COMBINED RESPONSES OF FEDERAL RESPONDENTS AND SUPPORTING INTERVENORS TO THE JOINT INTERCARRIER COMPENSATION 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: 01019099612 Date Filed: 07/29/2013 Page: 1 FEDERAL RESPONDENTS’ FINAL RESPONSE TO THE JOINT INTERCARRIER COMPENSATION 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: 01019099612 Date Filed: 07/29/2013 Page: 2 i TABLE OF CONTENTS Table Of Aut horities ........................................................................................ iii   Glossary ........................................................................................................... ix   Issue Presented .................................................................................................. 1   Introduc t i o n And Summa ry Of Ar gument ........................................................ 1   Argumen t ......................................................................................................... 10   I.  The FCC Reasonab l y Determin e d That Multiple Provisio n s Of The Communic a t i o n s Act Au thorize The Adoption Of A Bill-And-Keep Ratemaki n g Methodol o g y For The Exchange Of Telecomm u n i c a t i o n s With LECs. ...................................... 10   A.  The FCC Reasonabl y Found That It Has Regulato r y Authority To Establis h The Applicab l e Ratemaki n g Regime For Telecommun i c a t i o n s Exchanged With A LEC. ..................................................................................................... 11  1.  Section 251(b)(5) Authoriz e s The FCC’s Interca r r i e r Compensa t i o n Reforms. .................................................................. 12   2.  Sections 201(b) And 332 Provide The FCC Independ e n t Substant i v e Authorit y To Establis h The Order ’ s Regulato r y Fra mework. ..................................................... 22   a.   Section 201(b) Provide s The FCC Authorit y Over Interstate Traffic Exch ange d With A LEC. ................................ 23  b.   Section 332 Provides The FCC With Authorit y Over All Wireless Traffic Exch ang e d With A LEC. ........................... 24  3.  The FCC’s Statuto r y Authori t y Provide s Ample Basis For The Order ’ s Narrow And Tailored Preempt i o n Of State Regula tion. ............................................................................. 25   B.  The FCC Reasonabl y Conclude d That It Has Regulato r y Authorit y To Adopt Bill-And- Keep As The Default For Teleco mmuni c a t i o n s Excha ng e d With A LEC. .................................. 33  Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 3 i i 1.  The Bill-And-Keep Methodol o g y Is Consiste n t With Section 252(d)(2) Ratemak i n g Standa rds. ...................................... 33   2.  Section 201(b) Indepen d e n t l y Authoriz e s Bill-And- Keep As A Ratemaki n g Methodolo g y For Interst a te Traffic. ............................................................................................. 37   3.  The FCC’s Bill-And-Keep Framewor k Does Not Impermi s s i b l y Intrud e On State Authori t y To Establi s h Actual Rat es. ................................................................................... 41   II.  The Recovery Mechan ism Adopted In The Order Is A Reasonable Interi m Measure To Offset Reduced Intercar r i e r Compensa t i o n Revenues During The Transiti o n To Bill- And-Keep. ................................................................................................ 45   III.  Petitione r s ’ Challenge To The FCC’s Tentativ e Predicti o n That States Likely Could Not Suspend Or Modify The Order’ s Bill-And-Keep Framewor k Is Unripe And, In Any Event, Unsound. ....................................................................................... 55   IV.  Petitione r s ’ Administ r a t i v e Process And Constitu t i o n a l Claims Fail. .............................................................................................. 58   A.  The Administrative Record Was Develope d Consiste n t With The APA, The FCC’s Ex Parte Rules, And Notions Of Fundament a l Fairness. ................................................................... 58   B.  The Order Poses No Unconsti t u t i o n a l Burden On State Soverei g n t y. ......................................................................................... 64   Conclusi on ....................................................................................................... 66   Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 4 iii TAB L E OF AUTH O R I T I E S CASES   Air Transpor t Ass’n v. CAB , 732 F.2d 219 (D.C. Cir. 1984) ..................................................................................................... 63 American Minin g Congres s v. Marsh a l l , 671 F.2d 1251 (10th Cir. 1982) .................................................................................. 63 AT&T Co. v. FCC , 487 F.2d 865 (2d Cir. 1973) ............................................ 40 AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 (1999) ................................................................. 6, 11, 24, 26, 27, 43, 49, 55 AT&T v. FCC , 572 F.2d 17 (2d Ci r. 1978) ..................................................... 40 Bell Atl. Tel. Cos. v. FCC , 79 F.3d 1195 (D.C. Cir. 1996) ............................................................................................................ 38 Blumenth a l v. FERC , 613 F.3d 1142 (D.C. Cir. 2010) ..................................................................................................... 61, 64 Chevron USA, Inc. v. Na tural Res. Def. Council , 467 U.S. 837 (1984) ........................................... 7, 10, 16, 17, 21, 22, 37, 39 Core Commc’ns Inc. v. FCC , 592 F.3d 139 (D.C. Cir. 2010) ........................................................................................ 17, 23, 24 EchoStar Satellit e LLC v. FCC , 457 F.3d 31 (D.C. Cir. 2006) .............................................................................................. 59, 61 Farina v. Nokia Inc. , 625 F.3d 97 (3d Ci r. 2010) ........................................... 28 FPC v. Hope Natural Gas Co. , 320 U.S. 591 (1944) ..................................... 38 Franklin Sav. Ass’n v. Dir., Office of Thrift Supervis i o n , 934 F.2d 1137 (10th Cir. 1991) .............................................. 54 Friends of Marolt Park v. United States Dep’t of Transp. , 382 F.3d 1088 (10th Cir. 2004) .................................................... 57 Geier v. Am. Honda Motor Co. , 529 U.S. 861 (2000) .......................................................................................................... 28 Global Crossing Telecomm s . , Inc. v. Metro p h o n e s Telecomms . , Inc. , 550 U.S. 45 (2007) ......................................................... 39 Hemenway v. Peabody Coal Co. , 159 F.3d 255 (7th Cir. 1998) ..................................................................................................... 23 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 5 iv Hillsdale Envt’l Loss Preven ti o n , Inc. v. U.S. Army Corps of Eng’rs , 702 F.3d 1156 (10t h Cir. 2012) ....................................... 63 Home Box Office, Inc. v. FCC , 567 F.2d 9 (D.C. Cir. 1977) ..................................................................................................... 61 In re Dawes , 652 F.3d 1236 (10th Cir. 2011) ................................................. 18 Iowa Utils. Bd. v. FCC , 120 F.3d 753 (8th Cir. 1997), v a c a t e d and reman d e d in part on other grou n d s , AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 (1999) ........................................................................................... 24 Iowa Utils. Bd. v. FCC , 219 F.3d 744 (8th Cir. 2000) ..................................................................................................... 41, 58 J a m a v. Immigra t i o n & Customs Enforcem e n t , 543 U.S. 335 (2005) ........................................................................................... 16 Louisian a PSC v. FCC , 476 U.S. 355 (1986) ................................................. 27 MCI Telecomm s . Corp. v. U.S. West Commc’ns , 204 F.3d 1262 (9th Cir. 2000) ..................................................................... 37 M e t r oPCS California , LLC v. FCC , 644 F.3d 410 (D.C. Cir. 2011) ........................................................................................... 25 NARUC v. FCC , 737 F.2d 1095 (D.C. Ci r. 1984) ................................... 42, 64 Nat’l Cable & Telecomm s . Ass’n v. FCC , 567 F.3d 659 (D.C. Cir. 2009) .................................................................................... 10 Nat’l Federati o n of Ind. Business e s v. Sebelius , 132 S. Ct. 2566 (201 2) ................................................................................ 64, 66 New Mexico v. EPA , 114 F.3d 290 (D.C. Cir. 1997) ...................................... 63 New York v. United States , 505 U.S. 144 (1992) ............................................ 66 Pacific Bell v. Cook Telecom, Inc. , 197 F.3d 1236 (9th Cir. 1999) ............................................................................................. 15 Phillips Petroleum Co. v. EPA , 803 F.2d 545 (10th Cir. 1986) .............................................................................................. 61, 63 Printz v. United States , 521 U.S. 898 (1997) ........................................... 65, 66 Q w e s t Corp. v. FCC , 689 F.3d 1214 (10th Cir. 2012) ............................................................................................................ 36 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 6 v Q w e s t Corp. v. Minn. Pub. Utils. Comm’n , 684 F.3d 721 (8th Cir. 2012) ...................................................................................... 28 Q w e s t Corp. v. Pub. U tils. Comm’n of Colorado , 479 F.3d 1184 (10th Cir. 2007) ................................................................... 37 Rivera-Barriento s v. Holder , 666 F.3d 641 (10th Cir. 2012) .............................................................................................. 17, 39 Rural Cellular Ass’n v. FCC , 588 F.3d 1095 (D.C. Cir. 2009) ..................................................................................................... 42 Rural Cellular Ass’n v. FCC , 685 F.3d 1083 (D.C. Cir. 2012) ....................................................................................................... 5 Smith v. Illinois Bell Tel. Co. , 282 U.S. 133 (1930) .......................... 47, 48, 49 Sorenson Commc’ns , Inc. v. FCC , 659 F.3d 1035 (10th Cir. 2011) ...................................................................................... 7, 28 Sw. Bell Tel. Co. v. FCC , 153 F.3d 523 (8th Cir. 1998) ............................................................................................................ 40 Time War n er Entm’t Co. v. FCC , 56 F.3d 151 (D.C. Cir. 1995) ..................................................................................................... 54 TOPUC v. FCC , 183 F.3d 393 (5th Cir. 1999) ................................................. 9 TOPUC v. FCC , 265 F.3d 313 (5th Cir. 2001) ............................................... 40 United States Telecom Ass’n v. FCC , 359 F.3d 554 (D.C. Cir. 2004 ) ................................................................................ 9, 56, 57 United States v . AT&T , 552 F. Supp. 131 (D.D.C. 1982) ............................................................................................................ 20 United States v. Manat a u , 647 F.3d 1048 (10th Cir. 2011) ............................................................................................................ 13 Verizon New England, Inc. v. Me. Pub. Utils. Comm’n , 509 F.3d 1 (1st Cir. 2007) ........................................................... 31 W o r l dCom, Inc. v. FCC , 288 F.3d 429 (D.C. Cir. 2002) ............................................................................................................ 19 S T A T U T E S   Telecomm u n i c a t i o n s Act of 1996, Pub. L. No. 104- 104, §601(c)(1), 110 Stat. 56 (1996) ........................................ 26, 27, 28, 29 5 U.S.C. §553( b)(3) ......................................................................................... 59 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 7 v i 5 U.S.C. §553( c) ......................................................................................... 9, 61 5 U.S.C. §706( 2)(F) ......................................................................................... 63 47 U.S.C. §152(b )..................................................................................... 25, 27 47 U.S.C. §153 (16).......................................................................................... 13 47 U.S.C. §153(35).......................................................................................... 29 47 U.S.C. §153 (43).......................................................................................... 13 47 U.S.C. §153 (47).......................................................................................... 13 47 U.S.C. §153 (48).......................................................................................... 13 47 U.S.C. §201(b).................................................................................... p a s s i m 47 U.S.C. §203 ................................................................................................ 39 47 U.S.C. §205 ......................................................................................... 39, 40 47 U.S.C. §251 (b)(5) ............................................................................... p a s s i m 47 U.S.C. §251(c)(3 ) ................................................................................ 29, 56 47 U.S.C. §251(d)(2) .......................................................................... 29, 30, 56 47 U.S.C. §251(d)( 3) ................................................................................ 26, 29 47 U.S.C. §251(d)( 3)(C) ................................................................................. 31 47 U.S.C. §251(f) (1) ....................................................................................... 58 47 U.S.C. §251(f)(2 ) ............................................................................ 8, 55, 58 47 U.S.C. §251(f)(2)( B) ........................................................................... 56, 58 47 U.S.C. §251 (i) ............................................................................................ 24 47 U.S.C. §252(a )(1) ....................................................................................... 37 47 U.S.C. §252(b )(1) ....................................................................................... 44 47 U.S.C. §252(c) ............................................................................... 37, 43, 44 47 U.S.C. §252(d )..................................................................................... 43, 44 47 U.S.C. §252(d)(2) .......................................................................... 23, 41, 44 47 U.S.C. §252(d)( 2)(A) ................................................................................. 33 47 U.S.C. §252(d)( 2)(A)(i) ............................................................................. 45 47 U.S.C. §252(d)( 2)(B) ................................................................................. 33 47 U.S.C. §252(d)(2) (B)(i) ......................................................................... 7, 14 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 8 v i i 47 U.S.C. §254 (d)............................................................................................ 13 47 U.S.C. §254 (e) .............................................................................................. 5 47 U.S.C. §271(c)(2)(B)(i v) – (vi) .................................................................. 13 47 U.S.C. §332 ............................................................................. 24, 25, 39, 44 47 U.S.C. §332(c)(1)( B) ....................................................................... 6, 12, 25 47 U.S.C. §332(c)(3 )(A) ................................................................................. 25 47 U.S.C. §405 (a) ............................................................................................ 28 REGULAT I O N S   47 C.F.R. §1.120 3(a) ....................................................................................... 60 47 C.F.R. §1.1203( b) ................................................................................ 60, 62 47 C.F.R. §1. 1206 ........................................................................................... 60 47 C.F.R. §1.1206(b)(1 ) .................................................................................. 60 47 C.F.R. §1.1206(b)(2)( i) .............................................................................. 60 47 C.F.R. §1.1206( b)(2)(ii) ............................................................................. 60 47 C.F.R. §1.1206( b)(2)(iii) ............................................................................ 60 47 C.F.R. §1.1206(b )(2)(iv) ..................................................................... 60, 62 ADMI NISTRATI VE DECI SIONS   Access Charge Reform , 12 FCC Rcd 15982 (1997), a f f ’ d , Sw. Bell Tel. Co. v. FCC , 153 F.3d 523 (8th Cir. 1998) ..................................................................................................... 40 Access Charge Reform , 15 FCC Rcd 12962 (2000), a f f ’ d in perti n e n t part , TOPUC v. FCC , 265 F.3d 313 (5th Cir. 2001) ...................................................................................... 40 BellSouth Telecomm u n i c a t i o n s , Inc. Request for Declarato r y Ruling , 20 FCC Rcd 6830 (2005) ........................................... 29 Developin g a Unified Interca r r i e r Compensa t i o n Regime , 24 FCC Rcd 6475 (2008), a f f ’ d Core Commc’ns Inc. v FCC , 592 F.3d 139 (D.C. Cir. 2010) ............................................................................................................ 17 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 9 v i i i Implemen t a t i o n of the Local Competit i o n Provisio n s in the Telecomm u n i c a t i o n s Act of 1996 , 11 FCC Rcd 15499 (199 6) ........................... 15, 17, 20, 21, 22, 31, 35 Intercar r i e r Compensa t i o n for ISP-Bound Traffic , 16 FCC Rcd 9151 (2001) ............................................................................ 17 Policy and Rules Concerni n g Rates for Dominant Carriers , 5 FCC Rcd 6786 (1990) .............................................................. 53 Review of the Section 251 Unbundlin g Obligati o n s of Incumbe n t Local Exchange Carriers , 18 FCC Rcd 16978 (2003) ........................................................................................ 56 O T H E R AUTHOR I T I E S   Webster’s Third New Int’l Dictionary (2002) ................................................ 34 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 10 ix G L O S S A RY 1996 Act Telecom m u n i c a t i o n s Act of 1996 ACA Afforda b l e Care Act Act Communic a t i o n s Act of 1934 APA Administra t i v e Procedure Act ARC Access Recovery Charge Br. Petition e r s ’ Brief CAF Connect America Fund CLEC Competitiv e Local Exchange Carrier FCC Federal Communi c a t i o n s Commiss i o n ICC Intercar r i e r Compensa t i o n ILEC Incumbent Local Exchange Carrier IP Internet Protocol IXC Interexc h a n g e Carrier JA Joint Appendix LEC Local Exchange Carrier LSS Local Switchi n g Support SA Suppleme n t a l Joint Appendix VoIP Voice over Interne t Protocol Appellate Case: 11-9900 Document: 01019099612 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 INTERCARRIER COMPENSATION PRINCIPAL BRIEF OF PETITIONERS I S S U E PRES EN T E D Whether the FCC lawfull y reforme d its interc a r r i e r co mp e n s a t i o n rules to imple m e n t – follo w i n g a gradu a l trans it i o n that minimi z e s disru p t i o n to consu me r s and servi c e provi d e r s – a bill-and-keep regul a t o r y frame w o r k for all teleco m m u n i c a t i o n s traff i c excha n g e d with local telep h o n e comp a n i e s. I N T R O D U C T I O N AND SU MMARY OF ARGUME N T In the Order o n revi e w, 1 the FCC compre h e n s i v e l y refor me d an antiqu a t e d inter c a r r i e r co mp e n s a t i o n (“ICC”) regime. That regime had devel o p e d at a time when local phone comp a n i e s – also known as incum b e n t local ex chang e carrier s (“incumb e n t LEC s” or “ILECs”) – were regulat e d monop o l i e s and the cost of provi d i n g local phone servic e was effect i v e l y 1 Connect America Fund , 26 FCC Rcd 17663 (2011) (“ Order ”) (JA at 390). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 12 2 subsid i z e d by “acce s s charg e s ” paid to LECs by long-distan c e carri e r s (known as “inter e x c h a n g e carri e r s ” or “IXCs”). While techn o l o g y and marke t chang e s devel o p e d at a rapid pace, until the FCC adopted its Order , t h e ICC framewo r k large l y had remain e d froze n in time. This result e d in regul a t o r y disto r t i o n s, extens i v e arbit r a g e, and waste – with IXCs paying LECs rates well above the increm e n t a l cost of initi a t i n g (“origi n a t i n g ”) or deliv e r i n g (“termi n a t i n g ”) teleph o n e calls. As descri b e d in greate r detai l in the FCC Prelimin a r y Brief (at 1-5, 13- 20), this archaic regi me was an obstac l e to the deploy m e n t of more adva nc e d and effici e n t Interne t Protocol (“IP”) networ k s and gave tradi t i o n a l phone co mpan ies an eco nomically unsou n d regul a t o r y advan t a g e over thei r wirel e s s and Voice-over-IP (“VoIP”) competito r s. The reg ime also had b eco me incre a s i n g l y unsta b l e, as ICC revenue s were erodin g at an uncert a i n pace, makin g it diffic u l t for compan i e s to plan and make invest m e n t decisi o n s. See Order ¶9 (JA at 396) (summar i z i n g short c o mi n g s of the exist i n g ICC systems). To modern i z e ICC – and in lieu of a patch w o r k of 50 differ en t state regim e s that had produc e d intra s t a t e ac ces s charg e rates as high as 13 cents a minut e, even thoug h the incre m e n t a l cost of call termi n a t i o n was close to Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 13 3 zero 2 – the FCC adopted a ratema k i n g me tho d o l o g y known as bill-and-keep. Under the bill-and-keep frame w o r k, carri e r s recov e r their costs from their own cust o m e r s (suppl e me n t e d by expli c i t univer s a l servic e subsid i e s, when necess ar y), rather than from their co mpetit o r s. In essence, the FCC adopted for local telep h o n e comp a n i e s the same model that was already in place and c onti n u e s to work well for the wirel e s s indust r y. The FCC conclude d that a “unif o r m natio n a l bill-and-keep frame w o r k ” for “all telec o m m u n i c a t i o n s traffic exchang e d with a LEC” would best serve the goals of th e Communic a t i o n s Act of 1934 (“the Communica t i o n s Act” or “the Act”) wh ile also pres er v i n g the state-federa l partn e r s h ip that Congres s envis i o n e d in the Telecomm u n i c a t i o n s Act of 1996 (“the 1996 Act”). Order ¶ ¶34, 776 (JA at 403, 649-50). The FCC explaine d that, in ad ditio n to its other benef i t s, a bill-and- keep approa c h would more accura t e l y re flec t “cost causat i o n ” princi p l e s (the econo mi c theory that costs should be borne by those who cause them) t h an the exist i n g inter c a r r i e r co mp e n s a t i o n syste ms. Order ¶744 (JA at 634). Those existi n g syste ms relie d on a “ca ll i n g-party-netwo r k-pays” appro a c h predic a t e d on “the assump t i o n that the ca ll i n g part y [is] the sole bene f i c i a r y 2 Order ¶753 (JA at 639); Connect America Fund , 26 FCC Rcd 4554 ¶54 (2011) (“ 2 0 1 1 NPRM ”) (SA at 21-22). