Vermont Pub. Serv. Bd. v. Fed. Commc'ns Comm'n

• Decision Date: 18 November 2011
• Docket Number: No. 10–1184.,10–1184.
• Citation: 54 Communications Reg. (P&F) 597,661 F.3d 54,398 U.S.App.D.C. 187
• Parties: VERMONT PUBLIC SERVICE BOARD and Maine Public Utilities Commission, Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, RespondentsQwest Communications International Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

398 U.S.App.D.C. 187

54 Communications Reg. (P&F) 597

661 F.3d 54

VERMONT PUBLIC SERVICE BOARD and Maine Public Utilities Commission, Petitioners

v.FEDERAL COMMUNICATIONS COMMISSION and United States of America, RespondentsQwest Communications International Inc., et al., Intervenors.

No. 10–1184.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 16, 2011.Decided Nov. 18, 2011.

On Petition for Review of an Order of the Federal Communications Commission.James Hardwick Lister argued the cause for petitioners. With him on the briefs were Elisabeth H. Ross, David Edward Lampp, Andrew Hagler, Lisa C. Fink, and Paul Stern, Deputy Attorney General, Office of the Attorney General for the State of Maine. Joel B. Shifman entered an appearance.

Maureen K. Flood, Counsel, Federal Communications Commission, argued the cause for respondents. With her on the brief were Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys.

U.S. Department of Justice, Austin C. Schlick, General Counsel, Federal Communications Commission, Peter Karanjia, Deputy General Counsel, Richard K. Welch, Acting Associate General Counsel, and James M. Carr, Counsel. Daniel M. Armstrong III, Associate General Counsel, Federal Communications Commission, entered an appearance.Helgi C. Walker argued the cause for intervenors Verizon and NASUCA. With her on the brief were Brett A. Shumate, Michael E. Glover, Edward Shakin, Christopher M. Miller, John T. Scott III, and David Bergmann. Christopher J. White entered an appearance.

Before: HENDERSON, TATEL, and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

Pursuant to the Telecommunications Act of 1996, the Federal Communications Commission, through its Universal Service Program, provides subsidies to ensure that low-income consumers, schools, health care providers, and libraries have access to advanced telecommunications services and that rates and services in rural areas are “reasonably comparable” to rates and services in urban areas. In this case, we review a Commission order declining to increase subsidies under the rural rates and services component of the Universal Service Program. Because the Commission's decision is neither arbitrary nor capricious, we deny the petition for review.

I.

The Telecommunications Act of 1996, 47 U.S.C. § 254(b), adopted six basic principles of “universal service.” These principles instruct the Commission and the several states to jointly “base policies for the preservation and advancement of universal service” on:

(1) Quality and rates. Quality services should be available at just, reasonable, and affordable rates.

(2) Access to advanced services. Access to advanced telecommunications and information services should be provided in all regions of the Nation.

(3) Access in rural and high cost areas. Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.

(4) Equitable and nondiscriminatory contributions. All providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service.

(5) Specific and predictable support mechanisms. There should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service.

(6) Access to advanced telecommunications services for schools, health care, and libraries. Elementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services....

47 U.S.C. § 254(b).

Pursuant to these statutory directives, the Commission established the Universal Service Program, which consists of four separate funds: 1) low-income support, which subsidizes rates for individuals that might not otherwise be able to afford basic telephone services; 2) rural health care support, which subsidizes the costs of communications services health providers need to offer medical services in rural areas; 3) schools and libraries support, which funds the costs of phone services and Internet access for educational institutions and libraries; and 4) high-cost support—the fund at issue in this case—which supports the provision of services in high-cost areas. See Federal–State Joint Board on Universal Service, Universal Service Monitoring Report, CC Dkt. No. 98–202, at 1–34 (2010).

The Program is financed by fees charged to telephone companies and other providers of interstate telecommunications services. See 47 C.F.R. § 54.706. Telecommunications providers may pass these fees along to their customers, and almost always do, usually through line items on bills marked “Federal Universal Service Assessment.” See High–Cost Universal Support Order on Remand, 25 FCC Rcd. 4072, 4083–84 ¶ 21 (2010) (“ Order ”). Thus, nearly every purchaser of telephone services in America helps support the Program.

