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Federal Communications Commission FCC 00- 248
Before the
Federal Communications Commission
Washington, D. C. 20554

In the Matter of
Federal- State Joint Board on
Universal Service

Western Wireless Corporation
Petition for Preemption of an
Order of the South Dakota
Public Utilities Commission

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CC Docket No. 96- 45

DECLARATORY RULING
Adopted: July 11, 2000 Released: August 10, 2000
By the Commission: Commissioner Furchtgott- Roth dissenting and issuing a statement.
I. INTRODUCTION
1. In this Declaratory Ruling, we provide guidance to remove uncertainty and
terminate controversy regarding whether section 214( e)( 1) of the Communications Act of 1934,
as amended, (the Act) requires a common carrier to provide supported services throughout a
service area prior to being designated an eligible telecommunications carrier (ETC) that may
receive federal universal service support. 1 We believe the guidance provided in this Declaratory
Ruling is necessary to remove substantial uncertainty regarding the interpretation of section
214( e)( 1) in pending state commission and judicial proceedings. 2 We believe the guidance
provided in this Declaratory Ruling will assist state commissions in acting expeditiously to fulfill
their obligations under section 214( e) to designate competitive carriers as eligible for federal
universal service support.

1 The Commission may, in accordance with section 5( d) of the Administrative Procedure Act, on motion or on
its own motion, issue a declaratory ruling terminating a controversy or removing uncertainty. See 5 U. S. C. §
554( e), 47 C. F. R. § 1.2.

2 See, e. g., Letter from Competitive Universal Service Coalition, to Chairman William E. Kennard, FCC, dated

March 8, 2000 at 2, 6; Letter from Gene DeJordy, Western Wireless, to Chairman William E. Kennard, FCC,
dated March 29, 2000 at 1- 2; Petition for Preemption of an Order of the South Dakota Public Utilities
Commission, filed by Western Wireless (June 23, 1999) (Western Wireless petition); The Filing by GCC License
Corporation for Designation as an Eligible Telecommunications Carrier, Notice of Appeal to the Supreme Court
of South Dakota, Civ. 99- 235, filed by the South Dakota Public Utilities Commission (May 10, 2000) (South
Dakota PUC Notice of Appeal).
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2. We believe that interpreting section 214( e)( 1) to require the provision of service
throughout the service area prior to ETC designation prohibits or has the effect of prohibiting the
ability of competitive carriers to provide telecommunications service, in violation of section
253( a) of the Act. We find that such an interpretation of section 214( e)( 1) is not competitively
neutral, consistent with section 254, and necessary to preserve and advance universal service, and
thus does not fall within the authority reserved to the states in section 253( b). In addition, we
find that such a requirement conflicts with section 214( e) and stands as an obstacle to the
accomplishment and execution of the full purpose and objectives of Congress as set forth in
section 254. Consequently, under both the authority of section 253( d) and traditional federal
preemption authority, we find that to require the provision of service throughout the service area
prior to designation effectively precludes designation of new entrants as ETCs in violation of the
intent of Congress. We believe that the guidance provided in this Declaratory Ruling will further
the goals of the Act by ensuring that new entrants have a fair opportunity to provide service to
consumers living in high- cost areas.

3. We note that Western Wireless has raised similar issues in its petition for
preemption of a decision of the South Dakota Public Utilities Commission (South Dakota PUC). 3
In its petition, Western Wireless asks the Commission to preempt, under section 253 and as
inconsistent with the Act, the South Dakota PUC’s requirement that, pursuant to section 214( e),
a carrier may not receive designation as an ETC unless it is providing service throughout the
service area. In light of the recent South Dakota Circuit Court decision overturning the South
Dakota PUC’s decision and granting Western Wireless ETC status in each exchange served by
non- rural telephone companies in South Dakota, we believe that it is unnecessary to act on the
Western Wireless petition at this time. 4 In doing so, we note that section 253( d) requires the
Commission to preempt state action only “to the extent necessary to correct such violation or
inconsistency.” 5 We acknowledge, however, that the South Dakota Circuit Court Order has been
automatically stayed with the filing of the South Dakota PUC’s notice of appeal to the Supreme
Court of South Dakota. 6 We therefore place Western Wireless’ petition for preemption of the
South Dakota PUC Order in abeyance pending final resolution of this appeal. 7 The Commission

3 See Western Wireless petition. Comments cited herein are in response to this petition. See also The Filing by
GCC License Corporation for Designation as an Eligible Telecommunications Carrier, Finding of Facts and
Conclusions of Law; Notice of Entry of Order, Before the Public Utilities Commission of the State of South
Dakota, TC98- 146 (May 19, 1999).

4 Filing by GCC License Corporation for Designation as an Eligible Telecommunications Carrier, Findings of

Fact, Conclusions of Law, and Order, Civ. 99- 235 (SD Sixth Jud. Cir. March 22, 2000) (South Dakota Circuit
Court Order) (concluding that the South Dakota PUC “erred as a matter of law by determining that an applicant
for ETC designation must first be providing a universal service offering to every location in the requested
designated service area prior to being designated an ETC”).

5 47 U. S. C. § 253( d) (emphasis added).

6 See South Dakota Codified Laws § 15- 26A- 38.
7 South Dakota PUC Notice of Appeal.
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will make a determination at that time as to whether it is necessary to proceed consistent with the
guidance provided in this Declaratory Ruling.

