ORAL ARGUMENT HAS NOT YET BEEN SCHEDULED. No In the United States Court of Appeals for the District of Columbia Circuit

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1 USCA Case # Document # Filed: 03/19/2012 Page 1 of 47 ORAL ARGUMENT HAS NOT YET BEEN SCHEDULED No In the United States Court of Appeals for the District of Columbia Circuit AMERICAN ELECTRIC POWER SERVICE CORPORATION, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, Respondents. REPLY BRIEF OF PETITIONERS On Petition for Review from the Federal Communications Commission FCC (Apr. 7, 2011), 76 Fed. Reg (May 9, 2011) Attorneys for Petitioners Sean B. Cunningham HUNTON & WILLIAMS LLP 2200 Pennsylvania Avenue NW Washington, D.C Telephone: (202) Facsimile: (202) J. Russ Campbell Eric B. Langley Jason B. Tompkins BALCH & BINGHAM LLP 1901 Sixth Avenue North, Suite 1500 Birmingham, Alabama Telephone: (205) Facsimile: (205) Reply Brief: March 19, 2012

2 USCA Case # Document # Filed: 03/19/2012 Page 2 of 47 TABLE OF CONTENTS TABLE OF AUTHORITIES... iv GLOSSARY... vii STATEMENT REGARDING ADDENDUM... 1 SUMMARY OF ARGUMENT... 2 ARGUMENT... 3 I. The FCC and ILECs cannot explain how either the statute or the record justifies the extension of 224 s protections to ILEC attachments A. The FCC s artificial distinction between telecommunications carrier and provider of telecommunications service does not trump 224 s exclusion of ILECs from both terms Where Congress says two terms mean the same thing, the two terms mean the same thing The cross-reference in the definition of telecommunications carrier is a determinative statement of Congress s intent, not a mistake in draftsmanship B. The reliance on NCTA v. Gulf Power is unavailing C. The FCC s have-it-both-ways position regarding the severability of the right of access from the rights to rates, terms and conditions is irrational D. The ILECs fail to salvage the Order s bargaining leverage rationale The record does not substantiate a shift in pole ownership since i

3 USCA Case # Document # Filed: 03/19/2012 Page 3 of The FCC ignores evidence that ILECs have ample bargaining leverage Pole attachment rates for ILECs have not risen dramatically E. ILECs are still incumbents not new entrants II. The FCC and Non-ILECs fail to explain how the reinterpreted Telecom Rate comports with the Act or constitutes reasoned agency decisionmaking A. Policy objectives do not override statutory language or replace reasoned decisionmaking B. The FCC has not justified its sudden departure from both its own precedent and court precedent Both the FCC and the courts have previously stated that the statute requires a Telecom Rate that is higher than the Cable Rate The FCC still has not explained why its interpretation of cost should change after 15 years The FCC did not actually redefine cost, but instead arbitrarily discounted the long-standing definition of cost The FCC s alternative cost causation approach does not cure its failure to actually redefine cost C. The FCC and Non-ILECs fail to explain how the new rules are supported by the record evidence The alleged evidence is nothing more than selfserving conclusions The FCC s predictive judgment is irrelevant where the record fails to show that the two-rate structure ii

4 USCA Case # Document # Filed: 03/19/2012 Page 4 of 47 contemplated by 224 has actually deterred broadband deployment III. Petitioners statutory challenge to the refund rule is not procedurally barred CONCLUSION CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE iii

5 USCA Case # Document # Filed: 03/19/2012 Page 5 of 47 TABLE OF AUTHORITIES CASES Alabama Power v. FCC, 311 F.3d 1357 (11th Cir. 2002)... 20, 21 Am. Library Ass n v. FCC, 406 F.3d 689 (D.C. Cir. 2005)... 2 Associated Gas Distribs. v. FERC, 824 F.2d 981 (D.C. Cir. 1987)...29 BellSouth Telecommc ns, Inc. v. FCC, 469 F.3d 1052 (D.C. Cir. 2006)...29 Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011)...11 Cablevision Systems Corp. v. FCC, 597 F.3d 1306 (D.C. Cir. 2010)...26 Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984)... 8 Corley v. United States, 129 S. Ct (2009)...5, 8 Davis v. Michigan Dep t of Treasury, 489 U.S. 803 (1989)...23 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)... 18, 24 FPC v. Texaco Inc., 417 U.S. 380 (1974)... 19, 24 Goodyear Atomic Corp. v. Miller, 486 U.S. 174 (1988)...24 Helvering v. Morgan s, Inc., 293 U.S. 121 (1934)... 7 In re Permian Basin Area Rate Cases, 390 U.S. 747 (1968)...19 Marchese v. Shearson Hayden Stone, Inc., 822 F.2d 876 (9th Cir. 1987)...23 Midwest Video Corp. v. FCC, 571 F.2d 1025 (8th Cir. 1978)...18 Motor Vehicle Manuf. Assoc. of the U.S. v. State Farm Mutual Auto. Ins., 463 U.S. 29 (1983)...26 NCTA v. Gulf Power Co., 534 U.S. 327 (2002)... 9, 10, 11 New Hampshire v. Maine, 532 U.S. 742 (2001)...21 Port Authority v. DOT, 479 F.3d 21 (D.C. Cir. 2007)...8, 9 U.S. v. Philip Morris USA Inc., 566 F.3d 1095 (D.C. Cir. 2009)... 7 iv

