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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 The Prescription of Revised Percentages of ) Depreciation pursuant to the Communications ) Act of 1934, as amended for: ) ) Southwestern Bell Telephone ) MEMORANDUM OPINION AND ORDER Adopted: January 7, 1999 Released: January 8, 1999 By the Commission: Commissioner Furchtgott-Roth issuing a statement. I. INTRODUCTION 1. On July 30, 1998, Southwestern Bell Telephone ("SBC") filed a request that the Commission prescribe revised depreciation rates pursuant to Section 220(b) of the Communications Act of 1934 ("Act"). In this Memorandum Opinion and Order, we adopt these rates. 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 ("LECs"). 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, and 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 that require periodic review to ensure their reasonableness. In 1993, the Commission established procedures that allow streamlined studies for review, provided that carriers select life and salvage factors from within the prescribed ranges. III. DISCUSSION 3. On December 19, 1997, SBC submitted a depreciation rate study to the Common Carrier Bureau ("Bureau") proposing revisions to its depreciation rates for facilities in Kansas, Missouri, and Texas. On March 6, 1998 and April 2, 1998, SBC provided additional information regarding its proposed depreciation rates. Bureau staff reviewed this proposal and on July 23, 1998 convened a video teleconference with representatives of SBC and the Kansas Corporation Commission, Missouri Public Service Commission, and Texas Public Utility Commission. With the exception of two accounts, all of the parties participating in the teleconference agreed to equipment life and salvage factors that should be used to compute SBC's depreciation rates. The exceptions are Account 2212, Digital Electronic Switching, and Account 2423, Buried Cable - Metallic for the Kansas jurisdiction. For these accounts, SBC and the Bureau staff agreed to factors, but the Kansas staff did not agree. 4. On July 30, 1998, SBC formally filed a request that the Commission prescribe revised depreciation rates for its Kansas, Missouri, and Texas facilities. The Bureau staff reviewed the filing and determined that: (1) the proposed rates were based on the factors agreed to in the teleconference; (2) SBC did not propose, except for two accounts, to move its life factors outside the prescribed ranges; and (3) the proposed rates were calculated consistently with our rules. 5. On August 26, 1998, the Bureau released a Public Notice seeking comments on SBC's proposed rates. Only Kansas submitted comments. Kansas agreed to the proposed rates with the exception of Accounts 2212 and 2423. For those accounts, Kansas reserved judgment pending the resolution of a Kansas Commission proceeding in which those depreciation rates may be resolved for state ratemaking purposes. 6. Based on our review of the record, we find that SBC's proposed depreciation rates were prepared in accordance with the Commission's depreciation prescription process and that the proposed rates are reasonable and consistent with our rules and orders. We therefore adopt SBC's proposed rates as specified in the Appendix. 7. In addition, SBC proposed that the revised rates become effective on January 1, 1998. SBC's request is consistent with our rules that allow rates to be made retroactive to the beginning of the year in which the filing is made. We hereby set the effective date of these rates as January 1, 1998. IV. ORDERING CLAUSES 8. 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, 1998. 9. IT IS FURTHER ORDERED that this Order is effective upon release. