AT&T, Inc. v. Fed. Commc'ns Comm'n

• Decision Date: 06 April 2018
• Docket Number: No. 15-1038,C/w 16-1002, 16-1072,15-1038
• Parties: AT&T, INC., Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents United States Telecom Association and CenturyLink, Inc., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

886 F.3d 1236

AT&T, INC., Petitioner

v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, RespondentsUnited States Telecom Association and CenturyLink, Inc., Intervenors.

No. 15-1038

C/w 16-1002, 16-1072

United States Court of Appeals, District of Columbia Circuit.

Argued October 26, 2017

Decided April 6, 2018

Benjamin S. Softness argued the cause for petitioners. With him on the briefs were Scott H. Angstreich, Robert A. Long Jr., Yaron Dori, Kevin King, Christopher Heimann, Gary L. Phillips, and David L. Lawson.

Matthew J. Dunne, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S. Department of Justice, Howard J. Symons, General Counsel, Federal Communications Commission, and Richard K. Welch, Deputy Associate General Counsel. Jacob M. Lewis, Associate General Counsel, Maureen K. Flood, Counsel, and Sarah E. Citrin, Attorney, Federal Communications Commission, entered appearances.

Before: Garland, Chief Judge, and Pillard and Wilkins, Circuit Judges.

Pillard, Circuit Judge:

The Federal Communications Commission has, since the agency’s inception, been charged to ensure that everyone in the United States has access to critical telecommunications services. This mandate is effected through a system of federal subsidies to certain designated carriers that are required to offer essential services to underserved consumers. Recognizing the changing technological landscape, the Commission is currently in the process of expanding those services that must be universally accessible beyond landline telephone service to include broadband and cellular service. As the transition takes place, the agency has retained some preexisting obligations of a subset of landline-only providers to ensure that underserved populations in a small number of hard-to-reach areas do not lose access to basic telecommunications services during the transition, before the modernized program is fully in effect—July 24, 2018 in most areas. Telecommunications carriers with such legacy obligations bring these petitions challenging the FCC’s decision to hold their obligations in place during this interim period.

I. Introduction

The telecommunications landscape—and the provision of essential services to hard-to-reach places and underserved individuals—has changed dramatically over the last two decades. Regional monopolists initially provided telecommunications services, including to remote areas and low-income populations; then, in 1996, Congress introduced competition into telecommunications markets. Telecommunications Act of 1996, Pub L. No. 104–104, 110 Stat. 56 (codified at 47 U.S.C. § 151 ) (1996 Act); see Rural Cellular Ass’n v. FCC (Rural Cellular I ), 588 F.3d 1095, 1098 (D.C. Cir. 2009). From 1996 to 2011, the Federal Communications Commission (FCC, Commission, or agency) ensured nationwide landline accessibility through the abovementioned system of service obligations and federal subsidies for certain carriers, called Eligible Telecommunications Carriers (ETCs), that were well-positioned to reach the underserved. See 47 U.S.C. § 214(e)(2) ; Rural Cellular Ass’n v. FCC (Rural Cellular II ), 685 F.3d 1083, 1086 (D.C. Cir. 2012).

In 2011, the FCC recognized that its critical communications mandate was no longer meaningfully fulfilled by ensuring universal access to landlines alone. To bring the entire United States into the digital age, the Commission redefined these critical services to include broadband and cellular, and began to overhaul its regulatory framework accordingly. See In re Connect America Fund , 26 FCC Rcd. 17,663, 17,667–72 (2011) (2011 Order ). It sought to make the provider and subsidy system more technologically advanced and efficient. Id. at 17,668–69. The Commission also recognized the need to, at a minimum, maintain existing coverage for marginalized populations and hard-to-reach areas while it renovated the federally supported network for expanded services. The agency opted to retain certain elements of the landline-only ETC regime during the transition insofar as needed to prevent any customers from being cut off from key communications services. It determined that the landline carriers already providing those essential services were in the best position easily and efficiently to prevent coverage gaps.

AT&T and CenturyLink, together with Intervenor industry group U.S. Telecom Association (USTelecom) (collectively Petitioners), are incumbent ETCs that currently retain a small fraction of their pre–2011 landline-only universal service obligations in certain areas—census blocks they once served that are denominated "high-cost" or "extremely high-cost"—until new ETCs can be competitively selected to provide expanded services there. Id. at 17,709. For many census blocks, a new ETC will be selected via auction on July 24, 2018. See Public Notice, Connect America Fund Phase II Auction Scheduled for July 24, 2018 , FCC No. 18–6, at 3 (Feb. 1, 2018), https://apps.fcc.gov/edocs_public/attachmatch/FCC-18-6A1.pdf ( 2018 Public Notice ). In the interim, the Commission subsidizes the landline-only ETC services at frozen, preexisting funding levels. 2011 Order , 26 FCC Rcd. at 17,712–13, 17,715.

