Telephone Communications:

Controlling Cross-Subsidy Between Regulated and Competitive Services

RCED-88-34: Published: Oct 23, 1987. Publicly Released: Nov 10, 1987.

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John M. Ols, Jr
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In response to a congressional request, GAO evaluated the Federal Communication Commission's (FCC) proposed implementation of accounting controls to prevent cross-subsidization between regulated and nonregulated telephone service in order to facilitate competition among telephone companies.

GAO found that: (1) the FCC allocation process was inefficient because it impeded companies from offering new services and imposed costs on the public; (2) the new process of cost allocation procedures and manuals, and an annual independent audit of the companies' cost allocation manuals, should ensure compliance; and (3) FCC believes that there is a need to further regulate the telephone companies in order to prevent cross-subsidizing of nonregulated services with regulated services and discrimination against competitors.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Since GAO has a followup job underway examining FCC actions taken, GAO no longer needs to formally track this recommendation.

    Recommendation: The Chairman, FCC, should develop a strategy for providing greater levels of oversight and assurance that carriers are properly implementing its cost allocation procedures.

    Agency Affected: Federal Communications Commission


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