Automated Reporting Management 
Information Systems (ARMIS) reports. Under the Class B accounting 
structure adopted for mid-sized incumbent LECs, detailed accounts 
needed to calculate pole attachment fees using the pole attachment 
formulas would no longer be reported in their ARMIS reports. Mid-sized 
incumbent LECs are therefore required to maintain subsidiary record 
categories to provide the pole attachment data currently provided in 
the Class A accounts, and must report the information necessary for the 
Commission to calculate pole attachment rates based on their ARMIS 
reports.
    4. Application of Threshold. In the NPRM, the Commission proposed 
eliminating the difference between the application of the indexed 
revenue threshold for Parts 32 and 64 because the difference provided 
unnecessary complexity. The Commission adopts the proposal and 
eliminates the difference between the application of the indexed 
revenue threshold for Part 32 and 64 cost allocation purposes. Carriers 
will be classified as Class A or Class B at the start of the calendar 
year following the first time their annual operating revenues equal or 
exceed the indexed revenue threshold. The $7 billion threshold will not 
be indexed for inflation annually, but instead will be a fixed 
threshold that the Commission will monitor on a regular basis. If the 
Commission determines that the $7 billion threshold is no longer 
appropriate due to inflation or any other change in market conditions, 
it will revise the threshold to reflect those changes.

B. Reduced Cost Allocation Manual Procedures for Mid-Sized Incumbent 
LECs

    5. In the NPRM, the Commission proposed to reduce CAM requirements 
for mid-sized incumbent LECs. The proposal would allow these companies 
to submit their CAMs based upon the Class B system of accounts and 
would relax the current annual audit requirements for cost allocations 
related to the CAM by permitting mid-sized incumbent LECs to obtain an 
attestation every two years. Each such attestation would cover the 
previous two years. The Commission adopts this proposal. Mid-sized 
incumbent LECs may submit their CAMs based upon the Class B system of 
accounts. The Commission also concludes that mid-sized incumbent LECs 
may obtain an audit every two years, instead of an annual financial 
audit requiring a positive opinion.

C. Revising the Uniform System of Accounts for All Carriers

    6. Combining Accounts 2114, 2115, and 2116, 47 CFR 32.2114-32.2116. 
In the Notice, the Commission proposed combining Account 2114, Special 
purpose vehicles, Account 2115, Garage work equipment, and Account 
2116, Other work equipment, into a single new account. The assets 
recorded in these accounts are similar in nature, have similar 
prescribed depreciation rates, and are treated identically under the 
jurisdictional separations rules set forth in Part 36 of the 
Commission's rules. The Commission adopts this proposal and combines 
these accounts into a single account entitled Account 2114, Tools and 
other work equipment.
    7. Combining Accounts 6114, 6115, and 6116, 47 CFR 32.6114-32.6116. 
In the Notice, the Commission proposed combining Account 6114, Special 
purpose vehicles expense, Account 6115, Garage work equipment expense, 
and Account 6116, Other work equipment expense, into a single new 
account entitled Account 6114, Tools and other work equipment expense. 
The Commission concludes that these accounts should be combined into a 
single account because combining these accounts would reduce the 
carriers' accounting and reporting burdens, would not affect the 
amounts separated between the interstate and intrastate jurisdictions, 
and would not affect our ability to protect the public interest. The 
Commission adopts this proposal and combines these accounts into a 
single account entitled Account 6114, Tools and other work equipment 
expense.
    8. Accounting for Nonregulated Revenues. In the Notice, the 
Commission proposed amending Secs. 32.23(c) and 32.5280, 47 CFR 
32.23(c) and 32.5280, to allow carriers to record revenues from all 
nonregulated activities in Account 5280, Nonregulated operating 
revenue. Such an amendment would modify the current rule that instructs 
carriers to record revenue from nonregulated activities in Account 5280 
only if there is no other operating revenue account to which the 
revenue relates. The Commission concludes that combining revenues for 
all nonregulated activities into one account would continue to protect 
the public interest by ensuring that nonregulated revenues are 
segregated from the carriers' regulated revenues. Therefore, the 
Commission eliminates Account 5010 and revises the language in sections 
32.23(c) and 32.5280(a), to require that all

