CPUC Rips ‘Illogical’ T-Mobile Complaint in State USF Case

T-Mobile seeks to cloak its "private concern” with a change to California USF “in the language of equity and solicitude for low-income Californians,” the California Public Utilities Commission said Monday at the U.S. District Court of Northern California. T-Mobile and subsidiaries seek a preliminary injunction to stop the CPUC’s October decision to switch to connections-based contribution from taking effect April 1 (see 2302020058). Opposing that motion in case 3:23-cv-00483, the CPUC said T-Mobile lacks standing and fails to show California’s connection-based surcharge violates federal law.

The California commission urged the court to deny preliminary injunction. The state’s universal service programs "aid millions of people," said the CPUC. "These funds are supported by surcharges and, to ensure the health of these programs, California is moving from six separate surcharges based on telephone carriers’ revenues -- a mechanism that has become inequitable, unpredictable, and unsustainable -- to one flat-rate surcharge on connections." T-Mobile's "eleventh-hour challenge" could have been made months ago, the CPUC added. Blocking the change now "would disrupt a complex administrative process that both the Commission and the State’s other telephone corporations have been working diligently to implement, burdening them, confusing California’s telephone consumers, and leaving in place a failing mechanism.”

Pay no attention to T-Mobile’s argument that the change will disproportionately hurt low-income customers who mostly choose wireless services, said the commission. Keeping the status quo would make the state's low-income subsidy California LifeLine and other universal service programs unsustainable, while giving T-Mobile a competitive advantage over wireline carriers that currently pay more in contributions, it said. Also, the CPUC said its order exempts LifeLine subscribers and incarcerated persons from paying the surcharge.

A big hole in T-Mobile’s case, said the CPUC, is that telephone carriers don't pay the surcharge in California themselves; they collect and remit a fee assessed to end users. So while T-Mobile claims the switch “will cost them money, they are complaining about money that they need not pay,” said the commission. Some carriers including T-Mobile may pay the surcharge on customers' behalf under some plans, but "that's a business decision,” said the CPUC: "Any economic harm … is a result of their own choices.”

T-Mobile lacks standing because the surcharge falls evenly on every telephone user, argued the CPUC. T-Mobile's claims it will suffer harm to its brand and reputation -- making it more difficult to compete and possibly costing it market share -- "are too speculative and attenuated to constitute irreparable injury meriting injunctive relief -- and are, moreover, illogical," said the commission: The surcharge will apply to every customer no matter what carrier or service is used.

T-Mobile hasn't shown a violation of federal communications law, the CPUC said. The 1996 Telecom Act gave states explicit authority to decide how to run state USFs as long as the contribution method isn't inconsistent with FCC rules and doesn't rely on or burden federal USF support mechanisms, said the CPUC: Section 151 authorizes state regulation and limits preemption. The CPUC disagreed that Section 254(f) preempts the surcharge because it's inconsistent with the revenue-based federal mechanism and would impermissibly discriminate against wireless carriers. "State universal service funding mechanisms can and do diverge from the FCC’s methods without inconsistency.”

The district court previously said the CPUC’s surcharge on all end users wasn't inconsistent with FCC rules even though the federal commission requires carriers to pay into the federal fund, said the commission, citing 1997’s Utility Reform Network v. CPUC. The court said the Telecom Act’s legislative history “refuted the consumer group’s argument that state funding mechanisms must proceed in lockstep with the federal mechanism." Over long debates on changing the federal USF contribution method, the FCC has never said states may not change their own mechanisms, the CPUC added. Many states adopted different methods and Arizona "has used access-line surcharges since 1989."

A connections-based approach doesn't discriminate against wireless carriers, said the agency, repeating that end users -- not carriers -- pay California’s surcharge. With a fee that applies to all users regardless of what technology they use, the CPUC has “expressly crafted a surcharge mechanism that will not discriminate against any provider or type of service.”

Market changes spurred the CPUC to act, the agency said. "Although more people than ever are using telecommunications services, due to changes in technology and patterns of use, less and less of this service is surchargeable.” CPUC previously had to keep increasing the surcharge on a declining base, it said. "That is both unfair to those who must pay those ever-higher amounts and unsustainable in the long term," so the CPUC opened a rulemaking to find a better way. The agency said a coming influx of federal funding highlighted by T-Mobile won’t help because that money is mainly for infrastructure and has no relevance for five of six California public purpose programs.