No IN THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Transcription

1 No IN THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT AMEREN CORPORATION, et al., Petitioners v. FEDERAL COMMUNICATIONS COMMISSION, et al., Respondents COMPTEL, doing business as INCOMPAS, et al., Intervenors On Petition for Review of Order of the Federal Communications Commission (FCC ) BRIEF FOR INTERVENOR THE UNITED STATES TELECOM ASSOCIATION IN SUPPORT OF RESPONDENTS Kevin Rupy Christopher S. Huther United States Telecom Association Claire J. Evans th Street, NW WILEY REIN LLP Suite K Street, NW Washington, DC Washington, DC (202) (202) krupy@ustelecom.org chuther@wileyrein.com cevans@wileyrein.com August 5, 2016 Counsel for the United States Telecom Association Appellate Case: Page: 1 Date Filed: 08/05/2016 Entry ID: RESTRICTED

2 SUMMARY OF THE CASE This case is about the rental rates that owners of utility poles may charge telecommunications providers and cable companies that lease space on their poles. With limited exceptions, the Federal Communications Commission must ensure that these pole attachment rates are just and reasonable. 47 U.S.C The FCC did just that in the Order on Reconsideration before this Court, which takes the next step towards setting the maximum just and reasonable rate that may be charged telecommunications providers (the telecom rate ) at approximately the same level as the maximum just and reasonable rate that may be charged cable companies (the cable rate ). Doing so encourages broadband deployment, narrows the unjustified discrepancy that existed between the just and reasonable rates that may be charged these broadband competitors, and continues to provide pole owners rent at levels the courts have found fully compensatory. Oral argument is not necessary. This challenge merely repackages a prior challenge rejected by the D.C. Circuit. The D.C. Circuit previously found that the FCC s 2011 rule revision, which harmonized the telecom and cable rates in certain circumstances, was reasonable and consistent with the statute. The Order on Reconsideration supplements that rule using the same methodology so that it will achieve the same objectives in other circumstances. Should the Court nevertheless determine that oral argument would be helpful, USTelecom requests five minutes. i Appellate Case: Page: 2 Date Filed: 08/05/2016 Entry ID: RESTRICTED

3 CORPORATE DISCLOSURE STATEMENT Pursuant to Federal Rule of Appellate Procedure 26.1 and this Court s Rule 26.1A, the United States Telecom Association ( USTelecom ) respectfully submits the following corporate disclosure statement. USTelecom is a trade association representing companies offering a wide range of services across communications platforms, including voice, video, and data over local exchange, long distance, wireless, Internet, and cable facilities. USTelecom s members include telecommunications providers that pay pole attachment rent to attach their facilities to poles owned by others and telecommunications providers that own poles and lease space to others using the Commission s telecom and cable rate formulas. USTelecom has no parent corporation and no publicly held corporation owns ten percent or more of its stock. August 5, 2016 Respectfully submitted, /s/ Christopher S. Huther Kevin Rupy Christopher S. Huther United States Telecom Association Claire J. Evans th Street, NW WILEY REIN LLP Suite K Street, NW Washington, DC Washington, DC (202) (202) krupy@ustelecom.org chuther@wileyrein.com cevans@wileyrein.com Counsel for the United States Telecom Association ii Appellate Case: Page: 3 Date Filed: 08/05/2016 Entry ID: RESTRICTED

4 TABLE OF CONTENTS Page SUMMARY OF THE CASE... i CORPORATE DISCLOSURE STATEMENT... ii TABLE OF CONTENTS... iii TABLE OF AUTHORITIES... v JURISDICTIONAL STATEMENT... 1 STATEMENT OF THE ISSUES... 2 STATEMENT OF THE CASE... 2 A. Statutory And Regulatory Background... 5 B. Procedural Background The 2011 Pole Attachment Order The 2013 D.C. Circuit Decision The Petition For Reconsideration SUMMARY OF THE ARGUMENT STANDARD OF REVIEW ARGUMENT I. The FCC Reasonably Defined Cost To Eliminate Artificial Rate Disparities A. The Statutory Language Is Ambiguous B. The FCC s Interpretation Of Section 224 Is Reasonable C. Petitioners Contrary Statutory Arguments Are Meritless iii Appellate Case: Page: 4 Date Filed: 08/05/2016 Entry ID: RESTRICTED

5 TABLE OF CONTENTS (Continued) Page II. The FCC Did Not Engage In Arbitrary And Capricious Decisionmaking A. The FCC Provided A Reasoned Explanation For Its Rule B. The Record Supports The Commission s Decision CONCLUSION CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE iv Appellate Case: Page: 5 Date Filed: 08/05/2016 Entry ID: RESTRICTED

6 TABLE OF AUTHORITIES Cases Page(s) Alabama Power Co. v. FCC, 311 F.3d 1357 (11th Cir. 2002)... 6, 8, 18 American Electric Power Service Corp. v. FCC, 134 S. Ct. 118 (2013)... 1, 2, 4, 14 American Electric Power Service Corp. v. FCC, 708 F.3d 183 (D.C. Cir. 2013)...passim Automated Matching Systems Exchange, LLC v. U.S. Securities & Exchange Commission, -- F.3d --, 2016 WL (8th Cir. June 20, 2016) Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)... 2, 20 Environmental Defense v. Duke Energy Corp., 549 U.S. 561 (2007) FCC v. Florida Power Corp., 480 U.S. 245 (1987)... 7, 8, 18 FERC v. Electric Power Supply Association, 136 S. Ct. 760 (2016) Heino v. Shinseki, 683 F.3d 1372 (Fed. Cir. 2012) Iowa Utilities Board v. FCC, 219 F.3d 744 (8th Cir. 2000).... 2, 22, 23, 26 Motor Vehicle Manufacturer Association of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983)... 2, 21, 32, 34 National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005)... 20, 24 v Appellate Case: Page: 6 Date Filed: 08/05/2016 Entry ID: RESTRICTED

