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Final Resp't Brief - Illinois Pub. Telecomm. v. FCC & USA (D.C. Cir.)

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Released: January 29, 2014

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 1 of 73
ORAL ARGUMENT NOT YET SCHEDULED

BRIEF FOR RESPONDENTS
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

CONSOLIDATED CASE NOS. 13-1059, 13-1083, 13-1149

ILLINOIS PUBLIC TELECOMMUNICATIONS
ASSOCIATION, ET AL.,






PETITIONERS,
V.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,






RESPONDENTS.

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

WILLIAM J. BAER
SUZANNE M. TETREAULT
ASSISTANT ATTORNEY GENERAL
DEPUTY GENERAL COUNSEL


ROBERT B. NICHOLSON
JACOB M. LEWIS
SHANA M. WALLACE
ASSOCIATE GENERAL COUNSEL
ATTORNEYS


RICHARD K. WELCH
UNITED STATES
DEPUTY ASSOCIATE GENERAL COUNSEL
DEPARTMENT OF JUSTICE
WASHINGTON, DC 20530
SARAH E. CITRIN

COUNSEL

FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, DC 20554
(202) 418-1740


USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 2 of 73

CERTIFICATE AS TO PARTIES, RULINGS,

AND RELATED CASES



A. Parties and Intervenors

All parties, intervenors, and amici appearing in this Court are listed in
the Brief for the Petitioners.

B. Rulings under Review

The ruling at issue is Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the Telecommunications
Act of 1996, Declaratory Ruling and Order, 28 FCC Rcd 2615 (2013)
(JA 1–36).

C. Related Cases

The ruling at issue has not previously been before this Court. Counsel
is not aware of any related cases.






USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 3 of 73

TABLE OF CONTENTS


TABLE OF AUTHORITIES .......................................................................... iii 
GLOSSARY .................................................................................................. viii 
STATEMENT OF ISSUES PRESENTED ....................................................... 1 
JURISDICTION ................................................................................................ 4 
STATUTES AND RULES ................................................................................ 4 
COUNTERSTATEMENT ................................................................................ 4 
A.  History of the Payphone Industry ......................................................... 4 
1. 
The Payphone Industry before 1996 ................................................. 4 
2. 
The Payphone Industry under the Telecommunications
Act of 1996 ........................................................................................ 6 
B.  FCC Implementation of Section 276 ..................................................... 7 
C.  State Compliance Proceedings ............................................................ 12 
1. 
Illinois .............................................................................................. 14 
2. 
New York ........................................................................................ 15 
3. 
Ohio ................................................................................................. 17 
D.  Order ................................................................................................... 19 
SUMMARY OF ARGUMENT ...................................................................... 22 
STANDARDS OF REVIEW .......................................................................... 25 
ARGUMENT .................................................................................................. 27 
I. 
THE FCC REASONABLY DETERMINED THAT STATE
AUTHORITIES ARE BEST POSITIONED TO DECIDE
REFUND DISPUTES THAT ARISE FROM STATE-
CONDUCTED PAYPHONE PRICING PROCEEDINGS. .................... 27 
A.  Refunds Are an Equitable Remedy. .................................................... 28 
i

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B.  State Authorities Are Best Positioned to Evaluate
Equitable Considerations Arising from the Specific
Histories of State Proceedings. ............................................................ 29 
II.  NEITHER THE STATUTE NOR PRIOR COMMISSION
RULINGS REQUIRE REFUNDS. .......................................................... 34 
A.  Section 276 Does Not Require Refunds. ............................................. 34 
B.  FCC Rules Do Not Guarantee Refunds in Every Case. ...................... 37 
C.  The Order Is Not an Unlawful Subdelegation of the
Commission’s Authority over Payphone Services. ............................. 39 
D.  The Order Reasonably Allows State Authorities to Apply
the Filed Rate Doctrine and the Prohibition against
Retroactive Ratemaking. ..................................................................... 41 
E. 
The IPTA and IPANY Should Not Prevail on Their
Petitioner-Specific Arguments. ........................................................... 45 
III.  THE TRADE ASSOCIATIONS LACK STANDING TO
CHALLENGE THE FCC’S DECISION NOT TO RENDER
A DECLARATORY RULING ON THE BOCS’
ELIGIBILITY FOR DIAL-AROUND COMPENSATION,
AND IN ANY EVENT THE FCC’S ACTION WAS A
VALID EXERCISE OF DISCRETION. ................................................. 48 
A.  The Trade Associations Lack Standing Because Dial-
Around Compensation Was Paid by IXCs, Not IPPs. ........................ 48 
B.  Declining to Issue a Declaratory Ruling on the BOCs’
Eligibility for Dial-Around Compensation Was a Valid
Exercise of the FCC’s Discretion. ....................................................... 51 
CONCLUSION ............................................................................................... 52 
ii

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 5 of 73

TABLE OF AUTHORITIES


CASES

 
ACS of Anchorage, Inc. v. FCC, 290 F.3d 403
(D.C. Cir. 2002) ........................................................................................... 42
Am. Pub. Commc’ns Council v. FCC, 215 F.3d 51
(D.C. Cir. 2000) ............................................................................................. 3
Arroyo-Melecio v. P.R. Am. Ins. Co., 398 F.3d 56
(1st Cir. 2005) .............................................................................................. 42
AT&T v. FCC, 454 F.3d 329 (D.C. Cir. 2006) ................................................ 36
* Auer
v.
Robbins, 519 U.S. 452 (1997) ............................................................ 26
C.F. Commc’ns Corp. v. FCC, 128 F.3d 735
(D.C. Cir. 1997) ............................................................................................. 5
*
Chevron U.S.A. Inc. v. Nat’l Res. Def. Council, Inc.,
467 U.S. 837 (1984) ............................................................................. 26, 36
City of Arlington, Texas v. FCC, 133 S. Ct. 1863
(2013) .......................................................................................................... 26
Core Commc’ns, Inc. v. FCC, 592 F.3d 139
(D.C. Cir. 2010) ...................................................................................... 1, 40
Davel Commc’ns, Inc. v. Qwest Corp., 460 F.3d
1075 (9th Cir. 2006) ............................................................................. 44, 45
Global Crossing Telecomms., Inc. v. FCC, 259 F.3d
740 (D.C. Cir. 2001) .................................................................................... 26
Ill. Pub. Telecomms. Ass’n v. FCC, 117 F.3d 555
(D.C. Cir.), supplemented by 123 F.3d 693
(D.C. Cir. 1997) .............................................................................. 3, 5, 9, 49
Ill. Pub. Telecomms. Ass’n v. Ill. Commerce
Comm’n, 852 N.E.2d 239 (Ill. 2006) ........................................................... 15
Indep. Payphone Ass’n of N.Y., Inc. v. Pub. Serv.
Comm’n, 774 N.Y.S.2d 197 (N.Y. App.
Div. 2004) ........................................................................... 16–17, 33, 46, 47
Las Cruces TV Cable v. FCC, 645 F.2d 1041
(D.C. Cir. 1981) .................................................................................... 28, 29
iii

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Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) ...................................... 49
MCI Telecomms. Corp. v. FCC, 143 F.3d 606
(D.C. Cir. 1998) .................................................................................... 35, 36
MCI Worldcom Network Servs., Inc. v. FCC, 274
F.3d 542 (D.C. Cir. 2001) .................................................................... 26, 38
Metrophones Telecomms., Inc. v. Global Crossing
Telecomms., Inc., 423 F.3d 1056 (9th Cir. 2005),
aff’d, 550 U.S. 45 (2007) ............................................................................. 41
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29 (1983) ........................................................................ 25
N.E. Pub. Commc’ns Council, Inc. v. FCC, 334
F.3d 69 (D.C. Cir. 2003) .............................................................. 5, 7, 11, 51
Nat’l Ass’n of Home Builders v. EPA, 667 F.3d 6
(D.C. Cir. 2011) .................................................................................... 48, 49
Nat’l Ass’n of State Util. Consumer Advocates v.
FCC, 372 F.3d 454 (D.C. Cir. 2004) ........................................................... 12
Niagara Mohawk Power Corp. v. Fed. Power
Comm’n, 379 F.2d 153 (D.C. Cir. 1967)..................................................... 36
NSTAR Elec. & Gas Corp. v. FERC, 481 F.3d 794
(D.C. Cir. 2007) ........................................................................................... 43
Payphone Ass’n v. Pub. Utils. Comm’n,
849 N.E.2d 4 (Ohio 2006) .................................................. 18, 19, 34, 42–43
*
Pub. Serv. Comm’n v. Economic Regulatory
Admin., 777 F.2d 31 (D.C. Cir. 1985) .................................................. 28, 29
Rural Cellular Ass’n v. FCC, 685 F.3d 1083
(D.C. Cir. 2012) .................................................................................... 26–27
*
Sierra Club v. EPA, 292 F.3d 895 (D.C. Cir. 2002) ....................................... 49
Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct.
2254 (2011) ................................................................................................. 27
TON Servs., Inc. v. Qwest Corp., 493 F.3d 1225
(10th Cir. 2007) .................................................................................... 44, 45
U.S. Telecom Ass’n v. FCC, 359 F.3d 554
(D.C. Cir. 2004) .................................................................................... 39, 40
iv

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 7 of 73

V.I. Tel. Corp. v. FCC, 989 F.2d 1231
(D.C. Cir. 1993) .................................................................................... 28, 29
Verizon Tel. Cos. v. FCC, 357 F.3d 88
(D.C. Cir. 2004) ........................................................................................... 25
*
Yale Broad. Co. v. FCC, 478 F.2d 594
(D.C. Cir. 1973) ........................................................................................... 51

STATUTES

 
5 U.S.C. § 554(e) ............................................................................................. 51
5 U.S.C. § 706(2)(A) ....................................................................................... 25
28 U.S.C. § 2342(1) .......................................................................................... 4
28 U.S.C. § 2344 ............................................................................................... 4
47 U.S.C. § 204(a)(3) ...................................................................................... 42
47 U.S.C. § 208 .............................................................................. 2, 10, 22, 30
47 U.S.C. § 251(d)(2) ...................................................................................... 40
47 U.S.C. § 251(d)(2)(B) ................................................................................ 40
47 U.S.C. § 276(a) ............................................................................................. 2
47 U.S.C. § 276(a)(1) ........................................................................... 6, 27, 35
47 U.S.C. § 276(a)(2) ........................................................................... 6, 27, 35
47 U.S.C. § 276(b)........................................................................................... 35
47 U.S.C. § 276(b)(1) ........................................................................................ 6
47 U.S.C. § 276(b)(1)(A) ....................................................................... 6–7, 35
47 U.S.C. § 276(b)(1)(B) ..............................................................................6, 9
47 U.S.C. § 276(b)(1)(C) ................................................................. 2, 7, 27, 35
47 U.S.C. § 276(c) .............................................................. 7, 27, 37, 39, 40–41
Telecommunications Act of 1996, Pub. L. 104-104,
110 Stat. 56 (1996) ........................................................................................ 6

REGULATIONS

 
47 C.F.R. § 1.2 ................................................................................................ 51
v

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ADMINISTRATIVE ORDERS

 
BellSouth Telecommunications, Inc., Order Setting
Rates for Payphone Lines and Associated
Features, No. 97-124-C, 1999 WL 595213 (S.C.
Pub. Serv. Comm’n Apr. 19, 1999) ................................................ 13, 32–33
Commc’ns Satellite Corp., Memorandum Opinion
and Order, 3 FCC Rcd 2643 (1988) ............................................................ 29
Wisconsin Public Service Commission Order
Directing Filings, Memorandum Opinion and
Order, 17 FCC Rcd 2051 (2002)
(Wisconsin Payphone Order), aff’d, NEPCC, 334
F.3d 69 (D.C. Cir. 2003) ...................................................................... 11, 12
Implementation of the Pay Telephone
Reclassification and Compensation Provisions of
the Telecommunications Act of 1996
, Third
Report and Order, and Order on Reconsideration
of the Second Report and Order, 14 FCC Rcd
2545 (1999) ................................................................................................. 36
Implementation of the Pay Telephone
Reclassification and Compensation Provisions of
the Telecommunications Act of 1996
, Order, 12
FCC Rcd 21370 (Common Carrier Bur. 1997)
(Second Bureau Waiver Order) ............................................................ 10–11
*
Implementation of the Pay Telephone
Reclassification and Compensation Provisions of
the Telecommunications Act of 1996
, Order, 12
FCC Rcd 20997 (Common Carrier Bur. 1997)
(First Bureau Waiver Order) ..................................................... 9–10, 30, 31
*
Implementation of the Pay Telephone
Reclassification and Compensation Provisions of
the Telecommunications Act of 1996
, Order on
Reconsideration, 11 FCC Rcd 21233 (1996)
(Payphone Reconsideration Order) ......................................... 7–8, 9, 29, 38
vi

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Implementation of the Pay Telephone
Reclassification and Compensation Provisions of
the Telecommunications Act of 1996
, Report and
Order, 11 FCC Rcd 20541 (1996)
(First Report and Order) ...........................................................................7, 8
Implementation of the Pay Telephone
Reclassification and Compensation Provisions of
the Telecommunications Act of 1996
, Notice of
Proposed Rulemaking, 11 FCC Rcd 6716 (1996)
(Payphone NPRM) ......................................................................... 4–5, 6, 12


*Authorities on which we chiefly rely are marked with asterisks.
vii

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 10 of 73

GLOSSARY

APCC


American Public Communications Council.

