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Rural Cellular Ass'n & Universal Serv. for Am. Coal. v. FCC & USA - No. 11-1094 (D.C. Cir.)

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Released: August 11, 2011
ORAL ARGUMENT NOT YET SCHEDULED
BRIEF FOR RESPONDENTS
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

NO. 11-1094

RURAL CELLULAR ASSOCIATION AND UNIVERSAL SERVICE
FOR AMERICA COALITION,
PETITIONERS,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.

ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION


AUSTIN C. SCHLICK
SHARIS A. POZEN
GENERAL COUNSEL
ACTING ASSISTANT ATTORNEY GENERAL


PETER KARANJIA
ROBERT B. NICHOLSON
DEPUTY GENERAL COUNSEL
KRISTEN C. LIMARZI

ATTORNEYS
RICHARD K. WELCH

DEPUTY ASSOCIATE GENERAL COUNSEL
UNITED STATES

DEPARTMENT OF JUSTICE
MAUREEN K. FLOOD
WASHINGTON, D.C. 20530
COUNSEL


FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740


CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES



1. Parties.

Petitioners are the Rural Cellular Association and the Universal Service
for America Coalition (collectively "petitioners"). Respondents are the
Federal Communications Commission and the United States.
Verizon/Verizon Wireless and the National Association of State Utility
Consumer Advocates ("NASUCA") have intervened in support of
respondents.

2. Rulings under review.

High-Cost Universal Service Support, 25 FCC Rcd 18146 (2010), 76
Fed. Reg. 4827 (Jan. 27, 2011).

3. Related cases.

The Order on review has not previously been before this Court.
Counsel are not aware of any related cases that are pending before this Court
or any other court.




TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................. i
TABLE OF AUTHORITIES .......................................................................... iii
GLOSSARY.................................................................................................. viii
JURISDICTION................................................................................................1
STATEMENT OF ISSUES...............................................................................2
STATUTES AND REGULATIONS ................................................................3
COUNTERSTATEMENT OF THE CASE ......................................................3
COUNTERSTATEMENT OF THE FACTS....................................................4
I. STATUTORY BACKGROUND...............................................................4
II. THE HIGH-COST UNIVERSAL SERVICE PROGRAM.......................7
III. THE INTERIM CAP ON COMPETITIVE ETC HIGH-COST
SUPPORT DISBURSEMENTS ..............................................................10
A. The Interim Cap Order .......................................................................10
B. Rural Cellular Association v. FCC .....................................................13
C. The Corr Wireless Order ....................................................................15
D. Subsequent Developments ..................................................................21
IV. IMPLEMENTATION OF UNIVERSAL SERVICE REFORM.............21
V. THE PROCEEDING BELOW ................................................................23
SUMMARY OF ARGUMENT ......................................................................25
ARGUMENT ..................................................................................................29
I. THE ORDER IS REVIEWED UNDER DEFERENTIAL
STANDARDS OF REVIEW ...................................................................29
i

II. THE COMMISSION REASONABLY DETERMINED THAT IT
WAS NOT REQUIRED TO REDISTRIBUTE RELINQUISHED
HIGH-COST SUPPORT TO OTHER CARRIERS TO ENSURE
THAT SUPPORT REMAINS SUFFICIENT FOR PURPOSES OF
SECTION 254(b)(5) ................................................................................31
A. Petitioners' Claims Were Considered And Rejected By The
Commission In The Interim Cap Order And By This Court In
Rural Cellular Association..................................................................31
B. As In Rural Cellular Association, Petitioners Have Failed To
Demonstrate That High-Cost Support Will Be Insufficient As A
Result Of The Order............................................................................36
C. The Order Is Consistent With The Interim Cap Order. .....................40
III. PETITIONERS' CHALLENGE TO THE TEMPORARY
RESERVE IS NOT PROPERLY BEFORE THIS COURT AND,
IN ANY EVENT, IS WITHOUT MERIT...............................................44
A. The Court Lacks Jurisdiction To Entertain Petitioners'
Arguments Because They Are Effectively Challenges To The
Corr Wireless Order, Not The Order On Review. .............................44
B. The Commission Acted Within Its Discretion In Temporarily
Reserving Reclaimed High-Cost Support. ..........................................48
1. The Commission's rules authorize the FCC to adjust the
demand projection used to determine the quarterly
contribution factor...........................................................................48
2. Section 254 of the Act permits the Commission to collect
universal service contributions before it establishes
mechanisms for distributing subsidies. ...........................................51
3. The Commission's interpretation of the Act is consistent with
constitutional requirements. ............................................................58
CONCLUSION ...............................................................................................65
ii

1

TABLE OF AUTHORITIES

CASES


*
Alenco Commc'ns Inc. v. FCC, 201 F.3d 608 (5th
Cir. 2000).................................................................................. 11, 42, 59, 60
Arkansas AFL-CIO v. FCC, 11 F.3d 1430 (8th Cir.
1993)............................................................................................................40
Auer v. Robbins, 519 U.S. 452 (1997) ............................................................54
Bechtel v. FCC, 10 F.3d 875 (D.C. Cir. 1993)................................................39
Bechtel v. FCC, 957 F.2d 873 (D.C. Cir. 1992)..............................................47
BellSouth Corp. v. FCC, 17 F.3d 1487 (D.C. Cir.
1994)..................................................................................................... 52, 53
Capital Cities/ABC, Inc. v. FCC, 29 F.3d 309 (7th
Cir. 1994).....................................................................................................40
Cellular Telecomms. & Internet Ass'n v. FCC, 330
F.3d 502 (D.C. Cir. 2003) ...........................................................................52
Chevron USA, Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837 (1984) ..................................................................... 32, 33
Citizens to Preserve Overton Park, Inc. v. Volpe,
401 U.S. 402 (1971) ....................................................................................34
Comcast v. FCC, 526 F.3d 763 (D.C. Cir. 2008)............................................67
Consol. Rail. Corp. v. ICC, 646 F.2d 642 (D.C. Cir.
1981)..................................................................................................... 46, 48
Covad Commc'ns Co. v. FCC, 450 F.3d 528 (D.C.
Cir. 2006).....................................................................................................44
Fla. Power & Light Co. v. United States, 846 F.2d
765 (D.C. Cir. 1988)....................................................................................70
Int'l Bhd. of Teamsters v. United States, 735 F.2d
1525 (D.C. Cir. 1984)..................................................................................56

1 Cases and other authorities principally relied upon are marked with
asterisks.
iii

Louisiana Ass'n of Indep. Producers and Royalty
Owners v. FERC, 958 F.2d 1101 (D.C. Cir. 1992).....................................56
Motion Picture Ass'n of Am., Inc. v. FCC, 309 F.3d
796 (D.C. Cir. 2002)....................................................................................58
Nat'l Cable & Telecomms. Ass'n v. Brand X
Internet Servs., 545 U.S. 967 (2005).............................................. 33, 34, 62
National Cable Television Association v. United
States, 415 U.S. 336 (1974).........................................................................70
Nuclear Info. Res. Serv. v. NRC, 969 F.2d 1169
(D.C. Cir. 1992)...........................................................................................48
Qwest Communications International v. FCC, 398
F.3d 1222 (10th Cir. 2005)..........................................................................37
Qwest Corporation v. FCC, 258 F.3d 1191 (10th
Cir. 2001).....................................................................................................37
Riegel v. Medtronic, Inc., 552 U.S. 312 (2008) ..............................................34
*
Rural Cellular Association v. FCC, 588 F.3d 1095
(D.C. Cir. 2009)..................................................... 2, 3, 9, 10, 14, 15, 16, 28,
29, 32, 33, 34, 36, 37, 42, 43, 45, 47, 49, 62
Rural Tel. Coal. v. FCC, 838 F.2d 1307 (D.C. Cir.
1988)............................................................................................................71
*
Skinner v. Mid-America Pipeline Co., 490 U.S. 212
(1989) ............................................................................................. 69, 70, 71
State of Wisconsin v. FERC,104 F.3d 462 (D.C. Cir.
1997)............................................................................................................48
Talk Am. Inc. v. Michigan Bell Tel. Co., 131 S. Ct.
2254 (2011) .......................................................................................... 34, 54
*
Texas Office of Pub. Util. Counsel v. FCC, 183 F.3d
393 (5th Cir. 1999) ................................................. 5, 6, 7, 64, 68, 69, 71, 72
Thompson v. Clark, 741 F.2d 401 (D.C. Cir. 1984)........................................44
Troy v. Browner, 120 F.3d 277 (D.C. Cir. 1997)............................................62
United States Satellite Broad. Co v. FCC, 740 F.2d
1177 (D.C. Cir. 1984)..................................................................................43
*
United States v. Munoz-Flores, 495 U.S. 385 (1990) .................. 65, 66, 68, 69
iv

United States v. Naftalin, 441 U.S. 768 (1979)...............................................57
Vt. Pub. Serv. Bd. v. FCC, No. 10-1184 (D.C. Cir.
Jul. 12, 2010) ...............................................................................................37

ADMINISTRATIVE DECISIONS


Connect America Fund, Notice of Inquiry and
Notice of Proposed Rulemaking, 25 FCC Rcd
6657 (2010) .................................................................................................18
Connect America Fund, Notice of Proposed
Rulemaking and Further Notice of Proposed
Rulemaking, 26 FCC Rcd 4554 (2011)................................................ 23, 55
Federal-State Joint Board on Universal Service, 12
FCC Rcd 8776 (1997) .................................................................... 7, 8, 9, 58
Federal-State Joint Board on Universal Service, 18
FCC Rcd 22559 (2003) .................................................................................5
High-Cost Universal Support, 25 FCC Rcd 4072
(2010), pet. rev. filed sub nom Vt. Pub. Serv. Bd.
v. FCC
, No. 10-1184 (D.C. Cir. Jul. 12, 2010) ...........................................33
Rural Health Care Support Mechanism, Notice of
Proposed Rulemaking, 25 FCC Rcd 9371 (2010).......................................21

Schools and Libraries Universal Service Support
Mechanism, 25 FCC Rcd 18762 (2010)................................... 22, 50, 58, 60
Universal Service Reform; Mobility Fund, Notice of
Proposed Rulemaking, 25 FCC Rcd 14716
(2010) ..........................................................................................................22

STATUTES AND REGULATIONS


5 U.S.C. 706(2)(A).......................................................................................30
28 U.S.C. 2342(1) ..........................................................................................1
28 U.S.C. 2344 ...................................................................................... 27, 46
31 U.S.C. 1301 .............................................................................................60
31 U.S.C. 1341 .............................................................................................60
31 U.S.C. 1342 .............................................................................................60
47 U.S.C. 151 .................................................................................................4
v

47 U.S.C. 214(e)(1) ........................................................................................7
47 U.S.C. 214(e)(2) ........................................................................................7
47 U.S.C. 251 .................................................................................................5
47 U.S.C. 252 .................................................................................................5
47 U.S.C. 253(a).............................................................................................5
47 U.S.C. 254(a).............................................................................................6
47 U.S.C. 254(b)...........................................................................................56
47 U.S.C. 254(b)(1)........................................................................................6
47 U.S.C. 254(b)(1)-(7)..................................................................................6
*
47 U.S.C. 254(b)(5)......................................... 4, 6, 13, 14, 25, 28, 33, 52, 57
47 U.S.C. 254(c)(1) ......................................................................................57
47 U.S.C. 254(c)(1)-(2) ................................................................................55
*
47 U.S.C. 254(d).............................................................. 8, 51, 52, 57, 63, 64
47 U.S.C. 254(h)...........................................................................................57
47 U.S.C. 402(a)...................................................................................... 1, 46
47 U.S.C. 402(b)...........................................................................................27
47 C.F.R. 1.3 ................................................................................................13
47 C.F.R. 54.706 ............................................................................................7
47 C.F.R. 54.709(a)............................................................................... 27, 48
47 C.F.R. 54.709(a)(2) .......................................................................... 19, 48
*
47 C.F.R. 54.709(a)(3) .............................................................. 19, 28, 46, 48
47 C.F.R. 54.709(b)............................................................................... 19, 27
Pub. L. No. 104-104, 110 Stat. 56.....................................................................5
The American Recovery and Reinvestment Act of
2009, Pub. L. No. 111-5, 123 Stat. 115 (2009) ...........................................17

OTHERS


Wireline Competition Bureau Announces E-rate
Inflation-Based Cap for Funding Year 2011,
2011 WL 3438194 (Aug. 5, 2011) ..............................................................22

vi


vii

GLOSSARY


1996 Act



The Telecommunications Act of 1996

Act
The Communications Act of 1934, as
amended

CETC
Competitive Eligible Telecommunications
Carrier

Coalition



Universal Service for America Coalition

ETC
Eligible
Telecommunications
Carrier

FCC or Commission

Federal Communications Commission

ILEC
Incumbent
Local
Exchange
Carrier

NOI
Notice
of
Inquiry

NPRM Notice
of
Proposed
Rulemaking

Plan
National
Broadband
Plan

RCA
Rural
Cellular
Association

USAC Universal
Service
Administrative Company

USF
Federal
Universal
Service
Fund




viii

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

NO. 11-1094

RURAL CELLULAR ASSOCIATION AND UNIVERSAL SERVICE FOR
AMERICA COALITION,
PETITIONERS,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.

ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION

BRIEF FOR RESPONDENTS

JURISDICTION

The Order on review was released on December 30, 2010, and was
published in the Federal Register on January 27, 2011. High-Cost Universal
Service Support, 25 FCC Rcd 18146 (2010) ("Order") (JA ), 76 Fed. Reg.
4827 (Jan. 27, 2011). To the extent that petitioners are challenging the
Order, this Court's jurisdiction rests on 47 U.S.C. 402(a) and 28 U.S.C.
2342(1).

STATEMENT OF ISSUES

Petitioners Rural Cellular Association ("RCA") and the Universal
Service for America Coalition ("Coalition") challenge a Federal
Communications Commission ("Commission" or "FCC") Order amending a
rule upheld in Rural Cellular Association v. FCC, 588 F.3d 1095 (D.C. Cir.
2009) that established an interim cap on high-cost universal service support
disbursements to competitive eligible telecommunications carriers. Those
carriers ("competitive ETCs") are eligible to receive subsidies under the
FCC's "high-cost support" program, a "universal service" program "designed
to support rural providers serving high-cost areas," id. at 1099.
Under the amended rule, when a competitive ETC serving a state
voluntarily surrenders high-cost support that it previously received, the
interim cap for that state is reduced by the amount of relinquished high-cost
support.
This case presents the following issues for review:
1. Whether the Commission's decision to amend the interim-cap rule
was the product of reasoned decisionmaking.
2. Whether the Court lacks jurisdiction to consider petitioners' claim
that the Commission lacked authority to reserve temporarily, for a period of
18 months, any high-cost support surrendered by competitive ETCs; and if
2

the Court determines it has jurisdiction to entertain that claim, whether the
Commission acted consistently with the Communications Act, the
Constitution, and its own rules, with respect to the temporary reserve.

STATUTES AND REGULATIONS

Pertinent statutes and regulations are appended to this brief.

COUNTERSTATEMENT OF THE CASE

The Order on review amended the interim-cap rule, which the
Commission had adopted in 2008 to rein in the explosive growth of high-cost
support disbursements to competitive ETCs. See Rural Cellular Ass'n, 588
F.3d at 1102. Under the revised interim-cap rule now before the Court, when
a competitive ETC voluntarily forgoes high-cost support in a particular state,
the interim cap in that state is lowered by the amount of relinquished high-
cost support. In adopting the amended rule, the Commission thus declined to
redistribute the relinquished subsides to increase the "already large," id.,
subsidies received by the competitive ETCs that remain eligible for high-cost
support.
Each of those remaining competitive ETCs continues to receive the
same amount of high-cost support under the revised interim-cap rule. And
the Commission previously found that level of support to be "sufficient" for
purposes of section 254(b)(5) of the Communications Act, 47 U.S.C.
3

254(b)(5) a finding this Court affirmed in Rural Cellular Association.
Accordingly, the Commission concluded in the Order that there is no reason
to redistribute high-cost support relinquished by a competitive ETC to other
carriers. Instead, reducing the interim cap would enable any excess funds to
be used more effectively to implement upcoming universal service reforms.
RCA and the Coalition, associations of wireless telephone service
providers designated as competitive ETCs, petition for review of the Order,
claiming that any relinquished high-cost support should be redistributed to
other competitive ETCs. In other words, petitioners seek to increase the
amount of high-cost support their members currently receive under the
interim cap.

COUNTERSTATEMENT OF THE FACTS

I.

STATUTORY BACKGROUND

The availability of reasonably priced telecommunications services in
all parts of the nation, known as "universal service," is a longstanding goal of
telephone regulation. See 47 U.S.C. 151 (directing the Commission "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 communications
service with adequate facilities at reasonable charges...."). Pursuant to that
goal, federal universal service programs have, among other things, subsidized
4

service in rural and insular areas, which often face higher costs of providing
telephone service due to low population density, terrain, and other factors.
See, e.g., Federal-State Joint Board on Universal Service, 18 FCC Rcd
22559, 22573 ( 25) (2003).
When local telephone markets were protected monopolies, states and,
to a lesser extent, the FCC relied largely on implicit subsidies to further
universal service. See Texas Office of Pub. Util. Counsel v. FCC, 183 F.3d
393, 406 (5th Cir. 1999) ("TOPUC") ("Implicit subsidies ... involve the
manipulation of rates for some customers to subsidize more affordable rates
for others."). Under this system, regulators might, for example, "require the
carrier to charge `above-cost' rates to low-cost, profitable urban customers [in
order] to offer the `below-cost' rates to expensive, unprofitable rural
customers." Id.
The system of implicit subsidies became unsustainable 15 years ago,
when Congress amended the Communications Act of 1934 to open local
telephone markets to competition through the Telecommunications Act of
1996 ("1996 Act"), Pub. L. No. 104-104, 110 Stat. 56. See 47 U.S.C. 251,
252, 253(a). As the court explained in TOPUC, "implicit subsidies can work
well only under regulated conditions. In a competitive environment, a carrier
that tries to subsidize below-cost rates to rural customers with above-cost
5

rates to urban customers is vulnerable to a competitor that offers at-cost rates
to urban customers." 183 F.3d at 406. Congress therefore required the
Commission to "replace the [existing] patchwork quilt of explicit and implicit
subsidies with `specific, predictable, and sufficient Federal and State
mechanisms to preserve and advance universal service.'" TOPUC, 183 F.3d
at 406 (quoting 47 U.S.C. 254(b)(5)). To accomplish that task, Congress
delegated to the Commission broad discretion to balance the "difficult policy
choices" associated with implementing the new universal service provisions.
Id. at 411.
In new section 254 of the Communications Act, Congress required the
Commission to convene a Federal-State Joint Board to recommend universal
service reforms, and delegated authority to the FCC to adopt rules to
implement the new universal service provisions added by the 1996 Act. 47
U.S.C. 254(a). It also established a non-exclusive list of principles on
which the Commission and the Joint Board must base universal service
policies. 47 U.S.C. 254(b)(1)-(7). Of particular relevance here, Congress
directed that: (1) there should be "specific, predictable and sufficient" federal
and state universal service mechanisms (47 U.S.C. 254(b)(5)); (2) "[q]uality
services should be available at just, reasonable, and affordable rates" (47
U.S.C. 254(b)(1)); and (3) "[c]onsumers in all regions of the Nation" should
6

have access to telecommunications and information services that are
"reasonably comparable" in rates and quality to those provided in urban areas
(47 U.S.C. 254(b)(3)).
Section 254(e) restricts high-cost universal service support to an entity
designated as an "eligible telecommunications carrier," or "ETC." Id. An
ETC, which may be designated by a state commission or the FCC, see 47
U.S.C. 214(e)(2), (6), must offer the services supported by the federal
universal service mechanism and advertise the availability of those services.
See 47 U.S.C. 214(e)(1).

II.