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 14 4 and sole cost causer of a call.” Id. For examp l e, under that appro a c h, when someon e in Dallas makes a conven t i o n a l long-distan c e call to someon e in Denver, the access charg e s that both the Dallas and Denve r LECs impos e on the caller ’ s IXC ultimat e l y are paid – throug h eleva t e d long-distan c e charg e s – by the calle r in Dallas. Similarl y, when someone makes a lo cal call, any charge s that the origin a t i n g LEC pays the termi n a t i n g LEC for deliv e r i n g the call are ultima t e l y paid by the or igi n a t i n g LEC’s end users. The FCC, however, cred it e d “rece n t analy s e s ” recog n i z i n g that “ b o t h partie s gener a l l y benef i t fro m parti c i p a t i n g in a call, and there f o r e, that both partie s shoul d split the cost of the call.” Order ¶744 & n.1304 (JA at 634) (emphas i s added) (catalo g u i n g econo mi c analys e s). Bill-and-keep reflec t s that share d benef i t and thus bette r adher e s to cost causa t i o n princ i p l e s. Regardles s of the direct i o n of the call, both the calli n g and calle d parti e s pay their own provid e r s for the costs those provi d e r s incur in carry i n g the cal l on their respe c t i v e netwo r k s. To the ext ent carrie r s in costly-t o-serve areas are unable to recove r their costs throu g h affor d a b l e charg e s to their end users, they may do so throug h univer s a l servic e suppor t. Thus , where necessa r y, afforda b l e servic e will be ensur e d by e x p l i c i t subsid i e s, not impli c i t subsi d i e s conta i n e d in ineffi c i e n t l y high ICC rates. That resu l t follo w s direc t l y from “the direc t i o n Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 15 5 from Congress in the 1996 Act” that subs id i e s should be “expl i c i t rathe r than implic i t.” Order ¶747 (JA at 636); see 47 U.S.C. §254(e); Rural Cellular Ass’n v. FCC , 685 F.3d 1083, 1085 (D.C. Cir. 2012) (“[Congress] direct e d the Commission to replace the system of impli c i t su bsi d i e s with expli c i t ones.”). The FCC also determin e d that a b ill-and-keep regime, when co mp ar e d with exist i n g ICC-based syste m s, w ould impr o v e cons u me r s ’ abil i t y to choos e lower-cost, more effic i e n t carri e r s. Order ¶745 (JA at 635). Because each carri e r could recov e r its costs only from its own subsc r i b e r s (and could not shift costs to user s of other netwo r k s throu g h inter c a r r i e r charg e s), bill- and-keep “helps reveal the true cost of the networ k to potent i a l subscr i b e r s.” Id. That tr ansp a r e n c y, in turn, provid e s approp r i a t e incent i v e s to effici e n t carri e r s that offer the best mixes of se rvi c e in terms of featu r e s, qualit y, and price. Id. n.1307 (JA at 635). The FCC conclud e d that, becaus e of these varie d benef i t s, bill-and- keep is an essen t i a l compo n e n t of th e compre h e n s i v e univer s a l servic e and ICC reforms adopt e d in the Order – refor ms that would prov id e cons u m e r benefi t s “outwe i g h[ing] any costs by at least 3 to 1.” Order ¶14 (JA at 398); s e e gen eral l y id. ¶¶6, 9, 736-54 (JA at 396, 631-39). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 16 6 In their brief, petiti o n e r s do not cha ll e n g e the need fo r ICC reform or dispu t e the benef i t s of adopt i n g bill-an d-keep. Instead, th ey argue that the Order i s u l t r a vires a n d confli c t s with the Admi nistr a t i v e Procedur e Act (“the APA”) and the Constitut i o n. T hose claims lack merit. I.A. Section 251(b)(5) of the Act, 47 U.S.C. §251(b)(5), impose s upon LECs the “duty to estab l i s h recip r o c a l comp ens a t i o n arrange m e n t s for the trans p o r t and termi n a t i o n of t e l e c o m m u n i c a t i o n s ” (emphas i s added), withou t regar d to histo r i c a l disti n c t i o n s based on the inters t a t e or intras t a t e nature of the traff i c. Moreover, 47 U.S.C. §201(b) authori z e s the FCC to “presc r ib e such rules … as may be necess a r y in the public intere s t to carry out the provis i o n s of this [Act],” includ i n g secti o n 251(b)(5). See AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366, 378 & n.6, 381 n.7 (1999) (“ AT&T ”). The FCC reaso n abl y determi n e d that, toge th e r, these provis i o n s autho r i z e it to regula t e the defaul t comp e n s a t i o n arran g e m e n t s appli c a b l e to all teleco m m u n i c a t i o n s traffic exchang e d with a LEC. Order ¶ ¶760, 770 (JA at 641-42, 646). With respect to traffic ex chang e d w ith wirel e s s carri e r s and inter s t a t e traff i c, other statu t o r y secti o n s provi d e additi o n a l, indepe n d e n t autho r i t y for the FCC to adopt its refor ms. See Order ¶ ¶771, 779 (JA at 646-47, 650-51) (citing 47 U.S.C. §§201(b), 332(c)(1)(B)). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 17 7 As to all these point s, the FCC’s st atut o r y inter p r e tat i o n s are unifo r ml y reaso n a b l e and should be affir m e d under Chevron USA, Inc. v. Natural Res. Def. Council , 467 U.S. 837, 842-43 (1984). See Sorenson Commc’ns , Inc. v. FCC, 659 F.3d 1035, 1042 (10th Cir. 2011). B . The FCC reason a b l y concl u d e d that the Act author i z e s the bill-and- keep ratema k i n g method o l o g y adopte d in the Order . Order ¶ ¶771-776 (JA at 646-50). Section 252(d)(2) expres s l y autho r i z e s “arra n g e men t s that waive mutua l recov e r y ( s u ch as bill-an d - k e e p a r r a n g e m e n t s ).” 47 U.S.C. §252(d)(2)(B)(i) (emphasi s added). E nd-user charg e s under bill-and-keep also co mply with the first sentenc e of secti o n 201(b), which requi r e s carri e r rates to be “just and reason a b l e.” Id . §201(b). In the face of that langua g e, petiti o n e r s never t h e l e s s argue that they have a statu t o r y right to be compe n s a t e d t h r o u g h charg e s to other carri e r s . In fact, howeve r, nothin g in the statu t e co mp els the FCC to permit recovery of the costs of telec o m m u n i c a t i o n s tra ff i c from other carri e r s, as oppos e d to end users or direc t unive r s a l servi c e subs idi e s. In the absen ce of such a clear statu t o r y comma n d, the FCC’s reason a b l e resul t must be uphel d. I I . The FCC was fully justif i e d in adopt in g a recov e r y mecha n i s m desig n e d to enabl e ILECs to recov e r so me – but not all – of the ICC revenue s Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 18 8 that are reduce d under the new rules. Order ¶ ¶847-853 (JA at 683-88). Historic a l trend s – which the FCC r eason a b l y predi c t e d were likel y to contin u e in the absenc e of reform – showed that rate-of-return LECs were alrea d y losin g acces s reven u e s at an annua l rate of appro x i mat e l y 7 percen t. Order ¶894 (JA at 707). The record al so sugge s t e d that exist i n g acces s charg e level s – which, for rate-of-retu rn carriers, reflect e d a 20-year-old 11.25 percent rate-of-return presc r i p t i o n – were overly gener o u s. Id. ¶ ¶638, 892, 894 (JA at 596, 704-05, 707-08). In these circum s t a n c e s, the FCC reason a b l y dete r mi n e d that limi t i n g re venu e reduct i o n s under ICC reform to 5 percen t per year – less than had been occur r i n g befor e the Order – woul d be “more than suffi c i e n t to provi d e carri e r s reason a b l e recove r y for regula t e d servi c e s.” Id. ¶924 (JA at 724). Contrary to petiti o n e r s ’ argum e n t (Br. 50- 51), there was no need formal l y to sepa ra t e inter s t a t e and intras t a t e costs assoc i a t e d with the recove r y mechanis m, because all of the traffic at issue is subje c t to FCC jurisdi c t i o n. I I I . The Act permi t s small LECs to petit i o n state commi s s i o n s to suspe n d or modif y sect i o n 251(b) obl ig a t i o n s upon demon s t r a t i n g, among other thing s, that such relie f wo uld se rve the “publ i c inter e s t.” 47 U.S.C. §251(f)(2). Petition e r s chall e n g e the FCC’s predic t i o n ( Order ¶824 (JA at 671)) that any futur e state commi s s i o n decis i o n to suspe n d or delay the bill- Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 19 9 and-keep metho d o l o g y would be “hi ghly unlik e l y ” to satisf y secti o n 251(f)(2)’s “publi c inter e s t ” compo n e n t. Br. 46-49. That claim is unripe because the ag ency’s predicti o n is not final agenc y actio n. See United States Telecom Ass’n v. FCC , 359 F.3d 554, 594 (D.C. Cir. 2004) (“ USTA”). In any event, the FCC’s exp lana t i o n of the n eed to replace the ICC system fully justi f i e d its predic t i v e state m e n t s regar d i n g secti o n 251(f)(2). See Order ¶¶741-759, 788-797, 824 (JA at 632-41, 655-59, 671-72). IV.A. Petition e r s provi d e no suppo r t fo r their conte n t i o n (Br. 58) that the FCC violate d the APA and princi p l e s of due proce s s by relyi n g on filin g s that lawful l y were placed in the reco r d. The FCC’s permit-but-discl o s e filin g rules are desig n e d to enabl e the agenc y and the public to evalu a t e the recor d before the agency act s. The FCC followe d those rules and gav e all partie s the “oppo r tu n it y to parti c i p a t e ” that the APA require s. 5 U.S.C. §553(c). Indeed, petiti o n e r s activ e l y emplo y e d th e agenc y ’ s proce d u r e s to make numer o u s filin g s, includ i n g filin g s late in the proce e d i n g. B . The FCC has well-establ i s h e d autho r i t y to place condi t i o n s on the receip t of univer s a l servic e subsid i e s. TOPUC v. FCC , 183 F.3d 393, 444 (5th Cir. 1999). Petition e r s pres e n t no suppo r t for their conte n t i o n (Br. 62- 64) that certai n univer s a l servic e c ondi t i o n s and other requi r e m e n t s adopt e d in the Order u n c o n s t i t u t i o n a l l y burd e n st ate sovere i g n t y. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 20 10 A R G U M E N T I. T H E FCC REASON A B LY DETERM I N E D THAT MULTI P L E PROVI S I O N S OF THE COMMU N I C ATI O N S ACT AUTHO R I Z E THE ADOPT I O N OF A BILL- A N D - K E E P RATEM AK I NG METHODO L O G Y FOR THE EXCHAN G E OF TELECO M M U N I C AT I O N S WITH LECS. Having detail e d why bill-and-keep pro mot e s the goals of the Communic a t i o n s Act, s e e Order ¶ ¶736-759 (JA at 631- 41), the FCC also expla i n e d its legal autho r it y to adopt it, see id. ¶ ¶760-781 (JA at 641-52). This legal analy s i s addre s s e s two quest i o n s: (1) whether parti c u l a r sourc e s of regul a t o r y autho r i ty reach the traff i c at iss u e, and (2) whether those provi s i o n s permi t bill-and-keep as a defa u l t metho d o l o g y for that traff i c. As to both questi o n s, petitio n e r s assert (Br. 3) that the FCC’s statu t o r y analy s i s fails under Chevron “ s t e p one.” To succee d on su ch a ch allen g e, petitioners must dem onst r a t e that the statu t e “unamb i g u o u s l y forecl o s e s the Commissio n ’ s interp r e t a t i o n.” Nat’l Cable & Telecomm s . Ass’n v. FCC , 567 F.3d 659, 664 (D.C. Cir. 2009). Petiti one r s cannot show that the FCC breach e d any such unamb i g u o u s requi r e m e n t. The agency’s reasona b l e inter p r e t a t i o n of the law, which com po r t s with Congres s ’ s expli c i t polic y goals, should be affirme d. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 21 11 A. T h e FCC Reasona b l y Found Th at It Has Regul a t o r y Autho r i t y To Estab l i s h The Appli c a b l e Ratem a ki n g Regim e For Telec o m m u n i c a t i o n s Excha n g e d With A LEC. The FCC determi n e d in the Order t h a t it had rulem a k i n g autho r i t y to estab l i s h a regula t o r y struc t u r e for “t eleco m m u n i c a t i o n s ” that a LEC delivers to or recei ves from another teleco mm u n i c a t i o n s provid e r in the course of origin a t i n g or comp l e t i n g a call. The FCC further expla i n e d that its autho r i ty to establ i s h rules as to that traffi c fl ows direc t l y from the last senten c e of sectio n 201(b), which grants the agency broad power to “pres c r i b e such rules and regul a t i o n s as may be neces s a r y in the public intere s t to carry out the provis i o n s of this Act.” Order ¶760 (JA at 641) (quotin g secti o n 201(b)); see AT&T , 525 U.S. at 378 (“[T]h e grant in §201(b) means what it says: The FCC has rulemak i n g autho r i t y to carry out the ‘provi s i o n s of this Act,’ which inclu d e §§251 and 252.”). As we demons t r a t e below, in adopt i n g the Order ’ s ICC reforms, the FCC reason a b l y empl o y e d this broa d grant of rulem a k i n g power to imple m e n t three of the Act’s subst a n t i v e provi s i o n s: (1) section 251(b)(5), which impos e s on LECs a “duty to es tabl i s h recipr o c a l co mpen s a t i o n arran g e me n t s for the trans p o r t and te rmi n a t i o n of telec o m mu n i c a t i o n s,” Order ¶760 (JA at 641) (quotin g secti o n 251(b)(5)); (2) sectio n 201(b), the first sente n c e of which requi r e s that i n t e r s t a t e commun i c a t i o n s traff i c be Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 22 12 provide d on “just and reas o n a b l e ” rates and terms, id . ¶771 (JA at 646) (quotin g secti o n 201(b)); and (3) secti on 332(c)(1)(B), which oblig a t e s LECs to interc o n n e c t with wirele s s carrie r s “purs u a n t to the provi s io n s of secti o n 201,” i d . ¶779 (JA at 651) (quotin g secti o n 332(c)(1)(B)). 1 . S e c t i o n 251(b ) ( 5 ) Autho r i ze s The FCC’s Interca r r i e r Compe n s a t i o n Refor m s . The FCC lawfull y concl u d e d that its author i t y to adopt rules imple m e n t i n g secti o n 251(b)(5) empowe r e d it to estab l i s h a regul a t o r y struct u r e to govern how LECs are comp e n s a t e d when they exchan g e a n y teleco m m u n i c a t i o n s traffi c that origin a t e s or termi n a t e s on their netwo r k s. Specific a l l y, the FCC reasona b l y inter p r e ted that provi s i o n to reach not just local traffic ( i . e . , traf fic exchan ge d between carri e r s opera t i n g withi n the same servic e area), but also to cover the excha n g e of acces s traff i c involv i n g the use of LEC faciliti e s to origina t e or termi n a t e long-distan c e calls (also known as inter e x c h a n g e or “IXC” traffi c). See Order ¶¶761-762 (JA at 642). Petitione r s ’ challe n g e s (Br. 7-28) to the FCC’s interp r e t a t i o n lack merit. First, and most impo r t a n t l y, read in g secti o n 251(b)(5) to apply to inter s t a t e and intra s t at e traff i c compo r t s with the statu t o r y text. Section 251(b)(5) provid e s, by its terms, that the traffi c to whic h the recipr o c a l comp e n s a t i o n regul a to r y struc t u r e appli e s is “the trans p o r t and termi n a t i o n of t e l e c o m m u n i c a t i o n s .” Order ¶761 (JA at 642) (emphas i s added) (quotin g Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 23 13 sectio n 251(b)(5)). “[T]elecom mu n i c a t i o n s,” in turn, is in no way limit e d to local traff i c. It “means the ‘tran s mi s s i o n, betwe e n or among poin t s spec i f i e d by the user, of infor m a t i o n of the user’ s choosi n g, withou t change in the form or conte n t of the infor m a t i o n as sent and recei v e d ’ a n d thus encom p a s s e s commu n i c a t i o n s traff i c of any geogr a p h ic scope (e.g. , ‘loca l , ’ ‘intr a s t a te , ’ or ‘inter s t a t e ’ ) or regula t o r y class i f i c a t i o n (e.g. , ‘tele p h o n e excha n g e servi c e , ’ ‘tele p h o n e toll servic e , ’ or ‘excha n g e acces s ’ ) .” Id. (emphas i s added) (quotin g 47 U.S.C. §153(43), (47), (48), (16)). Moreover, when Congress wants to refer to narro w e r subse t s of “teleco m m u n i c a t i o n s,” it does so clearl y. See , e.g . , 47 U.S.C. §254(d) (requir in g carri e r s “that provi d e[] i n t e r s t a t e t e l e c o m m u n i c a t i o n s servic e s ” to contri b u t e to the federa l univer s a l servi c e fund (emphas i s added)); i d . §271(c)(2)(B)(iv) – (vi) (refere n c i n g “ l o ca l loops,” “ l o c a l transpo r t,” and “ l o c a l switch i n g ” (emphas i s added)). The fact that Congress did not do so in secti o n 251(b)(5) strong ly suppo r t s the FCC’s readi n g that that provis i o n applie s to all teleco m m u n i c a t i o n s exchan g e d with a LEC. See United States v. Manatau , 647 F.3d 1048, 1052 (10th Cir. 2011) (“Where Congress inclu d e s parti c u l a r langu a g e in one secti o n of a statu t e but omits it in anoth e r secti o n of the same Act, it is ge ner a l l y presu me d that Congress acts Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 24 14 intenti o n a ll y and purpo s e l y in the dispa r a t e inclus i o n or exclus i o n.” (citati o n omit t e d)). Petition e r s ’ argume n t s are thus all c ontr a r y to the defin e d meani n g of the specif i c term that Congress used – “tele c o m mu n i c a t i o n s ” – to estab l i s h the set of traffi c subje c t to sectio n 251(b)(5). Petitione r s nevert h e l e s s claim (Br. 7-9) that secti o n 251(b)(5)’s re fere n c e to “reci p r o c a l compe n s a t i o n ” indic a t e s that that provi s io n appli e s only to local (that is, non-access) traffi c. The ter m “reciprocal co mpensat i on,” how eve r, does not establ i s h the scope of secti o n 251(b)(5) – that is what th e broad, statut o r i l y defin e d term “telec o m mu n i c a t i o n s ” does. Rather, it refers to a m e t h o d o f comp e n s a t i o n, specif i c a l l y inclu d i n g the “bill-and- keep” methodo l o g y the FCC adopted here. See 47 U.S.C. §252(d)(2)(B)(i). Nor can petiti o n e r s estab l i s h a clear statu t o r y limit a t i o n on the traffi c cover e d by secti o n 251(b)(5) by sugge s t in g that, histor i c a l l y, all acces s charge paymen t s ran in one direct i o n – from the IXC to the LEC, and never the other way aroun d. Such payme n t s, th ey assert, are not “recip r o c a l ” in the sense of being made “by ‘each to the other.’” Br. 10 ( quotin g dicti o n a r y defin i t i o n). But the histor i c a l direc t i o n of access charge pay men t s is merely a relic of the exist i n g calli n g-party-ne twork-pays ICC system th at the Order r e p l a c e s. There is no logical reason th at co mpens a t i o n for this traffic must Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 25 15 flow in only one direc t i o n, and Congr ess did not dictat e any such result. Thus, even from its earli e s t order s const r u i n g the 1996 Act, the FCC has reject e d the view that traffic direct i o n c ontr o l s the scope of secti o n 251(b)(5). See Impleme n t a t i o n of the Local Competit i o n Provisio n s in the Telecomm u n i c a t i o n s Act of 1996 , 11 FCC Rcd 15499, 15517 ¶34, 15997 ¶1008 (1996) (“ Local Competit i o n Order ”) (ruling that the ex chan g e of telec o m m u n i c a t i o n s betwe e n LECs and pagin g carri e r s is subje c t to secti o n 251(b)(5), even thoug h the flow of and comp e n s a t i o n for that traff i c ran in only one direc t i o n); see a l s o Pacific Bell v. Cook Telecom, Inc. , 197 F.3d 1236, 1242-45 (9th Cir. 1999) (affirmi n g as lawfu l the appli c a t i o n of secti o n 251(b)(5) to one-way traff i c fro m a LEC to a pagin g carri e r). Petitione r s also indire c t l y cite genera l trade pre ss accou n t s (Br. 8 n.4) to sugges t that the term “recip r o c a l comp e n s a t i o n arra n g e men t[]” in secti o n 251(b)(5) was clear l y under s t o o d in 1996 to extend only to local traff i c and not to long-distan c e traff i c. Br. 7- 9. Those accoun t s, howeve r, simp ly list early (pre-1996 Act) state co mmis s i o n ef fort s to acco mmo d a t e the advent of comp e t i t i o n in the local telep h o n e mark e t s withi n their juris d i c t i o n s by adopti n g “recip r o c a l co mpen s a t i o n ” re gula t o r y struct u r e s, inclu d i n g “bill- and-keep.” Those account s of the ex ist i n g regime in no way under mi n e the fact that secti o n 251(b)(5) applies to a ll “telec o m mu n i c a t i o n s ” or indica t e that Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 26 16 any regul a t o r y struc t u r e under that provi s io n m u s t be confine d to the exchan g e of local traffi c. 3 Petition e r s simil a r l y cite (Br. 9 n.5) a two-and-a-half-year-old “Issues of Interes t” infor ma t i o n a l page on th e FCC’s public websi t e , which desc r i b e s how “recip r o c a l comp e n s a t i o n ” previ o u s l y opera t e d under FCC rules that p r e - d a t e d the Order . There is no dispu t e here that FCC rules under secti o n 251(b)(5) previo u s l y appli e d more narrowl y. That does not mean, howeve r, that the statu t e plain l y precl u d e s th e creati o n of a broade r regime, as petit i o n e r s must estab l i s h to preva i l on their Chevron Step I clai m. As noted above, in fact, the statu t o r y text str on g l y suppo r t s the FCC’s author i t y to adopt a broade r regime under secti o n 251(b)(5). See Order ¶¶763-764 (JA at 642-43). Nothing petit i o n e r s ha ve cited indica t e s that th e statut e must be read in a way that contra d i c t s that tex t; accor d i n g l y, the FCC’s reason a b l e inter p r e t a t i o n must be upheld. Nor is there merit to petiti o n e r s ’ c onten t i o n (Br. 13) that the FCC’s readin g of secti o n 251(b)(5) to reach beyond local teleco m mu n i c a t i o n s is an “unex p l a in e d depar t u r e from prior interpr e t a t i o n s.” The agency 3 Cf. Jama v. Immigrat i o n & Customs Enforcem e n t , 543 U.S. 335, 349 (2005) (courts do not presu m e that C ongress inten d e d to incor p o r a t e prior judic i a l const r u c t i o n s unles s “the suppo s e d judic i a l conse n s u s [is] so broad and unqu es t i o n e d that [the Court] must presu m e Congress knew of and endors e d it”). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 27 17 acknowl e d g e d and expla i n e d its chang e of views. The FCC stated that it once had const r u e d secti o n 251 (b)(5) “to ‘appl y only to traff i c that origin a t e s and termi n a t e s with i n a local area.’” Order ¶761 (JA at 642) (quotin g Local Competit i o n Order , 11 FCC Rcd at 16013 ¶1034). But it chang e d its readi n g of the statut e – and fully expla i n e d th at change – more than a decad e ag o “[i]n the 2001 ISP Remand Order. ” 4 It “reite r a t e d ” that view in 2008 in the Second ISP Remand Order ,5 and “propos e d [it again] in the [ 2 0 1 1 NPRM ].” 6 Finally, as discu s s e d above (at 12-16), the FCC fully explai n e d its curren t positi o n in the Order o n revie w. See Order ¶ ¶761-765 (JA at 642-44). Chevron r e q u i r e s no more. See Rivera-Barriento s v. Holder , 666 F.3d 641, 645 (10th Cir. 2012) (so long as an agenc y ackno w l e d g e s its prior inter p r e t a t i o n, review under Chevron is “no[] more se archi n g where th e agenc y ’ s decis i o n is a change from prior polic y ”). 4 Order ¶761 (JA at 642) (citing Interca r r i e r Compens a t i o n for ISP-Bound Traffic , 16 FCC Rcd 9151, 9165- 67 ¶¶31-34 (2001) (“ ISP Remand Order ”)). The FCC explaine d in the ISP Remand Order that, but for the tempo r a r y prese r v a t i o n of acces s charg e regul a t i o n in secti o n 251(g), “secti o n 251(b)(5) would requir e recip r o c a l comp e n s a t i o n for tran s p o r t and termi n a t i o n of a l l t e l e c o m m u n i c a t i o n s traff i c ” excha n g e d with a LE C. 16 FCC Rcd at 9166 ¶32. 5 Order ¶761 (JA at 642) (citing Developin g a Unified Interca r r i e r Compensa t i o n Regime , 24 FCC Rcd 6475, 6479 ¶¶7-8 (2008) (“ Second ISP Remand Order ”), a f f ’ d , Core Commc’ns Inc. v. FCC , 592 F.3d 139 (D.C. Cir. 2010)). 6 Order ¶761 (JA at 642) (citing 2 0 1 1 NPRM ¶514 (SA at 159-60)). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 28 18 Although the broad scope of secti o n 251(b)(5) itself is adequ a t e to suppo r t the FCC’s conclu s i o n that it re ache s exchan g e access traffi c, that resul t is buttr e s s e d by the text of secti o n 251(g). Order ¶ ¶763, 766 (JA at 642-43, 644). Section 251(g) requir e s LECs to contin u e to “prov i d e exchan g e access … to inte re x c h a n g e carrie r s … in ac cordan c e with the same equal acces s and nondi s c r i mi n a t o r y inter c o n n e c t i o n restr i c t i o n s and obligations (including receipt of co mpen s a t i o n)” that were app lic a b l e prior to the 1996 Act “until such restr i c t i o n s and obligat i o n s are explici t l y supers e d e d by regul a t io n s presc r ib e d by the Commi ss i o n.” 47 U.S.C. §251(g). If secti o n 251(b)(5), by its terms, did not other w i s e reach exch ange acces s traffic, there would have been no reaso n for Congres s to enact secti o n 251(g) to preser v e the pre-existin g acces s charge regime “unti l ” the FCC affirma t i v e l y takes actio n to “super s e d e[]” that regi me. 2 0 1 1 NPRM ¶514 (SA at 159-60). The very exist e n c e of secti o n 251(g) thus sugges t s that Congress envisi o n e d the kind of comp r e h e n s i v e refor m the FCC adopted in the Order . Petitio n e r s ’ narro w readi n g of secti o n 251(b)(5), by contr a s t, would render secti o n 251(g) essenti a l l y a nullit y, contrar y to establ i s h e d canon s of statu t o r y const r u c t i o n. In re Dawes , 652 F.3d 1236, 1242 (10th Cir. 2011) (statut e s shou ld be const r u e d so that no part will be superf l u o u s). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 29 19 Petitione r s nevert h e l e s s sugges t that prese r v a t i o n of acces s charg e s for a time pursu a n t to secti o n 251(g) some ho w perma n e n t l y limit e d the scope of section 251(b)(5). The FCC, however, reason a b l y concl u d e d, in accor d with its text, that sectio n 251(g) “preser v e s acces s charg e rules only durin g a t r a n s i t i o n a l period, which ends when we adopt super s e d i n g regul a t i o n s.” Order ¶766 (JA at 644) (emphas i s added); s e e Wor ldCom, Inc. v. FCC , 288 F.3d 429, 430 (D.C. Cir. 2002) (sectio n 251(g) “is worde d simp l y as a trans i t i o n a l devic e, preser v i n g vario u s LEC duties that anteda t e d the 1996 Act until such time as the Commissi o n s houl d adopt new rules pursu a n t to the Act”). Nor does the fact that secti o n 251(g) expres s l y prese r v e s, among other things, inters t a t e access charge regula t i o n s “of the [Feder al Communi c a t i o n s] Commissi o n ” for a trans i t i o n a l perio d, witho u t menti o n i n g state commi s s i o n (that is, intras t a t e) access charg e regul ations, mandat e that the FCC pres erve the latter indefi n i t e l y. See Br. 23-25. To the contrar y , if the absence of an expres s refer e n c e to intras t a t e acces s in secti o n 251( g) were read to imply anyth i n g, it would be that Congress in ten d e d the broad langu a g e of sectio n 251(b)(5) to displa c e the intras t a t e a ccess regime immedi a t e l y – withou t a trans i t i o n a l perio d. Such a readi n g woul d have limit e d pract i c a l effect today, however, given that “ a l l traffi c ” ex chan g e d with a LEC “will, going forwar d, Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 30 20 be govern e d by secti o n 251(b)(5) rega rd l e s s of wheth e r secti o n 251(g) previou s l y covere d the state intra s t a t e acces s regime.” Order n.1374 (JA at 644). In any event, the FCC explain e d that, altho u g h secti o n 251(g) does not refer to intra s t a t e acces s charg e mecha n i s ms by name, “it would be incon g r u o u s to concl u d e that Congress was conce r n e d about the effec t s of the potent i a l disrup t i o n to the inters t a t e acces s charg e syste m, but had no such concer n s about the effect s on anal o g o u s intra s t a t e mecha n i s ms.” Order n.1374 (JA at 644) (quotin g Local Competit i o n Order , 11 FCC Rcd at 15869 ¶732). The FCC found suppo r t for this view in the fact that (1) sectio n 251(g) expres s l y d o e s preser v e acces s charg e mech a n i s ms crea t e d by any “court order [or] con sent decree,” a nd (2) the court order acco mp a n y i n g the consent decree that broke up the Bell System “made clear that the decr ee requi r e d acces s charg e s to be used in both the inter s t a t e and intra s t a t e jurisd i c t i o n s.” Order n.1374 (JA at 644) (citing United States v . AT&T , 552 F. Supp. 131, 169 n.161 (D.D.C. 1982)). “Because both the inters t a t e and intra s t a t e acces s charg e syste ms were creat e d by the same consen t decree,” the FCC explain e d, it is “reaso n a b l e to conclu d e that both systems were prese r v e d by secti o n 251(g)” until they are supers e d e d by FCC regulat i o n s. Order n.1374 (JA at 644). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 31 21 Finally, even if petiti o n e r s ’ secti o n 251(g) argumen t s creat e d an ambig u i t y as to the prope r inter p r e t a t i o n of the scope of secti o n 251(b)(5), they again do not estab l i s h that the FC C violated a clear statuto r y comm and, and thus the agenc y ’ s reaso n a b l e under s t a n d i n g of the relev a n t statu t o r y provis i o n should be affir m e d under Chevron. Petitione r s are no mo re succes s f u l in argui n g that secti o n 251(b)(5) does not apply to o r ig i n a ti n g a c c e s s traffi c. They cl aim that, becau s e sect i o n 251(b)(5) addres s e s recip r o c a l comp e n s a t i o n arran g e m e n t s for “the trans p o r t and t e r m i n a t i o n of teleco mmun ica t i o n s,” not for the o r i g i n a t i o n of telec o m m u n i c a t i o n s, Congress inten d e d to exemp t that traff i c from the secti o n 251(b)(5) regime. Br. 25-26. As the FCC has long deter mi n e d, howeve r, the absenc e of any refere n c e to origi n a t i n g traff i c means that – apart from acces s charg e rules tempo r a r i l y prese r v e d by secti o n 251(g) – the origi n a t i n g carri e r is b a r r e d from charg i n g anoth e r carri e r for deliv e r y of traffi c that falls within the scope of sectio n 251(b)(5). See Local Competi t i o n Order , 11 FCC Rcd at 16016 ¶1042 (findin g that because secti o n 251(b)(5) does not specif y “charg e s payabl e to a carri e r that origin a t e s traffi c,” it is best read to “proh i b it[]” a LEC from “char g[ing] a [wirele s s] p r o v i d e r or other carri e r for ter mi n a t i n g LEC-origina t e d traff i c ”); Order ¶817 (JA at 669) Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 32 22 (reaffi r mi n g that view of secti o n 251(b )(5) in the context of a bill-and-keep regime). Relatedly, petiti o n e r s appear to argue (Br. 12-13, 26-27) that, because the FCC’s initia l discu s s i o n of sectio n 251(b)(5) in the 1996 Local Competit i o n Order s e p a r a t e l y defin e d “tran s p o r t ” and “termi n a t i o n ” with refer e n c e only to “termi n a t i n g traffi c,” th e curren t Order ’ s c o n c l u s i o n th at secti o n 251(b)(5) reaches origi n a t i n g acces s is an unlaw f u l s u b sile n t i o repeal of the agency ’ s earlie r defini t i o n s. No t so. The purpos e of those defin i ti o n s was not to narrow the scope of sectio n 251 (b)(5) traffic, but to establ i s h that “tra n s p o r t and termi n a t i o n shoul d be treat e d as two disti n c t funct i o n s,” becau s e each has “its own cost.” Local Competit i o n Order , 11 FCC Rcd at 16015-16 ¶¶1039-1040. Neither in form nor subst a n c e does the Order r epeal those defin i t i o n s. 2 . S e c t i o n s 201(b ) And 332 Provi d e The FCC Indep e n d e n t Subst a n t i v e Autho r i t y To Estab l i s h The Order ’s R e g u l a t o r y Fram e wo r k . For the reaso n s discu s s e d above, pe tit i o n e r s ’ argume n t s that secti o n 251(b)(5) does not reach some or all acces s traff i c do not meet Chevron s t a n d a r d s for overt u r n i n g an agenc y decis i o n. Even if their secti o n 251(b)(5) argumen t were accept e d, howeve r, th at would not preve n t the FCC from Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 33 23 establ i s h i n g a regul a t o r y frame w o r k for i n t e r s t a t e access or for the exchan g e of a n y traffi c, access or othe rwis e, bet ween LECs and wirel e s s provid e r s. a . S e c t i o n 201(b ) Provi d e s The FCC Author i t y Over Inter s t a t e Traff i c Excha n g e d With A LEC. With respect to inters t a t e traffi c ge nera l l y, the first senten c e of sectio n 201(b) of the Act empow e r s – indee d r e q u i r e s – the FCC to ensure that a carri e r ’ s rates and terms of servi c e are “just and reas onab l e.” 47 U.S.C. §201(b) (cited in Order ¶771 (JA at 646)). Section 201(b) thus suppli e s a separ a t e and indep e n d e n t statu t o r y basis to reach in ters t a t e traffi c exchan g e d by a LEC. Petition e r s alleg e that secti o n 201(b) is only a genera l provis i o n that is trumpe d by the “speci f i c instr u c t i o n s with respec t to pricin g ” in sectio n s 251(b)(5) and 252(d)(2). Br. 39. Howeve r, the D.C. Circu it reject e d that same argum e n t in uphol d in g the FCC’s pr ior relia n c e on secti o n 201(b) as an indep e n d e n t basis for regul a t i n g traffi c that also fell within the scope of secti o n 251(b)(5). Core , 592 F.3d at 143-46. The cour t deter mi n e d that “it is inacc u r a t e to chara c t e r i z e §201 as a ge ner al grant of autho r i t y and §§251-252 as a specif i c one.” Id. at 143. Rather: “When . . . two statu t e s apply to in ters e c t i n g sets . . . , neither is more speci fic.” Hemenway v. Pe abody Coal Co. , 159 F.3d 255, 264 (7th Cir. 1998). That is th e case here. Not all inter-LEC connect i o n s are used to delive r inters t a t e co mmun i c a t i o n s, just Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 34 24 as not all inter s t a t e commu n i c a t i o n s involv e an inter-LEC connect i o n. Core , 592 F.3d at 143-44. The court found added suppo r t for this readi n g in 47 U.S.C. §251(i), which provid e s that “[ n]othin g in this secti o n shall be const r u e d to limit or other w i s e affec t the [FCC’s] author it y under secti o n 201.” 592 F.3d at 143 (quoting secti o n 251(i)). “Given th[e] overla p ” betwe e n secti o n 201(b) and 251(b)(5) traffic, the co urt determ i n e d that “§251(i)’s specif i c savin g[s]” clause prote c t s the FCC’s author i t y under sect i o n 201(b) from “any nega t i v e impli c a t i o n s from §251.” Id. at 144; accord Order ¶ ¶770-771 (JA at 646-47) (citing Core a n d sect i o n 251(i)). Contrary to petit i o n er s ’ asse r t i o n (Br. 40), nothing in the court’ s analy s i s is logica l l y limit e d to the specif i c traff i c at is sue in that case (Internet Service Provide r-bound traff ic), which was just one subse t of the overl a p p i n g “inte r- LEC connecti o n[s]” describ e d in its analys i s. b . S e c t i o n 332 Provid e s The FCC With Autho r i t y Over All Wirel e s s Traff i c Excha n g e d With A LEC. The Eighth and D.C. Circuits have confi r m e d that 47 U.S.C. §332 provide s the FCC with indepe n d e n t au thor i t y to establ i s h recipr o c a l co mpens a t i o n terms with respect to wire l es s traffi c exchan g e d with a LEC. See Iowa Utils. Bd. v. FCC , 120 F.3d 753, 800 n.21 (8th Cir. 1997), v a c a t e d and reman d e d in part on other grou n d s , AT&T , 525 U.S. 366; M e t r oPCS Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 35 25 Californi a , LLC v. FCC , 644 F.3d 410, 414 (D.C. Cir. 2011) (recogn i z i n g that the FCC “ c a n issue [rate] guidan c e ” under secti o n 332 in conne c t i o n with the exchan g e of intras t a t e tra ff i c betwe e n LECs and wirel e s s carri e r s, altho u g h it need not do so). These holdin g s follow from the fact that secti o n 332 “oblig a t e s LECs to interc o n n e c t with wirele s s provi d e r s ‘purs u a n t to the provi s io n s of secti o n 201,’” 7 and preemp t s state s from “regul a t i n g the entry of or the rates charg e d by [wireles s] provid e r s.” 8 They also follo w from the langu a g e in secti o n 2(b) of the Act that “[e]xcept[s]” secti o n 332 from any limi t a t i o n on the FCC’s jurisd i c t i o n over intra s t a t e wirel e s s co mmu n i c a t i o n s that other w i s e might appl y. 9 Petition e r s ’ brief nowhe r e chall e n g e s this basis for ICC reform. 3 . T h e FCC’s Statu t o ry Autho r i t y Provi d e s Ample Basis For Th e Order ’s Narro w And Tailo red Preem p t i o n Of State Regul a t io n . Relying on the propo s i t i o n that preemp t i o n of state law is “not light l y to be presume d,” 10 as well as on two statu t o r y provi s io n s that asser t e d l y limit 7 Order ¶779 (JA at 651) (quotin g 47 U.S.C. §332(c)(1)(B)). 8 Id. (quotin g 47 U.S.C. §332(c)(3)(A)). 9 Id. (quotin g 47 U.S.C. §152(b)). 10 Br. 14-15 & nn.13-14. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 36 26 the FCC’s power to overri d e pr e-existi n g state regul a t i o n s, 11 petiti o n e r s conten d that the FCC lacks the power to preemp t state regul a t o r y autho r ity over intras t a t e acces s. These clai ms are foreclosed by c ontr o l l i n g Supreme Court prece d e n t. The Court has square l y held that sec ti o n 251 applie s to both inter s t a t e and intras t a t e traffi c, and s ecti o n 251(b)(5), as discu s s e d, applie s broad l y to all “teleco m m u n i c a t i o n s ” traffic excha n g e d by LECs withi n both thos e cat egories. In AT&T , which invo l v e d (among othe r thing s) the claim that the FCC lacked author i ty to adopt regul a t i o n s apply i n g secti o n 251(b)(5) to intras t a t e traffi c, the Supreme C ourt ackno w l e d g e d the exist e n c e of a “pres u mp t i o n agai n s t the pre-empti o n of state police power regulat i o n s ” that would ordina r i l y requir e a “clear a nd manif e s t showi n g of congr e s s i o n a l inten t to suppl a n t.” 525 U.S. at 378 n. 6. But the Court empha s i z e d that secti o n 251(b)(5) – among other provis i o n s added by the 1996 Act – “unque s t i o n a b l y ” has “take n the regul at i o n of local teleco m mu n i c a t i o n s co mp et i t i o n away from the States.” Id. Moreover, Congress has “expli c i t l y … given rulemak i n g autho r i t y ” with respe c t to that provis i o n to the FCC. Id. at 381 n.7; s e e also id. a t 378 n.6, 381 n.8 (holdin g that the 1996 Act establ i s h e d a “new federa l regim e [that] is to be guide d by feder a l-agenc y 11 Br. 15-16 (citing the 1996 Act, §601(c )(1), and 47 U.S.C. §251(d)(3)). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 37 27 regula t i o n s ” and “remo v e d a signi f i cant area fro m States’ excl usive contr o l ”). 12 In this regard, petiti o n e r s notab l y do not dispute that the referen c e to “teleco m m u n i c a t i o n s ” in sect ion 251(b)(5 ) displac e s state regula t i o n of local (non-access) intrast a te traffi c excha n g e d by LECs; in fact, they (wrong ly) conten d (Br. 10-11) that it appli e s only to that form of intrast a t e traffi c. Nothing in the text of that provis i o n sugge s t s that Congress inten d e d to include one species of intrast a t e traffi c but exclud e anoth e r withi n the scope of feder a l regul a t i o n (more spec if i c a l l y, to cover intra s t a t e l o c a l traffic while leavi n g out intras t a t e a c c e s s traffi c). Petition e r s ’ argum e n t thus relies on a distin c t i o n betwee n types of intras t a t e tr aff i c that has no basis in the statu t o r y text. Petition e r s also conte n d that secti o n 601(c)(1) of the 1996 Act – which prov id e s that “[t]his [1996] Act and the amen d me n t s made by this Act shall not be const r u e d to modif y, impai r, or supers e d e Federal, State, or local law 12 The Supreme Court in AT&T also reject ed the arg u ment, which petit i o n e r s mak e only in passi n g here (Br. 14, 19), that sectio n 2(b) of the Act and Louisian a PSC v. FCC , 476 U.S. 355 (1986), deny the FCC authori ty to imple m e n t sect i o n 251(b)(5) with re spec t to intras t a t e matter s. See AT&T , 525 U.S. at 378-81; Order ¶760 (JA at 641-42). Although AT&T d i d not specif i c a l l y addres s intras t a t e a c c e s s servic e, its analys i s appli e s with equal force here: as expla i n e d above, such servi c e falls comf o r t a b l y withi n the term “tele c o m mu n i c a t i o n s ” in secti o n 251(b)(5). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 38 28 unless expre s s l y so provi d e d in such Ac t or amendm e n t s ” – preven t s the FCC from apply i n g secti o n 251(b)(5) to pree mp t state regula t i o n of intras t a t e acces s charg e s. Br. 15. No party rais ed the sectio n 601(c)(1) issue before the FCC. Judicial revie w of that questi o n thus is barred by 47 U.S.C. §405(a), which preven t s revie w of “quest i o n s of fact or law upon which the Commissi on ... has been afforded no opport u n i t y to pass.” E.g. , Sorenso n , 659 F.3d at 1044 (quotin g secti o n 405(a)). The clai m is baseless in any event. Courts have prope r l y read secti o n 601(c)(1) narrowl y, becaus e “it is a gener a l rule in preemp t i o n analy s i s that a savin g s provi s io n does not ‘bar the ordin a r y worki n g of confl ic t preemp t i o n princ i p l e s ’ ... lest [it] ‘permi t[ a] law to defeat its own object i v e s, or potent i a l l y ... to destro y itsel f.’” Farina v. Nokia Inc. , 625 F.3d 97, 131 (3d Cir. 2010) (quotin g Geier v. Am. Honda Motor Co. , 529 U.S. 861, 869, 872 (2000)); a c c o r d Qwest Corp. v. Minn. Pub. Utils. Comm’n , 684 F.3d 721, 731 (8th Cir. 2012). Section 251(b)(5 ), by its terms, applie s to all “teleco m m u n i c a t i o n s ” traffic exchange d by a LEC, and the acces s traff i c that LECs exchan g e with other provi d e r s indisput a b l y is “teleco m m u n i c a t i o n s,” as that term is define d in the Communi c a t i o n s Act. Moreover, secti o n 251(g) expres s l y conte mp l a t e s that th e FCC will adopt new regul a t i o n s “supe r s e d[ing]” exist i n g excha n g e ac ces s rules, includ i n g those gover n i n g Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 39 29 “receipt of co mpens a t i o n.” 47 U.S.C. §251(g). Accordin g l y, ordina r y confli c t preemp t i o n princi p l e s displa c e intra s t a t e acces s charg e regul a t i o n here, and sectio n 601(c )(1) does not apply. Petition e r s also incorr e c t l y asser t (B r. 16-19) that secti o n 251(d)(3) of the Communi c a t i o n s Act bars preemp t i o n of state access charge regulat i o n. That sectio n prese r v e s any regul a t i o n, order, or polic y of a state commi s s i o n that: (A) establ i s h e s acces s and inter c o n n e c t i o n oblig a t i o n s of local excha n g e carri e r s ; (B) is consis t e n t with the requir e m e n t s of this secti o n [251]; and (C) does not subst a n t ial l y preve n t imple m e n t a t i o n of the requi r e m e n t s of this secti o n and the purpo s e s of this part [sectio n s 251 through 261 of the Communi c a t i o n s Act]. 47 U.S.C. §251(d)(3). Section 251(d)(3), as a thresh o l d matte r, is inappl i c a b l e here becaus e it “addre s s e s state author i t y to prescr i b e reg u l a t i o n s relat i n g to [networ k elemen t] unbundl i n g ” by incumb e n t LECs for the benef i t of new “comp e t i t i v e ” LECs (“CLECs”), as provi d e d in the 1996 Act. 13 See 47 U.S.C. §251(c)(3) & (d)(2) (provid i n g for netwo r k eleme n t unbun d l i n g); see also id. §153(35) (defini n g “netw o r k eleme n t ” ). The “acces s ” at issue under sectio n 251(d)(3) is thus “acces s ” to “netwo r k eleme n t s,” which are piece- 13 BellSouth Telecomm u n i c a t i o n s , Inc. Request for Declarat o r y Ruling , 20 FCC Rcd 6830, 6841 ¶23 (2005). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 40 30 parts of ILEC telepho n e netwo r k s that Congress author i z e d CLECs to lease to provid e comp e t i n g servi c e s. The provis i o n is not releva n t to the wholly disti n c t issue of acces s charg e s for delive r i n g intere x c h a n g e traffi c. The text and struc t u r e of secti o n 251(d) suppor t this under s t a n d i n g. Section 251(d)(2), the immed i a t e l y pr ece d i n g subse c t i o n, is title d “Access standa r d s ” and requir e s the FCC to c onsid e r whethe r “acces s ” to ILEC n e t w o r k element s should be requi r e d. See 47 U.S.C. §251(d)(2). Thus, when sectio n 251(d)(3) refers to “acces s … ob liga t i o n s of local exchan g e carrie r s,” it is refer r i n g back to acces s to netwo r k eleme n t s, not to the disti n c t issue of acces s charg e s for inte re x c h a n g e servic e. Even if that were incorre c t, howev e r, there is no merit to petit i o n e r s ’ asser t i o n (Br. 16) that the FCC “conduc t[ed] no analys i s of §251(d)(3) and fail[ed] to articul a t e any criteri o n that allows the ag ency to overrid e this expre s s reser v a t i o n of State autho r it y.” To the con tra r y, the agency explai n e d that “sect i o n 251(d)(3) does not speak to the preemp tive effect of the statute ” itself. Order n.1374 (JA at 644); see id. ¶ ¶767-768 (JA at 644-46). Because intras t a t e acces s invol v e s “tele c o m mu n i c a t i o n s ” excha n g e d with a LEC within the meani n g of secti o n 251(b)(5), the statu t e itsel f preemp t s state s ’ intra s t a t e acces s charg e regimes, exce p t as tempo r a r i l y prese r v e d by secti o n 251(g). See Order ¶¶761-762 (JA at 642). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 41 31 Finally, sectio n 251(d)(3) cannot bar the preemp t i v e force of the FCC’s ICC reforms becau s e that provi s i o n does not prese r v e state regul a t i o n s that “subs t a n t i a l l y preve n t i m p l e m e n t a t i o n of the requir e m e n t s of this sectio n and the purpo s e s of [sectio n s 251 th roug h 261],” 47 U.S.C. §251(d)(3)(C) (emphas i s added). 14 As discus s e d above (at 1-5), the FCC determi n e d in the Order t h a t a unifo r m natio n a l appro a c h th at bring s all telec o m mu n i c a t i o n s traff i c excha n g e d by LECs within th e secti o n 251(b)(5) framew o r k would best imple m e n t “the objec t i v e s of s ecti o n 251(b)(5) and other provis i o n s of the Act.” Order ¶767 (JA at 645). State-by-state depart u r e s from that approa c h would “subst a n t i a l l y prev e n t imple m e n t a t i o n ” of a natio n a l framew o r k. Id. ¶ ¶767, 793-794, 824 (JA at 644-45, 657-58, 671-72); cf. Verizon New England, Inc. v. Me. Pub. Utils. Comm’n , 509 F.3d 1, 5, 12 (1st Cir. 2007) (holding that “state agenc y may [not] requi r e [ILECs to offer certa i n unbun d l e d netwo r k] elemen t s that the FCC has deliste d ” as a matter of nation a l polic y). Citing Pennsylv a n i a ’ s regim e of access charge regula t i o n and the state ’ s broad b a n d deplo y me n t effor t s by wa y of gener a l examp l e, petit i o n e r s conte n d that there was “[n]o record eviden c e ” that st ate regula t i o n would 14 See Order ¶767 (JA at 644-45) (citing, e . g . , Local Competit i o n Order , 11 FCC Rcd at 15550 ¶103). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 42 32 interfe r e with federa l in tercar r i e r co mpensa t i o n reforms. Br. 21-23. Regardle s s of the activ i t i e s of any one state, there was subst a n t i a l recor d eviden c e suppor t i n g the FCC’s conclu s i o n that “a unifo r m natio n a l frame w o r k for the trans i t i o n of inter ca r r i e r co mpen s a t i o n to bill-and-keep” was warrant e d to advance the legitim a t e goals of “acce l e r a t i n g the migra t i o n to all-IP network s, facili t a t i n g IP-to -IP interc o n n e c t i o n, and promo t i n g deplo y me n t of new broad b a n d netw o r k s by provi d in g certa i n t y and predic t a b i l i t y to carrie r s and invest o r s.” Order ¶790 (JA at 656). In partic u la r, the recor d estab l is h e d that intra s t a t e acces s rates “vary widel y ” – creati n g “ince n t i v e s for arbitrag e and perv asiv e co mpetit i v e distor t i o n s within the industr y.” Order ¶791 & nn.1467-68 (JA at 656-57). Moreover, the states that have initia t e d intra s t a t e acces s refor m s “have taken a variety of approac h e s,” i d . ¶794 & nn.1473-76 (JA at 657-58), while some state co m mis s i o n s “lack author i t y to addr es s intra s t a t e acce s s refor m” at all, i d . ¶794 & n.1478 (JA at 658). As a conse q u e n c e, the FCC determi n e d (with some state suppo r t in the record) that “a state-by-state proces s would likel y result in signif i c a n t variab i l i t y a nd unpred i c t a b i l i t y of outcom e s,” i d . ¶794 & n.1479 (JA at 658), while a unifo r m nati on w i d e approa c h would “ensur e that the interc a r r i e r co mp en s a t i o n modern i z a t i o n effor t will conti n u e apace Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 43 33 without unnece s s ar y delays needed to harmon i z e dispar a t e stat e action s,” i d . ¶793 (JA at 657). B. T h e FCC Reason a b l y Conclu d e d That It Has Regul a t o r y Autho r i t y To Adopt Bill- A n d - K e e p As The Defau l t For Telec o m m u n i c a t i o n s Excha n g e d With A LEC. 1. T h e Bill- A n d - K e e p Metho d o l o g y Is Consi s t e n t With Secti o n 252(d ) ( 2 ) Ratem a ki n g Stand a r d s . The Communica t i o n s Act itself id enti f i es bill-and-keep as a permi s s i b l e ratem a k i n g metho d o l o g y. Specific a l l y, sectio n 252(d)(2)(A) states that a “just and reason a b l e ” rec ov e r y under that secti o n must inclu d e “mutua l and recipro c a l recove r y by each carrie r of costs assoc i a t e d with … transp o r t and termi n a t i o n.” 47 U.S.C . §252(d)(2)(A). Cruciall y, sectio n 252(d)(2)(B) then states that sectio n 252(d)(2) “shall not be const r u e d ” to “precl u d e ” “arra n g e m e n t s … that waive mutua l recov e r y (such as bill-and- keep arran g e me n t s).” 