**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | CC Docket No. 96-45          |
|                                  | * |                              |
| Amana Colonies Telephone Company | ) |                              |
| d/b/a HickoryTech and Heartland  | * |                              |
| Telecommunications Company       | * |                              |
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| And                              | * |                              |
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| South Slope Cooperative          | ) |                              |
| Telephone Company                | * |                              |
|                                  | * |                              |
| Joint Petition for Waiver of the |   |                              |
| Definition of "Study Area"       | * |                              |
| contained in the Part 36         | * |                              |
| Appendix-Glossary of the         | ) |                              |
| Commission's Rules and           | * |                              |
| Definition of "Average Schedule  | * |                              |
| Company" in Section 69.605(c) of |   |                              |
| the Commission's Rules.          | * |                              |
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+----------------------------------+---+------------------------------+

# order {#order .unnumbered}

**Adopted:** June 5, 2001 **Released:** June 6, 2001

By the Chief, Accounting Policy Division:

# INTRODUCTION

1.  In this Order, we grant a request from Amana Colonies Telephone
    Company d/b/a HickoryTech and Heartland Telecommunications Company
    of Iowa (Amana Colonies)[^1], and South Slope Cooperative Telephone
    Company (South Slope) for a waiver of the definition of "study area"
    contained in Part 36 Appendix-Glossary of the Commission's
    rules.[^2] This waiver will permit Amana Colonies to remove from its
    Iowa study area the Amana, Iowa exchange comprising approximately
    1,500 access lines. This waiver will also permit South Slope to
    include the Amana exchange in its Iowa study area. We also grant
    South Slope's request for waiver of the definition of "average
    schedule company" included in section 69.605(c) of the Commission's
    rules.

# study area waiver

## Background

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 ensure that
    a selling carrier does not artificially inflate the price of an
    exchange in anticipation of the buyers receipt of universal service
    support as a result of the transfer.[^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.  *[The Petition for Waiver]{.underline}*. On August 11, 2000, Amana
    Colonies entered into an agreement with South Slope to sell to South
    Slope the Amana exchange, which serves approximately 1,500 access
    lines. South Slope currently serves 11,330 access lines in
    Iowa.[^13] On December 13, 2000, South Slope and Amana Colonies
    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 Amana Colonies to remove
    the Amana exchange from its Iowa study area and permit South Slope
    to include the acquired exchange in its existing Iowa study area. On
    January 30, 2001, the Common Carrier Bureau (Bureau) released a
    public notice seeking comment on the petition.[^14] The National
    Telephone Cooperative Association (NTCA) filed reply comments in
    support of the petition.[^15]

## Discussion

5.  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 Amana Colonies to remove the Amana exchange from its Iowa
    study area and to permit South Slope to include the acquired
    exchange in its Iowa study area.

6.  Generally, the Commission's rules may be waived for good cause
    shown.[^16] As noted by the Court of Appeals for the D.C. Circuit,
    however, agency rules are presumed valid.[^17] The Commission may
    exercise its discretion to waive a rule where the particular facts
    make strict compliance inconsistent with the public interest.[^18]
    In addition, the Commission may take into account considerations of
    hardship, equity, or more effective implementation of overall policy
    on an individual basis.[^19] 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. Third, the transfer
    must be in the public interest.[^20] For the reasons discussed
    below, we conclude that petitioners have satisfied these criteria
    and have demonstrated that good cause exists for waiver of the
    Commission's study area freeze rule.

7.  First, we conclude that Amana Colonies and South Slope have
    demonstrated that the proposed change in the study area boundaries
    will not adversely affect any of the universal service mechanisms.
    Under section 54.305 of the Commission's rules, carriers purchasing
    exchanges can only receive the same level of per-line support that
    the selling company was receiving for those exchanges prior to the
    sale. As a result, there can, by definition, be no adverse impact on
    the universal service fund resulting from this transaction. South
    Slope will receive the same per-line levels of support, including
    high-cost loop support, local switching support, and LTS, for which
    the Amana, Iowa exchange was eligible prior to its transfer. Because
    the Amana exchange currently receives no high-cost support, South
    Slope will not receive high-cost loop support for the Amana exchange
    after the transfer. Therefore, we conclude that this transaction
    will not adversely affect the universal service mechanisms.

