COMBINED RESPONSES OF FEDERAL RESPONDENTS AND SUPPORTING INTERVENORS TO THE AT&T PRINCIPAL BRIEF IN THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT NO. 11-9900 IN RE: FCC 11-161 ON PETITION FOR REVIEW OF ORDERS OF THE FEDERAL COMMUNICATIONS COMMISSION WILLIAM J. BAER ASSISTANT ATTORNEY GENERAL ROBERT B. NICHOLSON ROBERT J. WIGGERS ATTORNEYS UNITED STATES DEPARTMENT OF JUSTICE WASHINGTON, D.C. 20530 SEAN A. LEV GENERAL COUNSEL RICHARD K. WELCH DEPUTY ASSOCIATE GENERAL COUNSEL LAURENCE N. BOURNE JAMES M. CARR MAUREEN K. FLOOD COUNSEL FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 (202) 418-1740 [COUNSEL FOR SUPPORTING INTERVENORS ARE LISTED IN THE SECOND OF THE ATTACHED BRIEFS] Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 1 FEDERAL RESPONDENTS’ FINAL RESPONSE TO THE AT&T PRINCIPAL BRIEF IN THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT NO. 11-9900 IN RE: FCC 11-161 ON PETITIONS FOR REVIEW OF ORDERS OF THE FEDERAL COMMUNICATIONS COMMISSION WILLIAM J. BAER ASSISTANT ATTORNEY GENERAL ROBERT B. NICHOLSON ROBERT J. WIGGERS ATTORNEYS UNITED STATES DEPARTMENT OF JUSTICE WASHINGTON, D.C. 20530 SEAN A. LEV GENERAL COUNSEL RICHARD K. WELCH DEPUTY ASSOCIATE GENERAL COUNSEL LAURENCE N. BOURNE JAMES M. CARR MAUREEN K. FLOOD COUNSEL FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 (202) 418-1740 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 2 i TABLE OF CONTENTS Table Of Aut horities ......................................................................................... ii   Glossary ........................................................................................................... iv   Issue Presented .................................................................................................. 1   Counterst a t ement ............................................................................................... 2   A.  Regulator y Bac kground ......................................................................... 2   B.  The Order On Review ........................................................................... 6   Summary Of Ar gument ................................................................................... 10   Argumen t ......................................................................................................... 13   The FCC Reasonabl y Explained Th e Rational e For Its Interim Rule Governing Intercar r i e r Compens a t i o n For CLEC-VoIP Partners h i ps. ............................................................................................. 13   A.  The FCC Reasonabl y Disti ngu i s h e d Between CLEC- VoIP Partners h i p s And CLEC-W ireless Partne rships. ....................... 16   B.  The Interim Rule Preserves The Proper Incenti v e s For Deployme n t Of IP Networks. .............................................................. 18   C.  The FCC Reasonabl y Explaine d That The Interi m Rule Allows VoIP Provider s To Make A Gradu al Transiti o n To Bill-and- Keep. ................................................................................ 23   Conclusi on ....................................................................................................... 27   Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 3 i i TAB L E OF AUTH O R I T I E S CASES   Arkansas v. Oklahoma , 503 U.S. 91 (1992) .................................................... 23 AT&T Corp. v. FCC , 349 F.3d 692 (D.C. Cir. 2003) ....................................... 3 Aviva Life & Annuity Co. v. FDIC , 654 F.3d 1129 (10th Cir. 2011) ........................................................................................... 18 Citizens’ Comm. to Save Our Canyons v. United States Forest Serv. , 297 F.3d 1012 (10th Cir. 2002) ............................................................................................................ 18 Competiti v e Telecomm s . Ass’n v. FCC , 309 F.3d 8 (D.C. Cir. 2002) ........................................................................................... 25 IMC Kalium Carlsbad , Inc. v. Interio r Bd. of Land Appeals , 206 F.3d 1003 (10th Cir. 2000) .................................................... 23 MCI Telecomms . Corp. v. FCC , 750 F.2d 135 (D.C. Cir. 1984) ..................................................................................................... 24 Nat’l Ass’n of Regulato r y Util. Comm’rs v. FCC , 737 F.2d 1095 (D.C. Cir. 1984) .................................................................. 25 Nuvio Corp. v. FCC , 473 F.3d 302 (D.C. Cir. 2006) ........................................ 9 Rural Cellular Ass’n v. FCC , 588 F.3d 1095 (D.C. Cir. 2009) ..................................................................................................... 25 Sorenson Commc’ns , Inc. v. FCC , 659 F.3d 1035 (10th Cir. 2011) ........................................................................................... 14 Verizon Californ i a , Inc. v. FCC , 555 F.3d 270 (D.C. Cir. 2009) ....................................................................................................... 5 S T A T U T E S   47 U.S.C. §153(5 1)..................................................................................... 5, 17 47 U.S.C. §251 (a)(1) ......................................................................................... 5 R E G U L A T I O N S   47 C.F.R. §20. 15(c) ........................................................................................... 3 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 4 iii ADMI NISTRATI VE DECI SIONS   Access Charge Reform , 19 FCC Rcd 9108 ( 2004) ................ 3, 5, 9, 15, 16, 21 Impleme n t a t i o n of Section s 3(n) and 332 of the Communica t i o n s Act , 9 FCC Rcd 1411 (1994) ............................................. 3 IP-Enabled Services , 20 FCC Rcd 10245 (2005), p e t . for revie w denie d , Nuvio Corp. v. FCC , 473 F.3d 302 (D.C. Cir. 2006) ...................................................................... 9, 16 MTS and WATS Market Structu r e , 93 FCC 2d 241 (1983) ............................................................................................................ 8 Petition s of Sprint PCS and AT&T Corp. For Declarat o r y Ruling Regardin g CMRS Access Charges , 17 FCC Rcd 13192 (2002), p e t s . for revie w dismi s s e d , AT&T Corp. v. FCC , 349 F.3d 692 (D.C. Cir. 2003) ...................................................................................... 3 Time Warner Cable Request for Declarato r y Ruling , 22 FCC Rcd 3513 (Wireline Comp. Bur. 2007) .............................................................................................................. 5 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 5 iv G L O S S A RY CLEC Competiti v e Local Exchange Carrier FCC Federal Communi c a t i o n s Commiss i o n ILEC Incumben t Local Exchange Carrier IP Internet Protocol LEC Local Exchange Carrier PSTN Public Switc he d Telepho n e Network VoIP Voice over Interne t Protocol Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 6 IN THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT NO. 11-9900 IN RE: FCC 11-161 ON PETITIONS FOR REVIEW OF ORDERS OF THE FEDERAL COMMUNICATIONS COMMISSION FEDERAL RESPONDENTS’ FINAL RESPONSE TO THE AT&T PRINCIPAL BRIEF I S S U E PRES EN T E D Some provi d e r s of voice telep h o n e servi c e (includ in g many cable opera t o r s) use Voice over Interne t Proto co l (“VoIP”) techno l o g y. They often partn e r with comp e t i t i v e local excha n g e carri e r s (“CLECs”) to connec t their custo m e r s to the publi c switc h e d te leph o n e networ k (“PSTN”). In the Order o n revie w, 1 the Feder al Commu nicat i o n s Commissi on (“FCC”) permitte d CLECs in such circums t a n c e s, on a tr ansi t i o n a l basis, to collec t access charg e s for functi o n s that they or thei r retai l VoIP partner s perfo r m. After a trans i t i o n perio d, this inter i m comp e n s a t i o n rule – like all other forms of “intercarrier co mp ensation” addressed by the Order – will be replac e d by a “bill-and-keep” frame w o r k under which ca rri e r s recov e r their netwo r k costs 1 Connect America Fund , 26 FCC Rcd 17663 (2011) (“ Order ”) (JA at 390). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 7 2 from their subscr i b e r s (and, where ne cess a r y, explic i t unive r s al servi c e subsid i e s), not from other carri e r s. AT&T general l y suppo r t s the trans i t i o n to bill-and-keep. But it seeks to have this Court second-guess th e interi m rule govern i n g CLEC-VoIP partner s h ip s. AT&T notes that this transit i o n a l rule differs from the co mpens a t i o n rule that the FCC hist oric a l l y has applied when a CLEC partner s with a wirele s s carri e r. AT&T maintai n s that the agen cy offer e d no reaso n e d expla n a t i o n for treat i n g VoIP provid e r s diffe r e n t l y from wirel e s s carri e r s in this regar d. AT&T’s petiti o n for review presen t s a single issue: Whether the FCC adequate l y explai n e d the ratio n a l e for its inter i m inter c a r r i e r comp e n s a t i o n rule gove r n in g CLEC-VoIP partne r s h i p s. C O U N T E R S TAT E M E N T Although this case invol v e s a narrow appli c a t i o n of settl e d princ i p l e s of admini s t r a t i v e law, the factua l a nd legal backg r o u n d is compl e x. We descri b e that backg r o u n d in detai l below. A. R e g u l a t o r y Backg ro u n d Historica l l y, provid e r s of long-dis tanc e teleph o n e servic e have paid “access ch arge s ” to compens a t e local excha n g e carri e r s (“LECs”) for the cost of origi n a ti n g or termi n a t i n g long-di stanc e calls over the LECs’ wirelin e Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 8 3 network s. See FCC Prelimi n a r y Br. 4-5. Wire line LECs generall y collec t these access charge s pursua n t to tariffs. By contra s t, for almo s t two deca d e s, wirele s s telec o m m u n i c a t i o n s carri e r s have been barre d from filin g acces s charg e tarif f s. See Impleme n t a t i o n of Section s 3(n) and 332 of the Communic a t i o n s Act , 9 FCC Rcd 1411, 1479-80 ¶¶178-179 (1994); 47 C.F.R. §20.15(c). Rather, they may colle c t acces s charg e s only pursu a n t to a contrac t with the carr i er being charg e d. 2 In the absenc e of such a contra c t, a CLEC that partne r s with a wirele s s carri e r to provi d e acces s serv ic e “has no right to collec t access charg e s for the portio n of the servic e provi d e d by the [wirele s s carri e r].” Access Charge Reform , 19 FCC Rcd 9108, 9116 ¶16 (2004). Given these regul a t o r y const r a i n t s on their abili t y to collec t inter c a r r i e r co mpens a t i o n, wireless carrier s “have l ong been opera t i n g pursu a n t to what are essent i a l l y bill-and-keep arrang e men t s.” Order ¶737 (JA at 631). As a matte r of longs t a n d in g “indu s tr y pract i c e,” wirele s s carri e r s recov e r their netwo r k costs “from their end users,” not from other carri e r s. Sprint Declarato r y Ruling , 17 FCC Rcd at 13199 ¶15. 