Prison Phone Justice

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ORAL ARGUMENT HELD ON FEBRUARY 6, 2017
DECIDED JUNE 13, 2017
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 15-1461
(consolidated with Nos. 15-1498, 16-1012, 16-1029, 16-1038, 16-1046 and 161057)
GLOBAL TEL*LINK, ET AL.,
PETITIONERS,
v.
FEDERAL COMMUNICATIONS COMMISSION
and UNITED STATES OF AMERICA,
RESPONDENTS.
On Petitions for Review from an Order of the
Federal Communications Commission
PETITION FOR REHEARING EN BANC
OF INTERVERNORS, THE WRIGHT PETITIONERS

Andrew Jay Schwartzman
Angela J. Campbell
Institute for Public Representation
Georgetown University Law Center
600 New Jersey Avenue NW
Washington, DC 20001
(202) 662-9535
ajs339@georgetown.edu
Counsel to the Wright Petitioners
July 28, 2017

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TABLE OF CONTENTS
CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES .......... ii
CORPORATE DISCLOSURE STATEMENT ..................................................... iv
TABLE OF AUTHORITIES ................................................................................ vii
INTRODUCTION ...................................................................................................1
ISSUES PRESENTED.............................................................................................1
BACKGROUND .....................................................................................................2
RULE 35(B) STATEMENT ....................................................................................4
ARGUMENT ...........................................................................................................5
I.
THE PANEL’S DECISION IS INCOMPATIBLE WITH
CHEVRON. ...............................................................................................5
II.
SECTION 276 AUTHORIZES THE FCC TO CAP BOTH
INTERSTATE AND INTRASTATE RATES. ........................................8
III. SECTION 276 PERMITS THE USE OF AVERAGE COSTS IN
SETTING RATES. .................................................................................12
IV. THE PANEL IGNORED OR MISUNDERSTOOD YEARS OF
CASE LAW ON SITE COMMISSIONS...............................................13
CONCLUSION ......................................................................................................17

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CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES
Pursuant to Circuit Rule 28(a)(1), the State and Local Government Petitioners
certify as follows:
A. Parties and Amici
These cases involve the following parties:
1. Petitioners
No. 15-1461:

Global Tel*Link

No. 15-1498:

Securus Technologies, Inc.

No. 16-1012:

Centurylink Public Communications, Inc.

No. 16-1029:

Telmate, LLC

No. 16-1038:

National Association of Regulatory Utility Commissioners

No. 16-1046:

Pay Tel Communications, Inc.

No. 16-1057: State of Oklahoma, ex rel. Joseph M. Allbaugh, Interim Director
of the Oklahoma Department of Corrections; John Whetsel, Sheriff of Oklahoma
County, Oklahoma; The Oklahoma Sheriffs’ Association, on behalf of its
members.
2. Respondents
Federal Communications Commission and the United States of America.
3. Intervenors and Amici Curiae
No. 15-1461: Intervenors for Petitioners: Centurylink Public Communications,
Inc.; Indiana Sheriff’s Association; Lake County Sheriff’s Department; Marion
County Sheriff’s Office.
Intervenors for Respondents: “The Wright Petitioners” (Campaign for Prison
Phone Justice; Citizens United for Rehabilitation or Errants; DC Prisoners’ Project
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of the Washington Lawyers’ Committee for Civil Rights and Urban Affairs; Dedra
Emmons; Ulandis Forte; Human Rights Defense Center; Laurie Lamancusa; Jackie
Lucas; Darrell Nelson; Earl J. Peoples; Ethel Peoples; Prison Policy Initiative;
United Church of Christ, Office of Communication, Inc.; Charles Wade); Network
Communications International Corp.
Amici Curiae for Respondents: Leadership Conference on Civil and Human
Rights; County of Santa Clara; State of Minnesota; State of Illinois; State of New
York; Commonwealth of Massachusetts; State of Washington; State of New
Mexico; District of Columbia
No. 16-1057: Intervenors for Petitioners: State of Arizona; State of Arkansas;
State of Indiana; State of Kansas; State of Louisiana; State of Missouri; State of
Nevada; State of Wisconsin.
B. Rulings Under Review
These consolidated appeals challenge an Order of the Federal Communications
Commission Rates for Interstate Inmate Calling Services, 30 FCCRcd. (2015).
C. Related Cases
The cases consolidated before this Court in this action are Case Nos. 15-1461, 151498, 16-1012. Related action involves some of the same parties and similar
issues: Securus Technologies, Inc v.
FCC, No. 13-1280 and consolidated cases (D.C. Cir.). By order of this court No.
13-1280 has been held in abeyance.

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In the
UNITED STATES COURT OF APPEALS FOR
THE DISTRICT OF COLUMBIA

Global Tel*Link, et al.

)
)
)
)
)
)
)
)
)
)

Petitioners,
v.
Federal Communications Commission
and United States of America
Respondents.

No. 15-1461 and
Consolidated Cases

CORPORATE DISCLOSURE
STATEMENT
Pursuant to the United States Court of Appeals for the District of
Columbia Rule 26.1 and Federal Rule of Appellate Procedure 26.1, the D.C.
Prisoners’ Legal Services Project, Citizens United for Rehabilitation of Errants,
the Prison Policy Initiative, The Campaign for Prison Phone Justice, Prison
Legal Newand Office of Communication, Inc. of the United Church of Christ
respectfully submit this Corporate Disclosure Statement.
The D.C. Prisoner’s Legal Services Project is a project of the Washington
Lawyers’ Committee for Civil Rights & Urban Affairs, a nonprofit corporation
which has no parent companies, subsidiaries, or affiliates that have issued shares
to the public.

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Citizens United for Rehabilitation of Errants (“CURE”) is a nonprofit
corporation that has no parent companies, subsidiaries, or affiliates that have
issued shares to the public.
The Prison Policy Initiative is a nonprofit corporation that has no parent
companies, subsidiaries, or affiliates that have issued shares to the public.
The Campaign for Prison Phone Justice is jointly led by the Media
Action Grassroots Network, Working Narratives, Prison Legal News, and
diverse civil and human rights organizations. The Media Action Grassroots
Network is a project of the Center for Media Justice, a nonprofit corporation
that has no parent companies, subsidiaries, or affiliates that have issued shares
to the public. Working Narratives is a nonprofit organization that has no parent
companies, subsidiaries, or affiliates that have issued shares to the public.
The Human Rights Defense Center, a nonprofit corporation that has no
parent companies, subsidiaries, or affiliates that have issued shares to the
public.
The Office of Communication, Inc. (“UCC OC, Inc.”) is a not-for-profit
corporation of the United Church of Christ (“UCC”). The United Church of
Christ is a not-for-profit, religious organization, with 5,100 local congregations
across the United States. Neither UCC nor UCC, OC Inc. has any parent
companies, subsidiaries, or affiliates that have issued shares to the public.

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Respectfully submitted,
/s/ Andrew Jay Schwartzman
Andrew Jay Schwartzman
Andrew Jay Schwartzman
Institute for Public Representation
Georgetown University Law Center
600 New Jersey Avenue, NW
Room 312
Washington, DC 20001
(202) 662-9535
Counsel to the Wright Petitioners
July 28, 2017

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TABLE OF AUTHORITIES
Cases
Am. Pub. Commc’ns Council v. FCC,
215 F.3d 51 (D.C. Cir. 2000) ..................................................................5, 13, 14
Amerijet International, Inc. v. Pistole,
53 F.3d 1343 (D.C. Cir. 2014) ............................................................................6
Bowen v. Georgetown Univ. Hosp.,
488 U.S. 204 (1988) ........................................................................................5, 7
Burlington Truck Lines, Inc. v. U.S.,
371 U.S. 156 (1962) ............................................................................................6
*Chevron, U.S.A., Inc. v. NRDC,
467 U.S. 837 (1984) ........................................................................................4, 6
Fox Television Stations, Inc. v. FCC,
556 U.S. 502 (2012) ............................................................................................4
*Illinois Public Telecommunications Ass’n v. FCC,
117 F.3d 555 (D.C. Cir. 1997) ............................................................5, 9, 10, 11
MCI Telecomm. Corp. v. FCC,
143 F.3d 606 (D.C. Cit. 1998) ......................................................................5, 11
NCTA v. Brand X Internet Services,
565 U.S. 967 (2004) ............................................................................................8
New England Public Communications Council, Inc. v .FCC,
334 F. 3d, 69 (2003)....................................................................................11, 12
Perez v. Mortgage Bankers Ass’n,
135 S.Ct 1199 (2015) ......................................................................................5, 8
SEC v. Chenery Corp.,
332 U.S. 194 (1947) ............................................................................................7
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Statutes
47 U.S.C. §154(i) ...................................................................................................11
47 U.S.C. §154(j) .....................................................................................................6
47 U.S.C. §276 .........................................................................................................3
47 U.S.C. §276(b)(1)..............................................................................................11
47 U.S.C. §276(b)(1)(A) ........................................................................................10
Agency Decisions
2002 Payphone Order, 17 FCCRcd 3248(2002) ............................................................. 13
Rates for Inmate Calling Services, 28 FCCRcd 14107 (2013)................................3
Rates for Inmate Calling Services, 29 FCCRcd 13170 (2014)..............................15
Rates for Inmate Calling Services, 31 FCCRcd 9300 (2016)................................15
Rates for Inmate Calling Services, 32 FCCRcd 261 (2017)..................................13
Second Payphone Order, 13 FCCRcd at 1778 (1997) ..........................................14
Third Report and Order, 14 FCCRcd 2545 (1999) ...............................................14
Other Authorities
Examining the Effect of Incarceration and In-Prison Family Contact on Prisoners’
Family Relationships, 21 J. OF CONTEMP. CRIM. JUSTICE 314, 316 (2005) ...3
OMB, Current Unified Agenda of Regulatory and Deregulatory Actions,
https://www.reginfo.gov/public/do/eAgendaMain ..................................................8

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INTRODUCTION
A divided panel in this case struck down FCC regulations designed to rein in
monopoly-fueled overcharges for prison inmates’ telephone calls that often
constitute the only contact between incarcerated individuals and their families.
The panel did so on the basis of its de novo interpretation of the governing statute,
refusing, except on one issue, to defer to the FCC’s longstanding statutory
interpretations in a notice-and-comment rulemaking. This was not because the
interpretations were unreasonable, or because the Commission had rescinded its
decision, but because the agency’s Deputy General Counsel represented in a letter
to the Court 1 that a majority of the Commission no longer supported all of the
issues as briefed. The panel’s opinion (Attachment A) is at odds with fundamental
Chevron principles and conflicts with decisions of the Supreme Court and this
Circuit.
Issues Presented
1. Whether the panel properly declined to afford Chevron deference to a
validly-adopted and operative agency decision because litigation counsel
abandoned defense of the decision after briefing but before oral argument.
2. Whether the panel decision interpreting §276 of the Communications Act, so
as to preclude regulation of interstate and intrastate prison phone rates, the

1

Letter from David Gossett, January 31, 2017 (“Letter”)(Attachment B).
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use of industry-wide averages in setting rates, and the exclusion of site
commissions as costs in calculating permissible rates, conflicts with this
Court’s precedents.
Background
The FCC found that
For families, friends, clergy, and attorneys to the over 2 million
Americans behind bars and 2.7 million children who have at least one
parent behind bars, maintaining phone contact has been made
extremely difficult due to prohibitively high charges on those calls. 2
Prison phone (“ICS”) providers have exclusive contracts with correctional
facilities. In many instances, providers pay kickbacks (euphemistically referred to
as “site commissions”), which, Judge Pillard agreed, are actually “‘legal bribes to
induce correctional agencies to provide ICS providers with lucrative monopoly
contracts.’” 3 This turns ordinary market forces upside down; providers offer everlarger commissions to obtain contracts and pass on the fees to their (literally)
captive customers. Site commissions often reach 55-60% and, in some instances,
“can amount to as much as 96 percent of gross ICS revenues.”4 Inmates or family
members in some jurisdictions have had to pay as much as $56.00 to initiate a 4-

2

Rates for Inmate Calling Services, 30 FCCRcd 12763 (2015) (“Order”)
[JA1288].
3
Dissent, p.9 (quoting Order at 12821)[JA1344].
4
Order at 12821 (omitted footnote cites rates of 93.9% (AZ), 82-85.1%
(GA))[JA1344]; Comments of HRDC, Exhibit A (March 25, 2013)[JA 379].
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minute call.5 No one seriously disputes that the ICS market is dysfunctional. The
panel’s erroneous decision allows ISC providers to exploit these conditions to
extort exorbitant rates for these calls, with dramatic adverse societal impact on
inmates6 and their families. 7
47 U.S.C. §276 (Attachment C) was adopted to address discontinuities in the
payphone market that emerged as competition in telecommunications services
evolved. Section 276(b)(1) gives the FCC authority over “each and every
completed intrastate and interstate [payphone] call,” and §276(c) preempts
inconsistent state regulation. Section 276(d) expressly includes “provision of
inmate telephone service in correctional institutions” within the definition of
“payphone services.”
Giving no deference to fifteen years of FCC interpretations, the panel
decision held that §276 does not authorize any regulation of intrastate calling rates,

5

Opinion, p.13 (citing Order at 12765 n.4)[JA1288]; see Rates for Inmate
Calling Services, 28 FCCRcd 14107, 14126 (2013)(“2013 Order”)($17.30 for a
15-minute call)[JA530].
6
“With remarkable consistency, studies have shown that family contact
during incarceration is associated with lower recidivism rates.” Examining the
Effect of Incarceration and In-Prison Family Contact on Prisoners’ Family
Relationships, 21 J. OF CONTEMP. CRIM. JUSTICE 314, 316 (2005)), (cited in
Order at 12766 n.13 [JA1289]); see Amicus Brief of Minnesota, et al., pp. 8-10.
7
“Lack of regular contact with incarcerated parents has been linked to
truancy, homelessness, depression, aggression, and poor classroom performance in
children.”2013 Order, at 14109(quoting Prison Phone Commentators Reply
Comments at pp. 4-5)[JA513].
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which account for at least 80% of overall ICS call volume, 8 and invalidated the
FCC’s use of industry-wide averages for calculating intrastate and interstate rates.
With respect to the FCC’s treatment of site commissions, which agency counsel
did defend at argument, the panel purported to afford Chevron deference. But in
ruling that site commissions may not be excluded from cost calculations, the panel
did not look to the FCC’s interpretation set forth in the Order or in numerous prior
agency decisions. Rather, it substituted its own reasoning in finding that the
exclusion of site commissions from the cost calculus was arbitrary and capricious.
Rule 35(b) Statement
This case is of exceptional importance for two reasons:
First, the panel declined to afford deference to the FCC’s detailed
interpretations of §276 as set forth in a validly-adopted agency order because
counsel abandoned the agency’s brief, even though the panel recognized that the
Commission itself “has not revoked, withdrawn or suspended the Order.”9 The
failure to afford deference creates a significant loophole for agencies to disclaim
prior decisions without having to explain, much less justify, the basis of their
action. 10 This novel and important issue is utterly at odds with the principles set
forth in Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984)(“Chevron”), and

8

Order at 12768 [JA1291].
Opinion, p.6.
10
See Fox Television Stations, Inc. v. FCC, 556 U.S. 502, 514-516 (2012).
9

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cannot be reconciled with the Supreme Court’s decisions in Bowen v. Georgetown
Univ. Hosp., 488 U.S. 204 (1988)(“Bowen”) and Perez v. Mortgage Bankers Ass’n,
135 S.Ct 1199 (2015)(“Perez”).
Second, the opinion is in stark conflict with this Court’s decisions in Illinois
Public Telecommunications Ass’n v. FCC, 117 F.3d 555 (D.C. Cir.
1997)(“Illinois”), MCI Telecomm. Corp. v. FCC, 143 F.3d 606 (D.C. Cit.
1998)(“MCI”) and Am. Pub. Commc’ns Council v. FCC, 215 F.3d 51, 58 (D.C. Cir.
2000)(“APCC”).
ARGUMENT
I.

