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Case number 20-1471, IntelliPoint Inc.

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Petitioner versus Federal Communications Commission and United States of America.

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Mr. King for the petitioner, Ms.

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Citrine for the respondents, Mr. Horvitz, amicus curiae.

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Good morning.

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Good morning, Mr. King, Ms.

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Citrine, Mr. Horvitz.

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Mr. King, we'll hear from you first whenever you're ready.

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Morning, Your Honors.

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May it please the Court, Kevin King for Petitioner Intelliquent.

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Your Honors, this case is very different than the preceding one.

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This one concerns the FCC's toll-free calling order, and in particular, the one-tenth of a cent per minute rate cap imposed by that order.

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Your Honors, we would submit that the rate cap should be set aside because the FCC failed to comply with the APA's requirement of reasoned decision-making.

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And I'd like to focus on two aspects of that problem today in particular.

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First, the FCC's arbitrary and inconsistent treatment of the rate data submitted by IntelliQuint.

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And second, the FCC's near total deference to a deal struck by U.S.

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telecom's large, well-connected member companies.

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Is it the case that neither set of data is really complete or representative, neither IntelliQuint's nor U.S.

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telecom's?

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Yeah, with respect to costs, I would concede that neither of them gives a direct clear picture of current costs for tandem services.

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And for that reason, you know, we think that there's a historical linkage between our data and costs.

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But I prefer today with the court's indulgence to focus on our arguments about rates and why they're relevant.

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And one of the reasons I want to do that is the studies submitted by IntelliQuint and U.S.

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telecom spoke to the same basic thing.

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the national average for current rates charged for tandem services.

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You've got apples and apples between those two.

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And yet, nevertheless, the FCC treated them inconsistently, right?

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The FCC's approach adopting US telecoms proposal while dismissing similarly situated conflicting evidence submitted by IntelliQuint was arbitrary and capricious.

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That's really our first argument here today.

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Our model showed a nationwide average rate of 1.7 tenths of a cent per minute based on a broad and comprehensive data set consisting of more than 3 billion call minutes per month, the vast majority of which were drawn from jurisdictions served by low cost providers.

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As T-Mobile said in its comments, IntelliQuence model provided a reliable nationwide profile

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of toll-free calling traffic.

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Okay, could you maybe just explain a bit what you expected the FCC to do here?

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So you can see that there is no reliable cost data on either side and you suggest you need the

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1.7 tenths of a cent as opposed to the rate that they adopted.

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But how was the FCC supposed to choose between the two of them?

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Did you expect them to pick a midpoint?

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What did you exactly want them to do with your proposed rate as opposed to U.S.

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telecom's proposed rate?

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Sure.

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Two responses, Judge Rao.

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I do want to clarify what I said earlier.

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We do think that there is historical linkage, not a perfect direct one, but we do think that our rate data did shed some light on costs and that the agency should have taken that into account in some fashion.

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So again, setting that aside and focusing just on what the agency should have done with respect to current rates.

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Our point is not really that the FCC should have been constrained in picking our rate or U.S.

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telecoms.

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We're not here today arguing that the FCC was compelled to select our proposed 1.7 tenths of a cent per minute rate.

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Instead, what we think the FCC needed to do was treat our data consistently with U.S.

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telecoms, since they both spoke to the same exact topic, an average of current rates,

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And it needed to give a reasoned explanation.

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If it's going to choose U.S.

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telecoms proposal, one tenth of a cent per minute, it needed to explain why that proposal better serves the order's goals than ours did.

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It needed to compare the two and work with them.

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As this court said in the genuine parts case and as this court said in business roundtable,

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Judge Ginsburg, a decision that you authored, the agency has a duty to address conflicting data.

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We're not really saying what they needed to do after they address that conflicting data.

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We're simply arguing that they needed to address it.

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Isn't a central aspect of your challenge, though, that the rate that was set doesn't adequately take into account cost, but

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You never provided the commission with any data about the specific cost for your services, for IntelliQuent services, did you?

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We did not.

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And so the narrow point there, we would concede we never provided IntelliQuent's cost data to the court.

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So we don't actually know whether today.

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I mean, I know that you have a tariff and that there's an implication there that a higher rate was approved and the tariff is still valid.

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One of the responses I take the commission to have made to that was, yeah, it's still a valid tariff, but costs have actually really reduced radically over time.

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And so it's really not reasonable.

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I know there's a little bit of sparring back and forth in the briefing, but it's not really reasonable to think that costs, in fact, are as high as they were when that tariff was set.

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Well, I mean, you know, the tariffs were initially, the price caps were initially set in 1990 based on actual costs.

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And then the FC made periodic downward adjustments to account for efficiency gains.

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And you can have a debate about, you know, sort of how, you know, how reliable, you know, current price caps are in terms of reflecting, you know, current costs there, you know, in our view, there is some relationship there.

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You can debate how strong it is.