47 U.S.C. §252(d)(2 )(B). That should be the end of the matte r. Congress expli c i t l y conte m p l a t e d that the speci f i c metho d o l o g y of bill-and-keep would be permis s i b l e, i.e. , would not be precl u d e d. Moreover, beyon d its relia n c e on that expli c i t statu t o r y autho r i z a t i o n of bill-and-keep, the FCC reasona b l y c oncl u d e d that such a method o l o g y ensur e s “just and reaso n a b l e ” comp e n s a t i o n and “mutu a l and recip r o c a l recove r y by each carrie r of costs” asso c i a t e d with trans p o r t and termi n a t i o n, as conte m p l a t e d by secti o n 252(d)(2)(A )(i). The FCC explaine d that the Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 44 34 statute “does not speci f y from whom each carri e r may (or must) recove r those costs.” Order ¶775 (JA at 648). The FCC thus found that the statut e permi t s it to establ i s h a regime in which “ e a c h carri e r will ‘rec o v e r ’ its costs from its own end users or from e xpli c i t suppo r t mecha n i s ms such as th e feder a l univers a l service fund.” Id. Such recover y would be “recipr o c a l ” within the meanin g of sectio n 252(d)(2) because “a bill-and-keep framew o r k ” entit l e s carri e r s excha n g i n g traff i c “to rec ov e r their costs throu g h the same mechani s m, i . e . , throug h the rates they charg e their own custo m e r s.” Id. n.1408 (JA at 648). This reading of “recipr o c a l ” als o co mpo r t s with stand a r d dicti o n a r y defini t i o n s. See Webster’s Third New Int’l Dictiona r y 1895 (2002) (defin in g “recip r o c a l ” to mean “corres p o n d i n g to each other: being equiva l e n t or co mp le m e n t a r y ”). Bill-and-keep meet s this defin i t i o n becau s e, under such arran g e me n t s, both carri e r s recov e r th eir costs from “equi v a l e n t ” sourc e s – their own custo m e r s. Petition e r s nevert h e l e s s conte n d (Br. 37-38) th at adopt i n g bill-and- keep as th e defau l t for all telec o m mu n i c a t i o n s excha n g e d with a LEC departs witho u t expla n a t i o n from the FCC’s 1996 vi ew that, in genera l, bill-and-keep would be consi s t e n t with secti o n 252( d)(2) only when rates are symmet r i c a l and the traffi c in each direct i o n is roughl y in balanc e. See Local Compet it i o n Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 45 35 Order , 11 FCC Rcd at 16055 ¶1112. Althoug h the FCC did depart from that positi o n in the Order , it ackno w l e d g e d and fully e xpla i n e d the depar t u r e. Order ¶ ¶756, 774 n.1405 (JA at 640, 648). The prior posit io n was predi c a t e d on the view, rej ecte d in the Order , “that the calli n g party ’ s netwo r k shoul d bear all the costs of a call.” Order ¶756 (JA at 640). Given the FCC’s findin g “that both the calli n g and calle d party benef i t from a call, the ‘dire c t i o n ’ of the traffi c ” – and thus its relati v e balan c e – “is no longe r relev a n t.” Id. “Additio n a ll y,” the FCC explain e d, “bill-and-keep is mo st consis t e n t with the model s used for wirel e s s and IP network s … that have flouri s h e d a nd promo t e d inno v a t i o n and inve s t me n t witho u t any symme t r y or balan c e d traff i c.” Id. Further suppo r ti n g its rejec t i o n of a traffi c symmet r y requir e m e n t, the FCC found that new techn o l o g y makes the incre m e n t a l cost of call termi n a t i o n “very near $0.” Order ¶ ¶746 & n.1309, 752-753 (JA at 636, 638- 39). Even in its earlie r analys i s of th e issue, the FCC had recog n i z e d that sligh t differ e n c e s in traff i c balan c e or relat i v e costs could be outwe i g h e d by the “ad min i s t r a t i v e burden s and transa c t i o n costs” associ a t e d with cal cul a t i n g ICC payments. Local Competi t i o n Order , 11 FCC Rcd at 16055 ¶1112. Reprising that earlie r theme, the FCC expl ain e d that “[e]xact ident i f i c a t i o n of effic i e n t termi n a t i o n charg e s would be extre me l y comp l e x,” and the “cost s of Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 46 36 meterin g, billin g, and c ontr a c t enfor c e me n t that come with a non-zero termi n a t i o n char g e ” w ould be signi f i c a n t. Order ¶753 (JA at 639). Given these diffic u l t i e s and the fact that the cost of termi n a t i o n was likel y “very nearly zer o,” the FCC deter mi n ed that any “ben e f it s obta i n e d from impo s i n g even a ver y careful estimat e of the effi ci e n t inter c o n n e c t i o n charg e would be more than offset by the consid e r a b l e costs of doing so.” Id. In short, the FCC ackn o wl e d g e d and fully justi f i e d its chang e d posit i o n on the appli c a t i o n of bill-and-keep. That is all the APA requires. See Qwest Corp. v. FCC , 689 F.3d 1214, 1224 (10th Cir. 2012). Petition e r s furthe r assert (Br. 36-37) that, for traffi c subje c t to sectio n 252(d)(2), the statut o r y refere n c e to “wai v e[r]” of mutua l r ecove r y means that bill-and-keep may only be volunt a r i l y adopt e d, and may not be impos e d by regula t i o n. But the FCC reason a b l y determi n e d that such a constr u c t i o n would rende r Congress ’ s expre s s e ndor s e m e n t of the bill-and-keep ratem a k i n g meth o d o l o g y “sup er f l u o u s ” becau s e, under the statut e, the sectio n 252(d)(2) pricin g stand a r d s apply o n l y to terms impo s e d by arbi t r a t i o n, and not to “volu n t a r i l y-nego ti a t e d agreem e n t s.” Order n.1407 (JA at 648). In partic u la r, secti o n 252(c) provid e s that “[i]n resol v i n g b y arbit r a ti o n u n d e r subse c t i o n (b) of this secti o n a ny open issue s …, a State commi s s i o n shall – … (2) establ is h any rates … a c c o r d i n g to subse c t i o n (d) .” 47 U.S.C. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 47 37 §252(c) (emphas i s added). By contra s t, sectio n 252(a )(1) provide s that “an incumbe n t local exch an g e carrie r may n e g o t i a t e and enter into a bindi n g agree m e n t with the reque s t i n g telec o m m u n i c a t i o n s carrie r or carrier s w i t h o u t regar d to the stand a r d s set forth in s ubsect i o n s (b) and (c) of secti o n 251 [which include reciprocal co mp ensation].” Id. §252(a)(1) (emp has i s added); s e e Qwest Corp. v. Pub. Utils. Comm’n of Colorado , 479 F.3d 1184, 1188 (10th Cir. 2007) (volunt a r y agree m e n t s may “cont r a d i c t the speci f i c statu t o r y requir e m e n t s that an incu mb en t must follow”). Accordin g l y, petiti o n e r s ’ argum e n t that the statut o r y refere n c e to bill- and-keep appli e s only to volun tar y ag reem e n t s has it exactl y backwa r d s. See MCI Telecomms . Corp. v. U.S. West Commc’ns , 204 F.3d 1262, 1270-71 (9th Cir. 2000) (upholdi n g state arbit r a t o r ’ s imposi t i o n of bill-and-keep under sectio n 252(d)(2)). At the very least, their argume n t does not show that the FCC’s contra r y under s t a n d i n g confl i c t s w ith the plain meani n g of the statut e or is so unsupp o r t e d as to be unreas o n a b l e, as would be neces s a r y to preva i l unde r Chevron . 2 . S e c t i o n 201(b ) Indep e n d e n t l y Autho r i z e s Bill- A n d - K e e p As A Ratem a k i n g Me th o d o lo g y For Inte r s t a t e Traf f i c . Section 201(b) provid e s, with respe c t to commu n i c a t i o n s commo n carri e r s en gag e d in inters t a t e or foreig n commu n i c a t i o n s by wire or radio, that Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 48 38 “[a]ll char ges, practi ce s, classifi c a t i o n s , and regul a t io n s for and in conne c t i o n with such co mmuni c a t i o n servic e, sha ll be just and reason a b l e.” 47 U.S.C. §201(b). The “gener a l i t y ” of the terms “just and reason a b l e ” “opens a rather large area for the free play of agency discre t i o n.” Bell Atl. Tel. Cos. v. FCC , 79 F.3d 1195, 1202 (D.C. Cir. 1996). That discre t i o n is cabine d only by the requir e m e n t that the FCC engage in reaso n e d decisi o n m a k i n g and that it produc e a consti t u t i o n a l “end result.” Id. (citing FPC v. Hope Natural Gas Co. , 320 U.S. 591, 602 (1944)). In the Order , the FCC determi n e d that the adopti o n of bill-and-keep for inters t a t e traffi c exch an g e d with a LEC wa s fully consi s t e n t with this flexi b l e ratema k i n g standa r d. Order ¶771 (JA at 646-47). In partic u l a r, becaus e bill- and-keep allows carrie r s to char ge th eir own end users “just and reaso n a b l e ” rates for the trans p o r t and termi n a t i o n of inter s t a t e traff i c, sectio n 201(b) author i z e d that ratem a k i n g metho d. Id. Petition e r s conten d (Br. 41) that , by phasi n g out ICC payment s from the origin at i n g carri e r to the termin a t i n g carri e r, bill-and-keep fails secti o n 201(b)’s “just and reaso n a b l e ” rate stand a r d. This argume n t wrong ly assum e s, howeve r, that the only releva n t sourc e of comp e n s a t i o n for purpo s e s of sectio n 201(b) is the carrie r with which the LEC exchang e s traff i c. Nothing in secti o n 201(b) compel s that resul t – which is a relic of the calli n g- Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 49 39 party-networ k-pays regime that th e FCC’s new bill-and-keep framew o r k replac e s for local and access traffi c. See Order ¶ ¶771, 775 n.1409 (JA at 646-47, 649). Under the ne w regime, carrie r s are free to recov e r their costs with just and reaso n a b l e charg e s to th eir end users. The FCC’s conclu s i o n that bill-and-keep compor t s with sec tio n 201(b) is reason a b l e and entitl e d to Chevron d e f e r e n c e. Rivera-Barrient o s , 666 F.3d at 645. 15 Finally, this Court should rejec t pe tit i o n e r s ’ conte n t i o n (Br. 43-44) that the FCC may not, under secti o n 201(b), prescri b e “just and reason a b l e ” rates for the exchan g e of inters t a t e tra ff i c witho u t first condu c t i n g a rate prescr i p t i o n proce e d i n g under 47 U.S.C. §205. Secti on 205 provide s remedies that may be av ailable when the FCC inves tig a t e s the lawfuln e s s of an individ u a l carrie r ’ s rates, such as those filed under tarif f pursu a n t to secti o n 203 of the Act. See 47 U.S.C. §§203, 205. Section 205 does not limit the FCC’s author i ty to adopt gener a l prici n g metho d o l o g i e s using its secti o n 201 ratemak i n g and rulem a k i n g autho r i ty. See Global Crossing Telecomm s . , Inc. v. Met r op h o n e s Telecomm s . , Inc. , 550 U.S. 45, 53 (2007) (provid in g that FCC can imple m e n t secti o n 201(b) e ither throug h sectio n 205 rate 15 Petition e r s conte n d that, becaus e se cti o n 332 incorpo r a t e s the stand a r d s of secti o n 201, sectio n 332 provide s no au tho r i ty to adopt bill-and-keep with respect to wireles s traffi c. Br. 45. Th is conte n t i o n fails for the same reaso n s as petit i o n e r s ’ secti o n 201(b) argume n t. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 50 40 prescri p t i o n or throu g h gener a l “rule s that … insist upon certa i n carri e r practices ”). Indeed , as noted in the Order (¶641 (JA at 597)), the agenc y previ o u s l y has cappe d rate level s throu g h gener a l notic e-and-commen t rulem a k i n g proce e d i n g s, rather than th rou g h heari n g s on parti c u l a r tarif f filin g s. 16 AT&T Co. v. FCC , 487 F.2d 865 (2d Cir. 1973), is not to the contr a r y. See Br. 44. That cas e si mply “held that the Commissi o n may not requi r e a carrier to seek per mis s i o n to file a tari ff effect i n g a rate increa s e, but instea d must proces s such a tariff in accord a n c e with the proced u r e s set forth in sectio n s 203 to 205 of the Act.” Order n.1390 (JA at 646). “Nothing in that decis i o n calls into quest i o n ” the FCC’s “autho r i ty to adopt rules to defin e what const i t u t e s a just and reaso n a b l e rate for purpo s e s of secti o n 201.” Id. In any event, even if secti o n 205 were appli c a b l e to the ratem a k i n g rules adopted in the Order , the notic e-and-commen t pr oce d u r e s the FCC employe d here fully satis f i e d the heari n g requi r e m e n t s of that provi s i o n. See AT&T v. FCC, 572 F.2d 17, 22 (2d Cir. 1978) (holdin g that notic e-and-comme n t 16 See, e . g . , Access Charge Reform , 12 FCC Rcd 15982, 16012-18 ¶¶75-87 (1997) (prescr i b i n g new limit s on s ubscr ib e r line charge s throu g h gener a l rulem a k i n g proce d u r e s), a f f ’ d , Sw. Bell Tel. Co. v. FCC , 153 F.3d 523 (8th Cir. 1998); Access Charge Reform , 15 FCC Rcd 12962, 12984 ¶58, 12988- 991 ¶¶70-75 (2000) (prescr i b i n g revise d rate ce ili n g s throu g h gener a l rulem a k i n g proce d u r e s), a f f ’ d in perti n e n t part , TOPUC v. FCC , 265 F.3d 313 (5th Cir. 2001). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 51 41 provid e s a “full oppor t u n it y to be heard ” suffi c i e n t under secti o n 205); Order ¶641 (JA at 597) (“[A] formal eviden t i a r y heari n g is not requir e d under secti o n 205.”). 17 3 . T h e FCC’s Bill-A n d - K e e p Framewo r k Does Not Imperm i s s i b l y Intru d e On State Autho r i t y To Estab l i s h Actua l Rates . Petitione r s argue (Br. 28-31) that bill- and-keep is a rate (as op posed to a method o l o g y), and that sectio n s 252(c )(2) and 252(d)(2) permit only a state entit y, not the FCC, to impose such a rate. In this regard, petiti o n e r s analogi z e bill-and-keep to the defaul t proxie s that the FCC establi s h e d in 1996 and that the Eighth Circuit struc k down in Iowa Utils. Bd. v. FCC , 219 F.3d 744, 757 (8th Cir. 2000). That analo g y does not withs t a n d scrut i n y. The FCC conside r e d the Eight Circuit prece d e n t but reaso n a b l y deter mi n e d that, unlike the defaul t proxi e s – which estab l i s h e d the full and speci f i c amoun t of comp e n s a t i o n that carrie r s co uld recei v e – its bill-and-k eep framew o r k does not imp er mi s s i b l y “intr u d e[] on the state s ’ right to set th e actua l rates pursu a n t to §252(c)(2).” Order ¶773 (JA at 648) (quotin g Iowa Utils. Bd. , 219 F.3d at 757). In this 17 Petition e r s ’ undev e l o p e d two-senten c e claim (Br. 45) that the FCC unlawfu l l y amend e d its Part 36 rules witho u t a Joint Board refer r a l overl a p s claims prese n t e d at great e r lengt h in the petiti o n e r s ’ Addition a l Universa l Service Fund Issues Brief. It is addr es s e d in our respon s e to that brief. See FCC Additiona l USF Issues Brief, Argument II. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 52 42 regard, the FCC’s action was lawfu l both as to the interi m transi t i o n a l rate caps set by the Order a n d as to the ultima t e bill-and-keep framew o r k. Although the FCC’s interi m regim e cap s some of the rate s stat e s may esta b l i s h for intercarrier comp ensation, that is so only because the agen cy sensi b l y decid e d to trans i t i o n to bill-an d-keep gradual l y, rather than ad optin g a “flash cu t” that cou ld “entai l signif i c a n t market disrup t i o n.” Order ¶ ¶809- 810 (JA at 665). The FCC has well-establ i s h e d discr e t i o n to exerc i s e statu t o r y power s flexi b l y when movin g from one regul a t o r y regim e to anothe r. See NARUC v. FCC , 737 F.2d 1095, 1135-36 (D.C. Cir. 1984). Thus, althou g h the FCC could, under the statut e, have “mov[ed] to bill-and- keep imm edi a t e l y,” Order ¶809 (JA at 665), its decis i o n to move gradu a l l y was reason a b l e and is entitl e d to “subst a n t i a l defer e n c e,” i d . (quotin g Rural Cellula r Ass’n v. FCC , 588 F.3d 1095, 1106 (D.C . Cir. 2009)). Moreover, the effect of the interca r r i e r rat e caps the FCC impo sed is not to prescrib e the precise a m o u n t carriers may char ge for sect i o n 251(b)(5) traffic, but to contro l the s o u r c e of a carrie r ’ s sectio n 251(b)(5) revenue s – a quinte s s e n t i a l metho d o l o g i c a l issue. Specific a l l y, the caps do not deter mi n e how much carri e r s may colle c t for trans p o r t i n g and termi n a t i n g traff i c ; they simp l y requi r e that any furth e r rec ov e r y come from end users, not other carrie r s. Signific a n t l y, with respec t to intr astate tr affic, stat es retai n autho r i t y Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 53 43 “to regula t e the rates that the carrie r s will charge t h e i r end users to recov e r the costs of trans p o r t and termi n a t i o n.” Order ¶776 (JA at 649). According l y, state commis s i o n s ultima t e l y have disc r e t i o n and respo n s i b i l i t y (subjec t to feder a l stand a r d s) in dete r mi n i n g the aggreg a t e amo unt carrie r s may recov e r for secti o n 251(b)(5) traffi c. Furthermo r e, state commi s s i o n s retai n addit i o n a l “impo r t a n t respo n s i b i l i t i e s in the imple m e n t a t i o n of a bill-and-keep frame w o r k,” such as deter mi n i n g the point on the termi n a t i n g carri e r ’ s netwo r k – known as the “edge” – to which a carrie r mu st delive r traffi c “to avail itself of bill-and- keep.” Order ¶776 (JA at 649-50) . This deter mi n a t i o n has signi f i c a n t impli c a t i o n s for interc a r r i e r co mp en s a t i o n. The FCC explain e d that, “[d]ependi n g upon how the ‘ed g e ’ is de fin e d … [interc a r r i e r] paymen t s still could chang e hands.” Id. Because state s will mak e that deter mi n a t i o n in arbitr a t i o n procee d i n g s, the FCC’s conclu s i o n is consis t e n t with the Supreme Court’s statement that the states “deter mi n[e] the con cr e t e resul t in parti c u l a r circu ms t a n c e s.” Id. (quoti n g AT&T , 525 U.S. at 384). In any event, the FCC also conclu d e d that the rate-versu s-metho d o l o g y limit a t i o n of secti o n s 252(c) and (d) doe s not contr o l the agenc y ’ s autho r it y with respec t to “most of the tra ffi c that is the focus of this Order .” Order ¶774 (JA at 648). First, the distin c t i o n betwe e n rate a nd metho d o l o g y has no Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 54 44 bearing on the inter s t a t e and wire l e s s traff i c for which the FCC has indep e n d e n t regul a t o r y autho r ity under secti o n s 201(b) and 332. See id. ¶ ¶771, 779 (JA at 646-47, 650-51) (r ecogn i z i n g indep e n d e n t autho r i ty under those sectio n s). Moreover, even where secti o n 251( b)(5) provid e s the FCC’s sole sourc e of autho r i ty, the disti n c t i o n has limit e d signi f i c a n c e. Section 252 applie s only to arbit r a t i o n proce e d i n g s invol v in g “traf f i c excha n g e d with an ILEC,” the forme r mono p o l y prov i d e r in each local area. Id. ¶774 (JA at 648) (emphas i s added); s e e 47 U.S.C. §252(b)(1) (provid i n g that an ILEC’ s recei p t of “a reque s t fo r negoti a t i o n ” trigge r s a ppli c a t i o n of secti o n 252 proced u r e s); i d . §252(c)(2) (provid in g that in resol v i n g arbitra t i o n s “ u n d e r subsec t i o n (b) ,” state co mmi s s i o n s shall “esta b l i s h ” rates “acco r d i n g to subse c t i o n (d)” (emp has i s added)); i d . §252(d)(2) (establi s h in g ratem a k i n g standard “[f]or the purposes of co mplian ce b y an incum b e n t local excha n g e carrier with secti o n 251(b)(5)” (emphas i s added)). Thus, traffi c exchan g e d betwee n CLECs and IXCs , between two CLECs, and betwe e n CLECs and wirele s s provid e r s are all “categ o r i c a l l y beyon d [the] scope” of the pricin g provis i o n s of secti o n 252(c) and (d). See Order ¶774 (JA at 648). Finally, the Order e x p l a i n s that even so me IL EC traffic – specif i c a l l y, that exchang e d betwee n ILECs and IXCs – is exclud e d from th e rat e-versus- Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 55 45 method o l o g y limit a t i o n. The secti o n 252(d ) pricin g stand a r d appli e s, by its terms, only where th e traff i c “orig i n a t e[s] on the networ k facil i t i e s of the other carri e r.” 47 U.S.C. §252(d)(2)(A)(i ). IXCs, howeve r, “typic a l l y do not origi n a t e (or termi n a t e) calls on their own netwo r k facil i t i e s but inste a d trans mi t calls that origi n a t e and termi n a t e on dista n t LECs.” Order ¶774 (JA at 648). Accordin g l y, the bill-and- keep framewo r k the FCC adopted does “not impli c a t e any quest i o n of the state s ’ autho r i ty under secti o n 252(c) or (d) or the Eighth Circuit ’ s inter p r e tat i o n of those provisio n s,” even as to most traff i c excha n g e d betw e e n ILECs and IXCs. Id. I I . T H E RECOV E RY MECHA N I S M ADOPT E D IN THE ORDER IS A REAS ONABLE INTERI M MEAS URE TO OFFSE T REDUC E D INTER CAR R I E R COM P ENSAT I O N REVENUES DURI NG THE TRANSI TI O N TO BILL-A N D - K E E P. The Order establis h e s a multi-year tran si t i o n to bill-and-keep that initia l l y caps existi n g interc a r r i e r rates for termi n a t i n g acces s and local traff i c at exist i n g level s, and then gradu a l l y re duces those rates ea ch year until they reach bill-and-keep (in six years for pri ce cap carrier s, and nine years for rate- of-return carrie r s). See Order ¶801 & Figure 9 (JA at 661-62). The FCC sought furth e r comme n t on how to trans i t i o n to bill-and-keep for orig i n at i n g acces s and other rate elemen t s not specifi c a l l y affect e d by the Order . Id. ¶ ¶1297-1305 (JA at 836-39). In the meanti me, the Order c a p s all origi n a t i n g Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 56 46 access charge s for price cap carrie r s and inters t a t e origi n a t i n g switc h e d acces s charg e s for rate-of-return carri e r s. Id. ¶ ¶739, 800-801 & Figure 9 (JA at 632, 660-63). To mitiga t e the effec t of its refo r ms on incu mb e n t LECs’ revenu e s, the FCC creat ed a “recove r y mechan i s m ” desig n e d to enabl e those LECs to recove r some of the ICC revenue s that ar e reduce d during the transi t i o n to bill-and-keep. Order ¶ ¶847-853 (JA at 683-88). For rate-of-return LECs, 18 the Order establ i s h e s a formu l a that deter m i n e s elig i b l e reven u e s on the basis of an initi a l basel i n e, consis t i n g of (a ) the carrie r ’ s 2011 revenue requi r e m e n t for the inters t a t e access elemen t s subjec t to reform, (b) the carrie r ’ s Fiscal Year 2011 revenue s from the intras t a t e acces s eleme n t s subje c t to reform, plus (c) the carrie r ’ s net recipr o c a l comp e n s a t i o n reven u e s for Fiscal Year 2011 (generat e d under the FCC’s prio r recip r o c a l comp e n s a t i o n rules gover n in g local traff i c). See id. ¶ ¶851, 892, 899 (JA at 684-85, 704-05, 709- 10). Each rate-of-return ILEC is entitl e d to recov e r that amoun t – which is reduce d by 5 percen t each year. See id. ¶ ¶851, 899 (JA at 684-85, 709-10). This reven u e recov e r y comes from th ree sourc e s. First, carrier s receive reven u e s from their remai n i n g ICC charge s, some of which are not curre n tl y 18 Petition e r s, which (on this issue) c onsis t mainl y of rural rate-of-return carrie r s, do not challen g e the recover y mecha n i s m as it appli e s to price cap carriers. See Br. 53-58. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 57 47 being trans i t i o n e d to bill-and-keep. Order ¶896 (JA at 708). 19 Second, carri e r s may recov e r reve n u e s by asses s i n g a new, fe dera l l y tarif f e d Access Recovery Charge (“ARC”) on their end us ers (subject to certa i n limit a t i o n s). See id. ¶ ¶896, 906-916 (JA at 708, 714-21). Finally, if the remain i n g ICC charges and the ARC do not produ c e all of the reven u e s eligib l e for recover y, carri e r s may recov e r the remai n d e r thr ou g h direc t subsi d i e s from the Connect America Fund (“CAF”), which wa s creat e d as part of the Order ’ s u n i v e r s a l servi c e refor ms. See id. ¶¶896, 917-919 (JA at 708, 721-22). The FCC predict e d that this recove r y mecha n i s m “will be mo re than suffi c i e n t to provid e carri e r s reaso n a b l e recov e r y for regul a t e d servi c e s.” Order ¶ 924 (JA at 724). Neverthe l e s s, as an added measu r e of prote c t i o n, the FCC provide d for a “Total Cost and Earnings Review” proce s s “to allow indiv i d u a l carri e r s to demon s t r a t e that ... additio n a l recov e r y is neede d to prevent a taking.” Id. Petition e r s chall e n g e the bill-and-k eep transi t i o n and the reco ve r y mecha n i s m as arbit r a r y and capri c i o u s on sever a l groun d s. First, citing Smith v. Illinoi s Bell Tel. Co. , 282 U.S. 133 (1930), petiti o n e r s conten d that the FCC arbitra r i l y faile d to appor t io n the cost s of the servic e s subjec t to reform betwe e n the state and federa l juris d i c t i o n s. Br. 50-51. In Smith , the Illinois 19 See Order ¶801 (JA at 661-63) (outlini n g trans i t i o n sched u l e). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 58 48 regula t o r y agenc y had set Chicago tele p h o n e rates based on the total cost of the telep h o n e comp a n y ’ s proper t y in the city, even thoug h that prope r t y was used to provi d e not just intra s t at e se rvi c e, but also inte rs t a t e servic e. See 282 U.S. at 146-47. The statut o r y scheme fo r teleph o n e regula t i o n then in place, howeve r, grante d the federa l In tersta t e Commerce Commissio n exclusive jurisdi c t i o n over inters t a t e co mm u n i c a t i o n s and the vario u s state co mmis s i o n s jurisd i c t i o n only ov er intrastate co mmunications. See id. at 148-49. The Court ruled that, althou g h “extr e me nicet y is not requi r e d ” in separa t i n g regul a t e d costs betwe e n ju ris d i c t i o n s, the Illinoi s agenc y ’ s decis i o n to set local rates on the basis of the t o t a l (interst a t e and intras t a t e) cost of the carri e r ’ s prope r t y impro p e r ly “igno r e[d] a l t o g e t h e r the actual uses to which prope r t y is put.” Id. a t 150 (emphasi s added). The Court thus set aside the rate order, findin g, on those fact s, that “separ a t i o n of the intras t a t e and inter s tat e prope r t y, revenu e s a nd expen s e s of the comp a n y ” was “esse n t i a l to the appro p r i a t e recog n i ti o n of the comp e t e n t gover n men t a l autho r i ty in each field of regul a t i o n.” Id. a t 148. Smith is inapplic a b l e here. First, wh ile the statu t o r y schem e in that case gave the Interstate Comme rce Co mmissi o n exclu s i v e juris d i c t i o n over inter s t a t e commu n i c a t i o n s, sectio n s 251(b)(5) and 201(b) give the FCC jurisdi c t i o n over a l l of the traff i c subje c t to refor m – both inter s t a t e and Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 59 49 intrastat e. See AT&T , 525 U.S. at 381 n.7; s e e also Argument I.A., above. Moreover, althou g h the Order assert s juris d i c t i o n over so me in tras t a t e access traffi c that previo u s l y was regu lat e d by the states, states are n o t left with respon s i b i l i t y for recove r i n g intra s t a t e acces s reven u e s th at are reduce d by ICC reform. Order ¶795 (JA at 659). Rather, the Order ’ s f e d e r a l recov e r y mechani s m “provid e[s] carrier s with re cov e r y for reduc t i o n s to eligi b l e inters t a t e a n d intrasta t e revenue.” Id. ; s e e id . ¶¶847-920 (JA at 683-723). Thus, far from “ignor[ing] altoge t h e r,” Smith, 282 U.S. at 150, the use to which carri e r prope r ty is put, that mechan i s m takes into accoun t the previo u s l y separ a t e d costs of sec ti o n 251(b)(5) traffic by start i n g the trans i t i o n to bill-and-keep with exist i n g inter s t a t e and in tras t a t e rates and deter mi n i n g elig i b l e reve n u e recov e r y on the basis of a formu l a that is tied initia l l y to existi n g inter s t a t e and intra s t at e reven u e s, s e e Order ¶892 (JA at 704-05). And the addit io n a l safeg u a r d of the Total Cost and Earning s Review proce s s – which inclu d e s a sepa r a t i o n s stud y requ i r em e n t – permi t s carriers to make a co mp r e h e n s i v e cost showi n g to the FCC that additi o n a l recover y is needed. See id. ¶ ¶924, 932 (JA at 723-24, 728-29). Accordin g l y, no forma l reap p o r t i o n m e n t wa s neces s a r y, at this time, to ensur e that only “the comp e t e n t gover n men t a l aut hor i t y ” exerci s e s jurisd i c t i o n. Smith , 282 U.S. at 148. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 60 50 Petition e r s ’ remai n i n g arbit r a r y-and-capri c i o u s claims – appar e n t l y inten d e d to show that the recov e r y me cha n i s m denie s carri e r s an oppor t u n i t y to recov e r their costs – consi s t large l y of undev e l o p e d refer e n c e s to decad e s- old FCC decisio n s addre s s i n g past regula t o r y polic i e s. See generally Br. 51- 56 (citing vario u s FCC access charg e order s from 1986, 1990, 1998, 2000, and 2001). Nothing in the cited refer e n c e s sugge s t s that the fully artic u l a t e d refor ms adopt e d in the Order a r e unrea s o n a b l e, especi a l l y in light of interv e n i n g statu t o r y and techno l o g i c a l changes, and the defer e n c e due to transi t i o n a l mecha n i s ms. In this regard, the F CC’s reco ver y mechan i s m, by desig n, does not “prov i d e 100 percent reven u e neutr a l i t y relati v e to today’ s revenu e s.” Order ¶881 (JA at 699). The agency never t h e l e s s reaso n a b l y predi c t e d that it would be “more than suffici e n t to provide ca rri e r s reaso n a b l e recov e r y for regul a t e d servi c e s.” Id. ¶924 (JA at 724). Numerous facto r s suppo r t e d that concl u s i o n. First, an annual 5 percent decli n e in revenu e s was likely an i m p r o v e m e n t over recent trend s. The FCC observe d that inters t a t e acces s reven u e requi r e men t s for rate-of-return carri e r s recen t l y had decli n e d on avera g e by 3 per cent per year, and projec t i o n s in the recor d sugge s t e d that that trend would conti n u e for the next five years. Order ¶892 (JA at 704-05). At the same time, intra s t a t e acces s reven u e s for rate-of- Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 61 51 return carri e r s had been decli n i n g by about 10 percen t per year. Id. ¶893 (JA at 705-06). 20 The FCC deter mi n ed that a wei ghte d averag e of these interst a t e and intra s tat e reven u e dec li n e s “coul d justi f y a possi b l e Baseline reduc t i o n of appro x i ma t e l y seven percent an nually.” Id. ¶894 (JA at 707). The selec t i o n of a 5 percen t annua l reduc t i o n for th e recove r y mecha n i s m was thus “a conser v a t i v e approa c h.” Id. ¶¶894, 900-901 (JA at 707-08, 710-11). The chart below illus t r a t e s rate-of-return LECs’ projec t e d revenu e losses under 20 The down war d trends in inters t a t e and intra s t a t e acces s reven u e s had resulted largely from the co mbi n ed effects of lost lines and minut e s of use to co mp eti t o r s ( e . g . , wirele s s and VoIP provide r s) and decre a s i n g switc h i n g costs. See Order ¶ ¶885-886, 892-894 (J A at 701-02, 704-08). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 62 52 the status quo. Id. ¶893, Figure 11 (JA at 707). 21 Rate of return ICC projected revenue under status quo 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 2012 1.03 2011 1.10 2010 1.18 2009 1.26 2016 2017 0.80 0.75 $, in billions 2015 0.85 2014 0.91 2013 0.97 LSS revenue (2% decline) ICC interstate revenue (3% decline) ICC intrastate revenue (10% decline) ICC recip comp net (5% decline) In additi o n, the FCC had sound reaso n s to belie v e that exist i n g acces s charge rat es were ab ove le vel s requi r e d for effic i e n t operat i o n. Because the exist i n g regim e permi t t e d rate-of-retur n IL ECs to incre a s e their rates to offse t declin i n g minute s of use, such carrie r s “had insuff i c i e n t incent i v e to reduce costs.” Order ¶892 (JA at 705). Those incent i v e s are revers e d under the new recove r y mecha n i s m, becaus e “carr i e r s that realiz e … effici e n c i e s will not experi e n c e a result i n g reduc t i o n in s uppor t ” (beyond the 5 percent annua l 21 “LSS” in the chart refers to Local Switchin g Support expli c i t subsi d i e s. See Order ¶892 (JA at 705). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 63 53 reducti o n to the recove r y basel i n e), but rather can increa s e their profi t s. Id. ¶902 (JA at 711). 22 Addition a ll y, althou g h the Order e x p r e s s l y “take s inter s t a t e rate-of- return carri e r s off of rate-of-return base d recov e r y … for inter s t a t e switc h e d access” rat e el ements subject to reform, Order ¶900 (JA at 710), the FCC was well aware that the existi n g inter s t a t e switc h e d acces s reven u e requi r e m e n t includ e d a potent i a l l y excess i v e author i z e d rate of retur n of 11.25 percent. See Order n.1736 (JA at 707). The FCC tenta ti v e l y found that “the curre n t rate of return of 11.25 percent is no longer consi s t e n t with the Act and today’ s financ i a l condit i o n s.” Id. ¶638 (JA at 596). The existi n g rate-of- return prescr i p t i o n (set in 1990) wa s more than two decad e s old, and “fund a m e n t a l chang e s in the cost of debt and equit y ” had occur r e d in the interv e n i n g years. See id. ¶1046 (JA at 778). Accordin g l y, even rate-of- return carrie r associ a t i o n s had, as pa rt of a broade r propos a l, sugges t e d a 22 Petition e r s conte n d that the FCC’s c oncer n with imp r o v i n g rate-of-retur n ILECs’ cost-cuttin g incen t i v e s confl i c t s with its decisi o n in 1990 to make the incent i v e-based price cap regime opti o n a l for small e r LECs. Br. 55 (citing Policy and Rules Concerni n g Rates for Dominant Carriers , 5 FCC Rcd 6786, 6799 (1990)). That claim is misdi r e c t e d . The FCC simply decid e d there that t h e record failed to estab l i s h that small ca rri e r s could affor d to reduc e their rates as rapid l y as the price cap formu l a requi r e d large carri e r s to do. 5 FCC Rcd a t 6799 ¶¶103-104. Here, the FCC has separa t e l y analy z e d the circu ms t a n c e s of price cap and rate -of-return carri e r s and adopt e d a less deman d i n g sched u l e of reven u e reduc t i o n s for rate-of-return carri e r s. See Order ¶¶851, 867-904 (JA at 684-85, 694-714). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 64 54 reducti o n in the presc r i b e d rate of re tur n from 11.25 percen t to 10 percen t, and the state member s of the Federal-St ate Joint Board had propos e d a great e r reduc t i o n to 8.5 percent. See id. The FCC’s record-based conce r n that the exist i n g rate-of-return presc r i p t i o n wa s too high suppo r t s its predi c t i v e judgme n t that the trans i t i o n a l recov e r y mecha n i s m would give carri e r s a reaso n a b l e oppor tu n it y to recov e r their costs. See id. ¶ ¶924, 1046 (JA at 723- 24, 778-79); s e e also Franklin Sav. Ass’n v. Dir., Office of Thrift Supervis i o n , 934 F.2d 1137, 1146 (10th Cir. 1991) (“ [R]eviewin g courts should be partic u l a r l y defere n t i a l when th ey are review i n g an agency ’ s predi c t i v e judgme n t s, especi a l l y those withi n the agenc y ’ s field of discr e t i o n and expert i s e.”). Finally, the Total Cost and Earnings Review process the FCC establi s h e d, which “allow[s] individ u a l carrie r s to demons t r a t e that … additi o n a l recov e r y is needed to prev en t a taking,” eli min a t e s any remain i n g risk that the recove r y mecha n i s m arbit r a r i l y denie s carri e r s an oppor t u n i ty to recove r their costs. Order ¶924 (JA at 724); s e e Time Warner Entm’t Co. v. FCC, 56 F.3d 151, 169 (D.C. Cir. 1995) ( uphold in g as reaso n a b l e FCC rules that requir e d across-the-board 17 percen t cable rate reduct i o n s, but provid e d a cost-of-service “safet y valve” for cab le sy ste ms for which the “redu c t i o n would resul t in unrea s o n a b l y low rates ”). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 65 55 I I I . P E T I T I O NE R S ’ CHALLE N G E TO THE FCC’ S TENTATI VE PREDICTIO N THAT STATES LI KELY COULD NOT SUS PEND OR MODI FY THE ORDER’ S B I L L - A N D - K E E P FRAMEW O R K IS UNRIPE AND, IN ANY EVENT, UNSOUN D . Section 251(f)(2) provide s that cer tai n small LECs “may petiti o n a State commi s s i o n for a suspe n s i o n or modif i c a t i o n ” of the requi r e m e n t s of secti o n 251(b) or (c), and that the “State commi s s i o n shall grant such petit i o n ” if it deter mi n e s that such suspe n s i o n or modif i c a t i o n (A) is neces s a r y – (i) to avoi d a signifi c a n t adverse econo mi c imp act on users of teleco m mu n i c a t i o n s servic e s genera l l y ; (ii) to avoid impo s i n g a requi r e men t that is undul y econo mi c a l l y burde n s o m e ; or (iii) to avoid impos i n g a requi r e m e n t that is techni c a l l y infeas i b l e ; and (B) is consis t e n t with the public intere s t, conven i e n c e, and necess i t y. 47 U.S.C. §251(f)(2). Although this prov i s i o n “entr u s t s state commi s s i o n s with the job” of actin g on secti o n 251(f)( 2) petitio n s, the FCC is author i z e d to issue “rules to guide the state comm i s s i o n judgme n t s ” on such matte r s. AT&T , 525 U.S. at 385. The FCC neverth e l e s s decli n e d “at th is time” to ad opt “specif i c rules regar d i n g secti o n 251(f)(2).” Order ¶824 (JA at 671). The agency obser v e d, though, that “suspe n s i o n s or modifi c a t i o n s of the bill-and-keep metho d o l o g y [adopted in the Order ] would, among other thing s, re-introd u c e regul a t o r y uncer t a i n t y, shift the costs of provi d i n g servi c e to a LEC’s comp et i t o r s and the co mp e t i t o r ’ s custo m e r s, increa s e trans a c t i o n costs for termi n a t i n g calls, Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 66 56 and undermi n e the effici e n c i e s gaine d from adopt i n g a unifor m natio n a l framew o r k.” Id. Accordin g l y, altho u g h the FCC did not preemp t state s, it sugge s t e d that it was “high l y unlik e l y th at any attemp t by a state” to grant a suspe n s i o n or modif i c a t i o n petit i o n “wou ld be ‘consi s t e n t with the public inter e s t, conven i e n c e and necess i t y ’ as requi r e d by secti o n 251(f)(2)(B).” Id. Petition e r s conte n d that the FCC’s discus s i o n of secti o n 251(f)(2)(B) “unlaw f u l l y circu ms c r i b e s ” carri e r right s under that provi s i o n and “infr i n g e s on State juris d i c t i o n to addre s s lawfu l suspe n s i o n and modif i c a t i o n reque s ts.” Br. 46. This clai m is unripe and, in any ev ent, lacks merit. In USTA, 359 F.3d 554, the D.C. Circ uit held unrip e a close l y analog o u s claim. The case arose out of a rulemak i n g in which the FCC had deter mi n e d that incumb e n t LECs need not unbun d le certa i n netwo r k eleme n t s for reque s ti n g carri e r s pursu a n t to sec ti o n 251(c)(3) and (d)(2). The FCC had also “predic t[ed] that s t a t e unbund l i n g requi r e m e n t s for eleme n t s that the FCC has deter mi n e d need not be unbun d le d under §251(d)(2) are ‘unli k e l y ’ to be found consis t e n t with the Act.” USTA, 359 F.3d at 594 (emphas i s added) (quotin g Review of the Section 251 Unbundlin g Obligati o n s of Incumbe n t Local Exchange Carriers , 18 FCC Rcd 16978, 17101 ¶195 (2003)). On judicia l review, the petiti o n e r s claime d that the FCC had unlaw f u l l y preemp t e d state unbun d l in g autho r it y with respe c t to the netwo r k Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 67 57 element s at issue. The court of appeals, however, dismissed th e cl ai m becau s e “[t]he gen era l predi c t i o n voice d in [the order] [did] not consti t u t e final agency action, as the Commissi o n ha[d] not taken any view on any attemp t e d state unbun d l i n g order.” Id. “Besides,” the court expla i n e d, “the state petit i o n e r s ha[d] not – and proba b l y could not [have] – identi f[ied] any subst a n t i a l hards h i p that they would su ffer by deferr i n g judici a l review of the preemp t i o n issue s until the FCC actuall y i ssue[d] a ruling that a specif i c state unbun d l ing requi r e m e n t [was] preemp t e d.” Id. The same result should obtain here. As in USTA, the FCC has not taken final action. Rather, the FCC has merel y made “p red i c t i o n s ” about wheth e r state modif i c a t i o n grant s would be consis t e n t with the statut e. Also as in USTA, petitio n e r s here do not identi f y any substa n t i a l hards h i p they might suffe r by defer r i n g judic i a l revi e w unle s s and unti l the FCC actuall y rules with respec t to a state’ s actio n under secti o n 251(f)(2). See Friends of Marol t Park v. U.S. Dep’t of Transp. , 382 F.3d 1088, 1093-94 (10th Cir. 2004) (ordinar i l y, the ripene s s of an ag enc y order “depe n d s on wheth e r the plaint i f f s challe n g e a final agency actio n,” but “[e]ven where an agenc y action is conside r e d final, … a clai m ma y not be ripe if there is no direct, immedia t e effect on plainti f f s ”). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 68 58 Petitione r s ’ challe n g e to the merit s of the FCC’s sectio n 251(f)(2)(B) discuss i o n is mista k e n, in any event. Fi rst, contr a r y to petit i o n er s ’ claim (Br. 49), the FCC’s secti o n 251(f)(2) discus s io n is wholly unlike the rule that the Eighth Circuit set aside in Iowa Utils. Bd. v. FCC , 219 F.3d 744. The Eighth Circuit inter p r e t e d that rule to r e m o v e two of three stat u t o r y prer e q u i s i t e s for termi n a t i n g a rural ILEC’s exem p t i o n (under 47 U.S.C. §251(f)(1)) from secti o n 251(c) obligat i o n s. Id. a t 760. The sectio n 251(f)(2)(B) discuss i o n at issue here does not remov e any statu t o r y suspe n s io n or modif i c a t i o n crite r i a. Moreover, the FCC’s public intere s t discu s s i o n was reason a b l e. The FCC provide d a detai l e d expla n a t i o n of the need to replace the broken legacy system of interc a r r i e r co mp en s a t i o n with a bill-and-keep framew o r k. See general l y Order ¶¶741-759, 788-797, 824 (JA at 632-41, 655-59, 671-72). The FCC’s findin g s justi f i e d its pred ic t i o n that the grant of a sectio n 251(f)(2) petiti o n would like ly fail the “publi c intere s t, conven i e n c e and necess i t y ” prong of sectio n 251(f)(2)(B). I V . P E T I T I O N E R S ’ ADMIN I S T R AT I V E PROCE S S AND CONS TI T U T I O N A L CLAI MS FAIL. A. The Admi nistrative Record Was Devel o p e d Consi s t e n t With The APA, Th e FCC’s Ex Parte Rules, And Notio n s Of Funda m e n t a l Fairn e s s . In the ad minist r a t i v e proceed i n g s culmi n a t i n g in the Order , the FCC sought comme n t on the “subj ect s and i ssues involv e d ” in the rulema k i n g, 5 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 69 59 U.S.C. §553(b)(3), throug h the i ssuan c e of four formal notice s. 23 Those notic e s gener a t e d more than 650 form al comme n t s and reply comme n t s from appro x i ma t e l y 300 parties, includ i n g petit i o n e r s, and thous a n d s more infor ma l comme n t s. 24 In additi o n, the FCC held “over 400 meeting s with a broad cross-secti o n of indus t r y and c onsum e r advoc a t e s,” held “three open, public works h o p s, and engage d with othe r federa l, state, Tribal, and local offici a l s throug h o u t the proces s.” Order ¶12 (JA at 398). As permit t e d by its ex parte r u l e s, 25 the FCC also receiv e d numero u s lawful presen t a t i o n s from 23 2 0 1 1 NPRM , 26 FCC Rcd 4554 (SA at 1); M o b i l it y Fund NPRM , 25 FCC Rcd 14716 (2010) (JA at 223); M o b i l i t y Fund Tribal Public Notice , 26 FCC Rcd 5997 (WTB 2011) (JA at 343); August 3, 2011, Public Notice , 26 FCC Rcd 11112 (WCB 2011) (JA at 349). 24 See Order Apps. J, K, L, M (JA at 1029-45). 25 See EchoStar Satellit e LLC v. FCC , 457 F.3d 31, 39 (D.C. Cir. 2006). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 70 60 stakeho l d e r s, includ i n g petit i o n e r s. 26 See Order ¶12 (JA at 398) (describ i n g the “enor mo u s inter e s t in and publi c pa rtic i p a t i o n in” the refo rm proces s). Petition e r s nevert h e l e s s claim that the FCC violate d the rulema k i n g provis i o n s of the APA and their due pr oce s s righ t s “by relying in part on uncha l l e n g e d e x parte f i l i n g s submi t t e d so late in the decis i o n-makin g proce s s ” that petiti o n e r s alleg e d l y were denie d “a meani n g f u l oppor t u n i t y to be heard.” Br. 59. This claim is witho u t merit. The APA requires, in informa l notic e-and-commen t rulem a k i n g procee d i n g s, that the agency “g ive in ter e s t e d perso n s an opport u n i t y to parti c i p a t e … throu g h submi s s i o n of writte n data, views, or argume n t s with or witho u t oppor tu n it y for oral prese n t a t i o n.” Phillips Petroleu m Co. v. EPA , 26 See 47 C.F.R. §1.1206 (provid i n g permi t -but-disclo s e stand a r d s for inform a l rulem a k i n g proce e d i n g s). Under these e x parte r u l e s, parties must place copies of all writte n ex parte p r e s e n t a t i o n s in the record, and must expedi t i o u s l y follo w up oral presen t a t i o n s with writte n summa r i e s of “all data prese n t e d and argum e n t s made” durin g the prese n t a t i o n s. Id. §1.1206(b)(1) & (b)(2)(iii). Ex parte filing s, inclu d i n g writt e n summa r i e s of oral prese n t a t i o n s, must be submi t t e d to th e FCC Secret ary and ar e include d in the admin i s t r a t i v e recor d for publi c inspe c t i o n. See id. §1.1206(b)(2)(i); see also id. §1.1206(b)(2)(ii) (establ i s h in g speci a l proce d u r e s for submi s s i o n s conta i n i n g confi d e n t ia l infor ma t i o n). The rules also establ i s h a period of repose (referr e d to as the “sunsh i n e pe rio d ”), which runs from about a week befor e the publi c meeti n g at which the FCC votes on the rulem a k i n g order until the text of the order is releas e d. See id. §1.1203(b). During that perio d, e x parte presen t a t i o n s are gener a l l y prohib i t e d, s e e id. §1.1203(a), althou g h the rules permi t exped i t i o u s writt e n re pli e s durin g the sunsh i n e perio d to filing s made on the eve of the period of repose, s e e id. §1.1206(b)(2)(iv). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 71 61 803 F.2d 545, 559 (10th Cir. 1986) (q uotin g 5 U.S.C. §553(c)). That “oppor t u n i t y to partic i p a t e is all that the APA requires.” Id. Due proces s likew i s e “gene r a l l y requi r e s a ‘meani n g f u l oppor t u n i ty ’ to be heard” before an agency tak es acti o n that may adver s e l y affec t a party ’ s prope r ty inter e s t s. Blumenth a l v. FERC , 613 F.3d 1142, 1145 (D.C. Cir. 2010) (citatio n omitt e d). Ne verthe l e s s, “infor mal conta c t s betwe e n agenc i e s and the publi c are th e ‘brea d and butte r ’ of the proce s s of admin i s t r a t i o n and are comp le t e l y appro p r i a t e so long as th ey do not frustr a t e judici a l review or raise seriou s questi o n s of fairnes s.” EchoStar , 457 F.3d at 39 (quotin g Home Box Office, Inc. v. FCC , 567 F.2d 9, 57 (D.C. Cir. 1977)). Petitione r s have not come close to establ i s h i n g that the FCC breache d these stand a r d s. Although they comp l a i n of vario u s filin g s pursu a n t to the FCC’s e x parte r u l e s in the days and weeks prior to the Order ’ s adopt i o n, they identi f y only one – a two-page f iling by Verizo n that urged the FCC to allow the ARC to be recover e d “at the holdi n g compa n y level.” Br. 60 (citing Letter from Chris Mille r, Verizon, to FCC Secretar y, at 1 (Oct. 20, 2011) (JA at 3980)). That lette r, how ever, merely ela bo r a t e d brief l y on aspects of the ARC that had alr eady been discu s s e d in the “ABC Plan” submi t t e d by a group of price cap LECs. See Order ¶910 & n.1791 (JA at 717). That Plan had been a promi n e n t pa rt of the record for over two-and-a- Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 72 62 half months at the time of Verizon ’ s filin g and was the subject of a separat e request for public co mment by the agency. 27 Petitione r s were no t denied a reaso n a b l e oppor tu n it y to parti c i p a t e or ev en to addres s the specif i c plan they iden t i f y. Petition e r s also comp la i n ge ner a l l y about unide n t i f i e d ex parte p r e s e n t a t i o n s submi t t e d by AT&T and Verizon in the days immed i a t e l y before the “sunsh i n e period ” ( see n.26, above) comme n c e d on October 21, 2011. Br. 60-61. But ever y admin i s t r a t i v e proce s s must have an end point, and the FCC’s rules – inclu d i n g both the sunsh i n e perio d deadl i n e and the opport u n i t y provid e d for expedi t i o u s respon s e to filing s made on the eve of that deadlin e ( s e e 47 C.F.R. §§1.1203(b) & 1.1206( b)(2)(iv)) – are desig n e d to enabl e both the FCC and the publi c to evaluat e filings before the agency acts. Indeed, petiti o n e r s activ e l y em plo y e d those rules to exerc i s e the 27 Letter from Robert W. Quinn, e t al. , to FCC Secreta r y (July 29, 2011) (JA at 2986-3001) (present i n g ABC Plan); August 3, 2011, Public Notice , 26 FCC Rcd 11112 (WCB 2011) (JA at 349) (solicit i n g publi c comme n t on the ABC Plan). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 73 63 “opportu n it y to parti c i p a t e ” that the APA requires. Phillips Petrole u m , 803 F.2d at 559. 28 In any event, petiti o n e r s ’ APA and due proce s s claims fail under the “rule of prejud i c i a l error.” 5 U.S.C. §706(2)(F). Even where a proced u r a l error exist s (and there was no such erro r here), a mistake by the ag ency “does not requir e rever s a l unles s a [petiti o n e r] demons t r a t e s preju d i c e resul t i n g from the error.” Hillsdale Envt’l Loss Preventi o n , Inc. v. U.S. Army Corps of Eng’rs , 702 F.3d 1156, 1165 (10th Cir. 2012). Specific a l l y, it is “incu mb e n t upon a petit i o n e r objec t i n g to an agenc y ’ s late submi s s i o n of docum e n t s to indica t e with ‘reaso n a b l e specif i c i t y ’ what portio n s of the docume n t s it objec t s to and how it might have re spo n d e d if given the oppor tun i t y.” Air Transpo r t Ass’n v. CAB , 732 F.2d 219, 224 n.11 ( D.C. Cir. 1984) (citatio n omitt e d). The petiti o n e r must also demo n s t r a t e that the agency actual l y relied upon the late-filed docum e n t s and that th ey were “crit i c a l to the formu l a t i o n of the rule.” American Minin g Congres s v. Marsh a ll , 671 F.2d 1251, 1261 (10th Cir. 1982); a c c o r d New Mexi co v. EPA , 114 F.3d 290, 295 (D.C. Cir. 1997) (explai n i n g that late -filed comme n t s are not probl em a t i c if the agency 28 Notably, the Order a d d r e s s e s October 2011 ex parte l e t t e r s submi t t e d by the petiti o n e r s, as well as Veri zon and AT&T submis s i o n s. See , e . g . , Order n.2224 (JA at 791) (citing pe tit i o n e r NASUCA October 2011 e x parte ), i d . n.1506 (JA at 663) (citing petit i o n e r G ila River Telecommu n i c a t i o n s Inc. October 2011 e x parte ). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 74 64 “can justi f y its rules entir e l y by refer e n c e to” timel y file d docume n t s in the recor d (citati o n omitt e d)). 29 Petition e r s mak e no effor t to satis f y any of these requ i r e me n t s. They offer no expla n a t i o n (and canno t prope r ly provid e one only on reply) of how the cited Verizon lette r – or any of the other, wholl y unide n t ifi e d filin g s to which they objec t – harme d them. B. The Order Poses No Uncon s t i t u t i onal Burden On State Soverei g n t y. Petitione r s claim that the Order u n c o n s t i tu t i o n a l l y under mi n e s state sove r e i g n ty by impo s i n g on state s a “reg u l a t o r y ‘gun to the head.’” Br. 62-64 (quoti n g Nat’l Federati o n of Ind. Business e s v. Sebelius , 132 S. Ct. 2566, 2604 (2012)). Although their brief c ites no specif i c secti o n of the Order , p e t i t i o n e r s presu m a b l y inten d to challe n g e the FCC’s decisi o n to limit feder a l high-cost univer s a l servi c e suppo r t to carrie r s where end-user rates “do not meet a specif i e d local rate floor,” s ee Order ¶ ¶235, 237 (JA at 476-77, 478), and the ag ency’ s decisio n to “per mit carr i e r s to deter mi n e at the holdi n g comp a n y level how Elig ible Recovery will be alloc a t e d among their 29 If, as her e, the agency’s procedur e s permi t aggri e v e d parti e s to conte s t late-filed plead i n g s throu g h petiti o n s fo r admini s t r a t i v e recons i d e r a t i o n, the availa b i l i t y of such a proces s also may rende r harml e s s any proce d u r a l irreg u l a r i ty that alleg e d l y exists. See Blument h a l , 613 F.3d at 1146; NARUC, 737 F.2d at 1121. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 75 65 incumben t LECs’ ARCs,” i d . ¶910 (JA at 717). The FCC adopted the “rate floor ” rule to ensur e that the unive r s a l servic e fund did not “subsi d i z e[] artifi c i a l l y low local ra tes in rural areas.” Id. ¶235 (JA at 477). The FCC adopted the “hold i n g comp a n y ” rule, amo ng other thing s, to enabl e carri e r s to “sprea d [eligibl e recove r y throu g h the ARC] among a broad e r set of custom e r s, mini miz i n g the increa s e exper i e n c e d by any one custom e r.” Id. ¶910 (JA at 717). 30 Petition e r s ’ Sebelius a r g u m e n t s are unsoun d. Sebelius dealt with the s t a t e -operat e d and parti a l l y s t a t e -funded Medicaid progr a m. It did not, as do the challen g e d portio n s of the Order , deal with subsi d i e s to and regul a t i o n of p r i v a t e parti e s . Thus, in settin g aside a provis i o n of the Affordabl e Care Act (“ACA”) that withdr e w all federa l Medicaid fundi n g to states if they decli n e d to particip a t e in the statute’ s Medicai d expan s i o n, the Court relie d heavi l y on prece d e n t that “the Framers expli c i t l y chose a Constitu t i o n that confe r s upon Congress the power to regula t e indivi d u a ls, not States.” Printz v. United States , 521 U.S. 898, 920 (1997) (quoting New York v. United States , 505 30 Separate chall e n g e s to the FCC’s st atut o r y (as oppos e d to consti t u t i o n a l) author i t y to adopt both rules are pres e n t e d in other petit i o n e r s ’ brief s. As demons t r a t e d in our separ a t e brief s in respon s e to those filing s, those chall e n g e s are unava i l i n g. See FCC Principal USF Brief, Argument V.A. (addres s i n g the rate floor conditi o n on feder a l unive r s a l servi c e suppo r t); FCC Response to NASUCA Brief, Argum ent III (address i n g a challe n g e to the ARC holding-comp any all o cation). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 76 66 U.S. 144, 166 (1992)); s e e Sebelius , 132 S. Ct. at 2601-02 (citing Printz a n d New York ). Petition e r s point to nothi n g in the Order t h a t violat e s that princi p l e. 31 C O N C L U S I O N For the foreg o i n g reaso n s, the petit i o n s for review sh ould be dismis s e d in part and otherw i s e denied. 31 Even if Sebeliu s s o m e h o w applie d to the cha ll e n g e d refor ms, petit i o n e r s make no showi n g of coerc i o n remo t e l y like that impos e d on state s by the ACA. Cf. 132 S. Ct. at 2604-05 (because “M edicaid spend i n g accou n t s for over 2 0 perce n t of the averag e State’s tota l budge t, with feder a l funds cover i n g 5 0 to 83 percent of those costs,” the ACA’ s threate n e d withdr a w a l of all feder a l Medicaid f undi n g const i t u t ed “econ o m i c drago o n i n g that leaves the States with no real option but to acquie s c e ”) (emphasi s added). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 77 67 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/ Laurence N. Bourne 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: 01019099612 Date Filed: 07/29/2013 Page: 78 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 Interca r r i e r Compensa t i o n Principa l Brief of Petition e r s was certif i e d to be 11,805 words in length. Therefor e, the FCC may file a respo n s e brief up to 13, 575 words in lengt h. This brief conta i n s 13,5 07 words, exclud i n g the parts of the brief exemp t e d by Fed. R. App. P. 32(a)(7)(B )(iii). If the words in the chart on p.52 were includ e d, the total would be 13,571 words. 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/ Laurence N. Bourne Laurence N. Bourne Counsel July 29, 2013 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 79 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 80 IN THE UNITED STATES COUR T OF APPE A L S FOR THE TENTH CI RCUIT No. 11-9900 IN RE: FCC 11-161 On Petition s for Review of Orders of the Federal Communic a t i o n s Commissi o n B R I EF OF INTERV E N O RS SUPP O R T I N G RESPO N D E N T S IN RESPO N S E TO THE JOINT INTER C A R R I E R COM P EN S A T I O N BRI E F HEATHER M. Z ACHARY KELLY P. DUNBAR WILMER CUTLER PICKERING HALE AND DORR LLP 1875 Pennsylv a n i a Avenue, N.W. Washingto n, D.C. 20006 (202) 663-6000 CATHY CARPINO GARY L. PHILLIPS PEGGY GARBER AT&T SERVICES, INC. 1120 20th Street, N.W. Washingto n, D.C. 20036 (202) 457-3058 Counsel for AT&T Inc. SCOTT H. ANGSTREICH BRENDAN J. CRIMMINS JOSHUA D. BRANSON KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C. 1615 M Street, N.W., Suite 400 Washingto n, D.C. 20036 (202) 326-7900 MICHAEL E. GLOVER CHRISTOPHER M. MILLER CURTIS L. GROVES VERIZON 1320 North Courtho u s e Road, 9th Floor Arlingto n, Virginia 22201 (703) 351-3071 Counsel for Verizon and Verizon Wirel e s s July 2013 (Addition a l Counsel Listed Inside) Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 81 DAVID E. MILLS J.G. HARRINGTON DOW LOHNES PLLC 1200 New Hampshir e Avenue, N.W. Suite 800 Washingto n, D.C. 20036-6802 (202) 776-2000 Counsel for Cox Communic a t i o n s , Inc. RICK CHESSEN NEAL M. GOLDBERG STEVEN MORRIS JENNIFER MCKEE THE NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 25 Massachuse t t s Avenue, N.W. Suite 100 Washingto n, D.C. 20001 (202) 222-2445 HOWARD J. SYMONS ROBERT G. KIDWELL ERNEST C. COOPER MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 701 Pennsylv a n i a Avenue, N.W. Suite 900 Washingto n, D.C. 20004 (202) 434-7300 Counsel for NCTA CHRISTOPHER J. WRIGHT TIMOTHY J. SIMEONE WILTSHIRE & GRANNIS LLP 1200 18th Street, N.W., Suite 1200 Washingt o n, D.C. 20036 (202) 730-1300 Counsel for Sprint Nextel Corporat i o n DAVID H. SOLOMON L. CHARLES KELLER WILKINSON BARKER KNAUER, LLP 2300 N Street, N.W., Suite 700 Washingto n, D.C. 20037 (202) 783-4141 Counsel for T-Mobile USA, Inc. CHRISTOPHER J. WRIGHT BRITA D. STRANDBERG WILTSHIRE & GRANNIS LLP 1200 18th Street, N.W., Suite 1200 Washingto n, D.C. 20036 (202) 730-1300 BRENDAN KASPER SENIOR REGULATORY COUNSEL VONAGE HOLDINGS CORPORATION 23 Main Street Holmd el, New Jersey 07733 Counsel for Vonage Holdings Corpora t io n Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 82 C O R P O R A T E DISCLO S U R E STATEM E N T S Pursuant to Federal Rule of Appella te Procedur e 26.1, interve n o r s AT&T Inc., Cox Communic a t i o n s, Inc., NCTA, Sp rint Nextel Corporat i o n, T-Mobile, USA, Inc., Verizon, Veri zon Wireless, and Vonage Holdings Corporat i o n respe c t f u l l y submi t the follo w i n g corpo r at e discl o s u r e state m e n t s: AT&T In c. AT&T Inc. (“AT&T”) is a pub lic l y trade d corpo r a t i o n that, throug h its wholly owned affili a t e s, is princ i p a l l y engag e d in the busin e s s of providing communications services and produc ts to the general public. AT&T has no parent company, and no public ly held company owns 10 perc ent or more of its stock. C o x Commu n i c a t i o n s , Inc. Cox Communic a t i o n s, Inc. (“Cox”) is a privat e l y held corpor a t i o n, formed under th e laws of the State of Delaware. Cox Enterpris e s, Inc., a private l y held corpora t i o n, owns Cox throu g h a direc t major i t y inter e s t and throu g h a minori t y inter e s t held by an inter m e d i a t e hold i n g comp a n y, Cox DNS, Inc. Cox has no ot her paren t comp a n i e s withi n the meani n g of Rule 26.1, and no publicly held co mpany has a 10% or greater ow nership interest in Cox. NCTA. The National Cable & Teleco mm u n i c a t i o n s Associat i o n (“NCTA”) is the princi p a l trade assoc i a t i o n of the cable indus t r y in the United States. Its memb e r s inclu d e owner s and opera t o r s of cable telev i s i o n syste ms servi n g over ninety (90) percent of the nation ’ s cable telev i s i o n custo m e r s as well as more than 200 cable progra m netwo r k s. NCTA’s cable opera t o r memb e r s also provi d e high- Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 83 i i speed Interne t servi c e to more than 50 millio n house h o l d s, as well as telep h o n e servi c e to more than 26 millio n custo m e r s. NCTA also repres e n t s equipm e n t suppl i e r s and others inter e s t e d in or aff ilia t e d with the cable telev i s i o n indus t r y. NCTA has no parent co mp a n i e s, subsid i a r i e s, or affil i a t e s whose listi n g is requi r e d by Rule 26.1. S p r i n t Nexte l Corpo r a t i o n . Sprint Nextel has no paren t corpo r a t i o n, and no publi c l y held corpo r a t i o n owns 10% or more of Sprint Nextel’s stock. On October 15, 2012, SoftBank Corp. and certa i n of its wholl y owned subsid i a r i e s and Sprint Nextel enter e d into an Agreemen t and Plan of Merger (“Merger Agreement ”), whic h is curre n t ly subje c t to share h o ld e r and regul a t o r y approv a l. If the Merger Agreement is consu m m a t e d, SoftBank – a publi c l y held corpo r a t i o n – will own 10% or more of Sprint Nextel’s stock. See Sprint Nextel’s 10Q at page 1 (filed Feb. 28, 2013), a v a i la b l e at http://www.sec.gov/Archives / e d g a r / d a t a /101830/0000101830 13000006/sprint2012 10-k.htm. T - M o b i l e , USA, Inc. T-Mobile, a Delaware cor por a t i o n, is a wholly owned subsid i a r y of T-Mobile US, Inc., a Dela ware corpor a t i o n. T-Mobile US, Inc. (NYSE: TMUS) is a public l y trade d comp a n y liste d on the New York Stock Exchange (“NYSE”). T Mobile Globa l Holding GmbH, a Gesellsch a f t mit beschr ä n k t e r Haftung organi z e d and ex ist i n g under the laws of the Federal Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 84 iii Republic of Germany (“Holding” ), owns more than 10% of the shares of T-Mobile US, Inc. Holding is, in tu rn, a direct wholl y owned subsid i a r y of T-Mobile Global Zwisc h e n h o l d in g GmbH, a Ge sellsc h a f t mit besch r ä n k t e r Haftung organi z e d and existi n g under the laws of the Federal Re public of Germany (“Global”). Global is a direc t wholl y owned subsi d iar y of De utsche Telekom AG, an Aktien g e s e l l s c h a f t organ i z e d and exist i n g under the laws of the Federal Republi c of Germany (“Deutsche Telekom”). Th e princ i p a l tradi n g marke t for Deutsch e Telekom’ s ordin a r y share s is the Frankfur t Stock Ex change. Deutsche Telekom’ s ordi n a r y shares also trade on the Berlin, Düssel do r f, Hamburg, Hannove r, München, and Stuttga r t stock excha n g e s in Germany. Deutsche Telekom’ s American Deposita r y Shares (“ADSs”), each repres e n t i n g one or dina r y share, trade on the OTC market’s highe s t tier, OTCQX Interna t i o n a l Pre mier (ticker symbo l: “DTEGY”). T-Mobile’s genera l natu re and purpose are to provid e wirel e s s voice and data servic e s to custom e r s throu g h o u t the United States. Veri zon and Veri zo n Wirel es s. The Verizon compan i e s parti c i p a t i n g in this filin g are Cellco Partners h ip d/b/a Ve rizon Wireless and the regul a t e d, wholly owned subsi d i a r i e s of Verizon Communic a t i o n s Inc. Cellco Part ners h i p, a genera l partn e r s h ip forme d under the law of the St ate of Delaware, is a joint ventu r e of Verizon Communic a t i o n s Inc. and Vodafone Group Plc. Verizon Communic a t i o n s Inc. and Vodafone Group Plc indire c t l y ho ld 55 percen t and 45 percen t partn e r s h ip Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 85 iv inter e s t s, respec t i v e l y, in Cellco Partners h i p. Both Verizon Communic a t i o n s Inc. and Vodafone Group Plc are public l y trad ed co mpan i e s. Verizon Communicat i o n s Inc. has no paren t comp a n y. No public l y held co mp a n y owns 10 percen t or more of Verizon Communic a t i o n s Inc.’s stock. Insofar as releva n t to this litiga t i o n, Verizon’ s gener a l natur e and purpos e is to provid e commu n i c a t i o n s servi c e s, includ i n g broad b a n d Interne t acces s se rvi c e s provi d e d by its wholl y owned telep h o n e comp a n y and Verizon Online LLC subsidi a r i e s and by Verizon Wireless. V o n a g e Holdi n g s Corpo r a t i o n . Vonage Holdings Corporat i o n has no paren t corpo r a t i o n, and no publi c l y held corpo r a t i o n owns 10% or more of its stock. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 86 v TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENTS ........................................................ i   TABLE OF AUTHORITIES .................................................................................... vi   STATEMENT OF RELATED CASES ..................................................................... x   GLOSSARY .............................................................................................................. xi   INTRODUCTION AND SUMMARY OF ARGUMENT ........................................ 1  ARGUMENT ............................................................................................................. 4  I.  COURTS HAVE CONSIDERED AND REJECTED PETITIONERS’ CLAIMS .............................................................................. 4  II.  THE ORDER’S ADOPTION OF A UNI FORM ICC REGIME DOES NOT VIOLATE 47 U.S.C. § 252(d)(2) ............................................... 7   A.  The FCC Reasonab l y Construed th e Statute Not To Require the Absurd Results That Petiti o n e r s ’ Positio n Entails .............................. 10   B.  The Eighth Circuit’ s Decision in Iowa Utilitie s Board Does Not Support Petition e r s ’ Position ............................................................... 14   III.  PETITIONERS’ CHALLENGE TO THE FCC’S JURISDICTION OVER ORIGINATING CHARGES LACKS MERIT ................................. 16  IV.  IN ALL EVENTS, THE COURT SHOULD NOT VACATE THE CHALLENGED ICC RULES ....................................................................... 18  A.  The Court Can Remand Without Va cating ......................................... 18   B.  The USF Refor ms Are Severabl e from the ICC Reforms .................. 20   CONCLUSION ........................................................................................................ 22  CERTIFICATE OF COMPLIANCE Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 87 v i T A B L E OF AUTHORI TI ES Page CASES Arizona Pub. Serv. Co. v. EPA , 562 F.3d 1116 (10th Cir. 2009) ............................ 20 AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 (1999) ............................ 1, 4, 5, 6, 10, 11, 12, 15, 16, 17 Core Communic a t i o n s , Inc. , In re , 455 F.3d 267 (D.C. Cir. 2006) ......................... 14 Core Communic a t i o n s , Inc. v. FCC , 592 F.3d 139 (D.C. Cir. 2010 ) ...... 1, 2, 6, 7, 10 Davis County Solid Waste Mg mt. v. EPA , 108 F.3d 1454 (D.C. Cir. 1997) ........................................................................................................ 20, 21 Forest Guardian s v. Babbitt , 174 F.3d 1178 (10t h Cir. 1999) ................................ 19 Good Samarit a n Hosp. v. Shalala , 508 U.S. 402 (1993) ......................................... 15 Iowa Utils. Bd. v. FCC : 120 F.3d 753 (8th Cir. 1997), a f f ’ d in part, rev’d in part, and reman d e d sub nom. AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 (1999) ................................................................................................ 17, 19 219 F.3d 744 (8th Cir. 2000), a f f ’ d in part, rev’d in part, and reman d e d sub nom. Verizon Communic a t i o n Inc. v. FCC , 535 U.S. 467 (2002)............................................................................. 2, 14, 15 K a n e , In re , 628 F.3d 631 (3d Ci r. 2010) ................................................................ 15 Louisian a Pub. Serv. Comm’n v. FCC , 476 U.S. 355 (1986) .................................... 5 MCI Telecomms . Corp. v. FCC , 143 F.3d 606 (D.C. Cir. 1998) ............................. 20 MCImetro Access Transmis s i o n Servs ., Inc. v. BellSouth Telecomm s . , Inc. , 352 F.3d 872 (4th Cir. 2003) ................................................................. 17 M e t r oPCS California , LLC v. FCC , 644 F.3d 410 (D.C. Cir. 2011) ...................... 11 M i l k Train, Inc. v. Veneman , 310 F.3d 747 (D.C. Cir. 2002) .................................. 20 National Ass’n of Regulato r y Util. Comm’rs v. FCC , 737 F.2d 1095 (D.C. Cir. 1984) ............................................................................................. 18 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 88 v i i Q w e s t Communica t i o n s Int’l, Inc. v. FCC , 398 F.3d 1222 (10th Cir. 2005) .............................................................................................................. 19 Q w e s t Corp. v. FCC : 252 F.3d 462 (D.C. Cir. 2001) ....................................................................... 17 258 F.3d 1191 (10th Cir. 2001) ..................................................................... 18 No. 99-9546 (10th Cir. Aug. 27, 2001) ......................................................... 19 Southwest e r n Bell Tel. Co. v. P ublic Utils. Comm’n of Texas , 348 F.3d 482 (5th Cir. 2003) ......................................................................... 17 United States v. Nelson , 383 F.3d 1227 (10t h Cir. 2004) .......................................... 5 ADMINISTRATIVE DECISIONS First Report and Order, Impleme n t a t i o n of the Local Competit i o n Provisio n s in the Telecomm u n i c a t i o n s Act of 1996 , 11 FCC Rcd 15499, m o d i f i e d on recon ., 11 FCC Rcd 13042 (1996), v a c a t e d in part, Iowa Utils. Bd. v. FCC , 120 F.3d 753 (8th Cir. 1997), a f f ’d in part, rev’d in part sub nom. AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 (1999) ............................................................................... 16 Memorand u m Opinion and Order, J o i n t Applicat i o n by SBC Communic a t i o n s Inc. et al. for Provisio n of In-Region, InterLATA Services in Kansa s and Oklahoma , 16 FCC Rcd 6237 (2001), a f f ’ d in part and reman d e d , Sprint Communica t i o n s Co. v. FCC , 274 F.3d 549 (D.C. Cir. 2001) ...................... 17 Memorand u m Opinion and Order, MAP Mobile Communic a t i o n s , Inc. v. Illinoi s Bell Tel. Co. , 24 FCC Rcd 5582 (2009) ........................................ 16 Memorand u m Opinion and Order, Petition of WorldCom, Inc. Pursuant to Section 252(e ) (5 ) of the Communic a t i o n s Act for Preempti o n of the Jurisd i c t i o n of the Virginia State Corporat io n Commissi o n Regardin g Interco n n e c t i o n Disputes , 17 FCC Rcd 27039 (2002) ............................................................................. 