JULIE A. ROBINSON, District Judge.
Plaintiff Virgin Mobile, USA, L.P. filed this action against the Commissioners of the Kansas Corporation Commission to prevent them from enforcing a Kansas Corporation Commission ("KCC") administrative order that requires Plaintiff to report as retail revenue the subsidies that it received from the Federal Universal Service Fund ("FUSF")'s Lifeline Program, and subjects those subsidies to assessment by the KCC, on the basis that the order is preempted by federal statute. Before the Court are cross-motions for summary judgment (Docs. 81 and 91) and Plaintiff's Motions to Exclude Expert Testimony of Sandra K. Reams (Doc. 85) and Robert Loube (Doc. 88). These motions are fully briefed, and the Court is prepared to rule. For the reasons stated in this opinion, the Court grants in part Plaintiff's Motion to Exclude Expert Testimony of Robert Loube, grants in part Plaintiff's Motion to Exclude Expert Testimony of Sandra K. Reams, denies Defendants' Motion for Summary Judgment, and grants Plaintiff's Motion for Summary Judgment.
Summary judgment is appropriate if the moving party demonstrates that there is no genuine dispute as to any material fact and that it is entitled to judgment as a matter of law.
To prevail on a motion for summary judgment on a claim upon which the moving party also bears the burden of proof at trial, the moving party must demonstrate "no reasonable trier of fact could find other than for the moving party."
Finally, summary judgment is not a "disfavored procedural shortcut;" on the contrary, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."
Before setting forth a summary of uncontroverted facts, the Court must rule on Plaintiff's motions to exclude defense experts, and Plaintiff's objections to Defendants' statements of fact.
Plaintiff moves to exclude experts Robert Loube and Sandra Reams. Defendants offer Reams as both a lay and expert witness. She has served as the KCC's Assistant Chief of Telecommunications since 2011 and has been employed by the KCC since 1996. Reams oversees the Kansas Universal Service Fund ("KUSF") administration and audits of companies that report to the KUSF.
Defendants offer Loube only as an expert witness. Loube is currently a vice-president and principal owner of Rolka Loube Associates in Harrisburg, Pennsylvania. He has worked in telecommunications regulation for the Federal Communications Commission ("FCC"), the District of Columbia Public Service Commission, and the Indiana Utilities Regulator Commission, and has advised boards related to universal service administration.
Plaintiff challenges the admissibility of Reams' and Loube's expert testimony on the basis that they (1) offer improper legal conclusions on the meanings of pertinent statutes, rules and orders, and improperly apply those legal conclusions to facts, (2) offer opinions that are not credible because they rely on reading of ordinary documents which requires no expertise and is therefore not helpful to the trier of fact, and (3) offer certain opinions that are unreliable speculation. Additionally, Plaintiff objects to Loube's opinion challenging Plaintiff's credibility. For reasons discussed below, several portions of the expert opinions of Loube and Reams are excluded.
The Court has broad discretion in deciding whether to admit expert testimony.
It is within the discretion of the trial court to determine how to perform its gatekeeping function under Daubert.
To the extent Reams and Loube offer a legal opinion about the meaning of federal or state statutes and regulations, or any other legal matter, it is inadmissible under Fed. R. Evid. 704(a). That rule provides that "testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact."
Reams and Loube express legal opinions throughout their reports that the Court does not consider. For example, Reams discusses the meaning of the phrases "rely on or burden" under 47 U.S.C. § 254(f), whether K.S.A. § 66-2008(a) is consistent with § 254(f), and whether the KCC's conduct violates § 254(f) and FCC rules. Loube, for example, opines that the KUSF does not "rely on or burden" the FUSF under § 254(f). The Court does not consider such opinions that amount to legal conclusions. Further, the Court does not consider Reams' opinions that Defendants refer to as "background discussion" or Loube's opinions that Defendants refer to as "principles" of FCC rules and orders to the extent they merely point to or interpret federal or state statutes and regulations.
Defendants' argument that an expert may refer to law in expressing an opinion is not persuasive here. Reams does more than refer to the law, she purports to interpret and define it. Similarly, Defendants' argument that Reams is not offering legal conclusions, but rather her "personal understanding" of the law does not change the analysis; Reams personal thoughts on the law are not relevant and not helpful to the trier of fact. Therefore, legal conclusions asserted by Reams about the interpretations of federal or state statutes and regulations, application of those statutes and regulations to fact, or any other legal matter, are inadmissible.
