Skip Navigation

Federal Communications Commission

English Display Options

Commission Document

Rural Cellular Ass'n v. FCC & USA, No. 11-1094 (D.C. Cir.)

Download Options

Released: July 13, 2012
USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 1 of 24

United States Court of Appeals


Argued November 15, 2011
Decided July 13, 2012

No. 11-1094





On Petition for Review of an Order of
the Federal Communications Commission

Todd D. Daubert argued the cause for petitioners. With
him on the briefs were Jennifer A. Morrissey, J. Isaac
, Richard P. Bress, Matthew A. Brill, and Katherine
I. Twomey

Maureen K. Flood, Counsel, Federal Communications
Commission, argued the cause for respondents. With her on
the briefs were Robert B. Nicholson and Kristen C. Limarzi,
Attorneys, U.S. Department of Justice, Austin C. Schlick,

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 2 of 24
General Counsel, Federal Communications Commission,
Peter Karanjia, Deputy General Counsel, Richard K. Welch,
Deputy Associate General Counsel, and James M. Carr,

Before: TATEL and GARLAND, Circuit Judges, and
GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

GINSBURG, Senior Circuit Judge: The Rural Cellular
Association and the Universal Service for America Coalition
(together the RCA) petition for review of an Order of the
Federal Communications Commission amending the “interim
cap rule,” which limits at 2008 levels the amount of support
available to competitive eligible telecommunications carriers
(CETCs) through the High-Cost Universal Service Support
Program. In the order under review, the Commission
amended the interim cap rule to provide that when a carrier
relinquishes its status as an eligible communications carrier,
the cap on the support available in that carrier’s state is
reduced by the amount the relinquishing carrier would have
received had it retained its status. The RCA argues the Order
violates the Communications Act of 1934 as amended by the
Telecommunications Act of 1996 (together the Act), violates
the Commission’s regulations, and is arbitrary and capricious
for failure to explain how it ensures the “sufficient” level of
support for CETCs required by the Act. For the reasons set
out in Part II, we deny the petition for review.

I. Background

Prior to the passage of the Telecommunications Act of
1996, the Commission used implicit subsidies to implement

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 3 of 24
the mandate in the Communications Act of 1934 to “make
available, so far as possible ... 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 Commission and state telephone regulators effected an
implicit cross-subsidy by setting rates in rural areas below
cost and setting rates in urban areas above cost. This system
was unsustainable, however, in the competitive environment
ushered in by the Telecommunications Act of 1996. The
Congress therefore directed the Commission to replace the
system of implicit subsidies with
explicit ones,
euphemistically referred to as “specific, predictable, and
sufficient ... mechanisms to preserve and advance universal
service.” 47 U.S.C. § 254(b)(5). The Commission
established several such “mechanisms,” including the High-
Cost Program at issue in this case. 47 C.F.R. § 54.101.

In order to fund the new explicit subsidies, the Congress
required “every telecommunications carrier that provides
interstate telecommunication services” to “contribute, on an
equitable and nondiscriminatory basis” to those mechanisms.
47 U.S.C. § 254(d). The Commission has promulgated a
series of regulations to implement this statutory mandate.

First, in order to calculate the costs of the High-Cost
Program, the regulations require the Universal Service
Administration Company (USAC), which runs the Program,
to submit each quarter “its projections of demand for the
federal universal support mechanisms” and “its projections of
administrative expenses.” 47 C.F.R. § 54.709(a)(3). The
Commission may approve or, within 14 days, may set aside
the USAC’s projections and “set projections of demand and
administrative expenses at amounts that the Commission
determines will serve the public interest.” Id.

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 4 of 24
Second, in order to determine the aggregate amount to be
collected from all
telecommunications carriers, the
regulations require the USAC to “calculate the quarterly
contribution factor” based upon “the ratio of total projected
quarterly expenses of the universal service support
mechanisms to the total projected collected end-user interstate
and international telecommunications revenues.” Id.
§ 54.709(a)(2). Each telecommunications carrier’s quarterly
assessment is then determined by applying this contribution
factor to that carrier’s end-user revenue. Should contributions
for a particular quarter exceed the disbursements plus the
USAC’s administrative costs for that quarter, the “excess
payments will be carried forward,” thereby reducing the
contribution factor for the subsequent quarter. Id.
§ 54.709(b).

