Skip Navigation

Federal Communications Commission

English Display Options

Commission Document

USF Brief of Intervenors Supp. Respondents, In Re: FCC 11-161

Download Options

Released: April 25, 2013
Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 1

No. 11-9900

—————————————————————————————————

IN THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

——————————
IN RE: FCC 11-161
——————————

On Petition for Review of

an Order of the Federal Communications Commission
——————————————————————————————————

UNCITED INTERVENORS’ BRIEF SUPPORTING RESPONDENTS

RE: THE JOINT UNIVERSAL SERVICE FUND PRINCIPAL BRIEF

——————————————————————————————————
SCOTT H. ANGSTREICH
JONATHAN E. NUECHTERLEIN
BRENDAN J. CRIMMINS
HEATHER M. ZACHARY
JOSHUA D. BRANSON
KELLY P. DUNBAR
KELLOGG, HUBER, HANSEN, TODD,
WILMER CUTLER PICKERING
EVANS & FIGEL, P.L.L.C.
HALE AND DORR LLP
1615 M Street, NW, Suite 400
1875 Pennsylvania Ave., NW
Washington, D.C. 20036
Washington, DC 20006
(202) 326-7900
(202) 663-6000
MICHAEL E. GLOVER
CATHY CARPINO
CHRISTOPHER M. MILLER
GARY L. PHILLIPS
CURTIS L. GROVES
PEGGY GARBER
VERIZON
AT&T SERVICES, INC.
1320 North Courthouse Road, 9th Floor
1120 20th Street, NW
Arlington, Virginia 22201
Washington, DC 20036
(703) 351-3071
(202) 457-3058
Counsel for Verizon and Verizon
Counsel for AT&T Inc.
Wireless
April 24, 2013

ADDITIONAL COUNSEL LISTED ON INSIDE COVER


Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 2
ROBERT ALLEN LONG, JR.
CHRISTOPHER J. WRIGHT
GERARD J. WALDRON
BRITA D. STRANDBERG
YARON DORI
WILTSHIRE & GRANNIS LLP
MICHAEL P. BEDER
1200 18th St., N.W.
COVINGTON & BURLING
Washington, DC 20036
1201 Pennsylvania Avenue, NW
Washington, DC 20004
BRENDAN KASPER
202-662-6000
SENIOR REGULATORY COUNSEL
VONAGE HOLDINGS CORPORATION
Counsel for CenturyLink, Inc.
23 Main Street
Holmdel, NJ 07733
HOWARD J. SYMONS
ROBERT G. KIDWELL
Counsel for Vonage Holdings
ERNEST C. COOPER
Corporation
MINTZ LEVIN COHN FERRIS
GLOVSKY AND POPEO, P.C.
701 Pennsylvania Avenue, NW
Suite 900
Washington, DC 20004
(202) 434-7300
RICK CHESSEN
NEAL M. GOLDBERG
STEVEN MORRIS
JENNIFER MCKEE
THE NATIONAL CABLE &
TELECOMMUNICATIONS ASSOCIATION
25 Massachusetts Avenue, NW
Suite 100
Washington, DC 20001
(202) 222-2445
Counsel for NCTA

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 3

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure,
Intervenors in Support of Respondents Re: The Joint Universal Fund Principal
Brief submit this Corporate Disclosure Statement.
AT&T Inc. (“AT&T”) is a publicly traded corporation that, through its
wholly owned affiliates, is principally engaged in the business of providing
communications services and products to the general public. AT&T has no parent
company, and no publicly held company owns ten percent or more of its stock.
The Verizon companies participating in this filing are Cellco Partnership
d/b/a Verizon Wireless and the regulated, wholly owned subsidiaries of Verizon
Communications Inc. Cellco Partnership, a general partnership formed under the
law of the State of Delaware, is a joint venture of Verizon Communications Inc.
and Vodafone Group Plc. Verizon Communications Inc. and Vodafone Group Plc
indirectly hold 55 percent and 45 percent partnership interests, respectively, in
Cellco Partnership. Both Verizon Communications Inc. and Vodafone Group Plc
are publicly traded companies. Verizon Communications Inc. has no parent
company. No publicly held company owns 10 percent or more of Verizon

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 4
Communications Inc.’s stock. Insofar as relevant to this litigation, Verizon’s
general nature and purpose is to provide communications services, including
broadband Internet access services provided by its wholly owned telephone
company and Verizon Online LLC subsidiaries and by Verizon Wireless.
CenturyLink, Inc. (“CenturyLink”) is a publicly traded corporation that,
through its wholly-owned affiliates, provides voice, broadband, video and
communications services to consumers and businesses. CenturyLink has no parent
company, and no publicly-held company owns ten percent or more of its stock.
The National Cable & Telecommunications Association (“NCTA”) is the
principal trade association of the cable industry in the United States. Its members
include owners and operators of cable television systems serving over ninety (90)
percent of the nation’s cable television customers as well as more than 200 cable
program networks. NCTA’s cable operator members also provide high-speed
Internet service to more than 50 million households, as well as telephone service to
more than 26 million customers. NCTA also represents equipment suppliers and
others interested in or affiliated with the cable television industry. NCTA has no
parent companies, subsidiaries or affiliates whose listing is required by Rule 26.1.

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 5
Vonage Holdings Corporation has no parent corporation and no publicly
held corporation owns 10% or more of its stock.

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 6

TABLE OF CONTENTS

Pages

TABLE OF AUTHORITIES .................................................................................... ii
GLOSSARY...............................................................................................................v
SUMMARY OF ARGUMENT .................................................................................1
ARGUMENT .............................................................................................................4
I.
THE FCC HAS AUTHORITY TO REORIENT THE FOCUS OF THE UNIVERSAL
SERVICE FUND FROM NARROWBAND TO BROADBAND TECHNOLOGIES ...........4
A.
The FCC Is Authorized To Condition Funding On The
Deployment Of Broadband-Capable Facilities .....................................5
B.
Petitioners’ Complaint About Hypothesized Future Support For
“Non-Telecommunications Carriers” Is Both Nonjusticiable And
Without Merit ........................................................................................9
1.
Petitioners’ Challenge Presents No Article III Case Or
Controversy...............................................................................11
2.
Petitioners’ Challenge Is Flawed On The Merits .....................15
II.
THE FCC REASONABLY LIMITED THE SIZE OF THE FUND TO AVOID
UNDULY BURDENING THE CONSUMERS WHO MUST PAY FOR THE FUND......20
III.
THE FCC IS AUTHORIZED TO USE A REVERSE-AUCTION MECHANISM
TO ALLOCATE CAF PHASE II FUNDING IN PRICE-CAP AREAS .......................24
CONCLUSION ........................................................................................................30
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE
i