THE PANEL’S DECISION IS INCOMPATIBLE WITH
CHEVRON.
Courts review decisions, not letters from counsel. However, the panel

refused to afford Chevron deference to a validly-adopted order, which the panel
agreed “is still in force,” 11 because litigation counsel would not defend it. This
unprecedented holding is at odds with well-established Supreme Court and Circuit
precedent.
Citing no authority, the panel gave no deference to the FCC’s decision,
deferring instead to the position announced, but not explained, in the Letter.
Although the Letter states that “the two Commissioners who dissented from the
order under review...now comprise a majority of the Commission,” the
11

Opinion, p.17.
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Commission did not vote on whether to send the Letter or on its contents.12 As
such, the Letter is not agency action. There was no rulemaking and, as the panel
itself says, the Commission “has not revoked, withdrawn or suspended the
Order.”13 Nevertheless, the panel treated the Letter as if it were an agency action
abandoning parts of the Order rather than a litigating position, and therefore
conducted de novo review.
This was grievous error. Under Chevron, “the court does not simply impose
its own construction on the statute, as would be necessary in the absence of an
administrative interpretation.” 14 Although this case involves an ambiguous statute
administered by the FCC, the panel did precisely what Chevron disclaimed: it
“impose[d] its own construction on the statute” rather than defer to the FCC’s
detailed analysis of an ambiguous statute.
Rather than look to the agency order, the panel looked to the position of
counsel as reflected in the Letter.15 But counsel represents the agency, not
individual members of the Commission. As the Supreme Court 16 and this Court17

12

See 47 U.S.C. §154(j)(“Every vote and official act of the Commission shall
be entered of record….”).
13
Opinion, p.6.
14
Chevron, 467 U.S. at 843 (footnote omitted).
15
Opinion, p.18.
16
See, e.g., Burlington Truck Lines, Inc. v. U.S., 371 U.S. 156, 168 (1962).
17
See, e.g., Amerijet International, Inc. v. Pistole, 753 F.3d 1343, 1351 (D.C.
Cir. 2014)(“Under well-established law, we evaluate an agency's contemporaneous
explanation for its actions and not ‘appellate counsel's post hoc rationalizations.’”)
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have often said, courts do not review post-hoc rationalizations of counsel. Thus,
Bowen explained that
We have never applied the principle of [Chevron and subsequent]
cases to agency litigating positions that are wholly unsupported by
regulations, rulings, or administrative practice. To the contrary, we
have declined to give deference to an agency counsel’s interpretation
of a statute where the agency itself has articulated no position on the
question on the ground that “Congress has delegated to the
administrative official and not to appellate counsel the responsibility
for elaborating and enforcing statutory commands.” Investment
Company Institute v. Camp, 401 U.S. 617, 628 (1971). 18
As the Supreme Court noted in Chenery II, it is a
simple but fundamental rule of administrative law…that a reviewing
court, in dealing with a determination or judgment which an
administrative agency alone is authorized to make, must judge the
propriety of such action solely by the grounds invoked by the
agency. 19
Until an agency takes formal action to revoke it, an existing order represents the
authoritative interpretation of the agency, to which Chevron deference is due.
In this case, the agency’s Deputy General Counsel represented to the Court
that a majority of current Commissioners no longer supported the Order. While an
agency has broad authority to change its position, nothing in the APA suggests that
a final order can be rescinded outside of the rulemaking process. This ensures that
any modifications are based on reasoned decisionmaking and subject to judicial

18

Bowen, 488 U.S. at 212-213 (additional citation omitted).
SEC v. Chenery Corp., 332 U.S. 194, 196 (1947)

19

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review. 20 The present Commission’s evident dissatisfaction with the Order may be
reason to institute a rulemaking; it is not a basis to withhold Chevron deference
from an operative agency order.
The panel opinion creates a dangerous loophole to evade judicial review
when agencies are unable or unwilling to justify changed positions. 21 The Dissent
correctly quotes Perez, warning that
the majority risks enabling agencies to end-run the principle that they
must “use the same procedures when they amend or repeal a rule as
they used to issue the rule in the first instance.”22
This is sure to be a recurring question, given the present Administration’s repeated
public statements expressing a desire to abandon hundreds of prior administrative
rules and decisions 23
II.

SECTION 276 AUTHORIZES THE FCC TO CAP BOTH
INTERSTATE AND INTRASTATE RATES.
The central error of the panel’s interpretation of §276 is its belief that Illinois

held that §276 does not confer authority to “reduce already compensatory rates for

20

See NCTA v. Brand X Internet Services, 565 U.S. 967, 981(2004)(“Agency
inconsistency is not a basis for declining to analyze the agency's interpretation
under the Chevron framework.”).
21
The panel is inconsistent in finding that the case not moot because the FCC
did not rescind the Order, Opinion pp.15-17, but then failing to recognize that this
fact required it to afford deference to the Order.
22
Dissent, p.12 (quoting Perez, 135 S.Ct. at 1206).
23
See, e.g., OMB, Current Unified Agenda of Regulatory and Deregulatory
Actions, https://www.reginfo.gov/public/do/eAgendaMain.
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interstate or intrastate calls.”24 Properly interpreted, §276 gives the FCC ample
power to do so. 25
Section 276 directs the FCC to “establish a per call compensation plan to
ensure that all payphone service providers are fairly compensated.” As the Dissent
correctly says at p.3, “the only dispute is whether the word ‘fairly’ implies an
ability to reduce excesses, as well as bolster deficiencies.”
As discussed below, the FCC’s longstanding interpretations of §276, as
affirmed by this Court, make clear that “compensation” that is too high is not
“fair.” But even were that not so, the Dissent persuasively shows at pp.2-5 that the
panel’s reading of the statute as precluding the FCC from reaching compensation
that is too high, is not the only plausible construction:
Importantly, Congress chose “fairly” rather than, say, “adequately,”
“sufficiently,” or “amply.” These words have different meanings. Had it
used any of the latter three terms, I would agree that Congress only
authorized regulation to prevent under-compensation, but its choice of the
word “fairly” denotes no such limitation….If a grocer demanded $20 for a
banana, we might call that price adequate, sufficient or ample-but nobody
would call it fair. 26

24

Opinion, pp. 24-25 (citing Illinois, 117 F.3d at 561-563).
The panel stated that the Commission “erroneously treats its authority
under §201 and §276 as coterminous.” Opinion, p.21. Since the Commission has
authority under §276 to find excessive compensation unfair, the Commission’s
citation to more authority than it needed to reach this result, does not invalidate its
action. As the Dissent points out, nothing in the record indicates that the
Commission did not recognize the limits of its §201 authority. Dissent, pp.6-7.
26
Dissent, p.3.
25

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In the statutory context, “fairly” connotes concerns with rates that are excessive, as
Congress has juxtaposed “fair,” “just” and “reasonable” in other parts of the
Communications Act. 27 This is particularly so given that the “fairly compensated”
mandate appears, as part of Section 276’s goal of a competitive market delivering
“widespread deployment of payphone services to the benefit of the general
public.”28 As the Dissent explains at p.5, the FCC had expressed particular
concern with excessive compensation resulting from “locational monopolies.” The
Illinois decision upheld that interpretation of §276, pointing to several
interventions the FCC had said were available to make sure that locational
monopolies did not result in excessive compensation. 29 As the Dissent pointed out,
having “identified a discrete area” that is “‘a prime example of market failure,’”
addressed by both the Commission and the Illinois Court, nothing in that language
limits the Commission’s authority to set intrastate rate caps, 30 particularly once it is
recognized that unfair compensation includes compensation that is either too high
or too low.
It is critically important here that the basis of the Illinois remand was that the
rate was too high. Petitioning carriers complained that the compensation they paid

27

Id., pp.3-4.
§276(b)(1)(A) Payphone services include ICS. §276(d).
29
Illinois, 117 F. 3d at 562-63 (citing First Payphone Order, 11 FCCRcd
20541, 20572 (1996).
30
Dissent, p.5.
28

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was too high. If §276 were limited to addressing whether that compensation was
“compensatory,” that standard would have been met. 31 Nonetheless, the Court
remanded, finding that it was arbitrary to rely on a cost basis that may have set the
“fair” compensation rate too high.32 If §276 did not give the Commission authority
to reduce unfair rates because they overcompensate carriers, then the Court would
not have had to remand.
The holding that excessive compensation is not “fair” was reaffirmed after
remand. In MCI, this Court rejected the FCC’s use of a rate for coin calls as a
proxy for deriving a rate for other calls, finding that the cost factors for the two
types of calls were different. Importantly, the Court exclusively focused on
whether the resulting rate was too high to be “fair compensation.” The Court did
not vacate, but stressed that “the Commission may order payphone service
providers to refund to their customers any excess charges.”33
The panel faults the Commission for reading §276 too expansively to reduce
ICS compensation, pouncing upon the Commission’s description of §276 as
“requir[ing] it ‘to broadly craft regulations…’ and that this constituted a ‘general
grant of jurisdiction.’” 34 Quoting New England Public Communications Council,
the panel states that “[t]he statute merely commands the Commission . . . to
31

Dissent, p.8.
Illinois, 117 F.3d at 564.
33
MCI, 143 F.3d at 609 (citing §276(b)(1) and 47 U.S.C. §154(i)).
34
Opinion, p.27 (quoting Order at 12814 [JA1337]).
32

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prescribe regulations to accomplish ‘five specific steps toward” §276(b)(1)(A)’s
goal of “promot[ing] the widespread deployment of payphone services for the
general benefit of the public.” 35 In context, however, the Commission’s assertion
was not as broad as the panel says; the opinion conflates separate statements in two
different sentences.36 The first (“broadly craft regulations”) refers to the overall
goal of the statute, and the second (“general grant of jurisdiction”) distinguishes
the broader goals from the much more specific directive in §276(b)(1)(A). Of
critical importance here is that regardless of how the Commission characterized
§276 in general, it did not have to view it as a broad mandate because one of those
five specific steps is to ensure that providers are “fairly compensated for each and
every completed interstate and intrastate call.”37
III.

SECTION 276 PERMITS THE USE OF AVERAGE COSTS IN
SETTING RATES.

The panel also erred in holding that the Commission’s decision to set rates
based on industry-wide averages “does not fulfill the mandate of §276 that ‘each
35

Opinion, pp.26-27 (quoting New England Public Communications
Council, Inc. v .FCC, 334 F. 3d, 69, 71 (D.C. Cir. 2003).
36
The passage reads as follows: “For example, section 276 requires the
Commission to broadly craft regulations to ‘promote the widespread development
of payphone services for the benefit of the general public’ including, notably, ‘the
provision of inmate telephone service in correctional institutions, and any ancillary
services.’ In addition to this general grant of jurisdiction, section 276 includes a
mandate to ‘establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every completed intrastate
and interstate call using their payphone.’” Order at 12814 [JA1337].
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and every’ inter- and intrastate call be fairly compensated.”38 Nothing in the
statute, however, suggests that a provider cannot be “fairly compensated” for each
of its calls by reference to the average costs of providing them. Indeed, APPC, the
authority cited to strike down rate averaging, upheld the Commission’s use of
average call volume to set rates under §276. 39 As the Commission explained in
denying Petitioners’ stay motions,
Such a strict reading of the statutory language would require an
individual rate for every ICS call. It defies logic that Congress
expected the Commission to formulate a unique rate for each
call….Such an approach would be irrational and contrary to
Commission precedent establishing that “[g]iven the goals of the 1996
Act, we will not construe section 276 inflexibly to require that each
call makes an identical contribution [to the shared and common cost
of the payphone].” As such, the “each and every” statutory language
must be subject to a reasonable “per-call compensation plan.” 40
IV.

THE PANEL IGNORED OR MISUNDERSTOOD YEARS OF
CASE LAW ON SITE COMMISSIONS.

The Commission’s holding that the site commissions remitted to prisons are
an allocation of profits and “do not constitute a legitimate cost to the providers of
providing ICS” 41 was consistent with several prior decisions issued over 15 years.
Even so, the panel reversed, saying “site commissions obviously are costs of doing
38

Opinion, p.32.
APPC, 215 F.3d at 58 (citing 2002 Payphone Order, 17 FCCRcd 3248,
3257 (2002)); see also id., 17 FCCRcd at 3257-3258.
40
Rates for Inmate Calling Services, 32 FCCRcd 261, 272-273 (2017)
(citations and footnotes omitted)[JA11520-1521].
41
Order at 12819 (citing, inter alia, 2002 Payphone Order, 17 FCCRcd
3248, 3263 (2002)JA1342].
39

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business incurred by ICS providers.” 42 Further, because the panel found the FCC’s
decision “lacks any coherence,” it said it “owed no deference to [the FCC’s]
purported expertise.”43 The ruling misread this and prior Commission decisions.
The Commission has always recognized the distinction between disallowing
site commissions that were “location rents” and permitting recovery of legitimate
expenses incurred in providing services. On remand from Illinois, the Commission
found site commissions to location owners to be “economic rent” extracted by
location owners and not a cost of providing service.44 After this Court’s MCI
decision, relying on its Second Payphone Order in reiterating that “locational rents
should be treated as a form of profit rather than a cost,” the Commission set a
payphone rate that allowed cost recovery with a reasonable rate of return. 45 The
Court affirmed the Commission in APCC. It found the rate determined by the
Commission covered the costs of providing payphone service, accepting the use of
a model using
a payphone that gathers enough revenue to meet its costs (including
an assumption that the payphone does not pay commissions to the
owner of the premises....) but that does not otherwise make a profit.46

42

Opinion, p.28.
Id., p.29 (citation omitted).
44
Second Payphone Order,13 FCCRcd at 1778, 1798-1801 (1997).
45
Third Report and Order, 14 FCCRcd 2545, 2615-16 (1999) (citing Second
Report and Order, 13 FCCRcd at 1799-1801); id., at 2562 n.72 (“locational rents
should be treated as a form of profit rather than a cost”).
46
APCC, 215 F.3d at 54 (emphasis added).
43

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Although the payphone service provider intervenors disagreed with this holding,
the Court accepted the Commission’s definition without discussion.
Here, after requesting and receiving additional comment on actual costs
incurred in allowing ICS, 47 the Commission adhered to long-established doctrine in
excluding site commissions from costs.48 On reconsideration, the Commission
allowed certain security expenses to be considered costs.49 The panel
misconstrued this change as “effectively acknowledging that a categorical
exclusion of site commissions from the ratemaking calculus is implausible.”50
However, the Commission was not treating site commissions as costs per se.
Rather, the added factor was not to allow site commissions, but (as explicitly stated
in the excerpt cited by the panel) was “to account for facility related ICS-related
costs...[and] expressly account for reasonable facility costs related to ICS.”51
What the panel castigated was actually the Commission adhering to its established
distinction between payments to cover costs and payments that are profit sharing or
location rents.

