BRIEF FOR RESPONDENTS
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
NO. 12-1124
THE CONFERENCE GROUP, LLC,
PETITIONER,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.
ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION
RENATA B. HESSE
SEAN A. LEV
ACTING ASSISTANT ATTORNEY GENERAL
GENERAL COUNSEL
ROBERT B. NICHOLSON
PETER KARANJIA
NICKOLAI G. LEVIN
DEPUTY GENERAL COUNSEL
ATTORNEYS
RICHARD K. WELCH
UNITED STATES
DEPUTY ASSOCIATE GENERAL COUNSEL
DEPARTMENT OF JUSTICE
WASHINGTON, D.C. 20530
LAUREL R. BERGOLD
COUNSEL
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740
CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES
A. Parties and Amici
All parties and intervenors appearing before the Federal Commission
Commission and in this Court are listed in the Brief for The Conference Group.
B. Ruling Under Review
Request for Review by InterCall, Inc. of Decision of Universal ServiceAdministrator, Order, 23 FCC Rcd 10731 (2008) (“Order”) (J.A. ), recon.
denied, 27 FCC Rcd 898 (2012) (“Reconsideration Order”) (J.A. ).
C. Related Cases
The order on review has not been before this Court previously.
Counsel are not aware of any related cases pending before this Court or any
other Court.
TABLE OF CONTENTS
Table of Authorities......................................................................................... iii
Glossary........................................................................................................... ix
STATEMENT OF ISSUES PRESENTED .......................................................1
STATUTES AND REGULATIONS ................................................................2
COUNTERSTATEMENT ................................................................................3
A. Background ...............................................................................3
1.
Statutory and Regulatory Background .............................3
2.
InterCall’s Audio Bridging Service................................11
B. This Proceeding ......................................................................12
1.
Proceedings Before USAC .............................................12
2.
Proceedings Before The FCC .........................................13
a.
Proceedings Leading To The Order .......................13
b.
Reconsideration Proceedings .................................17
SUMMARY OF ARGUMENT ......................................................................20
ARGUMENT ..................................................................................................23
I.
THE FCC’S ORDER IS REVIEWED UNDER
DEFERENTIAL STANDARDS. ....................................................23
II. THE FCC ACTED WITHIN ITS AUTHORITY AND
USED PROPER PROCEDURES IN RULING THAT
THE AUDIO BRIDGING SERVICES AT ISSUE
ARE TELECOMMUNICATIONS. ................................................26
A. The FCC Had Clear Authority To Decide
Whether InterCall’s Audio Bridging Service Is
Telecommunications. ..............................................................27
i
B. Because The FCC’s Orders Were Adjudicatory,
The APA’s Notice-And-Comment Requirements
For Rulemakings Are Inapplicable. ........................................30
1.
The Order Is An Adjudicatory Ruling. ..........................30
2.
The FCC Did Not Enact A Substantive Rule. ................37
3.
The FCC Used Procedures That Both
Complied With The APA And Gave
Interested Parties Notice And A Full
Opportunity To Participate .............................................41
III. THE FCC REASONABLY DETERMINED THAT
INTERCALL PROVIDES
TELECOMMUNICATIONS. .........................................................44
A. The FCC Reasonably Classified InterCall’s
Audio Bridging Service As Telecommunications. .................44
B. The FCC Reasonably Determined That
InterCall’s Information Services Were Not
Functionally Integrated With Its Audio Bridging
Service.....................................................................................50
CONCLUSION ...............................................................................................59
ii
TABLE OF AUTHORITIES
CASES
Am. Airlines, Inc. v. DOT, 202 F.3d 788 (5th Cir.
2000)............................................................................................................34
Am. Trading Transp. Co., Inc. v. United States, 841
F.2d 421 (D.C. Cir. 1988) ...........................................................................43
American Mining Cong. v. Mine Safety & Health
Admin., 995 F.2d 1106 (D.C. Cir. 1993).....................................................37
* AT&T
Co., v. FCC, 454 F.3d 329 (D.C. Cir. 2006) ....................... 6, 31, 34, 46
Brand X Internet Services v. FCC, 345 F.3d 1120
(9th Cir. 2003) rev’d, Nat’l Cable & Telecomms.
Ass’n v. Brand X Internet Servs., 545 U.S. 967
(2005) ............................................................................................................6
British Caledonian Airways, Ltd. v. CAB, 584 F.2d
982 (D.C. Cir. 1978)............................................................................. 34, 36
Capital Network Sys. v. FCC, 28 F.3d 201 (D.C.
Cir. 1994).....................................................................................................24
CCIA v. FCC, 693 F.2d 198 (D.C. Cir. 1982), cert.
denied, Nat’l Ass’n of Regulatory Util. Comm’rs
v. FCC, 461 U.S. 938 (1983).........................................................................6
Central Texas Tel. Co-op., Inc. v. FCC, 402 F.3d
205 (D.C. Cir. 2005)............................................................................... 3, 36
*
Chevron USA, Inc. v. NRDC, 467 U.S. 837 (1984) ........................................24
Chisholm v. FCC, 538 F.2d 349 (D.C. Cir. 1976) ................................... 31, 36
Christopher v. SmithKline Beecham Corp., 132 S.
Ct. 2156 (2012)............................................................................... 25, 26, 40
FCC v. Fox Television Stations, Inc., 556 U.S. 502
(2009) ..........................................................................................................30
FCC v. Nat’l Citizens Comm. for Broadcasting, 436
U.S. 775 (1978) .............................................................................................4
* FCC
v.
Schreiber, 381 U.S. 279 (1965) ..................................................... 4, 41
Fertilizer Institute v. EPA, 935 F.2d 1303 (D.C. Cir.
1991)..................................................................................................... 37, 38
iii
Funeral Consumer Alliance, Inc. v. FTC, 481 F.3d
860 (D.C. Cir. 2007)....................................................................................39
Gates & Fox Co. v. Occupational Safety and Health
Review Comm’n, 790 F.2d 154 (D.C. Cir. 1986) ........................................26
General Am. Transp. Corp. v. ICC, 872 F.2d 1048
(D.C. Cir. 1989)...........................................................................................32
* Goodman
v.
FCC, 182 F.3d 987 (D.C. Cir. 1999)............................. 32, 34, 36
Harborlite Corp. v. ICC, 613 F.2d 1088 (D.C. Cir.
1979)............................................................................................................31
Kidd Commc’ns v. FCC, 427 F.3d 1 (D.C. Cir.
2005)............................................................................................................36
Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)............................................24
Nat’l Ass’n of Regulatory Util. Comm’rs v. FCC,
461 U.S. 938 (1983) ......................................................................................6
*
Nat’l Cable & Telecomms. Ass'n v. Brand X
Internet Servs., 545 U.S. 967 (2005).......... 3, 6, 8, 24, 29, 51, 53, 54, 55, 58
Nat’l Tel. Co-op. Ass’n v. FCC, 563 F.3d 536 (D.C.
Cir. 2009).....................................................................................................23
New York State Comm’n on Cable Television v.
FCC, 749 F.2d 804 (1984)...........................................................................31
NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974) ........................................32
NLRB v. Wyman-Gordon Co., 394 U.S. 759 (1969) .......................................32
Occidental Petroleum Corp. v. SEC, 873 F.2d 325
(D.C. Cir. 1989)...................................................................................... 5, 30
Paralyzed Veterans of Am. v. D.C. Arena, LP, 117
F.3d 579 (D.C. Cir. 1997) ...........................................................................38
Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S.
633 (1990) ...................................................................................................42
*
Qwest Services Corp. v. FCC, 509 F.3d 531 (D.C.
Cir. 2007)...................................................................... 18, 32, 33, 34, 35, 36
Star Wireless, LCC v. FCC, 522 F.3d 469 (D.C. Cir.
2008)............................................................................................................25
iv
Talk Am., Inc. v. Michigan Bell Tel. Co., 131 S. Ct.
2254 (2011) .................................................................................................25
Texas Office of Public Utility Council v. FCC, 183
F.3d 393 (5th Cir. 1999)................................................................................9
Time Warner Entm’t Co., L.P. v. FCC, 240 F.3d
1126 (D.C. Cir. 2001)..................................................................................33
United States Telecom Ass’n v. FCC, 400 F.3d 29
(D.C. Cir. 2005)...........................................................................................30
*
Vermont Yankee Nuclear Power Corp. v. Nat. Res.
Def. Council, 435 U.S. 519 (1978)....................................................... 41, 42
Virgin Islands Tel. Corp. v. FCC, 198 F.3d 921
(D.C. Cir. 1999).............................................................................................8
ADMINISTRATIVE DECISIONS
Amendment of Section 64.702 of the Commission’s
Rules and Regulations (Second Computer
Inquiry), Final Decision, 77 FCC 2d 384 (1980)
aff’d sub nom. CCIA v. FCC, 693 F.2d 198 (D.C.
Cir. 1982) cert. denied, Nat’l Ass’n of Regulatory
Util. Comm’rs v. FCC, 461 U.S. 938 (1983) ............................................6, 7
Appropriate Regulatory Treatment for Broadband
Access to the Internet Over Wireless Networks,
Declaratory Ruling, 22 FCC Rcd 5901 (2007) ..........................................34
AT&T Corp. v. Jefferson Tel. Co., 16 FCC Rcd
16130 (2001) ........................................................................................ 39, 40
Changes to the Board of Directors of the National
Exchange Carrier Ass’n, Inc. Federal-State Joint
Bd. on Universal Service, Report and Order and
Second Order on Reconsideration, 12 FCC Rcd
18400 (1997) ...............................................................................................10
Federal-State Joint Board on Universal Service, 13
FCC Rcd 11830 (1998) .................................................................................6
v
Federal-State Joint Board on Universal Service,
Report and Order, 12 FCC Rcd 8776 (1997) aff’d
in part and rev’d in part Texas Office of Public
Utility Council v. FCC, 183 F.3d 393 (5th Cir.
