At&T, Inc. v. Fed. Commc'ns Comm'n , 886 F.3d 1236 ( 2018 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 26, 2017 Decided April 6, 2018
No. 15-1038
AT&T, INC.,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
UNITED STATES TELECOM ASSOCIATION AND CENTURYLINK,
INC.,
INTERVENORS
Consolidated with 16-1002, 16-1072
On Petitions for Review of Orders of
the Federal Communications Commission
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
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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.
Opinion for the Court filed by Circuit Judge PILLARD.
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.
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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
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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
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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.
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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.
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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 technologies are made available
throughout the United States. See 47 U.S.C. § 254. The Act
makes clear that the universal service guarantee must be
dynamic, so that the public has access to “an evolving level of
telecommunications services”; as a result, the Commission
must “periodically” redefine the “level of . . . services” that
should be universally available to keep pace with technological
advancements, need, use, and the public interest. Id. § 254(c).
Universal service has remained a consistent and
fundamental goal for the FCC, even as the nature of that service
and the regulatory means of achieving it have changed. See
Rural Cellular I, 588 F.3d at 1098. Historically,
telecommunications providers formed natural monopolies, and
the FCC achieved universal service by authorizing rates to
monopoly providers sufficient to enable revenue from easy-to-
reach customers, such as city dwellers, to implicitly subsidize
service to those in areas that were hard to reach. In re Federal-
State Joint Board on Universal Service, 12 FCC Rcd. 8776,
8784 (1997) (First Universal Service Order); see Alenco
Commc’ns, Inc. v. FCC, 201 F.3d 608, 616 (5th Cir. 2000).
That approach no longer sufficed once the 1996 Act amended
the Communications Act to create competition in local
telephone markets, eliminating the monopolies. See Rural
Cellular I, 588 F.3d at 1098; Alenco Commc’ns, 201 F.3d at
616.
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Beginning in 1996, the FCC therefore imposed obligations
on certain well-positioned carriers—ETCs—to maintain
landline services for high-cost, hard-to-reach rural areas, as
well as indigent households and local institutions like schools,
hospitals, and libraries. See 47 U.S.C. § 254(h); First
Universal Service Order, 12 FCC Rcd. at 8790-97. A
designated ETC generally served all the needy areas and
individuals within a state. See In re Connect America Fund, 26
FCC Rcd. 4554, 4669 & n.519 (2011). And Congress
established the Universal Service Fund (Fund) to give each
ETC financial support in providing those critical services. See
Rural Cellular I, 588 F.3d at 1098-99.
In 2011, the FCC undertook the above-referenced
redefinition of universal service and accompanying program
overhaul. Recognizing significant changes to communications
technology, the Commission, per its statutory mandate,
redefined essential services that should be universally ensured
to include broadband and cellular. See 2011 Order, 26 FCC
Rcd. at 17,667-69. Given providers’ differing abilities to offer
those expanded services, the agency needed to restructure its
ETC system to include carriers capable of providing those
newly essential technologies, and doing so most easily and
cheaply. Id. at 17,669.
During the regulatory transition, to ensure that vulnerable
regions and consumers were not completely cut off, the agency
opted to hold in place certain preexisting landline-only
obligations on incumbent ETCs already established under the
pre-2011 system. Id. at 17,712-13, 17,715. Just how much
support incumbent ETCs are due for providing critical landline
services during this transition is the question at the heart of this
litigation. In particular, the parties dispute whether the FCC
has authority to hold these incumbent ETCs to preexisting
obligations at frozen funding levels in a dwindling number of
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census blocks pending these blocks’ reassignment to
broadband universal service providers.
A. The Communications Act
Two provisions of the Communication Act, as amended by
the 1996 Act, are at issue in this case. Section 254 establishes
procedures for the FCC, together with the states, to review
universal service requirements in light of the changing
technological landscape and to propose new regulations
governing the provision of universal service. 47 U.S.C. § 254.
To guide in the “preservation and advancement of universal
service,” Section 254 enumerates principles including service
quality, reasonable rates, reasonably comparable access
nationwide to “advanced telecommunications and information
services,” “specific, predicable and sufficient” financial
support for universal service providers, and generally equitable
contributions to universal service by all telecommunications
providers. Id. § 254(b); see also id. § 254(e) (requiring
“explicit and sufficient” funding for universal service
providers). That section also grants the Commission authority
to identify, with state input, “other principles . . . necessary and
appropriate for the protection of the public interest,
convenience, and necessity.” Id. § 254(b)(7). The FCC used
that authority in 1997 to establish an additional principle of
“competitive neutrality” among providers and technologies,
requiring that specific universal support mechanisms “neither
unfairly advantage nor disadvantage one provider over
another.” First Universal Service Order, 12 FCC Rcd. at 8801.
Section 214(e)(1), also enacted in 1996, spells out the
competitive regime carriers’ eligibility and obligations with
regard to effecting nationwide universal service coverage.
