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Vermont Pub. Serv. Bd., et al. v. FCC & USA, No. 10-1184 (D.C. Cir.)

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Released: April 27, 2011




BRIEF FOR RESPONDENTS

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

NO. 10-1184

VERMONT PUBLIC SERVICE BOARD AND MAINE PUBLIC
UTILITIES COMMISSION
PETITIONERS,
v.
FEDERAL COMMUNICATIONS COMMISSION
AND THE UNITED STATES OF AMERICA
RESPONDENTS.

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

CHRISTINE A. VARNEY
AUSTIN C. SCHLICK
ASSISTANT ATTORNEY GENERAL
GENERAL COUNSEL
CATHERINE G. O'SULLIVAN
PETER KARANJIA
NANCY C. GARRISON
DEPUTY GENERAL COUNSEL
ATTORNEYS
RICHARD K. WELCH
UNITED STATES
ACTING ASSOCIATE GENERAL
DEPARTMENT OF
COUNSEL
JUSTICE
WASHINGTON, D.C. 20530
JAMES M. CARR

MAUREEN K. FLOOD
COUNSEL
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740



CERTIFICATE AS TO PARTIES, RULINGS AND RELATED CASES

A. Parties
Petitioners are the Vermont Public Service Board and the Maine Public
Utilities Commission (collectively "petitioners"). Respondents are the Federal
Communications Commission and the United States. Verizon and the National
Association of State Utility Consumer Advocates ("NASUCA") have intervened in
support of Respondents. Qwest intervened in this case and elected not to file a
brief. Respondents are unaware of any amicus curiae.
B.
Ruling Under Review
High-Cost Universal Service Support, 25 FCC Rcd 4072 (2010), 75 Fed.
Reg. 26,137 (May 11, 2010) (JA 3).
C. Related
Cases
The Order on review, which responds to a remand from the Tenth Circuit
Court of Appeals, see Qwest Commc'ns Int'l, Inc. v. FCC, 398 F.3d 1222 (10th
Cir. 2005), has not been reviewed by this Court or any other court. Counsel are not
aware of any related cases that are pending before this Court or any other court.



TABLE OF CONTENTS

Page


STATEMENT OF JURISDICTION ..........................................................................1
STATUTES AND REGULATIONS ..........................................................................1
STATEMENT OF ISSUES ........................................................................................2
COUNTERSTATEMENT..........................................................................................3
I. STATUTORY
BACKGROUND ...........................................................3
II.
THE FCC'S HIGH-COST UNIVERSAL
SERVICE SUPPORT MECHANISM FOR NON-
RURAL CARRIERS .............................................................................5
A. The
Ninth Report and Order and the Tenth
Report and Order ........................................................................7
B.
Qwest I ........................................................................................7
C. The
2003 Remand Order.............................................................8
D.
Qwest II .....................................................................................11
III. THE
ORDER
ON REVIEW ...............................................................13
SUMMARY OF ARGUMENT................................................................................20
ARGUMENT ...........................................................................................................23
I. STANDARDS
OF REVIEW...............................................................23
II.
THE FCC'S URBAN-TO-RURAL RATE
ANALYSIS WAS RATIONAL AND
CONSISTENT WITH SECTION 254(b)(3).......................................25
A.
Petitioners Have Waived Their Challenge to
the FCC's Urban-to-Rural Rate Analysis..................................25
B.
The FCC's Finding that Urban and Rural
Rates Are Reasonably Comparable Is
Consistent with the Statute, FCC Precedent,
and Qwest I and II. ....................................................................26
i

Page

C.
The FCC Reasonably Relied on Telephone
Penetration Rates to Find that Urban and
Rural Rates Comply with Section 254(b)(3). ...........................32
III. THE FCC REASONABLY DECLINED TO
ADJUST THE RATE BENCHMARK USED IN
THE RATE CERTIFICATION PROCESS .........................................33
A.
Qwest II Did Not Foreclose Use of the Rate
Benchmark Under a Revised Statutory
Interpretation.............................................................................33
B.
The FCC Reasonably Declined to Lower the
Rate Benchmark........................................................................36
C.
The FCC's Procedure for Providing States
Supplemental High-Cost Support Is Lawful.............................37
IV.
THE COMMISSION ACTED WITHIN ITS
DISCRETION IN DECLINING TO ADJUST THE
COST BENCHMARK USED TO DETERMINE
NON-RURAL HIGH-COST SUPPORT.............................................39
A.
The FCC Reasonably Declined to Lower the
Cost Benchmark........................................................................40
B.
The FCC Reasonably Declined to Subsidize
an Increase in Non-Rural High-Cost Support
by Reducing Support Elsewhere...............................................43
V. THE
FCC
REASONABLY DECLINED TO
OVERHAUL ITS COST MODEL PENDING
COMPREHENSIVE UNIVERSAL SERVICE
REFORM.............................................................................................44
VI. THE
FCC
REASONABLY CONCLUDED THAT
THE SERVICES ELIGIBLE FOR UNIVERSAL
SERVICE SUPPORT ARE REASONABLY
COMPARABLE BETWEEN URBAN AND
RURAL AREAS..................................................................................47
ii

Page

A.
Petitioners Failed to Demonstrate that
Services in the Rural Areas of Maine and
Vermont Are Not Reasonably Comparable to
Services in Urban Areas............................................................47
B.
The FCC Is Not Obligated to Collect Data
Regarding Service Comparability.............................................51
CONCLUSION........................................................................................................53


iii

TABLE OF AUTHORITIES

Page

Cases


ACS of Anchorage, Inc. v. FCC, 290 F.3d 403 (D.C. Cir.
2002)....................................................................................................45
Busse Broad. Corp. v. FCC, 87 F.3d 1456 (D.C. Cir.
1996)....................................................................................................42
Chevron USA, Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984) ............................................. 23, 24
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S.
402 (1971) ...........................................................................................24
Covad Commc'ns Co. v. FCC, 450 F.3d 528 (D.C. Cir.
2006)............................................................................................. 36, 39
FCC v. Fox Tel. Stations, Inc., 129 S. Ct. 1800 (2009) .................................31
In re Core Commc'ns, Inc., 455 F.3d 267 (D.C. Cir.
2006)....................................................................................................26
MCI v. FCC, 750 F.2d 135 (D.C. Cir. 1984) .................................................45
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Ins. Co.,
463 U.S. 29 (1983) ..............................................................................24
Nat'l Assn. of Broad. v. FCC, 740 F.2d 1190 (D.C. Cir.
1984)....................................................................................................51
Nat'l Cable & Telecomms. Ass'n v. Brand X Internet
Servs., 545 U.S. 967 (2005) ................................................... 24, 27, 51
Nat'l Cable & Telecomms. Ass'n v. Gulf Power Co., 534
U.S. 327 (2002) ...................................................................................24
*
Qwest Commc'ns Int'l, Inc. v. FCC, 398 F.3d 1222
(10th Cir. 2005) ........................ 2, 11, 12, 29, 31, 33, 34, 35, 39, 50, 53
*
Qwest Corp. v. FCC, 258 F.3d 1191 (2001) ...... 6, 7, 8, 27, 28, 29, 30, 31, 35,
36, 39, 41, 47, 48
Qwest Corp. v. FCC, 482 F.3d 471 (D.C. Cir. 2007).....................................26
iv

Page

*
Rural Cellular Assn. v. FCC, 588 F.3d 1095
(D.C. Cir. 2009).............................................. 22, 24, 37, 38, 41, 45, 53
Texas Office of Pub. Util. Counsel v. FCC, 183 F.3d 393
(5th Cir. 1999) .......................................................................................4
WorldCom, Inc. v. FCC, 238 F.3d 449 (D.C. Cir. 2001) ...............................36

Administrative Decisions


Connect America Fund, Notice of Inquiry and Notice of
Proposed Rulemaking, 25 FCC Rcd 6657 (Apr. 21,
2010)............................................................................................. 19, 45
Connect America Fund, Notice of Proposed Rulemaking
and Further Notice of Proposed Rulemaking, 2011
WL 466775 (Feb. 9, 2011) ..................................................... 19, 45, 51
Federal-State Joint Board on Universal Service, 12 FCC
Rcd 8776 (1997)............................................................................. 5, 52
Federal-State Joint Board on Universal Service, 14 FCC
Rcd 20432 (1999)..................................................................................7
*
Federal-State Joint Board on Universal Service, 18 FCC Rcd 22559
(2003) ............................................... 8, 9, 10, 28, 30, 38, 43, 48, 49, 52
Federal-State Joint Board on Universal Service, 2003
WL 23009177......................................................................................46
Federal-State Joint Board on Universal Service,
Forward-Looking Mechanism for High Cost
Support for Non-Rural LECs
, 14 FCC Rcd 20156
(1999) ....................................................................................................7
Federal-State Joint Board on Universal Service,
Forward-Looking Mechanism for High-Cost
Support for Non-Rural LECs,
13 FCC Rcd 21323
(1998) ....................................................................................................7
High-Cost Universal Service Support, 23 FCC Rcd 8834
(2008) ..................................................................................................50
v

Page

Universal Service Reform; Mobility Fund, 2010 WL
4059849 (2010) ...................................................................................50

Statutes and Regulations


5 U.S.C. 553 et seq. ....................................................................................20
5 U.S.C. 706(2)(A) .....................................................................................24
28 U.S.C. 2342(1).........................................................................................1
47 U.S.C. 151................................................................................................3
47 U.S.C. 153(37).........................................................................................6
47 U.S.C. 153(44).........................................................................................6
47 U.S.C. 251................................................................................................4
47 U.S.C. 252................................................................................................4
47 U.S.C. 254................................................................................................2
47 U.S.C. 254(a) ...........................................................................................5
* 47
U.S.C.
254(b).........................................................................................12
47 U.S.C. 254(b)(1) ..................................................................................2, 5
47 U.S.C. 254(b)(1)-(7) ................................................................................5
47 U.S.C. 254(b)(2) ......................................................................................5
47 U.S.C. 254(b)(3) ....................................................................... 2, 4, 5, 27
47 U.S.C. 254(b)(5) ........................................................................... 2, 5, 14
47 U.S.C. 254(c)(1) ......................................................................................2
47 U.S.C. 254(d)...........................................................................................6
47 U.S.C. 254(e) .................................................................................... 4, 38
47 U.S.C. 254(j)............................................................................................4
vi

Page

47 U.S.C. 402(a) ...........................................................................................1
* 47
U.S.C.

405(a) .................................................................................. 26, 53
47 C.F.R. 54.309 .........................................................................................46
47 C.F.R. 54.316(b) ....................................................................................30
47 C.F.R. 54.706 ...........................................................................................5
American Recovery and Reinvestment Act of 2009, Pub.
L. No. 111-5, 123 Stat. 115 (2009)......................................................19
Telecommunications Act of 1996, Pub. L. No. 104-104,
110 Stat. 556 (1996) ..............................................................................4

Others


2010 Universal Service Monitoring Report (data through
October 2010), Table 3.1 at 3-15 (Dec. 2010) ......................................6

*
Cases and other authorities principally relied upon are marked with
asterisks.
vii

GLOSSARY


ETCs
Eligible
Telecommunications
Carriers

FCC
Federal
Communications
Commission

FNPRM

Further Notice of Proposed Rulemaking

LEC
Local
Exchange
Carrier

NASUCA
National
Association
of State Consumer Advocates

NOI
Notice
of
Inquiry

NPRM

Notice of Proposed Rulemaking

Petitioners
Maine Public Utilities Commission and Vermont Public Service
Board

VoIP

Voice over Internet Protocol Services

viii



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

NO. 10-1184

VERMONT PUBLIC SERVICE BOARD AND MAINE PUBLIC
UTILITIES COMMISSION
PETITIONERS,
v.
FEDERAL COMMUNICATIONS COMMISSION
AND THE UNITED STATES OF AMERICA
RESPONDENTS.

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

BRIEF FOR RESPONDENTS

STATEMENT OF JURISDICTION

The Order on review was released on April 16, 2010, and was published in
the Federal Register on May 11, 2010. High-Cost Universal Service Support, 25
FCC Rcd 4072 (2010), 75 Fed. Reg. 26,137 (May 11, 2010) ("Order") (JA 3). The
Court has jurisdiction to review final Federal Communications Commission
rulemaking orders pursuant to 47 U.S.C. 402(a) and 28 U.S.C. 2342(1).

STATUTES AND REGULATIONS

Pertinent statutes and regulations are appended to this brief.


