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Wireless Carrier USF Principal Brief - In Re: FCC 11-161 (10th Cir.)

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Released: October 31, 2012
Appellate Case: 11-9900 Document: 01018937581 Date Filed: 10/23/2012 Page: 1
Appellate Case: 11-9900 Document: 01018937591 Date Filed: 10/23/2012 Page: 1

IN THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

____________

NO. 11-9900
____________

IN RE: FCC 11-161
____________

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

UNCITED WIRELESS CARRIER UNIVERSAL SERVICE FUND PRINCIPAL BRIEF

(DEFERRED APPENDIX APPEAL)
____________





RUSSELL D. LUKAS




DAVID A. LAFURIA




TODD B. LANTOR




LUKAS, NACE, GUTIERREZ & SACHS, LLP





8300 Greensboro Drive, Suite 1200
McLean,
Virginia
22102




(703) 584-8678





Counsel for
Cellular
Network
Partnership,
a
Limited







Partnership
Cellular
South,
Inc.
d/b/a
C
Spire
Wireless
DOCOMO
Pacific,
Inc.
Nex-Tech
Wireless,
LLC




PR Wireless, Inc.










United States Cellular Corporation

October 23, 2012



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CORPORATE DISCLOSURE STATEMENT




Cellular South, Inc. d/b/a C Spire Wireless, is wholly owned
by Telapex, Inc., which is not a publicly held corporation.

NTT DoCoMo, Inc., a publicly held corporation, indirectly owns
100% of the stock of petitioner, DOCOMO Pacific, Inc. Nippon
Telegraph and Telephone Corporation, a publicly held corporation,
owns more than 10% of the stock of NTT DoCoMo, Inc.

Leap Wireless International, Inc., a publicly held corporation,
holds an indirect 19.86% interest in PR Wireless, LLC, which owns
100% of the stock of petitioner, PR Wireless, Inc.





United States Cellular Corporation is an 84%-owned
subsidiary of Telephone and Data Systems, Inc., a publicly held
corporation. No other publicly held corporation owns 10% or more
of the stock of United States Cellular Corporation.










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TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES .......................................................... iv

STATEMENT OF RELATED CASES ............................................. x

GLOSSARY ................................................................................ xi

INTRODUCTION ......................................................................... 1

SUPPLEMENTAL STATEMENT OF FACTS ................................... 2

I. Statutory
Background
........................................................
2

II.
Comcast Corp. v. FCC ......................................................... 4

III. Proceedings
Below
.............................................................. 6

IV. Subsequent
Developments
.................................................
8

SUMMARY OF ARGUMENT ........................................................ 8

ARGUMENT ............................................................................. 12

I.
THE FCC LACKS JURISDICTION TO REDIRECT USF

SUPPORT TO BROADBAND OR TO REGULATE
BROADBAND ................................................................... 12


A.
The FCC Exceeded Its Authority by Requiring

ETCs to Use USF Support for Broadband ................ 12


B.
The
FCC
Cannot
Regulate
Broadband
under


Title II Having Not Determined that It Is Being
Provided
on
a
Common
Carrier Basis ....................... 20


C.
The FCC Was Not Delegated Title II Authority to
Regulate
Broadband
................................................. 22

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PAGE
II.
THE USF PORTION OF THE ORDER MUST BE
VACATED
......................................................................... 31

III. THE
EXCLUSIVE
RESERVATION
OF
CAF
II
SUPPORT

FOR ILECS WAS ARBITRARY AND CAPRICIOUS .............. 32

IV. THE
REPEAL
OF
THE
IDENTICAL SUPPORT RULE AND
THE
ADOPTION
OF
A
SINGLE-WINNER REVERSE
AUCTION
EXCEEDED
THE FCC’S AUTHORITY AND

WERE OTHERWISE ARBITRARY AND CAPRICIOUS ......... 35

A.
The FCC Failed to Provide a Reasoned

Explanation for Repealing Its Rule ........................... 35
B.
The Adoption of the Mobility I Auction
Exceeded the FCC’s Authority ................................. 38

VI. THE $500 MILLION ANNUAL MOBILITY II BUDGET
WAS
ARBITRARILY
AND
CAPRICIOUSLY SET .................. 41

VII. THE FCC DID NOT RESPOND TO COMMENTS
CALLING
FOR
A
SEPARATE
MOBILITY
FUND

FOR
INSULAR
AREAS
......................................................
44

CONCLUSION .......................................................................... 47









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TABLE OF AUTHORITIES

PAGE(S)
CASES

ACLU v. FCC, 823 F.2d 1554 (D.C. Cir.1987),
cert. denied, 485 U.S. 959 (1988)............................... 24, 29, 45

Adams Fruit Co., Inc. v. Barrett, 494 U.S. 638 (1990) ................ 30

Ad Hoc Telecom. Users Committee v. FCC,
572 F.3d 903 (D.C. Cir. 2009) ................................................. 4

Alenco Communications, Inc. v. FCC,
201 F.3d 608 (5th Cir. 2000) ............................... 11, 33, 37, 42

Allied Local and Regional Manufacturers Caucus v. EPA
,
215 F.3d 61 (D.C. Cir. 2000) ................................................. 46

American Library Ass’n v. FCC
,
406 F.3d 689 (D.C. Cir. 2005) ................................... 20, 31, 41

American Radio Relay League, Inc. v. FCC,
524 F.3d 227 (D.C. Cir. 2008) ............................................... 44

Arbaugh v. Y & H Corp., 546 U.S. 500 (2006) ............................ 24

Arizona PSC v. EPA, 562 F.3d 1116 (10th Cir. 2009) ........... 31, 45

AT&T Corp. v. Iowa Utilities Bd.,
525 U.S. 366 (1999) ........................................................ 22, 41

AT&T, Inc. v. United States,
629 F.3d 505 (5th Cir. 2011) ................................................. 40

Bell Atlantic Telephone Cos. v. FCC,
206 F.3d 1 (D.C. Cir. 2000) ................................................... 38

BellSouth Telecommunications, Inc. v. Sanford,

494 F.3d 439 (4th Cir. 2007) ........................................... 38, 39
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PAGE(S)
Burgess v. United States, 553 U.S. 124 (2008) .......................... 14
Chevron USA, Inc. v. Natural Resources Defense
Council, Inc.
, 467 U.S. 837 (1984) ........................ 10, 12, 19, 32

Columbia Gas Transmission Corp. v. FERC,
404 F.3d 459 (D.C. Cir. 2005) ................................... 10, 20, 30

Comcast Corp. v. FCC, 600 F.3d
642 (D.C. Cir. 2010) ...................... 4, 10, 23, 24, 25, 28, 30, 31

Covad Communications Co. v. FCC,
450 F.3d 528 (D.C. Cir. 2006) ......................................... 45, 47

Davis County Solid Waste Management v. EPA,
108 F.3d 1454 (D.C. Cir. 1997) ............................................. 32

FCC v. Fox Television Stations, Inc.,
556 U.S. 502 (2009) .............................................................. 36

FCC v. Midwest Video Corp., 440 U.S. 689 (1979) ..................... 13

FDA v. Brown & Williamson Tobacco Corp.,
529 U.S. 120 (2000) ........................................................ 23, 29

Federal Maritime Comm’n v. Seatrain Lines, Inc.,
411 U.S. 726 (1973) .............................................................. 30

HBO, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977) ........................... 44

Louisiana Federal Land Bank Ass’n v. Farm
Credit Admin., 336 F.3d 1075 (D.C. Cir. 2003) ....................... 47


Louisiana PSC v. FCC,
476 U.S. 355 (1986) ........................................................ 20, 41


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PAGE(S)
MCI Telecommunications Corp. v. AT&T Co.,
512 U.S. 218 (1994) .............................................................. 29
Motion Picture Ass’n of America, Inc. v.FCC,
309 F.3d 796 (D.C. Cir. 2003) ......................................... 17, 31

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co.,
463 U.S. 29 (1983) ....................................... 11, 33, 35

National Cable & Telecommunications Ass’n v.
Brand X Internet Service
, 545 U.S. 967 (2005) ....................... 14

National Mining Ass’n v. Mine Safety Health Admin.,
116 F.3d 520 (D.C. Cir. 1997) ............................................... 45

Qwest Corp. v. FCC,
258 F.3d 1191 (10th Cir. 2001) ........................... 25, 33, 38, 44

Qwest Communications International Inc. v. FCC,
398 F.3d 1222 (10th Cir. 2005) ......... 10, 25, 27, 32, 33, 42, 44

Railway Labor Executives’ Ass’n v. National
Mediation Bd.
, 29 F.3d 655 (D.C. Cir. 1994) .......................... 30

Robinson v. Shell Oil Co.,
519 U.S. 337 (1997) .......................... 13

Rural Cellular Ass’n v. FCC
,
588 F.3d 1095 (D.C. Cir. 2009) ............................................. 34

