[Federal Register Volume 70, Number 197 (Thursday, October 13, 2005)]
[Rules and Regulations]
[Pages 59664-59675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20606]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[ET Docket No. 04-295; RM-10865; FCC 05-153]


Communications Assistance for Law Enforcement Act and Broadband 
Access and Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) adopts a rule establishing that providers of facilities-
based broadband Internet access services and providers of 
interconnected voice over Internet Protocol (VoIP) services--meaning 
VoIP service that allows a user generally to receive calls originating 
from and to terminate calls to the public switched telephone network 
(PSTN)--must comply with the Communications Assistance for Law 
Enforcement Act (CALEA). This new rule will enhance public safety and 
ensure that the surveillance needs of law enforcement agencies continue 
to be met as Internet-based communications technologies proliferate.

DATES: Effective Date: This rule is effective November 14, 2005.
    Compliance Date: Newly covered entities and providers of newly 
covered services must comply with CALEA within 18 months of November 
14, 2005.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Carol Simpson, Attorney-Advisor, 
Competition Policy Division, Wireline Competition Bureau, at (202) 418-
2391.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's First 
Report and Order (1st R&O) in ET Docket No. 04-295, FCC 05-153, adopted 
August 5, 2005, and released September 23, 2005. The complete text of 
this document is available for inspection and copying during normal 
business hours in the FCC Reference Information Center, Portals II, 445 
12th Street, SW., Room CY-A257, Washington, DC 20554. This document may 
also be purchased from the Commission's duplicating contractor, Best 
Copy and Printing, Inc., 445 12th Street, SW., Room CY-B402, 
Washington, DC 20554, telephone (800) 378-3160 or (202) 863-2893, 
facsimile (202) 863-2898, or via e-mail at http://www.bcpiweb.com. It 
is also available on the Commission's Web site at http://www.fcc.gov.

Synopsis of the First Report and Order

    1. Background. In response to concerns that emerging technologies 
such as digital and wireless communications were making it increasingly 
difficult for law enforcement agencies to execute authorized 
surveillance, Congress enacted CALEA on October 25, 1994. CALEA was 
intended to preserve the ability of law enforcement agencies to conduct 
electronic surveillance by requiring that telecommunications carriers 
and manufacturers of telecommunications equipment modify and design 
their equipment, facilities, and services to ensure that they have the 
necessary surveillance capabilities. The Commission began its 
implementation of CALEA with the release of a Notice of Proposed 
Rulemaking in 1997 (62 FR 63302, November 27, 1997). Since that time, 
the Commission has taken several actions and released numerous orders 
implementing CALEA's requirements.
    2. On March 10, 2004, the Department of Justice, the Federal Bureau 
of Investigation, and the Drug Enforcement Administration 
(collectively, DOJ) filed a petition asking the Commission to declare 
that broadband Internet access services and VoIP services are covered 
by CALEA. The Petition also requested that the Commission initiate a 
rulemaking proceeding to resolve, on an expedited basis, various 
outstanding issues associated with the implementation of CALEA. The 
Commission declined to issue a declaratory ruling, finding instead that 
it was necessary to compile a more complete record on the factual and 
legal issues surrounding the applicability of CALEA to broadband 
Internet access services and VoIP services, and thus issued a Notice of 
Proposed Rulemaking (NPRM) (69 FR 56976, September 23, 2004).
    3. The Commission initiated this proceeding both to undertake a 
comprehensive and thorough examination of the appropriate legal and 
policy framework of CALEA, and to respond to DOJ's Petition asking the 
Commission to seek comment on the various outstanding issues associated 
with the implementation of CALEA, including the potential applicability 
of CALEA to broadband Internet access services and VoIP services. The 
NPRM indicated that the Commission would analyze the applicability of 
CALEA to broadband Internet access services and VoIP services under 
section 102(8)(B)(ii), a provision of CALEA upon which the Commission 
had never before relied. That provision--the Substantial Replacement 
Provision (SRP)--requires the Commission to deem certain service 
providers to be telecommunications carriers for CALEA purposes even 
when those providers are not telecommunications carriers under the 
Communications Act of 1934, as amended (Communications Act). The NPRM 
indicated that the Commission had never before exercised its section 
102(8)(B)(ii) authority to identify additional entities that fall 
within CALEA's definition of ``telecommunications carrier,'' and had 
never before solicited comment on the discrete components of that 
subsection.
    4. The NPRM sought comment, among other things, on the Commission's 
tentative conclusions that: (1) Congress intended the scope of CALEA's 
definition of ``telecommunications carrier'' to be more inclusive than 
that of the Communications Act; (2) facilities-based providers of any 
type of broadband Internet access service are subject to CALEA; (3) 
``managed'' VoIP services are subject to CALEA; and (4) the phrase ``a 
replacement for a substantial portion of the local telephone exchange 
service'' in section

[[Page 59665]]

