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AT&T Principal Brief - In Re: FCC 11-161 (10th Cir.)

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Released: October 31, 2012
Appellate Case: 11-9900 Document: 01018937278 Date Filed: 10/23/2012 Page: 1



No. 11-9900


—————————————————————————————————

IN THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

——————————

IN RE: FCC 11-161

——————————

On Petition for Review of

an Order of the Federal Communications Commission

——————————————————————————————————

UNCITED AT&T PRINCIPAL BRIEF


——————————————————————————————————



CHRISTOPHER M. HEIMANN


JONATHAN E. NUECHTERLEIN
GARY L. PHILLIPS



HEATHER M. ZACHARY
PEGGY GARBER




DANIEL T. DEACON
AT&T SERVICES, INC.



WILMER CUTLER PICKERING
1120 20th
Street,
NW
HALE AND DORR LLP
Washington, DC 20036


1875 Pennsylvania Ave., NW
(202)
457-3058
Washington,
DC
20006
(202)
663-6000










Counsel for AT&T Inc.


October 23, 2012

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CORPORATE DISCLOSURE STATEMENT


Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure,
Petitioner AT&T Inc. (“AT&T”) submits this Corporate Disclosure Statement.

AT&T is a publicly traded corporation that, through its wholly owned
affiliates, is principally engaged in the business of providing communications
services and products to the general public. AT&T has no parent company, and no
publicly held company owns ten percent or more of its stock.
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TABLE OF CONTENTS

Page
CORPORATE DISCLOSURE STATEMENT ..........................................................i
TABLE OF AUTHORITIES ................................................................................... iii
GLOSSARY...............................................................................................................v
ISSUE PRESENTED.................................................................................................1
STATEMENT OF FACTS AND CASE ...................................................................1
1. Background......................................................................................................1
2. The Order under review ..................................................................................8
SUMMARY OF ARGUMENT ...............................................................................15
ARGUMENT ...........................................................................................................16
THE FCC VIOLATED THE ADMINISTRATIVE PROCEDURE ACT BY OFFERING NO
REASONED EXPLANATION FOR CONFERRING A REGULATORY ADVANTAGE ON
CABLE VOIP SERVICES OVER WIRELESS SERVICES ...............................................16
CONCLUSION ........................................................................................................23
REGULATORY ADDENDUM
CERTIFICATE OF COMPLIANCE AND ANTI-VIRUS SCAN
CERTIFICATE OF SERVICE
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TABLE OF AUTHORITIES

CASES

Page(s)
Cape Cod Hospital v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011)........................17, 18
Competitive Enterprise Institute v. NHTSA, 956 F.2d 321 (D.C. Cir.
1992) ........................................................................................................17, 22
Fox Television Stations, Inc. v. FCC, 280 F.3d 1027 (D.C. Cir. 2002) ..................18
Mistick PBT v. Chao, 440 F.3d 503 (D.C. Cir. 2006) .............................................17
Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile
Insurance Co., 463 U.S. 29 (1983)................................................................16
Sorenson Communications, Inc. v. FCC, 567 F.3d 1215 (10th Cir.
2009) ........................................................................................................16, 23

FCC DECISIONS

Declaratory Ruling, Petitions of Sprint PCS and AT&T Corp. for
Declaratory Ruling Regarding CMRS Access Charges, 17 FCC
Rcd 13192 (2002), appeal dismissed, AT&T Corp. v. FCC,
349 F.3d 692 (D.C. Cir. 2003).........................................................................6
Eighth Report & Order, Access Charge Reform, 19 FCC Rcd 9108
(2004).........................................................................................................8, 11
Report & Order, Connect America Fund, 26 FCC Rcd 17663 (2011) ............ passim
Seventh Report & Order, Access Charge Reform, 16 FCC Rcd 9923
(2001)...............................................................................................................7
Order on Reconsideration, Qwest Commcunications Co. v. Northern
Valley Communications, 26 FCC Rcd 14520 (2011) ....................................11

STATUTES AND REGULATIONS

5 U.S.C. § 706 ..........................................................................................................16
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47 U.S.C.
§ 153(24)........................................................................................................10
§ 153(32)..........................................................................................................3
47 C.F.R. § 61.26(f) .................................................................................................11
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GLOSSARY

CLEC
Competitive
Local
Exchange
Carrier
ILEC
Incumbent
Local
Exchange
Carrier
LEC
Local
Exchange
Carrier
VoIP
Voice
over
Internet
Protocol

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ISSUE PRESENTED


Whether the FCC failed to provide a reasoned explanation for changing its
access charge rules to favor cable operators and other fixed-line VoIP providers
over mobile wireless carriers.

