UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


CELL TELECOM INDUST

v.

FCC


97-1690a

D.C. Cir. 1999


*	*	*


Randolph, Circuit Judge: Federal law bars states from  regulating the
entry of, and the rates charged by, providers  of mobile
telecommunications services. Texas law requires  all providers of
telecommunications services in the state to  contribute to two
state-administered funds. In these consoli- dated petitions for
judicial review of an order of the Federal  Communications Commission,
the question is whether the  Commission rightly decided that the
federal statute did not  preempt the Texas law. See City of Abilene,
Tex. v. FCC, 164  F.3d 49 (D.C. Cir. 1999).


I


"Universal telephone service" denotes federal and state  efforts to
make communications services available to all  Americans at affordable
rates. See 47 U.S.C. ss 151, 254(b).  In the past, universal service
had been "achieved largely  through implicit subsidies....designed to
shift costs from  rural to urban areas, from residential to business
customers,  and from local to long distance service." Federal-State
Joint  Bd. on Universal Serv., Report & Order, 12 F.C.C.R. 8776,  8784
(1997).


In 1995, Texas enacted a statute requiring telecommunica- tions service
providers doing business in the state to contrib- ute annually to two
state-run universal service programs.  See Texas Public Utility
Regulatory Act of 1995, ss 3.606,  3.608 (codified at Tex. Util. Code
Ann. ss 56.021-.022, 57.043- .046 (West 1998)) ("Texas Utility Act").
Section 3.606 of the  Texas Utility Act requires contributions to the
Telecommuni- cations Infrastructure Fund. This fund awards grants and 
loans to finance computer equipment and networks at schools, 
libraries, and medical facilities. See Tex. Util. Code Ann.  ss
57.043-.046. Section 3.608 of the Texas Utility Act estab- lishes the
Universal Service Fund to subsidize certain tele- communications
services in the state's high-cost rural areas,  and to provide service
to low-income disabled persons, and  persons with hearing and speech
impairments. See id.  ss 56.021, 56.072, 56.102. It is to be "funded
by a statewide  uniform charge payable by each telecommunications
provider  that has access to the customer base." See id. s 56.022.


Pittencrieff Communications, Inc., a provider of commercial  mobile
("wireless") services in Texas, petitioned the Federal  Communications
Commission for a declaratory ruling that a  provision in the
Communications Act of 1934, as amended by  the Omnibus Budget
Reconciliation Act of 1993, Pub. L. No.  103-66, 107 Stat. 312, 392,
preempted the Texas law. The  federal provision--s 332(c)(3)(A)--is as
follows (for ease of  reference we have numbered the first three


[1] Notwithstanding sections 152(b) and 221(b) of this  title, no State
or local government shall have any authori-


ty to regulate the entry of or the rates charged by any  commercial
mobile service or any private mobile service,  except that this
paragraph shall not prohibit a State from  regulating the other terms
and conditions of commercial  mobile services. [2] Nothing in this
subparagraph shall  exempt providers of commercial mobile services
(where  such services are a substitute for land line telephone 
exchange service for a substantial portion of the commu- nications
within such State) from requirements imposed  by a State commission on
all providers of telecommunica- tions services necessary to ensure the
universal availabil- ity of telecommunications service at affordable
rates. [3]  Notwithstanding the first sentence of this subparagraph, 
a State may petition the Commission for authority to  regulate the
rates for any commercial mobile service and  the Commission shall
grant such petition if such State  demonstrates that--


(i) market conditions with respect to such services  fail to protect
subscribers adequately from unjust and  unreasonable rates or rates
that are unjustly or unrea- sonably discriminatory; or


(ii) such market conditions exist and such service is  a replacement
for land line telephone exchange service  for a substantial portion of
the telephone land line  exchange service within such State.


The Commission shall provide reasonable opportunity for  public comment
in response to such petition, and shall,  within 9 months after the
date of its submission, grant or  deny such petition. If the
Commission grants such  petition, the Commission shall authorize the
State to  exercise under State law such authority over rates, for 
such periods of time, as the Commission deems necessary  to ensure
that such rates are just and reasonable and not  unjustly or
unreasonably discriminatory.