7 TABLE OF AUTHORITIES (Continued) Page(s) National Cable & Telecommunications Association v. Gulf Power Co., 534 U.S. 327 (2002)... 6, 31 Nixon v. Missouri Municipal League, 541 U.S. 125 (2004) Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633 (1990) Phelps Dodge Corp. v. Occupational Safety & Health Review Commission, 725 F.2d 1237 (9th Cir. 1984) Secretary of Labor v. Beverly Healthcare-Hillview, 541 F.3d 193 (3d Cir. 2008) Verizon Communications, Inc. v. FCC, 535 U.S. 467 (2002)... 22, 23 Statutes 47 U.S.C. 1302(a)-(b)... 9, U.S.C. 1305(k)(2) U.S.C passim 47 U.S.C. 224(a)(1) U.S.C. 224(a)(4) U.S.C. 224(b)(1)... passim 47 U.S.C. 224(c) U.S.C. 224(d)... 13, 26, 29, U.S.C. 224(d)(1) U.S.C. 224(e)... passim 47 U.S.C. 224(e)(1) vi Appellate Case: Page: 7 Date Filed: 08/05/2016 Entry ID: RESTRICTED

8 TABLE OF AUTHORITIES (Continued) Page(s) 47 U.S.C. 224(e)(2)... 7, 8, 10, U.S.C. 224(e)(3)... 7, 8, 11, U.S.C. 224(e)(4) Regulations 47 C.F.R (e)(1) C.F.R (e)(2) C.F.R (e)(2)(i) C.F.R (e)(2)(ii)... 11, C.F.R C.F.R (c)... 4, C.F.R Administrative Materials Connecting America: The National Broadband Plan, 2010 WL (Mar. 16, 2010)... 9, 10 Consolidated Partial Order on Reconsideration, In the Matter of Amendment of Commission s Rules and Policies Governing Pole Attachments, 16 FCC Rcd (2001) Order on Reconsideration, Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, 30 FCC Rcd (2015)... passim Pole Attachment Rates, 81 Fed. Reg (Feb. 3, 2016)... 1 Pole Attachment Rates; Correction, 81 Fed. Reg (Feb. 17, 2016)... 1 vii Appellate Case: Page: 8 Date Filed: 08/05/2016 Entry ID: RESTRICTED

9 TABLE OF AUTHORITIES (Continued) Page(s) Report and Order and Order on Reconsideration, Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, 26 FCC Rcd 5240 (2011)... passim Report and Order on Remand, Declaratory Ruling, and Order, In the Matter of Protecting & Promoting the Open Internet, 30 FCC Rcd 5601 (2015)... 15, 16 Other Authorities Application of the Conn. Light & Power Co. to Amend Rate Schedules, 2014 Conn. PUC LEXIS 133, 318 P.U.R.4th 163 (Conn. D.P.U.C. Dec. 17, 2014) Pole Attachment Complaint, Commonwealth Tel. Co. LLC, et al. v. Metropolitan Edison Co., et al., Docket No , File No. EB-14-MD-008 (June 11, 2014) Pole Attachment Complaint, Commonwealth Tel. Co. LLC, et al. v. UGI Utilities, Inc. Electric Division, Docket No , File No. EB-14-MD-007 (May 14, 2014) S. Conf. Rep (1996) viii Appellate Case: Page: 9 Date Filed: 08/05/2016 Entry ID: RESTRICTED

10 JURISDICTIONAL STATEMENT Petitioners seek review of the Federal Communications Commission s Order on Reconsideration, Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, 30 FCC Rcd (2015) ( Order on Reconsideration ), which was issued pursuant to 47 U.S.C (Pet r App. at A ). The Order on Reconsideration was adopted on November 17, 2015, released on November 24, 2015, published in the Federal Register on February 3, 2016, and corrected on February 17, See 81 Fed. Reg (Feb. 3, 2016), 81 Fed. Reg (Feb. 17, 2016). Petitioners timely petitioned this Court for review on March 18, The Order on Reconsideration supplements the telecom rate formula adopted in the FCC s 2011 Report and Order and Order on Reconsideration, Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, 26 FCC Rcd 5240 (2011) ( Pole Attachment Order ). (Pet r App. at A ). The Pole Attachment Order was the subject of a petition for review at the U.S. Court of Appeals for the D.C. Circuit, which was denied on February 26, Am. Elec. Power Serv. Corp. ( AEP ) v. FCC, 708 F.3d 183 (D.C. Cir. 2013). The Supreme Court denied a petition for certiorari on October 7, AEP v. FCC, 134 S. Ct. 118 (2013). Appellate Case: Page: 10 Date Filed: 08/05/2016 Entry ID: RESTRICTED

11 STATEMENT OF THE ISSUES With limited exceptions not relevant here, Section 224 of the Communications Act, 47 U.S.C. 224, requires the FCC to ensure that pole attachment rates for telecommunications providers and cable companies are just and reasonable. The issue on appeal is whether the FCC properly exercised its authority under Section 224 when it supplemented the rate formula that sets the maximum just and reasonable rate for telecommunications providers so that it would better achieve the rate parity and broadband deployment goals that were already affirmed as valid by the U.S. Court of Appeals for the D.C. Circuit. The most apposite statutory provisions and cases are: 47 U.S.C AEP v. FCC, 708 F.3d 183 (D.C. Cir. 2013), cert. denied, 134 S. Ct. 118 (2013). Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). Iowa Utilities Bd. v. FCC, 219 F.3d 744 (8th Cir. 2000). Motor Vehicle Mfrs. Ass n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983). STATEMENT OF THE CASE Many companies including electric, telecommunications, and cable companies attach facilities to utility poles in order to serve their customers. Rather than create duplicative pole networks, these companies typically pay rent to lease space on existing poles owned by others. USTelecom s members include 2 Appellate Case: Page: 11 Date Filed: 08/05/2016 Entry ID: RESTRICTED

