Comprehensive Review of the Uniform System of Accounts, 54942-54949 [2014-21983]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 79, Number 178 (Monday, September 15, 2014)]
[Proposed Rules]
[Pages 54942-54949]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21983]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 32

[WC Docket No. 14-130; FCC 14-123]


Comprehensive Review of the Uniform System of Accounts

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) initiated a proceeding to review Uniform System of 
Accounts (USOA) to consider ways to minimize burdens on carriers while 
ensuring that the agency retains access to the information it needs to 
fulfill regulatory duties.

DATES: Comments are due on or before November 14, 2014. Reply comments 
are due on or before December 15, 2014.

ADDRESSES: You may submit comments, identified by docket number and/or 
rulemaking number, by any of the following methods:
     Federal Communications Commission's Web site: https://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting 
comments.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: FCC504@fcc.gov or phone: 202-418-
0530 or TTY: 202-418-0432.
For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Robin Cohn, Wireline Competition 
Bureau, Pricing Policy Division, (202) 418-1540 or robin.cohn@fcc.gov.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking in WC Docket 14-130, FCC 14-123, adopted August 
19, 2014, and released on August 20, 2014. The full text of this 
document may be downloaded at the following Internet address: https://www.fcc.gov/document/fcc-seeks-comment-streamlining-telephone-co-accounting-rules. The complete text may be purchased from Best Copy and 
Printing, Inc., 445 12th Street SW., Room Cy-B402, Washington, DC 
20554. To request alternative formats for persons with disabilities 
(e.g., accessible format documents, sign language, interpreters, CARTS, 
etc.), send an email to fcc504@fcc.gov or call the Commission's 
Consumer and Governmental Affairs Bureau at (202) 418-0530 or (202) 
418-0432 (TTY).
    Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's rules, 
47 CFR 1.415, 1.419, interested parties may file comments and reply 
comments on or before the dates indicated on the first page of this 
document. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS). See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 FR 24121 (1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://fjallfoss.fcc.gov/ecfs2/.
     Paper Filers: Parties who choose to file by paper must 
file an original and one copy of each filing. If more than one docket 
or rulemaking number appears in the caption of this proceeding, filers 
must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission.
     All hand-delivered or messenger-delivered paper filings 
for the Commission's Secretary must be delivered to FCC Headquarters at 
445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours 
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together 
with rubber bands or fasteners. Any envelopes and boxes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
     U.S. Postal Service first-class, Express, and Priority 
mail must be addressed to 445 12th Street SW., Washington, DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to fcc504@fcc.gov or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

[[Page 54943]]

    The proceeding the NPRM initiates shall be treated as a ``permit-
but-disclose'' proceeding in accordance with the Commission's ex parte 
rules. Persons making ex parte presentations must file a copy of any 
written presentation or a memorandum summarizing any oral presentation 
within two business days after the presentation (unless a different 
deadline applicable to the Sunshine period applies). Persons making 
oral ex parte presentations are reminded that memoranda summarizing the 
presentation must (1) list all persons attending or otherwise 
participating in the meeting at which the ex parte presentation was 
made, and (2) summarize all data presented and arguments made during 
the presentation. If the presentation consisted in whole or in part of 
the presentation of data or arguments already reflected in the 
presenter's written comments, memoranda or other filings in the 
proceeding, the presenter may provide citations to such data or 
arguments in his or her prior comments, memoranda, or other filings 
(specifying the relevant page and/or paragraph numbers where such data 
or arguments can be found) in lieu of summarizing them in the 
memorandum. Documents shown or given to Commission staff during ex 
parte meetings are deemed to be written ex parte presentations and must 
be filed consistent with Sec.  1.1206(b). In proceedings governed by 
Sec.  1.49(f) or for which the Commission has made available a method 
of electronic filing, written ex parte presentations and memoranda 
summarizing oral ex parte presentations, and all attachments thereto, 
must be filed through the electronic comment filing system available 
for that proceeding, and must be filed in their native format (e.g., 
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding 
should familiarize themselves with the Commission's ex parte rules.

I. Introduction

    1. In the Notice of Proposed Rulemaking (NPRM), we initiate a 
proceeding to review our part 32 Uniform System of Accounts (USOA) to 
consider ways to minimize the compliance burdens on carriers while 
ensuring that the agency retains access to the information it needs to 
fulfill its regulatory duties. Section 220 of the Communications Act of 
1934, as amended (the Act), authorizes the Commission to prescribe the 
system of accounts to be used by carriers subject to the Act, and the 
USOA and its predecessors have historically performed this function for 
regulated telephone companies. In the USTelecom Forbearance Order, the 
Commission denied the request that the Commission forbear completely 
from applying the requirement that price cap carriers maintain the 
USOA. At the same time, the Commission recognized that, in light of the 
Commission's actions in areas of price cap regulation, universal 
service reform, and intercarrier compensation reform, it is likely 
appropriate to streamline the existing rules even though those reforms 
may not have eliminated the need for accounting data for some purposes. 
Accordingly, we seek comment now on streamlining Part 32 to reduce 
regulatory burdens while maintaining access to the data the Commission 
needs to fulfill its statutory and regulatory obligations. We will 
complete this proceeding no later than the end of 2015.

