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

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32, 43, and 64

[CC Docket No. 99-253; FCC 99-174]

Comprehensive Review of the Accounting Requirements and ARMIS

Reporting Requirement for Incumbent Local Exchange Carriers: Phase 1

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Commission is initiating a comprehensive

review of its accounting and reporting requirements. In this

comprehensive review, we plan to reevaluate our existing accounting and

reporting requirements to determine whether they should be modified or

eliminated as changes occur in the industry. We also consider the

appropriate timing of accounting and reporting changes to assure that

we will continue to have the information we need to make informed

decisions.

DATES: Interested parties may file written comments on the proposed

information collections by August 23, 1999 and reply comment on or

before September 9, 1999. Written comments must be submitted by the

Office of Management and Budget (OMB) on the proposed information

collections on or before October 18, 1999.

ADDRESSES: Office of the Secretary, Room TW-B204, Federal

Communications Commission, 445 12th Street, NW., Washington, DC 20554.

In addition to filing comments with the Secretary, a copy of any

comments on the information collections contained herein should be

submitted to Judy Boley, Federal Communications Commission, Room 1-

C804, 445 12th Street, NW., Washington, DC 20054, or via the Internet

to [email protected], and to Timothy Fain, OMB Desk Officer, 10236 NEOB,

725-17th Street, NW., Washington, DC 20503 or via the Internet to

[email protected].

FOR FURTHER INFORMATION CONTACT: Mika Savir, Accounting Safeguards

Division, Common Carrier Bureau, (202) 418-0384 or Andy Mulitz,

Accounting Safeguards Division, Common Carrier Bureau, (202) 418-0850.

For additional information concerning the information collections

contained in this NPRM contact Judy Boley at 202-418-0214, or via the

Internet at [email protected].

SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's Notice of Proposed Rulemaking

(NPRM), CC Docket 99-253, adopted on July 13, 1999, and released on

July 14, 1999. It has been submitted to the Office of Management and

Budget (OMB) for review under the PRA. OMB, the general public, and

other Federal agencies are invited to comment on the proposed

information collections contained in this proceeding. The full text of

the NPRM is available for inspection and copying during normal business

hours in the FCC Reference Center (Room CY-A257), 445 12th Street NW.,

Washington, DC 20554. The complete text may also be purchased from the

Commission's copy contractor, International Transcription Service,

Inc., 1231 20th Street, Washington, DC 20036, telephone (202) 857-3800.

OMB Approval No.: None.

Title: Comprehensive Review of the Accounting Requirements and

ARMIS Reporting Requirements for Incumbent Local Exchange Carriers:

Phase 1, CC Docket No. 99-253 (NPRM).

Form No.: FCC Report 43-02.

Type of Review: New Collections.

Respondents: Business or other for profit.

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Estimated

Title No. of hours per Total annual

respondents response burden

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Uniform Systems of Accounts..................................... 239 9540 2,280,080

Annual Auditors Attestations.................................... 19 268 5,100

ARMIS USOA Report............................................... 52 284 14,770

Allocation of Cost, Cost Allocation Manual...................... 18 300 10,800

Implementation of the Telecommunications Act of 1996: Accounting 20 24 480

Safeguards Under the Telecommunications Act of 1996 (Affiliate

Transaction Only)..............................................

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Total Annual Burden: 2,311,230.

Estimated Costs Per Respondent: $1,200,000.

Needs and Uses: In CC Docket No. 99-253, the Commission is

initiating a comprehensive review of its accounting and reporting

requirements. The Commission seeks comment on its proposals to reduce

or further streamline its recordkeeping requirements for common

carriers, audit requirements for the large incumbent LECs and reduce

filing requirements of accounting record changes on the part of

affected common carriers. The information is needed so that the

Commission can fulfill its statutory responsibilities and obligations.

Summary of Notice of Proposed Rulemaking

We are performing this comprehensive review in two phases. Phase 1,

which commences with this Notice of Proposed Rulemaking (NPRM) and will

conclude by the end of the year, will address accounting and reporting

reform measures that can be implemented without delay and still retain

sufficient information for the Commission and state commissions to meet

their responsibilities. Phase 2, which will begin in the last quarter

of 1999, will examine the current accounting and reporting structure

and address long-term changes needed as local exchange markets become

competitive. During this process, the Common Carrier Bureau will

continue to work closely with the National Association of Regulatory

Utility Commissioners (NARUC) and state commissioners so that, in

addition to eliminating unnecessary reporting requirements, the

Commission and states will focus on further steps necessary to

eliminate unnecessary

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overlap of Federal and state reporting requirements.

