**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | WC Docket No. 02-78          |
|                                  | * |                              |
| Petition of Mid-Rivers Telephone | ) |                              |
| Cooperative, Inc. for Order      | * |                              |
| Declaring It to be an Incumbent  | * |                              |
| Local Exchange Carrier in Terry, |   |                              |
| Montana Pursuant to Section      | * |                              |
| 251(h)(2)                        | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
+----------------------------------+---+------------------------------+

REPORT AND ORDER

**Adopted:** August 31, 2006 **Released:** October 11, 2006

By the Commission:

# Introduction

1.  In this Order, we conclude that Mid-Rivers Telephone Cooperative,
    Inc. (Mid-Rivers) should be treated as an incumbent local exchange
    carrier (LEC) for purposes of section 251 of the Communications Act,
    as amended, in the Terry, Montana local exchange (Terry exchange)
    pursuant to section 251(h)(2) of the Act.[^1] We also conclude that
    Mid-Rivers' operations in the Terry exchange should remain subject
    to existing competitive LEC regulation for interstate purposes
    pending further Commission action. In addition, we conclude that
    Qwest, the legacy incumbent LEC in the Terry exchange, should be
    subject to non-dominant regulation for its interstate
    telecommunications services in that exchange pending further
    action.[^2]

# BACKGROUND

## Mid-Rivers' Operations in the Terry Exchange

2.  In 1997, Mid-Rivers entered the Terry, Montana exchange as a
    competitive LEC and overbuilt the existing Qwest facilities.[^3]
    Mid-Rivers estimates that it serves approximately 93 percent of the
    access lines in the entire Terry exchange and 97 percent of the 317
    residential and 118 business access lines within the Terry town
    limits.[^4] Mid-Rivers serves its subscribers within the town limits
    of Terry entirely over its own facilities, which are directly
    interconnected with Qwest to allow the few remaining Qwest
    subscribers to communicate with Mid-Rivers' subscribers in the Terry
    exchange.[^5] Mid-Rivers resells Qwest local exchange service in
    order to provide service to certain customers outside the Terry town
    limits.[^6] Further, Mid-Rivers states that it intends to complete
    the overbuild of the Terry exchange upon the Commission's grant of
    its petition.[^7]

3.  In addition to offering basic local exchange service, Mid-Rivers
    also offers advanced services, including DSL, interactive TV (ITV)
    to the local school, and custom local area signaling services
    (CLASS).[^8] Mid-Rivers has also taken steps to ensure the ready
    availability of maintenance and repair services for its Terry
    customers. [^9] The Montana Public Service Commission (Montana
    Commission) designated Mid-Rivers as an eligible telecommunications
    carrier (ETC) in the Terry exchange in 2001.[^10]

## Notice of Proposed Rulemaking

4.  On February 5, 2002, Mid-Rivers filed a petition with the
    Commission, pursuant to section 251(h)(2) of the Act, seeking
    treatment as an incumbent LEC in the Terry exchange, and the
    Commission sought comment on the Petition.[^11] The Commission
    subsequently adopted a Notice of Proposed Rulemaking (*Notice*)
    seeking comment on the application of section 251(h)(2) to
    Mid-Rivers' operations in the Terry exchange, as well as related
    issues concerning the appropriate regulatory treatment of
    Mid-Rivers' and Qwest's operations in the Terry exchange.[^12]
    Mid-Rivers has stated that it will file a request for waiver of the
    Commission's study area boundary freeze[^13] if the Commission
    accords it incumbent LEC status pursuant to section 251(h)(2).[^14]

## Section 251(h)(2) and Related Commission Decisions 

5.  Section 251 of the Act establishes different pro-competitive
    requirements for telecommunications carriers,[^15] LECs,[^16] and
    incumbent LECs,[^17] with the most rigorous requirements applying to
    incumbent LECs. In particular, an incumbent LEC is subject to the
    requirements of section 251(c) as well as the requirements of
    sections 251(a) and (b).[^18]

6.  Section 251(h)(1) defines an incumbent LEC as a local exchange
    carrier that, on the date of enactment of the Telecommunications Act
    of 1996, provided local exchange service in an area and was either a
    member of the National Exchange Carrier Association (NECA),[^19] or
    became a successor or assign of such a LEC.[^20] Section 251(h)(2)
    provides that the Commission may by rule provide for the treatment
    of a LEC as an incumbent LEC for the purposes of section 251 if
    certain requirements are satisfied.[^21] Section 251(h)(2) sets
    forth a three-part test for determining when the Commission may
    treat a LEC as an incumbent LEC for purposes of section 251. Under
    this test, in order to find that a LEC should be treated as an
    incumbent LEC for purposes of section 251, the Commission must find
    that: (1) the LEC at issue occupies a market position comparable to
    a legacy incumbent LEC; (2) the LEC has "substantially replaced" the
    legacy incumbent LEC; and (3) the reclassification serves the public
    interest, convenience, and necessity and the purposes of section
    251.[^22]

7.  In the Commission's only prior section 251(h)(2) proceeding, it
    found that the Guam Telephone Authority (GTA) satisfied the section
    251(h)(2) three-part test and should be treated as an incumbent LEC
    for purposes of section 251.[^23] The circumstances of that
    proceeding were unusual since GTA was the sole provider of local
    exchange service in Guam. The Commission addressed GTA's status
    under section 251(h)(2) only after concluding that GTA did not
    qualify as an incumbent LEC under section 251(h)(1) because it had
    not been a NECA member on February 8, 1996, as required by that
    provision, and was not the successor or assign of such an incumbent
    LEC.[^24]

# DISCUSSION 

## Section 251(h)(2) -- Treatment as an Incumbent LEC for Purposes of Section 251 

8.  We conclude that Mid-Rivers satisfies the three-part test in section
    251(h)(2) and should be treated as an incumbent LEC for purposes of
    section 251. Specifically, we find that the Terry exchange is the
    appropriate area for consideration under section 251(h)(2)(A), and
    that Mid-Rivers occupies a market position comparable to that of a
    traditional legacy incumbent LEC in the Terry exchange. We also find
    that Mid-Rivers has "substantially replaced" Qwest in the Terry
    exchange, and that treating Mid-Rivers as an incumbent LEC for
    purposes of section 251 in the Terry exchange is consistent with the
    public interest. We expect that the treatment of Mid-Rivers as an
    incumbent for purposes of access charges, universal service support
    and other purposes will be addressed, as appropriate, in conjunction
    with the study area boundary waiver request that Mid-Rivers has
    stated it plans to file.[^25]

### Section 251(h)(2)(A) -- Comparable Market Position Within an Area

9.  The first part of the section 251(h)(2) test for treatment of a LEC
    as an incumbent LEC for purposes of section 251 requires that "such
    carrier occup\[y\] a position in the market for telephone exchange
    service within an area that is comparable to the position occupied
    by \[a legacy incumbent LEC\]." [^26] In the *Notice*, the
    Commission sought comment on the proper area for consideration under
    this provision, and tentatively concluded that Mid-Rivers occupied a
    market position similar to that of a legacy incumbent LEC assuming
    that the Terry exchange was the appropriate area for analysis.[^27]
    As discussed more fully below, we find that the Terry exchange is
    the relevant area for analyzing Mid-Rivers' market position, and
    that Mid-Rivers occupies a position in the market for telephone
    exchange service within the Terry exchange comparable to that of a
    legacy incumbent LEC.

