Re:	Commonwealth of Virginia State Corporation Commission v. MCI Telecommunications Corporation (File No. E-99-01).

I respectfully dissent from today's decision to allow carriers to recover federal schools and libraries charges based on an end-user's intrastate calls.⁽¹⁾ I believe that basing a percentage surcharge on customers' intrastate calls cannot be considered recovery "through rates for interstate services only," as required by the Commission itself.⁽²⁾ Today's decision from which I dissent, however, finds that under current FCC orders it is appropriate and reasonable for a carrier to charge a federal percentage surcharge based on a customer's intrastate calling, and that such a practice does not impact the "charges" for intrastate calls that are properly under state commission jurisdiction. In contrast, I believe that such a practice does impact intrastate calls, and therefore is properly within a state's jurisdiction. Moreover, since the Commission noticeably fails to rely explicitly on the fact that MCI did not impose a surcharge on customers who made no interstate calls in a given month, the Commission signals its openness to the possibility that this "federal" surcharge could even be placed on customers where no interstate usage at all is involved.

Let me illustrate. Under the logic of today's decision, an MCI customer who lives in Richmond and makes $100 worth of calls to Norfolk can be assessed a federal schools and libraries tax -- or, euphemistically, a "fee" -- based on this intrastate revenue, regardless of the fact that he places only one 1 minute call across state lines at the dime-a-minute rate of $.10. Assuming a 5% contribution rate, that customer would owe a "federal" charge of $5.01: 5% x $100 intrastate and 5% x $.10 interstate. In effect, the Commission allows for a "federal" interstate charge and a "federal" intrastate charge. In fact the majority's analysis would not change at all if MCI's surcharge had been explicitly broken into two components: a Federal Interstate Universal Service Charge, and a Federal Intrastate Universal Service Charge. I cannot support a decision that determines, under these facts, (i) that a carrier is not recovering universal service charges through intrastate services, and (ii) that the Commission is not impacting intrastate "charges" in violation of Section 2(b).

Today's decision demonstrates the fallacy of the Commission's argument that its assessment for the schools and libraries program based on intrastate revenues does not violate Section 2(b). As I have described on several occasions, the legality of this approach to calculating contributions is highly questionable.⁽³⁾ As I read the Communications Act, it does not permit the Commission to assess contributions for universal service support mechanisms based on intrastate revenues, and I have repeatedly objected to this approach. I believe, rather, that the Act makes clear that the power to collect charges based on such revenues rests within the exclusive province of the States. Section 2(b) of the Communications Act creates a system of dual federal-state regulation for telecommunications. In essence, the Act establishes federal authority over interstate communications services while protecting state jurisdiction over intrastate services. I believe that the Commission's decision to look to intrastate revenues to determine federal universal service support for the schools and libraries program impermissibly encroaches on states' rights and violates the Act's federal-state dichotomy. Indeed, as I have discussed on numerous occasions, the Commission's actions in this regard -- and in many other ways as well -- violate the clear directives of the Telecommunications Act and are illegal.⁽⁴⁾

Perhaps most importantly, however, today's decision undermines several of the arguments advanced by the Commission in defense of its universal service rules before the U.S. Court of Appeals for the Fifth Circuit. First, in that litigation, the Commission argued that its actions did not violate Section 2(b) because it did not "regulate" intrastate telecommunications services.⁽⁵⁾ But Section 2(b) actually bars the Commission from any jurisdiction with respect to "charges, classifications, practices, services, facilities or regulations for or in connection with intrastate communication service . . . "⁽⁶⁾ I find it unfathomable that the Commission can uphold a federal charge based on intrastate calling as it does today, but still claim that it is not asserting jurisdiction over "charges, classifications, [or] practices . . . for or in connection with intrastate communication service."⁽⁷⁾ The fact that this charge is filed in the form of a federal tariff does not convert what is essentially a charge "for or in connection with intrastate communication service" into an interstate charge. Indeed, in this Order, it is striking that the Commission fails even to explain why MCI "could reasonable have concluded that the methodolgy for recovering universal service contributions at issue here fell within the directive of the Universal Service Order."⁽⁸⁾

