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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Request for Clarification Filed by the ) National Exchange Carrier Association, Inc. ) ) and ) ) AAD 95-173 Petitions for Waivers Filed by Alaska ) AAD 96-29 Telephone Company, Ducor Telephone Company ) AAD 96-51 and Kingsgate Telephone, Inc. ) ) Concerning the Definition of "Study Area" ) Contained in the Part 36 Appendix-Glossary ) of the Commission's Rules ) MEMORANDUM OPINION AND ORDER Adopted: July 16, 1966 Released: July 16, 1966 By the Chief, Common Carrier Bureau I. INTRODUCTION 1. On November 29, 1995, the National Exchange Carrier Association, Inc. ("NECA") sought clarification of the definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules, which effectively freezes all study area boundaries. Specifically, NECA asked that we clarify the circumstances under which an incumbent local exchange carrier ("ILEC") must obtain a waiver of that rule in order to reconfigure existing study area boundaries or create new study areas. In addition, Alaska Telephone Company, Ducor Telephone Company, and Kingsgate Telephone, Inc., filed petitions for waiver of that rule in order to create new study areas, or expand existing study areas, when they begin serving previously unserved territories. In this Order, we clarify the rule by identifying three circumstances under which waivers would be unnecessary. In light of this clarification, we dismiss the three companies' petitions for study area waivers as moot. II. REQUEST FOR CLARIFICATION A. Background 2. Generally, a study area corresponds to a carrier's entire service territory within a state. Thus, carriers 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 important primarily because carriers perform jurisdictional separations at the study area level. For jurisdictional separations purposes, the Commission froze all study area boundaries effective November 15, 1984. The Commission took that action primarily to ensure that ILECs do not place high-cost exchanges within their existing service territories in separate study areas to maximize payments from the Universal Service Fund ("USF") support program. 3. The study area freeze also prevents ILECs from transferring exchanges among existing study areas for the purpose of increasing interstate revenue requirements and compensation. An ILEC must apply to the Commission for a waiver of the rule freezing study area boundaries if the ILEC wishes to sell exchanges to another carrier and if that transaction would have the effect of changing the study area boundaries of either carrier. We note that the Telecommunications Act of 1996, enacted on February 8, 1996, requires the reform of many mechanisms the Commission uses to support its universal service goals, including the USF, by May 8, 1997. The new rules may alter the way USF support is calculated for and distributed to high-cost areas. B. NECA Request 4. NECA seeks clarification of the circumstances under which ILECs must obtain waivers of the study area freeze rule in order to reconfigure existing study area boundaries or create new study areas. NECA claims that waivers are not required for a holding company to consolidate existing study areas, for an ILEC to establish new study areas for previously unserved territory, or for an ILEC to combine previously unserved territory into an existing study area. NECA also claims that waivers may not be required for an ILEC to adjust or realign study area boundaries to conform them to geographic and political boundaries, or for an ILEC to extend service into areas served by other ILECs. NECA states that, even in situations arguably covered by the rule, we should consider establishing a materiality standard for requiring waiver petitions. Such a standard, NECA explains, would enable ILECs involved in minor transactions to avoid the expense and delay associated with the waiver process. According to NECA, waivers should be unnecessary whenever a study area change can be reasonably expected to have insignificant impacts on the USF program. C. Discussion 5. In general, ILECs must obtain waivers of the study area freeze rule before creating new study areas or reconfiguring existing study areas because such changes would violate the policy underlying the rule. The Commission adopted the rule based on the recommendation of the Docket 80-286 Federal-State Joint Board ("Joint Board"). The Joint Board stated, and the Commission concurred, that the intent of the rule is to prevent carriers from "setting up high cost exchanges within their existing service territory as separate companies to maximize high cost support." That statement implies that the rule is intended to prevent the disaggregation of study areas. Disaggregation would occur when a company divides an existing study area or when companies in the same state create new study areas by transferring portions of existing study areas among themselves. 6. That statement does not imply, however, that the rule is intended to prevent the consolidation of existing study areas. As we have found, the consolidation of study areas cannot, by itself, result in increased USF draws. Indeed, the consolidation of study areas located within the same state tends to reduce USF draws and is the type of study area reconfiguration that the Commission encourages as serving the public interest. Hence, consolidation would not enable companies to gain an advantage under the USF rules. Nor would it enable companies to gain an advantage under the small carrier assistance rules because that assistance decreases as the size of an eligible study area increases. We therefore agree with NECA that a waiver of the rule is not required when a holding company is consolidating existing study areas in the same state. 7. NECA claims that the Joint Board identified two other conditions under which waivers of the rule should not be required. The Joint Board stated: Under the [frozen study area] approach, an existing company study area purchased by a holding company which owned other companies within the same state could continue to be treated separately for separations purposes. Areas in which telephone service was instituted for the first time could also be treated as a separate study area if separately incorporated. In either case, the parent company would also have the option of folding the new service territory into one of its existing companies and using the average NTS costs for the expanded service area in determining the high cost assistance. We expect this to be the case when the benefits of consolidated operations exceed the reduction in high cost support. This Joint Board statement, with which the Commission concurred, implies a waiver of the rule is not required if a separately incorporated company is establishing a new study area for previously unserved territory, or if a company is combining previously unserved territory with one of its existing study areas in the same state. We do not require a waiver for either of these conditions. 8. We are not persuaded by NECA's arguments that the Joint Board statement implies that there are additional conditions under which waivers are not required, nor are we persuaded that we should now establish a standard that would eliminate waiver petitions for transfers of exchanges serving small numbers of subscribers. We believe consideration of such action should await the outcome of the joint effort of the Commission and the state commissions to reform the universal service rules by May 8, 1997, a process that may also revise the study area freeze rule. 9. We therefore find that study area waivers are required whenever a company seeks to create or reconfigure study areas, except under any of the following three conditions: (a) a separately incorporated company is establishing a study area for previously unserved territory; (b) a company is combining previously unserved territory with one of its existing study areas in the same state; and (c) a holding company is consolidating existing study areas in the same state. III. STUDY AREA WAIVERS 10. Alaska Telephone Company, Ducor Telephone Company, and Kingsgate Telephone, Inc. filed petitions for waiver of the study area freeze rule in order to create new study areas, or to expand existing study areas, when they begin serving previously unserved territories. In view of our decision herein, these companies do not require such waivers to take the actions they propose. For this reason, we find that these waiver petitions are moot and should be dismissed. IV. ORDERING CLAUSES 11. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, Section 553(b)(A) of the Administrative Procedure Act, 5 U.S.C.  553(b)(A), and Sections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3, that the petition of the National Exchange Carrier Association, Inc. for clarification of the definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules, 47 C.F.R. Part 36 Appendix-Glossary, is GRANTED IN PART to the extent described above and OTHERWISE IS DENIED. 12. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201-202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201-202, Section 553(b)(A) of the Administrative Procedure Act, 5 U.S.C.  553(b)(A), and Sections 0.91, 0.291, and 1.3 of the Commission's Rules, 47 C.F.R.  0.91, 0.291, 1.3, that the petitions of Alaska Telephone Company, Ducor Telephone Company, and Kingsgate Telephone, Inc. for waiver of Part 36, Appendix-Glossary, of the Commission's Rules, 47 C.F.R. Part 36 Appendix-Glossary, ARE DISMISSED. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, Common Carrier Bureau $//M&O; NECA Interp. Request, Study Area Waivers, AAD 95-173, AAD 96-29, AAD 96-51, DA 96- 616//$ $/Part 36 Appendix-Glossary/$