Opinion ID: 757345
Heading Depth: 2
Heading Rank: 6

Heading: Recovery of Universal Service Subsidies from IXCs

Text: 67 The IXC petitioners and Texas Counsel object to the Commission's decision to allow price-cap LECs to recover their contributions to the new universal service fund from the LECs' interstate customers--both end users and long-distance carriers--by increasing interstate access charge price caps imposed on interstate customers by the amount LECs contribute to the fund. The new universal service regime requires that all telecommunications carriers providing interstate telecommunications services contribute to the new universal service fund a proportion of their revenues derived from end users. See Universal Service Order p 39-40. Since both LECs and IXCs receive revenue from end users, both types of carriers must contribute to the fund. The IXC petitioners contend that, as a result of the agency's decision, long distance companies are required to pay their share of universal service support directly, and to also pay the LECs' share of universal service support through access charges. IXC Petitioners' Joint Brief at 70. This, according to the IXC petitioners, amounts to an implicit subsidy that discriminates against IXCs in violation of § 254(e), and is not competitively neutral as required by § 254(d). 68 We cannot agree that allowing LECs to recoup from their interstate customers the normal costs of providing telecommunications services to those customers amounts to creating a discriminatory implicit subsidy. As the FCC points out, mandatory contributions to the new universal service fund are real costs of doing business that will be incurred by both LECs and IXCs. The agency determined that [u]nder our recovery mechanism, carriers will be permitted, but not required, to pass through their contributions to their interstate access and interexchange customers. Universal Service Order p 829. Under this scheme, IXCs have the option of recovering their universal service contributions through rates to their long-distance customers. LECs have the same option of passing on the costs of contributions to their interstate customers--both end users and IXCs. See Order p 379. Access charges imposed on IXCs that include the LECs' universal service cost are not above cost since universal service contributions are a real cost of doing business. The flow-through of LEC universal service costs to its IXC customers is akin to the flow-through of IXC universal service costs to its long-distance customers--neither can be categorized as an implicit subsidy in violation of § 254(e). The IXC petitioners' argument that long-distance carriers affiliated with a LEC will have a competitive advantage over unaffiliated long-distance carriers because the flow-through of LEC universal service contributions to a subsidiary is not a real cost fails to persuade us that the FCC's decision is in contravention of § 254(d)'s requirement that rates be competitively neutral. As noted above, contributions to the new universal service fund are real costs of doing business; if a LEC decides not to pass through such costs to its long-distance affiliate, it must absorb the cost itself--which it is free to do under the Commission's rules. Moreover, a LEC may not discriminate against similarly situated carriers by passing through its contribution costs to non-affiliates while absorbing the costs for its affiliates. See Universal Service Order p 851 (noting that LECs are permitted to pass through their contribution requirements to all of their customers of interstate services in an equitable and nondiscriminatory fashion). 69 Texas Counsel, on the other hand, apparently interprets the Order to mean that end users 17 alone will be subject to the pass-through of LECs' universal service contributions through increases in SLCs paid by end users. As the FCC notes, however, the pass-through of universal service costs generally will not result in any immediate increases in SLCs paid by end users because the calculation of the SLC is not currently affected by changes in the price-cap index. Furthermore, contrary to Texas Counsel's arguments, the FCC properly allowed price-cap increases only on interstate end-user revenues since the universal service contribution cost being passed through is assessed on the basis of end-user revenues. See Order p 379 ([P]rice cap LECs recovering their universal service obligation through interstate access charges must recover those contributions in the baskets for services that generate end-user interstate revenues.... The baskets containing end-user interstate services are the common line, interexchange, and trunking baskets.). Under the Commission's plan, the LECs have flexibility to determine how to recover their universal service contributions and to decide how much, if any, of those contributions to pass through to their customers. Id. 70 We conclude that the FCC's decision to allow LECs to recover their contributions to the new universal service fund from their interstate customers through an increase in the price-cap indices for baskets that generate end-user interstate revenues is not arbitrary or capricious or in violation of the 1996 Act. We note that this determination, based on extremely technical factors, has been made by the expert agency in charge of monitoring the telecommunications market and is entitled to deference--particularly because it involves an area requiring expertise. We further note that [t]his court ... patrols the perimeters of an agency's discretion. If an agency ... does not attempt either to close itself off from informed opinion or to extend its reach beyond the scope of permissible authority, then it is our duty to accept that judgment if it is rational and not unreasonable. National Ass'n of Regulatory Util. Comm'rs., 737 F.2d at 1140. We find that the FCC's decision is a rational and reasonable one under the 1996 Act.