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INTRODUCTION ă  I. A. 1. a.(1)(a) i) a) 1. 1. a.(1)(a) i) a)  Y- ` O  x1.` ` On September 20, 1995, the abovelisted petitioners (collectively, "Petitioners")  xfiled a joint petition for waiver ("Joint Petition") of two Commission rules. Contel of Texas,  xwInc. ("Contel") and GTE Southwest Incorporated ("GTE") (collectively, "Sellers") and the seven  x=other petitioners (collectively, "Buyers") seek a waiver of the definition of "Study Area"  xcontained in the Part 36 AppendixGlossary of the Commission's rules. That definition  xyconstitutes a rule freezing all study area boundaries. The requested waivers would allow  xPetitioners to alter the boundaries of their existing Texas study areas when transferring seven  x;Contel telephone exchanges and nine GTE telephone exchanges to Buyers. In addition, Buyers  xseek waivers of the price cap rule contained in Section 61.41(c)(2) of the Commission's rules.  xThat rule requires nonprice cap companiesand the telephone companies with which they are  xhaffiliatedto become subject to price cap regulation after acquiring a price cap company or any  x.part thereof. The requested waivers would permit Buyers to remain under rateofreturn regulation after acquiring the exchanges which currently are under price cap regulation. "h'0*0*0*("Ԍ Y- ` x2.` ` On November 29, 1995, the Common Carrier Bureau ("Bureau") released a public  Y- x;notice soliciting comments on the Joint Petition.m {Ob-ԍxPublic Notice, 10 FCC Rcd 13058 (Com. Car. Bur. 1995).m On December 11, 1995, the Bureau received  xcomments supporting the Joint Petition from the National Exchange Carrier Association, Inc.  xx("NECA") and the National Telephone Cooperative Association ("NTCA"). The Bureau also  xJreceived comments from AT&T Corp. ("AT&T"), which opposes the Joint Petition in part. On  xyJanuary 11, 1996, Buyers filed a reply to the AT&T comments. Petitioners also provided  Yv- xJadditional information and cost data concerning the Joint Petition.GXvZ yO -  .ԍxLetter from Whitney Hatch, GTE Service Corporation, to William Caton, Acting Secretary, FCC (Sept. 20,  x1995) (GTE Letter); letter from Margaret Nyland, Kraskin & Lesse, to William Caton, Acting Secretary, FCC (Nov. 2, 1995) (Nyland Letter).G In this Order, we find that  xJthe public interest would be served by allowing Petitioners to alter their study area boundaries  xand allowing Buyers to continue operating under rateofreturn regulation after acquiring the exchanges. We therefore grant the Joint Petition, as explained more fully below.  X -  X -II. STUDY AREA WAIVERS ă  Y - ` nx3.` `   Background. A study area is a geographical segment of a carrier's telephone  xoperations. Generally, a study area corresponds to a carrier's entire service territory within a  xKstate. Thus, carriers operating in more than one state typically have one study area for each  xstate, and carriers operating in a single state typically have a single study area. Study area  xKboundaries are important primarily because carriers perform jurisdictional separations at the  YO- xstudy area level.0Oz yOz-  LԍxThe phrase "jurisdictional separations," or "separations," refers to the process of dividing costs and revenues  {OB-between a carrier's state and interstate operations. See generally 47 C.F.R.  36.136.741.0 For jurisdictional separations purposes, the Commission froze all study area  Y8- xboundaries effective November 15, 1984. 8 {O-  >ԍx47 C.F.R. 36 app. (defining "study area"). See MTS and WATS Market Structure, Amendment of Part  {O- x,67 of the Commission's Rules and Establishment of a Joint Board, Recommended Decision and Order, 49 Fed. Reg.  {OQ- x48325 (1984) (1984 Joint Board Recommended Decision); id., Decision and Order, 50 Fed. Reg. 939 (1985) (1985  {O- xOrder Adopting Recommendation); see also Amendment of Part 36 of the Commission's Rules and Establishment  {O-of a Joint Board, Notice of Proposed Rulemaking, 5 FCC Rcd 5974 (1990) (Study Area Notice). The Commission took that action primarily to ensure  xxthat local exchange carriers ("LECs") do not set up highcost exchanges within their existing  Y - xservice territories as separate study areas to maximize highcost payments.   {OI"-  ԍxSee 1985 Order Adopting Recommendation, supra note 4, at 940; see also 1984 Joint Board Recommended  {O#-Decision, supra note 4, at 48337. The study area  xfreeze also prevents LECs from transferring exchanges among existing study areas for the  xYpurpose of increasing interstate revenue requirements and compensation. A LEC must apply to  xthe Commission for a waiver of the frozen study area rule if the LEC wishes to sell an exchange"0*(("  xto another carrier and if that transaction would have the effect of changing the study area  Y-boundaries of either carrier. P yOb-ԍx47 C.F.R. 1.3, 36 app.P  Y- ` x4.` ` Waiver of Commission rules is appropriate only if special circumstances warrant  Y- x deviation from the general rule and such a deviation will serve the public interest.X {O-  kԍxNortheast Cellular Tel. Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990); WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir. 1969); 47 C.F.R.  1.3. In evaluating  x;petitions seeking a waiver of the rule freezing study area boundaries, the Commission employs  Yv- xa threeprong standard:^v {O -  ԍxSee US West Communications, Inc., and Eagle Telecommunications, Inc., Joint Petition for Waiver of the  {O - xDefinition of "Study Area" Contained in Part 36, AppendixGlossary of the Commission's Rules, Memorandum  {Om -Opinion and Order, 10 FCC Rcd 1771,  5 (1995) (US WestEagle Study Area Order). first, that the change in study area boundaries does not adversely affect  Y_- xthe Universal Service Fund ("USF") support program; ~ h _ {O-  ԍUSF PROCEDURE USF RULE xSee 1984 Joint Board Recommended Decision, supra note 4, 48337. The Commission created the USF to  {O- xpreserve and promote universal service. See Amendment of Part 67 of the Commission's Rules and Establishment  {O|- xof a Joint Board, Decision and Order, 96 FCC 2d 781 (1984). The USF allows LECs with high local loop plant  xcosts to allocate a portion of those costs to the interstate jurisdiction, thus enabling the states to establish lower local  xiexchange rates in study areas receiving such assistance. To determine which LEC study areas are eligible for USF  xsupport, the USF rules prescribe an eligibility threshold set at 115 percent of the national average unseparated loop  xcost per working loop. When loop cost in a particular study area exceeds that threshold, the study area is eligible  xfor support equal to a certain percentage of the loop cost in excess of that threshold. The study area becomes eligible  xfor higher levels of support as its loop cost rises above additional thresholds set farther above the national average  xLunseparated loop cost. Because USF assistance is targeted primarily at small study areas, the level of support  {O- xprovided at each threshold generally is greater if the study area has 200,000 or fewer working loops. See 47 C.F.R.  36.631.~ second, that the state commission(s)  YH- xhaving regulatory authority over the exchange(s) to be transferred does not object to the change; and third, that the public interest supports such a change.  Y - ` x5. ` ` The Commission's concern about adverse USF impacts was mitigated, in the short  xZterm at least, by its adoption of the Joint Board's recommendation for an indexed cap on the  Y - xiUSF.   yO-  ԍxThe Joint Board recommended, and the Commission adopted, interim rules that limit the rate of growth of  {OV - xthe USF to the rate of growth in the total number of working loops nationwide. See generally Amendment of Part  {O !- x36 of the Commission's Rules and Establishment of a Joint Board, Recommended Decision, 9 FCC Rcd 334 (1993)  {O!- x(1993 Joint Board Recommended Decision); id., Report and Order, 9 FCC Rcd 303 (Interim Cap Order). The  xCommission recently extended these interim rules through July 1, 1996. Amendment of Part 36 of the Commission's  {O|#- xRules and Establishment of a Joint Board, Report and Order, CC Dkt. No. 80286, FCC 95494 (rel. Dec. 12, 1995), summarized in 60 Fed. Reg. 65011 (1995).  