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 7

TABLE OF AUTHORITIES

CASES

Alenco Communications, Inc. v. Federal Communications Commission,
201 F.3d 608 (5th Cir. 2000) ........................................................................21, 23
Core Communications, Inc. v. Federal Communications Commission,
592 F.3d 139 (D.C. Cir. 2010)............................................................................20
Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc.,
528 U.S. 167 (2000)............................................................................................12
National Rural Telecom Association v. Federal Communications
Commission, 988 F.2d 174 (D.C. Cir. 1993) ................................................25, 28
Qwest Communications International, Inc. v. Federal Communications
Commission, 398 F.3d 1222 (10th Cir. 2005) ........................................14, 21, 23
Qwest Communications International, Inc. v. Federal Communications
Commission, 240 F.3d 886 (10th Cir. 2001) ......................................................11
Qwest Corp. v. Federal Communications Commission, 258 F.3d 1191
(10th Cir. 2001).......................................................................................... 6, 7, 21
Rural Cellular Association v. Federal Communications
Commission, 588 F.3d 1095 (D.C. Cir. 2009)................................. 21, 22, 23, 24
Rural Cellular Association v. Federal Communications Commission,
685 F.3d 1083 (D.C. Cir. 2012)......................................................................... 23
Schanzenbach v. Town of La Barge, 706 F.3d 1277 (10th Cir. 2013) ....................27
Sherley v. Sebelius, 610 F.3d 69 (D.C. Cir. 2010)...................................................13
Southern Utah Wilderness Alliance v. Palma, 707 F.3d 1143
(10th Cir. 2013)...................................................................................................11
Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998) .......................11
ii

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 8
Telecommunications Research & Action Center v. Federal Communications
Commission, 917 F.2d 585 (D.C. Cir. 1990) ......................................................13
Texas v. United States, 523 U.S. 296 (1998) ...........................................................14
Texas Office of Public Utility Counsel v. Federal Communications
Commission, 183 F.3d 393 (5th Cir. 1999) ........................................................23
U.S. West, Inc. v. Federal Communications Commission, 173 F.3d 856,
1999 WL 147342 (10th Cir. Mar. 18, 1999) ......................................................13
Utah v. U.S. Department of Interior, 210 F.3d 1193 (10th Cir. 2000)....................14
Wisconsin Public Power, Inc. v. Federal Energy Regulatory Commission,
493 F.3d 239 (D.C. Cir. 2007)............................................................................14
WorldCom, Inc. v. Federal Communications Commission, 288 F.3d 429
(D.C. Cir. 2002) ..................................................................................................16

STATUTES

Telecommunications Act of 1996
§ 706(a) ...............................................................................................................17
§ 706(b)........................................................................................................passim
47 U.S.C.
§ 153(51).............................................................................................................10
§ 214(e)(2) ....................................................................................................10, 26
§ 254.............................................................................................................passim
§ 254(b).................................................................................................................5
§ 254(b)(1) ..........................................................................................................21
§ 254(b)(2) ..................................................................................................6, 9, 19
§ 254(b)(3) ..................................................................................................6, 9, 19
§ 254(b)(5) ..........................................................................................................21
§ 254(c) .............................................................................................................1, 7
§ 254(e) .....................................................................................................1, 2, 6, 7
§ 1302(b)...................................................................................................2, 16, 17
§ 1302(c) .........................................................................................................2, 16
iii

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 9

AGENCY MATERIALS

Fourteenth Report and Order, Federal-State Joint Board on Universal
Service, 16 FCC Rcd 11244 (2001)......................................................................6
Memorandum Opinion and Order, Deployment of Wireline Servs. Offering
Advanced Telecommunications Capability, 13 FCC Rcd 24012 (1998)............17
Report and Order and Further Notice of Proposed Rulemaking, Connect
America Fund, 26 FCC Rcd 17663 (2011) .................................................passim
Report and Order and Notice of Proposed Rulemaking, Appropriate
Framework for Broadband Access to the Internet over Wireline
Facilities
, 20 FCC Rcd 14853 (2005).................................................................10
Report to Congress, Federal-State Joint Board on Universal Service,
13 FCC Rcd 11830 (1998)..................................................................................10
Order on Reconsideration, Federal-State Joint Board on Universal Service,
27 FCC Rcd 15383 (2012)..................................................................................10
iv

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 10

GLOSSARY

1996 Act
Telecommunications Act of 1996, Pub. L. No. 104-104,
110 Stat. 56 (amending the Communications Act of
1934, 47 U.S.C. § 151 et seq.)
CAF Phase II
Phase II of the Connect America Fund
Communications Act
Communications Act of 1934, as amended
(47 U.S.C. § 151 et seq.)
ETC
eligible telecommunications carrier
FCC or Commission
Federal Communications Commission
ILEC
incumbent local exchange carrier
Order
Report and Order and Further Notice of Proposed
Rulemaking, Connect America Fund, 26 FCC Rcd 17663
(2011)
USF
Universal Service Fund
VoIP
Voice over Internet Protocol
v

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 11

SUMMARY OF ARGUMENT

The FCC persuasively rebuts petitioners’ challenges to the universal service
components of the Order.1 Intervenors write separately to stress several points.
1.
Petitioners challenge the FCC’s authority under subsections 254(c)
and (e) to condition receipt of federal high-cost support on a recipient’s
commitment to deploy “dual-use” facilities that can be used to provide both voice
and broadband Internet access services. But with petitioners’ encouragement, the
FCC has long permitted recipients to use federal support for that purpose, and no
party challenges the lawfulness of that “no-barriers” policy. The Order here
simply makes that permissive policy mandatory for any provider that accepts high-
cost funding. The result is every bit as consistent with subsections 254(c) and (e)
as the traditional no-barriers policy is. Indeed, if petitioners’ statutory rationale for
challenging the broadband condition had merit, the no-barriers policy—a
cornerstone of federal broadband policy for ten years—would itself be unlawful.
Petitioners separately argue that, by allowing funding for interconnected
VoIP providers without resolving the statutory classification of particular VoIP
1
Report and Order and Further Notice of Proposed Rulemaking, Connect
America Fund, 26 FCC Rcd 17663 (2011) (“Order”). Except where otherwise
indicated, citations below of the parties’ briefs refer to the “Joint Universal Service
Fund Principal Brief” of petitioners and the FCC’s brief in response.

