§  54.305   Sale or transfer of exchanges.

   (a) The provisions of this section shall not be used to determine
   support for any price cap incumbent local exchange carrier or a
   rate-of-return carrier, as that term is defined in § 54.5, that is
   affiliated with a price cap incumbent local exchange carrier.

   (b) Beginning January 1, 2012, any carrier subject to the provisions of
   this paragraph shall receive support pursuant to this paragraph or
   support based on the actual costs of the acquired exchanges, whichever
   is less. 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 paragraph (b)
   of this section, would qualify for high-cost loop support for the
   acquired exchanges under § 54.1310.

   (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 § § 54.1305 and 54.1306, shall be calculated pursuant to
   § 54.1310 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 § § 54.1305, 54.1306, and 54.1310.
   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
   § § 54.1305, 54.1306, and 54.1310 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 § § 54.1305 and 54.1306 and shall be
   calculated in accordance with § 54.1310. The index year expense
   adjustment for rural telephone companies that have operated exchanges
   subject to this section for more than a full year on August 8, 2014
   shall be based on loop cost data submitted in accordance with § 54.1306
   for the year ending on the nearest calendar quarter following August 8,
   2014. 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 § 54.1310 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 paragraph (b) of
   this section. 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 § 54.1310 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 § 54.1302. 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 § 54.1302 or the sum of rural
   incumbent local exchange carrier expense adjustments calculated
   pursuant to § 54.1310. 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, as amended at  76 FR 73871 , Nov. 29, 2011;
    79 FR 39188 , July 9, 2014;  81 FR 24339 , Apr. 25, 2016]