10. A local exchange is a traditional and clearly defined geographic
    unit for the provision of local exchange service. While the Terry
    exchange encompasses a relatively limited area, including the town
    of Terry and the surrounding rural area, we believe that it is an
    appropriate area for consideration in light of the actual language
    as well as the purposes of section 251(h)(2). In particular, section
    251(h)(2) uses the phrase "within an area" instead of referring to a
    service territory.[^28] The use of this broad, general language
    gives the Commission ample flexibility to interpret the term "area"
    as encompassing a single local exchange in the present circumstances
    given the purposes of the Act. Moreover, in order to meet the
    requirements that the new LEC have a market position comparable to a
    legacy incumbent LEC's and have substantially replaced the legacy
    incumbent LEC, the new LEC will likely have to overbuild a large
    portion of the legacy incumbent LEC's facilities. Given the expense
    of such facility construction, replacement of a legacy incumbent LEC
    consistent with the requirements of section 251(h)(2) is most likely
    to occur in limited geographic areas such as individual local
    exchanges or small groups of exchanges, particularly in rural areas.
    In fact, this pattern has occurred in a number of rural areas where
    a small incumbent local exchange carrier has entered a neighboring
    exchange or group of exchanges as a competitive LEC and overbuilt
    existing facilities.[^29]

11. In light of our analysis, we conclude that it is reasonable to treat
    the Terry exchange as the proper area for consideration despite the
    fact that the Commission frequently considers larger geographic
    areas in other types of regulatory analyses. Mandating consideration
    of a substantially larger area when determining whether a LEC has a
    market position comparable to a legacy incumbent LEC would exclude
    from consideration exactly the type of limited area in which
    "replacement" of a legacy incumbent LEC, consistent with the
    requirements of section 251(h)(2), is most likely to occur.
    Interpreting the statute to require consideration of a substantially
    larger area for this purpose could render the statutory provision a
    nullity if carriers do not overbuild existing local networks
    throughout larger areas. Neither the actual language of section
    251(h)(2) nor the goals of the Act support such a result.
    Accordingly, consistent with the record in this proceeding and the
    statutory analysis above, we conclude that the Terry exchange is the
    appropriate area for consideration in determining whether Mid-Rivers
    occupies a market position comparable to a legacy incumbent
    LEC.[^30]

12. We also affirm our tentative conclusion that Mid-Rivers occupies a
    position in the market for local exchange service[^31] comparable to
    that of a legacy incumbent LEC[^32] since it serves between 85 and
    93 percent of the access lines in the Terry exchange,[^33] in most
    cases over its own facilities.[^34] While, this market share range
    is somewhat lower than the shares many traditional legacy incumbent
    LECs held prior to passage of the 1996 Telecommunications Act, it is
    significantly higher than the shares held by many legacy incumbent
    LECs in recent years.[^35] In reaching the conclusion that
    Mid-Rivers occupies a market position comparable to a legacy
    incumbent LEC, we recognize that Mid-Rivers' position is not
    identical to that of a typical legacy incumbent LEC in certain
    respects. In particular, Qwest continues to own and operate
    facilities throughout the Terry exchange. The presence of these
    facilities undoubtedly reduces the strength of Mid-Rivers' market
    position to some extent. It appears, however, that the Qwest and
    Mid-Rivers facilities and operations differ in certain respects. The
    Mid-Rivers facilities in Terry appear to be technically superior to
    those of Qwest.[^36] Mid-Rivers also appears to provide maintenance
    and repair operations that are located much closer to the Terry
    exchange than those provided by Qwest.[^37] In light of this and the
    extraordinarily high subscribership level attained by Mid-Rivers in
    the Terry exchange, which testifies to the superiority of its
    service offerings, we conclude that the continued existence of
    Qwest's facilities in the Terry exchange does not preclude a
    determination that Mid-Rivers occupies a market position in the
    Terry exchange comparable to that of a legacy incumbent LEC.[^38] In
    this regard, we note that the statutory language does not require
    that a new LEC occupy a market position that is identical to that of
    a legacy incumbent LEC.[^39]

13. We believe our finding that Mid-Rivers occupies a market position
    comparable to that of a legacy incumbent LEC in the Terry exchange
    is fully consistent with the Congressional intent underlying this
    provision. As previously discussed, most situations in which a
    competitive LEC effectively replaces the legacy incumbent LEC, and
    thus may qualify for treatment as an incumbent LEC pursuant to
    section 251(h)(2), are likely to involve facility overbuilds. Unless
    the legacy incumbent LEC abandons its facilities or sells its
    operations in the exchange to the new LEC, such situations will
    result in the existence and operation of two sets of local exchange
    facilities in the same area. Concluding that the mere existence of
    two sets of local exchange facilities, regardless of other
    considerations such as subscribership levels, forecloses a finding
    that a LEC has obtained a market position comparable to that of a
    legacy incumbent LEC would prevent treatment of a LEC as an
    incumbent LEC under section 251(h)(2) in almost all cases. We do not
    believe that this is what Congress intended in enacting this
    provision, and thus conclude that Mid-Rivers occupies a market
    position comparable to a legacy incumbent LEC in the Terry exchange.

### Section 251(h)(2)(B) -- Substantially Replaced Legacy Incumbent LEC

14. The second part of the section 251(h)(2) test for when a LEC may be
    treated as an incumbent LEC for purposes of section 251 requires a
    finding that "such carrier has substantially replaced an incumbent
    LEC described in paragraph (1)" -- in this case Qwest.[^40] In the
    *Notice*, the Commission tentatively concluded that Mid-Rivers met
    this requirement because it serves approximately 93 percent of the
    access lines in the Terry exchange.[^41] We affirm this tentative
    conclusion.[^42]

15. In light of the fact that Mid-Rivers serves approximately 85 to 93
    percent of the access lines in the Terry exchange largely over its
    own facilities, we conclude that Mid-Rivers has substantially
    replaced Qwest as the local exchange service provider in the Terry
    exchange.[^43] This conclusion is consistent with the meaning of the
    phrase "substantially replace" in ordinary English usage.[^44] We
    also believe that this conclusion is consistent with the
    Commission's determination in the *Guam* *Proceeding* in which the
    Commission found that section 251(h)(2)(B) is satisfied when the LEC
    at issue provides local exchange service "to all or virtually all"
    of the subscribers in the service area.[^45] While the circumstances
    present in that proceeding differ from those presently before us,
    the differences do not undermine our conclusion that Mid-Rivers has
    substantially replaced Qwest in the Terry exchange.[^46] Therefore,
    we adopt the tentative conclusion in the *Notice* and find that
    Mid-Rivers has "substantially replaced" Qwest in the Terry exchange.

### Section 251(h)(2)(C) -- Consistent with the Public Interest

16. The third and final part of the section 251(h)(2) test requires the
    Commission to find that treating the LEC as an incumbent LEC for
    purposes of section 251 "is consistent with the public interest,
    convenience, and necessity and the purposes of \[section
    251\]."[^47] We find that treating Mid-Rivers as an incumbent LEC in
    the Terry exchange for purposes of section 251 satisfies this
    requirement.[^48]

17. At the outset, we note that the public interest analysis required by
    section 251(h)(2)(C) addresses matters related to the role of
    incumbency under section 251. The statute specifies that section
    251(h)(2) permits the Commission to treat a LEC as an incumbent LEC
    "for purposes of this section," *i.e*., section 251. It does not
    address whether a LEC treated as an incumbent LEC for purposes of
    section 251 should also be treated as an incumbent LEC for purposes
    of other statutory provisions or Commission rules.[^49]

18. We conclude that treating Mid-Rivers as an incumbent LEC for
    purposes of section 251 "is consistent with the public interest,
    convenience, and necessity and with the purposes of \[section
    251\]."[^50] As previously discussed, section 251 establishes
    pro-competitive requirements for telecommunications carriers, LECs,
    and incumbent LECs, with the most extensive requirements applicable
    to incumbent LECs. Incumbent LEC treatment of Mid-Rivers in the
    Terry exchange would make Mid-Rivers subject to the additional
    market opening requirements in section 251(c), absent the fact that
    it currently qualifies for the rural exemption in section
    251(f)(1).[^51] While treating Mid-Rivers as an incumbent LEC in the
    Terry exchange will not immediately subject Mid-Rivers to the
    additional market opening requirements of section 251(c) due to the
    rural exemption, it will move Mid-Rivers one step closer to the
    application of such requirements. Mid-Rivers would become subject to
    the section 251(c) requirements if it "received a bona fide request
    for interconnection, services, or network elements, and . . . the
    State commission determines . . . that such request is not unduly
    economically burdensome, is technically feasible, and is consistent
    with \[certain provisions of\] section 254 . . . ."[^52] As a
    non-incumbent LEC, Mid-Rivers would be permanently exempt from the
    requirements of section 251(c).[^53] Ensuring that Mid-Rivers, as an
    incumbent LEC, would be subject to the requirements of section
    251(c) under the conditions described above, rather than permanently
    exempt from section 251(c), is certainly consistent with the public
    interest and the purposes of section 251.