2

STATEMENT OF ISSUES

This case concerns the Federal Communications Commission's (the "FCC"
or "Commission") high-cost universal service support program for non-rural
carriers one of the FCC's programs designed to promote universal consumer
access to "an evolving level of telecommunications services," 47 U.S.C.
254(c)(1). Under section 254 of the Communications Act of 1934, 47 U.S.C.
254, the Commission's "universal service" policies are guided by several
"principles." As relevant here, these principles include: (1) that there should be
"specific, predictable, and sufficient" federal and state universal service
mechanisms (47 U.S.C. 254(b)(5)); (2) that "[q]uality services should be available
at just, reasonable, and affordable rates" (47 U.S.C. 254(b)(1)); and (3) that
"[c]onsumers in all regions of the [n]ation" should 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)).
In the Order on review, the FCC responded to a decision by the United
States Court of Appeals for the Tenth Circuit, which remanded an earlier FCC
order regarding non-rural high-cost universal service support. Qwest Commc'ns
Int'l, Inc. v. FCC, 398 F.3d 1222 (10th Cir. 2005) ("Qwest II"). In response to the
Tenth Circuit's directives, the FCC: (1) explained its interpretation of the
undefined terms "reasonably comparable" and "sufficient" in sections 254(b)(3)
and 254(b)(5) and (e) of the Act, 47 U.S.C. 254(b)(3), (b)(5) and (e); (2)
determined that the current level of federal non-rural high-cost support is
"sufficient" within the meaning of sections 254(b)(5) and (e); and (3) concluded


3

that its current mechanism for allocating those federal funds comports with section
254's universal service objectives. In so doing, the FCC rejected petitioners'
primary proposal to modify the high-cost support system in a way that would have
resulted in a $2.725 billion annual increase in universal service funding, a burden
that consumers ultimately would have shouldered by paying higher charges for
telecommunications.
The issue before this Court is whether the Order is consistent with the
Communications Act and the Qwest II decision, and reasonably based on the
FCC's expert assessment of the record.

COUNTERSTATEMENT

I.

STATUTORY BACKGROUND

The availability of reasonably priced telecommunications services in all
parts of the nation is a longstanding goal of regulation under the Communications
Act. The FCC has a mandate to regulate interstate communications "so as to make
available, so far as possible, to all the people of the United States . . . a rapid,
efficient, Nation-wide and world-wide wire and radio communication service with
adequate facilities at reasonable charges. . . ." 47 U.S.C. 151. The FCC has
interpreted this statute to authorize universal service policies to promote affordable
access to telephone service in areas where costs otherwise might be prohibitive.1
When local telephone markets were protected monopolies, states and, to a
lesser extent, the FCC relied largely on implicit subsidies to further universal

1 The cost of providing telephone service is typically relatively high in rural areas
due to low population density, terrain, and other factors.


4

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 to offer the `below-cost' rates to
expensive, unprofitable rural customers." Id.
The system of implicit subsidies became unsustainable when Congress
opened the local telephone market to competition in the Telecommunications Act
of 1996 ("1996 Act"), Pub. L. No. 104-104, 110 Stat. 56, which amended the
Communications Act. 47 U.S.C. 251, 252. 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 rates to urban customers is vulnerable to a competitor
that offers at-cost rates to urban customers." 183 F.3d at 406.
In the 1996 amendments to the Communications Act, Congress therefore
specified that any federal universal service mechanisms should be "explicit" and
"sufficient to achieve the purposes" of section 254. 47 U.S.C. 254(e). At the
same time, Congress reaffirmed the FCC's longstanding commitment to universal
service principles, and preserved the Commission's existing policy of providing
support for low-income consumers and for carriers serving high-cost areas. 47
U.S.C. 254(b)(3), (e), (j).
In section 254, Congress required the FCC to convene a Federal-State Joint
Board to recommend universal service reforms, and delegated authority to the FCC


5

to adopt rules to implement the new universal service provisions in the Act.
47 U.S.C. 254(a). It also established a non-exclusive list of principles on which
the FCC 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 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)).

II.

THE FCC'S HIGH-COST UNIVERSAL SERVICE
SUPPORT MECHANISM FOR NON-RURAL
CARRIERS

In 1997, after receiving the Joint Board's recommendations, the FCC
adopted rules to implement the new universal service provisions of the 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) 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 nondiscriminatory basis"
to support "the specific, predictable, and sufficient mechanisms established by the


6

Commission to preserve and advance universal service." 47 U.S.C. 254(d). Fund
assessments are determined by applying a quarterly "contribution factor" to the
contributors' reported interstate and international revenues. Order 21 n.72 (JA
14). "Fund contributors are permitted to, and almost always do, pass [these]
assessments through to their end-user customers," id., typically in the form of line
items on their customers' bills.
The universal service fund consists of four separate and 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.
Order 26 (JA 17). The non-rural high-cost support mechanism the program at
issue in this case is one component of the larger federal high-cost support
program.2 Other high-cost support mechanisms also provide universal service
support to rural, insular and other high-cost areas. Id. 27 n.92 (JA 17). As of
2010, the non-rural mechanism disbursed $357 million annually or about 8
percent of the $4.75 billion in high-cost support distributed that year.3

2 Under the Act, the "rural" or "non-rural" designation depends not only on the
nature of the area served by a local exchange carrier ("LEC"), but also the LEC's
size. See 47 U.S.C. 153(44). "In short, a rural carrier is one that serves rural,
sparsely populated areas or that is small in size." Qwest Corp. v. FCC, 258 F.3d
1191, 1204 (10th Cir. 2001) ("Qwest I") (discussing 47 U.S.C. 153(37), which
was subsequently reordered as 47 U.S.C. 153(44)). "Non-rural carriers," on the
other hand, "are larger and serve at least some urban areas." Id. at 1196.
3 2010 Universal Service Monitoring Report (data through October 2010), Table
3.1 at 3-15 (Dec. 2010), available at http://www.fcc.gov/wcb/iatd/monitor.html


7

A.

The Ninth Report and Order and the Tenth
Report and Order


The FCC established a high-cost support mechanism for non-rural LECs in
the Ninth Report and Order. Federal-State Joint Board on Universal Service, 14
FCC Rcd 20432, 20434 (2) (1999) ("Ninth Report and Order"). The mechanism
made funding available in states where the average cost of service exceeded a
benchmark of 135 percent of the national average cost per telephone line. Ninth
Report and Order, 14 FCC Rcd at 20457-58, 20463-20465 (45-46, 54-56).
Providing federal support to non-rural LECs in states with average costs
substantially in excess of the national average, the FCC found, would enable those
states to achieve reasonably comparable urban and rural rates. Id. at 20458 (46).
In separate orders, the FCC developed a computer model to estimate the
forward-looking cost of providing service in rural areas served by non-rural LECs,
Federal-State Joint Board on Universal Service, Forward-Looking Mechanism for
High-Cost Support for Non-Rural LECs, 13 FCC Rcd 21323 (1998), and
subsequently selected the input values to use in the model. Federal-State Joint
Board on Universal Service, Forward-Looking Mechanism for High-Cost Support
for Non-Rural LECs, 14 FCC Rcd 20156 (1999) ("Tenth Report and Order").

B.

Qwest I


On review, the Tenth Circuit remanded the Ninth Report and Order to the
FCC. Qwest I, 258 F.3d 1191. The court held that, in adopting its support
mechanism for non-rural LECs, the FCC had failed adequately to define the
statutory terms "reasonably comparable" and "sufficient" when applying sections
254(b)(3) and (e), but instead had "substitute[d] different standards" in its


8

definitions of those terms. Id. at 1195, 1201-02. The court further concluded that
the agency had "failed to explain how its 135% [cost] benchmark will help achieve
the goal of reasonable comparability or sufficiency," but noted that "we likely
would uphold the mechanism" if it "actually produced urban and rural rates that
were reasonably comparable, however those terms are defined." Id. (footnote
omitted).
The court also found that the agency had failed to (1) adequately induce the
states to adopt their own mechanisms to support universal service in a manner
consistent with section 254, and (2) explain how federal support for non-rural
carriers relates to other federal support mechanisms. Id. at 1195. In clarifying the
narrow scope of its holding, the court explained: "We do not decide the underlying
issue of whether the funding is in fact sufficient; rather, we conclude that the FCC
has not supported why the funding is sufficient." Id. The court "acknowledge[d]
that the agency is entitled to deference in its line-drawing when it makes a
reasoned decision." Id. at 1202.
Separately, the court affirmed the forward-looking cost model finalized in
the Tenth Report and Order, noting that the challenged "technical aspects" of the
model "fall squarely within the FCC's discretion as an expert agency." Qwest I,
258 F.3d at 1195, 1205-07.

C.

The 2003 Remand Order

The FCC responded to the Tenth Circuit's directives in the 2003 Remand
Order. Federal-State Joint Board on Universal Service, 18 FCC Rcd 22559
(2003) ("2003 Remand Order") (JA 67).


9

Revised Definitions of Key Statutory Terms. On remand, the FCC defined
"reasonably comparable," as used in section 254(b)(3), to require that rates in rural
areas fall within the nationwide range of rates for urban areas. 2003 Remand
Order, 18 FCC Rcd at 22583-84 (39-40) (JA 91-92). To identify that range, the
FCC established a rate benchmark based on data from an annual survey of local
telephone rates in 95 cities. Id. at 22580, 22582, 22607-09 (35, 38, 80-81) (JA
88, 90, 115-17). Applying a standard deviation analysis (rather than a percentage
or dollar amount) to measure rate comparability, the agency set the benchmark at
two standard deviations above the average urban rate. Id. at 22608-09 (81) (JA
116-17).4
The FCC interpreted "sufficient," as used in sections 254(b)(5) and (e), as
enough support to maintain reasonably comparable rural and urban rates. 2003
Remand Order, 18 FCC Rcd at 22581 (36) (JA 89). Based on the record, the FCC
concluded that the federal non-rural support mechanism provides sufficient support
to enable states to achieve reasonably comparable rural and urban rates, and that
the record did not support distributing substantially higher federal support for
intrastate service. Id.; see id. at 22593 (55) (JA 101).

4 Standard deviation analysis, a commonly used method of statistical analysis,
measures the difference between input values in a range and the mean or average.
In a normal distribution, data points within two standard deviations of the mean
will comprise approximately 95 percent of all data points. Order n.144 (JA 26).
The FCC's standard deviation analysis resulted in a rate benchmark of $32.28.
2003 Remand Order, 18 FCC Rcd at 22584-85 (41) (JA 92-93).


10

State Inducements. To induce state action to help maintain urban and rural
rate comparability, the FCC required every state to certify annually whether its
rural rates are reasonably comparable to urban rates nationwide, and to explain the
basis for its conclusion. Id. at 22605, 22613-14 (76, 89-92) (JA 113, 121-22).
States may use the rate benchmark as a "safe harbor" to establish reasonable
comparability. Id. at 22607-09, 22613-14 (80-82, 90) (JA 115-16, 121-22). A
state must certify that its rates are reasonably comparable, or establish a plan to
attain rate comparability, as a condition for its receipt of federal universal service
support for non-rural carriers. Id. at 22614 (92) (JA 122).
The FCC also allowed each state to request further federal action by
demonstrating that, despite the state's best efforts, federal support and state action
together have not achieved rate comparability. Id. at 22615-16 (93-96) (JA 122-
24). Further federal action could include, but is not limited to, additional targeted
support. Id. at 22614-15 (93) (JA 122-23).
Methodology for Determining Support and Cost Benchmark Level. The
FCC also established criteria for deciding how federal universal service funds
should be allocated among the states under the non-rural high-cost support
mechanism. The FCC found that cost differences are the best measure of whether
a particular state needs federal assistance to achieve intrastate rate comparability
between urban and rural customers. The FCC explained that this approach permits
federal funding to be determined on an equitable basis across states without regard
to state policy choices that affect intrastate rates for particular customers. Id. at
22572-73 (23) (JA 80-81); see also Order 61-63 (JA 35-36).


11

The FCC established a benchmark of two standard deviations above the
national average cost. 2003 Remand Order, 18 FCC Rcd at 22599 (66) (JA 107).
Non-rural carriers may receive high-cost support in a state if the statewide average
cost, as estimated by the FCC's forward-looking cost model, exceeds this cost
benchmark.5 Id.

D.

Qwest II


On review, the Tenth Circuit remanded the 2003 Remand Order in part.
Qwest II, 398 F.3d 1222. The Tenth Circuit identified three problems with the
2003 Remand Order.
First, the Tenth Circuit found that the FCC erred in defining "sufficient" as
"enough federal support to enable states to achieve reasonable comparability of
rural and urban rates in high-cost areas served by non-rural carriers." Qwest II,
398 F.3d at 1233-34. As the court explained, "reasonable comparability" is just

5 Three different types of cost and rate comparisons are thus associated with the
non-rural high-cost support mechanism. First, the FCC compares the statewide
average cost per line to the national average cost per line (both estimated by the
forward-looking cost-model) to determine high-cost support amounts. Only states
with average per-line costs that exceed two standard deviations of the national
average cost are eligible for non-rural high-cost support. See Section IV, below,
pp. 39-44. Second, to induce states to meet their universal service obligations, the
FCC requires states to certify that rural rates within their borders are reasonably
comparable to urban rates, as required by section 254(b)(3). There is a rebuttable
presumption that rural rates falling below the rate benchmark (currently set at two
standard deviations of the average urban rate) are reasonably comparable. See
Section III, below, pp. 33-39. Finally, in the Order on review, the FCC compared
rural and urban rates both within and among states to respond to the Tenth
Circuit's concern that rates in rural, insular, and high-cost areas may not be
reasonably comparable to urban rates nationwide for purposes of section 254(b)(3)
of the Act. See Section II, below, pp. 25-33.


