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Verizon, et al. v. FCC & USA, No. 11-1355 (D.C. Cir.)

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Released: December 22, 2011
USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 1 of 16
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
VERIZON,






)









)

Appellant,





)









)
v.
) No. 11-1355
)
FEDERAL COMMUNICATIONS COMMISSION,
)









)

Appellee.






)
VERIZON,






)









)
Petitioner,
)









)
v.


)

No.
11-1356
)
FEDERAL COMMUNICATIONS COMMISSION,
)
and UNITED STATES OF AMERICA,


)









)
Respondents. )
METROPCS et al.,





)









)

Appellants,





)









)
v.



)

No.
11-1403
)
FEDERAL COMMUNICATIONS COMMISSION,
)









)

Appellee.






)

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 2 of 16
METROPCS et al.,





)









)
Petitioners,
)









)
v.



)

No.
11-1404
)
FEDERAL COMMUNICATIONS COMMISSION
)
and UNITED STATES OF AMERICA,


)









)
Respondents. )
Free Press,






)









)
Petitioner,
)









)
v.



)

No.
11-1411
)
FEDERAL COMMUNICATIONS COMMISSION,
)
and UNITED STATES OF AMERICA,


)









)
Respondents. )

REPLY OF THE FCC IN SUPPORT OF ITS

MOTION TO HOLD IN ABEYANCE


The FCC showed in its motion to hold in abeyance that a pending
petition for agency reconsideration may materially affect the issues
presented in these consolidated cases1 and that, as a result, holding the
matter in abeyance is the procedurally proper and prudent course of action.
Petitioner Free Press has not opposed the motion. Verizon and MetroPCS,

1 By order of December 8, 2012, the Court consolidated the cases, and we
therefore will refer to them in the singular.

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 3 of 16
however, make two arguments in opposition: first, that the pending
reconsideration proceeding has no bearing on what they believe is the most
important issue presented in their appeals; and second, that there is a risk the
matter might be held in abeyance indefinitely. Neither claim presents a good
reason to deny the motion. Indeed, Verizon expressly acknowledges that the
reconsideration proceeding may affect issues that will be presented for
decision by the Court. To the degree that opposition to abeyance is
predicated on genuine concern about indefinite delay, the FCC would not
object to a reasonable limit – for example, six months – on the abeyance
period, after which the Court could return the case to active status if the
Commission has not timely considered the petition for reconsideration.

ARGUMENT

1. The pending petition for reconsideration filed by Southern
Company Services, Inc. seeks Commission clarification of the scope of
“specialized services,” which are provided over the same last-mile facilities
as broadband Internet access service, but are not subject to the same
protections as broadband service under the FCC’s Open Internet rules. Mot.
5-6. As we showed at pages 9-11 of our motion, any action taken by the
Commission in response to Southern’s petition could be material to the
Court’s assessment of claims that the Open Internet rules are arbitrary and
2

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 4 of 16
capricious because they are either too strict (likely to be argued by Verizon
and MetroPCS) or too permissive (likely to be argued by Free Press).2 In
addition, a reconsideration order on the questions raised by Southern could
affect the Court’s assessment of the First Amendment issues presented in
this case, particularly with respect to the Open Internet rules’ alleged burden
on protected speech. In situations like this, the Court typically holds cases in
abeyance as “the proper course.” Wrather-Alvarez Broad., Inc. v. FCC, 248
F.2d 646, 649 (D.C. Cir. 1957).
Verizon and MetroPCS offer two responses, neither of which rebuts
the Commission’s showing. First, both parties state (Verizon Opp. 5-6;
MetroPCS Opp. 5-10) that Southern’s petition for reconsideration does not
affect whether the Commission has jurisdiction to regulate broadband
Internet access service, the legal issue they say will be the primary focus of
their challenges. But neither Verizon nor MetroPCS disputes that the