19. We disagree with the commenters that argue the Commission cannot
    find that Mid-Rivers satisfies the public interest requirement of
    section 251(h)(2)(C) if Mid-Rivers avails itself of the rural
    exemption.[^54] Absent our decision to treat Mid-Rivers as an
    incumbent LEC for purposes of section 251, a new competitive LEC
    seeking to serve the Terry exchange would be permanently foreclosed
    from obtaining interconnection, unbundled network elements or other
    offerings mandated by section 251(c) from Mid-Rivers. Accordingly,
    for the reasons discussed above, we conclude that Mid-Rivers has
    satisfied this requirement despite the fact that it qualifies for
    the rural exemption in the Terry exchange. Nor do we believe that it
    would be appropriate for the Commission to condition incumbent LEC
    treatment for purposes of section 251 on Mid-Rivers' relinquishment
    of the rural exemption in that exchange. The statute does not
    require this, and mandating relinquishment of the rural exemption as
    a condition of incumbent LEC treatment for purposes of section 251
    involves an intrusion into the role of the state commission in
    deciding when to terminate the rural exemption.[^55] We do not
    believe that this is warranted or consistent with the statute in the
    present circumstances.[^56]

## Subsequent Regulation

20. As discussed below, we also reduce the extent of regulation
    applicable to Qwest's interstate services in the Terry
    exchange.[^57] In the *Notice*, the Commission sought comment on the
    appropriate regulatory treatment of Qwest if the Commission found
    Mid-Rivers to be an incumbent LEC under section 251(h)(2).[^58] In
    light of the record in this proceeding, we conclude that Qwest
    should be treated as a non-dominant carrier in the Terry exchange
    for purposes of its interstate service offerings. Qwest may request
    additional deregulation in the Terry exchange by filing a formal
    petition for forbearance consistent with the relevant Commission
    rules, although it has not yet done so.

21. In the *Notice*, the Commission asked for comment on a number of
    issues related to the future regulation of a legacy incumbent LEC in
    an exchange where a competitive LEC has been designated as an
    incumbent LEC for the purposes of section 251.[^59] In particular,
    the Commission sought comment on whether the Commission must remove
    dominant carrier regulation from such a legacy incumbent LEC. The
    Commission also requested comment on whether such a legacy incumbent
    LEC should automatically be converted to competitive LEC status. In
    addition, the Commission sought comment on whether forbearance was
    the required means of addressing the status of such a legacy
    incumbent LEC, and the relationship between the findings required
    under section 251(h)(2) and the requirements for section 10
    forbearance.[^60] Many of the commenters addressed these issues,
    expressing a wide range of views. Some argued that the Commission
    should not address subsequent regulation at this time[^61] while
    others argued that broad forbearance from section 251(c)
    requirements was warranted.[^62]

22. Based on a review of the statutory language and the record in this
    proceeding, we conclude that the Act does not directly specify the
    proper framework for the regulatory treatment of the legacy section
    251(h)(1) incumbent LEC when the Commission designates another LEC
    as an incumbent LEC for purposes of section 251 as provided in
    section 251(h)(2).[^63] The definition of an incumbent LEC in
    section 251(h)(1) does not provide for removal or modification of
    incumbent LEC status in the event that another LEC has effectively
    replaced the original legacy incumbent LEC and now qualifies as an
    incumbent for purposes of section 251.[^64] Thus, although the
    Commission must make a determination that a LEC occupies a position
    comparable to, and has substantially replaced, the incumbent LEC
    when deciding to treat a LEC as a section 251(h)(2) incumbent LEC,
    this does not appear to change the status of the legacy incumbent
    LEC automatically and convert the legacy section 251(h)(1) incumbent
    LEC into a competitive LEC.[^65]

23. Instead, the Commission's rules and the Act provide mechanisms for
    the removal of unnecessary regulation.[^66] For example, the
    Commission has standards for removing dominant carrier regulation
    when a carrier no longer has sufficient market power to warrant such
    regulation.[^67] In addition, section 10 of the Act permits the
    Commission to remove statutory requirements when certain
    requirements are met.[^68] Although there is overlap between the
    standards in section 251(h)(2) and section 10, there are also
    meaningful differences in the language of each provision.[^69]

24. Although Qwest has included requests for forbearance from dominant
    carrier regulation as well as section 251 and 271 unbundling and
    resale obligations in its filings in this proceeding,[^70] it has
    not filed a formal petition for forbearance consistent with the
    Commission rules.[^71] In addition, the Commission did not
    specifically request comment on whether the standards for
    forbearance are satisfied in the present circumstances.[^72] We can,
    however, address dominant carrier regulation of Qwest in the Terry
    exchange under other relevant precedent and do so below.

### The Competitive Carrier Proceeding

25.  In the *Competitive Carrier Proceeding*, the Commission
    distinguished between carriers with market power (*i.e.*, dominant
    carriers) and those that lacked market power in their respective
    communications markets (*i.e.*, non-dominant carriers).[^73] The
    Commission found that non-dominant carriers did not require the same
    regulatory treatment as dominant carriers and thus relaxed its
    regulations for non-dominant carriers. Specifically, dominant
    carriers are subject to price cap or rate-of-return regulation, and
    must file tariffs and cost support for some services on a minimum of
    seven or fifteen days' notice.[^74] The Commission found that direct
    rate regulation was generally not necessary for non-dominant
    carriers, and allowed them to file tariffs on one day's notice
    without cost support.[^75] Moreover, filings by non-dominant
    carriers are presumed lawful if they become effective without
    suspension.[^76] Additionally, non-dominant carriers are required to
    wait only 30 days before their applications to discontinue, reduce,
    or impair service can be granted, as opposed to a 60-day waiting
    period for dominant carriers.[^77] Finally, non-dominant carriers
    are accorded presumptive streamlined treatment under section 214 of
    the Act for certain types of transfers of control for which dominant
    carriers must follow more rigorous procedures.[^78]

26. In the *Competitive Carrier First Report and Order*, the Commission
    began establishing a framework for defining a dominant carrier. In
    determining market power, the Commission focused on "clearly
    identifiable market features," including "the number and size
    distribution of competing firms, the nature of barriers to entry,
    and the availability of reasonably substitutable services," and
    whether the firm controlled "bottleneck facilities."[^79] In the
    *Competitive Carrier Fourth Report and Order*, the Commission
    further elaborated on its definition of market power by citing the
    definitions of Areeda and Turner, and of Landes and Posner.[^80]
    Areeda and Turner defined market power as "the ability to raise
    prices by restricting output," and Landes and Posner defined it as
    "the ability to raise and maintain prices above the competitive
    level without driving away so many customers as to make the increase
    unprofitable."[^81]

27. In the *AT&T Reclassification Order*, the Commission applied a
    framework for assessing market power based on four tests derived
    from well-accepted antitrust principles. Based on this analysis, the
    Commission reclassified AT&T as non-dominant in the interstate,
    domestic, interexchange market.[^82] These tests included: (1)
    market share; (2) the supply elasticity of the market; (3) the
    demand elasticity of customers; and (4) the cost structure, size,
    and resources of the company involved.[^83] The Commission concluded
    that a market share analysis could not be the sole factor in
    determining whether a carrier possessed market power and thus the
    three other analyses also must be examined.[^84]

28. For supply elasticity, the Commission examined two factors: the
    supply capacity of existing competitors and the extent of entry
    barriers.[^85] Specifically, this analysis focused on whether AT&T's
    existing competitors had or could easily acquire significant
    additional capacity in a short time period and, if existing
    competitors lacked excess capacity, could new competitors enter the
    market easily and add to existing capacity.[^86] The demand
    elasticity analysis focused on whether a carrier had the ability to
    raise its prices unilaterally above its competitors without losing
    customers.[^87] Finally, the Commission examined AT&T's cost
    structure, size, and resources to determine whether AT&T had the
    ability to prevent competition.[^88]

### Treatment of Qwest as a Non-Dominant Carrier 

29. We find that Qwest lacks market power in the Terry exchange and
    should be treated as a non-dominant carrier for its interstate
    telecommunications services in that exchange. In reclassifying Qwest
    as a non-dominant carrier for these services, we assess whether
    Qwest possesses market power utilizing the Commission's analytical
    framework in the *AT&T Reclassification Order* described above. In
    particular, we consider the following four factors: (1) market
    share; (2) supply elasticity; (3) demand elasticity; and (4) Qwest's
    cost structure, size, and resources.[^89]

30. *[Market Share]{.underline}*. The evidence demonstrates that Qwest
    does not have a substantial market share in the Terry exchange.
    Although there are differing estimates in the record, Mid-Rivers
    serves between 85 and 93 percent of the access lines in the Terry
    exchange.[^90] Thus, Qwest serves only between 7 and 15 percent of
    the access lines in the Terry exchange. For a legacy incumbent LEC
    with facilities throughout the exchange, this is a very small market
    share.