12

one of several principles that Congress directed the FCC to consider when crafting
policies to preserve and advance universal service. Id. at 1234 (citing 47 U.S.C.
254(b)). The court understood the agency's definition as "suggesti[ng] that other
principles, including affordability, do not underlie federal non-rural support
mechanisms." Id. "On remand," the court directed, "the FCC must articulate a
definition of `sufficient' that appropriately considers the range of principles
identified in the text of the statute." Id.
Second, the court held that the FCC's definition of "reasonably comparable"
did not take into account the statutory principle of advancing (rather than just
preserving) universal service. See id. at 1235-36; 47 U.S.C. 254(b). The Tenth
Circuit directed the FCC on remand to "define the term `reasonably comparable' in
a manner that comports with its concurrent duties to preserve and advance
universal service." Qwest II, 398 F.3d at 1237.
Finally, the Tenth Circuit deemed the non-rural high-cost support
mechanism invalid because it rested on the application of the definition of
"reasonably comparable" rates invalidated by the court. Id. at 1237. While the
court acknowledged that it "would be inclined to affirm the FCC's cost-based
funding mechanism if it indeed resulted in reasonably comparable rates," it found
that the Commission had failed to provide "empirical findings supporting this
conclusion." Id. "On remand," the court directed the FCC to "utilize its unique
expertise to craft a support mechanism taking into account all the factors that
Congress identified in drafting the Act and its statutory obligation to preserve and
advance universal service." Id. (emphasis in original).


13

The Court separately affirmed the rate certification process used by the FCC
to induce states to achieve rate comparability. Id. at 1238.

III. THE ORDER ON REVIEW

On remand, the FCC issued a "narrow" order that specifically focused on the
problems with the existing non-rural mechanism that the Tenth Circuit identified in
Qwest II. Order 1 (JA 4).
The FCC explained at the outset that the evolution of universal service over
recent years "inform[ed] [its] analysis of whether the non-rural mechanism, as
currently structured, comports with section 254 of the Act." Id. 22 (JA 16). In
particular, "[t]he communications marketplace has undergone significant changes
since the Commission originally adopted the non-rural high-cost support
mechanism in 1999." Id. 12 (JA 9). At that time, most customers received local
telephone service from an incumbent LEC. Id. But, the FCC noted, by 2010
"consumers are migrating away from traditional wireline telephone service." Id.
14 (JA 9). Evidence in the record showed that "the vast majority of subscribers
have a wireless phone in addition to a wireline phone," id. 14 (JA 9), and "most
of the population including the rural population now has access to wireless
service offered by one or more different providers." Id. 15 (JA 10).
In response to the Tenth Circuit's concerns about the affordability of
telephone coverage in certain areas of the country, the FCC analyzed telephone
subscribership rates and consumer expenditure data. The FCC's data showed that
the national telephone penetration rate (i.e., the percentage of consumers across the
nation with telephone service) had remained at consistently high levels since


14

passage of the 1996 Act, and had increased to 95.7 percent an all-time high at
the time of Order. Id. 18 (JA 11). The FCC further found that average consumer
expenditures on telephone service have remained relatively stable over time, even
though consumers now receive additional services such as wireless as well as
traditional wired telephone service. Id. 19 (JA 12). In addition, the price of
telephone service had declined, in real terms, between 1996 and 2006. Id.
Finally, the FCC analyzed the dramatic increase in overall universal service
fund disbursements, which grew from $5.35 billion in 2001 to $7.26 billion in
2009. Id. 20 (JA 13). The FCC acknowledged that "[h]igh-cost support
disbursements represent the majority of universal service expenditures, and are the
primary driver of growth in overall universal service disbursements." Id. It also
acknowledged that, as the universal service fund has grown larger, "so has the
quarterly universal service contribution factor, which results in higher universal
service contribution assessments [on carriers] and higher telephone bills for end-
user customers." Id. 21 (JA 14). Indeed, by early 2010, the contribution factor
had risen to 15.3 percent of interstate and international revenues "an all-time
high" forcing "many consumers [to] pay[] a surcharge of over 15 percent on the
interstate portion of their monthly bill." Id. (JA 14-15).
Taking into account these important developments, the FCC then addressed
the three specific issues that the Qwest II court directed the agency to address.
"Sufficient." On remand, the FCC "define[d] `sufficient,'" as that undefined
term is used in 47 U.S.C. 254(b)(5), "as an affordable and sustainable amount of


15

support that is adequate, but no greater than necessary, to achieve the goals of the
universal service program." Id. 30 (JA 19).
Addressing the Tenth Circuit's directive that it must consider all of the
principles set forth in section 254(b), the FCC noted that it had developed four
universal service programs (i.e., high-cost, low-income, rural health care, and
schools and libraries) to implement all the statutory requirements set forth in
section 254 of the Act. Id. 26 (JA 17). Thus, the agency explained, "[a] fair
assessment of . . . whether support is `sufficient' for purposes of section 254(e)[]
must . . . encompass the entirety of [the] universal service support programs." Id.
27 (JA 18).
The FCC further observed that "[t]he various objectives of section 254
impose practical limits on the fund." Id. 28 (JA 18). "If the universal service
fund grows too large" as a result of efforts to satisfy one of the section 254(b)
principles, "it will jeopardize other statutory mandates, such as ensuring affordable
rates in all parts of the country." Id. Accordingly, the FCC concluded that it must
"balance the principles [in] section 254(b) to ensure that support is sufficient but
does not impose an excessive burden on all ratepayers." Id.
"In light of all these considerations," the FCC found that its new definition
of "sufficient" satisfies the Tenth Circuit's directive. Unlike the prior definition, it
is tied explicitly to all of the principles in section 254(b). Id. 30 (JA 19). It also
expressly incorporates the principle of affordability by ensuring that universal
service is sufficient without growing the universal service fund so large as to
render unaffordable the rates for telecommunications services. Id.


16

Applying this definition, the FCC concluded that "the non-rural high-cost
support mechanism, acting in conjunction with the Commission's other universal
service programs, provides sufficient support to achieve the universal service
principles set forth in section 254(b) of the Act." Id. 31 (JA 20). The FCC
explained that its universal service programs "have produced almost ubiquitous
access to telecommunications services and very high telephone subscribership
rates." Id.
While some parties asserted the non-rural high-cost support mechanism
provides insufficient universal service funding, the FCC noted that no party had
demonstrated that customers in rural areas would lack access to affordable and
reasonably comparable rates and services absent an increase in support. Id. 34-
37 (JA 21-23). The agency thus rejected several proposals to "reform" the non-
rural mechanism, including a proposal by petitioners that would have resulted in a
$2.725 billion annual increase in the universal service fund (and a nine-fold
increase in non-rural high-cost support). Id. 38 (JA 24). The FCC found no
reason "to add to the already heavy universal service contribution burden placed on
consumers" given its finding that universal service support is, in fact, sufficient.
Id.
"Reasonably Comparable." Turning to section 254(b)(3)'s use of the
undefined term "reasonably comparable," the agency further held that rural rates
are "reasonably comparable" to urban rates if they fall within a reasonable range of
the national average urban rate. Id. 53 (JA 32).


17

The FCC also considered whether the non-rural mechanism has actually
produced reasonably comparable rates under its articulated standard. The agency
concluded that rates for traditional wireline telephone service are reasonably
comparable across rural and urban areas and within states. Id. 43-49 (JA 26-31);
Appendix C (JA 166). Uncontested data submitted by Verizon and the National
Association of State Utility Consumer Advocates ("NASUCA") showed that
"average rates are similar [between] urban and rural areas, and . . . the standard
deviation of the rates is similar [in] rural and urban areas." Id. 43 (JA 26). In
fact, as the FCC explained, "urban and rural rates often are the same" and "[t]o the
extent there are differences, . . . the data show that urban rates within most states
tend to be higher." Id.
The FCC acknowledged that one state Wyoming had demonstrated that
its rural rates are not reasonably comparable to urban rates. Id. 50 (JA 31).
Rather than adjusting the non-rural high-cost support mechanism to address
Wyoming's needs, the FCC found that "unique situations like Wyoming's can be
best addressed on an individualized, case-by-case basis." Id. 51 (JA 31). Indeed,
in a separate Memorandum Opinion and Order, the FCC provided more than $2
million of annual supplemental high-cost support for the rural residential
customers of Qwest in Wyoming. Id. 84-92 (JA 47-51).
The FCC next found that the non-rural support mechanism, as currently
configured, has preserved and advanced universal service consistent with section
254. Steady increases in telephone subscribership, the agency explained, obviated
the Tenth Circuit's concern that the variance between urban and rural areas could


18

render rural rates unaffordable. Order 54 (JA 32-33). Furthermore, the FCC
recognized that "consumer expenditures on telephone service have remained
stable, and, as a result of increased broadband and wireless deployment, consumers
can now choose among multiple universal service providers, not just traditional
wireline telephone companies." Id. 56 (JA 34). "[T]hese marketplace
developments," the agency concluded, "demonstrate that the non-rural mechanism
results in reasonably comparable rates that have advanced universal service." Id.
The Non-Rural High-Cost Support Mechanism. The FCC next held that the
non-rural high-cost support mechanism comports with section 254. The agency
explained that "[u]nrefuted empirical evidence in the record shows that wireline
telephone rates are reasonably comparable in urban and rural areas, and where
there is a discrepancy, rural rates tend to be lower." Order 59 (JA 35) (emphasis
added). The FCC also noted that the affordability of rates was shown by the
increase in telephone penetration rates, even while "average consumer
expenditures on telephone service have remained stable." Id.
Collectively, this evidence "confirm[ed] that the non-rural high-cost support
mechanism, working in conjunction with the Commission's other universal service
programs, provides sufficient support." Id. Finally, the agency noted, the record
showed that "the non-rural mechanism has both preserved and advanced the
universal service objectives in section 254(b) of the Act, as demonstrated by
increasing subscription rates and increasing access to different types of services."
Id. (emphasis in original). In light of these findings, the FCC concluded that "no


19

further action" was "required . . . to comply with the Tenth Circuit's Qwest II
decision." Id. 60 (JA 35).
Comprehensive Reform and the National Broadband Plan. Finally, the FCC
found that the congressionally mandated National Broadband Plan6 "provides a
separate and independent ground for keeping the existing non-rural high-cost
support mechanism in place" at this time. Order 83 (JA 47). The National
Broadband Plan "recommends a comprehensive reform program" that would
"shift" all high-cost universal service support away from "primarily supporting
voice communications to supporting broadband platforms that enable many
applications, including voice." Id. 79 (JA 45).
Accordingly, the FCC found that its efforts to "revise and improve high-cost
support will be advanced" through the broader universal service proceedings that
address recommendations of the National Broadband Plan, as opposed to the
narrow proceeding in this case, which only concerned one component (i.e., non-
rural high-cost support) of the universal service program.7 Id. 80 (JA 45). The
FCC reasoned that providing non-rural carriers additional high-cost support for

6 The American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123
Stat. 115 (2009), charged the FCC with developing a national plan for broadband
deployment. The FCC delivered a National Broadband Plan to Congress on March
16, 2010. The Plan is available at: http://www.broadband.gov/plan.
7 The Commission initiated that proceeding shortly after it finalized the National
Broadband Plan. See Connect America Fund, Notice of Inquiry and Notice of
Proposed Rulemaking, 25 FCC Rcd 6657 (Apr. 21, 2010) ("CAF NOI/ NPRM"),
75 Fed. Reg. 26,906-02 (May 13, 2010). See also Connect America Fund, Notice
of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 2011 WL
466775 (Feb. 9, 2011) ("USF/ICC Transformation NPRM").


20

traditional voice service, even on an interim basis, would make it more difficult to
eventually phase out support for voice service and transition it to broadband, as
recommended by the National Broadband Plan. Id. 82 (JA 46).

