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See MTS and WATS Market Structure, Amendment of Part  {OC- x,67 of the Commission's Rules and Establishment of a Joint Board, Recommended Decision and Order, 49 Fed. Reg.  {O - x48325 (December 12, 1984) 1984 JOINT BOARD("1984 Joint Board Recommended Decision"); id., Decision and Order, 50 Fed. Reg.  {O- x939 (January 8, 1985) 1985 ORDER ADOPTING("1985 Order Adopting Recommendation"); see also Amendment of Part 36 of the  {O- x;Commission's Rules and Establishment of a Joint Board, Notice of Proposed Rulemaking, 5 FCC Rcd 5974 (October  {Ok-10, 1990)STUDY AREA NOTICE ("Study Area Notice").Ğ The Commission took that action primarily to ensure that LECs do not set  xup highcost exchanges within their existing service territories as separate study areas to  X- x maximize highcost payments.Lm {O -  [ԍxSee 1984 Joint Board Recommended Decision, supra note 6, 66; 1985 Order Adopting Recommendation,  {O -supra note 6, 1, 5. The study area freeze also prevents LECs from transferring  xexchanges among existing study areas for the purpose of increasing interstate revenue  xrequirements and compensation. A LEC must apply to the Commission for a waiver of the  x?frozen study area rule if the LEC wishes to sell an exchange to another carrier and if that  Xv-transaction would have the effect of changing the study area boundaries of either carrier.\vm yO-ԍx47 C.F.R. 1.3, 36 app.\  XH-  x6. Waiver of Commission rules is appropriate only if special circumstances warrant  X1- xdeviation from the general rule and such a deviation will serve the public interest. 18 m {O-   ԍxNortheast Cellular Tel. Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990); see also 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  xa threeprong standard: first, the change in study area boundaries does not adversely affect the  X - xUniversal Service Fund ("USF") support program;z h m {O/-  \ԍUSF PROCEDURE USF RULE xSee 1984 Joint Board Recommended Decision, supra note 6,  66. 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.z second, the state commission(s) having  x[regulatory authority over the exchange(s) to be transferred does not object to the change; and  X -third, the public interest supports such a change. ^ m {O1%-  kԍxSee U S WEST Communications, Inc., and Eagle Telecommunications, Inc., Joint Petition for Waiver of  {O%- x,the Definition of "Study Area" Contained in Part 36, AppendixGlossary of the Commission's Rules, Memorandum  {O&-Opinion and Order, 10 FCC Rcd 1771,  5 (1995) US WEST-EAGLE STUDY("U S WESTEagle Study Area Order")."  ,N(N(ZZ "Ԍ X-  ԙx7. The Commission's concern about adverse USF impacts was mitigated, in the short term  X- xat least, by its adoption of the Joint Board's recommendation for an indexed cap on the USF. m yOb-  ԍxThe Joint Board recommended, and the Commission adopted, interim rules that limit the rate of growth of  {O*- 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 (Joint  {O- xBd. 1993) ("1993 Joint Board Recommended Decision"); id., Report and Order, 9 FCC Rcd 303 (1993) ("Interim  {O- xCap Order"). The Commission extended these interim rules through July 1, 1996. Amendment of Part 36 of the  {OR- xCommission's Rules and Establishment of a Joint Board, Report and Order, 11 FCC Rcd 1077 (1995), summarized in 60 Fed. Reg. 65011 (1995).   xKThe Commission nonetheless recognized that, even in the short term, the granting of a study area  xwaiver may adversely affect the fund's distribution, if not its size. Under the indexed USF cap  xrules, a study area reconfiguration that increases the USF draw of one USF recipient often  xreduces that of other USF recipients. Consequently, in evaluating whether a study area change  xwould have an adverse impact on the distribution or level of the USF, the Commission applies  X_- xa "onepercent" guideline to study area waiver requests filed after January 5, 1995. _m {O"-ԍxSee U S WESTEagle Study Area Order, supra note 11,  1417. Under this  x[guideline, no study area waiver is granted if it would result in an annual aggregate shift in USF  xassistance in an amount equal to or greater than one percent of the total USF, unless the parties  xzcan demonstrate extraordinary public interest benefit. To prevent carriers from evading this  xlimitation by disaggregating a single large sale of exchanges into a series of smaller transactions  xthat in the aggregate have the same effect on the USF, the Commission further requires that the  xguideline be applied to all study area waivers granted to either carrier, as a purchaser or seller,  X -pending completion of the current review of the USF program.\ m {O-  ԍx Id. In this context, the Commission defines the term "carrier" to include all affiliated carriers (i.e., those  xcarriers 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. 