# Second Computer Inquiry/Final Decision/5
### B. Network Services
#### Basic and Enhanced Services

86. The structure set forth in the Tentative Decision focused on the separation of common carrier transmission services from those computer services which depend on common carrier services in the transmission of information. We proposed a resale structure for those computer processing services which would be subject to a regulatory delineation between communications and data processing. A distinction was made between basic common carrier transmission services and enhanced services; enhanced services were to be provided on a resale basis such that the requisite common carrier facilities would be acquired pursuant to tariff. Moreover a set of definitions was proposed for distinguishing the regulated or non-regulated status of enhanced services based on the communications or data processing nature of the service.
87. The benefits of this structure were set forth in the Tentative Decision at paras. 72-75. We stated there that this resale structure enables us to do away with the "separate facilities" requirement of our "maximum separation" policy for resale carriers. Restrictions on the use of a carrier's facilities for only regulated services would be removed; both communications and data processing services could be provided through a resale carrier's computer facilities. Moreover, an environment would be created in which the licensed transmission facilities of a carrier are equally available to all providers of enhanced services. In addition, the potential for a carrier to use its transmission facilities to improperly subsidize an enhanced data processing service without detection would be minimized. Most importantly, however, we noted the potential benefit to consumers of enabling resale entities to custom-tailor services to individual user needs.
88. The comments generally support distinguishing between basic common carrier services and enhanced services. Questions were raised, however, as to the manner in which we delineated the three categories of service--voice, basic non-voice (BNV), and enhanced non-voice (ENV). The comments raise concerns on two fronts. First, it is argued that use of "voice" and "non-voice" terminology may result in an artificial voice/data service distinction that will eventually fall of its own weight as technology evolves. Second, various parties argue that the definitions of BNV and ENV services should somehow be altered. In this regard, certain regulated carriers seek to have the BNV category expanded so as to not restrict their regulated activities. At the same time various unregulated entities seek a narrow construction of voice and BNV services so as not to unnecessarily expand the scope of regulation.
89. Unnecessary confusion may have resulted in proposing these
____________________ 31.↑ See 47 C.F.R. § 64.702(c).
three service categories using voice/non-voice terminology. Continued use of these terms is not warranted. The same objective is obtainable through use of simplified and more descriptive terminology. We believe that delineating between basic transmission services and enhanced services is consistent with the thrust of the Tentative Decision and will remove any conceptual problems as to the technological merging of voice and data.
90. The "voice" and "basic non-voice" categories proposed in the Tentative Decision represent nothing more than basic transmission services. The "voice" category was limited, by definition, to telephone service and was intended to distinguish "plain old telephone service" (POTS) from other basic and enhanced services where interaction of the human voice is involved. The "basic non-voice" category was essentially defined in terms of functions necessary to route a message through the network. See para. 27, supra. That nothing more than a basic transmission service was intended by these two categories is evident from our statement that "this structure requires the facilities of the underlying carrier to be transparent to the information transmitted and for a carrier to provide a 'pure transmission' service which forms the basis upon which all 'enhanced' services are provided." Tentative Decision, at para. 75. Accordingly, it is consistent with the Tentative Decision to refer to services that would fall within the voice and BNV categories as "basic" transmission services. Likewise, the ENV category was intended to encompass those computer offerings which are more than basic services, and it included both voice and data applications. The "non-voice" designation was given to the category to include human-to-computer services and make clear that such services were not "voice" services because of any voice synthesis or speech recognition capabilities. (See Tentative Decision, at n. 60 where we stated that the "non-voice" designation does not exclude voice transmission as part of an "enhanced non-voice" service.) Hence, deleting the "non-voice" designation in referring to enhanced services does not limit voice/data applications, and neither limits nor expands the types of services intended to fall within the ENV category. Hence the basic/enhanced distinction is consistent with the service classification structure proposed in the Tentative Decision.
91. We disagree with the first argument that an artificial distinction is made between voice and data services, or that we are imposing such a separation. The incorporation of voice and data transmission capabilities into the network is inherent in the basic service category. This dual capability is also recognized in the provision of enhanced services. To the extent confusion may have resulted over the use of "voice" and "non-voice" terminology, it should be alleviated by our use of more descriptive "basic" and "enhanced" terminology in differentiating services falling within the former "voice," "basic non-voice," and "enhanced non-voice" categories.
92. We conclude that the record in this proceeding supports our
adopting a basic/enhanced dichotomy for network services. In going forward with a regulatory scheme that distinguishes a carrier's basic transmission services from its enhanced services, it behooves us to make clear our perception of what constitutes a basic service. In so doing we are mindful of the arguments raised by various parties that the basic service category should be broadly construed so as to not limit the scope of regulated services. However, based on our review of the comments and our determination, infra, that enhanced services should not be subject to regulation, we conclude that the parameters of a basic service should be dictated by the purposes of the Act and the statutory scheme set forth in Title II for the regulation of common carrier communications services.
93. A basic transmission service is one that is limited to the common carrier offering of transmission capacity for the movement of information. In offering this capacity, a communications path is provided for the analog or digital transmission of voice, data, video, etc. information. Different types of basic services are offered by carriers depending on a) the bandwidth desired, b) the analog and/or digital capabilities of the transmission medium, c) the fidelity, distortion, or other conditioning parameters of the communications channel to achieve a specified transmission quality, and d) the amount of transmission delay acceptable to the user. Under these criteria a subscriber is afforded the transmission capacity to suit its particular communications needs.