6 USCA Case # Document # Filed: 03/19/2012 Page 6 of 47 United Church of Christ v. FCC, 779 F.2d 702 (D.C. Cir. 1985)...30 Verizon Communications Inc. v. FCC, 535 U.S. 467 (2002)...21 Vonage Holdings Corp. v. FCC, 489 F.3d 1232 (D.C. Cir. 2007)...10 Whitman v. Am. Trucking Ass n, 531 U.S. 457 (2001)... 2 Wilderness Watch v. United States Forest Service, 143 F. Supp. 2d 1186 (D. Mont. 2000)...23 Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C. Cir. 1985)...29 STATUTES * 47 U.S.C * 47 U.S.C 224(a)...4, 6 47 U.S.C. 224(d)... 22, 23 * 47 U.S.C. 224(e) U.S.C U.S.C OTHER AUTHORITIES 1998 Report and Order... 3 In the Matter of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. 160(c) in the Omaha Metropolitan Statistical Area, Memorandum Opinion and Order, 20 FCC Rcd (2005)... 4 RULES D.C. Cir. R D.C. Cir. R Fed. R. App. P v

7 USCA Case # Document # Filed: 03/19/2012 Page 7 of 47 OTHER FCC MATERIALS In the Matter of Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, Order and Further Notice of Proposed Rulemaking 25 FCC Rcd (Aug. 3, 2010)... viii, 18, 27, 28 In the Matter of Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, Report and Order and Order on Reconsideration, 26 FCC Rcd. 5240, FCC (Apr. 7, 2011) viii, 11, 14, 18, 24, 25, 26, 27, 28 In the Matter of Implementation of Section 224 of the Act; Amendment of the Commission s Rules and Policies Governing Pole Attachments, Notice of Proposed Rulemaking, 22 FCC Rcd (Nov. 20, 2007)... vii, 4 Promotion of Competitive Networks in Local Telecommunications Markets, First Report and Order, 15 FCC Rcd (2000)... 4 Promotion of Competitive Networks in Local Telecommunications Markets, Notice of Proposed Rulemaking, 14 FCC Rcd (1999)... 3 *Authorities upon which Petitioners chiefly rely are marked with asterisks. vi

8 USCA Case # Document # Filed: 03/19/2012 Page 8 of 47 GLOSSARY Act Cable Rate CLEC EEI FCC The Pole Attachments Act, 47 U.S.C. 224 ( 224 of the Communications Act). The annual pole attachment rate yielded by the FCC s cable formula developed pursuant to 47 U.S.C. 224(d), which typically results in 7.4% of the annual pole cost. Competitive Local Exchange Carrier (as distinguished from an incumbent local exchange carrier, or ILEC ). The Edison Electric Institute Federal Communications Commission. ILEC An incumbent local exchange carrier as defined by 47 U.S.C. 251(h)(1); telephone companies like AT&T and Verizon are ILECs within their ILEC service territories. National Broadband Plan Non-ILECs NPRM Order Connecting America: The National Broadband Plan, 2010 WL (F.C.C.) (Mar. 16, 2010), available at Intervenors Bright House Networks, LLC; Charter Communications, Inc.; Comcast Corporation; CTIA The Wireless Association; Mediacom Communication Corp.; NexG Networks, Inc.; PCIA The Wireless Infrastructure Association; The DAS Forum; Sunesys, LLC; tw telecom inc.; Time Warner Cable; and the National Cable & Telecommunications Association ( NCTA ). In the Matter of Implementation of Section 224 of the Act; Amendment of the Commission s Rules and Policies Governing Pole Attachments, Notice of Proposed Rulemaking, 22 FCC Rcd (Nov. 20, 2007). In the Matter of Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, Report vii

9 USCA Case # Document # Filed: 03/19/2012 Page 9 of 47 and Order and Order on Reconsideration, 26 FCC Rcd. 5240, as adopted and released on April 7, 2011; the Order was subsequently published in the Federal Register at 76 Fed. Reg (May 9, 2011). 1 Order and FNPRM Telecom Rate UTC In the Matter of Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, Order and Further Notice of Proposed Rulemaking (25 FCC Rcd ); the FNPRM (75 Fed. Reg (July 15, 2010), as corrected 75 Fed. Reg (Aug. 3, 2010)) was published separately from the Order (75 Fed. Reg (Aug. 3, 2010)) in the Federal Register. The annual pole attachment rate yielded by the FCC s telecommunications formula pursuant to 47 U.S.C. 224(e); prior to the Order, the telecommunications formula typically yielded a rate between 11.2% and 16.9% of the annual pole cost; the new formula created by the Order results in approximately 7.4% of the annual pole cost (i.e., roughly the same as the Cable Rate). The Utilities Telecom Council 1998 Report and Order In the Matter of Implementation of Section 703(e) of the Telecommunications Act of 1996; Amendment of the Commission s Rules and Policies Governing Pole Attachments, 13 FCC Rcd (Feb. 6, 1998). 1 All citations made herein to the Order refer to the version of the Order released and adopted on April 7, viii

10 USCA Case # Document # Filed: 03/19/2012 Page 10 of 47 STATEMENT REGARDING ADDENDUM Pertinent statutes and regulations were set forth in the addendum bound with Petitioners opening brief in accordance with D.C. Cir. R. 28(a)(5). 1

11 USCA Case # Document # Filed: 03/19/2012 Page 11 of 47 SUMMARY OF ARGUMENT The FCC, ILEC, and non-ilec briefs largely recycle the flawed statutory analyses set forth in the Order under review. Their briefs also rely on unsupported policy, inapposite precedent, and when all else fails spurious procedural points. ILEC Issue. For fifteen years the FCC acknowledged that ILECs have no rights under Section 224 with respect to the poles of other utilities. The FCC now asserts the exact opposite, contending that 224(a)(4) contains an implicit reference to ILECs as attachers with rights under 224. Congress does not hide elephants in mouseholes. Am. Library Ass n v. FCC, 406 F.3d 689, 704 (D.C. Cir. 2005) ((quoting Whitman v. Am. Trucking Ass n, 531 U.S. 457, 468) (2001)). Yet, this is exactly what the FCC and ILECs now contend Congress did here, creating a whole class of substantive rights by implication. Even if this strained statutory construction prevails, the purported evidentiary basis for the FCC s policy shift is unsupported by the record. Telecom Rate Issue. Congress enacted two different statutory formulas for the Cable Rate and Telecom Rate. The FCC now goes out of its way and beyond its statutory authority to make these very different statutory formulas yield the same results. The FCC and Non-ILECs defend this admittedly results-driven approach by arguing that the term cost in 224(e) is unadorned and thus ambiguous. This argument misses the mark on both points. The term cost is in 2

