[Federal Register Volume 67, Number 25 (Wednesday, February 6, 2002)]
[Rules and Regulations]
[Pages 5670-5703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1212]



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Part II





Federal Communications Commission





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47 CFR Part 32, et al.



2000 Biennial Regulatory Review Comprehensive Review of the Accounting 
Requirements and ARMIS Reporting Requirements for Incumbent Local 
Exchange Carriers: Phase 2; Final Rule and Proposed Rule

  Federal Register / Vol. 67, No. 25 / Wednesday, February 6, 2002 / 
Rules and Regulations  

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32, 43, 51, 54, 64, 65, and 69

[CC Docket Nos. 00-199, 97-212, and 80-286; FCC 01-305]


2000 Biennial Regulatory Review--Comprehensive Review of the 
Accounting Requirements and ARMIS Reporting Requirements for Incumbent 
Local Exchange Carriers: Phase 2

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission consolidates and streamlines 
Class A accounting requirements; relaxes certain aspects of the 
affiliate transactions rules; significantly reduces the accounting and 
reporting rules for mid-sized carriers; and reduces the ARMIS reporting 
requirements for both large and mid-sized incumbent local exchange 
carriers (LECs). The Commission anticipates that the rule changes 
adopted in the Report and Order will reduce regulatory burdens on 
incumbent LECs.

DATES: Effective August 6, 2002. The Commission will, however, permit 
carriers to implement accounting changes as of January 1, 2002.
    Written comment by the public on the new and/or modified 
information collections are due March 8, 2002.

ADDRESSES: Federal Communications Commission, 445 12th Street, 
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: Tim Peterson, Deputy Division Chief, 
Accounting Safeguards Division, Common Carrier Bureau, at (202) 
418-1575 or Mika Savir, Accounting Safeguards Division, Common Carrier 
Bureau, Legal Branch, at (202) 418-0384. For additional information 
concerning the information collections 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 October 11, 2001 and released November 5, 2001. The 
full text of this document is available for public inspection and 
copying during regular business hours at the FCC Reference Information 
Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 
20554. This document may also be purchased from the Commission's 
duplicating contractor, Qualex International, Portals II, 445 12th 
Street, SW., Room CY-B402, Washington, DC 20554, telephone 
202-863-2893, facsimile 202-863-2898, or via e-mail [email protected].
    This Report and Order contains new or modified information 
collections subject to the Paperwork Reduction Act of 1995 (PRA), 
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 Report and Order contains either a 
new or modified information collection 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 Report and Order 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 Report and Order as 
required by the Paperwork Reduction Act of 1995, Public Law 104-13. 
Public and agency comments are due March 8, 2002. 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.

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                                                                                             Number of     Est. time per   Total annual       Cost to
                OMB Control No.                                   Title                     respondents     respondent       resposnes      respondents
--------------------------------------------------------------------------------------------------------------------------------------------------------
3060-0370......................................  Part 32................................             239         6,123.4       1,463,496              $0
3060-0384......................................  Sections 64.904 & 64.905...............              12             107           1,285       1,200,000
3060-0470......................................  Sections 64.901-64.903.................              10             200           2,000               0
3060-0511......................................  ARMIS Access Report (43-04)............             121           157.2          19,031               0
3060-0512......................................  ARMIS Annual Summary Report (43-01)....             121            96.5          11,680               0
3060-0734......................................  Affiliates Transactions................              20              24             480               0
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    Needs and Uses: In the Report and Order, the Commission is 
completing the second phase of its Comprehensive Accounting and ARMIS 
review. In the Report and Order, the Commission, among other things, 
reduces the number of Class A accounts in 47 CFR part 32 by 45%; 
reduces the current Class B accounts by 27%; revises the affiliate 
transaction rules; simplifies the preparation of cost allocation 
manuals for Class A carriers; modifies several ARMIS reporting for the 
large incumbent LECs; significantly streamlines ARMIS Report 43-04; 
significantly simplifies the reporting requirements for mid-sized 
incumbent LECs by eliminating the requirement that they file certain 
ARMIS reports; and eliminates the cost allocation manual filing 
requirements and the biennial attestation requirement for mid-sized 
LECs.
    The information provides the necessary detail to enable the 
Commission to fulfill its regulatory responsibilities.

[[Page 5671]]

Summary of Report and Order

I. Accounting Rules

A. Chart of Accounts
    The Commission concludes that the number of Class A accounts can be 
reduced from 296 accounts to 164 accounts, and adopts the proposal in 
2000 Biennial Regulatory Review--Comprehensive Review of the Accounting 
Requirements and ARMIS Reporting Requirements for Incumbent Local 
Exchange Carriers: Phase 2 and Phase 3, CC Docket No. 00-199, Notice of 
Proposed Rulemaking, 65 FR 67675 (11-13-2000) (NPRM), with the 
following modifications: Instead of consolidating the buried cable, 
submarine cable, and deep sea cable accounts, the Commission is 
consolidating the deep sea cable and submarine cable accounts and is 
retaining the buried cable accounts. In addition, the Commission is not 
consolidating Account 4040, Customer's deposits, with the other current 
liabilities accounts. The Commission is also modifying the proposal in 
the NPRM regarding the consolidation of the local network services 
revenues accounts. Instead of consolidating these accounts (Accounts 
5001 through 5069) into Account 5000, Basic local service revenue, the 
Commission is combining these accounts into three accounts. Finally, 
the Commission retains Account 6790, Provision for uncollectible notes 
receivable and Account 6613, Product advertising, and consolidates the 
remaining customer operations expense and corporate operations expense 
accounts as proposed.
    The Commission adopts several of the new Class A accounts proposed 
in the NPRM: circuit and packet switching subaccounts to the digital 
switching accounts; electronic and optical circuit equipment 
subaccounts to the circuit equipment accounts; and wholesale and resale 
subaccounts to Account 6620, Services. The Commission is not adopting 
the remaining proposed Class A accounts. Appendix C of the Report and 
Order contains the revised list of Class A accounts.
    The Commission also streamlines the Class B accounts, as proposed 
in the NPRM. Appendix D of the Report and Order contains the revised 
list of Class B accounts.
B. Other Accounting Rule Changes
    1. Inventories. Rule 32.1220(h) of the Commission's rules, 47 CFR 
32.1220(h), requires that inventories of material and supplies be taken 
during each calendar year and that adjustments to this account be 
charged or credited to Account 6512, Provisioning expense. Section 
32.2311(f) of the Commission's rules, 47 CFR 32.2311(f), requires an 
annual inventory of all station apparatus in stock included in this 
account. In the NPRM, the Commission sought comment on the United 
States Telecom Association's (USTA's) proposal to eliminate the 
detailed inventory requirements in the rules and instead permit 
companies to perform inventories based on risk assessment and on 
existing controls. The Commission concludes that companies should have 
the latitude to determine the appropriate inventory validation 
methodology based on risk assessment. Surrogate measures such as 
inventory cycle counts and statistical sampling measures may be more 
cost effective for a carrier than a complete physical inventory. The 
Commission therefore revises Secs. 32.1220(h) and 32.2311(f) to 
eliminate the annual inventory requirement.
    2. Contributions. In the NPRM, the Commission sought comment on 
adopting, for federal accounting purposes, Statement of Financial 
Accounting Standards No. 116 (SFAS-116), ``Accounting for Contributions 
Received and Contributions Made.'' SFAS-116 requires companies to 
record in the current period a liability and related expense for 
unconditional pledges to make contributions in future years. Prior to 
adoption of SFAS-116, companies would record such pledges annually when 
the contributions were made. In 1994, shortly after FASB adopted SFAS-
116, the Common Carrier Bureau (Bureau) informed carriers not to adopt 
SFAS-116 for federal accounting purposes. The Commission's primary 
concern was the effect such a rule could have on the carriers' rates. 
The adoption of SFAS-116 would allow carriers to record increased 
expenses in a given year to reflect contributions pledged for future 
years. Adopting SFAS-116 would establish an accounting rule that would 
be consistent with generally accepted accounting principles (GAAP). The 
Commission's rules require financial records to be kept in accordance 
with GAAP, to the extent permitted by the system of accounts. The 
Commission adopts SFAS-116 for federal accounting purposes and directs 
the Bureau to monitor the carriers' accounting treatment of 
contributions to determine whether implementation of SFAS-116 has a 
significant impact on rates.
    3. Section 252(e) Agreements. In the NPRM, the Commission sought 
comment on USTA's proposal that the Commission clarify that section 
252(e) agreements are treated the same as tariffed services in part 64 
cost allocation rules. The Commission adopts the proposal. Accordingly, 
to the extent a carrier provides a non-tariffed service to its 
nonregulated operations pursuant to a section 252(e) agreement, that 
service will be recorded to nonregulated operations at the amount of 
that service as set forth in an interconnection agreement approved by a 
state commission pursuant to section 252(e).
    4. Affiliate Transactions Rules. In Implementation of the 
Telecommunications Act of 1996: Accounting Safeguards under the 
Telecommunications Act of 1996, CC Docket No. 96-150, Report and Order, 
62 FR 02918 (1-21-1997) (Accounting Safeguards Order), the Commission 
modified the affiliate transactions rules to provide greater protection 
against subsidization of competitive activities by subscribers to 
regulated telecommunication activities. The Commission amended the 
affiliate transactions rules for assets and services provided by a 
carrier to its affiliate and services received by a carrier from its 
affiliate. Under these rules, such transactions are to be valued at 
publicly available rates, if possible. The publicly available rates, in 
order of precedence, are (1) an existing tariff rate, (2) (for services 
only) a publicly filed agreement or statements of generally available 
agreements, or (3) a qualified prevailing price valuation. If there is 
no tariff price for the asset, and the transfer does not qualify for 
prevailing price treatment, the carrier must compare the asset's net 
book cost to its fair market value and value it at the higher of the 
two if the transfer is from the (regulated) carrier, and at the lower 
of the two if the transfer is to the (regulated) carrier. Carriers must 
make a good faith determination of the asset's fair market value.
    The Commission revises the affiliate transactions rules to 
eliminate the requirement that carriers make a fair market value 
comparison for assets when the total annual value of that asset is less 
than $500,000. In Comprehensive Review of the Accounting Requirements 
and ARMIS Reporting Requirements for Incumbent Local Exchange Carriers: 
Phase 1, CC Docket No. 99-253, Report and Order, 65 FR 16328 (3-28-
2000) (Phase 1 Report and Order), the Commission eliminated the 
requirement that carriers make a good faith determination of fair 
market value for services when the total annual value of that service 
is less than $500,000. Below that threshold, the administrative cost 
and effort of making such a

[[Page 5672]]

determination would outweigh the regulatory benefits of a good faith 
determination of fair market value. In such cases, the service should 
be recorded at fully distributed cost.
    In the NPRM, the Commission proposed a conforming exemption for 
assets. Under the Commission's proposal, carriers would not be required 
to perform the net book cost/fair market value comparison for asset 
transfers totaling less than $500,000 per year. For assets within this 
exception, carriers would use net book cost instead of fair market 
value. This exception would be on a product-by-product basis similar to 
the services-by-services basis adopted in the Phase 1 Report and Order. 
The exception applies ``going forward,'' so that the net book cost/fair 
market value comparison would be required once the total amount of 
transfers (i.e., total net book cost) for a given product line in a 
given year exceeds $500,000. The threshold will be applied to the 
aggregate transactions, for a given affiliate. Carriers, therefore, 
will not be required to perform the net book cost/fair market value 
comparison for the first $500,000 of asset transfers, on a product-by-
product basis, per year, per affiliate. In such cases, the asset should 
be recorded at net book cost. Carriers (except average schedule 
companies) will reflect these transactions in their cost allocation 
manuals (CAMs) as well as ARMIS reports, if ARMIS filing is required.
    In the NPRM, the Commission sought comment on giving carriers the 
flexibility to use the higher or lower of cost or market valuation as 
either a floor or ceiling. For certain transactions carriers must 
compare the cost of the service or asset to market value. If the 
carrier is the recipient of the asset or service, it must be recorded 
on the carrier's books at the lower of cost or market. If the carrier 
is the provider, it must be recorded at the higher of cost or market. 
The Commission proposed giving carriers flexibility in valuing these 
transactions by allowing the higher or lower of cost or market 
valuation to operate as either a floor or ceiling, depending on the 
direction of the transaction. This proposal would permit the regulated 
carrier to either pay less or charge more to the nonregulated affiliate 
for the service or asset. The Commission recognizes that adopting a 
ceiling and floor for recording affiliate transactions could 
potentially have an anti-competitive effect. The Commission observes 
that it would be unlikely that a transaction would have such an effect, 
particularly if the transaction is de minimis and is not priced below 
incremental cost. The Commission therefore adopts the proposal in the 
NPRM and allows the higher or lower of cost or market valuation to 
operate as either a floor or ceiling, depending on the direction of the 
transaction. Such transaction must comply with the Communications Act, 
Commission rules and orders, and must not be otherwise anti-
competitive.
    In the NPRM, the Commission sought comment on USTA's proposal to 
revise the prevailing price definition. The prevailing price describes 
a price at which a company offers an asset or service to the general 
public. To qualify for prevailing price treatment, greater than 50 
percent of sales of the subject asset or service must be to third 
parties. USTA proposed that the Commission revise Sec. 32.27(d) to 
decrease the threshold from greater than 50 percent to 25 percent for 
use of prevailing price in valuing affiliate transactions. The 
Commission concludes that a lower threshold would be consistent with a 
more competitive environment, and adopts the proposal.
    In the NPRM, the Commission sought comment on USTA's proposal to 
expand the current exception to the estimated fair market value rule to 
include ``all services provided by a carrier or its affiliate(s) where 
the service is provided solely to members of the carrier's corporate 
family.'' Under the Commission's current affiliate transactions rules, 
if a transaction cannot be valued at publicly available rates, it must 
be valued based on a comparison of cost and fair market value. If a 
comparison is used, the carrier must make a good faith determination of 
fair market value. If the regulated company purchases the asset or 
service from a nonregulated affiliate, the carrier must record the 
transaction at the lower of cost or market value. On the other hand, if 
the carrier sells the asset or service to a nonregulated affiliate, the 
carrier must record the transaction at the higher of cost or market. 
The Commission adopted this valuation rule in the Accounting Safeguards 
Order to ensure that the transactions between the carriers and their 
nonregulated affiliates take place on an ``arm's length'' basis, 
guarding against cross-subsidization of competitive services by 
subscribers to regulated services.
    The exception USTA seeks to expand provides that when an incumbent 
carrier purchases services from an affiliate that exists solely to 
provide services to members of the carrier's corporate family, the 
carrier may record the services at fully distributed cost rather than 
applying the cost or market rule. When the Commission adopted this 
exception in the Accounting Safeguards Order, it explained that the 
narrow exception to the general rule was justified because an affiliate 
that provides services solely to the incumbent carrier's corporate 
family is established to take advantage of economies of scale and 
scope. The benefits of such economies of scale and scope are reflected 
in the affiliate's costs and are ultimately transferred to ratepayers 
through transactions with the incumbent carrier for such services 
valued at fully distributed costs. Requiring incumbent carriers to 
perform fair market valuations for such transactions would increase the 
cost to ratepayers while providing limited benefit.
    The Commission does not adopt the proposal to expand the scope of 
the exception to the valuation rule. If the exception is applied based 
on an individual service being offered solely to the corporate family, 
while other services of the affiliate are subject to market valuation 
studies because they are offered to third parties, the risk of improper 
cross-subsidization increases. This risk of cost shifting between third 
party services and the incumbent carrier's services does not exist when 
the exception applies only to affiliates offering service within the 
corporate family.
    5. Section 32.5280(c) Subsidiary Record Requirement. In the NPRM, 
the Commission sought comment on USTA's proposal to eliminate the 
Sec. 32.5280(c) subsidiary record requirement. This rule requires 
carriers to maintain subsidiary record categories for each nonregulated 
revenue item recorded in Account 5280, Nonregulated operating revenue. 
The Commission simplifies the manner in which incumbent LECs record 
their nonregulated revenues, but does not eliminate Sec. 32.5280(c) 
altogether. The Commission concludes that incumbent LECs do not need to 
break out each nonregulated revenue item; instead they may group their 
nonregulated revenues into two groups: 1 subsidiary record for all the 
revenues from regulated services treated as nonregulated for federal 
accounting purposes pursuant to Commission order and the second for all 
other nonregulated revenues.
    6. Accounts 1437 and 4361. In the NPRM, the Commission sought 
comment on USTA's proposal to simplify deferred tax accounting by 
allowing carriers to book Account 1437, Deferred tax regulatory asset 
net of Account 4361, Deferred tax regulatory liability. The Commission 
concludes that netting Accounts 1437 and 4361 would simplify deferred 
tax accounting.

[[Page 5673]]

The Commission revises Secs. 32.1437 and 32.4361 accordingly to reflect 
this change. The Commission retains the tax on tax gross up requirement 
in Part 32.
    7. Expense Limits. Section 32.2000(a)(4) of the Commission's rules, 
47 CFR 32.2000(a)(4), requires that the cost of individual items of 
equipment with a cost of $2000 or less or having a life of less than 
one year, classifiable in specified accounts, shall be charged to the 
applicable expense accounts rather than capitalized. The expense limit 
reduces the cost of maintaining property records for the acquisition, 
depreciation, and retirement of a multitude of low-cost, high-volume 
assets. This expense limit applies to equipment classifiable in Account 
2112, Motor vehicles; Account 2113, Aircraft; Account 2114, Tools and 
other work equipment; Account 2122, Furniture; Account 2123, Office 
equipment; and Account 2124, General purpose computers, except for 
personal computers falling within Account 2124. Personal computers 
classifiable to Account 2124, with a total cost for all components of 
$500 or less, are charged to the applicable Plant Specific Operations 
Expense accounts.
    The Commission concludes that the tools and test equipment located 
in the central office should be included in the $2000 limit because 
these assets are virtually the same as the tools and test equipment 
located in the general support function. Moreover, tools and test 
equipment are generally individual units rather than components of a 
larger unit. The Commission revises the expense limit rules to include 
the central office tools and test equipment.
    The Commission concludes that it should not increase the expense 
limit to $2000 for personal computers. Personal computers should be 
subject to a special limit because of the nature of these assets. 
Individual personal computers are made up of relatively low cost 
components, such as the monitor, keyboard, and CPU, that should be 
looked at as a single unit for purposes of applying the expense limit. 
Moreover, although relatively low cost individually, personal computers 
are part of larger networks within each company and represent 
substantial investments. These investments should be capitalized. 
Accordingly, the Commission does not revise the rules regarding 
personal computers.
    8. Incidental Activities. The Commission adopts the proposal in the 
NPRM to eliminate the ``treated traditionally'' requirement from 
incidental activities. Under Sec. 32.4999(l) of the Commission's rules, 
47 CFR 32.4999(l), revenues from minor nontariffed activities that are 
an outgrowth of the carrier's regulated activities may be recorded as 
regulated revenues under certain conditions. These activities, known as 
``incidental activities,'' must: (1) Be an outgrowth of regulated 
operations; (2) have been treated traditionally as regulated; (3) be a 
non-line-of business activity; and (4) result in revenues that, in the 
aggregate, represent less than one percent of total revenues for three 
consecutive years. Accounting for incidental activities as regulated 
revenues obviates the need to make detailed cost allocations to remove 
the costs of the nonregulated activity from regulated costs. Carriers 
must list their incidental activities in their CAM. They may not add 
new incidental activities because of the ``treated traditionally'' 
criterion. Eliminating the ``treated traditionally'' criterion would 
permit carriers to add to their incidental activities, provided that 
the remaining three criteria were satisfied. The Commission finds that 
the three remaining criteria provide sufficient safeguards to prevent 
misuse of the incidental activities exception.
    9. Allocation of Costs at Class B Level. Section 64.903 of the 
Commission's rules, 47 CFR 64.903, requires incumbent LECs with annual 
operating revenues from regulated telecommunications operations equal 
to or above a designated indexed revenue threshold, to file cost 
allocation manuals annually setting forth the procedures that they use 
to allocate costs between regulated and nonregulated services. In the 
NPRM, the Commission sought comment on USTA's proposal that all 
carriers have the option to allocate part 64 costs at a Class B level. 
The Commission does not adopt the proposal and concludes that it is 
necessary to continue to require Class A carriers to allocate costs at 
the Class A level for the Class A accounts needed for the 
administration of the universal service high-cost support mechanism, 
listed in Appendix E of the Report and Order.
    10. Section 32.16 Requirement for Implementing New Accounting 
Standards. In the NPRM, the Commission sought comment on USTA's 
proposal to eliminate the Sec. 32.16 requirement for notification and 
approval to implement new accounting standards prescribed by the 
Financial Accounting Standards Board (FASB). Section 32.16 of the 
Commission's rules, 47 CFR 32.16, requires carriers to revise their 
records and accounts to reflect new accounting standards prescribed by 
FASB. This section provides that Commission approval of a change in an 
accounting standard shall automatically take effect 90 days after a 
carrier notifies the Commission of its intention to follow a new 
standard and files a revenue requirement study for the current year 
analyzing the effects of the accounting standards changes. The 
Commission concludes that accounting standard changes often raise 
questions regarding exogenous treatment under price cap rules and that 
when they do, cost data must be available to resolve such issues. 
Additionally, mere compliance with GAAP does not ensure compliance with 
the Commission's rules. The Commission finds that the prior review 
period ensures uniformity in LEC accounting practices and allows the 
Commission to assess the implications of GAAP changes for LEC revenue 
requirements. The Commission retains the requirement for carriers to 
notify the Commission of their intentions to adopt a FASB change and 
how the carrier intends to implement this change. The Commission 
eliminates, however, the requirement to provide a revenue requirement 
study.
    11. Charges to Plant Accounts. Section 32.2003(b) of the 
Commission's rules, 47 CFR 32.2003(b), is an exception to the general 
rule that construction costs are recorded in Construction Work-in-
Progress accounts until the construction project is completed. It 
allows carriers to charge directly to the appropriate plant accounts 
the cost of any construction project that is estimated to be completed 
and ready for service within two months from the date on which the 
project was begun. In addition, this section allows carriers to charge 
directly to the plant accounts the cost of any construction project for 
which the gross additions to the plant are estimated to amount to less 
than $100,000. The purpose of this exception is to allow carriers to 
record short-term and small-cost construction projects directly to the 
plant accounts without having to first record these costs in the 
Construction Work-in-Progress accounts. In the NPRM, the Commission 
sought comment on USTA's proposal to permit carriers to record 
construction projects in the relevant account rather than a work-in-
progress account. The Commission does not adopt USTA's proposal. 
Allowing carriers to set their own materiality levels for deciding when 
construction costs and assets should be capitalized would give carriers 
an incentive to capitalize large dollar amounts of uncompleted 
construction. The Commission's current rules ensure that carriers have 
an opportunity to earn the authorized rate of return on the interstate 
portion of all investment they

