Vermont Public Service Board v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

______

Argued September 16, 2011 Decided November 18, 2011

No. 10-1184

VERMONT PUBLIC SERVICE BOARD AND MAINE PUBLIC

UTILITIES COMMISSION,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA,

RESPONDENTS

QWEST COMMUNICATIONS INTERNATIONAL INC., ET AL.,

INTERVENORS

On Petition for Review of an Order of the Federal

Communications Commission

James Hardwick Lister argued the cause for petitioners.

With him on the briefs were Elisabeth H. Ross, David Edward

Lampp, Andrew Hagler, Lisa C. Fink, and Paul Stern, Deputy

Attorney General, Office of the Attorney General for the State

of Maine. Joel B. Shifman entered an appearance.

Maureen K. Flood, Counsel, Federal Communications

Commission, argued the cause for respondents. With her on

the brief were Catherine G. O’Sullivan and Nancy C.

Garrison, Attorneys.

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U.S. Department of Justice, Austin C. Schlick, General

Counsel, Federal Communications Commission, Peter

Karanjia, Deputy General Counsel, Richard K. Welch, Acting

Associate General Counsel, and James M. Carr, Counsel.

Daniel M. Armstrong III, Associate General Counsel, Federal

Communications Commission, entered an appearance.

Helgi C. Walker argued the cause for intervenors Verizon

and NASUCA. With her on the brief were Brett A. Shumate,

Michael E. Glover, Edward Shakin, Christopher M. Miller,

John T. Scott III, and David Bergmann. Christopher J. White

entered an appearance.

Before: HENDERSON, TATEL, and GRIFFITH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Pursuant to the

Telecommunications Act of 1996, the Federal

Communications Commission, through its Universal Service

Program, provides subsidies to ensure that low-income

consumers, schools, health care providers, and libraries have

access to advanced telecommunications services and that rates

and services in rural areas are ―reasonably comparable‖ to

rates and services in urban areas. In this case, we review a

Commission order declining to increase subsidies under the

rural rates and services component of the Universal Service

Program. Because the Commission‘s decision is neither

arbitrary nor capricious, we deny the petition for review.

I.

The Telecommunications Act of 1996, 47 U.S.C.

§ 254(b), adopted six basic principles of ―universal service.‖

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These principles instruct the Commission and the several

states to jointly ―base policies for the preservation and

advancement of universal service‖ on:

(1) Quality and rates. Quality services should be

available at just, reasonable, and affordable rates.

(2) Access to advanced services. Access to

advanced telecommunications and information

services should be provided in all regions of the

Nation.

(3) Access in rural and high cost areas.

Consumers in all regions of the Nation, including

low-income consumers and those in rural, insular,

and high cost areas, should have access to

telecommunications and information services,

including interexchange services and advanced

telecommunications and information services, that

are reasonably comparable to those services provided

in urban areas and that are available at rates that are

reasonably comparable to rates charged for similar

services in urban areas.

(4) Equitable and nondiscriminatory

contributions. All providers of telecommunications

services should make an equitable and

nondiscriminatory contribution to the preservation

and advancement of universal service.

(5) Specific and predictable support

mechanisms. There should be specific, predictable

and sufficient Federal and State mechanisms to

preserve and advance universal service.

(6) Access to advanced telecommunications

services for schools, health care, and libraries.

Elementary and secondary schools and classrooms,

health care providers, and libraries should have

access to advanced telecommunications services . . . .

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47 U.S.C. § 254(b).

Pursuant to these statutory directives, the Commission

established the Universal Service Program, which consists of

four separate funds: 1) low-income support, which subsidizes

rates for individuals that might not otherwise be able to afford

basic telephone services; 2) rural health care support, which

subsidizes the costs of communications services health

providers need to offer medical services in rural areas; 3)

schools and libraries support, which funds the costs of phone

services and Internet access for educational institutions and

libraries; and 4) high-cost support—the fund at issue in this

case—which supports the provision of services in high-cost

areas. See Federal-State Joint Board on Universal Service,

Universal Service Monitoring Report, CC Dkt. No. 98-202, at

1-34 (2010).

