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Brief for Resp'ts - Verizon et al. v. FCC & USA (D.C. Cir.)

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Released: April 2, 2014
ORAL ARGUMENT NOT YET SCHEDULED
USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 1 of 102
BRIEF FOR RESPONDENTS
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

NO. 13-1220

VERIZON AND AT&T, INC.,
PETITIONERS,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.

ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION

WILLIAM J. BAER
JONATHAN B. SALLET
ASSISTANT ATTORNEY GENERAL
ACTING GENERAL COUNSEL


ROBERT B. NICHOLSON
JACOB M. LEWIS
NICKOLAI G. LEVIN
ASSOCIATE GENERAL COUNSEL
ATTORNEYS


RICHARD K. WELCH
UNITED STATES
DEPUTY ASSOCIATE GENERAL COUNSEL
DEPARTMENT OF JUSTICE

WASHINGTON, D.C. 20530
LAUREL R. BERGOLD

COUNSEL

FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740


USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 2 of 102

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES



1. Parties and Amici.
All parties, intervenors, and amici appearing before the Federal
Communications Commission and in this Court are listed in the Brief for
Petitioners.
2. Rulings under review.
Petition of US Telecom for Forbearance Under 47 U.S.C. § 160(c)
from Enforcement of Certain Legacy Telecommunications Regulations,
Memorandum Opinion and Order and Report and Order and Further Notice
of Proposed Rulemaking and Second Further Notice of Proposed
Rulemaking, 28 FCC Rcd 7627 (2013) (“Order”) (J.A. 1).
3. Related cases.
The Order has not previously been before this Court. Counsel are not
aware of any other related cases pending before this Court or any other court.






USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 3 of 102

TABLE OF CONTENTS


TABLE OF AUTHORITIES .......................................................................... iv 
GLOSSARY .................................................................................................... xi 
STATEMENT OF ISSUE PRESENTED ......................................................... 1 
STATUTORY PROVISIONS ........................................................................... 2 
COUNTERSTATEMENT ................................................................................ 3 
I. 
Background ........................................................................................ 3 
A.  Statutory and Regulatory Framework ....................................... 3 
1. 
Section 10 ......................................................................... 3 
2. 
Statutory Rate Regulation Provisions ............................... 4 
3. 
Section 220 and the USOA ............................................... 5 
4. 
Price Cap Regulation for Large Incumbent
LECs. ................................................................................ 9 
II.  This Proceeding ............................................................................... 11 
A.  Proceedings Leading to the Order .......................................... 11 
B.  Order on Review ..................................................................... 14 
SUMMARY OF ARGUMENT ...................................................................... 22 
ARGUMENT .................................................................................................. 26 
I. 
THE ORDER IS SUBJECT TO DEFERENTIAL
STANDARDS OF REVIEW. .......................................................... 26 
II.  PETITIONERS’ CLAIM THAT THE FCC ERRED IN
ASSIGNING USTELECOM THE BURDEN OF
PROOF IS NOT PROPERLY BEFORE THE COURT
AND, IN ANY EVENT, IS BASELESS. ....................................... 28 
i

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 4 of 102
A.  Section 405 Bars Petitioners From Challenging
The FCC’s Assignment Of The Burden Of Proof. ................. 28 
B.  The FCC Lawfully Applied Its Judicially
Approved Rule Placing The Burden Of Proof On
USTelecom. ............................................................................ 29 
III.  THE COMMISSION REASONABLY DENIED
USTELECOM’S ACROSS-THE-BOARD USOA
FORBEARANCE REQUEST. ........................................................ 36 
A.  The FCC Reasonably Applied The Section 10
Forbearance Standard In Denying USTelecom’s
Request For Blanket Forbearance From The
USOA. ..................................................................................... 36 
1. 
The FCC Reasonably Determined That Part
32 Is Needed To Ensure That The Rates Of
Price Cap Carriers Are Just, Reasonable,
And Non-Discriminatory. ............................................... 37 
a. 
Retention Of Part 32 Is Needed For
Effective Regulation Of Incumbent
LECs’ Cost-Based Pole Attachment
Rates. ...................................................................... 38 
b. 
Part 32 Is Necessary For Effective
Evaluation Of Price Cap Access Rates. ................. 42 
c. 
Retention Of Part 32 Is Necessary For
The FCC’s Prevention Of Cross-
Subsidization Under Section 254(k). ..................... 44 
d. 
Part 32 Is Necessary For Effective
Implementation Of Section 272(e)(3)’s
Imputation Requirement. ........................................ 46 
2. 
The FCC Reasonably Determined That Part
32 Is Needed To Protect Consumers From
Unlawful Charges. .......................................................... 48 
ii

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 5 of 102
3. 
The FCC Reasonably Determined That
Forbearance Is Not In The Public Interest. ..................... 50 
IV.  PETITIONERS’ CLAIM THAT THE FCC ERRED
BY NOT GRANTING CONDITIONAL OR
PARTIAL FORBEARANCE LACKS MERIT. ............................. 52 
V.  THE FCC REASONABLY REQUIRES PART 32
ACCOUNTING ONLY FOR INCUMBENT LECs. ...................... 57 
VI.  THE COURT SHOULD NOT ORDER THE FCC TO
GRANT FORBEARANCE. ............................................................ 60 
CONCLUSION ............................................................................................... 62 
iii

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 6 of 102

TABLE OF AUTHORITIES

CASES

 
AT&T Corp. v. FCC, 236 F.3d 729 (D.C. Cir 2001) ...................................... 61
AT&T Inc. v. FCC, 452 F.3d 830 (D.C. Cir. 2006) ................................. 27, 35
BDPCS, Inc. v. FCC, 351 F.3d 1177 (D.C. Cir.
2003) ............................................................................................................ 29
Bell Atl. Tel. Cos. v. FCC, 79 F.3d 1195 (D.C. Cir.
1996) ............................................................................................................ 10
Black Oak Energy, LLC v. FERC, 725 F.3d 230
(D.C. Cir. 2013) ........................................................................................... 26
Cellco P’ship v. FCC, 357 F.3d 88 (D.C. Cir. 2004) ...................................... 26
Cellco P’ship v. FCC, 700 F.3d 534 (D.C. Cir.
2012) ............................................................................................................ 49
* Chevron USA Inc. v. Natural Resources Defense
Council, 467 U.S. 837 (1984) ...................................................................... 27
Coal. for Noncommercial Media v. FCC, 249 F.3d
1005 (D.C. Cir. 2001) .................................................................................. 28
CTIA v. FCC, 330 F.3d 502 (D.C. Cir. 2003) ................................................... 3
Earthlink, Inc. v. FCC, 462 F.3d 1 (D.C. Cir. 2006) ............................... 27, 36
FCC v. Pottsville Broad. Co., 309 U.S. 134 (1940) ........................................ 32
FCC v. Schreiber, 381 U.S. 279 (1965) .......................................................... 32
FPC v. Idaho Power Co., 344 U.S. 17 (1952) ................................................ 61
Globalstar, Inc. v. FCC, 564 F.3d 476 (D.C. Cir.
2009) ............................................................................................................ 54
* In re Core Commc’ns, Inc., 455 F.3d 267 (D.C. Cir.
2006) ........................................................................................... 3, 29, 34, 36
Maryland v. United States, 460 U.S. 1001 (1983) .......................................... 17
MCI Telecomm. Corp. v. AT&T, 512 U.S. 218
(1994) .......................................................................................................... 57
MCI Telecomm. Corp. v. FCC, 765 F.2d 1186 (D.C.
Cir. 1985) ..................................................................................................... 57
iv

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 7 of 102
Motor Vehicle Mfrs. Ass’n of the United States, Inc.
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29
(1983) .......................................................................................................... 26
Nat’l Cable & Telecomms. Ass’n, Inc. v. Gulf
Power Co., 534 U.S. 327 (2002) ................................................................. 39
Nat’l Rural Telecom Ass’n v. FCC, 988 F.2d 174
(D.C. Cir. 1993) ........................................................................................... 10
Qwest Commc’ns Int’l, Inc. v. FCC, 229 F.3d 1172
(D.C. Cir. 2000) ............................................................................................. 5
Qwest Corp. v. FCC, 482 F.3d 471 (D.C. Cir. 2007) ..................................... 29
* Qwest Corp. v. FCC, 689 F.3d 1214 (10th Cir.
2012) ................................................................................... 23, 30, 31, 32, 35
Schaffer v. Weast, 546 U.S. 49 (2005) ............................................................ 30
United States v. AT&T, 552 F. Supp. 131 (D.D.C
1982), aff’d, Maryland v. United States, 460 U.S.
1001 (1983) ................................................................................................. 17
Verizon Tel. Co. v. FCC, 453 F.3d 487 (D.C. Cir.
2006) ............................................................................................................ 10

ADMINISTRATIVE DECISIONS

 
2000 Biennial Regulatory Review – Comprehensive
Review of the Accounting Requirements and
ARMIS Reporting Requirements for Incumbent
Local Exchange Carriers
, Report and Order and
Further Notice of Proposed Rulemaking, 16 FCC
Rcd 19911 (2001) ............................................................................... 6, 8, 58
2000 Biennial Regulatory Review, Notice of
Proposed Rulemaking, 15 FCC Rcd 20568
(2001) ............................................................................................................ 6
Applications of Ameritech Corp., 14 FCC Rcd
14712 (1999), vacated in part, Ass’n of
Commc’ns Enters. v. FCC
, 235 F.3d 662 (D.C.
Cir. 2001) ..................................................................................................... 45
Applications of AT&T Inc., Cellco P’ship d/b/a
Verizon Wireless, Grain Spectrum, LLC and
Grain Spectrum II
, 29 FCC Rcd 12878 (2013) .......................................... 60
v

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 8 of 102
Biennial Regulatory Review 2004, Staff Report, 20
FCC Rcd 263 (WCB 2005) ......................................................................... 44
Comprehensive Review of the Accounting
Requirements and ARMIS Reporting
Requirements for Incumbent Local Exchange
Carriers
, Report and Order, 15 FCC Rcd 8690
(2000) ............................................................................................................ 8
Hyperion Telecomms., Inc., Memorandum Opinion
and Order and Notice of Proposed Rulemaking,
12 FCC Rcd 8536 (1997) ............................................................................ 59
Implementation of Section 224 of the Act, 25 FCC
Rcd 11864 (2010), aff’d, Am. Elec. Power Serv.
Corp. v. FCC
, 708 F.3d 183 (D.C. Cir.), cert.
denied
, 134 S.Ct. 118 (2013) ....................................................................... 39
* Petition of AT&T Inc. for Forbearance Under 47
U.S.C. § 160 From Enforcement of Certain of the
Commission’s Cost Assignment Rules
,
Memorandum Opinion and Order, 23 FCC Rcd
7302 (2008) ................ 7, 9, 18, 19, 20, 42, 43, 44, 45, 47, 48, 49, 51, 55, 58
Petition of Qwest Corporation for Forbearance
from Enforcement of the Commission’s ARMIS
and 492A Reporting Requirements Pursuant to
47 U.S.C. § 160(c)
, Memorandum Opinion and
Order, 23 FCC Rcd 18483 (2008) ............................................................... 40
Petition of USTelecom For Forbearance Under 47
U.S.C. § 160(c) From Enforcement Of Certain
Legacy Telecommunications Regulations
, Order,
28 FCC Rcd 1077 (2013) ............................................................................ 12
Petition to Establish Procedural Requirements to
Govern Proceedings for Forbearance Under
Section 10 of the Communications Act of 1934, as
Amended
, Report and Order, 24 FCC Rcd 9543
(2009), 74 Fed. Reg. 39219-01 ...................................................... 30, 35, 55
* Policy and Rules Concerning Rates for Competitive
Common Carrier Services and Authorization
Therefor
, First Report and Order, 85 FCC 2d 1
(1980) .................................................................................................... 57, 59
vi

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 9 of 102
Policy and Rules Concerning Rates for Dominant
Carriers, Second Report and Order, 5 FCC Rcd
6786 (1990), recon. granted in part, 6 FCC Rcd
2637 (1991), aff'd, Nat’l Rural Telecom Ass’n v.
FCC
, 988 F.2d 174 (D.C. Cir. 1993)........................................ 10, 11, 42, 43
Public Notice, 26 FCC Rcd 16943 (2011) ................................................. 9, 49
Review of Regulatory Requirements for Incumbent
LEC Broadband Telecommunications Services,
Notice of Proposed Rulemaking, 16 FCC Rcd
22745 (2001) ........................................................................................ 45, 58
Revision of the Uniform System of Accounts for
Telephone Cos. to Accommodate Generally
Accepted Accounting Principles
, 102 FCC 2d 964
(1985) ............................................................................................................ 7
Revisions of the Uniform System of Accounts and
Financial Reports Requirements for Class A and
Class B Telephone Companies
, Report and Order,
FCC 86-221, 1986 WL 291915 (released May 15,
1986) .............................................................................................................. 7
Section 272(f)(1) Sunset of the BOC Separate
Affiliate and Related Requirements, Report and
Order and Memorandum Opinion and Order, 22
FCC Rcd 16440 (2007) ........................................................................ 18, 46
Service Quality Customer Satisfaction,
Infrastructure and Operating Data Gathering,
Memorandum Opinion and Order and Notice of
Proposed Rulemaking, 23 FCC Rcd 13647
(2008) ..................................................................................................... 9, 48
Special Access for Price Cap Local Exchange
Carriers, Report and Order, 27 FCC Rcd 10557
(2011) .......................................................................................................... 17
Special Access Rates for Price Cap Local Exchange
Carriers, Order and Notice of Proposed
Rulemaking, 20 FCC Rcd 1994 (2005) ................................................ 38, 42
vii

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 10 of 102
Suspension and Investigation of AT&T Special
Access Tariffs, Order, 28 FCC Rcd 16525 (WCB
2013) ............................................................................................................ 43
Technology Transitions, Order, Report and Order
and Further Notice of Proposed Rulemaking,
FCC 14-5, 2014 WL 407096 (released Jan. 31,
2014) ............................................................................................................ 57

STATUTES

 
5 U.S.C. § 556(d) ............................................................................................. 30
5 U.S.C. § 706(2)(A) ....................................................................................... 26
28 U.S.C. § 2342(1) ........................................................................................ 61
47 U.S.C. § 153(5)........................................................................................... 17
47 U.S.C. § 154(i) ........................................................................................... 32
47 U.S.C. § 154(j) ........................................................................................... 32
47 U.S.C. § 159(c)(3) ...................................................................................... 31
47 U.S.C. § 160 ............................................................................................... 28
* 47 U.S.C. § 160(a) ............................................................................ 1, 3, 36, 56
* 47 U.S.C. § 160(a)(1)-(3) ................................................................... 33, 34, 61
* 47 U.S.C. § 160(b) ............................................................................................. 3
* 47 U.S.C. § 160(c) ...................................................................... 3, 4, 12, 54, 55
* 47 U.S.C. § 201(b) .......................................................................... 4, 11, 37, 42
* 47 U.S.C. § 202(a) ................................................................................ 4, 37, 42
47 U.S.C. § 203 ................................................................................................. 4
47 U.S.C. § 204 .......................................................................................... 4, 11
47 U.S.C. § 204(a) .................................................................................... 11, 35
47 U.S.C. § 204(a)(1) ...................................................................................... 31
47 U.S.C. § 205 ................................................................................................. 4
47 U.S.C. §§ 206-09 .......................................................................................... 4
47 U.S.C. § 208 ............................................................................................... 43
* 47 U.S.C. § 220(a)(2) ............................................................................. 2, 5, 37
viii

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 11 of 102
47 U.S.C. § 220(c) ........................................................................................... 31
47 U.S.C. § 224(a)(4) ........................................................................................ 5
* 47 U.S.C. § 224(b)(1) ................................................................................. 5, 37
47 U.S.C. § 224(d)(1) ........................................................................................ 5
47 U.S.C. § 224(e)(2) ........................................................................................ 5
47 U.S.C. § 224(e)(3) ........................................................................................ 5
47 U.S.C. § 251(c) ........................................................................................... 58
47 U.S.C. § 251(h)............................................................................................. 8
* 47 U.S.C. § 254(k) ................................................................................ 4, 37, 44
* 47 U.S.C. § 272(e)(3) ...................................................................................... 18
47 U.S.C. § 309(a) ........................................................................................... 34
47 U.S.C. § 309(e) .................................................................................... 31, 35
47 U.S.C. § 312(d)........................................................................................... 32
47 U.S.C. § 316(b)........................................................................................... 32
47 U.S.C. § 325(e)(6) ...................................................................................... 31
47 U.S.C. § 402(a) ........................................................................................... 61
* 47 U.S.C. § 405 ........................................................................................ 22, 28
* 47 U.S.C. § 405(a) ........................................................................................... 56
47 U.S.C. § 1302(a) ......................................................................................... 39
Telecommunications Act of 1996, Pub. L. No. 104-
104, 110 Stat. 56 (1996) ................................................................................ 8

REGULATIONS

 
47 C.F.R. Part 1, Subpart J .............................................................................. 38
47 C.F.R. § 1.58 .............................................................................................. 13
47 C.F.R. § 1.1404(g)(2) .......................................................................... 16, 39
47 C.F.R. § 1.1409(e)(1) ................................................................................... 5
47 C.F.R. § 1.1409(e)(2) ................................................................................... 5
* 47 C.F.R. Part 32 ...........................................................................................2, 6
47 C.F.R. § 32.1 ..................................................................................... 6, 7, 49
ix

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 12 of 102
47 C.F.R. § 32.11(b) .......................................................................................... 8
47 C.F.R. § 32.2000(e)-(f) ............................................................................... 14
47 C.F.R. § 32.23 ............................................................................................ 14
47 C.F.R. § 32.27 ............................................................................................ 14
47 C.F.R. § 32.5280 ........................................................................................ 14

OTHERS

 
AT&T Compliance Plan, WC Docket No. 07-21
(filed July 24, 2008) .................................................................................... 47



























* Cases and other authorities principally relied upon are marked with
asterisks.

x

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 13 of 102

GLOSSARY

1996
Act
Telecommunications
Act
of
1996
Act
Communications
Act
of
1934
ARMIS

Automated
Reporting
Management

Information
System
BOCs
Bell
Operating
Companies
Commission
Federal
Communications
Commission
Communications Act


Communications Act of 1934
FCC
Federal
Communications
Commission
GAAP
General Accepted Accounting
Principles
J.A.
Joint
Appendix

LECs
Local
Exchange
Carriers
NCTA
National
Cable
&
Telecommunications






Association
USOA
Uniform
System
of
Accounts

USTelecom

United
States
Telecom
Association

VoIP

Voice
over
Internet
Protocol




xi

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 14 of 102
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

NO. 13-1220

VERIZON AND AT&T, INC.,
PETITIONERS,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.

ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION

BRIEF FOR RESPONDENTS

STATEMENT OF ISSUE PRESENTED

Section 10(a) of the Communications Act of 1934, as amended,
authorizes the Federal Communications Commission (“FCC” or
“Commission”) to forbear from applying provisions of the Communications
Act or its rules to a telecommunications carrier or class of carriers if it finds
that certain criteria have been met. 47 U.S.C. § 160(a). Invoking that
section, the United States Telecom Association (“USTelecom”), a trade
association of telecommunications providers that includes petitioners Verizon
and AT&T, Inc., unsuccessfully petitioned the FCC to forbear completely

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 15 of 102
from applying the requirement that price cap carriers maintain the Uniform
System of Accounts (“USOA”) required by section 220(a)(2) of the
Communications Act and Part 32 of the FCC’s rules implementing section
220(a)(2). See 47 U.S.C. § 220(a)(2); 47 C.F.R. Part 32.1
The issue before the Court is whether the FCC lawfully denied
USTelecom’s across-the-board forbearance request regarding the USOA.

STATUTORY PROVISIONS

The applicable statutes and regulations are contained in the attached
appendix.

1 USTelecom’s petition also sought forbearance relief from many other
requirements. The FCC ruled on USTelecom’s forbearance request in two
orders: (1) USTelecom Petition for Forbearance Under 47 U.S.C. § 160(c)
from Enforcement of Certain Legacy Telecommunications Regulations
,
Memorandum Opinion and Order and Report and Order and Further Notice
of Proposed Rulemaking and Second Further Notice of Proposed
Rulemaking, 28 FCC Rcd 7627 (2013) (“Order”) (J.A. 1) and (2) Petition of
USTelecom for Forbearance Under 47 U.S.C. § 160(c) from Enforcement of
Certain Legacy Telecommunications Regulations
, Order, 28 FCC Rcd 2605
(2013) (“USTelecom Short Order”) (J.A. 414). Petitioners only seek review
of the Order.
2

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 16 of 102

COUNTERSTATEMENT

I.

BACKGROUND

A. Statutory and Regulatory Framework

1. Section 10

Section 10(a) of the Communications Act requires the FCC to forbear
from applying any provision of the Communications Act or its rules if it
determines: (1) that enforcement of the requirement is not necessary to
ensure that rates are just, reasonable, and non-discriminatory; (2) that the
regulation is not needed to protect consumers; and (3) that forbearance is
consistent with the public interest. 47 U.S.C. § 160(a). The FCC, in applying
the “public interest” component of the test, must consider whether
forbearance “will promote competitive market conditions, including the
extent to which such forbearance will enhance competition among providers
of telecommunications services.” 47 U.S.C. § 160(b). The FCC may forbear
under section 10(a) only if it finds that all three elements of the forbearance
standard are met. See In re Core Commc’ns, Inc., 455 F.3d 267, 277 (D.C.
Cir. 2006); CTIA v. FCC, 330 F.3d 502, 508 (D.C. Cir. 2003).

Section 10(c) gives a telecommunications carrier the right to petition
for forbearance. 47 U.S.C. § 160(c). To expedite decision-making, such a
forbearance petition is “deemed granted” after one year (plus 90 days if
extended by the FCC) “if the FCC does not deny the petition for failure to
3

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 17 of 102
meet the requirements for forbearance under [section 10(a)].” 47 U.S.C.
§ 160(c).
2. Statutory Rate Regulation Provisions

The FCC has the responsibility under the Communications Act to
ensure that charges for interstate common carrier communications services
are just and reasonable, 47 U.S.C. § 201(b), and free of any undue
discrimination or preference, 47 U.S.C. § 202(a). The Act gives the FCC the
related duty to prevent telecommunications carriers from using interstate
services “that are not competitive to subsidize [interstate] services that are
subject to competition.” 47 U.S.C. § 254(k).

In the absence of regulatory forbearance, section 203 of the Act
requires interstate telecommunications carriers to file tariffs that establish the
rates, terms, and conditions of interstate communications services. 47 U.S.C.
§ 203. The FCC has authority to investigate the lawfulness of those tariffs,
47 U.S.C. §§ 204, 205, and to prescribe, after hearing, just and reasonable
charges or practices, 47 U.S.C. § 205. The FCC also has a duty to adjudicate
complaints of unlawful carrier rates and to award damages where warranted.
47 U.S.C. §§ 206-09.

In addition, section 224(b)(1) of the Act requires the FCC to ensure
that the “rates, terms, and conditions for pole attachments . . . are just and
4

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 18 of 102
reasonable.” 47 U.S.C. § 224(b)(1).2 Section 224 requires pole attachment
rates to be based on the “cost” of providing space on a pole. 47 U.S.C.
§ 224(d)(1), (e)(2), (3).3 The FCC has developed cost-based rate formulae
used to develop and evaluate the lawfulness of pole attachment rates. See 47
C.F.R. § 1.1409(e)(1), (2).
3. Section 220 and the USOA

Section 220(a) of the Act requires the FCC to establish rules
“prescrib[ing] a uniform system of accounts for use by telephone companies”
in order to “ensure a proper allocation of all costs to and among [the carrier’s]
telecommunications services, facilities, and products.” 47 U.S.C.
§ 220(a)(2). Congress imposed this requirement to give the FCC the means
to “fulfill its mandate of ensuring that carriers’ rates and practices are just and
reasonable.” Qwest Commc’ns Int’l, Inc. v. FCC, 229 F.3d 1172, 1178 (D.C.
Cir. 2000).

2 The Communications Act defines a “pole attachment” as “any attachment
by a cable television system or provider of telecommunications services to a
pole, duct, conduit or right-of-way owned or controlled by a utility.” 47
U.S.C. § 224(a)(4).
3 Section 224 provides for different cost methods for establishing rates of pole
attachments depending upon whether the attacher is a cable company or a
provider of telecommunications services. Compare 47 U.S.C. § 224(d)(1)
with 47 U.S.C. § 224(e)(2).
5

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 19 of 102

The USOA, codified in Part 32 of the FCC’s rules (47 C.F.R. Part 32),
comprises “a historical accounting system that reports the results of
operational and financial events in a manner which enables both management
and regulators to assess these results within a specified accounting period.”
47 C.F.R. § 32.1. Specifically tailored to the telecommunications industry,
the USOA provides financial data at a sufficient level of disaggregation and
geographic specificity to enable the FCC to determine the costs of specific
telecommunications services. See Order, ¶71 (J.A. 36). And by providing
uniformity and consistency among carriers’ books of account, Part 32 permits
ready comparisons among carriers’ operating results and enables industry
analysis based on historical trends. Id., ¶72 (J.A. 37); 2000 Biennial
Regulatory Review – Comprehensive Review of the Accounting Requirements
and ARMIS Reporting Requirements for Incumbent Local Exchange Carriers,
Report and Order and Further Notice of Proposed Rulemaking, 16 FCC Rcd
19911, 19958 (¶119) (2001) (“2001 USOA Reform Order”); 2000 Biennial
Regulatory Review, Notice of Proposed Rulemaking, 15 FCC Rcd 20568,
20575 (¶19) (2001).

As directed by Congress, the FCC has required uniform accounts since
1935. In 1986, however, the FCC substantially revised and updated its
accounting system and codified new rules in Part 32 to “provid[e] for changes
6

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 20 of 102
in a complex and competitive, technological and economic environment.”
Revisions of the Uniform System of Accounts and Financial Reports
Requirements for Class A and Class B Telephone Companies, Report and
Order, FCC 86-221, 1986 WL 291915 (¶5) (released May 15, 1986). The
FCC in the Part 32 rules, inter alia, incorporated generally accepted
accounting principles (“GAAP”) into the USOA “to the extent regulatory
considerations permit.” 47 C.F.R. § 32.1. Accord, Revision of the Uniform
System of Accounts for Telephone Cos. to Accommodate Generally Accepted
Accounting Principles, 102 FCC 2d 964, 984 (1985) (“GAAP Accounting
Order”).4

The FCC has continued to review its Part 32 accounting requirements
“in order to keep pace with changing conditions as the telecommunications
industry becomes increasingly competitive.” Comprehensive Review of the
Accounting Requirements and ARMIS Reporting Requirements for Incumbent

4 “GAAP is that common set of accounting concepts, standards, procedures
and conventions which are recognized by the accounting profession as a
whole and upon which most nonregulated enterprises base their external
financial statements and reports.” GAAP Accounting Order, 102 FCC Rcd at
964 n.1. GAAP does “not . . . require uniform accounts among companies so
long as the implementation is consistent with the principles.” Petition of
AT&T Inc. for Forbearance Under 47 U.S.C. § 160 From Enforcement of
Certain of the Commission’s Cost Assignment Rules
, Memorandum Opinion
and Order, 23 FCC Rcd 7302, 7316 (¶23) (2008) (“AT&T Cost Assignment
Forbearance Order
”).
7

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 21 of 102
Local Exchange Carriers, Report and Order, 15 FCC Rcd 8690, 8691 (¶1)
(2000). In 2000, the FCC made a number of reforms to its accounting
requirements, including the elimination of the Part 32 requirement that
carriers maintain disaggregated financial data in subsidiary record categories
and report that data in an expense matrix. Id. at 8693 (¶4). The FCC in 2001
again made additional changes to the USOA, including substantial reforms
that significantly streamlined Part 32. 2001 USOA Reform Order, 16 FCC
Rcd 19911. For example, the FCC reduced the number of Class A accounts
by forty-five percent – from 296 to 164 – “maintaining only those currently
used in ongoing regulatory activities under the Communications Act and the
1996 Act.”5 Id. at 19914 (¶5).6

5 Large incumbent local exchange carriers (“LECs”), such as Verizon and
AT&T, are required to maintain Class A accounts. See 47 C.F.R. § 32.11(b).
An incumbent LEC is a LEC that had provided local exchange service to a
given area pursuant to a monopoly franchise granted by a state commission
prior to the enactment of the Telecommunications Act of 1996, Pub. L. No.
104-104, 110 Stat. 56 (1996). See 47 U.S.C. § 251(h). The 2001 USOA
Reform Order
also reduced by 27 percent the number of Class B accounts
that apply to smaller incumbent LECs. 16 FCC Rcd at 19914 (¶5).
6 The FCC in the 2001 USOA Reform Order also amended section 32.11 of
its rules to make explicit that Part 32 applies only to “incumbent LECs,”(id.
at 19960 (¶126)) “because they are the dominant carriers in their markets.”
Id. That determination reflects the FCC’s longstanding policy of calibrating
the level of regulation based upon whether a carrier is classified as a
“dominant carrier,” i.e. a carrier with market power, or a “non-dominant
carrier,” i.e., a carrier without market power. See Section V, infra.
8

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 22 of 102

In 2008, the Commission granted AT&T, Verizon, and Qwest
conditional forbearance from the cost assignment rules, which included
several Part 32 rules. AT&T Cost Assignment Forbearance Order, 23 FCC
Rcd 7302; Service Quality Customer Satisfaction, Infrastructure and
Operating Data Gathering, Memorandum Opinion and Order and Notice of
Proposed Rulemaking, 23 FCC Rcd 13647 (2008) (“Verizon Qwest Cost
Assignment Forbearance Order”).7 In granting that conditional forbearance,
the FCC reaffirmed the need for “USOA account data” for “regulatory
purposes, including rulemakings or adjudications,” and required such data “to
be maintained and available to the Commission on request.” AT&T Cost
Assignment Forbearance Order, 23 FCC Rcd at 7314 (¶21).8
4. Price Cap Regulation for Large Incumbent LECs.

Historically, the FCC exclusively regulated the interstate access rates
of all incumbent LECs pursuant to a traditional rate of return methodology.
Under that cost-based form of rate regulation, a telephone company is
permitted to set rates no higher than necessary to recover its legitimate

7 The cost assignment rules “generally require carriers to assign costs to build
and maintain the network and revenues from services provided to specific
categories.” Order, ¶ 31 (J.A. 20).
8 In compliance plans setting forth how they would satisfy the conditions of
forbearance, AT&T, Verizon, and Qwest each committed “to maintain their
Part 32 books of account.” Public Notice, 26 FCC Rcd 16943, 16946 (2011).
9

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 23 of 102
expenses (including depreciation and taxes) plus a fair rate of return on its
investment. See, e.g., Verizon Tel. Co. v. FCC, 453 F.3d 487, 490 (D.C. Cir.
2006).

In 1990, the FCC adopted an incentive-based “price cap” system of
rate regulation for access services for the largest incumbent LECs. Policy
and Rules Concerning Rates for Dominant Carriers, Second Report and
Order, 5 FCC Rcd 6786 (1990) (“LEC Price Cap Order”), recon. granted in
part, 6 FCC Rcd 2637 (1991), aff'd, Nat’l Rural Telecom Ass’n v. FCC, 988
F.2d 174 (D.C. Cir. 1993).9 The price cap system is designed to provide
incentives for efficiency and productivity by permitting those LECs that
reduce their costs to earn greater profits. See Bell Atl. Tel. Cos. v. FCC, 79
F.3d 1195, 1198 (D.C. Cir. 1996). Under price cap regulation, the FCC
accords an initial presumption of reasonableness to interstate rates that (1) are
at or below a price cap for a group of services known as a “basket” and
(2) are within specified pricing bands for service categories within the
baskets. When a LEC files interstate access rates that are below the price
caps and within price bands, the LEC’s tariff receives “streamlined” review

9 While price cap regulation is mandatory for the largest LECs, smaller LECs
can elect to be regulated under either the price cap method or the rate of
return system. LEC Price Cap Order, 5 FCC Rcd at 6818-19 (¶¶262-65).

10

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 24 of 102
from the FCC and generally will become effective without suspension and
investigation under 47 U.S.C. § 204. LEC Price Cap Order, 5 FCC Rcd at
6788 (¶¶11-12). That presumption of reasonableness, however, “applies only
to the suspension decision, and does not survive if the tariff is set for
investigation.” Id. at 6822 (¶293). Once a price cap tariff is designated for
investigation, the carrier has the burden to show that its rates are just and
reasonable. Id. at 6822 (¶295); see 47 U.S.C. §§ 201(b), 204(a).

The FCC in adopting the price cap plan stated that “price cap rates do
reflect costs . . . albeit in a different manner than do rate of return rates.”
LEC Price Cap Order, 5 FCC Rcd at 6836 (¶ 405). “With respect to costs,”
the FCC emphasized that it would “continue to rely . . . on the [s]ection 204
investigation and [s]ection 208 complaint processes as part of [its] plan to
ensure just, reasonable, and non-discriminatory rates.” Id. at 6836 (¶406).

II.

