Opinion ID: 757345
Heading Depth: 2
Heading Rank: 5

Heading: Permanent Exemption for ISPs

Text: 25 Finally, the BellSouth petitioners, joined by the Bell Atlantic parties, 7 argue that the Commission's decision to grant information service providers 8 (ISPs) an exemption from interstate access charges creates a new, implicit, and discriminatory subsidy in violation of the 1996 Act; impermissibly forces state regulators to set rates for the recovery of interstate costs; and converts a transitional access charge exemption for ISPs into a permanent one. The FCC denies these assertions and contends that its determination to prohibit the assessment of interstate access charges on ISPs is a reasonable one under the 1996 Act. 26 The BellSouth petitioners initially maintain that the FCC's refusal to extend interstate access charges to ISPs constitutes a new, implicit, and discriminatory subsidy in violation of § 254. They assert that the exemption excuses ISPs from paying the access charges associated with their traffic over the LECs' local networks. Their argument is that the FCC's explanation for this decision--avoiding the disruption of an evolving industry--cannot justify acting in violation of the 1996 Act. The FCC, on the other hand, argues that it did not create a new, implicit, and discriminatory subsidy by declining to extend to ISPs (which never have paid per-minute access rates under the old rules) a rate structure that, as a result of the transition into universal service support funded solely through explicit subsidies, unavoidably includes residual implicit subsidies. See Order p 345. We agree that the FCC's decision to exempt ISPs from interstate access charges while continuing to investigate potential future changes in this area is a reasonable exercise of the agency's discretion under the 1996 Act. 27 Initially we note that the FCC has maintained the same position for the past fourteen years, refusing to permit the assessment of interstate access charges on ISPs. See In re Amendments of Part 69 of the Commission's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture; Policy and Rules Concerning Rates for Dominant Carriers, Report and Order (CC Docket Nos. 89-79, 87-313), FCC 91-186, 6 FCC Rcd No. 15 4524 p 60 (released July 11, 1991) (noting that access system in which ISPs do not pay interstate per-minute charges is the status quo ). Furthermore, the Commission's actions do not discriminate in favor of ISPs, which do not utilize LEC services and facilities in the same way or for the same purposes as other customers who are assessed per-minute interstate access charges. 9 As this Court noted in Competitive Telecommunications, even where two different sets of carriers seek to use LEC network services and facilities that might be technologically identical, the services and facilities provided by the LEC are distinct if the carriers are making different uses of them. 117 F.3d at 1073. Consequently, different regulatory treatment of LEC services and facilities in such circumstances does not have a discriminatory impact. Id. Here, we agree with the FCC that it is not clear that ISPs use the ... network in a manner analogous to IXCs, Order p 345, and conclude, therefore, that the Commission's refusal to impose access charges on ISPs does not violate § 254's requirement that contributions to universal service be nondiscriminatory. 28 Neither does the Commission's decision to exempt ISPs from interstate access charges violate § 254(e)'s requirement that explicit support mechanisms for universal service be implemented. The Universal Service Order outlines the FCC's plan for eradicating implicit subsidies. Section 254, as we previously have discussed, does not require the immediate elimination of implicit subsidies, only the establishment of a specific timetable to move from implicit to explicit universal service support subsidies. We conclude that the Commission's decision to exempt ISPs from interstate access charges does not constitute the creation of a new, implicit, and discriminatory subsidy in contravention of the 1996 Act. 29 The petitioners also argue that there are uncompensated costs associated with the LECs' service to ISPs. The FCC, however, was not convinced of the alleged shortfalls, and identified sources of revenue that are available to the LECs to cover the interstate costs generated by the ISPs. See Order p 346. The FCC has made a rational choice regarding the treatment of ISPs from a number of alternatives that are each imperfect. When an agency has gone to considerable lengths to amass information, sift through the record for pertinent facts, and reach a temporary conclusion, it has not acted arbitrarily or capriciously. 30 The BellSouth petitioners and the Bell Atlantic parties next allege that the interstate access charge exemption for ISPs impermissibly requires state regulatory commissions to recover interstate costs. They argue that [t]here is no question that ISPs, like IXCs, use the local network to provide interstate services. Bell Atlantic Brief at 12. Moreover, they argue that there is no dispute that the interstate costs imposed on LECs by these services have increased dramatically in recent years as a result of the expansion of traffic on the Internet. The LECs contend that, as a result of this increased traffic, they have been required to spend billions of dollars to enhance network capacity. Id. at 13. While the increased burdens on local networks generate, according to the BellSouth petitioners and Bell Atlantic parties, undeniably interstate costs, they complain that the ISP access charge exemption precludes recovery of the majority of those costs. Id. Instead, ISPs, which are classified as end users, may purchase services from incumbent LECs under the same intrastate tariffs available to end users, without paying equitable rates to compensate LECs for the increased costs associated with the services provided. Order p 342. The petitioners contend that the FCC's suggestion that LECs address their concerns to state regulators, amounts to a dereliction of the Commission's obligation to retain exclusive jurisdiction over interstate communications and forces state regulatory commissions to overstep their authority by recovering interstate costs. Id. p 346 (To the extent that some intrastate rate structures fail to compensate incumbent LECs adequately for providing service to customers with high volumes of incoming calls, incumbent LECs may address their concerns to state regulators.). 