31. *[Supply Elasticity]{.underline}.* In analyzing the supply
    elasticity in the Terry exchange, we find that supply is
    sufficiently elastic to constrain Qwest from unilateral pricing
    decisions. In making this determination, we focus on the fact that
    Mid-Rivers has constructed new, technologically advanced facilities
    in most of the Terry exchange.[^91] Thus, Mid-Rivers has enough
    readily available capacity on its network to constrain Qwest's
    pricing behavior in the Terry exchange.

32. *[Demand Elasticity]{.underline}.* We additionally find that the
    Terry exchange customers are highly demand elastic and have shown a
    willingness to switch service providers in order to obtain price
    reductions or better quality of service. Specifically, Mid-Rivers
    estimates that within a year of its entry into Terry, approximately
    90 percent of Qwest's subscribers converted to Mid-Rivers'
    service.[^92] We note that Mid-Rivers provides additional services,
    beyond basic telephone service, including DSL, Internet, ITV to the
    local school, and CLASS, which likely have an effect on customer
    choice.[^93] Mid-Rivers has also demonstrated a strong commitment to
    maintenance and repair service in the Terry exchange, which could
    affect subscribership.[^94]

33. *[Qwest's Cost Structure, Size, and Resources]{.underline}*. Despite
    Qwest's overall size and resources, we do not find that such
    advantages, by themselves, confer market power on Qwest. Moreover,
    as previously noted, Mid-Rivers has constructed a more modern and
    efficient competing network than Qwest's in the Terry exchange.
    Thus, we find that Qwest's size, overall cost structure, and
    resources do not constitute evidence of market power in the Terry
    exchange under the present circumstances such as to "preclude the
    effective functioning of a competitive market."[^95]

34. Based on our review of the criteria above, we conclude that Qwest
    clearly qualifies for non-dominant carrier treatment in the Terry
    exchange.[^96] If Qwest chooses, however, it may continue to operate
    pursuant to dominant carrier regulation since this might be more
    convenient for administrative purposes given the very small number
    of lines involved. The Commission will consider removal of
    additional regulatory obligations[^97] in the Terry exchange if
    Qwest files a formal petition requesting such relief.[^98] This
    classification of Qwest in the Terry exchange only applies to the
    regulation of interstate services, and the Montana Commission
    retains the authority to regulate Qwest's intrastate services in the
    Terry exchange consistent with state requirements.

### Subsequent Regulation of Mid-Rivers

35. We do not address in this Order the appropriate long-term regulatory
    treatment of Mid-Rivers in the Terry exchange. Thus, Mid-Rivers will
    remain subject to existing competitive LEC non-dominant regulation
    for its interstate telecommunications services pending further
    Commission action.[^99] Mid-Rivers has stated that it plans to file
    a study area boundary waiver request to allow it to incorporate its
    Terry operations into its existing study area, which operates under
    dominant carrier regulation.[^100] Mid-Rivers has also stated that
    it wishes to include the Terry lines in the NECA pool.[^101] Under
    these circumstances, Mid-Rivers may wish to have its Terry
    operations subject to dominant carrier regulation. Therefore, the
    Commission will address Mid-Rivers' regulatory classification in
    conjunction with the Mid-Rivers' study area boundary waiver request
    once that request is filed. Commission action on the study area
    boundary waiver request could also be accompanied by further changes
    in the regulatory status of Qwest's operations in the Terry
    exchange.

    **IV. PROCEDURAL MATTERS**

## Paperwork Reduction Act

36. This document does not contain new information collection
    requirements subject to the Paperwork Reduction Act of 1995 (PRA),
    Public Law 104-13. In addition, therefore, it does not contain any
    new or modified "information collection burden for small business
    concerns with fewer than 25 employees," pursuant to the Small
    Business Paperwork Relief Act of 2002, Public Law 107-198, *see* 44
    U.S.C. § 3506(c)(4).

## Final Regulatory Flexibility Analysis

37. As required by the Regulatory Flexibility Act of 1980, as amended
    (RFA),[^102] an Initial Regulatory Flexibility Analysis (IRFA) was
    incorporated in the *Mid-Rivers Notice of Proposed
    Rulemaking*.[^103] We received no comments regarding the IRFA.

38. In conformance with the RFA,[^104] we certify that the rules adopted
    herein will not have a significant economic impact on a substantial
    number of small entities. Our rule treating Mid-Rivers as an
    incumbent LEC pursuant to section 251(h)(2) will affect only
    Mid-Rivers directly. Even if Mid-Rivers can be classified as a small
    entity, it does not constitute a "substantial number of small
    entities" for purposes of the RFA. In addition, we accord
    non-dominant carrier status to Qwest's interstate telecommunications
    operations in the Terry exchange and cap Qwest's carrier-to-carrier
    switched access rates in the Terry exchange at their levels as of
    the date of adoption of this Order. We note that Qwest is not a
    small entity.[^105]

39. The Commission will send a copy of the Report and Order, including
    the foregoing certification, in a report to Congress and the
    Comptroller General pursuant to the Congressional Review Act.[^106]
    In addition, the Commission will send a copy of the Report and
    Order, including this certification to the Chief Counsel for
    Advocacy of the SBA, and will also publish it in the Federal
    Register.[^107]

# ordering clauses

40. Accordingly, IT IS ORDERED, pursuant to section 251(h)(2) of the
    Communications Act of 1934, as amended, 47 U.S.C. § 251(h)(2), and
    section 51.223 of the Commission's rules, 47 C.F.R. § 51.223, that
    Mid-Rivers Telephone Cooperative, Inc. will be treated as an
    incumbent local exchange carrier for purposes of section 251 in the
    Terry, Montana exchange, as described herein.

41. IT IS FURTHER ORDERED that Qwest is relieved of its dominant carrier
    status for its interstate telecommunications services in the Terry
    exchange as described herein.

42. IT IS FURTHER ORDERED that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this Report and Order, including the Final Regulatory
    Flexibility Certification, to the Chief Counsel for Advocacy of the
    Small Business Administration.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

APPENDIX A

LIST OF COMMENTERS TO THE PUBLIC NOTICE

**Comments Filed in Response to the Public Notice in WC Docket No.
02-78**

  ------------------------------------------ --------------------------------
  **[Comments]{.underline}**                 **[Abbreviation]{.underline}**

  John Staurulakis, Inc.                     Staurulakis

  National Telecommunications Cooperative    NTCA
  Association                                

  Rural Independent Competitive Alliance     RICA
  ------------------------------------------ --------------------------------

**Opposition Filed in Response to the Public Notice in WC Docket No.
02-78**

  ------------------------------------------ --------------------------------
  **[Opposition]{.underline}**               **[Abbreviation]{.underline}**

  Western Wireless Corporation               Western Wireless
  ------------------------------------------ --------------------------------

APPENDIX B

LIST OF COMMENTERS TO THE *NOTICE*

**Comments Filed in Response to the *Notice* in WC Docket No. 02-78**

  ------------------------------------------ --------------------------------
  **[Comments]{.underline}**                 **[Abbreviation]{.underline}**

  ACS of Anchorage, Inc., ACS of Alaska,     ACS
  Inc., and ACS of Fairbanks, Inc.           

