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This holding has been superceded by Open Internet.

Derived From: Angie A. Welborn, Charles B Goldfarb, Defining Cable Broadband Internet Access Service: Background and Analysis of the Supreme Court's Brandx DecisionPDF, CRS Report for Congress RL32985 (July 7, 2005)

FCC’s Regulatory Authority under the Communications Act

Title I of the Communications Act states that the act "applies to all interstate and foreign communications by wire or radio," [47 U.S.C. 152(a)] and the legislative history of the act indicates that the FCC has "regulatory power over all forms of electrical communication," even those not explicitly mentioned in the act. [S. Rep. No. 73-781, at 1 (1934). See also United States v. Southwestern Cable Co., 392 U.S. 157 (1968).] Title I confers upon the Commission the authority to promulgate regulations "reasonably ancillary to the effective performance of the Commission's various responsibilities" outlined elsewhere in the act.

In contrast to Title I, Title II of the Communications Act, imposes certain specific requirements on common carriers in their provision of telecommunications services. Generally, Title II requires common carriers to provide service "upon reasonable request therefor," and at a "just and reasonable" rate. [47 U.S.C. 201] Under Title II, common carriers are also required to provide services without "unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services." [47 U.S.C. 202] In addition, the act requires certain carriers to provide potential competitors with access to their network. [47 U.S.C. 251(a) (establishing general duties of common carriers) and 251(c)(2) and (3) (relating to duties of incumbent local exchange carriers). See also 47 U.S.C. 201(a) (requiring nondiscriminatory access).] Entities regulated under Title II may also be subject to additional requirements governing universal service support, the provision of disability access, public safety, consumer protection, and law enforcement access.

FCC's Declaratory Ruling and Rulemaking

In 2002, the Federal Communications Commission issued a Declaratory Ruling and Notice of Proposed Rulemaking regarding the provision of Internet services over cable connections to address the legal status of such services under the Communications Act of 1934, as amended. In the Declaratory Ruling, the Commission determined that "cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service." [17 FCC Rcd. 4798, 4799] By classifying cable modem service as an information service and not a telecommunications service or a composite service that combines an information service and a telecommunications service, the Commission precluded the mandatory application of the requirements imposed on common carriers under Title II of the Communications Act, thus allowing the provision of such services to develop with relatively few regulatory requirements.

In making the determination that cable modem services are information services and not telecommunications services, the Commission first looked to the relevant statutory definitions of each as established by the Telecommunications Act of 1996. [17 FCC Rcd. at 4820] In enacting the Telecommunications Act of 1996, Congress codified a definitional distinction between "telecommunications" (and "telecommunications service") and "information service." "Telecommunications" is defined under the act as the "transmission, between or among points, specified by the user, of information of the user's choosing, without change in the form or content of the information as sent or received." [47 U.S.C. 153(43). “Telecommunications service” is the “offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.” 47 U.S.C. § 153(46).] "information service", on the other hand, is defined as the "offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information via telecommunications." [47 U.S.C. 153(20)] Noting that the statutory definitions are based on the functions that are made available with the service rather than the facilities used to provide the service, the Commission then examined the functions that cable modem service makes available to its end users. [17 FCC Rcd. at 4821]

Citing its determination in an earlier proceeding that Internet access service in general should be classified as an information service, the Commission found that since cable modem service is "an offering of Internet access service," it must also be an information service. [Id at 4822. See also In the Matter of Federal-State Joint Board on Universal Service, 13 FCC Rcd. 11501 (April 10, 1998).] The Commission stated that "cable modem service is a single, integrated service that enables the subscriber to utilize Internet access service through a cable provider's facilities and to realize the benefits of a comprehensive service offering." [Id.] The Commission rejected the notion that cable modem service included an "offering of telecommunications service to a subscriber," conceding that while the service was provided "via telecommunications," the telecommunications component was not "separable from the data-processing capabilities of the service." [Id. at 4823]

Ninth Circuit's Decision

The Ninth Circuit determined that the question before it was whether its prior interpretation of the Telecommunications Act controlled review of the Commission's decision regarding the classification of cable modem service. Three years prior, in AT&T v. City of Portland, a three judge panel of the Ninth Circuit determined that cable modem service was not a cable service, but was both an information and a telecommunications service. In the Brand X case, the court held that it was bound to follow its own precedent regarding the classification of cable modem service rather than apply the two-part test set forth by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. for reviewing an agency's interpretation of a statute it is charged with administering. [345 F.3d 1120, 1132] Thus, the court in the Brand X case vacated the part of the Commission's Declaratory Ruling regarding the classification of cable modem service as an information service. [Id.]

Supreme Court's Decision

The Court began its decision with the conclusion that Chevron's framework should be used to evaluate the Commission's interpretation of the statute and that the Ninth Circuit should have also applied Chevron, rather than following its own construction of the statute in the Portland case. In Chevron, the Court held that "ambiguities in statutes within an agency's jurisdiction to administer are delegations of authority to the agency to fill the statutory gap in a reasonable fashion." If the Court determines that the statute is ambiguous and the agency's interpretation of the statute is reasonable, "Chevron requires a federal court to accept the agency's construction of the statute, even if the agency's reading differs from what the court believes is the best statutory interpretation."

