thank you your honor may please the court i'm christopher wright representing ten petitioners including the ad hoc telecommunications users committee the members of ad hoc like most companies today need sophisticated business data services or b d s the other nine petitioners on ad hoc brief are telecommunications carriers who seek to provide those services it's complicated group this morning there's another group of petitioners the citizens telecom petitioners and the main thing i'd like to make clear is that our petitions are our positions are dramatically different in addition a group of intervene to be franchise monopolist in the regions that they serve and as a result they have ubiquitous networks in those regions and the problem is this is a competitor carriers i'm representing have extensive intercity networks and fiber rings around most major cities and many smaller cities but there are more than a million buildings in the country that need business data services and my clients re clients economically to deploy capillaries deploy the last mile facilities into buildings to serve clients with high bandwidth needs but low bed with is a different matter  cost there are often nearly in the hundreds of dollars a month and unlike the i lacks for us to reach those buildings we would have to trench roads and get permission to enter buildings and make modifications in buildings that just start channel terminations they are the very last last mile facility there is some transport after the major arteries and veins but the channel terminations are the lines that actually go into the customer location is undisputed that the either is the only carrier with channel terminations into eighty six percent of buildings with demand for low bandwidth b d s eighty six percent that thirteen percent a band with buildings are served by only the i lack and one competitive provider and only one percent of locations with an o b and with demand are served by three or more carriers but in the order issue the f c c promulgated a competitive market test that that deemed i vex rates competitive in more than ninety percent of low bandwidth locations on the theory that competition will restrain the i like pricing again and even though the i like is the only provider in eighty six percent of the of these buildings on its face such a is test has two prongs the first prong considers nearby potential competition from telecommunications carrier such as my client and this problem deems an entire county to be competitive if fifty percent of business locations in the county are without a half a mile of a competitive carrier the fatal flaw here is that the problem is not limited to competition from providers of low bandwidth b d s the commission to providers of high bandwidth b d s but as i've explained it's one thing to deploy facilities provide high somewhat of an inconsistent position in the sense that they do not say that cables are direct competitor of b d s for b d s services but then does imply that in fact it is a competitor for b services because there are a lot of people as i as if i understand what they're saying there are a lot of small businesses who if they have to pay x dollars for four of b d s service but they can get cable with with demand service at fifty percent though forgo the b d s what's your response to that and they seem to have statistics that back that back up position up read with everything you say until the best part your speeds requires guaranteed speeds it does not cover best efforts cable services like we might buy in our homes and yet it under this prong it counts cable providers as real competitors even if they don't provide b d s and don't provide don't even plan to provide b d s they do have they do note despite the fact that they can see that it's a separate product market that well some some some some companies will will use the best effort service just because it costs so much less that can't justify the rule they adopted which we show that the low the low b end with market is at the at is fifty megabits per second or lower it might even be higher than that but that the dispute today the dividing his fifty or lower the service without cannibalizing their cable video service they also note of course that they don't guarantee the speeds so if you go to a business and you know all that or complain that their credit cards aren't working or slow today maybe they're saving money on b d s and the cable companies can't upgrade their services to provide fiber services that are guaranteed without having the same hurdles  a true competitor if i can step back to the telecom problem for a moment prawn for a moment the f c c grievously misread the record its when it said and this is really the lynchpin of its position buildings that would be true we didn't say that none of our experts said that or anything close to that and it is obviously wrong as i already said eighty percent of buildings eighty six percent of buildings are reached only by the i that if the build outs are common and we've been trying to do this since one nine hundred ninety six when the telecom act ended the been up lees more than fourteen percent of buildings would have competitive facilities and more than one percent of buildings would have three or more facilities so is this up isn't this a prediction or predictive course under motor vehicles they can't just make conclusory statements like we expect things to change they have to explain why they think things are going to change they haven't done that like i say they have not faced like to very briefly touch on two other sort of big big mistakes the commission made just so that they're obvious and then try to save some time for rebuttal ether net facilities at issue here and the one point i want to make about that is that the commission said in paragraph eighty eight that we argued that we can't extend our legacy networks but  expand our fiber our modern networks your honor we only have modern networks we came to the party after the legacy networks we want to lease the legacy networks but the f c c just thoroughly misunderstood that and i'd also like to make a similar point about training and support we put a chart on page thirty two of our of