WPC|& 2BJ  Courier3|wXw PE37XPCG Timeset 4_230_1HPLAS4.PRS 4x  @\_)^X@26 F O ZY3|wCG TimesHP LaserJet 4_230_1HPLAS4.PRS 4Xw PE37\_)^XP2+f XK g",tB^ f ^;C]ddCCCdCCCCddddddddddCCY~~vCN~sk~CCCddCYdYdYCdd88d8ddddJN8ddddYYdYd4dddddCddddddddd8YYYYYY~Y~Y~Y~YC8C8C8C8ddddddddddYdddddsdXdXXXddx|X~d~d|XdddddddC8ddddCdoddd|8|H~d<|8dtddddHHdlLlLlLkd|H|8~ddddddddXXXd~ddkd~ddxCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCYQQddddddFddddFCChhd44ddzzdddvooChdF"dhd9dCCzCddoddCdYds]zUvdYYCCCCz~ozoY~NYdYC8YooYdYzsdzdd~YYzozzz~CdzYzzzzCCdddddddzCsdYC\   pxtll\tll@\@\`L/8wC;,Xw PE37XPV"G($,hG PE37hP3m=6,D&m PE37&POA%!,JA PE37JP"i~'K2^$(8<><q*"xxxxWWxxxWWkkxxxBwgwgcccccc@XKKgg;;c\\\{I\waaIZQQOMXacccujygggpeyuVrQjQcccc3Qlc@uuccc;;ccccccccccccccccccccccnnnnnnnn#3#cccccj3cccccccccccccccccccccccccccccccrrrrnnnnnnnnnnXXccccccllccVVVVuuccaaaaccZZuZVVVV5*FVcc2H&f ]%QFZ",tB^ f ^6=U\\===\====\\\\\\\\\\==Qs~sm=Gsizbsw===\\=Q\Q\Q=\\33\3\\\\DG3\\\\QQ\Q\0\\\\\=\\\\\\\\\3QQQQQz~QsQsQsQsQ=3=3=3=3\\\\\\\\\\Q\\\\\i\Q\Q}Q}Q~\~\nrQs\s\rQ\\\\\\\=3\\\\=\f\\\r3rBs\u7r3\j\\\\yByBz\cFcFcFb\rBr3s\\\\\\\\uQuQuQ\s\\b\s\\n=\\===WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN\\\=QKK\\\\\\@\\\\@==__\00\\pp\\\mff=_\@"\_\4\==p=\\f\z\=\Q\iwUzpNm\QQ====psfpfzQsGwQ\Q=3QzffQz\Qpi\p\\sQQzpfppps=\pQpppp==\\\\\\\p=i\Q=Tgnj}}ccyyTjcc;T;TXFu12-01-94 10:54a   62z&  X01Í ÍX01Í Í$// Order; Rochester Tel. Petition for Waiver; DA 95239 //$ $/ Section 0.291 Delegated Authority /$ TRANSMITTED FOR FCC RECORD ONLY @7Before the FEDERAL COMMUNICATIONS COMMISSION  Washington D.C. 20544 x` `  hh@hpp  DA 95239  YH-In the Matter of hh@h) x` `  hh@h)  Y -Rochester Telephone Corporation,hh@h)  Y -MidSouth Telecommunications Company, Inc., h)  Y -Ontonagon County Telephone Company andh)  Y -Midway Telephone Companyhh@h) x` `  hh@h)  Y -Petition for Waiver of Sections 61.41(c),@h)  Y- 61.41(d), 69.3(e)(11) and 69.3(i)(4) of the h)  Yy-Commission's Rules hh@h)pp    Y4-=ORDERă Adopted: February 14, 1995; Released: February 15, 1995 By the Chief, Common Carrier Bureau:  Y|-x1.` ` On October 3, 1994, Rochester Telephone Corporation (Rochester), MidSouth Telecommunications Company, Inc. (MidSouth), Ontonagon County Telephone Company (Ontonagon) and Midway Telephone Company (Midway) (collectively, Petitioners) filed a joint petition for waiver of Sections 61.41(c), 61.41(d), 69.3(e)(11) and 69.3(i)(4) of the  Y -Commission's rules ȝ T-#&m PE37D&P#эx47 C.F.R.  61.41(c), 61.41(d), 69.3(e)(11) and 69.3(i)(4). in conjunction with the proposed sale of Ontonagon and Midway by Rochester to MidSouth. The rule waiver would allow Ontonagon and Midway to withdraw from price cap regulation and become subject to costofservice regulation, and place Ontonagon and Midway in the National Exchange Carrier Association (NECA) pools effective on the date of their acquisition by MidSouth.  Y"-x2.` ` Petitioners state that Rochester is a New York corporation that provides local exchange service to approximately 500,000 access lines in western central New York, and additionally owns 35 local exchange carriers that serve approximately 480,000 access lines in"h$h0*0*0*%"  Y-thirteen states.l Ty-#&m PE37D&P#эxJoint Petition at 1.l Rochester is a Tier 1 local exchange carrier,Ih Y-ԍx#&m PE37D&P#Tier 1 local exchange carriers are companies having annual revenues from regulated telecommunications operations of $100 million or more for a sustained period of time. Commission Requirements for Cost Support Material to be Filed with 1990 Annual Access Tariffs, Order, 5 FCC Rcd 1364 (1990).  