COMMISSIONER AJIT PAI
APPROVING IN PART AND DISSENTING IN PART
Connect America Fund, WC Docket No. 10-90, Establishing Just and Reasonable Rates for
Local Exchange Carriers, WC Docket No. 07-135, Developing a Unified Intercarrier
Compensation Regime, CC Docket No. 01-92, Universal Service Reform – Mobility Fund, WT
Docket No. 10-208, ETC Annual Reports and Certifications, WC Docket No. 14-58.
In the Universal Service Transformation Order, the Commission performed the Heraclean task of
reorienting the Universal Service Fund away from supporting telephone service and toward supporting
broadband service. But no commissioner is the child of Zeus, so it is unsurprising that the Commission
made some mistakes and left some labors unfinished. So here we are, reconsidering the Transformation
Order for the seventh time. I welcome the continued collaboration with my colleagues, but I fear that
some of today’s decisions just set us up for reconsiderations eight, nine, and beyond. In particular, I
strongly disagree with the Commission’s decision to substantially increase many rural Americans’ phone
bills. I accordingly approve in part and dissent in part.
To start with the positive, today’s order strikes the quantile regression analysis (QRA)
benchmarks from our books.1 As Chairman Wheeler likes to say, this is a big deal. I applaud him for
tackling this challenge, even though the benchmarks had been unanimously adopted in the
This has been a long and hard struggle. When I first questioned whether the QRA benchmarks
were good policy in 2012, many, including some in this building, told me that eliminating them was a
hopeless cause and incremental change was all that could be accomplished. But as the QRA benchmarks’
impact became more apparent, the tide turned. A unanimous vote for adopting the benchmarks turned
into a unanimous vote to repeal them.
As we recognize today, whatever the intended purpose of the QRA benchmarks, in practice they
chilled the investment climate and impeded the deployment of broadband to rural Americans. Even the
U.S. Department of Agriculture’s Rural Utilities Service told us that carriers had stopped taking out loans
to deploy broadband because of them. The QRA benchmarks introduced substantial uncertainty into the
marketplace. Carriers had no idea what support they would be receiving from one year to the next.
That’s a big problem. Investing in rural America is not a one- or two-year decision but a ten- or twenty-
year commitment. Therefore, our policies must reflect the unique challenges that rural carriers face when
building their networks. Just as important, the QRA benchmarks were not designed to save the Fund a
dollar, so keeping them on our books just meant further hardships for rural America with no federal
I am also pleased that my colleagues agreed with my suggestion to propose a stand-alone
broadband funding mechanism for rate-of-return carriers serving the highest-cost reaches of our country.2
Through a quirk of regulatory history, our rules offer universal service support to such carriers to build
out broadband, but only when they bundle their broadband services with traditional telephone lines. That
system has increasingly come under strain as consumers flee landlines in favor of wireless and over-the-
top alternatives. Indeed, it has put some carriers to the Hobson’s choice of offering stand-alone
broadband—which urban consumers have and rural consumers want—and losing universal service
1 Order at para. 131.
2 Id. at para. 269.
support, or denying consumers that option, only to have them drop service altogether. The net result is
that rural carriers hold back investment because they are unsure if they can deploy the services that
consumers are demanding.
A stand-alone broadband mechanism should correct this vestige of our outdated rules. It would
give consumers the real option of choosing whether they want to purchase broadband and telephone
service from the same company. Removing this barrier will give carriers more assurance that legacy
regulations won’t prevent them from responding to consumer demand. This will increase broadband
deployment. And all of this will be done within the existing budget, something everyone with a phone
line can celebrate. For these reasons, I hope that we move forward quickly to adopt final rules
implementing a stand-alone broadband mechanism.
Lastly, I welcome my colleagues’ support in getting the second phase of the Connect America
Fund back on track by fleshing out the mechanics of the competitive bidding process. Importantly, we
adopt a rule that parties need not be eligible telecommunications carriers (ETCs) to bid3 and seek
comment on sunsetting such obligations after the term of support expires.4 Such rules are especially
important to induce new entrants to bid5—and maximizing participation here, as elsewhere, is the best
way to ensure a successful auction. And we advance concrete proposals on how to structure the
competitive bidding process, proposing to use a multi-round auction with package bidding, setting reserve
prices for individual areas based on the Connect America Cost Model and in aggregate based on the
budget.6 I hope commenters will help us complete the task so that we can finalize these auction rules in
the near term and commence the statewide elections and competitive bidding process within the next
* * *
Unfortunately, I cannot support every aspect of the item. One particular problem is the
Commission’s reaffirmation of the “rate floor,” an unfortunate legacy of the Universal Service
Transformation Order. Under that policy, the FCC sets a minimum price that telephone companies can
charge their customers for local telephone service—and penalizes those companies that do not comply
with this government mandate.7 And as a result of that policy, over one million rural Americans can
