October 13, 1999

Gentlemen:

As the Conference Committee considers legislation making FY 2000 appropriations for the Departments of Commerce, Justice, State, the Judiciary, and related agencies (CJSJ), we want to urge you to adopt language included in both the House and Senate bills that eliminates a costly and outdated paperwork mandate on local telephone companies in your districts.

During House floor consideration of CJSJ, we offered an amendment which received overwhelming bipartisan support to allow local telephone companies to keep their financial records in a single format for accounting and regulatory purposes – that is, Generally Accepted Accounting Procedures (GAAP). GAAP is the standard accounting practice used by every other firm competing in the U.S. telecommunications industry, including long distance companies, cable firms, and competitive local telephone service providers.

This provision would eliminate the so-called Uniform System of Accounts (USOA) which dates back to 1935. The USOA accounting system made sense when the old Bell System was subject to a different regulatory scheme – that is, traditional rate of return regulation. But rate of return regulation was done away with in 1991 for the nation’s largest telephone companies who serve over 90% of the public.

Today, these companies are subject to price cap regulation which means consumers are protected by a ceiling on what telephone companies can charge. With prices capped, the underlying costs are no longer the basis for service charges, and so the overwhelming cost detail that is maintained in a second set of books does nothing to protect consumers. It’s that simple. This system of accounting is antiquated, obsolete and discriminatory, yet it requires an expenditure of nearly $300 million per year to maintain. Unfortunately, these expenses stand in the way of lower prices or improved services for all our constituents, and they should be eliminated.

Critics of this measure claim that eliminating this regulatory mandate could in some way jeopardize universal service. This is simply untrue. The Federal Communications Commission’s authority with respect to universal service is not changed whatsoever by this provision. In fact, new language currently being considered by the Conference Committee makes the protection of universal service explicit. Of course, competitors continue to oppose this provision because it would reduce the telephone companies’ cost of doing business, thereby eliminating the ability of competitors to keep their own rates artificially inflated.

This provision will save Government, industry, and, most importantly, the American public, a tremendous amount of money. It will enable companies to compete fairly with one another using just one set of books. After all, GAAP accounting systems are what Certified Public Accountants are trained to audit, and are required of all companies by the Internal Revenue Service and the Securities and Exchange Commission. If GAAP is sufficient for the IRS, SEC, Wall Street and the public at-large, it certainly should be good enough for the FCC.

Thank you for your support of this modest effort to reduce unnecessary government mandates on a core American industry. We would be happy to answer any questions.

Sincerely,