Nat'l Lifeline Ass'n v. Fed. Commc'ns Comm'n

• Decision Date: 22 December 2020
• Docket Number: No. 20-1006,20-1006
• Citation: 983 F.3d 498
• Parties: NATIONAL LIFELINE ASSOCIATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents
• Court: U.S. Court of Appeals — District of Columbia Circuit

983 F.3d 498

NATIONAL LIFELINE ASSOCIATION, Petitioner

v.FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents

No. 20-1006

United States Court of Appeals, District of Columbia Circuit.

Argued October 13, 2020

Decided December 22, 2020

John J. Heitmann, Washington, DC, argued the cause for petitioner. With him on the briefs was James B. Currier, Jr.

Maureen K. Flood, Counsel, Federal Communications Commission, argued the cause for respondents. With her on the brief were Makan Delrahim, Assistant Attorney General, U.S. Department of Justice, Michael F. Murray, Deputy Assistant Attorney General, Robert B. Nicholson and Andrew DeLaney, Attorneys, Thomas M. Johnson, Jr., General Counsel, Federal Communications Commission, Ashley S. Boizelle, Deputy General Counsel, and Jacob M. Lewis, Associate General Counsel. Richard K. Welch, Deputy Associate General Counsel, Federal Communications Commission, entered an appearance.

Before: Katsas and Rao, Circuit Judges, and Edwards, Senior Circuit Judge.

Edwards, Senior Circuit Judge:

The Federal Communications Commission (the "Commission" or "FCC") runs the Lifeline program ("Lifeline"), which offers low-income consumers discounts on telephone and broadband Internet access service. Qualified consumers receive service from eligible telecommunications carriers, or "ETCs," who in turn receive a monthly federal support payment for each Lifeline subscriber they serve. In 2005, "the Commission decided to allow non-facilities-based providers (or ‘wireless resellers’) to provide Lifeline services." Nat'l Lifeline Ass'n v. FCC , 921 F.3d 1102, 1108 (D.C. Cir. 2019) (as amended Apr. 10, 2019). To offer service to their subscribers, reseller ETCs usually purchase usage allotments from facilities-based carriers who possess their own wireless networks.

Many ETCs, including some resellers, use a standard fee-for-service model, in which subscribers pay the ETC a recurring, discounted monthly fee in exchange for service. A substantial number of reseller ETCs, however, offer prepaid wireless plans for which ETCs receive monthly Lifeline support payments on behalf of subscribers.

Since 2012, the Commission has adopted several reforms to the Lifeline support payment process. Currently, FCC rules require ETCs to initiate a process of de-enrolling Lifeline subscribers on prepaid plans who have not used their Lifeline service within the preceding 30 days. 47 C.F.R. § 54.405(e)(3) (2019). After 30 days of non-usage, such subscribers enter a 15-day "cure period." At the beginning of the cure period, subscribers’ ETCs are required to notify them that continued non-usage will result in service termination. During the cure period, however, ETCs must continue to provide Lifeline service to non-use subscribers. However, if such a subscriber uses Lifeline service during those 15 days, the non-usage is "cured" and that subscriber may remain in the Lifeline program.

The issue in this case concerns support payments to ETCs for prepaid Lifeline subscribers in cure periods because of their non-usage of the service. Two provisions of the FCC's rules are most notably in play. One provision states that ETCs will receive payments for each "actual qualifying low-income customer[ ] [the ETC] serves directly as of the first of the month." Id. § 54.407(a). Another provision states that for prepaid Lifeline plans, an ETC "shall only continue to receive [support payments] for ... subscribers who have used the service within the last 30 days, or who have cured their non-usage." Id. § 54.407(c)(2). In 2018, Petitioner National Lifeline Association ("Petitioner") – an industry trade group composed primarily of Lifeline service providers – filed a Petition for Declaratory Ruling (the "Petition") with the FCC requesting that "the Commission permit Lifeline ETCs to seek reimbursement for all Lifeline subscribers served on the first day of the month, including those subscribers receiving free-to-the-end-user Lifeline service who are in the 15-day cure period per the Commission's non-usage rules." Bridging the Digital Divide for Low-Income Consumers, 34 FCC Rcd. 10,886, 10,936 (Oct. 30, 2019) ("2019 Lifeline Order"), Joint Appendix ("J.A.") 56. Petitioner primarily relied on 47 C.F.R. § 54.407(a). The Commission denied the Petition, holding that the plain text of § 54.407(c)(2) controlled. See 34 FCC Rcd. at 10,937.

In January 2020, Petitioner filed a Petition for Review with this court, contending that the FCC's denial of its Petition for Declaratory Ruling was contrary to the applicable statute, inconsistent with the Commission's rules, arbitrary and capricious, and resulted in unconstitutional regulatory takings. For the reasons explained below, we reject Petitioner's claims.

