2 DA 23-657 Released: August 3, 2023 DOMESTIC SECTION 214 APPLICATIONS GRANTED, SUBJECT TO CONDITION, FOR THE TRANSFER OF CONTROL OF GERMANTOWN TELEPHONE COMPANY, INC. AND VALSTAR, INC. TO ARCHTOP FIBER LLC WC Docket No. 22-421 and HANCOCK TELEPHONE COMPANY, INC. TO ARCHTOP FIBER LLC WC Docket No. 23-29 By this Public Notice, the Wireline Competition Bureau (Bureau) grants, as conditioned, two applications related to the same transferee, Archtop Fiber LLC (Archtop), pursuant to section 214 of the Communications Act of 1934, as amended (Act), and sections 63.03-04 of the Commission’s rules. See 47 U.S.C. § 214; 47 CFR §§ 63.03-04. The applicants for both proposed transactions (collectively, Applicants) also filed corresponding applications for the transfer of authorizations associated with international services. See IB File Nos. ITC-T/C 20221202-00143 and ITC-T/C 20230113-00002. Any action on the domestic section 214 applications are without prejudice to Commission action on other related, pending applications. The first application, filed by Donald C. and Madeline S. Bohnsack Irrevocable Trust I, Catherine B. Bohnsack, Christina N. Bohnsack, Corey A. Bohnsack Smith, Laurel Jurkowski, and Leslie Tompkins (collectively, the GTel Transferors), Germantown Telephone Company, Inc. (GTel), Valstar, Inc. (Valstar) (together, the GTel Licensees), and Archtop (collectively, with the GTel Transferors and GTel Licensees, the GTel Applicants), requests consent to transfer control of the GTel Licensees from the GTel Transferors to Archtop. Application for Consent to Transfer Control of Domestic and International Section 214 Authorization Holders, WC Docket No. 22-421 (filed Dec. 1, 2022) (GTel Application). On January 13, 2023 and February 13, 2021, the GTel Applicants filed supplements to their domestic section 214 application. Letter from K.C. Halm, Counsel to Germantown Telephone Company, Inc. and Valstar, Inc., to Marlene H. Dortch, Secretary, FCC. WC Docket No. 22-421 (filed Jan. 13, 2023) (GTel Supplement); Letter from K.C. Halm, Counsel to Germantown Telephone Company, Inc. and Valstar, Inc., to Marlene H. Dortch, Secretary, FCC. WC Docket No. 22-421 (filed Feb. 13, 2023) (Applicants’ Second Supplement) (providing, among other things, updated ownership information relevant to Archtop). We note that Applicants’ Second Supplement was also filed in WC Docket No. 23-29 because of the relevance to that transaction. The second application, filed by RCW Family, LLC, the Margaret J.B. Reese Credit Shelter Trust, Suzanne B. Feehan, Maureen L. Mackin, and June B. Nolan (collectively, the Hancock Transferors), the Hancock Telephone Company, Inc. (Hancock), Hancock Long Distance, Inc. (Hancock LD, together with Hancock, the Hancock Licensees), and Archtop (collectively, with the Hancock Transferors and the Hancock Licensees, the Hancock Applicants), requests consent to transfer control of the Hancock Licensees from the Hancock Transferors to Archtop. Application for Consent to Transfer Control of Domestic and International Section 214 Authorization Holders, WC Docket No. 23-29 (filed Jan. 12, 2023) (Hancock Application); see also Applicants’ Second Supplement at 1-9. On February 24, 2023, the Bureau released a public notice seeking comment on the GTel Application and the Hancock Application (together, the Applications). Domestic Section 214 Application Filed for the Transfer of Control of Germantown Telephone Company, Inc. and Valstar, Inc. to Archtop Fiber LLC and Hancock Telephone Company, Inc. to Archtop Fiber LLC, WC Docket Nos. 22-421 and 23-29, Public Notice, DA 23-147 (WCB 2023) (Public Notice). The Bureau did not receive any comments or petitions in opposition to the Applications. Transferee, Archtop Fiber LLC Archtop, a Delaware limited liability company, does not currently provide any telecommunications services. Id. at 11. Archtop is indirectly owned (98.7% voting and equity) by Post Road Digital Infrastructure Fund I LLC, which, in turn, is wholly-owned by Post Road Digital Infrastructure Fund I, LP (Post Road), both Delaware entities. Applicants’ Second Supplement, Exh. C (Post-Closing Ownership Chart) at 2; Id. at Supplemental Narrative Description to Replace Section IV(E) (Post-close Ownership) (Supplemental Narrative) at 1. The