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 12
services, the FCC has triggered a chain of events that may someday lead to the
disbursement of universal service funds to “non-telecommunications carriers,”
which, petitioners contend, cannot lawfully receive such funding. As a threshold
matter, that claim presents no justiciable case or controversy. Petitioners lack
Article III standing to challenge this aspect of the Order because they have not
shown—or even alleged—that it has caused them “injury in fact” that is “actual or
imminent” rather than “conjectural or hypothetical.” Indeed, petitioners have not
identified a single “non-telecommunications carrier” that is receiving federal
support. For similar reasons, petitioners’ claim is also unripe.
In any event, petitioners’ statutory-authority claim would lack merit even if
it were justiciable. First, as the FCC concluded, its authority under section 254(e)
“to support the deployment of broadband networks” does not turn on the
classification of particular VoIP services offered over those networks. Order ¶ 63
n.67. Second, section 706(b) of the Telecommunications Act of 1996 provides
independent authority in the narrow context presented here. Although section
706(b) is tightly circumscribed, it provides that, upon an appropriate finding of
inadequate deployment, the FCC shall take “action to accelerate deployment” of
broadband infrastructure to areas that would otherwise lack it. 47 U.S.C. § 1302(b)
(codifying section 706(b)); see also id. § 1302(c) (directing the FCC to identify
2

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 13
“geographical areas that are not served by any [broadband] provider”). That is
exactly what the FCC has done by providing universal service support for
broadband in those areas. Thus, although petitioners are correct that reading
section 706(b) more broadly would be legally untenable, they are wrong to
challenge the FCC’s application of that provision in this narrow context.
2.
Petitioners fare no better when challenging the FCC’s decision to
adopt a fixed budget for federal high-cost funding. The FCC reasonably balanced
the benefits of such funding against the inevitable costs to consumers, who must
underwrite any increase in fund size by paying higher line-item fees on their phone
bills. The FCC also closely analyzed the practical effect of its budgetary decisions
on fund recipients and took steps to cushion recipients against any abrupt
shortfalls. The FCC thus reasonably faced up to the relevant trade-offs, and its
resolution of competing interests falls within the heartland of its administrative
discretion.
3.
Finally, the FCC reasonably decided to use competitive bidding to
distribute CAF Phase II support to carriers serving price-cap areas. Contrary to
petitioners’ claim, an auction mechanism does not usurp any statutory powers of
the states; the states will continue to perform their statutory role of designating
providers as eligible telecommunications carriers (“ETCs”), and no carrier may
3

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 14
receive high-cost support without an ETC designation. There is also no merit to
petitioners’ arguments that the FCC inadequately considered concerns that
competitive bidding mechanisms will lead to poor service quality or disadvantage
small carriers. Those arguments are unripe because the FCC has not yet adopted
any auction structure for CAF Phase II or any mechanism for enforcing service
commitments by auction winners. There is thus no final agency action to
challenge. In any event, the FCC has shown that it will be fully capable of
addressing petitioners’ concerns when it formulates the relevant rules.

ARGUMENT

I.

THE FCC HAS AUTHORITY TO REORIENT THE FOCUS OF THE UNIVERSAL
SERVICE FUND FROM NARROWBAND TO BROADBAND TECHNOLOGIES

In their lead argument (see Br. 11-28), petitioners challenge two distinct
aspects of the Order. First, they challenge what they call the “broadband
condition”: the FCC’s decision to predicate universal service support on a
recipient’s commitment to deploy networks capable of providing robust broadband
Internet access services. See Order ¶¶ 60-73. Second, petitioners challenge the
FCC’s separate decision to define the class of supported “voice telephony” services
in a technologically neutral manner that includes interconnected VoIP services in
addition to conventional circuit-switched telephony. See id. ¶ 62. Although
petitioners sometimes conflate these two policy decisions, they are separate. The
4

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 15
first decision imposes obligations on federal high-cost support recipients, whereas
the second concerns which services and carriers are eligible to receive support in
the first place. Petitioners’ challenges to both decisions are without merit, and
their challenge to the second is non-justiciable as well.

A.

The FCC Is Authorized To Condition Funding On The
Deployment Of Broadband-Capable Facilities

As the FCC explains (Br. 12-22), it has statutory authority to require high-
cost support recipients to invest in broadband-capable networks and to demonstrate
their compliance with that funding condition by providing specified broadband
services. Rather than repeat the FCC’s arguments in full, intervenors will focus on
a revealing anomaly at the heart of petitioners’ position: they avidly support a
program—the “no-barriers” policy—that would logically be unlawful if their
rationale for challenging the Order’s broadband condition were valid. See id. at 17
& n.2 (citing petitioners’ comments). But because that rationale is invalid, both
the no-barriers policy and the broadband condition are lawful.
Section 254(b) directs the Commission to use federal universal service
programs to promote access to broadband services. It requires that “the
Commission shall base policies for the preservation and advancement of universal
service on” six principles, two of which concern access to information services. 47
U.S.C. § 254(b). Specifically, section 254(b)(2) states that “[a]ccess to advanced
5

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 16
telecommunications and information services should be provided in all regions of
the Nation.” Id. § 254(b)(2) (emphasis added). And section 254(b)(3) provides
that “[c]onsumers in all regions of the Nation, . . . should have access to
telecommunications and information services … that are reasonably comparable to
those services provided in urban areas.” Id. § 254(b)(3) (emphasis added). These
principles impose a “mandatory duty” on the FCC. Qwest Corp. v. FCC, 258 F.3d
1191, 1200 (10th Cir. 2001) (“Qwest I”).
Throughout the decade preceding the Order, the FCC promoted these
statutory goals in part by implementing its no-barriers policy. In its pre-Order
form, that policy permitted, but did not require, carriers to use federal funds to
invest in dual-use facilities in order to provide broadband Internet access and other
information services alongside traditional telephone services. See FCC Br. 12;
Fourteenth Report and Order, Federal-State Joint Board on Universal Service, 16
FCC Rcd 11244, 11322-23 ¶¶ 199-201 (2001). The FCC found that the “use of
support to invest in infrastructure capable of providing access to [such] advanced
services” comports with section 254(e). Id. at 11322 ¶ 200. As it reasoned, the
statute permits support for facilities as well as particular services, and it thus
permits initiatives to spur “the deployment of modern plant capable of providing
access to advanced services,” including “data” and “video” services. Id. (emphasis
6

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 17
added). That legal determination was plainly correct, and petitioners do not even
challenge it. To the contrary, as the FCC shows, petitioners’ ranks include some of
the chief proponents of the no-barriers policy and some of its greatest beneficiaries.
See FCC Br. 17 & n.2.
The Order, however, simply converts the no-barriers policy from a
permissive program to a mandatory one. The FCC reasonably concluded that
section 254 authorizes it to “go beyond the ‘no barriers’ policy” and to “require
carriers receiving universal service support to invest in modern broadband-capable
networks.” Order ¶ 65. “[N]othing in section 254,” the FCC explained, “requires
[it] simply to provide federal funds to carriers and hope that they will use such
support to deploy broadband facilities.” Id. Indeed, that reading would conflict
with the FCC’s “mandatory duty” (Qwest I, 258 F.3d at 1200) to promote the
availability of broadband networks and services under section 254(b).
The problem for petitioners is that if the no-barriers policy they champion is
lawful (as indeed it is), their statutory logic for challenging the mandatory
broadband condition must fail, because that logic would apply equally to prohibit
any expenditure of federal funds for broadband, whether compulsory or voluntary.
See FCC Br. 17. Petitioners argue at length (Br. 14-24) that the FCC lacks
statutory authority under subsections 254(c) and (e) “to include [broadband
7