The Ninth Circuit's decision not to apply Chevron in favor of the "conflicting construction of the [Communications] Act it had adopted in Portland" was based on an "incorrect" assumption. According to the Supreme Court, the Ninth Circuit incorrectly assumed that its construction "overrode the Commission's regardless of whether Portland had held the statute to be unambiguous." However, the Supreme Court noted that "[a] court's prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion."

After determining that the Ninth Circuit erred in applying its own construction of the act, the Court moved to its Chevron analysis. As to the statute's ambiguity, the Court first looked to the definitions of "telecommunications service" and "telecommunications" in the Telecommunications Act of 1996. The Court determined that while "cable companies in the broadband Internet service business 'offe[r]' consumers an information service in the form of Internet access and they do so 'via telecommunications,'" it does not "inexorably follow as a matter of ordinary language that they also 'offe[r]' consumers the high-speed data transmission (telecommunications) that is an input used to provide this service." Restating the principle established in Chevron, the Court stated that "where a statute's plain terms admit of two or more reasonable ordinary usages, the Commission's choice of one of them is entitled to deference," and concluded that the use of the term "offer" in the definition of "telecommunications service" was ambiguous in such a way as to admit two or more reasonable ordinary usages.

After determining that the statute was ambiguous as to the classification of cable modem service, the Court then applied the second step of the Chevron analysis to determine whether the Commission's interpretation was "a reasonable policy choice for the Commission to make." The respondents in the case argued that the Commission's construction was unreasonable because "it allows any communications provider to 'evade' common-carrier regulation [under Title II] by the expedient of bundling information service with telecommunications." The Court rejected this argument, stating that it did not "believe that these results follow from the construction the Commission adopted." The Court went on to articulate its interpretation of the Commission's construction:

As we understand the Declaratory Ruling, the Commission did not say that any telecommunications service that is priced or bundled with an information service is automatically unregulated under Title II. The Commission said that a telecommunications input used to provide an information service that is not "separable from the data-processing capabilities of the service" and is instead "part and parcel of [the information service] and is integral to [the information service's] other capabilities" is not a telecommunications offering.

The Court also rejected the respondent's argument that cable modem service provided simply the ability to transmit information. In so doing, the Court noted that the Internet access provided by the cable modem service allowed consumers to have access to DNS service (allowing them to reach third-party websites), the World Wide Web, electronic mail, remote terminal access, and file transfer capabilities, which effectively provides the "capability for . . . acquiring, storing . . . retrieving and utilizing . . . information" inherent in the definition of an information service. The Court therefore concluded that the Commission's construction was reasonable.

The Court also rejected respondent MCI, Inc.'s argument that the Commission's treatment of cable modem service is inconsistent with its treatment of DSL service, and is therefore "an arbitrary and capricious deviation from agency policy in violation of the Administrative Procedures Act. The Court concluded that the Commission provided a "reasoned explanation for treating cable modem service differently from DSL service," and that "the Commission is free within the limits of reasoned interpretation to change course if it adequately justifies the change."

Legal Implications

The Court's reversal of the Ninth Circuit's decision effectively revives the Commission's Declaratory Ruling classifying cable modem service as an information service. As such, cable operators providing broadband internet access are currently not subject to the myriad of regulatory requirements mandated under Title II of the act. Most notably, providers of cable modem services are not obligated to provide unaffiliated internet service providers access to their broadband platforms. In addition, providers of cable modem services remain free, at this point, from provisions governing discrimination in the provision of services; universal service support; assistance to law enforcement in the interception of communications made over the network; network accessibility to individuals with disabilities; and the protection of subscriber information.

Moreover, the Commission's classification of cable modem service as an information service appears to limit the scope of state and local regulatory authority over such services. Regulatory requirements and fees imposed on cable operators by localities pursuant to the franchising authority conferred under title VI of the act are apparently applicable only to the provision of "cable services." Classification of cable modem service as an "information service" appears to preclude the imposition of such requirements on cable operators' broadband internet offerings.

The question remains however, whether the FCC can and will impose certain regulatory requirements on the provision of cable modem service pursuant to its authority under title I of the act. In Brand X, the Court expressly acknowledged the existence of such authority and the possibility that the Commission might "impose special regulatory duties on facilities-based ISP's under its Title I ancillary jurisdiction." The FCC is currently examining whether and which of such duties should be imposed as part of two proceedings pending before it.

Cable Modem Service NPRMCS  Docket  No.  02-52 

The FCC also adopted a Notice of Proposed Rulemaking to examine:

The FCC said that the ultimate resolution of this item will promote broadband deployment, which should result in better quality, lower prices and more choices for consumers. In considering the issues raised by the original Cable Modem NOI and today's Notice, the FCC is guided by the following principles and policy goals:

With respect to state and local issues, the Notice makes three significant tentative conclusions:

Regarding franchise fees, the FCC notes that the law limits franchise fees to 5 percent of the gross revenues the cable operator receives from cable service. The FCC said that revenues from cable modem service should not be used in computing this franchise fee ceiling.

