Accounting for Judgments and Other Costs Associated With Litigation

On March 13, 1997, the Commission adopted a Report and Order (``Order'') (FCC 97-80, CCB released March 13, 1997) establishing what accounting rules and ratemaking policies should apply to litigation costs incurred by carriers subject to the Commission's rules. A fundamental requirement of Title II of the Communications Act of 1934, as amended, is that ``all charges * * * for and in connection with [interstate] communication service, shall be just and reasonable.'' This provision safeguards consumers against rates that are unreasonably high and guarantees carriers that they will not be required to charge rates that are so low as to be confiscatory. Carriers under the Commission's jurisdiction must be allowed to recover the reasonable costs of providing service to ratepayers, including reasonable and prudent expenses and a fair return on investment. This fundamental requirement is unchanged by the Telecommunications Act of 1996. The Commission has proposed and adopted accounting rules that would: Require carriers to account for adverse antitrust judgments and post-judgment antitrust settlements below the line in Account 7370, a nonoperating account for special charges; defer other antitrust litigation expenses during the pendency of antitrust litigation; and account for the expenses below the line in the event of an adverse judgment of a post-judgment settlement.