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Before the
               Federal Communications Commission
                     Washington, D.C. 20554


In the Matter of

Citizens Utilities Rural Company, Inc.

and

USQwest Corporation

Joint Petition for Waiver of the
Definition of "Study Area" Contained
in the Part 36 Appendix-Glossary
of the Commission's Rules
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CC Docket No. 96-45


                             ORDER

   Adopted: June 28, 2001               Released: June 29, 2001

By the Deputy Chief, Common Carrier Bureau:

                      I.Introduction
1.     In this Order, we deny as filed and grant as described herein a request from Citizens Utilities
Rural Company, Inc. (Citizens) and Qwest Corporation (Qwest) for a waiver of the definition of "study
area" contained in the Part 36 Appendix-Glossary of the Commission's rules.  This waiver will permit
USQwest to remove from its Arizona study area 38 telephone exchanges comprising approximately
158,000 access lines, including approximately 300 access lines that are served by the Page, Arizona
exchange and are physically located in Utah.  The waiver also will permit Citizens to alter the boundaries
of its existing study area in Arizona to include the 38 exchanges it intends to acquire from Qwest. 
                       II.DISCUSSION
                     A.Background
3.     Study Area Boundaries. 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, 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.
4.     Transfer of Universal Service Support.  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. 
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, 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.  Section 54.305 is meant to discourage carriers from transferring exchanges merely to
increase their share of high-cost universal service support, especially during the Commission's transition
to universal service support mechanisms that provide support to carriers based on the forward-looking
economic cost (FLEC)of operating a given exchange.  High-cost support mechanisms currently include
non-rural carrier forward-looking high-cost support, interim hold-harmless support for non-rural
carriers, rural carrier high-cost loop support, local switching support, and Long Term Support (LTS). 
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.  Under the Commission's revised rural carrier high-cost loop support mechanism,
however, rural carriers may be eligible to receive additional support for new investments in acquired
exchanges. 
5.     As described in the Commission's order adopting an integrated interstate access reform and
universal service proposal put forth by the members of the Coalition for Affordable Local and Long
Distance Service (CALLS), beginning July 1, 2000, if a price cap LEC acquires exchanges from another
price cap LEC, the acquiring carrier will become eligible to receive interstate access universal service
support for the acquired exchanges.  In accordance with section 54.801 of the Commission's rules, the
acquiring price cap LEC will receive interstate access universal service support at the same level as the
selling price cap LEC formerly received, and both carriers will adjust their line counts accordingly
beginning with the next quarterly report to the fund Administrator.  Carriers also are required to report
their adjusted average common line, marketing, and transport interconnection charge (CMT) revenue per
line per month for the affected study areas in accordance with the Commission's rules.  Therefore,
pPer-line amounts of interstate access universal service support for the acquired exchanges may change
for acquired exchangesas a result of the revised CMT revenue filings.  Because the interstate access
universal service support mechanism is capped at $650 million, individual transactions will not increase
its overall size.
6.     The Petition for Waiver.  USQwest, an incumbent LEC currently serving 2,792,000 access
lines in Arizona, entered into an agreement with Citizens, a local exchange carrierLEC currently serving
95,000 access lines in Arizona, to sell 38 exchanges totaling approximately 158,000 access lines, located
in Qwest's Arizona study area.  The proposed transaction also includes the sale of 300 access lines
served by the Page, Arizona exchange that are physically located in Utah.
7.     On December 20, 2000, Citizens and USQwest filed a joint petition for waiver of the
definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules.  As
filed, the requested waiver would have permitted USQwest to remove the 38 exchanges from its Arizona
study area, and would have permitted Citizens to create a new Arizona study area for the acquired
exchanges.  On January 4, 2001, the Common Carrier Bureau (Bureau) released a public notice seeking
comment on the petition.  No comments were submitted in response to this public notice.
          A.   Discussion
8.     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 USQwest to remove the 38 exchanges from its
Arizona study area.  We also find that good cause exists to grant Citizens' request to waive the definition
of study area to the extent that it would permit Citizens to alter the boundaries of its existing study area
in Arizona to include the 38 exchanges it intends to acquire from Qwest.  We deny Citizens' request,
however, to create a new study area in Arizona with the 38 exchanges it intends to acquire from Qwest.  
9.     Generally, the Commission's rules may be waived for good cause shown.  As noted by the
Court of Appeals for the D.C. Circuit, however, agency rules are presumed valid.  The Commission
may exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent
with the public interest.  In addition, the Commission may take into account considerations of hardship,
equity, or more effective implementation of overall policy on an individual basis.  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; and third, the transfer must be in the public interest.  We conclude that good cause exists for
waiver of the Commission's study area freeze rule, subject to the modifications set forth below.  
10.    First, we conclude that there will be no adverse impact to the universal service fund if we
modify Citizens request so that a new study area is not created in the state of Arizona with the acquired
exchanges.  As the Commission recently noted, the creation of new study areas may enable carriers to
gain an unfair advantage from the high-cost support mechanisms.  Such a result would undermine the
goals the Commission sought to achieve when it froze all study area boundaries.  As a result, the
Bureau consistently has rejected requests to create multiple study areas in connection with acquisitions
requiring study area waivers.  The Bureau specifically has concluded that, where an incumbent local
exchange carrier is acquiring exchanges in a state in which it already operates, the creation of an
additional study area is unwarranted.  Citizens has not presented any support for its request to create a