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But again, even if you credit entirely the FCC's cost concerns, the order is still arbitrary and capricious because it doesn't give a reasoned explanation for treating our data differently than US telecoms.

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Both of them spoke to the same issue, yet the FCC adopted US telecoms and brushed ours aside, even though the cost subjection that the FCC raised with respect to our data applies equally to US telecoms data, right?

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I don't know if this is really, I mean, you could flip that and say, you know, you're advocating the commission shouldn't base a national rate on any one provider's data, but you're basically saying, well, they should have relied on ours, which would have been subject under your theory to the exact same challenge from U.S.

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telecom.

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So what would have been your defense had the had the commission embraced your data and not U.S.

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telecom?

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Well, I think if

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Well, I'm trying to think this through.

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If the agency had embraced our data after comparing the two and considering both of them and not just sort of brushing one off on an irrelevant inconsistent ground,

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and sort of, you know, gone through the paces and explained which of them better serves the orders, various objectives.

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I don't know what our defense would have been.

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But again, that's not what the agency did here.

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The agency brushed ours aside on cost grounds, grounds that apply equally to both data sets, and then proceeded to without really any further reference to ours just to adopt wholesale U.S.

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telecoms proposal.

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Didn't the FCC in part suggest that the IntelliQuint proposal would better prevent arbitrage for toll-free numbers, right?

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And was there any evidence that your rate would have the same impact?

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I don't think, as to your first question, Judge Rao, I don't think there's anywhere in the order.

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And we've spent a lot of time with this order, as I'm sure you and your clerks have.

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There's nowhere in there where the FCC says U.S.

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telecoms proposal is going to better deter arbitrage than in telecoms.

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They never get to that.

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Mr. King, the point was, though, that any lower price would reduce arbitrage because the opportunities for arbitrage would be reduced.

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Yeah, and so our rate, your honor, our proposal, which we're not arguing the FCC was required to accept, but ours would be, you know, a nationwide weighted average, right?

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So, you know, half the rates out there in the world would come, would be above it and would need to come down.

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So there would be substantial reduction.

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But you say it's a nationwide weighted average, but it's based only on your data.

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You talk about the very large billion data points, but it's only, again, like US telecom, it's only a subset of the market, a nationwide but nonetheless subset.

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Well, I guess I resist that a little bit, your honor, because for a few reasons.

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One of them is the FCC's benchmarking rule.

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When a competitive provider provides tandem service under the benchmarking requirement, it must peg its rates to the local incumbents.

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And so the rate cap for a competitive provider is going to be tied to that local incumbent.

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IntelliQuint provides service nationwide, 49 states.

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So we're tying our benchmarking our rates to a wide range of different incumbents, which means our data is nationwide and it takes into account not just large providers, which is what US Telecom looked at exclusively, but also data from smaller providers.

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That's a really nice point.

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And that's in your comments in the record?

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Where is that in the record?

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It is.

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If you look at page, I believe it's 92 of the record, footnote five, but let me verify that for you.

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Yeah, that's that's right.

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J92 footnote three.

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We explain that the 10 miles of transit and I'm sorry one other citation for you on that.

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J.A.

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268 footnote 5, we explained that we take into account data from areas served by smaller providers.

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So you do have this difference, right?

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Our data is a weighted national average.

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U.S.

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telecoms is an unweighted survey only of areas served by large providers.

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And we don't even really know which large providers U.S.

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telecoms surveyed, right?

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U.S.

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telecom has both large and small members.

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So how do we know that they surveyed only their large members?

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We know for a few reasons, Judge Ginsburg, one is that that's what they said.

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They represented the second letter.

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They said that they had a unanimous approval from their membership.

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They have unanimous approval from their membership.

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I don't think the record discloses what their membership is, but the one-tenth of a cent per minute calculation is, by its terms, the approximate midpoint of the rates currently charged by U.S.

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telecom's larger members.

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That's what the FCC said in the order.

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Apparently, the smaller members are happy enough to live with it, right?

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It appears so, but I guess, Your Honor, what I'd say in response to that, and if you look at the Fifth Circuit's decision in Texas office, which draws on reasoning from this court's precedent, even unanimous agreement among industry stakeholders is not sufficient.

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Agencies are not permitted to see near total deference to those kinds of agreements.

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And here, the agreement among the industry was not unanimous, right?

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You had a number of providers, including IntelliQuint, T-Mobile, Peerless, and others who were challenging U.S.

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telecom's approach.

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And so Judge pillar just to come back to something you were saying and I think Judge row you were raising this as well.

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Is there evidence that intelligence, you know proposal would have well served the orders goal of deterring arbitrage, yes, you know we supported that goal we supported a rate cap to deter arbitrage and if you look.

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At our comments, I think at 92 to 96, and also T-Mobile's comments, the disinterested third party at JA275, they say that our approach would be well equipped to deter fraud and abuse.