Sorenson v. Secretary of the Treasury,
475 U.S. 851 (1986) .............................................................. 15

Southwestern Bell Telephone Co. v. FCC,
19 F.3d 1475 (D.C. Cir. 1994) ............................... 9, 20, 21, 22
State of Iowa v. FCC, 218 F.3d 756 (D.C. Cir. 2000) ................. 16


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PAGE(S)
Texas Office of Public Utility Counsel v. FCC,
183 F.3d 393 (5th Cir. 1999) ................................................. 15

Time Warner Telecom, Inc. v. FCC, 507 F.3d 205
(3rd Cir. 2007) ................................................................. 14, 35

United States v. Home Concrete & Supply, LLC,
132 S. Ct. 1836 (2012) .......................................................... 12

United States Nat’l Bank of Oregon v. Independent Insurance
Agents of America, Inc.
, 508 U.S. 439 (1993) .......................... 15

United States v. O’Driscoll,
761 F.2d 589 (10th Cir. 1985) ............................................... 27

United States Telecom Ass’n v. FCC,
295 F.3d 1326 (D.C. Cir. 2002) ............................................. 21

Virgin Islands Telephone Corp. v. FCC,
198 F.3d 921 (D.C. Cir. 1999) ............................................... 16

Whitman v. American Trucking Ass’ns, Inc.,
531 U.S. 457 (2001) ........................................................ 10, 29

Worldcom, Inc. v. FCC, 246 F.3d 690 (D.C. Cir. 2001) ......... 13, 20

WWC Holding Co., Inc. v. Sopkin,
488 F.3d 1262 (10th Cir. 2007) ....................................... 39, 41

Zeran v. AOL, Inc., 129 F.3d 327 (4th Cir. 1997),
cert. denied, 524 U.S. 937 (1998)............................................. 3

ADMINISTRATIVE DECISIONS

Cable & Wireless, PLC, 12 F.C.C.R. 8516 (1997) ....................... 22
Comment Dates Established for Comprehensive USF and ICC
Reform NPRM
, 26 F.C.C.R. 2340 (WCB 2011) ............................. 7
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PAGE(S)
Connect America Fund, 26 F.C.C.R. 4554 (2011) ......................... 7

Connect America Fund, 26 F.C.C.R. 17633 (2011)…………7, 8, 12,
18, 19, 20, 23, 26, 27, 28, 33, 34, 37, 38, 39, 40, 42, 43, 46

Federal-State Joint Bd. on Universal Service,
13 F.C.C.R. 5318 (1997) ........................................................ 16

Federal-State Joint Bd. on Universal Service,
14 F.C.C.R. 20432 (1999) ...................................................... 37

Framework for Broadband Internet Service
,
25 F.C.C.R. 7866 (2010) .......................................................... 6

Federal-State Joint Bd. on Universal Service,
25 F.C.C.R. 15598 (Jt. Bd. 2010) ............................................ 6

High-Cost Universal Service Support,
23 F.C.C.R. 8834 (2008) ........................................................ 36

High-Cost Universal Service Support,
25 F.C.C.R. 4136 (2010) .................................................. 45, 46

Mobility I Auction, 2012 WL 4712175
(WTB Oct. 1, 2012) .................................................................. 8

Mobility Fund Phase I Auction,
27 F.C.C.R. 4725 (WTB 2012) ................................................. 8

Second Computer Inquiry, 77 F.C.C. 2d 385 (1980) ................... 14

STATUTES AND REGULATIONS

5 U.S.C. § 706(2)(C) .................................................................. 20
47 U.S.C. § 151 .................................................................. 13, 15

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PAGE(S)
47 U.S.C. § 152(b) .................................................................... 41

47 U.S.C. § 153(24) .................................................................. 15

47 U.S.C. § 153(51) ............................................................ 15, 17

47 U.S.C. § 153(53) .................................................................. 15

47 U.S.C. § 154(i) ..................................................................... 13

47 U.S.C. § 214(e)(1)(A) ............................................................. 16

47 U.S.C. § 214(e)(5) ................................................................. 39

47 U.S.C. § 230(b)(2) .................................................................. 3

47 U.S.C. § 230(f)(2) ................................................................... 4

47 U.S.C. § 254(a) .................................................................... 24

47 U.S.C. § 254(b) .................................................................... 41

47 U.S.C. § 254(b)(5) ................................................................ 42

47 U.S.C. § 254(c)(1) ................................................................. 18

47 U.S.C. § 254(c)(1)(C) ............................................................ 18

47 U.S.C. § 254(c)(3) ................................................................. 24

47 U.S.C. § 254(d) .................................................................... 42

47 U.S.C. § 254(e) .............................................................. 17, 27

47 U.S.C. § 254(e)(5) ................................................................. 39

47 U.S.C. § 254(h)(1) ................................................................ 24
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PAGE(S)

47 U.S.C. § 254(h)(2) ................................................................ 25

47 U.S.C. § 254(h)(7)(C) ............................................................ 24

47 U.S.C. § 1302 ........................................................................ 3

47 U.S.C. § 1302(b) .................................................................... 4

47 U.S.C. § 1302(d)(1) ................................................................ 4
47 C.F.R. § 54.7(b) ................................................................... 19

Telecommunications Act of 1996, Pub. L. No. 104-104,
110 Stat. 56 (1996) ................................................. 3, 4, 15, 16

MISCELLANEOUS

Austin Schlick, A Third-Way Legal Framework for
Addressing the Comcast Dilemma, 2010 WL 1840579
(May 6, 2010) .................................................................. 4, 5, 6


STATEMENT OF RELATED CASES




Counsel is not aware of any prior or related appeals.











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GLOSSARY


Act
Communications
Act
of
1934,
as







amended

APA
Administrative
Procedure
Act


BlueSky

AST Telecom, LLC d/b/a BlueSky





Communications


Board


Federal-State Joint Board on Universal





Service

Broadband high-speed
Internet
access
service


Broadband Plan
Connecting America: The National

Broadband
Plan

CAF
Connect
America
Fund

CAF
II CAF
Phase
II

CETC competitive
eligible
telecommunications






carrier

Choice
Choice
Communications,
LLC

DOCOMO
DOCOMO
Pacific,
Inc.

ETC
eligible
telecommunications
carrier

FCC
Federal
Communications
Commission

GC
general
counsel

ICC
intercarrier
compensation

ILEC
incumbent
local
exchange
carrier

xi


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JA
Joint
Appendix


Jt. Br.


Joint Preliminary Brief of the Petitioners

LEC
local
exchange
carrier

Mobility
I
Mobility
Fund
Phase
I

Mobility
II
Mobility
Fund
Phase
II


NPRM


notice of proposed rulemaking


1996 Act

Telecommunications Act of 1996


PR Wireless

PR Wireless, Inc.

RTC
rural
telephone
company

Sprint Sprint
Nextel
Corporation

Telecom
telecommunications


Title I


Title I of the Act


Title II


Title II of the Act

T-Mobile
T-Mobile
USA

USF
Universal
Service
Fund

Verizon
Verizon
Wireless

WCB
FCC’s Wireline Competition Bureau


xii


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INTRODUCTION


Both Congress and the FCC have classified “broadband” – the
agency’s euphemism for high-speed Internet access service – as an
information service that is exempt from common-carrier regulation
under Title II. The FCC has repeatedly and successfully defended
its information-service classification of broadband before appeals
courts including the Supreme Court. See Jt. Br. at 19-20. And it
adheres to that classification today.

Compelled by its commitment to implement its Broadband
Plan, the FCC has asserted Title II authority over broadband under
the pretext of administering the USF support program for common-
carrier telecom services. The FCC directed ETCs to use USF
support to provide broadband service – an information service
ineligible for support – as a “condition” to receiving funding.
Accompanying that funding was a host of Title II regulations with
which broadband/information service providers must comply.

If it had any statutory basis whatsoever to provide USF
support to broadband, the FCC would have explicitly asserted that
authority and provided specific support directly to broadband
service providers. Tellingly, the FCC resorted to claiming that its
1


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Title II authority to provide USF support to designated telecom
services provided over dual-use networks empowered it to fund and
regulate ineligible information services provided over those
networks. The FCC simply used its Title II authority to administer
the USF program as a bootstrap to regulate broadband services that
it continues to exempt from Title II regulation.

Congress made the policy judgment in 1996 that Internet
access services should be allowed to flourish unfettered by
regulation. But no legislation has been enacted authorizing the
FCC either to divert USF support to broadband Internet access
services or to regulate those services.

The FCC has implemented its Broadband Plan for a
broadband-centric USF program, fully aware that it is without
express authority to do so. Its actions constitute a bald arrogation
of power not conferred by Congress that will result in the annual
misappropriation of $4.5 billion of consumer-provided USF support.

SUPPLEMENTAL STATEMENT OF FACTS

I. Statutory
Background


The FCC’s authority to administer the USF program comes
from the 1996 Act. The statute was enacted to “promote
2


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competition and reduce regulation” in order to lower prices and
improve service for telecom consumers and to encourage the
deployment of new telecom technologies.1 The 1996 Act included
two pro-competitive, deregulatory features that impact this case.

