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See 47 C.F.R.  36.631. i second, the state Commission(s) having"",N(N(ZZ "  X* vregulatory authority over the exchange(s) to be transferred does not object to the change; and  X*third, the public interest supports the change. ^"ø {O* #C\  P6QIP#эSee U S WEST Communications, Inc., and Eagle Telecommunications, Inc., Petition for Waiver of the  {O* vzDefinition of "Study Area" Contained in Part 36, AppendixGlossary of the Commission's Rules, Memorandum  {OP*Opinion and Order, 10 FCC Rcd 1771,  5 (1995) ("U S WESTEagle Study Area Order").  5. In recent years the Commission has taken a number of steps to mitigate potential  vTadverse effects on the USF. Beginning in 1993 it adopted a series of orders that established  X* vpindexed caps on the growth of the total USF. Hø yO * t#C\  P6QIP#эThe Joint Board recommended and the Commission adopted interim rules that limit the rate of growth of  {ON * vthe USF to the rate of growth in the total number of working loops nationwide. See generally Amendment of Part  {O* v36 of the Commission's Rules and Establishment of a Joint Board, Recommended Decision, 9 FCC Rcd 334 (1993)  {O* v"("1993 Joint Board Recommended Decision"); id., Report and Order, 9 FCC Rcd 303 ("Interim Cap Order"). The  vCommission extended these interim rules through July 1, 1996. Amendment of Part 36 of the Commission's Rules  {Ot* vand Establishment of a Joint Board, Report and Order, 11 FCC Rcd 1077 (1995), summarized in 60 Fed. Reg. 65011  yO>* v0(1995). The Joint Board then recommended, and the Commission adopted, an extension of the interim cap rules on  v&the USF until the final universal service rules become effective. FederalState Joint Board on Universal Service,  {O* vRecommended Decision, 11 FCC Rcd 7928 (1996) ("1996 Joint Board Recommended Decision"); id., Report and  {O*Order, 11 FCC Rcd 7920 (1996) ("Extension of Interim Cap Rules"). In addition, earlier this year the Commission  vadopted an Order implementing the universal service provisions of the Telecommunications Act  X_* v~of 1996.: _ø {O* Jԍ47 U.S.C.  254. See 1996 Joint Board, Recommended Decision, 12 FCC Rcd 87 (1996); and id., Report  {O*and Order, FCC 97157,  281, released May 8, 1997 ("Universal Service Report and Order").: In that Order, the Commission decided that, eventually, all high cost area support  XH* vwould be provided based upon a forwardlooking economic cost methodology. HHø yOA* #C\  P6QIP#эThe Commission determined that the proper measure of cost for determining the level of universal service  vsupport is the forwardlooking economic cost of constructing and operating the network facilities and functions used  {O* vto provide the supported services as defined per section 254(c)(1). See Universal Service Report and Order at  224.  yO* vThe Commission defined "forwardlooking economic cost" as the cost of producing services using the least cost, most  {Oc* vlefficient, and reasonable technology currently available for purchase with all inputs valued at current prices. See  {O-* v Universal Service Report and Order at note 573. The Commission decided that nonrural carriers will begin to  vPreceive support for high cost areas based upon a forwardlooking economic cost mechanism on January 1, 1999.  vbRural carriers will shift to a high cost support system based on forwardlooking economic costs at a date the  {O * vCommission will set after further review, but in no event sooner than January 1, 2001. See Universal Service Report  {OQ!*and Order at  204 and 248.  The Commission  valso determined that an indexed cap on universal service support will remain in effect until all  vcarriers, rural and nonrural, receive support for high cost areas based upon forwardlooking  veconomic cost mechanisms. The Commission also adopted a "onepercent guideline" under which  vBno study area waiver would be granted if it would result in an annual shift in USF assistance in  vPan amount equal to or greater than one percent of the total USF, unless the parties demonstrate"  ,N(N(ZZ "  X*an extraordinary public interest benefit. ø {Oy*ԍSee U S WESTEagle Study Area Order, supra note 9,  1417.  