Posted on by J. Tyson Covey

Preemption of State Broadband Regulation – New York and California Federal Courts Diverge

How a communications service is classified has a critical impact on how (or whether) it can be regulated.  That has been a critical issue with respect to internet access service, where the FCC has vacillated between defining it as a “telecommunications service” (and thus potentially subjecting it to common carrier regulation under Title II of the federal Communications Act) or as an “information service” (thus subjecting it to very limited potential FCC regulation under Title I of that Act).  After classifying broadband internet access service (BIAS) as a “telecommunications service” in 2015 and imposing “net neutrality” requirements in BIAS providers, the FCC changed course in 2018 and removed those rules, finding they were detrimental to broadband investment, innovation, and availability and that BIAS should instead be classified as an “information service.  Many states then considered how to react to the FCC’s 2018 Order.  Some considered new statutes that ultimately did not pass, some directed agencies to look into the topic and report back, some used executive orders to require broadband providers contracting with the state to follow net neutrality principles, and some passed specific statutes.

The two most far-reaching statutes, from California and New York, have been challenged in federal court by industry associations arguing both field preemption and conflict preemption.  The California court denied a preliminary injunction of the law there (SB-822), which reimposed the same net neutrality requirements the FCC removed in 2018.  American Cable Ass’n v. Becerra, No. 18-cv-2684 (E.D. Cal., Feb. 23, 2021) (oral ruling).  That decision is on appeal at the Ninth Circuit, where it has been fully briefed (No. 21-15430).  Meanwhile, last Friday the New York court granted a preliminary injunction against a New York law (referred to as the ABA) that requires BIAS providers to offer a $15 broadband internet service plan to qualifying low-income customers.  New York State Telecomms. Ass’n v. James, No. 21-cv-02389 (E.D.N.Y., June 11, 2021).  That ruling may well be taken up to the Second Circuit.  Although the two states’ laws are different, there is extensive overlap in the arguments in the cases, and it is interesting to compare how differently the two courts addressed them.

Field Preemption.  BIAS is an interstate service, as it provides users with access to all internet endpoints, which could be anywhere in the world.  In both California and New York, the industry associations argued that 47 U.S.C. § 152(a) gives the FCC exclusive jurisdiction to regulate the provision of interstate communications services, and that this exclusive jurisdiction preempts states from regulating in that field.  They also relied on caselaw stating that the FCC has exclusive or plenary authority over interstate communication services, and distinguishing that from the power left to the states over intrastate communications services.  California and New York responded by arguing that Section 152(a) merely discusses FCC authority to regulate interstate services, without clearly excluding the states.  They also contended that the federal Communications Act excludes some interstate communications services, such as information services, from FCC authority, and argued that this means Congress did not give the FCC exclusive power in the field of interstate communications services.

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Posted on by J. Tyson Covey

Facebook Wins Battle of the Canons in Supreme Court Autodialer Case

In a hotly anticipated decision that should have significant impact on litigation under the Telephone Consumer Protection Act of 1991 (TCPA), the Supreme Court held, 9-0, that the TCPA’s definition of an “autodialer” does not include equipment that merely stores telephone numbers to be dialed automatically, unless the equipment does so using a random or sequential number generator.  Facebook, Inc. v. Duguid, No. 19-511 (U.S., April 1, 2021).

Stopping unwanted or harmful telemarketing calls has long been a consumer-protection priority.  Toward that end, the TCPA prohibits certain communications made with an “automatic telephone dialing system,” or “autodialer.”  47 U.S.C. § 227(b)(1).  The TCPA defines “autodialers” as equipment with the capacity “to store and produce telephone numbers to be called, using a random or sequential number generator,” and to dial those numbers.  47 U.S.C. § 227(a)(1).  There was no dispute that the last clause (“using a random or sequential number generator”) qualifies the last verb in the preceding clause (“produce”).  The exam-worthy question before the Court, however, was whether that last clause also qualifies the first verb in the preceding clause, “store.”  Put another way, does the TCPA’s definition of autodialer apply to all equipment that “store[s] … telephone numbers to be called,” even if the equipment does not do so “using a random or sequential number generator?”  (The facts of the case play no real role here, but, for context, Facebook used equipment that stored numbers to be dialed automatically, but did not use a random or sequential number generator, so the question was whether Facebook’s equipment fell with the TCPA definition of autodialer).

