Can Tennessee automatically extend a wireline carrier's ETC designation to its wireless services without separate FCC or state review?

Plain-English summary

The federal Universal Service Fund pays subsidies to telecommunications carriers that the FCC or a state commission has designated as Eligible Telecommunications Carriers (ETCs). To get the designation, a carrier has to commit to providing the FCC's list of "universal services" in a specific service area, and the designating body must find that the designation is in the public interest. 47 U.S.C. § 214(e). When a carrier sits inside a state's regulatory jurisdiction, the state public utility commission does the designating; otherwise the FCC does.

A proposed amendment to SB3880/HB3796 would have given the Tennessee Regulatory Authority (TRA) the limited jurisdiction over wireless service necessary to designate wireless ETCs, and would have automatically extended any prior wireline-only ETC designation to that carrier's wireless services without further review. The TRA chair asked the AG whether that automatic extension would conflict with federal law.

The AG said yes, the automatic-extension piece would likely be preempted. The federal scheme requires that a carrier prove it serves the public interest as to each type of service for which it wants universal-service support. If Tennessee deems wireline ETC status to "encompass all voice communications . . . including wireless," neither the TRA nor the FCC ever evaluates whether the carrier's wireless offering meets the universal-service criteria. That frustrates the purposes of the federal statute, which under the Supremacy Clause makes the state provision invalid as applied.

The opinion is careful to flag that the wireline ETC designations on the TRA's books were granted only as to wireline service, not as to the carrier as a whole. Tennessee law splits TRA jurisdiction by service type, not by company. BellSouth Advertising & Publishing Corp. v. Tennessee Regulatory Authority, 79 S.W.3d 506, 512 (Tenn. 2002), confirms that the TRA's authority is limited to its express statutory grant. So treating a wireline designation as covering wireless would also exceed the TRA's pre-amendment authority, independently of preemption.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What does ETC designation get a carrier?
A: Eligibility to draw subsidies from the federal Universal Service Fund. The Fund supports service in rural and high-cost areas, low-income consumers, schools and libraries, and rural health care. Without ETC designation, a carrier cannot receive these subsidies even if its services would qualify.

Q: Why does the federal statute care so much about service-by-service review?
A: Because the Universal Service Fund is paying subsidies to ensure that quality service is available in all parts of the country. If a carrier's wireline network meets that goal but its wireless coverage does not, the FCC's regulatory scheme needs a chance to say so before sending subsidy money to the wireless side. The 1996 Act's design (47 U.S.C. § 214(e)) leaves no gap: when a state commission has jurisdiction over the relevant service, the state does the review; when it does not, the FCC does. The proposed Tennessee amendment would have skipped that review entirely.

Q: What is "conflict preemption"?
A: Under the Supremacy Clause (U.S. Const. art. VI, § 2), a state law is invalid if it conflicts with federal law, either because compliance with both is impossible or because the state law frustrates the purposes Congress expressed in the federal statute. Michigan Canners and Freezers is one of the federal-law canonical cases for the second branch.

Q: Couldn't the carrier just get FCC approval instead?
A: Once a state has jurisdiction over the service, federal law puts the designation decision with the state, not the FCC. § 214(e)(2). If the proposed amendment gave the TRA jurisdiction over wireless, the FCC could no longer step in for that wireless service in Tennessee. So if the state then declined to actually evaluate the wireless service before deeming it covered, no agency would ever look at the question.

Q: Did the AG say the whole bill was preempted?
A: No. The opinion targets the automatic-extension piece. Granting the TRA jurisdiction to designate wireless ETCs is not preempted by federal law on its own. The problem is the bill's deeming language that would have made any pre-existing wireline designation cover wireless without further evaluation.

Q: Is this opinion still binding on the TRA?
A: AG opinions are persuasive authority, not binding precedent. The opinion offered the AG's reading of the federal preemption doctrine as applied to the bill as proposed. Subsequent FCC orders and case law in this area have continued to evolve, and the TRA's jurisdictional posture today is governed by current Tennessee statutes, not the bill discussed here.

Background and statutory framework

The Telecommunications Act of 1996 set up federal universal service as a fund-and-distribute system. Carriers contribute to the federal pool (47 U.S.C. § 254(d)), and distributions go out to ETCs that have committed to offer the federally specified universal services in a defined service area (§ 214(e)). The state public utility commission with jurisdiction over the carrier handles designation in the first instance (§ 214(e)(2)), with a fallback to the FCC where the state lacks jurisdiction (§ 214(e)(6)).

Tennessee in 2010 gave the TRA broad jurisdiction over wireline telecommunications but only very limited jurisdiction over wireless service. Tenn. Code Ann. § 65-4-101(6)(F). That meant that when a wireline-and-wireless carrier sought ETC status, the TRA could designate it for wireline service only; ETC designation for the wireless side would have to come from the FCC. The bill before the AG proposed to fix that gap, but by deeming rather than reviewing.

