Judges Appear Unlikely to Overturn Cap on USF Payments to CETCs
Judges seemed skeptical of Rural Cellular Association arguments that the U.S. Court of Appeals for the District of Columbia Circuit should throw out the FCC’s interim cap on universal service payments to competitive eligible telecommunications carriers (CETCs), imposed in May 2008. RCA attorney David LaFuria told judges during oral argument Monday that the commission had imposed the cap without a factual or logical basis, without showing an emergency requiring bold action.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
Judge David Tatel said RCA had to overcome case law giving the FCC wide discretion in this kind of case. “Number one, it’s an interim cap,” he said. “Number two, it’s a judgment of the agency.” Tatel also said he found “relatively convincing” arguments by the commission that the cap was its response to an emergency.
The FCC’s argument is that “endlessly raising the cost of universal service is going to have an adverse effect on universal service,” Judge Stephen Williams said. The commission may have been concerned that the program is in “political jeopardy” as well as at financial risk, he indicated. Williams suggested that RCA was stalling for time in asking for additional evidence for a cap. “You want efficiency studies,” he said. “You want this” investigation “to last four or five years.”
Williams noted that the FCC had given CETCs an exemption from the cap if they produce cost data showing that they need additional support. LaFuria responded that this was a “side door” intended to satisfy the court but meaningless because the necessary cost studies are almost impossible to complete since the FCC has yet to create an accounting mechanism with a benchmark for making the required comparisons. The third judge on the panel, Janice Brown, didn’t ask any questions.
Maureen Flood, an FCC attorney, assured the court that overhauling universal service fund is a “priority” for Chairman Julius Genachowski. She noted that the FCC came close to approving an order in late 2008. “I would argue it’s very interim,” Flood said. “I think we will act.” She faced less pointed questions than her adversary from Williams and Tatel. But Tatel did ask whether the FCC really faced an emergency.
Flood also said growth in the USF was “a great cause of concern for the commission” and that its members worried “a crisis would ensue if it didn’t act.” Staffers told her as she prepared the regulator’s argument that the program would have grown by hundreds of millions of dollars without the cap, Flood said.
Williams asked Flood whether the program was in “political” jeopardy if the contribution factor keeps rising. “A fund that is so large that it craters under its own weight” can’t “sustain universal service,” she replied.
RCA’s pleadings in the case argue that the FCC, under former Chairman Kevin Martin, never offered a justification for the cap and failed to offer even an analysis of how fast the USF was growing as a result of funding for CETCs. “Having neglected to determine the rate at which the USF had grown, the FCC was without a factual basis for finding that the fund was growing at an ‘unsustainable’ rate,” RCA said. “It also failed to ascertain the amount that consumers contribute to the USF, much less show that consumer contributions have been, or will be, ‘excessive’ and ‘ever growing.'”
The FCC based the cap on a single finding, that the USF contribution factor had reached its highest level yet at 11.7 percent in Q2 of 2007, RCA said. But the agency “withheld” information that Martin later submitted to Congress when he said in a letter “the spike in the contribution factor was not caused by increased demand for CETC high-cost support.” The commission also didn’t follow the Administrative Procedure Act, which required the agency to “afford parties a meaningful opportunity to comment” on the cap and obligated the FCC to “keep an open mind until the conclusion of the rulemaking,” RCA argued.
RCA members want fair treatment, LaFuria told judges Monday. “Petitioners are not asking for unlimited support,” he said. “Petitioners are asking for competitively neutral and portable support.” LaFuria noted that USF was intended to pay for growth of services for those in rural America, not just making sure everyone has a “phone on the wall.”
Stifel Nicolaus predicted in a research note that the FCC won’t be overturned, considering the tenor of the questions from Tatel and Williams. “While oral arguments don’t always predict the outcome, judges usually push back hard against the FCC’s reasoning when they are inclined to reverse the agency,” the firm said. “Judge Tatel seemed to have the most concerns, but even he didn’t engage in the kind of pushback that usually happens when a court is thinking of reversing, in our opinion.” An FCC victory would be welcomed by AT&T and Verizon, as well as rural wireline carriers, Stifel Nicolaus said. “It would be a disappointment for the RCA and its members -- including U.S. Cellular and private companies such as Cellular South -- but no surprise.”