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National Lifeline Association v. Federal Communications Commission

United States Court of Appeals, District of Columbia Circuit

February 1, 2019

National Lifeline Association, et al., Petitioners
Federal Communications Commission and United States of America, Respondents Oceti Sakowin Tribal Utility Authority, Intervenor

          Argued: October 25, 2018

          On Petitions for Review of an Order of the Federal Communications Commission

          John J. Heitmann argued the cause and filed the briefs for petitioners National Lifeline Association, et al.

          V. Shiva Goel argued the cause for petitioner Crow Creek Sioux Tribe and intervenor Oceti Sakowin Tribal Utility Authority. With him on the joint briefs were Christopher J. Wright and John T. Nakahata.

          Thaila K. Sundaresan, Counsel, Federal Communications Commission, argued the cause for respondents. With her on the brief were Robert B. Nicholson and Frances E. Marshall, Attorneys, U.S. Department of Justice, Thomas M. Johnson Jr., General Counsel, Federal Communications Commission, David M. Gossett, Deputy General Counsel, and Jacob M. Lewis, Associate General Counsel. Richard K. Welch, Deputy Assistant General Counsel, Federal Communications Commission and William T. Shaw, Attorney Advisor, U.S. Department of Justice, entered appearances.

          Before: Rogers and Griffith, Circuit Judges, and Randolph, Senior Circuit Judge.


          Rogers, Circuit Judge.

         Responding to Congressional directives, the Federal Communications Commission has adopted programs to make voice and broadband services more available and affordable for low-income consumers by providing a discount on these services through its Lifeline program. Since 1985, eligible low-income consumers may receive a monthly discount of $9.25 on qualifying services, and since 2000, low-income consumers living on Tribal lands may receive an additional $25 per month for these services through the Tribal Lifeline program in recognition of the additional hurdles to affordable telecommunications service on Tribal lands. In 2017, however, the Commission adopted two limitations that petitioners challenge: First, it limited this enhanced Tribal Lifeline subsidy to services provided by eligible telecommunications carriers that utilize their own fixed or mobile wireless facilities, excluding carriers that resell services provided over other carriers' facilities ("Tribal Facilities Requirement"). Second, it limited the enhanced Tribal Lifeline subsidy to residents of "rural" areas on Tribal lands ("Tribal Rural Limitation").

         For the following reasons, we grant the petitions for review. The Commission's adoption of these two limitations was arbitrary and capricious by not providing a reasoned explanation for its change of policy that is supported by record evidence. In adopting the Tribal Facilities Requirement, the Commission's decision evinces no consideration of the exodus of facilities-based providers from the Tribal Lifeline program. Neither does it point to evidence that banning resellers from the Tribal Lifeline program would promote network buildout. Nor does it analyze the impact of the facilities requirement on Tribal residents who currently rely on wireless resellers. Further, the Commission ignored that its decision is a fundamental change that adversely affects the access and affordability of service for residents of Tribal lands. Similarly, in adopting the Tribal Rural Limitation, the Commission's decision evinces no consideration of the impact on service access and affordability. Its decision does not examine wireless deployment data related to services to which most Tribal Lifeline recipients subscribe.

         Various non-harmless procedural deficiencies exist as well. The Commission failed to provide an adequate opportunity for comment on the proposed limitations. For instance, the 2017 supplemental notice of proposed rulemaking lacked key information needed for interested persons to anticipate that small towns below 10, 000 in population would be excluded. Because the Commission stated that it intended to address remaining Tribal issues in a future rulemaking, petitioners reasonably did not submit current data on abandonment of the Lifeline program by facilities-based providers. Two weeks' notice in the form of an unpublished draft order was inadequate.


         In the Communications Act of 1934, Congress stated its goal was to "make available, so far as possible, to all the people of the United States . . . a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges." 47 U.S.C. § 151. Congress reinforced this universal service goal in the Telecommunications Act of 1996, providing that "[q]uality services should be available at just, reasonable, and affordable rates" and that "[c]onsumers in all regions of the Nation, including low-income consumers . . . should have access to telecommunications and information services." 47 U.S.C. § 254(b)(1), (3) ("1996 Act"). The Commission has responded, as relevant here, by adopting various iterations of the Lifeline program. Some background is required to place petitioners' current challenges in context.

