WhyDom

On April 24, 2008, the FCC granted AT&T’s request for forbearance pursuant to Section 160 of in WC Docket No. 07-21 and 05-342 from accounting rules that assigned costs for the regional bell operating companies (RBOC).  The FCC’s cost assignment accounting rules were created to ensure that the monopoly regulated side of the RBOC business was not improperly subsidizing the unregulated side of the business - for example the wireless or Internet operations.  The rules were also used in rate of return regulation.  AT&T asked for relief from the requirements of various sections of the Telecommunications Act related to cost accounting including section 220(a)(2), section 32.23 (nonregulated activities), section 32.27 (transactions with affiliates), Part 64, Subpart I (allocation of costs), Part 36 (jurisdictional separations procedures), and Part 69, Subparts D and E (cost apportionment).  

The rules assign or allocate the common costs used to build and maintain the network, and allocate the revenues received by regulated or nonregulated services, by  intrastate or interstate jurisdiction, and by service categories.  Part 32 of the rules describes the Uniform System of Accounts (USOA).  Part 64 of the rules, adopted in 1969, imposes the federal and state separations rules on the incumbents.  Part 69 of the rules, adopted in 1983, provides for formulas for determining access charges between local exchange companies and interexchange carriers.  The forbearance order was conditioned on AT&T making available accounting data as requested by the FCC in the future but relieved AT&T from the requirement to maintain separate cost accounting from April 24, 2008 forward.

The Commissioners voted along party lines for and against the forbearance.  Republican Commissioners Martin, Tate, and McDowell voted for forbearance.  Democratic Commissioners Copps and Adelstein voted against forbearance and issued a dissenting statement.  Commissioner Tate in her statement noted that because price caps had been in place since 1991, there was no need for the cost allocation rules.  She also noted that the FCC was not preempting the states to obtain accounting information for their own regulatory purposes.  Commissioner McDowell in his statement focused on increased competition stating that because voice communication was moving from a TDM world to an Internet VoIP technology the need for cost accounting should likewise diminish.  He also noted that even though cost accounting was in place to prevent anti-competitive behavior, no party had filed complaints regarding improper cost accounting in several years.  In addition, he stated that the FCC had the power at any time to require the production of cost accounting from the incumbents. 

Citing Enron and WorldCom type accounting problems, the dissenting Democratic Commissioners explained in their dissent that this was not time to remove cost accounting rules because “more information—not less—is what is needed to promote competition, consumer confidence, [and] investor security.”  They also stated that the system of accounts provides both state and federal regulators with the information they need for their oversight responsibilities to ensure that the rates charged by the incumbents are not unjust or unreasonable.  The cost allocation rules were relied on as recently as 2007 to justify a new regulatory framework for the incumbent’s in-region long distance business to ensure that there was no improper cost shifting or anticompetitive discrimination.  The dissenting Commissioners also questioned the concept of sweeping away the cost allocation rules for one company without holding a more comprehensive, industry wide rulemaking since there are five other forbearance requests coming due during the year. One may question what will happen in nine months from now to reverse forbearance if a Democratic White House is elected and the party lines shift at the Commission.   Certainly, the forbearance orders could be over turned by re-imposing the cost allocation rules as the Commission made it a condition in the April 24, 2008 order that it could require cost accounting for future regulatory matters.