STATEMENT OF FACTS AND CASE

AT&T supports most of the Order under review1 because, on most issues
(including many resolved against AT&T), the FCC grappled with the trade-offs it
faced and gave considered explanations for its judgment calls. AT&T nonetheless
challenges one access-charge-related rule change that the FCC made largely at the
cable industry’s behest and that benefits cable operators at the expense of mobile
wireless carriers. AT&T opposed this change because it exposes wireless carriers
to an arbitrary competitive disadvantage vis-à-vis their cable rivals. The FCC did
not meaningfully respond to that concern and thus violated its duty of reasoned
decisionmaking under the Administrative Procedure Act.
1. Background
As relevant here, “access charges” are the regulated rates that Carrier X pays
Carrier Y when Carrier X hands off a long-distance call from one of its customers
to Carrier Y for delivery to one of Carrier Y’s customers. The rules governing
whether X must pay such charges, and if so how much, depend in part on what

1
Report & Order, Connect America Fund, 26 FCC Rcd 17663 (2011)
(“Order”).
1

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type of provider Y is. There are three likely possibilities: (1) a conventional “local
exchange carrier” (LEC) such as CenturyLink, (2) a mobile wireless provider such
as AT&T, Verizon Wireless, or Sprint, or (3) a provider of Voice over Internet
Protocol (VoIP) services such as Cox or Time Warner Cable. VoIP is a means of
providing voice telephony services over a broadband connection by means of the
same family of digital technologies used for Internet communications. This appeal
challenges the FCC’s decision to privilege fixed-line VoIP services over wireless
services for access charge purposes.2
We introduce this dispute with several scenarios illustrating which providers
may collect access charges and for what types of network functions.

Scenario 1: calls to conventional wired telephone lines.

Suppose that a
friend in Los Angeles places a long-distance call to your home line in Denver.
Your friend’s long-distance company will transport the call to the Denver area and
hand it off to your local telephone company there. If your phone company is a

2
See Order ¶¶ 968-971. A “fixed” VoIP provider supplies the last-mile
broadband connection to the VoIP subscriber; examples include cable companies
and integrated IP service providers such as AT&T in some locations. This appeal
focuses only on fixed VoIP services because the FCC has effectively precluded, in
relevant part, access charges for calls to subscribers of “over-the-top” VoIP
services offered by providers such as Vonage or Skype that do not supply
broadband transmission. Id. ¶ 970 & n.2028.
2

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conventional wireline LEC such as CenturyLink,3 it will bill your friend’s long-
distance company “access charges” for routing the call from the point of hand-off
to you. The now-discredited theory underlying such charges has been that the
calling party—your friend—“causes” all costs of a call from origin to destination
and that his carrier should thus cover all costs your carrier incurs in routing the call
from the place of hand-off to you, the called party. See Order ¶¶ 744-47.
The access charges that your telephone company imposes on your friend’s
long-distance carrier will likely have several components, corresponding to the
distinct functions your telephone company performs in this process. When an
incumbent LEC receives incoming calls from long-distance carriers, it often routes
them first through an intermediate regional switching facility known as a
“tandem”—a meta-switch that connects smaller, more local switches:

3
The Communications Act defines “local exchange carrier” in terms of
functions identified with conventional local telephone companies. See 47 U.S.C.
§ 153(32). Although both wireline and wireless carriers perform those functions,
the Act carves out mobile wireless—“commercial mobile [radio] service”
(“CMRS”)—providers from the definition. Id. The term “LEC” thus encompasses
local wireline but not wireless telephone companies. In turn, LECs are divided
into (1) “incumbent LECs” (“ILECs”) and (2) all other LECs, called “competitive
LECs” (“CLECs”). AT&T is a national wireless provider; in various regions, it is
also an ILEC, a CLEC, and a fixed-line provider of VoIP services (see below).
3

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In this scenario, the ILEC assesses the long-distance carrier access charges
corresponding to the separate functions the ILEC performs in routing the incoming
call both (1) through the tandem and then (2) through the local (“end office”)
switches closest to the called party:

4

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Of course, the amounts specified here ($0.50+$0.50=$1.00) are hypothetical.4 The
important point is that, for any given call, carriers impose distinct categories of
access charges depending on which functions they actually perform in routing a
call to the called party. The more functions they perform, the more they can
collect.
In our hypothetical, your Denver LEC can unilaterally bill these charges to
all interconnecting long-distance carriers by filing “access tariffs.” Tariffs are
formal rate sheets that, once approved, carry the force of law and prescribe what
long-distance carriers must pay for each function your Denver LEC performs. As
discussed in more detail below, your LEC can charge the aggregate amount shown
only because it both (1) operates as a regulated LEC and is thus eligible to file
tariffs and (2) actually performs the distinct network functions (tandem switching
plus end-office switching) needed to transmit the call from the point of hand-off
with the long-distance carrier to you, the called party.