8.  Second, no state commission with regulatory authority over the
    transferred exchanges opposes the transfer. The Iowa State Utilities
    Board has indicated that it does not object to the grant of the
    study area waiver.[^21]

9.  Finally, we conclude that the public interest is served by a waiver
    of the study area freeze rule to permit Amana Colonies to remove the
    Amana exchange from its study area and to permit South Slope to
    include the acquired exchange in its Iowa study area. In its
    petition, South Slope states that the transfer of the Amana exchange
    will expand the local calling areas for customers in South Slope's
    existing exchanges and for the customers in the acquired Amana
    exchange.[^22] In its order approving the transaction and granting
    South Slope a certificate to operate the Amana exchange, the Iowa
    State Utilities Board found that South Slope has demonstrated a
    history of providing local exchange telecommunications service in
    compliance with the Board's rules and requirements and that it is
    ready, willing, and able to provide comparable service to the Amana
    exchange.[^23] Based on these representations, we conclude that
    South Slope has demonstrated that grant of this waiver request
    serves the public interest.

# average schedule waiver

## Background

10. Incumbent LECs that participate in NECA pools collect access charges
    from interexchange carriers at the rates contained in the tariffs
    filed by NECA. Each pool participant receives revenues from the
    pools to recover its cost of providing service plus a pro rata share
    of the pool's earnings.[^24] NECA pool participants' costs are
    determined either on the basis of cost studies or average schedule
    formulas. Cost companies are LECs that receive compensation for
    interstate telecommunication services based on their actual
    interstate investment and expenses, calculated from detailed cost
    studies. Average schedule companies are those incumbent LECs that
    receive compensation for use of their interstate common carrier
    services on the basis of formulas that are designed to simulate the
    disbursements that would be received by a cost study company that is
    representative of average schedule companies.[^25] Average schedule
    companies, which are generally small incumbent LECs, are able to
    avoid the administrative burden of performing interstate cost
    studies.

11. Section 69.605(c) of the Commission's rules provides in pertinent
    part that, "a telephone company that was participating in average
    schedule settlements on December 1, 1982, shall be deemed to be an
    average schedule company."[^26] Average schedule companies include
    average schedule companies that existed on December 1, 1982, or that
    have received average schedule status as a result of waivers. In
    limiting average schedule status, the Commission found that cost
    studies produce the most accurate financial information and,
    consequently, the most accurate interstate telephone rates.[^27]
    Thus, an incumbent LEC may convert from an average schedule company
    to a cost company, but a carrier must obtain a waiver of section
    69.605(c) to change from a cost company to an average schedule
    company.[^28]

12. The special circumstances that the Bureau has found to justify
    waivers of section 69.605(c) fall into two categories.[^29] First,
    the Bureau has granted waivers to certain small carriers that lacked
    the resources to operate on a cost-study basis.[^30] Second, the
    Bureau has granted section 69.605(c) waivers to average schedule
    companies that have acquired a cost based company and allowed the
    combined companies to merge into one average schedule study
    area.[^31]

13. South Slope requests a waiver of section 69.605(c) of the
    Commission's rules in order to continue operating as an average
    schedule company following the proposed transaction.[^32] Currently,
    South Slope is an average schedule company under section 69.605(c),
    while Amana Colonies is a cost company.[^33] Because South Slope
    intends to acquire the Amana exchange from a cost company, section
    69.605(c) of the Commission's rules would require South Slope to
    convert to a cost company.[^34] South Slope argues that it should
    not be required to operate as a cost company because such a
    conversion would be unduly burdensome to South Slope because South
    Slope would have to spend time, effort, and funds on cost studies
    that it has previously been able to use to improve the quality of
    service furnished to its customers.[^35] South Slope also argues
    that an average schedule waiver will not result in unintended
    effects on interstate revenue requirements or in administrative
    burdens on the Commission or NECA.[^36] NTCA supports South Slope's
    waiver request.[^37]

