Cell Telecom Indust v. FCC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 8, 1999 Decided March 16, 1999

No. 97-1690

Cellular Telecommunications Industry Association, et al.,

Petitioners

v.

Federal Communications Commission and

United States of America,

Respondents

Southwestern Bell Telephone Company, et al.,

Intervenors

Consolidated with

Nos. 97-1703 & 97-1705

On Petitions for Review of an Order of the

Federal Communications Commission

Theodore C. Whitehouse argued the cause for petitioners.
With him on the briefs were David M. Don, Michael F.

Altschul, and David A. Gross. Robert A. Long, Jr., entered
an appearance.

James M. Carr, Counsel, Federal Communications Com-
mission, argued the cause for respondent. With him on the
brief were Joel I. Klein, Assistant Attorney General, U.S.
Department of Justice, Catherine G. O'Sullivan and Nancy
C. Garrison, Attorneys, Christopher J. Wright, General
Counsel, Federal Communications Commission, and Daniel
M. Armstrong, Associate General Counsel. John E. Ingle,
Deputy Associate General Counsel, entered an appearance.

Michael D. Hays, Laura H. Phillips, Raymond G. Bender,
Jr., J. G. Harrington, Robert L. Hoggarth, Caressa D. Ben-
net, and Gregory W. Whiteaker were on the briefs for interve-
nors Comcast Cellular Communications, Inc., et al. Ray M.
Senkowski entered an appearance.

James D. Ellis, Robert M. Lynch, Durward D. Dupre,
Michael Zpevak, Robert B. McKenna, William B. Barfield,
and M. Robert Sutherland were on the brief for intervenors
Southwestern Bell Telephone Company, et al. Jim O. Llew-
ellyn entered an appearance.

Before: Silberman, Sentelle, and Randolph, Circuit
Judges.

Opinion for the Court filed by Circuit Judge Randolph.

Randolph, Circuit Judge: Federal law bars states from
regulating the entry of, and the rates charged by, providers
of mobile telecommunications services. Texas law requires
all providers of telecommunications services in the state to
contribute to two state-administered funds. In these consoli-
dated petitions for judicial review of an order of the Federal
Communications Commission, the question is whether the
Commission rightly decided that the federal statute did not
preempt the Texas law. See City of Abilene, Tex. v. FCC, 164
F.3d 49 (D.C. Cir. 1999).

I

"Universal telephone service" denotes federal and state
efforts to make communications services available to all
Americans at affordable rates. See 47 U.S.C. ss 151, 254(b).
In the past, universal service had been "achieved largely
through implicit subsidies....designed to shift costs from
rural to urban areas, from residential to business customers,
and from local to long distance service." Federal-State Joint
Bd. on Universal Serv., Report & Order, 12 F.C.C.R. 8776,
8784 (1997).

In 1995, Texas enacted a statute requiring telecommunica-
tions service providers doing business in the state to contrib-
ute annually to two state-run universal service programs.
See Texas Public Utility Regulatory Act of 1995, ss 3.606,
3.608 (codified at Tex. Util. Code Ann. ss 56.021-.022, 57.043-
.046 (West 1998)) ("Texas Utility Act"). Section 3.606 of the
Texas Utility Act requires contributions to the Telecommuni-
cations Infrastructure Fund. This fund awards grants and
loans to finance computer equipment and networks at schools,
libraries, and medical facilities. See Tex. Util. Code Ann.
ss 57.043-.046. Section 3.608 of the Texas Utility Act estab-
lishes the Universal Service Fund to subsidize certain tele-
communications services in the state's high-cost rural areas,
and to provide service to low-income disabled persons, and
persons with hearing and speech impairments. See id.
ss 56.021, 56.072, 56.102. It is to be "funded by a statewide
uniform charge payable by each telecommunications provider
that has access to the customer base." See id. s 56.022.

Pittencrieff Communications, Inc., a provider of commercial
mobile ("wireless") services in Texas, petitioned the Federal
Communications Commission for a declaratory ruling that a
provision in the Communications Act of 1934, as amended by
the Omnibus Budget Reconciliation Act of 1993, Pub. L. No.
103-66, 107 Stat. 312, 392, preempted the Texas law. The
federal provision--s 332(c)(3)(A)--is as follows (for ease of
reference we have numbered the first three sentences):

[1] Notwithstanding sections 152(b) and 221(b) of this
title, no State or local government shall have any authori-

ty to regulate the entry of or the rates charged by any
commercial mobile service or any private mobile service,
except that this paragraph shall not prohibit a State from
regulating the other terms and conditions of commercial
mobile services. [2] Nothing in this subparagraph shall
exempt providers of commercial mobile services (where
such services are a substitute for land line telephone
exchange service for a substantial portion of the commu-
nications within such State) from requirements imposed
by a State commission on all providers of telecommunica-
tions services necessary to ensure the universal availabil-
ity of telecommunications service at affordable rates. [3]
Notwithstanding the first sentence of this subparagraph,
a State may petition the Commission for authority to
regulate the rates for any commercial mobile service and
the Commission shall grant such petition if such State
demonstrates that--

(i) market conditions with respect to such services
fail to protect subscribers adequately from unjust and
unreasonable rates or rates that are unjustly or unrea-
sonably discriminatory; or

(ii) such market conditions exist and such service is
a replacement for land line telephone exchange service
for a substantial portion of the telephone land line
exchange service within such State.

