[Code of Federal Regulations]
[Title 47, Volume 3]
[Revised as of October 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 47CFR54.305]

[Page 115-117]
 
                       TITLE 47--TELECOMMUNICATION
 
        CHAPTER I--FEDERAL COMMUNICATIONS COMMISSION (CONTINUED)
 
PART 54_UNIVERSAL SERVICE--Table of Contents
 
         Subpart D_Universal Service Support for High Cost Areas
 
Sec. 54.305  Sale or transfer of exchanges.

    (a) The provisions of this section are not applicable to the sale or 
transfer of exchanges between non-rural carriers after the complete 
phase-down of interim hold-harmless support, pursuant to Sec. 54.311, 
for the non-rural carriers subject to the transaction.
    (b) Except as provided in paragraph (c) of this section, a carrier 
that acquires telephone exchanges from an unaffiliated carrier shall 
receive universal service support for the acquired exchanges at the same 
per-line support levels for which those exchanges were eligible prior to 
the transfer of the exchanges. If the acquired exchanges are 
incorporated into an existing rural incumbent local exchange carrier 
study area, the rural incumbent local exchange carrier shall maintain 
the costs associated with the acquired exchanges separate from the costs 
associated with its pre-acquisition study area. The transferred 
exchanges may be eligible for safety valve support for loop related 
costs pursuant to paragraph (d) of this section.
    (c) A carrier that has entered into a binding agreement to buy or 
acquire exchanges from an unaffiliated carrier prior to May 7, 1997 will 
receive universal service support for the newly acquired lines based 
upon the average cost of all of its lines, both those newly acquired and 
those it had prior to execution of the sales agreement.
    (d) Transferred exchanges in study areas operated by rural telephone 
companies that are subject to the limitations on loop-related universal 
service support in paragraph (b) of this section may be eligible for a 
safety valve loop cost expense adjustment based on the difference 
between the rural incumbent local exchange carrier's index year expense 
adjustment and subsequent year loop cost expense adjustments for the 
acquired exchanges. Safety valve loop cost expense adjustments shall 
only be available to rural incumbent local exchange carriers that, in 
the absence of restrictions on high-cost loop support in Sec. 
54.305(b), would qualify for high-cost loop support for the acquired 
exchanges under Sec. 36.631 of this chapter.
    (1) For carriers that buy or acquire telephone exchanges on or after 
January 10, 2005 from an unaffiliated carrier, the index year expense 
adjustment for the acquiring carrier's first year of operation shall 
equal the selling carrier's loop-related expense adjustment for the 
transferred exchanges for the 12-month period prior to the transfer of

[[Page 116]]

the exchanges. At the acquiring carrier's option, the first year of 
operation for the transferred exchanges, for purposes of calculating 
safety valve support, shall commence at the beginning of either the 
first calendar year or the next calendar quarter following the transfer 
of exchanges. For the first year of operation, a loop cost expense 
adjustment, using the costs of the acquired exchanges submitted in 
accordance with Sec. Sec. 36.611 and 36.612 of this chapter, shall be 
calculated pursuant to Sec. 36.631 of this chapter and then compared to 
the index year expense adjustment. Safety valve support for the first 
period of operation will then be calculated pursuant to paragraph (d)(3) 
of this section. The index year expense adjustment for years after the 
first year of operation shall be determined using cost data for the 
first year of operation of the transferred exchanges. Such cost data for 
the first year of operation shall be calculated in accordance with 
Sec. Sec. 36.611, 36.612 and 36.631 of this chapter. For each year, 
ending on the same calendar quarter as the first year of operation, a 
loop cost expense adjustment, using the loop costs of the acquired 
exchanges, shall be submitted and calculated pursuant to Sec. Sec. 
36.611, 36.612, and 36.631 of this chapter and will be compared to the 
index year expense adjustment. Safety valve support for the second year 
of operation and thereafter will then be calculated pursuant to 
paragraph (d)(3) of this section.
    (2) For carriers that bought or acquired exchanges from an 
unaffiliated carrier before January 10, 2005, and are not subject to the 
exception in paragraph (c) of this section, the index year expense 
adjustment for acquired exchange(s) shall be equal to the rural 
incumbent local exchange carrier's high-cost loop expense adjustment for 
the acquired exchanges calculated for the carrier's first year of 
operation of the acquired exchange(s). At the carrier's option, the 
first year of operation of the transferred exchanges shall commence at 
the beginning of either the first calendar year or the next calendar 
quarter following the transfer of exchanges. The index year expense 
adjustment shall be determined using cost data for the acquired 
exchange(s) submitted in accordance with Sec. Sec. 36.611 and 36.612 of 
this chapter and shall be calculated in accordance with Sec. 36.631 of 
this chapter. The index year expense adjustment for rural telephone 
companies that have operated exchanges subject to this section for more 
than a full year on the effective date of this paragraph shall be based 
on loop cost data submitted in accordance with Sec. 36.612 of this 
chapter for the year ending on the nearest calendar quarter following 
the effective date of this paragraph. For each subsequent year, ending 
on the same calendar quarter as the index year, a loop cost expense 
adjustment, using the costs of the acquired exchanges, will be 
calculated pursuant to Sec. 36.631 of this chapter and will be compared 
to the index year expense adjustment. Safety valve support is calculated 
pursuant to paragraph (d)(3) of this section.
    (3) Up to fifty (50) percent of any positive difference between the 
transferred exchanges loop cost expense adjustment and the index year 
expense adjustment will be designated as the transferred exchange's 
safety valve loop cost expense adjustment and will be available in 
addition to the per-line loop-related support transferred from the 
selling carrier to the acquiring carrier pursuant to Sec. 54.305(b). In 
no event shall a study area's safety valve loop cost expense adjustment 
exceed the difference between the carrier's study area loop cost expense 
adjustment calculated pursuant to Sec. 36.631 of this chapter and 
transferred support amounts available to the acquired exchange(s) under 
paragraph (b) of this section. Safety valve support shall not transfer 
with acquired exchanges.
    (e) The sum of the safety valve loop cost expense adjustment for all 
eligible study areas operated by rural telephone companies shall not 
exceed five (5) percent of the total rural incumbent local exchange 
carrier portion of the annual nationwide loop cost expense adjustment 
calculated pursuant to Sec. 36.603 of this chapter. The five (5) 
percent cap on the safety valve mechanism shall be based on the lesser 
of the rural incumbent local exchange carrier portion of the annual 
nationwide loop cost expense adjustment calculated pursuant to Sec. 
36.603 of this chapter or

[[Page 117]]

the sum of rural incumbent local exchange carrier expense adjustments 
calculated pursuant to Sec. 36.631 of this chapter. The percentage 
multiplier used to derive study area safety valve loop cost expense 
adjustments for rural telephone companies shall be the lesser of fifty 
(50) percent or a percentage calculated to produce the maximum total 
safety valve loop cost expense adjustment for all eligible study areas 
pursuant to this paragraph. The safety valve loop cost expense 
adjustment of an individual rural incumbent local exchange carrier also 
may be further reduced as described in paragraph (d)(3) of this section.
    (f) Once an acquisition is complete, the acquiring rural incumbent 
local exchange carrier shall provide written notice to the Administrator 
that it has acquired access lines that may be eligible for safety valve 
support. Rural telephone companies also shall provide written notice to 
the Administrator defining their index year for those years after the 
first year of operation for purposes of calculating the safety valve 
loop cost expense adjustment.

[70 FR 10060, Mar. 2, 2005]