In this first phase of the comprehensive review, we seek comment on

the following accounting issues: eliminating or revising the matrix

used to classify expenses in the Uniform System of Accounts (USOA);

reducing the audit burdens on incumbent local exchange carriers

(ILECs); adopting a de minimis exception to our affiliate transactions

rules; eliminating the 15-day prefiling for cost pool changes;

eliminating the notifications and approvals required in

Secs. 32.13(a)(3) and 32.25; and revising the accounting requirements

for Secs. 32.2002 and 32.2003. In addition, we seek comment on

streamlining the reporting requirements in the ARMIS 43-02 USOA Report.

Specifically, we seek comment on eliminating certain corporate

information collected in the ``C'' series tables and on consolidating

certain information into one table. We also seek comment on eliminating

certain information concerning balance sheet accounts reported in the

``B'' series tables and income statement accounts reported in the ``I''

series tables.

A. Accounting Rules

1. Expense Matrix

Section 32.5999(f) of the Commission's rules requires carriers to

maintain disaggregated financial data in subsidiary record categories

to be reported in an expense matrix. The Commission uses the detailed

data contained in the carriers' expense subsidiary record categories in

performing studies and trend analyses, and in its overall monitoring

efforts. The additional information provided by the expense matrix

helps the Commission analyze a carrier's expenses. In particular, the

Commission has relied heavily upon the salaries and wages and rent data

detailed in the expense matrix. For example, when the Financial

Accounting Standards Board (FASB) promulgated new accounting standards

for post-employment benefits and post-retirement benefits other than

pensions, the Commission used the salaries and wages data in its

analysis of the reasonableness of carrier projections related to

implementation of the new accounting standards. The Commission also

uses the salaries and wages data in calculating productivity factors

used to adjust price cap indices. This expense data would be needed for

future productivity studies if the price cap formula is revised.

Expense matrix data is also used in tracking the salaries and wages and

rents portion of maintenance expense in the analysis of service

quality. Furthermore, carriers, competitors, and the Commission use the

pole rents information detailed in the expense matrix in the formula to

calculate carriers' pole attachment rates.

We tentatively conclude that we can eliminate the expense matrix or

reduce it to the minimum amount necessary to meet other regulatory

purposes. We believe that this information could be provided by the

carriers on an as-needed basis even if the Commission did not prescribe

it to be maintained. We seek comment on this tentative conclusion.

Commenters should discuss whether it would be more burdensome to

maintain and file the expense matrix or to keep such data, at the same

level of disaggregation, for several years, to provide to the

Commission if requested. We seek comment on whether, as an alternative,

the reporting burden would be alleviated by reducing the expense matrix

to two classifications: (1) salary and wages and (2) other. Commenters

should specifically address whether this would affect the analysis of

the price cap performance/productivity factor calculations. In

addition, we seek comment on whether, and how, elimination of the

expense matrix would affect the jurisdictional separations process,

universal service support calculations, or service quality studies.

In the Accounting Reductions Report and Order, FCC No. 99-106,

released June 30, 1999, we required mid-sized ILECs to maintain

subsidiary record categories to capture the pole attachment data

currently provided in the Class A accounts. We believe it is necessary

to require subsidiary records for data needed in pole attachment

formulas to assure that the data is publicly available, uniformly

maintained among the carriers, and maintained in a manner that can be

audited. We propose that, if the expense matrix is eliminated, carriers

maintain subsidiary records to provide the data used in the pole

attachment formulas and report in their ARMIS reports the information

necessary for the Commission, carriers, and competitors to calculate

pole attachment rates. We seek comment on this proposal.

2. Audits

The Commission has established accounting safeguards governing the

allocation of costs between the carriers' regulated and nonregulated

activities. These safeguards are designed to promote fair cost

allocations and to protect regulated ratepayers from absorbing the

costs of nonregulated activities. One of the accounting safeguards,

prescribed in Sec. 64.904 of the Commission's rules, is that carriers

obtain an independent audit of reported cost allocation data. Before

adoption of the Accounting Reductions Report and Order, our rules

required that the audit be performed annually for ILECs required to

file cost allocation manuals, that it provide a positive opinion, that

the reported data is presented fairly in all material respects, and

that it be conducted in accordance with generally accepted auditing

standards.