The Program is financed by fees charged to telephone

companies and other providers of interstate

telecommunications services. See 47 C.F.R. § 54.706.

Telecommunications providers may pass these fees along to

their customers, and almost always do, usually through line

items on bills marked ―Federal Universal Service

Assessment.‖ See High Cost Universal Support Order on

Remand, 25 FCC Rcd. 4072, 4083-84 ¶ 21 (2010) (“Order”).

Thus, nearly every purchaser of telephone services in

America helps support the Program.

The past decade has seen a dramatic increase in annual

disbursements made pursuant to the Program, and a

corresponding increase in the surcharge levied on consumers.

In 2001, the Commission disbursed $5.35 billion in support of

universal service; by 2009, that number had risen to $7.26

billion. Order, 25 FCC Rcd. at 4082 ¶ 20. By early 2010,

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disbursements amounted to 15.3 percent of

telecommunications companies‘ interstate and international

revenue, requiring ―many consumers [to] pay[] a surcharge of

over 15 percent on the interstate portion of their monthly

bill.‖ Id. at 4083 ¶ 21. The high-cost support fund is by far the

Program‘s most expensive component. In 2009, total

expenditures under that fund totaled $4.3 billion of the $7.26

billion Program. Id. at 4082 ¶ 20.

This case concerns a single feature of the high-cost

support fund: subsidies the Commission gives to

telecommunications companies that provide landlines—

wireless is not covered—in rural areas. Absent these

subsidies, landline customers in rural areas would generally

pay higher rates for telephone services than customers in

urban areas. This is so because it is generally more expensive

to provide landline phone service in less-populated areas,

where customers are geographically dispersed. Given this, the

Commission provides support to ―non-rural‖

telecommunications providers (i.e., large telecommunications

companies serving both rural and urban areas) to subsidize

their costs of providing landlines in rural areas. These

subsidies are provided in order to carry out Congress‘s

directive to ensure ―reasonably comparable‖ rates between

rural and urban areas. Precisely what constitutes ―reasonable‖

comparability is a definitional matter left to the Commission‘s

discretion, see Rural Cellular Ass’n v. FCC, 588 F.3d 1095,

1101-02 (D.C. Cir. 2009), and it is the Commission‘s

definition of this statutory term that lies at the heart of this

case.

In 2003, following litigation in the Tenth Circuit not

directly relevant here, Qwest Corp. v. FCC, 258 F.3d 1191

(10th Cir. 2001) (Qwest I), the Commission defined

―reasonably comparable‖ as requiring rural rates to fall within

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a nationwide range of urban rates. Federal-State Joint Board

on Universal Service, 18 FCC Rcd. 22559, 22583 ¶ 39. The

Commission selected the range benchmark because both

urban and rural rates vary significantly from state to state, ―in

large part because states base rates on a variety of different

policies.‖ Id. at 22584 ¶ 40. Moreover, when the

Telecommunications Act was passed in 1996, ―urban

residential rates ranged from $13.04 to $30.62 and the

average urban rate was $20.01.‖ Id. Suspecting it ―reasonable

to assume that Congress was aware of the variability of urban

rates when it enacted the 1996 Act,‖ the Commission did not

―believe that Congress would have required rural rates to be

any closer to the average urban rates than other urban rates.‖

Id. For this reason, the Commission opted to use standard

deviation analysis, rather than a percentage or dollar amount,

to define ―reasonably comparable‖ rates between rural and

urban areas. Standard deviation measures the variation, or

dispersion, from the average value.

The Commission defined ―reasonably comparable‖ as

requiring rural area rates to fall within two standard

deviations of the average national urban rate. Id. at 22608-09

¶ 81. This meant that in order to be ―reasonably comparable,‖

a rural rate would have to fall within a range encompassing

95% of the individual urban rates, which the Commission

would collect by conducting an annual survey of 95 cities. Id.

at 22607-09 ¶¶ 80-81. To ensure that the federal government

and the states were both fulfilling their statutory mandate to

achieve ―reasonably comparable‖ rates, the Commission

required that states annually certify that their rural rates were

―reasonably comparable‖ to urban rates as measured by the

Commission‘s two-standard-deviation definition. Id. at

22601-02 ¶ 70.

