**Before the**

**Federal Communications Commission**

**Washington, DC 20554**

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| In the Matter of                 | *  | CC Docket No. 96-45          |
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| Federal-State Joint Board on     | ** |                              |
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| Universal Service                | *  |                              |
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| Valor Telecommunications of      | ** |                              |
| Texas, L.P.                      |    |                              |
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| Request for Waiver of Section    | *) |                              |
| 54.305 )                         | ** |                              |
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| of the Commission's Rules        | *  |                              |
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**order**

**Adopted:** January 4, 2005 **Released:** January 10, 2005

By the Commission:

#  introduction

1.  In this Order, we deny in part and grant in part a request by Valor
    Telecommunications of Texas, L.P. (Valor), a rural incumbent local
    exchange carrier formed through the acquisition of approximately
    315,000 lines from GTE in 2000, for waiver of section 54.305 of the
    Federal Communications Commission's (Commission) rules.[^1] In
    particular, we grant Valor a limited waiver of section 54.305 of the
    Commission's rules to allow it to receive additional safety valve
    support consistent with the modifications to the safety valve
    mechanism that we adopt today in a companion order.[^2] This limited
    waiver will allow Valor to receive additional safety valve support
    for the costs that it incurred in its first year of operation, as
    well as in subsequent years that the Rural Task Force plan is in
    place.[^3]

#  background

2.  *[Section 54.305]{.underline}.* 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.[^4] Section 54.305 was
    adopted in the *Universal Service First Report and Order* as an
    interim measure aimed at discouraging carriers from transferring
    exchanges merely to increase their share of high-cost universal
    service support.[^5] The Commission was concerned that, while
    support is calculated for carriers based on separate rural and
    non-rural mechanisms, potential universal service payments may
    unduly influence a carrier's decision to purchase exchanges from
    other carriers.[^6]

3.  In the *Rural Task Force Order*, the Commission found that section
    54.305 should be retained, but modified it to provide "safety valve"
    support to rural carriers that make substantial investment after
    acquiring exchanges.[^7] While the Commission reiterated its support
    for section 54.305's intended purpose of discouraging carriers from
    transferring exchanges merely to increase their share of high-cost
    universal service support, the Commission also recognized that
    section 54.305 may have the unintended consequence of discouraging
    rural carriers from acquiring high-cost exchanges from carriers with
    low average costs and preventing rural carriers from receiving
    support for new investments in recently-acquired high-cost
    exchanges. [^8]

4.  Specifically, the Commission found that safety valve support should
    be provided for up to 50 percent of any positive difference between
    the rural incumbent local exchange carrier's index year expense
    adjustment for the acquired exchanges and subsequent year expense
    adjustments.[^9] The Commission further found that, for purposes of
    determining a rural carrier's safety valve support, the index year
    expense adjustment shall be defined as the high-cost loop support
    expense adjustment for the acquired exchanges calculated at the end
    of the company's first year of operating the exchanges.[^10] The
    total safety valve support available to all eligible study areas is
    limited to no more than five percent of rural incumbent local
    exchange carrier support available from the annual high-cost loop
    fund.[^11]

5.  *[Valor's Petition for Waiver]{.underline}*. On September 1, 2000,
    Valor purchased approximately 315,000 access lines in 197 exchanges
    formerly owned by GTE.[^12] These lines were removed from GTE's two
    Texas study areas and consolidated into a new study area for
    Valor.[^13] Section 54.305 limits Valor's high-cost universal
    service support to the per-line support levels that GTE received
    prior to the transfer of the exchanges.[^14] Valor seeks a waiver of
    section 54.305 to receive high-cost support based on the average
    cost of all of its access lines, including the acquired lines at
    issue here, rather than limiting the per-line level of support for
    the acquired lines to the amount of support for which they were
    eligible prior to their transfer.