Section 254(e) of the Act provides universal service
may be disbursed
telecommunications carrier.” 47 U.S.C. § 254(e). Both an
incumbent local exchange carrier (ILEC) and a new market
entrant may receive universal service support upon being
designated an ETC by the Commission or by a state regulator.
The amount of support going to an ILEC is indexed to a
portion of its total costs of serving the relevant area. 47
C.F.R. § 54.301. The amount of support available to a CETC,
before the changes at issue in this case, was calculated
according to the “identical support rule”: The per-line costs of
the ILEC in the area were multiplied by the number of lines
the CETC had in service. 47 C.F.R. § 54.307(a)(1).

The Commission adopted the identical support rule for
ease of administration, Fed.-State Joint Bd. on Universal
, 17 FCC Rcd. 22,642, ¶ 7 (2002), but the result was an
explosive growth in universal support disbursements to
CETCs through the High-Cost Program. Total disbursements

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 5 of 24
through the Program increased to $4.3 billion in 2007 from
$2.6 billion in 2001, while disbursements to CETCs alone
increased to $1.18 billion from a mere $17 million.

Several factors contributed to this dramatic increase.
First, to the extent consumers kept their wireline service
provided by the ILEC when they purchased wireless service
from a CETC, the increase in support to the CETC was not
offset by a decrease in support to the ILEC. Second, although
many consumers did give up their wireline service, a decrease
in the number of lines serviced by an ILEC does not decrease
the ILEC’s cost proportionally because the provision of
wireline services involves very large fixed and relatively
small variable per-line costs; hence, the ILEC’s cost-per-line
increases as it loses customers. Under the identical support
rule, this increased the support-per-line for a CETC even as
the number of lines it had in service increased and its costs
per-line went down. Third, because the identical support rule
provided support to CETCs on the basis of the number of
lines they had in service, regardless of the cost of providing
those lines, the rule amplified a CETC’s incentive to increase
the number of its lines in areas it could serve at the least cost
rather than to expand service into the more costly and
therefore more needful areas.

In May 2008 the Commission adopted an “interim,
emergency cap” on universal service support payments to
CETCs through the High-Cost Program. High Cost Universal
, 23 FCC Rcd. 8834, 8834 (2008) (hereinafter the
Interim Cap Order). The Interim Cap Order limited “total
annual [CETC] support for each state ... [to] the level of
support that [CETCs] ... were eligible to receive during March
2008 on an annualized basis.” Id. The Commission directed
the USAC to “calculate the support each [CETC] would have
received under the existing (uncapped) per-line identical

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 6 of 24
support rule,” and then to decrease this support by a “state
reduction factor” equal to the ratio of the state’s capped
support to the state’s uncapped support. Id. at 8846. The
Interim Cap Order thus reduced by a fixed percentage the
universal service support received by each CETC in any given
state. In order to ensure the interim cap rule satisfied the
statutory direction that support be “sufficient ... to preserve
and advance universal service”, the Commission allowed a
CETC to receive up to the full amount it would have received
under the uncapped identical support rule if it submitted “cost
data demonstrating that its costs meet the support threshold in
the same manner as the [ILEC].” Id. at 8848.

The RCA filed a petition for review of the Interim Cap
Order, which this court denied in Rural Cellular Association
v. FCC
, 588 F.3d 1095, 1100 (D.C. Cir. 2009) (Rural Cellular
). As relevant here, we rejected the RCA’s argument the
Commission unreasonably interpreted its statutory mandate to
provide “sufficient” universal service support by limiting
disbursements in order to protect the long-term sustainability
of the Program. Id. at 1102. The court also rejected the
RCA’s argument the Commission misinterpreted the Act as
requiring “sufficient, but not excessive” support, which
according to the petitioners would “elevate[] the
Commission’s own goal of preserving the solvency of the
[Program] over Congress’s directive in [47 U.S.C.]
§ 254(b)(5) that the fund provide support that is ‘sufficient’ to
meet the needs of preserving and advancing universal
service.” Id. The court noted the safety valve in the Interim
Cap Order
undermined the RCA’s claim the level of support
would not be sufficient; a CETC for which the capped amount
would be insufficient had only to submit cost data to receive
greater support. Id. at 1104.

