FCC Wins Court Challenge of USF/ICC Order in 10th Circuit

The FCC scored a court victory Friday as a three-judge panel held unanimously that petitioners were “unpersuasive” in their “host of challenges” to the 2011 USF/intercarrier compensation order (http://1.usa.gov/1r18uaa). The 31 consolidated petitions for review were denied by the 10th U.S. Circuit Court of Appeals. It’s a validation of the agency’s power to condition the receipt of USF money on the promise of broadband buildout. The decision also affirms the agency’s authority over access charges on all telecom traffic. NARUC General Counsel Brad Ramsay told us he'd be “stunned” if no one appealed this to the Supreme Court, something others predicted (CD Nov 21 p6) after almost five hours of USF oral argument in November.

"Congress has directed the Commission to ensure that all Americans receive the benefit of 21st Century communications,” an FCC spokeswoman said. “With today’s across-the-board affirmance of our landmark 2011 reforms, the Commission has tools in hand to accomplish that critical goal. We are particularly pleased that the Tenth Circuit affirmed the Commission’s authority to condition receipt of universal-service funds on a carrier’s agreement to provide broadband services to rural Americans.” Commissioner Mignon Clyburn said (http://fcc.us/S0QMU5) she is “extremely pleased” that the decision has affirmed FCC actions giving millions of Americans “broadband for the first time.” The three-judge panel had seemed receptive to the FCC during oral argument (CD Nov 20 p2).

In requiring recipients of USF support provide broadband to consumers on reasonable request, the FCC didn’t exceed its statutory authority, wrote Judge Mary Beck Briscoe of the 10th Circuit in Denver. Challengers argued Communications Act Section 254 bars the requirement, in part because Internet access is an information service, but USF support can go only toward telecom services. “Petitioners are wrong,” the court wrote: “There is no question that the FCC, to date, has interpreted the term ’telecommunications services’ to include only telephone services and not VoIP or other broadband internet services,” but “nothing in the statute limits the FCC’s authority to place conditions, such as the broadband requirement, on the use of USF funds.” Under the Chevron doctrine, it was reasonable for the FCC to conclude that “Congress left a gap to be filled by the FCC” in specifying “precisely how USF funds may or must be used,” the court said. Chevron gives agencies broad deference to interpret ambiguous statutes.

The court blessed the FCC’s reading of Communications Act Section 706(b) as an independent grant of authority. That section says the agency will “take immediate action” to accelerate broadband deployment if it finds broadband isn’t being deployed to all Americans in a reasonable and timely fashion. Petitioners argued Section 706(b) works in concert with 706(a): Subsection (a) imposes a “general duty on the FCC without mandating any specific action,” and subsection (b) mandates action if the FCC decides broadband isn’t being deployed fast enough. But the court agreed with the agency’s interpretation. “As the FCC concluded in the Order, section 706(b) ... appears to operate as an independent grant of authority,” the court wrote, quoting the agency: “It is hard to see what additional work section 706(b) does if it is not an independent source of authority."

The FCC’s interpretation of Communications Act Section 201(b) and 251(b)(5) as applying to “all traffic, including access given to long-distance carriers, intrastate traffic, and origination,” is “reasonable,” the court said. The FCC had mandated that reciprocal compensation be on a glide path toward bill-and-keep. The act’s use of the phrase “reciprocal compensation” was not “limited to local traffic,” but rather was an ambiguous phrase that the FCC was within its rights to interpret, the court said. “The FCC reasonably interpreted the term ‘reciprocal compensation’ for ’telecommunications’ to include the traffic between [interexchange carriers] and LECs."

This case stands for the proposition that the FCC has plenty of jurisdiction over broadband without reclassifying it as a telecom service, said Phoenix Center President Larry Spiwak. “You don’t need to go that extra Draconian step of reclassification” to use the traditionally telecom-focused USF for broadband, he said. From a policy standpoint, “we now have the official blessing of the court that it’s okay to be subsidizing broadband.” That’s a much more efficient use of USF money than using it on plain old telephone service, Spiwak said: Given the IP transition and the desire to deploy advanced networks, “from a policy standpoint this was a good decision."

'Disappointing'

"The court decision could have helped to address several still lingering concerns with respect to intercarrier compensation changes and the establishment of more proper and sufficient universal service budgets,” said NTCA CEO Shirley Bloomfield in a statement. “Those are matters we will now look to address through further engagement and potential course corrections in ongoing conversations with the FCC and Congress.” Bloomfield said she expects that some of the court’s findings -- “such as the states retaining the authority to define network edges for interconnection” and the need for the FCC to re-examine its budget in a few years -- “could be helpful in those conversations."

The Independent Telephone and Telecommunications Alliance is “disappointed with the court’s decision to uphold the FCC’s interpretation regarding its authority to adopt bill-and-keep as the default standard for reciprocal compensation,” said Micah Caldwell, vice president-regulatory affairs.

"The decision’s flawed,” said Ramsay. NARUC had argued it was clear that Congress didn’t expect the FCC to specify intercarrier compensation to cover carrier-to-carrier agreements to provide local competition. Ramsay plans to recommend NARUC either petition for cert to the Supreme Court, or support someone else’s petition. The Supreme Court should take up the case for several reasons, he said: “It’s a very important case that fundamentally restructures the federal and state relationship,” and it “arguably reinterprets Supreme Court precedent incorrectly.” Ramsay expects small ILECs to argue to the Supreme Court that, based on the high court’s precedent, the FCC can’t mandate bill-and-keep. The Supreme Court will have an interest in clarifying its own precedent on the issue, he said. A petition for re-hearing at the 10th Circuit en banc likely won’t be successful, said Ramsay. “All the members of the court are going to take one look at this 267-page opinion and go, ‘I don’t think so!'"

The decision “proves that restoring fiscal sanity to such programs is not only sound public policy, but well within the commission’s powers as well,” said former Commissioner Robert McDowell, who voted yes on the 2011 order. He is now a visiting fellow at the Hudson Institute. “Next, the FCC should pursue USF contribution reform with all deliberate speed as it should have years ago."

"The 10th Circuit has vindicated the FCC’s decision to eliminate implicit subsidies in intercarrier compensation and transform universal service into a program focused on broadband,” said an AT&T spokesman. “The transformation order marked a major first step toward achieving the vision laid out in the National Broadband Plan and to facilitating the IP transition. The FCC’s win in the 10th Circuit is a win for all Americans.” AT&T generally supported the order, except for a single, “discrete issue,” an intercarrier compensation rule it challenged at the 10th Circuit, the spokesman said.