12 USCA Case # Document # Filed: 03/19/2012 Page 12 of 47 fact adorned by the language of 224(e) itself, the language in 224(d), and fifteen years of regulatory history preceding Congress s enactment of 224(e). But even if the statute permitted the FCC to redefine the term cost, that is not what the FCC did. Instead, the FCC simply discounted the existing definition of cost to override the requirements of 224(e). Refund Rule Issue. Petitioners challenge to the refund rule as contrary to 224 was raised by a party in the rulemaking and is not procedurally barred. ARGUMENT I. The FCC and ILECs cannot explain how either the statute or the record justifies the extension of 224 s protections to ILEC attachments. ILECs are excluded from the definition of telecommunications carrier in 224(a)(5). Thus, ILEC attachments are not eligible for regulated rates, terms, conditions, or access under 224. As the FCC repeatedly acknowledged from 1998 through 2007, [b]ecause, for purposes of Section 224, an ILEC is a utility but is not a telecommunications carrier the ILEC has no rights under Section 224 with respect to the poles of other utilities Report and Order 5 [JA ]; see also Promotion of Competitive Networks in Local Telecommunications Markets, Notice of Proposed Rulemaking, 14 FCC Rcd at 36 (1999) ( The rights and obligations created under section 224 run between utilities, on the one hand, and cable television systems and telecommunications carriers, on the other hand. ); Promotion of Competitive Networks in Local Telecommunications Markets, First 3

13 USCA Case # Document # Filed: 03/19/2012 Page 13 of 47 Report and Order, 15 FCC Rcd at 72 (2000) ( While previously the protections of Section 224 had applied only to cable operators, the 1996 Act extended those protections to telecommunications carriers as well and Section 224 specifically excludes incumbent LECs from the definition of telecommunications carriers with rights as pole attachers. ) (emphasis added); In the Matter of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. 160(c) in the Omaha Metropolitan Statistical Area, Memorandum Opinion and Order, 20 FCC Rcd at 99 n.243 (2005) ( Because an incumbent LEC is a utility and not a telecommunications carrier for purposes of section 224, an incumbent LEC must grant other telecommunications carriers and cable operators access to its poles even though an incumbent LEC has no rights under section 224 with respect to those of other utilities. ); NPRM, 6 [JA ] (citing 224(a)(4) for the proposition that Congress added telecommunications carriers as a category of attacher under section 224 and that Congress excluded incumbent LECs from the definition of telecommunications carriers ). After so often stating this view as black-letter law, the FCC now says the exact opposite that 224 indisputably covers ILEC attachers. (FCC Br. 41). According to the FCC and ILECs, the pole rental fees ILECs pay to electric utilities have become grossly exorbitant compared to rates paid by cable and CLEC attachers. (ILEC Br. 16) (emphasis added); (see also FCC Br ). Thus, 4

14 USCA Case # Document # Filed: 03/19/2012 Page 14 of 47 the FCC and ILECs contend the FCC must now fully implement 224 by giving ILECs the just and reasonable rate protections afforded other attachers. (FCC Br. 54); (ILEC Br. 11). The FCC has the authority to do so, they say, because ILECs, generally speaking, provide telecommunications service and are, therefore, providers of telecommunications service. This superficial argument has two fatal flaws. First, Congress did not write the statute that way. Corley v. United States, 129 S. Ct. 1558, 1567 (2009) (internal quotes omitted). The FCC cannot fully implement an authority it does not have. Second, the record refutes their ILEC-asvictim alternative history. ILECs have not become the new entrants with no historical or incumbent advantage they purport to be (see ILEC Br. 8-9); the shift in bargaining leverage is neither factually substantiated nor sufficiently linked to the policy transformation; and the claims of grossly exorbitant rates are grossly misleading and ignore abundant record evidence to the contrary. Even if it were true that the ILECs have been so humbled as to merit 224 s protections and that the FCC has made a compelling case for the more inclusive approach, it is nevertheless Congress, not the FCC, that has the power to expand the provision to include ILEC attachments. 5

15 USCA Case # Document # Filed: 03/19/2012 Page 15 of 47 A. The FCC s artificial distinction between telecommunications carrier and provider of telecommunications service does not trump 224 s exclusion of ILECs from both terms. 1. Where Congress says two terms mean the same thing, the two terms mean the same thing. The FCC s statutory argument rests on a supposed distinction between telecommunications carrier and provider of telecommunications service. The FCC cites the principle that, [w]here different terms are used in a single piece of legislation, the courts presume that Congress intended the terms have different meanings. (FCC Br. 45) (citations omitted). But that general principle applies only where Congress has not otherwise made clear that the two terms are interchangeable, as it did in 224. See Helvering v. Morgan s, Inc., 293 U.S. 121, 126 n.1 (1934) ( Where means is employed, the term and its definition are to be interchangeable equivalents ). Congress expressly determined that telecommunications carrier and provider of telecommunications service mean the same thing under 224 whatever extra-statutory ordinary meaning either of the terms might have. Nobody disputes that ILECs are excluded from the term telecommunications carrier under 224(a)(5). The issue is whether ILECs, being excluded from the term telecommunications carrier, are thereby excluded from the term provider of telecommunications service. The answer is yes. Section 224(a)(5) provides: For purposes of this section, the term telecommunications carrier (as defined in 6