47

Rates for Inmate Calling Services, 29 FCCRcd 13170, 13180-13190
(2014)[JA902-913].
48
Order at 12818-12831)[JA1341-1354].
49
Rates for Inmate Calling Services, 31 FCCRcd 9300 (2016).
50
Opinion, p.30.
51
Id. (quoting Rates for Inmate Calling Services, 31 FCCRcd at
9302)(emphasis added).
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Instead of deferring to the Commission’s 20 year history of excluding site
commissions as a cost of service, and its explanations for doing so, the panel ruled
that excluding site commissions, which “the Commission acknowledges to be
legitimate” 52 costs, meant that the Commission “set the rate caps below costs.”53
But as the dissent points out at p.10, the Commission never acknowledged the
legitimacy of these “costs,” and has always viewed them as locational rent.
As with rate caps, the panel compounded its Chevron error by ignoring that
this Court had previously affirmed the Commission’s authority under §276 to
exclude site commissions not related to the cost of service. The panel’s reasoning,
that ICS providers are required by the facilities to pay commissions as a condition
of providing service,54 was equally true when the Commission, with this Court’s
approval in APCC, rejected the same argument in setting per call compensation.55
The error is further compounded by the panel’s failure to defer to the abovediscussed Commission rulings, affirmed by this Court, finding authority to address
locational monopoly issues under §276.
Site commissions raise the precise concerns addressed by the Commission
and by this Court ever since 1996, with precisely the effect the Commission
predicted: these commissions are “location rents” being captured by premises
52

Opinion, p.29.
Id.
54
Id.
55
See n.45, supra.
53

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owners and unreasonably running up costs for the benefit of the location owners.
The panel’s ruling would “effectively negate the Commission’s ability to mitigate
locational monopolies,” 56 in contravention of this Court’s affirmances that the
Commission had such authority.
CONCLUSION
Wherefore, Intervenors ask that this Court vacate the panel opinion, grant
rehearing, affirm the decision below and grant all such other relief as may be just
and proper.
Respectfully submitted,
/s/ Andrew Jay Schwartzman
Andrew Jay Schwartzman

Andrew Jay Schwartzman
Angela J. Campbell
Institute for Public Representation
Georgetown University Law Center
600 New Jersey Avenue NW
Washington, DC 20001
(202) 662-9535
ajs339@georgetown.edu
Counsel to the Wright Petitioners

56

Dissent, p.10.
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CERTIFICATE OF COMPLIANCE
The undersigned counsel certifies that this petition complies with the
typeface requirements of Fed. R. App. P. 32 because this petition has been
prepared in a proportionally spaced typeface using Microsoft Word 2013 in
Times New Roman, 12-point. This petition complies with the type-volume
limitation of Fed. R. App. P. 35(b)(2)(A) because it contains 3833 words.

/s/ Andrew Jay Schwartzman
Andrew Jay Schwartzman

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CERTIFICATE OF SERVICE
I hereby certify that, on July 28, 2017, a true and correct copy of the
foregoing Petition for Rehearing En Banc of Intervenors, the Wright
Petitioners, was served via the Court’s CM/ECF system on counsel of record
for all parties.

/s/ Angela Campbell
Angela Campbell

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Attachment
A

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 6, 2017

Decided June 13, 2017

No. 15-1461
GLOBAL TEL*LINK,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
CENTURYLINK PUBLIC COMMUNICATIONS, INC., ET AL.,
INTERVENORS
Consolidated with 15-1498, 16-1012, 16-1029, 16-1038,
16-1046, 16-1057
On Petitions for Review of an Order of
the Federal Communications Commission

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Mithun Mansinghani, Deputy Solicitor General, Office of
the Attorney General for the State of Oklahoma, argued the
cause for State and Local Government Petitioners. With him
on the briefs were E. Scott Pruitt, Attorney General, Patrick R.
Wyrick, Solicitor General, Nathan B. Hall, Assistant Solicitor
General, James Bradford Ramsay, Jennifer Murphy,
Christopher J. Collins, Mark Brnovich, Attorney General,
Office of the Attorney General for the State of Arizona,
Dominic E. Draye, Deputy Solicitor General, Leslie Rutledge,
Attorney General, Office of the Attorney General for the State
of Arkansas, Lee Rudofsky, Solicitor General, Nicholas Bronni,
Deputy Solicitor General, Danny Honeycutt, Karla L. Palmer,
Tonya J. Bond, Joanne T. Rouse, Derek Schmidt, Attorney
General, Office of the Attorney General for the State of Kansas,
Jeffrey A. Chanay, Chief Deputy Attorney General, Chris
Koster, Attorney General, Office of the Attorney General for
the State of Missouri, J. Andrew Hirth, Deputy General
Counsel, Brad D. Schimel, Attorney General, Office of the
Attorney General for the State of Wisconsin, Misha Tseytlin,
Solicitor General, Daniel P. Lennington, Deputy Solicitor
General, Gregory F. Zoeller, Attorney General, Office of the
Attorney General for the State of Indiana, Thomas M. Fisher,
Solicitor General, Jeff Landry, Attorney General, Office of the
Attorney General for the State of Louisiana, Patricia H. Wilton,
Assistant Attorney General, Adam Paul Laxalt, Attorney
General, Office of the Attorney General for the State of
Nevada, and Lawrence VanDyke, Solicitor General. Jared
Haines, Assistant Solicitor General, Office of the Attorney
General for the State of Oklahoma, David G. Sanders,
Assistant Attorney General, Office of the Attorney General for
the State of Louisiana, and Dean J. Sauer, Attorney, Office of
the Attorney General for the State of Missouri, entered
appearances.

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Michael K. Kellogg argued the cause for ICS Carrier
Petitioners. With him on the briefs were Aaron M. Panner,
Benjamin S. Softness, Stephanie A. Joyce, Andrew D. Lipman,
Brita D. Strandberg, Jared P. Marx, John R. Grimm, Robert A.
Long, Jr., Kevin F. King, Marcus W. Trathen, Julia C.
Ambrose, and Timothy G. Nelson.
Andrew D. Lipman and Stephanie A. Joyce were on the
brief for petitioner Securus Technologies, Inc.
David M. Gossett, Attorney, Federal Communications
Commission, argued the cause for respondent. On the brief
were Howard J. Symons at the time the brief was filed, General
Counsel, Jacob M. Lewis, Associate General Counsel, Sarah
E. Citrin, Counsel, and Robert B. Nicholson and Daniel E.
Haar, Attorneys, U.S. Department of Justice. Mary H.
Wimberly, Attorney, U.S. Department of Justice, Brendan T.
Carr, Acting General Counsel, Federal Communications
Commission, and Richard K. Welch, Deputy Associate General
Counsel, entered appearances.
Lori Swanson, Attorney General, Office of the Attorney
General for the State of Minnesota, Kathryn Fodness and
Andrew Tweeten, Assistant Attorneys General, Eric T.
Schneiderman, Attorney General, Office of the Attorney
General for the State of New York, Robert W. Ferguson,
Attorney General, Office of the Attorney General for the State
of Washington, Karl A. Racine, Attorney General, Office of the
Attorney General for the District of Columbia, Lisa Madigan,
Attorney General, Office of the Attorney General for the State
of Illinois, Maura Healey, Attorney General, Office of the
Attorney General for the Commonwealth of Massachusetts,
and Hector Balderas, Attorney General, Office of the Attorney
General for the State of New Mexico were on the brief for

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amici curiae State of Minnesota, et al. in support of
respondents.
Glenn S. Richards was on the brief for intervenors
Network Communications International Corp. in support of
respondents.
Andrew Jay Schwartzman argued the cause for intervenors
The Wright Petitioners. With him on the brief was Drew T.
Simshaw.
Danny Y. Chou was on the brief for amicus curiae The
County of Santa Clara and the County of San Francisco in
support of respondent.
Opinion for the court filed by Senior Circuit Judge
EDWARDS.
Concurring opinion filed by Senior Circuit Judge
SILBERMAN.
Opinion filed by Circuit Judge PILLARD, dissenting as to
Sections II.B through II.F and concurring in part.
Before: PILLARD, Circuit Judge, and EDWARDS and
SILBERMAN, Senior Circuit Judges.
EDWARDS, Senior Circuit Judge: The Communications
Act of 1934 (“1934 Act”) authorized the Federal
Communications Commission (“Commission” or “FCC”) to
ensure that interstate telephone rates are “just and reasonable,”
47 U.S.C. § 201(b), but left regulation of intrastate rates
primarily to the states. In the Telecommunications Act of 1996
(“1996 Act”), Congress amended the 1934 Act to change the
Commission’s limited regulatory authority over intrastate

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telecommunication so as to promote competition in the
payphone industry.
Before the passage of the 1996 Act, Bell Operating
Companies (“BOCs”) had dominated the payphone industry to
the detriment of other providers. Congress sought to remedy
this situation by authorizing the Commission to adopt
regulations ensuring that all payphone providers are “fairly
compensated for each and every” interstate and intrastate call.
47 U.S.C. § 276(b)(1)(A). “[P]ayphone service” expressly
includes “the provision of inmate telephone service in
correctional institutions, and any ancillary services.” Id.
§ 276(d). The issues in this case focus on inmate calling
services (“ICS”) and the rates and fees charged for these calls.
Following the passage of the 1996 Act, the Commission
avoided intrusive regulatory measures for ICS. And prior to the
Order under review in this case, the Commission had never
sought to impose rate caps on intrastate calls. Rather, the FCC
consistently construed its authority over intrastate payphone
rates as limited to addressing the problem of undercompensation for ICS providers.
Due to a variety of market failures in the prison and jail
payphone industry, however, inmates in correctional facilities,
or those to whom they placed calls, incurred prohibitive perminute charges and ancillary fees for payphone calls. In the
face of this problem, the Commission decided to change its
approach to the regulation of ICS providers. In 2015, in the
Order under review, the Commission set permanent rate caps
and ancillary fee caps for interstate ICS calls and, for the first
time, imposed those caps on intrastate ICS calls. Rates for
Interstate Inmate Calling Services (“Order”), 30 FCC Rcd.
12763, 12775–76, 12838–62 (Nov. 5, 2015), 80 Fed. Reg.
79136-01 (Dec. 18, 2015). The Commission also proposed to

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expand the reach of its ICS regulations by banning or limiting
fees for billing and collection services – so-called “ancillary
fees” – and by regulating video services and other advanced
services in addition to traditional calling services.
Five inmate payphone providers, joined by state and local
authorities, now challenge the Order’s design to expand the
FCC’s regulatory authority. In particular, the Petitioners
challenge the Order’s proposed caps on intrastate rates, the
exclusion of “site commissions” as costs in the agency’s
ratemaking methodology, the use of industry-averaged cost
data in the FCC’s calculation of rate caps, the imposition of
ancillary fee caps, and reporting requirements. And one ICS
provider separately challenges the Commission’s failure to
preempt inconsistent state rates and raises a due process
challenge.
Following the presidential inauguration in January 2017,
counsel for the FCC advised the court that, due to a change in
the composition of the Commission, “a majority of the current
Commission does not believe that the agency has the authority
to cap intrastate rates under section 276 of the Act.” Counsel
thus informed the court that the agency was “abandoning . . .
the contention . . . that the Commission has the authority to cap
intrastate rates” for ICS providers. Counsel also informed the
court that the FCC was abandoning its contention “that the
Commission lawfully considered industry-wide averages in
setting the rate caps.” However, the Commission has not
revoked, withdrawn, or suspended the Order. And one of the
Intervenors on behalf of the Commission, the “Wright
Petitioners,” continues to press the points that have been
abandoned by the Commission.
For the reasons set forth below, we grant in part and deny
in part the petitions for review, and remand for further

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proceedings with respect to certain matters. We also dismiss
two claims as moot.


We hold that the Order’s proposed caps on intrastate rates
exceed the FCC’s statutory authority under the 1996 Act.
We therefore vacate this provision.



We further hold that the use of industry-averaged cost data
as proposed in the Order is arbitrary and capricious because
it lacks justification in the record and is not supported by
reasoned decisionmaking. We therefore vacate this
provision.



We additionally hold that the Order’s imposition of video
visitation reporting requirements is beyond the statutory
authority of the Commission. We therefore vacate this
provision.



We find that the Order’s proposed wholesale exclusion of
site commission payments from the FCC’s cost calculus is
devoid of reasoned decisionmaking and thus arbitrary and
capricious. This provision cannot stand as presently
proposed in the Order under review; we therefore vacate
this provision and remand for further proceedings on the
matter.



We deny the petitions for review of the Order’s site
commission reporting requirements.



We remand the challenge to the Order’s imposition of
ancillary fee caps to allow the Commission to determine
whether it can segregate proposed caps on interstate calls
(which are permissible) and the proposed caps on intrastate
calls (which are impermissible).

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

Finally, we dismiss the preemption and due process claims
as moot.
I.

