Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | CC Docket No. 96-45          |
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| San Carlos Apache                | ) |                              |
| Telecommunications Utility, Inc. | * |                              |
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| Petition for Waiver of Sections  |   |                              |
| 36.611 and 36.612 of the         | * |                              |
| Commission's Rules               | * |                              |
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**ORDER**

**Adopted:** August 9, 2001 **Released:** August 10, 2001

By the Deputy Chief, Common Carrier Bureau:

# Introduction

1.  In this Order, we deny a request from San Carlos Apache
    Telecommunications Utility, Inc. (San Carlos), for waiver of
    sections 36.611 and 36.612 of the Commission's rules.[^1] The
    requested waiver would enable San Carlos to receive accelerated
    high-cost loop support payments.[^2] For the reasons discussed
    herein, San Carlos has failed to show good cause for waiver of
    sections 36.611 and 36.612 of the Commission's rules in this
    instance.

# BACKGROUND

## Operation of High-Cost Loop Support Mechanism

2.  In accordance with section 36.611 of the Commission's rules, on July
    31 of each year, incumbent local exchange carriers (LECs) file the
    preceding year's loop cost data with the National Exchange Carriers
    Association, Inc. (NECA).[^3] NECA compiles and analyzes these data
    to determine the average cost per loop for each incumbent LEC study
    area as well as the nationwide average cost per loop, adjusted by
    the indexed caps on the high-cost fund.[^4] Each rural carrier's
    high-cost loop support and each non-rural carrier's interim
    hold-harmless support[^5] for the following year is based on the
    relationship between the carrier's study area average cost per loop
    and the nationwide average cost per loop, as limited by the indexed
    caps.[^6] Carriers generally do not receive high-cost loop support
    and interim hold-harmless support based on these data until the
    beginning of the second calendar year after the costs are incurred,
    however, because under section 36.611 of the Commission's rules the
    cost data are not submitted by carriers until seven months after the
    end of a calendar year, and NECA requires time to analyze the data
    and make the necessary nationwide calculations of support by
    determining the nationwide average loop cost adjusted to reflect the
    indexed caps.[^7] As a result, carriers without historical data,
    such as newly-established carriers, must wait for up to two years
    before receiving any high-cost loop support and interim
    hold-harmless support payments.

3.  Under section 36.612 of the rules, however, carriers can update
    their data on a quarterly basis and receive support earlier than the
    beginning of the second calendar year after incurring the costs.[^8]
    If a carrier files a quarterly update, by September 30, for
    instance, NECA recalculates high-cost loop support and interim
    hold-harmless support for all carriers based in part on that
    carrier's updated data (e.g., cost data covering the last nine
    months of the previous calendar year and the first three months of
    the current calendar year, as well as its loop costs), rather than
    the calendar year data submitted on July 31. Thus, the quarterly
    update provision allows carriers to receive support based on updated
    cost and loop count information much earlier than the beginning of
    the second calendar year after costs are incurred.

## The Petition

4.  On April 10, 2000, San Carlos, a tribally-owned and operated
    telecommunications carrier that was formed to serve the San Carlos
    Apache Reservation (Reservation) in Arizona, filed a request for
    waiver of sections 36.611 and 36.612 of the Commission's rules.[^9]
    The requested waiver would enable San Carlos to receive accelerated
    high-cost loop support payments. San Carlos submits that grant of
    its waiver request will allow it to pay down existing debt, to
    obtain additional funding to complete construction, and to achieve
    positive financial results, thereby permitting it to continue
    fulfilling its universal service commitments by providing and
    extending reasonably priced local telephone service to previously
    unserved and underserved portions of the Reservation.[^10] In the
    absence of the requested waiver, San Carlos argues that it will be
    forced to dramatically increase rates or request loans from its
    Tribal Council.[^11] San Carlos also states that the absence of
    accelerated universal service support will threaten the availability
    of additional loan funds to complete construction to remaining
    unserved areas and subscribers as planned, and threaten the
    continued availability of services already deployed.[^12]

5.  On May 8, 2000, the Common Carrier Bureau (Bureau) released a public
    notice seeking comment on the petition.[^13] Comments in support of
    San Carlos's petition were submitted by the National Telephone
    Cooperative Association, the National Tribal Telecommunications
    Alliance, and Mescalero Apache Telecom, Inc.

