commissioners of the california public utilities commission or the c p c i'd like to reserve four minutes for rebuttal neither congress nor the f c c has preempted the c p c's methodology for determining state surcharges on prepaid wireless services including the c p u sees use of the interest state allocation factor to remove interstate revenues and other and other revenues from its assessment now to address the issue of preemption metro p c s p c s relies on an argument that federal interstate revenues and state interest and california's interested revenues must be two sides of the same coin and if a state's universal service methodology is do not recognize this they are in conflict with federal law metro p c s is incorrect the other side of the coin of metro p c s is interstate revenues is not it's california intrastate revenues the other side of the coin are the interest rate revenues across all fifty states and let me demonstrate this with a hypothetical example let's say a wireless carrier has one hundred million dollars total revenue in the country it uses its books and records to report to the f c c that it has twenty five million dollars in interstate revenues subject to the federal surcharge thus its allocation is twenty five percent interstate and seventy five percent interesting now that seventy five percent interest rate applies to all fifty states not to individual states individual states may vary and in fact california has the largest most the most populous state in the country is likely to have a higher percentage of calls that are that are within the state a higher percentage of intrastate revenue as opposed to a smaller state or state say on the eastern seaboard where people call across state lines to make dinner plans or to call the surprise or work thus federal intrastate revenues and california's intrastate revenues need not be two sides of the same coin to avoid federal conflict and in fact logically they simply are not two sides of the same coin but for a customer in california you can't have more than one hundred percent right so i'm a little bit confused i mean if if the interest state of california is eighty percent then there is going to be some  double counting right because the inter state would be if it's say twenty five percent and you got eighty percent now you're at one hundred and five percent well again that twenty five percent is applicable to all fifty states forms  federal mechanism we don't know what interstate portion is in california but we know that they're well if they're charging for a twenty five percent interstate get are you saying that i mean how would a carrier avoid paying a double counting if the intrastate in california puts you above it gets you into over one hundred percent when you add it to the federal well really we don't know what so what the percentage is within california and i think means the percentage of the national the percentage of intrast revenues within california the federal universal service mechanisms never determine that the just report may they just have a global so fifty crossed fifty states and the district court made the same logic mistake said that the methodology deprived carriers of the believed treat as intrastate the same revenues they treat as intrastate for the federal universal fund however the federal universe service mechanisms never determine what the carriers intrastate revenues are in in each individual state they determine what it is across all fifty states but we don't know what it is for each state according to the federal mechanism so we don't you know that twenty five dollars if it's twenty five percent interstate that doesn't mean that it's seventy five percent interest rate for california we don't know that from the federal mechanisms but if they have to pay the twenty five percent for the federal then if the state number is higher than seventy five percent isn't there a double charge i'm confused i'm still confused about how there isn't a double charge well not necessarily because again we don't know what the assessment is for each individual states you know it might be it might be but it doesn't vary state to state does it i thought yes it does how can you explain that then i didn't understand that i thought the federal had these different formulas that we're not going to vary state to state well the federal has one formula for the federal intrastate revenues that it collects across all fifty states right and so is that says twenty five percent needs to be considered interstate and we're going to put fees on that then that's the same in all the states that fly for that carrier it's twenty five percent right well the federal universe or some mechanisms determine what the federal government should get on its search argues and it determines that assessment for the federal government it never determines what each individual state should be i understand that but once they say you pay twenty five percent you know there are three options and you choose one of whatever it is whichever one you end up at twenty five percent once they're paying that's going to pay down all the states right it's not going to be lowering california well they're paying they're paying for their federal for the federal surcharges right the states are charges are different there are different system you know it could be you know if for example it's twenty five percent across across the all fifty states it might be eighty percent in california and seventy per percent in texas we don't know that we just don't have that information not from the federal universal service mechanisms but within california yes if the federal amount is twenty five percent and california charges eighty percent use eighty percent now you've got at least some portion that's essentially being double fine that's the five percent overlap between the