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 18
Internet access] on the list of supported services” (id. at 14). As a threshold matter
(and as the FCC has explained), that argument simply misreads the Order:
although the FCC could have designated broadband Internet access as a supported
service,2 it elected instead to support the deployment of dual-use, broadband-
capable facilities. See Order ¶¶ 64-65; FCC Br. 20-21.
But even if the FCC had made broadband Internet access itself a supported
service—or even if supporting broadband facilities were somehow equivalent to
supporting broadband services—that support could not violate section 254 under
petitioners’ statutory logic unless the “voluntary” no-barriers policy itself would
also violate section 254 under the same logic. Suppose, counterfactually, that
petitioners were correct and that spending universal service money on broadband
facilities were unlawful on the theory that section 254 permits funding only for
“telecommunications services.” If so, it would not matter whether a funding
recipient puts the money to the prohibited use voluntarily or instead in response to
a mandatory funding condition. Either way, the money would be spent for an
unlawful purpose. See FCC Br. 17-18.
2
See, e.g., AT&T Comments, WC Docket No. 10-90, at 112-20 (filed Apr.
18, 2011) (“AT&T 4/18/2011 Comments”) (JA__-__) (explaining that sections 254
and 706(b) each independently authorize direct support for broadband Internet
access services).
8

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 19
In short, any judicial holding that invalidates the broadband funding
condition in question here would disrupt existing business plans under the no-
barriers policy, threaten to undermine rural broadband deployment more generally,
and subvert Congress’s objective, codified in section 254(b), to promote universal
“[a]ccess to advanced telecommunications and information services.” 47 U.S.C.
§ 254(b)(2), (b)(3). As the FCC explains, nothing in the Communications Act
requires that anomalous result, much less unambiguously so.

B.

Petitioners’ Complaint About Hypothesized Future Support For
“Non-Telecommunications Carriers” Is Both Nonjusticiable And
Without Merit

As noted, the FCC elected not to make broadband Internet access a
supported service; instead, it designated “voice telephony” as the only such
service. See Order ¶¶ 62-63. Thus, “[a]s a condition of receiving support,” ETCs
must “offer voice telephony as a standalone service throughout their designated
service area.” Id. ¶ 80. To ensure technological neutrality, the FCC defined the
category of “voice telephony” services broadly to include interconnected VoIP in
addition to conventional circuit-switched voice services. Id. ¶ 63. The FCC has
not identified any VoIP services that would qualify as “telecommunications
9

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 20
services” rather than “information services.” See id. ¶ 718.3 But the FCC left
intact the underlying requirement that, to receive funding, a state commission must
designate the provider as an “eligible telecommunications carrier” within the
meaning of sections 214 and 254. See Order on Reconsideration, Federal-State
Joint Board on Universal Service, 27 FCC Rcd 15383, 15384 ¶ 3 (2012)
(confirming that states retain “the primary responsibility for performing ETC
designations” under 47 U.S.C. § 214(e)(2)).
Petitioners nonetheless speculate that the FCC’s approach might someday
lead to violations of section 254. They argue that, by allowing funding for
3
The definitions of “telecommunications service” and “information service”
are “mutually exclusive”: a service can be either one or the other but cannot be
both. Report and Order and Notice of Proposed Rulemaking, Appropriate
Framework for Broadband Access to the Internet over Wireline Facilities
, 20 FCC
Rcd 14853, 14862, 14911 ¶¶ 12 n.32, 105 (2005), aff’d, Time Warner Telecom,
Inc. v. FCC
, 507 F.3d 205 (3d Cir. 2007); Report to Congress, Federal-State Joint
Board on Universal Service
, 13 FCC Rcd 11830, 11520 ¶ 39 (1998). A
“telecommunications carrier” is defined as a “provider of telecommunications
services.” 47 U.S.C. § 153(51). A provider that offers only information services
cannot be a “telecommunications carrier” within the statutory meaning because, by
definition, it is not providing any telecommunications services. That said, a
provider may voluntarily divide its operations into a retail entity that provides
information services to end users and a wholesale affiliate that provides
transmission inputs to the retail entity. If the affiliate (or any unaffiliated
wholesale provider) offers those inputs in the form of generally available
telecommunications services, it can qualify as a “telecommunications carrier,”
even though the retail entity might not. See generally Order ¶¶ 968-970; see also
id.
¶ 71 & n.99.
10

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 21
interconnected VoIP providers without resolving the statutory classification of
particular VoIP services, the FCC has opened the door to disbursement of universal
service funds to “non-telecommunications carriers.” Br. 18; see id. 5, 17, 22. That
claim presents no justiciable case or controversy and lacks merit in any event.
1. Petitioners’ Challenge Presents No Article III Case Or

Controversy

A party invoking judicial review bears the burden of proving that its
challenge to an agency rule satisfies Article III requirements. See Steel Co. v.
Citizens for a Better Env’t, 523 U.S. 83, 103-104 (1998); Qwest Commc’ns Int’l,
Inc. v. FCC, 240 F.3d 886, 892-893 (10th Cir. 2001). Here, petitioners have not
even tried to carry that burden with respect to their complaints about hypothesized
future support for entities that are not “telecommunications carriers.” Although the
FCC presents that Article III defect in terms of ripeness (Br. 25), it could be
phrased in terms of either ripeness or standing, given the close relationship
between those two doctrines in this context. See, e.g., Southern Utah Wilderness
Alliance v. Palma, 707 F.3d 1143, 1157 (10th Cir. 2013) (“doctrines of standing
and ripeness substantially overlap in many cases,” including where “the question
of whether [a party] faces an imminent injury involves similar concerns as whether
[the] suit is ripe for adjudication”). Under either articulation, petitioners have not
11

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 22
alleged individualized harms sufficient to satisfy threshold jurisdictional
requirements for judicial review.
To satisfy Article III standing requirements, petitioners must establish that
the relevant FCC decision causes them “injury in fact” that is “actual or imminent,
not conjectural or hypothetical.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs.
(TOC), Inc., 528 U.S. 167, 180 (2000) (internal quotation marks omitted).
Presumably, petitioners would assert that, if the FCC does someday provide
support to a provider that is not a “telecommunications carrier,” that might mean
more competition and less funding for them. But no petitioner has submitted any
affidavit or made any other effort to substantiate that any such injury is either
likely or imminent.
That failure of proof is unsurprising because the chain of causation that
petitioners would have to establish is long, tenuous, and highly speculative. Before
any petitioner could possibly suffer a cognizable injury, each of the following
events would have to occur. First, a retail VoIP provider must apply for ETC
status while offering only interconnected VoIP as its “voice telephony” service.
Second, that provider’s VoIP service (and any other relevant service) must be
deemed an “information service” and therefore not a “telecommunications
service.” Third, that VoIP provider must nonetheless win an ETC designation
12

