High Cost

Step 1: Safety Valve Support

Safety Valve Support (SVS) is a sub-component of High Cost Loop (HCL) support, which is available to rural price-cap and rate-of-return incumbent carriers and competitive carriers providing service in the areas of these rural companies, which must be designated as eligible telecommunications carriers (ETCs) by their state commissions or the Federal Communications Commission (FCC).

 

Safety valve support is additional support, above the high cost loop cap, that is available to rural carriers that acquire high cost exchanges and make substantial post-transaction investments to enhance network infrastructure. The following steps are required to establish eligibility for, and to determine the amount of, safety valve support:

Establish an index year

The index year is defined in one of two ways:

  • For carriers that buy or acquire exchanges on or after January 10,2005, the index year expense adjustment for the acquiring carrier's first year of operation can be based on the selling carrier's loop-related expense adjustment for the 12 month period prior to the transfer of exchanges. The index year expense adjustment for years after the first year of operation shall be determined using cost data from the first year of operation.
  • For carriers that buy or acquire exchanges prior to January 10, 2005, the index year expense adjustment for the acquiring carrier is based on the loop-related expense adjustment for the first year that the acquiring company operates the acquired exchanges. Carriers that buy or acquire exchanges prior to January 10, 2005 may petition the FCC to use the selling carrier's loop-related expense adjustment as stated above.

It is important to note that the establishment of a rural carrier's index year depends on when that carrier submits cost data to NECA under Part 36 of the FCC's rules. Specifically:

  • If a carrier submits annual data pursuant to Section 36.611 of the FCC's rules, the index year starts at the beginning of the next calendar year after the transfer; or
  • If a carrier submits updated quarterly data pursuant to Section 36.612 of the FCC's rules, the index year starts at the beginning of the next quarter after the transfer.

Calculate safety valve support
Safety valve support is based on the difference between an acquiring carrier's expense adjustment at the end of its index year and subsequent year expense adjustments. Specifically, safety valve support is 50% of the difference between the index year high cost loop support amount and the high cost loop support amount in subsequent years. Safety valve support is subject to an overall cap of no more than 5% of the rural high cost loop fund in any given year.

Additional details

  • Limitations on amounts of safety valve support. Under no circumstances will a rural carrier's acquired exchanges receive more through the transfer of high cost support and the safety valve mechanism than it would receive in uncapped high cost loop support. That is, a study area's safety valve loop cost expense adjustment cannot exceed the difference between the acquired exchanges' uncapped annual study area loop cost expense adjustment calculated pursuant to Section 36.631 of the FCC's rules and transferred support amounts available under Section 54.305(a) of the FCC's rules.
  • High cost loop support. Safety valve support is only available to rural carriers that would otherwise qualify for high cost loop support for the acquired exchanges under Section 36.631 of the FCC's rules.
  • Safety valve versus safety net support. Acquiring carriers shall not be permitted to qualify for both safety valve and safety net additive support for the same exchanges. That is, safety net additive support is not available for acquired exchanges. Safety net additive support applies to new investments in existing exchanges, while safety valve support applies to new investment in acquired exchanges.
  • Subsequent transfer of exchanges. Neither safety valve nor safety net support transfers with acquired exchanges. The subsequent acquiring rural carrier will have an opportunity to qualify for safety valve support based on its own costs for the acquired exchanges.
  • Portability of safety valve support. Safety valve support is available to competitive ETCs on the same per-line basis as it is available to rural incumbent carriers. That is, per-loop equivalents of safety valve support are portable to competitive ETCs.
  • Retroactive application of safety valve support. Safety valve support is not retroactive. It is available, however, on a going-forward basis for new investment in acquired exchanges by rural carriers currently operating such acquired exchanges.
Reporting Requirements

  • Data submissions
    When making their annual cost, investment, expense, and line count data submission each July 31, rural carriers acquiring exchanges and incorporating them into existing study areas must exclude the costs associated with the acquired exchanges from the costs associated with the pre-acquisition study areas. That is, acquiring rural carriers must separately provide the cost data for both acquired and existing exchanges, as if these two categories of exchanges constituted separate study areas.
  • Written notification to USAC
    Once relevant regulatory approvals are obtained and the transaction is closed, rural carriers must provide written notice to USAC that they have acquired lines that may be eligible for safety valve support. Rural carriers must also provide written notice to USAC of when their index year has been established for purposes of determining eligibility for safety valve support. These written notifications should be sent to the following address:

    Karen Majcher
    Vice President, High Cost and Low Income Division
    Universal Service Administrative Company
    2000 L Street, N.W.
    Suite 200
    Washington, D.C. 20036


Last modified on 9/8/2008