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 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 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]