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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Amendment of Rules and ) CS Docket No. 97-98 Policies Governing Pole ) Attachments ) NOTICE OF PROPOSED RULE MAKING Adopted: March 14, 1997 Released: March 14, 1997 Comment Date: May 12, 1997 Reply Comment Date: June 12, 1997 By the Commission: TABLE OF CONTENTS Page Nos. I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 III. POLE ATTACHMENT ISSUES . . . . . . . . . . . . . . . . . . . . . . .5 A. Development of the Formula. . . . . . . . . . . . . . . . . . 5 B. Southwestern Bell Petition. . . . . . . . . . . . . . . . . . . 8 C. Notice of Proposed Rulemaking . . . . . . . . . . . . . . . . . 10 1. 1. Potential Adjustments to the Pole Attachment Formula 10 2. Other Proposed Formula Adjustments . . . . . . . . . 15 a. Administrative Component . . . . . . . . . . . . 16 b. Maintenance Component. . . . . . . . . . . . . . 17 c. Taxes Component. . . . . . . . . . . . . . . . . 17 3. Rate of Return. . . . . . . . . . . . . . . . . . . . 18 IV. CONDUIT ATTACHMENT ISSUES . . . . . . . . . . . . . . . . . . . . . 18 A. Application of the Pole Attachment Formula to Conduits. . . . . 18 B. Proposed Conduit Methodology. . . . . . . . . . . . . . . . . 20 V. OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 VI. REGULATORY FLEXIBILITY . . . . . . . . . . . . . . . . . . . . 22 VII. PAPERWORK REDUCTION ACT OF 1995 ANALYSIS . . . . . . . . . . . . . 33 VIII. PROCEDURAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 33 IX. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . . . . 34 APPENDIX A - CURRENT FORMULA (NOTING PROPOSED CHANGES) . . . . . . . . 36 APPENDIX B - MAPPING PROPOSED FROM PART 31 TO PART 32. . . . . . . . . 37 APPENDIX C - PROPOSED CONDUIT ATTACHMENT FORMULA . . . . . . . . . . 38 I. INTRODUCTION 1. This Notice of Proposed Rulemaking seeks comment on proposed modifications to the Commission's rules relating to the maximum just and reasonable rates utilities may charge for attachments made to a pole, duct, conduit or right-of-way. These attachments are referred to as "pole attachments." We believe that a re-evaluation of this formula may be necessary to improve accuracy in the continued application of these rules to cable television systems and to telecommunications carriers pursuant to the Telecommunications Act of 1996 ("1996 Act"). We also propose amending the formula so that it reflects our current accounting rules that apply to telephone companies. Finally, in this Notice, we propose a conduit methodology that will determine the maximum just and reasonable rates utilities may charge cable systems and telecommunications carriers for their use of conduit systems. The proposed formula would apply to all telecommunications carriers pending the effectiveness of the new formula required by the 1996 Act. II. BACKGROUND 2. It has become common practice for cable systems and telecommunications carriers to lease space from utilities on poles or in ducts, conduits, or rights-of-way, in order to provide cable service or telecommunications services. The federal government did not regulate these arrangements until 1978, when Congress, in response to concerns raised by cable television operators, enacted Section 224. In Section 224(d)(1), Congress established the parameters of just and reasonable cable pole attachment rates that assures a utility the recovery of not less than the additional costs of providing pole attachments, nor more than an amount determined by multiplying the percentage of the total usable space, or the percentage of the total duct or conduit capacity, which is occupied by the pole attachment by the sum of the operating expenses and actual capital costs of the utility attributable to the entire pole, duct, conduit or right-of-way. The zone of reasonableness is bounded on the lower end by the utility's incremental costs, and on the upper end by the cable system or telecommunications carrier's share of the utility's fully allocated costs of owning and maintaining the poles to which an attachment has been made. Incremental costs are those costs that the utility would not have incurred "but for" these attachments. Congress expected that pole attachment rates based on incremental costs would be low, because utilities generally recover the make-ready or change-out charges directly from cable systems. Fully allocated costs refer to the portion of operating expenses and capital costs that a utility incurs in owning and maintaining poles that are associated with the space occupied by pole attachments. Congress acknowledged that there might be some difficulty in determining certain components of a utility's operating expenses and actual capital costs. 3. Section 224(b)(1) grants the Commission authority to regulate the rates, terms, and conditions governing pole attachments and requires that such rates, terms and conditions are just and reasonable. The Commission is also authorized to adopt procedures necessary to hear and to resolve complaints concerning such rates, terms, and conditions. 4. When Congress enacted Section 224 in 1978, it directed the Commission to institute an expeditious program for determining just and reasonable pole attachment rates. The intent was that the program would necessitate a minimum of staff, paperwork and procedures consistent with fair and efficient regulation. Congress did not believe, however, that special accounting measures or studies would be necessary because most cost and expense items attributable to utility pole plant were already established and reported to various regulatory bodies. Congress also did not expect the Commission to re-examine the reasonableness of the cost methodologies that various regulatory agencies had sanctioned. It recognized that the Commission would have to "make its best estimate" of some of the less readily identifiable costs. 5. Section 703(6) of the 1996 Act amended Section 224(d)(3). This amendment expanded the scope of Section 224 by applying the pole attachment rate formula to telecommunications carriers in addition to cable systems. As amended, the statute defines "pole attachment" as "any attachment by a cable television system or provider of telecommunications service to a pole, duct, conduit, or right-of-way owned or controlled by a utility." The statute also defines "utility" as any person that is a local exchange carrier or an electric, gas, water, steam, or other public utility, and that owns or controls poles, ducts, conduits, or rights-of-ways used, in whole or in part, for any wire communications. The term "utility" does not include any railroad, any cooperatives or any federally or state-owned entity. The formula proposed in this Notice will apply to attachments on poles, within ducts, conduit or rights-of-way by both cable systems and telecommunications carriers until a separate methodology is proposed for telecommunications carriers. Congress directed the Commission to issue a new pole attachment formula relating to telecommunications carriers within two years of the effective date of the 1996 Act, to become effective five years after enactment. We will propose these new rules and seek comment in a subsequent Notice. III. POLE ATTACHMENT ISSUES A. Development of the Pole Attachment Formula 6. In 1978, the Commission adopted procedural rules governing pole attachments. Subsequent Commission orders have refined the Commission's methodology for determining the amount of usable space on a pole and the space occupied by cable systems. These orders have also required additional information to be included with pole attachment complaints, and improved complaint procedures. 7. In Adoption of Rules for the Regulation of Cable Television Pole Attachments, CC Docket No. 78-144, the Commission sought comment regarding the amount of usable space for various size poles in different service areas. The total usable space is the space on the utility pole above the minimum grade level that is usable for the attachment of wires, cables, and related equipment. The Commission's determinations were based upon the outcome of survey results, consideration for the National Electric Safety Code ("NESC"), and practical engineering standards used in the construction of utility poles. The Commission found that "the most commonly used poles are 35 and 40 feet high, with usable spaces of 11 to 16 feet, respectively." The Commission recognized the NESC guideline that 18 feet of the pole space must be reserved for ground clearance and that six feet of pole space is for setting the depth of the pole. To avoid a pole by pole rate calculation, the Commission adopted rebuttable presumptions of an average pole height of 37.5 feet, an average amount of usable space of 13.5 feet, and an average amount of 24 feet of unusable space on a pole. In addition, the Commission created a rebuttable presumption of one foot as the amount of space a cable television attachment occupies. 