In the Accounting Reductions Report and Order, we revised the audit

requirement for mid-sized ILECs. Under rules adopted in that Order,

mid-sized ILECs are required to obtain a less stringent attestation

every two years (covering the prior two year period) instead of an

annual financial audit requiring a positive opinion. The financial

audit requires that an ILEC's independent auditor provide assurance

that the reported data are fairly reported. An attestation requires

that the auditor provide assurance that specific management assertions

are fairly stated. An attestation generally provides less assurance and

is governed by less stringent standards of testing, reporting, and

expression of opinion than the financial audits required by Sec. 64.904

for large ILECs.

We tentatively conclude that, if properly implemented, a less

stringent audit requirement for the large ILECs will provide the

necessary assurance that the carriers' cost allocations are consistent

with our rules and at the same time result in significant savings in

both time and money for the carriers. We note that in other instances

the Commission requires something less than a positive opinion audit.

For example, we have new audit requirements specifically for Sec. 272

affiliates. Section 272 of the Act permits a BOC to manufacture

equipment, originate in-region, interLATA telecommunications services,

and provide interLATA information services only if it does so through

one or more separate affiliates. The BOC and its affiliate(s) must,

among other things, obtain a joint Federal/State audit every two years

conducted by an independent auditor. Our rules require that the

independent auditor perform an agreed-upon procedures engagement as

specified by the regional Federal/State biennial oversight team.

We tentatively conclude that we can reduce our audit requirements

for the large ILECs--the BOCs and GTE--by extending the same audit

requirements to the large ILECs that we adopted for mid-sized ILECs in

the Accounting Reductions Report and Order, i.e.,

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allowing carriers to obtain an attestation, instead of an annual

financial audit requiring a positive opinion. We seek comment on this

tentative conclusion. Furthermore, we seek comment on whether we should

adopt an audit requirement similar to the Sec. 272 biennial audit, an

agreed-upon procedures engagement, for the large ILECs. Commenters

should discuss whether these alternatives would provide the necessary

assurance that the reported cost allocation data is an accurate

reflection of the carrier's CAM and the Commission's rules. Commenters

should also discuss any other alternatives to an annual financial audit

requiring a positive opinion. In addition, commenters should address

whether the new audit procedure should be an annual requirement.

3. Affiliate Transactions Rules

In the Accounting Safeguards Order, 62 FR 02918 (January 21, 1997)

the Commission amended the affiliate transactions rules for services

provided by a carrier to its affiliate and services received by a

carrier from its affiliate that are not subject to: (1) an existing

tariff rate, (2) a publicly-filed agreement or statement, or (3) a

qualified prevailing price valuation. Services provided by a carrier to

its affiliate must be recorded at the higher of fair market value or

fully distributed cost. Services received by a carrier from its

affiliate must be recorded at the lower of fair market value or fully

distributed cost. The Commission further required carriers to make a

good faith determination of fair market value in those instances when a

fair market value was not readily available so that the carrier could

assign the appropriate value to the service when recording its value

under the affiliate transactions rules.

Based on our experience enforcing these requirements over the past

two years, we tentatively conclude that when the total annual value of

transactions for that service is de minimis, the regulatory benefits of

requiring carriers to make a good faith determination of the fair

market value of a service are outweighed by the administrative cost and

effort of making such a determination. We tentatively conclude that

such a de minimis exception will not lessen the effectiveness of the

Commission's affiliate transactions rules, and at the same time, will

reduce the burden associated with the requirement that carriers make a

good faith determination of fair market value. We, therefore, propose

to eliminate the requirement that carriers make a good faith

determination of fair market value for each service in which the total

annual value of transactions for that service is less than $250,000. We

propose that in such cases the service should be recorded at fully

distributed cost, and carriers should continue to report such

transactions in their cost allocation manuals and ARMIS reports.

We seek comment on our proposals and tentative conclusions. We also

seek comment on whether a different threshold should serve to delineate

the de minimis treatment. Commenters proposing a different threshold

should explain why their proposed threshold should be higher or lower

than $250,000. In addition, commenters should address whether affiliate

transaction services conducted pursuant to Secs. 260, and 271-276 of

the Act should be included in the services eligible for the de minimis

exception.