THIS PROCEEDING

A. Proceedings Leading to the Order



On February 16, 2012, USTelecom filed a petition requesting
forbearance from 141 statutory and rule provisions. Petition for Forbearance
of the United States Telecom Association (filed Feb. 16, 2012) (J.A. 128)
(“USTelecom Petition”). Included in USTelecom’s petition was a request
that the FCC forbear from application of section 220(a)(2) of the
11

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 25 of 102
Communications Act and Part 32 in its entirety for price cap carriers (“across-
the-board USOA forbearance request”).10 Id. at 34-43 (J.A. 167-76). The
USTelecom petition contained two other forbearance requests relating to
specific Part 32 rules. Id. at 34, 43-47 (J.A. 167, 176-80). USTelecom in its
petition did not seek any other type of partial or conditional relief from Part
32. After the FCC extended consideration of the petition by ninety days, the
deadline for FCC action to avoid a “deemed grant” result under the statute
was May 17, 2013. See Petition of USTelecom For Forbearance Under 47
U.S.C. § 160(c) From Enforcement Of Certain Legacy Telecommunications
Regulations, Order, 28 FCC Rcd 1077 (2013). See 47 U.S.C. § 160(c).

At the FCC’s invitation, a number of parties filed comments and reply
comments on USTelecom’s petition. See Public Notice, 27 FCC Rcd 2326
(2012) (J.A. 231). USTelecom and several of its members filed comments in
support of the across-the-board USOA forbearance request, whereas other
parties, including state public utility commissions, competitive service
providers, industry advocacy groups, wireless carriers, and consumer
advocates opposed it.

10 The government refers to the “across-the-board USOA forbearance
request” to distinguish that request from other forbearance requests in
USTelecom’s petition (including requests for forbearance from specific Part
32 accounts).
12

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On April 18, 2013 – almost a year after the pleading cycle had ended
and only a few weeks before the statutory deadline for FCC action –
USTelecom filed a lengthy ex parte letter presenting new arguments in
support of its across-the-board USOA forbearance request. Letter from
Bennett Ross to Marlene Dortch, Secretary, FCC (Apr. 18, 2013) (J.A. 456)
(“April 18 Ex Parte”). In that letter, USTelecom stated that price cap carriers
would be willing to make two “voluntary commitments” that it claimed
would provide the FCC with the data “it may reasonably need in discharging
its regulatory responsibilities” if it forbore from applying Part 32 across-the-
board to price cap carriers. Id. at 2 (J.A. 457).

In the ensuing two weeks, USTelecom made nine additional ex parte
submissions. In its last ex parte submissionfiled on the last day that ex
parte communications were permitted and a mere two weeks before the
statutory “deemed grant” provision would apply – USTelecom set forth two
additional proposals that it claimed “could be conditions for obtaining Part 32
forbearance.” Letter from Walter McCormick to Marlene Dortch, Secretary,
FCC (May 3, 2013) (emphasis added) (J.A. 483) (“May 3 Ex Parte”). See 47
C.F.R. § 1.58 (barring party contacts with FCC decision-makers during the
two-week period before the statutory deadline for FCC action in forbearance
proceedings); Public Notice, 28 FCC Rcd 5705 (2013) (J.A. 480)
13

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 27 of 102
(announcing that contacts with decision-makers are prohibited with respect to
the USTelecom forbearance petition as of May 3, 2013).

B. Order on Review


In an order released on May 17, 2013, the FCC granted a majority of
the requests in USTelecom’s petition, including some requests for
forbearance from specific Part 32 rules,11 but denied the across-the-board
USOA forbearance request. Order (J.A. 1). With respect to the blanket
USOA request, the FCC concluded that USTelecom had failed to satisfy its
burden of proof as to each of the three elements of the section 10 test. Id.,
¶¶56-77 (J.A. 30-39).


Section 10(a)(1).

The FCC first considered whether Part 32 is
unnecessary to ensure that the rates and practices of price cap carriers are just
and reasonable and free from unjust or unreasonable discrimination. The
FCC found “a variety of current circumstances” in which Part 32 data are

11 With respect to Part 32 rules, the FCC granted USTelecom’s specific
requests for conditional forbearance from the application of: (1) property
record requirements in 47 C.F.R. § 32.2000(e)-(f) for incumbent LECs, and
(2) the Part 32 rules relating to cost assignment (47 C.F.R. §§ 32.23, 32.27,
32.5280) for price cap carriers that had not previously been granted
forbearance from those rules.
14

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 28 of 102
necessary to ensure that the rates of price cap LECs are just, reasonable and
non-discriminatory.12 Id., ¶58 (J.A. 31). See id., ¶¶61-69 (J.A. 31-35).

Pole Attachments. The FCC determined that Part 32 is necessary to its
regulation of pole attachment rates under section 224 of the Communications
Act. Id., ¶63 (J.A. 32). Cost data for pole attachment rates are derived from
Part 32 accounts, and those data enable both the agency and affected parties
to evaluate whether a local exchange carrier’s pole attachment rates
calculated under the Commission’s rate formula are just and reasonable. Id.13
The FCC also uses Part 32 data when modifying the regulatory formula used
to calculate pole attachment rates. Id., ¶64 (J.A. 33).

The FCC considered, and rejected, USTelecom’s argument that
retention of the Part 32 rules is not necessary because the FCC’s pole
attachment rules do not explicitly require the use of Part 32 data. Id., ¶65

12 The references to “price cap LECs” in this brief are those LECs that are
subject to price cap regulation for their interstate access services, even though
those carriers are subject to a different type of price regulation for their pole
attachments.
13 Under the FCC’s regulatory regime, the parties first try to negotiate a pole
attachment rate; if those negotiations fail, attaching parties may file a
complaint with the agency using cost data reported by carriers. Id., n.189
(J.A. 32). The FCC found that parties rely upon Part 32 data both in their
private negotiations of pole attachment rates and in their complaint filings.
Id., ¶63 (J.A. 32).

15

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 29 of 102
(J.A. 33). See 47 C.F.R. § 1.1404(g)(2). The FCC explained that the
administrative record contained no evidence of alternative sources of pole
attachment data that would satisfy its regulatory standards. Id., 65 (J.A. 33).
Indeed, given the significant differences between GAAP and Part 32 in the
treatment of certain pole attachment expenses – differences expressly
acknowledged by USTelecom in the administrative proceedings below (May
3 Ex Parte at 4 (J.A. 485); Order, n.200 (J.A. 34)) – the FCC concluded that
a price cap carrier’s use of GAAP accounting would actually “alter the rates
price cap carriers charge for pole attachments.” Order,65 & n.200 (J.A.
34).
Enforcement. The FCC found that Part 32 was an essential tool in its
evaluation of the lawfulness of price cap interstate access rates. The FCC
pointed out that “the fact that price cap rates cannot be raised automatically
does not mean that the relationship between costs and prices is entirely
eliminated.” Id., n.302 (J.A. 48). The FCC noted that “[e]ven under price
cap regulation, allegations of unjust, unreasonable, or unreasonably
discriminatory rates can arise” that require FCC adjudication. Id., n.209 (J.A.
35). For example, the FCC specified that such questions had been raised (and
hotly contested) in the context of certain price cap special access rates. Id.
(citing Special Access for Price Cap Local Exchange Carriers, Report and
16

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 30 of 102
Order, 27 FCC Rcd 10557 (2011)). The FCC determined that requiring price
cap carriers to maintain Part 32 accounting “ensures [the FCC’s] ability to
obtain the underlying data necessary to reconstruct information to determine
whether improper cost accounting has occurred or to make determinations
about just and reasonable rates.” Id., ¶53 (J.A. 29).14

Section 272(e)(3) Imputation. Section 272(e)(3) specifies that a Bell
Operating Company (“BOC”)15 that offers integrated exchange access and
long distance service must “impute to itself . . . an amount for access to its
telephone exchange service and exchange access that is no less than the
amount charged to any unaffiliated interexchange [long-distance] carriers for

14 The FCC pointed out that it may also need Part 32 accounting data when
adjusting the existing price cap regime or considering other reforms. Id., ¶68
(J.A. 34).

15 The BOCs are incumbent LECs that historically had been wholly-owned
subsidiaries of AT&T and collectively controlled the local exchange facilities
used to provide service to most of the telephone subscribers in the country.
In 1982, AT&T entered into an antitrust consent decree that, inter alia,
resulted in the divestiture of the BOCs by AT&T. See United States v.
AT&T
, 552 F. Supp. 131 (D.D.C 1982), aff’d, Maryland v. United States, 460
U.S. 1001 (1983). See 47 U.S.C. § 153(5) (listing the BOCs).
17

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 31 of 102
such service.” 47 U.S.C. § 272(e)(3).16 The FCC found Part 32 data to be
necessary for the effective implementation of that statutory requirement.
Order, ¶ 66 (J.A. 34). The FCC noted that it had conditioned its
authorization of the BOCs’ offering of integrated exchange and long distance
service upon the BOCs’ compliance with cost assignment rules designed to
prevent improper cost shifting and the inclusion of section 272 imputation
charges in a specific Part 32 account. Id. (citing Section 272(f)(1) Sunset of
the BOC Separate Affiliate and Related Requirements, Report and Order and
Memorandum Opinion and Order, 22 FCC Rcd 16440 (2007)) (“Section 272
Sunset Order”). Although the FCC subsequently granted forbearance from
the cost assignment rules, the FCC pointed out that it had conditioned that
forbearance upon the BOCs’ maintenance of Part 32 accounts and use of Part
32 data to comply with the imputation requirement in section 272(e)(3). Id.

16 “Imputation is an accounting and regulatory device that is used in
recognizing intra-company transactions. In the context of access services,
th[e] Commission and state commissions have long recognized the potential
for LECs to use their control over their local networks to impede competition
in services for which local network access is a needed input. Imputation
requirements address this concern by requiring the BOC to recognize for
accounting and other regulatory purposes charges for local network access
equal to the amounts that an unaffiliated third party would pay for
comparable access.” AT&T Cost Assignment Forbearance Order, 23 FCC
Rcd at 7318 n.102.
18

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 32 of 102
(citing AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7318-19
(¶29)).

Section 254(k) Compliance. The FCC found that Part 32 accounting
enables it to enforce compliance with section 254(k)’s prohibition on cross-
subsidization. Id., ¶67 (J.A. 34). The FCC explained that it had expressly
conditioned its forbearance from the cost assignment rules upon the
requirement that price cap carriers submit an annual certification of their
compliance with section 254(k) and maintain (and provide upon request) cost
accounting information necessary to ensure compliance with section 254(k).
Id.,¶45, 67 (J.A. 26, 34). See AT&T Cost Assignment Forbearance Order,
23 FCC Rcd at 7302 (¶30). The FCC found that Part 32 accounting gives it
the means to verify the accuracy of that cost accounting information. Order,
¶67 (J.A. 34). See id., ¶53 (J.A. 29) (Part 32 provides the underlying data
“necessary to gauge whether improper cost accounting has occurred.”).

Section 10(a)(2).

The FCC concluded that it needs Part 32 data to
ensure that telephone carriers charge consumers just and reasonable rates.
Id., ¶¶70-72 (J.A. 35-37). The FCC explained that the USOA is “uniquely
tailored” to provide the financial data the agency needs to fulfill its statutory
duties. Id., ¶71 (J.A. 36).
19

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The FCC rejected USTelecom’s claim that the agency, in its AT&T
Cost Assignment Forbearance Order, had held that price cap regulation by
itself adequately protects consumers against unjust and unreasonable rates in
all circumstances. The FCC pointed out that it would not have granted
forbearance from the cost assignment rules without the existence of Part 32
accounting safeguards. Id., ¶¶68, 70 (J.A. 34, 35) (citing AT&T Cost
Assignment Forbearance Order, 23 FCC Rcd at 7325, 7326 (¶¶41, 44)).
Indeed, the FCC noted that it had expressly conditioned that forbearance
upon AT&T’s provision of Part 32 data to the agency on request. Id. at 7661
(¶68) (J.A. 35).

The FCC also rejected USTelecom’s argument that other accounting
systems, such as GAAP, would adequately protect consumers in the absence
of Part 32 accounting. Order, ¶¶71-72 (J.A. 36-37). The FCC noted that
GAAP accounting is designed to give investors notice and transparency and
permit financial oversight by the Securities and Exchange Commission, not to
protect telecommunications consumers from unjust and unreasonable
charges. As a result, GAAP accounting does “not provide the same level of
disaggregation of costs and geographic specificity that Part 32 provides.” Id.,
¶71 (J.A. 36). The FCC further emphasized that GAAP “requires conformity
to a set of principles but does not require uniform treatment of plant-specific
20

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 34 of 102
assets as required by Part 32.” Id., ¶72 (J.A. 37). The FCC explained that
uniformity of Part 32 accounting enables the agency to conduct consistent
industry-wide analysis and oversight. Id.

Section 10(a)(3).

The FCC concluded that USTelecom had failed to
show that forbearance from Part 32 is consistent with the public interest. The
FCC found, after reviewing the administrative record, that there was
insufficient evidence to quantify accurately the costs of complying with Part
32. Id., ¶ 74 (J.A. 37). The FCC also found that USTelecom had failed to
show that the costs of Part 32 compliance outweigh the important uses of Part
32 data in telecommunications regulation. Id.

The FCC concluded that the record established that retaining Part 32
would enhance competition. Id., ¶75 (J.A. 38). The FCC found that
USTelecom had not shown that the cost savings to price cap carriers that
would result from forbearance “would have any effect on competition.” Id.,
¶74 (J.A. 38). On the other hand, the FCC determined that the record showed
that Part 32 affirmatively promotes competition in the marketplace. Id.,
¶¶74, 75 (J.A. 37, 38). The FCC explained that the ability of cable companies
and other service providers to obtain pole attachments at reasonable, cost-
based rates is “key to these providers’ ability to provide competition.” Id.,
¶75 (J.A. 38). The FCC found that the availability of Part 32 data is essential
21

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 35 of 102
to its evaluation of whether the pole attachment rates that incumbent LECs
charge are reasonable and cost-based. Id.

Although concluding that the public interest favored retaining its Part
32 accounting rules, the FCC acknowledged that further reform of the USOA
is likely appropriate. The FCC stated that it would institute a rulemaking to
review the Part 32 accounting rules to consider ways to minimize the
compliance burdens on price cap carriers while ensuring that the agency
retains access to the financial information it needs to fulfill its regulatory
duties. Id., ¶77 (J.A. 39). The FCC staff has prepared a draft notice of
proposed rulemaking, which currently is under consideration by the
Commissioners.

SUMMARY OF ARGUMENT

The FCC reasonably denied USTelecom’s petition to forbear, across-
the-board, from the USOA requirements of the Communications Act and the
FCC’s rules. As an initial matter, neither USTelecom nor any other party in
the proceeding below challenged the lawfulness of the FCC’s assignment of
the burden of proof on the party seeking forbearance, and thus 47 U.S.C.
§ 405 bars Petitioner from raising that issue on review. If the Court reaches
the issue, it should hold that the FCC acted lawfully in placing the burden of
proof on USTelecom in accordance with the FCC’s judicially approved rule
22

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 36 of 102
assigning evidentiary burdens on the party seeking forbearance. As the Tenth
Circuit has held, section 10 does not specifically address the burden of proof,
and the FCC assignment is a reasonable implementation of section 10 that is
entitled to Chevron deference. Qwest Corp. v. FCC, 689 F.3d 1214, 1225-26
(10th Cir. 2012) (“Qwest Phoenix”).

The FCC reasonably determined that USTelecom failed to prove that
its across-the-board USOA forbearance request satisfied the section 10
forbearance standard. The central premise underlying the USOA forbearance
request – i.e., that price cap carriers’ rates are not based upon costs, and
therefore Part 32 no longer is necessary to ensure that those carriers’ rates are
just and reasonable – is factually incorrect. The pole attachment rates of price
cap carriers are based upon costs, and Part 32 cost data are essential to the
effective regulation of those cost-based rates. And Part 32 also plays a
necessary role in the regulation of price cap carriers’ interstate access rates.
Part 32 data, for example, is necessary to the FCC’s continued ability to
effectively evaluate the lawfulness of specific price cap rates in section 204
rate investigations and section 208 adjudications.

Part 32 also is necessary to the FCC’s performance of a number of its
other statutory responsibilities. For example, Part 32 enables the FCC to
ensure that price cap carriers comply with section 254(k)’s prohibition on
23

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 37 of 102
cross-subsidization. Moreover, Part 32 gives the FCC the ability to verify
that the price cap LECs subject to the section 273(e)(3) imputation
requirement properly record their imputation costs.

The FCC reasonably rejected Petitioners’ argument that Part 32
accounting safeguards are unnecessary because the FCC can fulfill its
regulatory responsibilities by price cap carriers’ provision of GAAP derived
cost data. In contrast to the USOA, GAAP is not specifically tailored to the
telecommunications industry and does not provide financial data at a
sufficient level of disaggregation and geographic specificity to enable the
FCC to determine the costs of individual telecommunications services.
Moreover, GAAP is a set of principles, not a uniform system of accounts, and
thus would not provide the uniformity in accounting necessary to permit the
FCC to conduct industry-wide analysis and oversight.