17 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 89 v i i i Notice of Proposed Rulemaki n g, Developi n g a Unified Interca r r i e r Compensa t i o n Regime , 16 FCC Rcd 9610 (2001) ........................................ 17 Notice of Proposed Rulemaki n g a nd Further Notice of Proposed Rulemaki n g, Connect America Fund , 26 FCC Rcd 4554 (2011) ................. 13 Order on Remand and Report and Order and Further Notice of Proposed Rulemaki n g, High-Cost Universa l Service Support , 24 FCC Rcd 6475 (2 008) ............................................................................. 6, 7 STATUTES AND REGULATIONS Communic a t i o n s Act of 1934, 47 U.S.C. § 151 e t seq. ................................ 1, 14, 15 47 U.S.C. § 152 (b) ..................................................................................... 1, 10 47 U.S.C. § 201 ................................................................................................ 1 47 U.S.C. § 201 (b) ....................................................................... 1, 4, 7, 10, 12 47 U.S.C. § 251 .................................................................................... 1, 11, 17 47 U.S.C. § 251(b)(5) ............................................. 1, 3, 4, 6, 7, 11, 12, 16, 18 47 U.S.C. § 252 .................................................................................... 2, 10, 11 47 U.S.C. § 252 (a)(1) ..................................................................................... 11 47 U.S.C. § 252(b) ........................................................................................... 8 47 U.S.C. § 252 (b)(1) .................................................................................... 11 47 U.S.C. § 252 (d)(1) .................................................................................... 16 47 U.S.C. § 252(d)(2) ............................. 1, 2, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16 47 U.S.C. § 252(d )(2)(A) ........................................................................... 8, 11 47 U.S.C. § 252(d )(2)(A)(i) ............................................................................. 9 47 U.S.C. § 252(d)( 2)(A)(ii) ...................................................................... 9, 10 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 90 ix 47 U.S.C. § 252(d )(2)(B)(i) ............................................................................. 8 47 U.S.C. § 332 .................................................................................. 10, 12, 19 47 U.S.C. § 332(c) ......................................................................................... 10 Teleco mm u n i c a t i o n s Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 ................. 4, 5 5 U.S.C. § 706 (1) ..................................................................................................... 19 47 C.F.R. § 51.70 3(b) ......................................................................................... 16, 17 OTHER MATERIALS Br. for Fed. Pet’rs, AT&T Corp. v. Iowa Utils. Bd. , 525 U.S. 366 (1999) (No. 97-831) (U.S. f iled Apr. 3, 1998), 1998 WL 396945 ........................................................................................................... 16 Br. for Pet’r Core Communic a t i o n s, Inc., Core Communic a t i o n s , Inc. v. FCC , 592 F.3d 139 (D.C. Cir. 2010) (Nos. 08-1365 et al.) (D.C. Cir. filed June 19, 2009), 2009 WL 2525340 ........................................ 7 Br. of Pet’rs Pub. Serv. Comm’ n of New York et al., Core Communic a t i o n s , Inc. v. FCC , 592 F.3d 139 (D.C. Cir. 2010) (Nos. 08-1365 et al.) (D.C. Cir. filed June 19, 2009), 2009 WL 2564689 ........................................................................................................... 7 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 91 x S T A T E M E N T OF RELATED CASES Interven o r s adopt the Statemen t of Rel ated Cases set forth in the Federal Responde n t s ’ Response to the Joint Preli mi n a r y Brief of the Petition e r s. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 92 x i G L O S S A R Y 1996 Act Telecomm u n i c a t i o n s Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (amendi n g the Communi c a t i o n s Act of 1934, 47 U.S.C. § 151 e t seq. ) 2011 NPRM Notice of Proposed Rulemaki n g and Further Notice of Proposed Rulemaki n g, Developi n g a Unified Interca r r i e r Compensa t i o n Regime , 26 FCC Rcd 4554 (2011) CMRS Communic a t i o n s Act or Act Commerci a l Mobile Radio Service Communic a t i o n s Act of 1934, as amende d (47 U.S.C. § 151 e t seq. ) FCC or Commiss i o n Federal Communi c a t i o n s Commiss i o n FCC Br. Federal Responden t s ’ Res ponse to the Joint Intercar r i e r Compensa t i o n Principa l Brief of Petition e r s (filed Mar. 6, 2013) ICC Intercar r i e r Compensa t i o n ILEC Incumbent Local Exchange Carrier ISP Internet Service Provider LEC Local Exchange Carrier Order Report and Order and Furt her Notice of Proposed Rulemaki n g, Connect America Fund , 26 FCC Rcd 17663 (2011) Pet. Br. Joint Intercarrier Compen sa t i o n Principa l Brief of Petition e r s (filed Oct. 23, 2012) Pet’rs Joint USF Br. Joint Univer sa l Service Fund Principa l Brief (filed Oct. 23, 2012) Second ISP Remand Order Order on Remand and Further Notice of Propose d Rulemaki n g, Interca r r i e r Compensa t i o n for ISP-Bound Traffic , 24 FCC Rc d 6475 (2008) USF Universal Service Fund Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 93 I N T R O D U C T I O N AND SU MMAR Y OF ARGUME N T The FCC ably refute s th e claims in petiti o n e r s ’ Joint Intercar r i e r Compensa t i o n Brief. Interven o r s write separ a t e l y to highl ig h t four points. I . Petitione r s portra y the interc a r r i e r co mp en s a t i o n portio n s of the Order a s reach i n g novel legal concl u s i o n s that ra ise issue s of first impre s s i o n for this Court. But the Order t r a v e l s well-estab l i s h e d path s, and many of petit i o n e r s ’ claims have been rejec t e d by other cour t s. For examp l e, relyi n g in part on 47 U.S.C. § 152(b), petitio n e r s argue (at 14-25) that the FCC lacks autho r i t y to adopt fede r a l rule s impl e m e n t i n g 47 U.S.C. § 251(b)(5) that displ ac e state author i t y over intras t a t e acces s charg e s. But, in AT&T Corp. v. Iowa Utilitie s Board , 525 U.S. 366 (1999), the Supreme Court c onclu d e d that § 251 “clearl y appl[ies] to intra s t a t e servi c e ” ; that the FCC’s statut o r y autho r i t y in 47 U.S.C. § 201(b) “to car ry out the provis i o n s of ” the Communic a t i o n s Act “exte n d[s] to imple m e n t a t i o n of ” § 251; and that § 152(b) is irrele v a n t in this contex t. Id. a t 378, 380 (interna l quota t i o n s omit t e d). Petition e r s also argue (at 38-40) that 47 U.S.C. § 252(d)(2) limits “the FCC’s relian c e on § 201 as a stand a l o n e ba sis for” regul a t i n g ICC charges. But, in Core Communica t i o n s , Inc. v. FCC , 592 F.3d 139 (D.C. Cir. 2010), the D.C. Circuit uphel d the FCC’s author i t y unde r § 201(b) to regul a t e ICC charge s for inters t a t e traffi c that also falls within the scope of § 251(b)(5), holdin g that §§ 251 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 94 2 and 252 do not “trump the FCC’s genera l rulem a k i n g autho r ity under secti o n 201.” Id. a t 143 (intern a l quota t i o n s omitt e d). I I . As the FCC explain s, petiti o n e r s ’ heavy relia n c e on § 252(d)(2) as a suppo s e d limit a t i o n on the FCC’s author i t y to enact a unifo r m ICC framew o r k suffe r s from numer o u s flaws ; we elabo r a t e on two of them. First , petiti o n e r s ’ const r u c t i o n of § 252(d)(2) would produ c e highl y anoma l o u s conse q u e n c e s: it would enable the FCC to ensure nation a l consis t e n c y in the rules appli c a b l e to mo st of the traffi c subje c t to that provis i o n (as well as all of the traffi c not subjec t to that provis i o n), but entitl e state s to adopt mutua l l y incon s i s t en t ICC regimes for relat i v e l y tin y and arbit r a r i l y defin e d categ o r i e s of traff i c. Congress did not requi r e that re sul t, let alone in su ch unamb i g u o u s terms as to overcome the FCC’s contrary, reas o n a b l e interp r e t a t i o n of § 252(d)(2). Second , there is no merit to petit i o n e r s ’ relia n c e on the Eighth Circuit’ s decis i o n in Iowa Utilitie s Board v. FCC , 219 F.3d 744 (8th Cir. 2000) (subseq u e n t histo r y omitt e d). As the FCC explain s, that case addres s e d a fu ndam e n t a l l y diffe r e n t type of FCC rule, which (unlik e bill-and-keep) was not a method o l o g i c a l choice, but rather a fact-specifi c applica t i o n of a method o l o g i c a l choice. We write separa t e l y to point out that the Eighth Circuit ’ s holdin g in Iowa Utilitie s Board rested on judic i a l estop p e l, not statu t o r y c onst r u c t i o n, and that, if the Eighth Circuit Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 95 3 had interp r e t e d the statut e as petiti o n e r s sa y, that interp r e t a t i o n would have been plainl y inco r r e c t. I I I . Petitione r s incorr e c t l y argue that , becaus e the text of § 251(b)(5) does not menti o n call origi n a ti o n, the FCC cannot regul a t e ICC charges for call origin a t i o n. The FCC has long reaso n a b l y inte r p r e ted the omis s i o n of origi n a t i o n in § 251(b)(5) to mean that the statu t e prohi b it s orig i n a t i o n charg e s for traff i c subjec t to § 251(b)(5) — n o t that the agen cy lacks aut hor i t y to regula t e origin a t i o n char g e s — and numer o u s cour ts have appr ov e d of the FCC’s interp r e t a t i o n. The FCC also reaso n a b l y deter mi n e d to addre s s origin a t i o n charg e s on a step-by-step basis. I V . However the Court resol v e s th ese petiti o n e r s ’ challe n g e s to the Order , it should not vacat e the ICC rules promul g a t e d there i n. This Court has autho r i t y to reman d matte r s to the FCC withou t va cat i n g the under l y i n g rules. Moreover, the ICC rules are sev era b l e from the aspect s of the FCC’s USF reforms that these and other petit i o n e r s chall e n g e. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 96 4 A R G U M E N T I. COURTS HAVE CONSID E R E D AND REJEC T E D PETIT I O N E R S ’ CLAIM S Several key quest i o n s prese n t e d in pe titio n e r s ’ brief have been asked and answere d in prior judicia l decisio n s. A. Petition e r s conte n d (at 14) that the FCC’s statut o r y autho r i t y to implem e n t § 251(b)(5) “necess a r i l y exclu d e s i n t r a s tat e acc es s by . . . the actio n of § 152(b).” But the Supreme Cour t reject e d that an alys i s in AT&T . There, as here, partie s argue d that the FCC’s author i t y to imple m e n t provis i o n s of the 1996 Act did not “dis p l a c e ” state s ’ “trad i ti o n a l autho r i t y ” over intras t a t e se rvi c e. 525 U.S. at 379. The Supreme Court held, howeve r, th at the 1996 Act “clear l y appl[ies] to intrast a t e service ” an d that the FCC’s stat ut o r y autho r i t y in § 201(b) “to carry out the provi s io n s of [the Communi c a t i o n s] Ac t” “exte n d[s] to imple me n t a t i o n of ” the 1996 Act, includ i n g “§§ 251 and 252.” Id. at 377-78, 380 (intern a l quota t i o n s omit t e d). The Court empha s i z e d the bread t h of the FCC’s aut hori t y to regulat e intra s t a t e matte r s under those provis i o n s. The Court explai n e d th at, “[w]ith regard to the matte r s addre s s e d by the 1996 Act,” Congress “unqu e s t i o n a b l y ” has “take n the regul a t i o n of local telec o m mu n i c a t i o n s co mp et i t i o n away from the States.” Id. at 378 n.6 (intern a l quota t i o n s omitt e d). Elaborat i n g on that concl u s i o n, the Court recog n i z e d that the 1996 Act “funda m e n t a l l y restru c t u r e[d] local teleph o n e Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 97 5 markets” in a manner that establi s h e d a “new f e d er a l regime [that] is to be guided by feder a l-agency regul a t i o n s ” and “rem oved a signific a n t ar ea from the States’ exclus i v e contro l.” Id. at 371, 378 n.6, 381 n.8; s e e also id. at 385 n.10 (“Congress has broad ly exten d e d its law into the fi eld of intras t a t e teleco m mu n i c a t i o n s ”). The Supreme Court’s conclu s i o n that Congress empowe r e d the FCC to regula t e “intra s t a t e teleco m mu n i c a t i o n s ” under the 1996 Act was “unaf f e c t e d by 47 U.S.C. § 152(b)” — on which petit i o n e r s rely here (at 14) — becaus e “§ 201(b) e x p l i c i t l y gives the FCC jurisdi c t i o n to make rules gover n i n g matte r s to which the 1996 Act applie s.” 525 U.S. at 379, 380. Si milarl y, the Court reject e d relia n c e on Louisian a Public Service Commiss i o n v. FCC , 476 U.S. 355 (1986) — which petiti o n e r s cite (at 19) — to narrow the sc ope of the FCC’s author i t y, explai n i n g that Louisia n a PSC “involv e d the Commiss i o n ’ s atte mp t to regula t e servi c e s over which it had not explic i t l y been given rulem a k i n g autho r i t y.” AT&T , 525 U.S. at 381 n.7. Petition e r s argue (at 19-20) that AT&T addres s e d only “ l o c a l service” an d not “whet h e r the 1996 Act preser v e d Stat e ratem a k i n g autho r it y over intr a s t a t e exchan g e access rat e s.” Nothing in the Court’s opini o n or the statu t e, howeve r, suppor t s petit i o n e r s ’ propo s e d disti n c t i o n betwee n “local ” intras t a t e traffi c and “non-local” intra s t a t e traff i c for purpos e s of the FCC’s author i t y. Cf. United States v. Nelson , 383 F.3d 1227, 1232 (10th Cir. 2004) (“We do not . . . appro ac h Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 98 6 opinion s of the Supreme Court with a view to reach i n g the narro w e s t const r u c t i o n possi b l e.”). Petition e r s ’ claim that the FC C exceeded its auth or i t y in regula t i n g intra s t a t e acces s charg e s canno t be squar e d with AT&T . B. Judicia l prece d e n t likew i s e forec l o s e s petit i o n e r s ’ argume n t (at 38-40) that § 252(d)(2) limits “the FCC’s relian c e on § 201 as a standa l o n e basis for” regul a t i n g ICC charges for in ters t a t e traffi c. In Core , the D.C. Circuit ad dresse d an earli e r FCC ruling regar d i n g ICC charges by LECs servin g dial-up Interne t servi c e provi d e r s (“ISPs”). See Core , 592 F.3d at 140-43. The FCC had found that ISP- bound traffi c is jurisd i c t i o n a l l y inter s t a t e, but noneth e l e s s withi n § 251(b)(5) — becau s e (contra r y to petit i o n e r s ’ posit i o n here) § 251(b)(5) is not limite d to local traffi c. 1 The FCC also had conclu d e d that it “retai n[ed] full author i ty to regula t e charg e s for traffi c and servic e s subje c t to feder a l juris d i c t i o n [under § 201], even when it is within the sectio n s 251(b)(5) and 252(d)(2) framewo r k.” Second ISP Remand Order ¶ 21. On review, partie s argue d there (as they do here) that, when § 251(b)(5) applies to inter s t a t e traff i c, § 252(d)(2) limits the FCC’s author i t y to regul a t e ICC 1 See Order on Remand and Report a nd Order and Further Notice of Proposed Rulemaki n g, High-Cost Universa l Service Support , 24 FCC Rcd 6475, ¶ 7 (2008) (“ Second ISP Remand Order ”) (“[W]e conclu d e that the scope of secti o n 251(b)(5) is broad enoug h to enco mp a s s ISP-bound traff i c. . . . [T]he bette r view is that secti o n 251(b)(5) is not limit e d to local traff i c.”); i d . ¶ 17 (“[T]he ISP- bound traff i c at issue here is clear l y inter s tat e in natur e and thus also subje c t to our secti o n 201 author i ty.”). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 99 7 charges for that inters t a t e traffi c. 2 The D.C. Circuit reject e d that argu men t. The court ackno w l e d g e d that the FCC, “en route to findi n g that § 201 author i z e d [it] to impose its rate cap sy ste m on the commu n i c a t i o n s in quest i o n, also expre s s e d its view that [those commu n i c a t i o n s] w e r e ‘subjec t to the recipr o c a l co mpen s a t i o n regim e in secti o n s 251( b)(5) and 252(d)(2).’ ” Core , 592 F.3d at 145 (quotin g Second ISP Remand Order ¶ 15). 3 And it agreed with th e FCC that, even though the juris d i c t i o n a l l y inter s t a t e dial-up ISP traffic at issue there “imp li c a t e[d] the regime[ ] of . . . §§ 251-252,” those provis io n s did not “trump the FCC’s genera l rulem a k i n g autho r i ty under secti o n 201” for that inters t a t e traffi c. Id. at 143-44 (interna l quota t i o n s omitt e d). The D.C. Circuit thus reject e d the notion that § 252(d)(2) limits the FCC’s author i t y to re gulat e ICC charges for interst a t e traffi c unde r § 201(b). II. THE ORDER’ S ADOPTI O N OF A UNIF O R M ICC REGIM E DOES NOT VIOLA T E 47 U.S.C . § 252( d ) ( 2 ) Petition e r s argue (at 28-40) that th e FCC’s adopti o n of “bill-and-keep” as the ultim a t e defau l t comp e n s a t i o n metho d o l o g y viola t e s § 252(d)(2). They conten d (at 4, 29) that § 252(d)(2) require s th at state s “set the rate for § 251(b)(5) 2 See Br. for Pet’r Core Commun ica t i o n s, Inc. at 33-35, Core , s u p r a (Nos. 08-1365 et al.) (D.C. Cir. filed June 19, 2009), 2009 WL 2525340. 3 The D.C. Circuit als o pa id no heed to the argu me n t raised there — whi ch petit i o n e r s also assert here — that § 251(b)(5) “applie s only to recipr o c a l comp e n s a t i o n arran g e m e n t s betwe e n comp e t i n g local carri e r s for excha n g e s of local traff i c.” Br. of Pet’rs Pub. Se rv. Comm’n of New Yo rk et al. at 20, Core , s u p r a (Nos. 08-1365 et al.) (D.C. Cir. filed June 19, 2009), 2009 WL 2564689. Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 100 8 traffic ” ; that “the FCC only has autho r i t y to set a [pricin g] ‘metho d o l o g y ’ ” for that traffi c ; and that bill-and-keep exceed s the FCC’s author i t y to impl e m e n t § 252(d)(2) because it “result s in a zero rate.” The FCC persuas i v e l y demons t r a t e s (at 41-43) that the bill-and-keep regime estab l i s h e d in the Order fits comf o r t a b l y withi n the FCC’s conced e d autho r i t y to design prici n g metho d o l o g i e s. Indeed, the statu t o r y langu a g e does not menti o n state ra te-settin g at all, but rathe r provi d e s certa i n stand a r d s that states mu st a ppl y “[f ]or the purp o s e s of ” dete r mi n i n g “comp l i a n c e by an incumb e n t [LEC] with secti o n 251(b)(5)” in an arbit r a t i o n under § 252(b). 47 U.S.C. § 252(d)(2)(A). The FCC also ably refute s (at 33-37) petitio n e r s ’ asser t i o n s that bill-and- keep is incons i s t e n t with the standa r d s for ICC charges set forth in § 252(d)(2). In partic u la r, § 252(d)(2)(B)(i) specif i e s that those standa r d s do not “precl u d e arran g e me n t s that affor d the mu tua l recov e r y of costs throu g h the offse t t in g of recip r o c a l oblig a t i o n s,” includ i n g “bil l-and-keep arran g e men t s.” Congress ’ s specif i c en dors e men t of bill-and-keep arran g e men t s forec l o s e s petit i o n e r s ’ argum e n t that § 252(d)(2)(A) forbids them . Moreover, althou g h petit i o n e r s asser t (at 36-37) that § 252(d)(2) “unamb i g u o u s l y provid e s ” that bill-and-keep is appropr i a t e only where carrie r rates ar e “symmetrical” a nd traff i c is “in balan c e,” no “symm e t r y ” or “bala n c e d traff i c ” limit a t i o n appea r s anywh e r e in that provis i o n Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 101 9 — and certa i n l y not “unamb i g u o u s ly.” See Order ¶ 774 n.1405 (JA at 648); FCC Br. 34-36. Furthermo r e, as the FCC also expla i n s (at 33-34), petiti o n e r s ’ asser t i o n (at 34-35) that bill-and-keep precl u d e s carri e r s from recov e r i n g their actua l costs lack s merit. Bill-and-keep permi t s “the mutua l and recip r o c a l recov e r y by each carri e r of costs ” (47 U.S.C. § 252(d)(2)(A)(i)) by allowi n g carri e r s to recov e r their termi n a t i o n costs from their own custo m e r s. See Order ¶ 775 (JA at 648). That is enoug h to comp l y with § 252(d)(2); nothin g in that sectio n gives carri e r s a right to recov e r their costs from o t h e r carri e r s . Further mo r e, § 252(d)(2) does not gua ran t e e that carrie r s will recove r the full costs of the facil i t i e s used to termi n a t e calls. The statut e permit s recove r y only of the “addi t i o n a l costs ” of termi n a t i o n. 47 U.S.C. § 252(d)(2)(A)(ii). The term “addit i o n a l costs” can be reaso n a b l y c onst r u e d as limite d to the short-run increm e n t al costs of proces s i n g each additi o n a l call over al rea d y-constr u c t e d faciliti e s. See Order ¶ 753 n.1332 (JA at 639). The FCC accurat e l y obser v e d that those costs are “extre m e l y low, and very near $0.” Id. ¶ 746 n.1309 (JA at 636). Petition e r s have prese n t e d no evide n c e s ugge s t i n g that bill-and-keep fails to Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 102 10 provide a “reaso n a b l e appro x i m a t i o n ” of such costs, 47 U.S.C. § 252(d)(2)(A)(ii), 4 and their facia l chall e n g e to bill-a nd-keep fails for that reaso n alone. Interve n o r s elabo r a t e on two ad dit i o n a l reaso n s why petiti o n e r s ’ relia n c e on § 252(d)(2) is unavai l i n g. A . The FCC Reason a b l y Constr u e d the Statu t e Not To Requi r e the Absur d Resul t s That Petit i o n e r s ’ Posit i o n Entai l s Petition e r s ’ argum e n t that § 252(d)(2) foreclo s e s the FCC’s unifor m ICC regime “is (necess ar i l y) an extrem e l y subtl e one,” AT&T , 525 U.S. at 379, because the FCC has indepe n d e n t author i t y to regu lat e the vast majorit y of the traffic subjec t to the Order withou t regar d to any limit a t i o n s in § 252(d)(2). First , the FCC has indepe n d e n t autho r i t y — not restr i c t e d in any way by § 252(d)(2) — to regula t e ICC charges for all inter s t a t e and wirel e s s traff i c. As to inters t a t e traff i c, § 201(b) gives the FCC authori t y to regula t e such traffi c witho u t regar d to any limit a t i o n s in § 252. See Core , 592 F.3d at 144. As to wirele s s traff i c, the FCC simi la r l y has indep e n d e n t autho r i t y ove r intercar r i e r co mp ensa t i o n for such traff i c under 47 U.S.C. § 332(c). See Order ¶ 779 (JA at 650); FCC Br. 24-25 (citing cases); see also 47 U.S.C. § 152(b) (exempting § 332 from restrictions 4 Contrary to petit i o n er s ’ claim (at 34), the FCC did not “ackno w l e d g e[ ] that co mp et i t i v e consid e r a t i o n s genera l l y prevent carrie r s ” from recov e r i n g costs throu g h retai l rates. See Order ¶ 864 (noting only that “[ s]ome comp e t i t i v e LECs have argued that their rates are constr a i n e d by incumb e n t LEC rates”) (JA at 693); i d . ¶ 908 n.1781 (saying only that comp e t i t i v e consid e r a t i o n s “may” restri c t incumb e n t LECs’ abili t y to incr ea s e retail charge s) (JA at 715). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 103 11 on FCC jurisdi c t i o n over intra s t a t e traff i c). 5 That inclu d e s autho r i ty “to preemp t any rates set by the state s ” that woul d “unde r mi n e the federa l polic y.” M et r oPCS Californi a , LLC v. FCC , 644 F.3d 410, 413 (D.C. Cir. 2011) . Thus, as to interst a t e and wirele s s calls, petiti o n e r s ’ prima r y criti c i s m of bill-and-keep — that it intru d e s on state commi s s i o n s ’ autho r i ty under §§ 251 a nd 252 — is wholl y inapp l i c a b l e. Second , even for man y categor i e s of intrast a t e w i r e l i n e traffi c, the FCC’s power to implem e n t § 251(b)(5) — wh ich the Supreme Court confi r med in AT&T — does not impli c a t e the autho r i t y of stat e commi s s i o n s under § 252. The class of intra s t a t e traff i c to which § 251(b)(5) appl ies is signif i c a n t l y broade r than the class of intras t a t e traffi c to which § 252(d)(2) a pplies. That is largel y becaus e, whereas § 251(b)(5) applie s to all telec o m mu n i c a t i o n s excha n g e d with a LEC, § 252(d)(2) applies only to ICC charges collec t e d by i n c u m b e n t LECs. See 47 U.S.C. § 252(a)(1) (allowi n g an “incu mb e n t local exch ange carrier” to “enter into a bindin g agre e m e n t ” and “submi t[ ]” it “t o the State commis s i o n ” for approv a l); i d . § 252(b)(1) (carrier “may pet itio n a State co mmiss i o n to arbitra t e any open issues ” conce r n i n g negot i a t i o n s involv i n g an “incu mb e n t local excha n g e carri e r ”); i d . § 252(d)(2)(A) (authori z i n g state comm i s s i o n to asse s s only “comp l i a n c e by an incumb e n t local excha n g e carrie r with” § 251(b)(5)). 