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 7 of 24

In September 2010, the Commission clarified how the
Interim Cap Order applies to universal service support in a
particular state when a carrier voluntarily surrenders the
subsidy to which it was entitled as an ETC. High-Cost
Universal Service Support
, 25 FCC Rcd. 12,854 (2010)
(hereinafter the Corr Wireless Order). In 2008 Verizon
Wireless and Sprint Nextel, both CETCs, had each agreed to
surrender universal service support in order to get the
Commission’s approval to merge with another carrier.
Because this appeared to free up money within the limits
imposed by the Interim Cap Order, Corr Wireless, another
CETC, requested “any support reclaimed from Verizon
Wireless and Sprint Nextel be redistributed to other” CETCs.
Id. at 12,854. The Commission “agree[d] ... that [the] USAC
cannot modify the interim cap amount by removing Verizon
Wireless’s and Sprint Nextel’s support, but ... disagree[d] that
all support surrendered ... must necessarily be distributed to
other [CETCs].” Id. at 12,857. The Commission reasoned
“as long as Verizon Wireless and Sprint Nextel remain
eligible for a given level of support — regardless of whether
they actually receive that support — that support will be
included [in calculating the] interim cap,” id. at 12,858, and
therefore in the contribution required of each carrier in the
relevant state. Although the Commission concluded the cap
amount would remain the same, it “decline[d] to redistribute
the reclaimed high-cost support,” id., instead “direct[ing] [the]
USAC to reserve any reclaimed funds as a fiscally responsible
down payment on proposed broadband universal service
reforms,” id. at 12,862, here referring to FEDERAL
NATIONAL BROADBAND PLAN (March 16, 2010), available at

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 8 of 24

To ensure the USAC “reserved” these funds, the
Commission “instruct[ed] [it] to continue projecting that
[CETC] support will be disbursed at the interim cap amount.”
Corr Wireless Order, 25 FCC Rcd. at 12,862. The
Commission also temporarily waived the requirement that the
“USAC account for any difference between its projected
revenue requirements and its actual revenue requirements as a
prior period adjustment in the next quarterly demand filing.”
Id. The USAC therefore continued to assess carriers as if
high-cost support were being disbursed at the full amount of
the interim cap, and it was not required to reduce the next
quarter’s contribution factor although actual disbursements
were less than the interim cap amount due to Verizon and
Sprint having surrendered their rights to receive support. As a
result of these two actions, contributions to the USAC
exceeded its disbursements and the surplus created a
“temporary reserve.”

The Corr Wireless Order addressed only situations in
which a CETC surrenders high-cost support to which it is
entitled but retains its designation as an ETC. 25 FCC Rcd. at
12,859. When it issued the Corr Wireless Order, therefore,
the Commission proposed “amending the interim cap rule so
that, if a [CETC] relinquishes its ETC status in a state, the cap
amount for that state is reduced by the amount of support that
the [relinquishing CETC] was eligible to receive.” Id. at

The Universal Service for America Coalition, one of the
petitioners in this case, and SouthernLINC Wireless
petitioned the Commission to reconsider the Corr Wireless
insofar as it declined to redistribute the funds reclaimed
from Verizon and Sprint, arguing the agency lacks statutory
authority “to establish a pool of funds to be used for
unspecified purposes at an undetermined point in the future”

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 9 of 24
and “the Act ... could not authorize the Commission to do so
without itself violating the Origination and Taxing Clauses of
the United States Constitution.” The Commission has not yet
acted upon that petition for reconsideration, nor has any party
sought judicial review of the underlying Corr Wireless Order.

In the Order under review, the Commission adopted the
proposal it had made when it issued the Corr Wireless Order,
thereby amending its rules so as “to reclaim high-cost
universal service support surrendered by a [CETC] when it
relinquishes ETC status.” High-Cost Universal Service
, 25 FCC Rcd. 18,146, 18,146 (2010) (hereinafter
Relinquishing ETC Status or the Order). Acknowledging the
goal of the Interim Cap Order was to “rein in high-cost
universal service disbursements for potentially duplicative
voice services,” id. at 18,147, the Commission reasoned:
“Providing the excess support to other [CETCs] in a state
would not necessarily result in future deployment of expanded
voice service, much less broadband service,” id. at 18,148. It
further found the “excess funds from the legacy high-cost
program [could] be used more effectively to advance
universal service broadband initiatives, as recommended by
the National Broadband Plan,” id., which aims to expand
broadband access to the Internet throughout the United States.
The Commission also directed the USAC to "continue to
project [CETC] demand at the full amount of the cap as
established by the Interim Cap Order, without reflecting any
adjustments to the cap due to relinquishment or revocation of
ETC status by a [CETC],” id. at 18,148 n.15, and therefore to
continue to collect contributions as if the interim cap had not
been reduced. The RCA petitioned this court for review of
Relinquishing ETC Status.*

Both before and since issuing the Order, the Commission has
taken several steps to reform the universal service fund. It has

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 10 of 24

II. Analysis

The RCA challenges Relinquishing ETC Status on two
grounds. First, the RCA argues the Order, in “reserving” the
reclaimed funds for future use, violates the Act and the
Commission’s own regulations. Second, the RCA argues the
Order violates the Administrative Procedure Act because the
Commission failed to provide a reasoned explanation of how
reducing the level of aggregate support is consistent with the
Act’s requirement that support for universal service be

