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Brand X Internet Services v. Federal Communications Commission
Citation: 345 F.3d 1120Docket: Nos. 02-70518, 02-70684 to 02-70686, 02-70879, 02-71425 and 02-72251
Court: Court of Appeals for the Ninth Circuit; October 6, 2003; Federal Appellate Court
The court examines whether its previous interpretation of the Telecommunications Act governs the review of the Federal Communications Commission's (FCC) classification of Internet service provided by cable companies as an interstate 'information service.' Over half of U.S. households have Internet connections, predominantly through dial-up, which is slower and limits access to online content. High-speed broadband services, such as DSL and cable modem, offer faster Internet access and the ability to stream audio and video. DSL utilizes existing copper telephone wires, while cable modem service uses coaxial cables. The infrastructure for both services is largely already in place, allowing for rapid deployment. Unlike DSL, where multiple ISPs can compete, cable operators typically offer Internet service through their own or affiliated ISPs, effectively controlling access for other providers. Approximately 75 percent of households have access to high-speed Internet via these technologies. Eleven percent of households subscribe to broadband Internet, with residential high-speed service usage on the rise, primarily via cable modem (70% of subscribers). The Telecommunications Act of 1996 aimed to foster competition and promote advanced telecommunications by differentiating between 'telecommunications services' (subject to strict common carrier obligations) and 'information services' (less regulated). This legislative framework built upon earlier FCC classifications, which distinguished 'basic' telecommunications from 'enhanced' information services to encourage competition and consumer choice. The 1996 Act raised questions about whether broadband technologies like cable modem service should be classified as telecommunications, information services, or a hybrid. Initially, the FCC refrained from defining cable modem service but federal courts began interpreting the statute, notably ruling in AT&T v. City of Portland that cable modem service encompasses both telecommunications and information service elements, preventing local authorities from imposing conditions on its sale. Similarly, a court in Virginia invalidated local open access requirements, affirming that cable modem service included telecommunications components. In response to these court decisions, the FCC initiated a notice of inquiry in September 2000 to solicit comments on the regulatory classification of cable modem service and its implications for national policy, considering various potential classifications under the Communications Act. On March 15, 2002, the FCC issued a Declaratory Ruling and a notice of proposed rulemaking (NPRM) following extensive industry consultation and receipt of 250 comments. The ruling classified cable modem service as an interstate information service rather than a cable service, indicating that cable operators would be regulated under the less stringent provisions of Title I, rather than under Title VI or Title II of the Communications Act. The accompanying NPRM sought to explore the regulatory implications of this classification, requesting comments on various points including the impact on DSL regulation, jurisdictional scope, access requirements for competing ISPs, marketplace effects, the role of local authorities, and the relationship to other statutory provisions. Seven petitions for review were filed across various circuits, with petitioners not disputing the classification as an information service but arguing for additional regulatory determinations. Some claimed it should also be classified as a telecommunications service, requiring common-carriage regulation, while others contended it should be recognized as a cable service subject to local authority regulation. Verizon suggested that while the classification of cable modem service was correct, DSL service should similarly be designated as an information service. On April 1, 2002, related petitions were consolidated for review. The standard of review for the FCC's statutory interpretation follows the Chevron framework, requiring courts to first ascertain Congress's intent before deferring to the agency's reasonable interpretations of ambiguous statutes. The Federal Communications Commission (FCC) is the agency designated by Congress to administer the Communications Act, as established in 47 U.S.C. § 151. However, the FCC is not the only authority that has interpreted the Act regarding cable broadband service; a previous three-judge panel of this court addressed this in the case of AT&T v. City of Portland. Petitioners Brand X, EarthLink, and the State of California argue that the court is bound by its prior interpretation, while the FCC and two petitioners contend it is not. The case arose from AT&T's merger with Telecommunications, Inc. (TCI), which required approval from multiple governmental bodies, including local franchising authorities in Portland and Multnomah County. The Communications Act empowers local franchising boards to approve any sale or transfer of cable franchises, allowing them to impose conditions based on the qualifications of the new party. Concerned about potential restrictions on competition in cable broadband access, local authorities sought to condition AT&T's acquisition on the requirement of open access for competing Internet Service Providers (ISPs). AT&T challenged this condition, asserting that local authorities lacked such power. The district court ruled in favor of Portland, leading to AT&T's appeal. The court analyzed the definition of "cable service" under the Act, determining that cable modem service is not a cable service due to its interactive nature, thus Portland could not regulate it through franchising authority. The court concluded that a cable operator can provide broadband Internet access without a cable service franchise and needed to assess whether Portland could impose conditions on AT&T's standard cable service regarding access to its broadband network. The analysis highlighted that Internet access typically involves two distinct