8. The Commission initially adopted a formula to determine the maximum allowable pole attachment rate under Section 224 on the basis of a utility's fully allocated cost of owning a pole. This formula has been further refined through orders in complaint cases which have resulted in the following generally applicable formula for calculating the maximum rate: Maximum Rate = Space Occupied by Attachment X Net Cost of a X Carrying Total Usable Space Bare Pole Charge Rate 9. The first component of the formula, space occupied by attachment divided by the total usable space on a pole, is used to calculate the percentage of usable space that the attachment occupies on an average pole. The Commission's rules define usable space as the space on a utility pole above the minimum grade level that can be used for the attachment of wires, cables and associated equipment. For purposes of cable television system attachments, the Commission's Petition to Adopt Rules Concerning Usable Space on Utility Poles permanently assigned one foot of usable space per pole to cable systems. The denominator of the first component is set using a rebuttable presumption that the total usable space per pole is 13.5 feet. Therefore, one cable attachment presumptively occupies 7.4% of an average pole. 10. The second component of the overall formula is the net cost of a bare pole. The component is derived from the gross investment in poles less accumulated depreciation and accumulated deferred income taxes. An adjustment is made to a utility's net pole investment to eliminate the investment in crossarms and other non-pole related items. To accomplish this, the Commission determined to reduce net pole investment by 15% for electric utilities and 5% for telephone companies. Thus, to arrive at the net cost of a bare pole, a factor, 0.85 for electric utilities or 0.95 for telephone companies, is multiplied by the net investment per pole, as shown in the following formula: Net Cost of a = Factor X Net Pole Investment Bare Pole Number of Poles We believe these are the appropriate factors for arriving at the net cost of bare pole. 11. The final component of the overall pole attachment formula is the carrying charge rate. Carrying charges are the costs incurred by the utility in owning and maintaining poles regardless of the presence of pole attachments. The carrying charges include the utility's administrative, maintenance, and depreciation expenses, a return on investment, and taxes. To help calculate the carrying charge rate, we developed a formula that relate each of these components to the utility's net investment. The entire formula is attached to this Notice as Appendix A. B. Southwestern Bell Petition 12. On August 26, 1994, Southwestern Bell Telephone Company ("SWB") filed a Petition for Clarification, or in the Alternative, a Waiver of our formula for computing maximum reasonable pole attachment rates. SWB argues that in Oklahoma, the Commission's pole attachment formula produces a negative net cost of a bare pole and other negative figures, resulting in negative rates. SWB asserts that these abnormal results arise as the original costs of the poles are depreciated over time, particularly since the cost of removing the pole at the end of its useful life is included in the original cost of the pole. Because the cost of removal can be high, SWB argues it has resulted in negative net pole investment for its poles in Oklahoma. SWB proposes to remedy the rate problem by extracting the cost of removing poles from the formula for calculating the accumulated depreciation used to determine pole attachment rates. This would increase the net pole investment SWB would use in applying the formula, thereby making SWB's pole attachment rates positive under that formula. 13. Supporting SWB's petition, U S West Communications, Inc. ("U S West") states that under the current pole attachment formula, the potential for negative net pole investment exists. U S West agrees that this can occur because of the high cost of pole removal and the high accumulated depreciation balances for pole investment. U S West supports SWB's proposal that we adjust the pole attachment formula by extracting the cost of removing poles from accumulated depreciation. 14. The Texas Cable TV Association, the Arkansas Cable Television Association, the Kansas Cable Television Association, the Missouri Cable Telecommunications Association, and the Cable Systems of Oklahoma, Inc. (collectively, "Cable Associations") filed joint comments opposing SWB's petition. The Cable Associations claim that SWB's proposal does not comport with the Commission's pole attachment formula and would result in unlawful pole attachment rates. The Cable Associations also argue that, because SWB's accumulated depreciation exceeds its investment in poles, it has, in effect, created a regulatory asset on which it has been earning a return. The Cable Associations maintain that we should not allow carriers to extract the cost of removing poles from accumulated depreciation. 15. Discussion. Negative net pole investment may result from the way we have historically calculated depreciation rates. We generally prescribe depreciation rates at levels sufficient to give each carrier an opportunity to recover its plant investment on a straight-line basis over the life of the associated plant. The rate also includes a provision that allows each carrier to accrue over the life of the asset, the expenses associated with the removal and disposition of the plant investment, including the cost of removal. Depreciation rates have been calculated by using the following formula: Depreciation Rate = 100% - Accumulated Depreciation % - Net Salvage % Average Remaining Life The depreciation rate determined by this formula is applied to the gross plant value. In the formula, accumulated depreciation is the portion of the plant that has been charged to expense in previous periods and is often referred to as the depreciation reserve. Net salvage is the estimated difference between the amount the carrier would receive as salvage for sale of retired plant and the plant's estimated cost of removal. Average remaining life is the estimated future life expectancy of investment in a particular plant account. 16. As accumulated depreciation increases for plant with high removal costs, the application of the depreciation rate formula may lead to net pole investment becoming negative. This would mean that accumulated depreciation could exceed the asset's original cost. SWB asserts that its poles in Oklahoma are an example of plant where this has occurred. SWB contends that the cost of removal for its pole investment exceeds the salvage value for poles resulting in a negative net salvage value. In these cases, the total depreciation taken over the life of the pole may exceed the pole investment and the net pole investment may therefore become negative over time. Because our pole attachment formula applies percentages for the carrying charge factors to the poles' net investment, a negative net salvage value could result in negative or unusually low pole attachment rates. C. Notice of Proposed Rulemaking 1. Potential Adjustment to the Pole Attachment Formula 17. As detailed below, we seek comment on the issues raised by SWB's petition. We also seek comment on aspects of the current formula which some parties believe require modification. A group of electrical utilities recently filed a Whitepaper ("Whitepaper") in anticipation of this Notice. 18. The Whitepaper suggests that an increase in the current presumptive pole height is appropriate. The Whitepaper asserts that over time, and with increased demand, the average pole height has increased to an average of 40 feet. At the same time, the Whitepaper contends that the usable space presumption should also be changed from 13.5 feet to 11 feet. Thus, we seek comment as to whether our current pole height and usable space presumptions are still applicable or whether these presumptions should be modified. The Whitepaper also makes certain recommendations with respect to accounts which should be included in the net cost of a bare pole. These accounts include costs for lightning arresters and grounding installations. We agree that such equipment installed to protect poles are included in the calculation of the net cost of a bare pole. We believe however, that current calculations already include all such lightning protectors and ground installations. 19. The Commission has always recognized the NESC requirement that a 40 inch safety space must exist between electric lines and communication lines. The NESC requires a 40 inch safety space to minimize the possibility of physical contact by employees working on cable television or telecommunications attachments with the potentially lethal electric power lines. We seek comment on the premise that the safety space emanates from a utility's requirement to comply with the NESC and should properly be assigned to the utility as part of its usable space. 20. Poles of 30 feet or less are currently included in the calculation of cost of bare pole. The Whitepaper contends that poles of 30 feet or less lack a sufficient amount of usable space to accommodate multiple attachments. In most cases these smaller poles have only electrical and/or telephone attachments affixed to them. We seek comment on whether including these smaller poles in the numerator and denominator of the cost of bare pole calculation results in a distorted determination of the actual costs of a bare pole. We also seek comment on this proposal and whether poles of 30 feet or less lack a sufficient amount of usable space to accommodate multiple attachments. 21. With regard to SWB's petition, we seek comment on the scope of the problem. For instance, we seek comment on the number of jurisdictions where accumulated depreciation balances currently exceed the gross pole investment. We also seek comment on the number of jurisdictions in which accumulated depreciation balances will exceed gross pole investment in the near future. We seek comment on the rates being charged in such jurisdictions and how such rates comport with the statutory maximum rate. 22. If commenters believe that a modification of the pole attachment formula is necessary, we seek comment on appropriate adjustments and the circumstances in which the adjustment should be made. In the alternative, if commenters believe that the frequency with which this problem occurs does not warrant any adjustment to the formulas, we seek comment on whether a case-by-case approach should be used. 23. We recognize that many of the expenses associated with the ownership of poles continue after full recovery of investment in poles takes place. The inclusion of the cost of removal in the calculation of depreciation for poles, however, tends to relieve attaching parties of this burden as full recovery of the poles investment takes place over time. One possible modification that would eliminate this effect would be to adjust the current net investment approach. The adjustment would eliminate the net salvage amount from the accumulated depreciation balance when the net value of poles becomes negative. Removal of the net salvage amount would, for the purpose of pole attachment rate calculation, restate the accumulated depreciation account to reflect only the depreciation of the pole investment, restoring the net pole investment to a positive balance. Calculating the appropriate amounts to recognize the continuing cost of pole ownership could be done as currently provided in the formula. We seek comment on whether the application of the appropriate factors to the net pole amount, adjusted as proposed, would provide a fair rate for sharing in the recovery of continuing expenses associated with pole ownership. 