102 of CALEA calls for assessing the replacement of any portion of an 
individual subscriber's functionality previously provided via ``plain 
old telephone service'' (POTS).
    5. Discussion. In this 1st R&O, we interpret the SRP to cover 
facilities-based broadband Internet access and interconnected VoIP. Our 
analysis first interprets the SRP to establish a legal framework for 
assessing services under CALEA, explaining the basis for all statutory 
interpretations that inform this framework. Next, we apply this 
framework to providers of facilities-based broadband Internet access 
services and interconnected VoIP services. In each case, we find that 
these providers are subject to CALEA under the SRP. We then discuss the 
scope of our actions today and the relationship of these actions to the 
Commission's efforts to resolve a number of outstanding issues related 
to CALEA, such as assistance capability requirements, compliance, 
enforcement, identification of future services and entities subject to 
CALEA, and cost-related matters.
    6. Legal Framework. In this section, we explain how CALEA's SRP 
requires us to determine that some providers are subject to CALEA even 
if they are not telecommunications carriers as defined in the 
Communications Act. We further explain the relationship between the SRP 
and CALEA's exclusion for information services. Because the text of 
CALEA does not provide unambiguous direction, we consider the structure 
and history of the relevant provisions, including Congress's stated 
purposes, and interpret the statute in a manner that most faithfully 
implements Congress's intent. We conclude, as we indicated in the NPRM, 
that the terms ``telecommunications carrier'' and ``information 
services'' in CALEA cannot be interpreted identically to the way those 
terms have been interpreted under the Communications Act in light of 
the statutory text as well as Congress's intent and purpose in enacting 
CALEA.
    7. CALEA Definition of ``Telecommunications Carrier.'' We affirm 
our tentative conclusion that Congress intended the scope of CALEA's 
definition of ``telecommunications carrier'' to be more inclusive than 
the similar definition of ``telecommunications carrier'' in the 
Communications Act. Critically, while certain portions of the 
definition are the same in both statutes, CALEA's SRP ``has no 
analogue'' in the Communications Act, thus rendering CALEA's definition 
of ``telecommunications carrier'' broader than that found in the 
Communications Act. The SRP directs the Commission to deem certain 
providers to be telecommunications carriers for CALEA purposes, whether 
or not they satisfy the definition of telecommunications carrier in 
sections 102(8)(A) and 102(8)(B)(i). The SRP reflects Congress's intent 
to ``preserve the government's ability to * * * intercept 
communications that use advanced technologies such as digital or 
wireless transmission.'' Under the SRP, a telecommunications carrier is 
``a person or entity engaged in providing wire or electronic 
communication switching or transmission service to the extent that the 
Commission finds that such service is a replacement for a substantial 
portion of the local telephone exchange service and that it is in the 
public interest to deem such a person or entity to be a 
telecommunications carrier for purposes of [CALEA].''
    8. The SRP contains three components, each of which must be 
satisfied before the Commission can deem a person or entity a 
telecommunications carrier for purposes of CALEA. We address each of 
these components in turn. First, the SRP requires that an entity be 
``engaged in providing wire or electronic communication switching or 
transmission service.'' In the NPRM, we interpreted the term 
``switching'' in this phrase to include ``routers, softswitches, and 
other equipment that may provide addressing and intelligence functions 
for packet-based communications to manage and direct the communications 
along to their intended destinations.'' We affirm this reading of the 
statute, which has support in the record. We disagree with commenters 
who claim that the term ``switching'' as used by Congress in 1994 did 
not contemplate routers and softswitches, and thus suggest that the 
interpretation of this term must forever be limited to the function as 
it was commonly understood in 1994, namely circuit switching in the 
narrowband PSTN. Our decision today is reinforced by judicial precedent 
that has found CALEA to apply to certain packet-switched services. 
Moreover, limiting the interpretation of ``switching'' to circuit-
switched technology would effectively eliminate any ability the 
Commission may have to extend CALEA obligations under the SRP to 
service providers using advanced digital technologies, in direct 
contravention of CALEA's stated purpose.
    9. Second, the SRP requires that the service provided be ``a 
replacement for a substantial portion of the local telephone exchange 
service.'' We conclude that this requirement is satisfied if a service 
replaces any significant part of an individual subscriber's 
functionality previously provided via circuit-switched local telephone 
exchange service. This interpretation of an ambiguous statutory 
provision is most consistent with the language of section 
102(8)(B)(ii), the express purpose of CALEA, and its legislative 
history. Congress did not enact language consistent with an 
interpretation offered by some commenters that would require the 
widespread use of a service before the SRP may be triggered. Instead, 
the SRP's phrase ``substantial portion of the local telephone exchange 
service'' indicates that the appropriate test is a functional one. It 
is triggered when a service replaces a portion of traditional telephone 
service, i.e., all or some of the components, or functions, of the 
service. Because the statutory phrase includes the word 
``substantial,'' we will require the functions being replaced to be a 
significant or substantial function of traditional telephone service.
    10. As we explained in the NPRM, the legacy local telephone 
exchange network served two distinct purposes at the time CALEA was 
enacted: it provided POTS, which enabled customers to make telephone 
calls to other customers within a defined local service area; and it 
was the primary, if not the only, conduit (i.e., transmission facility) 
used to access many non-local exchange services such as long distance 
services, enhanced services, and the Internet. The legislative history 
indicates that Congress intended CALEA to cover both the ability to 
``make, receive and direct calls'' (i.e., the POTS functionality) and 
the transmission facilities that provide access to other services 
(i.e., the access conduit functionality). In 1994, this transmission 
function was commonly provided by dial-up Internet access, which shows 
that Congress did not mean to limit CALEA's scope to voice service 
alone. We therefore agree with DOJ that the language ``substantial 
portion of the local telephone exchange service'' includes both the 
POTS service and the transmission conduit functionality provided by 
local telephone exchange service in 1994. Commenters have not persuaded 
us otherwise.
    11. The SRP's third component requires that the Commission find 
that ``it is in the public interest to deem * * * a person or entity to 
be a telecommunications carrier for purposes of [CALEA]'' once that 
entity has met the first and second components of the SRP. We sought 
comment in the NPRM

[[Page 59666]]

on how to define the ``public interest'' for purposes of CALEA, as the 
statute does not explicitly define the term. We noted that the House 
Report specifically identified three factors for the Commission to 
consider, at a minimum, in making its public interest determination 
under the SRP: whether deeming an entity a telecommunications carrier 
would ``promote competition, encourage the development of new 
technologies, and protect public safety and national security.'' Based 
on the record before us, we conclude that it is appropriate to rely 
primarily on these three factors when making our public interest 
determination for purposes of the SRP. We find that consideration of 
these three factors balances the goals of competition and innovation 
with the needs of law enforcement.
    12. CALEA Definition of ``Information Services.'' As we explained 
in the NPRM, the treatment of information services under CALEA is 
different from the treatment such services have been afforded under the 
Communications Act. In keeping with the legislative history of the 
Communications Act, the Commission interprets that Act's definitions of 
``telecommunications service'' and ``information service'' to be 
mutually exclusive. Moreover, because the definition of 
``telecommunications service'' focuses on the character of a provider's 
``offering * * * to the public,'' the Commission has concluded that the 
classification of a particular service as a telecommunications service 
or an information services ``turns on the nature of the functions that 
the end user is offered.'' Additionally, the Communications Act's 
definition of ``telecommunications'' ``only includes transmissions that 
do not alter the form or content of the information sent,'' a 
definition that the Commission has found to exclude Internet access 
services, which ``alter the format of information through computer 
processing applications.'' For these reasons, the Commission has 
concluded that a single entity offering an integrated service combining 
basic telecommunications transmission with certain enhancements, 
specifically ``capabilities for generating, acquiring, storing, 
transforming, processing, retrieving, utilizing, or making available 
information,'' offers only an information service, and not a 
telecommunications service, for purposes of the Communications Act if 
the telecommunications and information services are sufficiently 
intertwined. In other words, the Commission does not recognize the 
telecommunications component of an information service as a 
telecommunications service under the Communications Act.
    13. In contrast with the Communications Act, CALEA does not define 
or utilize the term ``telecommunications service,'' it does not adopt 
the Communications Act's narrow definition of ``telecommunications,'' 
and it does not construct a definitional framework in which the 
regulatory treatment of an integrated service depends on its 
classification into one of two mutually exclusive categories, i.e., 
telecommunications service or information service. As a result, 
structural and definitional features of the Communications Act that 
play a critical role in drawing the Act's regulatory dividing line 
between telecommunications service and information service, and that 
undergird the Commission's resulting classification of integrated 
broadband Internet access service as solely an information service for 
purposes of the Communications Act, are absent from CALEA. Unlike the 
Communications Act, CALEA's ``overall statutory scheme'' does not 
require the Commission to classify an integrated service offering as 
solely a telecommunications service or solely an information service 
depending on ``the nature of the functions that the end user is 
offered,'' and thus the classification of broadband Internet access 
services under the Communications Act is not controlling under CALEA.
    14. The text of the ``information services'' definition is entirely 
consistent with this interpretive approach. CALEA defines ``information 
services'' as the offering of a capability for manipulating and storing 
information ``via telecommunications,'' but the statutory definition 
does not resolve the question whether the telecommunications 
functionality used to access that capability itself falls within the 
information service category. Under the Communications Act's similar 
definition of information service, we have resolved that ambiguity by 
concluding that the telecommunications component of an integrated 
information service offering falls within the information service 
category, but that result is not compelled by the text of CALEA, and 
thus the Act leaves the Commission free to resolve the definitional 
ambiguity as appropriate in light of CALEA's purposes and the public 
interest, without being bound by the approach followed under the 
Communications Act.
    15. We also reach that same conclusion by a separate, and 
independent, route. CALEA excludes from its definition of 
telecommunications carrier ``persons or entities insofar as they are 
engaged in providing information services,'' and the definition of 
information services in CALEA is similar to the definition in the 
Communications Act. The SRP, however, adds a third category of services 
to the mix. A provider of communication switching or transmission 
service that is not a telecommunications service under the 
Communications Act is nonetheless deemed to be a telecommunications 
carrier under CALEA if the Commission finds that the service replaces a 
substantial portion of local telephone exchange service and it is in 
the public interest to treat the provider as a telecommunications 
carrier. To give significance to the SRP, this new category of services 
must include some aspects of services that may be ``information 
services'' under the Communications Act. An ``irreconcilable tension'' 
would occur if the Commission rendered Congress's deliberate extension 
of CALEA's requirements to providers satisfying the SRP insignificant 
by simply applying its Communications Act interpretation of 
``information services'' to CALEA. Consequently, to resolve that 
tension in a manner that the Commission determines best reflects 
Congressional intent under CALEA as well as the text of the statute, a 
service classified as an ``information service'' under the 
Communications Act may not, in all respects, be classified as an 
``information service'' under CALEA.
    16. In addition to constituting the most reasonable construction of 
the statutory text, this conclusion is further bolstered by an 
examination of the legislative history. The House Report's discussion 
of information services and information service providers for CALEA 
purposes pertains only to the enhancements to the transmission 
capability underlying the service, that is, the computing capabilities 
that transform the service from a ``telecommunications service'' under 
the Communications Act and the corresponding Commission rules into an 
``information service.'' For example, in discussing privacy concerns 
and the scope of CALEA, the House Report indicates that ``electronic 
mail providers, on-line service providers, and Internet service 
providers are not subject to CALEA.'' The House Report goes on to 
indicate, however, that while the storage of an e-mail message falls 
within CALEA's Information Services Exclusion, the transmission of an 
e-mail