services, with a dial-up ISP providing access through telephone lines. The excerpt outlines the distinctions between telecommunications services and information services as defined by the Communications Act. Telecommunications is characterized as the transmission of user-chosen information without alteration, while telecommunications carriers are treated as common carriers when providing services to the public. In contrast, Internet Service Providers (ISPs) are classified by the FCC as offering information services, which involve capabilities related to managing and utilizing information via telecommunications. ISPs, including AT&T’s cable broadband service, operate as users of telecommunications when leasing lines but provide information services to their subscribers, thus avoiding regulation as telecommunications carriers. AT&T's cable broadband service includes both a transmission medium (cable broadband) and the Internet service over that medium. Unlike typical ISPs, AT&T controls all transmission facilities, meaning its service is partly classified as telecommunications when delivering Internet transmission via its broadband infrastructure. The excerpt also references a case (Nat’l Cable, Telecomms. Ass’n v. Gulf Power Co.) that acknowledges the dual steps involved in high-speed Internet access, emphasizing the need for regulatory clarity on these classifications. Ultimately, the document concludes that Portland and Multnomah County cannot impose conditions on AT&T’s franchise transfer related to open access requirements, as such conditions would violate the Communications Act, specifically 47 U.S.C. 541(b)(3)(B), which prohibits local authorities from limiting telecommunications service provision by cable operators. The excerpt refutes any claims that the regulatory classification of cable modem service was not adequately addressed in the earlier case, affirming that the classification was essential to the court’s decision in Portland. The regulatory classification of broadband service is a crucial aspect of the court's decision, and is not mere dicta as defined in Best Life Assurance Co. v. Comm’r. The court asserts that it adequately addressed the classification issue, despite any claims that it was unnecessary to the ruling. A panel's resolution of a pertinent issue in a published opinion establishes binding circuit law, as established in Miranda B. v. Kitzhaber. The court must now consider the implications of the FCC's subsequent interpretation of the Communications Act on its earlier ruling in Portland. Established precedent dictates that three-judge panels are bound by previous panel rulings unless overturned by an en banc decision or the Supreme Court. Exceptions exist, such as in Mesa Verde Construction Co. v. Northern California District Council of Laborers, where a panel may adopt a reasonable agency interpretation even if it conflicts with circuit precedent, provided that the prior ruling was based on deferential review of the agency's decision-making. The FCC contends that the court should not be bound by its prior interpretation in Portland, but the court emphasizes that it did not afford deference to the FCC’s interpretation in that case, thus maintaining the validity of its earlier ruling. Mesa Verde's criteria are not satisfied in this case, as there was no assertion that the provisions of the Act were ambiguous, and Portland’s interpretation of the Communications Act remains binding within the circuit, despite the FCC's conflicting view. This is supported by the Supreme Court’s ruling in Neal v. United States, where the Court rejected an argument that the Sentencing Commission's revised Guidelines constituted a new interpretation of the penalty statute, emphasizing adherence to the doctrine of stare decisis. The Court clarified that judicial interpretations of statutes provide authoritative meanings that persist even after agency revisions. Consequently, the interpretation of the Communications Act established in Portland, which classified cable broadband service as neither purely 'cable service' nor 'telecommunications service,' must be upheld. The FCC's Declaratory Ruling, while aligning with the non-'cable service' finding, did not agree with the classification as part 'telecommunications service.' Therefore, the decision requires partial affirmation, partial vacation, and remand for further proceedings consistent with this opinion. Additionally, data from the Commerce Department indicates significant growth in Internet usage since 2001. Cable modem service can transmit data at speeds of up to 10 megabits per second (mbps), significantly faster than dial-up, which transmits thousands of bits per second. Other high-speed Internet options, such as satellite and fixed wireless, have limited use, with only 3 percent of residential subscribers utilizing these services as of 2001. Digital Subscriber Line (DSL) technology, which uses conventional copper wiring, allows high-speed data transmission through packet-switching. Two DSL modems are used: one at the subscriber's location and another at the telephone company's office, where a digital subscriber line access multiplexer separates voice and data streams for efficient routing. The legal definitions relevant to this context include: - **Cable service**: defined as one-way transmission of video programming or other services, with any necessary subscriber interaction (47 U.S.C. 522(6)). - **Telecommunications service**: characterized as offering telecommunications for a fee to the public (47 U.S.C. 153(46)). - **Information service**: encompasses capabilities for managing or processing information via telecommunications, excluding management of telecommunications systems (47 U.S.C. 153(20)). The argument for classifying cable broadband providers as needing to open their lines to competing ISPs is supported by various groups, including municipal associations and specific Pennsylvania townships. The Supreme Court's ruling in Nat'l Cable, Telecomms. Ass’n, Inc. v. Gulf Power Co. does not alter this outcome, as it focused on the FCC's authority regarding pole attachment rents and did not address the classification of cable modem service. Consequently, claims related to the FCC's classification decision have been vacated and will be reconsidered by the FCC on remand.