16 USCA Case # Document # Filed: 03/19/2012 Page 16 of 47 section [153] of this Act) does not include any incumbent local exchange carrier as defined in section 251(h) of this title. (Emphasis added). Section 153 specifically incorporated by reference in 224 s definition of telecommunications carrier provides that telecommunications carrier means any provider of telecommunications services except that such term does not include aggregators of telecommunications services (as defined in section 226). Id. at 153(44) (emphasis added). 2 comments: As Comcast (one of the Non-ILEC Intervenors) explained in its NPRM Connected by the word means, the two terms are equivalent, such that one can replace the other. Because the terms are interchangeable, the use of provider of telecommunications services rather than telecommunications carrier in [ 224(a)(4)] is irrelevant: it is a distinction without a difference. Comcast NPRM Comments, 49 (March 7, 2008) [JA ]; accord, e.g., U.S. v. Philip Morris USA Inc., 566 F.3d 1095, 1115 (D.C. Cir. 2009) (noting the contrasting terms means and includes distinguish exhaustive from nonexhaustive definitions ); Helvering, 293 U.S. 121 at 126 n.1 ( Where means is employed, the term and its definition are to be interchangeable equivalents ). Because they are excluded from the definition of telecommunications carrier, 2 Aggregators (e.g., restaurants that operate banks of pay telephones) are not pole attachers, and the term aggregator has no relevance to 224 or this appeal. (Pet rs Br., 21 n.14). 7

17 USCA Case # Document # Filed: 03/19/2012 Page 17 of 47 and thereby excluded from the meaning of provider of telecommunications service, ILECs have no rights under Section 224 with respect to the poles of other utilities Report and Order, 5 [JA ]. 2. The cross-reference in the definition of telecommunications carrier is a determinative statement of Congress s intent, not a mistake in draftsmanship. The FCC claims that Petitioners ascribe Congress s use of two different terms to a simple mistake in draftsmanship. (FCC Br. 45) (citing Corley, 129 S. Ct. at 1567). Hardly a mistake, Congress s draftsmanship in 224(a)(5) is a precise way of stating what the FCC, ILECs, and, most importantly, Congress understood in 1996 that, under 224, ILECs are neither telecommunications carriers nor providers of telecommunications service. As this Court held in Port Authority v. DOT, 479 F.3d 21, (D.C. Cir. 2007), with reference to a different enabling statute, [i]t can hardly have been Congress s intention to include this cross-reference and thereby incorporate the otherwise inapplicable definition, only to have the [agency] disregard the definition. We must therefore give effect to that clear congressional intent, the [agency s] contrary interpretation of the statute notwithstanding. (Citing Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, (1984)). Likewise, here the cross-reference, contained as it is in the immediate context of the term requiring interpretation, is determinative. Port Authority, 479 F.3d at 8

18 USCA Case # Document # Filed: 03/19/2012 Page 18 of The immediate context here is 224(a)(5), which excludes ILECs. Having excluded ILECs through the definition of telecommunications carrier, Congress easily could have written the definition of pole attachment to include any attachment by an (otherwise excluded) ILEC. It did not. B. The reliance on NCTA v. Gulf Power is unavailing. Failing to explain its departure from the statutory text, the FCC and the ILECs hide behind NCTA v. Gulf Power Co., 534 U.S. 327 (2002). The FCC claims petitioners ignore NCTA and, consequently, repeat the same errors the utilities made in that case. (FCC Br. 43). But the issue here is outside the scope of NCTA, 3 and the Petitioners statutory argument in no way depends on any such errors. NCTA addressed the question of whether a cable system that provides commingled cable and internet services is eligible for 224 regulated rates. The Court held that, even though the cable rate language of 224(d) applies only to attachments used solely to provide cable service, the definition of pole attachment still covers any attachment by a cable system or provider of telecommunications services. NCTA, 534 U.S. at 336 (emphasis added). 3 Avoiding Petitioners core issue, the FCC focuses on a separate argument made by EEI (relating to 224(d)-(e) s rate formulas), which the FCC contends is irreconcilable with NCTA s holding that the FCC s authority is broader than the theoretical coverage of 224(d)-(e). (FCC Br. 42) (citing NCTA, 534 U.S. at 336). Petitioners statutory case is in no way dependent on the scope of 224(d)- (e). 9

19 USCA Case # Document # Filed: 03/19/2012 Page 19 of 47 The NCTA question was not whether certain entities were cable systems within the definition of pole attachment, but whether attachments used for particular types of communications services were eligible for a regulated rate. In contrast, the question here is whether attachments by ILECs are covered at all, which turns on whether a provider of telecommunications service is the same thing as a telecommunications carrier. NCTA does not address this question, does not construe (or cite) 224(a)(5), and does not mention the term telecommunications carrier. Instead, NCTA only confirms that what matters under the statute is the character of the attaching entity the entity the attachment is by. Id. at 333. The FCC attributes its belated enlightenment to NCTA: Although the Commission once assumed that ILECs could not be both attaching entities and utilities, Gulf Power has since made clear that utility defines only whose poles are covered, not which attachments are covered. (FCC Br. 46) (quoting NCTA, 534 U.S. at 340). Although NCTA was decided in 2002, the clear meaning apparently had not occurred to the FCC before drafting its responsive brief here. 4 NCTA simply does not address the issue of whether a utility (ILEC or 4 The Order does not reference NCTA s discussion of utility at all much less as a reason to reinterpret 224 to include ILEC attachments. Vonage Holdings Corp. v. FCC, 489 F.3d 1232, 1244 (D.C. Cir. 2007) (noting that a court may not consider counsel s post-hoc rationalizations. ). 10

