Virginia cellular and highland cellular: the FCC establishes a framework for eligible telecommunications carrier designation in rural study areas.

• Author: Bannister, Mark C.

1. INTRODUCTION II. BACKGROUND III. CONTROVERSY AND SIGNIFICANCE IV. ELIGIBLE TELECOMMUNICATIONS DESIGNATION FRAMEWORK A. 1996 Telecommunications Act B. FCC Regulations and Decisions 1. Early FCC Decision: Western Wireless Wyoming Decision 2. Texas Office of Public Utility Counsel v. FCC V. VIRGINIA CELLULAR AND HIGHLAND CELLULAR DESIGNATIONS A. Offer and Advertise Services 1. Offer Services 2. Advertise Services 3. Service Area 4. Public Interest Test 5. Public Interest Factors 6. Benefits of Access and Mobility 7. Benefit of Larger Local Calling Area 8. Service Quality Disadvantage of Wireless Providers 9. Disadvantageous Impact on the Universal Service Fund 10. Rural Public Interest Test and Creamskimming 11. Public Interest Test Summarized B. Regulatory Oversight VI. SEPARATE OPINIONS VII. SUMMARY AND IMPACT OF VIRGINIA CELLULAR AND HIGHLAND CELLULAR A. Joint Federal-State Board on Universal Service Recommended Decision B. Justification of Permissive Federal Guidelines C. Additional Minimum Eligibility Requirements 1. Adequate Financial Resources 2. Commitment and Ability to Provide the Supported Services 3. Ability to Remain Functional in Emergencies 4. Consumer Protection 5. Local Usage D. Public Interest Determinations E. Applicability to Existing ETCs and Rescinding of ETC Status F. Annual Certification Requirement G. Service Area Redefinition Process and Rural Carrier Disaggregation of Support VIII. SCOPE OF SUPPORT A. Primary Connection Provision B. Maintaining Sufficient Support for Rural Areas 1. Restatement Proposal 2. Lump-Sum Payment Proposal 3. "Hold Harmless" Proposal 4. Cap on Per-Line Support upon Competitive Entry C. Other Issues IX. BASIS OF SUPPORT X. SUMMARY OF JOINT BOARD REPORT XI. CONCLUSION I. INTRODUCTION

   In 1996, Congress passed the first substantial rework of the Communications Act of 1934. (1) This Act was intended to benefit consumers by encouraging competition and establishing a series of explicit mechanisms for assuring universal service. As with any complex legislation--particularly a federal body of legislation that took five years to pass--there have been unforeseeable and unintended consequences. Accelerating technological changes have also added unexpected outcomes. One of these outcomes is the creation of significant controversy over the federal, and in some cases, state universal service subsidy for the class of telecommunications providers typically known as wireless or cellular and defined by federal statute as "commercial mobile radio service" ("CMRS"). (2) Incumbent local exchange carriers ("ILECs")--traditional local telephone companies using much more costly landline telephone systems--characterize these subsidies as a windfall and as unnecessary to provide wireless phone service. They argue that federal and state universal service funding is intended to subsidize high-cost local telephone service--not wireless service--which is substandard compared to landline service. CMRS providers assert that the federal Act was designed to create competition and that their services provide consumers alternatives, create competition, and provide a quality and convenient service with mobile advantages not offered by landlines.

   This Article will examine two recent Federal Communications Commission ("FCC") decisions and a Federal-State Joint Board on Universal Service Recommended Decision (3) that are impacting this regulatory landscape. These decisions will affect the manner in which the FCC and state public utility commissioners deal with the eligible telecommunications carder designation affecting the viability of companies, the scope of services to consumers, and the allocation of hundreds of millions of universal service dollars annually.

2. BACKGROUND

   Universal service, assuring affordable residential access for all Americans, is a long-standing goal of federal policymakers. (4) Beginning with the Communications Act of 1934, Congress established a policy of making telecommunications available "so far as possible, to all the people of the United States." (5) In the 1950s, universal service efforts by the FCC, state regulators, and industry began to promote access through a series of cross-subsidies. (6) "Because American Telephone and Telegraph Company (AT&T) provided both nationwide long distance service and local telephone service to approximately 80 percent of the nation's telephone subscribers, universal service was largely promoted by shifting costs between different customers and services." (7) The most politically appealing cross-subsidies were long distance revenues subsidizing local telephone service, business service subsidizing residential service, and urban service subsidizing rural service. (8) This scheme of implicit subsidy was complex and largely ordered upon AT&T's monopoly structure.