1999)..............................................................................................................9
In the Matter of AT&T Corp., Order and Notice of
Proposed Rulemaking, 20 FCC Rcd 4826 (2005)
aff’d sub nom. AT&T Co. v. FCC, 454 F.3d 329
(D.C. Cir. 2006).................................................................................... 34, 46
Inquiry Concerning High Speed Access to the
Internet Over Cable and Other Facilities,
Internet Over Cable Declaratory Ruling, 17 FCC
Rcd 4798 (2002), aff’d in part & vacated in part
sub nom. Brand X Internet Services v. FCC, 345
F.3d 1120 (9th Cir. 2003), rev’d, Nat’l Cable &
Telecomms. Ass’n v. Brand X Internet Servs., 545
U.S. 967 (2005) ................................................................................ 6, 54, 55
*
North Am. Telecomms. Ass’n, Memorandum
Opinion and Order, 101 FCC 2d 349 (1985) ............................. 7, 45, 46, 57
North Am. Telecomms. Ass’n, Memorandum
Opinion and Order, 3 FCC Rcd 4385 (1988) ................................................7
Petition for Declaratory Ruling That Pulver.com’s
Free World Dialup Is Neither
Telecommunications Nor A Telecommunications
Service, Memorandum Opinion and Order, 19
FCC Rcd 3307 (2004) .................................................................................50
Qwest Commc’ns Corp. v. Farmers & Merchants
Mutual Tel., 22 FCC Rcd 17973 (2007)............................................... 39, 49
*
Regulation of Prepaid Calling Card Services,
Declaratory Ruling and Report and Order, 21
FCC Rcd 7290 (2006), aff’d in part & vacated in
part, Qwest Services Corp. v. FCC, 509 F.3d 531
(D.C. Cir. 2007)............................................................ 18, 34, 51, 53, 55, 56
Schools and Libraries Universal Service, Report
and Order and Further Notice of Proposed
Rulemaking, 25 FCC Rcd 6562 (2009).......................................................19
vi
United Power Line Council’s Petition for
Declaratory Ruling Regarding the Classification
of Broadband over Power Line Internet Access
Service as An Information Service, Memorandum
Opinion and Order, 21 FCC Rcd 13281 (2006) ..........................................34
STATUTES AND REGULATIONS
5 U.S.C. § 553 ...................................................................................................4
5 U.S.C. § 553(b)...............................................................................................4
5 U.S.C. § 553(b)(A) .......................................................................................34
5 U.S.C. § 553(c)...............................................................................................4
5 U.S.C. § 554(a)...............................................................................................4
5 U.S.C. § 554(b)(3)..........................................................................................4
5 U.S.C. § 554(c)(1) ..........................................................................................4
5 U.S.C. § 554(e).............................................................................................29
5 U.S.C. § 557(c)(1) & (2) ................................................................................5
5 U.S.C. § 706(2)(A) .......................................................................................23
28 U.S.C. § 2344 .............................................................................................29
*
47 U.S.C. § 151 .................................................................................... 3, 26, 29
47 U.S.C. § 153(24) ..........................................................................................6
*
47 U.S.C. § 153(50) ........................................................... 5, 15, 40, 44, 45, 50
47 U.S.C. § 153(51) ..........................................................................................8
47 U.S.C. § 153(53) ..........................................................................................5
47 U.S.C. § 154(i) .............................................................................................3
* 47
U.S.C.
§
154(j) ...................................................................................... 4, 41
47 U.S.C. § 155(c)(7) ......................................................................................29
47 U.S.C. § 201 .................................................................................................8
47 U.S.C. § 201(b).............................................................................................3
47 U.S.C. § 254(d).............................................................................................8
47 C.F.R. § 54.701 .........................................................................................10
47 C.F.R. § 1.2 ................................................................................................29
vii
*
47 C.F.R. § 54.706(a) ........................................................................... 9, 28, 40
47 C.F.R. § 54.706(b)........................................................................................9
47 C.F.R. § 54.707 ..........................................................................................10
47 C.F.R. § 54.722 ..........................................................................................11
47 C.F.R. § 54.722(a) ......................................................................................28
47 C.F.R. § 54.723(b)......................................................................... 11, 28, 29
47 C.F.R. § 64.702(a) ........................................................................................7
* Cases and other authorities principally relied upon are marked with
asterisks.
viii
GLOSSARY
ActCommunications Act of 1934, 47
U.S.C. §§ 151 et seq.
APA
Administrative
Procedure
Act
Cisco
Cisco
Systems,
Inc.
Commission
Federal
Communications
Commission
Communications Act
Communications Act of 1934, 47
U.S.C. §§ 151 et seq.
FCC
Federal
Communications
Commission
IAN
International Audiotext Network
USAC
Universal Service Administrative
Company
USF
Universal
Service
Fund
ix
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
NO. 12-1124
THE CONFERENCE GROUP, LLC,
PETITIONER,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.
ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION
BRIEF FOR RESPONDENTS
STATEMENT OF ISSUES PRESENTED
InterCall, Inc. provides a telephone conference calling service or“audio bridging service” that, among other functions, allows multiple callers
to participate in the same telephone call. In an order issued in an adjudicative
proceeding arising out of an audit of InterCall, the Federal Communications
Commission (“FCC” or “Commission”) concluded that InterCall’s audio
bridging services are “telecommunications” and thus InterCall must
contribute directly to the Universal Service Fund (“USF”). The Commission
also made clear that the precedential effect of its decision requires similarly
situated audio bridging companies to contribute directly to the USF. Request
for Review by InterCall, Inc. of Decision of Universal Service Administrator,
Order, 23 FCC Rcd 10731 (2008) (“Order”) (J.A. ), recon. denied, 27 FCC
Rcd 898 (2012) (“Reconsideration Order”) (J.A. ). The specific subject of
the FCC’s adjudicatory decision, InterCall, does not seek judicial review of
the Order. Rather, The Conference Group, a self-described audio conference
service provider, has filed a petition for review. The issues on review are as
follows:
1. Whether the Commission properly determined that its orders were
issued in an adjudication and therefore were not subject to the notice-and-
comment procedures for rulemakings under section 4 of the Administrative
Procedure Act (“APA”)?
2. Whether the Commission acted within its discretion in determining
that Intercall’s audio bridging services are telecommunications and therefore
are subject to USF contribution obligations?
STATUTES AND REGULATIONS
Pertinent statutes and regulations are set forth in the statutoryaddendum to this Brief.
2
COUNTERSTATEMENT
A. Background
1. Statutory and Regulatory BackgroundFCC Powers and Procedures. The Communications Act of 1934, as
amended (“Communications Act” or “Act”), 47 U.S.C. §§ 151, et seq.,
establishes a framework for the regulation of interstate telecommunications
services. Congress entrusted the Commission with “the authority to
‘execute and enforce’ the Communications Act,” Nat’l Cable &
Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 980 (2005)
(quoting 47 U.S.C. § 151) (“Brand X”), and gave the FCC various
1
regulatory tools to perform that responsibility. The Commission, for
example, has power to “prescribe such rules and regulations as may be
necessary in the public interest.” 47 U.S.C. § 201(b). The FCC also has
separate authority to conduct adjudications and to issue adjudicatory
orders. E.g., Central Texas Tel. Co-op., Inc. v. FCC, 402 F.3d 205, 210
(D.C. Cir. 2005).
Section 4(j) of the Communications Act gives the FCC broad
authority to “conduct its proceedings in such manner as will best conduce
1 See, e.g., 47 U.S.C. § 154(i) (authorizing the Commission to “perform any
and all acts, make such rules and regulations, and issue such orders, not
inconsistent with this [Act], as may be necessary in the execution of its
functions”).
3
to the proper dispatch of business and to the ends of justice.” 47 U.S.C.
§ 154(j). The Supreme Court has characterized section 4(j) as a
“delegation of broad procedural authority,” FCC v. Schreiber, 381 U.S.
279, 289 (1965), and has specifically recognized the Commission’s
“substantial discretion as to whether to proceed by rulemaking or
adjudication,” FCC v. Nat’l Citizens Comm. for Broadcasting, 436 U.S.
775, 808 n.29 (1978) (“NCCB”).
Like all agencies, the FCC must adhere to the procedural
requirements of the APA. Section 4 of the APA requires an agency to
follow certain procedures before it adopts a “substantive” or “legislative”
rule. 5 U.S.C. § 553. For example, the agency must publish a “[g]eneral
notice of proposed rule making” in the Federal Register, 5 U.S.C. § 553(b),
and “[must] give interested persons an opportunity to participate in the rule
making through submission[s],” id., § 553(c).
Sections 5, 7, and 8 of the APA establish different procedural
requirements for formal trial-type adjudications generally “required by
statute to be determined on the record.” 5 U.S.C. § 554(a). The APA
requires that parties to formal adjudications be given notice of “the matters
of fact and law asserted,” id., § 554(b)(3), an opportunity for “the
submission and consideration of facts [and] arguments,” id., § 554(c)(1),
4
and an opportunity to submit “proposed findings and conclusions” or
“exceptions,” id., § 557(c)(1) & (2).
In contrast to substantive rulemakings and formal adjudications, the
APA contains no specific notice-and-comment requirements governing
informal agency adjudication. Occidental Petroleum Corp. v. SEC, 873
F.2d 325, 337 (D.C. Cir. 1989).
Telecommunications and USF Contribution Obligations.