AT&T

Except as otherwise indicated, the Illinois and Ohio
BOCs, which have changed names multiple times during
the period relevant to this matter.

BOC


Bell Operating Company. A local telephone company
subsidiary of the Bell System that became independent
under the consent decree that settled the Bell System
antitrust litigation.

Dial-around

Payment from IXCs to payphone service providers for
compensation
coinless calls in which a payphone caller elects to use a
long-distance carrier other than the payphone’s
presubscribed carrier, for example by employing an
access code.

FCC

Federal Communications Commission.

ICC

Illinois Commerce Commission.

IPANY

Independent Payphone Association of New York.

IPTA

Illinois Public Telecommunications Association.

IXC


Interexchange carrier, commonly known as a long-
distance carrier.

LEC

Local exchange carrier, commonly known as a local
telephone company.

NYPSC


New York Public Service Commission.

PAL


Public access line. Infrastructure that connects a
payphone to the telephone network when that payphone

does not rely for its operation on processing equipment at
a LEC’s central office. PALs are a subset of “payphone
access lines” (defined below).
viii

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 11 of 73

Payphone access

Infrastructure that connects payphones to the telephone
line
network, including both payphones that rely for their
operation on processing equipment at a LEC’s central

office and those that do not.

PAO

Payphone Association of Ohio.

PUCO


Public Utilities Commission of Ohio.

SLC


Subscriber line charge. A flat, monthly, federally tariffed
fee that LECs charge customers to recover the expenses

that LECs incur to build and operate the part of the
telecommunications network that runs from the
customer’s premises to the LEC’s switch (a mechanism
for transporting voice data).

Trade

Petitioners the IPTA, IPANY, and PAO.

Associations













ix

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 12 of 73

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

CONSOLIDATED CASE NOS. 13-1059, 13-1083, 13-1149

ILLINOIS PUBLIC TELECOMMUNICATIONS
ASSOCIATION, ET AL.,







PETITIONERS,
V.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,






RESPONDENTS.

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

BRIEF FOR RESPONDENTS

STATEMENT OF ISSUES PRESENTED

Section 276 of the Communications Act of 1934, as amended, directs
the Federal Communications Commission (FCC or Commission) to adopt
1
rules to prevent Bell Operating Companies (BOCs) from improperly
subsidizing or discriminating in favor of their payphone service to the

1 The BOCs are local telephone companies that were formerly subsidiaries
of the integrated AT&T (or “Bell System”): they became independent
pursuant to the consent decree that settled the Bell System antitrust litigation.
See Core Commc’ns, Inc. v. FCC, 592 F.3d 139, 141 (D.C. Cir. 2010).


USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 13 of 73

2
competitive disadvantage of independent payphone providers (IPPs). See 47
U.S.C. § 276(a), (b)(1)(C). In implementing that directive, the agency
required BOCs to file certain new or revised intrastate payphone tariffs (or
cost data to support existing tariffs) with state regulatory commissions instead
of with the FCC. The agency entrusted to state regulators the determination
of whether the BOCs’ tariffs satisfied the agency’s competitive pricing test.
If a state commission was unable to make that determination, it could ask the
FCC to do so instead. And if an IPP wished the FCC itself to assess whether
a BOC’s tariffed rates met the agency’s requirements, the IPP could initiate a
complaint under Section 208 of the Act. 47 U.S.C. § 208.
3
In the Order under review, the FCC held it will not second-guess state
decisions in refund disputes that arise from state commission proceedings to
assess whether a BOC’s rates satisfy the FCC’s competitive pricing test. In
addition, the agency decided not to issue a declaratory ruling on whether a

2 IPPs are payphone service providers not affiliated with a local telephone
company.
3 Implementation of the Pay Telephone Reclassification and Compensation
Provisions of the Telecommunications Act of 1996, Declaratory Ruling and
Order, 28 FCC Rcd 2615 (2013) (Order) (JA 1–36).
2

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 14 of 73

4
BOC that began collecting so-called “dial-around compensation” before
lowering its state-tariffed rates to satisfy the FCC’s competitive pricing test
was ineligible to have collected such compensation and should disgorge it.
The consolidated petitions for review present the following questions:
(1)
Whether the FCC reasonably determined that state authorities
were better positioned than the agency to decide refund disputes arising from
pricing proceedings that the FCC did not conduct.
(2)
Whether the FCC reasonably determined that Section 276 and
the agency’s rules create no automatic entitlement to refunds.
(3)
Whether petitioners lack standing to challenge the FCC’s
decision to refrain from ruling on the BOCs’ eligibility for dial-around
compensation, and whether, in the event the Court finds jurisdiction to reach
that claim, it should uphold the FCC’s decision as a valid exercise of agency
discretion.

4 “Dial-around calls” are coinless calls in which “the caller uses a long
distance carrier other than the payphone’s presubscribed carrier,” for example
by using an access code to reach the long-distance carrier of the caller’s
choice. Am. Pub. Commc’ns Council v. FCC, 215 F.3d 51, 53 (D.C. Cir.
2000). Under the FCC’s orders implementing Section 276, callers’ preferred
long-distance carriers pay “dial-around compensation” to payphone service
providers. See Ill. Pub. Telecomms. Ass’n v. FCC, 117 F.3d 555, 560 (D.C.
Cir.) (IPTA), supplemented by 123 F.3d 693 (D.C. Cir. 1997).
3

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JURISDICTION

The Order under review is a final FCC order over which this Court has
jurisdiction under 28 U.S.C. § 2342(1). The Order was released on February
27, 2013, and the petitioners—three IPP trade associations (collectively,
Trade Associations)—timely filed their respective petitions for review within
sixty days: the Illinois Public Telecommunications Association (IPTA) on
March 8, 2013; the Independent Payphone Association of New York
(IPANY) on March 27, 2013; and the Payphone Association of Ohio (PAO)
on April 26, 2013. See 28 U.S.C. § 2344.
Although the Court has jurisdiction over the consolidated petitions for
review as a whole, the Trade Associations lack standing to complain that the
FCC impermissibly withheld a declaratory ruling on the BOCs’ eligibility for
dial-around compensation. The Court therefore lacks jurisdiction to decide
that particular claim. See infra pp. 48–51.

STATUTES AND RULES

An addendum to this brief sets forth the relevant statutes and rules.

COUNTERSTATEMENT

A.

History of the Payphone Industry

1.

The Payphone Industry before 1996

Until 1996, twentieth century payphone service was largely state-
regulated. See Implementation of the Pay Telephone Reclassification and
4

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Compensation Provisions of the Telecommunications Act of 1996, Notice of
Proposed Rulemaking, 11 FCC Rcd 6716, 6718 ¶ 2 (1996) (Payphone
NPRM). For much of that era, local telephone companies (known as local
exchange carriers or “LECs”) were the only entities that offered payphone
service, because payphones depended for their operation on processing
equipment at a LEC’s central office. See C.F. Commc’ns Corp. v. FCC, 128
F.3d 735, 737 (D.C. Cir. 1997). Then, in the mid-1980s, manufacturers
developed a new type of payphone that, unlike traditional payphones, could
function without connecting to a LEC’s central office. See id.; IPTA, 117
F.3d at 558. With the advent of that new technology, IPPs began offering
payphone service in competition with LECs. See C.F. Communications, 128
F.3d at 737; IPTA, 117 F.3d at 558.
LECs and IPPs did not initially compete on a level playing field. For
example, only LECs could offer payphone service using the less expensive
traditional payphone technology. See Payphone NPRM ¶ 43. In addition,
whereas there were some payphone calls—including dial-around calls—for
which IPPs went uncompensated, see id. ¶ 40, LECs were able to recover at
least some costs for such calls because they used other telecommunications
operations to subsidize their payphone service, see N.E. Pub. Commc’ns
Council, Inc. v. FCC, 334 F.3d 69, 71 (D.C. Cir. 2003) (NEPCC); Payphone
5

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NPRM ¶ 40. By contrast, for certain long-distance calls, IPPs enjoyed an
advantage: they could earn commissions from interexchange carriers (IXCs,
5
commonly known as long-distance carriers) that the BOCs could not. See
Payphone NPRM ¶ 8.
2.

The Payphone Industry under the
Telecommunications Act of 1996

As part of the Telecommunications Act of 1996, Pub. L. 104-104, 110
Stat. 56 (1996 Act), Congress enacted Section 276 of the Communications
Act to foster both “competition among payphone service providers and
. . . the widespread deployment of payphone services.” 47 U.S.C.
§ 276(b)(1). Congress accordingly prohibited BOCs from continuing to
subsidize their payphone service from their other telecommunications
operations, see id. § 276(a)(1), and barred them from “prefer[ring] or
discriminat[ing] in favor of [their own] payphone service,” id. § 276(a)(2). In
place of the existing “intrastate and interstate payphone subsidies,” id.
§ 276(b)(1)(B), Congress required the FCC to “establish a per call
compensation plan to ensure that all payphone service providers are fairly
compensated for each and every completed intrastate and interstate call,” id.

5 The terms of the consent decree in the Bell System antitrust litigation
effectively prevented BOCs from earning commissions from IXCs. See
Payphone NPRM
¶ 8.
6

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§ 276(b)(1)(A). Congress also required the FCC to “prescribe a set of
nonstructural safeguards” at least “equal” to those the agency had adopted in
its “Computer Inquiry-III” (Computer III) docket, in which the agency
established a number of measures, including cost-based pricing, to prevent
BOC discrimination against competitors. 47 U.S.C. § 276(b)(1)(C); see
NEPCC, 334 F.3d at 72. Finally, Congress specified that the FCC’s rules
implementing Section 276 would preempt state requirements to the extent
they were “inconsistent with the Commission’s regulations.” 47 U.S.C.
§ 276(c).

B.

