FCC Grants AT&T Forbearance from Cost-Assignment Rules

The order combined related AT&T and BellSouth petitions seeking relief from cost-assignment mandates that Bells keep records separating interstate and intrastate costs, among other requirements. The data are used in Automated Reporting Management Information System (ARMIS) reports. In other proceedings, the FCC is considering AT&T, Verizon, Qwest and Frontier requests to kill ARMIS.

The FCC agreed with AT&T that the usefulness of the cost data, dating from when the carrier was under rate-of-return regulation, has disappeared. The commission regulates AT&T rates, Unlike other Bells’ rates, only with price caps unrelated to cost. “There is no current, federal need for the [cost-assignment rules], as they apply to AT&T, to ensure that charges and practices are just, reasonable, and not unjustly or unreasonably discriminatory,” the FCC said. But the commission said it “cannot conclude” that it never will have use for the accounting data, so AT&T still must provide it upon agency request “for regulatory purposes.” AT&T must submit a compliance plan that includes “a proposal for how it will maintain its accounting procedures and data in a manner that will allow it to provide usable information on a timely basis if requested by the Commission to comply with any of the conditions of this relief and its commitment to the Commission.” The Wireline bureau will review the compliance plan.

AT&T still faces Telecom Act section 272 duties regarding access imputation and reporting imputation charges in ARMIS, the FCC said. Imputation rules ensure that carriers charge affiliates the same as rivals. AT&T must describe in its compliance plan how it will continue discharging imputation duties, the FCC said. Another condition keeps AT&T under Telecom Act section 254(k), which bars a telecommunications carrier from using “services that are not competitive to subsidize services that are subject to competition.” Each year, AT&T must certify compliance with the rule, providing any requested cost accounting information considered necessary, the FCC said. AT&T will include the first annual certification in the compliance plan, the FCC said.

The order means that AT&T will come under an accounting system different from that on the other Bells. “Although uniform regulatory treatment for similarly situated carriers is sometimes preferable, we do not think that is the case here,” the FCC said. Markets vary carrier to carrier, and uniform treatment “could impose unnecessary regulatory burdens… which could in turn negatively affect the provision of new services to consumers,” the commission said. Forbearance “will provide AT&T flexibility to adapt its accounting procedures to changing market conditions in its region, while still ensuring that consumers are protected.”

The deregulation will save AT&T $11 million annually in accounting costs, but “the real benefit appears to be the regulatory leverage it should gain versus wireless carriers, CLECs, and others,” Stifel Nicolaus said Friday in a note. “Without the cost-assignment requirements, we believe it will be harder for competitors and other critics to use cost information as a club to seek AT&T rate controls and cuts in various proceedings.”

“The decision makes our job more difficult, and frankly makes it easier for AT&T,” said Anna Gomez, Sprint Nextel government affairs vice president. Gomez and representatives of CompTel, the Ad Hoc Telecommunications Users Committee and Time Warner Telecom spoke Friday to reporters via conference call. All voiced disappointment at the FCC order. Rivals may have lost a weapon against AT&T on future issues, but that depends on the compliance plan review, said committee lawyer James Blaszak. The order “does not clearly indicate what AT&T is supposed to describe in the plan that it is to file,” he said. CompTel “is skeptical that the proposed ‘compliance plan’ will mitigate the damage caused,” said Karen Reidy, the group’s vice president of regulatory affairs.

AT&T hailed the order. The FCC “correctly found that there is no legitimate reason to continue rules created for a rate-of-return world that has not existed for over a decade,” said Bob Quinn, federal regulatory senior vice president. The FCC “needs to focus its data collection and regulatory efforts on the entire marketplace and not on just one competitor in that marketplace,” he said.