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So you had record evidence that was conflicting with the conclusion the agency reached, and yet the agency brushed that evidence aside on irrelevant arbitrary selective grounds.

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And that really... There were rates out there that were an excessive, I believe, four cents in some cases, correct?

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So any rate below that will remove some opportunities for arbitrage.

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As I understand the agency's intention here in their order, they set out to do something as soon as they could to reduce arbitrage.

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on an interim basis because they are ultimately going to revisit this and devise some kind of bill and keep or other system.

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So this is saying, well, look, what can we do in the interim that will be quick and dirty?

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And here's our explanation.

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These people have agreed that this would work at one cent.

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We got a few outliers here who are complaining about one cent.

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Well, they can they can seek a waiver if they can't if they can make a cost showing that one cent doesn't recover all their costs.

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Sounds like a perfectly reasonable way to get a way station, I mean, to get to ultimately toward their goal.

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Your Honor, a few responses that I'll start with the outliers point that there's no no data in the record to show that the you know, the carriers, I think it's Orion and another one

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are necessarily outliers.

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Again, we've got data which the FCC hasn't challenged.

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If they're getting more in excess of four cents and they're identified as being on the very high end of the spectrum.

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Yeah, I think our point is that IntelliPoint did this sort of broad nationwide study and we showed a weighted national average of 0.17 cents per minute.

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And so you've got half the rates are, you know, they're out there in the world are going to be above that.

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It's based on your experience on your study based on your own data.

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And so even if it were, let's assume that your study is superior in all relevant respects in terms of accurately reflecting, what, costs?

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No, rates.

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Rates, right.

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We're talking here about what are the rates out there in the world.

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You're setting a price cap.

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The agency's setting a price cap.

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They're not interested in rates.

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They're interested in costs.

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On the contrary, Your Honor, the order says they're not looking at costs.

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It says they're just looking at rates.

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And again, they adopted lock, stock, and barrel U.S.

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telecoms proposal, which was the approximate midpoint of larger providers' current rates.

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So if that's the right metric, our submission... I misspoke there.

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They're looking at rates and trying to set a rate that is untethered to costs for the... And as I know,

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All of these the large portion of the industry indeed great majority of it can live with that is not unhappy with that.

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And they know that there are a few people who are not going to be happy with that.

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Well, again, I guess two responses your honor first is that under the Texas office case which is from the Fifth Circuit relies on this court's precedent, you know the fact that some people some part of the industry is happy with the rate is not an adequate basis to adopt that rate, especially when there's competing equally situated data, showing that that.

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that rate is not representative.

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I think the point of that in the case there, if I remember correctly, was that the agency can't just rely on the waiver process and say, well, we don't really know how many people are going to, this won't really work for them, but they can rely on the waiver case.

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Here, the agency knows that it does work for the vast majority of the industry.

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Your honor, I guess, again, our challenge, and you don't have to take it from us, you can take it from T-Mobile with JA275, is that it doesn't work for the vast majority of the industry and that U.S.

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telecom's approach would not better serve the order's objectives.

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All we're asking for here is a pretty narrow move on the FCC's part.

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to analyze our data in the rate making analysis, to factor it into that analysis on equal terms with US telecoms.

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They don't have to adopt ours.

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All they have to do is give a reasoned explanation for why one is better than the other.

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That reasoned explanation is nowhere in the record.

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And so this case really is on all fours with genuine parts where the agency overlooked relevant conflicting data.

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And what this court said is, you can't do that, right?

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The FCC invokes rate-making difference and cases about predictive judgments, but the error here doesn't implicate those precedents.

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Our challenge focuses on the decision-making process that led to selection of the rate cap and not the accuracy of the rate cap itself.

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So Mr. King, I understand the framing that you just gave, but is the underlying concern that

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the rate that the FCC chose would not cover costs for providers of tandem services, especially those that aren't diversified and so can't kind of internally cross-subsidize.

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Is that the core sort of fairness concern, if you will?

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I think that's a big part I don't think it's the only part I think you know there's a concern here that there was a backroom deal put together by us telecoms large members and they went and presented it and the FCC just sort of took it hook line and sinker and then backfill the legal analysis and so we're concerned about that too we're concerned about process as much as we are substance.

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But yes, there's a concern that for providers who have this legacy service, the so-called TDM service, not the IP modern service, that it's going to undercut them in a really meaningful, problematic way.

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And again, I keep coming back to T-Mobile.

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If you look at 275 in the appendix, you'll see they say taking U.S.

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telecom's approach is going to slow down

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progress in terms of transitioning to IP networks because providers like IntelliQuint help facilitate that process.

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Competition helps facilitate that process, but here what U.S.

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telecom's powerful members are doing is undercutting that competition.

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And I understand that your primary point is that explanation should have been fuller with respect to the choice of U.S.