II. BACKGROUND
A. The Act
4. Section 254( e) provides that “only an eligible telecommunications carrier
designated under section 214( e) shall be eligible to receive specific Federal universal service
support.” 8 Section 214( e)( 2) provides that “[ a] State commission shall upon its own motion or
upon request designate a common carrier that meets the requirements of [subsection 214( e)( 1)] as
an eligible telecommunications carrier for a service area designated by the State commission.” 9

5. Section 214( e)( 1) provides that:
A common carrier designated as an eligible telecommunications carrier under
[subsections 214( e)( 2), (3), or (6)] shall be eligible to receive universal service
support in accordance with section 254 and shall, throughout the service area for
which the designation is received –

(A) offer the services that are supported by Federal universal
service support mechanisms under section 254( c), either using its
own facilities or a combination of its own facilities and resale of
another carrier’s services (including the services offered by another
eligible telecommunications carrier); and

(B) advertise the availability of such services and the charges
therefor using media of general distribution. 10

6. Section 253 establishes the legal framework for Commission preemption of a state
statute, regulation, or legal requirement that prohibits or has the effect of prohibiting the
competitive provision of telecommunications service. The Commission has interpreted and
applied this standard on a number of occasions. 11 First, the Commission must determine whether

8 47 U. S. C. § 254( e).
9 47 U. S. C. § 214( e)( 2).
10 47 U. S. C. § 214( e)( 1).
11 See, e. g., American Communications Services, Inc., MCI Telecommunications Corp. Petition for Expedited
Declaratory Ruling Preempting Arkansas Telecommunications Regulatory Reform Act of 1997 Pursuant to
Sections 251, 252, and 253 of the Communications Act, as amended, Memorandum Opinion and Order, CC
Docket No. 97- 100, FCC 99- 386 (rel. Dec. 23, 1999); Petition of Pittencrieff Communications, Inc., for
Declaratory Ruling Regarding Preemption of the Texas Public Utility Regulatory Act of 1995, Memorandum
Opinion and Order, File No. WTB/ POL 96- 2, 13 FCC Rcd 1735 (1997) aff’d CTIA v. FCC, 168 F. 3d 1332 (D. C.
Cir. 1999) (Pittencrieff Communications, Inc.); Silver Star Telephone Company, Inc., Petition for Preemption
(continued….)
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the challenged law, regulation, or requirement violates section 253( a). Specifically, the
Commission examines whether the state provision “prohibit[ s] or ha[ s] the effect of prohibiting
the ability of any entity to provide any interstate or intrastate telecommunications service.” 12

7. If the Commission finds that the state requirement violates section 253( a), then it
will determine whether it is nevertheless permissible under section 253( b). The criteria set forth in
section 253( b) preserve the states’ ability to impose, on a competitively neutral basis and
consistent with section 254, requirements necessary to preserve and advance universal service. 13
The Commission has held that a state program must meet all three criteria – it must be
“competitively neutral,” “consistent with Section 254,” and “necessary to preserve and advance
universal service” – to fall within the “safe harbor” of section 253( b). 14 The Commission has
preempted state regulations for failure to satisfy even one of the three criteria. 15 If a requirement
otherwise impermissible under section 253( a) does not satisfy section 253( b), the Commission
must preempt the enforcement of the requirement in accordance with section 253( d). 16

B. Federal Preemption Authority
8. The Supremacy Clause of the Constitution empowers Congress to preempt state
or local laws or regulations under certain specified conditions. 17 As explained by the United
States Supreme Court:

Pre- emption occurs when Congress, in enacting a federal statute,
expresses a clear intent to preempt state law, when there is outright or
actual conflict between federal and state law, where compliance with both
federal and state law is in effect physically impossible, where there is
implicit in federal law a barrier to state regulation, where Congress has
legislated comprehensively, thus occupying an entire field of regulation (Continued from previous page)

and Declaratory Ruling, Memorandum Opinion and Order, CCB Pol 97- 1, 12 FCC Rcd 15639 (1997) (Silver
Star) reconsideration denied, 13 FCC Rcd 16356 (1998) aff’d, RT Communications, Inc. v. FCC, 201 F. 3d 1264
(10 th Cir. 2000).

12 47 U. S. C. § 253( a).

13 47 U. S. C. § 253( b).
14 Pittencrieff Communications, Inc., 13 FCC Rcd at 1752, para. 33.
15 For example, in Silver Star, the Commission preempted a Wyoming statute for its failure to satisfy the
“competitive neutrality” criterion. Silver Star, 12 FCC Rcd at 15658- 60, paras. 42, 45.
16 47 U. S. C. § 253( d). (“ If, after notice and an opportunity for public comment, the Commission determines that

a State or local government has permitted or imposed any statute, regulation, or legal requirement that violates
subsection (a) or (b), the Commission shall preempt the enforcement of such statute, regulation, or legal
requirement to the extent necessary to correct such violation or inconsistency.”).

17 Louisiana Public Service Commission v. FCC, 476 U. S. 355, 368 (1986).
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and leaving no room for the States to supplement federal law, or where
the state law stands as an obstacle to the accomplishment and execution
of the full objectives of Congress. 18

It is well established that “[ p] re- emption may result not only from action taken by Congress itself;
a federal agency acting within the scope of its congressionally delegated authority may preempt
state regulations.” 19

III. DISCUSSION
A. Section 253( a) Analysis
1. Background
9. In order to determine whether a section 253( a) violation has occurred, we must
consider whether the cited statute, regulation, or legal requirement “may prohibit or have the
effect of prohibiting the ability of any entity to provide any interstate or intrastate
telecommunications service.” 20 We therefore examine whether the requirement that a carrier must
be providing service throughout the service area prior to designation as an ETC “may prohibit or
have the effect of prohibiting” carriers that are not incumbent LECs from providing
telecommunications service.

2. Discussion
10. We find that requiring a new entrant to provide service throughout a service area
prior to designation as an ETC has the effect of prohibiting the ability of the new entrant to
provide intrastate or interstate telecommunications service, in violation of section 253( a).

11. Legal Requirement. As an initial matter, we find that the requirement that a new
entrant must provide service throughout its service area as a prerequisite to designation as an
ETC under section 214( e) constitutes a state “legal requirement” under section 253( a). We have
previously concluded that Congress intended the phrase, “[ s] tate or local statute or regulation, or
other State or local requirement” in section 253( a), to be interpreted broadly. 21 The resolution of

18 Id. at 368- 369 (citations omitted).
19 Id. at 369; Fidelity Federal Sav. And Loan Ass’n v. De La Cuesta, 458 U. S. 141, 153- 54 (1982); City of New
York v. FCC, 486 U. S. 57, 64 (1988) (“[ t] he statutorily authorized regulations of an agency will pre- empt any
state or local law that conflicts with such regulations or frustrates the purposes thereof”).