SUMMARY OF ARGUMENT

In the Order on review, the FCC responded to specific directives from the
Tenth Circuit in Qwest II. In doing so, the agency explained its reasonable
understanding of the relevant statutory terms ("reasonably comparable" rates and
"sufficient" universal service support), and found that its current rules for
providing high-cost universal service support to non-rural carriers satisfy section
254 of the Act. Rather than challenge the FCC's construction of the statute,
petitioners instead attack the agency's underlying universal service policies,
alleging that the FCC violated the Administrative Procedure Act ("APA"),
5 U.S.C. 553 et seq., when it found that those policies comport with the
requirements of section 254 and, thus, should remain in effect pending
comprehensive universal service reform. Under the APA, this Court must respect
the FCC's policy choices unless they constitute an abuse of discretion. Petitioners
have failed to make that showing.
Petitioners contend that the FCC erred in finding that rural and urban rates
are reasonably comparable, as required by section 254(b)(3), because it failed to
compare rural rates in each state to a national average urban rate. That argument is
barred by section 405(a) of the Act because petitioners never presented it to the
agency. Regardless, neither the statute nor FCC precedent bind the agency to this
method of comparison, which the Tenth Circuit found deficient in Qwest II. On


21

remand from that decision, the FCC justifiably took a different approach that
examined the variance in rural and urban rates both within and among states to find
that rates are, in fact, reasonably comparable nationwide. It also reasonably relied
on telephone penetration data which showed steady increases in telephone
subscribership to demonstrate that rural rates are not too high to ensure universal
access to basic telephone service. That analysis responded directly to concerns
expressed by the court in Qwest II. In addressing the Tenth Circuit's concerns, the
agency did not abuse its discretion.
Nor was the FCC required to lower the rate benchmark that is used to
determine whether rural rates in a particular state satisfy section 254(b)(3).
Petitioners emphasize that the Tenth Circuit invalidated that benchmark in Qwest
II. But the Tenth Circuit did so only insofar as the benchmark rested on an
"impermissible" reading of "reasonably comparable" in section 254(b)(3) a
reading that the agency subsequently revised in the Order at issue in this case. On
remand, the Commission reinterpreted section 254(b)(3) to take into account the
advancement of universal service, as the Tenth Circuit instructed. Thus, the rate
benchmark the FCC employed which the Tenth Circuit never rejected as
inherently unreasonable does not rest on the superseded statutory construction
that the court rejected in Qwest II.
When the FCC has reasonably interpreted the relevant statutory terms, as it
did in the Order, setting the rate benchmark is a line-drawing exercise that falls
within the agency's unique expertise. The line the FCC drew in this case falls
within a zone of reasonableness, as demonstrated by high telephone subscribership


22

rates and the overall advancement of universal service while that rate benchmark
has been in effect. In any event, if a state can show that rates and services are not
reasonably comparable, the FCC can provide that state supplemental high-cost
support as was done for Wyoming. Petitioners have never attempted to make
such a showing for their states.
Petitioners complain that the FCC failed to consider proposals to lower the
cost benchmark that determines high-cost support amounts for non-rural carriers.
Petitioners make no attempt to defend their proposal to lower the benchmark to
125 percent of average urban cost a proposal that would have resulted in a
$2.725 billion annual increase in universal service funding. Instead, they contend
that lowering the cost benchmark is mandatory if it costs ratepayers something less
than that amount. The FCC, however, concluded that any increase in universal
service support was unnecessary given empirical evidence showing that the current
support level fulfills the requirements of section 254 of the Act. Consistent with
this Court's decision in Rural Cellular Ass'n v. FCC, 588 F.3d 1095, 1102 (D.C.
Cir. 2009), the FCC found that lowering the cost benchmark would have been
contrary to the interests of consumers in net contributor states because it would
have required them to contribute more than is necessary to ensure that rates are
affordable and reasonably comparable in states like Maine and Vermont. Having
rationally explained its line-drawing decision in determining the appropriate cost
benchmark, the agency was not required to separately address and repetitively
reject numerous alternative proposals that would have drawn the line in a
different place. Nor was the agency required to consider specific proposals that


23

would reduce or eliminate funding for other universal service programs to offset
the consumer impact of increased non-rural high-cost support.
Petitioners' challenge to the Commission's use of the forward-looking cost-
model that the court upheld in Qwest I likewise fails. The FCC reasonably decided
to use the existing model on an interim basis pending the development of a more
advanced model that will estimate the cost of providing broadband.
Finally, the Commission acted reasonably in rejecting as insufficiently
supported by the record evidence petitioners' claim that services in rural New
England are not reasonably comparable to services in urban areas. Furthermore,
because most states have established mechanisms to ensure service quality within
their jurisdictions, the Commission reasonably declined petitioners' request to
develop new federal reporting mechanisms to collect massive quantities of service-
quality data to support compliance with section 254(b)(3). Indeed, in the 1997
First Report and Order, the FCC found no need to adopt new federal service
quality reporting mechanisms solely for universal service purposes because such
mechanisms would be redundant and inconsistent with the pro-competitive, de-
regulatory national policy framework in the 1996 Act.

ARGUMENT

I.

STANDARDS OF REVIEW

Judicial review of the Commission's interpretation of the Communications
Act is governed by Chevron USA, Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984). Under Chevron, if the intent of Congress is clear, then "the
court, as well as the agency, must give effect to [that] unambiguously expressed


24

intent." Id. at 842-43. If, however, "the statute is silent or ambiguous with respect
to the specific issue, the question for the court is whether the agency's answer is
based on a permissible construction of the statute." Id. at 843. "Chevron requires
a federal court to accept the agency's [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).
Under the APA, the FCC'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 decisionmaking 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 FCC need
only articulate a "rational connection between the facts found and the choice
made." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Ins. Co., 463 U.S. 29, 43
(1983) (citation omitted). Judicial deference to the FCC'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 (quoting Nat'l
Cable & Telecomms. Ass'n v. Gulf Power Co., 534 U.S. 327, 339 (2002)).


25

II.

THE FCC'S URBAN-TO-RURAL RATE ANALYSIS
WAS RATIONAL AND CONSISTENT WITH
SECTION 254(b)(3)

In response to the Tenth Circuit's remand in Qwest II, the FCC held that
rural rates are "reasonably comparable" to urban rates within the meaning of
section 254(b)(3) of the Act if they fall within a reasonable range of the national
average urban rate. Order 53 (JA 32). Relying on the only comprehensive
national rate data in the record, the FCC also examined the variance in rural and
urban rates both within and among states to find that rates are, in fact, reasonably
comparable nationwide. Id. 43-48 (JA 26-30). Specifically, the FCC compared:
(1) the nationwide averages (or means) of urban rates and rural rates; (2) the
standard deviations of urban rates and rural rates nationwide; and (3) urban rates
and rural rates within the same state. Id.
Petitioners contend that the FCC acted arbitrarily and capriciously when it
failed to compare rural rates on a state-by-state basis with a national average urban
rate, which petitioners claim is the only permissible method of analysis. Br. 21-25.
This claim should be dismissed because it is not properly before the Court. In any
event, petitioners are wrong.

A. Petitioners Have Waived Their Challenge to the FCC's

Urban-to-Rural Rate Analysis.

Petitioners' attack on the FCC's urban-to-rural rate comparison is not
properly before the Court because it was not raised before the agency. Section
405(a) of the Act provides that the filing of a petition for reconsideration with the
agency is a "condition precedent to judicial review" of any "questions of fact or


26

law upon which the Commission . . . has been afforded no opportunity to pass."
47 U.S.C. 405(a). "[E]ven when a petitioner has no reason to raise an argument
until the FCC issues an order that makes the issue relevant, the petitioner must file
`a petition for reconsideration' with the Commission before it may seek judicial
review." In re Core Commc'ns, Inc., 455 F.3d 267, 276-77 (D.C. Cir. 2006)
(quoting 47 U.S.C. 405(a)). Under section 405(a), this Court "generally lack[s]
jurisdiction to review arguments that have not first been presented to the
Commission." Qwest Corp. v. FCC, 482 F.3d 471, 474 (D.C. Cir. 2007).
That principle controls here. No party to this administrative proceeding
presented petitioners' current claim that the FCC improperly relied on intrastate
rate comparisons, and national average rural and urban rates, to find that local
telephone service rates in rural and urban areas are reasonably comparable. Nor
did petitioners seek reconsideration before the FCC. Their claim therefore is
barred by section 405(a), and the Court should dismiss it.

B. The FCC's Finding that Urban and Rural Rates Are

Reasonably Comparable Is Consistent with the
Statute, FCC Precedent, and Qwest I and II.

Even if petitioners' claim were properly presented, it fails on the merits.
The Commission was not required to compare rural rates in each state to a national
average urban rate to demonstrate that urban and rural rates are reasonably
comparable. As explained below, petitioners' proposed method of rate comparison
is compelled by neither the statute nor the FCC's orders. It was, moreover,
rejected by the Tenth Circuit in Qwest I.



27

Section 254(b)(3) of the of the Act provides:

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
.

47 U.S.C. 254(b)(3) (emphasis added). The statute requires reasonable
comparability in all regions of the nation, and between urban areas and rural,
insular, and high-cost areas. See Qwest I, 258 F.3d at 1204. It does not mention
"states." Accordingly, on remand from the Tenth Circuit, the FCC reasonably
interpreted section 254(b)(3) to require a comparison of rates in urban and rural
areas, without regard to state borders. That interpretation is entitled to judicial
deference. See Brand X, 545 U.S. at 980.

To bolster their statutory argument, petitioners assert that the FCC sub
silentio departed from its own precedent when it made intrastate rate comparisons
in the Order on review. Br. 15-16; see also id. 22-25. Petitioners' only support for
this contention is the Seventh Report and Order, in which the FCC adopted the
Joint Board's recommendation to define "reasonably comparable" as "a fair range
of urban/rural rates both within a state's borders, and among states nationwide."
Br. 22; see also id. at 23. But petitioners fail to acknowledge that the Tenth Circuit
expressly rejected that definition of "reasonably comparable" in Qwest I based, in


28

part, on its finding that the FCC had failed to assume responsibility for helping to
achieve intrastate rate comparability. 258 F.3d at 1201, 1204.
The Tenth Circuit's criticisms of the FCC's earlier attempts to define
"reasonably comparable" confirm the reasonableness of the Commission's method
of rate comparison in the Order and underscore the shortcomings of petitioners'
alternative. In Qwest I, the Tenth Circuit held that the FCC's "fundamental error
[was] in concerning itself only with `enabl[ing] reasonable comparability among
states,'" when "[section] 254 requires a comparison of rural and urban areas, not
states." 258 F.3d at 1204 (emphasis added). The court's point was that FCC was
responsible for achieving "reasonable comparability" both within and among
states, not just "among" states, as petitioners' argue. Id. Thus, the FCC's
intrastate rate comparisons on remand were entirely consistent with the Tenth
Circuit's opinion.
Furthermore, the Qwest I court expressed concern about the total variance in
rural and urban rates nationwide, not the variance between rural rates in a
particular state and a national average. 298 F.3d at 1201 (noting that "some rural
rates will be 70-80% higher than urban rates [elsewhere in the United States] under
the FCC's funding mechanism."). On remand from Qwest I, the FCC responded
with the method of comparison petitioners demand here: using rate data from the
U.S. Government Accountability Office, the FCC compared state-specific rural
rates to a national average urban rate. 2003 Remand Order, 18 FCC Rcd at 22594
(57). Yet the Tenth Circuit, in Qwest II, again found that the FCC had failed to
demonstrate that rates were "reasonably comparable" under section 254(b)(3)


29

because the variance between the lowest urban rates and highest rural rates
irrespective of state boundaries was too great. Qwest II, 398 F.3d at 1237 (noting
that "rural rates falling just below the comparability benchmark may exceed the
lowest urban rates by over 100%."). On remand, the court directed the FCC to
provide "empirical findings supporting [its] conclusion" that rates in rural and
urban areas are reasonably comparable. Id.
The FCC did precisely that in the Order. Pointing to uncontested evidence
in the record, the agency found that in 18 states and the District of Columbia, the
largest non-rural LEC charges the same rate in both the rural and urban areas it
serves. Order at 48 (JA 30). And in those states where the non-rural LEC
charges different rates, urban rates tend to be higher rather than lower. Id. In so
finding, the FCC demonstrated, on the basis of empirical data, that it had
"undertake[n its] responsibility to ensure that the states act" to achieve reasonably
comparable rates within their borders, as the Tenth Circuit directed in Qwest I, 258
F.3d at 1204.
The FCC further found that the average or mean rate is similar between rural
and urban areas nationwide, as is the standard deviation of rates.8 Order 45-46
(JA 28-29). Indeed, data in the administrative record showed that the range of
rates does not vary greatly as a function of urbanization. Id. As the FCC

8 Because standard deviation analysis measures the dispersion of data points from
the mean (see above note 4), this analysis of urban and rural rates allowed the FCC
to determine whether rural rates fall within a "reasonable range of the national
average urban rate," as required by the definition of "reasonably comparable" that
the agency adopted on remand. Order 53 (JA 32).