5 Indeed, in adopti n g bill-and-keep, the FCC “[i]n esse nce . . . adopted for local telep h o n e compa n i e s the same model th at was alrea d y in place and conti n u e s to work well for the wirel e s s indus t r y.” FCC Br. 3 (citing Order ¶ 34 (JA at 403)). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 104 12 Thus, even on petiti o n e r s ’ erron e o u s view that § 251(b)(5) is limite d to local traff i c, that sectio n still appli e s to local traffi c exchan g e d betwee n two co mp et i t i v e LECs, or a comp e t i t i v e LEC and wire l e s s carri e r — yet § 252(d)(2) does not establ i s h a standa r d (or give states any au t hor i t y with respec t to charge s) for that traffi c. Furthermo r e, even as to tr affic exchang e d with an incumb e n t LEC, § 252(d)(2) is silent about charge s paid by an incumb e n t LEC; it appli e s only to charges co llecte d by an incu mbent LEC. See id. On the FCC’s interp r e t a t i o n of § 251(b )(5) (in place since 2001) to include a l l teleco mmunicati ons traffic, not merel y local traf fi c, that section includ e s even more intras t a t e traff i c as to which § 252(d )(2) grants state s no author i ty. That is becaus e, under the FCC’s inter p r e t a t i o n, § 251(b)(5) include s traff i c excha n g e d betwee n LECs and long-distan c e carri e r s — traffi c that is n o t covere d by § 252(d)(2). See Order ¶ 774 (JA at 648). In sum, petit i o n e r s ’ appro a c h “pro d u c e s a most chopp e d-up statu t e.” AT&T , 525 U.S. at 381 n.8. They are left to conte n d that — even thoug h the FCC has (1) indepen d e n t autho r i t y to regul a t e ICC ch arges for inter s t a t e and wirel e s s traff i c under §§ 201(b) and 332, and (2) plenar y prici n g autho r i ty over ICC charge s for variou s catego r i e s of intras t a t e traffi c that are withi n § 251(b)(5) but outsid e § 252(d)(2) — § 252(d)(2) unamb i g u o u s ly precl u d e s the FCC from establ i s h i n g a Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 105 13 uniform ICC regi me that also encomp as s e s the narrow catego r y of intras t a t e traffi c to which that provi s io n appli e s. But they can point to no statu t o r y la ngu a g e that would requi r e the FCC to accept the absurd consequ e n c e s their approa c h entail s. On the contr a r y, as shown above (at 8-10), the languag e of § 252(d)(2) is suffic i e n t l y broad to encomp a s s the FCC’s bill-and-keep defau l t rule for the lim it e d categ o r y of traff i c to which that sectio n appli e s. Further mo r e, the FCC’s interp r e t a t i o n of that sectio n — which allow s for a unifo r m ICC regime for all telec o m mu n i c a t i o n s traffi c — is reason a b l e. Petition e r s ’ contr a r y posit i o n ensur e s a “patch w o r k ” of ICC rates, 6 with the FCC’s regime cover i n g all in ters t a t e and wirele s s traffi c an d most intras t a t e traff i c, but 50 or more differ e n t state re gim e s cover i n g the remai n i n g in trast a t e traffic. That would perpe t u a t e the very arbit r a g e and market distor t io n s that the Order seeks to eradicat e, leaving in place th e same incen t i v e s that exist e d befor e the Order to mis char a c t e r i z e traffic or engag e in traff i c-pumpi n g schem e s. See Order ¶ 752 (observin g “mark e t p l a c e disto r ti o n s ” where “rates apply differ e n t l y across provid e r s ”) (JA at 638); 2011 NPRM ¶ 40 (noting that “wast e f u l attemp t s to game 6 Notice of Proposed Rulemaki n g and Further Notice of Proposed Rulemaki n g, Connect America Fund , 26 FCC Rcd 4554, ¶ 502 (2011) (“2011 NPRM”). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 106 14 the syste m will likel y persi s t as long as ICC rates remain disp ar a t e and well above carrie r s ’ increm e n t a l costs of termi n a t i n g a call”). The point is not, as petiti o n e r s assert, that “a little unlawf u l n e s s is permi t t e d.” Pet. Br. 32 (intern al quota t i o n s omitt e d). Rather, it is that the FCC reasona b l y inter p r e t e d the statut e not to impose the balkan i z e d regime th at their readin g produc e s. Cf. In re Core Commu n icati o n s , Inc. , 455 F.3d 267, 283 (D.C. Cir. 2006) (noting that it is “not for th is court to secon d-guess the concl u s i o n reach e d by the agen cy ” that the “polic i e s favori n g a unifie d comp en s a t i o n regime outwe i g h ” other conce r n s) (intern a l quota t i o n s omitt e d). B . The Eight h Circu i t ’ s Decis i o n in I o wa Utilities Board Does Not Suppo r t Petit i o n e r s ’ Posit i o n Petitione r s erron e o u s l y re ly (at 29-30) on the Eighth Circuit’ s decis i o n in Iowa Utilitie s Board , 219 F.3d 744. The FCC’s brief corre c t l y demon s t r a t e s (at 41-43) that the “prox y price s ” that the Eighth Circuit struck down were unlike the bill-and-keep frame w o r k estab l i s h e d here , becau s e (among other consi d e r a t i o n s) bill-and-keep embodi e s a m e t h o d o lo g i c a l choic e about how costs should be recove r e d, wherea s the proxy price s were f a c t - s p e c i f i c appli c a t i o n s o f a (differ e n t) method o l o g i c a l choice. Petition e r s ’ relian c e on Iowa Utilitie s Board is unavai l i n g for two additi o n a l reaso n s. First , the Eighth Circuit’ s concl u s i o n re ste d on the proce d u r a l doctr i n e of judic i a l estop p e l, rather than any subst a n t iv e inter p r e t a t i o n of the Act. The court Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 107 15 accepted the argu me n t that the FCC’s proxy prices “shoul d be vacat ed ” becaus e the FCC had “expr e s s l y disav o w e d the proxy prices ” in a relate d case before the Supreme Court; it held that the FCC was “esto p p ed from tryin g to now reviv e the proxy price s.” 219 F.3d at 756. The la ngu a g e on which peti t i o n e r s rely (at 29-30) appears as part of the Eighth Circuit’ s discu s s i o n of why it wa s “not persu a d e d ” by the FCC’s effort to expla i n away its “posi t io n befor e the Supreme Court” and there b y to avoid judic i a l estop p e l. 219 F.3d at 756. The Eighth Circuit’ s holdi n g that judici a l estop p e l proce d u r a l l y barre d the FCC’s argume n t does not imply anyth i n g about the prope r legal const r u c t io n of the Act. Cf. In re Kane , 628 F.3d 631, 638 (3d Cir. 2010) (when judic i a l est op p e l appli e s, court does not “cons i d e r[ ] the merits of the underl y i n g clai ms ”) (intern a l quota t i o n s omitt e d). 7 Second , even if the Eighth Circuit’s deci s io n could be read in a way that would precl u d e the FCC from adopti n g bill- and-keep, it would be incorr e c t. The Eighth Circuit’ s remar k about the FCC’s “autho r i t y ” being limit e d “to desig n[ing] a pricin g metho d o l o g y ” reste d entir e l y on the court ’ s inter p r e tat i o n of the Supreme Court’s opin i o n in AT&T . See 219 F.3d at 757. But the Supreme Court did not say that the FCC’s author i t y to imple me n t § 252(d)(2) is limit e d to metho d o l o g i c a l 7 Nor could judic i a l estop p e l forec l o s e the FCC’s positi o n here. Cf. Good Samarit a n Hosp. v. Shalala , 508 U.S. 402, 417 (1993) (agencie s are “not estop p e d from chang i n g ” a “legal inter p r e t a t i o n ”). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 108 16 issues. 8 Rather, the relev a n t porti o n of the Court’s opini o n addre s s e d only charg e s for inter c o n n e c t i o n and acces s to netw o r k eleme n t s under § 252(d)(1), which unlike § 252(d)(2) express l y author i z e s states to set “rates.” See AT&T , 525 U.S. at 383-85. Furtherm o r e, given the Cour t’s concl u s i o n that the FCC regulat i o n s imple m e n t i n g § 252(d)(1) were withi n the agenc y ’ s autho r i ty, the Court had no occasi o n to opine on the outer limits of th e FCC’s author i t y to promul g a t e “rule s to guide the state-commis s i o n judgme n t s ” applyi n g that sectio n. Id. at 385. I I I . PETIT I O N E R S ’ CHALL E N G E TO THE FCC’S JURIS D I C T I O N OVER ORIGI N A T I N G CHARG E S LACKS MERI T Petitione r s challe n g e the F CC’s interp r e t a t i o n of § 251 (b)(5) with respec t to origin a t i n g ICC charges, asse r t i n g (at 25-26) that “[t]he FCC lacks any autho r i ty over intras t a t e o r i g i n a t i n g access charg e s ” becau s e “§ 251(b)(5) address e s only the ‘ t r a n s p o r t and termina t i o n of teleco m mu n i c a t i o n s.’ ” But the FCC has long reaso n a b l y inter p r e t e d § 251(b)(5) to pr ecl u d e origina t i n g carri e r s from charg i n g other carri e r s for deliv e r y of traff i c cove r e d by that secti o n — not to precl u d e the FCC from regul a t i n g origin a t i n g charg e s for that traff i c. 9 8 Nor did the FCC concede that its autho r i t y is so limit e d. See Br. for Fed. Pet’rs at 25-28, AT&T , s u p r a (No. 97-831) (U.S. file d Apr. 3, 1998), 1998 WL 396945. 9 See FCC Br. 21 (citing Firs t Report and Order, Impleme n t a t i o n of the Local Competit i o n Provisio n s in the Telecomm u n i c a t i o n s Act of 1996 , 11 FCC Rcd 15499, ¶ 1042 (1996) (subseq u e n t histo r y omitt e d)); 47 C.F.R. § 51.703(b); s e e also Memorand u m Opinion and Order, MAP Mobile Communicat i o n s , Inc. v. Illinoi s Bell Tel. Co. , 24 FCC Rcd 5582, ¶ 28 (2009) (“Section 51.703(b) of the Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 109 17 Numerous court s have appro v e d of th at interp r e t a t i o n. The Eighth Circuit uphel d the FCC’s rule again s t an u l t r a vires chall enge. See Iowa Utils. Bd. v. FCC, 120 F.3d 753, 800 n.21 (8th Cir. 1997) (u phold i n g rule as appli e d to wirel e s s traff i c) (subseq u e n t histo r y omitt e d). 10 Other court s of appea l s have consi s t e n t l y enforc e d the FCC’s rule. See MCImetro Access Transmis s i o n Servs., Inc. v. BellSouth Telecomm s . , Inc. , 352 F.3d 872, 881 (4th Cir. 2003) (holdin g that 47 C.F.R. § 51.703(b) is “unam b i g u o u s ” in prohib i t in g origi n a ti o n charg e s); Southwest e r n Bell Tel. Co. v. P ublic Utils. Comm’n of Texas , 348 F.3d 482, 487 (5th Cir. 2003); Q w e s t Corp. v. FCC , 252 F.3d 462, 467-68 (D.C. Cir. 2001). Commiss i o n ’ s rule s proh ib i t LECs from charg i n g CMRS carrier s for traff i c origin a t e d on their netwo r k s.”); Memoran d u m Opinion and Order, Petition of WorldCom, Inc. Pursuant to Section 252 (e ) (5 ) of th e Commun i c a t i o n s Act for Preempti o n of the Juris d i c t i o n of the Virgini a State Corpora t io n Commiss i o n Regardin g Interco n n e c t i o n Disputes , 17 FCC Rcd 27039, ¶ 53 (2002) (“the Commissi o n ’ s rules for secti o n 251(b )(5) traffic . . . prohib i t any LEC from charg i n g any other carri e r for traff i c origin a t i n g on that LEC’s networ k ”); Notice of Proposed Rulemaki n g, Developi n g a Unified Interca r r i e r Compensa t i o n Regime , 16 FCC Rcd 9610, ¶ 112 (2001) (“Our curren t recip r o c a l compe n s a t i o n rules preclu d e an ILEC from chargin g carrie r s for local traff i c that origi n a t e s on the ILEC’s network.”); Memo ran d u m Opinion and Order, J o i n t Applica t i o n by SBC Communica t i o n s Inc. et al. for Provis io n of In-Region, InterLATA Services in Kansa s and Oklahom a , 16 FCC Rcd 6237, ¶ 235 & n.698 (2001) (“rule[ ] preclude[s] an incu mbent LEC from ch arging carriers for local traff i c that origi n a t e s on the incumb e n t LEC’s ne two r k ”) (subseq u e n t histo r y omitt e d). 10 Although the Eighth Circuit vacat e d the rule as appli e d to local wirel i n e traff i c, it did so based on an inter p r e t a t i o n of the FCC’s autho r i t y to imple m e n t § 251 that the Supreme Court revers e d in AT&T . See AT&T , 525 U.S. at 377-82; s e e also Order ¶ 823 (JA at 671). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 110 18 Now that the Commiss i o n has deter mi n e d that all teleco m mu n i c a t i o n s, includ i n g traff i c previ o u s ly subje c t to inter s t a t e and intra s t a t e access charge regim e s, should be govern e d by § 251(b)( 5), its longs t a n d i n g inter p r e t a t i o n of § 251(b)(5) requir e s the event u a l prohib i t io n of orig in a t i n g acces s charg e s. See Order ¶¶ 777, 817, 961 n.1976 (JA at 650, 669, 746). The FCC acted reaso n a b l y in cappi n g, rather than imme d i a t e l y elimi n a t i n g, orig i n a t i n g ICC charges. See Order ¶ 818 (JA at 669). No one chal le n g e s that decisi o n, which was consis t e n t with the FCC’s author i t y to confro n t issue s one step at a time. See , e . g . , National Ass’n of Regulato r y Util. Comm’rs v. FCC , 737 F.2d 1095, 1135-36 (D.C. Cir. 1984) (per curia m). I V . IN ALL EVENT S , THE COUR T SHOULD NOT VACATE THE CHALLEN G E D ICC RULES A. The Court Can Reman d Witho u t Vacat i n g Even if the Court were to conclu d e that furthe r consi d e r a t i o n by the FCC is requir e d for any issue raise d by th ese petit i o n e r s, it shoul d reman d for that consid e r a t i o n withou t vacati n g the challe n g e d ICC rules. This Court follow e d that approa c h in Q w e s t Corp. v. FCC , 258 F.3d 1191 (10th Cir. 2001), in which it reman d e d “to allow the FCC to establ i s h an adequa t e legal and f actua l bas is for the [order] and, if necess a r y, to recons i d e r the operat i v e mechan i s m pro mu l g a t e d in that Order.” Id . at 1201. The Court subseq u e n t l y issue d an order clari f y in g that it had not vacat ed the rules adopted in the FCC’ s order; “[r]ather, [the Court] merely Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 111 19 revers e d and reman d e d for furth e r heari n g s.” Order of Clarific a t i o n at 4, Q w e s t , s u p r a (No. 99-9546) (10th Cir. Aug. 27, 2001); s e e also Q w e s t Commun i cat i o n s Int’l, Inc. v. FCC , 398 F.3d 1222, 1239 (10th Cir. 2005). 11 By the ti me the Court hears oral argum e n t in this appea l, more than two years will have passe d since the FCC release d the Order , and the indus t r y will have chang e d signi f ic a n t l y in light of the reform s ad opte d therei n. The transit i o n to bill-and-keep will be well under w a y: by July 2013, ICC rates for wirel i n e traff i c will have been reduce d twice alrea d y, and the forme r l y se par a t e rate struc t u r e for intra s t a t e acces s rates will have been elimi n a t e d. See Order ¶ 801 (figure 9) (JA at 661). ICC rates for certa i n types of tra ffi c — in partic u l a r, intraMTA traffic exchang e d between LECs a nd wirel e s s provi d e r s — will alrea d y have moved to bill-and-keep. See id. ¶¶ 806, 988, 995 (JA at 664, 761, 764). 12 Against the backd r o p of the ICC rules promu l g a t e d in the Order , carrie r s have negoti a t e d and reneg o t i a t e d inter c o n n e c t i o n agreem e n t s, settle d disput e s over ICC charges, and adjus t e d busin e s s plan s — includ i n g ab an d o n i n g arra n g e men t s buil t on arbit r a g i n g 11 Forest Guardian s v. Babbitt , 174 F.3d 1178 (10th Cir. 1999), is not to the contra r y. In that case, there was no agency action to vacat e. The Court held that the agency ’ s non-action violat e d a non-discr e t i o n a r y statu to r y duty, and it reman d e d under 5 U.S.C. § 706(1) for pub li c a t i o n of a final regul a t i o n. See id . at 1193. 12 In all events, even if the Court we r e to vacate so me of the FCC’s ICC rules, other rules as to which the FCC’s au thori t y is upheld should not be vacat ed. See Iowa Utils. Bd. , 120 F.3d at 800 n.21 (declin i n g to vacat e rules autho r i z e d by the FCC’s indepe n d e n t autho r i ty over wirel e s s traff i c under § 332). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 112 20 the forme r ICC regime. In short, “[t]he egg has been scramb l e d and there is no appar e n t way to resto r e the statu s quo ante.” M i l k Train, Inc. v. Veneman , 310 F.3d 747, 756 (D.C. Cir. 2002) (i ntern a l quota t i o n s omitt e d). Given the passage of time and the scope of the refor ms at issue, vacat i n g any of the ICC rules these petiti o n e r s challe n g e would cause mass i v e indu s t r y disru p t i o n and regul a t o r y uncer tai n t y. See MCI Telecomm s . Corp. v. FCC , 143 F.3d 606, 609 (D.C. Cir. 1998) (per curia m) (“ One factor we cons i d e r in exerc i s i n g . . . discr et i o n [to reman d wit hou t vacati n g] is the potent i a l for disru p t i o n that might be cause d by vacat i n g the order.”). Accord ing l y, if the Court were to grant the petit i o n s for revie w in any respe c t, it shoul d reman d witho u t vacat i n g the ICC regulati o n s. B. The USF Reforms Are Sev er a b l e from the ICC Refor m s However this Court resolv e s the se par a t e chall e n g e s to the FCC’s USF reforms, it should not vacat e th e ICC regulati o n s promul g a t e d in the Order . The Court “may partial l y set asi d e a regulat i o n if the invali d portio n is severa b l e.” Arizona Pub. Serv. Co. v. EPA , 562 F.3d 1116, 1122 (10th Cir. 2009). A regulat i o n is sever a b l e if “t he sever e d parts ‘ oper a t e entir e l y inde p e n d e n t l y of one anoth e r ’ ” and “the circu ms t a n c e s indic a t e the agenc y would have adopt e d the regul a t i o n even witho u t th e faulty provis io n.” Id. (quotin g Davis County Solid Waste Mg mt. v. EPA , 108 F.3d 1454, 1459 (D.C. Cir. 1997) (per curia m)). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 113 21 First , the FCC’s ICC reforms “oper a t e entir e l y indep e n d e n t l y of ” the agenc y ’ s separ a t e decis i o n to condi ti o n recei p t of USF subsid ies on deplo y me n t of broad b an d netwo r k s. To be sure, the ICC reforms will resul t in some lost ICC revenue for carrie r s, and the agency sugge s t e d that the avail a b i l i t y of USF support may in some circu ms t a n c e s ser v e as a back s t o p for carri e r s to recov e r their costs. See Order ¶¶ 34, 742 n.1294, 757 (JA at 403, 633, 640). But the availa b i l i t y of USF funding to replac e lost ICC revenue does not depend on the validi t y of the aspec t s of the FCC’s USF reforms that petiti o n e r s princ i p a l l y chall e n g e here — namel y, the broad b a n d condi t io n and certa i n r e d u c t i o n s in USF suppor t provid e d for in the Order . See gener a l l y Pet’rs Joint USF Br. If the FCC needed to make adju s t men t s to USF fundin g to accom mo d a t e a rulin g from this Court on petiti o n e r s ’ challe n g e s to the USF reform s, it could do so. Second , there is no “ ‘sub s t a n t i a l doubt’ that the agency would have adopt e d ” the ICC reforms on their own. Davis County , 108 F.3d at 1459. The Order expres s l y state s the agenc y ’ s “inten t that each of the rules adopte d herein shall be severa b l e ” becau s e “each of the sepa ra t e unive r s a l servi c e and interc a r r i e r co mp en s at i o n refo r ms . . . serve[s] a parti c u l ar funct io n towar d the goal of ubiqui t o u s voice and br oadban d service.” Order ¶ 1405 (JA at 876). Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 114 22 C O N C L U S I O N For the foreg o i n g reaso n s, and those set forth in the FCC’s brief, the Court should rejec t the chall e n g e s prese n t e d in th e Joint Interca r r i e r Compensa t i o n Brief. / s / Heather M. Zacha r y HEATHER M. Z ACHARY KELLY P. DUNBAR WILMER CUTLER PICKERING HALE AND DORR LLP 1875 Pennsylv a n i a Avenue, N.W. Washingto n, D.C. 20006 (202) 663-6000 (heather.zachar y @ w i l m e r h a l e.co m) CATHY CARPINO GARY L. PHILLIPS PEGGY GARBER AT&T SERVICES, INC. 1120 20th Street, N.W. Washingto n, D.C. 20036 (202) 457-3058 Counsel for AT&T Inc. / s / David E. Mills DAVID E. MILLS J.G. HARRINGTON DOW LOHNES PLLC 1200 New Hampshir e Avenue, N.W. Suite 800 Washingto n, D.C. 20036-6802 (202) 776-2000 (dmills @ d o w l o h n e s.com) Counsel for Cox Communic a t i o n s , Inc. Respectf u l l y submi t t e d, / s / Scott H. Angstrei c h SCOTT H. ANGSTREICH BRENDAN J. CRIMMINS JOSHUA D. BRANSON KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C. 1615 M Street, N.W., Suite 400 Washingto n, D.C. 20036 (202) 326-7900 (sangst r e i c h @ k h h t e.com) MICHAEL E. GLOVER CHRISTOPHER M. MILLER CURTIS L. GROVES VERIZON 1320 North Courtho u s e Road, 9th Floor Arlingto n, Virginia 22201 (703) 351-3071 Counsel for Verizon and Verizon Wirel e s s Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 115 RICK CHESSEN NEAL M. GOLDBERG STEVEN MORRIS JENNIFER MCKEE THE NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 25 Massachuse t t s Avenue, N.W. Suite 100 Washingto n, D.C. 20001 (202) 222-2445 / s / Howard J. Symons HOWARD J. SYMONS ROBERT G. KIDWELL ERNEST C. COOPER MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 701 Pennsylv a n i a Avenue, N.W. Suite 900 Washingto n, D.C. 20004 (202) 434-7300 (hjsymo n s @ mi n t z.com) Counsel for NCTA / s / Christop h e r J. Wrigh t CHRISTOPHER J. WRIGHT TIMOTHY J. SIMEONE WILTSHIRE & GRANNIS LLP 1200 18th Street, N.W., Suite 1200 Washingt o n, D.C. 20036 (202) 730-1300 (cwright@ w i l t s h i r e g r a n n i s.co m) Counsel for Sprint Nextel Corporat i o n / s / David H. Solomon DAVID H. SOLOMON L. CHARLES KELLER WILKINSON BARKER KNAUER, LLP 2300 N Street, N.W., Suite 700 Washingto n, D.C. 20037 (202) 783-4141 (dsolo mo n @ w b k l a w.com) Counsel for T-Mobil e USA, Inc. / s / Christop h e r J. Wrigh t CHRISTOPHER J. WRIGHT BRITA D. STRANDBERG WILTSHIRE & GRANNIS LLP 1200 18th Street, N.W., Suite 1200 Washingto n, D.C. 20036 (202) 730-1300 (cwright@ w i l t s h i r e g r a n n i s.co m) BRENDAN KASPER SENIOR REGULATORY COUNSEL VONAGE HOLDINGS CORPORATION 23 Main Street Holmdel, New Jersey 07733 Counsel for Vonage Holdings Corpora t io n July 2013 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 116 C E R T I F I C A T E OF COMPL I A N C E Certi f i c a t e of Compl i a n c e Wi th Type-V o l u m e Limita t i o n s , Typeface Requirem e n t s , Ty pe Style Requi r e m e n t s , and Priva c y Redac t i o n Requi r e m e n t s 1. This brief conta i n s 4,863 words of the 21,400 words the Court alloc a t e d for the brief s of inter v e n o r s in suppo r t of the FCC in its October 1, 2012 Order Consolid a ti n g Case No. 12-9575 with Other FCC 11-161 Cases, Establis h i n g Windstre a m Briefing Schedule, and Modify ing Interveno r Participa t i o n. The interv e n o r s in suppo r t of the FCC have comp l i e d with the type-volume limit a t i o n of that order becau s e their brief s, comb i n e d, conta i n a total of fewer than 21,400 words, exclud i n g the parts of those br ief s 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 brief 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 2007 in 14- point Times New Roman font. 3. All requir e d priva c y red ac t i o n s have been made. / s / Scott H. Angstrei c h Scott H. Angstreic h July 9, 2013 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 117 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 Interven o r s to the Joint Intercar r i e r Comp ensa t i o n Principa l Brief were scann 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/ Laurence N. Bourne Laurence N. Bourne Counsel July 29, 2013 Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 118 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 Interca r r i e r Compensa t i o n Princip a l Brief to be filed by deliv e r in g a copy to the Court via e-mail at FCC_briefs _ o n ly @ c a10.us courts.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/ Laurence N. Bourne Laurence N. Bourne Counsel July 29, 2013   Appellate Case: 11-9900 Document: 01019099612 Date Filed: 07/29/2013 Page: 119