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 23
from the relevant state commission. Fourth, any funding that the provider receives
must threaten to harm a specific petitioner in a concrete and identifiable way—for
example, by increasing competitive pressure on that petitioner in a discrete
geographic area where they both operate. See Sherley v. Sebelius, 610 F.3d 69, 73,
74 (D.C. Cir. 2010) (competitor standing doctrine requires “actual or imminent
increase in competition” and “actual, here-and-now injury”).
Petitioners make no effort to substantiate the likelihood of any of these
preconditions to a finding of injury-in-fact; indeed, they fail to identify even a
single current recipient of universal service support that, although designated as an
ETC, is providing only information services. That evidentiary default is fatal. The
conjecture that petitioners “might, at some time in the future and under certain
conditions,” be injured by an “FCC rule with which it disagrees” “is clearly
insufficient to establish standing.” U.S. West, Inc. v. FCC, 173 F.3d 856
(unpublished), 1999 WL 147342, at *3 (10th Cir. Mar. 18, 1999). And any interest
petitioners may have “in the Commission’s legal reasoning and its potential
precedential effect does not by itself confer standing where, as here, it is
‘uncoupled’ from any injury in fact caused by the substance of the FCC’s
adjudicatory action.” Telecommunications Research & Action Ctr. v. FCC, 917
F.2d 585, 588 (D.C. Cir. 1990). Indeed, “mere precedential effect within an
13

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 24
agency is not, alone, enough to create Article III standing, no matter how
foreseeable the future litigation.” Wisconsin Pub. Power, Inc. v. FERC, 493 F.3d
239, 268 (D.C. Cir. 2007) (per curiam) (internal quotation marks omitted).
For similar reasons, petitioners’ challenges to this aspect of the Order are
also unripe, as the FCC explains (Br. 25). “A claim is not ripe for adjudication if it
rests upon contingent future events that may not occur as anticipated, or indeed
may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998) (internal
quotation marks omitted). That principle is dispositive here. Again, petitioners
have not attempted to show, nor could they show, that the speculative prospect that
non-telecommunications carriers could someday receive universal service support
has “an immediate and ongoing impact” on them. Qwest Commc’ns Int’l, Inc. v.
FCC, 398 F.3d 1222, 1232 (10th Cir. 2005) (“Qwest II”) (challenge to universal
service funding was ripe where petitioners “have adequately stated an immediate
and ongoing impact in the face of allegedly dwindling” universal service support);
see also Utah v. U.S. Dept. of Interior, 210 F.3d 1193, 1198 (10th Cir. 2000)
(claims based on harms that were “contingent, not certain or immediate,” were not
ripe). If a state commission someday confers ETC status on a provider that offers
only information services, petitioners might then be able to present a challenge to
14

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 25
that ETC designation. But they have no basis for challenging that hypothetical
future designation now.
2. Petitioners’ Challenge Is Flawed On The Merits
Quite apart from these threshold Article III defects, petitioners lack any
basis on the merits for challenging the FCC’s decision to include interconnected
VoIP within the class of supported “voice telephony services” while deferring
judgment on the statutory classification of those services. As the Order explains,
the FCC’s authority to promote universal service through that inclusive approach
“does not depend on whether interconnected VoIP services are telecommunications
services or information services.” Order ¶ 63. In particular, if a given voice
offering is a telecommunications service, the FCC has indisputable authority to
support that service directly, and if it is an information service, the FCC may
“support the deployment of broadband networks used to provide such services.”
Id.¶ 63 n.67 (emphasis added). The FCC’s brief (at 26-27) rebuts petitioners’
arguments to the contrary.4
4
See also AT&T 4/18/2011 Comments at 113-14 (JA __-__) (explaining that
the language of section 254(c)(2) would authorize the FCC, if it chose, to designate
information services as supported services, even outside the schools-and-libraries
context addressed in section 254(c)(3)).
15

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 26
Moreover, section 706(b) of the Telecommunications Act of 1996 gives the
FCC independent authority in this limited context to provide universal service
support for broadband deployment in areas where broadband would otherwise not
exist. See Order ¶¶ 66-73.5 Petitioners do not claim that the triggering conditions
for section 706(b) have not been met; instead, they argue (Br. 26) that construing
the provision to apply here would give the FCC unbounded new powers. That is
incorrect: in fact, section 706(b) is exceedingly narrow. By its terms, that
provision states simply that, upon a finding of inadequate deployment, the FCC
shall take “action to accelerate deployment” of broadband to areas that would
otherwise lack it. 47 U.S.C. § 1302(b) (codifying section 706(b)); see also id.
§ 1302(c) (directing the FCC to identify “geographical areas that are not served by
any [broadband] provider”). That is exactly what the FCC has done by granting
universal service support to promote deployment in the limited high-cost areas that
are unserved or that would be unserved absent such support.
5
The Commission chose for policy reasons to require funding recipients to
“comply with the same universal service rules and obligations set forth in sections
254 and 214.” Order ¶ 73. But because section 706(b) is an independent source of
authority, the FCC could eliminate that requirement if necessary to fund broadband
in unserved areas. See FCC Br. 27 n.6; cf. WorldCom, Inc. v. FCC, 288 F.3d 429,
434 (D.C. Cir. 2002) (remanding without vacating an FCC order where the court
found “a non-trivial likelihood that the Commission has the authority” to reach its
policy objectives through an alternative legal rationale).
16

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 27
Although section 706(b) is very narrow, petitioners are wrong to claim (Br.
25-26) that section 706(b) grants no independent authority for broadband funding
in unserved areas and merely exhorts the FCC to exercise the powers it derives
from other provisions. That argument ignores the fundamental differences
between the terms of sections 706(a) and 706(b). As petitioners correctly observe,
section 706(a) contains only aspirational language and confers no authority on the
FCC. In contrast, section 706(b) expressly directs that, when statutory
preconditions are met, the FCC “shall take immediate action” to “remov[e] barriers
to infrastructure investment” in those limited and specific areas where such
investment is lacking. 47 U.S.C. § 1302(b). 6 As the Order explains, “one of the
most significant barriers to investment in broadband infrastructure” in unserved
areas “is the lack of a business case for operating a broadband network.” Order
6
Petitioners conflate the distinction between these two provisions throughout
their brief. For example, they assert that, in 1998, the FCC construed section 706
not to grant it independent authority and that it has articulated an inadequate
rationale for reversing course. Br. 24-25. But the 1998 order on which petitioners
rely analyzed only whether the FCC has regulatory authority under section 706(a),
not section 706(b). See Memorandum Opinion and Order, Deployment of Wireline
Servs. Offering Advanced Telecommunications Capability
, 13 FCC Rcd 24012,
24044-48 ¶¶ 69-77 (1998). The distinction between these two provisions is
critical because section 706(b) is far more targeted in its focus and is a
straightforward grant of very limited—but independent—broadband funding
authority for unserved areas.
17