II. Background

    2. Section 220 of the Act requires the Commission to ``prescribe a 
uniform system of accounts for use by telephone companies.'' The 
Commission adopted its first accounting system in 1935 as parts 31 and 
33 of the Commission's rules ``when a rigid institutionalized 
regulatory environment was expected to continue forever.'' In 1986, the 
Commission adopted the USOA contained in part 32 to respond to the 
``introduction of competition and an explosion of new products and 
services to which the existing systems could not respond without 
massive modification.''
    3. The Commission intended the USOA to ``accommodate generally 
accepted accounting principles (GAAP) to the extent regulatory 
considerations permit.'' As the Commission explained:

    GAAP is that common set of accounting concepts, standards, 
procedures and conventions which are recognized by the accounting 
profession as a whole and upon which most nonregulated enterprises 
base their external financial statements and reports. It directs the 
recording of financial events and transactions and relates to how 
assets, liabilities, revenues and expenses are to be identified, 
measured, and reported.

While Part 32 specifies a chart of accounts and the types of 
transactions to be maintained in each account, GAAP allows companies to 
determine their own system of accounts subject to certain principles.

    4. The Commission adopted the USOA ``at a time when regulators were 
required or inclined to organize telecommunications costs in a manner 
that allowed a logical mapping of these costs to telecommunications 
rate structures.'' At that time, virtually all interstate access rates 
were subject to rate-of-return regulation, under which rates are set to 
cover an entity's regulated operating expenses and provide a pre-
specified return on the capital the company uses to provide regulated 
services.
    5. Accordingly, Part 32 deviated from GAAP to the extent needed to 
support cost-based regulatory activities such as jurisdictional 
separations, cost assignment, and rate-of-return ratemaking. Part 32 
specifies the revenue and expense accounts that must be maintained to 
record amounts for preparation of a carrier's income statement for its 
regulated activities, as well as accounts that must be used for 
recording nonregulated activities. Carriers then directly assign, or 
allocate if direct assignment is not possible, the investment, 
expenses, and revenues between regulated and nonregulated activities 
using the cost assignment rules in part 64. The regulated investment, 
expenses and revenues are then separated between the interstate and 
intrastate jurisdictions as specified in part 36. The Commission and 
each state regulatory jurisdiction applies its own ratemaking processes 
to the amounts assigned to its jurisdiction. In the interstate 
jurisdiction, the access charge rules in part 69 specify how carriers 
assign or allocate regulated costs among the interexchange service 
category and access categories. These rules, taken together, were 
designed to permit incumbent LECs to comply with rate-of-return 
regulation.
    6. In 1991, the Commission adopted price cap regulation for the 
largest incumbent LECs while making it optional for other incumbents. 
Price cap regulation is a form of incentive regulation that relies on a 
series of Price Cap Indexes (PCIs) to limit the prices carriers charge 
for services to levels that are presumed to be just and reasonable. 
Unlike rate-of-return regulation, ``price cap regulation eliminates the 
direct link between changes in allocated accounting costs and change in 
price [but] it does not sever the connection between accounting costs 
and prices entirely.'' Today, fewer than five percent of access lines 
are served by rate-of-return carriers--the incumbent LEC for most 
consumers is a price cap carrier.
    7. The Commission has reviewed and streamlined its accounting rules 
on several occasions in the years following passage of the 
Telecommunications Act of 1996. The Commission clarified that ``only 
incumbent local exchange carriers'' are subject to the USOA and other 
accounting rules. In 2000, the Commission streamlined part 32 
obligations by eliminating the expense

[[Page 54944]]

matrix filing requirement, reducing the cost allocation manual audit 
requirement, relaxing certain affiliate transactions requirements for 
services, and eliminating the reclassification requirement for certain 
plant under construction. In 2001, it consolidated and streamlined 
Class A accounting requirements, relaxed additional aspects of the 
affiliate transactions rules, reduced the cost of regulatory compliance 
with cost allocation rules for mid-sized carriers, and reduced 
financial reporting requirements. And in 2008, the Commission forbore 
from applying its cost assignment rules and financial reporting rules 
to AT&T, Verizon, and Qwest, finding that its need for cost data had 
significantly diminished with continuing refinement of price cap 
ratemaking and universal service reforms.
    8. USTelecom Forbearance Order. On February 16, 2012, USTelecom 
filed a petition pursuant to section 10 of the Act requesting that the 
Commission forbear from enforcing certain ``legacy telecommunications 
regulations.'' The Commission resolved that petition on May 17, 2013 in 
the USTelecom Forbearance Order. There, the Commission extended the 
forbearance it had granted to AT&T, Verizon, and Qwest to other price 
cap carriers, but declined to forbear altogether from applying the USOA 
to price cap carriers. Nevertheless, the Commission ``acknowledge[d] 
that further streamlining of our rules is likely appropriate,'' and 
promised to ``conduct a comprehensive review of the part 32 Uniform 
System of Accounts'' through a Notice of Proposed Rulemaking, with the 
aim of ``minimiz[ing] the compliance burdens of our regulations while 
ensuring our continued access to the relevant financial information 
necessary to fulfill our duties.''