12 telecommunications providers that own utility poles and lease space to others and telecommunications providers that pay pole attachment rates to attach facilities to poles owned by others. With limited exceptions not relevant here, 1 the FCC has a statutory obligation to ensure that the pole attachment rental rates that are charged telecommunications providers and cable companies are just and reasonable. 47 U.S.C. 224(b)(1). This case involves the FCC s ongoing effort to bring into parity the just and reasonable rates that may be charged telecommunications providers and cable companies, which are competitors in today s broadband marketplace. In 2011, the FCC changed its definition of cost for purposes of setting the maximum just and reasonable rate that may be charged telecommunications providers (the telecom rate ). Pole Attachment Order (Pet r App. at A ). The new definition was intended to eliminate significant and unjustified rate disparities between the telecom rate and the rate charged cable companies (the cable rate ). Id (Pet r App. at A ). It was also intended to promote broadband deployment by reducing input costs, while still fully compensating the pole owner for the use of its pole. Id (Pet r App. at A ). On appeal, the D.C. Circuit found that the 1 The Pole Attachment Act does not apply to railroads, electric cooperatives, and municipal utilities, 47 U.S.C. 224(a)(1), or to States that have reverse-preempted the federal scheme by meeting certain statutory requirements, see id. 224(c). 3 Appellate Case: Page: 12 Date Filed: 08/05/2016 Entry ID: RESTRICTED

13 FCC s new definition of cost was consistent with the statute, reasonable, and based on valid policy goals. AEP, 708 F.3d at 190. The Supreme Court denied further review. AEP, 134 S. Ct. at 118. The 2011 definition of cost, however, did not fully achieve the FCC s goals because it contained a loophole that certain electric utilities exploited in an effort to maintain the rate disparities that the Pole Attachment Order was intended to correct. The FCC assumed that pole owners would charge telecom rates that were calculated using the average number of attaching entities reflected in the Commission s presumptions five in urban areas and three in non-urban areas. See Order on Reconsideration 10 (Pet r App. at A-285); see also 47 C.F.R (c). In these situations, the telecom rate would in general, approximate the cable rate and thereby promote network investment and broadband deployment. Order on Reconsideration 10 (Pet r App. at A-285) (citation omitted). But certain electric utilities discovered that if they substituted a different average number of attaching entities than the Commission s presumptions, they could continue to collect artificially high telecom rates. Id. 18 (Pet r App. at A ). In this way, they were able to demand telecom rates that were up to 81 percent higher than the cable rate associated with the same poles. See Comments 4 Appellate Case: Page: 13 Date Filed: 08/05/2016 Entry ID: RESTRICTED

14 of the National Cable and Telecommunications Association ( NCTA ) at 6 (June 4, 2015) (Pet r App. at A-222). On reconsideration, the FCC supplemented its prior rule as the next logical step toward achieving the goals that it intended to achieve in Order on Reconsideration 1 (Pet r App. at A ). The new rule fills in the gaps in the prior rule by addressing areas where the average number of attaching entities is two, four, or some fraction of a number. Id. 16 (Pet r App. at A-288). USTelecom supports the FCC s ongoing effort to eliminate the unjustified rate disparities between competing providers of broadband and other advanced services. A. Statutory And Regulatory Background Historically before there was cable television or broadband Internet service utility poles were owned and used by electric companies and incumbent telephone companies (also known as incumbent local exchange carriers or ILECs). Cable companies then sought access to the poles for their own network equipment. AEP, 708 F.3d at 185. But, as Congress would later recognize, there are unique economic characteristics that shape relationships between pole owners and attachers. Pole Attachment Order 4 (Pet r App. at A-003). Environmental and zoning restrictions and the very significant costs of erecting a separate pole network or entrenching cable underground often leave no practical alternative 5 Appellate Case: Page: 14 Date Filed: 08/05/2016 Entry ID: RESTRICTED

15 [for network deployment] except to utilize available space on existing poles. Id. (citation omitted). As a result, those with exclusive control over access to pole lines, are unquestionably in a position to extract monopoly rents... in the form of unreasonably high pole attachment rates. Id. (citation omitted). Certain electric utilities took full advantage of their pole ownership and sought to charge monopoly rents for [pole] access. AEP, 708 F.3d at 185 (quoting Nat l Cable & Telecomms. Ass n v. Gulf Power Co., 534 U.S. 327, 330 (2002) ( NCTA )). But utility poles are essential facilities. See Ala. Power Co. v. FCC, 311 F.3d 1357, 1362 (11th Cir. 2002). And the shared use of utility poles provides significant benefits; for example, it minimize[s] unnecessary and costly duplication of plant for all pole users. Pole Attachment Order 4 (Pet r App. at A-003) (citation omitted). As a result, Congress gave the FCC broad authority to regulate pole attachment rates to ensure that the rates are just and reasonable. 47 U.S.C. 224(b)(1). Enacted in 1978, Section 224 first granted cable companies the right to just and reasonable rates when pole owners voluntarily gave them access to their poles. With the introduction of competition into the local telecommunications market in 1996, Congress amended the statute to provide a mandatory right of access and to guarantee provider[s] of telecommunications service[s] rates that are just and reasonable. 47 U.S.C. 224(a)(4). 6 Appellate Case: Page: 15 Date Filed: 08/05/2016 Entry ID: RESTRICTED

