NTCA Scores Extra Cash Following 'Safety Valve' Ruling

Telecom Policy Report, Jan 26, 2005

Finally, some good news where the Universal Service Fund is concerned. The FCC granted a request made by the National Telecommunications Cooperative Association (NTCA) to permit its rural and cooperative telco members to recoup some of the expenses in upgrading and updating small telephone exchanges they acquire from larger carriers. The commission's decision in Docket 96-45 essentially revises a May 2001 Rural Task Force (RTF) order surrounding the high-cost program under the USF by allowing so-called "safety valve" support and expense adjustments in the first year that small telcos acquire systems in need of modernization.

In a petition for reconsideration initially was filed in July 2001. At that time, the NCTA asked for a re-evaluation of the commission's safety-valve rules, raising the issue that the rule previously had prohibited carriers from receiving additional USF support for investments made to upgrade acquired exchanges during the first-year, post-transaction timeframe.

The RTF examination of the USF matter took place after an active 1990s period when Bell companies and large independent telcos were consolidating their operating territories and networks in strategies that included the sale of many smaller exchanges to smaller telcos. USF support in the first post-transaction year was contingent, in part, on the USF status of the larger selling carriers. Because the larger carriers often lacked any USF support, this formula carried over to the smaller purchasing telco.

This transaction activity is believed to be less pervasive in recent years, but the smaller telcos want to see the new adjustments for future USF support. In addition, at the same time as it released the NTCA decision, the FCC also granted a waiver on such safety-valve support - retroactive to the RTF decision - to Valor Telecommunications, a rural ILEC in Texas that was formed through the acquisition of approximately 315,000 lines from GTE in 2000. With Valor getting some recompense from the USF for its acquisitions, the door may be open for other small telcos to seek retroactive support, at least back to May 2001.

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