FCC Implementation of Section 276

The FCC adopted rules to implement Section 276 in a series of orders.
In the first of those orders, Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the Telecommunications
Act of 1996, Report and Order, 11 FCC Rcd 20541 (1996) (First Report and
Order), the FCC required the BOCs to file tariffs for central office coin
services that would satisfy the agency’s “new services test”—a pricing
6
standard originally developed as an outgrowth of Computer III, see NEPCC,
334 F.3d at 72; Implementation of the Pay Telephone Reclassification and

6 The new services test requires that subject rates be based on the direct cost
of providing the service in question, plus a reasonable level of overhead. See
NEPCC
, 334 F.3d at 72.
7

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Compensation Provisions of the Telecommunications Act of 1996, Order on
Reconsideration, 11 FCC Rcd 21233, 21308 ¶ 163 (1996) (Payphone
Reconsideration Order). After initially determining that BOCs should file
those tariffs with the FCC, see First Report and Order ¶ 147, the FCC
ultimately directed that BOCs file their tariffs for payphone access lines and
7
related services with state regulators, see Payphone Reconsideration Order
¶ 163. The FCC explained that it would “rely on the states to ensure” that
tariffed rates for those “payphone line” services met “the requirements of
Section 276.” Id. A state unable to conduct the necessary review, however,
could request review at the federal level instead. See id.
The FCC directed that “all required tariffs, both intrastate and
interstate, . . . be filed no later than January 15, 1997,” and that they take
effect “no later tha[n] April 15, 1997,” id., with one exception: When BOCs
already had relevant intrastate tariffs on file that they believed satisfied the
requirements of Section 276 and the First Report and Order and Payphone
Reconsideration Order (collectively, Payphone Orders), they could provide
state commissions with supporting cost data and explain that the existing

7 “Payphone access lines” connect payphones to the telephone network,
including both traditional payphones and payphones that do not depend for
their operation on equipment at a LEC’s central office.
8

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tariffs did not require revision. See id. State commissions could then excuse
the BOCs from any “further filings,” id., leaving in place the existing tariffs.
The FCC also established a plan to ensure that IXCs would compensate
payphone service providers for dial-around calls. See IPTA, 117 F.3d at 559–
60. Consistent with Section 276(b)(1)(B), the plan provided for dial-around
compensation to all payphone service providers, whether IPPs or LECs. See
47 U.S.C. § 276(b)(1)(B). Before BOCs would be eligible to receive
compensation, however, the FCC required them to complete the requirements
set forth in the Payphone Orders to implement Section 276. See Payphone
Reconsideration Order ¶ 131. Thus, to receive dial-around compensation,
BOCs would need to “be able to certify” on or before April 15, 1997, that
they had in effect “intrastate tariffs for basic payphone services,” both for
traditional payphones and for payphones that did not depend for their
operation on equipment at a LEC’s central office. Id.
The FCC’s Common Carrier Bureau, acting under delegated authority,
subsequently clarified that all intrastate tariffs—including those for
previously tariffed services and those filed only with the states—were
required to comply with the new services test. See Implementation of the Pay
Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Order, 12 FCC Rcd 20997, 20998, 21011–
9

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12, 21013 ¶¶ 2 & n.5, 30–32, 35 (Common Carrier Bur. 1997) (First Bureau
Waiver Order). The bureau also made clear that if IPPs questioned whether a
particular BOC’s intrastate tariffs satisfied the FCC’s requirements, they
could challenge those tariffs by “filing a complaint with the Commission”
under 47 U.S.C. § 208. Id. ¶ 30 n.93.
Based on the bureau’s clarification that existing, intrastate tariffs
needed to satisfy the new services test, a coalition of BOCs (the RBOC
Coalition) wrote the FCC to request an extension of time in which to
determine whether they needed to make any additional state filings. See
Letter from Michael K. Kellogg to Deputy Bureau Chief of the FCC
Common Carrier Bureau at 1–2 (JA 508–09) (Apr. 10, 1997). To assure the
FCC that the requested extension would not disadvantage IPPs, the RBOC
Coalition pledged: “[W]here new or revised tariffs are required and the new
tariff rates are lower than the existing ones, we will undertake (consistent
with state requirements) to reimburse or provide a credit back to April 15,
1997, to those purchasing the services under the existing tariffs.” Letter from
Michael K. Kellogg to Deputy Bureau Chief of the FCC Common Carrier
Bureau at 1 (JA 511) (Apr. 11, 1997).
The Common Carrier Bureau granted the requested extension. See
Implementation of the Pay Telephone Reclassification and Compensation
10

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Provisions of the Telecommunications Act of 1996, Order, 12 FCC Rcd 21370
(Common Carrier Bur. 1997) (Second Bureau Waiver Order). Assuming
compliance with all of the other requirements set forth in the Payphone
Reconsideration Order, the bureau determined that BOCs would remain
eligible to receive dial-around compensation as of April 15, 1997, so long as
they filed compliant tariffs (or cost data to support existing tariffs) on or
before May 19, 1997. See id. ¶¶ 2, 19; see also id. ¶ 20 (rejecting a proposal
to require BOCs to refile all existing payphone line tariffs). With regard to
reimbursement or credits, the bureau stated: “A [BOC] who seeks to rely on
the waiver granted in the instant Order must reimburse its customers or
provide credit from April 15, 1997 in situations where the newly tariffed
rates, when effective, are lower than the existing tariffed rates.” Id. ¶ 2
(emphasis added); accord id. ¶ 20.
Finally, in 2002, the FCC provided additional guidance on what was
required for BOCs to establish compliance with the new services test. See
Wisconsin Public Service Commission Order Directing Filings,
Memorandum Opinion and Order, 17 FCC Rcd 2051 (2002) (Wisconsin
Payphone Order), aff’d, NEPCC, 334 F.3d 69. In determining whether BOC
payphone line rates satisfy the new services test, the FCC explained, state
commissions should apply a forward-looking economic cost methodology.
11

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See id. ¶ 49. The FCC also clarified what methodologies states could apply
to determine overhead costs for purposes of the new services test. See id.
¶ 54. In addition, the FCC provided that BOCs must subtract the amount of a
8
certain federally tariffed charge—the “subscriber line charge” (SLC) —from
its state payphone access line charge. See Wisconsin Payphone Order ¶¶ 59–
61. Finally, the FCC clarified that the new services test governs not only the
monthly, fixed rates for payphone access lines, but also “usage” rates—rates
for employing a payphone access line to connect a call, calculated on a per-
call or per-minute basis. See id. ¶¶ 62–65.

C.

State Compliance Proceedings

Numerous state regulatory commissions—and their reviewing courts—
have conducted lengthy, procedurally complex, and fact-intensive
proceedings to enforce Section 276 as implemented by the FCC. In a number
of such proceedings, the 2002 Wisconsin Payphone Order marked a turning
point, prompting the BOCs to lower their intrastate payphone line rates either

8 The SLC is a flat, monthly fee that LECs charge customers “to recover the
expenses [that] LECs incur to build and operate local loops—the part of the
telecommunications network that runs from the LEC’s switch to the
customer’s premises.” Nat’l Ass’n of State Util. Consumer Advocates v.
FCC
, 372 F.3d 454, 456 (D.C. Cir. 2004); see Payphone NPRM ¶ 50.
12

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9
at the direction of state authorities or voluntarily. Some state authorities
awarded IPPs refunds—including, in some cases, refunds extending back to
10
April 15, 1997. Authorities in other states declined to award refunds, or
awarded them for only a limited period of time, taking into account the facts
11
and procedural considerations of their proceedings.
The proceedings in Illinois, New York, and Ohio about which the
Trade Associations complain illustrate the factual and procedural complexity
of Section 276 compliance proceedings, and of the individualized
determinations that state regulators and reviewing courts have reached on the

9 See, e.g., Petition for Expedited Review of BellSouth Telecommunications,
Inc.’s Intrastate Tariffs for Pay Telephone Access Services (PTAS) Rate with
Respect to Rates for Payphone Line Access, Usage, and Features by Florida
Public Telecommunications Association
, Final Order on Arbitration of
Complaint, PSC-04-0974-FOF-TP, slip op. at 4–5 (JA 892–93) (Fla. Pub.
Serv. Comm’n Oct. 7, 2004) (Florida Order) (explaining that the Florida IPP
trade association filed its petition in March 2003, invoking the Wisconsin
Payphone Order
, and that BellSouth subsequently revised its intrastate
payphone line rates to comply); Complaint of the Southern Public
Communication Association for Refund of Excess Charges by BellSouth
Telecommunications, Inc . Pursuant to Its Rates for Payphone Line Access,
Usage, and Features
, Order, No. 2003-AD-927, slip op. at 2 (JA 884) (Miss.
Pub. Serv. Comm’n Sept. 1, 2004) (Mississippi Order) (noting BellSouth’s
voluntary pricing revisions in 2003).
10 E.g., BellSouth Telecommunications, Inc., Order Setting Rates for
Payphone Lines and Associated Features, No. 97-124-C, 1999 WL 595213, at
*10, 12 (S.C. Pub. Serv. Comm’n Apr. 19, 1999) (South Carolina Order).
11 See, e.g., Florida Order, slip op. at 13–14 (JA 901–02) (declining to
award refunds).
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issue of refunds: Illinois denied refunds altogether, New York awaits the
resolution of this case on the issue of refunds, and Ohio awarded refunds for a
limited period of time, as summarized further below.
1.

Illinois

Before the enactment of Section 276, the IPTA negotiated with
12
AT&T (then Ameritech Illinois) for members to receive discounts from the
usage rates that AT&T was at that time legally entitled to charge. See
Investigation into Certain Payphone Issues as Directed in Docket 97-0225,
Interim Order, ICC Dkt. No. 98-0195, slip op. at 5–6 (JA 188–89) (ICC Nov.
12, 2003) (ICC Order). The parties agreed that the discounted usage and
other negotiated payphone line rates “would extend through June 30, 2005,”
and the Illinois Commerce Commission (ICC) approved the rates as lawful.
Id. at 6 (JA 189) (internal quotation marks omitted). Subsequently, after the
FCC released the Payphone Orders and the ensuing First and Second Bureau
Waiver Orders, AT&T filed cost data with the ICC to support that its existing
rates satisfied the new services test. See Ill. Pub. Telecomms. Ass’n v. Ill.
Commerce Comm’n, Case No. 1-04-0225, slip op. at 3 (JA 332) (Ill. App. Ct.
Nov. 23, 2005) (Illinois Appellate Order).

12 For ease of reference, we refer to the BOCs in both Illinois and Ohio—
which have changed names a number of times in the relevant period, see Br.
xv—as “AT&T.”
14

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The IPTA challenged AT&T’s rates, and the ICC ultimately
determined that those rates did not satisfy the new services test as clarified in
13
the Wisconsin Payphone Order. See ICC Order, slip op. at 36 (JA 219).
The ICC therefore required AT&T to file reduced tariffs that would apply
going forward. See Illinois Appellate Order, slip op. at 4 (JA 333). The ICC
declined, however, to award IPTA members refunds. See ICC Order, slip op.
at 43 (JA 226). Among other reasons, the ICC viewed as “[s]ignificant[],” id.
at 42 (JA 225), the IPTA’s “desultory pursuit” of its challenge to AT&T’s
rates over the course of eight years, during which time IPTA members
continued to benefit from the existing rates’ discounts on usage, id. at 43 &
n.16 (JA 226); see id. at 42–43 (JA 225–26); ICC Comments in Opposition to
the IPTA Petition for Declaratory Ruling at 17 & n.50 (JA 267) (Aug. 26,
14
2004).
2.

