Summary

The Federal Communications Commission, supported by the courts, has issued a series of decisions which have allowed competition in the manufacture of telecommunications terminal equipment and in the interstate provisions of telecommunications services. GAO conducted a review to evaluate the Commission's program for regulating domestic telecommunications common carriers in light of the changing industry structure.

Commission monitoring of the still-changing telecommunications industry structure would provide a basis for determining which carriers are dominant and which programs and policies can be applied to these carriers and would enable the Commission to measure its effectiveness in encouraging competition. In implementing the program of price/earnings regulation, the Commission has focused on establishing carriers' rates of return and has paid little attention to carrier investment cost and expenses. Uncertainty exists regarding the Commission's authority to authorize the construction of carrier facilities, particularly when it extends to carrier switching equipment. Allocating costs appropriately among various telecommunications services is a critical aspect in preventing potential cross-subsidy between monopoly and competitive services. The Commission has had limited success in implementing its broad principle that costs should be fully distributed among all services. To develop a long-term costing approach, the Commission needs to revise its Uniform System of Accounts. The Commission has had difficulty in obtaining carriers' cost data from which it can prescribe a lawful tariff. The separate subsidiary approach proposed by the Commision does not go far enough in providing for organizational restructuring and separation conditions, and the Commission has moved too quickly in implementing this approach. The Commission has not resolved questions regarding the methods and procedures needed to set new depreciation rates and the problem of access discrimination.