Second, the Commission argued to the Fifth Circuit that it has not violated Section 2(b) because, "[a]s the FCC has made clear, contributing carriers under this system must recover their contributions solely through interstate rates."⁽⁹⁾ In the decision today, however, the Commission determines that this very same language is not quite so clear. Indeed, it determines that the language is ambiguous enough for a carrier to base the level of its federal schools and libraries charge to end users on the level of intrastate communications.⁽¹⁰⁾ In other words, what is now "clear" is that by "interstate rates," the Commission meant that a carrier could charge an "interstate" rate based on the number and quantity of "intrastate calls." Indeed, the Commission does not even remove the possibility that such an "interstate rate" could include a charge placed on a consumer who makes no interstate calls whatsoever. Now that the Commission is really being "clear" about what can and cannot be done, I do not understand how it can continue to assert that it is not impacting intrastate communication services or intrastate rates that are outside of its jurisdiction.

Third, the Commission argued that the

[P]etitioners do[] not explain how the assessment of federal charges can constitute regulation of intrastate services when those charges can only be recovered through interstate rates. Since [petitioners] ha[ve] failed to demonstrate how the challenged contribution system 'regulates' intrastate service, the court should reject the company's claim that the system violates section 2(b).⁽¹¹⁾

Certainly, with today's order, the Commission itself demonstrates how its scheme regulates intrastate services since the "interstate rates" of which the Commission speaks are actually rates that are based on intrastate service usage. In fact, the Commission determines that such a recovery scheme was fully "within the directive of the Universal Service Order."⁽¹²⁾

To demonstrate the absurdity of the Commission's position, I take it out of the federal versus state framework. Suppose that a power or gas company, regulated by FERC and the relevant state authorities, entered the telecommunications market. The Commission's position would be analogous to claiming that it could base universal service contributions on that company's total revenue, including both its telecommunications and power or gas revenues. Under today's decision, moreover, the telecommunications subsidiary of the power company could also place a universal service surcharge on its end users based not only on that customers telecommunications revenues, but also based as a percentage of that customers power or gas usage. It seems absurd that the Commission could argue that such an action would not constitute either a charge or regulation of gas or power. Yet, the Commission seems to be arguing that it has the authority to enact such a scheme under the Telecommunications Act, claiming jurisdiction over power revenues merely because a power company's customer also availed themselves of that company's telecommunications service offering. I do not believe that Congress intended to provide such broad jurisdictional authority to the FCC.

In addition, I would note the Commission has scrupulously avoided relying too closely on MCI's practice of not charging customers who have no intrastate calls in finding no violation here.⁽¹³⁾ The Commission has not wanted to rely too heavily on this fact because many carriers are recovering from customers through end-user charges regardless of whether any interstate calls are made. By failing to explicitly rely on this fact, however, the Commission has opened the door to upholding a "federal" universal service charge on customers who have no interstate calls whatsoever.

In conclusion, I note that some might ask why is it so important for the Commission to be able to assess based on intrastate revenues for the schools and libraries program? Why is it necessary to continue these legal gymnastics and absurdities just to preserve the ability to assess a carrier's intrastate revenues as well as its interstate revenues? The answer is that the contribution base more than doubles when intrastate revenues are included.⁽¹⁴⁾ And it is much easier to place a new tax on a broader base because the effects that will be felt are much smaller. Thus, the inclusion of intrastate revenues makes new charges harder for consumers to find and easier for consumers to swallow. I fear that some here at the Commission may view intrastate revenue as a yet untapped source of revenue for the funding of their new and additional programs.

14. Second Quarter 1999 Universal Service Contribution Factor Public Notice (rel. March 4, 1999) (interstate only contribution base is $18.305 billion, while interstate and intrastate contribution base is $48.843 billion).