[[Page 59667]]

message is subject to CALEA. Similarly, the House Report indicates that 
a portion of voice mail service is also covered by CALEA: ``the 
`redirection' of a voice mail message is covered by CALEA, while the 
storage of the message is not.'' If an information service for purposes 
of CALEA mirrored the definition and treatment of an information 
service under the Communications Act, CALEA would never have been able 
to reach the transmission of all e-mails or voice mails even when CALEA 
was enacted.
    17. That conclusion is further supported by CALEA's structure. 
CALEA establishes a general rule that telecommunications carriers 
(including those covered by the SRP) are subject to CALEA's assistance 
capability requirements. Information services are an exception to that 
general rule. It is a well recognized principle of statutory 
construction that ``[w]here a general provision in a statute has 
certain limited exceptions, all doubts should be resolved in favor of 
the general provision rather than the exceptions.'' Accordingly, it is 
appropriate to give the Information Services Exclusion a narrow 
construction in order to give full effect to CALEA's general rule.
    18. We thus find that the classification of a service as an 
information service under the Communications Act does not necessarily 
compel a finding that the service falls within CALEA's Information 
Service Exclusion. Decisions about the applicability of CALEA must be 
based on CALEA's definitions alone, not on the definitions in the 
Communications Act. Equally important, the classification of a service 
provider as a telecommunications carrier under CALEA's SRP does not 
limit the Commission's options for classifying that provider or service 
under the Communications Act. In the sections below, we apply this 
legal framework to providers of facilities-based broadband Internet 
access and interconnected VoIP services.
    19. Applicability of CALEA to Broadband Internet Access Services. 
In this section, we find that facilities-based providers of any type of 
broadband Internet access service, including but not limited to 
wireline, cable modem, satellite, wireless, fixed wireless, and 
broadband access via powerline are subject to CALEA. In finding these 
providers to be subject to CALEA under the SRP, we reiterate that we do 
not disturb the Commission's prior decisions that CALEA unambiguously 
applies to all ``common carriers offering telecommunications services 
for sale to the public,'' as so classified under the Communications 
Act. Thus, to the extent that any facilities-based broadband Internet 
access service provider chooses to offer such service on a common 
carrier basis, that provider is subject to CALEA pursuant to section 
102(8)(A), the Common Carrier Provision.
    20. Applying the legal framework set forth above, we determine that 
facilities-based broadband Internet access providers satisfy each of 
the three prongs of the SRP: (1) They are providing a switching or 
transmission functionality; (2) this functionality is a replacement for 
a substantial portion of the local telephone exchange service, 
specifically, the portion used for dial-up Internet access; and (3) 
public interest factors weigh in favor of subjecting broadband Internet 
access services to CALEA.
    21. Broadband Internet Access Service Providers Are 
``Telecommunications Carriers'' Under CALEA: Broadband Internet Access 
Service Includes Switching or Transmission. We find that facilities-
based broadband Internet access service providers are ``engaged in 
providing wire or electronic communication switching or transmission 
service'' and therefore meet the first prong of the SRP. As discussed 
above, we interpret the ``switching or transmission'' component of the 
SRP broadly to capture not only transmission or transport capabilities, 
but also new packet-based equipment and functionalities that direct 
communications to their intended destinations. No commenter suggests 
that facilities-based broadband Internet access providers do not 
provide a transmission or transport function. Indeed, commenters 
providing broadband Internet access service today describe the 
underlying transport component of their service as ``switching and 
forwarding data.''
    22. Broadband Internet Access Service Replaces a Substantial 
Portion of the Local Telephone Exchange Service. We next conclude that 
facilities-based broadband Internet access service providers provide a 
replacement for a substantial portion of the local telephone exchange 
service, specifically, the portion of local telephone exchange service 
that provides subscribers with dial-up Internet access capability. 
Broadband Internet access service unquestionably ``replaces'' a portion 
of the functionality that the traditional local telephone exchange 
service provides--namely, the ability to access the Internet. CALEA's 
legislative history supports our conclusion that broadband Internet 
access service was intended to be covered by CALEA, as are both dial-up 
and common carrier DSL transport services. That history explains the 
distinction between the portion of e-mail service that was subject to 
CALEA (a service that was accessible only over the Internet) and the 
portion that was not. The only way that the ``transmission of an E-mail 
message'' could have been captured under CALEA in 1994 was through the 
dial-up facilities and capabilities of narrowband local telephone 
exchange service. Thus, to the extent that dial-up capabilities are 
``replaced'' today by broadband Internet access service, we ensure that 
the ``transmission of an E-mail message'' continues to be subject to 
CALEA by finding that the SRP covers the transmission component of 
broadband Internet access service.
    23. Public Interest Factors Weigh in Favor of Subjecting Broadband 
Internet Access Service to CALEA. We further find that it is in the 
public interest to deem facilities-based broadband Internet access 
service providers to be ``telecommunications carriers'' for purposes of 
CALEA under the SRP. The public interest factors that we consider in 
reaching this determination--the effect on competition, the development 
and provision of new technologies and services, and public safety and 
national security--on balance, support this finding.
    24. One of the cornerstones of the Commission's broadband policy is 
achieving the goal of developing a consistent regulatory framework 
across all broadband platforms by treating providers in the same manner 
with respect to broadband services providing similar functionality. 
Because all facilities-based providers of broadband Internet access 
services will be covered by CALEA, our finding today will have no 
skewing effect on competition. In addition, covering all broadband 
Internet access service providers prevents migration of criminal 
activity onto less regulated platforms.
    25. We further determine that our actions today will not hinder the 
development of new services and technologies. While our action today 
brings much needed certainty to the application of CALEA to the 
development of new services and technologies, it does not favor any 
particular technology over another. Furthermore, nothing in this item 
will substantially change the deployment incentives currently faced by 
providers. Broadband Internet access service providers today are 
already subject to a number of electronic surveillance statutes that 
compel their cooperation with law enforcement agencies. In