The Tenth Circuit's opinion in WWC Holding Co., Inc. v. Sopkin, 488 F.3d 1262, 1267 (10th Cir. 2007), supplied the AG's summary of the federal framework and is quoted at length in the opinion.

The state-law dimension came from BellSouth Advertising & Publishing Corp. v. TRA, 79 S.W.3d 506, 512 (Tenn. 2002): the TRA has only the express statutory authority granted to it, and cannot extend designations beyond that grant. Without amendment, the TRA could not have "extended" a wireline designation to wireless service even by its own discretion.

The preemption result follows from Michigan Canners and Freezers Assoc. v. Agricultural Marketing & Bargaining Bd., 467 U.S. 461, 469 (1984): a state law that frustrates the purposes and objectives Congress expressed in federal law is preempted by the Supremacy Clause.

Citations and references

Federal statutes:

• 47 U.S.C. § 214(e) (ETC designation framework)
• 47 U.S.C. § 214(e)(2) (state commission as designating body when it has jurisdiction)
• 47 U.S.C. § 214(e)(6) (FCC as fallback designating body)
• 47 U.S.C. § 254(b) (universal service principles: quality service, just rates, comparable rural service)
• 47 U.S.C. § 254(d) (carrier contributions to the universal service fund)
• U.S. Const. art. VI, § 2 (Supremacy Clause)

State statutes:

• Tenn. Code Ann. § 65-4-101(6)(F) (TRA jurisdiction over wireline carriers; limited over wireless)

Cases:

• WWC Holding Co., Inc. v. Sopkin, 488 F.3d 1262 (10th Cir. 2007) (federal universal-service framework)
• BellSouth Advertising & Publishing Corp. v. Tennessee Regulatory Authority, 79 S.W.3d 506 (Tenn. 2002) (TRA authority limited to express statutory grant)
• Michigan Canners and Freezers Association v. Agricultural Marketing and Bargaining Board, 467 U.S. 461 (1984) (conflict preemption: state law frustrating federal purpose)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2010/op10-078.pdf

Original opinion text

Federal Preemption of Proposed Amendment Related to Eligible Telecommunications Carriers

QUESTION

Does a proposed amendment to SB3880/HB3796, which would automatically extend the Tennessee Regulatory Authority's ("TRA") prior designation of a wireline carrier as an eligible telecommunications carrier ("ETC") to such carrier's wireless services, conflict with federal law and regulations governing the designation of ETCs by state regulatory agencies?

OPINION

The proposed amendment would likely be preempted by federal law. Because it would sidestep the federal requirement that a carrier demonstrate either to the TRA or to the FCC that its designation as an ETC is in the public interest as to each type of service it proposes to use to provide universal service, the proposed amendment would frustrate the purpose of Congress in enacting the federal universal service program.

ANALYSIS

In its opinion in WWC Holding Co., Inc. v. Sopkin, 488 F.3d 1262 (10th Cir. 2007), the United States Court of Appeals for the Tenth Circuit described the federal regulatory background that relates to this question:

The Telecommunications Act of 1996 significantly changed the federal approach to ensuring that the nation's population has access to "universal service." "Universal service" includes the principles of: quality telecommunications service at "just, reasonable, and affordable rates"; service availability in all regions of the country; and services and rates in rural and high-cost areas that are comparable to other areas. 47 U.S.C. § 254(b).

To develop the services and infrastructure to meet these goals, Congress created a federal fund to which telecommunications carriers contribute, 47 U.S.C. § 254(d), often through fees passed on to customers. This funding is distributed as public subsidies to telecommunications carriers who apply for and receive designation as ETCs. 47 U.S.C. § 214(e). ETCs are eligible to receive the subsidy by committing to offering the "universal services" prescribed by the Federal Communications Commission ("FCC") in the specified service area. Id. The FCC is responsible for processing requests for ETC designation when the telecommunications carrier is not subject to the jurisdiction of a state public utility commission. 47 U.S.C. § 214(e)(6). However, when a carrier wishes to obtain ETC designation for an area within a state, it is the state public utility commission rather than the FCC that is charged with making those designations. 47 U.S.C. § 214(e)(2). The Act instructs that "[b]efore designating an additional eligible telecommunications carrier for an area served by a rural telephone company, the State commission shall find that the designation is in the public interest." Id.

Id. at 1267.

The universal service program does not rely exclusively on traditional wireline services. The designated ETC in a particular area can be a provider of wireline services only, a provider of wireless services only, or a provider of both types of services.

The Tennessee Regulatory Authority is the agency of this State that regulates public utilities, including certain telecommunications carriers. The TRA has broad jurisdiction over wireline carriers but only very limited jurisdiction over wireless carriers. Tenn. Code Ann. § 65-4-101(6)(F). Pursuant to its limited authority and the mandate in federal law, the TRA has designated a number of wireline carriers as ETCs in various service areas.