6.  Valor argues that it faces a "combination of unique circumstances"
    that warrant a waiver of section 54.305.[^15] Valor states that it
    acquired from GTE a highly depreciated network that requires
    substantial modernization to provide quality services at affordable
    rates for its customers.[^16] Valor describes in its Petition a
    five-year program that it has undertaken to upgrade and modernize
    the network and claims that, absent additional support, it will not
    be able to complete its five-year program in a timely manner.[^17]
    Valor contends that the limited support it receives based on the
    support that GTE was receiving prior to the acquisition does not
    accurately reflect the average cost of the lines at the time of the
    transfer because of "extraordinary" cost reductions taken by GTE
    immediately prior to the transfer.[^18] Valor claims that it was not
    aware at the time of sale that GTE had recognized net pension plan
    gains of \$57.2 million stemming from a lump-sum settlement of
    pension obligations in association with an employee-reduction
    program.[^19] According to Valor, these pension plan gains
    significantly lowered GTE's operating costs and thus its average
    loop cost, which lowered the support levels for GTE at the time of
    the sale.[^20]

7.  Valor further states that since it began operations in 2000, it has
    incurred substantial capital expenditures, in part due to
    circumstances beyond its control.[^21] For example, Valor claims
    that it had incomplete cost information at the time of the
    acquisition and that it incurred costs to connect remote switches to
    its own network where the relevant host switches remained with GTE.
    Valor also asserts that it incurred additional costs as a result of
    conditions imposed by the Texas Public Utility Commission.[^22]
    Valor further claims to have incurred substantial costs as the
    result of an ice storm in December 2000 and that it invested over
    \$1 million in the telecommunications infrastructure of Crawford,
    Texas in order to meet the telecommunications needs of the White
    House Communications Agency at the President's ranch outside
    Crawford, Texas. Valor submits that, as a result, it had total
    capital expenditures of \$56.6 million in calendar year 2001, an
    amount approximately 43 percent greater than what it spent in
    2002.[^23]

8.  Valor asserts that safety valve support "will not accurately reflect
    the level of investment required to modernize and upgrade the
    network acquired from GTE."[^24] Valor argues that, because safety
    valve support is calculated based on the difference between the
    "index year" expense adjustment and the "subsequent year" expense
    adjustment, its unusually high expenses in 2001, its index year,
    artificially reduce its safety valve support.[^25] Valor also notes
    that the safety valve mechanism was not yet in place when it
    acquired the lines from GTE in 2000.

9.  The Wireline Competition Bureau released a Public Notice seeking
    comment on the Petition on April 20, 2004.[^26] AT&T, the Cellular
    Telecommunications & Internet Association (CTIA), Sprint
    Corporation, and Western Wireless filed comments in opposition to
    Valor's Petition and Valor filed a reply in response to those
    oppositions.[^27] The United States Telecom Association (USTA) filed
    comments in support of Valor's petition and the Independent
    Telephone & Telecommunications Alliance (ITAA) filed comments urging
    the Commission to provide relief to Valor and other
    similarly-situated carriers by granting the NTCA pending petition
    for reconsideration of the safety valve mechanism.[^28]

10. Generally, the Commission's rules may be waived for good cause
    shown.[^29] The Commission may exercise its discretion to waive a
    rule where the particular facts make strict compliance inconsistent
    with the public interest[^30][^31] In addition, the Commission may
    take into account considerations of hardship, equity, or more
    effective implementation of overall policy on an individual
    basis[^32][^33] 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.

#  DISCUSSION

11. For the reasons set forth below, we find that Valor has not
    demonstrated special circumstances that would warrant a complete
    waiver of section 54.305 of the Commission's rules. However, we
    grant Valor a waiver of section 54.305 so that it can receive
    additional support consistent with the modifications to the safety
    valve mechanism that we adopt today in the companion *NTCA
    Reconsideration Order*.[^34]