[[Page 59668]]

addition, it has been over a year since the Commission issued its 
tentative conclusion that broadband Internet access service providers 
would be covered by CALEA. During that time, we have seen an increase 
in broadband build-out, undermining any arguments that development of 
these systems would be stifled. In contrast, many commenters have 
indicated they are currently cooperating with law enforcement agencies 
to provide CALEA-like capabilities today.
    26. The overwhelming importance of CALEA's assistance capability 
requirements to law enforcement efforts to safeguard homeland security 
and combat crime weighs heavily in favor of the application of CALEA 
obligations to all facilities-based broadband Internet access service 
providers. It is clearly not in the public interest to allow terrorists 
and criminals to avoid lawful surveillance by law enforcement agencies 
by using broadband Internet access services as a substitute for dial-up 
service.
    27. Finally, in finding CALEA's SRP to cover facilities-based 
providers of broadband Internet access service, we conclude that 
establishments that acquire broadband Internet access service from a 
facilities-based provider to enable their patrons or customers to 
access the Internet from their respective establishments are not 
considered facilities-based broadband Internet access service providers 
subject to CALEA under the SRP. We note, however, that the provider of 
underlying facilities to such an establishment would be subject to 
CALEA, as discussed above. Furthermore, providers of Personal Area 
Networks (e.g., cordless phones, PDAs, home gateways) are not intended 
to be covered by our actions today. We find that these services are 
akin to private networks, which are excluded from CALEA requirements.
    28. CALEA's Information Services Exclusion Does Not Apply to 
Broadband Internet Access Providers. We find that providers of 
broadband Internet access service are not relieved of CALEA obligations 
as a result of CALEA's Information Services Exclusion. As we have 
noted, our interpretation of the term information services in CALEA 
differs from our interpretation of that term in the Communications Act. 
Thus, the fact that broadband Internet access service may be classified 
as an information service under the Communications Act does not 
determine its classification for CALEA purposes. The appropriate focus 
of our analysis must be on the meaning of the term in CALEA, and for 
that, as we have explained, we look to the text of CALEA and its 
legislative history for guidance. As noted above, the legislative 
history indicates that under CALEA, telecommunications components are 
separable for regulatory purposes from information service components 
within a single service.
    29. Our interpretation of the relationship between information 
services under the Communications Act and the Information Services 
Exclusion under CALEA does not eviscerate the Information Services 
Exclusion, as certain commenters claim. Rather, this approach gives 
meaning to the Information Services Exclusion, as intended by Congress, 
while reconciling the fact that Congress included the SRP specifically 
to empower the Commission to bring services such as broadband Internet 
access within CALEA's reach if appropriate. A facilities-based 
broadband Internet access service provider continues to have no CALEA 
obligations with respect to, for example, the storage functions of its 
e-mail service, its web-hosting and DNS lookup functions or any other 
ISP functionality of its Internet access service. It is only the 
``switching and transmission'' component of its service that is subject 
to CALEA under our finding today.
    30. Applicability of CALEA to VoIP Services. We conclude that CALEA 
applies to providers of ``interconnected VoIP services,'' which include 
those VoIP services that: (1) Enable real-time, two-way voice 
communications; (2) require a broadband connection from the user's 
location; (3) require IP-compatible customer premises equipment; and 
(4) permit users to receive calls from and terminate calls to the PSTN. 
We find that providers of interconnected VoIP services satisfy CALEA's 
definition of ``telecommunications carrier'' under the SRP and that 
CALEA's Information Services Exclusion does not apply to interconnected 
VoIP services. To be clear, a service offering is ``interconnected 
VoIP'' if it offers the capability for users to receive calls from and 
terminate calls to the PSTN; the offering is covered by CALEA for all 
VoIP communications, even those that do not involve the PSTN. 
Furthermore, the offering is covered regardless of how the 
interconnected VoIP provider facilitates access to and from the PSTN, 
whether directly or by making arrangements with a third party.
    31. In reaching our conclusion, we abandon the distinction the NPRM 
drew between ``managed'' and ``non-managed'' VoIP services as the 
dividing line between VoIP services that are covered by CALEA and those 
that are not. The record has overwhelmingly convinced us that this 
distinction is unadministrable; even DOJ expressed an openness to a 
different way of identifying those VoIP services that CALEA covers. We 
find that using ``interconnected VoIP services'' to define the category 
of VoIP services that are covered by CALEA provides a clearer, more 
easily identifiable distinction that is consistent with recent 
Commission orders addressing the appropriate regulatory treatment of 
IP-enabled services. Interconnected VoIP services today include many of 
the types of VoIP offerings that DOJ's Petition indicates should be 
covered by CALEA, and is thus responsive to DOJ's needs at this time.
    32. Interconnected VoIP Providers Are ``Telecommunications 
Carriers'' Under CALEA: Interconnected VoIP Includes Switching or 
Transmission. We find that providers of interconnected VoIP satisfy the 
three prongs of the SRP under CALEA's definition of 
``telecommunications carrier.'' First, these providers are ``engaged in 
providing wire or electronic communication switching or transmission 
services.'' As we have explained, we interpret the term ``switching'' 
in the CALEA definition of ``telecommunications carrier'' to include 
``routers, softswitches, and other equipment that may provide 
addressing and intelligence functions for packet-based communications 
to manage and direct the communications along to their intended 
destinations.'' Interconnected VoIP service providers use these 
technologies to enable their subscribers to make, receive, and direct 
calls. The record reflects that any VoIP provider that is 
interconnected to the PSTN ``must necessarily'' use a router or other 
server to do so. Thus, even VoIP providers that do not own their own 
underlying transmission facilities nonetheless are engaged in providing 
``switching'' services to their customers.
    33. Interconnected VoIP Replaces a Substantial Portion of the Local 
Telephone Exchange Service. Second, interconnected VoIP satisfies the 
``replacement for a substantial portion of the local telephone exchange 
service'' prong of the SRP because it replaces the legacy POTS service 
functionality of traditional local telephone exchange service. As we 
explained in our recent VoIP E911 Order (70 FR 37273, June 29, 2005), 
customers who purchase interconnected VoIP service receive a service 
that ``enables a customer to do everything (or nearly everything) the 
customer could do using an analog telephone.'' We determine that a 
service

[[Page 59669]]

that is increasingly used to replace analog voice service is exactly 
the type of service that Congress intended the SRP to reach.
    34. Public Interest Factors Weigh in Favor of Subjecting 
Interconnected VoIP Providers to CALEA. Finally, we find that it is in 
the public interest to deem an interconnected VoIP service provider a 
telecommunications carrier for purposes of CALEA. In reaching this 
conclusion, we examine the three prongs of the public interest analysis 
that the NPRM proposed to consider: promotion of competition, 
encouragement of the development of new technologies, and protection of 
public safety and national security. These three factors compel a 
finding that CALEA should apply to interconnected VoIP. First, our 
finding today will not have a deleterious effect on competition because 
all providers of interconnected VoIP will be covered by CALEA. Singling 
out certain technologies or categories of interconnected VoIP providers 
would be more harmful to competition than applying CALEA requirements 
to all providers of interconnected VoIP services, as we do today. 
Second, we are confident that our decision today will not discourage 
the development of new technologies and services. Interconnected VoIP 
providers are already obligated to cooperate with law enforcement 
agencies under separate electronic surveillance laws. We have seen no 
evidence that these requirements have deterred the development of new 
VoIP technologies and services in the period of time since the 
Commission issued its tentative conclusion that some types of VoIP 
service are covered by CALEA. Instead, we have seen an increasing 
effort on the part of many interconnected VoIP providers to develop 
CALEA capabilities, and the record indicates that VoIP providers are 
already modifying their operations to ensure that they are able to 
comply with CALEA. Industry solutions appear to be readily available. 
Finally, the protection of public safety and national security compels 
us to apply CALEA to interconnected VoIP service providers. Excluding 
interconnected VoIP from CALEA coverage could significantly undermine 
law enforcement's surveillance efforts. Further, broadband Internet 
access providers alone might not have reasonable access to all of the 
information that law enforcement needs. Specifically, call management 
information (such as call forwarding and conference call features) and 
call set-up information (such as real-time speed dialing information 
and post-dial digit extraction information) are unlikely to be 
reasonably available to a broadband Internet access provider. The 
record thus indicates that the broadband Internet access provider and 
the interconnected VoIP provider must both be covered by CALEA in order 
to ensure that law enforcement agencies' surveillance needs are met.
    35. CALEA's Information Services Exclusion Does Not Apply to 
Interconnected VoIP. We find that interconnected VoIP service is not 
subject to the Information Services Exclusion in CALEA. The regulatory 
classification of interconnected VoIP under the Communications Act is 
not determinative with regard to this inquiry. Indeed, the Commission 
has yet to determine the statutory classification of providers of 
interconnected VoIP for purposes of the Communications Act, but nowhere 
does CALEA require such a determination before analyzing a service 
provider under the SRP. Instead, the appropriate focus is on the 
meaning of the term in CALEA. As we have explained, CALEA's legislative 
history contains much discussion of ``information services,'' but not 
once did Congress contemplate that any type of voice service would fall 
into that category. Most significantly, Congress explicitly 
distinguished between ``information services'' that are not covered by 
CALEA and ``services or facilities that enable the subscriber to make, 
receive or direct calls,'' which are covered. Congress intended the 
capability to make what appear to the consumer to be ordinary voice 
calls--regardless of the technology involved--to fall outside the 
category of excluded information services under CALEA.
    36. Scope of Commission Action. Our action in this 1st R&O is 
limited to establishing that CALEA applies to facilities-based 
broadband Internet access providers and interconnected VoIP service 
providers. The NPRM raised important questions regarding the ability of 
broadband Internet access providers and VoIP providers to provide all 
of the capabilities that are required by section 103 of CALEA, 
including what those capability requirements mean in a broadband 
environment. The NPRM also sought comment on a variety of issues 
relating to identification of future services and entities subject to 
CALEA, compliance extensions, cost recovery, and enforcement. We will 
address all of these matters in a future order. Because we acknowledge 
that providers need a reasonable amount of time to come into compliance 
with all relevant CALEA requirements, we establish a deadline of 18 
months from the effective date of this 1st R&O, by which time newly 
covered entities and providers of newly covered services must be in 
full compliance.

