T-Mobile: CPUC Fails to Show Flat-Fee USF Aligns With FCC Policy

California Public Utilities Commission opposition to T-Mobile’s challenge of USF contribution changes “is as legally indefensible as it is inequitable,” the carrier said Thursday 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 2302280037 and 2302020058). T-Mobile disagreed with CPUC opposition that it lacks standing and failed to show the new surcharge is inconsistent with federal law.

"The CPUC doubles down on its disregard for the severe inequitable impacts of its surcharge overhaul,” T-Mobile responded to Feb. 27 CPUC opposition in case 3:23-cv-00483 saying the carrier sought to cloak its own concerns “in the language of equity and solicitude for low-income Californians.” The CPUC ignores concerns about the impact to low-income customers and tells T-Mobile it "can and should shift the massive financial impact of the new rule ... entirely to their customers, including low-income consumers who rely on Plaintiffs’ wireless services as their only means of accessing the Internet,” the carrier wrote.

The California commission’s claim that plaintiffs lack standing is “baseless,” said T-Mobile: The carrier and its subsidiaries have standing as "wireless carriers that are the 'direct object' of the CPUC's new rule.” The CPUC decision explicitly said all wireless carriers must assess surcharges through the new contribution method, it said. Plaintiffs satisfy three elements of standing by showing "a concrete injury," which is "fairly traceable to the defendants' challenged action," and "that is likely to be redressed by a favorable opinion,” the carrier said. Plaintiffs project they will be required to remit more than $130 million in additional surcharges yearly, which will lead to reputational harm and market share loss when customers find out, it said. Precedent says service providers have standing to challenge fees and taxes even when they're fully passed through to customers, T-Mobile added.

Don’t forget T-Mobile’s commitment to the California attorney general settling states’ antitrust challenge to the company's 2020 Sprint acquisition, the carrier said. T-Mobile pledged to offer the same or better rate plans to customers until April 2025. “This commitment prevents Plaintiffs from adopting the CPUC’s illusory solution to the significant and direct harm Plaintiffs will suffer as a result of the new rule: abandoning their extremely popular, pro-consumer business model of offering consumers tax-inclusive wireless plans … and shifting millions of dollars in additional surcharges to their customers.”

The CPUC's opposition "fails to engage with the text of Section 254(f) of the Communications Act," which preempts state USF rules that are "inconsistent" with federal USF rules, T-Mobile said. It disagreed that the district court's 1997 decision in Utility Reform Network v. CPUC supports the CPUC's case. The CPUC brought up the case, which it said found that the state’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.

But T-Mobile sees key differences between the current and 1997 cases, it said. In the older case, the plaintiff argued the statute itself explicitly prohibited states, but here, plaintiffs don’t “allege that Section 254(f), by its own terms, prohibits the use of a connections-based mechanism,” the carrier said. “The CPUC would be free to use such a mechanism if the FCC adopted it. Rather, Plaintiffs argue that the CPUC is not free to adopt a divergent approach that fundamentally differs from that of the FCC.” Also, the 1997 decision "heavily relied on" a recommended decision by the Federal-State Joint Board on Universal Service, whereas here, T-Mobile points to "binding FCC rules and decisions,” it said.

Other states’ decisions to adopt connections-based contribution don’t make the CPUC’s change OK, T-Mobile said. Most of those states applied the per-line mechanism to TRS, which isn't a USF program subject to Section 254(f) limits, said the carrier: Three states that did apply it to USF exempted wireless. Also, the CPUC "fails to identify any judicial precedent sustaining these rules against a preemption challenge."

That all types of companies will now pay the same amount per line doesn't make the policy neutral, T-Mobile said. The CPUC doesn't disagree that wireless carriers will pay more under the new mechanism and wireline will pay less, since the existing method only assesses intrastate revenue for which wireless has little compared to wireline, said the company. “Under controlling precedent, that disproportionate impact is sufficient to establish a competitive-neutrality violation.”

Judge Laurel Beeler plans to hold a motion hearing in the case Thursday at 9:30 a.m. PDT.