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Response to Add. ICC Brief, In Re: FCC 11-161, No. 11-9900 (10th Cir.)

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Released: March 20, 2013

Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 1
FEDERAL RESPONDENTS’ UNCITED RESPONSE TO PETITIONERS’ ADDITIONAL INTERCARRIER
COMPENSATION ISSUES PRINCIPAL BRIEF
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

WILLIAM J. BAER
PETER KARANJIA
ASSISTANT ATTORNEY GENERAL
DEPUTY GENERAL COUNSEL


ROBERT B. NICHOLSON
RICHARD K. WELCH
ROBERT J. WIGGERS
DEPUTY ASSOCIATE GENERAL COUNSEL
ATTORNEYS


LAURENCE N. BOURNE
UNITED STATES
JAMES M. CARR
DEPARTMENT OF JUSTICE
MAUREEN K. FLOOD
WASHINGTON, D.C. 20530
COUNSEL


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


Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 2

TABLE OF CONTENTS


Table of Authorities.......................................................................................... ii 
Glossary ........................................................................................................... iv 
Issues Presented ................................................................................................. 1 
Counterstatement ............................................................................................... 2 
1. 
Limiting Explicit Subsidies Under The Recovery
Mechanism To Incumbent LECs. ..................................................... 3 
2. 
Combating Access Stimulation. ........................................................ 6 
3. 
Accelerating The Transition To Bill-and-Keep For
Non-Access Traffic That LECs Exchange With
Wireless Providers. ......................................................................... 11 
Argument ......................................................................................................... 15 
I. 
The FCC Reasonably Limited CAF Support Under The
Recovery Mechanism To Incumbent LECs. ............................................ 15 
II.  The FCC’s Access Stimulation Rules For CLECS Are
Reasonable. .............................................................................................. 22 
III.  The FCC Reasonably Adopted A Swifter Transition To Bill-
And-Keep For Non-Access Wireless Traffic Than For Other
Telecommunications Exchanged With A LEC. ....................................... 27 
Conclusion ....................................................................................................... 35 
i

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TABLE OF AUTHORITIES

CASES

 
Alenco Commc’ns v. FCC, 201 F.3d 608 (5th Cir.
2000) ..................................................................................................... 15, 28
American Tel. & Tel. Co. v. FCC, 454 F.3d 329
(D.C. Cir. 2006) ........................................................................................... 22
Ark Initiative v. U.S. Forest Service, 660 F.3d 1256
(10th Cir. 2011) ........................................................................................... 24
Covad Commc’ns Co. v. FCC, 450 F.3d 528 (D.C.
Cir. 2006) .............................................................................................. 17, 27
Farley Transp. Co. v. Santa Fe Trail Transp. Co.,
778 F.2d 1365 (9th Cir. 1985) ....................................................................... 8
Farmers and Merchants Mut. Tel. Co. v. FCC, 668
F.3d 714 (D.C. Cir. 2011) ........................................................................... 10
IMC Kalium Carlsbad, Inc. v. Interior Bd. Of Land
Appeals, 206 F.3d 1003 (10th Cir. 2000) .................................................... 26
MCI WorldCom, Inc. v. FCC, 209 F.3d 760 (D.C.
Cir. 2000) ..................................................................................................... 24
Nat’l Ass’n of State Util. Consumer Advocates v.
FCC, 372 F.3d 454 (D.C. Cir. 2004) ........................................................... 18
Qwest Commc’ns Int’l Inc. v. FCC, 398 F.3d 1222
(10th Cir. 2005) ........................................................................................... 15
Rural Cellular Ass’n v. FCC, 588 F.3d 1095 (D.C.
Cir. 2009) .............................................................................................. 15, 21
Sorenson Commc’ns, Inc. v. FCC, 659 F.3d 1035
(10th Cir. 2011) ........................................................................ 14, 21, 28, 35
Texas Office of Pub. Util. Counsel v. FCC, 265 F.3d
313 (5th Cir. 2001) ...................................................................................... 19
Worley Mills, Inc. v. NLRB, 685 F.2d 362 (10th Cir.
1982) ............................................................................................................ 26

STATUTES

 
47 U.S.C. §201(b)............................................................................................ 13
ii

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47 U.S.C. §204(a)(3) ......................................................................................... 8
47 U.S.C. §214(e) ............................................................................................ 19
47 U.S.C. §214(e)(2) ....................................................................................... 19
47 U.S.C. §251(b)(5) ....................................................................................... 28
47 U.S.C. §251(h).............................................................................................. 2
47 U.S.C. §254(g).............................................................................................. 9
47 U.S.C. §332 ................................................................................................ 28
47 U.S.C. §1302 .............................................................................................. 21

ADMINISTRATIVE DECISIONS

 
Access Charge Reform, 15 FCC Rcd 12962 (2000),
aff’d in part, remanded in part, Texas Office of
Pub. Util. Counsel v. FCC
, 265 F.3d 313 (5th
Cir. 2001) ..................................................................................................... 19
Access Charge Reform, 16 FCC Rcd 9923 (2001) ................................. passim
Implementation of the Local Competition
Provisions in the Telecommunications Act of
1996
, 11 FCC Rcd 15499 (1996) ................................................... 12, 29, 30
Intercarrier Compensation for ISP-Bound Traffic,
16 FCC Rcd 9151 (2001) ............................................................................ 30
PrairieWave Telecomms., Inc. Petition for Waiver,
23 FCC Rcd 2556 (2008) ..................................................................... 24, 25



iii

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GLOSSARY

1996 Act

Telecommunications Act of 1996
Act

Communications Act of 1934
APA

Administrative Procedure Act
ARC
Access Recovery Charge
Br. Petitioners’
Brief
CAF
Connect America Fund
CLEC
Competitive Local Exchange Carrier
COLR Carrier of Last Resort
ETC Eligible Telecommunications Carrier
FCC
Federal
Communications
Commission
ICC Intercarrier
Compensation
ISP
Internet Service Provider
ILEC
Incumbent Local Exchange Carrier
IXC
Interexchange Carrier
JA Joint
Appendix
LEC Local
Exchange
Carrier
NECA National Exchange Carrier Association
NTCA
National Telecommunications Cooperative
Association
RICA Rural Independent Competitive Alliance


iv

Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 6
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

FEDERAL RESPONDENTS’ UNCITED RESPONSE TO PETITIONERS’ ADDITIONAL
INTERCARRIER COMPENSATION ISSUES PRINCIPAL BRIEF

ISSUES PRESENTED

Whether the FCC acted within its discretion in:
(1) Limiting explicit Connect America Fund subsidies, available on a
transitional basis, to incumbent local exchange carriers;
(2) Adopting rules to combat regulatory arbitrage schemes known as
“access stimulation” or “traffic pumping”; and
(3) Adopting a swifter transition to a bill-and-keep framework for local
(“non-access”) wireless telecommunications traffic exchanged with
local exchange carriers than for other types of traffic.

Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 7

COUNTERSTATEMENT

1
In the Order on review, the FCC adopted comprehensive intercarrier
compensation (“ICC”) reform for telecommunications traffic exchanged with
local exchange carriers (“LECs”). There are two types of LECs: (1)
“incumbent” LECs (or “ILECs”) – companies that provided local telephone
service on a monopoly basis at the time the Telecommunications Act of 1996
2
(“the 1996 Act”) was enacted; and (2) newer “competitive LECs” (or
“CLECs”) that have entered the local telephone marketplace since 1996.
For many years – and until the reforms adopted in the Order are fully
implemented – federal and state regulators have generally required long-
distance carriers (also known as “interexchange carriers” or “IXCs”) to pay
access charges to LECs that originate and terminate long-distance calls. See
FCC Preliminary Br. 4-5. The origination or termination of these long-
distance calls is sometimes called “access traffic.” To promote universal
service goals, the access charges long-distance carriers pay to incumbent
LECs have been used to provide implicit subsidies to support the LECs’ local

1 Connect America Fund, 26 FCC Rcd 17663 (2011) (“Order”) (JA__). On
December 23, 2011, the FCC adopted a sua sponte order on reconsideration
that also is pertinent to the issues presented in this case. Connect America
Fund
, 26 FCC Rcd 17633 (2011) (“Reconsideration Order”) (JA__).
2 See 47 U.S.C. §251(h) (defining “incumbent local exchange carrier”).
2

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networks. See id.at 3-5. “Non-access” (or “local”) telephone calls have been
subject to a different intercarrier compensation framework. See id. at 11-12.
Under the new intercarrier compensation rules adopted in the Order,
the FCC plans to transition both access and non-access traffic to a “bill-and-
keep” framework under which intercarrier compensation obligations will be
eliminated. See Order ¶¶736-737 (JA___). The Order’s ICC reforms
address telecommunications traffic that CLECs and ILECs exchange with
each other, as well as traffic that they each exchange with long-distance
carriers and wireless providers. See id. ¶34 (JA__).
Petitioners – a trade association representing rural ILECs, another trade
association representing CLECs, and various individual CLECs – collectively
challenge three facets of the FCC’s Order, each of which we address in this
supplemental ICC brief.
1. Limiting Explicit Subsidies Under The Recovery

Mechanism To Incumbent LECs.

The Order establishes a multi-year transition to bill-and-keep that
initially caps intercarrier rates for terminating access and non-access
telecommunications traffic at current levels, and then reduces many of these
rates each year to reach bill-and-keep (in six years for price cap carriers, and
in nine years for rate-of-return carriers). Order ¶801 (JA__). The FCC
sought further comment on how to transition to a bill-and-keep methodology
3

Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 9
with respect to the ICC rates for originating access (as well as other rate
elements not specifically reduced by the Order). Order ¶¶1297-1305 (JA__-
__). In the meantime, the Order caps (1) interstate and intrastate originating
access charges for ILECs that are subject to price cap regulation (known as
“price cap carriers”), and (2) interstate originating access charges for ILECs
subject to rate-of-return regulation (“rate-of-return carriers”). Order ¶¶739,
800-801 (JA__, __-__); see also FCC Preliminary Br. 10 & nn.7- 8
(describing price cap and rate-of-return regulation of ILECs).
Unlike ILEC access charges, CLEC access charges have not been
subject to traditional – price cap or rate-of-return – rate regulation by the
FCC. Rather, under the access charge regime that pre-dated the Order,
CLECs were required to set their tariffed access charges at or below the rates
charged by the incumbent LEC operating in each CLEC’s service area (a
3
regulatory method known as “benchmarking”). Under the reforms adopted
in the Order, CLECs must reduce their intercarrier compensation rates
according to the same schedules that govern the ILECs (both rate-of-return

3 In the 2001 CLEC Access Charge Order, the FCC permitted most CLECs,
following a transitional period, to tariff their interstate access charges only if
they are set at or below the levels contained in the access tariff of the ILEC in
the area in which the two carriers compete. Access Charge Reform, 16 FCC
Rcd 9923, 9944-45 ¶¶51-52, 54 (2001) (“CLEC Access Charge Order”). The
FCC also provided for a limited exemption that permits certain rural CLECs
to benchmark their rates to a higher threshold. Id. at 9955-56 ¶¶80-81.
4

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and price cap carriers) to which their rates are benchmarked. Order ¶801 &
4
Figure 9 (JA__-__).
As described in our Principal ICC Brief (Argument II), the FCC in the
Order also adopted a transitional recovery mechanism – comprised of a
capped federally tariffed end-user charge (the “Access Recovery Charge” or
“ARC”) and, if that is insufficient, direct subsidies from the Connect America
Fund (“CAF”) – to mitigate the effect of reduced ILEC intercarrier
5
compensation revenues. See generally Order ¶¶847-932 (JA__-__). CLECs
also are permitted to recover reduced ICC revenues through end-user charges
– but they (unlike ILECs) benefit from the ability to impose such charges
without the caps to which the ARC is subject. Id. ¶864 (JA__).
Because, among other things, CLECs enjoy greater regulatory
flexibility than ILECs with respect to their rates and service obligations, the
FCC declined to further burden the limited resources of the universal service
fund by augmenting end-user revenues for CLECs with explicit subsidies
from the CAF. Order ¶¶864-865 (JA__-__).

4 The exchange of wireless traffic is subject to a different transition. See
Argument III, below.
5 Carriers “receiving CAF support to offset lost ICC revenues [must] … use
the money to advance [the FCC’s] goals for universal voice and broadband.”
Order ¶37 (JA__); see also id. ¶918 (JA__).
5

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2. Combating Access Stimulation.
In the Order, the FCC also took steps to reduce incentives for access
stimulation – also known as “traffic pumping” – and to mitigate the harm to
IXCs that are forced to pay inflated rates for traffic subject to such schemes.
Order ¶¶656-701 (JA__-__).
a.
Traffic pumping is a type of regulatory arbitrage that involves
LECs that are able to charge relatively high per-minute rates for terminating
access service, often because they operate in rural areas where their average
per-minute costs historically have been high and are presumed to be high in
6
the future. In traffic-pumping schemes, LECs typically enter into contractual
arrangements with providers of “high call volume operations” – such as “chat
line[]” providers, “adult entertainment” service providers, and “conference
call[ing]” companies. Order ¶656 (JA__). These businesses often generate
huge volumes of incoming long-distance calls by offering their services to
consumers for free. See 2011 NPRM ¶636 (JA__); Order ¶656 (JA__). As
the LECs terminate more traffic by connecting these calls to their recipients,
the LECs’ average termination cost per minute drops sharply. But so long as
IXCs keep paying access charges, the LECs’ revenue per minute of traffic

