National Lifeline Association v. FCC (AMENDED OPINION)

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 25, 2018 Decided February 1, 2019
Amended April 10, 2019
No. 18-1026
NATIONAL LIFELINE ASSOCIATION, ET AL.,
PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
OCETI SAKOWIN TRIBAL UTILITY AUTHORITY,
INTERVENOR
Consolidated with 18-1080
On Petitions for Review of an Order of
the Federal Communications Commission
John J. Heitmann argued the cause and filed the briefs for
petitioners National Lifeline Association, et al.
V. Shiva Goel argued the cause for petitioner Crow Creek
Sioux Tribe and intervenor Oceti Sakowin Tribal Utility
2
Authority. With him on the joint briefs were Christopher J.
Wright and John T. Nakahata.
Thaila K. Sundaresan, Counsel, Federal Communications
Commission, argued the cause for respondents. With her on
the brief were Robert B. Nicholson and Frances E. Marshall,
Attorneys, U.S. Department of Justice, Thomas M. Johnson Jr.,
General Counsel, Federal Communications Commission,
David M. Gossett, Deputy General Counsel, and Jacob M.
Lewis, Associate General Counsel. Richard K. Welch, Deputy
Assistant General Counsel, Federal Communications
Commission and William T. Shaw, Attorney Advisor, U.S.
Department of Justice, entered appearances.
Before: ROGERS and GRIFFITH, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: Responding to Congressional
directives, the Federal Communications Commission has
adopted programs to make voice and broadband services more
available and affordable for low-income consumers by
providing a discount on these services through its Lifeline
program. Since 1985, eligible low-income consumers may
receive a monthly discount of $9.25 on qualifying services, and
since 2000, low-income consumers living on Tribal lands may
receive an additional $25 per month for these services through
the Tribal Lifeline program in recognition of the additional
hurdles to affordable telecommunications service on Tribal
lands. In 2017, however, the Commission adopted two
limitations that petitioners challenge: First, it limited this
enhanced Tribal Lifeline subsidy to services provided by
eligible telecommunications carriers that utilize their own fixed
or mobile wireless facilities, excluding carriers that resell
3
services provided over other carriers’ facilities (“Tribal
Facilities Requirement”). Second, it limited the enhanced
Tribal Lifeline subsidy to residents of “rural” areas on Tribal
lands (“Tribal Rural Limitation”).
For the following reasons, we grant the petitions for
review. The Commission’s adoption of these two limitations
was arbitrary and capricious by not providing a reasoned
explanation for its change of policy that is supported by record
evidence. In adopting the Tribal Facilities Requirement, the
Commission’s decision evinces no consideration of the exodus
of facilities-based providers from the Tribal Lifeline program.
Neither does it point to evidence that banning resellers from the
Tribal Lifeline program would promote network buildout. Nor
does it analyze the impact of the facilities requirement on
Tribal residents who currently rely on wireless resellers.
Further, the Commission ignored that its decision is a
fundamental change that adversely affects the access and
affordability of service for residents of Tribal lands. Similarly,
in adopting the Tribal Rural Limitation, the Commission’s
decision evinces no consideration of the impact on service
access and affordability. Its decision does not examine
wireless deployment data related to services to which most
Tribal Lifeline recipients subscribe.
Various non-harmless procedural deficiencies exist as
well. The Commission failed to provide an adequate
opportunity for comment on the proposed limitations. For
instance, the 2017 supplemental notice of proposed rulemaking
lacked key information needed for interested persons to
anticipate that small towns below 10,000 in population would
be excluded. Because the Commission stated that it intended
to address remaining Tribal issues in a future rulemaking,
petitioners reasonably did not submit current data on
abandonment of the Lifeline program by facilities-based
4
providers. Two weeks’ notice in the form of an unpublished
draft order was inadequate.
I.
In the Communications Act of 1934, Congress stated its
goal was to “make available, so far as possible, to all the people
of the United States . . . a rapid, efficient, Nation-wide, and
world-wide wire and radio communication service with
adequate facilities at reasonable charges.” 47 U.S.C. § 151.
Congress reinforced this universal service goal in the
Telecommunications Act of 1996, providing that “[q]uality
services should be available at just, reasonable, and affordable
rates” and that “[c]onsumers in all regions of the Nation,
including low-income consumers . . . should have access to
telecommunications and information services.” 47 U.S.C.
§ 254(b)(1), (3) (“1996 Act”). The Commission has
responded, as relevant here, by adopting various iterations of
the Lifeline program. Some background is required to place
petitioners’ current challenges in context.
In 1985, the Commission created the Lifeline program to
ensure that low-income consumers had access to affordable,
landline telephone service following the divesture of AT&T.1
Recognizing that “[a]ccess to telephone service has become
crucial to full participation in our society and economy” and
that “an increase in fixed charges for telephone service” could
“cause a significant number of subscribers to cancel service,”
the Commission provided an offset of subscriber line charges
for low-income households. See 1985 Order, note 1, at 941–
42. In 1997, still concerned “over the low subscribership levels
1
MTS and WATS Market Structure; and Establishment of a
Joint Board; Amendment, Report and Order, 50 Fed. Reg. 939
(Jan. 8, 1985) (“1985 Order”).
5
among low-income consumers,” the Commission, in response
to § 254 of the 1996 Act, transformed the Lifeline program into
a stand-alone universal service program “designed to make
residential service more affordable for low-income
consumers.”2
The Lifeline program thus offers each eligible low-income
household a baseline monthly discount of $9.25 to offset the
costs of a wireline or wireless voice and broadband service
plan. 47 C.F.R. § 54.403(a)(1). Lifeline service may be
provided only by eligible telecommunications carriers
(“ETCs”), which are either certified by state public service
commissions or designated by the Commission. 47 U.S.C.
