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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Sandwich Isles Communications, Inc. ) AAD 97-82 ) Petition For Waiver of Section 36.611 of the ) Commission's Rules and Request for Clarification ) ORDER Adopted: February 3, 1998 Released: February 3, 1998 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1. On July 8, 1997, Sandwich Isles Communications, Inc. ("Sandwich Isles") filed a petition requesting a waiver of Section 36.611 of the Commission's rules to enable it to receive high cost loop support immediately. Sandwich Isles also seeks clarification or, to the extent necessary, waiver of the definition of "incumbent local exchange carrier" ("incumbent LEC") for the purpose of application of Part 69 rules and for calculation of high cost loop support to ensure that its activities in providing initial service to unserved areas is accorded appropriate regulatory treatment. In this Order, we grant in part and deny in part the petition, as explained 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 LECs 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 carrier's high cost loop support is based on the relationship of its historical loop cost to the national average historical loop cost. 3. In the Universal Service Order released on May 8, 1997, the Commission established new federal universal service support mechanisms consistent with the Communications Act of 1934, as amended. Under the new federal universal service support mechanisms, 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 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 costs, its 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 its average cost per loop and the nationwide average cost per loop. Because the loop cost 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 the 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. Sandwich Isles is a new telephone company seeking to provide telephone exchange service to rural customers in a previously unserved area. Sandwich Isles states that it will provide service to approximately 4,700 customers over the next five years. On May 9, 1995, Sandwich Isles received a license from the Department of Hawaiian Home Lands ("DHHL") for the construction and operation of a telecommunications network on Hawaiian Home Lands ("HHL") throughout Hawaii. On November 14, 1997, the Hawaii Public Utilities Commission ("Hawaii Commission") authorized Sandwich Isles to provide interLATA and intrastate telecommunications services within and between the HHL throughout Hawaii. Sandwich Isles states that over the next 10 to 15 years it will initiate service to unserved portions of HHL on the Islands of Oahu, Hawaii, Maui, Kahoolawe, Lanai, Molokai, and Kauai. Sandwich Isles states that it initiated local exchange service on December 2, 1997, through the services of a wireless carrier. 6. Sandwich Isles seeks a waiver of Section 36.611 to permit it to receive high cost loop support based on current costs, and to direct NECA to begin making high cost loop support payments to Sandwich Isles immediately. Sandwich Isles proposes to submit to NECA a rolling annualized average of current costs, which would be subject to true-up adjustments quarterly based on actual costs. Sandwich Isles states that this methodology previously has been met with Commission approval. Sandwich Isles states that, although initial high cost loop support payments would be based on projections, the projections would be updated quarterly with actual cost data. Thus, reliance on projected cost data would be diminished, and ultimately high cost loop support payments for the initial year of operation would be based solely on actual cost. 7. Sandwich Isles 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. Sandwich Isles states that failure to grant a waiver would result in substantial increases in local rates. Sandwich Isles also asserts that increased local rates would discourage subscription to local telephone service and jeopardize the future availability of service, a result antithetic to the goals of universal service policies. Thus, Sandwich Isles contends that the primary principle underlying Section 36.611-- the promotion of nationwide availability of telephone service at reasonable rates by assisting incumbent LECs operating in high cost areas--would be frustrated without the grant of the requested waiver. 8. To enable the provision of service, Sandwich Isles also seeks clarification or, to the extent necessary, waiver of the definition of "incumbent LEC" to ensure that the treatment of Sandwich Isles is consistent with that of other similarly situated carriers. In addition, Sandwich Isles states the Commission should clarify and confirm that Sandwich Isles is eligible to participate in NECA under Part 69 rules. 9. Comments. NECA and NTCA support Sandwich Isles' Petition. NECA states that the methodology proposed by Sandwich Isles is administratively feasible and can be incorporated in NECA's current high cost loop support reporting mechanisms. NTCA states that grant of this waiver is clearly in the public interest and consistent with the underlying goal of universal service. IV. DISCUSSION 10. 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 previous proceedings, the Division granted waivers of Section 36.611 permitting Border to Border Communications, Inc. ("Border to Border") and South Park Telephone Company ("South Park") to receive high cost loop support without delay, using projected costs rather than the required historical costs. We permitted immediate access to high cost support because the carriers were offering to serve previously unserved areas which would have likely remained without service if these carriers were unable to provide service. In these proceedings, we found compelling reasons to permit immediate high cost loop support for new carriers providing service to unserved areas. In these proceedings, 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. 