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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Federal Communications Commission DA 97-2730 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of) ) South Park Telephone Company ) AAD 97-41 ) Petition For Waiver of Sections 36.611 and ) 36.612 of the Commission's Rules ) ORDER Adopted: December 31, 1997 Released: December 31, 1997 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1. On March 7, 1997, South Park Telephone Company ("South Park") filed a petition ("Petition") requesting a waiver of Sections 36.611 and 36.612 of the Commission's rules to enable it to receive high cost loop support beginning May, 1997. On March 26, 1997, the Accounting and Audits Division ("Division") released a public notice soliciting comment on the petition for waiver. Two parties filed comments. In this Order, we grant the Petition, as explained more fully below. II. BACKGROUND 2. In 1984, the Commission established high cost support mechanisms to promote the nationwide availability of telephone service at reasonable rates. Specifically, high cost loop support allows incumbent local exchange carriers with high local loop costs to allocate an additional portion of those costs to the interstate jurisdiction, enabling the state jurisdictions to establish lower local exchange rates in study areas receiving such assistance. Under these rules, a company's high cost loop support is based on the relationship of its historical loop cost to the national average historical loop cost. Until January 1, 1998, the high cost loop support mechanism will be funded through a tariffed interstate charge paid by interexchange carriers (IXCs). 3. In the Universal Service Order released on May 8, 1997, the Commission established new federal universal service support mechanisms consistent with the Telecommunications Act of 1934, as amended. Under the new federal universal support mechanisms, universal service support for high cost areas will be based upon forward-looking economic cost mechanisms. Thus, a carrier's support will be based on the forward-looking economic cost of providing the supported services to a service area. Non-rural incumbent local exchange carriers ("incumbent LECs") will receive support based on forward-looking economic costs beginning January 1, 1999; rural incumbent LECs will begin to receive support based on forward-looking economic costs no earlier than January 1, 2001. Until an incumbent LEC's high cost loop support is based on forward looking economic cost, the company's support will continue to be based on historical cost data. 4. In accordance with Sections 36.611 and 36.612 of the Commission's rules, on July 31 of each year, incumbent LECs submit to NECA loop cost data for the prior year. NECA compiles and analyzes this data to determine the average cost per loop for each incumbent LEC as well as the nationwide average cost per loop. Each incumbent LEC's high cost loop support amount for the following year is based upon the relationship between the incumbent LEC's average cost per loop and the nationwide average cost per loop. Because historical data is not submitted by carriers until seven months after the end of a calendar year and because NECA requires time to compile and analyze data, support is not provided generally to carriers until two years after costs are incurred. This lag can be less than two years if quarterly updates are filed. III. PETITION AND COMMENTS 5. Petition. On May 20, 1996, the Colorado Public Utilities Commission ("Colorado PUC") granted South Park, a newly-formed company, a Certificate of Convenience and Necessity to provide local exchange telephone service to previously unserved portions of Park County. In its Order, the Colorado PUC noted that, absent certification of South Park, it is unlikely that telephone service would be provided in the area due to high prices that neighboring carriers would charge to connect customers to the network. On November 29, 1997, South Park's local tariffs became effective and South Park initiated local services. South Park states that, consistent with its commitment to the principles of universal service, it is permitting the origination and termination of interstate calls without charge. South Park seeks a waiver of Sections 36.611 and 36.612 to permit it to receive high cost support based on its current costs, and to direct NECA to begin making high cost support payments to South Park beginning May 1997. 6. South Park argues that application of the Commission's rules in this instance would be contrary to the public interest because it would deny high cost loop support to a new company proposing to provide initial service to a rural area. South Park states that failure to grant a waiver would mean that basic local telephone service to residents in a remote area would remain unavailable because either the Colorado PUC would cancel the Certificate of Convenience and Necessity for failure to meet the qualifying condition or, in the alternative, imposition of high local rates to enable South Park to recover the costs associated with providing the supported services. Thus, South Park contends that the primary principle underlying section 36.612--the promotion of nationwide availability of telephone service at reasonable rates by supporting incumbent LECs operating in high cost areas--would be violated. 7. Comments. USTA and NTCA support South Park's Petition. USTA and NTCA state that South Park is in a situation similar to Border to Border Communication, Inc., whose request for waiver was previously granted by the Commission. In that case, we granted a waiver to an incumbent LEC that had begun service in a previously unserved area. USTA and NTCA claim that, since South Park shares these special circumstances, the requested waiver should be granted. IV . DISCUSSION 8. South Park is a new telephone company seeking to provide telephone exchange service to rural customers in a previously unserved area. Initially, South Park will provide service to 81 customers. To enable its provision of service, South Park seeks to participate in the NECA tariff and to receive high cost loop support immediately. South Park, however, as a new company, has no historical cost data. Because the Commission's rules require calculation of high cost loop support disbursements to be based on historical cost data, South Park would be precluded from receiving high cost loop support until 1999. 9. 