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telecom's data versus your data, but is there

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Is there evidence in the record of providers of tandem services, TDM providers, whose costs won't be covered and who aren't diversified in a way that allows them to survive this?

[00:18:09] Speaker 01:
Or is that just sort of in the background of the data?

[00:18:12] Speaker 05:
I think there is some evidence of that nature in the record, and I would point in particular to a company called Orion, A-U-R-E.

[00:18:20] Speaker 01:
Right.

[00:18:20] Speaker 01:
We've seen, so Orion is what you'd point to?

[00:18:22] Speaker 05:
I think that's the best example.

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I'm not sure it's the only example.

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I'd be glad to file a 28-J if you'd like to hear more on that issue.

[00:18:29] Speaker 01:
No, I think Orion letters plenty.

[00:18:32] Speaker 01:
Do my colleagues have further questions?

[00:18:35] Speaker 06:
No, thank you.

[00:18:36] Speaker 01:
All right, well, Mr. King, we will give you, as a customer, even though we've run you out of your time, we'll give you some time for rebuttal.

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And now we'll hear from Ms.

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Citron for the commission.

[00:18:47] Speaker 03:
Good morning, Your Honors, Sarah Citron for the FCC and the United States.

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I think that the discussion that's come before really illustrates how narrow the dispute is in this case.

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We agree about a lot of things, and I think that the questions from Your Honors indicate that you understand the commission's position quite well.

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There was no evidence in the record on current costs of providing these services.

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The FCC didn't have that to go on.

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And there was also no dispute or at least IntelliQuint doesn't dispute that arbitrage was a real problem that the commission reasonably sought to address, and that other things being equal, by which I mean, a rate that two rates that were both adequately consent compensatory

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As between two rates of that nature, as Judge Ginsburg said the lower rate would better serve the commission's policy goal of deterring arbitrage so the question really becomes.

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Did the commission.

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have substantial evidence to conclude that the proposed rate cap from U.S.

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telecom would be adequately compensatory for all or nearly all carriers.

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And I'd like to.

[00:20:03] Speaker 01:
I guess I guess that the nub of what I take to be behind Mr. King's challenge is how does the commission know

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that each of these rates is, as you put it, adequately compensatory, because I think everyone agrees that there wasn't systematic cost data in this record.

[00:20:24] Speaker 01:
And if it's your burden as the rulemaker to come up with a rule that's non-arbitrary, why is that not a flaw?

[00:20:34] Speaker 03:
Yes, Your Honor, the Commission, I think it's clear from the order, a number of different considerations that the Commission

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took into account that led it to conclude that this rate was adequately compensatory.

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One of those, if you look at JA 367, footnote 216, there were a number of existing tariff rates that were already at or below this level, this .001 level.

[00:21:02] Speaker 03:
In addition, there was no evidence in the record in TelePoint doesn't even make the claim and didn't make the claim before the commission it doesn't make the claim here that it couldn't recover its costs.

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There were the commission pointed out at footnote 375.

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I believe.

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That the supporting amici here, although they made that claim they presented no data to substantiate it for before the Commission.

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Similarly, the the a cam broadband Commission or association that's referenced in the briefs they didn't present reference.

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data to show that their costs were higher.

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So the commission had nothing that would lead it to think that there were higher costs.

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And in addition, it had from U.S.

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Telecom in a number of different pleadings, including a May 2020 letter, a June 2020 letter, U.S.

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Telecom's initial rate cap proposal.

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In all of those pleadings, U.S.

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Telecom told the commission

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commission that this rate would be sufficient to allow carriers to recover legitimate costs.

[00:22:16] Speaker 01:
What about in footnote?

[00:22:18] Speaker 01:
I mean, maybe your position is that, yes, there will be some providers with far above average costs.

[00:22:28] Speaker 01:
And that's a competitive environment.

[00:22:30] Speaker 01:
They're going to be out of luck.

[00:22:33] Speaker 01:
Is that part of your position?

[00:22:35] Speaker 01:
It doesn't matter if some approved tariffed providers will not be able to recover.

[00:22:42] Speaker 03:
No, Your Honor, that's not our position.

[00:22:45] Speaker 03:
The commission recognized it in paragraph 115 of the order, I think, that the rate should be adequately compensatory, but it had

[00:23:01] Speaker 01:
reason it on on this imperfect record it had enough it believed and reasonably believed that this proposed rate would be adequately compensatory and is that is that because the so for a provider like orion as you were referring to in footnote 375 you know they say well we sort of have put cost information before the commission because the cost study that justified our tariffed rate which was

[00:23:30] Speaker 01:
I gather, four cents was the basis for the approval.

[00:23:36] Speaker 01:
So they're saying this is really cutting us off at the knees.

[00:23:41] Speaker 01:
And then as you point out in paragraph 115, you say each carrier will have the opportunity to recover its costs.