20 USCA Case # Document # Filed: 03/19/2012 Page 20 of 47 otherwise) can be a covered attacher. The Court merely held that a (non-ilec) provider of wireless telecommunications services is a provider of telecommunications service, so its attachment is a pole attachment under 224. NCTA, 534 U.S. at 331. C. The FCC s have-it-both-ways position regarding the severability of the right of access from the rights to rates, terms and conditions is irrational. The ILECs argue there can be regulated rates, terms, and conditions without access rights because, before 1996, 224 in fact did not guarantee access. (ILEC Br. 5-6). And the FCC claims Petitioners have not shown that this congressionally and judicially approved [pre-1996] framework for regulating pole attachments was irrational. (FCC Br. 46). But Petitioners take no position on whether, post-1996, the right of access is in fact severable from the rights to rates, terms, and conditions. The irrationality lies not in Congress s design of the pre-1996 regime, but in the FCC s arbitrary attempt to apply the pre-1996 cable attachment regime only to ILEC attachments, while simultaneously insisting that there is an acrossthe-board right to just and reasonable access under 224 as amended in See, e.g., Order 82 [JA ]. This internally inconsistent reasoning is arbitrary and capricious. (See Pet rs Br. 33) (citing Business Roundtable v. SEC, 647 F.3d 1144, (D.C. Cir. 2011)). 11

21 USCA Case # Document # Filed: 03/19/2012 Page 21 of 47 The FCC asserts that Petitioners argument regarding the inconsistency of the FCC s position (as described above) was not raised before the Commission and therefore is barred by 405. (See FCC Br. 47). This is simply not true. See Alliance Reply Comments, 85 [JA ] (noting conflict between FCC s notion of just and reasonable access and denial of access to ILECs); Alliance Ex Parte Letter (March 31, 2011), 13 [JA ] (noting [i]f access and rates are part of the same bundle of rights, as the Commission apparently presumed in its recent Declaratory Ruling on the right of timely access, the Commission would have to take a different position on ILEC attachments) (citing FNPRM 17 [JA ]). D. The ILECs fail to salvage the Order s bargaining leverage rationale. 1. The record does not substantiate a shift in pole ownership since The ILECs attempt to salvage the Order s ill-explained claim that a historical shift in relative pole ownership justifies reinterpreting the statute fares no better than the FCC s. The record suggests little or no change (much less a shift ) in ILEC pole ownership dating back to well before In some cases, the evidence actually shows a shift in the opposite direction. On this point, the ILECs blatantly misrepresent the record. (See ILEC Br ). Florida Power & Light stated that its ownership figures have not changed significantly since 1994, with a decline of less than.5% per year. (Kennedy 12

22 USCA Case # Document # Filed: 03/19/2012 Page 22 of 47 Decl., 16 [JA ]). Tampa Electric offered testimony that Verizon has actually moved closer to parity since (Angiulli Decl., 17 [JA ]; Florida IOU NPRM Comments, 7 (March 7, 2008) [JA ]). Relative to Alabama Power, Bellsouth s ownership has only slightly declined since 1996, (Boyd Decl., 5 [JA ] (emphasis added)) while its second largest ILEC partner s ownership has increased by 1% since 1996 (id. [JA ] (emphasis added)). Relative to Georgia Power, BellSouth s ownership decreased by only 2.1% since (Wilson Decl. 18 & Att. 7 [JA ]) The FCC ignores evidence that ILECs have ample bargaining leverage. The FCC does not credibly articulate how the (unproven) shift in pole ownership materially affects ILEC bargaining leverage. The record and the FCC s own Order show that ILECs still own an enormous portion of poles and that electric utilities depend on access to those ILEC poles at unregulated rates. See, e.g., Qwest FNPRM Comments (Aug. 16, 2010), 2 [JA ] ( Over 500 entities, including [CLECs] and cable providers attach to nearly 700,000 Qwest-owned poles. ); FPL and TECO NPRM Comments, 8 [JA ] ( FPL currently has facilities installed on 637,475 ILEC poles. ); Oncor NPRM Comments, 24 [JA ] ( AT&T currently owns almost 1 million poles in Texas ); Alliance Ex 5 The UTC white paper cited by the ILECs is inapposite, as its findings, which were based substantially on survey responses from utilities that are not under the FCC s jurisdiction. See UTC White Paper, 2 [JA ]. 13

23 USCA Case # Document # Filed: 03/19/2012 Page 23 of 47 Parte Letter (March 31, 2011) [JA ] ( If ILEC attachments were to become subject to Commission regulation, the rates for an electric utility s attachments on ILEC poles would remain unregulated. ); Coalition of Concerned Utilities ( CCU ) FNPRM Comments, 131 [JA ] ( Since each party is dependent upon access to the other s poles, each is motivated to treat the other in a fair and nondiscriminatory manner. ). Also, electric utilities typically require more space for their attachments on a pole than the ILEC. See CCU FNPRM Comments, 132 [JA ] (Under joint use agreements the ILEC is allocated between 2-3 feet of space on the pole for its attachments, and the electric utility is allocated feet due to safety and operational requirements. ). As the FCC confirms in the same Order, ILEC attachments on electric utility poles are not at risk due to ILEC s leverage over electric utilities: Although [ILECs] cite the potential threat of having to remove attachments from electric utility poles if an agreement is terminated, we believe that electric utilities are unlikely to pursue such actions given the likelihood that incumbent LECs would, in response, deny electric utilities access to their poles. Order 206 n.655 [JA ]. 3. Pole attachment rates for ILECs have not risen dramatically. The ILECs also claim that the Order was based on substantial record evidence showing that the rates charged by [electric utilities] for pole 14

24 USCA Case # Document # Filed: 03/19/2012 Page 24 of 47 attachments by ILECs had risen dramatically since (ILEC Br. 2, 15). But none of the three items ILECs cite as substantial record evidence supports their claim. First, AT&T alleges seven instances in which rates in individual joint use agreements with unidentified electric utilities had increased. AT&T NPRM Comments (March 7, 2008), Gauntt Declaration, 6-10) [JA ]. None of these examples identify the location of the poles or the identity of the electric utilities at issue, making it impossible to determine whether those poles would even fall within the FCC s newfound jurisdiction. Even assuming they did, there is no evidence bearing on (a) the baseline rate, (b) the length of time since the preceding increase, (c) whether the increase was consistent with the methodology in the existing joint use agreement, or (d) how the rate increase corresponded to an increase in pole costs. Second, the USTA Petition states only that some USTelecom member companies have received demands from certain energy utilities for substantial rate increases. (USTA Pet. 11) [JA ]. Setting aside the fact that neither the member companies nor the certain energy utilities are identified, and that there is no actual evidentiary support for this assertion (only unsupported commentary), this statement still only references demands not actual increases. Third, the ILECs rely upon an eleventh-hour ex parte letter to the FCC, in which USTA 15