12. We are not persuaded that Valor's claims regarding GTE's highly
    depreciated network, the need for substantial network upgrades, or
    the fact that the transferred support does not accurately reflect
    the average cost of its lines constitute special circumstances. The
    Commission previously has stated that carriers seeking a waiver of
    section 54.305 must bear a heavy burden.[^35] Valor had the
    opportunity to evaluate, before purchasing these exchanges from GTE,
    the state of the network, the costs it would need to incur for any
    upgrades, and the amount of transferred support that it would
    receive. We are not convinced that Valor could not have identified
    all of these issues prior to making its decision to purchase the
    lines from GTE.[^36] To the extent Valor claims that it faces higher
    costs than most price caps carriers because it serves
    "overwhelmingly rural lines," Valor should have taken this into
    account when deciding to purchase these lines. Indeed, Valor had an
    obligation to take into account all factors that could have had an
    impact on its ability to operate the lines effectively, particularly
    given the representations Valor made to the Commission at the time
    in its request for waiver of the study area boundary freeze.[^37]

13. When Valor sought a study area waiver from the Commission so that it
    could create a separate study area for the lines it acquired from
    GTE, Valor certified that grant of the study area waiver would not
    have an impact on the universal service fund because of the
    limitations set forth in section 54.305 of the Commission's
    rules.[^38] Valor also stated that granting the waiver would serve
    the public interest because customers would receive additional and
    improved services from a carrier "specializing in meeting
    communications needs of rural and small urban communities."[^39] As
    such a carrier, Valor clearly knew or should have known that
    high-cost loop support would be an important source of funds for the
    operation of an exchange with high-cost loops and that it would be
    eligible only for the support that GTE was receiving for those lines
    prior to the sale. Carriers acquiring lines have the responsibility
    to fully explore the consequences of section 54.305 before
    consummating the acquisition of an exchange.[^40]

14. We agree with Valor in part, however, that it may not receive
    adequate support under the safety valve mechanism.[^41] More
    generally, we conclude that Valor's Petition highlights a deficiency
    in the safety valve mechanism and raises concerns similar to those
    raised by NTCA in its pending petition for reconsideration of the
    *Rural Task Force Order*.[^42] Accordingly, in a companion order
    adopted today, we grant NTCA's petition for reconsideration and
    amend section 54.305 of our rules to provide that rural carriers
    that acquire high-cost exchanges may receive safety valve support
    for the investment made in the first year of operating the acquired
    exchanges.[^43] The modified rule provides that the index year
    expense adjustment for purposes of determining safety valve support
    for the first year of operation shall be defined as the seller's
    expense adjustment for the twelve-month period prior to the sale of
    exchanges. The Commission's action in the companion *NTCA
    Reconsideration Order* does not modify the existing safety valve
    mechanism for support beginning in an acquiring carrier's second
    year of operation.[^44] As we state in the *NTCA Reconsideration
    Order*, "these actions better satisfy our policy goals of ensuring
    that acquiring carriers receive sufficient high-cost support and
    preserving the purpose of section 54.305 of discouraging carriers
    from transferring exchanges merely to increase their share of
    high-cost universal service support."[^45]

15. While the rule adopted in the companion order will apply
    prospectively, the costs Valor incurred in its first year of
    operation as a result of a severe ice storm in December 2000
    constitute special circumstances warranting a limited waiver of
    section 54.305. We therefore grant Valor a waiver of section 54.305
    so that it can receive support for its first year of operations
    based on its actual costs relative to GTE's costs, consistent with
    the modifications we make today to the safety valve mechanism.[^46]
    Allowing Valor to receive the benefits of the modified safety valve
    mechanism by granting a waiver of section 54.305 provides relief
    that is appropriately tailored to Valor's circumstances in its first
    year of operation.[^47] Further, by providing support to Valor for
    investments made in its first year of operation, Valor will be able
    to benefit from the modification of the safety valve rule despite
    the timing of its acquisition, which occurred prior to the adoption
    of the safety valve mechanism in the *Rural Task Force Order*.[^48]
    Accordingly, Valor may receive safety valve support for its first
    year of operations using GTE's expense adjustment for the
    twelve-month period prior to the sale of the exchanges as its index
    year expense adjustment. Consistent with the rule adopted in the
    companion order, Valor may receive safety valve support in
    subsequent years using its first-year costs to determine a new index
    year expense adjustment .[^49]

