Opinion ID: 757345
Heading Depth: 1
Heading Rank: 4

Heading: Texas Counsel

Text: 71 Petitioner Texas Counsel first objects to the FCC's requirement that carriers receiving funds from the new federal universal service mechanism apply those funds to reduce or satisfy the interstate revenue requirement otherwise collected through interstate access charges. Order p 381. They argue that universal service will be threatened by the Commission's decision, that the elimination of high-cost and DEM 18 weighting mechanisms will bring about an intrastate revenue shortfall, and that the existing federal-state jurisdictional cost-shifting mechanisms should be retained. The FCC contends that this requirement is reasonably necessary to ensure that universal service subsidies are made explicit as required by § 254(e) and to prevent double recovery by carriers receiving funds from the new federal universal service mechanism. 72 In the Universal Service Order, the Commission moved toward achieving its goal of eliminating implicit subsidies and replacing them with subsidies that are explicit and sufficient, 47 U.S.C.A. § 254, by requiring all interstate telecommunications carriers to contribute to the federal share (twenty-five percent) of universal service support. See Universal Service Order p 269. After a transition period, the new system adopted in the Universal Service Order will replace current funding mechanisms, including high-cost and DEM weighting mechanisms, by which small and high-cost LECs have been allowed to shift a greater proportion of certain intrastate costs to the interstate jurisdiction and then recover those costs, directly or indirectly, through above-cost interstate access charges imposed on IXCs. See id. pp 209-212. The FCC maintains that the gradual elimination of high-cost and DEM weighting mechanisms necessitates corresponding reductions in the access charges of carriers receiving the new universal funds. If no such adjustments were made, according to the FCC, carriers receiving the new funds could obtain a double recovery--once through the new federal universal service fund, and again through above-cost access charges imposed on IXCs. Consequently, the Commission directed incumbent LECs to use any [federal] universal service support received from the new universal service mechanisms to reduce or satisfy the interstate revenue requirement otherwise collected through interstate access charges. Order p 381. This language advises LECs that once carriers begin receiving funds from the new federal universal service mechanism, they must lower their interstate access charges to the extent that those access charges reflect implicit subsidies of universal service. 19 73 Texas Counsel's concern that the elimination of high-cost and DEM weighting mechanisms will bring about an intrastate revenue shortfall are premature. Whether or not intrastate revenue shortfalls actually will occur depends upon a number of factors not yet decided by the FCC. The Commission noted in the Order: 74 In the Universal Service Order, we conclude that, until universal service support is based on forward-looking economic cost, carriers should continue to receive amounts from the new universal service mechanisms comparable to existing high cost and DEM weighting support. In that order, we do not alter the existing revenue-shifting mechanisms in place for the current high cost support and DEM weighting at this time. Thus, no intrastate revenue shortfall will occur, because no revenue requirement is being shifted back to the intrastate jurisdiction. 75 Id. p 387 (footnote omitted). Because the level of universal service funding and the jurisdictional allocation will remain roughly constant, Texas Counsel's fear of an intrastate revenue shortfall is speculative, at best. The requirement that a certain level of intrastate universal service be maintained and whether that requirement will be satisfied, depend on a number of factors that have yet to be decided. See, e.g., Universal Service Order pp 248-249. Texas Counsel offers no reason to find at the present time that the combined state and federal funding mechanisms--once their details have been determined--will not provide sufficient levels of universal service support after the transition period has passed. This Court recently reaffirmed that 76 [t]he basic rationale of the ripeness doctrine is to prevent the courts, through the avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties. 77 California v. FCC, 124 F.3d at 943 (citations to all quoted cases omitted). 