BACKGROUND

A. Statutory Background
The 1934 Act, 47 U.S.C. § 151, et seq., established a system
of regulatory authority that divides power between individual
states and the FCC over inter- and intrastate telephone
communication services. New England Pub. Commc’ns
Council, Inc. v. FCC, 334 F.3d 69, 75 (D.C. Cir. 2003). Under
this statutory scheme, the Commission regulates interstate
telephone communication. See id.; 47 U.S.C. § 151. This
regulatory authority includes ensuring that all charges “in
connection with” interstate calls are “just and reasonable.” 47
U.S.C. § 201(b). “The Commission may prescribe such rules
and regulations as may be necessary in the public interest to
carry out” these provisions. Id.
The FCC, however, “is generally forbidden from entering
the field of intrastate communication service, which remains
the province of the states.” New England Pub., 334 F.3d at 75
(citing 47 U.S.C. § 152(b)). Section 152(b) of the 1934 Act
erects a presumption against the Commission’s assertion of
regulatory authority over intrastate communications. This is
“not only a substantive jurisdictional limitation on the FCC’s
power, but also a rule of statutory construction” in interpreting
the Act’s provisions. La. Pub. Serv. Comm’n v. FCC, 476 U.S.
355, 373 (1986).
The 1996 Act “fundamentally restructured the local
telephone industry,” New England Pub., 334 F.3d at 71, by
changing the FCC’s authority with respect to some intrastate
activities and “remov[ing] a significant area from the States’

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exclusive control,” AT&T Corp. v. Iowa Utils. Bd., 525 U.S.
366, 382 n.8 (1999). Nevertheless, the states still primarily
“reign supreme over intrastate rates.” New England Pub., 334
F.3d at 75 (quoting City of Brookings Mun. Tel. Co. v. FCC,
822 F.2d 1153, 1155 (D.C. Cir. 1987)). “Insofar as Congress
has remained silent . . . § 152(b) continues to function. The
Commission could not, for example, regulate any aspect of
intrastate communication not governed by the 1996 Act on the
theory that it had an ancillary effect on matters within the
Commission’s primary jurisdiction.” AT&T Corp., 525 U.S. at
382 n.8.
Although the strictures of § 152 remain in force, the
changes imposed by the 1996 Act were significant. Evidence
of this is seen in the “Special Provisions Concerning Bell
Operating Companies.” 47 U.S.C. §§ 271–76. Section 276 was
“specifically aimed at promoting competition in the payphone
service industry.” New England Pub., 334 F.3d at 71. While
local phone services were once thought to be natural
monopolies, “[t]echnological advances . . . made competition
among multiple providers of local service seem possible, and
Congress [in the 1996 Act] ended the longstanding regime of
state-sanctioned monopolies.” AT&T Corp., 525 U.S. at 371;
see also Glob. Crossing Telecomms., Inc. v. Metrophones
Telecomms., Inc., 550 U.S. 45, 50 (2007).
The market history is illuminating. After AT&T had
divested its local exchange carriers into individual BOCs in
1982, BOCs continued to discriminate against non-BOC
payphone providers and effectively foreclosed competition.
The BOCs accomplished this by generally making sure that
other providers were not compensated for calls using BOCowned payphone lines. See New England Pub., 334 F.3d at 71.
Thus, because technology constraints forced many non-BOC
providers to use BOC-owned payphone lines, those providers

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were often left uncompensated for payphone calls. The 1996
Act changed these market practices.
In § 276, Congress clearly aimed to “promote competition
among payphone service providers and promote the
widespread deployment of payphone services to the benefit of
the general public.” 47 U.S.C. § 276(b)(1). Covered payphone
services include “inmate telephone service in correctional
institutions, and any ancillary services.” Id. § 276(d). Section
276 of the 1996 Act authorizes the Commission “to prescribe
regulations consistent with the goal of promoting competition,
requiring that the Commission take five specific steps toward
that goal.” New England Pub., 334 F.3d at 71. One such step is
to “establish a per call compensation plan to ensure that all
payphone service providers are fairly compensated for each
and every completed intrastate and interstate call using their
payphone,” and to prescribe regulations to establish this
compensation plan by November 1996. 47 U.S.C. § 276(b)(1),
(b)(1)(A). The remaining four steps further encourage or force
competition between BOC and non-BOC providers. Id.
§ 276(b)(1)(B)–(E). Any state requirements that are
inconsistent with FCC’s regulations adopted pursuant to § 276
are preempted. Id. § 276(c).
B. Factual and Procedural Background
Over the years, payphone providers have sought to provide
inmate calling services to inmates in prisons and jails
nationwide. ICS providers now compete with one another to
win bids for long-term ICS contracts with correctional
facilities. In awarding contracts to providers, correctional
facilities usually give considerable weight to which provider
offers the highest site commission, which is typically a portion
of the provider’s revenue or profits. See Implementation of Pay
Tel. Reclassification & Comp. Provisions of Telecomms. Act of

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1996, 17 FCC Rcd. 3248, 3252–53 (2002). Site commissions
apparently range between 20% and 63% of the providers’
profits, but can exceed that amount. Id. at 3253 n.34. And ICS
providers pay over $460 million in site commissions annually.
Order, 30 FCC Rcd. at 12821.
Once a long-term, exclusive contract bid is awarded to an
ICS provider, competition ceases for the duration of the
contract and subsequent contract renewals. Winning ICS
providers thus operate locational monopolies with a captive
consumer base of inmates and the need to pay high site
commissions. See 17 FCC Rcd. at 3253. After a decade of
industry consolidation, three specialized ICS firms now control
85% of the market. Order, 30 FCC Rcd. at 12801. And ICS
per-minute rates and ancillary fees together are extraordinarily
high, with some rates as high as $56.00 for a four-minute call.
Id. at 12765 n.4.
In reviewing this market situation, the FCC found that
inmate calling services are “a prime example of market
failure.” Id. at 12765. In its brief to this court, FCC counsel
aptly explains the seriousness of the situation:
Inmates and their families cannot choose for
themselves the inmate calling provider on whose
services they rely to communicate. Instead,
correctional facilities each have a single provider of
inmate calling services. And very often, correctional
authorities award that monopoly franchise based
principally on what portion of inmate calling revenues
a provider will share with the facility—i.e., on the
payment of “site commissions.” Accordingly, inmate
calling providers compete to offer the highest site
commission payments, which they recover through
correspondingly higher end-user rates. See [Order, 30

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FCC Rcd. at 12818–21]. If inmates and their families
wish to speak by telephone, they have no choice but to
pay the resulting rates.
Br. for FCC at 4.
In February 2000, Intervenor Martha Wright filed a
putative class action against ICS providers on behalf of her
grandson, other inmates, and their loved ones to challenge ICS
rates and fees. Complaint, Wright, et al. v. Corr. Corp. of Am.,
No. 1:00-CV-00293 (D.D.C. Feb. 16, 2000). In 2001, the
District Court stayed the case to afford the FCC the opportunity
to consider the reasonableness of ICS rates in the first instance
through rulemaking. Thereafter, in 2003 and in 2007, Martha
Wright and others petitioned the Commission for rulemaking
to regulate ICS rates and fees. Petition for Rulemaking, FCC
No. 96-128 (Nov. 3, 2003); Petitioners’ Alternative
Rulemaking Proposal, FCC No. 96-128 (Mar. 1, 2007).
The record compiled by the Commission fairly clearly
supports its determination that ICS charges raise serious
concerns. As noted in the FCC’s brief to the court:
Excessive rates for inmate calling deter
communication between inmates and their families,
with substantial and damaging social consequences.
Inmates’ families may be forced to choose between
putting food on the table or paying hundreds of dollars
each month to keep in touch. See [Order, 30 FCC Rcd.
at 12766–67]. When incarcerated parents lack regular
contact with their children, those children—2.7 million
of them nationwide—have higher rates of truancy,
depression, and poor school performance. See [id. at
12766–67 & 12767 n.18]. Barriers to communication
from high inmate calling rates interfere with inmates’

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ability to consult their attorneys, see [id. at 12765],
impede family contact that can “make[] prisons and
jails safer spaces,” [id. at 12767], and foster
recidivism, see [id. at 12766–67].
Br. for FCC at 4–5. Petitioners do not seriously contest these
facts. See Joint Br. for Pet’rs at 7 (acknowledging that “calling
rates often exceed, sometimes substantially, rates for ordinary
toll calls”).
In 2013, the Commission issued an interim order imposing
a per-minute rate cap for interstate ICS calls, citing its plenary
authority over interstate calls under § 201(b) and its mandate
to ensure that providers are “fairly compensated” under § 276.
Rates for Interstate Inmate Calling Services (“Interim Order”),
28 FCC Rcd. 14107, 14114–15 (2013). ICS providers
petitioned for this court’s review of the Interim Order. The
court stayed application of certain portions of the Interim
Order but allowed its interstate rate caps to remain in effect.
Order, Securus Techs. v. FCC, No. 13-1280 (“Securus I”) (D.C.
Cir. Jan. 13, 2014), ECF No. 1474764 (staying only 47 C.F.R.
§§ 64.6010, 64.6020, and 64.6060). In December 2014, the
court held the petitions in abeyance while the Commission
proceeded to set permanent rates. Order, Securus I (D.C. Cir.
Dec. 16, 2014), ECF No. 1527663.
In 2015, the Commission set permanent rate caps and
ancillary fee caps for interstate ICS calls, and for the first time
the agency imposed caps on intrastate ICS calls. Order, 30 FCC
Rcd. at 12775–76, 12838–62. The rate caps were set for four
categories – “all prisons” and three tiers of jails based on size
– and the rate caps varied by category. Id. at 12770. The rate
caps, which were made effective immediately, ranged from
$.14 to $.49 per minute, but were to decrease as of July 1, 2018,
to $.11 to $.22 per minute. Id. In setting the rate caps, the

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Commission used a ratemaking methodology based on
industry-average cost data that excluded site commissions as a
cost. Id. at 12790, 12818–38. The Order also imposed
reporting requirements on ICS providers, including for video
visitation services and site commissions. Id. at 12890–93.
ICS providers Global Tel*Link; Securus Technologies,
Inc.; CenturyLink Public Communications, Inc.; Telmate,
LLC; and Pay Tel Communications (“Pay Tel”) (collectively
“Petitioners”) separately petitioned for review. Various state
and local correctional authorities, governments, and
correctional facility organizations petitioned and/or intervened
on behalf of Petitioners. Martha Wright’s putative class and
various inmate-related legal organizations (“Intervenors”)
intervened on behalf of the Commission.
In early 2016, the court consolidated the petitions for
review. On March 7, 2016, the court stayed the application of
the Order’s rate caps and ancillary fee caps as to single-call
services while this case was pending. Order, Global Tel*Link,
et al. v. FCC, No. 15-1461 (“Global Tel*Link”) (D.C. Cir. Mar.
7, 2016), ECF No. 1602581. Subsequently, on March 23, 2016,
the court stayed the application of the Interim Order to
intrastate rates. Order, Global Tel*Link (D.C. Cir. Mar. 23,
2016), ECF No. 1605455.
In August 2016, on reconsideration of the FCC’s Order, the
Commission raised the rate caps to account for a small portion
of site commissions. Rates for Interstate Inmate Calling
Services (“Reconsideration Order”), 31 FCC Rcd. 9300
(2016). ICS providers petitioned for review of the
Reconsideration Order, but the court held those petitions in
abeyance and stayed the Reconsideration Order pending the
outcome of this case. See Order, Securus Techs. v. FCC, No.

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16-1321 (“Securus II”) (D.C. Cir. Nov. 2, 2016), ECF No.
1644302.
On January 31, 2017, counsel for the FCC filed a letter
advising this court that the Commission had experienced
“significant changes in [its] composition.” Letter at 1, Global
Tel*Link (D.C. Cir. Jan. 31, 2017), ECF No. 1658521. Of the
five Commissioners who had voted on the Order, two of the
three Commissioners in the majority had left the FCC. Id.
Because the dissent’s position now commanded a majority,
counsel for the FCC informed the court that “a majority of the
current Commission does not believe that the agency has the
authority to cap intrastate rates under section 276 of the Act.”
Id. Counsel thus advised the court that the FCC was
“abandoning . . . the contention . . . that the Commission has
the authority to cap intrastate rates” for ICS. Id. Counsel
additionally informed the court that the FCC was abandoning
its contention “that the Commission lawfully considered
industry-wide averages in setting the rate caps.” Id. at 2. At oral
argument, counsel for the Commission confirmed the agency’s
abandonment of these aspects of the Order. Tr. of Oral
Argument at 43–45, Global Tel*Link (D.C. Cir. Feb. 6, 2017),
ECF No. 1666379.
II. ANALYSIS
A. The Posture of this Case
The current posture of this case is unusual because counsel
for the FCC has advised the court that the agency will not
oppose two of the principal challenges raised by Petitioners
regarding: (1) the authority of the FCC to set permanent rate
caps and ancillary fee caps for intrastate ICS calls; and (2) the
legality of the Commission’s consideration of industry-wide
averages in setting rate caps. In light of the FCC’s change of

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position, a question arises as to whether these challenges are
moot.
It is well established that “voluntary cessation of allegedly
illegal conduct does not deprive [a judicial] tribunal of power
to hear and determine the case, i.e., does not make the case
moot.” United States v. W.T. Grant Co., 345 U.S. 629, 632
(1953). As the Court explained:
A controversy may remain to be settled in such
circumstances, e.g., a dispute over the legality of the
challenged practices. The defendant is free to return to
his old ways. This, together with a public interest in
having the legality of the practices settled, militates
against a mootness conclusion. For to say that the case
has become moot means that the defendant is entitled
to a dismissal as a matter of right. The courts have
rightly refused to grant defendants such a powerful
weapon against public law enforcement.
Id. at 632 (citations omitted).
“Voluntary cessation” justifies the dismissal of a case on
grounds of mootness only when “the defendant can
demonstrate that there is no reasonable expectation that the
wrong will be repeated. The burden is a heavy one.” Id. at 633
(citation and internal quotation marks omitted); see also
Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc.,
528 U.S. 167, 189 (2000) (“[T]he standard we have announced
for determining whether a case has been mooted by the
defendant’s voluntary conduct is stringent: ‘A case might
become moot if subsequent events made it absolutely clear that
the allegedly wrongful behavior could not reasonably be
expected to recur.’ The ‘heavy burden of persua[ding]’ the
court that the challenged conduct cannot reasonably be

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expected to start up again lies with the party asserting
mootness.” (quoting United States v. Concentrated Phosphate
Export Ass’n, 393 U.S. 199, 203 (1968))); Payne Enters., Inc.
v. United States, 837 F.2d 486, 491–92 (D.C. Cir. 1988)
(same).
There is absolutely no basis for dismissing as moot the
claims relating to the issues that the FCC has “abandoned.”
Indeed, neither the FCC, the Petitioners, nor the Intervenors
have urged this. The reason is fairly simple: the Order that gave
rise to the petitions for review is still in force. Although counsel
for the FCC has made it clear that the agency will not defend
portions of the Order, the Commission has never acted to
revoke, withdraw, or suspend the Order. Given this posture of
the case, it is plain that there has been no “voluntary cessation”
by the FCC that would warrant dismissal of Petitioners’
challenges to the Order.
B. Standard of Review
Although Petitioners’ challenges to the provisions of the
Order purporting to cap intrastate rates and to apply industrywide averages in setting rate caps are not moot, a question
remains as to what standard governs our review of these
provisions. Normally, we would follow the familiar two-step
Chevron framework as the appropriate standard of review. See
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S.
837 (1984). Under the Chevron framework,
an agency’s power to regulate “is limited to the scope
of the authority Congress has delegated to it.” Am.
Library Ass’n v. FCC, 406 F.3d 689, 698 (D.C. Cir.
2005). Pursuant to Chevron Step One, if the intent of
Congress is clear, the reviewing court must give effect
to that unambiguously expressed intent. If Congress

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has not directly addressed the precise question at issue,
the reviewing court proceeds to Chevron Step Two.
Under Step Two, “[i]f Congress has explicitly left a
gap for the agency to fill, there is an express delegation
of authority to the agency to elucidate a specific
provision of the statute by regulation. Such legislative
regulations are given controlling weight unless they are
. . . manifestly contrary to the statute.” Chevron, 467
U.S. at 843–44. Where a “legislative delegation to an
agency on a particular question is implicit rather than
explicit,” the reviewing court must uphold any
“reasonable interpretation made by the administrator
of [that] agency.” Id. at 844. But deference to an
agency’s interpretation of its enabling statute “is due
only when the agency acts pursuant to delegated
authority.” Am. Library Ass’n, 406 F.3d at 699.
EDWARDS, ELLIOTT, AND LEVY, FEDERAL STANDARDS
REVIEW 166–67 (2d ed. 2013).