2 The Commission has received several comments in response to Southern’s
petition, one of which urges the Commission not to allow broadband
providers to “devot[e] an ever-increasing amount of bandwidth to
[specialized services] in a way that makes broadband Internet service (and
the Internet services accessed through it) unsuited to certain high-bandwidth
applications.” Opposition of Public Knowledge, et al. at 3 (filed Dec. 16,
2011). Available at http://webapp01.fcc.gov/ecfs/document/view?
id=7021750988. That issue is related directly to matters raised in earlier
comments filed by all of the parties that now challenge the Open Internet
Order
. See Mot. at 7-8.
3

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 5 of 16
petition for reconsideration has the potential to affect other issues they
intend to raise in the case.3
For example, MetroPCS intends to argue under the Administrative
Procedure Act that the Commission “acted arbitrarily and capriciously,
without reasoned decision-making, contrary to law, in excess of its statutory
authority or without substantial record evidence” in adopting the Open
Internet Rules. MetroPCS Statement of Issues to be Raised at 2 (filed Nov.
29, 2011). Verizon likewise intends to challenge the rules under the APA.
Verizon Statement of Issues To Be Raised at 2 (filed Nov. 7, 2011). The
Commission’s defenses to those claims may include reliance on the scope of
the specialized services exception and the freedom service providers have
within its bounds. Cf. ICORE, Inc. v. FCC, 985 F.2d 1075, 1080 (D.C. Cir.
1993) (“a rule with a rational basis, yet otherwise impermissibly broad, can
be saved by [a] safety valve”) (quotation marks and citation omitted).
Similarly, Verizon intends to challenge the Open Internet rules on
First Amendment grounds. See Verizon Statement of Issues at 2 (Verizon
plans to challenge the Open Internet Order as “contrary to constitutional

3 Both Verizon (Opp. at 3-4) and MetroPCS (Opp. at 4-5) also argue that the
petition for reconsideration does not deprive the Court of jurisdiction over
the Open Internet Order. The Commission did not claim otherwise.
4

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 6 of 16
right”). As Verizon does not dispute, the scope of specialized services may
be directly material to the Court’s assessment of that constitutional claim.
MetroPCS thus is incorrect when it claims that “there are no
overlapping issues between the Southern Petition” and the questions
presented here. Indeed, Verizon acknowledges that “future treatment of
specialized services might tangentially affect the constitutional and other
issues in this case” (i.e., issues other than agency jurisdiction). Verizon
Opp. at 6 (emphasis in original). That acknowledged overlap of issues
warrants abeyance.
Second, Verizon and MetroPCS attempt to draw factual distinctions
between this case and certain published decisions discussing abeyance.
Verizon Opp. at 4 n.3; MetroPCS Opp. at 10-12. Neither Verizon nor
MetroPCS, however, disputes that abeyance generally is “the proper course”
when petitions for reconsideration are pending. Wrather-Alvarez, 248 F.2d
at 649. Wrather-Alvarez rests on the commonsense principle that the
judicial process is best served by first allowing the agency to address any
material issues presented in administrative petitions for reconsideration
before the Court grapples with those issues on judicial review. That
approach also avoids piecemeal litigation should the party seeking
reconsideration subsequently seek judicial review. For precisely those
5

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 7 of 16
reasons, the Commission typically seeks – and this Court typically grants –
abeyance when reconsideration is pending, as it has done over the years in
dozens of cases. See Home Box Office, Inc. v. FCC, 567 F.2d 9, 23 n.27
(D.C. Cir. 1977) (noting that Court would “in all likelihood” grant abeyance
in the face of a petition for agency reconsideration).

2. Verizon and MetroPCS express concern that granting the FCC’s
motion could lead to “regulatory limbo” that might “persist for years.”
Verizon Opp. at 2; see MetroPCS Opp. at 10, 12. Both challengers claim
that it is unfair to defer review of rules with which the companies must
comply in the meantime.