The 1996 Act added § 230 to Title II “in part, to maintain the
robust nature of Internet communication and, accordingly, to keep
government interference in the medium to a minimum.” Zeran v.
AOL, Inc., 129 F.3d 327, 330 (4th Cir. 1997), cert. denied, 524 U.S.
937 (1998). The provision sets forth the congressional policy “to
preserve the vibrant and competitive free market that presently
exists for the Internet and other interactive computer services,
unfettered by Federal or State regulation.” 47 U.S.C. § 230(b)(2).
The term “interactive computer service” was defined to mean “any
information service … that provides or enables computer access by
multiple users to a computer server, including specifically a service
… that provides access to the Internet.” Id. § 230(f)(2).

By § 706 of the 1996 Act,2 Congress gave the FCC and state
commissions discretion to employ regulatory or deregulatory

1 1996 Act, Pub. L. 104-104, Preamble, 110 Stat. 56, 56 (1996).
2 Id., Title VII, § 706; 47 U.S.C. § 1302.
3


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“incentives” to encourage the timely deployment of “advanced
telecommunications capability,” see Ad Hoc Telecom. Users
Committee v. FCC, 572 F.3d 903, 906 (D.C. Cir. 2009), or “high-
speed, switched, broadband telecommunications capability.” 47
U.S.C. § 1302(d)(1). Congress also directed that, if the FCC found
that broadband telecom capability was not being deployed in a
timely fashion, it must take “immediate action” to accelerate such
deployment “by removing barriers to infrastructure investment and
by promoting competition in the telecommunications market.” Id. §
1302(b).
II.
Comcast Corp. v. FCC

In the aftermath of the Comcast decision,3 the FCC’s GC
presented a paper to Congress on the “Comcast dilemma” that faced
the FCC.4 He opined that Comcast undermined the long-standing
consensus reached by the FCC, Congress and the industry as to the
agency’s “light-touch” approach to Internet access services.5 Under
the “consensus” approach, the FCC did not regulate the Internet,

3 Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010).
4 Austin Schlick, A Third-Way Legal Framework for Addressing the
Comcast Dilemma, 2010 WL 1840579 (May 6, 2010).
5 See id. at *1-*2.
4


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but regulated dial-up Internet access service, and refrained from
regulating broadband Internet access services “when possible.”6

As its GC saw it, the FCC had three options. One option,
which would put the FCC on a “strong jurisdictional footing,” was
for it to “reclassify” broadband Internet access services as telecom
services and regulate them under Title II.7 The option favored by
the GC was for the FCC to regulate the transmission component of
broadband service under Title II, while the information component
would be subject to “whatever ancillary jurisdiction may exist under
Title I.”8 The option that the GC disfavored was to “stay the course”
under Title I, which he candidly described as follows:
Some big cable and telephone companies suggest the
agency should stick with the information service
classification, try to adapt its policies to the new
restrictions announced by the Comcast court, and see
how it goes. This is a recipe for prolonged uncertainty.
Any action the [FCC] might take in the broadband area …
would be subject to challenge on jurisdictional grounds
because the relevant provisions of the … Act would not
specifically address broadband access services.9


6 See Schlick, 2010 WL 1840579 at *1.
7 Id. at *3.
8 Id. at *4.
9 Id. at *2-*3.
5


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III. Proceedings
Below

In June 2010, the FCC asked for public comments on its
options, see Framework for Broadband Internet Service, 25 F.C.C.R.
7866 (2010), querying whether it had statutory authority to reform
its USF program to support broadband Internet service. See id. at
7880-83. Before answering that question, the FCC plowed ahead
with its plan to implement USF reform measures recommended by
the Broadband Plan. See Jt. Br. at 21-22.
Playing
catch-up
in
November 2010, the Board responded to
the Broadband Plan by gratuitously recommending that the FCC
adopt the additional principle under § 254(b)(7) that USF support
“should be directed where possible to networks that provide both
broadband and voice services.” Federal-State Joint Bd. on Universal
Service, 25 F.C.C.R. 15598, 15599 (Jt. Bd. 2010). However, the
Board “point[ed] out the obvious” by noting that broadband was not
included in the definition of USF-supported services. Id. at 15624.

The FCC’s rulemaking below was begun in February 2011 to
implement the Broadband Plan. See Connect America Fund, 26
F.C.C.R. 4554 (2011) (JA ). The FCC bypassed the Board in the
rulemaking process, and relegated its state members to filing
6


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comments on the plan’s USF recommendations.10

The FCC ultimately modified its definition of USF-supported
services, but its new definition did not include broadband. See Jt.
Br. at 25, 26. In fact, it did not even include a definition of
“broadband” among its many rule changes. See Connect America
Fund, 26 F.C.C.R. 17633, 18168-69, 18179-81, 18191, 18198-99,
18224-25, 18227 (2011) (“Order”) (JA ).

The FCC stuck with its “information services classification.”
Rather than requiring ETCs to accept Title II regulatory obligations
as a statutory condition to receiving the benefits of funding under a
Title II program, the FCC required ETCs to deploy networks to
provide information services, unfettered by Title II regulation, as a
“condition” to receiving Title II funding. See Order ¶ 60 (JA ).

The FCC claimed that its “express statutory authority” under §
254 to provide USF support to the telecom services provided over
dual-use networks empowered it to regulate the information services
provided over those networks. See id. ¶¶ 62-65 (JA ). It required
ETCs to provide broadband service subject to public interest

10 See Comment Dates Established for Comprehensive USF and ICC
Reform NPRM
, 26 F.C.C.R. 2340, 2341 (WCB 2011).
7


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obligations, including specific “broadband performance
requirements.” Order ¶ 19 (JA ).

The FCC clearly did not adopt its GC’s recommendation,
opting instead to effectively “stay the course” and “see how it goes.”
As the GC predicted, this litigation ensued.
IV. Subsequent
Developments

In May 2012, the WTB refused to postpone the Mobility I
auction in light of the litigation surrounding the Order. See Mobility
Fund Phase I Auction, 27 F.C.C.R. 4725, 4739 n.79 (WTB 2012).
The FCC proceeded to auction $299,998,632 in Mobility Fund
support to 33 winning bidders on September 27, 2012,11 and it did
so with knowledge that its jurisdiction was being challenged in this
Court.

SUMMARY OF ARGUMENT



The USF portion of the Order must be vacated in its entirety,
since the bulk of the FCC’s actions to reform the USF exceeded its
jurisdiction in three respects.
First, the Act unambiguously prohibits: (1) the FCC from

11 See Mobility I Auction, 2012 WL 4712175, at *1 (WTB Oct. 1,
2012).
8


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treating ETCs as common carriers under the Title II USF program
when they are engaged in providing information services; and (2)
ETCs from using support to offer information services. Because
broadband service is classified as an information service, the FCC
exceeded its Title II authority by requiring ETCs to deploy
broadband facilities to be eligible to receive USF support, and by
promulgating a rule requiring them to use the support for such
deployment in violation of § 254(e).

Second, the FCC exceeded its authority by imposing Title II
public interest obligations on broadband service providers without
having first made the requisite jurisdictional determination that the
service was being offered on a common carrier basis. See
Southwestern Bell Telephone Co. v. FCC, 19 F.3d 1475, 1483 (D.C.
Cir. 1994).

Third, the FCC used its rulemaking authority under § 254(a) to
impose Title II regulation on broadband service without the express
statutory authority necessary to do so. See Comcast, 600 F.3d at
652-54. The FCC’s claim that it discovered its authority to provide
USF support for broadband deployment in scattered subsections of
§ 254 and in § 706(b) of the 1996 Act falls prey to plain statutory
9


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language and the common sense principle that Congress does not
“hide elephants in mouseholes” by authorizing fundamental
regulatory changes in ancillary provisions. Whitman v. American
Trucking Ass’ns, Inc., 531 U.S. 457, 909-10 (2001).

Even if §§ 254 and 706(b) could be plausibly construed as an
implied delegation of authority to fund broadband network
deployment, the FCC did not claim Title II authority to regulate the
broadband services provided over the deployed network. Lacking
the requisite express delegation of Title II authority, see Comcast,
600 F.3d at 652-54, the FCC is guilty of using its Title II authority
to provide USF support to designated telecom services as a
“jurisdictional bootstrap” to regulate information services under
Title II. Columbia Gas Transmission Corp. v. FERC, 404 F.3d 459,
462 (D.C. Cir. 2005).

If it reaches the second step of review under Chevron USA, Inc.
v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the
Court will find that the FCC’s decision-making was arbitrary and
capricious under Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29 (1983), because three of the agency’s actions
were not based on a balancing of the § 254(b) principles, see Qwest
10


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Communications International Inc. v. FCC, 398 F.3d 1222, 1234
(10th Cir. 2005) (“Qwest II”), or on achieving both the universal
service and local competition goals of the 1996 Act. See Alenco
Communications, Inc. v. FCC, 201 F.3d 608, 615 (5th Cir. 2000).