2 Petitions of Sprint PCS and AT&T Corp. For Declarat o r y Ruling Regardin g CMRS Access Charges , 17 FCC Rcd 13192, 13196-98 ¶¶8-12 (2002) (“ Sprint Declarato r y Ruling ”), p e t s . for review dismis s e d , AT&T Corp. v. FCC , 349 F.3d 692 (D.C. Cir. 2003). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 9 4 In recent years, a growin g numbe r of consu m e r s have subsc r i b e d to VoIP service. This servic e, which is provi d e d via Interne t Protocol (“IP”) networ k s, allows users to “make real- time [phone] calls to, and recei v e calls from,” users of tradi ti o n a l telep h o n e servic e. Order ¶63 (JA at 412). To offer these cap abi l i t i e s, VoIP provide r s (includ i n g cable opera t o r s that provid e teleph o n e servic e) m u s t connec t their custom e r s to the PSTN ( i . e . , t h e netwo r k that LECs and wirel e s s carri e r s use to provid e telep h o n e servi c e). VoIP service curre n t l y is offer e d in two diffe r e n t ways. Some VoIP provid e r s volun t a r i ly submi t to commo n carrie r regula t i o n ; they obtain state certi f i c a t i o n as LECs, interco n n e c t dire c t l y with the PSTN, and offer VoIP to subscr i b e r s on a common carri e r basis. These carrie r s thus become regul a t e d LECs subject to Title II of the Communic a t i o n s Act. See Cox Comments, Apr. 1, 2011, at 3 (JA at 1956); FCC Pri ncipa l USF Br. 26-27. Other VoIP provid e r s do not hold thems e l v e s out as regul a t e d LECs. 3 A “non-LEC” VoIP provide r typic a l l y partn e r s with a CLEC, which interc o n n e c t s with the facil i t i e s of other carri e r s and deliv e r s calls from the PSTN to the non-LEC VoIP provide r (and vice versa). See Comcast Comments, A ug. 24, 2011, at 5 3 The FCC has not yet decid e d wheth e r the VoIP services at issue here ar e “teleco m m u n i c a t i o n s servic e s ” (subject to commo n carri e r regul a t i o n under Title II of the Communic a t i o n s Act) or “info r mat i o n servi c e s ” (which are covere d by Title I of the Act). See Order ¶974 & n.2042 (JA at 756). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 10 5 (JA at 3356); Time Warner Cable Request for Declarato r y Ruling , 22 FCC Rcd 3513, 3519 ¶13 (Wireline Comp. Bur. 2007). The partne r s h i p s betwe e n CLECs and VoIP provid e r s are funda men t a l l y diffe r e n t from the “part n e r s h i p s ” that wirele s s carrie r s formed with CLECs in the early 2000s in an effo r t “to over c o me thei r inel i g i b i l it y to tariff acces s charg e s.” See AT&T Br. 6. Wireless ca rri e r s en ter e d into those arran g e me n t s “to do indir e c t l y ” what FC C rules forbad e them to “do direct l y ” ( i.e. , to collec t tarif f e d acces s charg e s). Access Charge Reform , 19 FCC Rcd at 9116 n.57. By contra s t, CLEC-VoIP partner s h i p s are essent i a l to the provis i o n of VoIP servic e by non-LEC VoIP provid e r s . Unlike wirel e s s carri e r s, non- LEC VoIP provide r s have not been classified as “tel eco mmuni cations carri e r[s]” as defin e d by the Communi c a t i o n s Act, 47 U.S.C. §153(51). Therefore, they cann o t perfor m cert ai n f unct i o n s that are integ r a l to provid i n g VoIP service – inclu d i n g inter c o n n e c t i o n with the PSTN. 4 Without inter c o n n e c t i o n, VoIP provid e r s would be unabl e to conne c t calls from their 4 The Communic a t i o n s Act does not re quire incu mb e n t local exchan g e carri e r s (“ILECs”) like Ve rizon and AT&T to interc o n n e c t with non-LEC VoIP provide r s. Telecommu n i c a t i o n s car riers are only obligate d to interc o n n e c t “with the facili t i e s and e quip m e n t of other telec o m m u n i c a t i o n s carri e r s.” 47 U.S.C. §251(a)(1); s e e also Verizon Californ i a , Inc. v. FCC , 555 F.3d 270, 275 (D.C. Cir. 2009). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 11 6 subscri b e r s to users of tradi t i o n a l teleph o n e servic e. Non-LEC VoIP provid e r s must “rely on [their CLEC] partne r s ” to obtai n not only inter c o n n e c t i o n, but also “acce s s to [telepho n e] numbers ” for new custom e r s and “comp l i a n c e with 911 obligat i o n s.” Order ¶970 (JA at 753). Until this proce e d i n g, the FCC had “d ecli n e d to explici t l y address the interc a r r i e r co mp e n s a t i o n oblig a t i o n s associa t e d with VoIP traffic.” Connect America Fund , 26 FCC Rcd 4554, 4745 ¶610 (2011) (“ 2 0 1 1 NPRM ”) (SA at 1, 192). These unreso l v e d quest i o n s, which led to “billi n g dispu t e s and litiga t i o n,” appear e d to “be deterr i n g innov a t i o n ” and the “intr o d u c t i o n of new IP services.” Id. ¶608 (SA at 192); s e e also id. n n.913-914 (SA at 192). To address this uncert a i n t y, the FCC s o u g h t comme n t on “a range of appro a c h e s ” conce r n i n g “the appro p r i a t e treat me n t of interco n n e c t e d VoIP traffic for purpose s of interca r r i e r co mp ens a t i o n.” Id. ¶609 (SA at 192). B. The Order On Review In the Order , the FCC defined “the pr ospec t i v e interca r r i e r comp e n s a t i o n oblig a t i o n s assoc i a t e d with VoIP-PSTN traffic.” Order ¶939 (JA at 732). 5 Under the agen cy’ s new inter carrier co mp ensation rules, such 5 The agency define d “VoIP-PSTN tr affic” as “traffi c ex chang e d over PSTN facilit i e s that origin a t e s and/ or termin a t e s in IP format.” Order ¶940 (JA at 733) (intern a l quota t i o n marks omitt e d). The Order “ d o e s not addre s s inter c a r r i e r comp e n s a t i o n payme n t ob lig a t i o n s for VoIP-PSTN traffi c for any prior perio d s.” Id. n.1874 (JA at 730). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 12 7 traffic “ultim a t e l y will be subjec t to a bill-and-keep frame w o r k,” and interc a r r i e r co mp en s a t i o n obliga t i o n s will be elimin a t e d. Id. ¶933 (JA at 729). AT&T “fully suppo r t s this asp ect of the FCC’s d ecisi o n.” Br. 9. Before bill-and-keep takes effec t , howeve r, transi t i o n a l rules will gover n inter c a r r i e r comp e n s a t i o n for VoIP-PSTN traffic. During the mu lti- year transi t i o n perio d, VoIP-PSTN traffi c will be subjec t to interc a r r i e r co mpens a t i o n at rates prescri b e d by the FCC’s interi m rules. Order ¶933 (JA at 729). When a non-LEC VoIP pr ovid e r and its CLEC partner team up to trans mi t a teleph o n e call to a VoIP subscri b e r, they provide service s that are funct i o n a l ly indis ti n g u i s h a b l e from the servi c e an ILEC provide s when delive r i n g a call fro m a VoIP user to a wireli n e servic e subs criber. The FCC concluded that, in these circu ms t a n c e s , CLEC-VoIP partne r s h ip s “shou l d be entitl e d to charge the same interc a r r i e r comp en s a t i o n as [ILECs] do” under the inter i m rules for VoIP-PSTN traffic. Order ¶970 (JA at 753). 6 6 AT&T asserts that the chall en g e d rule does not apply to certa i n types of VoIP service arran g e m e n t s. Br. 2 n.2. The FCC has not yet ruled on this issue. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 13 8 Unlike ILECs, non-LEC VoIP provi de r s canno t file tariff s. 7 They must “rely on [their CLEC] partner s to char g e tarif f e d inter c a r r i e r comp e n s a t i o n charg e s.” Order ¶970 (JA at 753). To accommo d a t e “thes e disti n c t circu ms t a n c e s,” and to ensure that C LEC-VoIP partner s h i p s can colle c t the same intercarrier co mp ensation as IL ECs receive for providi n g comp ar a b l e service s, the FCC’s interim rul es “per mit a LEC to charge the relevant inter c a r r i e r comp e n s a t i o n for funct i o n s perfo r me d by it and/o r by its retai l VoIP partner.” Id. (JA at 753-54). The FCC explain e d that it adopte d th is “symm e t r i c appro a c h to VoIP- PSTN intercarri e r co mp ensa t i o n ” becaus e it did “not want to disad v a n t a g e provid e r s that alrea d y have made … inves t m e n t s ” in IP networ k s. Order ¶968 (JA at 752). This approa c h was consist e n t with one of the Order ’ s princ i p a l goals: “to promo t e inves t men t in and deplo y m e n t of IP networ k s.” Id. The interim rules ensure that Vo IP provid e r s will have “the same opport u n i t y, during the transi t i o n, to co lle c t inter c a r r i e r comp e n s a t i o n ” for VoIP-PSTN traffic as provid e r s that use tradi t i o n a l telec o m mu n i c a t i o n s infras t r u c t u r e. Id. 7 “Only common carri e r servi c e s can be tariff e d.” MTS and WATS Market Structu r e , 93 FCC 2d 241, 314 ¶244 (1983) . Non-LEC VoIP provid e r s do not hold thems e l v e s out as commo n carri e r s. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 14 9 The FCC rejecte d AT&T’s claim that “there is no basis for disti n g u i s h i n g the histo r i c a l treat men t of [wirel e s s] provid e r s ” from the agency ’ s treat m e n t of CLEC-VoIP part ner s h i p s under the interi m rule. Order n.2024 (JA at 753). The agency noted th at it had long prohi b it e d wirel e s s carrie r s from using CLEC “partner s ” to collec t tariff e d acces s charge s for work perfo r med by wirel e s s carri e r s. Id. ; s e e also Access Charge Reform , 19 FCC Rcd at 91115-16 ¶16 & n.57. By contras t, the agency had previo u s l y “endo r s e d ” the forma t i o n of CLEC-VoIP partner s h ip s. Order ¶970 (JA at 753). In partic u l a r, in 2005, it stated that VoIP provid e r s could comp l y with 911 service oblig a t i o n s by partn e r i n g w ith CLECs to obtai n inter c o n n e c t i o n with the PSTN. IP-Enabled Services , 20 FCC Rcd 10245, 10267 ¶38 (2005), p e t . for revie w denie d , Nuvio Corp. v. FCC , 473 F.3d 302 (D.C. Cir. 2006). Moreover, the record showed th at some non-LEC VoIP provid e r s – unlik e wirel e s s carri e r s – had recen t l y received intercarrier co mp ensation Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 15 10 payment s. 8 In light of this eviden c e, the FCC deter min e d that the “immed i a t e adopt i o n of bill-and-keep for all VoIP-PS TN traffic would appea r to be, in the aggreg a t e, a … signif i c a n t depart u r e from th e interca r r i e r compens a t i o n payme n t s for VoIP traffic that have been made in the recen t past.” Order ¶952 (JA at 739). The FCC crafted the inter i m VoIP-PSTN comp en s a t i o n rules to provi d e for a “measu r e d tr ans i t i o n ” away from inter c a r r i e r co mpensat i on. Id. This sort of gradua l tran s i t i o n to bill-and-keep, howeve r, was unnece s s a r y for wirele s s carri e r s, which have long opera t e d under “bill- and-keep arrang e m e n t s.” Id. ¶737 (JA at 631). S U M M A RY OF ARGU M E N T AT&T contends that the FCC’s inte ri m inter c a r r i e r comp e n s a t i o n rule arbit r a r i l y disti n g u i s h e s betwe e n CLEC-VoIP partne r s h i p s and CLEC- wireles s partn e r s h i p s. AT&T’s challe n g e rests on mischa r a c t e r i z a t i o n s of law and fact. 8 See Order n.1917 (JA at 737-38); Bright H ouse Comments, Apr. 1, 2011, at 1, 7 (JA at 1969, 1975) (Verizon had previ o u s l y made “subs t a n t i a l acces s charge pay men t s ” to CLECs that provi d e VoIP in partn e r s h ip with cable opera t o r s like Bright House); Letter fro m Daniel Brenner, Counsel for Bright House, to Marlene Dortch, FCC, Sept . 