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


In the Matter of

Citizens Telecommunications Company of Illinois

and

USGTE South Incorporated and GTE North
Incorporated

Joint Petition for Waiver of the
Definition of "Study Area" Contained
in the Part 36 Appendix-Glossary
of the Commission's Rules
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CC Docket No. 96-45


                             ORDER

   Adopted:  November 28, 2000          Released:  November 29, 2000

By the Chief, Accounting Policy Division:

                        I.  Introduction
1.     In this Order, we grant a request from Citizens Telecommunications Company of Illinois
(Citizens) and GTE North Incorporated and GTE South Incorporated (collectively, Verizon companies)
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 USthe Verizon companies to remove from their three
Illinois study areas 110 exchanges comprising 110,000 access lines, including an exchange serving 659
access lines in Wisconsin.  This waiver also will permit Citizens to combine the 110 exchanges to form a
new Illinois study area.
                        II.  DISCUSSION
                       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.  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 (FLEC) 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.  In accordance with section 54.801 of the Commission's
rules, the acquiring price cap LEC will receive interstate access universal service support at the same
level as the selling price cap LEC formerly received, and both carriers will adjust their line counts
accordingly beginning with the next quarterly report to the fund Administrator.  Carriers also are
required to report their adjusted average common line, marketing, and transport interconnection charge
(CMT) revenue per line per month for the affected study areas in accordance with the Commission's
rules.  Therefore, pPer-line amounts of interstate access universal service support for the acquired
exchanges may change for acquired exchangesas a result of the revised CMT revenue filings.  Because
the interstate access universal service support mechanism is capped at $650 million, individual
transactions will not increase its overall size.
5.     The Petition for Waiver.  The USVerizon companies, incumbent LECs currently serving
949,760 access lines in Illinois and 521,167 access lines in Wisconsin, entered into an agreement with
Citizens, a local exchange carrierLEC that currently does not provide service in Illinois and Wisconsin,
to sell 110 exchanges comprising 110,000 access lines, including an exchange serving 659 access lines in
Fairplay, Wisconsin.  Specifically, the Verizon companies intend to remove 80 exchanges from their
Contel of IL d/b/a GTE IL study area, three exchanges from their GTE South-IL study area and 27
exchanges from their GTE North-IL study area.
6.     On September 8, 2000, Citizens and USVerizon filed a joint petition for waiver of the
definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules.  The
petition requested a waiver for USthe Verizon companies to remove the 110 exchanges comprising
110,000 access lines from their three Illinois study areas, and for Citizens to create three new study areas
with the acquired access lines.  On November 27, 2000, Citizens filed an amended petition with the
Commission requesting to combine the acquired exchanges into one study area for the state of Illinois. 
On September 28, 2000, the Common Carrier Bureau (Bureau) released a public notice seeking comment
on the petition.  No comments were received.
     G.   Discussion
8.     We find that good cause exists to waive the definition of study area contained in Part 36
Appendix-Glossary of the Commission's rules to permit USthe Verizon companies to remove the 110
exchanges comprising 110,000 access lines from their three Illinois study areas, and permit Citizens to
create a new study area for the acquired access lines.  
9.     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 petitioners have satisfied these criteria and demonstrated that good cause exists for waiver
of the Commission's study area freeze rule.
10.    First, we conclude that USthe Verizon companies and Citizens have demonstrated that the
proposed changes in the study area boundaries will not adversely affect any of the universal service
fundsmechanisms.  Because, under the Commission's rules, carriers purchasing high-cost exchanges
currently can only receive the same level of per-line support that 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.  In addition, even though the acquired exchanges may become
eligible to receive increased interstate access universal service support as a result of the proposed
transaction, the overall size of the interstate access universal service mechanism will not exceed $650
million.  Therefore, we conclude that this transaction will not adversely affect the universal service
mechanisms.
11.    Second, no state commission with regulatory authority over the transferred exchanges
opposes the transfer.  The Illinois Commerce Commission and the Public Service Commission of
Wisconsin have indicated that they do not object to the grant of the study area waiver.
12.    Finally, we conclude that the public interest is served by a waiver of the study area freeze
rule to permit USthe Verizon companies to remove the 110 exchanges from their Illinois study areas and
Citizens to combine the acquired exchanges into a new study area for Illinois.  In its petition, Citizens
states its intent to invest approximately $45 million in the 110 exchanges it is purchasing from the
Verizon companies during the first three years of ownership, using some of the capital investment to
upgrade the network to provide enhanced services.  According to Citizens, it also will provide
broadband/digital subscriber line services when there is sufficient demand to make it possible to provide
these services at an affordable rate.  Based on these representations, we conclude that Citizens has
demonstrated that grant of this waiver request serves the public interest.
13.    In accordance with section 61.45 of the Commission's rules, we also require USthe Verizon
companies to adjust their price cap indices to reflect the removal of the transferred access lines from their
Illinois study areas.  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 USthe Verizon companies to make such an adjustment.
                   III.ORDERING CLAUSES

4.     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 Citizens Telecommunications
Company of Illinois, GTE North Incorporated and GTE South Incorporated on September 8, 2000, IS
GRANTED, as described herein.
5.     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, thatUS
GTE North Incorporated and GTE South Incorporated SHALL ADJUST their price cap indices in their
annual price cap filings to reflect cost changes resulting from this transaction, consistent with this Order.

                         FEDERAL COMMUNICATIONS COMMISSION
   



                              Katherine L. Schroder
                         Chief, Accounting Policy Division