“Telecommunications” is “the transmission, between or among points
specified by the user, of information of the user’s choosing, without
change in the form or content of the information as sent and received.” 47
U.S.C. § 153(50). A “telecommunications service” is “the offering of
telecommunications for a fee directly to the public, or to such classes of
users as to be effectively available directly to the public, regardless of the
facilities used.” 47 U.S.C. § 153(53). In contrast with a
telecommunications service, an “information service” is “the offering of a
capability for generating, acquiring, storing, transforming, processing,
retrieving, utilizing, or making available information via
telecommunications, and includes electronic publishing, but does not
include any use of any such capability for the management, control, or
operation of a telecommunications system or the management of a
5
telecommunications service.” 47 U.S.C. § 153(24). “Telecommunications
services” and “information services” are “two mutually exclusive
categories of service.” Inquiry Concerning High Speed Access to the
Internet Over Cable and Other Facilities, Internet Over Cable Declaratory
Ruling, 17 FCC Rcd 4798, 4823 (¶ 41) (2002) (“Cable Modem Order”),
aff’d in part & vacated in part sub nom. Brand X Internet Services v. FCC,
345 F.3d 1120 (9th Cir. 2003), rev’d, Brand X, 545 U.S. 967.
The Commission interprets the telecommunications
service/information service dichotomy in the Communications Act in
essence as codifying the regulatory distinction that the agency had
2
established in its 1980 Computer II Order between “basic” common
3
carrier communications services and “enhanced services.” The
Commission in the Computer II Order described a basic service as a “pure
transmission capability over a communications path that is virtually
transparent in terms of its interaction with customer-supplied information.”
2 Amendment of Section 64.702 of the Commission’s Rules and Regulations
(Second Computer Inquiry), Final Decision, 77 FCC 2d 384 (1980)
(“Computer II Order”), aff’d sub nom. CCIA v. FCC, 693 F.2d 198 (D.C. Cir.
1982), cert. denied, 461 U.S. 938 (1983).
3 See AT&T Co. v. FCC, 454 F.3d 329, 333 (D.C. Cir. 2006); see also
Federal-State Joint Board on Universal Service, 13 FCC Rcd 11830, 11516
(¶ 33) (1998) (“[T]he differently-worded definitions of ‘information services’
and ‘enhanced services’ can and should be interpreted to extend to the same
functions.”) (citation and internal quotation marks omitted).
6
Computer II Order, 77 FCC 2d at 420 (¶ 96). In contrast, an enhanced
service “combines basic service with computer processing applications that
act on the format, content, code, protocol or similar aspects of the
subscriber’s transmitted information, or provide the subscriber additional,
different, or restructured information, or involve subscriber interaction
with stored information.” Id. at 387 (¶ 5). See 47 C.F.R. § 64.702(a).
Even when a service fit within the “literal” definition of enhanced
services, however, the FCC under the Computer II regime classified that
service as basic if the object of the application was to facilitate the
provision of the basic service without altering its fundamental character.
North Am. Telecomms. Ass’n, Memorandum Opinion and Order, 101 FCC
2d 349, 359-60 (¶¶ 24-28) (1985) (“NATA Centrex Order”), recon. denied,
3 FCC Rcd 4385 (1988). For example, if the purpose of an enhanced
function (such as a computer processing function) was “simply to facilitate
the routing” of a basic telephone call so that “each call is no more than the
creation of transmission channel chosen by the customer,” the FCC
deemed the enhanced function to be an “adjunct to a basic service” and it
did not classify the service itself as an “enhanced service.” Id. at 362
(¶ 31). Moreover, under the Computer II framework, the FCC classified
7
“both basic and enhanced services by reference to how the consumer
perceives the service being offered.” Brand X, 545 U.S. at 976.
The classification of a service as telecommunications or as a
telecommunications service has important regulatory consequences.
Section 254(d) requires “[e]very telecommunications carrier that provides
interstate telecommunications services” to contribute to the federal
universal service program — a program that helps to support the provision
of certain communications services to schools, libraries, and persons in
rural and other high-cost service areas. 47 U.S.C. § 254(d). A
“telecommunications carrier” is, subject to exceptions inapplicable here,
defined as any “provider of telecommunications services,” id., § 153(51),
and is subject to regulation as a common carrier under Title II of the
Communications Act, 47 U.S.C. § 201 et seq. See Virgin Islands Tel.
Corp. v. FCC, 198 F.3d 921, 926-927 (D.C. Cir. 1999).
Section 254(d) also authorizes the FCC to impose a universal service
contribution requirement upon “[a]ny other provider of interstate
telecommunications” — i.e., those telecommunications providers that do
not qualify as “telecommunications carriers” — “ if the public interest so
requires.” 47 U.S.C. § 254(d). Pursuant to that authority, the Commission
generally has imposed that requirement upon “providers of interstate
8
telecommunications for a fee on a non-common carrier basis.” 47 C.F.R.
§ 54.706(a). Thus, with exceptions not applicable to this case, “any entity
that provides interstate telecommunications to users . . . for a fee” must
contribute to the USF, whether it provides such telecommunications on a
common carrier basis or not. Federal-State Joint Board on Universal
Service, Report and Order, 12 FCC Rcd 8776, 9178 (¶ 786) (1997)
(“Universal Service First Report and Order”), aff’d in part and rev’d in
part Texas Office of Public Utility Council v. FCC, 183 F.3d 393 (5th Cir.
1999). Put differently, an entity can be required to contribute to USF as
long as it provides telecommunications, regardless of whether it provides a
telecommunications service.
The Commission requires telecommunications providers to contribute
to the USF on the basis of the revenues they receive from end users of their
interstate telecommunications services. See 47 C.F.R. § 54.706(b). The
Commission has established a specific methodology for computing those
USF contributions, and has adopted forms that telecommunications providers
must file to show their compliance with the USF requirements. Changes to
the Board of Directors of the National Exchange Carrier Ass’n, Inc. Federal-
State Joint Bd. on Universal Service, Report and Order and Second Order on
Reconsideration, 12 FCC Rcd 18400 (1997) (“Second Order on
9
Reconsideration”). See Reconsideration Order, 27 FCC Rcd at 899 (¶ 4)
4
(J.A. ).
The Commission’s staff is authorized to periodically revise these forms
and their associated instructions to reflect Commission changes and
clarifications in the contribution obligations. Order, 23 FCC Rcd at 10733
(¶ 3) (J.A. ); Second Order on Reconsideration, 12 FCC Rcd at 18442
(¶ 81). In 2002, the Commission’s staff revised FCC Form 499-A and 499-Q
to list “toll teleconferencing” as one of the illustrative examples of
telecommunications that are subject to direct USF contributions. Order, 23
FCC Rcd at 10732 (¶ 4) (J.A. ). See, e.g., Form 499-A Instructions at 20.
The Commission has designated the Universal Service Administrative
Company (“USAC”) as administrator of the FCC’s universal service
programs. 47 C.F.R. § 54.701. USAC is “solely responsible” for the billing
and collection process, Second Order on Reconsideration, 12 FCC Rcd at
18424 (¶ 42), and is authorized to, inter alia, conduct audits of carriers
concerning their universal service contributions. See 47 C.F.R. § 54.707.
Aggrieved persons can appeal directly to the Commission any adverse
decisions of USAC “that raise novel questions of fact, law or policy.” 47
4 Contributing providers report their revenues for direct USF contribution
purposes using FCC Form 499-A (filed annually) and FCC Form 499-Q (filed
quarterly). See Reconsideration Order, 27 FCC Rcd at 899, n.11 (J.A. ).
10
C.F.R. § 54.722. The FCC conducts de novo review of those direct appeals.
47 C.F.R. § 54.723(b).
2. InterCall’s Audio Bridging Service
InterCall’s audio bridging service is a form of telephone “conferencing
service that allows multiple end users to communicate” with each other.
InterCall Request for Review (Feb. 1, 2008) at 4 (J.A. ). InterCall supplies
the conference call participants selected by its customer with local or toll free
telephone service that InterCall first obtains from one or more
telecommunications vendors. Id. at 5 (J.A. ). Like an ordinary telephone
service, InterCall’s conferencing service enables persons to communicate
over telephone lines without change in the form or content of the information
as sent or received. See Order, 23 FCC Rcd at 10734 (¶ 11) (J.A. ).
However, instead of the two-way communications of an ordinary telephone
call, InterCall’s conferencing service permits three of more persons to
communicate simultaneously.
As InterCall described its own conference calling service, the service
“employ[s] a device — an audio bridge — that links [the] multiple
communications together.” InterCall Request for Review (Feb. 1, 2008) at 4
(J.A. ). In addition to this linking of multiple participants, Intercall’s audio
bridge “performs conference validation functions” (for example, users must
11
enter an identification code to participate in a call), and “collects billing and
participant information for each bridged call.” Id. InterCall also provides a
number of conference control features, such as muting, recording, erasing and
operator assistance, InterCall Request for Review at 4 (J.A. ), but InterCall’s
customers can use the conferencing service “with or without accessing these
features.” Order, 23 FCC Rcd at 10735 (¶ 13) (J.A. ).
B. This Proceeding
1. Proceedings Before USACIn 2007, USAC initiated an audit of InterCall concerning its
obligations to make USF contributions (and file the requisite forms) based
on the company’s provision of its audio bridging service. See Order, 23
FCC Rcd 10733 (¶ 5) (J.A. ); Letter from USAC to Steven A. Augstino,
Esq., counsel to InterCall, Inc. at 1 (Jan. 15, 2008) at 1 (“USAC Decision”)
(J.A. ). InterCall’s predecessor, ECI, Inc., had acknowledged that, in
providing audio bridging service, it was acting as a telecommunications
provider subject to the FCC Form 499 filing requirements and associated
USF contribution obligations. Id. at 3 n.6 (J.A. ). The company, however,
stopped filing Form 499 after it was acquired by InterCall on December 1,
2004. Id. at 3 n.6 (J.A. ). In front of USAC, InterCall argued that it was
acting solely as a provider of information services and therefore had no
12
obligation to register as a USF contributor or make associated contributions.
