New Rules for Accounting Imposed on Phone Firms

Associated Press

New accounting rules were imposed on the telephone industry Tuesday by the Federal Communications Commission in an effort to ensure that telephone customers don’t pay hidden charges to help finance new businesses that the telecommunications giants are entering.

The new cost-allocation rules will apply to the seven regional telephone companies, which include San Francisco-based Pacific Telesis Group, parent of Pacific Bell, and to American Telephone & Telegraph Co., the dominant long-distance company. The rules are designed to separate the costs of running a regulated telephone network from the costs of such unregulated businesses as selling equipment, leasing real estate or operating printing plants.

For the most part, the rules will go into effect on Jan. 1, 1988.


The regulations tell which side of the business must pay such easily identifiable costs as a telephone operator’s salary or the price of an order pad for an equipment sales executive. Corporate stockholders, rather than ratepayers, would absorb any losses from the new businesses.

The rules also instruct the companies how to allocate costs for shared people and facilities, such as the heat for an office that houses regulated and unregulated businesses or the cost of a chief executive’s salary or desk, since the boss oversees both sides of the business.

“This will be a major achievement if we can really track the elusive costs of these unregulated” subsidiaries, said Commissioner James H. Quello.

The phone companies will gain some advantages under the new system, according to Quello. Once the accounting procedures are in place, the commission will allow the companies to combine operations now kept separate to guard against cross-subsidies, he said.

For example, an account executive would be able to sell a customer a piece of equipment and a telephone line to which to hook it. Now, two sales people must be involved in such a transaction, a process that is costly for the phone company and aggravating to the customer.

Strict guidelines are also established to make sure that all telephone customers don’t pay the cost of designing and installing switching equipment devices that will be used to offer unregulated services such as wake-up calls and automated message-taking. The cost of a switch with such enhanced capabilities will be divided, based on its relative basic and enhanced use in the year the enhanced equipment will get its peak use.

For example, if a maximum 10% of the switch’s capacity could be used to provide a wake-up service, only 90% of the switch’s cost would be part of the cost of basic phone service, even if no wake-up service was offered.

The telephone companies will be required to hire auditors to police the cost allocation.