National Cable & Telecommunications Ass'n v. Brand X Internet Services(04-277) Federal Communications Commission and United Stat


Oral argument: March 29, 2005
Appealed from: Ninth Circuit

Communications Act of 1934, Cable Operators, Cable Internet Service, Information Service, Telecommunications Service

Given the statutory silence of the Communications Act, the Federal Communications Commission ("FCC") and the courts are currently divided on which of two classifications should be used to define and regulate cable modem service -- the broadband high-speed internet access provided by cable operators. While the FCC classified cable modem service as an information service, the Ninth Circuit, in review of the FCC's classification, vacated the FCC's determination based on both stare decisis and its own interpretation of the Communications Act under AT&T Corp. v. City of Portland, 216 F.3d 871 (2000) and classified cable modem service as a telecommunication service -- a classification warranting stricter regulation. The Supreme Court will decide whether, under the "agency-deferential" framework of Chevron, the FCC has primary authority to resolve the statutory ambiguity surrounding the classification of cable modem service.

In previous cases, the Supreme Court has maintained that Chevron principles do not preclude the authority of courts to overrule subsequent agency interpretations, that courts may rely on their own precedents of statutory construction, and that Chevron deference can take place only when the lower court found the relative statute ambiguous.  Based on this standard, it is likely that the Supreme Court will refrain from broadening the scope of the Chevron Doctrine by allowing subsequent agency interpretation to challenge established case law.  As a result, the Court will probably find that the FCC was not entitled to decide that cable modem operators provide an information service and not a telecommunications service.  Additionally, given the plain language of the Communications Act's definition of "telecommunications service," which includes a component of cable modem service, and the counterproductive results of defining cable modem service under the least restrictive category in light of Congress's goals and intent, the Court will likely rule that the FCC impermissibly defined it as an information service.

[Question(s) presented] | [Summary] | [Analysis]

Question(s) presented

1) National Cable & Telecomm. Ass'n, et al. v. Brand X Internet Servs., et al., No. 04-277

Whether, under the framework set out in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the FCC was entitled to decide that, for purposes of regulation under the Communications Act, cable operators offering so-called "cable modem service" (high-speed Internet access over cable television systems) provide only an "information service" and not a "telecommunications service."

2) FCC, et al. v. Brand X Internet Services, et al., No. 04-281

Whether the court of appeals erred in holding that the Federal Communications Commission had impermissibly concluded that cable modem service is an "information service," without a separately regulated telecommunications service component, under the Communications Act of 1934, 47 U.S.C. § 151 et seq.

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Summary

The dispute in this case centers on the failure of the Communications Act to expressly mention or classify cable modem service under one of three terms of the statute itself:  telecommunications, telecommunications service or information service. Where telecommunication services are subject to Title II regulations under the Communications Act, classification as an information service does not incur Title II regulatory obligations and is subject only to discretionary Title I regulation by the FCC.  Where Title I regulations are more lenient given their discretionary nature, Title II regulations impose liability for discriminatory, unreasonable or unjust rates on common carriers.

Although the FCC interpreted the statutory terms and addressed the issue of classification concerning traditional Internet service providers in its Universal Service Report to Congress in 1998, it declined to definitively resolve the ambiguity surrounding the regulatory classification of cable operators providing Internet access specifically, citing the developing and evolutionary nature of the broadband industry. In re Federal-State Joint Bd. On Universal Serv., 13 F.C.C.R 11,501 (1998).

Soon after the FCC released its Universal Service Report, the Ninth Circuit addressed the regulatory classification of cable modem service in  AT&T Corp. v. City of Portland, 216 F.3d 871 (2000). The FCC, which participated amicus curiae, suggested that the court address only the specific issue before it -- whether a local government could require a cable franchise to provide unaffiliated Internet Service Providers access to its cable modem -- without deciding whether cable modem service classified as a telecommunications service. Instead, based on its own interpretation of the Communications Act, the court held additionally that cable modem service qualified as bifurcated information and telecommunications service -- an information service to the extent the provider acts as a conventional Internet service provider and as a telecommunications service to the extent the provider offers Internet transmissions over the cable broadband facility.