new study area with the acquired exchanges.  We therefore deny Citizens' request to create a new study
area in the state of Arizona with the acquired exchanges.  We conclude, however, that modifying
Citizens' request so that it may alter the boundaries of its existing Arizona study area to include the 38
exchanges it intends to acquire from Qwest will enable Citizens to satisfy the Commission's criteria for
grant of a request for waiver of the study area freeze rule.  
11.    We conclude that, as modified, the proposed changes in the study area boundaries will not
adversely affect any of the universal service mechanisms.  Under the Commission's rules, carriers
purchasing high-cost exchanges receive the same level of per-line support that the selling company was
receiving for those exchanges prior to the sale.  Qwest does not receive non-rural carrier forward-
looking high-cost support or interim hold-harmless support in Arizona.  Therefore, pursuant to section
54.305, Citizens will not receive any such support for the 38 Qwest exchanges after the transfer.  In
addition, even though the transferred exchanges may receive increased interstate access universal service
support as a result of the proposed transaction, there can be no aggregate adverse impact to this
universal service mechanism because the overall size of the interstate access universal service
mechanism will not exceed $650 million.  Therefore, we conclude that as modified this transaction will
not adversely affect the universal service mechanisms.
12.    We note, however, that Citizens' waiver request potentially implicates broader questions. 
For example, the Commission has not addressed how universal service support should be calculated
when lines subject to the non-rural support mechanism are merged with an existing study area that is
subject to the rural support mechanism, and whether the existing study area's eligibility for high-cost
support may be affected by the merger.  Citizens currently operates the existing exchanges as a rural
study area and is eligible to receive approximately five million dollars in support.  Following
consummation of this transaction the combined study area will contain approximately 253,000 access
lines.  Should Citizens self-certify that it is a rural telephone company, the issue arises regarding the
amount of support that should be provided to the study area given the fact that the study area now
contains both rural and non-rural lines.  We note that the Commission is currently considering a petition
challenging a rural telephone company self-certification filed by a carrier operating in a study area with
approximately 315,000 access lines.  The Commission also has before it a request to modify the rural
telephone company definition in section 51.5 of the Commission's rules.  Finally, the Commission
currently is considering a proposal to amend section 54.305 of its rules so that the rule does not apply to
transfers of exchanges between non-rural carriers following the phase-down of interim hold-harmless
support.  
13.    Pending the Commission's consideration of these issues, we will permit Citizens to: (1)
continue receiving rural high-cost loop support for its existing exchanges as if its existing exchanges
constituted a separate study area; and (2) receive transferred support, if any, for the acquired exchanges
in accordance with section 54.305 of the Commission's rules.  We direct Citizens to submit, as part of its
annual universal service data submission to the fund administrator, a schedule showing its methodology
for excluding costs associated with the 158,000 acquired access lines from the costs associated with its
pre-acquisition study area.  Citizens shall separately provide the information listed in section 36.611 of
the Commission rules for both the acquired and existing exchanges, as if these two categories of
exchanges constitute separate study areas.
14.    Second, no state commission with regulatory authority over the transferred exchanges
opposes the transfer.  The Arizona Corporation Commission and the Public Service Commission of Utah
have indicated that they do not object to the grant of the study area waiver.
15.    Finally, we conclude that the public interest is served by a waiver of the study area freeze
rule to permit USQwest to transfer the 38 exchanges from its Arizona study area and Citizens to alter the
boundaries of its existing Arizona study area to incorporate the transferred exchanges.  In its petition,
Citizens states its intent to invest approximately $109 million in the 38 exchanges it is purchasing during
the first four years of ownership.  In its order approving the transaction, the Arizona Corporation
Commission found this amount significant and stated that it would bring about "meaningful
improvements to the network."  Citizens states that it will use some of the capital investment to perform
needed maintenance to the network infrastructure, thus providing those consumers served by these
exchanges with better quality of service.  Moreover, Citizens' plans include other upgrades to the
network to provide additional services, including broadband/digital subscriber line (DSL) services when
there is sufficient demand to make it possible to provide these services at affordable rates.  Citizens has
committed to the Arizona Corporation Commission that it will "within four years after closing   remove
all bridged taps and load coils from all loops under 18 kilofeet within the transfer area."  Such action
will remove one of the obstacles carriers face in deploying these types of services.  Based on these
representations, we conclude that Citizens has demonstrated that grant of this waiver serves the public
interest.  
16.    In accordance with section 61.45 of the Commission's rules, we also require USQwest to
make any necessary adjustments to its price cap indices to reflect the removal of the transferred access
lines from its Arizona study area.  We also require Citizens to make any necessary adjustments to its
price cap indices to reflect the inclusion of the acquired access lines in its Arizona study area.  Section
61.45 of the Commission's rules grants the Commission discretion to require price cap carriers to make
adjustments to their price cap indices to reflect cost changes resulting from rule waivers.  We require
USQwest and Citizens to make such an adjustment.
                   XVII.ORDERING CLAUSES
18.    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 Citizens Utilities Rural
Company, Inc. and Qwest Corporation on December 20, 2000, IS DENIED AS FILED AND GRANTED
AS DESCRIBED HEREIN.
19.    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, 1.3, and 61.43 of the Commission's rules, 47 C.F.R.  0.91, 0.291, 1.3, and 61.43, that
Citizens Utilities Rural Company, Inc. and USQwest Corporation SHALL ADJUST their price cap
indices in their annual price cap filing to reflect cost changes resulting from this transaction, consistent
with this Order.


                         FEDERAL COMMUNICATIONS COMMISSION
   


                              Carol E. Mattey
                         Deputy Chief, Common Carrier Bureau