Commissioners’ Reading of August Order Could Kill AT&T Accounting Forbearance

The AT&T and BellSouth petitions seek relief from cost- assignment rules requiring Bell companies to keep records that separate interstate and intrastate costs, among other things. The rules “are vestiges from decades-old rate-of- return regulation,” which based rate setting on carriers’ costs, AT&T said in its petition. Now, AT&T is instead subject to pure price cap regulation, which constructs price ceilings unrelated to costs, “severing the relationship between rates and costs,” AT&T said. FCC cost assignment rules therefore “no longer serve any useful purpose,” it said.

Commissioners could read the August order to mean they should deny the AT&T request, sources said. In the order, the FCC said “AT&T, Verizon and Qwest remain subject to a number of legal obligations that are an important component of the regulatory framework that we find appropriate for [Bell Operating Companies] and their independent [local exchange carrier] affiliates,” particularly “the Commission’s accounting and cost allocation rules and related reporting requirements.” That condition got kudos from Commissioners Michael Copps and Jonathan Adelstein in a joint statement, and was highlighted in an ex parte filing last month by One Communications, Cbeyond and Time Warner Telecom. The condition is “important” with some commissioner offices and could influence votes, said an FCC source.

But accounting rules from which AT&T seeks relief aren’t tied to reporting obligations outlined in the August order, an AT&T spokesman said. That order referred to Telecom Act section 272 obligations about access imputation and the reporting of imputation charges in ARMIS, he said. Imputation rules ensure carriers charge affiliates the same as a rival. Those “will remain and will still be in place if our pending cost assignment petition is approved,” he said. Even if commissioners read the condition to extend further, “the cost allocation rules were written for rate-of-return carriers,” he said. “AT&T for over a decade now has been price cap regulated at both the state and federal level. Our petition simply seeks recognition of this fact, and the appropriate relief.”

There are indications the FCC is circulating two draft orders, one granting the AT&T request and the other denying it. Circulating alternate orders isn’t “normal procedure, but happens sometimes” to force FCC action, a commission source said. If it’s happening now, it’s being done to avoid a problem that occurred with another forbearance petition last summer. Martin failed to get a majority of votes after circulating an order that would have approved a Qwest forbearance petition seeking deregulation of enterprise-level broadband services used by competitors and big businesses (CD Sept 13 p1). Some commissioners proposed a compromise shortly before the deadline for action on the petition, but Qwest withdrew it after learning the compromise wouldn’t deregulate to the extent Qwest wanted. Circulating alternate orders on the accounting petition will force commissioners to either approve or deny the AT&T petition by the April 24 deadline, the FCC source said.

Competitive local exchange carriers are opposed to the AT&T petition. If the FCC grants AT&T’s petition, “there would be no way to detect anticompetitive pricing or price gouging,” said One, Cbeyond and Time Warner Telecom in last month’s ex parte. The companies met with aides to Martin, Copps and Commissioner Deborah Tate. “Data that have revealed existing price gouging and that could disclose future profit margins would not be available,” the competitors said. “Earnings from interstate switched access would also be undetectable from available data.”

The April 24 ruling could also set precedence for ARMIS forbearance petitions by AT&T, Verizon, Qwest, Embarq and Frontier, a CLEC source said. Those petitions seek relief from Automated Reporting Management Information System (ARMIS) reporting requirements. This month’s AT&T ruling won’t say whether AT&T must do ARMIS reports, but it does cover what data AT&T must give in ARMIS reports. An FCC source disagreed, saying this month’s ruling shouldn’t spur “me too” requests.

Four state regulators opposed the AT&T petition last year, saying the request was premature (CD March 20/07 p10) because it conflicted with work pending before the Federal- State Joint Board on Separations. States have since been quiet on the subject, but we're told it could come up again in ex parte meetings this month.