[Federal Register Volume 65, Number 69 (Monday, April 10, 2000)]
[Rules and Regulations]
[Pages 18926-18931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8639]


=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 43

[CC Docket No. 98-137, ASD File No. 98-91; FCC 99-397]


1998 Biennial Regulatory Review--Review of Depreciation 
Requirements for Incumbent Local Exchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: In this document we address proposals set forth in our Notice 
of Proposed Rulemaking to reform our depreciation prescription process. 
With this Order, we greatly streamline the depreciation requirements 
for price cap incumbent local exchange carriers (LECs). We adopt 
proposals to permit summary filings, eliminate the prescription of 
depreciation rates for certain incumbent LECs, expand the prescribed 
range for the digital switching plant account, and eliminate the 
theoretical reserve study requirement for mid-sized incumbent LECs. 
These measures will minimize the regulatory burden on incumbent LECs 
and will provide them with greater flexibility to adjust their 
depreciation rates while allowing the Commission to maintain adequate 
oversight in order to promote competition and protect consumer.

DATES: These rules contain information collections that have not been 
approved by the Office of Management and Budget. The Commission will 
publish a document announcing the effective date of this rule. Written 
comments by the public on the new and/or modified information 
collections are due June 9, 2000.

ADDRESSES: Federal Communications Commission, 445--12th Street, SW., 
TW-A325, Washington, D.C. 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) 418-0800 or Andy Mulitz, 
Chief, Legal Branch, Accounting Safeguards Division, Common Carrier 
Bureau at (202) 418-0827. For additional information concerning the 
information collections contained in this document,

[[Page 18927]]

contact Judy Boley at 202-418-0214, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION: This Report and Order in CC Docket No. 98-
137, ASD File No. 98-81, adopted on December 17, 1999 and released on 
December 30, 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.
    This Report and Order contains new or modified information 
collections subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. 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 collections. 
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 June 9, 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.
    OMB Control Number: 3060-0168.
    Title: Reports of Proposed Changes in Depreciation Rates--Section 
43.43.
    Form No.: N/A.
    Type of Review: Revised Collection.
    Respondents: Business or other for-profit.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of     Est. time per   Total annual
                              Title                                 respondents     respondent        burden
----------------------------------------------------------------------------------------------------------------
Section 43.43...................................................              11            5970           60030
Waiver of Depreciation Process..................................               5             100             500
----------------------------------------------------------------------------------------------------------------

    Total Annual Burden: 60,030 Hours.
    Cost to Respondents: $0.
    Needs and Uses: The Commission streamlined its depreciation 
prescription process by permitting summary filings and eliminating the 
prescription of depreciation rates for certain incumbent LECs, 
expanding the prescribed range for the digital switching plant account, 
and eliminating the theoretical reserve study requirement for mid-sized 
incumbent LECs. The Commission also established a waiver process 
whereby price cap incumbent LECs can free themselves of depreciation 
regulation. Synopsis of Report and Order: 