[00:23:46] Speaker 01:
And what is the assumption that a carrier like Orion in the intervening period has gone more to IP rather than

[00:23:54] Speaker 01:
TDM and therefore its costs are actually radically lower as a practical matter or is there something else going on?

[00:24:00] Speaker 03:
That might well be the case, Your Honor, but I think the other piece of this and some of the earlier questioning alluded to this is that the fact that a rate is deemed lawful under the commission's tariffing system doesn't necessarily include a robust analysis of costs.

[00:24:16] Speaker 03:
I'll agree that Orion's cost data is the only evidence in this record at all concerning any carrier's costs.

[00:24:24] Speaker 03:
But the commission, I think, reasonably anticipated that that was an outlier in light of these many, many much lower rates.

[00:24:32] Speaker 03:
And of course, IntelliQuint's proposed rate cap wouldn't have allowed Orion to recover its claimed costs either.

[00:24:40] Speaker 03:
So I think even IntelliQuint can't reasonably contend that Orion's cost should have been the basis

[00:24:46] Speaker 03:
for the commission's chosen rate cap, a reasonable rate cap.

[00:24:51] Speaker 03:
need an account for the costs of every single, the individual costs of every provider in the market.

[00:24:58] Speaker 03:
What the commission had to do was consider, was this rate likely to be good enough for the vast majority of providers?

[00:25:06] Speaker 03:
And for the reasons I was articulating, the commission and a few others I can get to, but the commission thought it was.

[00:25:14] Speaker 03:
And if there is, and I don't concede that this is the case with Orion,

[00:25:20] Speaker 03:
You know that's not the way the commission's terrifying works system works that orions claimed cost should be taken as you know as proved but.

[00:25:30] Speaker 03:
orion would have the opportunity if its costs were unusually high and my understanding is orion is kind of a uniquely situated provider in in the way that it it.

[00:25:39] Speaker 03:
It has set up its network, but it could come to the Commission and seek a waiver if this rate cap wasn't adequately compensatory.

[00:25:47] Speaker 03:
That's not relying on the waiver to justify the reasonableness of the rate cap.

[00:25:51] Speaker 02:
Yeah, that is a question I had.

[00:25:53] Speaker 02:
I mean, is the agency relying on the availability of waivers to justify the reasonableness?

[00:25:59] Speaker 02:
I mean, you're saying that it's not relying on that availability.

[00:26:03] Speaker 03:
No, Your Honor.

[00:26:04] Speaker 03:
Well, I think what the agency has to determine and explain why it has determined is that this rate cap is likely to be adequately compensatory for everyone or almost everyone

[00:26:20] Speaker 03:
And that if there is some exception, some unanticipated exception to that general rule, that there is a backstop mechanism available.

[00:26:33] Speaker 03:
And that's all the waiver is.

[00:26:35] Speaker 02:
And I'd like to- The backstop can't be a reason why a general rule is reasonable or general rate is reasonable, can it?

[00:26:45] Speaker 03:
That's correct, Your Honor, but I think it does address the.

[00:26:50] Speaker 03:
I think this court has looked in other cases to the backstop as a means if there is, is it, I believe the cases will go radio.

[00:27:00] Speaker 03:
I may not have the call sign quite correct but

[00:27:05] Speaker 03:
you know, the agency, it won't always be possible for the agency to account for every last possible outlier in setting a general rule.

[00:27:14] Speaker 03:
And if there is some exception and the agency has in place a mechanism to accommodate the, you know, possibility of such exceptions, that does support the reasonableness of the rule.

[00:27:27] Speaker 02:
So long as the rule- So you are relying on the availability of a waiver as one of your arguments.

[00:27:34] Speaker 02:
for the general rate to be reasonable.

[00:27:36] Speaker 02:
I mean, that argument strikes me as pretty difficult, frankly, for the agency.

[00:27:42] Speaker 03:
I think the rate is reasonable.

[00:27:43] Speaker 03:
Even if there were no waiver mechanism here, I think the agency would have adequately justified the compensatory nature of this rate cap, because as I said,

[00:27:56] Speaker 03:
Orion's claimed costs have not been proven.

[00:28:01] Speaker 03:
They were the only claim of any costs by any provider that were higher than the proposed rate cap.

[00:28:09] Speaker 03:
And in that context, I don't think the agency reasonably needed to set its rate cap based on that claim.

[00:28:17] Speaker 03:
And in fact, IntelliQuint doesn't think the agency reasonably needed to do that either, since its own proposed rate cap wouldn't have accounted for that.

[00:28:25] Speaker 03:
Again, the agency had here, what did it have to let it, you know, what are we relying on to support the conclusion that this rate cap was reasonable?

[00:28:35] Speaker 03:
We have many instances of much lower rate caps in that footnote.

[00:28:40] Speaker 03:
By the way, many of those carriers I might mention, I think all of them,

[00:28:45] Speaker 03:
referenced in footnote to 16 do not have long distance businesses so these are not the kinds of carriers that could be accused of cross subsidizing by paying lower rates as long distance providers.

