Source: http://openjurist.org/398/f3d/1222/qwest-communications-international-inc-v-federal-communications-commission
Timestamp: 2013-12-08 11:53:52
Document Index: 776598607

Matched Legal Cases: ['§ 254', '§ 254', '§ 254', '§ 254', '§ 254', '§ 254', '§ 254', '§ 254', '§ 254', '§ 254']

398 F3d 1222 Qwest Communications International Inc v. Federal Communications Commission | OpenJurist
398 F. 3d 1222 - Qwest Communications International Inc v. Federal Communications Commission	Home398 f3d 1222 qwest communications international inc v. federal communications commission
398 F3d 1222 Qwest Communications International Inc v. Federal Communications Commission 398 F.3d 1222
QWEST COMMUNICATIONS INTERNATIONAL INC., Petitioner,v.FEDERAL COMMUNICATIONS COMMISSION; United States of America, Respondents,Verizon Telephone Companies; AT & T Corp.; Maine Public Utilities Commission; SBC Communications, Inc. (SBC); Bellsouth Corporation; Vermont Public Service Board; Montana Consumer Counsel; Montana Public Service Commission; Wyoming Public Service Commission, Intervenors, andNational Association of State Utility Consumer Advocates, Amicus Curiae.SBC Communications, Inc., Petitioner,v.Federal Communications Commission; United States of America, Respondents.National Association of State Utility Consumer Advocates, Amicus Curiae.Vermont Public Service Board,v.Federal Communications Commission; United States of America, Respondents.National Association of State Utility Consumer Advocates, Amicus Curiae.
No. 03-9617.
No. 04-9518.
No. 04-9519.
Jonathan J. Frankel (John H. Harwood II, Heather M. Zachery, and Stephen M. Obenski, with him on the briefs), Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Petitioner Qwest Communications International Inc., and Petitioner and Intervenor SBC Communications Inc.
Elisabeth H. Ross (Peter Bluhm, Vermont Public Service Board, Montpelier, Vermont, with her on the briefs), Birch, Horton, Bittner and Cherot, Washington, D.C., for Petitioner and Intervenor Vermont Public Service Board.
James M. Carr (John A. Rogovin, General Counsel, Austin C. Schlick, Deputy General Counsel, John E. Ingle, Counsel, Laurel R. Bergold, Counsel, and William Scher, Counsel, on the brief) Federal Communications Commission, Washington, D.C., for Respondent Federal Communications Commission.
Mary Wright, Attorney, Montana Consumer Counsel, Helena, Montana, for Intervenor Montana Consumer Counsel and Martin Jacobsen, Special Assistant Attorney General, Montana Public Service Commission, Helena, Montana, filed a brief for Intervenors Montana Consumer Counsel and Montana Public Service Commission.
Patrick J. Crank, Attorney General, Michael L. Hubbard, Deputy Attorney General, and Barbara L. Boyer, Senior Assistant Attorney General, State of Wyoming, Cheyenne, Wyoming filed a brief for Intervenor Wyoming Public Service Commission.
Michael E. Glover, Edward S. Shakin, and Ann H. Rakestraw, Verizon, Arlington, Virginia; Lisa S. Foshee, BellSouth Corporation, Atlanta, Georgia; Richard G. Taranto, Farr & Tarranto, Washington, D.C., filed a brief for Intervenors Verizon Telephone Companies and BellSouth Corporation.
Leonard J. Cali, Lawerence J. Lafaro and Judy Sello, AT & T Corp., Bedminster, New Jersey; David L. Lawson, Virginia A. Seitz and James P. Young, Sidley Austin Brown & Wood LLP, Washington, D.C., filed an Intervenors brief for AT & T Corp.
Simon Lipstein, Assistant Attorney General, Denver, Colorado and Patrick N. Pearlman, Deputy Consumer Advocate, West Virginia Consumer Advocate, Charleston, West Virginia, filed an Amicus Curiae brief of the National Association of State Utility Consumer Advocates.
These consolidated petitions collectively challenge the Order on Remand of the Federal Communications Commission ("FCC" or "Commission"). In Qwest Corp. v. FCC, 258 F.3d 1191 (2001) ("Qwest I"), we reversed and remanded the FCC's mechanism for providing federal support to non-rural telecommunications carriers under the 1996 Telecommunications Act, 47 U.S.C. § 254 (the "Act"). In the Order on Remand the Commission sought to address the issues we identified in our previous decision. Today, we grant in part and deny in part the petitions for review. We hold that the FCC relied on an erroneous, or incomplete, construction of 47 U.S.C. § 254 in defining statutory terms and crafting the funding mechanism for non-rural, high-cost support. That construction of the statute is fatal to the cost support mechanism at issue in this case. However, we affirm that portion of the Order on Remand creating a mechanism to induce state action to assist in implementing the goals of universal service.
