[Federal Register Volume 65, Number 60 (Tuesday, March 28, 2000)]
[Rules and Regulations]
[Pages 16328-16335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7598]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32 and 64

[CC Docket No. 99-253; FCC 00-78]


Comprehensive Review of the Accounting Requirements and ARMIS 
Reporting Requirements for Incumbent Local Exchange Carriers: Phase 1

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In the document, the Commission is completing the first phase 
of our Comprehensive Accounting Requirements and ARMIS Reporting 
Requirements review by adopting most of our proposals initiated in our 
Phase 1 Notice of Proposed Rulemaking (NPRM). This document also grants 
significant accounting relief to incumbent local exchange carriers 
(ILECs). The Commission anticipates that the rule changes adopted will 
reduce regulatory and procedural burdens on ILECS.

DATES: Effective September 28, 2000. The rules in this document contain 
information collections, which have not been approved by OMB. The 
Commission will publish a document in the Federal Register announcing 
the effective date of these rules.
    Written comments by the public on the new and/or modified 
information collections are due May 30, 2000.

ADDRESSESS: Federal Communications Commission, 445 12th Street, SW, TW-
A325, Washington, DC 20554. In addition to filing comments with the 
Office of the Secretary, a copy of any comments on the information 
collections contained herein should be submitted to Judy Boley, Federal 
Communications Commission, Room 1-C804, 445 12th Street, SW, 
Washington, DC 20554, or via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: JoAnn Lucanik, Accounting Safeguards 
Division, Common Carrier Bureau, at (202) 418-0873 or Mika Savir, 
Accounting Safeguards Division, Common Carrier Bureau, at (202) 418-
0384. For additional information concerning the information collections 
contained in this document, contact Judy Boley at 202-418-0214, or via 
the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order adopted March 2, 2000, and released March 8, 2000. The full 
text of this Commission decision is available for inspection and 
copying during normal business hours in the FCC Reference Center (Room 
CY-A257), 445 12th Street, SW, Washington, DC 20554. The complete text 
may also be purchased from the Commission's copy contractor, 
International Transcription Service, Inc., 1231 20th Street, 
Washington, DC 20036, telephone (202) 857-3800.
    This Report and Order contains new or modified information 
collections subject to the Paperwork Reduction Act of 1995 (RA), Public 
Law 10413. It will be submitted to the Office of Management and Budget 
(OMB) for review under Section 3507(d) of the PRA. OMB, the general 
public, and other Federal agencies are invited to comment on the new or 
modified information collections contained in this proceeding.

Paperwork Reduction Act

    This R&O contains either a new or modified information 
collection(s). The Commission, as part of its continuing effort to 
reduce paperwork burdens, invites the general public to comment on the 
information collection(s) contained in this R&O as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency 
comments are due May 30, 2000. Comments should address: (a) whether the 
new or modified collection of information is necessary for the proper 
performance of the functions of the Commission, including whether the 
information shall have practical utility; (b) the accuracy of the 
Commission's burden estimates; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burden of the collection of information on the 
respondents, including the use of automated collection techniques or 
other forms of information technology.
    Type of Review: Revision of currently approved collections.
    Respondents: Business or other for-profit.

----------------------------------------------------------------------------------------------------------------
                                                   Number of      Est. time per    Total annual     Cost to per
       OMB control No.              Title         respondents       respondent       responses      respondents
----------------------------------------------------------------------------------------------------------------
3060-0395....................  ARMIS USOA                    50            295.4          14,770              $0
                                Report (FCC
                                Report 43-02).
3060-0370....................  Part 32........              239           9543.6       2,280,934               0
3060-0384....................  Section 64.904.               14            250             3,500       1,200,000
3060-0470....................  Sections 64.901-              18            600            10,800               0
                                64.903.
3060-0734....................  Affiliates                    20             24               480               0
                                Transactions.
----------------------------------------------------------------------------------------------------------------

    Needs and Uses: In the Report and Order, the Commission is 
completing the first phase of its Comprehensive Accounting and ARMIS 
review by adopting most of its proposals initiated in its Phase 1 NPRM, 
64 FR 44877 (August 18, 1999). In the Report and Order, the Commission 
eliminates the expense matrix filing requirement; provides large ILECs 
the option to obtain a biennial attestation engagement to satisfy their 
CAM audit obligation; establishes a $500,000 de minimis exception to 
our affiliate transactions fair market value estimate requirement; and 
eliminates the 15 day pre-filing requirement for cost pool and time 
reporting procedures changes. The Commission substantially streamlines 
the ARMIS 43-02 USOA report and significantly reduces the reporting 
requirements for carriers. The information provides the necessary 
detail to enable the Commission to fulfill its regulatory 
responsibilities.