30

explained, "these descriptive statistics and the distribution of rates" show that
"differences among urban rates are similar to differences among urban and rural
rates." Id. 46 (JA 29).9 In undertaking this comparison, the FCC directly
responded to the Tenth Circuit's concern about the variance between the lowest
urban rate and the highest rural rate. The agency compared the ranges of rates in
two populations: urban rates nationwide and rural rates nationwide. It concluded
that, for both populations, the spread between the highest and lowest rates is
similar. Thus, the variance between the lowest urban rate and the highest rural rate
is roughly the same as the spread between the lowest urban rate and the highest
urban rate. Generally speaking, rural customers do not pay higher rates than urban
customers.
By contrast, petitioners' preferred method of analysis would only evaluate
reasonable comparability among states by measuring rural rates in a particular state
against a national average urban rate.10 As noted above, the FCC unsuccessfully

9 Petitioners contend that the only factor causing variation in local telephone rates
is cost. See, e.g, Br. 23-24, 30. As the FCC explained in the Order, however, a
variety of non-cost-based policy decisions affect state ratemaking. Order 63
(JA 36).
10 Petitioners seem to argue (Br. 26-27) that the FCC's method of rate comparison
must follow its rate certification process, which allows states to presume that their
rural residential rates are reasonably comparable to urban rates if they fall below
the rate benchmark (i.e., two standard deviations of the average urban rate). See
Order
85 (JA 48); 47 C.F.R. 54.316(b). However, the certification process was
designed "to induce states to achieve reasonably comparable rates" within their
borders, 2003 Remand Order, 18 FCC Rcd at 22601 (70) (JA 109), as required by
Qwest I, 258 F.3d at 1203-1204; it was not designed to achieve reasonably
comparable rates nationwide, as required by section 254(b)(3).


31

used petitioners' approach in the 2003 Remand Order, but the Tenth Circuit faulted
that method of comparison for ignoring the variance between the highest rural rates
and the lowest urban rates nationwide. Qwest II, 398 F.3d at 1237.11 The express
purpose of the 2010 Remand Order was to "respond[] to the Tenth Circuit's
remand" (Order at 1 (JA 4)), and it therefore made sense for the FCC to take a
different approach to measuring rate comparability that addressed the court's
concerns. See FCC v. Fox Television Stations, Inc., 129 S. Ct. 1800, 1811 (2009)
("it suffices that the new policy is permissible under the statute, that there are good
reasons for it, and that the agency believes it to be better.").
Finally, the Qwest cases undermine rather than support petitioners'
argument that the FCC improperly relied on a national average rural rate figure.
Br. 25-27. In Qwest I, the Tenth Circuit rejected the notion "that the use of
statewide and national averages is necessarily inconsistent with [section] 254."
258 F.3d at 1202 n.9. Thus, the FCC's use of such data in the Order on review
was entirely permissible. In any event, the FCC's finding that the nationwide
average rural rate ($21.00) is barely higher than the nationwide average urban rate
($19.57) was only one of many points of comparison that supported the agency's
conclusion that rates are reasonably comparable. Order 44 (JA 27). The bulk of

11 The FCC's prior approach (which petitioners advocate in this case) would
tolerate significant variance in urban rates so long as rural rates are no higher than
(or very close to) the average urban rate. But under this approach, the FCC could
deem rates "reasonably comparable" for purposes of section 254(b)(3) even where
urban rates both among and within particular states are far higher than rural rates.
The revised approach that the FCC adopted in the Order on review avoids this
problem.


32

the FCC's analysis compared individual rates in rural and urban areas to find that
rates are reasonably comparable nationwide, as required by section 254(b)(3). Id.
45-46, 48 (JA 28-29, 30).

C. The FCC Reasonably Relied on Telephone Penetration

Rates to Find that Urban and Rural Rates Comply
with Section 254(b)(3).

Petitioners further complain that the FCC erroneously relied on the
increasing telephone penetration rate to find that rural rates are reasonably
comparable to urban rates. Br. 28-30. Petitioners contend that "[a]t most, the high
[telephone] penetration rate suggests that phone service in rural areas may be
`affordable,'" and that "[b]y equating reasonable comparability ... with
affordability, the FCC read the separate reasonable comparability of rates provision
out of the statute." Br. 28-29. To the contrary, as shown above, the FCC
explained in detail the basis for its finding that rates are "reasonably comparable"
because they "fall within a reasonable range of the national average urban rate."
Order 43-48, 53 (JA 26-30,32); see also pp. 26-32. In discussing the undisputed
data showing a steady increase in telephone subscribership, the agency was simply
responding to the Tenth Circuit's concerns in Qwest II that, unless the Commission
took action to reduce the existing variance in rural and urban rates, rural rates
would be too high to ensure universal access to basic service. Order 54 (JA 32).
In discussing this data, the FCC also was recognizing the interplay between
the principle of affordability (under section 254(b)(1)) and the principle of
reasonable comparability (under section 254(b)(3)), which the Tenth Circuit itself
recognized. "Rates cannot be divorced from a consideration of universal service,"


33

the court explained in Qwest II, "nor can the variance between rates paid in rural
and urban areas. If rates are too high [i.e., unaffordable], the essential
telecommunications services encompassed by universal service may indeed prove
unavailable." 398 F.3d at 1236.
Responding to the court's concerns on remand, the FCC explained that "the
fact that telephone subscribership penetration rates have increased . . .
demonstrates that rates are not too high [i.e., unaffordable] under the
Commission's universal service program; indeed, the essential telecommunications
services encompassed by universal service have become more available than ever
before." Order 54 (JA 32).
The FCC's analysis of telephone penetration rates was responsive to the
Tenth Circuit's concerns. Addressing the court's concerns on remand was a
rational rather than irrational agency action.

III. THE FCC REASONABLY DECLINED TO ADJUST

THE RATE BENCHMARK USED IN THE RATE
CERTIFICATION PROCESS

Contrary to petitioners' claims, the FCC was not obligated to lower the rate
benchmark (currently set at two standard deviations of the average urban rate) that
it used to determine whether rural and urban rates are reasonably comparable.

A. Qwest II Did Not Foreclose Use of the Rate Benchmark

Under a Revised Statutory Interpretation.

Petitioners contend that the FCC was prohibited from retaining its rate
benchmark because the Tenth Circuit invalidated it in Qwest II. Br. 38-40.
According to petitioners, "[t]he Court held that the rate benchmark `ensured that


34

significant variance between rural and urban rates will continue unabated' and
`does not deserve deference and is manifestly contrary to the statute.'" Id. at 38
(quoting Qwest II, 398 F.3d at 1235-37).
Petitioners have misread (and misquoted) the Tenth Circuit's opinion. The
first quotation (concerning "significant variance") is accurate as far as it goes; but
the "significant variance" that troubled the court was the variance between the
highest rural rates and the lowest urban rates. See Qwest II, 398 F.3d at 1237.
Not even the petitioners maintain that the lowest urban rates are the proper baseline
for rate comparability. They (like the FCC) use a national average urban rate as
the relevant point of comparison. Compare Br. 38-40, with Order 49, 70 (JA 30,
40). As the FCC explained, "states exercise considerable discretion in setting
rural and urban rates" so "there is considerable variation [in rates] among states."
Order 49 (JA 30). Thus, "[a] comparison of rural rates to the lowest urban rate
would be heavily influenced by a particular state's rate policies," and not the cost
of providing the services eligible for universal service support. Id.
In any event, the FCC addressed the Tenth Circuit's concern about the
variance between the highest rural rates and the lowest urban rates by
demonstrating that the ranges of rural and urban rates nationwide are in fact
similar, so that generally speaking, rural consumers do not pay higher rates than
urban consumers. Id. 43-47 (JA 26-30). In making this showing, the FCC
satisfied the Tenth Circuit's directive to provide "empirical findings supporting
[its] conclusion" that urban and rural rates are reasonably comparable. Qwest II,
398 F.3d 1237. By contrast, petitioners' proposal that the FCC lower the rate


35

benchmark to 125 percent of the average urban rate "would simply increase non-
rural high-cost support without guaranteeing any change in the rates paid by
consumers in rural areas." Order 72 (JA 42). Indeed, the Tenth Circuit already
rejected petitioners' approach, holding that section 254(b)(3) "calls for reasonable
comparability between rural and urban rates," which cannot be satisfied "simply
[by] substitut[ing] different standards." Qwest I, 258 F.3d at 1201.
As for the second quotation ("manifestly contrary to the statute"), petitioners
have mischaracterized what the court said. The court did not use this language to
describe the Commission's rate benchmark. Rather, it said:

we agree with Petitioners Qwest, SBC, and Vermont that the
Commission's definition of `reasonably comparable' rests on a faulty,
and indeed largely unsupported, construction of the Act. As such, we
hold that the FCC's construction of the statute does not deserve
deference and is manifestly contrary to the statute.
Qwest II, 398 F.3d at 1235 (internal quotation marks omitted, emphasis added). In
other words, the court was talking about the FCC's general reading of "reasonably
comparable," as used in section 254(b)(3), not the rate benchmark. The court
specifically held that "the benchmark is rendered untenable because of the
impermissible statutory construction on which it rests." Id. at 1237 (emphasis
added). Thus, nothing in Qwest II suggests that the benchmark set at two standard
deviations of the average urban rate was inherently flawed; the FCC had simply
arrived at the benchmark by the wrong route. The FCC cured this problem on
remand. In the Order, it expressly addressed the Tenth Circuit's concerns, revising


36

its interpretation of the statute to take into account its duty not only to "preserve"
universal service but also to "advance" it. See Order 56-57 (JA 33-34).

B. The FCC Reasonably Declined to Lower the Rate

Benchmark.

Petitioners further claim that the FCC acted arbitrarily in declining their
proposal to lower the rate benchmark to 125 percent of the average urban rate. Br.
38-40. According to petitioners, the FCC was too dismissive of the "34% to 43%
gap between urban and rural rates." Id. at 39.
That is not the case. The FCC explained that the variance cited by
petitioners has little bearing on the reasonable comparability of rural rates because
"most of that fluctuation is explained by the fact that the . . . the highest urban rate
increased" while "rural rates . . . have remained stable." Order 71 (JA 41). The
FCC, moreover, found that "the task of defining `reasonably comparable' rates is a
line-drawing exercise that falls within [its] unique expertise." Id. 72 (JA 42);
accord Qwest I, 258 F.3d at 1202. This Court has held that in the line-drawing
context, "[t]he relevant question is whether the agency's numbers are within a zone
of reasonableness, not whether its numbers are precisely right." WorldCom, Inc. v.
FCC, 238 F.3d 449, 462 (D.C. Cir. 2001) (internal quotation marks omitted); see
also Covad Commc'ns Co. v. FCC, 450 F.3d 528, 541 (D.C. Cir. 2006).
The FCC's rate benchmark easily satisfies that standard. The FCC
concluded that "the line [it] drew in this case . . . falls within a reasonable range, as
confirmed by the high telephone subscribership rates and the overall advancement
of universal service goals while the non-rural high-cost mechanism has been in


37

effect." Order 72 (JA 42). "No commenter proposing a different rate
benchmark" (including petitioners) "made a comparable evidentiary showing" to
that of the FCC. Id. Indeed, the FCC explained that "[petitioners'] proposal to
lower the rate benchmark would not answer the questions posed by the Tenth
Circuit on remand; it would simply increase non-rural high-cost support without
guaranteeing any change in rates paid by consumers in rural areas." Id. In sum,
while petitioners might believe that their benchmark is superior to the benchmark
chosen by the FCC, they have not shown that the line drawn by the agency was
unreasonable.

C. The FCC's Procedure for Providing States

Supplemental High-Cost Support Is Lawful.

To the extent that a "state presents [the FCC] with documentation that
unique circumstances prevent the achievement of reasonably comparable rates in
that state," the FCC "can provide appropriate relief" on a case-by-case basis.
Order 51, 92 (JA 31, 51). It did just that in the Order by granting supplemental
high-cost support to Wyoming. Id. 84-91 (JA 47-51). This Court affirmed the
FCC's use of a similar "exception" process, which allows a requesting carrier to
seek additional high-cost support upon a showing that its current universal service
subsidy is insufficient, in Rural Cellular Ass'n, 588 F.3d at 1104.
Petitioners nonetheless contend that a state's ability to request supplemental
high-cost support cannot "save" the rate benchmark. Br. 40-41. According to
petitioners, "the waiver mechanism itself is unlawful" because "a state seeking


38

waiver must satisfy the two standard deviations rate benchmark rejected in Qwest
II." Br. 41 (emphasis added). That claim fails for two reasons.
First, Qwest II did not foreclose use of the rate benchmark, as shown above
(pp. 33-36). Second, in adopting the rate benchmark, the FCC "emphasize[d]" that
the benchmark "merely creates a presumption regarding the reasonable
comparability of rural and urban rates, and is not the sole test of whether rural and
urban rates are reasonably comparable." 2003 Remand Order, 18 FCC Rcd at
22609 (82) (JA 117); see also Order 85-88 (JA 48-50) (adhering to same
procedures). For example, a state "has the option of submitting additional rate data
to demonstrate that factors other than basic service rates affect the comparability of
their rates in high-cost areas." 2003 Remand Order, 18 FCC Rcd at 22603 (73)
(JA 111). Thus, "a state could explain in its certification that its rural rates were
not reasonably comparable to nationwide urban rates, despite being within the safe
harbor created by the nationwide urban rate benchmark." Id. n.277 (JA 111); see
also id. at 22609, 22613-15 (82, 90) (JA 117-18, 121-22)(same).
Significantly, petitioners have never sought supplemental high-cost support,
despite their repeated assertion that rural rates (and services) within their borders
are not reasonably comparable to urban rates (and services) nationwide. Cf. Rural
Cellular Ass'n, 588 F.3d at 1104. Instead, they attack the FCC's grant of
supplemental high-cost support to Wyoming. Br. 41-42. The FCC's decision to
grant support to Wyoming was reasonable. First, "section 254 states a clear
preference for explicit, rather than implicit[] support." 2003 Remand Order, 18
FCC Rcd at 22576, 22631 (26, 127) (JA 82, 139); 47 U.S.C. 254(e). Consistent


39

with that preference, Wyoming "requires cost-based pricing for all retail
telecommunications services . . . and prohibits cross-subsidies and implicit
subsidies." Order 88 (JA 50). Second, states must share the burden of achieving
rate comparability. Qwest I, 258 F.3d at 1203-1204; Qwest II, 398 F.3d at 1238.
To fulfill that obligation, "Wyoming has implemented an explicit subsidy support
program the Wyoming Universal Service Fund." Order 88 (JA 50). Third,
Wyoming submitted detailed rate data and a plan for reducing the rates of
residential customers in the rural areas served by Qwest a showing petitioners
have never attempted to make.

