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



In the Matter of

Sully Buttes Telephone Cooperative, Inc.

and

Qwest Corporation

Joint Petition for Waiver of Definition of "Study
Area" Contained in Part 36, Appendix Glossary
of the Commission's Rules; and

Sully Buttes Telephone Cooperative, Inc.

Petition for Waiver of Sections 61.41(c) and (d)
and 69.3(e)(11) of the Commission's Rules
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CC Docket No. 96-45



                             ORDER

   Adopted:  August 17, 2000            Released: August 18, 2000

By the Deputy Chief, Accounting Policy Division:

                      I.Introduction
1.     In this Order, we grant requests from Sully Buttes Telephone Cooperative, Inc. (Sully Buttes)
and Qwest Corporation (Qwest) 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 Qwest to alter the boundaries of
its existing South Dakota study area to transfer to Sully Buttes approximately 2,400 access lines located in
Qwest's Sisseton, South Dakota exchange.  This waiver also will permit Sully Buttes to add the Sisseton
exchange to its existing South Dakota study area. 
2.     We also grant Sully Buttes' request for waiver of section 61.41(c) of the Commission's rules to
permit Sully Buttes to operate under rate-of-return regulation after acquiring the 2,400 Qwest access lines
that are currently under price-cap regulation.  Finally, we grant the request of Sully Buttes for waiver of
section 69.3(e)(11) of the Commission's rules to permit the acquired access lines to participate in the
National Exchange Carrier Association, Inc. (NECA) common line tariff effective upon the close of this
transaction.
                   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. Qwest, an incumbent LEC that currently serves approximately
275,000 access lines in South Dakota, proposes to sell to Sully Buttes its Sisseton, South Dakota telephone
exchange that serves approximately 2,400 access lines.  Qwest seeks a waiver of the rule freezing study
area boundaries to allow it to remove the Sisseton exchange from its South Dakota study area.  Sully
Buttes seeks a waiver of the rule freezing study area boundaries to allow it add the exchange to its existing
South Dakota study area.  On June 15, 2000, the Common Carrier Bureau (Bureau) released a public
notice soliciting comments on the petition.  The National Telephone Cooperative Association filed
comments in support of the petition.  The United States Telecom Association filed reply comments in
support of the petition.
     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 Qwest to remove the Sisseton exchange from its
South Dakota study area and to permit Sully Buttes to add the exchange to its existing South Dakota study
area.
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 Sully Buttes and Qwest
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 Sully Buttes and Qwest 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
Qwest currently is not eligible to receive either interim hold-harmless support or forward-looking high-cost
support for the Sisseton exchange, Sully Buttes also will be ineligible to receive such support for that
exchange.  Moreover, because Qwest does not currently receive LTS for the Sisseton exchange, we note
that Sully Buttes will be ineligible to receive LTS for that exchange.  As a result of this transaction, access
lines in Sully Buttes' pre-acquisition study area boundary will be eligible for different amounts of high-cost
support than the approximately 2,400 access lines being acquired from Qwest.  We, therefore, direct Sully
Buttes to submit, as part of its annual USF data submission to the fund administrator, a schedule showing
its methodology for excluding the costs associated with the 2,400 acquired access lines from the costs
associated with its pre-acquisition study area.  We also note that because Sully Buttes will not be a price
cap LEC, it will not be eligible to receive interstate access universal service support for the acquired
exchange.  
10.    Second, no state commission having regulatory authority over the transferred exchange
opposes the transfer.  In an order approving the transaction, the Public Utilities Commission of South
Dakota (South Dakota Commission) stated that it does not oppose grant of the requested study area waiver
for Sully Buttes and Qwest.
11.    Finally, we conclude that the public interest is served by a waiver of the study area freeze rule
to permit Qwest to remove the Sisseton exchange from its South Dakota study area and to permit Sully
Buttes to add the exchange to its South Dakota study area.  The South Dakota Commission determined that
Sully Buttes' purchase of the Sisseton exchange is in the public interest for the following reasons: (a)
quality of service will be maintained, if not improved; (b) customer service in the exchange, as provided by
Sully Buttes, should be improved; (c) the customers in the Sisseton exchange should receive better service,
and the cost of maintenance and repair should be reduced; (d) rates will not increase as a result of the sale
for at least 18 months; (e) Sully Buttes will assist the county in providing 911 services, when requested;
and (f) modern state-of-the-art telecommunications equipment will be used to provide service in the
Sisseton exchange.  Based on the findings of the South Dakota Commission, we conclude that Sully
Buttes has demonstrated that grant of this waiver request 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, Section 61.41(d)
of the Commission's rules provides that LECs that become subject to price cap regulation are not permitted
to withdraw from such regulation.  Under these rules, Sully Buttes' acquisition of Qwest's Sisseton
exchange would subject Sully Buttes to price cap regulation for the acquired exchange.
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, waivers of the all-or-nothing rule have