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To help achieve ―reasonable comparability‖ of rural and

urban rates, the Commission created the support mechanism

at issue here. Under that mechanism, telecommunications

carriers serving rural areas are eligible to receive a subsidy

totaling 76% of the amount that the statewide average cost per

line exceeds two standard deviations above the national

average cost per line. Id. at 22630 ¶ 125. For example, if two

standard deviations above the national average cost per line

was $25 and the state‘s average cost per line was $30,

telecommunications carriers within a state would receive a

subsidy of $3.80 per line—or 76% of the $5.00 difference

between the state‘s average cost per line and the national

average cost per line.

The Commission based its support mechanism on costs,

rather than rates, to avoid creating incentives for carriers to

charge higher rates in the expectation that such rates would be

subsidized by the federal government. See id. at 22572 ¶ 23.

The Commission disbursed funds based on statewide average

costs, as opposed to costs in other pre-defined ―areas,‖ to

encourage states to require telephone service providers to

average rates within their borders—i.e., to charge higher rates

to urban customers and use the excess funds to lower rural

rates. Id. at 22573 ¶24. Most states have since adopted

statewide averaging policies, and these policies have resulted

in much higher rural rates in predominantly rural states like

Vermont ($30.73 per line) than in states where rural rates are

subsidized by large cities (for example, $14.14 per line in

Texas). Order, 25 FCC Rcd. at 4133-34, app. C.

Following the Commission‘s promulgation of its 2003

order, several rural states—including Vermont, Maine, and

Wyoming—petitioned the Tenth Circuit for review of that

order. Qwest Commc’ns Int’l, Inc. v. FCC, 398 F.3d 1222

(10th Cir. 2005) (Qwest II). In Qwest II, the Tenth Circuit

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identified several defects in the Commission‘s order. To begin

with, it ruled that the Commission had failed to support its

definition of ―reasonably comparable‖ rural rates—rates

falling within a range comprised of 95% of urban rates—with

sufficient empirical data. Id. at 1239. In particular, the court

criticized the Commission for focusing exclusively on the

comparability of urban and rural rates in 1996, when the

Telecommunications Act was passed. Id. at 1235. This

backwards-looking orientation, the court found, failed to

explain how the Commission‘s definition would, as required

by the Telecommunications Act, both ―preserve and advance‖

universal service. Id. at 1235-36 (emphasis added); see also

47 U.S.C. § 254(b)(4)–(5). According to the court, this defect

also infected the two-standard-deviation funding mechanism.

The court further instructed the Commission to explain how

the high-cost support mechanism comports with all of the

guiding principles in the Telecommunications Act, including

its requirement that ―services‖ be ―reasonably comparable‖

across rural and urban areas, as well as that they be made

available at ―affordable rates.‖ Id. at 1234 (citing 47 U.S.C.

§ 254(b)(1)). Significantly for our purposes, however, the

court never vacated the 2003 funding mechanism, and the

Commission has continued using it ever since.

Before the Commission had an opportunity to respond to

Qwest II, Congress passed the Recovery and Reinvestment

Act of 2009, Pub. L. No. 111-5, 123 Stat. 115

(2009). As part of that Act, Congress directed the

Commission to ―ensure that all people of the United States

have access to broadband capability.‖ Id. § 6001(k)(2), 123

Stat. at 516. The term ―broadband‖ refers to a

telecommunications signal of greater bandwidth than a

traditional signal, thus allowing for faster Internet connection

speeds and a greater capacity for traffic, including voice

communications. In response, the Commission adopted the

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National Broadband Plan in 2010. There, it laid out a roadmap

for future rulemaking that would lead to the establishment of

policies in support of Congress‘s directive to ensure universal

broadband access. See Federal Communications Commission,

Executive Summary of National Broadband Plan: Connecting

America (2010), available at

http://www.broadband.gov/plan/executive-summary. Among

other things, the National Broadband Plan recommends ―a

comprehensive reform program to shift the high-cost

universal service program from primarily supporting voice

communications to supporting broadband platforms that

enable many applications, including voice.‖ Order, 25 FCC

Rcd. at 4114 ¶ 79.

