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http://laws.findlaw.com/5th/9760421cv0.html |
TEXAS OFFICE OF PUBLIC UTILITY COUNSEL; CELPAGE, INC.;
SOUTHWESTERN BELL TELEPHONE COMPANY; GTE MIDWEST, INC.;
LOUISIANA PUBLIC SERVICE COMMISSION, an Executive BranchDepartment of the State of Louisiana; COMSAT CORPORATION;
PEOPLE OF THE STATE OF CALIFORNIA;
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA;
IOWA UTILITIES BOARD; SOUTH DAKOTA PUBLIC UTILITIES COMMISSION;
PENNSYLVANIA PUBLIC UTILITY COMMISSION;
BELL ATLANTIC TELEPHONE COMPANIES;
VERMONT DEPARTMENT OF PUBLIC SERVICE; GTE SERVICE CORPORATION;GTE ALASKA INCORPORATED; GTE ARKANSAS INCORPORATED;
GTE CALIFORNIA INCORPORATED; GTE FLORIDA INCORPORATED;
GTE SOUTH INCORPORATED; GTE SOUTHWEST INCORPORATED;
GTE NORTH INCORPORATED; GTE NORTHWEST INCORPORATED;
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED;
GTE WEST COAST INCORPORATED; CONTEL OF CALIFORNIA, INC.;
CONTEL OF MINNESOTA, INC.; CONTEL OF THE SOUTH, INC.;
PUBLIC SERVICE COMMISSION OF NEVADA;
CINCINNATI BELL TELEPHONE COMPANY;
FLORIDA PUBLIC SERVICE COMMISSION;
PEOPLE OF THE STATE OF NEW YORK;
PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK;
and
THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS,
Petitioners,
Respondents.
Before SMITH, DUHÉ, and EMILIO M. GARZA, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
This is a consolidated challenge to the most recent attempt ofthe Federal Communications Commission ("FCC") to implement provisions of the landmark 1996 Telecommunications Act (the "Act"). (1) Petitioners, joined by numerous intervenors, challenge severalaspects of the FCC's Universal Service Order (the "Order") implementing the provisions of the Act codified at 47 U.S.C. § 254. Wegrant the petition for review in part, deny it in part, affirm inpart, reverse in part, and remand in part.
I. Background.
A. The 1996 Act and the Universal Service Order.
Beginning with the passage of the Communications Act of 1934(the "1934 Act"), Congress has made universal service a basic goalof telecommunications regulation. As Section 1 of the 1934 Actstated, the FCC was created
[f]or the purpose of regulating interstate and foreigncommerce in communication by wire and radio so as to makeavailable, so far as possible, to all the people of theUnited States, without discrimination on the basis ofrace, color, religion, national origin, or sex, a rapid,efficient, Nation-wide, and world-wide wire and radiocommunication service with adequate facilities atreasonable charges . . . .
47 U.S.C. § 151 (as amended).
Armed with this statutory mandate, the FCC historically has focused on increasing the availability of reasonably priced, basictelephone service via the landline telecommunications network. (2) Rather than relying on market forces alone, the agency has used acombination of implicit and explicit subsidies to achieve its goalof greater telephone subscribership. Explicit subsidies providecarriers or individuals with specific grants that can be used topay for or reduce the charges for telephone service. This form ofsubsidy includes using revenues from line charges on end-users to subsidize high-cost service directly and to support the LifelineAssistance program for low-income subscribers.
Implicit subsidies are more complicated and involve themanipulation of rates for some customers to subsidize more affordable rates for others. For example, the regulators may require thecarrier to charge "above-cost" rates to low-cost, profitable urbancustomers to offer the "below-cost" rates to expensive,unprofitable rural customers.
For obvious reasons, this system of implicit subsidies can work well only under regulated conditions. In a competitive environment, a carrier that tries to subsidize below-cost rates torural customers with above-cost rates to urban customers is vulnerable to a competitor that offers at-cost rates to urban customers. Because opening local telephone markets to competition isa principal objective of the Act, Congress recognized that theuniversal service system of implicit subsidies would have to be re-examined.
To attain the goal of local competition while preservinguniversal service, Congress directed the FCC to replace the patchwork of explicit and implicit subsidies with "specific, predictableand sufficient Federal and State mechanisms to preserve and advanceuniversal service." 47 U.S.C. § 254(b)(5). Congress also specified new universal service support for schools, libraries, andrural health care providers. See 47 U.S.C. § 254(h). It thendirected the FCC to define such a system and to establish a timetable for implementation within fifteen months of the passageof the Act.
The Federal-State Joint Board (the "Joint Board"), created bythe Act to coordinate federal and state regulatory interests,issued two recommendations on how to implement the universalservice provisions. (3) The FCC met the statutory deadline when itissued the Order on May 8, 1997. (4) Since that time, the agency hasissued seven reconsideration orders (the last one on May 28, 1999)and has made two reports to Congress regarding the Order.
The FCC designated a set of core services eligible foruniversal service support, proposed a mechanism for supportingthose services, and established a timetable for implementation. See Order ¶¶ 21-42. Pursuant to the Act, the agency developedrules for modifying the existing system of support for high-costservice areas and created new support programs for schools,libraries, and health care facilities.
1. High-cost Support.
The FCC's plans for changing the high-cost support systemrequired it to resolve a number of complicated issues, including(1) what methodology to use for calculating high-cost support;(2) how to allocate costs between the states and the federalgovernment; (3) which carriers should be required to contribute tothe support system; and (4) when to implement the high-cost supportprogram. The agency resolved the question of how to calculate theproper amount of high-cost support by accepting the Joint Board'ssecond recommendation to identify areas where the forward-lookingcost of service exceeds a cost-based benchmark and to provide extrasupport to any state that cannot maintain reasonablecomparability. (5) See Second Recommended Decision ¶ 19; SeventhReport and Order ¶ 61 n.157.
Most importantly, the FCC decided to use the "forward-looking"costs to calculate the relevant costs of a carrier serving a givengeographical area. In other words, to encourage carriers to actefficiently, the agency would base its calculation on the costs anefficient carrier would incur (rather than the costs the incumbentcarriers historically have incurred). (6)
The FCC developed rules for determining which carriers shouldbe required to contribute to the interstate universal servicesupport system and how their contributions should be calculated. It decided to require all telecommunications carriers and certainnon-telecommunications carriers to contribute in proportion totheir share of end-user telecommunications revenues. See Order¶¶ 39-42. The agency determined that to reduce the burden onindividual carriers' prices, the carriers' contribution base shouldbe as broad as possible. See Order ¶ 783. Therefore, the agencyrequired contributing carriers to include their international telecommunications revenues in their contribution base and rejectedclaims by certain carriers, (7) which do not receive direct subsidiesfrom the support program, seeking an exemption from making anycontributions. See Order ¶ 805.
Finally, the FCC adopted a timetable for implementing itshigh-cost support plan. Because it has not yet developed an accurate assessment of forward-looking costs, it delayed implementationof its support program for non-rural carriers until January 1,2000. (8) Additionally, because the agency believes it will take evenlonger to develop accurate forward-looking cost models for ruralcarriers, it delayed the implementation of its new support plan forrural carriers to "no sooner than January 1, 2001." See Order¶ 204.
During this delay in implementation, the FCC decided thatcarriers will continue to receive support at the levels generatedby existing universal support programs. According to the agency,this gradual, phased-in plan for implementing its new high-costsupport system meets the Act's requirement of a "specific timetablefor completion." See 47 U.S.C. § 254(a)(2).
2. Schools and Libraries.
Pursuant to § 254(h), the FCC adopted rules implementing newprograms for schools, libraries, and health care facilities, inparticular by providing universal service support for internetaccess and internal connections in schools and libraries. See Order ¶ 436. The agency decided that any entity, including non-telecommunications carriers, that provides internet access orinternal connections to schools and libraries will receive universal service support. See Order ¶ 594.
To fund the new § 254(h) programs, the FCC accepted the JointBoard's recommendation to assess the interstate and intrastaterevenues of providers of interstate telecommunications service. See Order ¶ 808. Because many states do not already have similarsupport programs for schools and libraries, the agency justifiedits inclusion of intrastate revenues as necessary to ensureadequate funding for § 254(h) programs.
B. Challenges to the Order.
On September 5, 1997, petitioner Celpage Inc. filed a motionin this court to stay the Order. We denied that motion onOctober 16, 1997, and rejected a similar motion by various ruraltelephone companies on December 31, 1997. Their petitions, alongwith challenges to the Order by other petitioners, wereconsolidated in this court.
There are two sets of challenges to the Order. The first regards the FCC's plan for replacing the current mixture ofexplicit and implicit subsidies with an explicit universal servicesupport system for high-cost areas. On both statutory and constitutional grounds, petitioners attack (1) the methodology forcalculating support under the plan; (2) the allocation of fundingresponsibilities between the FCC and the states; and (3) theagency's restrictions on how carriers can recover universal servicecosts.
Other petitioners attack the FCC's high-cost support plan asan encroachment on state authority over intrastatetelecommunications regulation because it restricts stateeligibility requirements and imposes a "no disconnect" rule forlow-income telephone subscribers. Petitioners also challenge, forlack of specificity and for failing to delay implementation of theplan for some rural carriers, the FCC's timetable for implementingthe new universal service plan. Additionally, petitionerschallenge the FCC's system for assessing contributions, arguingthat it improperly includes CMRS providers and unfairly assessescarriers on the basis of their international and interstaterevenues.
The second set of challenges regards the FCC's proposal forimplementing § 254(h) programs supporting schools, libraries, andhealth care providers. Petitioners claim that the FCC impermissibly expanded the scope of § 254(h) support to include theprovision of internet access and internal connections. Moreover,they attack the FCC's statutory authority to provide such supportto non-telecommunications providers.
Additionally, petitioners charge that the agency encroached onstate authority to implement state support programs for schools andlibraries and failed to designate which telecommunications serviceswill receive § 254(h) support. They also argue that the FCCexceeded its statutory authority by requiring subsidies for toll-free telephone calls to internet service providers by non-ruralhealth care providers. Finally, they attack the FCC's § 254(h)contribution system because it assesses both the intrastate andinterstate revenues of carriers. (9)
We affirm most of the FCC's decisions regarding itsimplementation of the high-cost support system, concluding, for themost part, that the Order violates neither the statutoryrequirements nor the Constitution. We remand for furtherconsideration, however, as to the FCC's decision to assesscontributions from carriers based on both international andinterstate revenues. We also reverse (1) the requirement thatILEC's recover their contributions from access charges and (2) theblanket prohibition on additional state eligibility requirementsfor carriers receiving high-cost support.
On jurisdictional grounds, we reverse the rule prohibitinglocal telephone service providers from disconnecting low-incomesubscribers. We also conclude that the agency exceeded its jurisdictional authority when it assessed contributions for § 254(h)"schools and libraries" programs based on the combined intrastateand interstate revenues of interstate telecommunications providersand when it asserted its jurisdictional authority to do the same onbehalf of high-cost support.
II. Standard of Review.
When deciding whether the FCC has the statutory authority toadopt the rules included in the Order, we review the agency's interpretation under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), by first deciding whether"Congress has directly spoken to the precise question at issue," id. at 842. If so, we "give effect to the unambiguously expressedintent of Congress." Id. at 842-43. In this situation, we reversean agency's interpretation if it does not conform to the plainmeaning of the statute. This level of review is often called" Chevron step-one" review.
Where the statute is silent or ambiguous, however, "thequestion for the court is whether the agency's answer is based ona permissible construction of the statute." Id. at 843. We mayreverse the agency's construction of an ambiguous or silentprovision only if we find it "arbitrary, capricious or manifestlycontrary to the statute." Id. at 844. That is to say, we willsustain an agency interpretation of an ambiguous statute if theinterpretation "is based on a permissible construction of thestatute." Id. at 843. We refer to this more deferential level ofreview as " Chevron step-two" review.
The Administrative Procedure Act ("APA") also authorizes us toreverse an agency's action if it acted arbitrarily or capriciouslyin adopting its interpretation by failing to give a reasonableexplanation for how it reached its decision. See 5 U.S.C. § 706(2)(A) (1994); see also Harris v. United States , 19 F.3d 1090 (5thCir. 1994). "Arbitrary and capricious" review under the APAdiffers from Chevron step-two review, because it focuses on thereasonability of the agency's decision-making processes rather thanon the reasonability of its interpretation. (10)
Finally, we do not give the FCC's actions the usual deferencewhen reviewing a potential violation of a constitutional right. "The intent of Congress in 5 U.S.C. § 706(2)(B) was that courtsshould make an independent assessment of a citizen's claim ofconstitutional right when reviewing agency decision-making." Porter v. Califano , 592 F.2d 770, 780 (5th Cir. 1979).
III. Analysis.
A. High-cost Support.
1. Methodology for Calculating Support for High-cost Areas.
a. Forward-looking Cost-of-Service Methodology.
GTE and Southwestern Bell (collectively "GTE") and the FCCengage in a fairly complex economic debate over the merits ofcalculating costs using the forward-looking cost models based onthe "least cost, most efficient" carrier. (11) Because incumbent localexchange carriers ("ILEC's") such as GTE will receive theirsubsidies, under the new system, based on the difference betweenthe costs of providing service to a high-cost region and therevenue that could be derived from that service, GTE fears thatusing the costs of a hypothetical most-efficient carrier will significantly reduce the amount of universal service support itreceives.
The question, of course, is not whether it is good policy forthe FCC to use such cost models, (12) but whether the decision to adoptthis methodology conforms to the plain language of the statute. Ifthe language is ambiguous, we must then ask whether the use offorward-looking cost models is reasonable given the terms of thestatute and the deference the FCC must be afforded under Chevron . Additionally, we must consider whether the agency's actions inreaching its decision are "arbitrary and capricious" under the APA. See 5 U.S.C. § 706(2)(A).
We conclude that the plain language is ambiguous as to whetherthe FCC's cost models are permitted. We then decide that under Chevron step-two, the FCC's forward-looking cost models are authorized under their reasonable interpretations of the statutorylanguage. Finally, we do not conclude that the FCC acted in a"arbitrary and capricious" manner in reaching its decision to adoptforward-looking cost models.
GTE argues that the methodology violates the "equitable andnondiscriminatory" language in § 254(b)(4). We disagree with GTE'sclaim that the plain language of § 254(b)(4) prohibits the FCC fromadopting its methodology.
The section of the statute that GTE relies on represents oneof seven principles identified by the statute as the basis for theagency's universal service policies. Rather than setting upspecific conditions or requirements, § 254(b) reflects aCongressional intent to delegate these difficult policy choices toagency discretion: "The Joint Board and the Commission shall basepolicies for the preservation and advancement of universal serviceon the following principles . . . ." (Emphasis added.) 47 U.S.C.§ 254(b).
Moreover, the FCC has offered reasonable explanations for howits use of the forward-looking cost models cannot be characterizedas inequitable and discriminatory. For instance, the FCC pointsout that all carriers, including interexchange carriers ("IXC's")such as AT&T and MCI, are subject to the same cost methodology andmust move toward the same efficient cost level to maximize thebenefits of universal service support.