[[Page 16329]]

Summary of Report and Order

1. Expense Matrix

    We adopt our proposal to eliminate the expense matrix. We find 
that, although the expense matrix data have been an important part of 
our policy and tariff review processes, the changing telecommunications 
marketplace and regulatory framework have led us to rely on this data 
less frequently in our deliberations. We recognize that there remains a 
need for certain information provided by the expense matrix; we find, 
however, that the information can be provided to the Commission on an 
as-needed basis. We expect companies to keep such data available and be 
prepared to provide it to the Commission should the Commission make 
such a request.
    We require ILECs to maintain subsidiary record categories to 
provide the data necessary for the Commission, carriers, and 
competitors to calculate pole attachment rates. The Commission reviews 
complaints about pole attachment rates under sections 224 and 251 of 
the Communications Act. In the Accounting Reductions Report and Order, 
64 FR 50002 (February 15, 1999), we required mid-sized ILECs to 
maintain subsidiary records to provide the pole attachment data, and we 
will continue to require the larger carriers to maintain such records 
as well. Several commenters in this proceeding oppose the subsidiary 
record requirement. We find that elimination of the expense matrix and 
future ARMIS changes make it uncertain that ARMIS alone will be 
sufficient to allow parties to evaluate the pole attachment rates. We 
conclude that it is necessary to maintain subsidiary records for data 
needed in pole attachment formulas. This will assure that the data are 
publicly available, uniformly maintained among the carriers, and 
maintained in a manner that can be audited. We therefore require ILECs 
to maintain subsidiary record categories to provide the pole attachment 
data currently in the expense matrix and ARMIS reports. We note that 
the Commission is considering issues regarding pole attachment 
formulas. When we release a Report and Order in that docket, we will 
specify the subsidiary record categories needed for the finalized pole 
attachment formulas.

2. Audits

    We are adopting the less burdensome attest audit requirement, as an 
option, because we are convinced that attest audits, with the 
Commission's input on audit procedures, will adequately protect 
ratepayers. We are also persuaded to conclude as we do because the 
accounting profession has improved the standards governing attest 
audits since we first required them more than ten years ago. For 
example, in 1993, the AICPA promulgated detailed standards for 
attestation engagements concerning compliance with specific laws and 
regulations. We also note that our attest examination will involve much 
of the same audit testing as previously required, and that attest audit 
findings can lead to the same type of adjustment to carrier reports as 
did the previous audit requirement.
    We are giving carriers the option of choosing an attest examination 
every two years, covering the prior two-year period, or a financial 
audit. Instead of an annual financial audit, the financial audit option 
will also be biennial, covering the prior two years. We are changing 
the annual financial audit requirement to a biennial requirement to 
allow carriers to move from one option to the other. The biennial 
requirement serves the policy underlying this proceeding appropriately. 
The requirement provides accounting reform without compromising the 
Commission's ability to meet its statutory and policymaking 
responsibilities. We disagree with the large ILECs who claim that the 
audit should be biennial yet cover only one year. Our experience 
reviewing CAM audits and performing our own audits leads us to conclude 
that each year requires audit work. Carrier accounting systems can and 
do change from year to year. Likewise, one-time material errors do 
occur. These problems would go undetected if we allowed carriers to 
skip an audit year. On the other hand, we do not believe we must 
require an attest audit each year. The auditor's work in the ``off 
year'' should provide assurance against cross-subsidization, while 
allowing large ILECs to realize reduced costs that come with obtaining 
one attestation instead of two.

3. Affiliate Transactions Rules

    We adopt the proposal in our NPRM and establish a de minimis 
exception to our affiliate transactions rules for services. This de 
minimis exception is limited to affiliate transactions rules for 
services. All commenters addressing this issue are in support of the de 
minimis exception. We find that when the total annual value of 
transactions for a service is de minimis, the regulatory benefits of 
requiring carriers to make a good faith determination of the fair 
market value of a service may be outweighed by the administrative cost 
and effort of making such a determination. For non-de minimis services, 
the fully distributed cost/fair market value comparison remains an 
important safeguard against cross-subsidization. Thus, we do not 
eliminate the requirement for all services, nor do we extend it to 
asset transfers between carriers and their affiliates, as requested by 
several commenters. We note that the fully distributed cost/fair market 
value comparisons for assets is not as burdensome as those for services 
because the types of assets transferred are not typically so unique; 
further, we did not propose an asset exception in the NPRM.
    In the NPRM, we proposed a threshold of $250,000. Several 
commenters suggest a higher threshold of $500,000. Commenters observe 
that only a limited number of services would fall under the $250,000 
threshold for some large LECs and to provide meaningful relief the 
threshold should be $500,000. One commenter, on the other hand, 
suggests the threshold should be $1,000,000. We do not believe that the 
cost of fair market value/fully distributed cost comparisons is so high 
that a $1,000,000 exception is necessary. On the other hand, we believe 
that a $100,000 threshold, or a cap of 25 percent of the amount of 
services subject to the exception, may deprive carriers of many of the 
benefits of the exception. A cap is unnecessary because the independent 
auditors and the Commission will continue to monitor how carriers 
define services, thereby reducing the risk that the exception will be 
abused. We therefore adopt the $500,000 per service, per year de 
minimis exception to our Sec. 32.27(c) good faith estimate requirement. 
Based on our experience enforcing the affiliate transactions rules, we 
conclude that the $500,000 threshold is reasonable. We find that below 
this threshold, the administrative cost and effort of making such a 
determination will outweigh the regulatory benefits of the good faith 
determination of fair market value of a service. Adopting this $500,000 
de minimis exception will reduce the burden to carriers without 
lessening the effectiveness of our affiliate transactions rules.
    Therefore, we eliminate the requirement that carriers make a good 
faith determination of fair market value for each service in cases 
where the total annual value of transactions for that service is less 
than $500,000. In such cases, the service should be recorded at fully 
distributed cost, and carriers should continue to report such 
transactions in their CAMs and ARMIS reports.

