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


In the Matter of

Mescalero Apache Telecom, Inc.,

GTE Southwest Incorporated,

and

USValor Telecommunications of New Mexico,
LLC

Joint Petition for Waiver of the
Definition of "Study Area" Contained
in the Part 36, Appendix-Glossary
of the Commission's Rules

Mescalero Apache Telecom, Inc.

Waiver of Sections 61.41(c)(2), 69.3(e)(11),
36.611, and 36.612 of the Commission's Rules
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CC Docket No. 96-45


                             ORDER

   Adopted: January 18, 2001            Released: January 18, 2001

By the Chief, Accounting Policy Division:

                      I.INTRODUCTION
1.     In this Order, we grant a request from Mescalero Apache Telecom, Inc. (Mescalero), GTE
Southwest Incorporated (GTE), and Valor Telecommunications of New Mexico, LLC (Valor), 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 USValor to alter the boundaries of a New Mexico study area it has
acquired from GTE so that it can transfer to Mescalero approximately 950 access lines currently served
by the Mescalero, Alto, and Ruidoso, New Mexico exchanges.  This waiver also will permit Mescalero to
establish a new study area in New Mexico for the approximately 950 access lines it intends to acquire
from Valor.
2.     We also grant Mescalero's request for waiver of sections 61.41(c)(2), 69.3(e)(11), 36.611,
and 36.612 of the Commission's rules.  Waiver of section 61.41(c)(2) will permit Mescalero to operate
under rate-of-return regulation after acquiring the 950 Valor access lines that are currently under price-
cap regulation.  Waiver of section 69.3(e)(11) will permit Mescalero to participate in the National
Exchange Carrier Association, Inc. (NECA) common line tariff effective upon the close of this
transaction. Waiver of sections 36.611 and 36.612 will allow Mescalero to immediately begin receiving
high-cost loop support based upon projected costs, rather than historical costs.  
3.     In a companion order released today, the Commission grants Mescalero's request for waiver
of section 54.305 of the Commission's rules. Waiver of section 54.305 of the Commission's rules will
enable Mescalero to receive high-cost universal service support based on the average cost of the lines
under its ownership, rather than receiving the same per-line levels of high-cost support for which the
acquired access lines were eligible prior to their transfer from Valor.
                   IV.STUDY AREA WAIVER
                    A.Background  
5.     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.
6.     On June 30, 2000, Mescalero, GTE, and Valor filed a joint petition for waiver of the
definition of "study area" contained in the Part 36 Appendix-Glossary of the Commission's rules.  The
requested waiver would permit Valor to alter the boundaries of a New Mexico study area it has acquired
from GTE to transfer to Mescalero approximately 950 access lines currently served by the Mescalero,
Alto, and Ruidoso exchanges.  The waiver also would permit Mescalero to establish a new study area in
New Mexico for the approximately 950 access lines it intends to acquire from Valor.  On August 10,
2000, the Common Carrier Bureau (Bureau) released a public notice seeking comment on the petition. 
The Salt River Pima-Maricopa Indian Community and Saddleback Communications submitted comments
in support of Mescalero's petition.
          A.   Discussion
7.     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 Valor to remove the 950 access lines from its
New Mexico study area, and permit Mescalero to create a new study area for the acquired access lines.
8.     Generally, Commission 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, we traditionally have applied a three-prong standard: (1) the
change in study area boundaries must not adversely affect the universal service fund; (2) no state
commission having regulatory authority over the transferred exchanges may oppose the transfer; and (3)
the transfer must be in the public interest.  For the reasons discussed below, 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 Valor to remove the 950 access lines from its New Mexico study area, and permit
Mescalero to create a new study area for the acquired access lines.
9.     First, we conclude that the proposed changes in the study area boundaries will not adversely
affect any of the universal service mechanisms. Because, under section 54.305 of the Commission's
rules, a carrier purchasing high-cost exchanges from an unaffiliated carrier can only receive the same
level of per-line support that the selling company was receiving for those exchanges prior to the sale,
there can, by definition, be no adverse impact on the universal service fund resulting from this
transaction.  We note, however, that, in this instance, the Commission has concluded that special
circumstances warrant a waiver of section 54.305, and such a waiver will serve the public interest. 
Specifically, the Commission has concluded that the proposed transaction will have a minimal effect the
high-cost universal service mechanisms because it will not result in an annual aggregate shift in support
in an amount equal to or greater than one percent of any high-cost universal service mechanism.  We
also note that because Mescalero will not be a price cap LEC, it will not be eligible to receive interstate
access universal service support for the acquired exchange.  We, therefore, conclude that this
