545 U.S. 967 (2005), 04-277, National Cable & Telecommunications Ass'n v. Brand X Internet Services

Docket Nº:Nos. 04-277, 04-281.
Citation:545 U.S. 967, 125 S.Ct. 2688, 162 L.Ed.2d 820
Party Name:NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION, et al., Petitioners, v. BRAND X INTERNET SERVICES et al. Federal Communications Commission and United States, Petitioners, v. Brand X Internet Services et al.
Case Date:June 27, 2005
Court:United States Supreme Court

Page 967

545 U.S. 967 (2005)

125 S.Ct. 2688, 162 L.Ed.2d 820




Federal Communications Commission and United States, Petitioners,


Brand X Internet Services et al.

Nos. 04-277, 04-281.

United States Supreme Court

June 27, 2005

Argued March 29, 2005.


[125 S.Ct. 2689] SYLLABUS[*]

Consumers traditionally access the Internet through "dial-up" connections provided via local telephone lines. Internet service providers (ISPs), in turn, link those calls to the Internet network, not only by providing a physical connection, but also by offering consumers the ability to translate raw data into information they may both view on their own computers and transmit to others connected to the Internet. Technological limitations of local telephone wires, however, retard the speed at which Internet data may be transmitted through such "narrowband" connections. "Broadband" Internet service, by contrast, transmits data at much higher speeds. There are two principal kinds of broadband service: cable modem service, which transmits data between the Internet and users' computers via the network of television cable lines owned by cable companies, and Digital Subscriber Line (DSL) service, which uses high-speed wires owned by local telephone companies. Other ways of [125 S.Ct. 2690] transmitting high-speed Internet data, including terrestrial- and satellite-based wireless networks, are also emerging.

The Communications Act of 1934, as amended by the Telecommunications Act of 1996, defines two categories of entities relevant here. "Information -service" providers--those "offering . . . a capability for [processing] information via telecommunications," 47 U.S.C. §153(20)--are subject to mandatory regulation by the Federal Communications Commission as common carriers under Title II of the Act. Conversely, telecommunications carriers--i.e., those "offering . . . telecommunications for a fee directly to the public . . . regardless of the facilities used," §153(46)--are not subject to mandatory Title II regulation. These two classifications originated in the late 1970's, as the Commission developed rules to regulate data-processing services offered over telephone wires. Regulated "telecommunications service" under the 1996 Act is the analog to "basic service" under the prior regime, the Computer II rules.

Page 968

Those rules defined such service as a "pure" or "transparent" transmission capability over a communications path enabling the consumer to transmit an ordinary-language message to another point without computer processing or storage of the information, such as via a telephone or a facsimile. Under the 1996 Act, "[i]nformation service" is the analog to "enhanced" service, defined by the Computer II rules as computer-processing applications that act on the subscriber's information, such as voice and data storage services, as well as "protocol conversion," i.e., the ability to communicate between networks that employ different data-transmission formats.

In the Declaratory Ruling under review, the Commission classified broadband cable modem service as an "information service" but not a "telecommunications service" under the 1996 Act, so that it is not subject to mandatory Title II common-carrier regulation. The Commission relied heavily on its Universal Service Report, which earlier classified "non-facilities-based" ISPs--those that do not own the transmission facilities they use to connect the end user to the Internet--solely as information-service providers. Because Internet access is a capability for manipulating and storing information, the Commission concluded, it was an "information service." However, the integrated nature of such access and the high-speed wire used to provide it led the Commission to conclude that cable companies providing it are not "telecommunications service" providers. Adopting the Universal Service Report's reasoning, the Commission held that cable companies offering broadband Internet access, like non-facilities-based ISPs, do not offer the end user telecommunications service, but merely use telecommunications to provide end users with cable modem service.

Numerous parties petitioned for review. By judicial lottery, the Court of Appeals for the Ninth Circuit was selected as the venue for the challenge. That court granted the petitions in part, vacated the Declaratory Ruling in part, and remanded for further proceedings. In particular, the court held that the Commission could not permissibly construe the Communications Act to exempt cable companies providing cable modem service from mandatory Title II regulation. Rather than analyzing the permissibility of that construction under the deferential framework of Chevron U.S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694, however, the court grounded that holding in the stare decisis effect of its decision in AT&T Corp. v. Portland, 216 F.3d 871, which had held that cable modem service is a "telecommunications service."