Later in 2010, the Commission issued a ―narrow‖ order

―respond[ing] to the Tenth Circuit‘s remand‖ in Qwest II.

Order, 25 FCC Rcd. at 4073 ¶ 1. The Commission began by

emphasizing the significant changes that had occurred in the

telecommunications marketplace over the preceding decade.

In particular, large numbers of customers had ―migrat[ed]

away from traditional wireline telephone service,‖ replacing

their landline phones with wireless phones. Id. at 4078-79 ¶

14. In addition, and as Congress recognized when it directed

the Commission to ensure wider broadband access, customers

in some areas of the country had the option to purchase voice

services from broadband-based Internet providers, although

―these services are not yet as pervasive as traditional wireline

or wireless services.‖ Id. at 4080 ¶ 17. And explaining that it

had ―insufficient time . . . to implement [the] reforms to the

high-cost universal service mechanisms‖ mandated by the

National Broadband Plan, the Commission stated it would

―soon release a notice of proposed rulemaking that sets the

stage for comprehensive reform of the high-cost universal

service mechanism as recommended in . . . the National

Broadband Plan.‖ Id. at 4114 ¶ 80.

10

Turning to the Tenth Circuit‘s remand order, the

Commission, this time providing additional explanation,

readopted its ―reasonably comparable‖ benchmark—that a

rural rate is ―reasonably comparable‖ if it falls within two

standard deviations of the national average urban rate. Id. at

4101 ¶ 53. In response to the court‘s instruction that any

definition of ―reasonably comparable‖ must both ―preserve

and advance universal service,‖ the Commission pointed out

that telephone subscriber rates had increased since the passage

of the Telecommunications Act, and had continued increasing

since the Commission required states to certify ―reasonable

comparability‖ of urban and rural rates as measured by the

definition it had adopted in 2003. Id. at 4102-03 ¶¶ 56-57.

Indeed, telephone subscriber rates were at an all-time high,

including in rural areas. Id. at 4101 ¶ 54. Accordingly, the

Commission concluded that the two-standard-deviation

definition had actually helped advance universal service.

Because of this, the Commission found that its definition of

―reasonably comparable‖ satisfied the Telecommunications

Act‘s mandate to preserve and advance universal service.

Then, responding to the Tenth Circuit‘s direction that the

Commission support its two-standard-deviation rule with

empirical data, the Commission cited a range of information

showing that rural rates are in fact reasonably comparable to

urban rates:

Rural and urban rates are typically similar within state

boundaries, e.g., customers in Boston pay approximately

the same rates as customers in rural Massachusetts. See

id. at 4095-96 ¶ 43.

The national average rural rate is only marginally higher

than the national average urban rate. Id.

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The range of rates does not vary as a function of

urbanization—in other words, the differences among

urban rates are similar to the differences among rural

rates. Id. at 4096-98 ¶¶ 44-46.

Based on this data, the Commission concluded that its current

system was working. Responding to comments from several

states, including Vermont and Maine, calling on the

Commission to increase subsidies to telecommunications

providers in rural states, the Commission noted that such

proposals ―would significantly increase the size of the

fund . . . and the amount that end users ultimately pay.‖ Id. at

4093 ¶ 38. Accordingly, the Commission ―decline[d] to add to

the already heavy universal service contribution burden

placed on consumers.‖ Id.

Next, the Commission responded to the Tenth Circuit‘s

directive that it explain how its high-cost support mechanism

ensures, as required by the Act, comparable services (as

opposed to rates) between rural and urban areas. See Qwest II,

398 F.3d at 1234 (citing 47 U.S.C. § 254(b)(1)). The

Commission noted that nearly every household in America

(between 95.7 and 98.2%, depending on the metric used)

subscribes to either landline or wireless telephone service.

Order, 25 FCC Rcd. at 4080-81 ¶ 18. Moreover, both rural

and urban customers have access to wireless services and

Internet-based phone services offered by companies like

Vonage and Skype. Id. at 4079-80 ¶¶ 15-17. Indeed, ―[e]ven

in rural areas, approximately 98.5 percent of the population

has access to mobile services offered by one or more

providers.‖ Id. at 4079 ¶ 15. Thus, the Commission concluded

that services were reasonably comparable between urban and

rural areas.