  AT&T Corp. (filed prior to merger with     AT&T
  SBC)                                       

  General Communications, Inc.               GCI

  Hancock Communications, Inc.               Hancock

  Iowa Telecommunications Services, Inc.     Iowa Telecom
  d/b/a Iowa Telecom                         

  John Staurulakis, Inc.                     Staurulakis

  Montana Public Service Commission          Montana Commission

  National Telecommunications Cooperative    NTCA
  Association                                

  Prairie County, Montana                    Prairie County

  Qwest Communications International Inc.    Qwest

  Rural Independent Competitive Alliance     RICA

  SBC Communications Inc. (filed prior to    SBC
  merger with AT&T)                          

  Sprint Corporation                         Sprint

  TCA, Inc. - Telcom Consulting Associates   TCA
  ------------------------------------------ --------------------------------

**Reply Comments Filed in Response to the *Notice* in WC Docket No.
02-78**

  ------------------------------------------ --------------------------------
  **[Reply Comments]{.underline}**           **[Abbreviation]{.underline}**

  AT&T Corp.                                 AT&T

  Cox Communications, Inc.                   Cox

  General Communications, Inc.               GCI

  Iowa Telecommunications Services, Inc.     Iowa Telecom
  d/b/a Iowa Telecom                         

  Mid-Rivers Telephone Cooperative, Inc.     Mid-Rivers

  Montana Public Service Commission          Montana Commission

  Organization for the Promotion and         OPASTCO
  Advancement of Small Telecommunications    
  Companies                                  

  Qwest Communications International Inc.    Qwest

  SBC Communications Inc.                    SBC

  South Slope Cooperative Telephone Company, South Slope
  Inc.                                       

  Verizon telephone companies                Verizon
  ------------------------------------------ --------------------------------

[^1]: 47 U.S.C. § 251(h)(2).

[^2]: A formal petition for forbearance applicable to Qwest's Terry
    operations consistent with the relevant Commission rules is not
    presently before the Commission. *See* *infra* note Error: Reference
    source not found*.* If Qwest wishes to obtain additional regulatory
    relief in the Terry exchange, for example, removal of the unbundling
    requirements contained in sections 251 and 271 of the Act, it must
    file a forbearance petition consistent with the Commission's rules.
    As discussed below, Qwest may continue to operate under dominant
    carrier regulation in the Terry exchange if it wishes to do so for
    reasons of administrative convenience.

[^3]: Petition for Order Declaring Mid-Rivers Telephone Cooperative,
    Inc. an Incumbent Local Exchange Carrier in Terry, MT, at 1-2 (filed
    Feb. 5, 2002) (Mid-Rivers Petition). Mid-Rivers also provides
    competitive LEC service in Fairview, Glendive, Miles City, Sidney,
    and Wiebaux, Montana, and serves approximately 11,000 access lines
    in eastern Montana as an incumbent LEC. *Id.* at 1, 2 n.1. Since
    filing its petition, Mid-Rivers has completed overbuilding in the
    Terry exchange and can provide service to any customer over its own
    facilities. *See* Letter from David Cosson, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 02-78 (dated July 25, 2006)
    (Mid-Rivers July 25, 2006 *Ex Parte* Letter).

[^4]: Mid-Rivers Petition at 2 & n.2.

[^5]: *Id.* at 2. Mid-Rivers does not rely on any Qwest unbundled
    network elements (UNEs) or resold services in the town limits of
    Terry. *Id.*

[^6]: *Id.* at 2.

[^7]: Mid-Rivers Reply at 4.

[^8]: Mid-Rivers Petition at 3. CLASS provides for call-forwarding and
    caller identification. *See* Newton's Telecom Dictionary 170 (15th
    ed. 1999).

[^9]: Montana Commission Comments at 3-4.

[^10]: *Id.* at 2; *see also* 47 U.S.C. § 214(e) (defining the scope of
    ETC status). An eligible telecommunications carrier is a common
    carrier that offers all services that are supported by federal
    universal service support mechanisms under section 254(c) and that
    uses \"media of general distribution\" to advertise the availability
    of those services and its charges for them. [47 U.S.C. §
    214(e)(1)](http://web2.westlaw.com/find/default.wl?DB=1000546&DocName=47USCAS214&FindType=L&AP=&mt=Communications&fn=_top&sv=Split&vr=2.0&rs=WLW6.04).

[^11]: *Pleading Cycle Established for Comments on Mid-Rivers Telephone
    Cooperative Inc. Petition for Declaratory Ruling to Declare
    Mid-River* \[sic\] *an Incumbent LEC Pursuant to Section 251(h)(2)
    of the Act*, Public Notice (dated Apr. 19, 2002) (Public Notice).
    The parties filing in response to the April Public Notice on the
    Mid-Rivers Petition are listed in Appendix A.

[^12]: *Petition of Mid-Rivers Telephone Cooperative, Inc. for Order
    Declaring it to be an Incumbent Local Exchange Carrier in Terry,
    Montana Pursuant to Section 251(h)(2)*, Notice of Proposed
    Rulemaking, WC Docket No 02-78, 19 FCC Rcd 23070 (2004) (*Notice*).
    The Commission initiated a rulemaking proceeding because section
    251(h)(2) refers to Commission action "by rule" to treat a LEC as an
    incumbent LEC for purposes of section 251. The parties filing in
    response to the *Notice* are listed in Appendix B to this Order. On
    March 31, 2005, the United States Court of Appeals for the District
    of Columbia Circuit denied a Petition for a Writ of Mandamus filed
    by Mid-Rivers seeking to compel the Commission to act on its
    original Petition. *See Mid-Rivers Telephone Cooperative, Inc.*, No.
    04-1163, slip op. (D.C. Cir. Mar. 31, 2005).

[^13]: *See* 47 C.F.R. Part 36 App. The Appendix to Part 36\--Glossary
    provides that "\[s\]tudy area boundaries shall be frozen as they are
    on November 15, 1984." This provision requires that incumbent LECs
    obtain a waiver from the Commission before they incorporate
    additional service territory into their existing study area or
    transfer service territory to another incumbent LEC. *Id*.

[^14]: *See* Mid-Rivers Petition at 3.

[^15]: *See* 47 U.S.C. § 251(a).

[^16]: *See* 47 U.S.C. § 251(b).

[^17]: *See* 47 U.S.C. § 251(c).

[^18]: Section 251(c) obligations of an incumbent LEC include the duty
    to negotiate interconnection agreements in good faith; to provide
    specified interconnection to requesting telecommunications carriers;
    to provide requesting telecommunications carriers with unbundled
    access to its network elements; to offer for resale at wholesale
    rates certain telecommunications services; and to provide physical
    collocation of certain equipment belonging to other
    telecommunications carriers. 47 U.S.C. §§ 251(c)(1), (2), (3) & (4).

[^19]: NECA is an association, established by Commission rule, for all
    "telephone companies that participate in the distribution of Carrier
    Common Line revenue requirement, pay long term support to
    association Common Line tariff participants, or receive payments
    from the transitional support fund administered by the association."
    47 C.F.R. § 69.601(b). The association was established "in order to
    prepare and file access tariffs on behalf of all telephone companies
    that do not file separate tariffs or concur in a joint access tariff
    of another company for all access elements." 47 C.F.R. § 69.601(a).

[^20]: 47 U.S.C. § 251(h)(1).

[^21]: 47 U.S.C. § 251(h)(2); *see also* section 51.223 of the
    Commission's rules, 47 C.F.R. § 51.223, which implements section
    251(h)(2).

[^22]: 47 U.S.C. § 251(h)(2). *See Implementation of the Local
    Competition Provisions in the Telecommunications Act of 1996*, First
    Report and Order, 11 FCC Rcd 15499, 16110, para. 1248 (1996) (a
    "clear and convincing" showing should be required to satisfy the
    requirements of section 251(h)(2)).

[^23]: *Guam Public Utilities Commission Petition for Declaratory Ruling
    Concerning Section 3(37) and 251(h) of the Communications Act;
    Treatment of the Guam Telephone Authority and Similarly Situated
    Carriers as Incumbent Local Exchange Carriers under Section
    251(h)(2) of the Communications Act (Guam Proceeding)*, Declaratory
    Ruling and Notice of Proposed Rulemaking, 12 FCC Rcd 6925, 6926,
    para. 1 (1997) (*Guam Declaratory Ruling and NPRM*); *Treatment of
    the Guam Telephone Authority and Similarly Situated Carriers as
    Incumbent Local Exchange Carriers under Section 251(h)(2) of the
    Communications Act*, Report and Order, 13 FCC Rcd 13765 (1998)
    (*Guam Order*).

