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                          Before the
               Federal Communications Commission
                       Washington, D.C.
In the Matter of              )
                              )
ATEAC, Inc.                   )
Alaska Telephone Company      )    CCB/CPD No. 00-03
Arctic Slope Telephone Association )
Cooperative, Inc.             )
Interior Telephone Company, Inc.   )
Mukluk Telephone Company, Inc.     )
United-KUC, Inc.              )
                              )
Petition for Waiver of        )
Sections 61.41(c) and (d)     )
of the Commission's Rules     )
                  MEMORANDUM OPINION AND ORDER
      Adopted:   August 16, 2000                                      Released: August 18, 2000
By the Deputy Chief, Common Carrier Bureau:
                        I.  INTRODUCTION
     1.   On February 8, 2000, ATEAC, Inc. (ATEAC), Alaska Telephone Company
(ATC), Arctic Slope Telephone Association Cooperative Inc. (ASTAC), Interior Telephone
Company, Inc. (ITC), Mukluk Telephone, Inc. (MTC), and United KUC, Inc. (Petitioners,
collectively), filed a petition requesting a waiver of sections 61.41 (c) and (d) of the
Commission's rules.  47 C.F.R.  61.41(c), 61.41(d).  Petitioners request that we waive the
Commission's rules in order to allow them to operate thirteen Alaska telephone exchanges as cost
carriers under rate of return regulation following ATEAC's acquisition of these exchanges from GTE
Alaska, Incorporated (GTEAC), a price cap carrier.  On March 1, 2000, the Common Carrier Bureau
(Bureau) released a Public Notice requesting comment on the Petition.  No comments or reply
comments opposing the Petition were filed in response to the Public Notice.  The Commission
received two comments in support of the Petition.  In this Memorandum Opinion and Order, we
grant Petitioners' waiver request.
                        II.  BACKGROUND
     2.   Section 61.41(c)(1) of the Commission's rules provides that any price cap telephone
company subject to a merger, acquisition, or similar transaction shall continue to be subject to price
cap regulation notwithstanding such transaction.  In addition, the Commission's rules provide that
when a non-price cap company acquires, merges with, or otherwise becomes affiliated with a price
cap company or any part thereof, the acquiring company becomes subject to price cap regulation and
must file price cap tariffs within a year.  Section 61.41(d) of the Commission's rules further provides
that local exchange carriers (LECs) that become subject to price cap regulation are not permitted to
withdraw from such regulation.
     3.   On May 20, 1999, GTEA, GTE, and ATEAC entered an asset purchase agreement
for the sale of all thirteen of GTEA's Alaska exchanges (approximately 23,796 access lines) to
ATEAC.  GTEA and GTE are both price cap carriers. On September 3, 1999, GTEA and
ATEAC jointly applied to the Regulatory Commission of Alaska ("Alaska Commission") for
authorization to transfer GTEA's Certificate of Public Convenience and Necessity No. 3 for the
thirteen exchanges to ATEAC.  On December 28, 1999, GTEA filed an application under
Section 214(a) of the Communications Act and section 63.71 of the Commission's rules,
requesting authority to discontinue providing interstate services in Alaska, effective with the sale
of its thirteen Alaska local exchanges to ATEAC. The Petitioners filed applications with the
Alaska Commission for authorization to transfer operating assets and state certificates for the
thirteen exchanges from ATEAC to the other petitioners. These applications were granted by
the Alaska Commission on July 11, 2000.
     4.   The Petitioners state that, with the Alaska Commission's authorization to transfer the
thirteen exchanges from GTEA to ATEAC, GTEA, GTE, and ATEAC can now close the asset
purchase agreement transaction if the Commission grants GTEA's Section 214(a) application.  The
Petitioners further state that, with the Alaska Commission's approval of the "drop down" transactions,
ownership of the thirteen exchanges will pass to ATC, ASTAC, ITC, MTC and United-KUC.  The
thirteen exchanges will continue to be included within the ATEAC study area until Petitioners request
and receive a study area waiver from the Commission to divide the ATEAC Alaska study area and
distribute the exchanges among existing study areas of ATC, ASTAC, ITC, and MTC and the new
study area of United-KUC.
