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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 ) ) Cass County Telephone Company ) AAD 97-59 ) Petition For Waiver of Sections 36.612(a) ) or 36.631(d) of the Commission's Rules ) ORDER Adopted: March 13, 1998 Released: March 13, 1998 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1. On April 9, 1997, Cass County Telephone Company ("Cass") filed a petition ("Petition") requesting that the Commission grant it a waiver of Sections 36.612(a) or 36.631(d) of the Commission's rules to enable it to receive high cost loop support in 1997. On May 1, 1997, the Common Carrier Bureau ("Bureau") released a public notice soliciting comment on the petition for waiver. Three parties filed comments. In this Order, we deny Cass'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 ("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 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 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 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. DISCUSSION A. Cass's Petition 5. Cass is a Missouri corporation recently formed to provide local exchange service in six rural Missouri exchanges previously served by GTE Midwest, Inc. ("GTE"). On January 16, 1996, we granted Cass a study area waiver to acquire the six exchanges from GTE and on April 1, 1996, Cass began service. Because the Commission's rules require calculation of high cost loop support disbursements to be based on historical cost data, Cass, as a new company with no historical cost data, was precluded from receiving high cost loop support until 1998. 6. Cass states that, at the time it began the process to acquire the exchanges, "GTE's study area from which the exchanges were acquired had fewer than 200,000 working access lines." Cass also claims that, a year after the acquisition, it was notified that the "GTE study area grew beyond 200,000 working access lines." Pursuant to the Commission's rules, the high cost loop support is reduced for study areas exceeding 200,000 access lines. As a result, Cass states that GTE's high cost loop support for these exchanges for 1997 was reduced from $722,715 to $50,832. 7. As a result of this estimated reduction in GTE's high cost loop support, Cass states that it needs a waiver of Section 36.612(a) to permit it to receive "universal service funding not subject to GTE's study area calculations" for 1997. Cass calculates this amount to be $722,715 for 1997. Alternatively, Cass requests a waiver of Section 36.631(d) that would "permit Cass to receive high cost loop support as if GTE had not exceeded 200,000 working access lines." 8. Cass argues that application of the Commission's rules in this instance would be contrary to the public interest because it "would have the unintended effect of precluding an acquiring [local exchange carrier] from providing affordable service in high cost areas." Cass states that its study area is made up of fewer than 6,000 access lines, and argues that its high cost loop support has been reduced solely because its study area continues to be associated with GTE's. Accordingly, Cass asserts that the primary policy underlying section 36.612--the promotion of nationwide availability of telephone service at reasonable rates by providing support to LECs operating in high cost areas--would be frustrated. Furthermore, Cass contends that because of the reduction in high cost loop support, it has been forced to suspend construction in three exchanges. 9. Cass also argues that a waiver is mandated due to the special circumstances surrounding the delay in obtaining FCC approval. Specifically, Cass contends that during the period of regulatory review, the Commission was closed "due to a period of budgetary constraints and inclement weather." In addition, "implementation of the Telecommunications Act of 1996 further delayed the approval process as the Commission was obliged to address more pressing issues requiring resolution within short time frames." B. Positions of the Parties 10. All commenters support Cass's request for a waiver of either Sections 36.612(a) or 36.631(d). NTCA and USTA argue that the requested waiver of the Commission's rules is "clearly in the public interest," and that application of the rules in this instance "would have the unintended effect of precluding an acquiring LEC from [providing] affordable service in high cost areas." NTCA and USTA further argue that a decision not to grant the requested waiver could adversely affect Cass's planned improvements. 11. The Missouri Commission argues that Cass relied upon substantial high cost loop support when Cass determined the financial feasibility of its plan to acquire GTE's exchanges. Furthermore, the Missouri Commission argues that a grant of Cass's request for waiver of  36.612(a) or  36.631(d) is consistent with the intent of the Commission's rules to provide support from the high cost loop support mechanism for rural telephone companies. C. Discussion 12. Under section 1.3 of the Commission's rules, we are authorized 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." 