24. Pending comment, we anticipate the need for this proposed adjustment will be limited to circumstances such as those suggested by SWB. We believe that the adjustment may properly be applied only after the net asset balance for poles has become negative. Each time a new rate is to be developed, the poles account would be examined before the accumulated depreciation balance is adjusted. If there is a positive balance, no adjustment to the accumulated depreciation account would be made. 25. We recognize that this proposed method of making an adjustment only after the account balance becomes negative will result in a gradually declining rate that will eventually rise to a more consistent level over time after the proposed adjustment is made. Thus, even before the pole account becomes negative, the inclusion of the disposal cost in depreciation could have the tendency to render pole attachment rates inordinately low. We believe however, that this is balanced by over recovery in the early phase of the pole's life. A new pole, for instance, should have very little maintenance requirements. Yet, in the early phase of its life, the full, undepreciated cost is included in the formula. Consequently, an excess provision for maintenance is included in the rate for the new pole. Normally, within the full complement of poles, there should be a natural balancing of old and new poles. This results in an average condition that affects inclusion of the appropriate maintenance component in the formula. It appears that such balancing may not occur when the cost of disposal works to reduce account balance for poles in the manner under consideration. Nevertheless, we believe it to be appropriate to require that the account be left unadjusted until full recovery has occurred. This is necessary to balance over the life of every pole the excessive amounts included when the poles were new. We invite comment on this method and on whether it appropriately provides for such balancing and then allows the rate to be stabilized at a level more reflective of the normal condition that prevails for the majority of operators not faced with such unusual disposal costs. 26. The administrative expense, maintenance expense, depreciation expense, and at least some of the tax expenses associated with pole ownership are all expected to continue after full recovery of the pole investment has occurred. Consequently, the calculation of the appropriate factors for these components of the rate formula should be made using the pole investment balance after adjustment has been made to the accumulated depreciation for poles. We do not, however, propose to make any adjustments in the calculation of the return element of the pole attachment rate formula. Since the full cost of poles will have been recovered at such time that the net balance for poles becomes negative, we do not believe that it would be appropriate to continue to provide pole owners with a return on their investment in poles. We propose, therefore, that the calculation of the return element should be made separately in the manner currently prescribed. Thus, the return element would be computed on the basis of the unadjusted net pole balance and the result added (as a negative amount) to the carrying charges for administrative, maintenance, depreciation, and tax expenses. We believe that the inclusion of this negative return element is reasonable and appropriate because the utility has, in effect, already recovered more than the original cost of its pole plant through depreciation charges. While this "over-recovery" is necessary to defray the costs of disposing of the poles when they are retired from service, the utility has the use of any over-recovered amounts until the disposal of the poles actually takes place. Our tentative conclusion is that a utility's pole attachment rates should reflect over-recovery in the form of a negative return carrying charge. We seek comment on this tentative conclusion. 27. Moreover, we tentatively conclude that the tax element of the rate formula should also be adjusted in those instances where the proposed adjustment to the accumulated depreciation account is made. The current formula includes a rate element for taxes in the Carrying Charge Rate. This includes federal and state income taxes as well as other operating taxes. A provision for income taxes is included in association with the provision for the cost of capital because the cost of capital is usually calculated as a return on investment, which includes an equity portion. The equity portion is considered profit, and as such, is taxable as income. Consequently, there usually arises an additional expense associated with the pole ownership, income tax expense, which is appropriately included in the calculation of the pole attachment charge. Our proposed adjustment to the formula, however, does not include the usual provision for the cost of capital, but rather an adjustment for the "over-recovery" pending disposal of the poles. Thus, under the proposed adjustment, there would be no return on equity included in the formula, and consequently there would be no associated income tax expense. Therefore, we tentatively conclude that the inclusion of federal and state income taxes in the formula should be discontinued when the proposed adjustment is made to the depreciation account. We seek comment on this proposal to include only operating taxes, other than income taxes, in the rate formula. 28. In proposing the use of this adjustment methodology, we are concerned that because telephone and electric utilities install poles over time at various original costs and because net salvage estimates vary over time, the extraction of the net salvage effect from accumulated depreciation could prove to be difficult. In addition, current FCC and Federal Energy Regulatory Commission accounting reports do not provide information with respect to the net salvage effect. We seek comment on the feasibility of this methodology as proposed. Additionally, we seek comment on the effectiveness of the methodology for the development of fair pole attachment rates and on proposed modifications necessary to make this methodology effective in attaining this objective. Finally, commenters are requested to provide detailed assessments of the effects of this methodology on attachment rates. 29. Alternatively, we seek comment on calculating pole attachment rates using gross book costs instead of net book costs. Under this approach the cost of a bare pole and most carrying charges are computed using gross book costs. Prior to the Pole Attachment Order, the Commission had decided certain cases using gross book costs to calculate maximum reasonable pole attachment rates. The Commission also has stated that if both parties to a pole attachment complaint agree, the pole attachment rates may be computed using gross book costs. The use of gross book costs appears consistent with the legislative history supporting Section 224, which indicates that the Commission has significant discretion in selecting a methodology for determining just and reasonable pole attachment rates. We seek comment on this alternative to ensure a complete record on possible changes to the current formula. We note that because of the way administrative costs are allocated, the application of gross book costs may produce a slightly higher rate. We seek comment on whether this assumption is true and if so what the impact of this change would be. 2. Other Proposed Formula Adjustments 30. When we adopted the revised pole attachment formula in 1987, the Uniform System of Accounts for telephone companies was prescribed by our then existing Part 31 rules. The formula specifies particular Part 31 accounts used to calculate the pole attachment rates telephone companies may charge cable systems or telecommunications carriers. In 1988, Part 31 was replaced by Part 32, which changed how telephone companies account for certain costs. We propose to revise our pole attachment formula for telephone companies so that it accurately reflects our existing Part 32 Uniform System of Accounts. We also propose to amend the formula to improve its accuracy. For example, certain expenses previously included in the formula as administrative expenses are not usually considered to be administrative in nature. Consequently it appears that the Part 31 mapping to the formula included non-administrative expenses in the administrative component of the Carrying Charge Rate. Considering this, our proposed Part 32 mapping to the formula will not include such non-administrative expense in the administrative component of the Carrying Charge Rate. Appendix B outlines our proposed Part 32 mapping to the formula and indicates the changes we propose to improve its accuracy. We seek comment on these proposals. a. Administrative Component 31. We propose to include amounts recorded in the following Part 32 accounts in the administrative component formula because they are all non-project specific expenses of an administrative and general nature: Account 6720, General and administrative; Account 6710, Executive and planning; Account 6110, Network support expense; Account 6120, General support expenses; Account 6534, Plant operations administration expense; and Account 6535, Engineering expense. Appendix B maps the transition from Part 31 to Part 32, subject to several proposed changes discussed herein. 32. To further improve the accuracy of the administrative component of the formula, we propose to exclude earth station expenses recorded in Account 6231, Radio systems expense, from administrative expense calculations. We believe that because earth station expenses are not properly categorized as administrative and general expenses, they should not be included in the administrative component formula. Under Part 31, the administrative component calculations also included all amounts recorded in Accounts 671, Operating rents; 672, Relief and pensions; and 677, Expenses charged during construction. Some of these amounts are now recorded in non-administrative accounts. We propose to exclude those amounts recorded in non- administrative accounts from our administrative component calculations. 