# discussion

6.  Generally, Commission rules may be waived for good cause shown.[^14]
    As noted by the Court of Appeals for the D.C. Circuit, however,
    agency rules are presumed valid.[^15] The Commission may exercise
    its discretion to waive a rule where the particular facts make
    strict compliance inconsistent with the public interest.[^16] In
    addition, the Commission may take into account considerations of
    hardship, equity, or more effective implementation of overall policy
    on an individual basis.[^17] Waiver of the Commission's rules
    therefore is appropriate only if special circumstances warrant a
    deviation from the general rule, and such a deviation will serve the
    public interest. For the reasons set forth below, we conclude that a
    waiver of sections 36.611 and 36.612 of the Commission's rules is
    not warranted in this instance.

7.  Thus far, we have granted waivers of sections 36.611 and 36.612 of
    the Commission's rules only in limited circumstances, namely to
    accelerate the provision of support to cover costs incurred by new
    carriers initiating services in predominantly unserved areas.[^18]
    We have found compelling reasons to do so in instances where the
    carrier has not yet begun to receive universal service support, and
    where the support is based on estimated costs and subject to
    true-up.[^19] We have concluded that delaying the timing of
    high-cost loop support under those circumstances could have the
    unintended effect of discouraging new carriers from extending
    service in unserved remote areas, thereby frustrating the statutory
    goal of promoting the provision of services at reasonable
    rates.[^20] We have noted that, because new companies seeking to
    serve predominantly unserved areas make large capital investments to
    initiate services, without immediate support, their company-specific
    rates would likely be extremely high.[^21] In short, such areas
    would have likely remained unserved if these carriers were unable to
    provide service.[^22] We have declined to grant such a request to
    the extent that waiver of sections 36.611 and 36.612 would provide
    additional support payments for prior periods.[^23]

8.  San Carlos is to be commended for improving the quality of service
    for existing customers and extending reasonably-priced service to
    unserved customers on the Reservation. San Carlos has failed,
    however, to show good cause justifying waiver of sections 36.611 and
    36.612 of the Commission's rules in this instance.

9.  We are not persuaded that special circumstances warrant such a
    deviation from sections 36.611 and 36.612 of the Commission's rules.
    Unlike previous petitioners that received waivers of sections 36.611
    and 36.612, San Carlos has been in operation for almost four years
    and has successfully extended affordable service throughout the
    Reservation under the rules governing high-cost and low-income
    universal service support.[^24] San Carlos has not justified the
    need for accelerated support. By San Carlos's own admissions, the
    operation of sections 36.611 and 36.612 of the Commission's rules in
    this instance has not frustrated the Act's goal of promoting the
    national availability of telephone service at reasonable rates.[^25]
    Through December 31, 2000, San Carlos received approximately
    \$1,063,293 in high-cost loop support.[^26] Since commencing
    operations, San Carlos states that it has installed digital switches
    to allow the provision of advanced telecommunications services,
    including CLASS services, and equal access facilities (providing a
    choice of at least six long distance carriers).[^27] San Carlos has
    installed a host digital switch, two remotes, and several
    concentrators to extend services to over 1,000 new subscribers.[^28]
    As a result of San Carlos's efforts, 90 percent of its network has
    been upgraded and the number of customers with telephone service on
    the Reservation has increased by over 200 percent. Specifically, San
    Carlos has installed 1,387 access lines on the Reservation.[^29] San
    Carlos states that the current penetration rate on the Reservation
    is approximately 80 to 85 percent.[^30] According to San Carlos,
    "virtually all inhabited establishments have service available" and
    "\[a\]t this time there are no unfilled orders for service."[^31]
    San Carlos has performed all these tasks while keeping its monthly
    rate for basic local service at \$15 per line.[^32] We therefore
    conclude that San Carlos has failed to demonstrate that special
    circumstances warrant waiver of sections 36.611 and 36.612.