[00:28:58] Speaker 03:
We have representations from us telecom, but this was.

[00:29:02] Speaker 03:
an above cost rate.

[00:29:03] Speaker 03:
We have, as Judge Ginsburg was pointing out, the varied membership of U.S.

[00:29:08] Speaker 03:
telecom, large carriers, small carriers, rural rate of return carriers, carriers that own tandem switches.

[00:29:14] Speaker 03:
All of those carriers agreed that they could continue to provide service within this rate cap.

[00:29:20] Speaker 03:
And we have no evidence from anyone else that they couldn't.

[00:29:24] Speaker 03:
We have no current cost data, as IntelliCoin agrees here today.

[00:29:28] Speaker 03:
And we have, in addition,

[00:29:32] Speaker 03:
carrier bandwidth that was not a member of US telecom that also supported the rate cap.

[00:29:39] Speaker 06:
Is the commission obliged by law or is it its consistent policy to make sure that a rate cap accommodates every regulated firm?

[00:29:50] Speaker 03:
Not every regulated firm, Your Honor.

[00:29:52] Speaker 06:
So the rate cap, I mean, assume there's no waiver provision.

[00:29:56] Speaker 06:
If there's some companies that cannot function under the rate cap,

[00:30:00] Speaker 06:
they simply lose out.

[00:30:03] Speaker 03:
I think that's right.

[00:30:05] Speaker 06:
Okay, I mean, this is how you're trying to move the industry towards VOIP.

[00:30:13] Speaker 06:
And there's going to be some legacy carriers, just as there were with airlines and with every other industry that either was deregulated and had a rate cap set by competition or a rate cap set by a commission.

[00:30:29] Speaker 06:
there are going to be some who cannot adapt to the next technology.

[00:30:33] Speaker 03:
That's right, Your Honor.

[00:30:35] Speaker 03:
And I just add that on this record, there's no evidence that that would be many.

[00:30:40] Speaker 03:
And in fact, no carrier has thought of labor.

[00:30:43] Speaker 06:
It's just you're not obliged to set a rate that will cover every regulated firm.

[00:30:50] Speaker 03:
That's right, Your Honor.

[00:30:51] Speaker 06:
I thought the Sakeem was to benefit consumers, actually.

[00:30:57] Speaker 03:
Yes, no, I think that gets it just right.

[00:31:00] Speaker 03:
And so for all of those reasons, if there are no further questions from the court, I'd ask that the petition for review be denied.

[00:31:09] Speaker 01:
Thank you, Ms.

[00:31:09] Speaker 01:
Citron.

[00:31:11] Speaker 01:
And now we'll hear from Mr. Horvitz for US Telecom.

[00:31:17] Speaker 04:
Thank you, Your Honors, and may it please the court.

[00:31:20] Speaker 04:
Kevin Horvitz on behalf of US Telecom.

[00:31:23] Speaker 04:
The FCC was right to conclude that US telecoms proposed rate cap was likely to reduce the incentive to make artificial toll free calls, while also providing sufficient compensation for telephone companies that offer legitimate services.

[00:31:37] Speaker 04:
I'd like to address just two points that the court has asked about here today.

[00:31:41] Speaker 04:
First, as the FCC noted, US Telecom's proposal was a consensus proposal on behalf of all of its members, not just a few large ones.

[00:31:50] Speaker 04:
That coalition of companies includes both incumbent and competitive providers of all sizes.

[00:31:57] Speaker 04:
That's in the record.

[00:31:58] Speaker 04:
It's right in the first sentence of US Telecom's proposal at JA249 and at JA259.

[00:32:05] Speaker 04:
And all of those members agreed that the rate was adequately compensatory and would serve as a meaningful deterrent to artificial toll free calls.

[00:32:14] Speaker 04:
That includes companies and many members that only provide tandem services on toll free calls and do not purchase them that could not conceivably profit from a below cost rate for tandem services.

[00:32:27] Speaker 01:
And the second point I'd like to touch on is that the commission's rationale for selecting a rate that would give a site for I'm sorry, do you have a site for that last point that it includes many who only provide tandem services are any of the record that that allows us to know that.

[00:32:45] Speaker 04:
Yes, there are a few things.

[00:32:48] Speaker 04:
Windstream's August 5th, 2020 Ex Parte at 3 is making a representation on behalf of Frontier and Windstream.

[00:32:57] Speaker 04:
And it says, because neither Frontier nor Windstream sells retail inter-exchange services, the companies would not enjoy any offsetting reduction in payment of access charges.

[00:33:09] Speaker 04:
And you're at JA.

[00:33:12] Speaker 04:
You're at JA.

[00:33:13] Speaker 04:
It's not in the joint appendix, but it is in the record that is part of the proceeding.

