11 FCC Red No. 7 Federal Communications Commission Record DA 96-123 
Before the 
Federal Communications Commission 
Washington, D.C. 20554 
In the Matter of 
Rye Telephone Communications, Inc. and 
US West Communications, Inc., 
Joint Petition for Waiver of the 
Definition of "Study Area" Contained in the 
AAD 95-130 
Part 36 Appendix-Glossary of the Commission's Rules 
and 
Rye Telephone Communications, Inc. 
Petition for Waiver of Section 61.4l(c)(2) 
of the Commission Rules 
MEMORANDUM OPINION AND ORDER 
Adopted: February 1, 1996; Released: February 1, 1996 
By the Chief, Accounting and Audits Division: 
I. INTRODUCTION 
1. On September 12, 1995, Rye Telephone Communica­
tions, Inc. ("Rye") and US West Communications, Inc. 
("US West") (collectively, "Petitioners"), filed a joint peti­
tion for waiver ("Joint Petition") of two Commission rules. 
Rye and US West seek a waiver of the definition of "Study 
Area" contained in the Part 36 Appendix-Glossary of the 
Commission's rules. That definition constitutes a rule freez­
ing all study area boundaries. The requested study area 
waivers would allow Rye and US West to alter the bound­
aries of their Colorado study area when transferring one 
telephone exchange from US West to Rye. 1 In addition, 
Rye seeks a waiver of the Commission's price cap rule 
contained in Section 61.4l(c)(2). That rule requires non­
price cap companies--and the telephone companies with 
which they are affiliated--to become subject to price cap 
regulation after acquiring a price cap company or any part 
thereof. The requested waivers would permit Rye to op­
erate under rate-of-return regulation after acquiring the 
1 For ease of presentation, we refer to the transferred prop­
erties as "one exchange" although Rye actually proposes to 
acquire one small portion of an exchange. 
2 See 47 C.F.R. § l.l l 16(a). 
3 Public Notice, 10 FCC Red 12260 (Com. Car. Bur. 1995). 
4 See 47 C.F.R. § l.l l 16(c). 
5 The phrase "jurisdictional separations," or "separations," re­
fers to the process of dividing costs and revenues between a 
carrier's state and interstate operations. See generally 47 C.F.R. 
§§ 36.1 - 36.741. 
6 47 C.F.R., Part 36, Appendix-Glossary, definition of "Study 
Area" (1993). See MTS and WATS Market Structure, Amend­
ment of Part 67 of the Commission's Rules and Establishment 
of a Joint Board, CC Docket Nos. 78-72 and 80-286, 49 Fed. Reg. 
3643 
one exchange which is currently under price cap regula­
tion. And finally, by separate petition filed concurrently, 
Rye and US West seek waiver and a full refund of the 
filing fee they paid as permitted by Section 1.1l16(a) of the 
Commission's rules.2 This rule states that a filing fee may 
be waived where good cause is shown, and where waiver 
would promote the public interest. 
2. On September 20, 1995, the Common Carrier Bureau 
("Bureau") released a public notice soliciting comments on 
the Joint Petition.3 On October 20, 1995, the Bureau re­
ceived comments supporting the Joint Petition from two 
parties: the National Exchange Carrier Association, Inc. 
("NECA"), and the National Telephone Cooperative Asso­
ciation ("NTCA"). In this Order, we find that the public 
interest would be served by allowing Rye and US West to 
alter their study area boundaries and allowing Rye to con­
tinue operating under rate-of-return regulation after acquir­
ing the exchange. We therefore grant the Joint Petition, as 
explained more fully below. With respect to the waiver of 
the filing fee, Section 1.1116(c) of the Commission's rules 
requires that a specified form be filed with the Office of 
the Managing Director. To expedite resolution of this waiv­
er request, we have forwarded a copy of this petition to the 
Office of the Managing Director.4 
II. STUDY AREA WAIVERS 
3. Background. A study area is a geographical segment of 
a carrier's telephone operations. Generally, a study area 
corresponds to a carrier's entire service territory within a 
state. Thus, carriers operating in more than one state typi­
cally have one study area for each state, and carriers op­
erating in a single state typically have a single study area. 