10. We also conclude that the public interest would not be served by
    grant of the requested waiver. Specifically, the Commission's
    universal service mechanisms are designed to address the type of
    concerns raised by carriers, such as San Carlos, that without
    immediate access to additional support they will be unable to serve
    consumers located in high-cost rural areas without increasing local
    rates. We note, for example, that San Carlos will continue to be
    eligible for high-cost loop support to the extent that its average
    loop costs exceed 115 percent of the national average loop
    cost.[^33] In addition, the Commission has adopted several rule
    changes to ensure the continued availability of affordable and
    quality telecommunications services in rural America. For example,
    the Commission recently modified its rules for providing high-cost
    universal service support to rural telephone companies for the next
    five years.[^34] The modified rules increase high-cost loop support
    for rural telephone companies effective July 1, 2001.[^35] The total
    amount of high-cost loop support available to rural carriers will
    increase annually by a "Rural Growth Factor" that will allow the
    high-cost loop fund to grow based on annual changes in the Gross
    Domestic Product-Chained Price Index and the total number of working
    loops of rural carriers.[^36] The modified rules also will enable
    rural telephone companies to receive additional "safety net
    additive" support for significant new investments that are not
    supported under the indexed cap to the high-cost loop support
    mechanism.[^37] As a result of the Commission's modified rules, San
    Carlos may receive increased high-cost loop support and may qualify
    for additional "safety net additive" support.

11. Of particular interest to San Carlos, the Commission, in recognition
    of the historical federal trust relationship between the federal
    government and federally-recognized Indian tribes, also modified
    rules governing federal Lifeline and Link-Up support in 2000 to
    increase access to telecommunications services and subscribership
    among low-income individuals living on American Indian and Alaska
    Native lands (referred to hereinafter as "tribal lands").[^38]
    Specifically, the Commission created a fourth tier of federal
    Lifeline support, consisting of up to an additional \$25 per month,
    to qualifying low-income individuals living on tribal lands.[^39]
    The Commission also revised its rules governing the Link-Up program
    to provide up to \$100 of federal support to reduce the cost of both
    initial connection charges and line extension charges of qualifying
    low-income individuals living on tribal lands.[^40] These additional
    sources of support will assist San Carlos in its efforts to continue
    providing affordable services to qualified low-income individuals
    living on the Reservation. We, therefore, conclude that in this
    instance the public interest would not be served by permitting San
    Carlos to receive accelerated high-cost loop support.

12. Finally, we observe that the Commission's high-cost loop support
    distribution rules have been in place for many years. In negotiating
    the purchase of an exchange, it is incumbent on the purchaser and
    the seller to take into account necessary investment and future cash
    flows related to the sale.[^41] In 1996, in its initial study area
    waiver request, San Carlos provided a description of its upgrades
    and extensions of service, but made no claim that its planned
    upgrades would be burdened by the application of sections 36.611 and
    36.612.[^42] In fact, San Carlos stated that it would upgrade
    existing facilities "without necessitating inordinate increases in
    basic service rates."[^43] San Carlos also stated that it would
    "extend lines to currently unserved customers of the Reservation
    without imposing excessive additional line extension charges."[^44]
    Thus, San Carlos clearly considered the costs associated with
    upgrading the acquired exchange, but did not request a waiver for
    immediate high-cost loop support at that time. Moreover, because
    high-cost loop support often represents an important source of funds
    for the operation of an exchange with high loop costs and because
    the Commission has only waived sections 36.611 and 36.612 of its
    rules in very limited circumstances, San Carlos could not have
    reasonably relied upon obtaining a waiver of these rules when it
    purchased the exchange from U S West.

13. In summary, San Carlos has failed to demonstrate good cause for
    waiver of sections 36.611 and 36.612 of the Commission's rules.
    Consequently, San Carlos's request for accelerated high-cost loop
    support is denied.

