The FCC won an important legal victory last Friday as the U.S. Court of Appeals for the Tenth Circuit issued a pair of opinions affirming the agency’s 2011 decisions on universal service fund (USF) and intercarrier compensation (ICC) reform. In hopes of transforming the USF for the broadband age, the FCC enacted rules in October 2011 to establish a new Connect America Fund (CAF) that would support broadband services and eventually replace the existing, $4.5 billion high-cost USF. Simultaneously, the FCC also retooled the ICC regime to facilitate free and fair exchange of telecommunications traffic across a variety of platforms, adopting a national “bill-and-keep” framework that governs the exchange of both interstate and intrastate traffic. (Under bill-and-keep, recipient networks agree to terminate calls from the originating networks at no charge.) In its decision pertaining to the USF/CAF order, the three-judge panel addressed more than 20 issues that had been raised by a host of rural and regional phone carriers, ruling in the FCC’s favor on each one. Among other things, the petitioners charged (1) that the FCC exceeded its authority in requiring recipients of USF support to provide broadband access service to customers upon reasonable request, and (2) that the rule changes unlawfully deprive rural carriers of the opportunity to recover prudently incurred costs. Rejecting the first complaint, the court decreed that Section 254(c)(1) of the 1996 Telecommunications Act “expressly authorizes the FCC to define ‘periodically’ the types of telecommunications services that are encompassed by universal service.” The appellate panel further concluded that “noting in the statute limits the FCC’s authority to place conditions, such as the broadband requirement, on the USF funds,” adding that Section 706 of the Telecommunications Act—which requires the FCC to take action as required to accelerate broadband deployment—“appears to operate as an independent grant of authority.” With respect to the second complaint, the court rejected claims that the FCC acted “arbitrarily in implementing changes to the USF mechanisms,” as it described the FCC’s analysis as “entirely consistent with the overarching universal service principles outlined in Section 254.” Meanwhile, on the topic of ICC reform, the court struck down the petitioners’ argument that the FCC intruded upon the rate-setting authority of the states in mandating billand-keep. Citing the Supreme Court decision in Iowa Utilities Board v. FCC, the Tenth Circuit referred to the high court’s pronouncement that the FCC “has rulemaking authority to implement a pricing methodology for the states to implement.” The court thus declared that the FCC “reasonably concluded that bill-and-keep involves a permissible methodology notwithstanding the states’ authority to set rates under Section 252” of the Telecommunications Act.