THE HIGH-COST UNIVERSAL SERVICE PROGRAM

In 1997, after receiving the Joint Board's recommendations, the
Commission adopted rules to implement the new universal service provisions
of the 1996 Act. Federal-State Joint Board on Universal Service, 12 FCC
Rcd 8776 (1997) ("First Report and Order"). The First Report and Order
defined a set of "core" services eligible for universal service support,
established a fund (known as the federal universal service fund, or "USF") to
support those services, and set a timetable for implementation.
The federal universal service fund is financed primarily by assessments
paid by providers of interstate telecommunications services. See 47 C.F.R.
54.706. Such contributions are to be made on "an equitable and
7

nondiscriminatory basis" to support "the specific, predictable, and sufficient
mechanisms established by the Commission to preserve and advance
universal service." 47 U.S.C. 254(d). Fund "assessments are calculated by
applying a quarterly `contribution factor' to the contributors' interstate
revenues, and contributors almost always pass their contribution assessments
through to their customers," typically in the form of line items on their
customers' bills. Rural Cellular Ass'n, 588 F.3d at 1099.
The universal service fund consists of four complementary FCC
programs: (1) the schools and libraries program; (2) the low-income support
program; (3) the rural health care program; and (4) the high-cost support
program. "High-cost support disbursements, however, overwhelmingly
represent the largest category of the USF expenditures." Id. at 1099.
Prior to the 1996 Act, only incumbent local exchange carriers
("ILECs") received high-cost support. But in the First Report and Order, 12
FCC Rcd 8776 ( 287, 311), the Commission found that high-cost support
should be "portable" to any carrier that serves a particular customer, even if
that carrier is a new market entrant. The Commission provided that "[a]
competitive carrier that has been designated as an eligible
telecommunications carrier" under the Act "shall receive universal service
support to the extent that it captures subscribers' lines formerly served by an
8

ILEC receiving support or new customer lines in that ILEC's study area."
Id., 12 FCC Rcd 8776 ( 287).
ILECs receive high-cost support based on their own costs of providing
service. See High-Cost Universal Service Support, 23 FCC Rcd 8834, 8841
( 14) (2008) ("Interim Cap Order") (JA ), aff'd, Rural Cellular Ass'n, 588
F.3d 1095. For ease of administration, the Commission initially decided that
providing a competitive ETC with the same per-line support as the ILEC was
the "least burdensome way to administer" portability. First Report and
Order, 12 FCC Rcd 8776 ( 288, 313). Thus, "under the Commission's
`identical support rule,' competitive ETCs ..., mainly wireless providers,
receive support for each line based not on their own costs, but rather on the
same per-line support ILECs in the relevant service area receive." Rural
Cellular Ass'n, 588 F.3d at 1099.
Rural ILECs challenged the First Report and Order, claiming that the
possibility of losing support to competitors would lead to support levels that
are neither "sufficient" nor "predictable" within the meaning of section
254(b). The Fifth Circuit rejected those challenges, finding that "universal
service ... requires sufficient funding of customers, not providers." Alenco
Commc'ns Inc. v. FCC, 201 F.3d 608, 620 (5th Cir. 2000). "So long as there
is sufficient and competitively-neutral funding to enable all customers to
9

receive basic telecommunications services, the FCC has satisfied the Act and
is not further required to ensure sufficient funding of every local telephone
provider as well." Id.

III. THE INTERIM CAP ON COMPETITIVE ETC HIGH-

COST SUPPORT DISBURSEMENTS

A. The Interim Cap Order

In 2008, the Commission imposed an interim cap on high-cost support
disbursements to competitive ETCs. Interim Cap Order 1 (JA ). The
Commission found that an interim cap was necessary to "rein in the explosive
growth in high-cost universal service support disbursements," id., which had
ballooned from $2.6 billion per year in 2001 to $4.3 billon per year in 2007
a 65 percent increase. Id. 6, 22 (JA ). This growth, the Commission
stressed, had resulted from increased support to competitive ETCs. Id. 6
(JA ). The Commission predicted that, absent the interim cap, future
increases "would require excessive (and ever growing) contributions from
consumers." Id.
The Commission attributed the explosive growth in competitive ETC
high-cost support to the identical support rule. When the Commission
adopted this rule, "[it] envisioned that competitive ETCs would compete
directly against [ILECs] and try to take existing customers from them." Id.
10

19 (JA ). But wireless carriers, which "serve a majority of competitive
ETC lines, and have received a majority of competitive ETC support," id.,
"do not capture lines from the [ILEC] to become a customer's sole provider,
except in a small portion of households." Id. Rather, these carriers generally
"provide mobile wireless telephony service in addition to a customer's
existing wireline service." Id. And because the identical support rule also
"promote[s] the sale of multiple supported wireless handsets in given
households," id. 9 (JA ), "many households subscribe to both services and
receive support for multiple lines, which has led to a rapid increase in the size
of the fund." Id. 21 (JA ).
The Commission further found that the identical support rule "fails to
create efficient investment incentives for competitive ETCs." Id. "Because a
competitive ETC's per-line support is based solely on the per-line support
received by the [ILEC], rather than its own network investments in an area,"
it has an incentive to increase its profits by "expand[ing] the number of
subscribers ... located in the lower-cost parts of high-cost areas" instead of
expanding the geographic scope of its network, particularly into areas with
the lowest population densities (and correspondingly, the highest costs). Id.
This "contraven[es] the Act's universal service goal of improving the access
11

to telecommunications services in rural, insular, and high-cost areas." Id.
(citing 47 U.S.C. 254(b)(3)).
The FCC concluded that the interim cap would maintain the stability of
the USF until the Commission was able to reform the rules that led to the
dramatic, unanticipated growth in high-cost support disbursements. See id.
1, 21-23 (JA ). The Commission capped the "total annual competitive
ETC support" in each state "at the level of support that competitive ETCs in
that state were eligible to receive during March 2008 on an annualized basis."
Id. 1 (JA ). Under the interim cap, competitive ETCs have experienced a
reduction in their per-line high-cost support where the number of competitive
ETC lines in a state has increased. Id. 26-28 (JA ). The Commission
found, however, that because "competitive ETC support is based on the
[ILEC's] costs, rather than on the competitive ETC's own costs, there is no
reason to believe and no record data showing that support subject to an
interim cap would necessarily result in insufficient support levels" for
competitive ETCs. Id. 14 (JA ). Nonetheless, to protect against any
possibility that the interim cap might deny particular competitive ETCs
sufficient support, the Commission provided a safety valve: a competitive
ETC "will not be subject to the interim cap to the extent that it files cost data"
12

with the FCC "demonstrating that its costs meet the support threshold in the
1
same manner as the [ILEC]." Id. 1 (JA ); see also id. 31 (JA ).

B. Rural Cellular Association v. FCC

Petitioner RCA and several wireless carriers sought judicial review of
the Interim Cap Order. In Rural Cellular Association, this Court affirmed
the Commission's rule imposing an interim cap on high-cost universal service
support disbursements to competitive ETCs. 588 F.3d at 1102
The Court held that the Commission acted within its broad discretion in
applying the universal service principles in section 254 of the Act. In
particular, it was reasonable for the Commission to find that section 254
empowered the FCC to maintain the sustainability of the USF, even though
"sustainability" is not specifically mentioned in the statute. Id.
Rejecting petitioners' "apparent[]" view that " 254(b)(5) compels the
Commission to welcome wretched excess," id. at 1102, the Court held that

1 The Commission stated in the Interim Cap Order that "th[is] limited
exception" to the interim cap would "become effective [when] the relevant
reporting and recording requirements are approved by the Office of
Management and Budget" ("OMB"). Interim Cap Order, n.108 (JA ). The
Commission's Wireline Competition Bureau has since determined that it will
consider competitive ETCs' requests for additional high-cost support under
the exception established in the Interim Cap Order pursuant to already
codified general waiver authority. See 47 C.F.R. 1.3 ("Any provision of the
rules may be waived by the Commission on its own motion or on petition if
good cause therefore is shown.").
13

the Commission could interpret section 254(b)(5) to require "sufficient, but
not excessive" universal service support. Id. at 1102-04. "[T]he principle of
providing sufficient funding mechanisms to advance universal service ... may
need to be balanced against the principle of affordability for consumers," the
Court explained, and the Commission "enjoys broad discretion when
conducting exactly this type of balancing." Id. at 1103. The Court thus
rejected petitioners' argument that the Commission was prohibited from
imposing cost controls, finding that "petitioners have failed to demonstrate
that their high-cost support would actually be insufficient under the interim
cap." Id.
Additionally, the Court held that the Commission did not violate the
programmatic principle of competitive neutrality (adopted by the FCC
pursuant to section 254(b)(7)), because that regulatory principle only
prohibits "unfair" treatment. Id. at 1104. The Court reasoned that it was not
unfair for the Commission to impose an interim cap on competitive ETC (but
not ILEC) high-cost support because competitive ETCs, which benefit from
the "inequities and inefficiencies that exist under the current regime," were
responsible for the dramatic growth in the federal universal service fund. Id.
The Court also rejected petitioners' argument that the Commission
acted arbitrarily and capriciously when it enacted the interim cap. The Court
14

explained that the Commission is entitled to substantial deference when it
relies on its predictive judgment to enact interim rules to preserve universal
service. Id. at 1105-06, 1108. The Court also found that the Commission's
decision to impose the interim cap was reasonable based on record evidence
showing that high-cost support disbursements to competitive ETCs had
grown substantially between 2001 and 2007, resulting in a commensurate
increase in the quarterly universal service contribution factor paid by
consumers. Id. at 1107-08.

C. The Corr Wireless Order

Following the Commission's enactment of the interim cap, Verizon
Wireless and Sprint Nextel each voluntarily committed to surrender their
high-cost support estimated as approximately $530 million in 2008 in
equal 20 percent increments over a period of five years. See High-Cost
Universal Service Support, 25 FCC Rcd 12854, 12586 ( 1, 4) (2010) ("Corr
Wireless Order") (JA ). The carriers did so in connection with the FCC's
authorization of license transfers associated with their mergers with other
companies. In the orders approving those license transfers, however, the
Commission "provided no specific direction regarding how" the carriers'
merger commitments "should be implemented." Id. 4 (JA ).
15

In 2009, Corr Wireless (a competitive ETC) asked the Commission to
clarify that "any support reclaimed from Verizon Wireless and Sprint Nextel"
as a result of their voluntary commitments should "be redistributed to other
competitive [ETCs]." Id. 1 (JA ). According to Corr, "when existing
participants leave the pool, the number of participants goes down and each
participant's share should go up." Id. 6 (JA ).
The Commission disagreed, finding that "nothing in the Interim Cap
Order requires the Commission to redistribute" relinquished support and, as a
consequence, increase the amount of high-cost support distributed to the
remaining competitive ETCs in a particular state. Id. 10 (JA ). Consistent
with its "stated goal in the Interim Cap Order of reining in high-cost
universal service support disbursements," the Commission held that "the
public interest would be better served by distributing support to other
competitive ETCs in the same manner that it would have been distributed in
the absence of ... merger commitments" not providing those carriers
additional support without a demonstration of cost-based need. Id. Also
consistent with its findings in the Interim Cap Order (( 21) (JA )) that
competitive ETCs have a profit motive to serve high-density (and,
correspondingly, low-cost) areas, the Commission found that disbursing
16

"additional support would not necessarily result in the expansion of service to
... unserved territories." Corr Wireless Order 11 (JA ).
The Commission directed the Universal Service Administrative
2
Company ("USAC") to reserve any reclaimed funds "as a fiscally
responsible down payment on proposed broadband universal service reforms
3
... recommended in the National Broadband Plan," including to: index the
annual cap on the schools and libraries fund to inflation; support a Mobility
Fund to improve 3G wireless service in states with the worst wireless
coverage; improve utilization of the rural health care program; and "in the
long term, directly support broadband Internet services." Id. 20 (JA ).
The Commission noted that it had "recently launched proceedings" to reform
its universal service programs, and had "s[ought] comment on a proposal to

2 USAC is an independent, not-for-profit corporation designated as the
administrator of the federal universal service fund by the FCC. USAC
administers USF programs for high-cost companies serving rural areas, low-
income consumers, rural health care providers, and schools and libraries.
3 The American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-
5, 123 Stat. 115 (2009), charged the Commission with developing a national
plan for broadband deployment. The Commission delivered a National
Broadband Plan to Congress on March 16, 2010. The Plan proposed
revisions to, and additional funding for, the Commission's four universal
service programs (i.e., the high-cost, low-income, schools and libraries, and
rural health care programs) in an effort to promote broadband deployment
and utilization. The Plan is available at:
http://www.broadband.gov/download-plan.
17

transition all legacy competitive ETC high-cost support for voice-grade
service to new universal service programs for broadband." Id., n.44 (citing
Connect America Fund, Notice of Inquiry and Notice of Proposed
Rulemaking, 25 FCC Rcd 6657, 6681-82 ( 60-61) (2010)).
The Commission explained that "[r]eserving funds now ... will ensure
that we have funds on hand to rapidly implement" such reforms "while
minimizing unnecessary volatility in the contribution factor." Id. 20 (JA ).
Had the Commission not taken this step, the contribution factor "would
otherwise decline and then increase as the universal service fund transitions
to support broadband." Id.; see also id. 22, n.48 (JA ) (predicting
fluctuations in the contribution factor had the FCC not temporarily reserved
reclaimed support). Consumers, who ultimately pay carriers' universal
service contributions, will thus benefit from the Order. The Commission
intends to use support relinquished by competitive ETCs (the "temporary
reserve") as a down-payment on future universal service programs, which
will commensurately reduce the amount of universal service contributions
USAC will be required to collect prospectively. Corr Wireless Order 20
(JA ); see also Order 5 & n.15 (JA ).
Under an FCC rule, USAC typically calculates the contribution factor
based on the ratio of total projected quarterly costs of the four universal
18

service programs to contributors' total projected end-user interstate and
international revenues. 47 C.F.R. 54.709(a)(2). Under an exception to that
4
rule, however, the Commission in the Corr Wireless Order instructed USAC
to project that competitive ETC support would be disbursed at the interim cap
amount, without regard to any support payment reductions attributable to the
Verizon Wireless and Sprint Nextel merger commitments. Corr Wireless
Order at 21 (JA ); see also 26 & n.54 (JA ).
To enable its creation of the temporary reserve, the Commission
waived rule 54.709(b) for a period of 18 months from adoption of the order.
See id. 25 (JA ) ("we adopt an interim waiver of section 54.709(b) to
enable us to direct USAC to reserve reclaimed funds") (citing 47 C.F.R.
54.709(b)). That rule requires USAC to carry forward any "excess
payments" from USF contributors to reduce the contribution factor in the
subsequent quarter. Id. 22 & n.45 (JA ). Unless the Commission
"modifies [rule] 54.709(b)," as discussed below, the waiver will expire on
January 31, 2012. Id. 22 (JA ). In that event, any reclaimed funds held in
reserve will be used to reduce future quarterly contribution factors, to the

4 47 C.F.R. 54.709(a)(3) provides that "[t]he Commission reserves the
right to set projections of demand and administrative expenses at amounts ...
the Commission determines will service the public interest."
19

benefit of consumers, as required by that rule. In other words, absent an
extension of the waiver, the temporary reserve that petitioners challenge in
this case will expire by the terms of the Corr Wireless Order on January 31,
2012.
In a Notice of Proposed Rulemaking accompanying the Corr Wireless
Order, the Commission "s[ought] comment on modifying [its] rules to better
enable the Commission to reclaim" high-cost support relinquished by
competitive ETCs, "and to use that support to ... fund broadband universal
service programs consistent with the recommendations of the National
Broadband Plan described above." Id. 23 (JA ). The Commission first
proposed to amend the uncodified interim-cap rule so that when any
competitive ETC relinquishes its ETC status in a state, the cap amount for
that state would be reduced by the amount of support the competitive ETC
was eligible to receive. Id.
The Commission next "s[ought] comment on amending [rule]
54.709(b) to permit the Commission to provide USAC alternate instructions
for implementing prior period adjustments." Id. 25 (JA ). That proposed
amendment, the Commission explained, would "enable [it] to direct USAC to
reserve reclaimed funds as [it] consider[s] broadband universal service
reform" as well as "provide USAC with alternate instructions regarding
20

future excess funds in other situations without having to adopt a rule waiver."
Id.

D. Subsequent Developments

Petitioner Universal Service for America Coalition and a group of
wireless carriers each filed with the Commission petitions for administrative
5
reconsideration of the Corr Wireless Order. Those petitions are still pending
before the agency. No party or commenter sought judicial review of the Corr
Wireless Order.

IV. IMPLEMENTATION OF UNIVERSAL SERVICE

REFORM

Just prior to the Corr Wireless Order and NPRM, the Commission
sought comment on proposals to increase utilization of the rural health care
program. Rural Health Care Support Mechanism, Notice of Proposed
Rulemaking, 25 FCC Rcd 9371 (2010).
Shortly thereafter, the Commission issued an order adopting rules to
index schools and libraries support to inflation. Schools and Libraries
Universal Service Support Mechanism, 25 FCC Rcd 18762, 18780-83 ( 34-

5 Petition for Partial Reconsideration of SouthernLINC Wireless and the
Universal Service for America Coalition, CC Docket No. 96-45, WC Docket
No. 05-337 (Sept. 29, 2010) ("Coalition Petition for Reconsideration") (JA );
Joint Petition for Reconsideration, CC Docket No. 96-45, WC Docket No.
05-337 (Oct. 4, 2010).
21

40) (2010) ("Schools and Libraries Order"). This adjustment increased the
FCC-imposed annual funding cap for that program from $2.25 billion to
$2,270,250,000 (an increase of less than 2 percent) for funding year 2010.
6
Id., 25 FCC Rcd at 18783 ( 40). The Commission explained "that
additional universal service funds required to" make this adjustment "will be
offset by the Commission's recent decision to use reclaimed funds
surrendered [by] competitive [ETCs] as a `fiscally responsible down payment
on proposed broadband universal service reforms.'" Id., 25 FCC Rcd at
18781-82 ( 38) (quoting Corr Wireless Order 20 (JA )).
The Commission also took steps to implement the other universal
service reforms described in the Corr Wireless Order and NPRM. The
Commission, for example, sought comment on "creat[ing] a ... Mobility
Fund ... to significantly improve coverage of current-generation or better
mobile voice and Internet service for consumers in areas where such coverage
is ... missing." Universal Service Reform; Mobility Fund, Notice of
Proposed Rulemaking, 25 FCC Rcd 14716 ( 1) (2010).

6 The Commission recently announced that the inflation-based cap for
funding year 2011 will be $2,290,682,250. Public Notice, Wireline
Competition Bureau Announces E-rate Inflation-Based Cap for Funding Year
2011
, 2011 WL 3438194 (Aug. 5, 2011).
22

And it issued a second notice of proposed rulemaking seeking
comment on reforms to high-cost universal service support and intercarrier
compensation. Connect America Fund, Notice of Proposed Rulemaking and
Further Notice of Proposed Rulemaking, 26 FCC Rcd 4554 (2011)
("USF/ICC Transformation NPRM"). As the Commission explained, the
goal of this reform effort is to "[m]odernize and refocus [the universal service
fund] and [intercarrier compensation] to make affordable broadband available
to all Americans" while simultaneously "[c]ontrol[ling] the size of USF as it
transitions to support broadband, including by reducing waste and
inefficiency." Id., 26 FCC Rcd at 4560 ( 10); see also id. at 4584 ( 80).

V.

THE PROCEEDING BELOW

In the Order on review, the Commission amended the interim-cap rule,
consistent with its first proposal in the Notice of Proposed Rulemaking that
accompanied the Corr Wireless Order, see 23 (JA ). Under the amended
rule, a state's high-cost support under the interim cap will be reduced if a
competitive ETC serving the state relinquishes its ETC status. Order 5
(JA).
The Commission found that this amendment was consistent with the
Interim Cap Order which sought to "rein in high-cost universal service
disbursements for potentially duplicative voice service" because it
23

"reduce[d] the overall cap on competitive ETC support in a state ... rather
than redistributing ... excess funding to other competitive ETCs." Id.
Several parties supported this amendment. Id., n.11 (JA ).
The Commission explained that "[p]roviding ... excess support to other
competitive ETCs ... would not necessarily result in future deployment of
expanded voice service, much less broadband service." Id. Instead, as the
Commission found in the Order 5 (JA ), directing the relinquished monies
to competitive ETCs "could simply subsidize duplicate voice service"
because most consumers still subscribe to wireline and wireless service. See
also Interim Cap Order 20-21 (JA ). The Commission therefore found
"that the public interest would be better served by taking this interim step to
reclaim such support, rather than redistributing it," so that reclaimed high-
cost support could "be used more effectively to advance universal service
broadband initiatives" (or, if no action is taken by January 31, 2012, to reduce
the quarterly universal service contribution factor). Order 5 (JA ).
"Consistent with the Corr Wireless Order," the FCC directed USAC to
continue collecting universal service contributions as if any amounts
relinquished by competitive ETCs were still being distributed "until the
expiration of the waiver of section 54.709(b) [on January 31, 2012] or
otherwise directed by the Commission." Id., n.15 (JA ).
24

While the Order amended the interim cap rule, it did not amend section
54.709(b) of the Commission's rules, as the Corr Wireless Order had
proposed ( 25 (JA )). Instead, the Commission left intact its prior creation
of a temporary reserve. Id. 22 (JA ).