The Commission nonetheless recognized that, even in the short term, the granting of  xa study area waiver may adversely affect the fund's distribution, if not its size. Under the  xindexed USF cap rules, any study area reconfiguration that increases the USF draw of one USF  xZrecipient often reduces that of other USF recipients. Consequently, in evaluating whether a"P 0*((K"  Y- xxstudy area change would have an adverse impact on the distribution or level of the USF, the  x;Commission applies a "onepercent" guideline to study area waiver requests filed after January  Y- xh5, 1995.x  {OK-ԍxSee US WestEagle Study Area Order, supra note 8,  1417.x Under this guideline, no study area waiver is granted if it would result in an annual  x;aggregate shift in USF assistance in an amount equal to or greater than one percent of the total  xyUSF, unless the parties can demonstrate extraordinary public interest benefit. To prevent  xcarriers from evading this limitation by disaggregating a single large sale of exchanges into a  xseries of smaller transactions that in the aggregate have the same effect on the USF, the  xCommission further requires that the guideline be applied to all study area waivers granted to  xieither carrier, as a purchaser or seller, pending completion of the current review of the USF  Y1-program. s1Z {OS -  kԍxId. In this context, the Commission defines the term "carrier" to include all affiliated carriers (i.e., those  x,carriers that are in common control, as the term "control" is defined in Section 32.9000 of the Commission's rules,  {O -47 C.F.R.  32.9000). Id. n.34.  Y - ` x6.` `  REVIEW We note, however, the likelihood that any conditions imposed pursuant to this  xKanalysis may be superseded by new USF rules before those conditions have any effect. The  Y - x[Telecommunications Act of 1996 became effective on February 8, 1996.z  yO-ԍxTelecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996).z The 1996 Act  xrequires the overhaul of various Commission support programs, including the USF, by May 8,  Y - x;1997.( % {O}-  {ԍxId. sec. 101(a),  254(a)(2). To develop new USF rules, the Commission has initiated a proceeding to  {OG- xaddress this issue. See Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking and Order  {O- xEstablishing Joint Board, 61 Fed. Reg. 10,499 (1996). That proceeding includes the record of a prior proceeding  {O-on the same issue. Id.  39.  The new USF rules are likely to alter the method used to determine the distribution of  xUSF support to highcost areas, thereby changing the projected level of support to Buyers' Texas  xstudy areas. This rulemaking must be completed before the initial stage of upgrades planned by  Yb- xBuyers would cause increased USF payments to their study areas.9b  yO(-  ԍxA lag of up to two years exists between the time that a LEC incurs additional loop costs and the time that  {O-its study area receives additional USF assistance reflecting those higher costs. See 47 C.F.R.  36.61136.612.9 For the interim, however,  xhit is important to apply the standards that we have developed consistently until such time as the rules are changed.  Y- `     x7.` `  Pleadings. Petitioners seek waivers of the rule freezing study area boundaries to  xenable Contel to remove seven exchanges, serving approximately 1,164 access lines, from its  xxTexas study area and to permit GTE to remove nine exchanges, serving approximately 5,205  xaccess lines, from its Texas study area. The requested waivers also would allow Buyers to  x,consolidate the acquired exchanges with their existing Texas study areas, which are comprised  Y-of 63 exchanges serving approximately 38,300 access lines.no  {O&-ԍxJoint Petition, at 23; GTE Letter, supra note 2, at 5.n "~0*(("Ԍ Y- ` !x8. ` ` Petitioners state that the proposed changes would serve the public interest because  x,Buyers would improve customer service in the newly acquired exchanges by constructing new  xidigital central offices and by upgrading multiparty lines to singleparty service. Petitioners  xKestimate that these upgrades would require Buyers to make a combined investment outlay of  Y-$9,617,275 over a fiveyear period.^ {O-ԍxGTE Letter, supra note 2, Attachment 3.^  Yv- ` x9.