The term "sufficient" appears in § 254(e), and the plainlanguage of § 254(e) makes sufficiency of universal service supporta direct statutory command rather than a statement of one ofseveral principles. Still, we do not find that the use of thesingle word "sufficient," even in the language of command, demonstrates Congress's unambiguous intent regarding the forward-lookingcost models. We therefore review under Chevron step-two andconclude that the agency has offered reasonable justifications forits adoption of the "most efficient" methodology.
The FCC points to cases in which agencies have adopted similarmethodologies to encourage competition. (13) It also argues that nothing in the statute defines "sufficient" to mean that universalservice support must equal the actual costs incurred by ILEC's.These reasons suffice to survive the reasonableness requirement of Chevron step-two.
To be sure, the FCC's reason for adopting this methodology isnot just to preserve universal service. Rather, it is also tryingto encourage local competition by setting the cost models at the"most efficient" level so that carriers will have the incentive toimprove operations. As long as it can reasonably argue that themethodology will provide sufficient support for universal service,however, it is free, under the deference we afford it under Chevron step-two, to adopt a methodology that serves its other goal ofencouraging local competition.
ii. "Arbitrary and Capricious."
Arguing that the FCC has departed from its own statedmethodology, GTE charges the agency with "arbitrary and capricious"actions under the APA. See 5 U.S.C. § 706(2)(A). The APA's"arbitrary and capricious" standard of review is narrow andrequires only a finding that the agency "articulate[d] a rationalrelationship between the facts found and the choice made." Harrisv. United States , 19 F.3d 1090, 1096 (5th Cir. 1994).
GTE points out that while the agency has wedded itself to the"most efficient" carrier cost methodology, it used current depreciation schedules to develop its models for projecting forward-looking costs. These schedules are not based on the actual costsof the current regulated system, but, GTE contends, have beenartificially deflated by state regulators so that local carriersrecover less than they would in a real, competitive market. Usingthese artificially-deflated schedules in the cost modelsdisadvantages the ILEC's, because they will not be able to recovertheir capital costs as they would if free from regulation.
Actually, the FCC has departed from its general "mostefficient" methodology by making a number of adjustments to itscost model. For instance, instead of assuming the "most efficient"wire center locations in its cost models, the agency simply madecalculations based on whatever wire centers already exist. See Order ¶ 251(1). This allowance actually benefits the ILEC's.
While GTE argues that the FCC's failure to adhere tightly toits "most efficient" methodology fails the "arbitrary andcapricious" test, that test, properly understood, is far lessonerous. If the FCC's departures from its methodology "articulatea rational relationship," we will not apply the "arbitrary andcapricious" remedy.
The FCC seeks to mitigate the effect of the "most efficient"methodology by accounting for wire centers that already exist. Additionally, and contrary to GTE's assertions, the agency isprescribing a range within which the depreciation schedules mustfall, rather than simply adopting the schedules that already exist. For the time being, the FCC will rely on the actual depreciationschedules, because it does not see a prospect of significantcompetition in the near future in the high-cost markets. See Order¶ 250(5). Moreover, the agency has committed itself to re-prescribe the range for these schedules every three years. See id .¶ 250(5) n.662. These reasons establish enough of a "rationalrelationship" with facts presented for the forward-looking costmethodology to pass the APA's arbitrary and capricious test. (14)
b. Methodology for Calculating the Revenue Benchmark.
GTE challenged the inclusion of revenues from "discretionary"services in the revenue benchmark used to compare costs andrevenues for the purposes of universal service support. The JointBoard, however, recently proposed eliminating the entire revenuebenchmark in favor of a single national cost benchmark. See SecondRecommended Decision ¶¶ 41-50. The FCC accepted thisrecommendation. See Seventh Report and Order ¶ 61 ("[W]ereconsider and reject the determination in the First Report andOrder that federal support for rate comparability should bedetermined using a revenue-based benchmark."). (15) This decisionmoots GTE's challenge to the inclusion of discretionary revenues,because no revenues will be used in the calculation of thebenchmark. (16)
A case becomes moot if (1) there is no reasonable expectationthat the alleged violation will recur and (2) interim relief orevents have completely and irrevocably eradicated the effects ofthe alleged violation. County of Los Angeles v. Davis , 440 U.S.625, 631 (1979). (17) The FCC's new approach eradicates any possibleeffect of discretionary revenues on the levels of the petitioners'universal service support. (18) We therefore dismiss, as moot, GTE'schallenge to the use of discretionary revenues in the high-costsupport benchmark.
GTE also challenged the FCC's use of a national benchmark forpurposes of revenue calculations. Because GTE's challenge focusedon the problems of a national revenue benchmark, the FCC's elimination of the revenue benchmark also moots its challenge to thenational benchmark.
GTE's basic attack on the national revenue benchmark is thatILEC's operating in states with below-average revenues will besystematically undercompensated by a universal service supportsystem based on a national revenue benchmark. But none of thesearguments necessarily applies to a cost-based national benchmark. (19) Indeed, the FCC adopted the cost-based national benchmark becauseit agreed that "revenues may not accurately reflect the level ofneed for support to enable reasonably comparable rates becausestates have varying rate-setting methods and goals." Seventh Reportand Order ¶ 62.
Because the subject matter of GTE's appeal--a national revenue benchmark--no longer has any legal force, "[a]ny further judicialpronouncements . . . would be purely advisory." See Center forScience in the Public Interest , 727 F.2d at 1164. "We cannotassume jurisdiction to decide a case on the ground that it is the same case as one presented to us, when it is admitted that it isnot and when it presents different issues." Id. at 1166 n.6(emphasis added). Therefore, we also dismiss, as moot, thechallenges to the FCC's national revenue benchmark. (20)
c. Limiting the Federal Mechanism to Twenty-five Percent of
Universal Service Costs .
The third step in the FCC's methodology for calculatingsupport to high-cost, non-rural areas allocates 25% of the fundingresponsibility to the agency, leaving 75% to be provided by thestates. In other words, only 25% of the overall funds for theexplicit universal support program for high-cost areas will beprovided from the funds collected from interstate telephone calls;the rest must be provided by the states, usually through charges onintrastate service. Certain states, (21) GTE, and Kansas and Vermont (22) challenged this allocation on statutory grounds. Specifically,they question the 25% rule for failing to provide "sufficient"support under § 254(e). Kansas and Vermont also challenged theFCC's 25% allocation decision for lack of notice and for failing toensure reasonable comparability between rural and urban rates.
As in the case of arguments against the revenue benchmark, wedo not consider these challenges, because the FCC has accepted theJoint Board's recommendation to scrap the 25%/75% rule. (23) The Seventh Report and Order proposes a new methodology that places "noartificial limits on the amount of federal support that is available" when a state cannot by itself maintain reasonablecomparability. Seventh Report and Order ¶ 34. This new frameworkis "a different regulation, containing on its face reasoning notpreviously articulated by the agency as its policy." Center forScience in the Pub. Interest , 727 F.2d at 1166. Therefore, wedismiss the challenges by all of the petitioners as moot. (24)
GTE raises an administrative procedural objection to the FCC'sadoption of new jurisdictional separations rules (25) that propose toend existing high-cost fund support for non-rural carriers onJanuary 1, 1999. (26) Instead of arguing that the new rule is arbitrary and capricious, GTE claims that the agency failed properly torefer the matter to the Joint Board, in violation of 47 U.S.C.§ 410(c), which states that "[t]he Commission shall refer any proceeding regarding the jurisdictional separation of common carrierproperty and expenses between interstate and intrastate operations. . . to a Federal-State Joint Board."
The FCC responds that it did make a general referral to theJoint Board in March 1996 and that the Joint Board subsequentlyrecommended that the agency replace the existing support mechanismsfor non-rural carriers with a new universal service system. Theplan to replace the existing support mechanism, the FCC argues,requires a change in the method of jurisdictional separation, andby recommending the plan, the Joint Board had already consideredthe jurisdictional effects. (27)
GTE and the FCC disagree on the level of specificity needed tofulfill the Joint Board consultation requirement of § 410(c). GTEargues that simply identifying the broad subject of universalservice reform did not raise the issue of altering the system thatis used to shift costs in many high-cost areas to the interstatejurisdiction. In particular, GTE contends that the Joint Boardfailed to consider the amounts of the fund allocation between theinterstate and intrastate jurisdictions when it considered the planto implement a new support mechanism.
Although the FCC does not have to raise every possible detailin its referral to the Joint Board, it must show that the JointBoard was aware of the effects on the jurisdictional separationsrules of replacing the existing high-cost support system. Theplain language of the statute shows that any shift in theallocation of jurisdictional responsibility lies at the heart of§ 410(c)'s consultation requirement.
The Joint Board was aware that replacing the existing high-cost support system will affect the jurisdictional separationsrules. This is shown by the fact, for instance, that the JointBoard made a detailed discussion of the current jurisdictionalseparations rules, acknowledging that they "currently assign 25percent of each LEC's loop costs to the interstate jurisdiction." See First Recommended Decision ¶ 188.
In discussing the comments submitted by affected parties, theJoint Board recognized that the jurisdictional separations rulesare part of the old regime of "embedded" or "historical" costs. See id. ¶ 207. Thus, the Joint Board does seem to recognize thatthe jurisdictional separations rules are part of the old "embeddedcost" system and were developed in the context of allocating theactual costs of developing the local and long-distance networks. By recommending replacing the historical cost system with aforward-looking "most efficient" cost model, the Joint Board musthave considered that the jurisdictional separations rules no longerwould apply in the same way. Although no detailed discussionappears in the First Recommended Decision, the Joint Board'srecognition that the jurisdictional separations rules would beaffected by adopting a new cost model fulfills § 410(c)'sconsultation requirement. (28)
2. Eligibility Requirements for Carriers
Seeking Universal Service Support.
The states and intervenor Southwestern Bell ("SBC") challengethe FCC's reading of the Act's provisions governing eligibilityrequirements for carriers seeking universal service support. Ingeneral, they question the agency's interpretation of § 214(e) astoo narrow and restrictive of the ability of state commissions toset their own criteria and exercise their own discretion over acarrier's eligibility.
a. Limiting the Criteria That State Commissions
May Consider When Assessing a Carrier's Eligibility.
Section 214(e) governs the designation of carriers eligible toreceive federal universal service support. Section 214(e)(1)(A)and (B) set out the eligibility requirements, and § 214(e)(2) (29) governs the designation of eligible carriers by state commissions.
In the Order, the FCC interpreted § 214(e)(2) in this way. With limited exceptions for rural areas, a state commission has nodiscretion when assessing a carrier's eligibility for federal support. If a carrier satisfies the terms of § 214(e)(1), a statecommission must designate it as eligible. Thus, the FCC ruled thata state commission may not impose additional eligibilityrequirements on a carrier seeking universal service support in non-rural service areas. See Order ¶ 135. The agency does permit thestates to impose service quality obligations on local carriers ifthose obligations are unrelated to a carrier's eligibility toreceive federal universal service support. According to the FCC,this interpretation "gives effect to the unambiguously expressedintent of Congress." See Chevron , 467 U.S. at 842-43.
The states and SBC offer two lines of attack. First, theyargue that the plain language of § 214(e)(2) does not support theFCC's blanket prohibition on additional state eligibilityrequirements. Second, they say that the FCC exceeded itsjurisdictional authority, in violation of 47 U.S.C. § 152(b), bypurporting to interfere with the states' regulation of intrastateservice. Because we conclude that the agency erred in prohibitingthe states from imposing additional eligibility requirements, we donot reach the states' jurisdictional challenges.
On the plain language front, the states argue that § 214(e)(2)does not unambiguously prohibit them from regulating carriers receiving federal universal support. Specifically, they contend that Congress did not mean to prohibit the states from imposingservice quality standards on eligible carriers. According to thestates, the language on which the FCC relies--"[a] State Commissionshall upon its own motion or upon request designate a commoncarrier that meets the requirements of paragraph (1) as an eligibletelecommunications carrier"--does not expressly circumscribe stateauthority to add additional eligibility requirements.
The agency's best hope for express authority for its actionrests on the statute's use of the word "shall" in § 214(e)(2). Generally speaking, courts have read "shall" as a more directstatutory command than words such as "should" and "may." (30) Thoughwe agree that the use of the word "shall" indicates a congressionalcommand, nothing in the statute indicates that this commandprohibits states from imposing their own eligibility requirements. Instead, we read § 214(e)(2) as addressing how many carriers astate may designate for a given service area, and not how muchdiscretion a state commission retains to impose eligibilitystandards.
The first sentence requires state commissions to designate atleast one common carrier as eligible, but that carrier must stillmeet the eligibility requirements in § 214(e)(1). The second sentence then confers discretion on the states to designate more thanone carrier in rural areas, while requiring them to designateeligible carriers in non-rural areas consistent with the "publicinterest" requirement. Nothing in the statute, under this readingof the plain language, speaks at all to whether the FCC may preventstate commissions from imposing additional criteria on eligiblecarriers. (31)
Thus, the FCC erred in prohibiting the states from imposingadditional eligibility requirements on carriers otherwise eligibleto receive federal universal service support. The plain languageof the statute speaks to the question of how many carriers a statecommission may designate, but nothing in the subsection prohibitsthe states from imposing their own eligibility requirements. (32) Thisreading makes sense in light of the states' historical role inensuring service quality standards for local service. Therefore,we reverse that portion of the Order prohibiting the states fromimposing any additional requirements when designating carriers aseligible for federal universal service support.
b. The Terms of Section 214(e)(5)
Governing the Definition of Service Areas.
In their initial brief, the states argued that the FCC hadimpermissibly encroached on their exclusive authority to designateservice areas for universal service support. The FCC, however, pointed out that ¶ 185 of the Order had only encouraged the statesto make certain decisions (33) when designating service areas. Theagency explicitly denies that the paragraph requires the states tofollow its "encouragements." Thus, it appears that the statesmisinterpreted the FCC's intentions in ¶ 185 and that there is noissue left for us to address.
The states, however, continue to contest one aspect of theOrder regarding the definition of service areas. The FCC maintainsthat it may establish a different definition of service areas forrural carriers, with the agreement of the states, without having to submit such a new definition first to the Joint Board. The statesargue that the plain language of § 214(e)(5) allows the agency toact only "after taking into account recommendations of [the JointBoard] . . . ."
The FCC has two procedural responses and one substantivedefense. Because we agree with the FCC that the states have nostanding, we do not reach the FCC's other defenses.
The agency argues that the states have no standing to challenge its ruling, because the states have failed to show any harm. (34) After all, as the FCC points out, it must still garner the approvalof each respective state before a rural service area can be redefined. The states argue that they are harmed because the statemembers of the Joint Board are denied a chance to participate inthe decisionmaking process, so the states are less able to coordinate with each other. They further contend that bypassing theJoint Board denied the states any meaningful participation inrevising service area definitions for rural territories.