§ 214(e)(2), (6). The discount is provided as a subsidy to these
ETCs, which in turn pass through the subsidy to provide their
services to low-income consumers at reduced costs. 47 C.F.R.
§ 54.403(a)(1). The ETCs may allow eligible low-income
consumers, as defined by § 54.409, to apply their discount to
any service plan meeting certain minimum service standards.
Id. § 54.401(b).
In 2000, the Commission established the Tribal Lifeline
program to provide an enhanced monthly subsidy of $25 for
residents of federally recognized Tribal lands.3 See 47 C.F.R.
§ 54.403(a)(3). There was a “need for immediate Commission
action to promote the deployment of telecommunications
facilities in tribal areas and to provide the support necessary to
increase subscribership . . . for the benefit of those living on”
2
Federal-State Joint Board on Universal Service, Report and
Order, 12 FCC Rcd. 8776, ¶¶ 346, 406 (1997) (“1997 Order”).
3
Federal-State Joint Board on Universal Service et al.,
Twelfth Report and Order, 15 FCC Rcd. 12208, ¶¶ 5, 13 (2000)
(“2000 Tribal Lifeline Order”).
6
Tribal lands. 2000 Tribal Lifeline Order, note 3, ¶ 5. At that
time, statistics showed that households on reservations and
other Tribal lands had the lowest reported telephone
subscribership levels in the nation. Id. ¶¶ 5, 26. The
Commission recognized that the critical lack of access to
telecommunications services on Tribal lands threatened
Tribes’ access to no less than “education, commerce,
government, and public services” and therefore their “tribal
sovereignty and self-governance.” Id. ¶ 23.
The Commission’s “primary goal” in adopting the
enhanced subsidy was to “reduce the monthly cost of
telecommunications services for qualifying low-income
individuals on tribal lands, so as to encourage those without
service to initiate service and better enable those currently
subscribed to maintain service.” Id. ¶ 44. It determined that a
“substantial additional amount of support” was necessary to
increase subscribership in view of “(1) the extraordinarily low
average per capita and household incomes in tribal areas,
(2) the excessive toll charges that many subscribers incur as a
result of limited local calling areas on tribal lands, (3) the
disproportionately low subscribership levels in tribal areas, and
(4) the apparent limited awareness of, and participation in, the
existing Lifeline program.” Id. Three secondary benefits of
the enhanced Tribal subsidy were: (1) encouraging deployment
of telecommunications facilities on Tribal lands that currently
lack such facilities, (2) spurring competition from new entrants
offering alternative technologies, and (3) reducing barriers to
increased penetration that are caused by limited local calling
areas. Id. ¶¶ 52–58.
Prior to adopting the enhanced Tribal subsidy, the
Commission had consulted various Tribal leaders in formal
field hearings, Commissioner-level meetings, and informal
meetings. The Commission then “reaffirm[ed] . . . principles
7
of Tribal Sovereignty and the Federal Trust Responsibility,”
and committed going forward, “to the extent practicable, [to]
consult with Tribal governments prior to implementing any
regulatory action or policy that will significantly or uniquely
affect Tribal governments, their land and resources.”4 The
Commission also agreed to streamline processes and
procedures placing “undue burdens” on Indian Tribes. Tribal
Policy Statement, note 4, at 4082 ¶ 4.
To keep pace with various market forces resulting in the
phase out by major carriers from the Lifeline program, the
Commission decided to allow non-facilities-based providers
(or “wireless resellers”) to provide Lifeline services, beginning
in 2005. Under the 1996 Act, an ETC must “offer the services
that are supported by Federal universal service support
mechanisms” “either using its own facilities or a combination
of its own facilities and resale of another carrier’s services.” 47
U.S.C. § 214(e)(1). Since 1997, the Commission had
interpreted “own facilities” to mean that non-facilities-based
providers, who purchased telecommunications service
wholesale from other carriers that owned the facilities and then
resold it to consumers, were ineligible for Lifeline support.
Otherwise, wireline resellers would be able to “double
recover,” once through the universal service subsidy and again
through subsidized wholesale rates. See 1997 Order, note 2,
¶ 161. In 2005, the Commission concluded the “own facilities”
requirement met the 1996 Act’s criteria for forbearance, and
excused TracFone, a non-facilities-based provider, from this
4
Statement of Policy on Establishing a Government-to-
Government Relationship with Indian Tribes, Policy
Statement, 16 FCC Rcd. 4078, 4080, 4081 ¶ 2 (2000) (“Tribal
Policy Statement”).
8
requirement.5 Addressing the three forbearance factors in 47
U.S.C. § 160(a), the Commission found (1) the “own facilities”
requirement was unnecessary to achieve the Lifeline program’s
purposes because there is no double recovery as wireless
resellers’ rates are not subsidized, 2005 Forbearance Order,
note 5, ¶¶ 11–12; (2) the requirement was unnecessary to
protect consumers, and forbearance would benefit consumers
by offering them previously unavailable choice of providers,
id. ¶ 15; and (3) forbearance was in the public interest because
it would expand eligible participation in the program, id. ¶ 24.
The Commission observed that only “one-third of [Lifeline-
eligible] households” subscribed to Lifeline services and
predicted that allowing non-facilities-based providers like
TracFone to participate “should expand participation of
qualifying consumers.” Id.
