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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $//M&O; U S West Comm., North Dakota, Study Area & Price Cap Waivers, AAD 95-72, DA 96-523//$ $/Part 36 Appendix-Glossary and Sects. 61.41(c)(2), 69.3(e)(11), and 69.605(c)/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) Petitions for Waivers Filed by ) ) BEK Communications I, Inc.; CTC Communications, Inc.; ) Dakota Central Telecom I, Inc.; Dickey Rural Communications, ) Inc.; Dickey Rural Telephone Cooperative; Gilby Telephone ) Company; Griggs County Telephone Company; ) Inter-Community Telephone Company II, Inc; ) Moore & Liberty Telephone Company; North Dakota ) DA 96-523 Telephone Company; Northwest Communications ) Cooperative; Red River Telecom, Inc.; RTC II, Inc.; ) AAD 95-72 Turtle Mountain Communications, Inc.; U S West ) Communications, Inc.; United Telephone Mutual Aid ) Cooperative; West River Communications, Inc.; and ) York Telephone Company ) ) Concerning Sections 61.41(c)(2), 69.3(e)(11) and 69.605(c) ) and the Definition of "Study Area" Contained in the ) Part 36 Appendix-Glossary of the Commission's Rules ) MEMORANDUM OPINION AND ORDER Adopted: April 3, 1996 Released: April 4, 1996 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1. On May 19, 1995, the above-listed petitioners (collectively, "Petitioners") filed a joint petition for waiver ("Joint Petition") of three Commission rules. U S West Communications, Inc. ("U S West") and 15 other petitioners (collectively, "Buyers") seek a waiver of the definition of "Study Area" contained in the Part 36 Appendix-Glossary of the Commission's rules. That definition constitutes a rule freezing all study area boundaries. The requested waivers would allow US West and Buyers to alter the boundaries of certain existing study areas, and would allow some of the buyers to create new study areas, when transferring 68 North Dakota exchanges from US West to Buyers. In addition, Buyers and their two affiliates seek waivers of the price cap rule contained in Section 61.41(c)(2) of the Commission's rules. That rule requires non-price cap companies, and the telephone companies with which they are affiliated, to become subject to price cap regulation after acquiring a price cap company or any part thereof. The requested waivers would permit Buyers and Buyers' Affiliates to remain under rate-of-return regulation after acquiring the exchanges, which currently are under price cap regulation. 2. On June 22, 1995, the Common Carrier Bureau ("Bureau") released a public notice soliciting comments on the Joint Petition. On July 28, 1995, the National Exchange Carrier Association, Inc. ("NECA") submitted comments supporting the Joint Petition and AT&T Corp. ("AT&T") filed comments that, in part, oppose the Joint Petition. In addition, a number of local exchange subscribers in North Dakota submitted comments and letters opposing the Joint Petition. On August 11, 1995, the Bureau received reply comments from Buyers, the National Telephone Cooperative Association ("NTCA") and U S West. Further, Petitioners provided additional information and cost data concerning the Joint Petition. In this Order, we find that the public interest would be served by allowing Petitioners to alter their existing study area boundaries and allowing Buyers to continue operating under rate-of-return regulation after acquiring the exchanges. We therefore grant the Joint Petition, as explained more fully below. II. STUDY AREA WAIVERS A. Background 3. A study area is a geographical segment of a carrier's telephone operations. Generally, a study area corresponds to a carrier's entire service territory within a state. Thus, carriers operating in more than one state typically have one study area for each state, and carriers operating in a single state typically have a single study area. Study area boundaries are important primarily because carriers perform jurisdictional separations at the study area level. For jurisdictional separations purposes, the Commission froze all study area boundaries effective November 15, 1984. The Commission took that action primarily to ensure that local exchange carriers ("LECs") do not set up high-cost exchanges within their existing service territories as separate study areas to maximize high-cost payments. The study area freeze also prevents LECs from transferring exchanges among existing study areas for the purpose of increasing interstate revenue requirements and compensation. A LEC must apply to the Commission for a waiver of the frozen study area rule if the LEC wishes to sell an exchange to another carrier and if that transaction would have the effect of changing the study area boundaries of either carrier. 4. Waiver of Commission rules is appropriate only if special circumstances warrant deviation from the general rule and such a deviation will serve the public interest. In evaluating petitions seeking a waiver of the rule freezing study area boundaries, the Commission employs a three-prong standard: first, that the change in study area boundaries does not adversely affect the Universal Service Fund ("USF") support program; second, that the state commission(s) having 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. 