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 28
¶ 67 (internal quotation marks omitted). Universal service support is a key
traditional means of alleviating such barriers to infrastructure investment in high-
cost areas. Those considerations amply distinguish the FCC’s universal service
initiative here from petitioners’ speculation (Br. 26) that the FCC might someday
invoke section 706(b) to negate “securities and banking” requirements.
There also is no merit to petitioners’ claim (Br. 27-28) that the FCC’s use of
section 706(b) to extend broadband service and networks to unserved areas
undermines some congressional policy judgment embodied in section 254. To be
sure, it would be inappropriate to rely on section 706(b) to evade explicit
congressional policy choices that are embodied in other sections of the
Communications Act or to impose involuntary regulatory burdens on broadband
providers, given that section 706(b) specifically directs the FCC to remove barriers
to infrastructure investment. But those concerns do not arise here because the
FCC’s funding program presents no conflict with section 254 or any other
provision. When Congress enacted section 254 in 1996, virtually all consumers
had to rely on conventional telecommunications services for all voice and data
services, such as regular circuit-switched telephony for voice and dial-up
technologies for access to the Internet. Not until the late 1990s did cable and
telephone companies begin widely offering broadband Internet access as a bundled
18

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 29
information service, and VoIP services did not become common until the first
years of the new millennium. See Order ¶ 71. In short, the category of
“telecommunications services” accounted for virtually all consumer voice and data
services in 1996, yet Congress nonetheless drafted section 254 to encompass
support for both “telecommunications and information services.” 47 U.S.C.
§ 254(b)(2), (b)(3).
That historical context refutes any suggestion that Congress somehow
considered and rejected plans to fund the most important communications
technology of the 21st century: broadband Internet access, which has supplanted
dial-up as the predominant means of accessing any information service. See
generally Order ¶ 71. In particular, nothing in section 254 could be construed as
an affirmative congressional policy choice against promoting broadband through
the disbursement of universal service support. On the contrary, by using the
specialized term “advanced telecommunications capability” in section 706(b),
Congress directed the Commission to accelerate broadband infrastructure
deployment in unserved areas whether the ensuing broadband services are
classified as “telecommunications services” or as “information services”
instead. Section 706(b) thus authorizes the FCC to fund broadband providers that
offer only information services. See Order ¶ 71; FCC Br. 27 n.6.
19

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 30
Petitioners are also wrong to argue (Br. 27) that FCC action under section
706(b) would “overrid[e] Section 254 limitations” on the theory that section 254,
as a more specific provision, controls over the general authority provided by
section 706(b). As the D.C. Circuit explained in an analogous context, “[w]hen
two statutes apply to intersecting sets [of issues], neither is more specific.” Core
Commc’ns, Inc. v. FCC, 592 F.3d 139, 143 (D.C. Cir. 2010) (internal quotation
marks and alterations omitted). That is the case here. Section 254 equips the
Commission with authority with respect to universal service in general. Section
706(b) directs the Commission to accelerate broadband deployment in particular
by removing barriers to infrastructure investment in those limited geographic areas
where the FCC finds that broadband has not been deployed in a reasonable and
timely fashion. In deciding whether and how to promote broadband deployment
through universal service mechanisms, neither section 254 nor section 706(b) is
more specific than the other.

II.

THE FCC REASONABLY LIMITED THE SIZE OF THE FUND TO AVOID
UNDULY BURDENING THE CONSUMERS WHO MUST PAY FOR THE FUND

Like any funding program, the universal service fund presents difficult
trade-offs. Choosing an overall size for the fund is the most fundamental of these,
and the Order strikes an appropriate balance between competing interests. On the
one hand, the FCC wished to create a fund large enough to bring some form of
20

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 31
broadband—whether fixed, mobile, or satellite-based—to as many unserved areas
as possible. On the other hand, the money in the fund does not appear from
nowhere; it comes from “assessments paid by interstate telecommunications
service providers,” who “almost always pass their contribution assessments
through to their customers.” Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1099
(D.C. Cir. 2009) (“RCA I ”).
The FCC thus wished to avoid creating a fund so large that it would harm
consumers, who must pay for any increase through higher line-item fees on their
phone bills. As the D.C. and Fifth Circuits have explained, “excessive funding
may itself violate” section 254 by “causing rates unnecessarily to rise, thereby
pricing some consumers out of the market [altogether].” RCA I, 588 F.3d at 1103
(quoting Alenco Commc’ns, Inc. v. FCC, 201 F.3d 608, 620 (5th Cir. 2000)); see
Qwest I, 258 F.3d at 1200. In statutory terms, the FCC recognized that it must
ensure not only that support will be “specific, predictable, and sufficient,” 47
U.S.C. § 254(b)(5), but also that services for consumers throughout the country—
including those who do not benefit from universal service programs—will be
“available at just, reasonable, and affordable rates,” id. § 254(b)(1). See generally
Qwest II, 398 F.3d at 1234 (FCC is “compelled to balance the § 254(b) principles
to the extent that they conflict”).
21

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 32
Weighing these competing principles, the FCC adopted a fixed budget for
the high-cost program. This budget, supported by a “broad cross-section of
interested stakeholders,” is crucial to “ensure that [the FCC] ha[s] in place
‘specific, predictable, and sufficient’ funding mechanisms to achieve [its] universal
service objectives.” Order ¶¶ 122-123 & n.192. In particular, the fixed budget the
FCC chose, which it based on FY2011 support levels, will “stabilize the
contribution burden,” id. ¶ 14, will “minimize disruption” in the administration of
the fund, id. ¶ 125, and will suffice to meet funding needs “given the substantial
reforms” the Order adopts “to address long-standing inefficiencies and wasteful
spending,” id. The Commission “enjoys broad discretion when conducting exactly
this type of balancing” between competing statutory objectives. RCA I, 588 F.3d
at 1103.
Petitioners nonetheless argue (Br. 31) that the FCC “improperly limited its
analysis to whether, without reform, USF support would be excessive” and ignored
the statutory direction to ensure sufficient support for rate-of-return carriers. That
is not a defensible reading of the Order, as the FCC’s brief explains (at 33-34).
The FCC carefully considered the impact of its reforms on rate-of-return carriers,
such as petitioners here, to ensure sufficient funding levels for rural areas. See
Order ¶¶ 285-294. It pared back legacy funding for rate-of-return carriers “in a
22