transaction will not adversely affect the universal service mechanisms.
10.    Second, no state commission with regulatory authority over the transferred exchanges
opposes the transfer.  The New Mexico Public Regulation Commission (New Mexico Commission) has
stated that it "strongly endorses, supports, and encourages" grant of Mescalero's study area waiver
request.
11.    Finally, we conclude that the public interest is served by a waiver of the study area freeze
rule to permit Valor to remove 950 access lines from its New Mexico study area and Mescalero to create
a new study area for the transferred access lines.  In its petition, Mescalero states that grant of the
requested waivers will enable it to provide "vastly improved telecommunications services without
requiring significant increases in basic service rates."  Mescalero states that it intends to install state-of-
the-art digital switching, microwave, and fiber optics facilities.  Mescalero also states that it intends to
extend lines to previously unserved and underserved residents in remote locations on the Mescalero
Apache Reservation, without imposing line extension charges.  In fact, Mescalero has "committed to
the provision of services to all unserved residences in the first two years of its operations."  The New
Mexico Commission reports that the percentage of Mescalero Apache tribal households in Mescalero,
New Mexico owning telephones currently is approximately 46 percent.  We also note that the New
Mexico Commission found that Mescalero has the financial and technical qualifications to provide
services to the 950 access lines.  Based on these representations and the findings of the New Mexico
Commission, we conclude that Mescalero has demonstrated that grant of this waiver request serves the
public interest.
      XII.Waiver of the commission's Price Cap Rules
                     A.Background
13.    Section 61.41(c)(2) of the Commission's rules provides that a non-price cap carrier that
acquires access lines from a price cap carrier shall become subject to price cap regulation and must file
price cap tariffs within a year. Under this rule, Mescalero's acquisition of exchanges from Valor would
subject Mescalero to price cap regulation.
14.    In the LEC Price Cap Reconsideration Order, the Commission explained that section
61.41(c), the "all-or-nothing" rule, is intended to address two concerns regarding mergers and
acquisitions involving price cap companies.  The first concern was that, in the absence of the 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 the rule, a LEC
might attempt to game the system by switching back and forth between rate-of-return regulation and price
cap regulation.  For example, a price cap company may attempt to "game" the system 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 caps, cutting costs back to an efficient level, thereby enabling it to realize
greater profits.  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.  
15.    The Commission nonetheless recognized in the LEC Price Cap Reconsideration Order that
narrow waivers of the price cap "all-or-nothing" rule might be justified if efficiencies created by the
purchase and sale of exchanges outweigh the threat that the system might be subject to gaming. Waivers
of section 61.41(c)(2) will be granted conditioned on the selling price cap company's downward
adjustment to its price cap indices to reflect the sale of exchanges.  The Commission explained that
such an adjustment is needed to remove the effects of transferred exchanges from rates that have been
based, in whole or in part, upon the inclusion of those exchanges in a carrier's price cap indices.   In
addition, waivers of the all-or-nothing rule have been granted subject to the condition that the acquiring
carrier obtain prior Commission approval of any attempt to return to price cap regulation.
16.    Mescalero intends to operate under rate-of-return regulation, while Valor is subject to price
cap regulation.  Mescalero seeks a waiver of section 61.41(c)(2) of the Commission's rules to permit it to
operate under rate-of-return regulation after acquiring from Valor 950 access lines that are currently
under price cap regulation. Mescalero states that application of this rule will not serve the purpose of the
rule, which is to prevent LECs from shifting costs between price cap and non-price cap affiliates and
from increasing rates by switching back and forth between rate-of-return regulation and price cap
regulation.  Absent a waiver of section 61.41(c)(2), all of Mescalero's operations would become subject
to price cap regulation no later than one year after acquiring the price cap access lines from Valor.  
          A.   Discussion
17.    For the reasons discussed below, we find that good cause exists for us to waive section
61.41(c)(2) of the Commission's rules, and that it would be in the public interest to grant Mescalero's
waiver request.  As discussed previously, the courts have interpreted section 1.3 of the Commission's
rules to require a petitioner seeking a waiver of a Commission rule to demonstrate that special
circumstances warrant a deviation from the general rule, and that such a deviation will serve the public
interest.
18.    Because Mescalero is significantly smaller than any of the carriers subject to mandatory
price cap regulation, we find that special circumstances support a waiver of section 61.41(c)(2).  In
