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INTRODUCTION l I. A. 1. a.(1)(a) i) a) 1. 1. a.(1)(a) i) a)U  c!-  "1.` ` On May 19, 1995, the abovelisted petitioners (collectively, "Petitioners") filed   !a joint petition for waiver ("Joint Petition") of three Commission rules. U S West  c"-  -Communications, Inc. ("U S West") and 15 other petitioners (collectively, "Buyers")r" yO[%- [ԍBEK Communications I, Inc. ("BCI"); CTC Communications, Inc. ("CTC"); Dakota Central Telecom I, Inc.   x("Dakota Central"); Dickey Rural Communications, Inc. ("Dickey Rural"); Gilby Telephone Company ("Gilby");   Griggs County Telephone Company ("Griggs County"); InterCommunity Telephone Company II, Inc ("Inter  Community"); Moore & Liberty Telephone Company ("Moore & Liberty"); North Dakota Telephone Company   Y("North Dakota"); Northwest Communications Cooperative ("Northwest"); Red River Telecom, Inc. ("Red River");   + RTC II, Inc. ("RTC"); Turtle Mountain Communications, Inc. ("Turtle Mountain"); West River Communications, Inc."C)0*0*0*)" ("West River"); and York Telephone Company ("York").r seek a""X0*0*0*#"   Zwaiver of the definition of "Study Area" contained in the Part 36 AppendixGlossary 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  c-   affiliatesX| yO- .ԍDickey Rural Telephone Cooperative and United Telephone Mutual Aid Cooperative (collectively, "Buyers' Affiliates"). seek waivers of the price cap rule contained in Section 61.41(c)(2) of the Commission's   rules. That rule requires nonprice 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   Jany part thereof. The requested waivers would permit Buyers and Buyers' Affiliates to remain   under rateofreturn regulation after acquiring the exchanges, which currently are under price cap regulation.  c -  2.` ` On June 22, 1995, the Common Carrier Bureau ("Bureau") released a public  c -  <notice soliciting comments on the Joint Petition.l | {O6-ԍPublic Notice, 10 FCC Rcd 6709 (Com. Car. Bur. 1995).l 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  cy-  hPetition.yB| {Ol-ԍSee, e.g., Peterson Law Office Comments (filed July 26, 1995) ("Peterson Comments"). On August 11, 1995, the Bureau received reply comments from Buyers, the National   ZTelephone Cooperative Association ("NTCA") and U S West. Further, Petitioners provided  cK-  Jadditional information and cost data concerning the Joint Petition.K| yO- ԍAUG 17 LETTERLetter from Michael Crumling, U S West, to William Caton, Acting Secretary, FCC ( July 17, 1995); letter   from Michael Crumling, U S West, to William Caton, Acting Secretary, FCC (Aug. 17, 1995) ("U S West Aug. 17   Letter"); letter from Thomas Moorman, Kraskin & Lesse, to William Caton, Acting Secretary, FCC (Oct. 19, 1995);   iletter from Lawrence Sarjeant, U S West, to William Caton, Acting Secretary, FCC (Nov. 24, 1995); letter from   Lawrence Sarjeant, U S West, to William Caton, Acting Secretary, FCC (Mar. 22, 1996); letter from David Clark, GVNW, to Chuck Needy, Accounting and Audits Division, FCC (Mar. 25, 1996). In this Order, we find that   Kthe public interest would be served by allowing Petitioners to alter their existing study area   boundaries and allowing Buyers to continue operating under rateofreturn regulation after acquiring the exchanges. We therefore grant the Joint Petition, as explained more fully below. "L 0*(("Ԍ c-  II. STUDY AREA WAIVERS ă  _- A. Background  c-  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,   jcarriers 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  cL-  important primarily because carriers perform jurisdictional separations at the study area level.0L| yO - LԍThe phrase "jurisdictional separations," or "separations," refers to the process of dividing costs and revenues  {O -between a carrier's state and interstate operations. See generally 47 C.F.R. 36.136.741.0   For jurisdictional separations purposes, the Commission froze all study area boundaries effective  c -  hNovember 15, 1984. J "| {O - >ԍ47 C.F.R. 36 app. (defining "study area"). See MTS and WATS Market Structure, Amendment of Part  {O-  ,67 of the Commission's Rules and Establishment of a Joint Board, Recommended Decision and Order, 49 Fed. Reg.  {O-  g 48325 (1984) 1984 JOINT BOARD("1984 Joint Board Recommended Decision"); id., Decision and Order, 50 Fed. Reg. 939 (1985) 1985 ORDER ADOPTING("1985  {OO-  Order Adopting Recommendation"); see also Amendment of Part 36 of the Commission's Rules and Establishment  {O-of a Joint Board, Notice of Proposed Rulemaking, 5 FCC Rcd 5974 (1990)STUDY AREA NOTICE ("Study Area Notice").J The Commission took that action primarily to ensure that local exchange   carriers ("LECs") do not set up highcost exchanges within their existing service territories as  c -  separate study areas to maximize highcost payments.4 | {O}- [ԍSee 1984 Joint Board Recommended Decision, supra note 1984 JOINT BOARD7, 66; 1985 Order Adopting Recommendation,  {OG-supra note 1985 ORDER ADOPTING7, 1, 5.4 The study area freeze also prevents LECs   Yfrom 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  c-transaction would have the effect of changing the study area boundaries of either carrier. \ 8 | yO}-ԍ47 C.F.R. 1.3, 36 app.\  cf-  4.` ` Waiver of Commission rules is appropriate only if special circumstances warrant  cO-  deviation from the general rule and such a deviation will serve the public interest. O | {O- kԍNortheast Cellular Tel. Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990); WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir. 1969); 47 C.F.R. 1.3. In   evaluating petitions seeking a waiver of the rule freezing study area boundaries, the Commission  c!-  employs a threeprong standard: ^!"