` ` Petitioners assert that these requests are consistent with the original purpose of  xthe USF and that the resulting impact on the USF would be marginal. Petitioners estimate that,  xif the study area waivers were granted and all planned upgrades were completed, the transfer  xof the 16 exchanges would increase the combined annual USF draw of Buyers by $923,804 and  xdecrease that of Sellers by $249,966. Hence, according to Petitioners, the net increase in the  Y - x-combined annual USF draw of buyers and sellers would be $673,838 (i.e., $923,804 minus  Y -$249,966 equals $673,838)._ Z yO-ԍxNET INCREASEJoint Petition, at 1314._  Y - ` _x 10. ` ` AT&T contends that Buyers' USF draws should be limited to Buyers' current  x<estimates. Without such limits, AT&T argues, exchange buyers would have no incentive to  xreflect accurately in their waiver requests the USF assistance they anticipate having after the  x;purchase of exchanges. AT&T thus submits that it is in the public interest to require Buyers to  Yd- xhjustify actions that may have a significant, adverse impact on the distribution of USF support.Gd yO-ԍxAT&T Comments, at 35.G  xPetitioners raise several objections against such limits. Petitioners state that, to the extent the  xBureau considers any limits appropriate, the limits should be confined to increases in USF  Y-assistance due to the acquisitions themselves.Pz yOJ-ԍxJoint Petition, at 1315.P  Y- ` x 11.` `  Discussion. Petitioners' proposals demonstrate that current and potential  xhcustomers in the affected exchanges will likely be better served by Buyers than Sellers. Buyers  xg state that they will construct a new digital central office in each of the subject exchanges and will  x<upgrade multiparty lines to singleparty service. The requested study area waivers thus are  xlikely to serve the public interest. In addition, the Public Utility Commission of Texas states  Y- xthat it does not object to these requested waivers.`  {O="-ԍ xNyland Letter, supra note 2, Attachment.` Further, we have determined that the  Yk- xprojected net increase of $673,838 in Petitioners' combined annual USF drawuk {O$-ԍxSee supra note NET INCREASE18 and accompanying text.u would not have  xa significant adverse effect on the USF. We therefore find that the three existing criteria for  xgranting a study area waiver have been met in this instance and that the study area waiver requests should be granted."&. 0*((Z"Ԍ Y- ` #ԙx 12. ` ` We nonetheless are concerned that Buyers' estimates of the USF impact may  xhprove inaccurate when the planned upgrades are completed. To address this concern, we have  xKgranted waivers of this type subject to the condition that, absent explicit approval from the  xBureau, the annual USF support provided to the buyers' study areas shall not exceed the  xamounts specified in their waiver petitions. Apparently referring to that Bureau policy,  xPetitioners submit a number of arguments against the imposition of limits on Buyers' USF  Yv-draws.Jv yO-ԍxJoint Petition, at 1315.J  YH- ` x 13. ` ` First, Petitioners argue that it would be inappropriate for Buyers' future USF  xdraws to be restricted to current estimates because Buyers cannot reasonably be expected to  Y - xanticipate all future upgrades that may be required in the transferred exchanges.: o {O: -ԍxId.: We recognize  xthat Buyers' estimates may be inaccurate. We have found that, even in a period of a few years,  xithe USF payments for some LECs have risen by unexpected amounts. These LECs generally  xxhad undertaken substantial upgrades or expansions of the local network in difficulttoserve,  xhsparsely populated exchanges that are similar to the exchanges being acquired by Buyers in this  Y - xJcase.F  {OY-  ԍ ESTIMATE xSee, e.g., Delta Telephone Company, Inc., Waiver of the Definition of "StudyArea" contained in Part 36,  {O#- xAppendixGlossary, of the Commission's Rules, Memorandum Opinion and Order, 5 FCC Rcd 7100 (1990), whose  yO- xUSF payment grew from $82,500 in 1991 to approximately $445,700 in 1993; and US West Communications and  xwGila River Telecommunications, Inc., Joint Petition for Waiver of the Definition of "Study Area" Contained in Part  {O}- xK36, AppendixGlossary, of the Commission's Rules, Memorandum Opinion and Order, 7 FCC Rcd 2161 (1992),  x[whose projection of $169,155 for Gila River's 1992 USF payment was more than doubled by the actual 1992  xpayment of $390,993, which has been nearly doubled again by the 1995 scheduled payment of approximately $750,000. However, Buyers' failure to submit accurate USF impact estimates is not, as Petitioners  x[suggest, a valid reason for granting these waivers unconditionally. On the contrary, the  xpotential for such failure has been our primary reason for imposing limits on buyers' USF draws following exchange transfers.  