[[Page 16330]]

    In the NPRM, we sought comment on whether affiliate transactions 
services conducted pursuant to sections 260, and 271 through 276 of the 
Communications Act should be included in the services eligible for the 
de minimis exception. We agree with the commenters that the de minimis 
exception should apply to all affiliate transactions when a carrier 
must compare fully distributed cost and fair market value of services. 
We note that in our first action on affiliate transactions after the 
Telecommunications Act of 1996 we applied our valuation rules equally 
to transactions under these sections. This de minimis exception applies 
only to affiliate transactions in which a carrier must compare fully 
distributed cost and fair market value pursuant to Sec. 32.27(c) of our 
rules, and thus it does not apply to transactions under sections 271 
and 272, which do not require such a comparison.

4. Elimination of 15-Day Pre-Filing for Cost Pool Changes

    Section 64.903 of the Commission's rules requires carriers to 
update their CAMs at least annually except that changes to the cost 
apportionment table and time-reporting procedures must be filed at 
least 15 days before the carrier plans to implement such changes. Once 
a CAM change has been filed, the Chief of the Common Carrier Bureau may 
suspend any such changes for a period not to exceed 180 days, and may 
thereafter allow the change to become effective. BellSouth claims that 
the 15-day filing period requires it to disclose sensitive competitive 
service information. In the NPRM, we proposed eliminating the 15-day 
pre-filing requirement.
    We adopt our proposal, which is supported by most of the 
commenters, and eliminate the 15-day pre-filing requirement for cost 
apportionment table and time reporting procedure changes. Carriers will 
no longer have to disclose competitively sensitive information before 
the CAM changes are implemented. We disagree with the suggestion that 
we eliminate the contemporaneous filing requirement and allow changes 
to be filed annually. It is important to review CAM changes upon 
receipt and stay them if necessary. That authority and oversight over 
CAM changes remains a safeguard against modifications such as cost pool 
changes that may hurt ratepayers. The potential harm to ratepayers is 
that a LEC could shift costs from nonregulated services to regulated 
services, resulting in subsidization of nonregulated services with 
revenues earned from the provision of regulated services. We are not 
persuaded that the 15-day pre-filing rule must be retained in order to 
prevent such improper cost shifting. We review proposed CAM changes 
immediately and that authority and oversight remains an important 
safeguard against any improper cost shifting.

5. Revision to Section 32.13, Accounts--General

    Section 32.13(a)(3) of the Commission's rules allows carriers to 
establish temporary or experimental accounts, provided they notify the 
Commission of the nature and purpose of the accounts within 30 days of 
their establishment. Carriers use these accounts as clearing accounts 
that are closed each financial period, and do not alter the part 32 
accounting structure. In the NPRM, we proposed eliminating the 30-day 
notice requirement of Sec. 32.13(a)(3) because other accounting 
safeguards, such as ARMIS reporting, audit reviews, and our ability to 
obtain additional information as necessary are sufficient for our 
regulatory oversight.
    We adopt our proposal, supported by most of the commenters, and 
eliminate the 30-day notification requirement in Sec. 32.13(a)(3). As 
we noted in the NPRM, sufficient accounting safeguards exist to detect 
any improper activity resulting from experimental or temporary 
accounts. Our audits and the CAM engagements of the carriers' 
independent auditors will protect regulated ratepayers from absorbing 
costs of the carrier's nonregulated activities. At the same time, this 
action relieves carriers of a notification requirement.

6. Revision to Section 32.25, Unusual Items and Contingent Liabilities

    Section 32.25 of the Commission's rules requires carriers to submit 
journal entries detailing extraordinary items, contingent liabilities, 
and material prior period adjustments to the Commission for approval 
before recording them in their books of account. In the NPRM, we 
proposed eliminating this requirement due to other safeguards, such as 
review of ARMIS filings, reviews by independent auditors, our audits, 
and our ability to obtain additional information on these accounting 
entries as we need it.
    We adopt our proposal, which most of the commenters unconditionally 
support as well. Therefore, we eliminate the requirement that carriers 
submit extraordinary items, material prior period adjustments, and 
contingent liabilities for our review prior to recording them pursuant 
to Sec. 32.25. Sufficient accounting safeguards exist to detect 
ratepayer harm resulting from these accounting entries. Our audits, 
ARMIS filings, and the CAM engagements of the carriers' independent 
auditors will assure us that carriers will not use these accounts to 
harm ratepayers. At the same time, this action relieves carriers of a 
notification requirement.

7. Revision to Section 32.2002, Property Held for Future 
Telecommunications Use

    Section 32.2002 of the Commission's rules requires that carriers 
record to Account 2002, Property held for future telecommunications 
use, the original cost of property held for no longer than two years 
under a definite plan for use in telecommunications service. If the 
property is not put into service within two years, its cost must be 
transferred to Account 2006, Nonoperating plant. Carriers may keep the 
cost in Account 2002 only if they request and receive approval from the 
Commission based on a public interest showing. BellSouth states that 
this reclassification is burdensome and that the cost of the property 
could remain recorded in Account 2002, but be removed from the ratebase 
in a less burdensome manner. In the NPRM, we proposed that carriers may 
keep the costs in Account 2002 but they must exclude the costs, and the 
associated depreciation reserve, from the ratebase. The depreciation 
reserve associated with these costs should also be excluded from 
ratemaking considerations. The amounts removed from the ratebase would 
be reported in the ARMIS 43-01, column (e) All Other Adjustments and 
ARMIS 43-03, column (1) Other Adjustments.
    We adopt the proposal in the NPRM and eliminate the requirement 
that carriers reclassify property from Account 2002 to Account 2006 if 
it is not put into service within two years. Under this new method, 
carriers must exclude the costs and associated accumulated depreciation 
from the ratebase and ratemaking considerations and report these 
amounts in ARMIS 43-01, column (e) All Other Adjustments and ARMIS 43-
03, column (1) Other Adjustments. Reporting the amounts remaining in 
Account 2002 in ARMIS 43-03 is essential for accounting safeguards. 
Carriers' methodologies in producing the ARMIS 43-03 report form the 
basis of their independent auditors' review and will also be the basis 
for any dollar adjustments. Additionally, reporting the amounts in 
ARMIS allows us to review the data. We conclude that reporting the 
amounts remaining in Account 2002 in ARMIS 43-03 is less burdensome 
than reclassifying the costs from Account 2002 to Account 2006.