31 We disagree with the petitioners' characterization of the manner in which ISPs utilize the local network and thereby generate interstate costs susceptible to FCC regulation. See id. p 343 (noting that FCC tentatively concluded in notice of proposed rulemaking that ISPs should not be subjected to an interstate regulatory system designed for circuit-switched interexchange voice telephony solely because ISPs use incumbent LEC networks to receive calls from their customers.). Contrary to the petitioners' assertions, there is some disagreement as to the manner in which ISPs make use of the local network. As the FCC argues, the services provided by ISPs may involve both an intrastate and an interstate component and it may be impractical if not impossible to separate the two elements. See People of State of California v. FCC, 905 F.2d 1217, 1244 (9th Cir.1990). Consequently, the FCC has determined that the facilities used by ISPs are jurisdictionally mixed, carrying both interstate and intrastate traffic. FCC Brief at 79. Because the FCC cannot reliably separate the two components involved in completing a particular call, or even determine what percentage of overall ISP traffic is interstate or intrastate, see id. (noting that at least some ISP services are purely intrastate and not susceptible to FCC regulation), the Commission has appropriately exercised its discretion to require an ISP to pay intrastate charges for its line and to pay the SLC (which has been increased in the Order to cover a greater proportion of interstate allocated loop costs), but not to pay the per-minute interstate access charge. The states are free to assess intrastate tariffs as they see fit. In these circumstances, we cannot say that the FCC has shirked its responsibility to regulate interstate telecommunications, nor can we conclude that it has directed the States to inflate intrastate tariffs to cover otherwise unrecoverable interstate costs, thereby exceeding its statutory authority. See Iowa Utils. Bd. v. FCC, 120 F.3d 753, 796 (8th Cir.1997) (holding that FCC lacks authority to determine intrastate rates), cert. granted, --- U.S. ----, 118 S.Ct. 879, 139 L.Ed.2d 867 (1998). 32 Moreover, the FCC has not issued its final determination with regard to the treatment of ISPs. As noted in the Order, the Commission has initiated a Notice of Inquiry (NOI) to investigate further what changes, if any, should be made with regard to the regulation of ISPs. See Access Charge Reform; Price Cap Performance Review for Local Exchange Carriers; Transport Rate Structure and Pricing; Usage of the Public Switched Network by Information Service and Internet Access Providers, Proposed Rule (CC Docket Nos. 96-262, 94-1, 91-213, 96-263), FCC 96-488, 62 Fed.Reg. 4670, 4712-13 (1997) (to be codified at 47 C.F.R. pts. 61 and 69). 33 In the NOI, we will address a range of fundamental issues about the Internet and other information services, including ISP usage of the public switched network. The NOI will give us an opportunity to consider the implications of information services more broadly, and to craft proposals for a subsequent NPRM [Notice of Proposed Rulemaking] that are sensitive to the complex economic, technical, and legal questions raised in this area. 34 Order p 348 (footnote omitted). The FCC thus has not foreclosed the possibility that ISPs will be subjected to additional regulation under a scheme yet to be determined. To the extent that the BellSouth petitioners and the Bell Atlantic parties complain about the ISPs' uncompensated burden on their local networks, they, as well as other LECs, are welcome to address their continued concerns to the FCC through the NOI process. 35 Finally, the BellSouth petitioners and the Bell Atlantic parties argue that the FCC has permanently abandoned its stated policy that all those who use the local telephone networks to provide interstate services should bear their fair share of interstate access charges. The petitioners cite Competitive Telecommunications Association v. FCC, 87 F.3d 522 (D.C.Cir.1996) (CompTel ), 10 as support for their position that ISPs should be subject to interstate access charges. In the 1983 Access Charge Order at issue in CompTel, the FCC had instituted transitional rules favoring smaller long-distance carriers in an effort to promote competition in the long-distance market. These transitional rules were extended by the Commission for thirteen years under the justification that sufficient cost information necessary to determine appropriate rates was not yet developed. The D.C. Circuit struck down the rules acknowledging that, while the FCC is not required to impose purely cost-based rates for all services, it must specially justify any rate differential that does not reflect cost. Id. 36 The facts in CompTel are distinguishable from the facts with which we are faced here. In CompTel, the FCC was imposing inconsistent, allegedly transitional rates on entities--incumbent long-distance carriers and smaller long-distance carriers--that essentially provided identical services. Here, the FCC is exempting from interstate access charges ISPs that, according to the FCC, utilize the local networks differently than do IXCs. The FCC has justified its decision to exempt ISPs from access charges paid by IXCs by noting the distinction between the manner in which these separate entities utilize the local networks. See, e.g., Order pp 343, 345. 37 The FCC explained in the Order that [m]aintaining the existing pricing structure for [ISP] services avoids disrupting the still-evolving information services industry and advances the goals of the 1996 Act to 'preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.'  Order p 344 (footnote omitted) (quoting 47 U.S.C.A. § 230(b)(2)). The Commission reasonably has exercised its discretion in evaluating the relevant data and in concluding that, at least for the present, ISPs should be excluded from the imposition of interstate access charges. We will overturn an agency rule as arbitrary and capricious only if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Motor Vehicle Mfrs. Ass'n of the United States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). We find no such fault with the Commission's decision and we decline to interfere with the FCC's determination to grant ISPs an exemption from interstate access charges.