This claim is weak, because the states' independent ability toveto particular service areas seems to provide them with a substantial amount of "meaningful participation." This is unlike thesituation in the cases the states rely on, in that the states here are not challenging a federal preemption order that threatens theirsovereign authority. See California v. FCC , 75 F.3d 1350, 1361(9th Cir. 1996). Therefore, the states lack standing to challengethis portion of the Order.
GTE argues that the FCC's failure to require carriers to"unbundle" their offerings when receiving universal service supportviolates the congressional intent expressed in § 214(e)(1) under Chevron step-one. "Bundling" refers to a carrier's practice ofoffering different services together as one package. For instance,a carrier might offer basic phone service as part of a package thatincludes call-waiting and voicemail.
GTE fears that a new carrier could "cherry pick" high-profitcustomers by offering only bundled local telephone service packages. Because the intended beneficiaries of universal service are,by definition, less able to afford even basic service, offering expensive bundled packages will allow new carriers to stealwealthier, low-cost customers while leaving ILEC's such as GTE toprovide service to everyone else. GTE reasons that Congress, byrequiring carriers receiving federal universal service support toadvertise the availability of its supported services, intended torequire new carriers to participate in universal service--an intentthat would be thwarted by Allowing the new carriers to offerbundled services.
The FCC responds that the plain language of the statute issatisfied as long as a carrier offers "services that are supportedby Federal universal service mechanisms." 47 U.S.C. 214(e)(1)(A). Except for the advertising requirement, the statute makes nomention of "bundling" or other eligibility criteria. In fact, theFCC argues that because of the exclusive grant of eligibilityauthority conferred on the states by § 214(e)(2), it cannot imposeadditional eligibility criteria. Because the statute is silent onthe question of bundling, and because the statute seems to prohibitfurther eligibility criteria, the agency asks us to give deferenceto its interpretation of § 214(e) under Chevron step-two.
We agree that the statute's plain language does not revealCongress's unambiguous intent. It is not evident, however, thatthe FCC's interpretation of the statute meets even the minimumlevel of reasonability required in step-two review.
Section 214(e)(1) plainly requires carriers receiving universal service support to offer such supported services to as manycustomers as possible. Thus, an eligible carrier must offer suchservices "throughout the service area" and "advertise theavailability of such services." This requirement makes sense inlight of the new universal service program's goal of maintainingaffordable service in a competitive local market. Allowingbundling, however, would completely undermine the goal of the firsttwo requirements, because a carrier could qualify for universalservice support by simply offering and then advertising expensive,bundled services to low-income customers who cannot afford it.
The FCC suggests that GTE's problems stem not from bundlingbut from state-imposed "carrier of last resort" ("COLR")requirements, which prohibit ILEC's such as GTE from disconnectinglow-profit consumers and leave ILEC's vulnerable to outsidecompetition. But the elimination of COLR requirements would onlyfurther undermine the goal of making basic services available tolow income consumers and those in "rural, insular, and high costareas." See 47 U.S.C. § 254(b)(3). This again would violate theexpress intent of the universal service program. Without a betterexplanation for its unreasonable interpretation, we would beinclined to find the FCC's implementation "arbitrary and capriciousand manifestly contrary to the statute." See Chevron , 467 U.S. at844.
Fortunately, the agency also has explained that "only aneligible carrier that succeeds in attracting and/or maintaining acustomer base to whom it provides universal service will receiveuniversal service support." Order ¶ 138. Therefore, it reasonsthat if offering only bundled services would price low-incomecustomers out of the market, the carrier offering bundled serviceswould eventually lose universal service support. Thus, the FCC canavoid the problem of providing universal service support to carriers that do not serve high-cost customers for which the supportis intended. This explanation supports the FCC's claim that itsdecision to allow bundling is reasonable under Chevron step-tworeview.
Though the decision is a close one, we conclude that the FCC'srefusal to require eligible carriers to provide unbundled servicesis neither "arbitrary, capricious," nor "manifestly contrary to thestatute." See Chevron , 467 U.S. at 844. Because the agency willprevent companies from using bundling to receive federal supportwhile avoiding high-cost customers, we do not find itsinterpretation "so implausible that it could not be ascribed to adifference in view or the product of agency expertise." MotorVehicle Mfrs.' Ass'n v. State Farm Mut. Auto. Ins. Co. , 463 U.S.29, 43 (1983).
3. Authority To Prohibit Carriers from Disconnecting Local Service
to Low-income Consumers Who Fail To Pay Toll Charges.
Bell Atlantic and the states challenge the FCC's adoption ofa regulation (35) prohibiting carriers receiving universal servicesupport from disconnecting Lifeline services (36) from low-incomeconsumers who have failed to pay toll charges . See Order ¶ 390. The petitioners charge that the "no disconnect" rule exceeds theagency's jurisdictional authority under § 2(b) of the 1934 Act, (37) which prohibits FCC regulation of intrastate telecommunicationsservice. Because the plain language of the statute expressesCongress's unambiguous intent, we review the agency'sinterpretation under Chevron step-one.
The agency has three responses. First, it argues that § 2(b)does not apply where Congress has given the FCC an "unambiguous orstraightforward" grant of authority. See Louisiana Pub. Serv.Comm'n, 476 U.S. at 377. The agency argues that Congress grantedsuch express authority in § 254(b)(3), which directs the FCC tobase its policies on the principle that "low-income consumers andthose in rural, insular, and high cost areas, should have access totelecommunications and information services . . . ."
As we have discussed, § 254(b) identifies seven principles theFCC should consider in developing its policies; it hardlyconstitutes a series of specific statutory commands. Indeed, wehave avoided relying on the aspirational language in § 254(b) tobind the FCC to adopt certain cost methodologies for calculatinguniversal service support. (38)
Just as we declined to read § 254(b) as an inexorable statutory command against the FCC, we decline to read it as a grant ofplenary power overriding other portions of the Act. The agency hasno "unambiguous or straightforward" grant of authority to overridethe limits set by § 2(b), and, accordingly, it has no jurisdictionto adopt the "no disconnect" rule on the basis of the vague,general language of § 254(b)(3). (39)
Second, the FCC contends that the petitioners' jurisdictionalchallenge is inapposite because the "no disconnect" rule does notpurport to regulate intrastate service, but merely prevents thedisconnection of interstate service (and, as a consequence, ofintrastate service) for failure to pay toll charges. (40) As BellAtlantic rightly responds, however, the "no disconnect" rule is a"regulation," because it dictates the circumstances under whichlocal service must be maintained. Therefore, the FCC, by issuingthe rule, has acted "with respect to" and "in connection with"interstate service within the meaning of § 2(b).
The FCC points out that even if the "no disconnect" rule is a"regulation" within the meaning of § 2(b), courts have sustainedagency jurisdiction over similar rules under the "impossibility"exception. In North Carolina Utils. Comm'n v. FCC , 552 F.2d 1036(4th Cir. 1977), the court upheld FCC regulations permitting localsubscribers to connect their telephones to the local loop to makeinterstate calls. North Carolina previously had requiredsubscribers to use leased telephones and argued that § 2(b)prevented FCC intervention because the vast majority of these callswere intrastate. The court rejected this argument, holding that"the FCC has jurisdiction to prescribe the conditions under whichterminal equipment may be interconnected with the interstatetelephone line network." Id. at 1048.
Essentially, the FCC asks us to find that the "no disconnect"rule, aimed at regulating interstate service, is impossible toseparate from intrastate service. In similar cases, the Districtof Columbia Circuit has permitted the FCC to intervene inrelatively localized service issues (41) and has developed a usefulframework for analyzing what the petitioners refer to as the"impossibility" exception to § 2(b). See Public Serv. Comm'n v.FCC ( "Maryland PSC") , 909 F.2d 1510, 1515 (D.C. Cir. 1990).
To permit the FCC to preempt state regulation of whether tocut off low-income subscribers, that circuit requires the agency toshow that "(1) the matter to be regulated has both interstate andintrastate aspects; (2) FCC preemption is necessary to protect avalid federal regulatory objective; and (3) state regulation wouldnegate the exercise by the FCC of its own lawful authority becauseregulation of the interstate aspects of the matter cannot beunbundled from regulation of intrastate aspects." Maryland PSC ,909 F.2d at 1515 (internal quotations and citations omitted). Thisframework creates a properly narrow exception to § 2(b) that allowsthe FCC to preempt state regulation only when it has shown itcannot carry out its authorized federal objectives without encroaching on state autonomy.
Applying this framework to the "no disconnect" rule, we agreewith Bell Atlantic that the FCC has failed to show why allowing thestates to control disconnections from local service would "negatethe exercise of the FCC's lawful authority . . . ." As BellAtlantic points out, the agency offered only a brief explanation ofwhat lawfully authorized federal objectives are being served by the"no disconnect" rule and why it is necessary to preempt localauthority to achieve these objectives.
In the Order, the FCC simply states that the "no disconnect"rule advances its goal of increasing subscribership and that itwill improve the competitiveness of the market for billing and collection of toll charges. See Order ¶¶ 390-391. But the agency hasnot adequately explained, in either its brief or its Order, whythese goals would be "negated" by allowing the states to controldisconnection of local subscribers. In contrast to what occurredin Maryland PSC , where the court allowed the FCC to assert jurisdiction to prevent ILEC's from shifting local costs to interstateconsumers, the FCC has offered no similar explanation of howprotecting interstate service requires imposition of a "no disconnect" rule. Therefore, we decline to allow the agency to assertjurisdiction over the disconnection of local service based on theimpossibility exception.
Finally, the FCC argues that in the wake of Iowa Utilities , ithas jurisdiction over all areas, including intrastate matters, towhich the Act applies. In Iowa Utilities , the Court rejected jurisdictional challenges to the portions of the FCC's Local Competition Order implementing §§ 251 and 252 of the Act, which governthe interconnection of new local service carriers with the ILEC'sand establish procedures for negotiating, arbitrating, and approving any interconnection agreements. As in the instant case,petitioners challenged the FCC's jurisdiction to implement the Act,arguing that much of the authority to enforce the provisions(§§ 251 and 252) remain with the state commissions by virtue of§ 2(b). Specifically, they contended that the Act gives the FCCjurisdiction over intrastate matters only when the statute explicitly applies to intrastate services and specifically confersagency jurisdiction over intrastate services.
The Court brushed aside these attempts to raise the § 2(b)jurisdictional fence and squarely held that "§ 201(b) (42) explicitly gives the FCC jurisdiction to make rules governing matters to whichthe 1996 Act applies." Iowa Utilities , 119 S. Ct. at 730. Though§ 2(b)'s language stating that "nothing in this Act shall be construed to apply or to give the Commission jurisdiction" impliesthat FCC jurisdiction does not always follow where the Act applies,the Court held that "the term 'apply' limits the substantive reachof the statute . . . and the phrase 'or Commission jurisdiction'limits . . . the FCC's ancillary jurisdiction." Id. at 731. Relying on this holding, the FCC argues that because § 254 applies to intrastate as well as interstate matters, § 201(b) confers thenecessary jurisdiction to implement the "no disconnect" rule.
Though the Court's broad language seems to support the FCC'sposition, Bell Atlantic finds comfort in the Court's preservationof Louisiana PSC. In reconciling its holding with Louisiana PSC ,the Court held that the FCC must show that the meaning of astatutory provision applies to intrastate matters in an"unambiguous and straightforward" manner as "to override thecommand of § 2(b)." Iowa Utilities , 119 S. Ct. at 731 (quoting Louisiana PSC , 476 U.S. at 377). If the agency fails in thisinitial task, it cannot use its normally broad regulatory authorityto assert what is now only ancillary jurisdiction because of thestill-intact jurisdictional fence created by § 2(b). See id. Therefore, after Iowa Utilities , § 2(b) still serves as (1) a ruleof statutory construction (43) requiring the FCC to find unambiguousstatutory authority applying to intrastate matters and (2) ajurisdictional barrier restricting the agency from using itsplenary authority to assert ancillary jurisdiction by "takingintrastate action solely because it further[s] an interstate goal." See Iowa Utilities , 119 S. Ct. at 731 (citing Louisiana PSC , 476U.S. at 374).
The question is whether § 254 does indeed "apply" tointrastate matters in a sufficiently "unambiguous" manner. Withoutsuch a finding, Iowa Utilities flatly holds that the FCC cannot useits plenary authority to assert ancillary jurisdiction.
Unfortunately, Iowa Utilities provides little guidance forresolving the question whether § 254 applies to intrastate services. For the Supreme Court, "the question . . . is not whetherthe Federal Government has taken the regulation of local telecommunications competition away from the States. With regard tothe matters addressed by the 1996 Act, it unquestionably has." Iowa Utilities , 119 S. Ct. at 730 n.6. The Court did not furtherexplain why it felt §§ 251 and 252 "unquestionably" applied tointrastate matters.
The FCC bases its contention that § 254 plainly applies tointrastate as well as interstate matters on § 254(b)(3),(c),and (j). According to the agency, § 254(b)(3) applies tointrastate service by stating that "low income consumers . . .should have access to telecommunications and information services,including interexchange services and advanced telecommunicationsand information services."
The use of the word "including," the FCC argues, indicatesthat the object of § 254 is to provide access to more than justinterexchange services. Furthermore, § 254(c) instructs the agencyto consider, in the process of establishing what constitutesuniversal service, whether such services "have . . . beensubscribed to by a substantial majority of residential customers." Finally, § 254(j) specifically preserves the Lifeline Assistanceprogram, which has always provided subsidies for both intrastateand interstate services.
We have already discussed our reluctance to rely on the aspirational language of § 254(b). (44) Moreover, the phrase "includinginterexchange carriers" cannot be said unambiguously to mean that§ 254 applies to local services, and § 254(c)'s mention of a"majority of residential customers" is far from straightforward. Neither is there much guidance from § 254(j), which specificallyprotects the Lifeline Assistance program from being affected by anyother part of § 254 but does not in any way clarify to what degree§ 254 applies to intrastate universal service.
Instead, there is substantial support in the statute for adual regulatory structure in the administration of the universalservice program. Section 254(d) specifically instructs interstatecarriers to contribute to the FCC's universal service mechanisms,while § 254(f) instructs intrastate carriers to contribute to thestates' individual universal service mechanisms. This sectioncontains the only discussion of intrastate universal service mechanisms and directs intrastate carriers to report to the statesrather than to the FCC.
In light of Iowa Utilities and Louisiana PSC , therefore, we conclude that, "while it is, no doubt, possible to find some support in the broad language of the section for [the FCC's] position,we do not find the meaning of the section so unambiguous orstraightforward as to override the command of § 152(b)." LouisianaPSC , 476 U.S. at 377. Unlike §§ 251 and 252, which were solelyconcerned with intrastate issues (i.e., interconnection of newentrants into the local telephone market), § 254 applies to bothinterstate and intrastate services. It does so, however, only tothe extent that it gives exclusive authority over intrastatecontributions to the state commissions. We find it incongruous touse this explicit limitation on FCC authority as the hook toprovide it with jurisdiction.