IV. THE COMMISSION ACTED WITHIN ITS

DISCRETION IN DECLINING TO ADJUST THE
COST BENCHMARK USED TO DETERMINE
NON-RURAL HIGH-COST SUPPORT

Petitioners claim that the FCC violated the APA by allegedly failing to
consider (1) multiple proposals to reduce the cost benchmark that is used to
determine high-cost support amounts for non-rural carriers (Br. 30-35), and (2)
alternatives to "offset" the resulting consumer burden that would occur from a
substantial increase in high-cost support (Br. 36-37).
Petitioners' arguments are unpersuasive. As this Court has found, "`the fact
that there are other solutions to a problem is irrelevant provided that the option
selected [by the FCC] is not irrational.'" Covad, 450 F.3d at 544 (citation
omitted). The FCC here found, based on uncontested evidence, that urban and
rural rates are reasonably comparable under the current funding mechanisms.
Order 41-48 (JA 25-30). Having rationally explained its line-drawing decision


40

in determining the appropriate cost benchmark, the agency was not required to
separately address and repetitively reject numerous alternative proposals that
would have drawn the line in a different place.

A. The FCC Reasonably Declined to Lower the Cost

Benchmark.

Petitioners contend that the FCC abused its discretion because it considered
"only" their proposal to reduce the cost benchmark to 125 percent of urban cost.
Br. 31-32; see also Order 38, Appendix B (JA 24, 61). Petitioners' argument
assumes the Order left open the possibility that lowering the cost benchmark
would be justified if it resulted in some lesser expansion of non-rural high-cost
support (i.e., anything below petitioners' proposed $2.725 billion annual increase).
Br. 32.
That is not the case. The FCC found that any increase in support,
irrespective of size, was unnecessary to satisfy section 254 of the Act. As the FCC
explained, "subsidy levels" under the current non-rural mechanism "are at least
sufficient to ensure reasonably comparable and affordable rates that have resulted
in widespread access to telephone service." Order 33 (JA 21). It further found
that advocates of expanded non-rural high-cost support "have failed to demonstrate
how consumers living in rural areas would be harmed absent the proposed increase
in funding." Id. 38 (JA 24). "Given [its] finding that the non-rural high-cost
mechanism already provides sufficient support, and in the absence of any contrary
empirical evidence that [it] need[ed] to augment that support to ensure sufficient
funding," the FCC reasonably "decline[d] to add to the already heavy universal


41

service contribution burden placed on consumers" by adjusting the cost benchmark
downward. Id. (JA 24). That decision was entirely consistent with the FCC's
finding that "sufficient" support is "an affordable and sustainable amount of
support that is adequate, but no greater than necessary, to achieve the goals of the
universal service program." Id. 30 (JA 19) (emphasis added).
This Court and other courts have held that the FCC "enjoys broad
discretion" when "balancing" the sometimes conflicting universal service
principles in section 254(b) of the Act particularly when it must balance the
principles of sufficiency (section 254(b)(5)) and affordability (section 254(b)(1)).
Rural Cellular Ass'n, 588 F.3d at 1103; see also Qwest I, 298 F.3d at 1200. In
rejecting multiple "reform" proposals (including, but not limited to petitioners'),
the FCC properly recognized its "obligation to `strike an appropriate balance
between the interests of widely dispersed customers with small stakes and a
concentrated interest group seeking to increase its already large stake' in the
[universal service] fund." Order 38 (citing Rural Cellular Ass'n, 588 F.3d at
1102) (JA 24). Had the FCC lowered the cost benchmark below the current level
(and correspondingly increased the size of non-rural high-cost support), it would
have acted contrary to the interests of consumers in net contributor states by
requiring them to contribute more than is necessary to ensure that rates are
affordable and reasonably comparable in beneficiary states like Maine and
Vermont. Rural Cellular Ass'n, 588 F.3d at 1102 (concept of "sufficiency" can
reasonably encompass "not just affordability for those benefitted, but fairness for
those burdened.").


42

In any event, the FCC committed no procedural error when it declined to
specifically reject the three "reform" proposals cited in petitioners' brief. Br. 33-
35. First, petitioners' contention that the FCC failed to consider its alternative cost
benchmark of $26.00 is barred because they effectively "abandon[ed] [it] . . . by
taking inconsistent positions" before the agency. Busse Broad. Corp. v. FCC, 87
F.3d 1456, 1461 (D.C. Cir. 1996). In the four years prior to the Order, petitioners
repeatedly told the FCC that it "must" lower the benchmark to no more than 125
percent of average urban cost because this "offer[ed] the only justifiable solution"
to the Qwest II remand.12 Thus, at the time of the FCC's decision in 2010, it was
not clear that petitioners still expected the agency to consider their earlier proposal
to use a $26.00 benchmark.
Second, the FCC did respond to Wyoming's proposed $26.78 benchmark
(which, by its terms, would only have benefitted Wyoming and Montana), Br. 35
n.24, when it provided supplemental non-rural high-cost support for the rural
residential customers of Qwest in Wyoming. Order 84-92 (JA 47-92).
Third, the USA Coalition did not propose a specific "lower" cost
benchmark; rather, that party merely asked the FCC to base the cost benchmark on
a different methodology (i.e., "a flat percentage over the urban average" rather than
"two standard deviation[s]"). Br. 35, citing JA 280. In any event, the FCC
rejected proposals to use a flat-percentage benchmark in the 2003 Remand Order,

12 See, e.g., FNPRM Comments (JA 325) ("reiterat[ing] their previous
recommendation[]" that the FCC "modify its support mechanism to establish the
national cost benchmark of 125% of urban cost.").


43

18 FCC Rcd at 22599 (66) (JA 107), and it reasonably did so again in the Order
on review. Order 60 (JA 35) (declining to adopt proposals that the FCC
previously rejected in the 2003 Remand Order).

B. The FCC Reasonably Declined to Subsidize an

Increase in Non-Rural High-Cost Support by
Reducing Support Elsewhere.


Petitioners contend that the FCC further erred when it "declined to consider
alternatives designed to offset the cost of increasing federal support to reduce rural
rates." Br. 36. Having reasonably found that "the non-rural mechanism, as
currently structured, provides sufficient support," there was no need for the FCC to
consider proposals that would mitigate the financial impact on consumers. Order
39 (JA 25).
The FCC, moreover, found "that all of the proposed methods to offset the
resulting increase [in non-rural high-cost support] fall outside the narrow scope of
this proceeding," which was limited to responding to the Qwest II remand. Id.
The FCC further explained that such "offset" proposals, including the proposals
cited in petitioners' brief (Br. 36), "involve eliminating high-cost support for
certain providers or adopting regulatory reforms that are unrelated to the non-rural
high-cost mechanism." Order 39 (JA 24-25). Noting that such proposals were
opposed by various commenters, id. 39 n.138 (JA 25), the FCC found that "no
party" was able to "demonstrate[] how reducing funding for other programs or
providers would advance, and not frustrate, the universal service objectives set
forth in section 254 of the Act." Id. 39 (JA 25). In short, the agency reasonably
declined petitioners' invitation to "rob Peter to pay Paul" by reducing support for


44

other universal service programs to subsidize a sizable (and unnecessary) increase
in non-rural high-cost support.

V.

THE FCC REASONABLY DECLINED TO
OVERHAUL ITS COST MODEL PENDING
COMPREHENSIVE UNIVERSAL SERVICE
REFORM


Petitioners complain that the FCC failed to consider their proposals to
update and revise the forward-looking cost model that calculates support amounts
under the non-rural high-cost mechanism. Br. 46-49. Petitioners' argument lacks
merit.

The FCC acknowledged that the forward-looking cost model is out of date,
both with respect to the model inputs and the underlying technical assumptions.
Order 65 (JA 37). Specifically, "the . . . cost model essentially estimates the
costs of a narrowband, circuit-switched network that provides plain old telephone
service (POTS), whereas today's most efficient providers are constructing fixed or
mobile networks that are capable of providing broadband as well as voice
services." Id. Given these limitations, the FCC "focus[ed] [its] efforts going
forward on developing a forward-looking cost model to estimate the cost of
providing broadband over a modern multi-service network." Id. 66 (JA 37); see
also 79-80 (JA 44-45). The agency explained that it would "continue to use the
existing model . . . on an interim basis, pending the development of an updated and
more advanced model that will determine high-cost support for broadband." Id.
66 (JA 37-38).


45


That determination was reasonable. As this Court has recognized,
"[s]ubstantial deference must be accorded an agency when it acts to maintain the
status quo so that the objectives of a pending rulemaking proceeding will not be
frustrated." MCI v. FCC, 750 F.2d 135, 141 (D.C. Cir. 1984); see also Rural
Cellular Ass'n, 588 F.3d at 1105-1106; ACS of Anchorage, Inc. v. FCC, 290 F.3d
403, 410 (D.C. Cir. 2002). All that "needs to be shown to uphold the FCC is that
existing, possibly inadequate rules had to be frozen to avoid compounding present
difficulties." MCI, 750 F.2d at 141 (internal citations omitted). The FCC's
decision easily meets that standard. Expending significant time and resources to
update the current forward-looking cost model for provision of voice services
would impede the FCC's ability to implement the congressionally-mandated
National Broadband Plan, which "recommends phasing out support under the
existing high-cost universal service mechanisms as it redirects that support to fund
broadband deployment in an effort to minimize the contribution burden" placed on
consumers.13 Order n.252 (JA 46).

Furthermore, the cost model took years to develop with full public
participation and the agency explained that "it would take a similar period to
evaluate or develop a new cost model and to establish new input values." Id. 66
(JA 37). It was not possible for the agency to accomplish such a comprehensive

13 The Commission has initiated a proceeding to develop a new cost model to
provide support for broadband. See CAF NOI/NPRM, 25 FCC Rcd 6657 (2010);
USF/ICC Transformation NPRM, 2011 WL 466775 (2011).


46

overhaul and still meet its timeliness obligations to petitioners and the Tenth
Circuit. Order. 11, 66 (JA 8, 37).

Petitioners do not dispute this point, but instead argue that, "in the interim,"
the FCC should have "simply re-run the existing model with current line-count
data." Br. 46. However, updating the line counts used to estimate a non-rural
carrier's forward-looking costs requires far more than simply entering different
numbers into a spreadsheet, as petitioners suggest. Rather, FCC staff must first
allocate the non-rural carrier's reported switched access lines across classes of
service (i.e., residential lines, business lines, payphone lines, and special access
lines); it then must calculate high-capacity special access lines based on the
number of voice-grade equivalent lines reported by non-rural carriers. See
Federal-State Joint Board on Universal Service, 2003 WL 23009177, *1 (2)
(WCB Dec. 24, 2003) ("2002 Line Counts Order"). Updating the line counts in
this manner is time-consuming and calls for certain critical assumptions about the
allocation of lines assumptions that ultimately affect a non-rural carrier's level of
support in each state.14 Id. at *3-*8 (6-23). In any event, the Tenth Circuit in
Qwest I made clear that absolute precision is not required of the cost model. See

14 The FCC's use of line counts to determine total support differs from its use of
line counts in the model. As petitioners explain, to "determine total support
amounts," the FCC only has to "multipl[y] the current line count data by the per-
line support figures calculated" by the forward-looking cost model. Br. 47; see
also
47 C.F.R. 54.309. The FCC does not have to allocate lines across classes of
service, as it is required to do for the line counts used in the model to determine a
non-rural carrier's support per line.



47

Qwest I, 258 F.3d at 1206 (upholding cost model because it produced "reasonably
accurate results").