I. Background

    The Commission prescribes depreciation factors for price cap 
incumbent LECs whose revenues exceed an indexed revenue threshold, 
currently set at $112 million in annual revenue. These carriers 
currently have investments in telephone plant totaling $288 billion and 
an accumulated depreciation balance totaling $146 billion. Depreciation 
constitutes 28 percent of incumbent LECs' total operating expenses, and 
is their largest single expense.
    Over the years, the Commission has taken steps to streamline the 
depreciation requirements to keep pace with changes in communications 
technology and legal requirements. When incumbent LECs were regulated 
under cost-of-service (or rate-of-return) regulation, regulation and 
oversight of the depreciation process was a critical function because 
prices for incumbent LEC services were set based on costs, including 
depreciation expenses. Under this regulatory scheme, each carrier 
seeking to change its depreciation rates was required to submit a 
depreciation rate study that was reviewed both by the Commission staff 
and the representatives of the state regulatory authorities. This 
depreciation prescription process required carriers to submit extensive 
data for each plant category to support the projection life, survivor 
curve, and future net salvage estimates underlying their proposed 
depreciation rates. These data requirements often necessitated 
voluminous submissions, with up to 25 pages of analysis for each of 34 
plant categories for each jurisdiction.
    In 1980, the Commission departed from its previous practice of 
relying largely on historical experience to project equipment lives and 
began to rely on analysis of company plans, technological developments, 
and other future-oriented studies. In 1993, the Commission issued the 
Depreciation Simplification Order (See 58 FR 00530 January 6, 1993) 
that adopted a simplified depreciation prescription process for AT&T 
and incumbent LECs. With regard to incumbent LECs, that Order provided 
for the establishment of ranges for the life and salvage factors that 
carriers could use to compute their depreciation rates. Consequently, 
incumbent LECs that proposed life and salvage factors within the 
Commission-approved ranges no longer needed to file detailed cost 
support for those rates. In contrast, a carrier that chose to propose 
depreciation factors outside of the ranges would have to provide cost 
support to justify it. Today, incumbent LECs remain subject to the 
Commission's rules under Secs. 32.2000(g) and 43.43 for purposes of 
establishing depreciation rates; however, the typical carrier's filing 
requirements have been reduced by 75 percent when its depreciation 
proposals are within the prescribed ranges.
    The recent Depreciation Notice (63 FR 56900 September 23, 1998) 
sought comment on proposals that would further minimize the burden on 
incumbent LECs in the depreciation prescription process. We address the 
proposals set forth in the Depreciation Notice and take further steps 
to streamline the depreciation prescription process for incumbent LECs. 
In this action, we take the following actions to further simplify our 
depreciation prescription process. Filing Requirements in the 
Depreciation Notice, we sought comment on a proposal that would reduce 
price cap incumbent LECs' filing requirements to four summary exhibits, 
and the electronic data files used to generate them, provided carriers 
select depreciation factors from within the specified ranges for all 
accounts and certify that their selections are consistent with their 
operations. The four summary exhibits are a comparison of existing and 
proposed depreciation

[[Page 18928]]

rates; a comparison of existing and proposed annual depreciation 
expenses; a book and theoretical reserve summary; and the underlying 
depreciation factors. We conclude that we must balance the carriers' 
needs for simplification with the needs of this Commission, ratepayers, 
state regulatory missions, and competitors for sufficient information 
to assess claims the incumbent LECs' may make for regulatory relief. As 
noted, depreciation expense constitutes a large portion of a carrier's 
expenses and is significant in determining cost recovery. While we 
believe we can reduce the amount of information a carrier must file, we 
find certain basic information is still needed to allow us to 
adequately monitor a carrier's depreciation practices and amounts 
associated with these practices. The information that carriers will be 
required to file in the four summary exhibits, along with the 
underlying data used to generate them, will provide the depreciation 
factors (i.e., life, salvage, curve shape, depreciation reserve) 
required to verify the calculation of the carriers' depreciation rates, 
estimate the changes in annual depreciation expenses, and monitor the 
adequacy of the depreciation reserve. This information is critical 
because it provides the minimum amount of data needed to maintain 
oversight of carriers' depreciation expenses and rates. We conclude 
that the proposal in the Depreciation Notice strikes an appropriate 
balance. It will minimize the burden on the carriers, since carriers 
will not be required to prepare extensive supporting documents for 
public filing, while providing the minimum amount of data needed to 
maintain oversight of carriers' depreciation expenses and rates. Thus, 
we will permit carriers that select depreciation factors from within 
the specified ranges for all accounts, and certify that their 
selections are consistent with their operations, to file four summary 
exhibits along with electronic data files used to generate the summary 
exhibits as described.

Reduction of Need for Prescription Orders

    In the Depreciation Notice we proposed that, if a carrier selects 
depreciation factors from within the ranges for all of its accounts, 
the carrier's new depreciation rates could go into effect without a 
prescription order. Based on our review of the record in this 
proceeding, we will permit carriers to submit streamlined exhibits if 
they request depreciation factors for all accounts that are within the 
prescribed ranges. Carriers that request depreciation factors outside 
the ranges prescribed by the Commission must continue to submit 
exhibits for each account. In either case, however, the information 
filed by the incumbent LEC would contain life, salvage, reserve, rate, 
and expense information, which will be maintained in public files. 
Also, much of this data will be maintained in the ARMIS database, and 
therefore, will be readily available to the public via the Internet. We 
conclude, therefore, that we can eliminate prescriptions in the case 
where carriers select depreciation factors from within the prescribed 
ranges for all of its accounts, thereby further reducing the burden on 
these carriers, and still maintaining an adequate public record that 
all interested parties will be able to review.