III. Discussion

    9. In this proceeding, we seek comment on the extent to which we 
can reform our accounting rules. We divide our analysis and proposals 
into three parts. First, we propose to streamline our USOA accounting 
rules while preserving their existing structure. Second, we seek more 
focused comment on the accounting requirements needed for price cap 
carriers to address our statutory and regulatory obligations. Third, we 
seek comment on several related issues, including state requirements, 
rate effects, implementation, continuing property records, and legal 
authority.

A. Streamlining the USOA

    10. In this section, we propose rules to streamline our part 32 
accounting rules. First, we propose to collapse the Class A and Class B 
distinctions in our rules, which would reduce the number of accounts 
required to be maintained by Class A carriers by over 40 percent. 
Second, we examine the differences between GAAP and the part 32 USOA 
and propose to better align part 32 with modern accounting standards 
where feasible.
1. Consolidating the Class A and Class B Accounts
    11. Part 32 divides incumbent LECs into two classes for accounting 
purposes: Class A (carriers with annual revenues exceeding $150.2 
million) and Class B (smaller carriers). Class A carriers that do not 
qualify as mid-sized incumbent LECs are required to maintain 138 Class 
A accounts, which provide more detailed records of investment, expense, 
and revenue than the 80 Class B accounts that Class B carriers are 
required to maintain. When the Commission adopted this regime, it drew 
this line to ``adopt a far less burdensome system'' for smaller 
carriers--but one that was nevertheless sufficient to meet its 
statutory obligations.
    12. We propose to eliminate the classification of carriers, so that 
all carriers subject to part 32 would be required to keep the 
streamlined Class B accounts. Collapsing the distinction between Class 
A and Class B carriers would simplify our rules and reduce the number 
of accounts that Class A carriers must keep by one third. Furthermore, 
it appears that using only Class B accounts should be sufficient to 
meet our regulatory needs, since no rate-of-return carrier is required 
today to keep Class A accounts. We seek comment on this proposal and 
this analysis. To the extent commenters believe that this proposal 
would compromise any of the Commission's specific data needs, it should 
specify the particular accounts or subaccounts at issue, their use, and 
explain why the benefit of maintaining such accounts or subaccounts 
outweighs the cost.
    13. We note there are other differences in the treatment of Class A 
carriers and Class B carriers for purposes of part 32. For example, 
Sec.  32.2000(b) sets different thresholds for Class A and Class B 
carriers for when to account for assets using original cost or 
acquisition cost. Section 32.2682(c) requires Class A carriers to 
maintain additional records for amortized leasehold improvements. And 
Sec.  32.2690(b) requires Class A carriers to maintain ``subsidiary 
records for general purpose computer software and for network 
software.'' We propose to use the Class B treatment in all such 
circumstances, since the Commission designed the Class B requirements 
to reduce the burdens of compliance while maintaining the detail 
necessary for regulatory purposes. We seek comment on this proposal, 
and whether there are any particular requirements where the distinction 
between Class A and Class B treatment continues to be important to the 
Commission's statutory obligations, or where the Class A treatment 
would actually reduce the burden on affected companies.
2. Aligning the USOA With GAAP
    14. In this section, we seek to develop a record on how our rules 
differ from GAAP accounting and the extent to which GAAP or other 
accounting principles or systems provide a basis for further 
streamlining of the USOA. In the following paragraphs, we identify 
several instances in which the USOA and GAAP accounting differ. We seek 
comment on the differences articulated here between GAAP accounting 
principles and our current accounting rules and whether there are other 
differences that we should be aware of. To the extent that parties are 
shifting from GAAP to International Financial Reporting Standards 
(IFRS), we also seek comment on the differences among USOA, GAAP, and 
IFRS generally, and as relevant to specific issues raised below.
    15. We also invite parties to identify other areas in which the 
USOA and GAAP requirements vary, or where the USOA provides definition 
to a particular data point whereas GAAP would not. For each such item, 
parties should specify the difference(s) between the USOA and GAAP 
treatment, the implications of these differences, and whether such 
differences are material to the Commission's ability to carry out our 
statutory and regulatory obligations. Parties should also address the 
extent to which GAAP or IFRS accounting would affect the Commission's 
ability to make accurate comparisons among carriers in carrying out our 
statutory and regulatory responsibilities, as well as whether any 
changes proposed would require revision of any existing reports.
    16. Asset Accounting. Carriers acquire assets to be used in 
providing service to customers, and both the USOA and GAAP generally 
require assets to be recorded at cost. But the two part ways (to some 
degree) when it comes to determining the specific cost of certain 
assets.

