Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-00-01055/USCOURTS-caDC-00-01055-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
National Exchange Carrier Association, Inc.
Petitioner
National Telephone Cooperative Association
Intervenor for Petitioner
United States of America
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 5, 2001 Decided June 15, 2001

No. 00-1055

National Exchange Carrier Association, Inc.,

Petitioner

v.

Federal Communications Commission and

United States of America,

Respondents

National Telephone Cooperative Association,

Intervenor

On Petition for Review of an Order of the

Federal Communications Commission

Richard A. Askoff argued the cause for petitioner. With

him on the briefs were Kenneth A. Levy and Judith L.

Harris.

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L. Marie Guillory and Daniel Mitchell were on the brief

for intervenor National Telephone Cooperative Association.

Laurel R. Bergold, Counsel, Federal Communications Commission, argued the cause for respondents. With her on the

brief were Christopher J. Wright, General Counsel, John E.

Ingle, Deputy Associate General Counsel, A. Douglas Melamed, Acting Assistant Attorney General at the time the

brief was filed, U.S. Department of Justice, Robert B. Nicholson and Robert J. Wiggers, Attorneys.

Before: Edwards, Chief Judge, Ginsburg and Tatel,

Circuit Judges.

Per curiam: The National Exchange Carrier Association

challenges an order of the Federal Communications Commission adopting a formula for distributing money from the

Universal Service Fund (USF) to subsidize high-cost telephone service providers and thereby promote telephone subscribership. The petitioner claims that the Commission's

order violates the Administrative Procedure Act because it

arbitrarily and capriciously undercompensates telephone service providers, and it was adopted without adherence to the

applicable procedures for public notice and comment. The

NECA, however, fails to articulate an intelligible explanation

of its substantive claim, and its procedural claim lacks merit.

Accordingly, we deny the petition for review.

I. Background

Telephone service in the United States is provided within

each geographical area by a single local exchange carrier

(LEC). The LEC connects long-distance calls originated by

its subscribers to the long-distance carriers of their choice

and connects long distance calls originated elsewhere to its

subscribers. For providing this "exchange access" the LEC

may obtain compensation from the long distance carriers

either by filing its own access tariff with the Commission or

by accepting compensation under a generally applicable formula adopted by the Commission. In order to effectuate the

latter option, the Commission established an independent

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organization, the NECA, "to prepare and file access charge

tariffs on behalf of all telephone companies that do not file

separate tariffs." 47 C.F.R. s 69.601(a). Among those nonfilers (called average schedule companies), any company

whose local loop costs are 115% or more of the national

average may receive additional compensation from the Commission, paid out of the Universal Service Fund pursuant to a

set formula. 47 C.F.R. s 36.631.

In October 1998 the NECA proposed a formula for calculating the USF payments to be made to average schedule

companies in the coming year and the Common Carrier

Bureau invited public comments on the proposal. The Bureau determined that using the proposed formula would

substantially increase the number of companies receiving

payments and increase by 33% the total amount paid to

average schedule companies. The Bureau also expressed

concern that the proposed formula did not well approximate

the per loop costs of average schedule companies. In particular, the Bureau found that the formula overstated costs for

two thirds of the average schedule companies sampled; indeed, more than half the companies that would receive USF

payments under the NECA's formula were below the 115%

threshhold of eligibility. Ultimately, the Bureau rejected the

proposed formula and issued an order retaining the 1998

formula, as adjusted to reflect growth in the number of local

loops served by the average schedule companies. See Staff

Order, 14 FCC Rcd 4049, 4053 p 9.

The NECA filed an application for Commission review of

the order, challenging it on both substantive and procedural

grounds. The Commission denied the application, and the

NECA filed a petition for review in this court.

II. Analysis

The NECA argues that the Commission acted in an arbitrary and capricious manner, in violation of the Administrative Procedure Act, 5 U.S.C. s 706(2)(A), by rejecting the

NECA's proposed 1999 USF formula and adhering to the

1998 formula with an upward adjustment. The NECA adUSCA Case #00-1055 Document #603728 Filed: 06/15/2001 Page 3 of 6
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mits, however, that its proposed formula does not accurately

estimate the LECs' per loop costs. Its strategy is to confess

and avoid, maintaining that the "cost per loop approach is

problematic because it systematically understates USF payments to average schedule companies." Br. for Petitioner at

7. In a footnote, the NECA adds cryptically, "The reasons

for this are complex, having to do with the fact that the USF

rules contain a sharp payment 'thresholds' [sic] that limits

USF payments to companies with loop cost in excess of 115%

of the national average." Id. n.14.