Equipment Life Ranges

    We proposed to expand the range of lives for digital switching 
equipment from a range of 16 to 18 years to 13 to 18 years. Based on 
our review of the record, we are persuaded that the lower limit of the 
life range for digital switching should be shortened from the current 
16-year minimum to 12 years. We find that this reduction is justified 
by incumbent LEC accounting data that shows an upward trend in 
retirements of digital switching equipment in recent years. The 
increasing retirements are due, in part, to the modular nature of 
modern digital switches, which allows the incumbent LECs to retire 
portions of a switch on an interim basis as technology improves. 
Incumbent LECs also advocate shorter minimum lives for accounts other 
than digital switching and recommend lives projected by Technology 
Futures, Inc. (TFI). Based on our review, and given the significant 
uncertainty that even TFI acknowledges exists in forecasting plant 
replacement over the next fifteen years, we do not find that the 
carriers that advocate adoption of TFI's much shorter projection lives 
have met their burden. Depreciation reserves are at 51 percent, an all-
time high, and have increased for each of the past five years. There is 
no evidence that the large wave of plant replacements forecast by TFI, 
which should result in increased retirements, has begun or is about to 
begin. If the carriers do begin to retire plant more rapidly, our 
depreciation prescription process is flexible enough to allow them 
shorter lives and faster depreciation. We conclude, therefore, that the 
TFI study fails to establish convincingly that current projection lives 
are inadequate.

Salvage and Cost of Removal

    In order to calculate net salvage, carriers must estimate both 
gross salvage and cost of removal. Given the speculative nature of 
these estimates and the burdens associated with their calculation, the 
Depreciation Notice tentatively concluded that the prescription of net 
salvage no longer serves a regulatory purpose and that eliminating that 
factor from the formula would significantly reduce the regulatory 
burden of the depreciation prescription process. Accordingly, we 
proposed to eliminate the future net salvage factor from the 
depreciation formula and to record net salvage as a current expense in 
the period incurred. Alternatively, we proposed making the elimination 
of net salvage from the depreciation formula optional, and allowing 
each incumbent LEC the option to treat net salvage as either a current 
expense or a component of depreciation. The Financial Accounting and 
Standards Board (FASB) is currently conducting a proceeding that could 
change how firms must account for net salvage on their financial books. 
In light of the pending action by the FASB, we conclude that it is 
appropriate to defer action on this issue.

Reporting Requirements for Mid-Sized LECs

    In the Depreciation Notice, we proposed that mid-sized incumbent 
LECs no longer be required to file annual theoretical reserve studies. 
Because the Commission would continue to receive theoretical reserve 
studies from the largest incumbent LECs, which serve approximately 90 
percent of all access lines, this proposal would relieve these mid-
sized companies of this regulatory burden without seriously encumbering 
the Commission's ability to monitor and evaluate the adequacy of the 
industry's reserves. Although a carrier's theoretical reserve studies 
allow us to monitor and evaluate the adequacy of a carrier's 
depreciation reserve, we recognize the burden these studies impose on 
mid-sized incumbent LECs. On balance, we believe that the benefits of 
streamlining depreciation reporting for mid-sized LECs outweighs the 
risks. We note that, if necessary, we can request a mid-sized carrier 
to provide a theoretical reserve study. Further, we note that incumbent 
LECs with individual annual operating revenues below the indexed 
revenue threshold continue to be exempt from the Commission's 
depreciation prescription process.

Confidentiality

    The Commission's existing confidentiality procedures are contained 
in 47 CFR 0.457 and 0.459 of the Commission's rules. We sought comment 
on whether these rules are

[[Page 18929]]

adequate or whether additional safeguards need to be adopted to protect 
information that carriers regard as confidential. We find no reason to 
alter the policies we have in place to protect the confidentiality of 
carrier information.