14 note 34. x  X- B. Pleadings  Xb-  {x8. Joint Petition. The petitioners seek waiver of the rule freezing study area boundaries  XM- xto allow them to create new study areas for their newly acquired exchanges.EM m yO-ԍxJoint Petition at 5.E They state that  xon July 31, 1994, Contel Corporation sold all of the stock of Contel of Vermont to WFTAC.  xContel of Vermont was dissolved and all of its assets and liabilities were distributed to WFTAC.  x[Vermont Telephone and Northland redeemed their stock in WFTAC in exchange for the assets  xand liabilities associated with their respective service areas. Vermont Telephone received assets  xxand liabilities corresponding to the southern region, which contained 14 exchanges serving 17,699  xaccess lines. Northland received assets and liabilities corresponding to the northern region, which  xcontains eight exchanges serving 4,906 access lines. WFTAC retained the remaining assets and  xLliabilities corresponding to the central region, which contained eight exchanges serving 12,568"X ,N(N(ZZ3"  X-access lines.Em yOy-ԍxJoint Petition at 4.E The central region is the Champlain operation.  X-  x9. Petitioners state that the transaction has produced, and will continue to produce,  X- xnumerous and significant public interest benefits for present and future customers.EXm yO-ԍxJoint Petition at 7.E Petitioners  x/state that these benefits flow from two sources: elimination of administrative burdens, and  x=improvements in the network. In addition, the petitioners state that grant of these waivers will  xallow the companies to provide customer services and other support functions on a localized  xbasis, allowing responses to customers' needs in a more timely manner. Finally, petitioners plan  xto improve customer services by phasing out multiparty telephone service and expanding fiber deployment in certain service areas.  X -  x 10. Petitioners estimate that, if the study area waivers were granted, the transfer of the  xexchanges would result in a net increase of $19,632 in the combined USF, assuming that a  X - xseparate study area is created as requested by Champlain.F m yOn-ԍxJoint Petition at 12.F Further, petitioners state that, if Champlain is combined with Waitsfield, the net increase in the USF draw would be even greater.  X-  x 11. Comments. NECA, NTCA, and USTA supports petitioners' requests.pxm yO-ԍxNECA comments at 1; NTCA comments at 1; and USTA comments at 1.p AT&T,  xihowever, opposes the joint petition, in part. AT&T states that the joint petition should be denied  x=to the extent that Champlain seeks to establish a new study area for the purchased exchanges,  XM- xrather than consolidating those exchanges with the existing Waitsfield study area.DMm yO-ԍxAT&T comments at 2.D AT&T raises  xa number of arguments against the proposed creation of a separate study area for Champlain:  x(1) such action would be contrary to the Commission's wellestablished policy against subdividing  xxstudy areas to prevent carriers from using this procedure to gain an advantage under the USF and  x=jurisdictional separations rules; (2) the joint petition fails to provide any showing why the fact  xLthat Champlain and Waitsfield are separate companies with separate debt structures justifies a  xwaiver; and (3) the petitioners fail to explain how combining the operations of the two  X-companies, with the anticipated efficiencies, would result in an increased USF.Bm yO!-  ԍxWe estimate that grant of the study area waivers and the combination of the Champlain and Waitsfield  xyoperations into one study area would increase the petitioners' combined USF draws by $18,778. The net USF  xincrease of $18,776 is calculated by subtracting the petitioners pretransfer, combined USF draw of $3,394,001 from  x;the posttransfer, estimated USF draw of $3,412,777. The pretransfer figure of $3,394,001 is based on the sum of  xthe former Contel of Vermont ($2,745,071) and Waitsfield ($648,930) study areas 1994 USF amounts. The post x!transfer figure of $3,412,777 is based on the sum of the petitioners' USF estimated amounts for: (1)  xChamplain\Waitsfield (FCC calculated amount of $1,819,419 using a corrected, weighted average cost per loop of  {Om'- x$428.44); (2) Northland ($547,800); and (3) Vermont Telephone ($1,045,558). See Joint Petition at Exhibits 2 and"m',N(N('"  {O-6, and note 25, infra."Z,N(N(ZZp"Ԍ X-ԙ C. Discussion  X-  x 12. Request for waivers. Petitioners plan many plant upgrades and service improvements  xand have thereby demonstrated that current and potential customers in the affected exchanges will  xlikely be well served. The requested study area waivers are thus likely to serve the public  xinterest. In addition, the Vermont PSB states that it does not object to the requested study area  Xx- xwaivers.gxZm {O -ԍxSee Vermont PSB Order, supra note 4.g Further, we have determined that, if Champlain and Waitsfield are combined into one  xstudy area, grant of the study area waivers would not have a significant adverse effect on the  xUSF. We therefore find that the three criteria for granting a study area waiver have been met  xZin this instance and that the study area waiver requests should be granted, to the extent indicated herein.  