Court Upholds Cap on Rural Wireless Subsidies

(CN) - The D.C. Circuit upheld the FCC's cap on rapidly escalating subsidies for providers of wireless phone service in rural areas, calling the arguments against it "somewhat confusing" and "without merit."

The agency imposed an "interim, emergency cap" in 2008 to help control subsidies that had skyrocketed from $15 million in 2001 to nearly $1 billion in 2006.

The subsidies stemmed from a universal service provision of the 1996 Telecommunications Act, meant to ensure reasonably priced wireless access for "low-income consumers and those in rural, insular and high-cost areas."

As a result, the government subsidies phone and wireless companies that provide service in rural areas through a universal service fund.

But because Congress also mandated that FCC policies be competitively neutral, the government has to subsidize multiple connections for the same household or business.

In 2004, the board that oversees universal service urged the FCC to limit subsidies to a single connection. Before the agency could act, Congress passed a law specifically barring the FCC from implementing the single-connection rule.

The agency instead imposed a temporary cap in 2002 on rural wireless subsidies, rolling back payments to the amount providers were eligible for in March 2008, unless they could prove that their actual costs were higher.

The FCC stressed that the cap would remain in place only until it adopted comprehensive, high-cost universal service reform.

The Rural Cellular Association and others argued that the FCC violated federal law by implementing the cap in an arbitrary, hasty fashion.

The federal appeals court in Washington, D.C., disagreed, saying the FCC had to consider the long-term sustainability of the universal service fund.

"[T]he Commission reasonably interpreted Congress' directive that it 'preserve' universal service as also requiring that it 'sustain' universal service, which, in turn, requires ensuring the sustainability of the fund," Judge Brown wrote.

The government can't keep subsidizing companies at an annual growth rate of more than 100 percent, the court noted.

The FCC "enjoys broad discretion to determine the point at which it must take immediate action to prevent irreversible damage to the fund, consumers, and the telecommunications market generally," Brown wrote.

"Thus, armed with its own expertise and considered judgment, the Commission reasonably concluded 'shovel[ing]' the matter off to 'die quietly' was not a wise option."

The panel upheld the FCC's cap and denied the petitioners' bid for review.

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