Y4- ` 1x 14. ` ` These limits would ensure that the study area waivers will not, due to errors or  xunforeseen circumstances, result in USF impacts which substantially exceed Buyers' forecasts.  xThe limits also would ensure that the Commission's one percent guideline can be properly  xyadhered to in future filings of this kind. Absent such limits, companies could file waiver  xrequests that appear to fall within the guideline, only to later adjust their USF estimates to  xZexceed the guideline free of any Bureau review. This guideline could not be enforced if, as  xPetitioners suggest, we were to confine the limits to the increases in Buyers' USF draws that,  Y- xJin Buyers' judgment, are attributable solely to the acquisitions.G  yOS$-ԍxJoint Petition, at 15.G We therefore reject the claim  xthat, because Buyers' representations of the USF impacts may be inaccurate, it would be unreasonable for Buyers' USF draws to be limited by those representations. "N 0*((\"Ԍ Y- ` x15. ` ` Second, Petitioners argue that imposed limits would mistakenly continue Sellers'  xassociation with the transferred exchanges long after the exchanges have been transferred and  Y- xbecome operationally distinct.: {OK-ԍxId.: It is not true, however, that the limits would connect Sellers  xto the exchanges after the transfer. Rather, the limits would connect Buyers' future USF draws  xto their own representations of those draws, ensuring that the study area waivers will not result in adverse effects exceeding Buyers' forecasts.  Y_- ` x16.` ` Third, Petitioners argue that imposed limits would be contrary to the public  xinterest because they would threaten the economic viability of Buyers' proposals and thus would  xdisadvantage rural America. Petitioners state that the consummation of these transactions cannot  Y - xbe justified if Buyers have no opportunity to recover current costs.: Z {O% -ԍxId.: Petitioners fail to show,  xJhowever, that the limits established pursuant to their own representations would preclude such  xan opportunity. As discussed above, the limits permit Buyers to receive an increase of $923,804  x-in their combined annual USF draws. That increase in USF support would be available for  xupgrades even though Petitioners concede that "Buyers are not heavily dependent upon existing  Y - x;USF support levels for future planning purposes."A  {OD-ԍxId. at 13.A Petitioners also fail to show that it would  x[be burdensome for Buyers to seek an increase in imposed limits that are based on Buyers'  xJrepresentations of their posttransfer USF draws. The waiver condition would permit Buyers'  xUSF draws to exceed the limits if, based on Buyers' submission of revised data, the Bureau later determined that such an increase is warranted.  Y- ` x17. ` ` Fourth, Petitioners argue that it would be arbitrary to require the size of a  xcarrier's USF draw to depend, in part, on whether that carrier has been involved in an  Y- xacquisition requiring a study area waiver.G~ yO-ԍxJoint Petition, at 15.G Similarly, Buyers claim that imposed limits on  xBuyers' USF draws would constitute unfair discrimination against highcost LECs based on  x=changes in ownership. Buyers assert that, because an increase in the support to any USF  Y- xrecipient reduces the support available to other recipients, the upgrade plan of any USF  xrecipient would have that same result regardless of whether it has been involved in an exchange  Y~-transfer.O~ yO="-ԍxBuyers Reply Comments, at 34.O We are not persuaded by that argument.  YP- ` x18.` ` Unlike Petitioners and other similarly situated LECs, the other USF recipients  xhave not been involved in transactions that remove highcost exchanges from large study areas  xand spin them off into smaller study areas, where the exchanges have a greater effect on average  xloop cost. Because USF assistance depends on study area average loop cost, such transactions  xcause any upgrading of outside plant in the transferred exchanges to be supported by a higher"0*((+ "  xlevel of USF assistance than would occur if the upgrading had been performed instead by the  Y- xsellers.  