our brief and the main thing i'd like to say about it is it shows you where we need inner office transport we need inner office transport from and i lack and office that channel terminations the last last mile piece goes from the business customer to the  office that's where we need we we typically need to go to another i like and office but the f c c is test does not look at i like and offices they talk about fiber going from the customer location to other places sort of an embarrassing year thank you answer you may please the court russell hantz or for petitioner centrelink and citizens telecommunications of minnesota i'd like to reserve one minute of my time our appeal is narrow and it turns on basic administrative law the f c c correctly decided the great majority of the issues before it but its decision regarding the x factor which is a critical element of the price caps system was based on a decisive procedural error specifically the f wrongly decided that it could not make necessary adjustments to the x factor based on its incorrect belief that the record lacked any evidence allowing it to do so our people does not turn on the intricacies of rate making and unlike mr wright's clients we are not asking this judgment for the f c c is instead our appeal turns on a simple principle of administrative law when an agency holds that the framework is adopting has a specific flaw problem and the record contains evidence proposing a solution to that problem the agency has to acknowledge and contend with that evidence it might ultimately reject the evidence but it must at least explain why it cannot simply deny that the evidence exists and on that basis declined to address the defect is recognized in its framework that's  but it's also exactly what the f c c did with regard to the x factor it agreed with us that the figures are computed we're likely to overstate productivity but it then claimed there was no evidence in the record addressing how it could account for this problem and on that basis it declined to do so in fact the record contained various studies that did just this including several authored by dr mark shankman which the petitioners here submitted these studies were discussed extensively in the record and received attention at the agency's highest levels in fact fifty two to  fifty four of the joint appendix described meetings in which dr shankman came to washington and explained his proposal for adjusting the x factor to the f c c general counsel its chief economist and the chief of the bureau responsible for this rule making among others fourteen time frame which the f c c found was too short to be a reliable basis for the x factor that's just false as we noted in our reply brief centrelink submitted analyses by dr shankar in covering six distinct time periods going all the way back to two thousand and six and each of those periods produced an x factor well below two point zero percent third the respondents contend that petitioners can't challenge the two percent x factor because centrelink during the proceeding at one point proposed a broad compromise to resolve the entire rulemaking that included an x factor in that range that's also wrong first off which citizens did not submit or sign on to that compromise at all and can't be held to its terms moreover centrelink made clear that it did not believe any single aspect of the proposal would on  own be appropriate or lawful it was a package deal the order on review actually rejected many of the aspects of the proposal that were favorable to centrelink certainly centrelink can't be held to the concessions it was willing to make when it has been denied the proposals more favorable terms responded other arguments also fall flat the emphasise that the f c c was only required to do the best it could with the evidence before it we agree entirely but this is not a case like a p c c or u s d a which they cite in which the f c c actually reviewed the record evidence and found it wanting instead this is a case where the f c c by its own admission overlooked the key evidence entirely rather than working with the evidence before it the f c c claimed it didn't exist there's also no merit to the claim that the f c c addressed any concerns by picking an x factor in the middle of the range of four figures that had computed each of those four x factors in the range was based on the same problematic dataset and suffer from the same problem and thus each was too high choosing the midpoint from the wrong range  level as the order goes through in some depth as there are reports go through it and summed up you don't want to get to company specific when you choose next factor because the point of the x factor is probably to provide incentives for companies to be as efficient as one might expect a company in that industry to be so if you have an inefficient company you don't want its inefficiency to become a cushion for it to not innovate along the way but it did rely some on the centrelink specific data that point so in short the f c c correctly found that the x factor chose was likely to overstate productivity the mistake it made was in denying there was record evidence allowing it to adjust the x factor appropriately and using that claim to justify its decision not to make such an adjustment this failure to acknowledge and relevant evidence and to  found that many though not all segments of that market are competitive today those segments are higher bandwidth services based services and transport in the market for lower bandwidth legacy technology services and what we're calling d s in lines agency found that many but not all segments are competitive and made that finding through this competitive market test your argument discussing this morning that test is based on two findings in the record about where the competition is here the first prong of the test looks for nearby b d s competitors of any type and the second prong looks for cable operators whose explosive growth in recent years is the biggest change to the b d s market so both of those fine and well grounded in the record and you happen to want to talk about that record shortly but first i just want to make two  one it's difficult to get the price right and