State Experimentation the Rule on USF, Says Calif. Public Utilities Commission

T-Mobile would upend the 1996 Telecom Act principle of cooperative federalism if courts stopped California from moving to a connections-based USF contribution mechanism, argued the California Public Utilities Commission. In an answering brief Tuesday at the 9th U.S. Circuit Court of Appeals, the CPUC also disagreed that a flat-fee surcharge discriminates against federal affordable connectivity program (ACP) participants.

The CPUC asked the 9th Circuit to affirm the U.S. District Court for Northern California denying preliminary injunction and allowing the agency’s October USF order to take effect April 1 (case 23-15490). T-Mobile argued earlier this month that California’s new connections-based method was “directly at odds” with the FCC’s revenue-based mechanism for USF contribution (see 2305020038). Also, the wireless carrier said it wasn’t competitively neutral, including because it exempts California LifeLine participants but not ACP participants from paying the surcharge. In an amicus brief, a coalition of minority advocates agreed with the carrier that the new method discriminated against people with less income (See 2305090023).

The Telecom Act is meant to “foster universal service through co-operation rather than top-down orders,” the CPUC responded Tuesday. If accepted by the courts, T-Mobile's “argument would call into question most if not all of the states’ universal service programs: experimentation has been the rule.” The 9th Circuit "should decline to throw the national universal service market into chaos to serve the Carriers’ private interests,” added the agency.

The California commission sees multiple flaws in T-Mobile’s argument that the connections-based method discriminates against ACP providers, the CPUC said. ACP is fundamentally different than federal Lifeline and California LifeLine programs, including because ACP is funded by congressional appropriations, not carrier contributions or surcharges, the commission said. Companies may voluntarily participate in LifeLine if they want to get the exemption, it added.

“Even under the previous revenue-based surcharge, which the T-Mobile Carriers hold up as competitively neutral,” LifeLine but not ACP subscribers were exempt from paying the surcharge, the CPUC noted. "If the problem is that LifeLine subscribers are exempt while ACP subscribers are not, it is hard to see how changing the surcharge mechanism changes the result: either both the revenue-based surcharge and the access-line surcharge discriminate or neither do -- but the Carriers find only the access-line charge objectionable. They do not explain why.”

The CPUC changed contributions to keep state USF stable, it said. Declines each year in the intrastate contribution base led to "lower surcharge amounts collected for all of the California programs compared to the amount forecasted," it said. “The falloff has been dramatic: the intrastate billing base declined 58 percent between 2012 and 2020, and the total reported intrastate revenue subject to surcharge went from $15.4 billion in 2012 to $6.433 billion in 2020."

Increasing a surcharge rate on a declining base is "unfair to those who must pay those ever-higher amounts ... and unsustainable in the long term," said the CPUC: Facing the same problem, FCC considered the connections-based approach for the federal fund, and at least three other states -- Nebraska, New Mexico and Utah -- adopted it.