evaluating requests for waiver of section 61.41(c)(2), the Bureau has taken into account the company's
preferences and, in particular, the preferences of small carriers.  In fact, the Commission traditionally
has been sensitive to the unique administrative burdens imposed on small telephone companies by the
application of its rules.  In the LEC Price Cap Order, the Commission decided that small telephone
companies would not be required to operate under a regulatory regime that was designed largely on the
basis of the historical performance of the largest LECs.  The Commission explained that small and mid-
size LECs may have fewer opportunities than large companies to achieve cost savings and efficiencies
and may be less productive than the seven Regional Bell Operating Companies (RBOCs) and GTE. 
The Commission, therefore, limited the mandatory application of price cap regulation to the eight largest
LECs -- the seven RBOCs and GTE.  
19.    Mescalero has expressed a preference for operating under rate-of-return regulation.  After
the proposed transaction, Mescalero, which is a newly-formed company and will begin operations upon
acquisition of the 950 access lines, will be far smaller than any of the LECs subject to mandatory price
caps, and also will be significantly smaller than many other carriers that have been granted waivers of
section 61.41(c)(2) of the Commission's rules.  Therefore, we find that Mescalero presents special
circumstances to support its waiver request.
20.    We also conclude that, in this case, waiver of section 61.41(c)(2) of the Commission's rules
will serve the public interest.  We agree with Mescalero that the circumstances surrounding Mescalero's
acquisition of Valor's access lines fail to give rise to the dangers of cost-shifting and gaming of the
system. Mescalero is not seeking to maintain separate affiliates under different systems of regulation,
and, therefore, Mescalero will have no opportunity to shift costs between price-cap and rate-of-return
affiliates.  Moreover, to safeguard against possible gaming that could result from attempts to elect
price-cap regulation at a later time, we will require Mescalero to seek prior Commission approval if it
seeks to elect price-cap regulation.  At that time, we can make a determination if the transaction raises
concerns that we sought to address in section 61.41(c)(2).  We believe that requiring Mescalero to seek
Commission approval before electing price-cap regulation is sufficient to deter gaming in the future.
21.    In accordance with section 61.45 of the Commission's rules, we also require Valor to adjust
its price cap indices to reflect the removal of the transferred access lines from its New Mexico study
area.  Section 61.45 grants us discretion to require price cap carriers to make adjustments to their price
cap indices to reflect cost changes resulting from rule waivers.  We require Valor to make such an
adjustment.
            XXII.Waiver of section 69.3(e)(11)
                     A.Background
23.    Under section 69.3(e)(11) of the Commission's rules, any change in NECA carrier common
line tariff participation and long term support (LTS) resulting from a merger or acquisition of telephone
properties is effective on the next annual access tariff filing effective date following the merger or
acquisition. Section 69.3(e)(11) of the Commission's rules was implemented to minimize the
complexity of administering the LTS program.  Because the next annual access tariff filing effective
date is not until July 1, 2001, Mescalero would be required to file its own interstate tariffs for the
acquired access lines until July 1, 2001.  In order to avoid the burdens associated with filing its own
tariff, Mescalero has requested a waiver of section 69.3(e)(11) of the Commission's rules to enable the
acquired access lines to participate in the NECA carrier common line tariff upon the date of the closing
of the transaction.
          A.   Discussion
24.    We find that Mescalero has demonstrated that special circumstances warrant a deviation
from section 69.3(e)(11) of the Commission's rules and that it would be in the public interest to grant
Mescalero's waiver request.  First, in this instance, the inclusion of the acquired access lines in the
NECA carrier common line tariff represents a minimal increase in NECA common line pool participation
and will not unduly increase the complexity of administering the LTS program.  Second, we believe
that it would be administratively burdensome for Mescalero, a newly-formed company, to file interstate
tariffs for only 950 access lines until July 1, 2001.  We therefore believe that Mescalero presents special
circumstances to justify waiver of section 69.3(e)(11) of the Commission's rules.  Because the inclusion
of the acquired access lines in the carrier common line tariff prior to July 1, 2001 will enable Mescalero,
a newly-formed, small, tribally-owned telecommunications carrier, to devote greater resources to
extending reasonably-priced telecommunications services to unserved portions of the Mescalero Apache
Reservation, we also believe that wavier of section 69.3(e)(11) will be in the public interest.  We also
note that, according to NECA, "inclusion of the acquired access lines in NECA's tariff, effective on
March 1, 2001 . . . , will create no undue administrative burden for NECA, nor will it result in any
disadvantage to other tariff participants."  We therefore conclude that there is good cause to grant