[[Page 54945]]

    17. For example, the USOA requires acquired assets to be accounted 
for at ``original cost'' except for assets where the purchase price is 
below a set threshold, in which case they are to be accounted for at 
``acquisition cost.'' The USOA in turn defines original cost to mean 
``the actual money cost of (or the current money value of any 
consideration other than money exchanged for) property at the time when 
it was first dedicated to use by a regulated telecommunications entity, 
whether the accounting company or by predecessors.'' Thus, original 
cost is the cost when the asset was first used for regulated 
activities--even if that use does not occur until long after its 
purchase. By comparison, GAAP accounting allows a company to carry an 
asset at its purchase price when it was acquired, even if its value has 
increased or has declined when it goes into regulated service. 
Similarly, GAAP allows a carrier to re-price an asset at market value 
after a merger or acquisition. Thus, under a GAAP-based approach, a 
carrier's recorded amounts can vary from that recorded under the USOA. 
Different asset values also result in depreciation expense being 
different under GAAP going forward.
    18. We propose to revise the USOA's asset accounting to better 
align with GAAP. Do carriers generally record assets based on 
acquisition costs or original costs under GAAP? What regulatory purpose 
is served by requiring certain assets to be accounted for using 
original cost and others using acquisition cost? If the Commission gave 
carriers discretion to account for assets based on acquisition or 
original costs, so long as they acted consistent with GAAP, what effect 
would that have, if any, on our regulatory needs? We seek comment on 
this proposal.
    19. Depreciation. The USOA and GAAP both require assets to be 
depreciated over their useful lives. The USOA requires that the loss in 
service value of the plant be distributed under the straight-line 
method during the service life of the property. For example, if an 
asset has a 10-year expected life, a depreciation rate of 10 percent 
would be applied to the original cost each year to calculate the 
depreciation. Today, a carrier may use a depreciation rate (which may 
vary by year) that is within a prescribed range of rates for a 
particular plant category. In contrast, GAAP accounting does not 
require the use of straight-line depreciation and allows depreciation 
rates that are not restricted by the ranges like those prescribed by 
the Commission. Specifically, GAAP allows carriers to use shorter 
lives, as well as accelerated depreciation methods. Depreciation 
expense under GAAP is also higher because early retirements and other 
losses are recognized under GAAP when they occur rather than being 
amortized over a longer period of time.
    20. We seek comment on whether to revise the USOA's depreciation 
procedures to better align with GAAP. We invite parties to comment on 
how doing so would affect depreciation rates for new investment in 
today's telecommunications market, including how projected service 
lives today vary from those underlying those used in developing the 
depreciation ranges. If possible, parties should quantify and attribute 
the effects among lives, salvage, and cost of removal effects by class 
of depreciable plant. We seek comment on whether these differences are 
materially relevant to our ability to achieve our statutory and 
regulatory obligations.
    21. Cost of Removal and Salvage. The USOA requires that estimates 
of cost of removal and salvage be included in the calculation of 
depreciation rates, so that upon actual retirement of the plant, the 
original cost of the plant and the actual cost of removal are charged 
(debited) to Account 3100, Accumulated Depreciation, and the actual 
value of salvage received, if any, is credited to Account 3100. In 
effect, this practice results in an accrual for cost of removal and 
salvage. Conversely, GAAP requires that the cost of removal and salvage 
not be included in the calculation of depreciation rates; cost of 
removal would be charged to expense at the time the expense is 
incurred, while salvage would be recognized as current income when 
received. Thus, the differences between the USOA and GAAP approaches 
are essentially timing differences.
    22. We seek comment on whether to revise the USOA's removal-and-
salvage accounting rules to better align with GAAP. If we adopted the 
GAAP approach, a carrier's depreciation expense would be lower (since 
it would no longer include cost of removal) but its operating expenses 
would be higher whenever plant is actually removed (because those 
expenses would not have been pre-accrued in the depreciation process). 
Companies would also see increased current income from current salvage. 
What would the effect of these changes be on consumers? Specifically, 
we recognize that the removal-and-salvage rules are particularly 
pertinent for developing pole-attachment rates. Would those rates 
generally be higher or lower if we adopted this change? We invite 
parties to address this aspect of any changes that might be adopted in 
this area.
    23. Calculation of AFUDC. The USOA uses imputed interest on equity 
funds in addition to interest on debt when calculating Interest During 
Construction (Allowance for Funds Used During Construction, or AFUDC). 
GAAP uses the cost of debt in determining AFUDC.
    24. We propose to revise the USOA's AFUDC rules to better align 
with GAAP. If the Commission were to rely on GAAP accounting instead of 
the USOA, it would negligibly decrease recorded asset values and 
depreciation expense. We seek comment on this analysis and this 
proposal.
    25. Materiality. The USOA requires that all transactions be booked 
regardless of any materiality consideration. By contrast, as used in 
GAAP, materiality means that the nature of the economic event(s), 
including the dollar amount being accounted for and the overall 
economic environment, should be considered in determining how a 
particular transaction should be treated for reporting purposes. An 
item is considered to be material if the accounting and reporting will 
affect the decision of a user of financial statements.
    26. We propose to revise the USOA's treatment of materiality to 
better align with GAAP. We tentatively conclude that the Commission's 
current approach to materiality is more restrictive than necessary to 
meet our statutory obligations. We specifically seek comment on whether 
the Commission should incorporate the concept of materiality into the 
USOA, and how it could do so. For example, should the Commission set 
dollar threshold amounts for classes of assets, costs, or income to 
draw the materiality line, or should we establish a more general 
baseline of materiality that can be refined through case-by-case 
adjudication as needed?
    27. Parties asking the Commission to adopt a particular materiality 
standard should provide a clear definition of the proposed standard, 
explain how the definition would be implemented, including examples of 
the major types of occurrences it would affect, and propose specific 
language for our rules. Would failure to continue to record all 
transactions possibly result in any material distortions of accounting 
data?
    28. Pre-Approval of PPAs and Extraordinary Items. The Commission 
requires that carriers submit all prior period adjustments (PPAs) and 
unusual or extraordinary items to the Commission for review and 
approval before booking to insure that allowable costs are recovered by 
the carriers and