| {O"- ԍSee US West Communications, Inc., and Eagle Telecommunications, Inc., Joint Petition for Waiver of the  {O#-  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("US WestEagle Study Area Order"). first, that the change in study area boundaries does not"!H 0*(("  c-  adversely affect the Universal Service Fund ("USF") support program;  h | {Oy- \ԍUSF PROCEDURE USF RULE See 1984 Joint Board Recommended Decision, supra note 1984 JOINT BOARD7,  66. The Commission created the USF to  {OC-  preserve and promote universal service. See Amendment of Part 67 of the Commission's Rules and Establishment  {O -  of a Joint Board, Decision and Order, 96 FCC 2d 781 (1984). The USF allows LECs with high local loop plant   costs to allocate a portion of those costs to the interstate jurisdiction, thus enabling the states to establish lower local   iexchange rates in study areas receiving such assistance. To determine which LEC study areas are eligible for USF   support, the USF rules prescribe an eligibility threshold set at 115 percent of the national average unseparated loop   cost per working loop. When loop cost in a particular study area exceeds that threshold, the study area is eligible   for support equal to a certain percentage of the loop cost in excess of that threshold. The study area becomes eligible   for higher levels of support as its loop cost rises above additional thresholds set farther above the national average   Lunseparated loop cost. Because USF assistance is targeted primarily at small study areas, the level of support  {OO -  provided at each threshold generally is greater if the study area has 200,000 or fewer working loops. See 47 C.F.R. 36.631. second, that the state   commission(s) having regulatory authority over the exchange(s) to be transferred does not object  c-to the change; and third, that the public interest supports such a change.  c-  5. ` ` The Commission's concern about adverse USF impacts was mitigated, in the short   Zterm at least, by its adoption of the Joint Board's recommendation for an indexed cap on the  cv-  USF. v | yO- ԍThe Joint Board recommended, and the Commission adopted, interim rules that limit the rate of growth of  {O-  the USF to the rate of growth in the total number of working loops nationwide. See generally Amendment of Part  {O-  36 of the Commission's Rules and Establishment of a Joint Board, Recommended Decision, 9 FCC Rcd 334 (Joint  {O{-  Bd. 1993) ("1993 Joint Board Recommended Decision"); id., Report and Order, 9 FCC Rcd 303 (1993) ("Interim  {OE-  YCap Order"). The Commission recently extended these interim rules through July 1, 1996. Amendment of Part 36  {O-  wof the Commission's Rules and Establishment of a Joint Board, Report and Order, CC Dkt. No. 80286, FCC 95494 (rel. Dec. 12, 1995), summarized in 60 Fed. Reg. 65011 (1995).  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  c -  change would have an adverse impact on the distribution or level of the USF, the Commission   applies a "onepercent" 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   Zrequires that the guideline be applied to all study area waivers granted to either carrier, as a  cb-purchaser or seller, pending completion of the current review of the USF program.^bB| {OU#- [ԍSee US WestEagle Study Area Order, supra note US WEST-EAGLE STUDY11,  1417. The Commission defines the term "carrier,"  {O$-  in this context, to include "all affiliated carriers (i.e., those carriers that are in common 'control,' as the term 'control'  {O$-is defined in Section 32.9000 of the Commission's rules)." Id.  14 n.34 (citation omitted).  c4-  6.` `  REVIEW We note, however, the likelihood that any conditions imposed pursuant to this   Kanalysis may be superseded by new USF rules before those conditions have any effect. The"h0*(("  c-  [Telecommunications Act of 1996 became effective on February 8, 1996.z| yOy-ԍTelecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996).z The 1996 Act   requires the overhaul of various Commission support programs, including the USF, by May 8,  c-  ;1997.(X| {O- {ԍId. sec. 101(a), 254(a)(2). To develop new USF rules, the Commission has initiated a proceeding to  {O-  address this issue. See Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking and Order  {Oo-  Establishing Joint Board, 61 Fed. Reg. 10499 (1996). That proceeding includes portions of the record of a prior  {O9-proceeding. Id.  39.  The new USF rules are likely to alter the method used to determine the distribution of   USF support to highcost areas, thereby changing the projected level of support to Buyers' North   KDakota study areas. This rulemaking must be completed before the initial stage of upgrades  c-  planned by Buyers would cause increased USF payments to their study areas.:H| yO - ԍA lag of up to two years exists between the time that a LEC incurs additional loop costs and the time that  {ON -its study area receives additional USF assistance reflecting those higher costs. See 47 C.F.R. 36.61136.612.: For the interim,   however, it is important to apply the standards that we have developed consistently until such time as the rules are changed.  _1- B. Pleadings  c -      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   Zacquired 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  c-  owned by them or their affiliates.| yO- .ԍThe ten buyers are Dickey Rural, Gilby, Griggs County, InterCommunity, Moore & Liberty, North Dakota,  {O-Northwest, Red River, Turtle Mountain, and York. See Joint Petition at 2432, Attachment A. The remaining five buyers seek permission to transfer 27  c}-exchanges to newly created study areas.} | {O*-ԍThe five buyers are BCI, CTC, Dakota Central, RTC II, and West River. See id. at 1824, Attachment A.  cO-  !