[[Page 16331]]

8. Revision to Section 32.2003, Telecommunications Plant Under 
Construction

    Section 32.2003 of the Commission's rules requires that carriers 
record in Account 2003, Telecommunications plant under construction, 
the original cost of construction projects including all related direct 
and indirect costs as provided under Sec. 32.2000(c). If the 
construction project is suspended for six months or more, the cost must 
be reclassified to Account 2006, Nonoperating plant. If the project is 
abandoned, the cost must be charged to Account 7370, Special charges. 
BellSouth states that this reclassification is burdensome and that the 
property could remain recorded in Account 2003 and be excluded from the 
ratebase in a less burdensome manner. In the NPRM, we proposed that 
carriers be permitted to keep the costs in Account 2003, but remove the 
cost of suspended projects from the ratebase after six months. Carriers 
would be required to discontinue capitalization of allowance for funds 
used during construction under Sec. 32.2000(c)(2)(x) until construction 
is resumed. Carriers would report these amounts in ARMIS 43-01, column 
(e) All Other Adjustments and ARMIS 43-03, column (1) Other 
Adjustments. Carriers would, however, continue to charge Account 7370 
if the project were abandoned.
    We adopt our proposal and eliminate the requirement that carriers 
reclassify property from Account 2003 to Account 2006 if the 
construction project is suspended for six months or more. Most of the 
commenters support this proposal. Under this new method, carriers must 
exclude the costs from the ratebase and ratemaking considerations. 
Carriers must also report these amounts in ARMIS 43-01, column (e) All 
Other Adjustments and ARMIS 43-03, column (1) Other Adjustments. We 
believe that reporting the construction costs in ARMIS are essential 
for several reasons related to accounting safeguards. Carriers' 
methodologies in producing the ARMIS 43-03 report form the basis of 
their independent auditors' attestation and will be the basis for any 
related dollar adjustments. Additionally, reporting the amounts in 
ARMIS allows us to review them as necessary.

B. ARMIS Reporting Requirements

1. Reductions to ARMIS 43-02 USOA Report

    Most commenters generally agree with the changes we proposed to the 
ARMIS 43-02 Report. Some commenters, however, advocate changes to ARMIS 
reporting requirements beyond those set forth in the NPRM. We agree 
that further review of the ARMIS reporting requirements is warranted 
and further streamlining measures must be considered. In this Phase, 
however, we believe the more expeditious action is to eliminate and 
simplify requirements that can be implemented without delay, thereby 
minimizing the burdens on the industry immediately. As we stated in the 
NPRM, in Phase 2 we will examine more structural and long-term changes 
to our reporting requirements that will be appropriate as local 
exchange markets become competitive, and will assess what interim 
measures should be made as various transitional competitive milestones 
are reached. We note that ARMIS changes proposed by commenters that are 
not considered in this Phase will be fully considered in Phase 2.

2. ARMIS 43-02 USOA Report: Table C Reductions

    We adopt our proposal in the NPRM to consolidate all of the basic 
ownership information from Tables C-1, C-2, C-3 and C-4 into one table. 
In reviewing our experience with the current reporting system, we find 
that the information collected in these four tables can more 
efficiently be provided in one table. As designed, the current system 
requires carriers to maintain four separate tables with a combined 
total of 8 columns and 27 row sections of information about its 
ownership and corporate structure, including information about state 
laws, partnerships, and various degrees of control over the 
organization. We can substantially simplify the current requirements 
and eliminate all but the basic kinds of ownership information. We find 
that an ownership profile consisting of the carrier's name, operating 
states, directors, and executive officers will be sufficient to meet 
our oversight responsibilities and permit us to make informed 
regulatory decisions. To accomplish this, we revise Table C-3 to 
include the carrier's name and states of operation and eliminate 
reporting of Tables C-1, C-2, and C-4.
    We do not agree with the argument advanced by several commenters 
that these tables should be eliminated in their entirety because the 
information is available in SEC Form 10-K filings. Our review shows 
that in many cases, certain information collected in these tables is 
not reported in the carrier's SEC Form 10-K. For instance, the SEC Form 
10-K provides that information about a carrier's directors and 
executive officers is optional. Our review found that in virtually 
every case, carriers choose the option not to report this information 
in their SEC Form 10-K. Our oversight responsibility requires that, at 
a minimum, we have access to the most basic information about the 
carrier. We conclude that our decision to require the carrier's name, 
operating states, directors, and executive officers is warranted. 
Collection of this data in the consolidated table will reduce the 
reporting burden on carriers.
    Generally, Table C-5 requires the carrier to report on important 
changes to 12 activities: (1) Extensions of Systems; (2) Substantial 
Portions or All Property Sold; (3) Map Defining Territory; (4) 
Companies Coming Under the Direct Control of the Carrier; (5) Changes 
in the Direct Control of a Company; (6) Changes Affecting the Direct 
Control of a Company; (7) Companies Coming Under the Indirect Control 
of the Carrier; (8) Changes in the Indirect Control of a Company; (9) 
Changes Affecting the Indirect Control of a Company; (10) Important 
Contracts or Agreements; (11) Changes in Accounting Standards; and (12) 
Important Changes in Service and Rate Schedules.
    In reviewing our experience with Table C-5, we conclude that the 
burdens imposed on the carriers are disproportionate to the benefits 
provided, and that elimination of a substantial portion of information 
collected in Table C-5 is warranted. We agree with commenters that 
certain information otherwise available in the carrier's SEC Form 10-K 
can be eliminated from Table C-5. We find that the reporting 
requirements concerning direct and indirect control of the carrier 
(items 4 through 9 in paragraph 39) can be eliminated without adverse 
consequences because this information is routinely reported in the 
carriers' SEC Form 10-K. In addition, information concerning changes in 
accounting standards (item 11 in paragraph 39) can be obtained from the 
carriers' SEC Form 10-K. Therefore, we will also eliminate this 
reporting requirement from Table C-5. Eliminating the reporting of 
these requirements will afford carrier's considerable relief from 
reiteration of information contained in their SEC filings. We will, 
however, require that carriers submit a copy of their SEC Form 10-K 
annual report to the Commission.
    We also note that extension of system and map defining territory 
are not regularly reported by the ILECs due to the infrequent nature of 
these activities. We find that information related to these two items 
as reported in Table C-5 has not contributed to the Commission's 
overall formulation of policy and that further reporting on these 
matters is unwarranted. We