20 See 47 U. S. C. § 253( a).

21 See The Petition of the State of Minnesota for a Declaratory Ruling Regarding the Effect of Section 253 on an
Agreement to Install Fiber Optic Wholesale Transport Capacity in State Freeway Rights- of- Way, Memorandum
Opinion and Order, CC Docket No. 98- 1, FCC 99- 402 (rel. Dec. 23, 1999) (concluding that an agreement
between a developer and the State creates a “legal requirement” subject to section 253 preemption) at paras. 17-
(continued….)
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a carrier’s request for designation as an ETC by a state commission is legally binding on the
carrier and may prohibit the carrier from receiving federal universal service support. We find
therefore that any such requirement constitutes a “legal requirement” under section 253( a).

12. Prohibiting the Provision of Telecommunications Service. We find that an
interpretation of section 214( e) requiring carriers to provide the supported services throughout
the service area prior to designation as an ETC has the effect of prohibiting the ability of
prospective entrants from providing telecommunications service. 22 A new entrant faces a
substantial barrier to entry if the incumbent local exchange carrier (LEC) is receiving universal
service support that is not available to the new entrant for serving customers in high- cost areas.
We believe that requiring a prospective new entrant to provide service throughout a service area
before receiving ETC status has the effect of prohibiting competitive entry in those areas where
universal service support is essential to the provision of affordable telecommunications service
and is available to the incumbent LEC. Such a requirement would deprive consumers in high- cost
areas of the benefits of competition by insulating the incumbent LEC from competition.

13. No competitor would ever reasonably be expected to enter a high- cost market and
compete against an incumbent carrier that is receiving support without first knowing whether it is
also eligible to receive such support. 23 We believe that it is unreasonable to expect an
unsupported carrier to enter a high- cost market and provide a service that its competitor already
provides at a substantially supported price. Moreover, a new entrant cannot reasonably be
expected to be able to make the substantial financial investment required to provide the supported
services in high- cost areas without some assurance that it will be eligible for federal universal
service support. 24 In fact, the carrier may be unable to secure financing or finalize business plans
due to uncertainty surrounding its designation as an ETC.

14. In addition, we find such an interpretation of section 214( e)( 1) to be contrary to
the meaning of that provision. Section 214( e)( 1) provides that a common carrier designated as an
eligible telecommunications carrier shall “offer” and advertise its services. 25 The language of the

(Continued from previous page)
18 (Minnesota Declaratory Ruling). “We believe that interpreting the term ‘legal requirement’ broadly, best
fulfills Congress’ desire to ensure that states and localities do not thwart the development of competition.” Id.

22 See, e. g., ALTS comments at 3- 5; AT& T comments at 7- 9; CTIA reply comments at 4; Minnesota PUC

comments at 2; PCIA comments 4- 5; Washington UTC reply comments at 3.
23 Western Wireless petition at 8.

24 See Minnesota Cellular Corporation’s Petition for Designation as an Eligible Telecommunications Carrier,
Order Granting Preliminary Approval and Requiring Further Filings, Docket No. P- 5695/ M- 98- 1285 (Oct. 27,
1999) (Minnesota PUC Order) at 7.

25 47 U. S. C. § 214( e)( 1).
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statute does not require the actual provision of service prior to designation. 26 We believe that this
interpretation is consistent with the underlying congressional goal of promoting competition and
access to telecommunications services in high- cost areas. In addition, this interpretation is
consistent with the Commission’s conclusion that a carrier must meet the section 214( e) criteria
as a condition of its being designated an eligible carrier “and then must provide the designated
services to customers pursuant to the terms of section 214( e) in order to receive support.” 27

15. In addition, we note that ETC designation only allows the carrier to become
eligible for federal universal service support. Support will be provided to the carrier only upon
the provision of the supported services to consumers. 28 We note that ETC designation prior to
the provision of service does not mean that a carrier will receive support without providing
service. 29 We also note that the state commission may revoke a carrier’s ETC designation if the
carrier fails to comply with the ETC eligibility criteria.

16. In addition, we believe the fact that a carrier may already be providing service
within the state prior to designation is not conclusive of whether the carrier can reasonably be
expected to provide service throughout the service area, particularly in high- cost areas, prior to
designation. While a requirement that a carrier be providing service throughout the service area
may not affect the provision of service in lower- cost areas, it is likely to have the effect of
prohibiting the ability of carriers without eligibility for support to provide service in high- cost
areas. 30

17. Gaps in Coverage. We find the requirement that a carrier provide service to every
potential customer throughout the service area before receiving ETC designation has the effect of
prohibiting the provision of service in high- cost areas. As an ETC, the incumbent LEC is required
to make service available to all consumers upon request, but the incumbent LEC may not have
facilities to every possible consumer. 31 We believe the ETC requirements should be no different

26 See, e. g., Western Wireless Corporation Designated Eligible Carrier Application, Findings of Fact,
Conclusions of Law and Order, North Dakota Public Service Commission, Case No. PU- 1564- 98- 428 (Dec. 15,
1999) (North Dakota Order); Minnesota PUC Order. See also Washington UTC reply comments at 3- 5.

27 Federal- State Joint Board on Universal Service, Report and Order, CC Docket No. 96- 45, 12 FCC Rcd 8876,

8853, para. 137 (1997), as corrected by Federal- State Joint Board on Universal Service, Erratum, CC Docket
No. 96- 45, FCC 97- 157 (rel. June 4, 1997), aff’d in part, rev’d in part, remanded in part sub nom. Texas Office
of Public Utility Counsel v. FCC, 183 F. 3d 393 (5 th Cir. 1999) cert. granted, 120 S. Ct. 2214 (U. S. June 5, 2000)
(No. 99- 1244) (Universal Service Order) (emphasis in original).