[[Page 5674]]

make in the telephone network, while reducing the amount recovered from 
ratepayers for assets under construction during the period in which 
they are under construction. The revenue requirement offset method 
effectively limits the amount that current ratepayers pay for assets 
prior to their placement into service. Moreover, allowing carriers to 
establish their own materiality level for capitalizing plant work in 
progress accounting, as proposed, would eliminate the uniformity and 
consistency in reporting that Part 32 strives to achieve. Consistency 
and uniformity in carriers' books of accounts should be maintained so 
that the Commission can readily compare their regulatory operating 
results.
    12. Continuing Property Records. In the NPRM, the Commission sought 
comment on USTA's proposal to eliminate detailed requirements for 
property record additions, retirements, and recordkeeping. The property 
records consist of continuing property records (CPR) and all 
supplemental records necessary to provide the property record details 
required by the Commission. CPR records provide data for cost 
allocations studies used in state regulatory proceedings. In addition, 
these records provide material-only costs for accounting for transfers, 
reallocations, and adjustments of plant. State regulators rely heavily 
on the CPR records in their local ratemaking processes. For these 
reasons, the Commission does not adopt USTA's proposal.
    13. Cost Allocation Forecasts. The Commission's cost allocation 
rules require that costs be allocated between regulated and 
nonregulated activities. Carriers are required to assign costs directly 
to regulated and nonregulated activities, whenever possible. Costs that 
cannot be directly assigned are known as ``shared'' or ``common costs'' 
and are allocated between regulated and nonregulated use based on a 
hierarchy of principles. Section 64.901(b)(4) of the Commission's 
rules, 47 CFR 64.901(b)(4), requires that carriers allocate the costs 
of central office equipment and outside plant investment between 
regulated and nonregulated activities based on a forecast of the 
relative regulated and nonregulated usage during a three calendar year 
period beginning with the current calendar year. The policy 
consideration underlying this rule recognizes that investment decisions 
are made in anticipation of future use. In the NPRM, the Commission 
sought comment on USTA's proposal to eliminate the forecast use rule. 
The Commission concludes that eliminating the forecast use rule for 
allocating joint investments between the carrier's regulated operations 
and nonregulated ``start up'' operations could result in the over-
allocation of nonregulated costs to the LECs' regulated activities. 
Moreover, to the extent there is an overallocation of costs to the 
regulated books, that overallocation will flow through to the states 
through separations. As a consequence, ratepayers would be bearing a 
portion of the costs of deploying networks used to provide nonregulated 
activities in the future. The Commission finds that the three-year peak 
forecast method is a reasonable approach to allocating joint and common 
costs.
    14. Classification of Companies. Section 32.11 of the Commission's 
rules, 47 CFR 32.11, divides companies into Class A and Class B for 
accounting purposes. This rule does not state that the accounting rules 
apply only to incumbent LECs. Currently, the Commission applies these 
requirements to incumbent LECs only, because they are the dominant 
carriers in their markets. In the NPRM, the Commission sought comment 
on whether Sec. 32.11 should be amended so that its requirements 
explicitly pertain only to incumbent LECs. The Commission adopts the 
proposal and amends Sec. 32.11 to specifically apply to incumbent LECs 
and any other companies that the Commission designates by order. Now 
that new carriers have entered the local exchange market, the 
Commission is conforming the rules to today's marketplace and replacing 
the term ``companies'' with ``incumbent LEC.''

II. ARMIS Reporting Requirements

    A. Consolidating ARMIS Reports. In the NPRM, the Commission sought 
comment on USTA's proposal to eliminate most of ARMIS reporting. In 
particular, USTA proposed to combine the ARMIS 43-01, 43-02, 43-03, and 
43-04 into one report, and have carriers report only at the aggregated 
operating company level. The Commission concludes that eliminating 
state-by-state ARMIS information would destroy the utility of ARMIS to 
states that wish to compare cost information of the incumbent LEC in 
their state to that incumbent LEC's costs in other states. The 
Commission does not adopt USTA's proposal.
    B. ARMIS Report 43-01 (Annual Summary Report). The ARMIS 43-01 
Annual Summary Report summarizes the carriers' accounting and cost 
allocation data prescribed in parts 32, 36, 64, 65, and 69 of the 
Commission's rules. It consists of Table I, an aggregated and 
comprehensive view of the carriers' financial and cost allocation data 
and Table II, a summary of demand in minutes of use and billable access 
lines. All incumbent LECs with annual operating revenues for the 
preceding year equal to or above the indexed revenue threshold file the 
43-01 Report on a study area basis.
    Table I summarizes the carrier's costs and revenues as reported in 
the part 32 accounts (43-02 USOA Report), and shows the allocation of 
costs between regulated and nonregulated activities (43-03 Joint Cost 
Report), the separation of regulated costs between state and interstate 
jurisdictions, and the interstate costs used to support access elements 
(43-04 Separations and Access Report). The Commission does not adopt 
the proposal in the NPRM to eliminate the filing of Tables I and II. 
With respect to Table II, the Commission adopts the proposal to 
eliminate the Common Line Minutes of Use (rows 2010, 2020, 2030, and 
2040). The remaining eight rows (2050, 2060, 2090, 2100, 2110, 2120, 
2140, and 2150) will remain in Table II. Rows 2100, Residence Lifeline 
Access Lines and 2110, Residence Non-Lifeline Access Lines are needed 
by the Commission to track support amounts the Universal Service 
Administrative Company (USAC) pays to qualifying companies. In 
addition, all of these eight rows are needed by the Commission to 
verify data received in tariff filings.
    C. ARMIS Report 43-02 (USOA Report). The ARMIS 43-02 Report 
provides the annual operating results of the carriers' 
telecommunications operations for every account in Part 32. All 
incumbent LECs with annual operating revenues for the preceding year 
equal to or above the indexed revenue threshold file the 43-02 Report 
on an operating company basis. The 43-02 Report collects information 
about the carrier's ownership (Table C Series), balance sheet (Table B 
Series), and income statement accounts (Table I Series). Information 
collected in Tables B and I provides data about the carrier's financial 
accounts, including overall investment and expense levels, affiliate 
transactions, property valuations, and depreciation rates. The 
Commission does not adopt the proposal in the NPRM to automatically 
generate Table I-1 of the ARMIS 43-02 Report. In addition, the 
Commission does not adopt the proposal in the NPRM to add rows to ARMIS 
Report 43-02, tables for the reporting of metallic and non-metallic 
cable investment and expense.
    D. ARMIS Report 43-03 (Joint Cost Report). The ARMIS 43-03 Report 
contains the allocation of the carriers'

[[Page 5675]]

revenues, expenses, and investments between regulated and nonregulated 
activities. All incumbent LECs with annual operating revenues for the 
preceding year equal to or above the indexed revenue threshold file the 
43-03 Report on a study area basis. In the NPRM, the Commission 
proposed to reduce the number of columns currently reported on the 
43-03 Report by eliminating the distinction between ``SNFA and Intra-
co. Adjustments'' and ``Other Adjustments'' and combining these columns 
into one column entitled ``Adjustments.'' The Commission finds no 
significant regulatory need to retain the ``SNFA and Intra-co. 
Adjustments'' column and therefore adopts the proposal. The Commission 
also makes a conforming change to the 43-01 Report.
    E. ARMIS Report 43-04 (Separations and Access Report). The 
Commission revises the ARMIS 43-04 (Separations and Access) Report to 
reduce the data required to be reported during the interim freeze of 
certain jurisdictional cost categories and allocation factors 
prescribed in part 36 of the Commission's rules. Carriers will file 
this revised ARMIS 43-04 Report on April 1, 2002, and on an annual 
basis thereafter for the duration of the freeze. The Commission adopts 
the streamlined ARMIS 43-04 Table I-Separations and Access Table, 
attached as Appendix G of the Report and Order. This revised ARMIS 43-
04 will be filed on April 1, 2002, and on an annual basis thereafter, 
for the duration of the separations freeze.
    F. ARMIS 43-07 (Infrastructure Report). The ARMIS 43-07 Report 
collects data about the carrier's switching and transmission equipment, 
call set up time, and cost of total plant in service. This report is 
prescribed for every mandatory price cap carrier. The report is filed 
on a study area and holding company level. The report captures trends 
in telephone industry infrastructure development under price cap 
regulation. Policymakers at the federal and state levels use this 
information, which is critical data not available through other public 
sources. The information collected in ARMIS 43-07 provides the 
Commission with information about the infrastructure--capacity, and 
operating characteristics of the vast majority of the nation's wireline 
network--basic infrastructure information on carriers that provide 
service to 93 percent of the Nation's customers.
    Table I--Switching Equipment. In the NPRM, the Commission proposed 
to eliminate the collection of outdated information and to collect 
information on newer technologies. In Table I (Switching Equipment), 
the Commission proposed to eliminate all reporting requirements for 
electromechanical switches (rows 0130-0141). For the year 2000, the 
total for all reporting companies of electromechanical switches was 
zero. The Commission concludes that there is little value in requiring 
carriers to continue to report that they have no electromechanical 
switches. Therefore, the Commission adopts the proposal in the NPRM and 
eliminates all reporting requirements for electromechanical switches 
(rows 0130-0141).
    The Commission also proposed to eliminate reporting requirements 
for analog stored-program-control (ASPC) and digital stored-program-
control (DSPC) switches except for the total number of switches and 
lines served (retain rows 0150, 0160, 0170 and 0180; eliminate rows 
0151-0155, 0161, 0171-0175, and 0181). The Commission finds that there 
is no regulatory need for carriers to report percentages and eliminates 
rows 0151, 0153, 0155, 0161, 0171, 0173, 0175, and 0181. For the year 
2000, the total reported in row 154 (ASPC Tandems) was two. The 
Commission finds that there is little value in requiring carriers to 
continue to report such a minimal quantity, and therefore eliminates 
row 0154. The Commission also concludes that there is also no need to 
require carriers to report row 0152 (ASPC Local Switches), which is 
substantially the same as the Total ASPC switches in row 0150; and 
therefore eliminates row 0152. Similarly, because row 0170 is 
substantially the sum of row 0172 plus row 0174, the Commission 
eliminates rows 0172 and 0174.
    The Commission notes that for the year 2000 virtually all the 
reporting carriers' access lines had equal access and touch-tone 
capability. The Commission concludes that there is little value in 
continuing to require these carriers to report the data regarding 
touch-tone capability and equal access, and eliminates all such 
reporting requirements (rows 0190-0221).
    With respect to reporting of information related to Signaling 
System 7 (SS7) and integrated services digital network (ISDN) 
capabilities, the Commission concludes that there is no need for 
carriers to report percentages, as any interested party can easily 
calculate them. Therefore, the Commission is eliminating rows 0231, 
0233, 0235, 0237, 0241, 0247, 0251, 0257, 0271, 0281, 0291, and 0301.
    In addition, the Commission notes that most switches equipped with 
SS7-394 capability are also equipped with SS7-317 capability; 
therefore, the data reported in the interLATA and intraLATA rows for 
switches and tandems in this section are almost identical. Having 
carriers report information in both the row for SS7-394 capability and 
the row for SS7-317 capability appears to be superfluous. Therefore, 
the Commission is eliminating rows 0234, 0236, 0246, and 0256. The 
Commission is renaming row 0230 ``Total switches equipped with SS7.'' 
The Commission is renaming row 0240 ``Local switches equipped with 
SS7'' and row 0250 ``Tandems equipped with SS7.'' The Commission 
concludes that there is no need to continue reporting the number of 
lines with SS7 service because that is essentially the same as row 0120 
and eliminates row 0232.
    Table II--Transmission Facilities. In the first section of Table 
II, ``Sheath Kilometers,'' carriers report data on transmission 
facilities within their operating areas. Carriers use either analog or 
digital technology on copper wire, coaxial cable, fiber, radio, and 
other media. In the NPRM, the Commission proposed to change the title 
``Sheath Kilometers'' to ``Loop Sheath Kilometers'' and to narrow the 
collection of data to only local loop facilities connecting customers 
to their serving offices. The Commission concludes that this 
information would be more useful for policymakers and interested 
parties if it were narrowed to local loop facilities connecting 
customers to their service offices. Therefore, the Commission changes 
the title to ``Loop Sheath Kilometers'' and limits the collection of 
data to local loop facilities.
    In the second section of Table II, ``Interoffice Working 
Facilities,'' total circuit links are reported for baseband, analog 
carrier, and digital carrier. The Commission sought comment on whether 
to eliminate the reporting requirements that further distinguish 
baseband, analog, and digital (rows 0331, 0332, 0333, 0350, 0351, 0352, 
0360, 0361, 0362, 0363). The Commission concludes that these data are 
often reported in an inconsistent manner by the carriers, and therefore 
are not reliable for benchmarking purposes. The Commission eliminates 
these rows.
    In the NPRM, the Commission proposed to eliminate reporting of 
fiber strands terminated at the customer premises at the DS-0 rate (row 
0481) and fiber strands terminated at the customer premises at the DS-2 
rate (row 0483) from the fourth section of Table II, ``Other 
Transmission Facility Data.'' The Commission concludes that

[[Page 5676]]

virtually no incumbent LEC reports the termination of DS-2 level 
services at the customer premises, and therefore row 0483 does not 
provide useful information and should be eliminated. The Commission 
also eliminates row 0481 (DS-0 rate) because DS-0 level services are 
generally bundled into DS-1 size packages, and by capturing the 
required information at the DS-1 level, the Commission does not need to 
collect the information at the DS-0 level. Row 0482 (DS-1) will be 
renamed, because fiber is terminated at customer premises at the DS-3 
level or greater, and referring to fiber terminations at the DS-1 level 
is inaccurate.
    The Commission also sought comment on adding information on hybrid 
fiber-copper loop interface locations, number of customers served from 
these interface locations, xDSL customer terminations associated with 
hybrid fiber-copper loops, and xDSL customer terminations associated 
with non-hybrid loops. Such information is not presently collected 
through any federal reporting program. The Commission finds that the 
addition of these rows to ARMIS would help satisfy an immediate and 
pressing need to assess the penetration of fiber in the local loop and 
gauge the development of broadband infrastructure. Hybrid architectures 
will likely become increasingly important in providing broadband 
services and are directly relevant to current criticisms by new 
entrants that the new architectures are systematically diminishing 
their ability to provide competing DSL service to end-user retail 
customers. The Commission concludes that there is a present federal 
regulatory need, at least for the near term, to collect such data to 
evaluate the effects of our public policy decisions and to consider 
whether more market-oriented approaches are appropriate. Therefore, the 
Commission is adding the following rows to ARMIS: ``Hybrid Fiber/
Metallic Loop Interface Locations,'' ``Switched Access Lines Served 
from Interface Locations,'' ``Total xDSL Terminated at Customer 
Premises,'' and ``xDSL Terminated at Customer Premises via Hybrid 
Fiber/Metallic Interface Locations.''
    Table III--ILEC Call Set-up Time. In Table III, information is 
provided about incumbent LEC call set-up time for calls delivered by 
the incumbent LEC to interexchange carriers. The Commission concludes 
that this information was important when carriers used different 
signaling systems, but now that SS7 is predominant, there is little 
difference among LECs. Therefore, the Commission eliminates Table III.
    Table IV--Additions and Book Costs. In Table IV, carriers report 
data concerning total access lines in service, access line gain, and 
total gross capital expenditures. This information provides data on 
carriers' actions to maintain and upgrade the network. The data in this 
table are at the study-area level. Similar data in the ARMIS 43-02 
Report are available at either the operating-company or company-study-
area (state) level, but are not directly comparable to these data. The 
Commission eliminates the filing of this table because similar data are 
available in other ARMIS reports or can be generated by reference to 
other ARMIS reports.
    G. ARMIS 43-08 (Operating Data Report). The ARMIS 43-08 Report 
collects data about the carrier's outside plant, access lines in 
service by technology and by customer, number of telephone calls, and 
billed access minutes.
    Table I.A--Outside Plant Statistics--Cable and Wire Facilities. The 
Commission sought comment on whether to eliminate the reporting 
requirements in Table 1.A (Outside Plant Statistics--Cable and Wire 
Facilities), that distinguish among aerial, underground, buried, 
submarine, deep sea, and intrabuilding cable plant (columns d-o). The 
Commission concludes that columns d through i, n, and o are useful and 
should not be eliminated. Columns j, k, l, and m, however, can be 
eliminated because little, if any, data are reported for these 
categories. Therefore, the Commission is eliminating columns j, k, l, 
and m.
    Table I.B--Outside Plant Statistics--Other. The Commission proposed 
to eliminate the reporting of information on satellite channels and 
video circuits for carriers' radio relay and microwave systems (columns 
be, bj, bm). Due to changes in technology, data collected in these 
areas no longer are relevant to the Commission's policy analysis on 
various issues. Therefore, the Commission is eliminating these three 
columns.
    Table II--Switched Access Lines in Service by Technology. The 
Commission proposed to eliminate the distinction between analog and 
digital lines, and require carriers to report the total of main access 
lines, PBX and Centrex units, and Centrex extensions (retain columns 
cc, cd, and ce on a total basis; and eliminate columns cf, cg, and ch). 
The Commission concludes that this information would be more useful if 
provided on a total basis, instead of disaggregated by analog and 
digital. Due to changes in technology, data collected in some of these 
areas no longer provides relevant information. Therefore, the 
Commission is adopting the proposal in the NPRM, and eliminating the 
distinction between analog and digital by eliminating columns cf, cg, 
and ch.
    Table III--Access Lines in Service by Customer. The Commission 
proposed to narrow the information collection to total number of 
Business Access Lines (Single-Line and Multi-Line) and Residential 
Access Lines (Lifeline/Non-Lifeline and Primary/Non-Primary). The 
Commission also sought comment on whether Special Access Lines (Analog 
and Digital) (columns dk and dl) provide accurate information about the 
carriers' provision of special access lines and whether there is a need 
for clarification of this reporting requirement. The Commission 
concludes that extensive structural changes to Table III are warranted. 
The Commission eliminates the column for Mobile Access Lines, because 
little, if any, data are reported for this category. The revised table 
will also contain new columns matching the revised data requirements. 
Columns ``Single Line Business Access Lines'' and ``Multiline Business 
Access Lines'' will be under the ``Business Switched Access Lines'' 
heading. Columns ``Lifeline Access Lines,'' ``Non-Lifeline Primary 
Access Lines,'' and ``Non-Lifeline Non-Primary Access Lines'' will be 
under the ``Residential Switched Access Lines'' heading. A column 
``Local Private Lines'' is added. Finally, the Commission concludes 
that the instructions and definitions for columns dk and dl are 
sufficiently clear and that there is no need to revise or clarify them.

III. Relief for Mid-Sized Carriers

    A mid-sized carrier is defined as a carrier whose operating revenue 
equals or exceeds the indexed revenue threshold, and whose revenue when 
aggregated with the revenues of any LEC that it controls, is controlled 
by, or with which it is under common control is less than $7 billion. 
Previously, the Commission permitted mid-sized carriers to file 
financial ARMIS reports at a Class B level of detail and allowed these 
LECs to submit CAMs based on Class B accounts and to obtain an 
attestation every two years in lieu of an annual financial audit. See 
1998 Biennial Regulatory Review--Review of Accounting and Cost 
Allocation Requirements, Report and Order in CC Docket 98-81, Order on 
Reconsideration in CC Docket No. 96-150, and Fourth Memorandum Opinion 
and Order in AAD File No. 98-43, 64 FR 50002 (9-15-1999). In the NPRM, 
the Commission proposed to eliminate mandatory

[[Page 5677]]

annual CAM filings and biennial CAM attestation engagements for mid-
sized carriers. The Commission adopts this proposal. Mid-sized carriers 
no longer will be required to annually file a CAM, they, like all other 
carriers, must be prepared to produce documentation of how they 
separate regulated from nonregulated costs to the Common Carrier 
Bureau, upon request. The Commission also adopts the proposal in the 
NPRM to eliminate the requirement that CAMs of mid-sized carriers be 
subject to an attest audit every two years. Instead of requiring mid-
sized carriers to incur the expense of a biennial attestation 
engagement, they will file a certification with the Commission stating 
that they are complying with Sec. 64.901 of the Commission's rules. The 
certification must be signed, under oath, by an officer of the 
incumbent LEC, and filed with the Commission on an annual basis.
    In the NPRM, the Commission proposed eliminating the ARMIS 43-02, 
43-03, and 43-04 reporting requirements for mid-sized carriers. The 
Commission adopts this proposal. The Commission concludes that the mid-
sized carriers will not be required to file the ARMIS 43-02, 43-03, or 
43-04 Reports, for 2002 data. Mid-sized carriers will, however, file 
these ARMIS reports on April 1, 2002, for 2001 data.
    The mid-sized carriers will continue to file the ARMIS 43-01 and 
43-08 Reports. The Commission notes that in addition to information 
contained in ARMIS Reports 43-01 and 43-08, other accounting 
information from mid-sized carriers is used to develop inputs for the 
universal service model. While mid-sized carriers no longer are 
required to report certain information in ARMIS, the Commission expects 
those companies will maintain sufficient information to be able to 
produce the data, listed in Appendix E of the Report and Order, upon 
request. In addition, mid-sized incumbent LECs should continue to 
maintain subsidiary record categories to provide the data currently 
provided in the Class A accounts, which are necessary to calculate just 
and reasonable pole, duct, conduit, and right-of-way attachment rates 
pursuant to section 224 of the Communications Act. These carriers must 
report this information, necessary for the Commission and interested 
parties to calculate and verify attachment rates, in ARMIS, so that the 
information is publicly available and verifiable.
    The Commission indexes the $7 billion threshold that divides the 
mid-sized carriers and the larger Class A carriers. The Commission 
concludes it would be analytically consistent with Sec. 402(c) to 
henceforth index for inflation the revenue threshold that separates the 
larger Class A carriers and the mid-sized carriers.
    Waivers for Roseville and CenturyTel. Due to the significant 
changes adopted in this Report and Order to the Chart of Accounts and 
the reporting requirements for mid-sized carriers, the Commission is 
waiving the ARMIS reporting requirements and CAM attestation 
requirements for Roseville and CenturyTel for the years 2000 and 2001. 
These two mid-sized companies have yet to file ARMIS reports for 2000. 
Without a waiver, these companies would be required to prepare ARMIS 
reports for the years 2000 and 2001 based on the old chart of accounts. 
The ARMIS reports filed on April 1, 2003 (i.e., for year 2002) will be 
based on the new chart of accounts adopted in this report and order. 
Similarly, the Commission is also waiving the requirements for a CAM 
attestation for these mid-sized incumbent LECs. The attestation cannot 
take place until the ARMIS reports are prepared. The Commission cannot, 
therefore, require a CAM attestation until after the ARMIS reports are 
filed and a CAM attestation will no longer be required of mid-sized 
companies under the rules adopted in the Report and Order.