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 ongoing customer demands and by providing enhanced customer  c -  wresponse time, which is expected to result from the localized operations.]  | {OI"-ԍId. at 1314, Attachments A1 to A15.] Petitioners state that   Ythe switching equipment in some exchanges would be upgraded to digital switching within the  c-first year of operation.i | {O%-ԍxSee, e.g., id. Attachments A6 to A7.i "0*(("Ԍ c-  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   Y68 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  cv-  study areas as requested.Av| {O-ԍId. at 12.A 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  cH-USF assistance before or after the transfer.HZ| {OS -ԍU S West Aug. 17 Letter, supra note AUG 17 LETTER5, at BCI Attachment.  c -   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  c -close of this transaction.h | yO[-ԍJoint Petition at 1619; Buyers Reply Comments at 410.h  c-   11. ` ` Comments. NECA and NTCA support Petitioners' requests.c|| yO-ԍNECA Comments at 311; NTCA Reply Comments at 26.c A number of local   exchange subscribers, however, oppose the Joint Petition. They submit that the proposed  cc-  transactions would cause service to deteriorate and thus would not be in the public interest.[c | {O -ԍSee, e.g., Peterson Comments at 15.[   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   Jaccurately in their waiver requests the USF assistance they anticipate having after the purchase   xof 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   Yaddition, 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   Jparent 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  cf-parent.Gf| yO$-ԍAT&T Comments at 310.G "O. 0*((z"Ԍ _-  5E  5E C. Discussion  c-  ! 12. 5E  5E ` ` 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,   Kthe 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  cI-  providing such service.I| yO -ԍA copy of the North Dakota PSC order is attached to the Joint Petition at Exhibit 1. 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  c -  Ktransferred to Buyers.J X| yO$ -ԍPeterson Comments at 25.J 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  c -affected customers state that they do not object to the requested study area waivers. | yO- /ԍLetter from Susan Wefald, North Dakota Public Service Commission, to Secretary, FCC (Sept. 7, 1995);   letter from Nancy McCaffree, Montana Public Service Commission, to Kent Nilsson, FCC (Feb. 29, 1996); letter   from Kenneth Stofferahn, South Dakota Public Utilities Commission, to Kent Nilsson, FCC (Mar. 12, 1996). We   hnote that affected customers are located in three different state jurisdictions because, although all of them are served  {O-  from North Dakota exchanges, 137 customers reside in South Dakota and three customers reside in Montana. See Joint Petition at 1.  c -   13. ` ` Further, we have determined based on Petitioners' postupgrade 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  cz-  $895,938 in Petitioners' combined annual USF draws.|zb | yO- ԍPetitioners' data submissions show that, if Buyers' parent LECs acquire the exchanges and consolidate them   wwith the parents' existing North Dakota study areas, the combined USF draws of the parent LECs would change from   $4,556,208 to $5,452,146, an increase of $895,938. The pretransfer figure of $4,556,208 is based on amounts  {O-  specified by Buyers. See Joint Petition at Attachments A1 to A15, B1 to B15; U S West Aug. 17 Letter, supra  {O-  + note AUG 17 LETTER5, at Attachment. The posttransfer figure of $5,452,146 is the sum of the postupgrade amounts identified infra  yOy-  in notes LIMITS53 and DICKEY56. As discussed earlier, the USF draw of U S West would be zero both before and after the exchange transfers. Although that $895,938 increase in  cd-  Petitioners' combined USF draws far exceeds the $99,024 decrease specified by Petitioners, the  cN-  $895,938 increase nonetheless is well below the Commission's one percent guideline.  z~N| yO"- \ԍPetitioners submit that the net impact on their combined USF draws would be a $99,024 decrease because   Za $403,551 increase in Buyers' USF draws would be more than offset by a $502,575 decrease in the USF draws of   four affiliates that are expected to enjoy cost reductions due to the exchange transfer (i.e., $502,575 minus $403,551   equals $99,024). Petitioners do not explain how these figures were derived. Petitioners do state, however, that these  yO%-  figures reflect the impact of all their proposed changes. Joint Petition at 12. That statement implies that the   estimates are based on the assumption that four new study areas will be created as requested. Petitioners also state  {OU'-  xthat these figures represent the effect on 1997 USF draws. Id. That statement implies that the estimates do not"U'0*(('"   reflect the effects of all planned upgrades, because two buyers (North Dakota and West River) submit data showing  {OX-  that their 1997 USF draw projections exclude the effects of planned upgrades. See U S West Aug. 17 Letter, supra  yO"-  note AUG 17 LETTER5, Attachments for North Dakota and West River. Based on Petitioners' data submission, our calculations show  {O-  that the projected net decrease of $99,024 in USF draws becomes a net increase of $895,938 by altering Petitioners'   apparent methodology in three ways: (a) assume all transferred exchanges would be added to existing study areas,   ,(b) include the effects of the planned upgrades excluded from Petitioners' calculation, and (c) correct Dickey Rural's  {OD-USF estimates in the manner described infra at note DICKEY56.  We also"N 0*(( "   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.  c_-   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  c2-  -areas in North Dakota.