Rural Cellular Ass'n v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 5, 2009 Decided December 11, 2009

No. 08-1284

RURAL CELLULAR ASSOCIATION, ET AL.,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA,

RESPONDENTS

AT&T INC. AND VERIZON,

INTERVENORS

Consolidated with 08-1285

On Petitions for Review of an Order

of the Federal Communications Commission

David A. LaFuria argued the cause for petitioners. With

him on the briefs were Russell D. Lukas and David L. Nace.

Donald J. Evans was on the brief for amicus curiae Corr

Wireless Communications, LLC in support of petitioners.

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Maureen K. Flood, Counsel, Federal Communications

Commission, argued the cause for respondents. With her on

the brief were Robert B. Nicholson and Kristen C. Limarzi,

Attorneys, U.S. Department of Justice, Matthew B. Berry,

General Counsel, Federal Communications Commission,

Joseph R. Palmore, Deputy General Counsel, Richard K.

Welch, Deputy Associate General Counsel, and Laurence N.

Bourne, Counsel.

Helgi C. Walker argued the cause for intervenors AT&T

Inc. and Verizon. With her on the brief were Michael E.

Glover, Edward Shakin, Christopher M. Miller, John T. Scott

III, and Gary L. Phillips.

Before: TATEL and BROWN, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge: Petitioners—wireless telephone

service providers serving primarily small and rural markets—

challenge the Federal Communications Commission’s (FCC

or the Commission) decision to impose an interim cap on

rapidly escalating subsidy payments. The universal support

subsidy, intended to ensure adequate, reasonably priced

service for residents of rural, sparsely populated, or hard-to-

reach areas, increased by more than a billion dollars between

2001 and 2007. See FED.-STATE JOINT BD. ON UNIVERSAL

SERV., CC Docket No. 98-202, UNIVERSAL SERVICE

MONITORING REPORT tbl.3.2 (2008) (“UNIVERSAL SERVICE

MONITORING REPORT”). Petitioners accuse the FCC of

fumbling the procedural requirements of the Administrative

Procedure Act (APA) in promulgating the interim order;

violating the Federal Communications Act; and acting

arbitrarily and capriciously.

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I

A. Telecommunications Act of 1996

Since the passage of the Communications Act of 1934

(the Act), Congress has made universal service a fundamental

goal of federal telecommunications regulation. Indeed, § 1 of

the Act states the very purpose of the FCC is “to make

available, so far as possible, to all the people of the United

States . . . a rapid, efficient, Nation-wide, and world-wide

wire and radio communication service with adequate facilities

at reasonable charges.” 47 U.S.C. § 151 (as amended).

In 1996, Congress amended the Act to introduce

competition into local telephone service, Telecommunications

Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, which had

traditionally been provided through regulated monopolies, see

47 U.S.C. §§ 251, 252. At the same time, Congress also

added a new universal service provision, § 254, to the Act.

See id. § 254. The Telecommunications Act of 1996

established a Federal-State Joint Board on Universal Service

(the Joint Board or Board) to recommend changes to the

FCC’s federal universal service regulations. Section 254(b)

directs the Joint Board and the Commission to base policies

for the preservation and advancement of universal service on

six enumerated principles, plus such “other” principles as the

Joint Board and the Commission may establish. Id.

§ 254(b)(1)–(7). Among these principles are “access . . .

provided in all regions of the Nation . . . including low-

income consumers and those in rural, insular, and high cost

areas,” “reasonably comparable” services and rates to those

offered “in urban areas,” “an equitable and nondiscriminatory

contribution to the preservation and advancement of universal

service,” by “[a]ll providers of telecommunications services,”

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and “specific, predictable, and sufficient Federal and State

mechanisms to preserve and advance universal service.” Id.

§ 254(b)(2)–(5). In addition, pursuant to its authority under

§ 254(b)(7) to adopt “other” universal service principles in the

public interest, the Commission adopted a seventh

“competitive neutrality” principle, which requires that

“universal service support mechanisms and rules neither

unfairly advantage nor disadvantage one provider over

another, and neither unfairly favor nor disfavor one

technology over another.” In the Matter of Fed.-State Joint

Bd. on Universal Serv., 12 F.C.C.R. 8776 ¶¶ 46–47 (1997).

Another universal service provision, § 254(e), requires that

federal universal service support be “explicit and sufficient to

achieve” statutory purposes and restricts high-cost universal

support to designated “eligible telecommunications carrier[s]”

(ETCs). 47 U.S.C. § 254(e).

The Commission fulfills its mandate to provide universal

service through the universal service fund (the USF). In

addition to the high-cost support program, which is designed

to support rural providers serving high-cost areas, the USF

also supports programs for low-income customers, schools

and libraries, and health care providers. See 47 C.F.R.