## Discussion

14. We are persuaded that good cause exists for us to grant South
    Slope's request for waiver of section 69.605(c). The Commission has
    explained that the definition of "average schedule company" in
    section 69.605(c) was premised upon a policy determination that
    carriers with the financial resources and expertise to conduct cost
    studies without undue hardship should be required to measure the
    actual costs they incur in providing interstate service.[^38] In
    this instance, South Slope, an existing average schedule company,
    has demonstrated that special circumstances exist because, due to
    its size, it would suffer undue hardship if required to convert to
    cost company status. South Slope is acquiring a small, 1500-line
    rural exchange which will not significantly increase the size of its
    study area. The proposed transaction will expand the local calling
    area for South Slope's existing exchanges and the Amana exchange and
    eliminate toll calling for parents, students, and teachers within
    the Amana School District.[^39] If denied this waiver, South Slope
    would have to spend time, effort, and funds on cost studies that it
    has heretofore been able to use to improve the quality of service to
    its customers. Based on these facts, we therefore conclude that the
    Petitioners have demonstrated that the public interest would be
    served by such a waiver. Accordingly, we grant South Slope's request
    for waiver of section 69.605(c) of the Commission's rules.

# ORDERING CLAUSES

15. 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 South Slope Cooperative Telephone
    Company, Amana Colonies Telephone Company, d/b/a HickoryTech and
    Heartland Telecommunications Company of Iowa on December 13, 2000,
    IS GRANTED, as described herein.

16. 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, 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 section 69.605(c), filed by South Slope
    Cooperative Telephone on December13, 2000, IS GRANTED, as described
    herein.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Katherine L. Schroder
>
> Chief, Accounting Policy Division

[^1]: Amana Colonies is a subsidiary of HickoryTech and is presently
    part of a consolidated study area that also contains ll exchanges
    serving approximately 13,300 access lines operated by Heartland,
    another subisidary of HickoryTech.

[^2]: Amana Colonies Telephone Company d/b/a HickoryTech and Heartland
    Telecommunications Company of Iowa and South Slope Cooperative
    Telephone Company, Joint Petition for Waiver of the Definition of
    "Study Area" Contained in Part 36, Appendix-Glossary of the
    Commission's Rules, and Section 69.605(c)'s Definition of "Average
    Schedule Company" (filed Dec. 13, 2000) (Petition).

[^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 LEC's*, 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.

[^6]: *See Federal-State Joint Board on Universal Service,* CC Docket
    No. 9-45, 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. The Commission has adopted
    measures to phase down interim hold-harmless support through \$1.00
    reductions in average monthly, per-line support beginning January 1,
    2001, and every year thereafter until there is no more interim
    hold-harmless support. The phase down will not apply to a rural
    carrier when it acquires telephone exchanges from a non-rural
    carrier until the Commission completes a review of section 54.304 of
    the Commission's rules or until rural high-cost reform is complete.
    *Federal-State Joint Board on Universal Service*, Thirteenth Report
    and Order and Further Notice of Proposed Rulemaking, CC Docket No.
    96-45, FCC 00-428 (rel. Dec. 8, 2000).

[^10]: Rural carriers receive high-cost loop support when their reported
    average cost per loop exceeds the nationwide average loop cost by 15
    percent. *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 (1997).

[^13]: Petition at Appendix A.

[^14]: *Amana Colonies Telephone Company D/B/A Hickory Tech and
    Heartland Telecommunications Company of Iowa and South Slope
    Cooperative Telephone Company Seek a Waiver of the Definition of
    "Study Area" in Part 36 of the Commission's Rules and a Waiver of
    Section of 69.605(c) of the Commission's Rules*, Public Notice, DA
    01-232 (rel. Jan. 30, 2001).

[^15]: NTCA reply comments at 2 n.3.