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH Re: The Prescription of Revised Percentages of Depreciation Pursuant to the Communications Act of 1934, as amended, for Southwestern Bell Telephone I support today's Order revising the depreciation rate for Southwestern Bell Telephone. I write separately to express my continued concern with the Commission's micromanagement of LECs in general. The Commission's authority to prescribe depreciation rates for LECs is a mere vestige of outdated rate of return regulation. I note that the Commission has initiated a proceeding to review the depreciation rules, along with many of its other detailed accounting regulations, in the context of its biennial review proceedings. I await anxiously the opportunity to address more fully these issues and the circumstances under which dominant LECs should be accorded a simpler form of price cap regulation. In today's increasingly competitive telecommunications marketplace, the Commission should be focusing its efforts on transitioning to this more competitive environment. The amount of detailed information and regulatory scrutiny required under our current price cap rules is inordinate and should be reduced. This seemingly anachronistic regulatory regime should be reformed to provide further pricing flexibility, eliminating altogether such relics as the low-end adjustment. I am becoming increasingly convinced that the current regulatory mechanisms -- and certainly the level of detail -- are no longer necessary in today's increasingly competitive marketplace. We must develop a more forward-looking blueprint to guide the transition from regulation to competition. As I have stated previously, regulation is merely designed, to the extent possible, to replicate a competitive marketplace, but any form of regulation is an imperfect surrogate for full-fledged competition. I believe the Commission must consider even further deregulation as these cumbersome regulations become unnecessary. FEDERAL COMMUNICATIONS COMMISSION APPENDIX Schedule of Annual Percentages of Depreciation for PAGE 1 SOUTHWESTERN BELL TELEPHONE COMPANY - KANSAS Effective January 1, 1998 Remaining Average Future Life Remaining Net Accumulated Depreciation Rate Category Description Life Salvage Depreciation Rate ____________________ ________ _______ __________ _____________ (years) (%) (%) (%) A B C D=(100%-B-C)/A 2112 MOTOR VEHICLES 3.6 11 56.9 8.9 2115 GARAGE WORK EQPT 3.8 0 57.1 11.3 2116 OTHER WORK EQPT 5.7 0 53.1 8.2 2121 BUILDINGS 25.0 6 27.3 2.7 2122 FURNITURE 7.0 0 27.6 10.3 2123 OFFICE SUPPORT 4.9 0 49.7 10.3 2123 COMPANY COMMUNICATIONS EQPT 3.7 0 58.9 11.1 2124 GEN'L PURPOSE COMPUTERS 2.4 2 71.9 10.9 2211 ANALOG ELECT SWITCHING 0.9 -3 75.3 30.8 2212 DIGITAL ELECT SWITCHING 7.8 2 33.1 8.3 2220 OPERATOR SYSTEMS 3.9 0 46.1 13.8 2231 RADIO @ 1.8 -5 87.5 9.7 2232 DIGITAL DATA SYSTEMS 3.5 0 57.3 12.2 2232 DIGITAL CIRCUIT 5.7 0 40.3 10.5 2232 ANALOG CIRCUIT 3.0 -4 72.5 10.5 2311 STATION APPARATUS 2.9 -2 70.0 11.0 2341 LARGE PBX 3.2 -5 71.2 10.6 2362 OTHER TERMINAL EQPT 3.3 -2 8.3 28.4 2411 POLE LINES 10.2 -108 118.2 8.8 2421 AERIAL CABLE-METALLIC 10.5 -42 62.9 7.5 2421 AERIAL CABLE-NONMETAL 13.0 -25 22.3 7.9 2422 UG CABLE-METALLIC 14.3 -12 62.8 3.4 2422 UG CABLE-NONMETAL 13.1 -9 32.6 5.8 2423 BURIED CABLE-METALLIC 9.4 -10 55.4 5.8 2423 BURIED CABLE-NONMETAL 14.8 -10 24.3 5.8 2424 SUBMARINE CABLE 11.3 0 68.9 2.8 2426 INTRABLDG NETWORK CABLE-METAL 13.3 -17 63.6 4.0 2426 INTRABLDG NETWORK CABLE-NONMET 12.3 -5 49.2 4.5 2431 AERIAL WIRE 2.1 -145 161.7 39.7 2441 CONDUIT SYSTEMS 31.0 -10 30.8 2.6 The figures in Columns B, C, and D are percentages of gross book costs. @ The January 1, 1998 reserve imbalance of $8,840,000 