^!Z2| yO- /ԍThe five buyers are BCI, CTC, Dakota Central, RTC, and West River. Petitioners state that all of these  {O-  jbuyers are owned by operating companies that have existing study areas in North Dakota. See Joint Petition Attachments A1, A2, A3, A12, A14.^ 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   Zareas 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  cL-currently operate.K"L0 | {O--ԍId. at 1819, 2122.K  c-  ]15. ` ` We do not oppose the five buyers' plans to create new, whollyowned 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.  c}-  ^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 threeprong standard for"O "0*((>"  c-  granting study area waivers.A#| {Oy-ԍId. at 23.A That argument is unpersuasive. As noted above, the threeprong   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   Jstandard, 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   wthe buyers to configure their acquisitions in a way that gains them the greatest advantage under  c1-  the USF rules and the Small Carrier Assistance rules.$1Z| yO< - ԍThe Small Carrier Assistance rules, commonly referred to as the dial equipment minuteofuse ("DEM")  {O -rules, are discussed infra at paragraph  DEM20 . Moreover, the consolidation of study   areas located within the same state is the type of study area reconfiguration that the Commission  c -  ;encourages as serving the public interest.>% | {Oh- ԍSee generally U S West Comm., Inc., and Range Tel. Coop., Inc., Joint Petition for Waiver of the Definition  {O2-  <of Study Area, Order on Reconsideration, 10 FCC Rcd 13264,  1521 (Com. Car. Bur., 1995); ALLTEL Serv.  {O-  Corp., Petition for Waiver of the Definition of Study Area, Memorandum Opinion and Order, 9 FCC Rcd 4450,   4451,  67 (Com. Car. Bur., 1994); ALLTEL Serv. Corp., Petition for Waiver of the Definition of Study Area,  {O-  Memorandum Opinion and Order, 8 FCC Rcd 6411,  6 (Acct. & Audits Div., Com. Car. Bur. 1993); Study Area  {OX-  Notice, supra note STUDY AREA NOTICE7,  6, 17; 1984 Joint Board Recommendation, supra note 1985 ORDER ADOPTING7,  66; 1985 Order Adopting  {O"-Recommendation, supra note 1985 ORDER ADOPTING7,  1.> We therefore reject the claim that a requirement to   iconsolidate the acquired exchanges with the existing North Dakota study areas of the parent companies would be inconsistent with Commission policy.  c -  l17. ` ` We also reject Petitioners' argument that such a consolidation requirement unjustly   discriminates against instate LECs because outofstate LECs may be permitted to establish new  cy-  study areas.F&y | yO*-ԍJoint Petition at 22.F These two groups of LECs are not similarly situated. Whereas it is feasible for   instate LECs to add instate exchanges to their existing study areas, it is not feasible for outof  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.  c-  @18. ` ` Petitioners further assert that their proposal to create new study areas would be  c-  consistent with the Commission's policy on granting study area waivers.H' | {O0#-ԍId. at 19, 2223.H We disagree. As   explained above, the primary intent of the study area freeze rule is to prohibit LECs from setting   up highcost exchanges within their existing service territories as separate study areas to   jmaximize 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" "'0*(("   USF payment will tend to be greater over time if the LEC can isolate highcost exchanges in one   or more separate study areas. Such action permits the LEC to report average loop cost in the   highcost study areas farther above the USF eligibility threshold than would be possible if the highcost exchanges remained consolidated with lowercost exchanges.  c-  ^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   jstudy areas located in the same state. As noted above, a LEC's USF draw will tend to be  cH-  -greater if it can isolate highcost 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 lowercost acquired exchanges were consolidated   with the parents' highercost 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  c -  Jcombined USF draws.1( | yON- =ԍ AVOID According to Petitioners' estimates, the 1997 USF draw of BEK Communications Cooperative (BCI's parent   company) would decrease by $208,566 if it were to acquire the subject exchanges and consolidate them with its   existing North Dakota study area. Similarly, Consolidated Telephone Cooperative, Inc. (CTC's parent company)   would incur a reduction of $169,638; Dakota Central Telecommunications Cooperative, Inc. (Dakota Central's parent   company) would incur a reduction of $280,741; and Reservation Telephone Cooperative (RTC's parent company)  {O6-would incur a reduction of $207,844. See Joint Petition at Attachments B1, B2, B3, B12.1 Hence, the creation of new study areas would enable these companies to gain an advantage under the USF and jurisdictional separations rules.  c-  20.DEM ` ` The creation of separate study areas also may enable some of these buyers to gain  cy-  an advantage under the Small Carrier Assistance rules.)yB| {Ol-ԍSee 47 C.F.R.  36.125(f). These rules are commonly referred to as the DEM 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  c-  ,its interstate assignment by 100 percent.:*| {O-ԍId.: Under this support program, the study area of West   River's parent company, West River Telecommunications Corporation ("WRTC"), is eligible for   hthe maximum level of assistance prior to acquiring the new exchanges. Because that study area  c-  has only 9,491 access lines,p+f | yO!-ԍ1995 Universal Service Fund Submission of 1994 Results by NECA.p 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 10,000line threshold, making WRTC ineligible for the highest level of support.   