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Rural Cellular Association, et al. v. FCC & USA, D.C. Cir. No. 08-1284

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Released: December 11, 2009
Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 1
United States Court of Appeals


Argued October 5, 2009
Decided December 11, 2009
No. 08-1284
Consolidated with 08-1285
On Petitions for Review of an Order
of the Federal Communications Commission
David A. LaFuria argued the cause for petitioners. With
him on the briefs were Russell D. Lukas and David L. Nace.
Donald J. Evans was on the brief for amicus curiae Corr
Wireless Communications, LLC in support of petitioners.

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 2
Maureen K. Flood, Counsel, Federal Communications
Commission, argued the cause for respondents. With her on
the brief were Robert B. Nicholson and Kristen C. Limarzi,
Attorneys, U.S. Department of Justice, Matthew B. Berry,
General Counsel, Federal Communications Commission,
Joseph R. Palmore, Deputy General Counsel, Richard K.
, Deputy Associate General Counsel, and Laurence N.
, Counsel.
Helgi C. Walker argued the cause for intervenors AT&T
Inc. and Verizon. With her on the brief were Michael E.
, Edward Shakin, Christopher M. Miller, John T. Scott
, and Gary L. Phillips.
Before: TATEL and BROWN,
Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge BROWN.
BROWN, Circuit Judge: Petitioners—wireless telephone
service providers serving primarily small and rural markets—
challenge the Federal Communications Commission’s (FCC
or the Commission) decision to impose an interim cap on
rapidly escalating subsidy payments. The universal support
subsidy, intended to ensure adequate, reasonably priced
service for residents of rural, sparsely populated, or hard-to-
reach areas, increased by more than a billion dollars between
MONITORING REPORT”). Petitioners accuse the FCC of
fumbling the procedural requirements of the Administrative
Procedure Act (APA) in promulgating the interim order;
violating the Federal Communications Act; and acting
arbitrarily and capriciously.

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 3
A. Telecommunications Act of 1996
Since the passage of the Communications Act of 1934
(the Act), Congress has made universal service a fundamental
goal of federal telecommunications regulation. Indeed, § 1 of
the Act states the very purpose of the FCC is “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 (as amended).
In 1996, Congress amended the Act to introduce
competition into local telephone service, Telecommunications
Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, which had
traditionally been provided through regulated monopolies, see
47 U.S.C. §§ 251, 252. At the same time, Congress also
added a new universal service provision, § 254, to the Act.
See id. § 254. The Telecommunications Act of 1996
established a Federal-State Joint Board on Universal Service
(the Joint Board or Board) to recommend changes to the
FCC’s federal universal service regulations. Section 254(b)
directs the Joint Board and the Commission to base policies
for the preservation and advancement of universal service on
six enumerated principles, plus such “other” principles as the
Joint Board and the Commission may establish. Id.
§ 254(b)(1)–(7). Among these principles are “access . . .
provided in all regions of the Nation . . . including low-
income consumers and those in rural, insular, and high cost
areas,” “reasonably comparable” services and rates to those
offered “in urban areas,” “an equitable and nondiscriminatory
contribution to the preservation and advancement of universal
service,” by “[a]ll providers of telecommunications services,”

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and “specific, predictable, and sufficient Federal and State
mechanisms to preserve and advance universal service.” Id.
§ 254(b)(2)–(5). In addition, pursuant to its authority under
§ 254(b)(7) to adopt “other” universal service principles in the
public interest, the Commission adopted a seventh
“competitive neutrality” principle, which requires that
“universal service support mechanisms and rules neither
unfairly advantage nor disadvantage one provider over
another, and neither unfairly favor nor disfavor one
technology over another.” In the Matter of Fed.-State Joint
Bd. on Universal Serv.
, 12 F.C.C.R. 8776 ¶¶ 46–47 (1997).
Another universal service provision, § 254(e), requires that
federal universal service support be “explicit and sufficient to
achieve” statutory purposes and restricts high-cost universal
support to designated “eligible telecommunications carrier[s]”
(ETCs). 47 U.S.C. § 254(e).
The Commission fulfills its mandate to provide universal
service through the universal service fund (the USF). In
addition to the high-cost support program, which is designed
to support rural providers serving high-cost areas, the USF
also supports programs for low-income customers, schools
and libraries, and health care providers. See 47 C.F.R.
§§ 54.415–54.605. High-cost support disbursements,
however, overwhelmingly represent the largest category of
USF expenditures, accounting for 61.6 percent of USF
disbursements in 2007. See
MONITORING REPORT tbl.1.11. Prior to the FCC order
challenged in this case, the high-cost program and the low-
income program were the only two components of the USF
not subject to a cap on total support.
Support for the fund comes from assessments paid by
interstate telecommunications service providers. The
assessments are calculated by applying a quarterly

