10th Circuit to Hear USF Cases

The 10th U.S. Circuit Court of Appeals will hear challenges to the FCC’s Universal Service Fund order, it was announced late Wednesday. At least 13 challenges have been filed in various circuits; the 10th in Denver was picked in the judicial lottery to take the case. But even as the case was winding its way through the system, FCC officials on Thursday warned lawyers and lobbyists for wireless companies that the commission was hoping to launch a further rulemaking on reverse auctions as early as next month, with a goal of having the first auctions by the end of Q3 2012.

Wireless carriers “need to focus quickly,” Wireless Bureau Senior Deputy Chief Jim Schlichting said at a Federal Communications Bar Association luncheon in Washington. There are likely to be “hundreds of thousands of census blocks” that could be eligible for reverse auctions, said Margaret Wiener, chief of the FCC’s Auctions and Spectrum Access Division. Among the unanswered questions, though, is how the FCC should tackle those unserved areas, she added. There are also unresolved questions on interconnection, the role of states in regulating network edge, and others, FCC officials said at the luncheon. “There’s a ton of work left to do,” Wireline Bureau Deputy Chief Carol Mattey said.

The pending litigation and the punted questions have created a lot of “uncertainty,” Nebraska Public Service Commissioner Anne Boyle said in a separate conference call Thursday. “Hopefully, the court will determine whether it has to be stayed quickly,” she said. “This whole process has been fraught with rumors and concerns and nothing seems to be firm yet.” But Boyle acknowledged that she had some in-principle objections to the USF order. She said she saw it as a gift to price cap carriers, the very telecom carriers who have abandoned rural customers. Boyle spoke as part of a teleconference sponsored by the National Regulatory Research Institute.

The last two days have illustrated how problem-fraught the FCC’s path is. At the same time that it is dealing with challenges to its distribution reforms (CD Oct 28 p1), it was announced that next quarter’s contribution factor was going to be 17.9 percent, a record. The high figure had been expected (CD Nov 22 p1). But cost models still have to be developed, and -- even if the order survives -- companies can’t be sure whether they'll be involved in the new broadband fund, NCTA Vice President Jennifer McKee said in the NRRI conference call. Still, McKee said the FCC deserves credit for having at least set a budget for the USF.

Boyle disagreed. She said that contribution reform should have come first. “If they would be willing to look at everything that touches the networks and assess a fee … they would solve a lot of problems,” she said.

"Certainly, contribution reform is something that has to be done sooner rather than later,” McKee said. But “the commission had to take some stand to rein in the current fund.” As to expanding the fund, which some have argued for, McKee said she was worried that customers would be hit with charges on phone bills and broadband bills.

Rural Cellular Association President Steve Berry said Thursday that the new contribution factor is only a further indictment of the FCC’s USF reforms. “It is extremely disappointing to see the FCC increase the universal service contribution factor to an all-time high, especially given the fact that the Commission just released its USF Order that greatly underfunds wireless services,” Berry said. “Consumers should be outraged -- the FCC is essentially asking them to continue to fund services they are choosing less and less each day."

The 10th Circuit has handled several telecom cases in recent years, most recently the Qwest forbearance appeal. In 2005, the judges in the 10th ruled that FCC rules for non-rural USF support were unlawful, which spurred calls for comprehensive reform just before FCC Chairman Julius Genachowski took office (CD April 4/09 p4).

There is a great diversity among the appellants, said Andrew Lipman, partner with Bingham McCutchen. Many groups appealed in their home circuits, he noted. While certain appeals were expected, AT&T’s appeal was a surprise because the company helped craft the ABC Plan, which in many ways had become the template of the USF order, he said. Meanwhile, the lottery is based on random selection, he said. Unlike other lotteries of telecom cases, there is no prior basis or precedent case that would arguably point to one circuit over another, Lipman said.