FCC’s Connect America Fund Order Unfairly Favored ILECs, Competitive Carriers Tell 10th Circuit
The FCC gave ILECs a “five year competitive head start” when it gave them an exclusive five-year right to Phase I Connect America Fund funds for broadband deployment, and an exclusive right of first refusal to obtain CAF funds in Phase II, CLECs and other challengers argued in briefs filed last week. They're challenging the FCC’s USF/intercarrier compensation order in the Denver-based 10th U.S. Circuit Court of Appeals. The commission’s “disparate treatment” of ILECs and CLECs in distribution of USF support violates its own “competitive neutrality” principle that support mechanisms “neither unfairly advantage nor disadvantage one provider over another,” they said.
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"The competitive neutrality principle is quite explicit,” the CLECs and competitive eligible telecom carriers wrote. It doesn’t require identical treatment, but it does aim to minimize disparities so no entity receives an unfair competitive advantage “that may skew the marketplace or inhibit competition,” they wrote, quoting the 2011 order. The commission’s actions were arbitrary, capricious, and “inconsistent with its own recognition that large carriers have underperformed in rural communities,” they said.
Sections 214(e) and 254(e) of the Telecom Act establish an “explicit quid pro quo” in which ETCs provide basic services in exchange for the opportunity to get USF support, they said. The USF/ICC order “improperly thwarts Congressional intent” by decreeing that eligible telecom carriers may not receive support for areas where an unsubsidized competitor offers service, while also refusing to relieve the ETCs of their corresponding service obligations, they said. “Assuming arguendo the FCC can rely on the presence of an ‘unsubsidized competitor’ as a reason to remove eligibility for support in particular areas at all, it cannot do so without also relieving carriers of their service obligations for these areas,” the CLECs argued. “The decoupling of these two issues is inconsistent with the statutory scheme."
The order also violates the due process clause as applied to Allband, because it’s too vague, and it unfairly retroactively reverses previous commission orders and federal loan contracts that Allband had relied upon, they argued. This also equals an unconstitutional confiscation of Allband’s property in violation of the Fifth Amendment, they said. The order also “imposes a harsh and punitive result targeted at Allband” and other rural companies that relied upon the 1996 USF provisions, “thus comprising an unconstitutional legislative action in the nature of a Bill of Attainder,” they argued. Allband, a rural Michigan cooperative, asked the FCC Wireline Competition Bureau in August to give it a 15-year waiver of the commission’s new $250 per-line-per-month cap (CD Aug 27 p1).
The FCC also violated its “referral duty,” in which the Telecom Act requires it to refer any issues regarding the jurisdictional separation of plant and expenses to a Separations Joint Board, and base its decision on those issues on a joint board recommended decision, the CLECs argued. This duty is “mandatory” where it adopts formal changes to its separations methodologies, as it did in the 2011 USF/ICC order, they said.
Petitioners submitted a separate brief focusing on intercarrier compensation issues raised by the USF/ICC order. There, they argued that the FCC’s rationale that rural CLECs can offset their lost ICC revenues by raising rates is “inconsistent with the FCC’s prior finding that rural CLECs lacked market power and hence the ability to raise rates,” they said. They also argued that the implementation of a bill-and-keep regime for CMRS-LEC traffic on a different schedule than other telecom traffic exchanged with LECs was arbitrary and capricious. The commission’s access stimulation benchmark rules as applied to CLECs are unlawfully discriminatory, they said.