In a notice of proposed rulemaking in 2000, the FCC initiated proceedings to develop a framework to govern the regulatory classification of cable modem service by way of a notice and comment process, including discussion with consumer advocates and industry representatives. See In re Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities (Cable Modem NOI) 15 F.C.C.R. 19,287, 19,288 P 2 (2000).  In March 2002, the FCC issued a declaratory ruling defining cable modem service as solely an information service, in opposition to the Ninth Circuit's earlier holding in Portland.  In doing so, it cited the Ninth Circuit's reliance on a "less than comprehensive" case record, the Portland parties' failure to place the question of regulatory classification of cable modem service before the court, and the fact that cable modem service offers subscribers functions more commonly associated with Internet access. More specifically, the FCC based its determination on the grounds that regulatory classification of cable modem service as an information service fulfilled the statutory goals of promoting competition and reducing regulation in order to encourage growth and innovation of broadband services. See Telecommunications Act of 1996.

After various parties petitioned for review of the FCC's decision, the Ninth Circuit was selected by judicial lottery to review the decision. The Ninth Circuit Court of Appeals vacated the FCC's declaratory ruling, holding that stare decisis compelled adherence to the precedent established in Portland.  In its per curiam opinion, the court concluded that Portland foreclosed the FCC's determination that cable modem service is solely an information service with no separate telecommunications service component.  National Cable seeks review of the Ninth Circuit's ruling. It argues that the Ninth Circuit's ruling is inconsistent with Chevron's recognition that, in the face of statutory silence, (specifically in this case the Communications Act's failure to address the regulatory classification of cable modem service) Congress delegates the primary authority to resolve statutory ambiguities to the appropriate regulatory agency and not the courts.  More specifically, National Cable argues that the Ninth Circuit rejected its regulatory classification without evaluating the substance of the agency's decision; with regard to judicial review of the FCC's construction of the Communications Act, the only question for the court should have been whether its determination was based on a permissible construction and the goals of the statute.

On December 3, 2004, The United States Supreme Court granted National Cable's writ of certiorari to decide whether, under the Chevron framework, the FCC is entitled to decide that cable modem service qualified as an information service and whether the court of appeals erred in holding that the FCC had impermissibly concluded that cable modem service was solely an information service under the Communications Act of 1934.

Importance of the case:

With over fifty percent of households in the United States dependent on Internet service, there has been, in recent years, an ever-increasing demand for speedy access.  Cable modem service fulfills this demand.  Currently, "high-speed" cable modem service is available to seventy-five percent of Internet-connected homes, and while only a small percentage actually subscribe to the service, use of the service among residential consumers is steadily increasing.  See Brand X internet services v. FCC, citing U.S. Dept. Of commerce, A Nation Online: How Americans Are Expanding Their Use of the Internet at 2 (Feb. 2002). The implication of the pending Supreme Court decision surrounding the classification of cable modem service as exclusively an information service, a telecommunications service, or a hybrid of both, thus has direct bearing on the relative affordability and availability of the service that consumers can expect. 

At present, in contrast to other "high speed" internet services like DSL (digital subscriber lines), or "dial-up," where multiple Internet service providers are able to compete for the provision of service over the same network, i.e. using the equipment of telephone companies to broadcast Internet service to subscribers, cable modem operators eliminate intermediary transmission facilities by owning and providing the Internet services exclusively and directly, thereby restricting ISP access to cable modem subscribers and narrowing competition.  More importantly, to some extent, cable modem operators maintain independent control over rates as "high-speed" alternatives like DSL remain unavailable to many consumers, particularly those living in rural areas.

Essentially, a Supreme Court ruling that cable modem service be classified as a "telecommunications service" would subject cable modem operators to stricter regulation under the tenets of the Telecommunications Act of 1996 -- requiring them to provide just and reasonable rates and to open their lines to competing ISPs for the purposes of achieving the statutory goals of increased competition in the market, technical innovation and consumer choice.  See Portland at 879.  More importantly for consumers, such a decision would guarantee not only availability of speedy Internet access, but more affordable access as well.

In addition to the effect the ruling will have on consumers, the case is also important in terms of its potential to broaden the scope of Chevron deference.  If the Court rules that the FCC was entitled to revise the definition of cable modem service originally set forth in Portland,then the principles of Chevron would extend to subsequent agency determinations and authorize agencies to essentially serve as a "check" on courts.

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Analysis

When a court reviews an agency's interpretation of the statute it is charged with administering, precedent mandates the court apply the two-step formula established in Chevron.  The language of the statute dictates the court's decision: If the intent of Congress is clear, then the court must give effect to that Congressional intent. See Chevron at 842-43.  If the statute is ambiguous, the question for the court is whether the agency's determination was based on a permissible construction and the goals of the statute. Where the agency's interpretation of the statute is reasonable, the court must defer.  Id.