3 Id. at para. 43.
4 Id. at para. 184.
5 See, e.g., Letter from Stephen E. Coran, Counsel for Wireless Internet Service Providers Association, to Marlene
H. Dortch, Secretary, FCC, WC Docket No. 10-90, GN Docket No. 13-5, at 2–4 (Apr. 15, 2014); Letter from
Thomas Cohen, Counsel for the American Cable Association, to Marlene H. Dortch, Secretary, FCC, WC Docket
No. 10-90, at 2–3 (Apr. 11, 2014).
6 See Order at paras. 227–30. I am less sanguine about a “multi-step approach” to competitive bidding, see para.
231, which excludes any mention of evaluating bids based on their efficiency (i.e., choosing bids that cover the
highest-cost areas for the least amount of funding) and which includes the option for bids that meet “relaxed
performance standards” (i.e., choosing bids that don’t offer 10 Mbps or even 4 Mbps down). I just hope that
however we evaluate bids, we maximize the broadband bang we get for our universal service buck and do not
consign rural America to inferior broadband service by design.
7 Like several of our other high-cost rules, the rate floor rule explains what a carrier must do to receive support and
the penalty for failure. See 47 C.F.R. § 54.318 (a)–(b). I am therefore baffled by the Order’s claim that “nothing in
our rules requires carriers affected by the rate floor to adjust their local rates.” Order at para. 80. Under the Order’s
logic, are carriers not required to meet our high-cost filing deadlines? See, e.g., 47 C.F.R. §§ 54.313(j), 54.314(d).
Surely that cannot be so.
expect their local telephone rates to increase by up to 46 percent as the rate floor rises from $14.00 to
$20.46 per month.8
By design, the rate floor targets our farmers, our ranchers, our small-town entrepreneurs, and
other rural Americans for a significant rate hike. It “will harm access to service for some of the most
vulnerable consumers in rural America”9 and “will impose a disproportionate burden on older Americans,
who are much more likely to be living on fixed incomes.”10 In other words, the rate floor targets those
very Americans who are still waiting for the economic recovery to arrive.
But it won’t affect Washington, DC. Even though the local phone rate in the District of
Columbia is $14.10, it’s not subject to the rate floor.11 As a consequence, the FCC will be directing rural
Americans to pay 45 percent more for local phone service than those living in the nation’s capital do.
That’s not a problem for residents of northwest Washington, but I doubt it seems fair to residents of
Another result of the rate floor will be less broadband deployment. Line loss is an all-too-real
problem for rural telephone companies today—about one in seven households with copper dropped their
landline in 201212—and government-mandated price increases are only likely to send more consumers off
the network. That makes it harder for rural companies to plan for the future and invest in their networks.
That creates yet another disincentive to offer stand-alone broadband since those same companies may
have to compete with over-the-top providers not subject to the same government-mandated price
increases. In short, that moves us in the wrong direction.13
8 See Petition for Extension of Time by ERTA, ITTA, NECA, NTCA, USTelecom, and WTA, WC Docket No. 10-
90, at 5 (Mar. 11, 2014) (Rural Carrier Petition) (“[I]f the rate floor is raised as high $20, about 1.2 million
customers will incur sudden rate increases.”). The Order dismisses this concern on the ground that “not all carriers
will raise rates to meet the rate floor.” Order at para. 81. I cannot so blithely dismiss the well-grounded concern of
one million consumers, especially when the evidence shows that carriers are raising rates to meet the rate floor. See,
e.g., Letter from Michael J. Jacobs, Legal Advisor to the Chief, Wireline Competition Bureau, FCC, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 10-90 (filed Apr. 2, 2014) (showing that the number of lines with rates
below the previous rate floor dropped by 22,048, or 10 percent between July 1, 2013 and January 2, 2014).
9 Letter from Jodie Griffin, Public Knowledge, Olivia Wein, National Consumer Law Center, Amalia Deloney,
Center for Media Justice, Todd O’Boyle, Common Cause, Edyael Casaperalta, Center for Rural Strategies, and the
Rural Broadband Policy Group, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al., at 1 (Apr. 15,
2014) (Public Knowledge et al. Ex Parte Letter).