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“contribution factor” to the contributors’ interstate revenues,
and contributors almost always pass their contribution
assessments through to their customers. See Alenco
Commc’ns, Inc. v. FCC
, 201 F.3d 608, 620 (5th Cir. 2000).
Although incumbent local exchange carriers (ILECs) receive
high-cost support based on their actual costs of providing
service, under the Commission’s “identical support rule,”
competitive ETCs (CETCs), mainly wireless providers,
receive support for each line based not on their own costs, but
rather on the same per-line support ILECs in the relevant
service area receive. 47 C.F.R. § 54.307(a)(1).
B. The Order
In 2002, growth in the amount of USF support distributed
under the high-cost program, particularly to CETCs,
prompted the Commission to ask the Joint Board to review
the Commission’s high-cost support rules, specifically with
respect to CETC service areas. The Board responded with
several recommendations, including a recommendation to
consider revisiting the identical support rule as a means for
calculating support for CETCs. See In the Matter of Fed.-
State Joint Bd. on Universal Serv.
, 19 F.C.C.R. 4257 ¶ 96
(2004) (recommended decision). The Board also
recommended high-cost support be limited to “a single
connection that provides access to the public telephone
network,” rather than subsidizing multiple connections for the
same household or business. Id. ¶ 56. The Board concluded
“supporting a single connection is more consistent with the
goals of section 254 of the Act than the present system, and is
necessary to preserve the sustainability of the universal
service fund . . . and would be competitively neutral.” Id.
The Board recognized, however, that restricting support to a
single connection “may present significant administrative
Id. ¶ 57. Thus, rather than suggesting the

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Commission modify its methodology for calculating high-cost
support at that time, the Board recommended the Commission
consider support modifications for CETCs as part of a
comprehensive review of high-cost support mechanisms. See
¶¶ 4, 88. In any event, before the Commission could act
on the Board’s recommendations, Congress enacted
legislation specifically prohibiting the Commission from
implementing the single connection rule. Consolidated
Appropriations Act, 2005, Pub. L. No. 108-447, § 634, 118
Stat. 2809 (2004).
After investigating and seeking comment on several high-
cost support reform proposals, the Joint Board took action in
May 2007 by recommending the Commission adopt an
“interim, emergency cap” on high-cost support to CETCs. In
the Matter of High-Cost Universal Serv. Support
, 22 F.C.C.R.
8998 (2007) (recommended decision). Noting CETC high-
cost support had skyrocketed from $15 million in 2001 (the
correct figure appears to be $16.9 million) to almost $1 billion
in 2006—an annual growth rate of over 100 percent—the
Board concluded that “without immediate action to restrain
growth in competitive ETC funding, the federal universal
service fund is in dire jeopardy of becoming unsustainable.”
Id. ¶ 4. The Board acknowledged the interim cap would not
be a permanent solution to problems with the high-cost
support distribution mechanisms, id. ¶ 8, committed to
making recommendations on comprehensive universal service
reform by November 2007, id., and sought comment on
comprehensive reform in a public notice, id. ¶ 14.
The Commission issued a Notice of Proposed
Rulemaking seeking comments on the proposed interim cap,
see In the Matter of High-Cost Universal Serv. Support, 72
Fed. Reg. 28,936 (proposed May 23, 2007) (to be codified at
47 C.F.R. pt. 54), and after receiving and reviewing 113 sets

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of comments, largely adopted the Joint Board’s proposal, see
In the Matter of High-Cost Universal Serv. Support
, 73 Fed.
Reg. 37,882 (July 2, 2008) (to be codified at 47 C.F.R. pts.
32, 36, 54) (the Order). Under the interim cap, annual
support for CETCs is capped at the level of support CETCs
were eligible to receive in March 2008, subject to two limited
exceptions. First, to the extent a CETC files cost data
demonstrating its own costs “meet the support threshold in the
same manner as the incumbent LEC” in the relevant service
area, the CETC is not subject to the interim cap. Id. ¶ 31.
Second, the cap does not apply to CETCs serving tribal lands
or Alaska Native regions. Id. ¶ 32. The Commission
emphasized the cap would remain in place only until it
adopted comprehensive, high-cost universal service reform—
reform on which the Commission planned to move forward
“in an expeditious manner.” Id. ¶ 37.
Petitioners challenge the FCC’s order imposing the
interim cap on high-cost support to CETCs. They claim,
among other things, the Commission: (1) violated the notice-
and-comment requirements of the APA, 5 U.S.C. § 553; (2)
violated § 254 of the Federal Communications Act, 47 U.S.C.
§ 254; and (3) acted arbitrarily and capriciously in violation of
APA § 706(2)(A). We are not persuaded by any of these
arguments. Accordingly, having jurisdiction to review the
Order pursuant to 28 U.S.C. § 2342(1) and 47 U.S.C.
§ 402(a), we deny the petitions for review.
A. Rulemaking Challenge
We begin with petitioners’ argument that the
Commission violated the notice-and-comment requirements