USTelecom failed to establish that the across-the-board USOA
forbearance request furthered the public interest. It did not show that the
costs of compliance (which it did not adequately substantiate) outweighed the
important regulatory benefits in retaining Part 32. Moreover, the record
shows that Part 32 enhances competition by giving the FCC the means to
ensure that telecommunications providers can obtain access to the pole space
they need to provide service at reasonable rates.
24

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 38 of 102

Petitioners are wrong in claiming that the FCC erred in not considering
a partial or conditional grant of forbearance from Part 32. In addition to the
across-the-board USOA request, US Telecom’s petition, inter alia, contained
two forbearance requests from specific Part 32 rules. The FCC fully
addressed each request and conditionally granted the two requests for partial
forbearance from Part 32. By contrast, the FCC was not obligated to grant
other types of partial or conditional relief not contained in the forbearance
petition itself.

Nor did the FCC act unlawfully when it denied a proposal by
USTelecom, contained in ex parte submissions filed shortly before the
statutory deadline, to grant the across-the-board USOA forbearance request
subject to various conditions/voluntary commitments. This Court has warned
litigants against relying on ex parte communications, and the last minute ex
parte filings in this case did not afford the FCC sufficient time to carefully
consider the proposal and evaluate its implications. Moreover, Petitioners do
not even attempt to show how the specific voluntary commitments/conditions
in the last minute ex parte filings would permit the FCC to make the statutory
determinations necessary to conditionally grant the across-the-board USOA
forbearance request.
25

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 39 of 102

Finally, FCC rules apply Part 32 accounting safeguards only on
incumbent LECs. Incumbent LECs have been classified as “dominant”
carriers with market power in their provision of interstate access. Part 32
accounting safeguards are necessary to ensure that these dominant carriers
charge just and reasonable rates, and do not use their control over wholesale
network facilities, i.e., telephone poles, to impede competition. In contrast,
Part 32 safeguards are not needed for non-dominant carriers lacking market
power and the control of essential network facilities, so they are not similarly
situated with the large price cap carriers.

ARGUMENT

I.

THE ORDER

IS SUBJECT TO DEFERENTIAL STANDARDS
OF REVIEW.


Verizon and AT&T bear a heavy burden to establish that the Order on
review is “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). Under this “highly deferential
standard of review,” the Court presumes the validity of agency action. Black
Oak Energy, LLC v. FERC, 725 F.3d 230, 237 (D.C. Cir. 2013). See Cellco
P’ship v. FCC, 357 F.3d 88, 93 (D.C. Cir. 2004). The Court must affirm
unless the FCC failed to consider relevant factors or made a clear error in
judgment. E.g., Motor Vehicle Mfrs. Ass’n of the United States, Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). In other words, “the
26

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 40 of 102
question is not what [the Court] think[s] about the [forbearance] petition, but
whether the Commission’s view of the petition is reasonable.” AT&T, Inc. v.
FCC, 452 F.3d 830, 837 (D.C. Cir. 2006) (emphasis in original).
The Court must review the FCC’s interpretation of the
Communications Act in accordance with the standard of review articulated in
Chevron USA Inc. v. Natural Resources Defense Council, 467 U.S. 837
(1984). Under Chevron, the Court “employ[s] traditional tools of statutory
construction” to determine “whether Congress has directly spoken to the
precise question at issue.” Id. at 842, 843 n.9. If so, “the court, as well as the
agency, must give effect to the unambiguously expressed intent of Congress.”
Id. at 842-43. Where “the statute is silent or ambiguous with respect to the
specific issue, the question for the court is whether the agency's answer is
based on a permissible construction of the statute.” Id. at 843. Under those
circumstances, the Court should “uphold the FCC’s interpretation as long as
it is reasonable, even if there may be other reasonable, or even more
reasonable, views.” Earthlink, Inc. v. FCC, 462 F.3d 1, 7 (D.C. Cir. 2006)
(internal quotation marks omitted). See id. at 12 (court owes deference to
Commission’s reasonable construction of section 10).
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II.

PETITIONERS’ CLAIM THAT THE FCC ERRED IN
ASSIGNING USTELECOM THE BURDEN OF PROOF IS
NOT PROPERLY BEFORE THE COURT AND, IN ANY
EVENT, IS BASELESS.

In considering the petition, the FCC assigned the burden on
USTelecom to prove that the three elements of the forbearance statute were
satisfied. Verizon and AT&T challenge that approach, contending that 47
U.S.C. § 160 places the burden of proof on the FCC, not the forbearance
petitioner. As shown below, that argument is not properly before the court,
and is baseless in any event.

A. Section 405 Bars Petitioners From Challenging The

FCC’s Assignment Of The Burden Of Proof.


Section 405 of the Communications Act bars a petitioner from raising
on judicial review an issue of law or fact on which the FCC “has been
afforded no opportunity to pass.” 47 U.S.C. § 405. While section 405 does
not require the party seeking judicial review to have raised the issue below,
“the argument does have to have been meaningfully raised by someone.”
Coal. for Noncommercial Media v. FCC, 249 F.3d 1005, 1008 (D.C. Cir.
2001). Neither Petitioners nor anyone else argued in the proceedings below
that section 10 forbids the FCC from assigning the burden of proof on the
party seeking forbearance. Thus, that issue is not properly before the Court.
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See Qwest Corp. v. FCC, 482 F.3d 471, 475 (D.C. Cir. 2007) (quoting Core,
455 F.3d at 276) (the Court “‘strictly construes’” section 405”).


Petitioners note that they had raised the burden of proof issue in
comments they filed almost six years ago in a rulemaking addressing the
procedures to be used in forbearance proceedings. Pet. Brief at 34 n.5.
Comments presented to the agency years earlier in a different agency docket,
however, do not afford the FCC “a fair opportunity” to consider in this case
whether section 10 forbade the FCC from assigning USTelecom the burden
of proof. BDPCS, Inc. v. FCC, 351 F.3d 1177, 1182 (D.C. Cir. 2003).

B. The FCC Lawfully Applied Its Judicially Approved Rule

Placing The Burden Of Proof On USTelecom.

The FCC lawfully assigned USTelecom the burden of proof (including
the burden of persuasion) to establish that the forbearance criteria set forth in
section 10 have been satisfied. Order, ¶7 (J.A. 6). See id., ¶10 (J.A. 7). That
assignment adheres to the rule the FCC adopted in 2009 placing evidentiary
burdens on the party seeking forbearance.17 It comports with the FCC’s
consistent practice in assigning burdens in individual forbearance
proceedings, see id., n.18 (J.A. 7), a practice upheld by the Tenth Circuit in

17 Petition to Establish Procedural Requirements to Govern Proceedings for
Forbearance Under Section 10 of the Communications Act of 1934, as
Amended
, Report and Order, 24 FCC Rcd 9543, 9554 (¶¶ 20-23) (2009)
(“Forbearance Procedures Order”), 74 Fed. Reg. 39219-01.
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Qwest Phoenix, 689 F.3d at 1225-26, as a reasonable implementation of
section 10. And it accords with the “ordinary default rule” in American
jurisprudence “‘that plaintiffs bear the risk of failing to prove their claims.’”
Forbearance Procedures Order, 24 FCC Rcd at 9554 (¶20 & n.75) (quoting
Schaffer v. Weast, 546 U.S. 49, 56 (2005)). See 5 U.S.C. § 556(d) (in the
absence of statutory direction, “the proponent of a rule or order has the
burden of proof”).
Placing the burden of proof on the party seeking forbearance also
enhances informed agency decision-making. As the FCC observed, “[i]f the
petitioner does not support the case for forbearance with sufficient evidence
and persuasive arguments, the Commission cannot make an informed and
reasoned determination that the statutory criteria are met.” Forbearance
Procedures Order, 24 FCC Rcd at 9556 (¶21).
Petitioners in their brief only obliquely mention that the FCC has a rule
that squarely assigns the burden of proof to the party seeking forbearance.
See Pet. Brief at 34 n.5.18 And Petitioners fail to acknowledge that the Tenth
Circuit in Qwest Phoenix specifically rejected the argument that they now

18 Petitioners rely heavily upon concurring and dissenting opinions of
individual commissioners, see Pet. Brief at 35-37, without acknowledging
that those non-binding, individual commissioner opinions are flatly
inconsistent with the FCC’s rules and precedent.
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raise in this court: that the FCC bears the burden of proof under section 10.
Rather, the Tenth Circuit upheld application of the FCC’s rule assigning the
burden of proof to the forbearance petitioner as a reasonable implementation
of section 10. 689 F.3d at 1225-26.

Petitioners argue that the FCC erred in assigning USTelecom the
burden of proof because “Congress spoke directly to the question of the
burden in a forbearance proceeding and placed it squarely on the
Commission.” Pet. Brief at 34. That argument is clearly wrong.19 The
Communications Act has a number of provisions that explicitly assign the
“burden of proof” to various parties in various FCC proceedings.20 And

19 The Court need not decide whether the FCC properly assigned the burden
of proof in order to affirm the order on review if, as we demonstrate below,
the Court agrees that the evidence in the record does not satisfy the statutory
conditions for forbearance.
20 See, e.g., 47 U.S.C. § 159(c)(3) (in hearings to revoke a license for failure
to pay the regulatory fee, “the burden of proceeding with the introduction of
evidence and the burden of proof shall be on the licensee”); 47 U.S.C.
§ 204(a)(1) (in a tariff investigation, “the burden of proof to show that the
new or revised charge . . . is just and reasonable shall be upon the carrier”);
47 U.S.C. § 220(c) (the “burden of proof to justify every accounting entry
questioned by the Commission shall be on the person making such entry”);
47 U.S.C. § 309(e) (in a hearing for a broadcast license “[t]he burden of
proceeding with the introduction of evidence and the burden of proof shall be
upon the applicant”); 47 U.S.C. § 325(e)(6) (in proceedings involving
allegations of unauthorized satellite broadcast retransmissions “the burden of
proof shall be on a television broadcast station to establish that the satellite
carrier retransmitted the station . . . [and with one exception,] [t]he burden of
proof shall be on the satellite carrier with respect to all defenses.”)
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where Congress intends the FCC to bear the burden, it similarly does so with
explicit statutory language. See 47 U.S.C. § 312(d) (in hearings to revoke a
station license or construction permit, “both the burden of proceeding with
the introduction of evidence and the burden of proof shall be upon the
Commission”); 47 U.S.C. § 316(b) (in hearings to modify a station license or
construction permit, “both the burden of proceeding with the introduction of
evidence and the burden of proof shall be upon the Commission”). The
absence of the words “burden of proof” or comparable language in section 10
shows there is no statutorily-mandated allocation of the burden of proof in
forbearance proceedings. See Qwest Phoenix, 689 F.3d at 1225 (section 10
“says nothing about [evidentiary burdens]”).

In the absence of a specific statute to the contrary, section 4(j) of the
Communications Act grants the FCC authority to “conduct its proceedings in
such manner as will best conduce to the proper dispatch of business and to
the ends of justice.” 47 U.S.C. § 154(j). See FCC v. Schreiber, 381 U.S.
279, 289 (1965); FCC v. Pottsville Broad. Co., 309 U.S. 134, 143 (1940).
See also 47 U.S.C. § 154(i) (authorizing the FCC to “perform any and all
acts, make such rules and regulations, and issue such orders, not inconsistent
with [the Communications Act], as may be necessary in the execution of its
functions”). The FCC’s assignment of the burden of proof to the forbearance
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petitioner falls comfortably within its broad discretion under sections 4(i) and
4(j).

Petitioners argue that section 10’s directive that “the Commission shall
forbear” if the statutory criteria are met shows Congress intended the FCC to
bear the burden of proof in ruling on a forbearance petition. Pet. Brief at 35.
In other words, under Petitioners’ reading of section 10, the FCC has the
burden affirmatively to disprove each of the conditions that a petitioning
carrier must satisfy to obtain forbearance. That argument is at odds both with
the statutory language and this Court’s precedent.

By its express terms, section 10(a) requires the FCC to forbear only “if
[it] determines that”: (1) the provision is “not necessary” to ensure just,
reasonable and non-discriminatory rates and terms of service; (2) the
provision is “not necessary” to protect consumers; and (3) “forbearance” –
that is, not applying a provision – is “consistent with the public interest.” 47
U.S.C. § 160(a)(1)-(3). Petitioners’ reading of section 10, however, presumes
that the statutory prerequisites for forbearance are satisfied – unless the FCC
affirmatively proves otherwise. That reading cannot be reconciled with
statutory language requiring the FCC to forbear only “if” the agency
specifically “determines” that the regulatory obligation at issue is “not
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needed and that forbearance would serve the public interest. 47 U.S.C.
§ 160(a)(1)-(3) (emphasis added).

Moreover, this Court has long held that the “three prongs of the
forbearance test ‘are conjunctive,’ meaning that [t]he Commission could
properly deny a petition for forbearance if it finds that any one of the three
prongs is unsatisfied.’” Core, 455 F.3d at 277 (citation omitted). As
Petitioners construe section 10, however, the FCC must forbear if it fails to
make even one affirmative finding that the provision is needed – an
interpretation that is at odds with this Court’s precedent.

Petitioners contend that “[t]he FCC has the burden in a forbearance
proceeding because the statute imposes clear obligations on the agency,” i.e.,
the obligation to forbear if the statutory criteria are met. Pet. Brief at 34.
Petitioners confuse substantive duties with evidentiary burdens. The
Communications Act contains various provisions which oblige the FCC to act
if certain criteria are met but which require regulatees to establish those
criteria. For example, in a broadcast licensing proceeding, the FCC “shall
determine” “whether the public interest, convenience, and necessity will be
served by the granting of [an] application,” 47 U.S.C § 309(a), but the
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applicant bears “[t]he burden of proof” to establish the statutory criteria.21 47
U.S.C. § 309(e).

Equally without merit is Petitioners’ contention that section 10(c),
which provides that a forbearance petition is “deemed granted” if the FCC
fails to rule on that petition within the prescribed period, shows that the FCC
bears the burden of proof. See Pet. Brief at 36. As the FCC pointed out in
the Forbearance Procedures Order, section 10(c) simply means that it “must
attend promptly to forbearance petitions,” 24 FCC Rcd at 9556 (¶22), a
construction of section 10 the Tenth Circuit found reasonable in Qwest
Phoenix, 689 F.3d at 1225-26. See AT&T Corp., 452 at F.3d 836 (section
10(a)(3)'s purpose is to force the Commission to act within the statutory
deadline). By requiring action on a forbearance petition within a specified
period, Congress did not address evidentiary burdens at all, let alone dictate
that the burden of proof must be on the FCC.

21 Petitioners’ claim that the FCC “must have the burden in a forbearance
proceeding” because it can forbear on its own motion (Pet. Brief at 35) also
erroneously conflates evidentiary burdens and substantive duties. The
Communications Act expressly provides for FCC-initiated proceedings in
which regulated entities bear the burden of proof. See, e.g., 47 U.S.C.
§ 204(a) (authorizing the FCC to suspend and investigate tariffs setting new
rates “either upon complaint or upon its own initiative” but assigning the
carrier the “burden of proof” to show those rates are reasonable whether the
FCC initiated the investigation on its own motion or at a party’s request.).
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Even if the text of section 10 were sufficiently ambiguous to make
Petitioners’ reading a plausible one – which it is not – the FCC’s reasonable
reading of the statute would be controlling under Chevron. See Earthlink,
462 F.3d at 7 (FCC’s reasonable interpretation of section 10 is owed
deference, even if there are other, more reasonable interpretations).

III. THE COMMISSION REASONABLY DENIED

USTELECOM’S ACROSS-THE-BOARD USOA
FORBEARANCE REQUEST.

A. The FCC Reasonably Applied The Section 10

Forbearance Standard In Denying USTelecom’s Request
For Blanket Forbearance From The USOA.

Section 10 establishes the standard under which the FCC must evaluate
forbearance petitions. Under this statute, the FCC may grant a forbearance
petition only if it determines: (1) that enforcement of the requirement is not
needed to ensure that rates are just, reasonable, and non-discriminatory;
(2) that the regulation is not necessary to protect consumers; and (3) that a
grant of forbearance is consistent with the public interest. 47 U.S.C.
§ 160(a). See Core, 455 F.3d at 277. The Commission reasonably
determined that none of the statutory criteria was met.
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1. The FCC Reasonably Determined That Part 32 Is

Needed To Ensure That The Rates Of Price Cap
Carriers Are Just, Reasonable, And Non-
Discriminatory.