Only a carrier “designated as an eligible telecommunications
carrier” may receive universal-service support from the
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Universal Service Fund. 47 U.S.C. § 214(e)(1). Any carrier
that the FCC designates as eligible for support must,
“throughout the service area for which the designation is
received, . . . offer the services that are supported by Federal
universal service support mechanisms.” Id.
As amended in 1996, the Act also defines ETCs’ service
areas. The Act provides that an ETC’s “service area” is the
“area established . . . for the purpose of determining universal
service obligations and support mechanisms.” Id. § 214(e)(5).
B. The Transition to Modernized Universal Service
When the FCC in 2011 recognized that the
communications landscape had fundamentally changed and
sought to overhaul its universal service scheme to include
nationwide broadband coverage, it called on ETCs going
forward to “offer broadband service in their supported area.”
2011 Order, 26 FCC Rcd. at 17,667-68, 17,695. The FCC also
began to revise the support mechanisms for ETCs providing
those services. See id. at 17,673. Between 1996 and 2011,
state boundaries defined the relevant “service areas” by default,
so federal support for ETCs was calculated based on the cost
of providing necessary services across the state. See id. at
17,714. Under the new system, in contrast, ETCs would be
designated on a census-block basis, and would receive federal
subsidies based on a new cost-projection model; in some cases,
the old landline-only ETCs signed up to continue to serve
areas, but in others a new ETC would have to be selected via a
competitive auction—for many census blocks in July 2018—
to determine the most effective and efficient provider. Id. at
17,725, 17,727-29, 17,732-33; 2018 Public Notice at 3.
In order to facilitate the rollout of universal broadband
access without compromising existing universal landline
service in high-need areas and to high-need individuals, the
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FCC planned to stagger the phasing in of new requirements and
the phasing out of old ones. See 2011 Order, 26 FCC Rcd. at
17,727. The Commission decided that incumbent ETCs would
retain preexisting obligations, at preexisting funding levels,
until the FCC identified the replacement ETC provider that
would bring a modernized universal service package to a
specific area. See id. Incumbent ETCs were in the best
position to provide the basic landline service during the
transition; after all, they were already doing it. See 2015 Order,
31 FCC Rcd. at 6232.
To explore ways that it might nevertheless minimize those
interim obligations, the FCC included in its 2011 Order
describing the ETC modernization a call for comment on
whether there could or should be a “relaxation of . . . [ETC]
voice service obligations” of incumbent providers pending
completion of the transition. 2011 Order, 26 FCC Rcd. at
18,063-64. The FCC wanted to identify areas where it might,
without creating service gaps, excuse certain incumbent ETC
landline obligations even before the regulatory transition was
complete. Id. at 18,064-65. (As noted above, the agency
ultimately excused many such obligations, leaving landline-
only ETCs with continued commitments in only a small
fraction of the census blocks they once served.)
In many states, incumbent ETCs—including Petitioners
here—opted to renew their obligations, taking on new
broadband requirements and concomitant funding awards
newly calculated to support the modernized service. See Joint
App’x (J.A.) 2129-30 (CenturyLink); id. at 2131 (AT&T). In
those states, no incumbent ETC continues to bear any separate
universal service obligation to maintain landline service. But
in other states, the FCC has yet to select ETCs to provide
modernized universal service. Hard-to-reach areas within
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those states are where Petitioners retain the landline service
obligations to which they object.
C. The Challenged Orders
Petitioners asked the Commission to be excused from their
continued landline-only ETC obligations and funding by filing
a request for blanket forbearance. See 2014 Order, 29 FCC
Rcd. at 15,663. They also submitted comments urging the FCC
to reinterpret parts of the Act to strictly limit ETC obligations
so as to sunset those preexisting duties. Id. Petitioners here
challenge the FCC’s orders that only partially granted their
forbearance request and kept their service obligations in certain
census blocks where new ETCs have yet to be engaged. In
those blocks, the FCC obligates incumbent ETCs to provide
basic landline services pending upcoming auctions to select
providers of modernized universal service.
In the 2014 Order, the first of the two under review, the
FCC granted USTelecom’s forbearance petition in part, halting
enforcement of incumbent ETC obligations for three categories
of census blocks: (1) low-cost blocks; (2) blocks served by an
unsubsidized competitor that meets certain voice and
broadband minima; and (3) blocks served by another ETC
offering voice and broadband. See id. at 15,663. The
Commission reasoned that the services required under the
modernized universal service obligation were already readily
available in those categories of census blocks, so there was no
reason to continue to subject incumbent ETCs to preexisting
landline obligations there. Id. at 15,665.
As a consequence of the partial grant of forbearance,
Petitioners have residual service obligations in only two
categories of census blocks: high-cost and extremely high-cost
census blocks where the incumbent ETC declined to (or could
not) become the ETC for purposes of the modernization. See
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id. at 15,664-65; 2015 Order, 31 FCC Rcd. at 6211-12. In all
of those census blocks, the FCC plans to select new ETCs but
has yet to do so. See 2014 Order, 29 FCC Rcd. at 15,664-65.