SUMMARY OF ARGUMENT

1. Three years ago, in the Interim Cap Order, the Commission adopted
a rule setting an interim cap on the amount of high-cost universal service
support distributed to competitive ETCs. Petitioner RCA claimed that the
interim cap would render high-cost support insufficient, in violation of
section 254(b)(5) of the Act. The Commission disagreed, and so did this
Court. Rural Cellular Ass'n, 588 F.3d at 1102-04.
There was no reason for the Commission to revisit or re-explain its
earlier finding in the proceeding below. As the Commission explained when
it proposed the amended rule adopted in the Order on review, competitive
ETCs, including petitioners, will continue to receive the same amount of
support under the revised interim-cap rule when another competitive ETC
relinquishes its support. And both the Commission and this Court have
already determined that level of support is "sufficient" within the meaning of
section 254(b)(5).
25

Petitioners' latest demand for high-cost support is even less justified
than the demand rejected in Rural Cellular Association. Without making any
meaningful attempt to demonstrate that support is actually insufficient for any
competitive ETC to provide service to consumers, petitioners now contend
that they are entitled to the additional high-cost surrendered by other
competitive ETCs specifically, the $530 million in support surrendered by
Verizon Wireless and Sprint Nextel. The Court should deny petitioners'
latest proposal to "increase [their] already large stake," Rural Cellular Ass'n,
588 F.3d at 1102, in universal service subsidies.
Petitioners contend that once the Commission halted the explosive
growth in competitive ETC support by enacting the interim cap, its work was
done. This ignores the Commission's ongoing duty to evaluate the
effectiveness of its regulations. Having earlier found that the identical
support rule was not working as intended, because it (1) subsidizes multiple
lines provided by multiple carriers to a single household or business, and (2)
fails to encourage investment in the lowest density/highest cost areas most in
need of subsidies, the Commission in the Order reasonably declined to
perpetuate a regime that thwarted rather than advanced the statute's
objectives.
26

2. Petitioners further contend that the Commission lacked authority to
temporarily reserve, until January 31, 2012, any high-cost support
surrendered by competitive ETCs. Br. 31-49. Petitioners' claim is
jurisdictionally barred and, in any event, meritless.
(a). Petitioners' challenge is not properly before this Court and should
be dismissed. The Commission established the temporary reserve in the Corr
Wireless Order by waiving 47 C.F.R. 54.709(b) for a period of 18 months.
But for the waiver of that rule, which requires "excess payments" to roll
forward to reduce the next quarter's universal service contribution factor, the
Commission could not have directed USAC to temporarily hold any
relinquished support in reserve. The 60-day period for seeking judicial
review of the Corr Wireless Order has passed, so RCA's claim is time-
barred. See 47 U.S.C. 402(b); 28 U.S.C. 2344. Conversely, the
Coalition's challenge is "incurably premature" because its petition for
administrative reconsideration of the Corr Wireless Order remains pending
before the Commission.
(b). Petitioners' argument also lacks merit. Petitioners first claim that
the Commission violated 47 C.F.R. 54.709(a). But that rule contains an
exception under which "[t]he Commission reserves the right to set projections
of demand and administrative expenses at amounts the Commission
27

determines will serve the public interest." 47 C.F.R. 54.709(a)(3). The
Commission, in the Order, exercised that authority to temporarily project
competitive ETC demand for high-cost support at the full amount of the cap
as established in the Interim Cap Order, without reflecting adjustments due to
relinquishment or revocation of ETC status by a competitive ETC.
Nor is there merit to petitioners' claim that the Commission violated
section 254 of the Act. According to petitioners, the Commission must
"establish" the "specific" and "predictable" mechanisms required by section
254(b)(5), and identify the services that those mechanisms will fund (see
section 254(c)(1)), before it may collect contributions to "preserve and
advance universal service" under section 254(d). But the Commission is only
required to satisfy those statutory requirements prior to distributing universal
service support; no statutory provision prohibits it from collecting in advance
the contributions necessary to fund those services and mechanisms. Like its
interpretation of its own rules, the Commission's reasonable interpretation of
the Communications Act is entitled to deference by the Court.
Finally, petitioners are unable to buttress their statutory argument by
invoking the doctrine of constitutional avoidance. Petitioners have not raised
any doubts much less "serious doubts" (Br. 38) about the constitutionality
of the Commission's temporary reserve under the Origination Clause (U.S.
28

Const., art. I, 7, cl. 1) and the Taxing Clause (art. I, 8, cl. 1). The
temporary reserve was created to preserve and advance universal service, not
to raise revenues to support Federal Government (or even Commission)
operations generally. And the temporary reserve will be used either to
subsidize the expansion and reform of the Commission's larger universal
service program a program that confers substantial benefits to
telecommunications carriers such as petitioners or to lower the contribution
factor for future universal service fund assessments.

ARGUMENT

I.

THE ORDER IS REVIEWED UNDER DEFERENTIAL
STANDARDS OF REVIEW

Judicial review of the Commission's interpretation of section 254(b) of
the Communications Act is governed by Chevron USA, Inc. v. Natural Res.
Def. Council, Inc., 467 U.S. 837 (1984). As this Court noted in Rural
Cellular Association, "[s]ince the principles outlined use `vague, general
language,' courts have analyzed language in 254(b) under Chevron step
two." 588 F.3d at 1101-02 (citation omitted). Hence, the question for this
Court is whether the Commission's interpretations of section 254's undefined
terms, such as "predictable," "specific," and "sufficient," are "permissible
construction[s]." Id. at 1102 (citing Chevron, 467 U.S. at 843). In making
that inquiry, "Chevron requires a federal court to accept the agency's
29

[reasonable] construction of the statute, even if the agency's reading differs
from what the court believes is the best statutory interpretation." Nat'l Cable
& Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 980 (2005);
accord, Rural Cellular Ass'n, 588 F.3d at 1102 (court "will uphold the
agency's interpretation as long as it is reasonable ... even if `there may be
other reasonable, or even more reasonable, views.'") (citations omitted).
Under the Administrative Procedure Act ("APA"), the Commission's
decision must be upheld unless it is "arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law." 5 U.S.C. 706(2)(A).
This "very deferential" standard "focuses on the reasonableness of the
agency's decision making processes." Rural Cellular Ass'n, 588 F.3d at
1105. "[T]he ultimate standard of review is a narrow one," and the "court is
not empowered to substitute its judgment for that of the agency." Citizens to
Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). The
Commission "need only articulate a `rational connection between the facts
found and the choice made.'" Rural Cellular Ass'n, 588 F.3d at 1105
(citation omitted). Judicial deference to the Commission's "expert policy
judgment" is especially appropriate when, as in this case, the "subject matter
... is technical, complex, and dynamic." Brand X, 545 U.S. at 1003 (citation
omitted).
30

Finally, an "agency's reading of its own rule is entitled to substantial
deference." Riegel v. Medtronic, Inc., 552 U.S. 312, 328 (2008). The courts
"defer to an agency's interpretation of its regulations ... unless the
interpretation is plainly erroneous or inconsistent with the regulations or there
is any other reason to suspect that the interpretation does not reflect the
agency's fair and considered judgment on the matter in question." Talk Am.
Inc. v. Michigan Bell Tel. Co., 131 S. Ct. 2254, 2261 (2011) (internal
quotation marks and citations omitted).

II.

THE COMMISSION REASONABLY DETERMINED
THAT IT WAS NOT REQUIRED TO REDISTRIBUTE
RELINQUISHED HIGH-COST SUPPORT TO OTHER
CARRIERS TO ENSURE THAT SUPPORT REMAINS
SUFFICIENT FOR PURPOSES OF SECTION 254(b)(5)

A. Petitioners' Claims Were Considered And Rejected By

The Commission In The Interim Cap Order And By This
Court In Rural Cellular Association.

Petitioners assert that the Commission has a "duty to provide a cogent
explanation for how the rule change effected by the Order will promote
sufficiency (among other statutory objectives)" (Br. 51) a duty they allege
the FCC failed to satisfy "by refusing even to consider whether its new rule
would yield support `sufficient' to meet the goals of Section 254." Br. 50.
Petitioners are incorrect. The Commission satisfied that duty in the Interim
31

Cap Order. And as we explain below, the Order on review did nothing to
undercut the continued validity of that holding.
In the Interim Cap Order 8 (JA ), the Commission found that
"adopting an interim cap is consistent with" section 254(b)(5)'s requirement
"that support be `sufficient' to meet the Act's universal service purposes."
The Commission noted that it "previously ha[d] concluded that the statutory
principle of `sufficiency' proscribes support in excess of that necessary to
achieve the Act's universal service goals." Id. Thus, consistent with its
precedent, the Commission enacted the cap as an "interim cost control[] to
the aspect that most directly threatens the specificity, predictability, and
sustainability of the [USF]: the rapid growth of competitive ETC support."
Id. 9 (JA ).
The Commission, moreover, found that competitive ETCs had failed to
demonstrate that their high-cost support would be insufficient under the
interim cap. As the Commission explained, "because competitive ETC
support is based on the [ILEC's] costs, rather than on the competitive ETC's
own costs, there is no reason to believe and no record data showing that
support subject to an interim cap would necessarily result in insufficient
support levels." Id. 14 (JA ).
32

In Rural Cellular Association, this Court rejected RCA's challenge to
the Interim Cap Order. 588 F.3d at 1102-04. There, as here, RCA argued
that high-cost support would be insufficient under the interim cap, in
violation of section 254(b)(5). This Court disagreed, concluding that it was
"entirely reasonable" for the Commission to impose the interim cap "in the
face of evidence showing that [competitive ETCs] were receiving subsidies in
excess of what is needed to allow them to remain in the market." Id. at 1103.
"In any event," the Court held, "petitioners ... failed to demonstrate their
high-cost support would actually be insufficient under the interim cap." Id.
The Court explained that "[t]he pertinent question is whether the interim cap
will undercut adequate telephone service for customers," but "[p]etitioners ...
seem to ignore this fact in their cry for more subsidies, which they have failed
to prove are necessary to provide basic [telephone] service to customers who
7
have none." Id.

7 Petitioners heavily rely on Qwest Corporation v. FCC, 258 F.3d 1191
(10th Cir. 2001), and Qwest Communications International v. FCC, 398 F.3d
1222 (10th Cir. 2005), in which the Tenth Circuit remanded a subsequently
superseded FCC definition of "sufficient" for purposes of the non-rural high-
cost support mechanism, one of seven mechanisms established by the FCC to
provide subsidies to rural, insular and high-cost areas. But the FCC revised
its definition of "sufficient" following the Qwest remand. See High-Cost
Universal Support
, 25 FCC Rcd 4072 (2010), pet. rev. filed sub nom Vt. Pub.
Serv. Bd. v. FCC
, No. 10-1184 (D.C. Cir. Jul. 12, 2010). Moreover,
(continued on next page)
33

So too here. There was no reason for the Commission to revisit its
findings from the Interim Cap Order in the proceeding below because
petitioners are in the same position today under the revised interim cap: They
will continue to receive exactly the same amount of support under the
amended interim-cap rule when a competitive ETC such as Verizon Wireless
or Sprint Nextel relinquishes its high-cost support in a state. Corr Wireless
Order 10, 24 (JA ). And both the Commission and this Court have
already determined that support is "sufficient" for purposes of section
254(b)(5) of the Act.
Petitioners separately challenge the Order's finding that reducing the
pool of legacy high-cost support in a state "could enable excess funds from
the ... program to be used more effectively to advance universal service
broadband initiatives" under a possible future program. Order 5 (JA ).
Specifically, petitioners contend that the Order fails to demonstrate that
"future broadband support would advance the statutory objectives at all,
much less `more effectively' than high-cost support that is enabling CETCs to

petitioners fail to acknowledge that this Court upheld the Commission's
interpretation of "sufficient," as well as its finding that competitive ETC
support would be sufficient under the interim cap, in Rural Cellular
Association,
588 F.3d at 1102-04. That circuit precedent, rather than the
Tenth Circuit's Qwest decisions, is controlling here.
34

deliver valued services to rural customers today." Br. 54. In so arguing,
petitioners disregard the Commission's prior determination that the current
method of distributing support to competitive ETCs (i.e., the "identical
support rule") is not working as intended. Specifically, the Commission
found that identical support "contraven[es] the Act's universal service goal of
improving the access to telecommunications services in rural, insular and
high-cost areas," because it encourages competitive ETCs to serve high-
density (and, correspondingly, low-cost) portions of an ILEC's territory not
the unserved and under-served areas most in need of universal service
subsidies. Interim Cap Order 21 (citing 47 U.S.C. 254(b)(3)) (JA ).
Rather than exacerbating these inefficiencies by adding the
relinquished subsidies to competitive ETCs' already large high-cost
subsidies, the Commission in the Order concluded that it should reserve those
subsidies for potential universal service initiatives that would better achieve
section 245(b)'s objectives. That decision was eminently reasonable given
the Commission's prior findings in the Interim Cap Order upheld by this
Court and its stated intent to eliminate support for competitive ETCs. Corr
Wireless Order, n.44 (JA ).
In the context of this iterative proceeding, the Commission "need not
repeat itself incessantly." Bechtel v. FCC, 10 F.3d 875, 878 (D.C. Cir. 1993).
35

Where, as here, "a party attacks a policy on grounds that the agency already
has dispatched in prior proceedings, the agency can simply refer to those
proceedings if their reasoning remains applicable and adequately refutes the
challenge." Id.; see also Arkansas AFL-CIO v. FCC, 11 F.3d 1430, 1442 (8th
Cir. 1993) (the court "will not require the [Commission] to reinvent the wheel
in each case and engage in endless repetitions of its reasoning," such that the
FCC's citation of a prior judicial decision "sufficed to identify the reasoning
behind its decision."); Capital Cities/ABC, Inc. v. FCC, 29 F.3d 309, 313 (7th
Cir. 1994) (FCC's reference to the court's prior opinion provided sufficient
explanation for its decision to eliminate previously remanded rules). No
changed circumstances rendered the Interim Cap Order's reasoning
inapplicable in the proceeding below. Thus, the Commission sufficiently
explained its decision by reasoning that reclaiming high-cost support
relinquished by competitive ETCs would be "consistent with" the Interim
Cap Order. Order 5 & n.11 (JA ).

B. As In Rural Cellular Association, Petitioners Have Failed

To Demonstrate That High-Cost Support Will Be
Insufficient As A Result Of The Order.

Petitioners further claim that "[t]he FCC made no serious effort in the
Order to justify the reductions in support it effects." Br. 53. Petitioners'
premise is incorrect. The Order did not reduce petitioners' high-cost support.
36

Rather, the Commission refused to provide petitioners a more than half-
billion dollar windfall by redistributing support voluntarily surrendered by
their competitors (i.e., Verizon Wireless and Sprint Nextel). There was no
need to "justify the reductions" because there were no reductions petitioners
receive the same support they would have received under the interim cap after
Verizon Wireless and Sprint Nextel relinquish their universal service
subsidies.
Petitioners nonetheless claim that the Commission improperly
"shift[ed] to CETCs the burden of disproving statutory compliance" when
"[i]t is the agency's responsibility to explain how the Order complies with
the statute's sufficiency principle." Br. 54. The Commission, however, did
satisfy that duty: in the Interim Cap Order 8, 14 (JA ), the agency
concluded that high-cost support under the interim cap is sufficient for
purposes of section 254(b)(5). To the extent that petitioners' disagree, both
this Court and the Fifth Circuit have confirmed that it is petitioners' burden to
rebut that finding. See Rural Cellular Ass'n, 588 F.3d at 1103-04 (affirming
FCC's decision to award additional high-cost support to competitive ETCs
only upon a showing of cost-based need); Alenco, 201 F.3d at 621 (holding
that it was petitioners' burden to "present ... evidence disputing the
sufficiency" of a cap on corporate operations expenses).
37

Petitioners failed to make the required showing before the
Commission. "The pertinent question," this Court has explained, "is whether
the interim cap will undercut adequate telephone services for customers, since
`[t]he purpose of universal service is to benefit the customer, not the carrier.'"
Rural Cellular Ass'n, 588 F.3d at 1103 (quoting Alenco, 201 F.3d at 621). In
the proceeding below, petitioners' only "evidence" that high-cost support
would be insufficient absent redistribution of relinquished support was a
projection of "what would have happened had the Commission adopted the
reclamation rule over two years ago" specifically, that aggregate high-cost
support would have declined under the interim cap in several states after
Verizon Wireless relinquished its ETC status. Comments of Rural Cellular
Association at 3-4 (JA ). All this shows is that Verizon Wireless
surrendered its own high-cost support in those states it does not
8
demonstrate that any carrier would terminate (or reduce) its service. Nor
does a decline in aggregate high-cost support show that other competitive
ETCs receive less high-cost support following Verizon Wireless's surrender
of its support. To the contrary, they continue to receive the same amounts

8 Verizon Wireless has informed the Commission that it still provides
service (albeit without high-cost support) throughout the same service areas
in those states where it has relinquished its ETC status subsequent to the
Order on review.
38

under the interim cap. As a result, petitioners failed to submit any
"significant" comments that warranted an explicit response from the
Commission. United States Satellite Broad. Co v. FCC, 740 F.2d 1177, 1188
9
(D.C. Cir. 1984).
Moreover, "[t]he failure to respond to comments is significant only
insofar as it demonstrates that the agency's decision was not based on a
consideration of the relevant factors." Covad Commc'ns Co. v. FCC, 450
F.3d 528, 550 (D.C. Cir. 2006) (citing Thompson v. Clark, 741 F.2d 401, 409
(D.C. Cir. 1984)). The Commission had already considered the relevant
factors in the Interim Cap Order, where it found no reason to believe that
consumers will be left without access to affordable telecommunications
services due to the interim cap. As the Commission explained, "many
wireless carriers that do not receive high-cost support compete against
wireless competitive wireless ETCs that do receive support, and many
wireless competitive ETCs served high-cost territories before they were

9 The Coalition did not even try to demonstrate that high-cost support
would be insufficient. See Br. 18, n.10 & 55. Instead, it simply argued that
"the Commission has no legal ... standard apart from the identical support
rule for defining the level of support that is sufficient." Coalition Petition for
Reconsideration
at 17-18 (JA ). The Commission and this Court previously
rejected that argument. See Interim Cap Order 16-21 (JA ), aff'd, Rural
Cellular Ass'n,
588 F.3d at 1102-04.
39

designated as eligible to receive support." Interim Cap Order 13 (JA ).
Given that earlier finding, there was no basis for the Commission to conclude
that high-cost support under the interim cap would be insufficient if the
agency declined to redistribute the support surrendered by other competitive
ETCs.
Finally, even if the Order did generally render support insufficient in a
particular state (which is not the case), competitive ETCs may seek an
exemption from the interim cap if they demonstrate that their own costs
"meet the support threshold in the same manner as the [ILEC]." Interim Cap
Order 31 (JA ); see also pp. 12-13 & n.1, above. In other words,
petitioners may secure greater per-line support under the interim cap if they
submit cost data to the Commission showing that their high-cost universal
service support is insufficient to provide adequate telephone service to
customers. Id. This Court, in Rural Cellular Association, "th[ought] it not
unreasonable for the Commission to ask that providers be prepared to
calculate their own costs." 588 F.3d at 1104.