[[Page 16332]]

conclude that lack of information on these items in Table C-5 will not 
have a detrimental effect on our regulatory oversight responsibilities. 
Thus, we further simplify the reporting requirements of Table C-5 by 
eliminating these reporting requirements.
    We agree with Ad Hoc that certain activities reported in Table C-5 
should not be eliminated at this time. Information concerning 
substantial portions or all property sold, important contracts or 
agreements entered into, and important changes in service and rate 
schedules (items 2, 10, and 12 in paragraph 39), is not reported in 
carrier's SEC Form 10-K or its cost allocation manuals and is not 
available in other publicly available data. Information concerning 
these activities provides us with important information about the 
carriers' operations that is relevant to our deliberations on numerous 
policy matters. Thus, we will retain the requirement to report these 
activities in Table C-5.
    The NPRM sought comment on whether we should adopt a threshold for 
reporting items in Table C-5, and if so, what would be an appropriate 
level. Commenters proposed establishing a threshold level of reporting 
that included specific dollar amounts ranging from $250,000 to $1 
million or using a percentage of total operating revenues ranging from 
1 percent to 5 percent. We agree with the parties that a threshold 
level is appropriate for reporting amounts for substantial portions or 
all property sold and for reporting important changes in service and 
rate schedules. Based on our experience, we find that a threshold level 
of $500,000 is appropriate for both these items. This level will 
provide relief to carriers in reporting and will continue to provide us 
with material and sufficient data. We do not agree, however, that a 
threshold level is appropriate for reporting important contracts or 
agreements entered into. This item generally encompasses contracts for 
interconnection and resale agreements that are not typically associated 
with specific total dollar amounts, but rather have price terms on a 
per unit or usage basis. We find that our current requirements, which 
do not require reporting of specific dollar amounts, are not overly 
burdensome and, in fact, establishing a threshold level may have the 
result of imposing additional burdens on carriers. Thus, we will not 
establish a threshold level for important contracts or agreements 
entered into.

3. ARMIS 43-02 USOA Report: Table B Reductions

    We adopt our proposal, which is supported by most commenters, to 
eliminate seven tables from the Table B Series. Specifically, we 
eliminate the requirement to report on a routine basis: Tables B-8, 
Capital Leases; B-9, Deferred Charges; B-11, Long-Term Debt; B-12, Net 
Deferred Income Taxes; B-13, Other Deferred Credits; B-14, Capital 
Stock; and B-15, Capital Stock and Funded Debt Reacquired or Retired 
During the Year. These seven tables were intended to provide a more 
detailed explanation of specific accounts reported in Table B-1. A 
review of our experience reveals that, while the data derived from 
these seven tables have contributed to our policy analysis and 
rulemaking function, the level of detail required by these tables is no 
longer as critical to our deliberations. To the extent we may require 
such detail in the future, we can obtain such information through 
specific data requests to the carrier on an as needed basis. Thus, we 
conclude we can substantially reduce the Table B reporting requirements 
by eliminating the separate reporting requirements of these seven 
items.
    GSA argues that we should retain our current reporting requirements 
for these seven items because the information they contain may not 
readily be available through other sources, such as routine SEC 
Reports. We recognize that that information and data reported in the 
carriers' SEC Form 10-K are highly aggregated and include both 
regulated telephone and nonregulated business information. As SBC 
points out, however, the footnotes in the SEC Form 10-K will generally 
provide information on details such as long-term debt and deferred 
taxes, which correspond to items reported in Tables B-11 and B-12. 
Further, to the extent that we require information that is not 
available in the carrier's SEC Form 10-K, or through other reliable 
public sources, we believe we can maintain our oversight of these 
activities through specific data requests on an as needed basis. Thus, 
although we relieve companies from routinely reporting this information 
in Table B, companies must keep such data available and be prepared to 
provide it promptly to the Commission should the Commission make such a 
request. In such cases, we expect carriers to provide requested 
information to the Commission in a timely manner and on a non-
proprietary basis. We do not agree with the argument that data formerly 
reported in these ARMIS tables and now requested by the Commission on 
an as-needed basis should be treated as non-public. The purpose of this 
proceeding is to reduce the ARMIS reporting requirements while 
retaining sufficient information needed for the Commission and state 
commissions to meet their responsibilities. Therefore, all information 
requested by the Commission that would otherwise be reported in the 
ARMIS tables shall be publicly available unless the carrier makes a 
sufficient showing as to why the information should be treated as 
proprietary.
    In addition to the seven tables at issue here, some parties further 
recommend that we eliminate all Table B reporting requirements, arguing 
that essentially all of the information is publicly available in 
carriers' SEC Form 10-K or other SEC filings, and is duplicative of 
other ARMIS Reports. Commenters also contend that information contained 
in these reports is irrelevant to regulation of price cap carriers. At 
this time we do not agree that it is appropriate to eliminate all Table 
B reporting requirements. The Commission continues to require 
accounting and financial data about these carriers to make informed 
regulatory judgments on numerous policy and ratemaking issues. 
Furthermore, under the current regulatory price cap scheme, carriers 
have the ability to seek full recovery of regulated costs through low-
end adjustments, as well as taking claims. Thus, our continued 
monitoring of the reasonableness of these costs is necessary. The steps 
we take in this Order substantially streamline the current requirements 
and will afford carriers immediate regulatory relief of ARMIS reporting 
requirements. As we stated in the NPRM, we will undertake an exhaustive 
and thorough review of our ARMIS reporting requirements in Phase 2.