§§ 54.415–54.605. High-cost support disbursements,

however, overwhelmingly represent the largest category of

USF expenditures, accounting for 61.6 percent of USF

disbursements in 2007. See UNIVERSAL SERVICE

MONITORING REPORT tbl.1.11. Prior to the FCC order

challenged in this case, the high-cost program and the low-

income program were the only two components of the USF

not subject to a cap on total support.

Support for the fund comes from assessments paid by

interstate telecommunications service providers. The

assessments are calculated by applying a quarterly

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“contribution factor” to the contributors’ interstate revenues,

and contributors almost always pass their contribution

assessments through to their customers. See Alenco

Commc’ns, Inc. v. FCC, 201 F.3d 608, 620 (5th Cir. 2000).

Although incumbent local exchange carriers (ILECs) receive

high-cost support based on their actual costs of providing

service, under the Commission’s “identical support rule,”

competitive ETCs (CETCs), mainly wireless providers,

receive support for each line based not on their own costs, but

rather on the same per-line support ILECs in the relevant

service area receive. 47 C.F.R. § 54.307(a)(1).

B. The Order

In 2002, growth in the amount of USF support distributed

under the high-cost program, particularly to CETCs,

prompted the Commission to ask the Joint Board to review

the Commission’s high-cost support rules, specifically with

respect to CETC service areas. The Board responded with

several recommendations, including a recommendation to

consider revisiting the identical support rule as a means for

calculating support for CETCs. See In the Matter of Fed.-

State Joint Bd. on Universal Serv., 19 F.C.C.R. 4257 ¶ 96

(2004) (recommended decision). The Board also

recommended high-cost support be limited to “a single

connection that provides access to the public telephone

network,” rather than subsidizing multiple connections for the

same household or business. Id. ¶ 56. The Board concluded

“supporting a single connection is more consistent with the

goals of section 254 of the Act than the present system, and is

necessary to preserve the sustainability of the universal

service fund . . . and would be competitively neutral.” Id.

The Board recognized, however, that restricting support to a

single connection “may present significant administrative

challenges.” Id. ¶ 57. Thus, rather than suggesting the

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Commission modify its methodology for calculating high-cost

support at that time, the Board recommended the Commission

consider support modifications for CETCs as part of a

comprehensive review of high-cost support mechanisms. See

id. ¶¶ 4, 88. In any event, before the Commission could act

on the Board’s recommendations, Congress enacted

legislation specifically prohibiting the Commission from

implementing the single connection rule. Consolidated

Appropriations Act, 2005, Pub. L. No. 108-447, § 634, 118

Stat. 2809 (2004).

After investigating and seeking comment on several high-

cost support reform proposals, the Joint Board took action in

May 2007 by recommending the Commission adopt an

“interim, emergency cap” on high-cost support to CETCs. In

the Matter of High-Cost Universal Serv. Support, 22 F.C.C.R.

8998 (2007) (recommended decision). Noting CETC high-

cost support had skyrocketed from $15 million in 2001 (the

correct figure appears to be $16.9 million) to almost $1 billion

in 2006—an annual growth rate of over 100 percent—the

Board concluded that “without immediate action to restrain

growth in competitive ETC funding, the federal universal

service fund is in dire jeopardy of becoming unsustainable.”

Id. ¶ 4. The Board acknowledged the interim cap would not

be a permanent solution to problems with the high-cost

support distribution mechanisms, id. ¶ 8, committed to

making recommendations on comprehensive universal service

reform by November 2007, id., and sought comment on

comprehensive reform in a public notice, id. ¶ 14.

The Commission issued a Notice of Proposed

Rulemaking seeking comments on the proposed interim cap,

see In the Matter of High-Cost Universal Serv. Support, 72

Fed. Reg. 28,936 (proposed May 23, 2007) (to be codified at

47 C.F.R. pt. 54), and after receiving and reviewing 113 sets

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of comments, largely adopted the Joint Board’s proposal, see

In the Matter of High-Cost Universal Serv. Support, 73 Fed.

Reg. 37,882 (July 2, 2008) (to be codified at 47 C.F.R. pts.

32, 36, 54) (the Order). Under the interim cap, annual

support for CETCs is capped at the level of support CETCs

were eligible to receive in March 2008, subject to two limited

exceptions. First, to the extent a CETC files cost data

demonstrating its own costs “meet the support threshold in the

same manner as the incumbent LEC” in the relevant service

area, the CETC is not subject to the interim cap. Id. ¶ 31.

Second, the cap does not apply to CETCs serving tribal lands

or Alaska Native regions. Id. ¶ 32. The Commission

emphasized the cap would remain in place only until it

adopted comprehensive, high-cost universal service reform—

reform on which the Commission planned to move forward

“in an expeditious manner.” Id. ¶ 37.