47 U.S.C. s 332(c)(3)(A). After notice and comment, the  Commission
denied the petition on the ground that the state's  contribution
requirements do not constitute rate or entry  regulation of wireless
services, the sort of regulation 


s 332(c)(3)(A) preempts. See In re: Pittencrieff Communi- cations,
Inc., 13 F.C.C.R. 1735, 1737 (1997). In the Commis- sion's view, the
Texas law fell within the "other terms and  conditions" language of
the first sentence of s 332(c)(3)(A)  and thus was within the state's
lawful authority. See 13  F.C.C.R. at 1737. The Commission also
reasoned that to  interpret s 332(c)(3)(A) otherwise would contradict
47 U.S.C.  s 254(f), which permits a state to require universal
service  contributions from every telecommunications carrier provid-
ing intrastate telecommunications services in the state. See  13
F.C.C.R. at 1737. The denial of Pittencrieff's petition  affirmed an
earlier Commission ruling that s 332(c)(3)(A) did  not preclude states
from requiring commercial mobile service  providers to contribute to
state universal service support  mechanisms. See 12 F.C.C.R. at


Two other commercial mobile radio service providers, Air- Touch
Communications, Inc. and Sprint Spectrum, L.P., and  their trade
group, Cellular Telecommunications Industry As- sociation
(collectively "Cellular"), petitioned for judicial re- view. Other
parties intervened for and against Cellular's  position.


II


Cellular believes the case turns on the second sentence of  s
332(c)(3)(A)--"Nothing in this subparagraph shall exempt  providers of
commercial mobile services (where such services  are a substitute for
land line telephone exchange service for a  substantial portion of the
communications within such State)  from requirements imposed by a
State commission on all  providers of telecommunications services
necessary to ensure  the universal availability of telecommunications
service at  affordable rates." As Cellular reads it, the second
sentence  means this: a state may require contributions to a universal
 service fund if, and only if, wireless service is "a substitute for 
land line telephone exchange service for a substantial portion  of the
communications within such State"--a condition, we  assume, not


Cellular's reading is plausible, but not cogent. Or so the  Commission
tells us. For starters, the Commission says that  one must view the
second sentence in the context of the rest  of s 332(c)(3)(A). That of
course is the correct approach.  The first sentence, we are told, sets
out the basic framework:  a state may not regulate "the entry of or
the rates charged  by," but it may regulate "other terms and
conditions" of  wireless services. Here too the Commission is on solid
 ground. The Commission then tells us that the second and  third
sentences comprise exceptions to the first sentence's  ban on state
regulation. So far there can be no quarrel.  From this, the Commission
concludes that the second sen- tence allows a state to promote
universal service by regulat- ing rates if wireless services are a
substitute for land line  telephone exchange service for a substantial
portion of the  communications within such state, something the first
sen- tence would otherwise bar the state from doing. There may  be
some room for questioning the proposition,1 but the impor- tant point
is that the second sentence does not, by its terms,  preempt anything.
All the preempting is done in the first  sentence; the second and
third sentence contain exceptions.


One might say the second sentence, with its exception for  universal
service, sheds light on the meaning of the first  sentence's
distinction between rate and entry regulation, on  the one hand, and
other terms and conditions. We will say  more about this shortly. For
now, we deal with Cellular's  basic position that the second sentence
itself preempts the  Texas statute. That cannot be right. No matter
how long  one stares at the second sentence, no matter how one turns
it  against the light, the sentence only contains the language of 
exception. The second sentence does not preempt and it does 




__________

n 1 Cellular argues that the Commission's reading of the second 
sentence renders the third sentence redundant. According to Cel-
lular, the third sentence alone provides the narrow exceptions to the 
first sentence's ban on state rate regulation. Cellular's interpreta-
tion is permissible, but so is that of the Commission, which con-
strues the second and third sentences as establishing different 
conditions for exempting different types of state rate regulation 
from the preemption outlined in the first sentence.


not forbid. Just the opposite. It limits the circumstances in  which a
state law must give way to federal law.


