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Before the
               Federal Communications Commission
                     Washington, D.C. 20554



In the Matter of

Telephone USA of Wisconsin, LLC

and

GTE North Incorporated

Joint Petition for Waiver of
Definition of "Study Area" Contained in the
Appendix to Part 36 of the Commission's Rules
(Glossary) and of Section 69.3(e)(9) of the
Commission's Rules; and

Telephone USA of Wisconsin, LLC

Petition for Waiver of Section 61.41(c) of the
Commission's Rules
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CC Docket No. 96-45



                             ORDER

   Adopted:  August 15, 2000            Released:  August 16, 2000

By the Deputy Chief, Accounting Policy Division:

                      I.Introduction
1.     In this Order, we grant requests from Telephone USA of Wisconsin, LLC (Telephone USA)
and GTE North Incorporated (GTE) for a waiver of the definition of "study area" contained in the Part 36
Appendix-Glossary of the Commission's rules.  This waiver will permit GTE to alter the boundaries of
its existing Wisconsin study area to remove 35 telephone exchanges it is transferring to Telephone USA. 
This waiver also will permit Telephone USA to establish a new study area in Wisconsin for the
exchanges it is acquiring from GTE. 
2.     We also grant Telephone USA's request for waiver of section 61.41(c)(2) of the
Commission's rules to permit Telephone USA to operate under rate-of-return regulation after acquiring
the 35 GTE exchanges that are currently under price-cap regulation.  Finally, we grant the request of
Telephone USA and GTE for waiver of section 69.3(e)(9) of the Commission's rules to permit the
acquired access lines to re-enter the National Exchange Carrier Association, Inc. (NECA) common line
pool.
                   III.STUDY AREA WAIVER
                       A.Background
2.     Study Area Boundaries.  A study area is a geographic segment of an incumbent local
exchange carrier's (LEC's) telephone operations.  Generally, a study area corresponds to an incumbent
LEC's entire service territory within a state.  Thus, incumbent LECs operating in more than one state
typically have one study area for each state.  When a carrier acquires additional entire study areas in a
given state, however, the carrier may operate more than one study area in that state.  The Commission
froze all study area boundaries effective November 15, 1984, and an incumbent LEC must apply to the
Commission for a waiver of the study area boundary freeze if it wishes to sell or purchase additional
exchanges.
3.     Transfer of Universal Service Support. Section 54.305 of the Commission's rules provides
that a carrier acquiring exchanges from an unaffiliated carrier shall receive the same per-line levels of
high-cost universal service support for which the acquired exchanges were eligible prior to their
transfer.  For example, if a rural carrier purchases an exchange from a non-rural carrier that receives
support based on the Commission's new universal service support mechanism for non-rural carriers, the
loops of the acquired exchange shall receive the same per-line support as calculated under the new non-
rural mechanism, regardless of the support the rural carrier purchasing the exchange may receive for any
other exchanges.  Section 54.305 is meant to discourage carriers from transferring exchanges merely to
increase their share of high-cost universal service support, especially during the Commission's transition
to universal service support mechanisms that provide support to carriers based on the forward-looking
economic cost of operating a given exchange.  High-cost support mechanisms currently include non-
rural carrier forward-looking high-cost support, interim hold-harmless support for non-rural carriers,
rural carrier high-cost loop support, local switching support, and Long Term Support (LTS).  To the
extent that a carrier acquires exchanges receiving any of these forms of support, the acquiring carrier will
receive the same per-line levels of support for which the acquired exchanges were eligible prior to their
transfer.
4.     As described in the Commission's recent order adopting an integrated interstate access
reform and universal service proposal put forth by the members of the Coalition for Affordable Local
and Long Distance Service (CALLS), beginning July 1, 2000, if a price cap LEC acquires exchanges
from another price cap LEC, the acquiring carrier will become eligible to receive interstate access
universal service support for the acquired exchanges.  Because the interstate access universal service
support mechanism is capped at $650 million, transactions involving the transfer of support will not
increase the mechanism's overall size.  If a non-price cap LEC acquires exchanges from a price-cap
LEC, per-line interstate access universal service support will not transfer. 
5.     The Petition for Waiver.  GTE, an incumbent LEC that currently serves approximately
476,000 access lines in Wisconsin, proposes to sell 35 telephone exchanges that serve approximately
61,612 access lines in Wisconsin.  GTE seeks a waiver of the rule freezing study area boundaries to