# ordering clause

14. Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 5(c), 201,
    202, and 254 of the Communications Act of 1934, as amended, 47
    U.S.C. §§ 151, 154(i), 155(c), 201, 202, and 254, and sections 0.91,
    0.291 and 1.3 of the Commission's rules, 47 C.F.R. §§ 0.91, 0.291,
    and 1.3, that the petition of San Carlos Apache Telecommunications
    Utility, Inc. for waiver of sections 36.611 and 36.612 of the
    Commission's rules IS DENIED.

    FEDERAL COMMUNICATIONS COMMISSION

    Carol E. Mattey Deputy Chief, Common Carrier Bureau

[^1]: Petition of San Carlos Apache Telecommunications Utility, Inc.,
    for Waiver of Sections 36.611 and 36.612 of the Commission's Rules
    (filed April 10, 2000) (Petition).

[^2]: We note that, in its original petition, San Carlos requested
    accelerated high-cost loop support totaling approximately \$659,271
    for the period September 1, 1997, through August 31, 1999. *Id.*
    According to San Carlos, \$659,271 is the difference between
    \$831,726 and \$172,455. At the time of its petition, San Carlos had
    received \$172,455 by filing quarterly updates under section 36.612
    of the Commission's rules. *See* Petition at Attachment B-1. Since
    filing its petition, San Carlos has received the remaining \$659,271
    for costs incurred between September 1, 1997, through August 31,
    1999. Therefore, this Order treats San Carlos's petition as a
    request for accelerated high-cost loop support payment for costs
    that San Carlos has incurred but for which San Carlos has not yet
    received support. For example, in accordance with sections 36.611
    and 36.612 of the Commission's rules, San Carlos has not received
    all the support to which it is entitled for costs incurred in 2000.
    *See* 47 C.F.R. §§ 36.611, 36.612.

[^3]: *See* 47 C.F.R. § 36.611.

[^4]: 47 C.F.R. § 36.601(c). The Commission recently modified its rules
    to provide for separate indexed caps on rural high-cost loop support
    and non-rural interim hold-harmless support. *See Federal-State
    Joint Board on Universal Service*, and *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*, FCC
    01-157, at paras. 48-53 (rel. May 23, 2001), as corrected by Errata,
    CC Docket Nos. 96-45, 00-256 (Acc. Pol. Div. rel. Jun. 1, 2001)
    (*Rural High-Cost Reform Order*). The indexed cap used to determine
    rural incumbent LEC high-cost loop support is based on a "Rural
    Growth Factor" that will allow the rural carrier portion of the
    high-cost loop fund to grow based on annual changes in the Gross
    Domestic Product-Chained Price Index and the total number of working
    loops of rural carriers. *Id.* The indexed cap used to determine
    non-rural incumbent LEC interim hold-harmless support limits the
    maximum growth in the total amount of support available from the
    high-cost fund to the previous year's support amount, increased by
    an index factor that is equal to the rate of growth in the total
    number of working loops nationwide for the preceding calendar year.
    *See* *Federal-State Joint Board on Universal Service, Access Charge
    Reform, Price Cap Performance Review for Local Exchange Carriers,
    Transport Rate Structure and Pricing, End User Common Line Charge*,
    Fourth Order on Reconsideration in CC Docket Nos. 96-45, 96-262,
    94-1, 91-213, 95-72, 13 FCC Rcd 5318, 5336-37 (1997).

[^5]: In the event that support provided to a non-rural carrier in a
    given state is less under the non-rural forward-looking high-cost
    support mechanism, the non-rural carrier is eligible for interim
    hold-harmless support, which is equal to the amount of support for
    which the non-rural carrier would have been eligible under the
    Commission's existing high-cost loop support mechanism. *See* 47
    C.F.R. §§ 54.309, 54.311. Last year, the Commission adopted the
    recommendations of the Federal-State Joint Board on Universal
    Service (Joint Board) for phasing down the interim hold-harmless
    support for non-rural carriers. *See Federal-State Joint Board on
    Universal Service*, CC Docket No. 96-45, Thirteenth Report and Order
    and Further Notice of Proposed Rulemaking, FCC 00-428 (rel. Dec. 8,
    2000). The Commission adopted measures to phase down interim
    hold-harmless support, excluding long term support, through \$1.00
    reductions in average monthly, per-line support beginning January 1,
    2001, and every year thereafter until there is no more interim
    hold-harmless support. *Id.* at para. 1. The Commission also adopted
    the Joint Board's recommendation not to phase down interim
    hold-harmless support for eligible exchanges transferred to rural
    carriers until the Commission reexamines section 54.305 of its rules
    or until rural high-cost reform is complete. *Id.* at para 21.
    Interim hold-harmless support for exchanges transferred to non-rural
    carriers will be phased down over the same time period as the
    seller's support would have been phased down. *Id.* at para. 22. The
    Commission also sought comment on whether to continue applying
    section 54.305 to transfers of telephone exchanges between non-rural
    carriers following phase-down. *Id.* at paras. 23-24.

