NEWSReport No. DC 96-66 ACTION IN DOCKET CASE July 18, 1996 FCC SEEKS COMMENT ON IMPLEMENTATION OF 1996 TELECOMMUNICATIONS ACT ACCOUNTING SAFEGUARDS (CC DOCKET NO. 96-150) The Commission today released proposed measures to implement the accounting safeguards provisions of the Telecommunications Act of 1996. Congress enacted these safeguards to ensure that subscribers of regulated telecommunications services do not subsidize incumbent local exchange carrier (LEC) provision of new, competitive services. In a Notice of Proposed Rulemaking (NPRM), the Commission tentatively concluded that its existing cost allocation and affiliate transactions rules generally satisfy the statute's accounting safeguards requirements. The Commission determined that redesigning these rules would impose substantial costs on the carriers and sought comment on whether the benefits of a different approach would be outweighed by the costs that implementation of a new system would entail. In Sections 260 and 271 through 276 of the 1996 Act, Congress delineated the conditions under which incumbent LECs may offer telemessaging and alarm monitoring services and Bell Operating Companies (BOCs) may manufacture and sell telecommunications equipment, manufacture customer premises equipment, and offer interLATA telecommunications, information, electronic publishing, and payphone services. Sections 271 through 274 and 276 of the 1996 Act prohibit BOCs from subsidizing services permitted under those sections with revenues from their regulated telecommunications services. Sections 260 and 275 prohibit all incumbent LECs from subsidizing their telemessaging and alarm monitoring services with revenues from regulated telecommunications services. The Commission developed its existing cost allocation and affiliate transactions rules to help ensure that ratepayers would not bear the costs and risks of the telephone companies' nonregulated activities. The Commission tentatively concluded that its existing cost allocation rules generally satisfy the 1996 Act's accounting safeguards requirements when incumbent LECs themselves provide services permitted under Sections 260 and 271 through 276. The Commission also tentatively concluded that the current affiliate transactions rules generally satisfy the 1996 Act's accounting safeguards requirements when incumbent LECs must use or choose to use an affiliate to provide services permitted under Sections 260 and 271 through 276. In the NPRM released today, the Commission has, however, proposed several modifications to its affiliate transactions rules to achieve greater protection against subsidization. The Commission sought comment on these tentative conclusions and proposed modifications. In separate but related NPRMs also released today, the Commission sought comment on the non-accounting safeguards that should govern BOC entry into certain new markets. Together, the accounting and non-accounting safeguards are intended to protect subscribers to BOC monopoly services, such as local telephony, against the risk of being forced to pay costs incurred due to the BOCs' provision of competitive services, and to protect competition in those markets from the BOCs' ability to use their existing market power in local exchange services to obtain an anticompetitive advantage in those new markets the BOCs seek to enter. In this NPRM, the Commission tentatively concludes that the accounting safeguards adopted in this proceeding will apply to both interstate and intrastate telecommunications and information services provided by the BOCs and their affiliates. The Commission also tentatively concluded, however, that even if it has the authority to preempt state regulation, it should refrain from exercising this authority. Action by the Commission July 17, 1996, by Notice of Proposed Rulemaking (FCC 96- 309). Chairman Hundt, Commissioners Quello, Ness, and Chong. -FCC- News Media contact: Mindy J. Ginsburg at (202) 418-1500. Common Carrier Bureau contact: John V. Giusti at (202) 418-0850.