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of the APA. Although the petitioners’ arguments are
somewhat confusing, we find them all to be without merit.
Petitioners’ first claim seems to be that the Commission
jumped the gun. It imposed the same interim emergency cap
on two individual carriers seeking license transfers that it later
imposed on all wireless carriers in the Order. See ALLTEL
Corp. & Atlantis Holdings LCC
, 22 F.C.C.R. 19517,
19520–21 (2007); AT&T Inc. & Dobson Commc’ns Corp., 22
F.C.C.R. 20295, 20329 (2007). Neither adjudicatory order
imposed any obligations or restrictions on parties, including
petitioners, other than those directly involved in the mergers.
Because petitioners cannot allege any actual injury fairly
traceable to either adjudicatory order, they lack standing to
raise, and we lack jurisdiction to consider, their challenges to
the Order on this ground. See Lujan v. Defenders of Wildlife,
504 U.S. 555, 560 (1992).
Petitioners make an alternative but equally unconvincing
argument that the Commission violated the APA. Petitioners
claim the Commission’s imposition of the same interim cap
recommended by the Joint Board and adopted by the
Commission in the ALLTEL and AT&T adjudications proves
the notice-and-comment proceedings “served no purpose,”
since they simply “rubber stamped” a rule change the
Commission had already adopted and enforced without the
benefit of notice and comment. Br. for Pet’rs 31. Although
petitioners once again confuse their argument with inapposite
claims that the Commission somehow “circumvent[ed] the
APA” by adopting the cap as a condition to the two mergers
while the rule was still pending, see Reply Br. for Pet’rs 6, it
appears their central argument is that the imposition of the cap
in the two adjudications demonstrates the Commission was
closed-minded about the rule. Furthermore, because the
Commission based its decision on “exactly the same facts

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cited by the Board” and relied on by the Commission in
adopting the cap in the two adjudications, petitioners argue
the Commission improperly “prejudged” the issue in violation
of the APA. See id. at 5–8.
Under the APA, a “[g]eneral notice of proposed rule
making shall be published in the Federal Register” and “shall
include . . . either the terms or substance of the proposed rule
or a description of the subjects and issues involved.” 5 U.S.C.
§ 553(b). After publishing the required notice, the agency
must “give interested persons an opportunity to participate in
the rule making through submission of written data, views, or
arguments.” Id. § 553(c). The opportunity for comment must
be a meaningful opportunity, see Gerber v. Norton, 294 F.3d
173, 179 (D.C. Cir. 2002), and we have held that in order to
satisfy this requirement, an agency must also remain
sufficiently open-minded, see, e.g., Fed. Express Corp. v.
, 373 F.3d 112, 120 (D.C. Cir. 2004); McLouth Steel
Prods. Corp. v. Thomas
, 838 F.2d 1317, 1323 (D.C. Cir.
Here, the Commission complied with each of the APA’s
rulemaking requirements. The Commission issued a Notice
of Proposed Rulemaking, see In the Matter of High-Cost
Universal Serv. Support
, 72 Fed. Reg. 28,936, compiled a
record that included 113 sets of comments from interested
parties, considered those comments, and did not issue the
Order until the required rulemaking process was complete.
Nothing else is required.
Numerous commenters expressed support for the rule,
and the Commission properly took those views into account
when it decided to impose the interim cap. Other commenters
opposed the cap or recommended changes to its operation.
The Commission likewise took those views into account,

