Two papers consider the capital recovery difficulties of telephone companies in the current deregulatory environment. The first, "Capital Recovery in the Transition Period" (Gail Garfield Schwartz, New York State Public Service Commission) describes the process determining depreciation in both regulated and deregulated environments, and argues that decisions to permit companies to draw out their depreciation of corporate assets should be made on a case by case basis. The second paper, "The Negative Effects of Tax Reform on the Telephone Industry" (Jeffrey A. Rohlfs, with Susan Leisner and Charles Jackson) (abstract only), details the effects of the 1986 Tax Reform Act on capital recovery and internal cash flow practices of telephone companies. It concludes that, with the elimination of the investment tax credit and a reduction in the level of deferred taxes, the new tax law has exacerbated the problems created by inadequate capital recovery, and limited the telephone industry's ability to use internal funds to replace and modernize its plants. (Author/EW)