allow it to remove these exchanges from its Wisconsin study area.  Telephone USA seeks a waiver of the
rule freezing study area boundaries to allow it to form a new single study area in Wisconsin.  On April
25, 2000, the Common Carrier Bureau (Bureau) released a public notice soliciting comments on the
petition.  No comments were filed.
     F.   Discussion
7.     We find that good cause exists to waive the definition of study area contained in the Part 36
Appendix-Glossary of the Commission's rules to permit GTE to remove 35 exchanges from its
Wisconsin study area and to permit Telephone USA to establish a new study area in Wisconsin for the
exchanges it is acquiring from GTE.
8.      Generally, the Commission's rules may be waived for good cause shown.  As noted by the
Court of Appeals for the D.C. Circuit, however, agency rules are presumed valid.  The Commission
may exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent
with the public interest.  In addition, the Commission may take into account considerations of hardship,
equity, or more effective implementation of overall policy on an individual basis.  Waiver of the
Commission's rules is therefore appropriate only if special circumstances warrant a deviation from the
general rule, and such a deviation will serve the public interest.  In evaluating petitions seeking a waiver
of the rule freezing study area boundaries, the Commission traditionally has applied a three-prong
standard: first, the change in study area boundaries must not adversely affect the universal service fund;
second, no state commission having regulatory authority over the transferred exchanges may oppose the
transfer; and third, the transfer must be in the public interest.  For the reasons discussed below, we
conclude that Telephone USA and GTE have satisfied these criteria and demonstrated that good cause
exists for a waiver of the Commission's study area freeze rule.
9.     First, we find that Telephone USA and GTE have demonstrated that the proposed changes in
the study area boundaries will not adversely affect any of the universal service mechanisms.  Because,
under the Commission's rules, carriers purchasing high-cost exchanges can only receive the same level
of per-line support as the selling company was receiving for those exchanges prior to the sale, there can,
by definition, be no adverse impact on the universal service fund resulting from this transaction.  As
such, because GTE currently is not eligible to receive either interim hold-harmless support or forward-
looking high-cost support for the acquired exchanges, Telephone USA also will be ineligible to receive
such support for those exchanges.  Moreover, because GTE does not currently receive LTS for the
acquired exchanges, we note that Telephone USA will be ineligible to receive LTS for those exchanges. 
We also note that because Telephone USA will not be a price cap LEC, it will not be eligible to receive
interstate access universal service support for the acquired exchanges.  
10.    Second, no state commission having regulatory authority over the transferred exchanges
opposes the transfer.  In a letter to the Common Carrier Bureau, the Public Service Commission of
Wisconsin has indicated that it does not oppose grant of the requested study area waiver for Telephone
USA and GTE.
11.    Finally, we conclude that the public interest is served by a waiver of the study area freeze
rule to permit GTE to remove the 35 exchanges from its Wisconsin study area and to permit Telephone
USA to establish a single new study area in Wisconsin for the exchanges it is acquiring from GTE. 
Telephone USA proposes to provide customers in the exchanges with additional services such a local
dial-up Internet access, broadband data, and all CLASS features, including caller ID and voice mail. 
Telephone USA also states that, by being based in Wisconsin, it will better respond to the unique needs
of the predominantly rural and low-density communities served by the exchanges and will provide
improved customer services.  To achieve these goals, Telephone USA states that it intends to add new
positions in the technical and customer services areas after the acquisition.  Telephone USA also notes
that it is backed by CenturyTel, Inc.'s expertise in serving rural and low-density communities such as
those served by the exchanges Telephone USA intends to acquire.  Based on these representations, we
conclude that petitioners have demonstrated that grant of this waiver serves the public interest.
      XII.WAIVER OF THE COMMISSION'S PRICE CAP RULES
                       A.Background
13.    Section 61.41(c) of the Commission's rules provides that any price cap telephone company
subject to a merger, acquisition, or similar transaction shall continue to be subject to price cap regulation
notwithstanding such transaction.  In addition, when a non-price cap company acquires, merges with, or
otherwise becomes affiliated with a price cap company or any part thereof, the acquiring company
becomes subject to price cap regulation and must file price cap tariffs within a year.  Moreover, LECs
