Skip Navigation

Federal Communications Commission

English Display Options

Commission Document

Intercarrier Brief - No. 11-9900 (10th Cir.)

Download Options

Released: February 5, 2013
Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 1



IN THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

____________

NO. 11-9900
____________

IN RE: FCC 11-161
____________

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

UNCITED ADDITIONAL INTERCARRIER

COMPENSATION ISSUES PRINCIPAL BRIEF

(DEFERRED APPENDIX APPEAL)
____________












Counsel for Petitioners Listed in Alphabetical Order
on Following Pages

November 6, 2012

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 2

Core Communications, Inc.

*

By Its Counsel

James C. Falvey, Esq.
Charles A. Zdebski, Esq.
Eckert Seamans Cherin & Mellott, LLC
1717 Pennsylvania Ave., NW
12th Floor
Washington, D.C. 20006
ph: (202) 659-6655
fax: (202) 659-6699
jfalvey@eckertseamans.com
czdebski@eckertseamans.com
*Core Communications, Inc. does not join in Parts I and II of the
Brief.

National Telecommunications Cooperative Association, and

U.S. TelePacific Corp.*


By Their Counsel

Russell Blau
Tamar Finn
Bingham McCutchen LLP
2020 K Street, NW
Washington, DC 20006
Tel: 202-373-6000
russell.blau@bingham.com
tamar.finn@bingham.com

*National Telecommunications Cooperative Association, and U.S.
TelePacific Corp do not join in Parts I and III of the Brief.




ii

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 3

North County Communications Corp.

*
By Its Counsel
R. Dale Dixon, Jr.
Law Offices of Dale Dixon
1155 Camino Del Mar, #497
Del Mar, CA 92014
tel: 858.925.6074
cel: 858.688.6292
fax: 888.677.5598
email: dale@daledixonlaw.com
*North County does not join in Part I of the Brief.

Rural Independent Competitive Alliance

*

By Its Counsel

David Cosson
2154 Wisconsin Avenue, N.W.
Washington, DC 20007
Tel: 202-333-5275
dcosson@klctele.com

H. Russell Frisby, Jr.
Dennis Lane
Harvey Reiter
Stinson Morrison Hecker LLP
1775 Pennsylvania Ave., NW
Suite 800
Washington, DC 20006
Tel: 202-785-9100
rfrisby@stinson.com
dlane@stinson.com
hreiter@stinson.com

*RICA does not join in Parts II and III of the brief
iii

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 4

Table of Contents


Table of Contents .............................................................................iv

Table of Authorities ..........................................................................v

Glossary ..........................................................................................viii

Statement of Issues ..........................................................................1

Statement of Additional Facts ..........................................................2

Standard of Review ..........................................................................7

Summary of Argument .....................................................................7

Argument ........................................................................................10

I.
The Commission Improperly Denied Rural CLECs USF
Support To Offset Lost ICC Revenues While Providing
Such Support To Their ILEC Competitors; The FCC’s
Rationale That Rural CLECs Could Offset Their Losses
By Raising Rates Is Inconsistent With The FCC’s Prior
Finding That Rural CLECs Lacked Market Power And
Hence The Ability To Raise Rates .............................................10
II.
Implementation of “Bill-and-Keep” for CMRS-LEC Traffic
on a Different Schedule Than Other Telecommunications
Traffic Exchanged with LECs is Arbitrary and Capricious .........19
III. The FCC’s Access Stimulation Benchmark Rules As
Applied to CLECs Are Unlawfully Discriminatory and
Arbitrary and Capricious ..........................................................30


iv

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 5

Table of Authorities

Cases

Burlington Truck Lines, Inc. v. United States, 371 U.S. 156 (1962) . 14
Carpenters and Millwrights v. NLRB, 481 F.3d 804 (D.C. Cir.
2007) ........................................................................................ 28
Contractors Transp. Corp. v. United States, 537 F.2d 1160 (4th Cir.
1976) ........................................................................................ 20
Elizabethtown Gas Co. v. FERC, 10 F.3d 866 (D.C. Cir. 1993) ....... 13
FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009) ......... 16, 23
Gen. Chem. Corp. v. United States, 817 F.2d 844 (D.C. Cir.
1987) .................................................................................. 25, 33
Grace Petroleum Corp. v. FERC, 815 F.2d 589 (10th Cir. 1987) ...... 16
Louisiana Energy and Power Auth. v. FERC, 141 F.3d 364
(D.C. Cir. 1998) ......................................................................... 13
MCI Telecomm. Corp. v. Am. Tel. & Tel. Co., 512 US 218 (1994) ..... 13
MetroPCS Cal., LLC v. FCC, 644 F.3d 410 (D.C. Cir. 2011) ............ 26
Mobil Pipe Line v. FERC, 676 F.3d 1098 (D.C. Cir. 2012) ............... 14
Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29 (1983) ........................................ 14, 18
SCFC ILC, Inc. v. Visa USA, Inc., 36 F. 3d 958 (10th Cir. 1994)...... 13
Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951) .................. 28

Statutes

47 U.S.C. § 201(b) ......................................................................... 4
47 U.S.C. § 251(b)(5) ............................................................. passim
47 U.S.C. § 214(e)(1) .................................................................... 15
v

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 6
47 U.S.C. § 251(c)(3), (4) .............................................................. 17
47 U.S.C. § 254(e) ........................................................................ 15
47 U.S.C. § 706 ........................................................................... 18

Rules

47 C.F.R. § 20.11 ................................................................... 21, 22
47 C.F.R. § 20.11(b)(2) ............................................... 26, 27, 28, 30
47 C.F.R. § 61.38 ..................................................... 5, 6, 31, 32, 35

Other Authorities

Reply Comments of Pac-West Telecomm, CC Docket 01-92
(Apr. 18, 2011) .......................................................................... 27
Section XV Comments of Bluegrass, CC Docket 01-92
(Apr. 1, 2011) .......................................................... 31, 32, 34, 35
Section XV Comments of Core Commc’ns, CC Docket 01-92
(Apr. 1, 2011) ............................................................................ 35

Agency Decisions

Access Charge Reform, 16 F.C.C.R. 9923 (2001) ....... 2, 8, 16, 18, 19
Compl. of xChange Telecom, Inc. Against Sprint Nextel Corp. for
Refusal to Pay Terminating Comp., et al., N.Y. P.S.C. Case Nos.
07-C-1541, 09-C-0370 (Jan. 19, 2010) ...................................... 27
Connect America Fund, 26 F.C.C.R. 17633 (2011) .......................... 2
Connect America Fund, 26 F.C.C.R. 17663 (2011) .................. Passim
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, 11 F.C.C.R. 15499 (1996) .. 21, 23
Intercarrier Compensation for ISP-Bound Traffic, 16 F.C.C.R.
9151 (2001) ........................................................................ 23, 24
N. Cnty. Commc’n. Corp. v. MetroPCS Cal., LLC, 24 F.C.C.R.
14036 (2009) ............................................................................. 26
vi