10 Letter from David Certner, Legislative Counsel and Legislative Policy Director, AARP, to Marlene H. Dortch,
Secretary, FCC, at 2 (Apr. 15, 2014) (AARP Ex Parte Letter).
12 See Statement of Commissioner Ajit Pai on the Release of the 2013 Local Telephone Competition Report (Nov.
26, 2013), available at http://go.usa.gov/kU4J.
13 The Order relies on flawed accounting to suggest that to the extent a carrier raises its intrastate rates, it must spend
an equal amount of universal service funds to deploy broadband-capable networks. Order at note 172. Not quite.
Although federal law requires universal service support be used “for the provision, maintenance, and upgrading of
facilities and services for which the support is intended,” 47 U.S.C. § 254(e); 47 C.F.R. § 54.314, that’s not a high
bar for those receiving high cost loop support (HCLS). One way to meet this accounting requirement is to show that
a rate-of-return carrier’s intrastate rates plus its intrastate universal service support (i.e., HCLS) do not exceed its
intrastate costs (i.e., R + USF ≤ C). Recall that the HCLS program reimburses a rate-of-return carrier for up to 87–
100 percent of its monthly intrastate costs above $42.85 per line. See NECA USF Filing Overview 2013 at 4 (Sept.
30, 2013). In other words, if a carrier receives x dollars in HCLS, it must have costs of at least $42.85 + x.
Accordingly, a carrier receiving HCLS can always show that it meets the federal requirement without deploying
So what justifies mandating higher prices and less broadband deployment for rural America? Not
the Communications Act.14 It requires that telephone rates in rural areas be “reasonably comparable to
rates” in urban areas and “affordable” to all consumers.15 And until the Universal Service Transformation
Order, those principles had consistently been interpreted to mean that our universal service policies
should aim to reduce—not increase—the amount that rural consumers pay for telephone service.16 Which
is hardly surprising given that rates can hardly be made more “affordable” by increasing them.17
Moreover, the rate floor assumes that what’s affordable in our country’s largest cities is the same
as what is affordable in the countryside.18 But that’s just not the case. Jobs pay more in the big cities.
And families living there often have more disposable income. To illustrate, compare Washington, DC,
where the monthly rate will remain $14.10, to Ouachita County, Arkansas, where we have mandated an
increase up to $20.46. In DC, the median household income is $64,627; in Ouachita County, it’s not even
half that, $32,032. So what does that mean? One year of phone service in DC will cost $169.20, or about
0.26 percent of the median family’s household income. But one year of phone service will cost the
median Ouachita County family $245.52, so that family will need to spend 0.77 percent of their annual
income on phone service, about three times as much as the family in Washington, DC. I cannot fathom
how mandating such a result serves the public interest.19
Nor, as some have claimed, does the rate floor reduce excessive subsidies for basic phone service.
Recall that the rate floor was expressly designed to increase rural rates without reducing the subsidies that
(Continued from previous page)
more broadband so long as its rates are below $42.85 (R + x ≤ $42.85 + x → R ≤ $42.85). And since those affected
by the rate floor have rates far below $42.85 (and the rate floor is unlikely to exceed $42.85 in the foreseeable
future), federal law does not compel additional broadband deployment. As such, it comes back to basic
economics—and the Order does not contest that the rate floor will make it harder, not easier, to deploy broadband to
14 The Order appears to agree and justifies the rate floor on the non-statutory principle of “fairness.” Order at paras.
15 47 U.S.C. § 254(b)(1), (3).
16 See, e.g., 47 C.F.R. § 54.316 (2011) (requiring states to certify that state-set rates in rural areas were no higher
than two standard deviations above the average urban rate).
17 The Order oversimplifies when it states that “the Lifeline program [is] the primary means by which the
Commission seeks to ensure that rates are affordable for low-income households.” Order at para. 77. Until the rate
floor came into effect, our high-cost policies had consistently aimed to reduce rates and accordingly make them
more affordable for all consumers (not just the low-income consumers). Moreover, the rate floor seeks to displace
state-set rates, despite our precedent that “states are better equipped to determine which additional factors can and
should be used to measure affordability.” Federal-State Joint Board on Universal Service, Access Charge Reform,
CC Docket Nos. 96-45, 96-262, 14 FCC Rcd 8078, 8096, para. 38 (1999).
18 As Arctic Slope points out, “a broad brush policy that ignores the totality of disparity between urban and rural
America and instead focuses on one aspect of disparity is poorly conceived.
