Article courtesy of Reuters

WASHINGTON (Reuters) - A U.S. court of appeals on Friday upheld a 2008 move by the Federal Communications Commission imposing a cap on how much rural cellular carriers should receive from the Universal Service Fund (USF).

The $7 billion fund is a subsidy program aimed at ensuring adequate, reasonably priced service to rural, sparsely populated or hard-to-reach high-cost areas. Its mission also includes helping low income customers, rural healthcare, schools and libraries.

In a unanimous three-judge ruling, the U.S. Court of Appeals for the District of Columbia denied a petition by the Rural Cellular Association seeking to overturn the FCC action.

The Association argued that the FCC acted "arbitrarily and capriciously" by imposing the cap without taking the proper rule-making steps but the court disagreed, saying that the FCC complied with rule-making requirements.

"We have no basis for finding the FCC acted arbitrarily and capriciously," the court wrote in a ruling that marks a win for the FCC, which is trying to reform the fund, and for phone companies like AT&T Inc and Verizon Communications Inc, the biggest contributors to the fund.

Analysts were not surprised by the ruling, which also helps mid-size telecom companies that rely on USF support and had feared that their portion might be put at risk if more funding went to rural wireless carriers such as U.S. Cellular and privately held Cellular South.

In 2008, rural wireless companies received about $1.3 billion of the $4 billion in total high-cost USF support, said Rebecca Arbogast, an analyst with Stifel Nicolaus.

"Today's ruling is also helpful to the FCC as it tries to overhaul USF," she said.

Most agree the fund's payment system is broken and that, in many cases, it subsidizes too many private carriers that do not need it. Most also agree it should be used to spur expansion of high-speed Internet, or broadband.

"The court recognized the FCC's valid concern over the growing burden on consumers," a Verizon spokesman, David Fish, said. "That cost has increased since the FCC acted, and will continue to increase without reform."

Regulators at the FCC and lawmakers are considering changes to the fund to also include support for broadband services as the FCC draws up a plan to extend affordable high-speed Internet to rural homes and increase adoption where it is already available.

The FCC said it was pleased with the court decision. "The commission is committed to laying out a game plan for universal service reform as part of National Broadband Plan," said FCC spokesperson Jen Howard. "Today's decision supports those efforts."

Lawmakers have introduced legislation aimed at reforming USF to also include broadband services as more consumers move away from traditional phones.

(Reporting by John Poirier; Editing by Phil Berlowitz)