16. Because we provide relief to Valor consistent with the modifications
    to the safety valve mechanism, we decline to adopt Valor's proposal
    for adjusting its index year that was set forth in its November 6,
    2003 *ex parte* letter. [^50] We note, however, that even if we had
    not modified the safety valve mechanism, we would have rejected
    Valor's proposal. Valor's proposal that its index year be based on
    its "annualized" costs for the last quarter of 2000 would be highly
    subjective and inconsistent with the intent of our rules. The
    Commission's rules require that a carrier's index year be based on
    either the first calendar year after the transfer of exchanges (for
    carriers filing their cost data annually pursuant to section 36.611
    of the Commission's rules), or the first quarter following the
    transfer (for carriers filing quarterly data pursuant to section
    36.612).[^51] Likewise, we believe that Valor's proposal to exclude
    new costs to calculate an adjusted index year expense adjustment
    would be inappropriate.[^52] Excluding "new" costs from the
    calculation would be a difficult, and most likely an arbitrary means
    of deriving an index year expense adjustment, and distinguishing
    such new costs from routine or recurring costs would be a highly
    subjective process. For these reasons, we find Valor's proposal
    unacceptable.

17. Finally, we disagree with Valor that a waiver of section 54.305 of
    the Commission's rules would be consistent with Commission
    precedent. Valor erroneously relies on case law that predates the
    Commission's adoption of section 54.305 to support its claim that
    "capping high-cost loop support for a *limited* time is sufficient
    to accomplish the goals of \[s\]ection 54.305."[^53] The precedent
    cited by Valor involved permanent caps that were placed on
    individual carriers in the context of study area waiver requests to
    prevent carriers from underestimating universal service support in
    order to secure Commission approval of such requests. In removing
    those caps, the Commission concluded that the caps, which had been
    in place for three years, had "served their purpose by preventing
    the carriers from underestimating the effect the transfer of
    exchanges would have on the high-cost loop support mechanism
    immediately following the transfer."[^54] The Commission also found
    that retaining the permanent caps could have the unintended effect
    of hindering a carrier's incentives and abilities to upgrade its
    networks.[^55] In contrast, section 54.305 was adopted as a
    regulatory measure to prevent "gaming" during the period when rural
    and non-rural carriers would be receiving support based on two
    distinct support mechanisms.[^56] Moreover, the Commission addressed
    criticisms regarding the effect of section 54.305 limitations on
    investment incentives when it adopted the safety valve mechanism in
    the *Rural Task Force Order*.[^57]

18. In adopting the safety valve mechanism, the Commission did not limit
    the amount of time that section 54.305 would apply to acquired
    lines. To the extent Valor is relying on the *Cap Removal Orders* to
    support a claim that the limitations set forth in section 54.305 of
    the Commission's rules should expire three years after a transaction
    has occurred, we agree with Sprint that such a claim is more
    appropriately raised in the context of a rulemaking proceeding.[^58]
    We find that the precedent cited by Valor does not provide a basis
    for granting Valor a waiver of section 54.305 of the Commission's
    rules three years after consummation of the transfer.

#  ORDERING CLAUSE

19. Accordingly, IT IS ORDERED, pursuant to sections 1-4, and 254 of the
    Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154 and
    254, and section 1.3 of the Commission's rules, 47 U.S.C. § 1.3,
    that the petition for waiver of section 54.305 of the Commission's
    rules, 47 C.F.R. § 54.305, filed by Valor Telecommunications of
    Texas, L.P., on April 30, 2003, IS DENIED IN PART and GRANTED IN
    PART to the extent provided herein.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch
>
> Secretary

[^1]: Valor Telecommunications of Texas, L.P., Petition for Waiver of
    Section 54.305 of the Commission's Rules, CC Docket No. 96-45, filed
    April 30, 2003 (Petition).

[^2]: *Federal-State Joint Board on Universal Service, National
    Telephone Cooperative Association, Petition for Reconsideration*,
    Order and Order on Reconsideration, CC Docket No. 96-45, FCC 05-01
    (rel. January 10, 2005) (*NTCA Reconsideration Order*).