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Posted on by J. Tyson Covey

CLECs Challenge FCC’s 2019 Access Stimulation Rules

Briefing is now complete at the D.C. Circuit in the latest appeal involving the FCC’s rules on access stimulation schemes.  Access stimulation (or traffic pumping) refers to a practice in which a local telephone company partners with entities that generate large amounts of terminating long-distance traffic, such as “free” conference calling providers and chat lines.  This allows the local telephone company to generate large revenues from the access charges that long-distance carriers must pay to terminate the calls through the local telephone company.  The revenues are then shared with the conferencing or chat line entities, which allows the services to be “free” to the end users.

In 2011, the FCC declared access stimulation a “wasteful arbitrage scheme” and adopted rules to curb the practice, primarily through requiring companies engaged in traffic pumping to reduce their rates to those of the large, urban carriers.  Connect America Fund, 26 FCC Rcd 17663, ¶¶ 656-201 (2011), aff’d, In re FCC 11-161, 753 F.3d 1015 (10th Cir. 2014).  However, those rules did not reduce the practice as much as hoped.  For instance, some traffic pumpers  adjusted their schemes by including intermediate carriers (tandem and transport providers) in the call flow, which increased the overall charges.

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Posted on by J. Tyson Covey

Tenth Circuit Holds There is No Limitations Period for FCC Debt Collections

In a decision issued this week, the Tenth Circuit held that when the FCC acts to collect debts to the United States, rather than impose a fine or punishment, its actions are governed by the Debt Collection Improvements Act (DCIA), 31 U.S.C. §§ 3711-17, which means there is no limitations period.  Blanca Tel. Co. v. FCC, Nos. 20-9510 and 20-9524 (10th Cir Mar. 15, 2021).

The Universal Service Fund (USF) provides subsidies to telephone companies to promote universal availability of telephone service.  The FCC administers and enforces the rules governing the distribution of USF support to carriers.  During the relevant period (2005-2010) the FCC’s rules required incumbent local exchange carriers (incumbent LECs) to use accounting that allocated costs between regulated and unregulated activities, because those carriers could not receive USF support for unregulated activities or for service outside their designated “study area.”  Cellular service is an unregulated service for USF purposes (except for “basic” cellular service).  Blanca Telephone Co. was an incumbent LEC but did not separate its costs for regulated and unregulated service (such as cellular service), which resulted in Blanca receiving more than $6 million in USF support for non-basic cellular service and service outside its study area.

The FCC sought to recover that money in 2016 and eventually issued an order requiring repayment.  Blanca challenged the order, arguing the FCC was time-barred under either 47 U.S.C. § 503(b)(6) (one-year limitations period) or 28 U.S.C. § 2462 (five years). The FCC, however, said it acted under the DCIA, which expressly provides there is no limitations period.  31 U.S.C. §§ 3716(e)(1).  In deciding which statute applied, the first key issue was whether the FCC was imposing a penalty (and thus governed by one of the statutes Blanca cited) or engaged in debt collection.  The court held that even though Blanca violated a public law and the public was being protected by the FCC’s actions, including by deterrence of others, the action was best treated as debt collection because the FCC’s core purpose was to recover its overpayment of USF support to Blanca. The second key issue was whether the collection was of funds “owed to the United States” per 31 U.S.C. § 3701(b)(1).  The court held it was, as the FCC was collecting amounts “disallowed by audits performed by the Inspector General of the agency administering the program,” as allowed by 31 U.S.C. § 3701(b)(1)(c).  The decision is notable because, although it is tied to the specific facts of the case, it allows FCC recovery for potentially very old regulatory violations if they involve a true debt to the government.

If you have any questions regarding this post or other telecommunications issues, please contact Ty Covey (jtcovey@duanemorris.com) or Brian McAleenan (bamcaleenan@duanemorris.com).