[[Page 54946]]

gains and other credits are given to the ratepayers. Under GAAP, 
companies typically account for such transactions consistent with 
accounting principles, which generally recognize materiality concepts.
    29. We propose to revise the USOA's treatments of PPAs and 
extraordinary items to better align with GAAP. Specifically, we propose 
to relax our requirement so that carriers only need to seek Commission 
review and approval for material changes. We seek comment on this 
proposal, and whether materiality should be more specifically defined 
for these purposes.
    30. Effect on Rate-of-Return Carriers. Unlike carriers subject to 
price cap regulation, those subject to rate-of-return regulation 
maintain cost-based rates for many interstate services. For these 
services, rates are based on costs and are developed today using the 
regulatory process that begins with standardized accounting under the 
USOA. The changes proposed in this section would directly affect the 
accounting data used by rate-of-return carriers in establishing 
tariffed rates for services that remain subject to rate-of-return 
regulation. We invite parties to comment on whether the streamlining 
proposals discussed in this section should be limited to price cap 
regulated carriers. How would modifying the accounting systems affect 
the rates assessed by rate-of-return carriers, or the Commission's 
ability to evaluate rates for services that remain subject to rate-of-
return regulation consistent with its statutory obligations? As noted 
above, many of the changes affect the timing of the recognition of 
certain amounts. For example, the proposals would alter the recognition 
of the cost of removal and salvage. Some of these amounts have already 
been accrued. Parties should address whether any accounting or 
ratemaking requirements should be adopted to ensure that any rate 
revisions do not adversely affect either customers or carriers. We seek 
comment on whether any of the changes could require adjustments to a 
carrier's universal service support. If the Commission applies these 
changes to rate-of-return carriers, should we consider variations for 
rate-of-return carriers, which typically have much smaller operations 
than price cap carriers? For example, should the Commission consider 
adopting a different materiality threshold for these carriers if a 
specific dollar amount is used to define materiality? Are there other 
proposals that should be adjusted for rate-of-return carriers? Should 
the Commission consider specific transitional rules for these carriers? 
Finally, we ask whether there are implications for the National 
Exchange Carrier Association pooling process.

B. Accounting Requirements for Price Cap Carriers

    31. We next turn to the specific accounting requirements that 
should be applied to price cap carriers. Unlike rate-of-return 
carriers, price cap carriers do not directly rely on reported costs to 
set rates. And as the Commission has previously said, the ``need for 
cost data for the purposes of price caps has been significantly 
decreased with the adoption of various reforms that eliminated features 
of the original price cap regime that required rate-of-return 
regulation accounting inputs.''
    32. Nevertheless the USTelecom Forbearance Order identified ``a 
variety of current circumstances for which the Commission relies on 
Part 32 accounting,'' specifically, determining pole attachment rates 
under section 224, preventing cross-subsidization between local and 
long distance service under section 272(e), and ensuring no cross-
subsidization between competitive and non-competitive services under 
section 254(k). The Commission also noted that it would need to 
consider the impact of forbearing from the USOA accounting rules on its 
previous decisions to forbear from its cost assignment rules and ARMIS 
reporting requirements.
    33. In this section, we explore options for reducing the accounting 
burdens on price cap carriers while securing the data we need for 
federal regulatory purposes. We see two primary options for doing so: 
Maintaining the USOA for price cap carriers, streamlining it as 
proposed in section III.A, or eliminating the requirement that price 
cap carriers comply with the USOA and imposing targeted accounting 
requirements that fit our specific statutory needs. We seek comment on 
whether we should adopt targeted accounting requirements in lieu of the 
continued maintenance of the USOA for price cap carriers and, if so, 
what those targeted requirements should be. We explore each option in 
turn and seek comment on its benefits and costs in the modern 
communications marketplace. Alternatively, we seek comment on whether 
the Commission has other means to meet these specific needs, or if 
there are safe harbors we could adopt to further streamline any 
remaining requirements.
1. Requiring Price Cap Carriers To Comply With the USOA
    34. One option is to require price cap carriers to comply with the 
USOA, streamlining it as proposed in section III.A. We invite carriers 
to describe their current accounting systems and the relationship 
between the accounting systems they use to comply with the USOA 
requirements and their accounting for other purposes (such as financial 
reporting), including whether and how they derive GAAP financial 
statements from the current USOA accounting records. We seek detailed 
descriptions of the accounting process used by price cap carriers to 
convert the USOA financial data to GAAP-equivalent data. For example, 
are adjusting entries actually booked in the accounting system to get 
to GAAP, or is there simply an overlay of GAAP amounts? If the former, 
how are the adjusting entries calculated and what is the basis for the 
adjustments? If the latter, where and how are the GAAP amounts 
determined? We are also interested in obtaining information regarding 
how price cap carriers keep the USOA information necessary to convert 
to GAAP. Is the information maintained through the use of subsidiary 
records, separate subaccounts, or some other mechanism?
    35. If the Commission were to pursue this option, what further 
reforms, if any, of the USOA would be appropriate for price cap 
carriers? For example, we propose several reforms to the USOA generally 
above, but we seek specific comment on whether any of those reforms 
would be appropriate only for price cap carriers. We also seek comment 
on other differences between GAAP accounting and the USOA that could be 
eliminated for price cap carriers. For example, could we eliminate the 
requirement to include jurisdictional accounts (1500, 4370, and 7910) 
for price cap carriers? Or could we eliminate the specific rules for 
accounting for nonregulated activities in favor of GAAP principles?
2. Requiring Price Cap Carriers To Comply With Targeted Accounting 
Rules
    36. A second option is to require price cap carriers to comply with 
a more limited set of accounting rules targeted to our particular 
statutory needs. In this section, we review the statutory needs 
identified in the USTelecom Forbearance Order and explore whether 
targeted accounting rules could satisfy those ends. We also seek 
comment on whether we need targeted accounting data for any other 
particular statutory obligations.
    37. Pole Attachment Rates. Section 224 of the Act allows state 
commissions to regulate pole attachment rates so long as they certify 
to the FCC that they will do so; elsewhere, the Commission's