6 Connect America Fund, 26 FCC Rcd 4554, 4761 ¶648 (2011) (JA__)
(“2011 NPRM”); Order ¶663 (JA__).
6

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stays constant. The result is “a jump in revenues and thus inflated profits.”
Order ¶657 (JA__). Because these per-minute charges bear no reasonable
relation to the LECs’ actual costs of providing service, the FCC found that
the access rates charged by LECs that engage in traffic pumping are “almost
uniformly … unjust and unreasonable under section 201(b) of the Act.” Id.
Under traffic-pumping or access-stimulation schemes, LECs share their
revenues with the contracting entities (e.g., the chat line providers or
conference calling companies) pursuant to a pre-existing agreement. The
revenue-sharing arrangement effectively subsidizes the purportedly “free”
services that these entities offer to the public. But these services in fact come
at a cost: the IXCs are paying for them, and ultimately pass those costs on to
their long-distance customers. See 2011 NPRM ¶636 (JA__); Order ¶656
(JA__). Thus, there is a classic implicit cross-subsidy: one group of
customers pays higher rates for one service (in this case, long-distance
service) so that customers of other services (chat lines or conference calling)
pay lower rates or, indeed, nothing at all.
Traffic pumping particularly concerns the FCC because it exploits
several features of the existing regulatory system. First, traffic pumping
relies on LECs’ ability to unilaterally set tariffed, non-negotiated charges for
7

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7
terminating access services, and on the fact that IXCs often cannot receive
refunds of tariffed charges that are later found to be unreasonable. See 2011
NPRM ¶¶ 644, 646, 653-654 (JA__, __, __-__); 47 U.S.C. §204(a)(3)
(providing that certain tariffs are “deemed lawful” if not rejected or
suspended and investigated by the FCC).
Second, traffic pumping allows LECs to impose tariffed rates that are
untethered to their actual costs. ILEC traffic pumpers do so by setting
tariffed rates based on historical low-volume costs per minute, even as they
use traffic pumping to sharply increase their traffic volume. See 2011 NPRM
¶648 (JA__); Order ¶662 (JA__). CLEC traffic pumpers accomplish a
similar decoupling of rates and costs by charging benchmarked rates equal to
those of the competing ILEC, or to a higher benchmark that is available to
8
certain CLECs that serve rural areas. A traffic-pumping CLEC’s actual per

7 In contrast with an individually negotiated contract, a tariff is a schedule
of charges, terms, and conditions of service that a communications carrier
unilaterally determines and files with the FCC (for interstate service) or a
state commission (for intrastate service). Unless the relevant regulator
suspends or rejects the tariff, those rates, terms, and conditions are “binding
on the parties and ha[ve] the force of law.” Farley Transp. Co. v. Santa Fe
Trail Transp. Co.
, 778 F.2d 1365, 1372 (9th Cir. 1985).
8 See note 3, above; see also CLEC Access Charge Order, 16 FCC Rcd at
9944-45 ¶¶51-52, 54, 9955-56 ¶¶80-81.
8

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minute costs generally are far lower than its benchmarked rates. See 2011
NPRM ¶¶649-650 (JA__-__); Order ¶689 (JA__).
Third, traffic pumping takes advantage of rules that prohibit IXCs from
blocking traffic to certain LECs or certain telephone numbers. If IXCs could
refuse to deliver traffic pumped pursuant to these schemes, they often would
do so. See 2011 NPRM ¶654 (JA__); see also Order ¶734 (JA__) (discussing
the prohibition on call blocking).
Finally, traffic pumping relies on IXCs’ regulatory obligation to charge
their own customers geographically averaged rates. See 47 U.S.C. §254(g).
If IXCs could recover the cost of traffic-stimulation schemes from the
particular customers who use the chat-line and other services at issue, those
customers would effectively pay for the services they received, and the
nominally “free” services would be less appealing to them. See 2011 NPRM
¶654 (JA__); Order ¶663 (JA__). As a result, under the existing regulatory
framework preceding the Order, users of these “free” calling services had
every incentive to continue to use them, while LECs that profit from traffic
pumping had every incentive to continue to do so.
b.
Looking at the extensive record evidence before it, the FCC
found that traffic pumping costs IXCs hundreds of millions of dollars per
year, and billions over the past five years. See Order ¶664 (JA__) (relying on
9

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“estimates that the total cost of access stimulation to IXCs has been more
than $2.3 billion over the past five years” and that “the overall costs to IXCs
[are] between $330 and $440 million per year”). These costs not only cause
all users of long-distance services to pay more; they also reduce “the amount
of capital available to invest in broadband deployment and other network
investments that would benefit consumers.” Id. ¶¶663-664 (JA__).
The FCC further concluded that traffic pumping distorts the market for
services such as conference calling, “harm[ing] competition by giving
companies that offer a ‘free’ calling service a competitive advantage over
companies that charge their customers for the service.” Order ¶665 (JA__).
And that practice spawns disputes that consume scarce judicial and
administrative resources, as well as imposing additional costs on the parties
to those disputes. See id. ¶664 & n.1093 (JA__); Farmers and Merchants
Mut. Tel. Co. v. FCC, 668 F.3d 714 (D.C. Cir. 2011) (reviewing FCC
resolution of traffic pumping dispute).
c.
In light of these widespread harms associated with traffic
pumping, the FCC adopted measures that – while not entirely prohibiting
revenue-sharing by LECs, as some commenters had urged (see Order n.1112
(JA__)) – reduce the incentives to engage in traffic pumping and mitigate the
harms it causes to IXCs and consumers. The FCC first set criteria to
10

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9
determine which LECs are engaging in traffic pumping. LECs that meet
those criteria must file new tariffs with rates that usually will be significantly
lower than those they otherwise would be permitted to file. See Order ¶679
(JA__). For rate-of-return ILECs, the new rate must be based on their
projected costs, taking into account the expected increase in volume from
traffic pumping. See Order ¶¶680-687 (JA__-__). For CLECs, the new rate
– which the Order refers to as the “benchmark” rate – must be the same as the
lowest rate for terminating access charged by any price cap LEC in the same
state. See id. ¶¶688-694 (JA__-__). The FCC set this requirement based in
part on AT&T’s showing that in several states, traffic-pumping CLECs were
terminating three-to-five times as much traffic as the largest ILEC in the
state. See id. ¶689 & n.1160 (JA__).
3. Accelerating The Transition To Bill-and-Keep For

Non-Access Traffic That LECs Exchange With
Wireless Providers.

