[Federal Register Volume 65, Number 71 (Wednesday, April 12, 2000)]
[Proposed Rules]
[Pages 19725-19728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9230]


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

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 43

[CC Docket No. 98-137, CC Docket No. 99-117, AAD File No. 98-26; FCC 
00-119]


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

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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

SUMMARY: In this document the primary goal of the Commission is to 
determine whether there are circumstances under which Commission 
depreciation requirements could be eliminated for price-cap carriers in 
a manner that serves the public interest. In reaching this goal it is 
important to ensure that the consumers are protected against harmful 
rate impacts that could result from unregulated depreciation practices. 
The Commission remains concerned, and seeks to assure, that any changes 
in depreciation practices do not adversely impact consumers and 
competition.

DATES: Written comments by the public on the proposed information 
collections are due April 17, 2000. Reply comments must be received on 
or before April 28, 2000. Written comments must be submitted by the 
Office of Management and Budget (OMB) on the proposed information 
collection(s) on or before June 12, 2000.

ADDRESSES: 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]. In 
addition to filing comments with the Secretary, a copy of any comments 
on the information collections contained herein should be submitted to 
Judy Boley, Federal Communications Commission, Room 1-C804, 445 12th 
Street, SW, Washington, DC 20554, or via the Internet to 
[email protected], and to Edward C. Springer, OMB Desk Officer, 10236 
NEOB, 725--17th Street, NW, Washington, DC 20503 or via the Internet to 
[email protected]. For additional information concerning the 
information collection(s) contained in this document, contact Judy 
Boley at 202-418-0214, or via the Internet at [email protected].

FOR FURTHER INFORMATION CONTACT: JoAnn Lucanik, Accounting Safeguards 
Division, Common Carrier Bureau at (202) 418-0873 or Andy Mulitz, 
Chief, Legal Branch, Accounting Safeguards Division, Common Carrier 
Bureau at (202) 418-0827. For additional information concerning the 
information collection(s) contained in this document, contact Judy 
Boley at 202-418-0214, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: The Further Notice of Proposed Rulemaking 
(FNPRM) in CC Docket No. 98-137, CC Docket No. 99-117 and AAD File No. 
98-86, adopted on March 31, 2000 and released on April 3, 2000, is 
available for inspection and copying during normal business hours in 
the FCC Reference Information Center (RIC), 445 12th Street, SW, TW-
A325, Washington, DC 20554. The complete text may be purchased from the 
Commission's copy contractor, International Transcription Service, 
Inc., 1231 20th Street, NW, Washington, DC 20036 (202) 857-3800.
    This FNPRM contains proposed information collection(s) subject to 
the Paperwork Reduction Act of 1995 (PRA). It has been submitted to the 
Office of Management and Budget (OMB) for review under the PRA. OMB, 
the general public, and other Federal agencies are invited to comment 
on the proposed information collections contained in this proceeding.

Paperwork Reduction Act

    This FNPRM contains a proposed information collection. The 
Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public and the Office of Management and 
Budget (OMB) to comment on the information collection(s) contained in 
this NPRM, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. Public and agency comments are due at the same time as 
other comments on this FNPRM; OMB notification of action is due 60 days 
from date of publication of this FNPRM in the Federal Register.
    Comments should address: (a) whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    OMB Control Number: 3060-0168.
    Title: Reports of Proposed Changes in Depreciation Rates--Section 
43.43.
    Form No.: N/A.
    Type of Review: Revision of existing collection.
    Respondents: Business or other for-profit.
    Number of Respondents: 10.
    Estimated Time Per Response: 4000 hours (avg).
    Total Annual Burden: 40,000 hours.
    Cost to Respondents: $0.
    Needs and Uses: The FNPRM seeks comment on a proposal to provide 
relief from the Commission's depreciation prescription process for 
price cap incumbent LECs. Generally, the proposal provides for a price 
cap incumbent LEC to adjust the net book costs on its regulatory books 
to its financial book levels and amortize the difference over a five 
year period; forego the opportunity to seek recovery of the amortized 
difference in any state and/or interstate rates through a low-end 
adjustment, an exogenous adjustment, an above-cap filing or any other 
recovery mechanism; use the same depreciation factors and rates for 
both regulatory and financial accounting purposes; submit information 
concerning its depreciation accounts, including forecast additions and 
retirements for major network accounts and replacement plans for 
digital central offices; use the amortized amount in the calculation of 
regulated earnings; and report costs that reflect both amortization as 
a one time write-off and as amortized over the five year period. If 
adopted, the proposal would most likely eliminate the waiver process 
set forth in the R&O.