A. Authority for the Order

Before we consider the RCA’s challenge to the
Commission’s authority to issue Relinquishing ETC Status,
we must address the Commission’s challenge to our

1. Jurisdiction

As an initial matter, the Commission contends this court
lacks jurisdiction to consider the RCA’s argument that
“reserving” funds for future use violates the Act and the

proposed changes to the rural health care program; raised the cap
on schools’ and libraries’ use of funds reclaimed from the High-
Cost Program; proposed creating a fund to improve mobile voice
and Internet coverage in underserved areas; and proposed reforms
to refocus the High-Cost Program on achieving universal
broadband access to the Internet. Most significant, on November
18, 2011 the Commission issued the Connect America Order,
which comprehensively reforms the agency’s approach to universal
service by ensuring universal access to fixed and mobile broadband
Internet service. Connect America Order, 26 FCC Rcd. 17,663

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 11 of 24
Commission’s rules because the RCA has “challenged the
wrong order.” According to the Commission, it was solely
the Corr Wireless Order, and not Relinquishing ETC Status,
by which it established the “temporary pool” of funds.*
Relinquishing ETC Status, the Commission claims, “took no
further action with respect to the temporary reserve” beyond
what the agency had already done in the Corr Wireless Order,
and so there is no final agency action relevant to the reserve
fund for this court to review.

In Corr Wireless, 25 FCC Rcd. at 12,862, the
Commission waived Rule 54.709(b), which had required the
USAC to “carr[y] forward” any “excess payments” to the
“following quarter,” 47 C.F.R. § 54.709(b). By so doing, the
Commission allowed the USAC each quarter to collect more
in contributions than it disbursed in subsidies. The
Commission concedes the Order under review “directed [the]
USAC to collect universal service contributions as if any
amounts relinquished by [CETCs] were still being
distributed” but argues “it is the holding of those funds –
permitted by the prior waiver of rule 54.709(b) in the Corr
Wireless Order
– not the continued collection of those funds,
that created the temporary reserve” to which the RCA objects.

The Commission errs in suggesting the waiver of rule
54.709(b) in the Corr Wireless Order was the only agency
action necessary to create the “temporary reserve.” Because
the USAC was no longer required to dispose of excess funds
by lowering the contribution factor for the next quarter, the

The Commission has not yet acted upon the petition for
reconsideration of the Corr Wireless Order. “Because [that]
petition ... is currently pending before the agency, [an] appeal from
and petition for review in this court of the [the Corr Wireless
] ... [would be] incurably premature.” BellSouth Corp. v.
, 17 F.3d 1487, 1490 (D.C. Cir. 1994).

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 12 of 24
waiver of rule 54.709(b) did, of course, staunch the outflow of
funds. What kept the inflow of funds above actual expenses
each quarter, however, was the Commission’s directive to the
USAC – in the Order under review – to continue collecting
contributions “as if” the cap had not been lowered. Each of
these actions was necessary to create the “temporary reserve”
by setting the level of contributions to the Program higher
than the level of disbursements by the Program. Accordingly,
decision to continue collecting
contributions “as if” ETCs had not relinquished their status is
a final agency action and the RCA’s challenge to that action is
therefore properly before the court.

2. Merits

Turning to the merits of the RCA’s challenge to the
Commission’s statutory authority to require quarterly
contributions to the Program each quarter at a level higher
than the disbursements from the Program projected for that
quarter, we note first the agency’s interpretation of the
Communications Act is entitled to our deference. See
Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc.
, 467
U.S. 837, 865 (1984). More specifically, we have previously
held the relevant text of section 254 is “vague” and “general”
and therefore the Commission’s interpretation of that section
is properly analyzed under Chevron step two, Rural Cellular
, 588 F.3d at 1101–02: If that interpretation is reasonable, we
must accept it. But wait!

The RCA argues that if the Act were interpreted to
authorize the “temporary reserve,” then it would be
unconstitutional. Because the “canon of constitutional
avoidance trumps Chevron deference,” Nat’l Mining Ass’n v.
, 512 F.3d 702, 711 (D.C. Cir. 2008), we will not
accept the Commission’s interpretation of an ambiguous

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 13 of 24
statutory phrase if that interpretation raises a serious
constitutional difficulty. Therefore, we turn to the
constitutional issues first rather than last, as we would
ordinarily do.

a. Constitutional Arguments

The RCA argues first that, because the Act was initially
introduced in the Senate, as interpreted by the Commission it
would violate the requirement in the Origination Clause that
“[a]ll Bills for raising Revenue shall originate in the House of
Representatives,” U.S. CONST. art. I., § 7, cl. 1. Second, it
argues as interpreted by the Commission the Act would be an
unconstitutional delegation of the Congress’s authority to “lay
and collect Taxes,” U.S. CONST. art. I., § 8, cl. 1.