Therefore, the FCC exceeded its jurisdiction when it imposedthe "no disconnect" rule. Because there is no express grant ofstatutory authority, a proper showing of "impossibility," or apersuasive explanation of how § 254 applies to intrastate service,we reverse, for want of agency jurisdiction, those portions of theOrder implementing the "no disconnect" rule.
4. Recovery of Universal Service Contributions.
a. Requiring Incumbents To Recover
Contributions Through Access Charges.
GTE and the FCC again wrangle over the meaning of "explicit"in their dispute regarding the rule requiring most ILEC's torecover their universal service contributions through accesscharges. GTE contends that the rule violates § 254(e)'s commandthat any support for universal service be "explicit," becauserecovering contributions through increased access charges is a formof implicit subsidy.
GTE argues that the rule unfairly disadvantages ILEC'sbecause, unlike their potential new competitors, they cannotrecover their universal service contributions through explicitcharges on their end-users, but, instead, are required by the FCCto increase their access charges on long-distance serviceproviders. Though they do not necessarily lose out in terms ofamounts recovered, GTE fears that this recovery method will putthem at a competitive disadvantage because, instead of than seeingthe costs of universal service on his bill as an explicitsurcharge, an ILEC consumer will pay for the costs of universalservice through higher rates.
The FCC advances a different understanding of "explicit." "Regardless of how carriers recover their contributions, the FCC'suniversal service system 'satisfies the statutory requirement thatsupport be explicit' by requiring each carrier to contribute aspecific percentage of its end user revenues" (quoting Order¶ 854). As long as carriers know exactly how much they arecontributing to the support mechanisms, the subsidies are explicit. The statute provides little guidance on whether "explicit"means "explicit to the consumer" (as urged by GTE) or "explicit tothe carrier" (as urged by the FCC). The statute does state, however, that all universal service support should be "explicit." Weread "explicit" to mean the opposite of "implicit." See § 254(e). By forcing GTE to recover its universal service contributionsfrom its access charges, the FCC's interpretation maintains animplicit subsidy for ILEC's such as GTE. In fact, requiring carriers to recover their contributions from access charges on interstate calls shifts the costs of intrastate universal service to theinterstate jurisdiction. These are precisely the sorts of implicitsubsidies currently used by the FCC in its DAM weighting program. See Order ¶ 212 (discussing rules that permit small LEC's torecover costs for intrastate services from interstate accesscharges).
We are convinced that the plain language of § 254(e) does notpermit the FCC to maintain any implicit subsidies for universalservice support. Therefore, we will not afford the FCC any Chevron step-two deference in light of this unambiguous Congressionalintent. Because the agency continues to require implicit subsidiesfor ILEC's in violation of a plain, direct statutory command, wereverse its decision to require ILEC's to recover universal servicecontributions from their interstate access charges.
b. Requiring Interstate Carriers To Reduce Interstate Access Charges
by the Amount of Federal High-cost Support They Receive
Under the New Universal Service System.
The states contest an aspect of the Order's effect oninterstate access charges, arguing that the requirement thatcarriers reduce their interstate access charges by the amount ofdirect federal high-cost support they receive will leaveinsufficient funds for intrastate universal service. The statesmake two unconvincing plain-language arguments. First, they pointto § 254(b)(5)'s language about "specific, predictable andsufficient" mechanisms to "preserve and advance universal service." As we have observed, § 254(b) identifies a set of principles anddoes not lay out any specific commands for the FCC. Even § 254(e),which is framed as a direct, statutory command, is ambiguous as towhat constitutes "sufficient" support. Therefore, we do notconsider the language an expression of Congress's "unambiguousintent" allowing Chevron step-one review, and we review itsinterpretation for reasonability under Chevron step-two.
The states argue that § 254(e) does not permit the applicationof federal universal service funds for the interstate jurisdiction. In essence, they seek to preserve state universal service supportby reading the statute to require all high-cost support to remainintrastate. Though this might make compelling policy, nothing inthe plain language of § 254(e) (45) unequivocally establishes thestates' right to all of the federal universal support funds. Thestatutory language is at best ambiguous as to Congress's intent,which, under Chevron step-two, leaves it to the FCC's reasonableinterpretation .
The FCC has offered good reason to believe that its newexplicit support through direct subsidies will replace the amountslost through the reduction of access charges. See Report toCongress ¶ 230. To be sure, the states and intervenor NASUCA (46) makea plausible argument that ILEC's will receive less under the newplan than they did through implicit subsidies. As we havedetermined, however, because the FCC has offered reasonableexplanations of why it thinks the funds will still be "sufficient"to support high-cost areas, we defer to the agency's judgment ofwhat is "sufficient."
Under the agency's new universal service plan, it is possiblethat the states will receive less support for intrastate universalservice costs than they did under the old plan. While this mayseem unfair as a matter of policy, the states have failed to showthat the FCC's interpretation, which may possibly result in areduction of their level of support, is "arbitrary, capricious, ormanifestly contrary to the statute." Chevron , 467 U.S. at 844.
5. Contributions.
a. Requiring CMRS Carriers To Contribute
to the Federal Universal Service Fund. (47)
Celpage Inc., a paging carrier, and intervenors representinga number of wireless telecommunications companies (referred to ingeneral as commercial mobile radio service or "CMRS" providers),challenge the FCC's decision to subject them to the universalservice support scheme. Celpage raises a number of constitutionaland statutory challenges to the decision to require theircontributions to the universal service fund. Specifically, Celpageattacks the agency's universal service contribution requirement asan unconstitutional tax, a violation of equal protection, and anuncompensated taking. Additionally, Celpage charges that the FCC'saction violates § 254's plain language, is arbitrary andcapricious, and does not meet the agency's own principle ofcompetitive neutrality.
i. Constitutional Challenges.
(a). Unconstitutional Tax.
There are two ways in which the universal service contributionrequirement for paging carriers could constitute anunconstitutional tax. First, the FCC's application of theuniversal service requirement to paging carriers such as Celpagemight be an unconstitutional delegation of Congress's exclusivetaxing power under the Taxing Clause. (48) Alternatively, because theAct originated in the Senate, (49) its requirement of universal servicecontributions from paging carriers might violate the OriginationClause's requirement that all "[b]ills for raising [r]evenue"originate in the House of Representatives" (50)
Despite their similarities, the Taxing Clause and OriginationClause challenges to the universal service contribution systemrepresent separate lines of analysis. (51) In its initial brief,however, Celpage raises only the Origination Clause challenge anddoes not raise a Taxing Clause claim until its reply brief. Therefore, we will not consider it, (52) and we focus our efforts onCelpage's claim that the universal service contributionrequirement, as applied to paging carriers, is a violation of theOrigination Clause. (53)
Unfortunately for Celpage, its Origination Clause claim cannotsurvive United States v. Munoz-Flores , 495 U.S. 385, 398 (1990). There, the Court refused to find that a special assessment on certain federal criminals for a "crime victim's" fund is a tax, because "a statute that creates a particular governmental program andthat raises revenue to support that program . . . is not a 'Bil[l]for raising Revenue' within the meaning of the Origination Clause." Id.
Celpage points out that the Congressional Budget Office hastreated universal service fund contributions as federal revenues. But how the government classifies a program for accounting purposesdoes not resolve whether the funds are used for a specific programor for general revenues. Indeed, the Court in Munoz-Flores upheldthe special assessment even though the excess money collected wasdeposited in the Treasury. Instead of looking at accounting designations, Munoz-Flores teaches us (1) to determine whether the fundsare "part of a particular program to provide money for that program. . . ." and (2) to establish a connection between the payors andthe beneficiaries. Munoz-Flores , 495 U.S. at 399, 400 n.7.
With one exception, (54) universal service contributions are partof a particular program supporting the expansion of, and increasedaccess to, the public institutional telecommunications network. See Order ¶ 8. Each paging carrier directly benefits from a larger andlarger network and, with that in mind, Congress designed theuniversal service scheme to exact payments from those companiesbenefiting from the provision of universal service. (55) This designprevents the sums being used to support the universal serviceprogram from being classified as "revenue" within the meaning ofthe Origination Clause.
Paging carriers are uniquely dependent on a widespread telecommunications network for the maintenance and expansion of theirbusiness. See Order ¶ 82. As in Munoz-Flores , the challengedassessment targets a group "to which some part of the expenses" ofsustaining the universal service program "can fairly beattributed." See Munoz-Flores , 495 U.S. at 400 n.7. Therefore,the application of the universal service contribution requirementto paging carriers does not transform the Act into a "bill forraising revenue" in violation of the Origination Clause. (56)
To invalidate the FCC's actions on equal protection grounds,we must find that there is no "basis for the action that bears adebatably rational relationship to a conceivable legitimate governmental end." See Reid v. Rolling Fork Pub. Util. Dist. , 979 F.2d1084, 1087 (5th Cir. 1992). This is a tough burden, and Celpagedoes not come close. Celpage argues there can be no rationalreason to include paging carriers in the universal service contribution system, because its contributions will support servicesthat do not benefit Celpage. But the FCC has offered a reasonableproposition: Paging carriers such as Celpage benefit from a largerand more universal public network system, because it increases thenumber of potential locations for paging use. Even if this proposition is wrong, as Celpage suggests, it certainly meets the verylow "debatably rational" test. (57)
(c). Taking.
Celpage advances an unconvincing takings claim. As an initialmatter, a takings claim is not ripe until a claimant hasunsuccessfully sought compensation from the state. (58) Celpage doesnot allege that it has used any of the FCC's administrativeprocedures to petition for compensation or that such procedures areso inadequate as to make resort to these procedures futile. "Toviolate the [takings] clause, the state must not only takesomeone's property but also deny him compensation." Samaad v. Cityof Dallas, 940 F.2d 925, 934 (5th Cir. 1991).
As we did in the case of GTE's challenge to the forward-looking cost methodology, we reject Celpage's takings claim as notripe for judicial review. (59)
ii. Other Challenges.
Celpage attacks the FCC's interpretation of the "equitable andnondiscriminatory" language in § 254(b)(4). To be truly equitable,Celpage asserts, the agency should not treat all carriers in thesame way for purposes of the universal service contribution system. Additionally, Celpage accuses the agency of failing to considerevidence of congressional intent, the record evidence, and otherevidence of why paging carriers should not be included in theuniversal service contribution system.
The FCC has successfully dispensed with the plain languagechallenge. First, as we have explained, the "equitable and nondiscriminatory" language in § 254(b) acts as only one of sevenguiding principles for FCC rulemaking. See supra part III.A.1.a.i. That subsection also instructs the agency that " all providers oftelecommunications services should make an equitable andnondiscriminatory contribution" to universal service. (Emphasisadded.) The language of § 254(b) directs us to give the FCC, inaddition to the usual Chevron deference, discretion here to fashiona policy that is guided by both of these principles.
Celpage also challenges the FCC's interpretation as arbitraryand capricious under the APA because it is not supported by therecord, and the agency has provided no reason why its decisionshould be made in the face of contrary record evidence. Specifically, Celpage says that the FCC failed to consider ex parte statements by legislators during the rulemaking proceedings urgingit to exclude CMRS carriers from the universal service contributionsystem. Additionally, Celpage points to evidence in the recordsupporting its position and claims the FCC failed to consider it.
To achieve reversal under the APA's arbitrary and capriciousstandard, Celpage must show that the FCC failed to "articulate[] arational relationship between the facts found and the choice made. . . ." Harris , 19 F.3d at 1096. A reviewing court tries "todetermine whether the decision was based on a consideration ofrelevant factors . . . ." Louisiana v. Verity , 853 F.2d 322, 327(5th Cir. 1988).
The record does not show that the FCC failed to consider thecounter-arguments proffered by the CMRS providers and their allies. The agency did take note of letters from Congress on behalf of CMRSproviders and from other legislators taking the opposite position. See Report to Congress ¶ 129 & n.301. Moreover, the letters onboth sides have limited persuasiveness, because they are simply"post-passage remarks" that "'represent only the personal views ofthese legislators'" and "cannot serve to the change the legislativeintent of Congress expressed before the Act's passage." RegionalReorganization Act Cases , 419 U.S. 102, 132 (1974) (quoting National Woodwork Mfrs. Ass'n v. NLRB , 386 U.S. 612, 639 n.34(1967)).
The FCC offered a reasonable justification for including CMRSproviders--this time relying on statutory language, the Joint Boardrecommendation, and the reasonable view that paging carriers doreceive benefits from the universal service system. Accordingly,the agency's interpretation may not fairly be described as "arbitrary and capricious" under the APA. (60)
iii. Implementing Universal Service Assessment Requirements.
Celpage and the CMRS Providers challenge the FCC's rules andprocedures for assessing contributions in the form of the UniversalService Worksheet. Specifically, Celpage attacks the worksheet forfailing to distinguish between billed revenues and collectedrevenues for purposes of calculating universal servicecontributions. The CMRS Providers complain that the FCC's failureto provide guidance on how to adjust for the different nature ofCMRS revenues makes the assessment system unconstitutionally vague.
We do not reach the vagueness argument, because the FCC persuasively responds that these challenges are not yet ripe forjudicial review, for the reason that the agency has made a "tentative decision." (61) Similar attacks on the Worksheet are currentlypending before the agency as petitions for reconsideration. (62) Moreover, recognizing the difficulties that the Worksheet raises,the FCC has already granted CMRS providers interim relief byallowing them to provide good-faith estimates of the figuresrequired by the Worksheet.
Thus, the agency properly asks us to defer judicial review ofits tentative decision until all administrative remedies are exhausted. In analogous situations, courts have postponed review"until relevant agency proceedings have been concluded [to] permit[] an administrative agency to develop a factual record, toapply its expertise to the record, and to avoid piecemeal appeals." See Telecommunications Research & Action Ctr. v. FCC , 750 F.2d 70,79 (D.C. Cir. 1984) (internal citations omitted).
iv. States' Collection of Universal Service Assessment from CMRS Carriers.
Celpage and the CMRS Providers make a convincing challenge incontesting the FCC's decision to permit states to impose universalservice contribution requirements on CMRS providers. They arguethat the plain language of 47 U.S.C. § 332(c)(3)(A) specificallypreempts states from doing so. Additionally, the CMRS Providerscontend that § 254(f)'s language, relied on by the FCC, does notreach CMRS providers, because they are interstate carriers.
(a) Plain Language of § 332(c)(3)(A).
Celpage and the CMRS Providers argue that in § 332(c)(3)(A),"Congress has spoken to the precise question at issue," the abilityof states to assess CMRS providers for universal servicecontributions. See Chevron , 467 U.S. at 842. Therefore, theyargue that the FCC's interpretation deserves no deference. Theplain language of § 332(c)(3)(A) does seem to apply to the issue athand:
Notwithstanding sections 152(b) and 221(b) of thistitle, no State or local government shall have any authority to regulate the entry of or the rates charged byany commercial mobile service or any private mobileservice, except that this paragraph shall not prohibit aState from regulating the other terms and conditions ofcommercial mobile services. Nothing in this subparagraphshall exempt providers of commercial mobile services(where such services are a substitute for land linetelephone exchange service for a substantial portion ofthe communications within such State) from requirementsimposed by a State commission on all providers oftelecommunications services necessary to ensure the universal availability of telecommunications service ataffordable rates.