Regulatory Flexibility Analysis

Final Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in 2000 
Biennial Regulatory Review--Comprehensive Review of the Accounting 
Requirements and ARMIS Reporting Requirements for Incumbent Local 
Exchange Carriers: Phase 2 and Phase 3, CC Docket No. 00-199, Notice of 
Proposed Rulemaking 65 FR 67675 (11-13-2000) (NPRM) and ``Commission 
Seeks Further Comment in Phase 2 of the Comprehensive Review of the 
Accounting Requirements and ARMIS Reporting Requirements for Incumbent 
Local Exchange Carriers,'' Public Notice, 66 FR 33938 (6-26-2001) (June 
8 Public Notice) seeking further comment in this proceeding. The 
Commission has prepared this Final Regulatory Flexibility Analysis 
(FRFA) of any possible significant economic impact on small entities by 
the adoption of rules in the Report and Order.
    Need for, and Objectives of, this Report and Order. Under our 
rules, there are two classes of incumbent LECs for accounting purposes: 
Class A and Class B. Carriers with annual revenues from regulated 
telecommunications operations that are equal to or above the indexed 
revenue threshold, currently $117 million, are classified as Class A; 
those falling below that threshold are considered Class B. Class A 
carriers (operating companies of SBC, Qwest, Verizon, and BellSouth) 
have been required to maintain 296 Class A accounts, which provide more 
detailed records of investment, expense, and revenue than the 113 Class 
B accounts that Class B carriers are required to maintain. The more 
generalized level of accounting required under Class B was established 
to accommodate smaller carriers. In the Report and Order, the 
Commission streamlines the Class A and Class B accounts and ARMIS 
reporting requirements for incumbent LECs, and further reduces the 
accounting and reporting requirements for mid-sized incumbent LECs. In 
addition, this Report and Order eliminates the certain inventory 
requirements; allows carriers to adopt SFAS-116 for federal accounting 
purposes; eliminates the requirement for a fair market value comparison 
for asset transfers under $500,000; eliminates the ``treated 
traditionally'' requirement from ``incidental activities'; modifies the 
expense limit rules to include central office tools and test equipment 
in the expense limit; and amends section 32.11 of the Commission's 
rules to expressly limit the rule to incumbent LECs. Finally, the 
Commission modifies the ARMIS reporting requirements to eliminate out-
of-date requirements and to add reporting for new technologies. These 
rule changes generally reduce the accounting and reporting requirements 
for all incumbent LECs.
    Summary of Significant Issues Raised by Commenters. No comments 
were received in response to the IRFA in the NPRM or the IRFA in the 
June 8 Public Notice. Several commenters, in the initial comments in 
this proceeding, suggested completely eliminating ARMIS reporting for 
mid-sized LECs.
    Description and Estimate of the Number of Small Entities to which 
the Rules Will Apply. The RFA directs agencies to provide a description 
of, and, where feasible, an estimate of the number of small entities 
that may be affected by the proposed rules, if adopted. To estimate the 
number of small entities that may be affected by the proposed rules, 
the Commission first considers the statutory definition of ``small 
entity'' under the RFA. The RFA generally defines ``small entity'' as 
having the same meaning as the term ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' In addition, 
the term ``small business'' has the same meaning as the term

[[Page 5678]]

``small business concern'' under the Small Business Act, unless the 
Commission has developed one or more definitions that are appropriate 
to its activities. 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) meets any additional 
criteria established by the Small Business Administration (SBA).
    The Commission has included small incumbent LECs in this present 
RFA analysis. 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 incumbent LECs are not 
dominant in their field of operation because any such dominance is not 
``national'' in scope. The Commission has therefore included small 
incumbent LECs in this RFA analysis, although we emphasize that this 
RFA action has no effect on Commission analyses and determinations in 
other, non-RFA contexts.
    Wireline carriers (incumbent LECs). According to Trends in 
Telephone Service, there were 1,335 incumbent local exchange carriers 
filing the FCC Form 499-A on April 1, 2000. Of these carriers, 1,037 
had, in combination with affiliates, 1,500 or fewer employees and 298 
had, in combination with affiliates, more than 1,500 employees. Some of 
these carriers may not be independently owned or operated, but we are 
unable at this time to estimate with greater precision the number of 
wireline carriers that would qualify as small business concerns under 
SBA's definition. Consequently, we estimate that there are fewer than 
1,037 wireline small entities that may be affected by the rules adopted 
in the Report and Order.
    The changes to the accounting and reporting requirements in this 
Report and Order, are for the most part, reductions in the Commission's 
accounting and reporting requirements. These rule changes could affect 
all incumbent local exchange carriers. Some of these companies may be 
considered ``small entities'' under the SBA definition. Therefore, it 
is possible that some of the 1,037 small entity telephone companies may 
be affected by the rule changes. The increased ARMIS reporting 
requirements will only affect the Bell Operating Companies, none of 
which are small entities. There are several new subaccounts adopted in 
this Report and Order for Class A carriers, although the total number 
of accounts is substantially reduced. These new subaccounts are Class A 
subaccounts, and will be maintained by the Bell Operating Companies 
only.
    Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements. This Report and Order generally reduces 
accounting and reporting requirements for all incumbent local exchange 
companies. These rule changes will result in fewer accounting and 
reporting requirements for all incumbent local exchange carriers, 
including small entities. This Report and Order has several new 
accounting and ARMIS reporting requirements that apply to the Bell 
Operating Companies only. For instance, the Report and Order adds 
several Class A subaccounts; however, these will be maintained by the 
largest incumbent LECs (i.e., Bell Operating Companies) only. Small 
entities will not have any additional accounting or ARMIS reporting 
requirements.
    Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered. The RFA requires an 
agency to describe any significant alternatives that it has considered 
in reaching its proposed approach, which may include the following four 
alternatives (among others): (1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance or 
reporting requirements under the rule for small entities; (3) the use 
of performance, rather than design, standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for small entities.
    This Report and Order significantly reduces accounting and 
reporting requirements for the smaller (i.e., ``mid-sized'') incumbent 
LECs, which may include small entities. Specifically, the Report and 
Order eliminates the cost allocation manual filing requirements and 
biennial attestation requirement for mid-sized LECs. In addition, the 
Report and Order eliminates the requirement that mid-sized LECs file 
ARMIS 43-02, 43-03, and 43-04 Reports. Generally, the rule changes 
adopted herein result in fewer accounting and reporting requirements 
for all incumbent LECs (except for several new accounting and ARMIS 
reporting requirements that apply to the Bell Operating Companies 
only). Several commenters suggested completely eliminating ARMIS 
reporting for mid-sized carriers. The Commission rejected that 
alternative primarily due to the need to obtain information used to 
compute non-rural carrier universal service high-cost support. The 
Commission retains the requirement that mid-sized carriers file the 
ARMIS 43-01and 43-08 Reports. Data in these reports are used to develop 
inputs to the high cost model for universal service purposes and 
develop inputs to models used to determine forward-looking economic 
costs in UNE ratemaking proceedings.
    Report to Congress. The Commission's Consumer Information Bureau, 
Reference Information Center shall include a copy of this Report and 
Order and Final Regulatory Flexibility Analysis in a report to be sent 
to Congress pursuant to the Congressional Review Act. In addition, the 
Commission will send a copy of the Report and Order, including the 
Final Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration. A copy of the Report and 
Order, including the Final Regulatory Flexibility Analysis (or 
summaries thereof) will also be published in the Federal Register.

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. sections 151, 154, 
201-205, 215, and 218-220, parts 32, 43, 51, 54, 64, 65, and 69 of the 
Commission's rules, 47 CFR Parts 32, 43, 51, 54, 64, 65, and 69, are 
amended as described previously.
    Pursuant to section 220(g) of the Communications Act of 1934, as 
amended, 47 U.S.C. 220)(g), changes to part 32, System of Accounts, 
adopted in the Report and Order shall take effect August 6, 2002, 
following OMB approval, unless a notice is published in the Federal 
Register stating otherwise. Carriers may implement part 32 accounting 
changes as of January 1, 2002.
    The proceeding in CC Docket No. 97-212 is terminated.
    Pursuant to the authority contained in sections 1, 4(i), 4(j), 201-
205, 215, and 218-220 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154(i), 154(j), 201-205, 215, and 218-220, that FCC Report 
43-04, the Separations and Access Report is revised, as set forth in 
the rule changes, for filings due April 1, 2002.
    Pursuant to the authority contained in sections 1, 4(i), 4(j), 201-
205, 215, and 218-220 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154(i), 154(j), 201-205, 215, and 218-220, that revisions 
to FCC Report 43-01, the Annual Summary Report; FCC Report 43-02, the 
USOA Report; FCC Report

[[Page 5679]]

43-03, the Joint Cost Report; FCC Report 43-07, the Infrastructure 
Report; and 43-08, the Operating Data Report as set forth in the Report 
and Order, shall be for filings due April 1, 2003.
    Pursuant to the authority contained in Sec. 0.291 of the 
Commission's rules, 47 CFR 0.291, that the Common Carrier Bureau is 
delegated authority to implement all changes to ARMIS reporting as set 
forth.
    The Commission's Consumer Information Bureau, Reference Information 
Center, shall send a copy of this Report and Order, including the two 
Regulatory Flexibility Analyses, to the Chief Counsel for Advocacy of 
the Small Business Administration.

List of Subjects in 47 CFR Parts 32, 43, 51, 54, 64, 65, and 69

    Communications Common Carriers, Reporting and recordkeeping 
requirements, Telephone.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.

Rules Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends parts 32, 43, 51, 54, 64, 65, and 69 
of title 47 of the CFR 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), and 154(j) and 220 as amended, 
unless otherwise noted.


    2.-3. Section 32.11 is revised to read as follows:


Sec. 32.11  Classification of companies.

    (a) For purposes of this section, the term ``company'' or 
``companies'' means incumbent local exchange carrier(s) as defined in 
section 251(h) of the Communications Act, and any other carriers that 
the Commission designates by Order.
    (b) For accounting purposes, companies are divided into classes as 
follows:
    (1) Class A. Companies having annual revenues from regulated 
telecommunications operations that are equal to or above the indexed 
revenue threshold.
    (2) Class B. Companies having annual revenues from regulated 
telecommunications operations that are less than the indexed revenue 
threshold.
    (c) Class A companies, except mid-sized incumbent local exchange 
carriers, as defined by Sec. 32.9000, shall keep all the accounts of 
this system of accounts which are applicable to their affairs and are 
designated as Class A accounts. Class A companies, which include mid-
sized incumbent local exchange carriers, shall keep Basic Property 
Records in compliance with the requirements of Secs. 32.2000(e) and 
(f).
    (d) Class B companies and mid-sized incumbent local exchange 
carriers, as defined by Sec. 32.9000, shall keep all accounts of this 
system of accounts which are applicable to their affairs and are 
designated as Class B accounts. Mid-sized incumbent local exchange 
carriers shall also maintain subsidiary record categories necessary to 
provide the pole attachment data currently provided in the Class A 
accounts. Class B companies shall keep Continuing Property Records in 
compliance with the requirements of Secs. 32.2000(e)(7)(i)(A) and 
32.2000(f).
    (e) Class B companies and mid-sized incumbent local exchange 
carriers, as defined by Sec. 32.9000 of this part, that desire more 
detailed accounting may adopt the accounts prescribed for Class A 
companies upon the submission of a written notification to the 
Commission.
    (f) The classification of a company shall be determined at the 
start of the calendar year following the first time its annual 
operating revenue from regulated telecommunications operations equals, 
exceeds, or falls below the indexed revenue threshold.


Sec. 32.13  [Amended]

    4. Section 32.13 is amended by removing paragraph (a)(1) and 
redesignating paragraphs (a)(2) and (a)(3) as (a)(1) and (a)(2).

    5. Section 32.14 is amended by revising paragraph (e) to read as 
follows:


Sec. 32.14  Regulated accounts.

* * * * *
    (e) All costs and revenues related to the offering of regulated 
products and services which result from arrangements for joint 
participation or apportionment between two or more telephone companies 
(e.g., joint operating agreements, settlement agreements, cost-pooling 
agreements) shall be recorded within the detailed accounts. Under joint 
operating agreements, the creditor will initially charge the entire 
expenses to the appropriate primary accounts. The proportion of such 
expenses borne by the debtor shall be credited by the creditor and 
charged by the debtor to the account initially charged. Any allowances 
for return on property used will be accounted for as provided in 
Account 5200, Miscellaneous revenue.
* * * * *

    6. Section 32.16 is amended by revising paragraph (a) to read as 
follows:


Sec. 32.16  Changes in accounting standard.

    (a) The company's records and accounts shall be adjusted to apply 
new accounting standards prescribed by the Financial Accounting 
Standards Board or successor authoritative accounting standard-setting 
groups, in a manner consistent with generally accepted accounting 
principles. The change in an accounting standard will automatically 
take effect 90 days after the company informs this Commission of its 
intention to follow the new standard, unless the Commission notifies 
the company to the contrary. Any change adopted shall be disclosed in 
annual reports required by Sec. 43.21(f) of this chapter in the year of 
adoption.
* * * * *

    7. Section 32.24 is amended by revising paragraph (b) to read as 
follows:


Sec. 32.24  Compensated absences.

* * * * *
    (b) With respect to the liability that exists for compensated 
absences which is not yet recorded on the books as of the effective 
date of this part, the liability shall be recorded in Account 4130. 
Other current liabilities, with a corresponding entry to Account 1438, 
Deferred maintenance, retirements and other deferred charges. This 
deferred charge shall be amortized on a straight-line basis over a 
period of ten years.
* * * * *

    8. Section 32.27 is revised to read as follows:


Sec. 32.27  Transactions with affiliates.

    (a) Unless otherwise approved by the Chief, Common Carrier Bureau, 
transactions with affiliates involving asset transfers into or out of 
the regulated accounts shall be recorded by the carrier in its 
regulated accounts as provided in paragraphs (b) through (f) of this 
section.
    (b) Assets sold or transferred 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 assets sold or transferred 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 assets sold by or transferred from a carrier to 
its affiliate, the assets shall be recorded at no less than the higher 
of fair market value and net book cost. For all other assets sold by or 
transferred to a carrier from its affiliate, the assets shall be

[[Page 5680]]

recorded at no more than the lower of fair market value and net book 
cost.
    (1) Floor. When assets are sold by or transferred from a carrier to 
an affiliate, the higher of fair market value and net book cost 
establishes a floor, below which the transaction cannot be recorded. 
Carriers may record the transaction at an amount equal to or greater 
than the floor, so long as that action complies with the Communications 
Act of 1934, as amended, Commission rules and orders, and is not 
otherwise anti-competitive.
    (2) Ceiling. When assets are purchased from or transferred from an 
affiliate to a carrier, the lower of fair market value and net book 
cost establishes a ceiling, above which the transaction cannot be 
recorded. Carriers may record the transaction at an amount equal to or 
less than the ceiling, so long as that action complies with the 
Communications Act of 1934, as amended, Commission rules and orders, 
and is not otherwise anti-competitive.
    (3) Threshold. For purposes of this section carriers are required 
to make a good faith determination of fair market value for an asset 
when the total aggregate annual value of the asset(s) reaches or 
exceeds $500,000, per affiliate. When a carrier reaches or exceeds the 
$500,000 threshold for a particular asset for the first time, the 
carrier must perform the market valuation and value the transaction on 
a going-forward basis in accordance with the affiliate transactions 
rules on a going-forward basis. When the total aggregate annual value 
of the asset(s) does not reach or exceed $500,000, the asset(s) shall 
be recorded at net book cost.
    (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 sold by or transferred from a carrier to 
its affiliate, the services shall be recorded at no less than the 
higher of fair market value and fully distributed cost. For all other 
services sold by or transferred to a carrier from its affiliate, the 
services shall be recorded at no more than the lower of fair market 
value and fully distributed cost.
    (1) Floor. When services are sold by or transferred from a carrier 
to an affiliate, the higher of fair market value and fully distributed 
cost establishes a floor, below which the transaction cannot be 
recorded. Carriers may record the transaction at an amount equal to or 
greater than the floor, so long as that action complies with the 
Communications Act of 1934, as amended, Commission rules and orders, 
and is not otherwise anti-competitive.
    (2) Ceiling. When services are purchased from or transferred from 
an affiliate to a carrier, the lower of fair market value and fully 
distributed cost establishes a ceiling, above which the transaction 
cannot be recorded. Carriers may record the transaction at an amount 
equal to or less than the ceiling, so long as that action complies with 
the Communications Act of 1934, as amended, Commission rules and 
orders, and is not otherwise anti-competitive.
    (3) Threshold. 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, per affiliate. 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.
    (d) In order to qualify for prevailing price valuation in 
paragraphs (b) and (c) of this section, sales of a particular asset or 
service to third parties must encompass greater than 25 percent of the 
total quantity of such product or service sold by an entity. Carriers 
shall apply this 25 percent threshold on an asset-by-asset and service-
by-service basis, rather than on a product-line or service-line basis. 
In the case of transactions for assets and services subject to section 
272, a BOC may record such transactions at prevailing price regardless 
of whether the 25 percent threshold has been satisfied.
    (e) Income taxes shall be allocated among the regulated activities 
of the carrier, its nonregulated divisions, and members of an 
affiliated group. Under circumstances in which income taxes are 
determined on a consolidated basis by the carrier and other members of 
the affiliated group, the income tax expense to be recorded by the 
carrier shall be the same as would result if determined for the carrier 
separately for all time periods, except that the tax effect of carry-
back and carry-forward operating losses, investment tax credits, or 
other tax credits generated by operations of the carrier shall be 
recorded by the carrier during the period in which applied in 
settlement of the taxes otherwise attributable to any member, or 
combination of members, of the affiliated group.
    (f) Companies that employ average schedules in lieu of actual costs 
are exempt from the provisions of this section. For other 
organizations, the principles set forth in this section shall apply 
equally to corporations, proprietorships, partnerships and other forms 
of business organizations.

    9. Section 32.101 is revised to read as follows:


Sec. 32.101  Structure of the balance sheet accounts.

    The Balance Sheet accounts shall be maintained as follows:
    (a) Account 1120, Cash and equivalents, through Account 1500, Other 
jurisdictional assets--net, shall include assets other than regulated-
fixed assets.
    (b) Account 2001, Telecommunications plant in service, through 
Account 2007, Goodwill, shall include the regulated-fixed assets.
    (c) Account 3100, Accumulated depreciation through Account 3410, 
Accumulated amortization--capitalized leases, shall include the asset 
reserves except that reserves related to certain asset accounts will be 
included in the asset account. (See Secs. 32.2005, 32.2682 and 
32.2690.)
    (d) Account 4000, Current accounts and notes payable, through 
Account 4550, Retained earnings, shall include all liabilities and 
stockholders equity.

    10. Section 32.103 is revised as follows:


Sec. 32.103  Balance sheet accounts for other than regulated-fixed 
assets to be maintained.

    Balance sheet accounts to be maintained by Class A and Class B 
telephone companies for other than regulated-fixed assets are indicated 
as follows:

[[Page 5681]]



                         Balance Sheet Accounts
------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
                Current assets
Cash and equivalents..........................         1120         1120
Receivables...................................         1170         1170
Allowance for doubtful accounts...............         1171         1171
Supplies:
Material and supplies.........................         1220         1220
Prepayments...................................         1280         1280
Other current assets..........................         1350         1350
               Noncurrent assets
Investments:
    Nonregulated investments..................         1406         1406
    Other noncurrent assets...................         1410         1410
Deferred charges:
    Deferred maintenance, retirements and              1438         1438
     other deferred charges...................
Other:
    Other jurisdictional assets-net...........         1500         1500
------------------------------------------------------------------------


    11. Section 32.1120 is revised to read as follows:


Sec. 32.1120  Cash and equivalents.

    (a) This account shall include the amount of current funds 
available for use on demand in the hands of financial officers and 
agents, deposited in banks or other financial institutions and also 
funds in transit for which agents have received credit.
    (b) This account shall include the amount of cash on special 
deposit, other than in sinking and other special funds provided for 
elsewhere, to pay dividends, interest, and other debts, when such 
payments are due one year or less from the date of deposit; the amount 
of cash deposited to insure the performance of contracts to be 
performed within one year from date of the deposit; and other cash 
deposits of a special nature not provided for elsewhere. This account 
shall include the amount of cash deposited with trustees to be held 
until mortgaged property sold, destroyed, or otherwise disposed of is 
replaced, and also cash realized from the sale of the company's 
securities and deposited with trustees to be held until invested in 
physical property of the company or for disbursement when the purposes 
for which the securities were sold are accomplished.
    (c) Cash on special deposit to be held for more than one year from 
the date of deposit shall be included in Account 1410, Other noncurrent 
assets.
    (d) This account shall include the amount of cash advanced to 
officers, agents, employees, and others as petty cash or working funds 
from which expenditures are to be made and accounted for.
    (e) This account shall include the cost of current securities 
acquired for the purpose of temporarily investing cash, such as time 
drafts receivable and time loans, bankers' acceptances, United States 
Treasury certificates, marketable securities, and other similar 
investments of a temporary character.
    (f) Accumulated changes in the net unrealized losses of current 
marketable equity securities shall be included in the determination of 
net income in the period in which they occur in Account 7300, Other 
Nonoperating Income and Expense.
    (g) Subsidiary record categories shall be maintained in order that 
the entity may separately report the amounts of temporary investments 
that relate to affiliates and nonaffiliates. Such subsidiary record 
categories shall be reported as required by part 43 of this chapter.


Secs. 32.1130, 32.1140, 32.1150, and 32.1160  [Removed]

    12. Sections 32.1130 32.1140, 32.1150, and 32.1160 are removed.

    13. Section 32.1170 is added to read as follows:


Sec. 32.1170  Receivables.

