Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | CC Docket No. 96-45          |
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| Mescalero Apache Telecom, Inc.,  | ) |                              |
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| GTE Southwest Incorporated,      | * |                              |
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| Valor Telecommunications of New  | ) |                              |
| Mexico, LLC                      | * |                              |
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| Joint Petition for Waiver of the |   |                              |
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| Definition of "Study Area"       | * |                              |
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| in the Part 36,                  | * |                              |
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| Mescalero Apache Telecom, Inc.   | * |                              |
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| Waiver of Sections 61.41(c)(2),  |   |                              |
| 69.3(e)(11), 36.611, and 36.612  | * |                              |
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+----------------------------------+---+------------------------------+

**ORDER**

**Adopted:** January 18, 2001 **Released:** January 18, 2001

By the Chief, Accounting Policy Division:

# INTRODUCTION

1.  In this Order, we grant a request from Mescalero Apache Telecom,
    Inc. (Mescalero), GTE Southwest Incorporated (GTE), and Valor
    Telecommunications of New Mexico, LLC (Valor), for a waiver of the
    definition of "study area" contained in the Part 36
    Appendix-Glossary of the Commission's rules.[^1] This waiver will
    permit Valor to alter the boundaries of a New Mexico study area it
    has acquired from GTE so that it can transfer to Mescalero
    approximately 950 access lines currently served by the Mescalero,
    Alto, and Ruidoso, New Mexico exchanges. This waiver also will
    permit Mescalero to establish a new study area in New Mexico for the
    approximately 950 access lines it intends to acquire from Valor.

2.  We also grant Mescalero's request for waiver of sections
    61.41(c)(2), 69.3(e)(11), 36.611, and 36.612 of the Commission's
    rules.[^2] Waiver of section 61.41(c)(2) will permit Mescalero to
    operate under rate-of-return regulation after acquiring the 950
    Valor access lines that are currently under price-cap regulation.
    Waiver of section 69.3(e)(11) will permit Mescalero to participate
    in the National Exchange Carrier Association, Inc. (NECA) common
    line tariff effective upon the close of this transaction. Waiver of
    sections 36.611 and 36.612 will allow Mescalero to immediately begin
    receiving high-cost loop support based upon projected costs, rather
    than historical costs.

3.  In a companion order released today, the Commission grants
    Mescalero's request for waiver of section 54.305 of the Commission's
    rules.[^3] Waiver of section 54.305 of the Commission's rules will
    enable Mescalero to receive high-cost universal service support
    based on the average cost of the lines under its ownership, rather
    than receiving the same per-line levels of high-cost support for
    which the acquired access lines were eligible prior to their
    transfer from Valor.

# STUDY AREA WAIVER

## Background 

4.  A study area is a geographic segment of an incumbent local exchange
    carrier's (LEC's) telephone operations. Generally, a study area
    corresponds to an incumbent LEC\'s entire service territory within a
    state. Thus, incumbent LECs operating in more than one state
    typically have one study area for each state. The Commission froze
    all study area boundaries effective November 15, 1984,[^4] and an
    incumbent LEC must apply to the Commission for a waiver of the study
    area boundary freeze if it wishes to sell or purchase additional
    exchanges.

5.  On June 30, 2000, Mescalero, GTE, and Valor filed a joint petition
    for waiver of the definition of "study area" contained in the Part
    36 Appendix-Glossary of the Commission's rules.[^5] The requested
    waiver would permit Valor to alter the boundaries of a New Mexico
    study area it has acquired from GTE to transfer to Mescalero
    approximately 950 access lines currently served by the Mescalero,
    Alto, and Ruidoso exchanges. The waiver also would permit Mescalero
    to establish a new study area in New Mexico for the approximately
    950 access lines it intends to acquire from Valor. On August 10,
    2000, the Common Carrier Bureau (Bureau) released a public notice
    seeking comment on the petition.[^6] The Salt River Pima-Maricopa
    Indian Community and Saddleback Communications submitted comments in
    support of Mescalero's petition.

## Discussion

6.  We find that good cause exists to waive the definition of study area
    contained in Part 36 Appendix-Glossary of the Commission's rules to
    permit Valor to remove the 950 access lines from its New Mexico
    study area, and permit Mescalero to create a new study area for the
    acquired access lines.

7.  Generally, Commission rules may be waived for good cause shown.[^7]
    As noted by the Court of Appeals for the D.C. Circuit, however,
    agency rules are presumed valid.[^8] The Commission may exercise its
    discretion to waive a rule where the particular facts make strict
    compliance inconsistent with the public interest.[^9] In addition,
    the Commission may take into account considerations of hardship,
    equity, or more effective implementation of overall policy on an
    individual basis.[^10] Waiver of the Commission's rules is therefore
    appropriate only if special circumstances warrant a deviation from
    the general rule, and such a deviation will serve the public
    interest. In evaluating petitions seeking a waiver of the rule
    freezing study area boundaries, we traditionally have applied a
    three-prong standard: (1) the change in study area boundaries must
    not adversely affect the universal service fund; (2) no state
    commission having regulatory authority over the transferred
    exchanges may oppose the transfer; and (3) the transfer must be in
    the public interest.[^11] For the reasons discussed below, we find
    that good cause exists to waive the definition of study area
    contained in Part 36 Appendix-Glossary of the Commission's rules to
    permit Valor to remove the 950 access lines from its New Mexico
    study area, and permit Mescalero to create a new study area for the
    acquired access lines.