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That said, the Commission acknowledged that in some

states the combination of federal and state action might be

failing to produce ―reasonably comparable‖ rates or services.

To deal with such situations, the Commission adopted a

waiver procedure under which individual states could present

the Commission with ―documentation that unique

circumstances prevent the achievement of reasonably

comparable rates in that state.‖ Id. at 4100 ¶ 51. Were a state

to make such a showing, the Commission explained, it ―can

provide appropriate relief,‖ including a grant of supplemental

high-cost support to a state. Id. ¶¶ 50-51. Pursuant to the

waiver program, one state—Wyoming—applied for additional

funding. Id. ¶ 50. In response, and in a separate Memorandum

Opinion and Order, the Commission concluded that Wyoming

had demonstrated that concurrent state and federal action had

failed to produce rural rates that were reasonably comparable

to urban rates. See id. at 4116-20 ¶¶ 84-92. To correct the

problem, the Commission granted Wyoming more than $2

million in annual supplemental high-cost support. Id. at 4120

¶ 90.

Instead of seeking a waiver, the Vermont Public Service

Board and the Maine Public Utilities Commission filed the

instant petition for review.

II.

We begin with Vermont‘s contention that Qwest II

expressly directs the Commission to revise its two-standard-

deviation high-cost support mechanism. Vermont misreads

Qwest II. Nowhere does that decision say that the

Commission‘s high-cost support mechanism is per se invalid.

Instead, Qwest II invalidates the high-cost support mechanism

only insofar as it rested on an invalid definition of

―reasonably comparable‖ rates. Qwest II, 398 F.3d at 1237.

(―In that the non-rural, high-cost support mechanism

13

contained in the Order on Remand rests on the application of

the definition of ‗reasonably comparable‘ rates invalidated

above, it too must be deemed invalid.‖) (emphasis added).

Nor does Qwest II rule that the Commission‘s underlying

definition of ―reasonably comparable‖ was per se

impermissible. Indeed, the opinion observes that the

Commission‘s use of the two-standard-deviation definition of

―reasonably comparable‖ has a ―certain logic.‖ Id. But absent

empirical evidence that the Commission‘s ―reasonably

comparable‖ definition fulfilled its concurrent duties to

―preserve and advance‖ universal service, the definition was

―rendered untenable.‖ See id. Thus, nothing in Qwest II

prevents the Commission from re-adopting the same

definition of ―reasonably comparable,‖ or the same high-cost

support mechanism. Qwest II merely directs the Commission

to explain how its definition of ―reasonably comparable‖

fulfills the statutory mandate to both ―preserve and advance‖

universal service. The Commission‘s decision to re-adopt the

same definition of ―reasonably comparable‖—and the

corresponding high-cost support mechanism—would run

afoul of Qwest II only to the extent the Commission still fails

to explain how its program complies with the

Telecommunications Act.

Vermont primarily challenges the Commission‘s reliance

on data showing (1) that the definition of ―reasonably

comparable‖ it adopted in 2003 has in fact advanced services

in rural areas, and (2) that the high-cost support mechanism

has in fact produced ―reasonably comparable‖ rates.

According to Vermont, the Commission‘s use of statistics

showing that average rural and urban rates are comparable—

both within states and as a nationwide average—failed to

account for the fact that most states already ―average‖ rates by

requiring telephone providers to charge higher rates to urban

customers, using the excess funds to lower rural rates.

14

Vermont also challenges the Commission‘s citation to high

telephone subscribership rates in rural areas, arguing that

demand for telephone service is ―highly inelastic,‖

Appellants‘ Br. 29 (quoting Allocation of Costs Associated

with Local Exchange Carrier Provision of Video

Programming Services, Notice of Proposed Rulemaking, 11

FCC Rcd. 17211, 17227 ¶ 41 (1996)), and that telephone

subscription levels change little with increasing rates. We find

nothing arbitrary or capricious in the Commission‘s use of

these metrics.

