Alenco Communications v. FCC

Decision Date25 January 2000
Docket NumberCOMPANY-MASSACHUSETTS,COMPANY-MINNESOTA,NORTH-EASTERN,COMPANY-NORTH,No. 98-60213,MID-IOWA,COMPANY-NEW,COMPANY-PENNSYLVANIA,COMPANY-NEBRASKA,YUKON-WALTZ,COMPANY-OHIO,TRI-COUNTY,COMPANY-SOUTH,STOCKHOLM-STRANDBURG,RTH-EASTERN,98-60213
Citation201 F.3d 608
Parties(5th Cir. 2000) ALENCO COMMUNICATIONS, INC.; AMANA SOCIETY SERVICE COMPANY; ARROWHEAD COMMUNICATIONS CORPORATION; AYERSVILLE TELEPHONE COMPANY; BARAGA TELEPHONE COMPANY; BARRY COUNTY TELEPHONE COMPANY; BAY SPRINGS TELEPHONE COMPANY, INC.; BENTLEYVILLE TELEPHONE COMPANY; BENTON RIDGE TELEPHONE COMPANY; BLOOMINGDALE HOME TELEPHONE COMPANY; BLUE EARTH VALLEY TELEPHONE COMPANY; BRUCE TELEPHONE COMPANY; CASEY MUTUAL TELEPHONE COMPANY; CFW COMMUNICATIONS COMPANY; CITIZENS TELEPHONE COMPANY OF KECKSBURG; CITIZENS TELEPHONE COMPANY OF HAMMOND; CITIZENS TELEPHONE CORPORATION; CLEMENTS TELEPHONE COMPANY; CLIMAX TELEPHONE COMPANY; COMMUNITY SERVICE TELEPHONE COMPANY; CRAIGVILLE TELEPHONE COMPANY, INC.; CROCKETT TELEPHONE COMPANY; DIXVILLE TELEPHONE COMPANY; DOYLESTOWN TELEPHONE COMPANY; DUNBARTON TELEPHONE COMPANY, INC.; DUNKERTON TELEPHONE COOPERATIVE; EAGLE VALLEY TELEPHONE COMPANY; EASTON TELEPHONE COMPANY; ECKLES TELEPHONE COMPANY; ELKHART TELEPHONE COMPANY; EUSTIS TELEPHONE EXCHANGE; FARMERS COOP TELEPHONE COMPANY; FARMERS MUTUAL TELEPHONE; FARMERS MUTUAL TELEPHONE; FLAT ROCK MUTUAL TELEPHONE COMPANY; FORT JENNINGS TELEPHONE COMPANY; FRONTIER COMMUNICATIONS OF DEPUE; GEETINGSVILLE TELEPHONE COMPANY, INC.; GERVAIS TELEPHONE COMPANY; GRACEBA TOTAL COMMUNICATIONS, INC.; GRANADA TELEPHONE COMPANY; GRANBY TELEPHONE & TELEGRAPH; GULF TELEPHONE COMPANY; HARTINGTON TELEPHONE COMPANY; HICKORY TELEPHONE COMPANY; HINTON TELEPHONE COMPANY OF HINTON, OKLAHOMA, INC.; HOLLIS TELEPHONE COMPANY; HOME TELEPHONE; HOME TELEPHONE; HOT SPRINGS TELEPHONE COMPANY; HUXLEY COOPERATIVE TELEPHONE COMPANY; INDIANHEAD TELEPHONE COMPANY; IRONTON TELEPHONE COMPANY; JEFFERSON TELEPHONE COMPANY, INC.; KADOKA TELEPHONE COMPANY; KALEVA TELEPHONE COMPANY; KALIDA TELEPHONE COMPANY, INC.; LAUREL HIGHLAND TELEPHONE COMPANY; LIGONIER TELEPHONE COMPANY; MANKATO CITIZENS TELEPHONE COMPANY; MANTI TELEPHONE COMPANY; MARIANNA & SCENERY HILL TELEPHONE COMPANY; MARSEILLES TELEPHONE COMPANY; MCCLURE TELEPHONE COMPANY; M
CourtU.S. Court of Appeals — Fifth Circuit