Petitioner's statutory argument – that the Commission's interpretation of its applicable rules violates 47 U.S.C. § 214(e) – is foreclosed because Petitioner did not raise this claim with the FCC in the first instance. See 47 U.S.C. § 405(a). We also reject Petitioner's challenge to the FCC's interpretation of § 54.407. The Commission's position is compelled by the unambiguous terms of the rules. We therefore find no merit in Petitioner's claim because it rests on an untenable construction of the disputed rules. Finally, we find no merit in any of the other claims before the court. We therefore dismiss the Petition for Review as to Petitioner's statutory argument and deny all other claims.

I. BACKGROUND

A. Lifeline Service

In 1985, the Commission created the Lifeline program by regulation "to ensure that low-income consumers had access to affordable, landline telephone service following the divesture of AT&T." Nat'l Lifeline Ass'n , 921 F.3d at 1106 (citing MTS and WATS Market Structure; and Establishment of a Joint Board; Amendment, 50 Fed. Reg. 939 (Jan. 8, 1985) ). In 1996, Congress codified the program. Mozilla Corp. v. FCC , 940 F.3d 1, 68 (D.C. Cir. 2019) (per curiam) (citing 47 U.S.C. §§ 214, 254 ).

The Commission's rules require the Universal Service Administrative Company (the "Administrator") to administer the Commission's universal services programs, including the Lifeline program. See 47 C.F.R. § 54.701(a). In that role, the Administrator – an independent, not-for-profit corporation, see Changes to the Board of Directors of the National Exchange Carrier Association, Inc., 12 FCC Rcd. 18,400, 18,418-19 (July 17, 1997) – is responsible for, among other things, disbursing support payments to ETCs. See 47 C.F.R. § 54.702(b). However, the Administrator's role is relatively narrow: It "may not make policy, interpret unclear provisions of the [applicable] statute or [the Commission's] rules, or interpret the intent of Congress." Id. § 54.702(c). And, where the applicable statute "or the Commission's rules are unclear, or do not address a particular situation, the Administrator [must] seek guidance from the Commission." Id.

Between 2005 – when the Commission first allowed wireless resellers to participate in Lifeline – and 2012, Lifeline support disbursements more than doubled, from under $1 billion annually to approximately $2.2 billion. See 2019 Lifeline Order at 10,888, J.A. 8. As this growth in Lifeline occurred, so did waste, fraud, and abuse in the program. See id. at 10,889, J.A. 9. In response, the Commission took several steps designed to combat these problems without undermining the goals of the program. See, e.g. , Lifeline and Link Up Reform and Modernization, 27 FCC Rcd. 6656, 6670 (Jan. 31, 2012) ("2012 Lifeline Order"); 2019 Lifeline Order at 10,893, J.A. 13.

As mentioned above, many ETCs, including some resellers, use a standard fee-for-service model, in which subscribers pay the ETC a monthly fee in exchange for service. See 2012 Lifeline Order at 6767-68. Other reseller ETCs instead offer prepaid wireless plans. See 2019 Lifeline Order at 10,888, J.A. 8. For these plans, reseller ETCs often provide subscribers with a free phone and a set amount of monthly service. See id. Regardless of their fee structure, ETCs receive Lifeline support payments for their active Lifeline subscribers. See 2012 Lifeline Order at 6767.

Fee-for-service ETCs use these payments to discount each Lifeline subscriber's recurring monthly fee for ongoing service. See id. at 6767-68. For prepaid plans, however, Lifeline subscribers are not required to make recurring payments to their ETC; instead, the ETCs receive the Lifeline support payments on behalf of such subscribers. See id. at 6768. Thus, for prepaid plans, ETCs have no regular billing arrangement with – and, sometimes, little ongoing contact with – their Lifeline subscribers. See id.

In 2012, the Commission issued an Order establishing a centralized database listing all Lifeline subscribers – the National Lifeline Accountability Database ("NLAD") – in order "to detect and prevent duplicative support" attributable to individual subscribers. 2012 Lifeline Order at 6734. To populate the database, ETCs enter Lifeline subscriber data. Id. at 6737-39. The ETCs and Administrator then must take steps to ensure that there are no duplicative support payments disbursed for individual Lifeline subscribers. See id. at 6743-44, 6748-49.

The 2012 Lifeline Order also required ETCs to begin a process of "de-enrolling" prepaid Lifeline subscribers who had not used their Lifeline service in the prior 60 days. Id. at 6768-69. The Commission explained that, due to the lack of a regular billing relationship between ETCs and these subscribers, there is a significant risk of "phantom accounts" for which the subscriber is not "receiving the benefit of the supported service." Id. at 6771. In particular, "[t]he possibility that a wireless phone has been lost, is no longer working, or the subscriber has abandoned or improperly transferred the account is much greater." Id. As a result, for prepaid plans, "there may be no other means beside usage patterns to track whether a consumer" is still actually using Lifeline...