4
Access-charge levels depend on several variables, including call duration,
whether the call crosses state lines, and whether the called party’s carrier is subject
to “rate-of-return” or “price cap” regulation. Also, the charges for end-office
switching typically exceed the charges for tandem switching; there are additional
access charge elements beyond these two; and the set of functions we describe
generically as “tandem switching” typically encompasses several discrete rate
elements, including “tandem-switched transport.” These details are immaterial to
the basic legal question presented in this appeal.
5

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Scenario 2: calls to cellphones.

The access-charge rules are different if
your friend in Los Angeles decides to call you on your cellphone instead. The
FCC has long barred mobile wireless carriers such as AT&T from filing access
tariffs, even though they perform many of the same call-routing functions as
wireline LECs. This generally means that, unlike LECs, your wireless carrier
cannot recover the relevant network costs from interconnecting long-distance
carriers and must recover them instead from the retail rates it charges you and its
other customers. See Declaratory Ruling, Petitions of Sprint PCS and AT&T Corp.
for Declaratory Ruling Regarding CMRS Access Charges, 17 FCC Rcd 13192
(2002), appeal dismissed, AT&T Corp. v. FCC, 349 F.3d 692 (D.C. Cir. 2003). All
else being equal, a carrier’s inability to obtain revenues from other carriers tends
to exert upward pressure on the retail prices it must charge its own end user
subscribers. Here, the wireless industry’s inability to tariff access charges tends to
raise wireless prices above levels that would prevail if wireless carriers could do
what wireline LECs routinely do: unilaterally require interconnecting long-
distance carriers to pay access charges.
In the early 2000s, some wireless carriers began looking for ways to
overcome their ineligibility to tariff access charges by partnering with wireline
LECs (often CLECs). In this scenario, when your Los Angeles friend calls your
cellphone, his long-distance carrier is instructed to hand the call off to a CLEC
6

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partner that your wireless provider has contracted with behind the scenes. That
CLEC partner routes the call through an intermediate switch that it operates, which
is analogous to an ILEC tandem. The CLEC partner then hands the call off to your
wireless carrier, which in turn routes the call through its own switching facilities en
route to you. Because the wireline partner is a regulated LEC that may file access
tariffs, it bills the long-distance carrier for the intermediate functions it performs
($0.50 in our example):5


5
Although wireless providers have partnered with many LECs for these
purposes, including both CLECs and ILECs, our discussion often follows the
FCC’s usual shorthand of referring to these wireline LEC partners as “CLECs.”
Although a CLEC files tariffs independently of any ILEC, the FCC has ensured the
reasonableness of CLEC access charges by requiring CLECs to “benchmark” them
to those the FCC has approved for the local ILEC (or to certain proxies for ILEC
charges). See Seventh Report & Order, Access Charge Reform, 16 FCC Rcd 9923
(2001). For example, if an ILEC has tariffed access charges of $0.50 for tandem
switching in a particular area, that is the maximum a CLEC in that area can tariff
for performing comparable functions on its own network. Id. at ¶ 55 & n.126.
7

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Almost ten years ago, some wireless carriers and their CLEC partners
argued to the FCC that, in this scenario, a CLEC should also be able to tariff
charges for local switching too, bringing the total bill to $1 ($0.50+$0.50), even
though the non-tariff-eligible wireless carrier is performing that function. The
FCC rejected that position in a 2004 order. It held that “the rate that a [CLEC]
charges for access components when it is not serving the end-user should be no
higher than the rate charged by the competing incumbent LEC for the same
functions,” and thus a CLEC “has no right to collect access charges for the portion
of the service provided by the [wireless] provider.” Eighth Report & Order, Access
Charge Reform, 19 FCC Rcd 9108 ¶¶ 16-17 (2004) (“Eighth R&O”); see also id.
¶ 21. In other words, if the CLEC middleman partners with a service provider that
itself has no right to tariff access charges, the CLEC may tariff only the amount
reflecting the work it performs (here, 50¢). It has no right to collect any further
amount reflecting the work the other, non-tariff-eligible provider performs.
2. The