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 33
gradual manner” so as not to “jeopardize service to consumers or investments
made consistent with existing rules.” Id. ¶ 285. And it established a waiver
mechanism to address unforeseen funding shortfalls. See id. ¶¶ 126, 294.7 The
FCC’s “balancing calculus” with respect to rate-of-return carriers thus “t[ook] into
account the full range of principles Congress dictated to guide the Commission in
its actions.” Qwest II, 398 F.3d at 1234.
Petitioners’ real complaint is thus not that the FCC failed to consider the
“sufficiency” of support levels at all, but that it struck what they consider a
suboptimal balance between “sufficiency” of support and competing statutory
objectives. That challenge is untenable. As used in section 254, the term
“sufficient” is “ambiguous as to what constitutes ‘sufficient’ support.” Texas
Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 425 (5th Cir. 1999). And
whether the FCC “has sufficiently and explicitly supported universal service”
“go[es] directly to the heart of FCC expertise.” Alenco, 201 F.3d at 620.
Petitioners do not begin to overcome the “substantial judicial deference,”
Alenco, 201 F.3d at 620, that the FCC receives for such judgment calls. They
7
The D.C. Circuit has twice held that the existence of such safety valves
answers charges that interim caps for funding violated the section 254 sufficiency
criterion. See Rural Cellular Ass’n v. FCC, 685 F.3d 1083, 1095 (D.C. Cir. 2012);
RCA I, 588 F.3d at 1104; see also FCC Br. 35 & n.7.
23

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 34
contend, for example, that the FCC failed to “quantify[] the substantial added
cost[s] of satisfying the broadband condition” imposed on rate-of-return carriers.
Br. 30, 32. But the FCC made a reasonable predictive judgment that it could
ensure sufficient support by (1) building substantial flexibility into those carriers’
broadband service obligations, e.g., Order ¶¶ 206, 533, (2) adopting various
funding reforms that will yield substantial savings and efficiencies, id. ¶¶ 194-279,
and (3) creating a new explicit recovery mechanism to replace gradual reductions
in intercarrier compensation revenues, id. ¶ 291. See generally id. ¶¶ 287-288.
The FCC, moreover, made uncontested findings that “9 out of 10 rate-of-return
carriers” will see funding increase, stay the same, or decrease “less than 20 percent
annually.” Id. ¶ 290. Finally, petitioners identify “no cost data showing they
would, in fact, have to leave customers without service as result” of the Order, and
for that reason alone, there is no “valid reason to believe the principle of
‘sufficiency’ … will be violated.” RCA I, 588 F.3d at 1104.

III.

THE FCC IS AUTHORIZED TO USE A REVERSE-AUCTION MECHANISM TO
ALLOCATE CAF PHASE II FUNDING IN PRICE-CAP AREAS

The incumbent local exchange carriers (“ILECs”) eligible for universal
service funding fall into two main categories. Some ILECs, including the smallest
ones, are subject to traditional rate-of-return regulation, which allows carriers to
charge rates designed to ensure a reasonable return on the prudently incurred
24

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 35
investments recorded in their accounting books. Other ILECs are subject to price-
cap regulation, which provides no similar assurance of cost recovery and, over the
long term, prescribes rate caps mainly on the basis of non-carrier-specific criteria,
such as the rate of inflation. Price-cap regulation gives carriers additional
incentives to increase their efficiency because, unlike rate-of-return carriers, they
have no guaranteed margins but can retain any extra profits they obtain through
diligent cost-cutting. See generally National Rural Telecom Ass’n v. FCC, 988
F.2d 174, 177-178 (D.C. Cir. 1993).
As the Order explains, “[m]ore than 83 percent of the approximately 18
million Americans who lack access to fixed broadband live in price cap study
areas,” Order ¶ 127, yet such areas accounted for only 25% of high-cost support in
2010, see id. ¶ 158. The Order reorients the universal service fund to correct this
anomaly and establishes two phases of augmented funding for carriers that agree to
serve areas traditionally subject to price-cap regulation, including price-cap ILECs
as well as non-ILECs that are not themselves subject to price-cap regulation.
Petitioners object mainly to the Commission’s use of reverse auctions
(“competitive bidding” mechanisms) for determining who will receive support
during the second of these phases: CAF Phase II, which has not yet begun. See
Br. 48-51. As petitioners acknowledge (id. at 48 n.26), auctions are likely to play a
25

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 36
major role in distributing universal service support only after the initial five-year
period of CAF Phase II.8
Petitioners argue that the use of auctions for allocating universal service
support will “unlawfully strip[]” state commissions of their role under section
214(e) “of deciding who would receive universal service support.” Br. 40. That is
incorrect. Section 214(e) provides only that state commissions shall “designate”
carriers as “eligible” to receive support. 47 U.S.C. § 214(e)(2). The Order fully
accommodates that authority: under the Order, no carrier may participate in an
auction unless it has been designated as an ETC by the relevant commission. See,
e.g., Order ¶ 1199; see generally FCC Br. 61.
Petitioners also claim (Br. 48-51) that the FCC inadequately considered
concerns that competitive bidding mechanisms will result in poor service quality
and disadvantage small carriers. As an initial matter, these claims are unripe
8
The FCC has granted each price-cap ILEC a “right of first refusal” to receive
five years of support within a given state if it agrees to offer, among other things, a
defined level of broadband service to all designated areas in that state by the end of
the five-year term. Order ¶ 160. During that period, therefore, auctions will be
held only insofar as ILECs opt out of this arrangement and the FCC needs to
identify substitute providers. Auctions are expected to play a greater role after that
period, when the right of first refusal expires and the opportunity to provide
supported services will likely be opened up more broadly to competitive bidding.
Id. ¶ 178.
26

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 37
because there is no final agency action to challenge. See Schanzenbach v. Town of
La Barge, 706 F.3d 1277, 1281 (10th Cir. 2013) (the “requirement of final agency
action is a general requirement for ripeness”). Despite petitioners’ contrary
suggestion, the FCC did not adopt (and still has not adopted) any particular auction
structure for use in CAF Phase II or any mechanism for ensuring compliance with
performance commitments. Instead, it issued a further notice of proposed
rulemaking and invited comment on how to design such an auction. See Order
¶ 1190. And the FCC expressly sought comment in an FNPRM on the very topics
that petitioners claim it ignored: service performance requirements for auction
winners, see id. ¶¶ 1203-1204, and various issues concerning auction design,
including the role of “small businesses” in the auction process, e.g., id. ¶ 1213. As
the FCC explains, any review of the FCC’s CAF Phase II auction mechanism must
await the future order that will create that mechanism. See FCC Br. 53-54.
In any event, the FCC’s discussion of the auction mechanism that it did
establish in the Order—in connection with the separate Mobility Fund—
demonstrates that the FCC is acutely aware of the need to structure competitive
bidding to address the concerns petitioners raise prematurely here. Petitioners
assert, for example, that the FCC “ignored” arguments that “[b]idders in an auction
system will face significant cost pressure to construct facilities meeting minimal
27

