§ 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. After December 31, 2011, 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]

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