16 Section 224 includes two limitations on the FCC s exercise of its broad authority to ensure just and reasonable rates. First, just and reasonable rates for cable companies must fall between (1) a lower bound equal to the marginal cost of the attachment and (2) an upper bound that is determined by the fully allocated cost of the construction and operation of the pole. FCC v. Fla. Power Corp., 480 U.S. 245, 253 (1987). This requirement is found in Section 224(d)(1), which states: For purposes of subsection (b) of this section, a rate is just and reasonable if it assures a utility the recovery of not less than the additional costs of providing pole attachments, nor more than 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-of-way. 47 U.S.C. 224(d)(1). Second, just and reasonable rates for telecommunications providers must (1) equally apportion the cost of the pole s unusable space among attaching entities, and (2) apportion the cost of the pole s usable space according to the percentage of that space required by each attaching entity. These requirements are found in Section 224(e)(2) and (3), which state: (2) A utility shall apportion the cost of providing space on a pole, duct, conduit, or right-of-way other than the usable space among entities so that such apportionment equals two-thirds of the costs of providing space other than the usable space that 7 Appellate Case: Page: 16 Date Filed: 08/05/2016 Entry ID: RESTRICTED

17 would be allocated to such entity under an equal apportionment of such costs among all attaching entities. (3) A utility shall apportion the cost of providing usable space among all entities according to the percentage of usable space required for each entity. 47 U.S.C 224(e)(2)-(3). Importantly, while 224(e) prescribes the apportionment criteria rather specifically, it nowhere defines the term cost. AEP, 708 F.3d at 189. The sequenced way in which cable companies and telecommunications providers obtained rate protection resulted in two separate rate formulas. The FCC first adopted the cable rate formula, setting the maximum rate that may be charged cable companies. See 47 C.F.R (e)(1). The rate that results from the cable formula has been found to fully compensate the pole owner for the use of its pole. See, e.g., Fla. Power Corp., 480 U.S. at 254; Ala. Power Co., 311 F.3d at The FCC then adopted the telecom rate formula, setting the maximum rate that could be charged telecommunications providers. See 47 C.F.R (e)(2). As [originally] implemented by the Commission, the telecom rate formula generally resulted in significantly higher pole rental rates than rates derived from the cable rate formula. Order on Reconsideration 7 (Pet r App. at A-284); see also Pole Attachment Order 131 (Pet r App. at A-058). 8 Appellate Case: Page: 17 Date Filed: 08/05/2016 Entry ID: RESTRICTED

18 B. Procedural Background By 2009, the FCC was under two additional congressional directives: (1) to encourage and accelerate the deployment of broadband and other advanced services by removing barriers to infrastructure investment, 47 U.S.C. 1302(a)- (b), and (2) to create a National Broadband Plan with strategies for ensur[ing] that all people of the United States have access to broadband capability, 47 U.S.C. 1305(k)(2). In furtherance of these directives, the FCC issued a National Broadband Plan in It recognized that [d]ifferent rates for virtually the same resource (space on a pole), based solely on the regulatory classification of the attaching provider was undermining Congress s broadband deployment goals. Connecting America: The National Broadband Plan, 2010 WL , at *97 (Mar. 16, 2010). The traditional regulatory distinctions among cable and telecommunications companies were by then essentially irrelevant, as each company was offering the same kinds of voice, data, and video services. This technological convergence meant that cable and telecommunications companies were competing vigorously with one another to provide broadband services but telecommunications providers had to pay far higher pole attachment rates to reach customers. The National Broadband Plan concluded that the manner of setting rates based on regulatory classifications had become arcane. Id. More troubling, it 9 Appellate Case: Page: 18 Date Filed: 08/05/2016 Entry ID: RESTRICTED

19 could deter broadband deployment. The telecom rates artificially increased the already exorbitant costs of deployment. Id. at * And the rate disparity discouraged deployment, as those paying the cable rate risk[ed] having a higher pole rental fee apply to their entire network if their regulatory classification changed. Id. at *98. The Plan recommended that the FCC reconsider its rate formulas and establish rental rates for pole attachments that are as low and close to uniform as possible, consistent with Section 224 of the Communications Act of 1934, to promote broadband deployment. Id. at * The 2011 Pole Attachment Order After multiple rounds of comments, public workshops, and ex parte meetings, the Commission issued its 2011 Pole Attachment Order. See Pole Attachment Order 96 (Pet r App. at A-046). The FCC found that the wide disparity in pole rental rates distorts service providers decisions regarding deployment and offering of advanced services and creates a significant barrier to the deployment of broadband and other advanced services. Id. 3 (Pet r App. at A-003). The FCC found that it had authority to revise the telecom rate formula to achieve its policy goals. It explained that Congress gave the Commission authority to interpret section 224(e), including the ambiguous phrases cost of providing space... other than the usable space in section 224(e)(2) and cost of 10 Appellate Case: Page: 19 Date Filed: 08/05/2016 Entry ID: RESTRICTED