8.  First, we conclude that the proposed changes in the study area
    boundaries will not adversely affect any of the universal service
    mechanisms. Because, under section 54.305 of the Commission's rules,
    a carrier purchasing high-cost exchanges from an unaffiliated
    carrier can only receive the same level of per-line support that the
    selling company was receiving for those exchanges prior to the sale,
    there can, by definition, be no adverse impact on the universal
    service fund resulting from this transaction.[^12] We note, however,
    that, in this instance, the Commission has concluded that special
    circumstances warrant a waiver of section 54.305, and such a waiver
    will serve the public interest.[^13] Specifically, the Commission
    has concluded that the proposed transaction will have a minimal
    effect the high-cost universal service mechanisms because it will
    not result in an annual aggregate shift in support in an amount
    equal to or greater than one percent of any high-cost universal
    service mechanism.[^14] We also note that because Mescalero will not
    be a price cap LEC,[^15] it will not be eligible to receive
    interstate access universal service support for the acquired
    exchange.[^16] We, therefore, conclude that this transaction will
    not adversely affect the universal service mechanisms.

9.  Second, no state commission with regulatory authority over the
    transferred exchanges opposes the transfer. The New Mexico Public
    Regulation Commission (New Mexico Commission) has stated that it
    "strongly endorses, supports, and encourages" grant of Mescalero's
    study area waiver request.[^17]

10. Finally, we conclude that the public interest is served by a waiver
    of the study area freeze rule to permit Valor to remove 950 access
    lines from its New Mexico study area and Mescalero to create a new
    study area for the transferred access lines. In its petition,
    Mescalero states that grant of the requested waivers will enable it
    to provide "vastly improved telecommunications services without
    requiring significant increases in basic service rates."[^18]
    Mescalero states that it intends to install state-of-the-art digital
    switching, microwave, and fiber optics facilities.[^19] Mescalero
    also states that it intends to extend lines to previously unserved
    and underserved residents in remote locations on the Mescalero
    Apache Reservation, without imposing line extension charges.[^20] In
    fact, Mescalero has "committed to the provision of services to all
    unserved residences in the first two years of its operations."[^21]
    The New Mexico Commission reports that the percentage of Mescalero
    Apache tribal households in Mescalero, New Mexico owning telephones
    currently is approximately 46 percent.[^22] We also note that the
    New Mexico Commission found that Mescalero has the financial and
    technical qualifications to provide services to the 950 access
    lines.[^23] Based on these representations and the findings of the
    New Mexico Commission, we conclude that Mescalero has demonstrated
    that grant of this waiver request serves the public interest.

# Waiver of the commission's Price Cap Rules

## Background

11. Section 61.41(c)(2) of the Commission's rules provides that a
    non-price cap carrier that acquires access lines from a price cap
    carrier shall become subject to price cap regulation and must file
    price cap tariffs within a year.[^24] Under this rule, Mescalero's
    acquisition of exchanges from Valor would subject Mescalero to price
    cap regulation.

12. In the *LEC Price Cap Reconsideration Order*, the Commission
    explained that section 61.41(c), the "all-or-nothing" rule, is
    intended to address two concerns regarding mergers and acquisitions
    involving price cap companies.[^25] The first concern was that, in
    the absence of the rule, a LEC might attempt to shift costs from its
    price cap affiliate to its non-price cap affiliate, allowing the
    non-price cap affiliate to charge higher rates to recover its
    increased revenue requirement, while increasing the earnings of the
    price cap affiliate. The second concern was that, absent the rule, a
    LEC might attempt to game the system by switching back and forth
    between rate-of-return regulation and price cap regulation. For
    example, a price cap company may attempt to "game" the system by
    opting out of price cap regulation, building a large rate base under
    rate-of-return regulation so as to raise rates and then, after
    returning to price caps, cutting costs back to an efficient level,
    thereby enabling it to realize greater profits. It would not serve
    the public interest, the Commission stated, to allow a carrier
    alternately to "fatten up" under rate-of-return regulation and "slim
    down" under price cap regulation, because the rates would not
    decrease in the manner intended under price cap regulation.[^26]

13. The Commission nonetheless recognized in the *LEC Price Cap
    Reconsideration Order* that narrow waivers of the price cap
    "all-or-nothing" rule might be justified if efficiencies created by
    the purchase and sale of exchanges outweigh the threat that the
    system might be subject to gaming.[^27] Waivers of section
    61.41(c)(2) will be granted conditioned on the selling price cap
    company's downward adjustment to its price cap indices to reflect
    the sale of exchanges.[^28] The Commission explained that such an
    adjustment is needed to remove the effects of transferred exchanges
    from rates that have been based, in whole or in part, upon the
    inclusion of those exchanges in a carrier's price cap indices. [^29]
    In addition, waivers of the all-or-nothing rule have been granted
    subject to the condition that the acquiring carrier obtain prior
    Commission approval of any attempt to return to price cap
    regulation.[^30]

14. Mescalero intends to operate under rate-of-return regulation, while
    Valor is subject to price cap regulation. Mescalero seeks a waiver
    of section 61.41(c)(2) of the Commission's rules to permit it to
    operate under rate-of-return regulation after acquiring from Valor
    950 access lines that are currently under price cap regulation.
    Mescalero states that application of this rule will not serve the
    purpose of the rule, which is to prevent LECs from shifting costs
    between price cap and non-price cap affiliates and from increasing
    rates by switching back and forth between rate-of-return regulation
    and price cap regulation.[^31] Absent a waiver of section
    61.41(c)(2), all of Mescalero's operations would become subject to
    price cap regulation no later than one year after acquiring the
    price cap access lines from Valor.