    (a) This account shall include all amounts due from customers for 
services rendered or billed and from agents and collectors authorized 
to make collections from customers. This account shall also include all 
amounts due from customers or agents for products sold. This account 
shall be kept in such manner as will enable the company to make the 
following analysis:
    (1) Amounts due from customers who are receiving telecommunications 
service.
    (2) Amounts due from customers who are not receiving service and 
whose accounts are in process of collection.
    (b) Collections in excess of amounts charged to this account may be 
credited to and carried in this account until applied against charges 
for services rendered or until refunded.
    (c) Cost of demand or time notes, bills and drafts receivable, or 
other similar evidences (except interest coupons) of money receivable 
on demand or within a time not exceeding one year from date of issue.
    (d) Amount of interest accrued to the date of the balance sheet on 
bonds, notes, and other commercial paper owned, on loans made, and the 
amount of dividends receivable on stocks owned.
    (e) This account shall not include dividends or other returns on 
securities issued or assumed by the company and held by or for it, 
whether pledged as collateral, or held in its treasury, in special 
deposits, or in sinking and other funds.
    (f) Dividends received and receivable from affiliated companies 
accounted for on the equity method shall be included in Account 1410, 
Other noncurrent assets, as a reduction of the carrying value of the 
investment.
    (g) This account shall include all amounts currently due, and not 
provided for in (a) through (g) of this section such as those for 
traffic settlements, divisions of revenue, material and supplies, 
matured rents, and interest receivable under monthly settlements on 
short-term loans, advances, and open accounts. If any of these items 
are not to be paid currently, they shall be transferred to Account 
1410, Other noncurrent assets.
    (h) Subsidiary record categories shall be maintained in order that 
the entity may separately report the amounts contained herein that 
relate to affiliates and nonaffiliates. Such subsidiary

[[Page 5682]]

record categories shall be reported as required by part 43 of this 
chapter.

    14. Section 32.1171 is added to read as follows:


Sec. 32.1171  Allowance for doubtful accounts.

    (a) This account shall be credited with amounts charged to Accounts 
5300, Uncollectible revenue, and 6790, Provision for uncollectible 
notes receivable to provide for uncollectible amounts related to 
accounts receivable and notes receivable included in Account 1170, 
Receivables. There shall also be credited to this account amounts 
collected which previously had been written off through charges to this 
account and credits to Account 1170. There shall be charged to this 
account any amounts covered thereby which have been found to be 
impracticable of collection.
    (b) If no such allowance is maintained, uncollectible amounts shall 
be charged directly to Account 5300, Uncollectible revenue or directly 
to Account 6790, Provision for uncollectible notes receivable, as 
appropriate.
    (c) Subsidiary record categories shall be maintained in order that 
the entity may separately report the amounts contained herein that 
relate to affiliates and nonaffiliates. Such subsidiary record 
categories shall be reported as required by part 43 of this chapter.


Secs. 32.1180, 32.1181, 32.1190, 32.1200, 32.1201, and 
32.1210  [Removed]

    15. Sections 32.1180 32.1181, 32.1190, 32.1200, 32.1201, and 
32.1210 are removed.

    16. Section 32.1220 is amended by revising paragraphs (g) and (h) 
to read as follows:


Sec. 32.1220  Inventories.

* * * * *
    (g) Interest paid on material bills, the payments of which are 
delayed, shall be charged to Account 7500, Interest and related items.
    (h) Inventories of material and supplies shall be taken 
periodically or frequently enough for reporting purposes, as 
appropriate, in accordance with generally accepted accounting 
principles. The adjustments to this account shall be charged or 
credited to Account 6512, Provisioning expense.
* * * * *

    17. Section 32.1280 is revised to read as follows:


Sec. 32.1280  Prepayments.

    This account shall include:
    (a) The amounts of rents paid in advance of the period in which 
they are chargeable to income, except amounts chargeable to 
telecommunications plant under construction and minor amounts which may 
be charged directly to the final accounts. As the term expires for 
which the rents are paid, this account shall be credited monthly and 
the appropriate account charged.
    (b) The balance of all taxes, other than amounts chargeable to 
telecommunication plant under construction and minor amounts which may 
be charged to the final accounts, paid in advance and which are 
chargeable to income within one year. As the term expires for which the 
taxes are paid, this account shall be credited monthly and the 
appropriate account charged.
    (c) The amount of insurance premiums paid in advance of the period 
in which they are chargeable to income, except premiums chargeable to 
telecommunications plant under construction and minor amounts which may 
be charged directly to the final accounts. As the term expires for 
which the premiums are paid, this account shall be credited monthly and 
the appropriate account charged.
    (d) The cost of preparing, printing, binding, and delivering 
directories and the cost of soliciting advertisements for directories, 
except minor amounts which may be charged directly to Account 6620, 
Services. Amounts in this account shall be cleared to Account 6620 by 
monthly charges representing that portion of the expenses applicable to 
each month.
    (e) Other prepayments not included in paragraphs (a) through (d) of 
this section except for minor amounts which may be charged directly to 
the final accounts. As the term expires for which the payments apply, 
this account shall be credited monthly and the appropriate account 
charged.


Secs. 32.1290, 32.1300, 32.1310, 32.1320, and 32.1330  [Removed]

    18. Sections 32.1290 32.1300, 32.1310, 32.1320, and 32.1330 are 
removed.

    19. Section 32.1350 is revised to read as follows:


Sec. 32.1350  Other current assets.

    This account shall include the amount of all current assets which 
are not includable in Accounts 1120 through 1280.


Secs. 32.1401 and 32.1402  [Removed]

    20. Sections 32.1401 and 32.1402 are removed.


Sec. 32.1406  [Amended].

    21. Section 32.1406 is amended by removing paragraph (b) and 
designating paragraph (a) as an undesignated paragraph.


Secs. 32.1407 and 1408  [Removed]

    22. Sections 32.1407 and 32.1408 are removed.

    23. Section 32.1410 is revised to read as follows:


Sec. 32.1410  Other noncurrent assets.

    (a) This account shall include the acquisition cost of the 
company's investment in equity or other securities issued or assumed by 
affiliated companies, including securities held in special funds 
(sinking funds). The carrying value of the investment (securities) 
accounted for on the equity method shall be adjusted to recognize the 
company's share of the earnings or losses and dividends received or 
receivable of the affiliated company from the date of acquisition. 
(Note also Account 1170, Receivables, and Account 7300, Nonoperating 
income and expense.)
    (b) This account shall include the acquisition cost of the 
Company's investment in securities issued or assumed by nonaffiliated 
companies and individuals, and also its investment advances to such 
parties and special deposits of cash for more than one year from date 
of deposit.
    (c) Declines in value of investments, including those accounted for 
under the cost method, shall be charged to Account 4540, Other capital, 
if temporary and as a current period loss if permanent. Detail records 
shall be maintained to reflect unrealized losses for each investment.
    (d) This account shall also include advances represented by book 
accounts only with respect to which it is agreed or intended that they 
shall be either settled by issuance of capital stock or debt; or shall 
not be subject to current cost settlement.
    (e) Amounts due from affiliated and nonaffiliated companies which 
are subject to current settlement shall be included in Account 1170, 
Receivables.
    (f) This account shall include the total unamortized balance of 
debt issuance expense for all classes of outstanding long-term debt. 
Amounts included in this account shall be amortized monthly and charged 
to account 7500, Interest and related items.
    (g) Debt Issuance expense includes all expenses in connection with 
the issuance and sale of evidence of debt, such as fees for drafting 
mortgages and trust deeds; fees and taxes for issuing or recording 
evidences of debt; costs of engraving and printing bonds, certificates 
of indebtedness, and other commercial paper; fees paid trustees;

[[Page 5683]]

specific costs of obtaining governmental authority; fees for legal 
services; fees and commissions paid underwriters, brokers, and 
salesmen; fees and expenses of listing on exchanges, and other like 
costs. A subsidiary record shall be kept of each issue outstanding.
    (h) This account shall include the amount of cash and other assets 
which are held by trustees or by the company's treasurer in a distinct 
fund, for the purpose of redeeming outstanding obligations. Interest or 
other income arising from funds carried in this account shall generally 
be charged to this account. A subsidiary record shall be kept for each 
sinking fund which shall designate the obligation in support of which 
the fund was created.
    (i) This account shall include the amount of all noncurrent assets 
which are not includable in paragraphs (a) through (h) of this section.
    (j) A subsidiary record shall be kept identifying separately common 
stocks, preferred stocks, long-term debt, advances to affiliates, and 
investment advances. A subsidiary record shall also be kept identifying 
special deposits of cash for more than one year from the date of 
deposit. Further, the company's record shall identify the securities 
pledged as collateral for any of the company's long-term debt or short-
term loans or to secure performance of contracts.
    (k) Subsidiary record categories shall be maintained in order that 
the entity may separately report the amounts contained herein that 
relate to the equity method and the cost method. Such subsidiary record 
categories shall be reported as required by part 43 of this chapter.


Sec. 32.1437  [Removed]

    24. Section 32.1437 is removed.

    25. Section 32.1438 is amended by revising paragraph (a) to read as 
follows:


Sec. 32.1438  Deferred maintenance, retirements and other deferred 
charges.

    (a) This account shall include such items as:
    (1) The unprovided-for loss in service value of telecommunications 
plant for extraordinary nonrecurring retirement not considered in 
depreciation and the cost of extensive replacements of plant normally 
chargeable to the current period Plant Specific Operations Expense 
accounts. These charges shall be included in this account only upon 
direction or approval from this Commission. However, the company's 
application to this Commission for such approval shall give full 
particulars concerning the property retired, the extensive 
replacements, the amount chargeable to operating expenses and the 
period over which in its judgment the amount of such charges should be 
distributed.
    (2) Unaudited amounts and other debit balances in suspense that 
cannot be cleared and disposed of until additional information is 
received; the amount, pending determination of loss, of funds on 
deposit with banks which have failed; revenue, expense, and income 
items held in suspense; amounts paid for options pending final 
disposition.
    (3) Cost of preliminary surveys, plans, investigation, etc., made 
for construction projects under contemplation. If the projects are 
carried out, the preliminary costs shall be included in the cost of the 
plant constructed. If the projects are abandoned, the preliminary costs 
shall be charged to Account 7300, Nonoperating income and expense.
    (4) Cost of evaluations, inventories, and appraisals taken in 
connection with the acquisition or sale of property. If the property is 
subsequently acquired, the preliminary costs shall be accounted for as 
a part of the cost of acquisition, or if it is sold, such costs shall 
be deducted from the sale price in accounting for the property sold. If 
purchases or sales are abandoned, the preliminary costs included herein 
(including options paid, if any) shall be charged to Account 7300.
* * * * *


Sec. 32.1439  [Removed]

    26. Section 32.1439 is removed.

    27. Section 32.2000 is amended by revising paragraphs (a)(2), 
(a)(4), (b)(2)(i), (b)(2)(iii), (b)(2)(iv), (c)(2)(x), (c)(2)(xiii), 
(d)(2)(i), (d)(4), (d)(5), (f)(3)(i), (g)(3), (g)(5), (h)(3), and (j) 
as follows:


Sec. 32.2000  Instructions for telecommunications plant accounts.

    (a) * * *
    (2) The telecommunications plant accounts shall not include the 
cost or other value of telecommunications plant contributed to the 
company. Contributions in the form of money or its equivalent toward 
the construction of telecommunications plant shall be credited to the 
accounts charged with the cost of such construction. Amounts of non-
recurring reimbursements based on the cost of plant or equipment 
furnished in rendering service to a customer shall be credited to the 
accounts charged with the cost of the plant or equipment. Amounts 
received for construction which are ultimately to be repaid wholly or 
in part, shall be credited to Account 4300, Other long-term liabilities 
and deferred credits; when final determination has been made as to the 
amount to be returned, any unrefunded amounts shall be credited to the 
accounts charged with the cost of such construction. Amounts received 
for the construction of plant, the ownership of which rests with or 
will revert to others, shall be credited to the accounts charged with 
the cost of such construction. (Note also Account 7100, Other operating 
income and expense.)
* * * * *
    (4) The cost of the individual items of equipment, classifiable to 
Accounts 2112, Motor vehicles; 2113, Aircraft; 2114, Tools and other 
work equipment; 2122, Furniture; 2123, Office equipment; 2124, General 
purpose computers, costing $2,000 or less or having a life of less than 
one year shall be charged to the applicable expense accounts, except 
for personal computers falling within Account 2124. Personal computers 
classifiable to Account 2124, with a total cost for all components of 
$500 or less, shall be charged to the applicable Plant Specific 
Operations Expense accounts. The cost of tools and test equipment 
located in the central office, classifiable to central office asset 
accounts 2210-2232 costing $2,000 or less or having a life of less than 
one year shall be charged to the applicable Plant Specific Operations 
Expense accounts. If the aggregate investment in the items is 
relatively large at the time of acquisition, such amounts shall be 
maintained in an applicable material and supplies account until items 
are used.
    (b) * * *
    (2) * * *
    (i) The amount of money paid (or current money value of any 
consideration other than money exchanged) for the property (together 
with preliminary expenses incurred in connection the acquisition) shall 
be charged to Account 1438, Deferred maintenance, retirements, and 
other deferred charges.
* * * * *
    (iii) Accumulated Depreciation and amortization balances related to 
plant acquired shall be credited to Account 3100, Accumulated 
depreciation, or Account 3200, Accumulated depreciation--held for 
future telecommunications use, or Account 3410, Accumulated 
amortization-- capitalized leases and debited to Account 1438. 
Accumulated amortization balances related to plant acquired which 
ultimately is recorded in Accounts 2005, Telecommunications plant 
adjustment, Account 2682,

[[Page 5684]]

Leasehold improvements, or Account 2690, Intangibles shall be credited 
to these asset accounts, and debited to Account 1438.
    (iv) Any amount remaining in Account 1438, applicable to the plant 
acquired, shall, upon completion of the entries provided in paragraphs 
(b)(2)(i) through (b)(2)(iii) of this section, be debited or credited, 
as applicable, to Account 2007, Goodwill, or to Account 2005, 
Telecommunications plant adjustment, as appropriate.
* * * * *
    (c) * * *
    (2) * * *
    (x) Allowance for funds used during construction (``AFUDC'') 
provides for the cost of financing the construction of 
telecommunications plant. AFUDC shall be charged to Account 2003, 
Telecommunications plant under construction, and credited to Account 
7300, Nonoperating income and expense. The rate for calculating AFUDC 
shall be determined as follows: If financing plans associate a specific 
new borrowing with an asset, the rate on that borrowing may be used for 
the asset; if no specific new borrowing is associated with an asset or 
if the average accumulated expenditures for the asset exceed the 
amounts of specific new borrowing associated with it, the 
capitalization rate to be applied to such excess shall be the weighted 
average of the rates applicable to other borrowings of the enterprise. 
The amount of interest cost capitalized in an accounting period shall 
not exceed the total amount of interest cost incurred by the company in 
that period.
* * * * *
    (xiii) ``Indirect construction costs'' shall include indirect costs 
such as general engineering, supervision and support. Such costs, in 
addition to direct supervision, shall include indirect plant operations 
and engineering supervision up to, but not including, supervision by 
executive officers whose pay and expenses are chargeable to Account 
6720, General and administrative. The records supporting the entries 
for indirect construction costs shall be kept so as to show the nature 
of the expenditures, the individual jobs and accounts charged, and the 
bases of the distribution. The amounts charged to each plant account 
for indirect costs shall be readily determinable. The instructions 
contained herein shall not be interpreted as permitting the addition to 
plant of amounts to cover indirect costs based on arbitrary 
allocations.
* * * * *
    (d) * * *
    (2) * * *
    (i) Retirement units: This group includes major items of property, 
a representative list of which shall be prescribed by this Commission. 
In lieu of the retirement units prescribed with respect to a particular 
account, a company may, after obtaining specific approval by this 
Commission, establish and maintain its own list of retirement units for 
a portion or all of the plant in any such account. For items included 
on the retirement units list, the original cost of any such items 
retired shall be credited to the plant account and charged to Account 
3100 Accumulated Depreciation, whether or not replaced. The original 
cost of retirement units installed in place of property retired shall 
be charged to the applicable telecommunications plant account.
* * * * *
    (4) The accounting for the retirement of property, plant and 
equipment shall be as provided above except that amounts in Account 
2111, Land, and amounts for works of art recorded in Account 2122, 
Furniture, shall be treated at disposition as a gain or loss and shall 
be credited or debited to Account 7100, Other operating income and 
expense, as applicable. If land or artwork is retained by the company 
and held for sale, the cost shall be charged to Account 2006, 
Nonoperating plant.
    (5) When the telecommunications plant is sold together with traffic 
associated therewith, the original cost of the property shall be 
credited to the applicable plant accounts and the estimated amounts 
carried with respect thereto in the accumulated depreciation and 
amortization accounts shall be charged to such accumulated accounts. 
The difference, if any, between the net amount of such debit and credit 
items and the consideration received (less commissions and other 
expenses of making the sale) for the property shall be included in 
Account 7300, Nonoperating income and expense. The accounting for 
depreciable telecommunications plant sold without the traffic 
associated therewith shall be in accordance with the accounting 
provided in Sec. 32.3100(c).
* * * * *
    (f) * * *
    (3) * * *
    (i) Unit identification. Cost shall be identified and maintained by 
specific location for property record units contained within certain 
regulated plant accounts or account groupings such as Land, Buildings, 
Central Office Assets, Motor Vehicles, garage work equipment included 
in Account 2114, Tools and other work equipment, and Furniture. In 
addition, units involved in any unusual or special type of construction 
shall be recorded by their specific location costs (note also 
Sec. 32.2000(f)(3)(ii)(B)).
* * * * *
    (g) * * *
    (3) Acquired depreciable plant. When acquired depreciable plant 
carried in Account 1438, Deferred maintenance, retirements and other 
deferred charges, is distributed to the appropriate plant accounts, 
adjusting entries shall be made covering the depreciation charges 
applicable to such plant for the period during which it was carried in 
Account 1438.
* * * * *
    (5) Upon direction or approval from this Commission, the company 
shall credit Account 3100, Accumulated depreciation, and charge Account 
1438, Deferred maintenance, retirements and other deferred charges, 
with the unprovided-for loss in service value. Such amounts shall be 
distributed from Account 1438 to Account 6560, Depreciation and 
amortization expense over such period as this Commission may direct or 
approve.
    (h) * * *
    (3) Amortization charges shall be made monthly to the appropriate 
amortization expense accounts and corresponding credits shall be made 
to accounts 2005, 2682, 2690, and 3410, as appropriate. Monthly charges 
shall be computed by the application of one-twelfth to the annual 
amortization amount.
* * * * *
    (j) Plant Accounts to be Maintained by Class A and Class B 
telephone companies as indicated:

------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
                Regulated plant
 
Property, plant and equipment:
    Telecommunications plant in service.......     \1\ 2001     \1\ 2001
    Property held for future                           2002         2002
     telecommunications use...................

[[Page 5685]]

 
    Telecommunications plant under                     2003         2003
     construction-short term..................
    Telecommunications plant adjustment.......         2005         2005
    Nonoperating plant........................         2006         2006
    Goodwill..................................         2007         2007
  Telecommunications plant in service (TPIS)
 
TPIS--General support assets:
    Land and support assets...................  ...........         2110
    Land......................................         2111  ...........
    Motor vehicles............................         2112  ...........
    Aircraft..................................         2113  ...........
    Tools and other work equipment............         2114  ...........
    Buildings.................................         2121  ...........
    Furniture.................................         2122  ...........
    Office equipment..........................         2123  ...........
    General purpose computers.................         2124  ...........
TPIS--Central Office assets:
    Central Office--switching.................  ...........         2210
    Non-digital switching.....................         2211  ...........
    Digital electronic switching..............         2212  ...........
    Operator systems..........................         2220         2220
    Central Office--transmission..............  ...........         2230
    Radio systems.............................         2231  ...........
    Circuit equipment.........................         2232  ...........
TPIS--Information origination/termination       ...........  ...........
 assets:
    Information origination termination.......  ...........         2310
    Station apparatus.........................         2311  ...........
    Customer premises wiring..................         2321  ...........
    Large private branch exchanges............         2341  ...........
    Public telephone terminal equipment.......         2351  ...........
    Other terminal equipment..................         2362  ...........
TPIS--Cable and wire facilities assets:
    Cable and wire facilities.................  ...........         2410
    Poles.....................................         2411  ...........
    Aerial cable..............................         2421  ...........
    Underground cable.........................         2422  ...........
    Buried cable..............................         2423  ...........
    Submarine and deep sea cable..............         2424  ...........
    Intrabuilding network cable...............         2426  ...........
    Aerial wire...............................         2431  ...........
    Conduit systems...........................         2441  ...........
TPIS--Amortizable assets:
    Amortizable tangible assets...............  ...........         2680
    Capital leases............................         2681  ...........
    Leasehold improvements....................         2682  ...........
    Intangibles...............................         2690        2690
------------------------------------------------------------------------
\1\ Balance sheet summary account only.


    28. Section 32.2003 is amended by revising paragraph (c) 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 Secs. 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 7300, Nonoperating income and expense.
* * * * *
    29. Section 32.2005 is amended by revising paragraph (b) to read as 
follows:


Sec. 32.2005  Telecommunications plant adjustment.

* * * * *
    (b) The amounts recorded in this account with respect to each 
property acquisition (except land and artworks) shall be disposed of, 
written off, or provision shall be made for the amortization thereof, 
as follows:
    (1) Debit amounts may be charged in whole or in part, or amortized 
over a reasonable period through charges to Account 7300, Nonoperating 
income and expense, without further direction or approval by this 
Commission. When specifically approved by this Commission, or when the 
provisions of paragraph (b)(3) of this section apply, debit amounts 
shall be amortized to Account 6560, Depreciation and amortization 
expense.
    (2) Credit amounts shall be disposed of in such manner as this 
Commission may approve or direct, except for credit amounts referred to 
in paragraph (b)(4) of this section.
    (3) The amortization associated with the costs recorded in the 
Telecommunications plant adjustment account will be charged or 
credited, as appropriate, directly to this asset account, leaving a 
balance representing the unamortized cost.
    (4) Within one year from the date of inclusion in this account of a 
debit or credit amount with respect to a current

[[Page 5686]]

acquisition, the company may dispose of the total amount from an 
acquisition of telephone plant by a lump-sum charge or credit, as 
appropriate, to Account 6560 without further approval of this 
Commission, provided that such amount does not exceed $100,000 and that 
the plant was not acquired from an affiliated company.

    30. Section 32.2007 is amended by revising paragraph (a) to read as 
follows:


Sec. 32.2007  Goodwill.

    (a) This account shall include any portion of the plant purchase 
price that cannot be assigned to specifically identifiable property 
acquired and such amount should be identified as ``goodwill''. Such 
amounts included in this account shall be amortized to Account 7300, 
Nonoperating income and expense, on a straight line basis over the 
remaining life of the acquired plant, not to exceed 40 years.
* * * * *

    31. Section 32.2111 is amended by revising paragraphs (f) and (g) 
to read as follows:


Sec. 32.2111  Land.

* * * * *
    (f) Installments of assessments for public improvement, including 
interest, if any, which are deferred without option to the company 
shall be included in this account only as they become due and payable. 
Interest on assessments which are not paid when due shall be included 
in Account 7500, Interest and related items.
    (g) When land is purchased for immediate use in a construction 
project, its cost shall be included in Account 2003, Telecommunications 
plant under construction, until such time as the project involved is 
completed and ready for service.
* * * * *


Sec. 32.2123  [Amended]

    32. Section 32.2123 is amended by removing paragraph (b) and 
designating paragraph (a) as an undesignated paragraph.

    33. Section 32.2210 is revised to read as follows:


Sec. 32.2210  Central office--switching.