To begin with, the Commission‘s focus on intrastate rural

and urban rates was entirely in accordance with the

Telecommunications Act. The Act requires reasonable

comparability between rural and urban ―areas‖ and ―regions‖;

contrary to Vermont‘s contentions, nothing in the Act requires

reasonable comparability of rates among states. Indeed, the

Tenth Circuit vacated a previous Commission standard

because it focused exclusively on interstate rate

comparability, instructing the Commission to develop

mechanisms to ensure that states would ―preserve and

advance universal service‖ within their borders. Qwest I, 258

F.3d at 1204. The Commission did just that and, since 2003,

has required states to certify ―reasonable comparability‖ of

rural-to-urban rates within their borders as a condition for

receiving federal funds. 18 FCC Rcd 22559 ¶ 92. It is in

accordance with this certification process that many states

continue to ―average‖ rural and urban rates. The Commission,

tasked by the Tenth Circuit with demonstrating that the high-

cost support mechanism preserves and advances universal

service in rural areas, reasonably cited data showing the

mechanism‘s intrastate effects.

As to the Commission‘s citation to data showing that

national average urban rates are comparable to national

15

average rural rates, Vermont argues that this comparison fails

adequately to reflect high rural rates in states like Vermont

because those higher rates are counterbalanced in the national

average by low rural rates in states with large urban centers,

like Texas. But the Commission did not consider the national

average rates in isolation. It also considered the range of

individual urban and rural rates and determined that, although

some urban rates and some rural rates are very high, the range

of rural and urban rates ―does not vary greatly.‖ See Order, 25

FCC Rcd. at 4096-98, ¶44-46. This conclusion should obviate

Vermont‘s concern.

Finally, by citing high rural telephone subscriber rates,

the Commission was seeking to disprove a negative: that rates

had become so disparate that they were affecting customer

purchasing decisions. In so doing, the Commission was

directly responding to the Tenth Circuit‘s fear that ―if rates

are too high, the essential telecommunications services

encompassed by universal service may indeed prove

unavailable.‖ Qwest II, 398 F.3d at 1236. So even if demand

for telephone services is highly inelastic, the Commission‘s

response to the Tenth Circuit was neither arbitrary nor

capricious.

Vermont next contends that the Commission failed to

address alternative rural-cost benchmarks above which

support would be paid under the high-cost support program.

In its comments on the proposed rule, Vermont called on the

Commission to subsidize telecommunications providers if a

state‘s cost per line exceeded 125% of the cost per line in

Washington, D.C.—selected as a representative urban area—

as opposed to the current two-standard-deviation benchmark.

See Order, 25 F.C.C. Rcd. at 4130-31, app. B. The

Washington, D.C. alternative would have yielded an $18.65

benchmark. Id. at 4131. In its final rule, however, the

16

Commission expressly considered and rejected the

Washington, D.C. benchmark, explaining not only that ―the

non-rural high-cost mechanism already provides sufficient

support,‖ but also that it wanted to avoid ―add[ing] to the

already heavy universal service contribution burden placed on

customers.‖ Id. at 4093 ¶ 38.

According to Vermont, the Commission failed to

consider alternative benchmarks set at dollar amounts

between $28.13 (the amount of the current benchmark) and

$18.65 (the amount under the proposed Washington, D.C.

benchmark). In particular, Vermont points out that nothing in

the Commission‘s order expressly addresses commenters‘

proposals to reduce the benchmark to $26.00 or to $26.45.

Appellant‘s Br. 45-47.

Although the Administrative Procedure Act ―demands an

adequate explanation when . . . alternatives are rejected,‖ Int’l

Ladies’ Garment Workers’ Union v. Donovan, 722 F.2d 795,

817 (D.C. Cir. 1983), agencies ―need not respond to every

comment,‖ id. at 818 (quotation omitted). Here, the

Commission decided that it had no need to change the rural

support mechanism at all. As the Commission pointed out,

nearly every rural resident has access to telephone service and

any increase in subsidies would require customers from

around the country to pay more for telephone service. Thus,

the Commission determined—reasonably in our view—that

any reduction in the cost benchmark was unnecessary.