Final Paperwork Reduction Act Analysis

    37. This document does not contain proposed information 
collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. In addition, therefore, it does not contain any new 
or modified ``information collection burden for small business concerns 
with fewer than 25 employees,'' pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4).

Final Regulatory Flexibility Certification

    38. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the NPRM in this proceeding. The Commission sought 
written public comment on the proposals in the NPRM, including comment 
on the IRFA. This Final Regulatory Flexibility Certification (FRFC) is 
limited to the matters raised in the NPRM relating to the applicability 
of CALEA to providers of broadband Internet access services and VoIP 
services. The present FRFC addresses comments on the IRFA concerning 
only those issues and conforms to the RFA.

1. Need for, and Objectives of, the Rules

    39. Advances in technology, most notably the introduction of 
digital transmission and processing techniques and the proliferation of 
wireless and Internet services such as broadband Internet access 
services and VoIP, have challenged the ability of the law enforcement 
agencies (LEAs) to conduct lawful surveillance. In light of these 
difficulties, the Department of Justice, the Federal Bureau of 
Investigation, and the Drug Enforcement Administration (collectively, 
DOJ) filed a joint petition for expedited rulemaking in March 2004. In 
its petition, DOJ asked the Commission immediately to declare that 
broadband Internet access services and VoIP services are covered by 
CALEA.
    40. In this 1st R&O, we conclude that facilities-based broadband 
Internet access providers and providers of interconnected VoIP service 
are subject to CALEA as telecommunications carriers under CALEA's 
Substantial Replacement Provision (SRP). Because we acknowledge that 
providers need a reasonable amount of time to come into compliance with 
all relevant CALEA

[[Page 59670]]

requirements, we establish a deadline of 18 months from the effective 
date of the 1st R&O, by which time newly covered entities and providers 
of newly covered services must be in full compliance. This 1st R&O is 
the first critical step needed to apply CALEA obligations to new 
technologies and services that are increasingly relied upon by the 
American public to meet their communications needs.

2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    41. In this section, we respond to commenters who filed directly in 
response to the IRFA. To the extent we received comments raising 
general small business concerns during this proceeding, those comments 
are discussed throughout the 1st R&O and are also summarized in part E, 
below.
    42. The Office of Advocacy, U.S. Small Business Administration 
(SBA) and the National Telecommunications Cooperative Association 
(NTCA) filed comments directly in response to the IRFA. We note that 
both commenters raise various concerns about issues that were raised in 
the NPRM in this proceeding but are not addressed in this 1st R&O. In 
this FRFC, we address their comments only to the extent that they 
relate to the applicability of CALEA's SRP to broadband Internet access 
and VoIP service, as all other concerns will be addressed in the 
subsequent order.
    43. We reject SBA's argument that the Commission failed to analyze 
the compliance requirements and impacts on small carriers in the IRFA. 
The SBA argues that this failure made it difficult for small entities 
to comment on possible ways to minimize any impact. Although the 
Commission did not list the exact costs, in the NPRM we identified all 
the potential carriers that may be required to be CALEA compliant under 
the SRP, described in great detail what these carriers would be 
required to do if they were subject to CALEA, and requested comment on 
how the Commission could address the needs of small businesses. Indeed, 
far from discouraging small entities from participating, the NPRM 
elicited extensive comment on issues affecting small businesses. 
Therefore, we believe that small entities received sufficient notice of 
the implications of CALEA compliance addressed in today's 1st R&O, and 
a revised IRFA is not necessary.
    44. We also reject NTCA and SBA's contention that the Commission 
failed to include in the IRFA significant alternatives to minimize 
burdens on small entities. First, NTCA argues that the Commission 
failed to identify in the IRFA that small entities may be exempted 
under the SRP's public interest clause. In the NPRM, however, we asked 
for comment as to whether there are discrete groups of entities for 
which the public interest may not be served by including them under the 
SRP. We noted that small businesses that provide wireless broadband 
Internet access to rural areas may be one example of such a discrete 
group. In response to the NPRM, several small carriers filed comments 
claiming that the public interest would not be served by subjecting 
these providers to CALEA under the SRP. Second, SBA claims the 
Commission failed to identify in the IRFA the option of granting an 
extended transition period for small carriers. In the NPRM, however, we 
specifically invited comment from all entities on the appropriate 
amount of time to give newly covered entities to comply with CALEA. 
While we recognize that we did not specifically list in the IRFA the 
potential exclusion of small businesses under the SRP's public interest 
clause or the option of extending the time period for small carriers, 
the IRFA in this proceeding combined with the NPRM appropriately 
identified all the ways in which the Commission could lessen the 
regulatory burdens on small businesses in compliance with our RFA 
obligations.

3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply

    45. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the NPRM in this proceeding. The Commission sought 
written public comment on the proposals in the NPRM, including comment 
on the IRFA. This present FRFC is limited to the matters raised in the 
NPRM relating to the applicability of Communications Assistance for Law 
Enforcement Act (CALEA) to providers of broadband Internet access 
services and VoIP services. The present FRFC addresses comments on the 
IRFA concerning only those issues and conforms to the RFA.
a. Telecommunications Service Entities
    46. Wireline Carriers and Service Providers. We have included small 
incumbent local exchange carriers in this present RFA analysis. As 
noted above, a ``small business'' under the RFA is one that, inter 
alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent local 
exchange carriers are not dominant in their field of operation because 
any such dominance is not ``national'' in scope. We have therefore 
included small incumbent local exchange carriers in this RFA analysis, 
although we emphasize that this RFA action has no effect on Commission 
analyses and determinations in other, non-RFA contexts.
    47. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The appropriate 
size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,303 carriers have reported that they are engaged in the 
provision of incumbent local exchange services. Of these 1,303 
carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small businesses 
that may be affected by our action. In addition, limited preliminary 
census data for 2002 indicate that the total number of wired 
communications carriers increased approximately 34 percent from 1997 to 
2002.
    48. Competitive Local Exchange Carriers, Competitive Access 
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other 
Local Service Providers.'' Neither the Commission nor the SBA has 
developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the 
category Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 769 carriers have reported that they are engaged in 
the provision of either competitive access provider services or 
competitive local exchange carrier services. Of these 769 carriers, an 
estimated 676 have 1,500 or fewer employees and 93 have more than 1,500 
employees. In addition, 12 carriers have reported that they are 
``Shared-Tenant Service Providers,'' and all 12 are estimated to have 
1,500 or fewer employees. In addition, 39 carriers have reported that 
they are ``Other Local Service Providers.'' Of the 39, an estimated 38 
have 1,500 or fewer employees and one has more than 1,500 employees. 
Consequently, the

