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 Separate  Statement  of  Commissioner  Kevin  J.  Martin 
 Re:  Federal-  State  Joint  Conference  on  Accounting  Issues,  WC  Docket  02-  269,  Recommendation  Concerning  Suspended  Items,  Outstanding  Petitions  for  Reconsiderations,  and  Proposed 
 Modifications  to  the  Part  32  Accounting  Rules 


 Today,  the  Federal-  State  Joint  Conference  on  Accounting  submits  a  series  of  recommendations  to  the  Commission  and  requests  that  the  Commission  ultimately  modify  its  accounting  rules.  I 
 would  like  to  commend  my  state  and  Federal  colleagues  for  their  commitment  to  resolving  regulatory  accounting  issues  and  to  thank  them  for  their  hard  work  in  developing  these 
 recommendations.  Telecommunications  accounting  issues  are  difficult  and  complex.  My  colleagues  on  the  Joint  Conference  brought  a  wealth  of  experience  and  a  thoughtful  approach  to 
 dealing  with  these  issues,  and  I  believe  the  Commission  and  the  public  have  benefited  tremendously  from  their  contributions  and  hard  work.  The  recommendations  of  the  Federal-State 
 Joint  Conference  provide  a  critical  starting  point  for  evaluating  needed  changes  to  the  Commission’s  accounting  rules. 


 I  write  separately,  however,  to  note  that  I  continue  to  have  some  concerns  about  a  few  aspects  of  the  recommendations  of  the  Joint  Conference.  I  agree  that  these  critical  issues  should  be 
 addressed,  but  am  not  as  sure  that  the  information  available  at  this  time  indicates  that  the  benefits  outweigh  the  costs. 


 I  have  some  concerns  about  the  recommendations  pertaining  to  separate  affiliates.  For  example,  the  Joint  Conference  recommends  that,  after  the  statutory  sunset  of  the  section  272  separate 
 affiliate  requirements,  Bell  Operating  Companies  (BOCs)  should  be  required  to  maintain  their  in-  region  interLATA  telecommunications  service  operations  in  a  separate  affiliate  (with  related 
 accounting  treatment).  The  Commission  allowed  the  section  272  separate  affiliate  requirements  to  sunset  in  New  York  and  Texas.  1 


 The  Joint  Conference  also  recommends  extending  the  affiliate  transactions  rules  to  apply  to  transactions  between  two  regulated  incumbent  local  exchange  carriers  (LECs).  The  Commission 
 has  never  applied  the  affiliate  transactions  rules  to  these  types  of  transactions.  2  Several  state  commissions  have  raised  valid  concerns  about  the  risk  of  anticompetitive  conduct  for  these  types 
 of  transactions.  Based  on  the  information  available  to  the  Joint  Conference  at  this  time, 


 1  See  Public  Notice,  Section  272  Sunsets  For  Verizon  in  New  York  State  By  Operation  of  Law  on  December  23, 
 2002  Pursuant  to  Section  272(  f)(  1),  17  FCC  26864  (2002);  Public  Notice,  Section  272  Sunsets  For  SBC  in  the  State  of  Texas  By  Operation  of  Law  on  June  30,  2003  Pursuant  to  Section  272(  f)(  1),  18  FCC  Rcd  13566  (2003);  see  also 


 Section  272(  f)(  1)  Sunset  of  the  BOC  Separate  Affiliate  and  Related  Requirements,  Further  Notice  of  Proposed  Rulemaking,  18  FCC  Rcd  10914  (2003). 


 2  See  Accounting  Safeguards  Under  the  Telecommunications  Act  of  1996,  Report  and  Order,  11  FCC  Rcd  17539, 
 para.  107  (1996)  (Accounting  Safeguards  Order)  (subsequent  history  omitted). 
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 however,  it  is  not  clear  to  me  that  the  benefits  of  extending  the  affiliate  transactions  rules  into  this  area  outweigh  the  costs.  3 
 Despite  these  concerns,  I  believe  it  is  extremely  important  that  a  forum  be  developed  for  notifying  the  Commission  of  accounting-  related  concerns  and  for  identifying  issues  of  concern  to 
 the  states.  In  this  regard,  the  Joint  Conference  on  Accounting  has  been  extremely  successful  at  facilitating  state  commission  input  into  the  Commission’s  decision-  making  process  for 
 accounting  issues  and  for  renewing  and  beginning  to  formalize  a  dialogue  on  the  broader  issues  related  to  accounting. 


 I  support  the  Joint  Conference  recommendation  for  the  Commission  to  initiate  a  Notice  of  Proposed  Rulemaking  seeking  comment  on  the  Joint  Conference  proposals.  I  look  forward  to 
 continuing  to  work  on  these  recommendations  of  the  Joint  Conference,  and  to  receiving  additional  feedback  from  our  state  colleagues  and  others  as  we  work  to  resolve  these  issues. 


 3  Similarly,  I  have  some  concerns  about  the  recommendation  to  eliminate  the  central  services  organization 
 exemption  to  the  affiliate  transactions  rules,  which  the  Commission  adopted  as  part  of  the  post-  1996  Act  rulemaking  on  accounting  issues.  In  the  1996  rulemaking,  the  Commission  found  that  the  central  services  organization 


 exemption  would  benefit  consumers  by  allowing  incumbent  LECs  to  take  advantage  of  economies  of  scale  and  scope.  See  Accounting  Safeguards  Order  at  para.  148  (explaining  the  basis  for  the  central  services  organization 
 exemption).  Based  on  the  information  available  at  this  time,  I  question  whether  it  is  necessary  to  eliminate  the  exemption  for  central  services  organizations. 
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