The Commission used the same rationale to extend “own
facilities” forbearance to other ETCs.6 And in 2012, the
Commission adopted forbearance from the “own facilities”
requirement for all non-facilities-based providers.7
Consequently, as a result of the Commission’s blanket
forbearance, resellers play a critical role in the Lifeline
5
Petition of TracFone Wireless, Inc. for Forbearance from 47
U.S.C. § 214(e)(1)(A) and 47 C.F.R. § 54.201(i), Order, 20
FCC Rcd. 15095, 15100 ¶ 9 (2005) (“2005 Forbearance
Order”).
6
See Virgin Mobile USA, L.P. Petition for Forbearance from
47 U.S.C. § 214(e)(1)(A) et al., Order, 24 FCC Rcd. 3381,
¶¶ 19–21 (2009); i-Wireless, LLC Petition for Forbearance
from 47 U.S.C. § 214(e)(1)(A) et al., Order, 25 FCC Rcd. 8784,
¶ 7 (2010).
7
Lifeline and Link Up Reform and Modernization et al., Report
and Order and Further Notice of Proposed Rulemaking, 27
FCC Rcd. 6656, ¶ 368 (2012) (“2012 Lifeline Reform Order”).
9
program: by 2015, approximately two-thirds of eligible low-
income consumers on Tribal lands relied on non-facilities-
based providers for their Lifeline services.
Beginning in 2012, the Commission also emphasized the
need to comprehensively improve and modernize Lifeline
operations. 2012 Lifeline Reform Order, note 7, ¶ 2.
Expenditures for the Lifeline program had increased
substantially, from $582 million in 1998 to $2.4 billion in 2012.
Id. ¶ 23. To “constrain the growth of the program in order to
reduce the burden on all who contribute to the Universal
Service Fund,” id. ¶ 1, the Commission adopted reforms to
eliminate waste, fraud, and abuse in the program, establishing,
among other things, national eligibility criteria, certification
requirements, and independent audit requirements on certain
larger carriers. Id. ¶ 4.
Then, on June 22, 2015, the Commission initiated a
proceeding to achieve “a fundamental, comprehensive
restructuring of the program.”8 The Commission sought
comment on proposals to change the Lifeline and Tribal
Lifeline programs, including whether to “limit enhanced Tribal
Lifeline and Link Up support only to those Lifeline providers
who have facilities,” 2015 Lifeline Second FNPRM, note 8,
¶ 167, and whether to “focus enhanced Tribal support to those
Tribal areas with lower population densities,” id. ¶¶ 169–70.
The Commission made substantial changes to the Lifeline
program in April 2016 but did not change the Tribal Lifeline
8
Lifeline and Link Up Reform and Modernization et al.,
Second Further Notice of Proposed Rulemaking, Order on
Reconsideration, Second Report and Order, and Memorandum
Opinion and Order, 30 FCC Rcd. 7818, 7824 (2015) (“2015
Lifeline Second FNPRM”).
10
program.9 For example, the Commission established minimum
service standards for broadband and mobile voice services,
created a National Verifier program to ensure only eligible
subscribers may enroll in Lifeline support, and encouraged the
entry of new broadband providers into the Lifeline program.
2016 Lifeline Modernization Order, note 9, ¶¶ 6–8. The
Commission recognized that like telephone service in previous
generations, broadband Internet service “has evolved into the
essential communications medium of the digital economy.” Id.
¶ 12. It decided to “maintain the current set of Tribal-specific
eligibility programs,” “agree[ing] with commenters” that
“there is much more progress to be made in increasing
penetration and adoption of Lifeline services.” Id. ¶ 205. Of
significance, the Commission also stated that certain Tribal
Lifeline eligibility issues it had raised in the 2015 Lifeline
Second FNPRM, including the proposed facilities requirement
and rural limitation, would “remain open for consideration in a
future proceeding more comprehensively focused on
advancing broadband deployment on Tribal lands.” Id. ¶ 211
& nn. 570–71.
On October 26, 2017, the Commission released a draft
order adopting a facilities requirement and rural limitation for
the Tribal Lifeline program.10 Some comments were submitted
to the Commission. A public notice of November 9, 2017
9
Lifeline and Link Up Reform and Modernization et al., Third
Report and Order, Further Report and Order, and Order on
Reconsideration, 31 FCC Rcd. 3962, ¶¶ 205–11 (2016) (“2016
Lifeline Modernization Order”).
10
See FCC Fact Sheet: Bridging the Digital Divide for Low-
Income Consumers, Fourth Report and Order, Order on
Reconsideration, Memorandum Opinion and Order, Notice of
Proposed Rulemaking, and Notice of Inquiry, FCC-CIRC
1711-05 (Oct. 26, 2017).
11
announced the beginning of the Sunshine Period and prohibited
interested persons from lobbying the Commission. See 47
C.F.R. § 1.1200. A week later, on November 16, 2017, the
Commission voted 3-2 in favor of the draft 2017 Order with
some modifications.11 In the 2017 Lifeline Order, the
Commission adopted two limitations that petitioners challenge.
First, the Tribal Facilities Requirement limits enhanced
Tribal Lifeline support to “fixed or mobile wireless facilities-
based Lifeline service provided on Tribal lands with wireless
network facilities covering all or a portion of the relevant
Lifeline ETC’s service area on Tribal lands.” 2017 Lifeline
Order, note 11, ¶ 24. To possess “facilities” for purposes of
the enhanced subsidy, “a mobile wireless provider must hold
usage rights under a spectrum license or a long-term spectrum
leasing arrangement along with wireless network facilities that
can be used to provide wireless voice and broadband services.”