In Qwest I, we discussed in detail the advent of the competitive telecommunications market brought about by the passage of the Telecommunications Act of 1996 and the FCC's subsequent regulatory attempts to implement the Act's various mandates. 258 F.3d at 1196. To avoid repetition, we only briefly discuss those facts relevant to our discussion here.
Congress sought to introduce competition into once monopolized telecommunications markets through the passage of the Act. H.R.Rep. No. 104-204, at 48 (1995), reprinted in 1996 U.S.C.C.A.N. 10, 11; see also James B. Speta, Deregulating Telecommunications in Internet Time, 61 Wash. & Lee L.Rev. 1063, 1092-93 (2004) (summarizing Congressional intent). In so doing, Congress expressed its continued commitment to preserving universal service. See 47 U.S.C. § 254(b); Jennifer Hargroves, Adjudication of Universal Funding in the Telecommunications Sector, 79 Denv. U.L.Rev. 491, 494-96 (2002). Universal service incorporates the goal of insuring that consumers throughout the nation, in both rural and urban markets, have access to an evolving range of telecommunications services. Qwest I, 258 F.3d at 1195; see also 47 U.S.C. § 254(c)(1) ("Universal service is an evolving level of telecommunications services... taking into account advances in telecommunications and information technologies and services.").
Prior to passage of the Act, universal service was largely sustained through explicit, monetary payments to local carriers and a system of implicit subsidies. Qwest I, 258 F.3d at 1196. The cost of providing service in rural areas often greatly exceeds that in urban areas. Id. To ensure universal service, states often permitted carriers to charge higher rates in urban areas to subsidize the cost of providing service in rural areas. Id. Similarly, the federal government structured long-distance rates to subsidize local service. Id. With the advent of competition, Congress feared that carriers entering the market would compete aggressively for low-cost, urban areas, leaving former monopoly carriers the unsustainable burden of providing service to rural areas in the face of a dwindling urban base.
To guide the FCC in implementing "policies for the preservation and advancement of universal service," 47 U.S.C. § 254(b), Congress enunciated various principles, several of which are at issue here. Congress noted that "[q]uality services should be available at just, reasonable, and affordable rates." Id. § 254(b)(1). Consumers in rural and high-cost areas should have access to telecommunications services at "rates that are reasonably comparable to rates charged for similar services in urban areas." Id. § 254(b)(3). Congress further posited that "[t]here should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service." Id. § 254(b)(5). Under the Act, telecommunications carriers might qualify for federal support to provide service to consumers in rural and high-cost areas. Id. § 254(e). The Act requires such federal support to "be explicit and sufficient to achieve the purposes of [universal service]." Id. (emphasis added).
A. The Ninth Order and Qwest I
In Qwest I we reversed and remanded the FCC's Ninth Report and Order, FCC 99-306, CC Docket No. 96-45 (Nov. 2, 1999) ("Ninth Order").1 258 F.3d at 1205. The Ninth Order finalized the FCC's funding mechanism for non-rural telecommunications carriers in high-cost areas. Rural carriers serve only rural areas or are small in size. Id. at 1196. In contrast, non-rural carriers are larger and serve some urban areas. Id. To achieve rate comparability, the FCC based its support mechanism on forward-looking costs per line. Id. at 1197. The FCC found that costs, as opposed to rates, were a better indicator of comparability. Id. First, the FCC set a benchmark of 135% of the national average cost per line. Id. The FCC then determined carrier eligibility by comparing individual state average costs per line to the federal benchmark. Id. Non-rural carriers in states with average costs exceeding the national benchmark were eligible for support. The FCC further conditioned support on state certification that an eligible non-rural carrier would use the federal funds in compliance with 47 U.S.C. § 254(e) (mandating that federal funds only be used "for the provision, maintenance, and upgrading of facilities and services for which the support is intended"). Id. at 1198.