First, the FCC’s decision to reserve $1.8 billion in annual CAF
II support for large price-cap ILECs is anticompetitive on its face
and flouts the FCC’s core principle of competitive neutrality.

Second, the FCC repealed its identical support rule in favor of
a single-winner reverse auction for Mobility I support without
providing a reasoned explanation of how the underlying policy of
competitively-neutral funding was trumped by any of the § 254(b)
principles. By employing the Mobility I auction to award support to
a single wireless CETC in any FCC-designated area, the FCC
exceeded its authority by preempting the States’ primary
jurisdiction over wireless CETC designations under § 214(e).

Third, the FCC did not make a reasoned decision that an
annual budget of $500 million for Mobility II support for wireless
CETCs was sufficient by applying the § 254(b) principles to findings
of fact supported by record evidence.
11


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The FCC violated notice-and-comment rulemaking
requirements by inviting public comments on whether a separate
USF support mechanism for insular areas should be established,
and then failing to provide a reasoned response to the comments of
wireless CETCs calling for such a mechanism.

ARGUMENT


I.
THE FCC LACKS JURISDICTION TO REDIRECT USF

SUPPORT TO BROADBAND OR TO REGULATE BROADBAND



A.
The FCC Exceeded Its Authority by Requiring


ETCs to Use USF Support for Broadband



Chevron teaches that a statute’s silence or ambiguity on an
issue presumably means that Congress left “a gap for the agency to
fill,” thus “likely delegating gap-filling power to the agency.” United
States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836, 1843
(2012). On the other hand, “Chevron and other cases find in
unambiguous language a clear sign that Congress did not delegate
gap-filling authority to the agency.” Id.

Using “traditional tools of statutory construction” as permitted
under Chevron step one, 467 U.S. at 843 n.9, we will show that the
Act unambiguously prohibits the use of USF support for
information services. Therefore, Congress did not delegate gap-
12


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filling authority to the FCC to redirect the USF to “support
broadband networks, regardless of regulatory classification.” Order
¶ 68 (JA ).

Statutory construction focuses on “the language itself, the
specific context in which the language is used, and the broader
context of the statute as a whole.” Robinson v. Shell Oil Co., 519
U.S. 337, 341 (1997). There is no ambiguity in the language of § 1
that mandates that the FCC “shall execute and enforce” the
provisions of the Act. 47 U.S.C. § 151. And § 4(i) clearly limits the
FCC’s authority to taking actions “not inconsistent with [the Act], as
may be necessary in the execution of its functions.” Id. § 154(i).

When defining a telecom carrier under § 3(51), Congress
included the “explicit specification” that such a “carrier should be
‘treated’ as a common carrier ‘only to the extent that it is engaged in
providing telecommunications services.’” Worldcom, Inc. v. FCC,
246 F.3d 690, 694 (D.C. Cir. 2001) (emphasis in original). Such a
directive in a § 3 definition places a statutory limitation on the
FCC’s jurisdiction to regulate. See FCC v. Midwest Video Corp., 440
U.S. 689, 705 (1979) (enforcing the § 3(11) command that “a person
engaged in … broadcasting shall not … be deemed a common
13


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carrier”). And, for the purposes of statutory construction, the
explicit § 3(51) definition must be followed. See, e.g., Burgess v.
United States, 553 U.S. 124, 129-30 (2008).

Congress defined the terms “telecommunications service” and
“information service” in the 1996 Act with the intent of adopting the
FCC’s Computer II regime,12 under which telecom carriers were
regulated as common carriers under Title II, but information service
providers were exempt from such regulation. See National Cable &
Telecommunications Ass’n v. Brand X Internet Service, 545 U.S. 967,
975-77 (2005). Because the statutory classifications of telecom
service and information service are mutually exclusive, see Time
Warner Telecom, Inc. v. FCC, 507 F.3d 205, 219 (3rd Cir. 2007), and
inasmuch as only the former is subject to “mandatory common-
carrier regulation under Title II,” Brand X, 545 U.S. at 976, Title I
clearly prohibits the FCC from treating telecom carriers as common
carriers under Title II when they are engaged in providing an
information service. See 47 U.S.C. §§ 151, 153(24), (51) & (53).
Congress
employed
the
defined term “information service,” see
id. § 153(24), when it defined “interactive computer service” to

12 See Second Computer Inquiry, 77 F.C.C. 2d 385, 417-23 (1980).
14


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include “any information service … that provides access to the
Internet.” See supra pp. 2-3. Thus, Congress classified Internet
access service as an information service.13
Statutory
construction
must account for a statute’s structure,
as well as its full text and subject matter. See United States Nat’l
Bank of Oregon v. Independent Insurance Agents of America, Inc.,
508 U.S. 439, 455 (1993). When it established the USF program
under Subtitle A (“Telecommunications Services”) of the 1996 Act,14
Congress expressed its intentions by codifying the program in Title
II (“Common Carriers”),15 where ETCs would fall subject to
mandatory common-carrier regulation.16 The USF eligibility
requirements were inserted in the new Part I of Title II (“Common

13 Not only must the statutory definition be applied, but “[t]he
normal rule of statutory construction assumes that identical words
used in different parts of the same act are intended to have the
same meaning.” Sorenson v. Secretary of the Treasury, 475 U.S.
851, 860 (1986).
14 See 1996 Act, Title I.
15 Section headings enacted by Congress in conjunction with the
statutory text have been considered to determine the meaning of the
USF provisions of the Act. See Texas Office of Public Utility Counsel
v. FCC, 183 F.3d 393, 441 & n.89 (5th Cir. 1999).
16 See 1996 Act § 101.
15


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Carrier Regulation”),17 where Congress retained the “core
provisions” of Title II. Virgin Islands Telephone Corp. v. FCC, 198
F.3d 921, 927 (D.C. Cir. 1999). Section 214(e)(1) provides:
A common carrier designated as an eligible telecommuni-
cations carrier … shall be eligible to receive [USF]
support in accordance with [§] 254 … and shall … offer
the services that are supported by Federal universal
service support mechanisms under [§] 254(c)….18


The term “common carrier” in § 214(e)(1) is not surplusage.
By specifying that only a common carrier can be an ETC, Congress
imposed the requirement that an ETC provide USF-supported
telecom services on a common-carrier basis. See Federal-State Joint
Bd. on Universal Service, 13 F.C.C.R. 5318, 5427 (1997). Thus, “a
carrier that provides a service on a non-common carrier basis is not
a ‘telecommunications carrier’ and hence is ineligible for [USF]
support with respect to that service.” State of Iowa v. FCC, 218
F.3d 756, 758 (D.C. Cir. 2000).
Sections
214(e)(1)
and
254
are
in pari materia and must be
construed together, insofar as each provision explicitly refers to the
other and both address USF support eligibility employing identical

17 See 1996 Act §§ 101(b), 102.
18 47 U.S.C. § 214(e)(1)(A).
16


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terminology.19 For example, § 254(e) provides that “only an [ETC]
designated under [§] 214(e) … shall be eligible to receive specific
Federal universal service support.” 47 U.S.C. § 254(e). When
construed with § 214(e)(1)(A), and the § 3(51) proviso is applied, §
254(e) clearly means that a common-carrier ETC shall be eligible to
receive USF support only to the extent it is engaged in providing
telecom services on a common-carrier basis. See id. § 153(51).

Significantly, § 254(e) also mandates that an ETC that
“receives [USF] support shall use that support only for the
provision, maintenance, and upgrading of facilities and services for
which that support is intended.” Id. § 254(e). Given Congress’
unambiguously expressed intent that an ETC receive USF support
only to the extent it is providing telecom services, § 254(e) provides
that an ETC must use that support only for the provision of
facilities and telecom services.
The
plain
language
of
§
254(c) confirms that telecom services
are those “for which [USF] support is intended.” There, Congress
defined “universal service” as “an evolving level of

19 “Statutory provisions in pari materia normally are construed
together to discern their meaning.” Motion Picture Ass’n of America,
Inc. v. FCC
, 309 F.3d 796, 801 (D.C. Cir. 2003) (“MPAA”).
17


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telecommunications services that the [FCC] shall establish
periodically under this section.” 47 U.S.C. § 254(c)(1). When
establishing the definition of USF-supported services, Congress
specified that the FCC “shall consider the extent to which such
telecommunications services … are being deployed in public
telecommunications networks by telecommunications carriers.” Id.
§ 254(c)(1)(C). Thus, Congress intended that USF support be
directed to telecom services being extensively deployed by telecom
carriers on their telecom networks.