Part 32 has a unique and essential role in telecommunications
regulation. Tailored to the telecommunications industry, Part 32 accounts
contain the underlying financial data necessary to enable the FCC to allocate
the LECs’ costs to specific telecommunications services and facilities. See
47 U.S.C. § 220(a)(2); Order, ¶71 (J.A. 36). Those data provide the FCC
with the means to fulfill its statutory obligations to ensure that
telecommunications rates are just, reasonable, and non-discriminatory.
Order, ¶71 (J.A. 36). See 47 U.S.C. §§ 201(b), 202(a), 254(k), 224(b)(1).

Petitioners do not dispute that Part 32 data enable the FCC accurately
to allocate telephone company costs to specific telecommunications services
or facilities. Instead, they argue that Part 32 no longer serves any regulatory
purpose for price cap carriers because the FCC “no longer sets rates for
companies such as Verizon and AT&T based on costs.” Pet. Brief at 2. As
shown below, that argument is faulty for two reasons. First, as a factual
matter Petitioners do maintain cost-based rates, i.e., pole attachment rates,
and Part 32 data are essential to the regulation of those rates. Second,
although price cap regulation has altered the manner in which accounting data
is used, Part 32 still plays a necessary role in the regulation of price cap
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carriers’ access rates. See Special Access Rates for Price Cap Local
Exchange Carriers, Order and Notice of Proposed Rulemaking, 20 FCC Rcd
1994, 1999 (¶12) (2005) (“2005 Special Access NPRM”). See also Order, nn.
124, 302 (J.A. 23, 48).
a. Retention Of Part 32 Is Needed For Effective

Regulation Of Incumbent LECs’ Cost-Based Pole
Attachment Rates.


Under the FCC’s rules, pole attachment rates in the first instance are
established through private negotiations between the pole attacher and the
carrier. Order, n.189 (J.A. 32). Both parties in these negotiations routinely
rely upon cost data developed by Part 32. Id., ¶63 (J.A. 32). If the
negotiations fail, the attaching party can file a complaint with the FCC. Id.,
n.189 (J.A. 32). See 47 C.F.R. Part 1, Subpart J. In that administrative
adjudication, both the complainant and the defendant carrier rely upon the
Part 32-derived cost data. Order, ¶63 (J.A. 32). And the FCC also uses Part
32-derived data to determine whether the disputed pole attachment rate is
reasonable and, if not, to set a lawful rate. Id. In addition, the FCC relies
upon Part 32-derived data in modifying the formula by which pole attachment
rates are calculated. Id., ¶64 (J.A. 33). Thus, Part 32 is essential to many
aspects of pole attachment regulation.
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Moreover, the establishment of reasonable, cost-based pole attachment
rates is necessary to broadband infrastructure development. See, e.g.,
Implementation of Section 224 of the Act, 25 FCC Rcd 11864, 11912-13
(¶ 115-16) (2010), aff’d, Am. Elec. Power Serv. Corp. v. FCC, 708 F.3d 183
(D.C. Cir.), cert. denied, 134 S. Ct. 118 (2013). And 47 U.S.C. § 1302(a)
requires “the FCC to ‘encourage the deployment’ of broadband Internet
capability.” Nat’l Cable & Telecomms. Ass’n, Inc. v. Gulf Power Co., 534
U.S. 327, 339 (2002) (quoting 47 U.S.C. § 1302(a)). Thus, ensuring
reasonable pole attachment rates, facilitated by Part 32 accounting, is
necessary for the FCC’s performance of its responsibility under 47 U.S.C.
§ 1302(a).

Petitioners argue that Part 32 data are not necessary to ensure just and
reasonable pole attachment rates because neither section 224(d) nor the
FCC’s implementing rules specifically require the submission of pole
attachment data derived from Part 32. Pet. Brief at 23 (citing 47 C.F.R.
§ 1.404(g)(2)). However, the pole attachment data price carriers file with the
FCC in fact are “developed from Part 32 accounts.” Order, ¶63 (J.A. 32).
And in the absence of Part 32 data, “neither the Commission nor interested
parties could ascertain or verify that pole attachment rates based on the
Commission’s rate formula reflect actual costs, or that these calculations
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produce just and reasonable rates in accordance with [FCC] rules.” Id., ¶63
(J.A. 33). See NCTA Comments at 2-4 (J.A. 297-99).
Petitioners contend that “[w]hatever need the FCC may have for pole
attachment data in the future could be satisfied by obligating price cap
carriers to continue filing ‘the pole attachment data currently filed as part of
ARMIS [Automated Reporting Management Information System] Report 43-
01.’” Pet. Brief at 23 (quoting Petition of Qwest Corporation for
Forbearance from Enforcement of the Commission’s ARMIS and 492A
Reporting Requirements Pursuant to 47 U.S.C. § 160(c), Memorandum
Opinion and Order, 23 FCC Rcd 18483, 18491 (¶13) (2008) (“Qwest ARMIS
Forbearance Order”)). In fact, the FCC has forborne from requiring the
filing of the ARMIS Report 43-01, as long as carriers continue to file the
same pole attachment data that previously had been filed in that report.
Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18491 (¶13). See Order,
¶¶63, 65 (J.A. 32, 33). However, whether pole attachment data are filed as
part of the ARMIS Report 43-01 or in some other form, Part 32 – which gives
the FCC the tools to allocate cost elements to specific services – is necessary
to the FCC’s ability to verify the accuracy of those data.

Petitioners’ suggestion that pole attachment information derived in
accordance with GAAP is a viable alternative to Part 32 data is unpersuasive.
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Order, ¶65 (J.A. 33). See Pet. Brief at 23. USTelecom’s own evidence
shows that “certain expense categories under Part 32 . . . do not have a precise
corollary under GAAP,” and that price cap carriers would have to “develop
. . . methods to replicate necessary pole attachment data for filing purposes”
in the absence of Part 32-derived data. April 18 Ex Parte at 5, 6 (J.A. 460,
461). Moreover, as the FCC pointed out, use of GAAP-derived data would
“actually alter the rates price cap carriers charge for pole attachments.”
Order, ¶65 (J.A. 34).

Petitioners counter that there is “no evidence” to support the
proposition that use of GAAP-derived data would affect rates, Pet. Brief at
24. Given the undisputed evidence of “significant” differences in the
treatment of certain pole attachment expenses under Part 32 and GAAP, that
contention is unsound. May 3 Ex Parte, at 4 (J.A. 485); see Order, n.200
(J.A. 34). See also May 3 Ex Parte at 5 (J.A. 486) (USTelecom
acknowledging that an increase in “overall cost inputs” could result from
“moving from Part 32 rules to GAAP accounting”). Equally unpersuasive is
Petitioners’ claim that the FCC “acknowledged the weakness” of its analyses
by stating that it would “‘explore more fully’ the use of GAAP in another
proceeding.” Pet. Brief at 24 (quoting Order, n.200 (J.A. 34)). What the
FCC actually said, however, was that it would explore more fully
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USTelecom’s suggestions “regarding possible modification of GAAP pole
attachment data,” Order, n.200 (J.A. 34) (emphasis added), an inquiry
consistent with the FCC’s reasonable determination that existing GAAP-
derived data are not currently a viable alternative to Part 32 data.
b. Part 32 Is Necessary For Effective Evaluation Of

Price Cap Access Rates.


“Although price cap regulation diminished the direct link between
changes in allocated accounting costs and change in prices, it did not sever
the connection between accounting costs and prices entirely.” 2005 Special
Access NPRM, 20 FCC Rcd at 1999 (¶12). See Order, nn.124, 302 (J.A. 23,
48). Part 32 accounting data has an important role in the FCC’s ability to
fulfill its statutory duty to ensure that price cap rates for interstate access
services are just and reasonable, 47 U.S.C. § 201(b), and free of any undue
discrimination or preference, 47 U.S.C. § 202(a). See Order, n.209 (J.A. 35);
AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7315 (¶22).

Although rates within the price caps are accorded an initial
presumption of reasonableness, they are not deemed lawful. That
presumption does not apply where the rate is above the price cap or where the
FCC has set the price cap rate for investigation under section 204(a). LEC
Price Cap Order, 5 FCC Rcd at 6822 (¶295). In addition, aggrieved parties
can challenge even presumptively reasonable price cap rates in complaints
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filed under section 208. 47 U.S.C. § 208. “[T]he [s]ection 204 investigation
and [s]ection 208 complaint processes [are both] part of [the FCC’s] plan to
ensure just, reasonable, and non-discriminatory [price cap] rates.” LEC Price
Cap Order, 5 FCC Rcd at 6836 (¶406). See Order, n.209 (J.A. 35).22

Part 32 provides the FCC with the raw data necessary to determine the
elements of the carrier’s costs in providing service and the tools to “gauge
whether improper cost accounting has occurred.” Order, ¶43 (J.A. 25).
Although the evidence in a specific investigation or adjudication depends
upon the precise issues raised, the Part 32 data “could be critical” to the
FCC’s ability to determine whether individual price cap rates are just,
reasonable, and non-discriminatory. AT&T Cost Assignment Forbearance
Order, 23 FCC Rcd at 7315 (¶22). See id. (“Complaints under section 208
[are] an important mechanism for enforcing the provisions of the Act,
including the justness and reasonableness of [price cap] rates”). Part 32 data
also can play an important role when the FCC “adjust[s] [its] existing price

22 The FCC recently suspended and set for investigation a price cap tariff
filed by Petitioner AT&T because that price cap filing raised “substantial
questions regarding [its] lawfulness.” Suspension and Investigation of AT&T
Special Access Tariffs
, Order, 28 FCC Rcd 16525, 16526 (¶ 3) (WCB 2013).
Although AT&T subsequently elected to withdraw the tariff, it shows that
Petitioners are wrong in claiming that price cap regulation by itself is
“sufficient to ensure just and reasonable rates.” Pet. Brief at 22.
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cap regime” or considers other regulatory reforms. Order, ¶68 (J.A. 35);
AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7313 (¶19).
c. Retention Of Part 32 Is Necessary For The FCC’s

Prevention Of Cross-Subsidization Under Section
254(k).


Section 254(k) prohibits a telecommunications provider from using
“services that are not competitive to subsidize services that are subject to
competition.” 47 U.S.C. § 254(k). Part 32 “deters cost misallocations by
providing the initial information needed to identify cross-subsidization and
thus protects regulated services from bearing the cost of an incumbent LEC’s
competitive operations.” Biennial Regulatory Review 2004, Staff Report, 20
FCC Rcd 263, 277 (WCB 2005). See Order, ¶¶43, 53 (J.A. 25, 29). The
FCC thus reasonably determined that retention of Part 32 is necessary to the
FCC’s ability to verify carriers’ compliance with section 254(k). Order, ¶67
(J.A. 34).

Petitioners do not dispute that Part 32 gives the FCC the tools to detect
cross-subsidization and thus effectively enforce section 254(k). Instead, they
argue that there is no danger of cross-subsidization in a price cap regime. Pet.
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Brief at 28. That claim not only is inconsistent with FCC decisions,23 but it
also ignores the fact that Congress itself reached the opposite conclusion by
adopting section 254(k) six years after the FCC extended price cap regulation
to large incumbent LECs.24

Equally baseless is Petitioners’ claim that competition has eliminated
the need for the FCC to retain accounting safeguards to prevent cross-
subsidization. Petitioners’ generalized claims about “intense competition,”
Pet. Brief at 27, hardly establish that price cap LECs face effective
competition in every service and geographic market so as to make
unnecessary accounting safeguards against cross-subsidization. In any event,
in seeking across-the-board forbearance from section 220 and the Part 32

23 See, e.g., Review of Regulatory Requirements for Incumbent LEC
Broadband Telecommunications Services
, Notice of Proposed Rulemaking,
16 FCC Rcd 22745, 22761 (¶29 & n.70) (2001) (“Review of Regulatory
Requirements
”) (the FCC “has found that an incumbent LEC might
improperly exercise its existing market power through cross-subsidization,
raising its rivals’ costs, or improper discrimination”); Applications of
Ameritech Corp.
, 14 FCC Rcd 14712, 14795-14825 (¶¶ 186-251) (1999),
vacated in part on other grounds, Ass’n of Commc’ns Enters. v. FCC, 235
F.3d 662 (D.C. Cir. 2001).
24 Petitioners mistakenly contend the FCC, in granting price cap carriers
forbearance from cost assignment rules, “implicitly recognized” that Part 32
safeguards are unnecessary to prevent cross-subsidization in a price cap
regime. Pet. Brief at 28. In granting forbearance from the cost assignment
rules, the FCC explicitly reaffirmed the need to retain Part 32, and expressly
conditioned forbearance on the requirement that such data “be maintained and
available to the Commission on request.” E.g., AT&T Cost Assignment
Forbearance Order
, 23 FCC Rcd at 7314 (¶21).
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rules, USTelecom emphasized that it was not seeking forbearance from
section 254(k). See April 18 Ex Parte at 11 (J.A. 466). Petitioners would
keep intact the FCC’s duty to enforce section 254(k) but deny the agency the
means to perform that duty.

Finally, Petitioners assert that the lack of agency requests for Part 32
data to enforce compliance with section 254(k) shows that Part 32 safeguards
are unnecessary. Pet. Brief at 28. That claim, however, overlooks the
deterrent effect that Part 32 provides. Carriers are less likely to violate
section 254(k) when they know the FCC has the ability to readily detect
carrier cross-subsidization and cost misallocation by requesting Part 32 data.
d. Part 32 Is Necessary For Effective Implementation

Of Section 272(e)(3)’s Imputation Requirement.


The FCC, recognizing that Part 32 rules are necessary to the proper
recording of the BOCs’ section 272(e)(3) imputation costs, has long required
BOCs to use Part 32 data to comply with section 272(e)(3). See Order, ¶ 66
(J.A. 34). The FCC specifically conditioned its authorization of the BOCs’
provision of integrated exchange and long distance service upon the BOCs’
compliance with cost assignment rules designed to prevent improper cost
shifting and the BOCs’ inclusion of section 272 imputation charges in a Part
32 account. Section 272 Sunset Order, 22 FCC Rcd at 16486-87, 16491-92
(¶¶94, 104). See Order, ¶66 (J.A. 34). When the FCC subsequently granted
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the BOCs forbearance from the cost assignment rules, it conditioned that
forbearance upon the BOCs’ maintenance of Part 32 accounts and use of Part
32 data to comply with the imputation requirement in section 272(e)(3). E.g.,
AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7318-19 (¶29).
And the BOCs, in compliance plans explaining how they would satisfy the
conditions of forbearance, committed to use Part 32 accounting in complying
with the imputation requirement. E.g., AT&T Compliance Plan, WC Docket
No. 07-21 (filed July 24, 2008), at 6.

Petitioners do not dispute that Part 32 accounting is required and used
to accurately record imputation costs required by section 272(e)(3). Instead,
they argue that “[a]s long as a BOC keeps accurate records of the imputation
amounts mandated by [s]ection 272(e)(3), it should make no difference if”
Part 32 or some other accounting is used. Pet. Brief at 25-26. However, Part
32 gives the FCC the tools to verify whether or not “the BOC keeps accurate
records of the imputation amounts.” Pet. Brief at 25. Petitioners have
identified no alternative accounting method that would enable the FCC to
ensure enforcement with section 272(e)(3).
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2. The FCC Reasonably Determined That Part 32 Is

Needed To Protect Consumers From Unlawful
Charges.


As shown above, Part 32 is necessary to ensure that price cap carriers
charge consumers just, reasonable, and non-discriminatory rates. Order, ¶70
(J.A. 35). The FCC thus reasonably determined that USTelecom failed to
satisfy its burden under the second (and closely related) prong of the statutory
forbearance standard to show that continued enforcement of Part 32 is “not
necessary for the protection of consumers.’” Order, ¶¶70-72 (J.A. 35-37).

Petitioners rely upon language in the cost assignment forbearance
orders that price cap regulation protects consumers from unlawful charges in
claiming that Part 32 safeguards are unnecessary to protect consumers. Pet.
Brief at 30 (quoting Verizon/Qwest Cost Assignment Forbearance Order, 23
FCC Rcd at 18488 (¶10) & AT&T Cost Assignment Forbearance Order, 23
FCC Rcd at 7312 (¶18)). That reliance is misplaced. Although the FCC in
the language quoted by Petitioners recognized that price cap regulation is one
way the FCC protects consumers against unreasonable rates by dominant
carriers, it did not suggest that price cap regulation by itself – and in the
absence of Part 32 accounting safeguards – is sufficient to protect ratepayers
from unlawful charges in all circumstances. Indeed, the FCC in granting
conditional forbearance from the cost assignment rules emphasized the need
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for “USOA account data” to perform its regulatory duties, and conditioned
forbearance on the carriers’ commitment to maintain such data and make it
available to the FCC at its request. E.g., AT&T Cost Assignment
Forbearance Order, 23 FCC Rcd at 7314 (¶21).25 See Order, ¶¶68, 70 n.216
(J.A. 34, 36). Although Petitioners construe the condition differently than the
FCC, see Pet. Brief at 29, 30 n.4, the FCC’s reasonable interpretation of its
own order is entitled to deference. See Cellco P’ship v. FCC, 700 F.3d 534,
544 (D.C. Cir. 2012) (recognizing the “high level of deference due to an
agency in interpreting its own orders”). Order, ¶¶68, 70 (J.A. 34, 35).