been granted subject to the condition that the acquiring carrier obtain prior Commission approval of any
attempt to return to price cap regulation.
16.    Sully Buttes operates under rate-of-return regulation, while Qwest is subject to price cap
regulation.  Sully Buttes seeks a waiver of section 61.41(c)(2) of the Commission's rules to permit it to
continue under rate-of-return regulation after acquiring from Qwest the Sisseton exchange that is currently
under price cap regulation.  Absent a waiver of the all-or-nothing price cap rules, all of Sully Buttes'
operations would become subject to price cap regulation no later than one year after acquiring the price cap
exchange from Qwest.  
     A.   Discussion
17.    For the reasons discussed below, we find that good cause exists for us to waive section
61.41(c) of the Commission's rules, and that it would be in the public interest to grant Sully Buttes' 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 Sully Buttes 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) of the
Commission's rules.  In evaluating requests for waiver of section 61.41(c) of the Commission's rules, the
Bureau has taken into account the company's preferences and, in particular, the preferences of small
carriers.  Sully Buttes has expressed a preference for operating under rate-of-return regulation.  After
the proposed transaction, Sully Buttes 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) of the Commission's rules.  Therefore, we believe that Sully Buttes presents special
circumstances to support its waiver request.
19.    We conclude that, in this case, waiver of section 61.41(c) of the Commission's rules will serve
the public interest.  We agree with Sully Buttes that the circumstances surrounding Sully Buttes'
acquisition of Qwest's exchange fail to give rise to the dangers of cost-shifting and gaming of the system.
Sully Buttes is not seeking to maintain separate affiliates under different systems of regulation, and,
therefore, Sully Buttes 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 Sully Buttes 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 Sully Buttes 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 Qwest to adjust
its price cap indices to reflect the removal of the transferred access lines from its South Dakota 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 Qwest to make such an adjustment.
                IV.WAIVER OF SECTION 69.3(e)(11)
                          A.Background
21.    Under section 69.3(e)(11) of the Commission's rules, any change in NECA carrier common
line tariff participation and LTS resulting from a merger or acquisition of telephone properties is effective
on the next annual access tariff filing effective date following the merger or acquisition. Section
69.3(e)(11) of the Commission's rules was implemented to minimize the complexity of administering the
LTS program.  The next carrier common line tariff filing effective date is July 1, 2001.  Sully Buttes,
which is currently a common line tariff participant, intends to include the 2,400 access lines it is acquiring
from Qwest in its existing South Dakota study area.  In accordance with section 69.3(e)(11) of the
Commission's rules, Sully Buttes would be required to file its own interstate tariffs for the acquired access
lines until July 1, 2001.  Sully Buttes has requested a waiver of section 69.3(e)(11) of the Commission's
rules to enable the acquired access lines to participate in the NECA carrier common line tariff upon the
date of the closing of the transaction.  
B.     Discussion
22.    We believe that Sully Buttes has demonstrated that special circumstances warrant a deviation
from section 69.3(e)(11) of the Commission's rules and that it would be in the public interest to grant Sully
Buttes' waiver request.  Because the inclusion of the acquired access lines in the NECA carrier common
line tariff represents a minimal increase in NECA common line pool participation and because it may be
administratively burdensome for Sully Buttes to file interstate tariffs for only 2,400 access lines, we believe
that Sully Buttes presents special circumstances to justify waiver of section 69.3(e)(11) of the
Commission's rules.  Because the inclusion of the acquired access lines in the carrier common line tariff
prior to July 1, 2001 will not unduly increase the complexity of administering the LTS program, we also
believe that wavier of section 69.3(e)(11) will be in the public interest.  According to NECA, "inclusion of
the acquired access lines in NECA's tariff, effective July 1, 2000, will create no undue administrative
burden on NECA, nor will it result in any disadvantage to other tariff participants."  We note that in
accordance with section 54.305 of the Commission's rules, Sully Buttes will not be eligible to receive LTS
for the acquired access lines.  Therefore, it does not appear that inclusion of the acquired access lines
upon the close of this transaction in NECA carrier common line tariff will increase the complexity of
administering the LTS program.  We, therefore, conclude that there is good cause to grant Sully Buttes a
waiver of section 69.3(e)(11).
                    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 Sully Buttes Telephone
Cooperative, Inc. and Qwest Corporation, on June 2, 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)(11) of the Commission's rules, filed by Sully Buttes Telephone
Cooperative, Inc. and Qwest Corporation, 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, and 1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291, and 1.3, that Sully Buttes
Telephone Cooperative, Inc. SHALL SUBMIT, as part of its annual USF data submission to the fund
administrator, a schedule showing its methodology for excluding the costs associated with the 2,400
acquired access lines from the costs associated with its pre-acquisition study area.
9.     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
Qwest Corporation 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