APPEALS COURT REVERSES FCC UNIVERSAL SERVICE ORDER
U.S. Appeals Court in Denver reversed one of FCC’s main universal service orders Tues., saying agency didn’t “provide sufficient reasoning or record evidence” to back it up. The 10th Circuit, acting on challenges brought by Qwest, Vt. Dept. of Public Service and Mont. PSC, didn’t rule on underlying issue of whether order provided enough funding for rural areas. Instead, court ruled on more legalistic issue of whether FCC adequately supported its conclusion that order would result in enough funding. Concerns about actual amount of funding may become moot once FCC provides more explanation for its decisions on remand, court said. However, it added, “if they do not become moot, petitioners may reassert them in a later appeal to this court.”
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Case involves the FCC’s “non-rural” universal service program, called that because it involves larger, non-rural telcos such as Bells. Agency has another program for small, rural telcos. However, both involve support for rural and isolated areas where it costs more than average to provide phone service. In 9th order issued in Nov. 1999, FCC finalized federal funding mechanism for non-rural telcos. Agency used 2-part method to determine federal amount of money that would go to each state: (1) Using cost model, it set benchmark at 135% of national average cost per line. (2) It computed average cost per line in each state. If state’s average cost exceeded benchmark, FCC provided funding for costs in excess of it.
According to court, when FCC revised non-rural universal service program in response to Telecom Act, it didn’t: (1) “Define key statutory terms adequately.” (2) “Set forth a rational basis for the particular benchmark it selected.” (3) “Adequately induce state mechanisms to support universal service.” (4) “Explain how this piece of federal support for universal service relates to other funding mechanisms.” One state PUC official called court’s decision “blistering review” of FCC’s order.
Court said, among other things, that FCC didn’t do enough to make sure that states would help fund universal service. FCC “acknowledges that the ninth order will result in reasonably comparable rates only if the states implement their own universal service policies,” court said, and yet it did nothing to “induce” states to act. “We recognize that the FCC may not be able to implement universal service by itself, since it lacks jurisdiction over intrastate rates,” court said: “Nevertheless, the FCC may not simply assume that the states will act on their own to preserve and advance universal service. It remains obligated to create some inducement, a ‘carrot’ or a ’stick,’ for example, or simply a binding cooperative agreement with the states for the states to assist in implementing the goals of universal service.” For example, court said, FCC might “condition a state’s receipt of federal funds upon the development of an adequate state program, an approach the FCC at oral argument conceded was possible.”
In challenging orders, Qwest had argued that: (1) FCC should have assured there was full funding for universal service rather than relying on states to contribute unspecified amounts of additional money. (2) Use of statewide averages and benchmark set at 135% of national average cost per line don’t satisfy principle that rates in rural areas have to be comparable to those in urban areas, argument also made by Vt. and Mont. state regulators. (3) FCC didn’t properly explain its decision.
Qwest and regulators also challenged related 10th order which set up model to determine what it costs to provide telephone service in rural areas. Qwest had argued model was written in obsolete computer language and had been changed without adequate comment periods. Court disagreed and let that order stand. It said Qwest didn’t provide evidence model produced inaccurate results and said FCC isn’t required to begin new comment period “every time it fixes a technical bug in its computer program.”