Opinion ID: 501656
Heading Depth: 3
Heading Rank: 3

Heading: Is it a Prohibited Subsidy?

Text: 61 Finally, MCI contends that in enacting the Communications Act, Congress intended to preserve the previous court decisions which interpreted the sections so transferred, Brief for MCI at 58, including Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 51 S.Ct. 65, 75 L.Ed. 255 (1930). According to MCI, the twenty-five percent NTS allocation violates the doctrine of Smith because it is intended to create a subsidy or, in the alternative, has the effect of creating one. We have noted before that where there is no purely economic method of allocation ... elements of fairness and other noneconomic values inevitably enter the analysis of the choice to be made. MCI Telecommunications Corp. v. FCC, 675 F.2d 408, 416 (D.C.Cir.1982). MCI relies on Smith, however, to reason that each jurisdiction must stand independently and may not rely on the ratepayers in the other jurisdiction for support. Brief for MCI at 53. 62 This is not the first time MCI has attempted to convince this court that Smith requires a particular method of separating costs. See MCI v. FCC, 750 F.2d at 140-41. Smith holds only that intrastate and interstate telephone costs must be separated for jurisdictional purposes, and that such separation must be done according to reasonable measures. 282 U.S. at 150, 51 S.Ct. at 69. MCI's construction of Smith unduly emphasizes the Court's requirement of separation at the expense of its admonition that separation must be reasonably made. In the past, we have not interpreted the separation requirement in Smith so strictly. We have held that Smith does not constitutionally compel use of a particular formula. Smith compels 'only reasonable measures.'  MCI v. FCC, 750 F.2d at 141. See also id. at 141 n. 34. 63 Thus, we distinguish Smith because we view the twenty-five percent NTS cost allocation as a step on the road towards an efficient national telephone rate structure based primarily on access charges levied directly on customers. The allocation is a reasonable measure acceptable under Smith because it is part of a transitional process, and [i]nterim solutions may need to consider the past expectations of parties and the unfairness of abruptly shifting policies. MCI v. FCC, 750 F.2d at 141. Moreover, as we stated in NARUC, 64 [t]he shift from one type of nondiscriminatory rate structure to another may certainly be accomplished gradually to permit the affected carriers, subscribers and state regulators to adjust to the new pricing system, thus preserving the efficient operation of the interstate telephone network during the interim. 65 737 F.2d at 1135-36. 66 Accordingly, we affirm the twenty-five percent NTS cost allocation as a reasonable and carefully considered element of the transition towards the access charge regime approved in the Access Charge Decision.