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. Further, the waiver generally must be consistent with the principles underlying the rule for which a waiver is requested. In a previous proceeding, the Division granted an incumbent LEC a waiver of sections 36.611 and 36.612 permitting it to receive high cost loop support immediately using current costs rather than the required historical costs because the carrier was a new company that had begun to serve a previously unserved territory and the area would likely have remained without service if the carrier were unable to provide service. In that proceeding, we found compelling reasons to permit immediate high cost loop support for a new company providing service to an unserved area. We also concluded that denying immediate high cost loop support could have the unintended effect of discouraging service in unserved, remote areas, thereby frustrating the Commission's goal of promoting universal service at reasonable rates. 10. South Park's circumstances are sufficiently similar to warrant the same treatment. We find it reasonable that South Park participate in NECA pools and tariffs. Participation in NECA will allow South Park to avoid the costs of filing and maintaining its own company specific interstate tariffs. Cost of preparing company specific tariffs could be excessive for a company with so few customers. In addition, because South Park plans to make large capital investments to initiate services, their company-specific rates would likely be extremely high. Therefore, it is in the public interest to permit South Park and its potential customers to benefit from both the cost savings and lower rates available through NECA participation. Having reached this conclusion, we now address the specific waivers necessary to provide high cost assistance to South Park and to allow it to participate in the NECA tariff and pools. 11. To be a member of NECA and to participate in its tariff, South Park must be a "telephone company," as defined in Part 69 of the Commission's rules. Part 69 defines "telephone company" as an incumbent LEC as defined in Section 251(h) of the Act. Furthermore, section 36.611 of our rules, that governs the submission of data to NECA for purposes of calculating high cost support, only applies to incumbent LECs. Section 251(h)(1) of the Communications Act defines an "incumbent LEC" as a provider of telephone exchange service and a member of NECA on the date of enactment of the 1996 Act. The section also provides that a successor or assign of an incumbent LEC is also an incumbent LEC. South Park, however, is not a successor or assign. South Park did not provide any services before November 29, 1997 and it is not a member of NECA. Therefore, South Park is not an incumbent LEC. 12. When the Commission revised sections 36.611 and 69.2 to require that telephone companies be incumbent LECs to participate in NECA tariffs and pools and to file data pursuant to section 36.611, the Commission did not specifically provide for companies that come into existence after the enactment of the 1996 Act and that serve previously unserved areas. The purpose of the incumbent LEC restriction in section 36.611 is to distinguish competitive LECs from incumbent LECs for purposes of calculating universal service support and not to impose interconnection requirements. South Park will be sole provider of service to the area; thus, it is not a competitive LEC. As a rural service provider, South Park is exempt from the interconnection requirements in section 251(c) until the company receives a bona fide request for interconnection, services, or network elements, and the Colorado PUC determines that such request is not unduly economically burdensome, is technically feasible, and is consistent with section 254 of the Act. Accordingly, we find that the purposes underlying the incumbent LEC requirements in Parts 36 and 69 of the Commission's rules are not applicable to South Park's request to receive high cost support and to participate in NECA. We therefore waive the incumbent LEC requirements of Part 69 and Part 36 of the Commission's rules for South Park. This waiver permits South Park to participate in NECA pools and tariffs and to become a member of NECA, but does not affect South Park's obligations under section 251. 13. We also grant South Park's Petition for Waiver of Sections 36.611 and 36.612 of the Commission's rules to the extent necessary to permit it to receive high cost loop support for the remainder of 1997 through December 1999 based on their forecasted costs. Under our rules, high cost loop support for 1998 and 1999 would be based on its historical costs; i.e., costs incurred in 1996 and 1997. Because South Park was not operational in 1996 and will be operational for a very brief time in 1997, we permit South Park to submit forecasted costs to NECA in its section 36.611 data submissions. We direct South Park to provide the Accounting and Audits Division its actual costs for 1998 so that we may decide whether adjustments to the 1998 and 1999 high cost loop support amounts are necessary. Payments for periods subsequent to December 1999 will be based on the conventional historic data in accordance with the rules adopted in the Universal Service Order. 14. South Park did not seek a waiver of the definition of "study area" in its petition, because the territory it will serve was not previously served. For regulatory purposes we recognize South Park's service territory in Colorado as a study area. 15. In its petition, South Park requested high cost support beginning in May, 1997. It is our policy not to provide high cost loop support to a company before it initiates services. We therefore will allow South Park to begin receiving high cost loop support beginning January 1, 1998, as discussed above, if it is providing service by that date and if it satisfies the requirements of section 214(e) of the Act. Finally, because this Order provides the final regulatory approval necessary for South Park to initiate service, we make it effective upon release. V. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201, 202, 218-220, and 254 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, 202, 218-220, 205, 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 Petition of South Park Telephone Company, for Waiver of Sections 36.611 and 36.612 of the Commission's rules, 47 C.F.R.  36.611 and 36.612, IS GRANTED to the extent discussed in paragraphs 8 through 15 above. 17. IT IS FURTHER ORDERED, pursuant to Sections 1, 4(i), 5(c), 201, 202, 218-220, and 254 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, 202, 218-220, 205, 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 incumbent LEC requirements of section 36.611, 69.2 and 69.601 of the Commission Rules, 47 C.F.R.  36.611, 69.2, 69.601, ARE WAIVED to the extent discussed in this Order. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division