The FCC reasonably rejected Petitioners’ claim that GAAP accounting
would protect consumers in the absence of Part 32 accounting. Order, ¶¶71-
72 (J.A. 36-37). GAAP principles are incorporated into Part 32 “to the extent
regulatory considerations permit,” 47 C.F.R. § 32.1, but they are not
sufficient by themselves to protect ratepayers from unjust and unreasonable
charges. GAAP simply is not designed to protect ratepayers from unjust or
unreasonably discriminatory rates, and does not supply financial data at a
level of disaggregation sufficient to permit the FCC to track cost elements to
specific telecommunications services. Order, ¶71 (J.A. 36). Moreover, in

25 In compliance plans describing how they would satisfy the conditions of
forbearance, AT&T and Verizon each committed “to maintain their Part 32
USOA books of account.” Public Notice, 26 FCC Rcd at 16946.
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contrast to Part 32, GAAP does not establish a uniform chart of accounts, and
the FCC needs uniformity in regulatory accounting “to conduct consistent,
industry-wide analysis and oversight” in its rulemakings and other endeavors.
Id., ¶72 (J.A. 37).
3. The FCC Reasonably Determined That Forbearance

Is Not In The Public Interest.


The FCC reasonably concluded that USTelecom had failed to show
under the third part of the statutory forbearance standard that its across-the-
board USOA forbearance request furthers the public interest. USTelecom did
not adequately substantiate the costs of complying with Part 32; it did not
show that compliance costs outweighed the regulatory benefits in enforcing
Part 32; and it did not demonstrate that the cost savings to price cap carriers
of granting forbearance “would have any effect on competition.” Id., ¶74
(J.A. 38).

On the other hand, the record established that continued enforcement of
Part 32 has significant competitive benefits. Id., ¶75 (J.A. 38). For effective
competition to exist in the telecommunications marketplace, providers must
have access to essential wholesale facilities at reasonable rates, and the FCC
found that enforcement of Part 32 ensures that cable companies and other
telecommunications providers have access to the essential network facilities,
i.e., incumbent LECs’ poles, that they need to compete at reasonable, cost-
50

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based rates. Id. See AT&T Cost Assignment Forbearance Order, 23 FCC
Rcd at 7318 n.102 (recognizing price cap carriers’ ability “to use their control
over their local networks to impede competition in services for which local
network access is a needed input”).

Petitioners do not mention, let alone attempt to controvert, the
significant pro-competitive benefits that Part 32 provides in ensuring
competitors’ access to essential network facilities. Instead they argue that
grant of the across-the-board USOA forbearance request would ensure a
“level playing field” for all carriers. Pet. Brief at 32. However, a “level
playing field” cannot be achieved unless telecommunications providers that
compete with incumbent LECs have access to the LECs’ network facilities
necessary for their provision of service. Moreover, Petitioners do not urge
symmetrical regulation for all telecommunications providers. Instead, they
want forbearance only for the largest incumbent LECs, the price cap carriers,
leaving small rural incumbent LECs subject to Part 32 regulation. See
USTelecom Petition at 43 (J.A. 176).

Petitioners claim that the FCC “dismissed” claims regarding the costs
of complying with Part 32 “without any substantive analysis.” Pet. Brief at
47. That claim is incorrect. The FCC in its Order carefully analyzed and
evaluated specific record allegations regarding the compliance costs of
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AT&T, Cincinnati Bell, and ASC. See Order, ¶74 & n.227 (J.A. 38)
Petitioners fail to acknowledge, let alone attempt to refute, the FCC’s
response to these allegations.

Instead, Petitioners allege that the FCC acted arbitrarily because it
relied upon cost evidence submitted in the AT&T Cost Assignment
Forbearance Order while finding inadequate the cost evidence in this case.
Pet. Brief at 44-46. That argument is baseless. The compliance costs cited in
the AT&T Cost Assignment Forbearance Order have no bearing in this case,
as they involved different costs submitted in a different proceeding to justify
forbearance from different rules.

IV.

PETITIONERS’ CLAIM THAT THE FCC ERRED BY
NOT GRANTING CONDITIONAL OR PARTIAL
FORBEARANCE LACKS MERIT.


In its petition and for more than thirteen months thereafter, USTelecom
asked for blanket “forbearance for all price cap regulated carriers from . . .
Part 32,” USTelecom Petition at 34 (J.A. 167), without the slightest
suggestion that the agency should consider a partial or conditional grant of
52

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the across-the-board USOA forbearance request.26 It was only in a series of
ex parte communications filed mere weeks before the statutory “deemed
lawful” deadline did USTelecom proffer, in stages, four “voluntary
commitments” that “could be conditions” for forbearance. April 18 Ex Parte
at 2 (J.A. 457) (proposing two voluntary commitments); May 3 Ex Parte at 2
(J.A. 483) (proposing two more voluntary commitments).27 Contrary to
petitioners’ claim, the FCC acted lawfully in not conditionally granting the
across-the-board forbearance request.

26 USTelecom in its petition did make two separate requests for partial
forbearance from certain Part 32 rules applicable to price cap carriers: it
asked the FCC to grant (1) all price cap carriers forbearance from the specific
Part 32 rules containing property record requirements, and (2) certain price
cap carriers forbearance from the specific Part 32 rules relating to cost
assignments. USTelecom Petition at 34, 43-47 (J.A. 167, 176-80). The FCC
in its Order fully considered, and conditionally granted, both requests.
Order, ¶¶ 30-51, 78-92 (J.A. 19-28, 39-44).
27 These “voluntary commitment[s]” were that price cap carriers would
(1) “continue filing the same [type of] pole attachment information that is
filed today,” in part by “develop[ing] methods to replicate [the] necessary
pole attachment data for filing purposes,” April 18 Ex Parte Letter at 5,6
(J.A. 460, 461); (2) “voluntarily commit to maintain an annual
subaccount/identifier or other record to track transactions subject to section
272(e)(3),” id. at 7 (J.A. 462); (3) limit increases to the cost input to the FCC
pole attachment rate formulae for three years, May 3 Ex Parte Letter at 2-3
(J.A. 483-84); and (4) retain the ability to provide financial data depicting
existing Part 32 account structures for five years. Id. at 3 (J.A. 484). Each
time Petitioners describe the fourth condition in their brief, they fail to
mention that the condition was to be in effect only for a limited period of
time. Pet. Brief at 14, 40-41.
53

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Those voluntary commitments/conditions, offered by USTelecom so
late in the proceeding, did not permit meaningful comment on the proposals
by interested parties to the proceeding. Nor did the compressed timing allow
for careful analysis of the voluntary commitments or a full examination of
their implications in the context of a complicated and inter-related field of
regulation. Those significant challenges were magnified by the statutory
“deemed grant” deadline looming just two weeks from USTelecom’s last
proposal.28 See Globalstar, Inc. v. FCC, 564 F.3d 476, 484 (D.C. Cir. 2009)
(warning that “relying on . . . ex parte submissions” is “a risky strategy,”
particularly where the ex parte filing is submitted shortly before the FCC
adopts its decision) (internal quotations omitted).29
Moreover, USTelecom did not satisfy its burden to demonstrate that a
conditional grant of the across-the-board USOA forbearance request was
warranted. It did not attempt to justify the imposition of the specific
voluntary commitments/conditions set forth in its last minute ex parte filings.

28 When forbearance petitioners submit new data or proposals in the record
late in the process, the FCC is not able to extend comment deadlines for
interested persons because inaction by the forbearance deadline will cause the
petition to be “deemed granted.” 47 U.S.C. § 160(c).
29 Petitioners in their brief argue only that the FCC “could have” adopted
partial or conditional forbearance. Pet. Brief at 40, 41. They do not claim
that the FCC “should” have granted such relief, let alone attempt to show
why such relief was warranted.
54

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Nor did USTelecom purport to explain why the adoption of these voluntary
commitments/conditions would enable the FCC to make the determinations
necessary under section 10 to conditionally grant the across-the-board USOA
forbearance request.

Petitioners’ position apparently is that agency precedent imposed a
duty on the FCC, within the strict statutory time constraints, not only to rule
upon the multitude of forbearance requests actually contained in
USTelecom’s petition, but also to consider on its own the possibility of
partial or conditional relief that the petition itself did not ask for. Pet. Brief at
39-40. That argument is baseless. To be sure, the FCC has authority to grant
partial or conditional relief, see 47 U.S.C. § 160(c) (“the Commission may
grant or deny a petition in whole or part”) (emphasis added), and it has
occasionally exercised that authority, e.g., AT&T Cost Assignment
Forbearance Order, 23 FCC Rcd at 7314 (¶ 21). But as we have explained,
the FCC rules, practice, and precedent establish that the party seeking
forbearance – not the FCC – bears the burden of proof to justify a forbearance
request. E.g., Forbearance Procedures Order, 24 FCC Rcd at 9554 (¶¶20-
23). See Section II, supra. Petitioners are wrong, therefore, to argue that the
FCC must parse a forbearance request for unsupported possibilities of partial
or conditional relief.
55

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Petitioners fault the FCC for not considering a specific form of partial
forbearance, i.e., forbearance from the “Part 32 accounts that are unrelated to
pole attachments and [s]ection 272(e)(3) imputation.” See Pet. Brief at 41.
No party at any stage of the proceedings below asked the FCC to grant that
form of partial relief. Thus, section 405(a) bars Petitioners from raising that
specific issue on review. 47 U.S.C. § 405(a). In any event, as shown above,
the FCC’s need for Part 32 data extends far beyond pole attachments and
section 272(e)(3) imputations. Given the wide-ranging uses for Part 32 data,
the FCC reasonably found that it was unable to make the determinations
required by section 10 to support a partial forbearance grant. 47 U.S.C.
§ 160(a).

Finally, the FCC’s decision to initiate a rulemaking proceeding to
consider possible modification and calibration of the Part 32 rules in today’s
current environment will permit interested parties – including Verizon and
AT&T – to file comments addressing the many complex issues raised by
possible revisions of the USOA. Petitioners’ contention that the FCC did not
fully consider the forbearance petition because it decided instead to conduct a
rulemaking on USOA reforms, Pet. Brief at 41, is wrong. As we have shown,
the FCC did consider the merits of across-the-board USOA forbearance
request on the merits and found it wanting.
56

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V.

THE FCC REASONABLY REQUIRES PART 32
ACCOUNTING ONLY FOR INCUMBENT LECS.


Since the emergence of competition into the telecommunications
marketplace in the 1970s, the FCC has classified common carriers as either
“dominant” or “non-dominant,” on the basis of their power in the
marketplace. See, e.g., Policy and Rules Concerning Rates for Competitive
Common Carrier Services and Authorization Therefor, First Report and
Order, 85 FCC 2d 1 (1980) (“Competitive Carrier First Report”). See MCI
Telecomm. Corp. v. AT&T, 512 U.S. 218, 221 (1994). The FCC has reduced,
eliminated, or not applied regulatory requirements imposed on non-dominant
carriers, i.e., those carriers that ‘[lack] market power necessary to sustain
prices either unreasonably above or below costs,” while retaining regulatory
safeguards upon “dominant carriers,” i.e., carriers with market power.
Competitive Carrier First Report, 85 FCC 2d at 6 (¶6). See generally MCI
Telecomm. Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985).

The FCC has classified incumbent LECs as “dominant” carriers with
market power in the provision of interstate access. See Technology
Transitions, Order, Report and Order and Further Notice of Proposed
Rulemaking, FCC 14-5, 2014 WL 407096 (¶58) (released Jan. 31, 2014).
The FCC has long recognized that incumbent LECs have the ability to
“exercise [their existing market power through cross-subsidization, raising
57

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[their] rivals’ costs, or improper discrimination.” E.g., Review of Regulatory
Requirements, 16 FCC Rcd at 22761 (¶29). The FCC thus reasonably
subjects these carriers to various types of regulation, including Part 32
accounting safeguards, that are not placed upon non-dominant providers.
2001 USOA Reform Order, 16 FCC Rcd at 19960 (¶126). See generally 47
U.S.C. § 251(c) (imposing obligations on incumbent LECs that are not placed
on competitive LECs).

The FCC reasonably determined to continue to apply Part 32
accounting safeguards on incumbent LECs, including price cap carriers. As
the FCC pointed out in its Order, price cap LECs possess control over
wholesale network facilities, i.e., telephone poles, that are essential to their
competitors’ ability to compete in the marketplace. Order, ¶75 (J.A. 38). See
AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7318 n.102 (the
FCC has “long recognized the potential for LECs to use their control over
their local networks to impede competition in services for which local
network access is a needed input”). By requiring incumbent LECs to adhere
to Part 32 accounting, the FCC is able to ensure that cable companies and
other telecommunications service providers are able to obtain the essential
wholesale facilities that they need to compete at reasonable, cost-based
prices. Id.
58

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Classified as non-dominant carriers (see Hyperion Telecomms., Inc.,
Memorandum Opinion and Order and Notice of Proposed Rulemaking, 12
FCC Rcd 8536, 8598-99 (¶ 4) (1997)), non-incumbents “[lack] market power
necessary to sustain prices either unreasonably above or below costs.”
Competitive Carrier First Report, 85 FCC 2d at 6 (¶6). In addition, these
providers generally lack control over essential wholesale network facilities
that their rivals must use to provide service. Thus, unlike incumbent LECs,
the application to Part 32 on these companies is not needed to protect
ratepayers from unjust or unreasonable charges.

Petitioners complain that the FCC’s application of Part 32 only to
incumbent LECs arbitrarily “treats similarly situated parties differently,” Pet.
Brief at 42, but they do not attempt to show that the companies not subject to
Part 32 are similarly situated to them. Not only do incumbent LECs differ
from non-incumbents in their market power and control of essential
wholesale network facilities, but companies providing Voice over Internet
Protocol (“VoIP”) and wireless service offer different services using different
facilities than do incumbent LECs providing wireline telephone service. See
Consumer Advocates Comments at 12-19 (J.A. 275-82). Moreover, the relief
Petitioners seek would create disparate treatment among two groups of
incumbent LECs: large price cap LECs would be relieved of Part 32
59

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accounting requirements, leaving only the small, rural carriers subject to Part
32. See USTelecom Petition at 34 (J.A. 167).

Equally unpersuasive is Petitioners’ claim that Part 32 hampers price
cap carriers’ ability to compete because “competing carriers,” such as
wireless carriers, which are not subject to Part 32, are gaining market share.
Pet. Brief at 43. Large incumbent LECs, including the Petitioners, can and do
offer wireless telephone service through affiliated entities that are not subject
to Part 32. In fact, Petitioners’ wireless affiliates are the largest wireless
carriers in the country. See Applications of AT&T Inc., Cellco P’ship d/b/a
Verizon Wireless, Grain Spectrum, LLC and Grain Spectrum II, 29 FCC Rcd
12878, 12879 (¶ 2) (2013) (“AT&T reported more than $127 billion in
revenues, of which its wireless services accounted for approximately 52
percent, and had approximately 107 million wireless subscribers”); id. at
12280 (¶ 4) (“in 2012, Verizon Wireless’s domestic revenues were $75.8
billion, representing approximately 65 percent of Verizon’s aggregate
revenues”). Thus, the “competing carriers” to which Petitioners are losing
market share include their own affiliates.

VI.

THE COURT SHOULD NOT ORDER THE FCC TO
GRANT FORBEARANCE.

For the reasons set forth in this brief, the Court should deny the petition
for review, thereby making it unnecessary to address Petitioners’ request for
60

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relief. If the Court does rule in Petitioners’ favor, however, it should not
grant Petitioners’ request to order the FCC to forbear from enforcing Part 32.
See Pet. Brief at 47.
Congress entrusted the FCC with determining whether the forbearance
standards set forth in section 10(a)(1)-(3) are satisfied. 47 U.S.C.
§ 160(a)(1)-(3). After the FCC makes that statutory determination and rules
on the merits of a forbearance petition, an aggrieved party can file a timely
petition for review invoking the Court’s jurisdiction “to enjoin, set aside,
suspend (in whole or in part), or to determine the validity” of the
Commission’s order. 28 U.S.C. § 2342(1). See 47 U.S.C. § 402(a). As the
Supreme Court has emphasized, typically “the function of the reviewing court
ends when an error of law is laid bare.” FPC v. Idaho Power Co., 344 U.S.
17, 20 (1952). Thus, consistent with this Court’s usual practice in the
forbearance context, see, e.g., AT&T Corp. v. FCC, 236 F.3d 729, 738 (D.C.
Cir. 2001), if the Court determines that the FCC erred, it should remand the
case for further consideration without ordering the agency to grant
forbearance.