Similarly, Defendants' argument that Plaintiff mostly objects to statements of fact, not law, is invalid. Although Defendants cite the Loube report in its statement of facts section, the content is largely conclusory determinations of ultimate legal questions in this case, including the meaning and application of statutory and regulatory language.
Loube's testimony is not, as Defendants argue, similar to expert testimony in United States v. Wade
Next, MCC Management of Naples, Inc. v. International Bancshares Corp.,
Finally, Defendants argue that because expert testimony on contract interpretation is admissible, so too is Loube's testimony admissible. Yet, Defendants' reliance on Cargill Meat Solutions Corp. v. Premium Beef Feeders, LLC,
Plaintiff objects to Reams' and Loube's expert opinion that merely points to public webpages and draws conclusions from those webpages. One of Defendants' arguments against Plaintiff's preemption claims is that the KCC assessment of "retail revenues" (including the FUSF Lifeline subsidy) does not violate federal statute because wireless carriers such as Plaintiff can pass the cost of this assessment on to its customers. In support of this argument, Reams and Loube opine that such collection of fees is possible. They point to language on Plaintiff's webpages that states it collects 911 fees
As far as Reams' and Loube's expert opinion that it is possible for Plaintiff to collect payment from low-income subscribers, it is admissible. Here, "a logical basis exists for [the] expert's opinion . . . the weaknesses in the underpinnings of the opinion [ ] go to the weight and not the admissibility of the testimony."
However, any portion of Reams' and Loube's expert opinions that Plaintiff actually succeeds in collecting fees from customers in Alabama and Kentucky to support an argument that it can also collect fees from Kansas customers is inadmissible as unreliable speculation as neither opinion points to evidence of actual collection of such fees.
This Daubert exclusion does not apply to Reams' lay opinion.
Additionally, Plaintiff objects to Loube's opinion that it can recover KUSF contributions from its customers as unreliable speculation. Specifically, Plaintiff argues his opinion is based on a misstatement of a figure in one of Plaintiff's interrogatory answers. Loube opined that a "substantial portion" of customers who received basic Lifeline service from Plaintiff without purchasing additional services had credit cards: [REDACTED/]%.
Plaintiff objects that Loube inappropriately challenges its credibility when he opines that Plaintiff's interrogatory answers are contradicted by other actions it has taken. "The credibility of witnesses is generally not an appropriate subject for expert testimony."
Plaintiff makes Fed. R. Civ. P. 56, Fed. R. Civ. P. 26(e), and hearsay objections to several of Defendants' statements of fact and argues for their exclusion. Summary judgment evidence need not be "submitted `in a form that would be admissible at trial.'"
First, Plaintiff objects to several of Defendants' statements of fact on grounds they lack factual support under Fed. R. Civ. P. 56. "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record" or "showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact."
Next, Plaintiff objects to Defendants' Statements of Fact 45 and 46 because the evidence cited in these facts was not identified in discovery in response to specific requests as Fed. R. Civ. P. 26(e) requires.
The following material facts are either stipulated or uncontroverted.
The FCC created the FUSF to provide individuals, including those who live in rural and high-cost areas, and those who meet certain low-income criteria, with access to telecommunications services at affordable rates. The FCC has described the federal Lifeline program as one of four mechanisms of the FUSF. The other three programs are "High Cost," "Schools and Libraries," and "Rural Health Care." The FUSF Lifeline program enables low-income consumers to access telecommunication services. The High Cost program incentivizes telecommunication carriers to commit to building and maintaining networks in rural and other high-cost areas. The remaining two programs help enable communication services to schools and libraries, and healthcare communication services in rural areas, respectively.
The FUSF does not assess the interstate portions of subsidies from the FUSF High Cost program, or the FUSF Lifeline program. Neither does the FUSF assess the KUSF High Cost or KUSF Lifeline programs. The FUSF does, however, provide subsidies to carriers who provide services under the FUSF Lifeline program to qualifying customers in Kansas; it pays carriers $9.25 per low-income customer served, per month.