The Commission shall provide reasonable opportunity for
public comment in response to such petition, and shall,
within 9 months after the date of its submission, grant or
deny such petition. If the Commission grants such
petition, the Commission shall authorize the State to
exercise under State law such authority over rates, for
such periods of time, as the Commission deems necessary
to ensure that such rates are just and reasonable and not
unjustly or unreasonably discriminatory.

47 U.S.C. s 332(c)(3)(A). After notice and comment, the
Commission denied the petition on the ground that the state's
contribution requirements do not constitute rate or entry
regulation of wireless services, the sort of regulation

s 332(c)(3)(A) preempts. See In re: Pittencrieff Communi-
cations, Inc., 13 F.C.C.R. 1735, 1737 (1997). In the Commis-
sion's view, the Texas law fell within the "other terms and
conditions" language of the first sentence of s 332(c)(3)(A)
and thus was within the state's lawful authority. See 13
F.C.C.R. at 1737. The Commission also reasoned that to
interpret s 332(c)(3)(A) otherwise would contradict 47 U.S.C.
s 254(f), which permits a state to require universal service
contributions from every telecommunications carrier provid-
ing intrastate telecommunications services in the state. See
13 F.C.C.R. at 1737. The denial of Pittencrieff's petition
affirmed an earlier Commission ruling that s 332(c)(3)(A) did
not preclude states from requiring commercial mobile service
providers to contribute to state universal service support
mechanisms. See 12 F.C.C.R. at 9181-82.

Two other commercial mobile radio service providers, Air-
Touch Communications, Inc. and Sprint Spectrum, L.P., and
their trade group, Cellular Telecommunications Industry As-
sociation (collectively "Cellular"), petitioned for judicial re-
view. Other parties intervened for and against Cellular's
position.

II

Cellular believes the case turns on the second sentence of
s 332(c)(3)(A)--"Nothing in this subparagraph shall exempt
providers of commercial mobile services (where such services
are a substitute for land line telephone exchange service for a
substantial portion of the communications within such State)
from requirements imposed by a State commission on all
providers of telecommunications services necessary to ensure
the universal availability of telecommunications service at
affordable rates." As Cellular reads it, the second sentence
means this: a state may require contributions to a universal
service fund if, and only if, wireless service is "a substitute for
land line telephone exchange service for a substantial portion
of the communications within such State"--a condition, we
assume, not satisfied here.

Cellular's reading is plausible, but not cogent. Or so the
Commission tells us. For starters, the Commission says that
one must view the second sentence in the context of the rest
of s 332(c)(3)(A). That of course is the correct approach.
The first sentence, we are told, sets out the basic framework:
a state may not regulate "the entry of or the rates charged
by," but it may regulate "other terms and conditions" of
wireless services. Here too the Commission is on solid
ground. The Commission then tells us that the second and
third sentences comprise exceptions to the first sentence's
ban on state regulation. So far there can be no quarrel.
From this, the Commission concludes that the second sen-
tence allows a state to promote universal service by regulat-
ing rates if wireless services are a substitute for land line
telephone exchange service for a substantial portion of the
communications within such state, something the first sen-
tence would otherwise bar the state from doing. There may
be some room for questioning the proposition,1 but the impor-
tant point is that the second sentence does not, by its terms,
preempt anything. All the preempting is done in the first
sentence; the second and third sentence contain exceptions.

One might say the second sentence, with its exception for
universal service, sheds light on the meaning of the first
sentence's distinction between rate and entry regulation, on
the one hand, and other terms and conditions. We will say
more about this shortly. For now, we deal with Cellular's
basic position that the second sentence itself preempts the
Texas statute. That cannot be right. No matter how long
one stares at the second sentence, no matter how one turns it
against the light, the sentence only contains the language of
exception. The second sentence does not preempt and it does

__________
1 Cellular argues that the Commission's reading of the second
sentence renders the third sentence redundant. According to Cel-
lular, the third sentence alone provides the narrow exceptions to the
first sentence's ban on state rate regulation. Cellular's interpreta-
tion is permissible, but so is that of the Commission, which con-
strues the second and third sentences as establishing different
conditions for exempting different types of state rate regulation
from the preemption outlined in the first sentence.

not forbid. Just the opposite. It limits the circumstances in
which a state law must give way to federal law.