While the FCC set multi-year transitions to bill-and-keep for the
exchange of telecommunications between LECs and other wireline carriers,
see Order ¶801 (JA__), it required a faster transition for the exchange of non-
access (i.e., local or “intraMTA”) telecommunications traffic between LECs

9 These criteria, which petitioners do not challenge in this case, include the
presence of revenue-sharing; and sharp increases in volume, or a high ratio of
terminating to originating access traffic. See Order ¶¶667-678 (JA__-__).
11

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10
and wireless providers. As modified in the Reconsideration Order, the
transition allows existing interconnection agreements without “change of
law” provisions to continue in effect until expiration, and it allows
agreements containing such provisions to continue in effect at least until July
11
1, 2012. See Reconsideration Order ¶¶6-7 (JA__-__). That decision, the
FCC explained, was based on particular concerns about traffic pumping
involving non-access wireless traffic and the lack of significant reliance
interests of LECs involved in such traffic pumping. See Order ¶¶995-997,
1000 (JA__-__); Reconsideration Order ¶¶5-7 (JA__-__).

SUMMARY OF ARGUMENT

Contrary to petitioners’ claims, the FCC acted well within its broad
discretion in adopting the reforms discussed above.

I.

The FCC reasonably decided to provide ILECs (but not CLECs)
with explicit subsidies from the Connect America Fund to replace some of

10 An MTA – or Major Trading Area – is the largest FCC-authorized license
area for wireless carriers. Implementation of the Local Competition
Provisions in the Telecommunications Act of 1996
, 11 FCC Rcd 15499,
16014 ¶1036 (1996) (“Local Competition Order”). IntraMTA wireless traffic
is treated as local traffic for regulatory purposes, while traffic that travels
outside a wireless provider’s MTA is deemed to be long-distance or “access”
traffic. Id.
11 Change of law provisions specify how to take account of intervening
changes in the law (such as new FCC regulations) after the agreement is
executed. See p. 28, below.
12

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the intercarrier compensation revenues that are reduced by the Order’s
reforms. The FCC explained that CLECs are not subject to the same level of
regulation as ILECs, and thus have more flexibility to adjust their end-user
rates and to choose the areas and customer classes they wish to serve. Order
¶864 (JA__). Moreover, ILEC access rates traditionally had been set to
include implicit subsidies to support the local network. Id. ¶¶857-858, 917,
919 (JA__-__, __, __). Given these factors, and the fact that explicit
universal service subsidies under the Communications Act are designed to
benefit customers and not carriers, it was reasonable for the FCC to decline to
create new duplicative subsidies for CLECs (which typically operate in the
same area as an ILEC). Indeed, the FCC’s decision not to do so is consistent
with its actions to eliminate duplicative subsidies in other portions of the
Order. Providing CAF subsidies to CLECs would only further burden the
limited resources of the CAF and the consumers who ultimately contribute to
it.

II.

The FCC also acted within its discretion in taking steps to combat
traffic pumping (or access stimulation) – regulatory arbitrage schemes that, if
left unchecked, “almost uniformly” lead to unjust and unreasonable interstate
access charges that violate 47 U.S.C. §201(b). Order ¶657 (JA__); see id.
¶¶656-701 (JA__-__). The administrative record amply supported the FCC’s
13

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decision to require traffic-pumping CLECs to benchmark their interstate
access charges to the lowest rate for terminating access charged by any price
cap LEC in the same state. Id. ¶¶688-694 (JA__-__). And the agency’s
decision to adopt this benchmarking approach was well within its broad
discretion to fashion effective and readily administrable solutions to complex
regulatory problems.

III.

Finally, the FCC reasonably determined that a swifter transition to
bill-and-keep was warranted for non-access wireless traffic than for other
traffic exchanged with LECs. Not only were concerns about abusive access
stimulation particularly acute in the context of non-access wireless traffic
(Order ¶995 (JA__)), the evidence showed that LECs had no substantial
reliance interests with respect to that traffic that would justify a longer
transition to bill-and-keep for such traffic. Id. ¶¶996-997 (JA__-__). The
FCC’s decision easily satisfies the “especially deferential” standard of review
this Court accords “transitional” measures. Sorenson Commc’ns, Inc. v.
FCC, 659 F.3d 1035, 1046 (10th Cir. 2011) (citation omitted).
14

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ARGUMENT

I.

THE FCC REASONABLY LIMITED CAF SUPPORT
UNDER THE RECOVERY MECHANISM TO
INCUMBENT LECS.

Petitioner Rural Independent Competitive Alliance (“RICA”)
challenges the FCC’s decision to provide revenue replacement subsidies from
the CAF to ILECs, rather than to “all carriers.” Br. 11. That claim fails from
the start, because it overlooks that such federally-funded subsidies are
intended to promote universal service, and “[t]he purpose of universal service
[under 47 U.S.C. §254] is to benefit the customer, not the carrier.” Rural
Cellular Ass’n v. FCC, 588 F.3d 1095, 1103 (D.C. Cir. 2009) (“RCA”)
(quoting Alenco Commc’ns v. FCC, 201 F.3d 608, 621 (5th Cir. 2000)). CAF
funds are recovered through contributions from interstate telecommunications
service providers (among others), and are “almost always pass[ed on] … to
their customers,” RCA, 588 F.3d at 1099 – that is, virtually anyone who pays
monthly cell phone or landline phone bills. As a result, unnecessary CAF
expenditures may “detract from universal service by causing rates
unnecessarily to rise.” Alenco, 201 F.3d at 620; accord RCA, 588 F.3d at
1103. Indeed, this Court has noted the potential of “excessive subsidization”
to “affect the affordability of telecommunications services.” Qwest
Commc’ns Int’l Inc. v. FCC, 398 F.3d 1222, 1234 (10th Cir. 2005).
15

Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 21
Accordingly, nothing in the Communications Act requires the FCC to provide
duplicative CAF subsidies to CLECs, which typically operate in the same
12
area as an ILEC.
In the Order, the FCC reasonably explained why it reserved CAF
subsidies for incumbent LECs, and did not unnecessarily extend additional
subsidies to CLECs. Competitive LECs, the FCC stressed, have regulatory
advantages over ILECs. To begin with, CLECs’ end-user charges “are not
subject to … rate regulation” that is “comparable” to that applied to ILECs,
leaving CLECs greater flexibility to raise those charges as their ICC revenues
decline. Order ¶864 (JA__); see id. n.1670 (JA__) (noting, for example, that
the FCC does not regulate CLEC subscriber line charges). In addition, while
ILECs typically have been subject to state carrier-of-last-resort (“COLR”)
obligations that require them to provide service (including in high-cost areas)
where no other provider will do so, CLECs are free from such obligations.
Id. ¶864 (JA__). Thus, unlike ILECs, CLECs may elect to provide service
only where it is most profitable. See id. ¶864 & n.1675 (JA__) (CLECs may
define their service areas to target “only the lowest-cost customers.”).