Order

under review
In the Order here, the FCC announced that it will gradually phase out
terminating access charges for all calls, even those bound for wireline LEC
customers, and will transition to a “bill-and-keep” system. In plain English, this
means that, years from now, a carrier will owe nothing to a called party’s LEC
when it hands off a call at a defined point on the LEC’s network, just as it now
8

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owes nothing when it hands off a call directly to a wireless carrier. Thus, like
wireless carriers today, each LEC will have to recover its network costs from its
own subscribers rather than from interconnecting carriers (and ultimately their
subscribers).
AT&T fully supports this aspect of the FCC’s decision. Although some
FCC critics present bill-and-keep as an untried experiment, it is anything but that.
As the Order notes (¶ 737), bill-and-keep has long been the governing
methodology for countless long-distance calls placed to cellphones. Because the
called party’s wireless carrier cannot pass its network costs through to the
interconnecting long-distance company, it has had to recover those costs from the
called party and its other customers through its retail rates. The Order simply
charts a course for eventually extending the same rule to all carriers, wireline as
well as wireless. In that respect, the Order has made intercarrier compensation
fairer and more symmetrical. By forcing wireline LECs to look increasingly to
their own customers for revenues, the Order will gradually eliminate a regulatory
asymmetry that wireless providers now confront as they compete with wireline
LECs for customers on the basis of retail price.
Yet the FCC simultaneously imposed, for the first time, the same regulatory
disadvantage on wireless carriers when they compete for customers with cable
companies and other fixed VoIP providers during the long transition to bill-and-
9

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keep. This appeal challenges the FCC’s imposition of that new and competitively
significant regulatory asymmetry.

Scenario 3: calls to customers of VoIP providers.

Almost all cable
companies that offer voice telephone services today choose not to offer those
services as regulated LECs. Instead, they offer VoIP as an unregulated
“information service.”6 In the Order, the FCC reaffirmed that “retail VoIP
providers … offering unregulated services … are not carriers that can tariff
intercarrier compensation charges.” Order ¶ 970. In that respect, a cable VoIP
provider is like a wireless carrier; neither can itself impose tariffed access charges.
The question before the FCC was how much these unregulated cable VoIP
providers could circumvent that disability by partnering with (often affiliated)
CLECs that accept calls from interconnecting long-distance carriers and route them
to the cable companies’ customers.
It is now undisputed that these cable-oriented CLECs may collect access
charges for the functions that they, as regulated wireline carriers, actually perform
when they stand between long-distance companies and unregulated cable VoIP
providers—just as CLECs may collect the same limited access charges when they

6
See 47 U.S.C. § 153(24) (defining “information service”). AT&T’s wireline
operations sell VoIP services on the same unregulated basis as the cable companies
in a number of locations where AT&T has upgraded its network to provide all-IP
packages of voice, video, and Internet services. In other areas, AT&T’s wireline
affiliates still operate as conventional ILECs.
10

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partner with wireless carriers. But the FCC went one step further. It entitled a
CLEC in these circumstances to assess tariffed access charges not only for the
services it performs, but also for “functions performed by … its retail VoIP
partner.” Order ¶ 970 (emphasis added); see 47 C.F.R. § 61.26(f) (final clause).
As the FCC acknowledged, this was an abrupt change from its prior rules,
which were settled on this point.7 The FCC “recognize[d] that under the
Commission’s historical approach in the access charge context, when relying on
tariffs, LECs have been permitted to charge access charges to the extent that they
are providing the functions at issue.” Order ¶ 970 (emphasis added); see also
Eighth R&O ¶¶ 16-17, 21; Order on Reconsideration, Qwest Commc’ns Co. v.
Northern Valley Commc’ns, 26 FCC Rcd 14520, ¶¶ 4, 8 (2011). That, again, has
long been the rule for long-distance calls to cellphones; CLECs that partner with

7
It was settled that the CLEC in this scenario was entitled to no more than
access charges keyed to the functions it performed; the only uncertainty was
whether it was entitled to access charges even for those functions. In contrast, the
pre-2011 rules were unsettled in the reverse scenario, where the calling party
subscribes to a VoIP provider and calls someone who subscribes to a conventional
LEC
(rather than a wireless carrier or VoIP provider). In that context, it was
previously unclear whether the LEC could collect full access charges for delivering
the VoIP-originated call to the non-VoIP called party. The FCC resolved that
question by entitling the LEC serving the called party to recover “interstate” access
charges during the transitional period. Order ¶ 944. This was the overwhelming
focus of the “VoIP access charge” issue in the proceedings below, and it should not
be confused with the legal question addressed in this brief.
11