II

Petitioners challenge the FCC’s order imposing the

interim cap on high-cost support to CETCs. They claim,

among other things, the Commission: (1) violated the notice-

and-comment requirements of the APA, 5 U.S.C. § 553; (2)

violated § 254 of the Federal Communications Act, 47 U.S.C.

§ 254; and (3) acted arbitrarily and capriciously in violation of

APA § 706(2)(A). We are not persuaded by any of these

arguments. Accordingly, having jurisdiction to review the

Order pursuant to 28 U.S.C. § 2342(1) and 47 U.S.C.

§ 402(a), we deny the petitions for review.

A. Rulemaking Challenge

We begin with petitioners’ argument that the

Commission violated the notice-and-comment requirements

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of the APA. Although the petitioners’ arguments are

somewhat confusing, we find them all to be without merit.

Petitioners’ first claim seems to be that the Commission

jumped the gun. It imposed the same interim emergency cap

on two individual carriers seeking license transfers that it later

imposed on all wireless carriers in the Order. See ALLTEL

Corp. & Atlantis Holdings LCC, 22 F.C.C.R. 19517,

19520–21 (2007); AT&T Inc. & Dobson Commc’ns Corp., 22

F.C.C.R. 20295, 20329 (2007). Neither adjudicatory order

imposed any obligations or restrictions on parties, including

petitioners, other than those directly involved in the mergers.

Because petitioners cannot allege any actual injury fairly

traceable to either adjudicatory order, they lack standing to

raise, and we lack jurisdiction to consider, their challenges to

the Order on this ground. See Lujan v. Defenders of Wildlife,

504 U.S. 555, 560 (1992).

Petitioners make an alternative but equally unconvincing

argument that the Commission violated the APA. Petitioners

claim the Commission’s imposition of the same interim cap

recommended by the Joint Board and adopted by the

Commission in the ALLTEL and AT&T adjudications proves

the notice-and-comment proceedings “served no purpose,”

since they simply “rubber stamped” a rule change the

Commission had already adopted and enforced without the

benefit of notice and comment. Br. for Pet’rs 31. Although

petitioners once again confuse their argument with inapposite

claims that the Commission somehow “circumvent[ed] the

APA” by adopting the cap as a condition to the two mergers

while the rule was still pending, see Reply Br. for Pet’rs 6, it

appears their central argument is that the imposition of the cap

in the two adjudications demonstrates the Commission was

closed-minded about the rule. Furthermore, because the

Commission based its decision on “exactly the same facts

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cited by the Board” and relied on by the Commission in

adopting the cap in the two adjudications, petitioners argue

the Commission improperly “prejudged” the issue in violation

of the APA. See id. at 5–8.

Under the APA, a “[g]eneral notice of proposed rule

making shall be published in the Federal Register” and “shall

include . . . either the terms or substance of the proposed rule

or a description of the subjects and issues involved.” 5 U.S.C.

§ 553(b). After publishing the required notice, the agency

must “give interested persons an opportunity to participate in

the rule making through submission of written data, views, or

arguments.” Id. § 553(c). The opportunity for comment must

be a meaningful opportunity, see Gerber v. Norton, 294 F.3d

173, 179 (D.C. Cir. 2002), and we have held that in order to

satisfy this requirement, an agency must also remain

sufficiently open-minded, see, e.g., Fed. Express Corp. v.

Mineta, 373 F.3d 112, 120 (D.C. Cir. 2004); McLouth Steel

Prods. Corp. v. Thomas, 838 F.2d 1317, 1323 (D.C. Cir.

1988).

Here, the Commission complied with each of the APA’s

rulemaking requirements. The Commission issued a Notice

of Proposed Rulemaking, see In the Matter of High-Cost

Universal Serv. Support, 72 Fed. Reg. 28,936, compiled a

record that included 113 sets of comments from interested

parties, considered those comments, and did not issue the

Order until the required rulemaking process was complete.

Nothing else is required.

Numerous commenters expressed support for the rule,

and the Commission properly took those views into account

when it decided to impose the interim cap. Other commenters

opposed the cap or recommended changes to its operation.

The Commission likewise took those views into account,

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responding throughout the Order to specific critiques of the

cap. See, e.g., Order ¶¶ 11–24. Indeed, the Commission even

added an exception to the rule based on the comments. See,

e.g., Comments of The Iowa Telecomm. Ass’n on Pub. Notice

of May 1, 2007 at 4 (May 31, 2007) (suggesting the

Commission base support on CETCs’ own costs).