X -  Nx 13. Request for separate study areas. Champlain seeks permission to place its acquired  xexchanges into a newly created study area although its affiliate, Waitsfield, has an existing study  xarea in Vermont. Champlain claims that it should be allowed to set up a new study area in  x?Vermont because: the existing companies currently are operating as separate telephone  xcompanies, with separate employees, tariffs, debt structures; and combining the study areas would  X}-lead to increased USF draws.M}m yO-ԍxJoint Petition at 2, note 2.M We disagree.  XO-  @x 14. We reject the argument that separate study areas are necessary because the two  xcompanies are operating separately. We do not object to the maintenance of two separate legal  xentities, but we do not believe that this necessitates separate study areas for jurisdictional separations purposes.  X-  ]x15. Champlain is incorrect in its assertion that combining Champlain and Waitsfield into  x<one study area would reduce the total USF draw. We have reviewed the data the petitioners filed  X- xin this proceeding and in the NECA USF proceeding,|m {O-ԍxSee NECA USF 1995 Submission of 1994 Study Results filed September 29, 1995. and it is clear that combining the two  X- xareas will result in a reduction in the USF draw.zm yOV!-  ԍxWe calculated an estimated cost per loop of $428.44 for the combined study area, based on the simple  xweighted average of the cost per loop for the separate study areas. This is $9.17 per loop less than the combined cost  xwper loop of $437.61 stated by Champlain, and Champlain provides no support for its cost per loop figure. When the  xw$428.44 cost per loop is used, the USF support amount for the combined study area becomes $1,819,419 as opposed  xto the $1,937,604 shown by Champlain. Using the USF support amount of $1,820,275 for a separate study area as  xprovided by Champlain, the stated increase in USF of $117,329 that is associated with the combined study area  {O&-actually becomes a decrease in USF of $856. See supra note 21.Ġ Therefore, we find that allowing Champlain  x-to create a separate study area rather than adding the acquired exchanges to its affiliate's existing"P ,N(N(ZZ" study area would increase its USF assistance unnecessarily.  X-  x16. Champlain further asserts that its proposal to create a new study area would be  X- xconsistent with the Commission's policy on granting study area waivers.Xm yO4-ԍxJoint Petition at Attachment B5.X On the contrary, it is  X- xthe consolidation of study areas located within the same state, not the disaggregation of such  xareas, that is the type of study area reconfiguration that the Commission encourages as serving  Xx- xthe public interest.4xXm {O -  ԍ RANGE xSee generally U S WEST Comm., Inc., and Range Tel. Coop., Inc., Joint Petition for Waiver of the  {OK - xxDefinition of Study Area, Order on Reconsideration, 10 FCC Rcd 13264,  1521 (Com. Car. Bur., 1995) ("U S  {O - xzWESTRange Recon Order"); ALLTEL Serv. Corp., Petition for Waiver of the Definition of Study Area,  {O - xMemorandum Opinion and Order, 9 FCC Rcd 4450, 4451,  67 (Com. Car. Bur., 1994); ALLTEL Serv. Corp.,  {O - xPetition for Waiver of the Definition of Study Area, Memorandum Opinion and Order, 8 FCC Rcd 6411,  6 (Acct.  {Os - x& Audits Div. (Com. Car. Bur. 1993); Study Area Notice, supra note 6,  6, 17; 1984 Joint Board Recommended  {O=-Decision, supra note 6,  66; 1985 Order Adopting Recommendation, supra note 6,  1.4 While the USF impact is of genuine concern as explained above, it is not  xthe only concern. It would not be consistent with Commission goals to create a new study area for Champlain separate from its affiliate's study area in the same state.  X -  1x17. As explained above, the primary intent of the study area freeze rule is to prohibit  xLECs from setting up highcost exchanges within their service territories as separate study areas  xto maximize USF support. LECs would have no incentive to do this if USF assistance were  xdistributed on an exchange basis. Yet, because it is distributed on a study area basis, a LEC's  xUSF payment will tend to be greater over time if the LEC can isolate highcost exchanges in one  xor more separate study areas. Such action permits the LEC to report average loop cost in the  xLhighcost study areas further above the USF eligibility threshold than would be possible if the highcost exchanges remained consolidated with lowercost exchanges.  