[^24]: *Guam Declaratory Ruling and NPRM*, 12 FCC Rcd at 6927, paras.
    2-3; *Guam Order*, 13 FCC Rcd 13765.

[^25]: In this Order, we do not address the treatment of Mid-Rivers as
    an incumbent LEC for purposes other than section 251. *See* *infra*
    para. 17.

[^26]: 47 U.S.C. § 251(h)(2)(A).

[^27]: *See Notice*, 19 FCC Rcd at 23073-74, paras. 6-8.

[^28]: *See* 47 U.S.C. § 251(h)(2)(A).

[^29]: *See, e.g.*, Letter from Craig Brown, Senior Attorney, Qwest, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 02-78, at 3 (dated
    June 28, 2002) (stating that Qwest is aware of at least 20 areas
    where a rural incumbent LEC has overbuilt Qwest's local telephone
    network); Qwest Comments at 8 (stating that in Montana alone,
    Mid-Rivers and other rural incumbent LECs have overbuilt in three
    communities served by Qwest and that additional build-out is
    underway).

[^30]: *See, e.g.*, AT&T Comments at 3 n.5 (stating that an area could
    consist of a single exchange because that is consistent with the
    pro-competitive intent of the Act); Montana Commission Comments at 2
    (arguing that the Terry exchange should be the relevant area for
    this petition); NTCA Comments at 2 (noting that the Commission could
    find that the local exchange is the proper area for performing a
    section 251(h) analysis); RICA Comments at 3 (believing that nothing
    smaller than an exchange would be appropriate for defining an area);
    South Slope Reply at 2 (finding it logical that the Commission would
    find an exchange to meet the definition of area); Staurulakis
    Comments at 3 (stating that the relevant area should be the service
    area used by the incumbent).

[^31]: Given the very limited number of access lines in the Terry
    exchange and the absence of any large business customers, there is
    no need to analyze the mass market and business markets separately
    as the Commission frequently does in other contexts. *See* Letter
    from David Cosson, Counsel to Mid-Rivers Telephone Cooperative,
    Inc., Kraskin, Moorman & Cosson, LLC, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 02-78, at 2 (dated Sept. 7, 2006)
    (stating that there are no substantial business lines in Terry and
    that only one customer has 8 lines, and all the rest have 1 or 2).
    We do not address the question of what type of local exchange market
    analysis would be appropriate for purposes of section 251(h)(2) in
    an area with substantially more business access lines or total
    access lines.

[^32]: *See Notice*, 19 FCC Rcd at 23074, para. 8; *see also, e.g.*,
    NTCA Comments at 3 (arguing that Mid-Rivers occupies a comparable
    position to Qwest in the Terry exchange); TCA Comments at 3 (same).

[^33]: The record in this proceeding contains a range of subscribership
    estimates for Mid-Rivers in the Terry exchange. In its initial
    Petition, Mid-Rivers estimates that it served 93 percent of the
    access lines in the Terry exchange and 97 percent of the access
    lines in the town of Terry. Mid-Rivers Petition at 2 & n.2. The
    Commission used these figures in its Notice of Proposed Rulemaking.
    *Notice*, 19 FCC Rcd at 23072, para. 4. In its comments, the Montana
    Commission refers to "Mid-Rivers' provision of service to over 85
    percent of the customers in the area," and states that "Qwest now
    serves about fifteen percent of the customers, or about 75 customers
    total, in the Terry exchange." Montana Commission Comments at 2. In
    its Reply, the Montana Commission refers to the 93 percent and 97
    percent subscribership estimates in Mid-Rivers' original Petition,
    but later describes Mid-Rivers as "achiev\[ing\] an 85% share of the
    market." Montana Commission Reply at 4, 10. Mid-Rivers does not
    address the Montana Commission estimates in its Reply. In any event,
    even the lowest estimates show a very high subscribership level such
    that we need not resolve the differences in the record.

[^34]: *See* Mid-Rivers July 25, 2006 *Ex Parte* Letter (updating the
    record to reflect that Mid-Rivers, since filing its Petition, has
    completed overbuilding the Terry exchange).

[^35]: *See, e.g.*, *Local Telephone Competition: Status as of June 30,
    2005* (WCB IATD Apr. 2006); *Local Telephone Competition: Status as
    of June 30, 2004* (WCB IATD Dec. 2004); *Local Telephone Competition
    at the New Millennium* (CCB IATD Aug. 2000).

[^36]: *See* Mid-Rivers Petition at 3; Montana Commission Comments at
    3-4; Prairie County Comments at 1 (stating that Mid-Rivers has
    provided the town of Terry with advanced services that were not
    previously available).

[^37]: *See, e.g.*, Montana Commission Comments at 3-4 (noting that
    Mid-Rivers employs an installer/repair technician who lives in Terry
    and a customer service representative who makes monthly visits to
    the Terry exchange, and Terry customers have 24/7 access to the
    Mid-Rivers Technical Assistance Center in Glendive, Montana).
    Mid-Rivers, additionally, asserts that the nearest Qwest customer
    service location to Terry is at least 200 miles away. *See*
    Mid-Rivers Petition at 1.

[^38]: *See, e.g.*, Montana Commission Comments at 3-4 (arguing that
    Mid-Rivers' network in Terry is superior to Qwest's network).

[^39]: *See* 47 U.S.C. § 251(h)(2)(A) (stating that the Commission must
    find that a carrier occupies a "comparable" position to the
    incumbent LEC). The existence of a second set of facilities is
    closely related to the issue of whether Mid-Rivers has sufficient
    market power to raise rates. Above, we discuss why the presence of a
    second set of facilities does not prevent us from concluding that
    Mid-Rivers is in a market position comparable to that of an
    incumbent LEC. We believe that analysis also addresses whether
    Mid-Rivers has sufficient market power to be in a position
    comparable to an incumbent LEC. Accordingly, we disagree with
    commenters arguing that the Commission cannot conclude that
    Mid-Rivers is in a position comparable to an incumbent LEC on the
    grounds that it has not shown that it can increase rates. *See,
    e.g.*, SBC Comments at 7 (arguing that Mid-Rivers is not in a
    comparable position to the incumbent LEC because Mid-Rivers cannot
    raise rates) (comments filed prior to merger with AT&T).

[^40]: 47 U.S.C. § 251(h)(2)(B).

[^41]: *Notice*, 19 FCC Rcd at 23074, para. 9.

[^42]: *See, e.g.*, Mid-Rivers Reply at 4 (stating that no commenter has
    seriously challenged the idea that Mid-Rivers has substantially
    replaced Qwest in the Terry exchange and thus the Commission should
    adopt its tentative conclusion).

[^43]: *See, e.g.*, Hancock Comments at 2 (arguing that Mid-Rivers has
    "substantially replaced" Qwest in the Terry exchange); NTCA Comments
    at 3-4 (same); RICA Comments at 2 (same); Staurulakis Comments at 4
    (same); TCA Comments at 4 (same); AT&T Reply at 2 (same).

[^44]: "Substantial" is defined as "pertaining to the essence of a
    thing," and "replace" is defined as "to assume the function of;
    substitute for." Random House Webster's College Dictionary 1117,
    1303 (1999). In reaching this conclusion, we recognize that the
    Commission has interpreted the phrase, "replacement for a
    substantial portion of the local telephone exchange service" in the
    context of the Communications Assistance for Law Enforcement Act as
    requiring a lesser degree of replacement than exists in the Terry
    exchange. S*ee Communications Assistance for Law Enforcement Act and
    Broadband Access and Services*, ET Docket No. 04‑295, RM-10865,
    First Report and Order and Further Notice of Proposed Rulemaking, 20
    FCC Rcd 14989, 14994-95, paras. 12-13 (2005), *aff'd*, *American
    Council on Educ. v. FCC*, No. 05-1404 (D.C. Cir. June 9, 2006). We
    believe that these differences in interpretation are amply justified
    by the differences in the language at issue ("substantially replace"
    versus "substantial portion"), the differences in the purposes of
    the statutory provisions involved, and existing Commission precedent
    concerning the interpretation of section 251(h)(2).