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 7
Pet. of Mid-Rivers Tel. Coop., Inc. for Order Declaring It to be an
Incumbent Local Exch. Carrier in Terry, Montana Pursuant to
Section 251(h)(2)
, WC Docket No. 02-78 (Aug. 31, 2006) .............. 17
Policy and Rules Concerning Rates for Competitive Common Carrier
Services and Facilities Authorizations Therefor, 77 F. C. C. 2d
308 (1979) ................................................................................ 13
Universal Service Order, 12 F.C.C.R. 8776 (1997) ......................... 17



vii

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 8

Glossary



1996 Act
Telecommunications Act of 1996
CAF
Connect America Fund
CLEC
Competitive Local Exchange Carrier
CMRS
Commercial Mobile Radio Service
COLR
Carrier of Last Resort
ETC
Eligible Telecommunications Carrier
FCC, or Commission
Federal Communications Commission
ICC Intercarrier
Compensation
ILEC
Incumbent Local Exchange Carrier
ISP Internet
Service
Provider
IXC Interexchange
Carrier
LEC Local
Exchange
Carrier
MOU Minute
of
Use
MTA Major
Trading
Area
NECA
National Exchange Carriers Association
NPRM
Notice of Proposed Rulemaking
RBOC
Regional Bell Operating Company
RLEC Rate-of-Return
ILEC
USF
Universal Service Fund
viii

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 9

Statement of Issues

1
1.
The
Order (Connect America Fund, 26 F.C.C.R. 17663,
(2011) (“Order”) provides USF support for ILECs’ lost interstate and
intrastate access revenues, but not for rural CLECs’ lost revenues,
based on the FCC’s finding that because their rates are not
regulated, CLECs are not prohibited from either declining to provide
service or raising their rates to make up access revenue shortfalls.
Was this conclusion an arbitrary departure from its findings in the
same order that CLECs lack market power, i.e., the ability to charge
supra-market rates, or otherwise in arbitrary disregard of the
constraints on rural CLECs?

2.
Whether the requirement that LECs and CMRS carriers
exchange intraMTA, non-access telecommunications traffic (“CMRS-
LEC traffic”) at a zero rate on the effective date of the Order, or
within six months thereof, should be vacated as discriminatory,
internally inconsistent, an unexplained change in policy, and
1 Two of the issues that Petitioners initially requested to be included
in the Supplemental Briefs, listed as Issues 1 and 4 in the
Petitioners’ Motion to Establish a Procedural Schedule filed June
11, 2012 (“Motion”), are not being separately briefed. See Motion, at
8-9. Accordingly, the issues listed therein as Issues 2, 3, and 5 are
presented herein as Issues 1, 2, and 3, respectively.
1

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 10
arbitrary and capricious.

3.
Whether the requirement that a CLEC engaged in “access
stimulation” (as defined in the Order) must lower, or “benchmark,”
all of its interstate switched access rates applicable in a state to
that of the price cap LEC with the lowest rate in that state, should
be vacated as discriminatory and arbitrary and capricious.

Statement of Additional Facts2


2.
The FCC extended the bill-and-keep deadline for CMRS-
LEC traffic, but only for six months (until July 1, 2012), and only
for carriers with an interconnection agreement in effect as of the
effective date of the FCC’s Order on Reconsideration. See Connect
America Fund, 26 F.C.C.R. 17633, ¶ 7 (2011) (“CMRS Recon”).

3.
Since 2001, the FCC has permitted CLECs to
“benchmark” their interstate switched access rates to those of the
incumbent LEC(s) operating in the service territory or territories in
which the CLEC offers switched access services to IXCs. See Access
Charge Reform, 16 F.C.C.R. 9923 (2001) (“CLEC Access Order”).
The FCC also created a “rural exemption” for CLECs operating in
2 See Joint Preliminary Brief, 36 (Issue 2), 44-45 (Issue 3).
2

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 11
rural parts of a mid-sized or price cap LEC’s territory, through
which the CLEC is permitted to benchmark its rates to “those in the
NECA access tariff, assuming the highest rate band for local
switching.” Id. ¶ 80.
In the Order, the FCC explicitly continued these CLEC
switched access benchmarking rules throughout the multi-year
transition to bill-and-keep. See Order, ¶ 807 (“For interstate
switched access rates, competitive LECs are permitted to tariff
interstate access charges at a level no higher than the tariffed rate
for such services offered by the incumbent LEC serving the same
geographic area.”). The FCC also retained the rural exemption. Id.
(“rural competitive LECs offering service in the same areas as non-
rural incumbent LECs are permitted to ‘benchmark’ to the access
rates prescribed in the NECA access tariff . . . .”) However, the FCC
also created a new exception to the benchmarking rule. Id.
(“competitive LECs meeting the access revenue sharing definition
are required to benchmark to the lowest interstate switched access
rate of a price cap LEC in the state.”).
In section XI.A. of the Order, the FCC established new
restrictions on the rates that RLECs and CLECs may charge for
3

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 12
switched access. See generally, Order, ¶¶ 656-701. The FCC
proscribed these “access stimulation” rules in response to IXC
complaints that RLECs and CLECs operating in rural rate-of-return
territories were charging high switched access rates in connection
with conference call traffic which the LECs “stimulated” by entering
into revenue-sharing arrangements with conference call providers.
According to the FCC, “[t]he record confirms the need for prompt
Commission action . . . to help ensure that [LEC] interstate
switched access rates remain just and reasonable, as required by
§ 201(b) of the Act.” Id. ¶ 662. Access rates are traditionally
calculated by dividing a carrier’s costs by anticipated traffic
volumes. In the Commission’s view, the problem was “that the
interstate switched access rates being charged by access
stimulating LECs do not reflect the volume of traffic associated with
access stimulation,” which “almost uniformly [made] their interstate
switched access rates unjust and unreasonable.” Id.
The FCC defined “access stimulation” as follows. “The first
condition is that the LEC has entered into an access revenue
sharing agreement . . .” Id. ¶ 667. “The second condition is met
where the LEC either has had a three-to-one interstate terminating-
4

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 13
to-originating traffic ratio in a calendar month, or has had a greater
than 100 percent increase in interstate originating and/or
terminating switched access MOU in a month compared to the
same month in the preceding year.” Id.

