[Federal Register Volume 73, Number 100 (Thursday, May 22, 2008)]
[Rules and Regulations]
[Pages 29712-29715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-11258]


=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket Nos. 96-45, 96-262, 97-121; WC Docket No. 06-122; FCC 08-
101]


Universal Service Fund Contribution

AGENCY: Federal Communications Commission.

ACTION: Final rule; petition on reconsideration.

-----------------------------------------------------------------------

SUMMARY: In this document, the Commission denies the petitions filed by 
BellSouth Corporation (BellSouth), Arya International Communications 
Corporation (Arya), Cable Plus L.P. and MultiTechnology Services, L.P., 
Pan Am Wireless, Inc., and USA Global Link with respect to the 
Commission's Fifth Circuit Remand Order, and confirms the conclusions 
by the Wireline Competition Bureau (Bureau) in the Fifth Circuit 
Clarification Order.

DATES: Effective June 23, 2008.

FOR FURTHER INFORMATION CONTACT: Thomas Buckley, Senior Deputy Chief or 
Carol Pomponio, Attorney, Wireline Competition Bureau, 
Telecommunications Access Policy Division at (202) 418-7400 (voice), 
(202) 418-0484 (TTY).

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
on Reconsideration, in CC Docket Nos. 96-45, 96-262, 97-121 and WC 
Docket No. 06-122, released April 11, 2008. The full text of this 
document is available for public inspection during regular business 
hours in the FCC Reference Center, Room CY-A257, 445 12th Street, SW., 
Washington, DC 20554.

I. Introduction

    1. In this Order on Reconsideration, the Commission denies the 
petitions for reconsideration filed by BellSouth and Arya with respect 
to the Commission's Fifth Circuit Remand Order, 64 FR 60349-01, 
November 5, 1999 and confirms the conclusions by the Bureau in the 
Fifth Circuit Clarification Order. Specifically, the Commission 
reconfirms that Commercial Mobile Radio Services (CMRS) providers may 
recover their universal service contributions through rates charged for 
all of their services; rejects the suggestion that the Commission's 
eight percent Limited International Revenues Exception (LIRE) is 
arbitrary and capricious; and denies petitioners' request for refund of 
universal service contributions remitted from January 1, 1998 to 
October 31, 1999, that were based on intrastate telecommunications 
revenues or international telecommunications revenues in excess of the 
eight percent LIRE. In addition to the petitions filed by BellSouth and 
Arya, several carriers sought refunds or excuse from payment for 
universal service fund contributions following the Texas Office of 
Public Utility Counsel (TOPUC) decision, 183 F.3d 393 (5th Cir. 1999), 
by filing appeals with the Universal Service Administrative Company 
(USAC) or directly with the Commission. In the Cable Plus L.P. and 
MultiTechnology Services, L.P., and Pan Am Wireless, Inc. appeals, the 
petitioners, like BellSouth in its petition for reconsideration, seek 
refund of their universal service contributions based on intrastate 
revenues. In the USA Global Link appeal, the petitioner, like Arya in 
its petition for reconsideration, seeks refund of its universal service 
contribution based on international revenues. The Commission denies 
these requests as well.

II. Discussion

    2. In response to BellSouth's petition requesting clarification of 
the Commission's rules, the Commission clarified previously that the 
TOPUC decision did not undermine the validity of the Commission's 
decision that CMRS providers may recover their contributions from 
customers through rates charged for all services. The relevant portion 
of the Fifth Circuit's decision in TOPUC related to the manner in which 
the Commission may require carriers to contribute to the universal 
service fund (USF). The manner in which carriers may recover their 
universal service contributions through assessments on customers was 
not before the court. Thus, the Bureau clarified that the TOPUC 
decision did not affect the Commission's finding in the Fourth 
Reconsideration Order, 63 FR 2094-01, January 13, 1998, that CMRS 
providers may ``recover their contributions through rates charged for 
all their services.'' In fact, the Commission has made clear that 
carriers have significant flexibility in the manner in which they may 
recover universal service contribution costs. Carriers are not required 
to recover their universal service costs from subscribers at all. If 
they choose to do so, carriers