         In 1985, the Commission created the Lifeline program to ensure that low-income consumers had access to affordable, landline telephone service following the divesture of AT&T.[1]Recognizing that "[a]ccess to telephone service has become crucial to full participation in our society and economy" and that "an increase in fixed charges for telephone service" could "cause a significant number of subscribers to cancel service," the Commission provided an offset of subscriber line charges for low-income households. See 1985 Order, note 1, at 941- 42. In 1997, still concerned "over the low subscribership levels among low-income consumers," the Commission, in response to § 254 of the 1996 Act, transformed the Lifeline program into a stand-alone universal service program "designed to make residential service more affordable for low-income consumers."[2]

         The Lifeline program thus offers each eligible low-income household a baseline monthly discount of $9.25 to offset the costs of a wireline or wireless voice and broadband service plan. 47 C.F.R. § 54.403(a)(1). Lifeline service may be provided only by eligible telecommunications carriers ("ETCs"), which are either certified by state public service commissions or designated by the Commission. 47 U.S.C. § 214(e)(2), (6). The discount is provided as a subsidy to these ETCs, which in turn pass through the subsidy to provide their services to low-income consumers at reduced costs. 47 C.F.R. § 54.403(a)(1). The ETCs may allow eligible low-income consumers, as defined by § 54.409, to apply their discount to any service plan meeting certain minimum service standards. Id. § 54.401(b).

         In 2000, the Commission established the Tribal Lifeline program to provide an enhanced monthly subsidy of $25 for residents of federally recognized Tribal lands.[3] See 47 C.F.R. § 54.403(a)(3). There was a "need for immediate Commission action to promote the deployment of telecommunications facilities in tribal areas and to provide the support necessary to increase subscribership . . . for the benefit of those living on" Tribal lands. 2000 Tribal Lifeline Order, note 3, ¶ 5. At that time, statistics showed that households on reservations and other Tribal lands had the lowest reported telephone subscribership levels in the nation. Id. ¶¶ 5, 26. The Commission recognized that the critical lack of access to telecommunications services on Tribal lands threatened Tribes' access to no less than "education, commerce, government, and public services" and therefore their "tribal sovereignty and self-governance." Id. ¶ 23.

         The Commission's "primary goal" in adopting the enhanced subsidy was to "reduce the monthly cost of telecommunications services for qualifying low-income individuals on tribal lands, so as to encourage those without service to initiate service and better enable those currently subscribed to maintain service." Id. ¶ 44. It determined that a "substantial additional amount of support" was necessary to increase subscribership in view of "(1) the extraordinarily low average per capita and household incomes in tribal areas, (2) the excessive toll charges that many subscribers incur as a result of limited local calling areas on tribal lands, (3) the disproportionately low subscribership levels in tribal areas, and (4) the apparent limited awareness of, and participation in, the existing Lifeline program." Id. Three secondary benefits of the enhanced Tribal subsidy were: (1) encouraging deployment of telecommunications facilities on Tribal lands that currently lack such facilities, (2) spurring competition from new entrants offering alternative technologies, and (3) reducing barriers to increased penetration that are caused by limited local calling areas. Id. ¶¶ 52-58.

         Prior to adopting the enhanced Tribal subsidy, the Commission had consulted various Tribal leaders in formal field hearings, Commissioner-level meetings, and informal meetings. The Commission then "reaffirm[ed] . . . principles of Tribal Sovereignty and the Federal Trust Responsibility," and committed going forward, "to the extent practicable, [to] consult with Tribal governments prior to implementing any regulatory action or policy that will significantly or uniquely affect Tribal governments, their land and resources."[4] The Commission also agreed to streamline processes and procedures placing "undue burdens" on Indian Tribes. Tribal Policy Statement, note 4, at 4082 ¶ 4.