    This account shall be used by Class B companies to record the 
original cost of switching assets of the type and character required of 
Class A companies in Accounts 2211 through 2212.

    34. Section 32.2211 is amended by revising the section heading and 
paragraph (a) to read as follows:


Sec. 32.2211  Non-digital switching.

    (a) This account shall include:
    (1) Original cost of stored program control analog circuit-
switching and associated equipment.
    (2) Cost of remote analog electronic circuit switches.
    (3) Original cost of non-electronic circuit-switching equipment 
such as Step-by-Step, Crossbar, and Other Electro-Mechanical Switching.
* * * * *

    35. Section 32.2212 is amended by revising paragraph (a), 
redesignating paragraph (b) as paragraph (e), and adding new paragraphs 
(b), (c), and (d) to read as follows:


Sec. 32.2212  Digital electronic switching.

    (a) This account shall include the original cost of stored program 
control digital switches and their associated equipment. Included in 
this account are digital switches which utilize either dedicated or 
non-dedicated circuits. This account shall also include the cost of 
remote digital electronic switches. The investment in digital 
electronic switching equipment shall be maintained in the following 
subaccounts: 2212.1 Circuit and 2212.2 Packet.
    (b) This subaccount 2212.1 Circuit shall include the original cost 
of digital electronic switching equipment used to provide circuit 
switching. Circuit switching is a method of routing traffic through a 
switching center, from local users or from other switching centers, 
whereby a connection is established between the calling and called 
stations until the connection is released by the called or calling 
station.
    (c) This subaccount 2212.2 Packet shall include the original cost 
of digital electronic switching equipment used to provide packet 
switching. Packet switching is the process of routing and transferring 
information by means of addressed packets so that a channel is occupied 
during the transmission of the packet only, and upon completion of the 
transmission the channel is made available for the transfer of other 
traffic.
    (d) Digital electronic switching equipment used to provide both 
circuit and packet switching shall be recorded in the subaccounts 
2212.1 Circuit and 2212.2 Packet based upon its predominant use.
* * * * *


Sec. 32.2215  [Removed]

    36. Section 32.2215 is removed.
    37. Section 32.2231 is revised to read as follows:


Sec. 32.2231  Radio systems.

    (a) This account shall include the original cost of ownership of 
radio transmitters and receivers. This account shall include the 
original cost of ownership interest in satellites (including land-side 
spares), other spare parts, material and supplies. It shall include 
launch insurance and other satellite launch costs. This account shall 
also include the original cost of earth stations and spare parts, 
material or supplies therefor.
    (b) This account shall also include the original cost of radio 
equipment used to provide radio communication channels. Radio equipment 
is that equipment which is used for the generation, amplification, 
propagation, reception, modulation, and demodulation of radio waves in 
free space over which communication channels can be provided. This 
account shall also include the associated carrier and auxiliary 
equipment and patch bay equipment which is an integral part of the 
radio equipment. Such equipment may be located in central office 
building, terminal room, or repeater stations or may be mounted on 
towers, masts, or other supports.

    38. Section 32.2232 is amended by revising paragraphs (a) and (b), 
redesignating paragraphs (b) and (c) as (e) and (f), and adding new 
paragraphs (b), (c), and (d) to read as follows:


Sec. 32.2232  Circuit equipment.

    (a) This account shall include the original cost of equipment which 
is used to reduce the number of physical pairs otherwise required to 
serve a given number of subscribers by utilizing carrier systems, 
concentration stages or combinations of both. It shall include 
equipment that provides for simultaneous use of a number of interoffice 
channels on a single transmission path. This account shall also include 
equipment which is used for the amplification, modulation, 
regeneration, circuit patching, balancing or control of signals 
transmitted over interoffice communications transmission channels. This 
account shall include equipment which utilizes the message path to 
carry signaling information or which utilizes separate channels between 
switching offices to transmit signaling information independent of the 
subscribers' communication paths or transmission channels. This account 
shall also include the original cost of associated material used in the 
construction of such plant. Circuit equipment may be located in central 
offices, in manholes, on poles, in cabinets or huts, or at other 
company locations. The investment in circuit equipment shall be 
maintained in the following subaccounts: 2232.1 Electronic and 2232.2 
Optical.

[[Page 5687]]

    (b) This subaccount 2232.1 Electronic shall include the original 
cost of electronic circuit equipment.
    (c) This subaccount 2232.2 Optical shall include the original cost 
of optical circuit equipment.
    (d) Circuit equipment that converts electronic signals to optical 
signals or optical signals to electronic signals shall be categorized 
as electronic.
* * * * *

    39. Section 32.2311 is amended by revising paragraph (f) to read as 
follows:


Sec. 32.2311  Station apparatus.

* * * * *
    (f) Periodic asset verification, as prescribed by generally 
accepted accounting principles, shall be taken of all station apparatus 
in stock that are included in this account. The number of such station 
apparatus items as determined by this verification together with the 
number of all other station apparatus items included in this account, 
shall be compared with the corresponding number of station apparatus 
items as shown by the respective control records. The original cost of 
any unreconciled differences thereby disclosed shall be adjusted 
through Account 3100, Accumulated Depreciation. Appropriate 
verifications shall be made at suitable intervals and necessary 
adjustments between this account and Account 3100 shall be made for all 
station apparatus included in this account.
* * * * *

    40. Section 32.2424 is amended by revising the section heading and 
paragraph (a) introductory text to read as follows:


Sec. 32.2424  Submarine & deep sea cable.

    (a) This account shall include the original cost of submarine cable 
and deep sea cable and other material used in the construction of such 
plant. Subsidiary record categories, as defined below, are to be 
maintained for nonmetallic submarine and deep sea cable and metallic 
submarine and deep sea cable.
* * * * *


Sec. 32.2425  [Removed]

    41. Section 32.2425 is removed.

    42. Section 32.2682 is amended by revising paragraph (c) to read as 
follows:


Sec. 32.2682  Leasehold improvements.

* * * * *
    (c) Amounts contained in this account shall be amortized over the 
term of the related lease. The amortization associated with the costs 
recorded in the Leasehold improvement account will be credited directly 
to this asset account, leaving a balance representing the unamortized 
cost.

    43. Section 32.2690 is revised to read as follows:


Sec. 32.2690  Intangibles.

    (a) This account shall include the cost of organizing and 
incorporating the company, the original cost of government franchises, 
the original cost of patent rights, and other intangible property 
having a life of more than one year and used in connection with the 
company's telecommunications operations.
    (b) Class A companies, except mid-sized incumbent local exchange 
carriers, shall maintain subsidiary records for general purpose 
computer software and for network software. Subsidiary records for this 
account shall also include a description of each class of all other 
tangible property.
    (c) The cost of other intangible assets, not including software, 
having a life of one year or less shall be charged directly to Account 
6560, Depreciation and Amortization Expense. Such intangibles acquired 
at small cost may also be charged to Account 6560, irrespective of 
their term of life. The cost of software having a life of one year or 
less shall be charged directly to the applicable expense account with 
which the software is associated.
    (d) The amortization associated with the costs recorded in the 
Intangibles account will be credited directly to this asset account, 
leaving a balance representing the unamortized cost.
    (e) This account shall not include any discounts on securities 
issued, nor shall it include costs incident to negotiating loans, 
selling bonds or other evidences of debt, or expenses in connection 
with the authorization, issuance, sale or resale of capital stock.
    (f) When charges are made to this account for expenses incurred in 
mergers, consolidations, or reorganizations, amounts previously 
included in this account on the books of the various companies 
concerned shall not be carried over.
    (g) Franchise taxes payable annually or more frequently shall be 
charged to Account 7240, Operating other taxes.
    (h) This account shall not include the cost of plant, material and 
supplies, or equipment furnished to municipalities or other 
governmental authorities when given other than as initial consideration 
for franchises or similar rights. (Note also Account 6720, General & 
administrative).
    (i) This account shall not include the original cost of easements, 
rights of way, and similar rights in land having a term of more than 
one year. Such amounts shall be recorded in Account 2111, Land, or in 
the appropriate outside plant account (see Accounts 2411 through 2441), 
or in the appropriate central office account (see Accounts 2211 through 
2232).

    44. Section 32.3000 is amended by revising paragraphs (a)(2) and 
(b) to read as follows:


Sec. 32.3000  Instructions for balance sheet accounts--Depreciation and 
amortization.

    (a) * * *
    (2) Subsidiary records shall be maintained for Accounts 2005, 2682, 
2690, and 3410 in accordance with Sec. 32.2000(h)(4).
    (b) Depreciation and Amortization Accounts to be Maintained by 
Class A and Class B telephone companies, as indicated:

------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
Depreciation and amortization:
    Accumulated depreciation..................         3100         3100
    Accumulated depreciation--Held for future          3200         3200
     telecommunications use...................
    Accumulated depreciation--Nonoperating....         3300         3300
    Accumulated amortization--Capitalized              3410         3410
     leases...................................
------------------------------------------------------------------------


    45. Section 32.3100 is amended by revising paragraphs (b) and (d) 
to read as follows:


Sec. 32.3100  Accumulated depreciation.

* * * * *
    (b) This account shall be credited with depreciation amounts 
concurrently charged to Account 6560, Depreciation and amortization 
expenses. (Note also Account 3300, Accumulated Depreciation--
Nonoperating.)
* * * * *

[[Page 5688]]

    (d) This account shall be credited with amounts charged to Account 
1438, Deferred maintenance, retirements, and other deferred charges, as 
provided in Sec. 32.2000(g)(4). This account shall be credited with 
amounts charged to Account 6560 with respect to other than relatively 
minor losses in service values suffered through terminations of service 
when charges for such terminations are made to recover the losses.

    46. Section 32.3200 is amended by revising paragraph (b) to read as 
follows:


Sec. 32.3200  Accumulated depreciation--held for future 
telecommunications use.

* * * * *
    (b) This account shall be credited with amounts concurrently 
charged to Account 6560, Depreciation and amortization expenses.

    47. Section 32.3300 is amended by revising paragraph (b) and (c) to 
read as follows:


Sec. 32.3300  Accumulated depreciation--nonoperating.

* * * * *
    (b) This account shall be credited with amortization and 
depreciation amounts concurrently charged to Account 7300, Nonoperating 
income and expense.
    (c) When nonoperating plant not previously used in 
telecommunications service is disposed of, this account shall be 
charged with the amount previously credited hereto with respect to such 
property and the book cost of the property so retired less the amount 
chargeable to this account and less the value of the salvage recovered 
or the proceeds from the sale of the property shall be included in 
Account 7300, Nonoperating income and expense. In case the property had 
been used in telecommunications service previous to its inclusion in 
Account 2006, Nonoperating Plant, the amount accrued for depreciation 
thereon after its retirement from telecommunications service shall be 
charged to this account and credited to Account 3100, Accumulated 
depreciation, and the accounting for its retirement from Account 2006 
shall be in accordance with that applicable to telecommunications plant 
retired.


Sec. 32.3400  [Removed]

    48. Section 32.3400 is removed.

    49. Section 32.3410 is amended by revising paragraph (b) and (c) to 
read as follows:


Sec. 32.3410  Accumulated amortization--capital leases.

* * * * *
    (b) This account shall be credited with amounts for the 
amortization of capital leases concurrently charged to Account 6560, 
Depreciation and amortization expenses. (Note also Account 3300, 
Accumulated Depreciation-- Nonoperating.)
    (c) When any item carried in Account 2681 is sold, is relinquished, 
or is otherwise retired from service, this account shall be charged 
with the cost of the retired item. Remaining amounts associated with 
the item shall be debited to Account 7100, Other operating income and 
expenses, or Account 7300, Nonoperating income and expense, as 
appropriate.


Secs. 32.3420, 32.3500 and 32.3600  [Removed]

    50. Sections 32.3420, 32.3500 and 32.3600 are removed.

    51. Section 32.4000 is redesignated as Sec. 32.3999 and 
redesignated Sec.  32.3999 is revised to read as follows:


Sec. 32.3999  Instructions for balance sheet accounts--liabilities and 
stockholders' equity.

 Liabilities and Stockholders' Equity Accounts To Be Maintained by Class
                    A and Class B Telephone Companies
------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
Current liabilities:
    Current accounts and notes payable........         4000         4000
    Customer's Deposits.......................         4040         4040
    Income taxes--accrued.....................         4070         4070
    Other taxes--accrued......................         4080         4080
    Net Current Deferred Nonoperating Income           4100         4100
     Taxes....................................
    Net Current Deferred Nonoperating Income           4110         4110
     Taxes....................................
    Other current liabilities.................         4130         4130
Long-term debt:
    Long Term debt and Funded debt............         4200         4200
Other liabilities and deferred credits:
    Other liabilities and deferred credits....         4300         4300
    Unamortized operating investment tax               4320         4320
     credits--net.............................
    Unamortized nonoperating investment tax            4330         4330
     credits--net.............................
    Net noncurrent deferred operating income           4340         4340
     taxes....................................
    Net deferred tax liability adjustments....         4341         4341
    Net noncurrent deferred nonoperating               4350         4350
     income taxes.............................
    Deferred tax regulatory adjustments--net..         4361         4361
    Other jurisdictional liabilities and               4370         4370
     deferred credits--net....................
Stockholder's equity:
    Capital stock.............................         4510         4510
    Additional paid-in capital................         4520         4520
    Treasury stock............................         4530         4530
    Other capital.............................         4540         4540
    Retained earnings.........................         4550         4550
------------------------------------------------------------------------


    52. Section 32.4000 is added to read as follows:


Sec. 32.4000  Current accounts and notes payable.

    (a) This account shall include:(1) All amounts currently due to 
others for recurring trade obligations, and not provided for in other 
accounts, such as those for traffic settlements, material and supplies, 
repairs to telecommunications plant, matured rents, and interest 
payable under

[[Page 5689]]

monthly settlements on short-term loans, advances, and open accounts. 
It shall also include amounts of taxes payable that have been withheld 
from employees' salaries.
    (2) Accounts payable arising from sharing of revenues.
    (3) The face amount of notes, drafts, and other evidences of 
indebtedness issued or assumed by the company (except interest coupons) 
which are payable on demand or not more than one year or less from date 
of issue.
    (b) If any part of an obligation, otherwise includable in this 
account matures more than one year from date of issue, it shall be 
included in Account 4200, Long term debt and funded debt, or other 
appropriate account.
    (c) The records supporting the entries to this account shall be 
kept so that the company can furnish complete details as to each note, 
when it is issued, the consideration received, and when it is payable.
    (d) Subsidiary record categories shall be maintained for this 
account in order that the company may separately report the amounts 
contained herein that relate to nonaffiliates and affiliates. Such 
subsidiary record categories shall be reported as required by part 43 
of this chapter.


Secs. 32.4010, 32.4020, and 32.4030  [Removed]

    53. Sections 32.4010, 32.4020, and 32.4030 are removed.

    54. In Sec. 32.4040, paragraph (b) is revised to read as follows:


Sec. 32.4040  Customer's deposits.

* * * * *
    (b) Advance payments made by prospective customers prior to the 
establishment of service shall be credited to Account 4130, Other 
current liabilities.


Secs. 32.4050 and 32.4060  [Removed]

    55. Sections 32.4050 and 32.4060 are removed.

    56. Section 32.4070 is revised to read as follows:


Sec. 32.4070  Income taxes--accrued.

    (a) This account shall be credited or charged and the following 
accounts shall be charged or credited with the offsetting amount of 
current year income taxes (Federal, state and local) accrued during the 
period or adjustments to prior accruals: 7220 Operating Federal Income 
Taxes, 7230 Operating State and Local Income Taxes, 7400 Nonoperating 
Taxes, 7600 Extraordinary Items.
    (b) If significant, current year income taxes paid in advance shall 
be reclassified to Account 1280, Prepayments.

    57. Section 32.4080 is revised to read as follows:


Sec. 32.4080  Other taxes--accrued.

    (a) This account shall be credited or charged and Account 7240, 
Operating Other Taxes, or 7400, Nonoperating Taxes, or, for payroll 
related costs, the appropriate expense accounts shall be charged or 
credited for all taxes, other than Federal, State and local income 
taxes, accrued or adjusted for previous accruals during the period. 
Among the taxes includable in this account are property, gross 
receipts, franchise, capital stock, social security and unemployment 
taxes.
    (b) Taxes paid in advance of the period in which they are 
chargeable to income shall be included in the prepaid taxes Account 
1280, Prepayments, or 1410, Other Noncurrent Assets, as appropriate.

    58. Section 32.4110 is amended by revising paragraphs (c) and (f) 
to read as follows:


Sec. 32.4110  Net current deferred nonoperating income taxes.

* * * * *
    (c) This account shall be debited or credited with the amount being 
credited or debited to Account 7400, Nonoperating taxes, in accordance 
with that account's description and Sec. 32.22.
* * * * *
    (f) This account shall be debited or credited with the amount being 
credited and debited to Account 7600, Extraordinary Items.
* * * * *


Sec. 32.4120  [Removed]

    59. Section 32.4120 is removed.

    60. Section 32.4130 is revised to read as follows:


Sec. 32.4130  Other current liabilities.

    This account shall include:
    (a) The amount of advance billing creditable to revenue accounts in 
future months; also advance payments made by prospective customers 
prior to the establishment of service. Amounts included in this account 
shall be credited to the appropriate revenue accounts in the months in 
which the service is rendered or cleared from this account as refunds 
are made.
    (b) The amount (including any obligations for premiums) of long-
term debt matured and unpaid without any specific agreement for 
extension of maturity, including unpresented bonds drawn for redemption 
through the operation of sinking and redemption fund agreements.
    (c) The current portion of obligations applicable to property 
obtained under capital leases.
    (d) The amount of wages, compensated absences, interest on 
indebtedness of the company, dividends on capital stock, and rents 
accrued to the date for which the balance sheet is made, but not 
payable until after that date. Accruals shall be maintained so as to 
show separately the amount and nature of the items accrued to the date 
of the balance sheet.
    (e) Matured rents, dividends, interest payable under monthly 
settlements on short-term loans, advances, and open accounts shall be 
included in Account 4000.
    (f) All other liabilities of current character which are not 
included in Account 4000 through 4110.

    61. Section 32.4200 is added to read as follows:


Sec. 32.4200  Long term debt and funded debt.

    (a) This account shall include:
    (1) The total face amount of unmatured debt maturing more than one 
year from date of issue, issued by the company and not retired, and the 
total face amount of similar unmatured debt of other companies, the 
payment of which has been assumed by the company, including funded debt 
the maturity of which has been extended by specific agreement. This 
account shall also include such items as mortgage bonds, collateral 
trust bonds, income bonds, convertible debt, debt securities with 
detachable warrants and other similar obligations maturing more than 
one year from date of issue.
    (2) The premium associated with all classes of long-term debt. 
Premium, as applied to securities issued or assumed by the company, 
means the excess of the current money value received at their sale over 
the sum of their book or face amount and interest or dividends accrued 
at the date of the sale.
    (3) The discount associated with all classes of long-term debt. 
Discount, as applied to securities issued or assumed by the company, 
means the excess of the book or face amount of the securities plus 
interest or dividends accrued at the date of the sale over the current 
money value of the consideration received at their sale.
    (4) The face amount of debt reacquired prior to maturity that has 
not been retired. Gain or loss shall be recognized at the time of 
reacquisition by credits or charges to Account 7300, Nonoperating 
income and expense, except that material gains or losses shall be 
treated as extraordinary. (See Account 7600, Extraordinary items.)

[[Page 5690]]

    (5) The noncurrent portion of obligations applicable to property 
obtained under capital leases. Amounts subject to current settlement 
shall be included in Account 4130, Other current liabilities.
    (6) The amount of advance from affiliated companies. Amounts due 
affiliated companies which are subject to current settlement shall be 
included in Account 4000.
    (7) Investment advances, including those represented by notes.
    (8) Long-term debt not provided for elsewhere.
    (b) Subsidiary records shall be maintained for each issue. The 
subsidiary records shall identify the premium or discount attributable 
to each issue.
    (c) Premiums and discounts on long-term debt recorded in this 
account shall be amortized monthly by the interest method and charged 
or credited, as appropriate, to Account 7500, Interest and related 
items.
    (d) Debt securities with detachable warrants shall be accounted for 
in accordance with generally accepted accounting principles.
    (e) Securities maturing in one year or less, including securities 
maturing serially, shall be included in Account 4130, Other current 
liabilities.


Secs. 32.4210, 32.4220, 32.4230, 32.4240, 32.4250, 32.4260, and 
32.4270  [Removed]

    62. Sections 32.4210, 32.4230, 32.4240, 32.4250, 32.4260, and 
32.4270 are removed.
    63. Section 32.4300 is added to read as follows:


Sec. 32.4300  Other long-term liabilities and deferred credits.

    (a) This account shall include amounts accrued to provide for such 
items as unfunded pensions (if actuarially determined), death benefits, 
deferred compensation costs and other long-term liabilities not 
provided for elsewhere. Subsidiary records shall be maintained to 
identify the nature of these items.
    (b) This account shall include the amount of all deferred credits 
not provided for elsewhere, such as amounts awaiting adjustment between 
accounts; and revenue, expense, and income items in suspense.


Sec. 32.4310  [Removed]

    64. Section 32.4310 is removed.
    65. Section 32.4330 is revised to read as follows:


Sec. 32.4330  Unamortized nonoperating investment tax credits--net.

    (a) This account shall be credited and Account 7400, Nonoperating 
Taxes, shall be debited with investment tax credits generated from 
qualified expenditures related to other operations which the company 
has elected to defer rather than recognize currently in income.
    (b) This account shall be debited and Account 7400 credited with a 
proportionate amount determined in relation to the useful book life of 
the property to which the tax credit relates.

    66. Section 32.4341 is amended by revising paragraphs (a) and 
(b)(2) to read as follows:


Sec. 32.4341  Net deferred tax liability adjustments.

    (a) This account shall include the portion of deferred income tax 
charges and credits pertaining to Account 32.4361, Deferred tax 
regulatory adjustments--net.
    (b) * * *
    (2) Reclassification attributable to changes in tax rates (Federal, 
state and local). As tax rates increase or decrease, the offsetting 
debit or credit will be recorded in Account 4361 as required by 
paragraph (a) of this section.
* * * * *

    67. Section 32.4350 is amended by revising paragraphs (b) and (e) 
to read as follows:


Sec. 32.4350  Net noncurrent deferred nonoperating income taxes.