But the FCC deferred a final determination regarding continued
landline-only ETC obligations for incumbents in those areas
and asked for further comment. Id. at 15,664-65, 15,702.
AT&T then petitioned this court for review of the 2014
Order on the ground that the Commission had “adopted a rule”
regarding the incumbent ETCs’ obligations in the residual
areas. See Pet’rs’ Br., AT&T, Inc. v. FCC, No. 15-1038, Dkt.
No. 15-57573 at 3 (June 15, 2015). The FCC moved for
abeyance of that petition because the 2014 Order had adopted
no such rule; indeed, it had not yet decided those issues and
still had them under consideration. See FCC Motion to Hold
Case in Abeyance, AT&T, Inc. v. FCC, No. 15-1038, Dkt. No.
1560813 (July 2, 2015). In September 2015, this court granted
the requested abeyance. See AT&T Inc. v. FCC, No. 15-1038,
Dkt. No. 1571313 (D.C. Cir. Sept. 3, 2015) (per curiam order).
In the wake of the FCC’s 2014 Order and our abeyance
order, Petitioners submitted further comments to the
Commission arguing that incumbent ETCs’ landline-only
universal service obligations in remaining high-cost and
extremely high-cost census blocks should be excused. See,
e.g., J.A. 2132-38 (comments of AT&T). Particularly, they
pointed to a subset of census blocks for which, based on the old
formula, they did not receive much—or, in a rare case, perhaps
any—high-cost support. See, e.g., J.A. 2136-37.
In December 2015, the FCC issued another order, the
second of the two now under review. That 2015 Order ruled
on the remainder of USTelecom’s forbearance petition,
denying the request for forbearance from incumbent ETCs’
interim obligations in otherwise underserved high-cost and
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extremely high-cost census blocks. 2015 Order, 31 FCC Rcd.
at 6211-12. Recognizing, however, that there might be areas
in which even maintaining existing landline service could be a
hardship for incumbent ETCs, the FCC reiterated that it would
entertain case-by-case forbearance petitions or applications for
additional funding where providers could show a particularized
need. Id. at 6224, 6229 n.440.
In finalizing incumbent ETCs’ interim landline
obligations, the FCC also declined to “reinterpret section
214(e)(1) to require that [incumbent] carriers only provide
voice services in areas where they are receiving support.” Id.
at 6227. Instead, the FCC cited prior orders interpreting the
Act not to “require that all ETCs must receive support, but
rather only that carriers meeting certain requirements be
eligible for support.” Id. (quoting In re High-Cost Universal
Service Support, 23 FCC Rcd. 8834, 8847 (2008)); see id. at
6227 n.431. The agency discussed how “incumbent . . .
carriers’ long history of providing service in the relevant
service areas, coupled with the fact that they have already
obtained the ETC designation necessary to receive universal
service support to serve those areas, puts them in a unique
position to maintain voice service as we transition fully” to the
new system. Id. at 6232.
III. Discussion
Petitioners challenge the 2014 and 2015 Orders as contrary
to the Commission’s statutory authority. See 5 U.S.C.
§ 706(2)(C). If, as the FCC contends, the statutory provisions
are “silent or ambiguous with respect to the specific issue,” this
court defers to an agency’s interpretation that is “based on a
permissible construction of the statute.” Chevron U.S.A., Inc.
v. Nat. Res. Def. Council, 467 U.S. 837, 843 (1984). But “[i]f
the intent of Congress is clear,” as Petitioners contend, the
15
reviewing court must “give effect to that unambiguously
expressed intent.” Id. at 842-43.
Petitioners also challenge the FCC’s orders as “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). While our
review of such a claim is “highly deferential,” Nat’l Tel. Coop.
Ass’n v. FCC, 563 F.3d 536, 541 (D.C. Cir. 2009), we require
that the FCC at least “must examine” the relevant factors and
data and articulate a “rational connection” between the record
and the agency’s decision, Motor Vehicle Mfrs. Ass’n of U.S.,
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)
(second quotation from Burlington Truck Lines v. United
States, 371 U.S. 156, 168 (1962)).
We owe particular deference to interim regulatory
programs involving some exigency, like the one at issue here.