X* B. Pleadings  X* J6. United, a price cap company,XZø yO* #C\  P6QIP#эPrice cap companies are those ILECs that receive compensation for the use of their facilities originating and  vterminating interstate telecommunications services on the basis of the Commission's price cap rules. 47 C.F.R.   yO? *61.4161.49.#Xw PE37 =XP#Ѱ currently serves approximately 75,000 access lines in  X* vlKansas. Golden Belt, a cost company,&zø yO * #C\  P6QIP#э Cost companies are those ILECs that receive compensation for the use of their facilities in originating and terminating telecommunications services on the basis of their actual costs.& currently serves approximately 5,054 access lines also  vin Kansas. United proposes to sell the Ellis exchange, serving approximately 1,295 access lines,  vTto Golden Belt. United seeks waiver of the rule freezing study area boundaries to allow it to  vremove this exchange from its study area. Golden Belt seeks waiver of this rule to allow it to  X1*add the purchased exchange to its existing study area.1ø yO*#C\  P6QIP##C\  P6QIP#эPetition at 1.  X7. Petitioners state that the proposed expansion of Golden Belt's study area will produce  v^significant public interest benefits for residents and businesses in Ellis, Kansas. The petitioners  vstate that Golden Belt plans to replace the existing obsolete aerial cable system with a 100 percent  vburied cable system comprised of fiber cable to rural nodes and copper cable to the home which  vwill permit the provision of oneparty service for all subscribers. In addition, the petitioners state  v8that the switching facility currently serving the Ellis exchange will be replaced with a digital  vremote switch connected to a host switch in nearby Rush Center, Kansas which will permit the  Xb* vprovision of stateoftheart services including CLASS. bb ø yOu* #C\  P6QIP#эPetition at 4. Custom Local Area Signaling Services, or CLASS, include automatic callback, automatic recall, call waiting, call forwarding, and other similar services.  Finally, the petitioners state that the  vupgrades will allow Golden Belt to honor the Modernization Plan agreement between United and  X4* vthe Kansas Corporation Commission ("KCC"), which inter alia, calls for the provision of one X*party service to all customers in the Ellis exchange.f ø yO *#C\  P6QIP#эPetition at 4.f  8. The petitioners state that the transfer of the exchanges will not have an undue adverse  veffect on the USF. The petitioners estimate that the transfer of the Ellis exchange, and the  vplanned upgrades, would result in an increase the annual USF draws of Golden Belt by $410,024  X*as shown below.J ø {O&* #C\  P6QIP#эPetition at 5. See  Letter from Brian D. Robinson, Arter & Hadden, to Adrian Wright, FCC, dated October  {Oq'*2, 1997 (USF Letter").  ",N(N(ZZ "Ԍ X* ANNUAL USF DRAWS ă Y ddx !ddx Y  z  h  Companyc  Before Purchase'% Lh fAfter Purchase |Including UpgradesLh Difference<Iz q  hl  Golden Beltl#0$154,914l#6$584,433l#C$429,519q q L ll  United.l#%$7,083,401.l#$7,063,906.l#@($19,495)q    l  TOTAL#%$7,238,315#$7,648,339#C$410,024  .  v&In addition, the petitioners state that the increased USF cost recovery will be used for the very  vpurpose for which the USF was established: "to promote or preserve universal service by  vsupporting improved and affordable modern telecommunications service in high cost rural  Xs *areas."  XE*C. Discussion  X* 9.  Request for waivers. We have reviewed the data the petitioners filed with the National  X* vExchange Carrier Association ("NECA")I {O{*#C\  P6QIP##C\  P6QIP#эSee NECA USF 1996 Submission of 1995 Study Results filed October 1, 1996. and the estimates filed in this proceeding and have  v4determined that grant of the requested waivers would not have a substantial adverse impact on  X* vPthe USF total or on individual ILEC draws.ZI yO* ԍWe also hereby determine that the USF effect resulting from the proposed study area waiver does not exceed the onepercent guideline described in para. 5 above. In addition, the KCC states that it does not object  X* v8to these requested waivers.UI {O * <#C\  P6QIP##X\  P6G;IP#эSee Letter from Karen Matson, Chief Telecommunications, Kansas Corporation Commission, to Regina  yO*Keeney, Chief, Common Carrier Bureau, FCC, dated April 8, 1997.U Furthermore, Golden Belt's planned upgrades will enable it to  vLimprove customer service in the acquired exchange. Thus, the petitioners have demonstrated that  X* v~their customers will likely be well served by Golden Belt, I {OL*#C\  P6QIP##C\  P6QIP#эSee supra at  7. and that the requested study area  vwaivers are likely to serve the public interest. As a result, we find that the threeprong standard  v"for granting a study area waiver has been met in this instance and that the waiver requests should be granted.  