[00:33:19] Speaker 04:
That specific citation was not cited in the briefs, but it is because it was an undisputed proposition.

[00:33:28] Speaker 04:
U.S.

[00:33:28] Speaker 04:
Telecom includes many other members that do not sell retail inter-exchange services as well, including small rural carriers as well.

[00:33:37] Speaker 04:
So I just, I wanted to just- Your second point, I'm sorry, I interrupted you.

[00:33:42] Speaker 01:
You had a first point that it was a consensus proposal and then you were going to move on to a second point.

[00:33:46] Speaker 04:
Yes.

[00:33:47] Speaker 04:
The second point is that the commission's rationale for selecting a rate that would be a better deterrent to artificial calls is explained in a lot of detail earlier in the order and that's paragraphs 16 through 44 and 55.

[00:34:01] Speaker 04:
When they discuss the need to transition end office charges to bill and keep,

[00:34:05] Speaker 04:
And the commission explains that if they were to transition end office charges without lowering tandem rates, based on its past experience, that would be likely just to fuel arbitrage with respect to tandem calls.

[00:34:18] Speaker 04:
And so the rate Intelliquent proposed was not designed to deter that arbitrage.

[00:34:23] Speaker 04:
It was simply designed to ensure that it would not lose revenues.

[00:34:27] Speaker 04:
So if the court has no questions, we ask the court to deny the petition for BU.

[00:34:33] Speaker 01:
My colleagues have further questions.

[00:34:35] Speaker 06:
I take it, Mr. Horvitz, that going to your point about deterring arbitrage, that arbitrage is better, is more reduced to the extent the rate is reduced.

[00:34:52] Speaker 06:
Is that correct?

[00:34:53] Speaker 04:
Yes, that's absolutely right.

[00:34:54] Speaker 04:
It's just a matter of simple economics.

[00:34:56] Speaker 04:
The lower the rate is, the less room for arbitrage.

[00:35:00] Speaker 06:
Any reason to think that the one cent will eliminate all arbitrage?

[00:35:05] Speaker 04:
I think that it will have a significant effect in deterring arbitrage.

[00:35:09] Speaker 04:
I think any rate that is above cost, there's always some possibility for arbitrage, but this is much lower than the rates that were in existence that significant revenue sharing had occurred that had led to all of these problems like the generation of artificial.

[00:35:26] Speaker 06:
What's the final destination for this regulatory transition?

[00:35:31] Speaker 04:
I think that's something that the commission is still considering.

[00:35:35] Speaker 04:
I think that obviously the commission is contemplating going towards bill and keep and their further details that need to be worked out with respect to that transition.

[00:35:45] Speaker 04:
But that would be a system in which carriers are not relying on other carriers but are relying on commercial arrangements or rather than paying their customers for the privilege of completing their calls are getting paid for providing services.

[00:36:01] Speaker 04:
some different form less reliant on intercarrier compensation.

[00:36:05] Speaker 06:
Am I correct in understanding that IntelliQuant is partially but not fully moved to IP?

[00:36:12] Speaker 04:
I am not entirely sure exactly what IntelliQuint system is.

[00:36:17] Speaker 04:
I don't want to say it wrong.

[00:36:19] Speaker 04:
I would assume that they are using IP networks as well.

[00:36:21] Speaker 06:
Well, I'll ask counsel for IntelliQuint.

[00:36:24] Speaker 02:
Mr. Horvitz, can I just ask you as a practical matter, eventually, if the FCC does move to bill and keep, is there some thought that a lot of these tandem service providers will not be commercially feasible?

[00:36:39] Speaker 04:
No, I think that there are different compensation systems that could work to allow tandem providers to recover their costs of providing service.

[00:36:50] Speaker 04:
And that could be the commercial arrangements with long distance carrier or with the party that is sending them the traffic currently.

[00:37:00] Speaker 02:
And also- I guess I'm just asking, is that sort of what's going on here?

[00:37:04] Speaker 02:
Is that eventually these services are going to become obsolete?

[00:37:08] Speaker 02:
Is that part of the concern here?

[00:37:11] Speaker 04:
I don't think necessarily it'll be obsolete, but during the transition to IP networks, I do think that these services are becoming less relied on.

[00:37:21] Speaker 01:
And isn't at the end of the day, I mean, there still will need to be some kind of service or everybody can just do it themselves.

[00:37:29] Speaker 01:
I thought the assumption was that the different providers in the chain would just have to contract with one another rather than do a rate-based business model.

[00:37:41] Speaker 04:
Right, so I think that both situations could occur.

[00:37:44] Speaker 04:
I think that there could be commercial arrangements to the extent that they are continuing to rely on this intermediary player.

[00:37:53] Speaker 04:
But I also think with the transition to IP networks, you could basically skip the intermediary entirely and route directly to the long distance carrier.

[00:38:06] Speaker 01:
Thank you.

[00:38:07] Speaker 01:
Are there questions from my colleagues?