Agency rules remain in effect during the process of judicial review in
every case, unless the Court issues a stay. Here, neither Verizon nor
MetroPCS has sought a stay of the Open Internet Order pending judicial
review. Nor does either company claim that the rules actually affect its
business operations in any significant way. Quite to the contrary, when
asked at an investor meeting whether the Open Internet rules would affect
Verizon’s business, Verizon’s then-CEO, Ivan Seidenberg, answered that “I
don’t think [the rules] will affect [Verizon’s business] at all.” To the degree
the rules have any effect, Mr. Seidenberg continued, it would be only “over
6

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 8 of 16
the longer term.” Transcript of Jan. 25, 2011, Verizon Earnings and Investor
Meeting at 23-24 (relevant excerpt attached).
Indeed, Mr. Seidenberg stressed how little impact the Open Internet
rules have on Verizon: “Just for a point, if you actually read the rules they
put in effect, the rules don’t sound anywhere near as troublesome as the
order which [according to Mr. Seidenberg] encourages the FCC to seek
broader authority over time. So I don’t think it will have any effect on the
current business but I do believe that longer term, we need to challenge the
expansion of the FCC’s authority there.” Id. at 24. Verizon’s pursuit of this
litigation, in other words, has little to do with the Open Internet rules
themselves and much more to do with Verizon’s fear that the Commission
might in the future adopt different rules that significantly burden the
company’s broadband operations. Such hypothetical concerns about
possible future FCC action do not support departure here from the general
policy favoring abeyance during agency reconsideration proceedings.
The FCC nevertheless shares the litigants’ desire to avoid undue delay
in this proceeding. Under the particular circumstances presented here, the
FCC would not oppose the establishment of a reasonable abeyance period –
for instance, six months – after which the Court could return the matter to
active status if the Commission has not timely considered the petition for
7

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 9 of 16
reconsideration. MetroPCS itself suggests a similar approach. Opp. at 12
n.7. Such a mechanism would strike a reasonable balance between the
prudential reasons for abeyance and the shared desire to avoid prolonged
delay.4

CONCLUSION


For the foregoing reasons and those set forth in our motion, the Court
should hold these cases in abeyance while the agency considers the pending
petition for reconsideration.
Respectfully
submitted,






/s/ Joel Marcus






Austin C. Schlick
General
Counsel






Peter Karanjia
Deputy
General
Counsel






Jacob M. Lewis
Associate
General
Counsel






Joel Marcus
Counsel
Federal
Communications
Commission
445
12th Street S.W.
Washington,
D.C.
20554
December
22,
2011 (202)
418-1745

4 In a footnote, Verizon makes a token attempt to claim that the FCC’s
motion was untimely because the scheduling order in No. 11-1356
established a procedural motion deadline of November 7. Verizon Opp. at 6
n.4. Verizon ignores both the scheduling order in No. 11-1403, which
established a deadline of November 28 and the fact that the Court had not
established any deadline in Nos. 11-1355 and 11-1411.
8

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 10 of 16

EXHIBIT

Transcript of Jan. 25, 2011, Verizon
Earnings and Investor Meeting (excerpt)

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 11 of 16

F I N A L T R A N S C R I P T

VZ - Q4 2010 Verizon Earnings and Investor Meeting

Event Date/Time: Jan. 25. 2011 / 1:30PM GMT

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USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 12 of 16

F I N A L T R A N S C R I P T

Jan. 25. 2011 / 1:30PM, VZ - Q4 2010 Verizon Earnings and Investor Meeting

But I think that as we get to the end of this year, we will sit down and we will talk about it in the Board and we will figure out
what a fair and reasonable dividend is.

John Doherty

- Verizon - SVP, IR
Why don't we go over to Jason.

Jason Armstrong

- Goldman Sachs - Analyst
Just one follow-up. I guess one of the key inputs is around iPhone subs, where they are coming from. And if the consensus is
11 million units, can you help us think through, in percentage terms, is it more weighted towards external? Is it internal smartphone
upgrades, which I guess you're doubling smartphone percentage would suggest it is not. Or is it existing feature phone upgrades?
Maybe help us think through that.