## Discussion

15. For the reasons discussed below, we find that good cause exists for
    us to waive section 61.41(c)(2) of the Commission's rules, and that
    it would be in the public interest to grant Mescalero's waiver
    request. As discussed previously, the courts have interpreted
    section 1.3 of the Commission's rules to require a petitioner
    seeking a waiver of a Commission rule to demonstrate that special
    circumstances warrant a deviation from the general rule, and that
    such a deviation will serve the public interest.[^32]

16. Because Mescalero is significantly smaller than any of the carriers
    subject to mandatory price cap regulation, we find that special
    circumstances support a waiver of section 61.41(c)(2). In evaluating
    requests for waiver of section 61.41(c)(2), the Bureau has taken
    into account the company's preferences and, in particular, the
    preferences of small carriers.[^33] In fact, the Commission
    traditionally has been sensitive to the unique administrative
    burdens imposed on small telephone companies by the application of
    its rules.[^34] In the *LEC Price Cap Order*, the Commission decided
    that small telephone companies would not be required to operate
    under a regulatory regime that was designed largely on the basis of
    the historical performance of the largest LECs.[^35] The Commission
    explained that small and mid-size LECs may have fewer opportunities
    than large companies to achieve cost savings and efficiencies and
    may be less productive than the seven Regional Bell Operating
    Companies (RBOCs) and GTE.[^36] The Commission, therefore, limited
    the mandatory application of price cap regulation to the eight
    largest LECs \-- the seven RBOCs and GTE.

17. Mescalero has expressed a preference for operating under
    rate-of-return regulation.[^37] After the proposed transaction,
    Mescalero, which is a newly-formed company and will begin operations
    upon acquisition of the 950 access lines, will be far smaller than
    any of the LECs subject to mandatory price caps, and also will be
    significantly smaller than many other carriers that have been
    granted waivers of section 61.41(c)(2) of the Commission's
    rules.[^38] Therefore, we find that Mescalero presents special
    circumstances to support its waiver request.

18. We also conclude that, in this case, waiver of section 61.41(c)(2)
    of the Commission's rules will serve the public interest. We agree
    with Mescalero that the circumstances surrounding Mescalero's
    acquisition of Valor's access lines fail to give rise to the dangers
    of cost-shifting and gaming of the system.[^39] Mescalero is not
    seeking to maintain separate affiliates under different systems of
    regulation, and, therefore, Mescalero will have no opportunity to
    shift costs between price-cap and rate-of-return affiliates.[^40]
    Moreover, to safeguard against possible gaming that could result
    from attempts to elect price-cap regulation at a later time, we will
    require Mescalero to seek prior Commission approval if it seeks to
    elect price-cap regulation. At that time, we can make a
    determination if the transaction raises concerns that we sought to
    address in section 61.41(c)(2). We believe that requiring Mescalero
    to seek Commission approval before electing price-cap regulation is
    sufficient to deter gaming in the future.

19. In accordance with section 61.45 of the Commission's rules, we also
    require Valor to adjust its price cap indices to reflect the removal
    of the transferred access lines from its New Mexico study area.[^41]
    Section 61.45 grants us discretion to require price cap carriers to
    make adjustments to their price cap indices to reflect cost changes
    resulting from rule waivers.[^42] We require Valor to make such an
    adjustment.[^43]

# Waiver of section 69.3(e)(11)

## Background

20. Under section 69.3(e)(11) of the Commission's rules, any change in
    NECA carrier common line tariff participation and long term support
    (LTS) resulting from a merger or acquisition of telephone properties
    is effective on the next annual access tariff filing effective date
    following the merger or acquisition.[^44] Section 69.3(e)(11) of the
    Commission's rules was implemented to minimize the complexity of
    administering the LTS program.[^45] Because the next annual access
    tariff filing effective date is not until July 1, 2001,[^46]
    Mescalero would be required to file its own interstate tariffs for
    the acquired access lines until July 1, 2001. In order to avoid the
    burdens associated with filing its own tariff, Mescalero has
    requested a waiver of section 69.3(e)(11) of the Commission's rules
    to enable the acquired access lines to participate in the NECA
    carrier common line tariff upon the date of the closing of the
    transaction.[^47]