12 See, e.g., Order ¶316 (JA__) (concluding, with respect to Mobility Fund
Phase I support, that, “as a general matter, the Commission should not award
… support to more than one provider per area”); id. ¶¶498-511 (JA__-__)
(eliminating “identical support rule,” which entailed unnecessary duplicative
subsidies).
16

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Notwithstanding the greater regulatory flexibility that CLECs enjoy,
RICA contends that, lacking market power, CLECs’ end-user charges are
competitively constrained by the ILECs’ end-user charges, which (unlike their
own) are supplemented by universal service subsidies. Br. 12 & n.5, 13.
This contention, however, does not undermine the FCC’s line-drawing
judgment. See Covad Commc’ns Co. v. FCC, 450 F.3d 528, 541 (D.C. Cir.
2006) (courts are “generally unwilling to review line-drawing performed by
the Commission unless a petitioner can demonstrate that lines drawn … are
patently unreasonable, having no relationship to the underlying regulatory
problem”). As an initial matter, ILECs are eligible to receive CAF support
under the recovery mechanism only if the ARC end-user charges available to
them are insufficient to recover all of the revenues to which the carrier is
entitled. Order ¶918 (JA__). Accordingly, ILECs’ end-user rates, in many
instances, are not actually supplemented by CAF subsidies.
More fundamentally, there is no reason to believe – and petitioners
have not shown – that CLECs need CAF support in order to effectively
17

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13
compete with ILECs. CLEC interstate access charges never have been set
on the basis of CLECs’ own costs, but rather have been benchmarked to
ILECs’ regulated rates for well over a decade. See CLEC Access Charge
Order, 16 FCC Rcd at 9944-45 ¶¶51-52, 54. The ILEC interstate access
charges to which CLEC rates have been benchmarked, moreover, historically
have been set to cover not only the ILECs’ own access service costs, but also
implicit subsidies for their local telephone network. See Order ¶¶857-858,
917, 919 (JA__-__, __, __); see Nat’l Ass’n of State Util. Consumer
Advocates v. FCC, 372 F.3d 454, 457 (D.C. Cir. 2004) (“NASUCA”).
The CAF funding mechanism, in these circumstances, does not unfairly
burden CLECs. Rather, it is fully consistent with past ICC recovery
mechanisms that employed explicit universal service subsidies for ILECs “to
help offset the reduction in implicit subsidies” occasioned by required
transitions from intercarrier to end-user ILEC charges. NASUCA, 372 F.3d at
458 (describing Access Charge Reform, 15 FCC Rcd 12962 (2000), aff’d in

13 Even if petitioners could make such a showing, universal service
subsidies are not distributed to carriers for the purpose of enabling them to
compete with other providers. Universal service support is designed “to
benefit the customer, not the carrier.” RCA, 588 F.3d at 1103. Thus, carriers
“are not entitled to the expectation of any particular level of support, or even
any support, so long as the level of support provided is sufficient to achieve
universal service goals.” Order ¶510 (JA__); see also id.¶¶318, 319 (JA__,
__) (noting that “the statute’s goal is to expand availability of service to end
users,” “not to subsidize competition through universal service”).
18

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part, remanded in part, Texas Office of Pub. Util. Counsel v. FCC, 265 F.3d
313 (5th Cir. 2001)). Indeed, the FCC has never adopted an explicit CLEC
14
recovery mechanism in connection with ICC reforms.
RICA contends that the FCC erred in relying on the fact that CLECs
have greater regulatory freedom than ILECs insofar as they (unlike most
ILECs) are not subject to COLR requirements. Br. 15. According to RICA,
this distinction is irrelevant because CLECs must qualify as eligible
telecommunications carriers – or “ETCs” – in order to be eligible for any
universal service subsidies, and therefore must provide supported services
throughout their service areas in any event. Id. (citing 47 U.S.C. §214(e)).
This contention misses the point that, unlike state-imposed COLR
obligations, which typically are mandatory for ILECs, ETC status is
voluntary for CLECs. See 47 U.S.C. §214(e)(2) (qualifying carriers may
“request” ETC designation). In short, RICA offers no reason to question the

14 Although the FCC has never previously adopted explicit subsidies for
CLECs explicitly, under the “identical support rule,” ILECs’ per-line
universal service support was available to carriers – mostly wireless
providers, but including some CLECs (see Order n.827 (JA__)) – that were
designated as competitive eligible telecommunications carriers pursuant to 47
U.S.C. §214(e). The FCC eliminated the identical support rule in the Order,
explaining that it did not promote universal service goals. See Order ¶¶498-
511 (JA__-__). See also FCC Response to Wireless Carrier USF Principal
Br. 31-36 (addressing challenges to elimination of the identical support rule).
19

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FCC’s finding that CLECs “typically can elect whether to enter a service
area” or “serve particular classes of customers.” Order ¶864 (JA__).
Nor is the FCC’s limitation of CAF subsidies to ILECs undermined by
the agency’s prior determination (in 2001) that some rural CLECs’ access
charges should not be benchmarked to those of competing ILECs that operate
state-wide. See Br. 15-16 (citing CLEC Access Charge Order, 16 FCC Rcd
at 9949-50); see also note 3, above. The CLEC Access Charge Order
explained that ILECs with state-wide operations set geographically averaged
rates that use “low-cost, urban and suburban operations to subsidize their
higher cost, rural operations.” CLEC Access Charge Order, 16 FCC Rcd at
9949-51 ¶¶64, 66 & n.140, 9955-56 ¶¶80-81. Because such ILECs may
engage in that cross-subsidization, the CLEC Access Charge Order allowed
rural CLECs that competed with those ILECs to adopt a different
benchmarking methodology: rather than benchmarking their rates to those of
the local ILEC, they could use as their guidepost the rates of the nation’s
smallest, highest-cost ILECs, which pool their costs and charge access rates
specified in a tariff filed by the National Exchange Carrier Association
(“NECA”). CLEC Access Charge Order, 16 FCC Rcd at 9949-51 ¶¶64, 66 &
n.140, 9955-56 ¶¶80-81. That decision benefits rural CLECs. And those
benefits are continued under the current Order: whether or not CLECs
20

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subject to this alternative benchmarking approach have higher costs than their
competing ILECs, the Order on review allows them to continue to
benchmark their ICC rates to those of the very highest-cost ILECs during the
transition to bill-and-keep (provided that they do not engage in access
stimulation). See Order ¶801, Figure 9 & n.1499 (JA__).
Finally, RICA argues (Br. 18-19) that denying CAF support to CLECs
under the recovery mechanism will discourage the deployment of advanced
services to rural areas of the country, contrary to the objectives of section 706
of the 1996 Act, 47 U.S.C. §1302. But nothing in the Communications Act
or the 1996 Act requires duplicative universal service subsidies, and the FCC
reasonably determined that extending such support to CLECs – whose
existing rates “[are] not based on any demonstrated level of need” – was
unwarranted. Order ¶866 (JA__); see id. ¶¶864-865 (JA__-__). The FCC’s
reasonable choice in balancing various policy goals – including the need to
avoid unnecessary waste and inefficiency in administering federal funds – is
entitled to deference. See RCA, 588 F.3d at 1103 (FCC “enjoys broad
discretion” in balancing competing universal service policies); Sorenson, 659
F.3d at 1045 (the FCC “has discretion to balance” competing statutory
objectives).
21

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II.