For instance, in ASTAC’s serving area,
gasoline can exceed $10 a gallon, staples like milk $18 per gallon and electricity is $.29 per kilowatt hour, almost
three times the national average of $.1029 per kilowatt hour. . . . For those who choose to live and work in rural
America, there is no comprehensive comparability to urban areas where there is greater median income, better
health care options, transportation and electrical grid infrastructure, faster and inexpensive broadband and advanced
wireless communications.” Letter from Steve Merriam, CEO, Arctic Slope Telephone Association Cooperative,
Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-337, at 1 (Apr. 16, 2014).
19 Rather than explain the logic of such a result (one that could be replicated many times over), the Order observes
that the high-cost mechanism historically distributes support “without consideration of . . . relative income levels.”
Order at para. 77. True enough, but eliminating the rate floor would end this absurd and arbitrary result while still
distributing high-cost support without regard to income.
carriers receive. So long as carriers raise their rates up to the rate floor, they receive the same subsidy.
Even with rural consumers paying more, there’s no savings to the Fund that could be used to decrease
everyone’s rates or deploy more broadband.20
So what justifies the rate floor policy? How should we respond to consumers like Tressa White
of Ouachita County, Arkansas, who wrote the Commission to complain that her local telephone company
is raising rates to meet our floor? She asked, what she will “be receiving because of this increase in my
monthly rate.”21 In a word, Tressa, nothing. As the AARP puts it, the rate floor “is a punitive burden on
those households that continue to purchase wireline telephone service, with the higher rates benefitting
only the local telephone company.”22 Or as the National Tribal Telecommunications Association wrote,
“asking . . . consumers to pay more for nothing in return is counterproductive to universal voice and
broadband service goals.”23 As far as I can tell, the purpose of the rate floor is to increase rural telephone
rates for the sake of having higher rural telephone rates.
I am not alone in thinking this policy makes no sense. Over the past few weeks, we’ve seen an
outpouring of concern from all quarters about the continued implementation of the rate floor. Telephone
companies like Pioneer in Kansas, Copper Valley in Alaska, and Frontier in West Virginia oppose the rate
floor and the burden it will place on their customers.24 The independent carrier associations in Colorado,
Idaho, Nevada, Oregon, and Washington have called for a “moratorium” and a “re-examination of the
public policy issues surrounding the urban rate floor concept.”25 A group of rural telecom associations
has called on the FCC to “revisit the fundamental operation of the rate floor.”26
Public Knowledge, the
National Consumer Law Center, the Center for Media Justice, Common Cause, the Center for Rural
Strategies, and the Rural Broadband Policy Group have asked us to “hit the pause button, step back and
examine whether the proposed rate floor changes and implementation plan serve the underlying reasons
for creating a rate floor in the first place.”27
20 To be fair, not all carriers may be able to increase their rates to keep pace with the ever-rising rate floor the
Commission adopts today. As the rural carriers ably documented in seeking an extension of time to comply with
this year’s rate floor, many states cap yearly rate increases, which may make strict compliance with the rate-floor
mandate impossible. See Rural Carrier Petition at 3 n.12. But it is a strange thing to tout the monetary penalties we
impose on carriers that do not comply with our mandate because states do not permit them to increase their rates as
high or as quickly as the FCC would like.
21 Tressa White Comments, WC Docket No. 10-90 (Apr. 21, 2014).
22 AARP Ex Parte Letter at 3.
23 National Tribal Telecommunications Association Comments at 6 (Mar. 31, 2014).
24 See Pioneer Communications Reply at 4 (Mar. 31, 2014); Letter from David Dengel, CEO, Copper Valley
Telephone Cooperative, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-337, at 1–2 (Apr.
16, 2014); Frontier Communications Reply at 2 (Mar. 31, 2014).
25 See Comments of the Colorado Telecommunications Association, Idaho Telecom Alliance, Nevada
Telecommunications Association, Oregon Telecommunications Association, and Washington Independent
Telecommunications Association at 3 (Mar. 31, 2014).
26 See Reply Comments by NTCA – the Rural Broadband Association, the National Exchange Carrier Association,
Inc., the Eastern Rural Telecom Association, and WTA – Advocates for Rural Broadband at 4.
