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Testing the Limits of Chevron: Judicial Deference to the FCC on Universal Service

Monday, February 13, 2012

Contributed by Helgi C. Walker and Brett A. Shumate, Wiley Rein LLP

As the Federal Communications Commission ("FCC") opens a new chapter in its effort to achieve "universal service," courts are likely to have the final say in how $7 billion in annual subsidies are distributed to telecommunications providers. In the past, courts have generally deferred to the FCC’s implementation of its universal service mandate under the Chevron framework based on the complexity of the task and the ambiguities in the FCC’s governing statute. A recent case decided by the U.S. Court of Appeals for the D.C. Circuit illustrates this generally deferential approach. But courts have also balked at being asked to rubber-stamp the FCC’s actions when the agency ignores clear mandates in the Communications Act. As the FCC now transitions the universal service fund from supporting plain old telephone service to the deployment of broadband services, judicial application of the deferential Chevron standard of review to the FCC’s implementation of its universal service mandate may be more important than ever.

Reforming Universal Service

The Telecommunications Act of 1996 charged the Commission with the complex task of establishing a "universal service" system that ensures everyone in the United States has access to communications service. In implementing this mandate, the Commission is guided by six statutory principles for the "preservation and advancement of universal service." 

The Commission must ensure that quality services are available at just, reasonable, and affordable rates; that all consumers, including low-income consumers and those in rural, insular, and high-cost areas, have access to services that are "reasonably comparable" to those services and rates provided in urban areas; and that there are "specific, predictable and sufficient" federal and state mechanisms to "preserve and advance" universal service.1 To implement its mandate, the Commission has established an intricate set of programs of varying sizes for low-income consumers, rural health care providers, schools and libraries, and consumers living in high-cost areas. Collectively, the federal universal service fund disburses more than $7 billion per year to support these various programs. The Commission designed these programs at a time when the agency’s goal was to ensure all Americans have access to basic telephone service. By all accounts, the FCC has achieved that goal spectacularly. Almost 96 percent of all households in the United States have telephone service, either wireline or wireless. Each year, more and more customers are subscribing to wireless services, and many have abandoned altogether the traditional wireline phone service that the universal service fund was originally designed to support. Since 2000, the number of wireless subscribers has more than doubled, and the wireless penetration rate increased to 87 percent of the population. By 2009, the percentage of all households that had "cut the cord" in favor of wireless-only service climbed to an all-time high of 22.7 percent.2

Given these successes, the Commission has opened a new chapter in its quest to achieve universal service. In November 2011, the FCC adopted a seminal order that makes sweeping changes to the universal service system to focus on broadband deployment instead of supporting plain old telephone service. In particular, the FCC fundamentally reformed the existing high-cost support mechanism that supports wireline and wireless services in high cost, predominantly rural, areas. The order establishes new funds that will distribute support for broadband deployment in these areas, with a particular focus on the deployment of mobile voice and broadband services.

The Deferential Chevron Standard of Review

The sustainability of these and future reforms will ultimately be decided in court. Courts have historically afforded the FCC considerable discretion in this area because the Commission’s implementation of its universal service mandate is reviewed under the deferential Chevron "two-step." Under Chevron, a court reviewing the FCC’s construction of the Communications Act must answer two questions. "First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress."3 At the second step, "if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute," even if it is not the best reading of the statute. Id.

Chevron deference has been found especially appropriate in the universal service context based on the ambiguities in Section 254 and the complexity of the task before the agency. The D.C. Circuit has explained that "[s]ince the principles outlined use ‘vague, general language,’ courts have analyzed language in § 254(b) under Chevron step two."4 Likewise, the U.S. Court of Appeals for the Fifth Circuit has recognized that "Congress obviously intended to rely primarily on FCC discretion, and not vigorous judicial review, to ensure satisfaction of the Act’s dual mandates."5 Even the Tenth Circuit, where the FCC was deemed to have provided insufficient justification of past action in this area, has stated that "[d]eference is especially due when an agency’s interpretation of a statute rests upon its considered judgment, a product of its unique expertise."6