Mescalero a waiver of section 69.3(e)(11). 
         XXV.Waiver of Sections 36.611 and 36.612
                     A.Background
26.    As discussed above, the amount of high-cost loop support a rural company receives under the
Commission's rules is based on the relationship of its study area average cost per loop to the nationwide
average cost per loop.  In accordance with section 36.611 of the Commission's rules, on July 31 of each
year, incumbent LECs file the preceding year's loop cost data with NECA.  NECA compiles and
analyzes these data to determine the average cost per loop for each incumbent LEC study area as well as
the nationwide average cost per loop, adjusted by the indexed cap on the high-cost fund. Each
incumbent LEC's high-cost loop support for the following year is based on the relationship between the
incumbent LEC's study area average cost per loop and the nationwide average cost per loop, as limited
by the indexed cap.
27.    Because under section 36.611 of the Commission's rules the cost data are not submitted by
carriers until seven months after the end of a calendar year, and because NECA requires time to analyze
the data and make the necessary nationwide calculations of support by determining the nationwide
average loop cost adjusted by the indexed cap, carriers generally do not receive high-cost loop support
based on these data until the beginning of the second calendar year after the costs are incurred.  As a
result, carriers without historical data, such as newly-established carriers, must wait for up to two years
before receiving any high-cost loop support payments. Under section 36.612 of the rules, carriers can,
however, update their data on a quarterly basis, and receive support earlier than the beginning of the
second calendar year after incurring the costs.  That section allows carriers to update, on a quarterly
basis, the calendar year cost data that they submit to NECA on July 31.  If a carrier files a quarterly
update, by September 30, for instance, NECA recalculates high-cost loop support for all carriers based in
part on that carrier's updated data (e.g., cost data covering the last nine months of the previous calendar
year and the first three months of the current calendar year, as well as its loop costs), rather than the
calendar year data submitted on July 31.  Thus, the quarterly update provision allows carriers to receive
support based on updated cost and loop count information much earlier than the beginning of the second
calendar year after costs are incurred.
28.    Mescalero requests waiver of sections 36.611 and 36.612 of the Commission's rules to
enable it to receive high-cost loop support payments immediately upon commencement of operations. 
Mescalero states that grant of the requested waivers will enable it to extend reasonably-priced
telecommunications services to all previously unserved residential customers on the Reservation that are
located in rural, remote, and high-cost areas on the Reservation, without imposing line extension
charges.  Mescalero has committed to extend service to all unserved residences on the Reservation in
the first two years of its operations.  According to Mescalero, the "Reservation has 1,025 residences,
537 (52 percent) of which are without telephone service."  This is significantly below the national
average penetration rate of 94.6 percent of all households in the United States.  Moreover, Mescalero
explains that existing facilities, which are antiquated and in poor condition, have reached capacity and
cannot be expanded to serve the currently unserved areas of the reservation without first upgrading the
system.  In addition, because Mescalero is acquiring partial exchanges, Mescalero immediately will
need to install its own switch in order to continue providing services to existing customers.  
29.    Because Mescalero does not have historical data with which to compute high-cost loop
support, Mescalero proposes to compute high-cost loop support in the initial two years based on its
estimated costs per access line.  Mescalero also proposes to "true up" on an annual basis to reconcile
any difference between estimated and actual costs incurred. 
          A.   Discussion
30.    Because Mescalero predominantly will provide services to remote, rural, and high-cost areas
that currently do not have access to basic telephone service, we find that special circumstances warrant a
deviation from sections 36.611 and 36.612 of the Commission's rules and that it would be in the public
interest to grant Mescalero's waiver request. Thus far, we have granted waivers of section 36.611 and
36.612 of the Commission's rules only in limited circumstances, namely to cover costs incurred by a
carrier serving previously unserved areas.  We have found compelling reasons to permit immediate
high-cost support for a new company providing service to an unserved area.  We have concluded that
denying immediate high-cost loop support could have the unintended effect of discouraging service in
unserved remote areas, thereby frustrating our goal of promoting the provision of services at reasonable
rates.  We have noted that, because companies seeking to serve previously unserved areas make large
capital investments to initiate services without immediate support, their company-specific rates would
likely be extremely high.  In short, such areas would have likely remained unserved if these carriers
