Federal-State Joint Board on Universal Service Western Wireless Corporation Petition for Preemption of an Order of the South Dakota Public Utilities Commission

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Text

Federal Communications Commission

FCC 00-248

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

)

Federal-State Joint Board on

)

Universal Service

CC Docket No. 96-45

Western Wireless Corporation

Petition for Preemption of an

Order of the South Dakota

Public Utilities Commission

DECLARATORY RULING

Adopted: July 11, 2000

Released: August 10, 2000

By the Commission; Commissioner Furchtgott-Roth dissenting and issuing a statement.

INTRODUCTION

In this Declaratory Ruling, we provide guidance to remove uncertainty and

terminate controversy regarding whether section 214(e)(1) of the Communications Act of 1934,

as amended, (the Act) requires a common carrier to provide supported services throughout a

service area prior to being designated an eligible telecommunications carrier (ETC) that may

receive federal universal service support.' We believe the guidance provided in this Declaratory

Ruling is necessary to remove substantial uncertainty regarding the interpretation of section

214(e)(1) in pending state commission and judicial proceedings." We believe the guidance

provided in this Declaratory Ruling will assist state commissions in acting expeditiously to fulfill

their obligations under section 214(e) to designate competitive carriers as eligible for federal

universal service support.

' The Commission may, in accordance with section 5(d) of the Administrative Procedure Act, on motion or on its

own motion, issue a declarator,' ruling terminating a controversy or removing uncertainty. See 5 U.S.C. § 554(e),

47 C.F.R. § 1.2.

" See. e.g.. Letter from Competitive Universal Service Coalition, to Chairman William E. Kennard, FCC, dated

March 8, 2000 at 2, 6; Letter from Gene DeJordy, Western Wireless, to Chairman William E. Kennard, FCC,

dated March 29, 2000 at 1-2; Peiitton for Preemption of an Order of the South Dakota Public Utilities

Commission, filed by Western Wireless (June 23, 1999) {IVesteni Wireless petition)-

" See. e.g.. Letter from Competitive Universal Service Coalition, to Chairman William E. Kennard, FCC, dated

March 8, 2000 at 2, 6; Letter from Gene DeJordy, Western Wireless, to Chairman William E. Kennard, FCC,

dated March 29, 2000 at 1-2; Peiitton for Preemption of an Order of the South Dakota Public Utilities

Commission, filed by Western Wireless (June 23, 1999) {IVesteni Wireless petition)-. The Filing by GCC License

Corporation for Designation a.s an Eligible Telecommunications Carrier, Notice of Appeal to the Supreme Court

of South Dakota, Civ. 99-235, filed by the South Dakota Public Utilities Commission {.May 10. 2000) (South

Dakota PUC Notice of Appeal).

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We believe that interpreting section 214(e)(1) to require the provision of service

throughout the service area prior to ETC designation prohibits or has the effect of prohibiting the

ability of competitive carriers to provide telecommunications service, in violation of section

253(a) of the Act. We find that such an interpretation of section 214(e)(1) is not competitively

neutral, consistent with section 254, and necessary to preserve and advance universal service, and

thus does not fall within the authority reserved to the states in section 253(b). In addition, we

find that such a requirement conflicts with section 214(e) and stands as an obstacle to the

accomplishment and execution of the full purpose and objectives of Congress as set forth in

section 254. Consequently, under both the authority of section 253(d) and traditional federal

preemption authority, we find that to require the provision of service throughout the service area

prior to designation effectively precludes designation of new entrants as ETCs in violation of the

intent of Congress. We believe that the guidance provided in this Declaratory Ruling will further

the goals of the Act by ensuring that new entrants have a fair opportunity to provide service to

consumers living in high-cost areas.

hat to require the provision of service throughout the service area

prior to designation effectively precludes designation of new entrants as ETCs in violation of the

intent of Congress. We believe that the guidance provided in this Declaratory Ruling will further

the goals of the Act by ensuring that new entrants have a fair opportunity to provide service to

consumers living in high-cost areas.

We note that Western Wireless has raised similar issues in its petition for

preemption of a decision of the South Dakota Public Utilities Commission (South Dakota PUC).^

In its petition. Western Wireless asks the Commission to preempt, under section 253 and as

inconsistent with the Act, the South Dakota PUC's requirement that, pursuant to section 214(e), a

earner may not receive designation as an ETC unless it is providing service throughout the

service area. In light of the recent South Dakota Circuit Court decision overturning the South

Dakota PUC's decision and granting Western Wireless ETC status in each exchange served'by

non-rural telephone companies in South Dakota, we believe that it is unnecessary to act on the

Western Wireless petition at this time." In doing so, we note that section 253(d) requires the

Commission to preempt state action only "to the extent necessary to correct such violation or

inconsistency. We acknowledge, however, that the South Dakota Circuit Court Order YvSiS been

automatically stayed with the filing of the South Dakota PUC's notice of appeal to the Supreme

Court of South Dakota. We therefore place Western Wireless' petition for preemption of the

South Dakota PUC Order in abeyance pending final resolution of this appeal' The Commission

See Western Wireless petition. Comments cited herein are in response to this petition

ota Circuit Court Order YvSiS been

automatically stayed with the filing of the South Dakota PUC's notice of appeal to the Supreme

Court of South Dakota. We therefore place Western Wireless' petition for preemption of the

South Dakota PUC Order in abeyance pending final resolution of this appeal' The Commission

See Western Wireless petition. Comments cited herein are in response to this petition. See also The Filing by

GCC License Corporation for Designation as an Eligible Telecommunications Carrier, Finding of Facts and

Conclusions of Law; Notice of Entry of Order, Before the Public Utilities Commission of the State of South

Dakota, TC98-146 (May 19, 1999).

" Filing by CCC License Corporation for Designation as an Eligible Telecommunications Carrier, Findings of

Fact, Conclusions of Law, and Order, Civ. 99-235 (SD Si.xth Jud. Cir. .March 22, 2000) {South Dakota Circuit

Court Order) (concluding that the South Dakota PUC "erred as a matter of law by determining that an applicant

for ETC designation must first be providing a universal service offering to every location in the requested

designated service area prior to being designated an ETC").

47 U.S.C. § 253(d) (emphasis added).

" See South Dakota Codified Laws § 15-26A-38.

South Dakota PUC Notice of Appeal.

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will make a determination at that time as to whether it is necessary to proceed consistent with the

guidance provided in this Declaratory Ruling.

II.

BACKGROUND

The Act

Section 254(e) provides that "only an eligible telecommunications carrier

designated under section 214(e) shall be eligible to receive specific Federal universal service

support."^ Section 214(e)(2) provides that "[a] State commission shall upon its own motion or

upon request designate a common carrier that meets the requirements of [subsection 214(e)(1)] as

an eligible telecommunications carrier for a service area designated by the State commission."

ications carrier

designated under section 214(e) shall be eligible to receive specific Federal universal service

support."^ Section 214(e)(2) provides that "[a] State commission shall upon its own motion or

upon request designate a common carrier that meets the requirements of [subsection 214(e)(1)] as

an eligible telecommunications carrier for a service area designated by the State commission."

Section 214(e)(1) provides that;

A common carrier designated as an eligible telecommunications carrier under

[subsections 214(e)(2), (3), or (6)] shall be eligible to receive universal service

support in accordance with section 254 and shall, throughout the service area for

which the designation is received -

(A) offer the services that are supported by Federal universal

service support mechanisms under section 254(c), either using its

own facilities or a combination of its own facilities and resale of

aiiother carrier's services (including the services offered by another

eligible telecommunications carrier); and

(B) advertise the availability of such services and the charges

therefor using media of general distnbution.