Rural Cellular I, 588 F.3d at 1105-06; MCI Telecomms. Corp.
v. FCC, 750 F.2d 135, 141 (D.C. Cir. 1984). That added
deference reflects the reality that, during a transition period, an
agency must make “predictive judgments” and “certainty is
impossible.” Rural Cellular I, 588 F.3d at 1105; see Melcher
v. FCC, 134 F.3d 1143, 1151-52 (D.C. Cir. 1998). To that end,
this court has been reluctant to interfere with an agency
decision to freeze aspects of a preexisting regime for an interim
period until a new program can be fully phased in—including
in the context of the FCC’s comprehensive, high-cost universal
service reform. Rural Cellular I, 588 F.3d at 1099-1100, 1105
(upholding an interim cap on existing subsidy payments to
certain ETCs). Such interim measures must be accorded
“[s]ubstantial deference” to permit the agency “to maintain the
status quo so that the objectives of a pending rulemaking
proceeding will not be frustrated.” MCI Telecomms., 750 F.2d
at 141; see Rural Cellular I, 588 F.3d at 1105-06. That
substantial judicial deference also respects the agency’s
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prerogative to dedicate its resources to “its top priority” of
“ensuring that all regions of the nation have access to advanced
telecommunications technology” without also “expending
significant time and resources . . . updat[ing] the current cost
model” that will soon be replaced. Vt. Pub. Serv. Bd. v. FCC,
661 F.3d 54, 64-65 (D.C. Cir. 2011) (internal quotation marks
omitted).
The FCC’s interpretations of “its own orders and
regulations” are also owed deference because of the agency’s
superior knowledge of its own regulations. Cellco P’ship v.
FCC, 700 F.3d 534, 544 (D.C. Cir 2012) (quoting MCI
Worldcom Network Servs., Inc. v. FCC, 274 F.3d 542, 548
(D.C. Cir. 2001)); see Auer v. Robbins, 519 U.S. 452, 461
(1997).
We first address Petitioners’ threshold argument that the
court should not consider the 2015 Order at all, on the ground
that it impermissibly supplies ex post justifications for de facto
rules adopted by the 2014 Order. Second, we evaluate the
FCC’s statutory authority to act as it did. Finally, we turn to
Petitioners’ argument that the challenged Orders are arbitrary
and capricious.
A. The Procedural Permissibility of the 2015 Order
Petitioners contend that the 2015 Order impermissibly
supplies ex post rationales for the 2014 Order, review of which
should be confined to the reasons stated therein. A practical
consequence of the 2014 Order’s partial grant of blanket
forbearance was to leave in place some incumbent ETCs’
landline-only obligations in a fraction of high-cost and
extremely high-cost census blocks. Petitioners contend that the
2014 Order thus established a de facto non-forbearance rule
with respect to those remaining, unaddressed census blocks.
As a result, they believe that we should look only to the reasons
17
supplied in the 2014 Order and disregard the 2015 Order’s
reasons for retaining service obligations in those census blocks.
The FCC says its 2014 Order did not purport to pass on the
elements of the petition that the agency ultimately denied in the
2015 Order. We are mindful that the agency’s reading “must
be given controlling weight unless it is plainly erroneous or
inconsistent.” Stinson v. United States, 508 U.S. 36, 45 (1993)
(quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410,
414 (1945)).
The 2014 Order is limited to granting the forbearance
petition “in part” and only “to the extent described”; it nowhere
denied any part of the petition. See 2014 Order, 29 FCC Rcd.
at 15,702 ¶ 167. The text of the 2014 Order acknowledged that
the “result of [its] limited forbearance” was that incumbent
carriers retained existing obligations in the remaining census
blocks. Id. at 15,664 & n.117. At the same time, the possibility
of additional “forbearance or other relief . . . where forbearance
was not granted” by the 2014 Order “remain[ed] under active
consideration before the agency.” Public Notice, Wireline
Competition Bureau Releases List of Census Blocks Where
Price Cap Carriers Still Have Federal High-Cost Voice
Obligations, 30 FCC Rcd. 7417, 7419 ¶ 5 & n.12 (2015); FCC
Motion for Leave to Seek to Hold Case in Abeyance, AT&T,
Inc. v. FCC, No. 15-1038, Dkt. No. 1560810 at 2 (July 2,
2015); see In re Lifeline and Link Up Reform and
Modernization, 30 FCC Rcd. 7818, 7864 & n.261 (2015).
The FCC’s position that the 2014 Order was not its last
word on the forbearance petitions is buttressed by the agency’s
statutory time window to respond to USTelecom’s forbearance
petition, which remained open when the Commission issued its
2014 Order. See AT&T Inc. v. FCC, No. 15-1038, Dkt. No.
1571313 at 2 (D.C. Cir. Sept. 3, 2015) (per curiam order).
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Under Section 10(c) of the Act, the agency has up to one year
plus ninety days to respond to a petition for forbearance. 47
U.S.C. § 160(c). The timing of the 2014 Order, only a few
months after the petition’s filing, supports the agency’s
characterization of its actions: The agency dealt with part of
the petition when it still had ample time—until January 4,
2016—to deal with the rest of it, all of which it would handle
before the deadline. See FCC Motion to Hold Case in
Abeyance, AT&T, Inc. v. FCC, No. 15-1038, Dkt. No. 1560813
at 2 (July 2, 2015).
The FCC’s view of its own, multi-stage action is the
natural way to understand the Commission’s actions. As a
consequence, we consider the 2014 and 2015 Orders.