Letter from Brad E. Mutschelknaus, Counsel to InterCall, Inc. to David
Capozzi, Acting General Counsel, USAC (June 5, 2007) (J.A. ).
In a letter ruling dated January 15, 2008, USAC held that InterCall’s
audio bridging services are telecommunications, and thus InterCall was
subject to USF obligations. USAC Decision at 1 (J.A. ). USAC
accordingly directed InterCall “to make all required Form 499 filings,
including filing any and all previous FCC Form 499s that have come due
since InterCall started providing interstate telecommunications.” Id. at 3
(J.A. ).
2. Proceedings Before The FCC
a. Proceedings Leading To The Order
After InterCall sought FCC review of the USAC Decision, the
Commission in February 2008 invited interested persons to file comments
and reply comments on InterCall’s request. Comment Sought on InterCall,
Inc.’s Request for Review of a Decision by the Universal Service
Administrative Company and Petition for Stay, Public Notice, 23 FCC Rcd
1895 (2008) (“Public Notice I”) (J.A. ). In response to that invitation, eight
parties filed comments and/or reply comments. Order, App. (J.A. ). The
comments were divided on the issue as to whether InterCall provides
13
telecommunications that are subject to USF contributions. See, e.g., Premier
Global Services Comments at 5 (Feb. 25, 2008) (J.A. ) (arguing that
InterCall’s services are information services); Verizon Opposition at 2-5
(Feb. 25, 2008) (J.A. ) (arguing that InterCall’s services are
telecommunications); Qwest Communications International Comments
(Feb. 25, 2008) at 2 (J.A. ) (taking no position on whether InterCall’s
services are telecommunications or information services).
On June 30, 2008, the Commission released an order denying in part
and granting in part InterCall’s request for review. Order, 23 FCC Rcd
10731 (J.A. ). The Commission held that the audio bridging services
provided by InterCall are telecommunications and thus are subject to the
direct USF contribution requirements set forth in section 254 of the
Communications Act and the FCC’s implementing rule. Id. at 10734-38
5
(¶¶ 10-22) (J.A. ). The Commission explained that InterCall’s service fits
the statutory definition of “telecommunications”: “[it] allows end users to
transmit a call (using telephone lines), to a point specified by the user (the
5 The Commission explained that the record did not show whether InterCall
provided telecommunications on a common carrier or private carrier basis.
Order, 23 FCC Rcd at 10734 (¶ 7) (J.A. ). The Commission concluded,
however, that InterCall has a direct USF contribution obligation whether it is
(a) a telecommunications carrier that provides telecommunications services
on a common-carriage basis, or (b) a private carrier that offers
telecommunications. Id.
14
conference bridge), without change in the form or content of the information
as sent and received (voice transmission).” Id. at 10734-35 (¶ 11) (J.A. ).
See 47 U.S.C. § 153(50). The Commission explained that the purpose and
function of InterCall’s audio bridge “is simply to facilitate the routing of
ordinary telephone calls,” and thus does not affect the status of InterCall’s
offering as telecommunications. Id. at 10735 (¶ 11) (J.A. ).
The Commission also found that the additional functions and features
that InterCall provides in conjunction with its conferencing service do not
transform its offering into an information service. Id. at 10735 (¶¶ 12-13)
(J.A. ). The Commission pointed out that all providers that charge a fee for
their services must collect billing-related information, such as data regarding
a customer’s usage, in order to provide invoices to its customers. Thus, the
collection and storage of such information could not transform the offering
of telecommunications into an information service. Id. at 10735 (¶ 12)
(J.A. ).
The Commission further determined that the other features InterCall
offers in conjunction with its conferencing service, such as muting,
recording, erasing, and accessing operator services, “are not sufficiently
integrated into the offering to convert the offering into an information
service.” Id. at 10735 (¶ 13) (J.A. ). These features, the Commission
15
explained, “do not alter the fundamental character of InterCall’s
telecommunications offering.” Id. In that regard, the agency noted that
these “separate capabilities are part of a package in which the customer can
still conduct its conference call with or without accessing these features.”
Id. at 10735 (¶ 13) (J.A. ). The Commission therefore rejected Intercall’s
argument that these distinct enhanced features transformed the company’s
audio bridging service into an information service. Id.
Finally, the Commission made clear that under the Order all
“similarly situated” stand-alone audio bridging providers must directly
6
contribute to the USF. Id. at 10737 (¶ 21) (J.A. ). The Commission
explained that this would “promote the public interest by establishing a
level playing field and encouraging open competition among [stand-alone
and integrated] providers of audio bridging services.” Id. at 10739 (¶ 25)
(J.A. ).
With respect to the appropriate remedy, the Commission reversed
USAC’s ruling that InterCall must directly contribute to the USF for past
periods. Observing that it had been unclear prior to the issuance of the
adjudicatory Order whether stand-alone providers of audio bridging
6 Stand-alone audio bridging service providers are audio bridging service
providers that purchase the underlying telecommunications transmission
service from another entity. See Order, 23 FCC Rcd 10738 n.62 (J.A. ).
16
services were subject to direct USF contribution requirements, the
Commission made an equitable determination that InterCall was obligated
to contribute directly to the USF only on a prospective basis. Id. at 10738-
39 (¶¶ 24-25) (J.A. ). In doing so, the Commission made clear that this
obligation likewise extended to similarly situated providers. See id.
b. Reconsideration Proceedings
InterCall did not seek reconsideration of the Order. On July 30,
2008, however, the FCC received petitions for reconsideration of the Order
from (1) Global Conference Partners (“GCP”) and (2) The Conference
Group, A+ Conference Ltd, and Free Conferencing Corporation, filing
jointly (collectively The Conference Group). Global Conference Partners
Petition (July 30, 2008) (J.A. ); The Conference Group Petition (July 30,
2008) (J.A. ). The Commission invited public comment on the petitions,
see Public Notice, DA 08-1875 (Aug. 8, 2008) (“Public Notice II”) (J.A.
), and nine persons submitted comments and/or reply comments. For
example, Cisco Systems, Inc. (“Cisco”)—the parent company of Cisco
Webex, which has appeared as an intervenor in support of petitioner in this
case—expressed “support[]” for the Commission’s “plainly correct”
decision which, in its view, “simply confirms that services like Intercall’s
audio bridging that share the same fundamental character as traditional
17
telecommunications are subject to the same regulatory obligations as
traditional telecommunications.” Cisco Comments at 1, 3 (Sept. 8, 2008)
(J.A. ). Cisco told the FCC that it was “clear that the Commission did not
sub silentio narrow or modify its long-standing tests” for “[d]istinguishing
between an information service and a telecommunications service.” Id. at
4 (J.A. ).
After considering the petitions and comments, the Commission in
January 2012 denied the reconsideration petitions and reaffirmed that
InterCall’s audio bridging service is telecommunications. Reconsideration
Order, 27 FCC Rcd 898 (J.A. ). The Commission explained that whether a
service is classified as “information or telecommunications hinges on whether
the transmission capability is ‘sufficiently integrated’ with the information
service capabilities to make it reasonable to describe the two as a single,
integrated offering.” Id. at 903 (¶ 12) (J.A. ) (quoting Regulation of Prepaid
Calling Card Services, Declaratory Ruling and Report and Order, 21 FCC
Rcd 7290, 7296 (¶ 14) (2006) (“Prepaid Calling Card Order”), aff’d in part
& vacated in part, Qwest Services Corp. v. FCC, 509 F.3d 531 (D.C. Cir.
2007)).
The Commission reiterated that a provider’s addition of enhanced
features to a teleconferencing service (such as functions enabling caller
18
verification, collection of billing and participant information, operator
assistance, and the ability to record, delete, play back, and mute) does not
create a single integrated information service. Id. The FCC also clarified that
7
the bundling of “whiteboarding and other computer capabilities that may be
used simultaneously with the voice teleconference [do not] transform the
service into an information service” because those service “are not
sufficiently integrated with audio conferencing services to be reasonably
determined a single product.” Id. at 904 (¶ 13) (J.A. ). Indeed, the bridging
service could be used “with or without” those features. See id. Consistent
with the Prepaid Calling Card Order, the Commission held that a provider
offering a bundled service containing both telecommunications and
information services “may not treat the entire bundled service as an
information service for purposes of USF contribution assessment, but must
instead apportion its end user revenues between telecommunications and non-
telecommunications sources.” Id. at 904, 905 (¶¶ 13, 16) (J.A. ).
7 “Whiteboarding” permits conference call participants to interact with a
screen on which a computer image (for example, of other callers) appears.
See generally Schools and Libraries Universal Service, Report and Order
and Further Notice of Proposed Rulemaking, 25 FCC Rcd 6562, 6577 n.118
(2009).
19
The Commission rejected the argument that the agency, in ruling that
InterCall offers telecommunications and thus must contribute to the USF—
and that similarly situated audio bridging service providers likewise must do
so—violated the APA by effectively issuing a new substantive rule without
proper notice and comment. Id. at 904-05 (¶ 14) (J.A. ). The Commission
pointed out that it had not engaged in rulemaking, but rather had issued an
adjudicatory ruling that “determined the regulatory status of the service in
question based on existing rules and requirements and applicable precedent.”
Id. at 905 (¶ 15) (J.A. ). The Commission explained further that the APA
notice and comment requirements do not apply when the FCC issues an
adjudicatory ruling. Id. at 904 (¶ 15) (J.A. ).