voting interest in Post Road is held by Post Road DIF I GP LLC (Post Road DIF GP) (50.5%), a Delaware entity, and OPTrust Infrastructure Direct N.A. VII Inc. (OP Trust Infrastructure) (49.5%), a Canadian entity. Applicants’ Second Supplement; Exh. C at 2; Supplemental Narrative at 1-3. The OPSEU Pension Plan Trust Fund (OPSEU Pension Plan), a Canadian entity, wholly owns OP Trust Infrastructure. Id. at Exh. C at 2; Supplemental Narrative at 3. The OPSEU Pension Plan holds an approximately 10.5% indirect interest in Dobson Technologies, Inc. d/b/a Dobson Fiber, an interstate telecommunications carrier offering services in Arkansas, Oklahoma and Texas. GTel Supplement at 2. Dobson Fiber wholly owns the following subsidiaries: Dobson Telephone Company, Inc., (DTC), Dobson Technologies – Transport and Telecom Solutions, LLC, Lavaca Telephone Company, Inc. (Lavaca), Pinnacle Telecom L.L.C., and Vantage Telecom, LLC. Id. DTC provides service as an incumbent LEC and Eligible Telecommunications Carrier (ETC) to approximately 5,200 access lines in western and eastern Oklahoma. GTel Supplement at n.3 (citing 214 Application Granted Subject To Condition, WC Docket No. 22-10, Public Notice, DA 22-1092, at n.4 (rel. Oct. 13, 2022)). Lavaca provides service as an incumbent LEC and ETC to about 1,800 access lines in rural western Arkansas and rural eastern Oklahoma. Id. Post Road DIF GP is indirectly owned (100% voting and 80% equity) by Post Road Group Holdings LP (PRG Holdings), a Delaware entity that is ultimately owned and controlled by Michael Bogdan and Kevin Davis, both U.S. citizens. Applicants’ Second Supplement; Exh. C at 1-2; Supplemental Narrative at 1-2, 4. The general partner for PRG Holdings is Post Road Group GP LLC (Post Road GP), a Delaware entity. Applicants’ Second Supplement, Exh. C at 1; Supplemental Narrative at 3. Post Road GP holds all the voting general partner interest in PRG Holdings. Id. Michael Bogdan holds all the voting and equity interest in Birch Hill Capital LLC, a Delaware entity, which, in turn, holds 50% voting and equity in Post Road GP and 45% of the equity of PRG Holdings. Applicants’ Second Supplement; Exh. C at 1; Supplemental Narrative at 4. Kevin Davis holds all the interest in Seventh Avenue Capital Group LLC(Seventh Avenue) and Seventh Avenue Capital Group II LLC (Seventh Avenue II), both Delaware entities. Applicants’ Second Supplement, Exh. C; Supplemental Narrative at 3-4. Seventh Avenue holds 50% of the voting and equity interest in Post Road GP while Seventh Avenue II holds 45% of the equity of in PRG Holdings. Id. GTel Application (WC Docket No. 22-421) GTel, a New York corporation, provides service as an incumbent local exchange carrier (LEC) in the towns of Germantown, Livingston, Clermont, Taghkanic, and Gallatin, New York. GTel Application at 2. GTel directly wholly owns Valstar, also a New York corporation, which provides long distance telecommunications services in the same service area. Id. at 3. The GTel Applicants state that both GTel and Valstar are designated as ETCs in the state of New York. Id. at 2-3. GTel participates in Lifeline and the Affordable Connectivity Program (ACP), and the GTel Applicants state they will continue to do so after consummation of the proposed transaction. Id. at 17. Valstar is authorized to participate in Lifeline, but the GTel Applicants state they do not have any Lifeline customers. Id. The GTel Applicants further state that GTel’s affiliate Hilltop Communications, Inc. provides multichannel video services in the towns of Germantown, Livingston, Gallatin, Taghkanic, and Clermont, and Valstar provides Internet access and other communications services in these towns and also parts of the towns of Greenport, Hillsdale, and Claverack. Id. at 15. The GTel Applicants state that Licensees along with Hilltop provide services under the trade name, GTel Teleconnections. Id. at 3. Pursuant to the terms of the proposed transaction, Archtop will acquire all of the equity interests in GTel and, as a result, Archtop will acquire all of the equity and voting interest in the GTel Licensees. Id. at 4. Hancock Application (WC Docket No. 23-29) Hancock, a New York corporation, provides service as an incumbent LEC in the towns of Hancock, Fish’s Eddy, East Branch, Kelsey, and