We do not agree with the RCA’s contention the Act, as
the Commission interprets it, is being used to “rais[e]
Revenue” within the meaning of the Origination Clause. The
Supreme Court has explained “revenue bills are those that
levy taxes, in the strict sense of the word, and are not bills for
other purposes which may incidentally create revenue.” Twin
City Nat’l Bank of New Brighton v. Nebeker
, 167 U.S. 196,
202 (1897). Accordingly, “a statute that creates a particular
governmental program and that raises revenue to support that
program, as opposed to a statute that raises revenue to support
the Government generally, is not a ‘Bil[l] for raising
Revenue.’” United States v. Munoz-Flores, 495 U.S. 385,
398 (1990). The Communications Act, as interpreted by the
Commission in Relinquishing ETC Status, clearly funds only
the High-Cost Universal Service Support Program and not the
Government generally. The RCA argues that, so interpreted,
the Act still “rais[es] Revenue” because it requires “no
connection between the payors – providers of interstate
telecommunications – and the future beneficiaries of the

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 14 of 24
[temporary reserve]” but, as the Fifth Circuit has explained,
all telecommunications
carriers, not just telephone
subscribers, benefit from the expansion of universal service.
Tex. Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 427–
28 (1999) (TOPUC). That case concerned universal service
support for telephone service rather than broadband access,
but the same logic applies here. As the Commission explains,
because the CETCs, including petitioners, themselves provide
Internet access over subscribers’ telephone lines, they will
benefit from the increased utility of the Internet that comes
with a greater number of users having enhanced access to
broadband. Through these so-called network effects, the
carriers whose contributions fund the temporary reserve will
benefit from the use to which that reserve will be put. See
Mark A. Lemley & David McGowan, Legal Implications of
Network Economic Effects
, 86 CALIF. L. REV. 479, 551 (1998)
(“The Internet, like the telephone network, exhibits a very
strong form of network effect—the network is the product in a
very real sense”); cf. William H. Page & John E. Lopatka,
Network Externalities, in ENCYCLOPEDIA OF LAW AND
ECONOMICS 952, 954 (Boudewijn Bouckaert & Gerrit De
Geest eds., 2000) (“Producers of network goods may also
receive increasing returns to scale in production”). That the
final disbursement plan was not yet in place when the
contributions were collected is beside the point; the
Commission collected these contributions to support the
expansion of universal service and no other use was ever
contemplated. Moreover, the Commission gave itself only 18
months to establish the mechanism by which it would
disburse the funds, belying the RCA’s concern the funds
might be put to some use other than the expansion of
universal service.

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 15 of 24
Nor is the Act as interpreted by the Commission an
unconstitutional delegation of the Congress’s authority under
the Taxing Clause to “lay and collect Taxes” because the
assessment of contributions from carriers is not a tax.
Although the RCA correctly points out the “Congress must
indicate clearly its intention to delegate to the Executive the
discretionary authority to recover administrative costs not
inuring directly to the benefit of regulated parties by imposing
additional financial burdens ... on those parties,” Skinner, 490
U.S. at 224, here there was no failure of inurement. As we
have explained, the carriers’ contributions to the temporary
reserve support a program to subsidize broadband Internet
access from which those carriers will particularly benefit.
The Commission is therefore imposing not a tax but a “fee”
that “bestows a benefit on the [payor], not shared by other
members of society,” Nat’l Cable Television Ass’n v. United
, 415 U.S. 336, 340–41 (1974). See TOPUC, 183 F.3d
at 427 n.52 (finding “no basis” for claim universal service
support contributions violates the Taxing Clause because “it is
payment in support of a service (managing and regulating the
public telecommunications network) that confers special
benefits on the [payors]”). In any event, contrary to the
RCA’s suggestion, “the delegation of discretionary authority
under Congress’ taxing power is subject to no constitutional
scrutiny greater than that ... applied to other nondelegation
challenges.” Skinner v. Mid-America Pipeline Co., 490 U.S.
212, 223 (1989); see also Whitman v. American Trucking
, 531 U.S. 457, 472 (2001) (“when Congress confers
decisionmaking authority upon agencies Congress [need only]
lay down by legislative act an intelligible principle to which
the person or body authorized to [act] is directed to conform”
(internal quotation marks, citation, and emphasis omitted)).
Because section 254 of the Act clearly provides an intelligible
principle to guide the Commission’s efforts, viz., “to preserve

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 16 of 24
and advance universal service,” whether the assessment is
deemed a tax is of no real moment.