The FCC defines “facilities” in § 254(e) to mean “any physical
components of the telecommunications network that are used in
the transmission or routing of the services that are designated for
support.” Order ¶ 64 n.69 (JA ). Construing the language of §
254(e) that requires USF support for “facilities and services for
which the support is intended” in pari materia with § 254(c) reveals
the intent of Congress to limit ETCs to using support only to
provide the telecom services that are designated for support, as well
as for any network components used for the provision of such
services.
When
the
statutory
definitions
in § 3(24), (51) and (52) are
18


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followed, and the text of §§ 214(e)(1) and 254 is construed
harmoniously in the context of the structure of the Act, the intent of
Congress to prohibit the use of USF support for unregulated
information services becomes clear. That resolves the matter of the
FCC’s gap-filling authority under Chevron step one, see 467 U.S. at
842-43, for the agency was obliged by § 1 to “give effect to the
unambiguously expressed intent of Congress.” Id.


The FCC has repeatedly classified broadband services as
information services and has repeatedly defended its classification
before the courts. See Jt. Br. at 19-20. The Order did not disturb
that classification. Consequently, by requiring ETCs to deploy
broadband facilities to be eligible to receive USF support, see Order
¶ 60 (JA ), and by promulgating a rule requiring them to use USF
support to deploy broadband facilities, see 47 C.F.R. § 54.7(b), the
FCC exceeded its authority by taking actions prohibited by, or
inconsistent with, §§ 214(e)(1) and 254(e). The Court should hold
unlawful and vacate the FCC’s actions. See 5 U.S.C. § 706(2)(C)
(the reviewing court “shall hold unlawful and set aside agency
action … in excess of statutory jurisdiction [and] authority”).

19


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B.
The FCC Cannot Regulate Broadband under



Title II Having Not Determined that It Is


Being Offered on a Common Carrier Basis


The FCC “literally has no power to act … unless and until
Congress confers power upon it.” Louisiana PSC v. FCC, 476 U.S.
355, 374 (1986). Hence, its “power to promulgate legislative
regulations is limited to the scope of the authority Congress has
delegated to it.” American Library Ass’n v. FCC, 406 F.3d 689, 698
(D.C. Cir. 2005). If a regulation was promulgated without delegated
authority from Congress, a reviewing court must vacate the
regulation and “have no occasion to proceed to Chevron’s
deferential second step.” Columbia Gas, 404 F.3d at 461.

The FCC reformed its Title II program not only by redirecting
USF support to ineligible broadband services, but also by foisting a
slew of Title II public interest obligations and broadband
performance requirements on broadband service providers. See
Order ¶¶ 74-114 (JA ). However, “only common carrier activity falls
within the [FCC’s] regulatory powers under [T]itle II.” Southwestern
Bell, 19 F.3d at 1483. Thus, common carrier services are the Title
II “regulation-triggering services.” Worldcom, 246 F.3d at 694.
Consequently, the FCC cannot regulate broadband under Title II
20


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without first making the “determination whether the service is being
offered on a common carrier basis.” Southwestern Bell, 19 F.3d at
at 1484.
As
a
prerequisite
to
broadband
Title II regulation, the FCC was
required to determine whether the service providers: (1) hold
themselves out “to serve indifferently all potential users”; and (2)
allow “customers to transmit intelligence of their own design and
choosing.” See, e.g., United States Telecom Ass’n v. FCC, 295 F.3d
1326, 1329 (D.C. Cir. 2002) (determining “common carrier” status
for USF eligibility under § 254(h)(1)). Although the statutory
classification of Internet access service as an information service
precludes the jurisdictional determination that broadband is
common carriage, see supra p. 15, the FCC made no attempt to find
that any form of broadband meets the two-prong test for common
carriage. Moreover, the FCC’s steadfast refusal to reclassify
broadband as a telecom service is tantamount to a refusal to
classify broadband as a common carrier service, because it treats
telecom service and common carrier service as one and the same.20

20 The FCC determined that the legislative history of the 1996 Act
“indicates that the definition of telecommunications service is
21


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The FCC is not permitted “to augment its regulatory domain”
by regulating an activity under Title II without first making a
reasoned determination that the activity constitutes common
carriage. Southwestern Bell, 19 F.3d at 1484. The FCC’s failure to
make the prerequisite jurisdictional determination with respect to
broadband necessitates that the Order be remanded and
“suspended pending completion of the proceedings on remand.” Id.

C.
The FCC Was Not Delegated Title II
Authority
to
Regulate
Broadband




In
AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366 (1999), the
Court noted the jurisdictional distinction between a case like
Louisiana PSC, which “involved the [FCC’s] attempt to regulate
services over which it had not been explicitly given rulemaking
authority,” and one involving “its attempt to regulate services over
which it has explicitly been given rulemaking authority.” 525 U.S.
at 381 n.7 (emphasis in original). This case is one of the former,
insofar as the FCC is admittedly without “express statutory

intended to clarify that telecommunications services are common
carrier services.” Cable & Wireless, PLC, 12 F.C.C.R. 8516, 8521
(1997).

22


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authority” over broadband services, Comcast, 600 F.3d at 644, but
nevertheless used its § 254(a) rulemaking authority to impose Title
II regulations on broadband service providers. See supra p. 20.

The FCC claimed to have found its jurisdiction to regulate
broadband in subsections (b)(1)-(3), (b)(7) and (e) of § 254, see Order
¶¶ 60-65 (JA ), and to a “limited extent” in § 706 of the 1996 Act,
id. ¶ 73 (JA ), where it had previously gone unnoticed by the
agency for 15 years. In evaluating whether Congress impliedly
empowered the FCC to regulate the Internet − “arguably the most
important innovation in communications in a generation,” Comcast,
600 F.3d at 661 – in scattered subsections of § 254 and in a note to
§ 7, see Jt. Br. at 14, the Court “must be guided to a degree by
common sense as to the manner in which Congress is likely to
delegate a policy decision of such economic and political magnitude
to an administrative agency.” FDA v. Brown & Williamson Tobacco
Corp., 529 U.S. 120, 133 (2000).

To
assess
the FCC’s claim, we will employ the “readily
administrable bright line” test that the Supreme Court has
fashioned to distinguish jurisdictional from non-jurisdictional
statutory provisions. Arbaugh v. Y & H Corp., 546 U.S. 500, 515
23


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(2006). Under that test, a jurisdiction-conferring provision of the
Act would speak to the FCC’s “power to regulate an activity.” ACLU
v. FCC, 823 F.2d 1554, 1567 n.32 (D.C. Cir.1987), cert. denied, 485
U.S. 959 (1988), thereby constituting an “express delegation of
regulatory authority.” Comcast, 600 F.3d at 655. To confer Title II
jurisdiction, a provision must speak to the FCC’s power to regulate
common carrier activities, since they constitute the Title II
“regulation-triggering services.” See supra p. 21.

The only jurisdiction-conferring provisions of § 254 are
subsections (a), (c)(3) and (h)(2). Subsection (a) empowers the FCC
to adopt regulations to implement §§ 214(e) and 254, including a
rule defining the USF-supported services. See 47 U.S.C. § 254(a).
Subsection (c)(3) speaks to the FCC’s power to designate the
“special services” that telecom carriers must provide at USF-
supported discounted rates to schools, libraries, and health care
providers or “public institutional telecommunications users” under
subsection (h). See 47 U.S.C. § 254(c)(3), (h)(1), (h)(7)(C). Finally,
subsection (h)(2) expressly empowers the FCC to adopt:
competitively neutral rules … to enhance … access to
advanced telecommunications and information services for
all [public institutional telecommunications users] and …
24


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to define the circumstances under which a telecommuni-
cations carrier may be required to connect its network to
such … users.21


For its jurisdiction, the FCC relies on § 254(b)(1)-(3), which are
clearly not jurisdiction-conferring provisions. Subsection (b) itself
imposes a “mandatory duty” on the FCC to base its policies for the
preservation and advancement of universal service on the principles
listed in subsections (b)(1)-(7). See Qwest Corp. v. FCC, 258 F.3d
1191, 1200 (10th Cir. 2001) (“Qwest I”). But subsections (b)(1)-(3)
themselves simply set forth three of the principles on which the
FCC “should” base its policies, and the use of the term “should”
indicates “a recommended course of action.” Id. at 1200. Thus,
they are but three “of seven principles identified by Congress to
guide the [FCC] in drafting policies to preserve and advance
universal service.” Qwest II, 398 F.3d at 1234.

Congress spoke clearly to policies in § 254(b)(1)-(3), but
“[p]olicy statements are just that – statements of policy. They are
not delegations of regulatory authority.” Comcast, 600 F.3d at 654.
Therefore, Congress conferred no jurisdiction by its references to
“advanced telecommunications and information services” in §

21 47 U.S.C. § 254(h)(2) (emphasis added).
25


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254(b)(2) and (b)(3). See Order ¶ 72 (JA ). It merely stated
principles to guide the FCC in exercising its authority under §
254(c)(2) and (h)(2) to ensure that public institutional telecom users
have access to information services. See supra pp. 24-25.