New York

In New York, Verizon informed the New York Public Service
Commission (NYPSC) that its existing rates for public access lines (PALs)

13 In the course of its proceeding, the ICC received written testimony and
conducted two separate rounds of evidentiary hearings. See ICC Order, slip
op. at 3–5 (JA 186, 188).
14 The Appellate Court of Illinois affirmed the ICC’s denial of refunds, see
Illinois Appellate Order, slip op. at 9 (JA 338), and the Illinois Supreme
Court denied leave to appeal, see Ill. Pub. Telecomms. Ass’n v. Ill. Commerce
Comm’n
, 852 N.E.2d 239 (Ill. 2006) (table of dispositions).
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15
satisfied the new services test. See Comments of BellSouth
Telecommunications, Inc., et al. on IPANY’s Petition for an Order of
Preemption and Declaratory Ruling at 5 (JA 917) (Jan. 18, 2005) (BOC
Comments); Letter from Robert P. Slevin to John Crary at 2 & Attachment
(JA 458, 460) (May 19, 1997) (Slevin Letter) (providing cost and revenue
information). IPANY thereafter challenged Verizon’s PAL rates, and
ultimately Verizon’s usage rates as well. See BOC Comments at 5 (JA 917);
Order Approving Permanent Rates and Denying Petition for Rehearing, Case
Nos. 99-C-1684, 96-C-1174, slip op. at 1 (JA 625) (NYPSC Oct. 12, 2000).
In October 2000, the NYPSC determined that Verizon’s rates should continue
at their then-current levels. See id. at 8 (JA 632). IPANY sought review
before the Supreme Court of New York, New York’s trial-level court, which
remanded the matter to the NYPSC to reassess Verizon’s compliance with the
new services test under a forward-looking economic cost methodology. See
Indep. Payphone Ass’n of N.Y., Inc. v. Pub. Serv. Comm’n, Index No. 413-02,
slip op. at 19, 22 (JA 660, 663) (N.Y. Sup. Ct. July 31, 2002) (N.Y. Supreme
Court Order). On appeal, the Supreme Court’s Appellate Division affirmed
the trial court’s remand order. See Indep. Payphone Ass’n of N.Y., Inc. v.

15 PALs are payphone access lines that connect payphones to the telephone
network when those payphones do not depend for their operation on
equipment at a LEC’s central office.
16

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Pub. Serv. Comm’n, 774 N.Y.S.2d 197, 199–200 (N.Y. App. Div. 2004) (N.Y.
16
Appellate Order).
On the availability of refunds, however, the Appellate Division
modified the decision of the trial court, holding that IPANY members should
not receive refunds in the remand proceeding. See id. at 200. Before the trial
court, IPANY had based its claim for refunds on the RBOC Coalition’s letter
of April 11, 1997, and the Second Bureau Waiver Order. See N.Y. Supreme
Court Order, slip op. at 9 (JA 650). The trial court, in turn, had relied on
those materials in concluding that refunds were available. See id., slip op. at
21–22 (JA 662–63). The Appellate Division held that such reliance was
misplaced. See N.Y. Appellate Order, 774 N.Y.S.2d at 200. On the facts of
the New York proceeding, because Verizon had not filed new tariffs during
the Spring 1997 extension period, the Second Bureau Waiver Order did not
apply. See id.
3.

Ohio

In Ohio, on September 25, 1997, the Public Utilities Commission of
Ohio (PUCO) approved AT&T’s previously tariffed rates as consistent with

16 The NYPSC has stayed the remand proceeding in IPANY’s case pending
the FCC’s final resolution of the refund issue; that proceeding thus awaits this
Court’s decision here. See Order Denying Rehearing and Addressing
Comments
, Case Nos. 03-C-0428, 03-C-0519, slip op. at 17 (JA 721)
(NYPSC May 24, 2007); Br. 21.
17

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Section 276 and the FCC’s implementing orders. Payphone Ass’n v. Pub.
Utils. Comm’n, 849 N.E.2d 4, 8 (Ohio 2006) (Ohio Supreme Court Order).
At the PAO’s request, however, the PUCO subsequently agreed to hold an
evidentiary hearing in which, after the FCC issued the Wisconsin Payphone
Order, the “core issue” became whether AT&T was “providing payphone
services at forward-looking, cost-based rates.” Commission’s Investigation
into the Implementation of Section 276 of the Telecommunications Act of
1996 Regarding Pay Telephone Services, Entry, Case No. 96-1310-TP-COI,
slip op. at 11 (JA 764) (PUCO Nov. 26, 2002); see id. at 7 (JA 760). In a
September 2004 decision, the PUCO directed AT&T to make downward
revisions to its tariffs. See Ohio Supreme Court Order, 849 N.E.2d at 8.
Under the terms of a previous PUCO order that established interim
rates and included a “true-up” condition, the PUCO ordered AT&T to
reimburse IPPs for the difference between the revised and the interim rates
extending back to January 16, 2003. See Commission’s Investigation into the
Implementation of Section 276 of the Telecommunications Act of 1996
Regarding Pay Telephone Services, Opinion and Order, Case No. 96-1310-
TP-COI, slip op. at 30 (JA 796) (PUCO Sept. 1, 2004). The PUCO denied,
however, the PAO’s request for refunds back to April 15, 1997. See
Commission’s Investigation into the Implementation of Section 276 of the
18

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Telecommunications Act of 1996 Regarding Pay Telephone Services, Entry
on Rehearing, Case No. 96-1310-TP-COI, slip op. at 16–17 (JA 814–15)
(Oct. 27, 2004).
On further review, the Ohio Supreme Court upheld the PUCO’s
determination that the PAO’s arguments were procedurally barred and had
relied on documents outside the record. See Ohio Supreme Court Order, 849
N.E.2d at 9–10. In addition, the court rejected the PAO’s contention that
refunds would not constitute retroactive ratemaking, which rested on the
faulty premise that AT&T’s “tariff was never filed or approved,” and on the
unproven assertion (based on documents outside the record) that AT&T had
voluntarily committed to provide refunds. Id. at 10.

D.

Order


Unable to persuade their respective states to award refunds, the Trade
Associations filed petitions for declaratory ruling with the FCC. See
generally Petition of the PAO to Preempt the Actions of the State of Ohio
Refusing to Implement the FCC’s Payphone Orders, Including the Refund of
Overcharges to Payphone Providers in Ohio, and for a Declaratory Ruling
(Dec. 28, 2006) (Ohio Petition) (JA 822–50); Petition of the IPANY for an
Order of Pre-Emption and Declaratory Ruling (Dec. 29, 2004) (IPANY
Petition) (JA 461–506); IPTA Petition for a Declaratory Ruling (July 30,
19

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2004) (IPTA Petition) (JA 231–48). Their petitions and supporting
comments requested that the FCC (1) preempt (or effectively preempt) the
decisions of state commissions and reviewing courts that declined to award
refunds, (2) declare that the Trade Associations’ members should receive the
requested refunds, and (3) declare that the BOCs were not entitled to have
collected dial-around compensation and should disgorge it. See IPTA Reply
to AT&T and Verizon Preemption Comments of March 23, 2009 at 65 (JA
409) (Dec. 31, 2009); Ohio Petition at 1–2 (JA 823–24); Reply Comments of
IPANY at 21 (JA 703) (Feb. 1, 2005); IPANY Petition at 1–2 (JA 464–65);
Illinois Petition at 3 (JA 233). Trade associations from Mississippi and
Florida raised similar claims. See Order ¶¶ 17, 25 (JA 9, 13).
The FCC concluded that neither Section 276 nor the agency’s
implementing rules and orders supported the petitioners’ asserted “absolute
right” to refunds. Id. ¶ 41 (JA 21); see id. ¶¶ 1, 42 n.178, 45 n.187, 46, 47
(JA 2–3, 22–26). “Although section 276 establishes [pricing] requirements
for payphone rates,” the Order explains, “it does not dictate whether refunds
are due under any given set of circumstances.” Id. ¶ 41 (JA 21). Similarly,
the FCC explained that its earlier orders entrusting to state regulators the
assessment of whether the BOCs’ intrastate payphone line rates satisfy the
new services test and “permit[ing] the BOCs to self-certify [their]
20

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compliance” do “not specifically address whether refunds should be issued if
a subsequent proceeding determine[s] that the rates the BOCs self-certified”
exceed what the new services test, correctly understood, allows. Id. ¶ 38 (JA
19–20).
Whether refunds are warranted in a particular case, the FCC
recognized, will depend on that case’s “specific details”—including factual,
procedural, and legal considerations. Id. ¶ 42 (JA 22); see id. ¶¶ 1, 40, 41, 49
(JA 3, 20–21, 26). Emphasizing both the case-specific nature of refund
decisions and the agency’s 1996 determination to assign primary
responsibility for conducting intrastate payphone line pricing proceedings to
state regulators, the FCC found that states are “well-positioned to resolve
refund disputes arising from the tariffs they review.” Id. ¶ 42 (JA 22). “In
fact,” the FCC explained, “the states that have reviewed the tariffs and/or cost
support filed by BOCs, or that have considered whether existing BOC tariffs
were [new services test]-compliant, are better positioned than [the agency] to
decide related refund disputes, because they are more familiar with the
specific details of each case.” Id.; see id. ¶¶ 40, 47, 49 (JA 20–21, 25–26).
Finding that the agency has no obligation under Section 276 or its own orders
to interfere, the FCC refused to second-guess the state refund decisions. See
id. ¶¶ 41, 42 & n.178, 46–48, 49 & n.204 (JA 21–22, 24–26).
21

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Finally, the FCC elected not to render the Trade Associations’
requested declaratory ruling on the BOCs’ eligibility to have collected dial-
around compensation. See id. ¶ 38 n.161 (JA 19). The agency noted, in
doing so, that the payphone providers had “not submitted any evidence that
the BOCs’ self-certifications were defective or fraudulent, or that the BOCs
knew when the self-certifications were submitted that their payphone rates
were not [new services test]-compliant.” Id.

SUMMARY OF ARGUMENT

1. The FCC sensibly refrained from second-guessing state decisions in
refund disputes arising from complex and lengthy Section 276 pricing
proceedings that the agency did not itself conduct. As a form of equitable
relief, refund determinations require a discretionary balancing of multiple,
case-specific factors. Consistent with that familiar principle, the FCC
concluded that the state commissions that lawfully conducted the pricing
proceedings that gave rise to these refund disputes were better positioned than
the agency to resolve them. That conclusion was reasonable. The Trade
Associations could have chosen to challenge the BOCs’ rates before the FCC,
instead of state commissions, by filing complaints with the agency under 47
U.S.C. § 208. But they did not.
22

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2. The FCC also reasonably determined that Section 276 does not
guarantee IPPs an automatic right to refunds, without regard to the facts or
procedural histories of individual proceedings, whenever a BOC lowers its
intrastate payphone line rates to satisfy the new services test after April 15,
1997. In Section 276, Congress required the FCC to adopt specified rules to
prevent BOCs from improperly subsidizing or discriminating in favor of their
own payphone services. There is no dispute that the FCC has done so; like
all petitioners before the agency, the Trade Associations recognize that the
BOCs in their states now have new services test-compliant rates in place.
Section 276 is silent on the issue of remedies, however. The statute thus
leaves it to traditional equitable principles to resolve whether the facts of any
particular case justify refunds. The FCC reasonably determined that state
authorities are better positioned to engage in that inquiry. Similarly, because
FCC rules and prior orders say nothing on the issue of remedies in the
circumstances presented here, Section 276(c) does not operate to preempt
state decisions denying refunds.
3. Contrary to the Trade Associations’ contention, it was neither an
improper subdelegation of authority nor arbitrary and capricious for the FCC
to decline to intervene in refund disputes arising from pricing proceedings
that state regulators, not the FCC, conducted in the first instance. By
23

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preempting state requirements only insofar as they are inconsistent with FCC
rules, Section 276(c) embodies Congress’s assumption that states will
continue to play a role in payphone regulation, especially when, as here, the
FCC found that state authorities are better positioned to untangle the lengthy
and often tortured procedural histories that necessarily bear on the equities of
awarding or denying payphone line refunds.
4. The Trade Associations complain of inconsistent state refund
decisions but fail to demonstrate anything more than a divergence in outcome
that understandably follows from the case-by-case, equitable nature of such
determinations. The application of the filed rate doctrine and the prohibition
against retroactive ratemaking is just one of many, intertwined fact-based and
case-specific considerations that the arbiter of a refund dispute must evaluate.
5. The Court should likewise reject the IPTA’s and IPANY’s
petitioner-specific arguments. Their contentions that the FCC misread
specific aspects of the decisions in their respective state proceedings are
irrelevant, because the Order under review nowhere ratifies the analysis of
those decisions. And now that the NYPSC has required Verizon to bring its
rates into compliance with the Wisconsin Payphone Order on a prospective
basis, IPANY’s argument that the FCC should have corrected the state
decisions that declined to apply that order is moot.
24

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6. Finally, the Court should not reach the Trade Associations’ claim
that AT&T and Verizon were ineligible to begin receiving dial-around
compensation before they reduced their rates. The FCC’s decision not to
issue the Trade Associations’ requested declaratory ruling on that issue
caused no injury to any Trade Association member that is capable of redress:
IPPs do not pay dial-around compensation, IXCs do. Thus, the relief the
Trade Associations seek—that the FCC consider requiring the BOCs to
forfeit the dial-around compensation they have collected—can in no way
benefit their members. The Trade Associations lack standing to bring this
claim against the BOCs, and thus the Court lacks jurisdiction to consider it.
In any event, it was well within the FCC’s discretion to refuse the requested
declaratory relief.