Section 253 establishes the legal framework for Commission preemption of a state

statute, regulation, or legal requirement that prohibits or has the effect of prohibiting the

competitive provision of telecommunications service. The Commission has interpreted and

applied this standard on a number of occasions." First, the Commission must determine whether

47 U.S.C. § 254(e).

47 U.S.C. § 214(e)(2).

47 U.S.C. § 214(e)(1).

See. e.g., American Communications Services, Inc., MCI Telecommunications Corp. Petition for Expedited

Declaratory' Ruling Preempting Arkansas Telecommunications Regulatory Reform Act of 1997 Pursuant to

Sections 251. 252. and 253 of the Communications Act. as amended. Memorandum Opinion and Order. CC

Docket No. 97-100, FCC 99-386 (rel. Dec. 23, 1999); Petition of Pittencrieff Communications. Inc.

See. e.g., American Communications Services, Inc., MCI Telecommunications Corp. Petition for Expedited

Declaratory' Ruling Preempting Arkansas Telecommunications Regulatory Reform Act of 1997 Pursuant to

Sections 251. 252. and 253 of the Communications Act. as amended. Memorandum Opinion and Order. CC

Docket No. 97-100, FCC 99-386 (rel. Dec. 23, 1999); Petition of Pittencrieff Communications. Inc.. for

Declaratory Ruling Regarding Preemption of the Texas Public Utility Regulatory Act of 1995, Memorandum

Opinion and Order, File No, WTB/POL 96-2, 13 FCC Red 1735 (1997) ajfd CTIA v. FCC, 168 F.3d 1332 (D.C.

Cir. 1999) {Pittencrieff Communications. Inc.)', Silver Star Telephone Company. Inc.. Petition for Preemption and

(continued....)

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the challenged law, regulation, or requirement violates section 253(a).

Specifically, the

Commission examines whether the state provision "prohibit[s] or ha[s] the effect of prohibiting

the ability of any entity to provide any interstate or intrastate telecommunications service."'"

If the Commission finds that the state requirement violates section 253(a), then it

will determine whether it is nevertheless permissible under section 253(b). The criteria set forth

in section 253(b) preserve the states' ability to impose, on a competitively neutral basis and

consistent with section 254, requirements necessary to preserve and advance universal service.'^

The Commission has held that a state program must meet all three criteria - it must be

"competitively neutral," "consistent with Section 254," and "necessary to preserve and advance

universal service" - to fall within the "safe harbor" of section 253(b).'"' The Commission has

preempted state regulations for failure to satisfy even one of the three criteria.'^ If a requirement

otherwise impermissible under section 253(a) does not satisfy section 253(b), the Commission

must preempt the enforcement of the requirement in accordance with section 253(d)."

to preserve and advance

universal service" - to fall within the "safe harbor" of section 253(b).'"' The Commission has

preempted state regulations for failure to satisfy even one of the three criteria.'^ If a requirement

otherwise impermissible under section 253(a) does not satisfy section 253(b), the Commission

must preempt the enforcement of the requirement in accordance with section 253(d)."

Federal Preemption Authority

The Supremacy Clause of the Constitution empowers Congress to preempt state

or local laws or regulations under certain specified conditions.

As explained by the United

States Supreme Court:

Pre-emption occurs when Congress, in enacting a federal statute,

expresses a clear intent to preempt state law, when there is outright or

actual conflict between federal and state law, where compliance with

both federal and state law is in effect physically impossible, where there

is implicit in federal law a barrier to state regulation, where Congress has

legislated comprehensively, thus occupying an entire field of regulation

(Continued from previous page) ——

—

Declaratory Ruling, Memorandum Opinion and Order, COB Pol 97-1, 12 FCC Red 15639 (1997) {Silver Star)

reconsideration denied. 13 FCC Red 16356 (1998) affd. RTCommunications. Inc. v FCC 201 F 3d 1264 (IC*

Cir. 2000).

47 U.S.C. § 253(a).

47 U.S.C. § 253(b).

Pittencrieff Communications. Inc., 13 FCC Red at 1752, para. 33.

' For example, in Silver Star, the Commission preempted a Wyoming statute for its failure to satisfy the

"eompetitive neutrality" eriterion. Silver Star, 12 FCC Red at 15658-60, paras. 42. 45.

"■ 47 U.S.C. § 253(d). ("If, after notiee and an opportunity for publie eomment, the Commission determines that

a State or loeal government has permitted or imposed any statute, regulation, or legal requirement that violates

subseetion (a) or (b), the Commission shall preempt the enforeement of sueh statute, regulation, or legal

requirement to the extent necessary to correct such violation or inconsistency.")

§ 253(d). ("If, after notiee and an opportunity for publie eomment, the Commission determines that

a State or loeal government has permitted or imposed any statute, regulation, or legal requirement that violates

subseetion (a) or (b), the Commission shall preempt the enforeement of sueh statute, regulation, or legal

requirement to the extent necessary to correct such violation or inconsistency.").

' Louisiana Public Service Commission v. FCC, 476 U.S. 355, 368 (1986).

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and leaving no room for the States to supplement federal law, or where

the state law stands as an obstacle to the accomplishment and execution

of the full objectives of Congress.'^

It is well established that "[p]re-emption may result not only from action taken by Congress

itself; a federal agency acting within the scope of its congressionally delegated authority may

preempt state regulations.""

III.

DISCUSSION

Section 253(a) Analysis

Background

In order to determine whether a section 253(a) violation has occurred, we must

consider whether the cited statute, regulation, or legal requirement "may prohibit or have the

effect of prohibiting the ability of any entity to provide any interstate or intrastate

telecommunications service.

We therefore examine whether the requirement that a carrier

must be providing service throughout the service area prior to designation as an ETC "may

prohibit or have the effect of prohibiting" carriers that are not incumbent LECs from providing

telecommunications service.

Discussion

10.

We find that requiring a new entrant to provide service throughout a service area

prior to designation as an ETC has the effect of prohibiting the ability of the new entrant to

provide intrastate or interstate telecommunications service, in violation of section 253(a).

11.

Legal Requirement

biting" carriers that are not incumbent LECs from providing

telecommunications service.

Discussion

10.

We find that requiring a new entrant to provide service throughout a service area

prior to designation as an ETC has the effect of prohibiting the ability of the new entrant to

provide intrastate or interstate telecommunications service, in violation of section 253(a).

11.

Legal Requirement. As an initial matter, we find that the requirement that a new

entrant must provide service throughout its service area as a prerequisite to designation as an

ETC under section 214(e) constitutes a state "legal requirement" under section 253(a). We have

previously concluded that Congress intended the phrase, "[sjtate or local statute or regulation, or

other State or local requirement" in section 253(a), to be interpreted broadly."' The resolution of

Id. at 368-369 (citations omitted).

Id. at 369; Fidelity Federal Sav. And Loan Ass'n v. De La Ctie^ra. 458 U.S. 141, 153-54 (1982); City ofNew

York V. FCC, 486 U.S. 57, 64 (1988) (."[t]he statutorily authorized regulations of an agency will pre-empt any state

or local law that conflicts with such regulations or frustrates the purposes thereof).

See 47 U.S.C. § 253(a).

See The Petition of the State of Minnesota for a Declaratory Ruling Regarding the Effect ofSection 253 on an

Agreement to Install Fiber Optic Wholesale Transport Capacity in State Freeway Rights-of-Way, Memorandum

Opinion and Order, CC Docket No. 98-1, FCC 99-402 (rel. Dec, 23, 1999) (concluding that an agreement between

a developer and the State creates a "legal requirement" subject to section 253 preemption) at paras. 17-18

(continued....)