[^3]: The safety valve support mechanism was adopted as part of the
    Rural Task Force's five-year plan for providing modified embedded
    cost support to rural carriers. *See Federal-State Joint Board on
    Universal Service,* CC Docket No. 96- 45, Report and Order, 12 FCC
    Rcd 8776, 8942-43 (1997) (*Universal Service First Report and
    Order*), as corrected by Federal-State Joint Board on Universal
    Service, Errata, CC Docket No. 96-45, FCC 97-157 (rel. June 4,
    1997*), affirmed in part, reversed in part and remanded in part sub
    nom. Texas Office of Public Utility Counsel v. FCC*, 183 F.3d 393
    (5th Cir. 1999), *cert. denied*, 530 U.S. 1210 (2000), *cert.
    dismissed*, 531 U.S. 975 (2000).

[^4]: 47 C.F.R. § 54.305. For example, if a rural carrier purchases an
    exchange from a non-rural carrier that receives support based on the
    Commission\'s high-cost support mechanism for non-rural carriers the
    loops of the acquired exchange shall receive the same per-line
    support as calculated under the non-rural mechanism, regardless of
    the support the rural carrier purchasing the exchange may receive
    for any other exchanges. The mechanism for non-rural carriers
    directs support to carriers based on the forward-looking economic
    cost of operating a given exchange. *See* 47 C.F.R. § 54.309. Rural
    carriers, on the other hand, receive high-cost loop support based on
    the extent to which their reported average cost per loop exceeds 115
    percent of the nationwide average cost per loop. *See* 47 C.F.R. §§
    36.601-36.631.

[^5]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8942-43, para. 308.

[^6]: *Id.*

[^7]: *See Federal-State Joint Board on Universal Service; Multi-
    Association Group (MAG) Plan for Regulation of Interstate Services
    of Non-Price Cap Incumbent Local Exchange Carriers and Interexchange
    Carriers*, Fourteenth Report and Order, Twenty-Second Order on
    Reconsideration, and Further Notice of Proposed Rulemaking in CC
    Docket No. 96-45, and Report and Order in CC Docket No. 00-256, 16
    FCC Rcd 11244, 11282, para. 97 (2001), as corrected by Errata, CC
    Docket Nos. 96-45, 00-256 (Acc. Pol. Div. rel. June 1, 2001) (*Rural
    Task Force Order*).

[^8]: *See id*.

[^9]: *See id.* at 11285, para. 98.

[^10]: *See id.* at 11285, para. 99.

[^11]: If the total amount of eligible safety valve support in a given
    year exceeds the five percent cap, the percentage used to calculate
    safety valve loop cost expense adjustment will be reduced until all
    safety valve support fits under the five percent cap. That is, in
    such years, carriers eligible for safety valve support will receive
    less than 50 percent of the positive difference between the
    subsequent year expense adjustment and the index year expense
    adjustment. *See id*. at 11288-89, paras. 107-09.

[^12]: Petition at n.6.

[^13]: *See Valor Telecommunications of Texas, L.P., and GTE Southwest
    Incorporated, Joint Petition for Waiver of the Definition of "Study
    Area" Contained in the Part 36 Appendix-Glossary of the Commission's
    Rules*, CC Docket No. 96-45, Order, 15 FCC Rcd 15816 (Acc. Pol. Div.
    2000).

[^14]: Valor currently receives \$850,000 annually pursuant to section
    54.305, *i.e.*, the same support that GTE received prior to the sale
    of the exchanges.

[^15]: Petition at 8.

[^16]: *Id.*

[^17]: *Id.* In Valor's Petition, it estimated that a grant of its
    waiver would allow it to receive support in the amount of \$10.2
    million annually. In a subsequent *ex parte* letter, Valor revised
    that estimate to \$1.5 million. Letter from Gregory Vogt, Counsel
    for Valor, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45
    (filed February 24, 2004).

[^18]: Petition at 8*.*

[^19]: *Id.* at 11.

[^20]: *Id.* at 11-12.

[^21]: *Id.*

[^22]: *Id.* at 13.

[^23]: *Id.* at 11.

[^24]: *Id.* at 12.

[^25]: *Id.*; *see also supra* para. 7.