Id. “If an ETC offers service using its own as well as others’
facilities in its service area on rural Tribal lands, it may only
receive enhanced support for the customers it serves using its
own last-mile facilities.” Id. ¶ 26. The Commission stated that
the Tribal Facilities Requirement “will focus the enhanced
support toward those providers directly investing in voice- and
broadband-capable networks” on Tribal lands, ensuring that
Tribal Lifeline payments “will be reinvested in the ‘provision,
maintenance, and upgrading’ of facilities” in Tribal areas. Id.
¶ 27.
11
Bridging the Digital Divide for Low-Income Consumers et
al., Fourth Report and Order, Order on Reconsideration,
Memorandum Opinion and Order, Notice of Proposed
Rulemaking, and Notice of Inquiry, 32 FCC Rcd. 10475
(released Dec. 1, 2017) (“2017 Lifeline Order”), 83 Fed. Reg.
2075 (Jan. 16, 2016).
12
Second, the Tribal Rural Limitation limits enhanced Tribal
Lifeline support to residents of “rural” areas on Tribal lands.
Id. ¶ 3. It adopts the definitions of “rural” and “urban” used in
the Commission’s Schools and Libraries Program (“E-Rate”),
which defines “urban” as “an urbanized area or urban cluster
area with a population equal to or greater than 25,000,” and
“rural” as any area that is not “urban,” 47 C.F.R.
§ 54.505(b)(3). 2017 Lifeline Order, note 11, ¶ 5. The
Commission stated that providing enhanced Lifeline support in
“more densely populated Tribal lands” was “inconsistent with
the Commission’s primary purpose of the enhanced support,”
observing approximately 98% of people living in urban areas
in the United States have access to fixed broadband Internet.
Id. ¶ 9.
Timely petitions for review were filed. Following denial
of a stay by the Commission, the court granted petitioners’
motion for a judicial stay, concluding “[p]etitioners have
demonstrated a likelihood of success on the merits of their
arguments that the facilities-based and rural areas
limitations . . . are arbitrary and capricious.” Nos. 18-1026,
18-1080, Order, at 2 (D.C. Cir. Aug. 10, 2018).
II.
Petitioners challenge the 2017 Lifeline Order, contending
that both the Tribal Facilities Requirement and Tribal Rural
Limitation are arbitrary and capricious because the
Commission failed to consider several key issues, such as the
impact of its action on service access and affordability.
Petitioners also contend the Commission failed to provide
sufficient notice of the proposed changes, and to initiate, as it
stated it would, a new notice-and-comment rulemaking before
adopting these changes to the Tribal Lifeline program.
Petitioners further contend the Commission violated its own
13
procedural requirements by failing to consult Indian tribes in
advance.
Under the Administrative Procedure Act, the reviewing
court “shall . . . hold unlawful and set aside agency action . . .
found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2). The
agency must “articulate a satisfactory explanation for its action
including a rational connection between the facts found and the
choice made.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983). Agency action is
arbitrary and capricious if the agency “has relied on factors
which Congress has not intended it to consider, entirely failed
to consider an important aspect of the problem, offered an
explanation for its decision that runs counter to the evidence
before the agency, or is so implausible that it could not be
ascribed to a difference in view or the product of agency
expertise.” Id. Of course, “[a]gencies are free to change their
existing policies as long as they provide a reasoned explanation
for the change.” Encino Motorcars, LLC v. Navarro, 136 S.
Ct. 2117, 2125 (2016) (citing Nat’l Cable & Telecomms. Ass’n
v. Brand X Internet Servs., 545 U.S. 967, 981–82 (2005)).
Although the court’s review entails a “narrow” standard of
review, “an agency [must] ‘examine the relevant data and
articulate a satisfactory explanation for its action.’” FCC v.
Fox Television Stations, Inc., 556 U.S. 502, 513 (2009)
(quoting State Farm, 463 U.S. at 43). This same standard
applies when an agency changes its prior policy. See id. But
the new policy must be permissible under the statute, and the
agency must acknowledge it is changing its policy and show
that “there are good reasons” for the new policy and “that the
agency believes it to be better, which the conscious change of
course adequately indicates.” Id. at 515. An agency cannot
ignore its prior factual findings that contradict its new policy
14
nor ignore reliance interests. Id. at 515–16. “[A] reasoned
explanation is needed for disregarding facts and circumstances
that underlay or were engendered by the prior policy.” Id. at
516. This court has thus understood its role to be confined “to
ensur[ing] that the [agency] engaged in reasoned
decisionmaking,” Farmers Union Cent. Exch., Inc. v. FERC,
734 F.2d 1486, 1500 (D.C. Cir. 1984), after a “searching and
careful inquiry” of the record, Mississippi v. EPA, 744 F.3d
1334, 1342 (D.C. Cir. 2013). The agency’s substantive
decision must be supported by “substantial evidence” in the
administrative record. Comcast Corp. v. FCC, 579 F.3d 1, 5,
7 (D.C. Cir. 2009).
A.
Congress established in the 1996 Act the principles
underlying the universal service program as making “[q]uality
services” “available at just, reasonable, and affordable rates.”
47 U.S.C. § 254(b)(1). Since at least 2000, the Commission
has articulated the “primary goal” of the enhanced Tribal
subsidy as “reduc[ing] the monthly cost of telecommunications
services for qualifying low-income individuals on tribal lands,
so as to encourage those without service to initiate service and
better enable those currently subscribed to maintain service.”