The FCC acquired no regulatory authority by adopting the
Board’s recommendation that “support for advanced services”
should become a § 254(b) principle. See Order ¶¶ 45, 65 (JA ). A
principle added by the FCC under § 254(b)(7) is further from a
congressional delegation of authority than those listed in §
254(b)(1)-(6). Regardless, an FCC-added principle can confer no
regulatory authority, insofar as the FCC “may not confer power
upon itself.” Louisiana PSC, 476 U.S. at 374.

The FCC appeared to rely most on its interpretation of the
phrase “facilities and services for which the support is intended”
that it excerpted from § 254(e). Order ¶ 64 (JA ) (emphasis in
original). The FCC first read the excerpt as referring to facilities and
services as “distinct items” for which USF support may be used. Id.
From that single reference, the FCC inferred that Congress
authorized it to “encourage” the types of facilities that will best
achieve the § 254(b) principles. Order ¶ 64 (JA ). Even if the FCC’s
26


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interpretation of the phrase “facilities and services” were plausible,
a delegation of authority to encourage broadband deployment is not
a delegation of authority to regulate broadband services.
Obviously,
if it intended that “facilities” be a distinct item for
USF support from “services,” Congress would have used the
disjunctive word “or” and the phrase “facilities or services for which
support is intended.”22 More important, the phrase relied on by the
FCC is excerpted from a sentence that limits the use of USF support
by ETCs; it bestows no regulatory authority on the FCC. See 47
U.S.C. § 254(e). It is not a jurisdiction-conferring provision.

Finally, the FCC’s search for jurisdiction took it outside the
confines of the Act to § 706(b) of the 1996 Act, see Order ¶¶ 66-70
(JA ), where it found an “alternative basis” for authority to fund the
deployment of broadband networks. Id. ¶ 73 (JA ). There,
Congress expressly delegated authority to the FCC to take
immediate action, if necessary, to accelerate the deployment of

22 See United States v. O’Driscoll, 761 F.2d 589, 597 (10th Cir. 1985)
(“When the term ‘or’ is used, it is presumed to be used in the
disjunctive sense unless the legislative intent is clearly contrary”).
Congress used the conjunctive “and” in the phrase “facilities and
services.” See Qwest II, 398 F.3d at 1236 (use of conjunctive “and”
indicates concurrent duties).
27


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broadband telecom capability − not by an infusion of USF support −
but by removing barriers to investment and by promoting telecom
competition. See supra p. 4. But § 706(b) conferred no Title II
regulatory authority over the services to be provided by the
deployed broadband telecom capability. The FCC does not claim
otherwise. See Order ¶¶ 66-73 (JA ).
As
the
FCC once acknowledged, § 706 grants it “no regulatory
authority.” Comcast, 600 F.3d at 659. Now that it is grasping for
jurisdictional straws, the FCC interprets § 706(b) as overriding the §
230 policy that any information service that provides Internet
access should remain unregulated. See supra p. 3. The FCC’s
theory is belied by the manner in which Congress enacted §§ 230
and 706.

Congress expressly directed that § 230 be inserted into Title II,
and thus subject to the FCC’s § 201(b) rulemaking authority. See
Iowa Utilities Bd., 525 U.S. at 377-78. In contrast, it relegated §
706 to the notes accompanying the new technologies provisions of
Title I. See Jt. Br. at 14. If it intended § 706 as a grant of Title II
regulatory authority, Congress would have included it somewhere in
the Act, most obviously in Title II.
28


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It defies common sense to think that Congress classified
Internet access service as an unregulated information service under
§ 230 and, at the same time, empowered the FCC to decide whether
to regulate that service under Title II by such a “subtle device” as
authorizing the agency to incentivize the deployment of advanced
telecom capability. MCI Telecommunications Corp. v. AT&T Co., 512
U.S. 218, 231 (1984). A responsible Congress simply would not
implicitly delegate such power to the FCC. See ACLU, 823 F.2d at
1567 n.32.

It is implausible that Congress would authorize the FCC to
decide whether to “regulate an industry constituting a significant
portion of the American economy,” Brown & Williamson, 529 U.S. at
159, by referring conjunctively to “facilities and services” in a non-
jurisdiction conferring provision of § 254. The textual commitment
of authority to the FCC to regulate broadband Internet access
services would have to be clear, because Congress does not “hide
elephants in mouseholes” by altering “the fundamental details of a
regulatory scheme in vague terms or ancillary provisions.” Whitman,
531 U.S. at 909-10.

The textual commitment of authority necessary for the FCC to
29


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regulate broadband can be nothing less than an express delegation
of authority in Title II. See Comcast, 600 F.3d at 654 (Titles II, III
and VI “do the delegating” of express regulatory authority to the
FCC). The FCC could not possibly find an express delegation of
Title II authority to regulate information services that Congress has
exempted from Title II regulation.

The Court must conclude that the FCC simply used its Title
II authority to provide USF support to designated telecom services
as a “jurisdictional bootstrap” to regulate information services.
Columbia Gas, 404 F.3d at 462. That was improper. “Although
agency determinations within the scope of delegated authority are
entitled to deference, it is fundamental ‘that an agency may not
bootstrap itself into an area in which it has no jurisdiction.’”
Adams Fruit Co., Inc. v. Barrett, 494 U.S. 638, 650 (1990) (quoting
Federal Maritime Comm’n v. Seatrain Lines, Inc., 411 U.S. 726, 745
(1973)). The Court should categorically reject the FCC’s implicit
claim that “it possesses plenary authority to act” in the area of
universal service, “simply because Congress has endowed it with
some authority to act in that area.” Railway Labor Executives’
Ass’n v. National Mediation Bd., 29 F.3d 655, 670 (D.C. Cir. 1994)
30


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(en banc) (emphasis in original).

II. THE
USF
PORTION
OF
THE
ORDER MUST BE VACATED


Actions taken by the FCC in excess of its statutory jurisdiction
or authority must be vacated. See Comcast, 600 F.3d at 661;
American Library, 406 F.3d at 708; MPPA, 309 F.3d at 807. Thus,
the portions of §§ IV, VI, VII and VIII of the Order that direct USF
support to, and impose regulatory requirements on, broadband, as
well as the FCC’s implementing rules, must be vacated.23

An agency’s order or regulation is severable into valid and
invalid parts only “if the severed parts ‘operate entirely
independently of one another,’ and the circumstances indicate the
agency would have adopted the regulation even without the faulty
provision.” Arizona PSC v. EPA, 562 F.3d 1116, 1122 (10th Cir.
2009) (quoting Davis County Solid Waste Management v. EPA, 108
F.3d 1454, 1459 (D.C. Cir. 1997)). All of the FCC’s USF reform
measures were predicated on the use of support for broadband in

23 See Order ¶ 48 (performance goals) (JA ), ¶¶ 86-114 (public
interest obligations) (JA ), ¶¶ 115-538, 545-567 (providing USF
support to broadband), ¶¶ 573-606, 616-629 (reporting
requirements and enforcement) (JA ).

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violation of § 254(e). Moreover, since the invalid regulations
constitute the bulk of the USF portions of the Order, it is
inconceivable that the FCC would have adopted any change to its
USF regulatory regime absent its ultra vires actions. Consequently,
the Court should vacate the USF portion of the Order in its entirety.
III. THE
EXCLUSIVE
RESERVATION
OF
CAF
II
SUPPORT
FOR
ILECS
WAS
ARBITRARY
AND
CAPRICIOUS


If it reaches Chevron step two, the Court must determine
whether the FCC actions were based on a permissible construction
of the USF provisions of §§ 214(e) and 254. See 467 U.S. at 843.
However, the FCC’s authority to act based on its construction of
those provisions was circumscribed by Congress, which mandated
that the FCC’s USF decision-making be based on the seven
principles listed in § 254(b)(1)-(7). See, e.g., Qwest II, 398 F.3d at
1234. Hence, the § 254(b) principles are factors to be considered
when the Court determines whether the FCC “relied on factors
which Congress has not intended it to consider” or if it “entirely
failed to consider an important aspect of the problem.” Motor
Vehicle Mfrs., 463 U.S. at 43.

Although it must base its USF policies on the § 254(b)
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principles, the FCC may “balance the principles against one another
when they conflict, but may not depart from them altogether to
achieve some other goal.” Qwest I, 258 F.3d at 1200. It “must
demonstrate that its balancing calculus [took] into account the full
range of principles Congress dictated to guide [it] in its actions.”
Qwest II, 398 F.3d at 1234.

Alongside the universal service mandate of the 1996 Act is the
directive that local telecom markets be opened to competition. See
Alenco, 201 F.3d at 615. The FCC “must see to it that both
universal service and local competition are realized.” Id. (emphasis
in original). With that in mind, we turn to the FCC’s decision to
make its CAF II support program the virtual preserve of the big
ILEC price-cap carriers. See Jt. Br. at 5 n.2.