X*   III. PRICE CAPS WAIVER ĐlV  X* A. Background  X*    X* 8 10.  Section 61.41 of the Commission's rules provides that, when a cost company acquires  vTa price cap company, the acquiring company, and any ILEC with which it is affiliated, shall",N(N(ZZ"  X* v>become subject to price cap regulation within a year of the transaction.I {Oy* J#C\  P6QIP#э47 C.F.R.  61.41(c). See Policy and Rules Concerning Rates for Dominant Carriers, Second Report and  {OC* vOrder, 5 FCC Rcd 6786, 6821 (1990), Erratum, 5 FCC Rcd 7664 (Com. Car. Bur. 1990) ("LEC Price Cap Order"),  {O * v>modified on recon., Order on Reconsideration, 6 FCC Rcd 2637 (1991) ("LEC Price Cap Reconsideration Order"),  {O* vPaff'd sub nom. National Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993), petitions for further recon.  {O* vdismissed, 6 FCC Rcd 7482 (1991), further modification on recon., Amendments of Part 69 of the Commission's  vPRules Relating to the Creation of Access Charge Subelements for Open Network Architecture, Policy and Rules  {O3* vConcerning Rates for Dominant Carriers, Report and Order and Order on Further Reconsideration and Supplemental  {O* v^Notice of Proposed Rulemaking, 6 FCC Rcd 4524 (1991) ("ONA Part 69 Order"), further recon., Memorandum  {O*Opinion and Order on Second Further Reconsideration, 7 FCC Rcd 5235 (1992). The Commission stated  vlthat this "allornothing" rule applies not only to the acquisition of an entire ILEC but also to the  X* vacquisition of part of a study area.\I {O+ * #C\  P6QIP#эSee LEC Price Cap Reconsideration Order, supra note 24,  149 n. 207. The Commission explained that,  vif these two types of acquisitions were not treated the same under the allor nothing rule, a carrier could avoid the  {O *rule by selling all but one of its exchanges. Id. United is a price cap company; hence, absent a waiver,  X* vGolden Belt's acquisition of United exchanges would obligate it to become subject to price cap regulation.  Xv* 11. The Commission explained that the rules under Section 61.41(c)(2) are intended to  vaddress a concern regarding mergers and acquisitions involving price cap companies. Absent  vthese rules, an ILEC may attempt to "game the system" by switching back and forth between  vrateofreturn regulation and price cap regulation. The Commission cited, as an example, the  v.incentive a price cap company may have to increase earnings by opting out of price cap  v&regulation, building up a large rate base under rateofreturn regulation so as to raise rates and,  vthen, after returning to price caps, cutting costs back to an efficient level. It would not serve the  vpublic interest, the Commission stated, to allow a carrier to alternately "fatten up" under rateof vreturn regulation and "slim down" under price cap regulation, because rates would not fall in the  X *manner intended under price cap regulation. I {O$*#C\  P6QIP#эSee LEC Price Cap Reconsideration Order, supra note 24,  148.  PCI12. The Commission nonetheless recognized that a narrow waiver of Section 61.41(c)(2)  vmight be justified if efficiencies created by the purchase and sale of a few exchanges were to  XK* voutweigh the threat that the system may be subject to gaming.tK^ I {OZ *#C\  P6QIP#эId.  149 note 207.t  Such a waiver would not be  v&granted unconditionally, however. Rather, waivers of the allornothing rule would be granted  vsubject to the condition that the selling price cap company shall make a downward adjustment  X* vto its price cap indices to reflect the change in its study area.3$I {O$* 8#C\  P6QIP#эSee Price Cap Performance Review for Local Exchange Carriers, First Report and Order, 10 FCC Rcd 8962,  {Oq%* v 328, 330 (1995) ("LEC Price Cap Review Order"). Under that requirement, United must reduce the Price Cap  vIndices for its Kansas study area if the changes in study area boundaries reduce the cost bases for those indices. The  vPPrice Cap Indices, which are the cost indices on which pricecapped rates are based, are calculated pursuant to a"',N(N(+'"  {O*formula specified in the Commission's rules for price cap carriers. See 47 C.F.R.  61.45.3 That adjustment is needed to"Z,N(N(ZZ "  vremove the effects of the transferred exchanges from rates that have been based, in whole or in  X*part, upon the inclusion of those exchanges in the study areas subject to price cap regulation.ZI {O*#C\  P6QIP#эSee LEC Price Cap Review Order, supra note 28,  330.    X*  X*B. Pleadings  X* 13.  Petition. Golden Belt seeks waiver of Section 61.41(c)(2) so it may operate as a rate vofreturn ILEC, rather than a price cap ILEC, after acquiring exchanges which currently are  vsubject to price cap regulation. The petitioners argue that the Commission's concern of gaming  XJ*of the system is not at issue in this case.JI yP *#C\  P6QIP#Ѝ#c P P#Petition at 9.  X *C. Discussion  X *  14.  We find it very unlikely that the petitioners could game the system by moving the  v>exchange back and forth between price cap and other forms of regulation, because the petitioners  v*would require a second study area waiver. Moreover, United cannot transfer the exchange  vwithout removing the rateincreasing effects of the exchange from the pricecapped rates that have  X*been based, in part, upon the inclusion of this exchange in its Kansas study area.}I {O*#C\  P6QIP#эSee discussion supra  12.   15. We therefore find there is good cause to grant Golden Belt waiver of the allor vnothing rule to permit it to remain under rateofreturn regulation after acquiring the exchange  v8which currently is under price cap regulation. As noted above, this waiver is subject to the  vcondition that United shall make a downward adjustment to its price cap indices to reflect the  X*removal of the Ellis exchange from its Kansas study area. I {O* ԍUnited estimates that the downward adjustment in its price cap index will be approximately $227,268. See Letter from Warren Hanna, United, to Adrian Wright, FCC, dated September 3, 1997.  X* l  X*lG  IV. ORDERING CLAUSES ĐlV  16. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201 and 202 of the  vCommunications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201 and 202, and  vSections 0.91, 0.291, and 1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291, and 1.3, that  vthe petition of Golden Belt Telephone Association, Inc. and United Telephone Company of  vKansas for waiver of Part 36, Appendix-Glossary, of the Commission's rules, 47 C.F.R. Part 36 AppendixGlossary IS GRANTED. ""i ,N(N(ZZ"Ԍ X17. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201 and 202 of the  vCommunications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201 and 202, and  vSections 0.91, 0.291, and 1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291, and 1.3, that  vthe petition of Golden Belt Telephone Association, Inc. for waiver of Section 61.41(c)(2) of the Commission's rules, 47 C.F.R.  61.41(c)(2) IS GRANTED.  X18. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201 and 202 of the  vCommunications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201 and 202, and  v>Sections 0.91, 0.291, 1.3, 61.43, and 61.45 of the Commission's rules, 47 C.F.R.  0.91, 0.291,  v1.3, 61.43, and 61.45, that United Telephone Company of Kansas SHALL ADJUST its price cap  v"indices, as discussed in paragraph 15 above, to reflect, in its annual price cap filing, cost changes resulting from this transaction.  X19. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201 and 202 of the  vCommunications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201 and 202, and  vSections 0.91, 0.291, and 1.3 of the Commission's rules, 47.C.F.R.  0.91, 0.291, and 1.3, that this Order IS EFFECTIVE IMMEDIATELY UPON RELEASE.  ` `  hh,FEDERAL COMMUNICATIONS COMMISSION  X* ` `  hh,Kenneth P. Moran ` `  hh,Chief, Accounting and Audits Division  X|*` `  hh,Common Carrier Bureau@@  @xx-#Xj P XP#