In re Truconnect Commc'ns, Inc.

Decision Date03 September 2021
Docket NumberNo. 20-299,20-299
Citation263 A.3d 770
Parties IN RE Petition of TRUCONNECT COMMUNICATIONS, INC.
CourtVermont Supreme Court

Daniel A. Seff and Brian J. Sullivan of MSK Attorneys, Burlington, for Appellant.

Sarah L. J. Aceves, Special Counsel, Montpelier, for Appellee Vermont Department of Public Service.

PRESENT: Reiber, C.J., Robinson, Eaton, Carroll and Cohen, JJ.

REIBER, C.J.

¶ 1. Petitioner TruConnect Communications, Inc., sought designation from the Vermont Public Utility Commission as an eligible telecommunications carrier (ETC) to provide affordable telecommunications service to qualifying Vermonters under the Federal Lifeline program. The Commission granted TruConnect's application subject to certain conditions, including a condition that required TruConnect to provide a free cellular handset to its customers. TruConnect appealed, arguing that the condition was imposed on clearly erroneous grounds. We agree and reverse and remand for the Commission to revise its order.

I. Legal Framework

¶ 2. We begin by reviewing the Federal Lifeline program and the Commission's role in designating ETCs. The Telecommunications Act of 1996, which amended the Communications Act of 1934, aimed to provide universal telecommunications services to all people of the United States while promoting competition and reducing regulation. See Pub. L. No. 104-104, 110 Stat. 56. The Act requires every telecommunications carrier that provides interstate services to contribute to a fund to advance universal service, administered by the Federal Communications Commission (FCC). 47 U.S.C. § 254(d). This fund, known as the Federal Universal Service Fund, supports four primary programs through subsidies distributed to carriers designated as ETCs. See id. § 254(e).

¶ 3. One such program is the Federal Lifeline program. The Lifeline program was created to ensure access to affordable landline telephone service and has since expanded its mission to include providing discounted access to voice or broadband internet service. See Bridging the Digital Divide for Low-Income Consumers, 34 FCC Rcd. 10886, 10887 ¶ 2, 2019 WL 6111347 (FCC 19-111 Nov. 14, 2019) [hereinafter 2019 Lifeline Order ]. To that end, ETCs receive a monthly federal subsidy per Lifeline customer for providing qualifying services under the program. Id. ¶ 3.

¶ 4. To participate in Lifeline or the other programs funded by the Universal Service Fund, a carrier must first be designated as an ETC under § 214(e). 47 U.S.C. § 254(e). Section 214 delegates to the states the primary authority to designate carriers as ETCs. Id. § 214(e)(2); see also 2019 Lifeline Order, 34 FCC Rcd. at 10898 ¶ 28 ("Congress made states—not the [FCC]—primarily responsible for designating ETCs."). The FCC, by contrast, designates carriers as ETCs when states lack jurisdiction or in unserved areas where no carrier is willing to provide Universal Service Fund services. 47 U.S.C. § 214(e)(3), (6).

¶ 5. Section 214 sets out certain essential requirements for a carrier to be designated as an ETC. The carrier must "offer the services that are supported by Federal universal service support mechanisms" as provided in FCC regulations. Id. § 214(e)(1)(A). To do so, the carrier must use its own facilities or use part of its own facilities along with resale of another carrier's services. Id. The carrier must also advertise the availability and costs of its services. Id. § 214(e)(1)(B). Finally, ETC designation must be "consistent with the public interest, convenience, and necessity." Id. § 214(e)(2).

¶ 6. Section 214 establishes a federal baseline for ETC designation requirements, but states may impose additional requirements in a manner consistent with federal and other state law. In a 2005 order, the FCC adopted additional mandatory requirements for its own ETC designation proceedings under § 214(e)(6). Fed.- State Joint Bd. on Universal Serv., 20 FCC Rcd. 6371, 2005 WL 646635 (FCC 05-46 Mar. 17, 2005). The FCC encouraged state commissions to adopt these requirements but declined to make them binding on state commissions. Id. at 6372 ¶ 1. It explained:

We believe that section 214(e)(2) demonstrates Congress's intent that state commissions evaluate local factual situations in ETC cases and exercise discretion in reaching their conclusions regarding the public interest, convenience and necessity, as long as such determinations are consistent with federal and other state law. States that exercise jurisdiction over ETCs should apply these requirements in a manner that is consistent with section 214(e)(2) of the Act. Furthermore, state commissions, as the entities most familiar with the service area for which ETC designation is sought, are particularly well-equipped to determine their own ETC eligibility requirements.