[^6]: *See* 47 C.F.R. § 36.631.

[^7]: *See* 47 C.F.R. § 36.612

[^8]: *See* *id*.

[^9]: The Reservation spans the Gila, Graham, and Pinal counties in
    southeastern Arizona. *Petition* at 4. On November 8, 1996, the
    Accounting and Audits Division granted San Carlos a study area
    waiver associated with San Carlos's purchase of an exchange
    previously operated by Qwest Corporation (Qwest) (formerly U S WEST
    Communications, Inc.). *See* *San Carlos Apache Telecommunications
    Utility, Inc., and U S WEST Communications, Inc., Petition for
    Waivers of Sections 61.41(c)(2), 69.3(e) and the Definition of
    "Study Area" Contained in Part 36 Appendix-Glossary of the
    Commission's Rules*, AAD 96-52, Memorandum Opinion and Order, 11 FCC
    Rcd 14591 (Acc. Aud. Div. 1996).

[^10]: *See* Petition at 10.

[^11]: *Id.* at 2.

[^12]: *Id.* at 10*.*

[^13]: *See San Carlos Apache Telecommunications Utility, Inc., Seeks
    Waiver of Sections 36.611 and 36.612 of the Commission's Rules*, CC
    Docket No. 96-45, Public Notice, DA 00-1018 (Com. Car. Bur. rel. May
    8, 2000).

[^14]: 47 C.F.R. § 1.3.

[^15]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1159 (D.C. Cir. 1969), *cert.
    denied*, 409 U.S. 1027 (1972).

[^16]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990).

[^17]: *WAIT Radio*, 418 F.2d at 1159; *Northeast Cellular*, 897 F.2d at
    1166.

[^18]: *See* *Mescalero Apache Telecom, Inc., GTE Southwest
    Incorporated, and Valor Telecommunications of New Mexico, LLC, Joint
    Petition for Waiver of the Definition of "Study Area" Contained in
    the Part 36, Appendix-Glossary of the Commission's Rules, Waiver of
    Sections 61.41(c)(2), 69.3(e)(11), 36.611, and 36.612 of the
    Commission's Rules*, CC Docket No. 96-45, DA 01-129 (Acc. Pol. Div.
    rel. Jan. 18, 2001) (*Mescalero*); *Border to Border Communications,
    Inc., Petition for Waiver of Sections 36.611 and 36.612 of the
    Commission's Rules*, AAD 94-61, Memorandum Opinion and Order, 10 FCC
    Rcd 5055 (Com. Car. Bur. 1995) (*Border to Border*); *South Park
    Telephone Company, Petition for Waiver of Sections 36.611 and 36.612
    of the Commission's Rules*, AAD 97-41, Order, 13 FCC Rcd 198 (Acct.
    Aud. Div. 1997) (*South Park*); *Sandwich Isles Communications,
    Inc., Petition for Waiver of Section 36.611 of the Communications
    Rules and Request for Clarification*, AAD 97-82, Order, 13 FCC Rcd
    2407 (Acct. Aud. Div. 1998) (*Sandwich Isles*).

[^19]: *See South Park*, 13 FCC Rcd at 201-22.

[^20]: *Id.*; *Border to Border*, 10 FCC Rcd at 5057. *See also* 47
    U.S.C. § 254(b); Telecommunications Act of 1996, Pub. L. No.
    104-104, 110 Stat. 56 (1996).