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claratory Ruling Regarding the Effect ofSection 253 on an

Agreement to Install Fiber Optic Wholesale Transport Capacity in State Freeway Rights-of-Way, Memorandum

Opinion and Order, CC Docket No. 98-1, FCC 99-402 (rel. Dec, 23, 1999) (concluding that an agreement between

a developer and the State creates a "legal requirement" subject to section 253 preemption) at paras. 17-18

(continued....)

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a carrier's request for designation as an ETC by a state commission is legally binding on the

carrier and may prohibit the carrier from receiving federal universal service support. We find

therefore that any such requirement constitutes a "legal requirement" under section 253(a).

12.

Prohibiting the Provision of Telecommunicatrons Service. We find that an

interpretation of section 214(e) requiring carriers to provide the supported services throughout

the service area prior to designation as an ETC has the effect of prohibiting the ability of

prospective entrants from providing telecommunications service." A new entrant faces a

substantial barrier to entry if the incumbent local exchange carrier (LEC) is receiving universal

service support that is not available to the new entrant for serving customers in high-cost areas.

We believe that requiring a prospective new entrant to provide service throughout a service area

before receiving ETC status has the effect of prohibiting competitive entry in those areas where

universal service support is essential to the provision of affordable telecommunications service

and is available to the incumbent LEC. Such a requirement would deprive consumers in high-

cost areas of the benefits of competition by insulating the incumbent LEC from competition.

ghout a service area

before receiving ETC status has the effect of prohibiting competitive entry in those areas where

universal service support is essential to the provision of affordable telecommunications service

and is available to the incumbent LEC. Such a requirement would deprive consumers in high-

cost areas of the benefits of competition by insulating the incumbent LEC from competition.

13.

No competitor would ever reasonably be expected to enter a high-cost market and

compete against an incumbent carrier that is receiving support without first knowing whether it is

also eligible to receive such support.'^ We believe that it is unreasonable to expect an

unsupported carrier to enter a high-cost market and provide a service that its competitor already

provides at a substantially supported price. Moreover, a new entrant cannot reasonably be

expected to be able to make the substantial financial investment required to provide the

supported services in high-cost areas without some assurance that it will be eligible for federal

universal service support.

In fact, the carrier may be unable to secure financing or finalize

business plans due to uncertainty surrounding its designation as an ETC.

14.

In addition, we find such an interpretation of section 214(e)(1) to be contrary to

the meaning of that provision. Section 214(e)(1) provides that a common carrier designated as

an eligible telecommunications carrier shall "offer" and advertise its services."' The language of

(Continued from previous page)

{Minnesota Declaratory Ruling). "We believe that interpreting the term iegal requirement' broadly, best fulfills

Congress' desire to ensure that states and localities do not thwart the development of competition." Id.

See, e.g., ALTS comments at 3-5; AT&T comments at 7-9; CTIA reply comments at 4; Minnesota PUC

comments at 2; PCIA comments 4-5; Washington UTC reply comments at 3.

Western Wireless petition at 8

claratory Ruling). "We believe that interpreting the term iegal requirement' broadly, best fulfills

Congress' desire to ensure that states and localities do not thwart the development of competition." Id.

See, e.g., ALTS comments at 3-5; AT&T comments at 7-9; CTIA reply comments at 4; Minnesota PUC

comments at 2; PCIA comments 4-5; Washington UTC reply comments at 3.

Western Wireless petition at 8.

See Minnesota Cellular Corporation's Petition for Designation as an Eligible Telecommunications Carrier,

Order Granting Preliminary Approval and Requiring Further Filings, Docket No. P-5695/M-98-1285 (Oct. 27,

1999) (Minnesota PUC Order) at 7.

47 U.S.C. § 214(e)(1).

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the statute does not require the actual provision of service prior to designation.^^ We believe that

this interpretation is consistent with the underlying congressional goal of promoting competition

and access to telecommunications services in high-cost areas. In addition, this interpretation is

consistent with the Commission's conclusion that a carrier must meet the section 214(e) criteria

as a condition of its being designated an eligible carrier "and then must provide the designated

services to customers pursuant to the terms of section 214(e) in order to receive support.""'

15.

In addition, we note that ETC designation only allows the carrier to become

eligible for federal universal service support. Support will be provided to the carrier only upon

the provision of the supported services to consumers."^ We note that ETC designation prior to

the provision of service does not mean that a carrier will receive support without providing

service."' We also note that the state commission may revoke a carrier's ETC designation if the

carrier fails to comply with the ETC eligibility criteria.

port. Support will be provided to the carrier only upon

the provision of the supported services to consumers."^ We note that ETC designation prior to

the provision of service does not mean that a carrier will receive support without providing

service."' We also note that the state commission may revoke a carrier's ETC designation if the

carrier fails to comply with the ETC eligibility criteria.

16.

In addition, we believe the fact that a carrier may already be providing service

within the state prior to designation is not conclusive of whether the carrier can reasonably be

expected to provide service throughout the service area, particularly in high-cost areas, prior to

designation. While a requirement that a carrier be providing service throughout the service area

may not affect the provision of service in lower-cost areas, it is likely to have the effect of

prohibiting the ability of carriers without eligibility for support to provide service in high-cost

areas.

17.

Gaps in Coverage. We find the requirement that a carrier provide service to every

potential customer throughout the service area before receiving ETC designation has the effect of

prohibiting the provision of service in high-cost areas. As an ETC, the incumbent EEC is

required to make service available to all consumers upon request, but the incumbent EEC may

not have facilities to every possible consumer.^' We believe the ETC requirements should be no

■" See. e.g.. Western Wireless Corporation Designated Eligible Carrier Application, Findings of Fact,

Conclusions of Law and Order, North Dakota Public Service Commission, Case No. PU-1564-98-428 (Dec. 15,

1999) {North Dakota Order)-, Minnesota PUC Order. See also Washington UTC reply comments at 3-5.

Federal-State Joint Board on Universal Service, Report and Order, CC Docket No. 96-45, 12 FCC Red 8876,

8853, para. 137 (1997), as corrected by Federal-State Joint Board on Universal Service, Erratum, CC Docket No.

96-45, FCC 97-157 (rel

kota Public Service Commission, Case No. PU-1564-98-428 (Dec. 15,

1999) {North Dakota Order)-, Minnesota PUC Order. See also Washington UTC reply comments at 3-5.

Federal-State Joint Board on Universal Service, Report and Order, CC Docket No. 96-45, 12 FCC Red 8876,

8853, para. 137 (1997), as corrected by Federal-State Joint Board on Universal Service, Erratum, CC Docket No.

96-45, FCC 97-157 (rel. June 4, 1997), aff'd in part, rev'd in part, remanded in part sub nom. Texas Office of

Public Utility Counsel v. FCC, 183 F.3d 393 (5" Cir. 1999) cert, granted. 120 S.Ct. 2214 (U.S. June 5, 2000) (No.

99-1244) {UniversalService Order) (emphasis in original).

2"^

Universal Service Order, 12 FCC Red 8853, para. 137.

Washington UTC reply comments at 4.

ALTS comments at 4-5.

■'

See Minnesota FUC Order at 11, concluding that, "[a]ll carriers, but especially rural earners, have pockets

within their study areas where they have no customers or facilities. If development occurs, they have to build out

to the new customer or customers. Minnesota Cellular appears to have the same build-out capacity as the

(continued.. ..)

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different for carriers that are not incumbent LECs. A new entrant, once designated as an ETC, is

required, as the incumbent is required, to extend its network to serve new customers upon

reasonable request. We find, therefore, that new entrants must be allowed the same reasonable

opportunity to provide ser\'ice to requesting customers as the incumbent LEG, once designated as

an ETC.^" Thus, we find that a telecommunications carrier's inability to demonstrate that it can

provide ubiquitous service at the time of its request for designation as an ETC should not

preclude its designation as an ETC.