We predicated our decision in Qwest I on a finding that the FCC had failed to "provide sufficient reasoning or record evidence to support [the Ninth Order's] reasonableness." Id. at 1195. First, we held that the FCC had failed to adequately define key statutory terms, including "reasonably comparable" and "sufficient." Id. at 1201. In so doing, we expressed concern regarding the alleged variance in rates encompassed by the FCC's national cost benchmark. Id. Second, we held that the FCC had likewise failed to justify the 135% benchmark against the statutory goals of reasonable comparability and sufficiency. Id. at 1202. While rejecting the argument that the use of statewide and national averages is inconsistent with the statutory mandate, Id. n. 9, we noted that the FCC had failed to evaluate data in the record comparing rural and urban costs under the proposed funding mechanism and had not provided a cogent explanation for its choice of 135% as the benchmark figure. Id. at 1202. Third, we found that the Ninth Order provided no mechanisms to induce states to implement their own universal service programs; this despite the fact that the FCC itself acknowledged that the support provided by the Ninth Order could not result in reasonably comparable rates absent state action. Id. at 1203-04. Finally, we noted that the FCC had provided insufficient information concerning the full extent of federal universal service support. Id. at 1204-05. Lacking this global context, we could not proceed in assessing the reasonableness of the Commission's actions. Id. at 1205.
In remanding the Ninth Order, we required the FCC to take the following actions. First, we directed the Commission to define relevant statutory terms "more precisely in a way that can be reasonably related to the statutory principles, and then to assess whether its funding mechanism will be sufficient for the principle of making rural and urban rates reasonably comparable." Id. at 1202. Second, we required the FCC to "provide adequate record support and reasoning for whatever level of support it ultimately selects upon remand." Id. at 1203. Third, we held that the FCC was required on remand "to develop mechanisms to induce adequate state action" to assist in implementing the goals of universal service. Id. at 1204. Finally, we requested that the FCC "explain further its complete plan for supporting universal service." Id. at 1205.
B. The Order on Remand
The FCC responded to our opinion in its Order on Remand, FCC 03-249, CC Docket No. 96-45 (October 27, 2003) ("Order on Remand"). The Commission first sought to address our concerns with respect to the definitions of statutory terms. The FCC defined "sufficient" as "enough federal support to enable states to achieve reasonable comparability of rural and urban rates in high-cost areas served by non-rural carriers." Order on Remand ¶ 4. The Commission then defined "reasonably comparable" in terms of a national urban rate benchmark, i.e., rural rates are deemed reasonably comparable if they fall within two standard deviations2, or roughly 138%, of the national urban average. Id. ¶ 38 n. 130.
The Order on Remand contains the FCC's revised federal support mechanism for non-rural carriers in high-cost areas. To gauge whether current support mechanisms result in reasonably comparable rates, the Order on Remand requires states to regularly compare individual rural rates with the national average urban rate benchmark referenced above. Id. ¶ 70. The states must annually certify to the FCC whether their rural rates are reasonably comparable. Id. The benchmark represents a safe harbor, i.e., rates falling within the benchmark are presumed reasonably comparable. Id. However, states have the option to present additional information that other factors impact the comparability of their rates in high cost areas. Id. ¶ 70, 73. Importantly, non-rural carriers' eligibility for federal support is dependant on effective state certification. Id. ¶ 92. To determine the level of support, the FCC then compares the statewide average cost per line against a national average cost per line. Id. ¶¶ 49-50. Support is only available if the state's average exceeds the national average plus two standard deviations. Id. ¶ 64. Thus, the Order on Remand actually contains two separate benchmarks: a national average urban rate benchmark is used to determine whether rates are reasonably comparable and a national cost benchmark is used to determine the availability and amount of federal support.
In drafting the Order on Remand, the FCC rejected complaints from states and telecommunications carriers asserting that the previous level and allocation of funding were inadequate for the purposes of insuring universal service. However, as conceded by Petitioners, the Order on Remand increases the level of federal support from $254 million to $278 million, and the number of qualifying states from eight to ten.
C. Petitions for Review
We have consolidated three petitions for review filed against the Order on Remand. In Nos. 03-9617 and 04-9518, Qwest Communications International, Inc. ("Qwest") and SBC Communications, Inc. ("SBC") argue that (1) the FCC has violated a statutory mandate in failing to ensure that the states transition from implicit to explicit support mechanisms, (2) the Commission's definition of "reasonably comparable" runs counter to both the statute and this court's prior decision, (3) the FCC ignored this court's decision in failing to adopt adequate state inducements to ensure reasonable comparability, and (4) the Commission's definition of "sufficient" is counter to express Congressional i