when an agency gets the price wrong there are serious costs chiefly inhibiting investment in this transition from the legacy copper network refined all over to the tomorrow's fiber network the second point  the court to keep in mind that even areas that are no longer subject to ex ante price caps are still regulated those providers are still subject to section two a one of the act which requires that rates be just unreasonable and if a customer feels that their provider not keeping up that into the bargain they can come to the agency and bring a complaint under section to await the ad hoc court that we psyche of the d c circuit in reviewing a previous portion of this long term deregulatory effort found that section to await complaint process was an important backstop and we feel that the same is true today i was i had a question about that too short saying you have a right to bring a lawsuit does not necessarily need imply that you have an affected backstop maybe a backstop but we're we're talking about services that may be hundreds or thousands of dollars and over charges and you're saying you've got to you can bring up ten you can bring but certainly cite some in our record that they are brought also said previously that they're rare and unusual i think it is fairly rare that these have to be brought of course that also may indicate that the existing regime is working well where customers don't need to bring these but what i would say is that they certainly have been brought here they're not standards yet because this would be this would be the new regime but it's not uncommon for the standards to emerge through education i think what the most likely scenario here the commission hasn't spoken directly to this but just based on the way this is worked in other segments of the market is that a motivated customer a large sophisticated custom of ad hoc talks about this these are often large fish to get customers might bring a test case and might say we are paying this rate here and we pay to the same provider in a different area nearby a different rate and seem to be substantially similar there's no reason to charge different rates will probably be a battle of experts about whether or not the contracts are actually similar but i think they do have a path forward and the ad hoc court specifically found force that these would be motivated parties likely to bring it to take advantage of that backstop but of course it is only a backstop because the agency has found that the rates are in the areas that are no longer subject to price ex ante price gap that there is competition already so i just quickly go over a couple of points there in response to the discussion we've had already today  s i believe your honest question was about best efforts cable so it's true that the agency found that best efforts cable which doesn't provide particular service guarantees is not the same product a perfect subject for all customers but it is a subject for many customers and that there is record evidence that incumbents are losing business already to cable efforts cable best efforts service so certainly in that sense it is providing competitive pressure even if it's not a substitute for all customers in all instances the second that way in which people compete is b s service just like service over  the records as if they are competing so there are significant losses from incumbent to briefly about the half mile test as we said no brief there is evidence that even at lower bandwidth income competitive providers are competing a point to a ph forty seven of our brief which it just is one instance discusses a competitive curio that has a substantial portion of the numbers are confidential so i won't say them a court but you can read them a substantial portion of their  low bandwidth lines or at least half a mile or approximately half a mile and that commission also discussed strategies that providers use such as aggregating customers by building a circuitous route instead of running one line half a absolutely so not surprisingly you have history as some indicator of what the future is is going to hold but is there another element of evidence that they have c c considered in addition to what now exists and what the history is that then informed this prediction about the future and i'm thinking about black expert expert evidence experts in the field who have studied the industry and are and are ready to make give an expert opinion it has to be a project or e of this competition there are certainly battling experts including experts predicting finding and predicting robust competition and i but i think perhaps a little bit more generally in response to your honor's question certainly the f c c is is shooting at a moving target here and  termination and the logic behind doing that there's also the last sentence of this paragraph looking at how non cable competitive lexx have to play their networks we find this approach holds true today with these types of providers in other words that there are still some separation in eighty four the first sentence is we see coming on whether to apply our competitive market test based on different b d s customer classes during bandwidths and asked for comment on whether and if so how the commission should separate the product market by customer typ entirely i would just say that they did make informed comments the record is full of ample debate about transport so that i think that the parties which were watching this knew what this was on the table here i would point to just get the want to be a paragraph seventy eight begins commentors this is discussing transport how matters including competitive provider support maintaining this distinction distinction regulating transport and general terminations and then there's  footnote and it cites lots of commenters including competitive providers so there was robust debate about how transport should be regulated including what should be regulated separately from jail term and what isn't there or can you point to anywhere in the notice that suggests that the f c c was considering completely deregulated interoffice principle what you wanted for the first dispute that were completely deregulating but shifting the