Posted on by J. Tyson Covey

Court Declines to Apply Filed Rate Doctrine to Rates Dictated By Statute

The filed rate doctrine (also called the filed tariff doctrine) is a century-old cornerstone of regulated-industries law that, generally speaking, bars claims where the effect would be to allow a customer to receive service, or the carrier to provide service, on rates, terms, or conditions that differ from the carrier’s tariff filed with the relevant regulatory agency.  Central Office Tel., Inc. v. AT&T Corp., 524 U.S. 214, 222-23 (1998).  The rule is strict and, where it applies, unyielding.  Id.  The recent district court decision in Smith v. FirstEnergy Corp., No. 2:20-cv-03755 et al., 2021 WL 496415 (S.D. Ohio, Feb. 10, 2021), however, declined to apply the filed rate doctrine where the rates at issue were set directly by legislation.

In the summer of 2020, former Speaker of the Ohio House of Representatives Larry Householder and his political associates were indicted for an alleged $60 million-dollar federal racketing conspiracy. The criminal complaint asserted that Householder and others, in exchange for large bribes from FirstEnergy Corp., collaborated to pass House Bill 6 (HB 6), a near billion-dollar nuclear power plant bailout that would benefit FirstEnergy.  HB 6 required that a monthly surcharge be added to ratepayers’ bills (capped at 85 cents for residential customers and $2,400 for commercial customers), along with other adjustments that would increase rates.  Ratepayers sued FirstEnergy on behalf of a proposed class, asserting federal claims under RICO and other statutes and a state-law claim under the Ohio Corrupt Practices Act.  The alleged injury was having to pay costs and fees set forth in HB 6, and the plaintiffs sought both prospective relief (to stop enforcement of HB 6) and retroactive relief for charges already paid as a result of HB 6.

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Posted on by J. Tyson Covey

FCC Emphasizes Limits On Local Fees For Small-Cell Facilities

Wireless telecom providers have been deploying new small-cell technology and equipment for 5G service across the nation.  Deployment often requires the providers to obtain access to public rights of way to put their small-cell equipment on cities’ or municipalities’ utility poles (or use underground ducts or conduit).  Cities and municipalities, of course, seek compensation for allowing this access to public equipment and rights-of-way.  The FCC addressed this compensation issue in 2018, setting safe-harbor caps on local fees but allowing higher charges if they meet certain requirements.  Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment, 33 FCC Rcd 9088 (2018).  The Ninth Circuit upheld that decision in relevant part.  City of Portland v. FCC, 969 F.3d 1020 (9th Cir. 2020).

Clark County, Nevada (home of Las Vegas) adopted an ordinance with annual fees well above the FCC’s safe harbors.  The ordinance required holder of a Master Use License Fee to pay 5% of gross revenues each calendar quarter, plus a Wireless Site License Fee of $700 to $3,960/year/facility (with annual increases of 2%), plus an Annual Inspection Fee of $500 per Small Wireless Facility in county rights-of-way.  Verizon challenged that ordinance at the FCC as being preempted by 47 U.S.C. 253(d) because it effectively prohibited Verzon from providing service.  The FCC, through its Wireless Telecommunications Bureau, recently dismissed Verizon’s complaint without prejudice in light of Clark County having adopted a new ordinance.  Petition for Declaratory Ruling That Clark County, Nevada Ordinance No. 4659 is Unlawful Under Section 253 of the Communications Act as Interpreted by the Federal Communications Commission and is Preempted, WT Docket No. 19-230, DA 21-59 (rel. Jan. 14, 2021).   In doing so, however, the FCC emphasized three key aspects of its rules that certainly will bear on any pending or future disputes between wireless providers and other municipalities that seek to impose fees above the FCC’s safe harbors.  These points appear directed at preventing other state or local authorities from making some of the same arguments Clark County was making.

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Posted on by Duane Morris

Executive Order Addresses Foreign Threats to U.S. Information and Communications Technology and Services Systems

On May 15, 2019, President Donald Trump signed Executive Order 13873, “Securing the Information and Communications Technology and Services Supply Chain” (Federal Register Vol. 84. No. 96, page 22689-92).

Supported by various laws and regulations, the president determined that the United States’ information communication technology systems are increasingly under threat from “foreign adversaries,” defined as “any foreign government or foreign non-government person engaged in a long-term pattern or serious instances of conduct significantly adverse to the national security of the United States or security and safety of United States persons.” These systems and services are targets for “malicious cyber-enabled actions, including economic and industrial espionage” as they “store and communicate vast amounts of sensitive information, facilitate the digital economy, and support critical infrastructure and vital emergency services.”

To read the full text of this Duane Morris Alert, please visit the firm website.