STANDARDS OF REVIEW

The Trade Associations bear a heavy burden to establish that the Order
under review is “arbitrary, capricious, [or] an abuse of discretion.” 5 U.S.C.
§ 706(2)(A). Under this “highly deferential” standard, the Order is entitled to
a presumption of validity. E.g., Verizon Tel. Cos. v. FCC, 357 F.3d 88, 93
(D.C. Cir. 2004). The Court must affirm unless the agency failed to consider
relevant factors or made a clear error in judgment. E.g., Motor Vehicle Mfrs.
Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
25

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Insofar as the Trade Associations challenge the FCC’s interpretation of
Section 276—a provision of the agency’s organic statute—the Court applies
the framework of Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984). E.g., City of Arlington, Texas v. FCC, 133 S. Ct.
1863, 1868 (2013). Under Chevron, the Court must first determine “whether
Congress has directly spoken to the precise question at issue” and, if so, “give
effect to the unambiguously expressed intent of Congress.” 467 U.S. at 842–
43. When “the statute is silent or ambiguous” on the relevant issue, however,
the Court should defer to the Commission’s “permissible construction of the
statute.” Id. at 843; see Global Crossing Telecomms., Inc. v. FCC, 259 F.3d
740, 744 (D.C. Cir. 2001).
Similarly, this Court gives a “high level of deference” to the FCC’s
interpretation of its own orders and regulations. MCI Worldcom Network
Servs., Inc. v. FCC, 274 F.3d 542, 548 (D.C. Cir. 2001); see Auer v.
Robbins, 519 U.S. 452, 461 (1997). The Court accepts the agency’s
interpretation “unless [it] is plainly erroneous or inconsistent with the
regulations or there is any other reason to suspect that the interpretation does
not reflect the agency’s fair and considered judgment on the matter in
question.” Rural Cellular Ass’n v. FCC, 685 F.3d 1083, 1093 (D.C. Cir.
26

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2012) (quoting Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2261
(2011) (internal quotation marks, citations, and alteration omitted)).

ARGUMENT

I.

THE FCC REASONABLY DETERMINED THAT STATE
AUTHORITIES ARE BEST POSITIONED TO DECIDE
REFUND DISPUTES THAT ARISE FROM STATE-
CONDUCTED PAYPHONE PRICING PROCEEDINGS.

Section 276(b)(1)(C) of the Communications Act directs the
Commission to adopt specified pricing rules “to implement the provisions of
[Section 276(a)].” 47 U.S.C. § 276(b)(1)(C). Section 276(a) in turn prohibits
BOCs from improperly subsidizing, id. § 276(a)(1), or otherwise improperly
favoring, see id. § 276(a)(2), their own payphone services. “To the
extent . . . State requirements are inconsistent with the Commission’s
regulations,” Section 276(c) provides that “the Commission’s regulations on
such matters . . . preempt such State requirements.” Id. § 276(c).
Section 276 is silent on the issue of refunds. Nowhere did Congress
require the FCC to order refunds or any other remedy when a BOC’s
intrastate payphone line rates fail to satisfy the FCC’s pricing rules. Until the
release of the Order under review, moreover, no FCC rule or order addressed
whether or under what circumstances refunds might be warranted when, as
here, a BOC self-certified in 1997 that its existing rates satisfied the new
27

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services test, but the BOC subsequently lowered its rates to comply with the
Wisconsin Payphone Order.
Against this backdrop, the agency reasonably concluded that state
authorities are best positioned to resolve payphone refund disputes like those
at issue here.

A.

Refunds Are an Equitable Remedy.

As this Court has emphasized, refunds are a form of equitable relief,
and whether they are warranted depends on the specific facts of individual
cases. See, e.g., Pub. Serv. Comm’n v. Economic Regulatory Admin., 777
F.2d 31, 35 (D.C. Cir. 1985) (adhering to the “familiar[]” and “sage
statement” that, “as is traditional in cases sounding in equity, the facts of the
particular case” should govern the adjudication of refund disputes (internal
quotation marks omitted)); Las Cruces TV Cable v. FCC, 645 F.2d 1041,
1047 (D.C. Cir. 1981) (“[T]he standard of review of an agency refund order is
whether the agency decision is equitable in the circumstances of this
litigation.” (internal quotation marks omitted)); see also V.I. Tel. Corp. v.
FCC, 989 F.2d 1231, 1240 (D.C. Cir. 1993) (“Naturally, the specific factors
to be considered in any given [rate-of-return refund] case will vary with the
circumstances.”). The arbiter of a refund dispute must weigh all relevant
28

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factors but “enjoys a broad discretion in weighing [them].” Public Service
Commission, 777 F.2d at 35 (quoting Las Cruces, 645 F.2d at 1047–48).
In addition, although the relevant factors will vary by case, procedural
considerations—for example, failure to file a complaint—may sometimes
affect the analysis. See Virgin Islands, 989 F.2d at 1240 (“[The] customers’
failure to file petitions or complaints . . . is also a relevant factor.” (second
alteration in original) (quoting Commc’ns Satellite Corp., Memorandum
Opinion and Order, 3 FCC Rcd 2643, 2646 ¶ 23 (1988))).

B.

State Authorities Are Best Positioned to Evaluate
Equitable Considerations Arising from the Specific
Histories of State Proceedings.

In the 1996 Payphone Reconsideration Order, the FCC gave state
regulators primary responsibility for conducting payphone pricing
proceedings to ensure that BOC rates comply with the new services test. See
Payphone Reconsideration Order ¶ 163. The Trade Associations do not
contest that decision, see Br. 67, and that allocation of authority is not before
the Court.
When the FCC has not conducted the underlying pricing proceeding,
however, the agency may not be attuned to all of many, case-specific factors
relevant to an equitable decision on refunds. It may be difficult, for example,
for the FCC to assess the diligence with which IPPs seeking refunds pursued
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their claims, the extent to which (whether as a matter of law or equity) a BOC
reasonably relied on the validity of its existing tariffs, or whether state law
procedural considerations should operate to limit or bar the requested relief.
Thus, as the FCC explained in the Order under review, “states that
have reviewed [payphone] tariffs and/or cost support filed by BOCs, or that
have considered whether existing BOC tariffs were [new services test]-
compliant, are better positioned than [the agency] to decide related refund
disputes, because they are more familiar with the specific details of each
case.” Order ¶ 42 (JA 22). “[E]ach individual proceeding,” the FCC
recognized, “involves its own unique set of facts, procedural postures, and
relevant state and federal statutes.” Id. ¶ 49 (JA 26). Because the states’
responsibility for pricing proceedings means they will be more familiar with
the particulars of each refund dispute, the FCC left “to the states the
17
responsibility for deciding whether refunds are appropriate.” Id.

17 Although the agency has not had occasion to address the point,
considerations might well be different if the FCC itself conducted the
underlying pricing proceeding. If, for example, a state were unable to
conduct the pricing proceeding and the FCC therefore assumed responsibility
for doing so, see Order ¶¶ 6, 9, 44 (JA 5, 6, 23), or if the FCC were
adjudicating an IPP’s Section 208 complaint challenging a BOC’s
compliance with the new services test, see 47 U.S.C. § 208; First Bureau
Waiver Order
¶ 30 n.93, the FCC could more effectively weigh relevant
factors and decide whether to award refunds in the specific circumstances.
The Trade Associations in this case could have chosen to file Section 208
complaints with the FCC, as expressly provided in the First Bureau Waiver
30

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The histories of the various state proceedings set forth in the Order
illustrate the reasonableness of the FCC’s position. In Florida, for example, a
trade association representing Florida IPPs initially challenged the state
commission’s order finding that the BOC tariffs for payphone line services
satisfied the new services test, but the association thereafter withdrew its
protest and allowed the order to become final. See Order ¶ 26 (JA 13).
Florida IPPs then paid the tariffed rates for several years without dispute,
until eventually—only after the FCC released the Wisconsin Payphone
Order—their trade association challenged those rates before the state
commission and sought refunds going back to April 15, 1997. See id. ¶¶ 26,
27 (JA 13–14). The BOC subsequently lowered its rates pursuant to the
Wisconsin Payphone Order, see id. ¶¶ 26, 41 (JA 14, 21), but the state
commission concluded that Florida IPPs were not entitled to refunds, see id.
¶ 27 (JA 14). When the Florida trade association failed to timely file its
appeal to the Supreme Court of Florida, the court dismissed that appeal and
the state commission’s refund decision became final. See id.

Order. See id. (“Any party who believes that a particular LEC’s intrastate
tariffs fail to meet these requirements [for cost-based, nondiscriminatory
pricing as required by the Payphone Reconsideration Order] has the option of
filing a complaint with the Commission.”). When the Trade Associations
instead elected to proceed before their respective state commissions, the FCC
was not obligated to relieve them of the consequences of that choice.
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In Mississippi, the state commission approved the payphone access line
tariff that the BOC filed after the 1996 Act, and Mississippi’s IPP trade
association did not appeal that approval. See id. ¶ 18 (JA 9). Yet when the
BOC lowered its rates in the wake of the Wisconsin Payphone Order, the
trade association sought refunds for the period before the lowered rates took
effect. See id. Under the circumstances, the state commission denied the
request for refunds. See id.; Mississippi Order, slip op. at 4–5 (JA 886–87).
By contrast, there may be cases in which equitable considerations favor
refunds. In South Carolina, for example, the state IPP trade association
promptly challenged the BOC’s tariffs, asked the state public service
commission to stay the tariffs’ effectiveness, and sought an accounting order
providing for refunds “from April 15, 1997, if any newly approved rates
[proved] lower than existing tariff rates.” See South Carolina Order, 1999
WL 595213, at *1. The state commission granted the requested accounting
order. See id. In addition, it rejected a request from BellSouth for a
declaratory order “certifying that [the BOC’s] existing tariff rates for its
payphone services compl[ied] with the FCC’s new services test.” Id.
Ultimately, upon concluding its investigation into BellSouth’s rates in 1999
and ordering certain rate reductions, the South Carolina commission ordered
refunds back to April 15, 1997. See id. at *12. The commission emphasized
32

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in doing so that it had “twice . . . confirmed that any rate reductions resulting
from [the] proceeding [would] be applied retroactively.” Id.
The Illinois, New York, and Ohio proceedings similarly involved
relevant equitable considerations. In Illinois, as the ICC emphasized, the
IPTA’s “desultory pursuit” of its challenge to AT&T’s rates, ICC Order, slip
op. at 43 n.16 (JA 226)—all the while enjoying discounts under the existing,
negotiated tariff—“severely undercut[]” the case for refunds, id. at 43 (JA
226). Likewise, in New York, IPANY never “petitioned the [NYPSC] to
change Verizon’s rates” based on the Wisconsin Payphone Order (or the
related bureau order that preceded that order); IPANY thus “failed to
exhaust . . . administrative remedies” under New York law to the extent its
claim for refunds depended on the application of that order. N.Y. Appellate
Order, 774 N.Y.S.2d at 199; see Order ¶ 41 (JA 21). In addition IPANY
based its argument for refunds on the Second Bureau Waiver Order in a
context when that order did not apply. See N.Y. Appellate Order, 774
N.Y.S.2d at 200 (“Suffice to say that new rates were not filed and the refund
order was thus never effective.”); Order ¶ 23 (JA 12) (“[T]he Appellate
Division concluded that, even if the NYPSC lowered Verizon’s rates, IPANY
would not be entitled to refunds because the Commission’s refund orders
only contemplated refunds for [cases in which BOCs filed new tariffs during]
33

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the period between April 15, 1997 and May 19, 1997.”); see also N.Y.
Supreme Court Order, slip op. at 9 (JA 650) (noting IPANY’s reliance on the
Second Bureau Waiver Order). Finally, in Ohio, the PAO relied on
documents outside the record and on a faulty factual premise that AT&T’s
“tariff was never filed or approved.” Ohio Supreme Court Order, 849 N.E.2d
at 10.
In short, the record before the FCC amply supports the agency’s
determination that state authorities are “better positioned” to decide refund
requests arising out of the post-1996 Act tariff review proceedings for which
they were responsible. Order ¶ 42 (JA 22). Such proceedings, the record
shows, are often lengthy and complex, with tangled procedural and
substantive histories. Because the states are “more familiar with the specific
details of each case,” id., and such details could bear directly on the equitable
considerations underlying a remedy of refunds, it was entirely appropriate for
the agency to defer refund disputes to state resolution.