2000 Tribal Lifeline Order, note 3, ¶ 44. Although the
Commission has recognized the importance of encouraging
infrastructure development, id. ¶¶ 52–55, the Commission’s
long-stated primary tenets for the program are availability and
affordability. The Commission adopted the enhanced Tribal
subsidy specifically for the purpose of increasing
“subscribership” in view of the financial obstacles facing
Tribal participation. See id. ¶ 44. The Commission reaffirmed
this understanding of Tribal Lifeline’s purpose in 2012, stating
that the Tribal Lifeline program was a “direct response to the
disproportionately low subscribership to telecommunications
services among Tribal communities at the time.” 2012 Lifeline
15
Reform Order, note 7, ¶ 150. Yet in 2017, the Commission
ignored the substantial impact of these changes on affordability
and access. See, e.g., 2017 Lifeline Order, note 11, ¶ 24. While
acknowledging that Lifeline funds disbursed to resellers
“w[ould] still lower the cost of the consumer’s service,” id.
¶ 23, the Commission explained the Tribal Facilities
Requirement on the basis that these funds “cannot directly
support the provider’s network because the provider does not
have one,” id. This fails to consider the impact of the change
on the Lifeline subsidy’s “primary purpose” or otherwise
explain how it is compatible with that purpose.
The Commission also failed to justify its fundamental
policy reversal on forbearing the “own facilities” requirement
in light of its previous findings regarding the important role of
non-facilities-based providers in promoting affordable
telecommunications service. For thirteen years, the
Commission forbore from enforcing the “own facilities”
requirement based on finding that “the facilities requirement
impedes greater utilization of Lifeline-supported services
provided by a pure wireless reseller,” 2005 Forbearance
Order, note 5, ¶ 9, and that making non-facilities-based
providers eligible would increase access to affordable services,
id. ¶¶ 13, 24. The Commission had found that because Lifeline
support to wireless carriers is customer-specific, its previous
concern that resellers might receive a double recovery did not
apply. Id. ¶ 12. The Commission also found that forbearance
would “benefit consumers” because low-income consumers
would have “a choice of providers not available to such
consumers today for accessing telecommunications services.”
Id. ¶ 15. Yet in 2017, the Commission rescinded its policy of
forbearance as to the Tribal Lifeline program without
conducting a new forbearance analysis or providing any
reasoned explanation for its reversal. See generally 2017
Lifeline Order, note 11, ¶¶ 21–30. Even on appeal, the
16
Commission does not acknowledge the policy reversal on the
enhanced subsidy, which made reselling attractive
economically, instead maintaining that non-facilities-based
providers can still participate as Lifeline providers; they are
just limited to the baseline monthly subsidy of $9.25. Resp’t’s
Br. 54. The Commission never explained why its previous
forbearance findings no longer applied. Although the
Commission sought comment on whether it should reverse the
forbearance findings, it made no new findings with regard to
forbearance of the “own facilities” requirement for the
enhanced subsidy. 2017 Lifeline Order, note 11, ¶¶ 69–79. Its
reference in its notice of proposed rulemaking to major
Commission actions for “waste, fraud, and abuse” against
resellers, see id. ¶ 68, can provide no justification for the Tribal
Facilities Requirement absent evidence that a substantial
portion of the two-thirds of services supplied by non-facilities-
based providers are, in fact, fraudulent or wasteful, and the
Commission pointed to none.
The Commission also “failed to consider . . . important
aspect[s] of the problem” in adopting the Tribal Facilities
Requirement. State Farm, 463 U.S. at 43. First, the
Commission’s decision does not indicate consideration of
facilities-based providers’ unwillingness to offer Tribal
Lifeline services. Numerous commenters explained that the
major facilities-based providers — AT&T, T-Mobile, and
Verizon — have relinquished their Lifeline eligibility
altogether, and despite maintaining Lifeline eligibility, Sprint
also does not offer any Tribal Lifeline services.12 The
12
See, e.g., Lifeline and Link Up Reform and Modernization et
al., Comments of Navajo Nation Telecommunications
Regulatory Commission, 10 (Aug. 28, 2015) (“Navajo Nation
Comments”); Lifeline and Link Up Reform and Modernization
et al., Comments of Assist Wireless, LLC & Easy Telephone
17
statement of a dissenting Commission Member also makes
clear the Commission knew that the major facilities-based
providers were uninterested in providing Tribal Lifeline
services yet failed to address the problem that would be created
as a result of changing its policy. For thirteen years, the
Commission had justified forbearance in part based on the
ability of non-facilities-based providers to offer minimum
services at competitive rates by purchasing facilities-based
providers’ services wholesale and then reselling them. See
2012 Lifeline Reform Order, note 7, ¶ 371. By 2015, the
Commission reported “two-thirds of enhanced Tribal support
goes to non-facilities-based providers, and it is unclear whether
the support is being used to deploy facilities in Tribal areas,”
still thereby suggesting that eligible consumers relied on non-
facilities-based providers for their telecommunications
services. 2017 Lifeline Order, note 11, ¶ 23. This reliance
exists because non-facilities-based providers can efficiently
reach the low-income population with targeted service plans
and because the largest facilities-based providers are unwilling
to participate in a program that is unprofitable for them.13
Services Co., 18–19 (Aug. 31, 2015); Lifeline and Link Up
Reform and Modernization et al., Comments of AT&T, 5–6 &
n.10 (Aug. 31, 2015); Lifeline and Link Up Reform and
Modernization et al., Comments of the Oglala Sioux Tribe
Utility Commission, Attachment, 3 (Aug. 31, 2015); Lifeline
and Link Up Reform and Modernization et al., Crow Creek
Sioux Tribal Resolution, 1 (June 1, 2017); Lifeline and Link Up
Reform and Modernization et al., Assist Wireless, LLC,
Boomerang Wireless, LLC, and Easy Telephone Services Co.
Written Ex Parte Presentation, 5 (Nov. 9, 2017) (“Assist Ex
Parte”).