18.

State Authority

ore, that new entrants must be allowed the same reasonable

opportunity to provide ser\'ice to requesting customers as the incumbent LEG, once designated as

an ETC.^" Thus, we find that a telecommunications carrier's inability to demonstrate that it can

provide ubiquitous service at the time of its request for designation as an ETC should not

preclude its designation as an ETC.

18.

State Authority. Finally, although Congress granted to state commissions, under

section 214(e)(2), the primary authority to make ETC designations, we do not agree that this

authority is without any limitation.^^ While state commissions clearly have the authority to deny

requests for ETC designation without running afoul of section 253, the denials must be based on

the application of competitively neutral criteria that are not so onerous as to effectively preclude

a prospective entrant fi-om providing service. We believe that this is consistent with sections

214(e), 253, and 254, as well as the decision of the United States Court of Appeals for the Fifth

Circuit in Texas Office of Public Utility Counsel v. FCC.^^ We reiterate, however, that the state

commissions are primarily responsible for making ETC designations.

Nothing in this

Declaratory Ruling is intended to undermine that responsibility. In fact, it is our expectation that

the guidance provided in this Declaratory Ruling will enable state commissions to move

expeditiously, in a pro-competitive manner, on many pending ETC designation requests.

Section 253(b) Analysis

Background

19.

Section 253(b) preserves the state's authority to impose a requirement affecting

(Continued from previous page)

incumbents, and the potential need for buiid-out is no reason to deny ETC status." See also North Dakota Order

at para

ll enable state commissions to move

expeditiously, in a pro-competitive manner, on many pending ETC designation requests.

Section 253(b) Analysis

Background

19.

Section 253(b) preserves the state's authority to impose a requirement affecting

(Continued from previous page)

incumbents, and the potential need for buiid-out is no reason to deny ETC status." See also North Dakota Order

at para. 36, concluding that, "[a] requirement to be providing the required universal services to 100% of a service

area before receiving designation as an ETC could be so onerous as to prevent any other carrier from receiving the

ETC designation in any service area and would require the Commission to rescind the ETC designation already

given to North Dakota ILECs and Polar Telecom, Inc."

See, e.g., Minnesota PUC Order at 10-11; North Dakota Order at para. 36; Washington UTC reply comments

at 5-6. See also South Dakota Circuit Court Order, Conclusions of Law at para. 12.

See, e.g.. Coalition of Rural Telephone Companies comments at 12 (contending that state decisions under

section 214(e) should not be reviewed under section 253); South Dakota PUC comments at 9 (contending that

preemption may not be granted because the South Dakota PUC exercised a power lawfully delegated to it by

Congress in a maimer consistent with federal law).

See Texas Office of Public Urilit}' Counsel v. FCC, 183 F.3d 393, 418 n.31 (5"' Cir. 1999) cert, granted, 120

S.Ct. 2214 (U.S. June 5, 2000) (No. 99-1244) ("if a state commission imposed such onerous eligibility

requirements that no otherwise eligible carrier could receive designation, that state commission would probably

run afoul of § 214(e)(2)'s mandate to 'designate' a carrier or "designate" more than one carrier.").

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lit}' Counsel v. FCC, 183 F.3d 393, 418 n.31 (5"' Cir. 1999) cert, granted, 120

S.Ct. 2214 (U.S. June 5, 2000) (No. 99-1244) ("if a state commission imposed such onerous eligibility

requirements that no otherwise eligible carrier could receive designation, that state commission would probably

run afoul of § 214(e)(2)'s mandate to 'designate' a carrier or "designate" more than one carrier.").

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the provision of telecommunications services in certain circumstances.^^ Section 253(b) allows

states to impose, on a competitively neutral basis and consistent with section 254, requirements

necessary to preserve and advance universal service, protect the public safety and welfare, ensure

the continued quality of telecommunications service, and safeguard the rights of consumers.

Section 253(d) requires that we preempt such requirements unless we find that they meet each of

the relevant criteria set fonh in section 253(b). The Commission has preempted state regulations

for failure to satisfy even one of the relevant criteria."

Discussion

20.

We find that a requirement to provide the supported services throughout the

service area prior to designation as an ETC does not fall within the "safe harbor" provisions of

section 253(b). To the contrary, we find that this requirement is not competitively neutral,

consistent with section 254, or necessary to preserve and advance universal service. We

therefore find that a requirement that obligates new entrants to provide supported services

throughout the service area prior to designation as an ETC is subject to our preemption authority

under section 253(d).

21.

Competitive Neutrality. We find that the requirement to provide service prior to

designation as an ETC is not competitively neutral

ssary to preserve and advance universal service. We

therefore find that a requirement that obligates new entrants to provide supported services

throughout the service area prior to designation as an ETC is subject to our preemption authority

under section 253(d).

21.

Competitive Neutrality. We find that the requirement to provide service prior to

designation as an ETC is not competitively neutral. We believe this finding is consistent with the

Commission's determination in the Universal Service Order that "[cjompetitive neutrality means

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."^® At the outset, we believe that, to meet the competitive neutrality requirement in non-

rural telephone company service areas, the procedure for designating carriers as ETCs should be

functionally equivalent for incumbents and new entrants." As discussed above, requiring the

actual provision of supported services throughout the service area prior to ETC designation

unfairly skews the universal service support mechanism in favor of the incumbent LEC. As a

practical matter, the carrier most likely to be providing all the supported services throughout the

requested designation area before ETC designation is the incumbent LEC."" Without the

47 U.S.C. § 253(b). Section 253(c) sets forth additional situations, which are not present here, in which a state

or local government requirement that inhibits entry may still be acceptable.

47 U.S.C. § 253(b).

For example, in Silver Star, the Commission preempted a Wyoming statute for its failure to satisfy the

"competitive neutrality" criterion. Silver Star, 12 FCC Red at 15658-60, paras. 42, 45.

Universal Sen'ice Order, 12 FCC Red at 8801, para. 47

, which are not present here, in which a state

or local government requirement that inhibits entry may still be acceptable.

47 U.S.C. § 253(b).

For example, in Silver Star, the Commission preempted a Wyoming statute for its failure to satisfy the

"competitive neutrality" criterion. Silver Star, 12 FCC Red at 15658-60, paras. 42, 45.

Universal Sen'ice Order, 12 FCC Red at 8801, para. 47.

We thus would be troubled by a process in which the incumbent LEC were able to self-certify that it meets the

criteria for ETC designation, while new entrants were subject to a more rigorous, protracted state proceeding.

The 1996 Act required carriers to receive an eligible telecommunications carrier designation under section

214(e) to become eligible for federal iiigh-cost support. 47 U.S.C. § 254(e).

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assurance of eligibility for universal service funding, it is unlikely that any non-incumbent LEG

will be able to make the necessary investments to provide service in high-cost areas.

22.

We are not persuaded that such a requirement is competitively neutral merely

because the requirement to provide service prior to ETC designation applies equally to both new

entrants and incumbent LECs."' We recently concluded that the proper inquiry is whether the

effect of the legal requirement, rather than the method imposed, is competitively neutral."' As

discussed above, we find that the result of such a requirement is to favor incumbent LECs over

new entrants. Unlike a new entrant, the incumbent LEG is already providing service and

therefore bears no additional burden from a requirement that it provide service prior to

designation as an ETC. We therefore find that requiring the provision of supported services

throughout the service area prior to ETC designation has the effect of uniquely disadvantaging

new entrants in violation of section 253(b)'s requirement of competitive neutrality.