## Discussion

21. We find that Mescalero has demonstrated that special circumstances
    warrant a deviation from section 69.3(e)(11) of the Commission's
    rules and that it would be in the public interest to grant
    Mescalero's waiver request. First, in this instance, the inclusion
    of the acquired access lines in the NECA carrier common line tariff
    represents a minimal increase in NECA common line pool participation
    and will not unduly increase the complexity of administering the LTS
    program.[^48] Second, we believe that it would be administratively
    burdensome for Mescalero, a newly-formed company, to file interstate
    tariffs for only 950 access lines until July 1, 2001. We therefore
    believe that Mescalero presents special circumstances to justify
    waiver of section 69.3(e)(11) of the Commission's rules. Because the
    inclusion of the acquired access lines in the carrier common line
    tariff prior to July 1, 2001 will enable Mescalero, a newly-formed,
    small, tribally-owned telecommunications carrier, to devote greater
    resources to extending reasonably-priced telecommunications services
    to unserved portions of the Mescalero Apache Reservation,[^49] we
    also believe that wavier of section 69.3(e)(11) will be in the
    public interest. We also note that, according to NECA, \"inclusion
    of the acquired access lines in NECA\'s tariff, effective on March
    1, 2001 . . . , will create no undue administrative burden for NECA,
    nor will it result in any disadvantage to other tariff
    participants.\"[^50] We therefore conclude that there is good cause
    to grant Mescalero a waiver of section 69.3(e)(11).

# Waiver of Sections 36.611 and 36.612

## Background

22. As discussed above, the amount of high-cost loop support a rural
    company receives under the Commission's rules is based on the
    relationship of its study area average cost per loop to the
    nationwide average cost per loop.[^51] In accordance with section
    36.611 of the Commission's rules, on July 31 of each year, incumbent
    LECs file the preceding year's loop cost data with NECA.[^52] 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 cap on the high-cost
    fund.[^53] Each incumbent LEC's high-cost loop support for the
    following year is based on the relationship between the incumbent
    LEC's study area average cost per loop and the nationwide average
    cost per loop, as limited by the indexed cap.

23. 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 because NECA requires time to analyze the data
    and make the necessary nationwide calculations of support by
    determining the nationwide average loop cost adjusted by the indexed
    cap, carriers generally do not receive high-cost loop support based
    on these data until the beginning of the second calendar year after
    the costs are incurred.[^54] 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
    payments. Under section 36.612 of the rules, carriers can, however,
    update their data on a quarterly basis, and receive support earlier
    than the beginning of the second calendar year after incurring the
    costs.[^55] That section allows carriers to update, on a quarterly
    basis, the calendar year cost data that they submit to NECA on
    July 31. If a carrier files a quarterly update, by September 30, for
    instance, NECA recalculates high-cost loop 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.

24. Mescalero requests waiver of sections 36.611 and 36.612 of the
    Commission's rules to enable it to receive high-cost loop support
    payments immediately upon commencement of operations.[^56] Mescalero
    states that grant of the requested waivers will enable it to extend
    reasonably-priced telecommunications services to all previously
    unserved residential customers on the Reservation that are located
    in rural, remote, and high-cost areas on the Reservation,[^57]
    without imposing line extension charges.[^58] Mescalero has
    committed to extend service to all unserved residences on the
    Reservation in the first two years of its operations.[^59] According
    to Mescalero, the "Reservation has 1,025 residences, 537 (52
    percent) of which are without telephone service."[^60] This is
    significantly below the national average penetration rate of 94.6
    percent of all households in the United States.[^61] Moreover,
    Mescalero explains that existing facilities, which are antiquated
    and in poor condition, have reached capacity and cannot be expanded
    to serve the currently unserved areas of the reservation without
    first upgrading the system.[^62] In addition, because Mescalero is
    acquiring partial exchanges, Mescalero immediately will need to
    install its own switch in order to continue providing services to
    existing customers.[^63]

25. Because Mescalero does not have historical data with which to
    compute high-cost loop support, Mescalero proposes to compute
    high-cost loop support in the initial two years based on its
    estimated costs per access line.[^64] Mescalero also proposes to
    "true up" on an annual basis to reconcile any difference between
    estimated and actual costs incurred.[^65]

## Discussion

26. Because Mescalero predominantly will provide services to remote,
    rural, and high-cost areas that currently do not have access to
    basic telephone service, we find that special circumstances warrant
    a deviation from sections 36.611 and 36.612 of the Commission's
    rules and that it would be in the public interest to grant
    Mescalero's waiver request. Thus far, we have granted waivers of
    section 36.611 and 36.612 of the Commission's rules only in limited
    circumstances, namely to cover costs incurred by a carrier serving
    previously unserved areas.[^66] We have found compelling reasons to
    permit immediate high-cost support for a new company providing
    service to an unserved area.[^67] We have concluded that denying
    immediate high-cost loop support could have the unintended effect of
    discouraging service in unserved remote areas, thereby frustrating
    our goal of promoting the provision of services at reasonable
    rates.[^68] We have noted that, because companies seeking to serve
    previously unserved areas make large capital investments to initiate
    services without immediate support, their company-specific rates
    would likely be extremely high.[^69] In short, such areas would have
    likely remained unserved if these carriers were unable to provide
    service.[^70]