13
See Implementation of Section 6002(b) of the Omnibus
Budget Reconciliation Act of 1993 et al., Eleventh Report, 21
FCC Rcd. 10947, ¶ 28 (2006); Lifeline and Link Up Reform
18
Second, the Commission’s decision does not indicate that
it considered the effect of eliminating the enhanced subsidy for
non-facilities-based providers, namely that many low-income
consumers on Tribal lands will lose access to affordable
telecommunications service. Commenters explained that
because certain areas have no facilities-based provider willing
to provide Lifeline service, removing the enhanced subsidy
from non-facilities-based providers will make those services
unavailable to consumers.14 The Commission was aware that
two-thirds of enhanced Tribal support goes to non-facilities-
based providers, see 2017 Lifeline Order, note 11, ¶ 23, yet
never appears to address what would happen to these
consumers when the subsidy was removed. Instead, the
Commission summarily “conclude[d] that providing the
enhanced support to Lifeline providers deploying, building,
and maintaining critical last mile infrastructure is a more
appropriate way to support the expansion of voice- and
broadband-capable networks on Tribal lands.” Id. ¶ 28.
Although the court must “give appropriate deference to
predictive judgments” by an agency where supported by
“[s]ubstantial evidence,” Time Warner Entm’t Co. v. FCC, 240
F.3d 1126, 1133 (D.C. Cir. 2001), the Commission referred to
no evidence that facilities-based providers will make up the gap
in services when non-facilities-based providers are ineligible to
receive the enhanced Tribal subsidy.
and Modernization et al., Reply Comments of Boomerang
Wireless, LLC, 4 (Sept. 30, 2015) (“Boomerang Reply
Comments”); Bridging the Digital Divide for Low-Income
Consumers et al., Letter from CTIA to FCC, 3–4 (Nov. 8,
2017).
14
See, e.g., Boomerang Reply Comments, note 13, at 6; Assist
Ex Parte, note 12, at 5.
19
Third, the Commission pointed to no record evidence that
directing the enhanced Tribal subsidy solely to facilities-based
providers would incentivize them to deploy additional facilities
and networks, reduce prices, or offer new service plans for low-
income consumers. See 2017 Lifeline Order, note 11, ¶ 27.
Comments that the Commission points to in its brief on appeal,
see Resp’t’s Br. 49–50, do not show how limiting the enhanced
subsidy to facilities-based providers will increase network
buildout, much less do so in areas where there is no facilities-
based provider participating in the Tribal Lifeline program that
could receive the enhanced subsidy. Further, the Commission
did not meaningfully address comments and evidence that
undercut its conclusion, such as economic analysis in the
record indicating that subsidizing non-facilities-based
subscribership also supports network buildout.15 Commenters
noted that “[f]acilities-based and non-facilities-based
carriers . . . operate symbiotically” and that “[t]he result of this
relationship is enhanced capacity utilization and hence more
investment than would happen in the absence of [non-facilities-
based carriers].”16 The Commission has recognized in other
contexts that facilities-based providers may contract with
resellers “when the [wireless reseller] has better access to some
market segments than the host facilities-based service
provider” and when the reseller “can better target specific
market segments, such as low-income consumers or consumers
with lower data-usage needs.”17
15
See Assist Ex Parte, note 12, at 8–9; see also Bridging the
Digital Divide for Low-Income Consumers et al., Comments of
CTIA, 15 (Feb. 21, 2018) (“CTIA Comments”).
16
CTIA Comments, Declaration of John Mayo, ¶ 7 (Feb. 19,
2018).
17
Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993 et al., Twentieth Report, 32 FCC
Rcd. 8968, ¶ 15 (2017).
20
Fourth, the Commission ignored “serious reliance
interests” engendered by its policy of forbearance. See Fox
Television, 556 U.S. at 515. As in Encino Motorcars, 136 S.
Ct. at 2126, the Commission’s decision does not take into
account the reliance interests of both the non-facilities-based
providers that had crafted business models and invested
significant resources into providing Lifeline service, and the
two-thirds of subscribers relying on non-facilities-based
providers for their telecommunications service. The
Commission neither attempted to estimate the number of
consumers who would be unable to afford service without the
enhanced subsidy or would lose access to service altogether
when non-facilities-based providers discontinued their plans,
nor did it consider alternatives to ensure coverage for these
consumers or respond to these objections. The dissenting
Commissioner raised these concerns, and an agency has an
obligation to consider an alternative or objection raised by a
dissenting Commissioner that was “neither frivolous nor out of
bounds.” Chamber of Commerce v. SEC, 412 F.3d 133, 144–
45 (D.C. Cir. 2005). After the draft 2017 Order was released,
ETCs filed data showing that approximately 75% of Tribal
Lifeline customers could not afford to pay the additional $25
per month. Comments also indicated that non-facilities-based
providers have developed a business model based on “buying
large blocks of minutes from the major carriers and then
reselling those minutes as Lifeline packages,” thereby
depending upon the enhanced subsidy to enable significant
numbers of low-income consumers to subscribe to their prepaid
or minimal service plans. See Navajo Nation Comments, note
12, at 10.
By departing from its prior forbearance policy without
reasoned explanation and failing to consider key aspects of the
program — e.g., facilities-based providers’ unwillingness to
21
offer Tribal Lifeline services, the effect of eliminating the
enhanced Tribal subsidy on access and affordability, the effect
of directing the subsidy only to facilities-based providers on
network buildout, and the reliance interests of these carriers
and their consumers — the Commission’s adoption of the
Tribal Facilities Requirement was arbitrary and capricious. See
State Farm, 463 U.S. at 43. In view of these failures by the
Commission, the court need not address petitioners’
contentions that the Tribal Facilities Requirement violates
sections 10, 214, and 254 of the 1996 Act.