23.

Consistent with Section 254 and Necessary to Preserve and Advance Universal

Service

rement that it provide service prior to

designation as an ETC. We therefore find that requiring the provision of supported services

throughout the service area prior to ETC designation has the effect of uniquely disadvantaging

new entrants in violation of section 253(b)'s requirement of competitive neutrality.

23.

Consistent with Section 254 and Necessary to Preserve and Advance Universal

Service. We find that the requirement to provide service prior to designation as an ETC is not

consistent with section 254 or "necessary to preserve and advance universal service."" To the

contrary, we find that such a requirement has the effect of prohibiting the provision of service in

high-cost areas. As discussed above, this requirement clearly has a disparate impact on new

entrants, in violation of the competitive neutrality and nondiscriminatory principles embodied in

section 254."" We believe that it is unreasonable to expect an unsupported carrier to enter a high-

cost market and provide a service that its competitor already provides at a substantially supported

price. If new entrants are not provided with the same opportunity to receive universal service

support as the incumbent LEG, such carriers will be discouraged from providing service and

competition in high-cost areas."' Gonsequently, under an interpretation of section 214(e) that

requires new entrants to provide service throughout the service area prior to designation as an

South Dakota PUC comments at 10; South Dakota Independent Telephone Coalition at 31.

"■ Minnesota Declaratory Ruling at para. 51 (emphasis added). "We do not believe that Congress intended to

protect the imposition of requirements that are not competitively neutral in their effect on the theory that the non-

neutral requirement was somehow imposed in a neutral manner

rea prior to designation as an

South Dakota PUC comments at 10; South Dakota Independent Telephone Coalition at 31.

"■ Minnesota Declaratory Ruling at para. 51 (emphasis added). "We do not believe that Congress intended to

protect the imposition of requirements that are not competitively neutral in their effect on the theory that the non-

neutral requirement was somehow imposed in a neutral manner. Moreover, we do not believe that this narrow

interpretation is appropriate because it would undermine the primary purpose of section 253 - ensuring that no

state or locality can erect legal barriers to entry that would frustrate the 1996 Act's explicit goal of opening all

telecommunications markets to competition."

47 U.S.C. § 253(b).

Universal Sendee Order, 12 FCC Red at 8801, para. 48 ("We agree with the Joint Board that an explicit

recognition of competitive neutrality in the collection and distribution of funds and determination of eligibility in

universal service suppon mechanisms is consistent with congressional intent and necessary to promote a pro-

competitive, de-regulatory national policy framework.").

The Commission recognized that, in order to promote competition and the availability of affordable access to

telecommunications service in high-cost areas, there must be a competitively neutral support mechanism for

competitive entrants and incumbent LECs. Universal Sendee Order, 12 FCC Red at 89j2, para. 287.

15177

cessary to promote a pro-

competitive, de-regulatory national policy framework.").

The Commission recognized that, in order to promote competition and the availability of affordable access to

telecommunications service in high-cost areas, there must be a competitively neutral support mechanism for

competitive entrants and incumbent LECs. Universal Sendee Order, 12 FCC Red at 89j2, para. 287.

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ETC, the benefits that may otherwise occur as a result of access to affordable

telecommunications services will not be available to consumers in high-cost areas. We believe

such a result is inconsistent with the underlying universal service principles set forth in section

254(b) that are designed to preserve and advance universal service by promoting access to

telecommunications services in high-cost areas."^

24.

A new entrant can make a reasonable demonstration to the state commission of its

capability and commitment to provide universal service without the actual provision of the

proposed service. There are several possible methods for doing so, including, but not limited to;

(1) a description of the proposed service technology, as supported by appropriate submissions;

(2) a demonstration of the extent to which the carrier may otherwise be providing

telecommunications services within the state;^' (3) a description of the extent to which the carrier

has entered into interconnection and resale agreements;'' or, (4) a sworn affidavit signed by a

representative of the carrier to ensure compliance with the obligation to offer and advertise the

supported services." We caution that a demonstration of the capability and commitment to

provide service must encompass something more than a vague assertion of intent on the part of a

earner to provide service. The carrier must reasonably demonstrate to the state commission its

ability and willingness to provide service upon designation.

Federal Preemption Authority

Background

tise the

supported services." We caution that a demonstration of the capability and commitment to

provide service must encompass something more than a vague assertion of intent on the part of a

earner to provide service. The carrier must reasonably demonstrate to the state commission its

ability and willingness to provide service upon designation.

Federal Preemption Authority

Background

25.

State regulatory provisions may be preempted when enforcement of a state legal

requirement conflicts with federal law or "stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress.'"" Preemption may result not only

from action taken by Congress, but also from a federal agency acting within the scope of its

congressionally delegated authority.^'

26.

In section 254, Congress codified the Commission's historical policy of

promoting universal service to ensure that consumers in all regions of the nation have access to

See 47 U.S.C. § 254(b).

47 See North Dakota Order at para. 39.

48 See North Dakota Order at para. 34.

Washington UTC reply comments at 5.

Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 699 (19S4). citing Mines v. Davidowitz, 312 U S 57 67

{\'^^\)\StateCorporationCommissionof Kansas V. FCC, 1Z1¥.Id 1421, 1425 (10'" Cir 19861 See also

Louisiana PSC, 476 U.S. at 368-69.

Lowsiana PSC, 476 U.S. 368-69, citing Fidelity Federal Savings and Loan Assn. v. De la Cuesta 458 U S

141; Capital Cities Cable. Inc. v. Crisp, 467 U.S. 691.

. I

15178

Cities Cable, Inc. v. Crisp, 467 U.S. 691, 699 (19S4). citing Mines v. Davidowitz, 312 U S 57 67

{\'^^\)\StateCorporationCommissionof Kansas V. FCC, 1Z1¥.Id 1421, 1425 (10'" Cir 19861 See also

Louisiana PSC, 476 U.S. at 368-69.

Lowsiana PSC, 476 U.S. 368-69, citing Fidelity Federal Savings and Loan Assn. v. De la Cuesta 458 U S

141; Capital Cities Cable. Inc. v. Crisp, 467 U.S. 691.

. I

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telecommunications services "

Congress, recognizing that existing universal service support

mechanisms were adopted in a monopoly environment, directed the Commission, in consultation

with a federal-state Joint Board, to establish support mechanisms for the preservation and

advancement of universal service in the competitive telecommunications environment that

Congress envisioned." Section 254(b) sets forth the underlying principles on which Co igress

directed the Commission to base policies for the preservation and advancement of universal

service. These principles include the promotion of access to telecommunications services in

rural and high-cost areas of the nation." As noted above, consistent with the recommendation of

the Joint Board, the Commission adopted the additional guiding principle of competitive

neutrality." In doing so, the Commission concluded that competitive neutrality will foster the

development of competition and benefit certain providers, including wireless carriers, that may

have been excluded from participation in the existing universal service mechanism." Section

254(f) also provides that, "[a] State may adopt regulations not inconsistent with the

Commission's rules to preserve and advance universal service.""

Discussion

27.

We find an interpretation of section 214(e)(1) that requires a new entrant to

provide service throughout the service area prior to designation as an ETC to be fundamentally

inconsistent with the universal service provisions in the 1996 Act

so provides that, "[a] State may adopt regulations not inconsistent with the

Commission's rules to preserve and advance universal service.""

Discussion

27.

