USF/ICC Order Reasonable, Lawful, FCC Tells 10th Circuit

The FCC had authority to overhaul the USF, the commission said, rebutting carrier claims that Congress fenced off “information services” such as broadband Internet from the USF program. The FCC reasonably determined that Section 254 of the Telecommunications Act gave it authority to provide federal universal service support for broadband-capable networks, it said. The FCC’s statutory interpretation of the section was the only reasonable way for the commission to fulfill the congressional directive to advance “telecommunications and information services” throughout the country, it said. “The FCC was not required to adopt an interpretation of the statute that disabled the agency from achieving the purposes Congress assigned to it. Such a reading is not reasonable, much less mandated.” The commission also pointed to Section 706 as an independent grant of authority.

It was also reasonable for the commission to conclude that it could condition federal universal service subsidies on a recipient’s compliance with “clearly defined public interest obligations,” the FCC said. The requirement that USF recipients provide broadband Internet service was “a valid and necessary exercise of the agency’s judicially affirmed authority to impose funding conditions,” it said. The FCC’s adoption of a $4.5 billion annual funding target was reasonable, as was its “predictive judgment” that the order will give rate-of-return carriers sufficient support, the commission said. That judgment is entitled to “substantial deference,” the commission said.

"Unsubstantiated takings claims” by the rate-of-return carriers are not ripe and should not be considered, the FCC said. The commission made clear that it would consider waiver requests for additional support to avoid “constitutionally confiscatory rates,” it said. “No takings claim is ripe until a party has invoked that process and been denied.” Regardless, such a claim would fail because petitioners didn’t argue that the government set the rates so low that “they threaten a regulated entity’s financial integrity … or destroy the value of the company’s property,” the commission said.

The “long overdue” reforms to rate-of-return support mechanisms eliminated waste and efficiency in the prior system, and were eminently reasonable, the commission said. “The FCC’s prior rules did not provide rate-of-return carriers an incentive to restrain costs,” it said. “The new rule addresses that problem” by instituting a benchmarking rule to compare similarly situated companies, it said. When the full commission delegated implementation of the benchmarking rule to the Wireline Bureau, it was acting properly and consistent with its own rules, the FCC said.

Arguments that the FCC overstepped its bounds when it set originating and terminating access fees on a path toward zero are similarly misplaced, the commission said. Multiple provisions of the Communications Act authorized adoption of a bill-and-keep ratemaking methodology, the commission said, pointing to Sections 251(b)(5), 201(b), and 332. The commission had “ample basis” for its “narrow and tailored preemption of state regulation,” it said.

The “gradual transition” toward bill-and-keep “minimizes disruption to consumers and service providers,” the commission said. The new methodology was sorely needed because the previous ICC system was “antiquated,” developed when ILECs were regulated monopolies providing long-distance service subsidized by “access charges,” it said. The framework was “frozen in time” while technologies and markets evolved around it, resulting in “regulatory distortions, extensive arbitrage, and waste,” the commission said. The bill-and-keep framework will let carriers recover their costs from their own customers, in the process avoiding a “patchwork of 50 different state regimes that had produced intrastate access charge rates as high as 13 cents a minute, even though the incremental cost of call termination was close to zero,” the FCC said.

"The Commission’s unanimous, once-in-a-generation reforms that created the Connect America Fund are delivering broadband to rural Americans who lack access while at the same time imposing much-needed fiscal discipline on the fund,” an FCC spokesman said. “In addition, reforms of intercarrier compensation will unleash over $1.5 billion in annual benefits to consumers by eliminating hidden calling costs while removing major barriers to deployment of advanced IP-based broadband networks. We are confident that the Commission’s Order is legally sound and look forward to defending it in court.”