[00:38:10] Speaker 06:
No, thank you.

[00:38:11] Speaker 01:
All right, thank you, Mr. Horvitz.

[00:38:13] Speaker 01:
And Mr. King, we reserved a couple of minutes for you for rebuttal and proceed when you're ready.

[00:38:21] Speaker 05:
Thank you, Your Honor.

[00:38:22] Speaker 05:
I'll start with the just sort of factual question on what service IntelliQuint provides and other companies like IntelliQuint provide.

[00:38:29] Speaker 05:
They provide a mix of legacy TDM service and IP service and really the mainstay of what they do is they convert one to the other and ship it on to the rest of the network.

[00:38:39] Speaker 05:
There are a wide range of providers like wireless,

[00:38:42] Speaker 05:
companies like T-Mobile, for example, and small rural carriers whose network is set up in TDM.

[00:38:49] Speaker 05:
That's how they operate.

[00:38:50] Speaker 05:
They don't have their own facilities to do IP.

[00:38:52] Speaker 05:
And so where companies like IntelliQuint come in is they make that conversion.

[00:38:56] Speaker 05:
They get the traffic into the modern IP format and send it on to the rest of the network.

[00:39:01] Speaker 06:
If the traffic's going the other way, do I need you still to step it down into non-IP signals?

[00:39:11] Speaker 05:
Correct.

[00:39:11] Speaker 05:
Yeah, to get a call to a wireless, you need to step it down is my understanding.

[00:39:15] Speaker 05:
And so, you know, contrary to what Mr. Horvitz said, you can't just take the converters out of the process, the network wouldn't function in that scenario.

[00:39:22] Speaker 01:
Are there places in the country that just rely on TDM based on there are?

[00:39:28] Speaker 05:
I think I'd rather not speculate on that.

[00:39:30] Speaker 05:
My understanding is they're sort of small rural carriers where everything is in TDM, but I'm not 100% sure on that.

[00:39:35] Speaker 05:
And then again, the wireless providers, a lot of them don't have, you know, their networks not entirely IP.

[00:39:41] Speaker 05:
So that's the factual scenario.

[00:39:43] Speaker 05:
Let me go to the sort of the legal point and Judge Ginsburg from what you were saying.

[00:39:48] Speaker 05:
The FCC's order does not say lower is better and therefore U.S.

[00:39:51] Speaker 05:
telecoms proposal is better than IntelliQuence.

[00:39:54] Speaker 05:
That might be a rationale that they could give on remand, but that's not the rationale in the order.

[00:39:59] Speaker 05:
Why?

[00:40:00] Speaker 05:
Because the order arbitrarily dismissed

[00:40:02] Speaker 05:
intelligence data on cost grounds and never really grappled with it when looking at current rates.

[00:40:08] Speaker 05:
All we're asking for here is for the FCC to treat our data, which is situated similarly to U.S.

[00:40:14] Speaker 05:
telecoms, in an equal, even-handed manner and to consider them both as this court's precedents require.

[00:40:20] Speaker 05:
So that explanation is not there.

[00:40:22] Speaker 05:
Maybe it's one they could give.

[00:40:24] Speaker 05:
As far as what model would better serve consumers, I agree that that's the metric here.

[00:40:29] Speaker 05:
But again, there's no finding from the commission that US telecoms would better serve consumers or just that lower is better.

[00:40:35] Speaker 05:
Lower from a consumer standpoint is not better, because if you go too low, you're going to drive out the competition that's necessary to drive down the rates.

[00:40:43] Speaker 05:
The introduction of competitive carriers like IntelliQuint here has driven down those rates because there's competition from the incumbents that otherwise were providing this service.

[00:40:52] Speaker 05:
So there is a consumer orientation here to the procedural requests that we're making.

[00:40:57] Speaker 05:
It's notable that the FCC, you just heard argument from their council, doesn't dispute that the order is inconsistent in its treatment of our data and US telecoms.

[00:41:07] Speaker 05:
It's also notable, you've never heard at any point in this case from the FCC, that our data presents the kinds of arbitrage concerns that motivated the order.

[00:41:17] Speaker 05:
The traffic that we're studying doesn't present those concerns.

[00:41:22] Speaker 05:
Go ahead.

[00:41:23] Speaker 01:
If you had just a sentence you wanted to use to wrap up, that's fine, but I think otherwise we're...

[00:41:27] Speaker 01:
Well over time.

[00:41:28] Speaker 05:
I appreciate it, Your Honors.

[00:41:31] Speaker 05:
All we're asking for here is a reasoned explanation, and because the order doesn't give it, we urge that the rate cap should be set aside and the matter remanded to the FCC.

[00:41:41] Speaker 05:
Thank you, Your Honors.

[00:41:43] Speaker 01:
Thank you all for an illuminating and well-supported set of arguments.

[00:41:48] Speaker 01:
Case is submitted.