In sum, as interpreted by the Commission the Act neither
“raises Revenue” within the meaning of the Origination
Clause nor delegates the Congress’s authority to “lay and
collect Taxes” in contravention of the Taxing Clause.
Accordingly, the canon of constitutional avoidance gives us
no reason to reject the Commission’s interpretation of the Act.

b. Statutory Arguments

The RCA argues Relinquishing ETC Status violates
section 254 of the Act for two related reasons. First, it argues
the Order assesses contributions to be used for a purpose not
previously designated by the Commission as a “service that is
supported.” See 47 U.S.C. § 254(a)(2) (“The rules ... shall
include a definition of the services that are supported by
Federal universal service support mechanisms”); see also 47
C.F.R. § 54.101(a) (designating services as elements of
universal service eligible for support). Second, it argues the
temporary reserve is not authorized by the “mandate [in
§ 254(d)] that the FCC assess contributions only for ‘specific,
predictable, and sufficient mechanisms established by the
Commission to preserve and advance universal service.’”
Both arguments ultimately turn upon the question whether
there are temporal requirements implicit in the statute: Must
the Commission amend the list of “services that are
supported” prior to collecting contributions ultimately to be
used to fund such a service? Similarly, must the agency
“establish[]” a universal service support mechanism prior to
collecting contributions intended to fund that mechanism?

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 17 of 24
The Commission’s interpretation, under which it may
collect contributions to support a program prior to that
program either having been listed as a “service that is
supported” or having been “established by the Commission,”
is a permissible interpretation of an ambiguous statute. The
adjectival phrase “established by the Commission,” although
derived from a past tense verbial phrase, need not itself
indicate the past tense. For example, in Regions Hospital v.
, the Supreme Court explained the adjectival phrase
“recognized as reasonable” modifying the word “costs” might
refer to “costs the Secretary (1) has recognized as reasonable
... [or to costs the Secretary] (2) will recognize as reasonable.”
522 U.S. 448, 458 (1998). Therefore, under Chevron, either
interpretation was permissible. Id. at 464; see also Dep’t of
Treasury v. FLRA
, 960 F.2d 1068, 1072 (D.C. Cir. 1992)
(“‘adversely affected’ is simply an adjectival phrase, not a
verbial phrase indicating the past tense, and hence allows
alternative temporal readings”). So, here, the adjectival
phrases — “services that are supported” and “established by
the Commission” — are temporally ambiguous, such that the
agency’s reading them to encompass both the present and the
future is reasonable. In Relinquishing ETC Status, the
Commission directed the USAC to collect contributions from
telecommunications carriers to be used for a “mechanism” to
be “established” by the agency in order to subsidize a
“service” the agency would thereafter list as “supported.” In
deferring to the Commission’s interpretation that the Act does
not require it to list a service and to establish the mechanism
for its support prior to collecting funds for that purpose, we do
not grant to the agency a carte blanche to collect
contributions that it “may, someday” use: Because the
Commission waived rule 54.709(b), which would have
required the USAC promptly to reduce carriers’ contributions,
for only 18 months, Corr Wireless Order, 25 FCC Rcd. at
12,863; Order, 25 FCC Rcd. at 18,147 n.8, we have no

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 18 of 24
occasion to consider whether the Commission could have
generated a “temporary” reserve for any longer or for any less
well-defined purpose than the support of a specifically named
service. Accordingly, we hold Relinquishing ETC Status did
not violate the Act by collecting contributions for a limited
time to fund a mechanism not yet “established” in order to
subsidize a specific “service to be supported” but not yet
listed as such.

c. Regulatory Arguments

Finally, the RCA claims Relinquishing ETC Status
violates the Commission’s regulation that directs the USAC to
set the quarterly contribution factor based upon “the ratio of
total projected quarterly expenses of the universal service
support mechanisms to the total projected collected ...
revenues.” 47 C.F.R. § 54.709(a)(2). The regulation includes
“projections of demand and [of] administrative expenses” as
elements of the “projected expenses.” Id. § 54.709(a)(3). In
Relinquishing ETC Status the Commission directed the USAC
to “continue to project [CETC] demand at the full amount of
the cap as established by the Interim Cap Order, without
reflecting any adjustments to the cap due to relinquishment or
revocation of ETC status by a [CETC].” 25 FCC Rcd. at
18,148 n.15. The RCA argues this directive “effectively
treats the pool of ‘relinquish[ed]’ funds as an additional (non-
enumerated) expense” in violation of rule 54.709(a) because
the funds for the temporary reserve reflect neither actual
demand nor an administrative expense for that quarter.