Waivers

    In the Depreciation Notice, we noted that even under price caps, 
depreciation had a potentially significant impact on a carrier's price 
cap indexes and its rates for some non-price cap services. We invited 
comment on ways that we might eliminate our need for depreciation 
prescription. In addition, the USTA forbearance petition raised issues 
concerning conditions under which the depreciation process might not be 
necessary. Based on our review, we believe that it would be appropriate 
to grant a waiver of our depreciation prescription process for certain 
price cap incumbent LECs in certain instances. Specifically, we find 
that such a waiver may be approved when an incumbent LEC, voluntarily, 
in conjunction with its request for waiver: (1) Adjusts the net book 
costs on its regulatory books to the level currently reflected in its 
financial books by a below-the-line write-off; (2) uses the same 
depreciation factors and rates for both regulatory and financial 
accounting purposes; (3) foregoes the opportunity to seek recovery of 
the write-off through a low-end adjustment, an exogenous adjustment, or 
an above-cap filing; and (4) agrees to submit information concerning 
its depreciation accounts, including forecast additions and retirements 
for major network accounts and replacement plans for digital central 
offices. Finally, the waiver request must comply with Sec. 1.3 of the 
Commission's rules. We will consider alternative proposals by carriers 
seeking a waiver of our depreciation requirements. Such alternative 
proposals, however, must provide the same protections to guard against 
adverse impacts on consumers and competition as the conditions adopted 
in this Order provide.
    The first and second conditions of the waiver process we establish 
in this Order require that carriers seeking a waiver of our 
depreciation prescription process adjust their regulatory net book 
costs to their financial net book costs and use the same depreciation 
factors and rates for both regulatory and financial accounting 
purposes. The first condition addresses the disparity that exists 
between the largest incumbent LECs' financial and regulatory books. In 
the early 1990's many of the largest incumbent LECs wrote off billions 
of dollars from their financial books through adjustments to their 
depreciation reserves. Because they did not make comparable write-offs 
on their regulatory books, there are significant differences in 
depreciation reserves between their financial and regulatory books. The 
first condition requires that the incumbent LEC eliminate this 
disparity by increasing the depreciation reserves on its regulatory 
books by a below-the-line write-off. The second condition then requires 
that carriers use the same depreciation factors and rates for both 
regulatory and financial purposes. Using the same factors and rates 
will ensure that established accounting procedures are being followed. 
These conditions are important because they provide assurance that 
carriers do not engage in a practice that would disadvantage consumers 
and competition by using high financial depreciation rates with high 
regulatory net book costs or by applying inappropriate depreciation 
rates to regulatory plant accounts.
    The third condition requires that carriers obtaining a waiver 
forego the opportunity to recover any portion of the adjustment that 
results from conforming their regulatory net book costs to their 
financial net book costs (i.e., through a below-the-line write-off). As 
a precondition to obtaining a waiver of the depreciation prescription 
process, a carrier would have to voluntarily forego its opportunity to 
recover any portion of the one-time adjustment to its regulatory books 
through a low-end adjustment, an exogenous adjustment or an above-cap 
filing. These are all mechanisms through which a price cap incumbent 
LEC can increase its prices by passing costs through to ratepayers. 
This third condition assures that a waiver from the depreciation 
prescription rules would not lead to unjust and unreasonable rates that 
would result from the inappropriate use of recovery mechanisms. 
Foregoing recovery of any portion of the write-off is necessary because 
the depreciation prescription process is the primary way in which we 
evaluate such claims for recovery. If, as a condition of obtaining a 
waiver, an incumbent LEC voluntarily foregoes any opportunity to assert 
such claims in connection with this adjustment to its regulatory net 
book costs, then our concerns would be mitigated and we could conclude 
that a waiver of our rules is consistent with the public interest.
    These first three conditions are imposed in order to guard against 
adverse impacts on consumers and competition. Without these conditions, 
the largest incumbent LECs could use their high financial depreciation 
rates with their high regulatory net book costs, thereby drastically 
increasing their annual depreciation expenses. Large increases in 
depreciation expenses on the carrier's regulatory books would 
significantly reduce carrier's earnings, which in the case of most all 
the largest incumbent LECs, would be of such magnitude as to lower 
rates of return below 10.25%. This in turn could trigger a low-end 
adjustment, or could lead to carriers seeking recovery through 
exogenous cost treatment or above-cap filings. These recovery 
mechanisms, if granted, could enable incumbent LECs to increase prices 
they charge for access services and in rates they charge for unbundled 
network elements (UNEs) and interconnection. Increases in access 
service prices, which could be substantial, would be imposed on 
purchasers of access and passed on to their customers. The harmful 
impact that increased charges could have on competition is also 
substantial. State regulatory commissions have set rates for 
interconnection and UNEs, and in many instances, have based the rates 
on Commission-prescribed depreciation factors. Incumbent LECs, acting 
as wholesale providers of critical facilities to their competitors, 
could independently establish depreciation rates that could result in 
unreasonably high interconnection and UNE rates, which competitors 
would be compelled to pay in order to provide competing local exchange 
service.
    In addition, allowing the largest incumbent LECs to select their 
own financial depreciation rates for regulatory purposes could have 
serious consequences for the universal service process. All the largest 
price cap incumbent LECs are classified as non-rural for universal 
service purposes. Under the rules we adopted in the recent federal 
high-cost support mechanism proceedings, each of the non-rural 
carriers' high cost support is the larger of: (1) An amount determined 
under our previous USF calculation method, i.e., by basing the amount 
of support on the relationship of the carrier's average cost per loop 
and the nationwide average cost per loop or (2) an amount determined 
under the new synthesis model. Our current depreciation prescription 
process is critical in the calculation of high cost support amounts 
determined under method (1) because it ensures that the depreciation 
expense component of the carriers' average costs per loop are 
reasonable. If we were to allow incumbent LECs to choose their own 
depreciation factors without review, we