[^16]: 47 C.F.R. § 1.3.

[^17]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1159 (D.C. Cir. 1969), *cert.
    Denied*, 409 U.S. 1027 (1972).

[^18]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990).

[^19]: *WAIT Radio*, 418 F.2d at 1159; *Northeast Cellular*, 897 F.2d at
    1166.

[^20]: *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 1871, 1872 (1995).

[^21]: *See* Petition at Appendix A.

[^22]: *Id*. at 5.

[^23]: *Id*. at Appendix A.

[^24]: *See* 47 C.F.R. §§ 69.601-69.612.

[^25]: *See* 47 C.F.R. § 69.606(a).

[^26]: 47 C.F.R. § 69.605(c).

[^27]: *See MTS and WATS Market Structure: Average Schedule Companies*,
    CC Docket No. 78-72, Memorandum Opinion and Order, 3 FCC Rcd 6642
    (1986) (*MTS* and *WATS* Order).

[^28]: *See* 47 C.F.R. § 69.605(c).

[^29]: *See BPS Telephone Co. Petition for Waiver of Section 69.605(c)
    of the Commission's Rules*, AAD No. 95-67, Memorandum Opinion and
    Order on Reconsideration, 12 FCC Rcd 13820, 13824 (Acc. Aud. Div.
    1997) (*BPS Order*).

[^30]: *BPS Order*, 12 FCC Rcd at 13824. *See, e.g.*, *Dumont Telephone
    Company, Inc. and Universal Communications, Inc.*, *Request for
    Extraordinary Relief*, AAD 96-94, Memorandum Opinion and Order, 13
    FCC Rcd 17821 (Acc. Saf. Div. 1998) (waiver granted to Dumont
    Telephone Company, Inc. and Universal Communications, Inc., which
    had approximately 1,544 access lines); *Wilderness Valley Telephone
    Company, Inc., Petition for Waiver of Sections 69.605(c) and
    69.3(e)(11) of the Commission's Rules*, AAD 96-99, Order, 13 FCC Rcd
    4511 (Acc. Aud. Div. 1998) (waiver granted to Wilderness Valley
    Telephone Company, Inc., which had approximately 75 access lines);
    *Petitions for Waiver Filed by Accent Communications, et al.*, AAD
    No. 95-124, Memorandum Opinion and Order, 11 FCC Rcd 11513 (Acc.
    Aud. Div. 1996) (waiver granted to Mobridge Telecommunications
    Company, which had approximately 2,400 access lines).

    ^31^ *BPS Order*, 12 FCC Rcd at 13825. *See, e.g., Petition for
    Waivers Filed by Baltic Telecom Cooperative, Inc. et at.*, AAD No.
    96-95, Memorandum Opinion and Order, 12 FCC Rcd 2433 (Acc. Aud. Div.
    1997); *Petitions for Waiver Filed by Accent Communications, et
    al.*, AAD No. 95-124, Memorandum Opinion and Order, 11 FCC Rcd 11513
    (Acc. Aud. Div. 1996).

[^31]: ^32^ Amana Colonies Telephone Company d/b/a HickoryTech and
    Heartland Telecommunications Company of Iowa and South Slope
    Cooperative Telephone Company, Joint Petition for Waiver of the
    Definition of "Study Area" Contained in Part 36 Appendix-Glossary of
    the Commisson's Rules and Definition of "Average Schedule Company"
    in Section 69.605(c) of the Commission's Rules, Supplement to the
    Joint Petition for Expedited Study Area Waiver (filed January 19,
    2001)(Supplement).

[^32]: ^33^ *See* Petition at 2.

[^33]: ^34^ *See* 47 C.F.R. § 69.605(c).

[^34]: ^35^ *See* Supplement at 5-6.

[^35]: ^36^ *Id*.

    ^?^*See* NTCA reply comments at 3. at 6.

[^36]:

[^37]:

[^38]: *See MTS and WATS Order*, 3 FCC Rcd at 6642.

[^39]: *See* Supplement at 5-6.