[[Page 59671]]

Commission estimates that most providers of competitive local exchange 
service, competitive access providers, ``Shared-Tenant Service 
Providers,'' and ``Other Local Service Providers'' are small entities 
that may be affected by our action. In addition, limited preliminary 
census data for 2002 indicate that the total number of wired 
communications carriers increased approximately 34 percent from 1997 to 
2002.
    49. Payphone Service Providers (PSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
payphone services providers. The appropriate size standard under SBA 
rules is for the category Wired Telecommunications Carriers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 654 carriers have reported 
that they are engaged in the provision of payphone services. Of these, 
an estimated 652 have 1,500 or fewer employees and two have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of payphone service providers are small entities that may be 
affected by our action. In addition, limited preliminary census data 
for 2002 indicate that the total number of wired communications 
carriers increased approximately 34 percent from 1997 to 2002.
    50. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
providers of interexchange services. The appropriate size standard 
under SBA rules is for the category Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 316 carriers have 
reported that they are engaged in the provision of interexchange 
service. Of these, an estimated 292 have 1,500 or fewer employees and 
24 have more than 1,500 employees. Consequently, the Commission 
estimates that the majority of IXCs are small entities that may be 
affected by our action. In addition, limited preliminary census data 
for 2002 indicate that the total number of wired communications 
carriers increased approximately 34 percent from 1997 to 2002.
    51. Operator Service Providers (OSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
operator service providers. The appropriate size standard under SBA 
rules is for the category Wired Telecommunications Carriers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 23 carriers have reported that 
they are engaged in the provision of operator services. Of these, an 
estimated 20 have 1,500 or fewer employees and three have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of OSPs are small entities that may be affected by our action. 
In addition, limited preliminary census data for 2002 indicate that the 
total number of wired communications carriers increased approximately 
34 percent from 1997 to 2002.
    52. Prepaid Calling Card Providers. Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
prepaid calling card providers. The appropriate size standard under SBA 
rules is for the category Telecommunications Resellers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 89 carriers have reported that they are 
engaged in the provision of prepaid calling cards. Of these, 88 are 
estimated to have 1,500 or fewer employees and one has more than 1,500 
employees. Consequently, the Commission estimates that all or the 
majority of prepaid calling card providers are small entities that may 
be affected by our action.
    53. Wireless Telecommunications Service Providers. Below, for those 
services subject to auctions, we note that, as a general matter, the 
number of winning bidders that qualify as small businesses at the close 
of an auction does not necessarily represent the number of small 
businesses currently in service. Also, the Commission does not 
generally track subsequent business size unless, in the context of 
assignments or transfers, unjust enrichment issues are implicated.
    54. Wireless Service Providers. The SBA has developed a small 
business size standard for wireless firms within the two broad economic 
census categories of ``Paging'' and ``Cellular and Other Wireless 
Telecommunications.'' Under both SBA categories, a wireless business is 
small if it has 1,500 or fewer employees. For the census category of 
Paging, Census Bureau data for 1997 show that there were 1,320 firms in 
this category, total, that operated for the entire year. Of this total, 
1,303 firms had employment of 999 or fewer employees, and an additional 
17 firms had employment of 1,000 employees or more. Thus, under this 
category and associated small business size standard, the majority of 
firms can be considered small. For the census category Cellular and 
Other Wireless Telecommunications, Census Bureau data for 1997 show 
that there were 977 firms in this category, total, that operated for 
the entire year. Of this total, 965 firms had employment of 999 or 
fewer employees, and an additional 12 firms had employment of 1,000 
employees or more. Thus, under this second category and size standard, 
the majority of firms can, again, be considered small. In addition, 
limited preliminary census data for 2002 indicate that the total number 
of paging providers decreased approximately 51 percent from 1997 to 
2002. In addition, limited preliminary census data for 2002 indicate 
that the total number of cellular and other wireless telecommunications 
carriers increased approximately 321 percent from 1997 to 2002.
    55. Cellular Licensees. The SBA has developed a small business size 
standard for wireless firms within the broad economic census category 
``Cellular and Other Wireless Telecommunications.'' Under this SBA 
category, a wireless business is small if it has 1,500 or fewer 
employees. For the census category Cellular and Other Wireless 
Telecommunications firms, Census Bureau data for 1997 show that there 
were 977 firms in this category, total, that operated for the entire 
year. Of this total, 965 firms had employment of 999 or fewer 
employees, and an additional 12 firms had employment of 1,000 employees 
or more. Thus, under this category and size standard, the great 
majority of firms can be considered small. Also, according to 
Commission data, 437 carriers reported that they were engaged in the 
provision of cellular service, Personal Communications Service (PCS), 
or Specialized Mobile Radio (SMR) Telephony services, which are placed 
together in the data. We have estimated that 260 of these are small, 
under the SBA small business size standard.
    56. Common Carrier Paging. The SBA has developed a small business 
size standard for wireless firms within the broad economic census 
category, ``Cellular and Other Wireless Telecommunications.'' Under 
this SBA category, a wireless business is small if it has 1,500 or 
fewer employees. For the census category of Paging, Census Bureau data 
for 1997 show that there were 1,320 firms in this category, total, that 
operated for the entire year. Of this total, 1,303 firms had employment 
of 999 or fewer employees, and an additional 17 firms had employment of 
1,000 employees or more. Thus, under this category and associated small 
business size standard, the majority of

[[Page 59672]]