Consequently, the proposed change would enable WRTC to avoid a reduction in its interstate"N +0*((\"   revenue requirements and thereby avoid reducing the rates that interstate toll customers pay to access WRTC's local network.  c-  o21. ` ` 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  cv-   their parent companies.?,Hv| yO- ԍBased on Petitioners' submissions of 1995 data, our calculations show that a grant of the study area waivers  {O-  hto these five buyers will result in an increase of approximately $1,104,000 in the combined Small Carrier Assistance   draws for them and their parent companies. Our calculations also show that this increase will be partially offset by  {OI -  a decrease of approximately $465,000 in the combined USF draws of the five parent companies if they add the   kacquired exchanges to their existing study areas. We thus expect the waivers to result in a net increase of  {O -  approximately $639,000 in interstate revenue requirements (i.e., $1,104,000 minus $465,000 equals $639,000). See  {O -  Joint Petition at Attachments B1, B2, B3, B12, and B14. Also see U S West Aug. 17 Letter, supra note AUG 17 LETTER5, at Attachment.? 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  c1-  additional increase of approximately $776,000.V-1| {O- ԍAs explained supra note  AVOID40  and accompanying text, the combined interstate revenue requirements for four   wof the five parent companies would increase by approximately $867,000 due to the effect on their USF draws. That   increase would be partially offset by a reduction of approximately $91,000 in the USF draws of the fifth parent  {O-  ,company, WRTC. See Joint Petition at Attachment B14. Unlike the other four parent companies, WRTC would   Jreceive a lower level of USF assistance in 1997 if a new study area is created. The net increase in interstate revenue  {O-requirements thus is approximately $776,000 (i.e., $867,000 minus $91,000 equals $776,000).V Petitioners have not demonstrated that this additional increase in interstate revenue requirements would be in the public interest.  c -  ~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.  cb-  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   Ythis 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,  c-Petitioners submit several arguments against the imposition of limits on Buyers' USF draws.g.V | yO#-ԍJoint Petition at 1518; Buyers Reply Comments at 47.g  c-  c-  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" .0*(("  c-  anticipate all future upgrades that may be required in the transferred exchanges.L/| yOy-ԍJoint Petition at 16.L We recognize   that Buyers' estimates may be inaccurate. We have found that, even in a period of a few years,   ithe USF payments for some LECs have risen by unexpected amounts. These LECs generally   xhad undertaken substantial upgrades or expansions of the local network in difficulttoserve,   hsparsely populated exchanges that are similar to the exchanges being acquired by Buyers in this  c-  Jcase.0X| {O- Lԍ ESTIMATE See, e.g., Delta Tel. Co., Inc., Waiver of the Definition of "Study Area," Memorandum Opinion and Order,  {O` -  Y5 FCC Rcd 7100 (1990). The USF payment grew from $82,500 in 1991 to approximately $445,700 in 1993. See,  {O* -  e.g., US West Comm. & Gila River Telecomm., Inc., Joint Petition for Waiver of the Definition of "Study Area,"  {O -  Memorandum Opinion and Order, 7 FCC Rcd 2161,  7 (1992) (stating that Gila River estimates 1992 highcost   Zsupport to be $169,155). Gila River's 1992 USF estimate 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. 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   hpotential for such failure has been our primary reason for imposing limits on the USF draws of companies that are acquiring exchanges.  c -  125. ` ` These limits would ensure that the study area waivers will not, due to errors or   Zunforeseen circumstances, result in adverse USF impacts which substantially exceed Buyers'   -forecasts. The limits also would ensure that the Commission's onepercent guideline can be   properly adhered to in future filings of this kind. Absent such limits, companies could file  c -  wwaiver 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   hmonitoring the monthtomonth USF draws of Buyers, and of numerous other similarly situated  cb-  + companies, to determine which individual companies had exceeded the guideline.N1b| yO-ԍBuyers Reply Comments at 56.N 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.  c-  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  c-  Jaffiliates to modify or cancel plant upgrades.O2h | yO!-ԍJoint Petition at 1618.O 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  c|-  $502,575 due to operating efficiencies resulting from the exchange transfers.A3| | {O%&-ԍId. at 20.A That increase in  ce-  USF support, together with the cost savings, would make $1,398,513 (i.e., $895,938 plus"e 30*(({"   $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,   JPetitioners 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 posttransfer 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.  cH-  027. ` ` Third, Buyers argue that it would be unreasonable to require the size of a carrier's   jUSF 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  c -  acquisitions have occurred.N4 | yO| -ԍBuyers Reply Comments at 56.N 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 highcost 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   YUSF 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  cy-  ithan would occur if the upgrading had been performed instead by the sellers.5yX| yO- ԍAn exchange transfer could result in increased USF draws even when average loop cost data do not show   the exchanges to be highcost areas when transferred. Because the outside plant and switching facilities in difficult  toserve rural exchanges may consist largely of antiquated facilities serving multiparty lines, the highcost nature   of some exchanges may not be evident until upgrades are completed. Hence, if such exchanges were transferred   from large study areas to small study areas absent any USF limits, the small study areas might exhibit reductions in USF assistance initially, to be followed by large increases when upgrades are completed. 