[[Page 50004]]

nonregulated revenues be recorded in Account 5280.
    9. Revision to Section 32.16, Changes in Accounting Standards. 
Section 32.16 of the Commission's rules, 47 CFR 32.16, requires 
carriers to revise their records and accounts to reflect new accounting 
standards prescribed by the Financial Accounting Standards Board 
(FASB). This section provides that Commission approval of a change in 
an accounting standard shall automatically take effect 90 days after a 
carrier notifies the Commission of its intention to follow a new 
standard. In the notification to the Commission, carriers are required 
to provide a revenue requirement study that analyzes the effects of the 
accounting change for the current year and a projection for three years 
into the future. In the Notice, the Commission proposed to relieve 
carriers of the requirement to file the projected future effects of an 
accounting change in their notifications. The Commission adopts this 
proposal. If projections are needed in the future, the Commission will 
obtain them on an ad hoc basis.
    10. Revision to Section 32.2000(b), Telecommunications Plant 
Acquired. Section 32.2000(b)(4) of the Commission's rules, 47 CFR 
32.2000(b)(4), requires carriers to submit for Commission approval the 
journal entries made to record acquisitions from other entities of 
telecommunications plant that cost more than $1 million for Class A 
carriers and $250,000 for Class B carriers. In the NPRM, the Commission 
proposed to eliminate this filing requirement. The Commission concludes 
that this requirement, which was established to ensure that plant 
acquired from other carriers is recorded at original cost as required 
in section 32.2000(b), is no longer necessary. The Commission adopts 
the proposal in the NPRM and eliminates the requirement for routine 
filing of these journal entries.

D. Order on Reconsideration in CC Docket No. 96-150--Section 274(f) 
Reporting Requirements

    11. In the Accounting Safeguards Order, the Commission addressed 
the accounting safeguards necessary to satisfy the requirements of 
sections 260 and 271 through 276 of the Communications Act. Section 
274(a) prohibits any ``Bell operating company or any affiliate [from] 
engag[ing] in the provision of electronic publishing that is 
disseminated by means of such Bell operating company's or any of its 
affiliates' basic telephone service,'' other than through ``a separated 
affiliate or electronic publishing joint venture.'' 47 U.S.C. 274(a). 
Section 274(f) establishes a reporting requirement for separate 
electronic publishing affiliates created pursuant to section 274. 47 
U.S.C. 274(f). In the Accounting Safeguards Order, the Commission 
concluded that those section 274 affiliates that already file an SEC 
Form 10-K must file a copy with this Commission and section 274 
affiliates that were not required to file a Form 10-K with the SEC, 
must file an identical form with this Commission. SBC Communications, 
Inc. (SBC) filed a Petition for Reconsideration of the Accounting 
Safeguards Order, asserting, among other things, that a simplified 
report for ``separated entities'' not already subject to the SEC's Form 
10-K requirements will satisfy the intent of section 274(f) because the 
phrase ``substantially equivalent,'' as used in the statute, does not 
mean ``identical.''
    12. The SEC Form 10-K is a voluminous report that contains a 
description of the company filing the report and its operations, 
financial statements with supporting financial data and major legal and 
financial disclosures concerning the company. The SEC Form 10-K is 
comprised of the following items: Item 1, Business; Item 2, Properties; 
Item 3, Legal Proceedings; Item 4, Submission of Matters to a Vote of 
Security Holders; Item 5, Market for Registrant's Common Equity and 
Related Stockholder Matters; Item 6, Selected Financial Data; Item 7, 
Management's Discussion and Analysis of Financial Condition and Results 
of Operations; Item 8, Financial Statements and Supplementary Data; 
Item 9, Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure; Item 10, Directors and Executive Officers of the 
Registrant; Item 11, Executive Compensation; Item 12, Security 
Ownership of Certain Beneficial Owners and Management; Item 13, Certain 
Relationships and Related Transactions; and Item 14, Exhibits, 
Financial Statement Schedules and Reports on Form 8-K. The SEC also has 
a limited version of the Form 10-K for wholly owned subsidiaries. The 
limited version of the Form 10-K omits Items 4, 10, 11, 12, and 13. The 
limited version also streamlines Items 6 and 7.
    13. The Commission concludes that the information contained in the 
limited version of SEC Form 10-K, with certain modifications, is 
sufficient to monitor the electronic publishing affiliate's compliance 
with the section 274 requirements. The Commission modifies the limited 
Form 10-K filing requirements to exclude Item 5 and include Item 10. 
Item 5 is related to stockholder matters that are not relevant to 
section 274. The Commission retains Item 10 for section 274 affiliates 
because Item 10 contains information on directors and officers that 
would assist in monitoring the prohibition against sharing directors 
and officers.