yOb-  ԍxAn exchange transfer could result in increased USF draws even when average loop cost data do not show  xthe exchanges to be highcost areas when transferred. Because the outside plant and switching facilities in difficult xtoserve rural exchanges may consist largely of antiquated facilities serving multiparty lines, the highcost nature  xof some exchanges may not be evident until upgrades are completed. Hence, if such exchanges were transferred from  xlarge study areas to small study areas absent any USF limits, the small study areas might exhibit reductions in USF assistance initially, to be followed by large increases when upgrades are completed. As a result, those transactions tend to cause upgrading costs to have a greater negative  xeffect on the support available to other USF recipients. Because Buyers are distinguishable in  xthis way from LECs that have not been involved in such transactions, we reject the claim that limits on Buyers' USF draws would be arbitrary or unfairly discriminatory.  Yv- ` mx19. LIMITS ` ` Consequently, we agree with AT&T that, in study area waivers of this type, we  Y_- xshould continue our policy of imposing limits on buyers' USF draws.G!_@ yOP-ԍxAT&T Comments, at 26.G We disagree, however,  x;with AT&T's suggestion that the limits in this case should be based on Buyers' estimates of the  Y1- xinitial posttransfer USF draws, i.e., the projected level of assistance for the first year following  Y - xthe transfer.@"  {O-ԍxId. at 5.@ We regard the fiveyear postupgrade estimates as a more reasonable basis for  xthe limits. AT&T correctly observes that we employed the initial posttransfer basis when  Y - x-granting a previous waiver request.P# b  {O-  \ԍxId. The precedent referred to by AT&T is in an order adopted last year. See US West Communications,  x-Inc., Copper Valley Telephone, Inc., Midvale Telephone Exchange, and Table Top Telephone Company, Joint  xYPetition for Waiver of the Definition of "Study Area" Contained in Part 3, AppendixGlossary of the Commission's  {O[- xwRules, Memorandum Opinion and Order, 10 FCC Rcd 3373,  16 & n.33 (Com. Car. Bur. Accounting & Audits Div. 1995).P Yet, unlike the instant waiver request which projects  xupgrades over a fiveyear period, that earlier waiver request projected upgrades over an eight xyear period. We consider the USF impact estimates more reliable when the forecast period is  xwno longer than five years. Moreover, unlike the instant waiver request, that earlier request had  xZbeen filed before January 5, 1995 and thus was not subject to the Commission's onepercent  xguideline. As discussed above, the level of Petitioners' estimated USF impact, even after five years of planned upgrades, lies within that guideline.  Y6- ` x20.` ` In conclusion, we find that the waivers should be subject to the condition that,  xiabsent explicit approval from the Bureau, the annual USF support provided to Buyers' study  xareas shall not exceed the postupgrade amounts estimated in the GTE Letter for the fiveyear  Y- x-period following the transfers.$ J yO$-  ԍ ADJUST xBuyers estimate that their postsale, postupgrade USF draws will be $880,041 for Alenco Communications,  x Inc.; $480,112 for Cap Rock Telephone Cooperative, Inc.; $2,044,066 for Central Texas Telephone Cooperative, Inc.;  x$632,666 for Ganado Telephone Co., Inc.; $2,219,416 for Guadalupe Valley Telephone Cooperative, Inc.; $689,559  xfor MidPlains Rural Telephone Cooperative, Inc.; and $1,031,005 for Peoples Telephone Cooperative, Inc. GTE"'#0*((='"  {O- xJLetter, supra note 2, Attachment 4. We note that these study area waivers also are subject to the condition that, if  xthe selling LEC is a price cap carrier selling a highcost portion of its operations, it shall make a downward  {O"- xyexogenous adjustment to its Price Cap Index to reflect the change in its study area boundaries. See Price Cap  {O- xPerformance Review for Local Exchange Carriers, First Report and Order, 10 FCC Rcd 8962,  328, 330 (1995)  {O- x-(LEC Price Cap Review Order). Under that requirement, Contel and GTE must reduce the Price Cap Indices for  xYtheir Texas study areas if the changes in study area boundaries reduce the cost bases for those indices. The Price Cap  xjIndices, which are the cost indices on which pricecapped rates are based, are calculated pursuant to a formula  {O-specified in the Commission's rules for price cap LECs. See 47 C.F.R.  61.45. We note that new USF rules, implementing new statutory"$0*(("  xmandates, are likely to alter the distribution of USF support to highcost areas and require us  Y-to revisit these issues following implementation of the 1996 Act.