* * * * *
    (b) This account shall be credited or debited, as appropriate, and 
Account 7400, Nonoperating Taxes, shall reflect the offset for the tax 
effect of revenues from other operations and extraordinary items and 
nonoperating expenses which have been included in the determination of 
taxable income, but which will not be included in the determination of 
book income or for the tax effect of nonoperating expenses and 
extraordinary items and nonoperating income which have been included in 
the determination of book income prior to the inclusion in the 
determination of taxable income.
* * * * *
    (e) This account shall be charged or credited with the contra 
amount recorded to Account 7600, Extraordinary items, in accordance 
with Sec. 32.22.
* * * * *


Sec. 32.4360  [Removed]

    68. Section 32.4360 is removed.

    69. Section 32.4361 is revised to read as follows:


Sec. 32.4361  Deferred tax regulatory adjustments--net.

    (a) This account shall include amounts of probable future revenue 
for the recovery of future increases in taxes payable and amounts of 
probable future revenue reductions attributable to future decreases in 
taxes payable. As reductions or reversals occur, amounts recorded in 
this account shall be reduced or increased, with a contra entry being 
made to Account 4341, Net deferred tax liability adjustments.
    (b) This account shall also be adjusted for the impact of 
prospective tax rate changes on the deferred tax liability for those 
temporary differences underlying its existing balance.

    70. Section 32.4540 is revised to read as follows:


Sec. 32.4540  Other capital.

    This account shall include amounts which are credits arising from 
the donation by stockholders of the company's capital stock, capital 
recorded upon the reorganization or recapitalization of the company and 
temporary declines in the value of marketable securities held for 
investment purposes. (See also Account 1410, Other noncurrent assets).
    71. Section 32.4999 is amended by revising paragraphs (c), (d), 
(e), (g)(2), (h), (i)(1), and (n), removing paragraphs (f)(2) and 
(g)(3), redesignating paragraph (f)(1) as (f), and by redesignating 
paragraph (g)(4) as (g)(3) to read as follows:


Sec. 32.4999  General.

* * * * *
    (c) Commissions. Commissions paid to others or employees in place 
of compensation or salaries for services rendered, such as public 
telephone commissions, shall be charged to Account 6620 Services, and 
not to the revenue accounts. Other commissions shall be charged to the 
appropriate expense accounts.
    (d) Revenue recognition. Credits shall be made to the appropriate 
revenue accounts when such revenue is actually earned. When the billing 
cycle encompasses more than one accounting period, adjustments are 
necessary to properly recognize the revenue applicable to the current 
accounting period under report. Revenues recorded under the terms of 
two-tier contracts or other variable payment plans should be deferred, 
if necessary, and recognized ratably with expenses over the terms of 
the related contract. Any amounts deferred shall be credited to Account 
4300, Other long-term liabilities and deferred credits.
    (e) Contractual arrangements. Charges and credits resulting from 
activities associated with the provisions of regulated 
telecommunications services shall be recorded in a manner consistent

[[Page 5691]]

with the nature of the underlying contractual arrangements. The charges 
and credits resulting from expense sharing or apportionment 
arrangements associated with the provision of regulated 
telecommunications services shall be recorded in the detailed regulated 
accounts. Charges and credits resulting from revenue settlement 
agreements or other revenue pooling arrangements associated with the 
provision of regulated telecommunications services shall be included in 
the appropriate revenue accounts. Those charges and credits resulting 
from contractual revenue pooling and/or sharing agreements shall be 
recorded in each prescribed revenue account and prescribed subsidiary 
record categories thereof to the extent that each is separately 
identifiable in the settlement process. It is not intended that 
settlement amounts be allocated or generally spread to the individual 
revenue accounts where they are not separately identifiable in the 
settlement process. When the settlement amounts are not identifiable by 
a revenue account they shall be recorded in Account 5060, Other basic 
area revenue, 5105, Long distance message revenue, or 5200, 
Miscellaneous revenue, as appropriate.
* * * * *
    (g) * * *
    (2) The revenue section of this system of accounts shall be 
comprised of six major groups--Local Network Services Revenues, Network 
Access Services Revenues, Long Distance Network Services Revenues, 
Miscellaneous Revenues, Nonregulated revenues, and Uncollectible 
Revenues, which shall be considered as a revenue group for the purposes 
of the construction of the system.
* * * * *
    (h) Local Network Services revenues. Local Network Services 
revenues (Accounts 5001 through 5060) shall include revenues derived 
from the provision of service and equipment entirely within the basic 
service area. That area is defined as the normal boundaries for local 
calling plus Extended Area Service (EAS) boundaries as they apply to 
that service. It includes revenues derived from both local private 
network service and local public network services as well as from 
customer premises facilities services. Local revenues include 
associated charges such as one-time service connection or termination 
charges and secondary features such as call waiting.
    (i) Network Access revenues. (1) Network Access revenues (Accounts 
5081-5083) shall include revenues derived from the provision of 
exchange access services to an interexchange carrier or to an end user 
of telecommunications services beyond the exchange carrier's network.
* * * * *
    (n) Revenue accounts to be maintained.

------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
Local network services revenues:
    Basic local service revenue...............  ...........         5000
    Basic area revenue........................         5001  ...........
    Private line revenue......................         5040  ...........
    Other basic area revenue..................         5060  ...........
Network access service revenues:
    End user revenue..........................         5081         5081
    Switched access revenue...................         5082         5082
    Special access revenue....................         5083         5083
Long distance network services revenues:
    Long distance message revenue.............         5105         5105
Miscellaneous revenues:
    Miscellaneous revenue.....................         5200         5200
Nonregulated revenues:
    Nonregulated operating revenue............         5280         5280
Uncollectible revenues:
    Uncollectible revenue.....................         5300         5300
------------------------------------------------------------------------


    72. Section 32.5000 is revised to read as follows:


Sec. 32.5000  Basic local service revenue.

    Class B telephone companies shall use this account for revenues of 
the type and character required of Class A companies in Accounts 5001 
through 5060.

    73. Section 32.5001 is revised to read as follows:


Sec. 32.5001  Basic area revenue.

    (a) This account shall include revenue derived from the provision 
of the following:
    (1) Basic area message services such as flat rate services and 
measured services. Included is revenue derived from non-optional 
extended area services. Also included is revenue derived from the 
billed or guaranteed portion of semi-public services.
    (2) Optional extended area service.
    (3) Cellular mobile telecommunications systems connected to the 
public switched network placed between mobile units and other stations 
within the mobile service area.
    (4) General radio telecommunications systems connected to the 
public switched network placed between mobile units and other stations 
within the mobile service area, as well as revenue from mobile radio 
paging, mobile dispatching, and signaling services.
    (b) Revenue derived from charges for nonpublished number or 
additional and boldfaced listings in the alphabetical section of the 
company's telephone directories shall be included in Account 5200, 
Miscellaneous revenue.
    (c) Revenue from private mobile telephone services which do not 
have access to the public switched network shall be included in Account 
5200, Miscellaneous revenue.


Sec. 32.5004  [Removed]

    74. Section 32.5004 is removed.
    75. Section 32.5040 is amended by revising the section heading to 
read as follows:


Sec. 32.5040  Private line revenue.

* * * * *


Sec. 32.5050  [Removed]

    76. Section 32.5050 is removed.

    77. Section 32.5060 is revised to read as follows:

[[Page 5692]]

Sec. 32.5060  Other basic area revenue.

    This account shall include:
    (a) Revenue from the provision of secondary features which are 
integrated with the telecommunications network such as call forwarding, 
call waiting and touch-tone line service. Also included is revenue 
derived from the provision of public announcement and other record 
message services, directory assistance and other call completion 
services (excluding operator assisted basic long distance calls), as 
well as revenue derived from central office related service connection 
and termination charges, and other non-premise customer specific 
charges associated with public network services. This account shall 
also include local revenue not provided for in other accounts.
    (b) Charges and credits resulting from contractual revenue pooling 
and/or sharing agreements for tariffed local network services only when 
they are not separately identifiable by local network services revenue 
accounts in the settlement process. (See also Sec. 32.4999(e)). To the 
extent that the charges and credits resulting from a settlement process 
can be identified by Local Network Services Revenue account they shall 
be recorded in the applicable account.
    (c) Revenue derived from tariffed information origination/
termination plant. Included is revenue derived from the provision under 
leasing arrangements of tariffed customer premises equipment (CPE), 
terminal equipment, station apparatus and large private branch 
exchanges as well as tariffed nonrecurring charges related solely to 
station apparatus. Also included are all tariffed charges for customer 
premises activities and facilities not related solely to station 
apparatus.


Secs. 32.5069 and 32.5080  [Removed]

    78. Sections 32.5069 and 32.5080 are removed.
    79. Section 32.5081 is revised to read as follows:


Sec. 32.5081  End user revenue.

    (a) This account shall contain federally and state tariffed monthly 
flat rate charge assessed upon end users.
    (b) Subsidiary record categories shall be maintained in order that 
the company may separately report amounts related to federal and state 
tariffed charges.

    80. Section 32.5082 is revised to read as follows:


Sec. 32.5082  Switched access revenue.

    (a) This account shall consist of federally and state tariffed 
charges assessed to interexchange carriers for access to local exchange 
facilities.
    (b) Subsidiary record categories shall be maintained in order that 
the company may separately report the amounts contained herein that 
relate to limited pay telephone, carrier common line, line termination, 
local switching, intercept, information, common transport and dedicated 
transport. The subsidiary records shall also separately show the 
federal and state tariffed charges. Such subsidiary record categories 
shall be reported as required by part 43 of this chapter.

    81. Section 32.5083 is revised to read as follows:


Sec. 32.5083  Special access revenue.

    (a) This account shall include all federally and state tariffed 
charges assessed for other than end user or switched access charges 
referred to in Account 5081, End user revenue, and Account 5082, 
Switched access revenue.
    (b) Subsidiary record categories shall be maintained in order that 
the company may separately report the amounts contained herein that 
relate to recurring charges, nonrecurring charges and surcharges. The 
subsidiary records shall also separately show the federal and state 
tariffed charges. Such subsidiary record categories shall be reported 
as required by part 43 of this chapter.


Sec. 32.5084  [Removed]

    82. Section 32.5084 is removed.

    83. Section 32.5100 is revised to read as follows:


Sec. 32.5100  Long distance message revenue.

    This account shall include revenue derived from message services 
that terminate beyond the basic service area of the originating wire 
center and are individually priced. This includes those message 
services which utilize the public long distance switching network and 
the basic subscriber access line. It also includes those long distance 
calls placed from mobile and public telephones, as well as any charges 
for operator assistance or special billing directly related to the 
completion of a specific call. This account shall also include revenue 
derived from individually priced message services offered under calling 
plans (discounted long distance) which do not utilize dedicated access 
lines, as well as those priced at the basic long distance rates where a 
discounted toll charge is on a per message basis. Any revenue derived 
from monthly or one-time charges for obtaining calling plan services 
shall be included in this account. This account includes revenue 
derived from the following services:
    (a) Long distance services which permit unidirectional calls to a 
subscriber from specified services areas (multipoint-to-point service). 
These calls require the use of dedicated access lines connecting a 
subscriber's premises and a designated central office. These dedicated 
access lines are generally separate from those required for the 
subscriber to place outward calls. The call is billed to the subscriber 
even though it is generally initiated by the subscriber's customer or 
correspondent.
    (b) Long distance services which permit the subscriber to place 
telephone calls from one location to other specified service areas 
(point-to-multipoint service). These calls are completed without 
operator assistance and require the use of a dedicated access line. The 
dedicated access line is generally separate from those required for 
inward message services and cannot be used to place calls within the 
basic service area or calls outside the selected service areas. Outward 
calls are screened and blocked to determine whether the calls are 
within an authorized service area.
    (c) Services extending beyond the basic service area that involve 
dedicated circuits, private switching arrangements, and/or predefined 
transmission paths, whether virtual or physical, which provide 
communications between specific locations (e.g., point-to-point 
communications). Service connection charges, termination charges, 
rearrangements and changes, etc., shall be included in this account. 
Revenue derived from associated administrative and operational support 
services shall also be included in this account.
    (1) Narrow-band analog private network circuits and facilities 
furnished exclusively for record forms of communications, such as 
teletypewriter, teletypesetter, telewriter, ticker, Morse, signaling, 
remote metering, and supervisory services.
    (2) Private network circuits and facilities (including multipurpose 
wide-band) which provide voice grade services for the transmission of 
analog signals. It includes revenue from services such as voice, data 
and telephoto communication, as well as remote metering, supervisory 
control, miscellaneous signaling and channels furnished for the purpose 
of extending customer--provided communications systems. It includes 
revenue from the provision of facilities between customer premises and 
a serving office, a carrier distribution point, or an extension 
distribution channel.

[[Page 5693]]

    (3) Private network circuits and facilities furnished for audio 
program transmission purposes, such as radio broadcasting, sound 
recording (wired music) and loud speaker services. It includes revenue 
from the provision of facilities for the transmission of analog signals 
between customer premises and a serving office, a carrier distribution 
point, or an extension distribution channel furnished in connection 
with such services. It also includes revenue from facilities furnished 
to carry the audio portion of a television program if furnished under 
separate audio rates. If the rate for television program services 
includes both the picture and sound portion of the transmission, the 
revenue shall also be included in this account.
    (4) Private network circuits and facilities furnished for 
television program transmission purposes, such as commercial broadcast 
and educational or private television services. It includes revenue 
from the provision of facilities for the transmission of analog signals 
between customer premises and a serving office, a carrier distribution 
point, or an extension distribution channel furnished in connection 
with such services. It also includes revenue from both the picture and 
sound portions of transmission for television program service when 
provided under a combined rate schedule.
    (5) The provision of circuits and facilities for the transmission 
of digital signals only.
    (6) The provision of common user channels and switching 
capabilities used for the transmission of telecommunication signals 
between three (3) or more points in the network. Also included is 
revenue derived from the provision of basic switching and transfer 
arrangements used to connect private line channels.
    (7) Charges and credits resulting from contractual revenue pooling 
and/or sharing agreements for tariffed long distance public network 
services and for tariffed long distance private network services.


Secs. 32.5110 through, 32.5112, 32.5120 through 32.5126, 32.5128 and 
32.5129, 32.5160, and 32.5169  [Removed]

    84. Sections 32.5110 through 32.5112, 32.5120 through 32.5126, 
32.5128 and 32.5129, 32.5160, and 32.5169 are removed.

    85. Section 32.5200 is revised to read as follows:


Sec. 32.5200  Miscellaneous revenue.

    This account shall include revenue derived from the following:
    (a) Alphabetical and classified sections of directories including 
fees paid by other entities for the right to publish the company's 
directories. It includes the classified section of the directories, the 
sale of new telephone directories whether they are the company's own 
directories or directories purchased from others. It also includes 
revenue from the sale of specially bound telephone directories and 
special telephone directory covers; amounts charged for additional and 
boldface listings, marginal displays, inserts, and other advertisements 
in the alphabetical of the company's telephone directories; and charges 
for unlisted and non-published telephone numbers.
    (b) Rental or subrental to others of telecommunications plant 
furnished apart from telecommunications services rendered by the 
company (This revenue includes taxes when borne by the lessee). It 
includes revenue from the rent of such items as space in conduit, pole 
line space for attachments, and any allowance for return on property 
used in joint operations and shared facilities agreements. The expense 
of maintaining and operating the rented property, including 
depreciation and insurance, shall be included in the appropriate 
operating expense accounts. Taxes applicable to the rented property 
shall be included by the owner of the rented property in appropriate 
tax accounts. When land or buildings are rented on an incidental basis 
for non-telecommunications use, the rental and expenses are included in 
Account 7300, Nonoperating income and expense.
    (c) Services rendered to other companies under a license agreement, 
general services contract, or other arrangement providing for the 
furnishing of general accounting, financial, legal, patent, and other 
general services associated with the provision of regulated 
telecommunications services.
    (d) The provision, either under tariff or through contractual 
arrangements, of special billing information to customers in the form 
of magnetic tapes, cards or statements. Special billing information 
provides detail in a format and/or at a level of detail not normally 
provided in the standard billing rendered for the regulated telephone 
services utilized by the customer.
    (e) The performance of customer operations services for others 
incident to the company's regulated telecommunications operations which 
are not provided for elsewhere. (See also Secs. 32.14(e) and 
32.4999(e)).
    (f) Contract services (plant maintenance) performed for others 
incident to the company's regulated telecommunications operations. This 
includes revenue from the incidental performance of nontariffed 
operating and maintenance activities for others which are similar in 
nature to those activities which are performed by the company in 
operating and maintaining its own telecommunications plant facilities. 
The records supporting the entries in this account shall be maintained 
with sufficient particularity to identify the revenue and associated 
Plant Specific Operations Expenses related to each undertaking. This 
account does not include revenue related to the performance of 
operation or maintenance activities under a joint operating agreement.
    (g) The provision of billing and collection services to other 
telecommunications companies. This includes amounts charged for 
services such as message recording, billing, collection, billing 
analysis, and billing information services, whether rendered under 
tariff or contractual arrangements.
    (h) Charges and credits resulting from contractual revenue pooling 
and/or sharing agreements for activities included in the miscellaneous 
revenue accounts only when they are not identifiable by miscellaneous 
revenue account in the settlement process. (See also Sec. 32.4999(e)). 
The extent that the charges and credits resulting from a settlement 
process can be identified by miscellaneous revenue accounts they shall 
be recorded in the applicable account.
    (i) The provision of transport and termination of local 
telecommunications traffic pursuant to section 251(c) and part 51 of 
this chapter.
    (k) The provision of unbundled network elements pursuant to section 
251(c) of the Communications Act and part 51 of this chapter.
    (l) This account shall also include other incidental regulated 
revenue such as:
    (1) Collection overages (collection shortages shall be charged to 
Account 6620, Services.)
    (2) Unclaimed refunds for telecommunications services when not 
subject to escheats;
    (3) Charges (penalties) imposed by the company for customer checks 
returned for non-payment;
    (4) Discounts allowed customers for prompt payment;
    (5) Late-payment charges;
    (6) Revenue from private mobile telephone services which do not 
have access to the public switched network; and
    (7) Other incidental revenue not provided for elsewhere in other 
Revenue accounts.
    (m) Any definitely known amounts of losses of revenue collections 
due to fire

[[Page 5694]]

or theft, at customers' coin-box stations, at public or semipublic 
telephone stations, in the possession of collectors en route to 
collection offices, on hand at collection offices, and between 
collection offices and banks shall be charged to Account 6720, General 
and Administrative.


Secs. 32.5230, 32.5240, 32.5250, 32.5260 through 32.5264, 32.5269, and 
32.5270   [Removed]

    86. Sections 32.5230, 32.5240, 32.5250, 32.5260 through 32.6264, 
32.5269, and 32.5270 are removed.
    87. Section 32.5280 is amended by revising paragraph (c) to read as 
follows:


Sec. 32.5280  Nonregulated operating revenue.

* * * * *
    (c) Separate subsidiary record categories shall be maintained for 
two groups of nonregulated revenue as follows: one subsidiary record 
for all revenues derived from regulated services treated as 
nonregulated for federal accounting purposes pursuant to Commission 
order and the second for all other revenues derived from a nonregulated 
activity as set forth in paragraph (a) of this section.

    88. Section 32.5300 is revised to read as follows:


Sec. 32.5300  Uncollectible revenue.

    This account shall be charged with amounts concurrently credited to 
Account 1170, Receivables.


Secs. 32.5301 and 32.5302  [Removed]

    89. Sections 32.5301 and 32.5302 are removed.

    90. Section 32.5999 is amended by removing paragraph (a)(3), 
redesignating (a)(4) as (a)(3), and revising paragraphs (b)(4), (c), 
and (g) as follows:


Sec. 32.5999  General.

* * * * *
    (b) * * *
    (4) In addition to the activities specified in paragraph (b)(3) of 
this section, the appropriate Plant Specific Operations Expense 
accounts shall include the cost of personnel whose principal job is the 
operation of plant equipment, such as general purpose computer 
operators, aircraft pilots, chauffeurs and shuttle bus drivers. 
However, when the operation of equipment is performed as part of other 
identifiable functions (such as the use of office equipment, capital 
tools or motor vehicles) the operators' cost shall be charged to 
accounts appropriate for those functions. (For costs of operator 
services personnel, see Account 6620, Services, and for costs of test 
board personnel see Account 6533.)
    (c) Plant nonspecific operations expense. The Plant Nonspecific 
Operations Expense accounts shall include expenses related to property 
held for future telecommunications use, provisioning expenses, network 
operations expenses, and depreciation and amortization expenses. 
Accounts in this group (except for Account 6540, Access expense, and 
Account 6560, Depreciation and amortization expense) shall include the 
costs of performing activities described in narratives for individual 
accounts. These costs shall also include the costs of supervision and 
office support of these activities.
* * * * *
    (g) Expense accounts to be maintained.

------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
           Income statement accounts
 
Plant specific operations expense:
    Network support expense...................  ...........         6110
    Motor vehicle expense.....................         6112  ...........
    Aircraft expense..........................         6113  ...........
    Tools and other work equipment expense....         6114  ...........
    General support expenses..................  ...........         6120
    Land and building expenses................         6121  ...........
    Furniture and artworks expense............         6122  ...........
    Office equipment expense..................         6123  ...........
    General purpose computers expense.........         6124  ...........
    Central office switching expense..........  ...........         6210
    Non-digital switching expense.............         6211  ...........
    Digital electronic switching expense......         6212  ...........
    Operators system expense..................         6220         6220
    Central office transmission expenses......  ...........         6230
    Radio systems expense.....................         6231  ...........
    Circuit equipment expense.................         6232  ...........
    Information origination/termination         ...........         6310
     expense..................................
    Station apparatus expense.................         6311  ...........
    Large private branch exchange expense.....         6341  ...........
    Public telephone terminal equipment                6351  ...........
     expense..................................
    Other terminal equipment expense..........         6362  ...........
    Cable and wire facilities expenses........  ...........         6410
    Poles expense.............................         6411  ...........
    Aerial cable expense......................         6421  ...........
    Underground cable expense.................         6422  ...........
    Buried cable expense......................         6423  ...........
    Submarine and deep sea cable expense......         6424  ...........
    Intrabuilding network cable expense.......         6426  ...........
    Aerial wire expense.......................         6431  ...........
    Conduit systems expense...................         6441  ...........
Plant nonspecific operations expense:
    Other property plant and equipment          ...........         6510
     expenses.................................
    Property held for future                           6511  ...........
     Telecommunications use expense...........
    Provisioning expense......................         6512  ...........
    Network operations expenses...............  ...........         6530
    Power expense.............................         6531  ...........
    Network administration expense............         6532  ...........