27 Letter from Jodie Griffin, Public Knowledge, Olivia Wein, National Consumer Law Center, Amalia Deloney,
Center for Media Justice, Todd O’Boyle, Common Cause, Edyael Casaperalta, Center for Rural Strategies, and the
Rural Broadband Policy Group, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al., at 1 (Apr. 15,
Nor is this a partisan issue. Senator Mark Pryor of Arkansas has urged us to reconsider the rate
floor, as has his colleague Senator John Boozman.28 Alaska Senators Mark Begich and Lisa Murkowski
and Congressman Don Young jointly have asked the FCC to freeze the rate floor and reexamine the
underlying policy.29 And Senator Jerry Moran of Kansas has reminded us that the rate floor “only makes
phone service less affordable in rural areas, where incomes are lower and families have fewer
Rural Americans aren’t asking for free phones or free service. They’re just asking the
government not to mandate a 46 percent increase in their monthly bill. And when so many voices make
such a reasonable request, it’s very disappointing that the Commission’s answer today is no. If we are
trying to keep rural America in mind in everything that we do, our response should be different.
Yet the Commission moves forward, deciding today the rate floor will go into effect, albeit later
than originally proposed. At least the delay is a good thing. By pushing back the first phase of the
increase to January 1, 2015, the Commission has opened up a six-month window for us to reexamine this
policy before it hits rural America.
That’s especially important because the Commission released the rate-floor data and
methodology just five days before the vote.31 With six more months, we can respond to the request of our
state counterparts—those with actual authority over local telephone rates—to let the public study and
comment on the data and methodology before the rate floor takes effect.32 That would be consistent with
our past practice.33 It also would give time to the Universal Service Administrative Company to collect
data on the actual number of consumers that will be hit by the rate floor (information the Order expects
will be collected this July).34
28 Letter from the Honorable John Boozman, U.S. Senator, to the Honorable Tom Wheeler, Chairman, FCC (Apr. 3,
2014); Letter from Mark Pryor, U.S. Senator, to the Honorable Tom Wheeler, Chairman, FCC (Mar. 26, 2014).
29 Letter from the Honorable Mark Begich, U.S. Senator, Lisa Murkowski, U.S. Senator, and Don Young, U.S.
Representative, to the Honorable Tom Wheeler, Chairman, FCC, at 3 (Apr. 21, 2014).
30 Letter from the Honorable Jerry Moran, U.S. Senator, to the Honorable Tom Wheeler, Chairman, FCC (Apr. 22,
2014). The Order repeatedly suggests that the rate-floor methodology was established long ago. See Order at paras.
73, 82. But no one outside the Bureau knew the methodology before mid-April. For example, no one could have
anticipated that the Bureau would cull 73 percent of census tracts from its statistically valid sample (362 out of 497
census tracts were dropped) nor that the Bureau would treat some unregulated rates differently from others (VoIP
rates for incumbents are included, while VoIP rates for competitive providers are excluded). Similarly, no one could
have anticipated that the Bureau would exclude charges for measured or messaged service entirely (services
typically cheaper than unlimited local service) nor how the Bureau handled non-recurring charges (a question
neither the 2013 order nor the recent guidance answered). While these after-the-fact decisions may be perfectly
reasonable, they are not what was adopted last year and have not been subject to the notice-and-comment process.
32 Petition of NARUC, WC Docket No. 10-90, at 7 (Apr. 15, 2014). I am disheartened that the Order now denies
NARUC’s petition. See Order at paras. 82, 353. The Commission never sought comment on that petition, the
public has never had the opportunity to voice its opinion on that petition, and fully resolving that petition was not
even a question at the April 2014 meeting when we adopted this Order.
33 As NARUC points out, until April 18, “unlike prior surveys, there [was] no public access to the underlying
data/methodology.” Petition of NARUC, WC Docket No. 10-90, at 7 (Apr. 15, 2014).
34 Order at paras. 75, 84.
As such, I believe the Commission should reconsider the rate floor later this year with a more
fulsome record—as a data-driven agency should. Such consideration will give us the opportunity to
review, for example, whether it makes sense for rural rates in some states to “leapfrog the prevailing local
telephone rates in the more urban areas of the state”35 or “whether more localized survey data would
better serve the goal of ensuring reasonably comparable service at reasonably comparable rates.”36 We
can address whether the “FCC’s rate floor requirement attempts to usurp State commission authority over
local rates,”37 in contravention of the Act’s stricture that the FCC shall not have jurisdiction over rates
“for or in connection with intrastate communication service.”38 And we can decide whether states like
West Virginia should have the “flexibility of preserving a low-cost basic tier of service to protect access
to voice service for low-income and fixed income consumers” or if instead “[h]ampering a state’s ability
to protect its most vulnerable consumers erodes a key foundation of the network compact.”39
So as the tide turned with the QRA benchmarks, I still hold out hope that it can be turned here.
