Opinion ID: 757345
Heading Depth: 2
Heading Rank: 1

Heading: Intrastate Revenue Shortfall

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