4. Elimination of 15-Day Prefiling for Cost Pool Changes

Section 64.903 of the Commission's rules requires that carriers

update their CAMs at least annually except that changes to the cost

apportionment table and time-reporting procedures must be filed at

least 15 days before the carrier plans to implement changes. Once a CAM

change has been filed, the Chief, Common Carrier Bureau may suspend any

such changes for a period not to exceed 180 days, and may thereafter

allow the change to become effective. BellSouth claims that the 15-day

special filing requirement for changes in cost pools discloses

sensitive competitive service information. We tentatively conclude that

we should eliminate the 15-day pre-filing requirement in order to

eliminate any disclosure of sensitive data in advance of implementation

of a service. If we adopt this proposal, carriers would file the

necessary CAM changes contemporaneous with the implementation of the

change. We seek comment on this tentative conclusion.

5. Revision to Section 32.13, Accounts--General

Section 32.13(a)(3) of the Commission's rules permits carriers to

establish temporary or experimental accounts provided they notify the

Commission of the nature and purpose of the accounts within 30 days of

establishing them. This requirement was adopted to allow the Commission

to review the nature of the proposed temporary or experimental accounts

prior to the effective date. Carriers use these temporary accounts as

clearing accounts, which are closed each financial period and do not

alter the Part 32 accounting structure. We tentatively conclude that

this 30-day notification is not necessary because other accounting

safeguards, such as ARMIS reporting and our audit program, together

with our ability to obtain additional information as necessary, are

sufficient for our regulatory oversight. Accordingly, we propose to

modify Sec. 32.13(a)(3) by eliminating the notification requirement. We

seek comment on our tentative conclusion and proposal.

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

Section 32.25 of the Commission's rules requires carriers to submit

journal entries detailing extraordinary items, contingent liabilities,

and material prior period adjustments for Commission approval before

recording them in their books of account. This requirement was

established as a safeguard to prevent carriers from inflating their

rate base through the use of accounting adjustments. We tentatively

conclude that prior Commission review of journal entries is not

necessary for the Commission's regulatory oversight, and that other

accounting safeguards, such as the ARMIS reporting and our audit

program, together with our ability to obtain additional information as

necessary, are sufficient to assure that carriers will comply with our

accounting requirements. We tentatively conclude, therefore, that it is

no longer necessary to require the routine filing of these journal

entries. Accordingly, we propose to eliminate the Sec. 32.25 filing

requirement. We seek comment on our tentative conclusion and proposal.

7. Revision to Section 32.2002, Property Held for Future

Telecommunications Use

Section 32.2002 of the Commission's rules requires that carriers

record to Account 2002 the costs of property held for no longer than

two years under a definite plan for use in telecommunications service.

After two years, Sec. 32.2002 requires that the carrier reclassify the

cost of the property to Account 2006, Nonoperating plant. BellSouth

states that this reclassification is burdensome and that the property

could remain recorded in Account 2002, but be removed from the ratebase

in a less burdensome manner. We tentatively conclude that we should

allow carriers to maintain the costs in Account 2002 but we should

require carriers to exclude the cost of such property, and the

associated depreciation reserve, from the ratebase. The depreciation

expense associated with such property should also be excluded from

ratemaking considerations. These

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amounts would be reported in the ARMIS 43-01, column (e) All Other

Adjustments and ARMIS 43-03, column (l) Other Adjustments. We believe

that adoption of this tentative conclusion will provide the same

protection for ratepayers while alleviating the burden on carriers to

reclassify these costs to Account 2006. We seek comment on this

tentative conclusion.

8. Revisions to Section 32.2003, Telecommunications Plant Under

Construction

Section 32.2003 of the Commission's rules requires that carriers

record to Account 2003 the original cost of construction projects

including all related direct and indirect costs as provided under

Sec. 32.2000(c). If the construction project has been suspended for six

months or more, the cost of the project must be reclassified to Account

2006, Nonoperating plant. If the project is eventually abandoned, these

costs must be charged to Account 7370, Special charges. BellSouth

states that this reclassification is burdensome and that the property

could remain recorded in Account 2003 but be excluded from the ratebase

in a less burdensome manner. We tentatively conclude that carriers be

permitted to maintain the costs in Account 2003 and that carriers be

required to remove the cost of suspended projects after six months from

the ratebase. Additionally, carriers would be required to discontinue

capitalization of allowance for funds used during construction under

Sec. 32.2000(c)(2)(x) until construction is resumed. These amounts

would be reported in the ARMIS 43-01, column (e) All Other Adjustments

and ARMIS 43-03, column (l) Other Adjustments. Carriers would still

charge Account 7370 if the project were abandoned. We believe that

adoption of this tentative conclusion will provide the same protection

for ratepayers while alleviating the burden on carriers to

reclassifying these costs to Account 2006. We seek comment on this

tentative conclusion.

