COMBINED RESPONSES OF FEDERAL RESPONDENTS AND SUPPORTING INTERVENORS TO THE JOINT UNIVERSAL SERVICE FUND 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: 01019099664 Date Filed: 07/29/2013 Page: 1 FEDERAL RESPONDENTS FINAL RESPONSE TO THE JOINT UNIVERSAL SERVICE FUND PRINCIPAL BRIEF OF PETITIONERS 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: 01019099664 Date Filed: 07/29/2013 Page: 2 i TABLE OF CONTENTS Table Of Aut horities ........................................................................................ iv   Glossary ........................................................................................................... ix   Issue Presented .................................................................................................. 1   Introduc t i o n And Summa ry Of Ar gument ........................................................ 1   Argumen t ......................................................................................................... 12   I.  The FCC Reasonably Deter m i n ed That The Statut e Authoriz e s The Universal Servi ce Reforms In The Order. ..................... 12   A.  The FCC Reasonabl y Conclude d That It Has Authorit y Under Section 254 Of The Ac t To Conditio n Receipt Of Federal Universa l Service Subsidie s On Deployme n t Of Broadban d-Capable Networks . ........................................................... 12  B.  The FCC Reasonabl y Conclude d That It May Conditio n Federal Universa l Service Subsidie s On A Recipien t ’ s Compliance With Clearly De fined Public Interes t Obligations. ......................................................................................... 18   1.  The Order Does Not Fund Informa t i o n Services Under Section 254 Of The Act. .................................................................. 19  2.  The Broadban d Public Interes t Obligati o n Is A Lawful Conditio n On Federal Univer sal Service Support. ......................... 20   3.  The Broadban d Public Intere s t Obligati o n Does Not Constitu t e Title II Common Carrier Regul ation. ............................ 22   C.  Petitione r s ’ Claim That The Order Violates Sections 254(e) And 214(e) Of The Ac t Is Not Ripe And Lacks Merit. ................................................................................................... 24   D.  The FCC Reasonabl y Ruled That It Also Has Authorit y Under Section 706 Of The 1996 Act To Require Recipien t s Of Federal Univ ersa l Service Support To Deploy Broadban d Networks And Serv ices. ...................................... 28   Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 3 i i II.  The FCC Reasonab l y Adopted A $4.5 Billion Annual Funding Targ et. ........................................................................................ 31   A.  The FCC’s Reasonab l e Predi cti v e Judgment That The Order Will Provide Suffici e n t Support Is Entitled To Substanti a l De fer ence. ......................................................................... 33   B.  Petitioner s ’ Takings Claim Is No t Ripe And Lack s Merit. ................. 39   III.  The FCC Reasonabl y Refor med Support Mechanis ms For Rate-Of-Return Carriers To Elimin ate Waste And Inefficie n c y In Th e Prior Sy stem. ............................................................ 40   A.  The “Benchma r k i n g Rule” Is Consiste n t With Section 254(b)(5) Of The Act And Th e FCC’s Other Rules. .......................... 41   B.  The FCC Did Not Engage In Impermi s s i b l e Retroact i v e Rulemaki ng. ........................................................................................ 47   IV.  Petitione r s ’ Challenge s To The FCC’s New Support Mechanisms For Areas Served By Price Cap Carriers Are Not Ripe And La ck Mer it. ....................................................................... 52   V.  Petition e r s ’ Various Challeng e s To The Other Reforms In The Order Are Waived, Not Ripe, And Lack Me rit. ............................... 55   A.  The Order Lawfully And Reasonab l y Reduced Federal Universa l Service Subsidie s In Areas With Artifici a l l y Low End-User Rates. .......................................................................... 55   B.  The Order Reasonab l y Elimin at e d Federal Universa l Service Support In Areas Serv ed By An Unsubsid i z e d Competitor. .......................................................................................... 59   C.  The New Competitive Bi dding Mechanis m For Distribu ti n g One-Time Support To Wireless Carriers Is Consiste n t With the Act. ..................................................................... 62   D.  The Order Did Not Elimina t e Fede ral Universal Service Support For Remo te Areas. ................................................................. 63   VI.  The FCC Gave Adequate No tice And Opportun i ty To Comment On The Rule Chang es In The Order . ...................................... 64  Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 4 iii VII. The FCC Reasonabl y Decide d To Address Universa l Service Contribut i o n s In A Separate Proce eding. ................................... 67   Conclusi on ....................................................................................................... 70   Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 5 iv TAB L E OF AUTH O R I T I E S CASES   Abbott Labs. v. Gardner , 387 U.S. 136 (1967) ............................................... 55 Ad Hoc Telecomm s . User Comm. v. FCC , 572 F.3d 903 (D.C. Cir. 2009) .................................................................................... 29 Alenco Commc’ns , Inc. v. FCC , 201 F.3d 608 (5th Cir. 2000) .......................................... 8, 33, 36, 39, 40, 45, 48, 50, 51, 56, 60 Alto Eldorado P’ship v. County of Santa Fe , 634 F.3d 1170 (10th Ci r. 2011) .......................................................................... 39 Ark Initiat i v e v. U.S. Forest Serv ., 660 F.3d 1256 (10th Cir. 2011) ........................................................................................... 58 AT&T Corp. v. Iowa Utils. Bd ., 525 U.S. 366 (1999) .......................................................................................................... 31 Bechtel v. FCC , 957 F.2d 873 (D.C. Cir. 1992) .............................................. 51 Bowen v. Georgeto w n Univ. Hosp ., 488 U.S. 204 (1988) (Scalia, J., concurring) ..................................................................... 49 Bowoto v. Chevron Corp ., 621 F.3d 1116 (9th Cir. 2010) ............................................................................................................ 15 Cable & Wireles s PLC v. FCC , 166 F.3d 1224 (D.C. Cir. 1999 ) .................................................................................... 10, 56 Cellco P’ship v. FCC , 700 F.3d 534 (D.C. Cir. 2012) ..................................................................................................... 24, 27 Cellnet Commc’ns, Inc. v. FCC , 149 F.3d 429 (6th Cir. 1998) ..................................................................................................... 65 Cellular Telecom m s . Indus. Ass’n v. FCC , 168 F.3d 1332 (D.C. Cir. 1999) .................................................................................. 57 Comcast Corp. v. FCC , 600 F.3d 642 (D.C. Cir. 2010) ..................................................................................................... 29, 30 DirecTV, Inc. v. FCC , 110 F.3d 816 (D.C. Cir. 1997) ............................................................................................................ 49 Duquesne Light Co. v. Barasch , 488 U.S. 299 (1989) .......................................................................................................... 40 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 6 v FCC v. Nat’l Citizens Comm. fo r Broad ., 436 U.S. 775 (1978) ................................................................................................... 38 FCC v. Pottsvill e Broad. Co ., 309 U.S. 134 (1940) ........................................ 68 FPC v. Hope Natural Gas Co. , 320 U.S. 591 (1944) ..................................... 39 FPC v. Texaco , 417 U.S. 380 (1974) .............................................................. 36 Franklin Savings Ass’n v. Dir., Office of Thrift Supervis i o n , 934 F.2d 1127 (10th Cir. 1991) .............................................. 38 Globalsta r , Inc. v. FCC , 564 F.3d 476 (D.C. Cir. 2009) ............................................................................................................ 65 Home Box Office, Inc. v. FCC , 567 F.2d 9 (D.C. Cir. 1977) ..................................................................................................... 36 Ill. Bell Tel. Co. v. FCC , 988 F.2d 1254 (D.C. Cir. 1993) ............................................................................................................ 40 In re Dawes , 652 F.3d 1236 (10th Cir. 2011) ................................................. 15 Landgraf v. USI Film Prods., Inc ., 511 U.S. 244 (1994) ................................................................................................... 47, 48 Los Alamos Study Grp. v. U.S. Dept. of Energy , 692 F.3d 1057 (10th Cir. 2012) ............................................................. 25, 47, 64 M a i n s t r e a m Mktg. Se rvs., Inc. v. FTC , 358 F.3d 1228 (10th Cir. 2004) .................................................................................. 31 M e l c h er v. FCC , 134 F.3d 1143 (D.C. Cir. 1998) .......................................... 61 NAB v. FCC , 740 F.2d 1190 (D.C. Cir. 1984) ................................................ 69 Nat’l Ass’n of Home Hea lth Agencies v. Schwei ker , 690 F.2d 932 (D.C. Cir. 1982) .................................................................... 31 Nat’l Cable & Telecomm s . Ass’n v. Brand X Internet Servs ., 545 U.S. 967 (2005) .................................................... 31, 69 Nutraceut i c a l Corp. v. Von Eschenba c h , 459 F.3d 1033 (10th Cir. 2006) .................................................................................. 15 Nuvio Corp. v. FCC , 473 F.3d 302 (D.C. Cir. 2006) ......................... 27, 60, 65 Q w e s t Commc’ns Int’l, Inc. v. FCC , 240 F.3d 886 (10th Cir. 2001) ........................................................................ 26, 47, 55, 64 Q w e s t Commc’ns Int’l., Inc. v. FCC , 398 F.3d 1222 (10th Cir. 2005 ) ............................................................ 10, 16, 21, 31, 37, 57 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 7 v i Q w e s t Corp. v. FCC , 258 F.3d 1191 (10th Cir. 2001) ............................................................................... 3, 10, 13, 14, 18, 57 Q w e s t Corp. v. FCC , 482 F.3d 471 (D.C. Cir. 2007) ..................................... 43 Q w e s t Corp. v. FCC , 689 F.3d 1214 (10th Cir. 2012) ............................................................................................................ 38 Rural Cellular Ass’n v. FCC , 588 F.3d 1099 (D.C. Cir. 2009) ................................................ 7, 31, 33, 36, 38, 48, 51, 59, 60, 67 Rural Cellular Ass’n v. FCC , 685 F.3d 1083 (D.C. Cir. 2012) .............................................................................................. 33, 36 Sorenson Commc’ns , Inc. v. FCC , 567 F.3d 1215 (10th Cir. 2009) .............................................................................. 22, 43, 69 Sorenson Commc’ns , Inc. v. FCC , 659 F.3d 1035 (10th Cir. 2011) ........................................................................ 19, 43, 47, 59 Sw. Bell Tel. Co. v. FCC , 153 F.3d 523 (8th Cir. 1998) ............................................................................................................ 47 Tex. Office of Pub. Util. Counsel v. FCC , 183 F.3d 393 (5th Cir. 1999) ......................................................................... 21, 33, 39 United States v. Am. Librarie s Ass’n, Inc ., 539 U.S. 194 (2003) ................................................................................................... 21 Vt. Pub. Serv. Bd. v. FCC , 661 F.3d 54 (D.C. Cir. 2011) ............................................................................................... 36, 53, 58 W i l l i a m s o n County Reg’l Planning Comm’n v. Hamilto n Bank , 473 U.S. 172 (1985) ..................................................... 7, 39 W WC Holding Co. v. Sopkin , 488 F.3d 1262 (10th Cir. 2007) .............................................................................................. 23, 25 S T A T U T E S   5 U.S.C. §553(b) .............................................................................................. 64 5 U.S.C. §553( b)(3) ......................................................................................... 64 47 U.S.C. §1302 ................................................................................................ 6 47 U.S.C. §1302(b) ............................................................................... 6, 28, 29 47 U.S.C. §152(b )....................................................................................... 9, 56 47 U.S.C. §154 (j) ............................................................................................ 68 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 8 v i i 47 U.S.C. §155(c )(1) ....................................................................................... 44 47 U.S.C. §201 et seq . ....................................................................................... 5 47 U.S.C. §214 (e) ......................................................................... 10, 15, 24, 62 47 U.S.C. §214(e)(1) ....................................................................................... 25 47 U.S.C. §214(e)(1)( A) .......................................................................... 26, 27 47 U.S.C. §214(e)(2 ) ............................................................................ 5, 25, 62 47 U.S.C. §214(e )(3) ....................................................................................... 61 47 U.S.C. §214(e )(6) .................................................................................. 5, 25 47 U.S.C. §254 .................................................................................................. 2 47 U.S.C. §254(b) ............................................................... 3, 13, 15, 16, 20, 70 47 U.S.C. §254(b)( 1) ................................................................................ 68, 69 47 U.S.C. §254(b)( 1)-(3) ................................................................................. 22 47 U.S.C. §254(b)( 2) .............................................................. 3, 4, 6, 13, 16, 30 47 U.S.C. §254(b)( 2)-(3) ................................................................................. 20 47 U.S.C. §254(b)(3) ............................................................................ 3, 13, 37 47 U.S.C. §254(b)( 4) ................................................................................ 68, 69 47 U.S.C. §254(c)(1 ) .......................................... 3, 4, 14, 15, 16, 18, 19, 20, 26 47 U.S.C. §254 (d)............................................................................................ 70 47 U.S.C. §254(e) ................................................................. 3, 7, 20, 24, 33, 38 47 U.S.C. §332(c )(3) ....................................................................................... 57 47 U.S.C. §405(a) ............................................................... 7, 19, 43, 47, 59, 65 R E G U L A T I O N S   47 C.F.R. §0. 291 ............................................................................................. 44 47 C.F.R. §0.291 (e) .................................................................................. 43, 44 47 C.F.R. §54.31 3(a)-(b) ................................................................................. 21 47 C.F.R. §54.31 4(a)-(b) ................................................................................. 21 Connect America Fund; High Cost Universa l Service Support, 77 Fed. Reg. 30,411-01 (May 23, 2012) ...................................................................................................... 46 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 9 v i i i Universa l Service-Interca r r i e r Compensa t i o n Transfo r m a t i o n, 76 Fed. Reg. 49,401-01 (Aug. 10, 2011) ...................................................................................................... 66 ADMI NISTRATI VE DECI SIONS   Accipiter Communic a t i o n s , Inc ., 28 FCC Rcd 391 (WCB 2013) ................................................................................................ 35 Allband Communi c a t i o n s , 27 FCC Rcd 8310 (WCB 2012) ............................................................................................................ 35 Connect America Fund , 26 FCC Rcd 4554 (2011) ......................................... 21 Connect America Fund , 27 FCC Rcd 4235 (WCB 2012), a f f ’ d in part and modif i e d in part, Connect America Fund , 28 FCC Rcd 2572 (Feb. 27, 2013) ..................................... 42 Federal-State Joint Board on Universa l Service , 16 FCC Rcd 11244 (2 001) ............................................................................... 12 Federal-State Joint Board on Universa l Service , 20 FCC Rcd 6371 ( 2005) ................................................................................. 25 High-Cost Universa l Service Support , 23 FCC Rcd 8834 (2008), a f f ’ d , Rural Cellular Ass'n v. FCC , 588 F.3d 1095 (D.C. Cir. 2009) .................................................................. 63 IP-Enabled Services , 20 FCC Rcd 10245 (2005), a f f ’ d sub nom. Nuvio Corp. v. FCC , 473 F.3d 302 (D.C. Cir. 2006) ........................................................................................... 27 Preser ving the Open Internet , 25 FCC Rcd 17905 (2010), p e t . for revie w pendi n g , Verizon v. FCC , D.C. Cir. No. 11-1355 ................................................................................. 30 Universal Service Cont ribu t i o n Method o l o g y ; A National Broadba n d Plan for Our Future , 27 FCC Rcd 5357 ( 2012) ................................................................................. 68 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 10 ix G L O S S A RY 1996 Act The Telecommu n i c a t i o n s Act of 1996 Act The Communic a t i o n s Act of 1934 APA The Administrative Procedure Act ARC Access Recovery Charge COLR Carrier of Last Resort ETC Eligible Teleco mmu n i c a t i o n s Carrier FCC Federal Communi c a t i o n s Commiss i o n FNPRM Further Notice of Propose d Rulemak i n g HCLS High-Cost Loop Support LEC Local Exchange Carrier NPRM Notice of Proposed Rulemaki n g SNA Safety Net Additive USF Universal Service Fund VoIP Voice over Interne t Protocol WCB Wireline Competiti o n Bureau Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 11 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 JOINT UNIVERSAL SERVICE FUND PRINCIPAL BRIEF OF PETITIONERS I S S U E PRES EN T E D Whether the Federal Communi ca t i o n s Commissio n (“FCC”) lawfull y refor me d its unive r s al servi c e rules to effici e n t l y enhan c e acces s to broadb a n d in rural America. I N T R O D U C T I O N AND SU MMARY OF ARGUME N T The FCC, in the Order on revie w, took the neces s a r y steps to moder n i z e its unive r s a l servi c e progr a m. See Connect America Fund , 26 FCC Rcd 17663 (2001) (“ Order ”) (JA at 390-1141). Finding that “[n]etwork s that provi d e only voice serv ic e … are no longer adequa t e for the count r y ’ s commu n i c a t i o n needs,” Order ¶2 (JA at 394), the FCC reorien t e d Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 12 2 the federa l high-cost univer s a l servi c e progr a m to suppo r t dual-use netwo r k s capab l e of provid i n g voice as well as broadb a n d servi c e to all American s. See FCC Preliminary Br. 21-22. Seeking to preser v e the s t a t u s quo , petitio n e r s raise at least twelve issues. Br. 1-3. They clai m that th e FCC lacked aut hor i t y to reform its univer s a l servic e rules, violat e d va rio u s provi s io n s of the Communic a t i o n s Act of 1934 (“Act”), enga ge d in unrea s o n e d decis i o n-makin g in viola t i o n of the Admin istrat i v e Procedure Act (“AP A”), and faile d to follo w prope r proced u r e s. As explain e d below, these cl ai ms are baseless, and many ar e not prope r ly prese n t e d. I. Petition e r s broadl y assert that th e FCC lacked statu t o r y autho r i t y to enact univer s a l servic e reform. Petiti o n e r s ’ vario u s cha ll e n g e s rest on the asser t i o n that Congress fence d off “infor m a t i o n servic e s ” ( s e e FCC Prelimin a r y Br. 8 n.6) – notab l y, br oad b a n d Interne t acces s – from the univer s a l servic e progra m. Petitione r s are wrong. A. The FCC reasona b l y deter mi n e d that secti o n 254 of the Act, 47 U.S.C. §254, authorize d the ag ency to provid e feder a l unive r s a l servi c e suppo r t for broad b a n d- capabl e networ k s. The FCC has a “manda t o r y duty” to “base its univers a l [service] polici e s on the princi p l e s listed in §254(b)” of the Act. Q w e s t Corp. v. FCC , Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 13 3 258 F.3d 1191, 1200 (10th Cir. 2001) (“ Qwest I ”). Among thos e prin c i p l e s are that “[a]ccess to advance d teleco m mu n i c a t i o n s and infor m a t i o n servic e s should be provid e d in all regio n s of th e Nation,” and that “[c]onsume r s in all regio n s of the Nation … shoul d have acces s to telec o m mu n i c a t i o n s and inform a t i o n servic e s … that ar e reas o n a b l y comp a r a b l e to those servi c e s provid e d in urban areas ” and at reas o n a b l y comp a r a b l e rates. 47 U.S.C. §254(b)(2), (3). After evalua t i n g the record ev iden c e, the FCC found that the achie v e m e n t of the secti o n 254(b) princi p l e s requi r e s carri e r s to deplo y netwo r k s capab l e of provid i n g cons u me r s with acces s to both voice and broadb a n d servic e s. The FCC conclude d that it was author i z e d to advanc e those princ i p l e s by 47 U.S.C. §254(e), wh ich requi r e s recip i e n t s of suppo r t from the feder a l unive r s a l servi c e fund (“ USF”) to “use that suppo r t only for the provi s i o n, maint e n a n c e, and upgra d i n g of facili t i e s and servic e s for which the suppor t is intend e d.” Because “f acil i t i e s ” and “servi c e s ” are distin c t terms, the FCC reasone d that, throu g h secti o n 254, Congress grant e d the agenc y autho r i ty to suppo r t the “t elec o m mu n i c a t i o n s servic e s ” design a t e d under 47 U.S.C. §254(c)(1) and the facili t i e s neces s a r y to achieve the princi p l e s in sectio n 254(b). In fact, in the decad e prior to the Order , the FCC permitt e d (but did not requi r e) th e recipi e n t s of high-cost univer s a l Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 14 4 service suppor t to invest in “dual-use” f acili t i e s that provid e voice as well as broadb a n d servic e s. Consisten t with that long-stand in g polic y, the FCC in the Order c o n d i t i o n e d a carrie r ’ s recei p t of federa l univer s a l servic e suppor t under secti o n 254 on the deplo y m e n t of a broadb a n d-capabl e networ k. To ensure that USF recipie n t s use suppo r t for that purpo s e, the FCC further requi r e d them to offer broad b a n d servi ce that meets certain bas ic perform a n c e requir e m e n t s. 1. Petition e r s claim that the FC C lacks autho r i t y to fund broad b a n d facil i t i e s becau s e, in their view, secti o n 254(e)’s use of the phras e “for which the suppo r t is inten d e d ” must be const r u e d as refer r i n g to the “teleco m m u n i c a t i o n s servic e s ” deemed eligi b l e for suppo r t under secti o n 254(c)(1). But the FCC reasona b l y inte rp r e t e d that clause to refer to the univer s a l servic e princi p l e s in sectio n 254(b) of the Act. This readi n g gives full effect to sectio n 254. Indeed, under petit i o n e r s ’ readi n g, the FCC could not achiev e the mandat o r y prin ci p l e s in secti o n 254(b)(2) and (3) – which includ e “[a]ccess to advan ced teleco mmu n ications and i n f o r m a t i o n servic e s … in all regions of the Nation.” 47 U.S.C. §254(b)(2) (emphas i s added). The FCC was not requir e d to adopt an interp r e t a t i o n of the statut e that disab l e d the agenc y from achie v i n g th e purpos e s Congress assig n e d to it. Such a readin g is not reason a b l e, much less mandat e d. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 15 5 2. To ensure that univer s a l serv i c e suppo r t is being used to deplo y broadb a n d facili t i e s, the FC C further requi r e d USF recipie n t s to provi d e broadb a n d Internet access servic e – a public inter e s t oblig a t i o n that was a valid and necess ar y exerci s e of the agen cy ’ s judici a l l y affirm e d author i t y to impos e condi t io n s on feder a l subsi d i e s. Further, becaus e the public intere s t oblig a t i o n is condi t i o n a l ( i.e ., carrie r s need only provi d e broad b a n d if they volunt a r i ly seek federa l unive r s a l se rvi c e suppo r t), it does not amoun t to commo n carri e r “regu l a t i o n ” under T itle II of the Act, 47 U.S.C. §201 et seq ., as petiti o n e r s allege. 