Before we discuss the differing interpretations of the statute, we must decide on the proper standard of review. The TenthCircuit recently reviewed the FCC's interpretation of this sectionunder the second step of Chevron, because the statute does notexpressly state how we should read § 332(c)(3)(A) in relation to§ 254(f). See Sprint , 149 F.3d at 1061. This standard of reviewis inappropriate, however, because it would allow the FCC toreceive Chevron deference in almost every situation in which twosections of a statute must be read together. Indeed, the Act does contain a specific rule of statutory construction in § 601(c)(1), reprinted in 47 U.S.C. § 152 (Addendum A-1): " This Act and theamendments made by this Act shall not be construed to modify,impair or supersede Federal, State or local law unless expresslyprovided in such Act or Amendments."
Thus, we disagree with the Sprint court that the lack of aspecific provision discussing the relation between §§ 332(c)(3)(A)and 254(f) automatically triggers Chevron deference. To the contrary, § 601(c)(1) gives us explicit instruction to read § 254(f)("federal law") as not conflicting with § 332(c)(3)(A). Therefore,we conduct a Chevron step-one review and try to search out thestatute's plain meaning.
Celpage and the CMRS Providers offer this "plain common sense"reading: Assessments for universal service by state commissionsconstitute regulation of rates or entry for purposes of thestatute. The first sentence of this subsection prohibits thestates from regulating rates or entry, and therefore prohibitsuniversal service assessments, relating to CMRS providers. Thesecond sentence explains that states may impose universal servicerequirements "where such services are a substitute for land linetelephone exchange service . . . ." This plain language, Celpageand the CMRS Providers argue, expressly prohibits states fromrequiring universal service contributions from CMRS providers without first making a finding that the CMRS services in question area substitute for landline telephone service.
The FCC points to plain language that requires it to make"[e]very . . . carrier that provides intrastate telecommunicationsservice" contribute to the universal service programs as determinedby the states. See 47 U.S.C. § 254(f). It then contends that theprovisions of § 332(c)(3)(A) should not be read to trump theexpress commands of § 254(f).
The FCC finds support for its reading in the second clause ofthe first sentence of § 332(c)(3)(A). First, it concludes thatrequiring universal service contributions is neither rate nor entryregulation. See Fourth Reconsideration Order ¶ 301. It then notesthat this clause says that a state is not prohibited fromregulating "other terms and conditions of commercial mobileservices." Based on this clause alone, the FCC argues, the statesretain the ability to compel universal service contributions aslong as it does not constitute regulation of rates or entry. Thesecond sentence simply clarifies that states can also regulate"rates and entry" if they make a finding that CMRS providers aresubstituting for landline service.
The Sprint court adopted this reading of § 332(c)(3)(A) andadded another argument for the FCC's position. See Sprint ,149 F.3d at 1061. The second sentence's introductory language,"nothing in this subparagraph . . .," limits the reach of thelandline substitution requirement to § 332(c)(3)(A). Therefore,the landline substitution requirement "simply is not relevant to§ 254(f)." Id.
The petitioners argue that the FCC's reading violates themaxim of statutory construction that all language of a statute mustbe given effect. (63) According to the petitioners, if we read theclause "other terms and conditions" to enable states to imposeuniversal service requirements, then the entire second sentencewould be redundant. There would be no reason to create a statutoryrequirement for when states may impose conditions for universalservice if the "other terms and conditions" clause already allowsstates to impose universal service requirements on CMRS providers.
But the FCC persuasively responds that, under its reading, thesecond sentence clarifies the ability of states to regulate ratesand entry in the name of universal service, while the "other termsand conditions" clause opens the door to all other universal service regulation. Thus, we do not conclude, as the petitioners imply we should, that requiring universal service contributions necessarily constitutes the regulation of rates and entry. (64) Thus,under the FCC's reading, the states may generally regulate CMRSproviders as they please, but they may regulate the rates and entryof CMRS providers only when they make a finding of substitutability.
We disagree with the CMRS Providers' further argument thateven this reading, adopted in Cellular Telecomms. Indus. Ass'n v.FCC , 168 F.3d 1332 (D.C. Cir. 1999), (65) would render the second sentence redundant because the third sentence of the subsection specifically lays out the procedures under which a state can petitionfor the right to regulate CMRS rates. The FCC's reading wouldstill permit the following understanding of the statute: States(1) in general can never regulate rates and entry requirements forCMRS providers; (2) are free to regulate all other terms andconditions of CMRS service; (3) may regulate CMRS rates and entryrequirements when they have made a substitutability finding inconnection with universal service programs; and (4) may alsoregulate CMRS rates if they petition the FCC and meet certainstatutory requirements, including either substitutability or unjustmarket rates. None of the provisions would have to be read asinoperative or redundant.
Additionally, this reading would avoid conflict with § 254(f),which requires that "every telecommunications carrier" contributeto the universal service fund. This rendition of § 332(c)(3)(A)allows the FCC to give effect to the plain language of § 254(f)while not violating § 601(c)'s directive to construe the Act inways that do not "modify, impair, or supersede" federal law.
Therefore, the reading offered by Celpage and the CMRS Providers does not represent the unambiguous intent of Congress. TheFCC's reading reflects Congress's unambiguous intent as expressedin the plain language of the statute and takes into accountCongress's instruction that § 254 be construed in ways that do notconflict with other federal laws. (66) Therefore, we reject Celpageand the CMRS providers' challenges to this section of the Order.
(b) CMRS Providers as Interstate Carriers.
Celpage and the CMRS Providers raise a weak challenge to statecontribution requirements, contending that CMRS providers are"jurisdictionally interstate" and therefore exempt from stateassessments. We agree with the FCC that the plain language of§ 254(f) simply requires that "[e]very telecommunications carrierthat provides intrastate telecommunications services" contribute tostate mechanisms. As the agency found, a significant portion ofthe CMRS providers' services arise from providing intrastate telecommunications services. (67) This undeniably significant involvementof CMRS providers in the provision of intrastate service is morethan sufficient to place them within the ambit of § 254(f).
b. Determining That Interstate Carriers Must Contribute
on the Basis of Their International Revenues.
COMSAT, a small interstate carrier specializing in providinginternational telephone service, challenges the FCC's decision todefine the universal service base to include the internationalrevenues of interstate carriers. COMSAT derives such a smallportion of its revenues from interstate service that it would endup with universal payment obligations exceeding its interstaterevenues. It argues that this bizarre outcome violates § 254(d)'srequirement that all universal service contributions be "equitableand nondiscriminatory" and the FCC's own principle of competitiveneutrality. At the very least, COMSAT argues, this result showsthat the FCC's action is arbitrary and capricious.
As a threshold matter, the FCC challenges the availability ofjudicial review, because COMSAT failed to petition the agency forreconsideration, as required by § 405 of the Act. (68) COMSAT respondsthat the absence of a § 405 petition for rehearing is not a bar tojudicial review if the petitioner was a party in the rulemakingproceeding and the FCC was afforded an opportunity to rule on theissue. (69) Because COMSAT did participate in the rulemaking proceeding and did file comments (70) with the agency on this question,we agree that § 405 does not bar our review. (71)
The FCC is more persuasive when it argues that COMSAT isreally asking for consideration of its individual circumstancerather than challenging the rule as a whole. In this situation,the FCC argues that waiver is a more appropriate remedy than isjudicial review. In fact, COMSAT did file a petition for waiverbut withdrew it without explanation shortly before the FCC filedits brief in this case. COMSAT now claims to be bringing thisclaim on behalf of all international carriers in similarcircumstances, but it fails to identify any such entities andremains alone in its petition for review.
While waiver may be an appropriate remedy, the FCC cites noauthority for the proposition that consideration of a waiver isrequired before judicial review may occur, and our research hasfound no such authority. The case relied on by the FCC stands onlyfor the proposition that waiver will be allowed as long as theunderlying rule is rational. (72) We see no statutory basis fordenying judicial review on the ground that a party must first seeka waiver. Therefore, we consider the rule on its merits.
COMSAT's attack boils down to the argument that it is beingunfairly treated because it will be forced to pay more in universalservice contributions than it can generate in interstate revenues. (73) It makes a compelling argument that this result alone violates theequitable language of the statute. The FCC's response to thestatutory challenge simply states that there is nothing"inequitable" about requiring a carrier benefiting from universalservice from contributing to it.
Under this reading, however, it is difficult to know what theFCC would consider inequitable, because any carrier couldconceivably benefit from universal service. Obviously, thelanguage also refers to the fairness in the allocation ofcontribution duties. In this matter, COMSAT can show that it isbeing forced to pay more under this rule than it can generate inrevenues, yet the FCC does not find even this situation"inequitable."
Moreover, the FCC dismisses COMSAT's claim that the agency violates the "nondiscriminatory" requirement of § 254(d) simply by saying that the agency has recognized that some providers ofinternational service will be treated differently from others. Butthis recognition of discrimination hardly saves the agency from thestatutory requirement that contributions are collected on a non-discriminatory basis.
The agency falls back on its discretion, under the statute, tobalance the competing concerns set forth in § 254(b), which includethe need for sufficient revenues to support universal service. While the statute allows the FCC a considerable amount ofdiscretion, however, that discretion is not absolute. The heavyinequity the rule places on COMSAT and similarly situated carrierscannot simply be dismissed by the agency as a consequence of itsadministrative discretion.
Therefore, the agency's interpretation of "equitable and nondiscriminatory," allowing it to impose prohibitive costs on carriers such as COMSAT, is "arbitrary and capricious and manifestlycontrary to the statute." Chevron , 467 U.S. at 844. COMSAT andcarriers like it will contribute more in universal service paymentsthan they will generate from interstate service. (74) Additionally,the FCC's interpretation is "discriminatory," because the agencyconcedes that its rule damages some international carriers likeCOMSAT more than it harms others. The agency has offered no reasonable explanation of how this outcome, which will require companies such as COMSAT to incur a loss to participate in interstateservice, satisfies the statute's "equitable and nondiscriminatory"language. We therefore reverse and remand this portion of theOrder for further consideration.
6. Timing.
a. Timetable for the Implementation of
an Explicit System of Universal Service Support.
On statutory and constitutional grounds, GTE attacks the FCC'stimetable for implementation of an explicit system of universalservice support. (75) First, GTE argues that the agency's decision towait until January 1, 2000, before implementing its plan for providing explicit support for universal service violates the statutory requirements of § 254. Second, GTE asserts that the delay inimplementation results in an unconstitutional taking.
i. Statutory Language.
GTE contends that the delay in implementation violates§ 254(e) because it fails to provide "sufficient" funding to support universal service. (76) In fact, between the Order's release onMay 8, 1997, and its implementation on January 1, 2000, the FCCwill have provided no explicit support to the ILEC's, while it hasalready exposed them to outside competition. In theory, then, newentrants could begin "cherry-picking" the ILEC's' best low-cost,high-profit customers, leaving the ILEC's stuck with the high-cost,money-losing customers that are supposed to be supported by the newuniversal service subsidy system. This would erode the old implicit subsidy system before the FCC had implemented the new explicitsubsidy system.
The question is whether the statute's language plainly requires the FCC to have implemented explicit subsidies at the sametime that it issued the Order on May 8, 1997. GTE claims thestatute requires immediate implementation. But the plain languageof § 254(a)(2) requires us to reach the opposite result:
The Commission shall initiate a single proceeding to implement the recommendations from the Joint Board requiredby paragraph (1) and shall complete such proceeding within 15 months after February 8, 1996. The rulesestablished by such proceeding shall include a definitionof the services that are supported by Federal universalservice support mechanisms and a specific timetable forimplementation .
47 U.S.C. § 254(a)(2)(emphasis added).
By instructing the FCC to establish a " timetable forimplementation" by the statutory deadline, Congress assumed theimplementation process would occur over a transition period afterthe fifteen-month deadline. There is no reason to believe--and GTEdoes not offer a reason--that the instruction to establish atimetable actually means immediate implementation of the explicitsubsidy system at the statutory deadline. (77)
Not surprisingly, GTE falls back on the term "sufficient" andargues that even if the FCC may slowly implement the high-costsupport program, the statute still requires the agency to ensurethat support is sufficient during the transition period. Forreasons that we have outlined, the FCC should be accorded asubstantial amount of deference when interpreting this word. See supra part III.A.a.i.
GTE essentially asks us to hold that "sufficient" is violatedwhenever there is a change (or the possibility of a change) fromthe current levels of universal service support. The plain meaningof "sufficient" is far from unambiguous as it pertains to thetiming of the high-cost support program's implementation. Calculating how much support is sufficient to provide support foruniversal service is a judgment the FCC is better able to make thanare we, and we therefore defer to its reasonable interpretationunder Chevron step-two.
As the agency explains, the amount of competition in localmarkets depends on a number of different factors, of which theimplementation of the universal service plan is only one. To entera new market, entrants must invoke rights to interconnectionagreements under §§ 251 and 252. (78) In almost all cases, theseagreements require lengthy arbitrations by state commissions. Evenafter the completion of such arbitrations, there may be many courtchallenges. Because only competition in local markets can erodethe current implicit subsidy system to an insufficient level, theFCC made a reasonable determination that there was little chance ofsuch competition's emerging in the near future.
Where the statutory language does not explicitly commandotherwise, we defer to the agency's reasonable judgment about whatwill constitute "sufficient" support during the transition periodfrom one universal service system to another. We follow the EighthCircuit's recent holding on a similar issue: "The Commission hasmade a predictive judgment, based on evidence in the record andadequately explained in the order, that competitive pressures inthe local exchange market will not threaten universal serviceduring the interim period until the permanent, explicit universalservice support mechanisms have been fully implemented." Southwestern Bell , 153 F.3d at 537.
ii. Taking.
In some ways, GTE's takings argument is simply another versionof its contention regarding lack of "sufficient" support. On bothissues, GTE argues that the FCC's decision to leave ILEC's exposedto local competition without first implementing the new universalservice plan results in a severe reduction of its revenues fromlocal service. Relying on Brooks-Scanlon v. Railroad Comm'n ,251 U.S. 396 (1920), GTE argues that a regulated entity cannot beforced to operate one segment of its business at a loss on theexpectation that it can make up the shortfalls from anothercompetitive line of business. At the very least, GTE says, the FCCshould adopt a narrow construction of the statutory language toavoid any constitutional infirmities. (79)
The FCC responds that before a narrowing construction shouldbe considered, GTE must show that a taking will "necessarily"result from the regulatory actions. See United States v. RiversideBayview Homes , 474 U.S. 121, 128 n.5 (1985). Even if GTE can showthat some taking will result, it must demonstrate that its lossesare so significant that the "net effect" is confiscatory. SeeDuquesne , 488 U.S. at 310-16.