that become subject to price cap regulation are not permitted to withdraw from such regulation.  Under
these rules, Telephone USA's acquisition of GTE's 35 Wisconsin exchanges would subject Telephone
USA to price cap regulation for the acquired exchanges.
14.    In the LEC Price Cap Reconsideration Order, the Commission explained that section
61.41(c) is intended to address two concerns regarding mergers and acquisitions involving price cap
companies.  The first concern was that, in the absence of the rule, a LEC might attempt to shift costs
from its price cap affiliate to its non-price cap affiliate, allowing the non-price cap affiliate to charge
higher rates to recover its increased revenue requirement, while increasing the earnings of the price cap
affiliate.  The second concern was that, absent the rule, a LEC might attempt to game the system by
switching back and forth between rate-of-return regulation and price cap regulation.  For example,
without such a rule, a price cap company may attempt to "game" the system by opting out of price cap
regulation, building a large rate base under rate-of-return regulation so as to raise rates and then, after
returning to price caps, cutting costs back to an efficient level, thereby enabling it to realize greater
profits.  It would not serve the public interest, the Commission stated, to allow a carrier alternately to
"fatten up" under rate-of-return regulation and "slim down" under price cap regulation, because the rates
would not decrease in the manner intended under price cap regulation.  
15.    The Commission nonetheless recognized that narrow waivers of the price cap "all-or-
nothing" rule might be justified if efficiencies created by the purchase and sale of exchanges outweigh
the threat that the system might be subject to gaming.  Such waivers will not be granted
unconditionally, however.  Waivers of the all-or-nothing rule will be granted conditioned on the selling
price cap company's downward adjustment to its price cap indices to reflect the sale of exchanges. 
That adjustment is needed to remove the effects of transferred exchanges from rates that have been
based, in whole or in part, upon the inclusion of those exchanges in a carrier's price cap indices.   In
addition, waiver of the all-or-nothing rule has been granted subject to the condition that the acquiring
carrier obtain prior Commission approval of any attempt to return to price cap regulation.
16.    Telephone USA intends to operate under rate-of-return regulation, while GTE is subject to
price cap regulation.  Telephone USA seeks a waiver of section 61.41(c)(2) of the Commission's rules to
permit it to be regulated under rate-of-return regulation after acquiring from GTE 35 Wisconsin
exchanges that are currently under price cap regulation.  Absent a waiver of the all-or-nothing price cap
rules, all of CenturyTel's operations, including those of Telephone USA, would become subject to price
cap regulation no later than one year after acquiring the price cap exchanges from GTE.  
     A.   Discussion
17.    For the reasons discussed below, we find that good cause exists for us to waive section
61.41(c)(2) of the Commission's rules, and that it would be in the public interest to grant Telephone
USA's waiver request.  As discussed previously, the courts have interpreted section 1.3 of the
Commission's rules to require a petitioner seeking a waiver of a Commission rule to demonstrate that
special circumstances warrant a deviation from the general rule, and such a deviation will serve the
public interest.
18.    Because Telephone USA is significantly smaller than any of the carriers subject to
mandatory price caps, we also find that special circumstances support a waiver of section 61.41(c)(2) of
the Commission's rules.  In evaluating requests for waiver of section 61.41(c)(2) of the Commission's
rules, the Bureau has taken into account the company's preferences and, in particular, the preferences of
small carriers.  Telephone USA has expressed a preference for operating under rate-of-return
regulation.  After the proposed transaction, Telephone USA will still be far smaller than any of the
LECs subject to mandatory price caps,  and also will be significantly smaller than many other carriers
that have been granted waivers of section 61.41(c)(2) of the Commission's rules.  Therefore, we believe
that Telephone USA presents special circumstances to support its waiver request.
19.    We conclude that, in this case, waiver of section 61.41(c)(2) of the Commission's rules will
serve the public interest.  We agree with Telephone USA that the circumstances surrounding Telephone
USA's acquisition of GTE's exchanges fail to give rise to the dangers of cost-shifting and gaming of the
system.  Telephone USA is not seeking to maintain separate affiliates under different systems of
regulation, and, therefore, Telephone USA will have no opportunity to shift costs between price-cap and
rate-of-return affiliates.  Moreover, to safeguard against possible gaming resulting from attempts to
elect price-cap regulation, we will require Telephone USA to seek prior Commission approval if it seeks