78 Assuming for the sake of argument that Texas Counsel's complaint is ripe for review, we nonetheless would conclude that the Commission acted within its authority to require LECs to adjust their interstate access charges to reflect changes in the universal service support mechanisms. Texas Counsel makes a number of arguments advancing its position that the current jurisdictional arrangement is required by the Act. Under that arrangement, some portion of the loop and switching costs above the level that would be justified by relative use is shifted to the interstate jurisdiction through the high-cost and DEM weighting programs. These arguments are not persuasive. The Commission is authorized to determine and alter allocations between interstate and intrastate jurisdictions after consulting with the Federal-State Joint Board, and courts consistently have upheld the FCC's determinations as to what proportion of shared costs will be recovered in the interstate jurisdiction. See, e.g., Rural Tel. Coalition, 838 F.2d at 1313-15 (upholding FCC decision to allocate twenty-five percent of non-traffic-sensitive costs to interstate jurisdiction); Hawaiian Tel. Co. v. Public Utils. Comm'n, 827 F.2d 1264, 1274-76 (9th Cir.1987) (holding FCC separations decision preempted independent proceedings by Hawaiian Public Utilities Commission), cert. denied, 487 U.S. 1218, 108 S.Ct. 2870, 101 L.Ed.2d 906 (1988). 79 Likewise, we reject Texas Counsel's argument that the FCC was compelled to refer to a joint board its proposal to require LECs to use funds from the new federal universal service mechanism to reduce the interstate revenue requirement. Joint board consultation is required only in proceedings regarding the jurisdictional separation of common carrier property and expenses between interstate and intrastate operations. 47 U.S.C.A. § 410(c).  'Jurisdictional separation' is a procedure that determines what proportion of jointly used plant should be allocated to the interstate and intrastate jurisdictions for ratemaking purposes. MCI Telecomms. Corp., 750 F.2d at 137. In its Order, the FCC was not allocating jointly used plant, nor was it changing the proportions for allocating jointly used plant to interstate and intrastate jurisdictions. The Commission decided only that federal support for universal service should be applied to satisfy the interstate revenue requirement, with the details remaining to be determined. See Order pp 381, 387. 80 Texas Counsel's argument that § 254(e) prevents the Commission from requiring the application of federal universal service funds to the interstate jurisdiction is also without merit. Section 254(e) provides that [a] carrier that receives [federal universal service] support shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended. 47 U.S.C.A. § 254(e). In the Universal Service Order, the Commission determined that the core services intended to be supported by universal service mechanisms included single-party service; voice grade access to the public switched network; ... access to emergency services; access to operator services; access to interexchange service; access to directory assistance; and toll limitation services for qualifying low-income consumers. Universal Service Order p 61. Contrary to Texas Counsel's argument, funds from the new federal universal service mechanism will be applied toward the portion of costs allocated to the interstate jurisdiction that is associated with providing the above services. Section 254(e) is not violated by the Commission's decision to require amounts received under the new federal universal service mechanism be applied to reduce or satisfy the interstate revenue requirement for the above core services. Order p 381. 81 The language to which Texas Counsel objects is a general statement of a fundamental premise underlying the reform of implicit subsidies: that carriers receiving new federal universal service support will be required correspondingly to reduce their interstate access charges to the extent those charges include implicit universal service subsidies. We conclude that the FCC has not acted arbitrarily or capriciously in making this determination. 82
83 Texas Counsel advances a number of arguments intended to demonstrate that the FCC's decision to increase to nine dollars the SLC cap for multi-line business and secondary residential lines is arbitrary and capricious. The FCC responds that changes made in access charge rate structure rules, including those associated with the SLC, were intended to promote economic efficiency and competition by making the structure more cost-causative while maintaining affordable rates for basic telephone services in high-cost areas. See id. p 82. To advance these goals, and keeping in mind the obligation to preserve universal service, the Commission reduced the per-minute CCL charge paid by IXCs (and passed on to long-distance customers) in favor of higher SLCs for end users. See id. pp 69-71. The FCC contends that it charted a reasonable middle course in the face of calls both to increase the SLC ceilings and to decrease the SLC ceilings. The Joint Board determined that while primary residential and single-line business lines are essential to the provision of universal service, id. p 70, universal service concerns for non-primary residential and multi-line business users are not as pressing. See id. p 75. The Commission decided, therefore, to increase the SLC cap only for the latter groups. See id. Based on data in the record, the FCC determined that common line costs were generally below the nine dollar SLC ceiling and that this rate would ensure that incumbent LECs were not prevented from recouping their common line revenues and, at the same time, would prevent widespread discontinuance of lines by multi-line customers. Id., p 80. The Commission contends that its decision is rational given the statutory imperatives, and that Texas Counsel's criticisms fall short of establishing otherwise. 