C. The Order Is Consistent With The Interim Cap Order.

Petitioners characterize the Interim Cap Order as an emergency
measure enacted to guard the sustainability of the universal service fund. Br.
56-57. That is correct, as far as it goes. See Interim Cap Order 1 (JA ).
40

Petitioners, however, are incorrect in claiming that the Interim Cap Order
"cannot serve as a basis for justifying later actions," Br. 57, notably the
Commission's decision, in the Order, to amend the interim-cap rule so that
petitioners would not receive a consumer-subsidized windfall every time a
competitive ETC surrenders its high-cost support. As this Court has held, "it
[i]s entirely proper for [the agency] to apply the expertise and knowledge it
had gained in [a prior] proceeding," Consol. Rail. Corp. v. ICC, 646 F.2d
642, 655 (D.C. Cir. 1981), which is precisely what the Commission did in the
Order.
In the Interim Cap Order 19 (JA ), the Commission explained that
when it adopted the identical support rule, "[it] envisioned that competitive
ETCs would compete directly against [ILECs] and try to take existing
customers from them." But that prediction has "proven inaccurate," id.:
wireless carriers, which "serve a majority of competitive ETC lines, and have
received a majority of competitive ETC support ... do not capture lines from
the [ILEC] to become a customer's sole service provider, except in a small
portion of households." Id. 20 (JA ). Instead, these carriers generally
"provide mobile wireless telephony service in addition to a customer's
existing wireline service," id., often selling "multiple supported wireless
handsets in given households" under so-called "family plans." Id. 9 (JA ).
41

As a result, "many households subscribe to both [wireline and wireless]
services and receive support for multiple lines." Id., 21 (JA ) (emphasis
added). This Court relied on these findings in Rural Cellular Association,
588 F.3d at 1104, acknowledging that "since the current regime appears to
count each line and handset the same based on the ILEC's costs, CETCs
receive subsidies well in excess of their costs...." See also id. (noting that
competitive ETCs benefit from the "inequities and inefficiencies that exist
under the current regime.").
Having previously found that the identical support rule was not
working as intended, because it subsidizes multiple lines provided by
multiple carriers to a single household or business, the Commission
reasonably declined to perpetuate that flawed regime. Bechtel v. FCC, 957
F.2d 873, 881 (D.C. Cir. 1992) (holding that the FCC has a "duty to evaluate
its policies over time to ascertain whether they work that is, whether they
actually produce the benefits the Commission originally predicted they
would."). As the Commission explained in the Order on review, "the goal of
the Interim Cap Order is to rein in high-cost universal service disbursements
for potentially duplicative voice services," and the rule amendment which
adjusts a state's interim cap amount downward if a competitive ETC
relinquishes its ETC status is "consistent with that goal." Order 5 (JA ).
42

This is not impermissible "bootstrap[ping]" (Br. 56), as petitioners
contend; rather, it is an entirely permissible application of the Commission's
prior findings concerning the identical support rule. This Court has
repeatedly found that an agency can "rely, absent changed circumstances, on
earlier findings." State of Wisconsin v. FERC, 104 F.3d 462, 469 (D.C. Cir.
1997) (FERC could rely on economic viability finding from a license grant
proceeding in a later transfer proceeding); see also Nuclear Info. Res. Serv. v.
NRC, 969 F.2d 1169, 1174-75 (D.C. Cir. 1992) (NRC was not required to
reconsider "every material issue" and could instead rely on findings made in
the earlier stages of a licensing proceeding). Thus, in the proceeding below,
the Commission "was entitled to rely on its ... findings" in the Interim Cap
Order because they "[were] directly relevant to" the matter before it and
because "petitioners were given a full opportunity to contest the [FCC's]
earlier findings with new evidence." Consol. Rail Corp., 646 F.2d at 655.
Petitioners' other attempts to distinguish the Interim Cap Order are no
more persuasive. Petitioners, for example, characterize the Interim Cap
Order as finding that duplicative support results from the sale of multiple
wireless handsets to a single household, and then criticize the agency for
failing to "undertak[e] some type of structural reform to address th[at]
purported concern." Br. 57. However, the Interim Cap Order ( 21 (JA ))
43

found that duplicate support results from the fact that "the majority of
households do not view wireline and wireless services to be direct
substitutes," so that "many households subscribe to both services."
Finally, petitioners seem to contend that the Interim Cap Order only
survived judicial review because it was an interim regulation adopted as an
emergency cost-control measure. Br. 58. That is incorrect. This Court's
finding that the interim cap was consistent with universal service principles
was not predicated on the cap's interim nature. Rural Cellular Ass'n, 588
F.3d 1101-05.

III. PETITIONERS' CHALLENGE TO THE TEMPORARY

RESERVE IS NOT PROPERLY BEFORE THIS COURT
AND, IN ANY EVENT, IS WITHOUT MERIT

A. The Court Lacks Jurisdiction To Entertain Petitioners'

Arguments Because They Are Effectively Challenges To
The Corr Wireless Order, Not The Order On Review.

Petitioners contend that the Commission lacked authority to reserve
temporarily, for a period of 18 months (i.e., until January 31, 2012), any high-
cost support surrendered by competitive ETCs. Br. 31-49. This challenge is
not properly before this Court because petitioners have challenged the wrong
order.
The Commission established the temporary reserve in the earlier Corr
Wireless Order. In that order, the Commission "direct[ed] USAC to reserve
44

any reclaimed funds as a fiscally responsible down payment on proposed
broadband universal service reforms, as recommended in the National
Broadband Plan." Corr Wireless Order 20 (JA ). "To reserve these
funds," the Commission "waive[d] section 54.709(b)" of its rules, which
requires "that USAC carry forward any `excess payments' from contributors
to the next quarter." Id., 21, 22, n.45 (citing 47 C.F.R. 54.709(b)) (JA ).
"The effect of this rule," the Commission explained, "is to reduce the
contribution factor in the subsequent quarter." Id., n.45 (JA ). In other
words, absent the 18-month waiver of rule 54.709(b), any support reclaimed
from Verizon Wireless and Sprint Nextel could not be held in reserve.
Instead, by operation of the rule, those payments would have rolled forward
to reduce the next quarter's universal service contribution factor.
The Commission, in the Order, took no further action with respect to
the temporary reserve generally, or rule 54.709(b) specifically; rather, its only
discussion of the reserve was in reference to the Corr Wireless Order. See
Order 4, n.8 (JA ) (noting that the FCC in the Corr Wireless Order
"waived, for 18 months, section 54.709(b) of the Commission's rules to
enable it to direct USAC to reserve reclaimed funds."); see also id. n.15 (JA
) (referencing the same waiver). Nor did the Commission have to do so,
because once it had waived rule 54.709(b), any "excess payments" collected
45

by USAC, whatever their source, would be held in reserve during the 18-
month waiver period. Pursuant to a different rule (i.e., 47 C.F.R.
54.709(a)(3)), the Commission directed USAC to collect universal service
contributions as if any amounts relinquished by competitive ETCs were still
being distributed. Order, n.15 (JA ). But it is the holding of those funds
permitted by the prior waiver of rule 54.709(b) in the Corr Wireless Order
not the continued collection of those funds, that created the temporary reserve
that petitioners seek to challenge in this case.
Petitioners' challenges are both too early and too late, thereby
depriving this Court of jurisdiction to hear their arguments regarding the
temporary reserve. For its part, RCA is too late because it neither sought
agency reconsideration nor judicial review of the Corr Wireless Order. The
statutory deadline for challenging the Corr Wireless Order has passed.
Hence, RCA's claims with respect to the temporary reserve are time-barred
and should be dismissed for want of jurisdiction. See 47 U.S.C. 402(a); 28
U.S.C. 2344 (requiring petitions for review of FCC orders to be filed within
60 days after issuance); Cellular Telecomms. & Internet Ass'n v. FCC, 330
F.3d 502, 508 (D.C. Cir. 2003) ("The 60-day statutory deadline is
jurisdictional.").
46

The Coalition's challenge, on the other hand, is too early or, under
this Court's cases, "incurably premature," BellSouth Corp. v. FCC, 17 F.3d
1487, 1489-90 (D.C. Cir. 1994). The Coalition sought further administrative
review of the Corr Wireless Order by filing a petition for reconsideration
with the FCC. In that petition, it raised the same APA, statutory, and
10
constitutional arguments that it now attempts to advance before this Court.
Because that petition remains pending before the Commission, the Coalition
is prohibited from litigating the same claims before this Court, and those
claims should be dismissed. See BellSouth Corp., 17 F.3d 1487 at 1489-90
(petition for reconsideration pending before the FCC renders the appeal of the
agency's order "incurably premature," thereby requiring dismissal for lack of
11
jurisdiction).

10 See USA Coalition Recon. Petition at 7-11 (constitutional claims), 11-16
(APA claims), 17-18 (statutory claims) (JA ).
11 The Coalition's pending petition for reconsideration tolls the period for it
to file a petition for review of the Corr Wireless Order. BellSouth Corp., 17
F.3d at 1490. Thus, the Coalition can await an FCC order on reconsideration
and then seek judicial review of that order. Or it could withdraw its petition
for reconsideration and then challenge the Corr Wireless Order.
47

B. The Commission Acted Within Its Discretion In

Temporarily Reserving Reclaimed High-Cost Support.

1. The Commission's rules authorize the FCC to adjust
the demand projection used to determine the
quarterly contribution factor.

Even if petitioners' challenge to the temporary reserve were not
procedurally barred, it lacks merit. Contrary to petitioners' contention (Br.
45-49), the Order is fully consistent with section 54.709(a) of the
Commission's rules, 47 C.F.R. 54.709(a).
Under that rule, USAC calculates the quarterly contribution factor
based on the ratio of total projected quarterly expenses of the four universal
service programs to contributors' total projected end-user interstate and
international revenues. 47 C.F.R. 54.709(a)(2). But an exception to that
rule provides that "[t]he Commission reserves the right to set projections of
demand and administrative expenses at amounts that the Commission
determines will serve the public interest." 47 C.F.R. 54.709(a)(3); see also
Corr Wireless Order 26 & n.54 (JA ).
The exception set forth in rule 54.709(a)(3) thus affords the
Commission discretion to adjust the expense projections used to calculate the
quarterly universal service contribution factor. 47 C.F.R. 54.709(a)(3).
The Commission, in the Order, exercised that discretion to "project
competitive ETC demand" for high-cost support "at the full amount of the
48

cap as established by the Interim Cap Order, without reflecting any
adjustments to the cap due to relinquishment or revocation of ETC status by a
competitive ETC." Order, n.15 (JA ). The Commission's reasonable
interpretation of its own rule is entitled to deference. Talk Am. Inc., 131 S.
Ct. at 2261; Auer v. Robbins, 519 U.S. 452, 461 (1997).
Petitioners nonetheless contend that the Commission exceeded its
discretion under rule 54.709(a)(3) because that rule, which "gives the FCC
authority to alter the `projections of demand,' ... can only reasonably refer to
the estimated demand for the four established universal service programs."
Br. 47. Yet the Commission's proposals for using the funds reclaimed from
competitive ETCs all fall squarely within those four programs. The
Commission envisioned in the Corr Wireless Order that any reclaimed funds
will be used to increase the funding and utilization of the schools and libraries
and rural health care programs, as well as to create new funding mechanisms
within the high-cost support program (i.e., the proposed Mobility Fund and,
in the long term, a mechanism that directly supports broadband Internet
services). See Corr Wireless Order 20 (JA ). Because the Commission, in
the Order, directed USAC to continue to project competitive ETC demand
49

"[c]onsistent with the Corr Wireless Order," Order, n.15 (JA ), it did not
12
exceed its discretion under rule 54.709(a)(3).
Nor does the Commission's interpretation of rule 54.709(a)(3) give the
agency "unfettered discretion." Br. 47. Petitioners assert that the
Commission's interpretation would "allow[] the FCC to project `demand' to
include, for example, a new fleet of vehicles." Id.; see also id. 40. That
claim is baseless. The Commission has repeatedly explained that it intends to
use the temporary reserve solely for universal service purposes. See Corr
Wireless Order 20, 23-24 (JA ); Order 5 & n.15 (JA ). And the
Commission has made good on its word: since it established the temporary
reserve in the Corr Wireless Order, it has used those monies once to
provide a slight increase in universal service support for the long-established
schools and libraries program. Schools and Libraries Order, 25 FCC Rcd at
18780-83 ( 34-40). Petitioners thus "cannot, by sheer multiplication of
innuendo, overcome the strong presumption of agency regularity." Louisiana
Ass'n of Indep. Producers and Royalty Owners v. FERC, 958 F.2d 1101,
1111 (D.C. Cir. 1992); see also Int'l Bhd. of Teamsters v. United States, 735

12 Contrary to petitioners' assertion, see Br. 48-49, the Commission did not
amend rule 54.709 in the Order. Rather, it exercised its discretion to revise
USAC's demand projections pursuant to subsection (a)(3) of that rule.
50

F.2d 1525, 1534 (D.C. Cir. 1984) ("Agency action comes before [the court]
for review accompanied by a presumption of regularity.").
2. Section 254 of the Act permits the Commission to
collect universal service contributions before it
establishes mechanisms for distributing subsidies.

Petitioners next argue that section 254 of the Act prohibits the
Commission from collecting universal service contributions to fund
broadband universal service reforms, as the Commission has proposed to do
in subsequent proceedings (see pp. 21-23, above), prior to the
implementation of those proposals. Br. 32-38. "The short answer" to this
argument "is that Congress did not write the statute that way." United States
13
v. Naftalin, 441 U.S. 768, 773 (1979).
1. Petitioners contend that "the Order violates the Act's mandate that
the FCC assess contributions only for `specific, predictable, and sufficient
mechanisms [already] established by the Commission to preserve and
advance universal service.'" Br. 34 (citing 47 U.S.C. 254(d)). Petitioners,

13 Petitioners also complain that the Commission "violat[ed] the APA's
reasoned decisionmaking requirement" because it allegedly "did nothing to
explain" how the temporary reserve is "consistent with the Act." Br. 37-38.
The Commission created the temporary reserve in the Corr Wireless Order,
see pp. 44-47, above, and took no further action with respect to the reserve in
the proceeding below. As such, the Commission had no APA obligation to
discuss the statutory basis for the temporary reserve in the Order on review.
51

in so arguing, read a temporal limitation into section 254(d) that is not present
in the statute.
Section 254(d) states that "[e]very telecommunications carrier that
provides interstate telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, to the specific, predictable, and
sufficient mechanisms established by the Commission to preserve and
advance universal service." 47 U.S.C. 254(d). This provision cross-
references the section 254(b)(5) "principle" that "[t]here should be specific,
predictable and sufficient Federal and State mechanisms to preserve and
advance universal service." 47 U.S.C. 254(b)(5); see Motion Picture Ass'n
of Am., Inc. v. FCC, 309 F.3d 796, 801 (D.C. Cir. 2002) ("Statutory
provisions in pari materia normally are construed together to discern their
meaning.").
Petitioners' argument hinges on their unsupported view that the
Commission must "establish" the "specific" and "predictable" mechanisms
required by section 254(b)(5) prior to collecting universal service
contributions pursuant to section 254(d). Br. 34-38. In fact, the reading of
section 254(b)(5) and (d) that is most consistent with the text, legislative
history, and purpose of the statute is that those provisions do not prohibit the
FCC from collecting the contributions required to fund the universal service
52

program in advance. Corr Wireless Order 20-22 (JA ). In particular, the
word "established" in section 254(d) references the Commission's obligation
to "establish[]" distribution mechanisms that comport with section 254(b)(5),
not a separate obligation to "establish[]" such mechanisms prior to collecting
contributions from telecommunications carriers to "preserve and advance
universal service." Petitioners therefore miss the mark in arguing that the
use of the temporary reserve must be "specific" and "predictable" at the time
of collection. Br. 34-35. Those principles only apply to the section 254(b)(5)
mechanisms for distributing universal service support not section 254(d)
mechanisms for collecting contributions to the universal service fund, which
only need be "equitable and nondiscriminatory."
The Commission's reading is consistent with the legislative history.
Congress, in describing the universal service provisions in the 1996 Act,
broadly stated that "[n]ew section 254(d) requires that all telecommunications
carriers providing interstate telecommunications services shall contribute to
the preservation and advancement of universal service." S. Conf. Rep. 104-
230 at 131; see also S. Rep. 104-23 at 27 (explaining that "[s]ubsection (c) of
new section 253 [later codified as section 254(d)] requires all
telecommunications carriers ... to contribute on an equitable and
nondiscriminatory basis to the preservation and advancement of universal
53

service."). Nowhere did Congress direct the Commission to establish
distribution mechanisms as a condition precedent to collecting universal
service contributions.
This reading is also consistent with the Fifth Circuit's decision in
Alenco, 201 F.3d 608, on which petitioners rely (Br. 36). In determining
whether certain universal service distribution mechanisms were "predictable,"
as required by section 254(b)(5), the Alenco court found that "the
Commission reasonably construed the predictability principle to require only
predictable rules that govern distribution of the subsidies ...." Id. at 623
(emphasis altered); see also id. at 622 (explaining that universal service
support for high-cost loops was "predictable" because "[t]he methodology
governing subsidy disbursements [wa]s plainly stated and made available to
LECs.") (emphasis added). The court never suggested that the Commission
is required to establish "predictable rules that govern the distribution of ...
subsidies" before collecting universal service contributions. Id. at 623.
The Commission is in the process of reforming its existing
mechanisms, and potentially developing new mechanisms, for distributing
universal service support. Order 5 (JA ); see also Corr Wireless Order
20, 23-24 (JA ). Those mechanisms must comport with the requirements
of section 254(b)(5). To the extent petitioners believe that they do not,
54

petitioners may challenge them in court, once they are established. But
neither the statute nor Alenco requires the Commission to establish those
mechanisms prior to collecting the universal service contributions necessary
to fund them only that the Commission establish them prior to distributing
universal service support.
The Commission's interpretation of section 254(d) is also consistent
with the framework of section 254. Congress, in section 254(c), directed the
Commission, in consultation with the Joint Board, to periodically revise the
definition of universal service and the funding mechanisms that support it. 47
U.S.C. 254(c)(1)-(2). The Commission, in the Corr Wireless Order ( 20 &
n.48 (JA )), created the temporary reserve because "[r]eserving funds now,
rather than collecting them through a higher contribution factor at a later
time, will ensure that [it] ha[s] the funds on hand to rapidly implement" the
proposals to advance universal service broadband initiatives "while
minimizing unnecessary volatility in the contribution factor, which would
otherwise decline and increase as the universal service fund transitions to
support broadband." See also USF/ICC Transformation NPRM, 26 FCC Rcd
at 4559, 4584 ( 10, 80) (stating the FCC's intent to control the size of the
USF as it implements broadband universal service reform). Under
petitioners' cramped reading of section 254(d), however, there would either
55

be a substantial lag between enactment and implementation of the reforms
anticipated by section 254(c), or a significant, sudden increase in the
quarterly universal service contribution factor paid by consumers outcomes
that hardly "preserv[e] and advance[]" universal service consistent with the
Commission's statutory mandate. 47 U.S.C. 254(b).
In any event, section 254(d) is ambiguous, and the Commission
construed it reasonably. "[E]ven if the agency's reading differs from what the
court believes is the best statutory interpretation," it is clearly not precluded
by the statute's language or structure and therefore must be affirmed. Brand
X, 545 U.S. at 980; see also Rural Cellular Ass'n, 588 F.3d at 1102 (this
Court "will uphold the agency's interpretation as long as it is reasonable ...
even if `there may be other reasonable, or even more reasonable, views.'")
(citations omitted); Troy v. Browner, 120 F.3d 277, 291 (D.C. Cir. 1997) (this
Court "will not reverse an agency's interpretation of a statute merely because
it is not the most obvious one.").
2. Petitioners further contend that the temporary reserve "does not
support any of the services currently designated by the Joint Board and the
FCC as `supported services' and is not part of the current High-Cost Program
or any of the other specific support mechanisms," so "it violates Sections
254(c)(1) and 254(a)(2) of the Act." Br. 34.
56