94. Traditionally, transmission capacity has been offered for discrete services, such as telephone service. With the incorporation of digital technology into the telephone network and the inclusion of computer processing capabilities into both terminal equipment located in the customer's premises and the equipment making up a firm's "network," this is no longer the case. Telecommunications service is no longer just "plain old telephone service" to the user. A subscriber may use telephone service to transmit voice or data. Both domestic and international networks allow for voice and data use of the same communications path. Thus in providing a communications service, carriers no longer control the use to which the transmission medium is put. More and more the thrust is for carriers to provide bandwidth or data rate capacity adequate to accommodate a subscriber's communications needs, regardless of whether subscribers use it for voice, data, video, facsimile, or other forms of transmission.
95. Accordingly, we believe that a basic transmission service
____________________ 32.↑ Digital modems or datasets are widely used domestically for the permissive transmission of data over leased voice grade lines and MTS circuits and the transmission of data over international MTS circuits is also allowed as a permissive use. See Dataphone decision FCC 79-842, released February 11, 1980. Similarly the IRCs offer the ability to transmit voice over their data conditioned circuits. See Datel decision FCC 79-843, released February 14, 1980. (These decisions are currently on appeal before the Court of Appeals for the District of Columbia, Case Nos. 80-1286, 80-1287, 80-1310 (1980)).
should be limited to the offering of transmission capacity between two or more points suitable for a user's transmission needs and subject only to the technical parameters of fidelity or distortion criteria, or other conditioning. Use internal to the carrier's facility of companding techniques, bandwidth compression techniques, circuit switching, message or packet switching, error control techniques, etc. that facilitate economical, reliable movement of information does not alter the nature of the basic service. In the provision of a basic transmission service, memory or storage within the network is used only to facilitate the transmission of the information from the origination to its destination, and the carrier's basic transmission network is not used as an information storage system. Thus, in a basic service, once information is given to the communication facility, its progress towards the destination is subject to only those delays caused by congestion within the network or transmission priorities given by the originator.
96. In offering a basic transmission service, therefore, a carrier essentially offers a pure transmission capability over a communications path that is virtually transparent in terms of its interaction with customer supplied information. It is clear that in defining a basic service in this manner, we are in no way restricting a carrier's ability to take advantage of advancements in technology in designing its telecommunication network. Consistent with our Tentative Decision, a carrier maintains its flexibility to structure its communications network such that the network efficiently functions as the basic building block upon which it (in the form of a separate subsidiary in some cases) as well as other service vendors can add computer facilities to perform myriad combinations and permutations of information processing, data processing, process control, and other enhanced services.
97. Under this scenario, the regulatory demarcation between basic and enhanced services becomes relatively clear-cut. An enhanced service is any offering over the telecommunications network which is more than a basic transmission service. In an enhanced service, for example, computer processing applications are used to act on the content, code, protocol, and other aspects of the subcriber's information. In these services additional, different, or restructured information may be provided the subscriber through various processing applications performed on the transmitted information, or other actions can be taken by either the vendor or the subscriber based on the content of the information transmitted through editing, formatting,
____________________ 33.↑ In this context, "code" means the binary representation of alpha-numeric and control characters. Thus an enhanced service may modify the transmitted bit stream to change it from the ASCII code to the EBCDIC code, which a basic service may not. "Protocols" govern the methods used for packaging the transmitted data in quanta, the rules for controlling the flow of information, and the format of headers and trailers surrounding the transmitted information and of separate control messages.
etc. Moreover, in an enhanced service the content of the information need not be changed and may simply involve subscriber interaction with stored information. Many enhanced services feature voice or data storage and retrieval applications, such as in a "mail box" service. This is particularly applicable in time-sharing services where the computer facilities are structured in a manner such that the customer or vendor can write its own customized programs and, in effect, use the time-sharing network for a variety of electronic message service applications. Thus the kinds of enhanced store and forward services that can be offered are many and varied.
98. As we stated in paragraph 90, supra, the "voice" category was intended to distinguish traditional telephone service consisting of real time human-to-human oral conversation from other basic and various enhanced services. At footnote 60 of the Tentative Decision, we stated that we are not foreclosing enhanced processing applications from being performed in conjunction with 'voice' service. We indicated that "computer processing applications such as call forwarding, speed calling, directory assistance, itemized billing, traffic management studies, voice encryption, etc., may be used in conjunction with 'voice' service." Id. The intent was to recognize that while POTS is a basic service, there are ancillary services directly related to its provision that do not raise questions about the fundamental communications or data processing nature of a given service. Accordingly, we are not here foreclosing telephone companies from providing to consumers optional services to facilitate their use of traditional telephone service. Any option that changes the nature of such telephone service is subject to the basic/enhanced dichotomy and their respective regulatory schemes. For example, voice storage or automatic call answering within the network would be enhanced services. See para. 97, supra. Thus any tariffed optional services must not change the nature of traditional telephone service.
99. A few comments question the legitimacy of not allowing code and protocol conversion as part of a basic service. While we have concluded that code and protocol conversion are enhancements to a basic service, we recognize that they also increase the utility of the
____________________ 34.↑ In a typical mail-box application Party A, intending to send a message to Party B, would compose a message at its terminal, and, over a communications line, direct the message to a computer memory location having the address, "Party B." Party B can periodically communicate with the computer at times of Party B's own choosing using its own terminal, and withdraw the contents of its memory location for display at the terminal.
