The FCC has adopted an Order on Reconsideration relieving certain mixed support merging companies from a merger condition cap intended to prevent improper cost shifting post-transaction between affiliates receiving both model-based and cost-based universal service support. The FCC determined that the mixed support merger cap should not apply to a particular affiliate when that affiliate does not share any common costs, and has entirely separate accounting practices from other affiliates.
The FCC first applied the mixed support merger condition in 2018 to deter potential cost shifting when an acquiring company receiving fixed model-based high-cost support acquires a rate-of-return company receiving cost-based support. In mixed support mergers, the FCC caps the combined operating expenses of the post-transaction company’s cost-based affiliates for seven years.
In January 2021, the FCC’s Wireline Competition Bureau approved a mixed support-conditioned transfer of control of Lavaca Telephone, a cost-based support company, to Dobson Technologies, a model-based support company. In addition, Dobson holds a non-controlling minority ownership interest in Fort Mojave Telecommunications, a cost-based support company. Dobson petitioned the FCC to exclude Fort Mojave’s operating expenses from the mixed support cap, as it shared no costs with Dobson, and maintained separate books and accounts. This Order grants Dobson’s petition, and exempts Fort Mojave from the merger condition cap.