Quest Corp. v. Federal Communications Comm., ATLANTIC-DELAWAR

Citation258 F.3d 1191
Decision Date31 July 2001
Docket Number99-9547 and 00-9505,Nos. 99-9546,ATLANTIC-DELAWAR,ATLANTIC-NEW,INC,ATLANTIC-WASHINGTO,ATLANTIC-VIRGINI,ATLANTIC-WEST,ATLANTIC-PENNSYLVANI,ATLANTIC-MARYLAN,D
Parties(10th Cir. 2001) QWEST CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION; UNITED STATES OF AMERICA, Respondents, AT&T CORP. ("AT&T"); RURAL TELEPHONE COALITION; VERMONT DEPARTMENT OF PUBLIC SERVICE; STATE OF CALIFORNIA AND THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA; THE MAINE PUBLIC UTILITIES COMMISSION ("MAINE"); PUERTO RICO TELEPHONE COMPANY, INC.; WORLDCOM, INC., formerly known as MCI WORLDCOM, INC.; BELL; BELL; BELLJERSEY, INC.; BELL; BELL; BELLC., INC.; BELLVIRGINIA, INC.; NEW YORK TELEPHONE COMPANY; NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY; THE WYOMING PUBLIC SERVICE COMMISSION; GTE SERVICE CORPORATION, Intervenors. QWEST CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION; UNITED STATES OF AMERICA, Respondents, AT&T CORP. ("AT&T"); RURAL TELEPHONE COALITION; PUERTO RICO TELEPHONE COMPANY, INC.; GTE SERVICE CORPORATION; BELL; BELL; BELLJERSEY, INC.; BELL; BELL; BELLC., INC.; BELLVIRGINIA, INC.; NEW YORK TELEPHONE COMPANY; NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY; WORLDCOM, INC., formerly known as MCI WORLDCOM, INC., Intervenors. VERMONT DEPARTMENT OF PUBLIC SERVICE; MONTANA PUBLIC SERVICE COMMISSION; MONTANA CONSUMER COUNSEL, Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION; UNITED STATES OF AMERICA, Respondents, AT&T CORP. ("AT&T"); BELL; BELL; BELLJERSEY, INC.; BELL; BELL; BELLC., INC.; BELLVIRGINIA, INC.; NEW YORK TELEPHONE COMPANY; NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY; QWEST CORPORATION, Intervenors
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Matthew A. Brill of Wilmer, Cutler & Pickering, Washington, D.C. (John H. Harwood II, William R. Richardson, Jr., Francesca Bignami of Wilmer, Cutler & Pickering, Washington, D.C.; Robert B. McKenna of Qwest Corporation, Denver, Colorado; Steven R. Beck of Qwest Corporation, Washington, D.C., with him on the briefs) for Petitioner Qwest Corporation.

Elisabeth H. Ross of Birch, Horton, Bittner and Cherot, Washington, D.C. (Douglas S. Burdin, Allison M. Ellis of Birch, Horton, Bittner and Cherot, Washington, D.C.; John Sayles of Vermont Department of Public Service, Montpelier, Vermont; Martin Jacobson of Montana Public Service Commission, Helena, Montana; Robert A. Nelson, Thomas S. Muri of Montana Consumer Counsel, Helena, Montana, with her on the briefs) for Petitioners Vermont Department of Public Service et al.

James M. Carr, Counsel (Christopher J. Wright, General Counsel, John E. Ingle, Deputy Associate General Counsel, Lisa S. Gelb, Counsel, with him on the brief), Federal Communications Commission, Washington, D.C., for Respondent Federal Communications Commission.

Gene S. Schaerr of Sidley & Austin, Washington, D.C. (David L. Lawson, James P. Young, Christopher T. Shenk of Sidley & Austin, Washington, D.C.; Mark C. Rosenblum, Peter H. Jacoby, Judy Sello of AT&T Corp., Basking Ridge, New Jersey; Thomas F. O'Neil III, William Single, IV of WorldCom, Inc., Washington, D.C., with him on the brief) for Intervenors AT&T Corp. et al.

Elisabeth H. Ross of Birch, Horton, Bittner and Cherot, Washington, D.C (Douglas S. Burdin, Allison M. Ellis of Birch, Horton, Bittner and Cherot, Washington, D.C.; John Sayles of Vermont Department of Public Service, Montpelier, Vermont; Joel B. Shifman of Maine Public Utilities Commission, Augusta, Maine, with her on the brief) for Intervenors Vermont Department of Public Service et al.

Before EBEL, BALDOCK and KELLY, Circuit Judges.

EBEL, Circuit Judge.

Agencies play an important role in rational governance because they develop expertise in specialized areas. Principles of checks and balances, however, demand that agencies provide full explanation for their actions to enable effective judicial review.

