[Federal Register Volume 60, Number 75 (Wednesday, April 19, 1995)]
[Notices]
[Pages 19591-19593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9574]
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FEDERAL COMMUNICATIONS COMMISSION
Accounting and Reporting Requirements for Video Dialtone Service
In Reply Refer To: RAO Letter 25, DA 95-703.
Adopted: March 31, 1995.
Released: April 3, 1995.
Responsible Accounting Officer:
Re: Accounting and Reporting Requirements for Video Dialtone Service
I. Introduction
This letter provides guidance on video dialtone accounting to local
exchange carriers (``LECs'') that receive Section 214 authorizations to
provide video dialtone service.\1\ It sets forth specific guidance on
the requirements for accounting classifications, subsidiary records,
and amendments to cost allocation manuals (``CAMs'') for LECs that
provide video dialtone service.\2\
\1\This includes video dialtone trials and commercial
applications.
\2\LECs with annual operating revenues of $100 million or more
are required to file a CAM with the Commission. CAMs contain
information regarding the carriers' allocation of costs between
regulated and nonregulated activities. See 47 C.F.R. Sec. 64.903.
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II. Background
In 1991 and 1992, the Commission adopted policies and rules to
permit LECs to assume an expanded role in the provision of video
services in their telephone service areas.\3\ In its 1991 and 1992
Orders, the Commission established a regulatory framework for telephone
companies to provide video service on a common carrier basis and
provide various related nonregulated services consistent with the
cross-ownership restrictions imposed by the Cable Communications Policy
Act of 1984 (``1984 Cable Act'').\4\ This regulatory framework is
called ``video dialtone.''
\3\See Telephone Company-Cable Television Cross-Ownership Rules,
Section 63.54-63.58, Further Notice of Proposed Rulemaking, First
Report and Order and Second Further Notice of Inquiry, 56 FR 65464
(Dec. 17, 1991) (First Report and Order), recon., 7 FCC Rcd 5069
(1992), aff'd, National Cable Television Association v FCC, No. 91-
1649 (D.C. Cir. Aug. 26, 1994) (NCTA v. FCC); Telephone Company-
Cable Television Cross-Ownership Rules, Sections 63.54-63.58, Second
Report and Order, Recommendation to Congress, and Second Further
Notice of Proposed Rulemaking, 57 FR 41106 (Sep. 9, 1992) (Second
Report and Order), aff'd, Memorandum Opinion and Order on
Reconsideration and Third Further Notice of Proposed Rulemaking, 59
FR 63909 (Dec. 12, 1994) (``VDT Recon Order''), appeal pending sub
nom. Mankato Citizens Telephone Company v. FCC, No. 92-1404 (D.C.
Cir. filed September 9, 1992).
\4\Cable Communications Policy Act of 1984, Pub. L. No. 98-549,
Sec. 613(b), 98 Stat. 2779 (codified at 47 U.S.C. Sec. 533(b)).
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On November 7, 1994, the Commission issued the Video Dialtone
Reconsideration Order (``VDT Recon Order''). In that Order, the
Commission reaffirmed its basic video dialtone framework adopted in the
Second Report and Order, and, among other things, set forth accounting
and reporting requirements for LECs that offer video dialtone service.
The Commission required carriers offering video dialtone to establish
two sets of subsidiary accounting records: one to capture the
investment, expense and revenue wholly dedicated to video dialtone; the
other to capture the investment, expense and revenue shared between
video dialtone and other services. \5\ Wholly dedicated refers to
investment, expense and revenue related exclusively to providing video
dialtone service. Shared refers to investment, expense and revenue
related to providing video dialtone and other services on a joint or
common basis.\6\
\5\VDT Recon Order at para. 173.
\6\By ``other services'' we mean telephone and other services
provided by LECs.
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The VDT Recon Order requires LECs to file a summary of these
subsidiary accounting records with the Commission on a quarterly basis.
The Commission delegated authority to the Common Carrier Bureau to
define the content and format of both the subsidiary accounting records
and the quarterly reports, and to provide accounting guidance where
necessary for uniform classification of video dialtone investment,
expense and revenue.\7\ Finally, the VDT Recon Order required LECs to
file revisions to their CAMs to reflect the provision of video dialtone
service.
\7\In this Responsible Accounting Officer (``RAO'') Letter, we
only address the accounting classifications, format and content
requirements for LEC subsidiary records and CAM filing requirements.