E. Accounting for Computer Software Costs

    14. Generally accepted accounting principles (GAAP). Since 1985, 
the Commission has followed a policy of conforming regulatory 
accounting for carriers to GAAP, unless the principle or practice 
conflicts with the Commission's regulatory objectives. Accordingly, 
several parties have taken the Commission up on its request for the 
submission of additional proposals for accounting changes by suggesting 
the adoption of GAAP accounting in lieu of current Commission 
accounting for various purposes. While a wholesale replacement of the 
Commission's accounting rules with GAAP is not warranted at this time, 
the Commission modifies the accounting rules relating to the use of 
GAAP in one respect in this Report and Order. On March 4, 1998, the 
American Institute of Certified Public Accountants issued Statement of 
Position 98-1 (``SOP 98-1'') to provide authoritative guidance on 
accounting for the costs of computer software effective for financial 
statements for fiscal years beginning after December 15, 1998. See 
American Institute of Certified Public Accountants (AICPA) Statement of 
Position 98-1, Accounting for the Costs of Computer Software Developed 
or Obtained for Internal Use, Issued by the Accounting Standards 
Executive Committee, March 4, 1998, at Summary. SOP 98-1 generally 
requires the capitalization of software costs. SOP 98-1 also requires 
the cost of upgrades and enhancements to be capitalized if they result 
in additional functionality. Petitioners requested that the Commission 
amend the existing Part 32 rules in order to accommodate this recent 
change in GAAP and change its rules governing the treatment of software 
costs to conform with SOP 98-1. The Commission concludes that the facts 
and circumstances differ in each situation regarding types of software, 
and thus, it would not be appropriate to adopt a rule strictly 
requiring all software costs to be capitalized to a plant account or an 
intangible account. Instead, the Commission finds that SOP 98-1 and 
current authoritative accounting guidance (i.e., GAAP) are sufficient 
to determine whether capitalizable software costs should be treated as 
an intangible asset recorded in the intangible asset account or treated 
as a tangible asset classified to the same account as the associated 
hardware. Accordingly, the Commission holds that all carriers must now 
account for

[[Page 50005]]

computer software costs in accordance with GAAP.
    15. In order to monitor the recording and reporting of 
capitalizable software costs in the intangible asset account for 
regulatory purposes, the Commission requires that carriers establish 
and maintain subsidiary record categories for general purpose computer 
(``GPC'') software and network software within the intangible asset 
account. The cost of software upgrades and enhancements will continue 
to be expensed or capitalized in accordance with GAAP. The Commission 
will also allow non-price cap carriers to capitalize software upgrades 
and enhancements that may cause large one-time expense ``spikes'' 
regardless of whether such upgrades or enhancements result in 
additional functionality required for capitalization under SOP 98-1.

III. Conclusion

    16. In this Report and Order, the Commission streamlines the 
accounting requirements for mid-sized incumbent LECs whose aggregate 
revenues are less than $7 billion. The Commission also permits mid-
sized incumbent LECs to submit their CAMs based on the Class B system 
of accounts. Mid-sized incumbent LECs will also be required to obtain 
an attestation every two years instead of an annual financial audit 
requiring a positive opinion. The Commission reduces or eliminates a 
number of accounting requirements for all carriers subject to the 
Commission's accounting rules. In addition, the Commission modifies the 
holding in the Accounting Safeguards Order and concludes that the 
information contained in the limited version of the SEC Form 10-K, with 
certain modifications, is sufficient to monitor electronic publishing 
affiliates' compliance with the section 274 requirements. Finally, the 
Commission amends the requirements regarding the accounting for 
computer software costs: the cost of all software must be recorded in 
conformance with GAAP.