II.

NEITHER THE STATUTE NOR PRIOR COMMISSION
RULINGS REQUIRE REFUNDS.

A.

Section 276 Does Not Require Refunds.

The Trade Associations contend that by refusing to award refunds in all
cases the FCC has “failed to enforce” Section 276. Br. 27; see id. at 36–39.
But as the agency found, the statute is silent on that issue: “Although section
34

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276 establishes requirements for payphone rates, it does not dictate whether
refunds are due under any given set of circumstances.” Order ¶ 41 (JA 21).
Section 276(a) provides that, after the effective date of the FCC’s
implementing rules, a BOC may neither “subsidize its payphone service”
from its other telecommunications operations, 47 U.S.C. § 276(a)(1), nor
“prefer or discriminate in favor of its payphone service,” id. § 276(a)(2).
Section 276(a) does not require refunds or any other remedy.
In Section 276(b), Congress directed the FCC to implement
Section 276(a)’s prohibitions against improper subsidization and
discrimination by “prescrib[ing] a set of nonstructural safeguards” at least
“equal” to those the agency had adopted in its Computer III proceedings. Id.
§ 276(b)(1)(C). Yet nothing in Section 276(b)(1)(C) (or any other provision
18
of Section 276(b)) directs the FCC to guarantee refunds either. See 47
U.S.C. § 276(b).

18 There is also no absolute right to refunds under Section 276(b)(1)(A).
See 47 U.S.C. § 276(b)(1)(A). To the extent the Trade Associations seek to
suggest otherwise—citing MCI Telecommunications Corp. v. FCC, 143 F.3d
606 (D.C. Cir. 1998) (per curiam), and the FCC’s orders on remand, see Br.
47–48—the Court should not be misled. MCI involved the FCC’s chosen
default rate for dial-around calls, not BOC payphone line rates. See 143 F.3d
at 607. Although directing the FCC to reconsider that rate on remand, this
Court elected not to vacate the rate because “if and when on remand the
[FCC] establish[ed] some different rate,” the agency would have the option of
ordering refunds for any overcompensation. Id. at 609. On remand, the FCC
ultimately did revise its chosen rate and order refunds. See Implementation of
35

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When a statute is silent on the issue of remedies, whether and under
what circumstances to award retrospective relief is a matter of agency
discretion, and an agency decision adopting a permissible reading of the
statute is entitled to deference. See, e.g., AT&T v. FCC, 454 F.3d 329, 334
(D.C. Cir. 2006) (citing the “long-standing principle that ‘the breadth of
agency discretion is, if anything, at zenith when the action assailed relates
. . . to the fashioning of . . . remedies and sanctions” (second alteration in
original) (quoting Niagara Mohawk Power Corp. v. Fed. Power Comm’n,
379 F.2d 153, 159 (D.C. Cir. 1967)); see also Chevron, 467 U.S. at 843.
Here, confronted with Congress’s silence in Section 276 on the question of
remedies, the FCC was free to determine that whether refunds are warranted
is a fact-specific and fact-intensive question best resolved by the state
authorities entrusted to conduct the related pricing proceedings. See Order
¶¶ 42, 49 (JA 22, 26).

the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996
, Third Report and Order, and Order on
Reconsideration of the Second Report and Order, 14 FCC Rcd 2545, 2635–36
¶¶ 195–98 (1999). But as the Trade Associations themselves acknowledge,
see Br. 47, MCI establishes only that the FCC had the “authority” to order
refunds, not that refunds were required on the facts of that case—let alone in
the very different context presented here, see 143 F.3d at 609.
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B.

FCC Rules Do Not Guarantee Refunds in Every Case.

The Trade Associations contend that the FCC’s Order is inconsistent
with Section 276(c) of the Communications Act, which provides that, “[t]o
the extent . . . State requirements are inconsistent with the Commission’s
regulations, the Commission’s regulations on such matters . . . preempt such
State requirements.” 47 U.S.C. § 276(c). But nothing in the FCC’s prior
orders requires refunds in all cases.
To be sure, the FCC provided in the Second Bureau Waiver Order that
if a BOC needed an extension beyond April 15, 1997, to file new or revised
tariffs to satisfy the agency’s new services test, and if “the newly tariffed
rates [were] lower than the existing tariffed rates,” the BOC would be
required to issue refunds. Order ¶ 45 (JA 23) (citing Second Bureau Waiver
Order ¶ 19). But as the FCC explained in the Order under review, the
Second Bureau Waiver Order “[does] not impose an open-ended refund
obligation.” Order ¶ 46 (JA 24). Moreover, that order “[does] not
specifically discuss the applicability of refunds where,” as here, BOCs “did
not file new tariffs” in reliance upon the extension that the order allowed “but
instead . . . filed cost studies [to support the new services test compliance of
their] existing rates.” Id. ¶ 45 (JA 24). Thus, when state authorities properly
require BOCs to comply with the new services test on a prospective basis,
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nothing in the Second Bureau Waiver Order requires that IPPs automatically,
in all cases, receive refunds or other retrospective relief. See id. ¶¶ 40–41 (JA
20–21).
The FCC’s interpretation of the Second Bureau Waiver Order not to
require refunds when BOCs did not file new or revised tariffs during the
Spring 1997 extension period merits a “high level of deference,” MCI
Worldcom, 274 F.3d at 548, surviving review unless “clearly erroneous,” id.
at 547 (internal quotation marks omitted). The agency reasonably determined
that cases in which BOCs maintained that their existing tariffs already
satisfied the new services test were quite different from those in which BOCs
took advantage of the Spring 1997 extension to delay their filing of new or
revised tariffs, and that the Second Bureau Waiver Order applies only in the
latter scenario. See Order ¶ 45 (JA 23–24) (concluding that the former
scenario “would raise very different issues with regard to potential liability
19
for refunds”).

19 The Trade Associations also contend that permitting authorities in some
states to deny refunds when authorities in other states have permitted them is
inconsistent with the Payphone Reconsideration Order’s requirement that
each state have new services test-compliant tariffs. See Br. 40 (citing
Payphone Reconsideration Order ¶ 163). But the Payphone Reconsideration
Order
“[does] not specifically address . . . refunds.” Order ¶ 38 (JA 20).
And as the Order here suggests, the FCC’s decision to let state authorities
resolve payphone line refund disputes is a logical outgrowth of its decision in
38

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The scope of preemption under Section 276(c) is limited to state
requirements “inconsistent” with FCC rules or orders. 47 U.S.C. § 276(c).
Because the FCC reasonably determined that the Second Bureau Waiver
Order did not require refunds in all cases, the state decisions at issue here are
not preempted under Section 276(c).

C.

The Order

Is Not an Unlawful Subdelegation of the
Commission’s Authority over Payphone Services.

While on the one hand recognizing the legitimacy of the FCC’s
decision in the Payphone Reconsideration Order to give state regulators the
primary responsibility for conducting pricing proceedings for intrastate
payphone line rates, see Br. 67, the Trade Associations nevertheless claim it
was an unlawful subdelegation of authority for the FCC to leave the
resolution of refund disputes arising from those proceedings to state
authorities, see Br. 62–66. To support that claim, the Trade Associations rely
on this Court’s decision in United States Telecom Ass’n v. FCC, 359 F.3d 554
(D.C. Cir. 2004) (USTA II).
In USTA II, this Court considered the FCC’s implementation of
Section 251 of the Communications Act, as amended by the 1996 Act, in
which Congress directed the agency to “determin[e] what network elements”

the Payphone Reconsideration Order to entrust state regulators to conduct the
underlying pricing proceedings, see id. ¶ 42 (JA 22).
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20
incumbent LECs should be required to make available to their competitors.
47 U.S.C. § 251(d)(2); see USTA II, 359 F.3d at 561. Congress expressly
required the agency, in doing so, to “consider . . . whether . . . the failure to
provide access to such network elements would impair the ability of the
telecommunications carrier seeking access to provide the services that it seeks
to offer.” 47 U.S.C. § 251(d)(2)(B). Seeking to comply with a directive from
this Court to develop a “nuanced” standard of what would constitute
“impairment,” the FCC “adopted a provisional nationwide rule” but allowed
state regulatory commissions to exercise “virtually unlimited discretion” in
developing exclusions to that rule. USTA II, 359 F.3d at 563–64. That
approach was an unlawful subdelegation of authority, this Court held,
because Congress had expressly directed the FCC to determine what network
elements incumbent LECs should make available, and there was no evidence
that Congress intended to permit the agency to delegate that authority to an
outside entity. See id. at 565.
Here, by contrast, nothing in Section 276 reserves to the FCC the
responsibility for deciding refund disputes. On the contrary, by limiting
federal preemption to state requirements that are “inconsistent with the

20 Incumbent LECs are the LECs that succeeded to the Bell System’s local
operations after the Bell System’s dissolution, comprising mainly but not
exclusively the BOCs. See Core Communications, 592 F.3d at 141.
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Commission’s regulations,” 47 U.S.C. § 276(c), the statute makes plain that
Congress contemplated a continued state role in payphone regulation, see
Metrophones Telecomms., Inc. v. Global Crossing Telecomms., Inc., 423 F.3d
1056, 1072 (9th Cir. 2005) (“[B]y expressly limiting federal preemption to
state requirements that are inconsistent with the federal regulations, Congress
signaled its intent not to occupy the entire field of payphone regulation.”),
aff’d, 550 U.S. 45 (2007). Given the agency’s determination that the states
are best positioned to resolve refund issues in view of their familiarity with
the particulars of each underlying proceeding, it was entirely appropriate for
the FCC to defer to the states in resolving whether refunds are (or are not)
appropriate in any specific case. See Order ¶ 42 & n.178 (JA 22).

D.

The Order

Reasonably Allows State Authorities to
Apply the Filed Rate Doctrine and the Prohibition
against Retroactive Ratemaking.