We find an interpretation of section 214(e)(1) that requires a new entrant to

provide service throughout the service area prior to designation as an ETC to be fundamentally

inconsistent with the universal service provisions in the 1996 Act. Specifically, we find such a

requirement to be inconsistent with the meaning of section 214(e)(1), Congress universal service

objectives as outlined in section 254, and the Commission's policies and rules in implementing

section 254. As discussed above, this approach essentially requires a new entrant to provide

service throughout high-cost areas prior to its designation as an ETC. We find that such a

requirement stands as an obstacle to the Commission's execution and accomplishment of the full

objectives of Congress in promoting competition and access to telecommunications services in

high-cost areas." To the extent that a state's requirement under section 214(e)(1) that a new

entrant provide service throughout the service area prior to designation as an ETC also involves

52 See generally section 254.

53 According to the Joint Explanator\' Statement, the purpose of the 1996 Act is "

to provide for a pro-

competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of

advanced telecommunications and information technologies and services to all Americans by opening all

telecommunications markets to competition .. .

Joint Explanatory Statement of the Committee of Conference,

H.R. Conf. Rep. No. 458, 104"" Cong,, 2d Sess. at 113 (Joint E.xplanatory Statement).

See 47 U.S.C. § 254(b)(3).

Universal Service Order, 12 FCC Red at 8801-8803. paras. 47-51.

Universal Sendee Order, 12 FCC Red at 8802, para, 49.

47 U.S.C. § 254(f).

See Joint Explanatory Statement at 1 13

15179

ns markets to competition .. .

Joint Explanatory Statement of the Committee of Conference,

H.R. Conf. Rep. No. 458, 104"" Cong,, 2d Sess. at 113 (Joint E.xplanatory Statement).

See 47 U.S.C. § 254(b)(3).

Universal Service Order, 12 FCC Red at 8801-8803. paras. 47-51.

Universal Sendee Order, 12 FCC Red at 8802, para, 49.

47 U.S.C. § 254(f).

See Joint Explanatory Statement at 1 13

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matters properly within the state's intrastate jurisdiction under section 2(b) of the Act/' such

matters that are inseparable from the federal interest in promoting universal service in section

254 remain subject to federal preemption.®®

28.

Section 214. We find that the requirement that a carrier provide service

throughout the service area prior to its designation as an ETC conflicts with the meaning and

intent of section 214(e)(1). Section 214(e)(1) provides that a common carrier designated as an

eligible telecommunications carrier shall "offer" and advertise its services.®' The statute does not

require a carrier to provide service prior to designation. As discussed above, we have concluded

that a carrier cannot reasonably be expected to enter a high-cost market prior to its designation as

an ETC and provide service in competition with an incumbent carrier that is receiving support

We believe that such an interpretation of section 214(e) directly conflicts with the meaning of

section 214(e)(1) and Congress' intent to promote competition and access to telecommunications

service in high-cost areas.®'

29.

While Congress has given the state commissions the primary responsibility under

section 214(e) to designate carriers as ETCs for universal service support, we do not believe that

Congress intended for the state commissions to have unlimited discretion in formulating

eligibility requirements

Congress' intent to promote competition and access to telecommunications

service in high-cost areas.®'

29.

While Congress has given the state commissions the primary responsibility under

section 214(e) to designate carriers as ETCs for universal service support, we do not believe that

Congress intended for the state commissions to have unlimited discretion in formulating

eligibility requirements. Although Congress recognized that state commissions are uniquely

suited to make ETC determinations, we do not believe that Congress intended to grant to the

states the authority to adopt eligibility requirements that have the effect of prohibiting the

provision of service in high-cost areas by non-incumbent carriers.®' To do so effectively

undermines congressional intent in adopting the universal service provisions of section 254.

20-

Section 254. Consistent with the guidance provided above, we find a requirement

that a earner provide service prior to designation as an ETC inconsistent with the underlying

pnnciples and intent of section 254. Specifically, section 254 requires the Commission to base

policies for the advancement and preservation of universal service on principles that include

promoting access to telecommunications services in high-cost and rural areas of the nation.®'

Because section 254(e) provides that only a carrier designated as an ETC under section 214(e)

may be eligible to receive federal universal service support, an interpretation of section 214(e)

requiring carriers to provide service throughout the service area prior to designation as an ETC

47U.S.C. § 152(b).

60 See Louisiana Public Service Commission v. FCC, 476 U.S. at 36S-69: AT&T v. Iowa Utilities Board 119 S.Ct

721, 730 (1999); Texas Office of Public Utility Counsel v. FCC, 183 F.3d at 423.

®' 47 U.S.C. §214(e)(1).

6.>

See Joint Explanatory Statement at 113. See also supra section III.B for discussion of competitive neutrality.

See Texas Office of Public Utility Counsel v. FCC, 183 F.3d at 418 n.31.

See 47 U.S.C. § 254(b)(3)

Commission v. FCC, 476 U.S. at 36S-69: AT&T v. Iowa Utilities Board 119 S.Ct

721, 730 (1999); Texas Office of Public Utility Counsel v. FCC, 183 F.3d at 423.

®' 47 U.S.C. §214(e)(1).

6.>

See Joint Explanatory Statement at 113. See also supra section III.B for discussion of competitive neutrality.

See Texas Office of Public Utility Counsel v. FCC, 183 F.3d at 418 n.31.

See 47 U.S.C. § 254(b)(3).

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stands as an obstacle to the accomplishment of the congressional objectives outlined in section

254." If new entrants are effectively precluded from universal service support eligibility due to

onerous eligibility criteria, the statutory goals of preserving and advancing universal service in

high-cost areas are significantly undermined.

31.

In addition, such a requirement conflicts with the Commission's interpretation of

section 254, specifically the principle of competitive neutrality adopted by the Commission in

the Universal Service Order.^'' In the Universal Sennce Order, the Commission stated that,

"competitive neutrality in the collection and distribution of funds and determination of eligibility

in universal service support mechanisms is consistent with congressional intent and necessary to

promote a pro-competitive, de-regulatory national policy framework."" As discussed above, a

requirement to provide service throughout the service area prior to designation as an ETC

violates the competitive neutrality principle by unfairly skewing the provision of universal

service support in favor of the incumbent LEC. As stated in the Universal Service Order,

"competitive neutrality will promote emerging technologies that, over time, may provide

competitive alternatives in rural, insular, and high cost areas and thereby benefit rural

consumers."" Requiring new entrants to provide service throughout the service area prior to

ETC designation discourages "emerging technologies" from entering high-cost areas

t LEC. As stated in the Universal Service Order,

"competitive neutrality will promote emerging technologies that, over time, may provide

competitive alternatives in rural, insular, and high cost areas and thereby benefit rural

consumers."" Requiring new entrants to provide service throughout the service area prior to

ETC designation discourages "emerging technologies" from entering high-cost areas. In

addition, we note that section 254(f) provides that, "[a] State may adopt regulations not

inconsistent with the Commission's rules to preserve and advance universal service." For the

reasons discussed extensively above, we find an interpretation of section 214(e) requiring the

provision of service throughout the service area prior to designation as an ETC to be inconsistent

with the Commission's universal service policies and rules.

47 U.S.C. § 254(e).

Universal Service Order, 12 FCC Red at 8801, para. 47.

Universal Service Order, 12 FCC Red at 8801-02, para. 48 (emphasis added).

Universal Service Order, 12 FCC Red at 8803, para. 50.

47 U.S.C. § 254(f).

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IV.

ORDERING CLAUSES

32.

Accordingly, IT IS ORDERED that pursuant to sections 4(i), 253, and 254 of the

Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 253, and 254, and section 1.2 of

the Commission's rules, 47 C.F.R. § 1.2, and Article VI of the U.S. Constitution, that this

Declaratory Ruling IS ADOPTED.

33.