Synopsis of Notice

    In their March 3, 2000 letter, Incumbent Local Exchange Carriers 
(ILECs) participating in the Coalition for Affordable Local and Long 
Distance (CALLS) modified plan identified a potential alternative joint 
waiver approach to achieving the objectives set forth in the 
Depreciation Order released on December 30, 1999 (FCC 99-397), 65 FR 
18926 (April 7, 2000). Specifically,

[[Page 19726]]

the letter outlines steps that the ILECs propose to take to achieve 
freedom from depreciation requirements, including: (1) use of the same 
depreciation factors and rates for both federal regulatory and 
financial accounting purposes; (2) submission of information concerning 
their depreciation accounts when significant changes to depreciation 
factors are made; and (3) use of a straight-line amortization over a 
five-year period to account for the difference between the reserve 
balances on their regulatory books and the corresponding balances on 
their financial books. The ILECs indicated that, under their proposal, 
the amortization expense for each year would be included in the 
calculation of regulated earnings (treated as an above-the-line 
expense) when reporting to the Commission. The ILECs would agree, 
however, that the amortization would have no effect on interstate price 
caps or their interstate rates and would commit not to seek recovery of 
the amortization expense through a low-end adjustment, an exogenous 
adjustment, or an above-cap filing. Also, under this proposal, the 
ILECs would commit not to seek recovery of the interstate amortization 
expense through any action at the state level, including any action on 
UNE rates.
    The primary goal of this proceeding is to determine whether there 
are circumstances under which our depreciation requirements could be 
eliminated for price-cap carriers in a manner that serves the public 
interest. In reaching this goal, it is important to ensure that 
consumers are protected against harmful rate impacts that could result 
from unregulated depreciation practices. Further, while we seek to 
eliminate burdensome regulatory requirements, we remain committed to 
assuring that such elimination does not have any adverse impact on the 
development of local competition. Also, because many of the state 
regulatory commissions use our cost models and often rely on our 
depreciation prescriptions for state ratemaking purposes, we seek to 
ensure that elimination of our depreciation requirements will not have 
any adverse impact at the state level.
    The conditions we established in the Depreciation Order, pursuant 
to which a carrier could seek a waiver from the depreciation 
requirements, were found to largely mitigate any adverse impacts that 
could occur when carriers are given freedom from depreciation 
regulation. Prominent among these conditions was a requirement to 
write-off, below-the-line, the difference between the carriers' 
regulatory and financial book costs. The Depreciation Order identified 
this one-time write-off as one means to eliminate the disparity that 
exists between financial and regulatory books and to ensure that these 
expenses would not be unjustifiably recovered in consumer rates. Under 
a five-year amortization proposal, the differential between the 
carriers' financial and regulatory books would be eliminated in five 
years.
    We seek comment on whether an above-the-line amortization of the 
difference between the price-cap carriers' regulated and financial book 
costs over a five-year period, combined with a commitment not to seek 
recovery of the amortization and not to base any application for 
federal or state rate increases (through a low-end adjustment or other 
means) on any portion of the amortization over the course of the five 
year period adequately protects consumers from adverse rate impacts and 
otherwise meets the policy goals of the Depreciation Order. If not, are 
there additional steps that would eliminate or minimize these concerns? 
We specifically invite state commissions to comment on whether the 
depreciation changes discussed herein will have an adverse impact on 
local rates or competition. If so, we seek comment from states on 
specific actions we might take to protect against such adverse impacts.
    We also seek comment on whether it is appropriate, under a five-
year amortization approach, coupled with a commitment not to seek 
recovery of any portion of the amortization from federal or state 
rates, to include the amortization amount in the calculation of 
regulated earnings in the carriers' reports to the Commission. If so, 
what protections, if any, will ensure that the carriers' reported 
earnings, which would include the amortization expense, are not used in 
applications for rate increases under low-end adjustment, above cap 
price filings, or other mechanisms to justify rate increases. For 
example, should price-cap ILECs be required to periodically report 
costs that reflect what their costs would have been had the write-off 
been taken as a one-time below-the-line event or maintain records that 
reflect the amortization factored-in and factored-out, particularly 
where the carrier may be seeking price increases under low-end 
adjustments or some other mechanism? We seek comment on whether a five-
year amortization accounting treatment has an adverse impact on 
reported earnings, and if so, what, if any, action the Commission 
should take to address these impacts. We also seek comment on what 
measures we should take to account for and monitor the proposed 
amortization process.
    In the Depreciation Order, we found that, 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 
factors or rates caused by carriers no longer subject to the 
Commission's depreciation requirements, we would continue to maintain 
realistic ranges of depreciable life and salvage factors for each of 
the major plant accounts for use in the cost models. Thus, we required 
that carriers agree to provide information about their depreciable 
plant accounts, including forecast additions and retirements for major 
network accounts, replacement plans for digital central offices, and 
information concerning relative investments in fiber and copper cable. 
We seek comment on the timing of the carriers' data submissions to the 
Commission and the scope of such submissions that will be needed to 
periodically update depreciation factors for use in the cost models.
    Finally, we note that audits of the continuing property records 
(CPR) of the Regional Bell Operating Companies (RBOCs) are before the 
Commission, as are the results of a joint State-Federal audit of GTE's 
CPRs. The CPR audits found that, combined, these carriers could not 
account for approximately $5 billion of central office equipment and 
recommended that these amounts be written-off their regulatory books of 
account. We estimate that a five-year amortization, if applied to these 
carriers, would result in a reduction of approximately $28 billion in 
asset value from their regulated books of accounts. Given the size of 
the write-off proposed by the audits, we seek comment on whether, if 
the RBOCs and GTE bring their regulatory book balances to the levels of 
their financial book levels, the CPR audit findings are rendered moot. 
In particular, we seek comment on whether an accounting treatment that 
results in a non-recoverable amortization of a substantial portion of a 
carrier's investment provides a legitimate basis to terminate the CPR 
audits.