THE FCC’S ACCESS STIMULATION RULES FOR
CLECS ARE REASONABLE.

The FCC properly found that traffic pumping causes substantial harms
to IXCs, their customers as a group, and the public interest. Indeed,
petitioners Core Communications, Inc. (“Core”) and North County
Communications Corp. (“North County”) do not challenge the FCC’s finding
that – absent prophylactic regulatory measures – traffic pumping “almost
uniformly” yields unjust and unreasonable rates that violate section 201(b) of
the Communications Act. Order ¶657 (JA__). See pp. 3-11, above. Rather,
these two CLECs contend that the FCC acted arbitrarily in determining how
best to tackle this regulatory problem. Petitioners face a particularly heavy
burden in showing that the agency exceeded its broad discretion in crafting
appropriate remedial measures to enforce that Act. See, e.g., American Tel. &
Tel. Co. v. FCC, 454 F.3d 329, 334 (D.C. Cir. 2006) (“agency discretion is …
at zenith” when fashioning remedies for statutory violations) (internal
quotation marks omitted).
In light of its undisputed findings about the detrimental effects of
access stimulation, the FCC reasonably determined that it should take actions
to reduce the economic incentives to engage in such schemes. The agency
did precisely that by requiring traffic-pumping LECs to file new tariffs with
rates that usually will be significantly lower than those they otherwise would
22

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be permitted to file. See Order ¶679 (JA__). Under the Order’s benchmark
rule, CLECs must tariff rates no higher than the lowest rate for terminating
access charged by any price cap LEC in the same state. See id. ¶¶688-694
(JA__-__). The FCC set this requirement based in part on record evidence
submitted by AT&T showing that in several states, traffic-pumping CLECs
were terminating three-to-five times as much traffic as the largest ILEC in the
state. See id. ¶689 & n.1160 (JA__).
Core and North County argue (Br. 31-32) that the FCC did not
sufficiently explain why, instead of adopting the benchmark rule, it would not
permit CLECs to submit cost studies of the kind traffic-pumping ILECs are
required to submit. That assertion lacks merit. One commenter, Bluegrass
Telephone Co., made this suggestion – albeit only in a cursory manner. See
Bluegrass Section XV Comments 14-15 (April 1, 2011) (JA__-__). In
15
rejecting it, the FCC cited the comments of Free Conferencing Corporation,
a traffic-pumping participant, which had explained that “a bright line
approach” to benchmarking CLEC rates “‘is particularly desirable given the
current legal and practical difficulties involved with comparing CLEC rates to
any objective standard of reasonableness.’” Free Conferencing Section XV
Comments 35 (April 1, 2011) (JA__) (quoting CLEC Access Charge Order,

15 See Order ¶694 & n.1172 (JA__).
23

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16 FCC Rcd at 9939 ¶41). The FCC was not required to say more to respond
to an argument that a commenter hardly bothered to develop. See MCI
WorldCom, Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir. 2000) (“[I]t is one
thing to preserve a point for judicial review and quite another to raise the
issue with sufficient force to require the agency to formally respond.”);
accord Ark Initiative v. U.S. Forest Service, 660 F.3d 1256, 1262 (10th Cir.
2011).
Petitioners’ claim (Br. 30-31) that the FCC acted arbitrarily in
distinguishing between ILECs and CLECs for purposes of submission of cost
studies also fails. First, the FCC reasonably predicted that the price cap
LEC-based benchmark is “appropriate and reasonable” based on the volume
of traffic that traffic-pumping CLECs generate. Order ¶689 (JA__). Second,
the burden of such studies would fall not just on the CLECs themselves, but
also on the FCC and the IXCs that would have to review the studies
16
carefully. Third, the FCC’s benchmarking approach was entirely consistent
with its prior decisions to curb CLEC abuses – whenever possible – without

16 See CLEC Access Charge Order, 16 FCC Rcd at 9939 ¶41 (discussing
the “legal and practical difficulties involved with comparing CLEC rates to
any objective standard of ‘reasonableness’”); PrairieWave Telecomms., Inc.
Petition for Waiver, 23 FCC Rcd 2556, 2561 ¶14 (2008) (rejecting CLEC
request to waive benchmarking rule and to tariff cost-based access rates in
light of “administratively difficult cost study analysis” that would be
required).
24

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applying to CLECs the legacy, cost-based regulations long applicable to the
17
access services of ILECs. It was thus reasonable and consistent with
longstanding precedent for the FCC to reject a “one-size-fits-all” approach to
CLECs and ILECs with respect to the submission of cost studies.
Core and North County finally contend that the FCC’s benchmark
arbitrarily applies “regardless of whether a CLEC operates in the territory of a
rate-of-return LEC.” Br. 32-33 (emphasis omitted). The FCC’s adoption of
the benchmark, however, was based explicitly on the agency’s finding that
the access traffic volumes of traffic-pumping CLECs were more like those of
price cap LECs than those of the smaller rate-of-return LECs. See Order
¶689 & n.1160 (JA__) (“AT&T shows that ‘rural’ access stimulating
competitive LECs in Iowa, Minnesota and South Dakota collectively are
terminating three to five times as many minutes as the largest incumbent
LEC operating in the same state.”) (citing AT&T Dec. 3, 2009 Ex Parte
Letter, Attach. at 4 (JA__)) (emphasis added); see also Order n.1158 (JA__)

17 See CLEC Access Charge Order, 16 FCC Rcd at 9939 ¶41; PrairieWave
Telecomms., 23 FCC Rcd at 2561 ¶14. See also Order ¶¶692, 694 (JA__, __)
(explaining decision to deal with CLEC traffic-pumping abuses within the
parameters of the existing CLEC benchmarking regulatory structure for
access charges).
25