3. While petiti o n e r s assert that the Order distrib u t e s univer s a l servic e suppo r t to entit i e s that are not “tele c o mmu n i c a t i o n s carrie r s ” an d provid e no “teleco m mu n i c a t i o n s servic e s,” that claim will not be ripe for judic i a l revie w unles s and until a state co mmi s s i o n (or th e FCC) designa t e s such an entity an “eligib l e teleco m mu n i c a t i o n s carrier ” (“ETC”). See 47 U.S.C. §214(e)(2), (6). But even under petit i o n e r s ’ theor y , a provider of Voi ce over Internet Protocol (“VoIP”), an “uncla s s i f i e d ” se rvi c e, could be eligi b l e for such suppo r t if it volun t a r i l y offer s VoIP as a “telec o m m u n i c a t i o n s servic e ” – a pract i c e that the FCC has sanct i o n e d in prio r order s and that occur s in the market p l a c e today. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 16 6 B. The FCC conclud e d that it has indep e n d e n t autho r i t y under secti o n 706 of the Telecomm u n i c a t i o n s Act of 1996 (“1996 Act”), 47 U.S.C. §1302, to suppo r t broad b a n d netw o r k s and servi c e s. That provi s i o n empow e r s the FCC to “take immediate ac tio n to accel e r a t e deplo y m e n t of such capab i l i t y by remov i n g barri e r s to infra s t r u c t u r e inves t men t and by promo t i n g comp e t i t i o n in the telec o m mu n i c a t i o n s marke t.” 47 U.S.C. §1302(b). Evidence in the record showed that s uppo r t for broad b a n d helps achie v e both those statutor y objectiv e s. The FCC se parat e l y found that its exerc i s e of autho r i ty under secti o n 706 helps fulf ill the object i v e s in sectio n 254(b), notably the princip l e that “[a]ccess to ad vanced tel ec o m mu n i c a t i o n s and info r ma t i o n serv i c e s shou ld be provid e d in all regio n s of the Nation.” 47 U.S.C. §254(b)(2). II. The FCC, for the first time, es tab l i s h e d an annua l fundi n g targe t for the high-cost comp o n e n t of the USF. Relying on its predic t i v e judgme n t, the FCC found that settin g the target at $4.5 billio n annua l l y would provi d e suffi c i e n t suppo r t to ensur e affor d a b l e and reaso n a b l y comp a r a b l e voice and broadb a n d servi c e. Contrary to petit i o n er s ’ claims, the FCC careful l y calib r a t e d the impac t of unive r s a l servi c e refor m on incumb e n t local ex chan g e carrie r s (“LECs”) subjec t to rate-of-retu rn regul a ti o n. It mainta i n e d high-cost suppo r t for those Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 17 7 carrier s at exist i n g level s (about $2 b illion annual l y), and requ i r e d them to exten d facil i t i e s to custo me r s only upon a reason a b l e reque s t for servi c e. The FCC estimat e d that almo s t one-half of all rate-of-return carri e r s would see no change or an increa s e in federa l suppo r t , and of those expect e d to experi e n c e a reduc t i o n, the major i t y would see re duc t i o n s of fewer than 10 percen t of their annual subsid i e s. The FCC also provi d e d a waiver proce s s under which carrier s may receive exempti o n s from th ese reduct i o n s if they are able to demon s t r a t e that suppo r t reduc t i o n s w ould imper i l their finan c i a l viabi l i t y and threat e n servic e to consum e r s. Th e availa b i l i t y of that waiver proce s s under c u t s petit i o n e r s ’ argum e n t s that the Order (1) provid e s insuf f i c i e n t suppo r t for purpo s e s of secti o n s 254(b)(5) and (e) of the Act, see Rural Cellula r Ass’n v. FCC , 588 F.3d 1099, 1104 (D.C. Cir. 2009) (“ RCA I ”); and (2) effect s an uncon s t i t u t i o n a l takin g of prope r t y, s e e Willi a m s o n County Reg’l Plannin g Comm’n v. Hamilton Bank , 473 U.S. 172, 194 (1985). III. To elimin a t e waste and ineff i c i e n c y in unive r s al servi c e suppo r t to rate-of-return carri e r s, the FCC limited those carri e r s ’ recov e r y of certa i n capit a l and opera t i n g expen s e s. Petitione r s have waiv e d their vario u s chall e n g e s to this rule becau s e they never prese n t e d them to the FCC. See 47 U.S.C. §405(a). The challen g e s lack mer it in any event. Petition e r s ’ prima r y comp la i n t is that the new rule w ill produ c e unpre d i c t a b l e fundi n g amoun t s, Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 18 8 alleged l y in viola t i o n of 47 U.S.C. §254(b)(5). But that provi s io n of the Act only requir e s predi c t a b l e rules, not outcom e s. See Alenco Comm c’ns, Inc. v. FCC, 201 F.3d 608, 622 (5th Cir. 2000). Mo reover, it has always been the case that carri e r s will not know how much suppor t they will receiv e in future perio d s, so the new rule adds no un cert a i n t y to USF disburs e m e n t s. Separate l y, petiti o n e r s argue that the FCC engage d in imper mi s s i b l e retro a c t i v e rulemak i n g. Not so. Ther e is no “primar y retroa c t i v i t y ” becaus e the Order only reduce s unive r s a l servi c e supp or t prospe c t i v e l y. Even if the Order were retroac t i v e in effect (which it is not), there is no “seco n d a r y retroa c t i v i t y ” becaus e the FCC’s decisi o n to amend its rules was reason a b l e and thus lawfu l. IV. The FCC also overha u l e d the suppo r t mecha n i s ms for incumb e n t LECs subject to price cap regula t i o n. To spur broad b a n d deplo y me n t, over and above what price cap carri e r s ha d alrea d y plann e d, the FCC offered addit i o n a l high-cost suppo r t , on a one-time basis, to areas curre n t l y lacki n g broadb a n d servic e. Havi ng adequ a t e l y expla i n e d its decis i o n to jump-start broad b a n d deplo y me n t in previo u s l y un serv e d areas rather than subsid i z e servic e upgrad e s in areas that alrea d y have acces s to broadba n d, the FCC was not requi r ed to separ a t e l y respo n d to petit i o n e r s ’ objec t i o n s to that limit a t i o n. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 19 9 Nor was the FCC require d to addre s s petit i o n e r s ’ argume n t s that using an auction mechanis m to ev ent u a l l y distr ib u t e subsid i e s to price cap carri e r s will degra d e servi c e and di sadva n t a g e small teleco m m u n i c a t i o n s carrie r s. The Order merely state d the FCC’s inten t i on to use an au ction mechanis m. In an attac h e d Further Notice of Pr oposed Rulemaki n g (“FNPRM”), the FCC sought comme n t on how best to desig n and imple m e n t it – inclu d i n g co mme n t on the issues of concer n to petiti o n e r s. Until the FCC acts on the FNPRM, petitio n e r s ’ claims th at the m echa n i s m will degra d e servi c e or harm small carri e r s are not ripe. V. Petition e r s launc h a scatte r s h o t attac k on vario u s other refor ms desig n e d to more effic i e n t l y and cost-e ffect i v e l y suppo r t voice and broad b a n d with feder a l unive r s a l servi c e fundin g. Many of these perfu n c t o r y and often under d e v e l o p e d claims are waive d or unripe ; they all lack merit. A. In resp on s e to record eviden c e showin g that a numb er of USF recipie n t s charg e artif i c i a l l y low rates, the FCC adopted a rule that reduce s feder a l subsi d i e s to carrie r s wi th rates below a specif i e d floor so as not to burde n cons u me r s who ulti ma t e l y mak e univers a l servic e contri b u t i o n s. While petit i o n e r s comp l a i n that the new rule has the d e facto effect of setti n g local rates in viola t i o n of 47 U.S.C. §152( b), courts have made clear that an incide n t a l effect on rates does not mean that the FCC is “regula t i n g ” rates. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 20 10 See Cable & Wirel es s PLC v. FCC , 166 F.3d 1224, 1230 (D.C. Cir. 1999). Moreover, FCC adoptio n of measu r e s that encou r a g e state s to adjus t local rates is not only permi s s i b l e, it is some t i m e s requi r e d to ensur e that state s assis t in imple m e n t i n g the unive r s a l servi c e goals in secti o n 254 of the Act. See Qwest I , 258 F.3d at 1203-04; Q w e s t Commc’ns Int’ l., Inc. v. FCC , 398 F.3d 1222, 1238 (10th Cir. 2005) (“ Q w e s t II ”). B. The FCC also elimi n a t e d suppo r t in areas serve d by an unsub s i d i zed co mp e t i t o r. Petition e r s predi c t that this will threat e n custom e r s, because an unsubs i d i z e d co mpet i t o r (u nlike the incu mb e n t LEC) has no legal oblig a t i o n to provi d e voice and broad b a n d servi c e. But the FCC reason a b l y predi c t e d that unsubs i d i z e d co mp e t i t o r s would have busin e s s incen t i v e s to mainta i n servi c e in areas they serv e today, and thus declin e d to fund duplic a t i v e netwo r k s where marke t for ces are alread y suffic i e n t to ensure consum e r access to voice and broa db a n d servic e s. That sensib l e deter mi n a t i o n is entit l e d to substa n t i a l defer e n c e. C. To spur the deploy m e n t of mobil e wirel e s s servi c e s, the FCC decided to use co mp e t i t i v e biddi n g to distr i b u t e $300 million in one-time high-cost suppo r t to wirel e s s carri e r s in certa i n desig n a t e d areas. Petition e r s argue that this mecha n i s m usurp s st ate commi s s i o n autho r i ty under 47 U.S.C. §214(e), but they confla t e eligib i l i t y fo r subsid i e s with the right to recei v e Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 21 11 subsidi e s. Nothing in the Order limite d the state s ’ autho r i ty under secti o n 214(e) to deter mi n e who is eligi b l e fo r suppo r t, and where they are eligi b l e for suppor t. Such state eligib i l i t y deter mi n a t i o n s are still a preco n d i t i o n to recei v i n g suppo r t, but no carri e r is entit l e d to recei v e feder a l un ive r s a l servi c e suppo r t simp l y by virtu e of these state deter mi n a t i o n s. D. The FCC decided to trans i ti o n suppo r t for the most remo t e areas of the nation to a newly creat e d fund. The Order set aside $100 millio n annual l y for that effort but sought co mme n t on how to distr ib u t e suppo r t in the attach e d FNPRM. Contrary to petit i o n e r s ’ sugges t i o n, until those distr i b u t i o n rules are in place, extrem e l y high-cost areas will co ntin u e to recei v e suppo r t under exist i n g mecha n i s ms for price cap and rate-of-retur n carrie r s. When the FCC creates th e new Remote Areas Fund, petiti o n e r s may, if they are aggrie v e d, challen g e that new mech an i s m. Until then, their claim is not ripe and, in any ev ent, meritle s s. VI. Petition e r s compl a i n that certai n key provis i o n s of the Order did not compl y with the notice-and-comme n t requi r e m e n t s of the APA. That argum e n t is not prope r l y befor e the Court, becaus e it was not first prese n ted to the FCC through a petiti o n for recon s i d e r a t i o n. It also lacks merit, becaus e the FCC sought comme n t on all of the chall e n g e d provi s i o n s. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 22 12 VII. Finally, the FCC reasona b l y decid e d to addre s s in a separa t e proce e d i n g the issue of unive r s a l servi c e contri b u t i o n s. This action was well withi n the agenc y ’ s discr e t i o n to defin e the scope of its own proce e d i n g s and to procee d increm e n t a l l y. A R G U M E N T I. TH E FCC REAS ONABLY DETERMINED THAT THE STATUTE AUTH ORI Z E S THE UNI VERS A L SERVICE REFOR M S IN THE ORDER . A. T h e FCC Reason a b l y Conclu d e d That It Has Autho r i t y Unde r Sect i o n 254 Of The Act To Condi t i o n Rece i p t Of Federa l Unive r s a l Servi c e Su bsi d i e s On Deploy m e n t Of Broa d b a n d - C a p a b le Netwo r k s . “ ‘The public switc h e d telep h o n e netwo r k is not a single-use networ k.’” Order n.70 (JA at 412-413) (quotin g Federal-State Joint Board on Universa l Service , 16 FCC Rcd 11244, 11322 (¶200) (2001) (“ Rural Task Force Order ”)). Rather, “‘[m]odern netwo r k infra s t r u c t u r e can provi d e acces s not only to voice servic e s, but also to data, graphi c s, video, and other servi c e s.’” Id . Thus, in the Rural Task Force Order , the FCC establis h e d the “no barrie r s ” policy . Order ¶¶64, 308 (JA at 412-413, 502-503). For more than a decad e, thi s polic y permi t t e d (but did no t requi r e) recipi e n t s of feder a l hi gh- cost unive r s a l servi c e suppo r t to inves t in “dual-use” facil i t i e s that provi d e voice as well as broad b a n d In ternet access services. Id . Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 23 13 The FCC, in the Order , found that secti o n 254(e) of the Act allow e d it to “go beyon d the ‘no barri e r s ’ polic y ” to “requ i r e carri e r s recei v i n g feder a l unive r s a l servi c e suppo r t to inves t in modern broadb a n d-cap abl e networ k s.” Id . ¶65 (JA at 413-414); s e e also ¶308 (JA at 502-503). Petition e r s now conten d that the FCC lacked aut hor i t y to make that once-permi s s i v e policy manda t o r y. Br. 21-22. The FCC properly rejecte d petit i o n e r s ’ view in the Order , explai n i n g that “noth in g in secti o n 254 … requi r e s [the agenc y] simp ly to provid e feder a l funds to carri e r s and hope that they will use such suppo r t to deplo y broad b a n d facil i t i e s ” as occurr e d under the “no barrie r s ” polic y. Order ¶65 (JA at 413-414). “To the contra r y, [the FCC] ha[s] a ‘manda t o r y duty’ to adopt unive r s a l servi c e polic i e s that advanc e the princi p l e s … in sectio n 254(b), and … the author i t y to ‘creat e so me induce m e n t ’ to ensure that those principles are achiev ed.” Id . (quotin g Q w e s t I , 258 F.3d at 1200, 1204). Two of those princ i p l e s ident i f y acces s to informa t i o n servic e s as an integra l compo n e n t of univer s a l servi c e. See 47 U.S.C. §254(b)(2), (3). By condit i o n i n g suppo r t on the deplo y me n t of a broadb a n d-capabl e networ k, the Order lawful l y sough t to “indu c e ” the re cipi e n t s of federa l univer s a l servic e subsi d i e s to “adva n c e ” the princ i p l e s in sectio n 254(b). In this regard, petiti o n e r s ’ argum e n t that the secti o n 254(b) princip l e s are merely Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 24 14 “aspira t i o n a l langu a g e ” (Br. 16) is square l y forecl o s e d by Q w e s t I , 258 F.3d at 1200 (explai n i n g that “[t]he plain text of the statu t e manda t e s that the FCC ‘shall’ base its univer s a l polici e s on the princ i p l e s liste d in § 254(b),” which “indi c a t e s a mandat o r y duty on the FCC”); s e e also FCC Response to Wireless Carrier USF Principa l Br. 11. Despite th e FCC’s preced e n t aut ho r i z i n g suppo r t for broad b a n d facili t i e s, petitio n e r s conte n d that becau s e the phras e “faci l i t i e s and servi c e s ” in secti o n 254(e) is modif i e d by the claus e “for which the suppo r t is inten d e d,” the FCC may only requi r e USF recipien t s to deploy facili t i e s that are used to provi d e the “tele c o m mu n i c a t i o n s servi c e s ” deeme d eligi b l e for suppor t pursua n t to sec ti o n 254(c)(1). Br. 22-23. Accordin g to petit i o n er s, this prohi b i t s the FCC from condi t io n i n g feder a l unive r s a l servi c e suppo r t on the deploy m e n t of broadb a n d-capabl e networ k s. As the FCC explaine d, however, “[b]y refer r i n g to ‘faci l i t i e s ’ and ‘serv i c e s ’ as disti n c t items for which feder a l unive r s a l servi c e funds may be used, … Congress grant e d [the FCC] th e flexi b i l i t y not only to desig n a t e the types of telec o m mu n i c a t i o n s servi c e s for which suppo r t would be provi d e d, but also to encou r a g e the deplo y m e n t of the types of facili t i e s that will best achiev e the princi p l e s set forth in sectio n 254(b).” Order ¶64 (JA at 412- 413); see id . ¶308 (JA at 502-503). Limiting su ppo r t to the facili t i e s used to Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 25 15 provide the secti o n 254(c)(1) service s , as petitio n e r s argue the FCC must, would confl a t e “serv i c e s ” with “f acil i t i e s,” render i n g the latt e r term “super f l u o u s.” See Nutraceut i c a l Corp. v. Von Eschenba c h , 459 F.3d 1033, 1040 (10th Cir. 2006) (holdin g that becau s e “[t]he rule again s t surpl u s a g e encou r a g e s court s to give meani n g to ev ery word used in a stat ute to reali ze congre s s i o n a l intent,” the distric t c ourt erred by confl a t i n g “sign i f i c a n t risk” with “unreas o n a b l e risk” – “a disti n c t term”); s e e also Bowoto v. Chevron Corp ., 621 F.3d 1116, 1127 (9th Cir. 2010) (when a statu t e uses disti n c t terms, a court “mus t … presu m e thos e terms have diff e r e n t mean i n g s ”). 1 The FCC thus reasona b l y interp r e t e d the phras e “for which the suppo r t is intend e d ” in sectio n 254(e) to refere n c e the univer s a l servic e princi p l e s in secti o n 254(b). Order ¶¶64, 308 (JA at 412-413, 502-503). This readi n g prope r ly gives full effec t to both secti o n 254(b) and secti o n 254(c)(1) of the Act. See In re Dawes , 652 F.3d 1236, 1242 (10th Cir. 2011) (statut e s shoul d be const r u e d so that no part will be inope r a t i v e or super f l u o u s). Petition e r s ’ 1 Petition e r s incor r e c t l y read the Order to define the “facil i t i e s ” suppor t e d by secti o n 254(e) as limit e d to those used to provi d e only the “telec o m mu n i c a t i o n s servic e s ” desi g n a t e d under secti o n 254(c)(1). See Br. 22-23 (citing Order n.69 (JA at 412)). As the FCC explain e d, “Section 254(e) … contemp l a t e s that carri e r s may receiv e federa l suppor t to enable the deplo y me n t of broad b a n d faci l i t i e s used to provi d e suppo r t e d teleco mm unications services a s well as other servic e s.” Order ¶64 (JA at 412-413) (emphas i s added). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 26 16 narrow and exclus i v e focus on “telec o m mu n i c a t i o n s servic e s ” ignore s the FCC’s obliga t i o n to achie v e the secti o n 254(b)(2) and (3) princi p l e s, which includ e “[a]ccess to advan ced teleco mmu n ications and i n f o r m a t i o n servic e s … in all region s of the Nation.” 47 U.S .C. §254(b)(2) (emphasi s added). The agency canno t satis f y that oblig a t i o n if sectio n 254(c)(1) prohibi t s the FCC from condi t i o n in g a recip i e n t ’ s use of fe der a l subsi d i e s on the deplo y me n t of a single netwo r k capab l e of suppo r ti n g bo th teleco m m u n i c a t i o n s servic e s and infor m a t i o n servi c e s. Indeed, the prior, permi s s i v e “no ba rrie r s ” polic y faile d to suffic i en t l y achiev e those object i v e s. See FCC Preliminary Br. 15. It follow s that petit i o n e r s ’ inter p r e t a t i o n of the statut e is not reason a b l e – mu ch less manda t e d – becau s e it would disa b l e the FCC from achie v i n g the expli c i t statu t o r y goals regar d i n g infor m a t i o n servi c e s. Petition e r s ’ inter p r e t a t i o n also ignor es the FCC’s duty to “advanc e ” univer s a l servic e. See 47 U.S.C. §254(b); Q w e s t II , 398 F.3d at 1236. Their propo s a l to “limi t[] federa l suppo r t ba sed on the regul a t o r y class i f i c a t i o n of the servi c e s offer e d … would exclu d e from the unive r s a l servi c e progr a m provid e r s who would other w i s e be able to deplo y broad b a n d infra s t r u c t u r e to consu me r s.” Order ¶72 (JA at 417-418). That infra s t r u c t u r e is used to provid e new servi c e s, such as VoIP, which are “view e d by consu me r s as substit u t e s for tradit io n a l voice telep h o n e servi c e s.” Id . ¶63 (JA at 412). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 27 17 Thus, requir i n g USF recipie n t s to depl o y netwo r k s capab l e of provid i n g voice a n d broadb a n d servic e s “adva n c e s ” unive rsa l service, whereas mer ely requir i n g recipi e n t s to deploy netw o r k s capab l e of provi d i n g trad i t i o n a l circui t-switch e d voice servic e s would only “pres e r v e ” the s t a t u s quo . If, as petiti o n e r s claim (Br. 22-23) , the FCC may suppor t facil i t i e s only to the extent that they are used to provide teleco mm u n i c a t i o n s services, then allow i n g ETCs to expend unive r s a l servi c e subsi d i e s to deplo y facil i t i e s used to provi d e broad b a n d Intern e t acces s, even on a permi s s i v e basis, would have viola t e d the Act. Hence, under pe tit i o n e r s ’ readi n g, the long-standi n g, permi s s i v e “no barri e r s ” polic y, which petit i o n e r s thems e l v e s suppo r t e d in proce e d i n g s befor e the agen c y, would be unlaw f u l. 2 In conflic t with their legal positi o n here, however, it is clear that petit i o n e r s do not oppos e feder a l 2 See, e.g ., Comments of the National Excha nge Carrier Associat i o n, Inc.; National Telecommu n i c a t i o n s Cooperat i v e Associat i o n ; Organiza t i o n for the Promoti o n and Advancem e n t of Small Te leco mmu n i c a t i o n s Companies ; and Western Teleco mmu n i c a t i o n s Alliance, WC Docket 10-90 e t al . at 64-65 (filed Apr. 18, 2011) (JA at 2214-2215) (encoura g i n g the FCC to “recog n i z e that the curren t high-cost suppor t mech a n i s ms have enabl e d great succe s s in broad b a n d depl o y me n t and adopt i o n in R[ural] LEC study areas” and specif i c a l l y that “the ‘no barrie r s to advanc e d servi c e s ’ polic y … has allowe d R[ural] LECs to use USF support in a forwa r d-look in g manne r to const r u c t multi-use netwo r k s that suppo r t both quali t y voice a n d broadb a n d offer i n g s ”); s e e also id . n.135 (JA at 2215) (explain in g that “ther e is no quest i o n that suppo r t can be distr i b u t e d for mixed-use plant that suppo r t s both Title I broadb a n d Interne t acces s and Title II regulat e d teleco m mu n i c a t i o n s servi c e s ”). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 28 18 univers a l servi c e suppo r t that may be used for broad b a n d deplo y me n t ; rathe r, they oppos e feder a l suppo r t c o n d i t i o n e d on broad b an d deplo y m e n t. In other words, petiti o n e r s want subsi d i e s witho u t the oblig a t i o n. But this Court has alread y held that the FCC is not re qui r e d to provi d e petit i o n e r s ’ hoped for “blank check.” See Qwest I , 258 F.3d at 1204. 3 B. T h e FCC Reason a b l y Conclu d e d That It May Condi t i o n Feder a l Unive r s a l Servi c e Su bsi d i e s On A Recipi e n t ’s Compl i a n c e With Clear l y Defin e d Publi c Interes t Oblig a t ion s . Section 254(c)(1) of the Act defin e s “[u]niversa l servic e ” as “an evolv i n g level of telec o m mu n i c a t i o n s services that the Commi ssion shall estab l i s h perio d i c a l l y under this secti o n, taking into accoun t advan c e s in telec o m m u n i c a t i o n s and infor m a t i o n tec hn o l o g i e s and servi c e s.” Petition e r s argue that “the Commissi o n [wa]s not … empow e r e d to inclu d e ” VoIP and broad b a n d Interne t acces s “on the list of suppo r t e d servi c e s ” desig n a t e d under secti o n 254(c)(1) becaus e they are not “telec o m mu n i c a t i o n s servi c e s.” Br. 14. Petition e r s, howeve r, misch ar a c t e r i z e the Order , which prov i d e s unive r s a l servi c e suppo r t for (1 ) “voice telep h o n y servi c e ” and (2) broadba n d-capabl e netwo r k s. To ensure that suppo r t is being used for the 3 We address in sectio n I.C., below, pe titio n e r s ’ separa t e claim that the FCC lacks author i t y to fund broadb a n d-capab l e networ k s on the ground that the Order does not requir e USF recipi e n t s to provid e telec o m mu n i c a t i o n s servic e s. Br. 21-22. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 29 19 latter, the FCC further requir e d USF reci pi e n t s to provi d e broad b a n d Interne t acces s servi c e – a publi c inter e s t oblig a t io n that was a valid and neces s a r y exerc i s e of the agenc y ’ s judic i a l l y affir me d autho r i ty to impos e fundi n g conditi o n s. 1 . The Order Does Not Fund Infor m a t i o n Servi c e s Under Secti o n 254 Of The Act. Pursuant to the Order , “voice telep h o n y servi c e ” is the only suppo r t e d servi c e for purpo s e s of secti o n 254(c)(1). 4 Order ¶¶62, 80, 309 (JA at 411, 420, 503). “To the exten t [ETCs] offe r tradi t i o n a l voice telep h o n y servi c e s as teleco m m u n i c a t i o n s servic e s over tradit i o n a l circui t-switch e d networ k s, [the FCC’s] autho r it y to provid e supp o r t for such service s is well-establis h e d.” Id . ¶62 (JA at 411); s e e also 47 U.S.C. §254(c)(1). Petitione r s attack the Order ’ s incl u s i o n of VoIP – an “uncl a s s i f ie d servic e ” ( i.e ., a service that the FCC has not classif i e d either as a “teleco m m u n i c a t i o n s servic e ” or an “inf or m a t i o n servic e ”) – in the defini t i o n of “voic e telep h o n y servi c e.” Br. 13-15. As the FCC explained, however, 4 Petition e r s claim that “the Order fails to discus s how its new ‘voice telep h o n y servi c e ’ defin i t io n takes … into accoun t ” any of the four factor s listed in sectio n 254(c)(1). Br. 56. Th is claim is barre d becau s e petit i o n e r s faile d to raise it in the proce e d i n g below or in a subseq u e n t petit i o n for recons i d e r a t i o n of the Order . See Sorenson Commc’ns , Inc. v. FCC , 659 F.3d 1035, 1044 (10th Cir. 2011) (“ Sorenson II ”); 47 U.S.C. §405(a). In any event, the Order did discu s s thes e facto r s at lengt h. See Order ¶¶61-65, 68- 69, 71-72, 76-81 (JA at 411-414, 415-416, 417-418, 418-420). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 30 20 “[i]f interc o n n e c t e d VoIP service s ar e tel eco m m u n i c a t i o n s service s,” the agenc y can desig n a t e them as eligi b l e for suppo r t pursu a n t to secti o n 254(c)(1). Order ¶63 n.67 (JA at 412). Alternat i v e l y, if “inte r c o n n e c t e d VoIP service s are inf o rm a t i o n servic e s, [the FCC] ha[s] au thor i t y to suppo r t the deplo y m e n t of broad b a n d netwo r k s used to provid e such servi c e s ” under secti o n s 254(b)(2)-(3) and (e). Id . In the latte r circu ms t a n c e, VoIP is not a “telec o m mu n i c a t i o n s servi c e ” suppo r t ed by secti o n 254(c)(1); it is one of the “othe r servi c e s ” offer e d acros s “b roa d b a n d facil i t i e s used to provi d e suppo r t e d telec o m m u n i c a t i o n s servi c e s.” Id . ¶64 (JA at 412-413). 2 . T h e Broadb a n d Public Intere s t Obli g a t i o n Is A Lawfu l Condi t i o n On Federa l Unive r s a l Servi c e Suppo r t . Petitione r s likewi s e fail to show th at the FCC, acting under secti o n 254, authori z e d feder a l unive r s a l serv i c e suppo r t for broad b a n d Interne t acces s servi c e itsel f. Br. 11-16. Ind eed, the FCC expressl y declin e d to “add broad b a n d to the list of suppo r ted servi c e s ” under secti o n 254(c)(1). Order ¶¶65, 309 & n.514 (JA at 413-414, 503). Instead, it merely condi t io n e d the receip t of suppor t on a carrie r ’ s de plo y m e n t of a broadb a n d-capabl e netwo r k pursua n t to sectio n s 254(b) and (e). Id . ¶65 (JA at 413-414). Petitione r s counte r that the Order (at ¶86 (JA at 422)) had that effec t when, “[a]s a condit i o n of recei v i n g fe deral high-cost univers a l service suppo r t,” it requi r e d fundin g recip i e n t s “to offer broad b a n d servi c e … that Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 31 21 meets certa i n basic perfo r ma n c e requi r e m e n t s and to repor t regul a r l y on associa t e d perfor ma n c e measur e s.” Br . 23-24. Petition e r s ’ argume n t ig nor e s the fact that “[n]othing in sec ti o n 254 prohib i t s the Commiss i o n from c o n d i t i o n i n g the receip t of [univers a l serv i c e] suppor t, and the Commissi o n has impos e d condi t i o n s in the past.” Connect America Fund , 26 FCC Rcd 4554, 4581 (¶71 & n.103) (2011) (em phas i s added) (“NPRM”) (citing 47 C.F.R. §§54.313(a)-(b), 54. 314(a)-(b) (SJA at 28); s e e also United States v. Am. Librarie s Ass’n, Inc ., 539 U.S. 194, 211 (2003). As the FCC explain e d, “[u]nivers a l servi c e suppo r t is a public-privat e partn e r s h ip,” and carri e r s “that bene f i t from publi c inves t m e n t in their netwo r k s must be subje c t to clear l y de fine d obliga t i o n s associ a t e d with the use of such fundin g.” Order ¶74 (JA at 418). Courts have recog n i z e d this propo s i t io n in denyin g sim il a r chall e n g e s to condit io n s on federa l subsi d i e s. See Am. Librarie s Ass’n , 539 U.S. at 211-13 (upholdi n g the requir e m e n t that public librar i e s use Internet filter s as a condi t i o n on r eceipt of federal unive r s a l servi c e subsi d i e s); Q w e s t II , 398 F.3d at 1238 (affirmi n g the FCC’s autho r i t y to condi t i o n unive r s al se rvi c e suppo r t on state commi s s i o n certi f i c a t i o n that local telep h o n e ra tes are “reas o n a b l y comp a r a b l e ”); Tex. Office of Pub. Util. Counsel v. FCC , 183 F.3d 393, 444 (5th Cir. 1999) (“ TOPUC ”) (affirmi n g the FCC’s author i t y to condi t i o n feder a l unive r s a l Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 32 22 service suppo r t on state-estab l i s h e d di sco u n t rates for intra s t a te servi c e s provid e d to schoo l s, libra r i e s, and rural health care provid e r s). Absent the performan ce metrics and rate comp arisons set forth in parag r a p h s 90-114 of the Order (JA at 423-436), the FCC would have no means to ensure that federa l univer s a l servic e subsid i e s ar e being used, as requi r e d by secti o n 254(b)(1)-(3) of the Act, to deplo y “in all region s of the Nation” networ k s capab l e of provid i n g affor d a b l e voi ce and broadb a n d servic e s that are reaso n a b l y co mp a r a b l e – in terms of quali t y and rates – to voice and broad b a n d servi c e s in urban areas, s e e Order ¶¶87, 91, 106, 113 (JA at 422, 423, 430, 435).5 3 . T h e Broadb a n d Public Intere s t Oblig a t i o n Does Not Constit u t e Title II Commo n Carri e r Regula t i o n . Petitione r s separa t e l y argue that the broadb a n d publi c inter e s t oblig a t i o n “esse n t i a l l y fo rc[es]” USF recipi e n t s “to offer … infor ma t i o n servic e[s] as a co mm on carrie r servic e.” Br. 23. That clai m is contrary to 5 Petition e r s conte n d that the agenc y canno t confi r m that the Order will produ c e “reas o n a b l y comp a r a b l e ” broad b a n d Internet access ser v ice becau se the agency has never co mp ar e d broadb a n d rates and servic e qualit y betwee n urban and rural areas. Br. 33-34. The FCC direct e d its staff to gather the data needed to make this determi n a t i o n. See Order ¶ ¶113, 1018 (JA at 435, 773). Because ag encie s may proceed incr eme n t a l l y, the FCC was not requir e d to co mp le t e this effort befor e adopt i n g the Order . See, e.g. , Sorenson Commc’ns , Inc. v. FCC , 567 F.3d 1215, 1222 (10th Cir. 2009) (“ Sorenson I ”). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 33 23 this Court’s preced e n t in W WC Holding Co. v. Sopkin , 488 F.3d 1262, 1268, 1274 (10th Cir. 2007), which held that a state commi s s i o n could condit i o n a wirel e s s carri e r ’ s ETC designa t i o n on comp lia n c e with some of the “cons u me r prote c t i o n and opera t i o n a l stand a r d s ” impos e d on incumb e n t LECs. As the Court expla i n e d, fundi n g condi ti o n s comme n s u r a t e with the requi r e m e n t s impos e d on commo n carri e r s do not amoun t to commo n carri e r “regu l a t i o n,” becaus e provi d e r s volun t a r i l y assum e the condit i o n s in the first instanc e and “retain[] the abili t y to opt out of [them] entire l y by decli n i n g … federa l unive r s a l servi c e subsi d i e s.” Id . at 1274. Because the broad b a n d publi c inter e s t oblig at i o n is condi t i o n a l ( i.e ., carrie r s only have to provid e broadba n d service to a custo me r if they reque s t feder a l subsi d i e s), it does not amoun t to “regu l a t i o n ” of any sort. Moreover, the Order does “not exten d[] the gamu t of telep h o n e regul a t i o n s ” under Title II of the Act to broadb a n d Interne t acces s servi c e ; it simp l y requi r e s provid e r s that “appr o a c h[] the [FCC] to receiv e feder a l univer s a l servic e subsid i e s ” ( i d .) “to offer broad b a n d service … that meets certai n bas ic perfor m a n c e requir e m e n t s and to repor t regul a r l y on assoc i a t e d performan ce measures,” Order ¶86 (JA at 422). Petition e r s have faile d to demon s t r a t e that those modes t requi r e m e n t s corre s p o n d to any, let alone all, Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 34 24 of the requi r e men t s that Title II impose s on co mmon carrie r s. Br. 23. They do not. But even if that wer e not the ca se, “co mm on carria g e is not all or nothin g – there is a gray area in which altho u g h a given regul a t i o n might be appli e d to co mmo n carri e r s, the oblig a t i o n s impose d are not co mmon carria g e p e r se .” Cellco P’ship v. FCC , 700 F.3d 534, 547 (D.C. Cir. 2012). Accordin g l y, “the Commissi o n ’ s deter m i n a t i o n ” that the broad b a n d public inter e s t oblig a t i o n “does not conf er co mmon carrie r status warran t s defer e n c e ” from the Court. Id . C. P e t i t i o n e r s ’ Claim That The Order Vio lat e s Secti o n s 254( e ) And 214( e ) Of The Act Is Not Ripe And Lacks Merit. Petitione r s furthe r argue that the Order violat e s secti o n s 254(e) and 214(e) of the Act becaus e “it distri b u t e s USF support to entiti e s that are not telec o m m u n i c a t i o n s carri e r s and provid e no teleco m m u n i c a t i o n s servi c e s.” Br. 5, 17-18, 22. Petition e r s ’ clai m shoul d be dismi s s e d becau s e it is not ripe. In any event, it is wrong. 1. Pursuant to secti o n 254(e), only “elig ib l e telec o m m u n i c a t i o n s carri e r s,” i.e ., those entit i e s desig n a t e d under s ecti o n 214(e), “shall be eligi b l e to receiv e specif i c Federal univer s a l servic e suppor t.” 47 U.S.C. §254(e). Section 214(e)(1), in turn, provid e s th at “a commo n carri e r desig n a t e d as an Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 35 25 eligible teleco m mu n i c a t i o n s carrie r … sh all be eligib l e to receiv e univer s a l servic e suppor t in accord a n c e with sectio n 254.” Id. §214(e)(1). “[T]he states desig n a t e commo n carri e r s over wh ich they have juris d ict i o n as ETCs, and th[e] [FCC] designa t e s co mmon carrie r s as ETCs in those instan c e s where the state lacks jurisd i c t i o n.” Order ¶570 (JA at 576); see 47 U.S.C. §214(e)(2), (6). The FCC, in the Order , reform e d the large r frame w o r k for distr i b u t i n g feder a l unive r s a l servi c e subsi d i e s ; it di d not find that any partic u l a r servi c e provid e r, or catego r y of provid e r s, w ould be eligi b l e for suppo r t under this new framew o r k. Br. 18. ETC designa t i o n under secti o n s 214(e)(2) and (6), which is a pre-requis it e for the recei p t of feder a l subs i d i e s, is an “inhe r e n t l y local and fact-specifi c ” proces s. W WC Holding Co ., 488 F.3d at 1278; Federal-State Joint Board on Universa l Service , 20 FCC Rcd 6371, 6397 (¶61) (2005). For a “non-telecom m u n i c a t i o n s carri e r to use USF suppor t for unregu l a t e d inform a t i o n servic e s ” (Br. 18), a state co mmis s i o n (or, in limi t e d circu ms t a n c e s, the FCC) would first have to decid e that the provid e r satisf i e s the requir e m e n t s of sectio n 214(e)(1). Conseque n t l y, petit i o n e r s ’ claim is not ripe for judici a l review, becau s e it is contin g e n t upon such future, fact- specif i c decis i o n s . See Los Alamos Study Grp. v. U.S. Dept. of Energy , 692 F.3d 1057, 1065 (10th Cir. 2012) (a claim is ripe where “the issue s involv e d Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 36 26 are purely legal, … the agen cy ’ s action is final,” and the “acti o n has or will have an immed i a t e imp ac t on the petit i o n e r ” (int ern a l quota t i o n marks and cita t i o n omit t e d)); s e e also Qwest Commc’ns Int’l, Inc. v. FCC , 240 F.3d 886, 894 (10th Cir. 2001). 2. Petitione r s ’ claim also lacks mer it. Petition e r s mi sta k e n l y asser t that the Order “does not limit suppo r t to telec o m mu n i c a t i o n s carri e r s or requi r e that USF [suppor t] be used for te leco m mu n i c a t i o n s servi c e s.” Br. 17. Only “eligi b l e teleco m m u n i c a t i o n s carrie r s ” are eligi b l e for subsi d i e s under secti o n 254, howeve r, and an ETC, by de fini t i o n, is a “commo n carrie r ” that “offe r[s] the servi c e s that are suppo r t e d by the Federal univer s a l servic e suppo r t mecha n i s ms under secti o n 25 4(c).” 47 U.S.C. §214(e)(1)(A). Nowhere does the Order h o l d that an entit y not desig n a t e d as an ETC could receiv e federa l univer s a l servic e suppor t. Further, the only servi c e that th e FCC has desig n a t e d under secti o n 254(c)(1) is “voic e telep h o n y servi c e.” See, e.g. , Order ¶¶62-63, 79 (JA at 411-412, 420). Petition e r s assert that provid i n g “voice teleph o n y servic e ” as VoIP would violat e the Act, because unlike circui t-switch e d voice servic e, VoIP has not yet been desig n a t e d a “tele c o m mu n i c a t i o n s servi c e.” Br. 17-18. While VoIP service is unclas s i f i e d, th e FCC has ackno w l e d g e d that a VoIP provide r can obtai n the right s avail a b l e to “tele c o m mu n i c a t i o n s carri e r s ” Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 37 27 under Title II of the Act if it volun t a r i l y “holds itself out as a teleco mm unications carrier and co mplies with approp r i a t e federa l and state requir e m e n t s.” IP-Enabled Services , 20 FCC Rcd 10245, 10268 (¶38 n.128) (2005), a f f’ d sub nom. Nuvio Corp. v. FCC , 473 F.3d 302 (D.C. Cir. 2006). And in this procee d i n g, “some provi d e r s of facili t i e s-based retai l VoIP service s state[d] that they are pr ovi d in g those servi c e s on a common carri e r basis.” Order ¶1389 & n.2537 (JA at 870). Thus , at a minimu m, a provid e r could be eligi b l e for ETC status under secti o n 214(e)(1)(A) and unive r s a l servi c e suppo r t under secti o n 254(e) if it volun t a r i ly offer e d VoIP as a “teleco m m u n i c a t i o n s service.” Conseque n t l y, a “set of circu m s t a n c e s exists in which [the Order ] can be lawful l y applie d,” so petiti o n e r s ’ facial challe n g e fails. Cellco P’ship , 700 F.3d at 549 (intern a l quota t i o n marks and citat i o n s omitt e d). 6 6 The Order “rel[ied] on sectio n 706(b) as an altern a t i v e basis to sectio n 254 to the exten t neces s a r y to ensur e that the federa l univer s a l servic e progr a m cover s servic e s and netwo r k s th at could be used to offer infor ma t i o n services as well as tel eco m mu n i c a t i o n s servi c e s.” Order ¶73 (JA at 418). While the FCC noted that secti o n 706 would also permi t the agenc y to provid e unive r s a l servi c e suppo r t to VoIP provide r s irres p e c t i v e of the regula t o r y class i f i c a t i o n of that servic e, i d . ¶71 (JA at 417), the Order furthe r provid e s that “[c]arrie r s seeki n g fede r a l suppo r t ” under secti o n 706(b) “must still comp l y with the same unive r s a l serv i c e rules an d obliga t i o n s set forth in secti o n 254 and 214.” Id . ¶73 (JA at 418). Hence, any fundin g recip i e n t must still be an ETC. In any event, becaus e the FCC has not autho r i z e d suppo r t for VoIP servic e under secti o n 706, that issue is not prese n t e d here. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 38 28 D. T h e FCC Reasonab l y Ruled Th at It Also Has Autho r i t y Unde r Sect i o n 706 Of The 1996 Act To Requi re Recip i e n t s Of Feder a l Unive r s a l Servi c e Suppo r t To Deplo y Broa d b a n d Netwo r k s And Servi c e s . In sectio n 706(b) of the 1996 Ac t, 47 U.S.C. §1302(b), Congress instructed the FCC to “determi ne wheth e r advan c e d telec o m m u n i c a t i o n s capab i l i t y is being deplo y e d to all American s in a reaso n a b l e and timel y fashi o n,” and if the agency concl u d e s th at it is not, to “take immed i a t e actio n to accel e r a t e deplo y m e n t of such capab i l i t y by remo v i n g barri er s to infra s t r u c t u r e inves t m e n t and by promo t i n g comp e t i t i o n in the teleco m m u n i c a t i o n s marke t.” Ha ving foun d that broa d b a n d depl o y me n t lagged, Order ¶70 (JA at 416), the FCC reasona b l y concl u d e d that secti o n 706(b) empowe r e d it to suppo r t broadb a n d-capabl e networ k s, see id . ¶¶67-70 (JA at 415-416). Petitione r s argue that the FCC lack ed autho r i t y under secti o n 706(b) because “[t]here is no mentio n of expan d i n g the USF to includ e suppo r t for broad b a n d infor ma t i o n servi c e s ” in that provi s i o n. Br. 26. While Congress could have create d an e xhaus t i v e and highly speci f i c list of the author i t i e s the FCC could exerci s e to furthe r the stat u t o r y goal set forth in secti o n 706(b), it instea d delega t e d to the FCC broad au thor i t y to “take immed i a t e actio n to accel e r a t e deplo y me n t of such capab i l i t y by remov i n g barri e r s to infra s t r u c t u r e inves t m e n t and by promo t i n g comp e t i t i o n in the Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 39 29 telecom m u n i c a t i o n s market .” 47 U.S.C. §1302(b); s e e also Ad Hoc Telecomms . User Comm. v. FCC , 572 F.3d 903, 906-07 (D.C. Cir. 2009) (explain i n g that “[t]he ge ner a l and gener o u s phras i n g of §706 means that the FCC possess e s signi f i c a n t, albeit not unfe t t e r e d, autho r i ty and discr e t i o n to settle on the best reg u la t o r y or dereg u l a t o r y appro a c h to broadba n d ”). The FCC, in the Order (at ¶67 (JA at 415)), reason a b l y found that “[p]rovid in g supp o r t for broa d b a n d netw o r k s helps achie v e secti o n 706(b)’s object i v e s.” Support for broadb a n d “promo t[es] compet i t i o n in the teleco mm u n i c a t i o n s market” where “inte r c o n n e c t e d VoIP service is incre a s i n g l y used to repla c e [traditio n a l] voice service.” Id . ¶68 (JA at 415- 416) (intern a l quota t i o n marks omitt e d) . Support for broad b a n d also “elimin a t e[s] a signific a n t barrier to infras t r u c t u r e invest m e n t.” Id . ¶67 (JA at 415). This is becaus e “one of the most signi f i c a n t barri e r s to inves t m e n t in broadb a n d infra s t r u c tu r e is the lack of a busine s s case for operat i n g a broadb a n d netwo r k in high-cost areas in the absen c e of progr a ms that provi d e addit i o n a l suppo r t.” Id . (intern a l quota t i o n marks omitt e d). Those findin g s by the expert agency as to a mat ter within its comp et e n c e satisf y the requi r e m e n t s of secti o n 706(b). Petitio n e r s find no suppo r t in Comcast Corp. v. FCC , 600 F.3d 642 (D.C. Cir. 2010). See Br. 24. The D.C. Circuit in that decis i o n found that a Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 40 30 prior FCC order stati n g that secti o n 70 6(a) did not “cons t i t u t e an indep e n d e n t grant of autho r i t y ” was “stil l bindi n g ” at that time becau s e the agency “never questi o n e d [it], let al one overru l e d [it].” Comcast , 600 F.3d at 658-59. In a subsequ e n t order, however, the FCC did just that. It held that if the prior order could be inter p r e t e d as havin g dec li n e d to read sectio n 706(a) as a grant of authori t y, the FCC “reject[ed] that readi n g of the statut e.” See Preservi ng the Open Internet , 25 FCC Rcd 17905, 17969 n.370 (2010), p e t . for review pend i n g , Verizon v. FCC , D.C. Cir. No. 11-1355. Petition e r s also attem p t to manuf a c t u r e a confl i c t betwe e n secti o n s 254 and 706. Br. 27-28. As the FCC expl ain e d, “secti o n 254(b)(2)’s princi p le that ‘[a]ccess to advan c e d telec o m mu n i c a t i o n s a n d infor m a t io n servi c e s should be provid e d in all regio n s of th e Nation’ doveta i l s comf o r t a b l y with sectio n 706(b)’s policy that ‘advan c e d telec o m mu n i c a t i o n s capabi l i t y [be] deploy e d to all American s in a reason a b l e and timely fashi o n.’” Order ¶72 (JA at 417-418) (quoting 47 U.S.C. §254(b)(2)). It follow s that the FCC’s “deci s i o n to exerc i s e autho r i ty under Section 706 does not under mi n e secti o n 254’s univer s a l servic e princi p l e s ” ; ra the r, it “ensu r e s their fulfi l l m e n t.” Id . For the same reaso n, petiti o n e r s ’ argum e n t that the “spec i f i c ” secti o n 254 controls the more “gener a l ” secti o n 706(b) is unpers u a s i v e. Br. 27. There is no point in “quib b l[ing] ove r wh ich secti o n is more sp ecific,” where, as her e, Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 41 31 the agency ’ s “inter p r e t a t i o n … is r easo n a b l e ” and “give s effec t to both provis i o n s.” Nat’l Ass’n of Home Health Agenci es v. Schwei ker , 690 F.2d 932, 943 n.70 (D.C. Cir. 1982). * * * As this Court has recogn i z e d, “the 1996 Act is not a model of clari t y.” Q w e s t II , 398 F.3d at 1235 (quotin g AT&T Corp. v. Iowa Utils. Bd ., 525 U.S. 366, 397 (1999)). Section 254, in partic u l a r, is ambigu o u s, RCA I, 588 F.3d at 1101-02, and the FCC reasona b l y cons t r u e d it to autho r i z e the agenc y to moder n i z e unive r s a l servi c e suppo r t so that it enhan c e s the broad b a n d acces s that is critica l to rural America. Bu t “even if the agency’ s readin g differ s from wh at the court believ e s is the best statu t o r y inter p r e t a t i o n,” it is clear l y not preclu d e d by the statut e ’ s langua g e or struct u r e and theref o r e must be affir m e d under well-estab l i s h e d princ i p l es of defere n c e to agenci e s that interp r e t the statut e s they are entrus t e d to ad mini s t e r. Nat’l Cable & Telecomm s . Ass’n v. Brand X Interne t Servs ., 545 U.S. 967, 980 (2005); see Mains t r e a m Mktg. Se rvs., Inc. v. FTC , 358 F.3d 1228, 1250 (10th Cir. 2004). I I . T H E FCC REAS ON A B LY ADOPTE D A $4.5 BILLIO N ANNUA L FUNDI N G TARGE T. The FCC “[f]or the first time … esta b l i s h[ed] a defin e d budge t for the high-cost compo n e n t of the univer s a l servic e fund.” Order ¶123 (JA at 437- 438). It did so to “ensu r e[] that i ndiv i d u a l cons u me r s will not pay more in Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 42 32 [univers a l servi c e] contri b u t i o n s due to the reforms ” in the Order . Id . ¶124 (JA at 438). If those refor ms were “to si gnif i c a n t l y raise the end-user cost of servic e s,” they “could under mi n e ” the ag ency ’ s large r effor t s “to promot e broad b a n d and mobil e de plo y m e n t and adopt i o n.” Id . The FCC set the annual fundin g target at $4.5 billion – the estima t e d amoun t of fundin g colle c t e d for the high-cost progr a m in Fiscal Year 2011. Order ¶125 (JA at 438). By “setti n g the budge t at this year’ s suppo r t level s,” the FCC hoped to “mini mi z e disru p t i o n a nd provid e the great e s t certa i n t y and predic t a b i l i t y to all stakeh o l d e r s.” Id . Of the $4.5 billion, the FCC allocat e d $500 millio n for the Mobilit y Fund, $1.8 b illio n for areas serve d by price cap carr i e r s, and $2 billio n for rate-of-return carrie r s. Id . ¶126 (JA at 438-439). Although the FCC establi s h e d a fixe d budg e t, it adopt e d “a numbe r of safegu a r d s … to ensure that carrie r s th at warran t additi o n a l fundin g have the oppor t u n i t y to petit i o n for such relief.” Order ¶126 (JA at 438-439); s e e also id . ¶¶539-44 (JA at 566-569) (establi s h i n g expres s waiver proced u r e s). The FCC also commi t t e d to “clos e l y m onit o r ” the budge t going forwa r d to “ensu r[e] [it] remain s at approp r i a t e lev els to satis f y [the FCC’s] statut o r y mandates.” Id . ¶126 (JA at 438-439). “[A] broad cross-secti o n of in ter e s t e d stake h o l d e r s, includ i n g consu me r group s, state regul a t o r s, curre n t recipi e n t s of fundin g, and those Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 43 33 that do not curren t l y recei v e fundi n g ” suppo r t e d the $4.5 billion annua l budg e t . Order ¶122 & n.192 (JA at 437). A. The FCC’s Reasonable Pred i c t i v e Judgm e n t That The Order Will Provi d e Suffi c i e n t Suppo r t Is Entit l e d To Substa n t i a l Defere n c e . Sections 254(b)(5) and (e) of the Ac t requir e “suff ic i e n t ” unive r s a l servi c e suppo r t. See 47 U.S.C. § 254(b)(5) and (e ). “[W]hat constit u t e s ‘suff i c i e n t ’ suppo r t ” is inher e n tl y “amb i g u o u s.” TOPUC, 183 F.3d at 425. So long as “the FCC … offe r[s] reasona b l e explan a t i o n s of why it thinks the funds will still be ‘suff i c i e n t ’ to suppo r t high-cost areas,” the Court shoul d “defe r to the agenc y ’ s judgme n t of what is ‘suff i c i en t.’” Id .; s e e also id . at 426, 436-37; Alenco , 201 F.3d at 620-21; RCA I, 588 F.3d at 1103-04; Rural Cellula r Ass’n v. FCC , 685 F.3d 1083, 1094 (D.C. Cir. 2012) (“ RCA II ”). Petitione r s nevert h e l e s s c onte n d that the FCC erred when it found that “main t a i n i n g total fundi n g for rate-of-re tur n comp a n i e s at appro x i mat e l y $2 billio n per year” wo uld ensur e that suppo r t is “suffi c i e n t ” to “susta i n servi c e to consu m e r s ” and expan d broad b a n d. Order ¶195 (JA at 465). Petition e r s ’ overa r c h i n g co mp l a i n t is that the FCC “improp e r l y limit e d its analy s i s to wheth e r, witho u t refor m, USF support would be exces s i v e ” witho u t “also consi d e r[ing] whethe r too littl e suppo r t is being provid e d.” Br. 31. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 44 34 Contrary to petit i o n er s ’ asser t i o n, the Order e x p r e s s l y consid e r e d the possi b i l i t y of too littl e suppo r t, and it found that subsi d i e s would not be “insu f f i c i e n t ” given its effor t s to elim i n a t e “long-stand i n g ineff i c i e n c i e s and wastef u l spend i n g ” in the FCC’ s legac y fundin g mecha n i s ms. Order ¶125 (JA at 438). The FCC expected that those cost saving s would offse t any increa s e d suppo r t to indivi d u a l carri e r s to make addit i o n a l inves t m e n t s to deploy broad b a n d. See id . ¶¶125, 285-92 (JA at 438, 495-497). Particul a r l y releva n t to petiti o n e r s ’ objec t i o n s, the FCC structu r e d refor m to mitig a t e the finan c i a l impac t on rate-of-return carri e r s. Under the Order , “rate-of-return carrie r s will not nece s s a r i l y be requi r e d to build out to and serve the most ex pensive locati o n s within their servic e area.” Order ¶207 (JA at 468). Instead, they are only oblig a t e d to offer broad b a n d upon “reaso n a b l e reque s t.” Id . ¶¶206-07 (JA at 467-468). This “flexi b l e approach ” ( i d . ¶206 (JA at 467-468)) was specif i c a l l y desig n e d to protec t rate-of-return carri e r s from exten d i n g f acili t i e s where high-cost suppor t was insuf f i c i e n t to make deplo y m e n t econo m i c a l l y reaso n a b l e, s e e also id . ¶26 (JA at 401). The Order also “exempte d the most remot e ar eas ” from the new broad b a n d servi c e oblig a t i o n s. Id . ¶533 (JA at 564-565). And the Order “provi d e[d] rate-of-return carri e r s … access to a new explic i t recov e r y mecha n i s m,” which guara n t e e s “stab l e a nd certai n reven u e s that the cur r en t Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 45 35 interca r r i e r syste m can no longe r provi d e.” Id . ¶291 (JA at 496-497). In light of these factors, the FCC reaso n abl y predict e d that its “increm e n t a l reforms will not endang e r exist i n g servi c e to consu m e r s ” and will “mini m a l l y affect[]” rate-of-return carri e r s “that inves t and opera t e in a prudent manner.” Id . ¶289 (JA at 496). Further, as a backst o p to ensur e suffi c i e n t suppo r t in indiv i d u a l cases of hardsh ip, the Order provid es a waive r proce s s for those car rie r s that can demon s t r a t e that “redu c t i o n s in curre n t suppo r t level s would threa t e n their finan c i a l viabi l i t y, imp eri l i n g servi c e to consu me r s in the areas they serve.” Order ¶¶539-44 (JA at 566-569). The agen c y has alrea d y grant e d two such waiver s. See Accipiter Commu n ica t i o n s , Inc ., 28 FCC Rcd 391 (WCB 2013); Allband Communi c a t i o n s , 27 FCC Rcd 8310 (WCB 2012). Courts have Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 46 36 repeated l y held that it is reason a b l e for the ag ency to rely on a waiver pr ocess to addre s s any unfor es e e n short f a l l s th at might arise in specifi c instanc e s. 7 Petitione r s noneth e l e s s allege that the FCC “disreg a r d[ed] the substa n t i a l additi o n a l costs” to satisf y the broadb a n d servi c e condi t io n in the Order . Br. 32. Their only suppo r t for that claim is a 2010 study estim a t i n g that many rate-of-retur n carri e r s provi d e d broadb a n d servic e at slower speeds than those requir e d by the Order . See id . Petition e r s, howeve r, mak e no attemp t to quant i f y the cost to upgr ade their networks. The FCC had little reaso n to think that the addit i o n a l cost (if any) would be substan t i a l given that the Order ’ s “flex i b l e appro a c h ” to broad b a n d deplo y m e n t “does not requi r e rate-of-return comp a n i e s to exten d servic e to custome r s absent … a 7 See Vt. Pub. Serv. Bd. v. FCC , 661 F.3d 54, 65 (D.C. Cir. 2011) (findin g a waiver proce s s provi d e d a reason a b l e me ans to update stale line count data used in a model for dete r mi n i n g unive r s al servi c e suppo r t); RCA I, 588 F.3d at 1104 (discuss i n g, with appro v a l, a waiv er proces s used to provid e certai n wirel e s s carri e r s addit i o n a l suppo r t sh ould an inter i m cap rende r suppo r t insuf f i c i e n t); RCA II, 685 F.3d at 1095 (same); Alenco , 201 F.3d at 622 (finding a single carrie r ’ s reduce d rate of retur n under an opera t i n g expen s e s cap “at mo st … presen t s an anomal y th at can be add r es s e d by a reques t for a waiver ”). Petition e r s ne ver mentio n these cases , and inste a d rely on FPC v. Texaco , 417 U.S. 380, 399 (1974) and Home Box Office, Inc. v. FCC , 567 F.2d 9, 50-51 (D.C. Cir. 1977) – ne ither of which co ncer n the FCC’s univer s a l servic e progra m – to argue that “a waive r ” canno t “just i f y an otherw i s e unreas o n a b l e rule.” Br. 32-33. Those cases are easil y disti n g u i s h e d on the groun d that the FCC is not relyi n g on the waive r proce s s to save an otherw i s e irrati o n a l rule; to the contra r y, the rule is ration a l and the waiver proces s addres s e s poten t i a l outli e r cases. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 47 37 [reasona b l e] reques t.” Order ¶26 (JA at 401). Moreover, the Order provid e s rate-of-return carrie r s, which serve “less than five percen t of access lines in the U.S.,” i d ., annual fundi n g that totals nearl y one-half of annual high-cost suppo r t ( i .e ., approx i m a t e l y $2 billio n of the $4.5 billion budge t), i d . ¶126 (JA at 438-439). Nor is it true that the Order “ma[de] no effort to quanti f y wheth e r the result i n g USF support can co ver the [rate-of-return ca rri e r s ’] ‘effic i e n t ’ cost of provid in g voice servic e plus the a dded cost of satis f y i n g the broad b a n d manda t e.” Br. 32. The FCC’s analys i s showe d that 34 percent of rate-of- return carri e r s would see no chang e in federa l unive r s a l servi c e suppo r t recei p t s, and 12 percen t would see an incr ea s e in suppor t. Order ¶290 (JA at 496). Of those rate-of-return carrie r s expec t e d to expe rien c e a reductio n, most would see a reduct i o n of fewer than 10 percen t of their feder a l subsid i e s annual l y. Id . Q w e s t II , 398 F.3d 1222 (Br. 32), is not to the contr a r y. In that decis i o n, the Court direc t e d the FCC, on remand, to provid e “emp i r i c a l findin g s suppo r t i n g [its] conclus i o n ” that rates then in effec t were “reas o n a b l y comp a r a b l e ” for purpo s e s of secti o n 254(b)(3). Id . at 1237. The FCC, in the Order at issue here, necess a r i l y could not provid e “empi r i c a l suppo r t ” that fundi n g is curre n t l y “su ff i c ie n t ” to satis f y secti o n s 254(b)(5) Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 48 38 and (e) becaus e the refor ms in the Order had not yet been impl e me n t e d. Thus, the agency appro p r i a t e l y relie d on evidenc e in the recor d to support a reaso n a b l e predi c t i v e judgme n t. See Order ¶123 (JA at 437-438). And “[w]here, as here, the FCC must make predi c t i v e judgme n t s about the effec t s of incre a s i n g [or decrea s i n g] subsid i e s, certai n t y is impos s i b l e.” RCA I, 588 F.3d at 1105; s e e also FCC v. Nat’l Citizens Comm. for Broad ., 436 U.S. 775, 813-14 (1978); Q w e s t Corp. v. FCC , 689 F.3d 1214, 1230 n.7 (10th Cir. 2012); Franklin Savings Ass’n v. Di r., Office of Thrift Supervis i o n , 934 F.2d 1127, 1146-47 (10th Cir. 1991). Finally, petiti o n e r s comp l a i n that f undi n g “cuts fall indis c r i mi n a t e l y on most high-cost carrie r s, unteth e r e d to ev idenc e that any particu l a r co mp any ’ s suppo r t level was actua l l y due to ineff i c i e n c y rathe r than the intri n s i c a l l y high cost of servi n g parti cu l a r areas.” Br. 32. That clai m is demonst r a b l y incorre c t. The reforms in the Order are “targe t e d at eli min a t i n g ineffi c i e n c i e s and closi n g gaps in [the] system, not at makin g indis c r i mi n a t e indus t r y-wide reduct i o n s.” Order ¶287 (JA at 496). For examp l e, limit a t i o n s on reimb u r s a b l e capi t a l and opera t i n g cost s ( i d . ¶¶215-20 (JA at 470-472)) and high-cost loop suppo r t ( i d . ¶¶234-47 (JA at 476-483)), which are design e d to encour a g e rate-of-return carri e r s to ope rat e more effici e n t l y, are based on carrie r-specif i c an alys e s of costs and rate s. In any event, “the agency [i]s Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 49 39 well within its discre t i o n to impose ” purel y proph y la c t i c cost contr o l s “rath e r than to undertake the mo re costl y alter n a t i v e of intens i v e auditi n g.” Alenco , 201 F.3d at 621. B. P e t i t i o n e r s ’ Takin g s Claim Is Not Ripe And Lacks Merit . Petitione r s specul a t e that the Order is an uncon s t i tu t io n a l takin g of proper t y. Br 42-45. At this poi nt, howeve r, petiti o n e r s ’ unsub s t a n t i a t e d taking s claim is not ripe. The ag ency has made cl ear that if “ any rate-of- return carri e r can effec t i v e l y demon s t r a t e that it needs addit i o n a l suppo r t to avoid const i t u t i o n a l l y confi s c a t o r y rates, the Commissi o n will consi d e r a waive r reque s t for addit i o n a l suppo r t.” Order ¶294 (JA at 498) (emphas i s added); see id . ¶¶539-44 (JA at 566-569). No takings claim is ripe until a party has invok e d that pro ces s and been denied. See Willi a m s o n County , 473 U.S. at 194; Alto Eldorado P’ship v. County of Santa Fe , 634 F.3d 1170, 1175-77 (10th Cir. 2011); TOPUC, 183 F.3d at 428-29; Alenco , 201 F.3d at 624. A takings claim would fail, in a ny event. Carriers face a “heavy burden ” in provin g confis c a t i o n as a result of rate regula t i o n. FPC v. Hope Natural Gas Co. , 320 U.S. 591, 602 (1944). To be confis c a t o r y, govern m e n t- regula t e d rates must be so low that they threat e n a regula t e d entit y ’ s “fina n c i a l integ r i t y,” Ill. Bell Tel. Co. v. FCC , 988 F.2d 1254, 1263 (D.C. Cir. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 50 40 1993), or “destr o y the value” of the comp an y ’ s prope r t y, Duquesne Light Co. v. Barasch , 488 U.S. 299, 307 (1989). Petition e r s made no such showi n g in the record below ( s e e Order ¶294 (JA at 498)) or in th eir brief. Thus, “[t]he mere fact that, for many rural carri e r s, univer s a l servi c e suppo r t provid e s a large share of the carri e r s ’ reven u e s … is not enoug h to estab l i s h that the [Order ] constitut e[s] a taking. The Fi fth Amendmen t prote c t s again s t takin g s ; it does not confe r a co nsti t u t i o n al right to gover n men t-subsi d i z e d profit s.” Alenco , 201 F.3d at 624 (intern al quot a t i o n mark s and citat i o n omit t e d). I I I . THE FCC REAS ONABLY REFOR M E D SUPPO RT MECHANI S M S FOR RATE-OF - R E T U R N CARRI ER S TO ELIMI N AT E WASTE AND INEFFI C I E N C Y IN THE PRIOR SYSTE M . The FCC, in the Order , “impl e m e n t[ed] a numb e r of refo r ms to eli min a t e waste and ineffi c i e n c y and impro v e incen t i v e s for ratio n a l inves t men t and opera t i o n by rate-of-retur n LECs.” Order ¶195 (JA at 465). These refor ms were long ove rdu e. As the FCC explai n e d, “[b]y provid i n g an oppor t u n i ty for a stabl e 11.25 percent in ter s t a t e retur n for rate-of-return co mpanies, regardles s of the necessity or pruden c e of any given invest m e n t, our curren t syste m impos e s no practi c a l limit s on the type or exten t of networ k upgrad e s or invest m e n t.” Id. ¶287 (JA at 496). The conseq u e n c e was that the FCC “provid e[d] univers a l servic e suppor t to both a well-run Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 51 41 company operat i n g as effici e n t l y as pos si b l e, and a comp a n y with high costs due to impru d e n t inves t men t decis i o n s , unwarra n t e d corpor a t e overhe a d, or an ineffi c i e n t opera t i n g struc t u r e.” Id . The FCC predict e d that the refor ms in the Order “will help ensur e rate-of-return carri e r s retai n the incent i v e and abili t y to inves t and ope rat e moder n netwo r k s capab l e of delive r i n g broadb a n d as well as voice servi c e s, while eli min a t i n g unnece s s a r y spendi n g.” Id . ¶288 (JA at 496); see id . ¶195 (JA at 465). A. T h e “Ben ch m a r k i n g Rule” Is Consis t e n t With Sectio n 254(b ) ( 5 ) Of The Act And Th e FCC’s Other Rules . The Order adopted a new rule (the “ben c h m a r k i n g rule”) that uses regre s s i o n analy s i s to estab l i s h “b enchmarks,” or cap s, to limit the reimb u r s a b l e capit a l and opera t i n g expen s e s in the formu l a used to deter mi n e high-cost loop suppo r t (“HCLS”) for rate-of-return carri e r s . Order ¶¶214, 219 (JA at 470, 471-472). 8 The FCC’s prior rules did not provi d e rate-of- return carrie r s an incent i v e to restra i n costs. Id . ¶¶211, 219 (JA at 469, 471- 472). The new rule addres s e s that pr obl em by reduc i n g subsid i e s to carri e r s with costs great e r than simil a r l y situ a t e d comp a n i e s and redis t r i b u t in g that 8 A local loop is the wire betw e e n a telep h o n e comp a n y ’ s switc h ( i.e. , a device that routes telep h o n e calls) and the subscr i b e r ’ s home or office. HCLS “helps offset the non-usag e based costs assoc i a t e d with the local loop in areas where the cost to provide voice service is re lativ e l y high comp are d to the national aver age cost per line.” Order ¶216 n.347 (JA at 470-471). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 52 42 suppor t to other carri e r s to promo t e broad b a n d deplo y me n t. Id . ¶220 (JA at 472). The FCC also sough t addit i o n al pub lic commen t on a method o l o g y to imple m e n t this rule (the “benc h m a r k i n g metho d o l o g y ”) in an attach e d FNPRM. See Order ¶ ¶ ¶216, 1079-88 (JA at 470-4 71, 786-789), App. H (JA at 1012-1021). The FCC directed its st aff (the Wireline Competit i o n Bureau, or “WCB”) to finali z e the benchm a r k i n g metho d o l o g y after consi d e r i n g the record comp i l e d in respon s e to the FNPRM. Id . ¶217 (JA at 471). WCB complet e d that task in an April 25, 2012, Order. See Connect America Fund , 27 FCC Rcd 4235 (WCB 2012) (“ Benchmark i n g Order ”), a f f ’ d in part and modif i e d in part, Connect America Fund , 28 FCC Rcd 2572 (Feb. 27, 2013) (“ Sixth Order on Reconsi d e r a t io n ”). 9 Petition e r s conte n d that the FCC: (1) violate d its own rules when it deleg a t e d impl e m e n t a t i o n of the bench m a r k i n g rule to WCB; (2) provided WCB “unboun d e d discr e t i o n ” to devi s e the bench m a r k i n g metho d o l o g y, resul t i n g in unpre d i ct a b l e suppo r t amoun ts in viola t io n of secti o n 254(b)(5) of the Act; and (3) author i z e d WCB “to revis e [that meth o d o l o g y] witho u t 9 Petition e r NTCA asked this Court to stay imple m e n t a t i o n of the Benchmar k i n g Order , or in the alterna t i v e to issue a writ of manda mu s direc t i n g the FCC to rule on NTCA’s applic a t i o n for revie w of the Order . This Court denie d that reque s t on August 13, 2012. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 53 43 abiding by APA notice and co mmen t pro ce d u r e s.” Br. 36-37. Petition e r s did not raise these conten t i o n s before the ag enc y in a petit i o n for recon s i d e r a t i o n, and so they are waiv ed. See 47 U.S.C. §405(a). “The filing of a recons i d e r a t i o n pe tit i o n ” with the FCC “is ‘a condi t i o n preced e n t to judici a l revi e w … where the party seeki n g such review … relies on questi o n s of fact or law upon which the Commiss i o n … ha s been affor d e d no oppor tun i t y to pass.’” Sorenso n II , 659 F.3d at 1044 (quoting 47 U.S.C. §405(a)). “[E]ven when a petit i o n e r ha s no reaso n to raise an argum e n t until the FCC issues an order that makes the issue relev a n t, the petit i o n e r must file a petiti o n for recon s i d e r a t i o n with the Commissi o n befor e it may seek judic i a l review.” Q w e s t Corp. v. FCC , 482 F.3d 471, 474 (D.C. Cir. 2007) (intern a l quota t i o n marks and citat i o n omitt e d). Petition e r s did not do this. Conseque n t l y, sectio n 405 of the Act ba rs judic i a l revie w of petit i o n e r s ’ clai ms. See Sorenso n II , 659 F.3d at 1044, 1048 n.8; Sorenson I , 567 F.3d at 1227-28. These argumen t s in any event lack merit becaus e the deleg at i o n was prope r. Petition e r s conte n d that the Order (at ¶217 (JA at 471)) violat e d 47 C.F.R. §0.291(e), which prohi b it s rule m a k i n g by WCB, when it “dele g a t e[d] author i t y to [WCB] to adopt the initia l [bench mar k i n g] metho d o l o g y, to updat e it as it gains more exper i e n c e and addit i o n a l infor ma t i o n, and to Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 54 44 update its regre s s i o n analy s i s annua l l y with new cost data.” Br. 37. But the FCC, pursua n t to the relev a n t statu t o r y provi s io n may “dele g a t e any of its functi o n s ” to staff by rule or order. See 47 U.S.C. §155(c)(1). The FCC lawfull y exerc i s e d that statu t o r y pow er by expli c i t l y deleg a t i n g rulema k i n g autho r i t y to WCB in this narro w cont e x t, notwi t h s ta n d i n g any prior limi t a t i o n s impo s e d on WCB’s gener a l autho r it y under the pre-exist i n g agency rules. The delega t i o n was also fully consi s t e n t with Rule 0.291. Pursuant to that rule “[t]he Chief, Wireline Comp etit i o n Bureau, is … deleg a t e d autho r i t y to perfor m all functi o n s of the Bureau ” subje c t to certa i n “exce p t i o n s and limit a t i o n s.” 47 C.F.R. §0.291. One of those limit a t i o n s is that WCB general l y “shal l not have autho r i t y to issue notic e s of propos e d rulemak i n g, notic e s of inquir y, or repor t s and order s arisi n g from eithe r of the foreg o in g . ” Id. §0.291(e). Subsecti o n (e), by its terms, only limit s WCB’s gener a l autho r i t y under the rule; it in no way li mit s the full Commissi o n ’ s autho r i t y under the Act to “deleg a t e any of its functi o n s ” to staff. 47 U.S.C. §155(c)(1). Nor does the deleg a t i o n breac h any st atuto r y provisi o n s. Specif i cal l y, petiti o n e r s have not demon s t r a t e d that the bench ma r k i n g rule viola t e s secti o n 254(b)(5), which requi r e s “pred i c t a b l e ” unive r s a l servi c e suppo r t Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 55 45 mechanisms. The Order imp ose d meani n g f u l “subs t a n t i v e limit a t i o n[s]” on WCB’s autho r it y to devel o p and re vis e the bench m a r k i n g meth o d o lo g y, underc u t t i n g petit i o n e r s ’ claim that the “vague rule” will result in “unpred i c t a b l e ch ange s ” in HCLS. Br. 38; see Order ¶¶217-18 (JA at 471) (direct i n g WCB to use “stat i s t i c a l t echn i q u e s,” settin g forth a non-exhaus t i v e list of varia b l e s for WCB to consi d e r, and direc t i n g WCB to publis h an update d list of “cappe d ” value s annua l l y). Moreover, contra r y to the premis e of petit i o n e r s ’ argum e n t, the FCC is not requi r ed to guara n t e e carri e r s subst a n t i a l l y the same univer s a l servic e suppo r t amoun t s “from year to year.” Br. 38. Petition e r s have made clear (Br. 38, 46) that what they seek “is not merel y predi c t a b l e fundin g mechanis m s, but predicta b l e market out co mes ” – someth i n g to which the Act does not entitl e USF recipie n t s, see Alenco , 201 F.3d at 622. Beyond that, petiti o n e r s ’ argume n t, even on its own terms, fails to demonst r a t e that the rule adds uncerta i n t y into HCLS disburs e m e n t s. It has always been the case that carrie r s do not know how mu ch suppor t they will receiv e in future period s. As the Order (at ¶220 (JA at 472)) explai n e d, “the fact that an indiv i d u a l comp a n y will not know how the bench m a r k affec t s its suppo r t level s until after inves t m e n t s are mad e is no diffe r e n t from the curre n t opera t i o n of high-cost loop suppo r t, in which a carrier rece i v e s suppo r t based Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 56 46 on where its own cost per loop falls rela ti v e to a nation a l averag e that change s from year to year.” The only diffe r e n c e is that under the prior rules, “carr i e r s that t[ook] prudent measur e s to cut co sts ” ofte n “los[t] HCLS suppor t to carrie r s that signif i c a n t l y increa s e[d] their costs in a given year” ( i d . ¶219) (JA at 471-472), whereas after the Order , rate-of-return carri e r s have an incen t i v e to avoid over-spend i n g by “m an ag[ing] their costs to be in align m e n t with their simil a r l y situa t e d peers.” Id . ¶221 (JA at 472). Petition e r s furth e r claim that the Order “exace r b a t e s unpre d i c t a b i l i t y ” by allow i n g WCB “to chang e the [bench ma r k i n g] rule … withou t follow i n g the notice and commen t proced u r e s requi r e d for propo s e d rule chang e s under the APA.” Br. 39. In fact, WC B followe d the APA’s proced u r a l requi r e m e n t s in imple m e n t i n g the bench m a r k i n g rule. See 77 Fed. Reg. 30,411-01 (May 23, 2012). To the exte n t that a later WCB order does not follow those rules, petiti o n e r s may challe n g e it then. Until then, their claim is Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 57 47 not ripe. See Qwest , 240 F.3d at 894; Los Alamos Study Grp ., 692 F.3d at 1064-65; Sw. Bell Tel. Co. v. FCC , 153 F.3d 523, 556 (8th Cir. 1998). 10 B. T h e FCC Did Not Engage In Imperm i s s i b l e Retroa c t i v e Rulema ki n g . Petition e r s argue that adopt i o n of the bench ma r k i n g rule and elimi n a t i o n of the safet y net ad dit i v e (or “SNA”) rule, which reduce their feder a l unive r s a l servi c e subsi d i e s, const i tu t e impro p e r retro a c t i v e rulema k i n g. See Br. 46-48. Their argum e n t lacks merit. The FCC’s action s are far rem ov e d from the class i c (or “prima r y ”) retroa c t i v i t y that occur s when gover n me n t a l condu c t “woul d impai r right s a party posse s s e d when he acted, increa s e a party ’ s liabi l i t y for past condu c t, or impose new duties with respec t to tr ansac t i o n s alread y comple t e d.” Landgra f v. USI Film Prods., Inc ., 511 U.S. 244, 280 (1994). This is becaus e the Order is entir e l y p r o s p e c t i v e : that is, it does not manda t e the retur n of USF disburs e m e n t s alrea d y made but only redu ce s or elimin a t e s feder a l subsi d i e s going forwar d. 10 Petition e r s fleet i n g l y claim that it was arbitr a r y and capric i o u s for the FCC to rely on only cost data for voice servi c e s when it updat e d the formu l a used to limit th e corpor a t e operat i o n s e xpen s e s eligi b l e for recov e r y throu g h HCLS. Br. 33 (citing Order ¶230 (JA at 474-475)). This argum e n t was never prese n t e d in the proce e d i n g be low or in a subseq u e n t petit i o n for recons i d e r a t i o n of the Order ; thus, it has been waive d. See 47 U.S.C. §405(a); Sorenso n II , 659 F.3d at 1044, 1048 n.8. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 58 48 Petitione r s conced e as much, but contend that the Order is retroac t i v e insof a r as it precl u d e s them from recov e r i n g expen s e s they incur r e d based on the “reason a b l e expect a t i o n[]” that th ey would receiv e univer s a l servic e suppo r t. Br. 46. But a new rule is not retroa c t i v e “merel y becaus e it … upsets expec t a t i o n s based in prior law.” Landgra f , 511 U.S. at 269. Moreover, any expec t a t i o n s petit i o n e r s had that they would recei v e any parti c u l a r fundin g amoun t s in the futur e (or that prio r metho d o l o g i e s would be used to deter mi n e futur e subsi d y di sbur s e men t s) were not reason a b l e. As the FCC explain e d, “Section 254 does no t manda t e the recei p t of suppo r t by any partic u l a r carrie r.” Order ¶221 (JA at 472); s e e also i d . ¶293 (JA at 497- 498). The courts agree. In reject i n g a challe n g e to an earli e r cap on HCLS, the Fifth Circuit expla i n e d that “[t] he Act does not guarant e e al l local telep h o n e servi c e provi d e r s a suffi c i e n t return on invest m e n t.” Alenco , 201 F.3d at 620. Instead, “[t]he Act only prom is e s unive r s a l servi c e, and that is a goal that requir e s suffi c i e n t fundi n g of custo me r s, not provi d e r s.” Id .; s e e RCA I, 588 F.3d at 1103. Petition e r s alter n a t i v e l y conte n d that the Order is “arbi t r a r y and capric i o u s ” becau s e it “alter[s] future regula t i o n in a manner that makes worth l e s s subst a n t i a l past inves t m e n t incur r e d in relia n c e upon the prior rule[s].” Br. 47 (citing Bowen v. Georget o wn Univ. Hosp ., 488 U.S. 204, 220 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 59 49 (1988) (Scalia, J., concurr i n g)). As set forth above, pe titi o n e r s have not demonst r a t e d that the Order render s their past invest m e n t s “wort h l e s s,” see pp. 39-40, and a waiv er proces s in the Order exempt s carri e r s from suppo r t reduc t i o n s that would imp er i l their finan c i a l viabi l i t y, see p. 35-36. Signific a n t l y, the FCC has only receiv e d a handfu l of waiver petit i o n e r s to date. Id . Even if petit i o n e r s had made th at showi n g, howeve r, there is no presu mp t i o n again s t such “seco n d a r y ” re tro a c t i v e effec t s, and a rule “may nonet h e l e s s be susta i n e d in spite of such retro a c t i v i t y if it is reaso n a b l e.” Bowen , 488 U.S. at 220 (1988) (S calia, J., concur r i n g); s ee also DirecTV, Inc. v. FCC , 110 F.3d 816, 826 (D.C. Cir. 1997). The two rule chang e s petit i o n e r s attac k are reason a b l e a nd easily satis f y this standa r d. In partic u l a r, the “bench m a r k i n g rule” ( s e e pp. 41-47, above) limits the reimb u r s a b l e capit a l and opera t i n g expen s e s in the formu l a used to deter mi n e HCLS for rate-of-return carrie r s. Pe tition e r s conte n d that the rule is unrea s o n a b l e given the Order ’ s alleg e d failu r e to e xpla i n why certa i n costs previ o u s l y incur r e d by rate-of-return carri e r s are no longe r comp e n s a b l e from the USF. See Br. 47-48. But the Order made cl ear that the bench ma r k i n g rule was necessar y to “discour a g e co mp a n i e s from over-spend i n g relat iv e to their peers.” Order ¶220 (JA at 472); see id . ¶¶211, 219 (JA at 469, 471- 472). Under the FCC’s prior rules, rate-of-return carri e r s could have 100 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 60 50 percen t of their loop costs above a cert a i n thre s h o ld reimb u r s e d from the feder a l USF; thus, carri e r s that took measu r e s to contr o l expen s e s could find thems e l v e s losin g suppo r t to carri e r s that incre a s e d costs . Id . ¶ ¶211, 219 (JA 469, 471-472). To accomp l i s h its cost-savin g goal, the FCC reasona b l y declin e d to conduc t costly and burden s o m e audits of the more than 800 rate- of-return carri e r s, as deman d e d by petit i o n e r s ( see Br. 47-48), and inste a d adopte d a genera l rule that identi f i e s ca rri e r s with costs that are signi f i c a n t l y great e r than their peers, see Alenco , 201 F.3d 620-21. The FCC adopted the SNA rule in 2001 to provid e supp o r t to rural incumb e n t LECs that mad e “ad d i t i o n a l signi f i c a n t inves t m e n t s ” in their netwo r k s. Order ¶248 (JA at 483). Accordin g to petit i o n e r s, “the Order made no attemp t to expla i n why a progr a m inten d e d to provid e addit i o n a l suppo r t for carri e r s makin g subst a n t i a l netwo r k upgra d e s shoul d be termi n a t e d.” Br. 48. But petit i o n e r s fail to mentio n that the Order “conclu d e[d] the safety net additi v e is not design e d effec t i v e l y to encour a g e addit i o n a l signif i c a n t inves t m e n t in teleco mm u n i c a t i o n s plant.” Order ¶250 (JA at 484). Instead, “[t]he major i t y of incumb e n t LECs that curren t l y are receiv i n g the safety net additi v e quali f i e d in large par t due to signif i c a n t loss of lines, not becaus e of signif i c a n t increa s e s in invest m e n t, which is contra r y to the intent of the rule.” Id . ¶249 (JA at 484). Given that the rule had not Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 61 51 worked as intend e d, the FCC reasona b l y elimi n a t e d it. See Bechtel v. FCC , 957 F.2d 873, 881 (D.C. Cir. 1992) (the FCC has a “duty to evalua t e its polici e s over time to ascert a i n wheth e r they work – that is, whethe r they actually produce the benefits the Comm issi o n origi n a l l y predi c t e d they would”). The Order likewise “rejected” petit i o n e r s ’ claim ( s e e Br. 46, 48) that carri e r s are entit l e d to SNA for inves t m e n t s made in 2010 and 2011 to satis f y commi t m e n t s made to other feder a l agenc i e s under broad b a n d stimu l u s progr a ms . Order ¶252 n.409 (JA at 485). As the Order noted, “since early 2010, the Commiss i o n has given carri e r s ample notic e that [it] intend e d to undert a k e comp r e h e n s i v e unive r s a l serv i c e refor m in the near term.” Id .; NPRM , 26 FCC Rcd at 4620-21 (¶184) (S JA at 67-68) (propos i n g to eli minat e SNA); Connect America Fund , 25 FCC Rcd 6657, 6677-78 (¶¶51- 52) (2010) (JA at 21-22) (proposi n g to elimin a t e new eligibi l i t y for SNA). More fundame n t a l l y, carrier s are never “enti t l e d ” to unive r s a l servi c e suppo r t for futu r e years and could not prope r ly rely upon it. See Alenco , 201 F.3d at 620; RCA I, 588 F.3d at 1103. