**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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| Valor Telecommunications of      | ) |                              |
| Texas, LP                        | * |                              |
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| And                              |   |                              |
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| GTE Southwest Incorporated       | * |                              |
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| Joint Petition for Waiver of the | * |                              |
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| Definition of "Study Area"       |   |                              |
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+----------------------------------+---+------------------------------+

**ORDER**

**Adopted: August 18, 2000 Released: August 21, 2000**

By the Deputy Chief, Accounting Policy Division:

# I. Introduction

1.  In this Order, we grant a request from Valor Telecommunications of
    Texas, LP (Valor) and GTE Southwest Incorporated (GTE) 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 GTE to remove 197 telephone exchanges comprising
    approximately 315,000 access lines from its two Texas study areas,
    including one exchange that is physically located in Arkansas. This
    waiver also will permit Valor to combine the 197 exchanges it
    intends to acquire from GTE into a single new study area for Texas,
    which will include the Arkansas exchange.[^2]

    **II. DISCUSSION**

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A.  **Background**

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2.  *[Study Area Boundaries]{.underline}*. 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,[^3] and an incumbent LEC must apply to the
    Commission for a waiver of the study area boundary freeze if it
    wishes to sell or purchase additional exchanges.

3.  *[Transfer of Universal Service Support]{.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] For
    example, if a rural carrier purchases an exchange from a non-rural
    carrier that receives support based on the Commission's new
    universal service support mechanism for non-rural carriers,[^5] the
    loops of the acquired exchange shall receive the same per-line
    support as calculated under the new non-rural mechanism, regardless
    of the support the rural carrier purchasing the exchange may receive
    for any other exchanges.[^6] Section 54.305 is meant to discourage
    carriers from transferring exchanges merely to increase their share
    of high-cost universal service support, especially during the
    Commission's transition to universal service support mechanisms that
    provide support to carriers based on the forward-looking economic
    cost of operating a given exchange.[^7] High-cost support mechanisms
    currently include non-rural carrier forward-looking high-cost
    support,[^8] interim hold-harmless support for non-rural
    carriers,[^9] rural carrier high-cost loop support,[^10] local
    switching support,[^11] and Long Term Support (LTS).[^12] To the
    extent that a carrier acquires exchanges receiving any of these
    forms of support, the acquiring carrier will receive the same
    per-line levels of support for which the acquired exchanges were
    eligible prior to their transfer.

4.  As described in the Commission's recent order adopting an integrated
    interstate access reform and universal service proposal put forth by
    the members of the Coalition for Affordable Local and Long Distance
    Service (CALLS), beginning July 1, 2000, if a price cap LEC acquires
    exchanges from another price cap LEC, the acquiring carrier will
    become eligible to receive interstate access universal service
    support for the acquired exchanges.[^13] In accordance with section
    54.801 of the Commission's rules, the acquiring price cap LEC will
    receive interstate access universal service support at the same
    level as the selling price cap LEC formerly received, and both
    carriers will adjust their line counts accordingly beginning with
    the next quarterly report to the fund Administrator.[^14] Carriers
    also are required to report their adjusted average common line,
    marketing, and transport interconnection charge (CMT) revenue per
    line per month[^15] for the affected study areas in accordance with
    the Commission's rules.[^16] Per-line amounts of interstate access
    universal service support for the acquired exchanges may change as a
    result of the revised CMT revenue filings. Because the interstate
    access universal service support mechanism is capped at \$650
    million, individual transactions will not increase its overall
    size.[^17]

5.  *[The Petition for Waiver]{.underline}*. GTE, an incumbent LEC
    currently operating in Arkansas and Texas, entered into an agreement
    with Valor, a LEC that currently does not provide service in
    Arkansas or Texas, to sell 197 exchanges located in GTE's two Texas
    study areas.[^18] The proposed transaction includes the sale of one
    exchange that is physically located on the Arkansas side of
    Texarkana.[^19] Valor intends to combine the 197 exchanges it is
    acquiring from GTE into a single new study area for Texas, which
    will include the exchange physically located in Arkansas.

6.  On April 20, 2000, Valor and GTE filed a joint petition for waiver
    of the definition of "study area" contained in the Part 36
    Appendix-Glossary of the Commission's rules. The requested waiver
    would permit GTE to remove the 197 exchanges from its Texas study
    areas, and permit Valor to create a Texas study area for the
    acquired exchanges. On May 8, 2000, the Common Carrier Bureau
    (Bureau) released a public notice seeking comment on the
    petition.[^20] No comments were received.