Cable Open Access Proceeding

Released Sept 28, 2000 Docket 00-185

In re Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, 17 F.C.C.R. 4798 (2002) , affirmed National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005)

In September 2000, the Commission initiated a rule-making proceeding to, among other things, apply these classifications to cable companies that offer broadband Internet service directly to consumers. In March 2002, that rulemaking culminated in the Declaratory Ruling under review in these cases. In the Declaratory Ruling, the Commission concluded that broadband Internet service provided by cable companies is an “information service” but not a “telecommunications service” under the Act, and therefore not subject to mandatory Title II common-carrier regulation. In support of this conclusion, the Commission relied heavily on its Universal Service Report. See Declaratory Ruling 4821–4822, ¶¶36–37 (citing Universal Service Report or Report). The Universal Service Report classified “non-facilities-based” ISPs—those that do not own the transmission facilities they use to connect the end user to the Internet—solely as information-service providers. See Universal Service Report 11533, ¶67. Unlike those ISPs, cable companies own the cable lines they use to provide Internet access. Nevertheless, in the Declaratory Ruling, the Commission found no basis in the statutory definitions for treating cable companies differently from non-facilities-based ISPs: Both offer “a single, integrated service that enables the subscriber to utilize Internet access service . . . and to realize the benefits of a comprehensive service offering.” Declaratory Ruling 4823, ¶38. Because Internet access provides a capability for manipulating and storing information, the Commission concluded that it was an information service. Ibid.

The integrated nature of Internet access and the high-speed wire used to provide Internet access led the Commission to conclude that cable companies providing Internet access are not telecommunications providers. This conclusion, the Commission reasoned, followed from the logic of the Universal Service Report. The Report had concluded that, though Internet service “involves data transport elements” because “an Internet access provider must enable the movement of information between customers’ own computers and distant computers with which those customers seek to interact,” it also “offers end users information-service capabilities inextricably intertwined with data transport.” Universal Service Report 11539– 11540, ¶80. ISPs, therefore, were not “offering . . . telecommunications . . . directly to the public,” §153(46), and so were not properly classified as telecommunications carriers, see id., at 11540, ¶81. In other words, the Commission reasoned that consumers use their cable modems not to transmit information “transparently,” such as by using a telephone, but instead to obtain Internet access.

The Commission applied this same reasoning to cable companies offering broadband Internet access. Its logic was that, like non-facilities-based ISPs, cable companies do not “offe[r] telecommunications service to the end user, but rather . . . merely us[e] telecommunications to provide end users with cable modem service.” Declaratory Ruling 4824, ¶41. Though the Commission declined to apply mandatory Title II common-carrier regulation to cable companies, it invited comment on whether under its Title I jurisdiction it should require cable companies to offer other ISPs access to their facilities on common-carrier terms. Id., at 4839, ¶72. Numerous parties petitioned for judicial review, challenging the Commission’s conclusion that cable modem service was not telecommunications service. By judicial lottery, the Court of Appeals for the Ninth Circuit was selected as the venue for the challenge.

The Court of Appeals granted the petitions in part,vacated the Declaratory Ruling in part, and remanded to the Commission for further proceedings. In particular, the Court of Appeals vacated the ruling to the extent it concluded that cable modem service was not “telecommunications service” under the Communications Act. It held that the Commission could not permissibly construe the Communications Act to exempt cable companies providing Internet service from Title II regulation. See 345 F. 3d, at 1132. Rather than analyzing the permissibility of that construction under the deferential framework of Chevron, 467 U. S. 837, however, the Court of Appeals grounded its holding in the stare decisis effect of AT&T Corp. v. Portland, 216 F. 3d 871 (CA9 2000). See 345 F. 3d, at 1128– 1132. Portland held that cable modem service was a “telecommunications service,” though the court in that case was not reviewing an administrative proceeding and the Commission was not a party to the case. See 216 F. 3d, at 877–880. Nevertheless, Portland’s holding, the Court of Appeals reasoned, overrode the contrary interpretation reached by the Commission in the Declaratory Ruling. See 345 F. 3d, at 1130–1131.

We granted certiorari to settle the important questions of federal law that these cases present. 543 U. S. __ (2004).

-- NCTA v. BrandX, No. 04-277, 545 U.S. __, Slip at 7 (S.Ct. June 27, 2005)


  Initiates Proceeding to Promote Broadband Deployment and Examine Regulatory Implications of Classification

Litigation

 

State Activity

Prior to the federal activity was activity on the state level, with most notably the AT&T v Portland decision: See California :: Colorado :: Florida :: Maryland :: Massachusetts :: Oregon (with the early AT&T v Portland which held that cable modem service is a telecom service):: Pennsylvania :: Texas :: Virginia :: Washington :: Canada

Government Activity (other)

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