     5.   Petitioners ATC, ASTAC, ITC and MTC are rate of return carriers (cost carriers).
They are Issuing Carriers in the interstate access tariffs of the National Exchange Carriers Association
(NECA) and participants in NECA's Common Line and Traffic Sensitive pools.  United-KUC is not
yet a cost carrier, but wishes to become a cost carrier, an Issuing Carrier in NECA tariffs, and would
participate in NECA's Common Line and Traffic Sensitive pools.  ATEAC states that, if necessary, it
would become a cost carrier, an Issuing Carrier in the NECA tariffs, and a participant in NECA's
Common Line and Traffic Sensitive pools.  Both ATEAC and United-KUC will be eligible to
participate in the NECA tariffs and pools under section 69.601 of the Commission's rules.
     6.   Petitioners state that ATEAC, its stockholders and their subsidiaries and affiliates
have no common stock ownership or other corporate affiliations with GTE, GTEA and other GTE
subsidiaries and affiliates.  They also state that there is no overlap in the respective boards of
directors or officers of ATEAC, its stockholders and their subsidiaries and affiliates, on the one hand,
and GTE, GTEA and other GTE subsidiaries and affiliates, on the other.
     7.   To support its request for a waiver, ATEAC argues that the transaction involved in
this request is essentially identical to the one involved in a prior decision involving the Maine
Telecommunications Group, in which the Commission granted a price cap waiver.  The Maine
Waiver transaction also involved the sale of several exchanges within a state to an acquisition
company comprised of multiple local exchange carriers operating within the state.  The Petitioners
state that, consistent with the circumstances involved in the Maine Waiver, the subject exchanges also
will be operated initially by the LECs within the study area of the acquisition company; pending a
grant of the study area waiver, the acquired exchanges will be distributed among the study areas of the
individual LECs.  In addition, ATEAC argues, in evaluating requests for waivers of the "all or
nothing" rule, the Commission has generally taken into account the preference of small carriers for
rate of return regulation over price cap regulation.
     8.   Alaska Communications System, Inc.("Alaska") and the National Telephone
Cooperative Association ("NTCA") filed comments supporting a grant of the waiver.  As argued by
ATEAC, both commentors state that the policy justifications behind the section 61.41(c) "all or
nothing rule" and the section 61.41(d) "permanent choice" rule are inapplicable under the
circumstances surrounding the GTE/GTEA and ATEAC transaction.  These commentors assert that
improper cost-shifting between rate of return and price cap regulated affiliates is not likely to occur
because Petitioners' entire operation will be subject to rate of return regulation.  Commentors also
assert that the arms-length transfer between GTEA and the Petitioners, two non-affiliated companies,
removes any opportunity for "gaming" the system because GTEA will retain no ability to bring the
exchanges sold to Petitioners back under price caps.
     9.   In addition, the commentors agree with Petitioners that the proposed transaction is in
the public interest.  Alaska also agrees with Petitioners that price cap regulation may have an
adverse effect on, and was not intended to be applied to smaller LECs.  Both Alaska and NTCA
favor Petitioners' plan to implement a system that has local management and is designed to bring
enhanced and more responsive service to the residential and business customers in the thirteen Alaska
exchanges.  They also agree with Petitioners that the waiver would further the Commission's interest
in relieving some of the administrative burdens faced by small telephone companies.
                        III.  DISCUSSION
     10.  For the reasons discussed below, we find that the Petitioners demonstrate good cause
for waiver of sections 61.41(c) and (d) of our rules, and that it is in the public interest to grant the
Petitioners' waiver request.  Under section 1.3 of the Commission's rules, "[a]ny provision of the rules
may be waived by the Commission on its own motion or on petition if good cause therefor is
shown."  As interpreted by the courts, this requires that a petitioner demonstrate that "special
circumstances warrant a deviation from the general rule and such deviation will serve the public
interest."  In this case, we believe that ATEAC has demonstrated that special circumstances warrant
a waiver of the Commission's rules and that a waiver will serve the public interest.
