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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 ATEAC, Inc., Alaska Telephone Company, Arctic Slope Telephone Association Cooperative, Inc., Interior Telephone Company, Inc., Mukluk Telephone Company, Inc., and United-KUC, Inc. 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: January 16, 2001 Released: January 17, 2001 By the Chief, Accounting Policy Division: I. Introduction 1. In this Order, we grant a request from ATEAC, Inc. (ATEAC), Alaska Telephone Company (ATC), Arctic Slope Telephone Association Cooperative, Inc. (ASTAC), Interior Telephone Company, Inc. (ITC), Mukluk Telephone Company, Inc. (MTC), and United-KUC, Inc. (United-KUC) (collectively, "Petitioners"), for a waiver of the definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules. The requested waiver will permit the Petitioners to divide their jointly operated USATEAC study area among ATC, ASTAC, ITC, MTC, and United-KUC. The requested waiver also will enable ATC, ASTAC, ITC, MTC, and United-KUC to alter the boundaries of their existing Alaska study areas to include the exchanges being transferred from the ATEAC study area. In particular, the requested waiver will permit: (1) ATC to alter the boundaries of its existing Alaska study area to include six exchanges comprising approximately 7,593 access lines; (2) ASTAC to alter the boundaries of its existing Alaska study area to include a single exchange comprising approximately 3,693 access lines; (3) ITC to alter the boundaries of its existing Alaska study area to include two exchanges comprising approximately 4,096 access lines; (4) MTC to alter the boundaries of its existing Alaska study area to include a single exchange comprising approximately 3,398 access lines; and (5) United- KUC to alter the boundaries of the existing Alaska study area of United Utilities, Inc., its immediate parent company, to include three exchanges comprising approximately 5,016 access lines. 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. In adopting section 54.305, the Commission sought to ensure that a selling carrier does not artificially inflate the price of an exchange in anticipation of the buyer's receipt of increased universal service support as a result of the transfer. 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. The Petition for Waiver. US On May 20, 1999, GTE Alaska Incorporated (GTEA), GTE Corporation (GTE), and ATEAC entered an asset purchase agreement for the sale of all 13 of GTEA's Alaska exchanges (approximately 23,796 access lines) to ATEAC. The asset purchase agreement required ATEAC to distribute the acquired Alaska exchanges among ATC, ASTAC, ITC, MTC, and United-KUC, its local exchange carrier owners or their subsidiaries. On October 20, 1999, the Petitioners filed applications with the Regulatory Commission of Alaska (Alaska Commission) for authorization to transfer operating assets and state certificates for the 13 exchanges from ATEAC to the other Petitioners. These applications were granted by the Alaska Commission on July 11, 2000. On February 8, 2000, the Petitioners filed a petition for waiver of sections 61.41(c) and (d) of the Commission's rules to enable them to operate the 13 Alaska exchanges as cost carriers under rate-of- return regulation following ATEAC's acquisition of these exchanges from GTEA, a price cap carrier. On August 18, 2000, the Common Carrier Bureau (Bureau) granted the requested waiver. On August 31, 2000, GTEA completed the sale of its 13 Alaska exchanges to ATEAC, and ATEAC completed its transfer of the 13 exchanges to ATC, ASTAC, ITC, MTC, and United-KUC. 5. On September 22, 2000, ATEAC, ATC, ASTAC, ITC, MTC, and United-KUC 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 the Petitioners to divide their jointly operated ATEAC study area among ATC, ASTAC, ITC, MTC, and United-KUC and would enable ATC, ASTAC, ITC, MTC, and United-KUC to alter the boundaries of their existing Alaska study areas to include exchanges being transferred from the ATEAC study area. On October 12, 2000, the Bureau released a public notice seeking comment on the petition. The National Telephone Cooperative Association and the United States Telecom Association filed comments in support of the petition. F. Discussion 7. 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 the Petitioners to divide their jointly operated ATEAC study area among ATC, ASTAC, ITC, MTC, and United-KUC, and permit ATC, ASTAC, ITC, MTC, and United-KUC to alter the boundaries of their existing Alaska study areas to include exchanges being transferred from the ATEAC study area. 8. 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: (1) the change in study area boundaries must not adversely affect the universal service fund; (2) no state commission having regulatory authority over the transferred exchanges may oppose the transfer; and (3) 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. 9. First, we conclude that the USPetitioners have demonstrated that the proposed changes in the study area boundaries will not adversely affect any of the universal service fundsmechanisms. Because, under the Commission's rules, carriers purchasing high-cost exchanges currently 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, ATC, ASTAC, ITC, MTC, and United-KUC will receive the same per-line levels of support, including high-cost loop support, local switching support, and LTS, for which the exchanges were eligible prior to their transfer. Therefore, we conclude that this transaction will not adversely affect the universal service mechanisms. We note that, as a result of this transaction, access lines in the Petitioners' pre-acquisition study area boundaries will be eligible for different amounts of high-cost support than the access lines being transferred from the ATEAC study area. We, therefore, direct ATC, ASTAC, ITC, MTC, and United-KUC to submit, as part of their annual universal service data submissions in accordance with the Commission's rules, a schedule showing their methodology for excluding the costs associated with the acquired access lines from the costs associated with their pre- acquisition study areas. 10. Second, no state commission with regulatory authority over the transferred exchanges opposes the transfer. The Alaska Commission has indicated that it does not oppose the grant of the study area waiver. 11. Finally, we conclude that the public interest is served by a waiver of the study area freeze rule to permit the ATEAC study area to be divided among ATC, ASTAC, ITC, MTC, and United-KUC and permit ATC, ASTAC, ITC, MTC, and United-KUC to alter the boundaries of their existing Alaska study areas to include exchanges being transferred from the ATEAC study area. Petitioners state that "ATC, ASTAC, ITC, MTC, and United-KUC's affiliates are established Alaska local exchange carriers, each of which has been in the state for at least 19 years." According to the Petitioners, "this local ownership and control will result in greatly increased responsiveness to the telecommunications needs of residents of the thirteen communities." We also note that the Alaska Commission has determined that the Petitioners are qualified to provide telecommunications services in the acquired exchanges. Based on these representations, and the statements of the Alaska Commission, we conclude that the Petitioners have demonstrated that grant of this waiver request serves the public interest. 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 ATEAC, Inc., Alaska Telephone Company, Arctic Slope Telephone Association Cooperative, Inc., Interior Telephone Company, Inc., Mukluk Telephone Company, Inc., and United-KUC, Inc., on September 22, 2000, IS GRANTED, as described herein. FEDERAL COMMUNICATIONS COMMISSION Katherine L. Schroder Chief, Accounting Policy Division