[[Page 18930]]

could no longer ensure that the depreciation expense or the average 
cost per loop were reasonable. If these carriers were to use their 
financial depreciation factors for regulatory purposes, they would 
report major increases in their average costs per loop. This would 
increase substantially their high cost support under method (1). Under 
this method, however, because high cost support is subject to a cap, 
increases in the largest incumbent LECs' high cost support would not 
increase the fund. Instead, it would lead to substantial reductions in 
the high cost support for other, primarily rural, carriers, many of 
which rely to a great extent on high cost support to keep their local 
rates affordable.
    In light of the significantly harmful impact that unrestricted 
changes in depreciation expenses could have on consumers and 
competition, we find the public interest is protected only if 
safeguards are in place that will negate such potential harm. We 
believe the first three conditions provide the appropriate safeguards 
and will ensure that carriers do not unreasonably increase depreciation 
expenses as a result of granting flexibility to establish their own 
depreciation rates.
    The fourth condition requires that carriers who obtain a waiver of 
our depreciation process submit certain information about network 
retirement patterns and modernization plans related to their plant 
accounts so that we can maintain realistic ranges of depreciable life 
and salvage factors for each of the major plant accounts. This 
condition seeks to ensure that the Commission has the necessary data to 
periodically update depreciation factors (i.e., life, salvage, curve 
shape, depreciation reserve) and to address issues in areas where 
reliance on the carriers' financial depreciation rates may be 
inconsistent with other regulatory policy goals. Maintaining 
appropriate depreciation ranges for the major plant accounts will 
continue to be critical even though some carriers may be granted relief 
from the Commission's prescribed depreciation process. This is 
especially true given the Commission's reliance on the prescribed 
depreciation ranges in the use of its cost models for universal service 
high cost support and UNE/interconnection prices.
    As discussed, calculation of high cost support under method (2) 
uses the synthesis model. In this model, the Commission determined that 
it would rely on the weighted average of the prescribed lives and 
salvage percentages. If we were to discontinue depreciation 
prescription for most carriers, these weighted average factors would 
become less representative of the industry as a whole. In such a 
circumstance, in order to have representative depreciation factors, we 
would likely have to rely on the Commission's prescribed depreciation 
ranges. In order to do this successfully, however, we would have to 
require that all the major carriers continue to provide the data 
necessary to keep the ranges up-to-date.
    Further, in the Local Competition Proceeding, (61 FR 45476 August 
29, 1996) the Commission required the use of ``economic depreciation'' 
in calculating rates for interconnection and UNEs, but did not 
elaborate on how economic depreciation should be calculated. Based on 
our review to date, twenty-four states commissions have required 
incumbent LECs to use FCC-prescribed projection lives and salvage 
factors, or similar state-prescribed factors, to calculate their rates 
for UNEs. We are concerned that forbearance from depreciation 
regulation by the Commission might deprive state regulatory commissions 
of valuable information that they may want or need in setting rates for 
interconnection and UNEs, and might enable incumbent LECs to raise 
arbitrarily the rates for essential inputs that competitors must 
purchase from the incumbent LECs. This could have an adverse impact on 
the development of local competition.
    Thus, in order to prevent any inappropriate and undesirable 
fluctuations in high cost support or the rates for interconnection and 
UNEs due to changes in depreciation rates caused by carriers receiving 
a waiver, we will continue to maintain realistic ranges of depreciable 
life and salvage factors for each of the major plant accounts. These 
ranges can be relied upon by federal and state regulatory commissions 
for determining the appropriate depreciation factors to use in 
establishing high cost support and interconnection and UNE prices. The 
information that carriers will be required to submit include: forecast 
additions and retirements for major network accounts; replacement plans 
for digital central offices; and information concerning relative 
investments in fiber and copper cable. This condition will assure that 
any increase in depreciation expense will not have a harmful effect on 
consumers or competition in rates calculated using reported costs or 
forward-looking cost models.
    The four conditions outlined are intended to mitigate our concerns 
about the adverse impacts that could occur when carriers are given the 
freedom to select their own depreciation lives and procedures. The 
depreciation prescription process is our primary method of assessing 
the validity of the incumbent LECs' claims for reserve deficiencies and 
it would not be in the public interest to waive our depreciation rules 
with the issue of billions of dollars in potential claims unresolved. 
By establishing conditions pursuant to which a waiver from the 
depreciation prescription process would be granted, we are giving 
carriers the freedom from depreciation regulation that they seek. In 
exchange for that freedom, however, they would need to relinquish 
portions of the regulatory safety net that has protected them in the 
past.