[[Page 5695]]

 
    Testing expense...........................         6533  ...........
    Plant operations administration expense...         6534  ...........
    Engineering expense.......................         6535  ...........
    Access expense............................         6540         6540
    Depreciation and amortization expenses....         6560         6560
Customer operations expense:
    Marketing.................................  ...........         6610
    Product management and sales..............         6611
    Product advertising.......................         6613
    Services..................................         6620         6620
Corporate operations expense:
    General and administrative................         6720         6720
    Provision for uncollectible notes                  6790         6790
     receivable...............................
------------------------------------------------------------------------


    91. Section 32.6110 is revised to read as follows:


Sec. 32.6110  Network support expenses.

    (a) Class B telephone companies shall use this account for expenses 
of the type and character required of Class A companies in Accounts 
6112 through 6114.
    (b) Credits shall be made to this account by Class B companies for 
amounts transferred to Construction and/or other Plant Specific 
Operations Expense accounts. These amounts shall be computed on the 
basis of direct labor hours.

    92. Section 32.6112 is amended by revising paragraph (b) to read as 
follows:


Sec. 32.6112  Motor vehicle expense.

* * * * *
    (b) Credits shall be made to this account for amounts transferred 
to Construction and/or to other Plant Specific Operations Expense 
accounts. These amounts shall be computed on the basis of direct labor 
hours.

    93. Section 32.6113 is amended by revising paragraph (b) to read as 
follows:


Sec. 32.6113  Aircraft expense.

* * * * *
    (b) Credits shall be made to this account for amounts transferred 
to Construction and/or to other Plant Specific Operations Expense 
accounts. These amounts shall be computed on the basis of direct labor 
hours.

    94. Section 32.6114 is amended by revising paragraph (b) to read as 
follows:


Sec. 32.6114  Tools and other work equipment expense.

* * * * *
    (b) Credits shall be made to this account for amounts related to 
special purpose vehicles and other work equipment transferred to 
Construction and/or to other Plant Specific Operations Expense 
accounts. These amounts shall be computed on the basis of direct labor 
hours.

    95. Section 32.6120 is revised to read as follows:


Sec. 32.6120  General support expenses.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6121 
through 6124.

    96. Section 32.6124 is revised to read as follows:


Sec. 32.6124  General purpose computers expense.

    This account shall include the costs of personnel whose principal 
job is the physical operation of general purpose computers and the 
maintenance of operating systems. This excludes the cost of preparation 
of input data or the use of outputs which are chargeable to the 
accounts appropriate for the activities being performed. Also excluded 
are costs incurred in planning and maintaining application systems and 
databases for general purpose computers. (See also Sec. 32.6720, 
General and administrative.) Separately metered electricity for general 
purpose computers shall also be included in this account.

    97. Section 32.6210 is revised to read as follows:


Sec. 32.6210  Central office switching expenses.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6211 
through 6212.

    98. Section 32.6211 is revised to read as follows:


Sec. 32.6211  Non-digital switching expense.

    This account shall include expenses associated with non-digital 
electronic switching and electro-mechanical switching.

    99. Section 32.6212 is revised to read as follows:


Sec. 32.6212  Digital electronic switching expense.

    (a) This account shall include expenses associated with digital 
electronic switching. Digital electronic switching expenses shall be 
maintained in the following subaccounts: 6212.1 Circuit, 6212.2 Packet.
    (b) This subaccount 6212.1 Circuit shall include expenses 
associated with digital electronic switching equipment used to provide 
circuit switching.
    (c) This subaccount 6212.2 Packet shall include expenses associated 
with digital electronic switching equipment used to provide packet 
switching.


Sec. 32.6215  [Removed]

    100. Section 32.6215 is removed.

    101. Section 32.6230 is revised to read as follows:


Sec. 32.6230  Central office transmission expense.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6231 
and 6232.


Sec. 32.6231  [Amended]

    102. Section 32.6231 is amended by removing paragraph (b) and 
designating paragraph (a) as an undesignated paragraph.

    103. Section 32.6232 is revised to read as follows:


Sec. 32.6232  Circuit equipment expense.

    (a) This account shall include expenses associated with circuit 
equipment. Circuit equipment expenses shall be maintained in the 
following subaccounts: 6232.1 Electronic, 6232.2 Optical.
    (b) This subaccount 6232.1 Electronic shall include expenses 
associated with electronic circuit equipment.
    (c) This subaccount 6232.2 Optical shall include expenses 
associated with optical circuit equipment.

    104. Section 32.6310 is revised to read as follows:

[[Page 5696]]

Sec. 32.6310  Information origination/termination expenses.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A telephone companies in 
Accounts 6311 through 6362.

    105. Section 32.6410 is revised to read as follows:


Sec. 32.6410  Cable and wire facilities expenses.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6411 
through 6441.

    106. Section 32.6424 is revised to read as follows:


Sec. 32.6424  Submarine and deep sea cable expense.

    (a) This account shall include expenses associated with submarine 
and deep sea cable.
    (b) Subsidiary record categories shall be maintained as provided in 
Sec. 32.2424.


Sec. 32.6425  [Removed]

    107. Section 32.6425 is removed.

    108. Section 32.6510 is revised to read as follows:


Sec. 32.6510  Other property, plant and equipment expenses.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6511 
and 6512.

    109. Section 32.6512 is revised to read as follows:


Sec. 32.6512  Provisioning expense.

    (a) This account shall include costs incurred in provisioning 
material and supplies, including office supplies. This includes 
receiving and stocking, filling requisitions from stock, monitoring and 
replenishing stock levels, delivery of material, storage, loading or 
unloading and administering the reuse or refurbishment of material. 
Also included are adjustments resulting from the periodic inventory of 
material and supplies.
    (b) Credits shall be made to this account for amounts transferred 
to construction and/or to Plant Specific Operations Expense. These 
costs are to be cleared by adding to the cost of material and supplies 
a suitable loading charge.

    110. Section 32.6530 is revised to read as follows:


Sec. 32.6530  Network operations expense.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6531 
through 6535.

    111. Section 32.6560 is revised to read as follows:


Sec. 32.6560  Depreciation and amortization expenses.

    (a) This account shall include: (1) The depreciation expense of 
capitalized costs in Accounts 2112 through 2441, inclusive.
    (2) The depreciation expense of capitalized costs included in 
Account 2002, Property held for future telecommunications use.
    (3) The amortization of costs included in Accounts 2681, Capital 
leases, 2682, Leasehold improvements, and Account 2690, Intangibles.
    (4) The amortization of costs included in Account 2005, 
Telecommunications plant adjustment, and lump-sum write-offs of amounts 
of plant acquisition adjustment as provided for in Sec. 32.2005(b)(4).
    (b) Subsidiary records shall be maintained so as to show that 
character of the amounts related to plant acquisition adjustments.


Secs. 32.6561 through 32.6565  [Removed]

    112. Sections 32.6561 through 32.6565 are removed.

    113. Section 32.6610 is revised to read as follows:


Sec. 32.6610  Marketing.

    Class B telephone companies shall use this account for expenses of 
the type and character required of Class A companies in Accounts 6611 
through 6613.

    114. Section 32.6611 is revised to read as follows:


Sec. 32.6611  Product management and sales.

    This account shall include:
    (a) Costs incurred in performing administrative activities related 
to marketing products and services. This includes competitive analysis, 
product and service identification and specification, test market 
planning, demand forecasting, product life cycle analysis, pricing 
analysis, and identification and establishment of distribution 
channels.
    (b) Costs incurred in selling products and services. This includes 
determination of individual customer needs, development and 
presentation of customer proposals, sales order preparation and 
handling, and preparation of sales records.


Sec. 32.6612  [Removed]

    115. Section 32.6612 is removed.

    116. Section 32.6620 is revised to read as follows:


Sec. 32.6620  Services.

    (a) This account shall include:
    (1) Costs incurred in helping customers place and complete calls, 
except directory assistance. This includes handling and recording; 
intercept; quoting rates, time and charges; and all other activities 
involved in the manual handling of calls.
    (2) Costs incurred in providing customer number and classified 
listings. This includes preparing or purchasing, compiling, and 
disseminating those listings through directory assistance or other 
means.
    (3) Costs incurred in establishing and servicing customer accounts. 
This includes:
    (i) Initiating customer service orders and records;
    (ii) Maintaining and billing customer accounts;
    (iii) Collecting and investigating customer accounts, including 
collecting revenues, reporting receipts, administering collection 
treatment, and handling contacts with customers regarding adjustments 
of bills;
    (iv) Collecting and reporting pay station receipts; and
    (v) Instructing customers in the use of products and services.
    (b) This account shall also include amounts paid by interexchange 
carriers or other exchange carriers to another exchange carrier for 
billing and collection services. Subsidiary record categories shall be 
maintained in order that the entity may separately report interstate 
and intrastate amounts. Such subsidiary record categories shall be 
reported as required by Part 43 of this chapter.
    (c) Class A companies, except mid-sized incumbent local exchange 
carriers, shall maintain the following subaccounts for expenses 
recorded in this account: 6620.1 Wholesale, 6620.2 Retail.
    (1) 6620.1 Wholesale. This subaccount shall include costs 
associated with telecommunications services provided for resale to 
other telecommunications carriers.
    (2) 6620.2 Retail. This subaccount shall include costs associated 
with telecommunications services provided to subscribers who are not 
telecommunications carriers.


Secs. 32.6621, 32.6623, and 32.6710 through 32.6712  [Removed]

    117. Sections 32.6621, 32.6623, and 32.6710 through 32.6712 are 
removed.

    118. Section 32.6720 is revised to read as follows:


Sec. 32.6720  General and administrative.

    This account shall include costs incurred in the provision of 
general and administrative services as follows:

[[Page 5697]]

    (a) Formulating corporate policy and in providing overall 
administration and management. Included are the pay, fees and expenses 
of boards of directors or similar policy boards and all board-
designated officers of the company and their office staffs, e.g., 
secretaries and staff assistants.
    (b) Developing and evaluating long-term courses of action for the 
future operations of the company. This includes performing corporate 
organization and integrated long-range planning, including management 
studies, options and contingency plans, and economic strategic 
analysis.
    (c) Providing accounting and financial services. Accounting 
services include payroll and disbursements, property accounting, 
capital recovery, regulatory accounting (revenue requirements, 
separations, settlements and corollary cost accounting), non-customer 
billing, tax accounting, internal and external auditing, capital and 
operating budget analysis and control, and general accounting 
(accounting principles and procedures and journals, ledgers, and 
financial reports). Financial services include banking operations, cash 
management, benefit investment fund management (including actuarial 
services), securities management, debt trust administration, corporate 
financial planning and analysis, and internal cashier services.
    (d) Maintaining relations with government, regulators, other 
companies and the general public. This includes:
    (1) Reviewing existing or pending legislation (see also Account 
7300, Nonoperating income and expense, for lobbying expenses);
    (2) Preparing and presenting information for regulatory purposes, 
including tariff and service cost filings, and obtaining radio licenses 
and construction permits;
    (3) Performing public relations and non-product-related corporate 
image advertising activities;
    (4) Administering relations, including negotiating contracts, with 
telecommunications companies and other utilities, businesses, and 
industries. This excludes sales contracts (see also Account 6611, 
Product management and sales); and
    (5) Administering investor relations.
    (e) Performing personnel administration activities. This includes:
    (1) Equal Employment Opportunity and Affirmative Action Programs;
    (2) Employee data for forecasting, planning and reporting;
    (3) General employment services;
    (4) Occupational medical services;
    (5) Job analysis and salary programs;
    (6) Labor relations activities;
    (7) Personnel development and staffing services, including 
counseling, career planning, promotion and transfer programs;
    (8) Personnel policy development;
    (9) Employee communications;
    (10) Benefit administration;
    (11) Employee activity programs;
    (12) Employee safety programs; and
    (13) Nontechnical training course development and presentation.
    (f) Planning and maintaining application systems and databases for 
general purpose computers.
    (g) Providing legal services: This includes conducting and 
coordinating litigation, providing guidance on regulatory and labor 
matters, preparing, reviewing and filing patents and contracts and 
interpreting legislation. Also included are court costs, filing fees, 
and the costs of outside counsel, depositions, transcripts and 
witnesses.
    (h) Procuring material and supplies, including office supplies. 
This includes analyzing and evaluating suppliers' products, selecting 
appropriate suppliers, negotiating supply contracts, placing purchase 
orders, expediting and controlling orders placed for material, 
developing standards for material purchased and administering vendor or 
user claims.
    (i) Making planned search or critical investigation aimed at 
discovery of new knowledge. It also includes translating research 
findings into a plan or design for a new product or process or for a 
significant improvement to an existing product or process, whether 
intended for sale or use. This excludes making routine alterations to 
existing products, processes, and other ongoing operations even though 
those alterations may represent improvements.
    (j) Performing general administrative activities not directly 
charged to the user, and not provided in paragraphs (a) through (i) of 
this section. This includes providing general reference libraries, food 
services (e.g., cafeterias, lunch rooms and vending facilities), 
archives, general security investigation services, operating official 
private branch exchanges in the conduct of the business, and 
telecommunications and mail services. Also included are payments in 
settlement of accident and damage claims, insurance premiums for 
protection against losses and damages, direct benefit payments to or on 
behalf of retired and separated employees, accident and sickness 
disability payments, supplemental payments to employees while in 
governmental service, death payments, and other miscellaneous costs of 
a corporate nature. This account excludes the cost of office services, 
which are to be included in the accounts appropriate for the activities 
supported.


Secs. 32.6721 through 32.6728  [Removed]

    119. Sections 32.6721 through 32.6728 are removed.

    120. Section 32.6790 is revised to read as follows:


Sec. 32.6790  Provision for uncollectible notes receivable.

    This account shall be charged with amounts concurrently credited to 
Account 1170, Receivables.

    121. Section 32.6999 is revised to read as follows:


Sec. 32.6999  General.

    (a) Structure of the other income accounts. The Other Income 
Accounts are designed to reflect both operating and nonoperating income 
items including taxes, extraordinary items and other income and expense 
items not properly included elsewhere.
    (b) Other income accounts listing.

 
------------------------------------------------------------------------
                                                  Class A      Class B
                 Account title                    account      account
------------------------------------------------------------------------
Other operating income and expense:
    Other operating income and expense........         7100         7100
Operating taxes:
    Operating taxes...........................                      7200
    Operating investment tax credits-net......         7210  ...........
    Operating Federal income taxes............         7220  ...........
    Operating state and local income taxes....         7230  ...........
    Operating other taxes.....................         7240  ...........
    Provision for deferred operating income            7250  ...........
     taxes--net...............................
Nonoperating income and expense:
    Nonoperating income and expense...........         7300         7300

[[Page 5698]]

 
Nonoperating taxes:
    Nonoperating taxes........................         7400         7400
Interest and related items:
    Interest and related items................         7500         7500
    Extraordinary items.......................         7600         7600
Jurisdictional differences and non-regulated
 income items:
    Income effect of jurisdictional ratemaking         7910         7910
     difference--net..........................
    Nonregulated net income...................         7990         7990
------------------------------------------------------------------------

Sec. 32.7099  [Removed]

    122. Section 32.7099 is removed.

    123. Section 32.7100 is revised to read as follows:


Sec. 32.7100  Other operating income and expenses.

    This account shall be used to record the results of transactions, 
events or circumstances during the periods which are incidental or 
peripheral to the major or central operations of the company. It shall 
be used to record all items of an operating nature such as incidental 
work performed for others not provided for elsewhere. Whenever 
practicable the inflows and outflows associated with a transaction, 
event or circumstances shall be matched and the result shown as a net 
gain or loss. This account shall include the following:
    (a) Profits realized from custom work (plant construction) 
performed for others incident to the company's regulated 
telecommunications operations. This includes profits from the 
incidental performance of nontariffed construction activities 
(including associated engineering and design) for others which are 
similar in nature to those activities which are performed by the 
company in constructing its own telecommunications plant facilities. 
The records supporting the entries in this account for income and 
custom work shall be maintained with sufficient particularity to 
identify separately the revenue and costs associated with each 
undertaking.
    (b) Return on investment for the use of regulated property plant 
and equipment to provide nonregulated products and services.
    (c) All gains and losses resulting from the exchange of foreign 
currency. Transaction (realized) gains or losses shall be measured 
based on the exchange rate in effect on the transaction date. 
Unrealized gains or losses shall be measured based on the exchange rate 
in effect at the balance sheet date.
    (d) Gains or losses resulting from the disposition of land or 
artworks.
    (e) Charges or credits, as appropriate, to record the results of 
transactions, events or circumstances which are of an operational 
nature, but occur irregularly or are peripheral to the major or central 
operations of the company and not provided for elsewhere.


Secs. 32.7110, 32.7130, 32.7140, 32.7150, and 32.7160.  [Removed]

    124. Sections 32.7110, 32.7130, 32.7140, 32.7150, and 32.7160 are 
removed.

    125. Section 32.7200 is revised to read as follows:


Sec. 32.7200  Operating taxes.

    Class B telephone companies shall use this account for operating 
taxes of the type and character required of Class A companies in 
Accounts 7210 through 7250.

    126. Section 32.7210 is amended by revising paragraph (b) to read 
as follows:


Sec. 32.7210  Operating investment tax credits--net.

* * * * *
    (b) This account shall be credited and Account 4320 shall be 
charged ratably with the amortization of each year's investment tax 
credits included in Account 4320 for investment services for ratemaking 
purposes. Such amortization shall be determined in relation to the 
period of time used for computing book depreciation on the property 
with respect to which the tax credits relate.

    127. Section 32.7240 is amended by revising paragraphs (d), (e), 
and (g) to read as follows:


Sec. 32.7240  Operating other taxes.

* * * * *
    (d) Interest on tax assessments which are not paid when due shall 
be included in Account 7500, Interest and related items.
    (e) Taxes paid by the company under tax-free covenants on 
indebtedness shall be charged to Account 7300, Nonoperating income and 
expense.
* * * * *
    (g) Taxes on rented telecommunications plant which are borne by the 
lessee shall be credited by the owner to Account 5200, Miscellaneous 
revenue, and shall be charged by the lessee to the appropriate Plant 
Specific Operations Expense account.


Sec. 32.7299  [Removed]

    128. Section 32.7299 is removed.

    129. Section 32.7300 is revised to read as follows:


Sec. 32.7300  Nonoperating income and expense.

    This account shall be used to record the results of transactions, 
events and circumstances affecting the company during a period and 
which are not operational in nature. This account shall include such 
items as nonoperating taxes, dividend income and interest income. 
Whenever practicable, the inflows and outflows associated with a 
transaction or event shall be matched and the result shown as a net 
gain or loss. This account shall include the following:
    (a) Dividends on investments in common and preferred stock, which 
is the property of the company, whether such stock is owned by the 
company and held in its treasury, or deposited in trust including 
sinking or other funds, or otherwise controlled.
    (b) Dividends received and receivable from affiliated companies 
accounted for on the equity method shall be included in Account 1410, 
Other noncurrent assets, as a reduction of the carrying value of the 
investments.
    (c) Interest on securities, including notes and other evidences of 
indebtedness, which are the property of the company, whether such 
securities are owned by the company and held in its treasury, or 
deposited in trust including sinking or other funds, or otherwise 
controlled. It shall also include interest on cash bank balances, 
certificates of deposits, open accounts, and other analogous items.
    (d) For each month the applicable amount requisite to extinguish, 
during the interval between the date of acquisition and date of 
maturity, the difference between the purchase price and the par value 
of securities owned or held in sinking or other funds, the income from 
which is includable in this account. Amounts thus credited or

[[Page 5699]]

charged shall be concurrently included in the accounts in which the 
securities are carried.
    (e) Amounts charged to the telecommunications plant under 
construction account related to allowance for funds used during 
construction. (See Sec. 32.2000(c)(2)(x).)
    (f) Gains or losses resulting from:
    (1) The disposition of land or artworks;
    (2) The disposition of plant with traffic;
    (3) The disposition of nonoperating telecommunications plant not 
previously used in the provision of telecommunications services.
    (g) All other items of income and gains or losses from activities 
not specifically provided for elsewhere, including representative items 
such as:
    (1) Fees collected in connection with the exchange of coupon bonds 
for registered bonds;
    (2) Gains or losses realized on the sale of temporary cash 
investments or marketable equity securities;
    (3) Net unrealized losses on investments in current marketable 
equity securities;
    (4) Write-downs or write-offs of the book costs of investment in 
equity securities due to permanent impairment;
    (5) Gains or losses of nonoperating nature arising from foreign 
currency exchange or translation;
    (6) Gains or losses from the extinguishment of debt made to satisfy 
sinking fund requirements;
    (7) Amortization of goodwill;
    (8) Company's share of the earnings or losses of affiliated 
companies accounted for on the equity method; and
    (9) The net balance of the revenue from and the expenses (including 
depreciation, amortization and insurance) of property, plant, and 
equipment, the cost of which is includable in Account 2006, 
Nonoperating plant.
    (h) Costs that are typically given special regulatory scrutiny for 
ratemaking purposes. Unless specific justification to the contrary is 
given, such costs are presumed to be excluded from the costs of service 
in setting rates.
    (1) Lobbying includes expenditures for the purpose of influencing 
public opinion with respect to the election or appointment of public 
officials, referenda, legislation, or ordinances (either with respect 
to the possible adoption of new referenda, legislation or ordinances, 
or repeal or modification of existing referenda, legislation or 
ordinances) or approval, modification, or revocation of franchises, or 
for the purpose of influencing the decisions of public officials. This 
also includes advertising, gifts, honoraria, and political 
contributions. This does not include such expenditures which are 
directly related to communications with and appearances before 
regulatory or other governmental bodies in connection with the 
reporting utility's existing or proposed operations;
    (2) Contributions for charitable, social or community welfare 
purposes;
    (3) Membership fees and dues in social, service and recreational or 
athletic clubs and organizations;
    (4) Penalties and fines paid on account of violations of statutes. 
This account shall also include penalties and fines paid on account of 
violations of U.S. antitrust statutes, including judgements and 
payments in settlement of civil and criminal suits alleging such 
violations; and
    (5) Abandoned construction projects.
    (i) Cash discounts on bills for material purchased shall not be 
included in this account.


Secs. 32.7310, 32.7320, 32.7330, 32.7340, 32.7350, 32.7360, 32.7370, 
and 32.7399  [Removed].

    130. Sections 32.7310, 32.7320, 32.7330, 32.7340, 32.7350, 32.7360, 
32.7370, and 32.7399 are removed.

    131. Section 32.7400 is revised to read as follows:


Sec. 32.7400  Nonoperating taxes.

