*Pages 1--5 from Microsoft Word - 4469.doc* Federal Communications Commission DA 00- 2418 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D. C. 20554 In the Matter of BellSouth Telecommunications, Inc. 's Permanent Cost Allocation Manual Waiver of Section 32.27 of the Commission's Rules ) ) ) ) ) ) ASD File No. 00- 42 ORDER Adopted: October 26, 2000 Released: October 27, 2000 By the Chief, Accounting Safeguards Division: 1. On February 10, 2000, BellSouth Telecommunications, Inc. (BellSouth) filed a petition for waiver of the Commission's affiliate transactions rules, as codified in Section 32. 27. 1 In its petition, BellSouth seeks permission to record the costs for specific services that it receives from certain of its nonregulated affiliates at "less than fully distributed cost" or "no charge." On March 29, 2000, BellSouth filed a supplementary petition for waiver, seeking to record an additional category of affiliate transaction, 2 at “less than fully distributed cost.” By this order, we approve the two waiver petitions. 3 2. Section 32. 27 of the Commission's rules requires an incumbent LEC to record transactions received from its affiliated entities at the lesser of fully distributed cost or fair market value when, as here, no tariff rate, prevailing price or publicly filed agreement exists. “Fully distributed cost” includes the direct and indirect cost of providing a service. This assures that the captive telephony ratepayer receives the most reasonably advantageous result from the transaction and protects the ratepayer from subsidizing the LECs affiliate activities. Thus, if BellSouth is allowed, per its waiver request, to record services received from nonregulated affiliates at less than fully distributed cost on its regulated books of account, BellSouth’s cost of service would be reduced, and the ratepayer will not incur unwarranted costs associated with the various affiliate transactions. 3. The transactions BellSouth seeks to record at less than fully distributed cost fall into the following broad categories: general and administrative services, marketing services, billing and customer 1 See 47 C. F. R. 32.27. 2 See BellSouth Waiver Request, March 29, 2000. In this request BellSouth seeks permission to record sales services it receives from a nonregulated affiliate at “Less Than Fully Distributed Cost.” 3 The United States Telecom Association filed comments in support of BellSouth's waiver petition. See Comments of United States Telecom Association. 1 Federal Communications Commission DA 00- 2481 2 services and computer and other technical support services. 4 In addition, BellSouth seeks to record sublicense, trademark, and patent services it receives from a nonregulated affiliate at “no charge.” In support of its waiver request, BellSouth argues that the Commission previously granted permission for BellSouth to use the three non- standard terms - “less than fully distributed cost,” “no charge” - and “fully distributed cost” to record certain affiliate transactions. 5 BellSouth maintains that the affiliate transactions it lists in its current waiver petition correspond to that same three non- standard terms approved by the Commission’s previous order. 4. Waiver of the Commission's rules is appropriate only if special circumstances warrant a deviation from the general rule and such deviation will serve the public interest. 6 In addition, a waiver request must be consistent with the principles underlying the rule for which a waiver is requested. After reviewing the transactions listed in BellSouth’s waiver petition, we find that allowing BellSouth to record these services received from affiliates at “no charge” and "less than fully distributed cost" benefits ratepayers by enabling BellSouth to obtain services in a cost- effective manner. Moreover, such accounting treatment is consistent with previous waivers granted for similar affiliate transactions. 7 Because BellSouth's proposed accounting treatment benefits ratepayer interests, we find that it is fully consistent with the public interest and the underlying policy goals. Accordingly, we grant BellSouth’s waiver request at this time. 4 See Attachment 1 for complete description of affiliate transactions listed in BellSouth’s waiver requests. 5 See BellSouth Waiver Request, February 10, 2000 at 3, citing, BellSouth Telecommunications, Inc. Permanent Cost Allocation Manual Waiver of Section 32. 27 of the Commission’s Rules, Order, AAD File No. 93- 80, DA 99- 0106, released on January 24, 2000 (granting BellSouth permission to use non standard language to records affiliate transactions related to directory services). 6 See Northeast Cellular Tel. Co. v. FCC, 897 F. 2d 1164, 1166 (D. C. Cir. 1990); WAIT Radio v. FCC, 418 F. 2d 1153, 1159 (D. C. Cir. 1969); 47 C. F. R. § 1.3. 7 See BellSouth Telecommunications, Inc. Permanent Cost Allocation Manual Waiver of Section 32. 27 of the Commision’s Rules, AAD File No. 93- 80, DA 99- 0106, released on January 24, 2000; See also United Telephone Companies' Permanent Cost Allocation Manual Waiver of Section 32. 27 of the Commission's Rules, Order, 13 FCC Rcd 24255 (Com. Car. Bur. 1998) (United Waiver Order); see also U S West, Inc. 's Permanent Cost Allocation Manual Waiver of Section 32. 27 of the Commission's Rules, Order, 13 FCC Rcd 24257 (Com. Car. Bur. 1998). 2 Federal Communications Commission DA 00- 2481 3 5. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4( i), 4( j), 201- 205, and 218- 220 of the Communications Act of 1934, as amended, 47 U. S. C. §§ 151, 154( i), 154( j), 201- 205, and 218- 220, and Sections 0.91, 0. 291, 1.3, 1.106, and 32.27 of the Commissions rules, 47 C. F. R. §§ 0. 91, 0. 291, 1.3, 1.106, and 32.27, that the Petition for Waiver filed by BellSouth IS HEREBY GRANTED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting Safeguards Division 3 Federal Communications Commission DA 00- 2418 4 ATTACHMENT 1 1. In its waiver petition, BellSouth proposes to apply the term “less than fully distributed cost” to the following services that BellSouth receives from its nonregulated affiliates: From Bell South Corporation Air and Ground Transportation Executive Support Treasury and Accounting Regulatory Support Internal Auditing Legal Personnel Services and Human Resources Technical Support Public Relations Security Support Services From BCS Digital Networking Professional Services Sales (Equipment) From BAT Billing and Customer Services Product Trial and Market Support System Integration and Support From BSCC Joint Marketing Paging Fulfillment From LMB Joint Marketing Advertising Project Management From IMVI Advertising From MNS Network Professional Services Access and Web Hosting Router Management Services Customer Support From HC Joint Marketing From BBI Billing and Customer Services 4 Federal Communications Commission DA 00- 2418 5 ATTACHMENT 1 “Less Than Fully Distributed Cost” cont. From Select Joint Marketing From .NET Internet Protocol Network Services/ support From BRI Executive Support From BIS Information and Technology Services From BCAT Business Travel Services From NTA Emergency Preparedness Services From BSGI Customer Support From BASC Treasury and Accounting Project Management From BARM Customer Billing Services From BCCM Customer Support From BSPC Sales 2. In its waiver petition, BellSouth proposes to apply the term “no charge” to the following service BellSouth receives from its nonregulated affiliate: From HC Sublicense trademarks, trade names and patents 5