The FCC decided that, in exchange for making a state-level
broadband deployment commitment, the price-cap ILEC would be
the “presumptive recipient” of USF support for the five-year CAF II
period. Order ¶ 171 (JA ). This reservation of $1.8 billion in
annual support, see id. ¶ 156 (JA ), is anticompetitive on its face
and flouts the FCC’s longstanding core principle of competitive
neutrality. See Jt. Br. at 18.
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Effectively conceding that offering CAF II support exclusively
to ILECs implicates competitive neutrality, see Order ¶ 176 (JA ),
the FCC contended that the principle works only to prevent it from
“treating competitors differently in ‘unfair’ ways.” Id. (quoting Rural
Cellular Ass’n v. FCC, 588 F.3d 1095, 1104 (D.C. Cir. 2009)). But if
fairness is the new test, the FCC did not explain how it was fair to
disadvantage CETCs by denying them access to CAF II support, and
reserving this support for large ILECs against whom CETCs must
compete.

The FCC claimed that competitive neutrality was trumped by
the § 254(b)(2) and (b)(3) principles that consumers have access to
comparable “advanced telecommunications and information
services.” See id. ¶ 177 (JA ). However, the (b)(2) and (b)(3)
principles only apply when the FCC exercises its authority under §
254(c)(2) and (h)(2) to provide public institutional telecom users
access to “advanced telecommunications and information services.”
See supra p. 26. Moreover, the FCC cannot consider access to
information services that are ineligible for USF support, when
deciding how to disburse USF support to common carrier ETCs.
See supra p. 19. By relying on factors which Congress did not
34


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intend it to consider, the FCC acted arbitrarily and capriciously.
See Motor Vehicle Mfrs., 463 U.S. at 43.

The FCC entirely failed to consider that making CAF II support
available only to ILECs would not aid in opening local telecom
markets to effective competition, which was the principal goal of the
1996 Act. See Time Warner, 507 F.3d at 212. Indeed, “Title II was
expanded to include additional requirements intended to break up
the dominance of a small number of LECs over the telecommuni-
cations market.” Id. Abandoning competitive neutrality in favor of
making CAF II support accessible only to the largest LECs will serve
only to preserve and advance their dominance in the local telecom
market. The FCC’s failure to consider the principal goal of the 1996
Act renders its decision to make USF support available only to
ILECs arbitrary and capricious. See Motor Vehicle Mfrs., 463 U.S. at
43.
IV. THE
REPEAL
OF
THE
IDENTICAL SUPPORT RULE AND

THE ADOPTION OF A SINGLE-WINNER REVERSE
AUCTION
EXCEEDED
THE FCC’S AUTHORITY AND
WERE
OTHERWISE
ARBITRARY
AND
CAPRICIOUS

A.
The FCC Failed to Provide a Reasoned
Explanation
for
Repealing
Its
Rule
Abandoning its practice of providing USF support to multiple
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CETCs in an area, the FCC decided to disburse Mobility I support to
only one CETC per area, the winning bidder in a reverse auction.
See Jt. Br. at 30. Having opted to distribute support to CETCs by a
single-winner auction, the FCC repealed its “identical support rule”
based on its finding that the “rule is no longer necessary or in the
public interest.” Id. at 31. Considering the FCC’s long-standing
antipathy for its rule,24 the Court should subject its repeal to
particularly close scrutiny.


When it repeals a rule, the FCC must provide a reasoned
explanation for its rule change. Fox Television, 556 U.S. at 502. A
detailed justification for a rule change is necessary when, for
example, the FCC’s “new policy rests upon factual findings that
contradict those which underlay its prior policy.” Id. at 515. The
repeal of the identical support rule warranted such a justification,
because the rule was prescribed to meet the mandate that
“sufficient and competitively-neutral funding” be provided to enable

24 An agency may not “simply disregard rules that are still on the
books.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515
(2009). Nevertheless, the FCC disregarded the identical support
rule since 2008, when it imposed an interim cap on support to
CETCs, thereby ensuring that they would not receive identical
support to that provided ILECs. See High-Cost Universal Service
Support,
23 F.C.C.R. 8834, 8837-40 (2008).
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all customers to receive basic telecom services. Alenco, 201 F.3d at
620.

The FCC found that to ensure competitive neutrality, a CETC
that “wins a high-cost customer from an [ILEC] should be entitled
to the same amount of support that the incumbent would have
received for the line.” Federal-State Joint Bd. on Universal Service,
14 F.C.C.R. 20432, 20480 (1999). The FCC stressed that unequal
USF funding “could discourage competitive entry in high-cost areas
and stifle a competitor’s ability to provide service at rates
competitive to those of the incumbent.” Id.

When it repealed the identical support rule, the FCC ignored
its prior policy choice of ensuring competitively-neutral funding.
See Order ¶¶ 502-511 (JA ). Instead, the FCC found that the rule
did not “effectively serve” its goal of providing “appropriate levels of
support for the efficient deployment of mobile services in areas that
do not support a private business case for mobile voice and
broadband.” Id. ¶¶ 502, 511 (JA ). The FCC did not explain how
its goal was based on any of the § 254(b) principles insofar as
broadband services are ineligible for USF support.

The FCC was obliged to provide a detailed explanation of how
37


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its “balancing calculus” of the statutory principles led it to replace
the rule with the Mobility I auction. The FCC’s calculus is hardly
self-evident, considering that no USF support will be provided to
some areas, see Order ¶ 509 (JA ), and that the auction would favor
larger CETCs, see id. ¶ 326 (JA ), while distributing USF support
“to at most one bidder in an area.” Id. ¶ 328 (JA ). Because the
FCC did not provide the requisite explanation, the Court should
vacate the repeal of the rule and remand the matter to the FCC.
See Bell Atlantic Telephone Cos. v. FCC, 206 F.3d 1, 9 (D.C. Cir.
2000).

B.
The Adoption of the Mobility I Auction


Exceeded
the FCC’s Authority


The 1996 Act established a dual, federal-state telecom
regulatory scheme that was dubbed “cooperative federalism.” See
BellSouth Telecommunications, Inc. v. Sanford, 494 F.3d 439, 448
(4th Cir. 2007). With respect to universal service, the 1996 Act
“plainly contemplates a partnership between federal and state
governments,” Qwest I, 258 F.3d at 1203, under which “the States,
subject to boundaries set by Congress and federal regulators, are
called upon to apply their expertise and judgment and have the
38


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freedom to do so.” BellSouth, 494 F.3d at 448.

Within the boundary set by § 214(e)(2), States are free to
designate at least one ETC for a service area. See Jt. Br. at 11-12.
Service areas are by definition established by the States, see 47
U.S.C. § 214(e)(5), except that an RTC’s service area is defined by its
“study area” and cannot be redefined by the FCC without State
concurrence after considering the Board’s recommendation. See Jt.
Br. at 12. Thus, States have the “primary responsibility for
deciding which carriers qualify as ETCs to be eligible” for USF
support, WWC Holding Co., Inc. v. Sopkin, 488 F.3d 1262, 1271
(10th Cir. 2007), and the “primary jurisdiction” for setting the
service areas for the ETCs that they designate. Order ¶¶ 390 n.662,
1090 & n.2214 (JA ).

By virtue of the FCC’s decision “not to subsidize competition,”
id. ¶ 319 (JA ), and its adoption of a single-winner Mobility I
auction, States were deprived of their § 214(e)(2) authority to
designate more than one CETC in a given area. By unilaterally
deciding that it would define the areas throughout which CETCs
would provide USF-supported services based on census blocks, see
Order ¶¶ 332, 346 (JA ), the FCC preempted the primary
39


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jurisdiction of the States to establish such areas. See id. ¶ 1090
(JA ).

The FCC could not articulate a cogent legal theory justifying
its preemption of State authority, as demonstrated by the following:
As Verizon notes, the statute’s goal is to expand
availability of service to users. It is certainly true that [§]
214(e) allows the states to designate more than one
provider as an [ETC] in any given area. But nothing in
the statute compels the states … to do so; rather the
states … must determine whether that is in the public
interest. Likewise, nothing in the statute compels that
every party eligible for support actually receive it.25


Contrary to Verizon’s view, the recognized goal of the 1996 Act
was to promote “local competition while preserving universal
service.” AT&T, Inc. v. United States, 629 F.3d 505, 508 (5th Cir.
2011). More to the point, § 214(e)(2) conferred on the States the
authority “to designate more than one … ETC in a given area” and
to “determine whether that is in the public interest.” That conferral
of authority necessarily deprived the FCC of authority to limit
Mobility I support to one CETC in any FCC-designated, census
block-based service area.