SUMMARY OF ARGUMENT
1. The FCC indisputably had authority to determine that InterCall’saudio bridging service is an offering of “telecommunications” regardless of
whether USAC likewise had authority to rule on the regulatory classification
of InterCall’s service. Section 54.722(a) of the FCC’s rules explicitly
authorizes the Commission to review de novo USAC rulings involving novel
questions of law. More fundamentally, Congress empowered the
Commission to administer and enforce the Communications Act, and the
FCC’s ruling in this case is well within that delegated authority.
20
2. The Order is an adjudicatory ruling not subject to the APA
requirements for substantive rulemaking. The Order arose out of an audit of
a specific company, InterCall, and the FCC based its ruling that InterCall’s
audio bridging service was telecommunications on the specific functions and
features of InterCall’s service. The FCC’s observation that, like InterCall,
similarly situated audio bridging service providers must contribute directly to
the USF does not transform the FCC’s adjudicatory ruling into a rulemaking
order. Instead, it merely reflects the fundamental administrative law principle
that an adjudicatory order has precedential effect on “similarly situated”
entities.
The FCC’s ruling in this case also has none of the characteristics of a
substantive rule. The FCC’s ruling neither creates any new rights or duties,
nor does it amend any existing rule or depart from agency precedent. The
FCC decided only that InterCall’s audio bridging service is
telecommunications as defined in the Communications Act, thus clarifying
that InterCall and similarly situated providers are required by section 254 of
the Communications Act and section 54.706 of the FCC’s rules to contribute
directly to the USF. That direct USF contribution requirement thus arises
from preexisting law (section 254 and section 54.706), and not from the
Order on review.
21
Section 4(j) of the Communications Act gives the FCC broad
discretion to determine the procedures it uses in its own proceedings.
Because the procedures the FCC used in the proceeding below complied with
all applicable constitutional and statutory requirements for informal
adjudication, the Supreme Court’s decision in Vermont Yankee requires the
Court to defer to the agency’s choice of procedures.
The FCC reasonably classified InterCall’s audio bridging service as
telecommunications. InterCall offers basic transmission that enables multiple
callers to participate in the same telephone conference call. From the
perspective of the user, InterCall’s service essentially is an ordinary telephone
call (although it may involve three or more participants). By linking the
multiple callers together, the audio bridge facilitates the provision of
telecommunications without altering its fundamental character.
Although InterCall also provides enhanced service capabilities (such as
muting, recording, and operator assistance) in conjunction with its offering of
telecommunications, the Commission reasonably determined that those
capabilities are not sufficiently integrated with the conferencing service to so
as to transform the entire offering into an “information service.” Applying
the functional integration test established in prior FCC cases and applied by
the Supreme Court in Brand X, the Commission reasonably took into account
22
whether InterCall’s customers conduct conference calls with or without using
any of those enhanced capabilities. The agency found that, if customers use a
service without any of the enhanced functionalities, the service is pure
transmission and the telecommunications and information service elements
are not functionally integrated. The standard applied by the Commission was
fully consistent with the agency’s precedent and sound policy.
Communications providers should not be able to evade their USF
contribution obligations (which hinge here on classification of an offering as
“telecommunications”) by the simple expedient of repackaging their offering
to include add-ons that customers may not use in order to access the basic
telecommunications function.
ARGUMENT
I.
THE FCC’S ORDER
IS REVIEWED UNDERDEFERENTIAL STANDARDS.
1. The Conference Group bears a heavy burden to establish that the
Order on review is “arbitrary, capricious [or] an abuse of discretion.” 5
U.S.C. § 706(2)(A). Under this “highly deferential” standard, the court
presumes the validity of agency action. E.g., Nat’l Tel. Co-op. Ass’n v. FCC,
563 F.3d 536, 541 (D.C. Cir. 2009). The court must affirm unless the
Commission failed to consider relevant factors or made a clear error in
23
judgment. E.g., Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
2. Review of the Commission’s interpretation of the Communications
Act is governed by two-step analysis set forth in Chevron USA, Inc. v. NRDC,
467 U.S. 837(1984). Under Chevron, the Court must determine “whether
Congress has directly spoken to the precise question at issue.” 467 U.S. at
843 n.9, 842. If it has, “the court, as well as the agency, must give effect to
the unambiguously expressed intent of Congress.” Id. at 842-43.
When, as in this case, “the statute is silent or ambiguous with respect to
the specific issue, the question for the court is whether the agency’s answer is
based on a permissible construction of the statute.” Id. at 843. See Brand X,
545 U.S. at 984-85 (concluding that the definition of “telecommunications
service” in the Communications Act is ambiguous). In such circumstances,
“Chevron requires a federal court to accept the agency’s [reasonable]
construction of the statute, even if the agency’s reading differs from what the
court believes is the best statutory interpretation.” Brand X, 545 U.S. at 980.
3. “Reviewing courts accord even greater deference to agency
interpretations of agency rules than they do to agency interpretations of
ambiguous statutory terms.” Capital Network Sys. v. FCC, 28 F.3d 201, 206
(D.C. Cir. 1994). “The Commission’s interpretation of its own rules is
24
‘entitled to controlling weight unless it is plainly erroneous or inconsistent
with the regulation.’” Star Wireless, LCC v. FCC, 522 F.3d 469, 473 (D.C.
Cir. 2008) (citation omitted); accord Talk Am., Inc. v. Michigan Bell Tel. Co.,
131 S. Ct. 2254, 2261 (2011).
Relying upon Christopher v. SmithKline Beecham Corp., 132 S. Ct.
2156 (2012), The Conference Group contends that the Court should not
accord deference to the FCC’s interpretation of its own rules because “the
question of whether deference is due has,” according to petitioner,
“recently undergone a significant shift,” Pet. Br. at 16. The Conference
Group is mistaken. In Christopher, the Court expressly recognized that
the “general rule” “calls for [judicial] deference to an agency’s
interpretation of its own ambiguous regulation.” Id. at 2166. The Court
declined to apply that general rule because it would have “impose[d]
potentially massive liability on [the] respondent for conduct that occurred
well before that interpretation was announced.” Id. at 2167. The Court
was concerned that giving deference to the agency’s interpretation in such
circumstances would “seriously undermine the principle that agencies
should provide regulated parties ‘fair warning of the conduct [a
regulation] prohibits or requires.’” Id. at 2167 (quoting Gates & Fox Co.
25
v. Occupational Safety and Health Review Comm’n, 790 F.2d 154, 156
(D.C. Cir. 1986)).
That is not the case here. To avoid any risk of the “unfair surprise”
(id.) that concerned the Court in Christopher, the FCC carefully limited its
adjudicatory ruling to prospective-only effect and underscored that InterCall
and similarly situated providers had no USF contribution obligation for the
time period before the Commission issued its ruling. See Order, 23 FCC Rcd
at 10738 (¶ 24) (J.A. ). Thus, there is no reason for the Court to depart from
the “general rule” of deference to an agency’s reasonable understanding of its
own regulations.
II.
THE FCC ACTED WITHIN ITS AUTHORITY AND
USED PROPER PROCEDURES IN RULING THAT
THE AUDIO BRIDGING SERVICES AT ISSUE ARE
TELECOMMUNICATIONS.
the Communications Act, 47 U.S.C. § 151, the FCC acted well within its
authority in determining that InterCall’s audio bridging service constitutes
“telecommunications.” And because it made that determination in the
context of an informal adjudication (rather than a rulemaking) — a
proceeding arising out of a specific audit of a specific company — it properly
concluded that the APA’s notice-and-comment requirements for rulemakings
did not apply.
26
A. The FCC Had Clear Authority To Decide
Whether InterCall’s Audio Bridging Service Is
Telecommunications.
USAC’s ruling, lacked authority to determine that InterCall’s audio bridging
service is “telecommunications” and thus providers of such services must
make direct contributions to the USF. Pet. Br. at 19-25. The rationale for
that claim appears to be that (a) USAC allegedly exceeded its authority in
determining whether InterCall’s audio bridging service is
“telecommunications” without first seeking the FCC’s guidance, and thus
(b) the FCC, in reviewing USAC’s ruling, lacked authority itself to decide
whether InterCall’s service constitutes “telecommunications.” Id. at 19.
According to The Conference Group, the FCC had “only one option — [to]
reverse USAC’s determination . . . in total.” Id. That argument rests on a
fundamental misunderstanding of the FCC’s authority under the
Communications Act.
The Conference Group has invoked the Court’s jurisdiction to review
the FCC’s Order, not the underlying USAC ruling (which in any event is not
reviewable in court). Thus, the relevant issue is the FCC’s authority in the
Order to adjudicate whether InterCall’s audio bridging service is
“telecommunications,” not whether USAC in the earlier ruling had exceeded
27
8
the authority delegated to it by the FCC. Here, the FCC’s rules do not
support The Conference Group’s position, and certainly do not do so with the
clarity that would be necessary to overcome the deference due the
Commission in interpreting its own regulations.
On the contrary, section 54.723(b) of the FCC’s rules authorizes the
Commission to “conduct [a] de novo review” of USAC rulings “that involve
novel questions of fact, law or policy.” 47 C.F.R. § 54.723(b). See also 47
C.F.R. § 54.722(a) (“requests for review [of USAC rulings] that raise novel
questions of fact, law or policy shall be considered by the full Commission.”)