Most census blocks where these incumbent carriers have ETC obligations have already transitioned to receiving federal subsidies based on the new funding model, which supports capital investment and operating costs for both voice and broadband. In re Petition of USTelecom for Forbearance , 31 FCC Rcd. 6157, 6215 & n.365 (2015) (2015 Order ). The only remaining disputed service obligations are those in the small number of census blocks where an incumbent ETC has been providing landline-only service and has declined, or is otherwise ineligible, to provide expanded services. See id. ; 2011 Order , 26 FCC Rcd. at 17,729. Petitioners asked the FCC either to excuse their universal service obligations in those areas or, in the alternative, to reinterpret the statute to narrow ETC obligations in the same manner. Petitioners here challenge the FCC’s partial denials of their requests.

First, in 2014, the FCC granted Petitioners’ request in part, relieving them of obligations in certain categories of census blocks where basic service was otherwise assured. In re Connect America Fund , 29 FCC Rcd. 15,644, 15,663–64 (2014) (2014 Order ). At the same time, the Commission left undecided the status of the remaining fraction—about six percent as of the 2015 Order—of high-cost and extremely high-cost census blocks where coverage was not otherwise assured. Id. ; 2015 Order , 31 FCC Rcd. at 6215 n.365.

Then, in 2015, the FCC denied Petitioners’ request with regard to those remaining census blocks, holding in place the incumbent ETCs’ residual service obligations pending completion of the transition. See 2015 Order , 31 FCC Rcd. at 6211–12. The agency reasoned that Petitioners had not met their burden to demonstrate that underserved individuals and areas would retain access to essential services in the absence of incumbent ETC landline service. Id. at 6216–17. Petitioners failed to marshal sufficiently fine-grained evidence that all vulnerable areas and individuals would continue to have access, and their aggregate data suggested that there would be service shortfalls. Id. As a consequence, the FCC decided that available opportunities for Petitioners to seek case-by-case, area-specific forbearance or additional funding to compensate for shortfalls remained the best course. Id. at 6224–25, 6229 n. 440. The agency did not want to devote significant resources to overhaul the preexisting system for a short, interim period when it is about to be replaced by the new regime. See id. at 6223.

In the same 2015 Order, the Commission finalized the interim landline-only obligations for incumbent ETCs, declining Petitioners’ invitation to sunset their obligations by reinterpreting the statute to narrow ETCs’ duties. Id. at 6226–27. The best reading of the statute, the agency maintained, authorized the interim system of obligations and frozen support. Id. at 6228–29.

As a result of the 2014 and 2015 Orders, the only remaining obligations, which Petitioners here dispute, are those not already excused in 2014 and not yet reassigned to a new ETC willing and able to provide modernized universal service. Id. at 6215 & n.365. Petitioners challenge the FCC’s decision to maintain those service obligations as arbitrary and capricious and contrary to various provisions of the amended Communications Act of 1934, 47 U.S.C. § 151 et seq. (Communications Act or Act).

We deny the petitions for two primary reasons. First, we owe deference to the FCC’s decision to hold a preexisting regime in place for an interim period, so as to avoid commandeering agency resources and to respect the agency’s judgments about how to maintain baseline universal service in the context of uncertainties attending a major regulatory transition. Second, in response to Petitioners’ generalized allegations that vulnerable consumers do not need the disputed services and that the existing program leaves Petitioners with underfunded obligations, the FCC has made clear that it will grant case-by-case forbearance or supplemental funding in areas where providers can meet their burden to show that their services are not required or that they need additional financial help. Especially in the context of this systemic regulatory transition, no more is required.

II. Background

A core mission of the FCC, dating from its establishment in 1934 by the Communications Act, is "to make available, so far as possible, to all the people of the United States ... a rapid, efficient, Nation-wide, and world-wide ... communication service with adequate facilities at reasonable charges." Pub. L. No. 73–416, 48 Stat. 1064 (codified at 47 U.S.C. § 151 ). The FCC aims to achieve "universal service" by ensuring that critical communications...