^% {Ot -ԍxSee discussion supra paragraph 6.^  X- III. PRICE CAPS WAIVER  X-    Yv- ` |x 21.` `  Background. Section 61.41(c)(2) of the Commission's rules provides that, when  xa nonprice cap company acquires a price cap company, the acquiring companyand any LEC  x-with which it is affiliatedshall become subject to price cap regulation within a year of the  Y5- xtransaction._&5l  {OR-  \ԍx47 C.F.R.  61.41(c). See Policy and Rules Concerning Rates for Dominant Carriers, Second Report and  {O- xOrder, 5 FCC Rcd 6786, 6821 (1990), Erratum, 5 FCC Rcd 7664 (Com. Car. Bur. 1990) (LEC Price Cap Order),  {O- xmodified on recon., Order on Reconsideration, 6 FCC Rcd 2637 (1991) (LEC Price Cap Reconsideration Order),  {O- x-aff'd sub nom. National Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993), petitions for further recon.  {Oz- xdismissed, 6 FCC Rcd 7482 (1991), further modification on recon., Amendments of Part 69 of the Commission's  xRules Relating to the Creation of Access Charge Subelements for Open Network Architecture, Policy and Rules  {O - xConcerning Rates for Dominant Carriers, Report and Order and Order on Further Reconsideration and Supplemental  {O- xNotice of Proposed Rulemaking, 6 FCC Rcd 4524 (1991) (ONA Part 69 Order), further recon., Memorandum  {O-Opinion and Order on Second Further Reconsideration, 7 FCC Rcd 5235 (1992)._ The Commission stated that this "allornothing" rule applies not only to the  Y - x,acquisition of an entire LEC but also to the acquisition of part of a study area.'\ L yO-  ԍxThe Commission explained that, if these two types of acquisitions were not treated the same under the allor {O- x;nothing rule, a LEC could avoid the rule by selling all but one of its exchanges. See LEC Price Cap Reconsideration  {O-Order, supra note 38, at 2706. Hence, under  x<this rule, Buyers' acquisition of Sellers' 16 exchanges obligates Buyers to become subject to price cap regulation instead of rateofreturn regulation.  Y - ` x22.` ` The Commission explained that the allornothing rule is intended to address two  xconcerns it has regarding mergers and acquisitions involving price cap LECs. The first concern  xis that, in the absence of the rule, a company might attempt to shift costs from its price cap  xaffiliate to its nonprice cap affiliate, allowing the nonprice cap affiliate to earn moredue to  Yf- xhits increased revenue requirementwithout affecting the earnings of the price cap affiliate, i.e.,  xwithout triggering the sharing mechanism. The second concern is that, absent the rule, a LEC  xmay attempt to "game the system" by switching back and forth between rateofreturn regulation  x,and price cap regulation. The Commission cited, as an example, the incentive a price cap LEC"! p'0*(("  xxmay have to increase earnings by opting out of price cap regulation, building up a large rate  xbase under rateofreturn regulation so as to raise rates and, then, after returning to price caps,  xcutting costs back to an efficient level. It would disserve the public interest, the Commission  xstated, to allow a LEC to alternately "fatten up" under rateofreturn regulation and "slim down"  xunder price caps regulation, because rates would not fall in the manner intended under price cap  Y-regulation.@( {O-ԍxId.@  Y_- ` ]x23.PCI` ` The Commission nonetheless recognized that a narrow waiver of the allornothing  xhrule might be justified if efficiencies created by the purchase and sale of a few exchanges were  Y1- xto outweigh the threat that the system may be subject to gaming.:)1Z {O< -ԍxId.:  Such a waiver would not  Y - xbe granted unconditionally, however. Rather, similar to certain study area waivers,_*  {O-ԍxSee supra note ADJUST36._ waivers  x: of the allornothing rule would be granted subject to the condition that the selling price cap LEC  Y - xshall make a downward exogenous adjustment to its Price Cap Index to reflect the change in its  xstudy area. That adjustment is needed to remove the effects of the transferred exchanges from  xpricecapped rates that have been based, in whole or in part, upon the inclusion of those  Y -exchanges in the study areas subject to price cap regulation.u+ ~ {O-ԍxSee LEC Price Cap Review Order, supra note 36,  330.u    Yy- ` x24.