[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