(emphasis added). In conducting that de novo review here, the Commission
independently evaluated whether InterCall’s audio bridging service is
telecommunications. Nothing in sections 54.722 or 54.723 supports The
8 In challenging the lawfulness of USAC’s ruling, The Conference Group
emphasizes that the “the plain language” of 47 C.F.R. § 54.706(a) does not
include audio bridge services “in the list of ‘telecommunications’ that are
subject to direct USF contribution under 47 C.F.R. § 54.706(a).” Pet. Br. at
20. The Conference Group, however, fails to acknowledge that the “plain
language” of that rule states that “[i]nterstate telecommunications include, but
are not limited to” the services enumerated in section 54.706(a). 47 C.F.R.
§ 54.706(a) (emphasis added). The fact that audio bridging service does not
appear in the non-exhaustive list of services in section 54.706(a) thus does
not mean that the service is not telecommunications.
28
Conference Group’s claim that the FCC’s “only . . . option” (Pet. Br. at 19) in
9
reviewing an allegedly ultra vires USAC’s ruling is summary reversal.
More fundamentally, Congress entrusted the Commission with the duty
to “execute and enforce” the Communications Act, including section 254. 47
U.S.C. § 151. See Brand X, 545 U.S. at 980. Thus, independent of the FCC’s
jurisdiction to review USAC rulings under 47 C.F.R. § 54.723(b), the FCC, in
administering section 254, has authority to issue a ruling clarifying that
InterCall must contribute directly to the USF because the audio bridging
service it offers is “telecommunications” within the meaning of the Act and
the agency’s implementing rules. See also 47 C.F.R. § 1.2; 5 U.S.C.
§ 554(e). Indeed, the Supreme Court has explicitly held that the FCC is
entitled to deference in exercising its authority to determine whether or not a
specific service is an information service under the Communications Act.
Brand X, 545 U.S. at 980-86. The Conference Group’s suggestion that the
FCC lacked authority to classify InterCall’s audio bridge service as
telecommunications is inconsistent with this precedent.
9 The Conference Group also challenges the action of the FCC’s staff in
revising FCC Forms 499-A and 499-Q in 2002 to include providers of “toll
teleconferencing services” as entities that must contribute directly to the USF.
See Pet. Br. at 22-24. The Conference Group’s petition for review of the
FCC’s Order, however, does not invoke the Court’s jurisdiction to review
that 10-year-old staff action. Nor could it do so. See, e.g., 28 U.S.C. § 2344;
47 U.S.C. § 155(c)(7).
29
B. Because The FCC’s Orders Were Adjudicatory,
The APA’s Notice-And-Comment Requirements
For Rulemakings Are Inapplicable.
adjudication violated the APA notice-and-comment requirements for
substantive rulemaking has a fundamental defect. The Conference Group
ignores a well-established proposition of administrative law that, in contrast
to substantive rulemakings and formal adjudications, the APA contains no
specific notice-and-comment requirements for informal agency adjudications.
Occidental Petroleum, 873 F.2d at 337; see also FCC v. Fox Television
Stations, Inc., 556 U.S. 502, 529 n.8 (2009); United States Telecom Ass’n v.
FCC, 400 F.3d 29, 34 n.9 (D.C. Cir. 2005). The Order on review was a
classic informal adjudication not subject to the APA’s notice-and-comment
requirements for rulemakings, and the Commission acted well within its
discretion in proceeding via adjudication rather than rulemaking in this case.
1. The Order
Is An Adjudicatory
Ruling.
The FCC reasonably determined that the Order on review was an“adjudicatory decision.” Reconsideration Order, 27 FCC Rcd at 905 (¶ 15)
(J.A. ). The administrative proceeding below involved the FCC’s review of
USAC’s audit ruling of a specific company, InterCall. Based upon its review
of the functions and features of InterCall’s audio bridging service, the FCC
30
classified that offering as “telecommunications,” and clarified that InterCall is
therefore subject to USF contribution requirements. The proceeding below
thus involved “a classic case of agency adjudication, a case that involves
decisionmaking concerning [a] specific person[], based on a determination of
particular facts and the application of general principles to those facts.”
Harborlite Corp. v. ICC, 613 F.2d 1088, 1093 n.11 (D.C. Cir. 1979). See
AT&T Co., v. FCC, 454 F.3d 329, 333 (D.C. Cir. 2006) (FCC’s rulings in
classifying services as telecommunications or information services “reflect a
highly fact-specific, case-by-case style of adjudication.”).
The Conference Group acknowledges that the Order was issued as the
culmination of an “informal adjudication.” Pet. Br. at 1, 24, 35, 36. It
maintains, however, that the FCC’s statement that “InterCall and similarly
situated stand-alone audio bridging service providers [must] contribute
directly to the USF,” Order, 23 FCC Rcd at 10735 (¶ 14) (J.A. ),
transformed the FCC’s adjudicatory ruling into a rulemaking order. That
argument is incorrect. It is well-established that orders handed down in
adjudications “may affect agency policy and have general prospective
application.” New York State Comm’n on Cable Television v. FCC, 749 F.2d
804, 814 (1984) (quoting Chisholm v. FCC, 538 F.2d 349, 365 (D.C. Cir.
1976)). Indeed, “[m]ost norms that emerge from a rulemaking are equally
31
capable of emerging (legitimately) from an adjudication.” Qwest Servs.
Corp., 509 F.3d at 536 (citing NLRB v. Bell Aerospace Co., 416 U.S. 267,
294-95 (1974)).
Because “basic tenets of administrative law require the Commission to
apply its rules consistently in adjudicatory proceedings,” General Am.
Transp. Corp. v. ICC, 872 F.2d 1048, 1060 (D.C. Cir. 1989) (emphasis in
original), the FCC’s classification of Intercall’s service as
“telecommunications” and its ruling that Intercall therefore must make direct
USF contributions would have precedential effect for similarly situated
providers of audio bridging services whether or not the FCC had explicitly
stated so in the Order on review. See also Bell Aerospace, 416 U.S. at 292
(agency may in an adjudication “promulgate a new standard that would
govern future conduct” of non-parties); NLRB v. Wyman-Gordon Co., 394
U.S. 759, 765-766 (1969) (plurality opinion) (“[a]djudicated cases may and
do . . . serve as vehicles for the formulation of agency policies, which are
applied and announced therein,” and such cases “generally provide a guide to
action that the agency may be expected to take in future cases”); Goodman v.
FCC, 182 F.3d 987, 994 (D.C. Cir. 1999) (“[T]he nature of adjudication is
that similarly situated non-parties may be affected by the policy or precedent
applied, or even merely announced in dicta.”).
32
In sum, the FCC merely noted the obvious proposition that the
agency’s adjudicatory ruling as to InterCall, like any other adjudicatory
decision of the agency, has precedential effect for “other similarly situated”
entities — in this case, audio bridge service providers. See Reconsideration
Order, 27 FCC Rcd at 905 (¶ 15) (J.A. ). That unremarkable — and correct
— statement of administrative law did not somehow convert the proceeding
from adjudication into rulemaking. Rather, it merely ensured that there was
no confusion as to the effect of this precedent on similarly situated parties.
As in any other adjudicatory case, other entities are free to show that they are
not similarly situated and that this precedent therefore does not apply to them.
The Conference Group nonetheless contends that the FCC’s action fits
within the broad definition of a rule and thus the FCC must be deemed to
have engaged in rulemaking. Pet. Br. at 29 (citing 5 U.S.C. § 551(4)). That
argument likewise fails. The Commission has “very broad discretion whether
to proceed by way of adjudication or rulemaking.” Qwest Corp., 509 F.3d at
536 (quoting Time Warner Entm’t Co., L.P. v. FCC, 240 F.3d 1126, 1141
(D.C. Cir. 2001)). Although the FCC could have classified the audio
bridging services of InterCall and similarly situated companies as
telecommunications by adopting an interpretative rule — which, like
adjudicatory orders are not subject to the notice and comment requirements of
33
section 4 of the APA, see 5 U.S.C. § 553(b)(A)—it had discretion to take the
same action in an adjudicatory ruling. See Qwest Corp, 509 F.3d at 536
(rejecting petitioner’s argument “that if it walks like a rule and talks like a
rule, it must be a rule.”); Goodman, 182 F.3d at 993 (same). Indeed, the FCC
in a long line of cases has used its adjudicatory authority to classify specific
services as telecommunications or information services under the
10
Communications Act and/or the Commission’s rules. See AT&T, 454 F.3d
at 333.
The Conference Group mistakenly contends that the FCC’s
characterization of its action as adjudication and not rulemaking “is accorded
no deference by a reviewing court.” See Pet. Br. at 29. The courts have long
held that an agency’s characterization of its decision as an adjudicatory ruling
“in itself is entitled to a significant degree of credence.” British Caledonian
Airways, Ltd. v. CAB, 584 F.2d 982, 992 (D.C. Cir. 1978). See, e.g., Am.
Airlines, Inc. v. DOT, 202 F.3d 788, 797 (5th Cir. 2000) (courts accord
10 E.g., Appropriate Regulatory Treatment for Broadband Access to the
Internet Over Wireless Networks, Declaratory Ruling, 22 FCC Rcd 5901
(2007); United Power Line Council’s Petition for Declaratory Ruling
Regarding the Classification of Broadband over Power Line Internet Access
Service as An Information Service, Memorandum Opinion and Order, 21
FCC Rcd 13281 (2006); Prepaid Calling Card Order, 21 FCC Rcd 7290; In
the Matter of AT&T Corp., Order and Notice of Proposed Rulemaking, 20
FCC Rcd 4826 (2005), aff’d sub nom. AT&T Co., 454 F.3d 329.
34
“significant deference to the agency’s characterization of its own action [as
adjudicatory].”)
Contrary to The Conference Group’s assertion, the fact that, in the
interests of fairness, the FCC chose to limit its adjudicatory ruling to
prospective-only effect does not convert that determination into a substantive
rule. As this Court has recognized, agencies may decline to give adjudicative
rulings retroactive effect for equitable reasons, see generally Qwest, 509 F.3d
531, and any precedential impact of the specific ruling here on similarly
situated third parties naturally would be on a prospective-only basis.