` `  Petition. Buyers seek waivers of Section 61.41(c)(2) so they may operate as rate xofreturn LECs, rather than price cap LECs, after acquiring the 16 exchanges which currently  xare under price cap regulation. Petitioners argue that the rule's application in this instance is  xJcontrary to the public interest and does not serve the purposes for which the rule was adopted.  xPetitioners further argue that the Commission's two concerns, the threat of cost shifting between  Y -affiliates and gaming of the system, are not at issue in this case.I,  yO-ԍxJoint Petition, at 511.I  Y- `  x25.` `  Discussion. We agree with Petitioners that the Commission's first concern  Y- xunderlying the allornothing rule is not applicable in this case. None of the buyers has an  xZincentive to shift costs between price cap and rateofreturn affiliates, because none of these  xcompanies is seeking to maintain separate affiliates under different systems of regulation. As  Y- xto the Commission's second concern, we find it implausible that Contel and GTE could game  xthe system by moving the 16 exchanges back and forth between price caps and rateofreturn  xregulation, because Contel and GTE are selling these exchanges and a reacquisition would  xrequire a second study area waiver. Moreover, they cannot transfer the exchanges without"? ,0*((["  xremoving the rateincreasing effects of these exchanges from the pricecapped rates that have  Y-been based, in part, upon the inclusion of these exchanges in their Texas study areas.r- {Ob-ԍxSee discussion supra paragraph  PCI23 .r x  Y- ` Ax26.` ` We therefore find there is good cause to grant Buyers a waiver of the allor xnothing rule to permit them to remain under rateofreturn regulation after acquiring the 16  xexchanges which currently are under price cap regulation. As noted above, these waivers are  x,subject to the condition that Contel and GTE shall make a downward exogenous adjustment to  xJtheir Price Cap Indices to reflect the removal of these generally highcost exchanges from their  x=Texas study areas. For the present, we will continue to regulate Buyers as rateofreturn  xhcarriers. Because we are waiving Section 61.41(c)(2), they need not withdraw from the NECA  xpools. We note that, as with any other rateofreturn carriers, Buyers may elect price cap regulation in the future if they decide to withdraw from the NECA pools.  Y -x IV. ORDERING CLAUSES ă  Y- ` |x27.` ` Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the  xCommunications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, and  xxSections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3 that  xthe Joint Petition of Alenco Communications, Inc.; Cap Rock Telephone Cooperative, Inc.;  xhCentral Texas Telephone Cooperative, Inc.; Contel of Texas, Inc.; Ganado Telephone Co., Inc.;  xGTE Southwest Incorporated; Guadalupe Valley Telephone Cooperative, Inc.; MidPlains Rural  xTelephone Cooperative, Inc.; and Peoples Telephone Cooperative, Inc., for waiver of Part 36,  x[Appendix-Glossary, of the Commission's Rules, 47 C.F.R. Part 36 AppendixGlossary IS GRANTED subject to the conditions stated in paragraph 20 of this Order.  Y- ` 1x28.` ` IT IS FURTHER ORDERED that the Joint Petition of Alenco Communications,  x=Inc.; Cap Rock Telephone Cooperative, Inc.; Central Texas Telephone Cooperative, Inc.;  xJGanado Telephone Co., Inc.; Guadalupe Valley Telephone Cooperative, Inc.; MidPlains Rural  xTelephone Cooperative, Inc.; and Peoples Telephone Cooperative, Inc., for waiver of Section  x61.41(c)(2) of the Commission's Rules, 47 C.F.R.  61.41(c)(2), IS GRANTED subject to the condition stated in paragraph 26 of this Order.  Y - ` x29.` ` IT IS FURTHER ORDERED that the National Exchange Carrier Association, Inc. shall not distribute USF assistance exceeding the limits imposed in paragraph 20 of this Order. " Z-0*(( "Ԍ Y- ` o x30.` ` IT IS FURTHER ORDERED that this Order is effective immediately upon release. x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhKenneth P. Moran x Chief, Accounting and Audits Division x` `  hhCommon Carrier Bureau@@  @xx Ń