The reasons may be complex, but if the NECA wanted to

demonstrate that retaining the incumbent formula was arbitrary and capricious, then it needed to explain the reasons to

the court. Instead, the petitioner purports to show the

superiority of its own proposed approach, as follows:

Instead of attempting to model cost per loop amounts,

NECA ... calculates the actual USF payment that each

sample company would receive if it were to conduct a

cost study. These calculated USF expense adjustments

(payments) are then compared to available demand variables, and a formula is developed that predicts USF

payments for individual companies.

This "expense adjustment" modeling approach not only

avoids the systematic underpayment problem inherent in

the cost per loop approach, it appears to conform more

closely with the language of section 69.606 which requires

that formulas simulate "disbursements" of representative

cost companies (not "cost per loop" amounts or other

intermediate steps in the process).

Without a grasp of what is wrong with the Commission's

approach, however, the court cannot deem it arbitrary and

capricious, much less appreciate the supposed superiority of

the NECA's alternative.

Separately, the NECA argues, or at least observes, that

"average schedule formulas are only intended to achieve a

reasonable balance between accuracy and ease of administration," and no schedule will fit all companies perfectly. While

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no doubt true, that point falls well short of establishing that

the Commission acted in an arbitrary and capricious manner

in adjusting the prior year's formula.

Most likely there is more to the NECA's claim or it would

not have litigated it to this point, but we are unable to tell

what that more might be. Neither the petitioner nor the

court gets any help from the Commission in this regard

either; the Commission responds to the petitioner's brief

more or less in kind, leaving the court with no greater grasp

of what the parties are arguing about than what little we

could glean from the petitioner's brief. The burden of persuasion being with the petitioner, however, the Commission's

failings will not succor the NECA's case. Nor is it the court's

duty to identify, articulate, and substantiate a claim for the

petitioner. As we have said before, "this court tries not to

base its decisions on mind reading." Goos v. Nat'l Ass'n of

Realtors, 997 F.2d 1565, 1572 (1993).

In sum, the NECA has failed to make intelligible to the

court any coherent argument in support of its substantive

claim. That may reflect the court's own limitations as much

as any failure on the petitioner's part; but that is a limitation

with which both bench and bar must live. For the court's

part, we take some comfort in thinking we have previously

understood cases a good deal more complicated than this one.

The NECA also raises a procedural argument, namely that

the Commission violated s 553 of the Administrative Procedure Act by failing to follow notice and comment procedures

in making the upward adjustment to the prior year's USF

formula. The Commission first suggests that the petitioner

lacks standing to challenge an adjustment in its favor, as

though it were not injured by getting less of an adjustment

than it sought. More seriously, the Commission argues that

additional notice and comment were not required before it

issued the order adjusting the prior year's formula because

the adjustment was a "logical outgrowth" of the rule it had

put out for comment. See Fertilizer Institute v. EPA, 935

F.2d 1303, 1311 (D.C. Cir. 1991).

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As this court has explained, "the logical outgrowth test

normally is applied to consider whether a new round of notice

and comment would provide the first opportunity for interested parties to offer comments that could persuade the agency

to modify its rule." Arizona Public Service Co. v. EPA, 211

F.3d 1280, 1299 (2000); see also Association of Battery

Recyclers, Inc. v. EPA, 208 F.3d 1047, 1059 (D.C. Cir. 2000);

First Am. Discount Corp. v. Commodity Futures Trading

Comm'n, 222 F.3d 1008, 1014 (D.C. Cir. 2000). In this case,

the NECA has had ample opportunity to argue to the Commission that the 1998 rule should be modified so as to

increase USF payments to average schedule companies; indeed, that has been the NECA's purpose throughout. The

NECA even argued specifically that, should the Bureau reject

the NECA's proposed formula and retain the 1998 one instead, then it should not limit any upward adjustment in the

1998 formula to the rate of loop growth. Clearly, a new

round of notice and comment would not provide the NECA its

"first opportunity ... to offer comments" upon the order.

For the foregoing reasons, the petition for review is

Denied.

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