§  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 § 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 § 54.305(b),
   would qualify for high-cost loop support for the acquired exchanges
   under § 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 § § 36.611 and 36.612 of this chapter, shall be
   calculated pursuant to § 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 § § 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 § § 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 § § 36.611 and 36.612 of this chapter and
   shall be calculated in accordance with § 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 § 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 § 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 § 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 § 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 § 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 § 36.603 of this
   chapter or the sum of rural incumbent local exchange carrier expense
   adjustments calculated pursuant to § 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]