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 62 52 I V . P E T I T I O NE R S ’ CHALLE N G E S TO THE FCC’S NEW SUPPORT MECHA N I S M S FOR AREAS SERVE D BY PRICE CAP CARRIE R S ARE NOT RIPE AND LACK MERIT. In additi o n to refor mi n g fundi n g for rate-of-return carrie r s, the Order overha u l e d the rules that distr ib u t e high-cost unive r s a l servi c e suppo r t to price cap carri e r s. “[M]ore than 83 percent of the unser v e d locat i o n s in the nation are in price cap areas,” the FCC explaine d, “yet such ar eas curren t l y recei v e ap pro x i mat e l y 25 percent of high-cost suppor t.” Order ¶158 (JA at 452). “[T]o meet [its] univers a l se rvi c e manda t e to unser v e d consu me r s resid i n g in these commu n i t i e s,” the FC C “conclu d e[d] that increa s e d suppo r t to areas served by price cap carrie r s, couple d with rigoro u s, enforc e a b l e deplo y me n t oblig a t i o n s, [wa]s warra n t e d.” Id . ¶159 (JA at 452-453). In Phase I of refor m, which is still in effec t, the FCC froze suppo r t for price cap carri e r s at exist i n g level s . See Order ¶128 (JA at 439-440). “In addit i o n, to spur the deplo y me n t of broad b a n d in unser v e d areas,” the FCC “alloca t e[d] up to $300 million in add it i o n a l suppo r t to such carri e r s.” Id . In Phase II, the FCC will almo st double suppo r t to price cap carri e r s (from about $1 billio n to $1.8 billio n annua l l y). See id . ¶158 (JA at 452). The FCC will offer each price cap carri e r high-cost s upport in exchang e for a co mmit m e n t to offer (1) voice servi c e throu g h o u t its servi c e terri t o r y and (2) broadb an d servic e to specifi c ar eas within its service territory in a stat e. See id . ¶166 (JA Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 63 53 at 454-455). A price cap ca rrie r ’ s “righ t to [that] suppo r t will termi n a t e afte r five years,” at which time the FCC “e xpec t[s] that suppo r t … will be award e d throu g h a co mp et i t i v e biddi n g proce s s in which all eligib l e provi d e r s will be given an equal oppor t u n i ty to comp et e.” Id . ¶178 (JA at 459). Petition e r s conten d that the FCC “fa iled to consid e r ” their arg u m e n t that limit i n g Phase I increm e n t a l suppo r t to unser v ed areas is “arbi t r a r y and discr i m i n a t o r y ” becau s e “carr i e r s in state s with exten s i v e broad b a n d devel o p m e n t commi t m e n t s … get nothi n g to upgrade what they have done.” Br. 57. In fact, the Order acknow l e d g e d that “[c]arri er s have been stead i l y expan d i n g their broad b a n d footp r i n t s ” an d “expe c t[ed] such deplo y me n t will continu e.” Order ¶137 (JA at 444). The FCC then reaso n a b l y concl u d e d that, instea d of subsid i z i n g servi c e upgra d e s in areas that alrea d y have acces s to broad b an d, it could most effec t i v e l y promo t e broa d b a n d depl o y me n t by devot i n g Phase I fundin g to jump-start i n g broad b an d deplo y m e n t in previo u s l y unserv e d areas. See id .; s e e also Connect America Fund , 27 FCC Rcd 4648, 4653 (¶15) (2012) (JA at 1156). Petition e r s may disagr e e with that policy judgm e n t, but becaus e the FCC “ad equa t e l y explai n e d its decisi o n,” its action “was neithe r arbit r a r y nor capric i o u s.” Vermont Public Service Board , 661 F.3d at 63. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 64 54 Petition e r s also asser t that the FC C “failed adequ a t e l y to addre s s argum e n t s ” that using an aucti o n to di str ib u t e subsid i e s to price cap carri e r s in Phase II will result in inadeq u a t e servi c e. Br. 49. This claim is not ripe for judici a l review, becaus e the FCC did not “adopt[] an auctio n mecha n i s m ” for price cap carrie r s in the Order . Id . Rather, the ag ency merely sought comme n t on how best to desig n and implement such a mech anism in the attach ed FNPRM. See Order ¶¶1190-222 (JA at 812-819). The FCC address e d the “argum e n t s ” that it alle g e d l y “ign o r ed ” by seeki n g comm e n t on them in that FNPRM. Compare Br. 50-51 w i t h Order ¶¶1203-07 (JA at 815- 816) (seekin g comme n t on servi c e quali t y stand a r d s); Br. 51-52 w i t h Order ¶1213 (JA 817-818) (seekin g comme n t on a biddi n g prefe r e n c e for small carrier s). Indeed, while petiti o n e r s purpor t to a ttack the FCC’s discuss i o n of the aucti o n mecha n i s m for price cap carri e r s, they rely (withou t ackno w l e d g e me n t) on the agenc y ’ s di scu s s i o n of a differ e n t aucti o n mecha n i s m for wirel e s s carri e r s. See Br. 49-52 (citing Order ¶¶311, 325-26 (JA at 504, 509)). Unless the FCC adopt s that speci f i c mecha n i s m for price cap carrie r s, its discus s i o n of that mech an i s m is not releva n t. Petitione r s also seem to assum e that the servi c e quali t y standar d s applica b l e to price cap carrie r s today will be the same servic e qu ali t y stand a r d s that apply to price Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 65 55 cap carri e r s under a comp e t i t i v e biddi n g mecha n i s m. See Br. 50-51 (citing Order ¶¶90, 94, 96, 98 (JA at 423, 424, 425-426)). The FCC has not yet made that deter mi n a t i o n. See Order ¶¶1203-07 (JA at 815-816). Until the FCC adopts an aucti o n mecha n i s m based on the recor d devel o p e d under the outst a n d i n g FNPRM, the Court will not be able to determi n e wheth e r the FCC adequat e l y respo n d e d to petit i o n e r s ’ argum e n t s that co mp et i t i v e biddi n g will degrad e serv ic e and disadv a n t a g e small carrie r s. See Qwest , 240 F.3d at 894. Likewise, th ere will be no “‘dir e c t and immed i a t e impac t ’ upon [petit i o n e r s]” un til the FCC issues an order adopt i n g a co mp etit i v e bidding mechanis m. Id . (quotin g Abbott Labs. v. Gardner , 387 U.S. 136, 152 (1967)). V. P E T I T I O NE R S ’ VARIO US CHALLENG E S TO THE OTHER REFORM S IN THE ORDER ARE WAIVE D , NOT RIPE, AND LACK MERIT. A. The Order Lawfull y And Reas on a b l y Reduce d Federa l Unive r s a l Servi c e Subsi d i e s In Areas With Artif i c i a l l y Low End-U s e r Rates . To avoid “plac[ing] an undue burde n on the [USF] and consu m e r s that pay into it,” the Order “adopt[ed] a rule to limit high-cost suppo r t where end- user rates do not meet a speci f i e d lo cal rate floor ” initi a l l y set at $10 per month. Order ¶¶235; see ¶ ¶237, 239 (JA at 476-477; 478-479). Evidence in the recor d showe d that “the re are a nu mb er of carriers with local rates th at are Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 66 56 signifi c a n t l y lower than rates th at urba n cust o me r s pay” – somet i mes as low as $5 per month. Id . ¶235 (JA at 476-477). 11 While secti o n 254(b)(3) of the Act requir e s “reas o n a b l y comp a r a b l e ” urban and rural rates, the FCC interpr e t e d that princ i p l e to “ensu r e ” only “that rates in rural areas not be signif i c a n t l y highe r than in urban areas, ” not to “subsid i z e[] artifici a l l y low local rates in rural areas.” Id. “The agenc y ’ s broa d discr e t i o n to provi d e suffi c i e n t unive r s a l servi c e fundi n g inclu d e s the decis i o n to impos e cost contr o l s to avoid exces s i v e expen d i t u r e s that will detrac t from univer s a l service.” Alenco , 201 F.3d at 620-21. Petition e r s argue that “the de facto eff ect ” of this rule is to “set[] local rates,” in viola t i o n of 47 U.S.C. §152(b). Br. 41. Petition e r s cite no judici a l autho r i t y for this assert i o n. Nor could they, becaus e as court s have recogni z e d, the mere fact th at an FCC rule might have an incide n t a l effec t on rates does not mean that the FC C is “regula t i n g ” rates. See, e.g . , Cable & Wireles s , 166 F.3d at 1230 (finding that even thoug h “the pract i c a l effec t of the Order will be to reduce settle m e n t rates charge d by foreig n carrie r s … the Commiss i o n does not excee d its autho r i t y simp l y becau s e a regul a t o r y actio n has extrat e r r i t o r i a l conse q u e n c e s ”); Cellular Telecomm s . Indus. Ass’n v. 11 By compar i s o n, the nation a l avera g e local rate is $15.62 per month. Order ¶236 (JA at 477). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 67 57 FCC, 168 F.3d 1332, 1336 (D.C. Cir. 1999) (uphold i n g the FCC’s deter min a t i o n that a state co mmiss i o n ’ s impos i t io n of univer s a l servi c e contr i b u t io n requi r em e n t s on wirel e s s carri e r s did not amoun t to “rate regul a t i o n ” preem p t e d by 47 U.S.C. §332(c)(3), even thoug h such requi r e m e n t s “imp a c t the rates charg e d to custom e r s ”). According l y, the FCC’s rate floor for federa l unive r s a l servi c e suppo r t does not consti t u t e local rate-settin g. Moreover, under this Court’s prec e d e n t, adoptin g measu r e s that encour a g e states to adjust local rates is not only permis s i b l e ; it is someti m e s require d. That is because th e agency “remains obligated to cr eat e so me induc e m e n t – a ‘carro t ’ or a ‘stick,’ for exampl e … – for the states to ass ist in imple m e n t i n g the goals of unive r s a l servi c e,” here avoid in g exces s i v e univer s a l servic e suppor t caused by ex tra o r d i n a r il y low local rates. Q w e s t I , 258 F.3d at 1204; s e e also Qwest II , 398 F.3d at 1238 (uphold i n g the FCC’s author i ty to withh o l d all unive r s a l serv i c e suppo r t from state s that fail to certi f y that rural rates withi n their boun d a r i e s are “reaso n a b l y comp a r a b l e ” to urban rates). It follow s that the FCC did not unlawf u l l y interf e r e with state regul a t i o n of local rates when it a dopted the rate floor rule in the Order . Petition e r s separa t e l y cont e n d that the rate floor rule is arbit r a r y and capric i o u s due to the FCC’s all e ge d “fail[ ure] to give adequ a t e consi d e r a t io n ” Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 68 58 to commen t s in the record. Br. 42. Petition e r s rely on a single co mme n t (out of more than 650 formal comme n t s a nd reply comm e n t s file d in this procee d i n g) arguin g that low rates in cert ai n rural areas might be attrib u t e d to small callin g local ar eas. Under the theo r y sketc h e d in this comme n t, urban and rural servic e s are not co mpar a b l e becau s e rural custo m e r s livin g in the allege d l y small e r calli n g local areas ma ke fewer local calls but more long distan c e calls than their urban count e r p a r t s. See id . (citing Comments of the Missouri Small Company Telephon e Gro up, WC Docket 10-90 at 10 (filed Apr. 18, 2010) (JA at 2284)). This comme n t, howev e r, is “unsu p p o r t ed by any data” showi n g that rural custo me r s actu a l l y pay as much, or more, for teleco m m u n i c a t i o n s servi c e s than th eir urban count e r p a r t s by incur r i n g greate r long distanc e charge s. Vermont Public Service Board , 661 F.3d at 63. Thus, it is not a signif i c a n t comme n t that warra n t e d a respo n s e from the agency. See Ark Initiati v e v. U.S. Forest Serv ., 660 F.3d 1256, 1262 (10th Cir. 2011). Petition e r s also conten d that the FCC neglect e d to co nsid e r “the fact that rate[s] may have been kept low by state funds.” Br. 42. This claim has been waive d becau s e it was ne ver prese n t e d to the FCC. See 47 U.S.C. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 69 59 §405(a); Sorenso n II , 659 F.3d at 1044, 1048 n.8. 12 Moreover, the argume n t is unavai l i n g: if state unive r s a l serv i c e fundi n g keeps certa i n rural rates artif i c i a l l y low, there is no reaso n to contin u e provid i n g carri e r s feder a l univer s a l servic e fundin g to ensure that those rates are “reaso n a b[ly] comparab[le]” to urban rates. Order ¶237 (JA at 478); s e e also RCA I , 588 F.3d at 1102 (the FCC’s univer s a l servi c e polic i e s must consi d e r “not just affor d a b i l i t y for those benef i t t e d, but fairn e s s for thos e burdened ”). B. The Order Reason a b l y Elimi n a t e d Feder a l Univ e r s a l Servi c e Suppo r t In Areas Serve d By An Unsub s i d i ze d Compe t i t o r. The FCC, in the Order , found that “[p]rovidi n g unive r s a l servi c e suppo r t in areas of the c ountr y where anothe r voice a nd broad b a n d provid e r is offeri n g high-qualit y servi c e witho u t g over n m e n t assis t a n c e is an ineffi c i e n t use of limite d unive r s a l servi c e funds.” Order ¶281 (JA at 494). As the FCC explain e d, “USF support should be dir ec t e d to areas where provi d e r s would not deploy and mainta i n netwo r k facil i t i e s absen t a USF subsid y, and not in areas where unsub s i d i z e d facil i t i e s-based provi d e r s alrea d y are co mp et i n g for customer s.” Id . (intern a l quota t i o n marks omitt e d). The FCC t hus “adopt[ed] 12 The comment cited by petitio n e r s (Br. 42) raised a very diffe r e n t claim, argui n g that the rate floor “woul d pe nal i z e [the comme n t e r] for comp l y i n g with [a] state law” prohi b it i n g lo cal rat e increases. Comments of Consoli d a te d Communi c a t i o n s Holding s , Inc., WC Docket No. 10-90 at 14 (filed Aug. 24, 2011) (JA at 3336). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 70 60 a rule to elimin a t e unive r s a l serv ic e suppor t where an unsubsi d i z e d co mp et i t o r – or a co mb ina t i o n of unsubsi d i z e d co mpe t i t o r s – offers voice and broadb a n d servi c e throu g h o u t an in cumb e n t carri e r ’ s study area.” Id .; s e e id . ¶170 (JA at 456). The rule “refle c t s a reason a b l e balanc e betwee n the Commissi o n ’ s mand at e to ensure suffic i e n t supp o r t for univ e r s a l servi c e and the need to co mbat wasteful spending.” Alenco , 201 F.3d at 620; see RCA I , 588 F.3d at 1102. Petition e r s asser t that “[ t]he Order disre g a r d s ev idence that th e mo ment the rural carri e r loses its USF support … consume r s are at risk,” becaus e an unsub s i d i zed comp e t i t o r (unlik e th e incu mb e n t LEC) has only market incen t i v e s, rather than an ongoin g legal oblig a t i o n, to conti n u e provi d i n g voice and broadb a n d servic e in these ar eas. Br. 55-56; see id . at 54. The FCC, however, made a very differ e n t predic t i v e judgme n t: that an “unsub s i d i z e d co mp et i t o r ” – which, by defini t i o n, is a facili t i e s-based provid e r that is not eligi b l e for suppo r t yet serves the incu mb e n t LEC’s entire geogra p h ic servic e area ( Order ¶¶281-83 (JA at 494-495)) – would have an incent i v e to recove r its invest m e n t by conti n u in g to serve ever y poss ib l e custom e r. This was entire l y reason a b l e. See Nuvio Corp ., 473 F.3d at 309 (“[p]redict i o n s regar d i n g the action s of regulat e d entiti e s are precise l y the type of polic y judgm e n t s that court s routin e l y and quite corre c t l y leave to Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 71 61 adminis t r a t i v e agenc i e s ”) (intern a l quota t i o n marks and citat i o n omitt e d); M e l c h er v. FCC , 134 F.3d 1143, 1152 (D.C. Cir. 1998) (deferr i n g to the FCC’s predi c t i v e “judg me n t s about future market behavi o r ”). 13 Moreover, under 47 U.S.C. §214(e )(3), the FCC and the state commi s s i o n s may comp e l a carri e r to provid e the suppor t e d unive r s a l servi c e s “to an unserv e d commu n i t y or any portio n there o f,” subjec t to the statut o r y oblig a t i o n s impos e d on ET Cs. Given its abilit y to addres s petiti o n e r s ’ specul a t i v e parade of horri b l es (should they ever arise), the FCC is under no oblig a t i o n to conti n u e to distr ib u t e univer s a l servi c e suppo r t ineffi c i e n t l y. Finally, petiti o n e r s claim that it is unf ai r to retai n carri e r-of-last-resort (“COLR”) obligati o n s 14 for incumb e n t LECs after th ey no longer receiv e federa l univer s a l servic e suppor t. See Br. 56. COLR requirem e n t s, howeve r, are impos e d under state law and not by the FCC. See Order ¶¶15, 75 (JA at 13 As we explai n in our Response to the Addition a l USF Issues Princip a l Brief of Petition e r s at 19-20, the FCC reasona b l y found that if an area is serve d by a provi d e r witho u t feder a l subs id i e s, there is no need to provide high-cost univer s a l servi c e suppo r t to any provid e r. 14 “[I]ncumbe n t LECs in many state s ar e designa t e d as the carrier s of last resor t and thus have a preex i s t i n g oblig a t i o n to ensur e servi c e to consu me r s who reques t it.” Order ¶177 n.290 (JA at 458-459). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 72 62 398-399, 418). Ultimate l y, it is the state s ’ respo n s i b i l i t y to deter mi n e wheth e r COLR require men t s are still warra n t e d. C. The Ne w Competitive Bi ddi n g Mecha n i s m For Distri b u t i n g One-Ti m e Suppo r t To Wirele s s Carri e r s Is Consi s t e n t With the Act. Petitione r s also conten d (at Br. 39-40) that the Order violate s sectio n 214(e)(2) of the Act, which provi d e s th at a “State commis s i o n may, in the case of an area serve d by a rural telep h o n e comp a n y, and shall, in the case of all other areas, desig n a t e more than one common carrie r as an eligib l e teleco m m u n i c a t i o n s carrie r for a servic e area design a t e d by the State commi s s i o n.” 47 U.S.C. §214(e)(2). Accordin g to petiti o n e r s, the Order “usurp s the role expre s s l y reserv e d to the states ” by “adopt[ing] various co mp e t i t i v e biddi n g mecha n i s ms to distr i b u t e USF support ” and “defi n[ing] the geograp h i c servic e ar eas to be auctio n e d off.” Br. 39-40. Petition e r s ’ argum e n t fails becau s e it confl a t e s eligi b i l i t y for subsi d i e s with the right to receiv e subsi d ies. While state commi s s i o n s under secti o n 214(e) of Act deter mi n e which carri e r s are eligib le for suppor t, and where those carri e r s are eligi b l e for suppo r t, a carrier is not entitle d to receive suppo r t merel y by virtu e of its ETC designa t i o n. See Order ¶¶73 & n.104, 389, 390 & n.662, 392 (JA at 418, 525, 526). As the FCC explain e d, “nothing in the statute co mp els that ev ery party eligi b l e for suppo r t actua l l y Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 73 63 receive it.” Order ¶318 (JA at 507); s e e High-Cost Universal Service Support , 23 FCC Rcd 8834, 8847 (¶29) (2008), a f f ’ d , RCA I, 588 F.3d 1095; FCC Response to Wireless Carrier USF Principal Br. 36-40. Because the Order only refor me d the distr ib u t i o n of high-cost unive r s a l servi c e suppo r t, and left intact the stat e co mmis s i o n s ’ autho r i t y to desig n a t e ETCs and their servi c e areas, there is no secti o n 214(e) violat i o n. Petition e r s also mistak e n l y claim the Order created a “new co nditio n a l [ETC] designa t i o n.” Br. 40 (citing Order ¶439 (JA at 536)). Rather, the Order simply held that carrie r s that receive an ETC de signa t i o n condi t i o n e d upon recei v i n g Mobility Fund suppo r t ma y parti c i p a t e in the Mobility Fund Phase I auction. Order ¶¶391 n.665, 439 (JA at 525, 526, 536). Nothing in the Order compels the state co mmis s i o n to grant such a condit i o n a l desig n a t i o n (though a state commi s s i o n is fr ee to make such a grant). D. The Order Did Not Elimina t e Fed era l Univer s a l Servic e Suppo r t For Remot e Areas . The FCC recogni z e d that th e cost of deploy i n g terres t r i a l networ k s can be extre m e l y high in remo t e areas of the natio n, and so it concl u d e d that it should event u a l l y suppo r t such areas throu g h a new fund. See Order ¶¶533- 38 (JA at 564-566). This remo te areas fund is inten d e d to help consu me r s “obta i n affor d a b l e broad b a n d throu g h a lter n a t i v e techn o l o g y platf o r ms such as satell i t e and unlice n s e d wirele s s.” Id . ¶533 (JA at 564-565). The Order Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 74 64 budget e d $100 millio n annua l l y for the fund but sought comme n t “on the detai l s of distr ib u t ing suppo r t ” in an accomp a n y i n g FNPRM. Id . ¶¶534, 1223-90 (JA at 565, 819-834). Petitione r s seem to think the FCC el imin a t e d unive r s a l servi c e suppo r t to remote areas pending enact m e n t of those rules. See Br. 52-53. It did not. Until the distri b u t i o n rules are in place ( s e e Order ¶167 (JA at 455)), extreme l y high-cost areas will conti n u e to receive suppor t under existi n g mechan i s ms for price cap a nd rate-of-return carri e r s, s e e id. ¶¶133 (JA at 442) (freezin g suppo r t for price-cap carrie r s), 195 (JA at 465) (maintai n i n g suppo r t for rate-of-return carri e r s). It follow s that petiti o n e r s ’ claim that the Order “denie d ” suppo r t to extrem e l y high-co st areas is incorr e c t and not ripe. See Qwest , 240 F.3d at 894-95; Los Alamos Study Group , 692 F.3d at 1064- 65. V I . TH E FCC GAVE ADEQ UATE NOTI CE AND OPPORT U N I T Y TO COMME N T ON THE RULE CHANG ES IN THE ORDER . Petitione r s co mp la i n that the FCC violated the notice-and-comment requi r e m e n t s of the APA, 5 U.S.C. §553(b). See Br. 58-59. That provi s io n requi r e s notic e of “eith e r the terms or subst a n c e of the propo s ed rule or a descri p t i o n of the subje c t s and issue s in volv e d.” 5 U.S.C. §553(b)(3). “Since the publi c is gener a l l y entit l e d to submi t their views and relev a n t data on any Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 75 65 proposa l s, the notice must be suffic i e n t to fairly appris e intere s t e d partie s of the issues involv e d, but it need not speci f y every preci s e propo s a l which [the agency] may ultima t e l y adopt as a rule.” Nuvio Corp ., 473 F.3d at 309-10 (intern a l quota t i o n marks and citat i o n s om itt e d). Petition e r s claim that “[k]ey provis i o n s in the Order were not part of the propos e d rule.” Br. 58. This argume n t is not proper l y befor e the Court, becaus e it was not presen t e d to the FCC either before the FCC issued the Order or on recons i d e r a t i o n once the agency allege d l y acted withou t notice. See 47 U.S.C. §405(a); Globalsta r , Inc. v. FCC , 564 F.3d 476, 483-85 (D.C. Cir. 2009) (explai n i n g that 47 U.S.C. §405(a) applies to claim s of l ack of APA notice and thus require s the filin g of a recons i d e r a t i o n petit i o n as a precon d i t i o n to obtai n i n g judic i a l review); Cellnet Commc’ns , Inc. v. FCC , 149 F.3d 429, 442-43 (6th Cir. 1998) (same). In any event, petiti o n e r s ’ claims are basele s s. Petition e r s broadl y assert that the FCC failed to provid e notice of the new rules implem e n t i n g the Access Rec overy Charge (“ARC”) mechan is m. Br. 58. Not so. The FCC sought co mmen t on those rules twice. In the NPRM release d on Februar y 9, 2011, the FCC “s[ou ght] commen t … on possib l e recov e r y of reduce d inter c a r r i e r comp e n s a t i o n throu g h a varie t y of mechan i s ms, includ i n g throu g h end-user ch arges such as mo difications to the intersta t e SLC cap.” NPRM ¶545 (SJA at 172). Subseque n t ly, in an August Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 76 66 3, 2011, Public