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responding throughout the Order to specific critiques of the
cap. See, e.g., Order ¶¶ 11–24. Indeed, the Commission even
added an exception to the rule based on the comments. See,
, Comments of The Iowa Telecomm. Ass’n on Pub. Notice
of May 1, 2007 at 4 (May 31, 2007) (suggesting the
Commission base support on CETCs’ own costs).
B. Statutory Language
Petitioners also raise a number of challenges to the FCC’s
interpretation and application of § 254 of the Act. Pursuant to
the principles outlined in § 254, the Joint Board and the
Commission are responsible for developing “specific,
predictable and sufficient . . . mechanisms to preserve and
advance universal service.” 47 U.S.C. § 254(b)(5). Since the
principles outlined use “vague, general language,” courts have
analyzed language in § 254(b) under Chevron step two. See
Texas Office of Pub. Util. Counsel v. FCC
, 183 F.3d 393, 421
(5th Cir. 1999) (“TOPUC”). Thus, the question is whether
the agency’s interpretation is a permissible construction of an
ambiguous statute. Chevron U.S.A., Inc. v. Natural Res. Def.
Council, Inc.
, 467 U.S. 837, 843 (1984). We will uphold the
agency’s interpretation as long as it is reasonable, see id. at
843–44, even if “there may be other reasonable, or even more
reasonable, views.” AT&T Corp. v. FCC, 220 F.3d 607, 621
(D.C. Cir. 2000); see also MCI Telecomms. Corp. v. FCC,
675 F.2d 408, 413 (D.C. Cir. 1982).
Petitioners first contend the Commission violated § 254
of the Act by interpreting the statutory principle that there
should be “specific, predictable and sufficient” USF support,
47 U.S.C. § 254(b)(5) (emphasis added), as also requiring that
the fund remain “sustainable,” see Order ¶ 7 (noting the
interim cap was necessary until comprehensive reforms are
adopted to “ensure that the universal service fund will be

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 11
sustainable for future years”). They argue “sustainability” is a
principle adopted neither by Congress in § 254(b) nor by the
Commission in this or any previous order. We disagree.
While it is true the Commission may not “depart from [the
principles in § 254(b)] altogether to achieve some other goal,”
Qwest Corp. v. FCC, 258 F.3d 1191, 1200 (10th Cir. 2001)
(“Qwest I”), we think preservation and sufficiency are just
different ways of describing sustainability, see 47 U.S.C.
§ 254(b)(5) (stating “[t]here should be specific, predictable
and sufficient Federal and State mechanisms to preserve and
advance universal service”). See MERRIAM-WEBSTER’S
COLLEGIATE THESAURUS 574 (1988). Thus, although
“sustainability” is not mentioned in § 254(b), the Commission
reasonably interpreted Congress’s directive that it “preserve”
universal service as also requiring that it “sustain” universal
service, which, in turn, requires ensuring the sustainability of
the fund.
Petitioners’ second argument is that the Commission
further violated the Act by reading § 254(b)(5) as requiring
that support should be “sufficient, but not excessive.” Order
¶ 9 (emphasis added). They claim such an interpretation
elevates the Commission’s own goal of preserving the
solvency of the USF over Congress’s directive in § 254(b)(5)
that the fund provide support that is “sufficient” to meet the
needs of preserving and advancing universal service.

Petitioners apparently think § 254(b)(5) compels the
Commission to welcome wretched excess—at least so long as
compensating fee exactions can be squeezed out of
consumers. But the Commission’s analysis goes beyond a
narrow view of solvency, concluding “the statutory principle
of ‘sufficiency’ proscribes support in excess of that necessary
to achieve the Act’s universal service goals.” Order ¶ 8.
Thus, the Commission apparently reasons that “sufficiency”
encompasses not just affordability for those benefited, but

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fairness for those burdened. The agency seeks to strike an
appropriate balance between the interests of widely dispersed
consumers with small stakes and a concentrated interest group
seeking to increase its already large stake.
Moreover, although this court has specifically addressed
neither the meaning of “sufficiency” as the term is used in the
Act nor how the Commission should balance the risks of
excessive subsidization with the principles set forth in
§ 254(b), the Commission must consider not only the
possibility of pricing some customers out of the market
altogether, but the need to limit the burden on customers who
continue to maintain telephone service. The Fifth Circuit’s
reasoning in Alenco Communications v. FCC, 201 F.3d 608,
is instructive. In Alenco, the Fifth Circuit upheld the
Commission’s decision to impose a prophylactic cap on USF
growth, much like the cap at issue in this case. Id. at 625.
The court acknowledged “[t]he agency’s broad discretion to
provide sufficient universal service funding includes the
decision to impose cost controls to avoid excessive
expenditures that will detract from universal service.” Id. at
620–21; see also Qwest I, 258 F.3d at 1200 (noting the
Commission’s “discretion to balance the principles [in
§ 254(b)] against one another when they conflict”). Alenco,
therefore, underscores the error of petitioners’ fundamental
position that the Commission may not take measures to guard
against “excessive” USF contributions when deciding how
best to administer the program. Expounding on the proper
interpretation of “sufficient” as used in § 254(b), the Fifth
Circuit noted “excessive funding may itself violate the
sufficiency requirements of the Act” by “detract[ing] from
universal service by causing rates unnecessarily to rise,
thereby pricing some consumers out of the market.” Alenco,
201 F.3d at 620; see also Qwest Commc’ns Int’l Inc. v. FCC,
398 F.3d 1222, 1234 (10th Cir. 2005) (noting “excessive