USTA Petition for Forbearance

    On September 21, 1998, USTA filed a petition for forbearance on 
behalf of the price cap incumbent LECs and requested that the 
Commission forbear from imposing Secs. 32.2000(g) and 43.43 of the 
Commission's rules, and refrain from conducting depreciation 
prescription proceedings under section 220(b) of the Act. The USTA 
petition is filed under section 10 of the Act. We deny the USTA's 
petition. We find that USTA did not meet the requirements of Section 10 
and that: Our depreciation prescription process is necessary to ensure 
just and reasonable charges; continuation of our depreciation 
prescription process is necessary for the protection of consumers; and 
that forbearance is not consistent with the public interest and the 
promotion of competition as it is likely to have an adverse effect on 
competition by raising the input prices that competitors must pay to 
provide local exchange service. We therefore find that none of the 
three prongs of the section 10 forbearance test is met. We thus deny 
USTA's petition for forbearance from the prescription of depreciation 
prescription.

IV. Procedural Issues

A. Regulatory Flexibility Act

    Final Regulatory Flexibility Certification--Report and Order in CC 
Docket No. 98-81, RM-9341.
    The Regulatory Flexibility Act (RFA), 5 USC 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

[[Page 18931]]

Depreciation Requirements for Incumbent Local Exchange Carriers, CC 
Docket No. 98-137, Notice of Proposed Rulemaking (NPRM), the Commission 
certified that the Regulatory Flexibility Act did not apply to this 
rulemaking because none of the proposed changes to our depreciation 
prescription process would have a significant economic impact on a 
substantial number of small entities. Pursuant to longstanding rules, 
the proposed changes would apply only to incumbent LECs with annual 
operating revenues exceeding the indexed revenue threshold. No comments 
were received concerning the proposed certification.

B. Paperwork Reduction Act

    26. Final Paperwork Reduction Act Analysis.

C. Authority

    This decision herein has been analyzed with respect to the 
Paperwork Reduction Act of 1995, Public Law 104-13, and has been 
approved in accordance with the provisions of that Act. The Office of 
Management and Budget (OMB) approved the proposed requirements under 
OMB control number 3060-0168, which expires December 31, 2001. The 
Report and Order contains new or modified information collections which 
are subject to the Paperwork Reduction Act of 1995.

D. Ordering Clauses

    Pursuant to Sections 1, 2, 4, 11, 201-205, and 218-220 of the 
Communications Act of 1934, as amended, 47 USC 151, 152, 154, 161, 201-
205, and 218-220, part 43 of the Commission's rules, 47 CFR part 43, is 
Amended as shown. Pursuant to Sections 1-4, 201-205, 220 and 303(r) of 
the Communications Act of 1934, as amended, 47 USC 151-154, 201-205, 
220 and 303(r) that the Report and Order is Adopted. These rules 
contain information collections that have not been approved by OMB. The 
Commission will publish a document announcing the effective date of 
this rule.
    Pursuant to Sections 1, 4, 10, and 220 of the Communications Act of 
1934, as amended, 47 USC 151, 154, 160, and 220 that the Petition for 
Forbearance from Depreciation Regulation of Price Cap Local Exchange 
Carriers filed by the United States Telephone Association is hereby 
denied. The Commission's Office of Public Affairs, Reference Operations 
Division, shall send a copy of this Report and Order, including the 
Final Regulatory Flexibility Certification, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 43