Petitioners' argument fails for reasons similar to those set forth above.
Section 254(c)(1), which the Commission has used to designate services
eligible for support from the high-cost and low-income support programs,
only requires the Commission, in consultation with the Joint Board, to
"establish[] the definition of the services that are supported by Federal
universal service support mechanisms." 47 U.S.C. 254(c)(1). The "Federal
universal service support mechanisms" referenced in that provision are the
"specific and predictable support mechanisms" required by section 254(b)(5).
Section 254(c)(1) thus requires the Commission only to identify the services
eligible for support prior to developing the mechanisms that distribute
universal service support. Nothing in that provision requires the Commission
to designate the services eligible for support before it collects contributions
for its universal service programs pursuant to section 254(d), however.
Petitioners also overlook that the Corr Wireless Order ( 20 (JA )) in
fact identified four potential uses of the temporary reserve fund, two of which
were "index[ing] the E-rate funding cap to inflation" and "improving
utilization of the Rural Health Care program." Both the schools and libraries
program and the rural health care program subsidize services long-designated
as eligible for universal service support by the Commission (including
broadband Internet access) under 47 U.S.C. 254(h). See First Report and
57

Order, 12 FCC Rcd 8776 ( 426-463; 609-637), aff'd, TOPUC, 183 F.3d at
440-46.
Petitioners further fail to acknowledge that the Commission recently
indexed schools and libraries support to inflation. Schools and Libraries
Order, 25 FCC Rcd at 18780-83 ( 34-40). "[A]dditional universal service
funds required to" make this adjustment "will be offset by the Commission's
recent decision to use reclaimed funds surrendered [by] competitive [ETCs]
as a `fiscally responsible down payment on proposed broadband universal
service reforms.'" Id., 25 FCC Rcd at 18781-82 ( 38) (quoting Corr
Wireless Order 20). Accordingly, petitioners are wrong when they claim
that the temporary reserve "is not intended to support the designated services
as the Act requires." Br. 33. In fact, the temporary reserve currently is being
used to subsidize designated services and only designated services today.
3. The Commission's interpretation of the Act is
consistent with constitutional requirements.
Finally, in an effort to bolster their statutory argument, petitioners
invoke the canon of constitutional avoidance, contending that the
Commission's "broad interpretation" of section 254 "raise[s] serious doubts
about the constitutionality of the Act." Br. 38. Not so. Courts (including
this one) have uniformly rejected arguments that universal service
contributions violate the Origination Clause (art. 1, 7, cl. 1) and the Taxing
58

Clause (art. 1, 8, cl. 1) of the Constitution. The temporary reserve is
consistent with that precedent and the Constitution.
1. The temporary reserve does not violate the Origination Clause
because it is not a revenue bill that must originate in the House of
Representatives. As the Supreme Court has explained, "a statute that creates
a particular governmental program and that raises revenue to support that
program, as opposed to a statute that raises revenue to support Government
generally, is not a `Bil[l] for raising Revenue' within the meaning of the
Origination Clause." United States v. Munoz-Flores, 495 U.S. 385, 398
(1990). The Commission created the temporary reserve in anticipation of
possible universal service reforms before February 2012. Corr Wireless
Order 20 (JA ). The temporary reserve thus is a fund dedicated to the
particular purpose of preserving and advancing universal service, consistent
with section 254(b) of the Act, not to raise revenues for the general treasury.
Petitioners argue that "the Order raises money for a vague purpose."
Br. 40. But the specificity or vagueness of an agency's purpose plays no role
in Origination Clause analysis; the relevant question instead is whether the
funds are directed to a particular program rather than to the general support of
the Government. See Munoz-Flores, 495 U.S. at 398. In any event, the
59

Commission's proposals for using the temporary reserve are hardly vague.
See pp. 21-23, above.
Petitioners speculate that "[n]othing in the Order prevents the FCC
from" using the temporary reserve for a non-universal service purpose, such
as "financing the construction of a new wing at its headquarters." Br. 40.
This ignores the fact that such hypothetical expenditures for patently non-
universal service purposes would violate federal law. See 31 U.S.C. 1301
(prohibiting expenditures for purposes not authorized by Congress); id.
1341-1342 (banning spending in excess of, or in advance of, an
appropriation, in violation of the Antideficiency Act).
The Commission, moreover, has repeatedly affirmed that it will use the
temporary reserve either to implement universal service reform or to reduce
the universal service contribution factor, and this Court "must presume an
agency acts in good faith." Comcast v. FCC, 526 F.3d 763, 769, n.2 (D.C.
Cir. 2008) (rejecting petitioners' "assertions bordering on accusations of the
Commission's bad faith."). Indeed, since the Commission established the
temporary reserve, it has expended those funds only once for the universal
service purpose of re-indexing support for the schools and libraries program
to inflation, consistent with the Corr Wireless Order. Schools and Libraries
Order, 25 FCC Rcd at 18780-83 ( 34-40).
60


Relying on the Fifth Circuit's decision in TOPUC, petitioners next
contend that the Order violates the Origination Clause because it "requires no
connection between the payors" (providers of interstate telecommunications)
and "the future beneficiaries" of the temporary reserve. Br. 40. In fact, that
decision undermines, rather than supports, petitioners' argument. In TOPUC,
the court rejected a very similar contention made by several paging carriers,
finding a sufficient nexus between those carriers' contributions and the
Commission's overall universal service program, without regard to any of the

specific mechanisms for distributing support under that program.
The court explained:
[U]niversal service contributions are part of a particular program
supporting the expansion of, and increased access to, the public
institutional telecommunications network. Each paging carrier
directly benefits from a larger and larger network and, with that
in mind, Congress designed the universal service scheme to
exact payments from those companies benefiting from the
provision of universal service. This design prevents the sums
being used to support the universal service program from being
classified as `revenue' within the meaning of the Origination
Clause.
14
TOPUC, 183 F.3d at 428.

14 The TOPUC court relied on dicta from Munoz-Flores, 495 U.S. at 400,
n.7, wherein the Supreme Court simply noted without deciding that "[a]
different case might be presented if the program funds were entirely unrelated
to the persons paying for the program." See TOPUC, 183 F.3d at 427-28. In
any event, no such case is presented here.
61

Petitioners are wireless carriers. Like the paging carriers in TOPUC,
they "are ... dependant on a widespread telecommunications network for the
maintenance and expansion of their business." Id. Also like those paging
carriers, they benefit from the fact that the Commission's universal service
program "expan[ds] ..., and increase[s] access to, the public institutional
telecommunications network." Id. And irrespective of any proposed changes
to the specific mechanisms that distribute universal service support, the larger
universal service program will continue to promote universal access to
telecommunications and information services, consistent with the principles
set forth in section 254(b) of the Act. See pp. 21-23, above. It follows that
contributions to the temporary reserve, which have been set aside to fund the
Commission's universal service program, Corr Wirless Order 20-22, 24
(JA ), Order 5 & nn.8, 15 (JA ), "target[] a group `to which some part of
the expenses' of sustaining the universal service program `can be fairly
attributed.'" TOPUC, 183 F.3d at 428 (citing Munoz-Flores, 495 U.S. at 400,
n.7).
2. Petitioners assert that the Act, as interpreted by the Commission,
amounts to an unconstitutional delegation of the power to "tax" as opposed to
a constitutional delegation of the power to set "fees." Br. 43. But "the
delegation of discretionary authority under Congress' taxing power is subject
62

to no constitutional scrutiny greater than that ... applied to other
nondelegation challenges." Skinner v. Mid-America Pipeline Co., 490 U.S.
212, 223 (1989). Accordingly, whether a particular assessment is described
as a "tax" or a "fee" plays no role in deciding a nondelegation claim. Id.; see
also Fla. Power & Light Co. v. United States, 846 F.2d 765, 771 (D.C. Cir.
1988). In either case, the question is simply whether Congress has laid down
an intelligible principle to guide the agency's actions. Skinner, 490 U.S. at
218-19. Here, Congress has done so. Section 254(b) of the Act sets forth a
list of principles on which the Commission and the Joint Board must base
universal service policies. And universal service contributions collected to
subsidize those policies, once enacted, must be "equitable and
nondiscriminatory." 47 U.S.C. 254(d).
Petitioners rely on National Cable Television Association v. United
States, 415 U.S. 336, 340 (1974) ("NCTA"), to claim that a regulatory fee,
such as the temporary reserve, becomes an unauthorized tax if the fee is not
based on the benefit received by the payor from the regulatory scheme. Br.
44. That case, however, "stand[s] only for the proposition that Congress must
indicate clearly its intention to delegate to the Executive the discretionary
authority to recover administrative costs not inuring directly to the benefit of
regulated parties by imposing additional financial burdens, whether
63

characterized as `fees' or `taxes,' on those parties." Skinner, 490 U.S. at 224.
Congress clearly indicated its intention to do so here. The Act requires
telecommunications carriers to contribute "to ... preserve and advance
universal service," 47 U.S.C. 254(d), a purpose that, unlike the statute at
issue in NCTA, takes into account considerations broader than the value of the
benefit conferred on the particular carrier. In any event, as set forth above,
see pp. 21-23, the temporary reserve, by its terms, will be used to subsidize
the expansion and reform of three of the Commission's four existing
universal service programs (i.e., high-cost, schools and libraries, and rural
health care) programs that the Fifth Circuit already found confer substantial
benefits to telecommunications carriers such as petitioners. TOPUC, 183
F.3d at 428.
Finally, this Court, as well as the Fifth Circuit, have already rejected
the claim that a universal service assessment is an unauthorized tax. See
Rural Tel. Coal. v. FCC, 838 F.2d 1307, 1314 (D.C. Cir. 1988); TOPUC, 183
F.3d at 427, n.52. There is no reason for this Court to revisit its earlier
decision.
64

CONCLUSION

The Court should dismiss the challenge to the temporary reserve for
lack of jurisdiction, and should otherwise deny the petition for review.
Respectfully
submitted,

AUSTIN C. SCHLICK
SHARIS A. POZEN
GENERAL COUNSEL
ACTING ASSISTANT ATTORNEY

GENERAL
PETER KARANJIA

DEPUTY GENERAL COUNSEL
ROBERT B. NICHOLSON

KRISTEN C. LIMARZI
RICHARD K. WELCH
ATTORNEYS
DEPUTY ASSOCIATE GENERAL

COUNSEL
UNITED STATES

DEPARTMENT OF JUSTICE
/s/ Maureen K. Flood
WASHINGTON, D.C. 20530


MAUREEN K. FLOOD
COUNSEL

FEDERAL COMMUNICATIONS
COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740
August 11, 2011
65

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT


RURAL CELLULAR ASSOCIATION AND UNIVERSAL
SERVICE FOR AMERICA COALITION,
PETITIONERS,
v.
NO. 11-1094

FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS.



CERTIFICATE OF COMPLIANCE

Pursuant to the requirements of Fed. R. App. P. 32(a)(7), I hereby
certify that the accompanying "Brief for Respondents" in the captioned case
contains 13,525 words.

/s/ Maureen K. Flood
Maureen K. Flood

Counsel
Federal Communications Commission
Washington, D.C. 20554
(202) 418-1740 (Telephone)
(202) 418-2819 (Fax)
August 11, 2011












Appendix:

Statutes and Regulations






5 U.S.C. 706
28 U.S.C. 2344
31 U.S.C. 1301
31 U.S.C. 1341
31 U.S.C. 1342
47 U.S.C. 151
47 U.S.C. 214
47 U.S.C. 251
47 U.S.C. 252
47 U.S.C. 253
47 U.S.C. 254
47 U.S.C. 402
47 C.F.R. 1.3
47 C.F.R. 54.706
47 C.F.R. 54.709

5 U.S.C. 706

To the extent necessary to decision and when presented, the reviewing court
shall decide all relevant questions of law, interpret constitutional and
statutory provisions, and determine the meaning or applicability of the terms
of an agency action. The reviewing court shall--

(1) compel agency action unlawfully withheld or unreasonably delayed; and

(2) hold unlawful and set aside agency action, findings, and conclusions
found to be--

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law;

(B) contrary to constitutional right, power, privilege, or immunity;

(C) in excess of statutory jurisdiction, authority, or limitations, or short of
statutory right;

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections 556 and
557 of this title or otherwise reviewed on the record of an agency hearing
provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject to trial de
novo by the reviewing court.

In making the foregoing determinations, the court shall review the whole
record or those parts of it cited by a party, and due account shall be taken of
the rule of prejudicial error.



2

28 U.S.C. 2344

On the entry of a final order reviewable under this chapter, the agency shall
promptly give notice thereof by service or publication in accordance with its
rules. Any party aggrieved by the final order may, within 60 days after its
entry, file a petition to review the order in the court of appeals wherein
venue lies. The action shall be against the United States. The petition shall
contain a concise statement of--

(1) the nature of the proceedings as to which review is sought;

(2) the facts on which venue is based;

(3) the grounds on which relief is sought; and

(4) the relief prayed.

The petitioner shall attach to the petition, as exhibits, copies of the order,
report, or decision of the agency. The clerk shall serve a true copy of the
petition on the agency and on the Attorney General by registered mail, with
request for a return receipt.

3

31 U.S.C. 1301

(a) Appropriations shall be applied only to the objects for which the
appropriations were made except as otherwise provided by law.

(b) The reappropriation and diversion of the unexpended balance of an
appropriation for a purpose other than that for which the appropriation
originally was made shall be construed and accounted for as a new
appropriation. The unexpended balance shall be reduced by the amount to be
diverted.

(c) An appropriation in a regular, annual appropriation law may be construed
to be permanent or available continuously only if the appropriation--

(1) is for rivers and harbors, lighthouses, public buildings, or the pay of the
Navy and Marine Corps; or

(2) expressly provides that it is available after the fiscal year covered by the
law in which it appears.

(d) A law may be construed to make an appropriation out of the Treasury or
to authorize making a contract for the payment of money in excess of an
appropriation only if the law specifically states that an appropriation is made
or that such a contract may be made.


4

31 U.S.C. 1341

(a)(1) An officer or employee of the United States Government or of the
District of Columbia government may not--

(A) make or authorize an expenditure or obligation exceeding an amount
available in an appropriation or fund for the expenditure or obligation;

(B) involve either government in a contract or obligation for the payment of
money before an appropriation is made unless authorized by law;

(C) make or authorize an expenditure or obligation of funds required to be
sequestered under section 252 of the Balanced Budget and Emergency
Deficit Control Act of 1985; or

(D) involve either government in a contract or obligation for the payment of
money required to be sequestered under section 252 of the Balanced Budget
and Emergency Deficit Control Act of 1985.

(2) This subsection does not apply to a corporation getting amounts to make
loans (except paid in capital amounts) without legal liability of the United
States Government.

(b) An article to be used by an executive department in the District of
Columbia that could be bought out of an appropriation made to a regular
contingent fund of the department may not be bought out of another amount
available for obligation.


5

31 U.S.C. 1342

An officer or employee of the United States Government or of the District of
Columbia government may not accept voluntary services for either
government or employ personal services exceeding that authorized by law
except for emergencies involving the safety of human life or the protection
of property. This section does not apply to a corporation getting amounts to
make loans (except paid in capital amounts) without legal liability of the
United States Government. As used in this section, the term "emergencies
involving the safety of human life or the protection of property" does not
include ongoing, regular functions of government the suspension of which
would not imminently threaten the safety of human life or the protection of
property.
6

47 U.S.C. 151

For the purpose of regulating interstate and foreign commerce in
communication by wire and radio so as to make available, so far as possible,
to all the people of the United States, without discrimination on the basis of
race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide,
and world-wide wire and radio communication service with adequate
facilities at reasonable charges, for the purpose of the national defense, for
the purpose of promoting safety of life and property through the use of wire
and radio communications, and for the purpose of securing a more effective
execution of this policy by centralizing authority heretofore granted by law
to several agencies and by granting additional authority with respect to
interstate and foreign commerce in wire and radio communication, there is
created a commission to be known as the "Federal Communications
Commission", which shall be constituted as hereinafter provided, and which
shall execute and enforce the provisions of this chapter.

7

47 U.S.C. 214

(a) Exceptions; temporary or emergency service or discontinuance of
service; changes in plant, operation or equipment

No carrier shall undertake the construction of a new line or of an extension
of any line, or shall acquire or operate any line, or extension thereof, or shall
engage in transmission over or by means of such additional or extended line,
unless and until there shall first have been obtained from the Commission a
certificate that the present or future public convenience and necessity require
or will require the construction, or operation, or construction and operation,
of such additional or extended line: Provided, That no such certificate shall
be required under this section for the construction, acquisition, or operation
of (1) a line within a single State unless such line constitutes part of an
interstate line, (2) local, branch, or terminal lines not exceeding ten miles in
length, or (3) any line acquired under section 221 of this title: Provided
further, That the Commission may, upon appropriate request being made,
authorize temporary or emergency service, or the supplementing of existing
facilities, without regard to the provisions of this section. No carrier shall
discontinue, reduce, or impair service to a community, or part of a
community, unless and until there shall first have been obtained from the
Commission a certificate that neither the present nor future public
convenience and necessity will be adversely affected thereby; except that the
Commission may, upon appropriate request being made, authorize
temporary or emergency discontinuance, reduction, or impairment of
service, or partial discontinuance, reduction, or impairment of service,
without regard to the provisions of this section. As used in this section the
term "line" means any channel of communication established by the use of
appropriate equipment, other than a channel of communication established
by the interconnection of two or more existing channels: Provided, however,
That nothing in this section shall be construed to require a certificate or other
authorization from the Commission for any installation, replacement, or
other changes in plant, operation, or equipment, other than new construction,
which will not impair the adequacy or quality of service provided.

(b) Notification of Secretary of Defense, Secretary of State, and State
Governor

Upon receipt of an application for any such certificate, the Commission shall
cause notice thereof to be given to, and shall cause a copy of such
8

application to be filed with, the Secretary of Defense, the Secretary of State
(with respect to such applications involving service to foreign points), and
the Governor of each State in which such line is proposed to be constructed,
extended, acquired, or operated, or in which such discontinuance, reduction,
or impairment of service is proposed, with the right to those notified to be
heard; and the Commission may require such published notice as it shall
determine.

(c) Approval or disapproval; injunction

The Commission shall have power to issue such certificate as applied for, or
to refuse to issue it, or to issue it for a portion or portions of a line, or
extension thereof, or discontinuance, reduction, or impairment of service,
described in the application, or for the partial exercise only of such right or
privilege, and may attach to the issuance of the certificate such terms and
conditions as in its judgment the public convenience and necessity may
require. After issuance of such certificate, and not before, the carrier may,
without securing approval other than such certificate, comply with the terms
and conditions contained in or attached to the issuance of such certificate
and proceed with the construction, extension, acquisition, operation, or
discontinuance, reduction, or impairment of service covered thereby. Any
construction, extension, acquisition, operation, discontinuance, reduction, or
impairment of service contrary to the provisions of this section may be
enjoined by any court of competent jurisdiction at the suit of the United
States, the Commission, the State commission, any State affected, or any
party in interest.

(d) Order of Commission; hearing; penalty

The Commission may, after full opportunity for hearing, in a proceeding
upon complaint or upon its own initiative without complaint, authorize or
require by order any carrier, party to such proceeding, to provide itself with
adequate facilities for the expeditious and efficient performance of its
service as a common carrier and to extend its line or to establish a public
office; but no such authorization or order shall be made unless the
Commission finds, as to such provision of facilities, as to such establishment
of public offices, or as to such extension, that it is reasonably required in the
interest of public convenience and necessity, or as to such extension or
facilities that the expense involved therein will not impair the ability of the
carrier to perform its duty to the public. Any carrier which refuses or
9

neglects to comply with any order of the Commission made in pursuance of
this subsection shall forfeit to the United States $1,200 for each day during
which such refusal or neglect continues.

(e) Provision of universal service

(1) Eligible telecommunications carriers

A common carrier designated as an eligible telecommunications carrier
under paragraph (2), (3), or (6) shall be eligible to receive universal service
support in accordance with section 254 of this title and shall, throughout the
service area for which the designation is received--

(A) offer the services that are supported by Federal universal service support
mechanisms under section 254(c) of this title, either using its own facilities
or a combination of its own facilities and resale of another carrier's services
(including the services offered by another eligible telecommunications
carrier); and

(B) advertise the availability of such services and the charges therefor using
media of general distribution.

(2) Designation of eligible telecommunications carriers

A State commission shall upon its own motion or upon request designate a
common carrier that meets the requirements of paragraph (1) as an eligible
telecommunications carrier for a service area designated by the State
commission. Upon request and consistent with the public interest,
convenience, and necessity, the State commission may, in the case of an area
served by a rural telephone company, and shall, in the case of all other areas,
designate more than one common carrier as an eligible telecommunications
carrier for a service area designated by the State commission, so long as
each additional requesting carrier meets the requirements of paragraph (1).
Before designating an additional eligible telecommunications carrier for an
area served by a rural telephone company, the State commission shall find
that the designation is in the public interest.