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wireless carriers can collect access charges only for the intermediate call-routing
functions they perform:

But the FCC decided to “adopt a different approach” in the VoIP context, Order
¶ 970, entitling CLECs serving cable VoIP providers to assess tariffed access
charges both for the functions they perform and for the functions their VoIP
partners perform (id.), even though the VoIP providers—just like wireless
carriers—are ineligible to file tariffs:

12

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In the example shown here, the CLEC/cable VoIP partnership may collect $1 in
tariffed access charges even though (1) the only tariff-eligible provider in that
partnership performs only 50¢ worth of network functionality and (2) CLEC-
wireless partnerships may collect only 50¢ in tariffed access charges in
indistinguishable circumstances.
This decision cuts sharply against the grain of the rest of the Order. Again,
the Order’s central objective is to phase out all access charges and gradually put
every carrier in the same bill-and-keep position that both wireless carriers and
cable VoIP providers occupied for many years. In essence, the FCC determined
that it had gotten the rule right with respect to wireless carriers and VoIP providers
and wished to bring wireline LECs into gradual alignment by reducing their access
charges to zero as well. But the FCC simultaneously changed the rules for VoIP
providers and entitled them to exploit (through their CLEC partners) the very
access charge regime that the FCC had just decided was undesirable for all
providers and needed to be phased out.
The FCC asserted that, by enabling VoIP-serving CLECs “to charge the
same intercarrier compensation as incumbent LECs” during the multi-year
transition to bill-and-keep, this new rule would create “symmetr[y]” in the
regulatory treatment of cable companies and ILECs. Order ¶ 970. But the new
rule simultaneously created a deep asymmetry in the treatment of cable companies
13

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and wireless carriers. Under this new rule, the CLEC/cable VoIP partnership can
unilaterally recover more of its collective network costs from interconnecting long-
distance carriers than the CLEC-wireless partnership can. And cable VoIP
providers thus face a lesser need to recover their network costs from retail end
users in the form of higher-than-otherwise retail rates. Wireless carriers must still
generally recover the relevant costs from their own retail subscribers, whereas the
FCC has now entitled cable VoIP providers to shift cost-recovery away from their
retail subscribers to interconnecting long-distance carriers during the multi-year
transition to bill-and-keep.
In sum, the FCC exposed wireless carriers to a new competitive
disadvantage in the voice services marketplace by subjecting them to the same
regulatory asymmetries vis-à-vis cable VoIP providers that they already confront
vis-à-vis wireline LECs. And the FCC made that rule change even as it recognized
that access charges should be gradually phased out for all carriers, including
wireline LECs, precisely to eliminate such asymmetries. As discussed below,
AT&T objected to this rule change as irrational and competitively biased, but the
FCC provided no reasoned response.
14

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SUMMARY OF ARGUMENT

Under the Administrative Procedure Act (“APA”), when an agency adopts
regulations that harm private parties, it must face up to those parties’ objections
and provide a reasoned explanation for overriding them. The FCC violated that
core principle of administrative law here. AT&T objected that the new access
charge rule for cable VoIP services would inflict competitive harm on mobile
wireless services. The FCC did not dispute that the new rule would cause such
harm. Instead, the FCC merely observed that, by long historical tradition, no one
may tariff access charges for functions performed by wireless providers. But the
same has always been true of functions performed by unregulated cable VoIP
providers as well. The FCC gave no reasoned justification for abruptly treating the
two classes of providers differently. Indeed, the FCC did not mention AT&T’s
competitive-neutrality concerns at all, an omission that by itself requires
invalidation of this aspect of the Order.
The FCC also cited distinctions without differences when it observed that
cable VoIP providers rely on their wireline LEC partners for “interconnection,
access to [ten-digit phone] numbers, and compliance with 911 obligations.” Order
¶ 970. First, no less than cable VoIP providers, wireless providers also rely on
wireline LEC partners for “interconnection” with long-distance carriers in the
15

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scenarios relevant here. The question is why the two classes of providers—VoIP
and wireless—should be treated differently for access-charge purposes when they
use wireline LECs for interconnection. The Order does not say. And although
cable VoIP providers do rely on their wireline LEC partners for acquisition of
phone numbers and compliance with 911 obligations, those are not functions that
the disputed access charges even purport to cover; indeed, they have nothing to do
with access charges at all. The question remains: why should such wireline LEC
partners be able to recover access charges for functions that cable VoIP providers
undertake, but not for analogous functions that wireless providers undertake, even
though the result is competitive bias? Again, the Order does not say, and this
Court should remand the Order in relevant part.

