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                           Before the 
                FEDERAL COMMUNICATIONS COMMISSION
                     Washington, D.C.  20554


In the Matter of                   )
                              )
Dumont Telephone Company and       )         AAD 96-94
Universal Communications, Inc.          )
                                                  )
Request for Extraordinary Relief        )         


                   MEMORANDUM OPINION AND ORDER


          Adopted:  September 10, 1998       Released:  September 10, 1998


By the Chief, Accounting Safeguards Division:

                         I.  INTRODUCTION

     1.   On September 10, 1996, Dumont Telephone Company (Dumont) and its subsidiary
Universal Communications, Inc. (Universal) (jointly, Petitioners) filed a petition for waiver of section
69.605(c) of the Commission's rules.  That rule defines an average schedule company as a telephone
company that was participating in average schedule settlements on December 1, 1982.  The waiver would
allow Petitioners to have average schedule status.  On February 14, 1997, the Accounting and Audits
Division (Division), Common Carrier Bureau issued an order denying the petition for waiver and requiring
the consolidated Dumont/Universal study area to use cost settlements.  Petitioners filed a Request for
Extraordinary Relief (Request) seeking relief from the requirement that they convert to cost basis on July
1, 1998.  In this Order we grant the Petitioners' request and permit the waiver of section 69.605(c) of our
rules.

                         II.  BACKGROUND

     2.   Incumbent local exchange carriers (ILECs) that participate in National Exchange Carrier
Association (NECA) pools collect interexchange access charges at the rates contained in the tariffs filed by
NECA.  Each pool participant receives revenues from the pools to recover the cost of providing service
plus a pro rata share of the pool's earnings.  NECA pool participants' costs are determined either on the
basis of cost studies or average schedule formulas.  Average schedule status has certain advantages for
small ILECs; e.g., average schedule companies are able to avoid certain administrative burdens of
performing interstate cost studies.  

     3.   Section 69.605(c) provides, in pertinent part, that "a telephone company that was
participating in average schedule settlements on December 1, 1982, shall be deemed to be an average
schedule company."  This definition of average schedule company "grandfathered" existing average
schedule ILECs but did not allow the creation of new average schedule companies or the conversion of
cost-based carriers to average schedule status.  The Commission has concluded that an unrestricted
opportunity for cost companies to convert to average schedule status is likely to operate to the detriment of
interstate ratepayers because the conversion may result in inflated interstate revenue requirements.  Thus,
ILECs may convert from an average schedule company to a cost company, but not from a cost company to
an average schedule company without first obtaining a waiver.  The definition was designed to limit the
use of average schedule formulas to companies that operated as average schedule companies prior to
adoption of the rule or that are able to demonstrate compelling circumstances sufficient to warrant a special
exception.

     4.   In the MO&O, the Division found that when Universal combines with its affiliate's study
area, the majority of the Dumont/Universal consolidated study area would consist of cost-based access
lines.  The Division noted that waiver of the Commission rules is appropriate only if special
circumstances warrant deviation from the general rule and such deviation will serve the public interest. 
The Division concluded that Universal had not demonstrated a need for a waiver to have average schedule
status. 

                   III.  COST SETTLEMENT WAIVER

     5.   Petitioners argue that the Division applied the policy that if an average schedule company
has a new affiliate, and the number of lines acquired by the new affiliate is greater than the number of lines
served by the existing average schedule company, both the new affiliate and the average schedule company
must settle on a cost basis, which is procedurally and substantively flawed, applied inconsistently, and
violates the rulemaking requirements of the Administrative Procedures Act (APA).  We disagree.  We do
not find that the Division applied such a policy in ruling on the waiver request. The definition of average
schedule under section 69.605(c) of the Commission's rules requires that the new Dumont/Universal
combined study area operate on a cost settlement basis.  Petitioners sought a waiver of section 69.605(c) to
allow average schedule status instead of cost settlement basis.  Waiver of the Commission's rules is
appropriate only if special circumstances warrant deviation from the general rule and such deviation will
serve the public interest.  In determining whether the waiver request should be granted the Division was
free to consider all factual, legal, and policy issues relevant to the waiver request.  It was logical for the
Division to consider the number of lines that would be changed to cost-based settlement in the context of a
policy preference that ILECs settle on a cost basis whenever possible.  This was not the development of a
new policy, as Petitioners contend, but rather the longstanding policy underlying section 69.605(c).  We
find no language in the MO&O that the Division established a "rule" that requests for waiver of section
69.605(c) must be granted or denied based on whether a majority of the lines in the new study area were
previously part of an average schedule or a cost-based study area.  The Division considered this an issue in
reaching the conclusion that Petitioners failed to demonstrate special circumstances warranting deviation
from the general rule, but absent clear language stating the intent to establish a rule or convincing evidence
of a de facto rule, we reject Petitioners' argument that the Division established a policy or rule that violates
the rulemaking requirements in violation of the APA.  Since we do not find that such policy or rule exists,
we also reject the Petitioners' arguments that such policy or rule was procedurally and substantively flawed
and applied inconsistently.