[[Page 29713]]

may recover these costs through their standard service charges or 
through a separate line-item. The Commission does not alter that 
conclusion here.
    3. The Commission reiterates that providers that choose to recover 
universal service costs through a separate line-item may express the 
charge as a flat amount or as a percentage. Because of the inherent 
difficulty in defining and ascertaining which calls over a mobile 
wireless system are ``interstate,'' the Commission has long permitted 
CMRS providers to assume for purposes of calculating their USF 
contributions that a prescribed percentage of their total end user 
telecommunications revenues is interstate. The Commission's rules allow 
``wireless telecommunications providers [to] continue to recover 
contribution costs in a manner that is consistent with the way in which 
companies report revenues to [USAC]'' on their USF Worksheets. Thus, 
CMRS providers may include a universal service line-item on a 
subscriber's bill that does not reflect that particular subscriber's 
interstate usage.
    4. In the Fifth Circuit Remand Order, the Commission established a 
limited exception to universal service contribution requirements for 
entities with interstate end-user telecommunications revenues that 
constitute less than eight percent of their combined interstate and 
international end-user telecommunications revenues. Arya does not 
challenge the establishment of the LIRE per se, but asserts that the 
Commission's Fifth Circuit Remand Order failed to articulate a 
satisfactory explanation for adopting the eight percent threshold, thus 
rendering the decision arbitrary and capricious. Arya asserts that the 
Commission ``offered no explanation'' for its choice of eight percent, 
and accordingly its decision should be reconsidered. The Commission 
disagrees.
    5. As explained in the Fifth Circuit Remand Order, a provider of 
interstate and international telecommunications is not required to 
contribute based on its international telecommunications end-user 
revenues if its interstate telecommunications end-user revenues 
constitute less than eight percent of its combined interstate and 
international end-user telecommunications revenues. The Commission 
further stated that the rule is intended to exclude from the 
contribution base the international end-user telecommunications 
revenues of any telecommunications provider whose annual contribution, 
based on the provider's interstate and international end-user 
telecommunications revenues, would exceed the amount of its interstate 
end-user telecommunications revenues. The Commission concluded that the 
rule is consistent with the determination of the Fifth Circuit that 
requiring a carrier to pay more universal service contributions than it 
derives from interstate revenues violates the requirement in section 
254(d) of the Act that universal service contributions be equitable and 
nondiscriminatory.
    6. In selecting the relevant threshold, the Commission explained 
that selection of eight percent provided sufficient margin of safety 
based on the contribution factors at the time, such that a provider's 
contribution would not exceed the amount of its interstate end-user 
telecommunications revenues. Selecting a fixed percentage for the LIRE 
rather than tying it to the established contribution factor, which 
fluctuates quarterly, also ensured that the Commission could meet the 
statutory requirement that the USF contribution mechanism remain 
specific and predictable. Moreover, in 2002 the Commission revised the 
LIRE to address certain changes in the telecommunications marketplace, 
and increased the exception threshold to twelve percent. Accordingly, 
the Commission finds that Arya's argument that the Commission failed to 
articulate its rationale for selecting the eight percent threshold is 
without merit, and the Commission declines to reconsider the LIRE 
threshold.
    7. In the Fifth Circuit Clarification Order, the Bureau clarified 
that the Fifth Circuit Remand Order applied the Fifth Circuit decision 
prospectively from the effective date of the Fifth Circuit's mandate. 
Upon further consideration, the Commission confirms the conclusion of 
the Bureau and denies BellSouth's request to apply the Fifth Circuit 
Remand Order on a retroactive basis. Further, the Commission denies the 
request by Arya to retroactively apply the LIRE to contributions made 
prior to the Fifth Circuit's mandate.
    8. In considering whether to give retroactive application to a new 
rule, the courts have held that when there is a ``substitution of new 
law for old law that was reasonably clear,'' the new rule may 
justifiably be given solely prospective effect in order to ``protect 
the settled expectations of those who had relied on the preexisting 
rule.'' By contrast, retroactive effect is appropriate for ``new 
applications of [existing] law, clarifications, and additions.'' In 
cases in which there are ``new applications of existing law, 
clarifications, and additions,'' the courts start with a presumption in 
favor of retroactivity. However, retroactivity may be denied ``when to 
apply the new rule to past conduct or to prior events would work a 
`manifest injustice.' '' Based on the equitable factors discussed 
below, the Commission concludes that retroactive application would work 
a manifest injustice that defeats the presumption of retroactivity. 
Accordingly, the Commission affirms the Fifth Circuit Remand Order.
    9. At the outset, the Commission recognizes that this case involves 
conflicting equitable considerations that are somewhat novel. Unlike 
recent Commission precedent in which the DC Circuit has applied the 
``manifest injustice'' standard, this case does not involve the more 
common situation that pits one group of carriers against another. 
Rather, at its essence, the decision of whether to give retroactive 
effect to the Fifth Circuit decision requires the Commission to assess 
the equities of significantly increasing collection from current USF 
contributors and their customers in order to attempt to flow refunds to 
millions of customers of an earlier decade. Thus, this is ultimately a 
complicated dispute about how to handle a transaction that affects 
customer groups over different time periods. In evaluating whether 
retroactivity would produce a manifest injustice, the Commission 
focuses its analysis on the benefits and burdens to the affected 
parties. To do this, the Commission necessarily considers how the 
refund mechanisms would function and the potential effect of any refund 
on its statutory obligations under section 254 of the Act.
    10. First, a decision to compel refunds would require USAC to 
refund to the contributing carriers more than one billion dollars in 
monies already disbursed to thousands of schools, libraries and rural 
health care providers. Because of the resulting shortfall in current 
USAC funds, USAC would, in turn, have to significantly increase 
collections from current USF contributors and their customers by 
raising the contribution factor applied to today's interstate and 
international revenue. Indeed, some estimates show that USAC would need 
to collect an additional $1.6 billion from current contributors, which 
likely would be passed through by the carriers to today's consumers. 
The net effect of any such refund would be that 2008 consumers 
subsidize charges that should have been paid by consumers in 1998 and 
1999 had the Commission assessed only interstate and international 
revenue (and excluded intrastate revenue). In the Commission's view, 
such an outcome--