     11.  In the LEC Price Cap Reconsideration Order, the Commission addressed two
concerns it had regarding mergers and acquisitions involving price cap companies.    The first
concern was that, in the absence of the "all or nothing 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 sections 61.41(c) and (d), a LEC may have an
incentive to "game the system" by switching back and forth between rate of return regulation and
price cap regulation.  The Commission noted, as an example, the incentive a price cap company may
have to increase earnings 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 cap regulation, cutting costs back
to an efficient level.  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. The
Commission nonetheless recognized that narrow waivers of these rules might be justified if
efficiencies created by the purchase and sale of a few exchanges were to outweigh the threat of any
gaming.
     12.  The Petitioners argue that following completion of the asset purchase, neither
ATEAC, the Alaska corporations by which it is owned (AP&T/ATC, ASTAC, TelAlaska/ITC/MTC,
and United/UUI/United-KUC,) nor GTE/GTEA will maintain one or more affiliates under price cap
regulation, and one or more affiliates under rate of return regulation. Neither ATEAC nor any of the
Alaska corporations by which it is owned will operate under price cap regulation, whereas GTE and
all of its subsidiaries and affiliates will remain under price cap regulation. The Petitioners argue that,
therefore, there is no danger of improper cost-shifting between price cap and rate of return affiliates.
We agree.  ATEAC's acquisition of the thirteen Alaska exchanges fails to give rise to the dangers of
cost-shifting.
     13.  ATEAC also contends that "gaming" is not a concern.  ATEAC argues that the
transfer of the thirteen Alaska exchanges is an "an arms-length sale," by GTEA to the "wholly
separate and unrelated ATEAC (and ATC, ASTAC, ITC, MTC and United-KUC). ATEAC argues
that "there is no possibility that GTE and its subsidiaries and affiliates will be able to 'game' the
system" by switching ownership back and forth between rate of return regulation and price cap
regulation.  GTE/GTEA and its subsidiaries will remain under price cap regulation, and the thirteen
Alaska exchanges will be operated by Petitioners, which are unrelated to, and separate and apart from
GTE/GTEA and their subsidiaries and affiliates, and totally outside of GTE/GTEA's control.  We
are persuaded that "gaming" is not a concern.
     14.  We conclude, therefore, that petitioners have established good cause to support a
waiver of our rules, and that the waiver will serve the public interest.  The Commission's concerns
over cost shifting and gaming of the system are not at issue here.  The size of ATEAC after
acquisition of the Alaska exchanges will be far smaller than the LECs for which price cap regulation
is mandatory.  The circumstances of Petitioners' request are substantially similar to those involved
in our decision granting the Maine Waiver, and to our decisions in other cases involving sales of
exchanges by price cap carriers to small rate of return carriers.
                     IV.  ORDERING CLAUSES
     15.  Accordingly, IT IS ORDERED, pursuant to sections 4(i) and 201 of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i) and 201, and sections 1.3, 0.91, and
0.291 of the Commission's rules, 47 C.F.R.  1.3, 0.91, and 0.291, that ATEAC, Inc.'s, Alaska
Telephone Company's, Arctic Slope Telephone Association Cooperative, Inc.'s, Interior Telephone
Company, Inc.'s, Mukluk Telephone Company, Inc.'s, and United-KUC, Inc.'s request for waiver of
sections 61.41(c) and (d) of the Commission's rules, 47 C.F.R.  61.41(c) and (d), IS GRANTED.
                                                       FEDERAL COMMUNICATIONS COMMISSION
                                                            Mary Beth Richards
                              Deputy Chief,
                              Common Carrier Bureau