This brings us to an argument Cellular deposited in a
footnote: "Even if this Court concludes that intrastate uni-
versal service contributions are not preempted by the second
sentence of section 332(c)"--and we have just concluded they
are not--"the first sentence also serves as a barrier to state
contribution requirements." Petitioners' Brief at 24-25 n.13.
Here the idea is that the Texas contribution requirements are
impermissible rate regulation because they increase the wire-
less service provider's costs of doing business in the state and
thus impact the rates charged to customers. One might say
the same about local siting laws or state consumer protection
laws. They too increase the cost of doing business. Yet a
House Committee cited these laws as examples of the variety
of permissible regulation of the "other terms and conditions."
See H.R. Rep. No. 103-111, at 261 (1993), reprinted in 1993
U.S.C.C.A.N. 378, 588. The Commission offered other such
examples, including some drawn from its previous decisions.
To equate state action that may increase the cost of doing
business with rate regulation would, the Commission reason-
ably concluded, forbid nearly all forms of state regulation, a
result at odds with the "other terms and conditions" portion
of the first sentence.

As we have mentioned, a better point might be that the
exception for universal service in the second sentence sheds
light on the meaning of the first sentence; in other words, the
second sentence assumes that a state requiring contributions
to universal service funds is a state regulating rates. Cellular
did not, so far as we can tell, make this argument in its briefs,
although its counsel mentioned the point in oral argument.
For its part, the Commission interprets the "rates charged
by" language in the first sentence of s 332(c)(3)(A) to "pro-
hibit states from prescribing, setting or fixing rates" of
wireless service providers, none of which the Texas law
accomplishes. 13 F.C.C.R. at 1745. On this view, the second
sentence represents an exception for state laws that frame
their universal service requirement in terms of a regulation of
rates and meet the specified condition. The Commission has

reached this position not only in light of s 332(c)(3)(A), but
also because of 47 U.S.C. s 254, added by the Telecommuni-
cations Act of 1996, Pub. L. No. 104-104, 110 Stat. 56.
Section 254(f) provides: "A State may adopt regulations not
inconsistent with the Commission's rules to preserve and
advance universal service. Every telecommunications carrier
that provides intrastate telecommunications services shall
contribute, on an equitable and nondiscriminatory basis, in a
manner determined by the State to the preservation and
advancement of universal service in that State." 47 U.S.C.
s 254(f). This is strong support for the proposition that,
consistent with federal law, states may require contributions
of the sort Texas is exacting.2 Instead of preempting such
laws, Congress endorsed them. Cellular's only response is
that "the specific language in section 332(c)(3)(A) operates to
limit the general grant of authority given in section 254(f)."
This assumes s 254(f) is the general provision while
s 332(c)(3)(A) is the specific. If anything, it seems to us the
other way around. One provision does not, in any event,
control the other, as the Commission has interpreted them.
Rather than being in conflict, the provisions are in harmony.

The bottom line is that Cellular has not demonstrated that
its interpretation of s 332(c)(3)(A) is the only permissible one
or that the Texas universal service laws were rate or entry
regulation. Section 332(c)(3)(A) leaves its key terms unde-
fined. It never states what constitutes rate and entry regula-
tion or what comprises other terms and conditions of wireless
services. See Grand Canyon Air Tour Coalition v. FAA, 154
F.3d 455, 466 (D.C. Cir. 1998). The Commission's interpreta-

__________
2 Intervenors supporting Cellular contend that wireless services
are "jurisdictionally" interstate and thus fall outside s 254(f), and
its endorsement of imposing state universal service regulations on
providers of "intrastate" telecommunications services. We do not
reach the merits of this claim because it was not raised in a timely
or proper manner. See 47 U.S.C. s 405; see also Freeman Eng'g
Assocs., Inc. v. FCC, 103 F.3d 169, 182-85 (D.C. Cir. 1997); Time
Warner Entertainment Co. v. FCC, 56 F.3d 151, 202-03 (D.C. Cir.
1995); Illinois Bell Tel. Co. v. FCC, 911 F.2d 776, 786 (D.C. Cir.
1990).

tion of s 332(c)(3)(A) gives meaning to each sentence, see
Illinois Public Telecommunications Ass'n v. FCC, 117 F.3d
555, 562 (D.C. Cir. 1997), fairly reflects the statute's purpose
to limit state rate and entry but not universal service regula-
tion, see Bell Atlantic Telephone Cos. v. FCC, 131 F.3d 1044,
1047-49 (D.C. Cir. 1997), and harmonizes s 332(c)(3)(A) and
s 254(f), see Louisiana Public Service Commission v. FCC,
476 U.S. 355, 370 (1986). There is thus no basis for setting
aside the Commission's decision. See 5 U.S.C. s 706(2)(A).

The remaining contentions of Cellular and the Intervenors
supporting it have been considered and rejected.

The petitions for review are denied.