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[Copyrighted Material Omitted] Petitions for Review of Orders of the Federal Communications Commission

Before SMITH, WIENER, and EMILIO M. GARZA, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

This is a consolidated challenge to two orders of the Federal Communications Commission (the "FCC," the "Commission," or the "agency")1 promulgated to satisfy the twin Congressional mandates articulated in the Telecommunications Act of 1996 (the "Act")2 of providing universal telecommunications service in the United States and injecting competition into the market for local telephone service. Petitionerslocal telephone service providers who serve predominantly small towns and rural areaschallenge the orders as inconsistent with the statutory requirements of the Act; arbitrary and capricious in violation of the Administrative Procedure Act, 5 U.S.C. 706(2)(A); violative of the Takings Clause, U.S. CONST. amend. V; and in noncompliance with the Regulatory Flexibility Act, 5 U.S.C. 604. Having jurisdiction to review the orders pursuant to 28 U.S.C. 2342(1) and 47 U.S.C. 402(a), we deny the petitions for review.

I. THE STATUTORY MANDATES.

Universal service has been a fundamental goal of federal telecommunications regulation since the passage of the Communications Act of 1934. Indeed, the FCC's very purpose is "to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, Nation-wide, and world-wide wire and communication service with adequate facilities at reasonable charges." 47 U.S.C. 151 (as amended). See also Texas Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 405-06 & n.2 (5th Cir. 1999) ("TOPUC"), petition for cert. filed (Dec. 23, 1999) (No. 99-1072).

Specifically, the Act requires that universal service support be "explicit and sufficient," 47 U.S.C. 254(e), and it articulates several guiding principles to govern universal serviceincluding, for example, that "access . . . be provided in all regions of the Nation . . . including low-income consumers and those in rural, insular, and high cost areas," that services and rates be "reasonably comparable" to those offered "in urban areas," that "[a]ll providers of telecommunications services . . . make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service," and that universal service support be "specific" and "predictable," id. 254(b)(2)-(5); Order 21. While the FCC is required to obey statutory commands, the guiding principles reflect congressional intent to delegate difficult policy choices to the Commission's discretion. See TOPUC, 183 F.3d at 411-12.3

Alongside the universal service mandate is the directive that local telephone markets be opened to competition. See 47 U.S.C. 251-253; AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371; TOPUC, 183 F.3d at 406, 412. The FCC must see to it that both universal service and local competition are realized; one cannot be sacrificed in favor of the other. The Commission therefore is responsible for making the changes necessary to its universal service program to ensure that it survives in the new world of competition.4 Because Congress has conferred broad discretion on the agency to negotiate these dual mandates, courts ought not lightly interfere with its reasoned attempt to achieve both objectives. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 (1984); 5 U.S.C. 706(2)(A).

II. THE UNIVERSAL SERVICE ORDERS.

The orders under review make various changes to universal service deemed necessary achieve universal service within a competitive environment. We describe the general principles guiding the Commission's judgment, then detail the provisions specifically at issue in petitioners' various challenges.

A. COMMISSION PRINCIPLES.

To analyze the purpose and effect of the FCC's numerous regulatory changes to its universal service program, we find it useful first to articulate three principles the Commission has followed in making the transition from monopolistic to competitive universal service. First, rates must be based not on historical, booked costs, but rather on forward-looking costs. After all, market prices respond to current costs; historical investments, by contrast, are sunk costs and thus ignored.

[I]t is current and anticipated cost, rather than historical cost[,] that is relevant to business decisions to enter markets and price products. The business manager makes a decision to enter a new market by comparing anticipated additional revenues (at a particular price) with anticipated additional costs. If the expected revenues cover all the costs caused by the new product, then a rational business manager has sound business reasons to enter the new market. The historical costs associated with the plant already in place are essentially irrelevant to this decision since those costs are 'sunk' and unavoidable and are unaffected by the new production decision. This factor may be particularly significant in industries such as telecommunications which depend heavily on technological innovation, and in which a firm's accounting, or sunk, costs may have little relation to current pricing decisions.

MCI Communications Corp. v. American Tel. & Tel....

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