         To keep pace with various market forces resulting in the phase out by major carriers from the Lifeline program, the Commission decided to allow non-facilities-based providers (or "wireless resellers") to provide Lifeline services, beginning in 2005. Under the 1996 Act, an ETC must "offer the services that are supported by Federal universal service support mechanisms" "either using its own facilities or a combination of its own facilities and resale of another carrier's services." 47 U.S.C. § 214(e)(1). Since 1997, the Commission had interpreted "own facilities" to mean that non-facilities-based providers, who purchased telecommunications service wholesale from other carriers that owned the facilities and then resold it to consumers, were ineligible for Lifeline support. Otherwise, wireline resellers would be able to "double recover," once through the universal service subsidy and again through subsidized wholesale rates. See 1997 Order, note 2, ¶ 161. In 2005, the Commission concluded the "own facilities" requirement met the 1996 Act's criteria for forbearance, and excused TracFone, a non-facilities-based provider, from this requirement.[5] Addressing the three forbearance factors in 47 U.S.C. § 160(a), the Commission found (1) the "own facilities" requirement was unnecessary to achieve the Lifeline program's purposes because there is no double recovery as wireless resellers' rates are not subsidized, 2005 Forbearance Order, note 5, ¶¶ 11-12; (2) the requirement was unnecessary to protect consumers, and forbearance would benefit consumers by offering them previously unavailable choice of providers, id. ¶ 15; and (3) forbearance was in the public interest because it would expand eligible participation in the program, id. ¶ 24. The Commission observed that only "one-third of [Lifeline-eligible] households" subscribed to Lifeline services and predicted that allowing non-facilities-based providers like TracFone to participate "should expand participation of qualifying consumers." Id.

         The Commission used the same rationale to extend "own facilities" forbearance to other ETCs.[6] And in 2012, the Commission adopted forbearance from the "own facilities" requirement for all non-facilities-based providers.[7]Consequently, as a result of the Commission's blanket forbearance, resellers play a critical role in the Lifeline program: by 2015, approximately two-thirds of eligible low-income consumers on Tribal lands relied on non-facilities-based providers for their Lifeline services.

         Beginning in 2012, the Commission also emphasized the need to comprehensively improve and modernize Lifeline operations. 2012 Lifeline Reform Order, note 7, ¶ 2. Expenditures for the Lifeline program had increased substantially, from $582 million in 1998 to $2.4 billion in 2012. Id. ¶ 23. To "constrain the growth of the program in order to reduce the burden on all who contribute to the Universal Service Fund," id. ¶ 1, the Commission adopted reforms to eliminate waste, fraud, and abuse in the program, establishing, among other things, national eligibility criteria, certification requirements, and independent audit requirements on certain larger carriers. Id. ¶ 4.

         Then, on June 22, 2015, the Commission initiated a proceeding to achieve "a fundamental, comprehensive restructuring of the program."[8] The Commission sought comment on proposals to change the Lifeline and Tribal Lifeline programs, including whether to "limit enhanced Tribal Lifeline and Link Up support only to those Lifeline providers who have facilities," 2015 Lifeline Second FNPRM, note 8, ¶ 167, and whether to "focus enhanced Tribal support to those Tribal areas with lower population densities," id. ¶¶ 169-70. The Commission made substantial changes to the Lifeline program in April 2016 but did not change the Tribal Lifeline program.[9] For example, the Commission established minimum service standards for broadband and mobile voice services, created a National Verifier program to ensure only eligible subscribers may enroll in Lifeline support, and encouraged the entry of new broadband providers into the Lifeline program. 2016 Lifeline Modernization Order, note 9, ¶¶ 6-8. The Commission recognized that like telephone service in previous generations, broadband Internet service "has evolved into the essential communications medium of the digital economy." Id. ¶ 12. It decided to "maintain the current set of Tribal-specific eligibility programs," "agree[ing] with commenters" that "there is much more progress to be made in increasing penetration and adoption of Lifeline services." Id. ¶ 205. Of significance, the Commission also stated that certain Tribal Lifeline eligibility issues it had raised in the 2015 Lifeline Second FNPRM, including the proposed facilities requirement and rural limitation, would "remain open for consideration in a future proceeding more comprehensively focused on advancing broadband deployment on Tribal lands." Id. ¶ 211 & nn. 570-71.

         On October 26, 2017, the Commission released a draft order adopting a facilities requirement and rural limitation for the Tribal Lifeline program.[10] Some comments were submitted to the Commission. A public notice of November 9, 2017 announced the beginning of the Sunshine Period and prohibited interested persons from lobbying the Commission. See 47 C.F.R. ยง 1.1200. A week later, on November 16, 2017, the Commission voted 3-2 in favor of the draft 2017 Order ...

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