B. Statutory Language

Petitioners also raise a number of challenges to the FCC’s

interpretation and application of § 254 of the Act. Pursuant to

the principles outlined in § 254, the Joint Board and the

Commission are responsible for developing “specific,

predictable and sufficient . . . mechanisms to preserve and

advance universal service.” 47 U.S.C. § 254(b)(5). Since the

principles outlined use “vague, general language,” courts have

analyzed language in § 254(b) under Chevron step two. See

Texas Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 421

(5th Cir. 1999) (“TOPUC”). Thus, the question is whether

the agency’s interpretation is a permissible construction of an

ambiguous statute. Chevron U.S.A., Inc. v. Natural Res. Def.

Council, Inc., 467 U.S. 837, 843 (1984). We will uphold the

agency’s interpretation as long as it is reasonable, see id. at

843–44, even if “there may be other reasonable, or even more

reasonable, views.” AT&T Corp. v. FCC, 220 F.3d 607, 621

(D.C. Cir. 2000); see also MCI Telecomms. Corp. v. FCC,

675 F.2d 408, 413 (D.C. Cir. 1982).

Petitioners first contend the Commission violated § 254

of the Act by interpreting the statutory principle that there

should be “specific, predictable and sufficient” USF support,

47 U.S.C. § 254(b)(5) (emphasis added), as also requiring that

the fund remain “sustainable,” see Order ¶ 7 (noting the

interim cap was necessary until comprehensive reforms are

adopted to “ensure that the universal service fund will be

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sustainable for future years”). They argue “sustainability” is a

principle adopted neither by Congress in § 254(b) nor by the

Commission in this or any previous order. We disagree.

While it is true the Commission may not “depart from [the

principles in § 254(b)] altogether to achieve some other goal,”

Qwest Corp. v. FCC, 258 F.3d 1191, 1200 (10th Cir. 2001)

(“Qwest I”), we think preservation and sufficiency are just

different ways of describing sustainability, see 47 U.S.C.

§ 254(b)(5) (stating “[t]here should be specific, predictable

and sufficient Federal and State mechanisms to preserve and

advance universal service”). See MERRIAM-WEBSTER’S

COLLEGIATE THESAURUS 574 (1988). Thus, although

“sustainability” is not mentioned in § 254(b), the Commission

reasonably interpreted Congress’s directive that it “preserve”

universal service as also requiring that it “sustain” universal

service, which, in turn, requires ensuring the sustainability of

the fund.

Petitioners’ second argument is that the Commission

further violated the Act by reading § 254(b)(5) as requiring

that support should be “sufficient, but not excessive.” Order

¶ 9 (emphasis added). They claim such an interpretation

elevates the Commission’s own goal of preserving the

solvency of the USF over Congress’s directive in § 254(b)(5)

that the fund provide support that is “sufficient” to meet the

needs of preserving and advancing universal service.

Petitioners apparently think § 254(b)(5) compels the

Commission to welcome wretched excess—at least so long as

compensating fee exactions can be squeezed out of

consumers. But the Commission’s analysis goes beyond a

narrow view of solvency, concluding “the statutory principle

of ‘sufficiency’ proscribes support in excess of that necessary

to achieve the Act’s universal service goals.” Order ¶ 8.

Thus, the Commission apparently reasons that “sufficiency”

encompasses not just affordability for those benefited, but

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fairness for those burdened. The agency seeks to strike an

appropriate balance between the interests of widely dispersed

consumers with small stakes and a concentrated interest group

seeking to increase its already large stake.

Moreover, although this court has specifically addressed

neither the meaning of “sufficiency” as the term is used in the

Act nor how the Commission should balance the risks of

excessive subsidization with the principles set forth in

§ 254(b), the Commission must consider not only the

possibility of pricing some customers out of the market

altogether, but the need to limit the burden on customers who

continue to maintain telephone service. The Fifth Circuit’s

reasoning in Alenco Communications v. FCC, 201 F.3d 608,

is instructive. In Alenco, the Fifth Circuit upheld the

Commission’s decision to impose a prophylactic cap on USF

growth, much like the cap at issue in this case. Id. at 625.

The court acknowledged “[t]he agency’s broad discretion to

provide sufficient universal service funding includes the

decision to impose cost controls to avoid excessive

expenditures that will detract from universal service.” Id. at

620–21; see also Qwest I, 258 F.3d at 1200 (noting the

Commission’s “discretion to balance the principles [in

§ 254(b)] against one another when they conflict”). Alenco,

therefore, underscores the error of petitioners’ fundamental

position that the Commission may not take measures to guard

against “excessive” USF contributions when deciding how

best to administer the program. Expounding on the proper

interpretation of “sufficient” as used in § 254(b), the Fifth

Circuit noted “excessive funding may itself violate the

sufficiency requirements of the Act” by “detract[ing] from

universal service by causing rates unnecessarily to rise,

thereby pricing some consumers out of the market.” Alenco,

201 F.3d at 620; see also Qwest Commc’ns Int’l Inc. v. FCC,

398 F.3d 1222, 1234 (10th Cir. 2005) (noting “excessive

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subsidization arguably may affect the affordability of

telecommunications services, thus violating the principle in

§ 254(b)(1)”). The court thus recognized the principle of

providing sufficient funding mechanisms to advance universal

service, 47 U.S.C. § 254(b)(5), may need to be balanced

against the principle of affordability for consumers, id.