[[Page 54947]]

rules apply. Under the Commission's rules, pole attachment rates are 
set in the first instance through private negotiation using cost data 
reported by carriers. Because many poles and conduits are owned by 
electric or other utilities not regulated by the Commission, our rules 
do not require all pole attachments to be based on USOA data, but 
instead require that the ``data and information should be based upon 
historical or original methodology'' and ``should be derived from 
ARMIS, FERC 1, or other reports filed with state or federal regulatory 
agencies.'' For incumbent LECs, however, the Commission has relied on 
data from ``various part 32 accounts (e.g., gross pole investment, 
gross plant investment, accumulated depreciation--poles, maintenance 
expense--poles etc.).'' And the Commission has used the USOA data to 
modify the formula by which pole attachment rates are calculated.
    38. We seek comment on whether a targeted accounting rule would 
provide the Commission and the public with sufficient information to 
set pole attachment rates in compliance with section 224. One such 
targeted requirement would be to require the USOA accounting for price 
cap carriers only to the extent necessary to produce relevant pole 
attachment data. The Commission has previously recognized that pole 
attachment data may be severable from other data for accounting 
purposes. Would such a targeted part 32 requirement be feasible for 
price cap carriers to implement? How burdensome would such a 
requirement be?
    39. Another targeted accounting requirement could be to require 
price cap carriers to publicly report the same information, but do so 
using expense information maintained in accordance with GAAP. 
Presumably, such a requirement would be less burdensome for price cap 
carriers. What would be the impact of such a change on pole attachment 
rates? If we were to institute such a change, should we cap price cap 
carriers' pole attachment rates at current levels for a reasonable 
period of time, such as five years, to minimize the burden on attaching 
parties? Should we require price cap carriers to maintain the USOA data 
for a shorter duration, such as two years, so that the Commission can 
audit and understand any discrepancies between pole attachment rates 
under GAAP and under the USOA rules?
    40. Section 272(e)(3) Imputation. Before 1996, Bell Operating 
Companies (BOCs) were prohibited from entering the long-distance market 
(i.e., from offering interexchange service) out of concern that they 
could use their local monopoly to subsidize competitive operations in 
the long-distance market. The Telecommunications Act created a path for 
BOCs to enter that market, requiring, among other things, that a BOC 
that offers its long-distance service to ``impute to itself . . . an 
amount for access to its telephone exchange service and exchange access 
that is no less than the amount charged to any unaffiliated 
interexchange carriers for such service.'' In 2007, the Commission 
permitted BOCs to offer interexchange and exchange access services on 
an integrated basis, and later relieved BOCs from complying with the 
Commission's cost assignment rules so long as those carriers could 
``demonstrate that [their] access charge imputation methodologies 
remain consistent with section 272(e)(3).''
    41. We invite parties to comment on the use of USOA data for 
purposes of section 272(e)(3) enforcement or whether alternative 
approaches would suffice to meet the requirements of our rules.
    42. We propose to adopt a targeted accounting rule that ensures our 
ability to continue to enforce section 272(e)(3), such as requiring 
price cap carriers that must comply with section 272(e)(3) to use a 
subsidiary record or some other identifier in their accounting books to 
track imputation transactions. Would such a targeted requirement be 
less onerous than the historical requirement to include such imputed 
charges in account 5280? If we were to institute this change, should we 
require price cap carriers to certify that they will be able to report 
such imputed charges to the Commission upon reasonable request?
    43. We also seek comment on the continued applicability of section 
272(e)(3). In the historic USF/ICC Transformation Order, the Commission 
placed terminating intercarrier compensation charges on a path toward 
bill and keep, which may reduce the need for imputation charges in the 
future. Furthermore, we note that many other local exchange carriers 
that provide integrated long-distance service, such as cable operators, 
over-the-top voice over Internet Protocol companies, and commercial 
mobile radio service providers, are not required to impute charges 
between their local and long-distance affiliates (to the extent they 
offer those service through separate affiliates). We seek comment on 
whether the harm to be addressed by section 272(e)(3) continues to be a 
concern, or whether the Commission should consider forbearing from 
section 272(e)(3)'s imputation requirement, either now or at the end of 
the transition path laid out by the USF/ICC Transformation Order.
    44. Section 254(k). Section 254(k) of the Act prohibits a 
telecommunications carrier from ``us[ing] services that are not 
competitive to subsidize services that are subject to competition.'' 
Prior forbearance from the Cost Assignment Rules was conditioned on the 
requirements that price cap carriers annually certify that they have 
complied with section 254(k) and will maintain and provide any 
requested cost accounting information necessary to prove such 
compliance in the event of an administrative action, investigation, or 
audit. To the extent the Commission has reason to believe a particular 
carrier has violated section 254(k), it can order the carrier to 
provide any requested information necessary to prove compliance with 
the statute. Today, that data would likely come from a price cap 
carrier's USOA accounts. While the Commission has been presented with 
allegations of violations of section 254(k) in the past, it never found 
it necessary to seek accounting data to address those specific 
allegations.
    45. We invite parties to comment on the use of USOA data for 
purposes of Section 254(k) enforcement or whether alternative 
approaches would suffice to meet the requirements of our rules.
    46. We propose to adopt a targeted accounting rule that ensures our 
ability to continue to enforce section 254(k), such as requiring price 
cap carriers to certify continued compliance with section 254(k) and 
certify that they can and will provide any requested cost accounting 
information necessary to prove compliance to the Commission upon 
reasonable request. Would such a requirement be sufficient to meet our 
statutory obligation without incurring the burden of requiring each 
carrier to maintain all of the USOA? Should such certifications occur 
annually, perhaps on a form carriers must already file with certain 
accounting information, such as the FCC Form 499-A?
    47. The USOA as a Condition to Other Forbearance Decisions. The 
USTelecom Forbearance Order noted that the Commission had conditioned 
previous forbearance grants on the assumption that carriers would 
maintain their USOA accounts. For example, the AT&T Cost Assignment 
Forbearance Order made forbearance contingent on AT&T filing a 
compliance plan that ``ensure[s] that accounting data requested by the 
Commission in the future will be available and reliable.'' Although the 
Commission noted that the USOA accounting data would ``continue to be 
maintained and available to the Commission on request,'' AT&T had not