In order to ensure that LEC switched access rates “reflect the
volume of traffic associated with access stimulation,” the FCC
established different rules for RLECs and CLECs that meet the two
conditions. As to RLECs, the FCC required “carriers filing interstate
switched access tariffs based on projected costs and demand
pursuant to section 61.38 of the rules to file revised access
tariffs . . .” Id. ¶ 685. The FCC found that “[t]his tariff filing
requirement provides the carrier with the opportunity to show, and
the Commission to review, any projected increase in costs, as well
as to consider the higher anticipated demand in setting revised
rates.” Id. The FCC concluded that “the rule we adopt will require
section 61.38 carriers to set their rates based on projected costs
and demand data.” Id. ¶ 687.

For CLECs, the FCC mandated benchmarking to a
significantly lower rate than in the past, “a rate no higher than the
lowest rate of a price cap LEC in the state.” Id. ¶ 689. The FCC
5

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 14
found that:
[N]either the switched access rate of the rate-of-return
LEC in whose territory the competitive LEC is operating
nor the rate used in the rural exemption is an
appropriate benchmark when the competitive LEC meets
the access stimulation definition. In those instances, the
access stimulator’s traffic vastly exceeds the volume of
traffic of the incumbent LEC to whom the access
stimulator is currently benchmarking. Thus, the
competitive LEC’s traffic volumes no longer operationally
resemble the carrier’s traffic volumes whose rates it had
been benchmarking because of the significant increase in
interstate switched access traffic associated with access
stimulation. Instead, the access stimulating LEC’s traffic
volumes are more like those of the price cap LEC in the
state, and it is therefore appropriate and reasonable for
the access stimulating LEC to benchmark to the price
cap LEC.

Id.
The FCC rejected alternatives, such as letting CLECs use the
NECA schedules (as it did previously with respect to the rural
exemption) and permitting CLECs to submit, like incumbent
RLECs, §61.38 cost and volume data:
We also decline to . . . permit a competitive LEC to use
section 61.38 procedures to establish its interstate
switched access rates if the price cap LEC rates would
not adequately compensate the competitive LEC. We
maintain the benchmarking approach to the regulation of
the rates of competitive LECs . . . . There is insufficient
evidence in the record that abandoning the
benchmarking approach for competitive LEC tariffs and
compelling competitive LECs to comply with 61.38 rules
6

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 15
is necessary to address concerns regarding access
stimulation, particularly considering the burden that
would be imposed on competitive LECs to start
maintaining regulatory accounting records. Instead, we
believe it is more appropriate to retain the benchmarking
rule but revise it to ensure that the competitive LEC
benchmarks to the price cap LEC with the lowest rate in
the state, a rate which is likely most consistent with the
volume of traffic of an access stimulating LEC.
Order, ¶ 694.

Standard of Review


The standard of review governing all three sections of this Brief
is the arbitrary and capricious standard set out at pages 41-42 of
the Joint Preliminary Brief.3

Summary of Argument


1.
The Order proposes to replace rural carrier ICC revenues
lost through its reforms with some USF support, but only for ILECs,
not CLECs. Its twofold justification for this disparate treatment –
(1) that rural CLECs lack market power and are therefore free to
raise their end-user rates to make up for the shortfall and (2) that,
because they allegedly have not built out their systems they can
simply decline to serve high cost customers – is contradicted by its
3 Joint Preliminary Brief, at 41-42.
7

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 16
own findings.

First, the agency contradicts itself by stating in the same order
that if carriers with pricing flexibility could simply raise their end
user rates they would have done so already. And, by citing CLECs’
lack of market power, the FCC ignores the logic of its own
observation: by definition, as the FCC has correctly observed in the
past, sellers without market power cannot raise their rates without
losing customers. The FCC’s further conclusion that, unlike ILECs,
CLECs losing ICC revenues could simply choose to continue serving
only their most profitable customers is based on a false premise: to
qualify for USF, CLECs must be eligible telecommunications
carriers (ETCs), which requires offering service to all. The FCC’s
rationale also contradicts its own prior observation that CLECs are
“lacking the lower-cost urban operations that non-rural ILECs [with
whom CLECs compete] can use to subsidize their rural operations.”
See CLEC Access Order, ¶ 65. The Commission’s conclusion about
CLECs’ ability to select customers also contradicts its own prior
observations that the rural CLEC model is predicated on building
complete systems (“overbuilding”) to fully replace service by
incumbent LECs; they cannot selectively build out to certain
8

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 17
customers to save costs.

2.
The FCC’s flash cut to bill-and-keep for CMRS-LEC traffic
is arbitrary and capricious because the Commission offers no
reasoned justification for it, while other “coextensive” §251(b)(5)
traffic is subject to a multi-year transition. The FCC contradicts its
own “commitment” to avoid flash cuts in the Order, ignores
significant record evidence of the market disruption that is likely to
occur, and attempts to justify its action based on claims of
“arbitrage” (which are not supported by the record). At the same
time the FCC reversed without explanation its policy of imposing
the same compensation rate to avoid such arbitrage. The FCC’s
flash cut to the zero rate for CMRS-LEC traffic is internally
inconsistent, inadequately explained, and should be vacated.

3.
As they apply to CLECs, the FCC’s access stimulation
rules are arbitrary and capricious and should be vacated4 for three
4 If the Court rules that the FCC’s transition to bill-and-keep for all
traffic is unlawful, the access stimulation rules should be vacated
in their entirety, since they are part and parcel of the transition.
See Order, ¶ 701 (“Our new [access stimulation] rules will work in
tandem with the comprehensive intercarrier compensation reforms
we adopt below, which will, when fully implemented, eliminate the
incentives in the present system that give rise to access
stimulation.”).
9

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 18
reasons. First, by prohibiting CLECs from submitting actual cost
and demand data, the FCC unreasonably discriminates against
CLECs vis-à-vis ILECs, which are permitted to do so. Second, the
FCC’s rules, which apply to CLECs regardless of the rates they
charge or their service territories, bear no rational relationship to
the rules’ stated purpose—to prevent CLECs operating in rate-of-
return LEC territories from collecting corresponding rates when
actual traffic volumes are much higher than those rates support.
Third, the FCC’s choice of the lowest price cap LEC rate in a state
as the benchmark for access stimulation CLECs is devoid of record
support and ignores the evidence in the record.

Argument


I.

The Commission Improperly Denied Rural CLECs USF
Support To Offset Lost ICC Revenues While Providing

Such Support To Their ILEC Competitors; The FCC’s
Rationale That Rural CLECs Could Offset Their Losses By
Raising Rates Is Inconsistent With The FCC’s Prior
Finding That Rural CLECs Lacked Market Power And
Hence The Ability To Raise Rates.