B. The Statutory Permissibility of the Interim Regulatory
Regime
Petitioners challenge the interim regime as contrary to
various provisions of the Communications Act that they argue
compel certain sums of federal funding not offered during this
transition period.
1. Section 214(e)(1): “ETCs shall offer the
services that are supported”
Petitioners urge that the FCC’s interim regime violates
Section 214(e)(1). That section provides that an ETC “shall be
eligible to receive universal service support in accordance with
section 254 . . . and shall, throughout the service area for which
the designation is received . . . offer the services that are
supported by Federal universal service support mechanisms
under section 254(c).” 47 U.S.C. § 214(e). The interim regime
runs afoul of that requirement, say Petitioners, by leaving in
place service obligations that are not financially “supported”
within the meaning of the statute.
19
Petitioners assert that the only permissible way to read “the
services” that are “supported” is as requiring the FCC to dole
out a satisfactory sum for each essential service that an ETC
provides in a specific location. Under that reading, incumbent
ETCs are not adequately funded under the interim scheme
because funding levels are not determined by the cost to
providers of supplying a particular high-cost service.
The Commission, in contrast, reads “services that are
supported” to refer more generally to “the types of services that
ETCs must provide . . . rather than to instances of service for
which a carrier receives support.” Resp’t Br. 38. That is, the
agency interprets the provision “to refer broadly to the services
that the Commission establishes as universal service, rather
than only referring to services insofar as an ETC actually
receives universal service support for its provision of them.”
2015 Order, 31 FCC Rcd. at 6228. The FCC describes the
relevant “type of service” as “voice telephony,” and takes it to
include all universal service programs—whether high-cost
landline support, or other programs that service schools,
hospitals, and libraries, or indigent individuals. See Resp’t Br.
38; 2015 Order, 31 FCC Rcd. at 6227-29. The FCC thus
contends that incumbent ETCs must continue to provide “the
services that are supported” under the interim regime because
those ETCs are providing essential voice services and receive
funding for those services generally, even if a particular high-
cost service is not guaranteed to be a breakeven proposition for
providers in each and every census block. 2015 Order, 31 FCC
Rcd. at 6228-29.
The FCC’s reading does not conflict with Section
214(e)(1)’s general command that ETCs offer “services that are
supported.” In fact, it is supported by the statute’s text. A
cross-reference in Section 214(e)(1) tethers its definition of
“the services that are supported” as it appears in Section
20
214(e)(1) to Section 254(c), which uses the same phrase to
identify, as a general matter, the types of services required to
be universally provided (as determined by the Commission)—
those that have, like voice telephony, for example, “been
subscribed to by a substantial majority of residential
customers.” See 47 U.S.C. § 254(c)(1). The legislative history
provides further support for the FCC’s reading by glossing
ETC obligations to include all of “the services included in the
definition of universal service,” S. Rep. No. 104-230, at 141
(1996) (Conf. Rep.), while making clear that, from a funding
perspective under Section 214(e)(1), an ETC need only “be
eligible to receive support payments, if any, established by the
Commission or a State to preserve and advance universal
service,” id. at 129 (emphases added). The text and history of
Section 214(e) thus suggest that “the services that are
supported” can, consistent with the FCC’s reading, refer to the
whole package of voice services and broadly require eligibility,
not services as priced and paid for à la carte for each distinct
area.
Considering the 2011 Order setting out the FCC’s planned
overhaul of its universal service program, the Tenth Circuit has
held that that this same phrase is, at a minimum, open to the
FCC’s interpretation. See In re FCC 11-161, 753 F.3d 1015,
1088 (10th Cir. 2014); see also Tex. Office of Pub. Util.
Counsel v. FCC, 183 F.3d 393, 412 (5th Cir. 1999) (approving
the agency’s reading of the statute, requiring that ETCs be
“eligible” for funding, not that they receive “support . . . equal
[to] the actual costs incurred”). We, too, find the FCC’s
interpretation to be reasonable.
The interim measure, then, satisfies Section 214(e)(1)
because incumbent ETCs receive and remain eligible for
federal funding. Incumbent ETCs continue to receive
considerable high-cost support, both in the form of frozen
21
funding for interim landline ETC service and subsidies
calculated by the new model for broadband-inclusive service.
2015 Order, 31 FCC Rcd. at 6229. In addition, incumbent
ETCs can receive various forms of supplemental funding from
the FCC or states based on a particularized showing of need
arising from the provision of high-cost landline service during
the regulatory transformation. See id. at 6229 & n.440, 6231-
32; In re FCC 11-161, 753 F.3d at 1088. Therefore, under the
Commission’s reasonable reading, Petitioners are eligible for
funding, as Section 214(e) requires.