subject to price cap regulation since July 1, 1991. Ontonagon and Midway are two of Rochester's local exchange carrier subsidiaries. Ontonagon, which serves approximately 4,000 access lines, is wholly owned by Rochester. Midway, which serves approximately 900 access lines, is 99.65 percent owned by Ontonagon. Both Ontonagon and Midway were in the NECA traffic sensitive and  Y-common line pools prior to their acquisition by Rochester on April 10, 1989.a TV -#&m PE37b&P#эxId.a When Rochester elected price cap regulation, pursuant to Section 61.41 of the Commission's rules,  Yv-its subsidiaries were included under price cap regulation as well.lv T -#&m PE37b&P#эx47 C.F.R.  61.41l On September 19, 1994, Rochester and MidSouth (a Tier 2 company) entered into an agreement whereby MidSouth would acquire all of the outstanding shares of Ontonagon from Rochester, and would then  Y1-operate Ontonagon, Midway and S & A Telephone Company, Inc. (S & A).1A T#-#&m PE37b&P#эxId. at 23. MidSouth previously acquired S & A from Rochester, and, pursuant to Commission waiver, was permitted to reenter the NECA pool.  Y -x3.` ` The Commission's rules provide that when a rate of return company and a price cap company merge, or when one company acquires the other, the resulting company  Y -must comply with price cap regulation within a year of the transaction.  T?-#&m PE37b&P#эxSection 61.41(c)(2) of the Commission's rules, 47 C.F.R.  61.41(c)(2). In the absence of this "allornothing" rule, a local exchange carrier might attempt to shift costs from its price cap affiliate to its rate of return affiliate, allowing the rate of return affiliate to retain higher rates, and thus generate greater earnings for the price cap affiliate without triggering the sharing mechanism. Also, a local exchange carrier could "game the system" by opting out of price cap regulation, increasing its costs inefficiently under rate of return regulation, then  YK-opting for price caps again and reducing its costs to an efficient level.aKY  YU-ԍx#&m PE37b&P#Id.a The carrier would realize higher earnings as a result of its cost reductions. The carrier would thus be rewarded  Y-for efficiency gains without reducing the rates.   T"-#&m PE37b&P#эxPolicy and Rules Concerning Rates for Dominant Carriers, Order on Reconsideration, 6 FCC Rcd 2637, 2706 (1991). The Commission has stated, however, that "in some cases, the efficiencies created by the purchase and sale of one or two exchanges may outweigh the threat of gaming the system. Such cases might justify [a] narrow waiver" 0*(("  Y-of the allornothing rule."b  Ty-#&m PE37b&P#эxId. b  Y-x4.` ` Petitioners contend that the grant of the waiver is in the public interest because MidSouth would be under an administrative and financial burden if it had to operate three small local exchange carriers, serving approximately 6,000 access lines, subject to price  Y-caps.i h T-#&m PE37b&P#эxId. at 45.i MidSouth contends that the granting of waivers will allow it to be more efficient in  Yv-managing its business and providing customer service.g v T/ -#&m PE37b&P#эxId. at 4.g Petitioners also contend that granting the waiver would be consistent with prior waivers granted by this Bureau, the  YH-Commission's price cap policies, and its regulation of small telephone companies.i H T-#&m PE37b&P#эxId. at 67.i  Y -x5.` ` On December 14, 1994, NECA filed comments in support of the joint petition for waivers. NECA argues that in this case there would be no cost shifting between affiliates, and that the Commission has consistently granted similar waiver requests for other  Y -small exchange carriers.k H T-#&m PE37b&P#эxNECA Comments at 5.k  Y -x6.` ` We conclude that there is good cause to grant Petitioners waivers of Sections 61.41(c) and (d) of the Commission's rules to permit MidSouth to avoid price cap regulation after acquiring ownership of Ontonagon and Midway. The first concern identified by the Commission in adopting these rules, cost shifting between affiliates, is not at issue here. Neither Rochester nor MidSouth are seeking to maintain Ontonagon and Midway as affiliates under different systems of regulation. The second concern underlying the rule, "gaming the system," also is not raised in this case. Rochester will remain regulated under price caps and retain no ownership interest in Ontonagon or Midway. Additionally, Mid Y-South has stated that it will not elect price caps and will be under rate of return regulation.l Y-ԍx#&m PE37b&P#Joint Petition at 7.l Moreover, Rochester has agreed to reduce its interstate revenuesMi requirements to reflect the sale of the two  Y-exchanges to MidSouth, and adjust its price cap indices accordingly.  