The Trade Associations also complain that the FCC “wholly
ignore[d] . . . inconsistencies” among state refund decisions. Br. 46; see id. at
44–47. The FCC did not, of course, ignore that IPPs succeeded in obtaining
refunds in some states, and not in others; the Order expressly acknowledges
as much. See Order ¶ 48 (JA 26). And the Trade Associations have not
demonstrated that state authorities reached inconsistent results in proceedings
that were factually and procedurally identical. Nor have the Trade
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Associations demonstrated that any state decision awarding refunds is on all
fours with the Illinois, New York, or Ohio proceedings. On the contrary, the
record shows that state refund proceedings were highly fact-dependent and
procedurally distinct.
In arguing that state refund decisions were inconsistent, the Trade
Associations assert that the FCC unreasonably permitted some states to bar
refunds by applying the filed rate doctrine and the prohibition against
retroactive ratemaking. But whether those doctrines apply can itself be a
complex and fact-dependent question. Cf. Arroyo-Melecio v. P.R. Am. Ins.
Co., 398 F.3d 56, 73 (1st Cir. 2005) (characterizing the filed rate doctrine as
“a famously complex . . . set of rules”). The question turns, at base, on
whether the tariff at issue was properly filed with, and approved by, the
governing regulatory authority. Cf. ACS of Anchorage, Inc. v. FCC, 290 F.3d
403, 410–11 (D.C. Cir. 2002) (explaining the distinction between “legal” and
“lawful” tariffs). And as happened in the Ohio proceeding here, that
21
determination can become a matter of factual dispute. See Ohio Supreme

21 It can also be a matter of legal dispute, and what constitutes the necessary
“approval” of a tariff may vary among regulatory regimes. Prior to the 1996
Act, for example, tariffs filed with the FCC “that became effective without
suspension or investigation were only legal (not conclusively lawful), and
thereby remained subject to refund remedies.” ACS of Anchorage, 290 F.3d
at 411. That changed, however, with the enactment of the current 47 U.S.C.
§ 204(a)(3); today, so-called “streamlined tariff[s]” that “take[] effect without
42

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Court Order, 849 N.E.2d at 10 (holding that the PAO “rel[ied] on the
erroneous premise that no tariffs were ever filed or approved”). In addition,
whether the doctrines apply may depend on the related, factual question of
whether affected parties “have notice that a rate is tentative and may be later
adjusted with retroactive effect.” NSTAR Elec. & Gas Corp. v. FERC, 481
F.3d 794, 801 (D.C. Cir. 2007) (internal quotation marks omitted). Thus, for
example, the filed rate doctrine and prohibition on retroactive ratemaking do
not apply when, as in the South Carolina proceeding here, a regulatory
commission accepts a carrier’s filed tariff subject to an accounting order in
which it expressly warns that any subsequent rate reductions will have
retroactive effect. See supra pp. 32–33.
Because refunds are an equitable remedy, moreover, whether to award
them turns on a myriad of factual and procedural considerations beyond just
the application of the filed rate doctrine or the prohibition against retroactive
ratemaking. See supra pp. 28–29. The arbiter of a refund dispute must
consider and balance all relevant factors, see id., and the FCC reasonably
elected here to entrust that analysis to state authorities familiar with the

prior suspension or investigation [are] conclusively presumed to be . . .
lawful . . . during the period that [they] remain[] in effect.” Id. To the extent
the Trade Associations maintain that the filed rate doctrine and the
prohibition against retroactive ratemaking operate identically, as a matter of
law, in every state, see Br. 44–45, we do not concede that point.
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specific details of each underlying pricing proceeding, see supra pp. 29–34.
Under the circumstances, the Trade Associations cannot credibly contend that
the FCC was required to reserve to itself, from among the many factors
bearing on whether to award refunds, the lone question of whether to apply
the filed rate doctrine or the prohibition against retroactive ratemaking.
Two cases from outside this circuit on which the Trade Associations
heavily rely—Davel Communications, Inc. v. Qwest Corp., 460 F.3d 1075
(9th Cir. 2006), and TON Services, Inc. v. Qwest Corp., 493 F.3d 1225 (10th
Cir. 2007)—are not to the contrary. See Br. 42–44. Those cases involved
suits in federal court for damages against a BOC (Qwest) for violation of
Section 276(a) and other provisions of the Communications Act. See TON,
493 F.3d at 1234; Davel, 460 F.3d at 1085. The courts of appeals (the Ninth
and Tenth Circuits) held that the filed rate doctrine did not bar the plaintiffs’
claims at the earliest stage of litigation. See TON, 493 F.3d at 1236–38;
Davel, 460 F.3d at 1085–86. Critical to those decisions were allegations that
Qwest had disregarded the FCC’s intrastate tariff-filing requirement
altogether—ignoring the May 19, 1997, deadline to file new tariffs or cost
data to support existing tariffs. See TON, 493 F.3d at 1234; Davel, 460 F.3d
at 1083. Thus, the crux of the plaintiffs’ claims in Davel and TON concerned
procedural noncompliance with the FCC’s orders—a failing not at issue
44

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22
here. See TON, 493 F.3d at 1237; Davel, 460 F.3d at 1084–85. Insofar as
the Trade Associations’ seek to construe Davel and TON as providing that the
filed rate doctrine and the prohibition against retroactive ratemaking can
never bar refunds when a BOC’s rates have failed to satisfy the new services
test, see Br. 42–44, the cases simply do not support that sweeping
proposition.

E.

The IPTA and IPANY Should Not Prevail on Their
Petitioner-Specific Arguments.

Finally, the IPTA and IPANY raise arguments specific to their
respective petitions for review that in no way undermine the Order.
First, both the IPTA and IPANY contend that the Order is arbitrary and
capricious because the FCC misconstrued the Illinois and New York
authorities’ reasons for denying refunds. See Br. 49–52 (arguing that the
FCC misconstrued the ICC’s denial of refunds as hinging in part on the
IPTA’s failure to file a formal complaint challenging AT&T’s rates); id. at
52–53 (arguing that the New York courts’ determination that IPANY had

22 The record is clear that AT&T and Verizon filed cost data in support of
their existing tariffs by the FCC’s May 19, 1997, deadline. See PAO Petition
at Exh. 3 (JA 861–62) (providing the May 16, 1997, letter in which AT&T
(then Ameritech Ohio) informed the PUCO and supplied supporting cost data
to show that its existing payphone access line tariffs complied with the new
services test); Illinois Appellate Order, slip op. at 3 (JA 332) (citing AT&T’s
submission of cost data in Illinois); Slevin Letter at 2 & Attachment (JA 458,
460) (providing cost and revenue information in support of Verizon’s existing
rates in New York).
45

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failed to exhaust its administrative remedies had no bearing on the Appellate
Division’s denial of refunds). The Order under review accurately
characterized the New York and Illinois decisions. See N.Y. Appellate Order,
774 N.Y.S.2d at 199 (holding that IPANY “could have petitioned the PSC to
change Verizon’s rates” in response to the bureau order that preceded the
Wisconsin Payphone Order and that, having failed to do so, IPANY had
“failed to exhaust [its] administrative remedies”); ICC Order, slip op. at 42
(JA 225) (“Significantly, from the time that the FCC established its [new
services test] through today, there has been no complaint to formally
23
challenge the rates at issue in this case.”). In any event, the FCC did not
purport to examine the state authorities’ procedural findings in detail; it
instead referred (in single-sentence summaries) to the procedural differences
among the cases to support its determination that it was appropriate for each

23 It is true that in New York, as discussed above, see supra p.17, the
Appellate Division’s specific discussion of the refund issue centered on the
inapplicability of the Second Bureau Waiver Order, see N.Y. Appellate
Order
, 774 N.Y.S.2d at 200. The court’s holding with respect to IPANY’s
failure to exhaust administrative remedies was nonetheless relevant to the
question of refunds, because a determination of Verizon’s compliance with
the new services test as of 1997—and whether the NYPSC should apply the
Wisconsin Payphone Order in making that assessment—would necessarily
underlie any award of refunds.
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24
state to adjudicate refund disputes. See Order ¶¶ 1, 40–42, 47 (JA 3, 20–22,
25–26).
Second, IPANY argues that the Order under review is arbitrary and
capricious because the FCC did not direct the NYPSC to apply the Wisconsin
Payphone Order in determining, on remand from the reviewing state court,
whether Verizon’s rates as of April 15, 1997, satisfied the new services test.
See Br. 66–69. That argument is moot because, for the reasons already
stated, the FCC permissibly determined that state authorities are better
positioned than the agency to decide refund disputes arising from pricing
proceedings that the agency did not conduct. See supra pp. 29–34. The
Order thus leaves in place the New York Appellate Division’s decision that
refunds are unavailable irrespective of whether the Wisconsin Payphone
Order applies. See N.Y. Appellate Order, 774 N.Y.S.2d at 200.
As IPANY acknowledges, moreover, the NYPSC has already brought
Verizon’s rates into compliance, on a prospective basis, with the new services
test as interpreted in the Wisconsin Payphone Order. See Br. 20–21, 38.
IPANY thus cannot credibly characterize the Order under review as a

24 The IPTA’s and IPANY’s arguments that they did in fact formally
challenge AT&T’s rates (in the IPTA’s case), see Br. 49–51, and exhaust
administrative remedies (in IPANY’s case), see id. at 53, fail on this same
basis.
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departure from the FCC’s precedent of providing guidance to state regulators
on questions of pricing.

III. THE TRADE ASSOCIATIONS LACK STANDING TO

CHALLENGE THE FCC’S DECISION NOT TO RENDER
A DECLARATORY RULING ON THE BOCS’
ELIGIBILITY FOR DIAL-AROUND COMPENSATION,
AND IN ANY EVENT THE FCC’S ACTION WAS A VALID
EXERCISE OF DISCRETION.

In addition to arguing that the FCC was required to order refunds, the
Trade Associations ask this Court to order the agency to decide whether the
BOCs should forfeit the dial-around compensation they collected before
eventually lowering their rates in the wake of the Wisconsin Payphone Order.
See Br. 70. The Trade Associations lack standing to make this request, and
the Court therefore lacks jurisdiction to grant it. In any event, the FCC’s
decision not to render the Trade Associations’ desired declaratory ruling was
well within the agency’s discretion.

A.

The Trade Associations Lack Standing Because Dial-
Around Compensation Was Paid by IXCs, Not IPPs.

“[A] showing of standing is an essential and unchanging predicate to
any exercise of [federal court] jurisdiction.” Nat’l Ass’n of Home Builders v.
EPA, 667 F.3d 6, 11 (D.C. Cir. 2011) (internal quotation marks omitted).
When, as here, a petitioner seeks to establish associational standing, it must
establish, among other requirements, that at least one of its members can
48

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 60 of 73

individually satisfy the elements of injury-in fact, causation, and
redressability. See id.; see also Sierra Club v. EPA, 292 F.3d 895, 898 (D.C.
Cir. 2002) (“The ‘irreducible constitutional minimum of standing contains
three elements’: (1) injury-in-fact, (2) causation, and (3) redressability.”
(quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992))).
Critically, for purposes of the Trade Associations’ standing here, it is
IXCs, not payphone service providers, that compensate BOCs for dial-around
calls. See, e.g., IPTA, 117 F.3d at 560 (“The Commission concluded that
. . . the IXC should be required to pay these charges . . . .”). The Trade
Associations acknowledge as much in their brief. See Br. 6, 10, 11, 15, 56.
Because no member of the Trade Associations paid dial-around
compensation, any injury that members suffered arose from the payments
they made for payphone line services, which the Trade Associations allege
were unlawfully high. That injury (if any) did not result from the FCC’s
decision not to declare that the BOCs were ineligible to collect dial-around
compensation (or even from the BOCs’ collection of dial-around
compensation itself), and it would not be redressed by an order directing
forfeiture. The Appellate Court of Illinois reached this same conclusion in
rejecting the IPTA’s dial-around compensation claim in Illinois. See Illinois
Appellate Opinion, slip op. at 12–13 (JA 341–42).
49

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 61 of 73

Without attempting to challenge that logic, the Trade Associations seek
to manufacture standing on a threefold theory (1) that the FCC made “actual
compliance” with the new services test a prerequisite to BOC eligibility for
dial-around compensation, (2) that the new services test was a requirement
designed to benefit IPPs (by leveling the playing field with the BOCs), and
(3) that therefore the Trade Associations’ members had an interest in having
the FCC declare AT&T and Verizon ineligible to have begun receiving dial-
around compensation when they did. See Br. 33, 56–58. As a threshold
matter, even under this theory, the Trade Associations still have failed to
assert any injury caused by the FCC’s decision not to decide the question of
BOC eligibility for dial-around compensation. Moreover, were it sufficient
for the Trade Associations to assert an injury arising from the BOCs’
collection of dial-around compensation itself, rather than from the agency’s
refusal to address the question of eligibility (and it is not), the Trade
Associations would remain unable to show how the relief they request would
redress their claimed injury. Ultimately, the relief the Trade Associations
seek is an order to the FCC that could lead to the forfeiture of the BOCs’ dial-
around compensation. See Br. 70. Such a forfeiture would in no way benefit
the Trade Associations’ members when it was IXCs that paid the dial-around
50

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 62 of 73

compensation, not IPPs. Thus, the Trade Associations lack standing to seek
such relief.

