A federal appeals court upheld a settlement against AT&T in a case involving universal connectivity fees that rural California consumers said were too high.

In a 44-page opinion, the 10th Circuit Court of Appeals held that AT&T's language describing the fee was a legally binding promise, and that consumers were thus entitled to hold the company to its word.

The litigation, which involved several consolidated class actions, concerned a monthly line-item charge amounting to nearly 10 percent of consumers' phone bills. The charge was explained in consumers' service agreements, which also contained a clause forbidding customers from bringing class action lawsuits, instead providing that any dispute would be determined by a neutral arbitrator.

Despite the arbitration clause, a district court allowed the class action to proceed, and a jury awarded the class $16 million.

AT&T charged nearly double

AT&T contended that the charge was necessary to make up for its contribution to the Universal Service Fund, created by the Federal Communications Commission in 1997. The fund, which was set up in response to the comprehensive Telecommunications Act of 1996, was intended to ensure that low-income consumers, and those in rural or high-cost areas, had access to reliable and relatively high-quality phone service.

The Act specifically required all service providers to provide equitable and non-discriminatory contributions to the fund.

The suit, however, contended that AT&T was charging its customers an amount nearly double that which it was required to provide to the fund. According to the suit, the FCC required a contribution of 6.8 percent from service providers; by contrast, AT&T was charging consumers 11.5 percent percent of their long distance charges.

The suit alleged that AT&T kept the difference, an amount that added up to five percent of its consumers' long-distance fees. And the plaintiffs said that AT&T hid its practices not only from consumers, but also from states and regulatory agencies. According to the suit, this scheme allowed AT&T to advertise lower rates than what it was actually charging, since it could essentially make up the difference in the hidden fees.

AT&T didn't outright deny the allegations, but rather said that the fund's complexities made it difficult to determine how much it would have to pay. The court conceded that it was virtually impossible for AT&T to charge exactly the correct amount each billing cycle, but countered that the company could implement a mechanism to allow it to calibrate its charges over several billing cycles.

In its decision, the Court of Appeals held that AT&T's description of the fee -- as a monthly charge to Customers to recover amounts AT&T must pay into -- constitutes a valid promise under New York law, under which the case was decided. The suit had noted that AT&T described the fee this way in mailings, recordings on its 800 number, and on its website.

The suit contained counts for fraud and violation of the Federal Telecommunications Act.