[[Page 29714]]

higher USF charges to today's customers--would be fundamentally at odds 
with its section 254 mandate to preserve and advance universal service. 
Today's consumers would have to shoulder the burden of the refunds 
while having no responsibility for causing the underlying problem. The 
harms to today's end-users and to the universal service system itself 
would be undeniable should retroactive effect be given to the Fifth 
Circuit decision.
    11. Ironically, despite the hardships of a refund on current 
consumers, those end-users who bore the erroneous costs in 1998-99 
would not necessarily reap benefits from refunds. As a practical 
matter, because USF contribution charges are generally passed through 
by the contributing entity to its customers, contributors would have to 
use 1998 and 1999 billing information to ensure that the consumers who 
paid the USF received the refunds. This effort, which would be 
difficult in even the best of times, is here further complicated 
because many of the carriers that contributed to the USF based on 
intrastate and international revenue no longer exist; they would thus 
be unavailable to receive the refund and disburse it to the appropriate 
1998 and 1999 consumers. Even those carriers who still conduct business 
may have great difficulties tracking customers from this earlier 
period, given customer churn.
    12. At the same time, those customers who could be successfully 
identified would not be assured of obtaining their money from the 
carriers. As even BellSouth concedes, attempting to facilitate refunds 
would be ``a bit like unscrambling eggs.'' The Commission's rules focus 
on carrier contributions rather than cost recovery, and the rules 
afford carriers discretion on how to pass through these costs to their 
customers. As a result, with costs passed along in a variety of ways, 
it would be extraordinarily difficult for the Commission to develop an 
effective framework for directing carriers' refund efforts. Moreover, 
any individual refunds to former customers (to the extent these 
customers can be identified and located) are likely to be small 
amounts, which would be further reduced by the offset from increased 
universal service charges on their current telephone bills. The only 
realistic conclusion the Commission can draw is that the potential 
benefits of refunds for contributors or end-user customers are 
extremely speculative.
    13. In contrast, the costs and burdens of a refund requirement are 
concrete. Although the amount of any consumer refund would be minute, 
the number of customers potentially affected would run into the 
millions. As a result, the carriers' administrative burdens to disburse 
such refunds would be enormous. Potentially carriers' administrative 
costs could overwhelm the amounts available for distribution as 
refunds; just as bad, those administrative costs might be passed along 
to end-users through other increased charges. Further, the likelihood 
for significant confusion in administering any refund program has been 
repeatedly recognized by commenters. The anticipated confusion would, 
in turn, impinge on the Commission's obligation to ensure the 
``sufficiency'' of the USF based on ``equitable'' contributions. In the 
Commission's view, imposing an unworkable refund obligation for only 
the most speculative of benefits does not serve the public interest or 
comport with the Commission's statutory obligations under section 254.
    14. The Commission concludes that considerations of fairness and 
equity militate strongly against retroactive application and defeat the 
presumption of retroactivity. Requiring refunds of this magnitude would 
compel USAC to raise the USF contribution factor. That would cause 
manifest injustice for today's consumers, as they shoulder higher bills 