The 1996 Act did not remove the power to designate ETCs and

25 Order ¶ 318 (JA ) (footnotes omitted).
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establish USF service areas from the States’ “exclusive control”
under § 2(b) of Act, 47 U.S.C. § 152(b). Iowa Utilities Bd., 525 U.S.
at 381 n.8. Because § 2(b) constitutes “a congressional denial of
power to the FCC,” Louisiana PSC, 476 U.S. at 1901-02, the FCC
was without jurisdiction to preempt State authority by the use of
the Mobility I auction. See WWC Holding, 488 F.3d at 1270-71 (the
§ 2(b) jurisdictional limitation and Louisiana PSC survived the 1996
Act to preclude federal preemption of State authority over wireless
CETC designations). Because the FCC’s actions exceeded its
jurisdiction, the Court should vacate the Order insofar as it
established the single-winner Mobility I reverse auction. See, e.g.,
American Library, 406 F.3d at 708.
VI. THE $500 MILLION ANNUAL MOBILITY II BUDGET
WAS
ARBITRARILY
AND CAPRICIOUSLY SET


The overarching policy goal of § 254 is the “preservation and
advancement of universal service.” 47 U.S.C. § 254(b). Thus, the
FCC must establish “specific, predictable, and sufficient” support
mechanisms to “preserve and advance universal service.” Id. §
254(b)(5), (d). To provide “sufficient” support, the FCC must ensure
that “there is sufficient and competitively-neutral funding to enable
41


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all customers to receive basic telecommunications services.”
Alenco, 201 F.3d at 620. The FCC’s rulemaking obligation in this
regard was spelled out by the Qwest II Court:
[T]he FCC must … craft a support mechanism taking into
account all the factors that Congress identified in
drafting the Act and its statutory obligation to preserve
and advance universal service. No less important, the
FCC must fully support its final decision on the basis of
the record before it.26


The FCC did not meet the Qwest II standard when it set the
annual budget for Mobility II support for CETCs at $500 million,
compared to a $4 billion annual budget for ILECs. Order ¶ 126 (JA
); see Jt. Br. at 26, 30. The FCC concluded that the Mobility II
budget would “be sufficient to sustain and expand the availability of
mobile broadband.” Order ¶ 495 (JA ). But it failed to supply a
nexus between any record findings and its conclusion.

The FCC found that wireless CETCs (other than Verizon and
Sprint) received $921 million in high-cost support in 2010, of which
$579 million flowed to “carriers other than the four nationwide
providers.” Id. Assuming that AT&T and T-Mobile would forego
USF support, and that the four national carriers would not reduce

26 398 F.3d at 1237 (emphasis in original).
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their “coverage footprints” in the absence of support, the FCC
leaped to the conclusion that support to regional and small wireless
CETCs could be reduced from the 2010 level of $579 million to
$500 million and still be sufficient. See Order ¶ 495 (JA ).

The FCC’s critical assumptions have no basis in the record.
The FCC did not cite to any record representation by Verizon,
Sprint, AT&T or T-Mobile that it would maintain current coverage if
its USF support is phased out. Neither AT&T nor T-Mobile made a
record commitment that it would forego Mobility II support going
forward.27 The FCC made no findings supporting its conclusions
that $579 million was sufficient support for regional and small
wireless CETCs in 2010 and that $500 million in annual support
would be sufficient for them in the future. Finally, no findings
supported the FCC’s conclusion that providing 800 percent more
USF funding to large ILECs than to wireless CETCs would
constitute competitively-neutral funding.
Contrary
to
Qwest II, the FCC did not attempt to demonstrate

27 AT&T received $289 million in USF support in 2010. Order ¶ 501
(JA ). If either AT&T or T-Mobile were to receive any portion of the
$500 million budgeted for Mobility II, support available to regional
and small carriers would be reduced far below the 2010 level.
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that it considered the § 254(b) principles when it set the Mobility II
budget at $500 million. Nor did it explain how a 46 percent
reduction in 2010 support to wireless CETCs would be sufficient
from the consumers’ perspective to preserve, much less advance,
universal service.

The FCC provided neither assurance that it considered all the
§ 254(b) principles nor a “discernible path” from its findings to its
conclusion that a $500 million annual budget would meet the
Alenco sufficiency standard. American Radio Relay League, Inc. v.
FCC, 524 F.3d 227, 241 (D.C. Cir. 2008). Because the FCC’s
conclusory explanation is insufficient to enable appellate review of
the sufficiency of the Mobility II support mechanism, the matter
must be remanded to the FCC for further proceedings. See Qwest
II, 398 F.3d at 1239; Qwest I, 258 F.3d at 1205.



VII. THE FCC DID NOT RESPOND TO COMMENTS CALLING

FOR A SEPARATE MOBILITY FUND FOR INSULAR AREAS

The APA’s notice-and-comment procedures “obligate the FCC
to respond to all significant comments, for ‘the opportunity to
comment is meaningless unless the agency responds to significant
points raised by the public.’” ACLU, 823 F.2d at 1581 (quoting
44


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HBO, Inc. v. FCC, 567 F.2d 9, 35-36 (D.C. Cir. 1977)). Moreover,
the FCC “must respond in a reasoned manner” to significant
comments, Covad Communications Co. v. FCC, 450 F.3d 528, 550
(D.C. Cir. 2006), which “cast doubt on the reasonableness of a
position taken by the agency.” Arizona PSC, 562 F.3d at 1128
(quoting National Mining Ass’n v. Mine Safety Health Admin., 116
F.3d 520, 549 (D.C. Cir. 1997)).
The FCC construes the § 254(b)(3) principle to require that
consumers in “rural, insular and high cost areas” have access to
telecom services that are “reasonably comparable” in terms of price
and quality to “those services provided in urban areas.” High-Cost
Universal Service Support, 25 F.C.C.R. 4136, 4148 (2010) (“Insular
Order”). It recognizes that § 254(b)(3) affords it discretion to
establish a separate support mechanism for consumers in insular
areas. See id. And the FCC evidently determined that the question
of whether it should reserve a defined amount of funds in the CAF
for insular areas was a significant issue for it sought comment on
the issue. See Jt. Br. at 31.
The FCC received comments from wireless CETCs in insular
areas urging it to establish a separate insular component of the
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Mobility Fund.28 In contrast to its 25-page disposition of a request
for a support mechanism for non-rural insular ILECs in Puerto
Rico, see Insular Order, 25 F.C.C.R. at 4137-64, and its
establishment of a separate Tribal Mobility I fund, see Order ¶¶
481-88 (JA ), the FCC relegated its one-sentence response to the
wireless CETCs’ comments to the margin of the Order. See id. ¶ 481
n.790 (JA ). The FCC declined to create a Mobility Fund for insular
areas, because “these areas generally do not face the same level of
deployment challenges as Tribal areas.” Id. That unexplained
statement was unresponsive to the comments the FCC invited and
received.
For the FCC’s decision making to be rational, it must be found
to have responded to the “significant points” raised in comments.
Allied Local and Regional Manufacturers Caucus v. EPA, 215 F.3d
61, 80 (D.C. Cir. 2000). The wireless CETCs made significant
points that deserved a reasoned response. The FCC’s failure to
provide one demonstrates that its “decision was not based on a

28 See, e.g., Comments of DOCOMO, PR Wireless, Choice, and
BlueSky, WC Docket No. 10-90, at 10-11 (Apr. 18, 2011) (JA );
Comments of PR Wireless, WT Docket No. 10-208, at 1-5 (Dec. 16,
2010) (JA ).
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consideration of the relevant factors.” Covad, 689 F.3d at 784. The
Order should be remanded to the FCC to respond to the comments.
See Louisiana Federal Land Bank Ass’n v. Farm Credit Admin., 336
F.3d 1075, 1085 (D.C. Cir. 2003).
CONCLUSION

We ask the Court to vacate and remand §§ I-IX of the Order.



Respectfully
submitted,








/s/ Russell D. Lukas





RUSSELL D. LUKAS




DAVID A. LAFURIA




TODD B. LANTOR




LUKAS, NACE, GUTIERREZ & SACHS, LLP

8300
Greensboro
Drive
Suite
1200
McLean,
Virginia
22102




(703) 584-8678





Counsel for
Cellular
Network
Partnership,
a
Limited







Partnership
Cellular
South,
Inc.
d/b/a
C
Spire
Wireless
DOCOMO
Pacific,
Inc.
Nex-Tech
Wireless,
LLC




PR Wireless, Inc.










United States Cellular Corporation


October 23, 2012
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scanned
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viruses
using
Trend
Micro
Office Scan, version 10.0 Service Pack (most recently updated on
October 23, 2012) and determined to be free of viruses.






/s/ Russell D. Lukas





Russell D. Lukas

48


Appellate Case: 11-9900 Document: 01018937581 Date Filed: 10/23/2012 Page: 62
Appellate Case: 11-9900 Document: 01018937591 Date Filed: 10/23/2012 Page: 62

CERTIFICATION OF SERVICE



I, Russell D. Lukas, certify that on this 23rd day of October
2012, the foregoing Uncited Wireless Carrier Universal Service Fund
Principal Brief was filed using the Court’s CM/ECF system. I
further certify that the brief was served on all parties via the Court’s
ECF system.






/s/ Russell D. Lukas





Russell D. Lukas

49


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