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To:Honorable George W. Gekas
Chairman, Subcommittee on Commercial and Administrative Law,
House Judiciary Committee
Attn:Jim Harper, Esq.
From:Federal Communications Commissioner Harold W. Furchtgott-Roth
Date:September 16, 1999
Re:Impact of American Trucking Ass'n v. EPA on FCC Rulemaking Under Section 254 of the Telecommunications Act of 1996

Pursuant to your request at the Subcommittee on Commercial and Administrative Law hearing on Novel Procedures in FCC License Transfer Proceedings, I recently forwarded to you a memorandum by the Commission's Office of General Counsel (OGC) regarding the impact of American Trucking Ass'n v. EPA, 175 F.3d 1027 (D.C. Cir. 1999), on rulemaking under section 254 of the Telecommunications Act of 1996. As you suggested at the hearing, I submit for your consideration this supplemental memorandum on my analysis of the OGC document and the issues that it raises.

I. Introduction

As the OGC memorandum accurately explained, American Trucking held that the Environmental Protection Agency's (EPA) construction of the Clean Air Act was so loose as to render the relevant provisions an unconstitutional delegation of legislative authority. See 175 F.3d at 1034. Specifically, the court ruled that, although the EPA selected reasonable factors upon which to base pollutant rates, it failed to explicate any "intelligible principle" for fixing the rates at particular levels. Id. Because the underlying statutory provisions did not themselves contain such a principle -- providing only that rates be set at levels "requisite to protect the public health" with an "adequate margin of safety" -- the court remanded the case to the agency to allow it to adopt a constitutional construction of the provisions. Id. at 1038.

Unfortunately, the OGC memorandum did not go on to apply the "intelligible principle" requirement to the section 254 proceeding. Thus, the memorandum did not address the validity under American Trucking of the schools and libraries program -- the aspect of the section 254 rulemaking with which you were chiefly concerned. Based on my personal staff's further analysis, set forth below, I conclude that the Commission's interpretation of its authority to designate services for support under the program likely runs afoul of American Trucking.

II. The Commission's Interpretation of "Additional Services" Eligible for Support

In the Universal Service Report & Order, the Commission adopted the recommendation of the Federal-State Joint Board on Universal Service that internet access and internal connections be eligible for universal service support under the schools and libraries program. See In the Matter of Federal-State Joint Board on Universal Service, 12 FCC Rcd. 8776 at paras. 436-448 (concluding that internet access is an eligible service) and paras. 450-463 (concluding that installation and maintenance of internal connections are eligible services) (1997).

The Commission expressly rejected the Board's suggestion that these items be funded as "telecommunications services" within the meaning of section 254(h)(2)(A), however. See id. at para. 425. That provision requires the Commission to promulgate rules "to enhance . . . access to advanced telecommunications and information services for" schools and libraries. 47 U.S.C. section 254(h)(2)(A). Instead, the Commission relied on section 254(c)(3), which permits the FCC to designate "special" or "additional services for [universal service] support mechanisms for schools [and] libraries . . . for the purposes of subsection (h)." Id. section 254(c)(3).(1)

In concluding that section 254(c)(3) authorizes the discounting of internet access and internal wiring, the Commission stated that the qualifying term "telecommunications" had no application to the phrase "additional services." See 12 FCC Rcd. at paras. 437-439. Indeed, the Commission argued that the inclusion of "telecommunications services" in section 254(h)(2)(A) meant that the group of "additional services" under section 254(c)(3) was necessarily broader than the group of services in section 254(h)(2)(A). Id. The Commission thus uncoupled section 254(c)(3)'s "additional services" language from any other limitations in the universal service statute.

While the Report & Order designates internet access and internal connections as eligible "additional services," it sets no clear outer bounds for that class of services. That is, the Report & Order merely decides that these particular items -- internet access and internal connections -- fall within the definition of "additional services," whatever that definition may be. It makes no meaningful attempt affirmatively to define that potentially limitless category of eligible services.