This brings us to an argument Cellular deposited in a  footnote: "Even
if this Court concludes that intrastate uni- versal service
contributions are not preempted by the second  sentence of section
332(c)"--and we have just concluded they  are not--"the first sentence
also serves as a barrier to state  contribution requirements."
Petitioners' Brief at 24-25 n.13.  Here the idea is that the Texas
contribution requirements are  impermissible rate regulation because
they increase the wire- less service provider's costs of doing
business in the state and  thus impact the rates charged to customers.
One might say  the same about local siting laws or state consumer
protection  laws. They too increase the cost of doing business. Yet a 
House Committee cited these laws as examples of the variety  of
permissible regulation of the "other terms and conditions."  See H.R.
Rep. No. 103-111, at 261 (1993), reprinted in 1993  U.S.C.C.A.N. 378,
588. The Commission offered other such  examples, including some drawn
from its previous decisions.  To equate state action that may increase
the cost of doing  business with rate regulation would, the Commission
reason- ably concluded, forbid nearly all forms of state regulation, a
 result at odds with the "other terms and conditions" portion  of the


As we have mentioned, a better point might be that the  exception for
universal service in the second sentence sheds  light on the meaning
of the first sentence; in other words, the  second sentence assumes
that a state requiring contributions  to universal service funds is a
state regulating rates. Cellular  did not, so far as we can tell, make
this argument in its briefs,  although its counsel mentioned the point
in oral argument.  For its part, the Commission interprets the "rates
charged  by" language in the first sentence of s 332(c)(3)(A) to "pro-
hibit states from prescribing, setting or fixing rates" of  wireless
service providers, none of which the Texas law  accomplishes. 13
F.C.C.R. at 1745. On this view, the second  sentence represents an
exception for state laws that frame  their universal service
requirement in terms of a regulation of  rates and meet the specified
condition. The Commission has 


reached this position not only in light of s 332(c)(3)(A), but  also
because of 47 U.S.C. s 254, added by the Telecommuni- cations Act of
1996, Pub. L. No. 104-104, 110 Stat. 56.  Section 254(f) provides: "A
State may adopt regulations not  inconsistent with the Commission's
rules to preserve and  advance universal service. Every
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." 47
U.S.C.  s 254(f). This is strong support for the proposition that, 
consistent with federal law, states may require contributions  of the
sort Texas is exacting.2 Instead of preempting such  laws, Congress
endorsed them. Cellular's only response is  that "the specific
language in section 332(c)(3)(A) operates to  limit the general grant
of authority given in section 254(f)."  This assumes s 254(f) is the
general provision while  s 332(c)(3)(A) is the specific. If anything,
it seems to us the  other way around. One provision does not, in any
event,  control the other, as the Commission has interpreted them. 
Rather than being in conflict, the provisions are in harmony.


The bottom line is that Cellular has not demonstrated that  its
interpretation of s 332(c)(3)(A) is the only permissible one  or that
the Texas universal service laws were rate or entry  regulation.
Section 332(c)(3)(A) leaves its key terms unde- fined. It never states
what constitutes rate and entry regula- tion or what comprises other
terms and conditions of wireless  services. See Grand Canyon Air Tour
Coalition v. FAA, 154  F.3d 455, 466 (D.C. Cir. 1998). The
Commission's interpreta-




__________

n 2 Intervenors supporting Cellular contend that wireless services  are
"jurisdictionally" interstate and thus fall outside s 254(f), and  its
endorsement of imposing state universal service regulations on 
providers of "intrastate" telecommunications services. We do not 
reach the merits of this claim because it was not raised in a timely 
or proper manner. See 47 U.S.C. s 405; see also Freeman Eng'g 
Assocs., Inc. v. FCC, 103 F.3d 169, 182-85 (D.C. Cir. 1997); Time 
Warner Entertainment Co. v. FCC, 56 F.3d 151, 202-03 (D.C. Cir. 
1995); Illinois Bell Tel. Co. v. FCC, 911 F.2d 776, 786 (D.C. Cir. 


tion of s 332(c)(3)(A) gives meaning to each sentence, see  Illinois
Public Telecommunications Ass'n v. FCC, 117 F.3d  555, 562 (D.C. Cir.
1997), fairly reflects the statute's purpose  to limit state rate and
entry but not universal service regula- tion, see Bell Atlantic
Telephone Cos. v. FCC, 131 F.3d 1044,  1047-49 (D.C. Cir. 1997), and
harmonizes s 332(c)(3)(A) and  s 254(f), see Louisiana Public Service
Commission v. FCC,  476 U.S. 355, 370 (1986). There is thus no basis
for setting  aside the Commission's decision. See 5 U.S.C. s


The remaining contentions of Cellular and the Intervenors  supporting
it have been considered and rejected.


The petitions for review are denied.