(3) Designation of eligible telecommunications carriers for unserved areas

10

If no common carrier will provide the services that are supported by Federal
universal service support mechanisms under section 254(c) of this title to an
unserved community or any portion thereof that requests such service, the
Commission, with respect to interstate services or an area served by a
common carrier to which paragraph (6) applies, or a State commission, with
respect to intrastate services, shall determine which common carrier or
carriers are best able to provide such service to the requesting unserved
community or portion thereof and shall order such carrier or carriers to
provide such service for that unserved community or portion thereof. Any
carrier or carriers ordered to provide such service under this paragraph shall
meet the requirements of paragraph (1) and shall be designated as an eligible
telecommunications carrier for that community or portion thereof.

(4) Relinquishment of universal service

A State commission (or the Commission in the case of a common carrier
designated under paragraph (6)) shall permit an eligible telecommunications
carrier to relinquish its designation as such a carrier in any area served by
more than one eligible telecommunications carrier. An eligible
telecommunications carrier that seeks to relinquish its eligible
telecommunications carrier designation for an area served by more than one
eligible telecommunications carrier shall give advance notice to the State
commission (or the Commission in the case of a common carrier designated
under paragraph (6)) of such relinquishment. Prior to permitting a
telecommunications carrier designated as an eligible telecommunications
carrier to cease providing universal service in an area served by more than
one eligible telecommunications carrier, the State commission (or the
Commission in the case of a common carrier designated under paragraph
(6)) shall require the remaining eligible telecommunications carrier or
carriers to ensure that all customers served by the relinquishing carrier will
continue to be served, and shall require sufficient notice to permit the
purchase or construction of adequate facilities by any remaining eligible
telecommunications carrier. The State commission (or the Commission in
the case of a common carrier designated under paragraph (6)) shall establish
a time, not to exceed one year after the State commission (or the
Commission in the case of a common carrier designated under paragraph
(6)) approves such relinquishment under this paragraph, within which such
purchase or construction shall be completed.


11

(5) "Service area defined"

The term "service area" means a geographic area established by a State
commission (or the Commission under paragraph (6)) for the purpose of
determining universal service obligations and support mechanisms. In the
case of an area served by a rural telephone company, "service area" means
such company's "study area" unless and until the Commission and the
States, after taking into account recommendations of a Federal-State Joint
Board instituted under section 410(c) of this title, establish a different
definition of service area for such company.

(6) Common carriers not subject to state commission jurisdiction

In the case of a common carrier providing telephone exchange service and
exchange access that is not subject to the jurisdiction of a State commission,
the Commission shall upon request designate such a common carrier that
meets the requirements of paragraph (1) as an eligible telecommunications
carrier for a service area designated by the Commission consistent with
applicable Federal and State law. Upon request and consistent with the
public interest, convenience and necessity, the Commission may, with
respect to an area served by a rural telephone company, and shall, in the case
of all other areas, designate more than one common carrier as an eligible
telecommunications carrier for a service area designated under this
paragraph, so long as each additional requesting carrier meets the
requirements of paragraph (1). Before designating an additional eligible
telecommunications carrier for an area served by a rural telephone company,
the Commission shall find that the designation is in the public interest.
12

47 U.S.C. 251

(a) General duty of telecommunications carriers

Each telecommunications carrier has the duty--

(1) to interconnect directly or indirectly with the facilities and equipment of
other telecommunications carriers; and

(2) not to install network features, functions, or capabilities that do not
comply with the guidelines and standards established pursuant to section 255
or 256 of this title.

(b) Obligations of all local exchange carriers

Each local exchange carrier has the following duties:

(1) Resale

The duty not to prohibit, and not to impose unreasonable or discriminatory
conditions or limitations on, the resale of its telecommunications services.

(2) Number portability

The duty to provide, to the extent technically feasible, number portability in
accordance with requirements prescribed by the Commission.

(3) Dialing parity

The duty to provide dialing parity to competing providers of telephone
exchange service and telephone toll service, and the duty to permit all such
providers to have nondiscriminatory access to telephone numbers, operator
services, directory assistance, and directory listing, with no unreasonable
dialing delays.

(4) Access to rights-of-way

The duty to afford access to the poles, ducts, conduits, and rights-of-way of
such carrier to competing providers of telecommunications services on rates,
terms, and conditions that are consistent with section 224 of this title.
13

(5) Reciprocal compensation

The duty to establish reciprocal compensation arrangements for the transport
and termination of telecommunications.

(c) Additional obligations of incumbent local exchange carriers

In addition to the duties contained in subsection (b) of this section, each
incumbent local exchange carrier has the following duties:

(1) Duty to negotiate

The duty to negotiate in good faith in accordance with section 252 of this
title the particular terms and conditions of agreements to fulfill the duties
described in paragraphs (1) through (5) of subsection (b) of this section and
this subsection. The requesting telecommunications carrier also has the duty
to negotiate in good faith the terms and conditions of such agreements.

(2) Interconnection

The duty to provide, for the facilities and equipment of any requesting
telecommunications carrier, interconnection with the local exchange carrier's
network--

(A) for the transmission and routing of telephone exchange service and
exchange access;

(B) at any technically feasible point within the carrier's network;

(C) that is at least equal in quality to that provided by the local exchange
carrier to itself or to any subsidiary, affiliate, or any other party to which the
carrier provides interconnection; and

(D) on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory, in accordance with the terms and conditions of the
agreement and the requirements of this section and section 252 of this title.




14

(3) Unbundled access

The duty to provide, to any requesting telecommunications carrier for the
provision of a telecommunications service, nondiscriminatory access to
network elements on an unbundled basis at any technically feasible point on
rates, terms, and conditions that are just, reasonable, and nondiscriminatory
in accordance with the terms and conditions of the agreement and the
requirements of this section and section 252 of this title. An incumbent local
exchange carrier shall provide such unbundled network elements in a
manner that allows requesting carriers to combine such elements in order to
provide such telecommunications service.

(4) Resale

The duty--

(A) to offer for resale at wholesale rates any telecommunications service that
the carrier provides at retail to subscribers who are not telecommunications
carriers; and

(B) not to prohibit, and not to impose unreasonable or discriminatory
conditions or limitations on, the resale of such telecommunications service,
except that a State commission may, consistent with regulations prescribed
by the Commission under this section, prohibit a reseller that obtains at
wholesale rates a telecommunications service that is available at retail only
to a category of subscribers from offering such service to a different
category of subscribers.

(5) Notice of changes

The duty to provide reasonable public notice of changes in the information
necessary for the transmission and routing of services using that local
exchange carrier's facilities or networks, as well as of any other changes that
would affect the interoperability of those facilities and networks.

(6) Collocation

The duty to provide, on rates, terms, and conditions that are just, reasonable,
and nondiscriminatory, for physical collocation of equipment necessary for
interconnection or access to unbundled network elements at the premises of
15

the local exchange carrier, except that the carrier may provide for virtual
collocation if the local exchange carrier demonstrates to the State
commission that physical collocation is not practical for technical reasons or
because of space limitations.

(d) Implementation

(1) In general

Within 6 months after February 8, 1996, the Commission shall complete all
actions necessary to establish regulations to implement the requirements of
this section.

(2) Access standards

In determining what network elements should be made available for
purposes of subsection (c)(3) of this section, the Commission shall consider,
at a minimum, whether--

(A) access to such network elements as are proprietary in nature is
necessary; and

(B) the failure to provide access to such network elements would impair the
ability of the telecommunications carrier seeking access to provide the
services that it seeks to offer.

(3) Preservation of State access regulations

In prescribing and enforcing regulations to implement the requirements of
this section, the Commission shall not preclude the enforcement of any
regulation, order, or policy of a State commission that--

(A) establishes access and interconnection obligations of local exchange
carriers;

(B) is consistent with the requirements of this section; and

(C) does not substantially prevent implementation of the requirements of this
section and the purposes of this part.

16

(e) Numbering administration

(1) Commission authority and jurisdiction

The Commission shall create or designate one or more impartial entities to
administer telecommunications numbering and to make such numbers
available on an equitable basis. The Commission shall have exclusive
jurisdiction over those portions of the North American Numbering Plan that
pertain to the United States. Nothing in this paragraph shall preclude the
Commission from delegating to State commissions or other entities all or
any portion of such jurisdiction.

(2) Costs

The cost of establishing telecommunications numbering administration
arrangements and number portability shall be borne by all
telecommunications carriers on a competitively neutral basis as determined
by the Commission.

(3) Universal emergency telephone number

The Commission and any agency or entity to which the Commission has
delegated authority under this subsection shall designate 9-1-1 as the
universal emergency telephone number within the United States for
reporting an emergency to appropriate authorities and requesting assistance.
The designation shall apply to both wireline and wireless telephone service.
In making the designation, the Commission (and any such agency or entity)
shall provide appropriate transition periods for areas in which 9-1-1 is not in
use as an emergency telephone number on October 26, 1999.

(f) Exemptions, suspensions, and modifications

(1) Exemption for certain rural telephone companies

(A) Exemption

Subsection (c) of this section shall not apply to a rural telephone company
until (i) such company has received a bona fide request for interconnection,
services, or network elements, and (ii) the State commission determines
(under subparagraph (B)) that such request is not unduly economically
17

burdensome, is technically feasible, and is consistent with section 254 of this
title (other than subsections (b)(7) and (c)(1)(D) thereof).
(B) State termination of exemption and implementation schedule

The party making a bona fide request of a rural telephone company for
interconnection, services, or network elements shall submit a notice of its
request to the State commission. The State commission shall conduct an
inquiry for the purpose of determining whether to terminate the exemption
under subparagraph (A). Within 120 days after the State commission
receives notice of the request, the State commission shall terminate the
exemption if the request is not unduly economically burdensome, is
technically feasible, and is consistent with section 254 of this title (other
than subsections (b)(7) and (c)(1)(D) thereof). Upon termination of the
exemption, a State commission shall establish an implementation schedule
for compliance with the request that is consistent in time and manner with
Commission regulations.

(C) Limitation on exemption

The exemption provided by this paragraph shall not apply with respect to a
request under subsection (c) of this section, from a cable operator providing
video programming, and seeking to provide any telecommunications service,
in the area in which the rural telephone company provides video
programming. The limitation contained in this subparagraph shall not apply
to a rural telephone company that is providing video programming on
February 8, 1996.

(2) Suspensions and modifications for rural carriers

A local exchange carrier with fewer than 2 percent of the Nation's subscriber
lines installed in the aggregate nationwide may petition a State commission
for a suspension or modification of the application of a requirement or
requirements of subsection (b) or (c) of this section to telephone exchange
service facilities specified in such petition. The State commission shall grant
such petition to the extent that, and for such duration as, the State
commission determines that such suspension or modification--

(A) is necessary--

18

(i) to avoid a significant adverse economic impact on users of
telecommunications services generally;

(ii) to avoid imposing a requirement that is unduly economically
burdensome; or

(iii) to avoid imposing a requirement that is technically infeasible; and

(B) is consistent with the public interest, convenience, and necessity.

The State commission shall act upon any petition filed under this paragraph
within 180 days after receiving such petition. Pending such action, the State
commission may suspend enforcement of the requirement or requirements to
which the petition applies with respect to the petitioning carrier or carriers.

(g) Continued enforcement of exchange access and interconnection
requirements

On and after February 8, 1996, each local exchange carrier, to the extent that
it provides wireline services, shall provide exchange access, information
access, and exchange services for such access to interexchange carriers and
information service providers in accordance with the same equal access and
nondiscriminatory interconnection restrictions and obligations (including
receipt of compensation) that apply to such carrier on the date immediately
preceding February 8, 1996 under any court order, consent decree, or
regulation, order, or policy of the Commission, until such restrictions and
obligations are explicitly superseded by regulations prescribed by the
Commission after February 8, 1996. During the period beginning on
February 8, 1996 and until such restrictions and obligations are so
superseded, such restrictions and obligations shall be enforceable in the
same manner as regulations of the Commission.

(h) Definition of incumbent local exchange carrier

(1) Definition

For purposes of this section, the term `incumbent local exchange carrier'
means, with respect to an area, the local exchange carrier that--

19

(A) on February 8, 1996, provided telephone exchange service in such area;
and

(B)(i) on February 8, 1996, was deemed to be a member of the exchange
carrier association pursuant to section 69.601(b) of the Commission's
regulations (47 C.F.R. 69.601(b)); or

(ii) is a person or entity that, on or after February 8, 1996, became a
successor or assign of a member described in clause (i).

(2) Treatment of comparable carriers as incumbents

The Commission may, by rule, provide for the treatment of a local exchange
carrier (or class or category thereof) as an incumbent local exchange carrier
for purposes of this section if--

(A) such carrier occupies a position in the market for telephone exchange
service within an area that is comparable to the position occupied by a
carrier described in paragraph (1);

(B) such carrier has substantially replaced an incumbent local exchange
carrier described in paragraph (1); and

(C) such treatment is consistent with the public interest, convenience, and
necessity and the purposes of this section.

(i) Savings provision

Nothing in this section shall be construed to limit or otherwise affect the
Commission's authority under section 201 of this title.
20

47 U.S.C. 252

(a) Agreements arrived at through negotiation

(1) Voluntary negotiations

Upon receiving a request for interconnection, services, or network elements
pursuant to section 251 of this title, an incumbent local exchange carrier may
negotiate and enter into a binding agreement with the requesting
telecommunications carrier or carriers without regard to the standards set
forth in subsections (b) and (c) of section 251 of this title. The agreement
shall include a detailed schedule of itemized charges for interconnection and
each service or network element included in the agreement. The agreement,
including any interconnection agreement negotiated before February 8,
1996, shall be submitted to the State commission under subsection (e) of this
section.

(2) Mediation

Any party negotiating an agreement under this section may, at any point in
the negotiation, ask a State commission to participate in the negotiation and
to mediate any differences arising in the course of the negotiation.

(b) Agreements arrived at through compulsory arbitration

(1) Arbitration

During the period from the 135th to the 160th day (inclusive) after the date
on which an incumbent local exchange carrier receives a request for
negotiation under this section, the carrier or any other party to the
negotiation may petition a State commission to arbitrate any open issues.

(2) Duty of petitioner

(A) A party that petitions a State commission under paragraph (1) shall, at
the same time as it submits the petition, provide the State commission all
relevant documentation concerning--

(i) the unresolved issues;

21

(ii) the position of each of the parties with respect to those issues; and

(iii) any other issue discussed and resolved by the parties.

(B) A party petitioning a State commission under paragraph (1) shall provide
a copy of the petition and any documentation to the other party or parties not
later than the day on which the State commission receives the petition.

(3) Opportunity to respond

A non-petitioning party to a negotiation under this section may respond to
the other party's petition and provide such additional information as it
wishes within 25 days after the State commission receives the petition.

(4) Action by State commission

(A) The State commission shall limit its consideration of any petition under
paragraph (1) (and any response thereto) to the issues set forth in the petition
and in the response, if any, filed under paragraph (3).

(B) The State commission may require the petitioning party and the
responding party to provide such information as may be necessary for the
State commission to reach a decision on the unresolved issues. If any party
refuses or fails unreasonably to respond on a timely basis to any reasonable
request from the State commission, then the State commission may proceed
on the basis of the best information available to it from whatever source
derived.

(C) The State commission shall resolve each issue set forth in the petition
and the response, if any, by imposing appropriate conditions as required to
implement subsection (c) of this section upon the parties to the agreement,
and shall conclude the resolution of any unresolved issues not later than 9
months after the date on which the local exchange carrier received the
request under this section.

(5) Refusal to negotiate

The refusal of any other party to the negotiation to participate further in the
negotiations, to cooperate with the State commission in carrying out its
function as an arbitrator, or to continue to negotiate in good faith in the
22

presence, or with the assistance, of the State commission shall be considered
a failure to negotiate in good faith.

(c) Standards for arbitration

In resolving by arbitration under subsection (b) of this section any open
issues and imposing conditions upon the parties to the agreement, a State
commission shall--

(1) ensure that such resolution and conditions meet the requirements of
section 251 of this title, including the regulations prescribed by the
Commission pursuant to section 251 of this title;

(2) establish any rates for interconnection, services, or network elements
according to subsection (d) of this section; and

(3) provide a schedule for implementation of the terms and conditions by the
parties to the agreement.

(d) Pricing standards

(1) Interconnection and network element charges

Determinations by a State commission of the just and reasonable rate for the
interconnection of facilities and equipment for purposes of subsection (c)(2)
of section 251 of this title, and the just and reasonable rate for network
elements for purposes of subsection (c)(3) of such section--

(A) shall be--

(i) based on the cost (determined without reference to a rate-of-return or
other rate-based proceeding) of providing the interconnection or network
element (whichever is applicable), and

(ii) nondiscriminatory, and

(B) may include a reasonable profit.

(2) Charges for transport and termination of traffic

23

(A) In general

For the purposes of compliance by an incumbent local exchange carrier with
section 251(b)(5) of this title, a State commission shall not consider the
terms and conditions for reciprocal compensation to be just and reasonable
unless--

(i) such terms and conditions provide for the mutual and reciprocal recovery
by each carrier of costs associated with the transport and termination on each
carrier's network facilities of calls that originate on the network facilities of
the other carrier; and

(ii) such terms and conditions determine such costs on the basis of a
reasonable approximation of the additional costs of terminating such calls.

(B) Rules of construction

This paragraph shall not be construed--

(i) to preclude arrangements that afford the mutual recovery of costs through
the offsetting of reciprocal obligations, including arrangements that waive
mutual recovery (such as bill-and-keep arrangements); or

(ii) to authorize the Commission or any State commission to engage in any
rate regulation proceeding to establish with particularity the additional costs
of transporting or terminating calls, or to require carriers to maintain records
with respect to the additional costs of such calls.

(3) Wholesale prices for telecommunications services

For the purposes of section 251(c)(4) of this title, a State commission shall
determine wholesale rates on the basis of retail rates charged to subscribers
for the telecommunications service requested, excluding the portion thereof
attributable to any marketing, billing, collection, and other costs that will be
avoided by the local exchange carrier.

(e) Approval by State commission

(1) Approval required

24

Any interconnection agreement adopted by negotiation or arbitration shall be
submitted for approval to the State commission. A State commission to
which an agreement is submitted shall approve or reject the agreement, with
written findings as to any deficiencies.

(2) Grounds for rejection

The State commission may only reject

(A) an agreement (or any portion thereof) adopted by negotiation under
subsection (a) of this section if it finds that--

(i) the agreement (or portion thereof) discriminates against a
telecommunications carrier not a party to the agreement; or

(ii) the implementation of such agreement or portion is not consistent with
the public interest, convenience, and necessity; or

(B) an agreement (or any portion thereof) adopted by arbitration under
subsection (b) of this section if it finds that the agreement does not meet the
requirements of section 251 of this title, including the regulations prescribed
by the Commission pursuant to section 251 of this title, or the standards set
forth in subsection (d) of this section.

(3) Preservation of authority

Notwithstanding paragraph (2), but subject to section 253 of this title,
nothing in this section shall prohibit a State commission from establishing or
enforcing other requirements of State law in its review of an agreement,
including requiring compliance with intrastate telecommunications service
quality standards or requirements.

(4) Schedule for decision

If the State commission does not act to approve or reject the agreement
within 90 days after submission by the parties of an agreement adopted by
negotiation under subsection (a) of this section, or within 30 days after
submission by the parties of an agreement adopted by arbitration under
subsection (b) of this section, the agreement shall be deemed approved. No
25

State court shall have jurisdiction to review the action of a State commission
in approving or rejecting an agreement under this section.

(5) Commission to act if State will not act

If a State commission fails to act to carry out its responsibility under this
section in any proceeding or other matter under this section, then the
Commission shall issue an order preempting the State commission's
jurisdiction of that proceeding or matter within 90 days after being notified
(or taking notice) of such failure, and shall assume the responsibility of the
State commission under this section with respect to the proceeding or matter
and act for the State commission.