GTE has failed to meet the requirements of Duquesne , becauseit cannot show that it will lose any revenue at all, much lessenough to constitute a taking under more recent precedent. Itsattempt to distinguish Duquesne is misguided because, contrary toGTE's claim, the Duquesne Court did not base its finding of takingson the fact that the market was no longer closed to competition.
Rather, Duquesne stands for the proposition that "no singleratemaking methodology is mandated by the Constitution, which looksto the consequences a governmental authority produces rather thanthe techniques it employs." Duquesne , 488 U.S. at 299 (Scalia, J.,concurring). Duquesne does not require courts to engage in atakings analysis whenever an agency opens a previously regulatedmarket to competition. Further, as we explained in sustaining theforward-cost looking methodology, GTE's reliance on Brooks-Scanlon is misplaced, because we will not apply the rule in that case totransitional or temporary periods. See Continental Airlines ,784 F.2d at 1251.
b. Access Charges at Forward-looking Cost Levels
as Soon as Cost Models Are Available.
MCI asks the FCC to reduce access charges--the fees charged byILEC's on interstate calls--to the forward-looking cost level usedby the agency to calculate support for high-cost areas. Under theFCC's plan, ILEC's will be required to reduce their access chargesby the amount they receive in the form of explicit universalservice subsidies. MCI argues that by permitting the ILEC's toretain the amount of access charge revenue above cost, the FCC hasviolated its statutory mandate to eliminate implicit subsidies whenit implements the new universal service plan.
This argument differs from GTE's assertions. While GTE seeksimmediate implementation of the explicit subsidy program, MCI seeksto include the elimination of implicit subsidies within the rubricof the explicit subsidy program. In fact, GTE's fear that implicitsubsidies will be eroded during the transition period is preciselythe goal of MCI's intervention. Because GTE does not seek theelimination of the implicit subsidies, it is making an argument different from MCI's.
For this reason, we agree with the FCC that MCI cannotproperly intervene on this issue, because none of the petitionersraised the same challenges to the Order. In United Gas Pipe Line ,824 F.2d at 437, we held that "intervenors may not challengeaspects of the Commission's orders not raised in the petitions forreview." Because MCI's challenge does not raise an issue broughtup by any of the petitioners, we do not consider its arguments onappeal, but follow the District of Columbia Circuit and decline togrant intervenor standing in a situation in which "we could grant[the intervenor] the full relief it seeks while rejecting all ofthe petitioners' challenges, and vice versa." Illinois Bell Tel.Co. v. FCC , 911 F.2d 776, 786 (D.C. Cir. 1990). (80)
c. Plan for Transition to a New Universal Service System
For Rural, Insular, and High-cost Areas.
The FCC's transition plan for its new explicit subsidy universal support system does not immediately apply to all ILEC's. All carriers eligible for universal service support will becomepart of the new system on January 1, 2000. Small rural carriers,however, will not be required to move into the new system until2001 at the earliest. See Order ¶ 204. Specifically, the agency(1) has exempted rural carriers, defined as those carriers servingstudy areas of less than 100,000 lines, from the new forward-looking cost methodology until at least January 1, 2001, (81) and(2) has allowed carriers with 200,000 or fewer working loops perstudy area to continue recovering extra support from the high-costfund until implementation of the new methodology on January 1,2000. See Order § 210.
i. Establishing a Longer Transition Period
for Rural Carriers with fewer than 100,000 lines.
Vermont (82) attacks the small rural carrier exemption because itdoes not permit large carriers who happen to serve rural areas thesame delayed transitional treatment that rural carriers with studyareas of less than 100,000 lines will receive. Vermont argues thatthere is no statutory or reasonable basis for distinguishing amongrural carriers simply because of their size. For example, censusstatistics show that Vermont has more residents living in ruralareas than does any other state, yet its carrier, Bell Atlantic,does not qualify for the same treatment as do other rural carriersas defined by the FCC's 100,000-line distinctions.
Vermont does not point to any statutory authority for itsclaim that the FCC must give all rural carriers the same treatmentunder the plan. Instead, it simply argues there is no good reasonto treat Bell Atlantic differently from other rural carriers. Forthese reasons, it asks us to reverse on arbitrary-and-capriciousgrounds under the APA.
A statute survives judicial scrutiny under the APA's"arbitrary and capricious" standard as long as the agency"articulates a rational relationship between the facts found andthe choice made" and "so long as the agency gave at least minimalconsideration to relevant facts contained in the record." Harris, 19 F.3d at 1096. The FCC provides at least two reasons thatarticulate such a "rational relationship."
First, because the agency delayed the transition for ruralcarriers on the ground that its cost models for small carriers wereinadequate, it was reasonable to treat Bell Atlantic differently. After all, Bell Atlantic is a large ILEC for which the FCC doeshave cost models. Second, the FCC justifies its delay for smallrural carriers because it has found that they will have greaterdifficulty adjusting to a new system. Again, such a finding wouldnot apply to Bell Atlantic. These reasons suffice.
ii. Continuing Application of Existing High-cost Rules
until the New Universal Service system Takes Effect.
Vermont (83) challenges the decision to maintain extra support forILEC's with study areas of 200,000 or fewer loops until the newmethodology is implemented on January 1, 2000. In other words, byexempting carriers with 200,000 or fewer lines from the new high-cost support methodology, the FCC again decided to give extra support to smaller carriers, in this case defined as those carrierswith study areas containing 200,000 or fewer loops. As it did inchallenging the 100,000 line distinction, Vermont asserts that thedistinction is arbitrary and capricious because the FCC ignoresevidence that size is not a reliable predictor of cost.
The FCC again argues that the 200,000-line rule istransitional, interim relief. The agency has stated that the extrasupport provided by this rule will expire when the new forward-looking cost methodology goes into effect on January 1, 2000. Itasks us to accord it the "substantial deference" it needs todevelop transitional solutions to complex regulatory problems. SeeMCI Telecomms. v. FCC , 750 F.2d 135, 140 (D.C. Cir. 1984).
In contrast to the situation involving the rural carrierexemption, the FCC has set a specific date for the end of thistransitional period: January 1, 2000. Accordingly, the agency'scommitment to a specific date for termination of the support resulting from the 200,000-loop rule makes the rule sufficientlytransitional to avoid judicial review. Therefore, for lack ofripeness, we will not review Vermont's challenge to the effects ofthe 200,000-loop distinction. (84)
B. Subsidization of Services for
Schools, Libraries, and Health Care Providers.
Section 254(h) adds a new wrinkle to the concept of universalservice by directing the FCC to provide support to elementary andsecondary schools, libraries, and health care providers. Thus, theagency has a new statutory mandate to subsidize support for certainbeneficiaries, irrespective of whether they are high-costconsumers. GTE raises objections to the agency's implementation ofthis broad statutory mandate, (85) and Cincinnati Bell and the stateschallenge the proposal to assess contributions to this new universal service fund.
1. Mandating Support for Internet Access
and Internal Connections to Schools and Libraries.
While section 254(h) plainly authorizes the FCC to supportdiscounted telecommunications services to schools and libraries,GTE finds no equivalent statutory authority to support discountedinternet access and internal connections. Therefore, GTE arguesthat the agency exceeded its statutory authority when it mandatedsupport for discounted internet services and internal connections.
Although we agree with GTE that the statute and itslegislative history do not support the FCC's interpretation, thelanguage of the statute is ambiguous enough to require deferenceunder Chevron step-two. Because, however, the FCC's decision toextend universal service support to internet access and internalconnections raises grave doubts as to whether § 254(h) creates anunconstitutional tax, we construe the statute narrowly to avoidraising these constitutional problems. (86)
The FCC concedes that internet access and internal connectionscannot be defined as "telecommunications services" for purposes ofthe section. (87) It argues, however, that the plain language of§ 254(h)(1)(B) and (c)(3) authorizes it to require discountedinternet access and internal connections to schools and libraries(but not to health care providers).
Subsection 254(h)(1)(B) requires all telecommunications providers to provide to elementary schools, secondary schools, andlibraries, on request, discounted services "that are within thedefinition of universal service under subsection (c)(3) of thissection." Subsection (c)(3) authorizes the FCC to designate"additional services for such support mechanisms for schools,libraries, and health care providers for the purposes of subsection (h) of this section." These "additional services" are "[i]naddition to services included in the definition of universal service under paragraph (1)," which defines universal service as an"evolving level of telecommunications services."
The FCC points out that there is no language restricting these"additional" services to telecommunications services. Furthermore,Congress used the limiting term "telecommunications services" in§ 254(h)(1)(A) when discussing the provision of universal servicesupport for rural health care providers. The agency argues that"the varying uses of the terms 'telecommunications services' and'services' in § 254(h)(1)(A) and (B) suggests that the terms wereused consciously to signify different meanings." Order ¶ 439. Therefore, the FCC concluded that the term "additional services" isnot limited to telecommunications services. It then decided that,based on the legislative history and its understanding of thepurposes of the statute, it should require internet access andinternal connections (88) support for schools and libraries.
We first consider whether the FCC's interpretation conflictswith the plain language of § 254(h)(1)(B) and (c)(3). Although the best reading of the statute does not authorize the agency'sactions, we find the statute sufficiently ambiguous to invoke step-two of Chevron .
The statute restricts the FCC's authority to interpret thephrase "additional services" in subsection (c)(3) to "the purposesof subsection (h) of this section." The use of the phrase"telecommunications services" in the title of § 254(h) indicatesthat the "purposes of subsection (h)" are to provide discountedsupport for telecommunications services . (89)
We find further support for this reading in the legislativehistory of § 254(h): "New subsection (h) of section 254 isintended to ensure that health care providers for rural areas,elementary and secondary school classrooms, and libraries have affordable access to modern telecommunications services . . . ." (90) The House Conference Report also elaborates on the interactionbetween subsections (h)(1)(B) and (c)(3):
New section (h)(1)(B) requires that anytelecommunications carrier shall, upon a bona fiderequest, provide services for educational purposesincluded in the definition of universal service under newsubsection (c)(3) for elementary and secondary schoolsand libraries at rates that are less than the amountscharged for similar services to other parties, and arenecessary to ensure affordable access to and use of such telecommunications services . (91)
And while the legislative history of subsection (c)(3) supportsgiving the FCC discretion when designating services for schools andlibraries, it nevertheless describes the subsection (c)(3) definition as "applicable only to public institutional telecommunications users." (92) This language provides more evidencethat Congress intended that the FCC designate additional telecommunications services under subsection (c)(3) rather than anyadditional services that the agency deems desirable.
Indeed, the agency's broad reading of "additional services"would mean that the use of the word "services" in other parts of§ 254(c) could be broadened to include non-telecommunicationsservices. For instance, § 254(c)(2) authorizes the Joint Board torecommend modifications to the definition of "services." Under theFCC's interpretation, the Joint Board (composed of statetelecommunications regulators and members of the FCC) could be freeto redefine "services" to include services unrelated totelecommunications. This result is an implausible reading ofCongress's intent. (93)
This is not the end of the analysis, however, because someaspects of the statute's language and legislative history also support the FCC's reading. First, the plain language of § 254(c)(1)invites the FCC periodically to re-define "universal service" to"tak[e] into account advances in telecommunications and informationtechnologies and services." Moreover, the "purposes of subsection (h)" language in subsection (c)(3) could include more than the"telecommunications services" referred to in § 254(h)'s sectionheading. After all, subsection (h)(2)(A), which is also one of the"purposes of subsection (h)," instructs the FCC to establish competitively neutral rules to "enhance . . . access to advanced telecommunications and information services . . . ."
Finally, some of the legislative history implies that Congressintended for subsection(h) to support internet access:
[T]he provisions of subsection (h) will help open newworlds of knowledge, learning and education to allAmericans--rich and poor, rural and urban. They areintended, for example, to provide the ability to browselibrary collections, review the collections of museums,or find new information on the treatment of an illness,to Americans everywhere via schools and libraries. (94)
The reference to "brows[ing] library collections" indicates that indrafting subsection (h), Congress envisioned some kind of supportfor internet access.
The best reading of the relevant statutory languagenonetheless indicates that the FCC exceeded its authority bymandating discounts for internet access and internal connections. The statutory invitation in subsection (c)(1) to "re-define"universal service to include information services does notnecessarily relate to the FCC's authority under subsection (c)(3).
Additionally, subsection (h)(2)(A) provides the agency onlywith authority to "establish competitively neutral rules to enhanceaccess" to information services. It does not contain specificlanguage supporting provision of such services "at rates less thanthe amounts charged for similar services to other parties," as insubsection (h)(1)(B). And finally, the legislative history doesnot indicate whether Congress thought the statute would enhanceaccess to internet services through discounts on telecommunicationsservices or, instead, through direct subsidies for internet access. Even though GTE has offered a persuasive reading of the statute, its plain language does not make Congress's intentsufficiently "unambiguous" for Chevron step-one review. Therefore,we defer to the FCC's interpretation under Chevron step-two andaffirm those aspects of the Order providing internet services andinternal connections to schools and libraries. (95)
2. Authority To Provide Support Payments
to Non-telecommunications Entities That Provide Internet Access
and Internal Connections to Schools and Libraries.
The FCC invokes its rulemaking power under § 254(h)(2)(A) and its "necessary and proper" authority under § 154(i) to provide support payments to non-telecommunications entities that provide internet access and internal connections to schools and libraries. GTE attacks this decision as violating the express intent of Congress as read through the plain language of the statute.
The FCC does not argue that any specific provision of thestatute authorizes it to add non-telecommunications companies tothe universal service payment system. Rather, it avers that(1) the statute gives it broad authority to establish competitivelyneutral rules; (2) the statute does not speak directly to the issueof non-telecommunications providers; and (3) the statute's silenceindicates that the agency should receive Chevron deference.
GTE relies on the traditional maxim of statutory construction," expressio unius est exclusio alterius ." (96) GTE points out that§ 254(h)(1)(B) already discusses how carriers will be reimbursedfor providing discounted services: "[a] telecommunications carrierproviding service under this paragraph . . . ." According to GTE,Congress's choice of the phrase "telecommunications carrier"precludes the FCC from providing those same payments to non-telecommunications carriers.
We conclude that the combination of the FCC's "necessary andproper" authority under § 154(i) and the limited usefulness of the expressio unius doctrine in the administrative context permit theFCC to expand the reach of universal support to non-telecommunications carriers. While courts have rightly warnedagainst using silence in a statute to give "agencies virtuallylimitless hegemony," (97) we are convinced that Congress intended toallow the FCC broad authority to implement this section of the Act.
In Iowa Utilities Board , the Eighth Circuit offered this explanation of the reach of § 154(i) in denying the FCC jurisdictionover the pricing of local telephone service: "[Section 154(i)]merely suppl[ies] the FCC with ancillary authority to issue regulations that may be necessary to fulfill its primary directivescontained elsewhere in the statute. [It does not] confer[] additional substantive authority." 120 F.3d at 795. In this matter,however, the FCC is not asserting additional substantive authority,as it tried to do in Iowa Utilities . It is not assertingadditional jurisdictional authority, but, rather, is issuing aregulation "necessary to fulfill its primary directives."