IV. Procedural Issues

A. Regulatory Flexibility Act

    17. Final Regulatory Flexibility Certification--Report and Order in 
CC Docket No. 98-81, RM-9341. The Regulatory Flexibility Act (RFA), 5 
U.S.C. 601 et seq., amended by the Contract With America Advancement 
Act of 1996, Public Law 104-121, 110 Stat. 847 (1996) (CWAAA), requires 
that an agency prepare a regulatory flexibility analysis 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.'' 5 U.S.C. 605(b). In the 
NPRM, 1998 Biennial Regulatory Review--Review of Accounting and Cost 
Allocation Requirements, CC Docket No. 98-81, Notice of Proposed 
Rulemaking, 63 FR 45208 (Aug. 25, 1998) (NPRM), the Commission 
certified that the proposed rules would not have a significant economic 
impact on a substantial number of small entities because such rules 
would reduce certain reporting requirements for mid-sized incumbent 
local exchange carriers (ILECs) and the changes would be easy and 
inexpensive for mid-sized ILECs to implement. With respect to the 
Petition for Rulemaking filed by Bell Atlantic and BellSouth to amend 
the Commission's existing part 32 rules in order to accommodate recent 
changes in generally accepted accounting principles (GAAP), see 
Petition for Rulemaking to Amend Part 32 of the Commission's Rules, 
Uniform System of Accounts for Class A and Class B Telephone Companies, 
to Adopt the Accounting for Software Required by Statement of Position 
98-1, filed August 3, 1998, the Commission concluded in the Report and 
Order that all carriers must account for computer software costs in 
accordance with GAAP. See 47 CFR 32.12(a), requiring financial records 
to be ``kept in accordance with generally accepted accounting 
principles to the extent permitted by this system of accounts.'' This 
rule modification does not impose any additional compliance burden on 
small entities. No comments were received concerning this 
certification. The Commission now reaffirms this certification with 
respect to the rules adopted in this Report and Order. The Commission 
anticipates that the rule changes adopted here will reduce regulatory 
and procedural burdens on small entities. The rule modifications do not 
impose any additional compliance burden on persons dealing with the 
Commission, including small entities. Accordingly, the Commission 
certifies, pursuant to section 605(b) of the RFA, that the rules 
adopted herein will not have a significant economic impact on a 
substantial number of small business entities, as defined by the RFA.
    18. Supplemental Final Regulatory Flexibility Analysis--Order on 
Reconsideration in CC Docket No. 96-150. As required by the Regulatory 
Flexibility Act (RFA), as amended, 47 U.S.C. 603, a Final Regulatory 
Flexibility Analysis (FRFA) was incorporated into Accounting Safeguards 
under the Telecommunications Act of 1996, CC Docket No. 96-150, Report 
and Order, 62 FR 02918 (Jan. 21, 1997) (Accounting Safeguards Order).
    19. In the RFA, the Commission certified that the rules adopted in 
the Accounting Safeguards Order would not have a significant economic 
impact on a substantial number of small entities. For the reasons 
stated below, the Commission certifies that the rule adopted herein in 
this Order on Reconsideration will not have a significant economic 
impact on a substantial number of small entities. This Supplemental 
Final Regulatory Flexibility Analysis (Supplemental FRFA) conforms to 
the RFA, as amended by the Small Business Regulatory Enforcement 
Fairness Act of 1996 (SBREFA). 5 U.S.C. 601-611.
    20. Need for, and Objectives of, this Order on Reconsideration: In 
this Order on Reconsideration the Commission grants, in part, a 
petition for reconsideration regarding filing a ``substantially 
equivalent'' report for electronic publishing affiliates not already 
subject to Security and Exchange Commission (SEC) Form 10-K 
requirements. The Commission finds that the reporting requirements can 
be streamlined for such entities, and concludes that the information 
contained in the limited version of SEC Form 10-K, with certain 
modifications, will enable monitoring of electronic publishing 
affiliate's compliance with section 274 of the Communications Act. The 
Commission therefore permits the limited SEC Form 10-K, with the 
exclusion of Item 5 and inclusion of Item 10, to satisfy the section 
274 requirements for electronic publishing affiliates not already 
subject to SEC Form 10-K requirements.
    21. Summary of Significant Issues Raised by Reconsideration 
Petitions. No petitions were received in direct response to the FRFA in 
the Accounting Safeguards Order, nor were small business issues raised.
    22. Description and Estimate of the Number of Small Entities to 
which the Rules Will Apply. The RFA generally defines ``small entity'' 
as having the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' 5 U.S.C. 
Sec. 601(6). In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. 5 U.S.C. 601(3) (incorporating by reference the definition of 
``small business concern'' in Small Business Act, 15 U.S.C. 632). A 
small business concern is one which: (1) is independently owned and 
operated; (2) is not dominant in its field

[[Page 50006]]