Notice publis h e d in th e Federal Register, the FCC sought commen t on “the approp r i a t e recov e r y mechan i s m for ICC reform, includi n g the ABC Plan’s … recover y propos a l s.” See Further Inquiry Into Certain Issues in the Universa l Service-Inte rc a r r ie r Compens a t io n Transfo r m a t io n Proceedi n g , 26 FCC Rcd 11112, 11124 (2011) (“ August 3, 2011, Public Notice ”) (JA at 361); 76 Fed. Reg. 49,401- 01 (Aug. 10, 2011). The ARC, as adopted in the Order , is largel y modele d on the ABC Plan. Compare Order ¶¶850-53 (JA at 684-688) w i t h Letter from Robert W. Quinn, AT&T, e t al ., WC Docket 10-90 e t al ., Attachme n t 1 at 11-13 (filed July 29, 2011) (“ABC Plan”) (JA at 2999-3001). Likewise, the FCC twice propo s e d to adopt “a dual proce s s for ICC revenue recove r y.” Br. 59; s e e NPRM ¶451 (SJA 138) (seekin g “comm e n t on an incen t i v e regula t i o n frame w o r k for any inter c a r r i e r co mpe n s a t i o n repla c e m e n t fundi n g that would be distr ib u t e d throu g h the CAF to carrie r s that curren t l y set their access charge s based on a rate-of-retur n frame w o r k ”); August 3, 2011, Public Notice , 26 FCC Rcd at 11125-26 (JA at 362-363) (seeking comme n t on separa t e recov e r y mechanis m s for price cap and rate- of-return carrie r s). Petition e r s furthe r allege that the FCC, withou t notic e, amend e d its price cap rules to elimin a t e exoge n o u s ad jus t men t s. Br. 59. The agency did Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 77 67 give notice, howeve r. In the NPRM , it expres s l y “s[ought] commen t regar d i n g wheth e r there is any basis under the Commissi o n ’ s price cap rules for concl u d i n g that an exoge n o u s adjus t m e n t shoul d not be permi t t e d due to the trans i t io n a l reduc t i o n in [Interst a t e Access Support].” NPRM ¶235 (SJA at 82-83). Finally, the FCC sought comme n t on “an exclu s i v e right of first refus a l ” for price cap carri e r s in the August 3, 2011, Public Notice , 26 FCC Rcd at 11114-15 (JA at 351-352). See Br. 59. V I I . T H E FCC REAS ON A B LY DECIDE D TO ADDRES S UNIVE R S A L SERVI C E CONTR I B U T I O N S IN A SEPA RAT E PROCE E D I N G. The USF is finan c e d throu g h “a sse s s m e n t s paid by inters t a t e telec o m m u n i c a t i o n s servi c e provi d e r s.” RCA I, 588 F.3d at 1099. Fund asses s men t s paid by contr i b u t o r s ar e deter mi n e d by apply i n g a quart e r l y “cont r ib u t io n facto r ” to the contr i b u to r s ’ inters t a t e revenu e s. Id . Contribu t o r s “almo s t alway s pass thei r contr i b u t i o n asses s m e n t s throu g h to their custo m e r s.” Id . Petitione r s allege that the FCC erred by only addre s s i n g unive r s a l servi c e distr i b u t i o n s and not also contr i b u ti o n s in the Order . See Br. 34-36. According to petiti o n e r s, the FCC’s failu r e to “widen[] the … base” ag ains t which unive r s a l servi c e contr i b u t i o n s are assess e d will render voice and Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 78 68 broadba n d servic e s less afford a b l e, and co ntr i b u t i o n s inequ i t a b le, in viola t i o n of 47 U.S.C. §254(b)(1) and (4), respec t i v e l y. Id . at 34. As petitio n e r s acknow l e d g e, the FCC in a separ a t e rule mak i n g dock e t has “s[ought] commen t on propo s a l s to refor m and moder n i z e how Universa l Service Fund … contri b u ti o n s are a sses s e d and recov e r e d.” Br. 35; see Universa l Service Contribu t i o n Me tho d o l o g y ; A National Broadban d Plan for Our Future , 27 FCC Rcd 5357, 5358 (2012); see also id . at 5389-92 (¶¶65-72) (reques t i n g comme n t on exten d i n g USF assess men t s to broad b a n d Internet access servic e). Given the FCC’s well-establ i s h e d discr e t i o n under 47 U.S.C. §154(j) to define the scope of its own procee d i n g s, the agency acted prope r l y in addres s i n g univ e r s a l servic e contri b u t i o n s elsewhe r e. See FCC v. Pottsvill e Broad. Co ., 309 U.S. 134, 138 (1940) (providi n g that “subo r d in a t e quest i o n s of proce d u r e,” includ i n g the “scop e of the inqui r y,” are “expl i c i t l y and by impli c a t i o n left to the Commissi o n ’ s own devis i n g, so long … as it obser v e s the basic requi r e m e n t s desig n e d for the prote c t i o n of privat e as well as public intere s t ”). The FCC’s decisi o n to addre s s contr i b u t io n s later is also entir e l y consi s t e n t with prece d e n t uphold i n g the agenc y ’ s autho r it y to act incre me n t a l l y. As this Court has found, “the FCC is not requi r e d to addre s s all probl e ms ‘in one fell swoop,’ and may focus on probl e ms depen d i n g on Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 79 69 their acuten e s s.” Sorenso n I , 567 F.3d at 1222 (citing NAB v. FCC , 740 F.2d 1190, 1207 (D.C. Cir. 1984)); s e e also Brand X , 545 U.S. at 1002 (affirmi n g the FCC’s decisi o n to increm e n t a l l y addre s s the regul a t o r y frame w o r k for differ e n t categ o r i e s of facili t i e s-based inform a t i o n servic e provid e r s). In any event, petiti o n e r s ’ argum e n t s lack merit. Noting that “telec o m mu n i c a t i o n s voice revenu e s are declin i n g,” petiti o n e r s assert that univers a l servic e contri b u t i o n s levied on consu me r s will incre a s e and ren d e r servic e less afford a b l e, in violat i o n of secti o n 254(b)(1), “unles s the contr i b u t io n base is wi dened.” Br. 34-35. Bu t, if an ythin g, the Order promo t e s affo r d a b i l it y by “[f]or the fi rst time … establ i s h[ing] a define d budge t for the high-cost comp on e n t of the univer s a l servi c e fund.” Order ¶123 (JA at 437-438). Had the FCC not establ i s h e d a budget, ( i d . ¶125 (JA at 438)), ever-growi n g deman d for subs id i e s would have resul t e d in great e r incre a s e s in the USF contrib u t io n s pa id by consu me r s, over and above any increa s e resul t i n g from a declin e in teleco m m u n i c a t i o n s reven u e s. There is likewi s e no merit to petit i o n e r s ’ argume n t that it is “ineq u i t a b l e ” under secti o n 254(b)(4) to provid e unive r s a l servi c e suppo r t for broad b a n d, but not also asses s USF c ontrib u t io n s again s t broad b a n d servi c e reven u e s. Br. 35. Nothin g in secti o n 254(b)(4) require s the recip i e n t s of unive r s a l servi c e suppo r t to also contr i b u te to the USF. Indeed, distri b u ti o n s Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 80 70 and contr ib u t i o n s are disti n c t: the fo rme r conce r n s which provi d e r s shoul d recei v e suppo r t (and how much) to preser v e and ad vance univer s a l servic e, see 47 U.S.C. §254(b), wherea s the latte r c once r n s which provid e r s should be requi r e d to help fund that effor t, s e e id. §254(d). Thus, “there is alway s likely to be a dispar i t y betwee n the cont r i b u t i o n s parti e s make to the USF and the amoun t s that they recei v e from the USF.” Order ¶312 (JA at 504). C O N C L U S I O N The petiti o n s for review shoul d be dismi s s e d in part and other w i s e denied. 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/ Maureen K. Flood 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: 01019099664 Date Filed: 07/29/2013 Page: 81 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 Joint Universa l Service Fund Principa l Br ief for Petition e r s was certi f i e d to be 13,190 words in lengt h. Therefor e, the FC C may file a respo n s e brief up to 15,168 words in lengt h. This brief conta i n s 14,7 26 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/ Maureen K. Flood Maureen K. Flood Counsel July 29, 2013 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 82 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 83 No . 11 -990 0 ————————————————————————————————— IN THE UNI TED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT —————————— IN RE: FCC 11-161 —————————— On Petition for Review of an Order of the Federal Communications Commission —————————————————————————————————— I NTERVENORS’ BRI EF SUPPORTI NG RESPONDENTS RE: THE JOI NT UNI VERSAL SERVI CE FUND PRI NCI PAL BRI EF —————————————————————————————————— SCOTT H. ANGSTREICH BRENDAN J. CRIMMINS JOSHUA D. BRANSON KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C. 1615 M Street, NW, Suite 400 Washin gt on, DC 20036 (202) 326-7900 MICHAEL E. GLOVER CHRISTOPHER M. MILLER CURTIS L. GROVES VERIZON 1320 North Courtho us e Road, 9th Floor Arlingto n, Virgini a 22201 (703) 351-3071 Counsel for Veriz on and Veriz on Wir el es s HEATHER M. Z ACHARY KELLY P. DUNBAR WILMER CUTLER PICKERING HALE AND DORR LLP 1875 Pennsyl v an i a Ave., NW Washin gt on, DC 20006 (202) 663-6000 CATHY CARPINO GARY L. PHILLIPS PEGGY GARBER AT&T SERVICES, INC. 1120 20th Street, NW Washin gt on, DC 20036 (202) 457-3058 Counsel for AT&T Inc. July 29 , 2013 ADDIT I O NAL COUN S E L L IS T E D ON INS IDE COVE R Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 84 ROBERT ALLEN LONG, JR. GERARD J. WALDRON YARON DORI MICHAEL P. BEDER COVINGTON & BURLING 1201 Pennsyl v an i a Avenu e, NW Washin gt on, DC 20004 (202) 662-6000 Counsel for Centur yLink, Inc. HOWARD J. SYMONS ROBERT G. KIDWELL ERNEST C. COOPER MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 701 Pennsyl v an ia Avenu e, NW Suite 900 Washin gt on, DC 20004 (202) 434-7300 RICK CHESSEN NEAL M. GOLDBERG STEVEN MORRIS JENNIFER MCKEE THE NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 25 Massachu s ett s Avenu e, NW Suite 100 Washin gt on, DC 20001 (202) 222-2445 Counsel for NCTA CHRISTOPHER J. WRIGHT BRITA D. STRANDBERG WILTSHIRE & GRANNIS LLP 1200 18th St., NW Washin gt on, DC 20036 BRENDAN KASPER SENIOR REGULATORY COUNSEL VONAGE HOLDINGS CORPORATION 23 Main Street Holmd el, NJ 07733 Counsel for Vonage Holding s Corpo rat ion Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 85 CORPORATE DISCLOSURE STATEMENT Pursu ant to Rule 26.1 of the Federal Rules of Appell at e Procedure, Interveno rs in Support of Respond en ts Re: The Joint Univers al Fund Princip al Brief sub mi t this Corpo rat e Disclo su re Statemen t. AT&T Inc. (“AT&T”) is a publ i cl y trad ed corp o ratio n that, throu gh its whol l y own ed affi li ates, is prin cip al l y engag ed in the bus in es s of provi di ng commu n i catio ns servi ces and produ cts to the gen eral publ ic. AT&T has no paren t comp an y, and no publ i cl y held comp an y own s ten percent or more of its sto ck. The Verizon comp anies parti ci pati ng in this fil ing are Cellco Partn ersh ip d/b /a Verizon Wireles s and the reg ul at ed, whol l y own ed subsi di ari es of Verizon Commu n i cati ons Inc. Cellco Partn ers hip, a gen eral partn ers hip formed und er the law of the State of Delaware, is a joi nt ventu re of Verizon Commu n i cati ons Inc. and Vodafon e Group Plc. Verizon Commu n i catio ns Inc. and Vodafo ne Group Plc ind irect l y hol d 55 percent and 45 percent partn ers hi p int erest s, res pectiv el y, in Cellco Partn ersh ip. Both Verizon Commu ni cati on s Inc. and Vodafon e Group Plc are publi cl y traded comp an i es. Verizon Commu n i catio ns Inc. has no parent comp an y. No publ i cly held comp an y own s 10 percent or more of Verizo n Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 86 Commun i cati ons In c.’s stock. Insofar as rel ev an t to thi s liti gatio n, Verizo n ’s gen eral natu re and purp os e is to pro vid e commu n i catio ns servi ces, includ ing broadb and Intern et access servi ces prov id ed by its whol l y own ed tel ep hon e comp an y and Verizon Onlin e LLC subs idiari es and by Verizo n Wireless. CenturyLink, Inc. (“Centu ryLink”) is a pub li cl y trad ed corpo rati on that, throu gh its who ll y -own ed affil iat es, prov id es voi ce, bro ad band, vid eo and commu n i catio ns servi ces to cons u mers and busin ess es. CenturyLink has no parent com p an y, and no publ i cl y -held comp an y own s ten percent or more of its sto ck. The Nation al Cable & Teleco mmu n i cati on s Associatio n (“NCTA”) is the prin cip al trad e asso ciat ion of the cab l e indu st ry in the United States. Its me mb ers inclu de owners and operat ors of cab le tel ev is ion sys t ems serv ing over nin et y (90) percent of the nat ion ’s cab l e tel evis io n cus to mers as wel l as more than 200 cable prog ram net works. NCTA’s cab l e operato r me mb ers also provi d e high- speed Internet serv i ce to mo re than 50 millio n hou s eh o lds, as well as tel ep hon e servi ce to more than 26 milli on custo mers. NCTA also rep res ent s equip men t supp li ers and oth ers int eres t ed in or affil i at ed wit h the cab l e tel ev is ion indus t ry. NCTA has no paren t comp ani es, sub sid i ari es or affili ates who se list i ng is req ui red by Rule 26.1. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 87 Vonage Holding s Corporatio n has no paren t corp oratio n and no pub li cl y held corp o rati on owns 10% or more of its sto ck. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 88 i TA BLE OF CONTENTS Pag es TABLE OF AUTHORITIES .................................................................................... ii GLOSSARY ............................................................................................................... v SUMMARY OF ARGUMENT ................................................................................. 1 ARGUMENT ............................................................................................................. 4 I. THE FCC HAS AUTHORITY TO REORIENT THE FOCUS OF THE UNIVERSAL SERVICE FUND FROM NARROWBAND TO BROADBAND TECHNOLOGIES ........... 4 A. The FCC Is Authorized To Conditio n Funding On The Deploymen t Of Broadband -Capabl e Facilit i es ..................................... 5 B. Petiti on ers ’ Compl ain t About Hypoth esi zed Future Suppo rt For “Non -Teleco mmu n i cat ion s Carriers” Is Both Nonjust i ci ab le And Without Merit ........................................................................................ 9 1. Petiti on ers ’ Chall enge Present s No Articl e III Case Or Controv ers y ............................................................................... 11 2. Petiti on ers ’ Chall enge Is Flawed On The Merits ..................... 15 II. THE FCC REASONABLY LIMITED THE SIZE OF THE FUND TO AVOID UNDULY BURDENING THE CONSUMERS WHO MUST PAY FOR THE FUND ...... 20 III. THE FCC IS AUTHORIZED TO USE A REVERSE-AUCTION MECHANISM TO ALLOCATE CAF PHASE II FUNDING IN PRICE-CAP AREAS ....................... 24 CONCLUSION ........................................................................................................ 30 CERTIFICATE OF COMPLIANCE Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 89 i i TABLE OF AUTHORI TIES C ASES Alenco Commun i cat io ns , Inc. v. Feder al Commu ni cat io ns Commi ss io n, 201 F.3d 608 (5th Cir. 2000) ........................................................................ 21, 23 Core Communi ca ti ons , Inc. v. Federa l Commu n icat ion s Commis si on , 592 F.3d 139 (D.C. Cir. 2010) ............................................................................ 20 Friends of the Earth , Inc. v. Laidla w Enviro n ment al Servi ces (TOC), Inc. , 528 U.S. 167 (2000) ............................................................................................ 12 National Rural Teleco m Associ at ion v. Federal Commu ni ca ti ons Commi ssi on , 988 F.2d 174 (D.C. Cir. 1993) ................................................ 25, 28 Qwes t Commun icat ion s Interna ti ona l , Inc. v. Federal Communi ca ti ons Commi ssi on , 398 F.3d 1222 (10th Cir. 2005) ........................................ 14, 21, 23 Qwes t Commun icat ion s Interna ti ona l , Inc. v. Federal Communi ca ti ons Commi ssi on , 240 F.3d 886 (10th Cir. 2001) ...................................................... 11 Qwes t Corp. v. Federa l Commun icat ion s Commi ss ion , 258 F.3d 1191 (10th Cir. 2001 ) .......................................................................................... 6, 7, 21 Rural Cellula r Associa ti on v. Federal Commu ni ca ti ons Commissi on , 588 F.3d 1095 (D.C. Cir. 2009) ................................. 21, 22, 23, 24 Rural Cellula r Associa ti on v. Federal Commu ni ca ti ons Commiss ion , 685 F.3d 1083 (D.C. Cir. 2012) ......................................................................... 23 Schanzenba ch v. Town of La Bar ge , 706 F.3d 1277 (10th Cir. 2013) .................... 27 Sherley v. Sebeli us , 610 F.3d 69 (D.C. Cir. 2010) ................................................... 13 Southern Utah Wild er n ess Allia nce v. Palma, 707 F.3d 1143 (10th Cir. 2013) ................................................................................................... 11 Steel Co. v. Citiz en s for a Better Enviro n men t, 523 U.S. 83 (1998) ....................... 11 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 90 i ii Teleco mmun icat ion s Resear ch & Actio n Center v. Federal Commu ni ca ti ons Commi ssi on , 917 F.2d 585 (D.C. Cir. 1990) ...................................................... 13 Texas v. United States, 523 U.S. 296 (1998) ........................................................... 14 Texas Office of Public Utilit y Couns el v. Feder al Commu ni ca tion s Commi ssi on , 183 F.3d 393 (5th Cir. 1999) ........................................................ 23 U.S. West , Inc. v. Feder al Commun i cat io ns Commi ssi on , 173 F.3d 856, 1999 WL 147342 (10th Cir. Mar. 18, 1999) ...................................................... 13 Utah v. U.S. Depart men t of Inter io r, 210 F.3d 1193 (10th Cir. 2000) .................... 14 Wi s con si n Public Power , Inc. v. Feder al Energ y Regula tor y Commi s si on , 493 F.3d 239 (D.C. Cir. 2007) ............................................................................ 14 Wo r l dCom, Inc. v. Federal Commu ni ca ti ons Commiss io n, 288 F.3d 429 (D.C. Cir. 2002) .................................................................................................. 16 S TATUTES Teleco mmu n i cati ons Act of 1996 § 706(a) ............................................................................................................... 17 § 706(b) ........................................................................................................p ass i m 47 U.S.C. § 153(51) ............................................................................................................. 10 § 214(e)(2) .................................................................................................... 10, 26 § 254 .............................................................................................................p ass i m § 254(b) ................................................................................................................. 5 § 254(b)(1) .......................................................................................................... 21 § 254(b)(2) .................................................................................................. 6, 9, 19 § 254(b)(3) .................................................................................................. 6, 9, 19 § 254(b)(5) .......................................................................................................... 21 § 254(c) ............................................................................................................. 1, 7 § 254(e) ..................................................................................................... 1, 2, 6, 7 § 1302(b) ................................................................................................... 2, 16, 17 § 1302(c) ......................................................................................................... 2, 16 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 91 i v A GENCY M ATERI ALS Fourteent h Report and Order, Federal - State Joi nt Board on Univers al Servi ce , 16 FCC Rc d 11244 (2001) ...................................................................... 6 Memoran du m Opinion and Order, Deploymen t of Wir el in e Servs . Offeri ng Advan ced Teleco mmu ni ca tio ns Capab il it y , 13 FCC Rcd 24012 (1998) ............ 17 Report and Order and Furth er Notice of Propos ed Rulemak i ng, Connect Ameri ca Fund , 26 FCC Rcd 17663 (2011) .................................................p ass i m Report and Order and Notice of Propo s ed Rulemak i ng, Appropr ia te Framewo rk for Broad ban d Access to the Intern et over Wir el in e Fac il iti es , 20 FCC Rcd 14853 (2005) ................................................................. 10 Report to Congress, Federal -State Joi nt Board on Univer sa l Service , 13 FCC Rcd 11830 (1998) .................................................................................. 10 Order on Recon sid erat ion, Federal - State Join t Board on Univers al Servi ce , 27 FCC Rcd 15383 (2012) .................................................................................. 10 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 92 v GLOSSARY 1996 Act Teleco mmu n i cati ons Act of 1996, Pub. L. No. 104- 104, 110 Stat. 56 (amen din g the Commu n i cat ion s Act of 1934, 47 U.S.C. § 151 et seq . ) CAF Phase II Phase II of the Connect Ameri ca Fund Commun i cati ons Act Commu n i cati ons Act of 1934, as amen d ed (47 U.S.C. § 151 et seq . ) ETC eligi bl e teleco mmu n icati ons carri er FCC or Commi s s i on Federal Commu n i catio ns Commi s s i on ILEC incu mb en t local exchang e carri er Order Report and Order and Furth er Notice of Propos ed Rulemak i ng, Connect Ameri ca Fund , 26 FCC Rcd 17663 (2011) USF Univers al Servi ce Fund VoIP Voice over Intern et Proto col Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 93 SUMMARY OF ARGUMENT The FCC persu as iv ely reb ut s pet it ion ers ’ chall eng es to the univ ers al servi ce comp o n ent s of the Order .1 Interv eno rs wri te sep arat el y to stress several point s. 1. Petiti on ers chall eng e the FCC’s aut ho ri t y under subs ecti ons 254(c) and (e) to condi ti on receip t of fed eral high -cos t supp o rt on a reci pi en t ’s commi t men t to dep loy “du al- use” faci li ti es that can b e used to pro vid e bot h voi ce and bro ad band Internet access servi ces. But with peti ti on ers ’ enco u rag emen t, the FCC has lon g p er mi tted recip i ent s to use fed eral sup po rt for that purpo se, and no part y chal leng es the lawfu ln es s of that “no-barri ers ” pol icy. The Order here simp l y mak es that per mi s si ve poli cy man d at ory for any pro vid er that accepts high- cost fundi ng. The resu lt is every bit as cons is tent wit h subs ect ion s 254(c) and (e) as the trad it ion al no -barri ers pol icy is. Indeed, if pet it ion ers ’ statu to r y rat io nal e for chal l eng ing the broadb an d con di tio n had merit, the no- barri ers poli cy —a corn ers ton e of fed eral bro ad band pol i cy for ten years —wo uld its elf be unl awfu l. Petiti on ers sep aratel y argu e that, by all o win g fun din g for int erco nn ect ed VoIP prov id ers wit hou t reso lvi ng the statu to ry class i fi cat ion of parti cul ar VoIP 1 Report and Order and Furth er Notice of Propos ed Rulemak i ng, Connect Ameri ca Fund , 26 FCC Rcd 17663 (2011) (“ Order ”). Except where oth erwi s e ind icat ed, citati ons bel o w of the parti es ’ briefs refer to the “Joint Univers al Servi ce Fund Princip al Brief” of peti ti on ers and the FCC’s bri ef in respon s e. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 94 2 serv i ces, the FCC has trig gered a chain of even ts that ma y somed ay lead to the disb u rs emen t of univers al servi ce fun ds to “no n-tel eco mmu n i cati ons carri ers,” whi ch, peti ti on ers con t end, c an no t lawfu lly receiv e such fund ing. As a thres ho ld mat t er, that clai m pres ents no justi ciabl e cas e or con trov ers y. Petit ion ers lack Articl e III stand ing to chal l eng e thi s aspect of the Order b ecaus e they have not sho wn—o r even all eg ed —th at it has caused them “in ju ry in fact ” that is “act u al or immi n en t ” rat her than “co n jectu ral or hyp o th et ical.” Indeed, pet iti on ers hav e not ident i fi ed a sin gl e “no n- tel eco mmu n i cation s carrier” that is recei vin g fed eral supp o rt. For simi l ar reaso ns, peti ti on ers ’ clai m is also unri pe. In any even t, petit ioners ’ statu to ry -autho rity clai m wou l d lack merit even if it were just i ci ab le. First, as the FCC conclu ded, its auth o rit y und er sectio n 254(e) “to suppo rt the depl oymen t of broadb an d net wo rk s ” does not turn on the clas si fi cat io n of part icu lar VoIP s er vices offered over tho se netwo rks. Order ¶ 63 n.67. Second, secti on 706(b) of the Teleco mmu n i cati ons Act of 1996 prov id es ind ep en dent auth orit y in the narro w cont ext pres en ted here. Althoug h sect ion 706(b) is tig ht l y circu ms cri b ed, it provi des that, upo n an approp ri ate fin din g of inad equ ate depl o yme n t, the FCC shal l take “act i on to accelerate dep lo ymen t ” of broadb and infras t ru ctu re to areas that would otherwis e lack it. 47 U.S.C. § 1302(b) (codi fyi ng sectio n 706(b)) ; s ee a lso id. § 1302(c) (direct ing the FCC to identi fy Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 95 3 “geo g raphi cal areas that are not serv ed by any [broadb and] pro vi d er”). That is exact l y what the FCC has don e by pro vid ing univ ers al servi ce sup po rt for broadb and in thos e areas. Thus, altho ugh petit ion ers are correct that readi ng sect ion 706(b) more broadl y wou ld be legal l y unt en ab l e, they are wro ng to chal l eng e the FCC’s app li cat ion of that pro vis io n in this narro w cont ex t. 2. Petiti on ers fare no bet t er when chall en gin g the FCC’s deci sio n to ado pt a fi x ed bud get for fed eral hig h -cost fundi ng. The FCC reas on ab l y balan ced the ben efi ts of such fundi ng agains t the inev it abl e cost s to con su mers, who mus t und erwri te any increas e in fund size by payi ng hig her line -item fees on thei r phon e bil ls. The FCC also clos el y anal yzed the practi cal effect of its bud get ary deci si ons on fun d recipi ents and took steps to cush ion reci pi en ts agains t any abrup t sho rt fal ls. The FCC thus reaso n abl y faced up to the relevant trad e -offs, and its reso lu tio n of comp et in g int erest s fall s withi n the heartl an d of its admi n is t rati ve dis creti on. 3. Finall y, the FCC reaso nabl y decid ed to use comp et it iv e bid din g to dis trib ut e CAF Phase II supp o rt to carri ers serv ing pri ce -cap areas. Contrary to petit ion ers ’ clai m, an auct ion mech an is m does not usu rp any statu to ry powers of the stat es; the stat es wil l con tin ue to perfor m thei r statu to ry rol e of desi gn at ing provi ders as elig ibl e tel eco mmu n i catio ns carri ers (“ETCs”), and no carrier ma y Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 96 4 receiv e high -cost supp o rt wi tho ut an ETC desig nati on. There is also no meri t to petit ion ers ’ argu men ts that the FCC inad equ atel y cons id ered concerns that comp et it iv e bidd ing mech ani s ms will lead to poo r servi ce quality or dis adv ant ag e smal l carriers. Those argu men t s are unrip e becau se the FCC has not yet adopt ed any aucti on stru ct u re for CAF Phase II or any mech an is m for enfo rci ng servi ce commi t men t s by aucti on win ners. There is thu s no fin al agen cy acti on to chal l eng e. In any even t, the FCC has sho wn that it will be ful l y cap abl e of add ressi ng peti tio ners’ con cern s when it for mu l ates the relev ant rules. ARGUMENT I. T HE FCC H AS A UTH O RI TY T O R EO RI ENT T H E F O CUS O F T HE U NIVERSAL S ERVI CE F UND F RO M N ARRO WB AND T O B RO ADB AND T ECH NO LO GI ES In thei r lead argu men t ( s ee Br. 11 -28), petit io ners chall eng e two dis tin ct aspects of the Order . First, they chall en g e what they call the “bro ad b and con di tio n ”: the FCC’s decis ion to predi cate univ ers al serv ice sup po rt on a recip ient ’s commi t me n t to dep lo y net wo rks cap ab le of pro vi din g robus t broadb and Internet acc ess serv i ces. See Order ¶¶ 60 -73. Secon d, petit ion ers chall en ge the FCC’s sep arat e decisio n to defi ne the class of sup po rt ed “vo ice tel ep hon y” servi ces in a tech nol ogi cal l y neu tral man n er that incl ud es interco nn ect ed VoIP servi ces in add it ion to conv en ti on al circui t- swit ch ed tel ep hon y. See id. ¶ 62. Althoug h petit ion ers somet i mes confl at e thes e two poli cy decis ion s, they are sep arat e. The Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 97 5 first deci si on imp os es obl ig at ion s on federal high-cos t supp o rt reci pi ent s, whereas the secon d con cern s whi ch servi ces and carri ers are eligi bl e to receiv e supp o rt in the firs t place. Petit io ners ’ chall eng es to both decisi ons are wit ho ut meri t, and thei r chal l eng e to the seco nd is non-jus ti ci ab l e as well. A. The FCC Is Autho rized To Condi tio n Fundi ng On The Depl oy ment Of Broa dba nd -Ca pa bl e Faci li ti es As the FCC expl ai ns (Br. 12 -22), it has stat ut ory aut ho ri t y to req ui re high- cost sup po rt recip i ents to invest in bro adb an d- cap abl e net wo rk s and to demo n st rat e thei r comp l i an ce with that fund ing cond iti on by prov idi ng speci f i ed bro ad band serv i ces. Rather than rep eat the FCC’s argu men t s in full, interveno rs will focus on a rev eali ng ano mal y at the heart of pet it ion ers ’ pos it ion: they avid l y supp o rt a prog ram —t he “no-barri ers ” pol icy —t h at woul d logi cal l y be unl awful if their rati on al e for chall en gi ng the Order ’s b ro adb an d con di tio n were valid. See id. at 17 & n.2 (citin g pet iti oners ’ commen t s). But becaus e that ratio nal e is inv al id, both the no-barri ers poli cy and the bro ad band condi ti on are lawfu l. Secti on 254(b) directs the Commi s s i on to use federal univ ers al serv i ce prog rams to pro mo t e access to broadb an d servi ces. It req ui res that “th e Commi s s i on shal l b as e pol i ci es for the pres erv atio n and adv an ce men t of univ ers al serv i ce on” six prin cip l es, two of whi ch con cern acce ss to info rmat i on servi ces. 47 U.S.C. § 254(b). Speci fi cal l y, secti on 254(b)(2) stat es that “[a]ccess to adv an ced Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 98 6 teleco mmu n i cat ion s a nd inf or mat ion ser vices sho uld be pro vid ed in all reg ion s of the Nation.” Id. § 254(b)(2) (emph asi s add ed). And sect io n 254(b)(3) prov id es that “[c]onsu mers in all regi ons of the Nation, … shou ld have access to teleco mmu n i cat ion s a nd inf or mat ion ser vices … that are reasonab l y comp arabl e to thos e servi ces prov ided in urb an areas.” Id. § 254(b)(3) (emph as is added). These prin cip l es imp o se a “man d at o ry dut y” on the FCC. Qwest Corp. v. FCC , 258 F.3d 1191, 1200 (10th Cir. 2001) (“ Qwes t I ”). Throug hou t the decad e preced ing the Order , the FCC promo t ed thes e statu to ry goal s in part by i mp l em en t i ng its no- barri ers pol icy. In its pre -Order fo rm, that pol i cy permi t t ed, but did not req ui re, carri ers to use fed eral funds to inv es t in dual- use faci li ti es in ord er to provi d e bro ad band Internet access and oth er info rmat i on serv i ces along sid e tradi ti o nal tel ep hon e servi ces. See FCC Br. 12; Fourt eent h Report and Order, Federal - State Joi nt Board on Univers al Servi ce , 16 FCC Rcd 11244, 11322- 23 ¶¶ 199-201 (2001). The FCC foun d that the “us e of supp o rt to inv es t in infrast ructu re cap abl e of provi din g ac ces s to [such] adv an ced serv i ces ” comp o rts with sectio n 254(e). Id. at 11322 ¶ 200. As it reaso ned, the statu t e permi t s supp ort for faci li ti es as well as part i cul ar serv i ces, and it thu s permi t s ini ti at iv es to spu r “th e depl o ymen t of mod ern p la nt capab le of pro vid in g access to advanced serv ices,” includ ing “da t a” and “vi deo ” serv ices. Id. (emph as is Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 99 7 added). That leg al det ermi n ati on was plainl y correct, and pet it ion ers do not even chal l eng e it. To the cont rary, as the FCC shows, pet iti on ers ’ rank s inclu d e some of the chi ef propo nent s of the no- barri ers pol icy and some of its great es t ben efi ci aries. See FCC Br. 17 & n.2. The Order , howev er, simp l y con verts the no-barri ers poli cy fro m a permi s si v e pro gram t o a man d ato ry one. The FCC reaso n abl y con clud ed that sect ion 254 autho ri zes it to “go beyo n d the ‘no barri ers ’ pol icy” and to “req u i re carriers receivi ng univ ers al serv ice sup po rt to inv es t in mod ern bro ad band-cap abl e net wo rk s.” Order ¶ 65. “[N]othin g in sect io n 254,” the FCC expl ain ed, “req u i res [it ] simp l y to prov id e fed eral funds to carriers and hop e that they wil l use such supp o rt to deplo y broadb and facil it ies.” Id. Indeed, that read ing wou ld con fli ct with the FCC’s “man d ato ry dut y” ( Qwes t I , 258 F.3d at 1200) to pro mo t e the avai l abi li t y of bro adband net wo rks and serv i ces und er sect ion 254(b). The prob l em for pet iti on ers is that if the no -barri ers pol i cy they champ i on is lawful (as indeed it is), thei r stat uto ry logi c for chall en gin g the man d at o ry broadb and cond it ion mus t fai l, becaus e that logi c woul d app l y equall y to pro hib it a ny expen dit u re of fed eral fund s for broadb an d, wheth er comp u l so ry or volu nt ary. See FCC Br. 17. Petit io ners argu e at leng th (Br. 14 -24) that the FCC lacks statu to ry auth o rit y und er sub sectio ns 254(c) and (e) “to incl u de [broadb and Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 100 8 Internet access] on the lis t of sup po rt ed serv i ces ” ( id . at 14). As a thresh old mat t er (and as the FCC has expl ai ned), that argu men t simp l y mis reads the Order: al tho ugh the FCC could hav e des ign ated bro ad band Intern et acces s as a sup po rt ed serv i ce, 2 it elect ed instead to supp o rt the dep lo ymen t of dual- use, broadb an d - cap abl e fa ci li ti es. See Order ¶¶ 64-65; FCC Br. 20 -21. But even if the FCC had mad e bro adb and Internet access its elf a supp o rt ed serv i ce — o r even if suppo rtin g bro adb and f a cil it ies were someho w equ iv al en t to supp o rti ng bro adb an d s er vi ces — th at supp ort coul d not vio lat e sect ion 254 under petit ion ers ’ statut o ry log ic unless the “vo lun t ary” no-barri ers poli cy its el f wou ld also vio lat e sect ion 254 under the same log i c. Suppo se, cou nt erfactu al l y, that petit ion ers were correct and that spend ing univ ers al serv ice mon ey on bro adb and facil it ies were unl awfu l on the theo ry that secti on 254 permi t s fun din g onl y for “tel eco mmu n i cati ons serv i ces.” If so, it wou ld not mat t er wheth er a fundi n g recip ient put s the mon ey to the proh ibi t ed use volun t aril y or ins tead in resp ons e to a man d at o ry fundi ng con di tio n. Either way, the mon ey wou l d be spent for an unl awfu l purpo se. See FCC Br. 17 -18. 2 See, e.g . , AT&T Commen t s, WC Docket No. 10-90, at 112 -20 (filed Apr. 18, 2011) (“AT&T 4/18/2011 Commen t s ”) (JA at 2132-40) (expl aini ng that sect ion s 254 and 706(b) each ind ep end ent ly auth o ri ze direct supp o rt for bro adb an d Internet access serv i ces). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 101 9 In sho rt, any jud i ci al hold in g that inv al id ates the broadb an d fund ing con di tio n in quest ion here woul d dis rup t exi st ing busin ess plans und er the no- barri ers poli cy, threaten to und ermi n e rural broadb an d dep lo yme n t more gen eral l y, and subv ert Congres s’s obj ectiv e, codi fied in sect ion 254(b), to pro mo t e univ ers al “[a]cces s to adv an ced t el eco mmu n i cat ion s and informat i on services .” 47 U.S.C. § 254(b)(2), (b)(3). As the FCC expl ai ns, not hin g in the Commu n i cati ons Act requ i res that ano mal ou s resu lt, much les s u namb i gu ous l y so. B. Peti tio ners ’ Compl ai nt Abo ut Hypo thesized Future Suppo rt For “No n -Teleco mmuni ca ti o ns Carri ers” Is Both Nonjus ti ci abl e And Witho ut Meri t As noted, the FCC elect ed not to mak e broadb and Internet access a supp o rt ed servi ce; inst ead, it des ign at ed “vo i ce tel ep hon y” as the onl y such serv i ce. See Order ¶¶ 62 -63. Thus, “[a]s a con di tio n of receiv in g supp ort,” ETCs must “offer voi ce tel ep hon y as a stand alone serv i ce thro ugh ou t their des ign at ed serv i ce area.” Id. ¶ 80. To ensu re techno lo gi cal neut ral it y, the FCC defin ed the cat ego ry of “vo i ce teleph on y” servi ces broad l y to inclu de int erco nn ect ed VoIP in add it ion to conv en ti on al circui t- swit ch ed voi ce servi ces. Id. ¶ 63. The FCC has not iden ti fi ed any VoIP serv ices that would qual i fy as “tel eco mmu n i cati ons Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 102 10 serv i ces ” rath er than “in fo rmat i o n serv ices.” See id. ¶ 718. 3 But the FCC left int act the und erl yi n g requ i remen t that, to receiv e fundi ng, a state commi s s i on mus t desig nat e the prov id er as an “el ig ib le tel eco mmu n i cati ons carri er” with in the mean in g of sectio ns 214 and 254. See Order on Recons id eration, Federal - State Joint Board on Univer sa l Servi ce , 27 FCC Rcd 15383, 15384 ¶ 3 (2012) (confir mi n g that states retain “th e pri mar y resp ons ib ili t y for perfo rmi n g ETC desig nati ons ” und er 47 U.S.C. § 214(e)(2)). Petiti on ers non et h el es s specul at e that the FCC’s app roach migh t somed ay lead to viol at ion s of secti on 254. They arg u e that, by allo win g fund i ng for 3 The defin it ion s of “tel eco mmu n i cati ons serv i ce” and “in format i on servi ce” ar e “mu t u al l y exclus iv e”: a servi ce can be eith er one or the oth er but can not be both. Report and Order and Notice of Propo s ed Rulemak i ng, Approp ri at e Framewo rk for Broad ban d Access to the Intern et over Wir el in e Facil it ies, 20 FCC Rcd 14853, 14862, 14911 ¶ ¶ 12 n.32, 105 (2005), af f’d , Time Warn er Teleco m, Inc. v. FCC , 507 F.3d 205 (3d Cir. 2007); Report to Congress, Federal -State Joi nt Board on Universa l Servi ce , 13 FCC Rcd 11830, 11520 ¶ 39 (1998). A “tel eco mmu n i cati ons carrier” is defin ed as a “pro vid er of tel ecommu n i catio ns serv i ces.” 47 U.S.C. § 153(51). A provid er that offers onl y infor mat i on serv i ces cann ot be a “tel eco mmu n i cati ons carri er” with in the statu to ry mean in g becaus e, by defi ni tio n, it is not pro vid in g any tel eco mmu n i cati ons servi ces. Tha t said, a provi der ma y vol un tari l y div id e its operatio ns int o a ret ai l ent it y that prov id es info rmat i on serv i ces to end users and a who l es al e affil i at e that pro vid es tran s mi s si on inpu ts to the ret ai l entit y. If the affi li at e (or any unaffil i at ed whol esal e pro vid er) offers thos e inp ut s in the form of gen erall y avai l abl e teleco mmu n i cat ion s servi ces, i t can quali fy as a “tel eco mmu n i cat io ns carri er,” even thoug h the ret ail enti t y mig ht not. See gen eral l y Order ¶¶ 968 -970; s ee also id. ¶ 71 & n.99. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 103 11 intercon nected VoIP provi ders with out reso lv ing the statu to ry clas si fi cat ion of part i cul ar VoIP services, the FCC has open ed the doo r to dis burs emen t of univ ers al serv i ce fund s to “no n -tel eco mmu n i cati ons carriers.” Br. 18; s ee id. 5, 17, 22. That clai m pres ent s no justi ciabl e cas e or cont rov ers y and lacks meri t in any event. 1 . Peti tio ners ’ Cha ll eng e Presents No Arti cl e III Cas e Or Contro v ersy A party inv ok ing jud ici al revi ew bears the burd en of prov ing that its chal l eng e to an agency rul e sati s fi es Article III requi remen t s. See Steel Co. v. Citiz ens for a Better Env’t, 523 U.S. 83, 103- 104 (1998); Qwest Commc’n s Int’l , Inc. v. FCC , 240 F.3d 886, 892 -893 (10th Cir. 2001). Here, peti ti on ers have not even tri ed to carry that burd en with res pect to thei r comp l ai nts about hyp ot hesi zed futu re supp ort for enti ti es that are not “tel eco mmu n i catio ns carriers.” Althou gh the FCC pres en ts that Article III defect in terms of ripeness (Br. 25), it could be phras ed in terms of eit h er rip en es s or stan di ng, given the clos e rel at ion sh ip bet ween thos e two doct ri n es in thi s con t ext. See, e.g . , South ern Utah Wil d ern ess Allian ce v. Palma , 707 F.3d 1143, 1157 (10th Cir. 2013) (“doctri n es of stan di ng and rip en ess sub st an ti all y overl ap in man y cas es,” incl ud ing where “th e quest ion of wheth er [a part y] faces an immi n ent inju ry invo lv es simi l ar concern s as whet her [the] suit is rip e for adjud i cati on ”). Under eith er arti cul at ion, pet iti on ers hav e not Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 104 12 alleg ed ind ivi du al ized harms suffici ent to satis fy thresho ld juri sd i cti on al requ i remen t s for judici al revi ew. To satis fy Articl e III s tan di ng requ i remen t s, pet it ion ers mus t estab lis h that the rel ev ant FCC decis ion caus es them “in j u ry in fact ” that is “a ct ual or immi n ent, not con jectu ral or hyp oth eti cal.” Friends of the Earth , Inc. v. Laidla w Envtl . Servs . (TOC), Inc. , 528 U.S. 167, 180 (2000) (intern al quot at ion mark s omi t t ed). Presu mab l y, pet i tio ners wou ld ass ert that, if the FCC does some d ay prov id e supp o rt to a provi der that is not a “tel eco mmu n i cati ons carri er,” that mig ht mean more co mp et it ion and les s fun din g for them. But no pet it ion er has sub mi t t ed any affid av it or mad e any oth er effo rt to sub st an ti at e that any such inju ry is eith er lik el y or immi n ent. That fail u re of pro o f is unsu rp ri si ng becau se the chain of caus at io n that petit ion ers would have to est abli sh is lon g, tenuo us, and high l y specu lati ve. Before any pet iti on er cou ld poss ibl y suffer a cognizabl e inju ry, each of the foll o wi ng even ts wou ld have to occu r. First , a ret ail VoIP prov id er mus t appl y for ETC s tatu s whil e offeri ng onl y int erconn ect ed VoIP as its “vo i ce teleph on y” servi ce. Second, that prov id er’s VoIP serv i ce (and any oth er relevant serv i ce) mus t be deemed an “in fo rmat io n serv ice” and therefo re not a “tel eco mmu ni cati on s serv i ce.” Third , that Vo IP prov id er mus t noneth el ess win an ETC desig nati on Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 105 13 from the rel ev ant state commi s s i on. Fourth , any fund ing that the pro vi der receiv es mus t threaten to harm a speci fi c petit io ner in a con cret e and ident i fi ab le way —fo r examp l e, by increasi ng comp eti ti ve pr ess ure on that pet it ion er in a dis cret e geo g raph ic area where they both operat e. See Sherl ey v. Sebeliu s , 610 F.3d 69, 73, 74 (D.C. Cir. 2010) (comp et it or standi ng doctrin e requ i res “act ual or immi n en t increas e in comp et i tio n” and “act u al, here -and -now in ju ry”). Petiti on ers mak e no effo rt to sub st an ti at e the lik elih ood of any of thes e precon di tio ns to a find ing of inju ry -in-fact; ind eed, they fai l to iden ti fy even a s ing l e current reci pi en t of uni v ers al servi ce supp o rt that, alth oug h des ign ated as an ETC, is pro vid ing only info rmat i on servi ces. That evi d ent i ary defaul t is fat al. The con jectu re that peti tion ers “mi g h t, at some time in the futu re and und er cert ain con di tio ns,” be inju red by an “FCC rule wit h whi ch it dis agrees ” “is clearl y insu ffici ent to e st ab lis h stand ing.” U.S. West , Inc. v. FCC , 173 F.3d 856 (unpu bli sh ed), 1999 WL 147342, at *3 (10th Cir. Mar. 18, 1999). And any interes t petit ion ers ma y hav e “in the Commi s s ion ’s legal reaso nin g and its pot en ti al preced ent i al effect does not by itsel f con fer stand in g where, as here, it is ‘un coup l ed ’ fro m any inju ry in fact caus ed by the subst ance of the FCC’s adjud icato ry act ion.” Teleco mmun i cat ion s Resear ch & Action Ctr. v. FCC , 917 F.2d 585, 588 (D.C. Cir. 1990). Indeed, “mere preced e n ti al effect wit hin an Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 106 14 agen cy is not, alon e, eno ugh to creat e Articl e III stand ing, no mat ter how fores eeabl e the futu re lit ig at ion.” Wi s con sin Pub. Power , Inc. v. FERC , 493 F.3d 239, 268 (D.C. Cir. 2007) (per curi am) (intern al quo t ati on mark s omi t t ed). For simi l ar reas ons, pet iti on ers ’ chall eng es to thi s asp ect of the Order are also u nr ip e , as the FCC expl ain s (Br. 25). “A clai m is not rip e for adju di cati on if it rest s upon cont in gent futu re even ts that ma y not occu r as anti cipat ed, or ind eed ma y not occ ur at all.” Texas v. United States, 523 U.S. 296, 300 (1998) (intern al quot atio n mark s omi tt ed). That pri n cip l e is dispo si tiv e here. Again, peti tio ners hav e not att emp t ed to sho w, nor coul d they sho w, that the specu lat iv e pro sp ect that non -tel eco mmu n i ca tio ns carri ers could somed ay recei v e uni vers al serv ice sup po rt has “an immed i at e and ongoi ng imp act” on them. Qwes t Commc’ns Int’l , Inc. v. FCC, 398 F.3d 1222, 1232 (10th Cir. 2005) (“ Qwes t II”) (chal l eng e to uni versal serv i ce fund in g was rip e where pet it ion ers “hav e adeq u at el y stated an immed i at e and ongoi ng imp act in the face of allegedly dwi nd lin g” univ ersal servi ce supp o rt); s ee als o Utah v. U.S. Dept. of Interi or, 210 F.3d 1193, 1198 (10th Cir. 2000) (clai ms bas ed on harms that were “co n ti ng en t, not c ert ain or immed i at e,” were not ripe). If a state commi s s i on somed ay con fers ETC status on a provi der that offers onl y informat i on servi ces, pet it ion ers mig ht then be abl e to pres en t a chal leng e to Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 107 15 that ETC design at io n. But they have no bas is for chall en g i ng that hyp oth eti cal futu re des ign atio n now. 2 . Peti tio ners ’ Cha ll eng e Is Flaw ed On The Meri ts Qu it e apart fro m these thresho ld Article III defect s, pet it ion ers lack any basis on the meri t s for chal l eng ing the FCC’s decisi on to inclu de int ercon nected VoI P withi n the class of suppo rted “vo i ce tel ep hon y serv ices” whil e deferrin g judg men t on the stat ut o ry classi ficatio n of thos e serv i ces. As the Order expl ains, the FCC’s aut ho ri t y to pro mo t e univ ers al servi ce throu gh that incl usi ve app ro ach “do es not depend on wheth er int ercon nected VoIP serv ices are teleco mmu n i cat ion s serv i ces or info rmat io n serv ices.” Order ¶ 63. In parti cul ar, if a giv en voi ce offerin g is a teleco mmu n i cati ons servi ce, the FCC has indi spu tab l e aut ho ri t y to supp o rt that servi ce direct l y, and if it is an info rmat i on serv i ce, the FCC may “su p p ort the dep lo ymen t of broadb an d n etwo rks used to pro vi de such serv i ces.” Id. ¶ 63 n.67 (emph asis add ed). The FCC’s bri ef (at 26-27) rebu ts pet iti on ers ’ argu men t s to the con trary. 4 4 See als o AT&T 4/18/2011 Commen t s at 113- 14 (JA at 2133-34) (expl ain ing that the lan gu ag e of secti on 254(c)(2) would auth o ri ze the FCC, if it chos e, to desig nat e info rmat io n servi ces as suppo rted s er vi ces, even outs ide the sch ool s- and - lib rari es cont ex t add res sed in sect ion 254(c)(3)). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 108 16 Moreov er, secti on 706(b) of the Teleco mmu n i cati ons Act of 1996 gives the FCC indep end ent auth o rit y in this limi t ed con t ext to prov id e uni v ers al servi ce supp o rt for bro adb and depl o ymen t in areas where bro ad b and would otherwis e not exist. See Order ¶¶ 66 -73.5 Petitio n ers do not clai m that the trigg eri ng condi ti ons for sectio n 706(b) have not been met ; instead, they arg ue (Br. 26) that cons t rui ng the pro vis ion to appl y here woul d giv e the FCC unbou nd ed new powers. That is inco rrect: in fact, sect io n 706(b) is exceedin gl y narro w. By its terms, that provi sio n stat es simp l y that, upon a find ing of inad equ at e dep lo ymen t, the FCC shall tak e “act i on to accel erate depl o ymen t” of bro adb an d to areas that wou ld oth erwi s e lack it. 47 U.S.C. § 1302(b) (codi fyi ng sectio n 706(b)); see also id. § 1302(c) (directi ng the FCC to ident ify “g eog rap hi cal areas that are not serv ed by any [broadb and] pro vi d er”). That is exactly what the FCC has done by grant ing univ ers al serv ice supp o rt to pro mo t e dep loymen t in the limi t ed high-cost areas that are unserved or that woul d be uns erv ed abs ent such sup po rt. 5 The Commi s s io n chos e for poli cy reas ons to requ i re fund ing reci pi en ts to “co mp l y wit h the same univ ers al servi ce rules and oblig atio ns set fort h in secti on s 254 and 214.” Order ¶ 73. But becau se sect ion 706(b) is an indep en dent s ou rce of autho ri t y, the FCC could eli mi n ate that requ i remen t if neces s ary to fund broadb an d in uns erv ed areas. See FCC Br. 27 n.6; cf . Wor l dCom, Inc. v. FCC , 288 F.3d 429, 434 (D.C. Cir. 2002) (reman d in g with out vacati ng an FCC order where the court found “a non- trivi al lik elih ood that the Commi s s io n has the auth o rit y” to reach its pol icy objecti ves throu gh an alt ern at iv e legal rat io nal e). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 109 17 Althoug h sect ion 706(b) is very narro w, pet it ion ers are wrong to clai m (Br. 25-26) that secti on 706(b) grant s n o in d ep en dent auth orit y for bro ad b and fund ing in uns erv ed areas and merel y exh o rt s the FCC to exercis e the powers it deriv es fro m oth er pro vi sio ns. That arg u men t ign ores the fun d amen t al differen ces bet ween the terms of sect ion s 706(a) and 706(b). As petit io ners correctl y obs erv e, sect ion 706 (a ) cont ain s onl y aspi ratio nal lang u ag e and con fers no aut ho ri t y on the FCC. In cont ras t, sect io n 706 (b ) expres sl y directs that, when statu to ry precon di tio ns are met, the FCC “shal l take immed i ate actio n” to “re mo v[e] barri ers to infrast ru ct u re inves t men t ” in thos e limi t ed and speci fi c areas where such inv es t men t is lack in g. 47 U.S.C. § 1302(b). 6 As the Order explain s, “on e of the mos t sig ni fi can t barriers to inv es t men t in bro ad band infrast ructure” in unserved areas “is the lack of a bus in es s cas e for operati ng a bro adb an d net wo rk.” Order 6 Petiti on ers con fl at e the dis ti ncti on bet ween thes e two prov is ions throug hou t thei r brief. For examp l e, they ass ert that, in 1998, the FCC const rued sect ion 706 not to grant it ind ep en dent auth orit y and that it has art i cul ated an inad eq uat e rati on al e for rev ersing cou rs e. Br. 24 -25. But the 1998 order on which pet it ion ers rel y anal yzed onl y wheth er the FCC has reg ul a t ory aut ho ri t y und er sectio n 706 (a ) , not sectio n 706 (b ) . See Memoran du m Opinion and Order, Deployment of Wir el in e Servs . Offer ing Advan ced Teleco mmu ni ca ti ons Capabi li ty , 13 FCC Rcd 24012, 24044-48 ¶¶ 69-77 (1998). The dis ti ncti on bet ween thes e two provi sio ns is crit i cal becaus e sectio n 706(b) is far more targ eted in its focus and is a straig ht fo rward grant of very limi t ed — b ut indep end en t —b ro adband fund in g autho ri t y for unserved areas. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 110 18 ¶ 67 (intern al quo tatio n mark s omi t t ed). Univers al serv ice supp o rt is a key trad it ion al mean s of all evi atin g such barri ers to infrast ructu re inv est men t in hig h- cost areas. Those con sid erat ion s amp l y dis ti ngu ish the FCC’s univ ers al servi ce ini ti at iv e here fro m pet iti on ers ’ specul at ion (Br. 26) that the FCC might somed ay invo k e sect ion 706(b) to negat e “secu ri ti es and bank in g” req ui remen t s. There also is no meri t to petit io ners ’ clai m (Br. 27 -28) that the FCC’s use of sect ion 706(b) to ext en d bro ad b and serv i ce and net wo rk s to unserv ed areas und ermi n es some cong res si on al pol i cy judg men t emb o d i ed in secti on 254. To be sure, it would be inapp rop ri at e to rel y on secti on 706(b) to evade exp li ci t con g ress ion al poli cy cho i ces that are emb od i ed in oth er sect ion s of the Commu n i cati ons Act or to imp o se invo lunt ary reg ul at o ry burd en s on bro ad b and provi ders, giv en that sect ion 706(b) specificall y directs the FCC to r emove barriers to infrast ru ct u re inves t men t. But tho s e con cern s do not aris e here becaus e the FCC’s fun d i ng prog ra m pres en ts no conflict wit h sect ion 254 or any oth er provi sio n. When Congress enact ed sect ion 254 in 1996, virt uall y all con su mers had to rel y on con v ent io nal tel eco mmu n i cat io ns serv i ces for all voi ce and dat a serv i ces, such as reg ul ar circu it- s wi tch ed tel epho n y for voi ce and dial- up tech nol og ies for acces s to the Intern et. Not unti l the lat e 1990s did cab le and telepho n e comp ani es beg in wid el y offeri ng broadb an d Intern et access as a bundl ed Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 111 19 info rmat i on serv i ce, and VoIP servi ces did not beco me commo n unt il the firs t years of the new mil lenn iu m. See Order ¶ 71. In sho rt, the cat eg o ry of “tel eco mmu n i cati ons serv i ces ” acco un ted for virt u all y all con sumer voice and data serv i ces in 1996, yet Congress non eth el es s draft ed sect ion 254 to enco mp ass su pp o rt for both “tel eco mmu n i catio ns and info rmat i on serv i ces.” 47 U.S.C. § 254(b)(2), (b)(3). That his to ri cal cont ext refu t es any sugg es tio n that Congress someho w con si dered and rejected plan s to fun d the mos t imp o rt an t commu n i cati ons tech nol og y of the 21s t cen tu ry: broadb an d Intern et access, whi ch has sup pl an ted dial- up as the predo mi n ant mean s of accessi ng any info rmat io n servi ce. See gen eral l y Order ¶ 71. In part icul ar, noth ing in secti on 254 could be con st ru ed as an affi rmat i v e con gres si on al pol i cy c hoi ce agai nst pro mo t in g bro ad b and thro ugh the disb urs emen t of univ ers al servi ce suppo rt. On the cont rary, by usin g the speci ali zed term “ad v an ced tel eco mmu n i cat io ns cap ab ili t y” in sect ion 706(b), Congress direct ed the Commi s s i on to accelerat e bro ad b and infras t ru ct ure dep lo ymen t in uns erved areas wheth er the ensui ng broadb an d serv ices are clas si fi ed as “tel eco mmu n i cati ons servi ces” or as “in fo rmat i on servi ces ” ins tead. Secti on 706(b) thus autho rizes the FCC to fun d bro ad b an d pro vid ers that offer onl y info r mat i on servi ces. See Order ¶ 71; FCC Br. 27 n.6. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 112 20 Petiti on ers are als o wro ng to argu e (Br. 27) that FCC acti on under sect ion 706(b) would “ov errid[e] Secti on 254 limi t at ion s” on the theo ry that sectio n 254, as a more speci fi c pro vis io n, con t rol s over the gen eral auth orit y provi d ed by sect ion 706(b). As the D.C. Circui t exp lain ed in an anal ogo us cont ex t, “[w]hen two stat ut es appl y to int ers ect ing sets [of iss u es], neith er is more speci fi c.” Core Commc’ns , Inc. v. FCC , 592 F.3d 139, 143 (D.C. Cir. 2010) (intern al quot at ion mark s and alterat ion s omi t t ed). That is the cas e here. Section 254 equips the Commi s s i on wit h auth o rit y wit h resp ect to uni versal serv i ce in gen eral. Sectio n 706(b) directs the Commi s s io n to accel erate bro adb and depl o ymen t in parti cul ar by re mo v i ng barri ers to infrast ru ct u re inves t men t in tho se limi t ed geog rap hi c areas where the FCC finds that broadb an d has not been depl o yed in a reaso nabl e and timel y fas h io n. In deci din g wheth er and how to pro mo t e bro adb an d dep lo ymen t throu gh uni versal serv i ce mech an is ms, neit h er secti on 254 nor secti on 706(b) is more specifi c than the oth er. I I . T HE FCC R EASO NABLY L IMI TED T H E S IZE O F T HE F UND T O A VO I D U NDULY B URDENI NG T H E C O NSUM ERS W H O M UST P AY F O R T HE F UND Like any fund in g prog ram, the univ ers al servi ce fund present s diffi cul t trad e -offs. Choosing an overall size for the fund is the mos t funda men t al of thes e, and the Order s trik es an app rop riat e bal an ce bet ween comp et ing int erest s. On the one hand, the FCC wish ed to create a fund larg e enoug h to brin g some form of Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 113 21 broadb and —wh eth er fixed, mob il e, or sat ell it e -bas ed —to as man y unserved areas as pos si bl e. On the oth er hand, the mon ey in the fun d does not appear fro m nowh ere; it comes fro m “as s es s men t s pai d by int erst ate tel eco mmu n i cati ons serv i ce prov i d ers,” who “al mo s t always pas s thei r con t rib ut ion ass ess men t s throu gh to thei r customers.” Rural Cellul ar Ass’n v. FCC , 588 F.3d 1095, 1099 (D.C. Cir. 2009) (“ RCA I ”). The FCC thus wish ed to avoid creat ing a fun d so larg e that it wou ld harm con su mers, who mus t pay for any increas e throu gh hig her line -ite m fees on their phon e bil ls. As the D.C. and Fifth Circu its hav e expl ai n ed, “ex ces siv e fund ing ma y its el f viol at e” sect ion 254 by “cau s in g rat es unneces s aril y to ris e, thereb y pricing some con su mers out of the mark et [altog et her].” RCA I , 588 F.3d at 1103 (quot ing Alenco Commc’n s , Inc. v. FCC , 201 F.3d 608, 620 (5th Cir. 2000)); see Qwes t I , 258 F.3d at 1200. In stat uto ry terms, the FCC recogn i zed that it mus t ensu re not onl y that suppo rt will be “sp ec i fi c, predi ct abl e, and suffi ci en t,” 47 U.S.C. § 254(b)(5), but also that servi ces for cons u mers thro ugho ut the cou nt ry — i n clu din g thos e who do not benefit fro m u niv ers al servi ce prog ra ms —wi ll be “av ai labl e at just, reas on ab le, and affo rd abl e rat es,” id . § 254(b)(1). See gen er all y Qwes t II, 398 F.3d at 1234 (FCC is “co mp el l ed to balance the § 254(b) prin ci pl es to the ext en t that they confli ct”). Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 114 22 Weighi ng thes e comp et ing prin cipl es, the FCC adopt ed a fix ed budg et for the high-cost prog ram. This budg et, sup po rted by a “bro ad cros s- secti on of int erest ed stakeho ld ers,” is cru cial to “en s ure that [the FCC] ha[s] in place ‘sp ecifi c, pred ict abl e, and suffici ent ’ fund in g mech anis ms to ach i ev e [its] univ ers al serv i ce objectiv es.” Order ¶¶ 122-123 & n.192. In part i cu l ar, the fix ed bud get the FCC chose, which it based on FY2011 supp o rt levels, will “st abi li ze the con t rib ut ion burd en,” i d . ¶ 14, will “mi n i mi ze dis rupt ion ” in the admi n is t rati on of the fun d, i d . ¶ 125, and will suffi ce to meet fundi ng need s “gi v en the subs t ant i al refo rms ” the Order ad opt s “to add res s long-stand in g ineffi cien ci es and wast efu l spend ing,” id . The Commi s s i on “en jo ys bro ad discret io n when con du ct ing exactl y thi s typ e of balan cin g” bet w een comp et ing statu to ry objectiv es. RCA I, 588 F.3d at 1103. Petiti on ers non et h el es s argu e (Br. 31) that the FCC “imp ro p erl y limi t ed its anal ys i s to wheth er, with ou t reform, USF supp o rt wou ld be exces si ve ” and ign ored the statut o ry directi on to ensu re s uffi ci en t supp o rt for rat e -of -retu rn carri ers. That is not a defen sib l e read ing of the Order , as the FCC’s bri ef expl ai ns (at 33- 34). The FCC careful l y con sid ered the imp act of its refo rms on rat e -of -retu rn carri ers, such as peti ti on ers here, to ens u re s uffi cient fund in g lev el s for rural areas. See Order ¶¶ 285-294. It pared back leg acy fun din g for rat e -of -return carri ers “in a Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 115 23 grad ual man n er” so as not to “jeo p ard i ze servi ce to consu mers or inv es t men ts mad e con si st ent with exist ing rul es.” Id. ¶ 285. And it est ab li shed a waiv er mech ani s m to add ress unfo res een fund in g sho rt fal ls. See id. ¶¶ 126, 294.7 The FCC’s “bal an cing calcu lus ” wit h resp ect to rat e -of -retu rn carri ers thus “t[ook] into accoun t the ful l rang e of prin cipl es Congres s dict at ed to gui d e the Commi s s i on in its act ion s.” Qwes t II , 398 F.3d at 1234. Petiti on ers ’ real comp l ain t is thus not that the FCC fail ed to cons id er the “su ffi ci en cy” of suppo rt lev els at all, but that it stru ck what they con si der a subo pt i mal bal an ce bet ween “su ffi ci ency” of sup po rt and comp et in g statut o ry objecti v es. That chall eng e is unt en ab le. As used in secti on 254, the term “su ffi ci ent ” is “a mb i g uou s as to what cons ti tut es ‘su ffi cient ’ sup po rt.” Texas Office of Pub. Util. Couns el v. FCC , 183 F.3d 393, 425 (5th Cir. 1999). And wheth er the FCC “has suffi cient l y and expl i cit l y sup po rt ed univers al servi ce” “go[es] direct l y to the heart of FCC expert is e.” Alenco , 201 F.3d at 620. Petiti on ers do not begi n to overco me the “s u bst anti al judi cial deferen ce,” Alenco, 201 F.3d at 620, that the FCC recei v es for such jud g men t call s. They 7 The D.C. Circuit has twi ce hel d that the exi st en ce of such saf et y valv es ans wers charg es that int eri m cap s for fun din g viol ated the secti on 254 suffici en cy crit erion. See Rural Cellul ar Ass’n v. FCC, 685 F.3d 1083, 1095 (D.C. Cir. 2012); RCA I, 588 F.3d at 1104; see also FCC Br. 35 & n.7. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 116 24 cont end, for examp l e, that the FCC fail ed to “qu an ti fy[] the subst anti al add ed cost[s] of sat is fyi ng the bro adb an d con di tio n” imp o s ed on rat e -of -retu rn carri ers. Br. 30, 32. But the FCC made a reas on ab le pred icti ve judg men t that it coul d ensu re suffici ent supp o rt by (1) buildi ng subst anti al flex ibi li t y into tho s e carri ers ’ broadb and servi ce obl ig at ion s, e.g ., Order ¶¶ 206, 533, (2) adopt in g vario us fundi ng refo rms that wil l yiel d sub st an ti al savin gs and effi ci en cies, id . ¶¶ 194-279, and (3) creat in g a new expl i cit reco very mech ani s m to repl ace gradu al redu ct ion s in int ercarri er comp en s ati on rev en ues, id . ¶ 291. See gen er all y id. ¶¶ 287-288. The FCC, moreo v er, mad e uncont est ed f ind ing s that “9 out of 10 rate -of -ret urn carriers ” will see fund ing increas e, stay the same, or decreas e “les s than 20 percent ann u all y.” Id. ¶ 290. Finall y, pet it io ners iden ti fy “no cost dat a sho wing they woul d, in fact, have to leav e cus to mers with out servi ce as resul t” of the Order , and for that reas on alon e, there is no “val id reaso n to bel i ev e the princi pl e of ‘su ffi ci en cy’ … wil l be vio l at ed.” RCA I , 588 F.3d at 1104. I II . T HE FCC I S A UTHORI ZED T O U SE A R EV ERSE -A UCTI O N M EC H ANI SM T O A LLO CATE CAF P H ASE II F UNDI NG I N P RICE -C AP A REAS The incu mb en t local exch an ge carri ers (“ILECs”) eligib le for univ ers al serv i ce fund in g fall into two mai n cat ego ries. Some ILECs, inclu din g the smal l est ones, are sub ject to trad iti on al ra te -of - r et ur n regu lati on, whi ch allo ws carri ers to charg e rat es desi gn ed to ensu re a reason ab le retu rn on the prud en tl y incurred Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 117 25 inves t men ts reco rded in thei r accoun ti ng books. Other ILECs are sub ject to pr ice - cap regul atio n, whi ch provi d es no simi l ar assu ran ce of cos t recov ery and, over the long term, pres cri bes rat e caps mai n l y on the basi s of non-carri er -speci fic crit eri a, such as the rat e of infl atio n. Price -cap regu l ati on giv es carri ers add it ion al incenti v es to increas e thei r effi ci en cy becau s e, unli k e rat e -of -re tu rn carri ers, they hav e no guarant eed marg in s but ca n retain any ext ra pro fi ts they obt ain throu gh dil ig ent cos t -cutt ing. See genera ll y Natio na l Rural Teleco m Ass’n v. FCC , 988 F.2d 174, 177- 178 (D.C. Cir. 1993). As the Order exp l ains, “[m]ore than 83 pe rcent of the app rox i mat el y 18 mill i on Ameri can s who lack access to fix ed bro adb and liv e in pri ce cap stu d y areas,” Order ¶ 127, yet such areas acco unt ed for onl y 25% of high-cos t supp o rt in 2010, s ee id. ¶ 158. The Order reo ri en ts the uni v ers al servi ce fund to correct thi s ano mal y and est ab li sh es two phas es of aug men t ed fun di ng for carriers that agree to serv e areas tradit ion al l y sub ject to price -cap reg ul at io n, inclu ding pri ce -cap ILECs as well as non- ILECs that are not thems elves sub ject to price -cap reg ul at io n. Petiti on ers object mai n l y to the Commi s s i on ’s use of rev ers e auct io ns (“co mp eti ti ve biddi ng ” mech ani s ms) for det ermi n ing who will receiv e supp o rt durin g the second of these phas es: CAF Phase II, which has not yet beg un. See Br. 48 -51. As petit i on ers ack no wl edg e ( id. at 48 n.26), auct ion s are lik el y to play a Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 118 26 majo r rol e in dist ribu ti ng uni vers al serv i ce supp o rt onl y aft er the ini ti al fiv e -year peri od of CAF Phase II. 8 Petiti on ers arg ue that the use of auct ion s for allo cati ng uni versal serv i ce su pp o rt wil l “un l awfu ll y strip[]” stat e commi s s i ons of thei r role und er sect ion 214(e) “of decid in g wh o woul d recei ve univ ers al serv ice sup po rt.” Br. 40. That is inco rrect. Secti on 214(e) provi des onl y that stat e commi s s i on s shall “des i gn at e” carriers as “el i gi bl e” to receiv e suppo rt. 47 U.S.C. § 214(e)(2). The Order fu ll y acco mmo d at es that autho rit y: under the Order, no carri er ma y part i cip ate in an auct ion unless it has been desi gn at ed as an ETC by the rel ev ant commi s s i on. See, e.g ., Order ¶ 1199; se e gen eral l y FCC Br. 61. Petiti on ers also clai m (Br. 48- 51) that the FCC inadequ at el y con sid ered con cern s that comp eti ti ve biddi ng mech anis ms wil l res ul t in poor serv i ce qual it y and dis adv an t ag e smal l carri ers. As an init i al mat t er, these claims are unri p e 8 The FCC has gran ted each price -cap ILEC a “rig ht of firs t refusal ” to receiv e five years of sup po rt with in a giv en stat e if it agrees to offer, amo ng oth er thi ngs, a defi n ed level of bro ad band servi ce to all des ign at ed areas in that state by the end of the fiv e -year term. Order ¶ 160. During that perio d, therefo re, auct ion s wil l be held onl y inso far as ILECs opt out of this arrang emen t and the FCC needs to ident i fy sub sti tu te pro vid ers. Auctions are exp ect ed to play a great er rol e aft er that peri od, when the right of firs t refu s al exp ires and the oppo rt uni ty to prov id e supp o rt ed servi ces wil l lik el y be open ed up more broadl y to comp etit iv e bid din g. Id. ¶ 178. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 119 27 becaus e there is no fin al agen cy act ion to chall eng e. See Schanzenb a ch v. Town of La Barge , 706 F.3d 1277, 1281 (10th Cir. 2013) (the “req ui remen t of final agen cy acti on is a general req ui remen t for rip en ess ”). Despit e peti tio ners ’ cont rary sugg esti on , the FCC did not adop t (and stil l has not ado pt ed) any parti cu l ar aucti on stru ct ure for use in CAF Phase II or any mech ani s m for ensu ring comp l iance with perfo rman ce commi t men t s. Instead, it issu ed a furth er not ice of propo sed rulemak i ng and inv ited comm en t on how to desi gn such an aucti on. See Order ¶ 1190. And the FCC expres sl y soug ht commen t in an FNPRM o n the very top i cs that petit io ners clai m it igno red: servi ce perfo rman ce req ui remen ts for aucti on winn ers, s ee id. ¶¶ 1203-1204, and vari ous iss ues con cern ing auct io n des ign, inclu din g the rol e of “s mal l busi ness es ” in the auct ion pro cess, e.g ., id. ¶ 1213. As the FCC expl ai ns, any rev i ew of the FCC’s CAF Phase II auct io n mech anis m mus t awai t the futu re ord er that wil l create that mech ani s m. See FCC Br. 53 -54. In any even t, the FCC’s dis cuss ion of the auct ion mech an is m t hat it di d es tabl ish in the Order —in conn ect ion with the sep arat e Mobilit y Fund— d emo n st rat es that the FCC is acut el y aware of the need to structure comp et iti v e bidd in g to add res s the con cern s pet it ion ers rai se premat u rel y here. Petit ion ers assert, for examp l e, that the FCC “igno red” argu men t s that “[b]idders in an auct io n sys t em wil l face sig nifi can t cos t pres su re to const ruct facil it ies meeti ng min i mal Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 120 28 perfo rman ce speci ficat ion s.” Br. 48, 49. But the FCC ackn o wledg ed that con cern in con n ectio n with the Mobilit y Fund and exp l ain ed that the solu ti on lies in “defi n[ing] clear perfo rman ce stand ards and effecti v e enfo rceme n t of tho s e stand ard s, as is prud en t when seek ing any commi t men t for speci fic perfo rman ce.” Order ¶ 325. As the FNPRM co n fi rms, the Commi s s i on wil l be every bit as focu s ed on that con cern when it desi gns the auct ion mech an is m for CAF Phase II. See, e.g . , i d . ¶ 1203. More gen eral l y, peti tio ners ’ con cerns about incen tiv es to “sk i mp on serv i ce quali t y” (Br. 50) are hard l y speci fi c to auct io ns. Regulat o rs began imp l emen t ing the pri ce -cap app ro ach in the 1980s and 1990s to avoid the pervers e incenti v es that rat e- of -retu rn reg ul at io n giv es carri ers to “gold-plat[e]” thei r netwo rks, safe in the exp ect atio n that they “can pas s any cos t alo ng to rat ep ayers (unles s it is identi fi ed as imp rud ent).” National Rural Teleco m Ass’n , 988 F.3d at 178. At the time, some parti es clai me d that the shi ft to pri ce -cap (or “in cent iv e”) regu l ati on wou ld pres ent the same “rac e to the botto m” serv ice qualit y con cern s that peti tio n ers rai se here. There was no bas is for such con cerns then, and there is even less of a bas is now. Competi tiv e bid d in g for uni versal serv ice sup po rt invol v es a stan d ard offer - and -accept an ce arrang emen t whereb y provi d ers agree to serv e a part i cul ar area in exch an ge for meet in g cert ai n terms and con di tio ns, incl udi ng serv ice qual it y Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 121 29 provi sio ns. And there will be defi ned cons equ en ces for fai lu re to comp l y. The same issu es are pres en t ed in virtu all y all govern men t cont racts, whi ch are nearl y always sub ject to comp et i t iv e bidd ing. The FCC is full y comp et en t to add res s thos e issu es here. Finall y, there is no bas is for pet iti on ers ’ clai m that the FCC impro perl y dis reg ard ed thei r concerns that “an aucti on sys t em wou ld und uly fav o r larg e carriers over smal l er carriers.” Br. 49, 51. 9 As noted, the FCC did not dis reg ard petit ion ers ’ argu men ts ; ins tead, it soug ht addi tio nal commen t on the rol e of smal l busi n ess es in the CAF II auct ion pro cess, Order ¶ 1213, and pet it ion ers ’ chall en ge is thus unrip e. In any even t, the FCC di d ad d ress “s mal l bus in ess ” con cerns in the con t ext of the sep arate Mobilit y Fund, and it found no evid e n ce there that “s mal l busi n ess es are unab le to mean i ng ful l y partici pat e in a well-desi gn ed and execu ted rev ers e auct ion.” Id. ¶ 326. Petit io ners do not dis pu te that anal ys is on the meri t s; 9 Petiti on ers comp l ain that “[i]f a carri er with exis ti ng net wo rk s in rural areas is a larg e one,” it will lik el y enjo y “nat u ral adv ant ag es ” in a rev ers e auctio n becaus e it can bid to provi de servi ce at a lower cost than alt ernat iv e pro vi ders with smal l er (or no) exis tin g net wo rk s in thos e areas. Br. 51 (intern al quot at ion mark s omi t t ed). Petiti on ers app aren tl y wis h to neu t rali ze thes e “nat ural adv an tages ” by mak i ng it more diffi cu lt to win a rev ers e auctio n with a low bid; under thei r app roach, a high er bid der coul d win simp ly by virt u e of being smal l, even if it woul d need to ext ract more mon ey fro m the fun d. That out c o me woul d und ermi n e a cent ral goal of the univ ers al servi ce prog ra m: prov idi ng affo rdab le servi ce to the great es t numb er of hou s eho lds at the lowest cos t to cons u mers in general. Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 122 30 instead, they res p ond onl y that, “[s]ince such an aucti on was not part of the Order, it is not sus cep tib l e to jud ici al rev iew.” Br. 51. Of cours e, that is our poi nt: judicial revi ew would be premat u re precis el y becaus e the FCC has not yet issu ed a final order adop tin g any CAF Phase II aucti on mech ani s m. CONCLUSI ON For the reason s stat ed abov e and in the FCC’s bri ef, the relev ant peti tio ns for revi ew shoul d be deni ed. / s/ Scott H. Angst rei ch SCOTT H. ANGSTREICH BRENDAN J. CRIMMINS JOSHUA D. BRANSON KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C. 1615 M Street, NW, Suite 400 Washin gt on, DC 20036 (202) 326-7900 MICHAEL E. GLOVER CHRISTOPHER M. MILLER CURTIS L. GROVES VERIZON 1320 North Courtho us e Road, 9th Floor Arlingto n, Virgini a 22201 (703) 351-3071 Counsel for Veriz on and Veriz on Wir el es s Respect full y sub mi t t ed, / s/ Heather M. Zachar y HEATHER M. Z ACHARY KELLY P. DUNBAR WILMER CUTLER PICKERING HALE AND DORR LLP 1875 Pennsyl v an i a Ave., NW Washin gt on, DC 20006 (202) 663-6000 CATHY CARPINO GARY L. PHILLIPS PEGGY GARBER AT&T SERVICES, INC. 1120 20th Street, NW Washin gt on, DC 20036 (202) 457-3058 Counsel for AT&T Inc. July 29 , 2013 * Addition al coun sel on next pag e Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 123 31 / s/ Robert Allen Long, Jr. ROBERT ALLEN LONG, JR. GERARD J. WALDRON YARON DORI MICHAEL P. BEDER COVINGTON & BURLING 1201 Pennsyl v an i a Avenu e, NW Washin gt on, DC 20004 (202) 662-6000 Counsel for Centur yLink, Inc. / s/ Howard J. Symon s HOWARD J. SYMONS ROBERT G. KIDWELL ERNEST C. COOPER MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 701 Pennsyl v an ia Avenu e, NW Suite 900 Washin gt on, DC 20004 (202) 434-7300 RICK CHESSEN NEAL M. GOLDBERG STEVEN MORRIS JENNIFER MCKEE THE NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 25 Massachu s ett s Avenu e, NW Suite 100 Washin gt on, DC 20001 (202) 222-2445 Counsel for NCTA /s/ Christ oph er J. Wri g ht CHRISTOPHER J. WRIGHT BRITA D. STRANDBERG WILTSHIRE & GRANNIS LLP 1200 18th St., NW Washin gt on, DC 20036 BRENDAN KASPER SENIOR REGULATORY COUNSEL VONAGE HOLDINGS CORPORATION 23 Main Street Holmd el, NJ 07733 Counsel for Vonage Holding s Corpo rat ion Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 124 CERTI FI CATE OF COMPLI ANCE Certi fi ca te of Compl ia nce With Type -Vo l ume Limi ta tio ns , Typefa ce Requi rements , Type Sty le Requi rements , Pri va cy Reda ctio n Requi rements , and Virus Sca n 1. This bri ef con t ain s 6714 words of the 21,400 word s the Court allo cat ed for the bri efs of int erv eno rs in suppo rt of the FCC in its October 1, 2012 Order Conso lid atin g Case No. 12 -9575 with Other FCC 11-161 Cases, Establ is hin g Windst ream Briefi ng Schedu l e, and Modifyi n g Interv en o r Partici patio n. The int erv en ors in supp o rt of the FCC have comp l i ed wit h the typ e -volu me li mi t ati on of that ord er becaus e thei r briefs, comb i n ed, con tain a tot al of fewer than 21,400 words, exclu din g the part s of tho s e bri efs exemp t ed by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This bri ef comp l i es with the typ eface req uiremen t s of Fed. R. App. P. 32(a)(5) and 10th Cir. R. 32(a) and the type styl e req ui remen t s of Fed. R. App. P. 32(a)(6) becau s e this brief has been prep ared in a propo rtio n all y spaced typ eface usin g Microso ft Word 2010 in 14 -point Times New Roman fon t. 3. All req ui red priv acy red act ion s hav e been mad e. /s/ Kel l y P. Dunbar Kelly P. Dunbar July 29, 2013 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 125 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 Joint Universa l Servic e Fund Principa l Brie f were scan n e d for virus e s with Symante c Endpoin t Prot ecti o n, versio n 11. 0.7200.1147, updated on July 29, 2013, and accor d i n g to th e progra m are free of viruse s. /s/ James M. Carr James M. Carr Counsel July 29, 2013 Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 126 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 Joint Universa l Service Fund Principa l Brief to be filed by deliv e r i n g a copy to the Court via e-mail at FCC_briefs _ o n ly @ c a10.usc our t s.gov. I furthe r certi f y that the foreg o i n g docum e n t will be furni s h e d by the Court th rou g h (ECF) electro n i c servi c e to all parti e s in this case throu g h a regist e r e d CM/ECF user. This docume n t will be av aila b l e for viewin g and downl o a d i n g on the CM/ECF system. /s/ Maureen K. Flood Maureen K. Flood Counsel July 29, 2013   Appellate Case: 11-9900 Document: 01019099664 Date Filed: 07/29/2013 Page: 127