§ 254(b)(1).

The Commission enjoys broad discretion when

conducting exactly this type of balancing. See Fresno Mobile

Radio, Inc. v. FCC, 165 F.3d 965, 971 (D.C. Cir. 1999)

(“When an agency must balance a number of potentially

conflicting [statutory] objectives . . . judicial review is limited

to determining whether the agency’s decision reasonably

advances at least one of those objectives and its

decisionmaking process was regular.”); see also TOPUC, 183

F.3d at 434, 436 (noting the Commission’s “considerable

amount of discretion” to balance “the competing concerns set

forth in § 254(b)” and the “substantial amount of deference”

the Commission should be accorded when interpreting the

term “sufficient”). Moreover, it is hard to imagine how the

Commission could achieve the overall goal of § 254—the

“preservation and advancement of universal service,” 47

U.S.C. § 254(b)—if the USF is “sufficient” for purposes of

§ 254(b)(5), yet so large it actually makes

telecommunications services less “affordable,” in

contravention of § 254(b)(1). That the Commission, in the

face of evidence showing providers were receiving subsidies

in excess of what is needed to allow them to remain in the

market, chose to consider its interest in avoiding excessive

funding from consumers was thus entirely reasonable.1

1

We conclude here only that it was reasonable for the

Commission to consider the competing principle of “affordability”

in its decision to impose the interim cap. We withhold until Section

14

In any event, petitioners have failed to demonstrate their

high-cost support would actually be insufficient under the

interim cap. The pertinent question is whether the interim cap

will undercut adequate telephone services for customers, since

“[t]he purpose of universal service is to benefit the customer,

not the carrier.” Alenco, 201 F.3d at 621. Petitioners,

however, seem to ignore this fact in their cry for more

subsidies, which they have failed to prove are necessary to

provide basic service to customers who have none.

Petitioners include no cost data showing they would, in fact,

have to leave customers without service as a result of the cap

and therefore give us no valid reason to believe the principle

of “sufficiency,” even viewed in isolation, will be violated by

the cap.

Furthermore, the Commission created an exception to the

cap. To the extent a CETC believes its capped support is

insufficient, the Order permits the CETC to obtain an

exemption upon “fil[ing] cost data demonstrating that its costs

meet the support threshold in the same manner as the

incumbent LEC.” Order ¶ 31. There is no reason to

believe—and petitioners have offered no data proving—that

support under the cap will be insufficient. Thus, the limits

imposed by the interim cap seem unlikely to deprive any

CETCs’ customers of service, while they are almost sure to

reduce the CETCs’ profits. Conveniently, both petitioners

and their amicus fail to mention the exemption provision even

a single time in their briefing. However, at oral argument,

counsel for petitioners, when pressed on the significance of

II.C our analysis of the reasonableness of the Commission’s

conclusion that failure to impose the cap would, in fact, render the

USF unsustainable and require excessive contributions from

consumers.

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the exception, characterized it as merely a “side door” that

effectively achieves nothing since there is no “accounting

mechanism” in place for wireless carriers to calculate their

costs. Although we need not consider this belated complaint,

we think it not unreasonable for the Commission to ask that

providers be prepared to calculate their own costs.

We are equally unpersuaded by petitioners’ final

statutory argument that the Commission’s decision to impose

the cap only on CETCs violates the Commission’s principle

of competitive neutrality and that the Commission also

violated the Act by elevating its principle of “sustainability”

over the principle of competitive neutrality. CETCs enjoy a

significant advantage over ILECs under the current support

system. Under the identical support rule, as the ILEC loses

lines while its fixed costs remain approximately the same, the

CETC receives higher support per line for each line it takes

from the ILEC. Moreover, since the current regime appears

to count each line and handset the same based on the ILEC’s

costs, CETCs receive subsidies well in excess of their costs.

Thus, as the Commission noted in its Order, wireless CETCs

have an “incentive to expand the number of subscribers . . .

located in the lower-cost parts of high-cost areas, rather than

to expand the geographic scope of their network.” Id. ¶ 21.