of operation; and (3) satisfies any additional criteria established by 
the Small Business Administration (SBA). Small Business Act, 15 U.S.C. 
632. Section 121.201 of the SBA regulations defines a small 
telecommunications entity in SIC code 4812 (Telephone Companies Except 
Radio Telephone) as any entity with 1,500 or fewer employees at the 
holding company level. 13 CFR 121.201. As explained below, the terms 
``small entities'' and ``small businesses'' do not encompass the Bell 
operating companies (BOCs), the parties affected by this Order in 
Reconsideration.
    23. As noted in the associated Final Regulatory Flexibility 
Certification in CC Docket No. 96-150, the RFA directs agencies to 
provide a Regulatory Flexibility Analysis in 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.'' The Commission's action on 
reconsideration in CC Docket No. 96-150 affects only BOCs' affiliate 
entities engaged in electronic publishing. These rules do not apply to 
small entities because all entities subject to this rule are BOCs or 
entities associated or affiliated with BOCs. None of the BOCs is a 
small entity, since each BOC is an affiliate of a Regional Holding 
Company (RHC), and all the BOCs or their RHCs have more than 1,500 
employees. Moreover, the entities affected by this rule that are 
associated or affiliated with the BOCs are not independently owned and 
operated, and therefore do not meet the definition of small entities. 
The Commission therefore certifies that the SEC Form 10-K filing 
requirement adopted in this Order on Reconsideration will not have a 
significant economic impact on a substantial number of small entities.
    24. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements. As discussed above, in this Order on 
Reconsideration the Commission concludes that the information contained 
in the limited version of SEC Form 10-K, with the exclusion of Item 5 
and inclusion of Item 10, will satisfy the section 274 requirements for 
electronic publishing affiliates not already subject to SEC Form 10-K 
requirements. This reduces the reporting burden for BOC affiliates 
while providing sufficient information to the Commission to satisfy 
section 274 of the Communications Act.
    25. Report to Congress. The Commission's Office of Public Affairs, 
Reference Operations Division, shall provide a copy of this 
certification and Supplemental Final Regulatory Flexibility Analysis to 
the Chief Counsel for Advocacy of the SBA, and include it in the report 
to Congress. The certification and Supplemental Final Regulatory 
Flexibility Analysis will also be published in the Federal Register.

B. Paperwork Reduction Act

    26. Final Paperwork Reduction Act Analysis.

C. Authority

    This action is authorized under sections 1, 4, 11, 201-205, 215, 
218, 228, and 403 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154, 161, 201-205, 215, 218, 219, 220 and 403.

D. Ordering Clauses

    27. Accordingly, It is Ordered that, pursuant to Sections 1, 2, 4, 
11, 201-205, and 218-220 of the Communications Act of 1934, as amended, 
47 U.S.C. 151, 152, 154, 161, 201-205, and 218-220, Parts 32 and 64 of 
the Commission's rules, 47 CFR Parts 32 and 64, is Amended, as shown 
below. With the exception of 47 CFR 32.2000(b), these rule changes are 
effective six months after date of publication in the Federal Register. 
Affected parties may elect to implement the changes with respect to 
accounting for computer software costs effective January 1, 1999.
    28. 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 CFR 1.401, the 
Petition for Rulemaking of the United States Telephone Association is 
Granted to the extent indicated herein.
    29. 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 CFR 1.401, the 
Petition for Reconsideration of the Accounting Safeguards Order of SBC 
Communications, Inc. is granted in part and denied in part. This rule 
change regarding compliance with 47 U.S.C. 274 Electronic publishing by 
Bell Operating Companies is effective November 15, 1999.
    30. 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 CFR 1.401, the 
Petition for Rulemaking of Bell Atlantic and BellSouth is granted in 
part, to the extent indicated herein, and denied in part.
    31. It is further ordered that the Office of Public Affairs, 
Reference Operations Division, shall send a copy of this Report and 
Order, including this Final Regulatory Flexibility Certification and 
supplemental Final Regulatory Flexibility Analysis, to the Chief 
Counsel for Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 32

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone, Uniform system of accounts.

47 CFR Part 64

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Parts 32 and 64 of Title 47 of the CFR are amended to read as 
follows:

PART 32--UNIFORM SYSTEM OF ACCOUNTS FOR TELECOMMUNICATIONS 
COMPANIES

    1. 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.

    2. Section 32.11 is amended by revising paragraphs (b), (c), (d), 
and (e) to read as follows:


Sec. 32.11  Classification of companies.

* * * * *
    (b) Class A companies, except mid-sized incumbent local exchange 
carriers, as defined by Sec. 32.9000, shall keep all the accounts of 
this system of accounts which are applicable to their affairs and are 
designated as Class A accounts. Class A companies which include mid-
sized incumbent local exchange carriers shall keep Basic Property 
Records in compliance with the requirements of Secs. 32.2000(e) and (f) 
of this part.
    (c) Class B companies shall keep all accounts of this system of 
accounts which are applicable to their affairs and are designated as 
Class B accounts. Class B companies shall keep Continuing Property 
Records in compliance with the requirements of Secs. 32.2000(e)(7)(A) 
and 32.2000(f) of this part.
    (d) Class B companies and mid-sized incumbent local exchange 
carriers, as defined by Sec. 32.9000 of this part, that

[[Page 50007]]

desire more detailed accounting may adopt the accounts prescribed for 
Class A companies upon the submission of a written notification to the 
Commission. Mid-sized incumbent local exchange carriers shall maintain 
subsidiary record categories necessary to provide the pole attachment 
data currently provided in the Class A accounts.
    (e) The classification of a company shall be determined at the 
start of the calendar year following the first time its annual 
operating revenue from regulated operations equals, exceeds, or falls 
below the indexed revenue threshold.
    3. Section 32.16 is amended by revising paragraph (a) to read as 
follows:


Sec. 32.16  Changes in accounting standards.