(6) Review of State commission actions

In a case in which a State fails to act as described in paragraph (5), the
proceeding by the Commission under such paragraph and any judicial
review of the Commission's actions shall be the exclusive remedies for a
State commission's failure to act. In any case in which a State commission
makes a determination under this section, any party aggrieved by such
determination may bring an action in an appropriate Federal district court to
determine whether the agreement or statement meets the requirements of
section 251 of this title and this section.

(f) Statements of generally available terms

(1) In general

A Bell operating company may prepare and file with a State commission a
statement of the terms and conditions that such company generally offers
within that State to comply with the requirements of section 251 of this title
and the regulations thereunder and the standards applicable under this
section.

(2) State commission review

A State commission may not approve such statement unless such statement
complies with subsection (d) of this section and section 251 of this title and
the regulations thereunder. Except as provided in section 253 of this title,
nothing in this section shall prohibit a State commission from establishing or
26

enforcing other requirements of State law in its review of such statement,
including requiring compliance with intrastate telecommunications service
quality standards or requirements.

(3) Schedule for review

The State commission to which a statement is submitted shall, not later than
60 days after the date of such submission--

(A) complete the review of such statement under paragraph (2) (including
any reconsideration thereof), unless the submitting carrier agrees to an
extension of the period for such review; or

(B) permit such statement to take effect.

(4) Authority to continue review

Paragraph (3) shall not preclude the State commission from continuing to
review a statement that has been permitted to take effect under subparagraph
(B) of such paragraph or from approving or disapproving such statement
under paragraph (2).

(5) Duty to negotiate not affected

The submission or approval of a statement under this subsection shall not
relieve a Bell operating company of its duty to negotiate the terms and
conditions of an agreement under section 251 of this title.

(g) Consolidation of State proceedings

Where not inconsistent with the requirements of this chapter, a State
commission may, to the extent practical, consolidate proceedings under
sections 214(e), 251(f), 253 of this title, and this section in order to reduce
administrative burdens on telecommunications carriers, other parties to the
proceedings, and the State commission in carrying out its responsibilities
under this chapter.




27

(h) Filing required

A State commission shall make a copy of each agreement approved under
subsection (e) of this section and each statement approved under subsection
(f) of this section available for public inspection and copying within 10 days
after the agreement or statement is approved. The State commission may
charge a reasonable and nondiscriminatory fee to the parties to the
agreement or to the party filing the statement to cover the costs of approving
and filing such agreement or statement.

(i) Availability to other telecommunications carriers

A local exchange carrier shall make available any interconnection, service,
or network element provided under an agreement approved under this
section to which it is a party to any other requesting telecommunications
carrier upon the same terms and conditions as those provided in the
agreement.

(j) "Incumbent local exchange carrier" defined

For purposes of this section, the term "incumbent local exchange carrier"
has the meaning provided in section 251(h) of this title.
28

47 U.S.C. 253

(a) In general

No State or local statute or regulation, or other State or local legal
requirement, may prohibit or have the effect of prohibiting the ability of any
entity to provide any interstate or intrastate telecommunications service.

(b) State regulatory authority

Nothing in this section shall affect the ability of a State to impose, on a
competitively neutral basis and consistent with section 254 of this title,
requirements necessary to preserve and advance universal service, protect
the public safety and welfare, ensure the continued quality of
telecommunications services, and safeguard the rights of consumers.

(c) State and local government authority

Nothing in this section affects the authority of a State or local government to
manage the public rights-of-way or to require fair and reasonable
compensation from telecommunications providers, on a competitively
neutral and nondiscriminatory basis, for use of public rights-of-way on a
nondiscriminatory basis, if the compensation required is publicly disclosed
by such government.

(d) Preemption

If, after notice and an opportunity for public comment, the Commission
determines that a State or local government has permitted or imposed any
statute, regulation, or legal requirement that violates subsection (a) or (b) of
this section, the Commission shall preempt the enforcement of such statute,
regulation, or legal requirement to the extent necessary to correct such
violation or inconsistency.

(e) Commercial mobile service providers

Nothing in this section shall affect the application of section 332(c)(3) of
this title to commercial mobile service providers.


29

(f) Rural markets

It shall not be a violation of this section for a State to require a
telecommunications carrier that seeks to provide telephone exchange service
or exchange access in a service area served by a rural telephone company to
meet the requirements in section 214(e)(1) of this title for designation as an
eligible telecommunications carrier for that area before being permitted to
provide such service. This subsection shall not apply--

(1) to a service area served by a rural telephone company that has obtained
an exemption, suspension, or modification of section 251(c)(4) of this title
that effectively prevents a competitor from meeting the requirements of
section 214(e)(1) of this title; and

(2) to a provider of commercial mobile services.
30

47 U.S.C. 254

(a) Procedures to review universal service requirements

(1) Federal-State Joint Board on universal service

Within one month after February 8, 1996, the Commission shall institute and
refer to a Federal-State Joint Board under section 410(c) of this title a
proceeding to recommend changes to any of its regulations in order to
implement sections 214(e) of this title and this section, including the
definition of the services that are supported by Federal universal service
support mechanisms and a specific timetable for completion of such
recommendations. In addition to the members of the Joint Board required
under section 410(c) of this title, one member of such Joint Board shall be a
State-appointed utility consumer advocate nominated by a national
organization of State utility consumer advocates. The Joint Board shall, after
notice and opportunity for public comment, make its recommendations to
the Commission 9 months after February 8, 1996.

(2) Commission action

The Commission shall initiate a single proceeding to implement the
recommendations from the Joint Board required by paragraph (1) and shall
complete such proceeding within 15 months after February 8, 1996. The
rules established by such proceeding shall include a definition of the services
that are supported by Federal universal service support mechanisms and a
specific timetable for implementation. Thereafter, the Commission shall
complete any proceeding to implement subsequent recommendations from
any Joint Board on universal service within one year after receiving such
recommendations.

(b) Universal service principles

The Joint Board and the Commission shall base policies for the preservation
and advancement of universal service on the following principles:

(1) Quality and rates

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

31

(2) Access to advanced services

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

(3) Access in rural and high cost areas

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

(4) Equitable and nondiscriminatory contributions

All providers of telecommunications services should make an equitable and
nondiscriminatory contribution to the preservation and advancement of
universal service.

(5) Specific and predictable support mechanisms

There should be specific, predictable and sufficient Federal and State
mechanisms to preserve and advance universal service.

(6) Access to advanced telecommunications services for schools, health care,
and libraries

Elementary and secondary schools and classrooms, health care providers,
and libraries should have access to advanced telecommunications services as
described in subsection (h) of this section.

(7) Additional principles

Such other principles as the Joint Board and the Commission determine are
necessary and appropriate for the protection of the public interest,
convenience, and necessity and are consistent with this chapter.


32

(c) Definition

(1) In general

Universal service is an evolving level of telecommunications services that
the Commission shall establish periodically under this section, taking into
account advances in telecommunications and information technologies and
services. The Joint Board in recommending, and the Commission in
establishing, the definition of the services that are supported by Federal
universal service support mechanisms shall consider the extent to which
such telecommunications services--

(A) are essential to education, public health, or public safety;

(B) have, through the operation of market choices by customers, been
subscribed to by a substantial majority of residential customers;

(C) are being deployed in public telecommunications networks by
telecommunications carriers; and

(D) are consistent with the public interest, convenience, and necessity.

(2) Alterations and modifications

The Joint Board may, from time to time, recommend to the Commission
modifications in the definition of the services that are supported by Federal
universal service support mechanisms.

(3) Special services

In addition to the services included in the definition of universal service
under paragraph (1), the Commission may designate additional services for
such support mechanisms for schools, libraries, and health care providers for
the purposes of subsection (h) of this section.

(d) Telecommunications carrier contribution

Every telecommunications carrier that provides interstate
telecommunications services shall contribute, on an equitable and
nondiscriminatory basis, to the specific, predictable, and sufficient
33

mechanisms established by the Commission to preserve and advance
universal service. The Commission may exempt a carrier or class of carriers
from this requirement if the carrier's telecommunications activities are
limited to such an extent that the level of such carrier's contribution to the
preservation and advancement of universal service would be de minimis.
Any other provider of interstate telecommunications may be required to
contribute to the preservation and advancement of universal service if the
public interest so requires.

(e) Universal service support

After the date on which Commission regulations implementing this section
take effect, only an eligible telecommunications carrier designated under
section 214(e) of this title shall be eligible to receive specific Federal
universal service support. A carrier that receives such support shall use that
support only for the provision, maintenance, and upgrading of facilities and
services for which the support is intended. Any such support should be
explicit and sufficient to achieve the purposes of this section.

(f) State authority

A State may adopt regulations not inconsistent with the Commission's rules
to preserve and advance universal service. Every telecommunications carrier
that provides intrastate telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, in a manner determined by the State
to the preservation and advancement of universal service in that State. A
State may adopt regulations to provide for additional definitions and
standards to preserve and advance universal service within that State only to
the extent that such regulations adopt additional specific, predictable, and
sufficient mechanisms to support such definitions or standards that do not
rely on or burden Federal universal service support mechanisms.

(g) Interexchange and interstate services

Within 6 months after February 8, 1996, the Commission shall adopt rules to
require that the rates charged by providers of interexchange
telecommunications services to subscribers in rural and high cost areas shall
be no higher than the rates charged by each such provider to its subscribers
in urban areas. Such rules shall also require that a provider of interstate
interexchange telecommunications services shall provide such services to its
34

subscribers in each State at rates no higher than the rates charged to its
subscribers in any other State.

(h) Telecommunications services for certain providers

(1) In general

(A) Health care providers for rural areas

A telecommunications carrier shall, upon receiving a bona fide request,
provide telecommunications services which are necessary for the provision
of health care services in a State, including instruction relating to such
services, to any public or nonprofit health care provider that serves persons
who reside in rural areas in that State at rates that are reasonably comparable
to rates charged for similar services in urban areas in that State. A
telecommunications carrier providing service under this paragraph shall be
entitled to have an amount equal to the difference, if any, between the rates
for services provided to health care providers for rural areas in a State and
the rates for similar services provided to other customers in comparable rural
areas in that State treated as a service obligation as a part of its obligation to
participate in the mechanisms to preserve and advance universal service.

(B) Educational providers and libraries

All telecommunications carriers serving a geographic area shall, upon a bona
fide request for any of its services that are within the definition of universal
service under subsection (c)(3) of this section, provide such services to
elementary schools, secondary schools, and libraries for educational
purposes at rates less than the amounts charged for similar services to other
parties. The discount shall be an amount that the Commission, with respect
to interstate services, and the States, with respect to intrastate services,
determine is appropriate and necessary to ensure affordable access to and
use of such services by such entities. A telecommunications carrier
providing service under this paragraph shall--

(i) have an amount equal to the amount of the discount treated as an offset to
its obligation to contribute to the mechanisms to preserve and advance
universal service, or

35

(ii) notwithstanding the provisions of subsection (e) of this section, receive
reimbursement utilizing the support mechanisms to preserve and advance
universal service.

(2) Advanced services

The Commission shall establish competitively neutral rules--

(A) to enhance, to the extent technically feasible and economically
reasonable, access to advanced telecommunications and information services
for all public and nonprofit elementary and secondary school classrooms,
health care providers, and libraries; and

(B) to define the circumstances under which a telecommunications carrier
may be required to connect its network to such public institutional
telecommunications users.

(3) Terms and conditions

Telecommunications services and network capacity provided to a public
institutional telecommunications user under this subsection may not be sold,
resold, or otherwise transferred by such user in consideration for money or
any other thing of value.

(4) Eligibility of users

No entity listed in this subsection shall be entitled to preferential rates or
treatment as required by this subsection, if such entity operates as a for-
profit business, is a school described in paragraph (7)(A) with an
endowment of more than $50,000,000, or is a library or library consortium
not eligible for assistance from a State library administrative agency under
the Library Services and Technology Act [20 U.S.C.A. 9121 et seq.].

(5) Requirements for certain schools with computers having internet access

(A) Internet safety

(i) In general

36

Except as provided in clause (ii), an elementary or secondary school having
computers with Internet access may not receive services at discount rates
under paragraph (1)(B) unless the school, school board, local educational
agency, or other authority with responsibility for administration of the
school--

(I) submits to the Commission the certifications described in subparagraphs
(B) and (C);

(II) submits to the Commission a certification that an Internet safety policy
has been adopted and implemented for the school under subsection (l) of this
section; and

(III) ensures the use of such computers in accordance with the certifications.

(ii) Applicability

The prohibition in clause (i) shall not apply with respect to a school that
receives services at discount rates under paragraph (1)(B) only for purposes
other than the provision of Internet access, Internet service, or internal
connections.

(iii) Public notice; hearing

An elementary or secondary school described in clause (i), or the school
board, local educational agency, or other authority with responsibility for
administration of the school, shall provide reasonable public notice and hold
at least one public hearing or meeting to address the proposed Internet safety
policy. In the case of an elementary or secondary school other than an
elementary or secondary school as defined in section 8801 of Title 20, the
notice and hearing required by this clause may be limited to those members
of the public with a relationship to the school.

(B) Certification with respect to minors

A certification under this subparagraph is a certification that the school,
school board, local educational agency, or other authority with responsibility
for administration of the school--

37

(i) is enforcing a policy of Internet safety for minors that includes
monitoring the online activities of minors and the operation of a technology
protection measure with respect to any of its computers with Internet access
that protects against access through such computers to visual depictions that
are--

(I) obscene;

(II) child pornography; or

(III) harmful to minors;

(ii) is enforcing the operation of such technology protection measure during
any use of such computers by minors; and

(iii) as part of its Internet safety policy is educating minors about appropriate
online behavior, including interacting with other individuals on social
networking websites and in chat rooms and cyberbullying awareness and
response.

(C) Certification with respect to adults

A certification under this paragraph is a certification that the school, school
board, local educational agency, or other authority with responsibility for
administration of the school--

(i) is enforcing a policy of Internet safety that includes the operation of a
technology protection measure with respect to any of its computers with
Internet access that protects against access through such computers to visual
depictions that are--

(I) obscene; or

(II) child pornography; and

(ii) is enforcing the operation of such technology protection measure during
any use of such computers.



38

(D) Disabling during adult use

An administrator, supervisor, or other person authorized by the certifying
authority under subparagraph (A)(i) may disable the technology protection
measure concerned, during use by an adult, to enable access for bona fide
research or other lawful purpose.

(E) Timing of implementation

(i) In general

Subject to clause (ii) in the case of any school covered by this paragraph as
of the effective date of this paragraph under section 1721(h) of the
Children's Internet Protection Act, the certification under subparagraphs (B)
and (C) shall be made--

(I) with respect to the first program funding year under this subsection
following such effective date, not later than 120 days after the beginning of
such program funding year; and

(II) with respect to any subsequent program funding year, as part of the
application process for such program funding year.

(ii) Process

(I) Schools with internet safety policy and technology protection measures in
place

A school covered by clause (i) that has in place an Internet safety policy and
technology protection measures meeting the requirements necessary for
certification under subparagraphs (B) and (C) shall certify its compliance
with subparagraphs (B) and (C) during each annual program application
cycle under this subsection, except that with respect to the first program
funding year after the effective date of this paragraph under section 1721(h)
of the Children's Internet Protection Act, the certifications shall be made not
later than 120 days after the beginning of such first program funding year.



39

(II) Schools without internet safety policy and technology protection
measures in place

A school covered by clause (i) that does not have in place an Internet safety
policy and technology protection measures meeting the requirements
necessary for certification under subparagraphs (B) and (C)--

(aa) for the first program year after the effective date of this subsection in
which it is applying for funds under this subsection, shall certify that it is
undertaking such actions, including any necessary procurement procedures,
to put in place an Internet safety policy and technology protection measures
meeting the requirements necessary for certification under subparagraphs
(B) and (C); and

(bb) for the second program year after the effective date of this subsection in
which it is applying for funds under this subsection, shall certify that it is in
compliance with subparagraphs (B) and (C).

Any school that is unable to certify compliance with such requirements in
such second program year shall be ineligible for services at discount rates or
funding in lieu of services at such rates under this subsection for such second
year and all subsequent program years under this subsection, until such time
as such school comes into compliance with this paragraph.

(III) Waivers

Any school subject to subclause (II) that cannot come into compliance with
subparagraphs (B) and (C) in such second year program may seek a waiver
of subclause (II)(bb) if State or local procurement rules or regulations or
competitive bidding requirements prevent the making of the certification
otherwise required by such subclause. A school, school board, local
educational agency, or other authority with responsibility for administration
of the school shall notify the Commission of the applicability of such
subclause to the school. Such notice shall certify that the school in question
will be brought into compliance before the start of the third program year
after the effective date of this subsection in which the school is applying for
funds under this subsection.

(F) Noncompliance

40

(i) Failure to submit certification

Any school that knowingly fails to comply with the application guidelines
regarding the annual submission of certification required by this paragraph
shall not be eligible for services at discount rates or funding in lieu of
services at such rates under this subsection.

(ii) Failure to comply with certification

Any school that knowingly fails to ensure the use of its computers in
accordance with a certification under subparagraphs (B) and (C) shall
reimburse any funds and discounts received under this subsection for the
period covered by such certification.

(iii) Remedy of noncompliance

(I) Failure to submit

A school that has failed to submit a certification under clause (i) may
remedy the failure by submitting the certification to which the failure relates.
Upon submittal of such certification, the school shall be eligible for services
at discount rates under this subsection.

(II) Failure to comply

A school that has failed to comply with a certification as described in clause
(ii) may remedy the failure by ensuring the use of its computers in
accordance with such certification. Upon submittal to the Commission of a
certification or other appropriate evidence of such remedy, the school shall
be eligible for services at discount rates under this subsection.

(6) Requirements for certain libraries with computers having internet access

(A) Internet safety

(i) In general

Except as provided in clause (ii), a library having one or more computers
with Internet access may not receive services at discount rates under
paragraph (1)(B) unless the library--
41


(I) submits to the Commission the certifications described in subparagraphs
(B) and (C); and

(II) submits to the Commission a certification that an Internet safety policy
has been adopted and implemented for the library under subsection (l) of this
section; and

(III) ensures the use of such computers in accordance with the certifications.

(ii) Applicability

The prohibition in clause (i) shall not apply with respect to a library that
receives services at discount rates under paragraph (1)(B) only for purposes
other than the provision of Internet access, Internet service, or internal
connections.

(iii) Public notice; hearing

A library described in clause (i) shall provide reasonable public notice and
hold at least one public hearing or meeting to address the proposed Internet
safety policy.

(B) Certification with respect to minors

A certification under this subparagraph is a certification that the library--

(i) is enforcing a policy of Internet safety that includes the operation of a
technology protection measure with respect to any of its computers with
Internet access that protects against access through such computers to visual
depictions that are--

(I) obscene;

(II) child pornography; or

(III) harmful to minors; and

(ii) is enforcing the operation of such technology protection measure during
any use of such computers by minors.
42


(C) Certification with respect to adults

A certification under this paragraph is a certification that the library--

(i) is enforcing a policy of Internet safety that includes the operation of a
technology protection measure with respect to any of its computers with
Internet access that protects against access through such computers to visual
depictions that are--

(I) obscene; or

(II) child pornography; and

(ii) is enforcing the operation of such technology protection measure during
any use of such computers.

(D) Disabling during adult use

An administrator, supervisor, or other person authorized by the certifying
authority under subparagraph (A)(i) may disable the technology protection
measure concerned, during use by an adult, to enable access for bona fide
research or other lawful purpose.

(E) Timing of implementation

(i) In general

Subject to clause (ii) in the case of any library covered by this paragraph as
of the effective date of this paragraph under section 1721(h) of the
Children's Internet Protection Act, the certification under subparagraphs (B)
and (C) shall be made--

(I) with respect to the first program funding year under this subsection
following such effective date, not later than 120 days after the beginning of
such program funding year; and

(II) with respect to any subsequent program funding year, as part of the
application process for such program funding year.

43

(ii) Process

(I) Libraries with Internet safety policy and technology protection measures
in place

A library covered by clause (i) that has in place an Internet safety policy and
technology protection measures meeting the requirements necessary for
certification under subparagraphs (B) and (C) shall certify its compliance
with subparagraphs (B) and (C) during each annual program application
cycle under this subsection, except that with respect to the first program
funding year after the effective date of this paragraph under section 1721(h)
of the Children's Internet Protection Act, the certifications shall be made not
later than 120 days after the beginning of such first program funding year.