We plan to address the format and content for LEC video dialtone
quarterly reports in a separate notice and comment proceeding.
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III. Accounting Classification
The Commission did not change its Part 32, Uniform System of
Accounts for Telecommunications Companies (``USOA'') in the VDT Recon
Order, but it did require carriers to establish subsidiary accounting
records, consistent with that system, in order to isolate video
dialtone costs and revenues from other LEC costs and revenues.\8\ We
therefore require LECs to maintain in subsidiary records, by USOA
accounts, all wholly dedicated and shared investment, expense, and
revenue related to providing video dialtone service. Finally,
consistent with Part 32 of the Commission's rules, Class A companies
shall use Class A detail level accounts and Class B companies shall use
Class B detail level accounts in recording video dialtone investment,
expense and revenue in subsidiary records.\9\
\8\VDT Recon Order at para. 173.
\9\47 C.F.R. Sec. 32.11
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A. Investment Classifications
For accounting classification purposes, video dialtone investment
shall include all plant wholly dedicated to video dialtone or shared
between video dialtone and other services. Wholly dedicated investment
is defined [[Page 19592]] as investment that is used exclusively for
the provision of video dialtone service. Shared investment is defined
as investment that is common to, or used jointly to provide video
dialtone and other services. Under the VDT Recon Order, LECs must
separately track both wholly dedicated and shared video dialtone
investment. This requirement covers both new investment purchased for
the provision of video dialtone and existing plant converted to video
dialtone use. To track net investment, subsidiary records must
identify, for each plant account, all accumulated depreciation,
amortization and deferred income taxes associated with wholly dedicated
and shared video dialtone investment.
In addition, the Commission conditioned LEC authorizations to
provide video dialtone service on a requirement that LECs keep
subsidiary records to identify, by Part 32 plant account, the cost of
plant that is replaced or retired due to either the deployment of video
dialtone plant or the deployment of fiber optic network upgrades as
mandated under state authority in study areas where VDT deployment
occurs.\10\
\10\See, e.g., Application of New Jersey Bell Telephone Company
for Authority pursuant to Section 214 of the Communications Act of
1934, 9 FCC Rcd 3677, 3690 at para. 72 (1994).
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B. Expense Classification
Video dialtone expense shall include all expenses identified with
the exclusive or shared provision of video dialtone service. In
addition to ongoing expenses incurred in the provision of video
dialtone service, these expenses shall include all expenses incurred
during the initial development and deployment stages of video dialtone,
such as research and development expense and legal services expense.
In order to implement the Commission's requirement that the Common
Carrier Bureau ensure that LEC proposed expense allocations and
overhead loadings associated with video dialtone tariff filing are
reasonable, we will require separate subsidiary records for dedicated
and shared video dialtone expenses.\11\ Carriers must also separately
identify depreciation and amortization expense associated with wholly
dedicated and shared video dialtone investment by each Part 32 plant
account.
\11\VDT Recon Order at para. 221.
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We recognize that some of the expenses that fall into the shared
category may be the type of expenses that are tracked by function codes
and some may be the type that are not tracked by function codes.
Expenses not tracked by function codes are support functions, such as
network support, general support, corporate operations and general
administrative. Expenses tracked by function codes shall be identified
as video dialtone expense using the tracking mechanism.\12\ Expenses
not tracked by function codes shall be so identified and shall be
classified as shared video dialtone expenses. These expenses will be
subject to overhead allocation for the video dialtone tariff filing.
\12\All employees that incur video dialtone costs must employ
existing time reporting procedures using some type of function
codes. For example, carriers that currently utilize time reporting
tracking mechanisms in order to identify regulated and nonregulated
activities of support functions, such as legal services, must
continue to use similar accounting tracking mechanisms for
identifying video dialtone expenses. In addition, expenses incurred
or services provided by LEC affiliates for LEC provision of video
dialtone service must be identified with unique function codes that
indicate video dialtone expense.
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IV. Subsidiary Accounting Records
As required by the VDT Recon Order, LECs shall create subsidiary
accounting records that identify investment and expense wholly
dedicated to video dialtone, or shared between video dialtone and other
services.\13\ Carriers shall ensure that subsidiary accounting record
entries are readily identifiable by account title, account number,
subaccount identification, and study area. These records shall also
include all initial and ongoing transactions that directly impact
investment, expense and revenue accounts. In order to enhance our
ability to verify LEC compliance with the Commission's established
video dialtone accounting and reporting requirements, carriers shall be
required to have internal accounting controls and a complete audit
trail for each subsidiary account record. Subsidiary accounting records
must be reconcilable with total amounts reported in the Part 32
accounts. In addition, LECs shall maintain these records until such
time as the Commission decides otherwise. These requirements do not
preclude carriers from creating subaccounts, if necessary, to capture
data necessary to provide subsidiary record information.