27. We find that Mescalero has demonstrated that special circumstances
    warrant waivers of sections 36.611 and 36.612 of the Commission's
    rules. Mescalero, a wholly-owned and operated tribal carrier, is a
    newly-formed company established to address the severe shortage of
    telecommunications services on the Reservation.[^71] Denial of
    immediate high-cost loop support could have the unintended effect of
    discouraging Mescalero's planned expansion of service to unserved
    remote areas, thereby frustrating the Commission's goal of promoting
    the provision of telecommunications services at reasonable
    rates.[^72] We note that a majority of the residences on the
    Reservation "are without telephone service."[^73] As discussed
    above, this is significantly below the national average penetration
    rate of 94.6 percent of all households in the United States.[^74] We
    also note that Mescalero projects that its single largest source of
    funds for extending services to unserved residences will be
    high-cost loop support.[^75] As discussed above, Mescalero also will
    need to install its own switch in order to provide services to the
    acquired access lines.[^76] Moreover, according to Mescalero,
    "existing facilities have reached capacity and cannot be expanded to
    serve the currently unserved areas of the Reservation without first
    upgrading the system."[^77] Taken together, these facts demonstrate
    that, without immediate access to high-cost loop support,
    Mescalero's planned deployment of services to all unserved
    residences on the Mescalero Apache Reservation may be delayed for at
    least two years.[^78] As we have concluded in prior orders granting
    requests for waiver of sections 36.611 and 36.612 of the
    Commission's rules, such an outcome could frustrate the Commission's
    goal of promoting the provision of services in unserved areas at
    reasonable rates.[^79]

28. We also conclude that it would be in the public interest to grant
    Mescalero's waiver request. As discussed above, Mescalero has
    committed to providing service to all unserved residences in the
    first two years of operation using universal service support to
    achieve that goal.[^80] Waiver of sections 36.611 and 36.612 of the
    Commission's rules in this instance will enable Mescalero to
    immediately begin increasing access to telecommunications services
    on the Reservation consistent with the Commission's statutory goal
    of preserving and advancing universal service.[^81] Such a waiver
    also is consistent with the Commission's mandate to ensure that
    consumers in all regions of the Nation, including low-income
    consumers and those in rural, insular, and high-cost areas, have
    access to telecommunications and information services.[^82]

29. We also find that this result is consistent with our obligations
    under the historic federal trust relationship between the federal
    government and federally-recognized Indian tribes to encourage
    tribal sovereignty and self-governance and to ensure a standard of
    livability for members of Indian tribes on tribal lands.[^83] The
    grant of this waiver will enhance the Mescalero Apache tribe's
    access to telecommunications, including access to interexchange
    services, advanced telecommunications, and information services, and
    thereby increase the tribe's access to education, commerce,
    government, and public services. These measures will also help
    bridge the physical distances between those living on the
    Reservation and the emergency, medical, employment, and other
    services that they may need to improve the standard of living on the
    Reservation.[^84] Accordingly, we conclude that Mescalero has
    demonstrated that the grant of this waiver request serves the public
    interest.

30. Therefore, we grant Mescalero a waiver of sections 36.611 and 36.612
    of the Commission's rules to the extent necessary to permit it to
    receive high-cost loop support for the period January 1, 2001
    through December 31, 2002 based initially on projected costs
    followed by quarterly true-ups using actual costs.[^85] We direct
    Mescalero to submit quarterly updates of its actual costs in
    accordance with the Commission's rules,[^86] so that it may be
    determined whether adjustments for the 2001 and 2002 high-cost loop
    support amounts are necessary. Payments for periods subsequent to
    December 2002 shall be based on the conventional historic data in
    accordance with the Commission's rules.

# ORDERING CLAUSES

31. Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 5(c), 201,
    and 202 of the Communications Act of 1934, as amended, 47 U.S.C. §§
    151, 154(i), 155(c), 201, and 202, and sections 0.91, 0.291, and 1.3
    of the Commission\'s rules, 47 C.F.R. §§ 0.91, 0.291, and 1.3, that
    the petition for waiver of Part 36, Appendix‑Glossary, of the
    Commission\'s rules, filed by Mescalero Apache Telecom, Inc., GTE
    Southwest Incorporated, and Valor Telecommunications of New Mexico,
    LLC on June 30, 2000, IS GRANTED, as described herein.

32. IT IS FURTHER 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 for waiver of sections 36.611, 36.612,
    61.41(c), and 69.3(e)(11) of the Commission's rules, 47 C.F.R. §§
    36.611, 36.612, 61.41(c), 69.3(e)(11), filed by Mescalero Apache
    Telecom, Inc., IS GRANTED, as described herein.

33. IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 5(c), 201, and
    202 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151,
    154(i), 155(c), 201, and 202, and sections 0.91, 0.291, 1.3, and
    61.43 of the Commission\'s rules, 47 C.F.R. §§ 0.91, 0.291, 1.3, and
    61.43, that Valor Telecommunications of New Mexico, LLC SHALL ADJUST
    its price cap indices in its annual price cap filing to reflect cost
    changes resulting from this transaction, consistent with this Order.

FEDERAL COMMUNICATIONS COMMISSION

Katherine L. Schroder

Chief, Accounting Policy Division

[^1]: 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 Part 36,
    Appendix-Glossary of the Commission's Rules, Mescalero Apache
    Telecom Inc., Related Waivers of Parts 36, 54, 61 and 69 of the
    Commission\'s Rules (filed June 30, 2000) (Petition).