11. Sandwich Isles' circumstances are sufficiently similar to warrant the same treatment as Border to Border and South Park. Because Sandwich Isles will provide service to previously unserved areas, we find that the special circumstances warranting the grant of a waiver of the Commission's rules are present and that it is in the public interest to grant Sandwich Isles' request for a waiver of Section 36.611 of the Commission's rules. Therefore, we grant Sandwich Isles a waiver of Section 36.611 of the Commission's rules to the extent necessary to permit it to receive high cost loop support for the period January 1, 1998 through December 31, 1999 based initially on projected costs followed by quarterly true-ups using actual costs. Payments beginning in the year 2000 will be based on the historic data on which high cost loop support traditionally is calculated and in accordance with the rules adopted in the Universal Service Order. Support payments, however, are contingent on Sandwich Isles satisfying the eligibility requirements specified in Section 214(e) of the Act. Finally, because this Order provides the final regulatory approval necessary for Sandwich Isles to initiate service, we make it effective upon release. 12. Sandwich Isles initiated service on December 2, 1997. Sandwich Isles proposes to receive support for the period December 2, 1997 to December 31, 1997 based on annualized projected costs. High cost loop support payments are traditionally calculated based on 12-month calendar year historic operating results. Calculating initial high cost loop support based on an annualization of operating data from December 2, 1997 to December 31, 1997 does not provide an adequate basis upon which to compute high cost loop support because of the potential volatility of annualizing based on 30 days of operations and because of the potentially higher operating costs in the initial 30-day period due to higher costs associated with initiating service. We, thus, deny Sandwich Isles' request for a waiver to allow it to receive high cost loop support for the period December 2, 1997 to December 31, 1997. 13. We also find it reasonable that Sandwich Isles participate in NECA pools and tariffs. Participation in NECA will allow Sandwich Isles to avoid the costs of filing and maintaining its own company-specific interstate tariffs. The cost of preparing company-specific tariffs could be excessive for a company with relatively few customers. In addition, because Sandwich Isles plans to make large capital investments to initiate service, its company-specific rates would likely be extremely high. Therefore, it is in the public interest to permit Sandwich Isles 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 allow it to participate in the NECA tariffs and pools. 14. To be a member of NECA and to participate in its tariffs, it must be a "telephone company," as defined in Part 69 of the Commission's rules. Part 69 defines a "telephone company" as an incumbent LEC as defined in Section 251(h) of the Act. Furthermore, Section 36.611 of the Commission's rules, which governs the submission of data to NECA for purposes of calculating high cost loop support, only applies to incumbent LECs. Section 251(h)(1) of the Communications Act states that an "incumbent LEC" is 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. Sandwich Isles is a new carrier initiating service to an unserved area. It is not a member of NECA, and it is neither a successor nor assign of an incumbent LEC. Sandwich Isles, therefore, does not meet the statutory definition of incumbent LEC. 15. 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, not to impose interconnection requirements. Sandwich Isles will be the sole provider of service to the area; thus, it is not a competitive LEC. As a rural telephone company, Sandwich Isles 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 Hawaii Commission 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 Sandwich Isles' request to receive high cost loop support and to participate in NECA. We therefore waive the incumbent LEC requirements of Part 36 and Part 69 of the Commission's rules for Sandwich Isles. This waiver permits Sandwich Isles to become a member of NECA and to participate in NECA pools and tariffs, but does not affect Sandwich Isles' obligations under Section 251. Furthermore, for regulatory purposes we will recognize Sandwich Isles' service territory in Hawaii as a study area. 16. We also address in this Order a petition submitted by GTE 32 days after the filing deadline. In its Petition to Accept Late-Filed Comments, GTE asserts that its late filing is attributable to disruption resulting from the promotion of critical senior GTE personnel at a time when, in addition to this proceeding, GTE was involved in other substantial litigation and regulatory proceedings before the Commission, the Hawaii Commission, and the Hawaii Supreme Court. GTE states that the Commission has found good cause for acceptance and consideration of late-filed comments where the party filing the late comments "was involved in substantial litigation" (citing In re Complaint of Syracuse Peace Council, 2 FCC Rcd 5043, 5060 n. 53 (1987). In the Syracuse Peace Council case, the Commission did accept the American Civil Liberties Union's ("ACLU") Motion for Leave to File Comments Out-of-Time because it was involved in other substantial litigation. ACLU, however, filed its comments only seven days late. Generally, it is not Commission policy to accept late-filed comments. Therefore, the Petition to Accept Late-Filed Comments filed by GTE Hawaiian Telephone Company, Inc. on September 15, 1997, is denied. V. ORDERING CLAUSES 17. 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, 254, and Sections 0.91, 0.291, and 1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291, and 1.3, that the Petition of Sandwich Isles Communications, Inc. for waiver of Section 36.611 and 69.601 of the Commission's rules, 47 C.F.R.  36.611, 69.601, IS GRANTED to the extent discussed in this Order and otherwise IS DENIED. 18. 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, 254, and Sections 0.91, 0.291 and 1.727 of the Commission's rules, 47 C.F.R.  0.91, 0.291 and 1.727 of the Commission's rules, 47 C.F.R.  0.91, 0.291 and 1.727 that the "Petition to Accept Late-Filed Comments" filed by GTE Hawaiian Telephone Company, Inc. on September 15, 1997, IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division