ARGUMENT

THE FCC VIOLATED THE ADMINISTRATIVE PROCEDURE ACT BY
OFFERING NO REASONED EXPLANATION FOR CONFERRING A
REGULATORY ADVANTAGE ON CABLE VOIP SERVICES OVER WIRELESS
SERVICES

“An agency action is arbitrary and capricious under the APA if, inter alia,
the agency fails to ‘examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection between the facts found
and the choice made.’” Sorenson Commc’ns, Inc. v. FCC, 567 F.3d 1215, 1220-
1221 (10th Cir. 2009) (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29, 43 (1983)); 5 U.S.C. § 706. An agency violates this duty of
16

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reasoned explanation if it fails to “‘answer[] objections that on their face appear
legitimate.’” Mistick PBT v. Chao, 440 F.3d 503, 512 (D.C. Cir. 2006). And even
if an agency has offered some response, the reviewing court still must engage in a
“‘searching and careful’ review of the record to ensure that the [agency] has
applied [its] expertise in a reasoned manner.” Cape Cod Hosp. v. Sebelius, 630
F.3d 203, 216 (D.C. Cir. 2011). This “requirement of reasoned decisionmaking
ensures” that the parties “at least know that the government has faced up to the
meaning of its choice …. and prevents officials from cowering behind bureaucratic
mumbo-jumbo.” Competitive Enter. Inst. v. NHTSA, 956 F.2d 321, 327 (D.C. Cir.
1992). The FCC violated that requirement here.
For the reasons discussed above, AT&T explained to the FCC that the new
VoIP access charge rule would unjustifiably impair the competitive position of
wireless carriers vis-à-vis their cable VoIP competitors. AT&T stressed that, “if
the Commission were to modify its rules only for CLECs serving VoIP providers,
but maintain those rules for CLECs (or ILECs) serving [wireless] providers, it
would arbitrarily tilt the regulatory playing field in favor of [cable’s] preferred
technology (VoIP) and against the technology deployed by many of its competitors
(wireless).” Letter from Robert Quinn, Jr. (AT&T) to Marlene Dortch (FCC), CC
Docket No. 01-92 et al., at 2 (Oct. 21, 2011) (“AT&T Letter”) (JA__). And AT&T
emphasized that this “arbitrary distinction” would constitute “competition-
17

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distorting regulatory favoritism” of VoIP providers over their wireless rivals and
would “arbitrarily pick[] winners and losers in the marketplace.” Id. at 4-5 (JA__).
The duty of reasoned decisionmaking required the FCC to acknowledge this
competitive concern and provide a considered explanation for whatever policy
course it chose. The FCC violated that duty. Although it did not dispute that its
new rule inflicts competitive harm on wireless providers, it made no effort to
explain why that harm is justified. Indeed, it nowhere even acknowledged that
AT&T had raised a concern about market-distorting competitive bias. That
failure, by itself, requires the Order’s invalidation. See, e.g., Fox Television
Stations, Inc. v. FCC, 280 F.3d 1027, 1050-1051 (D.C. Cir. 2002) (noting that FCC
had altogether failed to address certain competitive points raised by party, and
“[t]hese failings alone require that we reverse as arbitrary and capricious”); see
also Cape Cod Hosp., 630 F.3d at 211-212 (“because [the agency] failed to address
[a party’s submission] when issuing its 2007 final rule, we shall remand for [the
agency] to provide a reasoned response”).
In a two-sentence footnote that ignored these competitive concerns, the FCC
did mention AT&T’s more general objection that the new rule would create an
unjustified asymmetry in the regulatory treatment of wireless and VoIP providers.
Yet even that footnote, so far as it went, was unreasoned. The FCC first noted that
“retail VoIP providers rely on wholesale [CLEC] partners for, among other things,
18

