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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Valor Telecommunications of Texas, LP And GTE Southwest Incorporated Joint Petition for Waiver of the Definition of "Study Area" Contained in the Part 36 Appendix-Glossary of the Commission's Rules ) ) ) ) ) ) ) ) ) ) ) ) ) CC Docket No. 96-45 ORDER Adopted: August 18, 2000 Released: August 21, 2000 By the Deputy Chief, Accounting Policy Division: I. Introduction 1. In this Order, we grant a request from Valor Telecommunications of Texas, LP (Valor) and GTE Southwest Incorporated (GTE) for a waiver of the definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules. This waiver will permit GTE to remove 197 telephone exchanges comprising approximately 315,000 access lines from its two Texas study areas, including one exchange that is physically located in Arkansas. This waiver also will permit Valor to combine the 197 exchanges it intends to acquire from GTE into a single new study area for Texas, which will include the Arkansas exchange. II. DISCUSSION A.Background 2. Study Area Boundaries. A study area is a geographic segment of an incumbent local exchange carrier's (LEC's) telephone operations. Generally, a study area corresponds to an incumbent LEC's entire service territory within a state. Thus, incumbent LECs operating in more than one state typically have one study area for each state. The Commission froze all study area boundaries effective November 15, 1984, and an incumbent LEC must apply to the Commission for a waiver of the study area boundary freeze if it wishes to sell or purchase additional exchanges. 3. Transfer of Universal Service Support. Section 54.305 of the Commission's rules provides that a carrier acquiring exchanges from an unaffiliated carrier shall receive the same per-line levels of high-cost universal service support for which the acquired exchanges were eligible prior to their transfer. For example, if a rural carrier purchases an exchange from a non-rural carrier that receives support based on the Commission's new universal service support mechanism for non-rural carriers, the loops of the acquired exchange shall receive the same per-line support as calculated under the new non- rural mechanism, regardless of the support the rural carrier purchasing the exchange may receive for any other exchanges. Section 54.305 is meant to discourage carriers from transferring exchanges merely to increase their share of high-cost universal service support, especially during the Commission's transition to universal service support mechanisms that provide support to carriers based on the forward-looking economic cost of operating a given exchange. High-cost support mechanisms currently include non- rural carrier forward-looking high-cost support, interim hold-harmless support for non-rural carriers, rural carrier high-cost loop support, local switching support, and Long Term Support (LTS). To the extent that a carrier acquires exchanges receiving any of these forms of support, the acquiring carrier will receive the same per-line levels of support for which the acquired exchanges were eligible prior to their transfer. 4. As described in the Commission's recent order adopting an integrated interstate access reform and universal service proposal put forth by the members of the Coalition for Affordable Local and Long Distance Service (CALLS), beginning July 1, 2000, if a price cap LEC acquires exchanges from another price cap LEC, the acquiring carrier will become eligible to receive interstate access universal service support for the acquired exchanges. In accordance with section 54.801 of the Commission's rules, the acquiring price cap LEC will receive interstate access universal service support at the same level as the selling price cap LEC formerly received, and both carriers will adjust their line counts accordingly beginning with the next quarterly report to the fund Administrator. Carriers also are required to report their adjusted average common line, marketing, and transport interconnection charge (CMT) revenue per line per month for the affected study areas in accordance with the Commission's rules. Per-line amounts of interstate access universal service support for the acquired exchanges may change as a result of the revised CMT revenue filings. Because the interstate access universal service support mechanism is capped at $650 million, individual transactions will not increase its overall size. 5. The Petition for Waiver. GTE, an incumbent LEC currently operating in Arkansas and Texas, entered into an agreement with Valor, a LEC that currently does not provide service in Arkansas or Texas, to sell 197 exchanges located in GTE's two Texas study areas. The proposed transaction includes the sale of one exchange that is physically located on the Arkansas side of Texarkana. Valor intends to combine the 197 exchanges it is acquiring from GTE into a single new study area for Texas, which will include the exchange physically located in Arkansas. 