******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Aliant Communications Co. Petition for ) AAD No. 96-131 Waiver of Section 32.27(c) of the ) Commission's Rules ) ) ORDER Adopted: December 24, 1997 Released: December 24, 1997 By the Chief, Accounting and Audits Division: I. INTRODUCTION AND BACKGROUND 1. On July 1, 1996, Aliant Communications Co. (formerly Lincoln Telephone and Telegraph Company, hereinafter "Aliant"), filed a petition for waiver of Section 32.27(c) of the Commission's Rules to record the transfer of cellular and paging assets from Aliant to an affiliated company at net book cost, rather than at fair market value. In response to questions raised by the Commission, additional correspondence was submitted. On January 2, 1997, the Bureau solicited comments on Aliant's petition. No comments were filed. For the reasons discussed below, we deny Aliant's waiver request. 2. Aliant is an incumbent local exchange carrier that also provides wireless services. Aliant is the licensee of the wireline cellular station serving the Lincoln, Nebraska Metropolitan Statistical Area and the licensee of five common carrier paging stations. Its nonregulated affiliate, Nebraska Cellular Telephone Corporation ("NCTC"), provides cellular service throughout Nebraska. NCTC is the licensee in all 10 Rural Statistical Areas ("RSA") within Nebraska and conducts the day-to-day operation of all of the Nebraska RSAs. Lincoln Telecommunications Company ("LTC"), Aliant and NCTC's parent company, intends to transfer Aliant's cellular and paging licenses to NCTC in order to consolidate its wireless holdings into a single operation. 3. Section 32.27 of the Commission's rules prescribes how a carrier must record affiliate transactions in its books of account. Section 32.27(c) governs the valuation of assets transferred from the regulated accounts of the carrier to a nonregulated affiliate. This rule requires that a carrier record asset transfers at tariffed rates if such a rate exists or at the prevailing market rate held out to the general public. For asset transfers that are neither tariffed nor subject to a prevailing market rate, the rule requires a carrier to record all such transfers at the higher of net book cost or estimated fair market value when the carrier is the seller, and at the lower of net book cost or estimated fair market value when the carrier is the purchaser. II. THE PETITION 4. Aliant requests a waiver of Section 32.27(c) so that it may record the transfer of cellular and paging assets to NCTC at net book cost, rather than at fair market value. Aliant contends that the circumstances surrounding its transfer merit a departure from the rule because recording the transfer at net book cost would be in the public interest and would result in a more accurate portrayal of the actual financial transaction. Specifically, Aliant explains that the transfer of the cellular and paging assets to NCTC will result in a more cost-effective operation. III. DISCUSSION 5. The Commission's rules state that waiver of sections of Part 32 may occur on a written request from a telecommunications company, provided that the waiver is in the public interest, and each request for waiver expressly demonstrates that: (1) existing peculiarities or unusual circumstances warrant a departure from a prescribed procedure or technique; (2) a specifically defined alternative will result in a substantially equivalent or more accurate portrayal of operating results or financial conditions, consistent with the principles of Part 32; and, (3) the application of such alternative procedure will maintain uniformity in substantive results among telecommunication companies. For the reasons set forth below, we find that Aliant has not made a case that warrants a waiver to record the transfer of assets at net book cost, rather than at fair market value. 6. Aliant's argument that transferring its wireless assets to an affiliate would serve the public interest is irrelevant because such transfers are mandated by the Commission. Subsequent to Aliant's filing of the petition for waiver, the Commission recently noted that a local exchange carrier ("LEC") must provide its in-region CMRS through a separate corporate affiliate and that a LEC's transactions with its CMRS affiliate should be subject to the Commission's joint cost and affiliate transaction rules. Our affiliate transaction rules specifically require that valuation of assets transferred from regulated accounts to non-regulated affiliates be recorded at the higher of net book cost or fair market value. 7. Aliant fails to show, and we find no unusual circumstances to warrant departure from the valuation methods prescribed in section 32.27. Aliant also does not demonstrate how its proposal would result in a more accurate portrayal of operating results, consistent with the principles of Part 32. Aliant argues that recording the transfer at net book cost portrays a financial result that is consistent with the generally accepted accounting principles ("GAAP"), which requires assets transferred between entities of comon control to be accounted for at historical cost. Part 32's Uniform System of Accounts ("USOA") provisions for affiliate transactions are based on regulatory considerations other than GAAP. For example, section 32.27(c) was intended to protect competitive practices and to prevent subsidization of unregulated affiliates by regulated operations. The USOA departs from GAAP in order to meet regulatory considerations such as the protection of ratepayers and preservation of competitive practices. Recording the transfer at net book cost would result in a portrayal of operating results that would be inconsistent with the principles of Part 32. 8. Aliant has not persuasively demonstrated that: (1) the waiver would be in the public interest; (2) its particular circumstances warrant a departure from compliance with our rules; and (3) its proposal would result in an accurate portrayal of financial conditions consistent with Part 32. Because the carrier has failed to meet these substantive requirements of section 32.18, we need not determine whether Aliant's proposal would maintain uniformity in substantive results among telecommunication companies. For the foregoing reasons, we deny Aliant's request for waiver. 9. With regard to the determination of fair market value of the assets to be transferred, Aliant states that there are approximately 221,000 POPs in the Lincoln market which would produce a market value estimate of $38,675,000 at $175 per POP. Aliant calculates the net book cost to be $15,186,600. Aliant acknowledges that it has not performed a specific calculation or evaluation of the Lincoln cellular franchise. It based the $175 per POP figure on a mid-point of suggested ranges from a study of the Omaha cellular market. Aliant states that an evaluation of the Lincoln cellular franchise would be both expensive and time-consuming, and had not been done. Should the transfer proceed, Aliant may use the estimate of $175 per POP or establish a more precise fair market value for the Lincoln franchise. The determination of fair market value and net book cost at the time of transfer will be subject to audit review. 10. Finally, in our Accounting Safeguards Order we concluded that when costs are reallocated from regulated to nonregulated activities, exogenous adjustments must be made to price cap indices in accordance with section 61.45(d)(1)(v). Because a portion of the assets were included in the regulated accounts when Aliant's price cap indices were initially established, Aliant is required to make an exogenous adjustment to its price cap reflecting the sale of those assets, when it makes the asset transfer. IV. ORDERING CLAUSE 11. Accordingly, IT IS ORDERED, pursuant to Section 4(i), and 218-220 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), and Section 32.27(c) of the Commission's Rules, 47 C.F.R.  32.27(c), that the petition for waiver IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division