The Order recognizes that, as FCC policy moves “away from
implicit support, some high cost, rural areas may need new explicit
support from the universal service fund.” Order, ¶ 917. To do this,
10

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 19
the Commission proposed that some of the intercarrier
compensation revenues lost through its reforms be replaced
through the USF. Id. But rather than providing explicit USF
support for all carriers in high cost areas, the Order offers it only to
ILECs operating in those areas, not to rural CLECs operating there.
Id. ¶¶ 862-66.
The FCC’s terse purported justification for this disparate
treatment of rural CLECs is that it rests on a supposed difference in
the two groups’ ability to recover costs: “Unlike incumbent LECs,” it
states, “because competitive carriers have generally been found to
lack market power in the provision of telecommunications services,
their end-user charges are not subject to comparable rate
regulation and therefore those carriers are free to recover reduced
access revenue through regular end-user charges.” Id. ¶ 864. The
FCC disparaged CLEC objections that competitive forces constrain
their ability to offset lost ICC revenues by raising end user rates on
two grounds: (1) that competition constrains incumbent LECs “as
well” and (2) that CLECs, unlike incumbents, “have not built out
their networks subject to COLR [carrier of last resort] obligations”
and “can elect whether to enter a service area and/or serve
11

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 20
particular classes of customers (such as residential customers)
depending on whether it is profitable to do so without a subsidy.”
Id.
These purported distinctions are not the product of reasoned
decision making or agency expertise. On the contrary, the agency’s
conclusions fly in the face of its own fact findings, depart without
explanation from its prior orders and either ignore or minimize the
contrary arguments and evidence presented below.

Take first the Commission’s conclusion that rural CLECs’
“lack of market power” frees them (unlike ILECs) from rate
regulation and hence allows them to raise end user rates to offset
lost ICC revenues.5 The Order provides its own refutation: “If
carriers were unconstrained in their ability to increase particular
rates, it is not clear why they would not already have set them at
the profit-maximizing level, such that further increases would not
be profitable.” Order, n.1816.6
5 The FCC’s alternative “argument” that if rural CLECs cannot raise
their rates, neither can ILECs (Order, ¶ 864) is downright silly.

ILECs

get USF support to cover some of their lost access revenues.
6 The Commission was referring at n.1816 of the Order to carriers in
states that have “deregulated basic local phone service rates,” but
its point self-evidently applies to any carrier, RLEC or CLEC, that
12

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 21
The FCC’s finding that rural CLECs lack market power,
moreover, should also have led it to reject its own conclusion.
Sellers that lack market power, as the FCC has previously said, are
unable to extract supracompetitive or discriminatory rates from
customers.” MCI Telecomm. Corp. v. Am. Tel. & Tel. Co., 512 US
218, 237 (1994), Stevens, dissenting (quoting Policy and Rules
Concerning Rates for Competitive Common Carrier Services and
Facilities Authorizations Therefor, 77 F. C. C. 2d 308 (1979))
(emphasis added). Indeed, the premise for relaxed rate regulation
for sellers without market power is that they cannot raise rates
“without losing business to rival sellers” because they lack market
power. Elizabethtown Gas Co. v. FERC, 10 F.3d 866, 871 (D.C. Cir.
1993). See also Louisiana Energy and Power Auth. v. FERC, 141
F.3d 364, 365-66 (D.C. Cir. 1998). The well-established principle
that sellers without market power cannot raise prices without losing
customers is central to antitrust law, as well. E.g., SCFC ILC, Inc. v.
Visa USA, Inc., 36 F. 3d 958, 965-66 (10th Cir. 1994).
[W]hen an agency is statutorily required to adhere to
basic economic and competition principles — or when it
has exercised its discretion and chosen basic economic
has the nominal right to set its own end user rates.
13

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 22
and competition principles as the guide for agency
decision making in a particular area, as [the FCC] did in
[the CAF] Order — the agency must adhere to those
principles when deciding individual cases.
Mobil Pipe Line v. FERC, 676 F.3d 1098, 1104 (D.C. Cir. 2012). The
Commission failed this obligation miserably. Its conclusion that
CLECs without market power could raise their end user rates to
offset lost ICC revenues is wholly disconnected from the settled
economic principles and agency policies it purports to apply.
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168
(1962). This conclusion, in fact, is “so implausible that it could not
be ascribed to a difference in view or the project of agency
expertise.” Motor Vehicle Mfrs. Assn. of United States, Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). The FCC’s “let
them raise their rates” solution is the regulatory equivalent of Marie
Antoinette’s alleged infamous advice to the starving French
peasantry who could not afford bread: “Let them eat cake.”

The Commission’s alternative explanation, that if competitive
forces constrain CLEC pricing to end users, they (unlike ILECs) can
simply (1) terminate service to existing high cost customers or
(2) decline to enter unprofitable markets (Order, ¶¶ 864-65), is
14

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 23
equally arbitrary.

First, its assumption that CLECs seeking comparable USF
treatment would not be subject to the obligations of ILECs to serve
customers regardless of “whether it is profitable to do so without
subsidy,” is simply false. Id. Only CLECs that are or become ETCs
are eligible for USF. 47 U.S.C. § 254(e). See Joint USF Brief,
Section I.B. As ETCs, such CLECs are subject to the requirement of
§214(e)(1) to offer the supported services throughout their
designated service areas and advertise the availability and rates of
the service. 47 U.S.C. § 214(e)(1); Order, ¶ 518.
Second, even assuming CLECs receiving USF support had no
obligations to serve all comers, the Commission itself has described
the practical difficulties CLECs would face attempting to limit their
service.
Over a decade ago, the Commission disabused the notion that
rural CLECs could simply pick and choose to retain their most
profitable customers, stating that rural CLECs are “lacking the
lower-cost urban operations that non-rural ILECs [with whom
CLECs compete] can use to subsidize their rural operations.” CLEC
Access Order, ¶ 65. To help CLECs overcome this disadvantage, the
15

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 24
Commission found it appropriate to “permit rural CLECs competing
with non-rural ILECs to charge access charges above those charged
by the competing ILEC.” Id. This disadvantage remains as strong
today as it was then; there are not enough “lower cost” rural
customers whose rates can be increased to subsidize the CLECs’
revenue loss from the proposed reduced access charge revenues.