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18
(citing additional evidence submitted by AT&T in 2011). By contrast, Core
and North County did not identify their own traffic volumes before the FCC,
nor did any traffic-pumping CLECs. This omission is significant, as the
traffic-pumpers themselves are best positioned to offer evidence about their
own volumes. The FCC was entitled to draw an adverse inference from the
fact that they declined to provide such information and then argued that the
record had been insufficiently developed.
In short, petitioners have shown no evidentiary basis for overturning
the FCC’s considered judgment. See IMC Kalium Carlsbad, Inc. v. Interior
Bd. Of Land Appeals, 206 F.3d 1003, 1011 (10th Cir. 2000) (an agency “may
draw reasonable inferences from the evidence,” which “‘are not to be
overturned on review unless they lack a reasonable basis’”) (quoting Worley
Mills, Inc. v. NLRB, 685 F.2d 362, 365 (10th Cir. 1982)). And petitioners
present no basis for second-guessing the agency’s determination regarding
the best remedy for the undisputed problem of access stimulation: the
benchmark the FCC adopted and fully explained was a reasonable choice

18 This evidence refutes petitioners’ claim that there was no “evidence in
the record comparing the volumes of traffic terminating to [traffic-pumping
LECs] with [that terminating to] … the RBOC/ILEC carriers.” Br. 34-35.
26

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19
among alternative remedies, some stricter and others more lenient. No
more was required. See Covad Commc’ns, 450 F.3d at 541 (petitioners
challenging FCC line-drawing decision must “demonstrate that lines drawn
… are patently unreasonable”).

III. THE FCC REASONABLY ADOPTED A SWIFTER

TRANSITION TO BILL-AND-KEEP FOR NON-ACCESS
WIRELESS TRAFFIC THAN FOR OTHER
TELECOMMUNICATIONS EXCHANGED WITH A LEC.

Petitioners North County, the National Telecommunications
Cooperative Association (“NTCA”), and U.S. TelePacific Corp. (“U.S.
TelePacific”) challenge (Br. 19-30) the FCC’s decision to adopt a more
accelerated transition to bill-and-keep for non-access (or local) wireless
traffic than for other types of telecommunications exchanged with a LEC. As
shown below, the FCC fully explained its reasons for the schedule it adopted.
That explanation easily satisfies the “especially deferential” standard of APA

19 The FCC adopted its benchmarking approach as a more tailored
alternative to “declar[ing] revenue sharing to be a per se violation of section
201(b) of the Act,” which numerous parties urged but which the agency
considered “overly broad.” Order ¶672 (JA__).
27

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review that applies to “transitional” measures. Sorenson, 659 F.3d at 1046
20
(quoting Alenco, 201 F.3d at 616).
As an initial matter, petitioners’ challenges (Br. 20) rest in part on their
mistaken premise that the FCC adopted a “flash cut” to bill-and-keep for such
traffic. That is not what the agency did. The FCC stressed in the Order that
it was “not abrogating existing commercial contracts or interconnection
agreements.” Order ¶1000 (JA__). Thus, any existing interconnection
agreements would continue to apply according to their own terms, which
might or might not contain “change of law” provisions allowing for
renegotiation or the addition of contractual language reflecting the new
regulatory landscape. See id. Moreover, in the subsequent Reconsideration
Order, the FCC delayed the effective date of the bill-and-keep default rule by
6 months – from December 29, 2011, to July 1, 2012 – for carriers that were
exchanging non-access wireless traffic pursuant to interconnection
agreements that already existed at the time the Order was adopted.
Reconsideration Order ¶¶6-7 (JA__). The effect of that change was to ensure

20 Although their challenge focuses almost exclusively on reasoned
decisionmaking claims, petitioners briefly contest (Br. 22) the FCC’s
statutory authority to adopt a bill-and-keep framework for non-access
wireless traffic. As explained in the FCC’s Principal ICC Brief (at 12-22, 24-
25), the FCC has two independently sufficient statutory bases to adopt a bill-
and-keep framework for such traffic: 47 U.S.C. §§ 251(b)(5) and 332. See
Order
¶1001 (JA__).
28

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no such carrier would be required to convert to bill-and-keep before the
FCC’s recovery mechanism went into effect in July 2012, even if its
interconnection agreement had a change of law provision that “relate[d] back
to the [December 29, 2011] effective date of the new rule.” Id. ¶6 (JA__).
The FCC also reaffirmed on reconsideration that carriers operating pursuant
to long-term interconnection agreements without change of law provisions
would be able to continue under the terms of those agreements until they
expired. Id. n.30 (JA__). Accordingly, although the FCC provided carriers
with a shorter transition period than some might have preferred, there can be
no dispute that the agency provided a transition – and not a “flash cut” – to
bill-and-keep for non-access wireless traffic. Nor do petitioners identify any
actual problems with the transition the FCC adopted, which ended well
before they filed their brief in this case.
Petitioners nonetheless contest the deadline. They point out that the
FCC previously declined to “singl[e] out [wireless]-LEC traffic and subject[]
21
it to bill-and-keep” when it undertook comprehensive ICC reform in 1996,
and that “it was unwilling to adopt” bill-and-keep for Internet Service

21 Br. 23 (citing Local Competition Order, 11 FCC Rcd at 16058 ¶1118).
29

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22
Provider (“ISP”)-bound traffic in 2001. That is true, but irrelevant. Neither
of those decisions discussed the pace of incremental reform during a
transition period. In the 1996 Local Competition Order, which first adopted
rules to implement the 1996 Act, the FCC declined to mandate bill-and-keep
for “all LEC-[wireless]” traffic “[i]n light of the overall … policy” adopted in
that decision, which rejected a bill-and-keep framework for any traffic. 11
FCC Rcd at 16058 ¶1118. Similarly, in the 2001 ISP Remand Order, the
FCC was “unwilling” to take any action that would result in permanently
different rates for “local voice and ISP-bound traffic” based on an
administrative record that failed to establish any “inherent differences” in the
cost of delivering the two types of traffic. 16 FCC Rcd at 9194 ¶90. Here, by
contrast, the FCC adopted the same regime – bill-and-keep – as the end point
for all traffic exchanged with a LEC, and it fully justified the different
transition paths it adopted for non-access wireless traffic and other traffic.
In the 2011 Order on review, moreover, the FCC found evidence of “a
significant and growing problem of traffic stimulation and regulatory
arbitrage in LEC-[wireless] non-access traffic.” Order ¶995 & n.2099 (JA__)
(citing record evidence). The FCC also saw little evidence of similar traffic

22 Br. 23 (citing Intercarrier Compensation for ISP-Bound Traffic, 16 FCC
Rcd 9151, 9194-95 ¶90 (2001) (“ISP Remand Order”)).
30