B. ARMIS Reporting Requirements

1. Reductions to ARMIS 43-02 USOA Report

In the ARMIS 43-02 USOA Report, carriers report their annual

operating results for every account in the USOA. The USOA contains both

balance sheet and income statement accounts which report the results of

operational and financial events. Information provided by these

accounts is used to review the overall investment and expense levels,

affiliate transactions, property valuation, and depreciation rates of

regulated carriers. The ARMIS 43-02 USOA Report contains a total of 27

tables, and is one of the most voluminous reporting requirements in

ARMIS. The tables are set out in three series: (1) the ``C'' series,

which includes 5 tables that provide corporate information; (2) the

``B'' series, which includes 15 tables that provide information about

the balance sheet accounts of the carrier; and (3) the ``I'' series,

which includes 7 tables that provide information about the carriers'

income and expenses.

In light of the objectives we seek to achieve in Phase 1 of our

comprehensive review, we are proposing significant reductions in

reporting requirements in the ARMIS 43-02 USOA Report for the largest

ILECs. For the reasons discussed below, we tentatively conclude that

the filing burden imposed on the largest ILECs by ARMIS 43-02 USOA

Report should be reduced by eliminating the requirement to file 14 of

27 tables, adding one short-form table, and changing the threshold

level of reporting required in 3 of the remaining 13 tables. We propose

eliminating or modifying the reporting requirements for the following

tables: C-1 (Identity of Respondent); C-2 (Control Over Respondent); C-

3 (Board of Directors and General Officers); C-4 (Stockholders); C-5

(Important Changes During the Year); B-8 (Capital Leases); B-9

(Deferred Charges); B-11 (Long-Term Debt); B-12 (Net Deferred Income

Taxes); B-13 (Other Deferred Credits); B-14 (Capital Stock); and B-15

(Capital Stock and Funded Debt Reacquired or Retired During the Year);

I-3 (Pension Costs); I-4 (Operating Other Taxes); I-5 (Prepaid Taxes

and Accruals); I-6 (Special Charges); and I-7 (Donations or Payments

for Services Rendered by Persons Other Than Employees).

We seek comment generally on our tentative proposal to streamline

the ARMIS 43-02 USOA Report for the largest ILECs. Specifically, we

seek comment on whether alternative sources of information would

provide sufficient protection against the potentially anti-competitive

practices we identified in the ARMIS Reductions Report and Order, FCC

No. 99-107, released June 30, 1999. For instance, we believe that much

of the information contained in the series ``C'' tables can be obtained

from the carrier's Form 10-K Annual Report filed with the Securities

and Exchange Commission (SEC), as well as in other publicly available

reports. We also believe that, to a large extent, balance sheet and

income statement information reported in the series ``B'' and ``I''

tables may be obtained from underlying source data and can be readily

provided by the carrier upon request. Although we continue to believe

that access to information is crucial for our processes as well as for

the state commissions, we believe access to this information may be

more efficiently obtained through other sources. We also believe that

the need for obtaining certain data on a regular basis may not be so

vital to regulatory mandates as to outweigh the burden imposed on the

ILECs in reporting this information. We seek comment on these overall

tentative conclusions.

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

The ``C'' series tables of the ARMIS 43-02 USOA Report include five

tables containing carrier and stockholder information. We believe we

could reduce the burdens imposed on the carriers by modifying these

tables. We believe that most of the data contained in C-1 (Identity of

Respondent), C-2 (Control Over Respondent), and C-4 (Stockholders), are

available in public filings. Our experience suggests that routine

filing of information contained in C-3 (Board of Directors and General

Officers) may not be needed if the information is made available upon

request. We tentatively conclude that because carriers must publicly

file most of the information in these tables with the SEC in their Form

10-K Annual Reports, which are available on the Internet, and because

we may request and obtain this information as necessary, streamlining

these reporting requirements will not impair our ability to perform

necessary oversight functions but will reduce the filing burden on

large ILECs. Certain basic information contained in these reports,

however, may be needed for purposes of efficiency in administering and

managing the database. Thus, we tentatively propose to consolidate all

basic information into one table, which would generally provide

information on the carrier's name, carrier's address, operating states,

and executive officers. We seek comment on these proposals and

tentative conclusions.