     6.   Petitioners also contend that the Division's denial of the waiver request is a reinstatement
of the "average schedule all-or-nothing rule" at issue in NARUC v. FCC, 737 F.2d 1095 (D.C.Cir.1984)
and ALLTEL v. FCC, 838 F.2d 551 (D.C.Cir.1988).  In these two cases the court criticized the
Commission for assuming that affiliates of companies operating on a cost basis also possessed the
resources to perform cost studies.  In the MO&O, the Division did not purport to establish requirements for
all Dumont/Universal affiliates, but focussed solely on the Iowa study area in determining that Universal
had not demonstrated a need for the waiver.  Therefore, we reject Petitioners' argument that the Division's
decision was inconsistent with NARUC and ALLTEL. 

     7.   In addition, Petitioners' argue that the Division failed to consider that Dumont serves 659
access lines and Universal serves 885 access lines, a total of only 1,544 access lines.  Petitioners also
argue that neither Dumont nor Universal had been on a cost basis, and that cost studies would cost
approximately $50,000 to $70,000 per year in recurring costs and approximately $13,000 in nonrecurring
costs for the initial conversion to cost settlements.   According to Petitioners, these expenses would be a
wholly unwarranted penalty imposed on rural LECs and contrary to the mandate imposed by the
Telecommunications Act of 1996 (1996 Act) to provide a national policy framework for accelerating
advanced telecommunications technologies and services to all Americans.  We note initially that the
primary basis for granting a waiver must be a demonstration of special circumstances.  Waivers are not
meant to serve primarily as a means of promoting a policy goal and the failure to grant a waiver is not
contrary to the mandate of the 1996 Act.  Moreover, no party is entitled to a rule waiver; thus, denial of a
waiver cannot be a penalty.  Nonetheless, we are persuaded that a deviation from the general rule is
warranted due to the small size of the combined companies and the high estimated cost to complete cost
studies.  The Commission has explained that the definition of "average schedule" in section 69.605 was
premised on a policy determination that exchange carriers with the financial resources and expertise to
conduct cost studies without undue hardship should be required to measure the actual costs they incur in
providing interstate service.  In addition, the definition in section 69.605(c) also serves to prevent an
increase in the number of lines subject to average schedule treatment.  Our action in this case is based on
the policy preference that ILECs settle on a cost basis whenever possible without undue hardship.

     8.   Under section 1.3 of the Commission's rules, we are required to grant waivers if good
cause therefor is shown.  As interpreted by the courts, this requires that the petitioner demonstrate that
special circumstances warrant a deviation from the general rule and that such deviation will serve the
public interest.  Special circumstances include demonstration of individual hardship or inequity.  For
example, the Commission has held that the high cost of completing a cost study relative to the small size of
a carrier established the special circumstances warranting a waiver of section 69.605(c).  Based on the
facts and assumptions described by the Petitioners -- that Dumont serves 659 access lines and Universal
serves 885 access lines, a total of only 1,544 access lines, and that cost studies would cost approximately
$50,000 to $70,000 per year in recurring costs and approximately $13,000 in nonrecurring costs -- we
believe that Dumont/Universal should be allowed to settle with NECA on an average schedule basis.  The
high cost of completing a cost study relative to the small size of Dumont/Universal establishes the special
circumstances that warrant granting Petitioners' request for a waiver of Commission's rules.  Therefore, we
find that Petitioners' request for average schedule status should be granted.

                       IV.  ORDERING CLAUSE

     9.   Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 5(c), 201, 202, 205, and 218-
220 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, 202, 205,
and 218-220, and sections 1.3, 0.91, and 0.291 of the Commission's rules, 47 C.F.R.  1.3, 0.91, and
0.291, that the Request for Extraordinary Relief filed by Dumont Telephone Company and its subsidiary
Universal Communications, Inc. is granted and the petition of Dumont Telephone Company and its
subsidiary Universal Communications, Inc. for waiver of section 69.605(c) of the Commission's rules, 47
C.F.R.  69.605(c), IS GRANTED.



                         FEDERAL COMMUNICATIONS COMMISSION


                         Kenneth P. Moran
                         Chief, Accounting Safeguards Division