35.↑ The offering of store and forward services should not be confused with the use of store and forward technology in routing messages through the network as part of a basic service. Message or packet switching, for example, is a store and forward technology that may be employed in providing basic services.
36.↑ As a practical matter this only affects those carriers subject to the resale structure for the provision of enhanced services since carriers not so subject may offer any enhanced service as a nontariffed option.
communications channel by allowing disparate terminals to communicate with one another. Because the universe of terminals that can communicate with one another is larger where such capabilities are offered, arguments can be made that these functions should be allowed as part of a communications service. We have weighed the relative merits of permitting code and protocol conversion as part of a basic service and affirm our determination in the Tentative Decision, at para. 69, that these capabilities are more appropriately associated with the provision of enhanced services. This conclusion is premised on two factors. First, there is the likelihood of distorting the regulatory distinction between basic and enhanced services if protocol conversion is performed as part of a basic service. Second and more significant, however, is the fact that this determination has implications only for those carrier that remain subject to resale structure and the maximum separation policy. (See discussion in Part D, infra.) Entities not so subject may offer protocol conversion to all customers regardless of whether it is viewed under our Rules as basic or enhanced. The most significant effect our decision will have is to require some carriers to offer protocol conversion and like enhancements to their basic services through separate subsidiaries. No compelling evidence has been submitted in this proceeding that this separation will impose significant efficiency losses on the carrier or the public it serves. If at some future time evidence to the contrary is submitted, we are free to re-examine the public interest ramifications and regulatory implications of allowing a given protocol conversion as part of basic services.
100. We believe that our adoption of a differentiation between basic and enhanced services best furthers the public interest because it comports with the actual development of this dynamic industry. As the market applications of computer technology increase, communications capacity has become the necessary link allowing the technology to function more efficiently and more productively. Transmission networks have benefitted from some of the productive breakthroughs which this relatively new field has made possible. As a result, the computer industry and the communications industry are becoming more and more interwoven. We believe, and the record shows, that this trend will become even more pronounced in the future. As it does, an increasing number of enhanced services will be developed to meet the need of the marketplace. Thus, the pressure on a set of administrative rules which fail to recognize the growth in operational sophistication demanded by our nation's economy will be inexorable.
____________________ 37.↑ While the comments in this proceeding do not address protocol conversion in any detail, the question arises as to whether some flexibility should be afforded a basic service provider that is subject to the separation requirement, in the view of the structure we are setting forth. It may be that certain low level protocol conversions should be allowed as part of a basic service. In the near future we will consider a Notice of Inquiry to examine in detail the implications of forbidding all protocol translation in such instances and whether the public interest requires some exceptions to this prohibition.
101. The distinction we adopt today recognizes that development and indeed should encourage its continuation. We believe it will do so in several ways. First, it leaves undisturbed the provision of basic service, whether as a building block supporting the provision of enhanced services or by itself. Second, it allows the provider of these basic services to integrate technological advances conducive to the more efficient transmission of information through the network without the threat of a sudden, fundamental change in the regulatory treatment of that service or firm. Third, it draws a clear and, we believe, sustainable line between basic and enhanced services upon which business entities can rely in making investment and marketing decisions. Fourth, in conjunction with our decision on the regulatory scheme applicable to such services, it removes the threat of regulation from markets which were unheard of in 1934 and bear none of the important characteristics justifying the imposition of economic regulation by an administrative agency.

#### Enhanced Services: Communications/Data Processing Classification

102. Having affirmed the dichotomy established between basic and enhanced services, we must now address the definitions proposed in the Tentative Decision for classifying enhanced services as either communications or data processing. It should be noted at the outset that implicit in the Tentative Decision is the recognition that the interstate telecommunications network should be exploited to its fullest potential. This means that restrictions on output, whether privately or publicly imposed, are contrary to the public interest when the effect is to lessen the utility of society's substantial investment in the telecommunications network. Consistent with this principle, we seek to remove unnecessary and inappropriate FCC regulation as an inhibiting barrier to the various combinations and permutations of enhanced services that may be offered over the nationwide telecommunications network. We affirm our conclusion that a need exists to re-examine the definitional scheme established in the First Computer Inquiry in order to provide greater market certainty. The question now is whether our statutory responsibilities and the public interest will best be served by adopting the definitional structure proposed in the Tentative Decision.
103. With the advent of distributed processing, we recognized the need for clearer delineations in order to minimize uncertainties for those making business decisions related to the provision of new and innovative enhanced services. We noted the need for a revised definitional structure to address this environment, rather than attempting to artificially construe the present Section 64.702 with the prospect of ambiguity and uncertainty. The existing Section 64.702(a) is inadequate primarily because it was formulated at a time when processing capabilities were limited to large-scale central computers; its inherent deficiencies rest with the fact that it thus does not take into account the type of services marketed in today's environment of
distributed processing. See Notice at paras. 7-14, Supplemental Notice at paras. 7-8, and Tentative Decision at para. 78-79.