Study area boundaries are important primarily because 
carriers perform jurisdictional separations at the study area 
level.5 For jurisdictional separations purposes, the Commis­
sion froze all study area boundaries effective November 15, 
1984.6 The Commission took that action primarily to en­
sure that local exchange carriers ("LECs") do not set up 
high-cost exchanges within their existing service territories 
as separate study areas to maximize high-cost payments. 7 
The study area freeze also prevents LECs from transferring 
exchanges among existing study areas for the purpose of 
increasing interstate revenue requirements and compensa­
tion. A LEC must apply to the Commission for a waiver of 
the frozen study area rule if the LEC wishes to sell an 
exchange to another carrier and if that transaction would 
have the effect of changing the study area boundaries of 
either carrier.8 
48325 (Dec. 12, 1984) (1984 Joint Board Recommended De­
cision), adopted by the Commission, 50 Fed. Reg. 939 (Jan. 8, 
1985) (1985 Order Adopting Recommendation). See also Amend­
ment 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 Red 5974 ( 1990) (Study Area Notice). 
7 See 1985 Order Adopting Recommendation, 50 Fed. Reg. 939, 
940. Also see 1984 Joint Board Recommended Decision, 49 Fed. 
Reg. 48325, 48337. 
8 47 C.F.R. Part 36, Appendix-Glossary. See also 47 C.F.R. § 
1.3. 
DA 96-123 Federal Communications Commission Record 11 FCC Red No. 7 
4. Waiver of Commission rules is appropriate only if 
special circumstances warrant deviation from the general 
rule9 and such a deviation will serve the public interest. 10 
In evaluating petitions seeking a waiver of the rule freezing 
study area boundaries, the Commission employs a three­
prong standard:11 first, that the change in study area bound­
aries does not adversely affect the Universal Service Fund 
("USF") support program;I 2 second, that the state commis­
sion(s) having regulatory authority over the exchange(s) to· 
be transferred does not object to the change; and third, that 
the public interest supports such a change. In evaluating 
whether the change would adversely affect the USF, the 
Commission applies a "one percent" guideline to study 
area waiver requests filed after January 5, l 995. I3 This 
guideline does apply in the instant case because Petitioners 
filed after that date. 
5. Petition. US West seeks a waiver of the rule freezing 
study area boundaries to enable it to remove one exchange 
serving approximately 19 access lines, from its Colorado 
study area. Rye seeks a similar waiver to enable it to add 
the one exchange to its existing Colorado study area serving 
approximately 1,561 access lines. Petitioners also request 
that the Federal Communications Commission ("Commis­
sion") expeditiously grant this request without requiring 
the submission of the detailed information that the Com­
mission has required when considering larger Part 36 study 
area waivers requests. I4 Petitioners state that as this small 
exchange area consists of only approximately 19 access 
lines, it does not warrant the extensive public interest 
review by the Commission accorded much larger exchange 
transfers.Is In addition, the petitioners state that the cost of 
preparation of detailed information by Rye and US West 
and the subsequent review by the Commission far 
9 Northeast Cellular Telephone Company v. FCC, 897 F.2d 1164, 
1166 (D.C. Cir. 1990). 
10 WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir. 1969). 
11 See US West Communications. Inc .. and Eagle Telecom­
munications, Inc., Joint Petition for Waiver of the Definition of 
"Study Area" Contained in Part 36, Appendix-Glossary of the 
Commission's Rules, Memorandum Opinion and Order, 10 
FCC Red 1771 (1995) (US' West-Eagle Study Area Order) at 11 5. 
I2 See 1984 Joint Board Recommended Decision, 49 Fed. Reg. at 
48337, 11 66. The Commission created the USF to preserve and 
promote universal service. See Amendment of Part 67 of the 
Commission's Rules and Establishment of a Joint Board, 96 
FCC.2d 781 (1984). The USF allows LECs with high local loop 
plant costs to allocate a portion of those costs to the interstate 
jurisdiction, thus enabling the states to establish lower local 
exchange rates in study areas receiving such assistance. To 
determine which LEC study areas are eligible for USF support, 
the USF rules prescribe an eligibility threshold set at 115 
percent of the national average unseparated loop cost per work­
ing loop. When loop cost in a particular study area exceeds that 
threshold, the study area is eligible for support equal to a 
certain percentage of the loop cost in excess of that threshold. 