were unable to provide service.
31.    We find that Mescalero has demonstrated that special circumstances warrant waivers of
sections 36.611 and 36.612 of the Commission's rules.  Mescalero, a wholly-owned and operated tribal
carrier, is a newly-formed company established to address the severe shortage of telecommunications
services on the Reservation.  Denial of immediate high-cost loop support could have the unintended
effect of discouraging Mescalero's planned expansion of service to unserved remote areas, thereby
frustrating the Commission's goal of promoting the provision of telecommunications services at
reasonable rates.  We note that a majority of the residences on the Reservation "are without telephone
service."  As discussed above, this is significantly below the national average penetration rate of 94.6
percent of all households in the United States.  We also note that Mescalero projects that its single
largest source of funds for extending services to unserved residences will be high-cost loop support.  As
discussed above, Mescalero also will need to install its own switch in order to provide services to the
acquired access lines.  Moreover, according to Mescalero, "existing facilities have reached capacity and
cannot be expanded to serve the currently unserved areas of the Reservation without first upgrading the
system."  Taken together, these facts demonstrate that, without immediate access to high-cost loop
support, Mescalero's planned deployment of services to all unserved residences on the Mescalero
Apache Reservation may be delayed for at least two years.  As we have concluded in prior orders
granting requests for waiver of sections 36.611 and 36.612 of the Commission's rules, such an outcome
could frustrate the Commission's goal of promoting the provision of services in unserved areas at
reasonable rates.  
32.    We also conclude that it would be in the public interest to grant Mescalero's waiver request. 
As discussed above, Mescalero has committed to providing service to all unserved residences in the first
two years of operation using universal service support to achieve that goal.  Waiver of sections 36.611
and 36.612 of the Commission's rules in this instance will enable Mescalero to immediately begin
increasing access to telecommunications services on the Reservation consistent with the Commission's
statutory goal of preserving and advancing universal service.  Such a waiver also is consistent with the
Commission's mandate to ensure that consumers in all regions of the Nation, including low-income
consumers and those in rural, insular, and high-cost areas, have access to telecommunications and
information services.   
33.    We also find that this result is consistent with our obligations under the historic federal trust
relationship between the federal government and federally-recognized Indian tribes to encourage tribal
sovereignty and self-governance and to ensure a standard of livability for members of Indian tribes on
tribal lands.  The grant of this waiver will enhance the Mescalero Apache tribe's access to
telecommunications, including access to interexchange services, advanced telecommunications, and
information services, and thereby increase the tribe's access to education, commerce, government, and
public services.  These measures will also help bridge the physical distances between those living on the
Reservation and the emergency, medical, employment, and other services that they may need to improve
the standard of living on the Reservation. Accordingly, we conclude that Mescalero has demonstrated
that the grant of this waiver request serves the public interest.
34.    Therefore, we grant Mescalero a waiver of sections 36.611 and 36.612 of the Commission's
rules to the extent necessary to permit it to receive high-cost loop support for the period January 1, 2001
through December 31, 2002 based initially on projected costs followed by quarterly true-ups using actual
costs.  We direct Mescalero to submit quarterly updates of its actual costs in accordance with the
Commission's rules, so that it may be determined whether adjustments for the 2001 and 2002 high-cost
loop support amounts are necessary.  Payments for periods subsequent to December 2002 shall be based
on the conventional historic data in accordance with the Commission's rules.
                   XXXV.ORDERING CLAUSES
36.    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 Mescalero Apache Telecom,
Inc., GTE Southwest Incorporated, and Valor Telecommunications of New Mexico, LLC on June 30,
2000, IS GRANTED, as described herein.
37.    IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 5(c), 201, 202, and 254 of the
Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 201, 202, and 254, 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 sections 36.611, 36.612, 61.41(c), and 69.3(e)(11) of the Commission's rules, 47
C.F.R.  36.611, 36.612, 61.41(c), 69.3(e)(11), filed by Mescalero Apache Telecom, Inc., IS
GRANTED, as described herein.
38.    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 US
Valor Telecommunications of New Mexico, LLC SHALL ADJUST its price cap indices in its annual
price cap filing to reflect cost changes resulting from this transaction, consistent with this Order.
                         FEDERAL COMMUNICATIONS COMMISSION
   


                         Katherine L. Schroder 
                         Chief, Accounting Policy Division