[125 S.Ct. 2691] Held:

The Commission's conclusion that broadband cable modem companies are exempt from mandatory common-carrier regulation is a lawful

Page 969

construction of the Communications Act under Chevron and the Administrative Procedure Act. Pp. 2699-2712.

1. Chevron's framework applies to the Commission's interpretation of "telecommunications service." Pp. 2699-2702.

(a) Chevron governs this Court's review of the Commission's construction. See, e.g., National Cable & Telecommunications Assn., Inc. v. Gulf Power Co., 534 U.S. 327, 333-339, 122 S.Ct. 782, 151 L.Ed.2d 794. Chevron requires a federal court to defer to an agency's construction, even if it differs from what the court believes to be the best interpretation, if the particular statute is within the agency's jurisdiction to administer, the statute is ambiguous on the point at issue, and the agency's construction is reasonable. 467 U.S. at 843-844, and n. 11, 865-866. The Commission's statutory authority to "execute and enforce" the Communications Act, §151, and to "prescribe such rules and regulations as may be necessary . . . to carry out the [Act's] provisions," §201(b), give the Commission power to promulgate binding legal rules; the Commission issued the order under review in the exercise of that authority; and there is no dispute that the order is within the Commission's jurisdiction. Pp. 8-10.

(b)The Ninth Circuit should have applied Chevron's framework, instead of following the contrary construction it adopted in Portland. A court's prior construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion. See Smiley, supra, at 740-741, 116 S.Ct. 1730. Because Portland held only that the best reading of §153(46) was that cable modem service was "telecommunications service," not that this was the only permissible reading or that the Communications Act unambiguously required it, the Ninth Circuit erred in refusing to apply Chevron. Pp. 2700-2702.

2. The Commission's construction of §153(46)'s "telecommunications service" definition is a permissible reading of the Communications Act at both steps of Chevron's test. Pp. 2702-2710.

(a) For the Commission, the question whether cable companies providing cable modem service "offe[r]" telecommunications within §153(46)'s meaning turned on the nature of the functions offered the end user. Seen from the consumer's point of view, the Commission concluded, the cable wire is used to access the World Wide Web, newsgroups, etc., rather than "transparently" to transmit and receive ordinary-language messages without computer processing or storage of the message. The integrated character of this offering led the Commission to conclude that cable companies do not make a stand-alone, transparent offering of telecommunications. Pp. 2702-2704.

Page 970

(b) The Commission's construction of §153(46) is permissible at Chevron's first step, which asks whether the statute's plain terms "directly addres[s] the precise question at issue." 467 U.S. at 843, 104 S.Ct. 2778. This conclusion follows both from the ordinary meaning of "offering" and the Communications Act's regulatory history. Pp. 2704-2708.

(1) Where a statute's plain terms admit of two or more reasonable ordinary usages, the Commission's choice of one of them is entitled to deference. See, e.g., Verizon Communications Inc. v. FCC, 535 U.S. 467, 498, 122 S.Ct. 1646, 152 L.Ed.2d 701.[125 S.Ct. 2692] It is common usage to describe what a company "offers" to a consumer as what the consumer perceives to be the integrated finished product, even to the exclusion of discrete components that compose the product. What cable companies providing cable modem service "offer" is finished Internet service, though they do so using the discrete components composing the end product, including data transmission. Such functionally integrated components need not be described as distinct "offerings." Pp. 2704-2706.

(2)The Commission's traditional distinction between basic and enhanced service also supports the conclusion that the Communications Act is ambiguous about whether cable companies "offer" telecommunications with cable modem service. Congress passed the Act's definitions against the background of this regulatory history, and it may be assumed that the parallel terms "telecommunications service" and "information service" substantially incorporated the meaning of "basic" and "enhanced" service. That history in at least two respects confirms that the term...

To continue reading