Equally flawed is The Conference Group’s suggestion that the Order is
not adjudicatory because the agency’s ruling allegedly applies broadly to the
entire audio bridging industry. E.g., Pet. Br. at 19, 25, 33-34. First, contrary
to The Conference Group’s contention, the Commission’s Order did not
decide that all audio bridging companies (regardless of the type of service
they offer) must contribute to the USF. Rather, the Order states only that
InterCall and “similarly situated stand-alone audio bridging service
providers” are subject to a direct contribution obligation, Order, 23 FCC Rcd
at 10735 (¶ 14) (emphasis added) (J.A. ), leaving unaffected those audio
bridging companies that do not provide services similar to those of InterCall.
35
Second, The Conference Group is wrong in suggesting that the
Commission can only issue a broadly applicable order in a rulemaking.
“Orders handed down in adjudications may establish broad legal principles,”
Central Texas Tel. Co-op., 402 F.3d at 210, and “have general prospective
application.” Chisholm, 538 F.2d at 365. See also Kidd Commc’ns v. FCC,
427 F.3d 1, 5 (D.C. Cir. 2005) (“An administrative agency can, of course,
make legal-policy through rulemaking or by adjudication.”). It is well-
established that “an adjudication can affect a large group of [persons] without
becoming a rulemaking.” Goodman, 182 F.3d at 994. See British
Caledonian Airways, 584 F.2d at 989 (rejecting argument that rulemaking is
required because the agency’s action “will have a significant effect on the
entire airline industry.”).
This Court’s decision in Qwest, 509 F.3d 531, is instructive. In that
case, the Court upheld the FCC’s choice of adjudication in ruling that two
kinds of prepaid calling cards are “telecommunications” and that the
providers of such cards therefore are subject to a direct USF contribution
requirement. Id. at 536. The Court rejected petitioner’s argument that “such
a broadly applicable order,” i.e., one that determined the regulatory
classification of all such cards, “can only take the form of a rule.” Id. at 536.
Noting that “[m]ost norms that emerge from a rulemaking are equally capable
36
of emerging (legitimately) from an adjudication,” the Court held that the FCC
acted lawfully in classifying the services in question in an adjudicatory ruling
— notwithstanding the broad sweep of the agency’s decision. Id. Qwest thus
forecloses any argument that the FCC cannot proceed by adjudication in
classifying a service as telecommunications because its ruling allegedly has
“industry-wide implications.” Pet. Br. at 10.
2. The FCC Did Not Enact A Substantive Rule.
The Conference Group argues that the FCC in the Order effectively
adopted a substantive rule and that failure to provide formal notice seeking
comment violated the APA. That argument fails for two reasons. First, as
shown in Section I.B.1, the Order on review is a product of informal
adjudication (to which notice-and-comment requirements are inapplicable),
not rulemaking. Second, as shown below, the FCC’s ruling has none of the
characteristics of a substantive rule in any event.
A rule is considered substantive if the agency “‘intends to create new
law, rights, or duties,’” Fertilizer Institute v. EPA, 935 F.2d 1303, 1307-08
(D.C. Cir. 1991) (citation omitted), or “effectively amends a prior legislative
rule.” American Mining Cong. v. Mine Safety & Health Admin., 995 F.2d
1106, 1112 (D.C. Cir. 1993). Here, the FCC did neither. Rather it decided
that Intercall’s audio bridging services are “telecommunications.” Order, 23
37
FCC Rcd at 10734-35 (¶¶ 10-13) (J.A. ). To be sure, that ruling had the
effect of clarifying that InterCall (and entities providing services similar to
InterCall’s) must make direct contributions to the USF as required by section
54.706 of the FCC’s rules. The genesis of that direct contribution
requirement, however, is section 54.706, a regulation predating the Order that
was not amended in the Order on review. Because the Order merely
“clarified the existing obligations of InterCall—and other similarly situated
audio bridge service providers—based upon existing rules and requirements,”
Reconsideration Order, 27 FCC Rcd at 905 (¶ 15) (J.A. ) (emphasis added),
the FCC in the proceeding below did not effectively adopt a substantive rule.
The Conference Group errs in claiming that the FCC’s ruling must be a
substantive rule because it has a “substantive adverse impact” upon the
affected industry. See Pet. Br. at 26 (internal quotations omitted). As this
Court has recognized, the agency’s selection of a particular “interpretation of
an ambiguous statute or rule,” “always” has “real consequences.” Paralyzed
Veterans of Am. v. D.C. Arena, LP, 117 F.3d 579, 588 (D.C. Cir. 1997).
Notwithstanding those consequences, an agency does not enact a substantive
rule when it “spells out a duty fairly encompassed within the regulation that
the interpretation purports to construe.” Id. See also Fertilizer Inst., 935
F.2d at 1308 (“the proper focus in determining whether an agency’s act is
38
legislative is the source of the agency’s action, not the implications of [the]
action.”).
The Conference Group also argues that the FCC effectively adopted a
substantive rule because the Order is at odds with the “understanding” of The
Conference Group and other audio bridging companies that the services they
offered were not telecommunications subject to a direct USF contribution
obligation. Pet. Br. 27. The Conference Group, however, does not show that
any such “understanding” is based upon any FCC rule or authoritative order
establishing that the services at issue are not telecommunications. See
Funeral Consumer Alliance, Inc. v. FTC, 481 F.3d 860, 863 (D.C. Cir. 2007)
(agency rule is substantive if it “repudiates or is irreconcilable with [a prior
legislative rule].”) (citation omitted).
Equally unavailing is The Conference Group’s suggestion of an
inconsistency between the FCC’s identification in two prior cases of “stand
alone conference bridging providers” as end-users and its ruling that InterCall
offers telecommunications that is subject to a direct USF contribution
obligation. Pet. Br. at 31 & n.57 (citing Qwest Commc’ns Corp. v. Farmers
& Merchants Mutual Tel., 22 FCC Rcd 17973 (2007) (subsequent history
omitted), and AT&T Corp. v. Jefferson Tel. Co., 16 FCC Rcd 16130 (2001)).
In one of these cases, the end-user provided a chat-line service that was
39
“materially different” from InterCall’s audio bridging services,
11
Reconsideration Order, 27 FCC Rcd at 902 n.35 (J.A. ). The other case
involved a tariff dispute, and the Commission’s characterization “was
premised on [the carrier’s] assertion that this was how they were defined in
[its] tariff.” Order, 23 FCC Rcd at 10737 (¶ 21) (J.A. ). In any event, “a
company may be classified as an end-user due to its role in obtaining
telecommunications services” yet also offer telecommunications with an
12
obligation to directly contribute to the USF. Id. at 10737 (¶ 22) (J.A. ).
11 The chat-line service offered by International Audiotext Network
(“IAN”), “randomly paired callers” and thus did not satisfy one the basic
requirements of telecommunications, i.e., that the transmission be routed
“between or among points specified by the user.” 47 U.S.C, § 153(50). See
Reconsideration Order, 27 FCC Rcd at 902 n.35 (J.A. ); Order, 23 FCC Rcd
at 10737 (¶ 19) (J.A. ). Moreover, in contrast to InterCall’s services, which
are “provided for a fee,” Order, 23 FCC Rcd at 10736 (¶ 17) (J.A. ), “IAN
did not impose any charges on callers,” AT&T Inc., 16 FCC Rcd at 16131
(¶ 3). Only providers that offer service “for a fee” are required to contribute
directly to the USF. 47 C.F.R. § 54.706(a).
12 The Conference Group fares no better in arguing that the FCC changed
course based on an alleged “inconsistency” between the Order and the lack of
any previous FCC enforcement action against an audio bridging provider for
failure to make USF contributions. Pet. Br. at 28, 31. As the Supreme Court
has recently pointed out, “an agency’s enforcement decisions are informed by
a host of factors, some bearing no relation to the agency’s views regarding
whether a violation has occurred.” Christopher, 132 S.Ct. at 2168.
40
3. The FCC Used Procedures That Both
Complied With The APA And Gave
Interested Parties Notice And A Full
Opportunity To Participate
“conduct its proceedings in such manner as will best conduce to the proper
dispatch of business and to the ends of justice.” 47 U.S.C. § 154(j).
Congress in Section 4(j) gave the Commission “broad discretion” to prescribe
procedures for use in its own proceedings, because it recognized that the
Commission is “in a better position than federal courts or Congress itself to
design procedural rules adapted to the peculiarities of the industry and the
tasks of the agency involved.” FCC v. Schreiber, 381 U.S. at 289, 290.
Section 4(j) reflects the “very basic tenet of administrative law that agencies
should be free to fashion their own rules of procedure.” Vermont Yankee
Nuclear Power Corp. v. Nat. Res. Def. Council, 435 U.S. 519, 544 (1978).
As discussed above, the Order on review arose out of a classic
adjudicatory proceeding—an audit of a specific company—and petitioner has
raised no persuasive argument that the agency abused its discretion in
proceeding by adjudication rather than notice-and-comment rulemaking in
this instance. The Supreme Court has long held that the APA establishes the
maximum procedural requirements a reviewing court may impose on an
administrative agency, except where the due process clause or the agency’s
41
governing statute mandates otherwise. Pension Benefit Guar. Corp. v. LTV
Corp., 496 U.S. 633, 653-56 (1990); Vermont Yankee, 435 U.S. at 524-25.
Because the FCC complied with all applicable constitutional and statutory
requirements applicable to informal adjudications, the FCC’s choice of
procedures in the adjudication below were within its discretion.
