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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 ) ) United States Telephone Association ) AAD 97-103 Petition for Waiver of Part 32 of) the Commission's Rules ) ORDER Adopted: December 31, 1997 Released: December 31, 1997 By the Chief, Accounting and Audits Division: I. INTRODUCTION AND BACKGROUND 1. In conjunction with the Commission's Payphone Order, the Accounting and Audits Division ("Division") of the Common Carrier Bureau released an Order concerning cost allocation manual ("CAM") revisions relating to the deregulation of payphone operations. The Payphone CAM Order, among other things, directed incumbent local exchange carriers ("ILECs") to record revenues from their nonregulated payphone operations in a nonregulated cost pool within Account 5010, Public telephone revenue. Account 5010 contains local coin revenues from semi- public and public payphones. 2. On September 16, 1997, the United States Telephone Association ("USTA") pursuant to Section 1.3 of the Commission's rules filed a petition for waiver of Part 32 of the Commission's rules to record revenues from nonregulated payphone services in Account 5280, Nonregulated operating revenue rather than Account 5010. Concurrently, on September 16, 1997, USTA filed a petition for rulemaking requesting that the Commission amend its rules to allow carriers to record revenues from all nonregulated activities as nonregulated operating revenue in Account 5280. Six parties filed comments in support of USTA's petition for waiver, and USTA and Alltel filed replies in support. NEXTLINK Communications, Inc. ("Nextlink") filed comments and The American Public Communications Council ("APCC") filed replies requesting that the Commission deny USTA's petition for waiver. For the reasons discussed in the succeeding paragraphs, we grant USTA's petition for waiver to allow ILECs to record revenues from nonregulated payphone services in Account 5280 until final action by the Commission on USTA's petition for rulemaking. II. DISCUSSION 3. Waiver of the Commission's rules is appropriate only if special circumstances warrant a deviation from the general rule and such deviation will serve the public interest. Generally, a waiver request must be consistent with the principles underlying the rule for which a waiver is requested. 4. For the reasons discussed below, we grant USTA's petition for a waiver to allow ILECs to record revenues from nonregulated payphone operations in Account 5280 until final action is taken through a rulemaking proceeding. We find merit in USTA's request because payphone revenues will still be directly assigned as nonregulated and whether they are recorded in Account 5010 or Account 5280 does not affect our ability to track these nonregulated revenues. 5. Section 32.23(c) of the Commission's rules prescribes specific accounting instructions to be followed by carriers when a nonregulated activity involves the common or joint use of assets or services in the provision of both regulated and nonregulated products and services. This rule requires that nonregulated revenue, not provided for elsewhere in Part 32 and not qualifying for incidental treatment as provided in section 32.4999(l), be recorded in separate subsidiary record categories of Account 5280. 6. In our Payphone CAM Order, we directed ILECs to record nonregulated revenues from payphone services in Account 5010 because this was an existing Part 32 account used solely for public telephone revenues. USTA argues in its petition for waiver that recording nonregulated revenues from payphone services in Account 5010 isolates these revenues in a single product-specific account. As a result, ILECs' payphone revenues would be disclosed to the public through the Commission's Automated Reporting Management Information System ("ARMIS") reports, while their competitors' payphone revenues remain undisclosed, thus potentially causing a competitive imbalance. 7. We believe that USTA's petition for waiver establishes the special circumstances that warrant the grant of waivers. USTA has shown that ILECs may be competitively harmed if they are required to continue to record payphone revenues in Account 5010. Moreover, USTA has shown that the public interest will continue to be served even if the waiver is granted because the Commission will still be able to adequately monitor payphone revenues. When the Commission's joint cost rules were established, the Commission found no reason to require the separate identification of product-specific revenue accounts for nonregulated services. Rather, the Commission determined that its monitoring efforts with respect to nonregulated activities would be more than satisfied by only collecting information on an aggregate basis. Thus, the Commission created Account 5280 for carriers to record nonregulated operating revenues. Because it has no need to isolate nonregulated revenues by product line, the Commission allowed these revenues to be recorded in Account 5280. We see no need to account for payphone revenues differently than other nonregulated revenues. Accordingly, we grant USTA's request for a waiver to allow ILECs to record payphone revenues in Account 5280 rather than Account 5010. This waiver will remain in effect until the Commission rules on USTA's September 16, 1997, petition for rulemaking. 8. APCC and Nextlink assert that segregating payphone revenues in Account 5010 is necessary to prevent improper cost allocation and subsidization. APCC and Nextlink also challenge USTA's petition for waiver on the grounds that Account 5010 contains both regulated and nonregulated payphone revenues, including revenues from regulated intraLATA toll. 9. The Commission's Payphone Order required Bell Operating Companies ("BOCs") and ILECs providing payphone service to follow the nonstructural safeguards described in Computer III in order to provide sufficient protection against the possibility that nonregulated payphone service could be subsidized by regulated services. In the Accounting Safeguards Order, the Commission stated that the Computer III safeguards included the Part 64 cost allocation rules and that these safeguards should be applied to carriers providing payphone service on a nonregulated basis. We believe that the Commission's Part 64 cost allocation rules and other safeguards applicable to ILECs' payphone operations are more than sufficient to detect improper cost allocations and subsidizations. Again, we see no reason to treat nonregulated payphone revenues any differently than any other type of nonregulated revenue. 10. In addition, APCC's and Nextlink's assertion that Account 5010 contains both regulated and nonregulated revenue is incorrect. As required by Section 32.5010, Account 5010 contains message revenue (e.g. coin paid) from public and semi-public telephone service provided within the basic service area. Revenues from services such as intraLATA toll, while regulated, are not recorded in Account 5010. Rather, they are recorded in Account 5100, Long distance message revenue. As a result, we reject APCC's and Nextlink's requests to deny USTA's petition for waiver. III. ORDERING CLAUSES 11. Accordingly, IT IS ORDERED, pursuant to Sections 4(i), 5(c) and 218-220 of the Communications act of 1934, as amended, 47 U.S.C.  154(i), 155(c) and 218-220 and Sections 0.91, 0.291 and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291 and 1.3, that USTA's petition for waiver to allow ILECs to record payphone revenues in Part 32 Account 5280 IS GRANTED. 12. IT IS FURTHER ORDERED, pursuant to Sections 4(i), 5(c) and 218-220 of the Communications act of 1934, as amended, 47 U.S.C.  154(i), 155(c) and 218-220 and Sections 0.91, 0.291 and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291 and 1.3, to the extent discussed in the paragraphs three through eight above that this waiver will expire when the Commission acts on USTA's petition for rulemaking. FEDERAL COMMUNICATION COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division