5. The Commission's concern about adverse USF impacts was mitigated, in the short term at least, by its adoption of the Joint Board's recommendation for an indexed cap on the USF. The Commission nonetheless recognized that, even in the short term, the granting of a study area waiver may adversely affect the fund's distribution, if not its size. Under the indexed USF cap rules, a study area reconfiguration that increases the USF draw of one USF recipient often reduces that of other USF recipients. Consequently, in evaluating whether a study area change would have an adverse impact on the distribution or level of the USF, the Commission applies a "one-percent" guideline to study area waiver requests filed after January 5, 1995. Under this guideline, no study area waiver is granted if it would result in an annual aggregate shift in USF assistance in an amount equal to or greater than one percent of the total USF, unless the parties can demonstrate extraordinary public interest benefit. To prevent carriers from evading this limitation by disaggregating a single large sale of exchanges into a series of smaller transactions that in the aggregate have the same effect on the USF, the Commission further requires that the guideline be applied to all study area waivers granted to either carrier, as a purchaser or seller, pending completion of the current review of the USF program. 6. We note, however, the likelihood that any conditions imposed pursuant to this analysis may be superseded by new USF rules before those conditions have any effect. The Telecommunications Act of 1996 became effective on February 8, 1996. The 1996 Act requires the overhaul of various Commission support programs, including the USF, by May 8, 1997. The new USF rules are likely to alter the method used to determine the distribution of USF support to high-cost areas, thereby changing the projected level of support to Buyers' North Dakota study areas. This rulemaking must be completed before the initial stage of upgrades planned by Buyers would cause increased USF payments to their study areas. For the interim, however, it is important to apply the standards that we have developed consistently until such time as the rules are changed. B. Pleadings 7. Joint Petition. Petitioners seek waivers of the rule freezing study area boundaries to enable US West to remove 68 exchanges, serving approximately 48,354 access lines, from its North Dakota study area. The requested waivers also would enable Buyers to consolidate the acquired exchanges with existing study areas or to create new study areas. Specifically, ten buyers seek permission to consolidate 41 exchanges with existing North Dakota study areas owned by them or their affiliates. The remaining five buyers seek permission to transfer 27 exchanges to newly created study areas. 8. Petitioners state that the proposed changes would serve the public interest because Buyers generally would improve customer service in the newly acquired exchanges by upgrading service capabilities to meet on-going customer demands and by providing enhanced customer response time, which is expected to result from the localized operations. Petitioners state that the switching equipment in some exchanges would be upgraded to digital switching within the first year of operation. 9. Petitioners assert that these requests are consistent with the original purpose of the USF and that the resulting impact on the USF would be marginal. Petitioners estimate that, if the study area waivers were granted and planned upgrades were completed, the transfer of the 68 exchanges would result in a combined 1997 USF draw of $403,551 for Buyers. Petitioners state, however, that the net impact on the combined 1997 USF draw of Buyers and their affiliates together would be a reduction of $99,024, assuming Buyers are permitted to create separate study areas as requested. Petitioners state that the exchange transfers would have no effect on U S West's draw of USF assistance because its North Dakota study area would not qualify for USF assistance before or after the transfer. 10. Petitioners raise several objections to the Bureau's policy of placing limits on the USF draws of companies that are granted study area waivers involving the transfer of exchanges. Petitioners state that, to the extent the Bureau considers any limits appropriate, the limits should be based on the maximum amounts each buyer could receive during the first five years after the close of this transaction. 11. Comments. NECA and NTCA support Petitioners' requests. A number of local exchange subscribers, however, oppose the Joint Petition. They submit that the proposed transactions would cause service to deteriorate and thus would not be in the public interest. AT&T also opposes the Joint Petition in part. AT&T contends that Buyers' USF draws should be limited to the estimated USF assistance amounts submitted by Buyers in support of the Joint Petition. Without such limits, AT&T argues, exchange buyers would have no incentive to reflect accurately in their waiver requests the USF assistance they anticipate having after the purchase of exchanges. AT&T thus submits that it is in the public interest to require Buyers to justify actions that may have a significant, adverse impact on the distribution of USF support. In addition, AT&T claims that Petitioners' estimated USF impact may be meaningless because, for three buyers, Petitioners appear to have mistakenly calculated the current USF draws of the parent companies. Further, AT&T asserts that each of the five buyers seeking to establish new study areas should be required to consolidate