20 providing usable space in section 224(e)(3). Id. 135 (Pet r App. at A-059). It further determined that it could comply with the Section 224(e) apportionment requirements while also lowering the telecom rate to approximate the cable rate. Id. 140 (Pet r App. at A-061). Doing so will better enable providers to compete on a level playing field, will eliminate distortions in end-user choices between technologies, and lead to provider behavior being driven more by underlying economic costs than arbitrary price differentials. Id. 147 (Pet r App. at A-064). The FCC adopted two telecom rate formulas allowing pole owners to charge up to the higher of the two resulting rates. Id. 161 (Pet r App. at A ). This was a benefit to the pole owner because the approach that in most cases results in the lower rate satisfies all statutory cost apportionment requirements. Id. 149 (Pet r App. at A-065); Order on Reconsideration (Pet r App. at A-296). The approach that generally results in a lower rate is referred to in this brief as the cost-causation approach. It appears at 47 C.F.R (e)(2)(ii). It ensures that the pole owner recovers the additional costs that it incurs because of another entity s use of its pole (essentially, its incremental costs). Pole Attachment Order 143 (Pet r App. at A-062). Petitioners do not challenge the cost-causation approach. Pet r Br. at 7. Nor do they contest the Commission s conclusion that it apportion[s] the costs among all attaching entities in accordance with section 11 Appellate Case: Page: 20 Date Filed: 08/05/2016 Entry ID: RESTRICTED

21 224(e). Order on Reconsideration 33 (Pet r App. at A-296). In other words, the approach that generally results in a lower telecom rate satisfies all statutory requirements. Petitioners instead challenge the approach that generally allows them to collect a rate higher than the statute requires. This approach is referred to in this brief as the cost-allocator approach. It appears at 47 C.F.R (e)(2)(i). This approach uses the cost allocation formula from the previous telecom rate formula, and then applies a percentage or cost allocator to the result. Pole Attachment Order 149 (Pet r App. at A ). In the Pole Attachment Order, the FCC adopted two cost allocators that were based on the Commission s presumption that there are an average of five attaching entities on poles in urban areas and an average of three attaching entities on poles in non-urban areas. Id. When used, the allocators were intended to produce a telecom rate that approximate[s] the cable rate. Id. Previously, the telecom formula recovered approximately 11.2% of the relevant cost of a pole in urbanized service areas and about 16.9% in non-urban areas. Id. 131 n.399 (Pet r App. at A-058). The cable formula, however, recovered approximately 7.4% of the relevant cost. Id. The cost-allocator approach was intended to produce a telecom rate that would like the cable rate recover about 7.4% of the relevant costs. Id. 150 n.453 (Pet r App. at A-066). 12 Appellate Case: Page: 21 Date Filed: 08/05/2016 Entry ID: RESTRICTED

22 The Commission considered the effect of its rate reforms on pole owners and concluded that its new telecom rate methodology appropriately acknowledges the policy interests in utility pole investment and of utility ratepayers. Id. 176 (Pet r App. at A-079). For example, pole owners enjoy the benefit of the costallocator approach, which will generally recover more than the incremental costs recovered under the cost-causation approach. Order on Reconsideration 24 n.91, (Pet r App. at A-292, 296). Indeed, the FCC found that both the costallocator approach and the generally lower cost-causation approach produce a telecom rate that is fully compensatory to utilities. Pole Attachment Order 183 (Pet r App. at A-082). 2. The 2013 D.C. Circuit Decision A group of electric utilities, including one Petitioner here, American Electric Power Service Corporation, challenged the Pole Attachment Order at the D.C. Circuit. They specifically took issue with the Commission s decision to adopt telecom rates under 224(d) & (e) that it has designed to be substantially equivalent to its already adopted cable rates. AEP, 708 F.3d at 188. The new methodology, the utilities argued, was nothing more than an algebraic sleight of hand designed to conflate the two rates. Id. at 190 (citation omitted). The D.C. Circuit rejected the challenge, finding the statutory language ambiguous, the Commission s interpretation consistent with the statutory text, and 13 Appellate Case: Page: 22 Date Filed: 08/05/2016 Entry ID: RESTRICTED

23 the Commission s policy justifications reasonable. Id. at The utilities offer[ed] neither theory nor fact to contradict the Commission s fundamental proposition that artificial, non-cost-based differences in the prices of inputs among competitors are bound to distort competition, handicapping the disfavored competitors and at the margin causing market share and capital to flow to less efficient firms. Id. at 190. The Supreme Court denied certiorari review. See 134 S. Ct. 118 (2013). 3. The Petition For Reconsideration In June 2011, NCTA, COMPTEL, and tw telecom inc. filed a petition with the Commission that asked it to supplement the 2011 rule with additional cost allocators. Petition for Reconsideration (Pet r App. at A ). They explained that the already-enacted cost allocators achieved the Commission s rate parity goal only if the Commission s presumptions are used to determine the average number of attaching entities, and unintentionally left in place significant rate disparities in areas where the presumptive inputs were not used. Id. at 4-7 (Pet r App. at A ). The petition predicted that some electric utilities would try to use this loophole to avoid rate reductions and perpetuate rate disparities. Id. at 4-7 (Pet r App. at A ). And it quantified the problem that would result. For example, one electric utility had recently calculated telecom rates using an average of 2.6 attaching entities, instead of the presumptive value of five for the urban area. Id. at 14 Appellate Case: Page: 23 Date Filed: 08/05/2016 Entry ID: RESTRICTED

24 5-6 (Pet r App. at A ). That one change from the Commission s presumptive inputs results in a telecom rate that is 70 percent higher than the cable rate. Id. at 6 (Pet r App. at A-150). The petition showed this amounted to a difference of as much as six dollars between the telecom and cable rates. Id. at Attachment A (Pet r App. at A-153). The negative effect of a disparity of this magnitude is illustrated by the FCC s prior observation that a $3 difference between the cable rate and the [pre-2011] telecom rate could amount to approximately $90 million to $120 million per year, which could ultimately affect subscribers and future infrastructure investment, including broadband deployment. Pole Attachment Order 175 (Pet r App. at A-079). In its 2015 Open Internet Order, the Commission expressed concern over possible rate increases of this sort and decided to monitor marketplace developments. See In the Matter of Protecting & Promoting the Open Internet, 30 FCC Rcd 5601, 5833 ( 483) (2015) ( Open Internet Order ). The intent of the 2011 rule change was clear rate parity between telecommunications providers and cable operators. Id. The question was whether the rule would be applied in a manner contrary to that intent. Id. The Commission clarified that it was not its intent to permit continued rate disparities or to increase rates by reclassifying broadband Internet access service as a telecommunications service. The Commission wrote that cable companies 15 Appellate Case: Page: 24 Date Filed: 08/05/2016 Entry ID: RESTRICTED