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 38
performance specifications.” Br. 48, 49. But the FCC acknowledged that concern
in connection with the Mobility Fund and explained that the solution lies in
“defin[ing] clear performance standards and effective enforcement of those
standards, as is prudent when seeking any commitment for specific performance.”
Order ¶ 325. As the FNPRM confirms, the Commission will be every bit as
focused on that concern when it designs the auction mechanism for CAF Phase II.
See, e.g., id. ¶ 1203.
More generally, petitioners’ concerns about incentives to “skimp on service
quality” (Br. 50) are hardly specific to auctions. Regulators began implementing
the price-cap approach in the 1980s and 1990s to avoid the perverse incentives that
rate-of-return regulation gives carriers to “gold-plat[e]” their networks, safe in the
expectation that they “can pass any cost along to ratepayers (unless it is identified
as imprudent).” National Rural Telecom Ass’n, 988 F.3d at 178. At the time,
some parties claimed that the shift to price-cap (or “incentive”) regulation would
present the same “race to the bottom” service quality concerns that petitioners raise
here. There was no basis for such concerns then, and there is even less of a basis
now. Competitive bidding for universal service support involves a standard offer-
and-acceptance arrangement whereby providers agree to serve a particular area in
exchange for meeting certain terms and conditions, including service quality
28

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 39
provisions. And there will be defined consequences for failure to comply. The
same issues are presented in virtually all government contracts, which are nearly
always subject to competitive bidding. The FCC is fully competent to address
those issues here.
Finally, there is no basis for petitioners’ claim that the FCC improperly
disregarded their concerns that “an auction system would unduly favor large
carriers over smaller carriers.” Br. 49, 51.9 As noted, the FCC did not disregard
petitioners’ arguments; instead, it sought additional comment on the role of small
businesses in the CAF II auction process, Order ¶ 1213, and petitioners’ challenge
is thus unripe. In any event, the FCC did address “small business” concerns in the
context of the separate Mobility Fund, and it found no evidence there that “small
businesses are unable to meaningfully participate in a well-designed and executed
reverse auction.” Id. ¶ 326. Petitioners do not dispute that analysis on the merits;
9
Petitioners complain that “[i]f a carrier with existing networks in rural areas
is a large one,” it will likely enjoy “natural advantages” in a reverse auction
because it can bid to provide service at a lower cost than alternative providers with
smaller (or no) existing networks in those areas. Br. 51 (internal quotation marks
omitted). Petitioners apparently wish to neutralize these “natural advantages” by
making it more difficult to win a reverse auction with a low bid; under their
approach, a higher bidder could win simply by virtue of being small, even if it
would need to extract more money from the fund. That outcome would undermine
a central goal of the universal service program: providing affordable service to the
greatest number of households at the lowest cost to consumers in general.
29

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 40
instead, they respond only that, “[s]ince such an auction was not part of the Order,
it is not susceptible to judicial review.” Br. 51. Of course, that is our point:
judicial review would be premature precisely because the FCC has not yet issued a
final order adopting any CAF Phase II auction mechanism.

CONCLUSION

For the reasons stated above and in the FCC’s brief, the relevant petitions for
review should be denied.
Respectfully submitted,
/s/ Scott H. Angstreich
/s/ Jonathan E. Nuechterlein
SCOTT H. ANGSTREICH
JONATHAN E. NUECHTERLEIN
BRENDAN J. CRIMMINS
HEATHER M. ZACHARY
JOSHUA D. BRANSON
KELLY P. DUNBAR
KELLOGG, HUBER, HANSEN, TODD,
WILMER CUTLER PICKERING
EVANS & FIGEL, P.L.L.C.
HALE AND DORR LLP
1615 M Street, NW, Suite 400
1875 Pennsylvania Ave., NW
Washington, D.C. 20036
Washington, DC 20006
(202) 326-7900
(202) 663-6000
MICHAEL E. GLOVER
CATHY CARPINO
CHRISTOPHER M. MILLER
GARY L. PHILLIPS
CURTIS L. GROVES
PEGGY GARBER
VERIZON
AT&T SERVICES, INC.
1320 North Courthouse Road, 9th Floor
1120 20th Street, NW
Arlington, Virginia 22201
Washington, DC 20036
(703) 351-3071
(202) 457-3058
Counsel for Verizon and Verizon
Counsel for AT&T Inc.
Wireless
April 24, 2013
* Additional counsel on next page
30

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 41
/s/ Robert Allen Long, Jr.
/s/ Christopher J. Wright
ROBERT ALLEN LONG, JR.
CHRISTOPHER J. WRIGHT
GERARD J. WALDRON
BRITA D. STRANDBERG
YARON DORI
WILTSHIRE & GRANNIS LLP
MICHAEL P. BEDER
1200 18th St., NW
COVINGTON & BURLING
Washington, DC 20036
1201 Pennsylvania Avenue, NW
Washington, DC 20004
BRENDAN KASPER
202-662-6000
SENIOR REGULATORY COUNSEL
VONAGE HOLDINGS CORPORATION
Counsel for CenturyLink, Inc.
23 Main Street
Holmdel, NJ 07733
/s/ Howard J. Symons
HOWARD J. SYMONS
Counsel for Vonage Holdings
ROBERT G. KIDWELL
Corporation
ERNEST C. COOPER
MINTZ LEVIN COHN FERRIS
GLOVSKY AND POPEO, P.C.
701 Pennsylvania Avenue, NW
Suite 900
Washington, DC 20004
(202) 434-7300
RICK CHESSEN
NEAL M. GOLDBERG
STEVEN MORRIS
JENNIFER MCKEE
THE NATIONAL CABLE &
TELECOMMUNICATIONS ASSOCIATION
25 Massachusetts Avenue, NW
Suite 100
Washington, DC 20001
(202) 222-2445
Counsel for NCTA
31

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 42

CERTIFICATE OF COMPLIANCE

Certificate of Compliance With Type-Volume Limitations, Typeface

Requirements, Type Style Requirements, Privacy Redaction

Requirements, and Virus Scan

1.
This brief contains 6713 words of the 21,400 words the Court allocated for
the briefs of intervenors in support of the FCC in its October 1, 2012 Order
Consolidating Case No. 12-9575 with Other FCC 11-161 Cases, Establishing
Windstream Briefing Schedule, and Modifying Intervenor Participation. The
intervenors in support of the FCC have complied with the type-volume limitation
of that order because their briefs, combined, contain a total of fewer than 21,400
words, excluding the parts of those briefs exempted by Fed. R. App. P.
32(a)(7)(B)(iii).
2.
This brief 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 brief has been prepared in a proportionally spaced typeface
using Microsoft Word 2010 in 14-point Times New Roman font.
3.
All required privacy redactions have been made.
4.
This brief was scanned for viruses with Trend Micro Office Scan (version
10.6.1180, updated on April 23, 2013) and, according to the program, is free of
viruses.
/s/ Kelly P. Dunbar
Kelly P. Dunbar
April 24, 2013

Appellate Case: 11-9900 Document: 01019041772 Date Filed: 04/24/2013 Page: 43

CERTIFICATE OF SERVICE

I hereby certify that on April 24, 2013, I caused the foregoing Uncited Brief
of Intervenors Supporting Respondents Re: The Joint Universal Service Fund
Principal Brief to be filed by delivering a copy to the Court via e-mail at
FCC_briefs_only@ca10.uscourts.gov. I further certify that the foregoing
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/ Kelly P. Dunbar
Kelly P. Dunbar
April 24, 2013

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.