mode of regulation from  expose again the sections i were reading i was reading i think it read fairly in context with agencies saying is this is how we're planning to treat this market what do you think should we do it differently and clearly parties did comment on that proposal is on the table there where the agency didn't even give a specific proposal in this court found as the a p a requires that this if the subject is teed up and then the court sees robust discussion on an issue as it did in that case and as we do here that notice it's been adequate but then said we are unable to resolve the dispute among the parties as to whether the scope creates upward or downward bias and then says our inability on the record before us to quantify the magnitude or direction support selecting the point that we have so it's true that the agencies that it seems most likely to us to do that is skewing in this direction are the agency says several times we sign our brief but we can't be sure and we're not going to make an adjustment based on that kind of uncertainty i think that's at a minimum reasonable in the rate making context where or you conclude let me ask one kind of a logistical yes question your question it's my understanding that this order was available at some point for review public notified of the availability of the order of the public's notified by checking in some cases there's a public notice also i'm not sure if that's the case here maybe other parties can speak to that i know that it's available in the was it was were used in the briefing there wasn't sure i think it's relevant as a point especially as as a harmless error if we simply disagree that notice was inadequate but if that were adequate notice this was an additional means by which parties could offer comment  morning i'm john nektar line representing eighteen t n u s telecom in support of the f c c before i turn to the broader issues i quickly want to address notice because there are a number of issues raised with respect to that  available precedent for that point and in this case the f c c did make it clear that all aspects of b d s were on the table and of course this order comes against the backdrop of a very substantial removal of price controls for transport throughout the country so if the competitors in this case had wished to reimpose price controls the burden was really on them to raise that now there i now want to turn not just to the question of whether there is adequate notice but to the question of prejudice because that is also a required showing courts of appeals don't sit to call harmless error fouls and in this case there was extremely robust back and forth about the topic of transport throughout the proceeding and not just in the last weeks once the f c c as part of this broader transparency initiative published the draft water but also in the fall of two thousand and sixteen back when the old regime of the f c c was still there they proposed massive reregulation of transport and if you look at the joint appendix of pages ten twenty six to twenty seven and then join appendix at ten sixty one you'll see a very granular in detailed exchange between my clients and mr wright's clients about whether transport should be reregulated deregulated and so forth our clients took the position that transport should be subject to no price controls throughout the country that of course is the position that the f c c ultimately took mr wright's client supported the outgoing administration's proposal to reregulate transport in that respect there is nothing if there is nothing that the competitors vie defied that they would have raise in addition to all these points that they raised both in the fall of two thousand and sixteen and then later in the spring of two thousand and seventeen about transport i would submit that you know this this rule making proceeding has been going on for a very long time but it's been accompanied over the last twenty years with a from my client's perspective a rather slow process of regulatory relaxation and there is substantial evidence in the record to support everything the commission did with respect to competition for low bandwidth services we cite the relevant passages in our brief pages twenty six to twenty seven the f c c in its precise additional passages in the order as well with respect to cable as mr dunne pointed out there are three different types of cable services that are offered to satisfy the demands of business customers all three are in play here with respect to  extensive line drawing is not whether it produced perfect competitive outcomes everywhere that is an impossibility the question instead is whether the f c c reasonably balanced all of the considerations on the table as they explained in their brief they don't want my clients the i lex to be subject price controls because when we are it deters them from building out to these locations and you hear a lot about how there's not a lot of competition for certain locations well part of the reason for that is that there are price controls in effect today and you know if i am a competitive business i would much rather buy somebody else a service at low regulated rates and then compete with that person under the regulated rates rather than deploy my own facilities the only way you could facilities investment is to is to remove ex ante prescriptive regulation how much time does mr wright have noted that safety valves quote can't safe an irrational rule on quote and this is an irrational rule he added that otherwise no rule however rational could be struck down as august or was a waiver process or some other sort of deal and it's also a mirage because the commission is made decisions here that nearby potential competitors restrain prices and do it countywide if we come in and say we think is too high they will say well as it is are you seeking to buy b d s in a county that we've to determined is subject to effective expenses may have fallen at a much lower rate than the demand for their services causing their average cost of providing services to steadily climb respectfully suggest that that's not ambivalence your honor that's an agreement that price factor those are the x factor is what oversta