French Woods, New York, and Starlight, Lake Como, Preston Park, Lakewood, and Shehawken, Pennsylvania. Hancock Application at 17. The Hancock Applicants state that Hancock was designated as an ETC in the state of New York. Id. at 3. The Hancock Applicants further state that Hancock participates in Lifeline and the ACP and that Hancock will continue to do so after consummation of the proposed transaction. Id. at 18. The Hancock Applicants note that Hancock’s subsidiary, Han-cel, holds cable franchises from the Village of Hancock, New York; the Town of Hancock, New York; and the Town of Tompkins, New York and offers cable services in these markets. Hancock LD, also a New York corporation, provides long distance telecommunications services in Hancock’s service area. Id. at 17. Pursuant to the terms of the proposed transaction, Archtop will acquire all of the equity interests in Hancock and, as a result, Archtop will acquire all of the equity and voting interest in the Hancock Licensees. Id. at 4-5. Discussion The Applicants request approval to consummate transactions involving companies that receive high-cost universal service support under the different support mechanisms of fixed model-based support and cost-based support (a mixed support transaction). The Commission has found that these types of transactions could result in potential harm to its goal of ensuring that limited universal service funding is distributed efficiently and effectively. Joint Application of W. Mansfield Jennings Limited Partnership and Hargray Communications Group, Inc. for Consent to the Transfer of Control of ComSouth Corporation Pursuant to Section 214 of the Communications Act of 1934, WC Docket 18-52, Memorandum Opinion and Order, 33 FCC Rcd 4780, 4784, para. 19 (2018). (Hargray/ComSouth Order). When a company receiving a fixed level of support acquires or is acquired by a company receiving support based on its costs, the combined companies could, and in some instances might, have an economic incentive to shift certain shared or common costs from the model-based support company to the cost-based support company. Id. at 4785-86, para. 20. If cost shifting were to occur, the combined company, post-transaction, could obtain more high cost universal service support than the two companies did as separate entities, not because of any new investment, expense, or buildout, but rather solely because of the application of accounting procedures. Id. Such an outcome is inconsistent with the Commission’s general expectation that transactions generate efficiencies that reduce the combined company’s costs. Id. Moreover, providing additional universal service support to a company as a result of cost shifting solely because it acquired or merged with another company is not an efficient use of limited universal service resources. Id. at 4786, para. 21. In the Hargray/ComSouth Order, in which the Commission approved a mixed support transaction, it sought to prevent cost shifting and to protect the finite resources of the high-cost universal service fund by imposing a limited condition that capped high-cost universal service support based on the operating expenses of the entity receiving cost-based support. Id. at 4788-90, paras. 26-31. The Commission also directed the Bureau to impose the same limited condition on future transactions between parties receiving different types of high-cost universal service support. Id. at 4789, para. 27, n.72; see also Domestic Section 214 Application for the Transfer of Control of Lavaca Telephone Company, Inc. to Dobson Technologies Inc., WC Docket No. 20-389, Order on Reconsideration, 36 FCC Rcd 8859, 8864, para. 14 (2021) (Dobson Order on Reconsideration) (reaffirming the Commission’s delegation to the Bureau to continue to apply the mixed support condition where necessary). The proposed transactions in the Applications present several layers of mixed support covered by the Hargray/ComSouth Order. Because Archtop’s subsidiary, DTC, receives fixed A-CAM model support, while DTC’s subsidiary, Lavaca, receives cost-based CAF-BLS/HCLS support, these entities are already subject to the Hargray/ComSouth Order. Domestic Section 214 Applications Granted Subject to Condition, WC Docket Nos. 20-388 and 20-389, Public Notice, 36 FCC Rcd 320, 