[[Page 54948]]

sought relief from the USOA requirements. The USTelecom Forbearance 
Order stated that ``the Commission concluded that there may be a 
`federal need for this accounting information in the future to adjust 
our existing price cap regime or in our consideration of reforms moving 
forward.' '' And the Commission has stated that the USOA provides the 
raw data used to ``gauge whether improper cost accounting has 
occurred.''
    48. If the Commission were to replace the USOA with targeted 
accounting requirements for price cap carriers, should the Commission 
require all such carriers to file a compliance plan ensuring that the 
Commission can continue to request the accounting data it needs for 
regulatory purposes? How should we weigh our prior decisions to 
condition forbearance on continued access to accounting data, and 
continued compliance with the USOA, in reforming our accounting rules?
    49. What, if any, special accounting rules are necessary for price 
cap carriers that have received forbearance conditioned on access to 
the USOA or other accounting data? We invite parties to comment on the 
extent to which the Commission's ability to enforce carriers' 
commitments in compliance plans filed in connection with forbearance 
proceedings that rely on the USOA accounting data would be affected if 
the USOA requirements were altered. What revisions to those compliance 
plans would be required if we were to adopt targeted accounting 
requirements for price cap carriers?

C. Other Issues

    50. We seek comment on several issues related to reforming part 32 
below. We also seek comment on any other issue, not specifically 
addressed herein, that relates to updating the USOA to minimize the 
burdens on carriers.
    51. State Requirements. We note that several state commissions 
require USOA accounting data for use in performing their regulatory 
functions. We invite comment on how many states have adopted, or 
otherwise mirror, the USOA accounting requirements. As the Commission 
noted in the USTelecom Forbearance Order, federal regulation does not 
preclude states from requiring accounting data and we do not propose to 
preempt states here.
    52. Rate Effects. If we adopt revisions that adopt GAAP in whole or 
in part, or that revise the USOA in some other manner, those changes 
could alter the amount a carrier records in its accounts. Price cap 
carriers' rates may change through exogenous adjustments, which are 
designed to reflect changes outside the carrier's control. We invite 
parties to address the extent to which they believe any changes should 
have ratemaking effects through exogenous adjustments to existing 
rates. Because carriers contend that the changes are necessary to 
reduce existing burdens, should any changes be adopted on the condition 
that no rate increases occur simply as a result of the accounting 
changes, or should rate changes be addressed in some other matter?
    53. Implementation. We invite parties to comment on the timing of 
any changes that may be adopted. Section 220(g) of the Act requires 
that six months' notice of accounting changes be given to carriers. 
Parties should address whether any proposed change would require more 
than six months' notice to implement, and, if so, should indicate how 
much more time is needed and explain the reason why more time is 
needed. Should any of the changes be transitioned in and, if so, over 
what time period? Should the changes be implemented at the beginning of 
a calendar year or midyear, when annual tariffs are filed?
    54. Continuing Property Records. The USTelecom Forbearance Order 
found forbearance from the continuing property records requirements 
found in Sec.  32.2000(e) and (f) was warranted for price cap carriers, 
so long as they could demonstrate in compliance plans how they would 
``maintain the records necessary to track substantial assets and 
investment in an accurate, auditable manner that enables them to verify 
account balances in their part 32 Uniform System of Accounts, make such 
property information available to the Commission upon request, and 
ensure maintenance of such data.'' Notably, the only requirement of 
Sec.  32.2000(e) that is applicable today to rate-of-return carriers is 
Sec.  32.2000(e)(7)(i)(A), which requires that a carrier's ``continuing 
property records shall be compiled on the basis of original cost (or 