The KUSF has its own High Cost and Lifeline programs that distribute subsidies to carriers who fulfill program requirements. The KUSF Lifeline program reimburses carriers $7.77 per month to provide low-income Kansas with wireless service. This amount is in addition to the $9.25 per customer, per month subsidy from the FUSF Lifeline program if a carrier is designated as eligible under both the Kansas and federal programs.
The KCC requires certain assessments on wireless carriers be paid to fund the KUSF. The KUSF does not assess disbursements to providers from the FUSF High Cost Program, "de minimis" revenues earned by carriers, or revenues earned selling calling cards to military customers. But the KUSF does assess other types of income from carriers; the KUSF contribution factor has risen from about 6% in 2010 through 2016, to about 7%, beginning in 2017.
KCC's contractor, GVNW Consulting, Inc., administers the KUSF and conducts audits of the telecommunications providers that contribute to the KUSF.
Plaintiff is a wireless carrier and Sprint subsidiary that operates several brands in Kansas, including the brand "Assurance Wireless." Plaintiff markets its Assurance Wireless brand to low-income Kansans who qualify for the FUSF Lifeline program. In October 2011, the KCC designated Plaintiff as an Eligible Telecommunications Carrier ("ETC") to receive support from the FUSF Lifeline program for providing service in Kansas to eligible low-income customers. Plaintiff has neither applied to, nor participated in the KUSF Lifeline program, the Kansas High Cost program, or the federal High Cost program; it only participates in the FUSF Lifeline program. As a Lifeline-only ETC, Plaintiff does not receive disbursements from the FCC's High Cost program. Other participating telecommunications carriers in Kansas do receive such disbursements.
A portion of the $9.25 per customer, per month FUSF Lifeline subsidy is for intrastate telecommunications service. Since 2012, Plaintiff has offered FUSF Lifeline plans in Kansas with the following provisions:
Plaintiff markets its Lifeline plan as free to customers. Further, it does not recover surcharges from its Lifeline customers to cover the cost of any potential assessments on FUSF Lifeline subsidies it receives. Unsubsidized plans advertised on Plaintiff's website charge more than $9.25 per month. For example, Plaintiff's website advertises an unsubsidized "payLo" plan at a cost of $20 per month for 400 minutes of calling.
Under 47 C.F.R. 54.410(d)(2)(ii), Plaintiff must track the home addresses of its customers as part of the Lifeline eligibility certification process. Therefore, it has the ability to mail bills to its Lifeline customers, even those who do not purchase services beyond those included in their Lifeline plan.
Plaintiff either collects or attempts to collect 911 fees from Lifeline customers in Alabama and Kentucky. It either collects or attempts to collect $1.75 and $0.70 per customer per month from these states, respectively, for the 911 fees. Plaintiff allows 911 customers to pay by check, money order, credit card, debit card, or PayPal on the phone or online. Further, it allows customers to pay in different billing periods, such as monthly, annually, or other periods.
As directed by the KCC, GVNW conducted an audit of Plaintiff and filed a report of its findings with the KCC on January 1, 2017. Plaintiff complied with GVNW's data requests during the audit, and GVNW used that information to calculate an amount that Plaintiff purportedly was required to report as KUSF-assessable retail revenues. GVNW's report recommended the KCC require Plaintiff to (1) revise its intrastate revenue reports to the KUSF, effective January 1, 2012; (2) include monies recovered by Plaintiff from the FUSF Lifeline program for intrastate calling; and (3) pay the resulting additional KUSF assessment, which GVNW estimated to be $227,000 for January 1, 2011, through February 2017. GVNW determined Plaintiff should have reported as revenue the subsidies it receives from the FUSF Lifeline program. The KCC adopted GVNW's recommendations in a July 11, 2017 administrative order ("The KCC Order").
The KCC Order requires Plaintiff to contribute a portion of all FUSF Lifeline revenue to the KUSF as assessable revenue, including the $9.25 per customer FUSF Lifeline subsidies, regardless of whether Plaintiff surcharges its customers for the service.
Plaintiff timely petitioned the KCC to reconsider the order, but the KCC denied that petition in a second order on August 15, 2017. Plaintiff did not make a written claim to the KCC that its FUSF Lifeline subsidies were not assessable until it learned of GVNW and KCC's view that they were assessable.