B.
The Commission also did not consider the impact of its
Tribal Rural Limitation on service access and affordability.
Although referring to the general disparity between urban and
rural areas in the United States in terms of telecommunications
infrastructure, see 2017 Lifeline Order, note 11, ¶ 3, the
Commission pointed to no record evidence that
telecommunications services are more available or more
affordable for low-income consumers on urban Tribal lands
than on rural Tribal lands, such that the enhanced subsidy
would be less necessary in urban areas for furthering the
Lifeline program’s primary goals of access and affordability.
See id. ¶¶ 3–9. Even with a developed infrastructure of
network services in urban areas, low-income consumers may
still be unable to afford those services without the enhanced
Tribal subsidy. The Commission failed to refer to any data
considering the relevant impacts on service access and
affordability.
The Commission also failed to refer to data considering
the impact of its Tribal Rural Limitation on incentivizing
infrastructure deployment. The Commission referred to the
deployment data only for fixed voice and broadband service.
See 2017 Lifeline Order, note 11, ¶ 9. It did not show that it
22
examined deployment data for the wireless services, to which
the vast majority of Tribal Lifeline recipients subscribe. See
id. ¶ 23.18 The Commission’s conclusion that limiting the
enhanced Tribal subsidy to rural lands will incentivize
deployment is thus speculative. By failing to “examine the
relevant data,” the Commission’s adoption of the Tribal Rural
Limitation was arbitrary and capricious. NTCH, Inc. v. FCC,
841 F.3d 497, 502 (D.C. Cir. 2016) (quoting State Farm, 463
U.S. at 43).
III.
Petitioners challenge the 2017 Lifeline Order on
procedural grounds as well. An agency’s substantive rules are
subject to the requirements of notice-and-comment rulemaking
under the APA. Mendoza v. Perez, 754 F.3d 1002, 1020–21
(D.C. Cir. 2014). To meet the rulemaking requirements of
section 553 of the APA, an agency “must provide sufficient
factual detail and rationale for the rule to permit interested
parties to comment meaningfully.” Florida Power & Light Co.
v. United States, 846 F.2d 765, 771 (D.C. Cir. 1988). After
publishing notice in the Federal Register of “the terms or
substance of the proposed rule or a description of the subjects
and issues involved,” the agency “shall give interested persons
an opportunity to participate in the rule making through
submission of written data, views, or arguments.” 5 U.S.C
§ 553(b), (c). For notice to be sufficient, the final rule must be
“a logical outgrowth” of the proposed rule in the sense that the
original notice must “adequately frame the subjects for
18
See also, e.g., Lifeline and Link Up Reform and
Modernization et al., Comments of Assist Wireless, LLC and
Easy Telephone Service Co., 2 (Aug. 31, 2015); Lifeline and
Link Up Reform and Modernization et al., Comments of
Boomerang Wireless, LLC, 6–9 (Aug. 31, 2015).
23
discussion.” Omnipoint Corp. v. FCC, 78 F.3d 620, 631 (D.C.
Cir. 1996). Put otherwise, “the affected party ‘should have
anticipated’ the agency’s final course in light of the initial
notice.” Covad Commc’ns Co. v. FCC, 450 F.3d 528, 548
(D.C. Cir. 2006). A reviewing court is to take “due
account . . . of the rule of prejudicial error.” 5 U.S.C. § 706.
A.
Petitioners maintain that the Tribal Rural Limitation is not
a “logical outgrowth” of the Commission’s proposal in the
2015 Lifeline Second FNPRM. That proposal called for using
the Department of Agriculture’s rule excluding towns or cities
with populations greater than 10,000. The final rule excludes
“urbanized areas” and “urban clusters” with populations
greater than 25,000; in effect, this definition can and does
exclude some small towns of significantly less than 25,000 or
even 10,000 people (despite contrary terms in the proposed
rule).19 The Commission sought comment on several
population-density-based definitions for “rural” lands, but
neither the adopted E-Rate definition nor the “urban cluster”
methodology was mentioned in the notice.
Although agency notice need not predict “the exact result
reached after a notice and comment rulemaking,” Pub. Serv.
Comm’n v. FCC, 906 F.2d 713, 717 (D.C. Cir. 1990),
comments on the draft 2017 Order indicated the Commission’s
proposed and final rules were unclear in scope. The
Commission failed to provide the searchable maps or digital
“shapefiles,” so that at least affected persons could determine
the impact of the rule, until after the final rule was published.
See 2017 Lifeline Order, note 11, ¶ 15. Insofar as the maps
were necessary to appreciate that even some towns with
19
See Shapefile of Rural Tribal Lands, https://www.usac.org/
li/tools/reference-area.aspx.
24
populations under 10,000 people (contrary to the
Commission’s original proposal of excluding towns above
10,000 people) would be excluded from the enhanced subsidy
under the “urban cluster” methodology, the 2015 Lifeline
Second FNPRM was inadequate to enable sufficient comment
on the proposed rule, much less allow an understanding of the
effect of the final rule.
B.