84 First, Texas Counsel contends that the FCC's decision is faulty because the Commission, while citing rates of inflation as support for the increase, failed to take into consideration the offsetting impact of ten-years [sic] of productivity gains in setting the new SLC cap. Texas Counsel Brief at 34. Texas Counsel's arguments misapprehend the purpose and application of the SLC price cap. LECs have been required to set their SLCs at the lesser of the per-line average common line costs allocated to the interstate jurisdiction or the existing SLC cap. Order p 68. The SLC cap represents the maximum that a carrier may charge an end-user for its common line cost--if the carrier's per-line average costs are lower than the SLC ceiling, it may charge only the amount of those costs. If these amounts are less than the SLC ceiling, carriers must charge their actual costs; they are not permitted to impose the higher SLC cap. We conclude that the FCC did not impermissibly ignore productivity gains when increasing the SLC ceilings after taking into account inflation rates. Therefore, the Commission's decision is not arbitrary or capricious. 85 Texas Counsel next argues that the agency's decision to increase the SLC cap on secondary residential and multi-line business lines is inconsistent with its determination in the Universal Service Order that universal service funding for such lines should be continued while further investigation into permanent subsidies is conducted. By funding these lines, Texas Counsel contends, the Commission implicitly acknowledges that there are in fact at this time significant affordability concerns with respect to second lines, and that the FCC failed to explain its statement in the Order that affordability concerns are not as great for secondary residential lines. Texas Counsel Brief at 39; see Order p 75 (Because universal service concerns about ensuring affordable access to basic telephone services are not as great for non-primary residential and multi-line business lines as they are for primary residential and single-line business lines, we must take action to remove the implicit subsidies contained in our current interstate access charges.). 86 Texas Counsel's argument is without merit. In the Universal Service Order, the FCC followed the recommendations of the Joint Board that existing universal service support for all lines currently receiving support should be retained at least until the January 1, 1999 implementation of the new funding mechanism for non-rural carriers. See Universal Service Order p 245; see also, Order p 74. The Commission expressed doubt, however, that support for secondary residential lines was consistent with universal service goals. See Universal Service Order p 95 (We share the Joint Board's concern that providing universal service support [for secondary residential and multi-line business lines] may be inconsistent with the goals of universal service in that business and residential consumers that presumably can afford to pay rates that reflect the carrier's costs to provide services nevertheless would receive supported rates.); see also Order p 74. While primary residential and single-line business lines are clearly part of the basic telephone services to which universal service provisions of the 1996 Act apply, the FCC is not convinced that secondary residential and multi-line business lines warrant the same treatment. The Commission specifically declined to address these issues in the Universal Service Order, and is continuing to evaluate the Joint Board's recommendation to limit universal service support to primary residential connections and businesses with single connections. Order p 74; see also Universal Service Order p 96. We conclude that the FCC's determination in the Order to increase the SLC cap for secondary residential and multi-line business lines does not contradict actions taken by the agency in the Universal Service Order. 87 Third, Texas Counsel argues that the increased SLC cap will result in a free ride by the IXCs on the common line facilities. Texas Counsel Brief at 43. They contend that the recovery of NTS loop costs must be shared by the consumer through end-user charges and the IXC through access charges. Increasing the SLC cap imposed on end users allows IXCs to evade their fair share of these common line costs. As the Commission explained in the Order, however, its long range goal was to have incumbent LECs recover a large share of the NTS common line costs [directly] from end users instead of carriers, and to recover these costs on a flat-rated, rather than on a usage-sensitive, basis. Order p 68. This decision resulted from recognition that  '[a] subscriber who does not use the subscriber line to place or receive [interstate] calls imposes the same NTS costs as a subscriber who does use the line.'  