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.  c-  28. LIMITS ` ` In conclusion, we agree with AT&T that, for study area waivers of this type, we  c-  Jshould continue our policy of imposing limits on buyers' USF draws.k6H| yOY- =ԍ ADJUST AT&T Comments at 37. These study area waivers also are subject to the condition that, if the selling LEC   is a price cap carrier selling a highcost portion of its operations, it shall make a downward exogenous adjustment  {O -  -to its Price Cap Index to reflect the change in its study area boundaries. See Price Cap Performance Review for  {O!-  Local Exchange Carriers, First Report and Order, 10 FCC Rcd 8962,  328, 330 (1995) ("LEC Price Cap Review  {O}"-  ZOrder"). Under that requirement, U S West must reduce the Price Cap Indices for its North Dakota study area if   ithe changes in study area boundaries reduce the cost bases for those indices. The Price Cap Indices, which are the   cost indices on which pricecapped rates are based, are calculated pursuant to a formula specified in the  {O$-Commission's rules for price cap LECs. See 47 C.F.R.  61.45.k We therefore find that   the waivers should be subject to the condition that, absent explicit approval from the Bureau, the   Jannual USF support provided to Buyers' study areas shall not exceed the postupgrade amounts" 60*(("  c-  <specified by all buyers except Dickey Rural.7 | yOy- \ԍ AMOUNTS Buyers specify that, if the exchanges are consolidated with Buyers' respective parent LECs' study areas in   xNorth Dakota, the postupgrade annual USF draws will be as follows: $407,534 for the study area including BCI;   $900,294 for the study area including CTC; $312,079 for the study area including Dakota Central; $63,716 for the   study area including Gilby; $0 for the study area including Griggs County; $311,304 for the study area including   ZInterCommunity; $2,979 for the study area including Moore and Liberty; $303,861 for the study area including   iNorth Dakota; $171,807 for the study area including Northwest; $84,313 for the study area including Red River;   $371,679 for the study area including RTC; $0 for the study area including Turtle Mountain; $2,171,800 for the study  {O-  area including West River; and $0 for the study area including York. See Joint Petition app. B, Attachments B1,  {O-  wB2, B3, B5 to B15; U S West Aug. 17 Letter, supra note AUG 17 LETTER5, Attachment, Exhibit 3. We note that the USF draws   ,shown here for North Dakota, InterCommunity and West Riverall of which provided "combined study area" USF   Jprojections for several different yearsare the amounts they specified for the year in which planned upgrades are to   be completed. Although the remaining buyers specified "combined study area" USF draws for only a single year  {O -  (1997), they stated that those estimates include the effect of all planned upgrades. See Joint Petition Response to Question 3, Attachments B1 to B6, B8, B10 to B13, B15. The annual USF support provided to Dickey   wRural's study area shall not exceed $350,780, an amount we calculated based on data submitted  c-  iby Dickey Rural.8" | yO - =ԍ DICKEY We determined that the "combined study area" USF draw specified by Dickey Rural ($430,677) is overstated  {O-  because it was based incorrectly on 30 rather than 27 exchanges. See Joint Petition Attachments A4, B4 app. B.   ZUsing the same NECA USF formula used by Dickey Rural, we determined that the postupgrade USF draw for the study area including Dickey Rural will be $350,780.  We note that new USF rules, implementing new statutory mandates, are   likely to alter the distribution of USF support to highcost areas and require us to revisit these  c-issues following implementation of the 1996 Act.j9p| {O-ԍSee discussion supra para.  REVIEW6 .j  __- III. PRICE CAP WAIVERS  _H-    c1-  |   29.` `  Background. Section 61.41(c)(2) of the Commission's rules provides that, when   a nonprice cap company acquires a price cap company, the acquiring companyand any LEC   -with which it is affiliatedshall become subject to price cap regulation within a year of the  c -  transaction.l: | {O- \ԍ47 C.F.R. 61.41(c). See Policy and Rules Concerning Rates for Dominant Carriers, Second Report and  {Ol-  ZOrder, 5 FCC Rcd 6786,  282284 (1990), Erratum, 5 FCC Rcd 7664 (Com. Car. Bur. 1990) ("LEC Price Cap  {O6 -  ,Order"), modified on recon., Order on Reconsideration, 6 FCC Rcd 2637 (1991)LEC PRICE CAP RECON ("LEC Price Cap Reconsideration  {O!-  Order"), aff'd sub nom. National Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993), petitions for further  {O!-  recon. dismissed, 6 FCC Rcd 7482 (1991), further modification on recon., Amendments of Part 69 of the  {O"-  ,Commission's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture, Report  {O^#-  and Order and Order on Further Reconsideration and Supplemental Notice of Proposed Rulemaking, 6 FCC Rcd  {O($-  4524 (1991) ("ONA Part 69 Order"), further recon., Memorandum Opinion and Order on Second Further  {O$-Reconsideration, 7 FCC Rcd 5235 (1992).l The Commission stated that this "allornothing" rule applies not only to the" :0*((m "  c-  ,acquisition of an entire LEC but also to the acquisition of part of a study area.;\| {Oy- ԍSee LEC Price Cap Reconsideration Order, supra note LEC PRICE CAP RECON58,  149 n.207. The Commission explained that,   Yif these two types of acquisitions were not treated the same under the allornothing rule, a LEC could avoid the rule  {O -by selling all but one of its exchanges. Id.