Plaintiff had been provided with the Carrier Remittance Worksheet Instructions ("Instructions")—which include revenue-reporting requirements for carriers—prior to the 2017 audit and the KCC Order. On behalf of KCC, GVNW mailed the March 2013-February 2014 Instructions to Plaintiff and other carriers in February 2013. GVNW mailed revised instructions in June 2013. GVNW continued to mail the Instructions each year from 2014-2019.
KCC has entered orders in separate audit proceedings requiring three other wireless carriers to pay KUSF assessments on intrastate revenues recovered from the FUSF Lifeline Program on behalf of Lifeline customers. These other carriers paid the amounts they were ordered to pay in those orders.
Plaintiff filed this action, praying for: (1) a declaration that the KCC Order violates federal law and is invalid to the extent that it requires it to contribute to the KUSF portions of its disbursements from the FUSF
The parties move for summary judgment on Plaintiff's sole claim in this case that the KCC Order is preempted by the FCA. Plaintiff argues the KCC Order is preempted by federal law in four ways: (1) the KCC Order relies on and burdens a mechanism of the FUSF in violation of 47 U.S.C. § 254(f) (the "Relies-On-Or-Burdens-the-FUSF Claim"); (2) the KCC Order is inequitable and discriminates against Plaintiff by requiring it to contribute at a greater rate to the KUSF than carriers that do not serve Kansas Lifeline consumers in violation of 47 U.S.C. § 254(f) (the "Inequitable and Discriminatory Claim"); (3) the KCC Order is inconsistent with the FCC's rules to preserve and advance universal service in violation of § 254(f) (the "Consistency Claim"); and (4) the KCC Order is not a predictable state regulation because it employs a different methodology than the FCC in determining contributions to the universal service fund in violation of 47 U.S.C. § 254(f) (the "Non-predictability Claim").
Congress enacted the Telecommunications Act of 1996, amending the Federal Communications Act of 1934 ("FCA"), to "regulat[e] interstate and foreign commerce in communication by wire and radio so as to make available . . . to all the people of the United States . . . a rapid, efficient. . . communication service with adequate facilities at reasonable charges."
The FCA requires the federal government to create a universal service fund to provide the support necessary to ensure affordable telecommunications services to rural and low-income areas.
FUSF assessments are not based on carriers' revenue from provision of intrastate services.
The FCA specifically allows states to create their own universal service funds ("USFs") and to impose state USF surcharges on telecommunications carriers who provide intrastate services, provided that those surcharges do not "rely on or burden" a FUSF mechanism, are "equitable and nondiscriminatory," are "predictable," and "not inconsistent with the Commission's rules to preserve and advance universal service."
The Kansas legislature passed the Kansas Telecommunications Act ("KTA") in 1996,
The Telecommunications Act allocates authority over the USFs by the services provided: The [FCC], with respect to interstate services, and the States, with respect to intrastate services, shall establish any necessary cost allocation rules, accounting safeguards, and guidelines to ensure that services included in the definition of universal service bear no more than a reasonable share of the joint and common costs of facilities used to provide those services.
The Court must interpret the meaning of § 254(f) to determine if it preempts the KCC Order. "Courts determine Congress's intent by employing the traditional tools of statutory interpretation, beginning—as always—with an examination of the statute's text,"
The FCA allows states to "adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that State only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal support mechanisms."
The terms "rely" and "burden" are not defined in the Telecommunications Act, nor has the Tenth Circuit interpreted these statutory terms in this context. Accordingly, the Court identifies the meaning of each term in this context using the tools of statutory interpretation.
Plaintiff argues for a definition of rely that includes a relatively small degree of reliance. Defendants assign the word a more extreme connotation or "disproportionate or heavy use flavor."
Applying this unambiguous, ordinary meaning, the KCC Order relies on the FUSF Lifeline mechanism by depending on it for a portion of KUSF assessable revenue. The KCC Order requires assessments based on the amount of the FUSF Lifeline subsidy, and ultimately reduces that federal funding. The FUSF pays Lifeline carriers in Kansas $9.25 per customer served, per month. The KUSF assessment has a direct proportional relationship to this FUSF Lifeline subsidy, even if that amount were included in a carrier's assessable revenues. If the FUSF subsidy increases, so would a carrier's "revenue," and in turn the KUSF assessment. If the FUSF subsidy decreases, a carrier receives less, and the KUSF's assessable amount also decreases. Further, if the FUSF Lifeline subsidy were discontinued, this portion of KUSF's assessment would also vanish. The assessment required by the KCC Order thus relies on the FUSF Lifeline mechanism because it is "dependent" on the FUSF Lifeline subsidy.