61

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CONCLUSION

The Court should deny the petition for review.
Respectfully
submitted,
WILLIAM J. BAER
JONATHAN B. SALLET
ASSISTANT ATTORNEY GENERAL
ACTING GENERAL COUNSEL


ROBERT B. NICHOLSON
JACOB M. LEWIS
NICKOLAI G. LEVIN
ASSOCIATE GENERAL COUNSEL
ATTORNEYS


RICHARD K. WELCH
UNITED STATES
DEPUTY ASSOCIATE GENERAL
DEPARTMENT OF JUSTICE
COUNSEL
WASHINGTON, D.C. 20530


/s/ Laurel R. Bergold

LAUREL R. Bergold
COUNSEL

FEDERAL COMMUNICATIONS
COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740
February 19, 2014
62

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 76 of 102
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT


VERIZON AND AT&T, INC.,
PETITIONERS,
v.
NO. 13-1220
F

EDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS.



CERTIFICATE OF COMPLIANCE

Pursuant to the requirements of Fed. R. App. P. 32(a)(7), I hereby
certify that the accompanying Brief for Respondents in the captioned case
contains 13,520 words.

/s/ Laurel R. Bergold
Laurel R. Bergold

Counsel
Federal Communications Commission
Washington, D.C. 20554
(202) 418-1740 (Telephone)
(202) 418-2819 (Fax)
February 19, 2014



USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 77 of 102




















STATUTORY APPENDIX








Contents:

47 U.S.C. § 154(i) & (j)
47 U.S.C. § 160
47 U.S.C. § 201(b)
47 U.S.C. § 202(a)
47 U.S.C. § 204
47 U.S.C. § 205
47 U.S.C. § 208
47 U.S.C. § 220
47 U.S.C. § 224
47 U.S.C. § 254(k)
47 U.S.C. § 272(e)(3)
47 U.S.C. § 405
47 U.S.C. § 1302(a)

47 C.F.R. § 32.1
47 C.F.R. § 32.11




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47 U.S.C. 154(i) & (j)




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER I. GENERAL PROVISIONS


§ 154. Federal Communications Commission

* * * * * *

(i) Duties and powers

The Commission may perform any and all acts, make such rules and regulations, and
issue such orders, not inconsistent with this chapter, as may be necessary in the execution
of its functions.

(j) Conduct of proceedings; hearings

The Commission may conduct its proceedings in such manner as will best conduce to the
proper dispatch of business and to the ends of justice. No commissioner shall participate
in any hearing or proceeding in which he has a pecuniary interest. Any party may appear
before the Commission and be heard in person or by attorney. Every vote and official act
of the Commission shall be entered of record, and its proceedings shall be public upon
the request of any party interested. The Commission is authorized to withhold publication
of records or proceedings containing secret information affecting the national defense.

* * * * * *




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47 U.S.C. § 160




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER I. GENERAL PROVISIONS

§ 160. Competition in provision of telecommunications service

(a) Regulatory flexibility

Notwithstanding section 332(c)(1)(A) of this title, the Commission shall forbear from
applying any regulation or any provision of this chapter to a telecommunications carrier
or telecommunications service, or class of telecommunications carriers or
telecommunications services, in any or some of its or their geographic markets, if the
Commission determines that--

(1) enforcement of such regulation or provision is not necessary to ensure that the
charges, practices, classifications, or regulations by, for, or in connection with that
telecommunications carrier or telecommunications service are just and reasonable and
are not unjustly or unreasonably discriminatory;

(2) enforcement of such regulation or provision is not necessary for the protection of
consumers; and

(3) forbearance from applying such provision or regulation is consistent with the public
interest.

(b) Competitive effect to be weighed

In making the determination under subsection (a)(3) of this section, the Commission shall
consider whether forbearance from enforcing the provision or regulation will promote
competitive market conditions, including the extent to which such forbearance will
enhance competition among providers of telecommunications services. If the
Commission determines that such forbearance will promote competition among providers
of telecommunications services, that determination may be the basis for a Commission
finding that forbearance is in the public interest.

(c) Petition for forbearance

Any telecommunications carrier, or class of telecommunications carriers, may submit a
petition to the Commission requesting that the Commission exercise the authority granted
under this section with respect to that carrier or those carriers, or any service offered by

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 80 of 102


that carrier or carriers. Any such petition shall be deemed granted if the Commission does
not deny the petition for failure to meet the requirements for forbearance under
subsection (a) of this section within one year after the Commission receives it, unless the
one-year period is extended by the Commission. The Commission may extend the initial
one-year period by an additional 90 days if the Commission finds that an extension is
necessary to meet the requirements of subsection (a) of this section. The Commission
may grant or deny a petition in whole or in part and shall explain its decision in writing.

(d) Limitation

Except as provided in section 251(f) of this title, the Commission may not forbear from
applying the requirements of section 251(c) or 271 of this title under subsection (a) of
this section until it determines that those requirements have been fully implemented.

(e) State enforcement after commission forbearance

A State commission may not continue to apply or enforce any provision of this chapter
that the Commission has determined to forbear from applying under subsection (a) of this
section.





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47 U.S.C. § 201(b)




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION


§ 201. Service and charges

* * * * * *

(b) All charges, practices, classifications, and regulations for and in connection with such
communication service, shall be just and reasonable, and any such charge, practice,
classification, or regulation that is unjust or unreasonable is declared to be unlawful:
Provided, That communications by wire or radio subject to this chapter may be classified
into day, night, repeated, unrepeated, letter, commercial, press, Government, and such
other classes as the Commission may decide to be just and reasonable, and different
charges may be made for the different classes of communications: Provided further, That
nothing in this chapter or in any other provision of law shall be construed to prevent a
common carrier subject to this chapter from entering into or operating under any contract
with any common carrier not subject to this chapter, for the exchange of their services, if
the Commission is of the opinion that such contract is not contrary to the public interest:
Provided further, That nothing in this chapter or in any other provision of law shall
prevent a common carrier subject to this chapter from furnishing reports of positions of
ships at sea to newspapers of general circulation, either at a nominal charge or without
charge, provided the name of such common carrier is displayed along with such ship
position reports. The Commission may prescribe such rules and regulations as may be
necessary in the public interest to carry out the provisions of this chapter.





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47 U.S.C. § 202(a)




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION


§ 202. Discriminations and preferences

(a) Charges, services, etc.

It shall be unlawful for any common carrier to make any unjust or unreasonable
discrimination in charges, practices, classifications, regulations, facilities, or services for
or in connection with like communication service, directly or indirectly, by any means or
device, or to make or give any undue or unreasonable preference or advantage to any
particular person, class of persons, or locality, or to subject any particular person, class of
persons, or locality to any undue or unreasonable prejudice or disadvantage.

* * * * * *





USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 83 of 102


47 U.S.C. § 204




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION

§ 204. Hearings on new charges; suspension pending hearing; refunds; duration of
hearing; appeal of order concluding hearing


(a)(1) Whenever there is filed with the Commission any new or revised charge,
classification, regulation, or practice, the Commission may either upon complaint or upon
its own initiative without complaint, upon reasonable notice, enter upon a hearing
concerning the lawfulness thereof; and pending such hearing and the decision thereon the
Commission, upon delivering to the carrier or carriers affected thereby a statement in
writing of its reasons for such suspension, may suspend the operation of such charge,
classification, regulation, or practice, in whole or in part but not for a longer period than
five months beyond the time when it would otherwise go into effect; and after full
hearing the Commission may make such order with reference thereto as would be proper
in a proceeding initiated after such charge, classification, regulation, or practice had
become effective. If the proceeding has not been concluded and an order made within the
period of the suspension, the proposed new or revised charge, classification, regulation,
or practice shall go into effect at the end of such period; but in case of a proposed charge
for a new service or a revised charge, the Commission may by order require the interested
carrier or carriers to keep accurate account of all amounts received by reason of such
charge for a new service or revised charge, specifying by whom and in whose behalf such
amounts are paid, and upon completion of the hearing and decision may by further order
require the interested carrier or carriers to refund, with interest, to the persons in whose
behalf such amounts were paid, such portion of such charge for a new service or revised
charges as by its decision shall be found not justified. At any hearing involving a new or
revised charge, or a proposed new or revised charge, the burden of proof to show that the
new or revised charge, or proposed charge, is just and reasonable shall be upon the
carrier, and the Commission shall give to the hearing and decision of such questions
preference over all other questions pending before it and decide the same as speedily as
possible.

(2)(A) Except as provided in subparagraph (B), the Commission shall, with respect to any
hearing under this section, issue an order concluding such hearing within 5 months after
the date that the charge, classification, regulation, or practice subject to the hearing
becomes effective.


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(B) The Commission shall, with respect to any such hearing initiated prior to November
3, 1988, issue an order concluding the hearing not later than 12 months after November 3,
1988.

(C) Any order concluding a hearing under this section shall be a final order and may be
appealed under section 402(a) of this title.

(3) A local exchange carrier may file with the Commission a new or revised charge,
classification, regulation, or practice on a streamlined basis. Any such charge,
classification, regulation, or practice shall be deemed lawful and shall be effective 7 days
(in the case of a reduction in rates) or 15 days (in the case of an increase in rates) after the
date on which it is filed with the Commission unless the Commission takes action under
paragraph (1) before the end of that 7-day or 15-day period, as is appropriate.

(b) Notwithstanding the provisions of subsection (a) of this section, the Commission may
allow part of a charge, classification, regulation, or practice to go into effect, based upon
a written showing by the carrier or carriers affected, and an opportunity for written
comment thereon by affected persons, that such partial authorization is just, fair, and
reasonable. Additionally, or in combination with a partial authorization, the Commission,
upon a similar showing, may allow all or part of a charge, classification, regulation, or
practice to go into effect on a temporary basis pending further order of the Commission.
Authorizations of temporary new or increased charges may include an accounting order
of the type provided for in subsection (a) of this section.





USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 85 of 102


47 U.S.C. § 205




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION

§ 205. Commission authorized to prescribe just and reasonable charges; penalties
for violations


(a) Whenever, after full opportunity for hearing, upon a complaint or under an order for
investigation and hearing made by the Commission on its own initiative, the Commission
shall be of opinion that any charge, classification, regulation, or practice of any carrier or
carriers is or will be in violation of any of the provisions of this chapter, the Commission
is authorized and empowered to determine and prescribe what will be the just and
reasonable charge or the maximum or minimum, or maximum and minimum, charge or
charges to be thereafter observed, and what classification, regulation, or practice is or will
be just, fair, and reasonable, to be thereafter followed, and to make an order that the
carrier or carriers shall cease and desist from such violation to the extent that the
Commission finds that the same does or will exist, and shall not thereafter publish,
demand, or collect any charge other than the charge so prescribed, or in excess of the
maximum or less than the minimum so prescribed, as the case may be, and shall adopt the
classification and shall conform to and observe the regulation or practice so prescribed.

(b) Any carrier, any officer, representative, or agent of a carrier, or any receiver, trustee,
lessee, or agent of either of them, who knowingly fails or neglects to obey any order
made under the provisions of this section shall forfeit to the United States the sum of
$12,000 for each offense. Every distinct violation shall be a separate offense, and in case
of continuing violation each day shall be deemed a separate offense.




USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 86 of 102


47 U.S.C. § 208




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION


§ 208. Complaints to Commission; investigations; duration of investigation; appeal
of order concluding investigation


(a) Any person, any body politic, or municipal organization, or State commission,
complaining of anything done or omitted to be done by any common carrier subject to
this chapter, in contravention of the provisions thereof, may apply to said Commission by
petition which shall briefly state the facts, whereupon a statement of the complaint thus
made shall be forwarded by the Commission to such common carrier, who shall be called
upon to satisfy the complaint or to answer the same in writing within a reasonable time to
be specified by the Commission. If such common carrier within the time specified shall
make reparation for the injury alleged to have been caused, the common carrier shall be
relieved of liability to the complainant only for the particular violation of law thus
complained of. If such carrier or carriers shall not satisfy the complaint within the time
specified or there shall appear to be any reasonable ground for investigating said
complaint, it shall be the duty of the Commission to investigate the matters complained
of in such manner and by such means as it shall deem proper. No complaint shall at any
time be dismissed because of the absence of direct damage to the complainant.

(b)(1) Except as provided in paragraph (2), the Commission shall, with respect to any
investigation under this section of the lawfulness of a charge, classification, regulation, or
practice, issue an order concluding such investigation within 5 months after the date on
which the complaint was filed.


(2) The Commission shall, with respect to any such investigation initiated prior to
November 3, 1988, issue an order concluding the investigation not later than 12 months
after November 3, 1988.

(3) Any order concluding an investigation under paragraph (1) or (2) shall be a final order
and may be appealed under section 402(a) of this title.





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47 U.S.C. § 220




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION

§ 220. Accounts, records, and memoranda

(a) Forms

(1) The Commission may, in its discretion, prescribe the forms of any and all accounts,
records, and memoranda to be kept by carriers subject to this chapter, including the
accounts, records, and memoranda of the movement of traffic, as well as of the receipts
and expenditures of moneys.

(2) The Commission shall, by rule, prescribe a uniform system of accounts for use by
telephone companies. Such uniform system shall require that each common carrier shall
maintain a system of accounting methods, procedures, and techniques (including
accounts and supporting records and memoranda) which shall ensure a proper allocation
of all costs to and among telecommunications services, facilities, and products (and to
and among classes of such services, facilities, and products) which are developed,
manufactured, or offered by such common carrier.

(b) Depreciation charges

The Commission may prescribe, for such carriers as it determines to be appropriate, the
classes of property for which depreciation charges may be properly included under
operating expenses, and the percentages of depreciation which shall be charged with
respect to each of such classes of property, classifying the carriers as it may deem proper
for this purpose. The Commission may, when it deems necessary, modify the classes and
percentages so prescribed. Such carriers shall not, after the Commission has prescribed
the classes of property for which depreciation charges may be included, charge to
operating expenses any depreciation charges on classes of property other than those
prescribed by the Commission, or after the Commission has prescribed percentages of
depreciation, charge with respect to any class of property a percentage of depreciation
other than that prescribed therefor by the Commission. No such carrier shall in any case
include in any form under its operating or other expenses any depreciation or other
charge or expenditure included elsewhere as a depreciation charge or otherwise under its
operating or other expenses.

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(c) Access to information; burden of proof; use of independent auditors

The Commission shall at all times have access to and the right of inspection and
examination of all accounts, records, and memoranda, including all documents, papers,
and correspondence now or hereafter existing, and kept or required to be kept by such
carriers, and the provisions of this section respecting the preservation and destruction of
books, papers, and documents shall apply thereto. The burden of proof to justify every
accounting entry questioned by the Commission shall be on the person making,
authorizing, or requiring such entry and the Commission may suspend a charge or credit
pending submission of proof by such person. Any provision of law prohibiting the
disclosure of the contents of messages or communications shall not be deemed to prohibit
the disclosure of any matter in accordance with the provisions of this section. The
Commission may obtain the services of any person licensed to provide public accounting
services under the law of any State to assist with, or conduct, audits under this section.
While so employed or engaged in conducting an audit for the Commission under this
section, any such person shall have the powers granted the Commission under this
subsection and shall be subject to subsection (f) of this section in the same manner as if
that person were an employee of the Commission.

(d) Penalty for failure to comply

In case of failure or refusal on the part of any such carrier to keep such accounts, records,
and memoranda on the books and in the manner prescribed by the Commission, or to
submit such accounts, records, memoranda, documents, papers, and correspondence as
are kept to the inspection of the Commission or any of its authorized agents, such carrier
shall forfeit to the United States the sum of $6,000 for each day of the continuance of
each such offense.


(e) False entry; destruction; penalty

Any person who shall willfully make any false entry in the accounts of any book of
accounts or in any record or memoranda kept by any such carrier, or who shall willfully
destroy, mutilate, alter, or by any other means or device falsify any such account, record,
or memoranda, or who shall willfully neglect or fail to make full, true, and correct entries
in such accounts, records, or memoranda of all facts and transactions appertaining to the
business of the carrier, shall be deemed guilty of a misdemeanor, and shall be subject,
upon conviction, to a fine of not less than $1,000 nor more than $5,000 or imprisonment
for a term of not less than one year nor more than three years, or both such fine and
imprisonment: Provided, That the Commission may in its discretion issue orders
specifying such operating, accounting, or financial papers, records, books, blanks, or
documents which may, after a reasonable time, be destroyed, and prescribing the length
of time such books, papers, or documents shall be preserved.

(f) Confidentiality of information

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No member, officer, or employee of the Commission shall divulge any fact or
information which may come to his knowledge during the course of examination of
books or other accounts, as hereinbefore provided, except insofar as he may be directed
by the Commission or by a court.