Ġ Hence, under this rule, Buyers' acquisition of US West's 68 exchanges obligates Buyers to become subject to price cap regulation instead of rateofreturn regulation.  c-  30.` ` The Commission explained that the allornothing 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 nonprice cap affiliate, allowing the nonprice cap affiliate to earn moredue to  cH-  hits increased revenue requirementwithout 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 rateofreturn 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 rateofreturn regulation so as to raise rates and, then, after returning to price caps, cutting   wcosts back to an efficient level. It would disserve the public interest, the Commission stated, to   allow a LEC to alternately "fatten up" under rateofreturn regulation and "slim down" under   price caps regulation, because rates would not fall in the manner intended under price cap  cy-regulation.><y| yO-ԍId.  148.>  cK-  ]31.PCI` ` The Commission nonetheless recognized that a narrow waiver of the allornothing   hrule might be justified if efficiencies created by the purchase and sale of a few exchanges were  c-  to outweigh the threat that the system may be subject to gaming.J=|| {OJ-ԍId.  149 n.207.J  Such a waiver would not  c-  be granted unconditionally, however. Rather, similar to certain study area waivers,p>| {O-ԍSee discussion supra note ADJUST54.p waivers   : of the allornothing rule would be granted subject to the condition that the selling price cap LEC  c-  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   pricecapped rates that have been based, in whole or in part, upon the inclusion of those  c-exchanges in the study areas subject to price cap regulation.?| {O"-ԍSee LEC Price Cap Review Order, supra note ADJUST54,  330.    ce-  O32.` `  Petition. Buyers and their affiliates seek waivers of Section 61.41(c)(2) so they   may operate as rateofreturn LECs, rather than price cap LECs, after acquiring the exchanges"Q2 ?0*((k"  c-  which currently are under price cap regulation.t@| yOy- ԍBuyers and two of their affiliates, Dickey Rural Telephone Cooperative, Inc. (owner of buyer Dickey Rural)   jand United Telephone Mutual Aid Corporation (owner of buyer Turtle Mountain), request waivers of Section   61.41(c)(2). We note that BEK Communications Cooperative (owner of buyer BCI), Consolidated Telephone   xCooperative, Inc. (owner of buyer CTC), Dakota Central Telecommunications Cooperative, Inc.(owner of buyer   + Dakota Central), Polar Communications Mutual Aid Corporation (owner of buyer Gilby), InterCommunity Telephone   Company (owner of buyer InterCommunity), Red River Rural Telephone Association (owner of buyer Red River),   Reservation Telephone Cooperative (owner of buyer RTC), West River Telecommunications Corporation (owner of   buyer West River), and Midstate Telephone Company (an affiliate of buyer York) did not seek waivers of Section 61.41(c)(2). We consider these waivers on our own motion. 47 C.F.R. 1.3.t 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  c-shifting between affiliates and gaming of the system, are not at issue in this case.GA| yO -ԍJoint Petition at 27.G  c-    33.` `  Discussion. We agree with Petitioners that the Commission's first concern  cy-  underlying the allornothing rule is not applicable in this case. None of the buyers has an   Zincentive to shift costs between price cap and rateofreturn affiliates, because none of these   companies is seeking to maintain separate affiliates under different systems of regulation. As  c4-  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 rateofreturn   Kregulation, 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   Jthe rateincreasing effects of these exchanges from the pricecapped rates that have been based,  c -  in part, upon the inclusion of these exchanges in its North Dakota study area.cB ( | {O-ԍSee supra para.  PCI31 .c We therefore   find there is good cause to grant Buyers a waiver of the allornothing rule to permit them to   woperate under rateofreturn 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   hshall make a downward exogenous adjustment to its Price Cap Indices to reflect the removal of these generally highcost exchanges from its North Dakota study area.  c -<  IV. COST SETTLEMENT WAIVERS ă  c-  !!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  c-  1, 1982, shall be deemed to be an average schedule company."JC | yO%-ԍ47 C.F.R.  69.605(c).J 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"J C0*((|"   the expenses that exchange carriers incur in the performance of interstate cost studies. The   ZCommission 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  c-because the conversion may result in inflated interstate revenue requirements.D| {O4- ԍNECA's Proposed Waiver of Section 69.605(c) of the Commission's Rules, Memorandum Opinion and  {O-Order, 2 FCC Rcd 3960 (Com. Car. Bur. 1987).  c-  !"35. ` ` Pleadings. Dickey Rural, Red River and Turtle Mountain seek waiver of this rule   ,in order to permit these newly created companies to have averageschedule status for interstate  c`-  Zsettlement purposes. These petitioners acknowledge that their respective parent companies E`$| yO5 - ԍDickey Rural is owned by Dickey Rural Telephone Cooperative, Inc.; Red River is owned by Red River Telephone Association; and Turtle Mountain is owned by United Mutual Aid Corporation. Joint Petition at 29.    Jalready 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' ongoing operations.  