Bell CPRs May Have Been Inaccurate For Several Years, Claims FCC Audit; Letter Obtained by America's Network Says Property Record Overstatements Probably Existed Before 1997.

WASHINGTON--(BUSINESS WIRE)--March 17, 1999--

Full Text of Letter and Report Given on America's Network Web Site

An FCC letter sent in late February to two congressman says there's sufficient evidence that the regional Bell operating company (RBOC) continuing property records (CPRs) could have been overstated prior to the 1997 audit.

The commission is requesting comments to determine whether the RBOCs' activities had a substantial impact on determining rates for regulated telecommunications services.

The Audit Report of the RBOC CPRs released on March 12 shows that the Bells cannot account for more than $5 billion in central office equipment that they still claim on their accounting ledgers.

According to a Feb. 24 letter sent by FCC Chairman William Kennard to Reps. Billy Tauzin and John Dingell, and obtained on March 16 by America's Network, FCC auditors "found sufficient evidence to conclude that the overstatement existed prior to 1997. Comparable degrees of error were found in our audits of CPR performed in 1994," according to the letter.

The Feb. 24 letter and statements from the commission's Common Carrier Bureau responds to questions posed in late January by Tauzin and Dingell regarding audit methodology, accuracy and importance to ratepayers.

The Bell companies strongly oppose the audit procedures and conclusions. In one case, an RBOC spokesman said that auditors listed equipment as missing even when that equipment was located the following day.

However, the Common Carrier Bureau maintains in the Feb. 24 letter that "the auditors categorized ... items as 'not found' only when, after an exhaustive search, neither the auditors nor the company's technicians and engineers could locate the item and no convincing information was presented by the company to explain why the item could not be found at the time of verification.

"After completion of the field work, carriers had an opportunity to show that equipment that could not be found by either the auditors or the carriers' personnel actually existed," the letter continued. "They also had an opportunity to provide evidence to show that the facts were different than appeared at the time of the on-site verification."

According to the bureau, auditors used a 95 percent confidence interval for all of their equipment population estimates.

Auditors concluded that the percentage of errors in the Bell company CPRs "has been relatively high for a long period of time."

"The Undetailed Investment category (items without any description of plant or its location), in particular, have been a serious problem for many years. Of the Undetailed Investment records, representing approximately $2 billion of plant investment, the majority of line items are pre-1991 vintage entries," the letter stated.

"Neither the auditors nor (RBOC) personnel were able to locate any of the Undetailed Investment assets, and the companies have not provided any cost documentation for any of the undetailed line-items to prove their existence."

CPRs provide cost documentation of a company's plant, property and equipment used for providing regulated services.

"From a regulatory perspective, proper cost determinations are necessary to support cost allocations between regulated and nonregulated activities, determine jurisdictional separations, compute low-end adjustments, initialize price cap indices, calculate productivity factors and establish prices for new services," according to the Common Carrier Bureau letter.

The FCC is seeking comment on whether such activity by the RBOCs "significantly impacted the prices charged for telecommunications services."

A BellSouth spokesman told AN that the outcome of the Audit Report proceeding has "absolutely no impact" on rates.

America's Network broke the news on March 12 that the Audit Report had been released. Watch for continuing updates, as well as government and industry comments to this unfolding story at www.americasnetwork.com and in upcoming issues of America's Network.