323-24 (WCB 2021); Dobson Order on Reconsideration, 36 FCC Rcd at 8859 (applying the condition adopted in the Hargray/ComSouth Order such that the combined operating expenses of Dobson Fiber's rate-of-return affiliates that receive cost-based support are capped for seven years from the date of the consummation of the transaction under which Dobson Fiber acquired Lavaca). In addition, because Hancock receives fixed A-CAM II support, the merger of Hancock with Lavaca would create another instance of a mixed-merger. Hargray/ComSouth Order, 33 FCC Rcd at 4785-86, para. 20. Moreover, GTel receives cost based CAF-BLS/HCLS support while Valstar receives fixed Auction 903 support, therefore, the merger of GTel/Valstar with Archtop’s affiliates, DTC and Lavaca, would also create a mixed merger scenario. GTel Application at 17. We note that the combination of GTel/Valstar represents companies in which the mixed support scenario predates the Hargray/ComSouth Order, thus, the conditions of the Hargray/ComSouth Order has not, to date, been applied to GTel or Valstar. Finally, a mixed-merger would result from the merger of Hancock with GTel. Hargray/ComSouth Order, 33 FCC Rcd at 4785-86, para. 20. Accordingly, to mitigate the potential for cost shifting, we grant the Applications subject to the condition adopted in the Hargray/ComSouth Order. Id. at 4788-90, paras. 26-31. The combined operating expenses of each post-consummation company’s rate-of-return affiliates receiving cost-based support See 47 U.S.C. § 153(2). shall be capped at the averaged combined operating expenses of the three calendar years preceding the transactions’ closing date for which the operating expense data are available. Hargray/ComSouth Order, 33 FCC Rcd at 4788-89, para. 27. The result of consummation of these mergers would be that the respective previous three-year average of the operating expense would be used to set a seven-year cap for the operating expense for Hancock Telephone Company (SAC 150099), Germantown Telephone Company (SAC 150097), Lavaca Telephone Company of Arkansas (SAC 401704), and Lavaca Telephone Company of Oklahoma (SAC 431704). The cap will apply to the combined operating expenses of the post-consummation companies and any other existing rate-of-return affiliates that it may acquire during the time in which the condition is in effect (together, covered entities). To monitor compliance with the condition adopted herein, to the extent it does not already do so, we direct the covered entities to submit their relevant cost data to the National Exchange Carrier Association (NECA). We direct NECA to provide the dollar amount of the operating expense costs that will be capped pursuant to this Public Notice to the Universal Service Administrative Company (USAC) within 30 days following submission of any covered entity’s cost data. We further direct NECA to provide USAC with the reductions in High-Cost Loop Support (HCLS) and CAF-BLS for any covered entity pursuant to this Public Notice for each year following the effective date of this Public Notice. USAC shall validate all calculations received from NECA before making disbursements subject to any such support reductions. We also direct all covered entities to provide USAC with an annual certification of compliance on or before December 31 of each year for the duration of the condition. With the certification, each covered entity must also submit its latest audited financial statements to USAC, including all notes and consolidating statements, on an annual basis, by December 31 of each year. Id. at 4790, para. 31. The cap will apply to cost recovery under both HCLS and CAF-BLS and will be applied proportionately to each affiliate’s accounts used to determine the affiliate’s eligible operating expenses for HCLS and CAF-BLS. Id. at 4789, para. 28. For example, if the cap requires that a post-consummation company’s eligible operating expenses be reduced by 10%, then each account used to determine each rate-of-return affiliate’s eligible operating expenses shall be reduced by 10%. Id. For purposes of this cap, operating expenses shall include maintenance, network support/network operations/general, benefits, rent expenses, and corporate operations, while depreciation, return on investment, and taxes shall be