for the Radio Systems Account is to be amortized over a twenty-four month period ending December 31, 1999. FEDERAL COMMUNICATIONS COMMISSION APPENDIX Schedule of Annual Percentages of Depreciation for PAGE 2 SOUTHWESTERN BELL TELEPHONE COMPANY - MISSOURI Effective January 1, 1998 Remaining Average Future Life Remaining Net Accumulated Depreciation Rate Category Description Life Salvage Depreciation Rate ____________________ ________ _______ __________ _____________ (years) (%) (%) (%) A B C D=(100%-B-C)/A 2112 MOTOR VEHICLES 3.6 10 55.8 9.5 2115 GARAGE WORK EQPT 7.4 0 34.5 8.9 2116 OTHER WORK EQPT 6.0 0 52.8 7.9 2121 BUILDINGS 41.0 4 22.4 1.8 2122 FURNITURE 7.9 0 3.7 12.2 2123 OFFICE SUPPORT 5.2 0 42.7 11.0 2123 COMPANY COMMUNICATIONS EQPT 4.0 5 34.1 15.2 2124 GEN'L PURPOSE COMPUTERS 3.0 2 47.8 16.7 2211 ANALOG ELECT SWITCHING 2.5 -3 57.0 18.4 2212 DIGITAL ELECT SWITCHING 8.0 2 30.1 8.5 2220 OPERATOR SYSTEMS 7.0 0 44.3 8.0 2231 RADIO @ 1.0 -5 95.8 9.2 2232 DIGITAL DATA SYSTEMS 3.4 0 71.2 8.5 2232 DIGITAL CIRCUIT 5.7 0 44.3 9.8 2232 ANALOG CIRCUIT 2.9 -3 70.9 11.1 2311 STATION APPARATUS 2.5 -2 82.1 8.0 2341 LARGE PBX 2.7 -5 54.8 18.6 2362 OTHER TERMINAL EQPT 3.4 -5 7.9 28.6 2411 POLE LINES 13.1 -116 87.9 9.8 2421 AERIAL CABLE-METALLIC 10.7 49 62.0 8.1 2421 AERIAL CABLE-NONMETAL 13.2 -25 17.4 8.2 2422 UG CABLE-METALLIC 13.5 -21 62.8 4.3 2422 UG CABLE-NONMETAL 13.2 -10 30.3 6.0 2423 BURIED CABLE-METALLIC 10.0 -10 48.7 6.1 2423 BURIED CABLE-NONMETAL 14.7 -10 25.5 5.7 2424 SUBMARINE CABLE 11.6 0 -158.0 22.2 2426 INTRABLDG NET WORK CABLE-METAL 12.8 -17 53.4 5.0 2426 INTRABLDG NET WORK CABLE-NONMET 11.9 -5 20.3 7.1 2431 AERIAL WIRE 3.6 -287 228.4 44.1 2441 CONDUIT SYSTEMS 32.0 -6 28.0 2.4 The figures in Columns B, C, and D are percentages of gross book costs. @ The January 1, 1998 reserve imbalance of $10,878,000 for the Radio Account is to be amortized over a twenty-four month period ending December 31, 1999. FEDERAL COMMUNICATIONS COMMISSION APPENDIX Schedule of Annual Percentages of Depreciation for PAGE 3 SOUTHWESTERN BELL TELEPHONE COMPANY - TEXAS Effective January 1, 1998 Remaining Average Future Life Remaining Net Accumulated Depreciation Rate Category Description Life Salvage Depreciation Rate ____________________ ________ _______ __________ _____________ (years) (%) (%) (%) A B C D=(100%-B-C)/A 2112 MOTOR VEHICLES 3.5 9 53.7 10.7 2115 GARAGE WORK EQPT 4.6 -51 94.3 12.3 2116 OTHER WORK EOPT 5.8 0 49.5 8.7 2121 BUILDINGS 29.0 4 25.5 2.4 2122 FURNITURE 7.6 4 69.6 3.5 2123 OFFICE SUPPORT 4.6 0 58.4 9.0 2123 COMPANY COMMUNICATIONS EQPT 4.2 0 48.7 12.2 2124 GEN'L PURPOSE COMPUTERS 3.0 2 52.9 15.0 2211 ANALOG ELECT SWITCHING 2.2 -2 73.5 13.0 2212 DIGITAL ELECT SWITCHING 8.1 2 30.5 8.3 2220 OPERATOR SYSTEMS 4.7 0 52.1 10.2 2231 RADIO 2.2 -5 63.7 18.8 2232 DIGITAL DATA SYSTEMS 3.6 0 54.3 12.7 2232 DIGITAL CIRCUIT 5.8 0 43.0 9.8 2232 ANALOG CIRCUIT 3.1 -5 82.4 7.3 2311 STATION APPARATUS 2.7 -2 62.3 14.7 2341 LARGE PBX 2.9 -5 62.3 14.7 2362 OTHER TERMINAL EQPT 3.6 -2 4.6 27.1 2411 POLE LINES 13.4 -155 92.1 12.2 2421 AERIAL CABLE-METALLIC 10.7 -49 67.9 7.6 2421 AERIAL CABLE-NONMETAL 15.0 -25 17.6 7.2 2422 UG CABLE-METALLIC 12.4 -16 58.5 4.6 2422 UG CABLE-NONMETAL 15.2 -10 26.1 5.5 2423 BURIED GABLE-METALLIC 11.1 -13 56.6 5.1 2423 BURIED CABLE-NONMETAL 14.5 -10 24.3 5.9 2424 SUBMARINE CABLE 14.5 -2 15.9 5.9 2426 INTRABLDG NETWORK GABLE-METAL 11.9 -17 73.4 3.7 2426 INTRABLDG NETWORK CABLE-NONMET 11.6 -10 19.3 7.8 2431 AERIAL WIRE 4.5 -79 179.0 0.0 2441 CONDUIT SYSTEMS 33.0 -10 25.9 2 5 The figures in Columns B, C, and D are percentages of gross book costs. @ The amortization amount for the Aerial Wire Account ordered in FCC 96-22 released January 26. 1996 is continued.