\13\In the VDT Recon Order, the Commission determined that it
was not necessary to make permanent changes to the Commission's USOA
for LEC provision of video dialtone. The Commission, however,
required that LECs offering video dialtone service create subsidiary
records to capture wholly dedicated and shared video dialtone costs.
See VDT Recon Order at para 173. Under the Commission's rules,
subsidiary records categories are defined as ``* * * segregations of
certain regulated costs, expenses and revenues which must be
maintained and are subject to specific reporting requirements of
this Commission.'' See 47 C.F.R. Sec. 32.9000.
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Consistent with the Commission's requirements on accounting
classifications and reporting, carriers shall capture all costs
incurred for the provision of video dialtone, including the preliminary
planning, and research and development expenses incurred prior to the
Commission's approval of Section 214 application. Upon receiving
Section 214 authorization from the Commission, carriers must establish
subsidiary accounting records and report the results of these records
to the Commission on a quarterly basis.
Subsidiary accounting records for investment accounts must include,
but shall not be limited to, all telephone plant in service accounts,
associated accumulated depreciation, deferred taxes and any associated
land and support assets which contain costs related to the provision of
video dialtone service. Subsidiary accounting records for video
dialtone investment accounts must also identify the investment's
location and whether that investment is wholly dedicated to video
dialtone or shared between video dialtone and other services. LECs
shall maintain subsidiary accounting records so that the content of
these records can be traced from the continuing property records
(``CPRs'') through the accounting system to the general ledger and to
the equipment's physical location.
Carriers shall use tracking codes that allow video dialtone expense
to be extracted and summarized from the Part 32 USOA expense accounts.
Carriers may create tracking codes that are compatible with their
existing internal accounting systems. Carriers may use either field
reporting codes, job function codes, location codes, or any other
identification codes that permits such expenses to be audited.
Subsidiary accounting records for expense shall include all plant-
specific operations expense, plant-nonspecific operations expense,
customer operations expense, and corporate operations expense accounts
that contain any costs related to the provision of video dialtone
service. Subsidiary accounting records for video dialtone should
separately identify revenues from intrastate and interstate
tariffs.\14\ Carriers shall identify by subsidiary record category any
nonregulated video dialtone revenues.
\14\Carriers shall record revenues in Part 32 accounts
consistent with the category of video dialtone service set forth in
a carrier's tariff provisions. See 47 C.F.R. Sec. 32.4999.
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V. Cost Allocation Manual Filing Requirements
LECs offering video dialtone service must amend their CAMs to
reflect both [[Page 19593]] their regulated and nonregulated video
dialtone service as follows:
LECs are required, pursuant to the VDT Recon Order, to amend their
CAMs prior to providing nonregulated products or services related to
video dialtone.\15\ We require carriers that receive Section 214
authorizations to provide video dialtone service to implement these
requirements by revising Section II (Nonregulated Activities) of their
CAMs to include a detailed description of proposed nonregulated video
dialtone services that they seek to provide.
\15\VDT Recon Order at 330, para. 181.
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CAM revisions must include a statement indicating whether
nonregulated video dialtone service is provided through a stand-alone
video dialtone system, or a system shared with telephony. Carriers must
also establish a new subsection in Section II of their CAMs that
identifies all costs incurred in the planning and development of
nonregulated activities provided in conjunction with video dialtone
service. LECs that currently include enhanced services planning in
their CAMs as a nonregulated activity associated with their provision
of telephone service, shall be required to amend their CAMs to
specifically identify any planning associated with the provision of
nonregulated video dialtone service. In addition, LECs shall amend
their existing ``Nonregulated Services Matrix''--which shows
nonregulated products/services and the USOA accounts associated with
these nonregulated products/services--to list each individual USOA
account affected by the provision of any nonregulated video dialtone
activity.