Procedural Issues

A. Ex Parte Presentations

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

[[Page 19727]]

generally 47 CFR 1.1202, 1.1203, and 1.1206.

B. Supplemental Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) requires that an initial 
regulatory flexibility analysis be prepared for notice-and-comment 
rulemaking proceedings, unless the agency certifies that ``the rule 
will not, if promulgated, have a significant economic impact on a 
substantial number of small entities.'' The RFA generally defines 
``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. Under the Small Business Act, a ``small business concern'' is one 
that: (1) Is independently owned and operated; (2) is not dominant in 
its field of operation; and (3) satisfies any additional criteria 
established by the Small Business Administration (SBA). The SBA has 
defined a small business for Standard Industrial Classification (SIC) 
category 4813 (Telephone Communications, Except Radiotelephone) to be 
small entities when they have no more than 1,500 employees. This 
rulemaking action is supported by sections 4(i), 4(j), 201-205, 254, 
and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 
154(i), 154(j), 201-205, 254, and 403.
    This Further Notice seeks comment on what conditions would be 
appropriate to eliminate the prescription of depreciation rates for 
price-cap ILECs. As noted, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small ILECs 
are not dominant in their field of operation because any such dominance 
is not ``national'' in scope. We have therefore included small ILECs in 
the RFA analysis, although we emphasize that this RFA action has no 
effect on FCC analyses and determinations in other, non-RFA contexts. 
We note, however, that the action we propose in this rulemaking 
proceeding does not apply to small ILECs, but would apply only to 
price-cap ILECs subject to Commission depreciation requirements.
    We certify that the proposal in this Further Notice, if adopted, 
will not have a significant economic impact on a substantial number of 
small entities. Pursuant to long-standing rules, ILECs with annual 
operating revenues exceeding the indexed revenue threshold must comply 
with the Commission's depreciation prescription process. This Further 
Notice proposes, under appropriate conditions, to eliminate these 
depreciation requirements. These changes should be easy and inexpensive 
for ILECs to implement and will not require costly or burdensome 
procedures. We therefore expect that the potential impact of the 
proposed rules, if such are adopted, is beneficial and does not amount 
to a possible significant economic impact on affected entities. If 
commenters believe that the proposals discussed in the Further Notice 
require additional RFA analysis, they should include a discussion of 
these issues in their comments.
    The Commission's Office of Public Affairs, Reference Operations 
Division, will send a copy of this Further Notice, including this 
initial certification, to the Chief Counsel for Advocacy of the Small 
Business Administration.