As a result of these inequities and inefficiencies that exist

under the current regime, the source of the rapid growth of the

USF fund is also unbalanced. Support to ILECs has been flat

since 2003, see id. ¶ 6, and has even declined since 2005, id.

¶ 6 n.25. Moreover, most ILEC support mechanisms are

already capped or subject to growth limits. Id. ¶ 10. Support

to CETCs, on the other hand, grew from $17 million to $1.18

billion in the six years from 2001 to 2007. Id. ¶ 6. The

evidence thus reveals it is CETC support, not ILEC support

16

that is exerting pressure on the USF and therefore poses the

most direct threat to the fund’s sustainability.

The competitive neutrality principle requires that

“universal service support mechanisms and rules neither

unfairly advantage nor disadvantage one provider over

another, and neither unfairly favor nor disfavor one

technology over another.” In the Matter of Fed.-State Joint

Bd. on Universal Serv., 12 F.C.C.R. 8776 ¶ 47. The rule thus

only prohibits the Commission from treating competitors

differently in “unfair” ways. Based on the Commission’s

findings that CETCs and not ILECs were responsible for the

surge in costs, a solution targeting only CETCs was hardly

unfair. Moreover, although the rule does not require the

Commission to provide the exact same levels of support to all

ETCs, see, e.g., TCG New York, Inc. v. City of White Plains,

305 F.3d 67, 80 (2d Cir. 2002) (noting competitive neutrality

“does not require precise parity of treatment”), to the extent a

CETC believes it should be entitled to greater per-line high-

cost support than the amount disbursed under the cap, the

Order permits the CETC to obtain an exception upon “fil[ing]

cost data demonstrating that its costs meet the support

threshold in the same manner as the incumbent LEC.” Order

¶ 31. If a CETC is not able to make this showing, the

argument that reducing its support below that of the ILEC

violates the principle of competitive neutrality has little force.

C. Arbitrary and Capricious

We turn last to petitioners’ claim that the Commission’s

decision to impose the interim cap was arbitrary and

capricious. Unlike Chevron step two review, which focuses

on whether the agency’s interpretation was reasonable,

“arbitrary and capricious” review focuses on the

reasonableness of the agency’s decisionmaking processes.

17

The standard is very deferential. Unless “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law,” or not supported by “substantial

evidence,” we will uphold an agency’s final order. 5 U.S.C.

§ 706(2); see also Arent v. Shalala, 70 F.3d 610, 614–16

(D.C. Cir. 1995). Our role in this regard is a limited one, and

we will not substitute our judgment for that of the agency.

See Sprint Nextel Corp. v. FCC, 524 F.3d 253, 257 (D.C. Cir.

2008). The Commission need only articulate a “‘rational

connection between the facts found and the choice made.’”

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Ins. Co., 463

U.S. 29, 43 (1983).

The “arbitrary and capricious” standard is particularly

deferential in matters implicating predictive judgments and

interim regulations. See, e.g., EarthLink, Inc. v. FCC, 462

F.3d 1, 12 (D.C. Cir. 2006); MCI Telecomms. Corp. v. FCC,

750 F.2d 135, 140 (D.C. Cir. 1984); FCC v. Nat’l Citizens

Comm. for Broad., 436 U.S. 775, 813–14 (1978). Where, as

here, the FCC must make predictive judgments about the

effects of increasing subsidies, certainty is impossible. The

Commission therefore relied on its expertise to evaluate the

existing evidence and decide whether the risk of harm to the

universal support system was large or important enough to

merit immediate regulatory action. The Commission

concluded it was and predicted a crisis would ensue if it

procrastinated. See Order ¶ 22 (noting “[t]o avert this crisis,

it is necessary to place some temporary restraints on the

fastest-growing portion of high-cost support, i.e., competitive

ETC support”). In circumstances involving agency

predictions of uncertain future events, “‘complete factual

support in the record for the Commission’s judgment or

prediction is not possible or required’” since “‘a forecast of

the direction in which future public interest lies necessarily

involves deductions based on the expert knowledge of the

18

agency.’” Melcher v. FCC, 134 F.3d 1143, 1151 (D.C. Cir.

1998) (quoting FPC v. Transcon. Gas Pipe Line Corp., 365

U.S. 1, 29 (1961)). Thus, when an agency’s decision is

primarily predictive, our role is limited; we require only that

the agency acknowledge factual uncertainties and identify the

considerations it found persuasive. See id. at 1152.

This court has also acknowledged the FCC should be

given “substantial deference” when acting to impose interim

regulations. See, e.g., MCI Telecomms. Corp., 750 F.2d at

141 (“Substantial deference must be accorded an agency

when it acts to maintain the status quo so that the objectives

of a pending rulemaking proceeding will not be frustrated.”).