The study area becomes eligible for higher levels of support as 
its loop cost rises above additional thresholds set farther above 
the national average unseparated loop cost. Because USF assis­
tance is targeted primarily at small study areas, the level of 
support provided at each threshold generally is greater if the 
study area has 200,000 or fewer working loops. See 47 C.F.R. § 
36.631. 
13 The Commission stated that no waiver of the rule freezing 
study area boundaries should result in an annual aggregate shift 
in USF assistance in an amount equal to or greater than one 
percent of the total USF, unless the parties can demonstrate 
extraordinary public interest benefit. The USF effect for the 
3644 
outweighs any value that could be attributed to requiring 
the filing of additional information concerning this small 
study area boundary change. I6 
6. Petitioners state that this exchange transfer has been 
previously approved by the Colorado Public Utilities Com­
mission ("CPUC") and found to be in the public interest. 17 
The Petitioners state that the CPUC found that the pro­
posed transactions were beneficial to the public interest 
and welfare of the subscribers--toll calls to areas of commu­
nity of interest will become local calls, upgrades to single­
party lines will be done more quickly with the transfer 
than without; and rates for basic local exchange service for 
these customers will be reduced.Is In addition, petitioners 
state that Rye is entirely devoted to the provision of service 
to rural areas and customers. The petitioners also state that 
the 19 access lines are adjacent to Rye's existing Colorado 
City exchange which is currently served by an AT&T 5ESS 
digital switch. I9 Finally, the petitioners state that the change 
in the study area boundary with regard to these 19 access 
lines will have a de minimis impact on the USF.20 
7. Discussion. Petitioners' proposals demonstrate that cur­
rent and potential customers in the affected exchange will 
likely be better served by Rye than US West. Petitioners 
state that the CPUC has approved the transaction; the 
CPUC has found the proposed transaction beneficial to the 
public interest and welfare of the subscribers; and the 
impact on the USF will be de minimis. We therefore find, 
on the basis of the record before us, that the petitioners 
have shown good cause for granting the requested waiver. 
Accordingly, the petition for waiver is granted to permit 
US West to remove the one exchange from its existing 
Colorado study area and allow Rye to add the one ex­
change into its Colorado existing study area.21 Further, we 
year must be computed on an annualized basis. To prevent 
carriers from evading this limitation by disaggregating a single 
large sale of exchanges into a series of smaller transactions that 
in the aggregate have the same effect on the USF, the Commis­
sion further requires that the "one percent" guideline be ap­
plied to all study area waivers granted to either carrier, as a 
purchaser or seller. pending completion of the current review of 
the USF program. In this context, the Commission d~fines the 
term "carrier" to include all affiliated carriers (i.e., those car­
riers that are in common control, as the term "control" is 
defined in Section 32.9000 of the Commission's rules, 47 C.F.R. 
§ 32.9000). See US West-Eagle Study Area Order at 1111 14-17. 
14 Public Notice, Common Carrier Bureau Established Ex­
pedited Processing Procedures For Petitioners Seeking Part 36 
Study Area Waivers, DA 95-1344 (rel. June 21, 1995). 
15 Petition at 2. 
16 Id. 
17 See In the Matter of the Joint Application of US West 
Communications, Inc. and Rye Telephone Company, Inc. to 
Transfer Service Territory, Decision and Order Granting Joint 
application to Transfer Authority, Docket No. 94-A-585T (adopt­
ed Jan. 25, 1995)(CPUC Approval Order). 
18 Joint Petition at 5. See CPUC Approval Order at 7-8. 
19 Id. at 5. 
20 Id. at 2. See Letter from Margaret Nyland, Kraskin & Lesse, 
to Office of the Secretary, FCC, dated Jan. 29, 1996. 
21 These study area waivers also are subject to the condition 
that, if the selling LEC is a price cap carrier selling a high-cost 
portion of its operations, it shall make a downward exogenous 
adjustment to its Price Cap Index to reflect the change in its 
study area boundaries. See Price Cap Performance Review for 
Local Exchange Carriers, First Report and Order, 10 FCC Red 
8962 ( 1995) ("LEC Price Cap Review Order"), at 11 11 328 and 
330. Under that requirement, US West must reduce the Price 
11 FCC Red No. 7 Federal Communications Commission Record DA 96-123 
find that the three-prong standard that is applied in evalu­
ating petitions to change study area boundaries has been 
met. Namely, that the boundary change does not adversely 
affect the USF support program; that the state commission 
having regulatory authority does not object to the change; 
and finally, that the change is in the public interest. 