Fran Shammo

- Verizon - EVP and CFO
Yes, so I think a couple of important facts here, Jason, is, one is, if you look at our current base today, 52% of that base is on
feature phones with no data plan. There is another 15% on multi-video type devices which only had a $10 data plan at that
time, which you know now we don't -- we have discontinued that line. So within our own base, there are 67% of the people
who can upgrade and bring more ARPU with them. So if you think about a feature phone customer going to a smartphone, the
ARPU on that is 2 times what they deliver on a feature phone. So I think it is important because I don't know exactly what the
mix will be at this point in time.
So -- but I think it is important to know that there is tremendous growth within our own base by moving that base to smartphones,
whether it be an iPhone or a DROID or some other device. So I think as you think through that, I think you have to look at the
overall base plus what will be coming in from new.

John Doherty

- Verizon - SVP, IR
All right, so that we're not leaving the back of the room out, I'm going to go Jim Peshek, with a question from the back.

Jim Ratcliffe

- Barclays Capital - Analyst
Hi, Jim Ratcliffe, Barclays Capital. Two questions, quickly, Fran, did I hear you say that you will not be offering the $15 data plan
for iPhone customers?

Fran Shammo

- Verizon - EVP and CFO
The $15 promotional price that was offered will be discontinued at the end of this month.

Jim Ratcliffe

- Barclays Capital - Analyst
Thanks. And you have chosen to take legal action to push back against the FCC's net neutrality proposals. How do you see those
affecting the business, whether those proposals actually take effect or not, in particular regarding applications like Flex View?
23
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USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 13 of 16

F I N A L T R A N S C R I P T

Jan. 25. 2011 / 1:30PM, VZ - Q4 2010 Verizon Earnings and Investor Meeting

Ivan Seidenberg

- Verizon - Chairman and CEO
(multiple speakers). I don't think it will affect it at all. I think the FCC decision is kind of a far-reaching one. I think that most of
the impact of that order will not be felt this year, but over the longer term, it would be felt if the FCC actually exercised all the
authority.
Just for a point, if you actually read the rules they put in effect, the rules don't sound anywhere near as troublesome as the order
which encourages the FCC to seek broader authority over time. So I don't think it will have any effect on the current business
but I do believe that longer term, we need to challenge the expansion of the FCC's authority there.

Ivan Seidenberg

- Verizon - Chairman and CEO
You know since I have the floor let me just add a point to that last couple of questions on this guidance question. You know
Fran and Lowell have tried to give you as much guidance as we can. There is a couple of unknowns here that I think it is worth
just slowing you down a little bit.
So we can get into this contest of, so we think we know how many people will switch from T to us. We don't really know the
answer to that. We know you are being subjected to lots of discussion around that. We do believe that our brand and our
network will drive a lot of people.
But, so Jonathan, to your point about what will earnings look like in the future? Why don't you do this, over the next couple of
quarters, as we get some experience on volumes, we will share with you what those results look like, and I think you'll get a
better view. It is much better than overestimating something that we don't know.
The other point is that we also believe that all our strategies will frankly lift the whole industry. So yes, this is about us today,
but I think that as all these 4G and 3G devices get out there, you will find all of the carriers doing better. Our view is, we will do
better because of the position we have established, but the entire base is going to move from feature phones up to smartphones
over the course of the next 12 months. So I think you are sitting in a really good spot when we look at the entire industry's
growth. And obviously we believe we will have an edge on that. But I think when you look at these numbers, my advice is be
careful about 2011. And 2012 and 2013 will absolutely be clear to you once you get to the middle of the year.

Chris Larsen

- Piper Jaffray & Co. - Analyst
Chris Larsen from Piper Jaffray. Fran, could you talk a little bit about the optimal capital structure? And within that, not just at
the corporate level but also at the wireless level. Going back to the dividend question, arguably, the Wireless business will be
under-levered if it was a stand-alone business. Do you think about it as a stand-alone business when you think about that capital
structure?
And then do you think maybe it makes sense to lever that up and then cash that out to the parents? And then what is the proper
leverage ratio for Verizon?
And then a second question, as you look at the last 30% of your access lines that are not going to have FiOS, what is the long-term
strategy for those access lines? Thank you.