25 should not be charged a higher rate based on their provision of broadband Internet access service, now a telecommunications service today s decision does not justify any increase in pole attachment rates. Id. at 5833 ( 484). It cautioned utilities from misinterpret[ing] today s decision as an excuse to increase pole attachment rates and indicated that it would take action if needed to ensure parity between the cable and telecom rates. Id. at ( 482, 484). About two months later, in May 2015, the FCC asked interested parties to provide current information to refresh the record about the problem identified by NCTA, COMPTEL, and tw telecom inc. in their petition for reconsideration. (Pet r App. at A ). The subsequent filings showed that certain electric utilities had, in fact, tried to hold onto higher telecom rates by substituting lower average numbers of attaching entities into the telecom rate formula. See, e.g., Comments of Verizon at 4 (June 4, 2015) ( Verizon has encountered the rate disparities predicted. ); Reply Comments of Frontier Communications Corporation ( Frontier ) at 3 (June 15, 2015) ( Frontier... has experienced first-hand the competitive distortions and the artificial rate disparities predicted in the Petition. ). Further, there was evidence that utilities would try to charge the artificially high telecom rates to cable companies providing newly reclassified broadband services. See, e.g., Comments of Comcast Corporation ( Comcast ) at 5 (June 4, 2015) (Pet r App. at A-212). 16 Appellate Case: Page: 25 Date Filed: 08/05/2016 Entry ID: RESTRICTED

26 In November 2015, the Commission issued the Order on Reconsideration that is before this Court. Order on Reconsideration (Pet r App. at A ). It does not change the cost-causation approach for setting the telecom rate. Id. 33 (Pet r App. at A-296). It does, however, supplement the cost-allocator approach by augment[ing] the current cost allocators that target poles with 3 and 5 attaching entities with allocators for poles with an average of 2, 4, or some fraction of a number of attaching entities. Id. 16 (Pet r App. at A-288). The Order on Reconsideration build[s] on the Commission s prior efforts to harmonize pole attachment rates and is based on the same policies that motivated the 2011 rule. Id. 1, 20 (Pet r App. at A , ). It should further [the Commission s] goal of promoting consistent, cross-industry attachment rates that encourage deployment and adoption of broadband Internet access services and better fulfill[] the Commission s intent, expressed clearly in 2011 and upheld in court in 2013, to bring cable and telecom rates for pole attachments into parity at the cable-rate level. Id. 16 (Pet r App. at A-288). SUMMARY OF THE ARGUMENT It is undisputed that the Commission properly revised its telecom rate formula in 2011 to create rate parity for telecommunications providers and cable companies and encourage broadband deployment. See AEP, 708 F.3d at 190. This case involves the Commission s decision to take the next step toward achieving 17 Appellate Case: Page: 26 Date Filed: 08/05/2016 Entry ID: RESTRICTED

27 those goals. Where the 2011 Pole Attachment Order achieved rate parity in areas where the average number of attaching entities matches the Commission s presumptions of three or five, the Order on Reconsideration ensures that rate parity is also achieved in areas where some other average number of entities are attached. This will free funds for broadband investment and level the playing field, while ensuring that pole owners continue to receive rent at levels that the FCC and Supreme Court have found fully compensatory. See, e.g., Fla. Power Corp., 480 U.S. at 254; Ala. Power Co., 311 F.3d at ; Pole Attachment Order 183 (Pet r App. at A-082). The Order on Reconsideration, like the 2011 Order, is valid, consistent with the statute, and justified by the same vital federal policies. The statute gives the Commission broad leeway to set rates to ensure they are just and reasonable. See 47 U.S.C. 224(b)(1). The Commission acted consistently with the statute when it amended its telecom rate formula to achieve rate parity. AEP, 708 F.3d at 190. And the Commission s justification for doing so was reasonably based in federal policies favoring competition and broadband deployment. Id. Indeed, the Commission s rate parity efforts are essential. Cable companies and telecommunications providers offer the same kinds of voice, data, and video services, compete for the same customers, and require essentially the same space on a utility pole. But while both are entitled to a just and reasonable rate, Appellate Case: Page: 27 Date Filed: 08/05/2016 Entry ID: RESTRICTED

28 U.S.C. 224(b)(1), the Commission s rate formulas historically let electric utilities charge telecommunications providers far higher rates than they could charge cable companies. The Commission s change in 2011 did not fully solve the problem, as certain electric utilities continued to demand higher telecom rates by exploiting the loophole in the 2011 formula. This perpetuated the artificial rate disparities that have a significant negative effect on competition and broadband deployment decisions, diverting funds from deployment, creating disputes over regulatory classifications, and impacting decisions about whether and where to provide broadband service. Petitioners take issue with the Commission s rate parity goals, which will reduce the per pole rental rates that pole owners (including some of USTelecom s members) can collect. But Petitioners desire to retain artificially inflated rental rates for telecommunications providers (and to increase the rental rates they charge cable companies that offer reclassified broadband service) is no reason to vacate the Commission s reasonable decision. The Commission has acted well within its broad authority to set just and reasonable pole attachment rates and it has done so in a way that will provide pole owners rent at levels uniformly held to provide full compensation for the use of space on their poles. This Court, like the D.C. Circuit, should defer to the agency s reasonable construction of the statute and deny this Petition for Review. 19 Appellate Case: Page: 28 Date Filed: 08/05/2016 Entry ID: RESTRICTED