Table C-5 (Important Changes During the Year) provides information

on significant events, such as extensions of systems, substantial

portions of property sold, changes in direct and indirect control of

the carrier, important contracts or agreements entered into, and

important changes in service and rate schedules. We believe the

reporting requirements for table C-5 could be streamlined by

eliminating the requirement to report certain information. For

instance, we believe

[[Page 44881]]

that the data reported on changes in direct and indirect control may no

longer be needed on a recurring basis. We believe this information may

be available in the carrier's Form 10-K Annual Reports or in the

carrier's cost allocation manuals, and where necessary, could be

obtained from the carrier upon request. Thus, we tentatively conclude

that the reporting requirements concerning changes in direct and

indirect control of the carrier be eliminated. We seek comment on this

tentative conclusion and proposal to modify table C-5 in this manner.

We also believe that the information collected in table C-5 could be

reduced further by collecting information only where the change

involves a significant or material change. Thus, we seek comment on

whether we should adopt a threshold amount for items reported in table

C-5 (such as important contracts or agreements entered into, or

important changes in service and rate schedules), and if so, what an

appropriate threshold level would be. We seek comment on the above

proposals for streamlining table C-5 reporting requirements.

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

The ``B'' series tables contain data about the balance sheet

accounts. Table B-1 (Balance Sheet) and Table B-2 (Statement of Cash

Flows) are basic financial statements that are essential to our

analysis of a carrier's financial condition. Several other supporting

tables are important in our analysis of investment in and transactions

with affiliates and in evaluating carrier depreciation reserves. We are

not proposing changes in these tables. We believe, however, that

several other tables in the ``B'' series need not be routinely reported

as long as we have continued access to the underlying data and source

documents supporting these tables. Further, we believe that the

carrier's own accounting practices, which are governed by standard

accounting practices and procedures and subject to internal and

external audits, should assure that these accounts are properly

maintained. Thus, we propose to eliminate the following ``B'' tables:

B-8: (Capital Leases); B-9 (Deferred Charges); B-11 (Long-Term Debt);

B-12 (Net Deferred Income Taxes); B-13 (Other Deferred Credits); B-14

(Capital Stock); and B-15 (Capital Stock and Funded Debt Reacquired or

Retired During the Year). We seek comment on these tentative

conclusions and proposals. We are concerned that we not eliminate

information that may be needed to carry out our responsibilities. We

ask parties to address this concern and whether information concerning

these accounts are readily available from other sources, such as in the

carrier's Annual 10-K Report or through other internal records. We also

ask parties to identify specific needs for this information and whether

alternative sources of information provide sufficient level of detail

to meet these needs.

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

We have also examined the continuing need for routine reporting of

information contained in the ``I'' series tables, specifically I-3

(Pension Costs); I-4 (Operating Other Taxes); and I-5 (Prepaid Taxes

and Accruals). For the reasons stated above with respect to the

accounts reported in the ``B'' series, we tentatively conclude that

carriers should no longer be required to report the information

required in tables I-3, I-4, and I-5 annually to the Commission. We

believe that as long as we have continued access to underlying data and

source documents supporting these tables, this information can be

obtained from the ILECs on an as-needed basis. We seek comment on these

tentative conclusions and proposals.

Our review of table I-6 (Special Charges) finds that the

information reported in this table continues to be essential. Data

reported in this table are below-the-line amounts, i.e., are not an

allowable expense to be charged against regulated revenues. Special

Charges reported on this table include lobbying expenses, membership

fees and dues, abandoned construction projects amounting to $100,000 or

more, penalties and fines amounting to $100,000 or more, and

charitable, social, or other community welfare expenses. We find it

necessary to maintain routine reporting of these items to ensure that

these expenses, especially if material, are properly recorded on the

ILECs' books. The $100,000 reporting threshold, however, for reporting

abandoned construction projects, penalties and fines may be relatively

immaterial in light of the strong revenue growth since the outset of

ARMIS in 1989. We seek comment, therefore, on whether the reporting

threshold should be raised to a higher amount and, if so, what amount

to establish as the reporting threshold.

Similarly, our review finds that information reported in table I-7

(Donations or Payments for Services by Persons Other than Employees)

continues to be essential for regulatory monitoring purposes to ensure

that material costs claimed against regulated revenues are appropriate.