33. Under Part 31, telephone company expenses for rental of poles from other entities was included in Account 671, Operating rents. As discussed in the previous paragraph, we are proposing to exclude the non-administrative amounts previously included in Account 671 from the administrative component of the pole attachment Carrying Charge Rate in the pole attachment formula. Under Part 32 however, the expense for rental of poles by telephone companies is now included in Account 6411, Poles expense. Accordingly, it is now subject to inclusion in the Carrying Charge Rate as part of the maintenance component. The rents in question, however, are generally paid by telephone companies to utilities in order to secure rights to attach telecommunications lines to the utility's poles. We do not believe, therefore, that the expense incurred by telephone companies for the rental of poles from other entities is related to the poles, or to the maintenance of poles, which attaching entities rent from other telephone companies. Furthermore, to include these rents in pole attachment rate computations could result in double payments by attaching entities -- once when the attaching entity attaches to a utility's poles and again when the attaching entity pays an attachment fee to a telephone company renting poles from the same utility. Thus for the purpose of computing pole attachment rates, we propose to include an adjustment to the amount in Account 6411 to eliminate the expense associated with the rental of poles from other entities. We seek comment regarding this tentative proposal. b. Maintenance Component 34. The Commission has traditionally included Account 602:1, Repairs of pole lines, in the maintenance component formula. That account consisted primarily of labor-related expenses; it did not, however, include the benefits associated with those salaries and wages. Under Part 32, Account 6411, Poles expense, includes both salaries and wages and associated benefits. Because these benefits relate to pole maintenance activities, we propose to incorporate them in the maintenance component formula. Previously these expenses were included in the administrative expense component formula. We seek comment to our tentative proposal not to include pole rents recorded in Account 6411 in the maintenance component formula, for the above stated reasons. 35. Electric utilities record the cost of labor and expenses incurred in the general supervision and direction of the distribution system maintenance in Account 590, Maintenance supervision and engineering. We believe that a portion of the amount in this account supports the pole line investment as well as the conduit investment and should be included in the calculation of the maintenance carrying charge. The amount in this account, however, applies to distribution plant other than poles and conduit and must therefore be allocated appropriately. We seek comment on our tentative conclusion to include a portion of the expenses recorded in Account 590 in the maintenance carrying charge element and on the manner of allocating the appropriate amounts to the pole maintenance carrying charge and to the conduit carrying charge. c. Taxes Component 36. We also propose that the taxes component formula reflect the change from Part 31 to Part 32 accounting. Under Part 31, that formula included a series of tax-related accounts. We seek comment to our tentative proposal to include in the taxes component all of the comparable Part 32 accounts. Appendix B lists these accounts. 3. Rate of Return 37. As discussed above, our pole attachment formula allows utilities to include a return on pole-related investment in pole attachment rates charged to telecommunications carriers. To simplify pole attachment rate proceedings, we currently use the rate of return authorized for the utilities' intrastate services. This policy implicitly assumes that the states will continue to regulate utility rates on a rate of return basis. Many states, however, have adopted forms of incentive-based regulation for some utilities that do not rely on an authorized rate of return. In these cases, we believe that the most recent, authorized intrastate rates of return may not reflect the utilities' costs of capital. We therefore invite comment on what rate of return we should use to calculate maximum pole attachment rates for utilities operating in states that no longer regulate on a rate of return basis. We note that the Commission has adopted a rate of return for telephone companies of 11.25% in the Accounting Safeguards under the Telecommunications Act of 1996 proceeding. We invite comment on whether this same rate should be applied uniformly in all states which no longer specify a rate of return. IV. CONDUIT ATTACHMENT ISSUES A. Application of the Pole Attachment Formula to Conduits 38. The Commission's rules, as applied to conduits, provides the following maximum reasonable rate under Section 224: Maximum = Space Occupied by CATV x (Operating Expenses + Capital Cost of Conduit) Rate Total Usable Space 39. In the pole attachment context, as noted above, we generally calculate the sum of operating expenses and capital cost by multiplying the net cost of a bare pole times the carrying charges. In the conduit context, we multiply the net linear cost of the conduit (instead of the net cost of a bare pole) by the carrying charges, so that the formula defining the maximum reasonable rate becomes: Maximum = Space Occupied by CATV x Net Conduit Cost x Carrying Rate Total Usable Space per meter Charges 40. The conduit attachment formula is provided in Appendix C to this Notice. Under the conduit attachment formula for telephone companies, the conduit maintenance carrying charge calculation is based on the asset Account 2441 (Conduit systems) and the expense Account 6441 (Conduit systems expense). The formula for depreciation and rate of return are based on Account 2441. The carrying charge percentage calculations for administrative and tax expense are the same for poles and conduit because they are based on total plant investment, instead of poles or conduit investment. 41. For electrical utilities, we believe that the formula for conduit investment is included in Account 366 (Underground conduit), Account 367 (Underground conductors and devices), and Account 369 (Services). We seek comment on whether these are the appropriate accounts. The related expenses for maintenance of this investment are included in Account 594 (Maintenance of underground lines). Thus, under the proposed conduit attachment formula for electric utilities, the conduit maintenance carrying charge percentage calculation is based on asset Accounts 366, 367, and 369, and the expense Account 594, and the formula for depreciation and rate of return are based on Accounts 366, 367, and 369. As proposed for the telephone company calculations, the method for calculating the carrying charge percentage for administrative and tax expense are the same for poles and conduit because they are based on total plant investment, instead of poles or conduit investment. 42. As we noted, when computing the cost of a bare pole, we must multiply a factor 0.85 for electric utilities or 0.95 for telephone companies by the net asset value of poles to eliminate investment that is included in the pole investment balance but which supports the pole owners operations exclusively. For telephone company conduit, we believe there is no such comparable non-cable related investment in Account 2441 that supports telephone company operations exclusively; thus, the computation of telephone company net conduit does not reflect an adjustment factor for such non-conduit investment. We seek comment on this tentative conclusion. For electric companies, however, the investment in Account 369, as well as in Account 367, if included in the conduit investment computation, includes non-conduit investment and should be eliminated. Thus, an adjustment factor must be applied in the electric company formula. We seek comment on this perspective. Respondents are encouraged to provide estimates of the adjustment factor to be applied based on the conduit-related investment to the total investment in the accounts that include conduit-related investment. Respondents should describe the source of the data used, the method employed and the calculations made in arriving at their estimates. The net conduit cost per meter must include this factor, if one applies, as follows: Net Conduit Cost = Net Conduit Investment x Factor per meter Length (Meters) B. Proposed Conduit Methodology 43. We seek comment on the differences between conduit owned and or used by cable operators and telecommunications carriers and conduit owned and or used by electric or other utilities. We understand that there are inherent differences in the safety aspects of the latter conduits and ducts, and we seek comment on physical limitations that would affect the rate for such facilities. Where such conduit is shared, we seek information on the mechanism for establishing a just and reasonable rate. We seek comment on the distribution of usable and unusable space within the conduit or duct and how the determination for such space is made. In this Notice we are not addressing the access or safety provisions, as those issues are more appropriately addressed in the context of the Implementation of the Local Competition Provisions in the Telecommunications Act of 1996. Rather, we are interested in the application of our formula for the purpose of setting just and reasonable rates. Our present formula does not appear to take such differences into consideration, and our experience in resolving disputes relating to electric or other utility conduit has been limited. 