28 Universal Service Order, 12 FCC Rcd 8853, para. 137.

29 Washington UTC reply comments at 4.
30 ALTS comments at 4- 5.
31 See Minnesota PUC Order at 11, concluding that, “[ a] ll carriers, but especially rural carriers, have pockets
within their study areas where they have no customers or facilities. If development occurs, they have to build out
to the new customer or customers. Minnesota Cellular appears to have the same build- out capacity as the
(continued….)
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for carriers that are not incumbent LECs. A new entrant, once designated as an ETC, is required,
as the incumbent is required, to extend its network to serve new customers upon reasonable
request. We find, therefore, that new entrants must be allowed the same reasonable opportunity to
provide service to requesting customers as the incumbent LEC, once designated as an ETC. 32
Thus, we find that a telecommunications carrier’s inability to demonstrate that it can provide
ubiquitous service at the time of its request for designation as an ETC should not preclude its
designation as an ETC.

18. State Authority. Finally, although Congress granted to state commissions, under
section 214( e)( 2), the primary authority to make ETC designations, we do not agree that this
authority is without any limitation. 33 While state commissions clearly have the authority to deny
requests for ETC designation without running afoul of section 253, the denials must be based on
the application of competitively neutral criteria that are not so onerous as to effectively preclude a
prospective entrant from providing service. We believe that this is consistent with sections
214( e), 253, and 254, as well as the decision of the United States Court of Appeals for the Fifth
Circuit in Texas Office of Public Utility Counsel v. FCC. 34 We reiterate, however, that the state
commissions are primarily responsible for making ETC designations. Nothing in this Declaratory
Ruling is intended to undermine that responsibility. In fact, it is our expectation that the guidance
provided in this Declaratory Ruling will enable state commissions to move expeditiously, in a pro-competitive
manner, on many pending ETC designation requests.

B. Section 253( b) Analysis
1. Background
19. Section 253( b) preserves the state’s authority to impose a requirement affecting

(Continued from previous page)
incumbents, and the potential need for build- out is no reason to deny ETC status.” See also North Dakota Order
at para. 36, concluding that, “[ a] requirement to be providing the required universal services to 100% of a service
area before receiving designation as an ETC could be so onerous as to prevent any other carrier from receiving
the ETC designation in any service area and would require the Commission to rescind the ETC designation
already given to North Dakota ILECs and Polar Telecom, Inc.”

32 See, e. g., Minnesota PUC Order at 10- 11; North Dakota Order at para. 36; Washington UTC reply comments

at 5- 6. See also South Dakota Circuit Court Order, Conclusions of Law at para. 12.
33 See, e. g., Coalition of Rural Telephone Companies comments at 12 (contending that state decisions under

section 214( e) should not be reviewed under section 253); South Dakota PUC comments at 9 (contending that
preemption may not be granted because the South Dakota PUC exercised a power lawfully delegated to it by
Congress in a manner consistent with federal law).

34 See Texas Office of Public Utility Counsel v. FCC, 183 F. 3d 393, 418 n. 31 (5 th Cir. 1999) cert. granted, 120

S. Ct. 2214 (U. S. June 5, 2000) (No. 99- 1244) (“ if a state commission imposed such onerous eligibility
requirements that no otherwise eligible carrier could receive designation, that state commission would probably
run afoul of § 214( e)( 2) ’s mandate to ‘designate’ a carrier or ‘designate’ more than one carrier.”).
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the provision of telecommunications services in certain circumstances. 35 Section 253( b) allows
states to impose, on a competitively neutral basis and consistent with section 254, requirements
necessary to preserve and advance universal service, protect the public safety and welfare, ensure
the continued quality of telecommunications service, and safeguard the rights of consumers. 36
Section 253( d) requires that we preempt such requirements unless we find that they meet each of
the relevant criteria set forth in section 253( b). The Commission has preempted state regulations
for failure to satisfy even one of the relevant criteria. 37

2. Discussion
20. We find that a requirement to provide the supported services throughout the
service area prior to designation as an ETC does not fall within the “safe harbor” provisions of
section 253( b). To the contrary, we find that this requirement is not competitively neutral,
consistent with section 254, or necessary to preserve and advance universal service. We therefore
find that a requirement that obligates new entrants to provide supported services throughout the
service area prior to designation as an ETC is subject to our preemption authority under section
253( d).

21. Competitive Neutrality. We find that the requirement to provide service prior to
designation as an ETC is not competitively neutral. We believe this finding is consistent with the
Commission’s determination in the Universal Service Order that “[ c] ompetitive neutrality means
that universal service support mechanisms and rules neither unfairly advantage nor disadvantage
one provider over another, and neither unfairly favor nor disfavor one technology over another.” 38
At the outset, we believe that, to meet the competitive neutrality requirement in non- rural
telephone company service areas, the procedure for designating carriers as ETCs should be
functionally equivalent for incumbents and new entrants. 39 As discussed above, requiring the
actual provision of supported services throughout the service area prior to ETC designation
unfairly skews the universal service support mechanism in favor of the incumbent LEC. As a
practical matter, the carrier most likely to be providing all the supported services throughout the
requested designation area before ETC designation is the incumbent LEC. 40 Without the

35 47 U. S. C. § 253( b). Section 253( c) sets forth additional situations, which are not present here, in which a
state or local government requirement that inhibits entry may still be acceptable.
36 47 U. S. C. § 253( b).

37 For example, in Silver Star, the Commission preempted a Wyoming statute for its failure to satisfy the
“competitive neutrality” criterion. Silver Star, 12 FCC Rcd at 15658- 60, paras. 42, 45.
38 Universal Service Order, 12 FCC Rcd at 8801, para. 47.

39 We thus would be troubled by a process in which the incumbent LEC were able to self- certify that it meets the
criteria for ETC designation, while new entrants were subject to a more rigorous, protracted state proceeding.
40 The 1996 Act required carriers to receive an eligible telecommunications carrier designation under section

214( e) to become eligible for federal high- cost support. 47 U. S. C. § 254( e).
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assurance of eligibility for universal service funding, it is unlikely that any non- incumbent LEC
will be able to make the necessary investments to provide service in high- cost areas.