Because the Commission adequately explained its decision to

keep the cost benchmark at two standard deviations above the

national average, its failure to expressly address alternative

benchmarks was neither arbitrary nor capricious.

Next, Vermont contends that the Commission failed in its

statutory duty to ensure that rural ―telecommunications and

17

information services . . . are reasonably comparable to those

services provided in urban areas.‖ 47 U.S.C. § 254(b)(3). In

response to this statutory directive, the Commission found

that subscribers across the country have access to essentially

identical landline, wireless, and Internet-based telephone

services. Challenging this conclusion, Vermont cites three

items from the administrative record: a letter from former

Maine Governor John Baldacci stating that certain parts of

Maine ―have no or inadequate wireless service,‖ Letter from

John E. Baldacci, Governor of Maine, to Hon. Kevin J.

Martin, Chair, FCC, WC Docket No. 05-337 (Oct. 7, 2008);

comments from Vermont and Maine alleging that, due to the

―lack of sufficient federal support‖ in rural areas,

telecommunications companies were ―slow to deploy

advanced services,‖ Comments of Maine Pub. Utils. Comm‘n,

et al. at 5, WC Docket No. 05-337 (Jan. 28, 2010); and a

declaration from a Senior Advisor at the Maine Public

Utilities Commission stating that ―rate comparisons alone

cannot show that support is sufficient . . . because they say

nothing about the sufficiency or level of services that the rates

pay for,‖ Reply Decl. on Behalf of Joel Shifman of the Maine

Pub. Utils. Comm‘n at 5, WC Docket No. 05-337 (June 8,

2009).

We have little trouble rejecting these three items as a

basis for questioning the Commission‘s finding that rural and

urban services are in fact ―reasonably comparable.‖ The

Governor‘s letter is entirely anecdotal, Vermont and Maine‘s

conclusory comments are unsupported by any data, and the

lawyer‘s declaration simply states the self-evident proposition

that rate comparisons cannot be used to demonstrate that

services are reasonably comparable. Moreover, the

Commission cited empirical data showing that ―[e]ven in rural

areas, approximately 98.5 percent of the population has access

to [wireless] services offered by one or more providers,‖ thus

18

directly supporting its conclusion that wireless services in

rural areas are comparable to those in urban areas. Order, 25

FCC Rcd. at 4079 ¶ 15.

Vermont nonetheless contends that because Congress

required the Commission to ensure that services are

reasonably comparable, the Commission was required to

collect information about the quality of services available in

rural areas. In response, the Commission explains that since

the passage of the Telecommunications Act, it has ―reli[ed]

upon service quality data provided by the states in

combination with those data that the Commission already

gathers . . . to monitor service quality trends.‖ Appellee‘s Br.

52 (emphasis added) (quoting Federal-State Joint Bd. On

Universal Serv., 12 FCC Rcd. 8776, 8832 ¶ 100 (1997)). Such

a system, the Commission believes, works because most

states have enacted their own mechanism to ensure high-

quality service within their borders. Accordingly, ―additional

efforts undertaken at the federal level would be largely

redundant.‖ Appellee‘s Br. 52 (citing Federal-State Joint Bd.

On Universal Serv., 12 FCC Rcd. at 8831-32 ¶ 99).

Contrary to Vermont‘s contention, the Commission has

not abdicated its statutory duties by having the states submit

service quality data. The relevant provision of the

Telecommunications Act requires the Commission to ensure

that ―[c]onsumers in all regions of the Nation . . . have access

to telecommunications and information services . . . that are

reasonably comparable to those services provided in urban

areas.‖ 47 U.S.C. § 254(b)(3). Nothing in that provision

requires—nor even implies—that the Commission itself must

collect data on service comparability in any given manner.

And, as the Commission quite reasonably explains, and

Vermont nowhere disputes, most states already maintain

service quality data. If that data reveals quality problems,

19

states have every incentive to send it on to the Commission.

Thus, absent a clear congressional directive that the

Commission itself engage in fact-finding, the Commission

acted well within its discretion in requiring states to submit

service data.