The Commission says the directive comes within its
reservation of “the right to set projections of demand and
administrative expenses at amounts [it] determines will serve
the public interest” so long as it does so within 14 days of the
USAC’s release of its projections. 47 C.F.R. § 54.709(a)(3).

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 19 of 24
The RCA responds that the “authority to alter ‘projections of
demand’ ... can only reasonably refer to the estimated demand
for the four established universal service programs,” of which
the temporary reserve was not one. Nor, it argues, does
Relinquishing ETC Status comport with the procedural form
of the exception, which by its terms authorizes the
Commission to supplant the USAC’s projections only after
their public release.

The Commission’s interpretation of its own regulations is
due deference under Auer v. Robbins, 519 U.S. 452, 461
(1997); we will accept it “unless the interpretation is plainly
erroneous or inconsistent with the regulations or there is any
other reason to suspect that the interpretation does not reflect
the agency’s fair and considered judgment on the matter in
question,” Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct.
2254, 2261 (2011) (internal quotation marks, citations, and
alteration omitted). Here the Commission interpreted the
term “demand” in section 54.709(a)(3) to include the demand
for funds to be used in later quarters by a program to be
established for the support of universal access to broadband
Internet service. See 25 FCC Rcd. at 18,148 (“[T]he excess
funds from the legacy high-cost program [could] be used
more effectively to advance universal service broadband
initiatives, as recommended by the National Broadband
Plan”). There is nothing in the text of the regulation limiting
“demand” to projected disbursements for the next quarter only
or excluding from “demand” a program the Commission has
announced its intention to establish. Therefore, the
Commission’s considered reading of “demand” to include
disbursements it anticipates making in subsequent quarters is
not “plainly erroneous or inconsistent with the regulation[],”
Talk Am., 131 S. Ct. at 2261, and accordingly we sustain it.

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 20 of 24

Nor is Relinquishing ETC Status defective as a matter of
form. The Order does not retroactively change projections of
demand for a prior quarter after expiration of the 14-day
period for supplanting the USAC’s projections. Rather, by its
terms the Order is prospective: The “USAC shall continue to
project [CETC] demand at the full amount of the cap as
established by the Interim Cap Order.” 25 FCC Rcd. at
18,148 n.15. The Order merely announces the Commission’s
policy regarding how it will revise projections of demand in
the future. Accordingly, the Order does not violate the
procedural requirements of the exception in section

In sum, the Commission’s interpretation of the Act raises
no significant constitutional concern, is a reasonable
interpretation of an ambiguous statutory text, and is consistent
with the Commission’s regulations. Therefore, we hold the
Commission acted within its statutory and regulatory
authority in issuing Relinquishing ETC Status.

B. “Sufficient” Support for Universal Service

Next, the RCA challenges the Order as arbitrary and
capricious on the ground the Commission “makes no effort to
explain whether or how the reduced pool of funds will be
adequate to preserve and advance universal service.” An
order of the Commission is arbitrary and capricious and
thereby violates the Administrative Procedure Act if it does
not “examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection
between the facts found and the choice made.” Motor Vehicle
Mfrs. Ass’n, Inc. v. State Farm Mut. Auto. Ins. Co.
, 463 U.S.
29, 43 (1983) (internal quotation marks and citation omitted).
We must set aside an agency’s action “if [it] has relied on
factors which Congress has not intended it to consider,

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 21 of 24
entirely failed to consider an important aspect of the problem,
offered an explanation for its decision that runs counter to the
evidence before the agency, or is so implausible that it could
not be ascribed to a difference in view or the product of
agency expertise.” Id.

The RCA argues Relinquishing ETC Status offers only
“conclusory” statements in lieu of a reasoned explanation how
the “reduced” cap ensures the “sufficient” support required by
section 254(d) of the Act. That is not quite correct. Insofar as
the Order leaves undisturbed the level of support going to
each CETC pursuant to the Interim Cap Order, the
Commission need not have explained again why that level of
support is sufficient; we already had held in Rural Cellular I
that its earlier explanation was adequate. 588 F.3d at 1102-
1104. The RCA correctly points out that, although
Relinquishing ETC Status does not reduce the amount of
support any one CETC receives when another CETC
relinquishes its status as an ETC, the Order does reduce the
total support going to carriers in the relevant state by the
amount the relinquishing carrier had received. This goes
beyond the Interim Cap Order and therefore requires further
explanation of how the program nonetheless provides support
“sufficient” to “preserve and advance universal service” for
residents of that state. See id., 588 F.3d at 1103 (“The
pertinent question is whether the interim cap will undercut
adequate telephone services for customers, since ‘[t]he
purpose of universal service is to benefit the customer, not the
carrier’” (citation omitted)).