Appellate Case: 11-9900 Document: 01018937278 Date Filed: 10/23/2012 Page: 25


interconnection, access to numbers, and compliance with 911 obligations.” Order
¶ 970. The FCC then concluded:
Given the Commission’s endorsement of these arrangements, we find
these circumstances distinguishable from those in the [wireless]
context, where the Commission prohibited [wireless] providers from
partnering with competitive LECs to collect access charges [at tariff].
… We thus reject claims that there is no basis for distinguishing the
historical treatment of [wireless] providers from our actions in this
context.
Id. ¶ 970 n.2024. That passage is the Order’s full response to AT&T’s concerns
about the new imbalance in the FCC’s treatment of wireless and VoIP providers. It
is conceptually hollow.
First, no one disputes that the FCC has “prohibited” wireless carriers (and
their CLEC partners) from “collect[ing] access charges” at tariff (Order ¶ 970
n.2024) for the functions the wireless carriers perform in routing calls to end users.
But the same has always been true of unregulated cable VoIP providers too. The
question was why those VoIP providers, but not their wireless competitors, should
be able to circumvent that rule by partnering with a LEC to collect tariffed access
charges for the functions that they perform and the LEC does not. As AT&T
explained, that asymmetry would give cable VoIP providers an artificial regulatory
advantage over their wireless competitors by enabling them to cross-subsidize their
retail services with a large category of tariffed wholesale charges that wireless
carriers and their LEC partners may not impose. AT&T objected that it could
19

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make no sense to exacerbate the disadvantage wireless providers have always
faced vis-à-vis wireline LECs by making them, in this respect, worse off than their
VoIP rivals for the first time. In short, the FCC’s observation that wireless carriers
are ineligible to tariff access charges merely restated the basis for AT&T’s
objection; it did not face up to that objection on the merits, as the APA requires.
It is also irrelevant that VoIP providers “rely on wholesale [wireline LEC]
partners for, among other things, interconnection, access to [ten-digit phone]
numbers, and compliance with 911 obligations.” Order ¶ 970. As for
“interconnection,” there is no relevant distinction in the first place between
wireless and VoIP providers. As the diagrams above illustrate, in each scenario
relevant here, a wireline LEC middleman interconnects with the caller’s long-
distance carrier, receives calls from it, and forwards them to the called party’s
voice provider—either a wireless carrier or a VoIP provider. Because the wireline
LEC partner plays the same role in either scenario, “interconnection” cannot justify
the FCC’s new wireless-vs.-VoIP asymmetry.
As for “access to numbers” and “compliance with 911 obligations,” Order
¶ 970, wireless carriers do typically address those matters themselves, whereas
VoIP providers typically outsource them to their CLEC partners, but that fact has
20

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no conceivable relevance to access charges.8 The disputed new charges that the
FCC has entitled a VoIP-partnering CLEC to impose on interconnecting long-
distance carriers are not charges for “access to numbers” or “compliance with 911
obligations,” which are functions performed by the CLEC. Instead, as the FCC
acknowledges, the disputed access charges are assessed for the unrelated functions
that the VoIP provider rather than the CLEC performs—functions that the FCC
deems equivalent to the local end-office switching performed by a wireline
incumbent LEC such as CenturyLink. Id. The question remains: why does it
make sense to let a CLEC unilaterally impose those charges on interconnecting
long-distance companies if it is partnering with a VoIP provider but not if it is
partnering with a wireless carrier? The Order does not explain.
The FCC separately asserted that, by entitling VoIP-serving CLECs “to
charge the same intercarrier compensation as incumbent LECs,” it was creating “a
symmetrical approach” as between cable VoIP providers and incumbent LECs

8
“Access to numbers” refers to a carrier’s acquisition of ten-digit telephone
numbers from the FCC’s administrative delegate for assignment to the carrier’s
customers. “Compliance with 911 obligations” refers to a carrier’s deployment of
the systems responsible for routing 911 calls to the appropriate local public safety
authorities. Wireless providers typically incur the costs of these functions directly,
whereas VoIP providers incur them only indirectly (through their CLEC partners).
It is thus, if anything, ironic that the FCC would cite these functions as a rationale
for making wireless providers worse off than VoIP providers for cost-recovery
purposes.
21

Appellate Case: 11-9900 Document: 01018937278 Date Filed: 10/23/2012 Page: 28


such as CenturyLink.9 But the FCC never explained why its preference for this
purported “symmetr[y]” justified the creation of a new, competitively biased
asymmetry between calls to cable VoIP subscribers and calls to wireless
subscribers. If the FCC believed that its solicitude for cable VoIP providers
warranted sacrificing the interests of wireless carriers, it had an obligation to
provide an explicit, reasoned explanation for that policy choice, demonstrating that
it “has faced up to the meaning of its choice.” Competitive Enter. Inst., 956 F.2d at
327. Again, the FCC provided no such explanation.
In any event, no reasoned explanation would be available because the FCC
could have achieved its purported cable-ILEC “symmetry” without creating a new
cable-wireless asymmetry. AT&T had urged the FCC to keep calls to cellphones
on the same footing as calls to cable VoIP subscribers during the multi-year
transition to bill-and-keep—whether that meant preserving, or changing, the