8. Rye and US West also requests a waiver and a full 
refund of the filing fee filed by a separate petition. Petition­
ers state that the petition for waiver of the filing fee, if 
imposed, would equate to approximately $280 per access 
line; and the 19 lines at issue are to be transferred from US 
West to Rye for $1.00.22 Petitioners state that a waivei: of 
the filing fee is in the public interest as the fee is signifi­
cantly disproportionate to the number of access lines in­
volved and the overall transaction price.23 Finally, the 
petitioners state that the imposition of the filing fee would 
significantly raise the overall cost of this de minimis access 
line transfer and would be burdensome to the parties, 
particularly to Rye, a small independent rural telephone 
company.24 Pursuant to Section l.l 116(a) of the Commis­
sion's Rules filing fees may be waived where good cause is 
shown and where waiver of the filing fee would promote 
the public interest.25 Section 1.l l 16(c) of the Commission's 
rules requires that petitions for fee waivers be acted upon 
by the Managing Director after FCC Form 155 has been 
completed. Therefore, pursuant to Section l.l l 16(c) of the 
Commission's rules, the request for filing fee waiver must 
be submitted in accordance with that rule. See, generally, 
47 C.F.R. § 1.1116(c). To facilitate this aspect of the Peti­
tioner's request, we have forwarded a copy of the petition 
for waiver of the filing fee and will forward a copy of this 
order top the Managing Director. 
III. PRICE CAP WAIVERS 
9. Background. Section 61.4l(c)(2) of the Commission's 
rules provides that, when a non-price cap company ac­
quires a price cap company, the acquiring company--and 
any LEC with which it is affiliated--shall become subject to 
price cap regulation within a year of the transaction. 6 The 
Commission stated that this "all-or-nothing" rule applies 
not only to the acquisition of an entire LEC but also to the 
acquisition of part of a study area.27 Hence, under this rule, 
Rye's acquisition of US West's one exchange obligates it to 
exit the NECA pools and become subject to price cap 
regulation instead of rate-of-return regulation. 
10. The Commission explained that the all-or-nothing 
rule is intended to address two concerns it has regarding 
mergers and acquisitions involving price cap LECs. The 
Cap Index for its Colorado study area if the change in study 
area boundaries reduces the cost basis for that index. The Price 
Cap Index, which is the cost index on which price-capped rates 
are based, is calculated pursuant to a formula specified in the 
Commission's rules for price cap LECs. See 47 C.F.R. § 61A5. 
22 Joint Petition at 3. 
23 Id. 
24 Id. 
25 See n.2, supra. 
26 47 C.F.R. § 61.4l(c). See Second Report and Order, 5 FCC 
Red 6786, 6821 ( 1990) and Erratum, 5 FCC Red 7664 (I 9!JO) 
(LEC Price Cap Order), modified on recon. 6 FCC Red 2637 
( 1991) (LEC Price Cap Reconsideration Order), petitions for 
further recon. dismissed, 6 FCC Red 7482 ( 1991), aff'd, National 
3645 
first concern is that, in the absence of the rule, a company 
might attempt to shift costs from its price cap affiliate to its 
non-price cap affiliate, allowing the non-price cap affiliate 
to earn more--due to its increased revenue requirement­
-without affecting the earnings of the price cap affiliate, i.e., 
without triggering the sharing mechanism. The second con­
cern is that, absent the rule, a LEC may attempt to "game 
the system" by switching back and forth between rate­
of-return regulation and price cap regulation. The Com­
mission cited, as an example, the incentive a LEC may 
have to raise rates by building up a large rate base under 
rate-of-return regulation and, then, after opting for price 
caps again, to increase earnings by cutting costs back to an 
efficient level. It would disserve the public interest, the 
Commission stated, to allow a LEC to alternately "fatten 
up" under rate-of-return regulation and "slim down" under 
price caps regulation, because rates would not fall in the 
manner intended under price cap regulation.28 
11. The Commission nonetheless recognized that a nar­
row waiver of the all-or-nothing rule might be justified if 
efficiencies created by the purchase and sale of a few 
exchanges were to outweigh the threat that the system may 
be subject to gaming.29 Such a waiver would not be granted 
unconditionally, however. Rather, similar to certain study 
area waivers,30 waivers of the all-or-nothing rule would be 
granted subject to the condition that the selling price cap 
LEC shall make a downward exogenous adjustment to its 
Price Cap I ndex to reflect the change in its study area. 