22. We are not persuaded that such a requirement is competitively neutral merely
because the requirement to provide service prior to ETC designation applies equally to both new
entrants and incumbent LECs. 41 We recently concluded that the proper inquiry is whether the
effect of the legal requirement, rather than the method imposed, is competitively neutral. 42 As
discussed above, we find that the result of such a requirement is to favor incumbent LECs over
new entrants. Unlike a new entrant, the incumbent LEC is already providing service and therefore
bears no additional burden from a requirement that it provide service prior to designation as an
ETC. We therefore find that requiring the provision of supported services throughout the service
area prior to ETC designation has the effect of uniquely disadvantaging new entrants in violation
of section 253( b) ’s requirement of competitive neutrality.

23. Consistent with Section 254 and Necessary to Preserve and Advance Universal
Service. We find that the requirement to provide service prior to designation as an ETC is not
consistent with section 254 or “necessary to preserve and advance universal service.” 43 To the
contrary, we find that such a requirement has the effect of prohibiting the provision of service in
high- cost areas. As discussed above, this requirement clearly has a disparate impact on new
entrants, in violation of the competitive neutrality and nondiscriminatory principles embodied in
section 254. 44 We believe that it is unreasonable to expect an unsupported carrier to enter a high-cost
market and provide a service that its competitor already provides at a substantially supported
price. If new entrants are not provided with the same opportunity to receive universal service
support as the incumbent LEC, such carriers will be discouraged from providing service and
competition in high- cost areas. 45 Consequently, under an interpretation of section 214( e) that
requires new entrants to provide service throughout the service area prior to designation as an

41 South Dakota PUC comments at 10; South Dakota Independent Telephone Coalition at 31.
42 Minnesota Declaratory Ruling at para. 51 (emphasis added). “We do not believe that Congress intended to
protect the imposition of requirements that are not competitively neutral in their effect on the theory that the non-neutral
requirement was somehow imposed in a neutral manner. Moreover, we do not believe that this narrow
interpretation is appropriate because it would undermine the primary purpose of section 253 – ensuring that no
state or locality can erect legal barriers to entry that would frustrate the 1996 Act’s explicit goal of opening all
telecommunications markets to competition.”

43 47 U. S. C. § 253( b).

44 Universal Service Order, 12 FCC Rcd at 8801, para. 48 (“ We agree with the Joint Board that an explicit
recognition of competitive neutrality in the collection and distribution of funds and determination of eligibility in
universal service support mechanisms is consistent with congressional intent and necessary to promote a pro-competitive,
de- regulatory national policy framework.”).

45 The Commission recognized that, in order to promote competition and the availability of affordable access to

telecommunications service in high- cost areas, there must be a competitively neutral support mechanism for
competitive entrants and incumbent LECs. Universal Service Order, 12 FCC Rcd at 8932, para. 287.
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ETC, the benefits that may otherwise occur as a result of access to affordable telecommunications
services will not be available to consumers in high- cost areas. We believe such a result is
inconsistent with the underlying universal service principles set forth in section 254( b) that are
designed to preserve and advance universal service by promoting access to telecommunications
services in high- cost areas. 46

24. A new entrant can make a reasonable demonstration to the state commission of its
capability and commitment to provide universal service without the actual provision of the
proposed service. There are several possible methods for doing so, including, but not limited to:
(1) a description of the proposed service technology, as supported by appropriate submissions; (2)
a demonstration of the extent to which the carrier may otherwise be providing
telecommunications services within the state; 47 (3) a description of the extent to which the carrier
has entered into interconnection and resale agreements; 48 or, (4) a sworn affidavit signed by a
representative of the carrier to ensure compliance with the obligation to offer and advertise the
supported services. 49 We caution that a demonstration of the capability and commitment to
provide service must encompass something more than a vague assertion of intent on the part of a
carrier to provide service. The carrier must reasonably demonstrate to the state commission its
ability and willingness to provide service upon designation.

C. Federal Preemption Authority
1. Background
25. State regulatory provisions may be preempted when enforcement of a state legal
requirement conflicts with federal law or “stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.” 50 Preemption may result not only from
action taken by Congress, but also from a federal agency acting within the scope of its
congressionally delegated authority. 51

26. In section 254, Congress codified the Commission’s historical policy of promoting
universal service to ensure that consumers in all regions of the nation have access to

46 See 47 U. S. C. § 254( b).
47 See North Dakota Order at para. 39.
48 See North Dakota Order at para. 34.
49 Washington UTC reply comments at 5.
50 Capital Cities Cable, Inc. v. Crisp, 467 U. S. 691, 699 (1984), citing Hines v. Davidowitz, 312 U. S. 57, 67
(1941); State Corporation Commission of Kansas v. FCC, 787 F. 2d 1421, 1425 (10 th Cir. 1986). See also
Louisiana PSC, 476 U. S. at 368- 69.

51 Louisiana PSC, 476 U. S. 368- 69, citing Fidelity Federal Savings and Loan Assn. v. De la Cuesta, 458 U. S.

141; Capital Cities Cable, Inc. v. Crisp, 467 U. S. 691.
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telecommunications services. 52 Congress, recognizing that existing universal service support
mechanisms were adopted in a monopoly environment, directed the Commission, in consultation
with a federal- state Joint Board, to establish support mechanisms for the preservation and
advancement of universal service in the competitive telecommunications environment that
Congress envisioned. 53 Section 254( b) sets forth the underlying principles on which Congress
directed the Commission to base policies for the preservation and advancement of universal
service. These principles include the promotion of access to telecommunications services in rural
and high- cost areas of the nation. 54 As noted above, consistent with the recommendation of the
Joint Board, the Commission adopted the additional guiding principle of competitive neutrality. 55
In doing so, the Commission concluded that competitive neutrality will foster the development of
competition and benefit certain providers, including wireless carriers, that may have been
excluded from participation in the existing universal service mechanism. 56 Section 254( f) also
provides that, “[ a] State may adopt regulations not inconsistent with the Commission’s rules to
preserve and advance universal service.” 57