104. We proposed a new definitional structure as a means of classifying enhanced services as either regulated communications or unregulated data processing services. See para. 30, supra. Attention was focused on enhanced services because it is at this level that new and innovative computer services are offered and uncertainty exists as to the communications or data processing nature. The definitional scheme would affect both communications common carriers and unregulated vendors of computer processing services. We noted that, as a practical matter, when Commission findings are made that certain computer services are or are not a communications offering, a guide is provided for service vendors as to what service may be offered without coming under our Title II regulatory umbrella. It is not surprising, therefore, that the definitional scheme advanced was the subject of substantial comment.
105. Comments filed in response to the Notice and Supplemental Notice stressed the importance of maintaining some degree of flexibility under any definitional attempt to distinguish communications and data processing. Taking these comments into consideration, we made an effort to devise workable criteria for distinguishing the communications or data processing nature of enhanced services. Specific definitions were proffered with the hope that greater regulatory certainty would prevail in the marketplace. Comments were sought on the public interest considerations relevant to adoption of the proposed definitions.
106. While there is some agreement among the parties as to the appropriateness of distinguishing between basic and enhanced services, there is no consensus that adoption of the proposed definitional scheme for distinguishing the communications/data processing nature of enhanced services would be in the public interest. Without exception, every element of the definitional structure we proposed was subject to criticism by one party or another, and various changes were suggested for rewording the definition of such terms as "computer processing," "data processing," "data processing service," and "hybrid data processing." Carriers argued that certain definitions should be altered or expanded to make clear that various computer services were communications services; unregulated service vendors found certain definitions too broad and argued that their adoption would result in regulation of data processing services.
____________________ 38.↑ The communications/data processing controversy is not relevant to basic services by definition.
39.↑ Compare Western Union Telegraph Company, 11 FCC 2d 1 (1967) (found basic SICOM service to be a tariffable common carrier communications service) and Western Union Telegraph Company, 59 FCC 2d 140 (1976) (found four collateral services to be data processing) recon. denied 62 FCC 2d 518 (1976).
107. After three attempts to delineate a distinction between communications and data processing services and failing to arrive at any satisfactory demarcation point, we conclude that further attempts to so distinguish enhanced services would be ultimately futile, inconsistent with our statutory mandate and contrary to the public interest. In coming to this conclusion we are convinced that pursuing such a course of action would not accomplish the objectives of this proceeding, i.e., "to (a) foster a regulatory environment conducive to the stimulation of economic activity in the regulated communications sector with respect to the provision of new and innovative communications-related offerings; and (b) enable the communications user to optimize his use of common carrier communication facilities and services by taking advantage of the ever increasing market applications of computer processing technology." Tentative Decision, at para. 59. It is apparent that, over the long run, any attempt to distinguish enhanced services will not result in regulatory certainty. At most, reliance on a definitional approach which uses a primary purpose standard is a stop-gap measure, which--even assuming we were able to define the services accurately--would only reflect the differences in these services as they are configured with today's technology. In a market as vibrant as enhanced services, however, this distinction may miss important new developments. Thus, the need for ad hoc determinations would continue. As the market applications of computer technology continue to evolve we believe that attempts to distinguish enhanced services either will fail or result in an unpredictable and inconsistent scheme of regulation. This is because a definitional structure is not independent of advances in computer technology and its concomitant market applications. A certain degree of flexibility must be maintained to accommodate these advances. To the extent flexibility is incorporated into the definitions, there is a corresponding degree of uncertainty. Thus the boundary line differentiating enhanced communications and data processing services can vacillate, and confidence in decisions made based on that distinction would be diminished.
108. In addition to the fact that the record in this proceeding does not support the conclusion that greater regulatory certainty would result by adopting the proposed definitional structure, there are other factors which militate against classifying enhanced services for regulatory purposes. Such a regulatory scheme would most likely result in the direct or indirect expansion of regulation over currently unregulated vendors of computer services and deprive consumers of increased opportunities to have services tailored to their individual needs.
109. To fully appreciate the significance of this, it is helpful to
____________________ 40.↑ Differing definitions were proposed in the Notice, Supplemental Notice, and Tentative Decision.
understand the dynamics of the marketplace in light of our current regulatory scheme. There are literally thousands of unregulated computer service vendors offering competing services connected to the interstate telecommunications network. The services they provide are many and varied. The only limitation on the types of services offered are those arising from the constraints of their own entrepreneurial capabilities and, in a very real sense, the implicit requirement that they structure their services so as to avoid crossing a regulatory boundary that would subject them to regulation. The former recognizes the fact that the potential for new and innovative services is merely a factor of the technical parameters of the computer equipment and the associated applications programs employed; the latter is a consequence of our Resale decision which subjected resale entities providing communications services to Title II regulation, but not vendors of data processing services. The interaction of the implicit requirement to avoid crossing the regulatory boundary and the competitive nature of the enhanced service market is crucial. Even with this barrier we have concluded that the enhanced services market is competitive, GTE-Telenet Merger, 72 FCC 2d 111 (1979). By removing this barrier the entire market for enhanced services should be even more competitive than it has been in the presence of that barrier. In the GTE-Telenet Merger decision at paragraph 141, we discussed several potential entrants, large computer time sharing companies, that faced no barrier to entry other than the necessity to comply with the requirements of Title II. The record in this proceeding makes clear that even when the Commission's stated policies are in favor of open entry, the very presence of Title II requirements inhibits a truly competitive, consumer responsive market.