[^26]: *See Wireline Competition Bureau Seeks Comment on Valor
    Telecommunications of Texas, L.P. Petition for Waiver of Section
    54.305 of the Commission's Rules, Pleading Cycle Established*,
    Public Notice, DA 03-1458 (rel. April 20, 2003). Comments were filed
    on May 30, 2003, and reply comments were filed on June 16, 2003.

[^27]: *See Federal-State Joint Board on Universal Service, Valor
    Telecommunications of Texas, L.P., Petition for Waiver of Section
    54.305 of the Commission's Rules,* CC Docket No. 96-45, CTIA
    Comments at 1-4; AT&T Opposition to Petition for Waiver of Section
    54.305 at 1-9; Western Wireless Comments in Opposition to Valor
    Petition for Waiver at 1-10; Opposition of Sprint Corporation at
    1-5*.*

[^28]: USTA Reply Comments at 1-6; ITTA Reply Comments at 1-8*.* As
    discussed below, the Commission is releasing a companion order
    addressing NTCA's petition for reconsideration. *See infra* para. 14

[^29]: 47 C.F.R. § 1.3.

[^30]: ^.^

[^31]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990) (*Northeast Cellular*).

[^32]: ^.^

[^33]: *WAIT Radio*, 418 F.2d 1153, 1159 (D.C. Cir. 1969), *cert.
    denied,* 409 U.S. 1027 (1972); *Northeast Cellular*, 897 F.2d at
    1166.

[^34]: *NTCA Reconsideration Order*.

[^35]: *See, e.g., Mescalero Apache Telecom, Inc., Request for Waiver of
    Section 54.305 of the Commission's Rules,* CC Docket No. 96-45, FCC
    01-13, 16 FCC Rcd 1312 (2001) (*Mescalero*). *Mescalero*, which
    predates the adoption of the safety valve mechanism, is the only
    instance in which the Commission has granted a waiver of section
    54.305. The Commission concluded that Mescalaro, a newly-formed,
    tribally-owned carrier, warranted a deviation from the general rule
    because, among other things, Mescalaro intended to bring additional
    service to a reservation where 52 percent of the residents on the
    reservation were without telephone service. *Cf* *Federal-State
    Joint Board on Universal Service, Blackduck Telephone Company and
    Arvig Telephone Company, Joint Petition for Waiver of the Definition
    of "Study Area" Contained in the Part 36 Appendix-Glossary of the
    Commission's Rules and Related Waiver of Section 54.305 of the
    Commission's Rules*, CC Docket No. 96-45, DA 02-3386, 17 FCC Rcd
    24602 (Com. Car. Bur. 2002) (denying waiver of section 54.305 on the
    ground that Blackduck's concerns regarding the sufficiency of
    support for carriers operating newly-acquired lines was addressed in
    the newly adopted safety valve mechanism).

[^36]: *See* Valor Reply Comments at 8 (arguing that it "devoted the
    same level of resources in its due diligence activities as any
    reasonable acquiring carrier would have invested").

[^37]: *See Valor Telecommunications of Texas, L.P., and GTE Southwest
    Incorporated, Joint Petition for Waiver of the Definition of "Study
    Area" in the Appendix-Glossary of Part 36 of the Commission's
    Rules,* CC Docket No. 96-45, DA 00-1908, 15 FCC Rcd 15816 (Acct.
    Policy Div. 2000).

[^38]: Valor Telecommunications of Texas, LP and GTE Southwest
    Incorporated, Joint Petition for Waiver of the Definition of "Study
    Area" in the Appendix -- Glossary of Part 36, CC Docket No. 96-45,
    at 6 (filed April 24, 2000).

[^39]: *Id.* at 7.

[^40]: *See, e.g.,, Fremont Telecom Company, Petition for Waiver of
    Sections 36.611 and 36.612 of the Commission's Rules,* AAD 97-56, DA
    98-127, 13 FCC Rcd 12318 (Acct. & Audits Div. 1998) (Upholding the
    principle that the waiver process is not a remedy for imprudent
    business decisions made by acquiring carriers).