XM-  x18. The risk that LECs will act on this incentive to create new study areas is no less  xserious when LECs are deciding whether to consolidate newly acquired exchanges with existing  xstudy areas located in the same state. As noted above, a LEC's USF draw will tend to be greater  xif it can isolate highcost exchanges in a separate study area. In the instant case, the creation of  xka new study area would enable Waitsfield to avoid a reduction in its annual USF draws that  xywould occur if the highercost acquired exchanges were consolidated with its lowercost study  xarea, and as a result, enable Waitsfield to gain advantage under the USF and jurisdictional  X-separations rules.Um {O"-ԍxSee supra note 25.U  X~-  #x19. Champlain and Waitsfield may also gain an advantage under the small carrier  Xg- xassistance rules.g8 m {OP&-  ԍxSee 47 C.F.R.  36.125(f). These rules are commonly referred to as the DEM rules (dial equipment minuteofuse rules). Those rules allow small LECs to assign an increased share of local switching"g ,N(N(ZZ"  xequipment costs to the interstate jurisdiction. The Bureau therefore has considered impacts on  X- xthat assistance program in deciding whether to grant requests for separate study areas.m {Ob-  \ԍxSee U S WESTRange Recon Order, supra note 27,  1719 (discussing whether the creation of separate study areas is in the public interest).  X- xMoreover, if separate study areas were created as requested, Champlain and Waitsfield may also  X- xxgain a longterm advantage under those rules, a risk which is one focus of the Bureau's concern."m {O-ԍx See U S WESTRange Recon Order, supra note 27,  1719.  x=The Bureau has noted that, even where an acquiring LEC does not "realize an immediate gain"  xwith the creation of a new study area, the additional study area would provide an advantage  Xx- xshould demand increase the size of the LEC's total operations above 10,000 access lines. xm {O -  ԍxId.  19. One of the line count thresholds determining the level of small carrier assistance is set at 10,000  x;access lines. A study area having that number of access lines or fewer may increase its interstate assignment by 200  xpercent for local switching investment costs. A study area having 10,001 to 20,000 access lines may increase its  xinterstate assignment by 150 percent. And a study area having 20,001 to 50,000 access lines may increase its  {O-interstate assignment by 100 percent. See 47 C.F.R.  36.125(f).  xChamplain and Waitsfield's discussions of their projections with respect to the number of access  xlines do not meet these concerns. We thus reject Champlain's claim that its request for separate study areas would be consistent with the Commission's goals in freezing study area boundaries.  X -  lx20. Champlain further claims that we are obligated to permit it to create a new study area  X - xMbecause of Commission precedent.^! h m yO-ԍxJoint Petition Response to Question 11.^ Champlain cites our decision to allow a Utah LEC" m {O-  MԍxSee U S WEST Communications and Central Utah Tel. and Bear Lake Communications, 9 FCC Rcd 194, 195 (Common Carrier Bureau 1993). to  xestablish a second study area because the USF would increase by only $3,000, as support for  xiChamplain creating a separate study area where the USF assistance actually decreases. We reject  xthis argument as stated above, because the USF does not decrease and because the USF is not  xthe only concern. Further, we note that we granted the Utah waiver in December 1993, shortly  x>before we became aware of the magnitude of the potential cumulative effect of other similar  xwaivers. Numerous LECs had announced their intent to file study area waiver requests affecting  xhundreds of exchanges. This heightened activity increased our concern that such transactions,  xin the aggregate, may have a substantial impact on the USF program. It also increased our  xconcern that permitting LECs to create new study areas in states where they have existing  xoperations raises regulatory costs. Moreover, we have had a growing concern that USF payments  X-have been increasing at an unexpected rate for some LECs granted study area waivers.#R m yO#-   xFor examples of unexpected growth in USF payments, see, for example Delta Telephone Company, 5 FCC  yO$- xRcd 7100 (1990), whose USF payment grew from $82,500 in 1991 to approximately $445,700 in 1993; and U S  xWEST and Gila River Telecommunications, Inc., 7 FCC Rcd 2161 (1992), whose projection of $169,155 for Gila  x,River's 1992 USF payment was more than doubled by the actual 1992 payment of $390,993, which has been nearly doubled again by the 1995 scheduled payment of approximately $750,000. "#,N(N(ZZ"Ԍ X-  ԙx21. In view of these potential risks and the Commission's primary objective in adopting  xjthe study area freeze rule, we find that in this case, where LECs are operating in the same state,  x{the rule is intended to prevent companies from creating any additional study areas when  x transferring exchanges among themselves. We therefore deny Champlain's request for the creation of a new study area.  