For example, the Report & Order reasons that "[n]othing in section 254 excludes internal connections from the scope of 'additional services' for schools and libraries that can be designated for support under section 254(c)(3)." 12 FCC Rcd. at para. 451 (emphasis added). That document is perfectly silent, however, on the positive scope of those "additional services." Similarly, the Report & Order concludes that "the Act permits universal service support for an expanded range of services beyond telecommunications services," id. (emphasis added), yet sets no standards to define that "expanded range" of eligible services, so as to indicate what sorts of services support the Act might prohibit.(2)

In recent litigation over universal service, see Texas Public Utility Counsel v. FCC, Slip op. No. 97-60421 (July 30, 1999, 5th Cir.), the Commission reaffirmed this capacious understanding of section 254(c)(3). There, petitioners argued that the Commission exceeded its statutory authority under section 254 by requiring support for internet access and inside wiring. Id. at 89. The Commission, in response, conceded that internet access and internal wiring were not "telecommunications services" under section 254(h)(2)(A) and pointed instead to section 254(c)(3)'s "additional services" language. Id. at 90. Tracking the reasoning of the Report & Order, the Commission expressly disavowed the proposition that "additional services" should be read in conjunction with the term "telecommunications services." Id.(3)

In the contexts of the rulemaking and related litigation, then, the Commission has explicitly denied the limiting effect of section 254's various references to "telecommunications" services. At the same time, the Commission has failed to enunciate any outside limits on the class of "additional services" that it considers eligible for universal service support under section 254(c)(3).

III. Application of American Trucking to the Commission's Interpretation of "Additional Services"

In my view, the Commission's above-described interpretation of section 254(c)(3) raises serious non-delegation doctrine questions under American Trucking. As noted at the outset, that case requires an administrative agency to articulate an intelligible principle in order to limit its statutory discretion and thereby avoid a potentially overbroad delegation of legislative power.

The statutory language upon which the Commission based its decision to require support for internet access and internal connections is arguably expansive. Section 254(c)(3) provides that "the Commission may designate additional services for [universal service] support mechanisms for schools, libraries, and health care providers for the purposes of subsection (h)," which regulates the provision of telecommunications services to schools and libraries. 47 U.S.C. section 254(c)(3). Certainly, this language is no less sweeping than that at issue in American Trucking, which required EPA to set pollutant standards "requisite to protect the public health" with an "adequate margin of safety." 175 F.3d at 1032. Indeed, laying the statutes side by side, one might credibly contend that Congress gave the EPA more detailed instructions on where to set pollutant standards than it gave the FCC on which services to fund under section 254(c)(3). In any event, in light of the relative breadth of the language of section 254(c)(3), American Trucking would seem to require the Commission to provide discernible limitations on that delegation of authority.(4)

The Commission does not appear to have furnished the requisite determinate standard. As the above description of the Universal Service Report & Order and the Commission's position in the universal service litigation suggests, the FCC has offered no intelligible principle whatsoever to constrain its designation of "additional services" for discounts under the schools and libraries program. The Commission's explanation of its decision to mandate support for internet access and inside wiring concludes only that those items need not be telecommunications services in order to qualify as eligible "additional" services. The Report & Order contains no affirmative definition of -- and thus no possible restrictions on -- "additional services" under section 254(c)(3). After all, almost any service could be logically considered "additional" to some other service.

As the Fifth Circuit found:

[T]he FCC is asserting unlimited authority to prescribe support for whatever it wishes. . . . [T]he FCC] [can] not point out how its interpretation [of "additional services"] could be limited even to internet access services. For instance, the agency [can] not explain why satellite television services or even janitorial services would not fit within its understanding of "additional services."

Texas Office of Public Utility Counsel, Slip op. at n. 93.

That is to say, "the agency. . . offers no intelligible principle by which to identify a stopping point," American Trucking, 175 F.3d at 1037, for the designation of eligible services. Just as "EPA's formulation of its policy judgment leaves it free to pick any point between zero and a hair below concentrations yielding London's Killer Fog," id., so too the FCC's understanding of its authority to designate "additional services" for support leaves it unconstrained to choose virtually any service at all, whether or not that service bears any relation to telecommunications.