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23
pumping for non-access wireline traffic, and it emphasized the risk that –
absent FCC action – existing traffic pumping schemes involving access
traffic could be “quickly adapt[ed]” to the non-access wireless traffic context.
See id. ¶995 (JA__).
Petitioners speculate (Br. 25) that traffic pumping could not occur with
non-access wireless traffic, because rates for such traffic are too low to make
traffic pumping profitable. But they ignore the record evidence that many
CLECs were seeking to impose high rates on non-access wireless traffic (as
much as $0.011 or $0.015 per minute, when most ILECs exchange such
traffic for $0.0007 or less). See Verizon 6/28/10 Ex Parte at 6-7 (JA__-__);
see also CTIA 11/24/10 Ex Parte at 1 & Attach. (JA__, __-__) (noting that
wireless carriers are involved as victims of traffic pumping in more than 60
disputes nationwide); Order ¶991 & n.2085 (JA__) (citing additional record
evidence of CLEC attempts to impose high rates); id. ¶997 (JA__) (noting

23 By contrast, the traffic pumping schemes involving wireline
communications that pose the greatest concerns about regulatory arbitrage
involve access or long-distance traffic. See Order ¶995 (JA__).
31

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24
lower ILEC charges). Petitioners’ argument also overlooks the FCC’s
findings that per-minute rates need only be above incremental cost to enable
significant arbitrage, and that the cost of delivering voice service is nearly
zero (as low as $0.0000001 per minute). See id. ¶752 (JA__).
The FCC further explained that, in the context of non-access traffic
between CLECs and wireless carriers, there were no reliance interests
requiring a longer transition to bill-and-keep. First, under pre-existing law,
CLECs “had no basis” for relying on the assumption that they would receive
ICC payments for non-access wireless traffic; “until recently [the agency] had
no pricing methodology applicable” to CLEC-wireless traffic. Order ¶996
(JA__). Accordingly, the FCC determined that, “in setting a methodology
[for such traffic] for the first time,” it was reasonable to require swifter
compliance by CLECs, “particularly given that [they] are not subject to retail
rate regulation in the manner of [ILECs], and therefore have flexibility to
adapt their businesses more quickly.” Id.

24 Petitioners posit (Br. 24) that the more accelerated transition to bill-and-
keep for non-access wireless traffic (as compared with other traffic) itself
may lead to arbitrage. But the FCC explained at length that bill-and-keep
would lead to more efficient pricing, not wasteful arbitrage. See Order
¶¶744-759 (JA__-__). Petitioners do not even attempt to show how a swift
transition to bill-and-keep would encourage arbitrage.
32

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Petitioners complain (Br. 26) that one reason CLECs did not receive
payment for non-access wireless traffic in the past was a lack of clarity in the
FCC intercarrier compensation rules governing such traffic. That claim does
not advance petitioners’ argument, however. Indeed, precisely because the
law was unclear, CLECs “had no basis for reliance” on the premise that they

would be entitled to such payments. See Order ¶996 (JA__).
Petitioners also cite (Br. 27) two filings that post-date the Order, in
which CLECs identified pre-Order agreements allowing wireless carriers to
receive payments for the exchange of non-access wireless traffic. But
petitioners ignore the fact that the FCC addressed such evidence on
reconsideration, when it deferred the effective date of its bill-and-keep rule to
July 1, 2012. See Reconsideration Order ¶¶6 & n.21, 8 (JA__, __)
(discussing late-filed letters). Nor do petitioners explain why the FCC’s
extension of the effective date did not give CLECs sufficient time to adapt to
the new rule. See id. ¶7 (JA__).
As for incumbent LECs, the FCC noted that some – those without
interconnection agreements with wireless providers setting a rate for such
traffic – “do not receive any compensation” for transport and termination of
non-access wireless traffic today. Order ¶997 (JA__). And most of those
ILECs that do get paid under existing agreements are receiving “$0.0007 or
33

Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 39
less.” Id. Petitioners challenge the relevance of the $0.0007 figure (Br. 29)
on the ground that such rates were “all but mandated” by an earlier FCC
order. But that objection misses the point: the FCC’s focus was on adopting
a transition period that would “minimize market disruption.”
Reconsideration Order ¶7 (JA__). To do so, it was appropriate – indeed
necessary – for the agency to consider existing compensation rates.
Finally, petitioners cite (Br. 29) some pre-Order agreements (mostly
involving rate-of-return ILECs) with higher rates for non-access wireless
traffic. But petitioners do not seriously challenge the FCC’s finding that the
record contained no evidence that a prompt transition to bill-and-keep for
such traffic “would have a harmful impact.” Order ¶997 (JA__). That was
particularly so in light of other safeguards the FCC adopted in the Order,
such as the new recovery mechanism and a special rule for rate-of-return
carriers limiting their responsibility for the cost of transport for non-access
25
wireless traffic. Id. ¶¶997, 999 (JA__, __).

25 Petitioners offer the conclusory assertion that “the recovery mechanisms
the FCC adopted do not protect [rate-of-return LECs] from flash cuts.” Br.
30 (citing petitioners’ joint principal ICC and USF briefs). Neither of the
cited briefs addressed the FCC’s special transport rule for rate-of-return
LECs. See Order ¶¶997, 999 (JA__, __). And the FCC demonstrates in
Argument II of its Principal ICC Brief that challenges to the recovery
mechanism are meritless.
34

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In sum, the FCC fully explained why its longer transitions to bill-and-
keep for other types of traffic were justified by the different circumstances
that traffic presents. Under the “especially deferential” standard of review
that applies to such FCC action, the Court should reject petitioners’ challenge
to the transition schedule for the exchange of non-access wireless traffic.
Sorenson, 659 F.3d at 1046 (citation omitted).

CONCLUSION

The petitions for review should be denied.
Respectfully
submitted,
WILLIAM J. BAER
PETER KARANJIA
ASSISTANT ATTORNEY GENERAL
DEPUTY GENERAL COUNSEL


ROBERT B. NICHOLSON
RICHARD K. WELCH
ROBERT J. WIGGERS
DEPUTY ASSOCIATE GENERAL
ATTORNEYS
COUNSEL


UNITED STATES
/s/ Laurence N. Bourne
DEPARTMENT OF JUSTICE

WASHINGTON, D.C. 20530
LAURENCE N. BOURNE

JAMES M. CARR
MAUREEN K. FLOOD
COUNSEL

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

March 20, 2013
35

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is free of viruses.




/s/ Laurence N. Bourne
Laurence N. Bourne
Counsel


March 20, 2013









Appellate Case: 11-9900 Document: 01019022576 Date Filed: 03/20/2013 Page: 42

CERTIFICATE OF SERVICE



I hereby certify that on March 20, 2013, I caused the foregoing Federal
Respondents’ Uncited Response to Petitioners’ Additional Intercarrier
Compensation Issues Brief to be filed by delivering a copy to the Court via e-mail
at FCC_briefs_only@ca10.uscourts.gov. I further certify that the foregoing
document will be furnished by the Court through (ECF) electronic service to all
parties in this case through a registered CM/ECF user. This document will be
available for viewing and downloading on the CM/ECF system.




/s/ Laurence N. Bourne
Laurence N. Bourne
Counsel


March 20, 2013 

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