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B.  **Discussion**

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7.  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 GTE to remove the 197 exchanges from its Texas study areas,
    and permit Valor to create a Texas study area for the acquired
    exchanges that will include the exchange physically located in
    Arkansas.

8.  Generally, the Commission's rules may be waived for good cause
    shown.[^21] As noted by the Court of Appeals for the D.C. Circuit,
    however, agency rules are presumed valid.[^22] The Commission may
    exercise its discretion to waive a rule where the particular facts
    make strict compliance inconsistent with the public interest.[^23]
    In addition, the Commission may take into account considerations of
    hardship, equity, or more effective implementation of overall policy
    on an individual basis.[^24] Waiver of the Commission's rules is
    therefore appropriate only if special circumstances warrant a
    deviation from the general rule, and such a deviation will serve the
    public interest. In evaluating petitions seeking a waiver of the
    rule freezing study area boundaries, the Commission traditionally
    has applied a three-prong standard: first, the change in study area
    boundaries must not adversely affect the universal service fund;
    second, no state commission having regulatory authority over the
    transferred exchanges may oppose the transfer; and third, the
    transfer must be in the public interest.[^25] For the reasons
    discussed below, we conclude that petitioners have satisfied these
    criteria and demonstrated that good cause exists for waiver of the
    Commission's study area freeze rule.

9.  First, we conclude that GTE and Valor have demonstrated that the
    proposed change in the study area boundaries will not adversely
    affect any of the universal service mechanisms. Because, under the
    Commission's rules, carriers purchasing high-cost exchanges 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.[^26] As such, Valor will receive
    the same per-line levels of interim hold-harmless support for which
    the 197 GTE exchanges were eligible prior to their transfer.[^27] In
    addition, even though per-line amounts of interstate access
    universal service support directed to the acquired exchanges may
    increase as a result of the proposed transaction,[^28] the overall
    size of the interstate access universal service mechanism will not
    exceed \$650 million.[^29] Therefore, we conclude that this
    transaction will not adversely affect the universal service
    mechanisms.

10. Second, no state commission with regulatory authority over the
    transferred exchanges opposes the transfer. The Arkansas Public
    Service Commission and the Public Utilities Commission of Texas have
    indicated that neither objects to the grant of the study area
    waiver.[^30]

11. Finally, we conclude that the public interest is served by a waiver
    of the study area freeze rule to permit GTE to remove 197 exchanges
    from its Texas study areas and Valor to create a Texas study area
    for the transferred exchanges. Upon consummation of the proposed
    transaction, Valor states that it intends to expand the availability
    of enhanced services, including Caller ID, voice-mail, local
    Internet access, and ultimately provide high-speed services such as
    DSL.[^31] Valor also states that it will provide customers with
    "additional and improved services from a locally-based carrier
    specializing in meeting the communications needs of rural and small
    urban communities."[^32] Based on these representations, we conclude
    that Valor has demonstrated that grant of this waiver request will
    serve the public interest.

12. In accordance with section 61.45 of the Commission's rules, we also
    require GTE to adjust its price cap indices to reflect the removal
    of the transferred access lines from its Texas study areas.[^33]
    Section 61.45 of the Commission's rules grants the Commission
    discretion to require price cap carriers to make adjustments to
    their price cap indices to reflect cost changes resulting from rule
    waivers.[^34] We require GTE to make such an adjustment.[^35]

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III. **ORDERING CLAUSES**

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13. 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 Valor Telecommunications of Texas, LP
    and GTE Southwest Incorporated on April 20, 2000, IS GRANTED, as
    described herein.

14. 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 GTE Southwest Incorporated 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

Deputy Chief, Accounting Policy Division

[^1]: Valor Telecommunications of Texas, LP and GTE Southwest
    Incorporated, Joint Petition for Waiver of the Definition of "Study
    Area" of the Appendix -- Glossary of Part 36 (filed Apr. 20, 2000)
    (Petition).