Accordingly, we have repeatedly held that “[a]voidance of

market disruption pending broader reforms is, of course, a

standard and accepted justification for a temporary rule.”

Competitive Telcomms. Ass’n v. FCC, 309 F.3d 8, 14 (D.C.

Cir. 2002) (“CompTel 2002”); see also ACS of Anchorage,

Inc. v. FCC, 290 F.3d 403, 410 (D.C. Cir. 2002); MCI

Telecomms., 750 F.2d at 141. The Commission here

recognized that comprehensive reform aimed at making

universal support subsidies truly cost-based and correcting the

inequities and inefficiencies that have resulted from the

identical support rule is essential. See Order ¶¶ 4, 21.

However, the Commission also recognized the irreparable

harm to the USF and the telecommunications markets

generally that might result from waiting until comprehensive

reform, which is often complex and difficult to achieve, was

adopted. Courts, including this one, have deferred to the

Commission’s decisions to enact interim rules based on its

predictive judgment that such rules were necessary to

preserve universal service. See, e.g., CompTel 2002, 309 F.3d

at 14–15; Alenco, 201 F.3d at 620–22; Southwestern Bell Tel.

Co. v. FCC, 153 F.3d 523, 537–39, 549–50 (8th Cir. 1998).

19

The Commission stated specifically that “[t]he interim

cap will remain in place only until the Commission adopts

comprehensive, high-cost universal service reform,” on which

it promised to move forward “in an expeditious manner.”

Order ¶¶ 23, 37. We trust the Commission’s assurances

today. However, should the Commission fail to fulfill its

obligations, additional and more searching judicial review

may be appropriate. Compare CompTel 2002, 309 F.3d at

14–16 (upholding interim FCC rules adopted to avoid

disruption pending broader reform to make access charges

truly cost-based and eliminate implicit subsidies), with

Competitive Telecomms. Ass’n v. FCC, 87 F.3d 522, 530,

531–32 (D.C. Cir. 1996) (refusing to uphold an “interim” rule

that perpetuated non-cost-based access charges and had been

in place for thirteen years without any “discernable progress”

by the FCC to “transition” to a fully cost-based system).

The crux of petitioners’ challenge to the reasonableness

of the Commission’s imposition of the interim cap is that the

record before the Commission did not contain substantial

evidence indicating a “growing crisis” in high-cost support.

Specifically, petitioners complain the Commission (1) relied

on the Joint Board’s incorrect estimates of future CETC

support levels; (2) drew unreasonable conclusions about the

sustainability of the fund based on past growth rates of CETC

support; and (3) proffered no evidence to show USF funding

was actually causing rate increases that might price

consumers out of the market. Petitioners also argue the

Commission failed to explain its rejection of an alternative

solution. None of their arguments persuade us the

Commission’s decision was arbitrary and capricious.

First, petitioners attack the Joint Board’s faulty estimate

that CETC support would reach almost $2 billion in 2008 and

$2.5 billion in 2009. CETC support in fact only grew to

20

$1.31 billion in 2008. But that error raises no concern. We

are reviewing the Commission’s decision, not the Joint

Board’s, and the Commission did not rely on the Board’s

future growth estimates for 2008 or 2009 in imposing the

interim cap. In fact, the Commission never referenced the

Board’s specific growth predictions in the Order. Instead, the

Commission relied on undisputed historical high-cost support

figures showing CETC high-cost support had ballooned from

$17 million in 2001 to $1.18 billion in 2007 to conclude

future growth at that rate might threaten both the

sustainability of the USF and the affordability of

telecommunications services. See Order ¶¶ 6, 22. Moreover,

even if the Commission had relied on the Board’s forecasts,

we judge the reasonableness of an agency’s decision on the

basis of the record before the agency at the time it made its

decision. See Fresno Mobile Radio, 165 F.3d at 971.

Whether an agency’s decision turns out to be mistaken ex post

is of limited significance.

Petitioners also argue the annual rate at which high-cost

support disbursements grew actually decreased every year

since 2003 and thus claim the Commission had no rational

basis to predict CETC support would more than double each

year, see Order ¶ 6. Petitioners, however, misconstrue the

Commission’s reliance on the average annual growth rate of

CETC support. Although the Commission did state that the

“over 100 percent” average annual growth rate in CETC

support between 2001 and 2007 was “not sustainable,” id., the

Commission also noted the growth rate of high-cost support,

in the aggregate, would “render the amount of high-cost

support unsustainable and could cripple the universal service

fund,” id. ¶ 22. Admittedly, the Commission could have been

clearer about the evidence supporting its prediction of

unsustainability. However, even if the Commission did base

its conclusion, in part, on predictions about the average

21

annual growth rate of CETC support, the declines since 2003

do not undermine the reasonableness of the Commission’s

decision—a slower rate of growth on a larger base ($1.18

billion CETC high-cost support in 2007) in this instance

results in a greater impact on total size of the USF than does a

faster rate of growth on a smaller base ($17 million in 2001).