Providing CLECs the same USF support available to their
ILEC competitors is necessary to assure that CLECs can continue
to provide viable rural service. The Order’s failure to provide such
support exacerbates the problem identified in the CLEC Access
Order and that remains an issue today. The Commission’s failure
to acknowledge, much less to explain, its departure from its CLEC
Access Order reasoning that dropping higher cost customers is not
the answer was arbitrary. See FCC v. Fox Television Stations, Inc.,
556 U.S. 502, 515 (2009); Grace Petroleum Corp. v. FERC, 815 F.2d
589, 591 (1987).7
7 As discussed in Section I of the Supplemental USF Brief, the Order
also departs without reasoned explanation from the FCC’s USF
neutrality principle, that “universal service support mechanisms
and rules neither unfairly advantage nor disadvantage one provider
over another.” Universal Service Order, 12 F.C.C.R. 8776, ¶ 47
(1997).
16

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 25

The same logical flaw in the FCC’s argument that CLECs can
simply terminate existing service to unprofitable customers defeats
its argument that CLECs can selectively enter markets. Obviously,
the selective entry alternative will not help rural CLECs that have
already entered a market. The rural CLEC model involves
overbuilding in rural areas served by ILECs. The viability of rural
CLECs depends on displacing or largely supplanting existing ILECs
through facility-based competition.8 See Comments of RICA at 6,
CC Docket. 01-92 (filed Mar. 27, 2006). Such overbuilding, as the
FCC has noted, has been the prevailing rural CLEC model. See,
e.g., Pet. of Mid-Rivers Tel. Coop., Inc. for Order Declaring It to be an
Incumbent Local Exch. Carrier in Terry, Montana Pursuant to Section
251(h)(2), ¶ 6, WC Docket No. 02-78 (Aug. 31, 2006) (“this pattern
has occurred in a number of rural areas where a small incumbent
local exchange carrier has entered a neighboring exchange or group
of exchanges as a competitive LEC and overbuilt existing
facilities.”). Having overbuilt the ILEC’s existing system, the rural
8 Facilities-based competition refers to competition between
carriers, both of which have physical infrastructure. Many CLECs
in urban areas, by contrast, compete with incumbent carriers by
purchasing various component services at wholesale and reselling
them to end use customers. See 47 U.S.C. § 251(c)(3), (4).
17

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 26
CLEC, unlike an urban CLEC, cannot save costs by purchasing
fewer wholesale services from the ILEC. Nor can it save costs by
disconnecting service to some customers where it has already built
the facilities to serve them. In the face of this reality, the
Commission’s insistence that selective entry is a viable alternative
to USF support constitutes a quintessentially arbitrary failure to
consider an important aspect of the problem. Motor Vehicle Mfrs.
Assn. of United States, Inc., 463 U.S. at 43.

Finally, not only is selective entry no solution for existing
rural CLEC operations, relying on the selective market alternative
would defeat the stated policy objective under 47 U.S.C. § 706 of
the 1996 Act: to encourage the spread of more services for rural
consumers. CLEC Access Order, ¶ 65. Forcing rural CLECs to
compensate for lost access revenues by abandoning or reducing
services is self-defeating if the Commission’s objective is protecting
universal service and expanding broadband to rural areas.

It was the Commission that observed in the 2001 CLEC
Access Order that, “CLECs often are more likely to deploy in rural
areas the new facilities capable of supporting advanced calling
features and advanced telecommunications services than are non-
18

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 27
rural ILECs, which are more likely first to deploy such facilities in
their more concentrated, urban markets.” CLEC Access Order,
¶ 65. Additionally, “[g]iven the role that CLECs appear likely to play
in bringing the benefits of new technologies to rural areas,” the FCC
added, “we are reluctant to limit unnecessarily their spread by
restricting them to the access rates of non-rural ILECs.” Id. Yet, the
Order both reduces the access charges rural CLECs can collect, and
deprives them of the offsetting USF support extended to their ILEC
competitors. In other words, ILECs, who are less likely to extend
the advanced services to rural customers receive USF support,
while CLECs, who are more likely to do so, receive no USF support.
This outcome is arbitrary and capricious.

For the reasons stated, this Court should vacate and remand
the Order insofar as it denies rural CLECs the same USF support
available to their ILEC competitors.

II. Implementation of “Bill-and-Keep” for CMRS-LEC Traffic

on a Different Schedule Than Other Telecommunications

Traffic Exchanged with LECs is Arbitrary and Capricious


The FCC offers no reasoned justification for transitioning
CMRS-LEC traffic to bill-and-keep immediately (or within six
months), Order, ¶¶ 988-1002, CMRS Recon, ¶ 7, while establishing
19

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 28
a multi-year transition for other telecommunications traffic
exchanged with LECs (“non-CMRS-LEC traffic”). Order, ¶ 801.
Because “[p]atently inconsistent application of agency standards to
similar situations lacks rationality and is arbitrary,” the flash cut
transition to a zero rate for CMRS-LEC traffic must be vacated.
Contractors Transp. Corp. v. United States, 537 F.2d 1160, 1162
(4th Cir. 1976) (vacating order denying a certificate of convenience
and necessity to one carrier when agency had granted another
carrier’s certificate under similar circumstances). The FCC’s
disparate flash-cut treatment of CMRS-LEC traffic contradicts the
Notice of Proposed Rulemaking that preceded the Order: “we intend
to avoid sudden changes or ‘flash-cuts’ in our policies,
acknowledging the benefits of measured transitions that enable
stakeholders to adapt to changing circumstances and minimize
disruption.” NPRM, ¶ 12. It also contradicts the Order’s findings
that rate reduction transitions “minimize disruption to consumers
and service providers by giving parties time, certainty, and stability
as they adjust to an [internet protocol] world and a new
compensation regime.” Order, ¶ 798; see also id., ¶ 35 (“we adopt a
gradual, measured transition that will facilitate predictability and
20

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 29
stability.”). The Order highlights the harms associated with flash
cuts: “We believe that these transition periods strike the right
balance between our commitment to avoid flash cuts and enabling
carriers sufficient time to adjust to marketplace changes and
technological advancements.” Id. ¶ 802 (emphasis added). Yet no
such transition was provided with respect to this single subclass of
traffic.

In 1996, the FCC found that §251(b)(5) obligates LECs to
establish reciprocal compensation arrangements for the exchange of
intraMTA traffic between LECs and CMRS providers.
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, 11 F.C.C.R. 15499, ¶ 1041 (1996)
(“Local Competition Order”). The Order, affirming this similarity,
found that the “compensation obligations under § 20.11 are
coextensive with reciprocal compensation requirements” under
§251(b)(5). Order, ¶ 994 (emphasis added). “Consistent with that
determination, . . . [the FCC] conclude[d] that bill-and-keep should
also be the default pricing methodology between LECs and CMRS
providers under section 20.11 of [its] rules.” Id. It “harmonize[d]”
the §251(b)(5) reciprocal compensation requirement (applicable to
21

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 30
all traffic exchanged with LECs) and Rule 20.11(b)’s “reasonable
compensation” requirement (applicable to CMRS-LEC non-access
traffic). Order, ¶ 990.