excluded. Id. For all covered entities, the new cap shall also include an annual adjustment for inflation based on the Gross Domestic Product-Channel Price Index (GDP-CPI) for the years in which the new cap remains in effect. Id. at 4790, para. 30. This cap shall remain in effect for seven years from the consummation of the transactions. The Commission has found seven years to be an appropriate period over which to monitor enforcement of the condition and to ensure that the combined entity, which will continue to receive support, does not shift costs from year-to-year. Id. at 4789-90, para. 29 n.78. The cap will not apply if the parties do not consummate the proposed transaction. The condition will also sunset if all of a post-consummation company’s rate-of-return affiliates become model-based support companies at any point during the seven-year period. Id. at 4789-90, para. 29. National Security, Law Enforcement, Foreign Policy and Trade Policy Concerns When analyzing a transfer of control or assignment application that includes foreign investment, we also consider public interest issues related to national security, law enforcement, foreign policy, or trade policy concerns. See Process Reform for Executive Branch Review of Certain FCC Applications and Petitions Involving Foreign Ownership, IB Docket 16-155, Report and Order, 35 FCC Rcd 10927 (2020) (setting rules and procedures for referring applications for Executive Branch review consistent with Executive Order No. 13913) (Executive Branch Review Order); Rules and Policies on Foreign Participation in the U.S. Telecommunications Market; Market Entry and Regulation of Foreign-Affiliated Entities, IB Docket Nos. 97-142 & 95-22, Report and Order and Order on Reconsideration, 12 FCC Rcd 23891, 23918-21, paras. 59-66 (1997) (Foreign Participation Order), recon. denied, 15 FCC Rcd 18158 (2000) (in opening the U.S. telecommunications market to foreign entry in 1997, the Commission affirmed that it would consider national security, law enforcement, foreign policy, and trade policy concerns related to reportable foreign ownership as part of its overall public interest review of application for international section 214 authority, submarine cable landing licenses, and declaratory rulings to exceed the foreign ownership benchmarks of section 310(b) of the Act); see also Applications of T-Mobile US, Inc. and Sprint Corporation for Consent to Transfer Control of Licenses and Authorizations, et al., WT Docket 18-197, Memorandum Opinion and Order, Declaratory Ruling, and Order of Proposed Modification, 34 FCC Rcd 10578, 10732-33, para. 349 (2019) (T-Mobile/Sprint Order). As part of the public interest analysis, the Commission coordinates with the relevant Executive Branch agencies that have expertise in these particular issues. See Executive Branch Review Order, 35 FCC Rcd at 10935-36, paras. 17, 24. The Commission accords deference to the expertise of these Executive Branch agencies in identifying issues related to national security, law enforcement, foreign policy, or trade policy concerns raised by the relevant Executive Branch agencies. Id. at 10930, para. 7 (citing Foreign Participation Order, 12 FCC Rcd at 23920-21, paras. 65-66; Amendment of the Commission’s Regulatory Policies to Allow Non-U.S. Licensed Space Stations to Provide Domestic and International Satellite Service in the United States; Amendment of Section 25.131 of the Commission’s Rules and Regulations to Eliminate the Licensing Requirement for Certain International Receive-Only Earth Stations, IB Docket No. 96-111, CC Docket No 93-23, RM-7931, Report and Order, 12 FCC Rcd 24094, 24171-72, paras. 179, 182 (1997)); see also T-Mobile/Sprint Order, 34 FCC Rcd at 10733, paras. 349; Review of Foreign Ownership Policies for Broadcast, Common Carrier and Aeronautical Radio Licensees under Section 310(b)(4) of the Communications Act of 1934, as Amended, GN Docket No. 15-236, Report and Order, 31 FCC Rcd 11271, 11277, para. 6 (2016), pet. for recon. dismissed, 32 FCC Rcd 4780 (2017). The Commission, however, ultimately makes an independent decision on such applications based on the record in the proceedings. 