The information reported in table I-7 requires that carriers report all

amounts paid to academia; amounts exceeding $250,000 paid for

advertising and information services, clerical and office services,

computer and data processing services, personnel services, printing and

design services, and security services; amounts exceeding $25,000 paid

for audit and accounting services, consulting and research services,

financial services, and legal services; and amounts exceeding $10,000

for membership fees and dues. Again, in light of the tremendous growth

in ILEC revenues, the reporting thresholds may now be too low. We seek

comment, therefore, on whether the reporting thresholds for each of the

above mentioned payments to outside vendors should be raised to a

higher amount and, if so, what amounts to establish as the reporting

thresholds.

IV. Procedural Issues

A. Ex Parte Presentations

This is a permit but disclose rulemaking proceeding. Ex parte

presentations are permitted, except during the Sunshine Agenda period,

provided that they are disclosed as provided in the Commission's rules.

See generally 47 CFR 1.1202, 1.1203, and 1.1206.

B. Final Regulatory Flexibility Certification

The Regulatory Flexibility Act (RFA) requires that an initial

regulatory flexibility analysis be prepared for notice-and-comment

rulemaking proceedings, unless the agency certifies that ``the rule

will not, if promulgated, have a significant economic impact on a

substantial number of small entities.'' The RFA generally defines

``small entity'' as having the same meaning as the terms ``small

business,'' ``small organization,'' and ``small governmental

jurisdiction.'' In addition, the term ``small business'' has the same

meaning as the term ``small business concern'' under the Small Business

Act. A small business concern is one which: (1) is independently owned

and operated; (2) is not dominant in its field of operation; and (3)

satisfies any additional criteria established by the Small Business

Administration (SBA).

This Notice of Proposed Rulemaking proposes to eliminate or revise

the matrix used to classify expenses in the Uniform System of Accounts

(USOA); reduce the audit burdens on incumbent local exchange carriers

(ILECs); adopt a de minimis exception to the Commission's affiliate

transactions rules; eliminate the 15-day prefiling for

[[Page 44882]]

cost pool changes; eliminate the notifications and approvals required

in Secs. 32.13(a)(3) and 32.25; and revise the accounting requirements

for Secs. 32.2002 and 32.2003. In addition, with respect to ARMIS

reporting requirements, the Notice of Proposed Rulemaking seeks comment

on eliminating certain corporate information collected in the ``C''

series tables and on consolidating certain information into one table.

The Notice of Proposed Rulemaking also seeks comment on eliminating

certain information concerning balance sheet accounts reported in the

``B'' series tables and income statement accounts reported in the ``I''

series tables.

Neither the Commission nor SBA has developed a definition of

``small entity'' specifically applicable to LECs. The closest

definition under SBA rules is that for establishments providing

``Telephone Communications, Except Radiotelephone,'' which is Standard

Industrial Classification (SIC) code 4813. Under this definition, a

small entity is one that, including affiliates of the entity, employs

no more than 1,500 persons. For the purpose of this present

certification we would assume that an ILEC can be characterized as non

dominant for the purpose of analysis under the Regulatory Flexibility

Act.

We certify that the proposals in this Notice of Proposed

Rulemaking, if adopted, will not have a significant economic impact on

a substantial number of small entities. Pursuant to long-standing

rules, ILECs with annual operating revenues equal to or exceeding the

indexed revenue threshold must comply with the Commission's record

keeping rules and CAM audit requirements. The Commission proposes to

reduce certain of these CAM and record retention requirements. These

changes should be easy and inexpensive for ILECs to implement and will

not require costly or burdensome procedures. We therefore expect that

the potential impact of the proposal rules, if such are adopted, is

beneficial and does not amount to a possible significant economic

impact on affected entities. If commenters believe that the proposals

discussed in the Notice require additional RFA analysis, they should

include a discussion of these issues in their comments.

The Commission's Office of Public Affairs, Reference Operations

Division, will send a copy of this Notice of Proposed Rulemaking,

including this initial certification, to the Chief Counsel for Advocacy

of the Small Business Administration. A copy will also be published in

the Federal Register.

C. Paperwork Reduction Act

This NPRM contains either a proposed or modified information

collection. As part of our continuing effort to reduce paperwork

burdens, we invite the general public to take this opportunity to

comment on information collections contained in this Notice of Proposed

Rulemaking, as required by the Paperwork Reduction Act of 1995, Public

Law 104-13. Public and agency comments are due at the same time as

other comments on this Notice of Proposed Rulemaking. Comments should

address: (a) whether the proposed collection of information is

necessary for the proper performance of the functions of the

Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c)

ways to enhance the quality, utility, and clarity of the information

collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated

collection techniques or other forms of information technology.