The Commission adequately explained this effect of the
Order when it made clear it did not want simply to
redistribute support from a relinquishing carrier to the
remaining CETCs in the state: Such a redistribution “would
not necessarily result in future deployment of expanded voice

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 22 of 24
service, much less broadband service” because it “could
simply subsidize duplicative voice service.” Relinquishing
ETC Status
, 25 FCC Rcd. at 18,148. The Commission
previously recognized that “rather than providing a complete
substitute for traditional wireline service, these wireless
[CETCs] largely provide mobile wireless telephony service in
addition to a customer’s existing wireline service.” Interim
Cap Order
, 23 FCC Rcd. at 8843. Moreover, “redistributing
the excess funding to other [CETCs] in the state,”
Relinquishing ETC Status, 25 FCC Rcd. at 18,148, would
only compound the problem because, prior to the Order, if a
CETC relinquished its status, then the support it received
would have been redistributed to other CETCs in the state,
raising the subsidy they received without their having added a
single subscriber line. In Relinquishing ETC Status the
Commission explained its preference for, rather than
bestowing such a windfall upon CETCs, husbanding those
funds in order to subsidize broadband Internet service. See id.
(“[T]he public interest would be better served ... reclaim[ing]
such support rather than redistributing it, particularly as we
proceed with broader reforms to transition to a universal
service system that promotes broadband more directly”).
Moreover, like the interim cap rule itself, this temporary
measure was an “interim regulation[]” for which the
Commission “should be given ‘substantial deference,’” Rural
Cellular I
, 588 F.3d at 1105 (citation omitted). And “we have
repeatedly held that ‘[a]voidance of market disruption
pending broader reforms is ... a standard and accepted
justification for a temporary rule.’” Id. at 1106 (quoting
Competitive Telcomms. Ass'n v. FCC, 309 F.3d 8, 14 (D.C.
Cir. 2002)).

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 23 of 24
Finally, the Commission provided a safety valve to
ensure no CETC would receive a level of support insufficient
to provide telephone service to consumers in high-cost areas.
A CETC is “not ... subject to the interim cap to the extent that
it files cost data demonstrating that its costs meet the support
threshold in the same manner as the incumbent LEC.”
Interim Cap Order, 23 FCC Rcd. at 8848. Accordingly, if a
CETC’s costs increase because it adds subscriber lines,
perhaps extending service to a previously unserved rural area
or filling in where a relinquishing CETC has withdrawn, then
it may receive a greater subsidy. This exception ensures no
consumer will be denied telephone service because of the
interim cap, as modified by Relinquishing ETC Status.
Although the Order does not mention this safety valve, it had
been created, as the Commission points out, in the 2008
Interim Cap Order, and was therefore part of the regulatory
background against which the Commission promulgated the
Order in 2010. 23 FCC Rcd. at 8848; see also Rural Cellular
, 588 F.3d at 1104 (explaining because of the “exception to
the cap ... [t]here is no reason to believe ... support under the
cap will be insufficient”); Bechtel v. FCC, 10 F.3d 875, 878
(D.C. Cir. 1993) (Commission “need not repeat itself”
needlessly). Relinquishing ETC Status did nothing to change
or to undermine the continuing validity of the Commission’s

Accordingly, we hold the Order adequately explained
how the interim cap on universal service support, as modified
when a CETC relinquishes its status, ensures continued
provision of the “sufficient” support required by section
254(d). Relinquishing ETC Status was therefore neither
arbitrary nor capricious.

USCA Case #11-1094 Document #1383479 Filed: 07/13/2012 Page 24 of 24

III. Conclusion

For the foregoing reasons, we hold Relinquishing ETC
Status was a lawful exercise of the Commission’s authority
under the Act, did not violate the agency’s regulations, and
was neither arbitrary and capricious nor unconstitutional. The
RCA’s petition for review is therefore


Note: We are currently transitioning our documents into web compatible formats for easier reading. We have done our best to supply this content to you in a presentable form, but there may be some formatting issues while we improve the technology. The original version of the document is available as a PDF, Word Document, or as plain text.


You are leaving the FCC website

You are about to leave the FCC website and visit a third-party, non-governmental website that the FCC does not maintain or control. The FCC does not endorse any product or service, and is not responsible for, nor can it guarantee the validity or timeliness of the content on the page you are about to visit. Additionally, the privacy policies of this third-party page may differ from those of the FCC.