Here, although it is undisputed that the FCC is the agency whom Congress has charged with the administration of the Communications Act, the Ninth Circuit Court of Appeals upheld the lower court's ruling in Portland on grounds that Chevron deference standards were inapplicable since the lower court did not find the statutory meaning of "telecommunications" ambiguous.  The Ninth Circuit maintained that the case turned, instead, on pure statutory construction and interpretation.  As a result, the Ninth Circuit Court of Appeals ruled that stare decisis compelled it to uphold the decision of the lower court that cable modem service constituted a bifurcated information and telecommunications service. 

The Ninth Circuit's belief and ultimate ruling that stare decisis compelled its ruling against the FCC may be at odds with the underlying principles of Chevron in that it appears to aggrandize the court's power over the expertise of an agency more familiar with the complicated area of telecommunications law; however, the United States Supreme Court has held that "the judiciary is the final authority on issues of statutory construction."  INS v. Cardoza-Fonseca, 480 U.S. 421, 447 (1987).  In Barlow v. Collins, 397 U.S. 159, 166 (1970) the U.S. Supreme Court expressly granted courts authority over agency determinations.  There, the Court ruled that "When the only or principle dispute relates to the meaning of the statutory term, the controversy must ultimately be resolved, not on the basis of matters within the special competence of the agency, but by judicial application of canons of statutory construction." 

The FCC's insistence that its post-Portland declaratory ruling governs despite an earlier court decision, overlooks a key exception.  In Mesa Verde Construction Co. v. Northern California District Council of Laborers, 861 F.2d 1124 (9th Cir. 1988) (en banc), the court held that precedent may be disregarded in favor of a [subsequent] agency interpretation "only where the precedent constituted deferential review of agency decision making."  Id.  Here, that the FCC declined to determine the regulatory classification of cable modem service in its regulatory capacity and as amicus curiae in Portland suggests that the Court of Appeals was not presented with a case mandating deference pursuant to the Chevron Doctrine, the lower court's decision was binding and the FCC was not entitled to provide a subsequent and alternative ruling. 

More importantly, Neal v. United States, 516 U.S. 284, 133 L. Ed. 2d 709, 116 S. Ct. 763 (1996) (holding that the Sentencing Commission's subsequent revision of sentencing guidelines contrary to the lower court should not be given deference), established that once a court determines a statute's meaning, it is entitled to employ stare decisis and assess an agency's subsequent interpretation of the statute against its settled law.  Id. at 294-95.  Adherence to the alternative that the FCC demands would leave case law in a constant state of uncertainty -- leaving it always in danger of revocation by a new interpretation by an agency.  In a dissenting opinion in Neal, Justice Scalia noted that "[He] [knew] of no case, in the entire history of the federal courts, in which [the Supreme Court] ha[d] allowed a judicial interpretation of a statute to be set aside by an agency -- or ha[d] allowed a lower court to render an interpretation of a statute subject to correction by an agency."

In terms of the FCC's conclusion that cable modem service is solely an "information service," it is unlikely that the Court will rule that the court of appeals erred in holding that the FCC did so impermissibly under the Communications Act of 1934.  The Act's statutory definitions and the unique characteristics of cable modem service each induce the result that cable modem service includes a "telecommunications service" component.  Furthermore, the result of defining cable modem service as an "information service" is counterproductive to the goals of the Communications Act. 

The Act defines telecommunication service as "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).  It involves more than a transmission of information in that it requires the offering of pure transmission capability.  Because cable modem service controls all of the transmission facilities between its subscribers and the Internet, eliminating intermediaries like telephone companies and other ISPs, it is in effect transmitting information directly to the public.  That cable modem service essentially acts as its own ISP suggests that it is providing an information service; however, to the extent that it directly provides its subscribers Internet transmission over its cable broadband facility, it is also providing a telecommunications service as defined in the Communications Act. See Id.

In addition, the FCC's characterization of cable modem service as solely an information service seems impermissible considering the goals of the Act it is charged with administering.  The Act seeks to promote competition and encourage deployment of advanced telecommunications capabilities such as high-speed and broadband.  Defining cable modem service as an information service excuses it from Title II regulations including liability for discriminatory, unreasonable or unjust rates.  Here, given the already unique control cable modem service has over Internet transmission in terms of the elimination of transmission facility intermediaries and ISPs, additionally excusing it from regulation threatens to further stunt consumer access to alternative internet access options and competition in the marketplace.

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