IT IS FURTHER ORDERED that Western Wireless' Petition for Preemption of

an Order of the South Dakota Public Utilities Commission shall be placed in abeyance pending

resolution of the appeal.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

15182

tion 1.2 of

the Commission's rules, 47 C.F.R. § 1.2, and Article VI of the U.S. Constitution, that this

Declaratory Ruling IS ADOPTED.

33.

IT IS FURTHER ORDERED that Western Wireless' Petition for Preemption of

an Order of the South Dakota Public Utilities Commission shall be placed in abeyance pending

resolution of the appeal.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

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DISSENTING STATEMENT OF

COMMISSIONER HAROLD FURCHTGOTT-ROTH

Re: Federal-State Board on Universal Service, Western Wireless Corporation Petition for

Preemption of an Order of the South Dakota Public Utilities Commission, Declaratory Ruling,

CC Docket No. 96-45.

I dissent from today's Declaratory Ruling. It is not necessary for the Commission to

issue this advisory statement, and its ruling is inconsistent with section 253's plain mandate and

with past Commission precedent interpreting that provision. Indeed, the Commission rests its

section 253 analysis upon a factual predicate that does not exist. Moreover, the South Dakota

PUC has permissibly interpreted section 214(e)(1), and it is inappropriate for the Commission to

override the PUC's determination.

This Declaratory Ruling Is Unnecessary. To begin with, there is no need for the

Commission to issue an advisory statement conceming the South Dakota Public Utilities

Commission's decision. A South Dakota trial court has vacated the PUC's order, and an appeal

IS currently pending in the South Dakota Supreme Court.' There is no reason to think that the

state supreme court will not appropriately resolve the issue.

Further, contrary to the

Commission's assertions," this order will be of no assistance to other state commissions. No

other state commissions have interpreted section 214 in the way that the South Dakota PUC has

done, nor have other state commissions indicated that they plan to adopt the South Dakota PUC's

interpretation of section 214. There is therefore no need for the Commission to offer "guidance"

on this issue

to the

Commission's assertions," this order will be of no assistance to other state commissions. No

other state commissions have interpreted section 214 in the way that the South Dakota PUC has

done, nor have other state commissions indicated that they plan to adopt the South Dakota PUC's

interpretation of section 214. There is therefore no need for the Commission to offer "guidance"

on this issue.

The Commission Has Improperly Applied Section 253. Not only is the Commission's

ruling unnecessary, but also its preemption analysis is faulty. Oddly, although the Commission

claims that the purpose of this order is to "provide guidance to remove uncertainty and terminate

controversy regarding whether section 214(e)(1) . . . requires a common carrier to provide

supported services throughout a service area prior to being designated an eligible

telecommunications carrier,"' it devotes the bulk of its discussion to preemption under section

253.

First, even if it were appropriate for the Commission to issue a statement regarding its

understanding of section 214(e) - which it is not -

there is no reason for it also to address section

253 preemption. Moreover, by issuing an advisory statement regarding section 253, the

Commission wades into dangerous waters. Section 253(d) specifies that the Commission should

' See Federal-State Board on Universal Service, Western Wireless Corporation Petition for Preemption

of an Order of the South Dakota Public Utilities Commission, Declaratory Ruling, CC Docket No. 96-45.

at ^ 3 (hereinafter 'Declaratoiy Ruling")-, Filing by GCC License Corporation for Designation as an

Eligible Telecommunications Carrier, Findings of Faci, Conclusions of Law, and Order, Civ. 99-235

(S.D. Sixth Jud. Cir. March 22. 2000).

" See Declaratoiy Ruling at "J. 1.

Declaratoiy Ruling at t !.

15183

er of the South Dakota Public Utilities Commission, Declaratory Ruling, CC Docket No. 96-45.

at ^ 3 (hereinafter 'Declaratoiy Ruling")-, Filing by GCC License Corporation for Designation as an

Eligible Telecommunications Carrier, Findings of Faci, Conclusions of Law, and Order, Civ. 99-235

(S.D. Sixth Jud. Cir. March 22. 2000).

" See Declaratoiy Ruling at "J. 1.

Declaratoiy Ruling at t !.

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preempt state regulations only "W the extent necessary' to correct ... a violation or inconsistency

[with sections 253(a) and (b)]." In view of this statutory directive, it is inappropriate for the

Commission to issue any advisory statement regarding section 253. Quite simply, how can it be

"necessary" for the Commission to act to correct a violation of sections 253(a) or (b) where, as

here, a court has vacated the state PUC's order, and no state requirement even exists?

Even assuming that the South Dakota PUC's order presented an issue that could

appropriately be addressed under section 253, the Commission's application of that provision to

South Dakota's requirement is inconsistent with the statute's plain language. Section 253(a)

proscribes only those state requirements that '"may prohibit or have the effect ofprohibiting the

ability of any entity to provide any interstate or intrastate telecommunications service.'"* It is

impossible to understand how failing to assign a new carrier eligible telecommunications carrier

status could "prohibited" or had the "effect of prohibiting" it from providing service in South

Dakota. The Declaratory Ruling asserts that "[a] new entrant faces a substantial barrier to entry

if the incumbent local exchange carrier (EEC) is receiving universal service support that is not

available to the new entrant for serving customers in high-cost areas." '

Amazingly, however,

the order leaves out the fact that in the non-rural areas of South Dakota, the incumbent does not

receive federal universal support for any of the non-rural lines it serves

aces a substantial barrier to entry

if the incumbent local exchange carrier (EEC) is receiving universal service support that is not

available to the new entrant for serving customers in high-cost areas." '

Amazingly, however,

the order leaves out the fact that in the non-rural areas of South Dakota, the incumbent does not

receive federal universal support for any of the non-rural lines it serves. In other words - and

contrary to the linchpin of the Commission's reasoning here - designation as an ETC confers no

benefit at all upon the non-rural incumbent carrier that has received that status, and there is no

factual basis for concluding that another carrier's lack of ETC status could have the effect of

prohibiting that carrier from offering service.

To be sure, incumbent carriers that serve rural areas in South Dakota do receive some

federal universal service support. But whether to designate more than one carrier as an ETC in

these rural areas lies entirely within the South Dakota PUC's discretion, and I do not understand

the majority to question that principle, which is dictated by the 1996 Act and our precedent.® A

state commission remains free to decline to grant an applicant ETC status for rural areas, based

on public interest considerations, and this order can have no effect on its exercise of that

discretion.

In addition to being incompatible with section 253's plain language, the Commission's

interpretation of this provision is not consistent with this agency's precedent. The Commission

'* See 47 U.S.C. § 253(a) (emphasis added).

® Declaratoiy Ruling at ^ 12.

^ See 47 U.S.C. §214(e)(2) ("Upon request and consistent with the public interest, convenience, and

necessity, the State commission may, in the case of an areas ser\'ed by a rural telephone company ..

in language, the Commission's

interpretation of this provision is not consistent with this agency's precedent. The Commission

'* See 47 U.S.C. § 253(a) (emphasis added).

® Declaratoiy Ruling at ^ 12.

^ See 47 U.S.C. §214(e)(2) ("Upon request and consistent with the public interest, convenience, and

necessity, the State commission may, in the case of an areas ser\'ed by a rural telephone company ...

designate more than one common carrier as an eligible telecommunications carrier for a service area

designated by the State commission, so long as each additional requesting carrier meets the requirements

of [§ 214(e)(1)].") (emphasis added); Federal-State Joint Board On Universal Service, 12 FCC Red 8776

[1! 135] (1997) ("[T]he discretion afforded a state commission under section 214(e)(2) is the discretion to

decline to designate more than one eligible carrier in an area that is served by a rural telephone company;

in that context, the state commission must determine whether the designation of an additional eligible

carrier is in the public interest.").