44. Section 224 provides that total conduit space and conduit space occupied by cable systems is based on duct or conduit capacity. In addition, Section 224 states that "a rate is just and reasonable if it assures a utility the recovery of not less than the additional costs of providing pole attachments, nor more than an amount determined by multiplying the percentage of the total usable space, or the percentage of the total duct or conduit capacity, which is occupied by the pole attachment by the sum of the operating expenses and actual capital costs of the utility attributable to the entire pole, duct, conduit, or right-or-way." The usable space can be estimated based on the number of ducts or portion of a duct that an attachment occupies. We tentatively conclude that measuring the actual portion of duct space occupied by an attachment could be difficult and lead to further disputes between the parties. We seek comment on this tentative conclusion. Instead of attempting to measure the actual duct space occupied, we propose to adopt a new conduit methodology patterned after the half-duct methodology used by the Massachusetts Department of Public Utilities. In order to apply the half-duct formula, a determination of the cost per foot of one duct must be made, and then divided by one-half to produce a "half-duct convention." In the Greater Media decision, the Massachusetts Department of Public Utilities ("MDPU") found that a half-duct methodology was a reasonable approach to establish a conduit attachment rate for the complainant cable operator. The MDPU held that since the space occupied by the cable operator required the use of only one half-duct, and that its use did not preclude the use of the other half of the duct, the cable operator should only be charged for a half-duct. Moreover, the MDPU found that unless a cable operator's conduit precludes use by other conduit attachers, the cable operator should pay only for a half-duct. 45. This methodology determines the maximum just and reasonable rate per attachment, per duct foot that can be charged. The proposed formula is represented as follows: Maximum = 1 Duct X 1 X Net Linear X Carrying Rate Avg. # of Ducts 2 Cost of Conduit Charges - Adjustments for reserved ducts We refer to the first fraction in the above formula as the "occupied space component" of the conduit attachment formula. If a utility reserves one duct for maintenance, and if the attacher has the right to utilize that reserved space in the event of a cable break or benefits in any way from the reservation of that space, that reserved duct would be considered unusable space. In that event, it is necessary to include an "adjustment for reserved ducts" element in the formula to reduce the average number of ducts in the denominator of the occupied space component of the formula. The adjustment for reserved ducts element would be the number of reserved ducts that all attachers have the right to use in the event of a cable break or that they otherwise receive benefit from in any other way. If the attacher has no right to use that space or receives no benefit from that duct, we propose that the denominator should not be reduced. 46. We seek comment on our proposed rebuttable presumption that a cable attacher occupies a half-duct of space in order to factor a reasonable conduit attachment rate. We tentatively conclude that the half-duct methodology is the simplest and most reasonable approximation of the actual space occupied by an attacher. In addition, we tentatively believe that the half-duct methodology is the most straight forward approach to calculating a conduit attachment fee because it does not require the parties to prove the actual amount of the duct the attachment occupies. We solicit comment on these tentative conclusions. We also seek comment on any additional proposals that would provide a simple and administratively efficient conduit methodology. V. Other Matters 47. We recognize that the issues raised in this Notice are broad in scope, and there may be additional issues we have not specifically addressed in the Notice. Commenters may submit proposals regarding the implementation of these pole attachment reforms. We welcome these comments and also seek proposals to ease the burdens of regulation for all interested parties. 48. Section 257 of the Act provides for the elimination of "market entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services and information services." We believe that market entry barriers are minimized for small cable operators and telecommunications carriers by the application of Section 224 which requires just, reasonable and nondiscriminatory rates. VI. INITIAL REGULATORY FLEXIBILITY ACT ANALYSES 49. As required by Section 603 of the Regulatory Flexibility Act (RFA), the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected significant economic impact on small entities by the policies and rules proposed in this Notice. Written public comments are requested on the IRFA. These comments must be filed in accordance with the same filing deadlines as comments on the rest of the Notice, but they must have a separate and distinct heading designating them as responses to the regulatory flexibility analysis. 50. Need for Action and Objectives of the Proposed Rule. In 1987, the Commission adopted its current pole attachment formula for calculating the maximum just and reasonable rates utilities may charge cable systems for pole attachments. In this Notice, we seek comment as to whether the current pole attachment formula should be modified or adjusted to eliminate certain anomalies and rate instabilities particular parties assert have occurred. We have also tentatively proposed such possible modifications to the formula, should altering the formula become necessary, that would improve the accuracy of the formula. In addition, we propose changes to the formula to reflect the present Part 32 accounting system that replaced the former Part 31 rules in 1988. Finally, we propose a new conduit methodology that will determine the maximum just and reasonable rates utilities may charge cable systems and telecommunications carriers for their attachments to conduit systems. 51. Legal Basis. The authority for the action as proposed for this rulemaking is contained in Sections 1, 4(i), 4(j), 224, 303 and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), 224, 303 and 403. 52. Description and Estimate of the Number of Small Entities Impacted. For the purposes of this Notice, the RFA defines a "small business" to be the same as a small business concern under the Small Business Act, 15 U.S.C.  632, unless the Commission has developed one or more definitions that are appropriate to its activities. Under the Small Business Act, a "small business concern" is one that: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). The SBA has defined a small business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications, except Radiotelephone) to be a small entity when it has fewer than 1500 employees. A. Utilities 53. Total Number of Utilities Affected. The decisions and rules adopted herein may have a significant effect on a substantial number of utility companies. Section 224 of the Statue defines a "utility" as "any person who is a local exchange carrier or an electric, gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications. Such term does not include any railroad, any person who is cooperatively organized, or any person owned by the Federal Government or any State." The SBA has provided the Commission with a list of utility firms which may be effected by this rulemaking. Based upon the SBA's list, the Commission seeks comment as to whether all of the following utility firms are relevant to Section 224. 1. Electric Utilities (SIC 4911, 4931 & 4939) 54. Electric Services. The SBA has developed a definition for small electric utility firms. The Census Bureau reports that a total of 1,379 electric utilities were in operation for at least one year at the end of 1992. According to SBA, a small electric utility is an entity whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 447 of the 1,379 firms listed had total revenues below five million dollars. Electric and Other Services Combined. The SBA has classified this entity as a utility whose business is primarily electric, less than 95%, in combination with some other type of service. The Census Bureau reports that a total of 135 such firms were in operation for at least one year at the end of 1992. The SBA's definition of a small electric and other services combined utility is a firm whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 45 of the 135 firms listed had total revenues below five million dollars. Combination Utilities, Not Elsewhere Classified. The SBA defines this utility has providing a combination of electric, gas, and other services which are not otherwise classified. The Census Bureau reports that a total of 79 such utilities were in operation for at least one year at the end of 1992. According to SBA's definition, a small combination utility is a firm whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 63 of the 79 firms listed had total revenues below five million dollars. 2. Gas Production and Distribution (SIC 4922, 4923, 4924, 4925 & 4932) 55. Natural Gas Transmission. The SBA's definition of a small natural gas transmitter is an entity who is engaged in the transmission and storage of natural gas. The Census Bureau reports that a total of 144 such firms were in operation for at least one year at the end of 1992. According to SBA's definition, a small natural gas transmitter is an entity whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 70 of the 144 firms listed had total revenues below five million dollars. Natural Gas Transmission and Distribution. The SBA has classified this entity as a utility who transmits and distributes natural gas for sale. The Census Bureau reports that a total of 126 such entities were in operation for at least one year at the end of 1992. The SBA's definition of a small natural gas transmitter and distributer is a firm whose gross revenues did not exceed five million dollars. The Census Bureau reported that 43 of the 126 firms listed had total revenues below five million dollars. Natural Gas Distribution. The SBA defines a natural gas distributor as an entity that distributes natural gas for sale. The Census Bureau reports that a total of 478 such firms were in operation for at least one year at the end of 1992. According to the SBA, a small natural gas distributor is an entity whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 267 of the 478 firms listed had total revenues below five million dollars. Mixed, Manufactured, or Liquefied Petroleum Gas Production and/or Distribution. The SBA has classified this entity as a utility who engages in the manufacturing and/or distribution of the sale of gas. These mixtures may include natural gas. The Census Bureau reports that a total of 43 such firms were in operation for at least one year at the end of 1992. The SBA's definition of a small mixed, manufactured or liquefied petroleum gas producer or distributor is a firm whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 31 of the 43 firms listed had total revenues below five million dollars. Gas and Other Services Combined. The SBA has classified this entity as a gas company whose business is less than 95% gas, in combination with other services. The Census Bureau reports that a total of 43 such firms were in operation for at least one year at the end of 1992. According to the SBA, a small gas and other services combined utility is a firm whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 24 of the 43 firms listed had total revenues below five million dollars. 