    (a) The company's records and accounts shall be adjusted to apply 
new accounting standards prescribed by the Financial Accounting 
Standards Board or successor authoritative accounting standard-setting 
groups, in a manner consistent with generally accepted accounting 
principles. The change in an accounting standard will automatically 
take effect 90 days after the company informs this Commission of its 
intention to follow the new standard, unless the Commission notifies 
the company to the contrary. Concurrent with informing this Commission 
of its intent to adopt an accounting standards change, the company 
shall also file a revenue requirement study for the current year 
analyzing the effects of the accounting standards change. Furthermore, 
any change subsequently adopted shall be disclosed in annual reports to 
this Commission.
* * * * *
    4. Section 32.23 is amended by revising paragraph (c) to read as 
follows:


Sec. 32.23  Nonregulated activities.

* * * * *
    (c) When a nonregulated activity does involve the joint or common 
use of assets and resources in the provision of regulated and 
nonregulated products and services, carriers shall account for these 
activities within accounts prescribed in this system for telephone 
company operations. Assets and expenses shall be subdivided in 
subsidiary records among amounts solely assignable to nonregulated 
activities, amounts solely assignable to regulated activities, and 
amounts related to assets and expenses incurred jointly or in common, 
which will be allocated between regulated and nonregulated activities. 
Carriers shall submit reports identifying regulated and nonregulated 
amounts in the manner and at the times prescribed by this Commission. 
Nonregulated revenue items not qualifying for incidental treatment as 
provided in Sec. 32.4999(l) of this part, shall be recorded in separate 
subsidiary record categories of Account 5280, Nonregulated operating 
revenue. Amounts assigned or allocated to regulated products or 
services shall be subject to part 36 of this chapter.
    5. Section 32.2000 is amended by revising paragraph (a)(4) and 
removing and reserving paragraph (i) to read as follows:


Sec. 32.2000  Instructions for telecommunications plant accounts.

    (a) * * *
    (4) The cost of the individual items of equipment, classifiable to 
Accounts 2112, Motor vehicles; 2113, Aircraft; 2114, Special purpose 
vehicles; 2115, Garage work equipment; 2116, Other work equipment; 
2122, Furniture; 2123, Office equipment; 2124, General purpose 
computers, costing $2,000 or less or having a life of less than one 
year shall be charged to the applicable expense accounts, except for 
personal computers falling within Account 2124. Personal computers 
classifiable to Account 2124, with a total cost for all components of 
$500 or less, shall be charged to the applicable Plant Specific 
Operations Expense accounts. If the aggregate investment in the items 
is relatively large at the time of acquisition, such amounts shall be 
maintained in an applicable material and supplies account until items 
are used.


Sec. 32.2000  [Amended]

    6. Section 32.2000(b)(4) is removed.
    7. Section 32.2000(j) is amended by revising the table entry 
``Special Purpose vehicles'' to read ``Tools and other work equipment'' 
under the heading of Telecommunications Plant In Service (TPIS) and by 
removing the entries ``Garage work equipment 2115 and other work 
equipment 2116.''
    8. Section 32.2003(a) is revised to read as follows:


Sec. 32.2003  Telecommunications plant under construction.

    (a) This account shall include the original cost of construction 
projects (note also Sec. 32.2000(c)) of this part and the cost of 
software development projects that are not yet ready for their intended 
use.
* * * * *
    9. Section 32.2114 is revised to read as follows:


Sec. 32.2114  Tools and other work equipment.

    This account shall include the original cost of special purpose 
vehicles and the original cost of tools and equipment used to maintain 
special purpose vehicles and items included in Accounts 2112 and 2113. 
This account shall also include the original cost of power-operated 
equipment, general purpose tools, and other items of work equipment.


Sec. 32.2115  [Removed]

    10. Section 32.2115 is removed.


Sec. 32.2116  [Removed]

    11. Section 32.2116 is removed.
    12. Section 32.2124 is amended by removing and reserving paragraph 
(c) and revising paragraph (d) as follows:


Sec. 32.2124  General purpose computers.

* * * * *
    (d) This account does not include the cost of computers and their 
associated peripheral devices associated with switching, network 
signaling, network operations, or other specific telecommunications 
plant. Such computers and peripherals shall be classified to the 
appropriate switching, network signaling, network expense, or other 
plant account.
    13. Section 32.2311(d) is revised to read as follows:


Sec. 32.2311  Station apparatus.