The agency's primary directive is to "enhance access toadvanced telecommunications and information services" for schoolsand libraries. See § 254(h)(2)(A). It is taking modest steps toensure that Congress's instructions on expanding universal servicein the form of internet access and internal connections will not befrustrated by local monopolies. (98) For these reasons, we affirm thedecision to permit support of non-telecommunications carriersproviding internet access and internal connections to schools andlibraries.
3. Encroaching on State Authority To Set Discount Rates
for Intrastate Services to Schools and Libraries.
Section 254(h)(1)(B) divides the regulation of discount rateson services offered to schools and libraries between the FCC andthe states. "The discount shall be an amount that the Commission,with respect to interstate services, and the States, with respectto intrastate services, determine is appropriate and necessary toensure affordable access to and use of such services by suchentities." § 254(h)(1)(B).
The FCC has decided to offer federal universal service fundsto help support the intrastate rate discounts. Predictably, theagency has conditioned such funding on the states' "establish[ing]intrastate discounts at least equal to the discounts on interstateservices." Order ¶ 550. GTE challenges this condition as an encroachment on the states' statutory right to "determine [what is]appropriate and necessary to ensure affordable access."
GTE has failed to point to any statutory or other authorityprohibiting the FCC's condition for funding. States are free torefuse federal support for intrastate discounts and, therefore,remain free to determine what is "appropriate and necessary," consistent with the plain language of the statute. In the TenthAmendment context, this court has refused to view similar federalconditional grants as "equivalent to coercion." See Texas v.United States , 106 F.3d 661, 666 (5th Cir. 1997). Without expressstatutory language prohibiting such a practice, we reject GTE'schallenge to the FCC's funding conditions.
4. Exercising Authority in Deciding That Schools and Libraries Can ObtainDiscounts on All Commercially Available Telecommunications Services.
The FCC has also decided that, pursuant to its authority under§ 254(c)(3), it will allow schools and libraries to obtain supported discounts on all commercially available telecommunicationsservices. The agency believes that this approach will maximize schools' and libraries' flexibility to purchase whatever package ofservices they need.
GTE challenges the agency's statutory authority to refuse tolimit the types of services that will be available for support. Itcontends that the plain language of § 254(c)(3) requires the FCC to"designate" which telecommunications services will receive universal service support and which telecommunications services will not. The key to GTE's argument is the meaning of "designate."
According to GTE, "designate" denotes some action of specificselection. The standard dictionary definition of "designate" includes "to distinguish as to class" and "to indicate and set apartfor a specific purpose, office, or duty." Merriam-Webster's CollegiateDictionary 313 (10th ed. 1994). GTE claims that by using the word"designate," Congress instructed the FCC to "indicate and setapart" which services may receive support under § 254(h). GTE alsofinds support in the legislative history, which says the FCC should"take into account the particular needs of . . . schools and libraries." (99)
We disagree with GTE that the plain-meaning understanding of"designate" demonstrates Congress's unambiguous intent to requirethe FCC to specify which services will be supported. By using theword "designate," Congress also could have meant for the agency toauthorize a broad class of services. Thus, by "designating" allcommercially available telecommunications service, the FCC can besaid to have "designated" which services may be supported. Forthis reason, the designation "commercially availabletelecommunications services" does not violate the plain meaning ofthe statute under Chevron step-one.
Under Chevron step-two, the FCC has reasonably concluded thatit can fulfill its statutory duty to "designate" while givingschools and libraries the maximum flexibility to choose whichservices they need. It is not unreasonable for the FCC to concludethat it could best "take into account . . .the particular needs" ofschools and libraries by allowing support for all commerciallyavailable telecommunications services. (100) Because Congress's use of"designate" in subsection (c)(3) does not unambiguously require theFCC to limit which services may be supported, and because the FCC'sdecision is reasonable under Chevron step-two, we reject GTE'srequest and affirm the decision to allow schools and libraries toobtain support for all "commercially available telecommunicationsservices."
5. Authority To Subsidize Toll-Free Telephone Calls
to Internet Service Providers by Non-rural Health Care Providers.
Congress directed the FCC to provide universal service supportfor "any public or nonprofit health provider that serves personswho reside in rural areas." § 254(h)(1)(A). Congress also instructed the agency "to enhance, to the extent technically feasibleand economically reasonable, access to advanced telecommunicationsand information services for all public and nonprofit . . . healthcare providers." The FCC has seized on the more general languagein the second provision as authority for subsidizing telephonecalls to internet service providers by both rural and non-ruralhealth care providers.
GTE advances an argument based on the expressio unius canon. Because the first provision gives specific instructions on providing subsidized support for health care providers and explicitlylimits that support to rural health care providers, GTE argues thatthe FCC has no statutory authority to expand such support to non-rural health care providers. In the agency's view, Congress couldhave extended support to non-rural providers, but chose not to. This signifies a Congressional decision that the FCC shouldrespect.
The FCC responds that the expressio unius canon should notresolve a question of statutory interpretation in an administrativelaw context. Additionally, it argues that § 254(h)(2)(A) obligates the FCC to "enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications andinformation services."
We do not read § 254(h)(2)(A)'s "enhancing" language to require the FCC to act as it did here. But, we conclude that thelanguage in § 254(h)(2)(A) demonstrates Congress's intent to authorize expanding support to "advanced services," when possible,for non-rural health providers.
GTE has already established that § 254(h)(1)(A) requires support for telecommunications service to rural health care providersonly. We can then read § 254(h)(2)(A) as an instruction to the FCCto work to support "advanced services" for non-rural health careproviders when "economically reasonable." Importantly, the FCC'splan does not extend, to non-rural health providers, the same telecommunications discounts enjoyed by § 254(h)(1)(A) rural healthproviders. Rather, the agency chose to support access (throughsubsidized telephone calls) to an "advanced . . . informationservice" (an internet service provider), finding that this subsidywas "economically reasonable" and "technically feasible." Order¶ 748.
The FCC has found a way to "enhance access," as authorized bythe plain language of § 254(h)(2)(A), so we affirm this portion ofthe Order.
6. Contribution System To Provide Universal Service Funding
for Schools, Libraries, and Rural Health Providers.
The FCC decided to fund the universal support mechanisms forschools, libraries, and rural health care providers by "assessingboth the interstate and intrastate revenues of providers ofinterstate telecommunications services." Order ¶ 808. The uncertainty of state support for the new § 254(h) subsidies and otherfinancial considerations, according to the FCC, justifies assessingboth the intrastate and interstate revenues of interstate carriers.
Cincinnati Bell ("CBT"), a small carrier with a mostlyintrastate revenue base, attacks the decision as a violation of§ 2(b)'s prohibition on federal regulation of intrastate services. The states challenge the FCC's related assertion that it has theauthority to require carriers to recover their intrastatecontributions from the states.
a. Authority To Assess Contributions on the
Combined Interstate and Intrastate Revenues of Carriers
That Provide Interstate Telecommunications Services.
Along the same lines as Bell Atlantic's challenge to the "nodisconnect" rule, CBT argues that the FCC's decision to assessintrastate revenues exceeds its jurisdiction, in violation of thestill-intact Louisiana PSC reading of § 2(b). CBT contends thatunlike the provisions considered in Iowa Utilities , § 254 does not"apply" to intrastate matters in a sufficiently unambiguouslymanner so as to confer federal jurisdiction.
As we have discussed, we understand § 2(b) to serve as both arule of statutory construction in considering whether a provisionapplies to intrastate matters and as a jurisdictional fence againstassertions of the FCC's ancillary jurisdiction. See IowaUtilities , 119 S. Ct. at 731. Like Bell Atlantic, CBT is using §2(b) to challenge the FCC's construction of § 254 to apply tointrastate ratemaking.
The FCC's first defense denies that its actions evenconstitute a "regulation" that would fall under the rule ofstatutory construction created by § 2(b) and Louisiana PSC. Theagency argues that simply factoring intrastate revenues intocalculations of universal service contributions does not constituteregulation of those services. The FCC has used both intrastate andinterstate revenues as a basis for imposing accounting obligationsor tariff requirements in other contexts without any court'sfinding § 2(b) violations. Additionally, the FCC has stated thatcarriers may recover their contributions only from interstate rates. The agency believes this last requirement will prevent itscontribution requirements from improperly affecting intrastaterates.
Despite the persuasiveness of this argument, we conclude that§ 2(b)'s broad language encompasses the FCC's decision to assessintrastate revenues. The plain language of § 2(b) discusses"jurisdiction with respect to . . . charges, classifications,practices, services, facilities, or regulations for or inconnection with intrastate communication service . . . ." We agreewith CBT that the inclusion of intrastate revenues in thecalculation of universal service contributions easily constitutesa "charge . . . in connection with intrastate communicationservice."
The plain language of § 2(b) directs courts to consider FCCjurisdiction over a very broad swathe of intrastate services. Wedecline to exempt the FCC's assessment of intrastate revenues fromthe ambit of § 2(b). (101)
The FCC then contends that § 254 does apply to intrastate matters, because it unambiguously authorizes the agency to developuniversal service mechanisms that are sufficient to support bothinterstate and intrastate service. In support of this assertion,the agency points to § 254(d)'s requirement that "[e]verytelecommunications carrier that provides interstatetelecommunications services shall contribute . . . to the specific,predictable, and sufficient mechanisms established by theCommission to preserve and advance universal service." The FCCthen compares this language to § 254(f), which allows states toadopt universal service regulations as long as they do not "rely onor burden Federal universal service support mechanisms." Thislanguage, the FCC claims, shows that Congress intended for it tobear the primary responsibility for ensuring the sufficiency ofuniversal service for both interstate and intrastate services.
These two provisions do not reflect enough of an unambiguousgrant of authority to overcome the presumption established by§ 2(b). While, under Chevron step-two, we usually give the agencydeference in its interpretation of ambiguous statutory language,the Supreme Court continues to require the agency to overcome the§ 2(b) statutory presumption with unambiguous language showing thatthe statute applies to intrastate matters. See Iowa Utilities ,119 S. Ct. at 731.
While the text of the statute does not impose any limitationon how universal service will be funded, it also does notexplicitly state that the FCC has the responsibility to fundintrastate universal services. The agency seeks authority "in thebroad language" of the statute, but "we do not find the meaning ofthe section so unambiguous or straightforward as to override thecommand of § 152(b)." See Iowa Utilities , 119 S. Ct. at 731(quoting Louisiana PSC , 476 U.S. at 377).
Without a finding that § 254 applies, the FCC has no otherbasis to assert jurisdiction, because Iowa Utilities explicitlyprohibits FCC jurisdiction over intrastate matters stemming fromthe agency's plenary powers. See id. Therefore, we reverse thatportion of the Order that includes intrastate revenues in thecalculation of universal service contributions.
b. Authority To Refer Carriers to the States
To Seek Recovery of Intrastate Contributions.
Though it stated that it had "the authority to refer carriersto the states to seek authority to recover a portion of theirintrastate contribution from intrastate rates," Order ¶ 818, theFCC also declined to exercise this authority. Instead, it directedcarriers to recover their contributions from interstate revenuesonly.
The states and CBT challenge this assertion of authority onthe same grounds they question the inclusion of intrastate revenuesfor universal service contributions. Because the FCC bases itsauthority on the same provisions it cited on that issue, ourdecision to deny the agency jurisdiction on that question appliesequally to the its claim of authority to assess intrastate rates.
The FCC also raises a prudential defense, arguing that becauseit has not chosen to exercise its authority, the issue is not yetripe for judicial review. Additionally, the agency argues thatboth petitioners lack standing. We do not accept either of theseprudential defenses.
i. Ripeness.
Conceding that the FCC has not yet acted on its decision toassert authority over intrastate services, the states reject theagency's ripeness claim because the "question presented is purelylegal." See New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans , 833 F.2d 583, 587 (5th Cir. 1987). (102) Pointing also to Pacific Gas & Elec. Co. v. State Energy Resources Conservation &Dev. Comm'n , 461 U.S. 190 (1983), the states argue that when theFCC has asserted its authority in a final decision on a legalquestion such as its jurisdiction over intrastate rates, "one doesnot have to await the ultimate impact of the threatened injury toobtain preventive relief." See id. at 201.
This issue is ripe for judicial review. The two factors forconsidering ripeness--fitness for judicial decision and hardship tothe parties--support our consideration of this question. Courtsshould be able to resolve a question such as jurisdiction andauthority under the Act. Additionally, the states already haveshown one example of the harm in withholding review. For instance,MCI, in the face of state opposition, has already begun billingsome customers based on revenue from intrastate calls. (103)
ii. Standing.
The FCC's standing defense has even less merit. First, stateshave a sovereign interest in "the power to create and enforce alegal code." See Alfred L. Snapp & Son, Inc. v. Puerto Rico ,458 U.S. 592, 601 (1982). Moreover, the FCC's refusal to exerciseits declared authority does not deprive states of standing. Thestates point out that the District of Columbia Circuit will notfind a lack of standing simply because an agency has refused toenforce its own regulations. See Alaska v. United States Dep't ofTransp. , 868 F.2d 441, 444 (D.C. Cir. 1989). For the same reasons,we also reject the FCC's standing defense.
iii. Merits.
Having disposed of the FCC's prudential defenses, we reverseits claim that it can refer these carriers to the states forrecovery of those contributions. This is for the same reasons thatwe reject the agency's assertions of jurisdiction to assessintrastate revenues for contributions. The FCC has failed to pointto any statutory authority that explicitly demonstrates how § 254applies to intrastate universal service. Therefore, we deny theagency's claim of jurisdiction and reverse this portion of theOrder. (104)
IV. Conclusion.
It is difficult to disagree with the Supreme Court'sassessment that the Act is "a model of ambiguity or indeed evenself-contradiction." Iowa Utilities , 119 S. Ct. at 738. As theCourt notes, Congress realizes that many of these ambiguities willbe resolved by the FCC during its implementation of the statute,and we, like the Court, generally defer to the agency'sinterpretation of the sometimes-mysterious sections. See Chevron ,467 U.S. at 842-43. In this case, we have done so, and we affirmmost aspects of the Order implementing the universal serviceprogram and dismiss challenges to several parts of the Order asmoot.
Still, our deferential approach does not require us to affirmthe FCC in every circumstance. In particular, the agency exceededits statutory authority in (1) prohibiting the states from imposingeligibility requirements and (2) requiring ILEC's to recover theircontributions from access charges. Applying the Court's mostrecent pronouncements on the Act, we also deny the FCC jurisdictionover state control of local service disconnections and universalservice contributions based on intrastate revenues. We remand onepetition to the agency for reconsideration, so it can reconsiderthe propriety of assessing the international revenues of interstatecarriers.