its acquired exchanges with the study area of its parent. C. Discussion 12. Request for waivers. Petitioners' proposals demonstrate that current and potential customers in the affected exchanges will likely be better served by Buyers than US West. In many exchanges, Buyers intend to upgrade switching facilities to digital equipment. Moreover, the State of North Dakota Public Service Commission ("North Dakota PSC") concluded that Buyers are fit to provide local exchange and switched access service because they have the financial and technical support of parent companies having many years of experience in providing such service. None of the parties fully opposing the Joint Petition substantiates their claim that service quality and network access would deteriorate if the subject exchanges were transferred to Buyers. The requested study area waivers thus are likely to serve the public interest. In addition, the three state public utility commissions having jurisdiction over the affected customers state that they do not object to the requested study area waivers. 13. Further, we have determined based on Petitioners' post-upgrade USF estimates that, if Buyers consolidate the acquired exchanges with the existing study areas of their respective affiliates, a grant of the requested study area waivers would result in an increase of $895,938 in Petitioners' combined annual USF draws. Although that $895,938 increase in Petitioners' combined USF draws far exceeds the $99,024 decrease specified by Petitioners, the $895,938 increase nonetheless is well below the Commission's one percent guideline. We also have determined that these waivers, together with other study area waivers that have been granted to some of these petitioners, would not result in any individual petitioner exceeding the guideline. The requested waivers thus are not likely to have an adverse effect on the USF assistance received by other USF recipients. We therefore find that the three existing criteria for granting a study area waiver have been met in this instance and that the study area waiver requests should be granted. 14. Request for separate study areas. Five of the buyers seek permission to establish new study areas for their acquired exchanges although their parent companies have existing study areas in North Dakota. Petitioners claim that separate study areas would ensure that these buyers' respective costs of serving their acquired exchanges are reflected in the rates charged to those new customers rather than causing the parent companies to raise rates for existing customers. Petitioners also claim that separate study areas are needed to assure quality service and facilitate the upgrading of facilities in the parent companies' existing study areas. Moreover, Petitioners submit that, for the four buyers owned by telephone cooperatives, new separate study areas are needed to ensure that the parent companies are able to strategically invest in North Dakota without diminishing the control of the members in the existing telephone cooperatives' operations. If separate study areas are not allowed, Petitioners assert, existing rural LECs would have less incentive to expand in other portions of the states where they or their affiliates currently operate. 15. We do not oppose the five buyers' plans to create new, wholly-owned subsidiaries for the acquired exchanges. Nor do we oppose their plans to treat the acquisitions as a strategic business investment that is separate and apart from the current North Dakota operations of their parent companies. We do not agree, however, that these plans would be precluded by a requirement that the acquired exchanges be added to the existing study area for purposes of jurisdictional separations. 16. Petitioners further argue that it is questionable as to whether we have delegated authority to require acquired exchanges to be consolidated with existing study areas because that requirement effectively adds a fourth prong to the Commission's three-prong standard for granting study area waivers. That argument is unpersuasive. As noted above, the three-prong standard is intended to be used in evaluating whether study area waivers should be granted to permit the transfer of exchanges. When we find that a proposed exchange transfer meets that standard, we still must use our judgment in deciding whether the standard is better satisfied by a transfer adding exchanges to an existing study area or, instead, by a transfer placing exchanges in a newly created study area. We have found that, when buyers and sellers operate in the same state, the standard is better satisfied if the transferred exchanges are added to the buyers' existing study areas. Nothing in the standard implies that a grant of the study area waiver must permit the buyers to configure their acquisitions in a way that gains them the greatest advantage under the USF rules and the Small Carrier Assistance rules. Moreover, the consolidation of study areas located within the same state is the type of study area reconfiguration that the Commission encourages as serving the public interest. We therefore reject the claim that a requirement to consolidate the acquired exchanges with the existing North Dakota study areas of the parent companies would be inconsistent with Commission policy. 