Along with their attack on the Commission’s predictions

about the sustainability of the fund, petitioners also argue

there is no apparent correlation between the annual growth

rate of CETC high-cost support and the growth of total USF

disbursements to all four programs the fund supports. The

Commission’s claim that the recent growth in total USF

disbursements is correlated to CETC support seems quite

straightforward: if one component of the total is growing

rapidly, the total will grow rapidly unless there are offsetting

declines in other components. Two of the other three USF

programs are already subject to annual funding caps, see 47

C.F.R. § 54.507(a) (schools and libraries program); 47 C.F.R.

§ 54.623 (rural health care program), and the other program,

low-income support, although not capped, did not grow at an

alarming rate from 2001 to 2007, see UNIVERSAL SERVICE

MONITORING REPORT tbl.2.2. Thus, it is clear high-cost

support, which has grown by $1.7 billion in the past six years,

is the driving force behind the growth in total USF support.

Moreover, the growth in high-cost support is clearly

attributable to CETCs, since ILEC support has actually

declined since 2005, see Order ¶ 6 n.25. While the

Commission may have failed to include all the facts and

figures underlying its conclusion, its analysis is sufficient,

especially given the deferential lens through which we review

its decision.

Petitioners further argue the Commission failed to show

consumer contributions have been, or would be, “excessive”

22

absent the cap and the Commission disregarded data showing

that, even if CETC support doubled to $2 billion in 2008, the

impact on consumers’ monthly wireless bill would still be

negligible. With respect to petitioners’ first argument, the

Commission relied on two separate pieces of evidence in

concluding continued growth of the fund would require

“excessive (and ever growing) contributions from

consumers.” Id. ¶ 6. First, the Commission noted the

contribution factor had reached 11.7% in 2007, its highest

level since its inception. Id. ¶ 6 n.27. Second, the

Commission noted the fund had grown at an alarming rate

over the past seven years, and support for the fund comes

from assessments paid by telecommunications providers, who

can, and almost always do, pass the cost of those assessments

to their customers. Id.; see also Alenco, 201 F.3d at 620. The

Commission thus logically concluded consumer contribution

rates would also increase at an alarming rate to keep up with

the growth in the fund. Given the substantial deference we

afford agencies’ predictive judgments, the dramatic increase

in CETC high-cost support, on its own, was enough to justify

the Commission’s prediction about the effect on consumers.

Even if CETC support doubled to $2 billion in 2008,

petitioners argue, the impact on consumers’ monthly wireless

bill would still be a negligible increase of 31 cents for

consumers with a monthly bill of $50.00. As counsel for the

Commission pointed out at oral argument, however,

petitioners’ estimates are misleading. Other carriers proffered

larger projected increases. We think the Commission, having

a more comprehensive perspective than the court or the

petitioners about the elasticity of demand for phone services,

is in the best position to determine how large an increase is

too much. Indeed, in light of the Commission’s concern that

unneeded subsidies are driving up costs for consumers of

modest means, we think the Commission’s policy decision to

23

place a limit on the extraction of funds from ordinary people

for an unnecessary subsidy is clearly entitled to deference.

Lastly, petitioners argue the Commission’s decision was

arbitrary and capricious because the Commission failed to

explain its rejection of a reasonable alternative to imposing

the interim cap. The Commission, they argue, could have

simply “shoveled the interim cap matter off to die quietly in

the comprehensive reform proceeding.” Br. for Pet’rs 42. As

discussed, the Commission enjoys broad discretion in

exercising its predictive judgment to determine the point at

which the USF might become so large as to risk making basic

telephone services unaffordable. It follows that the

Commission also enjoys broad discretion to determine the

point at which it must take immediate action to prevent

irreversible damage to the fund, consumers, and the

telecommunications market generally. Thus, armed with its

own expertise and considered judgment, the Commission

reasonably concluded “shovel[ing]” the matter off to “die

quietly” was not a wise option.

It is true the Commission could simply shift the

increasing burden of high-cost support around for another

decade. It could allow high-cost support to grow without

limit and fuel a commensurate increase in low-income support

for marginal consumers facing higher and higher costs. But

as the Commission recognized, that strategy is not

sustainable. Accordingly, the Commission acted reasonably

by adopting a prophylactic tool it has used numerous times

before to control USF growth. Given the heightened

deference enjoyed by both interim orders and predictive

judgments, we have no basis for finding the FCC acted

arbitrarily and capriciously.

24

For the foregoing reasons, the petitions for review are

Denied.