9
Order ¶ 970. This goal of “symmetr[y]” between ILECs and cable providers
is at best perplexing because those two categories of providers are not similarly
situated in the first place. See AT&T Letter at 5 (JA__). Like wireless carriers,
ILECs are regulated carriers under Title II of the Communications Act. In
contrast, cable VoIP providers “take the position that they are offering unregulated
services” outside the scope of Title II. Order ¶ 970. The FCC identified no
reasoned basis for creating formal “symmetry” in Title II regulatory benefits
(access charges) between ILECs, which accept Title II regulatory obligations, and
cable VoIP providers, which reject those obligations. In any event, it is
indefensible to confer greater Title II benefits on those Title II-abjuring cable
VoIP providers (via their LEC partners) than on Title II-bound wireless providers
(and their LEC partners).
22

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access-charge rules for both classes of calls in tandem. See AT&T Letter at 2, 4-5
(JA__, __-__). The FCC identified no coherent rationale for treating wireless-
bound calls worse than VoIP-bound calls during this lengthy transition.
In short, the FCC provided no “satisfactory explanation” for its rule change,
and that portion of the Order is “arbitrary and capricious under the APA.”
Sorenson, 567 F.3d at 1220-1221. This Court should thus remand for further
proceedings. See id. at 1222.

CONCLUSION

The Order should be remanded in the single respect addressed above.

Respectfully
submitted,







s/ Jonathan E. Nuechterlein

CHRISTOPHER M. HEIMANN


JONATHAN E. NUECHTERLEIN
GARY L. PHILLIPS



HEATHER M. ZACHARY
PEGGY GARBER




DANIEL T. DEACON
AT&T SERVICES, INC.



WILMER CUTLER PICKERING
1120 20th
Street,
NW
HALE AND DORR LLP
Washington, DC 20036


1875 Pennsylvania Ave., NW
(202)
457-3058
Washington,
DC
20006
(202)
663-6000








Counsel for AT&T Inc.

October 23, 2012
23

Appellate Case: 11-9900 Document: 01018937278 Date Filed: 10/23/2012 Page: 30



REGULATORY ADDENDUM

47 C.F.R. § 61.26: Tariffing of competitive interstate switched exchange access
services.
* * *
(f) If a CLEC provides some portion of the switched exchange access services used
to send traffic to or from an end user not served by that CLEC, the rate for the
access services provided may not exceed the rate charged by the competing ILEC
for the same access services, except if the CLEC is listed in the database of the
Number Portability Administration Center as providing the calling party or dialed
number, the CLEC may, to the extent permitted by § 51.913(b) of this chapter,
assess a rate equal to the rate that would be charged by the competing ILEC for all
exchange access services required to deliver interstate traffic to the called number.
* * *



Appellate Case: 11-9900 Document: 01018937278 Date Filed: 10/23/2012 Page: 31


CERTIFICATE OF COMPLIANCE AND ANTI-VIRUS SCAN



1.
This filing complies with the type-volume limitation of the Amended
First Briefing Order because, according to the word-count function in Microsoft
Word 2003, it contains 5,050 words, excluding the parts of the filing exempted by
Fed. R. App. P. 32(a)(7)(B)(iii). If the words in the diagrams were included, the
total would be 5,154 words.

2.
This brief complies with the typeface requirements of Federal Rule of
Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of
Appellate Procedure 32(a)(6) because this brief has been prepared in a
proportionally spaced typeface using the Microsoft Office Word 2003 word
processing program in 14 point Times New Roman font.

3.
I hereby certify that I have scanned for viruses the Portable Document
Format version of the attached document, which was submitted in this case through
the Court’s e-mail system. I scanned the document using Trend Micro OfficeScan
Client for Windows, version 8.0 Service Pack 1, virus scan engine 9.500.1005,
virus pattern 9.481.00 (updated October 22, 2012), and according to that program,
the document was free of viruses.

4.
I further certify that no privacy redactions were required.







/s/ Daniel T. Deacon







Daniel T. Deacon

October 23, 2012


Appellate Case: 11-9900 Document: 01018937278 Date Filed: 10/23/2012 Page: 32


CERTIFICATE OF SERVICE


I hereby certify that on October 23, 2012 I caused the foregoing Uncited
AT&T Principal Brief to be filed by delivering a copy to the Court via e-mail at
FCC_briefs_only@ca10.uscourts.gov. I further certify that the foregoing
documents will be furnished by the Court through (ECF) electronic service to all
parties in this case through a registered CM/ECF user. This document will be
available for viewing and downloading on the CM/ECF system.
















/s/ Daniel T. Deacon







Daniel T. Deacon
October 23, 2012


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