[^2]: *See* C.F.R. §§ 36.611, 36.612, 61.41(c)(2), 69.3(e)(11). We note
    that, as a "successor or assign" of Valor, Mescalero is an incumbent
    local exchange carrier (LEC), as defined by section 251(h)(1) of the
    Telecommunications Act of 1996 (1996 Act), and, therefore, does not
    need a waiver of the statutory definition of incumbent LEC in order
    to qualify for universal service support based on its own costs.
    *See* 47 U.S.C. § 251(h)(1); *see also* 47 C.F.R. §§ 36.611, 54.301,
    54.303. *See* Petition at 10 n.25. The New Mexico Public Regulation
    Commission has designated Mescalero as an Eligible
    Telecommunications Carrier. *See* *Application of Mescalero Apache
    Telecom, Inc. for Certificates of Financial and Technical
    Competency, Operating Authority, and Public Convenience and
    Necessity and for Approval of Initial Tariffs*, Utility Case No.
    3364, Final Order, at 25-28 (N.M. Pub. Reg. Com. rel. Aug. 15, 2000)
    (*New Mexico Certification Order*).

[^3]: *See Mescalero Apache Telecom, Inc., Waiver of Section 54.305 of
    the Commission's Rules*, CC Docket No. 96-45, Order, FCC 01-13 (rel.
    Jan. 18, 2001) (*54.305 Waiver Order*). *See also* 47 C.F.R. §
    54.305. 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 for prior to
    their transfer.

[^4]: 47 C.F.R. § 36 app. (defining \"study area\"). *See* *MTS and WATS
    Market Structure, Amendment of Part 67 of the Commission\'s Rules
    and Establishment of a Joint Board*, CC Docket Nos. 78-72, 80-286,
    Recommended Decision and Order, 49 Fed. Reg. 48325 (1984) (*Joint
    Board Recommended Decision*); Decision and Order, 50 Fed. Reg. 939
    (1985) (*1985 Order Adopting Recommendation*); *see also* *Amendment
    of Part 36 of the Commission\'s Rules and Establishment of a Joint
    Board*, CC Docket No. 80-286, Notice of Proposed Rulemaking, 5 FCC
    Rcd 5974 (1990).

[^5]: *See Petition* at 7.

[^6]: *Mescalero Apache Telecom, Inc., GTE Southwest Incorporated, and
    Valor Telecommunications of New Mexico, LLC* *Seek Waiver of the
    Definition of "Study Area" in Part 36 and a Waiver of Various of the
    Commission's Rules*, Public Notice, DA 00-1824 (rel. Aug. 10, 2000).

[^7]: 47 C.F.R. § 1.3.

[^8]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1159 (D.C. Cir. 1969), *cert.
    denied*, 409 U.S. 1027 (1972).

[^9]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990).

[^10]: *WAIT Radio*, 418 F.2d at 1159; *Northeast Cellular*, 897 F.2d at
    1166.

[^11]: *See, e.g.,* *U S WEST Communications, Inc., and Eagle
    Telecommunications, Inc., Petition for Waiver of the Definition of
    \"Study Area\" Contained in Part 36, Appendix-Glossary of the
    Commission\'s Rules*, AAD 94-27, Memorandum Opinion and Order, 10
    FCC Rcd 1771, 1772 (1995) (*PTI/Eagle Order*).

[^12]: *See* 47 C.F.R. § 54.503. 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.

[^13]: *See* *54.305 Waiver Order* at paras. 6-13.

[^14]: *Id.* at para. 12.

[^15]: *See infra* discussion at paras. 15-18.

[^16]: Section 54.801 of the Commission's rules states that, if "all or
    a portion of a study area served by a price cap LEC is sold to an
    entity other than a price cap LEC, . . . then the support that would
    otherwise be provided under this subpart, had such study area or
    portion thereof not been sold, will not be distributed or
    collected." 47 C.F.R. § 54.801(b).

[^17]: *See* Petition at 10, Exhibit C; *see also New Mexico
    Certification Order* at 29.

[^18]: Petition at 5.

[^19]: *Id.* at 5-6, 10-11.

[^20]: *Id.* at 5.

[^21]: *See* Letter from James A. Casey, Attorney for Mescalero Apache
    Telecom, Inc. to Magalie Roman Salas, FCC, dated December 4, 2000,
    at 3-4 (Mescalero *ex parte*).

[^22]: *See* *New Mexico Certification Order* at 2.

[^23]: *See* *id.* at 14-19.

[^24]: 47 C.F.R. § 61.41(c)(2). *See Policy and Rules Concerning Rates
    for Dominant Carriers,* CC Docket No. 87-313, Second Report and
    Order*,* 5 FCC Rcd 6786, 6821 (1990) (*Price Cap Order*), Erratum, 5
    FCC Rcd 7664 (Com. Car. Bur. 1990), *modified on recon.*, Order on
    Reconsideration, 6 FCC Rcd 2637 (1991) (*LEC Price Cap
    Reconsideration Order*), *aff\'d sub nom*. *National Rural Telecom
    Ass\'n v. FCC*, 988 F.2d 174 (D.C. Cir. 1993), *petitions for
    further recon. dismissed*, 6 FCC Rcd 7482 (1991), *further
    modification on recon*., *Amendments of Part 69 of the Commission\'s
    Rules Relating to the Creation of Access Charge Subelements for Open
    Network Architecture, Policy and Rules Concerning Rates for Dominant
    Carriers*, Report and Order and Order on Further Reconsideration and
    Supplemental Notice of Proposed Rulemaking, 6 FCC Rcd 4524 (1991),
    *further recon*., Memorandum Opinion and Order on Second Further
    Reconsideration, 7 FCC Rcd 5235 (1992). Moreover, section 61.41(d)
    provides that LECs that become subject to price cap regulation are
    not permitted to withdraw from such regulation. 47 C.F.R. §
    61.41(d).

