Step 4 Filing Requirements

Safety Valve Support

Safety Valve Support (SVS) is a sub-component of High Cost Loop (HCL) support, which is available for rural price-cap and rate-of-return incumbentcarriers and competitive carriers providing service in the areas of these rural companies. SVS is support "above the cap" that is available to carriers that acquire high-cost exchanges and make substantial post-transaction investments to enhance these exchanges. If HCL support is not capped in a particular year, SVS is not available to carriers.

FCC Rules on Sales of Exchanges

Section 54.305 of the FCC's rules provides that a carrier acquiring exchanges from an unaffiliated carrier shall receive the same per-line levels of support for which the exchanges were eligible prior to their transfer. If a rural carrier purchases an exchange from a non-rural carrier that receives support based on the FCC's High Cost Model (HCM) for non-rural carriers, the loops of the acquired exchange receive the same per-line support as calculated at the time of the transfer under the HCM component.

This formula applies regardless of the rural carrier's cost characteristics or the support the rural carrier purchasing the exchange may receive for any other exchanges. High Cost components subject to these limitations include non-rural forward-looking support (High Cost Model), Interim Hold Harmless support for non-rural carriers, rural High Cost Loop support, and Local Switching Support. Under FCC rules, to the extent that a carrier acquires exchanges receiving any of these forms of support, the acquiring carrier will receive the same per-line levels of support for which the acquired exchanges were eligible prior to their transfer.

Because of concerns related to, among other things, the quality of service in rural areas and the incentive for investment in rural infrastructure, the Rural Task Force (RTF) recommended, and the FCC adopted, a component that would enable rural carriers acquiring exchanges to receive additional support reflecting post-transaction investment made to enhance the infrastructure of and improve the service in the acquired exchanges. SVS is intended to provide support to rural carriers that make substantial investment after acquiring exchanges.

Safety Valve Support Eligibility

The following steps are required to establish eligibility for, and to determine the amount of, SVS:

1. Establish an index year
   Section 54.305 of the FCC's rules provides detailed information for establishing the index year depending on whether the transaction took place before or after January 10, 2005.
2. Calculate the index year expense adjustment
   The index year expense adjustment is defined as the HCL expense adjustment, or support amount, calculated consistent with the dates and rules discussed above.
3. Calculate SVS
   SVS is based on the difference between an acquiring carrier's expense adjustment for its index year and its subsequent year expense adjustments. Specifically, SVS is 50% of the difference between the index year HCL support amount and the HCL support amount in subsequent years. SVS is subject to an overall cap of no more than 5% of the rural HCL cap in any given year.

Additional Details

Limitations on Amounts of SVS

Under no circumstances will a rural carrier's acquired exchanges receive more through the transfer of high cost support and SVS than it would receive in uncapped HCL 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 §36.631 of the FCC's rules and transferred support amounts available under §54.305(a).

High Cost Loop (HCL) Support

SVS is only available to rural carriers that would otherwise qualify for HCL support for the acquired exchanges under Section 36.631 of the FCC's rules.

Safety Valve vs. Safety Net Additive (SNA) Support

Acquiring carriers shall not be permitted to qualify for both SVS and SNA support for the same exchanges. That is, SNA support is not available for acquired exchanges. SNA support applies to new investments in existing exchanges, while SVS 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 SVS based on its own costs for the acquired exchanges.

Portability of SVS

SVS is available to competitive eligible telecommunications carriers (ETCs) on the same per-line basis as it is available to rural incumbent carriers. That is, per-loop equivalents of SVS are portable to competitive ETCs. In order to receive SVS, competitive ETCs must submit line count data at the exchange level within the incumbent carrier's study area.

Retroactive Application of SVS

SVS 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 annual cost, investment, expense, and line count data submissions 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 closes, rural carriers must provide written notice (see Sample Letter) to USAC that they have acquired lines that may be eligible for SVS. Rural carriers must also provide written notice to USAC of when their index year has been established for purposes of determining eligibility for SVS.

These written notifications should be sent to the following address:
USAC
Vice President, High Cost and Low Income
2000 L Street NW, Suite 200
Washington, DC 20036