6. On April 20, 2000, Valor and GTE filed a joint petition for waiver of the definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules. The requested waiver would permit GTE to remove the 197 exchanges from its Texas study areas, and permit Valor to create a Texas study area for the acquired exchanges. On May 8, 2000, the Common Carrier Bureau (Bureau) released a public notice seeking comment on the petition. No comments were received. G. Discussion 8. We find that good cause exists to waive the definition of study area contained in Part 36 Appendix-Glossary of the Commission's rules to permit GTE to remove the 197 exchanges from its Texas study areas, and permit Valor to create a Texas study area for the acquired exchanges that will include the exchange physically located in Arkansas. 9. Generally, the Commission's rules may be waived for good cause shown. As noted by the Court of Appeals for the D.C. Circuit, however, agency rules are presumed valid. The Commission may exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent with the public interest. In addition, the Commission may take into account considerations of hardship, equity, or more effective implementation of overall policy on an individual basis. Waiver of the Commission's rules is therefore appropriate only if special circumstances warrant a 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 traditionally has applied a three-prong standard: first, the change in study area boundaries must not adversely affect the universal service fund; second, no state commission having regulatory authority over the transferred exchanges may oppose the transfer; and third, the transfer must be in the public interest. For the reasons discussed below, we conclude that petitioners have satisfied these criteria and demonstrated that good cause exists for waiver of the Commission's study area freeze rule. 10. First, we conclude that GTE and Valor have demonstrated that the proposed change in the study area boundaries will not adversely affect any of the universal service mechanisms. Because, under the Commission's rules, carriers purchasing high-cost exchanges can only receive the same level of per- line support that the selling company was receiving for those exchanges prior to the sale, there can, by definition, be no adverse impact on the universal service fund resulting from this transaction. As such, Valor will receive the same per-line levels of interim hold-harmless support for which the 197 GTE exchanges were eligible prior to their transfer. In addition, even though per-line amounts of interstate access universal service support directed to the acquired exchanges may increase as a result of the proposed transaction, the overall size of the interstate access universal service mechanism will not exceed $650 million. Therefore, we conclude that this transaction will not adversely affect the universal service mechanisms. 11. Second, no state commission with regulatory authority over the transferred exchanges opposes the transfer. The Arkansas Public Service Commission and the Public Utilities Commission of Texas have indicated that neither objects to the grant of the study area waiver. 12. Finally, we conclude that the public interest is served by a waiver of the study area freeze rule to permit GTE to remove 197 exchanges from its Texas study areas and Valor to create a Texas study area for the transferred exchanges. Upon consummation of the proposed transaction, Valor states that it intends to expand the availability of enhanced services, including Caller ID, voice-mail, local Internet access, and ultimately provide high-speed services such as DSL. Valor also states that it will provide customers with "additional and improved services from a locally-based carrier specializing in meeting the communications needs of rural and small urban communities." Based on these representations, we conclude that Valor has demonstrated that grant of this waiver request will serve the public interest. 13. In accordance with section 61.45 of the Commission's rules, we also require GTE to adjust its price cap indices to reflect the removal of the transferred access lines from its Texas study areas. Section 61.45 of the Commission's rules grants the Commission discretion to require price cap carriers to make adjustments to their price cap indices to reflect cost changes resulting from rule waivers. We require GTE to make such an adjustment. III.ORDERING CLAUSES 4. Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 5(c), 201, and 202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, and 202, and sections 0.91, 0.291, and 1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291, and 1.3, that the petition for waiver of Part 36, Appendix-Glossary, of the Commission's rules, filed by Valor Telecommunications of Texas, LP and GTE Southwest Incorporated on April 20, 2000, IS GRANTED, as described herein. 5. IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 5(c), 201, and 202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, and 202, and sections 0.91, 0.291, 1.3, and 61.43 of the Commission's rules, 47 C.F.R.  0.91, 0.291, 1.3, and 61.43, that GTE Southwest Incorporated SHALL ADJUST its price cap indices in its annual price cap filing to reflect cost changes resulting from this transaction, consistent with this Order. FEDERAL COMMUNICATIONS COMMISSION Katherine L. Schroder Deputy Chief, Accounting Policy Division