[^25]: *See LEC Price Cap Reconsideration Order*, 6 FCC Rcd at 2706.

[^26]: *Id.*

[^27]: *Id.* at 2706 n. 207.

[^28]: *See* *Price Cap Performance Review for Local Exchange Carriers*,
    CC Docket No. 94-1, First Report and Order, 10 FCC Rcd 8961, 9104-06
    (1995) (*LEC Price Cap Review Order*). The Price Cap Indices, which
    are the upper bounds for rates that comply with price cap
    regulation, are calculated pursuant to a formula specified in the
    Commission\'s rules for price cap carriers. *See* 47 C.F.R. § 61.45.

[^29]: *See* *LEC Price Cap Review Order*, 10 FCC Rcd at 9105-9106.

[^30]: *See, e.g.,* *Rye Telephone Company, Inc. and U S WEST
    Communications, Inc., Joint Petition for Waiver of Definition of
    "Study Area" Contained in the Part 36 Appendix-Glossary of the
    Commission's Rules and Petition for Waiver of Section 61.41(c)(2) of
    the Commission's Rules*, CC Docket No. 96-45, Order, DA 00-1585, at
    para. 17 (Acc. Pol. Div. rel. Jul. 18, 2000); *ALLTEL Corp. Petition
    for Waiver of Section 61.41 of the Commission's Rules and
    Application for Transfer of Control*, CCB/CPD No. 99-1, Memorandum
    Opinion and Order, 14 FCC Rcd. 14191, 14202 (1999) (*ALLTEL/Aliant
    Merger Order)*.

[^31]: *See* Petition at 17.

[^32]: *See supra* discussion at para. 7.

[^33]: *See, e.g., ALLTEL/Aliant Merger Order*, 14 FCC Rcd at 14204-05.

[^34]: *See, e.g., id.* at 14204; *In the Matter of Minburn
    Telecommunications, Inc., Petition for Waiver of Sections 61.41(c)
    and (d) of the Commission's Rules*, CCB/CPD No. 99-16, Memorandum
    Opinion and Order, 14 FCC Rcd 14184, 14187 (Com. Car. Bur. 1999).

[^35]: *See Price Cap Order*, 5 FCC Rcd at 6799-6801, 6818-19.

[^36]: *Id.*

[^37]: Petition at 17-19.

[^38]: *See, e.g., CenturyTel of Northwest Arkansas, LLC et al., Joint
    Petition for Waiver of Definition of "Study Area" Contained in the
    Part 36 Appendix-Glossary of the Commission's Rules, Petition for
    Waiver of Sections 61.41(c) and 69.3(g)(2) of the Commission's
    Rules*, CC Docket No. 96-45, Memorandum Opinion and Order, DA
    00-1434 (Acc. Pol. Div. rel. June 27, 2000) *(*approving the
    conversion of 214,270 access lines from price cap to rate-of-return
    regulation); *ALLTEL/Aliant Merger Order* (approving the conversion
    of approximately 300,000 access lines from price cap to
    rate-of-return regulation); *In the Matter of ALLTEL Service
    Corporation, Petition for Waiver of Section 61.41 of the
    Commission's Rules*, Order, 8 FCC Rcd 7054 (Com. Car. Bur. 1993)
    (approving the conversion of approximately 285,000 access lines from
    price cap to rate-of-return regulation).

[^39]: *See* Petition at 18.

[^40]: *Id.*

[^41]: *See* 47 C.F.R. § 61.45(d). The Price Cap Indices, which are the
    upper bounds for rates that comply with price cap regulation, are
    calculated pursuant to a formula specified in the Commission's rules
    for price cap carriers. *See also Price Cap Performance Review for
    Local Exchange Carriers,* CC Docket No. 94-1, First Report and
    Order, 10 FCC Rcd 8961 (1995).

[^42]: *See* 47 C.F.R. § 61.45(d).

[^43]: The Bureau has required carriers to make adjustments to their
    price cap indices in past study area waivers involving the sale of
    exchanges operated by carriers subject to price cap regulation.
    *See, e.g.,* *Sully Buttes Telephone Cooperative, 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 and Petition for Waiver of Section 61.41(c) and
    (d) and 69.3(e)(11) of the Commission's Rules*, CC Docket No. 96-45,
    Order, DA 00-1894 (Acc. Pol. Div. rel. Aug. 18, 2000).

[^44]: 47 C.F.R. § 69.3(e)(11).

[^45]: *See Amendment of Part 69 of the Commission's Rules Relating to
    the Common Line Pool Status of Local Exchange Carriers Involved in
    Mergers or Acquisitions*, CC Docket No. 89-2, Report and Order, 5
    FCC Rcd 231, 248 (1989) (*Common Line Pool Order*).