[^2]: On July 27, 2000, Western Wireless Corporation (Western Wireless)
    filed a petition asking the Commission to reject Valor's
    self-certification as a rural carrier for this study area. Western
    Wireless Corporation, Petition to Reject Rural Telephone Company
    Self-Certification, CC Docket No. 96-45 (filed July 27, 2000). The
    Common Carrier Bureau (Bureau) issued a Public Notice seeking
    comment on Western Wireless' petition. *See* *Common Carrier Bureau
    Seeks Comment on Western Wireless Corporation Petition to Reject
    Valor Telecommunications Southwest, LLC Rural Telephone Company
    Self-Certification*, Public Notice, DA 00-1882 (rel. August 17,
    2000). This Order does not address Western Wireless' petition
    opposing Valor's self-certification as a rural carrier. The
    Commission shall consider Western Wireless' petition in a future
    order.

[^3]: 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); Decision
    and Order, 50 Fed. Reg. 939 (1985); *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).

[^4]: 47 C.F.R. § 54.305.

[^5]: On November 2, 1999, the Commission released two orders finalizing
    implementation plans for high-cost reform for non-rural carriers.
    *Federal-State Joint Board on Universal Service*, Ninth Report and
    Order and Eighteenth Order on Reconsideration, CC Docket No. 96-45,
    FCC 99-306 (rel. Nov. 2, 1999); *Federal-State Joint Board on
    Universal Service*; *Forward-Looking Mechanism for High Cost Support
    for Non-Rural LECs*, CC Docket Nos. 96-45, 97-160, Tenth Report and
    Order (rel. Nov. 2, 1999). The new mechanism, which went into effect
    on January 1, 2000, does not apply to rural carriers. The new
    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. The Commission's forward-looking
    methodology for calculating high-cost support for non-rural carriers
    targets support to states where the statewide average
    forward-looking cost per line exceeds 135 percent of the national
    average forward-looking cost. *See* *id.* The total amount of
    support directed to non-rural carriers in a high-cost state equals
    76 percent of the amount the statewide average forward-looking cost
    per line exceeds the national cost benchmark, multiplied by the
    number of lines served by non-rural carriers in the state. Carriers
    serving wire centers with an average forward-looking cost per line
    above the national cost benchmark shall be eligible to receive
    support. The amount of support provided to a non-rural carrier
    serving a particular wire center depends on the extent to which
    per-line forward-looking economic costs in that wire center exceed
    the national cost benchmark.

[^6]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45*,* Report and Order, 12 FCC Rcd 8776, 8942-43 (1997)
    (*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 (5^th^ Cir. 1999).

[^7]: *Id.*

[^8]: *See* 47 C.F.R. § 54.309.

[^9]: In the event that support provided to a non-rural carrier in a
    given state is less under the forward-looking methodology, the
    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 support
    mechanism. *See* 47 C.F.R. § 54.311

[^10]: Rural carriers receive high-cost loop support when their reported
    average cost per loop exceeds the nationwide average loop cost.
    *See* 47 C.F.R. §§ 36.601-36.631.

[^11]: Incumbent LECs that are designated eligible telecommunications
    carriers and serve study areas with 50,000 or fewer access lines
    receive support for local switching costs. 47 C.F.R. § 54.301. Local
    switching support enables participants to assign a greater
    proportion of local switching costs to the interstate jurisdiction.

[^12]: Carriers that participate in the NECA common line pool are
    eligible to receive LTS. *See* 47 C.F.R. § 54.303. LTS supports
    interstate access rates for carriers that are members of the NECA
    pool, by reducing the amount of interstate-allocated loop costs that
    such carriers must recover through carrier common line charges. *See
    First Report and Order,* 12 FCC Rcd at 9163-9165.

[^13]: *See Access Charge Reform*, Sixth Report and Order in CC Docket
    No. 96-262 and 94-1, Report and Order in CC Docket No. 99-249,
    Eleventh Report and Order in CC Docket No. 96-45, FCC 00-103, at
    para. 225 (rel. May 31, 2000) (*Interstate Access Universal Service
    Order*). We note that if a non-price cap LEC acquires exchanges from
    a price-cap LEC, per-line interstate access universal service
    support will not transfer. 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).

[^14]: *See* 47 C.F.R. § 54.801(d).

[^15]: Price Cap CMT Revenue is defined as the maximum total revenue a
    filing entity would be permitted to receive from End User Common
    Line charges under section 69.152, Presubscribed Interexchange
    Carrier charges under section 69.153, Carrier Common Line charges
    under section 69.154, and Marketing under section 69.156, using Base
    Period lines. *See* 47 C.F.R. § 69.3(cc). Price Cap CMT Revenue does
    not include LEC universal service contributions as of July 1, 2000,
    and Local Switching Pooled revenue outlined in section 69.3(bb).

[^16]: *See* 47 C.F.R. § 54.802.

