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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 Cincinnati Bell Telephone Company, ) Southwestern Bell Telephone Company, and ) U S WEST Communications, Inc. ) ) Prescription of Revised ) Depreciation Rates ) MEMORANDUM OPINION AND ORDER Adopted: January 30, 1998 Released: January 30, 1998 By the Commission (Commissioner Furchtgott-Roth issuing a separate statement): I. INTRODUCTION 1. On April 24, June 5, and June 19, 1997, respectively, U S WEST Communications, Inc. ("U S WEST"), Southwestern Bell Telephone Company ("Southwestern Bell"), and Cincinnati Bell Telephone Company ("Cincinnati Bell") filed requests that the Commission prescribe revised depreciation rates pursuant to Section 220(b) of the Communications Act of 1934. In this Memorandum Opinion and Order, we adopt the revised depreciation rates proposed by these companies. II. BACKGROUND 2. Under the Communications Act of 1934, as amended, the Commission may prescribe depreciation rates that are used to compute depreciation expense for incumbent local exchange carriers ("ILECs"). Our rules provide that prescribed depreciation rates shall allocate the carriers' plant investments on a straight-line basis over the life of the associated plant. The depreciation rate for an account is a function of the associated plant's average remaining life, future net salvage estimate and the depreciation reserve ratio. The depreciation rate is calculated using the following formula: depreciation rate = 100% - depreciation reserve ratio - future net salvage % average remaining life Both the average remaining life and the future net salvage factors are based upon estimates, which require periodic review to ensure their reasonableness. 3. Carriers can seek revisions to their prescribed depreciation rates, subject to Commission approval, by the following methods: submitting new studies which show that their plant and salvage factors should be revised; selecting new life and salvage factors from within the ranges established by the Commission's streamlined procedures; or updating their depreciation rate calculations based upon the most recently prescribed plant life and salvage factors. III. DISCUSSION 4. Cincinnati Bell and U S WEST proposed revised depreciation rates based upon new studies of their plant and salvage factors. They generally propose increases in depreciation rates based on plans to replace analog central office equipment with digital equipment and copper- conductor cables with fiber optic cables. Southwestern Bell proposed revised depreciation rates developed using the ranges specified by the Commission in its streamlined depreciation proceeding. We reviewed all of the proposed rates and determined that they were computed in accordance with our rules and procedures. The Common Carrier Bureau issued a Public Notice on July 11, 1997, requesting comment on the proposed life and salvage factors and depreciation rates. No comments or reply comments were received. We therefore adopt the proposed rates as specified in the Appendix. 5. All three carriers proposed that the revised rates become effective on January 1, 1997. Our rules allow rates to be made retroactive to the beginning of the year in which the filing is made. We therefore adopt the proposed effective date. IV. ORDERING CLAUSES 6. ACCORDINGLY IT IS ORDERED, pursuant to Sections 4(i), 201-205 and 220(b) of the Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 201-205 and 220(b), that the percentages of depreciation set forth in the Appendix to this Order ARE PRESCRIBED, effective January 1, 1997. 7. IT IS FURTHER ORDERED, that this Order is effective upon release. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary January 30, 1998 SEPARATE STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH Re: Cincinnati Bell Telephone Company, Southwestern Bell Telephone Company, and U S WEST Communications, Inc., Prescription of Revised Depreciation Rates. While I support today's order with changes in depreciation rates as requested by the above parties, I take the opportunity to express my concern about the Commission's continued micromanagement of accounting rules. The Commission's authority to prescribe depreciation rates is merely a vestige of outdated rate-of-return regulation. Prior to 1996, Congress directed the FCC to prescribe depreciation rates for carriers. The Telecommunications Act of 1996 amended Section 220(b) to afford the Commission the discretion to prescribe such rates but only where appropriate. In today's increasingly competitive environment, there should be no need for the Commission to continue to dictate, even through revised streamlined procedures, depreciation rates or the factors that may be used to compute such rates. At a minimum, in a system of pure price cap regulation, the depreciation rate requirements -- and the accompanying remnants of cost-of-service regulation such as the Commission's low-end adjustment procedures -- would be unnecessary and should be eliminated for the larger carriers. I commend the Common Carrier Bureau for targeting this rule for a thorough evaluation in the coming biennial review process. I urge, and specifically encourage parties to request, that the Commission use this year's first biennial review to eliminate its rules and regulations regarding depreciation expenses and other related relics of rate-of-return regulation.