110. Computer technology is increasingly removing technical limitations as to the types of enhanced services that may be offered. Yet, a classification scheme which would categorize enhanced services as either communications or data processing inherently limits the types of services that an unregulated entity may offer. The reason for this is clear. Providers of data processing and other computer services acquire the necessary transmission facilities from communications common carriers pursuant to tariff, and resell this transmission capability as part of their enhanced offering. At the same time, an entity which acquires the same transmission facilities from a carrier and offers a "communiciations" service is presently regulated as a common carrier under Title II of the Act. See Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities (Resale), Docket No. 20097, 60 FCC 2d 261 (1976), recon. 62 FCC 2d 588 (1977), aff'd AT&T v. FCC, 572 F.2d 17 (2d Cir.), cert. denied, 439 U.S. 875
____________________ 41.↑ In the GTE-Telenet merger we discussed the "augmented data transmission services". These services are encompassed within the enhanced category.
(1978). Accordingly, a resale entity is regulated as a common carrier only if it is providing a communications service.
111. This has significant public interest implications in terms of the types of services that may be offered and the scope of our regulation. First, the vendor of unregulated enhanced services may not provide an enhanced "communications" service. This means that its services must be artificially structured so as to not come under our regulatory umbrella (the guidelines for which we have already concluded would be less than precise). To the extent services must be so structured there is a corresponding inability to fully tailor services to consumer needs. This has the result of artificially restricting the supply of services provided over the telecommunications network. In the final analysis both individual consumers and society in general bear unnecessary costs where such limitations exist. This becomes even more troublesome as new markets for enhanced services open and new services open up. While these services traditionally have been directed at the business sector, increasing attention is being focused on residential markets. It is apparent that technology and entrepreneurial incentives are directed toward new markets and new means of serving them. Thus restrictions on output, which would result from a classification scheme limiting those who wish to avoid the costs and delays of regulation, will increase as these new markets open up.
112. The second public interest implication is the increased potential for expansion of regulation over currently unregulated providers of information or data processing services. We noted in the Tentative Decision, at para. 152, that the tentative conclusion that a resale carrier would be able to offer both regulated and unregulated enhanced services (with the unregulated services offered on a nontariffed basis) carried with it significant regulatory and market implications for presently unregulated firms. A resale carrier could offer any enhanced service, whereas the unregulated vendor of computer services may offer only those enhanced services that are not regulated as "communications." The effect of this is that "... the communication common carrier would have tremendous flexibility to provide new
____________________ 42.↑ On reconsideration of the Report and Order in the Resale Decision we stated:
   Thus, if what is ultimately offered to the public is data processing or anything other than "communications," this proceeding is not applicable to such activity. The question as to what is "data processing" or "communications" is at issue in Docket No. 20828. 62 FCC 2d at 600.
   The more generic question of whether any resale entity should be regulated as a common carrier is undergoing re-examination in the Competitive Carrier Rulemaking, CC Docket No. 79-252, FCC 79-509 (released November 2, 1979).
43.↑ The most apparent example of this is the potential offering of teletext and viewdata type services to residential consumers. Various telephone holding companies are actively pursuing the possibility of offering these information retrieval services to residential customers in conjunction with other store and forward message service applications.
and innovative services and to tailor these services to individual user needs, much more so than a currently unregulated entity. One result may be an indirect forcing of currently unregulated entities to acquire common carrier status in order to obtain the same degree of flexibility afforded a resale common carrier." Id. We perceive that the impetus for this to happen will increase as the computer processing applications and technologies continue to evolve and grow. In addition to increasing the scope of Commission regulation, the specter of potential regulation may impose artificial barriers to entry. Here also, this effect may grow in significance as technology advances.
113. We have gone to great length in this proceeding to build a record which would best enable us to render a decision consistent with the mandate of this Commission as set forth in Section 1 of the Communications Act. 47 U.S.C. 151. Based on this record, the mandate of this Commission in a rapidly changing technological environment, the market developments resulting from the confluence of technologies, the impossibility of defining at the enhanced level a clear and stable point at which "communications" becomes "data processing," the ever increasing dependence upon common carrier transmission facilities in the movement of information, the need to tailor services to individual user requirements, and the potential for unwarranted expansion of regulation, we conclude that the public interest would not be served by any classification scheme that attempts to distinguish enhanced services based on the communications or data processing nature of the computer processing activity performed. Accordingly, we conclude that all enhanced computer services should be accorded the same regulatory treatment and that no regulatory scheme could be adopted which would rationally distinguish and classify enhanced services as either communications or data processing.

#### Regulatory Scheme

114. Having concluded that there should be no regulatory distinction between enhanced services, we are left with two categories of services--basic and enhanced. The common carrier offering of basic transmission services are regulated under Title II of the Act. This proceeding does not address the nature and degree of regulation exercised over providers of basic services. Insofar as enhanced services are concerned, there are two options--subject all enhanced services to regulation, or refrain from regulating them in toto. We believe that, consistent with our overall statutory mandate, enhanced services should not be regulated under the Act.
115. We find the public interest benefits inherent in distinguishing basic and enhanced services and regulating only the former far outweigh any regulatory scheme that attempts to regulate some enhanced services and not others. Significant public interest benefits accrue to the Commission, carriers and other service providers, and consumers under this regulatory structure. Moreover, we are convinced
that such a regulatory scheme offers the greatest potential for efficient utilization and full exploitation of the interstate telecommunications network. The basis for such conviction becomes apparent when the advantages of this structure are compared to the existing regulatory environment or that proposed in the Tentative Decision.