National Ass'n of Regulatory Util. Comm'rs, 737 F.2d at 1108 (quoting In re MTS and WATS Market Structure), Third Report and Order (CC Docket No. 78-72), FCC 82-579, 93 FCC 2d 241 p 121 (released Feb. 28, 1983). Thus, simply by requesting telephone service, the subscriber causes local loop costs, whether it uses the service for intrastate or interstate calls. See id. at 1113-14. It is therefore appropriate and rational for the Commission to impose those costs on the end user. See Order p 75. We conclude that the FCC's decision to increase the SLC cap on secondary residential and multi-line business lines does not result in a windfall for IXCs. The FCC has exhaustively explained its reasons for raising the cap on these lines, see id. pp 73-87, and we find that these reasons are rational. 88 Finally, Texas Counsel argues that the FCC's decision to increase the SLC cap for non-primary lines, allegedly resulting in loop costs being shifted from competitive services to basic services, is contrary to the intent of § 254(k) of the 1996 Act. Section 254(k) provides: 89 A telecommunications carrier may not use services that are not competitive to subsidize services that are subject to competition. The Commission, with respect to interstate services, and the States, with respect to intrastate services, shall establish any necessary cost allocation rules, accounting safeguards, and guidelines to ensure that services included in the definition of universal service bear no more than a reasonable share of the joint and common costs of facilities used to provide those services. 90 47 U.S.C.A. § 254(k). Texas Counsel argues that, by virtue of this provision of the 1996 Act, the recovery of joint and common costs, such as NTS loop costs, must be borne mutually both by end users and by IXCs, and that the FCC is seeking to shift additional NTS loop cost recovery from the rates LECs charge IXCs for interstate access onto the rates end users pay for secondary telephone lines. This, according to Texas Counsel, is in violation of § 254(k) in that the existing proportion of NTS loop cost recovery by the IXCs through competitive services will be reduced through increases on end users for basic services. 91 When the Commission implemented the language of § 254(k) in its accompanying regulations, it noted that the Commission has focused its attention on the incentives that carriers may have to recover the costs of competitive services from subscribers to less competitive, regulated services by misallocating the costs of their competitive services. In re Implementation of Section 254(k) of the Communications Act of 1934, as Amended, FCC 97-163, 12 FCC Rcd No. 11 6415 p 2 (released May 8, 1997). To prevent such misallocations of costs, the FCC established a system of safeguards, including cost allocation rules, designed to inhibit carriers with market power in regulated service markets from imposing the costs and risks of nonregulated ventures on subscribers to regulated interstate services. Id. p 6. 92 Texas Counsel's contention that increasing the SLC price ceiling violates the prohibition against using non-competitive services to subsidize competitive services is unpersuasive. As the FCC noted, the first sentence of § 254(k) addresses the concern that [incumbent LECs] may attempt to gain an unfair market advantage in competitive markets by allocating to their less competitive services, for which subscribers have no available alternative, an excessive portion of the costs incurred by their competitive operations. Id. p 7. Whether a LEC allocates all of its local loop costs to the end-user or to the IXC, the LEC's competitive position as compared to other suppliers of local exchange facilities remains the same. Section 254(k) was not designed to regulate the apportionment of loop costs between end-users and IXCs because this allocation does not involve improperly shifting costs from a competitive to a non-competitive service. 93 Likewise without merit is Texas Counsel's argument that an increase in the SLC price cap violates the second sentence of § 254(k) by causing services included in the definition of universal service to bear more than a reasonable share of the joint and common costs of facilities used to provide those services. Section 254(k) separates telecommunications services into those that are supported by universal service, and those that are not. The statute empowers the FCC to establish rules to prevent LECs from overallocating to supported services the costs of facilities that are used to provide services in both categories. See id. p 8. Because the SLC is a method of recovering loop costs, not an allocation of those costs between supported and unsupported services, § 254(k) is not implicated.