OF

The disputed Order in this case was promulgated by the
FCC “carrying the force of law.” United States v. Mead Corp.,
533 U.S. 218, 226–27 (2001). Therefore, it was presumptively
subject to review pursuant to Chevron. Id. The oddity here,
however, is that the agency no longer seeks deference for the
parts of the Order purporting to cap intrastate rates for ICS
providers and to apply industry-wide averages in setting the
rate caps. In these circumstances, it would make no sense for
this court to determine whether the disputed agency positions
advanced in the Order warrant Chevron deference when the
agency has abandoned those positions.
Although the Chevron framework is of no significance with
respect to the cap on intrastate rates and the application of
industry-wide averages issues, this does not affect the court’s

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jurisdiction to address these issues. See, e.g., New Process
Steel, L.P. v. NLRB, 560 U.S. 674, 679–83 (2010) (deciding the
statutory issue without reference to the Chevron framework).
Therefore, “[w]ith Chevron inapplicable, . . . ‘we must decide
for ourselves the best reading’” of the statutory provisions at
issue in this case. Miller v. Clinton, 687 F.3d 1332, 1342 (D.C.
Cir. 2012) (quoting Landmark Legal Found. v. IRS, 267 F.3d
1132, 1136 (D.C. Cir. 2001)).
It is well recognized that when a disputed agency
interpretation does not carry the force of law, it still may be
“entitled to respect,” at least to the extent that the interpretation
has the “power to persuade.” Skidmore v. Swift & Co., 323 U.S.
134, 140 (1944); see also Mead, 533 U.S. at 227–31;
Christensen v. Harris Cty., 529 U.S. 576, 587 (2000).
However, in this case, because the FCC now offers no
interpretations in support the provisions of the Order
purporting to cap intrastate rates for ICS providers and apply
industry-wide averages in setting the rate caps, the court must
resolve these issues applying the usual rules of statutory
construction. See, e.g., MCI Telecomms. Corp. v. Am. Tel. &
Tel. Co., 512 U.S. 218 (1994); see generally ROBERT A.
KATZMANN, JUDGING STATUTES (2014); WILLIAM N.
ESKRIDGE, JR., ABBE R. GLUCK & VICTORIA F. NOURSE,
STATUTES, REGULATION, AND INTERPRETATION 409–29
(2014).
With respect to the remaining issues before the court, we
will apply the Chevron framework, as applicable. As to all
other issues, we will apply § 706(2)(A) of the Administrative
Procedure Act (“APA”), which provides that a reviewing court
shall “hold unlawful and set aside agency action, findings, and
conclusions found to be . . . arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). Under this standard of review, we search for

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“reasoned decisionmaking.” Motor Vehicle Mfrs. Ass’n of U.S.,
Inc. v. State Farm Mut. Auto. Ins. Co. (“State Farm”), 463 U.S.
29, 52 (1983). This means that we must determine whether the
FCC “examine[d] the relevant data and articulate[d] a
satisfactory explanation for its action including a rational
connection between the facts found and the choice made.” Id.
at 43 (internal quotation marks omitted).
C. The Authority of the FCC to Set Permanent Rate Caps
and Ancillary Fee Caps for Intrastate ICS Calls
In the disputed Order, the Commission asserted authority
to impose rate caps on intrastate ICS calls for the first time. It
did so under the guise of § 276 of the 1996 Act, which requires
the Commission to “establish a per call compensation plan to
ensure that all payphone service providers are fairly
compensated for each and every completed intrastate and
interstate call using their payphone,” and to prescribe
regulations to establish this compensation plan. 47 U.S.C.
§ 276(b)(1), (b)(1)(A). Petitioners assert that the provision in
§ 276, requiring the Commission to ensure that ICS providers
are “fairly compensated,” does not override the command of
§ 152(b), which forbids the FCC from asserting jurisdiction
over “charges, classifications, practices, services, facilities, or
regulations for or in connection with intrastate communication
service.” 47 U.S.C. § 152(b) (emphasis added). Petitioners also
contend that § 276 does not give the Commission ratemaking
authority comparable to the authority that it has under § 201 to
regulate and cap interstate rates. Finally, Petitioners point out
that the intrastate rate caps prescribed in the Order make little
sense in light of the undisputed record evidence showing that
many ICS providers have costs that are higher than the disputed
rate caps. We agree with Petitioners that, on the record in this
case, § 276 did not authorize the Commission to impose

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intrastate rate caps as prescribed in the Order. Several
considerations have influenced our judgment on this matter.
First, as noted above, § 152(b) of the 1934 Act erects a
presumption against the Commission’s assertion of regulatory
authority over intrastate communications. La. Pub. Serv.
Comm’n, 476 U.S. at 373 (making it clear that this is “not only
a substantive jurisdictional limitation on the FCC’s power, but
also a rule of statutory construction” in interpreting the Act’s
provisions). As we explain below, the Order in this case does
not come close to overcoming this presumption in proposing to
cap intrastate rates.
Second, the Order erroneously treats the Commission’s
authority under § 201 and § 276 as coterminous. Section 201
imbues the Commission with traditional ratemaking powers
over interstate calls, including the imposition of rate caps. The
statute explicitly directs the FCC to ensure that interstate rates
are “just and reasonable,” and to “prescribe such rules and
regulations as may be necessary in the public interest” to carry
out these provisions. 47 U.S.C. § 201(b). Section 276, however,
does not give the Commission authority to determine “just and
reasonable” rates. Rather, § 276 merely directs the Commission
to “ensure that all [ICS] providers are fairly compensated” for
their inter- and intrastate calls. 47 U.S.C. § 276(b)(1)(A).
The language and purpose of § 201 in the 1934 Act are
fundamentally different from the language and purpose of
§ 276 in the 1996 Act. The Order glosses over these differences
in declaring that the Commission has authority to ensure that
rates are “just, reasonable and fair.” See, e.g., Order, 30 FCC
Rcd. at 12766, 12817. This is not what § 201(b) and § 276 say.
And once the Order misquotes the language of § 201(b) and
§ 276, it goes on to conclude that these provisions in their
combined effect authorize the FCC to set rate caps to ensure

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that both inter- and intrastate rates are “‘just and reasonable’
and do not take unfair advantage of inmates, their families, or
providers consistent with the ‘fair compensation’ mandate of
section 276.” Id. at 12817. In other words, in ignoring the terms
of § 276, the Order conflates two distinct statutory grants of
authority into a synthetic “just, reasonable and fair” standard.
This is impermissible.
Third, the Order asserts that the Commission “has
previously found that the term ‘fairly compensated’ [in § 276]
permits a range of compensation rates . . ., but that the interests
of both the payphone service providers and the parties paying
the compensation must be taken into account,” implying
considerations of fairness to the consumer. Id. at 12814 n.335.
This assertion is unfounded. The truth is that the Commission’s
prior orders align with a narrow reading of the statute that does
not purport to treat the Commission’s authority under § 201
and § 276 as coterminous. The FCC’s prior orders to which the
Order here refers construed the “fairly compensated” mandate
of § 276 as irrelevant to ICS rates reached through contractual
bargaining. This was because the FCC had determined that
“whenever a [payphone provider] is able to negotiate for itself
the terms of compensation for the calls its payphones originate,
then [the Commission’s] statutory obligation to provide fair
compensation is satisfied.” Implementation of the Pay Tel.
Reclassification & Comp. Provisions of the Telecomms. Act of
1996, 11 FCC Rcd. 21233, 21269 (1996). This is hardly
evidence of “just, reasonable and fair” ratemaking under § 276.
Furthermore, it is noteworthy that the Commission’s prior
orders repeatedly acknowledge that § 276 focuses on the
problem of uncompensated calls in situations in which BOC
providers engaged in anti-competitive behavior. In other
words, the FCC recognized that a principal reason for the
enactment of § 276 was to address “the limitation on the ability

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of [payphone providers] and carriers to negotiate a mutually
agreeable amount” because of technological and regulatory
constraints. Implementation of the Pay Tel. Reclassification &
Comp. Provisions of the Telecomms. Act of 1996, 14 FCC Rcd.
2545, 2551, 2569 (1999). Therefore, the prior orders to which
the Order at issue here refers focused on payphone providers
and carriers to determine whether the providers were fairly
compensated. See, e.g., id. at 2570; Implementation of Pay Tel.
Reclassification & Comp. Provisions of Telecomms. Act of
1996, 17 FCC Rcd. 21274, 21302 (2002) (referring to providers
and the carriers compensating the providers in stating that
§ 276 “implies fairness to both sides”). The prior orders did not
reflect anything approaching “just, reasonable and fair”
ratemaking for intrastate rates as authorized by § 201 for
interstate rates.
In the agency brief that was filed with the court before the
FCC abandoned its support of the intrastate rate caps, counsel
argued that fairness to the consumer is implied in § 276 because
the reference to “fair” (in “fairly compensated”) is “capacious.”
Br. for FCC at 31. This argument finds no support in the Order.
As noted above, the Order simply asserts that intrastate rate
caps are consistent with the Commission’s past orders. And, as
noted above, the Commission’s past orders do not support a
“capacious” interpretation of “fairly compensated” in § 276 to
suggest that it is comparable to “just, reasonable and fair”
ratemaking in § 201. The prior orders merely relied on the
“fairly compensated” language to set a default rate from which
the payphone providers and carriers could negotiate a
departure, not to reduce bargained-for compensation. See, e.g.,
11 FCC Rcd. at 21267–69; 14 FCC Rcd. at 2569–71. The
Commission made it clear that it meant to “g[i]ve primary
importance to Congress’s objective of establishing a marketbased, deregulatory mechanism for payphone compensation, as

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required both in section 276 and the generally pro-competitive
goals of the 1996 Act.” 14 FCC Rcd. at 2548.
Finally, the Order cites two decisions of this court to justify
an interpretation of the “fair compensation” mandate in § 276
that includes “just and reasonable” ratemaking in § 201. Order,
30 FCC Rcd. at 12815–16 (citing Ill. Pub. Telecomms. Ass’n v.
FCC, 117 F.3d 555, 562 (D.C. Cir. 1997); New England Pub.,
334 F.3d at 75). The Order’s construction of these decisions is
misguided because neither decision compels the conclusion
that § 276 authorizes the Commission to cap intrastate rates
pursuant to “just, reasonable and fair” ratemaking.
The Order first extracts language from the decision in
Illinois saying that § 276 provides the Commission with
“authority to set local coin call rates.” 117 F.3d at 562. But in
the order under review in Illinois, the FCC did not “set” local
coin call rates by imposing caps on intrastate rates. Rather, the
agency merely interpreted the mandate of § 276(b)(1)(A) to
“require[] the Commission to act only with respect to those
types of calls for which a [payphone provider] does not already
receive fair compensation.” Id. at 559 (emphasis added). And
even for those calls, the FCC ultimately determined a default
floor based on the deregulated market rate and allowed the
payphone providers to negotiate a departure from that rate. Id.
at 560.
In reviewing the FCC’s order that was contested in Illinois,
we held that § 276 unambiguously overrode § 152(b)’s
presumption against intrastate jurisdiction insofar as it granted
the Commission authority to “set” reimbursement rates for
local coin calls in order to ensure that payphone operators who
were previously uncompensated were “fairly compensated.”
Id. at 561–63. The court did not say that § 276 overrode the
presumption against intrastate jurisdiction to allow the

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Commission to reduce already compensatory rates, which is
what the Order at issue in this case suggests. Rather, the Illinois
court said:
If locational monopolies turn out to be a problem,
however, the Commission suggested some ways in
which it might deal with them: a State might be
permitted to require competitive bidding for locational
contracts, or to mandate that additional [payphone
providers] be allowed to provide payphones at the
location; and if these remedies fail, the Commission
may consider the matter further.
Id. at 562–63. None of these options contemplated caps on
intrastate rates.
It is true that the decision in Illinois does not explicitly
preclude the Commission from imposing intrastate rate caps.
That was not the question before the court. But the Order at
issue in this case is wrong in suggesting that the decision in
Illinois reflects “significant judicial precedent [that] supports
the Commission’s authority” to reduce already compensatory
rates. Order, 30 FCC Rcd. at 12815. Indeed, in Illinois the court
reversed the Commission’s decision to exclude certain
uncompensated calls from its mandatory compensation plan
because the failure to provide compensation for this type of
payphone call was “patently inconsistent with § 276’s
command that fair compensation be provided for ‘each and
every completed . . . call.’” 117 F.3d at 566.
The Order at issue in this case also purports to rely on a
statement in the New England decision that § 276
“unambiguously and straightforwardly authorizes the
Commission to regulate . . . intrastate payphone line rates.”
Order at 12815 (quoting New England Pub., 334 F.3d at 75).

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But here again the cited decision merely confirmed that the
1996 Act expanded the Commission’s intrastate regulatory
authority within the limited parameters of § 276. The New
England court held that Congress had authorized the
Commission to carry out the anti-subsidy and antidiscrimination mandates of § 276(b)(1)(D)–(E) as to both interand intrastate payphone providers because Congress intended
§ 276 as a whole to “authorize the Commission to eliminate
barriers to competition.” 334 F.3d at 77. But when pressed to
extend § 276’s anti-subsidy and anti-discrimination mandates
to non-BOC carriers, the court said, “the fact remains that
sections 276(a) and 276(b)(1)(C), the sources of the
Commission’s authority to regulate intrastate payphone rates,
expressly apply only to the BOCs.” Id. at 78. The court was
also clear in saying that outside the specific directives of § 276,
general provisions “cannot . . . trump section 152(b)’s specific
command that no Commission regulations shall preempt state
regulations unless Congress expressly so indicates. Absent
authorization to apply its section 276 regulations to non-BOC
[carriers], the Commission may not regulate their intrastate
payphone line rates.” Id. (citation omitted).
Thus, neither Illinois nor New England stands for the
proposition that the Commission has broad plenary authority to
regulate and cap intrastate rates. Rather these decisions confirm
the limited scope of § 276 which must be applied within the
express bounds of its specific directives.
The Order’s misconstruction of our case law stems from its
fundamental misreading of § 276. The Order acknowledges
that the Commission’s authority over intrastate calls is, “except
as otherwise provided by Congress, generally limited by
section [152(b)] of the Act.” Order, 30 FCC Rcd. at 12814. The
Commission thus recognized that to assert jurisdiction over
intrastate rates, the 1996 Act must “unambiguously appl[y] to

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intrastate services.” Id. The Order errs, however, in concluding
that § 276 required it “to broadly craft regulations to ‘promote
the widespread development of payphone services for the
benefit of the general public,’” and that this constituted a
“general grant of jurisdiction.” Id. (quoting 47 U.S.C. §
276(b)(1)). This misreads the language of § 276. The statute
merely commands the Commission, “[i]n order to promote
competition among payphone service providers and promote
the widespread deployment of payphone services to the benefit
of the general public,” 47 U.S.C. § 276(b)(1), to prescribe
regulations to accomplish “five specific steps toward that
goal,” New England Pub., 334 F.3d at 71. This is not a “general
grant of jurisdiction” over intrastate ratemaking.
The Order at issue in this case is legally infirm because it
purports to cap intrastate rates based on a “just, reasonable and
fair” test that is not enunciated in the statute, conflates distinct
grants of authority under § 201 and § 276, and misreads our
judicial precedent and the FCC’s own prior orders to support
capping already compensatory rates under the guise of ensuring
providers are “fairly compensated.” The point here is
straightforward:
The FCC’s belief that lower ICS calling rates reflect
desirable social policy cannot justify regulations that
exceed its statutory mandate. Section 276 of the
Communications Act authorizes the FCC to ensure that
ICS providers are not deprived of fair compensation
for the use of their payphones; § 201 authorizes it to
ensure that rates for and in connection with interstate
telecommunications services are just and reasonable.
The FCC may not ignore these statutory limits to
advance its preferred correctional policy.
Joint Br. for Pet’rs at 4.