to elect price-cap regulation.  At that time, the Commission can make a determination if the transaction
raises concerns that the Commission sought to address in section 61.41 of its rules.  We believe that
requiring Telephone USA to seek Commission approval before electing price-cap regulation is sufficient
to deter gaming in the future.
20.    In accordance with section 61.45 of the Commission's rules, we also require GTE to adjust
its price cap indices to reflect the removal of the transferred access lines from its Wisconsin study area. 
Section 61.45 of the Commission's rules grants the Commission discretion to require price cap carriers
to make adjustments to their price cap indices to reflect cost changes resulting from rule waivers.  We
require GTE to make such an adjustment.
                IV.WAIVER OF SECTION 69.3(e)(9)
                        1Background
1.     Under section 69.3(g)(3) of the Commission's rules, telephone companies involved in
mergers or acquisitions that wish to have more than 50,000 common lines re-enter the NECA common
line pool must request a waiver of section 69.3(e)(9) of the Commission's rules.  In adopting the 50,000
line threshold for waiver requests, the Commission recognized that this requirement should not deter
local exchange carriers from executing a transaction that otherwise would be desirable.  Therefore, if
the telephone company has met all other legal obligations, a request for waiver of section 69.3(e)(9) will
be deemed granted on the sixty-first (61st) day from the date of the public notice inviting comment on the
waiver request unless, inter alia, the merger or acquisition involves one or more partial study areas.  In
mergers or acquisitions involving one or more partial study areas, petitioners seeking waiver of section
69.3(e)(9) must demonstrate that the re-entry of non-pooling access lines into the common line pool
would not have a substantial adverse effect on the pool's revenue requirement and would not
significantly increase the LTS obligations of the remaining non-pooling LECs.  Such petitions must be
filed as part of a Part 36 study area waiver request.  Telephone USA and GTE seek a waiver of section
69.3(e)(9) of the Commission's rules to permit Telephone USA to return the 61,612 access lines it is
acquiring from GTE to the NECA common line pool. 
     A.   Discussion
2.     Because re-entry of Telephone USA's acquired 61,612 non-pooling access lines into the
common line pool will not have a substantial adverse effect on the pool's revenue requirement and will
not increase the LTS obligations of non-pooling LECs, we conclude that good cause exists for us to
waive section 69.3(e)(9) of the Commission's rules.  NECA has advised Telephone USA that including
these access lines in the common line pool will cause a change of significantly less than one percent
(0.14%) in the overall common line pool revenue requirement.  We agree with NECA that such an
increase in the common line pool's revenue requirement is not significant enough to justify a denial of
Telephone USA's waiver request.  We also conclude that including Telephone USA's acquired access
lines in the common line pool will not increase the LTS obligations of contributing carriers.  In
accordance with section 54.305 of the Commission's rules, because GTE does not currently receive LTS
for the acquired exchanges, Telephone USA will also be ineligible to receive LTS for those exchanges. 
As such, the LTS obligations of contributing carriers will not be impacted.   We, therefore, conclude that
there is good cause to grant Telephone USA a waiver of section 69.3(e)(9) because NECA's common line
pool will not be adversely affected, and there will be no significant increase in LTS obligations.
                    V.ORDERING CLAUSES

6.     Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 5(c), 201, and 202 of the
Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, and 202, 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 for
waiver of Part 36, Appendix-Glossary, of the Commission's rules, filed by Telephone USA of Wisconsin,
LLC and GTE North Incorporated, on April 7, 2000, IS GRANTED, as described herein.
7.     IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 5(c), 201, and 202 of the
Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, and 202, 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 for
waiver of sections 61.41(c) and 69.3(e)(9) of the Commission's rules, filed by Telephone USA of
Wisconsin, LLC and GTE North Incorporated, IS GRANTED, as described herein.
8.     IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 5(c), 201, and 202 of the
Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, and 202, and sections
0.91, 0.291, 1.3, and 61.43 of the Commission's rules, 47 C.F.R.  0.91, 0.291, 1.3, and 61.43, that GTE
North Incorporated SHALL ADJUST its price cap indices in its annual price cap filing to reflect cost
changes resulting from this transaction, consistent with this Order.
               
                         FEDERAL COMMUNICATIONS COMMISSION
     


                         Katherine L. Schroder
                         Deputy Chief, Accounting Policy Division