In the cases before us, we reverse and remand the Ninth Order of the Federal Communications Commission (FCC) because it does not provide sufficient reasoning or record evidence to support its reasonableness. The order established a federal funding mechanism to support universal telecommunications services in high-cost areas. The consolidated petitions for review challenge the sufficiency of this funding mechanism in view of certain statutory principles, such as achieving reasonably comparable rates for basic telephone services in rural and urban areas. We do not decide the underlying issue of whether the funding is in fact sufficient; rather, we conclude that the FCC has not supported why the funding is sufficient. In particular, the FCC did not (1) define key statutory terms adequately; (2) set forth a rational basis for the particular benchmark it selected; (3) adequately induce state mechanisms to support universal service; or (4) explain how this piece of federal support for universal service relates to other funding mechanisms. In this posture, we must reverse and remand the Ninth Order for further agency proceedings.

We review and uphold the FCC's computer model of the costs of providing service in a given area. Several technical aspects of the model have been challenged, but we find that these fall squarely within the FCC's discretion as an expert agency. None of the alleged problems undermine the utility of the model for estimating costs. We also uphold the FCC's practice of fixing minor errors in the computer model without full notice-and-comment procedures. Accordingly, we affirm the Tenth Order.

BACKGROUND
A. Introduction

The goal of universal service is that "customers in all regions of the nation have access to telecommunications services." Ninth Report & Order and Eighteenth Order on Reconsideration 1, FCC 99-306, CC Docket No. 96-45 (Nov. 2, 1999) [hereinafter Ninth Order]. Universal service is "an evolving level of telecommunications services" considering such factors as whether a service has, "through the operation of market choices by customers, been subscribed to by a substantial majority of residential customers." 47 U.S.C. 254(c)(1). It comprises, among other things, local telephone service and access to emergency, directory-assistance, and long-distance services. See 47 C.F.R. 54.101(a).

The cost of providing these services to customers varies widely. For example, it is generally more expensive for a telephone company to provide service in a rural area, where customers are dispersed, than it is to provide the same service in an urban area, where customers are more concentrated. Ninth Order 15. To address this disparity, states and the federal government have established policies that support access to basic services in high-cost areas. Id. 13, 15.

When the local telephone markets were regulated monopolies, these policies relied on a combination of explicit monetary payments to local phone companies and implicit subsidies through rate designs. Id. 12. For example, many states set uniform rates throughout a company's service area, which enabled the company to charge above-cost rates in urban areas to support below-cost rates in rural areas. Id. 15. Similarly, the federal interstate access charge system was designed to subsidize local service through long-distance rates. Id. These implicit subsidies are suited to a monopoly environment, but become difficult to sustain as competition increases. Id. 16.

B. Telecommunications Act of 1996

The Telecommunications Act of 1996 sought to introduce competition to local telephone markets. See Telecommunications Act of 1996 101, Pub. L. No. 104-104, 110 Stat. 56, 61-80 (codified as amended at 47 U.S.C. 251-261). At the same time, however, Congress codified its continued commitment to preserving universal service. See 47 U.S.C. 254. Several provisions of 254 are relevant to this case.

The Act established a Federal-State Joint Board to recommend changes to the federal regulations on universal service, which the FCC then implements in its own proceedings. See 47 U.S.C. 254(a). The Joint Board and the FCC must base their policies on seven enumerated principles. Id. 254(b). The two principles directly relevant to this case are that (1) consumers in "rural, insular, and high cost areas" should have access to services that are "reasonably comparable" to those provided in urban areas at "reasonably comparable" rates, id. 254(b)(3), and (2) "[t]here should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service," id. 254(b)(5).

Every company that provides interstate telecommunications services must contribute to the federal universal-service mechanisms. Id. 254(d). Federal funding should be "explicit and sufficient to achieve the purposes of" universal service. Id. 254(e).

C. FCC Orders

The FCC attempted to implement these provisions in its Report and Order, FCC 97-157, CC Docket No. 96-45 (as amended June 4, 1997) [hereinafter First Order], which on review was affirmed in part, reversed in part, and remanded in part by the Fifth Circuit. Texas Office of Pub. Util. Counsel (TOPUC) v. FCC, 183 F.3d 393 (5th Cir. 1999), cert. dismissed sub nom. GTE Serv. Corp. v. FCC, 121 S. Ct. 423 (2000). Since then, the FCC has received further recommendations from the Joint Board and has reconsidered and refined its policies in a series of orders. This case involves challenges to the Ninth and Tenth Orders, released on the same date. See Ninth Order; Tenth Report and Order, FCC 99-304, CC Docket Nos. 96-45, 97-16...

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