* * * * *
    (d) Operator head sets and transmitters in central offices and at 
private branch exchanges, and test sets such as those used by wire 
chiefs, outside plant technicians, and others, shall be included in 
Account 2114, Tools and other work equipment, Account 2220, Operator 
systems, or Account 2341, Large Private Branch Exchanges, as 
appropriate.
* * * * *
    14. Section 32.2690(c) is revised to read as follows:


Sec. 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.
    15. Section 32.3500 is amended by revising paragraph (c) and adding 
paragraph (d) as follows:


Sec. 32.3500  Accumulated amortization--intangible.

* * * * *

[[Page 50008]]

    (c) When any item carried in Account 2690, other than software, is 
sold, relinquished, or 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 7360, Other 
Nonoperating Income.
    (d) When software that is classified to Account 2690 is sold, 
relinquished, or otherwise retired from service, this account shall be 
credited, and Account 6564, Amortization expense--intangible, shall be 
charged with the unamortized cost of the existing software.
    16. Section 32.4999(l) is revised and the table in paragraph (n) is 
amended by removing the entry ``Public telephone revenue 5010'' under 
the heading Local Network Services Revenues to read as follows:


Sec. 32.4999  General.

* * * * *
    (l) Nonregulated revenues. The nonregulated revenue account shall 
be used for nonregulated operating revenues when a nonregulated 
activity involves the common or joint use of assets or resources in the 
provision of regulated and nonregulated products or services as 
required in Sec. 32.23(c) of this subpart. Revenues from nontariffed 
activities offered incidental to tariffed services may be accounted for 
as regulated revenues, provided the activities are outgrowths of 
regulated operations and the revenues do not exceed, in the aggregate, 
one percent of total revenues for three consecutive years. Such 
activities must be listed in the Commission-approved Cost Allocation 
Manual for any company required to file a Cost Allocation Manual.


Sec. 32.5010  [Removed]

    17. Section 32.5010 is removed.
    18. Section 32.5280 is amended by revising paragraph (a) as 
follows:


Sec. 32.5280  Nonregulated operating revenue.

    (a) This account shall include revenues derived from a nonregulated 
activity involving the common or joint use of assets or resources in 
the provision of regulated and nonregulated products or services.
* * * * *
    19. Section 32.5999 is amended by revising the first sentence in 
paragraph (f)(5) and paragraph (h) is amended by revising the table 
entry ``Special purpose vehicles expense'' to ``Tools and other work 
equipment expense'' and removing the table entries ``Garage work 
equipment expense'' and ``Other work equipment expense'' under the 
Account title of Income Statement Accounts to read as follows:


Sec. 32.5999  General.

* * * * *
    (f) * * *
    (5) Clearances. This subsidiary record category shall include 
amounts transferred to Construction accounts (see 
Sec. 32.2000(c)(2)(iii)), other Plant Specific Operations Expense 
accounts and/or Account 3100, Accumulated Depreciation (cost of 
removal; see Sec. 32.2000(g)(1)(iii)), as appropriate, from Accounts 
6112, Motor Vehicles Expense, 6114, Tools and Other Work Equipment 
Expense, 6534, Plant Operations and Administration Expense, and 6535, 
Engineering Expense.
* * * * *
    20. Section 32.6110 is amended by revising paragraph (a) as 
follows:


Sec. 32.6110  Network support expenses.

    (a) This account number shall be used by Class A telephone 
companies to summarize for reporting purposes the contents of Accounts 
6112 through 6114. Class B telephone companies shall use this account 
for expenses of the type and character required of Class A companies in 
Accounts 6112 through 6114.
* * * * *
    21. Section 32.6114 is revised to read as follows:


Sec. 32.6114  Tools and other work equipment expense.

    (a) This account shall include costs incurred in connection with 
special purpose vehicles, garage work equipment and other work 
equipment included in Account 2114, Tools and other work equipment. 
This account shall be charged with costs incurred in connection with 
the work equipment itself. This account shall also include such costs 
as fuel, licenses and inspection fees, washing, repainting and minor 
accessories. The costs of using garage work equipment to maintain motor 
vehicles shall be charged to Account 6112, Motor vehicles expense. This 
account shall not be charged with the costs of operators of special 
purpose vehicles and other work equipment. The costs of operators of 
this equipment shall be charged to accounts appropriate for the 
activities performed.
    (b) Credits shall be made to this account for amounts related to 
special purpose vehicles and other work equipment transferred to 
Construction and/or to other Plant Specific Operations Expense 
accounts. These amounts shall be computed on the basis of direct labor 
hours. (See also Sec. 32.5999(f)(5).