17. We also reject Petitioners' argument that such a consolidation requirement unjustly discriminates against in-state LECs because out-of-state LECs may be permitted to establish new study areas. These two groups of LECs are not similarly situated. Whereas it is feasible for in-state LECs to add in-state exchanges to their existing study areas, it is not feasible for out-of- state LECs to take such action. Due to differences in state regulation policies, separate study areas are needed for a LEC's operations in separate states. 18. Petitioners further assert that their proposal to create new study areas would be consistent with the Commission's policy on granting study area waivers. We disagree. As explained above, the primary intent of the study area freeze rule is to prohibit LECs from setting up high-cost exchanges within their existing service territories as separate study areas to maximize USF support. LECs would have no incentive to do this if USF assistance were distributed on an exchange basis. Yet, because it is distributed on a study area basis, a LEC's USF payment will tend to be greater over time if the LEC can isolate high-cost exchanges in one or more separate study areas. Such action permits the LEC to report average loop cost in the high-cost study areas farther above the USF eligibility threshold than would be possible if the high-cost exchanges remained consolidated with lower-cost exchanges. 19. The risk that LECs will act on this incentive to create new study areas is no less serious when LECs are deciding whether to consolidate newly acquired exchanges with existing study areas located in the same state. As noted above, a LEC's USF draw will tend to be greater if it can isolate high-cost exchanges in a separate study area. In the instant case, the creation of new study areas would enable the affected parent companies to avoid reductions in their annual USF draws that would occur if the lower-cost acquired exchanges were consolidated with the parents' higher-cost study areas. Petitioners' estimates show that in 1997, for example, four of the parent companies would avoid a reduction of approximately $867,000 in their combined USF draws. Hence, the creation of new study areas would enable these companies to gain an advantage under the USF and jurisdictional separations rules. 20. The creation of separate study areas also may enable some of these buyers to gain an advantage under the Small Carrier Assistance rules. Those rules allow small LECs to assign an increased share of local switching equipment costs to the interstate jurisdiction. A study area having fewer than 10,001 access lines, for example, may increase its interstate assignment by 200 percent. A study area having 10,001 to 20,000 access lines may increase its interstate assignment by 150 percent. And a study area having 20,001 to 50,000 access lines may increase its interstate assignment by 100 percent. Under this support program, the study area of West River's parent company, West River Telecommunications Corporation ("WRTC"), is eligible for the maximum level of assistance prior to acquiring the new exchanges. Because that study area has only 9,491 access lines, WRTC is able to increase its interstate assignment by 200 percent. The interstate assignment for this study area could be increased by only 150 percent, however, if WRTC were to consolidate the newly acquired exchanges with that study area. Because those exchanges have 5,730 lines, the combined line count for the enlarged study area would exceed the 10,000-line threshold, making WRTC ineligible for the highest level of support. Consequently, the proposed change would enable WRTC to avoid a reduction in its interstate revenue requirements and thereby avoid reducing the rates that interstate toll customers pay to access WRTC's local network. 21. When these effects on the USF and Small Carrier Assistance programs are considered together, we find that the study area waivers will result in an increase of approximately $639,000 in the combined interstate revenue requirements of the five buyers and their parent companies. Significantly, that increase is based on the assumption that the acquired exchanges will be placed in the parent companies' study areas. If the exchanges were placed instead in new study areas, the five buyers and their parent companies would receive an additional increase of approximately $776,000. Petitioners have not demonstrated that this additional increase in interstate revenue requirements would be in the public interest. 22. In view of these potential risks and the Commission's primary objective in adopting the study area freeze rule, we find that in this case, where LECs are operating in the same state, the rule is intended to prevent companies from creating any additional study areas when transferring exchanges among themselves. We therefore deny Petitioners' requests for the creation of new study areas. 23. Request for exemption from USF limits. We are concerned that Buyers' estimates of the USF impact may prove inaccurate when the planned upgrades are completed. To address this concern, we have granted waivers of this type subject to the condition that, absent explicit approval from the Bureau, the annual USF support provided to the buyers' study areas shall not exceed the amounts specified in their waiver petitions. In reference to that Bureau policy, Petitioners submit several arguments against the imposition of limits on Buyers' USF draws. 