Report No. CC 95-29                                                   COMMON CARRIER ACTION           May 23, 1995
     
     
               FCC PROPOSES TO REVISE UNIFORM SYSTEM OF ACCOUNTS 
              FOR CLASS A AND CLASS B TELECOMMUNICATIONS COMPANIES
                             (CC Docket No. 95-60)
     
         
         The FCC proposed to raise the expense limit for class A and class B
     telecommunications companies on certain items of equipment from $500 to $750.  
     
         Under current FCC rules, the cost of individual items of equipment,
     classifiable to Accounts 2112, Motor Vehicles; 2113, Aircraft; 2114, Special Purpose
     Vehicles; 2115, Garage Work Equipment; 2116, Other Work Equipment; 2112,
     Furniture; 2123, Office Equipment; and 2124, General Purpose Computers, costing
     $500 or less or having a useful life of less than one year shall be charged to the
     applicable plant specific operating expense accounts.  Items that cost over $500 are
     capitalized and depreciated over the useful life of the asset.  Over the past twenty
     years, the Commission has increased the expense limit three times, from $25 to $50
     in 1974, from $50 to $200 in 1981, and most recently, from $200 to $500 in 1988. 
     This action was necessary to recognize the effects of inflation and technological
     changes, and to avoid over-burdening carriers with excessive administrative costs
     which may be passed on to the ratepayers.  
     
         On March 1, 1994, the U.S. Telephone Association (USTA) filed a Petition
     for Rulemaking  and requested the expense limit be raised from $500 to $2000.  They
     cite a number of reasons including inflation; the increasingly competitive
     environment; rapid changes in technology; and the fact that the last increase occurred
     in 1988.  The Commission proposes to raise the limit to $750 to reflect the effect of
     inflation, the increased competitive environment, and the technological changes that
     have occurred since the FCC last raised the expense limit in 1988.  The Commission
     seeks comment on the proposed amendment.
     
     
     
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         USTA also requests that carriers be permitted to amortize the previously
     capitalized, undepreciated investment in these specific accounts over the remaining
     asset life for each account in which the investment  is recorded.  USTA indicates that
     this may be a three to five year period.  USTA believes that by permitting carriers to
     amortize the investment over their individual and unique remaining lives, the expense
     shift for the embedded portion of the assets would occur on a revenue neutral basis. 
     The Commission seeks comment on this aspect of USTA's petition.
     
         The expense limit change proposed in the NPRM would not require Local
     Exchange Carriers (LECs) under Price Caps to increase their expenditures; LECs
     would merely be required to account for the purchases costing between $500 and
     $750 differently, i.e., LECs would expense all of those items under the proposed
     rule, as opposed to capitalizing those items under the existing rule.  The Commission
     seeks comment on whether the proposed expense limit change is an economic cost and
     what effect, if any, on LECs' cash flow it may have that would qualify this
     accounting change for exogenous treatment under Price Caps.
     
         Action by the Commission May 2, 1995 by Notice of Proposed Rulemaking
     (FCC 95-182).  Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong.  
     
                                    - FCC -
     
     News Media contact: Kara Casey at (202) 418-0500.
     Common Carrier Bureau contact:  Tom Petras at (202) 418- 0809.