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We therefore reverse and vacate the provision in the Order
that purports to cap intrastate rates as beyond the statutory
authority of the Commission. We need not decide the precise
parameters of the Commission’s authority under § 276. We
simply hold here that the agency’s attempted exercise of
authority in the disputed Order cannot stand.
D. The Categorical Exclusion of Site Commission Costs
The Petitioners contend that:
The FCC’s exclusion of site commission payments
from the costs used to set ICS rate caps was unlawful.
ICS providers are required by state and local
governments and correctional institutions to pay site
commissions; those commissions are accordingly a
cost of providing service like other state taxes and fees
that the FCC recognizes as recoverable costs. The FCC
acknowledged that, taking site commissions into
consideration, the rate caps were below providers’
costs. This violates the FCC’s obligation to “ensure
that all payphone service providers are fairly
compensated,” 47 U.S.C. § 276(b)(1)(A), § 201’s “just
and reasonable” requirement, and the Constitution’s
Takings Clause.
Joint Br. for Pet’rs at 16. The concerns raised by Petitioners
are compelling.
The Commission’s categorical exclusion of site
commissions from the calculus used to set ICS rate caps defies
reasoned decisionmaking because site commissions obviously
are costs of doing business incurred by ICS providers. Yet, the
Order categorically excluded site commissions and then “set
the rate caps below cost.” Id. at 20. This is hard to fathom. “An

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agency acts arbitrarily or capriciously if it has . . . offered an
explanation either contrary to the evidence before the agency
or so implausible as not to reflect either a difference in view or
agency expertise.” Defs. of Wildlife & Ctr. for Biological
Diversity v. Jewell, 815 F.3d 1, 9 (D.C. Cir. 2016) (citing State
Farm, 463 U.S. at 43). Ignoring costs that the Commission
acknowledges to be legitimate is implausible.
The FCC’s suggestion that site commissions “have nothing
to do with the provision of ICS,” Order, 30 FCC Rcd. at 12822
(internal quotation marks omitted), makes no sense in light of
the undisputed record in this case. In some instances,
commissions are mandated by state statute, Rates for Interstate
Inmate Calling Services, 27 FCC Rcd. 16629, 16643 (2012),
and in other instances commissions are required by state
correctional institutions as a condition of doing business with
ICS providers, 17 FCC Rcd. at 3252–53. “If agreeing to pay
site commissions is a condition precedent to ICS providers
offering their services, those commissions are ‘related to the
provision of ICS.’” Joint Br. for Pet’rs at 21. And it does not
matter that the states may use the commissions for purposes
unrelated to the activities of correctional facilities. The ICS
providers who are required to pay the site commissions as a
condition of doing business have no control over the funds once
they are paid. None of the other reasons offered by the
Commission to justify the categorical exclusion of site
commissions passes muster.
On the record before us, we simply cannot comprehend the
agency’s reasoning. Where, as here, an agency’s “explanation
for its determination . . . lacks any coherence,” we owe “no
deference to [the agency’s] purported expertise.” Tripoli
Rocketry Ass’n v. Bureau of Alcohol, Tobacco, Firearms, and
Explosives, 437 F.3d 75, 77 (D.C. Cir. 2006); see also Coburn
v. McHugh, 679 F.3d 924 (D.C. Cir. 2012). Not only does the

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FCC’s reasoning defy comprehension, the categorical
exclusion of site commissions cannot be easily squared with
the requirements of § 276 and § 201. We therefore vacate this
portion of the Order.
In its 2016 Reconsideration Order, the Commission raised
the rate caps specifically to account for a portion of site
commissions, effectively acknowledging that a categorical
exclusion of site commissions from the ratemaking calculus is
implausible. The Commission said:
[W]e have decided, out of an abundance of caution, to
take a more conservative approach and expressly
account for facilities’ ICS-related costs when
calculating our rate caps. Accordingly, we grant the
Hamden Petition in part . . . and increase our interstate
and intrastate rate caps to expressly account for
reasonable facility costs related to ICS.
Reconsideration Order, 31 FCC Rcd. at 9302. Although the
FCC purported to change its position in the Reconsideration
Order, that order does not moot Petitioner’s challenge here.
See, e.g., N.E. Fla. Contractors v. Jacksonville, 508 U.S. 663,
662 (1993) (replacing the challenged law “with one that differs
only in some insignificant respect” and “disadvantages
[petitioners] in the same fundamental way” does not moot the
underlying challenge).
The Reconsideration Order is not before us, so we cannot
say whether it provides a satisfactory response to Petitioners’
challenge. We will leave this for the Commission’s
consideration on remand. We also leave it to the Commission
to assess on remand which portions of site commissions might
be directly related to the provision of ICS and therefore
legitimate, and which are not. In addition, although we

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conclude that the Order at issue here is arbitrary and capricious
insofar as it categorically excludes site commissions from the
ratemaking calculus, we do not reach Petitioners’ remaining
arguments that the exclusion of site commissions denies ICS
providers fair compensation under § 276 and violates the
Takings Clause of the Constitution because it forces providers
to provide services below cost. These matters should be
addressed by the Commission on remand once it revisits the
exclusion of site commissions from the ratemaking calculus.
E. The Legality of the FCC’s Use of Industry-Wide
Averages in Setting Rate Caps
Petitioners contend that:
Even if site commissions are disregarded, the rate
caps were set too low to ensure compensation “for each
and every completed . . . call.” [47 U.S.C. §
276(b)(1)(A)]. The FCC’s caps are below average
costs documented by numerous ICS providers and
would deny cost recovery for a substantial percentage
of all inmate calls. The FCC’s assertion that ICS
providers with costs above the caps operate
inefficiently is contrary to the record. The FCC relied
on two outlier ICS providers that — combined —
represent 0.1 percent of the ICS market. And it ignored
evidence showing that the cost to provide ICS varies
widely on the basis of regional differences, such as the
age and condition of a given facility or the specific
security features that correctional authorities demand.
****
The record includes two economic analyses, both
concluding that the Order’s rate caps are below cost

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for a substantial number of ICS calls even after
excluding site commissions. . . .
The Order does not challenge these studies or their
conclusions. On the contrary, it acknowledges that
seven of 14 ICS providers that submitted cost data
reported per-minute costs of “$0.25 or higher,” above
the highest prepaid rate cap of $0.22 per minute.
Joint Br. for Pet’rs at 16–17, 30–31 (quoting Order, 30 FCC
Rcd. at 12669–70, 12795). Petitioners’ claims are well taken
and largely undisputed. And, as noted above, the FCC has
abandoned its contention that the agency lawfully considered
industry-wide averages in setting the rate caps, and for good
reasons.
First, to the extent that the Order purports to set caps for
intrastate rates, it is infirm for the reasons stated above. Second,
the averaging calculus is patently unreasonable. The FCC
calculated its rate caps “using a weighted average per minute
cost,” Order, 30 FCC Rcd. at 12790, allowing providers to
“recover average costs at each and every tier,” id. n.170. This
makes calls with above-average costs in each tier unprofitable,
however, and thus does not fulfill the mandate of § 276 that
“each and every” inter- and intrastate call be fairly
compensated. See Am. Pub. Commc’ns Council v. FCC, 215
F.3d 51, 54, 57–58 (D.C. Cir. 2000).
Moreover, the Order advances an efficiency argument –
that the larger providers can become profitable under the rate
caps if they operate more efficiently – based on data from the
two smallest firms. See Order, 30 FCC Rcd. at 12790–95. Not
only do those firms represent less than one percent of the
industry, but the record shows that regional variation, not
efficiency, accounts for cost discrepancies among providers.

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See id. at 12965 n.61 (dissenting statement of Commissioner
Pai). The Order does not account for these conflicting record
data.
In sum, the Order’s analysis of the record data in setting
rate caps was not the product of reasoned decisionmaking. We
will therefore vacate that portion of the Order and remand for
further proceedings.
F.

The Imposition of Ancillary Fee Caps

Contrary to Petitioners’ contentions, the Order’s
imposition of ancillary fee caps in connection with interstate
calls is justified. The Commission has plenary authority to
regulate interstate rates under § 201(b), including “practices
. . . for and in connection with” interstate calls. The Order
explains that ICS providers use ancillary fees as a loophole in
avoiding per-minute rate caps. Order, 30 FCC Rcd. at 12842.
Furthermore, ancillary fees for interstate calls satisfy the test
of the Commission’s authority under § 201(b) as they are “in
connection with” interstate calls. However, these
considerations do not fully answer the question whether the
disputed imposition of ancillary fee caps is permissible.
As noted above, we have found that, on the record in this
case, the Order’s imposition of intrastate rate caps fails review
under § 276. Therefore, we likewise hold that the FCC had no
authority to impose ancillary fee caps with respect to intrastate
calls. However, we cannot discern from the record whether
ancillary fees can be segregated between interstate and
intrastate calls. We are therefore obliged to remand the matter
to the FCC for further consideration.

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G. The Imposition of Reporting Requirements
The Commission initially contended that the Order’s
requirements with respect to reporting requirements for video
visitation services and site commissions were unripe for review
because they were pending budgetary approval by the Office
of Management and Budget (“OMB”). After briefing, however,
OMB approval was published. See 82 Fed. Reg. 12182-01
(Mar. 1, 2017). Accordingly, the Commission withdrew its
ripeness challenge. Letter, Global Tel*Link (D.C. Cir. Mar. 1,
2017), ECF No. 1663705. Therefore, the parties agree that we
may review the Commission’s imposition of the disputed
reporting requirements.
We hold that the video visitation services reporting
requirement, 47 C.F.R. § 64.6060(a)(4), is too attenuated to the
Commission’s statutory authority to justify this requirement.
The Commission asserts that whether or not video visitation
services are a form of ICS, they are still subject to the agency’s
jurisdiction. See, e.g., Order, 30 FCC Rcd. at 12891–92; Br. for
FCC at 56–57. We disagree. Before it may assert its jurisdiction
to impose such a reporting requirement, the Commission must
first explain how its statutory authority extends to video
visitation services as a “communication[] by wire or radio”
under § 201(b) for interstate calls or as an “inmate telephone
service” under § 276(d) for interstate or intrastate calls. The
Order under review offers no such explanations. We therefore
vacate the reporting requirement for video visitation services.
In contrast, we find no merit in Petitioners’ challenge to
the site commission payment reporting requirement under 47
C.F.R. § 64.6060(a)(3). The quibble between the parties is
largely over semantics. The Commission agrees that the
definition of site commission payment should be read largely
as Petitioners argue: namely, site commissions are “incentive

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payments designed to influence a correctional authority’s
selection of its monopoly service provider, not a form of
ordinary tax.” Br. for FCC at 59 (citing Order, 30 FCC Rcd. at
12818–22). So defined, the reporting requirement is lawful on
its face and Petitioners do not disagree. We therefore deny the
petition for review.
H. The Preemption and Due Process Claims
Petitioner Pay Tel separately challenges the Commission’s
refusal to preempt certain state ICS rate caps that are lower than
those the Commission set in the Order. Because we are
vacating the portion of the Order imposing intrastate rate caps
under § 276(b), the preemption provision under § 276(c) is no
longer at issue. There are no relevant regulations under § 276
remaining in the Order with respect to which the lower state
rate caps might be preempted. This issue is therefore moot.
Pay Tel’s claim that its due process rights were infringed
when it was not given timely access to key cost data that the
FCC relied on in setting the rate caps is also moot. We are
vacating the portion of the Order setting rate caps for intrastate
rates; the Commission has acknowledged that its use of
industry-average data to set rates was error; and Pay Tel
obtained access to the disputed data prior to the Commission’s
issuance of the Reconsideration Order setting rate caps that
supersede those in the Order at issue. The concerns raised by
Pay Tel are thus moot.
III. CONCLUSION
In accordance with the foregoing opinion, we grant in part
and deny in part the petitions for review, vacate certain
provisions in the disputed Order, and remand for further

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proceedings with respect to certain matters. We also dismiss
two claims as moot.
So ordered.

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SILBERMAN, Senior Circuit Judge, concurring: I concur
with Judge Edwards’ opinion in all respects. I especially agree
that Chevron deference would be inappropriate in these unusual
circumstances. I write separately to point out, as to the FCC’s
claimed jurisdiction to set intrastate rate caps, that I think our
result would be the same if the Chevron framework was in play,
i.e., if the FCC had elected to defend this part of its regulation.
There is no question that the relevant statutory language,
“fairly compensated,” is ambiguous. 47 U.S.C. 276(b)(1)(A).
Even the FCC agrees. But Judge Edwards’ careful explanation
of the statute’s structure and context demonstrates that the
agency’s interpretation would fail at Chevron’s second step; it
is an unreasonable (impermissible) interpretation of section 276.
Much of the recent expressed concern about Chevron
ignores that Chevron’s second step can and should be a
meaningful limitation on the ability of administrative agencies
to exploit statutory ambiguities, assert farfetched interpretations,
and usurp undelegated policymaking discretion.1 This case
presents just one example of those kinds of agency tactics.
There are others. Accord Michigan v. EPA, — U.S. —, 135 S.
Ct. 2699, 2713 (2015) (Thomas, J., concurring) (“Although we
hold today that [the agency] exceeded even the extremely
permissive limits on agency power set by our precedents, we

1

See, e.g., City of Arlington v. FCC, — U.S. —, 133 S. Ct. 1863
(2013) (Roberts, C.J., dissenting). Of course, some also question “step
two” itself. For example, an essay in the Virginia Law Review
contended that “Chevron Has Only One Step.” Matthew C.
Stephenson & Adrian Vermeule, 95 Va. L. Rev. 597 (2009). But that
position ignores the practical effect on future agency discretion of a
court opinion either affirming or reversing an agency interpretation at
step one versus step two. Cf. Nat’l Cable & Telecomms. Ass’n v.
Brand X Internet Servs., 545 U.S. 967 (2005).