24. First, Petitioners argue that it would be inappropriate for Buyers' future USF draws to be restricted to current estimates because Buyers cannot reasonably be expected to anticipate all future upgrades that may be required in the transferred exchanges. We recognize that Buyers' estimates may be inaccurate. We have found that, even in a period of a few years, the USF payments for some LECs have risen by unexpected amounts. These LECs generally had undertaken substantial upgrades or expansions of the local network in difficult-to-serve, sparsely populated exchanges that are similar to the exchanges being acquired by Buyers in this case. However, Buyers' failure to submit accurate USF impact estimates is not, as Petitioners suggest, a valid reason for granting these waivers unconditionally. On the contrary, the potential for such failure has been our primary reason for imposing limits on the USF draws of companies that are acquiring exchanges. 25. These limits would ensure that the study area waivers will not, due to errors or unforeseen circumstances, result in adverse USF impacts which substantially exceed Buyers' forecasts. The limits also would ensure that the Commission's one-percent guideline can be properly adhered to in future filings of this kind. Absent such limits, companies could file waiver requests that appear to fall within the guideline, only to later adjust their USF estimates to exceed the guideline free of any Bureau review. Moreover, it would be administratively difficult for us to enforce the guideline if, as Buyers suggest, we were to impose limits only after monitoring the month-to-month USF draws of Buyers, and of numerous other similarly situated companies, to determine which individual companies had exceeded the guideline. We therefore reject the claim that, because Buyers' specification of the USF impacts may be inaccurate, limits established pursuant to Buyers' own representations would be unreasonable. 26. Second, Petitioners argue that imposed limits would be contrary to the public interest because they would threaten the economic viability of Buyers' proposals and thus would disadvantage rural America. According to Petitioners, such limits may force Buyers and their affiliates to modify or cancel plant upgrades. As discussed above, however, the limits permit Buyers to receive an increase of $895,938 in their combined annual USF draws. Further, Buyers indicate that some of their parent companies would enjoy a combined cost reduction of $502,575 due to operating efficiencies resulting from the exchange transfers. That increase in USF support, together with the cost savings, would make $1,398,513 (i.e., $895,938 plus $502,575) available for upgrades. In addition, Buyers would receive a substantial increases in Small Carrier Assistance, which would be available for upgrades. As explained earlier, five buyers alone would receive approximately $639,000 in such additional assistance. Moreover, Petitioners fail to show that it would be burdensome for Buyers to seek an increase in imposed limits that are based on Buyers' representations of their post-transfer USF draws. The waiver condition would permit Buyers' USF draws to exceed the limits if, based on Buyers' submission of revised data, the Bureau later determined that such an increase is warranted. 27. Third, Buyers argue that it would be unreasonable to require the size of a carrier's USF draw to depend, in part, on whether that carrier has been involved in an acquisition requiring a study area waiver, because USF calculations operate independently of whether acquisitions have occurred. We are not persuaded by that argument, however. Unlike Buyers and other similarly situated LECs, the other USF recipients have not been involved in transactions that remove high-cost exchanges from large study areas and spin them off into smaller study areas, where the exchanges have a greater effect on average loop cost. Because USF assistance depends on study area average loop cost, such transactions cause any upgrading of outside plant in the transferred exchanges to be supported by a higher level of USF assistance than would occur if the upgrading had been performed instead by the sellers. As a result, those transactions tend to cause upgrading costs to have a greater negative effect on the support available to other USF recipients. Because Buyers are distinguishable in this way from LECs that have not been involved in such transactions, we reject the claim that limits on Buyers' USF draws would be unreasonable. 28. In conclusion, we agree with AT&T that, for study area waivers of this type, we should continue our policy of imposing limits on buyers' USF draws. We therefore find that the waivers should be subject to the condition that, absent explicit approval from the Bureau, the annual USF support provided to Buyers' study areas shall not exceed the post-upgrade amounts specified by all buyers except Dickey Rural. The annual USF support provided to Dickey Rural's study area shall not exceed $350,780, an amount we calculated based on data submitted by Dickey Rural. We note that new USF rules, implementing new statutory mandates, are likely to alter the distribution of USF support to high-cost areas and require us to revisit these issues following implementation of the 1996 Act. III. PRICE CAP WAIVERS 29. Background. Section 61.41(c)(2) of the Commission's rules provides that, when a non-price cap company acquires a price cap company, the acquiring company--and any LEC with which it is affiliated--shall become subject to price cap regulation within a year of the transaction. The Commission stated that this "all-or-nothing" rule applies not only to the acquisition of an entire LEC but also to the acquisition of part of a study area. Hence, under this rule, Buyers' acquisition of US West's 68 exchanges obligates Buyers to become subject to price cap regulation instead of rate-of-return regulation. 