Plaintiff casts a "burden" as "something that is carried,"
Although some degree of burden is contemplated by requiring carriers to contribute to both the FUSF and state USF,
The Court first considers the entirety of § 254(f), then examines this section in the context of other portions of the Telecommunications Act that govern universal service. Under § 254(f), Congress's express purpose of allowing states to create their own USF is "to preserve and advance universal service." This language appears twice in § 254(f), in addition to the language "to the preservation and advancement of universal service in that State."
Congressional purpose "to preserve and advance universal service" appears throughout other portions of § 254. For instance, § 254(b) says "the [FCC] shall base polices for the preservation and advancement of universal service" on the enumerated principles including of quality services, and access to advanced service.
This definition of "burden" is reinforced by § 254(j) which states "[n]othing in this section shall affect the collection, distribution, or administration of the Lifeline Assistance Program provided for by the Commission" under certain provided regulations. Disincentivizing engagement in the Lifeline program would certainly interfere with collection, distribution and administration of the Lifeline program. A reading of § 254(f) that allowed such disincentives would, therefore, conflict with § 254(j).
Finally, § 254(e) also supports this definition of "burden." This section governs how carriers may use funds received from a universal service program. "A carrier that receives such support shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended."
A state regulation requiring the expenditure of FUSF Lifeline monies for a state USF program is also contrary to Congressional purpose for the same reason. Because § 254(e) prohibits use of FUSF funds for services other than services for which it is intended, it follows that violating this prohibition is a burden on the FUSF. A § 254(f) burden, therefore, includes a state regulation that diverts support from its intended facility or service.
Here, the KCC Order burdens the FUSF because it disincentivizes the carrier from participating in the FUSF Lifeline program. The purpose of § 254 is to encourage carriers to provide universal services to create a greater breadth of access to telecommunication services. Carriers who have the greatest effect on promoting the statutory purposes of § 254 through the FUSF Lifeline program may have a relatively lower contribution to the state USF; a carrier whose non-subsidy revenue is significantly less than their percentage of subsidy-based revenue relative to a carrier whose customers are more profit-based than subsidized low-income may contribute less. Yet, this contribution scheme furthers the statutory purposes of § 254. The KCC Order, however, thwarts the realization of these statutory purposes by assessing subsidies. To a high-volume subsidy carrier, assessment of FUSF Lifeline subsidies can be a real disincentive to participating in the program instead of catering to non-low-income customers.
Plaintiff's ability to surcharge low-income customers for the KCC assessment does not prevent the assessment from burdening the FUSF. Plaintiff already incurs a burden of its own to participate in the FUSF Lifeline program because it provides telecommunication services far below market value. Even if Plaintiff were to pass the cost of the KCC subsidy on to its customers—$0.32 per customer, per month, according to Defendants—it would still provide these services at far less than market value. The KCC assessment disincentivizes a program that is already less profitable to Plaintiff than provision of services to non-Lifeline customers. The assessment is, therefore, a burden on the Lifeline program, and is expressly preempted by § 254(f).
This application of "burden" in § 254(f) to the KCC Order complies with § 254(j)'s requirement that other sections of the FCA must not affect Lifeline administration. The Definition of "burden" urged by Defendants, however, violates this section; if the KCC assessment did not burden an FUSF mechanism, its effect on the administration of Lifeline programs would nonetheless violate § 254(j) because disincentivizing carriers from providing Lifeline services does "affect the collection, distribution, or administration of the Lifeline Assistance Program" that § 254(j) prohibits.
Further, Defendant's reading of burden that allows state USFs to assess FUSF funding would violate § 254(e)'s requirement that FUSF funds be used for the services "for which the support is intended."
Interpreting "burden" in this context to include disincentivizing carrier participation in FUSF programs is consistent with other federal district court decisions. In Eachus, an Oregon universal service fund's assessment burdened a FUSF mechanism because it assessed the same revenues as the FUSF taxed.