2. Discussion
27. We find an interpretation of section 214( e)( 1) that requires a new entrant to
provide service throughout the service area prior to designation as an ETC to be fundamentally
inconsistent with the universal service provisions in the 1996 Act. Specifically, we find such a
requirement to be inconsistent with the meaning of section 214( e)( 1), Congress’ universal service
objectives as outlined in section 254, and the Commission’s policies and rules in implementing
section 254. As discussed above, this approach essentially requires a new entrant to provide
service throughout high- cost areas prior to its designation as an ETC. We find that such a
requirement stands as an obstacle to the Commission’s execution and accomplishment of the full
objectives of Congress in promoting competition and access to telecommunications services in
high- cost areas. 58 To the extent that a state’s requirement under section 214( e)( 1) that a new
entrant provide service throughout the service area prior to designation as an ETC also involves

52 See generally section 254.

53 According to the Joint Explanatory Statement, the purpose of the 1996 Act is “ to provide for a pro-competitive,
de- regulatory national policy framework designed to accelerate rapidly private sector deployment of
advanced telecommunications and information technologies and services to all Americans by opening all
telecommunications markets to competition . . . .” Joint Explanatory Statement of the Committee of Conference,
H. R. Conf. Rep. No. 458, 104 th Cong., 2d Sess. at 113 (Joint Explanatory Statement).

54 See 47 U. S. C. § 254( b)( 3).

55 Universal Service Order, 12 FCC Rcd at 8801- 8803, paras. 47- 51.
56 Universal Service Order, 12 FCC Rcd at 8802, para. 49.
57 47 U. S. C. § 254( f).
58 See Joint Explanatory Statement at 113.
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matters properly within the state’s intrastate jurisdiction under section 2( b) of the Act, 59 such
matters that are inseparable from the federal interest in promoting universal service in section 254
remain subject to federal preemption. 60

28. Section 214. We find that the requirement that a carrier provide service
throughout the service area prior to its designation as an ETC conflicts with the meaning and
intent of section 214( e)( 1). Section 214( e)( 1) provides that a common carrier designated as an
eligible telecommunications carrier shall “offer” and advertise its services. 61 The statute does not
require a carrier to provide service prior to designation. As discussed above, we have concluded
that a carrier cannot reasonably be expected to enter a high- cost market prior to its designation as
an ETC and provide service in competition with an incumbent carrier that is receiving support.
We believe that such an interpretation of section 214( e) directly conflicts with the meaning of
section 214( e)( 1) and Congress’ intent to promote competition and access to telecommunications
service in high- cost areas. 62

29. While Congress has given the state commissions the primary responsibility under
section 214( e) to designate carriers as ETCs for universal service support, we do not believe that
Congress intended for the state commissions to have unlimited discretion in formulating eligibility
requirements. Although Congress recognized that state commissions are uniquely suited to make
ETC determinations, we do not believe that Congress intended to grant to the states the authority
to adopt eligibility requirements that have the effect of prohibiting the provision of service in high-cost
areas by non- incumbent carriers. 63 To do so effectively undermines congressional intent in
adopting the universal service provisions of section 254.

30. Section 254. Consistent with the guidance provided above, we find a requirement
that a carrier provide service prior to designation as an ETC inconsistent with the underlying
principles and intent of section 254. Specifically, section 254 requires the Commission to base
policies for the advancement and preservation of universal service on principles that include
promoting access to telecommunications services in high- cost and rural areas of the nation. 64
Because section 254( e) provides that only a carrier designated as an ETC under section 214( e)
may be eligible to receive federal universal service support, an interpretation of section 214( e)
requiring carriers to provide service throughout the service area prior to designation as an ETC

59 47 U. S. C. § 152( b).
60 See Louisiana Public Service Commission v. FCC, 476 U. S. at 368- 69; AT& T v. Iowa Utilities Board, 119
S. Ct 721, 730 (1999); Texas Office of Public Utility Counsel v. FCC, 183 F. 3d at 423.
61 47 U. S. C. § 214( e)( 1).

62 See Joint Explanatory Statement at 113. See also supra section III. B for discussion of competitive neutrality.
63 See Texas Office of Public Utility Counsel v. FCC, 183 F. 3d at 418 n. 31.
64 See 47 U. S. C. § 254( b)( 3).
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stands as an obstacle to the accomplishment of the congressional objectives outlined in section
254. 65 If new entrants are effectively precluded from universal service support eligibility due to
onerous eligibility criteria, the statutory goals of preserving and advancing universal service in
high- cost areas are significantly undermined.

31. In addition, such a requirement conflicts with the Commission’s interpretation of
section 254, specifically the principle of competitive neutrality adopted by the Commission in the
Universal Service Order. 66 In the Universal Service Order, the Commission stated that,
“competitive neutrality in the collection and distribution of funds and determination of eligibility
in universal service support mechanisms is consistent with congressional intent and necessary to
promote a pro- competitive, de- regulatory national policy framework.” 67 As discussed above, a
requirement to provide service throughout the service area prior to designation as an ETC
violates the competitive neutrality principle by unfairly skewing the provision of universal service
support in favor of the incumbent LEC. As stated in the Universal Service Order, “competitive
neutrality will promote emerging technologies that, over time, may provide competitive
alternatives in rural, insular, and high cost areas and thereby benefit rural consumers.” 68
Requiring new entrants to provide service throughout the service area prior to ETC designation
discourages “emerging technologies” from entering high- cost areas. In addition, we note that
section 254( f) provides that, “[ a] State may adopt regulations not inconsistent with the
Commission’s rules to preserve and advance universal service.” 69 For the reasons discussed
extensively above, we find an interpretation of section 214( e) requiring the provision of service
throughout the service area prior to designation as an ETC to be inconsistent with the
Commission’s universal service policies and rules.

65 47 U. S. C. § 254( e).
66 Universal Service Order, 12 FCC Rcd at 8801, para. 47.
67 Universal Service Order, 12 FCC Rcd at 8801- 02, para. 48 (emphasis added).
68 Universal Service Order, 12 FCC Rcd at 8803, para. 50.
69 47 U. S. C. § 254( f).
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IV. ORDERING CLAUSES
32. Accordingly, IT IS ORDERED that pursuant to sections 4( i), 253, and 254 of the
Communications Act of 1934, as amended, 47 U. S. C. §§ 154( i), 253, and 254, and section 1.2 of
the Commission’s rules, 47 C. F. R. § 1. 2, and Article VI of the U. S. Constitution, that this
Declaratory Ruling IS ADOPTED.