As a threshold matter, the CMRS-LEC compensation
transition to bill-and-keep is dependent upon the validity of bill-
and-keep for wireline traffic. Given the FCC’s focus on its “decision
to harmonize section 20.11 with section 251(b)(5),” if bill-and-keep
for landline traffic is found invalid, it must also be invalid for
CMRS-LEC traffic. Id. ¶ 993.
Even
assuming,
arguendo, that bill-and-keep was a lawful end
point, the disparate treatment of wireline and CMRS traffic and the
immediate flash cut “transition” for CMRS-LEC traffic to bill-and-
keep is arbitrary and capricious. After finding that the governing
legal standards for CMRS and all other traffic are the same, the
FCC adopted different deadlines to implement bill-and-keep: a
multi-year transition to a zero rate for non-CMRS-LEC traffic, but
an immediate flash cut to zero for CMRS-LEC traffic. The FCC’s
dissimilar treatment of similar traffic is arbitrary and capricious
and must be vacated.

The flash cut for CMRS-LEC traffic is also arbitrary and
22

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 31
capricious because it reverses, without acknowledgement or
justification, prior FCC findings. Agencies must apply their own
precedents consistently or reasonably explain any departures from
those precedents. Fox Television Stations, 556 U.S. at 515. In
1996, the FCC rejected singling out CMRS-LEC traffic and
subjecting it to bill-and-keep. Local Competition Order, ¶ 1118 (“we
do not adopt the interim bill-and-keep arrangement tentatively
proposed in the LEC-CMRS Interconnection NPRM.”).

Again, in 2001, when the FCC rejected bill-and-keep for ISP-
bound traffic, it was unwilling to adopt different §251(b)(5)
compensation rates for two sub-classes of §251(b)(5) traffic.
Intercarrier Compensation for ISP-Bound Traffic, 16 F.C.C.R. 9151,
¶ 90 (2001) (“We therefore are unwilling to take any action that
results in the establishment of separate intercarrier compensation
rates, terms, and conditions for local voice and ISP-bound traffic.”)
(“ISP Remand Order”). The FCC reasoned that where two calls
cause a carrier to incur the same costs, they should be rated
identically. Id. The Order reverses the Commission’s findings in
1996 and 2001, and contradicts the conclusion in the Order itself
that CMRS traffic should be treated like all other traffic. The FCC
23

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 32
did so without acknowledging or justifying its reversal. Nor does
the FCC explain why it is good policy for one class of §251(b)(5)
traffic to flash-cut to the zero rate, while another class of traffic
remains subject to a positive rate for multiple years.

Rather than justifying disparate treatment for CMRS-LEC
traffic based on facts that distinguish it from non-CMRS-LEC
traffic, the FCC retreats to the twin mantras of “stimulation” and
“arbitrage.” Order, ¶ 995. When faced with allegations of ISP-bound
traffic “arbitrage” years earlier, the FCC required LECs to offer the
same compensation rate for voice and ISP-bound traffic to avoid
arbitrage. ISP Remand Order, ¶ 89. Similarly, elsewhere in the
Order, the FCC denied requests to adopt different transition periods
in part because “new arbitrage opportunities could arise” by
creating a separate transition for certain carriers. Order, ¶ 808.
Without explanation, the agency inconsistently finds later in the
same decision that arbitrage justifies a different rate for CMRS-
LEC traffic. In short, the FCC has concluded consistently that
adopting disparate rates creates arbitrage—except in the case of
CMRS-LEC traffic, where for inexplicable reasons it concludes that
arbitrage would be created unless a disparate rate is adopted
24

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 33
immediately.

Moreover, there is no factual basis for the FCC’s rationale,
because the FCC-defined conditions for “stimulation” that allegedly
leads to “arbitrage” do not exist for CMRS-LEC traffic. “Access
stimulation occurs when a LEC with high switched access rates
enters into an arrangement with a provider of high call volume
operations.”9 Order, ¶¶ 23, 656 (emphasis added). According to the
FCC, prior to the Order, rates for termination of CMRS-LEC traffic
were already low or zero. Order, ¶¶ 996-997. The FCC never
explains how “stimulation,” which results from the existence of
“high . . . rates,” can exist where carriers received only a low rate.
Because the FCC’s primary justification for the flash-cut to zero is
internally inconsistent, it should be vacated. See, e.g., Gen. Chem.
Corp. v. United States, 817 F.2d 844, 846 (D.C. Cir. 1987) (vacating
agency action because it was “internally inconsistent and
inadequately explained”).

The FCC’s secondary rationale is that a flash cut to zero for
CMRS-LEC traffic presents “a far smaller risk of market disruption”
9 Although the Order cites comments that claim “traffic stimulation”
is a problem, it does not establish a separate definition of
“stimulation.”
25

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 34
because (a) CLECs had no legal basis to demand any compensation,
(b) most large ILECs already adopted very low rates, and (c) RLECs
would be protected from any “harmful impacts” of the flash cut by
the recovery mechanisms. Order, ¶¶ 996-97. This rationale fails for
several reasons.

First, the FCC acknowledges its inaction is responsible for
CLECs’ inability to collect CMRS compensation. Order, ¶ 993 (“the
record shows that the absence of a federal methodology has been a
growing source of confusion and litigation.”). Moreover, beginning
in 1994, Commission rules required mutual compensation for
CMRS-LEC traffic. 47 C.F.R. § 20.11(b)(2). Rule 20.11(b)(2)
provides: “[a] commercial mobile radio service provider shall
pay reasonable compensation to a local exchange carrier in
connection with terminating traffic that originates on the facilities of
the commercial mobile radio service provider.” Id. (emphasis
added). The FCC affirmed that “reasonable compensation” is due
for CMRS-CLEC traffic and directed state commissions to set the
rate in N. Cnty. Commc’n. Corp. v. MetroPCS Cal., LLC, 24 F.C.C.R.
14036 (2009) (“North County Order”), aff’d, MetroPCS Cal., LLC v.
FCC, 644 F.3d 410 (D.C. Cir. 2011). The record shows that state
26