LECs must also amend Section VI (Cost Apportionment Tables) of
their CAMs, so that existing cost allocation tables include
apportionment procedures for investment and expense used in the
provision of regulated and nonregulated video dialtone service. We
require LECs to justify and/or amend, if necessary, their existing cost
apportionment methodology and allocators for their provision of video
dialtone service. LECs that choose not to modify their cost
apportionment methodology or allocators for video dialtone, must also
explain why their existing methodology or allocation factors are still
valid for their regulated, nonregulated and common cost pools. In
addition, because the allocation for nonregulated usage of common
network plant is determined by a three-year forecast of investment
usage, LECs shall revise their forecast usage allocator to reflect
accurately the provision of any nonregulated video dialtone service
offered on common network plant. Moreover, carriers that currently do
not provide nonregulated services that use common network plant, but
``reasonably anticipate'' offering such services during the plant's
three-year forecast usage period, shall include revised apportionment
procedures for the nonregulated usage of network plant in the Section
VI, Cost Apportionment Tables.\16\
\16\See American Telephone & Telegraph Company's Permanent Cost
Allocation Manual for the Separation of Regulated and Nonregulated
Costs, 4 FCC Rcd 6930 at para. 6-7 (1989).
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Finally, we require LECs to amend their CAMs to identify any
affiliate transactions related to their provision of video dialtone
service. LECs must amend Section V (Affiliate Transactions) of their
CAMs by listing all transactions with affiliates that involve video
dialtone service. This listing must contain a brief description of the
nature, terms and frequency of each transaction. LECs that currently
list transactions involving affiliates providing video related services
in existing CAMs, must amend such CAMs to indicate which, if any,
specific transactions relate to the provision of video dialtone
service.
As required by the VDT Recon Order, LECs shall file CAM revisions
within thirty days after the effective date of their Section 214
authorization and at least sixty days prior to providing nonregulated
products or services related to video dialtone.
VI. Accounting Consistency/Uniformity Issues
In reviewing various LEC Section 214 applications for video
dialtone service, we have found certain inconsistencies in the
accounting classification of asynchronous transfer mode (``ATM'')
equipment. LECs have described ATM equipment as providing the basic
connection between the various video servers and various destinations.
Some LECs have provisionally classified ATM equipment in Account 2212,
Digital electronic switching; other LECs have classified the same type
of equipment in Account 2232, Circuit equipment. Based on our analysis
of video dialtone ATM equipment and LEC descriptions of the functional
purpose of such equipment, we find that, although certain carriers have
classified ATM equipment as switches, the equipment does not perform
the functions performed by traditional network switches.\17\ We find
based on the data before us, that ATM video dialtone equipment does
not, at this stage of LEC video dialtone deployment, meet established
criteria for classification as a switch. Therefore, carriers shall
classify ATM equipment as circuit equipment and record it in Account
2232, Circuit equipment. Our decision regarding the accounting
classification for video dialtone ATM equipment does not in any way
preclude LECs from demonstrating at a future date any functional change
that should alter this classification.
\17\The criteria for switch classification are met if equipment
performs some, but not necessarily all, of the following basic
switching functions: (1) Attending--monitors for off-hook signals;
(2) Control--determines call destination and assigns call to
available line or trunk; (3) Busy testing--determines whether the
called line/trunk is busy; (4) Information receiving--receives
control and busy test results; (5) Information transmitting--
transmits control and busy test results to tell the alerting and
interconnection functions whether to complete the call; (6)
Interconnection--connects subscriber line to subscriber line or
subscriber line to trunk; (7) Alerting--rings the called
subscriber's line or other signalling means if the call is destined
for another exchange; (8) Supervising--monitors for call termination
so the line can be released. See Responsible Accounting Officer
Letter 21, 7 FCC Rcd 6075 (1992).
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Finally, we intend to amend RAO Letter No. 6 shortly to incorporate
video dialtone plant investment within our existing itemized list of
telecommunications plant in service.\18\
\18\See Revised Responsible Accounting Officer Letter 6, 4 FCC
Rcd 1965 (1989).
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This letter is issued pursuant to authority delegated under
Sec. 0.291 of the Commission's Rules, 47 C.F.R. Sec. 0.291.
Applications for review under Section 1.115 of the Commission's Rules,
47 C.F.R. Sec. 1.115, must be filed within 30 days of the date of this
letter. See 47 C.F.R. Sec. 1.4(b)(2).
If you have any questions, please contact Kenneth Ackerman or
Daniel Gonzalez at (202) 418-0810.
Kenneth P. Moran,
Chief, Accounting and Audits Division, Common Carrier Bureau.
[FR Doc. 95-9574 Filed 4-17-95; 8:45 am]
BILLING CODE 6712-01-M