The Commission also improperly adopted the two
challenged limitations without commencing a new notice-and-
comment-rulemaking proceeding as it had promised. The
Commission does not contest that the Tribal Facilities
Requirement and Tribal Rural Limitation are substantive
changes in the regulations that required a new notice-and-
comment-rulemaking proceeding. Mendoza, 754 F.3d at
1020–21. Instead, it maintains that it provided all the
proceeding it had promised when it proposed the changes in
2015 and kept the docket open for comments after issuing the
2016 Lifeline Modernization Order. See Resp’t’s Br. 30–31.
Although an agency may be able to issue multiple orders
based on a single notice-and-comment rulemaking, the
Commission stated it would address any remaining Tribal
issues in a “future proceeding more comprehensively focused
on advancing broadband deployment on Tribal lands.” 2016
Lifeline Modernization Order, note 9, ¶ 211. This statement
signaled to interested persons that until a new notice-and-
comment rulemaking was commenced, there was no reason to
submit further comment regarding a facilities requirement and
a rural limitation in response to the 2015 Lifeline Second
FNPRM. By referring to a “proceeding” and a “more
comprehensive[] focus,” the Commission gave interested
persons every reason to conclude the old docket was closed and
additional comments on these proposed limitations could be
25
submitted at a later time as part of a new rulemaking
proceeding. This interpretation is consistent with the
Commission’s own definition of “proceeding” as a process for
“obtaining information,” 47 C.F.R. § 1.1, as well as the
Commission’s past practice of referring to a new notice-and-
comment-rulemaking proceeding when it promised a “future
proceeding.”20 It is also consonant with the APA’s definition
of a “proceeding” as a rulemaking, an adjudication, or a
licensing, 5 U.S.C. § 551(12); see id. § 551(5), (7), (9), as the
latter were not being considered.
The Commission’s procedural error is not harmless;
petitioners have additional information that is directly on point
— including comments on the geographic maps delineating
“urban” versus “rural” areas, data about the cost of services to
consumers, updated information about facilities-based
providers’ relinquishment of eligibility, and econometric
studies. See CSX Transp. v. Surface Transp. Bd., 584 F.3d
1076, 1083 (D.C. Cir. 2009). The two-week period between
issuance of the unpublished draft 2017 Order on October 26
and the public notice on November 9 cutting off lobbying was
not an adequate period for eliciting meaningful comments.
When substantial rule changes are proposed, a 30-day
comment period is generally the shortest time period sufficient
for interested persons to meaningfully review a proposed rule
20
See, e.g., Improvements to Benchmarks and Related
Requirements Governing Hearing Aid-Compatible Mobile
Handsets, Report and Order, 31 FCC Rcd. 9336, ¶¶ 42–43
(2016); An Inquiry Into the Commission’s Policies and Rules
Regarding AM Radio Service Directional Antenna
Performance Verification, Second Report and Order and
Second Further Notice of Proposed Rulemaking, 23 FCC Rcd.
14267, ¶ 11 (2008).
26
and provide informed comment. Petry v. Block, 737 F.2d 1193,
1201 (D.C. Cir. 1984); see Prometheus Radio Project v. FCC,
652 F.3d 431, 453 (3d Cir. 2011). Here, comments on the draft
2017 Order reflect the inability to comment meaningfully
within this brief time.21 See Allina Health Servs. v. Sebelius,
746 F.3d 1102, 1110 (D.C. Cir. 2014). Petitioners’ new data
and information demonstrate that inviting another round of
comments on these Tribal rural issues would allow the
Commission to act on the basis of up-to-date, more
comprehensive, and specifically targeted information.22 New
information was presented as well in the course of seeking a
stay of the challenged order from the Commission once the
Commission made population maps available and better
21
Bridging the Digital Divide for Low-Income Consumers et
al., Ex Parte Letter of Native Public Media, 1–2 (Nov. 7,
2017); Bridging the Digital Divide for Low-Income Consumers
et al., Ex Parte Letter of Lifeline Connects Coalition, National
Lifeline Association, Boomerang Wireless, LLC and Easy
Telephone Services Co., 2–3 (Nov. 9, 2017); Bridging the
Digital Divide for Low-Income Consumers et al., Ex Parte
Letter of Lifeline Connects Coalition, National Lifeline
Association, Boomerang Wireless, LLC and Easy Telephone
Services Co., 3–5 (Nov. 13, 2017). Assist, Boomerang, and
Easy commented that without population maps it was not
possible to identify the boundaries of the “rural” area
contemplated in the draft 2017 Order. Assist Ex Parte, note
12, at 7 n.22.
22
See 2017 Lifeline Order, note 11, Notice of Inquiry ¶¶ 123,
125; Bridging the Digital Divide for Low-Income Consumers
et al., Comments of the National Lifeline Association, 9–11,
57–62, 106–08 (Feb. 21, 2018); 2017 Lifeline Order, note 11,
Dissenting Statement of Commissioner Mignon L. Clyburn, 32
FCC Rcd. at 10,558.
27
defined “rural.”23 The Commission’s promise of a new
rulemaking proceeding effectively lulled interested persons
into concluding that they did not need to quickly submit
additional evidence to the Commission or request additional
time. See CSX Transp., 584 F.3d at 1083. In view of the need
for a new notice-and-comment-rulemaking proceeding as
promised, the court need not address petitioners’ contention
that the Commission failed to follow its Tribal consultation
policy.
Accordingly, because the Commission’s adoption of the
Tribal Facilities Requirement and Tribal Rural Limitation was
arbitrary and capricious, the court grants the petitions and
vacates the 2017 Lifeline Order as challenged in the petitions,
and remands the matter to the Commission for a new notice-
and-comment rulemaking proceeding.
23
See Bridging the Digital Divide for Low-Income Consumers
et al., Joint Petition for Stay of Fourth Report and Order
Pending Judicial Review, Declarations of David Dorwat, Joe
Fernandez, Joseph G. Wildcat, Jason Schlender, Phyliss J.
Anderson, Sarah Stahelin.