   The universal service landscape began to change following the intricate 1982 settlement between the United States Department of Justice and AT&T in the government's antitrust case against the telecommunications giant. (9) The FCC addressed the concern for potential excessive rate hikes by implementing a two-pronged approach to universal service subsidization. First, the FCC mandated that long-distance companies pay access charges to local phone companies as a means to pay for the origination and termination of long-distance phone calls. (10) Second, local phone service customers were charged a "subscriber line charge" to help offset local phone companies' costs. (11) Subsequent complaints by long-distance companies arguing that access charges raised consumer long-distance rates and unnecessarily inflated local companies' profits were among issues under discussion as Congress began debating the Federal Telecommunications Act that would be passed in 1996. (12)

   The 1996 Federal Telecommunications Act moved from a system of implicit subsidy to statutory support for explicit universal service funding. (13) While this Article will focus on the application of universal service mechanisms used to support provision of services to rural and high-cost areas, the Act broadened the scope of universal service to support eligible schools, libraries, and rural health providers and continued support of access for low-income consumers. (14) The Act changed the mechanism for universal service funding. "Every telecommunications carder that provides interstate telecommunications services [is now required to contribute] on an equitable and nondiscriminatory basis." (15) Contributions are deposited into the federal Universal Service Fund ("USF") and are administered and distributed by the Universal Service Administrative Company ("USAC") in accord with regulations promulgated by the FCC. (16)

   While the FCC is the agency charged with promulgating regulations and in acting as a quasi-judicial body in accordance with the 1996 Telecommunications Act, telecommunications regulation has a history of joint federal and state regulation. Congress recognized this shared role when it mandated that the FCC create a Federal-State Joint Board on Universal Service ("Joint Board") (17) as a mechanism for communication and coordination between the FCC and state commissions in developing and implementing a federal program of universal service. This board develops reports and recommendations which the FCC and state commissions have relied upon during the evolution of federal universal service support. (18)

3. CONTROVERSY AND SIGNIFICANCE

   Only eligible telecommunications carders ("ETCs") are able to draw funds from the federal USF. (19) Some states have created their own universal service funds and have tied state eligibility requirements to those of the federal Act. (20) The 1996 Telecommunications Act created the opportunity for companies other than ILECs to become ETCs and to be subsidized for serving rural areas. (21) This new class of ETCs, sometimes known as Competitive Eligible Telecommunications Carriers ("CETCs"), has exploded in number. The growth in the number of ETCs has been geometric as providers have sought the economic benefit of the universal service subsidy. The Joint Board noted this growth in its 2004 recommended decision.

   Based on USAC data, 2 competitive ETCs received just over $500,000 in high-cost support in 1999, 4 competitive ETCs received $1.5 million in 2000, 25 competitive ETCs received $17 million in 2001, and 64 competitive ETCs received $47 million in 2002. In 2003, 109 competitive ETCs received approximately $131.5 million in high-cost support. Based on USAC quarterly projections, support for competitive ETCs will increase from $62.9 million in the fourth quarter of 2003, to $111.5 million in the second quarter of 2004, an increase of 77%. (22) This rise in expenditures is contrary to congressional expectations. Congress believed that competition and new technologies would reduce dependence upon universal service support by lowering costs. (23)

   According to the Organization for the Promotion and Advancement of Small Telecommunications Companies ("OPASTCO"), whose members are rural independent telephone companies serving high-cost areas, the vast majority of the growth in ETCs has resulted from wireless companies successfully seeking and receiving certification as CETCs. (24) The Joint Board has noted that, "[t]he vast majority of multiple connections provided today--the overwhelming bulk of the 148 million CMRS handsets--are not subsidized.... Moreover, studies have shown little if any difference in pricing between rural and urban markets." (25) Such data would suggest that a universal service subsidy is not required to assure wireless services in rural areas. In contrast, wireless providers argue that to completely provide high-quality wireless coverage to service areas with remote regions and sparse populations, a subsidy is necessary. (26)

   Based upon existing federal rules, when a wireless provider is recognized as a CETC in a high-cost study area, it may seek universal...