Lyn RogersHaney Director Federal Financial Compliance BellSouth

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Lyn Rogers-Haney Director Federal Financial
ComplianceBellSouth
NARUC Accounting Finance Subcommittee Septembe
r 16, 2003
Broadband Accounting Issues
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FCC Posses the Part 64 Question

• FCC Broadband proceeding asked what Part 64
  implications would be for status change of
  Broadband as deregulated.
• Part 64 triggered, absent a rule modification
• Allocation of Investment would have a significant
  negative impact upon deployment
• Discouraging deployment is contrary to public
  interest.

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Solution

• Part 64 should not be applied to broadband
  telecommunications
• Rate regulations changes Part 64 not necessary
  to ensure just, reasonable, non-discriminatory
  rates
• Universal Service regulation changes Part 64
  not necessary to meet 254(k) requirements

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Changes in Rate Regulation

• Part 64 Accounting Rules were based on existing
  voice Telephony in pre-1986 environment and have
  not changed.
• CC Docket 86-111 specifically states Rules are
  ROR based.
• Paragraph 40 the proper purpose of our cost
  allocation rules is to make sure that all of the
  costs of non-regulated activities are removed
  from the rate base and allowable expenses for
  interstate regulated services.

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Changes in Rate Regulation

• FCC anticipated Part 64 becoming obsolete
• Our existing Part 64 cost allocation rules were
  developed when all local exchange carriers were
  still subject to cost based, rate-of-return
  regulation. Today we rely upon price, rather than
  rate-of-return regulation to ensure that rates
  for interstate services of the largest incumbent
  local exchange carriers, including the BOCS are
  reasonable
• CC Docket 96-150

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Changes in Rate Regulation

• Price Cap Regulation Pricing Flexibility No
  link between recorded costs and prices
• LFAM eliminated
• CALLS access rates not based upon Accounting
  Reporting rules
• Below cost TELRIC pricing for UNEs

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254(k) and Universal Service

• 254(k) The Commission.shall establish any
  necessary cost allocation rules, accounting
  safeguards, and guidelines to ensure that
  services included in the definition of universal
  service bear no more than a reasonable share of
  the joint and common costs of facilities used to
  provide those services.
• FCC implementation via insertion in 64.901(c)
  without notice prior to Universal Service
  implementation.

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245(k) and Universal Service

• Universal Service is not Part 64 or 32 based
• - Contributions based upon Interstate Retail
  Revenue
• -Revenues under Price Caps are not Part 64 based
• - Distributions based upon hypothetical cost
  model, not actual costs
• Allocation of cost not necessary to prohibit
  competitive
• services being subsidized by non-competitive
  services.
• For large ILECs Price Cap rate regulation ensure
  these prices are not increased to offset prices
  of services not under Price Caps regulation.

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254(k) and Universal Service

• Other carriers provide broadband, are subject to
  254(k) and participate in Universal Service Fund
  . . . Not just ILECs.
• Any action taken must apply equally to all
  subject carriers.
• ILECs are not dominant broadband providers.
  Cable Modem providers are dominant broadband
  providers.

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Cost Allocation - NO small process

• Investment identification/ongoing expenses
• - Below retirement unit not readily accessible
• - Not every line is Broadband capable
• - Broadband capable - copper fiber
  configuration functions as well as related
  electronics
• For BellSouth less than 5 loops have activated
  DSL and smaller percentage for video Broadband.

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Two Options

• Two ways to avoid application of Part 64 to
  broadband
• Forbearance
• Accounting Rule Change existing FCC precedent

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Two Options

• Regulated accounting treatment has been allowed
  for services which are not subject to regulated
  pricing treatment or other types of regulation.
• These exceptions are covered in Part 32.23(a)
• To avoid unnecessary burdens of cost allocation a
  rule change for Part 32.23(a) can be made or a
  forbearance from Part 64.901 can be implemented
  for Broadband services.

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Proposed Rule Change

• Part 32.23(a) This section describes the
  accounting treatment of activities classified for
  accounting purposes as nonregulated.
  Preemptively deregulated activities insert
  except for broadband telecommunications, and
  activities (other than incidental activities)
  never subject to regulation will be classified
  for accounting purposes as nonregulated.
  Activities that qualify for incidental treatment
  under the policies of this Commission insert
  and broadband telecommunications will be
  classified for accounting purposes as regulated
  activities