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subsidization arguably may affect the affordability of
telecommunications services, thus violating the principle in
§ 254(b)(1)”). The court thus recognized the principle of
providing sufficient funding mechanisms to advance universal
service, 47 U.S.C. § 254(b)(5), may need to be balanced
against the principle of affordability for consumers, id.
§ 254(b)(1).
The Commission enjoys broad discretion when
conducting exactly this type of balancing. See Fresno Mobile
Radio, Inc. v. FCC
, 165 F.3d 965, 971 (D.C. Cir. 1999)
(“When an agency must balance a number of potentially
conflicting [statutory] objectives . . . judicial review is limited
to determining whether the agency’s decision reasonably
advances at least one of those objectives and its
decisionmaking process was regular.”); see also TOPUC, 183
F.3d at 434, 436 (noting the Commission’s “considerable
amount of discretion” to balance “the competing concerns set
forth in § 254(b)” and the “substantial amount of deference”
the Commission should be accorded when interpreting the
term “sufficient”). Moreover, it is hard to imagine how the
Commission could achieve the overall goal of § 254—the
“preservation and advancement of universal service,” 47
U.S.C. § 254(b)—if the USF is “sufficient” for purposes of
§ 254(b)(5), yet so large it actually makes
telecommunications services less “affordable,” in
contravention of § 254(b)(1). That the Commission, in the
face of evidence showing providers were receiving subsidies
in excess of what is needed to allow them to remain in the
market, chose to consider its interest in avoiding excessive
funding from consumers was thus entirely reasonable.1
1 We conclude here only that it was reasonable for the
Commission to consider the competing principle of “affordability”
in its decision to impose the interim cap. We withhold until Section

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In any event, petitioners have failed to demonstrate their
high-cost support would actually be insufficient under the
interim cap. 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.” Alenco, 201 F.3d at 621. Petitioners,
however, seem to ignore this fact in their cry for more
subsidies, which they have failed to prove are necessary to
provide basic service to customers who have none.

Petitioners include no cost data showing they would, in fact,
have to leave customers without service as a result of the cap
and therefore give us no valid reason to believe the principle
of “sufficiency,” even viewed in isolation, will be violated by
the cap.
Furthermore, the Commission created an exception to the
cap. To the extent a CETC believes its capped support is
insufficient, the Order permits the CETC to obtain an
exemption upon “fil[ing] cost data demonstrating that its costs
meet the support threshold in the same manner as the
incumbent LEC.” Order ¶ 31. There is no reason to
believe—and petitioners have offered no data proving—that
support under the cap will be insufficient. Thus, the limits
imposed by the interim cap seem unlikely to deprive any
CETCs’ customers of service, while they are almost sure to
reduce the CETCs’ profits. Conveniently, both petitioners
and their amicus fail to mention the exemption provision even
a single time in their briefing. However, at oral argument,
counsel for petitioners, when pressed on the significance of
II.C our analysis of the reasonableness of the Commission’s
conclusion that failure to impose the cap would, in fact, render the
USF unsustainable and require excessive contributions from

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the exception, characterized it as merely a “side door” that
effectively achieves nothing since there is no “accounting
mechanism” in place for wireless carriers to calculate their
costs. Although we need not consider this belated complaint,
we think it not unreasonable for the Commission to ask that
providers be prepared to calculate their own costs.
We are equally unpersuaded by petitioners’ final
statutory argument that the Commission’s decision to impose
the cap only on CETCs violates the Commission’s principle
of competitive neutrality and that the Commission also
violated the Act by elevating its principle of “sustainability”
over the principle of competitive neutrality. CETCs enjoy a
significant advantage over ILECs under the current support
system. Under the identical support rule, as the ILEC loses
lines while its fixed costs remain approximately the same, the
CETC receives higher support per line for each line it takes
from the ILEC. Moreover, since the current regime appears
to count each line and handset the same based on the ILEC’s
costs, CETCs receive subsidies well in excess of their costs.
Thus, as the Commission noted in its Order, wireless CETCs
have an “incentive to expand the number of subscribers . . .
located in the lower-cost parts of high-cost areas, rather than
to expand the geographic scope of their network.” Id. ¶ 21.
As a result of these inequities and inefficiencies that exist
under the current regime, the source of the rapid growth of the
USF fund is also unbalanced. Support to ILECs has been flat
since 2003, see id. ¶ 6, and has even declined since 2005, id.
¶ 6 n.25. Moreover, most ILEC support mechanisms are
already capped or subject to growth limits. Id. ¶ 10. Support
to CETCs, on the other hand, grew from $17 million to $1.18
billion in the six years from 2001 to 2007. Id. ¶ 6. The
evidence thus reveals it is CETC support, not ILEC support