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should be alarmed that it felt sufficiently emboldened by those
precedents to make the bid for deference that it did here.”)
To be sure, some have lamented that as a practical matter,
under Chevron, either the case is decided at the first step or the
agency prevails once it receives deference under step two. But
that is not what the Chevron case called for.
Chevron itself involved a phrase “stationary source” that
was not at all defined and clearly could equally refer to (a) a
factory complex, or (b) a specific emitter of pollution. 467 U.S.
837, 860-64 (1984). But it would have been unreasonable to
refer to (c) a whole city. Yet too many times agencies have
taken advantage of an ambiguity to pursue a (c), (d), or (f)
interpretation that accorded with policy objectives. See, e.g.,
Verizon v. FCC, 740 F.3d 623, 660 (D.C. Cir. 2014) (Silberman,
J., concurring in part and dissenting in part).
Unfortunately, the Supreme Court for some time after
Chevron contributed to the step one winner-take-all narrative by
neglecting to rely on step two even when it was really called for.
Take for example MCI Telecommunications Corp. v. AT&T Co.,
512 U.S. 218 (1994), in which Justice Scalia—perhaps the
foremost expositor of Chevron—used statutory structure and
context, much like Judge Edwards does in our case, to
demonstrate that the FCC’s reliance on the word “modify” was
unacceptable, see, e.g., id. at 228-29. But he never conceded
that the word “modify” was ambiguous, which it was. Id. at 228
(“We have not the slightest doubt that [single definition] is the
meaning the statute intended.”).
Subsequently, however, in AT&T Corp. v. Iowa Utilities
Board, 525 U.S. 366 (1999), Justice Scalia implicitly relied on
step two. He concluded that because the agency failed to
interpret the terms of the statute “in a reasonable fashion,” the

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rule must be vacated. Id. at 392. Then, in City of Arlington v.
FCC, — U.S. —, 133 S. Ct. 1863 (2013), he admonished that
“where Congress has established an ambiguous line, the agency
can go no further than the ambiguity will fairly allow,” id. at
1874. And most recently in Michigan v. EPA, — U.S. —, 135
S. Ct. 2699 (2015), when invalidating agency action under step
two, he was more explicit still: “Chevron allows agencies to
choose among competing reasonable interpretations of a statute;
it does not license interpretive gerrymanders under which an
agency keeps parts of statutory context it likes while throwing
away parts it does not,” id. at 2708.
We have at times been careful to apply step two review
vigorously. See, e.g., Goldstein v. SEC, 451 F.3d 873 (D.C. Cir.
2006). This is just such a case where the agency’s original
claim for Chevron deference—before the agency’s control
switched—would have been rejected at Chevron step two; a
muscular use of that analysis is a barrier to inappropriate
administrative adventure.

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PILLARD, Circuit Judge, dissenting as to Sections II.B
through II.F and concurring in part:
The administrative record is full of compelling evidence
of dysfunction in the inmate-calling marketplace, with harsh
consequences for inmates and their families. The rule under
review began with a 2000 lawsuit filed by inmates, family
members, loved ones, and counsel (referred to in these
proceedings as the Wright Petitioners). Finally acting on the
Wright Petitioners’ concerns, the FCC in 2015 modestly
curtailed exorbitant per-minute calling rates and limited
providers’ ability to extract confusing and unrelated ancillary
fees—amounting to as much as 38 percent of total inmatecalling revenue—for such things as setting up an account,
funding an account, issuing a refund, and closing an account.
See 30 FCC Rcd. 12763, 12838-42 (2015). The record shows
that these high prices impair the ability of inmates, by
definition isolated physically from the outside world, to sustain
fragile filaments of connection to families and communities
that they might hope to rejoin. The majority’s decision scuttles
a long-term effort to rein in calling costs that are not
meaningfully subject to competition and that profit off of
inmates’ desperation for connection.
The majority’s path to that result is flawed. I cannot agree
that a company is “fairly compensated” under 47 U.S.C.
§ 276(b)(1)(A) when it charges inmates exorbitant prices to use
payphones inside prisons and jails, shielded from competition
by a contract granting it a facility-wide payphone monopoly.
The majority does not question that Congress enacted the
Telecommunications Act of 1996 to combat phone
monopolies, facilitate competition, and thereby ensure better
service at lower prices to consumers. Consistent with the 1996
Act’s general approach of “replac[ing] a state-regulated
monopoly system with a federally facilitated, competitive
market,” section 276 of the Act specifically addressed defects
in the intrastate and interstate payphone market (now largely
obsolete except in cellphone-free environments such as

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prisons). New England Pub. Commc’ns Council, Inc. v. FCC,
334 F.3d 69, 77 (D.C. Cir. 2003).
The majority holds it beyond debate that “fairly
compensated” is not about fairness to the consumer. It sees no
statutory support for the FCC’s effort to require fairer intrastate
rates for inmates because it reads section 276’s faircompensation mandate as unambiguously one-sided, only
empowering the FCC to enhance unfairly low, not to reduce
unfairly high, compensation for calls. It accepts Global
Tel*Link’s characterization of section 276 as nothing but a “no
free calls” provision, Oral Arg. Tr. 40:55, confined to the
enacting Congress’s acknowledged concern about independent
payphone providers going uncompensated for certain calls.
But that reading is truncated. As it typically does, Congress
responded to a particular problem by enacting a law that speaks
in more general terms: here, by requiring that payphone calls
in prisons and elsewhere be “fairly compensated.” It did so for
the stated purpose—fully relevant here—of promoting
competition among payphone providers to expand the
availability of payphone services to consumers. 47 U.S.C. §
276(b)(1).
The majority offers one plausible reading of section 276,
but it is assuredly not the only one. Congress has not “directly
spoken to the precise question at issue” in this case, so the
question for us is whether the FCC’s view when it promulgated
the challenged rule—that section 276 grants authority not only
to raise inadequate rates but also to reduce excessive,
monopoly-driven rates—was a “permissible construction of
the statute.” Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,
Inc., 467 U.S. 837, 842-43 (1984). I think it was. If the FCC
under new management wishes by notice and comment to
change its rule, the statute gives it latitude to do so. We should
uphold the rule that is on the books and leave to the agency to
decide whether and how to change it.

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I.
The FCC reasonably interpreted section 276 to “authorize
the Commission to impose intrastate rate caps as prescribed in
the Order.” Op. at 20-21. Congress instructed the FCC to
“establish a per call compensation plan to ensure that all
payphone service providers are fairly compensated for each
and every completed intrastate and interstate call using their
payphone[s].” 47 U.S.C. § 276(b)(1)(A). To begin with,
nobody contests that authority to establish “a per call
compensation plan” includes some authority over end-user
calling rates. Indeed, this court already so held. See Illinois
Public Telecommunications Ass’n v. FCC, 117 F.3d 555, 562
(D.C. Cir. 1997) (“Because … there is no indication that the
Congress intended to exclude local coin rates from the term
‘compensation’ in § 276, we hold that the statute
unambiguously grants the Commission authority to regulate
the rates for local coin calls.”). And the plain text of the statute
grants that authority over both intrastate and interstate
payphone services, including “inmate telephone service in
correctional institutions.” 47 U.S.C. § 276(d). Thus, the only
dispute is whether the word “fairly” implies an ability to reduce
excesses, as well as bolster deficiencies, in the compensation
that payphone providers would otherwise receive.
Importantly, Congress chose “fairly” rather than, say,
“adequately,” “sufficiently,” or “amply.” Those words have
different meanings. Had it used any of the latter three terms, I
would agree that Congress only authorized regulation to
prevent under-compensation, but its choice of the word “fairly”
denotes no such limitation. Compare WEBSTER’S NEW
COLLEGIATE DICTIONARY 407 (1980) (defining “fair” as, inter
alia, “marked by impartiality and honesty: free from selfinterest, prejudice, or favoritism”), with id. at 14 (defining
“adequate” as, inter alia, “sufficient for a specific
requirement”), and id. at 1156 (defining “sufficient” as, inter

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alia, “enough to meet the needs of a situation or a proposed
end”). Those words are also used differently in everyday
language. See Schindler Elevator Corp. v. U.S. ex rel. Kirk,
563 U.S. 401, 407 (2011) (court looks to “ordinary meaning”
in absence of statutory definition). If a grocer demanded $20
for a banana, we might call that price adequate, sufficient, or
ample—but nobody would call it fair.
The statutory context shows that Congress’ choice of the
word “fairly” reasonably connotes its concern for unfairly
excessive as well as deficient compensation. Elsewhere in the
Communications Act, Congress used the term “fair” in
conjunction with “just” and “reasonable”—familiar terms of
art used in connection with rate-setting authority. See 47
U.S.C. § 204(b) (providing for partial authorization of new
charges, which would otherwise be stayed, if the FCC
determines “that such partial authorization is just, fair, and
reasonable”); id. § 205(a) (authorizing the FCC to prescribe
“what classification, regulation, or practice is or will be just,
fair, and reasonable”). And the fact that section 276 is one of
several “Special Provisions Concerning Bell Operating
Companies,” see Op. at 9, does not suggest that Congress
exclusively intended to regulate the relationship between
BOCs and non-BOCs to boost the latter’s compensation and
was wholly unconcerned about the risk that callers would be
charged excessive rates.
The purpose and history behind the congressional action
here comport with this reading of the statutory text and context.
In passing the 1996 Telecommunications Act, Congress aimed
to “promot[e] competition in the payphone service industry.”
New England, 334 F.3d at 71; see also 47 U.S.C. § 276(b)(1)
(stating congressional purpose “to promote competition among
payphone service providers and promote the widespread
deployment of payphone services to the benefit of the general
public”).
To be sure, the immediate anti-competitive

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malfunction confronting Congress at the time was that certain
payphone providers were, under certain circumstances, undercompensated. See Illinois Pub. Telecomms. Ass’n v. FCC, 752
F.3d 1018, 1026 (D.C. Cir. 2014). But the central aim was to
advance competition to the benefit of the end users of payphone
services. Senator Kerry, for instance, explained that his goal in
introducing section 276 was “to establish a level playing field
for independent payphone providers,” and thereby to enable
competition “on the basis of price, quality and service, rather
than on marketshare and subsidies.” 3 Reams & Manz, Federal
Telecommunications Law: A Legislative History of the
Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56 (1996), at S710.
Consistent with that pro-competitive agenda, the FCC and
this court have long assumed that section 276 provides tools for
addressing monopoly power and market failure in the
payphone market. For instance, in Illinois, the state petitioners
argued that the FCC had unlawfully ignored the problem of
“locational monopolies,” that is, situations in which a
payphone provider “obtains an exclusive contract for the
provision of all payphones at an isolated location, such as an
airport, stadium, or mall, and is thereby able to charge an
inflated rate for local calls made from that location.” 117 F.3d
at 562. We recognized that the FCC had not ignored the
problem of locational monopolies; it had simply “concluded
that it would deal with them if and when specific [providers]
are shown to have substantial market power.” Id. Now, twenty
years later, the FCC has identified a discrete area where
payphone providers do have substantial market power: prisons
and jails. The inmate-calling market is, the FCC found, “a
prime example of market failure” because, instead of
competing to reduce rates and improve services for callers,
providers compete to offer ever-higher site commissions to
correctional facilities so as to gain monopoly access to a
literally captive consumer base. 30 FCC Rcd. at 12765 & n.9.

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Nevertheless, the majority cites four considerations that
influenced its rejection of the FCC’s claimed authority over
intrastate inmate calling services. Op. at 21-24. None is
compelling.
First, the majority notes that section 152(b) “erects a
presumption against the Commission’s assertion of regulatory
authority over intrastate communications.” Op. at 21 (citing
Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 373
(1986)). That is true, but section 276, by its plain terms,
“overcom[es] this presumption.” Op. at 21. Congress
instructed the FCC to ensure fair compensation for all
payphone calls—interstate and intrastate. 47 U.S.C. §
276(b)(1)(A). To that end, Congress expressly provided for
preemption of inconsistent state regulation. Id. § 276(c). This
case is thus unlike Louisiana, which held that federal power
over depreciation charges pursuant to section 220 was limited
to the interstate ratemaking context; it is simply not “possible”
here that section 276 “do[es] no more than spell out the
authority of the FCC . . . in the context of interstate regulation.”
Louisiana, 476 U.S. at 377. Whatever section 276 means, it
applies in both the interstate and intrastate contexts. Cf. N.Y.
& Pub. Serv. Comm’n of N.Y. v. FCC, 267 F.3d 91, 102-03 (2d
Cir. 2001) (concluding that section 251(e) clearly “grants the
FCC authority to act with respect to those areas of intrastate
service encompassed by the terms ‘North American
Numbering Plan’ and ‘numbering administration,’” and
applying Chevron deference to agency’s interpretation of
“what either term encompasses”).
Second, the majority says that “the Order erroneously
treats the Commission’s authority under § 201 and § 276 as
coterminous.” Op. at 21. My colleagues appear to draw that
conclusion from the FCC’s repeated use of the phrase “just,
reasonable, and fair”—an amalgam of the two provisions’ key
terms. As I read the Order, the bundling of those three words

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simply reflects that the FCC’s authority over inmate calling
derives from the sum of those authorizations. The majority’s
inference that the Order fails to respect the difference between
sections 201 and 276, and in particular, fails to appreciate that
section 201 applies only to interstate rates, has no support in
the record.
Third, the majority concludes that the FCC erred in finding
support for its approach in prior agency orders. Op. at 22-23.
The majority says that “the prior orders . . . focused on
payphone providers and carriers to determine whether the
providers were fairly compensated.” Op. at 23. But this court
has held that “compensation” includes end-user rates; it is not
limited to payments between payphone providers and carriers.
Illinois, 117 F.3d at 562 (“[W]e hold that the statute
unambiguously grants the Commission authority to regulate
the rates for local coin calls.”).
Fourth, the majority says the FCC mistakenly relied on this
court’s decisions in Illinois and New England. Op. at 24-26.
The majority acknowledges that Illinois “held that § 276
unambiguously overrode § 152(b)’s presumption against
intrastate jurisdiction insofar as it granted the Commission
authority to ‘set’ reimbursement rates for local coin calls in
order to ensure that payphone operators who were previously
uncompensated were ‘fairly compensated.’” Op. at 24.
According to the majority, however, setting rates to increase
providers’ compensation is different from reducing “already
compensatory rates.” Op. at 25. Yet Illinois ratified the FCC’s
assertion of authority to regulate “locational monopolies.” 117
F.3d at 562. The majority responds that the FCC never said it
would consider intrastate rate caps as the means of breaking up
such monopolies. See Op. at 25. But the FCC, as we noted in
Illinois, “specifically reserved the right to modify its
deregulation scheme, for example, by limiting the number of
compensable calls from each payphone.” 117 F.3d at 563.