A recent case in the D.C. Circuit illustrates this relatively deferential approach to the FCC in the universal service context. Vermont Public Service Board v. FCC7 involved the FCC’s definition of the term "reasonable comparability" in the statute. As a threshold matter, the D.C. Circuit indicated that it would review this question under Chevron step two. "Precisely what constitutes ‘reasonable’ comparability is a definitional matter left to the Commission’s discretion."8 Such deference is particularly appropriate, the court explained, given the enormity of the FCC’s mandate to achieve universal service. "The Telecommunications Act’s universal service provision requires the Commission to do far more than promote rural rates and services that are ‘reasonably comparable’ to those in urban areas. The Commission must also ensure that ‘low-income consumers . . . schools and classrooms, health care providers, and libraries . . . have access to advanced telecommunications services.’"9 In addition to these monumental tasks, the Commission has a "‘responsibility to be a prudent guardian of the public’s resources’" given the billions of dollars in universal service subsidies that ultimately come from consumers.10 The court ultimately upheld the reasonableness of the FCC’s action under the Chevron framework.

No Rubber Stamp

But the discretion afforded by Chevron does not mean that courts blithely affirm FCC action in this area or serve as a rubber stamp for the agency. As two related Tenth Circuit cases show, courts will strike down FCC decisions where the agency has not adequately justified its decision. In these two cases, which preceded the related Vermont case in the D.C. Circuit, the Tenth Circuit refused to defer to the FCC’s construction of the statute even under the Chevron standard of review. In both cases the Tenth Circuit reviewed the FCC’s construction of the terms "reasonably comparable" and "sufficient" in the statute. In Qwest I, the Tenth Circuit concluded that the FCC’s definitions were so inadequate as to make judicial review impossible.11 Noting that it would normally "be obligated under Chevron to defer to the FCC’s definitions if they were reasonable constructions of the statute," the Tenth Circuit held that "deference is inappropriate" where "the FCC has failed to define the terms at all or has provided a definition that replaces a statutory command with some other standard."12 The Tenth Circuit ordered the FCC to "define these terms more precisely" on remand.13 The FCC attempted precisely that on remand. Yet the Tenth Circuit again found the FCC’s definitions to be inadequate in Qwest II. Reviewing the FCC’s definition of "sufficient," the Tenth Circuit declared that the FCC’s definition ignored key terms in the statute: "The FCC’s definition of ‘sufficient’ ignores the vast majority of § 254(b) principles by focusing solely on the issue of reasonable comparability in § 254(b)(3)."14 The court found the FCC’s definition of "reasonably comparable" to be problematic for the same reason: the FCC had defined the term in relation to the statutory principle "preserve" "while ignoring its concurrent obligation to advance universal service."15 Because the FCC’s definition rested "on a faulty, and indeed largely unsupported, construction of the Act," the Court held "that the FCC’s construction of the statute does not deserve deference and is ‘manifestly contrary to the statute.’"16 More recently, however, the Tenth Circuit has followed Chevron to avoid mere second-guessing of the Commission.17 In Sorenson, the Tenth Circuit rejected a number of statutory arguments because ambiguities in the statute left "the definition to the FCC" and the petitioner failed "to show the FCC’s interpretation of" the statute was "impermissible under the statute."18 Noting that the FCC "has discretion to balance" competing statutory objectives "when they conflict," the Tenth Circuit found the FCC’s approach to be "a reasonable balance of these competing objectives."19 The approach to Chevron adopted by the Tenth Circuit in these cases could influence the current litigation involving the FCC’s universal service reforms because the Tenth Circuit has been selected by lottery to hear all consolidated challenges to the FCC’s seminal reform order. The validity of the FCC’s reforms—and the billions of dollars at stake—may well turn on how the Tenth Circuit applies the Chevron framework to the FCC’s actions on judicial review. 

Helgi C. Walker is co-chair of the Appellate Practice at Wiley Rein LLP in Washington, DC. She has extensive experience in appellate, litigation and regulatory matters involving common carrier, wireless, cable, Internet and broadcast issues. A former clerk for Supreme Court Justice Clarence Thomas, Ms. Walker served as Chief of Staff to FCC Commissioner Harold Furchtgott-Roth and later as Associate White House Counsel. She can be reached at 202.719.7349 or A. Shumate is a lawyer in Wiley Rein’s Appellate Practice. Mr. Shumate assists clients with a variety of trial and appellate matters in state and federal courts and before federal agencies in cases involving common carrier, satellite, wireless, cable, Internet and broadcast issues. He has significant experience litigating administrative law appeals in the U.S. Court of Appeals for the D.C. Circuit. Mr. Shumate can be reached at 202.719.7168 or

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