Just as tinkering around the edges wasn’t good enough to save the QRA benchmarks, I don’t believe that
phasing in a big price hike for rural Americans will make this issue go away. I, for one, intend to keep
making my voice heard.
Our decision with respect to the rate floor is all the more disappointing because today the
Commission missed a chance to substantially reduce excessive subsidies in a manner that actually would
have saved consumers money. Specifically, this item recognizes that wireless providers are deploying
mobile broadband far more quickly, and far more extensively, than the Commission anticipated in the
Transformation Order. Accordingly, the Commission does not need all the funding it has collected for
the Mobility Fund Phase II in order to extend mobile broadband service to otherwise unserved areas
including Tribal lands. I therefore proposed that we return up to $400 million a year to American
consumers over the next five years. Rather than take this approach, however, the Order proposes to keep
the majority of the Mobility Fund Phase II intact—not because it’s needed for deployment or even for
maintaining service but instead because that’s how much regional wireless providers are getting, even
when they are using that money to compete with private investment and duplicate each other’s service
35 Washington Utilities and Transportation Commission Reply at 3 (Mar. 31, 2014).
36 Public Knowledge et al. Ex Parte Letter at 2.
37 Hot Springs Telephone Company and Ronan Telephone Company Reply at 1–2.
38 47 U.S.C. § 152(b). The item’s chief defense on this point appears to be that the rate floor only “might have an
incidental effect on [intrastate] rates” and thus does not amount to intrastate regulation. Order at note 183 (citing
Cable & Wireless PLC v. FCC, 166 F.3d 1224, 1230 (D.C. Cir. 1999), and Cellular Telecomms. Indus. Ass’n v.
FCC, 168 F.3d 1332, 1336 (D.C. Cir. 1999)). If that were true, this would be an easy case. But increased intrastate
rates are hardly an incidental effect of the rate floor: Low intrastate rates are the trigger, carriers with such low rates
are the target, withholding universal service funding from such carriers is the enforcement mechanism, and
increased intrastate rates bring relief. The Commission has even amended its rules to give carriers additional time to
raise their intrastate rates and additional ways to alert the Commission of rate increases. See Connect America Fund
et al., WC Docket No. 10-90 et al., Third Order on Reconsideration, 27 FCC Rcd 5622, 5629, paras. 19–20 (2012).
In short, increased intrastate rates are not merely incidental to the rate floor—they’re the whole point.
39 Public Knowledge et al. Ex Parte Letter at 3. The Order responds that states are “free” to “maintain intrastate
rates significantly lower than the national urban average” so long as they do not do so “in a manner that would
burden ratepayers nationwide.” Order at para. 77. This is a strange claim given that, before the rate floor was
imposed, a state’s decision to increase or decrease rates had absolutely no effect on the universal service burdens of
ratepayers nationwide. And it is especially odd given that rate floor’s perverse incentive: A state with below-floor
rates can now act to “burden ratepayers nationwide,” and it does so by increasing rates, not maintaining them.
40 See Order at paras. 243–47.
In sum, my proposals, taken together, would have cut unnecessary subsidies, protected rural
Americans from substantial price increases, and lowered all consumers’ phone bills. Unfortunately,
today’s item does the opposite. It leaves excessive subsidies untouched, raises rural Americans’ phone
rates by up to 46 percent, and doesn’t return any money to American consumers.
* * *
I cannot square one last aspect of the Order with the Communications Act. Specifically, the
Order finds it permissible to impose broadband common-carriage obligations on incumbent local
exchange carriers (LECs). But it does so despite the fact that section 3 states that “telecommunications
carrier shall be treated as a common carrier under [the Communications Act] only to the extent that it is
engaged in providing telecommunications services.”41 And it does so without finding that the legacy
universal service offered is in fact “sufficient” to meet these new obligations as required by section 254.42
I accordingly cannot support this determination.