firms can be considered small. In the Paging Third Report and Order, we 
developed a small business size standard for ``small businesses'' and 
``very small businesses'' for purposes of determining their eligibility 
for special provisions such as bidding credits and installment 
payments. A ``small business'' is an entity that, together with its 
affiliates and controlling principals, has average gross revenues not 
exceeding $15 million for the preceding three years. Additionally, a 
``very small business'' is an entity that, together with its affiliates 
and controlling principals, has average gross revenues that are not 
more than $3 million for the preceding three years. The SBA has 
approved these small business size standards. An auction of 
Metropolitan Economic Area licenses commenced on February 24, 2000, and 
closed on March 2, 2000. Of the 985 licenses auctioned, 440 were sold. 
Fifty-seven companies claiming small business status won. Also, 
according to Commission data, 375 carriers reported that they were 
engaged in the provision of paging and messaging services. Of those, we 
estimate that 370 are small, under the SBA-approved small business size 
standard.
    57. Wireless Communications Services. This service can be used for 
fixed, mobile, radiolocation, and digital audio broadcasting satellite 
uses. The Commission established small business size standards for the 
Wireless Communications Services (WCS) auction. A ``small business'' is 
an entity with average gross revenues of $40 million for each of the 
three preceding years, and a ``very small business'' is an entity with 
average gross revenues of $15 million for each of the three preceding 
years. The SBA has approved these small business size standards. The 
Commission auctioned geographic area licenses in the WCS service. In 
the auction, there were seven winning bidders that qualified as ``very 
small business'' entities, and one that qualified as a ``small 
business'' entity.
    58. Wireless Telephony. Wireless telephony includes cellular, 
Personal Communications Services (PCS), and Specialized Mobile Radio 
(SMR) telephony carriers. As noted earlier, the SBA has developed a 
small business size standard for ``Cellular and Other Wireless 
Telecommunications'' services. Under that SBA small business size 
standard, a business is small if it has 1,500 or fewer employees. 
According to Commission data, 437 carriers reported that they were 
engaged in the provision of wireless telephony. We have estimated that 
260 of these are small under the SBA small business size standard.
    59. Broadband Personal Communications Service. The broadband 
Personal Communications Service (PCS) spectrum is divided into six 
frequency blocks designated A through F, and the Commission has held 
auctions for each block. The Commission defined ``small entity'' for 
Blocks C and F as an entity that has average gross revenues of $40 
million or less in the three previous calendar years. For Block F, an 
additional classification for ``very small business'' was added and is 
defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years.'' These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. No 
small businesses, within the SBA-approved small business size standards 
bid successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40 
percent of the 1,479 licenses for Blocks D, E, and F. On March 23, 
1999, the Commission re-auctioned 347 C, D, E, and F Block licenses. 
There were 48 small business winning bidders. On January 26, 2001, the 
Commission completed the auction of 422 C and F Broadband PCS licenses 
in Auction No. 35. Of the 35 winning bidders in this auction, 29 
qualified as ``small'' or ``very small'' businesses. Subsequent events, 
concerning Auction 35, including judicial and agency determinations, 
resulted in a total of 163 C and F Block licenses being available for 
grant.
b. Cable Operators
    60. Cable and Other Program Distribution. This category includes 
cable systems operators, closed circuit television services, direct 
broadcast satellite services, multipoint distribution systems, 
satellite master antenna systems, and subscription television services. 
The SBA has developed small business size standard for this census 
category, which includes all such companies generating $12.5 million or 
less in revenue annually. According to Census Bureau data for 1997, 
there were a total of 1,311 firms in this category, total, that had 
operated for the entire year. Of this total, 1,180 firms had annual 
receipts of under $10 million and an additional 52 firms had receipts 
of $10 million or more but less than $25 million. Consequently, the 
Commission estimates that the majority of providers in this service 
category are small businesses that may be affected by the rules and 
policies adopted herein.
    61. Cable System Operators (Rate Regulation Standard). The 
Commission has developed its own small business size standard for cable 
system operators, for purposes of rate regulation. Under the 
Commission's rules, a ``small cable company'' is one serving fewer than 
400,000 subscribers nationwide. The most recent estimates indicate that 
there were 1,439 cable operators who qualified as small cable system 
operators at the end of 1995. Since then, some of those companies may 
have grown to serve over 400,000 subscribers, and others may have been 
involved in transactions that caused them to be combined with other 
cable operators. Consequently, the Commission estimates that there are 
now fewer than 1,439 small entity cable system operators that may be 
affected by the rules and policies adopted herein.
    62. Cable System Operators (Telecom Act Standard). The 
Communications Act of 1934, as amended, also contains a size standard 
for small cable system operators, which is ``a cable operator that, 
directly or through an affiliate, serves in the aggregate fewer than 1 
percent of all subscribers in the United States and is not affiliated 
with any entity or entities whose gross annual revenues in the 
aggregate exceed $250,000,000.'' The Commission has determined that 
there are 67,700,000 subscribers in the United States. Therefore, an 
operator serving fewer than 677,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Based on available data, the Commission estimates that the 
number of cable operators serving 677,000 subscribers or fewer, totals 
1,450. The Commission neither requests nor collects information on 
whether cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, and therefore are unable, at this 
time, to estimate more accurately the number of cable system operators 
that would qualify as small cable operators under the size standard 
contained in the Communications Act of 1934.
c. Internet Service Providers
    63. Internet Service Providers. The SBA has developed a small 
business size standard for Internet Service Providers (ISPs). ISPs 
``provide clients access to the Internet and generally provide related 
services such as web hosting, web page designing, and

[[Page 59673]]

hardware or software consulting related to Internet connectivity.'' 
Under the SBA size standard, such a business is small if it has average 
annual receipts of $21 million or less. According to Census Bureau data 
for 1997, there were 2,751 firms in this category that operated for the 
entire year. Of these, 2,659 firms had annual receipts of under $10 
million, and an additional 67 firms had receipts of between $10 million 
and $24,999,999. Consequently, we estimate that the majority of these 
firms are small entities that may be affected by our action. In 
addition, limited preliminary census data for 2002 indicate that the 
total number of Internet service providers increased approximately five 
percent from 1997 to 2002.

4. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements

    64. The 1st R&O requires all facilities-based broadband Internet 
access providers and providers of interconnected VoIP service to be 
CALEA compliant. Our decision today does not impose reporting or 
recordkeeping requirements that would be subject to the Paperwork 
Reduction Act. Pursuant to CALEA both small and large carriers must 
design their equipment, facilities, and services to ensure that they 
have the required surveillance capabilities. We note that a subsequent 
order will address other important issues under CALEA, such as 
compliance extensions and exemptions, cost recovery, identification of 
future services and entities subject to CALEA, and enforcement.

5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    65. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include (among others) the following four alternatives: (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    66. In the 1st R&O, we conclude that facilities-based broadband 
Internet access providers and providers of interconnected VoIP service 
are ``telecommunications carriers'' under CALEA's SRP. In arriving at 
these conclusions, the Commission first interprets the SRP to establish 
a legal framework for assessing services under CALEA, explaining the 
basis for all statutory interpretations that inform this framework. We 
then apply this framework to providers of facilities-based broadband 
Internet access services and interconnected VoIP services. The 
Commission considered various alternatives, which it rejected or 
accepted for the reasons set forth in the body of the 1st R&O. The 
significant alternatives that commenters discussed and that we 
considered in determining that these providers are ``telecommunications 
carriers'' under CALEA's SRP are as follows.
    67. Legal Framework. In the 1st R&O, we affirm our tentative 
conclusion that Congress intended the scope of CALEA's definition of 
telecommunications carrier to be more inclusive than the similar 
definition of ``telecommunications carrier'' in the Communications Act. 
In reaching this conclusion, we rejected arguments that the definition 
of ``telecommunications carriers'' in CALEA is functionally identical 
to the definition of that term in the Communications Act. While we 
recognize that a broader interpretation may include small entities 
under the definition, CALEA contains several differences that support 
this broader interpretation of the term ``telecommunications carrier'' 
under CALEA. As noted above, the most significant difference is the 
SRP, which ``has no analogue'' in the Communications Act.
    68. The SRP applies only to entities ``engaged in providing wire or 
electronic communication switching or transmission service.'' We 
conclude that the term ``switching'' in this phrase includes ``routers, 
softswitches, and other equipment that may provide addressing and 
intelligence functions for packet-based communications to manage and 
direct the communications along to their intended destinations.'' We 
considered but rejected arguments that the term ``switching'' as used 
by Congress in 1994 did not contemplate routers and softswitches. For 
instance, some commenters argued that this term must forever be limited 
to that function as it was commonly understood in 1994, namely circuit 
switching in the narrowband PSTN. We believe that interpreting CALEA's 
inclusion of the word ``switching'' to describe a function that 
Congress intended to be covered--regardless of the specific technology 
employed to perform that function--is the interpretation most 
consistent with the purpose of the statute. The alternative approach 
would effectively eliminate any ability the Commission may have to 
extend CALEA obligations under the SRP to service providers using 
advanced digital technologies, in direct contravention of CALEA's 
stated purpose.
    69. The SRP requires that the service provided be ``a replacement 
for a substantial portion of the local telephone exchange service.'' We 
affirmed our tentative conclusion that this requirement is satisfied if 
a service replaces any significant part of an individual subscriber's 
functionality previously provided via circuit-switched local telephone 
exchange service. We considered various interpretations. For example, 
we considered, but declined to adopt, an interpretation that would 
require the service to be capable of replacing all of the 
functionalities of local exchange service. Instead, we agree with DOJ 
that the language ``substantial portion of the local telephone exchange 
service'' includes both the POTS service and the transmission conduit 
functionality provided by local telephone exchange service in 1994. 
While our interpretation will most likely cover small entities, 
commenters have not persuaded us to adopt a different interpretation.
    70. The SRP also requires that the Commission find that ``it is in 
the public interest to deem * * * a person or entity to be a 
telecommunications carrier for purposes of [CALEA].'' We conclude that 
the Commission will consider three factors in its public interest 
analysis: (1) Promotion of competition; (2) encouragement of the 
development of new technologies; and (3) protection of public safety 
and national security. We declined to identify any other specific 
public interest considerations, which we recognize might benefit small 
telecommunications carriers.
    71. We conclude, as we indicated in the NPRM, that the terms 
``telecommunications carrier'' and ``information services'' in CALEA 
cannot be interpreted identically to the way those terms have been 
interpreted under the Communications Act in light of Congress's intent 
and purpose in enacting CALEA. As explained above, we disagree with 
commenters who argue that we should interpret the statute to narrow the 
scope of services that are covered today to a more narrow group of 
services than those covered when CALEA was enacted, particularly in 
light of CALEA's stated purpose to ``preserve the government's ability 
to * * * intercept communications that use advanced technologies such 
as digital or wireless transmission.'' While