Finally, Vermont contends that even if the Commission‘s

high-cost support mechanism comports with the statute and is

supported by empirical evidence, the Commission‘s use of

stale data to calculate subsidies renders that mechanism

invalid in practice. To determine the amount of high-cost

support a state should receive, the Commission must first

calculate the average cost per line—both nationally and

within states. To do so, the Commission divides the total

amount spent on providing services by the number of

telephone lines served. Although the Commission once

updated line counts periodically, it last did so in 2002, and

since then the number of landlines serviced in rural areas (and

across the country) has dropped as many customers have

abandoned landline phones altogether in favor of mobile

phone services, Order, 25 FCC Rcd. at 4078-79 ¶ 14. Because

fewer lines serviced means a higher average cost per line,

Vermont contends that had the Commission used current data,

the rural costs per line may have been higher and thus

statewide averages more likely to exceed—and to exceed by a

larger amount—two standard deviations above the national

average cost.

Acknowledging that it now uses stale line-count data, the

Commission contends that updating the data is a labor-

intensive process that would take time away from its top

priority—implementing the National Broadband Plan and

ensuring that all regions of the nation have access to advanced

telecommunications technology. Because the National

Broadband Plan will overhaul the current Universal Support

20

Program, the Commission believes it is not worth ―expending

significant time and resources‖ to update the current cost

model. Doing so, the Commission tells us, would ―impede

[its] ability to implement the congressionally-mandated

National Broadband Plan‖—a plan that, once in effect, will

replace the current high-cost support mechanisms with funds

for universal broadband deployment. Appellee‘s Br. 45.

Vermont offers us no basis for questioning the

Commission‘s assurance that it is diligently working on

implementing the National Broadband Plan nor its judgment

that updating line counts would divert resources from that

task. In any event, line counts are relevant only insofar as the

existing high-cost support program remains in effect. Pursuant

to the National Broadband Plan, that program will soon be

overhauled to take account of the rapidly shifting

technological landscape.

And that‘s not all. At oral argument, Commission counsel

assured us that states potentially disadvantaged by stale line

counts are not without recourse. Specifically, they may

petition the Commission for supplemental relief under the

waiver program by submitting ―documentation that unique

circumstances prevent the achievement of reasonably

comparable rates in that state.‖ Order, 25 FCC Rcd. at 4100 ¶

51. Indeed, Commission counsel called Vermont‘s challenge

to stale line-count data a ―perfect use of the waiver process.‖

Oral Arg. Rec. at 41:54. As we have previously held, such a

process is a ―sign of reasonableness,‖ representing an

―exception from the rigors of the broad rule‖ and thus, an

effort by an agency ―to cabin, under appropriate

circumstances, [a general rule‘s] potential sweep.‖ Natural

Res. Def. Council v. EPA, 822 F.2d 104, 120 (D.C. Cir. 1987).

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III.

The Telecommunications Act‘s universal service

provision requires the Commission to do far more than

promote rural rates and services that are ―reasonably

comparable‖ to those in urban areas. The Commission must

also ensure that ―low-income consumers . . . schools and

classrooms, health care providers, and libraries…have access

to advanced telecommunications services.‖ 47 U.S.C.

§ 254(b). And in carrying out all these mandates, the

Commission must ensure that rates charged to consumers

nationwide are ―just, reasonable, and affordable.‖ Id. As the

Commission rightly observed, it has a ―responsibility to be a

prudent guardian of the public‘s resources.‖ Order, 25 FCC

Rcd. at 4088 ¶ 29.

Here, the Commission has explained that ―reasonable

comparability‖ between rural and urban areas has been largely

accomplished and that expansion of the high-cost support

fund will ―jeopardize other statutory mandates,‖ such as

extending services to schools, hospitals, and libraries, and

―ensuring affordable rates in all parts of the country.‖ Id. at

4087 ¶ 28. Because of this, and because the Commission has

promised to address state-specific issues, like those presented

by Vermont and Maine, through the waiver process, its

decision to leave the high-cost support mechanism unchanged

is neither arbitrary nor capricious. We thus deny the petition

for review.

So ordered.