(II) Libraries without internet safety policy and technology protection
measures in place

A library covered by clause (i) that does not have in place an Internet safety
policy and technology protection measures meeting the requirements
necessary for certification under subparagraphs (B) and (C)--

(aa) for the first program year after the effective date of this subsection in
which it is applying for funds under this subsection, shall certify that it is
undertaking such actions, including any necessary procurement procedures,
to put in place an Internet safety policy and technology protection measures
meeting the requirements necessary for certification under subparagraphs
(B) and (C); and

(bb) for the second program year after the effective date of this subsection in
which it is applying for funds under this subsection, shall certify that it is in
compliance with subparagraphs (B) and (C).

Any library that is unable to certify compliance with such requirements in
such second program year shall be ineligible for services at discount rates or
funding in lieu of services at such rates under this subsection for such second
year and all subsequent program years under this subsection, until such time
as such library comes into compliance with this paragraph.



44

(III) Waivers

Any library subject to subclause (II) that cannot come into compliance with
subparagraphs (B) and (C) in such second year may seek a waiver of
subclause (II)(bb) if State or local procurement rules or regulations or
competitive bidding requirements prevent the making of the certification
otherwise required by such subclause. A library, library board, or other
authority with responsibility for administration of the library shall notify the
Commission of the applicability of such subclause to the library. Such notice
shall certify that the library in question will be brought into compliance
before the start of the third program year after the effective date of this
subsection in which the library is applying for funds under this subsection.

(F) Noncompliance

(i) Failure to submit certification

Any library that knowingly fails to comply with the application guidelines
regarding the annual submission of certification required by this paragraph
shall not be eligible for services at discount rates or funding in lieu of
services at such rates under this subsection.

(ii) Failure to comply with certification

Any library that knowingly fails to ensure the use of its computers in
accordance with a certification under subparagraphs (B) and (C) shall
reimburse all funds and discounts received under this subsection for the
period covered by such certification.

(iii) Remedy of noncompliance

(I) Failure to submit

A library that has failed to submit a certification under clause (i) may
remedy the failure by submitting the certification to which the failure relates.
Upon submittal of such certification, the library shall be eligible for services
at discount rates under this subsection.



45

(II) Failure to comply

A library that has failed to comply with a certification as described in clause
(ii) may remedy the failure by ensuring the use of its computers in
accordance with such certification. Upon submittal to the Commission of a
certification or other appropriate evidence of such remedy, the library shall
be eligible for services at discount rates under this subsection.

(7) Definitions

For purposes of this subsection:

(A) Elementary and secondary schools

The term "elementary and secondary schools" means elementary schools
and secondary schools, as defined in section 7801 of Title 20.

(B) Health care provider

The term "health care provider" means--

(i) post-secondary educational institutions offering health care instruction,
teaching hospitals, and medical schools;

(ii) community health centers or health centers providing health care to
migrants;

(iii) local health departments or agencies;

(iv) community mental health centers;

(v) not-for-profit hospitals;

(vi) rural health clinics; and

(vii) consortia of health care providers consisting of one or more entities
described in clauses (i) through (vi).



46

(C) Public institutional telecommunications user

The term "public institutional telecommunications user" means an
elementary or secondary school, a library, or a health care provider as those
terms are defined in this paragraph.

(D) Minor

The term "minor" means any individual who has not attained the age of 17
years.

(E) Obscene

The term "obscene" has the meaning given such term in section 1460 of
Title 18.

(F) Child pornography

The term "child pornography" has the meaning given such term in section
2256 of Title 18.

(G) Harmful to minors

The term "harmful to minors" means any picture, image, graphic image file,
or other visual depiction that--

(i) taken as a whole and with respect to minors, appeals to a prurient interest
in nudity, sex, or excretion;

(ii) depicts, describes, or represents, in a patently offensive way with respect
to what is suitable for minors, an actual or simulated sexual act or sexual
contact, actual or simulated normal or perverted sexual acts, or a lewd
exhibition of the genitals; and

(iii) taken as a whole, lacks serious literary, artistic, political, or scientific
value as to minors.




47

(H) Sexual act; sexual contact

The terms "sexual act" and "sexual contact" have the meanings given such
terms in section 2246 of Title 18.

(I) Technology protection measure

The term "technology protection measure" means a specific technology that
blocks or filters Internet access to the material covered by a certification
under paragraph (5) or (6) to which such certification relates.

(i) Consumer protection

The Commission and the States should ensure that universal service is
available at rates that are just, reasonable, and affordable.

(j) Lifeline assistance

Nothing in this section shall affect the collection, distribution, or
administration of the Lifeline Assistance Program provided for by the
Commission under regulations set forth in section 69.117 of title 47, Code of
Federal Regulations, and other related sections of such title.

(k) Subsidy of competitive services prohibited

A telecommunications carrier may not use services that are not competitive
to subsidize services that are subject to competition. The Commission, with
respect to interstate services, and the States, with respect to intrastate
services, shall establish any necessary cost allocation rules, accounting
safeguards, and guidelines to ensure that services included in the definition
of universal service bear no more than a reasonable share of the joint and
common costs of facilities used to provide those services.

(l) Internet safety policy requirement for schools and libraries

(1) In general

In carrying out its responsibilities under subsection (h) of this section, each
school or library to which subsection (h) of this section applies shall--

48

(A) adopt and implement an Internet safety policy that addresses--

(i) access by minors to inappropriate matter on the Internet and World Wide
Web;

(ii) the safety and security of minors when using electronic mail, chat rooms,
and other forms of direct electronic communications;

(iii) unauthorized access, including so-called "hacking", and other unlawful
activities by minors online;

(iv) unauthorized disclosure, use, and dissemination of personal
identification information regarding minors; and

(v) measures designed to restrict minors' access to materials harmful to
minors; and

(B) provide reasonable public notice and hold at least one public hearing or
meeting to address the proposed Internet safety policy.

(2) Local determination of content

A determination regarding what matter is inappropriate for minors shall be
made by the school board, local educational agency, library, or other
authority responsible for making the determination. No agency or
instrumentality of the United States Government may--

(A) establish criteria for making such determination;

(B) review the determination made by the certifying school, school board,
local educational agency, library, or other authority; or

(C) consider the criteria employed by the certifying school, school board,
local educational agency, library, or other authority in the administration of
subsection (h)(1)(B) of this section.

(3) Availability for review

Each Internet safety policy adopted under this subsection shall be made
available to the Commission, upon request of the Commission, by the
49

school, school board, local educational agency, library, or other authority
responsible for adopting such Internet safety policy for purposes of the
review of such Internet safety policy by the Commission.

(4) Effective date

This subsection shall apply with respect to schools and libraries on or after
the date that is 120 days after December 21, 2000.


50

47 U.S.C. 402

(a) Procedure

Any proceeding to enjoin, set aside, annul, or suspend any order of the
Commission under this chapter (except those appealable under subsection
(b) of this section) shall be brought as provided by and in the manner
prescribed in chapter 158 of Title 28.

(b) Right to appeal

Appeals may be taken from decisions and orders of the Commission to the
United States Court of Appeals for the District of Columbia in any of the
following cases:

(1) By any applicant for a construction permit or station license, whose
application is denied by the Commission.

(2) By any applicant for the renewal or modification of any such instrument
of authorization whose application is denied by the Commission.

(3) By any party to an application for authority to transfer, assign, or dispose
of any such instrument of authorization, or any rights thereunder, whose
application is denied by the Commission.

(4) By any applicant for the permit required by section 325 of this title
whose application has been denied by the Commission, or by any permittee
under said section whose permit has been revoked by the Commission.

(5) By the holder of any construction permit or station license which has
been modified or revoked by the Commission.

(6) By any other person who is aggrieved or whose interests are adversely
affected by any order of the Commission granting or denying any
application described in paragraphs (1), (2), (3), (4), and (9) of this
subsection.

(7) By any person upon whom an order to cease and desist has been served
under section 312 of this title.

51

(8) By any radio operator whose license has been suspended by the
Commission.

(9) By any applicant for authority to provide interLATA services under
section 271 of this title whose application is denied by the Commission.

(10) By any person who is aggrieved or whose interests are adversely
affected by a determination made by the Commission under section
618(a)(3) of this title.

(c) Filing notice of appeal; contents; jurisdiction; temporary orders

Such appeal shall be taken by filing a notice of appeal with the court within
thirty days from the date upon which public notice is given of the decision or
order complained of. Such notice of appeal shall contain a concise statement
of the nature of the proceedings as to which the appeal is taken; a concise
statement of the reasons on which the appellant intends to rely, separately
stated and numbered; and proof of service of a true copy of said notice and
statement upon the Commission. Upon filing of such notice, the court shall
have jurisdiction of the proceedings and of the questions determined therein
and shall have power, by order, directed to the Commission or any other
party to the appeal, to grant such temporary relief as it may deem just and
proper. Orders granting temporary relief may be either affirmative or
negative in their scope and application so as to permit either the maintenance
of the status quo in the matter in which the appeal is taken or the restoration
of a position or status terminated or adversely affected by the order appealed
from and shall, unless otherwise ordered by the court, be effective pending
hearing and determination of said appeal and compliance by the
Commission with the final judgment of the court rendered in said appeal.

(d) Notice to interested parties; filing of record

Upon the filing of any such notice of appeal the appellant shall, not later
than five days after the filing of such notice, notify each person shown by
the records of the Commission to be interested in said appeal of the filing
and pendency of the same. The Commission shall file with the court the
record upon which the order complained of was entered, as provided in
section 2112 of Title 28.


52

(e) Intervention

Within thirty days after the filing of any such appeal any interested person
may intervene and participate in the proceedings had upon said appeal by
filing with the court a notice of intention to intervene and a verified
statement showing the nature of the interest of such party, together with
proof of service of true copies of said notice and statement, both upon
appellant and upon the Commission. Any person who would be aggrieved or
whose interest would be adversely affected by a reversal or modification of
the order of the Commission complained of shall be considered an interested
party.

(f) Records and briefs

The record and briefs upon which any such appeal shall be heard and
determined by the court shall contain such information and material, and
shall be prepared within such time and in such manner as the court may by
rule prescribe.

(g) Time of hearing; procedure

The court shall hear and determine the appeal upon the record before it in
the manner prescribed by section 706 of Title 5.

(h) Remand

In the event that the court shall render a decision and enter an order
reversing the order of the Commission, it shall remand the case to the
Commission to carry out the judgment of the court and it shall be the duty of
the Commission, in the absence of the proceedings to review such judgment,
to forthwith give effect thereto, and unless otherwise ordered by the court, to
do so upon the basis of the proceedings already had and the record upon
which said appeal was heard and determined.

(i) Judgment for costs

The court may, in its discretion, enter judgment for costs in favor of or
against an appellant, or other interested parties intervening in said appeal,
but not against the Commission, depending upon the nature of the issues
involved upon said appeal and the outcome thereof.
53


(j) Finality of decision; review by Supreme Court

The court's judgment shall be final, subject, however, to review by the
Supreme Court of the United States upon writ of certiorari on petition
therefor under section 1254 of Title 28, by the appellant, by the
Commission, or by any interested party intervening in the appeal, or by
certification by the court pursuant to the provisions of that section.


54

47 C.F.R. 1.3

The provisions of this chapter may be suspended, revoked, amended, or
waived for good cause shown, in whole or in part, at any time by the
Commission, subject to the provisions of the Administrative Procedure Act
and the provisions of this chapter. Any provision of the rules may be waived
by the Commission on its own motion or on petition if good cause therefor is
shown.
55

47 C.F.R 54.706

(a) Entities that provide interstate telecommunications to the public, or to
such classes of users as to be effectively available to the public, for a fee will
be considered telecommunications carriers providing interstate
telecommunications services and must contribute to the universal service
support mechanisms. Certain other providers of interstate
telecommunications, such as payphone providers that are aggregators,
providers of interstate telecommunications for a fee on a non-common
carrier basis, and interconnected VoIP providers, also must contribute to the
universal service support mechanisms. Interstate telecommunications
include, but are not limited to:

(1) Cellular telephone and paging services;

(2) Mobile radio services;

(3) Operator services;

(4) Personal communications services (PCS);

(5) Access to interexchange service;

(6) Special access service;

(7) WATS;

(8) Toll-free service;

(9) 900 service;

(10) Message telephone service (MTS);

(11) Private line service;

(12) Telex;

(13) Telegraph;

(14) Video services;
56


(15) Satellite service;

(16) Resale of interstate services;

(17) Payphone services; and

(18) Interconnected VoIP services.

(19) Prepaid calling card providers.

(b) Except as provided in paragraph (c) of this section, every entity required
to contribute to the federal universal service support mechanisms under
paragraph (a) of this section shall contribute on the basis of its projected
collected interstate and international end-user telecommunications revenues,
net of projected contributions.

(c) Any entity required to contribute to the federal universal service support
mechanisms whose projected collected interstate end-user
telecommunications revenues comprise less than 12 percent of its combined
projected collected interstate and international end-user telecommunications
revenues shall contribute based only on such entity's projected collected
interstate end-user telecommunications revenues, net of projected
contributions. For purposes of this paragraph, an "entity" shall refer to the
entity that is subject to the universal service reporting requirements in
54.711 and shall include all of that entity's affiliated providers of interstate
and international telecommunications and telecommunications services.

(d) Entities providing open video systems (OVS), cable leased access, or
direct broadcast satellite (DBS) services are not required to contribute on the
basis of revenues derived from those services. The following entities will not
be required to contribute to universal service: non-profit health care
providers; broadcasters; systems integrators that derive less than five percent
of their systems integration revenues from the resale of telecommunications.
Prepaid calling card providers are not required to contribute on the basis of
revenues derived from prepaid calling cards sold by, to, or pursuant to
contract with the Department of Defense (DoD) or a DoD entity.

(e) Any entity required to contribute to the federal universal service support
mechanisms shall retain, for at least five years from the date of the
57

contribution, all records that may be required to demonstrate to auditors that
the contributions made were in compliance with the Commission's universal
service rules. These records shall include without limitation the following:
Financial statements and supporting documentation; accounting records;
historical customer records; general ledgers; and any other relevant
documentation. This document retention requirement also applies to any
contractor or consultant working on behalf of the contributor.

58

47 C.F.R. 54.709

(a) Prior to April 1, 2003, contributions to the universal service support
mechanisms shall be based on contributors' end-user telecommunications
revenues and on a contribution factor determined quarterly by the
Commission. Contributions to the mechanisms beginning April 1, 2003 shall
be based on contributors' projected collected end-user telecommunications
revenues, and on a contribution factor determined quarterly by the
Commission.

(1) For funding the federal universal service support mechanisms prior to
April 1, 2003, the subject revenues will be contributors' interstate and
international revenues derived from domestic end users for
telecommunications or telecommunications services, net of prior period
actual contributions. Beginning April 1, 2003, the subject revenues will be
contributors' projected collected interstate and international revenues derived
from domestic end users for telecommunications or telecommunications
services, net of projected contributions.

(2) Prior to April 1, 2003, the quarterly universal service contribution factor
shall be determined by the Commission based on the ratio of total projected
quarterly expenses of the universal service support mechanisms to the total
end-user interstate and international telecommunications revenues, net of
prior period actual contributions. Beginning April 1, 2003, the quarterly
universal service contribution factor shall be determined by the Commission
based on the ratio of total projected quarterly expenses of the universal
service support mechanisms to the total projected collected end-user
interstate and international telecommunications revenues, net of projected
contributions. The Commission shall approve the Administrator's quarterly
projected costs of the universal service support mechanisms, taking into
account demand for support and administrative expenses. The total subject
revenues shall be compiled by the Administrator based on information
contained in the Telecommunications Reporting Worksheets described in
54.711(a).

(3) Total projected expenses for the federal universal service support
mechanisms for each quarter must be approved by the Commission before
they are used to calculate the quarterly contribution factor and individual
contributions. For each quarter, the Administrator must submit its
projections of demand for the federal universal service support mechanisms
59

for high-cost areas, low-income consumers, schools and libraries, and rural
health care providers, respectively, and the basis for those projections, to the
Commission and the Office of the Managing Director at least sixty (60)
calendar days prior to the start of that quarter. For each quarter, the
Administrator must submit its projections of administrative expenses for the
high-cost mechanism, the low-income mechanism, the schools and libraries
mechanism and the rural health care mechanism and the basis for those
projections to the Commission and the Office of the Managing Director at
least sixty (60) calendar days prior to the start of that quarter. Based on data
submitted to the Administrator on the Telecommunications Reporting
Worksheets, the Administrator must submit the total contribution base to the
Office of the Managing Director at least thirty (30) days before the start of
each quarter. The projections of demand and administrative expenses and the
contribution factor shall be announced by the Commission in a public notice
and shall be made available on the Commission's website. The Commission
reserves the right to set projections of demand and administrative expenses
at amounts that the Commission determines will serve the public interest at
any time within the fourteen-day period following release of the
Commission's public notice. If the Commission take no action within
fourteen (14) days of the date of release of the public notice announcing the
projections of demand and administrative expenses, the projections of
demand and administrative expenses, and the contribution factor shall be
deemed approved by the Commission. Except as provided in 54.706(c),
the Administrator shall apply the quarterly contribution factor, once
approved by the Commission, to contributor's interstate and international
end-user telecommunications revenues to calculate the amount of individual
contributions.

(b) If the contributions received by the Administrator in a quarter exceed the
amount of universal service support program contributions and
administrative costs for that quarter, the excess payments will be carried
forward to the following quarter. The contribution factors for the following
quarter will take into consideration the projected costs of the support
mechanisms for that quarter and the excess contributions carried over from
the previous quarter.

(c) If the contributions received by the Administrator in a quarter are
inadequate to meet the amount of universal service support program
payments and administrative costs for that quarter, the Administrator shall
request authority from the Commission to borrow funds commercially, with
60

such debt secured by future contributions. Subsequent contribution factors
will take into consideration the projected costs of the support mechanisms
and the additional costs associated with borrowing funds.

(d) If a contributor fails to file a Telecommunications Reporting Worksheet
by the date on which it is due, the Administrator shall bill that contributor
based on whatever relevant data the Administrator has available, including,
but not limited to, the number of lines presubscribed to the contributor and
data from previous years, taking into consideration any estimated changes in
such data.

61

11-1094

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT


Rural Cellular Association, et al., Petitioners

v.

Federal Communications Commission and United States of America,
Respondents.



CERTIFICATE OF SERVICE



I, Maureen K. Flood, hereby certify that on August 11, 2011, I electronically
filed the foregoing Brief for Respondents with the Clerk of the Court for the
United States Court of Appeals for the D.C. Circuit by using the CM/ECF
system. Participants in the case who are registered CM/ECF users will be
served by the CM/ECF system.

Some of the participants in the case, denoted with asterisks below, are not
CM/ECF users. I certify further that I have directed that copies of the
foregoing document be mailed by First-Class Mail to those persons, unless
another attorney at the same mailing address is receiving electronic service.


Matthew A. Brill
Todd D. Daubert
Latham & Watkins LLP
Jennifer A. Morrissey
555 11th Street, N.W.
Joseph I. Himowitz
Suite 1000
SNR Denton US LLP
Washington, D.C. 20004
1301 K Street, N.W.
Counsel for: Rural Cellular
Suite 600, East Tower
Association
Washington, D.C. 20005
Counsel for: USA Coalition

11-1094



*Michael E. Glover
*John T. Scott, III
Edward Shakin
1300 I Street, N.W.
Christopher M. Miller
Suite 400 West
1320 North Courthouse Road
Washington, D.C. 20005
Ninth Floor
Counsel for: Verizon Wireless
Arlington, VA 22201
Counsel for: Verizon


Robert B. Nicholson
*Joel H. Cheskis
Kristen C. Limarzi
Assistant Consumer Advocate
U.S. Department of Justice
Pennsylvania Office of Consumer
Antitrust Division
Advocate
Appellate Section
555 Walnut Street, 5th Floor
950 Pennsylvania Avenue, N.W.
Forum Place
Room 3224
Harrisburg, PA 17101-1923
Washington, D.C. 20530
Counsel for: National Association of
Counsel for: USA
State Utility Consumer Advocates


Helgi C. Walker
Brett A. Shumate
Wiley Rein LLP
1776 K Street, N.W.
Washington, D.C. 20006-2359
Counsel for: Verizon



/s/ Maureen K. Flood

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