4. ARMIS 43-02 USOA Report: Table I Reductions

    We adopt the proposal in the NPRM, which is supported by most 
commenters, to eliminate Tables I-3, I-4, and I-5. Our experience in 
collecting detailed data pertaining to the carrier's pension costs and 
taxes reveals that routine collection of such a level of detail is no 
longer necessary for us to make informed regulatory judgments in this 
area. We can obtain necessary information for our regulatory purposes 
through specific data requests to the carriers on an as-needed basis. 
Similar to our determination concerning elimination of the seven B 
tables above, we expect carriers to keep such data available and be 
prepared to provide such data to the Commission should the

[[Page 16333]]

Commission make such a request. In such cases, we expect carriers to 
provide requested information to the Commission in a timely manner and 
on a non-proprietary basis.
    We affirm our conclusion in the NPRM that information collected in 
Table I-6 continues to be essential to our oversight responsibilities. 
This table reports on items that are below-the-line amounts, i.e., are 
not allowable expenses to be charged against regulated revenues. 
Special Charges reported in Table I-6 include lobbying expenses, 
membership fees and dues, abandoned construction projects amounting to 
$100,000 or more, telecommunications plant acquisition adjustments, 
penalties and fines amounting to $100,000 or more, and charitable, 
social, or other community welfare expenses. Some commenters argue that 
all reporting of Table I-6 should be eliminated. We disagree. Price cap 
carriers may fully recover reasonable costs associated with regulated 
activities through the low-end adjustment mechanism or through a 
takings claim, therefore it is important that below-the-line 
expenditures are not included in regulated activities. The items 
reported in Table I-6, especially if material, could have significant 
impact on the carrier's regulated activities if not properly recorded. 
Routine monitoring of these expenses provides assurance that these 
amounts are properly recorded on the carrier's books.
    We can significantly reduce the burdens associated with Table I-6 
without seriously hampering our ability to monitor these expenses by 
raising the current reporting threshold level for abandoned 
construction projects and penalties and fines. In the NPRM, we sought 
comment on whether the reporting threshold for these items should be 
raised to a higher amount and, if so, what amount to establish as the 
reporting threshold. Commenters provided a range of options for raising 
the threshold level for these items, from $250,000 to $1,000,000. Based 
on our review of the data, we find it would be appropriate to increase 
the current threshold levels from $100,000 to $500,000 for both 
abandoned construction projects and penalties and fines. Specifically, 
we reviewed 1998 data reported in Table I-6 for abandoned construction 
projects and penalties and fines and found that the Bell Operating 
Companies and GTE reported 22 individual items with a total amount of 
approximately $16 million. We found that expenditures of $500,000 or 
more constituted 85 percent of the total amount reported for the two 
activities. Thus, we conclude that $500,000 or more is a reasonable 
level of reporting for both these activities. Any threshold lower than 
$500,000 would not significantly reduce the reporting burden for the 
largest carriers and any threshold higher than $500,000 may not provide 
us sufficient information to perform our monitoring function.
    We also affirm our determination to retain reporting for Table I-7. 
We disagree with commenters that reporting of these amounts should be 
eliminated. The items reported in Table I-7 concern expenditures that 
may not be appropriate or reasonable to charge against regulated 
operations. Thus, our oversight responsibilities require that we 
maintain some degree of reporting to ensure that these expenditures are 
reasonable and recorded properly.
    The NPRM requested comment on whether the current threshold levels 
for Table I-7 reporting should be revised. Under the current 
requirements, there are three reporting threshold levels depending on 
the type of payment. Carriers must report: (1) Amounts exceeding 
$250,000 for Advertising & Information Services, Clerical & Office 
Services, Computer & Data Processing Services, Personnel Services, 
Printing & Design Services, and Security Services; (2) amounts 
exceeding $25,000 for Audit & Accounting, Consulting & Research 
Services, Financial, and Legal; and (3) amounts exceeding $10,000 for 
Membership Fees & Dues. Table I-7 also requires carriers to report all 
amounts for Academia.
    We find that an increase in the current threshold levels for 
reporting items on Table I-7 is justified. By raising the current 
threshold levels, we can significantly reduce the reporting burden for 
Table I-7 while retaining sufficient information to meet our oversight 
responsibilities. Our review of proposals submitted by the commenters 
finds that the threshold levels advanced by GSA and Ad Hoc would have a 
very small impact on the amounts provided under current reporting 
requirements and would provide little relief to carriers. We also find 
that by changing the payment types corresponding to the current 
threshold levels, and thus, proposing a fourth threshold level for some 
items, the proposals advanced by USTA and GTE result in a more complex 
reporting scheme than currently exists. Based on our analysis, we find 
that it is appropriate to raise the threshold levels for reporting 
items in Table I-7 as follows: (1) Amounts exceeding $1,000,000 for 
Advertising & Information Services, Clerical & Office Services, 
Computer & Data Processing Services, Personnel Services, Printing & 
Design Services, and Security Services; (2) amounts exceeding $500,000 
for Audit & Accounting, Consulting & Research Services, Financial, and 
Legal; and (3) amounts exceeding $50,000 for Membership Fees & Dues. We 
find that these new thresholds will capture material information for 
our oversight needs while at the same time substantially reduce the 
reporting burden for carriers.
    We also find that we can eliminate the reporting of amounts 
reported for Academia. Based on our analysis, we find that the existing 
requirement to report all amounts for Academia is no longer justified. 
As designed, this reporting requirement was established to provide the 
Commission with information relevant to expertise obtained by carriers 
for regulatory purposes. Reviewing our experience with the present 
reporting requirement for Academia, we find that it imposes substantial 
burdens on the carriers while providing little value to our oversight 
of carrier's activities. Given the minimum level of benefit this data 
provides we find that we can eliminate the collection of this 
information without compromising our oversight responsibilities.