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Limiting the number of compensable calls per phone is, of
course, economically similar to limiting the rate per call; either
incentivizes broader deployment of payphones to maintain the
same revenue levels. Thus, the FCC contemplated, and the
Court approved, just the sort of pro-consumer regulation the
FCC eventually undertook in the Order under review.
Petitioners argue that in the rule at issue in Illinois, the
FCC had merely claimed the authority “to adjust the per-call
compensation scheme that the FCC itself put in place to ensure
fair compensation,” not the “authority to regulate existing
market rates.” ICS Pet’rs Br. 46 n.31. That is a false
dichotomy. Cf. Illinois, 117 F.3d at 563 (“A market-based
approach is as much a compensation scheme as a rate-setting
approach.”). The bottom line is that the FCC anticipated the
problem of monopoly power in the provision of payphone
services, and this Court ratified the agency’s authority to
combat that problem by reducing providers’ compensation,
including by adjusting end-user rates. There is thus no basis
for the majority’s contention that “the FCC consistently
construed its authority over intrastate payphone rates as limited
to addressing the problem of under-compensation for ICS
providers.” Op. at 5.
The majority also takes issue with the Order’s invocation
of New England, but the FCC correctly relied on that precedent
for the limited point that “section 276 unambiguously and
straightforwardly authorizes the Commission to regulate [the
Bell Operating Companies’] intrastate payphone line rates.” 30
FCC Rcd. at 12815 (quoting 334 F.3d at 75). The fact that the
FCC and this court previously articulated section 276 authority
in terms of generic rate regulation is relevant here. And,
contrary to the majority, New England’s holding that section
276(b)(1)(C) does not apply to non-Bell Operating Companies
has no resonance in this case. The provision at issue here,
section 276(b)(1)(A), is indisputably applicable to non-BOCs:

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it requires that “all payphone service providers [be] fairly
compensated.” 47 U.S.C. § 276(b)(1)(A) (emphasis added).
None of this is to suggest that the FCC has the same “broad
plenary authority to regulate and cap intrastate rates” that it has
over interstate rates. Op. at 26. Notably, whereas section 201
broadly requires that “[a]ll charges, practices, classifications,
and regulations for and in connection with [interstate]
communication service[] shall be just and reasonable,” section
276 is more narrowly focused on “compensation.” The FCC
simply did not need “broad plenary authority” to conclude that
inmate calling service providers charging as much as $56.00
for a four-minute call, see Op. at 11, were not being “fairly
compensated.”
II.
The majority also holds that the FCC’s complete exclusion
of site commissions from its cost calculus and its use of
industry-wide averages were arbitrary and capricious. See Op.
at 28-33. It is unclear why the majority finds it necessary to
address how the caps were calculated, given its rejection of the
FCC’s power to cap at all. In any event, the majority’s analysis
is misguided.
Regarding site commissions, the majority says that
“[i]gnoring costs that the Commission acknowledges to be
legitimate is implausible.” Op. at 29. But the FCC did not
acknowledge site commissions as legitimate costs. Quite to the
contrary, the FCC agreed with a commenter who described site
commissions as “legal bribes to induce correctional agencies to
provide ICS providers with lucrative monopoly contracts.” 30
FCC Rcd. at 12821. In other words, the FCC viewed site
commissions not as real costs of doing business, but as “an
apportionment of profit” between providers and correctional
facilities. Id. at 12822. The majority suggests that if site
commissions are “directly related to the provision” of inmate

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calling services in that they are conditions of receiving
contracts to provide such services, they are “therefore
legitimate.” Op. at 30. That equation makes no sense; the fact
that a cost was charged under a prior regulatory regime cannot
mean the agency is required to recognize that cost as
“legitimate” and is disempowered from regulating it.
Simply put, the fact that a state may demand them does not
make site commissions a legitimate cost of providing calling
services. The majority asserts that “[i]n some instances,
commissions are mandated by state statute,” Op. at 29, but the
record reflects that there is only one such statute, Tex. Gov’t
Code Ann. § 495.027(a)(2). That statute categorically
demands site commissions of at least 40 per cent of the
provider’s gross revenue, which only illustrates the problem
that site commissions are a form of monopoly rent not tied to
actual costs.
Indeed, considering site commissions as a compensable
cost would effectively negate the FCC’s authority to mitigate
locational monopolies. Imagine that a payphone provider (in
the pre-cell phone era) contracted with a large stadium to
provide just three payphones, anticipating that its monopoly
would enable it to charge several dollars per minute while
kicking back some percentage to the stadium. Plainly, the
statutory goals of “competition” and “widespread deployment
of payphone services” could be well served by a rule imposing
reasonable, market-sensitive price caps to spur providers to
offer more phones to maintain the same levels of revenue. 47
U.S.C. § 276(b)(1). But any such price cap would be worthless
if it had to be calculated to ensure that the provider could
continue its kickbacks to the stadium.
The kickback
arrangement might, in some sense, be “related” to the provision
of payphone services at the stadium, but it is not “reasonably”
related because acceding to such preexisting contractual
relationships is inconsistent with the statutory scheme.

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On the averaging issue, the majority concludes that
because the Order “makes calls with above-average costs . . .
unprofitable,” it “does not fulfill the mandate of § 276 that
‘each and every’ inter- and intrastate call be fairly
compensated.” Op. at 32. This holding seems to follow from
the majority’s pinched interpretation of section 276 as a oneway ratchet whereby providers are always entitled to recoup
“actual” costs incurred under monopoly conditions, no matter
how extravagant. As I have explained, I believe that section
276 conveys some authority to lower rates, which means the
FCC need not take as given “calls with above-average costs.”
Additionally, the majority fails to reckon with the FCC’s
independent authority to cap rates for interstate calls under
section 201, despite acknowledging that this power is “broad”
and “plenary.” Op. at 26. In my view, the FCC has wide
discretion under its section 201 “just and reasonable” interstate
ratemaking authority to decide which costs to take into account
and to use industry-wide averages that do not necessarily
compensate “each and every” call, as section 276 requires. See
Nat’l Ass’n of Regulatory Util. Comm’rs v. FERC, 475 F.3d
1277, 1280 (D.C. Cir. 2007) (agency is not “weaponless
against conduct that might encourage or cloak the running up
of unreasonable costs”). As the state petitioners aptly
summarized, section 201 “gave the Commission broad
regulatory authority over interstate communication in a
‘traditional form,’ mirroring regulation of railroads and public
utilities, enabling it to set rates to allow a monopolistic utility
to recover a reasonable profit but also protect the consumer
from unjustly high prices.” State Pet’rs Br. at 28-29. The
majority never explains why the FCC’s rate-setting
methodology would be impermissible as to the interstate caps.
III.
Finally, I note that the majority offers no persuasive reason
for abandoning the Chevron framework (which it admittedly

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does only in dicta, as Chevron deference plays no role in an
opinion holding section 276 unambiguous). It acknowledges
that the Order is “presumptively subject” to deferential review,
but then concludes that “it would make no sense for this court
to determine whether the disputed agency positions advanced
in the Order warrant Chevron deference when the agency has
abandoned those positions.” Op. at 18. Absent any briefing on
the subject or any citation to precedent, I cannot agree.
The FCC, through notice-and-comment rulemaking, took
certain positions—most notably that section 276 authorizes
regulation of the fairness of intrastate inmate-calling rates—
and defended them vigorously in briefing before this court.
Less than a month before argument, the court on its own motion
directed the parties to explain whether this case should be held
in abeyance in light of recent personnel changes at the FCC.
The FCC responded that the court should “move forward on
the current schedule.” Doc. No. 1656116 (Jan. 17, 2017). Two
weeks later, and just a week before argument, the FCC
informed us that it would no longer defend certain points that
it had briefed, but that the Wright Petitioners would “defend all
aspects of the Order.” Doc. No. 1658521 (Jan. 31, 2017). The
FCC has not committed to formally reviewing the Order, as
other similarly situated agencies have recently done. See, e.g.,
Murray Energy Corp. v. EPA, No. 15-1385, Doc. No. 1670218
(April 7, 2017) (requesting postponement of oral argument so
that agency could “fully review” the relevant rule). By
suggesting that agencies can relinquish judicial deference
through such limited and belated maneuvers as refusing to
defend portions of their briefs during oral argument, the
majority risks enabling agencies to end-run the principle that
they must “use the same procedures when they amend or repeal
a rule as they used to issue the rule in the first instance.” Perez
v. Mortgage Bankers Ass’n, 135 S. Ct. 1199, 1206 (2015).
***

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The majority appears to leave an opening for the FCC—
on some other record and by some other reasoning—to rein in
excessive inmate-calling rates, both interstate and intrastate.
See Op. at 20, 29, 32 (limiting its analysis to the record in this
case). And the majority invites the FCC to determine whether
some “portions of site commissions” are illegitimate and noncompensable. Op. at 30. Still, because the majority
shortchanges the FCC’s authority to reduce excessive,
monopoly-driven rates, finds “implausible” the agency’s
reasoned approach to a grave problem, and unnecessarily
suggests limitations on Chevron deference, I respectfully
dissent from Sections II.B through II.F of the majority opinion.

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Federal Communications Commission
Washington, D.C. 20554
January 31, 2017

Mark J. Langer, Clerk
United States Court of Appeals
for the District of Columbia Circuit
333 Constitution Avenue, NW Room 5523
Washington, DC 20001
Re: Global Tel*Link, et al., No. 15-1461 & consolidated cases
Dear Mr. Langer
As the Court is aware, argument is set in these cases on February 6. I will be
presenting the Commission’s argument in this matter.
The Order under review was adopted by a 3-2 vote on October 22, 2015.
Since then, there have been significant changes in the composition of the
Commission. In particular, two commissioners who voted for the Order recently
have left the Commission (Commissioner Rosenworcel on January 3, 2017, and
Chairman Wheeler on January 20, 2017). On January 23, 2017, Commissioner Pai
was designated FCC Chairman.
As a result of these changes in membership, the two Commissioners who
dissented from the Order under review—on the grounds that, in specific respects, it
exceeds the agency’s lawful authority—now comprise a majority of the
Commission. See Dissenting statement of Commissioner Pai; see also Dissenting
statement of Commissioner O’Rielly.
In particular, a majority of the current Commission does not believe that the
agency has the authority to cap intrastate rates under section 276 of the Act. I am
therefore informing the parties and the Court that we are abandoning, and I am not
authorized to defend at argument, the contention—contained in Section I of our
brief—that the Commission has the authority to cap intrastate rates for inmate
calling services.
If the Court reaches the issue, we are also abandoning, and I am also not
authorized to defend, the argument (contained in a portion of section III.B of the

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brief) that the Commission lawfully considered industry-wide averages in setting
the rate caps contained in the Order.
I will continue to defend at oral argument the significant remaining portions
of the Order pursuant to the brief respondents filed in these cases.
Given that the government’s position at argument has changed, the
Commission has ceded ten minutes of its allotted argument time to Mr.
Schwartzman, counsel for the “Wright Petitioner” intervenors, who will be
prepared to defend all aspects of the Order.

Respectfully submitted,
/s/ David M. Gossett
David M. Gossett
Deputy General Counsel
cc: counsel of record per ECF

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IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
GLOBAL TEL*LINK, et al.,
Petitioners,
v.
FEDERAL COMMUNICATIONS COMMISSION
and UNITED STATES OF AMERICA,
Respondents.

)
)
)
)
) No. 15-1461 and
) consolidated cases
)
)
)
)
)

CERTIFICATE OF SERVICE
I, David M. Gossett, hereby certify that on January 31, 2017, I electronically
filed the foregoing Letter with the Clerk of the Court for the United States Court of
Appeals for the D.C. Circuit by using the CM/ECF system. Participants in the case
who are registered CM/ECF users will be served by the CM/ECF system.

/s/ David M. Gossett
David M. Gossett
Deputy General Counsel
Federal Communications Commission

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NB: This unofficial compilation of the U.S. Code is current as of Jan. 4, 2012 (see http://www.law.cornell.edu/uscode/uscprint.html).

TITLE 47 - TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS
CHAPTER 5 - WIRE OR RADIO COMMUNICATION
SUBCHAPTER II - COMMON CARRIERS
Part III - Special Provisions Concerning Bell Operating Companies
§ 276. Provision of payphone service
(a) Nondiscrimination safeguards
After the effective date of the rules prescribed pursuant to subsection (b) of this section, any Bell
operating company that provides payphone service—
(1) shall not subsidize its payphone service directly or indirectly from its telephone exchange
service operations or its exchange access operations; and
(2) shall not prefer or discriminate in favor of its payphone service.
(b) Regulations
(1) Contents of regulations
In order to promote competition among payphone service providers and promote the widespread
deployment of payphone services to the benefit of the general public, within 9 months after
February 8, 1996, the Commission shall take all actions necessary (including any reconsideration)
to prescribe regulations that—
(A) establish a per call compensation plan to ensure that all payphone service providers
are fairly compensated for each and every completed intrastate and interstate call using their
payphone, except that emergency calls and telecommunications relay service calls for hearing
disabled individuals shall not be subject to such compensation;
(B) discontinue the intrastate and interstate carrier access charge payphone service elements
and payments in effect on February 8, 1996, and all intrastate and interstate payphone subsidies
from basic exchange and exchange access revenues, in favor of a compensation plan as
specified in subparagraph (A);
(C) prescribe a set of nonstructural safeguards for Bell operating company payphone service
to implement the provisions of paragraphs (1) and (2) of subsection (a) of this section, which
safeguards shall, at a minimum, include the nonstructural safeguards equal to those adopted
in the Computer Inquiry-III (CC Docket No. 90–623) proceeding;
(D) provide for Bell operating company payphone service providers to have the same right
that independent payphone providers have to negotiate with the location provider on the
location provider’s selecting and contracting with, and, subject to the terms of any agreement
with the location provider, to select and contract with, the carriers that carry interLATA calls
from their payphones, unless the Commission determines in the rulemaking pursuant to this
section that it is not in the public interest; and
(E) provide for all payphone service providers to have the right to negotiate with the location
provider on the location provider’s selecting and contracting with, and, subject to the terms of
any agreement with the location provider, to select and contract with, the carriers that carry
intraLATA calls from their payphones.
(2) Public interest telephones
In the rulemaking conducted pursuant to paragraph (1), the Commission shall determine whether
public interest payphones, which are provided in the interest of public health, safety, and welfare,
in locations where there would otherwise not be a payphone, should be maintained, and if so,
ensure that such public interest payphones are supported fairly and equitably.
(3) Existing contracts

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Nothing in this section shall affect any existing contracts between location providers and payphone
service providers or interLATA or intraLATA carriers that are in force and effect as of February
8, 1996.
(c) State preemption
To the extent that any State requirements are inconsistent with the Commission’s regulations, the
Commission’s regulations on such matters shall preempt such State requirements.
(d) “Payphone service” defined
As used in this section, the term “payphone service” means the provision of public or semi-public pay
telephones, the provision of inmate telephone service in correctional institutions, and any ancillary
services.
(June 19, 1934, ch. 652, title II, § 276, as added Pub. L. 104–104, title I, § 151(a), Feb. 8, 1996, 10 Stat.
106.)

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