Brand X Internet Servs. v. Federal Comm. Comm'n, 345 F.3d 1120 (9th Cir. 2003) (full-text), rev'd and remanded, National Cable & Telecomm. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005) (full-text).
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.” 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. In enacting the Telecommunications Act of 1996, Congress codified a definitional distinction between “telecommunications” (and “telecommunications service”). “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.” 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.
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. 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.” 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.”
Ninth Circuit Proceedings
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 service 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. Thus, the court vacated the part of the Commission’s "Declaratory Ruling" regarding the classification of cable modem service as an information service.
U.S. Supreme Court Proceedings
The U.S. Supreme 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.”
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.”
Since the Brand X decision upholds the FCC’s classification of cable modem service as an information service, subject to relatively few regulatory requirements, it does not change the status quo. It is likely, however, to spur follow-on FCC activity on the classification of DSL service and also may affect the current debate about modifying the Communications Act.
- In the Matter of Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities; Internet Over Cable Declaratory Ruling; Appropriate Regulatory Treatment for Broadband Access to the Internet Over Cable Facilities, 17 FCC Rcd. 4798 (Mar. 15, 2002).
- 17 FCC Rcd. 4798, 4799.
- 17 FCC Rcd. at 4820.
- 47 U.S.C. §153(20).
- 17 FCC Rcd. at 4821.
- Id. at 4822. See also In the Matter of Federal-State Joint Board on Universal Service, 13 FCC Rcd. 11501 (Apr. 10, 1998).
- Id. at 4823.
- Brand X Internet Services v. Federal Commun. Comm'n, 345 F.3d 1120 (9th Cir. 2003).
- 216 F.3d 871 (9th Cir. 2000).
- 467 U.S. 837 (1984).
- 345 F.3d 1120, 1132.
- Slip Op. at 8.
- Id., citing Chevron, 467 U.S. at 865-66.
- Id., citing Chevron, at 843-44.
- Slip Op. at 10.
- Slip Op. at 14.
- Slip Op. at 16.
- Slip Op. at 17.
- Slip Op. at 17-18. With respect to the ambiguity of the term “offer,” the Court went on to say:
- Because the term “offer” can sometimes refer to a single, finished product and sometimes to the “individual components in a package being offered” (depending on whether the components “still possess sufficient identity to be described as separate objects”), the statute fails unambiguously to classify the telecommunications component of cable modem service as a distinct offering. This leaves federal telecommunications policy in this technical and complex area to be set by the Commission, not by warring analogies. Slip Op. at 20.
- Slip Op. at 25, citing 467 U.S. at 845.
- Slip Op. at 26.
- Slip Op. at 26, citing Declaratory Ruling, supra.
- Slip Op. at 28, quoting 47 U.S.C. §153(20).
- Slip Op. at 29.
- Slip Op. at 20. See 5 U.S.C. 706(2)(A).
- See, e.g., 47 U.S.C. §542 (limiting application of franchise fees to a percentage of revenue derived from the provision of “cable services.”).
- See id. §544(b)(prohibiting local franchising authority, in its request for franchises and franchise renewal proposals, from establishing requirements for “video programming or other information services.”).
- Defining Cable Broadband Internet Access Service: Background and Analysis of the Supreme Court's Brand X Decision