C. Paperwork Reduction Act

    This Further Notice seeks comment on the timing of price-cap ILECs' 
data submissions to the Commission and the scope of such submissions 
that are needed by the Commission to periodically update depreciation 
factors for use in the cost models. As part of our continuing effort to 
reduce paperwork burdens, we invite the general public to take this 
opportunity to comment on information collections contained in this 
Further Notice of Proposed Rulemaking, as required by the Paperwork 
Reduction Act of 1995, Public Law 104-13. Public and agency comments 
are due at the same time as other comments on this Further Notice of 
Proposed Rulemaking. Comments should address: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
burden estimates; (c) ways to enhance the quality, utility, and clarity 
of the information collected; and (d) ways to minimize the burden of 
the collection of information on the respondents, including the use of 
automated collection techniques or other forms of information 
technology.

D. Comment Filing Procedures

    Pursuant to Secs. 1.415 and 1.419 of the Commission's rules, 47 CFR 
1.415, 1.419, interested parties may file comments on or before April 
17, 2000. Interested parties may file reply comments on or before April 
28, 2000. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS) or by filing paper copies.
    Comments filed through the ECFS can be sent as an electronic file 
via the Internet to http://www.fcc.gov/e-file/ecfs.html>. Generally, 
only one copy of an electronic submission must be filed. If multiple 
docket or rulemaking numbers appear in the caption of this proceeding, 
however, commenters must transmit one electronic copy of the comments 
to each docket or rulemaking number referenced in the caption. In 
completing the transmittal screen, commenters should include their full 
name, Postal Service mailing address, and the applicable docket or 
rulemaking number. Parties may also submit an electronic comment by 
Internet e-mail. To get filing instructions for e-mail comments, 
commenters should send an e-mail to [email protected], and should include 
the following words in the body of the message, ``get form your e-mail 
address.'' A sample form and directions will be sent in reply.
    Parties who choose to file by paper must file an original and four 
copies of each filing. If more than one docket or rulemaking number 
appear in the caption of this proceeding, commenters must submit two 
additional copies for each additional docket or rulemaking number. All 
filings must be sent to the Commission's Secretary, Magalie Roman 
Salas, Office of the Secretary, Federal Communications Commission, 445 
12th Street, SW Room TW-A325, Washington, DC 20554.
    Parties who choose to file by paper should also submit their 
comments on diskette. These diskettes should be submitted to: Debbie 
Byrd, Accounting Safeguards Division, 445 12th Street, SW, Washington, 
DC 20554. Such a submission should be on a 3.5 inch diskette formatted 
in an IBM compatible format using Word for Windows or compatible 
software. The diskette should be accompanied by a cover letter and 
should be submitted in ``read only'' mode. The diskette should be 
clearly labeled with the commenter's name, proceeding (including the 
docket number, in this case CC Docket No. 98-137, CC Docket No. 99-117, 
and AAD File No. 98-26), type of pleading (comment or reply comment), 
date of submission, and the name of the electronic file on the 
diskette. The label should also include the following phrase ``Disk 
Copy--Not an Original.'' Each diskette should contain only one party's 
pleadings, preferably in a single electronic file. In addition, 
commenters must send diskette copies to the

[[Page 19728]]

Commission's copy contractor, International Transcription Service, 
Inc., 1231 20th Street, NW, Washington, DC 20037.
    Written comments by the public on the proposed information 
collections are due on or before April 17, 2000 and reply comments or 
due on or before April 28, 2000. Written comments must be submitted by 
the Office of Management and Budget (OMB) on the proposed and/or 
modified information collections on or before June 12, 2000. In 
addition to filing comments with the Secretary, a copy of any comments 
on the information collections contained herein should be submitted to 
Judy Boley, Federal Communications Commission, Room 1-C804, 445 12th 
Street, SW, Washington, DC 20554, or via the Internet to [email protected] 
and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, 
NW, Washington, DC 20503 or via the Internet to [email protected].

Ordering Clauses

    Pursuant to the authority contained in sections 4(i), 4(j), 201(b), 
303(r), and 403 of the Communications Act of 1934, as amended, 47 
U.S.C. 154(i), 154(j), 201(b), 303(r), and 403, this Further Notice of 
Proposed Rulemaking is adopted.
    The Commission's Consumer Information Bureau, Reference Information 
Center, shall send a copy of this Further Notice of Proposed 
Rulemaking, including the Initial Regulatory Flexibility Certification, 
to the Chief Counsel for Advocacy of the Small Business Administration, 
5 U.S.C. 605(b).

Federal Communications Commission.
Kenneth P. Moran,
Chief, Accounting Safeguards Division.
[FR Doc. 00-9230 Filed 4-11-00; 8:45 am]
BILLING CODE 6712-01-P