[^21]: *See South Park*, 13 FCC Rcd at 202.

[^22]: *See Sandwich Isles*, 13 FCC Rcd at 2411.

[^23]: *See, e.g., Border to Border*, 10 FCC Rcd at 5057.

[^24]: *See id.*

[^25]: *See* 47 U.S.C. § 254(b).

[^26]: The December 31, 2000, high-cost loop support payment was paid in
    January 2001.

[^27]: Petition at 5-6.

[^28]: *Id.* at 5.

[^29]: *See* Letter from David Cosson, Counsel for San Carlos Apache
    Telecommunications Utility, Inc., to Sharon Webber, Federal
    Communications Commission, filed April 30, 2001.

[^30]: *See* Letter from David Cosson, Counsel for San Carlos Apache
    Telecommunications Utility, Inc., to Magalie Roman Salas, Federal
    Communications Commission, filed December 12, 2000. The national
    average penetration rate is 94.6 percent. *See Monitoring Report,
    September 2000*, CC Docket No. 98-202 (rel. Nov. 9, 2000). By
    contrast, we recently granted a waiver request to Mescalero Apache
    Telecom, Inc., a newly-formed tribally-owned carrier planning to
    serve an area with a penetration rate of approximately 48 percent.
    *See Mescalero*, DA 01-129, at para. 24.

[^31]: *See* Letter from David Cosson, Counsel for San Carlos Apache
    Telecommunications Utility, Inc., to Sharon Webber, Federal
    Communications Commission, filed April 30, 2001, at 1; Letter from
    David Cosson, Counsel for San Carlos Apache Telecommunications
    Utility, Inc., to Magalie Roman Salas, Federal Communications
    Commission, filed December 12, 2000, at 1.

[^32]: *See* Petition at 9.

[^33]: *See* 47 C.F.R. § 36.631.

[^34]: *See* *Rural High-Cost Reform Order*.

[^35]: *See id.* at paras. 31-53.

[^36]: *Id.*

[^37]: *See id.* at paras. 77-90.

[^38]: *See* *Federal-State Joint Board on Universal Service; Promoting
    Deployment and Subscribership in Unserved and Underserved Areas,
    Including Tribal and Insular Areas*, CC Docket No. 96-45, Twelfth
    Report and Order, Memorandum Opinion and Order, and Further Notice
    of Proposed Rulemaking, FCC 00-208, paras. 22-23, (rel. Jun. 30,
    2000) (*Twelfth Report and Order*), *stayed in part by*
    *Federal-State Joint Board on Universal Service; Promoting
    Deployment and Subscribership in Unserved and Underserved Areas,
    Including Tribal and Insular Areas*, CC Docket No. 96-45, Order and
    Further Notice of Proposed Rulemaking, FCC 00-322 (rel. Aug. 31,
    2000), as corrected by Errata, CC Docket No. 96-45, DA 00-2128 (Com.
    Car. Bur. rel. Sep. 20, 2000).

[^39]: *See id.* at paras. 42-58.

[^40]: *See id.* at paras. 59-63.

[^41]: *See* *Accipiter*, 13 FCC Rcd at 3145-46; *Fremont*, 13 FCC Rcd
    at 12314.

[^42]: *See San Carlos Apache Telecommunications Utility, Inc., and U S
    WEST Communications, Inc., Joint Petition for Waiver of the
    Definition of "Study Area" Contained in Part 36, Appendix-Glossary
    of the Commission's Rules, Petition for Waiver of Section
    69.3(e)(11) of the Commission's Rules, Petition for Waiver of
    Section 61.41(c) and (d) of the Commission's Rules*, AAD 96-52,
    Expedited Joint Petition for Waiver, at Attachment A (filed Apr. 19,
    1996) (*Study Area Petition*). *See also* *Accipiter*, 13 FCC Rcd at
    3145-46; *Fremont*, 13 FCC Rcd at 12314.

[^43]: *See Study Area Petition* at 12.

[^44]: *Id.*