## Facts

- The Federal Communications Commission (FCC) adopted a comprehensive 2011 order reforming federal universal service support and intercarrier compensation (the USF/ICC Transformation Order).
- The order transitioned high-cost support toward the Connect America Fund, aiming to redirect support mechanisms toward broadband-capable networks and updated distribution methods.
- The order reformed intercarrier compensation by moving most traffic toward a bill-and-keep framework, reducing reliance on per-minute access charges paid between carriers.
- Numerous rural carriers, industry associations, and state regulators petitioned for review, asserting statutory, administrative-law, procedural, and constitutional objections.
- The consolidated petitions for review were assigned to the United States Court of Appeals for the Tenth Circuit.
- Petitioners sought vacatur or modification of substantial portions of the 2011 reforms.

## Issues

1. Whether the FCC had statutory authority under the Communications Act to redesign high-cost universal service mechanisms, including implementing Connect America Fund policies and related funding methodologies.
2. Whether the FCC had statutory authority to adopt a near-universal bill-and-keep intercarrier compensation regime and to preempt inconsistent state compensation rules.
3. Whether the FCC’s reforms conflicted with statutory provisions governing universal service and carrier compensation, including limits on FCC authority over intrastate communications.
4. Whether the order was arbitrary or capricious under the Administrative Procedure Act due to inadequate explanation, record support, or consideration of relevant factors.
5. Whether the reforms effected an unconstitutional taking or violated due process by eliminating or altering expected regulatory payments and support.
6. Whether portions of the order violated notice-and-comment requirements because the final rules were outside the scope of the rulemaking notices.

## Decision

- The court largely denied the petitions for review and upheld most challenged aspects of the USF/ICC Transformation Order.
- The court held the FCC acted within its statutory authority to reform universal service support and to transition intercarrier compensation toward bill-and-keep.
- The court upheld the FCC’s preemption of inconsistent state rules within the scope of the FCC’s federally delegated authority over interconnection and compensation.
- The court rejected Fifth Amendment takings and due process challenges to the changes in support and compensation regimes.
- The court remanded limited, discrete issues for further FCC explanation or proceedings, generally without vacating the rules, leaving the order in effect during remand.

## Legal Principles

- When the Communications Act leaves gaps or ambiguity, courts apply Chevron deference and uphold the FCC’s reasonable interpretations within its delegated authority.
- Universal service provisions permit the FCC to implement and revise mechanisms consistent with statutory principles, and do not freeze any particular funding level or legacy methodology.
- The FCC may set national frameworks for carrier compensation, including adopting bill-and-keep, when supported by a permissible reading of the Communications Act’s interconnection and compensation provisions.
- Federal authority under the post-1996 Act interconnection regime can support preemption of conflicting state compensation rules when federal regulation is within statutory bounds.
- Under APA review, agency action is upheld if the agency considered relevant data and provided a reasoned explanation connecting the record to its policy choices; disagreement with predictive judgments is insufficient absent a serious explanatory defect.
- Regulated entities generally lack a compensable property interest in maintaining particular regulatory rates, access-charge revenues, or support mechanisms; changes to those regimes typically do not constitute takings or due process violations.
- Notice-and-comment requirements are satisfied where final rules are a logical outgrowth of the proposals and the rulemaking record provided meaningful opportunity for input.

## Conclusion

The Tenth Circuit sustained the FCC’s 2011 nationwide restructuring of universal service and intercarrier compensation, including the shift toward broadband-oriented high-cost support and bill-and-keep compensation, while issuing limited remands for further agency explanation on discrete points without setting aside the overall framework.


In re FCC 11-161, 753 F.3d 1015 (10th Cir. 2014)