[[Page 59674]]

we recognize that small entities might benefit by an interpretation 
that would narrow the scope of services subject to CALEA, we believe 
that decisions about the applicability of CALEA must be based on 
CALEA's definitions alone, not on the definitions in the Communications 
Act.
    72. Facilities-Based Broadband Internet Access Service Providers. 
We apply our conclusions concerning the legal framework to providers of 
facilities-based broadband Internet access services and find that these 
providers are subject to CALEA under the SRP. In reaching this 
decision, we considered the comments by small carriers, which generally 
claimed that the public interest would not be served by subjecting 
these providers to CALEA under the SRP. Based on our analysis here, we 
decline to exclude any facilities-based broadband Internet access 
providers from CALEA requirements at this time. We agree with DOJ that 
these commenters have not provided sufficient evidence, identified the 
particular carriers that should be exempted from CALEA's SRP, or 
addressed law enforcement's needs. These telecommunications carriers 
have several options under CALEA. We believe that these CALEA 
provisions will safeguard small entities from any significant adverse 
economic impacts of CALEA compliance.
    73. Additionally, based on comments from these small carriers, we 
adopt a Further Notice of Proposed Rulemaking (FNPRM), published 
elsewhere in this issue, that seeks comment on what procedures the 
Commission should adopt to implement CALEA's exemption provision, as 
well as the appropriateness of requiring something less than full CALEA 
compliance for certain classes or categories of providers, such as 
small or rural entities. We also seek comment on the best way to impose 
different compliance standards. We believe that the FNPRM will assist 
the Commission in adopting streamlined exemption procedures, which will 
ultimately benefit both large and small entities alike. The FNPRM is 
also a concerted effort by the Commission to adopt any other rules that 
will reduce CALEA burdens on small entities. We believe our approach 
represents a reasonable accommodation for small carriers, and we 
encourage these entities to file comments on the FNPRM to assist the 
Commission in these efforts.
    74. Interconnected VoIP Service. We apply our conclusions 
concerning the legal framework to providers of interconnected VoIP 
services and find that these providers are subject to CALEA under the 
SRP. We considered but abandoned the distinction the NPRM drew between 
``managed'' and ``non-managed'' VoIP services as the dividing line 
between VoIP services that are covered by CALEA and those that are not. 
The record convinced us that this distinction is unadministrable; even 
DOJ expressed an openness to a different way of identifying those VoIP 
services that CALEA covers. We believe that the alternative approach, 
using ``interconnected VoIP services'' to define the category of VoIP 
services that are covered by CALEA, provides a clearer, more easily 
identifiable distinction that is consistent with recent Commission 
orders addressing the appropriate regulatory treatment of IP-enabled 
services.
    75. As a result, certain VoIP service providers are not subject to 
CALEA obligations imposed in today's 1st R&O. Specifically, the 1st R&O 
does not apply to those entities not fully interconnected with the 
PSTN. Because interconnecting with the PSTN can impose substantial 
costs, we anticipate that many of the entities that elect not to 
interconnect with the PSTN, and which therefore are not subject to the 
rules adopted in today's 1st R&O, are small entities. Small entities 
that provide VoIP services therefore also have some control over 
whether they will have to be CALEA compliant. Small businesses may 
still offer VoIP service without being subject to the rules adopted in 
today's 1st R&O by electing not to provide an interconnected VoIP 
service.
    76. Scope of 1st R&O. Our action in the 1st R&O is limited to 
establishing that CALEA applies to facilities-based broadband Internet 
access providers and interconnected VoIP service providers. As noted 
above, we will address in a subsequent order other important 
outstanding issues under CALEA, such as compliance extensions and 
exemptions, cost recovery, identification of future services and 
entities subject to CALEA, and enforcement. The 1st R&O establishes a 
deadline of 18 months from the effective date of the Order, by which 
time newly covered entities and providers of newly covered services 
must be in full compliance with CALEA. We considered various comments 
advocating, for example, effective dates ranging from 12 months to 24 
months. We also considered whether the Commission should grant 
additional time for small carriers to become CALEA compliant. However, 
as explained above, we find that 18 months is a reasonable time period 
to expect all providers of facilities-based broadband Internet access 
service and interconnected VoIP service to comply with CALEA. This 
alternative represents a reasonable accommodation for small entities 
and others, as these newly covered entities can begin planning to 
incorporate CALEA compliance into their operations. Furthermore, this 
approach will ensure that the appropriate parties become involved in 
ongoing discussions among the Commission, law enforcement, and industry 
representatives to develop standards for CALEA capabilities and 
compliance.
    77. Report to Congress: The Commission will send a copy of the 1st 
R&O, including this FRFC, in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act. In addition, the Commission will send a copy of the 1st R&O, 
including this FRFC, to the Chief Counsel for Advocacy of the SBA.

Ordering Clauses

    78. Accordingly, it is ordered that pursuant to sections 1, 4(i), 
7(a), 229, 301, 303, 332, and 410 of the Communications Act of 1934, as 
amended, and section 102 of the Communications Assistance for Law 
Enforcement Act, 18 U.S.C. 1001, the Report and Order in ET Docket No. 
04-295 is adopted.
    79. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Certification, to the Chief Counsel for Advocacy of the 
Small Business Administration.

List of Subjects in 47 CFR Part 64

    Broadband Internet access services, Interconnected voice over 
Internet protocol services, Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 64 to read as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

0
1. The authority citation for part 64 continues to read as follows:

    Authority: 47 U.S.C. 154, 254(k); secs. 403(b)(2)(B), (c), 
Pub.L. 104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 218, 
222, 225, 226, 228, and 254(k) unless otherwise noted.

[[Page 59675]]


0
2. Section 64.2102 is amended by adding paragraph (d) to read as 
follows:


Sec.  64.2102  Definitions.

* * * * *
    (d) Telecommunications Carrier. The term Telecommunications Carrier 
includes:
    (1) A person or entity engaged in the transmission or switching of 
wire or electronic communications as a common carrier for hire;
    (2) A person or entity engaged in providing commercial mobile 
service (as defined in section 332(d) of the Communications Act of 1934 
(47 U.S.C. 332(d)); or
    (3) A person or entity that the Commission has found is engaged in 
providing wire or electronic communication switching or transmission 
service such that the service is a replacement for a substantial 
portion of the local telephone exchange service and that it is in the 
public interest to deem such a person or entity to be a 
telecommunications carrier for purposes of CALEA.
[FR Doc. 05-20606 Filed 10-12-05; 8:45 am]
BILLING CODE 6712-01-P