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

Heading: Increase in SLC for Secondary Residential and Multi-Line Business Lines

Text: 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.