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DEPRECIATION RATESETTING
AND ITS IMPLICATIONS IN A
MORE COMPETITIVE ENVIRONMENT

During 1980 and 1981, the Commission made changes to its methods and practices for setting depreciation rates. These changes, allowing faster capital recovery, have been largely in response to the rapid changes in technology and reflect the Commission's overall thrust for a more competitive environment.

In implementing its changes, however, the Commission has not resolved questions regarding the methods and procedures needed to set new depreciation rates. For example, the proper method for allocating the depreciation reserve account to individual plant accounts has not been determined and requirements for setting depreciation rates for that part of the depreciable plant from the telephone pole to the customer's premises have not been developed.

Before proceeding to set revised depreciation rates, GAO recommends the Commission address these and other questions. Doing so will place the Commission in a position to avoid accepting and approving depreciation rates with less than the rigorous review needed. (See p. 159.)

Commission action is also needed before implementing that part of its Computer II Decision relating to customer premises equipment-telephones, computer terminals, and other equipment which may be located at the customer's premises and attached to the communications network. The Commission has proposed to deregulate as of March 1, 1982, new customer premises equipment and to continue to regulate existing customer premises equipment. (See p. 160.)

ENSURING FAIR, NON-
DISCRIMINATORY ACCESS
TO LOCAL EXCHANGES

Since competition was first allowed in interstate telecommunications services, the Commission has required that all carriers offering authorized interstate communications services be allowed access to local exchange facilities on a nondiscriminatory basis. Such access is virtually the only means for local distribution of interstate telephone services. The Commission and the courts have, however, continued to identify access discrimination problems involving both

the types of access services provided and the
rates charged for such services.

During recent years, the local exchange costs assigned to interstate services have also gradually increased, giving rise to the allegation that rates for such services subsidize intrastate rates. The existence and magnitude of any such subsidy, however, is unclear.

The Commission is addressing the problem of access discrimination. Neither the Commission's past actions nor its present proposals, however, resolve the following questions.

--What types of interconnection should telephone

companies be required to provide to new carriers?

--What rates should be charged to new carriers

for access to local exchanges?

--What are the effects of competition on any

subsidies which may have been provided between interstate services and intrastate services?

--Can nondiscriminatory access conditions be

assured without major changes in telephone
industry structure and procedures?

GAO recommends that the Congress address
these questions by amending the Communications
Act of 1934 to establish the basic framework
to create nondiscriminatory access conditions.
This includes expanding the Commission's author-
ity to allow it to regulate all long-distance
telecommunications facilities and services.
(See p. 184.)

On June 30, 1981, GAO requested Commission
comments on this report. The Commission did
not provide GAO official agency comments.
The Commission's Chairman did, however, on
July 20, 1981, provide a brief written staff
commentary on the technical issues raised in
the report. The Chairman stated that the com-
ments did not necessarily represent the policy
of the Commission. GAO reviewed the staff com-
mentary and revised technical material as
appropriate. These revisions, however, did not
affect GAO's conclusions or recommendations.

Tear Sheet

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