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Feds detail telcos' "missing" equipment

Federal regulators release details on a controversial audit of the Baby Bells, concluding that the telcos were missing or overstating close to $5 billion worth of equipment.

Federal regulators released details today on a controversial audit of the Baby Bells, concluding that the telcos were missing or overstating close to $5 billion worth of equipment.

The details add meat to the bones of the long-awaited reports, drafts of which have been leaked since last summer and were officially approved by the Federal Communications Commission last month.

The audits have been the subject of intense criticism since their findings were preliminarily released to the companies. The Bells say the audit did not follow standard accounting procedures, and claim that they are not missing anything near the amount stated in the report.

In its defense, SBC Communications cited a letter from its accounting firm, Ernst and Young, that criticizes the FCC's analysis.

"[Our] evaluation concludes that the estimates made in the FCC's draft audit reports contain biases and are inaccurate, and that given these errors and biases, the amounts reported by the FCC as overstated investment are unsound and cannot fairly be relied upon," wrote the accounting firm in a letter to SBC's regulatory department.

Several of the FCC's congressional critics have also weighed in, telling regulators it would be "reckless" to release the audits' findings before resolving all doubts as to their accuracy.

Even the FCC appears to have some trepidation about the results. The commission will open a new set of proceedings next month to solicit comment on the auditing method, and on what effects any overstatement of the Bells' past investment might have had.

The staff reports recommend that the Bells be forced to write off the possible discrepancies in their account books, which would be a sharp one-time financial blow to the companies.

But several of the commissioners expressed their reservations about this tack.

"I am reluctant...to level accusations as grave as are implied by these reports without first subjecting the underlying facts and analysis to outside scrutiny, which we have yet to do," wrote commissioner Michael Powell in a statement accompanying the reports. "We simply do not have enough information to endorse fully and take action on the reports' conclusions at this time."

If the FCC, or state commissions acting on the FCC's information, ultimately decide that the Bells have overstated their investment in equipment, they could force the companies to lower some of their telephone rates.