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 16
that is exerting pressure on the USF and therefore poses the
most direct threat to the fund’s sustainability.
The competitive neutrality principle requires that
“universal service support mechanisms and rules neither
unfairly advantage nor disadvantage one provider over
another, and neither unfairly favor nor disfavor one
technology over another.” In the Matter of Fed.-State Joint
Bd. on Universal Serv.
, 12 F.C.C.R. 8776 ¶ 47. The rule thus
only prohibits the Commission from treating competitors
differently in “unfair” ways. Based on the Commission’s
findings that CETCs and not ILECs were responsible for the
surge in costs, a solution targeting only CETCs was hardly
unfair. Moreover, although the rule does not require the
Commission to provide the exact same levels of support to all
ETCs, see, e.g., TCG New York, Inc. v. City of White Plains,
305 F.3d 67, 80 (2d Cir. 2002) (noting competitive neutrality
“does not require precise parity of treatment”), to the extent a
CETC believes it should be entitled to greater per-line high-
cost support than the amount disbursed under the cap, the
Order permits the CETC to obtain an exception upon “fil[ing]
cost data demonstrating that its costs meet the support
threshold in the same manner as the incumbent LEC.” Order
¶ 31. If a CETC is not able to make this showing, the
argument that reducing its support below that of the ILEC
violates the principle of competitive neutrality has little force.
C. Arbitrary and Capricious
We turn last to petitioners’ claim that the Commission’s
decision to impose the interim cap was arbitrary and
capricious. Unlike Chevron step two review, which focuses
on whether the agency’s interpretation was reasonable,
“arbitrary and capricious” review focuses on the
reasonableness of the agency’s decisionmaking processes.

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The standard is very deferential. Unless “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law,” or not supported by “substantial
evidence,” we will uphold an agency’s final order. 5 U.S.C.
§ 706(2); see also Arent v. Shalala, 70 F.3d 610, 614–16
(D.C. Cir. 1995). Our role in this regard is a limited one, and
we will not substitute our judgment for that of the agency.
See Sprint Nextel Corp. v. FCC, 524 F.3d 253, 257 (D.C. Cir.
2008). The Commission 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).
The “arbitrary and capricious” standard is particularly
deferential in matters implicating predictive judgments and
interim regulations. See, e.g., EarthLink, Inc. v. FCC, 462
F.3d 1, 12 (D.C. Cir. 2006); MCI Telecomms. Corp. v. FCC,
750 F.2d 135, 140 (D.C. Cir. 1984); FCC v. Nat’l Citizens
Comm. for Broad.
, 436 U.S. 775, 813–14 (1978). Where, as
here, the FCC must make predictive judgments about the
effects of increasing subsidies, certainty is impossible. The
Commission therefore relied on its expertise to evaluate the
existing evidence and decide whether the risk of harm to the
universal support system was large or important enough to
merit immediate regulatory action. The Commission
concluded it was and predicted a crisis would ensue if it
procrastinated. See Order ¶ 22 (noting “[t]o avert this crisis,
it is necessary to place some temporary restraints on the
fastest-growing portion of high-cost support, i.e., competitive
ETC support”). In circumstances involving agency
predictions of uncertain future events, “‘complete factual
support in the record for the Commission’s judgment or
prediction is not possible or required’” since “‘a forecast of
the direction in which future public interest lies necessarily
involves deductions based on the expert knowledge of the