28, 2011, at 2 (JA at 3818) (Bright House esti mated that an ILEC proposa l for trans i t i o n a l inter c a r r i e r comp e n s a t i o n for VoIP traffi c would resu l t in “a 90% reduct i o n in intras t a t e access ” revenu e s for cable operat o r s th at partn e r with CLECs to provid e VoIP). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 16 11 With respect to the law, AT&T claims that the FCC modifie d “sett l e d ” legal princ i p l e s to favor cable VoIP pr ovide r s over wirel e s s carri e r s. To the contr a r y, the law gover n i n g inter c a r r i e r comp e n s a t i o n for CLEC-VoIP partner s h i p s was unsett l e d before the FCC issued the Order . Indeed, there was consid e r a b l e disput e as to what in ter c a r r i e r comp e n s a t i o n rules (if any) applie d to VoIP tra ffic gener a l l y. With respec t to the facts, AT&T asserts that VoIP provide r s, like wirel e s s carri e r s, histor i c a l l y had not collect ed intercarrier co mp ensation. The record showed, however, that unlike wirel e s s carri e r s, some VoIP provide r s have previo u s l y recei v e d interc a r r i e r co mpen s a t i o n paymen t s throu g h their CLEC partner s. Against this legal an d factual bac kd r o p, the FCC reasona b l y expla i n e d that its inter i m rule treat s CLEC-Vo IP partne r s h ip s diff e r e n t l y from CLEC- wireless partne r s h i p s becaus e, in thr ee import a n t respec t s, VoIP and wirele s s servi c e are not simila r l y situa t e d. First , unlike wirel es s carri e r s, whose prima r y reaso n for “part n e r i n g ” with CLECs in most cases is to ev ade the FCC’s prohib i t io n on tarif f e d wirele s s access charge s, non-LEC Vo IP provid e r s must partn e r with teleco m m u n i c a t i o n s carrie r s (such as CLECs) in order to provid e voice teleph o n e servic e on the PSTN. Becaus e of the differ e n t purpo s e s under l y i n g Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 17 12 these arran g ements, the FCC historica l l y has treat e d them diffe r e n t l y – forbid d in g CLECs from colle c t i n g tari f f ed acce s s char g e s for work done by wirele s s carri e r s pursu a n t to revenu e shari n g arran g e m e n t s, while endors i n g the forma t i o n of CLEC-VoIP partne r s h i p s. The agency reaso n a b l y made the same sort of disti n c t i o n when cr aft i n g its trans i t i o n a l inter c a r r i e r comp e n s a t i o n rule s for VoIP-P STN traffic. Second , unlike conven t i o n a l wirele s s voice servic e, VoIP service uses IP faciliti e s. One of the Order ’ s prime objec t i v e s is “to promo t e inves t me n t in and deplo y me n t of IP networ k s.” Order ¶968 (JA at 752). Consiste n t with that goal, the interi m rules give VoIP provid e r s – which provi d e servi c e via IP networ k s – “the same oppor t u n i ty ” to colle c t inter c a r r i e r comp e n s a t i o n for VoIP-PSTN traffic as carri e r s that provi d e servic e over tradit i o n a l wireli n e netwo r k s. Id. The FCC explain e d that it did not want to penal i z e provi d e r s that have alrea d y deplo y e d IP networ k s. Id. This ration a l e for the interi m rules does not apply to conve n t io n a l wirel e s s voice servi c e, which is not provi d e d over IP facilit i e s. Third , unlike wirel e s s carri e r s (which have been operat i n g under bill- and-keep arran g e m e n t s since the 1980s), some non-LEC VoIP provide r s have receiv e d interc a r r i e r co mpen s a t i o n pa ymen t s over the years. The FCC Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 18 13 explain e d that the inter i m rule is desi g n e d to ensur e a “meas u r e d trans i t i o n ” away from interca r r i e r co mpen s a t i o n. Order ¶935 (JA at 730). Ultimate l y, in decid i n g how to handl e VoIP-PSTN traffic for purpo s e s of intercar r i e r co mpensa t i o n, the FCC confron t e d a choice. It could treat VoIP provid e r s like wirel e s s carri e r s and precl u d e them from colle c t i n g access charges indirec t l y via a CLEC partner. Or it could treat VoIP provid e r s like wirel i n e carri e r s and adopt a frame w o r k for a measu r e d trans i t i o n away from the co mp en s a t i o n th at so me provide r s are receivi n g. The agency chose the latter co urse. It reason e d that this appro a c h would best promo t e the deplo y m e n t of IP networ k s. AT&T disagree s with the agen cy ’ s approa c h, but that policy disagr e e m e n t provi d e s no legal basis for the Court to distu r b the FCC’s reason a b l e polic y judgm e n t. A R G U M E N T THE FCC REAS ONABLY EXPLAI NED THE RATI ONALE FOR ITS INTE R I M RULE GOVER N I N G INTER C A R R I E R COM PE N S AT I O N FOR CLEC- VO I P PARTN E R S H I P S . The FCC explain e d why its inte r i m rule gove r n in g CLEC-VoIP partne r s h ip s treat s VoIP provid e r s di ffe r e n t l y from wi rele s s carrie r s. AT&T’s claim to the contr a r y (Br. 16- 23) is basele s s. Because the rule chall e n g e d by AT&T is “merel y trans i t i o n a l, [the Court’s] review is especia l l y deferen t i a l.” Sorenson Commc’ns , Inc. v. FCC , 659 F.3d 1035, Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 19 14 1046 (10th Cir. 2011) (intern a l quota t i o n mark s omit t e d). Applyin g this defer e n t i a l stand a r d of review, the Court shoul d deny AT&T’s petiti o n. AT&T’s argume n t rests on two funda men t a l l y flawe d premi s e s. First, AT&T maintain s that “wirel e s s carrie r s and cable VoIP provide r s occup i e d ” the same “bill-and-keep” positi o n “for many years.” Br. 13. That is incorr e c t. While wirele s s carri e r s “h ave long been opera t i n g ” under “bill- and-keep arran g e m e n t s ” that provi d e d for no inter c a r r i e r comp e n s a t i o n, Order ¶737 (JA at 631), some VoIP provid e r s have receiv e d interc a r r i e r comp e n s a t i o n payme n t s in the past. Id. n.1917 (JA at 738). Second, AT&T wrongly asser t s that pre-exist i n g FCC rules barre d CLECs from collec t i n g interc a r r i e r co mp e n s a t i o n for servi c e s rende r e d by their retai l VoIP partne r s. Br. 11 n.7, 19. Contrary to AT&T’s conten t i o n (Br. 11), FCC rules were not “sett l e d on this point.” Indeed, before the FCC issued the Order i n this procee d i n g, it had “dec li n e d to explic i t l y addres s the interc a r r i e r co mp e n s a t i o n oblig a t i o n s associa t e d with VoIP traffic.” 2 0 1 1 NPRM ¶610 (SA at 192). Becau se the agency had not previ o u s l y resolve d wheth e r VoIP provid e r s may colle c t ac ces s charg e s under FCC rules, it had never decid e d wheth e r CL ECs could colle c t inter c a r r i e r co mpe n s a t i o n for work done by their retai l VoIP partne r s. By contras t, because FCC rules do not authorize wireles s carriers to file access tariff s or impose access char ge s, Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 20 15 the FCC has expres s l y precl u d e d CLEC s from coll e c t i n g tari f f ed acce s s charg e s for servi c e s provid e d by their wirel e s s carri e r partn e r s. Access Charge Reform , 19 FCC Rcd at 9116 n.57 (“We w ill not inter p r e t our rules or prior orders in a man n er th at all o ws [wir eles s] carrier s to do indirec t l y that which we have held they may not do direc t l y.”). Simply put, AT&T mistak en l y assumes that before the Order , VoIP provid e r s and wirel e s s carri e r s were si mil a r l y situa t e d. The FCC recogni z e d that they were not. It reason a b l y expl a i n e d that its inter i m comp e n s a t i o n rule for CLEC-VoIP partner s h i p s treat s Vo IP servic e diffe r e n t l y from wirel e s s servi c e for three reaso n s: (1) non- LEC VoIP provide r s – unlike wirel e s s carri e r s – must partn e r with telec o m mu n i c a t i o n s car rier s (such as CLECs) in order to provi d e voice telep h o n e se rvi c e ; (2) VoIP servic e – unlik e conve n t i o n a l wirel e s s servi c e – is pr ovi d e d over IP facilit i e s, and a prima r y goal of the Order i s to promo t e the deplo y m e n t of such facil i t i e s ; and (3) VoIP provide r s – unlike wirel e s s carri e r s – have recent l y recei v e d interc a r r i e r comp e n s a t i o n payme n t s, and there f o r e would be adver s e l y affec t e d by a sudde n tran s i t i o n to bill-an d-keep. These considera t i o n s fully justi f i e d the FCC’s distin c t i o n betwe e n VoIP and wirel e s s servi c e for purpo s e s of transi t i o n a l interc a r r i e r co mp en s a t i o n. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 21 16 A. T h e FCC Reasona b l y Dist i n g u i s h e d Bet we e n CLEC- Vo I P Partn e r s h i p s And C LEC-Wireles s Partners hips. There is no merit to AT&T’s claim that the FCC provide d “no coher e n t ratio n a l e ” for treat i n g CLEC-VoIP pa rtner s h i p s diffe r e n t l y from CLEC- wireles s partn e r s h i p s. Br. 23. In the Order , t h e agency pointed out the funda men t a l diffe r e n c e s betwe e n thos e two types of arran g e me n t s, and explai n e d why those diffe r e n c e s suppo r t e d distin c t approa c h e s. As the FCC explain e d, CLEC-wireles s “part n e r s h i p s ” are often create d solely to evade FCC rules and collect access ch arges, while CLEC-VoIP partner s h i p s are vital to the effect i v e provi s i o n of telepho n e servic e by non-LEC VoIP provid e r s. The FCC has long “prohib i t e d [wirel e s s] provid e r s from part n e r i n g with [CLECs] to collec t acces s charg e s in the absenc e of a contra c t ” with the carrie r being charge d. Order n.2024 (JA at 753). In most cases, the princ i p a l purpos e of such arrang e m e n t s is to circu mv e n t the longs t a n d in g FCC rule barri n g wirel e s s carri e r s fro m filin g acces s tarif f s. See Access Charge Reform , 19 FCC Rcd at 9116 ¶16 & n.57. In stark contra s t, the agency “has endor s e d ” CLEC-Vo IP partne r s h i p s. Order ¶970 (JA at 753) (citing IP-Enabled Services , 20 FCC Rcd at 10267 ¶38). Without such partn e r s h ip s, VoIP provid e r s that are not LECs would be unabl e to provid e VoIP servic e. Because those provid e r s are not Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 22 17 “teleco m mu n i c a t i o n s carri e r[s],” 47 U. S.C. §153(51), they canno t perfo r m certai n functi o n s that are essent i a l to provi d i n g VoIP service – includ i n g inter c o n n e c t i o n with the PSTN. See n o t e 4 above. Non-LEC VoIP provid e r s must “rely on [their CLEC] partner s ” to obtain “inter c o n n e c t i o n, access to [teleph o n e] numb er s [for new cust o me r s], and comp l i a n c e with 911 obligatio n s.” Order ¶970 (JA at 753). Wireless carrie r s do not need a CL EC partner to perfo r m these functi o n s. Because wireles s carrie r s ar e teleco mm unications carriers, they can obtain interc o n n e c t i o n direct l y. Thus, AT&T ignores the “relev a n t disti n c t io n … betwee n wirel e s s and Vo IP provid e r s ” in this conte x t: Non- LEC VoIP provid e r s m u s t use a “LEC middleman” to interc o n n e c t ; wirele s s carri e r s need not. See Br. 20. Furthermo r e, as AT&T concedes, wirel e s s carrie r s “typic a l l y addres s ” numb e r i n g and 911 compli a n c e issue s “thems e l v e s.” Id. That is not an optio n for non-LEC VoIP provide r s ; they must rely on their CLEC part ner s to handle those matte r s. The Court should rejec t AT&T’s assert i o n that the Order mu s t be remande d becaus e the FCC fail ed to ackn o wl e d g e or address AT&T’s concer n about “comp e t i t i v e bias.” Br. 18. When AT&T opposed adopt i o n of the interi m rules, it argued that they would “arbi t r a r i l y tilt the regul a t o r y playi n g field ” in favor of VoIP provid e r s by makin g an “arbi t r a r y disti n ct i o n ” Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 23 18 between VoIP and wirel e s s servi c e. Br. 17 (quoting Letter from Robert Quinn, Jr., AT&T, to Marl ene Dortch, FCC, Oct. 21 , 2011, at 2, 4 (JA at 3987, 3989)). The FCC explain e d, how eve r, that the diffe r e n c e s betwe e n CLEC-VoIP partner s h i p s and CLEC-wireles s partn e r s h i p s justi f i e d the distin c t i o n drawn by the interi m VoIP compens a t i o n rule. Order ¶970 & n.2024 (JA at 753) (citing AT&T’s October 21, 2011 letter). That explan a t i o n fully satis f i e s the applic a b l e stand a r d of review, even though the agency made no specif i c refere n c e to AT&T’s clai m of “co mpe t i t i v e bias.” As this Court has held, even when an agen cy does not “ e x p r e s s l y ” analyze a partic u l a r issue, a review i n g court must “upho l d a decisi o n of less than ideal clarit y if the agen cy’ s path may reaso n a b l y be disce r n e d.” Citizens ’ Comm. to Save Our Canyons v. Un ited States Forest Serv. , 297 F.3d 1012, 1034 (10th Cir. 2002) (intern a l quot a t i o n mark s omit t e d); s e e also Aviva Life & Annuity Co. v. FDIC , 654 F.3d 1129, 1133 & n.3 (10th Cir. 2011). B. T h e Interi m Rule Preser v e s The Proper Incent i v e s For Depl o y m e n t Of IP Netwo r k s . Broadband servi c e s that provid e high-speed Interne t acces s “have beco me cruci a l to our natio n ’ s econo mi c growth, global co mp et i t i v e n e s s, and civic life.” Order ¶3 (JA at 394). Thus, one of the Order ’ s prima r y goals “is to promo t e inves t m e n t in and deplo y me n t of IP networ k s.” Id. ¶968 (JA at 752). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 24 19 Consiste n t with that goa l, the FCC sought to ensur e that its trans i t i o n a l intercar r i e r co mpensa t i o n rules for VoIP-PSTN traffic would not “disa d v a n ta g e ” provid e r s that use IP facilit i e s. Order ¶968 (JA at 752). This ration a l e for transi t i o n a l interc a r r i e r comp e n s a t i o n does not apply to wirel e s s carri e r s, which do not use IP facili t i e s to origi n a t e or termi n a t e conve n t i o n a l wirel e s s servi c e. To preserv e the approp r i a t e incent i v e s for deplo y me n t of IP networ k s, the agency reason a b l y decide d that a l l VoIP provide r s (LECs and non-LECs alike) should have the same oppor t u n it y to benef i t from inter c a r r i e r comp e n s a t i o n as wirel i n e servi c e provi d e r s durin g the trans i t i o n to bill-and- keep. Accordin g l y, the agenc y adopt e d “a symme t r i c appro a c h to VoIP- PSTN intercarrier co mp ensation.” Order ¶968 (JA at 752). In particu l a r, the Order makes clear that an entit y that “uses [IP] facili t i e s to trans mi t [VoIP- PSTN] traffic ” from the caller ’ s premi s e s or to the called party ’ s premi s e s may impo s e “ori g i n at i o n [or] termi n a t i o n charg e s … under [the] transi t i o n a l Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 25 20 interca r r i e r comp e n s a t i o n frame w o r k.” Id. ¶969 (JA at 752) (intern a l quot a t i o n mark s omit t e d). 9 The FCC recogniz e d that non-LEC VoIP provid e r s “are not carri e r s that can tariff interca r r i e r co mpens a t i o n charges.” Order ¶970 (JA at 753). Those VoIP provid e r s must “rely on [their CLEC] partner s to charge tarif f e d intercar r i e r co mpensa t i o n charges.” Id. To ensure that non-LEC VoIP provide r s were not disad v a n t a g e d rela t i v e to provid e r s of non-IP wireli n e servic e s, the FCC decided to “permit a LEC to char ge the releva n t inter c a r r i e r comp e n s a t i o n for func t i o n s perf o r med by it and/or by its retail VoIP partner.” Id. (JA at 753-54). This decis i o n did not repre s e n t “an abrup t chang e ” from “sett l e d ” law, as AT&T clai ms (Br. 11). The FCC ha d not previ o u s l y addres s e d wheth e r a CLEC could collect intercarrier co mp e n s a t i o n for servi c e s provi d e d by its retail VoIP partner. Furtherm o r e, th e sort of joint billi n g arran g e men t autho r i z e d by the inter i m rule was not unpre c e d e n t e d. The FCC has long recogn i z e d that “a [CLEC] may bill [a long-distan c e carri e r] on behalf of itsel f a n d anoth e r carr i e r f o r joint l y provid e d acces s servi c e s ” so long as 9 AT&T clai ms to find the FCC’s sy mmet r i c a l approa c h “perpl e x i n g ” because the ag ency has not clas sif i e d VoIP as a Title II comm on carrie r servic e. Br. 22 n.9. Bu t it made perfe c t sense for the FCC to create suffi c i e n t incen t i v e s for deplo y m e n t of IP networ k s by a l l p r o v i d e r s of voice teleph o n e servi c e, whethe r or not those pr ovid e r s are subjec t to Title II. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 26 21 “each carri e r ” in the partne r s h i p charge s “only what it is entit l e d to colle c t from the [long-distan c e carri e r] for th e [access] service it provide s.” Access Charge Reform , 19 FCC Rcd at 9115-16 ¶ 16 (emphas i s adde d). 10 To be sure, the FCC for years has barre d CLECs from colle c t i n g tarif f e d acces s charg e s on behal f of wire l e s s carri e r s. But the agenc y based that prohib i t i o n on the fact that wi rel e s s carri e r s – whic h have long been barred from filing acces s charg e tarif f s – “had no indep e n d e n t right to collec t ” acces s charg e s absen t a contra c t with the carrie r being charg e d. Access Charge Reform , 19 FCC Rcd at 9116 ¶16. The FCC has never made any such findi n g with respe c t to VoIP provide r s. To the contra r y, in this pr oceeding, the agency mad e cl ear that VoIP provid e r s a r e prospe c t i v e l y entit l e d to inter c a r r i e r co mp e n s a t i o n durin g the transi t i o n to bill-and-keep. Order ¶ ¶968-970 (JA at 752-54). If VoIP provide r s are LECs ( i.e. , if they provi d e VoIP se rvice on a co mmon carrier basis), they may file their own inter c a r r i e r comp e n s a t i o n tarif f s. If VoIP provid e r s do not hold thems e l v e s out as LECs, their CLEC partne r s may levy 10 In the past, the ag ency had exp r e s s e d conce r n that joint billi n g arran g e me n t s “coul d resul t in doubl e billin g,” but the new interc a r r i e r comp e n s a t i o n rules “incl u d e measu r e s to prote c t again s t doubl e billi n g.” Order ¶970 (JA at 753-54). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 27 22 charges to obtai n inter c a r r i e r comp e n s a t i o n for servic e s rende r e d by non-LEC VoIP provide r s. Id. ¶970 (JA at 753-54). In short, the FCC determi n e d that VoIP provide r s are prospe c t i v e l y eligi b l e to receiv e inter c a r r i e r co mpens a t i o n, includin g comp ens a t i o n for access traf fic, even if they have no contr a c t with the carri e r payin g co mpensa t i o n. The agency has never made a simil a r findi n g for wirel e s s carrie r s. AT&T complai n s that the inte r i m rule gover n i n g CLEC-VoIP partner s h ip s creat e d an “asym m e t r y ” betwe e n VoIP provid e r s and wirel e s s carri e r s. Br. 19. But if the FCC had adopt e d the appro a c h advoc a t e d by AT&T ( i . e . , t r e a t i n g VoIP provid e r s like wire l e s s carri e r s), it would have creat e d an asy mme t r y betwe e n VoIP provide r s and w i r e l i n e carrie r s – the very sort of asymm e t r y that bill-and- keep (which AT&T general l y suppo r ts) is desig n e d to elimi n a t e. Under that scen ario, wirel i ne carrier s would collect more intercarrier co mp ensation than CLEC-VoIP partner s h i p s (because such partn e r s h ip s could not colle c t tarif f e d acces s charg e s for any servi c e provi d e d by the retai l VoIP partner). By provid i n g for less comp e n s a t i o n for IP-based servic e s, AT&T’s propos e d frame w o r k would damp e n incen t i v e s for the deplo y me n t and use of moder n IP networ k s. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 28 23 Because the FCC histori c a l l y has tr eate d wirel i n e carr i e r s diffe r e n t l y from wirel e s s carri e r s for purpo s e s of in terca r r i e r compens a t i o n, any interi m mecha n i s m short of a flash-cut trans i t i o n to bill-and-keep for all telep h o n e servi c e provi d e r s must inevi t a b l y resu l t in some “asym m e t r y.” The questi o n for the FCC was: Which approa c h w ould best serve the agenc y ’ s polic y object i v e s ? The FCC reasonab l y explai n e d that it could most effec t i v e l y promo t e the deplo y m e n t of IP networ k s durin g the transi t i o n to bill-and-keep by givin g VoIP provid e r s “the same oppor t u n it y … to colle c t inter c a r r i e r comp e n s a t i o n ” for VoIP-PSTN traffic as carrie r s that provid e servi c e over tradit i o n a l wirel i n e netwo r k s. Order ¶968 (JA at 752). The Court shoul d not distu r b this reaso n a b l e polic y judgme n t. See IMC Kalium Carlsbad, Inc. v. Interio r Bd. of Land Appeals , 206 F.3d 1003, 1012 (10th Cir. 2000) (the Court’s role is not “to decid e which po lic y choic e is the better one, for it is clear that Congress has entru s ted such decis i o n s to the [agency]”) (quotin g Arkansas v. Oklahoma , 503 U.S. 91, 114 (1992)). C. T h e FCC Reasonab l y Explaine d That The Interi m Rule Allows Vo IP Provi d e r s To Make A Gradu a l Tran s i t i o n To Bill-a n d - K e e p . Unlike wirele s s carri e r s, both wireli n e carri e r s and VoIP provide r s have recei ve d interca r r i e r co mpens a t i o n. Indeed, notwit h s t a n d i n g the uncer t a i n t y surro u n d i n g comp e n s a t i o n oblig a t i o n s for VoIP traffic, the record Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 29 24 contained evidenc e that some non-LEC VoIP provide r s recen t l y recei v e d interc a r r i e r co mpen s a t i o n paymen t s. 11 This evidence refutes AT&T’s assert i o n (Br. 13) that VoIP provide r s, like wirel ess carriers, have been opera t i n g under a “bill-and-keep” re gi me “for many year s.” In light of this evide n c e, the FC C reasonab l y determ i n e d that the “immed i a t e adopti o n of bill-and-keep for all VoIP-PSTN traffic would appea r to be, in the aggrega t e, a … signifi c a n t departu r e from the inter ca r r i e r comp e n s a t i o n payme n t s for VoIP traffi c th at have been made in the recent past.” Order ¶952 (JA at 739). To avert the disru p ti o n that such a sudde n change mi ght cause, the agency expl a i n e d that it would provi d e for a “measu r e d transi t i o n away from ca rrie r s ’ relia n c e on interc a r r i e r comp e n s a t i o n as a signif i c a n t reven u e sourc e.” Id. In crafti n g its interi m rules for Vo IP intercarrier co mp ensation, the FCC properl y took into accou n t “the abili t y of [VoIP provide r s] to adjust financ i a l l y to changi n g polici e s ” and “the unfai r n e s s of abrup t ly shif t in g policies.” MCI Telecomms . Corp. v. FCC , 750 F.2d 135, 141 (D.C. Cir. 1984). The inter i m rules – inclu d i n g the rule gover n i n g CLEC-VoIP 11 See n o t e 8 above. On recons i d e r a t i o n, the FCC found addit i o n a l eviden c e that VoIP provider s collec t e d origi n a t i n g acces s charg e s befor e the Order w a s issu e d. Connect America Fund , 27 FCC Rcd 4648, 4661 ¶33 & nn.92-93 (2012) (JA at 1151, 1164). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 30 25 partner s h ip s – are sensi b ly desig n e d to mi nimi z e “uphe a v a l in the indus tr y.” Id. The FCC’s desire to avoid “m ark e t disru p t i o n pendin g broad e r refor ms ” justi f i e d its adopt i o n of th e inter i m rules to ensur e a smoot h trans i t i o n to bill-and-keep for VoIP provide r s. See Rural Cellula r Ass’n v. FCC, 588 F.3d 1095, 1106 (D.C. Cir. 2009); Competiti v e Telecomm s . Ass’n v. FCC , 309 F.3d 8, 14 (D.C. Cir. 2002). The agenc y reaso n a b l y concl u d e d that the move to bill-and-keep shoul d “be accomp l i s h e d gradu a l l y to permi t [VoIP provid e r s] to adjus t to the new prici n g syste m, thus prese r v i n g the effici e n t operat i o n of the inters t a t e telep h o n e netwo r k durin g the inter i m.” See Nat’l Ass’n of Regulato r y Util. Comm’rs v. FCC , 737 F.2d 1095, 1135-36 (D.C. Cir. 1984). There was no need to provi d e for su ch a gradua l transi t i o n for wirele s s carri e r s, which alrea d y opera t e under “bill-and- keep arrange m e n t s.” Order ¶737 (JA at 631). The FCC’s u ltima t e objec t i v e is to move a l l t e l e p h o n e servic e provid e r s from the curren t inte rc a r r i e r co mpen s a t i o n system to the sort of bill-and-keep framew o r k that wirel e s s carri e r s have been using for years. See id. ¶ ¶736-737 (JA at 631). It would have been entir e l y counte r p r o d u c t i v e for the FCC to move wirel e s s carri e r s in the o p p o s i t e direct i o n – replac i n g their exist in g bill-and-keep a r r a n g e m e n t s with the sort Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 31 26 of interc a r r i e r co mp en s a t i o n regime th at the agen cy is in the process of refor mi n g. Nor was the FCC require d to move to the othe r extr e me – manda t i n g an immed i a t e trans i t i o n to bi ll-and-keep for VoIP provide r s, even though the record shows that at leas t some VoIP provid e r s (unlike wirel e s s carri e r s) were recei v i n g inter c a r r i e r comp e n s a t i o n. In sum, the FCC made a reaso n a b l e polic y judgme n t regar d i n g trans i t i o n a l inter c a r r i e r comp e n s a t i o n. That judgm e n t shoul d be uphel d. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 32 27 C O N C L U S I O N AT&T’s petiti o n for revie w shoul d be denie d. Respectf u l l y submi t t e d, WILLIAM J. BAER ASSISTANT ATTORNEY GENERAL ROBERT B. NICHOLSON ROBERT J. WIGGERS ATTORNEYS UNITED STATES DEPARTMENT OF JUSTICE WASHINGTON, D.C. 20530 SEAN A. LEV GENERAL COUNSEL RICHARD K. WELCH DEPUTY ASSOCIATE GENERAL COUNSEL /s/ James M. Carr LAURENCE N. BOURNE JAMES M. CARR MAUREEN K. FLOOD COUNSEL FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 (202) 418-1740 July 29, 2013 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 33 C E R T I F I C A T E OF COMPL I A N C E Certif i c a t e of Com p li a n c e With Ty pe-V o l u m e Limit a t i o n s , Typef a c e Requi r e m e n t s , Type Style Requi r e m e n t s , Priva c y Redac t i o n Requi r e m e n t s 1. This brief comp l i e s with the type-vol ume limi t a t i o n of the Second Briefin g Order. It does not exceed 15% of the size of the brief to which it is respon d i n g. The AT&T Principa l Brief was certi f i e d to be 5,050 words in length. Therefor e, the FCC may file a resp ons e brie f up to 5,807 words in lengt h. This brief conta i n s 4,893 words, exclud i n g the parts of the brief exemp t e d by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This brief co mp li e s with the typefa c e requi r e m e n t s of Fed. R. App. P. 32(a)(5) and 10th Cir. R. 32(a) and the type style requi r e men t s of Fed. R. App. P. 32(a)(6) because this filing has been prep ar e d in a propor t i o n a l l y spaced typefa c e using Microsof t Word 2010 in 14- point Times New Roman font. 3. All requir e d priva c y redac t i o n s have been made. /s/ James M. Carr James M. Carr Counsel July 29, 2013 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 34 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 35 NO. 11-9900 UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT IN RE: FCC 11-161 __________ ON PETITIONS FOR REVIEW OF AN ORDER OF THE FEDERAL COMMUNICATIONS COMMISSION __________ FINAL BRIEF OF INTERVENORS IN SUPPORT OF FEDERAL RESPONDENTS IN RESPONSE TO THE AT&T PRINCIPAL BRIEF __________ Samuel L. Feder Luke C. Platzer JENNER & BLOCK LLP 1099 New York Ave., NW Suite 900 Washington, DC 20001 Phone: (202) 639-6092 Facsimile: (202) 661-4999 Counsel for Comcast Corporation Additional Counsel for Intervenors Listed on Following Page July 29, 2013 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 36 David E. Mills J.G. Harrington DOW LOHNES PLLC 1200 New Hampshire Ave., NW Suite 800 Washington, DC 20036-6802 Phone: (202) 776-2000 Facsimile: (202) 776-2222 Counsel for Cox Communications, Inc. E. Ashton Johnston Helen E. Disenhaus LAMPERT, O’CONNOR & JOHNSTON, P.C. 1776 K Street NW Suite 700 Washington, DC 20006 Phone: (202) 887-6230 Facsimile: (202) 887-6231 Counsel for HyperCube Telecom, LLC Christopher J. Wright John T. Nakahata WILTSHIRE & GRANNIS LLP 1200 Eighteenth Street, NW 12th Floor Washington, DC 20036 Phone: (202) 730-1300 Counsel for Level 3 Communications, LLC Rick Chessen Neal M. Goldberg Steven Morris Jennifer McKee THE NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 25 Massachusetts Avenue, NW Suite 100 Washington, DC 20001 Phone: (202) 222-2445 rchessen@ncta.com ngoldberg@ncta.com smorris@ncta.com jmckee@ncta.com Howard J. Symons Robert G. Kidwell Ernest C. Cooper MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 701 Pennsylvania Avenue, NW Suite 900 Washington, DC 20004 Phone: (202) 434-7300 Facsimile: (202) 434-7400 hjsymons@mintz.com rgkidwell@mintz.com ecooper@mintz.com Counsel for NCTA Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 37 i CORPORATE DISCLOSURE STATEMENT Pursuant to Fed. R. App. P. 26.1, Intervenors submit the following Corporate Disclosure Statement through their counsel: Comcast Corporation (“Comcast”) is a publicly held corporation. Comcast has no parent corporation, and no publicly held corporation holds 10% or more of the stock of Comcast. Cox Communications, Inc. (“Cox”) is a privately-held corporation, formed under the laws of the State of Delaware. Cox Enterprises, Inc., a privately-held corporation, owns Cox through a direct majority interest and through a minority interest held by an intermediate holding company, Cox DNS, Inc. Cox has no other parent companies within the meaning of Rule 26.1, and no publicly-held company has a 10% or greater ownership interest in Cox. HyperCube Telecom, LLC (“HyperCube”) is a privately held company that is wholly owned by its parent HyperCube, LLC. HyperCube, LLC is an indirect wholly owned subsidiary of West Corporation (“West”). West is a publicly traded company. According to filings made with the Securities and Exchange Commission as of April 23, 2013, the following persons and entities hold a direct interest of 10% or more in West: Thomas H. Lee Equity Fund VI, L.P., 18.0%; and Thomas H. Lee Parallel Fund VI, L.P., 12.2%. The general partner of Thomas H. Lee Equity Fund VI, L.P. and Thomas H. Lee Parallel Fund VI, L.P. is THL Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 38 ii Equity Advisors VI, LLC. Thomas H. Lee Partners, L.P. is the sole member of THL Equity Advisors VI, LLC. No other person or entity holds a direct 10% or greater interest in West. Level 3 Communications, LLC (“Level 3”) is a wholly-owned subsidiary of Level 3 Financing, Inc. Level 3 Financing, Inc. is a wholly-owned subsidiary of Level 3 Communications, Inc. Level 3 Communications, Inc. has no parent corporation and no publicly held corporation owns 10% or more of its stock. NCTA is the principal trade association of the cable industry in the United States. Its members include owners and operators of cable television systems serving over ninety (90) percent of the nation’s cable television customers as well as more than 200 cable program networks. NCTA’s cable operator members also provide high-speed Internet service to more than 50 million households, as well as telephone service to more than 26 million customers. NCTA also represents equipment suppliers and others interested in or affiliated with the cable television industry. NCTA has no parent companies, subsidiaries or affiliates whose listing is required by Rule 26.1. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 39 iii TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT .......................................................... i TABLE OF AUTHORITIES .................................................................................... iv GLOSSARY .............................................................................................................. vi SUMMARY OF THE ARGUMENT ........................................................................ 1 COUNTERSTATEMENT ......................................................................................... 2 A. Business Structure Of VoIP Providers. ........................................................... 2 B. Access Charge Tariffing By VoIP Providers And AT&T’s Challenge. ......... 3 C. The FCC’s Order. ............................................................................................ 6 ARGUMENT ............................................................................................................. 7 I. THE FCC’S TRANSITIONAL RULE IS SUBJECT TO HEIGHTENED DEFERENCE. ...................................................................................................... 7 II. THE FCC ARTICULATED MULTIPLE, INDEPENDENTLY REASONABLE GROUNDS FOR ITS INTERIM RULE. ................................. 8 A. Allowing The Market Gradually To Adjust. ................................................... 9 B. Parity Among Wireline Providers. ................................................................ 10 C. Incentives To Invest In IP Technology. ........................................................ 12 D. The Order Does Not Disregard AT&T’s Claims Of Competitive Harm. ............................................................................................................. 13 CONCLUSION ........................................................................................................ 15 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 40 iv TABLE OF AUTHORITIES CASES ACS of Anchorage, Inc. v. FCC, 290 F.3d 403 (D.C. Cir. 2002) .............................. 8 Aviva Life & Annuity Co. v. FDIC, 654 F.3d 1129 (10th Cir. 2011) ........................ 7 Competitive Telecommunications Ass’n v. FCC, 117 F.3d 1068 (8th Cir. 1997) ..................................................................................................................... 8 Competitive Telecommunications Ass’n v. FCC, 309 F.3d 8 (D.C. Cir. 2002) ......... 8 MCI Telecommunications Corp. v. FCC, 750 F.2d 135 (D.C. Cir. 1984) .......... 8, 10 MCI WorldCom, Inc. v. FCC, 209 F.3d 760 (D.C. Cir. 2000) ................................ 13 Qwest Corp. v. FCC, 689 F.3d 1214 (10th Cir. 2012) ........................................ 1, 10 Rural Cellular Ass’n v. FCC, 588 F.3d 1095 (D.C. Cir. 2009) ................................. 8 Sorenson Communications, Inc. v. FCC, 659 F.3d 1035 (10th Cir. 2011) ............... 8 WildEarth Guardians v. National Park Service, 703 F.3d 1178 (10th Cir. 2013) ................................................................................................................. 7, 8 STATUTES 5 U.S.C. § 706 ............................................................................................................ 7 47 U.S.C. § 153(24) ................................................................................................... 3 47 U.S.C. § 153(53) ................................................................................................... 3 47 U.S.C. § 153(54) ................................................................................................... 3 ADMINISTRATIVE RULINGS In re Access Charge Reform, Reform Of Access Charges Imposed By Competitive Local Exchange Carriers, Eighth Report and Order and Fifth Order on Reconsideration, 19 FCC Rcd 9108 (2004) ...................................... 4, 5 In re Charter Communications, Order, 27 FCC Rcd 7300 (2012) ............................ 2 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 41 v In re Connect America Fund, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 26 FCC Rcd 4554 (2011) ................................ 9 In re Connect America Fund, Report & Order and Further Notice of proposed Rulemaking, 26 FCC Rcd 17,663 (2011) ............................ 1, 4, 5, 6, 7, 9, 10, 11, 12, 14 In re Petitions of Sprint PCS and AT&T Corp. for Declaratory Ruling Regarding CMRS Access Charges, Declaratory Ruling, 17 FCC Rcd 13,192 (2002), appeal dismissed, AT&T Corp. v. FCC, 349 F.3d 692 (D.C. Cir. 2003) .................................................................................................... 9 Petition of Time Warner Cable Information Services (New York), LLC for Modification of Its Existing Eligible Telecommunications Carrier Designation, Order Approving Designation As A Lifeline-Only Eligible Telecommunications Carrier, Case 12-C-00510 (N.Y. Pub. Serv. Comm’n Mar. 14, 2013), available at http://documents.dps.ny.gov/ public/Common/ViewDoc.aspx?DocRefId={5667A04D-7CA6-43B6- A352-0927793BFE20} ..................................................................................... 2-3 In re Sprint Nextel Corp., Order, 26 FCC Rcd 2216 (2011) ..................................... 2 In re Time Warner Cable Request for Declaratory Ruling that Competitive Local Exchange Carriers May Obtain Interconnection Under Section 251 of the Communications Act of 1934, as Amended, to Provide Wholesale Telecommunications Services to VoIP Providers, Memorandum Opinion and Order, 22 FCC Rcd 3513 (2006) .................................................................... 4 OTHER AUTHORITIES 47 C.F.R. § 51.913(b) ................................................................................................ 1 Bright House Networks Information Services F.C.C. Tariff No. 1 (2007), available at https://apps.fcc.gov/etfs/public/view_a_129518 .action?id=129518 ................................................................................................. 3 Cablevision Lightpath, Inc., Tariff F.C.C. No. 4 (2004), available at https://apps.fcc.gov/etfs/public/view_a_128329.action?id=128329 .................... 3 Comcast Phone, LLC Tariff FCC No. 1 (2003), available at https://apps.fcc.gov/etfs/public/view_a_127852.action?id=127852. ................... 3 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 42 vi GLOSSARY AT&T Letter Letter from Robert Quinn, Jr. (AT&T ) to Marlene Dortch (FCC), CC Docket No. 01-92 et al., at 2-5 (Oct. 21, 2011) IP Internet Protocol LEC Local Exchange Carrier Order In re Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663 (2011) VoIP Voice over Internet Protocol Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 43 1 SUMMARY OF THE ARGUMENT Providers of fixed Voice over Internet Protocol (“VoIP”) service1 assess charges on long-distance carriers to complete their calls. They do so either by operating as Local Exchange Carriers (“LECs”) and filing tariffs, or by completing calls in partnership with LECs that file tariffs. Before the FCC issued the Order,2 AT&T had begun to challenge the validity of the partnership model, arguing that LECs cannot tariff charges for functions provided by their VoIP partners. The FCC never accepted AT&T’s theory, and, prior to the Order, LEC partners of VoIP providers generally continued to collect access charges for VoIP calls. The Order resolved this dispute by phasing out access charges while, during the transition, implementing what it termed the “VoIP Symmetry Rule,” which treats VoIP providers operating under the partnership model identically to those operating as LECs.3 AT&T made only a cursory argument below that this transitional treatment would competitively harm wireless carriers, and the Commission fully articulated why its historical refusal to allow wireless carriers to 1 “Fixed” VoIP providers (some of which are affiliated with cable companies) use their own facilities to transmit calls to retail end-users. See Qwest Corp v. FCC, 689 F.3d 1214, 1221 n.4 (10th Cir. 2012). “Over-the-top” VoIP providers transmit calls via public-Internet connections provided by third parties. Id. AT&T’s challenge involves fixed VoIP providers; over-the-top services are not at issue here. See AT&T Brief at 2 n.2. 2 In re Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663 (2011) (“Order”). 3 47 C.F.R. § 51.913(b). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 44 2 tariff access charges (either directly or through a LEC) should not prevent parity as between the two types of VoIP providers. The FCC’s decision should be upheld. COUNTERSTATEMENT A. Business Structure of VoIP Providers. Providers of fixed VoIP services use two business models. Some are certified as LECs, providing both retail VoIP service and interconnecting with other carriers (the “unitary” model). Others are structured as partnerships between two entities: a non-LEC that provides retail VoIP service, and an affiliated or unaffiliated LEC that interconnects with other carriers on behalf of the retail entity (the “partnership” model). Although AT&T asserts that “[a]lmost all cable companies that offer voice telephone services today choose not to offer those services as regulated LECs,” AT&T Br. at 10, both models are common even among cable companies. For example, both Cox Communications (the third- largest cable company in America) and Charter Communications (the sixth-largest) use the unitary model, as does Time Warner Cable (the second-largest) in some markets.4 4 See, e.g., In re Sprint Nextel Corp., Order, 26 FCC Rcd 2216, 2218 ¶ 4 (2011) (Cox Communications as a LEC); In re Charter Communications, Order, 27 FCC Rcd 7300, 7302 ¶ 4 (2012) (same as to Charter); Petition of Time Warner Cable Information Services (New York), LLC for Modification of Its Existing Eligible Telecommunications Carrier Designation, Order Approving Designation As A Lifeline-Only Eligible Telecommunications Carrier, Case 12-C-00510 (N.Y. Pub. Serv. Comm’n Mar. 14, 2013), available at http://documents.dps.ny.gov/ Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 45 3 The two different business models largely stem from uncertainty as to whether retail VoIP service is a “telecommunications service” that is appropriately provided by a LEC or an “information service” that can be provided by a non-LEC – an issue the FCC has not resolved.5 Yet the different models have little practical significance to either subscribers or interconnecting carriers. B. Access Charge Tariffing by VoIP Providers and AT&T’s Challenge. In the years prior to the Order, LECs partnering with retail VoIP providers had filed tariffs with the FCC and state commissions assessing charges for connecting calls to their retail VoIP partners’ subscribers.6 LECs operating under such tariffs routinely collected access charges.7 AT&T’s assertion that the Order public/Common/ViewDoc.aspx?DocRefId={5667A04D-7CA6-43B6-A352- 0927793BFE20}. 