25 USCA Case # Document # Filed: 03/19/2012 Page 25 of 47 generically claims that the rates paid by our member companies are actually increasing, though without any reference to time or any other meaningful detail. USTA Ex Parte Letter to Chairman Genachowski (March 31, 2011), 3 [JA ]. The letter, in turn, cites to an unverified ex parte presentation by Frontier to the FCC claiming that a single utility was attempting to unilaterally increase the rental rate. Frontier Ex Parte Letter (March 15, 2011) [JA ]. If the abovedescribed sources can fairly be viewed as evidence at all, it is anything but substantial and certainly is not the type of evidence that warrants a 180 reinterpretation of 224. In any event, joint use agreements between ILECs and electric utilities are infrastructure cost sharing agreements not mere license agreements pursuant to which cable television and non-ilec telecom carriers attach to poles. See CCU FNPRM Comments, [JA ] (detailing the vastly different terms and conditions of joint use agreements giving ILECs an overwhelming advantage relative to cable attachment agreements); Florida IOUs FNPRM Reply Comments, [JA ]. Thus, even if there were a temporal or economic context for the histrionics regarding rates that are numerous multiples above the rates charged to other attachers (ILEC Br. 14), there is still insufficient basis for comparing these rates given the very different bundles of rights exchanged through joint use agreements. 16

26 USCA Case # Document # Filed: 03/19/2012 Page 26 of 47 E. ILECs are still incumbents not new entrants. Astonishingly, the ILECs claim they are themselves new entrants that do not enjoy any historical or incumbent advantage relative to cable and CLEC broadband providers. (ILEC Br. 8). But AT&T, Verizon, et al. are still incumbent LECs by definition i.e., LECs that on the date of enactment of the Telecommunications Act of 1996, provided telephone exchange service. 47 U.S.C. 251(h). And ILECs still have enormous incumbent advantages in communications markets especially broadband relative to their cable and CLEC competitors. These advantages include pole ownership and superior rights under the joint use agreements with electric utilities, as well as longstanding customer relationships. 6 Even the FCC expects that ILECs will use these advantages to prey upon their competitors: incumbent LECs are usually in direct competition with at least one of the new attacher s services, and the incumbent 6 Nearly half the ILECs comments in this proceeding concern their interests as pole owners against their competitors seeking access. See, e.g., Verizon Comments, 21-34, 34-40, [JA ]; Alliance Ex Parte Letter (March 17, 2011) [JA ]. The record shows ILECs incumbent advantages both physical and commercial. See NPRM Comcast Comments, 5-7, [JA ], [JA ] (the FCC completely misses the fact that ILECs have pole attachment rights and benefits that are far superior to cable in their agreements with electric utilities and detailing same); CCU FNPRM Comments, [JA ] (detailing ILEC advantages regarding, inter alia, make-ready costs, access permission, inspection waivers, rights-of-way, preferential locations, and rearrangement costs); USTA NPRM Comments, 2 (March 7, 2008) [JA ] (ILECs are aggressively marketing bundles of voice, broadband and video to their customers ) (emphasis added). 17

27 USCA Case # Document # Filed: 03/19/2012 Page 27 of 47 LEC may have strong incentives to frustrate and delay attachment. FNPRM, 68 [JA ]. ILECs are, at most, wolves in sheeps clothing not the helpless sheep they now claim to be. II. The FCC and Non-ILECs fail to explain how the reinterpreted Telecom Rate comports with the Act or constitutes reasoned agency decisionmaking. A. Policy objectives do not override statutory language or replace reasoned decisionmaking. The FCC s brief fully embraces the policy-driven, results-oriented approach behind its new Telecom Rate formula: To significantly reduce the marketplace distortions and barriers to the availability of new broadband facilities and services, the Commission revised the telecom-rate formula so that the telecom rate more closely approximates the cable rate. (FCC Br. 26) (citing Order 151). The FCC contends this approach is acceptable because it is the result reached, not the method employed which is controlling. (FCC Br. 27) (citation omitted). Not so: The nobility of a goal or policy cannot justify usurpation, by the Commission or by us, of a power to pursue it in whatever manner we think might work. The fundamental principle that government agencies are limited to the exercise of power delegated by Congress would be nullified if an agency were at liberty to expand its jurisdiction, as far and wide as it wished, by the facile, case-by-case step of re-writing the objectives found in the delegating statute. Midwest Video Corp. v. FCC, 571 F.2d 1025, (8th Cir. 1978); accord FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125 (2000) 18

28 USCA Case # Document # Filed: 03/19/2012 Page 28 of 47 ( Regardless of how serious the problem an administrative agency seeks to address, however, it may not exercise its authority in a manner that is inconsistent with the administrative structure that Congress enacted into law. ) (citation omitted). The very case the FCC cites in support of its results-oriented approach recognizes that a statute s charge to accomplish certain goals does not authorize the Commission to set at naught an explicit provision of the Act. FPC v. Texaco Inc., 417 U.S. 380, 395 (1974). For the most part, the FCC simply ignores Step 1 of the Chevron test the very step upon which the majority of Petitioners arguments is based. Instead, the FCC relies heavily on substantial deference (to which it is purportedly entitled ). (FCC Br. 33). This puts the cart before the horse. The FCC quotes In re Permian Basin Area Rate Cases, 390 U.S. 747, (1968), for the proposition that rate-making agencies are not bound to the service of any single regulatory formula. (FCC Br. 33). But the final word quoted ( formula ) is not followed by a period within the opinion; it is followed by a semicolon. And the sentence continues: they are permitted, unless their statutory authority otherwise plainly indicates, to make the pragmatic adjustments which may be called for by particular circumstances. In re Permian Basin, 390 U.S. at 777 (emphasis added) (citation omitted). 19