Fran Shammo

- Verizon - EVP and CFO
Okay, so I will take the capital and maybe I will have Lowell take the long-term strategy on the access lines for the LTE. But on
the capital structure, I think the way we look at it is, as we said, we are going to continue to de-lever. So that de-lever will happen
in the Wireless unit. I'm not going to lever just to distribute cash to the parent. That is not going to happen.
24
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USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 14 of 16

CERTIFICATE OF SERVICE

I, Joel Marcus hereby certify that on December 22, 2011, I electronically
filed the foregoing Motion to Hold in Abeyance with the Clerk of the Court
for the United States Court of Appeals for the D.C. Circuit by using the
CM/ECF system. Participants in the case who are registered CM/ECF users
will be served by the CM/ECF system. Others, marked with an asterisk, will
receive service by mail unless another attorney for the same party is
receiving service through CM/ECF.
Carl W. Northrop
Mark A. Stachiw
Telecommunications Law
General Counsel, Secretary & Vice
Professionals PLLC
Chairman
875 15th Street, N.W., Suite 750
MetroPCS Communications, Inc.
Washington, D.C. 20005
2250 Lakeside Blvd.
Counsel for: MetroPCS
Richardson, TX 75082
Communications, Inc., et al.
Counsel for: MetroPCS
Communications, Inc., et al.

Helgi C. Walker
*Michael E. Glover
Eve Klindera Reed
Edward Shakin
Brett A. Shumate
William H. Johnson
Wiley Rein LLP
Verizon
1776 K Street, N.W.
1320 North Courthouse Road
Washington, D.C. 20006
9th Floor
Counsel for: Verizon
Arlington, VA 22201
Counsel for: Verizon

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 15 of 16
*John T. Scott, III
Walter E. Dellinger
Verizon Wireless
O’Melveny & Myers LLP
1300 I Street, N.W.
1625 Eye Street, N.W.
Suite 400 West
Washington, D.C. 20006
Washington, D.C. 20005
Counsel for: Verizon
Counsel for: Verizon
Harold J. Feld
Samir C. Jain
Public Knowledge
Wilmer Cutler Pickering, et al.
1818 N Street, N.W.
1875 Pennsylvania Avenue, N.W.
Suite 410
Washington, D.C. 20006
Washington, D.C. 20036
Counsel for: Verizon
Counsel for: Public Knowledge
James Bradford Ramsay
Genevieve Morelli
General Counsel
ITTA
National Association of Regulatory
1101 Vermont Avenue, N.W.
Utility Commissioners
Suite 501
1101 Vermont Avenue
Washington, D.C. 20005
Suite 200
Counsel for: ITTA
Washington, D.C. 20005
Counsel for: NASUCA
Henry Goldberg
Jeffrey J. Binder
Goldberg, Godles, Wiener & Wright The Watergate
1229 Nineteenth Street, N.W.
2510 Virginia Avenue, N.W.
Washington, D.C. 20036
Washington, D.C. 20036
Counsel for: Open Internet
Counsel for Vonage Holdings Corp.
Coalition
*Michael F. Altschul
Matthew F. Wood
CTIA
Free Press
1400 16th Street, N.W.
501 Third Street, N.W.
Suite 600
Suite 875
Washington, D.C. 20036
Washington, D.C. 20001
Counsel for: CTIA
Counsel for: Free Press

USCA Case #11-1355 Document #1349389 Filed: 12/22/2011 Page 16 of 16
Nancy C. Garrison
R. Craig Lawrence
Catherine G. O’Sullivan
U.S. Attorney’s Office
Robert J. Wiggers
555 4th Street, N.W.
U.S. Department of Justice
Washington, D.C. 20530
Antitrust Division, Appellate Section Counsel for: USA
Room 3224
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530-0001
Counsel for: USA
Jonathan E. Nuechterlein
Elvis Stumbergs
Heather M. Zachary
Wilmer Cutler Pickering Hale and
Dorr, LLP
1875 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-1420
Counsel for: CTIA
/s/ Joel Marcus






Joel Marcus

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