30. The Commission explained that the all-or-nothing rule is intended to address two concerns it has regarding mergers and acquisitions involving price cap LECs. The first concern is that, in the absence of the rule, a company might attempt to shift costs from its price cap affiliate to its non-price cap affiliate, allowing the non-price cap affiliate to earn more--due to its increased revenue requirement--without affecting the earnings of the price cap affiliate, i.e., without triggering the sharing mechanism. The second concern is that, absent the rule, a LEC may attempt to "game the system" by switching back and forth between rate-of-return regulation and price cap regulation. The Commission cited, as an example, the incentive a price cap LEC may have to increase earnings by opting out of price cap regulation, building up a large rate base under rate-of-return regulation so as to raise rates and, then, after returning to price caps, cutting costs back to an efficient level. It would disserve the public interest, the Commission stated, to allow a LEC to alternately "fatten up" under rate-of-return regulation and "slim down" under price caps regulation, because rates would not fall in the manner intended under price cap regulation. 31. The Commission nonetheless recognized that a narrow waiver of the all-or-nothing rule might be justified if efficiencies created by the purchase and sale of a few exchanges were to outweigh the threat that the system may be subject to gaming. Such a waiver would not be granted unconditionally, however. Rather, similar to certain study area waivers, waivers of the all-or-nothing rule would be granted subject to the condition that the selling price cap LEC shall make a downward exogenous adjustment to its Price Cap Index to reflect the change in its study area. That adjustment is needed to remove the effects of the transferred exchanges from price-capped rates that have been based, in whole or in part, upon the inclusion of those exchanges in the study areas subject to price cap regulation. 32. Petition. Buyers and their affiliates seek waivers of Section 61.41(c)(2) so they may operate as rate-of-return LECs, rather than price cap LECs, after acquiring the exchanges which currently are under price cap regulation. Petitioners argue that the rule's application in this instance is contrary to the public interest and does not serve the purposes for which the rule was adopted. Petitioners further argue that the Commission's two concerns, the threat of cost shifting between affiliates and gaming of the system, are not at issue in this case. 33. Discussion. We agree with Petitioners that the Commission's first concern underlying the all-or-nothing rule is not applicable in this case. None of the buyers has an incentive to shift costs between price cap and rate-of-return affiliates, because none of these companies is seeking to maintain separate affiliates under different systems of regulation. As to the Commission's second concern, we find it implausible that U S West could game the system by moving the subject exchanges back and forth between price caps and rate-of-return regulation, because U S West is selling these exchanges and a reacquisition would require a second study area waiver. Moreover, U S West cannot transfer the exchanges without removing the rate- increasing effects of these exchanges from the price-capped rates that have been based, in part, upon the inclusion of these exchanges in its North Dakota study area. We therefore find there is good cause to grant Buyers a waiver of the all-or-nothing rule to permit them to operate under rate-of-return regulation after acquiring the exchanges which currently are under price cap regulation. As noted above, these waivers are subject to the condition that US West shall make a downward exogenous adjustment to its Price Cap Indices to reflect the removal of these generally high-cost exchanges from its North Dakota study area. IV. COST SETTLEMENT WAIVERS 34. Background. Section 69.605(c) of the Commission's rules states, in pertinent part, that "a telephone company that was participating in average schedule settlements on December 1, 1982, shall be deemed to be an average schedule company." Average schedule status has certain advantages for small LECs and for interstate ratepayers. Average schedule companies are able to avoid certain administrative burdens and interstate ratepayers are not required to pay the expenses that exchange carriers incur in the performance of interstate cost studies. The Commission has concluded, however, that an unrestricted opportunity for cost companies to convert to average schedule status is likely to operate to the detriment of interstate ratepayers because the conversion may result in inflated interstate revenue requirements. 