[^45]: *Guam Declaratory Ruling and NPRM*, 12 FCC Rcd at 6947, para. 38;
    *Guam Order*, 13 FCC Rcd at 13768-69, para. 6 (adopting the
    conclusions from the *Guam Declaratory Ruling and NPRM*).

[^46]: The circumstances involving the GTA differ from the present
    circumstances since GTA did not technically replace another service
    provider on the island of Guam as it had always been the local
    exchange service provider there. Despite this, the Commission
    concluded that GTA should be found to have satisfied the
    "substantially replace" requirement of section 251(h)(2)(B) based on
    the fact that it served virtually all the subscribers in Guam and
    the policy objectives underlying section 251(h)(2). *Guam
    Declaratory Ruling and NPRM*, 12 FCC Rcd at 6942-47, paras. 28-39;
    *Guam Order*, 13 FCC Rcd at 13768-69, paras. 5-9.

[^47]: 47 U.S.C § 251(h)(2)(C).

[^48]: *See, e.g.*, RICA Comments at 5 (arguing that grant of the
    petition is in the public interest); TCA Comments at 4 (same).

[^49]: We plan to address the universal service and access charge issues
    as part of a subsequent proceeding.

[^50]: 47 U.S.C. § 251(h)(2)(C).

[^51]: *See* 47 U.S.C. § 251(f). Mid-Rivers declined to speculate
    concerning its response to an actual section 251(c) interconnection
    request in the Terry exchange and noted that in the 8 years it has
    operated in Terry, no other competitive LEC has showed any interest
    in competing with it. Mid-Rivers Reply at 7. We note, however, that
    Western Wireless has been designated as an Eligible
    Telecommunications Carrier in the Terry exchange and qualifies for
    universal service support.

[^52]: 47 U.S.C. § 251(f)(1)(A).

[^53]: Section 251(c) applies only to incumbent LECs. *See* 47 U.S.C. §
    251(c).

[^54]: *See, e.g.*, GCI Comments at 10-12; Qwest Comments at 9; GCI
    Reply at 5; Qwest Reply at 6; Letter from Melissa E. Newman, Vice
    President-Federal Regulatory, Qwest, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 02-78, at 4 (dated Aug. 24, 2006)
    (Qwest Aug. 24, 2006 *Ex Parte* Letter).

[^55]: *See, e.g.*, Montana Commission Comments at 11 (arguing that
    Mid-Rivers should maintain its section 251(f) protections until the
    state commission terminates the exemption).

[^56]: We also note that arguments concerning the public interest effect
    of the rural exemption in the Terry exchange may well be largely
    theoretical in nature since an additional competitive provider of
    local exchange services is unlikely to enter a small rural exchange
    such as Terry that already has two service providers with their own
    local exchange facilities. *See, e.g.*, Letter from David Cosson,
    Counsel to Mid-Rivers Telephone Cooperative, Inc., Kraskin, Moorman
    & Cosson, LLC, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    02-78, Att. at 9 (dated Sept. 24, 2004) (noting that no competitor
    has sought entry since Mid-Rivers filed its petition).

[^57]: We do not agree with commenter suggestions that we should defer
    addressing Qwest's regulatory classification in this proceeding.
    *See, e.g.*, Montana Commission Comments at 9; Cox Reply at 3-6;
    Mid-Rivers Reply at 9; Montana Commission Reply at 4; South Slope
    Reply at 3. We believe that it is important to address Qwest's
    dominant carrier regulatory classification in the Terry exchange in
    light of Qwest's greatly diminished market position. *See, e.g.*,
    SBC Comments at 3 (arguing that the Commission should remove
    dominant carrier regulation from a legacy incumbent LEC upon the
    classification of a competitive LEC as an incumbent LEC); Qwest
    Reply at 7 (arguing that treatment of Qwest is related to this
    proceeding).

[^58]: *See Notice*, 19 FCC Rcd at 23077-78, paras. 13-15.

[^59]: *See id*.

[^60]: *See id*.

[^61]: *See,* *e.g*., GCI Comments at 14; Montana Commission Comments at
    9; Mid-Rivers Reply at 9.

[^62]: Qwest Comments at 10-11 (under existing circumstances, the legacy
    incumbent LEC's unbundling obligations should be eliminated
    automatically); Qwest Reply at 5-6 (Qwest should not continue to
    have unbundling obligations in Terry); *see also* ACS Comments at
    2-5 (carrier serving less than 50 percent of a market should not be
    regulated as dominant); SBC Comments at 6-7 (Commission should
    eliminate dominant carrier regulation in Terry).

[^63]: *But see* Qwest Aug. 24, 2006 *Ex Parte* Letter at 2-3 (arguing
    that if an incumbent LEC has been displaced then no entity should
    have section 251 or 271 obligations, or dominant carrier status in
    those areas or, in the alternative, if the Commission does not
    forbear from the section 251 obligations, then the Commission should
    find that only the section 251(h)(2) incumbent LEC is subject to
    section 251's interconnection, unbundling, and resale obligations
    from that point).

[^64]: *See id.* at 3 (arguing that section 251(h)(2) "implicitly" calls
    for the incumbent LEC designation to be removed from the legacy
    incumbent LEC after a Commission section 251(h)(2) finding).

[^65]: We note that this issue could arise in the context of a study
    area boundary waiver request by Mid-Rivers intended to permit
    inclusion of its operations in the Terry exchange in its Montana
    study area.

[^66]: *See* 47 U.S.C. § 160. Based on the statutory language, we cannot
    agree with commenters who argue that if the elements of section
    251(h)(2) are satisfied, the requirements of section 10 have also
    been met for purposes of relieving the legacy incumbent LEC of its
    existing regulatory obligations. S*ee, e.g.*, Iowa Telecom Comments
    at 11-14; Qwest Comments at 2, 11, 13-15; Iowa Telecom Reply at 1-2,
    4-7; Qwest Reply at 6-7; *but see* GCI Comments at 14 (arguing that
    a legacy incumbent LEC should not automatically be reclassified as a
    competitive LEC after a section 251(h)(2) finding).

[^67]: *See Policy and Rules Concerning Rates for Competitive Common
    Carrier Services and Facilities Authorizations Therefor*, Notice of
    Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); First Report
    and Order, 85 FCC 2d 1 (1980) (*Competitive Carrier First Report and
    Order*); Further Notice of Proposed Rulemaking, 84 FCC 2d 445
    (1981); Second Further Notice of Proposed Rulemaking, FCC 82-187, 47
    Fed. Reg. 17308 (1982); Second Report and Order, 91 FCC 2d 59
    (1982); Order on Reconsideration, 93 FCC 2d 54 (1983); Third Further
    Notice of Proposed Rulemaking, 48 Fed. Reg. 28292 (1983); Third
    Report and Order, 48 Fed. Reg. 46791 (1983); Fourth Report and
    Order, 95 FCC 2d 554 (1983) (*Competitive Carrier Fourth Report and
    Order*), *vacated sub nom.*, *AT&T v. FCC*, 978 F.2d 727 (D.C. Cir.
    1992), *cert. denied*, *MCI Telecommunications Corp. v. AT&T*, 509
    U.S. 913 (1993); Fifth Report and Order, 98 FCC 2d 1191 (1984);
    Sixth Report and Order, 99 FCC 2d 1020 (1985), *vacated sub nom.*,
    *MCI Telecommunications Corp. v. FCC*, 765 F.2d 1186 (D.C. Cir.
    1985) (collectively referred to as the *Competitive Carrier
    Proceeding*); s*ee also, e.g.*, ACS Comments at 5 (arguing that the
    competitive LEC/incumbent LEC classification should be considered
    separate from the dominant/non-dominant classification issues).