while bearing no culpability for the refund problem. At the same time, 
the Commission strongly doubts it would be possible to ensure that the 
refunds provided by USAC be passed through appropriately to end-users. 
Moreover, any customers who received a small refund check would benefit 
little because they, too, would be saddled with higher USF charges 
going forward. In contrast, some carriers could conceivably obtain 
windfalls where payments are not flowed through to their former 
customers. Neither logic nor fairness supports such a result, which 
works a ``manifest injustice'' not only upon current end-users, but 
upon the universal service program as a whole. Under these 
circumstances, the Commission declines to order retroactive application 
of the Fifth Circuit's decision.
    15. The Commission also disagrees with BellSouth that a series of 
Supreme Court decisions culminating in Reynoldsville Casket Co. v. 
Hyde, 514 U.S. 749 (1995), mandates retroactive application of the 
Fifth Circuit's decision here. The Fifth Circuit did not specifically 
mandate that its decision be applied to the litigants before it, 
Cincinnati Bell and COMSAT Corporation (COMSAT), and neither party 
sought a refund from the Commission of its universal service 
contributions. As the Fifth Circuit did not apply the new rule to the 
litigants before it, there is no selective retroactivity here. 
Accordingly, the Commission affirms its decision in the Fifth Circuit 
Remand Order to apply the Fifth Circuit decision prospectively. Thus, 
the Commission denies BellSouth's petition for reconsideration and 
request for refund of its individual assessments based on its 
intrastate contributions.
    16. Further, with respect to Arya's request, the Fifth Circuit's 
determination regarding contributions based on international revenues 
was not based on lack of Commission jurisdiction. Rather, the Fifth 
Circuit found that requiring carriers to contribute on international 
telecommunications revenues without any limiting principle would result 
in instances in which predominantly international carriers would be 
forced to incur prohibitive costs. The Fifth Circuit accordingly found 
the Commission's decision to be contrary to section 254's ``equitable 
and nondiscriminatory'' language. The Fifth Circuit remanded that 
portion of the 1997 Universal Service Order to the Commission for 
further consideration. In seeking refunds of amounts assessed on 
international revenues in excess of the eight percent threshold, 
however, Arya is not seeking retroactive application of the Fifth 
Circuit's decision. Rather, it is seeking retroactive application of 
the Commission's Fifth Circuit Remand Order, in which the Commission 
established the LIRE. Retroactive rulemaking is generally not favored. 
For that reason and for the same reasons that justify prospective-only 
effect of the Fifth Circuit's TOPUC decision discussed above, the 
Commission declines to give the Fifth Circuit Remand Order retroactive 
effect as to contributions based on international telecommunications 
revenues.
    17. In addition to the petitions filed by BellSouth and Arya, 
several carriers sought refunds or excuse from payment for USF 
contributions following the TOPUC decision by filing appeals with USAC 
or directly with the Commission. In the Cable Plus and Pan Am Appeals, 
the appellants, like BellSouth in its petition for reconsideration, 
seek refund of their universal service contributions based on 
intrastate revenues. In the USA Global Appeal, the appellant, like Arya 
in its petition for reconsideration, seeks refund of its universal 
service contribution based on international revenues. The Commission 
denies these requests as well for the reasons stated above.