[^46]: *See* 47 C.F.R. § 69.3(a).

[^47]: Petition at 16-17.

[^48]: According to Mescalero, the approximately 950 access lines that
    Mescalero intends to acquire from Valor would represent an increase
    of significantly less than one percent of the approximately 10.5
    million access lines within the NECA common line pool. Petition at
    16 n. 44.

[^49]: According to the New Mexico Commission, the percentage of
    Mescalero Apache tribal households in Mescalero, New Mexico owning
    telephones is approximately 46 percent. *See New Mexico
    Certification Order* at 2.

[^50]: *See* Letter from James A. Casey, Attorney for Mescalero Apache
    Telecom, Inc. to Magalie Roman Salas, FCC, dated January 17, 2001,
    at 2.

    filed as an enclosure a Letter from, dated January 17, 2001, at

[^51]: *See* 47 C.F.R. § 36.631.

[^52]: *See* 47 C.F.R. § 36.611.

[^53]: 47 C.F.R. § 36.601(c). In the *First Report and Order*, the
    Commission retained the indexed cap on the growth of the existing
    high-cost fund. *First Report and Order*, 12 FCC Rcd at 8940. The
    indexed cap, originally adopted in 1993, 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. The indexed cap,
    however, does not apply in those years where the rate of growth in
    working loops nationwide has exceeded the growth in the nationwide
    average cost per loop. *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).

[^54]: *See* 47 C.F.R. § 36.612

[^55]: *See* 47 C.F.R. § 36.612.

[^56]: *See* Petition at 12-15.

[^57]: *See* Mescalero *ex parte* at 2; Petition at 2. Mescalero notes
    that its service area will be the Reservation, which encompasses
    approximately 463,000 acres of land in the northeast portion of
    Otero County in southern New Mexico.

[^58]: *Id.* at 6-7.

[^59]: *See* Mescalero *ex parte* at 3-4.

[^60]: *See* *id.* at 3.

[^61]: *See Monitoring Report*, September 2000, CC Docket No. 98-202
    (rel. Nov. 9, 2000) (*Monitoring Report*). Due to the fact that
    there can be multiple households per residence, a measure reflecting
    penetration of 48 percent of the residences will be equal to or less
    than a 48 percent penetration rate based on households.

[^62]: *See* Mescalero *ex parte* at 3; Petition at 6.

[^63]: *See New Mexico Certification Order* at 15.

[^64]: Petition at 15.

[^65]: *Id.*

[^66]: *See* *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 Section 36.611 and 36.612 of the Commission's Rules*, AAD
    97-41, Order, 13 FCC Rcd 198 (Acct. & Audits 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. & Audits
    Div. 1998) (*Sandwich Isles*).

[^67]: *See South Park*, 13 FCC Rcd at 201-22.

[^68]: *Id.*; *Border to Border*, 10 FCC Rcd at 5057.

[^69]: *See South Park*, 13 FCC Rcd at 202.

[^70]: *See Sandwich Isles*, 13 FCC Rcd at 2411.

[^71]: *See* Mescalero *ex parte* at 3.

[^72]: *See South Park*, 13 FCC Rcd at 201-22; *Border to Border*, 10
    FCC Rcd at 5057.

[^73]: *See* Mescalero *ex parte* at 3. According to the New Mexico
    Commission, the percentage of Mescalero Apache tribal households in
    Mescalero, New Mexico owning telephones is approximately 46 percent.
    *See New Mexico Certification Order* at 2.

[^74]: *See supra* discussion at para. 25.

[^75]: *See* Petition at Exhibit B, Schedule 3; *see also New Mexico
    Certification Order* at 16-17.

[^76]: *See id.* at 15.

[^77]: *See* Mescalero *ex parte* at 3.

[^78]: *See* Petition at 13-15. *See also New Mexico Certification
    Order* at 16 ("the denial of the USF waivers sought by \[Mescalero\]
    would delay the build out of the project by two years").

[^79]: *See supra* discussion at para. 27.

[^80]: *See* Mescalero *ex parte* at 3-4. Specifically, Mescalero
    commits to provide service to 248 unserved residences in the
    communities of Pena, Snow Springs, A&B Hill, Old Ladies Town,
    Summit, White Mountain Subdivision, New Mescalero School, Old Road,
    Gallarito Flats, Mud Canyon, and Pigeon Tank in the first year of
    operation and 289 unserved residences in the Communities of
    Mescalero Village and Highway 70, Cow Camp, White Tail, Silver
    Lakes, and Three Rivers in the second year of operations.

[^81]: *See* 47 U.S.C. § 254(b).

[^82]: *Id*.

[^83]: *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).

[^84]: *See,* *e.g.,Twelfth Report and Order* at para. 23 (citing, e.g.,
    *Washington v. Washington State Commercial Passenger Fishing Vessel
    Association, et al.*, 443 U.S. 658 (1979) (holding that the federal
    government's unique relationship with Indian tribes may create a
    federal duty to ensure that federal regulation of tribal lands
    assures "Indians with . . . a moderate living")).

[^85]: *See* *Sandwich Isles*, 13 FCC Rcd at 2411; *South Park*, 13 FCC
    Rcd at 202.

[^86]: *See* 47 C.F.R. § 36.612.