2. Section 214(e)(5): “service areas”
Petitioners also challenge the interim scheme as contrary
to the Act’s definition of “service area.” Under the Act, a
“service area” is “a geographic area established . . . for the
purpose of determining universal service obligations and
support mechanisms.” 47 U.S.C. § 214(e)(5). Petitioners
argue that, “[b]ecause [old] statewide service areas no longer
serve ‘the purpose of determining . . . support mechanisms,’”
the FCC cannot maintain incumbent ETC service obligations
on a statewide basis. Pet’rs’ Reply Br. 10 (quoting 47 U.S.C.
§ 214(e)(5)) (ellipsis in original).
But the old “service areas” remain the touchstone for
incumbent ETCs’ frozen funding for interim landline-only
service. The FCC calculates the frozen sum with reference to
statewide service areas because funding remains a product of
the old formula, based on service across the state. Other ETC
funding, too, is available on a statewide basis, such as targeted
service for low-income individuals. 2015 Order, 31 FCC Rcd.
at 6214, 6225. As a result, statewide service areas remain a
reference point for “determining . . . support mechanisms” and
obligations, in keeping with the statute.
22
C. The Interim Regime’s Reasonableness & The FCC’s
Reasons
Petitioners further argue that, in retaining preexisting
obligations, the FCC failed to adequately balance the several
universal service principles set forth in Section 254(b). Those
principles are: (1) quality and “affordab[ility]” of services; (2)
nationwide access to “advanced telecommunications”; (3)
nationwide access at “reasonably comparable” rates in high-
cost areas; (4) “equitable and nondiscriminatory
contribution[s]” by carriers; (5) “sufficient” funding for
carriers; (6) access for public services like “schools . . . , health
care providers, and libraries”; and (7) “other principles,” which
the FCC has specified to include “competitive neutrality.” 47
U.S.C. § 254(b); First Universal Service Order, 12 FCC Rcd.
at 8801. Petitioners frame the FCC’s failure as, first, an
unexplained vindication and impermissible prioritization of
“universal access,” second, neglect of the principle of
“competitive neutrality,” and, third, misreading and so failing
to fulfill the requirement of “sufficient” funding. We address
each argument in turn.
1. Universal Access
Petitioners criticize the FCC’s chosen means of preserving
“universal access” under Section 254(b) in two respects.
Petitioners contend that the FCC did not explain how
continuing their obligations helped to fulfill the Act’s
universal-access objective. And they assert that the FCC
designed its scheme in violation of Section 254(b) because it
pursued universal access at the expense of the other factors
Section 254(b) lists.
Petitioners contend that retaining ETC designations and
obligations is unnecessary to protect service to consumers. But
the agency found that, for now, some consumers need residual
23
universal landline service. See 2015 Order, 31 FCC Rcd. at
6221-23, 6231. Before deciding to keep in place some of the
incumbent ETCs’ obligations, the Commission analyzed
Petitioners’ blanket forbearance proposal with reference to “the
consumer protection goals identified in” the statute. Id. at
6216. The FCC was particularly concerned whether, if ETC
interim obligations were dropped, “consumer[s] living in high-
cost or extremely high cost census blocks . . . will continue to
have access to voice service at reasonably comparable rates.”
Id. at 6217. “[N]o other proposals” for interim regulation, the
FCC concluded, “would provide assurance that [those]
consumers will continue to have access to voice service at
reasonably comparable rates” during the transition. Id. at 6233.
And data that Petitioners submitted to the agency suggested
that nearly “one-quarter of U.S. households rely on traditional
switched service,” id. at 6162, such that in the absence of
interim landline ETC obligations, a significant number of
otherwise underserved individuals might lose
telecommunications service altogether. The agency
determined, then, that retaining incumbent ETCs’ residual
obligations in high-cost census blocks would “serve the public
interest and advance universal service.” Id. at 6231.
The agency also invoked the admittedly imprecise
predictive task of projecting how best to “protect consumers”
and ensure “just and reasonable” market rates during the
uncertainty of a complex regulatory transition. Id. at 6218,
6221-22. This court has “repeatedly held” that difficulties of
predicting the results of a regulatory shift are a “standard and
accepted” justification for such a “temporary rule.” Rural
Cellular I, 588 F.3d at 1105-06 (citing Competitive Telcomms.
Ass’n v. FCC, 309 F.3d 8, 14 (D.C. Cir. 2002)). The FCC was
not confident that it could “reasonably predict that customers
will continue to be served with voice service at reasonably
comparable rates if the [incumbent ETC] carrier no longer has
24
this obligation.” 2015 Order, 31 FCC Rcd. 6221. As such, the
agency’s decision to hold those obligations in place
temporarily is reasonable and adequately reasoned.
Petitioners further assert that, even if the FCC found a
demonstrated need to retain the obligations, the way the
Commission designed its interim regime fails to account for
Section 254(b) factors other than universal access. The FCC
did, however, address the other factors. For example, as
discussed below, it addressed both “competitive neutrality” and
“sufficient” funding before it determined “on balance” how to
advance the statute’s aims. Id. at 6231-33. The record
therefore does not support Petitioners’ claim that the FCC’s
consideration began and ended with the universal-service
objective.