[^41]: Petition at 12. *See also* ITTA Reply Comments at 4-5.

[^42]: National Telephone Cooperative Association, Petition for
    Reconsideration and Clarification, CC Docket Nos. 96-46, 00-256,
    filed July 5, 2001; *see also* ITTA Reply Comments at 7-8.

[^43]: *See NTCA Reconsideration Order.*

[^44]: *NTCA Reconsideration Order* at para. 18.

[^45]: *NTCA Reconsideration Order* at para. 1.

[^46]: Valor may choose to establish its first year of operations
    beginning with fourth quarter 2000 or first quarter 2001. In
    addition, because we are providing Valor relief consistent with the
    modifications we are making to the safety valve mechanism, we
    decline to grant Valor multi-year relief, as requested by Valor in
    its April 7, 2004 *ex parte* letter. *See* Letter from Gregory J.
    Vogt, Counsel for Valor, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 96-45 (filed April 7, 2004).

[^47]: This action is consistent with the prior grant of Valor's request
    for waiver of the application of the X-factor in the price cap
    indices formula set forth in section 61.45(b)(1)(i) of the
    Commission's rules. *Valor Telecommunications of Texas and Valor
    Telecommunications of New Mexico Petition for Waiver of the
    Operation of the X-Factor in the Price Cap Indices Formula Set forth
    in § 61.45(b)(1)(I),* Order, WCB/Pricing File 02-11, DA 02-1325, 17
    FCC Rcd 10646, 10650, para. 14 (Wireline Comp. Bur. 2002). *See
    also* 47 C.F.R. § 61.45(b)(1)(i). In that case, relying in part on
    the ice storm, Valor was granted a waiver of the X-factor for 2001.

[^48]: In its reply comments, Valor claims that strict application of
    the rules would be inequitable because the safety valve rule was
    adopted in the middle of Valor's index year. *See* Valor Reply
    Comments at 5. We recognize that, because the modifications to the
    safety valve mechanism apply to the first year of operations only,
    the limited waiver of section 54.305 does not address Valor's
    concerns regarding the level of support it will receive in
    subsequent years. The action we take today, however, strikes a
    reasonable balance between preserving the policy rationale
    underlying section 54.305 and providing Valor some relief from the
    extraordinary costs it incurred in its first year of operations.

[^49]: *NTCA Reconsideration Order* at para. 18. The Commission does not
    modify the existing safety valve mechanism as set forth in the
    *Rural Task Force Order* for support beginning in an acquiring
    carrier's second year of operation. For the second year of
    operation, the acquiring carrier will use its first-year costs to
    determine a new index year expense adjustment, and from its second
    year onwards will receive 50 percent of the differential between its
    new index year expense adjustment and subsequent year expense
    adjustments, as per the current safety valve mechanism. In addition,
    the total amount of safety valve support available to all eligible
    study areas will continue be limited to no more than five percent of
    rural incumbent local exchange carrier support available from the
    annual high-cost loop fund.

[^50]: *See* Letter from Gregory Vogt, Counsel for Valor, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45 (filed November 6, 2003)
    (November 6, 2003 *Ex Parte*).

[^51]: 47 C.F.R. § 54.305(c).

[^52]: *See* November 6, 2003 *Ex Parte.*

[^53]: Petition at 5, *citing* *Petitions for Waiver and Reconsideration
    Concerning Section 36.611. 36.612, 61.41(c)(2), 69.605(c),
    69.3(e)(11) and the Definition of "Study Area" Contained in Part 36
    of the Appendix-Glossary of the Commission's Rules Filed By Copper
    Valley Telephone et al.,* Memorandum Opinion and Order on
    Reconsideration, DA 99-1845, 1999 WL 700555 (F.C.C.) (Com. Car. Bur.
    1999) (*1999 Cap Removal Order*).

[^54]: *1999 Cap Removal Order* at para. 9.

[^55]: *Id*.

[^56]: *Universal Service First Report and Order,* 12 FCC Rcd at
    8942-43, para. 308.

[^57]: *See supra* note 7*.*

[^58]: Petition at 5; Sprint Comments at 4-5.