Xv-  mx22. Need for imposed limits on USF draws. Although we find no reason to question  xpetitioners' estimates of the USF impact, we nonetheless are concerned that those estimates may  xlater prove inaccurate. For example, we have found that, even in a period of a few years, the  X3- xUSF payments for some LECs filing study area waivers have risen by unexpected amounts.I$3m {O -ԍxSee supra note 35.I These LECs generally operated in hardtoserve areas similar to those under consideration here.  X -  x23. We therefore find that the waivers should be subject to the condition that, absent  xLexplicit approval from the Bureau, the annual USF support provided to petitioners' study areas  X - xshall not exceed the USF amounts estimated in the joint petition except for Champlain.% Zm yO-  ԍxPetitioners estimate that their posttransfer USF draws will be $547,800 for Northland and $1,045,558 for Vermont Telephone. Joint Petition at Exhibit 2. The  xannual USF support provided to the Champlain/Waitsfield combined study area shall not exceed  X- x$1,819,419, the amount calculated based on corrected data.[&m {O-ԍxSee supra note 25.[ These limits ensure that the study  xjarea waivers will not, due to errors or unforeseen circumstances, result in adverse USF impacts  xjwhich substantially exceed petitioners' forecasts. The limits also ensure that the Commission's  xonepercent guideline can be properly adhered to in future filings of this kind. Absent such  xlimits, companies could file waiver requests that appear to fall within the guideline, only to later  xadjust their USF estimates to exceed the guideline free of any Bureau review. Moreover, it  xzwould be administratively difficult for us to enforce the guideline if we were to impose limits  xonly after monitoring the monthtomonth USF draws of the petitioners, and of numerous other  xlsimilarly situated companies, to determine which individual companies had exceeded the  X- xjguideline. We note that the implementation of the Telecommunications Act of 1996,z'Dm yO-ԍxTelecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996).z requires  X- xthe overhaul of various Commission support programs, including USF.(^m {O1!-  zԍxId. 47 U.S.C. 254(a)(2). To develop new USF rules, the Commission has initiated a proceeding to address  {O!- xthis issue. See Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking and Order  {O"-Establishing Joint Board, 61 Fed. Reg. 10499 (March 14, 1996).ę It is likely that any new  x.USF rules will alter the method used to determine the distribution of USF support to highcost  x[areas, thereby changing the projected level of support to the buyers study areas. This, in turn,  x-may require us to revisit these issues, and the related waiver conditions that we have established herein following implementation of the 1996 Act. "9 (,N(N(ZZ"Ԍ X- III . ORDERING CLAUSES ă  X-  x24. 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  x\Sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R. 0.91, 0.291, 1.3, that the joint  xzpetition of Champlain Valley Telecom, Inc., Northland Telephone Company of Vermont, and  xVermont Telephone Company, Inc. for waiver of Part 36, AppendixGlossary, of the  xCommission's rules, 47 C.F.R. Part 36 AppendixGlossary, IS GRANTED IN PART, subject to the condition stated in paragraph 23 and note 37 of this Order.  X -  x25. IT IS FURTHER 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  x\Sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R. 0.91, 0.291, 1.3, that the joint  xpetition of Champlain Valley Telecom, Inc. for waiver of Part 36, AppendixGlossary, of the  xCommission's rules, 47 C.F.R. Part 36, AppendixGlossary, IS DENIED as to the establishment of a separate study area containing the acquired exchanges.  Xy-  x26. IT IS FURTHER 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  x\Sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R. 0.91, 0.291, that the National  x/Exchange Carrier Association, Inc., shall not distribute USF assistance exceeding the limits imposed in paragraph 23 and note 37 of this Order.  X-  x27. IT IS FURTHER 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  xzSections 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. x  XN- hhFEDERAL COMMUNICATIONS COMMISSION  X- hhKenneth P. Moran  X - hhChief, Accounting and Audits Division  X!- hhCommon Carrier Bureau