2. Competitive Neutrality
Petitioners further argue that the 2015 Order ignores and
therefore violates the principle of “competitive neutrality” in
its differential treatment of the responsibilities and funding of
incumbent ETCs and newcomers. Petitioners give too little
credit to the FCC’s reasoning and balancing.
“Competitive neutrality” stands for the idea that “universal
support mechanisms and rules neither unfairly advantage nor
disadvantage one provider over another, and neither unfairly
favor nor disfavor one technology over another.” See First
Universal Service Order, 12 FCC Rcd. at 8801. We have held
that competitive neutrality “only prohibits the Commission
from treating competitors differently in ‘unfair’ ways,” and not
from according different treatment to competitors whose
circumstances are materially distinct. Rural Cellular I, 588
F.3d at 1104. Of particular relevance here, “competitive
neutrality” does not require the “same levels of support to all
ETCs.” Id. at 1105. In Rural Cellular I, we rejected a
25
challenge to a cap on federal funding for only one category of
ETCs, recognizing that “targeting only [one type of ETC] was
hardly unfair” in view of the agency’s findings that those ETCs
had disproportionately drawn on federal resources. Id. at 1104.
The 2014 and 2015 Orders holding constant certain service
obligations and funding mechanisms similarly rest on the
FCC’s findings that incumbent ETCs remained in the best
position, given existing practice and infrastructure, to maintain
existing services, at existing funding levels. See 2015 Order,
31 FCC Rcd. at 6232-34. In concluding that these carriers are
in “a unique position to maintain voice service as we transition
fully,” the agency relied on their “long history of providing
service in the relevant service areas, coupled with the fact that
they have already obtained the ETC designation necessary to
receive universal service support to serve those areas.” Id. at
6232. The FCC thus took account of how “new ETCs are
differently situated than incumbent ETCs,” id. at 6234,
particularly with respect to incumbent ETCs’ “history” and
their ability to continue to “serv[e] customers with voice
services.” Id. at 6233. The agency then reasonably concluded
that, for a small subset of census blocks during a limited,
transitional period, “the benefits of maintaining voice service”
in terms of consumer access “outweigh . . . concerns” about
competitive neutrality. Id. at 6232.
The Commission also offered additional funding for
incumbent ETCs as needed. In Rural Cellular I, we noted the
availability of such additional funding as a mechanism to
ameliorate on a case-by-case basis any potentially “unfair”
effects. Rural Cellular I, 588 F.3d at 1105 (“[T]o the extent a
[carrier affected by the cap] believes it should be entitled to
greater per-line high-cost support than the amount disbursed
under the cap, the Order permits [it] to obtain an exception
upon ‘fil[ing] cost data.’”) (alteration in original). Here, the
26
FCC has provided for additional funding on a case-by-case
basis for any ETCs that find they require more support. 2015
Order at 6229 n.440. That safety valve provides additional
assurance that the scheme will not, in practice, be “unfair” to
incumbents. The FCC thus identified adequate grounds for
distinguishing between incumbent ETCs and new ones and, by
providing for additional funding, ensured that incumbents
would not be left with an “unfair” burden in any service area.
In advancing its policy priorities to serve the public
interest, convenience, and necessity, the FCC may, so long as
it explains itself, determine how to account for the various
guiding principles in Section 254(b). See Fresno Mobile
Radio, Inc. v. FCC, 165 F.3d 965, 971 (D.C. Cir. 1999). The
FCC here met its obligation to consider competitive neutrality
as one among several principles.
3. “Sufficient” Funding
Finally, Petitioners assert that the FCC failed to ensure
“sufficient” funding for incumbent ETCs, or at least that its
reasoning on this point was inadequate.
We start from the premise that the FCC is entitled to
deference about what constitutes “sufficient” funding. Under
Section 254(b)(5), the Commission is responsible for
developing “specific, predictable and sufficient . . .
mechanisms to preserve and advance universal service.” 47
U.S.C. § 254(b)(5). This obligation overlaps with Section
254(e)’s requirement that the Commission establish “explicit
and sufficient” funding for ETCs. Id. § 254(e). “Since the
principles outlined use ‘vague, general language,’ courts have
analyzed language in § 254(b) under Chevron step two.” Rural
Cellular I, 588 F.3d at 1101-02 (citing Chevron, 467 U.S. at
843); see also In re FCC 11-161, 753 F.3d at 1055; Tex. Office
of Pub. Util. Counsel, 183 F.3d at 425-26. So, too, for Section
27
254(e). See Tex. Office of Pub. Util. Counsel, 183 F.3d at 425-
26. Our role is to consider whether the agency’s interpretation
is “a permissible construction” and to uphold it so long as it is
reasonable, even in the face of “‘other reasonable, or even more
reasonable, views.’” Rural Cellular I, 588 F.3d at 1102
(quoting AT&T Corp. v. FCC, 220 F.3d 607, 621 (D.C. Cir.