35. Pleadings. Dickey Rural, Red River and Turtle Mountain seek waiver of this rule in order to permit these newly created companies to have average-schedule status for interstate settlement purposes. These petitioners acknowledge that their respective parent companies already have average schedule status for their local exchange operations in North Dakota. The petitioners nonetheless submit that they should not be absorbed with their respective parents' operations but, rather, operated as separate corporations. The petitioners state that this structure is necessary to enable the parent companies, which are telephone cooperatives, to invest strategically in North Dakota without diminishing the control of their existing members. Separate operations also are necessary, the petitioners assert, to assure that the cooperative memberships' equity in the acquired exchanges will earn a return separate and apart from the risk associated with the parent LECs' on-going operations. 36. The three petitioners further submit that, because none of them will serve more than 7,400 customers after acquiring the exchanges, they would find it overly burdensome to perform the cost studies required if they are denied average schedule status. These petitioners also submit that, because they each would be included in the respective parent LEC's North Dakota study area, and because they each plan to file with NECA on an affiliate-combined basis for interstate average schedule and USF purposes, the parent companies' decisions to establish separate corporations for the acquired exchanges would not increase the petitioners' interstate revenue requirements. The petitioners thus contend that this strategic structuring of their operations cannot be seen as an effort to gain an unfair advantage under the average schedule rules. 37. Discussion. As noted earlier, waiver of Commission rules is appropriate only if special circumstances warrant deviation from the general rule and such a deviation will serve the public interest. We are persuaded by these three petitioners that a deviation from the general rule in Section 69.605(c) is warranted due to the following special circumstances: First, as a result of that rule, LECs must obtain a waiver in order to elect average schedule status but do not need a waiver if they elect cost settlement status. Second, the Bureau has a policy that generally requires newly acquired exchanges to be added to existing study areas in the same state. Third, the parent companies currently have average schedule status. In view of these three circumstances, we recognize that both the petitioners and their respective parent companies would have to perform interstate settlements on a cost-basis absent the requested waiver. Hence, following the exchange transfer, the rules together with Bureau policy would require the parent companies to convert from average schedule status to cost settlement status to avoid having to consolidate the exchanges with the parents' existing corporate operations. We agree with the petitioners that it would not be in the public interest, in these three instances, for us to order such consolidations to occur. We agree that it would not be in the public interest for these three telephone cooperatives to be forced to convert to cost-basis settlements in order to acquire the subject exchanges. Because all three of these cooperatives are small LECs, such a conversion may result in increased interstate revenue requirements due to the additional costs caused by the necessary cost studies. 38. We also agree with these petitioners that, because they and their respective North Dakota affiliates plan to file with NECA on a combined basis for interstate average schedule and USF purposes, the requested waivers would not result in inflated interstate revenue requirements. The interstate revenue impacts would be the same as if each petitioner had rolled the new exchanges into its respective parent's existing operation. Moreover, each petitioner and its respective affiliate will have the same study area. Because jurisdictional separations and USF calculations are performed at the study area level, all affiliates in a single study area must be under the same settlement method for performing interstate settlements. Hence, an application of Section 69.605(c) in these instances would have the unintended effect of requiring the parent companies, which now have average schedule status, to convert to cost-based settlements in order to be able to acquire the subject exchanges and operate them separately from existing operations. That effect would be unnecessarily burdensome on the petitioners and their affiliates. We therefore find that the request waivers should be granted. 39. These waivers are subject to three conditions. First, each of the petitioners and its respective affiliate in North Dakota shall report to NECA on a combined basis for interstate average schedule and USF purposes and receive distributions on that basis to both companies on one consolidated statement. This condition implies that, for interstate regulatory purposes, the two companies effectively are considered one company. Second, if either of the affiliates in one of these three study areas converts from average schedule status to cost-based settlements, or elects Section 61.39 treatment, all other affiliates in North Dakota must convert to that settlement status. Third, the average schedule status of the three petitioners shall remain in effect only while they are under common control with their respective affiliates in North Dakota. This condition implies that a petitioner's average schedule status shall terminate when it is sold, transferred, or