Similarly, in AT&T Corporation v. Public Utility Commission of Texas,
The Constitutional doctrine of intergovernmental immunity, as codified in 4 U.S.C. § 111, prohibits, in part, states from imposing discriminatory taxes against federal employees.
Defendants argue the burden runs the other way because if the KCC Order is unenforceable, the FUSF would burden the KUSF. The Court disagrees. A Federal subsidy intended to promote provision of telecommunication services to low-income Kansans does not burden a state universal service fund with similar goals merely because the state fund cannot assess the federal subsidy. Further, complying with federal law can hardly constitute a burden on a state universal service fund, especially when that federal law simultaneously bestowed and limited state power to create their own USFs. There is no express prohibition of federal laws that rely on or burden a state USF. Accordingly, the Court does not consider whether the FUSF burdens the KUSF.
Defendants argue that the KCC Order does not rely on or burden a FUSF mechanism because it complies with 47 C.F.R. § 54.403(b). That regulation requires carriers to pass through the full $9.25 per month FUSF Lifeline subsidy to the customer by charging at least $9.25 less than "any generally available residential service plan or package offered by such carriers."
Defendants argue the KCC Order does not rely on or burden the FUSF because it is not assessing the FUSF subsidy directly. Instead, Defendants argue it assesses only "retail revenue" of which the subsidy happens to be a part. This classification does not save the assessment from relying on or burdening the FUSF. Whether the KCC assesses the federal subsidy alone, or whether the federal subsidy is assessed by its inclusion within the larger category of "retail revenue" does not alter the assessment's reliance or burden on the FUSF Lifeline Program.
Section 254(f) provides that "[e]very telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State."
Plaintiff argues the FCC does not make this distinction because it assesses neither the Lifeline nor the High Cost program. In fact, Plaintiff argues, the FCC has stated that payments received from any universal service support mechanism do not qualify as revenues and are not assessable.
Defendants argue the two programs are treated equitably, even though they are not administered in exactly the same way. The KCC only assesses the Lifeline program, Defendants argue, because it yields a different type of revenue than the High Cost program. They argue the Lifeline program yields "retail revenue" because Lifeline revenue comes from a retail customer. This revenue is nonetheless "retail," they argue, even though the Lifeline customer's bill is paid through a federal subsidy and not by the customer because the subsidies are applied to the retail customer's account.
It is not necessary for the Court to determine whether the Lifeline subsidies that the KCC Order seeks to assess are deemed "retail revenue" because even an assessment of retail revenue must comply with § 254(f), including the "equitable and nondiscriminatory" clause. Accordingly, the Court begins its analysis with statutory interpretation of the "equitable and nondiscriminatory" clause.
Equitable is defined as "[j]ust; consistent with principles of justice and right,"
Both § 254(f) and the surrounding provisions of § 254 support such a definition. Section 254(f) begins by granting states authority to adopt regulations, so long as those regulations are "not inconsistent with the [FCC]'s rules to preserve and advance universal service."
Section § 254(b), (d), (e), and (j), discussed in detail above, also make clear Congress's purpose in creating this section to further universal service. Just as states may not create regulations that rely on or burden universal service, states may not create regulations that are inequitable or discriminate in a way that hinders this goal.
The Court's finding that Congressional purpose to further universal service applies to the "equitable and nondiscriminatory" clause is reinforced by § 254(d), which contains identical language. Section 254(d) pertains to interstate service contributions, while § 254(f) pertains to intrastate service contributions. Both subsections 254(d) and (f) require that contributions be equitable and nondiscriminatory. And, Congressional purpose "to preserve and advance universal service" in § 254(f) is also captured § 254(d).
The KCC Order inequitably discriminates between intrastate telecommunication carriers through its assessment on FUSF Lifeline subsidies. In its discussion of the "Relies-On-and-Burdens-the-FUSF-Claim," the Court found that the KCC Order disincentivizes carriers from providing FUSF Lifeline services which impermissibly relies on and burdens a FUSF mechanism. For the same reason—disincentivizing provision of universal service—the distinction the KCC Order draws between Lifeline and non-Lifeline carriers is discriminatory. The differential treatment of Lifeline and non-Lifeline carriers disincentivizes provision of FUSF Lifeline service because the KCC Order imposes an additional cost on providing Lifeline services.