Given the indeterminacy of the Commission's understanding of "additional services" under section 254(c)(3), American Trucking squarely applies. It is just this sort of unbridled adminstrative approach to the implementation of delegated power that its holding proscribes.(5)

Indeed, the FCC's regulations are arguably more vulnerable to attack than were EPA's rules. In American Trucking, the Court of Appeals acknowledged that EPA established reasonable factors upon which to base its pollutant standards, yet faulted the agency for failing to show how those factors would be channeled in application. Id. at 1034. The FCC, by contrast, has not even established factors upon which to base the selection of "additional services" eligible for funding support. Nowhere in the discussion of eligible services does the Universal Service Report and Order define the considerations relevant to the determination of qualified "additional services" -- much less articulate principles to guide those considerations. Thus, whereas EPA cleared the initial hurdle of adopting reasonable criteria for decision, one could colorably assert that the FCC's rules on internet access and internal connections fail both the first and second prong of the American Trucking analysis.

III. Conclusion

For the foregoing reasons, it seems to me that the Commission's current understanding of section 254(c)(3) raises substantial problems under American Trucking. Like EPA's implementation of Congress' charge to set pollutant standards, the FCC's interpretation of its authority to designate eligible "additional services" leaves the agency free to select essentially whatever it wants to from the menu of options. On the FCC's theory of the statute -- as revealed in the Report & Order and the universal service litigation -- there is "no cut-off point," American Trucking, 175 F.3d at 1034, for the services that it could deem "additional" and therefore eligible for support.

Notably, there is a construction of section 254(c)(3) that is not only "superior[]," Texas Office of Public Utility Counsel, at n. 93, to the Commission's as a textual matter, but which possesses the trumping virtue of possibly avoiding the non-delegation doctrine altogether. That construction would, at least, limit eligible "additional services" to telecommunications services. See supra n. 4. I regret that the Commission has declined to take this more prudent approach to implementation of the schools and libraries provisions, opting instead to court constitutional danger with its open-ended reading of section 254(c)(3).

1. In addition to requiring rules to enhance access to telecommunications services for schools and libraries, subsection(h) is also the source of the substantive duty of telecommunications carriers to supply subsection(c)(3) services at discounted rates. See 47 U.S.C. section 254(h)(1)(B) ("All telecommunications carriers serving a geographic area shall, upon a bona fide request for any of its services that are within the definition of universal service under subsection (c)(3), provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amount charged for similar services to other parties.").

2. The Report & Order gives contour to the term "information services," see 12 FCC Rcd. at para. 444, which appears in section 254(h)(2)(A). But, as explained, the Commission deliberately rejected that provision as the source of its authority to mandate support for internet access and internal connections. The Report & Order also draws some lines as to the components of an internal connection. See id. at paras. 459-460. While that may clarify what constitutes an internal connection, it does not fix any outer limits on the larger set of "additional services."

3. Although the Commission ultimately persuaded the Fifth Circuit that the statute was sufficiently ambiguous with respect to eligible services to warrant deference under Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), the Court of Appeals did not decide whether the Commission's construction of section 254(c)(3) satisfied the requirements of American Trucking. The legitimacy of the designation of internet access and internal wiring as supported services under American Trucking is an open question.

4. Properly construed, of course, section 254(c)(3) probably does contain an intelligible principle to guide the Commission's service eligibility determinations. As the Fifth Circuit pointed out, "the plain language of section 254 provides an easily recognizable limit on FCC authority by confining section 254(h) support to telecommunications services." Texas Office of Public Utility Counsel, at n. 93. Such a construction would help to steer the provision clear of the non-delegation doctrine. The problem here, however, is with the Commission's limitless interpretation of the extent of its power under section 254(c)(3).

5. And where, as here, an agency interpretation of a statute triggers constitutional concerns, Chevron deference is unwarranted. See U.S. West, Inc. v. FCC, Slip op. No. 98-9518 at 13 (Aug. 18, 1998, 10th Cir) ("[I]f we determine that the FCC's . . . rule presents a serious or grave constitutional question, we will owe the FCC no deference, even if its . . . regulations are otherwise reasonable, and will apply the rule of constitutional doubt).