116. From the perspective of the regulator, a major benefit in not classifying services within the enhanced category is that the scope of Commission regulation is focused on those services which are clearly within the contemplation of the Communications Act and which serve as the foundation for all enhanced services. Moreover, the extent of our regulatory authority is not automatically expanded with advances in technology and the types of enhanced services that can be offered. Semantic distinctions are avoided as to whether a given service is data processing, information processing, process control, communications processing, or some other category. As such, the potential for the development of an inconsistent regulatory scheme to accommodate these services is eliminated; all enhanced services are accorded the same regulatory treatment. To the extent uncertainty creates a regulatory barrier to entry, that barrier is also removed. With the nonregulation of all enhanced services, FCC regulations will not directly or indirectly inhibit the offering of these services, nor will our administrative processes be interjected between technology and its marketplace applications. This structure enables us to direct our attention to the regulation of basic services and to assuring nondiscriminatory access to common carrier telecommunications facilities by all providers of enhanced services.
117. Service vendors also benefit under this structure. Providers of enhanced services are afforded tremendous flexibility because there is no restriction on the types of services they may provide, except those imposed by the demands of their customers. The boundary between basic and enhanced services raises no such barrier since we believe we have identified a common necessary element in our definition of basic services. The trend in technology is toward new and innovative enhancements that build upon basic services. For computer vendors and entrepreneurs the momentum is away from basic communications services, rather than toward it. As a result, the types of enhanced services they may provide is limited only by their entrepreneurial ingenuity and competitive market constraints. Services need not be artificially structured or limited so as to avoid transgressing a regulatory boundary.
118. The benefit to consumers is that services which depend on the electronic movement of information can be custom-tailored to individual subscriber needs. Moreover, information systems can be programmed so that users dictate the nature and extent of computer processing applications to be performed on any given amount of information. As greater flexibility is offered consumers to tailor their services, a broader spectrum of the marketplace can be expected to
take advantage of information processing services. To the extent regulatory barriers to entry are removed and restrictions on services are lifted there is a corresponding potential for greater utilization of the telecommunications network through greater access to new and innovative service by a larger segment of the populace. Finally, this structure creates the proper economic incentives for vendors to segregate their services such that consumers need pay only for those services necessary for their own information processing requirements.

#### Legal Considerations

119. In defining the difference between basic and enhanced services, we have concluded that basic transmission services are traditional common carrier communications services and that enhanced services are not. Thus, while those who provide basic services would continue to be regulated, enhanced service vendors would not be subject to rate and service provisions of Title II of the Communications Act. Our decision here is not a radical departure from our previous policy in this area. Rather, it is a natural outgrowth of our decision in the First Computer Inquiry in which we declined to regulate both data processing and hybrid data processing services. And although we decided at that time to establish a set of definitions in order to distinguish regulated communications service from unregulated data processing services, we are convinced from our ongoing evaluation of this area, that such a framework can no longer be justified. In fact, we doubt that one could be established.
120. We have described our repeated unsucessful efforts to identify a discrete communications component (after the fashion of the First Computer Inquiry ) in what we have finally come to label "enhanced service." We are faced with the reality that technology and consumer demand have combined to so overrun the definitions and regulatory scheme of the First Computer Inquiry that today no comparable, minimally enduring line of demarcation can be drawn. In enhanced services, communications and data processing technologies have become intertwined so thoroughly as to produce a form different from any explicitly recognized in the Communications Act. The forms of the Act should not control either the substance of enhanced service offerings to the public or the manner in which they are made available.
121. Because enhanced service was not explicitly contemplated in the Communications Act of 1934, there is no more a requirement to confront it with a specific traditional regulatory mechanism than there was, for example, in the case of cable television, which has formal elements of common carriage and broadcast television, or of specialized mobile radio services, which bears many formal similarities to radio common carriage. Precedent teaches that the Act is not so intractable as to require us to routinely bring new services within the provision of our Title II and III jurisdiction even though they may involve a component that is within our subject matter jurisdiction. In fact, in
GTE Service Corp. v. FCC, 474 F.2d 724 (2nd Cir. 1973), the court substantially affirmed a Commission decision the underlying premise of which was that not all services involving the electronic transmission of information are communications services subject to regulation under Title II of the act.
122. Precedent teaches us, also, that all those who provide some form of transmission services are not necessarily common carriers. See, e.g., AT&T v. FCC, 572 F.2d 1725 (2d Cir. 1978) (sharing of communications services and facilities not common carriage and not subject to Title II); National Association of Regulatory Utility Commissioners v. FCC, 525 F.2d 630 (D.C. Cir. 1976) (NARUC I) (SMRS); American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1976) (CATV); Philadelphia Television Broadcasting Co. v. FCC, 359 F.2d 282 (D.C. Cir. 1966). (FCC not required to treat cable television systems as common carriers nor to employ Title II regulatory tools.) Although the term itself is difficult to define with any precision, a distinguishing characteristic is the quasi public undertaking to "carry for all people indifferently." NARUC I, 525 F.2d at 641; National Association of Regulatory Utility Commissioners v. F.C.C., 533 F.2d 601, 608 (1976) (NARUC II) citing Seamon v. Royal Indemity Co., 279 F.2d 737, 739 (5th Cir. 1960) and cases cited therein. While one may be a common carrier even though the nature of the service offered is of use to only a segment of the population, NARUC I, 525 F.2d at 641, "... a carrier will not be a common carrier where its practice is to make individualized decisions, in particular cases, whether and on what terms to deal." Id. At the same time, we recognize certain inadequacies of any definition of common carriage which is dependent entirely on the intentions of a service provider. Instead, as the Court's opinion in NARUC I acknowledges, an element which must also be considered is any agency determination to impose a legal compulsion to serve indifferently. NARUC I, 525 F.2d at 642. We have specifically imposed no such obligation with respect to enhanced service providers.