twenty five percent and eighty percent and why doesn't that put the prepaid carrier at a disadvantage to other kind of carriers who have more options about how to calculate i it seems like the problem is this like neutrality principle that you're going to butt up against that are you well competitive neutrality requires that we treat similarly situated and she's the same actually see develop the concept of the from the universal stat service statute which requires equitable and nondiscriminatory contributions and but my understanding was it's equitable across i mean similarly situated but that could be well within the regulatory system there may be disadvantages depending on how people operate their business california has chosen to treat all direct sellers in direct sellers  so if we had a different system we might be disadvantaging direct sellers in direct sellers and metro p c s recognizes that metro p c s his preference is that we treat in direct sellers and direct sellers separate different and that would place but this is what i'm not sure well we can ask your opposing counsel but i'm not sure i understood them to say that i mean they're basically just saying use the same formulas is the federal government well in for everyone and their briefs they recognize that you can treat differently situated people differently and their suggestion is that in direct sellers and direct sellers may be treated differently and they say because direct sellers and direct sellers are not similarly situated and they say that's regular california is pre paid collection act decided to go to point of sale system and also to treat direct sellers indirect sellers similarly  you know so we're try and in that case california is attempting to establish neutrality between direct sellers and indirect sellers that's the way it's regulatory says team was developed by the california prepaid you're saying direct an indirect sellers of prepaid services are free pizza or service and i understand their concern to the disadvantage of prepaid versus postpaid well that might be their concern our concern as a regulatory  to treat similarly situated and the same postpaid and prepaid do have differences in what are the differences that justify treating them differently well for prepaid and postpaid post paid services you can tell what because it's after the services are rendered you can tell which of those server which of those calls are interstate and which articles are interesting at the moment you know before your before the billing happens and you can apply the actual numbers at the point of sale which happens post paid you can't do that prepaid because you couldn't you do an equivalent thing with prepaid by doing an average of the last three months or something looking at what people actually called you could do that or you could do the system that california's prepaid collection acted which was to establish an average across the wireless prepaid wireless industry and that and that is an acceptable methodology mean it's equitable nondiscriminatory it treats similarly situated and sees the same but that i guess the question is are postpaid and prepaid similarly situated entities in to the california's prepay collection act they are not because that's the question we're here to figure out whether that's ok or not right i mean yes and i mean it and it is and it is ok it is not it is not preempted by california's by  d by congress or by the f c c because california is such established a point of sale mechanism then prepaid and postpaid are not seen really situated there differently situated and we've established mechanisms to try to get a good assessment of interstate revenue explicitly stated that its restrictions on state surcharges did not apply to wireless services if we were to apply the district court's reading of the universal service declaratory ruling to wireless services it would force gates to accept from wireless providers a gross undervaluation of interstate revenues and let me demonstrate why this is so let's say a wireless provider adopts the f c c safe harbor to report their wireless interest interstate revenues that's the see set the wireless safe harbor not as a true indicator of interstate revenues rather it was set at the highest level of intrastate revenues report revenues that the f c c had for any wireless provider and its record this would not only dictate gross inaccuracy on to the states greatly reducing its surcharges it would completely eliminate discretion given states to develop their own universal service rules and that discretion was given by the federal universal service statute now that's so quick for post paid do you let them use the flip side of the federal number of yes so i guess i just get back to this problem that it seems like you're treating postpaid and prepaid differently postpaid in prepaid are treated differently because you're i mean you could make the same argument somehow it's ok i suppose paid that it's the highest possible number and not the actual number you accept that there are so i just i'm not quite understanding what the basis is for the differential treatment that you between the two yes and actually i will have to check that i'm not sure if they actually accept the inverse of the safe harbor i thought they did from my understanding but it's very complicated and yes it is com thank you know you the post paid allows them to use their books and records to postpaid and i would like to identify what i think is a red herring which is the c p u sees counter argument hey we are doing things equally because we are treating indirect sellers equally to direct sellers and that's a red herring for a couple of reasons st it doesn't get around the fact that new truck competitive neutrality still requires neutrality between prepaid and postpaid and i'll get to how those are