**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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| Citizens Telecommunications      | ) |                              |
| Company of Illinois              | * |                              |
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| GTE South Incorporated and GTE   | * |                              |
| North 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:** November 28, 2000 **Released:** November 29, 2000

By the Chief, Accounting Policy Division:

# I. Introduction

1.  In this Order, we grant a request from Citizens Telecommunications
    Company of Illinois (Citizens) and GTE North Incorporated and GTE
    South Incorporated (collectively, Verizon companies) 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 the Verizon companies to remove from their three Illinois
    study areas 110 exchanges comprising 110,000 access lines, including
    an exchange serving 659 access lines in Wisconsin. This waiver also
    will permit Citizens to combine the 110 exchanges to form a new
    Illinois study area.

    **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,[^2] 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.[^3] 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,[^4] 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.[^5] 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.[^6] High-cost support mechanisms
    currently include non-rural carrier forward-looking high-cost
    support,[^7] interim hold-harmless support for non-rural
    carriers,[^8] rural carrier high-cost loop support,[^9] local
    switching support,[^10] and Long Term Support (LTS).[^11] 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.[^12] 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.[^13] Carriers
    also are required to report their adjusted average common line,
    marketing, and transport interconnection charge (CMT) revenue per
    line per month[^14] for the affected study areas in accordance with
    the Commission's rules.[^15] 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.[^16]

5.  *[The Petition for Waiver]{.underline}*. The Verizon companies,
    incumbent LECs currently serving 949,760 access lines in Illinois
    and 521,167 access lines in Wisconsin, entered into an agreement
    with Citizens, a LEC that currently does not provide service in
    Illinois and Wisconsin, to sell 110 exchanges comprising 110,000
    access lines, including an exchange serving 659 access lines in
    Fairplay, Wisconsin.[^17] Specifically, the Verizon companies intend
    to remove 80 exchanges from their Contel of IL d/b/a GTE IL study
    area, three exchanges from their GTE South-IL study area and 27
    exchanges from their GTE North-IL study area.[^18]

6.  On September 8, 2000, Citizens and Verizon 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 petition
    requested a waiver for the Verizon companies to remove the 110
    exchanges comprising 110,000 access lines from their three Illinois
    study areas, and for Citizens to create three new study areas with
    the acquired access lines.[^19] On November 27, 2000, Citizens filed
    an amended petition with the Commission requesting to combine the
    acquired exchanges into one study area for the state of
    Illinois.[^20] On September 28, 2000, the Common Carrier Bureau
    (Bureau) released a public notice seeking comment on the
    petition.[^21] 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 the Verizon companies to remove the 110 exchanges comprising
    110,000 access lines from their three Illinois study areas, and
    permit Citizens to create a new study area for the acquired access
    lines.

8.  Generally, the Commission's rules may be waived for good cause
    shown.[^22] As noted by the Court of Appeals for the D.C. Circuit,
    however, agency rules are presumed valid.[^23] The Commission may
    exercise its discretion to waive a rule where the particular facts
    make strict compliance inconsistent with the public interest.[^24]
    In addition, the Commission may take into account considerations of
    hardship, equity, or more effective implementation of overall policy
    on an individual basis.[^25] 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.[^26] 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 the Verizon companies and Citizens have
    demonstrated that the proposed changes 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. In addition,
    even though the acquired exchanges may become eligible to receive
    increased interstate access universal service support as a result of
    the proposed transaction,[^27] the overall size of the interstate
    access universal service mechanism will not exceed \$650
    million.[^28] 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 Illinois Commerce
    Commission and the Public Service Commission of Wisconsin have
    indicated that they do not object to the grant of the study area
    waiver.[^29]

11. Finally, we conclude that the public interest is served by a waiver
    of the study area freeze rule to permit the Verizon companies to
    remove the 110 exchanges from their Illinois study areas and
    Citizens to combine the acquired exchanges into a new study area for
    Illinois. In its petition, Citizens states its intent to invest
    approximately \$45 million in the 110 exchanges it is purchasing
    from the Verizon companies during the first three years of
    ownership, using some of the capital investment to upgrade the
    network to provide enhanced services.[^30] According to Citizens, it
    also will provide broadband/digital subscriber line services when
    there is sufficient demand to make it possible to provide these
    services at an affordable rate.[^31] Based on these representations,
    we conclude that Citizens has demonstrated that grant of this waiver
    request serves the public interest.

12. In accordance with section 61.45 of the Commission's rules, we also
    require the Verizon companies to adjust their price cap indices to
    reflect the removal of the transferred access lines from their
    Illinois study areas.[^32] 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.[^33] We require the Verizon companies
    to make such an adjustment.[^34]

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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 Citizens Telecommunications Company of
    Illinois, GTE North Incorporated and GTE South Incorporated on
    September 8, 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 North Incorporated and GTE South Incorporated SHALL
    ADJUST their price cap indices in their annual price cap filings to
    reflect cost changes resulting from this transaction, consistent
    with this Order.

FEDERAL COMMUNICATIONS COMMISSION

Katherine L. Schroder

Chief, Accounting Policy Division

[^1]: Citizens Telecommunications Company of Illinois and GTE North
    Incorporated and GTE South Incorporated, Joint Petition for Waivers
    of the Definition of "Study Area" Contained in Part 36,
    Appendix\--Glossary of the Commission's Rules (filed Sep. 8, 2000)
    (Petition).

[^2]: 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) (*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).

[^3]: 47 C.F.R. § 54.305.

[^4]: 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.

[^5]: *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).

[^6]: *Id.*

[^7]: *See* 47 C.F.R. § 54.309.

[^8]: 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

[^9]: 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.

[^10]: 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.

[^11]: 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.

[^12]: *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).

[^13]: *See* 47 C.F.R. § 54.801(d).

[^14]: 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).

[^15]: *See* 47 C.F.R. § 54.802.

[^16]: *See* 47 C.F.R. § 54.801(a); *see also Interstate Access
    Universal Service Order* at para. 201.

[^17]: Petition at 1-2.

[^18]: *Id.* at 4.

[^19]: *Id.* at 1.

[^20]: Letter from Michael Schultz, Citizens Communications, to Federal
    Communications Commission (filed November 27, 2000).

[^21]: *Citizens Telecommunications Company of Illinois, GTE South
    Incorporated and GTE North Incorporated Seek a Waiver of the
    Definition of "Study Area" in Part 36 of the Commission's Rules*,
    Public Notice, DA 00-2216 (rel. Sep. 28, 2000).

[^22]: 47 C.F.R. § 1.3.

[^23]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1159 (D.C. Cir. 1969), *cert.
    denied*, 409 U.S. 1027 (1972).

[^24]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990).

[^25]: *WAIT Radio*, 418 F.2d at 1159; *Northeast Cellular*, 897 F.2d at
    1166.

[^26]: *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).

[^27]: *See* 47 C.F.R. §§ 54.801(d), 54.802(b); *see also* *supra*
    discussion at para. 4.

[^28]: *See* 47 C.F.R. § 54.801(a).

[^29]: *See* Petition at 5, Attachment C; Letter from Public Service
    Commission of Wisconsin to Dorothy Attwood, Chief, Common Carrier
    Bureau, Federal Communications Commission (filed Sep. 14, 2000).

[^30]: Petition at 6.

[^31]: *Id*.

[^32]: *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).

[^33]: *See* 47 C.F.R. § 61.45(d).

[^34]: 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).