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 18
agency.’” Melcher v. FCC, 134 F.3d 1143, 1151 (D.C. Cir.
1998) (quoting FPC v. Transcon. Gas Pipe Line Corp., 365
U.S. 1, 29 (1961)). Thus, when an agency’s decision is
primarily predictive, our role is limited; we require only that
the agency acknowledge factual uncertainties and identify the
considerations it found persuasive. See id. at 1152.
This court has also acknowledged the FCC should be
given “substantial deference” when acting to impose interim
regulations. See, e.g., MCI Telecomms. Corp., 750 F.2d at
141 (“Substantial 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.”).
Accordingly, we have repeatedly held that “[a]voidance of
market disruption pending broader reforms is, of course, a
standard and accepted justification for a temporary rule.”
Competitive Telcomms. Ass’n v. FCC, 309 F.3d 8, 14 (D.C.
Cir. 2002) (“CompTel 2002”); see also ACS of Anchorage,
Inc. v. FCC
, 290 F.3d 403, 410 (D.C. Cir. 2002); MCI
, 750 F.2d at 141. The Commission here
recognized that comprehensive reform aimed at making
universal support subsidies truly cost-based and correcting the
inequities and inefficiencies that have resulted from the
identical support rule is essential. See Order ¶¶ 4, 21.
However, the Commission also recognized the irreparable
harm to the USF and the telecommunications markets
generally that might result from waiting until comprehensive
reform, which is often complex and difficult to achieve, was
adopted. Courts, including this one, have deferred to the
Commission’s decisions to enact interim rules based on its
predictive judgment that such rules were necessary to
preserve universal service. See, e.g., CompTel 2002, 309 F.3d
at 14–15; Alenco, 201 F.3d at 620–22; Southwestern Bell Tel.
Co. v. FCC
, 153 F.3d 523, 537–39, 549–50 (8th Cir. 1998).

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 19
The Commission stated specifically that “[t]he interim
cap will remain in place only until the Commission adopts
comprehensive, high-cost universal service reform,” on which
it promised to move forward “in an expeditious manner.”
Order ¶¶ 23, 37. We trust the Commission’s assurances
today. However, should the Commission fail to fulfill its
obligations, additional and more searching judicial review
may be appropriate. Compare CompTel 2002, 309 F.3d at
14–16 (upholding interim FCC rules adopted to avoid
disruption pending broader reform to make access charges
truly cost-based and eliminate implicit subsidies), with
Competitive Telecomms. Ass’n v. FCC
, 87 F.3d 522, 530,
531–32 (D.C. Cir. 1996) (refusing to uphold an “interim” rule
that perpetuated non-cost-based access charges and had been
in place for thirteen years without any “discernable progress”
by the FCC to “transition” to a fully cost-based system).

The crux of petitioners’ challenge to the reasonableness
of the Commission’s imposition of the interim cap is that the
record before the Commission did not contain substantial
evidence indicating a “growing crisis” in high-cost support.
Specifically, petitioners complain the Commission (1) relied
on the Joint Board’s incorrect estimates of future CETC
support levels; (2) drew unreasonable conclusions about the
sustainability of the fund based on past growth rates of CETC
support; and (3) proffered no evidence to show USF funding
was actually causing rate increases that might price
consumers out of the market. Petitioners also argue the
Commission failed to explain its rejection of an alternative
solution. None of their arguments persuade us the
Commission’s decision was arbitrary and capricious.

First, petitioners attack the Joint Board’s faulty estimate
that CETC support would reach almost $2 billion in 2008 and
$2.5 billion in 2009. CETC support in fact only grew to

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 20
$1.31 billion in 2008. But that error raises no concern. We
are reviewing the Commission’s decision, not the Joint
Board’s, and the Commission did not rely on the Board’s
future growth estimates for 2008 or 2009 in imposing the
interim cap. In fact, the Commission never referenced the
Board’s specific growth predictions in the Order. Instead, the
Commission relied on undisputed historical high-cost support
figures showing CETC high-cost support had ballooned from
$17 million in 2001 to $1.18 billion in 2007 to conclude
future growth at that rate might threaten both the
sustainability of the USF and the affordability of
telecommunications services. See Order ¶¶ 6, 22. Moreover,
even if the Commission had relied on the Board’s forecasts,
we judge the reasonableness of an agency’s decision on the
basis of the record before the agency at the time it made its
See Fresno Mobile Radio, 165 F.3d at 971.
Whether an agency’s decision turns out to be mistaken ex post
is of limited significance.

Petitioners also argue the annual rate at which high-cost
support disbursements grew actually decreased every year
since 2003 and thus claim the Commission had no rational
basis to predict CETC support would more than double each
year, see Order ¶ 6. Petitioners, however, misconstrue the
Commission’s reliance on the average annual growth rate of
CETC support. Although the Commission did state that the
“over 100 percent” average annual growth rate in CETC
support between 2001 and 2007 was “not sustainable,” id., the
Commission also noted the growth rate of high-cost support,
in the aggregate, would “render the amount of high-cost
support unsustainable and could cripple the universal service
fund,” id. ¶ 22. Admittedly, the Commission could have been
clearer about the evidence supporting its prediction of
unsustainability. However, even if the Commission did base
its conclusion, in part, on predictions about the average

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 21
annual growth rate of CETC support, the declines since 2003
do not undermine the reasonableness of the Commission’s
decision—a slower rate of growth on a larger base ($1.18
billion CETC high-cost support in 2007) in this instance
results in a greater impact on total size of the USF than does a
faster rate of growth on a smaller base ($17 million in 2001).