Sec. 32.6115  [Removed]

    22. Section 32.6115 is removed.


Sec. 32.6116  [Removed]

    23. Section 32.6116 is removed.
    24. Section 32.6124 revised to read as follows:


Sec. 32.6124  General purpose computers expense.

    This account shall include the costs of personnel whose principal 
job is the physical operation of general purpose computers and the 
maintenance of operating systems. This excludes the cost of preparation 
of input data or the use of outputs which are chargeable to the 
accounts appropriate for the activities being performed. Also excluded 
are costs incurred in planning and maintaining application systems and 
databases for general purpose computers. (See also Sec. 32.6724, 
Information management.) Separately metered electricity for general 
purpose computers shall also be included in this account.
    25. Section 32.6724 is revised to read as follows:


Sec. 32.6724  Information management.

    This account shall include costs incurred in planning and 
maintaining application systems and databases for general purpose 
computers.
    26. Section 32.9000 is amended by adding the following definition 
in alphabetical order.


Sec. 32.9000  Glossary of terms.

* * * * *
    Mid-sized incumbent local exchange carrier is a carrier whose 
operating revenue equals or exceeds the indexed revenue threshold and 
whose revenue when aggregated with the revenues of any local exchange 
carrier that it controls, is controlled by, or with which it is under 
common control is less than $7 billion. Each of these local exchange 
carriers would be eligible for Class B accounting, except as noted in 
Sec. 32.11(b) and (d), even if the annual operating revenue of any 
individual local exchange carrier exceeds the indexed revenue threshold 
(see definition for indexed revenue threshold in this section).
* * * * *

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    27. The authority citation for part 64 continues to read as 
follows:

    Authority: 47 U.S.C. 10, 201, 218, 226, 228, 332, unless 
otherwise noted.


[[Page 50009]]


    28. Section 64.904 is amended by revising paragraph (a) and by 
redesignating paragraph (b) as paragraph (c) and a new paragraph (b) is 
added to read as follows:


Sec. 64.904  Independent audits.

    (a) With the exception of mid-sized local exchange carriers each 
local exchange carrier required to file a cost allocation manual, by 
virtue of having annual operating revenues that equal or exceed the 
indexed revenue threshold for a given year or by order by the 
Commission, shall have an audit performed by an independent auditor on 
an annual basis, with the initial audit performed in the calendar year 
after the carrier is first required to file a cost allocation manual. 
The audit shall provide a positive opinion on whether the applicable 
data shown in the carrier's annual report required by Sec. 43.21(e)(2) 
of this chapter present fairly, in all material respects, the 
information of the carrier required to be set forth therein in 
accordance with the carrier's cost allocation manual, the Commission's 
Joint Cost Orders issued in conjunction with CC Docket No. 86-111 and 
the Commission's Accounting Safeguards proceeding in CC Docket No. 96-
150 and the Commission's rules and regulations including Secs. 32.23 
and 32.27 of this chapter and Secs. 64.901 and 64.903 in force as of 
the date of the auditor's report. The audit shall be conducted in 
accordance with generally accepted auditing standards, except as 
otherwise directed by the Chief, Common Carrier Bureau.
    (b) A mid-sized incumbent local exchange carrier, as defined in 
Sec. 32.9000, required to file a cost allocation manual, shall have an 
attest engagement performed by an independent auditor every two years 
covering the two year period, with the initial engagement performed in 
the calendar year after the carrier is first required to file a cost 
allocation manual. The attest engagement shall be an examination 
engagement and shall provide a written communication that expresses an 
opinion that the results reported pursuant to Sec. 43.21(e)(2) of this 
chapter are an accurate application of the Commission's Joint Cost 
orders issued in conjunction with CC Docket No. 86-111 and the 
Commission's Accounting Safeguards proceeding in CC Docket No. 96-150 
and the Commission's rules and regulations including Secs. 32.23 and 
32.27 of this chapter and Secs. 64.901 and 64.903 in force as of the 
date of the auditor's written report. The written communication shall 
also express an opinion that the cost methodologies in place are in 
conformance with the cost allocation manual filed with the Commission. 
The attest engagement shall be conducted in accordance with the 
attestation standards established by the American Institute of 
Certified Public Accountants, except as otherwise directed by the 
Chief, Common Carrier Bureau.
* * * * *
[FR Doc. 99-23304 Filed 9-14-99; 8:45 am]
BILLING CODE 6712-01-P