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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federa l Communications Commission Wash ington, D.C. 20554 In the Matter of) ) Tri-County Telephone Association and ) TCT West, Inc. ) AAD 96-130 ) Petition For Waiver of Sections 36.611 and ) 36.612 of the Commission's Rules ) ORDER Adopted: March 6, 1998 Released: March 6, 1998 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1. On November 12, 1996, Tri-County Telephone Association ("Tri-County") and TCT West, Inc. ("TCT West") through their economic cost consultant, ITCs Inc., filed a petition ("Petition") requesting a waiver of Sections 36.611 and 36.612 of the Commission's rules to enable Tri-County to receive immediate high cost loop support. On January 13, 1997, the Common Carrier Bureau ("Bureau") released a public notice soliciting comment on the petition for waiver. Two parties filed comments. In this Order, we deny Tri-County's Petition. 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. 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 (the "Act"). Under the new federal universal 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 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, 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 the National Exchange Carrier Association ("NECA") loop cost data for the prior year. NECA compiles and analyzes these 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 the 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 data, support is not provided generally to carriers until up to two years after costs are incurred. This period can be less than two years if quarterly updates are filed. III. PETITION AND COMMENTS 5. On August 31, 1994, the Bureau granted TCT West, a newly established wholly- owned subsidiary of Tri-County, a study area waiver associated with Tri-County's purchase of five rural Wyoming exchanges from US West Communications, Inc. ("US West"). The study area waiver was granted based on Tri-County's assertion that its planned upgrades would improve customer service and that its estimated increase in high cost loop support would not have a substantial adverse impact on the high cost loop support mechanism. Tri-County stated that without immediate high cost loop support, a local rate increase would have been imposed to avoid significant operating losses. In addition, Tri-County asserted that it has undertaken upgrades and investments to improve and expand telephone service. In the absence of the requested relief, Tri-County averred that it would not have received any high cost loop support revenues for up to two years as a result of the application of the high cost loop support distribution rules. As actual costs become known, Tri-County proposed to either provide documentation to NECA and to true up the payments it receives on a quarterly basis or to use actual data from a period immediately preceding the payment period, thereby eliminating the two-year lag period. 6. NTCA and the Wyoming PUC supported Tri-County's Petition. NTCA stated that because Tri-County had undertaken massive upgrades and expanded service to previously unserved households, its request for relief was consistent with public policy and in the public interest. The Wyoming PUC stated that dramatic improvements had occurred in the quality of service in the subject exchanges and denial of relief would have delayed or discouraged future investments. IV. DISCUSSION 7. 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 a petitioner demonstrate that "special circumstances warrant a deviation from the general rule and such a deviation will serve the public interest." 8. It has been long-standing policy not to waive Sections 36.611 and 36.612 of the Commission's rules. In fact, we have granted waivers of these sections only when a requesting carrier proposes to serve or is serving previously unserved areas. In the case at hand, US West had previously served in Tri-County's service area. In addition, allowing Tri-County to receive immediate high cost loop support would have resulted in support for US West and for Tri-County for the same loops. Tri-County did not assert any special circumstances affecting it that were not faced by any of the numerous rural telephone companies that have received study area waiver requests to obtain exchanges. As a result, Tri-County failed to demonstrate the special circumstances that would support the grant of a waiver of Sections 36.611 and 36.612. 9. We note that the Commission's high cost loop support distribution rules related to the sale and acquisition of exchanges have been in place for many years. In negotiating the purchase price of an exchange, therefore, it is incumbent upon the purchaser and the seller to take into consideration the necessary investments and future cash flows related to the sale. In fact, in its initial study area waiver petition, Tri-County asserted that it planned to upgrade switching and transmission facilities, but made no claim that its planned upgrades would be burdened by the application of Sections 36.611 and 36.612. Thus, Tri-County could have, but failed, to request a waiver for immediate high cost loop support at its first opportunity to do so. Because high cost loop support receipts represent an important source of funds for the operation of an exchange with high loop costs, the acquiring company would undoubtedly negotiate a lower price for the exchange if the high cost loop support payments were delayed than it would be willing to pay if there were no delay. Because the selling company and the acquiring company negotiate the transfer of an exchange with full knowledge of the Commission's rules that apply to the transaction, we see no reason to waive the rules to compensate the acquiring company further. Consequently, we conclude that Tri-County's request for immediate high cost loop support must be denied. V. ORDERING CLAUSE 10. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 201, 202, 205, 218-220, and 254 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, 202, 205, 218-220, and 254, 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 ITCs, Inc. on Behalf of Tri-County Telephone Association and TCT West, Inc. for Waiver of Sections 36.611 and 36.612 of the Commission's rules, 47 C.F.R.  36.611 and 36.612, IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division