Along with their attack on the Commission’s predictions
about the sustainability of the fund, petitioners also argue
there is no apparent correlation between the annual growth
rate of CETC high-cost support and the growth of total USF
disbursements to all four programs the fund supports. The
Commission’s claim that the recent growth in total USF
disbursements is correlated to CETC support seems quite
straightforward: if one component of the total is growing
rapidly, the total will grow rapidly unless there are offsetting
declines in other components. Two of the other three USF
programs are already subject to annual funding caps, see 47
C.F.R. § 54.507(a) (schools and libraries program); 47 C.F.R.
§ 54.623 (rural health care program), and the other program,
low-income support, although not capped, did not grow at an
alarming rate from 2001 to 2007, see UNIVERSAL SERVICE
MONITORING REPORT tbl.2.2. Thus, it is clear high-cost
support, which has grown by $1.7 billion in the past six years,
is the driving force behind the growth in total USF support.
Moreover, the growth in high-cost support is clearly
attributable to CETCs, since ILEC support has actually
declined since 2005, see Order ¶ 6 n.25. While the
Commission may have failed to include all the facts and
figures underlying its conclusion, its analysis is sufficient,
especially given the deferential lens through which we review
its decision.
Petitioners further argue the Commission failed to show
consumer contributions have been, or would be, “excessive”

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 22
absent the cap and the Commission disregarded data showing
that, even if CETC support doubled to $2 billion in 2008, the
impact on consumers’ monthly wireless bill would still be
negligible. With respect to petitioners’ first argument, the
Commission relied on two separate pieces of evidence in
concluding continued growth of the fund would require
“excessive (and ever growing) contributions from
consumers.” Id. ¶ 6. First, the Commission noted the
contribution factor had reached 11.7% in 2007, its highest
level since its inception. Id. ¶ 6 n.27. Second, the
Commission noted the fund had grown at an alarming rate
over the past seven years, and support for the fund comes
from assessments paid by telecommunications providers, who
can, and almost always do, pass the cost of those assessments
to their customers. Id.; see also Alenco, 201 F.3d at 620. The
Commission thus logically concluded consumer contribution
rates would also increase at an alarming rate to keep up with
the growth in the fund. Given the substantial deference we
afford agencies’ predictive judgments, the dramatic increase
in CETC high-cost support, on its own, was enough to justify
the Commission’s prediction about the effect on consumers.
Even if CETC support doubled to $2 billion in 2008,
petitioners argue, the impact on consumers’ monthly wireless
bill would still be a negligible increase of 31 cents for
consumers with a monthly bill of $50.00. As counsel for the
Commission pointed out at oral argument, however,
petitioners’ estimates are misleading. Other carriers proffered
larger projected increases. We think the Commission, having
a more comprehensive perspective than the court or the
petitioners about the elasticity of demand for phone services,
is in the best position to determine how large an increase is
too much. Indeed, in light of the Commission’s concern that
unneeded subsidies are driving up costs for consumers of
modest means, we think the Commission’s policy decision to

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 23
place a limit on the extraction of funds from ordinary people
for an unnecessary subsidy is clearly entitled to deference.
Lastly, petitioners argue the Commission’s decision was
arbitrary and capricious because the Commission failed to
explain its rejection of a reasonable alternative to imposing
the interim cap. The Commission, they argue, could have
simply “shoveled the interim cap matter off to die quietly in
the comprehensive reform proceeding.” Br. for Pet’rs 42. As
discussed, the Commission enjoys broad discretion in
exercising its predictive judgment to determine the point at
which the USF might become so large as to risk making basic
telephone services unaffordable. It follows that the
Commission also enjoys broad discretion to determine the
point at which it must take immediate action to prevent
irreversible damage to the fund, consumers, and the
telecommunications market generally. Thus, armed with its
own expertise and considered judgment, the Commission
reasonably concluded “shovel[ing]” the matter off to “die
quietly” was not a wise option.
It is true the Commission could simply shift the
increasing burden of high-cost support around for another
decade. It could allow high-cost support to grow without
limit and fuel a commensurate increase in low-income support
for marginal consumers facing higher and higher costs. But
as the Commission recognized, that strategy is not
sustainable. Accordingly, the Commission acted reasonably
by adopting a prophylactic tool it has used numerous times
before to control USF growth. Given the heightened
deference enjoyed by both interim orders and predictive
judgments, we have no basis for finding the FCC acted
arbitrarily and capriciously.

Case: 08-1284 Document: 1220280 Filed: 12/11/2009 Page: 24
For the foregoing reasons, the petitions for review are

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