29 STANDARD OF REVIEW Petitioners challenge the Order on Reconsideration as arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or in excess of statutory jurisdiction, authority, or limitations. Pet r Br. at 23. They support their challenge with arguments that the Order on Reconsideration is contrary to law, id. at 25-30, and the result of arbitrary and capricious decisionmaking, id. at Petitioners statutory arguments are reviewed under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), which requires the Court to defer to the FCC s reasonable interpretation of Section 224 if the statute is ambiguous, or the interpretation is consistent with the plain meaning of the statute. Automated Matching Sys. Exch., LLC v. U.S. Sec. & Exch. Comm n, -- F.3d --, 2016 WL , at *2 (8th Cir. June 20, 2016). Where, as here, the statute is ambiguous, the Court must defer to the FCC s interpretation so long as the construction is a reasonable policy choice for the agency to make. Nat l Cable & Telecomms. Ass n v. Brand X Internet Servs., 545 U.S. 967, 986 (2005) (quoting Chevron, 467 U.S. at 845 (1984)). Petitioners procedural challenge is reviewed under an arbitrary and capricious standard. [U]nder this standard, a reviewing court may not set aside an agency rule that is rational, based on consideration of the relevant factors and within the scope of the authority delegated to the agency by the statute. Motor 20 Appellate Case: Page: 29 Date Filed: 08/05/2016 Entry ID: RESTRICTED

30 Vehicle Mfrs. Ass n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42 (1983). The scope of review under this standard is narrow and a court is not to substitute its judgment for that of the agency. Id. at 43. ARGUMENT Petitioners challenge to the FCC s 2015 rate reforms fails for the same reasons that the challenge to the 2011 rate reforms failed. The FCC has broad authority to set just and reasonable rates and it reasonably exercised that authority to reduce unwarranted rate disparities among competing providers of broadband service. As next detailed, (I) Petitioner s statutory arguments fail because the FCC s decision is consistent with the statute and important national policies, and (II) Petitioners procedural arguments fail because the record evidenced a critical need for the FCC to take this additional step to harmonize pole attachment rental rates and achieve the goals that the D.C. Circuit has already found reasonable and consistent with the statute. I. The FCC Reasonably Defined Cost To Eliminate Artificial Rate Disparities. The D.C. Circuit found that the FCC has authority to interpret Section 224 to harmonize the just and reasonable rates for cable companies and telecommunications providers. AEP, 708 F.3d at 190. Its decision applies fully here: (A) the statutory text is ambiguous, (B) the FCC s interpretation is 21 Appellate Case: Page: 30 Date Filed: 08/05/2016 Entry ID: RESTRICTED

31 reasonable, and (C) Petitioners arguments are just as meritless the second time around. A. The Statutory Language Is Ambiguous. Petitioners accept that the term cost is ambiguous in Section 224(e), Pet r Br. at 21, while also arguing that the statute s express language precludes the FCC s approach, id. at Their first position that cost is ambiguous is the right one. As the D.C. Circuit held, the term cost in 224(e)(2) and (3) is necessarily ambiguous, meaning that the FCC s reasonable agency interpretation prevails. AEP, 708 F.3d at 186, 189 (citation omitted). Section 224 is silent about how to define cost for purposes of setting the telecom rate. AEP, 708 F.3d at 189. Sections 224(e)(2) and (3) do provide rather specific[] instructions about how to apportion pole costs among attaching entities, but neither defines the term cost. Id. at Without a statutory definition, the term is open to a wide range of reasonable interpretations, id. at 189, including the one adopted here. This Court has similarly found that the word cost is a chameleon, capable of taking on different meanings, and shades of meaning, depending on the subject matter and the circumstances of each particular usage. Iowa Utilities Bd. v. FCC, 219 F.3d 744, (8th Cir. 2000), aff d in part, rev d in part sub nom. Verizon Commc ns, Inc. v. FCC, 535 U.S. 467 (2002) (citation omitted). The fact 22 Appellate Case: Page: 31 Date Filed: 08/05/2016 Entry ID: RESTRICTED

32 is that without any better indication of meaning than the unadorned term, the word cost... is... a virtually meaningless term. Verizon Commc ns, 535 U.S. at 500 (citations omitted). It can comfortably bear multiple interpretations. Sec y of Labor v. Beverly Healthcare-Hillview, 541 F.3d 193, 198 (3d Cir. 2008) (citation omitted); see also, e.g., Heino v. Shinseki, 683 F.3d 1372, 1378 (Fed. Cir. 2012) ( [T]he plain meaning of the term the cost... is ambiguous and does not reveal congressional intent. ); Phelps Dodge Corp. v. Occupational Safety & Health Review Comm n, 725 F.2d 1237, 1239 (9th Cir. 1984) ( The word cost has many common meanings. ). The ambiguity inherent in the word cost provides the FCC broad authority to fill the gap. Iowa Utilities Bd., 219 F.3d at 752. Indeed, words like cost give ratesetting commissions broad methodological leeway; they say little about the method employed to determine a particular rate. Verizon Commc ns, 535 U.S. at (citation omitted). The Commission properly exercised that authority here. See AEP, 708 F.3d at 190. B. The FCC s Interpretation Of Section 224 Is Reasonable. The Order on Reconsideration supplements the cost-allocator approach that the Commission adopted in 2011 so that the approach better achieves the same policies that justified its 2011 decision. The end result is a telecom rate methodology that continues to warrant[] judicial deference because it is 23 Appellate Case: Page: 32 Date Filed: 08/05/2016 Entry ID: RESTRICTED