1. Petition for Waiver of Section 36.612(a). 13. It has been long-standing policy not to waive sections 36.611 and sections 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. Cass does not assert any special circumstances affecting it that were not faced by any of the numerous rural telephone companies that have acquired existing exchanges from incumbent LECs. As a result, Cass fails to demonstrate the special circumstances that would support the grant of a waiver of sections 36.611 and 36.612. 14. 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, it is incumbent upon the purchaser and the seller to consider the necessary investments and future cash flows related to the sale. Because high cost loop support represents an important source of funds for the operation of an exchange with high cost loops, the acquiring company would undoubtedly negotiate a lower price for the exchange if there were a possibility that its 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 negotiated 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 Cass's request for a waiver of section 36.612 must be denied. 15. Cass also argues that a waiver is justified due to the "unforeseen delay in granting the study area waiver request." Cass contends that the delay was caused by the demands of implementing the 1996 Act and the fact that the Commission was closed due to a period of budgetary constraints and inclement weather. First, we disagree that the passage of the 1996 Act resulted in an extraordinary delay in approving the waiver. We issued the study area waiver on January 16, 1996 and the 1996 Act was not signed into law by the President until February 8, 1996. We also disagree that the government-wide furlough experienced during December 1995 ultimately affected the amount of high cost loop support to be received by Cass. We had planned to approve and release the study area waiver in December 1995; however, as Cass suggests, a government shutdown prevented this and we ultimately released the waiver on January 13, 1996. This delay did not affect Cass's claim for 1997 high cost loop support. If the waiver and transaction had occurred in December 1995, Cass still would have had no claim for high cost loop support in 1997. This is so because the 1997 high cost loop support claims were based on 1995 costs and Cass's 1995 costs would have been too low for it to receive support. In fact, Cass would have only incurred costs for one month's operations, December 1995, and these costs would not be enough to render Cass eligible as a high cost company. We note that Cass consummated the purchase of the exchanges 90 days after we granted the waiver. It is highly unlikely, therefore, that Cass would have consummated the purchase prior to January 1996, even if we had approved the waiver in December 1995. Accordingly, we conclude that Cass did not suffer any loss of high cost loop support due to delays caused by the government-wide furlough. 2. Petition for Waiver of Section 36.631(d). 16. Section 631(d) of the Commission's rules establishes the procedure for calculating the additional interstate expense allocation for study areas reporting more than 200,000 working loops. Cass requests a waiver of this section, permitting it to calculate high cost loop support as if GTE's Missouri study area had not surpassed 200,000 working access lines. We conclude that Cass does not have standing to request such relief. Although Cass now provides local exchange service to exchanges previously served by GTE, GTE continued to receive the high cost loop support associated with this study area for a period of two years. Accordingly, only GTE can petition for a waiver of Section 36.631(d) during this period. Cass's Petition for Waiver of Section 36.631(d) must therefore be dismissed. 3. Request for Refund of Filing Fee. 17. Finally, we note that by separate petition filed concurrently, Cass seeks a waiver and a full refund of the filing fee as permitted by Section 1.1117 of the Commission's rules. This rule states that a filing fee may be waived when good cause is shown, and when a waiver would promote the public interest. Cass states that a waiver of the filing fee is in the public interest as the fee is significantly disproportionate to the scale and scope of the relief sought in the underlying Petition, and that imposition of the filing fee would raise the overall costs of upgrading its facilities, which has already been suspended due to lack of funds. Section 1.1117(c) of the Commission's rules requires that petitions for fee waivers be acted upon by the Managing Director after FCC Form 155 has been completed. To facilitate this aspect of the Petitioner's request, we have forwarded a copy of the petition for waiver of the filing fee and will forward a copy of this order to the Managing Director. IV. ORDERING CLAU SE 18. 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 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 Cass County Telephone Company for Waiver of Section 36.612(a) or 36.631(d) IS DENIED to the extent discussed in this Order and otherwise IS DISMISSED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division