This inequity and discrimination is further evidenced by the distinction the KCC Order makes between the FUSF Lifeline and FUSF High Cost programs: Lifeline subsidies are assessed while High Cost subsidies are not. The Order, therefore, disincentivizes provision of Lifeline services while incentivizing High Cost subsidies. States, however, may not disincentivize either under the statute.
Defendants argue the KCC Order is within state power authorized by Congress, and therefore is not inequitable or discriminatory. Specifically, they argue Congress authorized states to create their own rules regarding intrastate services "in a manner determined by the State," and thus the KCC has the authority to create any rules governing intrastate service. Defendants further argue the KCC Order is equitable and nondiscriminatory because the state acted within its discretion under 47 U.S.C. § 254(f) by mandating contributions to the KUSF based solely on "retail revenues" in K.S.A. § 66-2008(a). In turn, it argues, the KCC Order that requires assessment of the FUSF Lifeline Subsidy as part of that pool of "retail revenues" is valid because it complies with the Kansas statute.
This proposition again ignores the limitations Congress placed on state authority to create rules to regulate intrastate services. Such rules must not "rely on or burden Federal universal support mechanisms," and contributions to the fund must be "equitable and nondiscriminatory." Further, these rules created by the state must be for the purpose of "preservation and advancement of universal service in that State." While the KCC's assessment of the FUSF Lifeline subsidy would create more revenue streams for the KUSF, it would also disincentivize provision of Lifeline services within Kansas. Disincentivizing universal services in Kansas violates § 254(f)'s requirement to preserve and advance those services in Kansas.
States do not have blanket authority under § 254(f) to create any regulations to govern intrastate service. Such state regulations are still subject to the limitations of that statute, and compliance with K.S.A. § 66-2008(a) is not dispositive.
Defendants argue it is impossible for the KCC to treat the High Cost and Lifeline programs the same; if the High Cost program were also assessed, that would create a risk of double-assessment. Defendants reason that if the KCC assesses both programs, it will assess network facilities and assess retail services that use those facilities. Additionally, Defendants point out that they do assess other retail revenue earned by carriers that participate in the High Cost program, just not the High Cost subsidies themselves. Plaintiff could participate in the High Cost program, too, and revenue received from High Cost subsidies would not be assessed.
This argument does not prevent the KCC's Lifeline assessments from being inequitable and discriminatory. Independent of any KCC assessment on High Cost subsidies, the Lifeline assessment is inequitable and discriminates between carriers because it has the effect of hindering universal service. Further, Defendants are not forced to choose between assessing both the High Cost and Lifeline program or only the Lifeline program; they could assess neither program, as does the FCC, and be in compliance with § 254(f).
Next, Defendants argue that Plaintiff's reading of the "equitable and nondiscriminatory" clause of § 254(f) would discriminate in favor of Plaintiff, and against carriers that receive retail revenue from non-low-income sources. Defendants reason that an exclusive Lifeline provider would pay nothing to the KUSF, which would violate § 254(f)'s requirement that "every" carrier contribute in a manner determined by the state, thus creating a statutory conflict.
As already discussed, the definition of "equitable and nondiscriminatory" requires regulations to further universal service goals. Congressional purpose to enhance provision of universal services allows disparate treatment of carriers' contribution requirements as long as such treatment preserves and advances universal service. Giving carriers an incentive to provide Lifeline services is precisely what § 254 is designed to do.
Finally, Defendants cite a Third Circuit case for the proposition that state regulations are nondiscriminatory if they are justified by "valid considerations."
In New Jersey Payphone, the Third Circuit considered a wholly different provision of the Telecommunications Act: § 253(c).
Plaintiff also argues the KCC Order is invalid because it is inconsistent with the FCC's rules to preserve and advance universal service and is not a predictable state regulation because it employs a different methodology than the FCC in determining contributions to the universal service, both in violation of 47 U.S.C. § 254(f). Given that the Court finds the KCC Order is preempted by Plaintiff's "Relies-On-Or-Burdens-the-FUSF" and "Inequitable and Discriminatory" claims, it is unnecessary to address these remaining claims of preemption.
In sum, Plaintiff is entitled to summary judgment because the KCC Order it seeks to enjoin is preempted by federal law, and no genuine disputes of material fact remain.