33 consistent with the statute and backed by important policy justifications. AEP, 708 F.3d at 190; see also NCTA, 545 U.S. at 986 (court must defer to the agency at Chevron step two if its construction is a reasonable policy choice for the agency to make ) (citation omitted). The 2011 methodology was backed by reasonable (indeed, important) policy objectives to significantly reduce the marketplace distortions and barriers to the availability of new broadband facilities and services that arose from disparate rates. AEP, 708 F.3d at (citation omitted). Petitioners then and now have offer[ed] neither theory nor fact to contradict the Commission s fundamental proposition that artificial, non-cost-based differences in the prices of inputs among competitors are bound to distort competition, handicapping the disfavored competitors and at the margin causing market share and capital to flow to less efficient firms. Id. at 190. The Commission thus has every reason to ensure that just and reasonable rates under federal law are uniform for competing broadband providers. Petitioners do not dispute that the FCC reasonably relied on these policy objectives in See, e.g., Pet r Br. at Nor do they dispute that the 2011 reforms failed to fully achieve the Commission s rate parity objectives. Commenters reported that electric utilities demanded telecom rates following the Pole Attachment Order that were up to 81 percent higher than the cable rate. 24 Appellate Case: Page: 33 Date Filed: 08/05/2016 Entry ID: RESTRICTED

34 Comments of Verizon (June 4, 2015) (70 percent higher); Comments of Comcast at 6 (June 4, 2015) (Pet r App. at A-213) (72 percent higher); Comments of American Cable Association at 5 (June 4, 2015) (55 to 80 percent higher); Comments of NCTA at 6 (June 4, 2015) (Pet r App. at A-222) (81 percent higher). These significant disparities undermined the Commission s objective to eliminate unnecessary costs or burdens associated with pole attachments and level [the] playing field. Pole Attachment Order 6, 147 (Pet r App. at A-004, 064). One commenter, for example, estimated that electric utilities could demand over $200 million in excess rental telecom rate payments every year unless the 2011 rule was supplemented. Comments of Comcast at 4 (June 4, 2015) (Pet r App. at A-211). And inflated rent would not be the only cost. For example, absent supplementation, there would be continued disputes over the regulatory classification of attaching entities, contrary to Commission intent. Id. at 2 (Pet r App. at A-209); Pole Attachment Order 5 (Pet r App. at A-003) (pointing to need for rate parity to reduce near-constant litigation about the regulatory classification of pole attachers ). There would also be increased pole survey costs as electric utilities would have incentive to try to obtain data justifying a lower average number of attaching entities in order to increase telecom rates and there would be costly disputes over the pole survey results. See, e.g., Comments of Verizon at 5-6 (June 4, 2015); Comments of Comcast at 6-7 (June 4, 2015) (Pet r App. at A Appellate Case: Page: 34 Date Filed: 08/05/2016 Entry ID: RESTRICTED

35 14); Comments of NCTA at 3-4 (June 4, 2015) (Pet r App. at A ); Reply Comments of Frontier at 3-4 (June 15, 2015). The Commission s decision to fill the gap left by its 2011 reforms was thus backed by eminently reasonable policy justifications. As this Court has held, the FCC s interpretation of the term cost is reasonable where it promot[es] a competitive environment, as that is one of the stated purposes of the [Communications] Act. Iowa Utilities Bd., 219 F.3d at 752. Here, the FCC s construction furthered a second congressional goal as well it remov[es] barriers to infrastructure investment in order to encourage and accelerate broadband deployment. 47 U.S.C [T]he revision warrants judicial deference. AEP, 748 F.3d at 190. C. Petitioners Contrary Statutory Arguments Are Meritless. Petitioners argue that this Court should nonetheless part ways with the D.C. Circuit because the 2015 supplementation more than the original 2011 rule contradicts an express, two-formula structure in Section 224 that requires different rates for cable companies and telecommunications providers. See Pet r Br. at The 2011 definition, according to Petitioners, at least left open the possibility that the 224(e) formula could yield a rate higher than the 224(d) formula. Pet r Br. at 27. The 2015 revision, according to Petitioners, completely eliminates any possibility of a different rate and, therefore, renders 26 Appellate Case: Page: 35 Date Filed: 08/05/2016 Entry ID: RESTRICTED

36 224(e) completely superfluous. Pet r Br. at 20, 26. Petitioners are wrong for at least five reasons. First, it is not true that the D.C. Circuit s decision turned on the possibility that the telecom rate could be higher than the cable rate. Instead, the D.C. Circuit considered and rejected a challenge to the 2011 definition as nothing more than an algebraic sleight of hand designed to conflate the cable and telecom rates. AEP, 708 F.3d at 190. Then, as now, [t]he Commission expressly justifie[d] its current policy in terms of eliminating the differences between the cable and telecom rates. Id. at 189. The D.C. Circuit nonetheless found that the FCC s decision to define cost so that it creates rate parity is consistent with the statute and supported by justifications [that] are reasonable. Id. at 190. Second, the FCC did not completely eliminate[] any possibility of different cable and telecom rates, so neither rate is superfluous. See Pet r Br. at 20, Instead, the FCC refined its prior interpretation in a way that produces telecom rates that approximate the cable rate. Order on Reconsideration 19 n.72 (Pet r App. at A-290) (emphasis added). The new cost allocators will more fully... bring parity to pole attachment rates, achieve telecom rates that are consistently close to the cable rate, and minimize the difference in rental rates paid for attachments. Id. 3, 19, 28 (Pet r App. at A-282, 290, 294). They will not, in every instance, create identical cable and telecom rates. Petitioners, for 27 Appellate Case: Page: 36 Date Filed: 08/05/2016 Entry ID: RESTRICTED