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'Impermissible Surcharge Burdens'

Court Rules CPUC Unlawfully Assessed MetroPCS Prepaid Services

T-Mobile’s MetroPCS won judgment Friday against the California Public Utilities Commission in a dispute about USF surcharges (case 3:17-cv-05959-JD). "The Court concludes that the CPUC’s 2017 and 2018 resolutions are preempted as applied to MetroPCS because they would impose surcharges on revenues from services that are not subject to surcharge, in violation of federal law,” Judge James Donato of the U.S. District Court for Northern California wrote.

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The court permanently enjoined the CPUC from enforcing the resolutions. T-Mobile said it's pleased with the ruling. The CPUC didn’t comment by our deadline.

The wireless company sued the CPUC in 2017 to challenge California assessing USF payments for prepaid phone service. MetroPCS said the 2014 California Prepaid Act and related CPUC resolutions imposing USF surcharges on prepaid wireless are unlawful and preempted. The district court earlier said the challenged CPUC resolutions and the 2014 California Prepaid Act were preempted. The 9th U.S. Circuit Court of Appeals disagreed that the CPUC resolutions were facially preempted but left open the possibility that they could be preempted as applied to MetroPCS.

In dispute were fixed intrastate allocations adopted by the CPUC for prepaid revenue -- 72.75% in 2017 and 64.95% in 2018 -- for calculating state USF surcharges. MetroPCS argued at the CPUC it should be allowed to use FCC-recognized revenue-allocation methods to determine intrastate revenue, but the agency "denied the application and reaffirmed a one-size-fits-all approach, which did not similarly constrain providers of postpaid wireless services,” the judge noted. MetroPCS claimed in court that the CPUC unlawfully treated two-thirds of MetroPCS revenue as intrastate (see 2303220063).

A 2001 FCC order on bundling includes two "safe harbor" methods for carriers to allocate revenue when telecom and enhanced services are bundled, the judge noted. Under the first safe-harbor method, in which a contributor may report revenue based on unbundled prices before a bundling discount, "a large share of MetroPCS’s 2017 and 2018 plans would necessarily be subjected to an impermissible surcharge on broadband data revenue by the CPUC’s resolutions," Donato said.

During the 2017-2018 period, "the maximum amount of revenue from" a $60 MetroPCS unlimited talk, text and data plan "that could be permissibly surcharged by the CPUC ... would be $25,” the judge said. But the CPUC's 2017 intrastate allocation factor would seek a surcharge on $43.65 and the 2018 factor would seek assessment on $41.67 of the $60 plan. "The same impermissible result is reached for any plan with a monthly price of $37 or more that provides some combination of unlimited talk, unlimited text, and data," said Donato: Evidence shows most of the carrier's plans from these two years fall into that category and about half its customers were enrolled in them.

"In deciding how to account for the wide gulf between MetroPCS’s estimate of its surchargeable revenue and the share of revenue that the CPUC’s blunt one-size-fits-all approach would surcharge, the only tenable conclusion, supported by the evidence adduced at trial, is that the CPUC resolutions would assess impermissible surcharge burdens on MetroPCS’s non-surchargeable revenue across the gamut of its bundled service offerings."

Evidence shows MetroPCS’s revenue-allocation method, which is recognized by GAAP, is reasonable, Donato said. “The CPUC’s objections to GAAP are not well taken." The carrier showed “it applied GAAP in a good-faith effort to allocate revenues from its bundled wireless plans,” added the judge: While some inputs used by MetroPCS to allocate revenue “may not be perfect,” they “are reasonable enough.”

The CPUC seems to mistake the court proceeding for an audit, said Donato. "The Court will not don the green eyeshade of an auditor to sift through mounds of granular customer data to resolve this dispute."

Next steps are up to the CPUC, said Donato. “Nothing in this order precludes the CPUC from conducting audits of MetroPCS’s compliance with its state universal service obligations for the years 2017 and 2018." He said the state commission “may proceed as the facts and circumstances warrant, so long as any determination of a surcharge to be paid by MetroPCS is wholly independent of an application of the allocation factors."