III. Conclusion

    In this Report and Order, we eliminate the expense matrix filing 
requirement; provide large ILECs the option to obtain a biennial 
attestation engagement to satisfy their CAM audit obligation; establish 
a $500,000 de minimis exception to our affiliate transactions fair 
market value estimate requirement; eliminate the 15-day pre-filing 
requirement for cost pool and time reporting procedures changes; 
eliminate the notification requirement for temporary or experimental 
accounts; eliminate the notification requirement for extraordinary 
items, contingent liabilities, and material prior period adjustments; 
eliminate the reclassification requirements for property in Account 
2002; and eliminate the reclassification requirements for property in 
Account 2003. We substantially streamline the ARMIS 43-02 USOA Report 
and significantly reduce the reporting requirements for carriers. 
Specifically, we revise Table C-3 to include carrier's name, address, 
and operating states and eliminate Tables C-1, C-2, and C-4; eliminate 
nine of twelve reporting items in Table C-5 and establish reporting 
threshold levels for two items; eliminate seven of fifteen reporting 
items in Table B; eliminate three of seven reporting items in Table I; 
establish higher threshold levels for items reported in

[[Page 16334]]

Tables I-6 and I-7 and eliminate the reporting requirements for 
Academia.

IV. Procedural Issues

A. Regulatory Flexibility Analysis

Regulatory Flexibility Certification
    The Regulatory Flexibility Act of 1980 (RFA) 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.'' In the NPRM, the Commission 
certified that the proposed rules would not have a significant economic 
impact on a substantial number of small entities. The Commission stated 
that the proposed rules would reduce certain recordkeeping and CAM 
audit requirements; that the changes should be easy and inexpensive for 
the ILECs to implement; and that the rule changes would not require 
costly or burdensome procedures. 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 ILECs. The rule modifications do 
not impose any additional compliance burden on persons dealing with the 
Commission. Accordingly, the Commission certifies, pursuant to 5 U.S.C. 
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.
Report to Congress
    The Consumer Information Bureau, Reference Information Center, 
shall provide a copy of this certification to the Chief Counsel for 
Advocacy of the SBA, and include it in the report to Congress pursuant 
to the SBREFA. The certification will also be published in the Federal 
Register.

B. Paperwork Reduction Act Analysis

Final Paperwork Reduction Act Analysis
    The decision herein has been analyzed with respect to the Paperwork 
Reduction Act of 1995, Public Law 104-13, and found to impose new or 
modified recordkeeping requirements or burdens on the public. The rule 
amendments set forth in this Report and Order will become effective 6 
months after their publication in the Federal Register. The rules in 
this document contain information collections, which have not been 
approved by OMB. The Commission will publish a document in the Federal 
Register announcing the effective date of these rules.

V. Ordering Clauses

    Pursuant to Sections 1, 4, 201-205, 215, and 218-220 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154, 201-205, 
215, and 218-220, Secs. 32 and 64 of the Commission's rules, 47 CFR 32 
and 64, are amended.
    The rule amendments set forth in this Report and Order will become 
effective 6 months after their publication in the Federal Register. The 
rules in this document contain information collections which have not 
been approved by OMB. The Commission will publish a document in the 
Federal Register announcing the effective date of these rules.
    The Commission's Consumer Information Bureau, Reference Information 
Center, shall send a copy of this Report and Order, including this 
certification and statement, 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, Federal Communications Commission, 
Radio, Reporting and recordkeeping requirements, Telegraph, Telephone.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rules Changes

    Part 32 of Title 47 of the CFR is amended 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. In Sec. 32.13 paragraph (a)(3) is revised to read as follows:


Sec. 32.13  Accounts--general.