2000)).
Examined with appropriate deference, the FCC’s
interpretation defeats Petitioners’ claim that the statute
mandates federal funding at a level that would ensure an
attractive business case for providers in each and every census
block. To the contrary, Section 254 does not compel any
particular level of funding to count as “sufficient” under the
Act. Rural Cellular I, 588 F.3d at 1103.
In fact, we have held—contrary to Petitioners’ position—
that “sufficient” funding under Section 254(b)(5) is not merely
a means to sweeten the pot for providers. Rather, it “seeks to
strike an appropriate balance between the interests of”
consumers and industry. Id. at 1102. Too-ample funding or
compensation of carriers may even “itself violate the
sufficiency requirements of the Act” by so “detracting from
universal service by causing rates unnecessarily to rise, thereby
pricing some consumers out of the market.” Id. at 1103
(quoting Alenco, 201 F.3d at 620 (alteration omitted)); see
Qwest Commc’ns Int’l Inc. v. FCC, 398 F.3d 1222, 1234 (10th
Cir. 2005).
The FCC’s mandate to balance carrier compensation and
consumer access is reflected in the statutory structure of the
“sufficient” funding requirement under Section 254(b)(5): The
sufficiency of funding is but one of several enumerated
principles that the FCC must consider in devising universal
service mechanisms. See 47 U.S.C. § 254(b). It makes good
28
sense that the FCC has considered funding’s sufficiency “in
light of the other statutory directives.” In re FCC 11-161, 753
F.3d at 1060. And here the Commission has, in keeping with
our guidance in Rural Cellular I, 588 F.3d at 1103, set
“sufficient funding” levels that also take account of consumer
access and affordability. 2015 Order, 31 FCC Rcd. at 6217,
6233. As a consequence, the FCC’s conclusion that funding
may fall short of full compensation in particular areas and still
be “sufficient” is faithful to Section 254(b)(5) of the Act.
Petitioners do not identify any salient difference between
“specific” and “sufficient” funding for the purposes of Section
254(b)(5) and Section 254(e)’s parallel mandate that ETC
funding be “explicit and sufficient.” As a consequence, we
conclude that the existing subsidies also satisfy Section 254(e)
of the Act.
Petitioners further contend that, even accepting the FCC’s
interpretation of funding “sufficiency” under Section 254, the
Commission failed to justify the particular funding levels held
in place here. However, it weighs substantially in our thinking
that the agency is not writing “on a blank slate, but rather
against the backdrop of a decades-old regulatory system.”
2011 Order, 26 FCC Rcd. at 17,727. The FCC is keeping this
existing program in place during a temporary period of
regulatory transition. See Rural Cellular I, 588 F.3d at 1105;
Melcher, 134 F.3d at 1151-52; MCI Telecomms., 750 F.2d at
141. The agency’s obligation to reiterate the basis of the
scheme being phased out is therefore somewhat relaxed,
especially in light of the agency’s prerogative not to “expend[]
significant time and resources”—so as to potentially “impede”
its ability to fulfill its statutory directives—on a program that
will soon be replaced. Vt. Pub. Serv. Bd., 661 F.3d at 64-65;
see MCI Telecomms., 750 F.2d at 141. The Commission
provided in the 2015 Order for continued “eligib[ility] to
29
receive high-cost support” that it believed would suffice. See
2015 Order, 31 FCC Rcd. at 6233. It also noted that incumbent
“carriers have not provided enough information beyond
generalized assertions . . . that the support they receive . . . is
insufficient.” Id.; see also id. at 6222-23. Under the agency’s
modest obligation to re-justify its existing subsidy program, its
rationale suffices.
If Petitioners’ mandate in some census blocks proves, at
the end of the day, to be unnecessary, or underfunded and
therefore untenable, the FCC has expressly taken the potential
for such hardships into account. As discussed above, the
interim regime keeps in place mechanisms for relief that
together can ensure “sufficient” funding, including “case-by-
case” forbearance by the FCC (or the state), 2015 Order, 31
FCC Rcd. at 6224; see also 2011 Order, 26 FCC Rcd. at
18,064-65, and case-by-case additional funding from the FCC
(or the state), 2015 Order, 31 FCC Rcd. at 6229 n. 440. We
therefore affirm the agency’s reasoned conclusion that its
general but limited forbearance, plus the continued availability
of continued case-by-case supplemental funding or
forbearance answered industry concerns.
IV. Conclusion
The FCC is shepherding the nation’s communications
infrastructure into the Twenty-First Century, even as it seeks to
ensure that hard-to-serve areas and individuals retain access at
least to basic landline service. The Commission is owed
deference as it temporarily holds in place preexisting
requirements until the new systems are up and running. And
the FCC has provided for sufficient case-by-case relief if and
when Petitioners establish a need for it. There is no defect in
the FCC’s challenged Orders. We therefore deny the petitions.
So ordered.