T #-#&m PE37b&P#эxLetter of Michael J. Shortley, III, Rochester Telephone Corp., to David Nall, Deputy Chief, Tariff Division, Common Carrier Bureau (Feb. 2, 1995.) Grant of the waiver is conditioned on Rochester's compliance with this representation.  Y|-x7.` ` Further, the Commission has always been sensitive to the administrative burdens imposed on small and midsize local exchange carriers by the application of"e 0*(("  Y-Commission rules.` Ty-#&m PE37b&P#эxSee, e.g., Regulatory Reform for Local Exchange Carriers Subject to Rate of Return  TQ-Regulation, Report and Order, 8 FCC Rcd 4545 (1993), petitions for recon. pending; and Regulation of Small Telephone Companies, Notice of Proposed Rulemaking, 2 FCC Rcd 1010 (1986); Report and Order, 2 FCC Rcd 3811 (1987); Order on Reconsideration, 3 FCC Rcd 5770 (1988). In the LEC Price Cap Order, T-#&m PE37b&P#эxPolicy and Rules Concerning Rates for Dominant Carriers, Second Report and Order, 5 FCC  Ty-Rcd 6786 (1990) (LEC Price Cap Order); Erratum, 5 FCC Rcd 7664 (1990), modified on recon., 6  TQ-FCC Rcd 2637 (1991) (LEC Price Cap Reconsideration Order), petitions for further recon. dismissed,  T) -6 FCC Rcd 7482 (1991), further modified on recon., 6 FCC Rcd 4524 (1991) (ONA/Part 69 Order),  T -petitions for review of LEC Price Cap Order dismissed, National Rural Telecom Association v. FCC, 988 F.2d 174 (D.C. Cir. 1993). the Commission recognized that small telephone companies should not be forced into a regulatory regime that was designed largely on the basis of the historical performance by the largest local exchange carriers. The Commission, therefore, made price cap regulation optional for smaller carriers. Given the Commission's reservations about mandatory application of the price cap plan to carriers other than GTE and the Regional Bell Operating Companies, our application of the allornothing rule must take into account the Commission's concerns about applying the price cap system to small carriers.  Y1-x8.` ` For the foregoing reasons, we grant a waiver of the allornothing rule for MidSouth, subject to Rochester's fulfillment of its commitment to adjust its price cap indices as described above. Our waiver of Sections 61.41(c) and (d) allows MidSouth, with the acquisition of Ontonagon and Midway, to be the subject of rate of return regulation. Because MidSouth does not serve more than 50,000 access lines, it does not require a  Y -waiver of Section 69.3 to reenter the NECA pools.r  T7-#&m PE37b&P#эx47 C.F.R.  69.3(g)(2).r  Y-x9.` ` Accordingly, IT IS ORDERED, pursuant to Section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  4(i), and Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, that the joint petition of Rochester Telephone Corporation, MidSouth Telecommunications Company, Inc., Ontonagon County Telephone Company and Midway Telephone Company for waivers of Sections 61.41(c) and (d) of the Commission's Rules, 47 C.F.R.  61.41(c) and (d), IS GRANTED, subject to the condition in paragraph six of this Order. "h 0*(("  Y-x 10.` ` IT IS FURTHER ORDERED that the joint petition of Rochester Telephone Corporation, MidSouth Telecommunications Company, Inc., Ontonagon County Telephone Company and Midway Telephone Company for waivers of Sections 69.3 (e)(11) and 69.3(i)(4) of the Commission's Rules, 47 C.F.R.  69.3(e)(11) and (i)(4), IS DISMISSED. x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhKathleen M.H. Wallman x` `  hhChief, Common Carrier Bureau