Id. at 6397 ¶ 61 (footnote omitted). The 2005 order accords with Texas Office of Public Utility Counsel v. F.C.C., in which the Fifth Circuit held that "nothing in [ § 214(e) ] prohibits the states from imposing their own eligibility requirements" on ETC designation. 183 F.3d 393, 418 (5th Cir. 1999) (reversing FCC rule prohibiting states from imposing additional eligibility requirements on ETC designations).1

II. Procedural History

¶ 7. In May 2020, TruConnect submitted a petition to the Commission for designation as an ETC in Vermont to provide Lifeline services. In the petition, TruConnect described its business and explained that it "offers consumers simple and affordable prepaid calling plans, easy-to-use handsets and high-quality customer service." TruConnect proposed to offer Lifeline services that included "1,000 voice minutes, unlimited text messages, and 3 GB of data per month at a net cost of $0.00." Additionally, it stated that it offers customers a "free SIM card for use in their existing or purchased device."

¶ 8. The Commission asked the Vermont Department of Public Service (DPS) and any other parties to file comments on the petition. DPS suggested that the Commission order TruConnect to file a marketing plan; subject to this condition, DPS recommended that the Commission approve the petition "without further hearings or investigation."

¶ 9. The Commission's hearing officer issued a proposed decision, concluding that the petition satisfied federal and state requirements and recommending that the Commission designate TruConnect as an ETC in Vermont. Pointing to TruConnect's petition, the hearing officer found that "TruConnect's prepaid Lifeline customers will receive the following services free of charge: a handset, voice mail, caller-I.D., call-waiting services, and no out-of-pocket fees." The proposed decision included a condition requiring TruConnect to "[p]rovide all its Vermont Lifeline customers with an E-911 compliant handset at no charge. The costs of providing the handsets will be borne by [TruConnect], and no portion of these costs will be supported by the federal Universal Service Fund." The hearing officer invited the parties to file any comments with the Commission, to be considered along with the proposed decision.

¶ 10. In response, TruConnect filed a comment seeking modification of the free-handset condition. The company explained that its petition "did not propose a free handset as part of [its] Lifeline offering, but rather a free SIM card for use in a customer's existing or purchased device." It noted that in 2016, the FCC began requiring Lifeline providers to support broadband services and implemented minimum service standards that increase annually but did not correspondingly increase the Lifeline subsidy. "[D]ue to the ever-increasing cost of providing Lifeline service" for the same subsidy, TruConnect explained, "it is no longer feasible for wireless ETCs to offer free handsets." Additionally, because Lifeline funds do not subsidize equipment, the company asserted that providing free handsets "should be dictated by market competition and not required as a condition of ETC designation." TruConnect proposed that the Commission amend the handset condition to instead indicate that handsets provided by the company for use with its Lifeline service shall be E-911 compliant and that any costs of providing discounted handsets would not be supported by the Federal Universal Service Fund.

¶ 11. The Commission issued a final order adopting the findings and conclusions of the hearing officer and approving TruConnect's petition for ETC designation. The final order included the free-handset condition. The order noted that no party filed comments on the proposed decision.

¶ 12. About a month later, the Commission issued an amended final order that likewise approved TruConnect's petition for ETC designation, subject to the free-handset condition. The Commission stated that it had inadvertently omitted TruConnect's comments from the initial order, but after considering the comments, found no grounds to amend its previous order. The Commission explained that TruConnect's request that it be allowed to provide discounted handsets instead of free handsets was "inconsistent" with TruConnect's statement in its petition "that it ‘offers consumers ... handsets.’ " It noted that the requirement to provide a compliant handset to Lifeline customers was "an essential requirement of ETC status" that lies "at the heart of the Lifeline program." The Commission emphasized that participation in the Lifeline program is voluntary and confers federal benefits, so if TruConnect did not want to comply with program requirements, the "proper recourse is to refrain from seeking Lifeline funds, not to seek changes to the program requirements." As such, it denied TruConnect's request to modify the condition.

¶ 13. TruConnect appealed, challenging the Commission's imposition of the free-handset condition. TruConnect argues that the Commission erred in finding that TruConnect's petition asserted that the company provides free handsets and in stating that the Federal Lifeline program requires ETCs to provide free handsets.2

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