otherwise assigned. These conditions will ensure that the waivers will not result in unintended effects on the petitioners' interstate revenue requirements or result in an administrative burden on the Commission or NECA. V. OTHER ISSUES 40. To the extent necessary, Buyers seek waivers of Section 69.3(e(11) of the Commission's rules. That rule requires that any changes in NECA common line tariff participation and long term support resulting from a merger or acquisition of telephone properties are to be made effective on the next annual access tariff filing effective date following the merger or acquisition. Buyers are concerned that under a strict interpretation of this rule they, rather than NECA, would be required to file a tariff on the next annual access tariff filing date. Assuming its acquisition occurs this year, each buyer represents that it will participate in NECA's common line pool; consequently, Buyers' carrier common line costs should be included in NECA's 1996 filing. Therefore, none of the buyers are required to make an annual access filing for their carrier common line costs, and a waiver of Section 69.3(e)(11) is not required. 41. Buyers also seek waiver of Section 61.41(d) of the Commission's rules. That rule states that once a LEC becomes subject to price cap regulation it shall not be eligible to withdraw from such regulation. 47 C.F.R.  61.41(d). Yet, because we are waiving the requirement that Buyers shall become subject to price cap regulation when acquiring the subject exchanges, the completion of the exchange transfers will not place Buyers under price cap regulation. Buyers thus do not need waivers of Section 61.41(d). VI. ORDERING CLAUSES 42. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3 that the Joint Petition of BEK Communications I, Inc.; CTC Communications, Inc.; Dakota Central Telecom I, Inc.; Dickey Rural Communications, Inc.; Gilby Telephone Company; Griggs County Telephone Company; Inter-Community Telephone Company II, Inc; Moore & Liberty Telephone Company; North Dakota Telephone Company; Northwest Communications Cooperative; Red River Telecom, Inc.; RTC II, Inc.; Turtle Mountain Communications, Inc.; U S West Communications, Inc.; West River Communications, Inc.; and York Telephone Company for waiver of Part 36, Appendix-Glossary, of the Commission's Rules, 47 C.F.R. Part 36 Appendix- Glossary, IS GRANTED subject to the conditions stated in paragraph 28 of this Order. 43. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3 that the Joint Petition of BEK Communications I, Inc.; CTC Communications, Inc.; Dakota Central Telecom I, Inc.; Dickey Rural Communications, Inc.; Dickey Rural Telephone Cooperative, Inc.; Griggs County Telephone Company; Inter-Community Telephone Company II, Inc; Moore & Liberty Telephone Company; North Dakota Telephone Company; Northwest Communications Cooperative; Red River Telecom, Inc.; RTC II, Inc.; Turtle Mountain Communications, Inc.; United Telephone Mutual Aid Corporation; Gilby Telephone Company; West River Communications, Inc.; and York Telephone Company for waiver of Section 61.41(c)(2) of the Commission's Rules, 47 C.F.R.  61.41(c)(2), IS GRANTED. 44. IT IS FURTHER ORDERED, pursuant to Sections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3 that BEK Communications Cooperative, Consolidated Telephone Cooperative, Inc., Dakota Central Telecommunications Cooperative, Inc., Polar Communications Mutual Aid Corporation, Inter-Community Telephone Company, Red River Rural Telephone Association, Reservation Telephone Cooperative, West River Telecommunications Corporation, and Midstate Telephone Company are granted waivers of Section 61.41(c)(2) of the Commission's Rules, 47 C.F.R.  61.41(c)(2). 45. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3 that the Joint Petition of Dickey Rural Communications, Inc., Red River Telecom, Inc. and Turtle Mountain Communications, Inc. for waiver of Section 69.605(c) of the Commission's Rules, 47 C.F.R.  69.605(c), IS GRANTED subject to the conditions stated in paragraph 39 of this Order. 46. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291 that the National Exchange Carrier Association shall not distribute USF assistance exceeding the limits imposed in paragraph 28, and identified in notes 55 and 56, of this Order. 47. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291 that the National Exchange Carrier Association shall require Dickey Rural Communications, Inc., Red River Telecom, Inc. and Turtle Mountain Communications, Inc. to file on a merged basis with their respective North Dakota affiliates for interstate average schedule settlement purposes and to receive distributions on that basis in one consolidated statement for both affiliates. 48. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291 that, if and when Dickey Rural Communications, Inc., Red River Telecom, Inc., or Turtle Mountain Communications, Inc., or any of their respective affiliates in North Dakota convert from average schedule status to cost-based settlements or are sold, assigned or otherwise conveyed, the affected companies and the National Exchange Carrier Association shall promptly notify this Division of the change. 49. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, and Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291 that this Order is effective immediately upon release. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division Common Carrier Bureau