    (a) * * *
    (3) A company may establish temporary or experimental accounts 
without prior notice to the Commission.

    3. Section 32.25 is revised to read as follows:


Sec. 32.25  Unusual items and contingent liabilities.

    Extraordinary items, prior period adjustments, and contingent 
liabilities may be recorded in the company's books of account without 
prior Commission approval.

    4. In Sec. 32.27 paragraph (c) is revised to read as follows:


Sec. 32.27  Transactions with affiliates.

* * * * *
    (c) Services provided between a carrier and its affiliate pursuant 
to a tariff, including a tariff filed with a state commission, shall be 
recorded in the appropriate revenue accounts at the tariffed rate. Non-
tariffed services provided between a carrier and its affiliate pursuant 
to publicly-filed agreements submitted to a state commission pursuant 
to section 252(e) of the Communications Act of 1934 or statements of 
generally available terms pursuant to section 252(f) shall be recorded 
using the charges appearing in such publicly-filed agreements or 
statements. Non-tariffed services provided between a carrier and its 
affiliate that qualify for prevailing price valuation, as defined in 
paragraph (d) of this section, shall be recorded at the prevailing 
price. For all other services provided by a carrier to its affiliate, 
the services shall be recorded at the higher of fair market value and 
fully distributed cost. For all other services received by a carrier 
from its affiliate, the service shall be recorded at the lower of fair 
market value and fully distributed cost. For purposes of this section, 
carriers are required to make a good faith determination of fair market 
value for a service when the total aggregate annual value of that 
service reaches or exceeds $500,000. When a carrier reaches or exceeds 
the $500,000 threshold for a particular service for the first time, the 
carrier must perform the market valuation and value the transaction in 
accordance with the affiliate transactions rules on a going-forward 
basis. All services received by a carrier from its affiliate(s) that 
exist solely to provide services to members of the carrier's corporate 
family shall be recorded at fully distributed cost.
* * * * *

    5. Section 32.2002 is revised to read as follows:


Sec. 32.2002  Property held for future telecommunications use.

    (a) This account shall include the original cost of property owned 
and held for no longer than two years under

[[Page 16335]]

a definite plan for use in telecommunications service. If at the end of 
two years the property is not in service, the original cost of the 
property may remain in this account so long as the carrier excludes the 
original cost and associated depreciation from its ratebase and 
ratemaking considerations and report those amounts in reports filed 
with the Commission pursuant to 43.21(e)(1) and 43.21(e)(2) of this 
chapter.
    (b) Subsidiary records shall be maintained to show the character of 
the amounts carried in this account.

    6. In Sec. 32.2003(c) the paragraph is revised to read as follows:


Sec. 32.2003  Telecommunications plant under construction.

* * * * *
    (c) If a construction project has been suspended for six months or 
more, the cost of the project included in this account may remain in 
this account so long as the carrier excludes the original cost and 
associated depreciation from its ratebase and ratemaking considerations 
and reports those amounts in reports filed with the Commission pursuant 
to 43.21(e)(1) and 43.21(e)(2) of this chapter. If a project is 
abandoned, the cost included in this account shall be charged to 
Account 7370, Special Charges.


Sec. 32.5999  [Amended]

* * * * *

    7. In Sec. 32.5999, paragraph (f) is removed, and paragraphs (g) 
and (h) are redesignated as paragraphs (f) and (g).

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    8. 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.

    9. In Sec. 64.903 paragraph (b) is revised to read as follows:


Sec. 64.903  Cost allocation manuals.

* * * * *
    (b) Each carrier shall ensure that the information contained in its 
cost allocation manual is accurate. Carriers must update their cost 
allocation manuals at least annually, except that changes to the cost 
apportionment table and to the description of time reporting procedures 
must be filed at the time of implementation. Annual cost allocation 
manual updates shall be filed on or before the last working day of each 
calendar year. Proposed changes in the description of time reporting 
procedures, the statement concerning affiliate transactions, and the 
cost apportionment table must be accompanied by a statement quantifying 
the impact of each change on regulated operations. Changes in the 
description of time reporting procedures and the statement concerning 
affiliate transactions must be quantified in $100,000 increments at the 
account level. Changes in cost apportionment tables must be quantified 
in $100,000 increments at the cost pool level. The Chief, Common 
Carrier Bureau may suspend any such changes for a period not to exceed 
180 days, and may thereafter allow the change to become effective or 
prescribe a different procedure.
* * * * *

    10. In Sec. 64.904 paragraph (a) is revised 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 elect to either (1) have an attest engagement 
performed by an independent auditor every two years, covering the prior 
two year period, or (2) have a financial audit performed by an 
independent auditor every two years, covering the prior two year 
period. In either case, the initial engagement shall be 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 systems, processes, and procedures applied by the 
carrier to generate the results reported pursuant to 43.21(e)(2) of 
this chapter comply with the Commission's Joint Cost Orders issued in 
conjunction with CC Docket No. 86-111, 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, 
64.901, and 64.903 in force as of the date of the auditor's report. At 
least 30 days prior to beginning the attestation engagement, the 
independent auditors shall provide the Commission with the audit 
program. 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. The biennial financial 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 
Commission's Joint Cost Orders issued in conjunction with CC Docket No. 
86-111, 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, 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.
* * * * *
[FR Doc. 00-7598 Filed 3-27-00; 8:45 am]
BILLING CODE 6701-12-U