123. Even this definition of common carriage cannot be readily applied to vendors of enhanced services. Inherent in the offering of enhanced services is the ability of service providers to custom tailor their offerings to the particularized needs of their individual customers. Thus, such services can vary from customer to customer as "individualized decisions" are made as to how best to accommodate the processing needs of their various subscribers. Admittedly, vendors of enhanced services also have the ability, if they so desire, to provide these services on an indiscriminate basis. Presumably, some do. But "this is not a sufficient basis for imposing the burdens that go with common carrier status." NARUC I at 644. We cannot conclude that under the common law providers of these services are common carriers or that Congress intended that these services be regulated under our Title II of the Act. Indeed, to subject enhanced services to a common carrier scheme of regulation because of the presence of an indiscriminate
offering to the public would negate the dynamics of computer technology in this area. It would substantially affect not only the manner in which enhanced services are offered but also the ability of a vendor to more fully tailor the service to a given consumer's information processing needs.
124. This does not mean however that we are void of jurisdiction over enhanced services. Congress gave this agency the mandate "... to make available, so far as possible, to all people of the United States a rapid, efficient, nation-wide and world-wide wire and radio communication service with adequate facilities at reasonable charges ..." 47 U.S.C. § 151. In carrying out this mandate Congress made clear that the Commission's jurisdiction extends "... to all interstate and foreign communication by wire or radio ..." 47 U.S.C. § 152(a). The Act defines "communication by wire" and "communication by radio" as "... the transmission of writing, signs, signals, pictures and sounds of all kinds ... incidental to such transmission." 47 U.S.C. § 153(a) and (b). The statutory language of 47 U.S.C. § 152 confers on this agency broad subject matter jurisdiction. The Supreme Court has stated that this Commission was given "regulatory power over all forms of electrical communication ..." United States v. Southwestern Cable Co., 392 U.S. 157, 172 (1968), citing S. Rep. No. 781, 73d, long., 2d Sess., 1. See also GTE Service Corp., General Telephone Company of Southwestern v. U.S., 449 F.2d 846 (5th Cir. 1971); General Telephone Company of California v. FCC, 413 F.2d 390 (D.C. Cir.), cert. den., 396 U.S. 385 (1969).
125. Further, the Act was designed to provide the Commission with sufficiently elastic powers to readily accommodate new developments in the field of communications. In FCC v. Pottsville Broadcasting Co., the Supreme Court recognized the fluidity of this environment "... and of the corresponding requirement that the administrative process possess sufficient flexibility to adjust itself to these factors." 309 U.S. 134, 138 (1940). It has been held that the Act must be read as granting the Commission "a comprehensive mandate," with "not niggardly but expansive powers." National Broadcasting Co. v. United States, 319 U.S. 190, 219 (1943). See also United States v. Southwestern Cable Co., 392 U.S. 157 (1968); Philadelphia Television Broadcasting Co. v. FCC, 359 F.2d 282 (1966). Thus, Title II and Title III provide the principal regulatory forms of the Communications Act, but the Commission also has regulatory powers independent of Title II and Title III. United States v. Southwestern Cable Co., 319 U.S. at 172. Accordingly we find that the enhanced services under consideration in this proceeding constitute the electronic transmission of writing, signs, signals, pictures, etc., over the interstate telecommunications network and, as such, fall within the subject matter jurisdiction of this Commission.
126. Even though an activity falls within our subject matter jurisdiction, our ability to subject it to regulation is not without
constraints. The principal limitation upon, and guide for, the exercise of these additional powers which Congress has imparted to this agency is that Commission regulation must be directed at protecting or promoting a statutory purpose. In some instances, that means not regulating at all, especially if a problem does not exist. Home Box Office v. FCC 567 F.2d 9 (1977) cert. denied, 434 U.S. 829 (1977) (Commission's pay cable rules vacated, in the absence of evidence supporting the need for regulation). See also City of Chicago v. FPC, 458 F.2d 731, 742 (1971) cert. denied, 405 U.S. 1074 (1972) ("regulation perfectly reasonable and appropriate in the face of a given problem [is] highly capricious if that problem does not exist").
127. We have examined the extensive record in this proceeding to determine whether a comprehensive regulatory scheme for enhanced services is necessary to protect or promote some overall objective of the Communications Act. We find that it is not. Our decision here is an affirmation of the First Computer Inquiry where we refused to impose regulation upon data processing services, stating:
   In view of all of the foregoing evidence of an effective competitive situation, we see no need to assert regulatory authority over data processing services whether or not such services employ communication facilities in order to link the terminals of the subscribers to centralized computers. We believe the market for these services will continue to burgeon and flourish best in the existing competitive environment.
   We expect the competitive environment within which data processing services are now being offered to result in substantial public benefit by making available to the public, at reasonable charges, a wider range of existing and new data processing services. We believe that these expectations will continue to be realized in the free give-and-take of the market place without the need for and possible burden of rules, regulations and licensing requirements. First Computer Inquiry, Tentative Decision, 27 FCC 2d at 297-298. (emphasis added).