For the reasons stated, the petitions for review are GRANTEDIN PART and DENIED IN PART. The May 8, 1997, Universal ServiceOrder is AFFIRMED in part, REMANDED in part, and REVERSED in part, in accordance with this opinion.
1.
1
Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (to becodified as amended in scattered sections of title 47, United States Code).
2.
2
3.
3
4.
4
On the same day it issued the Order, the FCC released the Access ChargeOrder. Access charges are the charges assessed between local exchange companies(LEC's) and interexchange companies (IXC's) for the use of one network by callers from the other network. Challenges to this order were also consolidatedbefore the Eighth Circuit.
See
Southwestern Bell Tel. Co. v. FCC
, 153 F.3d 523(8th Cir. 1998).
5.
5
now consider those challenges to the prior revenue-based methodology moot.
See
infra
part III.A.1.b.
6.
6
The Joint Board, however, recommended that the FCC scrap the 25%/75%division of responsibility in favor of a more flexible plan of allocation.
SeeSecond Recommended Decision
¶¶ 4-5, 41-46. The FCC
accepted the Joint Board'srecommendation and eliminated the 25/75 rule on May 27, 1999, thereby mooting theissue for this court.
See
infra
part III.A.1.c.
See also
Seventh Report and Order
¶ 3 ("We explicitly reconsider and repudiate any suggestion in the
FirstReport and Order
that federal support should be limited to 25 percent of thedifference between the benchmark and forward-looking cost estimates . . . .").
7.
7
8.
8
9.
9
We review the states' challenge to the FCC's claim of jurisdictionalauthority over intrastate rates in the context of its actions regarding supportof the § 254(h) programs, but we also discuss its implications for FCCjurisdictional authority for support of high-cost programs.
See infra
, partIII.B.5.
10.
10
11.
11
But the FCC did not modify other portions of the Order, including its useof forward-looking cost models. See Seventh Report and Order ¶ 48. We agreewith GTE that the mere existence of a Joint Board recommendation does not permitthe FCC to block all judicial review of its high-cost methodology, especiallyafter the agency has issued its order implementing these recommendations.
The Supreme Court has consistently endorsed judicial review of final agencyactions. "Although . . . the FCC regulation could properly be characterized asa statement only of intentions, the Court held that 'such regulations have theforce of law before their sanctions are invoked as well as after. When, as here,they are promulgated by order of the Commission and the expected conformity tothem causes injury cognizable by a court of equity, they are appropriately thesubject of attack . . . .'" Abbott Lab. v. Gardner , 387 U.S. 136, 150 (1967)(quoting Columbia Broadcasting Sys. v. United States , 316 U.S. 407, 418-19(1942)).
Additionally, we consider four factors when evaluating a claim of lack ofripeness in the administrative context: (1) whether the issues are purely legal;(2) whether the issues are based on a final agency action; (3) whether thecontroversy has a direct and immediate impact on the plaintiff; and (4) whetherthe litigation will expedite, rather than delay or impede, effective enforcementby the agency. See Dresser Indus. v. United States , 596 F.2d 1231, 1235 (5thCir. 1979). To find a case ripe, we require the party bringing the challenge(here, GTE) to establish all four factors in seeking judicial review. SeeMerchants Fast Motor Lines, Inc. v. Interstate Commerce Comm'n , 5 F.3d 911, 920(5th Cir. 1993).
The FCC does not claim that the issues presented are not purely legal, andwe have already explained why, under Abbott Laboratories , the Order remains afinal agency action. There is no indication that the petitioners are currentlyunaffected by the legal force of the Order. Finally, we agree with GTE that
because the FCC has had ample time (three years) and opportunity to implement theOrder, judicial guidance on the legality of the Order will not delay or impedethe agency's ability to carry out its statutory duties.
12.
12
Most importantly, the Brandeis criticism of "fair value" has neverreflected the view of a majority of the Court, which on several occasions hasdeclined to adopt Justice Brandeis's views on this question. See Federal PowerComm'n v. Texaco Inc., 417 U.S. 380 (1974); Federal Power Comm'n v. Hope NaturalGas Co. , 320 U.S. 591 (1944). Instead, the Court consistently has refused to"designat[e] [] a single theory of ratemaking [that] would unnecessarilyforeclose alternatives which could benefit both consumers and investors." Duquesne Light Co. v. Barasch , 488 U.S. 299, 316 (1989).
In fact, the Court has explicitly sustained similar cost models not basedon historical costs.
See Mobil Oil Exploration & Producing Southeast Inc. v.United Distrib. Cos.,
498 U.S. 211, 224-25 n.5 (1991) (indicating that similarnon-historical based cost model was not arbitrary, capricious, or manifestlycontrary to the statute at issue.).
13.
13
14.
14
Unlike the situation in
Brooks-Scanlon
, the circumstance here is that theregulatory entity setting the rules, the FCC, is not requiring the ILEC's toremain open or to charge low rates, thereby forcing them to operate at apermanent loss.
See Continental Airlines v. Dole
, 784 F.2d 1245, 1251 (5th Cir.1986) (distinguishing
Brooks-Scanlon
where agency required loss-making operationfor a limited time only).
15.
15
We still retain jurisdiction to the extent that the new order changes oraffects the Order that is the subject of this consolidated proceeding. As weexplain below, the FCC's repudiation of its revenue benchmarks and the 25%allocation moot the petitioners' challenges for purposes of this appeal. Petitioners, however, are not precluded, by our dismissal in this proceeding, fromfiling appeals of the new cost-based benchmark and the new allocation methodology
in another proceeding.
16.
16
Mootness goes to the heart of our jurisdiction under Article III of theConstitution. Therefore, we must consider mootness even if the parties do notraise it, because "resolution of this question is essential if federal courts areto function within their constitutional spheres of authority."
North Carolinav. Rice
, 404 U.S. 244, 245 (1971).
17.
17
Only the first and second exceptions are arguably applicable to the FCC'snew order, and we do not think either exception applies. The "repetition"exception will not apply unless there is a reasonable expectation that the samelitigant will again be subjected to the same action.
See DeFunis v. Odegaard
,416 U.S. 312, 315-17 (1974) (mooting student's lawsuit because he will graduateregardless of outcome of litigation). The second exception requires a showingthat the challenged conduct will resume. There is little basis for suggestingthat the FCC, after a long and torturous process involving a recommendation fromthe Joint Board and months of deliberation, will reverse itself on the questionof revenue benchmarks.
18.
18
19.
19
20.
20
In this case, the FCC's new order not only alters, but explicitly repudiates, the reasoning behind its use of revenues in calculating the benchmark. All of the petitioners' challenges to the benchmark calculations focused on theunreliability or unfairness of such revenue-based calculations. By eliminatingthe use of revenues , the petitioners and the FCC no longer fundamentally disagreeon the problems that revenues cause in calculating the benchmark for high-costsupport.
Thus,
Natural Resources Defense Council
does not conflict with thereasoning of
Center for Science in the Public Interest
, 727 F.2d at 1166, inwhich the court mooted a challenge after the Treasury had implemented a new,superseding regulation containing different reasoning and substantive provisionsdifferent from the challenged regulation. In both cases, the courts analyzedwhether the intervening agency action represented a substantive shift in anagency's interpretation of its statutory duties.
21.
21
22.
22
23.
23
24.
24
25.
25
26.
26
27.
27
28.
28
29.
29
A State commission shall upon its own motion or upon requestdesignate a common carrier that meets the requirements of paragraph (1) as an eligible telecommunications carrier for a servicearea designated by the State commission. Upon request andconsistent with the public interest, convenience, and necessity, theState commission may, in the case of an area served by a ruraltelephone company, and shall, in the case of all other areas,designate more than one common carrier as an eligibletelecommunications carrier for a service area designated by a Statecommission, so long as each additional requesting carrier meets therequirements of paragraph (1). Before designating an additionaleligible telecommunications carrier for an area served by a ruraltelephone company, the State commission shall find that thedesignation is in the public interest.
30.
30
31.
31
a carrier or "designate more than one carrier."
32.
32
33.
33
adopt the existing study areas of ILECs as service areas for non-ruralareas because it would create a significant barrier to entry. The FCCfurther encourages states to consider designating service areas that theILECs have not traditionally served, this limiting the ILEC advantage overnew entrants.
Order ¶ 185.
34.
34
35.
35
36.
36
services to qualifying low-income subscribers. The agency defines Lifelineservices to include single-party service, voice-grade access to the publicswitched telephone network, BTMF or its functional digital equivalent, access todirectory assistance, and toll-limitation services.
See
Order ¶ 390.
37.
37
38.
38
39.
39
40.
40
41.
41
42.
42
43.
43
44.
44
45.
45
46.
46
47.
47
48.
48
49.
49
50.
50
51.
51
52.
52
53.
53
54.
54
55.
55
See
§ 254(d) ("Every telecommunications carrier that provides interstatetelecommunications services shall contribute . . . to the . . . mechanisms established by the Commission to preserve and advance universal service."); § 254(f)("Every telecommunications carrier that provides intrastate telecommunicationsservices shall contribute . . . .").
56.
56
57.
57
58.
58
59.
59
Even if we considered Celpage's takings claim, it would fail to demonstrate how its claim comports with the three factors the Supreme Court has established to analyze a regulatory takings claim: (1) the economic impact of theregulation on the claimant;
60.
60
Celpage also challenges the FCC's ruling for violating its own principleof "competitive neutrality." Because this term has been developed by the FCC through regulation rather than through interpretation of the statute, we shouldgive the agency broad deference in applying this principle, and we can reverseonly if we find the FCC's actions "arbitrary, capricious or manifestly contraryto the statute."
Chevron
, 467 U.S. at 844. The FCC's decision to require pagingoperators to contribute to the support of a network through which their businessoperates is not so irrational or arbitrary as to merit reversal.
61.
61
See
Pub. Citizen Health Research v. Commissioner, Food & Drug Admin.
,740 F.2d 21 (D.C. Cir. 1984) (refusing to exercise judicial review over tentativeagency actions absent excessive delay or extraordinary recalcitrance).
62.
62
63.
63
64.
64
65.
65
See also Sprint Spectrum, L.P. v. State Corp. Comm'n
, 966 F. Supp. 1043(D. Kan. 1997).
66.
66
67.
67
68.
68
69.
69
70.
70
71.
71
72.
72
73.
73
COMSAT estimates that the application of the FCC's interpretation wouldrequire it to contribute more in universal service fees ($5 million) than itwould generate in interstate revenues ($3.8 million).
74.
74
75.
75
We agree with the petitioners that the challenge to the FCC's high-costsupport timetable is not "identical," for collateral estoppel purposes, to theissue raised in that case. Although the petitioners challenge the coordinationbetween implicit subsidies in the access charge system and those in the newsupport system, their challenge in this case involves a broader attack on thetiming of the entire universal service high-cost support system rather than onjust its interactions with the access charge system.
The Eighth Circuit did not consider the contention that GTE brings beforeus: that the FCC violated § 254(a) by failing to implement an "explicit" and"sufficient" universal service support system within "fifteen months" of the 1996Act's enactment. The Eighth Circuit relied on the fact that the deadline foradopting rules on universal service came after the date for adopting rules onopening the market to local competition.
See Southwestern Bell
, 153 F.3d at 537. Therefore, there was no need for that court to decide whether § 254(a) requiresfull implementation within "fifteen months" of the enactment, and GTE is notcollaterally estopped for pursuing its appeal of § 254(a) in this court.
SeeWinters
, 149 F.3d at 391 n.3 ("[U]nless prior issue sought to be precluded fromrelitigation was a 'critical or necessary part' integral to the prior judgment,collateral estoppel may not apply.").
76.
76
77.
77
78.
78
79.
79
80.
80
Unfortunately for MCI, it was not any manipulation of procedural rules bythe FCC that prevented MCI from properly raising this issue on appeal. There wasno legal reason that prevented MCI from filing a brief as a petitioner ratherthan as an intervenor. Thus, the FCC's procedural moves are irrelevant forpurposes of deciding whether MCI may properly intervene. The only question,then, is whether MCI's challenge to the Order for failing to reduce accesscharges immediately is the same as GTE's challenge to the Order for failing toimplement explicit subsidies immediately. We see no such resemblance.
81.
81
82.
82
83.
83
84.
84
85.
85
86.
86
87.
87
88.
88
"classrooms" makes such a requirement reasonable. Given that the maintenance andinstallation of regular telephone lines also is characterized as a "service," wereject GTE's attempt to distinguish "internal connections."
89.
89
90.
90
H.R. Conf. Rep. 104-458, at 132 (1996) (emphasis added)
91.
91
92.
92
93.
93
could not point out how its interpretation could be limited even to internetaccess services. For instance, the agency could not explain why satellitetelevision services or even janitorial services would not fit within its understanding of "additional services." In contrast, the plain language of § 254provides an easily recognizable limit on FCC authority by confining § 254(h)support to telecommunications services. The superiority of GTE's reading,however, does not necessarily make Congress's intent unambiguous.
94.
94
95.
95
susceptible of two constructions, by one of which grave and doubtfulconstitutional questions arise and by the other of which such questions areavoided, our duty is to adopt the latter." Jones v. United States , 119 S. Ct.1215, 1222 (1999) (internal citations omitted). This rule "has for so long beenapplied by this Court that it is beyond debate." DeBartolo, 485 U.S. at 574-75. It is also of such importance that a court will reject an agency interpretationof a statute that would ordinarily receive deference under Chevron step-two ifit believes the agency's reading raises serious constitutional doubts. Id. (construing statute narrowly to avoid First Amendment problem).
We have identified two ways in which the agency's interpretation couldraise constitutional concerns that might lead us to construe the statute morenarrowly. First, the FCC's application of the universal service fund for non-telecommunications services could constitute an improperly delegated tax. Second, its interpretation of the reach of § 254(h)(1)(B) could have transformedthe Act into a "bil[l] for raising revenue" in violation of the OriginationClause.
Though it is a close question, we conclude that the FCC's interpretationdoes not raise sufficiently serious constitutional doubts to override our normal
Chevron
step-two deference. While the relationship between internet services andthe public telecommunications network is more attenuated than is that of pagingservices,
see
supra
part III.A.5.a, we are not convinced that even this attenuated relationship raises serious doubts under
Munoz-Flores
. For similar reasons, this attenuated relationship does not raise serious doubts as to whetherthe FCC's interpretation makes the assessment an improperly delegated tax.
SeeRural Tel. Coalition v. FCC
, 838 F.2d 1307, 1314 (D.C. Cir. 1988) (rejectingunconstitutional tax challenge to universal service support allocation finding).
96.
96
97.
97
98.
98
99.
99
100.
100
101.
101
If the point of § 2(b) was to protect state authority over intrastate service, allowing the FCC to assess contributions based on intrastate revenues couldcertainly affect carriers' business decisions on how much intrastate service toprovide or what kind it can afford to provide. This federal influence overintrastate services is precisely the type of intervention that § 2(b) is designedto prevent.
102.
102
103.
103
104.
104