The “broadband public interest obligations,” as the Order styles them, smack of common
carriage. Incumbent LECs “must make . . . broadband service available at rates that are reasonably
comparable to offerings of comparable broadband services in urban areas.”43 The Transformation Order
spelled out the characteristics of that service in terms of speed,44 latency,45 and capacity,46 and required
annual compliance testing and reporting that the provisioned broadband met these metrics.47 The
incumbent LEC must either charge prices below a Commission-determined benchmark or geographically
average its rates so that its rural rates do not exceed its urban rates48; either way, the incumbent LEC must
report its prices to the Commission each year for review.49 And rate-of-return LECs must specifically
provide broadband “upon reasonable request” and “within a reasonable amount of time,” an obligation the
Transformation Order said was “similar to the voice deployment obligations many of these carriers are
subject to today.”50 In other words, incumbent LECs cannot “make individualized decisions, in particular
cases, whether and on what terms to deal,”51 but instead must offer a specific service at reasonable rates to
all consumers in its service territory (or at least those that reasonably request service) and file with the
Commission a schedule of charges along with compliance information. Absent formal tariffs or
reticulated accounting practices, it’s hard to see how such an indiscriminate obligation to offer service
could better map onto the definition of a common carrier: “It shall be the duty of every common
41 47 U.S.C. § 153(51) (emphasis added); see also Verizon v. FCC, 740 F.3d 623, 650 (D.C. Cir. 2014) (“We think it
obvious that the Commission would violate the Communications Act were it to regulate broadband providers as
42 47 U.S.C. § 254(b)(5).
43 Connect America Fund et al., WC Docket Nos. 10-90 et al., Report and Order and Further Notice of Proposed
Rulemaking, 26 FCC Rcd 17663, 17695, para. 86 (2011) (Universal Service Transformation Order).
44 Id. at 17697, para. 94 (4 Mbps downstream, 1 Mbps upstream).
45 Id. at 17698, para. 96 (“sufficiently low . . . to enable use of real-time applications”).
46 Id. at 17698–99, paras. 98–99 (at least 10 GB and “reasonably comparable to usage limits for comparable
broadband offerings in urban areas”).
47 47 C.F.R. § 54.313(a)(11).
48 See Order at para. 313 (proposing that ETCs certify that their rates comply with these standards).
49 47 C.F.R. § 54.313(a)(7).
50 Universal Service Transformation Order, 26 FCC Rcd at 17740–41, paras. 206–08.
51 Verizon v. FCC, 740 F.3d 623, 651 (D.C. Cir. 2014) (quoting National Association of Regulatory Utility
Commissioners v. FCC, 525 F.2d 630, 641 (D.C.Cir. 1976)).
carrier . . . to furnish such communication service upon reasonable request therefor” at rates that are “just
Moreover, the Commission cannot credibly claim that incumbent LECs “voluntarily assume[d]”
these common-carriage obligations as conditions on the receipt of federal universal service subsidies.53
At least since the passage of the Telecommunications Act of 1996, federal law has imposed on incumbent
LECs telephone service obligations without the legal means to recover all the associated costs from their
customers.54 Indeed, the Transformation Order itself eliminated intercarrier compensation over time but
prohibited incumbent LECs from recovering all of the lost revenue from customers, thus necessitating the
creation of the CAF-ICC mechanism.55 And if an incumbent LEC turned down high-cost support today,
(a) it would still need to offer voice telephony and other telecommunications services at regulated (below-
cost) rates,56 (b) it would still need to negotiate, interconnect, offer unbundled access to its network,
resale, and collocation, and notify the public of certain network changes as an incumbent,57 and (c) it
would still need to offer Lifeline service unless another ETC is present in the area.58 And elsewhere, the
Order is unable to state whether incumbents can escape any high-cost ETC obligations by relinquishing
52 47 U.S.C. § 201(a), (b). Contra the Order’s suggestion to the contrary, most common carriers “are free to set their
own prices” and “may charge different rates to different end-user customers,” Order at para. 125, so long as those
rates and classifications are reasonable, see 47 U.S.C. § 201(b). The Commission has spelled out particular charges
for only one set of common carriers (incumbent LECs), and even those carriers may offer rates below those
specified in our rules in certain circumstances. See, e.g., 47 C.F.R. Part 69, Subpart H (setting forth the
Commission’s pricing flexibility rules for special access services).
53 Order at para. 120. My point is not, as the item implies, that “incumbent LECs are entitled to universal service
subsidies,” Order at para. 121, nor that all “regulatory obligations [of] incumbents” turn on the receipt of universal
service support, id. at para. 122. It is instead that incumbent LECs, like all common carriers, are entitled to a
reasonable opportunity to recover their costs, so the FCC cannot cap prices below cost unless it offers some other
means of recovery. Our rules do in fact set end-user rates below cost for many incumbent LECs (including every
incumbent that receives interstate common line support), see 47 C.F.R. § 69.104(n)(1) (capping a rate-of-return
carrier’s subscriber line charge even when its costs are higher). Thus, we must offer such carriers a means to
recover their costs—and the only means we have offered is universal service funding. The Order does not dispute
these facts or the conclusion that our tariffing rules would be confiscatory in many cases absent universal service
support, but instead ignores them to rebut claims that no one has made.