5 See 47 U.S.C. § 153(24); id. §§ 153(53)-(54). 6 See, e.g., Cablevision Lightpath, Inc., Tariff F.C.C. No. 4 (2004), available at https://apps.fcc.gov/etfs/public/view_a_128329.action?id=128329; Bright House Networks Information Services F.C.C. Tariff No. 1 (2007), available at https://apps.fcc.gov/etfs/public/view_a_129518.action?id=129518; Comcast Phone, LLC Tariff FCC No. 1 (2003), available at https://apps.fcc.gov/etfs/public/ view_a_127852.action?id=127852. 7 See, e.g., Letter from Daniel Brenner to Marlene Dortch, Sept. 28, 2011, JA at 2817-20 (Bright House, a partnership VoIP provider, would lose “tens of millions of dollars in lost revenues” from being unable to continue collecting access charges during transition); Letter from Samuel Feder to Marlene Dortch, April 6, 2012, JA at 4366-69 (noting that it is “not accurate” that clarifying rights of VoIP providers to collect certain access charges would result in new charges, since Cablevision, a partnership provider, had “historically assessed” such charges, and until very Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 46 4 gave such LECs the right to tariff “for the first time,” AT&T Br. at 9, is thus a misstatement. Long prior to the Order, the FCC had expressly “endorsed” the VoIP partnership model for purposes of interconnection.8 The FCC also had approved the common practice of a LEC’s tariffing for functions performed by another provider; carriers can use “joint billing arrangements,” and a carrier can bill “on behalf of itself and another carrier for jointly provided access services.” In re Access Charges Reform, Reform of Access Charges Imposed by Competitive Local Exchange Carriers, Fifth Order on Reconsideration and Eighth Report and Order, 19 FCC Rcd 9108, 9115-16 ¶ 16 (2004). Notwithstanding the above, AT&T’s theory has been that the VoIP partnership model is analogous to two past circumstances in which the FCC had not permitted certain charges to be tariffed. See Letter from Robert Quinn, Jr. recently, Verizon, one of the nation’s largest interexchange carriers, “ha[d] historically paid them”); Letter from Samuel Feder to Marlene Dortch, March 12, 2012, JA at 4324-25 (noting that Cablevision had already “suffered revenue losses” amounting to “several million dollars annually” from reduction of access charges in Order); Letter from Matthew Brill to Marlene Dortch, October 21, 2011, JA at 3998-4000 (ex parte by Time Warner, at the time a partnership provider, noting that VoIP providers already had “existing tariff language describing access services” that should “remain in force”). 8 Order ¶ 970, JA at 753-54; see also, e.g., In re Time Warner Cable Request for Declaratory Ruling that Competitive Local Exchange Carriers May Obtain Interconnection Under Section 251 of the Communications Act of 1934, as Amended, to Provide Wholesale Telecommunications Services to VoIP Providers, Memorandum Opinion and Order, 22 FCC Rcd 3513 (2006). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 47 5 (AT&T ) to Marlene Dortch (FCC), Oct. 21, 2011, JA at 3986-91 (“AT&T Letter”). AT&T’s first analogy is to the wireless context. AT&T Letter at 4 n.17, JA at 3989. The FCC has long prohibited wireless carriers from tariffing access charges; the FCC thus also prohibited a LEC partnering with a wireless carrier from tariffing services performed by the wireless carrier that the wireless carrier could not itself have tariffed. See Eighth Report and Order, Access Charge Reform, 19 FCC Rcd at 9115-16 ¶ 16. AT&T’s second analogy is to the scenario in which multiple wireline LECs are involved in completing a call. AT&T Letter at 2-3 & n.8, JA at 3986-88. There, the FCC ruled that a LEC cannot tariff services it does not provide, to ensure that multiple LECs cannot impose multiple charges for the same function. See Eighth Report and Order, Access Charge Reform, 19 FCC Rcd at 9115-16 ¶ 16. Prior to issuance of the Order, the FCC had not addressed AT&T’s claims about whether these purportedly analogous situations should apply to the VoIP partnership model. Thus, while AT&T argues that the law was “settled” on this point, see AT&T Br. at 11, there was at most a “dispute” on the issue, largely created by AT&T itself. Order ¶ 968, JA at 752. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 48 6 C. The FCC’s Order. In addressing the larger intercarrier compensation issue surrounding VoIP, the Order decided on a course of allowing for the collection of gradually-reduced access charges on VoIP traffic, balancing the objective of reforming access charges with a competing objective of avoiding substantial disparities between VoIP and traditional wireline traffic during the transitional period. See Order ¶¶ 933-953, JA at 729-40. The Order recognized, however, that its “symmetrical approach to VoIP-PSTN intercarrier compensation” could be undercut if some VoIP providers were excluded from the access charge regime because they used the partnership model instead of the unitary model. Order ¶ 970, JA at 753-54. In deciding to avoid this result by treating both types of VoIP providers the same during the transition, the Order considered, and rejected, AT&T’s claimed analogies. See FCC Br. at 6-10. In the wireless context, the prohibition on tariffing by a partner LEC for functions performed by a wireless carrier followed directly from the prohibition on tariffing by wireless carriers themselves. Order ¶ 970 n.2024, JA at 753. In contrast, there has never been any prohibition on tariffing by VoIP providers; unitary VoIP providers can and do tariff. Thus, where a VoIP provider uses a LEC partner, it does so not to circumvent a prohibition on tariffing, but rather to obtain essential services. Order ¶ 970, JA at 753-54. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 49 7 Likewise, unlike the “multiple LECs” scenario, under the VoIP Symmetry Rule, only one party – the LEC partner – can charge, and it can charge only once, for services supplied via the partnership arrangement. Id. This eliminates the double-billing scenario that had troubled the FCC in the “multiple providers” context. Id. As the Order notes, the absence of concerns about gamesmanship and double billing makes the VoIP partnership context “distinct” from AT&T’s analogies. Id. ARGUMENT I. THE FCC’S TRANSITIONAL RULE IS SUBJECT TO HEIGHTENED DEFERENCE. AT&T does not even acknowledge, much less challenge, the FCC’s decision that unitary VoIP providers should be placed on a gradual “glide path” of steadily reducing access charges, like traditional wireline providers. See Order ¶ 969, JA at 752. AT&T challenges only the FCC’s subsidiary decision that VoIP providers that use a partnership model should be treated no differently from unitary VoIP providers. AT&T Br. 16. AT&T’s challenge is subject to “arbitrary and capricious” review under 5 U.S.C. § 706, which is “highly deferential to the agency’s determination.” Aviva Life & Annuity Co. v. FDIC, 654 F.3d 1129, 1131 (10th Cir. 2011); WildEarth Guardians v. Nat’l Park Serv., 703 F.3d 1178, 1183 (10th Cir. 2013). The “‘arbitrary and capricious’ standard is particularly deferential in matters Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 50 8 implicating … interim regulations,” Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1105 (D.C. Cir. 2009), because “[a]voidance of market disruption pending broader reforms is, of course, a standard and accepted justification for a temporary rule.” Competitive Telcomms. Ass’n v. FCC, 309 F.3d 8, 14 (D.C. Cir. 2002); see also Sorenson Commc’ns, Inc. v. FCC, 659 F.3d 1035, 1046 (10th Cir. 2011) (“[T]he FCC is entitled to substantial deference when adopting interim rates”); ACS of Anchorage, Inc. v. FCC, 290 F.3d 403, 410 (D.C. Cir. 2002); Competitive Telecomms. Ass’n v. FCC, 117 F.3d 1068, 1073-75 (8th Cir. 1997); MCI Telecomms. Corp. v. FCC, 750 F.2d 135, 141 (D.C. Cir. 1984). II. THE FCC ARTICULATED MULTIPLE, INDEPENDENTLY REASONABLE GROUNDS FOR ITS INTERIM RULE. The Order “examined the relevant data and articulated a rational connection between that data and its decision,” WildEarth, 703 F.3d at 1182-83, in three independent ways: (1) allowing the market gradually to adjust to the new bill-and- keep regime; (2) ensuring parity among VoIP providers and between VoIP and wireline LECs; and (3) preserving incentives to invest in IP during the transition. None of these reasons applies to wireless carriers, and the Commission justifiably declined AT&T’s assertion – which it made only in the most cursory fashion below – that competitive considerations required parity with wireless carriers. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 51 9 A. Allowing the Market Gradually to Adjust. The primary rationale behind the FCC’s Order is straightforward: a gradual reduction of access charges for VoIP providers accounts for existing reliance on such revenues and allows for a “measured transition.” Order ¶ 952, JA at 739-40. AT&T does not dispute the Order’s factual finding that, notwithstanding some disputes, it had been “in the aggregate” the practice in the industry for LECs involved in the provision of VoIP service to receive tariffed access charge revenues. Order ¶¶ 952 & 948 n.1917, JA at 739-40 & 737-38; see also In re Connect America Fund, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 26 FCC Rcd 4554, 4748 ¶ 614 (2011). The record before the Commission showed that both VoIP providers operating under the partnership model and those operating as unitary providers received such revenues prior to the Order. See n.7 supra. This alone explains the FCC’s refusal of AT&T’s demand that VoIP partnerships be treated like wireless carriers during the transition. Wireless carriers had been prohibited from tariffing access charges for years. See In re Petitions of Sprint PCS and AT&T Corp. for Declaratory Ruling Regarding CMRS Access Charges, Declaratory Ruling, 17 FCC Rcd 13,192, 13,199 ¶ 15 (2002), appeal dismissed, AT&T Corp. v. FCC, 349 F.3d 692 (D.C. Cir. 2003); Order ¶ Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 52 10 970 n.2024, JA at 753. Wireless carriers thus were differently situated from VoIP providers: they had no expectation of access charge revenues to begin with. This rationale did not require the FCC to decide AT&T’s claims about the propriety of access charges by VoIP partnerships in the past, only to acknowledge that VoIP partnerships were in