3. Water Supply (SIC 4941) 56. Water Supply. The SBA defines a water utility as a firm who distributes and sells water for domestic, commercial and industrial use. The Census Bureau reports that a total of 3,169 water utilities were in operation for at least one year at the end of 1992. According to SBA's definition, a small water utility is a firm whose gross revenues did not exceed five million dollars in 1992. The Census Bureau reported that 3,065 of the 3,169 firms listed had total revenues below five million dollars. 4. Sanitary Systems (SIC 4952, 4953 & 4959) 57. Sewerage Systems. The SBA defines a sewage firm as a utility whose business is the collection and disposal of waste using sewage systems. The Census Bureau reports that a total of 410 such firms were in operation for at least one year at the end of 1992. According to SBA's definition, a small sewerage system is a firm whose gross revenues did not exceed five million dollars. The Census Bureau reported that 369 of the 410 firms listed had total revenues below five million dollars. Refuse Systems. The SBA defines a firm in the business of refuse as an establishment whose business is the collection and disposal of refuse "by processing or destruction or in the operation of incinerators, waste treatment plants, landfills, or other sites for disposal of such materials." The Census Bureau reports that a total of 2,287 such firms were in operation for at least one year at the end of 1992. According to SBA's definition, a small refuse system is a firm whose gross revenues did not exceed six million dollars. The Census Bureau reported that 1,908 of the 2,287 firms listed had total revenues below six million dollars. Sanitary Services, Not Elsewhere Classified. The SBA defines these firms as engaged in sanitary services. The Census Bureau reports that a total of 1,214 such firms were in operation for at least one year at the end of 1992. According to SBA's definition, a small sanitary service firms gross revenues did not exceed five million dollars. The Census Bureau reported that 1,173 of the 1,214 firms listed had total revenues below five million dollars. 5. Steam and Air Conditioning Supply (SIC 4961) 58. Steam and Air Conditioning Supply. The SBA defines a steam and air conditioning supply utility as a firm who produces and/or sells steam and heated or cooled air. The Census Bureau reports that a total of 55 such firms were in operation for at least one year at the end of 1992. According to SBA's definition, a steam and air conditioning supply utility is a firm whose gross revenues did not exceed nine million dollars. The Census Bureau reported that 30 of the 55 firms listed had total revenues below nine million dollars. 6. Irrigation Systems (SIC 4971) 59. Irrigation Systems. The SBA defines irrigation systems as firms who operate water supply systems for the purpose of irrigation. The Census Bureau reports that a total of 297 firms were in operation for at least one year at the end of 1992. According to SBA's definition, an irrigation service is a firm whose gross revenues did not exceed five million dollars. The Census Bureau reported that 286 of the 297 firms listed had total revenues below five million dollars. B. Telephone Companies (SIC 4813) 60. Total Number of Telephone Companies Affected. Many of the decisions and rules adopted herein may have a significant effect on a substantial number of small telephone companies. The Census Bureau reports that, at the end of 1992, there were 3,497 firms engaged in providing telephone services, as defined therein, for at least one year. This number contains a variety of different categories of carriers, including local exchange carriers (LECs), interexchange carriers, competitive access providers, cellular carriers, mobile service carriers, operator service providers, pay telephone operators, PCS providers, covered SMR providers, and resellers. It seems certain that some of those 3,497 telephone service firms may not qualify as small entities or small incumbent LECs because they are not "independently owned and operated." It seems reasonable to conclude, therefore, that fewer than 3,497 telephone service firms are small entity telephone service firms or small incumbent LECs that may be affected by this Notice. Below, we estimate the potential number of small entity telephone service firms or small incumbent LEC's that may be affected by this service category. 61. Wireline Carriers and Service Providers. SBA has developed a definition of small entities for telephone communications companies other than radiotelephone (wireless) companies. The Census Bureau reports that, there were 2,321 such telephone companies in operation for at least one year at the end of 1992. According to SBA's definition, a small business telephone company other than a radiotelephone company is one employing fewer than 1,500 persons. All but 26 of the 2,321 non-radiotelephone companies listed by the Census Bureau were reported to have fewer than 1,000 employees. Thus, even if all 26 of those companies had more than 1,500 employees, there would still be 2,295 non-radiotelephone companies that might qualify as small entities or small incumbent LECs. Although it seems certain that some of these carriers are not independently owned and operated, we are unable at this time to estimate with greater precision the number of wireline carriers and service providers that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 2,295 small entity telephone communications companies other than radiotelephone companies that may be affected by the decisions or rules that come about from this Notice. 62. Local Exchange Carriers. Neither the Commission nor SBA has developed a definition of small providers of local exchange services (LECs). The closest applicable definition under SBA rules is for telephone communications companies other than radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the number of LECs nationwide of which we are aware appears to be the data that we collect annually in connection with the Telecommunications Relay Service (TRS). According to our most recent data, 1,347 companies reported that they were engaged in the provision of local exchange services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of LECs that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 1,347 small incumbent LECs that may be affected by this Notice. 63. Interexchange Carriers. Neither the Commission nor SBA has developed a definition of small entities specifically applicable to providers of interexchange services (IXCs). The closest applicable definition under SBA rules is for telephone communications companies other than radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the number of IXCs nationwide of which we are aware appears to be the data that we collect annually in connection with TRS. According to our most recent data, 97 companies reported that they were engaged in the provision of interexchange services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of IXCs that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 97 small entity IXCs that may be affected by the decisions and rules adopted in this Notice. 64. Competitive Access Providers. Neither the Commission nor SBA has developed a definition of small entities specifically applicable to providers of competitive access services (CAPs). The closest applicable definition under SBA rules is for telephone communications companies other than radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the number of CAPs nationwide of which we are aware appears to be the data that we collect annually in connection with the TRS. According to our most recent data, 30 companies reported that they were engaged in the provision of competitive access services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of CAPs that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 30 small entity CAPs that may be affected by the decisions and rules adopted in this Notice. 65. Wireless (Radiotelephone) Carriers. Although wireless carriers have not historically affixed their equipment to utility poles, pursuant to the terms of the 1996 Act, such entities are entitled to do so with rates consistent with the Commission's rules discussed herein. SBA has developed a definition of small entities for radiotelephone (wireless) companies. The Census Bureau reports that there were 1,176 such companies in operation for at least one year at the end of 1992. According to SBA's definition, a small business radiotelephone company is one employing fewer than 1,500 persons. The Census Bureau also reported that 1,164 of those radiotelephone companies had fewer than 1,000 employees. Thus, even if all of the remaining 12 companies had more than 1,500 employees, there would still be 1,164 radiotelephone companies that might qualify as small entities if they are independently owned and operated. Although it seems certain that some of these carriers are not independently owned and operated, we are unable at this time to estimate with greater precision the number of radiotelephone carriers and service providers that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 1,164 small entity radiotelephone companies that may be affected by this Notice. 66. Cellular Service Carriers. Neither the Commission nor SBA has developed a definition of small entities specifically applicable to providers of cellular services. The closest applicable definition under SBA rules is for telephone communications companies other than radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the number of cellular service carriers nationwide of which we are aware appears to be the data that we collect annually in connection with the TRS. According to our most recent data, 789 companies reported that they were engaged in the provision of cellular services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of cellular service carriers that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 789 small entity cellular service carriers that may be affected by the decisions and rules adopted in this Notice. 