128. Nothing has transpired over the past decade which would lead us to alter these conclusions. On the contrary, we find that our perception of the market environment for these types of services was largely accurate. If anything, it was overly conservative as to the extent to which market applications of computer processing technology would evolve. Not only has there been an exponential growth in data information services for business purposes, but, as indicated above, the services are now being directed at residential consumers. The market is truly competitive. Experience gained from the competitive evolution of varied market applications of computer technology offered since the First Computer Inquiry compels us to conclude that regulation of enhanced services is simply unwarranted.
____________________ 44.↑ We recognize, of course, that occasional problems involving enhanced services could arise which would require us to invoke our subject matter jurisdiction and intervene. But we see no need to establish a comprehensive and burdensome regulatory scheme to deal with them. In our judgment, such matters can best be left for individual resolution.
45.↑ Under our Resale Decision the regulation of certain resale carriers (which may now be deregulated if they are only providing enhanced services) is a result of determinations as to the communication or data processing nature of these services pursuant to the definitional structure of the First Computer Inquiry (47 C.F.R. § 64.702). Because the communications/data processing boundary was being examined in this proceeding, the regulation of resale entities under Title II was contingent on the regulatory framework established here. See n. 42, supra. Accordingly, the prospect that some currently regulated resale entities might no longer be regulated under Title II has been recognized for some time.
129. In our judgment, regulation of enhanced communications services would limit the kinds of services an unregulated vendor could offer, restricting this fast-moving, competitive market. Regulation also would disserve the interest of consumers and the goals of the Communications Act. Expansion of regulation to cover or threaten to cover services and vendors that have not been regulated can not be sustained in the absence of an overriding statutory purpose. Even the continuation of regulatory policies when the justification for them no longer exists can not be sustained. As the U.S. Court of Appeals for the D.C. Circuit recently observed:
   Even assuming that the rules in question initially were justified ... it is plain that that justification has long since evaporated. The Commission's general rulemaking power is expressly confined to promulgation of regulations that serve the public interest. ... Even a statute depending for its validity upon a premise extant at the time of enactment may become invalid if subsequently that predicate disappears.
Geller v. FCC, 610 F.2d 973 at 980 (D.C. Cir. 1979) (footnote omitted.) See also HBO v. FCC, supra, That our current regulatory framework is no longer appropriate is clearly demonstrated by the fact that it serves as an artifical barrier to entry preventing many companies from offering other enhanced services as offshoots of their highly competitive data processing services. Many of these companies are now providing various enhanced services under the Commission's current computer rules free from Title II regulation; but they are, under the Commission's current regulatory approach, prohibited from expanding to other activities which are a natural outgrowth of these services.
130. We appreciate there can be disagreement as to the line we have drawn between basic and enhanced services. Plausible arguments can be tendered for drawing it elsewhere. At the margin, some enhanced services are not dramatically dissimilar from basic services or dramatically different from communications as defined in Computer Inquiry I. But any attempt to draw the line at this margin potentially could subject both the enhanced services providers and us to the prospect of literally hundreds of adjudications over the status of individual service offerings. We have noted the danger that such proceedings could lead to unpredictable or inconsistent regulatory definitions. See para. 107 supra. Such proceedings also could consume a very significant proportion of the resources of this agency. The requirement to devote significant resources to try to make individual service distinctions would necessarily reduce the resources available
for regulating basic services and ensuring non-discriminatory access to common carrier telecommunications facilities.
131. We have tried to draw the line in a manner which distinguishes wholly traditional common carrier activities, regulable under Title II of the Act, from historically and functionally competitive activities not congruent with the Act's traditional forms. We believe that the Communications Act and the jurisprudence which has grown up around it make it plain that Congress intended that substance not form govern the treatment of services within the Act's reach. We have acted upon that belief by applying traditional Title II regulatory mechanisms to basic services and applying no direct regulatory mechanism for enhanced services.
132. Finally, the nature of enhanced services and their market underscores the reasonableness of our decision. As indicated, we do not believe these are communications common carrier services within the meaning of Title II. We acknowledge, of course, the existence of a communications component. And we recognize that some enhanced services may do some of the same things that regulated communications services did in the past. On the other side, however, is the substantial data processing component in all these services. We never have imposed a scheme of regulation over data processing. Any agency regulatory decision in this area must assess the merits--as we do in this order--of extending regulation to an activity simply because a part of it is subject to the agency's jurisdiction where such regulation would not be necessary to protect or promote some overall statutory purpose. See HBO v. FCC, supra. We specifically reject any implication that in not regulating enhanced services under Title II we are abdicating our statutory responsibilities under the Act. FPC v. Texaco, Inc., 417 U.S. 380 (1974). On the contrary, we have specifically concluded that our goals under Section 1 of assuring a "... Nation-wide ... wire and radio communications service with adequate facilities at reasonable charges ..." will be more effectively promoted by relying upon our ancillary regulatory powers with respect to these emerging services. In exercising these ancillary powers, we can reasonably impose certain separate subsidiary requirements where required. We can also rely on the direct regulation we retain with respect to the independent provision of basic services. As we have stated basic services form one component of the charges for enhanced services--the remaining components of which are available from the competitive resources and capabilities of the data processing industry.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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