FCC Could Ask for Data in Future

“No part of today’s Order precludes the Commission -- at any time -- from compelling AT&T, or any other incumbent local exchange carrier, to provide promptly any and all information necessary to build a sufficient record for any regulatory purpose,” McDowell said in a written statement. The FCC hasn’t used the data “for several years” and no one has filed complaints calling for the data “for many years,” he said. “Section 10 does not allow us to maintain a requirement merely ‘just in case’ it is needed in the future, especially when we have at our disposal other means of gathering any data for a specific purpose.”

Forbearance is consistent with an August order that combined Bell companies’ local and long distance business, the FCC said in the order. The commission noted the seemingly conflicting language, but said it doesn’t preclude it from ruling in this case. That wording was used only to clarify the August order and didn’t deal with data collection, Chairman Kevin Martin at a news conference Thursday(CD April 25 p1). He voted to grant forbearance.

Tate’s take on the AT&T forbearance petition before the vote was unclear, though her history as a state commissioner had some parties expecting her to vote against. AT&T’s request was resisted by the National Association of State Utility Consumer Advocates, state members of the Federal- State Joint Board on Jurisdictional Separations, and nine state commissions. States said the data AT&T wanted to stop collecting was still useful, and AT&T’s woes in any case will be resolved in a Joint Board separations reform proceeding to finish next year.

“I appreciate the broad participation of states in this proceeding and have carefully considered their concerns,” Tate said in a written statement. But the forbearance order doesn’t “preempt any state’s authority to obtain any information from AT&T for their own regulatory purposes, and AT&T has committed to provide such information.”

Forbearance rules forbade the FCC to wait for the end of the Joint Board proceeding, the commission said in the order. “Although we recognize the value that the Joint Board adds to our deliberation of these issues, section 10 does not allow us the leeway to choose our procedural vehicle and the timing of resolution,” the commission said. The FCC must forbear from applying any Telecom Act regulation “if it finds that the three-prong forbearance test is satisfied,” it said. And the FCC couldn’t stall action on the order into 2009 because forbearance proceedings operate under a statutory shot-clock. If approval hadn’t been voted, the order would have been unconditionally “deemed granted.”

As expected, Democrat commissioners Jonathan Adelstein and Michael Copps dissented. “At this moment, more information -- not less -- is what is needed to promote competition, consumer confidence, investor security and the public interest,” they said in a joint statement.

Tate and McDowell voted last on the forbearance petition, an FCC source told us. McDowell, cast as the swing vote as the tally neared, voted at about 6 p.m., the source said. Meanwhile, Tate, who had been traveling in Thailand, submitted her vote minutes before boarding a plane about 6:30 p.m. EST, the source said.

Opponents Look Ahead

Foes of forbearance for AT&T have doubts about an FCC decision to assign review of the carrier’s compliance plan to the Wireline Bureau, they said on Friday’s conference call. The review should include commissioners, because the order “affects too many issues” for bureau staff to handle by themselves, Blaszak said. The bureau should provide only advice, Gomez said. Giving the job to the unit “runs the risk of exceeding what can be delegated to the bureau,” said Thomas Jones, a lawyer representing Time Warner. “It’s going to essentially establish a whole new set of federal requirements.”

Sprint, CompTel, Ad Hoc and Timer Warner agreed that the process ought to be open. “We're looking forward to participating,” Gomez said. The order doesn’t specify whether that’s the case.

The AT&T order may influence rulings on pending petitions seeking forbearance from ARMIS reporting requirements, opponents said. “There is some level of overlap with at least” a Verizon petition, she said. Blaszak said he assumes the FCC will grant AT&T’s ARMIS petition.

Opponents wouldn’t say if they planned to appeal in the courts. “We're considering all our options,” said Blaszak. Sprint is “still reviewing it,” but the order won’t stop the carrier from challenging ARMIS petitions, Gomez said.

Also miffed were state members of the Federal-State Joint Board on Jurisdictional Separations. “Suggesting State-by-State separations is a poor substitute” for the ongoing Joint Board separations reform proceeding, they said in a joint statement. “It signals either that the FCC is uninterested in completing comprehensive review or that it plans to expedite the process. We genuinely hope that it’s the latter.”