The proposed amendment to SB3880/HB3796 would grant the TRA jurisdiction over wireless service to the extent necessary to perform the duties of designating ETCs. The amendment would also provide that any provider already designated an ETC by the TRA would not need further approval as to any of its services. The amendment provides:

The purpose of this part is to grant limited jurisdiction to the Tennessee regulatory authority in designating competing telecommunications service providers as eligible telecommunications carriers for purposes of the federal universal service fund as created by the Telecommunications Act of 1996.

The amendment further provides:

Nothing in this part shall alter or require action with respect to any designation of eligible telecommunications carrier status granted by the authority prior to the effective date of this act, and any such prior designation shall be deemed to encompass all voice communications provided by the eligible telecommunications carrier, including but not limited to wireless communications services, to the extent such services are recognized by federal law for the purpose of universal service support.

A problematic situation arises in the case of any provider of both wireline and wireless services that had previously received TRA designation as an ETC as to its wireline services only. Under this amendment, a provider in this situation would not need to submit to further review by the TRA in order to receive ETC designation as to its wireless services and would receive universal service funding for wireless as well as wireline services.

The federal program is expressly aimed at the establishment of quality service in all areas through universal service funding. The federal program presses for ubiquitous universal service coverage, whether by wireline or wireless transmission, by ETCs designated by the appropriate state commission or, in some circumstances, by the FCC itself. Above all, the program conditions universal service funding upon approval as an ETC, which in turn is conditioned upon the carrier's meeting certain requirements. The requirements can be refined by rule, but at the very least the applicant for ETC designation must prove that such designation would be in the public interest. 47 U.S.C. § 214(e)(2).

Federal universal service provisions grant authority to the state commissions without regard to whether the state commissions have jurisdiction over particular carriers and without regard to whether service is provided by wireline or wireless carrier. In those instances in which a carrier seeking designation as an ETC is not regulated by the commission for the state where the service area is located, federal law provides for designation by the FCC. 47 U.S.C. § 214(e)(6).

The TRA has not, heretofore, granted ETC status to wireless carriers. In the case of companies that provide both wireline and wireless service, the TRA has granted ETC status based only on wireline service. The TRA's practice is consistent with state law, which grants jurisdiction to the TRA by type of service and not by carrier. In light of this principle, any attempt to extend such designation to the carrier's wireless service would be invalid as exceeding the TRA's jurisdiction. See BellSouth Advertising & Publishing Corp. v. Tennessee Regulatory Authority, 79 S.W.3d 506, 512 (Tenn. 2002) (TRA's authority limited to the express statutory grant thereof).

The proposed amendment would grant the TRA jurisdiction over wireless carriers for the limited purpose of designation of ETCs. However, it would also automatically extend the TRA's prior designation of a wireline carrier as an ETC to that carrier's wireless service. A carrier in this situation would be relieved of the obligation to seek designation from the TRA and, presumably, the FCC as well under the theory that the state commission no longer lacks jurisdiction over the carrier.

The question, therefore, is whether state law can remove the federal law requirement of an evaluation of the requesting carrier by either the state commission or the FCC. We believe that federal law preempts the State from doing this. If a state law conflicts with a federal law, either because compliance with both state and federal law is impossible, or because state law frustrates the purposes and objectives Congress expressed in the federal law, the state law is preempted under the Supremacy Clause in Article VI, § 2, of the United States Constitution. See, e.g., Michigan Canners and Freezers Association v. Agricultural Marketing and Bargaining Board, 467 U.S. 461, 469, 104 S.Ct. 2518, 81 L.Ed.2d 399 (1984). Through the proposed amendment, the General Assembly would effectively exercise authority that has been placed by federal law in the state commissions, not in the legislature, and without any assurance that the standards for an ETC's providing wireless service have been met.

The federal universal service program relies on and consistently requires the demonstration of a carrier's ability to provide the necessary level of service. The applicable federal law contemplates that certain types of service may not be within the jurisdiction of a particular state commission. In such situations, the same federal law ensures that a competent regulatory agency, namely, the FCC, will examine the applicant with equal thoroughness. Congress's intent that each carrier will be evaluated and designated as to each type of service, therefore, is inherent in this statutory scheme. Because the proposed amendment would remove this requirement as to a carrier currently having ETC designation for wireline service but seeking to extend such designation to its wireless service, the amendment would conflict with the purpose of the federal law. The proposed amendment would thus impede the achievement of the objectives of the federal universal service program. Under the proposed amendment, implementation of that program by this state would not ensure, as Congress intended, that each carrier fully qualify for such funding for each type of service it provides.

ROBERT E. COOPER, JR.
Attorney General and Reporter

GORDON W. SMITH
Associate Solicitor General

JONATHAN N. WIKE
Assistant Attorney General

Requested by:

The Honorable Sara Kyle
Chairman, Tennessee Regulatory Authority
460 James Robertson Parkway
Nashville, Tennessee 37243