[[Page 29715]]

III. Paperwork Reduction Act of 1995 Analysis

    18. This document does not contain proposed information 
collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. In addition, therefore, it does not contain any new 
or modified ``information collection burden for small business concerns 
with fewer than 25 employees,'' pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4).

IV. Final Regulatory Flexibility Certification

    19. The Regulatory Flexibility Act of 1980, as amended (RFA), 
requires that a regulatory flexibility analysis be prepared for notice-
and-comment rulemaking proceedings, unless the agency certifies that 
``the rule will not, if promulgated, have a significant economic impact 
on a substantial number of small entities.'' The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A ``small business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the Small Business 
Administration (SBA).
    20. The Commission sought written public comment on the initial 
regulatory flexibility analysis (IRFA) incorporated into the NPRM, 61 
FR 10499-01, March 14, 1996, and the Recommended Decision, 61 FR 63778-
01, December 2, 1996, on the final regulatory flexibility analysis 
incorporated into the 1997 Universal Service Order, and on the 
supplemental final regulatory flexibility analysis incorporated into 
the Fifth Circuit Remand Order.
    21. In the IRFAs, the Commission sought comment on possible 
exemptions from the proposed rules for small telecommunications 
companies and measures to avoid significant economic impact on small 
entities, as defined by the RFA. No comments in response to the IRFAs, 
other than those summarized in the 1997 Universal Service Order, were 
filed. In response to the FRFA contained in the 1997 Universal Service 
Order, one commenter argued that the Commission did not satisfy the 
requirements of the RFA by considering alternatives to the cap on 
recovery of corporate operations expenses. Those comments were fully 
addressed in the Fourth Order on Reconsideration.
    22. No comments or petitions for reconsideration in response to the 
IRFAs or FRFA, other than those described above, were filed and none of 
the comments filed pertain to the issues raised in the Fifth Circuit 
Remand Order. The Commission in that order nonetheless addressed small 
business concerns by giving incumbent LECs greater flexibility in 
structuring their recovery of universal service contributions and by 
creating an exception from the contribution requirements for certain 
providers of international telecommunications services.
    23. In this order, the Commission reconfirms that CMRS providers 
may recover their universal service contributions through rates charged 
for all of their services; rejects the suggestion that the Commission's 
eight percent LIRE is arbitrary and capricious; and denies petitioners' 
request for refund of universal service contributions remitted from 
January 1, 1998 to October 31, 1999, that were based on intrastate 
telecommunications revenues or international telecommunications 
revenues in excess of the eight percent LIRE. This has no new effect on 
any party and does not create any additional burden on small entities.
    24. Therefore, the Commission certifies that the requirements of 
the order will not have a significant economic impact on a substantial 
number of small entities.
    25. In addition, the order and this final certification will be 
sent to the Chief Counsel for Advocacy of the SBA, and will be 
published in the Federal Register. The Commission will not send a copy 
of this Order on Reconsideration pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A), because this order does not change 
previously adopted rules.

V. Ordering Clauses

    26. Accordingly, It is ordered, pursuant to sections 1, 2, 4(i), 
4(j), 201, 202, 218-220, 254 and 303(r)of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 152, 154(i)-(j), 201, 202, 21-220, 
254, and 303(r) that BellSouth Corporation's Petition for 
Reconsideration and Clarification, Arya International Communications 
Corporation's Petition for Reconsideration of the Commission's Fifth 
Circuit Remand Order, Cable Plus L.P. and MultiTechnology Services, 
L.P.'s Joint Request for Review, PanAm Wireless, Inc.'s Request for 
Review, and USA Global Link, Inc.'s Request for Review are denied.
    27. It is further ordered that this order shall become effective 
June 23, 2008.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. E8-11258 Filed 5-21-08; 8:45 am]
BILLING CODE 6712-01-P