functionally identical services but another reason it's a red herring and this is in our brief is that indirect sellers walmart best buy and others they don't have the same rights under the federal regime they're not telecommunications carriers there is no right under the federal regulatory scheme for them to rely on the f c c as methodology but for carriers prepaid carriers such as metro p c s they are telecommunications carriers so they do have those rights th c has recognize so i do think it's a bit of a deflection on the c p u cs part to say hope let's not look at prepaid versus post hey let's look at indirect versus direct and that was a really fundamental problem with the resolutions because they never really grappled with the problem of competitive neutrality and indeed there's an irony here when the c p u c was commenting on the bill that became the prepaid act the c p you see said wait a minute this is a real problem this statute is going to require disproportionate contributions it's going to hit the prepaid folks the hardest and of course the c p you see acknowledge that the prepaid folks are those who you would least want to hit the hardest because they tend to be lower income and minority populations who are very much attracted to the flexibility of prepaid service so we do think that's a red herring now there was another arrow i believe in mystic it was argument where he was trying to counter our central theme two sides of the same coin now two side of the same coin i don't need to repeat is inherent in this court's decision in the hawaiian telephone company case it is a constant leitmotiv in the f c c is declar ruling and for another thing it's just logical right as judge freeh that was pointing out if you're looking at one hundred dollars of revenue and you say seventy dollars an interstate well it's logical that's thirty dollars our interest rate now m gatto i think what he was arguing was well wait a minute that doesn't actually work because you have many different states now i think the reason that argument is erroneous is that the f c c has pointed out that the states have figured out and footnotes fifty seven to fifty eight and what f c c said there is we recognize that in the wild us context states have made considerable efforts to avoid double counting amongst themselves so the f c c gave an example and it said look this would be a problem if it happened let's say you have a service provider subject to a thirty five point one percent assessment in state and a thirty five point one percent assessment on the same revenues in state b and what if that's on top of sixty four point nine percent at the federal level and what the f c c went on to say is well that would be a real problem but you know what we tend not to see that as a problem because  states have figured out how to coordinate among themselves so i think that central effort by ms on behalf of the c p c to push back against the two sides of the same coin really is unavailing so i'm if i understand it correctly the real point of disagreement is whether prepaid and postpaid have to be treated the same for neutrality principles and so what is your best support for your position that they do have to be treated the same absolutely ironic for one thing they're functionally identical services you get a prepaid plan like metro p c s what can you do you can cool intrastate you can call inter state you can do text messaging and so it sounds like you're making an argument about why they should be treated the same and asking us to announce that but is there any existing authority that already tells us that they have to be treated the same it is true that the f c c has not directly pronounced that these are functionally identical services but we don't think that's necessary it the  acknowledge repeatedly stress competitive neutrality in the definition of competitive neutrality is this you should not unfairly advantage or unfairly disadvantage one provider over another nor should you unfairly advantage or disadvantage one technology over another now as the district court correctly recognized prepaid and postpaid offer the same things you can call you can text you can go online what is the difference are you are the provider is usually the same so i think this might be outside the record i didn't i don't know whether i could figure this out but like does metro p c s offer prepaid and postpaid it does not and that's why this really hit our client quite severely and its customers because unlike some and i believe a t and t has both i mean we all know that eighteen to you has a postpaid line of wireless business i believe it also has a prepaid line of wireless business called cricket  brand sprint has a prepaid brand called boost but of course as we know sprint high level corporate structure also offers postpaid so because those companies are in a sort of an interesting situation that  confidential information but metro p c s has a substantial share of the california market so it hits us particularly hard and it hits that customers particularly hard remember you're on as the see if you see acknowledges under the california regime and this the prepaid act california insists that these and uses surcharges be paid by the can to the customers so this hits our customers it makes it harder for us to compete against postpaid and his question what is there any difference well there is a difference and that is just when you pay but let me ask you this is it possible that given metro p c s is unique status if you just sort of articulated a minute ago is it possible that so it is possible based on the record as i understand it and i think this is an even reflected in the record year on whether this regime disadvantages other carriers now there is a practical issue here is what did they join in this litigation at all or did they leave the