D. Comment Filing Procedures

Pursuant to Secs. 1.415 and 1.419 of the Commission's rules, 47 CFR

1.415, 1.419, interested parties may file comments on or before August

23, 1999, and reply on or before September 9, 1999. Comments may be

filed using the Commission's Electronic Comment Filing System (ECFS) or

by filing paper copies.

Comments filed through the ECFS can be sent as an electronic file

via the Internet to http://www.fcc.gov/e-file/ecfs.html>. Generally,

only one copy of an electronic submission must be filed. If multiple

docket or rulemaking numbers appear in the caption of this proceeding,

however, commenters must transmit one electronic copy of the comments

to each docket or rulemaking number referenced in the caption. In

completing the transmittal screen, commenters should include their full

name, Postal Service mailing address, and the applicable docket or

rulemaking number. Parties may also submit an electronic comment by

Internet e-mail. To get filing instructions for e-mail comments,

commenters should send an e-mail to [email protected], and should include

the following words in the body of the message, ``get form '' A sample form and directions will be sent in reply.

Parties who choose to file by paper must file an original and four

copies of each filing. If more than one docket or rulemaking number

appear in the caption of this proceeding, commenters must submit two

additional copies for each additional docket or rulemaking number. All

filings must be sent to the Commission's Secretary, Magalie Roman

Salas, Office of the Secretary, Federal Communications Commission, 445

12th Street, S.W., Washington, D.C. 20554.

Parties who choose to file by paper should also submit their

comments on diskette. These diskettes should be submitted to: Ernestine

Creech, Accounting Safeguards Division, 445 12th Street, S.W.,

Washington, D.C. 20554. Such a submission should be on a 3.5 inch

diskette formatted in an IBM compatible format using WordPerfect 5.1

for Windows or compatible software. The diskette should be accompanied

by a cover letter and should be submitted in ``read only'' mode. The

diskette should be clearly labelled with the commenter's name,

proceeding (including the docket number, in this case CC Docket No. 99-

253, type of pleading (comment or reply comment), date of submission,

and the name of the electronic file on the diskette. The label should

also include the following phrase ``Disk Copy--Not an Original.'' Each

diskette should contain only one party's pleadings, preferably in a

single electronic file. In addition, commenters must send diskette

copies to the Commission's copy contractor, International Transcription

Service, Inc., 1231 20th Street, N.W., Washington, D.C. 20037.

Written comments by the public on the proposed information

collections are due on or before August 23, 1999. Written comments must

be submitted by the Office of Management and Budget (OMB) on the

proposed and/or modified information collections on or before October

18, 1999. In addition to filing comments with the Secretary, a copy of

any comments on the information collections contained herein should be

submitted to Judy Boley, Federal Communications Commission, Room 1-

C804, 445 12th Street, S.W., Washington, DC 20554, or via the Internet

to [email protected] and to Timothy Fain, OMB Desk Officer, 10236 NEOB,

725-17th Street, N.W., Washington, DC 20503 or via the Internet to

[email protected].

V. Ordering Clauses

Accordingly, it is ordered that, pursuant to the authority

contained in sections 4(i), 4(j), 11, 201(b), 303(r), and 403 of the

Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 161,

201(b), 303(r), and 403, this Notice of Proposed Rulemaking is adopted.

It is further ordered that the Commission's Office of Public

Affairs, Reference Operations Division, shall

[[Page 44883]]

send a copy of this Notice of Proposed Rulemaking, including the

Initial Regulatory Flexibility Certification, to the Chief Counsel for

Advocacy of the Small Business Administration, 5 U.S.C. 605(b).

List of Subjects

47 CFR Part 32

Communications common carriers, Reporting and recordkeeping

requirements, Telephone, Uniform System of Accounts

47 CFR Part 43

Communications common carriers, Radio, Reporting and recordkeeping

requirements, Telegraph, Telephone

47 CFR Part 64

Communications common carriers, Federal Communications Commission,

Radio, Reporting and recordkeeping requirements, Telegraph, Telephone

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 99-21402 Filed 8-17-99; 8:45 am]

BILLING CODE 6701-12-P