That adjustment is needed to remove the effects of the 
transferred exchanges from price-capped rates that have 
been based, in whole or in part, upon the inclusion of 
those exchanges in the price-capped study areas.31 
12. Petition. Rye seeks waiver of Section 61.41(c)(2) so it 
may operate as a rate-of-return LEC, rather than a price 
cap LEC, after acquiring the one exchange that is currently 
under price cap regulation. Petitioners argue that the rule's 
application in this instance is contrary to the public inter­
est and does not serve the purposes for which the rule was 
adopted. Petitioners further argue that the Commission's 
two concerns, the threat of cost shifting between affiliates 
and gaming of the system, are not at issue in this case.32 
13. Discussion. We agree with Petitioners that the Com­
mission's first concern underlying the all-or-nothing rule is 
not applicable in this case. Rye has no incentive to shift 
costs between price cap and rate-of-return affiliates, because 
Rye is not seeking to maintain separate affiliates under 
different systems of regulation. As to the Commission's 
second concern, we find it implausible that US West could 
game the system by moving the one exchange back and 
Rural Telecom Assoc. v. FCC, 988 F.2d 174 (D.C. Cir. 1993), 
further modification on recon., 6 FCC Red 4524 (1991)(0NA 
Part 69 Order), second further recon., 7 FCC Red 5235 ( 1992). 
27 The Commission explained that, if these two types of ac­
quisitions were not treated the same under the all-or-nothing 
rule, a LEC could avoid the rule by selling all but one of its 
exchanges. See LEC Price Cap Reconsideration Order, 6 FCC 
Red 2637, 2706. 
28 LEC Price Cap Reconsideration Order, 6 FCC Red 2637, 
2706. 
29 Id. 
30 See supra at note 21. 
31 See LEC Price Cap Review Order at ~ 330. 
32 Joint Petition at IO. We note that, although US West signed 
the Joint Petition, US West does not seek a waiver of the 
all-or-nothing rule. 
DA 96-123 Federal Communications Commission Record 
forth between price cap and rate-of-return regulation, be­
cause US West is selling this exchange and a reacquisition 
would require a second study area waiver. Moreover, US 
West cannot transfer the one exchange without removing 
the rate-effects of that exchange from the price-capped rates 
that have been based, in part, upon the inclusion of that 
exchange in its Colorado study area.33 
14. We therefore find there is good cause to grant Rye 
waivers of the all-or-nothing rule to permit it to remain 
under rate-of-return regulation after acquiring the one ex­
change which is currently under price cap regulation. For 
the present, we will continue to regulate Rye as a rate­
of-return carrier. Because we are waiving Section 
61.41(c)(2), Rye needs not withdraw from the NECA pools. 
We note that, as with any other rate-of-return carrier, Rye 
may elect price cap regulation in the future if it decides to 
withdraw from the NECA pools. 
IV. ORDERING CLAUSE 
15. Accordingly, IT IS ORDERED, pursuant to Sections 
4(i) and S(c) of the Communications Act of 1934, as 
amended, 47 U.S.C. §§ 154(i) and 155(c) and Sections 0.91 
and 0.291 of the Commission's Rules, 47 C.F.R. §§ 0.91, 
0.291, that the Joint Petition of Rye Telephone Company, 
Inc., and US West communications, Inc. for waiver of Part 
36, Appendix-Glossary, and for waiver of Section 
61.41(c)(2) of the Commission's Rules, 47 C.F.R. § 
61.41(c)(2) IS GRANTED. 
FEDERAL COMMUNICATIONS COMMISSION 
Kenneth P. Moran 
Chief, Accounting and Audits Division 
Common Carrier Bureau 
33 See supra at , 11. 
3646 
11 FCC Red No. 7