other book cost consistent with this system of accounts)'' and 
``maintained . . . in such manner as will . . . [p]rovide for the 
verification of property record units by physical examination.'' We 
accordingly propose to consolidate this one remaining rule from 
paragraph (e) into subsection (f), and to replace paragraph (e) with a 
rule that price cap carriers ``maintain property records necessary to 
track substantial assets and investments in an accurate, auditable 
manner that enables them to verify their accounting books, make such 
property information available to the Commission upon request, and 
ensure the maintenance of such data'' and for each price cap carrier to 
file a compliance plan with the Commission to that effect. We seek 
comment on this proposal.
    55. Legal Authority. Section 220 of the Act gives the Commission 
broad authority to establish a uniform system of accounts, while 
section 219 authorizes the Commission to require annual reports from 
carriers. These provisions are cited in Sec.  32.3 of our rules. 
Coupled with our clear authority to implement our statutory 
obligations, this appears to provide sufficient authority to make such 
changes as are being considered here. We seek comment on this view. 
Would any of the proposals made herein require revisions to Sec.  32.3? 
Also, would anything proposed herein require us to invoke, or be more 
readily achievable if we invoke, our section 10 forbearance authority?

IV. Procedural Matters

A. Ex Parte Rules--Permit-but Disclose

    56. The proceeding the NPRM initiates shall be treated as a 
``permit-but-disclose'' proceeding in accordance with the Commission's 
ex parte rules. Information regarding these rules is in the full copy, 
which may be accessed at the following Internet address: https://www.fcc.gov/document/fcc-seeks-comment-streamlining-telephone-co-accounting-rules.

B. Comment Filing Procedures

    57. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415, 1.419, interested parties may file comments and 
reply comments on or before the dates indicated on the first page of 
this document. Information regarding these rules is in the full copy, 
which may be accessed at the following Internet address: https://www.fcc.gov/document/fcc-seeks-comment-streamlining-telephone-co-accounting-rules.

C. Initial Regulatory Flexibility Analysis

    58. As required by the Regulatory Flexibility Act of 1980 (RFA), 
the Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities of 
the policies and rules proposed in this Notice of Proposed Rulemaking. 
The analysis is found in the Appendix of the full copy, which may be 
accessed at the following Internet address: https://www.fcc.gov/document/fcc-seeks-comment-streamlining-telephone-co-accounting-rules. 
We request written public comment on the analysis. Comments

[[Page 54949]]

must be filed by the same dates as listed in the first page of this 
document, and must have a separate and distinct heading designating 
them as responses to the IRFA. The Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, will send a 
copy of the NPRM, including the IRFA, to the Chief Counsel for Advocacy 
of the Small Business Administration.

D. Paperwork Reduction Analysis

    59. This document contains proposed new information collection 
requirements. The Commission, as part of its continuing effort to 
reduce paperwork burdens, invites the general public and the Office of 
Management and Budget (``OMB'') to comment on the information 
collection requirements contained in this document, as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. In addition, 
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 
107-198, see 44 U.S.C. 3506(c)(4), we seek specific comment on how we 
might ``further reduce the information collection burden for small 
business concerns with fewer than 25 employees.''

V. Ordering Clauses

    60. Accordingly, IT IS ORDERED that pursuant to sections 1, 10, 
201(b), 219-220, 224, 254(k), 272(e)(3), 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 160, 201(b), 
219-220, 224, 254(k), 272(e)(3), 303(r), 403, the NOTICE OF PROPOSED 
RULEMAKING is hereby ADOPTED.
    61. IT IS FURTHER ORDERED that the Commission's Consumer 
Information Bureau, Reference Information Center, SHALL SEND a copy of 
the NOTICE OF PROPOSED RULEMAKING, including the Initial Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2014-21983 Filed 9-12-14; 8:45 am]
BILLING CODE 6712-01-P