United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 13, 2001 Decided June 26, 2001

No. 00-1144

Association of Communications Enterprises,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

SBC Communications Inc., et al.,

Intervenors

On Petition for Review of an Order of the

Federal Communications Commission

Charles C. Hunter argued the cause for petitioner. With him on the
briefs was Catherine M. Hannan.

Rodger D. Citron, Counsel, Federal Communications Commission, argued the
cause for respondents. With him on the brief were Christopher J. Wright,
General Counsel, John E. Ingle, Deputy Associate General Counsel, and
Laurence N. Bourne, Counsel. Catherine G. O\'Sullivan and Nancy C.
Garrison, Attorneys, U.S. Department of Justice, entered appearances.

Robert McDonald, Mark L. Evans, Donna N. Lampert, Mark J. O\'Connor, M.
Robert Sutherland, Roger K. Toppins, James D. Ellis, Alfred G. Richter,
Dan L. Poole, Robert B. McKenna, William P. Barr, M. Edward Whelan, III,
Michael E. Glover, Edward Shakin and Lawrence W. Katz appeared on the
brief of intervenors America Online, Inc., et al.

Before: Williams, Ginsburg, and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: In order to foster competition in
telecommunication markets, the Telecommunications Act of 1996, 47 U.S.C.
§§ 151 et seq., requires that an incumbent local exchange carrier
(incumbent or ILEC) \"offer for resale at wholesale rates any
telecommunications service that the carrier provides at retail to
subscribers who are not telecommunications carriers.\" 47 U.S.C. §
251(c)(4)(A). The idea is to enable other carriers to compete with
incumbents at the retail level.

In the Second Report and Order (Order) in CC Docket No. 98-147,
Deployment of Wireline Services Offering Advanced Telecommunications
Capability (1999), the Commission determined that the
discount-for-resale provision applies when an incumbent offers
digital-subscriber-line (DSL) service to an end-user but not when it
offers DSL service to an internet service provider (ISP). The Commission
maintains that the latter offering is not made \"at retail\" because the
ISP pack-ages and ultimately resells the service to end-users. The
petitioner, an association of telecommunications providers, claims that
the Commission\'s position is contrary to the Act or, alternatively,
unreasonable. Finding no merit in either claim, we deny the petition for
review.

I. Background

In addition to plain old telephone service (POTS), the ILECs provide
various advanced services, foremost among which is DSL service. (For a
description of DSL technology, see Worldcom, Inc. v. FCC, 246 F.3d 690,
692 (D.C. Cir. 2001).) An ILEC may offer DSL service directly to
residential and business end-users, in which event the ILEC itself
performs such collateral functions as marketing, billing, and
maintenance. In addition, the ILEC may offer DSL service designed
specifically for ISPs (such as America Online), which package and sell
the service to end-users and perform the marketing and other collateral
functions.

At issue in this case is that part of the Second Report and Order in
which the Commission addressed the question whether the resale
requirement of § 251(c)(4)(A) applies to an ILEC\'s offering of advanced
services. As the Commission acknowledged, it had previously determined
that advanced services constitute \"telecommunications service\" and
that the end-users and ISPs to which the ILECs offer such services are
\"subscribers who are not telecommunications carriers\" within the
meaning of § 251(c)(4)(A). The remaining issue, therefore, was whether
an ILEC\'s offering of certain advanced services, including DSL, is made
\"at retail\" so as to trigger the discount requirement. The Commission
ultimately concluded that

while an incumbent LEC DSL offering to residential and business
end-users is clearly a retail offering designed for and sold to the
ultimate end-user, an incumbent LEC offering of DSL services to Internet
Service Providers as an input component to the Internet Service
Provider\'s high-speed Internet service offering is not a retail
offering. Accordingly, \... DSL services designed for and sold to
residential and business end-users are subject to the discounted resale
obligations of section 251(c)(4)\.... \[H\]owever, \... section
251(c)(4) does not apply where the incumbent LEC offers DSL services as
an input component to Internet Service Providers who combine the DSL
service with their own Internet Service.

The Association of Communication Enterprises (ASCENT) petitioned for
review of this determination, and various telecommunications and DSL
providers intervened on behalf of the Commission.

II\. Analysis

Although ASCENT is by no means precise on the point, we take it to be
making arguments under both step one and step two of Chevron U.S.A. v.
NRDC, 467 U.S. 837 (1984). That is, the petitioner claims first that the
Commission\'s interpretation of the term \"at retail\" is inconsistent
with the Congress\'s use of that term and, alternatively, that the
Commission is being unreasonable insofar as it interprets the term as
not including an ILEC\'s offering of advanced services to an ISP.

As the Commission states in the Order, and ASCENT does not dispute,
\"The Act does not define the term \'at retail\' and the legislative
history on section 251(c)(4) provides only minimal clarification of
Congress\' intentions with regard to the appropriate definition and
application of the term.\" Therefore, the Commission invoked the
authority of Black\'s Law Dictionary (6th ed. 1990) and Webster\'s
Deluxe Unabridged Dictionary (2d ed. 1987), and construed \"retail
transactions \[as\] necessarily involv\[ing\] direct sales of a product
or service to the ultimate consumer for her own personal use or
consumption.\"

ASCENT argues that the Commission thereby did violence to the plain
meaning of the phrase \"at retail\":

\[U\]nless an ISP is reselling DSL service without substantial
alteration of its form or content \... it is consuming that service in
creating the information service it is selling to the public. Resale is
an essential element of a wholesale transaction; consumption is an
integral part of a retail transaction.