VI. THE FCC REASONABLY CONCLUDED THAT

THE SERVICES ELIGIBLE FOR UNIVERSAL
SERVICE SUPPORT ARE REASONABLY
COMPARABLE BETWEEN URBAN AND RURAL
AREAS

Petitioners claim that the FCC failed to demonstrate that services are
reasonably comparable in rural and urban areas and discounted service data they
placed in the record. Br. 52-57. In so arguing, petitioners ignore the FCC's
finding that voice telephony is available to consumers throughout the United
States, Order 14-18 (JA 9-12), and the inadequacy of their own showing
concerning the quality and availability of the services eligible for universal service
support.

A.

Petitioners Failed to Demonstrate that Services in the
Rural Areas of Maine and Vermont Are Not
Reasonably Comparable to Services in Urban Areas.

In the Order, the FCC found that services are "reasonably comparable"
between rural and urban areas, as required by section 254(b)(3). Order 57 (JA
34). As the FCC found, the current levels of universal service support are
sufficient to provide the vast majority of Americans access to basic telephone
service, as demonstrated by ever-increasing telephone subscribership rates. Order
18 (JA 11 ). In addition to traditional wireline telephone service, consumers also
have access to wireless services and newer Voice over Internet protocol ("VoIP")
services i.e., Internet telephony services offered by companies such as Vonage


48

and Skype. Id. at 15-17 (JA 10-11). Indeed, "[e]ven in rural areas,
approximately 98.5 percent of the population has access to mobile services offered
by one or more providers." Id. 15 (JA 10).
Petitioners nonetheless contend that "clear evidence in the record" before the
FCC "demonstrates that the level and quality of service in rural northern New
England is relatively poor and not reasonably comparable to services in urban
areas." Br. 50. Petitioners, by their own description, are primarily responsible for
regulating service quality and availability in their states. Br. 19, citing Young
Decl. 4, Shifman Decl. 4; see also Order 37 (JA 23); 2003 Remand Order, 18
FCC Rcd at 22588 (47); Qwest I, 258 F.3d at 1203. Yet the totality of the
"evidence" that petitioners presented to the agency consisted of the following:

In Maine and Vermont, Verizon reduced its net investment, allowing
its existing plant to age and become more highly depreciated, even as
it made large capital investments elsewhere in wireless services and
high-capacity fiber-based services offered in more urban states.
Verizon was also slow to deploy advanced services and perform
needed upgrades to systems to meet customer demand for services
such as DSL.
FNPRM Comments at 5 (JA 295).15
The FCC reasonably rejected this meager discussion as "unpersuasive."
Order 37 (JA 23). The FCC explained that petitioners "have not provided

15 Before this court, petitioners also rely on the June 8, 2009, declaration filed by
Joel Shifman. (JA 360). That declaration only asserts that rate comparisons
cannot be used to demonstrate that services are reasonably comparable for
purposes of section 254(b)(3) it says nothing about the availability of services in
rural New England relative to urban areas.


49

substantial empirical evidence that service quality is worse in areas where non-
rural LECs receive high-cost support, relative to either areas where rural LECs
receive support, or areas that do not receive any high-cost support." Order 37
(JA 23). As a result, the FCC was unable to determine whether the alleged service
availability issues in Maine and Vermont are limited to rural areas served by non-
rural LECs, and correspondingly, whether additional non-rural high-cost support
would solve any such problems.16 As the agency explained in the 2003 Remand
Order, "the burden must fall on [a] state to demonstrate the reasons underlying the
failure to achieve reasonable comparability [within its borders], because only the
state is in [the] position to identify the existence and sources of problems that may
be unique to that state." 18 FCC Rcd at 22616 (96) (JA 124).
The only other evidentiary support petitioners proffer is a 2008 letter from
the Governor of Maine describing limited wireless service availability in rural parts
of the state. (JA 491). The FCC has acknowledged that there might be gaps in
wireless coverage in certain rural areas and in fact has recently sought comment on
"creat[ing] a new Mobility Fund . . . to significantly improve coverage of current-
generation or better mobile voice and Internet service for consumers in areas where
such coverage is currently missing." Universal Service Reform; Mobility Fund,
2010 WL 4059849 at *1 (1) (2010). But increasing support under the non-rural

16 The FCC noted the "diminished service quality and service availability" in
Maine and Vermont could be attributed to the "investment decisions [of] Verizon,
the former non-rural incumbent LEC, . . . and not insufficient . . . high-cost
support." Id. n.130 (JA 23).



50

high-cost support mechanism would not address this issue until the Mobility Fund
is in place. In 2008, the FCC enacted an interim cap on all high-cost support
disbursements to competitive eligible telecommunications carriers ("ETCs"), the
vast majority of which are wireless carriers. High-Cost Universal Service Support,
23 FCC Rcd 8834 (2008), aff'd Rural Cellular Ass'n, 588 F.3d 1095. Due to the
interim cap, expanding support under the current non-rural mechanism would
provide little to no additional universal service funding to wireless carriers serving
Maine.
Indeed, the FCC found that petitioners had "not demonstrated that more
support would in fact improve service quality or service availability, nor ha[d] they
quantified, in a verifiable manner, what level of support would ensure adequate
service quality and service availability." Order 37 (JA 23). Requiring petitioners
to make such a showing should not have been burdensome given their
responsibility for "determining the level of state universal service support needed"
in their states. Br. 19. Yet "[w]ithout such evidence," the FCC found that it
"would be subject to the same criticisms raised in Qwest II" namely, that it failed
to provide empirical evidence that the non-rural high-cost support mechanism
achieves reasonably comparable rates and services, as required by section
254(b)(3). Order 37 (JA 23); Qwest II, 398 F.3d at 1237.

The FCC further found that "devoting more funding to the existing non-rural
high-cost support mechanism" would not be "the most efficient way to promote"
the broadband deployment that petitioners seek to advance in their states. Order
82 n.255 (JA 47). "[O]nly voice service is a `supported service' under the current


51

mechanism," so "carriers receiving high-cost support are not required to provide
any households in their service area with some minimal level of broadband service,
much less provide such service to all households." Id. Moreover, the current
mechanism "only supports certain components of a network, such as local loops
and switching equipment but not other components necessary for broadband."
Id.; see also id. 65-66 (JA 37).
The FCC shares petitioners' interest in promoting broadband deployment.
However, the FCC reasonably found that the best way to achieve that goal is
through proceedings that address recommendations in the National Broadband Plan
which proposes to "shift the high-cost universal service program from primarily
supporting voice communications to supporting broadband platforms" rather than
updating and expanding the current non-rural high-cost support mechanism that
only supports voice services. Id. 79 (JA 45). This approach is a lawful exercise
of the FCC's authority to "engage in incremental rulemaking." Nat'l Ass'n of
Broadcasters v. FCC, 740 F.2d 1190, 1210 (D.C. Cir. 1984); see also Brand X,
545 U.S. at 1002. To that end, the FCC has recently taken an important step
toward re-orienting universal service to support deployment of broadband services
for all Americans.17

B. The FCC Is Not Obligated to Collect Data Regarding

Service Comparability.

Petitioners finally claim that the FCC has a statutory duty to collect service
quality data to determine whether services are reasonably comparable between

17 USF/ICC Transformation NPRM, 2011 WL 466775.


52

rural and urban areas under section 254(b)(3) of the Act. Br. 52-57; FNPRM
Comments at 39-40 (JA 329-330). The FCC has reasonably and consistently
rejected this position since 1997.
Consistent with the Joint Board's recommendations, the FCC concluded in
the First Report and Order that it would "rely upon service quality data provided
by the states in combination with those data that the Commission already gathers . .
. to monitor service quality trends." 12 FCC Rcd 8832 (100). Because most
states had established mechanisms designed to ensure service quality in their
jurisdictions, the FCC reasoned that additional efforts undertaken at the federal
level would be largely redundant. Id. at 8831-32 (99). It further found that such
efforts "would be inconsistent with the 1996 Act's goal of a `pro-competitive, de-
regulatory national policy framework,' because of the administrative burden on
carriers," particularly the smaller carriers that typically serve rural areas. Id.
The 2003 Remand Order was in a similar vein. On remand from the Tenth
Circuit, the FCC acknowledged that "service quality is an important goal," but
explained that "states are in the best position to address service quality issues and
will have ample opportunity to do so in the rate review and expanded certification
process" adopted in that order. 2003 Remand Order, 18 FCC Rcd at 25888 (47)
(JA 96). Tellingly, petitioners have never used that process to show that services
in the rural parts of Maine and Vermont are not reasonably comparable to services
in urban areas. Cf. Rural Cellular Assn, 588 F.3d at 1103-04. In any event,
petitioners have provided no basis to reconsider the FCC's earlier judgment that


53

service quality and availability are best measured through existing state and federal
reporting mechanisms.

CONCLUSION

For the foregoing reasons, the Court should dismiss those claims barred by
47 U.S.C. 405(a) and otherwise should deny the petition for review.18








18 Even if this Court were to remand, petitioners provide no basis for their
extraordinary request that the Court impose a deadline (and require the FCC to
provide a schedule) for agency action on remand (Br. 58). See Qwest II, 398 F.3d
at 1238-39 (rejecting request to impose an "arbitrary deadline").


54


Respectfully submitted,



CHRISTINE A. VARNEY
AUSTIN C. SCHLICK
ASSISTANT ATTORNEY GENERAL
GENERAL COUNSEL

CATHERINE G. O'SULLIVAN

NANCY C. GARRISON
PETER KARANJIA
ATTORNEYS
DEPUTY GENERAL COUNSEL
UNITED STATES DEPARTMENT OF JUSTICE
WASHINGTON, D.C. 20530

RICHARD K. WELCH

ACTING ASSOCIATE GENERAL COUNSEL

/s/ Maureen K. Flood
JAMES M. CARR
MAUREEN K. FLOOD
COUNSEL

FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740 (TELEPHONE)
(202) 418-2819 (FAX)


April 26, 2011




IN THE UNITED STATES COURT OF
APPEALS FOR THE DISTRICT OF
COLUMBIA CIRCUIT
VERMONT PUBLIC SERVICE BOARD AND MAINE
)
PUBLIC UTILITIES COMMISSION
)
)
PETITIONERS,
)
)
V.
)
)
NO. 10-1184
FEDERAL COMMUNICATIONS COMMISSION
)
A
)
ND THE 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
13772 words.

/S/ MAUREEN K. FLOOD
JAMES M. CARR
Maureen K. Flood
COUNSEL
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740 (TELEPHONE)
(202) 418-2819 (FAX)
April 26, 2011




















APPENDIX:

STATUTES AND REGULATIONS










5 U.S.C. 553
5 U.S.C. 706
47 U.S.C. 151
47 U.S.C. 153(44)
47 U.S.C. 254
47 U.S.C. 402
47 U.S.C. 405
47 C.F.R. 54.309
47 C.F.R. 54.316
47 C.F.R. 54.706

1

5 U.S.C. 553

(a) This section applies, according to the provisions thereof, except to the extent
that there is involved--

(1) a military or foreign affairs function of the United States; or

(2) a matter relating to agency management or personnel or to public property,
loans, grants, benefits, or contracts.

(b) General notice of proposed rule making shall be published in the Federal
Register, unless persons subject thereto are named and either personally served or
otherwise have actual notice thereof in accordance with law. The notice shall
include--

(1) a statement of the time, place, and nature of public rule making proceedings;

(2) reference to the legal authority under which the rule is proposed; and

(3) either the terms or substance of the proposed rule or a description of the
subjects and issues involved.

Except when notice or hearing is required by statute, this subsection does not
apply--

(A) to interpretative rules, general statements of policy, or rules of agency
organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rules issued) that notice and public procedure
thereon are impracticable, unnecessary, or contrary to the public interest.

(c) After notice required by this section, the agency shall give interested persons an
opportunity to participate in the rule making through submission of written data,
views, or arguments with or without opportunity for oral presentation. After
consideration of the relevant matter presented, the agency shall incorporate in the
rules adopted a concise general statement of their basis and purpose. When rules
are required by statute to be made on the record after opportunity for an agency
hearing, sections 556 and 557 of this title apply instead of this subsection.
2

(d) The required publication or service of a substantive rule shall be made not less
than 30 days before its effective date, except--

(1) a substantive rule which grants or recognizes an exemption or relieves a
restriction;

(2) interpretative rules and statements of policy; or

(3) as otherwise provided by the agency for good cause found and published with
the rule.

(e) Each agency shall give an interested person the right to petition for the
issuance, amendment, or repeal of a rule.
3

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.
4

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.
5

47 U.S.C. 153(44)

Rural telephone company

The term "rural telephone company" means a local exchange carrier operating
entity to the extent that such entity--

(A) provides common carrier service to any local exchange carrier study area that
does not include either--

(i) any incorporated place of 10,000 inhabitants or more, or any part thereof, based
on the most recently available population statistics of the Bureau of the Census; or

(ii) any territory, incorporated or unincorporated, included in an urbanized area, as
defined by the Bureau of the Census as of August 10, 1993;

(B) provides telephone exchange service, including exchange access, to fewer than
50,000 access lines;

(C) provides telephone exchange service to any local exchange carrier study area
with fewer than 100,000 access lines; or

(D) has less than 15 percent of its access lines in communities of more than 50,000
on February 8, 1996.