litigation is only metro interest organizations who have expressed serious concerns about how this regime disadvantages minority populations who rely on prepaid to a considerable extent to get access to the internet let's remember you're on a getting getting internet access through comcast or some while line provider for many people is not an option that can be economic and it can be where they're where they live one of the significant advantages of prepaid path to not striking down the statute but to strike down the resolutions i will concede there are some problematically worded provisions in that statute and we thought we had a reasonable saving construction of the statute that we proposed the well we have not challenge that and so you're on his question i think there is another practical issue here which is of course we are now looking at a statute that has expired anyway so i think for multiple practical reasons as well it doesn't really make any sense to try to sort of resuscitate the statute if we all agree that the c p u sees resolutions of preempted which we firmly believe they are so i have a question and one of the arguments on your brief that was sort of maybe a smaller argument which was that  the mobile telecommunications sourcing act so for us the one hundred and twenty three dollars be preempted the c p u sees resolutions but when i tried to read that law it looked like it had an exemption for universal way i think that that i just don't understand how there's how this could be preempted when it seems like there's a carve out yes so i think that that is referring to federal universal service charges but there are multiple grounds here i mean we sort of given given the court a menu of options we firmly believe that the district court was correct in the pivotal rationale which is look the f c c wanted to create a framework of wanted to give that flexibility can i ask you a question about the smoothness thing that's lurking out there so so the statute is expired but it seems like they want to go back and charge your client more money because your client hasn't paid this money yet it's not like you're asking for a refund it's  it's a future idea that you might have to pay more that is correct but i want to be precise we have collected the charges and remitted them on what we understand is the proper chargeable base to say intrastate telecommunications we have just ignored this right but then they think you are more they think we are more and what i don't really understand is they haven't really tried to get that money i mean and you haven't really made an argument that they waived it or it's too late but is there such an argument that should be worried about that's a great point your honor and i mean i'll just say candidly we had a hard time pinning pinning them down on that and as you may have inferred from our brief you know for one thing we had to give the court a two part answer because we didn't know what their position was and our real concern mootness combined with months in where which is you know what if we say sure you know it's all moot and then the court does what it often does it says appeal dismissed moot we vacate the district court's decision and then they come knocking on our door you know months from now or a year from now and say hey you know you pay up those moneys or you go to your customers and get those refunds so you know we have a real concern about that and the c p c you know has not at least in our conversations been terribly forthcoming on  the case that they are conflicting with federal law why haven't you done that already i just don't understand why kwai there isn't some enforcement action that has been going on in the meantime well we could have at a certain point the district court's order came out so we had to follow the district court's order so currently we cannot go after them because the discourse has and joined us from doing so and we there was a while when that was in litigation where you didn't like send them a letter saying you're indeed false or something as far as i can tell anyway i mean i don't understand really how this much time has gone by without an actual enforcement and then later you're going to try to do that later you know sometimes enforcement doesn't happen immediately you know these are these are dollar figures that he doesn't know we have to rely on the carriers reporting of the figures and sometimes we audit them afterwards to determine if they are correct in their reporting those figures so given those circumstances the c p c decided to wait to see what would happen and is there no statute of limitations or anything that that would be a problem for you at this point that is a good question your honor i'm sorry that i don't know exactly if there is one could you also speak to this question about the mobile ptolemy telecommunications sourcing act and whether it exempts these kind of universal service or charges because you didn't make this argument that there's an exemption but it seems like there is and i don't understand why you didn't make and i guess your honor you and you're correct we should have made the argument well we did make an argument that was exempt based on the phrase that initial phrase said not based on what seems to be a universal surcharges in support of you know source so you are correct and you read that as applying to states not just federal yes to fifty four et f clearly give states that express and seek universe surcharges and also we are argument was the st phrase of that that mobile m t s a source an outside biometrics yes exempt when exempts situations when a taxing jurisdiction a taxing jurisdiction does not otherwise subject charges for mobile telecom services taxation california does subject mobile telecom services to taxation so that's another exemption which we featured in our case ok