B.

Declining to Issue a Declaratory Ruling on the BOCs’
Eligibility for Dial-Around Compensation Was a Valid
Exercise of the FCC’s Discretion.

Moreover, whether to issue a declaratory ruling to end a controversy or
remove uncertainty is a matter of FCC discretion. See 47 C.F.R. § 1.2; see
also 5 U.S.C. § 554(e) (entrusting whether to issue declaratory orders to the
“sound discretion” of agencies generally). “[T]he Commission is not
required to issue such a declaratory statement merely because a [party] asks
for one.” Yale Broad. Co. v. FCC, 478 F.2d 594, 602 (D.C. Cir. 1973). Here,
in declining to issue the Trade Associations’ requested declaratory ruling, the
FCC explained that the BOCs had self-certified compliance with the new
services test before collecting dial-around compensation, and that there was
no “evidence that the BOCs’ self-certifications were defective[,] . . .
25
fraudulent,” or knowingly false. Order ¶ 38 n.161 (JA 19). Under these

25 The Trade Associations seek to “impeach[]” AT&T’s self-certification,
Br. 60, using an unsubstantiated statement concerning AT&T overheads of
“hundreds of percent” raised in a lone ex parte letter buried within the
voluminous record before the agency, id. at 59 (citing an April 25, 2011,
letter from Michael W. Ward to then-Commissioner Michael J. Copps). The
FCC “need not sift pleadings and documents to identify arguments that are
not stated with clarity.” NEPCC, 334 F.3d at 79 (internal quotation marks
omitted). And in any event, the Trade Associations fail to articulate (and
failed to show before the agency) why the FCC’s assessment of permissible
51

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 63 of 73

circumstances, the Trade Associations fail to show that the FCC’s decision
not to issue their hoped-for declaratory statement was an abuse of
26
discretion.

CONCLUSION

The Court should dismiss the petitions for review to the extent it lacks
jurisdiction. In all other respects, the Court should deny the petitions for
review.

overhead levels in other dockets—including in an order released after AT&T
certified its new services test compliance here, see Br. 59—should operate to
impeach AT&T’s self-certification in the manner the Trade Associations
contend.
26 Although the Trade Associations argue that the FCC’s decision not to
render their requested declaration amounts to a change in agency policy, see
Br. 58–59, they offer no examples of previous instances in which the FCC
granted equivalent petitions for declaratory ruling.
52

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 64 of 73

Respectfully
submitted,
WILLIAM J. BAER
SUZANNE M. TETREAULT
ASSISTANT ATTORNEY GENERAL
DEPUTY GENERAL COUNSEL


ROBERT B. NICHOLSON
JACOB M. LEWIS
SHANA M. WALLACE
ASSOCIATE GENERAL COUNSEL
ATTORNEYS


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


/s/ Sarah E. Citrin

SARAH E. CITRIN
COUNSEL

FEDERAL COMMUNICATIONS
COMMISSION
WASHINGTON, DC 20554
(202) 418-1740
November 5, 2013


53

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 65 of 73

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT


ILLINOIS PUBLIC TELECOMMUNICATIONS
ASSOCIATION, ET AL.,
PETITIONERS,
CONSOLIDATED CASE
V.
NOS. 13-1059, 13-1083,
13-1149
FEDERAL COMMUNICATIONS COMMISSION

AND UNITED STATES OF AMERICA,


RESPONDENTS.



CERTIFICATE OF COMPLIANCE

Pursuant to the requirements of Federal Rule of Appellate Procedure
32(a)(7), I hereby certify that the accompanying Brief of Respondents in the
captioned consolidated cases contains 11,828 words.

/s/ Sarah E. Citrin
Sarah E. Citrin
Counsel
Federal Communications Commission
Washington, DC 20554
(202) 418-1740 (Telephone)
(202) 418-2819 (Fax)

January 28, 2014
2

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 66 of 73

















STATUTORY APPENDIX








5 U.S.C. § 554(e)

47 U.S.C. § 267

47 C.F.R. § 1.2



USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 67 of 73
5 U.S.C. § 554





UNITED STATES CODE ANNOTATED
TITLE 5. GOVERNMENT ORGANIZATION AND EMPLOYEES
PART I. THE AGENCIES GENERALLY
CHAPTER 5. ADMINISTRATIVE PROCEDURE
SUBCHAPTER II. ADMINISTRATIVE PROCEDURE


§ 554. Adjudications

* * * * * *

(e) The agency, with like effect as in the case of other orders, and in its
sound discretion, may issue a declaratory order to terminate a controversy or
remove uncertainty.



USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 68 of 73
47 U.S.C. § 276





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

§ 276. Provision of payphone service
(a) Nondiscrimination safeguards

After the effective date of the rules prescribed pursuant to subsection (b) of
this section, any Bell operating company that provides payphone service--

(1) shall not subsidize its payphone service directly or indirectly from its
telephone exchange service operations or its exchange access operations;
and

(2) shall not prefer or discriminate in favor of its payphone service.

(b) Regulations

(1) Contents of regulations

In order to promote competition among payphone service providers and
promote the widespread deployment of payphone services to the benefit
of the general public, within 9 months after February 8, 1996, the
Commission shall take all actions necessary (including any
reconsideration) to prescribe regulations that--

(A) establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every
completed intrastate and interstate call using their payphone, except
that emergency

USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 69 of 73
47 U.S.C. § 276
Page 2


calls and telecommunications relay service calls for hearing disabled
individuals shall not be subject to such compensation;

(B) discontinue the intrastate and interstate carrier access charge
payphone service elements and payments in effect on February 8,
1996, and all intrastate and interstate payphone subsidies from basic
exchange and exchange access revenues, in favor of a compensation
plan as specified in subparagraph (A);

(C) prescribe a set of nonstructural safeguards for Bell operating
company payphone service to implement the provisions of paragraphs
(1) and (2) of subsection (a) of this section, which safeguards shall, at
a minimum, include the nonstructural safeguards equal to those
adopted in the Computer Inquiry-III (CC Docket No. 90-623)
proceeding;

(D) provide for Bell operating company payphone service providers to
have the same right that independent payphone providers have to
negotiate with the location provider on the location provider's
selecting and contracting with, and, subject to the terms of any
agreement with the location provider, to select and contract with, the
carriers that carry interLATA calls from their payphones, unless the
Commission determines in the rulemaking pursuant to this section that
it is not in the public interest; and

(E) provide for all payphone service providers to have the right to
negotiate with the location provider on the location provider's
selecting and contracting with, and, subject to the terms of any
agreement with the location provider, to select and contract with, the
carriers that carry intraLATA calls from their payphones.

(2) Public interest telephones

In the rulemaking conducted pursuant to paragraph (1), the Commission
shall determine whether public interest payphones, which are provided in


USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 70 of 73
47 U.S.C. § 276
Page 3

the interest of public health, safety, and welfare, in locations where there
would otherwise not be a payphone, should be maintained, and if so,
ensure that such public interest payphones are supported fairly and
equitably.

(3) Existing contracts

Nothing in this section shall affect any existing contracts between
location providers and payphone service providers or interLATA or
intraLATA carriers that are in force and effect as of February 8, 1996.

(c) State preemption

To the extent that any State requirements are inconsistent with the
Commission's regulations, the Commission's regulations on such matters
shall preempt such State requirements.

(d) “Payphone service” defined

As used in this section, the term “payphone service” means the provision of
public or semi-public pay telephones, the provision of inmate telephone
service in correctional institutions, and any ancillary services.






USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 71 of 73
47 C.F.R. § 1.2





CODE OF FEDERAL REGULATIONS
TITLE 47. TELECOMMUNICATION
CHAPTER I. FEDERAL COMMUNICATIONS COMMISSION
SUBCHAPTER A. GENERAL
PART 1. PRACTICE AND PROCEDURE
SUBPART A. GENERAL RULES OF PRACTICE AND
PROCEDURE - GENERAL


§ 1.2 Declaratory rulings.

(a) The Commission may, in accordance with section 5(d) of the
Administrative Procedure Act, on motion or on its own motion issue a
declaratory ruling terminating a controversy or removing uncertainty.

(b) The bureau or office to which a petition for declaratory ruling has been
submitted or assigned by the Commission should docket such a petition
within an existing or current proceeding, depending on whether the issues
raised within the petition substantially relate to an existing proceeding. The
bureau or office then should seek comment on the petition via public notice.
Unless otherwise specified by the bureau or office, the filing deadline for
responsive pleadings to a docketed petition for declaratory ruling will be 30
days from the release date of the public notice, and the default filing
deadline for any replies will be 15 days thereafter.




USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 72 of 73
13-1059 et al.

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

ILLINOIS PUBLIC TELECOMMUNICATIONS ASS’N,
et al., Petitioners

v.

FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES OF AMERICA, Respondents


CERTIFICATE OF SERVICE


I, Sarah E. Citrin, hereby certify that on January 28, 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.


Barbara
A.
Miller
Henry
T.
Kelly
Kelley Drye & Warren LLP


Kelley Drye & Warren LLP
3050 K Street, N.W.



333 West Wacker Drive
Suite 400





26th Floor
Washington, D.C. 20007


Chicago, IL 60606
Counsel for: Illinois Public


Counsel for: Illinois Public
Telecommunications Ass’n


Telecommunications Ass’n

Michael
W.
Ward
Aaron
M.
Panner
John F. Ward, Jr.



Kellogg, Huber, Hansen, Todd,
Ward
&
Ward,
PC
Evans & Figel, PLLC
One
Rotary
Center
1615
M
Street,
N.W.
1560
Sherman
Avenue
Suite
400
Suite
805
Washington,
D.C.
20036
Evanston, IL 60201



Counsel for: Verizon and AT&T
Counsel for: Illinois Public
Telecommunications Ass’n


USCA Case #13-1059 Document #1477224 Filed: 01/28/2014 Page 73 of 73
Michael
E.
Glover
Peggy
E.
Garber
Christopher M. Miller



Gary L. Phillips
Mark
J.
Montano
William
L.
Roughton,
Jr.
Verizon
AT&T
Services,
Inc.
1320 North Courthouse Road

1120 20th Street, N.W.
Arlington, Virginia 22201


Suite 1000
Counsel for: Verizon

Washington,
D.C.
20036







Counsel for: AT&T, Inc.

Albert
H.
Kramer
Robert
B.
Nicholson

Albert
H.
Kramer,
PLLC
Shana
M.
Wallace
1825 I Street, N.W.



U.S. Department of Justice
Suite
600
Antitrust
Division,
Appellate
Section
Washington, D.C. 20006


950 Pennsylvania Avenue, N.W.
Counsel for: Independent Payphone Room
3224
Ass’n. of New York, Inc.


Washington, D.C. 20009







Counsel for: USA

Donald
J.
Evans
Keith
J.
Roland
Paul J. Feldman




Herzog Law Firm, P.C.
Fletcher, Heald & Hildreth, PLC

7 Southwoods Boulevard
1300 North 17th
Street
Albany,
NY
12211
Suite
1100
Counsel for: Independent Payphone
Arlington,
VA
22209


Ass’n. of New York, Inc.





/s/ Sarah E. Citrin


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