    Reports of Communication Common Carriers and Certain Affiliates.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Part 43 of Title 47 of the CFR is amended as follows:

PART 43--REPORTS OF COMMUNICATION COMMON CARRIERS AND CERTAIN 
AFFILIATES

    1. The authority citation for part 43 continues to read as follows:

    Authority: 47 U.S.C. 154: Telecommunications Act 0f 1996, Public 
Law 104-104, sections 402 (b)(2)(B), (c), 110 Stat. 56 (1996) as 
amended unless otherwise noted. 47 U.S.C. 211, 219, 220 as amended.

    2. In Sec. 43.43 paragraph (c) and (e) are revised to read as 
follows:


Sec. 43.43  Reports of proposed changes in depreciation rates.

* * * * *
    (c) Except as specified in paragraphs (c)(1) and (c)(3) of this 
section, when the change in the depreciation rate proposed for any 
class or subclass of plant (other than one occasioned solely by a shift 
in the relative investment in the several subclasses of the class of 
plant) amounts to twenty percent (20%) or more of the rate currently 
applied thereto, or when the proposed change will produce an increase 
or decrease of one percent (1%) or more of the aggregate depreciation 
charges for all depreciable plant (based on the amounts determined in 
compliance with paragraph (b)(2) of this section) the carrier shall 
supplement the data required by paragraph (b) of this section) with 
copies of the underlying studies, including calculations and charts, 
developed by the carrier to support service-life and net-salvage 
estimates. If a carrier must submit data of a repetitive nature to 
comply with this requirement, the carrier need only submit a fully 
illustrative portion thereof.
    (1) A Local Exchange Carrier regulated under price caps, pursuant 
to Secs. 61.41 through 61.49 of this chapter, is not required to submit 
the supplemental information described in paragraph (c) introductory 
text of this section for a specific account if: The carrier's currently 
prescribed depreciation rate for the specific accounts derived from 
basic factors that fall within the basic factor ranges established for 
that same account; and the carrier's proposed depreciation rate for the 
specific account would also be derived from basic factors that fall 
within the basic factor ranges for the same account.
    (2) Local Exchange Carriers that are regulated under price caps, 
pursuant to Secs. 61.41 through 61.49 of this chapter, and have 
selected basic factors that fall within the basic factor ranges for all 
accounts are exempt from paragraphs (b)(3), (b)(4), and (c) 
introductory text of this section. They shall instead comply with 
paragraphs (b)(1), (b)(2) and (b)(5) of this section and provide a book 
and theoretical reserve summary and a summary of basic factors 
underlying proposed rates by account.
    (3) Interexchange carriers regulated under price caps, pursuant to 
Secs. 61.41 through 61.49 of this chapter, are exempted from submitting 
the supplemental information as described in paragraph (c) introductory 
text of this section. They shall instead submit: Generation data, a 
summary of basic factors underlying proposed depreciation rates by 
account and a short narrative supporting those basic factors, including 
company plans of forecasted retirements and additions, recent annual 
retirements, salvage and cost of removal.
* * * * *
    (e) Unless otherwise directed or approved by the Commission, the 
following shall be observed: Proposed changes in depreciation rates 
shall be filed at least ninety (90) days prior to the last day of the 
month with respect to which the revised rates are first to be applied 
in the accounts (e.g., if the new rates are to be first applied in the 
depreciation accounts for September, they must be filed on or before 
July 1). Such rates may be made retroactive to a date not prior to the 
beginning of the year in which the filing is made: Provided however, 
that in no event shall a carrier for which the Commission has 
prescribed depreciation rates make any changes in such rates unless the 
changes are prescribed by the Commission. Carriers who select basic 
factors that fall within the basic factor ranges for all accounts are 
exempt from depreciation rate prescription by the Commission.
* * * * *
[FR Doc. 00-8639 Filed 4-7-00; 8:45 am]
BILLING CODE 6712-01-P