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 35
commissions ordered CMRS carriers to compensate CLECs for
termination of LEC-CMRS traffic. See, e.g., Michael Hazzard,
(Counsel to Pac-West Telecomm) Ex Parte, WC Docket No 01-92, at
3 & n.4 (July 10, 2011) (“Hazzard Letter”) (citing Compl. of xChange
Telecom, Inc. Against Sprint Nextel Corp. for Refusal to Pay
Terminating Comp., et al., N.Y. P.S.C. Case Nos. 07-C-1541, 09-C-
0370 (Jan. 19, 2010) (establishing New York rate of $0.001)). The
record also shows that CLECs entered into agreements that
permitted them to collect compensation from CMRS carriers. See,
e.g., Thomas Jones (counsel to Integra Telecom, Inc. and tw telecom
inc.) Ex Parte, WC Docket No 01-92 (Dec. 19, 2011) (“Jones Letter”);
Nancy Lubamersky (counsel to U.S. TelePacific Corp.) Ex Parte, WC
Docket No 01-92 (Dec. 22, 2011) (“Lubamersky Letter”) (concerning
compensation arrangements with CMRS providers). Other CLECs,
including North County and Pac-West, in reliance upon their Rule
20.11(b)(2) legal right to compensation, have been pursuing
collection actions to quantify the “reasonable compensation” owed
by CMRS providers to LECs. See Reply Comments of Pac-West
Telecomm at 4, CC Docket 01-92 (Apr. 18, 2011) (four CMRS
carriers “have aggressively opposed Pac-West’s efforts to collect on
27

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 36
literally years and years of minutes of use in California.”) (“Pac-West
Reply Comments”). The “substantiality of evidence must take into
account whatever in the records fairly detracts from its weight,”
Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951), such
that an agency must “explain why it rejected evidence that is
contrary to its findings.” Carpenters and Millwrights v. NLRB, 481
F.3d 804, 809 (D.C. Cir. 2007). There is substantial record
evidence that CLECs had established legal rights to reasonable
compensation payments from CMRS providers10 since at least 1994
and the FCC’s failure to recognize those rights and flash cut to the
zero rate only for CMRS-LEC traffic was therefore arbitrary and
capricious.

Nor can the FCC ignore, without explanation, evidence of
higher rates for CMRS-LEC compensation and find that most
CMRS-LEC traffic was compensated at $0.0007. Order, ¶ 997. The
10 To buttress its “market disruption” argument, the FCC states
that CLECs can make up any losses resulting from the flash cut by
charging their end-users more; and that incumbent LECs can make
up the difference by seeking funds from the Recovery Mechanism.
Order, ¶¶ 996-97. Aside from arbitrarily and abruptly departing
from the intercarrier payment framework of Rule 20.11(b)(2), these
arguments are faulty for the same reasons they are faulty outside of
the CMRS-LEC non-access traffic context, as explained in Section
I.C.2 of the principal ICC brief.
28

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 37
FCC ignored evidence of agreements applying rates well above
$0.0007 to CMRS-LEC traffic. See Jones Letter, at 2; Lubamersky
Letter, at 1-2.11 The record also reflects a series of LEC-CMRS
agreements with terminating rates over $0.005, with some as high
as $0.0175. Hazzard Letter, Att. A. Even if some larger LECs
“adopted” low rates for terminating CMRS-LEC traffic,12 that rate
was all but mandated by the FCC’s “mirroring rule” which required
incumbent LECs to offer the $0.0007 rate for all voice (including
CMRS) traffic in order to gain the benefit of the same rate for ISP-
bound traffic. ISP Remand Order, ¶¶ 8, 89. The FCC’s earlier
virtual mandate of the $0.0007 rate cannot support a default rule
that mandates zero compensation for a sub-class of §251(b)(5)
traffic, particularly in the face of higher rates prevalent among
CLECs and other LECs. The appropriate rate and transition for
CMRS-LEC traffic would be a rate that matches the cost-based
rates established by the state commissions for §251(b)(5) traffic
11 The extension of the flash cut by six months for carriers with
agreements (see supra, Statement of Additional Facts) does not
provide equitable treatment with the transition for “coextensive”
§251(b)(5) traffic, which is subject to a multi-year transition.
12 Order, ¶ 997 (FCC relying upon evidence presented by T-Mobile,
CMRS provider that stands to gain by the flash cut to bill-and-
keep).
29

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 38
which the FCC found to be “coextensive” with CMRS-LEC traffic.

As to the RLECs, contrary to the FCC’s claims (Order, ¶ 997),
the recovery mechanisms the FCC adopted do not protect RLECs
from flash cuts in terminating compensation revenues, as shown in
the Joint USF and ICC Briefs.13

In sum, the FCC’s flash cut to bill-and-keep for CMRS-LEC
traffic is arbitrary and capricious because it is inconsistent with the
FCC’s commitment in the Order to avoid flash cuts, with the FCC’s
finding that §20.11(b)(2) and §251(b)(5) are coextensive, and with
the record evidence concerning the existing rates and rights to
compensation of competitive, incumbent, and rural LECs.

III.

The FCC’s Access Stimulation Benchmark Rules As


Applied to CLECs Are Unlawfully Discriminatory and


Arbitrary and Capricious



The FCC’s access stimulation benchmark rules unlawfully
discriminate against CLECs, which, unlike ILECs, are given no
opportunity to demonstrate actual costs and demand to support a
rate higher than the benchmark. The FCC’s sole reason to deny
CLECs the right to submit cost data is the false conundrum that
13 See Joint ICC Brief, Part II, Joint USF Brief, Part V.
30

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 39
[t]here is insufficient evidence in the record that
abandoning the benchmarking approach for competitive
LEC tariffs and compelling competitive LECs to comply
with 61.38 rules is necessary to address concerns
regarding access stimulation, particularly considering the
burden that would be imposed on competitive LECs to
start maintaining regulatory accounting records.
Order, ¶ 694.
Yet, the FCC never explains why it did not simply permit
(without requiring) CLECs to have the same option as ILECs to rely
upon the §61.38 rules to demonstrate actual costs and demand in
the rate-of-return territories in which they provide switched access.
In short, the FCC arbitrarily withheld that opportunity from CLECs.
If the FCC is only concerned about the welfare of CLECs that might
not want to take on such cost analysis, providing recourse to
§61.38 as an option but not a requirement cures that concern
without discriminating against those CLECs that seek equal
treatment vis-à-vis their ILEC competitors. See Section XV
Comments of Bluegrass at 14, CC Docket. 01-92 (Apr. 1, 2011) (“if
the volumes of traffic and associated costs do not actually reflect
the RBOC/ILEC costs and traffic volume,” then “the CLEC should
be entitled to accept the burden of filing its tariff with rates that
conform to the requirement of § 61.38, which the Commission
31