(g) Use of other forms; alterations in prescribed forms

After the Commission has prescribed the forms and manner of keeping of accounts,
records, and memoranda to be kept by any person as herein provided, it shall be unlawful
for such person to keep any other accounts, records, or memoranda than those so
prescribed or such as may be approved by the Commission or to keep the accounts in any
other manner than that prescribed or approved by the Commission. Notice of alterations
by the Commission in the required manner or form of keeping accounts shall be given to
such persons by the Commission at least six months before the same are to take effect.

(h) Exemption; regulation by State commission

The Commission may classify carriers subject to this chapter and prescribe different
requirements under this section for different classes of carriers, and may, if it deems such
action consistent with the public interest, except the carriers of any particular class or
classes in any State from any of the requirements under this section in cases where such
carriers are subject to State commission regulation with respect to matters to which this
section relates.

(i) Consultation with State commissions

The Commission, before prescribing any requirements as to accounts, records, or
memoranda, shall notify each State commission having jurisdiction with respect to any
carrier involved, and shall give reasonable opportunity to each such commission to
present its views, and shall receive and consider such views and recommendations.

(j) Report to Congress on need for further legislation

The Commission shall investigate and report to Congress as to the need for legislation to
define further or harmonize the powers of the Commission and of State commissions
with respect to matters to which this section relates.




USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 90 of 102


47 U.S.C. § 224




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART I. COMMON CARRIER REGULATION

§ 224. Pole attachments

(a) Definitions

As used in this section:

(1) The term “utility” means any person who is a local exchange carrier or an electric,
gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits,
or rights-of-way used, in whole or in part, for any wire communications. Such term does
not include any railroad, any person who is cooperatively organized, or any person
owned by the Federal Government or any State.

(2) The term “Federal Government” means the Government of the United States or any
agency or instrumentality thereof.

(3) The term “State” means any State, territory, or possession of the United States, the
District of Columbia, or any political subdivision, agency, or instrumentality thereof.

(4) The term “pole attachment” means any attachment by a cable television system or
provider of telecommunications service to a pole, duct, conduit, or right-of-way owned or
controlled by a utility.

(5) For purposes of this section, the term “telecommunications carrier” (as defined in
section 153 of this title) does not include any incumbent local exchange carrier as defined
in section 251(h) of this title.
(b) Authority of Commission to regulate rates, terms, and conditions; enforcement
powers; promulgation of regulations

(1) Subject to the provisions of subsection (c) of this section, the Commission shall
regulate the rates, terms, and conditions for pole attachments to provide that such rates,
terms, and conditions

are just and reasonable, and shall adopt procedures necessary and appropriate to hear and
resolve complaints concerning such rates, terms, and conditions. For purposes of
enforcing any determinations resulting from complaint procedures established pursuant to

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this subsection, the Commission shall take such action as it deems appropriate and
necessary, including issuing cease and desist orders, as authorized by section 312(b) of
this title.

(2) The Commission shall prescribe by rule regulations to carry out the provisions of this
section.
(c) State regulatory authority over rates, terms, and conditions; preemption; certification;
circumstances constituting State regulation

(1) Nothing in this section shall be construed to apply to, or to give the Commission
jurisdiction with respect to rates, terms, and conditions, or access to poles, ducts,
conduits, and rights-of-way as provided in subsection (f) of this section, for pole
attachments in any case where such matters are regulated by a State.

(2) Each State which regulates the rates, terms, and conditions for pole attachments shall
certify to the Commission that--

(A) it regulates such rates, terms, and conditions; and

(B) in so regulating such rates, terms, and conditions, the State has the authority to
consider and does consider the interests of the subscribers of the services offered
via such attachments, as well as the interests of the consumers of the utility services.

(3) For purposes of this subsection, a State shall not be considered to regulate the rates,
terms, and conditions for pole attachments--

(A) unless the State has issued and made effective rules and regulations implementing the
State's regulatory authority over pole attachments; and

(B) with respect to any individual matter, unless the State takes final action on a
complaint regarding such matter--

(i) within 180 days after the complaint is filed with the State, or

(ii) within the applicable period prescribed for such final action in such rules and
regulations of the State, if the prescribed period does not extend beyond 360 days after
the filing of such complaint.
(d) Determination of just and reasonable rates; “usable space” defined

(1) For purposes of subsection (b) of this section, a rate is just and reasonable if it assures
a utility the recovery of not less than the additional costs of providing pole attachments,
nor more than an amount determined by multiplying the percentage of the total usable
space, or the percentage of the total duct or conduit capacity, which is occupied by the
pole attachment by the sum of the operating expenses and actual capital costs of the
utility attributable to the entire pole, duct, conduit, or right-of-way.


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(2) As used in this subsection, the term “usable space” means the space above the
minimum grade level which can be used for the attachment of wires, cables, and
associated equipment.

(3) This subsection shall apply to the rate for any pole attachment used by a cable
television system solely to provide cable service. Until the effective date of the
regulations required under subsection (e) of this section, this subsection shall also apply
to the rate for any pole attachment used by a cable system or any telecommunications
carrier (to the extent such carrier is not a party to a pole attachment agreement) to provide
any telecommunications service.
(e) Regulations governing charges; apportionment of costs of providing space

(1) The Commission shall, no later than 2 years after February 8, 1996, prescribe
regulations in accordance with this subsection to govern the charges for pole attachments
used by telecommunications carriers to provide telecommunications services, when the
parties fail to resolve a dispute over such charges. Such regulations shall ensure that a
utility charges just, reasonable, and nondiscriminatory rates for pole attachments.

(2) A utility shall apportion the cost of providing space on a pole, duct, conduit, or right-
of-way other than the usable space among entities so that such apportionment equals two-
thirds of the costs of providing space other than the usable space that would be allocated
to such entity under an equal apportionment of such costs among all attaching entities.

(3) A utility shall apportion the cost of providing usable space among all entities
according to the percentage of usable space required for each entity.

(4) The regulations required under paragraph (1) shall become effective 5 years after
February 8, 1996. Any increase in the rates for pole attachments that result from the
adoption of the regulations required by this subsection shall be phased in equal annual
increments over a period of 5 years beginning on the effective date of such regulations.
(f) Nondiscriminatory access

(1) A utility shall provide a cable television system or any telecommunications carrier
with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or
controlled by it.

(2) Notwithstanding paragraph (1), a utility providing electric service may deny a cable
television system or any telecommunications carrier access to its poles, ducts, conduits,
or rights-of-way, on a non-discriminatory basis where there is insufficient capacity and
for reasons of safety, reliability and generally applicable engineering purposes.
(g) Imputation to costs of pole attachment rate

A utility that engages in the provision of telecommunications services or cable services
shall impute to its costs of providing such services (and charge any affiliate, subsidiary,
or associate company engaged in the provision of such services) an equal amount to the
pole attachment rate for which such company would be liable under this section.

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(h) Modification or alteration of pole, duct, conduit, or right-of-way

Whenever the owner of a pole, duct, conduit, or right-of-way intends to modify or alter
such pole, duct, conduit, or right-of-way, the owner shall provide written notification of
such action to any entity that has obtained an attachment to such conduit or right-of-way
so that such entity may have a reasonable opportunity to add to or modify its existing
attachment. Any entity that adds to or modifies its existing attachment after receiving
such notification shall bear a proportionate share of the costs incurred by the owner in
making such pole, duct, conduit, or right-of-way accessible.
(i) Costs of rearranging or replacing attachment

An entity that obtains an attachment to a pole, conduit, or right-of-way shall not be
required to bear any of the costs of rearranging or replacing its attachment, if such
rearrangement or replacement is required as a result of an additional attachment or the
modification of an existing attachment sought by any other entity (including the owner of
such pole, duct, conduit, or right-of-way).





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47 U.S.C. § 254(k)




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART II. DEVELOPMENT OF COMPETITIVE MARKETS

§ 254. Universal service

* * * * * *

(k) Subsidy of competitive services prohibited

A telecommunications carrier may not use services that are not competitive to subsidize
services that are subject to competition. The Commission, with respect to interstate
services, and the States, with respect to intrastate services, shall establish any necessary
cost allocation rules, accounting safeguards, and guidelines to ensure that services
included in the definition of universal service bear no more than a reasonable share of the
joint and common costs of facilities used to provide those services.

* * * * * *





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47 U.S.C. § 272(e)(3)




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER II. COMMON CARRIERS
PART III. SPECIAL PROVISIONS CONCERNING BELL OPERATING
COMPANIES

§ 272. Separate affiliate; safeguards

* * * * * *

(e) Fulfillment of certain requests

* * * * * *

(3) shall charge the affiliate described in subsection (a) of this section, or impute to
itself (if using the access for its provision of its own services), an amount for access to
its telephone exchange service and exchange access that is no less than the amount
charged to any unaffiliated interexchange carriers for such service; and

* * * * * *





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47 U.S.C. § 405




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5. WIRE OR RADIO COMMUNICATION
SUBCHAPTER IV. PROCEDURAL AND ADMINISTRATIVE PROVISIONS


§ 405. Petition for reconsideration; procedure; disposition; time of filing; additional
evidence; time for disposition of petition for reconsideration of order concluding
hearing or investigation; appeal of order


(a) After an order, decision, report, or action has been made or taken in any proceeding
by the Commission, or by any designated authority within the Commission pursuant to a
delegation under section 155(c)(1) of this title, any party thereto, or any other person
aggrieved or whose interests are adversely affected thereby, may petition for
reconsideration only to the authority making or taking the order, decision, report, or
action; and it shall be lawful for such authority, whether it be the Commission or other
authority designated under section 155(c)(1) of this title, in its discretion, to grant such a
reconsideration if sufficient reason therefor be made to appear. A petition for
reconsideration must be filed within thirty days from the date upon which public notice is
given of the order, decision, report, or action complained of. No such application shall
excuse any person from complying with or obeying any order, decision, report, or action
of the Commission, or operate in any manner to stay or postpone the enforcement thereof,
without the special order of the Commission. The filing of a petition for reconsideration
shall not be a condition precedent to judicial review of any such order, decision, report, or
action, except where the party seeking such review (1) was not a party to the proceedings
resulting in such order, decision, report, or action, or (2) relies on questions of fact or law
upon which the Commission, or designated authority within the Commission, has been
afforded no opportunity to pass. The Commission, or designated authority within the
Commission, shall enter an order, with a concise statement of the reasons therefor,
denying a petition for reconsideration or granting such petition, in whole or in part, and
ordering such further proceedings as may be appropriate: Provided, That in any case
where such petition relates to an instrument of authorization granted without a hearing,
the Commission, or designated authority within the Commission, shall take such action
within ninety days of the filing of such petition. Reconsiderations shall be governed by
such general rules as the Commission may establish, except that no evidence other than
newly discovered evidence, evidence which has become available only since the original
taking of evidence, or evidence which the Commission or designated authority within the
Commission believes should have been taken in the original proceeding shall be taken on
any reconsideration. The time within which a petition for review must be filed in a
proceeding to which section 402(a) of this title applies, or within which an appeal must
be taken under section 402(b) of this title in any case, shall be computed from the date

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upon which the Commission gives public notice of the order, decision, report, or action
complained of.

(b)(1) Within 90 days after receiving a petition for reconsideration of an order concluding
a hearing under section 204(a) of this title or concluding an investigation under section
208(b) of this title, the Commission shall issue an order granting or denying such petition.

(2) Any order issued under paragraph (1) shall be a final order and may be appealed
under section 402(a) of this title.





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47 U.S.C. § 1302(a)




UNITED STATES CODE ANNOTATED
TITLE 47. TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 12. BROADBAND

§ 1302. Advanced telecommunications incentives

(a) In general

The Commission and each State commission with regulatory jurisdiction over
telecommunications services shall encourage the deployment on a reasonable and timely
basis of advanced telecommunications capability to all Americans (including, in
particular, elementary and secondary schools and classrooms) by utilizing, in a manner
consistent with the public interest, convenience, and necessity, price cap regulation,
regulatory forbearance, measures that promote competition in the local
telecommunications market, or other regulating methods that remove barriers to
infrastructure investment.

* * * * * *




USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 99 of 102


47 C.F.R. § 32.1




CODE OF FEDERAL REGULATIONS
TITLE 47. TELECOMMUNICATION
CHAPTER I. FEDERAL COMMUNICATIONS COMMISSION
SUBCHAPTER B. COMMON CARRIER SERVICES
PART 32. UNIFORM SYSTEM OF ACCOUNTS FOR
TELECOMMUNICATIONS COMPANIES
SUBPART A. PREFACE

§ 32.1 Background.

The revised Uniform System of Accounts (USOA) is a historical financial accounting
system which reports the results of operational and financial events in a manner which
enables both management and regulators to assess these results within a specified
accounting period. The USOA also provides the financial community and others with
financial performance results. In order for an accounting system to fulfill these purposes,
it must exhibit consistency and stability in financial reporting (including the results
published for regulatory purposes). Accordingly, the USOA has been designed to reflect
stable, recurring financial data based to the extent regulatory considerations permit upon
the consistency of the well established body of accounting theories and principles
commonly referred to as generally accepted accounting principles.





USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 100 of 102


47 C.F.R. § 32.11




CODE OF FEDERAL REGULATIONS
TITLE 47. TELECOMMUNICATION
CHAPTER I. FEDERAL COMMUNICATIONS COMMISSION
SUBCHAPTER B. COMMON CARRIER SERVICES
PART 32. UNIFORM SYSTEM OF ACCOUNTS FOR
TELECOMMUNICATIONS COMPANIES
SUBPART B. GENERAL INSTRUCTIONS

§ 32.11 Classification of companies.

(a) For purposes of this section, the term “company” or “companies” means incumbent
local exchange carrier(s) as defined in section 251(h) of the Communications Act, and
any other carriers that the Commission designates by Order. Incumbent local exchange
carriers' successor or assign companies, as defined in section 251(h)(1)(B)(ii) of the
Communications Act, that are found to be non-dominant by the Commission, will not be
subject to this Uniform System of Accounts.

(b) For accounting purposes, companies are divided into classes as follows:

(1) Class A. Companies having annual revenues from regulated telecommunications
operations that are equal to or above the indexed revenue threshold.

(2) Class B. Companies having annual revenues from regulated telecommunications
operations that are less than the indexed revenue threshold.

(c) Class A companies, except mid-sized incumbent local exchange carriers, as defined
by § 32.9000, shall keep all the accounts of this system of accounts which are applicable
to their affairs and are designated as Class A accounts. Class A companies, which include
mid-sized incumbent local exchange carriers, shall keep Basic Property Records in
compliance with the requirements of §§ 32.2000(e) and (f).

(d) Class B companies and mid-sized incumbent local exchange carriers, as defined by §
32.9000, shall keep all accounts of this system of accounts which are applicable to their
affairs and are designated as Class B accounts. Mid-sized incumbent local exchange
carriers shall also maintain subsidiary record categories necessary to provide the pole
attachment data currently provided in the Class A accounts. Class B companies shall keep
Continuing Property Records in compliance with the requirements of §§
32.2000(e)(7)(i)(A) and 32.2000(f).

(e) Class B companies and mid-sized incumbent local exchange carriers, as defined by §
32.9000 of this part, that desire more detailed accounting may adopt the accounts

USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 101 of 102


prescribed for Class A companies upon the submission of a written notification to the
Commission.

(f) The classification of a company shall be determined at the start of the calendar year
following the first time its annual operating revenue from regulated telecommunications
operations equals, exceeds, or falls below the indexed revenue threshold.




USCA Case #13-1220 Document #1486579 Filed: 04/02/2014 Page 102 of 102
13-1220

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT


VERIZON AND AT&T, INC.,

PETITIONERS


V.

FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,

RESPONDENTS


CERTIFICATE OF SERVICE



I, Laurel Bergold, hereby certify that on April 2, 2014, I electronically filed
the foregoing Final Brief for Respondents with the Clerk of the Court for the
United States Court of Appeals for the D.C. Circuit by using the CM/ECF
system. Participants in the case who are registered CM/ECF users will be
served by the CM/ECF system.


Bennett L. Ross
Michael E. Glover
Brett A. Shumate
Christopher M. Miller
Wiley Rein LLP
Verizon
1776 K Street, N.W.
1320 North Courthouse Road
Washington, D.C. 20006
9th Floor
Counsel for: Verizon &
Arlington, VA 22201
AT&T, Inc.
Counsel for: Verizon


Christopher M. Heimann
Nickolai G. Levin
Gary L. Phillips
Robert B. Nicholson
AT&T Services, Inc.
U.S. Department of Justice
1120 20th Street, N.W.
950 Pennsylvania Ave., N.W.
Washington, D.C. 20036
Room 3224
Counsel for: AT&T, Inc.
Washington, D.C. 20530
Counsel for: USA


Helgi C. Walker

Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, NW
Washington, D.C. 20036
Counsel for: Verizon &
AT&T, Inc.





/s/ Laurel R. Bergold

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