54 See, e.g., 47 C.F.R. § 54.901 (providing rate-of-return carriers with interstate common line support to compensate
for the portion of their common line revenue requirement that such carriers are prohibited from recovering from end
users); Multi-Association Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap Incumbent
Local Exchange Carriers and Interexchange Carriers et al., CC Docket No. 00-256 et al., Second Report and Order
and Further Notice of Proposed Rulemaking, Fifteenth Report and Order, and Report and Order, 16 FCC Rcd 19613,
19664, para. 120 (2001) (“Interstate Common Line Support will provide support for rate-of-return carriers to the
extent that [subscriber line charge] caps do not permit them to recover their common line revenue requirements.”).
55 See Universal Service Transformation Order, 26 FCC Rcd at 17958–61, paras. 852–53 (limiting incumbent LEC
charges to end users while allowing access to universal service support); compare id. (allowing competitive LECs to
increase end-user charges without constraint but disallowing access to additional universal service support).
56 See 47 U.S.C. § 214.
57 47 U.S.C. § 254(c).
58 Order at para. 197.
support.59 In other words, incumbent LECs hardly “retain the ability to opt out of [their associated
federal obligations] entirely by declining . . . federal universal service subsidies.”60
Given all the obligations that incumbent LECs cannot escape and given that legacy support is
calculated to enable each incumbent to meet its obligations, it is no wonder that the Order does not
attempt to explain how adding new obligations but no new funding complies with the statutory
requirement that support be “sufficient . . . to preserve and advance universal service.”61 The
Commission has repeatedly held that “the statutory principle of ‘sufficiency’ proscribes support in excess
of that necessary to achieve the Act’s universal service goals”62—so if incumbent LECs have received
support sufficient, but no greater than necessary, to carry out their telephone common-carriage
obligations, it is hard to see how the same amount of support could be sufficient to cover new broadband
common-carriage obligations.63 Perhaps if we had a stand-alone broadband mechanism in place for rate-
of-return carriers it would be different, but today we only propose such reforms. We cannot ignore the
statutory command of sufficiency in hopes that it will disappear, but that is what the Order appears to do.
For all these reasons, I approve in part and respectfully dissent in part.
59 Id. Accordingly, I cannot take seriously the Order’s suggestion that “price cap carriers have the option of
declining legacy high-cost support if they do not want to comply with the broadband public interest conditions in the
USF/ICC Transformation Order.” Order at para. 120.
60 WWC Holding Co., Inc. v. Sopkin, 488 F.3d 1262, 1274 (10th Cir. 2007). In contrast, applying these common-
carriage obligations to the funds disbursed in CAF Phase I, CAF Phase II, and the various Mobility Funds is
permissible because participation in any such fund is actually voluntary.
61 47 U.S.C. § 254(b)(5); see also U.S. Telecom Petition for Reconsideration, WC Docket No. 10-90 et al., at 9–10
(Dec. 29, 2011) (“In essence, the Commission impermissibly bootstraps a broadband deployment and maintenance
obligation onto carriers that only receive federal universal service for the provision of voice telephony service in
their geographic serving areas, while turning a blind eye to the sufficiency of the support necessary to satisfy this
62 See, e.g., High-Cost Universal Service Support; Federal-State Joint Board on Universal Service; Alltel
Communications, Inc., et al. Petitions for Designation as Eligible Telecommunications Carriers; RCC Minnesota,
Inc. and RCC Atlantic, Inc. New Hampshire ETC Designation Amendment, WC Docket No. 05-337, CC Docket No.
96-45, Order, 23 FCC Rcd 8834, 8839, para. 8 (2008), upheld by Rural Cellular Association v. FCC, 588 F.3d 1095,
1102–03 (D.C. Cir. 2009).
63 Over two paragraphs, the Order reiterates the determination in the Universal Service Transformation Order that
the overall budget for the Connect America Fund is sufficient and that market trends support this conclusion. See
Order at para. 123–24. For what it’s worth, I agree that the $4.5 billion budget is sufficient (indeed, the Fund is
running a surplus today). But that determination says nothing about the sufficiency of the legacy support offered to
each individual carrier to meet the new broadband common-carriage obligations. On that question, the Order has no
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