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 40
recognizes as among the available options to establish just and
reasonable rates.”) (“Bluegrass Comments”).
The FCC’s rationale for the access stimulation benchmark is
also arbitrary and capricious because the benchmark applies
regardless of whether a CLEC operates in the territory of a
rate-of-return LEC. The access stimulation triggers are (1) revenue
sharing; and (2) a 3-to-1 ratio of terminating-to-originating traffic or
100% growth in minutes. These triggers can be met in any service
territory in which a CLEC operates, and if they are met, the CLEC is
subject to the access stimulation benchmark in every service
territory in which it operates statewide. See Bluegrass Comments at
3 (“For carriers with revenue sharing agreements, but relatively low
volumes of traffic, the requirement to mirror the RBOC/ILEC rate
may result in rates that are insufficient to meet costs (irrespective of
the ability to share revenues).”).
The FCC concludes that when the triggers are met, “the access
stimulator’s traffic vastly exceeds the volume of traffic of the [rate-
of-return] incumbent LEC to whom the access stimulator is
currently benchmarking.” Id. Again, the FCC’s decision is
irrational. CLECs typically operate in a wide variety of incumbent
32

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 41
LEC territories, from the smallest rate-of-return LECs to the largest
RBOCs (e.g., AT&T and Verizon). The FCC’s one-size-fits-all CLEC
access stimulation benchmark invalidates all of a CLEC’s above-
benchmark rates statewide, even in parts of the state where its
volumes may be consistent with those of the corresponding
incumbent LEC, in territories in which the CLEC does not engage in
access stimulation and in non-rate-of-return territories. Indeed, the
benchmark applies even to CLECs which do not even operate—
much less engage in access stimulation—in rate-of-return LEC
territories.
The FCC’s access stimulation triggers are completely unrelated
to the volume of minutes a CLEC terminates in rural rate-of-return
service territories. This is arbitrary and capricious because the
FCC itself identified high traffic volumes in rate-of-return territories
as the very problem it set out to solve. Order, ¶ 689 (“the
competitive LEC’s traffic volumes no longer operationally resemble
the carrier’s traffic volumes whose rates it had been benchmarking
because of the significant increase in interstate switched access
traffic associated with access stimulation.”). See, e.g., Gen. Chem.
Corp., 817 F.2d at 846.
33

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 42
The FCC’s selection of the lowest rate of any price cap LEC in
a state as the benchmark for CLECs is bereft of any record support
and is therefore arbitrary and capricious. There is nothing in the
record to support the FCC’s finding that “the access stimulating
LEC’s traffic volumes are more like those of the price cap LEC in the
state, and it is therefore appropriate and reasonable for the access
stimulating LEC to benchmark to the price cap LEC.” Order, ¶ 689.
The FCC ignored record evidence showing that CLEC traffic
volumes—even with access stimulation—are nowhere near as large
as those of a typical price cap LEC, a category which includes the
nation’s largest local telephone companies (AT&T and Verizon).
CLEC traffic volumes are much more likely aligned with those of
competing RLECs than with AT&T or Verizon.
Access rates are traditionally calculated by dividing a carrier’s
costs by anticipated traffic volumes in a service territory. The FCC
claims that its benchmarking rule accounts for an access
stimulation CLEC’s “traffic volumes,” but the benchmark it selected
is appropriate only for much larger carriers with much larger traffic
volumes. See Bluegrass Comments at 11 (“There simply does not
appear to be any evidence in the record comparing the volumes of
34

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 43
traffic terminating to those carriers with existing revenue sharing
agreements with the RBOC/ILEC carriers that the Commission
suggests would be an appropriate comparison.”); see also Section
XV Comments of Core Commc’ns at 16, CC Docket 01-92 (Apr. 1,
2011) (“Whether or not the proposed trigger is met, it simply makes
no sense to cap CLEC rates at RBOC rates in rural territories where
RBOCs do not even offer service.”).
By contrast, permitting CLECs to comply with §61.38 would
provide precisely the cost data required to make the same
calculation as their ILEC competitors, putting CLECs on a level
playing field with ILECs. Because the FCC did not provide this
option, and had no record evidence of either CLEC or ILEC traffic
volumes, the FCC’s decision is arbitrary and capricious and, for the
foregoing reasons, should be vacated as applied to CLECs.

Respectfully
submitted,

On
behalf
of
Petitioners
listed
inside
the
cover.

BY:
/s/
James
C.
Falvey




November 6, 2012

35

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 44

CERTIFICATE OF COMPLIANCE


Certificate of Compliance With Type-Volume Limitations,

Typeface Requirements, Type Style Requirements, Privacy

Redaction Requirements, and Virus Scan


1. This filing complies with the type-volume limitation of the
Amended First Briefing Order because it contains 6,942, excluding
the parts of the filing exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This filing complies with the typeface requirements of Fed. R.
App. P. 32(a)(5) and 10th Cir. R. 32(a) and the type style
requirements of Fed. R. App. P. 32(a)(6) because this filing has been
prepared in a proportionally spaced typeface using Microsoft Word
2007 in 14-point Bookman Old Style font.

3. All required privacy redactions have been made.

4. This filing was scanned for viruses with Symantec AntiVirus,
version 10.1.5000.5, updated on November 5, 2012, and according
to the program is free of viruses.


/s/ James C. Falvey

November 6, 2012


36

Appellate Case: 11-9900 Document: 01018946211 Date Filed: 11/06/2012 Page: 45

CERTIFICATE OF SERVICE


I hereby certify that, on November 6, 2012, consistent with the
Court’s October 17, 2012 filed “Order Governing Procedures for the
Electronic Filing of All Briefs in the Consolidated Proceeding,” I
caused the foregoing document to be sent electronically to

FCC_briefs_only@ca10.uscourts.gov

in Adobe format with the
subject line containing the 11-9900 case number and specifying
that this is the Uncited Additional Intercarrier Compensation Issues
Principal Brief of Petitioners. I also certify, that, consistent with
that October order, this document will be furnished through ECF
electronic service to all parties in this case through a registered
CM/ECF user. This document is available for viewing and
downloading on the CM/ECF system.



/s/ James C. Falvey
November 6, 2012



37

Note: We are currently transitioning our documents into web compatible formats for easier reading. We have done our best to supply this content to you in a presentable form, but there may be some formatting issues while we improve the technology. The original version of the document is available as a PDF, Word Document, or as plain text.

close
FCC

You are leaving the FCC website

You are about to leave the FCC website and visit a third-party, non-governmental website that the FCC does not maintain or control. The FCC does not endorse any product or service, and is not responsible for, nor can it guarantee the validity or timeliness of the content on the page you are about to visit. Additionally, the privacy policies of this third-party page may differ from those of the FCC.