The past decade has seen a dramatic increase in annual disbursements made pursuant to the Program, and a corresponding increase in the surcharge levied on consumers. In 2001, the Commission disbursed $5.35 billion in support of universal service; by 2009, that number had risen to $7.26 billion. Order, 25 FCC Rcd. at 4082 ¶ 20. By early 2010, disbursements amounted to 15.3 percent of telecommunications companies' interstate and international revenue, requiring “many consumers [to] pay[ ] a surcharge of over 15 percent on the interstate portion of their monthly bill.” Id. at 4083 ¶ 21. The high-cost support fund is by far the Program's most expensive component. In 2009, total expenditures under that fund totaled $4.3 billion of the $7.26 billion Program. Id. at 4082 ¶ 20.

This case concerns a single feature of the high-cost support fund: subsidies the Commission gives to telecommunications companies that provide landlines—wireless is not covered—in rural areas. Absent these subsidies, landline customers in rural areas would generally pay higher rates for telephone services than customers in urban areas. This is so because it is generally more expensive to provide landline phone service in less-populated areas, where customers are geographically dispersed. Given this, the Commission provides support to “non-rural” telecommunications providers (i.e., large telecommunications companies serving both rural and urban areas) to subsidize their costs of providing landlines in rural areas. These subsidies are provided in order to carry out Congress's directive to ensure “reasonably comparable” rates between rural and urban areas. Precisely what constitutes “reasonable” comparability is a definitional matter left to the Commission's discretion, see Rural Cellular Ass'n v. FCC, 588 F.3d 1095, 1101–02 (D.C.Cir.2009), and it is the Commission's definition of this statutory term that lies at the heart of this case.

In 2003, following litigation in the Tenth Circuit not directly relevant here, Qwest Corp. v. FCC, 258 F.3d 1191 (10th Cir.2001) ( Qwest I ), the Commission defined “reasonably comparable” as requiring rural rates to fall within a nationwide range of urban rates. Federal–State Joint Board on Universal Service, 18 FCC Rcd. 22559, 22583 ¶ 39. The Commission selected the range benchmark because both urban and rural rates vary significantly from state to state, “in large part because states base rates on a variety of different policies.” Id. at 22584 ¶ 40. Moreover, when the Telecommunications Act was passed in 1996, “urban residential rates ranged from $13.04 to $30.62 and the average urban rate was $20.01.” Id. Suspecting it “reasonable to assume that Congress was aware of the variability of urban rates when it enacted the 1996 Act,” the Commission did not “believe that Congress would have required rural rates to be any closer to the average urban rates than other urban rates.” Id. For this reason, the Commission opted to use standard deviation analysis, rather than a percentage or dollar amount, to define “reasonably comparable” rates between rural and urban areas. Standard deviation measures the variation, or dispersion, from the average value.

The Commission defined “reasonably comparable” as requiring rural area rates to fall within two standard deviations of the average national urban rate. Id. at 22608–09 ¶ 81. This meant that in order to be “reasonably comparable,” a rural rate would have to fall within a range encompassing 95% of the individual urban rates, which the Commission would collect by conducting an annual survey of 95 cities. Id. at 22607–09 ¶¶ 80–81. To ensure that the federal government and the states were both fulfilling their statutory mandate to achieve “reasonably comparable” rates, the Commission required that states annually certify that their rural rates were “reasonably comparable” to urban rates as measured by the Commission's two-standard-deviation definition. Id. at 22601–02 ¶ 70.

To help achieve “reasonable comparability” of rural and urban rates, the Commission created the support mechanism at issue here. Under that mechanism, telecommunications carriers serving rural areas are eligible to receive a subsidy totaling 76% of the amount that the statewide average cost per line exceeds two standard deviations above the national average cost per line. Id. at 22630 ¶ 125. For example, if two standard deviations above the national average cost per line was $25 and the state's average cost per line was $30, telecommunications carriers within a state would receive a subsidy of $3.80 per line—or 76% of the $5.00 difference between the state's average cost per line and the national...