Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-11-01094/USCOURTS-caDC-11-01094-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
National Association of State Utility Consumer Advocates
Intervenor for Respondent
Rural Cellular Association
Petitioner
United States of America
Respondent
Universal Service for America Coalition
Petitioner
Verizon
Intervenor for Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 15, 2011 Decided July 13, 2012

No. 11-1094

RURAL CELLULAR ASSOCIATION AND UNIVERSAL SERVICE 

FOR AMERICA COALITION,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED 

STATES OF AMERICA,

RESPONDENTS

NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER 

ADVOCATES AND VERIZON,

INTERVENORS

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 

Himowitz, 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 1 of 24
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General Counsel, Federal Communications Commission, 

Peter Karanjia, Deputy General Counsel, Richard K. Welch, 

Deputy Associate General Counsel, and James M. Carr, 

Counsel.

Before: TATEL and GARLAND, Circuit Judges, and 

GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

GINSBURG.

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 

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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 HighCost 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.

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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 

support may be disbursed only to an “eligible 

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 

Serv., 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 

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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 

Support, 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 

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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 

I). 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.

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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 

COMMUNICATIONS COMMISSION, CONNECTING AMERICA: THE 

NATIONAL BROADBAND PLAN (March 16, 2010), available at

http://download.broadband.gov/plan/national-broadbandplan.pdf.

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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 

12,863.

The Universal Service for America Coalition, one of the 

petitioners in this case, and SouthernLINC Wireless 

petitioned the Commission to reconsider the Corr Wireless 

Order 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 8 of 24
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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 

Support, 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 

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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 

“sufficient.”

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

jurisdiction.

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 HighCost 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

(2011).

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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 

Order] ... [would be] incurably premature.” BellSouth Corp. v. 

FCC, 17 F.3d 1487, 1490 (D.C. Cir. 1994). 

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

the Commission’s 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 

I, 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. 

Kempthorne, 512 F.3d 702, 711 (D.C. Cir. 2008), we will not 

accept the Commission’s interpretation of an ambiguous 

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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 

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[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: THE HISTORY AND METHODOLOGY 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.

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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 

States, 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 

Ass’ns, 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 15 of 24
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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?

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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. 

Shalala, 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 

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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 (nonenumerated) 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). 

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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.

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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 

54.709(a)(3).

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, 

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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 

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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)).

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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 

I, 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 

rationale.

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.

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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

Denied.

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