cz-  "#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 affiliatecombined 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   jrevenue 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  c-rules.DF|| {O-ԍId. at 2832.D  c}-  m$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   Zgenerally 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"F0*(( "   three circumstances, we recognize that both the petitioners and their respective parent companies   would have to perform interstate settlements on a costbasis 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 costbasis 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.  c -  %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 costbased 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.  c-  @&39.LIMITATIONS ` ` These waivers are subject to three conditions. First, each of the petitioners and   Jits 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   iof these three study areas converts from average schedule status to costbased settlements, or  c -  elects Section 61.39 treatment,FG | yO-ԍ47 C.F.R.  61.39.F 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   zin unintended effects on the petitioners' interstate revenue requirements or result in an administrative burden on the Commission or NECA. "h$XG0*((%"Ԍ c-_+ V. OTHER ISSUES ă  c-  $'40. ` ` To the extent necessary, Buyers seek waivers of Section 69.3(e(11) of the  c-  Commission's rules.H"| {O8- \ЍSee 47 C.F.R. 69.3(e)(11). Section 69.3(e)(11) states that "[a]ny changes in Association common line   tariff participation and [l]ong [t]erm and [t]ransitional [s]upport resulting from the merger or acquisition of telephone   ,properties are to be made effective on the next annual access tariff filing effective date following consummation of the merger or acquisition." That rule requires that any changes in NECA common line tariff   I participation and long term support resulting from a merger or acquisition of telephone properties   g are to be made effective on the next annual access tariff filing effective date following the merger  cz-  or acquisition. Buyers are concerned that under a strict interpretation of this rule they, rather  cc-  than NECA, would be required to file a tariff on the next annual access tariff filing date.Ic| yO -ԍThe "next" filing date would be April 2, 1996, to be effective on July 1, 1996.   LAssuming 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  c -  ,in NECA's 1996 filing.J  B| yO- ЍJoint Petition at 810. Commission staff has determined that the approximately 48,000 access lines included   Lin Buyers' acquisitions have been included in the NECA common line pool and will be addressed in the annual   ,access filing to be made on April 2, 1996. This assumes that the acquisition is finalized within the 1996 tariff year. If this does not occur, we expect NECA to make the appropriate adjustment. 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.  c -  (41. ` ` Buyers also seek waiver of Section 61.41(d) of the Commission's rules.@K * | {O-ԍId. at 3.@ That   Krule states that once a LEC becomes subject to price cap regulation it shall not be eligible to   jwithdraw 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).  c!- VI. ORDERING CLAUSES ă  c-  |)42.` ` Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, and  c-  xSections 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; InterCommunity 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"V K0*((\"   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 c-Glossary, IS GRANTED subject to the conditions stated in paragraph LIMITS28 of this Order.  c-  *43. ` ` IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, and   xSections 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  cH-  Telecom I, Inc.; Dickey Rural Communications, Inc.; Dickey Rural Telephone Cooperative,  c1-  YInc.; Griggs County Telephone Company; InterCommunity Telephone Company II, Inc; Moore   & Liberty Telephone Company; North Dakota Telephone Company; Northwest Communications   ZCooperative; Red River Telecom, Inc.; RTC II, Inc.; Turtle Mountain Communications, Inc.;  c -  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  c -Commission's Rules, 47 C.F.R. 61.41(c)(2), IS GRANTED.  c-  +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, InterCommunity Telephone Company,   yRed 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).  c-  ,45. ` ` IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, and   xSections 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   wMountain Communications, Inc. for waiver of Section 69.605(c) of the Commission's Rules, 47  ce-  C.F.R.  69.605(c), IS GRANTED subject to the conditions stated in paragraph LIMITATIONS39 of this Order.  c -  -46.` ` IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, and   wSections 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  c -in paragraph LIMITS28, and identified in notes AMOUNTS55 and DICKEY56, of this Order.  c"-  .47.` ` IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, and   wSections 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":&K0*((`'"   Krespective North Dakota affiliates for interstate average schedule settlement purposes and to receive distributions on that basis in one consolidated statement for both affiliates.  c-  /48.` ` IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, 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 costbased 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.  c -  049. ` ` IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201202 of the   Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201202, 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. 1 ` `  hh,FEDERAL COMMUNICATIONS COMMISSION ` `  hh,Kenneth P. Moran ` `  hh,Chief, Accounting and Audits Division ` `  hh,Common Carrier Bureau1