[^68]: 47 U.S.C. § 160. *See, e.g.*, *Petition of Qwest Corporation for
    Forbearance Pursuant to 47 U.S.C. § 160(c) in the Omaha Metropolitan
    Statistical Area*, WC Docket No. 04-223, Memorandum Opinion and
    Order, 20 FCC Rcd 19415 (2005), *appeal pending*, *Qwest Corporation
    v. FCC*, No. 05-1450 (D.C. Cir. filed Dec. 12, 2005) (*Qwest Omaha
    Order*) (Commission forbore from applying certain dominant carrier
    regulation and unbundling requirements to Qwest in all or parts of
    the Omaha Metropolitan Statistical Area).

[^69]: *Compare* 47 U.S.C. § 251(h)(2), *with* 47 U.S.C. § 160. There is
    no indication in the statute that designating a LEC as an incumbent
    LEC for purposes of section 251 was intended to lift section 251(c)
    obligations from the legacy incumbent LEC automatically without
    adhering to the mechanisms provided in the Act for removal of
    unnecessary regulation. Accordingly, we do not accept the suggestion
    of some commenters that the requirements of section 10 for removal
    of section 251(c) obligations are automatically met if the elements
    of section 251(h)(2) are satisfied. The statutory language does not
    support the commenters' argument in this regard and they do not cite
    any legislative history that would persuade us that their theory is
    consistent with the Congressional intent.

[^70]: Qwest Comments at 11-15; *see also* Qwest Reply at 6-8; Qwest
    Aug. 24, 2006 *Ex Parte* Letter at 3.

[^71]: The Commission only considers requests for forbearance pursuant
    to section 10 if they meet certain procedural requirements. *See* 47
    C.F.R. § 1.53 (stating that any forbearance request must be filed as
    a separate pleading and identified as such in the caption). Qwest
    did not file a separate forbearance request consistent with our
    rules, and as such did not satisfy the Commission's procedural
    requirements.

[^72]: *See Notice*, 19 FCC Rcd at 23078, para. 15 (seeking comment on
    whether section 10 is the required mechanism for addressing future
    regulation of a legacy incumbent LEC and the relationship between
    the findings under section 251(h)(2) and a section 10 analysis).

[^73]: *See Competitive Carrier Proceeding supra* note Error: Reference
    source not found. The Commission has also defined dominant carrier
    in section 61.3 of the Commission's rules. 47 C.F.R. § 61.3(q)
    ("Dominant carrier" is defined as a "carrier found by the Commission
    to have market power (*i.e.*, power to control prices).").

[^74]: Fifteen days' notice is required for rate increases and changes
    to terms and conditions and seven days' notice is required for rate
    decreases. *See* 47 U.S.C. §§ 203(b), 204(a)(3); 47 C.F.R. §§ 61.38,
    61.41, 61.58.

[^75]: 47 C.F.R. § 61.23(c); *Tariff Filing Requirements for
    Non-Dominant Carriers*, Order, 10 FCC Rcd 13653, 13654, paras. 4-5
    (1995).

[^76]: 47 C.F.R. § 1.773(a)(ii).

[^77]: 47 C.F.R. § 63.71(c).

[^78]: 47 C.F.R. § 63.03(b).

[^79]: *Competitive Carrier First Report and Order*, 85 FCC 2d at 21,
    paras. 57-58.

[^80]: *See Competitive Carrier Fourth Report and Order*, 95 FCC 2d at
    558, paras. 7-8.

[^81]: *Id.*

[^82]: *See Motion of AT&T Corp. to be Reclassified as a Non-Dominant
    Carrier*, 11 FCC Rcd 3271, 3293-94, para. 38-39 (1995) (*AT&T
    Reclassification Order*).

[^83]: *See id.* at 3293, para. 38.

[^84]: *See id.* at 3307, para. 68.

[^85]: *See id.* at 3303, para. 57.

[^86]: *See id*.

[^87]: *See id.* at 3305-06, paras. 63-64.

[^88]: *See id.* at 3309, para. 73.

[^89]: *See id.* at 3293, para. 38.

[^90]: *See supra* note Error: Reference source not found; Mid-Rivers
    Petition at 2 n.2; s*ee also, e.g.*, ACS Comments at 2 (arguing that
    any carrier that falls below a 50 percent market share should be
    relieved of dominant carrier regulation).

[^91]: Mid-Rivers Petition at 1-2; Mid-Rivers July 25, 2006 *Ex Parte*
    Letter (updating the record to reflect that Mid-Rivers, since filing
    its Petition, has completed overbuilding the Terry exchange).

[^92]: *Id.* at 2.

[^93]: *Id.* at 3.

[^94]: *See supra* note Error: Reference source not found.

[^95]: *AT&T Reclassification Order*, 11 FCC Rcd at 3309, para. 73.

[^96]: This means that Qwest's interstate services are not subject to
    price cap or rate-of-return regulation, Qwest may file tariffs on
    one day's notice without cost support, Qwest is only required to
    wait 30 days before its applications to discontinue, reduce, or
    impair service can be granted, and Qwest will be accorded
    presumptive streamlined treatment for transfers of control in the
    Terry exchange. *See supra* para. 25. If Qwest operates under
    non-dominant carrier regulation in the Terry exchange, to preserve
    the status quo pending further agency action, we cap Qwest's
    carrier-to-carrier interstate switched exchange access rates in the
    Terry exchange at their level on the date we adopt this Order. Qwest
    may, however, lower these rates subject to compliance with
    non-dominant carrier regulatory requirements. *See generally* *Qwest
    Omaha Order*, 20 FCC Rcd at 19435, paras. 40-41.

[^97]: Additional obligations applicable to Qwest in the Terry exchange
    include, for example, section 251(c) unbundling and resale
    obligations and section 271 unbundling requirements.

[^98]: *See, e.g.*, GCI Comments at 14 (stating that Qwest should have
    to file a forbearance application before it has the option of
    becoming a competitive LEC); Montana Commission Comments at 8-9
    (arguing that Qwest should retain its incumbent LEC status and
    remain subject to unbundling obligations); RICA Comments at 7
    (stating that nothing in the Act precludes two incumbent LECs in the
    same area and in the absence of a request from Qwest to change its
    status pursuant to a forbearance petition, the Commission should not
    act); Staurulakis Comments at 2 (stating that until Qwest seeks to
    relinquish its incumbent LEC status it should remain one); AT&T
    Reply at 4-6 (arguing that Qwest should remain subject to all
    applicable incumbent LEC obligations until the Commission approves a
    forbearance petition); GCI Reply at 6-7 (arguing that the Commission
    should not forbear from an incumbent LEC's section 251(c) duties
    absent a section 10 showing); *but see* TCA Comments at 6 (seeing no
    reason for two incumbent LECs in the same area); Qwest Reply at 5-6
    (arguing that Qwest should not remain an incumbent LEC in the Terry
    exchange); SBC Reply at 1 (arguing that the Commission should not
    continue imposing section 251(c) obligations on the legacy incumbent
    in this context); SBC Reply at 2-3 (contending that the Act does not
    contemplate imposing incumbent LEC status on more than one carrier
    in an area). Although we only address dominant carrier regulation in
    this Order, we explicitly state that this Order does not prejudge a
    future Qwest request for forbearance from additional regulation.

[^99]: This would include the interstate switched exchange access
    benchmark, among other requirements, pending further action. *See*
    47 C.F.R. § 61.26.

[^100]: *See* Mid-Rivers Petition at 3; *Notice*, 19 FCC Rcd at 23078,
    para. 14 n.50; Mid-Rivers July 25, 2006 *Ex Parte* Letter.

[^101]: *See* Mid-Rivers Petition at 3.

[^102]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601--612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^103]: *Notice*, 19 FCC Rcd at 23081-91, paras. 26-50.

[^104]: We have treated this as a rulemaking under the RFA. *See supra*
    note Error: Reference source not found. RFA analysis applies to
    certain categories of rules of particular applicability. 5 U.S.C. §
    601(2).

[^105]: In addition, it appears that our actions with regard to Qwest
    fall outside the scope of the RFA because they are rules of
    particular applicability involving rates and pricing. *See
    generally* 5 U.S.C. § 601(2).

[^106]: *See* 5 U.S.C. § 801(a)(1)(A).

[^107]: *See* 5 U.S.C. § 605(b).