    This account shall include taxes arising from activities which are 
not a part of the central operations of the entity.
    (a) This account shall be charged and Account 4330, Unamortized 
nonoperating investment tax credits--net, shall be credited with 
investment tax credits generated from qualified expenditures related to 
other operations which the company has elected to defer rather than 
recognize currently in income.
    (b) This account shall be credited and Account 4330 shall be 
charged with the amortization of each year's investment tax credits 
included in such accounts relating to amortization of previously 
deferred investment tax credits of other property or regulated 
property, the amortization of which does not serve to reduce costs of 
service (but the unamortized balance does reduce rate base) for 
ratemaking purposes. Such amortization shall be determined with 
reference to the period of time used for computing book depreciation on 
the property with respect to which the tax credits relate.
    (c) This account shall be charged and Account 4070, Income taxes--
accrued, shall be credited for the amount of nonoperating Federal 
income taxes and state and local income taxes for the current period. 
This account shall also reflect subsequent adjustments to amounts 
previously charged.
    (d) Taxes shall be accrued each month on an estimated basis and 
adjustments made as more current data becomes available.
    (e) Companies that adopt the flow-through method of accounting for 
investment tax credits shall reduce the calculated provision in this 
account by the entire amount of the credit realized during the year. 
Tax credits, other than investment tax credits, if normalized, shall be 
recorded consistent with the accounting for investment tax credits.
    (f) No entries shall be made to this account to reflect interperiod 
tax allocation.
    (g) Taxes (both Federal and state) shall be accrued each month on 
an estimated basis and adjustments made as later data becomes 
available.
    (h) This account shall be charged and Account 4080, Other taxes--
accrued, shall be credited for all nonoperating taxes, other than 
Federal, state and local income taxes, and payroll related taxes for 
the current period. Among the items includable in this account are 
property, gross receipts, franchise and capital stock taxes. This 
account shall also reflect subsequent adjustments to amounts previously 
charged.
    (i) This account shall be charged or credited, as appropriate, with 
contra entries recorded to the following accounts for nonoperating tax 
expenses that has been deferred in accordance with Sec. 32.22: 4110 Net 
Current Deferred Nonoperating Income Taxes, 4350 Net Noncurrent 
Deferred Nonoperating Income Taxes.
    (j) Subsidiary record categories shall be maintained to distinguish 
between property and nonproperty related deferrals and so that the 
company may separately report the amounts contained herein that relate 
to Federal, state and local income taxes. Such subsidiary record 
categories shall be reported as required by part 43 of this chapter.


Secs. 32.7410, 32.7420, 32.7430, 32.7440, 32.7450, and 
32.7499  [Removed].

    132. Sections 32.7410 32.7420, 32.7430, 32.7440, 32.7450, and 
32.7499 are removed.

    133. Section 32.7500 is revised to read as follows:


Sec. 32.7500  Interest and related items.

    (a) This account shall include the current accruals of interest on 
all classes of funded debt the principal of which is includable in 
Account 4200, Long term debt and funded debt. It shall also

[[Page 5700]]

include the interest on funded debt the maturity of which has been 
extended by specific agreement. This account shall be kept so that the 
interest on each class of funded debt may be shown separately in the 
annual reports to this Commission.
    (b) These accounts shall not include charges for interest on funded 
debt issued or assumed by the company and held by or for it, whether 
pledged as collateral or held in its treasury, in special deposits or 
in sinking or other funds.
    (c) Interest expressly provided for and included in the face amount 
of securities issued shall be charged at the time of issuance to 
Account 1280, Prepayments, and cleared to this account as the term 
expires to which the interest applies.
    (d) This account shall also include monthly amortization of 
balances in Account 4200, Long-term debt and funded debt.
    (e) This account shall include the interest portion of each capital 
lease payment.
    (f) This account shall include the monthly amortization of the 
balances in Account 1410, Other noncurrent assets.
    (g) This account shall include all interest deductions not provided 
for elsewhere, e.g., discount, premium, and expense on notes maturing 
one year or less from date of issue.
    (h) A list of representative items of indebtedness, the interest on 
which is chargeable to this account, follows:
    (1) Advances from affiliated companies;
    (2) Advances from nonaffiliated companies and other liabilities;
    (3) Assessments for public improvements past due;
    (4) Bond coupons, matured and unpaid;
    (5) Claims and judgments;
    (6) Customers' deposits;
    (7) Funded debt mature, with respect to which a definite agreement 
as to extension has not been made;
    (8) Notes payable on demand or maturing one year or less from date 
of issue;
    (9) Open accounts;
    (10) Tax assessments, past due; and
    (11) Discount, premium, and issuance expense of notes maturing one 
year or less from date of issue.


Secs. 32.7510, 32.7520, 32.7530, 32.7540, and 32.7599  [Removed].

    134. Sections 32.7510, 32.7520, 32.7530, 32.7540, and 32.7599 are 
removed.

    135. Section 32.7600 is revised to read as follows:


Sec. 32.7600  Extraordinary items.

    (a) This account is intended to segregate the effects of events or 
transactions that are extraordinary. Extraordinary events and 
transactions are distinguished by both their unusual nature and by the 
infrequency of their occurrence, taking into account the environment in 
which the company operates. This account shall also include the related 
income tax effect of the extraordinary items.
    (b) This account shall be credited and/or charged with nontypical, 
noncustomary and infrequently recurring gains and/or losses which would 
significantly distort the current year's income computed before such 
extraordinary items, if reported other than as extraordinary items.
    (c) This account shall be charged or credited and Account 4070, 
Income taxes--accrued, shall be credited or charged for all current 
income tax effects (Federal, state and local) of extraordinary items.
    (d) This account shall also be charged or credited, as appropriate, 
with a contra amount recorded to Account 4350, Net noncurrent deferred 
nonoperating income taxes or Account 4110, Net current deferred 
nonoperating income taxes for the income tax effects (Federal, state 
and local) of extraordinary items that have been deferred in accordance 
with Sec. 32.22.


Secs. 32.7610, 32.7620, 32.7630, and 32.7640  [Removed].

    136. Sections 32.7610, 32.7620, 32.7630, and 32.7640 are removed.

    137. Section 32.9000 is amended by revising the definition of Mid-
sized incumbent local exchange carrier to read as follows:


Sec. 32.9000  Glossary of terms.

* * * * *
    Mid-sized incumbent local exchange carrier is a carrier whose 
annual revenue from regulated telecommunications operations equals or 
exceeds the indexed revenue threshold and whose revenue when aggregated 
with the revenues of any local exchange carrier that it controls, is 
controlled by, or with which it is under common control is less than $7 
billion (indexed for inflation as measured by the Department of 
Commerce Gross Domestic Product Chain-type Price Index (GDP-CPI)).
* * * * *

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 of 1996, Pub. 
L. 104-104, secs. 402(b)(2)(B), (c), 110 Stat. 56 (1996) as amended 
unless otherwise noted. 47 U.S.C. 211, 219, 220 as amended.

    139. Section 43.21 is amended by revising paragraph (e) 
introductory text and by revising references to ``Each local exchange 
carrier'' in paragraphs (f) through (j) to read ``Each incumbent local 
exchange carrier'' each place it appears.


Sec. 43.21  Annual reports of carriers and certain affiliates.

* * * * *
    (e) Each incumbent local exchange carrier, except mid-sized 
incumbent local exchange carriers, as defined by Sec. 32.9000 with 
annual operating revenues equal to or above the indexed revenue 
threshold shall file, no later than April 1 of each year:
* * * * *

PART 51--INTERCONNECTION

    140. The authority citation for Part 51 continues to read as 
follows:

    Authority: Sections 1-5, 7, 210-05, 207-09, 218, 225-27, 251-54, 
271, 332, 48 Stat. as amended, 1077; 47 U.S.C. Secs. 151-55, 157, 
201-05, 207-09, 218, 225-27, 251-54, 271, 332, unless otherwise 
noted.

    141. Section 51.609 is amended by revising paragraphs 
(c)(1),(c)(2), (c)(3), and (d) to read as follows:


Sec. 51.609  Determination of avoided retail costs.

* * * * *
    (c) * * *
    (1) Include, as direct costs, the costs recorded in USOA accounts 
6611(product management and sales), 6613 (product advertising) and 6620 
(Services) (Secs. 32.6611, 32.6613 and 32.6620 of this chapter);
    (2) Include, as indirect costs, a portion of the costs recorded in 
USOA accounts 6121-6124 (general support expenses), 6720 (corporate 
operations expenses), and uncollectible telecommunications revenue 
included in 5300 (uncollectible revenue) (Secs. 32.6121 through 
32.6124, 32.6720 and 32.5300 of this chapter); and
    (3) Not include plant-specific expenses and plant non-specific 
expenses, other than general support expenses (Secs. 32.6112 through 
32.6114, 32.6211 through 32.6560 of this chapter).
    (d) Costs included in accounts 6611, 6613 and 6620 described in 
paragraph (c) of this section (Secs. 32.6611, 32.6613 and 32.6620 of 
this chapter) may be included in wholesale rates only to the extent 
that the incumbent LEC proves to a state commission that specific costs 
in

[[Page 5701]]

these accounts will be incurred and are not avoidable with respect to 
services sold at wholesale, or that specific costs in these accounts 
are not included in the retail prices of resold services. Costs 
included in accounts 6112 through 6114 and 6211 through 6560 described 
in paragraph (c) of this section (Secs. 32.6112 through 32.6114, 
32.6211 through 32.6560 of this chapter) may be treated as avoided 
retail costs, and excluded from wholesale rates, only to the extent 
that a party proves to a state commission that specific costs in these 
accounts can reasonably be avoided when an incumbent LEC provides a 
telecommunications service for resale to a requesting carrier.
* * * * *

PART 54--UNIVERSAL SERVICE

    142. The authority citation for part 54 continues to read as 
follows:

    Authority: 47 U.S.C. 1, 4(i) 201, 205, 214, and 254 unless 
otherwise noted.

Subpart D--Universal Service Support for High Cost Areas

    143. Section 54.301 is amended by revising the table in paragraph 
(b), and paragraphs (c)(2), (c)(5), and (d)(4) to read as follows:


Sec. 54.301  Local switching support.

* * * * *
    (b) * * *

                                                       I
Telecommunications Plant in Service    Account 2001
 (TPIS).
Telecommunications Plant--Other......  Accounts 2002, 2003, 2005
General Support Assets...............  Account 2110
Central Office Assets................  Accounts 2210, 2220, 2230
Central Office-switching, Category 3   Account 2210, Category 3
 (local switching).
Information Origination/termination    Account 2310
 Assets.
Cable and Wire Facilities Assets.....  Account 2410
Amortizable Tangible Assets..........  Account 2680
Intangibles..........................  Account 2690
                                                       II
Rural Telephone Bank (RTB) Stock.....  Included in Account 1410
Materials and Supplies...............  Account 1220.1
Cash Working Capital.................  Defined in 47 CFR 65.820(d)
 
                                                       III
Accumulated Depreciation.............  Account 3100
Accumulated Amortization.............  Included in Accounts 2005, 2680, 2690, 3410
Net Deferred Operating Income Taxes..  Accounts 4100, 4340
Network Support Expenses.............  Account 6110
General Support Expenses.............  Account 6120
Central Office Switching, Operator     Accounts 6210, 6220, 6230
 Systems, and Central Office
 Transmission Expenses.
Information Origination/Termination    Account 6310
 Expenses.
Cable and Wire Facilities Expenses...  Account 6410
Other Property, Plant and Equipment    Account 6510
 Expenses.
Network Operations Expenses..........  Account 6530
Access Expense.......................  Account 6540
Depreciation and Amortization Expense  Account 6560
Marketing Expense....................  Account 6610
Services Expense.....................  Account 6620
Corporate Operations Expense.........  Account 6720
Operating Taxes......................  Accounts 7230, 7240
Federal Investment Tax Credits.......  Account 7210
Provision for Deferred Operating       Account 7250
 Income Taxes-Net.
Allowance for Funds Used During        Included in Account 7300
 Construction.
Charitable Contributions.............  Included in Account 7300
Interest and Related Items...........  Account 7500
                                                       IV
Other Non-Current Assets.............  Included in Account 1410
Deferred Maintenance and Retirements.  Included in Account 1438
Deferred Charges.....................  Included in Account 1438
Other Jurisdictional Assets and        Accounts 1500, 4370
 Liabilities.
Customers' Deposits..................  Account 4040
Other Long-Term Liabilities..........  Included in Account 4300
 

    (c) * * *
    (2) Telecommunications Plant--Other (Accounts 2002, 2003, 2005); 
Rural Telephone Bank (RTB) Stock (included in Account 1410); Materials 
and Supplies (Account 1220.1); Cash Working Capital (Sec. 65.820(d) of 
this chapter); Accumulated Amortization (Included in Accounts 2005, 
2680, 2690, 3410); Net Deferred Operating Income Taxes (Accounts 4100, 
4340); Network Support Expenses (Account 6110); Other Property, Plant 
and Equipment Expenses (Account 6510); Network Operations Expenses 
(Account 6530); Marketing Expense (Account 6610); Services Expense 
(Account 6620); Operating Taxes (Accounts 7230, 7240); Federal 
Investment Tax Credits (Accounts 7210); Provision for Deferred 
Operating Income Taxes--Net (Account 7250); Interest and Related Items 
(Account 7500); Allowance for Funds Used During Construction (Included 
in Account 7300); Charitable Contributions (included in Account 7300); 
Other Non-current Assets (Included in Account 1410); Other 
Jurisdictional Assets and Liabilities (Accounts 1500, 4370); Customer 
Deposits (Account 4040); Other Long-term Liabilities (Included in 
Account 4300); and Deferred Maintenance and Retirements (Included in 
Account 1438) shall be allocated according to the following factor:

[[Page 5702]]

    Account 2210 Category 3 Account 2001.
* * * * *
    (5) Corporate Operations Expenses (Account 6720) shall be allocated 
according to the following factor:
    [[Account 2210 Category 3 (Account 2210 + Account 2220 + Account 
2230)]]  x  (Account 6210 + Account 6220 + Account 6230)] + [(Account 
6530 + Account 6610 + Account 6620)  x  (Account 2210 Category 3 
Account 2001)] (Account 6210 + Account 6220 + Account 6230 + Account 
6310 + Account 6410 + Account 6530 + Account 6610 + Account 6620).
* * * * *
    (d) * * *
    (4) Federal income tax attributable to COE Category 3 shall be 
calculated using the following formula; the accounts listed shall be 
allocated pursuant to paragraph (c) of this section:
    [Return on Investment attributable to COE Category 3--Included in 
Account 7300--Account 7500-Account 7210)]  x  [Federal Income Tax Rate 
(1--Federal Income Tax Rate)].
* * * * *

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    144. The authority citation for Part 64 continues to read as 
follows:

    Authority: 47 U.S.C. 151, 154, 201, 202, 205, 218-220, 225, 
251(e)(1), 254, 302, 303, and 337 unless otherwise noted.

    145. Section 64.901 is amended by revising paragraph (b)(1) to read 
as follows:


Sec. 64.901  Allocation of costs.

* * * * *
    (b) * * *
    (1) Tariffed services provided to a nonregulated activity will be 
charged to the nonregulated activity at the tariffed rates and credited 
to the regulated revenue account for that service. Nontariffed 
services, offered pursuant to a section 252(e) agreement, provided to a 
nonregulated activity will be charged to the nonregulated activity at 
the amount set forth in the applicable interconnection agreement 
approved by a state commission pursuant to section 252(e) and credited 
to the regulated revenue account for that service.
* * * * *

    146. Section 64.903 is amended by revising paragraph (a) 
introductory text to read as follows:


Sec. 64.903  Cost allocation manuals.

    (a) Each incumbent local exchange carrier having annual revenues 
from regulated telecommunications operations that are equal to or above 
the indexed revenue threshold (as defined in Sec. 32.9000 of this 
chapter) except mid-sized incumbent local exchange carriers is required 
to file a cost allocation manual describing how it separates regulated 
from nonregulated costs. The manual shall contain the following 
information regarding the carrier's allocation of costs between 
regulated and nonregulated activities:
* * * * *

    147. Section 64.904 is revised to read as follows:


Sec. 64.904  Independent audits.

    (a) Each carrier required to file a cost allocation manual shall 
elect to either have an attest engagement performed by an independent 
auditor every two years, covering the prior two year period, or 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.
    (b) 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 Sec. 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, 
Sec. 64.901, and Sec. 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.
    (c) 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, and Sec. 64.901, and Sec. 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. The report of 
the independent auditor shall be filed at the time that the carrier 
files the annual reports required by Sec. 43.21(e)(2) of this chapter.

    148. Section 64.905 is added to read as follows:


Sec. 64.905  Annual certification.

    A mid-sized incumbent local exchange carrier, as defined in 
Sec. 32.9000 of this chapter, shall file a certification with the 
Commission stating that it is complying with Sec. 64.901. The 
certification must be signed, under oath, by an officer of the mid-
sized incumbent LEC, and filed with the Commission on an annual basis 
at the time that the mid-sized incumbent LEC files the annual reports 
required by Sec. 43.21(e)(2) of this chapter.

PART 65--INTERSTATE RATE OF RETURN PRESCRIPTION PROCEDURES AND 
METHODOLOGIES

    149. The authority citation for part 65 continues to read as 
follows:

    Authority: Secs. 4, 201, 202, 203, 205, 218, 403, 48 Stat., 
1066, 1072, 1077, 1094, as amended, 47 U.S.C. 151, 154, 201, 202, 
203, 204, 205, 218, 219, 220, 403.


Sec. 65.300  [Amended]

    150. In Sec. 65.300(a) remove the words ``in excess of 100 
million'' and add, in their place, the words ``equal to or above the 
indexed revenue threshold as defined in Sec. 32.9000'' wherever it 
exists.


Secs. 65.302 through 65.304  [Amended]

    151. In Secs. 65.302, 65.303, 65.304, remove the words ``of 100 
million or more'' and add, in their place, the words ``equal to or 
above the indexed revenue threshold as defined in Sec. 32.9000'' 
wherever they appear.

    152. Section 65.450 is amended by revising paragraphs (a), (b)(1), 
(b)(2) and (d) to read as follows:


Sec. 65.450  Net income.

    (a) Net income shall consist of all revenues derived from the 
provision of interstate telecommunications services regulated by this 
Commission less expenses recognized by the Commission as necessary to 
the provision of these services. The calculation of expenses entering 
into the determination of net income shall include the interstate 
portion of plant specific operations (Accounts 6110 through 6441), 
plant nonspecific operations (Accounts 6510 through 6560), customer 
operations (Accounts 6610 through 6620),

[[Page 5703]]

corporate operations (Accounts 6720 through 6790), other operating 
income and expense (Account 7100), and operating taxes (Accounts 7200 
through 7250), except to the extent this Commission specifically 
provides to the contrary.
    (b) * * *
    (1) Gains related to property sold to others and leased back under 
capital leases for use in telecommunications services shall be recorded 
in Account 4300 (Other long-term liabilities and deferred credits) and 
credited to Account 6560 (Depreciation and Amortization Expense) over 
the amortization period established for the capital lease;
    (2) Gains or losses related to the disposition of land and other 
nondepreciable items recorded in Account 7100 (Other operating income 
and expense) shall be included in net income for ratemaking purposes, 
but adjusted to reflect the relative amount of time such property was 
used in regulated operations and included in the rate base; and
* * * * *
    (d) Except for the allowance for funds used during construction, 
reasonable charitable deductions and interest related to customer 
deposits, the amounts recorded as nonoperating income and expenses and 
taxes (Accounts 7300 and 7400) and interest and related items (Account 
7500) and extraordinary items (Account 7600) shall not be included 
unless this Commission specifically determines that particular items 
recorded in those accounts shall be included.

    153. Section 65.820 is amended by revising paragraphs (a) and (c) 
to read as follows:


Sec. 65.820  Included items.

    (a) Telecommunications Plant. The interstate portion of all assets 
summarized in Account 2001 (Telecommunications Plant in Service) and 
Account 2002 (Property Held for Future Use), net of accumulated 
depreciation and amortization, and Account 2003 (Telecommunications 
Plant Under Construction), and, to the extent such inclusions are 
allowed by this Commission, Account 2005 (Telecommunications Plant 
Adjustment). Any interest cost for funds used during construction 
capitalized on assets recorded in these accounts shall be computed in 
accordance with the procedures in Sec. 32.2000(c)(2)(x) of this 
chapter.
* * * * *
    (c) Noncurrent assets. The interstate portion of Class B Rural 
Telephone Bank stock contained in Account 1410 and the interstate 
portion of assets summarized in Account 1410 (Other Noncurrent Assets) 
and Account 1438 (Deferred Maintenance, Retirements and Deferred 
Charges), only to the extent that they have been specifically approved 
by this Commission for inclusion (Note: The interstate portion of 
assets summarized in Account 1410 should not include any amounts 
related to investments, sinking funds or unamortized debt issuance 
expense). Except as noted above, no amounts from accounts 1406 through 
1500 shall be included.
* * * * *

    154. Section 65.830 is amended by revising paragraphs (a)(3), 
(a)(4), and (c) to read as follows:


Sec. 65.830  Deducted items.

    (a) * * *
    (3) The interstate portion of other long-term liabilities in 
(Account 4300 Other long-term liabilities and deferred credits) that 
were derived from the expenses specified in Sec. 65.450(a).
    (4) The interstate portion of other deferred credits in (Account 
4300 Other long-term liabilities and deferred credits) to the extent 
they arise from the provision of regulated telecommunications services. 
This shall include deferred gains related to sale-leaseback 
arrangements.
    (c) The interstate portion of other long-term liabilities included 
in (Account 4300 Other long-term liabilities and deferred credits) 
shall bear the same proportionate relationships as the interstate/
intrastate expenses which gave rise to the liability.

PART 69--ACCESS CHARGES

    155. The authority citation for Part 69 continues to read as 
follows:

    Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 
403.
    156. Section 69.2 is amended by revising paragraphs (j) and (z) to 
read as follows:


Sec. 69.2  Definitions.

* * * * *
    (j) Corporate Operations Expenses are included in General and 
Administrative Expenses (Account 6720);
* * * * *
    (z) Net Investment means allowable original cost investment in 
Accounts 2001 through 2003, 1220 and the investments in nonaffiliated 
companies included in Account 1410, that has been apportioned to 
interstate and foreign services pursuant to the Separations Manual from 
which depreciation, amortization and other reserves attributable to 
such investment that has been apportioned to interstate and foreign 
services pursuant to the Separations Manual have been subtracted and to 
which working capital that is attributable to interstate and foreign 
services has been added;
* * * * *

    157. Section 69.302 is amended by revising paragraph (a) to read as 
follows:


Sec. 69.302  Net investment.

    (a) Investment in Accounts 2001, 1220 and Class B Rural Telephone 
Bank Stock booked in Account 1410 shall be apportioned among the 
interexchange category, billing and collection category and appropriate 
access elements as provided in Secs. 69.303 through 69.309.
* * * * *

    158. Section 69.409 is amended by revising the section heading to 
read as follows:


Sec. 69.409  Corporate operations expenses (included in Account 6720).

* * * * *

[FR Doc. 02-1212 Filed 2-1-02; 8:45 am]
BILLING CODE 6712-01-P