State ex rel. Bps Telephone Co. v. Missouri Public Service Comm.

285 S.W.3d 395

STATE of Missouri, ex rel BPS TELEPHONE COMPANY, et al.; Respondents USCOC of Greater Missouri, LLC d/b/a U.S. Cellular, Appellant, v. MISSOURI PUBLIC SERVICE COMMISSION, Respondent.

No. WD 69976.

Missouri Court of Appeals, Western District.

May 26, 2009.

Karl Zobrist and Roger W. Steiner, Kansas City, MO, for Appellant.

William R. England, III and Brian T. McCartney, Jefferson City, MO, for Respondent Telephone Companies.

William K. Haas, Jefferson City, MO, for Respondent Public Service Comm.

Before: THOMAS H. NEWTON, C.J., JAMES M. SMART, JR., and VICTOR C. HOWARD, JJ.

THOMAS H. NEWTON, Chief Judge.

USCOC of Greater Missouri, LLC d/b/a U.S. Cellular (U.S. Cellular) appeals the judgment of the circuit court affirming the Report and Order of the Public Service Commission (Commission). U.S. Cellular contests the Commission's imposition of a baseline investment requirement as a condition of the company's designation of eligibility for federal universal service support. We affirm.

Regulatory Framework

In the Federal Telecommunications Act of 1996(FTA), Congress sought to promote competition in telecommunications, reduce regulation, and encourage the development of new technologies. State ex rel. Coffman v. Pub. Serv. Comm'n, 154 S.W.3d 316, 318 (Mo.App. W.D.2004). "Simply put, the Act was intended to deregulate the telecommunications industry, open local and long distance telecommunications markets to competition, and ensure universal telephone service for all citizens at affordable rates." Voicestream GSM I Operating Co., LLC v. La. Pub. Serv. Comm'n, 943 So.2d 349, 354 (La.2006). This latter goal was codified as a commitment to "universal service": the provision of affordable, quality telecommunications services for all Americans, including local telephone service and access to emergency, directory-assistance, and long-distance services. Qwest Corp. v. F.C.C., 258 F.3d 1191, 1196 (10th Cir.2001).

A telecommunication carrier's cost in providing these services can vary widely. "[I]t is generally more expensive for a telephone company to provide service in a rural area, where customers are dispersed, than it is to provide the same service in an urban area, where customers are more concentrated." Id. at 1195. Consequently, Congress directed states and the Federal Communications Commission (FCC) to "devise methods to ensure that consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas ... have access to telecommunications and information services ... at rates that are reasonably comparable to rates charged for similar services in urban areas." In re Fed.-State Joint Bd. on Universal Ser., CC Docket No. 96-45, Report & Order, 12 F.C.C.R. 8776, 8780 (1997) (affirmed in part, reversed in part, and remanded in part by Texas Office of Public Utility Counsel v. F.C.C., 183 F.3d 393 (5th Cir. 1999)).

The FTA supports the provision of universal service in high-cost areas by requiring interstate telecommunications carriers to contribute to a federal Universal Service Fund (USF). WWC Holding Co. v. Sopkin, 488 F.3d 1262, 1267 (10th Cir. 2007); 47 U.S.C. §§ 254(d) & (e). In turn, carriers designated as "Eligible Telecommunications Carriers" (ETC) receive universal service funds (high-cost support) as public subsidies for providing universal services in specified areas. Sopkin, 488 F.3d at 1267; 47 U.S.C. § 214(e).

When a carrier seeks ETC status for an area within a state, the state public utility commission is responsible for the ETC designation. Sopkin, 488 F.3d at 1267; 47 U.S.C. § 214. In order to be eligible, the carrier is required to offer universal service support services throughout the designated area and to advertise the services and charges. 47 U.S.C. § 214(e). The FTA further mandates that universal service support is to be used only "for the provision, maintenance, and upgrading of facilities and services for which the support is intended" and under FCC Rules, states are required to annually re-certify this use of the funds. 47 U.S.C. § 254(e); 47 C.F.R. § 54.314 (2008). In other words, "[t]he state must certify that a carrier is using the funding appropriately." Qwest Corp., 258 F.3d at 1198.