67. Mobile Service Carriers. Neither the Commission nor SBA has developed a definition of small entities specifically applicable to mobile service carriers, such as paging companies. The closest applicable definition under SBA rules is for telephone communications companies other than radiotelephone (wireless) companies. The most reliable source of information regarding the number of mobile service carriers nationwide of which we are aware appears to be the data that we collect annually in connection with the TRS. According to our most recent data, 117 companies reported that they were engaged in the provision of mobile services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of mobile service carriers that would qualify under SBA's definition. Consequently, we estimate that there are fewer than 117 small entity mobile service carriers that may be affected by the decisions and rules adopted in this Notice. 68. Broadband PCS Licensees. The broadband PCS spectrum is divided into six frequency blocks designated A through F. As set forth in 47 C.F.R.  24.720(b), the Commission has defined "small entity" in the auctions for Blocks C and F as a firm that had average gross revenues of less than $40 million in the three previous calendar years. Our definition of a "small entity" in the context of broadband PCS auctions has been approved by SBA. The Commission has auctioned broadband PCS licenses in Blocks A, B, and C. We do not have sufficient data to determine how many small businesses bid successfully for licenses in Blocks A and B. There were 90 winning bidders that qualified as small entities in the Block C auction. Based on this information, we conclude that the number of broadband PCS licensees affected by the decisions in this Notice includes, at a minimum, the 90 winning bidders that qualified as small entities in the Block C broadband PCS auction. 69. At present, no licenses have been awarded for Blocks D, E, and F of broadband PCS spectrum. Therefore, there are no small businesses currently providing these services. However, a total of 1,479 licenses will be awarded in the D, E, and F Block broadband PCS auctions, which are scheduled to begin on August 26, 1996. Of the 153 qualified bidders for the D,E, and F Block PCS auctions, 105 were small businesses. Eligibility for the 493 F Block licenses is limited to entrepreneurs with average gross revenues of less than $125 million. We cannot estimate, however, the number of these licenses that will be won by small entities under our definition, nor how many small entities will win D or E Block licenses. Given that nearly all radiotelephone companies have fewer than 1,000 employees and that no reliable estimate of the number of prospective D, E, and F Block licensees can be made, we assume for purposes of this FRFA, that all of the licenses in the D, E, and F Block Broadband PCS auctions may be awarded to small entities under our rules, which may be affected by the decisions and rules adopted in this Notice. 70. SMR Licensees. Pursuant to 47 C.F.R.  90.814(b)(1), the Commission has defined "small entity" in auctions for geographic area 800 MHz and 900 MHz SMR licenses as a firm that had average annual gross revenues of less than $15 million in the three previous calendar years. This definition of a "small entity" in the context of 800 MHz and 900 MHz SMR has been approved by the SBA. The rules adopted in this Order may apply to SMR providers in the 800 MHz and 900 MHz bands that either hold geographic area licenses or have obtained extended implementation authorizations. We do not know how many firms provide 800 MHz or 900 MHz geographic area SMR service pursuant to extended implementation authorizations, nor how many of these providers have annual revenues of less than $15 million. We assume, for purposes of this FRFA, that all of the extended implementation authorizations may be held by small entities, which may be affected by the decisions and rules adopted in this Notice. 71. The Commission recently held auctions for geographic area licenses in the 900 MHz SMR band. There were 60 winning bidders who qualified as small entities in the 900 MHz auction. Based on this information, we conclude that the number of geographic area SMR licensees affected by the rule adopted in this Order includes these 60 small entities. No auctions have been held for 800 MHz geographic area SMR licenses. Therefore, no small entities currently hold these licenses. A total of 525 licenses will be awarded for the upper 200 channels in the 800 MHz geographic area SMR auction. However, the Commission has not yet determined how many licenses will be awarded for the lower 230 channels in the 800 MHz geographic area SMR auction. There is no basis, moreover, on which to estimate how many small entities will win these licenses. Given that nearly all radiotelephone companies have fewer than 1,000 employees and that no reliable estimate of the number of prospective 800 MHz licensees can be made, we assume, for purposes of this FRFA, that all of the licenses may be awarded to small entities who, thus, may be affected by the decisions in this Notice. 72. Resellers. Neither the Commission nor SBA has developed a definition of small entities specifically applicable to resellers. The closest applicable definition under SBA rules is for all telephone communications companies (SIC 4812 and 4813). The most reliable source of information regarding the number of resellers nationwide of which we are aware appears to be the data that we collect annually in connection with the TRS. According to our most recent data, 206 companies reported that they were engaged in the resale of telephone services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of resellers that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 206 small entity resellers that may be affected by the decisions and rules adopted in this Notice. C. Cable System Operators (SIC 4841) 73. Cable Systems: SBA has developed a definition of small entities for cable and other pay television services, which includes all such companies generating less than $11 million in revenue annually. This definition includes cable systems operators, closed circuit television services, direct broadcast satellite services, multipoint distribution systems, satellite master antenna systems and subscription television services. According to the Census Bureau, there were 1,323 such cable and other pay television services generating less than $11 million in revenue that were in operation for at least one year at the end of 1992. 74. The Commission has developed its own definition of a small cable system operator for the purposes of rate regulation. Under the Commission's rules, a "small cable company," is one serving fewer than 400,000 subscribers nationwide. Based on our most recent information, we estimate that there were 1,439 cable systems that qualified as small cable system operators at the end of 1995. Since then, some of those companies may have grown to serve over 400,000 subscribers, and others may have been involved in transactions that caused them to be combined with other cable systems. Consequently, we estimate that there are fewer than 1,439 small entity cable system operators that may be affected by the decisions and rules proposed in this Notice. 75. The Communications Act also contains a definition of a small cable system operator, which is "a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000." The Commission has determined that there are 61,700,000 subscribers in the United States. Therefore, we found that an operator serving fewer than 617,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with the total annual revenues of all of its affiliates, do not exceed $250 million in the aggregate. Based on available data, we find that the number of cable systems serving 617,000 subscribers or less totals 1,450. Although it seems certain that some of these cable system operators are affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time to estimate with greater precision the number of cable system operators that would qualify as small cable systems under the definition in the Communications Act. 76. Municipalities: The term "small governmental jurisdiction" is defined as "governments of . . . districts, with a population of less than fifty thousand." There are 85,006 governmental entities in the United States. This number includes such entities as states, counties, cities, utility districts and school districts. We note that Section 224 of the Act specifically excludes any utility which is cooperatively organized, or any person owned by the Federal Government or any State. For this reason, we believe that Section 224 will have minimal if any affect upon small municipalities. Further, there are 18 States and the District of Columbia that regulate pole attachments pursuant to Section 224(c)(1). Of the 85,006 governmental entities, 38,978 are counties, cities and towns. The remainder are primarily utility districts, school districts, and states. Of the 38,978 counties, cities and towns, 37,566 or 96%, have populations of fewer than 50,000. 77. Reporting, Recordkeeping, and other Compliance Requirements: The rules proposed in this Notice may require a change in certain record keeping requirements to reflect modification of Part 31 to Part 32 accounting, as well as maintaining specific records if adjustments proposed are used by the pole owner for the development of attachment rates. We seek comment on this tentative conclusion. In addition, as proposed in this Notice, a pole owner may have to adjust his pole and conduit attachment rates. 