33. IT IS FURTHER ORDERED that Western Wireless’ Petition for Preemption of
an Order of the South Dakota Public Utilities Commission shall be placed in abeyance pending
resolution of the appeal.

FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
Secretary
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DISSENTING STATEMENT OF
COMMISSIONER HAROLD FURCHTGOTT- ROTH

Re: Federal- State Board on Universal Service, Western Wireless Corporation Petition for
Preemption of an Order of the South Dakota Public Utilities Commission, Declaratory Ruling,
CC Docket No. 96- 45.

I dissent from today’s Declaratory Ruling. It is not necessary for the Commission to issue
this advisory statement, and its ruling is inconsistent with section 253’s plain mandate and with
past Commission precedent interpreting that provision. Indeed, the Commission rests its section
253 analysis upon a factual predicate that does not exist. Moreover, the South Dakota PUC has
permissibly interpreted section 214( e)( 1), and it is inappropriate for the Commission to override the
PUC’s determination.

This Declaratory Ruling Is Unnecessary. To begin with, there is no need for the
Commission to issue an advisory statement concerning the South Dakota Public Utilities
Commission’s decision. A South Dakota trial court has vacated the PUC’s order, and an appeal is
currently pending in the South Dakota Supreme Court. 1 There is no reason to think that the state
supreme court will not appropriately resolve the issue. Further, contrary to the Commission’s
assertions, 2 this order will be of no assistance to other state commissions. No other state
commissions have interpreted section 214 in the way that the South Dakota PUC has done, nor
have other state commissions indicated that they plan to adopt the South Dakota PUC’s
interpretation of section 214. There is therefore no need for the Commission to offer “guidance”
on this issue.

The Commission Has Improperly Applied Section 253. Not only is the Commission’s
ruling unnecessary, but also its preemption analysis is faulty. Oddly, although the Commission
claims that the purpose of this order is to “provide guidance to remove uncertainty and terminate
controversy regarding whether section 214( e)( 1) . . . requires a common carrier to provide
supported services throughout a service area prior to being designated an eligible
telecommunications carrier,” 3 it devotes the bulk of its discussion to preemption under section 253.

First, even if it were appropriate for the Commission to issue a statement regarding its
understanding of section 214( e) – which it is not – there is no reason for it also to address section
253 preemption. Moreover, by issuing an advisory statement regarding section 253, the
Commission wades into dangerous waters. Section 253( d) specifies that the Commission should
preempt state regulations only “to the extent necessary to correct . . . a violation or inconsistency

1 See Federal- State Board on Universal Service, Western Wireless Corporation Petition for Preemption
of an Order of the South Dakota Public Utilities Commission, Declaratory Ruling, CC Docket No. 96-45,
at ¶ 3 (hereinafter “Declaratory Ruling”); Filing by GCC License Corporation for Designation as
an Eligible Telecommunications Carrier, Findings of Fact, Conclusions of Law, and Order, Civ. 99- 235
(S. D. Sixth Jud. Cir. March 22, 2000).

2 See Declaratory Ruling at ¶ 1.

3 Declaratory Ruling at ¶ 1.
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[with sections 253( a) and (b)].” In view of this statutory directive, it is inappropriate for the
Commission to issue any advisory statement regarding section 253. Quite simply, how can it be
“necessary” for the Commission to act to correct a violation of sections 253( a) or (b) where, as
here, a court has vacated the state PUC’s order, and no state requirement even exists?

Even assuming that the South Dakota PUC’s order presented an issue that could
appropriately be addressed under section 253, the Commission’s application of that provision to
South Dakota’s requirement is inconsistent with the statute’s plain language. Section 253( a)
proscribes only those state requirements that “may prohibit or have the effect of prohibiting the
ability of any entity to provide any interstate or intrastate telecommunications service.” 4 It is
impossible to understand how failing to assign a new carrier eligible telecommunications carrier
status could “prohibited” or had the “effect of prohibiting” it from providing service in South
Dakota. The Declaratory Ruling asserts that “[ a] new entrant faces a substantial barrier to entry if
the incumbent local exchange carrier (LEC) is receiving universal service support that is not
available to the new entrant for serving customers in high- cost areas.” 5 Amazingly, however, the
order leaves out the fact that in the non- rural areas of South Dakota, the incumbent does not
receive federal universal support for any of the non- rural lines it serves. In other words – and
contrary to the linchpin of the Commission’s reasoning here – designation as an ETC confers no
benefit at all upon the non- rural incumbent carrier that has received that status, and there is no
factual basis for concluding that another carrier’s lack of ETC status could have the effect of
prohibiting that carrier from offering service.

To be sure, incumbent carriers that serve rural areas in South Dakota do receive some
federal universal service support. But whether to designate more than one carrier as an ETC in
these rural areas lies entirely within the South Dakota PUC’s discretion, and I do not understand
the majority to question that principle, which is dictated by the 1996 Act and our precedent. 6 A
state commission remains free to decline to grant an applicant ETC status for rural areas, based on
public interest considerations, and this order can have no effect on its exercise of that discretion.