fact receiving access charge revenues at the time of the Order and that it made sense to allow them to adjust gradually to losing them. AT&T may have preferred either a regime in which wireless carriers received a windfall or VoIP partnerships lost revenues immediately, but interim solutions reasonably may “consider the past expectations of parties and the unfairness of abruptly shifting policies.” MCI Telecommc’ns Corp., 750 F.2d at 141. That is exactly what the FCC did here. B. Parity Among Wireline Providers. The Order also is backed by a second rationale: parity among wireline providers, including both among LEC and non-LEC VoIP providers and between VoIP and traditional providers. The Order articulates a broader policy of symmetry between VoIP and traditional providers. See Order ¶¶ 968-969, JA at 752. The “Commission has traditionally viewed facilities-based VoIP services as ‘sufficiently close substitutes for local service to include them in the relevant product market,’” but not treated wireless carriers as competing in the same market. Qwest Corp. v. FCC, 689 F.3d 1214, 1221 n.4 (10th Cir. 2012) (internal Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 53 11 citation omitted). As the Order explains, this policy would be undermined if some VoIP providers were cut off from access charges based on an unrelated distinction about how they had structured their businesses. Some VoIP providers have used the unitary model and some the partnership model “[b]ecause the Commission has not broadly addressed the classification of VoIP services…,” and because of the Commission’s “endorsement of [VoIP partnership] arrangements.” Order ¶ 970 & n.2024, JA at 753-54. It would be arbitrary to penalize providers that chose the partnership model endorsed by the Commission when their business structure does not reflect any relevant difference in their services. Id. AT&T argues that the parity sought by the Order is irrational because the retail provider in a VoIP partnership is situated similarly to a wireless carrier, in that neither tariffs access charges. AT&T Br. at 18-20. As detailed above, however, the FCC articulated valid reasons for looking beyond this superficial similarity. And as the Commission explained, wireless carriers’ inability to tariff arises out of the Commission’s long-standing policy of allowing market conditions to govern wireless compensation, whereas VoIP can be tariffed and a non-LEC VoIP provider’s inability to file a tariff arises solely from its business structure. See p. 6 supra. In the end, the Order had to choose an access charge transition that aligned VoIP partnerships either with other wireline providers (both unitary VoIP providers and traditional wireline providers) or with wireless providers. The FCC Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 54 12 made a rational election as to which kind of parity to maintain during the transition.9 C. Incentives to Invest in IP Technology. The FCC also backed its decision with a third rationale that independently justifies the Order: avoiding penalizing investments in Internet Protocol (“IP”). “[O]ne of the goals of” the Order was to “promote investment in and deployment of IP networks.” Order ¶ 968, JA at 752 . If the FCC had put in place a transitional regime where VoIP providers operating under a partnership model could not assess access charges (but others could), it would “disadvantage providers that have already made [IP] investments,” id., merely because they chose a particular business model – one that the Commission had endorsed. The FCC reasonably articulated that such a state of affairs would not only be arbitrary, but could be counterproductive to its IP deployment objectives. Id. Again, wireless providers were not similarly situated to VoIP providers: they could not have made investments in reliance on access charges, as they were not receiving any. 9 While the Commission established a slightly different compensation scheme for VoIP-PSTN traffic than for non-VoIP traffic during the transition, both kinds of traffic are subject to access charges; the only difference is the appropriate level of those charges, which the FCC has explained. See FCC Resp. Br. in Resp. to Windstream 23-27. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 55 13 D. The Order Does Not Disregard AT&T’s Claims of Competitive Harm. The rule the FCC adopted has nothing to do with wireless providers. It neither changes the rights of wireless providers to collect access revenues nor uniquely affects their obligation to pay access charges to others. AT&T’s repeated suggestion that the Order “imposed…regulatory disadvantage” on “wireless carriers,” AT&T Br. 9, 18, bears little resemblance to the rule the Order actually implemented. In any event, AT&T’s claim of “competitive harm,” which it barely articulated below, was fully addressed by the Order. AT&T principally argued below that letting VoIP partnerships tariff access charges was inconsistent with AT&T’s view of then-prevailing law and could have unanticipated consequences on compensation for other kinds of services. AT&T Letter at 2-4, 5-6, JA at 3987-89, 3990-91. AT&T raised the argument on which it relies now – the claimed “competitive harm” to wireless providers, see AT&T Br. at 18 – only at the last minute (the last day party submissions were allowed) and in the most cursory statements, claiming that it would “arbitrarily pick winners and losers in the marketplace,” AT&T Letter at 4-5, JA at 3989-90, but never explaining how that would be the case.10 10 Given how generic and inchoate AT&T’s claims of “competitive harm” were before the Commission, it is questionable whether AT&T preserved this particular issue for review at all. See MCI Worldcom, Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir. 2000). Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 56 14 The economic reasoning argued without citation in AT&T’s brief – that the rule somehow forces wireless carriers to charge higher “retail prices” AT&T Br. at 6 – is nowhere to be found in AT&T’s arguments to the Commission. In any case, the Commission’s analysis fully disposes of AT&T’s claim. The FCC, as explained supra, considered the possibility of doing what AT&T wanted: “to immediately adopt a bill-and-keep methodology for VoIP traffic,” thereby equalizing the treatment of VoIP and wireless providers for intercarrier compensation purposes right away. Order ¶ 952, JA at 739-40. The Commission acknowledged that this would “clearly facilitate the Commission’s transition” to a regime in which all carriers are treated identically, but the Commission concluded that an immediate switch would not “appropriately balance[] other competing policy objectives.” Id. AT&T may disagree with the FCC’s judgment as a policy matter, but that judgment was the FCC’s to make. Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 57 15 CONCLUSION Intervenors respectfully request that the Court deny the petition. Respectfully submitted, /s/ David E Mills David E. Mills J.G. Harrington DOW LOHNES PLLC 1200 New Hampshire Ave., NW Suite 800 Washington, DC 20036-6802 Phone: (202) 776-2000 Facsimile: (202) 776-2222 Counsel for Cox Communications, Inc. /s/ Samuel L. Feder Samuel L. Feder Luke C. Platzer JENNER & BLOCK LLP 1099 New York Ave., NW Suite 900 Washington, DC 20001 Phone: (202) 639-6092 Facsimile: (202) 661-4999 Counsel for Comcast Corporation /s/ E. Ashton Johnston E. Ashton Johnston Helen E. Disenhaus LAMPERT, O’CONNOR & JOHNSTON, P.C. 1776 K Street NW Suite 700 Washington, DC 20006 Phone: (202) 887-6230 Facsimile: (202) 887-6231 Counsel for HyperCube Telecom, LLC /s/ Christopher J. Wright Christopher J. Wright John T. Nakahata WILTSHIRE & GRANNIS LLP 1200 Eighteenth Street, NW, 12th Floor Washington, DC 20036 Phone: (202) 730-1300 Counsel for Level 3 Communications, LLC Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 58 16 /s/ Rick Chessen Rick Chessen Neal M. Goldberg Steven Morris Jennifer McKee THE NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 25 Massachusetts Avenue, NW Suite 100 Washington, DC 20001 Phone: (202) 222-2445 rchessen@ncta.com ngoldberg@ncta.com smorris@ncta.com jmckee@ncta.com /s/ Howard J. Symons Howard J. Symons Robert G. Kidwell Ernest C. Cooper MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 701 Pennsylvania Avenue, NW Suite 900 Washington, DC 20004 Phone: (202) 434-7300 Facsimile: (202) 434-7400 hjsymons@mintz.com rgkidwell@mintz.com ecooper@mintz.com Counsel for NCTA July 29, 2013 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 59 CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATIONS, TYPEFACE REQUIREMENTS, TYPE STYLE REQUIREMENTS, AND PRIVACY REDACTION REQUIREMENTS 1. This brief contains 3,153 words of the 21,400 words the Court allocated for the briefs of intervenors in support of the FCC in its October 1, 2012 Order Consolidating Case No. 12-9575 with Other FCC 11-161 Cases, Establishing Windstream Briefing Schedule, and Modifying Intervenor Participation. The intervenors in support of the FCC have complied with the type-volume limitation of that order because their briefs, combined, contain a total of fewer than 21,400 words, excluding the parts of those briefs exempted by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and 10th Cir. R. 32(a) and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2007 in 14-point Times New Roman font. 3. All required privacy redactions have been made. /s/ Luke C. Platzer July 29, 2013 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 60 C E R T I FI C A T E OF DI GITAL SUBMIS S I O N Certi f i c a t e of Compl i a n c e wi th Virus Scan The Combined Respons e s of Federal Responde n ts and Supporti n g Interve n o r s to the AT&T Principa l Brief were scann e d for virus e s with Symantec Endpoint Protect i o n, versio n 11.0. 7200.1147, updated on Ju ly 29, 2013, and accor d i n g to the progr a m are free of viruses. /s/ James M. Carr James M. Carr Counsel July 29, 2013 Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 61 C E R T I FI C A T E OF SERVI C E I hereby certi f y that on July 29, 2013, I caused the foreg o i n g Combined Respons e s of Federal Respond e n t s and Supporti n g Interve n o r s to the AT&T Principa l Brief to be filed by deliv e r i n g a copy to the C ourt via e-mail at FCC_briefs _ o n ly @ c a10.uscour t s .gov. I further certi f y that the forego i n g docum e n t will be furni s h e d by the Court throu g h (ECF) electro n i c servi c e to all parti e s in this case throug h a regist e r e d CM/ECF user . This docume n t will be avail a b l e for viewi n g and downl o a d i n g on the CM/ECF system. /s/ James M. Carr James M. Carr Counsel July 29, 2013   Appellate Case: 11-9900 Document: 01019099596 Date Filed: 07/29/2013 Page: 62