47 CFR § 1.40001(b) (“The Commission will consider any recommendations from the [E]xecutive [B]ranch on pending application(s) . . . that may affect national security, law enforcement, foreign policy, and/or trade policy as part of its public interest analysis. The Commission will evaluate concerns raised by the [E]xecutive [B]ranch and will make an independent decision concerning the pending matter.”). Pursuant to Commission practice, the Applications, and their corresponding international transfer of control applications, ITC-T/C 20221202-00143 and ITC-T/C 20230113-00002, were referred to the relevant Executive Branch agencies for their review of any national security, law enforcement, foreign policy, or trade policy concerns related to the foreign ownership of the Applicants. See Public Notice at 3. On March 1, 2023, the U.S. Department of Justice (DOJ), on behalf of the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (Committee), filed a notification with the Commission that the Committee was reviewing the Applications for any national security and law enforcement concerns that may be raised by foreign participation in the United States telecommunications services sector and requested that the Commission defer action on the Applications. Letter from Christopher R. Clements, Department of Justice, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 22-421; ITC-T/C20221202-00143, and Attach. (filed Mar. 1, 2023); Letter from Christopher R. Clements, Department of Justice, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 23-29; ITC-T/C 20230113-00002, and Attach. (filed Mar. 1, 2023). We deferred action in response to these requests from the Committee. On April 26, 2023, DOJ notified the Commission that the Committee was “conducting [a 120-day] initial review to assess whether granting the Applications will pose a risk to national security or law enforcement interests of the United States.” Letter from Christopher R. Clements, Department of Justice, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 22-421; ITC-T/C20221202-00143, and Attach. (filed Apr. 26, 2023); Letter from Christopher R. Clements, Department of Justice, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 23-29; ITC-T/C 20230113-00002, and Attach. (filed Apr. 26, 2023). On August 1, 2023, the National Telecommunications and Information Administration (NTIA) informed the Commission that “the Committee has reviewed the [Applications] and has no recommendation at this time to the Commission approving the [Applications] and no objection to the Commission granting it” and that the Committee “reserves the right to review any resulting authorization in the future to identify any additional or new risks to U.S. national security or law enforcement interests.” Letter from Stephanie Weiner, National Telecommunications and Information Administration, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 22-421; ITC-T/C20221202-00143 (Aug. 1, 2023); Letter from Stephanie Weiner, National Telecommunications and Information Administration, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 23-29; ITC-T/C 20230113-00002 (Aug. 1, 2023). Grant of Application, Subject to Condition We find, upon consideration of the record, that grant of the Applications, listed above, subject to compliance with the condition, will serve the public interest, convenience, and necessity. See 47 U.S.C. § 214(a); 47 CFR § 63.03. Therefore, pursuant to section 214 of the Act, 47 U.S.C. § 214, and sections 0.91, 0.291, 63.03, and 63.04 of the Commission’s rules, 47 CFR §§ 0.91, 0.291, 63.03, and 63.04, the Bureau hereby grants the Applications discussed in this Public Notice subject to compliance with the condition described above. We further direct Applicants to submit in the domestic section 214 docket a notice that the proposed transaction has closed with the consummation date and also provide a courtesy copy of the notice to hcinfo@usac.org. Pursuant to section 1.103 of the Commission’s rules, 47 CFR § 1.103, the grant is effective upon release of this Public Notice. Petitions for reconsideration under section 1.106 or applications for review under section 1.115 of the Commission's rules, 47 CFR §§ 1.106, 1.115, may be filed within 30 days of the date of this Public Notice. For further information, please contact Gregory Kwan, Wireline Competition Bureau, Competition Policy Division, (202) 418-1191. -FCC- 2