In Missouri, the ETC designation is performed by the Commission.¹ Under state regulation, an applicant for federal ETC designation is required to show:

1. Intended use of the high-cost support, including detailed descriptions of any construction plans with start and end dates, populations affected by construction plans, existing tower site locations for CMRS [Commercial Mobile Radio Service] cell towers, and estimated budget amounts;

2. A two (2)-year plan demonstrating, with specificity, that high-cost universal service support shall only be used for the provision, maintenance and upgrading of facilities and services for which the support is intended in the Missouri service area in which ETC designation was granted.

....

3. The two (2)-year plan shall include a demonstration that universal service support shall be used to improve coverage, service quality or capacity on a wire center-by-wire center basis throughout the Missouri service area for which the requesting carrier seeks ETC designation including:

A. A detailed map of coverage area before and after improvements and in the case of CMRS providers, a map identifying existing tower site locations for CMRS cell towers;

B. The specific geographic areas where improvements will be made;

C. The projected start date and completion date for each improvement;

D. The estimated amount of investment for each project that is funded by high-cost support;

E. The estimated population that will be served as a result of the improvements;

F. If an applicant believes that service improvements in a particular wire center are not needed, it must explain its basis for this determination and demonstrate how funding will otherwise be used to further the provision of supported services in that area; and

G. A statement as to how the proposed plans would not otherwise occur absent the receipt of high-cost support and that such support will be used in addition to any expenses the ETC would normally incur;

....

5. A demonstration that the commission's grant of the applicant's request for ETC designation would be consistent with the public interest, convenience and necessity;

4 CSR 240-3.570(2).

Factual and Procedural Background

U.S. Cellular provides commercial mobile radio services in Missouri (wireless cell phone service). In April of 2005, the company applied to the Commission for designation as an ETC in order to receive federal high-cost support. In its application, U.S. Cellular committed to using the support in areas where it would not otherwise invest. The company stated that there were many areas it "would like to provide services but cannot without support." It further explained that it would use high-cost support to construct facilities where "no business plan supports construction of new facilities." Attached to its application was a list of sixteen locations where the company intended "to construct facilities within the first eighteen months of receiving high-cost support."

Applications to intervene were granted to several telecommunications exchange companies operating in Missouri (wireline companies). In October of 2005, the Commission held a hearing on U.S. Cellular's application. At the hearing, U.S. Cellular explained that it would use high-cost support to construct new cell sites in areas where it would not otherwise build them. The company also stated that it did not compile or maintain state-specific budgets for capital expenditures.

The Commission found that the company had "submitted only a rather vague 18-month plan calling for the building of sixteen new cell towers" and had thus not provided sufficient evidence of how it would use high-cost support to improve its network. Rather than reject the application, the Commission issued an order allowing U.S. Cellular to submit additional evidence and suggested the company be guided in its submission by an impending regulation (now in effect) which would require a detailed two-year plan.² The Commission also explained that it would expect U.S. Cellular's "budgeted expenditures to match expected revenues from the high-cost support fund." In August of 2006, the company presented a compliance filing with a two-year network improvement plan setting forth "the company's plans to spend its high-cost support on significant improvements in network coverage and capacity in rural areas, inter alia, through the construction of 39 new cell sites." The plan projected an expectation of $11 million in high-cost support per year.

In December of 2006, the Commission held a second hearing on U.S. Cellular's application. At the hearing, it was adduced that four of the sixteen cell towers U.S. Cellular had previously stated could not be built without high-cost support had already been constructed. Mr. Nick Wright, U.S. Cellular's Vice President of West Operations, testified on cross to U.S. Cellular's expenditures in Missouri in 2006.

Q: ... Would you agree that every year U.S. Cellular would spend a certain amount for construction of new facilities, new towers, or at least a certain amount for capacity additions to existing facilities regardless of the receipt of high cost support?

A: That's correct.

Q: You wouldn't have an estimate on what that might be, though?

A: Our current expenditures?

Q: Yeah. I mean—

A: For—for 2006, the current year, we spent approximately 16-$17 million in Missouri. Okay. Minus the St. Louis markets. So in the high cost areas, $16 million, approximately, year 2006.

Testimony was also adduced from Mr. Wright that at the time of the 2005 hearing, U.S. Cellular had been operating in Missouri for sixteen years and had spent approximately $160 million in its rural markets in the state, thus investing, on...