29 USCA Case # Document # Filed: 03/19/2012 Page 29 of 47 B. The FCC has not justified its sudden departure from both its own precedent and court precedent. 1. Both the FCC and the courts have previously stated that the statute requires a Telecom Rate that is higher than the Cable Rate. Section 224(d) (the Cable Rate) provides for a range of rates between the additional costs of providing pole attachments on the lower end and a formulaic allocation of costs attributable to the entire pole on the higher end. See 47 U.S.C. 224(d)(1). In contrast, 224(e) (the Telecom Rate) plainly indicates a single rate based on a different allocation of the costs for both usable space and other than the usable space. Id. 224(e)(2)-(3). Thus, the FCC has long recognized that Congress mandated a Telecom Rate higher than the Cable Rate. (See Pet rs Br. 14) (quoting FCC statements that Congress affirmatively wanted a higher rate and that a higher rate is statutorily required ). 7 Now, the FCC attempts to distance itself from this history by suggesting that those statements were not based on any actual statutory analysis. (FCC Br. 39). Even if the FCC can conveniently disavow its prior Order, it cannot so easily disavow its previous litigation positions and the resulting opinions. For example, in Alabama Power v. FCC, 311 F.3d 1357, 1371 n.23 (11th Cir. 2002), the court 7 The FCC and Non-ILECs now argue that even under the pre-existing formula, the Telecom Rate is not always higher. Though this is hypothetically possible when the number of different attachers on a single pole reaches nine, it is a highly unlikely scenario that finds no support in the record. 20

30 USCA Case # Document # Filed: 03/19/2012 Page 30 of 47 recognized: [T]he Telecom Rate provided in 47 U.S.C. 224(e) yields a higher rate for telecommunications attachments than the Cable Rate provides for cable attachments. (Emphasis added). There is no indication that the court meant to refer instead to the Commission s regulations at the time, as the FCC contends. (See FCC Br. 39). After all, the Court referred to the statute, not the regulations. Moreover, in its successful opposition to a certiorari petition from the Alabama Power decision, the FCC itself characterized the Telecom Rate as Congress s determination that other pole attachers [i.e., not cable operators] should pay a higher rate. FCC Br. in Opp. to Cert. at 18, Alabama Power v. FCC, 540 U.S. 937 (2003) (No ) [JA ] (emphasis added) The FCC still has not explained why its interpretation of cost should change after 15 years. Section 224(e) provides for the allocation of the cost of the entire pole both usable space and other than usable space. Unable to dispute the clear statutory language, the FCC instead argues that the term cost is not separately defined for purposes of 224(e). Relying upon Verizon Communications Inc. v. FCC, 535 U.S. 467 (2002), both the FCC and the Non-ILECs suggest the FCC is 8 The FCC is thereby judicially estopped from contending that the statute does not require a Telecom Rate higher than the Cable Rate. See New Hampshire v. Maine, 532 U.S. 742, 749 (2001) ( [W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position. ). 21

31 USCA Case # Document # Filed: 03/19/2012 Page 31 of 47 entitled to unfettered discretion of what costs are to be allocated because the word cost is unadorned. (FCC Br. 35); (Non-ILEC Br. 6). The word cost in 224(e) is anything but unadorned. In addition to explicitly stating what cost is at issue (pole space), 224(e) also came with the adornment of pre-existing subsection 224(d), and nearly two decades of FCC precedent regarding how to compute the cost of pole space. (See Pet rs Br ) 9 The Non-ILECs even suggest that the reference to providing space might support implementing 224(e) by using an incremental cost approach. (Non-ILEC Br. 9) (emphasis in original). That assertion underscores Petitioners argument that the FCC and the Non-ILEC Intervenors are ignoring that 224(e) defines cost in terms of space rather than attachment. When Congress intended incremental costs, it said so. See 47 U.S.C. 224(d) (requiring the minimum cable rate to recover not less than the additional costs of providing pole attachments ) (emphasis added). 9 Relying on Verizon again, the FCC argues it is not bound to calculate cost in terms of past investment or historical cost. But Verizon is inapposite for two reasons, First, in Verizon, the statute expressly prohibited any reference to a rateof-return or other rate-based proceeding, each of which has been identified with historical cost. 535 U.S. at 500 (quoting 252(d)(1)). Second, it was undisputed that the cost in question in Verizon was that of the network element. Here, 224 has no such prohibition and the text of 224(e) clearly provides for recovery of the actual cost of the entire pole. 22

32 USCA Case # Document # Filed: 03/19/2012 Page 32 of 47 Section 224(d), which predates 224(e) by 18 years, also specifically includes the word space the operative term in 224(e) in its upper-bound rate. See id. 224(d)(1) (At the upper-end, a rate is just and reasonable if it assures a utility the recovery of an amount determined by multiplying the percentage of the total usable space, or the percentage of the total duct or conduit capacity, which is occupied by the pole attachment by the sum of the operating expenses and actual capital costs of the utility attributable to the entire pole, duct, conduit, or right-ofway. ) (emphasis added); see also Davis v. Michigan Dep t of Treasury, 489 U.S. 803, 809 (1989) ( [S]tatutory language cannot be construed in a vacuum [T]he words of a statute must be read in their context and with a view to their place in the overall statutory scheme. ). Congress had every reason to expect the FCC would interpret 224(e) s cost of providing space for the entire pole the same as 224(d) s cost of space on the entire pole. See Marchese v. Shearson Hayden Stone, Inc., 822 F.2d 876, 878 (9th Cir. 1987) ( [I]t is proper for this court to presume that Congress was aware of the existing administrative regulations and interpretations each time it reauthorized the Act. ); see also Wilderness Watch v. United States Forest Service, 143 F. Supp. 2d 1186, 1205 (D. Mont. 2000) ( In construing a statute, courts presume that Congress is knowledgeable about existing law pertinent to the legislation it enacts. This includes knowledge of applicable administrative regulations. ) (quoting Goodyear Atomic Corp. v. Miller, 23