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pretends that its prior decisions support its preemption of the South Dakota PUC's order. But an

examination of the facts of these cases demonstrates just the opposite. In its past decisions, the

Commission has indicated that section 253 preemption is appropriate only if a state requirement

is so burdensome it effectively precludes a provider from providing service, and it previously has

refused to preempt state requirements that fall short of that standard.^

For example, the majority cites Pitiencrieff Communications. Inc. as support for its

preemption analysis here

ts past decisions, the

Commission has indicated that section 253 preemption is appropriate only if a state requirement

is so burdensome it effectively precludes a provider from providing service, and it previously has

refused to preempt state requirements that fall short of that standard.^

For example, the majority cites Pitiencrieff Communications. Inc. as support for its

preemption analysis here. ® But the Commission did not preempt the Texas requirement at issue

in that case, which required all earners, including the petitioner, a commercial mobile radio

service provider operating in Texas, to contribute to the state universal service fund.' The

Commission ruled that the requirement did not prohibit a CMRS provider from entering the

market since it applied to all telecommunications providers operating in Texas.'" Indeed, the

logic applied in Pittencrieff compels the conclusion that preemption is inappropriate here - the

South Dakota PUC's requirement that, in order to qualify as an eligible telecommunications

carrier under section 214(e), a carrier must currently be providing service to subscribers, applies

to incumbents and new entrants alike."

The Commission's decision is also at odds with its recent decision rejecting Minnesota's

petition for a declaration that its contract with a fiber optics developer was permissible under the

1996 Act. Under the contract at issue, the developer was to receive exclusive access to freeway

rights-of-way in Miimesota in exchange for installing 1,900 miles of fiber optic cable and

allowing the state to use some of that cable. For procedural reasons, the Commission did not

preempt Miimesota's contract.'" Nevertheless, it determined that the contract posed grave

problems under section 253, in that it gave a single developer what amounted to a monopoly on

freeway rights-of-way

to freeway

rights-of-way in Miimesota in exchange for installing 1,900 miles of fiber optic cable and

allowing the state to use some of that cable. For procedural reasons, the Commission did not

preempt Miimesota's contract.'" Nevertheless, it determined that the contract posed grave

problems under section 253, in that it gave a single developer what amounted to a monopoly on

freeway rights-of-way. The contract would essentially have precluded later entrants from

gaining access to the freeway rights-of-way to lay their own fiber optic cable for ten years," and

it would have been prohibitively expensive for competitors to purchase alternative rights-of-

way.'" In view of these facts, the Commission determined that the agreement potentially ran

afoul of section 253 because it singled out one provider for preferential treatment, while

^ See. e.g.. The Petition of the Stare of Minnesota for a Declaratory Ruling Regarding the Effect of

Section 253 on an Agreement to Install Fiber Optic Wholesale Transport Capacity in State Freeway

Rights-of-Way, Memorandum Opinion and Order, CC Docket No. 98-1, ^ 32 (rel. Dec. 23, 1999)

(hereinafter "Minnesota Declaraioiy Ruling").

Declaratory Ruling at ^ 7.

See Pittencrieff, 13 FCC Red 1735 [1] 2].

See id. &x 1751-1752,132.

'' See Declarator}' Ruling at 1 23.

'■ See Minnesota Declaratoiy Ruling, supra note 21, at 1 64.

See id. at H 1 & 19.

"See id. at HI 22-36.

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Federal Cominunications Commission

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effectively prohibiting others from entenng the market altogether. Similarly, m New England

Public Communications Council Petition for Preemption Pursuant to Section

a state

requirement had the effect of completely preventing independent payphone providers from

entering the payphone market, in direct contravention of section 276 of the 1996 Act.''

Consistent with section 253(a), the Commission preempted the requirement.

The South Dakota PUG, by contrast, has not accorded preferential treatment to any

carrier

Council Petition for Preemption Pursuant to Section

a state

requirement had the effect of completely preventing independent payphone providers from

entering the payphone market, in direct contravention of section 276 of the 1996 Act.''

Consistent with section 253(a), the Commission preempted the requirement.

The South Dakota PUG, by contrast, has not accorded preferential treatment to any

carrier. Rather, it has simply directed that a carrier that wishes to be designated an eligible

telecommunications carrier under section 214 show that it currently provides service in the areas

in which it seeks ETC status. Even if ETC status conferred some benefit on a carrier (which it

clearly does not), I do not understand how a generally applicable rule such as this one could

"prohibit" or have the "effect of prohibiting" the ability of a carrier to provide

telecommunications services within the meaning of section 253.

The South Dakota PUC's Construction of Section 214(e) Is Permissible. The South

Dakota PUC, in ruling that a carrier may not receive ETC designation unless it currently

provides service throughout the service area, has permissibly construed section 214'(e)(l). That

provision states that a common carrier designated as an eligible telecommunications carrier

"shall, throughout the service area for which the designation is received . . . offer the services

that are supported by Federal universal service support mechanisms under section 254(c)." The

verbs "shall" and "offer" are used the present tense, and the South Dakota PUC reasonably

concluded that these terms mean that a carrier must presently offer its service throughout the

service area before it may be designated an ETC and may not merely intend to offer that service

at some point in the future. Although other state commissions might interpret section 214(e)(1)

differently, the South Dakota PUC's interpretation of that provision is clearly permissible

Dakota PUC reasonably

concluded that these terms mean that a carrier must presently offer its service throughout the

service area before it may be designated an ETC and may not merely intend to offer that service

at some point in the future. Although other state commissions might interpret section 214(e)(1)

differently, the South Dakota PUC's interpretation of that provision is clearly permissible.

Indeed, in order to override the South Dakota PUC's determination and reach the

outcome it prefers, the Commission must manufacture a far more strained definition of the term

"to offer." "To offer," the Commission reasons, has nothing to do with whether an entity

actually provides service or is immediately capable of providing that service upon a customer's

request. The Commission stretches the statute's language past the breaking point. If Congress

had intended for carriers to be eligible telecommunications carriers based simply on a readiness

to provide service, it could easily have said so. And the Commission's construction of section

214(e)(1) effectively reads out of the Act one of the provision's chief requirements. If earners

may qualify for ETC status based merely on their "readiness" to make service available, section

214(e)(1) becomes nothing more than a self-certification provision, a result that is plainly at odds

with the statute's intent. It is elementary that a construction that renders a statutory provision

superfluous must be avoided, and the Commission has ignored that principle here.'^

11 FCC Red 19713 (1996) (hereinafter "New England Public Communications").

See New England Public Communications, 11 FCC Red at 19726-19727

27-30].

"47 U.S.C§ 214(e).

See. e.g., Kawaauhau v. Geiger, 523 U.S. 57, 62 118 S.Ct. 974, 977 (1998); United States v, Menasche,

348 U.S. 528, 538-539. 75 S.Ct. 513, 519-520 (1955).

15186

be avoided, and the Commission has ignored that principle here.'^

11 FCC Red 19713 (1996) (hereinafter "New England Public Communications").

See New England Public Communications, 11 FCC Red at 19726-19727

27-30].

"47 U.S.C§ 214(e).

See. e.g., Kawaauhau v. Geiger, 523 U.S. 57, 62 118 S.Ct. 974, 977 (1998); United States v, Menasche,

348 U.S. 528, 538-539. 75 S.Ct. 513, 519-520 (1955).

15186

Federal Communications Commission

FCC 00-248

4c ^ :(c

Jtc

Because the Commission's decision is unnecessary, inconsistent with sections 253, and

improperly overrides the South Dakota PUC's application of section 214(e), 1 dissent from this

Declaratory Ruling.

15187

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.