Although ASCENT correctly asserts, per Black\'s, that \"wholesale\"
entails a \"sale \... to one who intends to resell,\" there is no
justification for ASCENT\'s claim that a product \"substantially
altered\" in form or content is by definition \"consumed.\" To use
ASCENT\'s own example, an automobile manufacturer that converts raw
steel into motor vehicles can reasonably be said to purchase its steel
\"wholesale\" notwithstanding that it substantially alters that steel
before selling its finished goods on the retail auto market. See
Black\'s (sale for \"further sale or processing\" not a sale at
\"retail\") (emphasis added).

ASCENT\'s other textual arguments, namely, that the Commission has
\"attempt\[ed\] to write into the text of Section 251(c)(4) certain
exemptions\" and that it has \"undermine\[d\] the viability of resale as
a means of competing in the local telecommunications market,\" beg the
question at issue: § 251(c)(4)(A) applies and the discount requirement
comes into play only if a particular offering is in fact \"at retail.\"
The same is true of ASCENT\'s makeweight argument that the Commission
has usurped the authority of the states to set wholesale rates under 47
U.S.C. § 252(d)(3), which likewise applies only to services offered \"at
retail\" under § 251(c)(4).

Because the Congress did not itself resolve the present issue, we turn
to ASCENT\'s arguments under Chevron step two that the Commission\'s
interpretation of the Act is unreasonable. Here ACSENT argues that the
Commission impermissibly ignored record evidence and its own precedent
indicating that ISPs are indistinguishable from end-users.

Initially ASCENT complains that, because DSL services are offered
indifferently to all pursuant to a tariff, even an ILEC\'s offering that
is tailored to the needs of ISPs is available likewise to any end-user
that can use them. Such an offering requires the purchaser to make term
and volume commitments, and does not include customary retail functions,
such as marketing, billing, and maintenance. The petitioner suggests
that large, corporate end-users with the requisite need and the ability
to perform those functions for themselves might take the service. That
mere possibility, however, does not invalidate the Commission\'s
interpretation of the statute. If in the future an ILEC\'s offering
designed for and sold to ISPs is shown actually to be taken by end-users
to a substantial degree, then the Commission might need to modify its
regulation to bring its treatment of that offering into alignment with
its interpretation of \"at retail,\" but that is a case for another
day.[^1]\*

ASCENT turns next to possible inconsistencies between the Commission\'s
approach in the Order under review and in a prior proceeding. In
particular, the petitioner seizes upon the Commission\'s earlier
statement that \"the services independent public payphone providers
\[IPPPs\] obtain from incumbent LECs are telecommunications services
that incumbent LECs provide \'at retail to subscribers who are not
telecommunication carriers\' and that such services should be available
at wholesale rates to telecommunications carriers.\" Local Competition
Order, 11 F.C.C.R. 15,499 at p 876 (1996). ASCENT maintains that for
present purposes an IPPP is indistinguishable from an ISP in that it
purchases, bundles, and then resells to end-users a telephone service
\-- in the case of IPPPs it is POTS \-- and that the Commission is
therefore unjustified in treating the IPPP but not the ISP as an
end-user.

This argument has force, but it cannot carry the day for two reasons:
First, the analogy between an ISP and an IPPP is not so close; the POTS
an ILEC sells to an IPPP is the same POTS that the IPPP sells to
end-users, whereas the DSL service it sells an ISP is distinct because
it does not include the collateral functions the ISP performs for
end-users. Second, just two paragraphs earlier in the same order, the
Commission had determined that offerings of exchange access services
tailored for interexchange carriers (IXCs) are not subject to §
251(c)(4) in part because those services \"are designed for, and sold
to, IXCs as an input component to the IXC\'s own retail services,\"
namely long distance services. Id. at p 874. In the Order now under
review the Commission marshaled its treatment of IXCs as the most
relevant precedent. ASCENT does not now distinguish that treatment in
any meaningful way, but attributes it to the Commission\'s rationale
that exchange access services, which IXCs purchase, are used primarily
by telecommunications carriers. That does not confront the Commission\'s
independent rationale that IXCs supply their own service to end-users
\-- as do ISPs. In any event, if there is tension between the
Commission\'s treatment of IXCs and IPPPs, its resolution is not now
before us; it is enough for our purposes that the Commission in the
present Order treated ISPs like IXCs, regardless how it treated IPPPs in
a prior order.

ASCENT\'s remaining points are less weighty. First it contends the
Commission previously had rejected the suggestion that volume-based
discounts or the absence of various retail functions take an offering
outside the reach of § 251(c)(4). Id. at p 951; Application of BellSouth
Corp., 13 F.C.C.R. 539 at p 220 (1997). In those instances, however, the
Commission did not address offerings specifically de-signed for
customers other than end-users. Second, ASCENT points out that the
Commission has treated ISPs as end-users for other purposes. That is of
no moment if the Commission was reasonable, as we have seen that it was,
in treating them as resellers whose purchases from ILECs are not made
\"at retail\" for the purposes of § 251(c)(4)(A). In sum, having
considered ASCENT\'s objections, we find the Commission\'s Order in all
respects reasonable.

III\. Conclusion

For the foregoing reasons, the petition for review is

Denied.

[^1]: ^^ ASCENT further argues in its reply brief that the Order, by
    seeming to remove from the ambit of § 251(c)(4)(A) \"any DSL service
    offering provided to any ISP, regardless of the terms of the
    offering,\" impermissibly delegates authority to ILECs \-- the
    regulated entities \-- to determine what offers are outside the
    discount-for-resale requirement. Because this argument does not
    appear in ASCENT\'s initial brief, the Commission did not have an
    opportunity to address it, nor shall we. See Coalition for
    Noncommercial Media v. FCC, 249 F. 3d 1005, 1010 (D.C. Cir. 2001).