In addition to being incompatible with section 253’s plain language, the Commission’s
interpretation of this provision is not consistent with this agency’s precedent. The Commission
pretends that its prior decisions support its preemption of the South Dakota PUC’s order. But an
examination of the facts of these cases demonstrates just the opposite. In its past decisions, the

4 See 47 U. S. C. § 253( a) (emphasis added).
5 Declaratory Ruling at ¶ 12.
6 See 47 U. S. C. §214( e)( 2) (“ Upon request and consistent with the public interest, convenience, and
necessity, the State commission may, in the case of an areas served by a rural telephone company . . .
designate more than one common carrier as an eligible telecommunications carrier for a service area
designated by the State commission, so long as each additional requesting carrier meets the
requirements of [§ 214( e)( 1)].”) (emphasis added); Federal- State Joint Board On Universal Service, 12
FCC Rcd 8776 [¶ 135] (1997) (“[ T] he discretion afforded a state commission under section 214( e)( 2) is
the discretion to decline to designate more than one eligible carrier in an area that is served by a rural
telephone company; in that context, the state commission must determine whether the designation of an
additional eligible carrier is in the public interest.”).
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Commission has indicated that section 253 preemption is appropriate only if a state requirement is
so burdensome it effectively precludes a provider from providing service, and it previously has
refused to preempt state requirements that fall short of that standard. 7

For example, the majority cites Pittencrieff Communications, Inc. as support for its
preemption analysis here. 8 But the Commission did not preempt the Texas requirement at issue in
that case, which required all carriers, including the petitioner, a commercial mobile radio service
provider operating in Texas, to contribute to the state universal service fund. 9 The Commission
ruled that the requirement did not prohibit a CMRS provider from entering the market since it
applied to all telecommunications providers operating in Texas. 10 Indeed, the logic applied in
Pittencrieff compels the conclusion that preemption is inappropriate here – the South Dakota
PUC’s requirement that, in order to qualify as an eligible telecommunications carrier under section
214( e), a carrier must currently be providing service to subscribers, applies to incumbents and new
entrants alike. 11

The Commission’s decision is also at odds with its recent decision rejecting Minnesota’s
petition for a declaration that its contract with a fiber optics developer was permissible under the
1996 Act. Under the contract at issue, the developer was to receive exclusive access to freeway
rights- of- way in Minnesota in exchange for installing 1,900 miles of fiber optic cable and allowing
the state to use some of that cable. For procedural reasons, the Commission did not preempt
Minnesota’s contract. 12 Nevertheless, it determined that the contract posed grave problems under
section 253, in that it gave a single developer what amounted to a monopoly on freeway rights- of-way.
The contract would essentially have precluded later entrants from gaining access to the
freeway rights- of- way to lay their own fiber optic cable for ten years, 13 and it would have been
prohibitively expensive for competitors to purchase alternative rights- of- way. 14 In view of these
facts, the Commission determined that the agreement potentially ran afoul of section 253 because it
singled out one provider for preferential treatment, while effectively prohibiting others from
entering the market altogether. Similarly, in New England Public Communications Council

7 See, e. g., The Petition of the State of Minnesota for a Declaratory Ruling Regarding the Effect of
Section 253 on an Agreement to Install Fiber Optic Wholesale Transport Capacity in State Freeway
Rights- of- Way, Memorandum Opinion and Order, CC Docket No. 98- 1, ¶ 32 (rel. Dec. 23, 1999)
(hereinafter “Minnesota Declaratory Ruling”).

8 Declaratory Ruling at ¶ 7.

9 See Pittencrieff, 13 FCC Rcd 1735 [¶ 2].
10 See id. at 1751- 1752, ¶ 32.
11 See Declaratory Ruling at ¶ 23.
12 See Minnesota Declaratory Ruling, supra note 21, at ¶ 64.
13 See id. at ¶¶ 1 & 19.
14 See id. at ¶¶ 22- 36.
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Petition for Preemption Pursuant to Section 253, 15 a state requirement had the effect of
completely preventing independent payphone providers from entering the payphone market, in
direct contravention of section 276 of the 1996 Act. 16 Consistent with section 253( a), the
Commission preempted the requirement.

The South Dakota PUC, by contrast, has not accorded preferential treatment to any
carrier. Rather, it has simply directed that a carrier that wishes to be designated an eligible
telecommunications carrier under section 214 show that it currently provides service in the areas in
which it seeks ETC status. Even if ETC status conferred some benefit on a carrier (which it
clearly does not), I do not understand how a generally applicable rule such as this one could
“prohibit” or have the “effect of prohibiting” the ability of a carrier to provide telecommunications
services within the meaning of section 253.

The South Dakota PUC’s Construction of Section 214( e) Is Permissible. The South
Dakota PUC, in ruling that a carrier may not receive ETC designation unless it currently provides
service throughout the service area, has permissibly construed section 214( e)( 1). That provision
states that a common carrier designated as an eligible telecommunications carrier “shall,
throughout the service area for which the designation is received . . . offer the services that are
supported by Federal universal service support mechanisms under section 254( c). 17 The verbs
“shall” and “offer” are used the present tense, and the South Dakota PUC reasonably concluded
that these terms mean that a carrier must presently offer its service throughout the service area
before it may be designated an ETC and may not merely intend to offer that service at some point
in the future. Although other state commissions might interpret section 214( e)( 1) differently, the
South Dakota PUC’s interpretation of that provision is clearly permissible.

Indeed, in order to override the South Dakota PUC’s determination and reach the outcome
it prefers, the Commission must manufacture a far more strained definition of the term “to offer.”
“To offer,” the Commission reasons, has nothing to do with whether an entity actually provides
service or is immediately capable of providing that service upon a customer’s request. The
Commission stretches the statute’s language past the breaking point. If Congress had intended for
carriers to be eligible telecommunications carriers based simply on a readiness to provide service, it
could easily have said so. And the Commission’s construction of section 214( e)( 1) effectively
reads out of the Act one of the provision’s chief requirements. If carriers may qualify for ETC
status based merely on their “readiness” to make service available, section 214( e)( 1) becomes
nothing more than a self- certification provision, a result that is plainly at odds with the statute’s
intent. It is elementary that a construction that renders a statutory provision superfluous must be
avoided, and the Commission has ignored that principle here. 18

15 11 FCC Rcd 19713 (1996) (hereinafter “New England Public Communications”).

16 See New England Public Communications, 11 FCC Rcd at 19726- 19727 [¶¶ 27- 30].
17 47 U. S. C § 214( e).
18 See, e. g., Kawaauhau v. Geiger, 523 U. S. 57, 62 118 S. Ct. 974, 977 (1998); United States v. Menasche,
348 U. S. 528, 538- 539, 75 S. Ct. 513, 519- 520 (1955).
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* * * * *
Because the Commission’s decision is unnecessary, inconsistent with sections 253, and
improperly overrides the South Dakota PUC’s application of section 214( e), I dissent from this
Declaratory Ruling.
20