33 USCA Case # Document # Filed: 03/19/2012 Page 33 of U.S. 174, (1988)); accord FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 157 (2000) (explaining that consistency of the [agency s] prior position is significant because it provides important context to Congress enactment ). 3. The FCC did not actually redefine cost, but instead arbitrarily discounted the long-standing definition of cost. Even if it were true that cost is an undefined term that the FCC may redefine, that is not what the FCC did. While the FCC purports to tinker with cost components, in the end it simply discounted the amount of costs (as understood before the Order, no less) to 44% or 66%, depending upon location of the pole. The FCC explained these discounts, not as the percentage of costs remaining after exclusion of certain components, but instead simply as the discounts necessary to approximate the cable rate. Order 149 [JA ]. This approach, the FCC says, is simple and expeditious and adequately explain[s] its decision. (FCC Br. 33). Announcing the result of its new formula, though, is not a reasoned explanation of the basis for the new formula. See Texaco, 417 U.S. at 396 (1974) ( The Commission must disclose the basis of its order and give clear indication that it has exercised the discretion with which Congress has empowered it. ). The Non-ILECs at least acknowledge the FCC s new Telecom Rate is not actually redefining cost, but simply discounting the result: The Commission 24

34 USCA Case # Document # Filed: 03/19/2012 Page 34 of 47 adopted a new just and reasonable telecom rate formula that incorporates fully allocated costs but reduces them by specified percentages (44 and 66 percent) (Non-ILEC Br. 7-8). The FCC s assertion that it has redefined cost also is belied by its different treatment of cost in urban and non-urban areas. The FCC s justification for different discounts in urban and non-urban areas is that cost characteristics can be different and the availability of, and competition for, broadband services tends to be less today [in rural areas] than in urban areas. (FCC Br. 33) (quoting Order 150 [JA ]). Using the same percentages of pole cost, the FCC and Non-ILECs contend, would increase the burden pole attachment rates pose for providers of broadband and other communications services in non-urban areas. (Non-ILEC Br. 17) (quoting Order 150 [JA ]). These statements underscore the fact that the FCC s new Telecom Rate is truly unrelated to the costs of providing pole space apportioned by 224(e) because they focus instead on the attacher s costs of providing broadband service. The relevant consideration under the statute is the cost of providing space, not the cost of attaching (or providing broadband service), and the FCC does not even claim that a pole owner s cost of providing usable space or other than usable space differs in urban versus non-urban areas. The FCC cannot disregard whose costs are relevant under 224(e) in favor of a non-statutory cost factor better suited 25

35 USCA Case # Document # Filed: 03/19/2012 Page 35 of 47 to its policy goal. Motor Vehicle Manuf. Assoc. of the U.S. v. State Farm Mutual Auto. Ins., 463 U.S. 29, 43 (1983) (finding that agency action is arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider [or] entirely failed to consider an important aspect of the problem ); accord Cablevision Systems Corp. v. FCC, 597 F.3d 1306, (D.C. Cir. 2010). 4. The FCC s alternative cost causation approach does not cure its failure to actually redefine cost. The FCC and Non-ILECs point to what is arguably a redefining of costs within the alternative Telecom Rate, but the alternative is based upon a costcausation approach that ignores explicit statutory requirements. Section 224(e)(2) unambiguously requires apportionment of the cost of providing space on a pole other than the usable space. (Emphasis added). And as the FCC notes, [U]nusable space costs are common costs [that] do not vary with the number of attachers on a pole. Thus, none of these costs is caused by the attacher. Order 192 [JA ] (footnotes omitted) (emphasis added). To justify this obvious fallacy embedded in the alternative Telecom Rate cost causation approach, the FCC and Non-ILECs reply that the alternative rate will apply only in the unusual circumstances where it exceeds the just and reasonable rate i.e., it does not matter because the alternative rate will almost never apply. (Non-ILECs Br. 8) (see also FCC Br ). Thus, their rationale goes as follows: (1) the FCC actually 26

36 USCA Case # Document # Filed: 03/19/2012 Page 36 of 47 did redefine cost in the alternative Telecom Rate based on cost causation; and (2) the fact that a cost causation approach does not comport with 224(e) is inconsequential because the alternative rate will almost never apply. This is circular reasoning at its worst. C. The FCC and Non-ILECs fail to explain how the new rules are supported by the record evidence. 1. The alleged evidence is nothing more than self-serving conclusions. The FCC argues that Petitioners contention that the Commission did not meaningfully link[] the rule change with broadband deployment decisions, Pet. Br. 48, ignores ten paragraphs in the Order extensively addressing that question. (FCC Br. 36.) Those paragraphs, though, do not include any actual evidence meaningfully linking the distinction between the Cable Rate and Telecom Rate with broadband deployment decisions. (Pet rs Br. 16) (emphasis added). Instead, these paragraphs are chock-full of unsupported conclusions and speculation. In those few places where the FCC does discuss evidence, the lack of substance is even more manifest. For example: The Order cites Charter s comments for support that disputes about the telecom rate negatively affect deployment [of broadband services]. Order 174 n.150 [JA ]. Charter s comments relied upon the FCC s FNPRM, which, in turn, relied upon (1) the NCTA s estimates of the aggregate difference across the entire cable industry if all cable operators were to pay the telecom (rather than the cable) rate. FNPRM, 25 FCC Rcd , n.317 [JA ]; and (2) the National Broadband Plan s speculation that uncertainty about the rates may be 27