[^17]: *See* 47 C.F.R. § 54.801(a); *see also Interstate Access
    Universal Service Order* at para. 201.

[^18]: Petition at 1. *See also* NECA Universal Service Fund 1999
    Submission of 1998 Study Results, filed October 1, 1999.

[^19]: Petition at 2.

[^20]: *GTE Southwest Incorporated and Valor Telecommunications of
    Texas* *Seek Waiver of the Definition of "Study Area" in Part 36 of
    the Commission's Rules*, Public Notice, DA 00-1015 (rel. May 8,
    2000).

[^21]: 47 C.F.R. § 1.3.

[^22]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1159 (D.C. Cir. 1969), *cert.
    denied*, 409 U.S. 1027 (1972).

[^23]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990).

[^24]: *WAIT Radio*, 418 F.2d at 1159; *Northeast Cellular*, 897 F.2d at
    1166.

[^25]: *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).

[^26]: *See* 47 C.F.R. § 54.305.

[^27]: *See* Petition at 5-6. We note that the Federal-State Joint Board
    on Universal Service (Joint Board) recently recommended that interim
    hold-harmless support for exchanges transferred to non-rural
    carriers be phased down over the same time period as the seller's
    support would have been phased down. *See* *Federal-State Joint
    Board on Universal Service*, CC Docket No. 96-45, Recommended
    Decision, FCC 00J-1, at paras. 19-22 (rel. Jun. 30, 2000). The Joint
    Board also recommended that interim hold-harmless support for
    exchanges transferred to rural carriers should not be phased down
    following the transfer until the Commission reexamines the operation
    of section 54.305 of the Commission's rules and/or reforms the
    high-cost mechanism for rural carriers. *Id.* at para. 21.

[^28]: *See* 47 C.F.R. §§ 54.801(d), 54.802(b); *see also* *supra*
    discussion at para. 4. Valor will be regulated as a price cap
    carrier following the acquisition of GTE's exchanges and, therefore,
    will be eligible to receive transferred interstate access universal
    service support. *See* 47 C.F.R. § 61.41(c)(2) (when a
    telecommunications carrier acquires exchanges from a price cap
    company, the acquiring company becomes subject to price cap
    regulation and must file price cap tariffs within a year); *see
    also* Petition at 2.

[^29]: *See* 47 C.F.R. § 54.801(a).

[^30]: *See* Letter from Samuel C. Loudenslager, Arkansas Public Service
    Commission to Dorothy Attwood, Federal Communications Commission
    (filed Jul. 19, 2000); Petition at 4-5, Attachment 2.

[^31]: *Id.* at 6-7.

[^32]: *Id.* at 7.

[^33]: *See* 47 C.F.R. § 61.45(d)(1)(iv). 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).

[^34]: *See* 47 C.F.R. § 61.45(d)(1)(iv).

[^35]: 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.,* *Northland Telephone Company d/b/a PTI Communications,
    Inc. and U S West Communications, Inc., Petition for Waiver of
    Sections 61.41(c)(2), 69.3(e)(6) and the Definition of \"Study
    Area\" Contained in Part 36, Appendix-Glossary of the Commission\'s
    Rules*, Memorandum Opinion and Order, 12 FCC Rcd 13329, 13336 (Acc.
    Aud. Div. 1997); *GTE North, Inc., and PTI Communications of
    Michigan, Inc., Petition for Waiver of Sections 61.41(c) and the
    Definition of \"Study Area\" Contained in Part 36, Appendix-Glossary
    of the Commission\'s Rules*, Memorandum Opinion and Order, 12 FCC
    Rcd 13882, 13888 (Acc. Aud. Div. 1997); *Golden Belt Telephone
    Association, Inc., and United Telephone Company of Kansas, Petition
    for Waiver of Sections 61.41(c)(2) and the Definition of \"Study
    Area\" Contained in Part 36, Appendix-Glossary of the Commission\'s
    Rules*, Memorandum Opinion and Order, 12 FCC Rcd 16335, 16341 (Acc.
    Aud. Div. 1997); *Rural Telephone Service Company, Inc., and United
    Telephone Company of Kansas, Petition for Waiver of Sections
    61.41(c)(2) and the Definition of \"Study Area\" Contained in Part
    36, Appendix-Glossary of the Commission\'s Rules*, Memorandum
    Opinion and Order, 12 FCC Rcd 16343, 16350 (Acc. Aud. Div. 1997).