78. Significant Alternatives Which Minimize the Impact on Small Entities and which are Consistent with State Objectives: The first possible option is to keep the rules in their current form, for which we have sought comment. The alternative would be to adjudicate anomalies resulting from the current pole attachment formula on a case-by-case bases, thereby minimizing impact on all interested parties. In addition, with respect to conduit methodology, we have proposed a methodology that relies on a rebuttable presumption that an attachment occupies one half of a duct space. This rebuttable presumption can be used by small entities to minimize the detail required to establish certain rates for use of conduit. If such methodology was more burdensome to a small entity, such entity could use its actual records for establishing the appropriate rate. We seek comment on these methodologies and any other potential impact of these proposals on small business entities. Finally, the Notice seeks to further minimize burdens on small entities in conformance with the 1996 Act. 79. Federal Rules which Overlap, Duplicate, or Conflict with the Commission's Proposal: None. VII. INITIAL PAPERWORK REDUCTION ACT OF 1995 ANALYSIS 80. This Notice contains either proposed or modified information collections. The Commission, as part of its continuing effort to reduce paperwork burdens and to obtain regular Office of Management and Budget ("OMB") approval of the information collections, invites the general public and OMB to comment on the information collections contained in this rulemaking, as required by the Paperwork Reduction Act of 1995. Public and agency comments are due at the same time as other comments relating to this Notice; OMB notification of action is due 60 days from date of publication of this Notice in the Federal Register. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. VIII. PROCEDURAL PROVISIONS 81. Ex parte Rules - Non-Restricted Proceeding. This is a non-restricted notice and comment rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided that they are disclosed as provided in Commission's rules. See generally 47 C.F.R.  1.1202, 1.1203, and 1.1206(a). 82. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments on or before May 12, 1997 and reply comments on or before June 12, 1997. To file formally in this proceeding, you must file an original and six copies of all comments, reply comments, and supporting comments. Parties are also asked to submit, if possible, draft rules that reflect their positions. If you want each Commissioner to receive a personal copy of your comments, you must file an original and eleven copies. Comments and reply comments should be sent to Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554, with a copy to Michael T. McMenamin of the Cable Services Bureau, 2033 M Street, N.W., 801(B), Washington, D.C. 20554. Parties should also file one copy of any documents filed in this docket with the Commission's copy contractor, International Transcription Services, Inc., 2100 M Street, N.W., Suite 140, Washington, D.C. 20037. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C. 20554. 83. Parties are also asked to submit comments and reply comments on diskette, where possible. Such diskette submissions would be in addition to and not a substitute for the formal filing requirements addressed above. Parties submitting diskettes should submit them to Michael T. McMenamin of the Cable Services Bureau, 2033 M Street, N.W., Room 801B, Washington, D.C. 20554. Such a submission must be on a 3.5 inch diskette formatted in an IBM compatible form using MS DOS 5.0 and WordPerfect 5.1 software. The diskette should be submitted in "read only" mode. The diskette should be clearly labelled with the party's name, proceeding, type of pleading (comment or reply comments) and date of submission. The diskette should be accompanied by a cover letter. 84. Written comments by the public must be submitted at the same time as those of the Office of Management and Budget (OMB) on the proposed and/or modified information collections on or before 60 days after publication of the Notice in the Federal Register. In addition to filing comments with the Secretary, a copy of any comments on the information collections contained herein should be submitted to Dorothy Conway, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, D.C. 20054, or via the Internet to dconway@fcc.gov, and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, N.W., Washington, D.C. 20503 or via the Internet to fain_t@al.eop.gov. IX. ORDERING CLAUSES 85. IT IS ORDERED that pursuant to Sections 1, 4(i), 4(j), 224, 303 and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), 224, 303 and 403, NOTICE IS HEREBY GIVEN of the proposals described in this Notice of Proposed Rulemaking. 86. IT IS FURTHER ORDERED pursuant to Sections 4(i), 4(j), and 224 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), & 224, that the Petition for Clarification, or in the Alternative, a Waiver of Southwestern Bell Telephone Company IS DISMISSED. 87. IT IS FURTHER ORDERED that the Secretary shall send a copy of this Notice, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.  601, et seq. (1981). 88. For additional information regarding this proceeding, contact Michael T. McMenamin, Financial Analysis and Compliance Division, Cable Services Bureau (202) 418- 7200. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A - POLE ATTACHMENT FORMULAS (Modified as Proposed) Telecommunications Companies : Maximum = (Space Occupied by Attachment X Carrying X Net Pole X .95 ) ö Total # of Poles Rate Total Usable Space Charge Rate Investment Total Carrying = Administrative + Maintenance + Depreciation + Taxes + Return Charge Rate Administrative = Total Administrative and General (Accounts 6710+6720+6110+6120+6534+6535) Carrying Charge Gross Plant Investment - Accum. Depreciation, Account 3100 - Accum. Deferred Taxes, Plant Rate Maintenance = Account 6411 - Rental Expense, Poles Carrying Charge Net Pole Investment Rate Depreciation = Depreciation Rate, Poles Carrying Charge Rate Tax = Operating Taxes, Account 7200 Carrying Charge Gross Plant Investment - Accum. Depreciation, Account 3100 - Accum. Deferred Taxes, Plant Rate Return = Applicable Rate of Return Carrying Charge Rate Space Occupied = 1 foot by Attachment Total Usable = 13.5 feet (Subject to Rebuttal) Space Gross Plant = Account 2001 Investment Gross Pole = Account 2411 Investment Net Pole = Account 2411 - Accum. Depreciation, Poles - Accum. Deferred Income Taxes, Poles Investment Appendix B Conversion from Former to Proposed Formulas (Noting Proposed Changes) Pole Attachment Formula Term Pole Attachment Order Accounts Proposed Pole Attachment Accounts Proposed Changes Administrative & General Expense Account 661, Executive department Account 6710, Executive and -Amounts previously recorded in Account 670, Account 662, Accounting department planning Earth station expense, and now recorded in Account 663, Treasury department Account 6720, General and Account 6231, Radio systems expense, are Account 664, Law department administrative excluded. These expenses are not adminstrative Account 668, Insurance Account 6110, Network and general expenses. Account 669, Accidents & damages support expense Account 670, Earth station expenses Account 6120, General support Account 671, Operating rents expense -Accounts 671, Operating rents; 672, Relief and Account 672, Relief and pensions Account 6534, Plant operations pensions; 677, Expenses charged construction Account 673, Telephone franchise administrative expense are included only to the extent they are now requirements Account 6535, Engineering recorded in Accounts 6710, 6720, 6110, 6120, Account 674, General services expense 6534, and 6535. and licenses Account 675, Other expenses Account 676, Telephone franchise -Pole rents, previously recorded in Account 671, requirements - Credit Operating rents, are now recorded in Account Account 677, Expenses charged 6411, Poles expense, and are excluded. construction Maintenance Expense Account 602:1, Repairs of pole lines Account 6411, Poles expense, -Includes "benefits" recorded in Account 6411, exclusive of rents Poles expense. These benefits relate to main- tenance activities. Previously these benefits were recorded in Account 672, Relief and pensions. Taxes Account 304, Investment credits - net Account 7210, Operating investment tax None Account 306, Federal income taxes - credits - net Operating Account 7220, Operating Federal Account 307, Other operating taxes income taxes Account 308:1, Operating federal income Account 7230, Operating state and taxes deferred-accelerated tax local income taxes Account 308:2, Operating federal income Account 7240, Operating other taxes taxes deferred - other Account 7250, Provision for deferred income taxes - net (Account 7200, Operating taxes summarizes accounts) APPENDIX C CONDUIT ATTACHMENT FORMULAS Maximum Rate = A x 1 x C** x D B 2 Net Linear Cost = E-F-G* of Conduit I Net Conduit = E-F-G* Investment Accumulated Deferred E x M* Income Taxes = K (Conduit) Depreciation O x E Carrying = H Charge Factor Administrative = Q ö X Factor Taxes Factor = S ö J Maintenance = U ö W Factor KEY A = Space Occupied by CATV (1 duct) B = Average # of Ducts (Duct km/Trench km) C = Net Linear Cost of Conduit D = Total Carrying Charge = (N+P+R+T+V) E = Gross Conduit Investment (Part 32 Account 2441/Part 101 Accounts 366, 367, and 369) F = Depreciation Reserve (Conduit) G = Accumulated Deferred Income Taxes (Conduit) H = Net Conduit Investment I = Total Conduit Meter J = Net Plant Investment K = Total Gross Plant Investment L = Total Depreciation Reserve M = Total Accumulated Deferred Income Taxes* N = Depreciation Carrying Charge Factor O = Depreciation Rate for Conduit P = Administrative Carrying Charge Factor Q = Total General and Administrative Expenses Appendix C (page 2 of 2) R = Tax Carrying Charge Factor S = Total Current and Deferred Tax Expense T = Maintenance Carrying Charge Factor U = Conduit Maintenance Expense (Part 32 Account 6441/Part 101 Account 594) V = Cost of Capital (Return) = Return Authorized by State Regulatory Commission (or as described in this Order) W = Net Investment in Conduit* X = Net Plant Investment* * We are treating deferred taxes as most state commissions do - as a rate base deduction. If the state utility commission includes the reserve for deferred income taxes in the utility's capital structure at zero cost, we would not need to make any further adjustment. ** Determining the net cost of conduit may require application of a factor for certain non conduit investment in Account 2441 or Accounts 366, 367 and 369. See supra para. 40 of the Notice.