6

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.

(2) Access to advanced services

7

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.

(c) Definition

(1) In general

8

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 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
9

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 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

10

(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

(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
11

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

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
12

(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--

(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

13

(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.

(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
14


(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.

(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.

15

(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

(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

16

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--

(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--

17

(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.

(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
18

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.

(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


19

(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.

(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
20

(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.

(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
21

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

(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.

(H) Sexual act; sexual contact

22

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--

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

23

(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 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.

24

(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.
25

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.

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

26

(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.

(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
27

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.

(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.
28

47 U.S.C. 405

(a) After an order, decision, report, or action has been made or taken in any
proceeding by the Commission, or by any designated authority within the
Commission pursuant to a delegation under section 155(c)(1) of this title, any party
thereto, or any other person aggrieved or whose interests are adversely affected
thereby, may petition for reconsideration only to the authority making or taking the
order, decision, report, or action; and it shall be lawful for such authority, whether
it be the Commission or other authority designated under section 155(c)(1) of this
title, in its discretion, to grant such a reconsideration if sufficient reason therefor be
made to appear. A petition for reconsideration must be filed within thirty days
from the date upon which public notice is given of the order, decision, report, or
action complained of. No such application shall excuse any person from complying
with or obeying any order, decision, report, or action of the Commission, or
operate in any manner to stay or postpone the enforcement thereof, without the
special order of the Commission. The filing of a petition for reconsideration shall
not be a condition precedent to judicial review of any such order, decision, report,
or action, except where the party seeking such review (1) was not a party to the
proceedings resulting in such order, decision, report, or action, or (2) relies on
questions of fact or law upon which the Commission, or designated authority
within the Commission, has been afforded no opportunity to pass. The
Commission, or designated authority within the Commission, shall enter an order,
with a concise statement of the reasons therefor, denying a petition for
reconsideration or granting such petition, in whole or in part, and ordering such
further proceedings as may be appropriate: Provided, That in any case where such
petition relates to an instrument of authorization granted without a hearing, the
Commission, or designated authority within the Commission, shall take such
action within ninety days of the filing of such petition. Reconsiderations shall be
governed by such general rules as the Commission may establish, except that no
evidence other than newly discovered evidence, evidence which has become
available only since the original taking of evidence, or evidence which the
Commission or designated authority within the Commission believes should have
been taken in the original proceeding shall be taken on any reconsideration. The
time within which a petition for review must be filed in a proceeding to which
section 402(a) of this title applies, or within which an appeal must be taken under
section 402(b) of this title in any case, shall be computed from the date upon which
the Commission gives public notice of the order, decision, report, or action
complained of.


29

(b)(1) Within 90 days after receiving a petition for reconsideration of an order
concluding a hearing under section 204(a) of this title or concluding an
investigation under section 208(b) of this title, the Commission shall issue an order
granting or denying such petition.

(2) Any order issued under paragraph (1) shall be a final order and may be
appealed under section 402(a) of this title.

30

47 C.F.R. 54.309

(a) Calculation of total support available per state. Beginning January 1, 2000, non-
rural incumbent local exchange carriers, and eligible telecommunications carriers
serving lines in the service areas of non-rural incumbent local exchange carriers,
shall receive universal service support for the forward-looking economic costs of
providing supported services in high-cost areas, provided that the State in which
the lines served by the carrier are located has complied with the certification
requirements in 54.313. The total amount of forward-looking support available in
each State shall be determined according to the following methodology:

(1) For each State, the Commission's cost model shall determine the statewide
average forward-looking economic cost (FLEC) per line of providing the
supported services. The statewide average FLEC per line shall equal the total
FLEC for non-rural carriers to provide the supported services in the State, divided
by the number of switched lines used in the Commission's cost model. The total
FLEC shall equal average FLEC multiplied by the number of switched lines used
in the Commission's cost model.

(2) The Commission's cost model shall determine the national average FLEC per
line of providing the supported services. The national average FLEC per line shall
equal the total FLEC for non-rural carriers to provide the supported services in all
States, divided by the total number of switched lines in all States used in the
Commission's cost model.

(3) The national cost benchmark shall equal two weighted standard deviations
above the national average FLEC per line.

(4) Support calculated pursuant to this section shall be provided to non-rural
carriers in each State where the statewide average FLEC per line exceeds the
national cost benchmark. The total amount of support provided to non-rural
carriers in each State where the statewide average FLEC per line exceeds the
national cost benchmark shall equal 76 percent of the amount of the statewide
average FLEC per line that exceeds the national cost benchmark, multiplied by the
number of lines reported pursuant to 36.611, 36.612, and 54.307 of this
chapter.

(5) In the event that a State's statewide average FLEC per line does not exceed the
national cost benchmark, non-rural carriers in such State shall be eligible for
support pursuant to 54.311. In the event that a State's statewide average FLEC
31

per line exceeds the national cost benchmark, but the amount of support otherwise
provided to a non-rural carrier in that State pursuant to this section is less than the
amount that would be provided pursuant to 54.311, the carrier shall be eligible
for support pursuant to 54.311.

(b) Distribution of total support available per state. The total amount of support
available per State calculated pursuant to paragraph (a) of this section shall be
distributed to non-rural incumbent local exchange carriers, and eligible
telecommunications carriers serving lines in the service areas of non-rural
incumbent local exchange carriers, in the following manner:

(1) The Commission's cost model shall determine the percentage of the total
amount of support available in the State for each wire center by calculating the
ratio of the wire center's FLEC above the national cost benchmark to the total
FLEC above the national cost benchmark of all wire centers within the State. A
wire center's FLEC above the national cost benchmark shall be equal to the wire
center's average FLEC per line above the national cost benchmark, multiplied by
the number of switched lines in the wire center used in the Commission's cost
model;

(2) The total amount of support distributed to each wire center shall be equal to the
percentage calculated for the wire center pursuant to paragraph (b)(1) of this
section multiplied by the total amount of support available in the state;

(3) The total amount of support for each wire center pursuant to paragraph (b)(2)
of this section shall be divided by the number of lines in the wire center reported
pursuant to 36.611, 36.612, and 54.307 of this chapter to determine the per-
line amount of forward-looking support for that wire center;

(4) The per-line amount of support for each wire center pursuant to paragraph
(b)(3) of this section shall be multiplied by the number of lines served by a non-
rural incumbent local exchange carrier in that wire center, or by an eligible
telecommunications carrier in that wire center, as reported pursuant to 36.611,
36.612, and 54.307 of this chapter, to determine the amount of forward-looking
support to be provided to that carrier.

(5) The total amount of support calculated for each wire center pursuant to
paragraph (b)(4) of this section shall be divided by the number of lines in the wire
center to determine the per-line amount of forward-looking support for that wire
center;
32

(6) The per-line amount of support for a wire center calculated pursuant to
paragraph (b)(5) of the section shall be multiplied by the number of lines served by
a non-rural incumbent local exchange carrier in that wire center, or by an eligible
telecommunications carrier in that wire center, to determine the amount of
forward-looking support to be provided to that carrier.

(c) Petition for waiver. Pursuant to section 1.3 of this chapter, any State may file a
petition for waiver of paragraph (b) of this section, asking the Commission to
distribute support calculated pursuant to paragraph (a) of this section to a
geographic area different than the wire center. Such petition must contain a
description of the particular geographic level to which the State desires support to
be distributed, and an explanation of how waiver of paragraph (b) of this section
will further the preservation and advancement of universal service within the State.
33

47 C.F.R. 54.316

(a) Certification. Each state will be required annually to review the comparability
of residential rates in rural areas of the state served by non-rural incumbent local
exchange carriers to urban rates nationwide, and to certify to the Commission and
the Administrator as to whether the rates are reasonably comparable, for purposes
of section 254(b)(3) of the Telecommunications Act of 1996. If a state does not
rely on the safe harbor described in paragraph (b) of this section, or certifies that
the rates are not reasonably comparable, the state must fully explain its rate
comparability analysis and provide data supporting its certification, including but
not limited to residential rate data for rural areas within the state served by non-
rural incumbent local exchange carriers. If a state certifies that the rates are not
reasonably comparable, it must also explain why the rates are not reasonably
comparable and explain what action it intends to take to achieve rate
comparability.

(b) Safe harbor. For the purposes of its certification, a state may presume that the
residential rates in rural areas served by non-rural incumbent local exchange
carriers are reasonably comparable to urban rates nationwide if the rates are below
the nationwide urban rate benchmark. The nationwide urban rate benchmark shall
equal the most recent average urban rate plus two weighted standard deviations.
The benchmark shall be calculated using the average urban rate and standard
deviation shown in the most recent annual Reference Book of Rates, Price Indices,
and Expenditures for Telephone Service published by the Wireline Competition
Bureau. To the extent that a state relies on the safe harbor, the rates that it
compares to the nationwide urban rate benchmark shall include the access charges
and other mandatory monthly rates included in the rate survey published in the
most recent annual Reference Book of Rates, Price Indices, and Expenditures for
Telephone Service. The Reference Book of Rates, Price Indices, and Expenditures
for Telephone Service is available for public inspection at the Commission's
Reference Center at 445 12th Street, S.W., Washington, D.C. 20554 and on the
Commission Web site at www.fcc.gov/wcb/iatd/lec.html.

(c) Definition of "rural area." For the purposes of this section, a "rural area" is a
non-metropolitan county or county equivalent, as defined in the Office of
Management and Budget's (OMB) Revised Standards for Defining Metropolitan
Areas in the 1990s and identifiable from the most recent Metropolitan Statistical
Area (MSA) list released by OMB. At a state's discretion, a "rural area" may also
include any wire center designated by the state as rural for the purposes of this
section. In the event that a state designates a wire center as rural, it must provide an
34

explanation supporting such designation in its certification pursuant to paragraph
(a) of this section.

(d) Schedule for certification. Annual certifications are required on the schedule set
forth in 54.313(d)(3), beginning October 1, 2004. Certifications due on October 1
of each year shall pertain to rates as of the prior July 1. Certifications filed during
the remainder of the schedule set forth in 54.313(d)(3) shall pertain to the same
date as if they had been filed on October 1.

(e) Effect of failure to certify. In the event that a state fails to certify, no eligible
telecommunications carrier in the state shall receive support pursuant to 54.309.

35

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;

36

(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 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
37

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.



38

10-1184

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT


Vermont Public Service Board, et al., Petitioner,

v.

Federal Communications Commission and United States of America,
Respondents.


CERTIFICATE OF SERVICE



I, Maureen K. Flood, hereby certify that on April 26, 2011, I electronically
filed the foregoing Final 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.

*Elisabeth Hewitt Ross
Lisa C. Fink
David Edward Lampp
*Joel Boldt Shifman
*James Hardwick Lister
Maine Public Utilities Commission
Birch, Horton, Bittner & Cherot
242 State Street
1155 Connecticut Avenue, N.W.
State House Station
Suite 1200
Augusta, ME 04333-0018
Washington, D.C. 20036
Counsel for: Maine Public Utilities
Counsel for: Vermont Public Service Commission
Board and Maine Public Utilities
Commission

Andrew S. Hagler
*Michael E. Glover
Maine Public Utilities Commission
Edward Shakin
18 State House Station
*Christopher M. Miller
Augusta, ME 04333-0018
Verizon
Counsel for: Maine Public Utilities
1320 North Courthouse Road
Commission
Arlington, VA 22201
Counsel for: Verizon


*Paul Stern
*John T. Scott, III

Deputy Attorney General
Verizon Wireless
Six State House Station
1300 I Street, N.W.
Augusta, ME 04333
Suite 400 West
Counsel for: Maine Public Utilities
Washington, D.C. 20005
Commission
Counsel for: Verizon

Helgi C. Walker
David C. Bergmann
Brett A. Shumate
Assistant Consumers' Counsel
Wiley Rein LLP
Chair, NASUCA
1776 K Street, N.W.
Telecommunications Committee
Washington, D.C. 20006
10 West Broad Street, Suite 1800
Counsel for: Verizon
Columbus, OH 43215-3485
Counsel for: NASUCA
Craig J. Brown
Nancy C. Garrison
Robert B. McKenna
Catherine G. O'Sullivan
Tiffany West Smink
U.S. Department of Justice
Qwest Communications International Antitrust Division, Appellate Section
Inc.
950 Pennsylvania Avenue, N.W.
607 14th Street, N.W.
Room 3224
Suite 950
Washington, D.C. 20530
Washington, D.C. 20005
Counsel for: Qwest
Communications International Inc





/s/ Maureen K. Flood

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