In any event, The Conference Group is wrong in claiming that the
procedures the FCC used “deprived The Conference Group, along with others
in the conference bridging services industry, of a meaningful opportunity to
participate and deprived the record of facts and legal argument.” See Pet. Br.
at 34. The FCC issued a Public Notice inviting the public to comment on the
issues raised in InterCall’s request for review of USAC’s ruling. Public
Notice I (J.A. ). A number of persons, recognizing the possible precedential
impact of a Commission adjudicatory ruling on companies providing audio
bridging services similar to those of InterCall, filed comments and/or reply
42
13
comments in response to the FCC’s invitation. After the Order was
released, the FCC accepted two petitions for reconsideration, including one
from The Conference Group. The FCC notified the public of those petitions
and invited interested persons again to submit comments and reply
comments. Public Notice II (J.A. ).
The four rounds of comments the FCC offered in two separate
pleading cycles provided interested persons a full opportunity to present
their views to the agency. The Conference Group complains that the
procedures the FCC used “deprived the record of facts and legal
argument,” Pet. Br. at 34, but it fails to identify any relevant facts or legal
arguments that were excluded from the administrative record. And The
Conference Group’s assertion that it was somehow “deprived” of a
“meaningful opportunity to participate,” id., rings hollow in light of its
13 Although The Conference Group suggests that the eleven-day initial
comment period was inadequate (Pet. Br. at 10), it provides no support for
that claim. This Court has upheld much shorter agency time limits for
providing comments. See, e.g., Am. Trading Transp. Co., Inc. v. United
States, 841 F.2d 421, 424 & n.4 (D.C. Cir. 1988) (holding that a three-day
comment period is “adequate”). Significantly, no party—including The
Conference Group—asked the FCC to extend the time period for submitting
initial comments, and the fact that interested parties were able to submit their
initial comments in a timely fashion undermines petitioner’s suggestion that
the allotted time period was inadequate. In addition, the FCC established a
second pleading cycle for the submission of comments and reply comments at
the reconsideration stage, and The Conference Group does not even attempt
to show that the time limits for filing those pleadings was insufficient.
43
active participation in the reconsideration phase of the administrative
proceedings below. See The Conference Group Petition (J.A. ); Reply
Comments in Support of Petition for Reconsideration by A+
Conferencing, LTD., Free Conferencing Corp. and The Conference Group
(Sept. 22, 2008) (J.A. ).
III. THE FCC REASONABLY DETERMINED THAT
INTERCALL PROVIDES
TELECOMMUNICATIONS.
audio bridging service as telecommunications, and (2) reasonably determined
that the additional enhanced features InterCall provided in conjunction with
its audio bridging service were not sufficiently integrated with the audio
bridging service so as to transform the service as a whole into an information
service.
A. The FCC Reasonably Classified InterCall’s
Audio Bridging Service As Telecommunications.
The Commission reasonably determined that InterCall’s audiobridging services are telecommunications. Order, 23 FCC Rcd at 10734-35
(¶¶ 11-13) (J.A. ). See 47 U.S.C. § 153(50). In essence, InterCall offers
transmission that enables persons selected by its customer (the conference
host) to talk to each other over ordinary telephone lines “without change in
the form or content of the information as sent or received.” See Order, 23
44
FCC Rcd at 10734 (¶ 10) (citing 47 U.S.C. § 153(50)) (J.A. ). From the
user’s perspective, the essential difference between InterCall’s conferencing
service and an ordinary telephone call is that InterCall’s conferencing
service permits simultaneous communication among three or more persons
whereas a typical telephone call involves communications between only two
individuals. Because telecommunications involves “transmission[] between
or among points specified by the user,” 47 U.S.C. § 153(50) (emphasis
added), however, the number of speakers does not affect the classification of
InterCall’s service as telecommunications.
Nor does the existence of the audio bridge prevent InterCall’s
conferencing service from properly being classified as telecommunications.
As the FCC pointed out, the function of the audio bridge “is simply to
facilitate the routing of ordinary telephone calls . . . . [to ensure] ‘the
creation of the transmission channel chosen by the customer.’” Order, 23
FCC Rcd at 10735 (¶ 11) (quoting NATA Centrex Order, 101 FCC 2d at 362
(¶ 31)) (J.A. ). By “link[ing] multiple callers together,” id. at 10734 (¶ 10)
(J.A. ), in a way that assures “transmission between or among points
specified by the user,” 47 U.S.C. § 153(50), the audio bridge facilitates the
provision of basic transmission without altering its fundamental character.
In this respect, the audio bridge performs an “adjunct to basic” function that
45
is incidental to the underlying telecommunications service. See AT&T
Corp. Petition for Declaratory Ruling Regarding Enhanced Prepaid Calling
Cards, Order and Notice of Proposed Rulemaking, 20 FCC Rcd 4826, 4831
(¶ 16) (2005), aff’d sub nom. AT&T Co., 454 F.3d 329; NATA Centrex
Order, 101 FCC 2d at 362 (¶ 31).
The Conference Group contends that “the FCC premised its finding
that conference bridging providers are providers of telecommunications
services, as opposed to information services, on a significant factual error:
the conference bridge routes traffic, essentially operating like a switch or
router.” Pet. Br. at 39. It is petitioner’s own argument—not the Order—that
contains significant errors. First, the Commission did not find that audio
bridging companies “are providers of telecommunications services, as
opposed to information services.” Pet. Br. at 39. The Commission made
clear that “the record does not permit a clear determination” as to whether or
not InterCall provides telecommunications services (i.e., provides
telecommunications on a common carrier basis), and thus determined only
that InterCall at a minimum provided “telecommunications.” Order, 23
FCC Rcd at 10734 (¶ 7) (J.A. ) (emphasis added).
Second, The Conference Group errs in suggesting that the FCC found
that the conference bridge itself “routes traffic, essentially operating like a
46
switch or router.” Pet. Br. at 39. In fact, the agency said precisely the
opposite—i.e., that it “did not conclude that the audio bridge . . . was a
router or provided the functionality of a router.” Reconsideration Order, 27
FCC Rcd at 902 (¶ 9) (J.A. ) (emphasis added). Rather, the Commission
explained that it found the purpose and function of InterCall’s audio bridge,
by linking the conference callers together, was to facilitate the provision of
basic telecommunications. Id.; see also Order, 23 FCC Rcd at 10735 (¶ 11)
(J.A. ) (“the purpose . . . of the bridge is simply to facilitate the routing of
ordinary telephone calls.”). Thus, in arguing that InterCall’s audio bridge
does not actually route telephone calls, petitioner challenges a finding the
FCC never made.
The Conference Group also suggests that the agency erred in noting
that the audio bridge facilitates routing of calls because those calls terminate
at the audio bridge. Pet. Br. at 43. This misses the point. The FCC used the
phrase “facilitate routing” only to denote that the audio bridge facilitates the
provision of basic telecommunications by linking together multiple calls.
The Commission acknowledged that, as a technical matter, calls are
terminated at “a point selected by the user (the conference bridge.”). Order,
23 FCC Rcd 10735 (¶ 11) (J.A. ).
47
The Conference Group next contends that the FCC erroneously
conflated the transmission component of InterCall’s service with the audio
bridging component of that service. Pet. Br. at 39, 44-46. According to
petitioner, the transmission that InterCall provides to the individual
conference callers to reach the audio bridge is an “entirely distinct service”
from that of the audio bridge, which links the conference call participants
together. Id. at 44. That argument also fails.
InterCall’s conferencing service provides the ability for “multiple end
users to communicate and collaborate with each other using telephone
lines.” InterCall Request for Review at 4 (J.A. ) (emphasis added). That
service necessarily entails both the transmission to the audio bridge of the
calls of individual conference call participants and the linkage of those
separate transmission paths to permit simultaneous communication between
three or more parties. Both the transmission and the linkage are integral
elements of InterCall’s service.
The Conference Group is also wrong in suggesting that the fact that
InterCall “purchases” the transmission used in its conferencing service from
other telecommunications providers somehow shows that it does not provide
telecommunications. Pet. Br. at 39, 44. After InterCall procures that
transmission, it “resells [it] with its audio bridging service to its
48
teleconferencing customers.” Order, 23 FCC Rcd at 10735 n.31 (J.A. )
(internal citation and quotations omitted). InterCall undeniably offers
transmission as part of its conferencing service, and the particular means by
which it obtained the capacity to provide its customers with that
14
transmission is irrelevant to the regulatory classification of its service.
By petitioner’s own account, “the bundled long distance transport
component of InterCall’s service” is a separate stand-alone offering of
“telecommunications.” Pet. Br. at 44 (emphasis added). InterCall provides
that transmission to its customers as a part of its audio bridging service
(after procuring the underlying transmission capacity from other
telecommunications providers). Thus, under The Conference Group’ own
analysis, a portion of InterCall’s service is telecommunications.
The Conference Group next complains that the Commission in the
Order “failed to even mention” its prior order in the Pulver.com proceeding.
Pet. Br. at 53. It neglects to note, however, that the Commission’s
14 Contrary to The Conference Group’s suggestion, there is no
inconsistency between the Order and the FCC’s statement in Qwest, 22 FCC
Rcd at 17985-86 (¶ 32), that “users of the conference calling services make
calls that terminate at the conference bridge, and are connected together at
that point.” The FCC in the Order explained both that “InterCall’s service
allows end users to transmit a call (using telephone lines) to a point specified
by the user (the conference bridge)” and that the audio bridge “links multiple
call[s] together.” Order, 23 FCC Rcd at 10734-35 (¶¶ 10-11 ) (J.A. ).
49
Reconsideration Order in this case discussed the Pulver.com Order
extensively, and explained why that ruling addressed very different facts
from those here. Reconsideration Order, 27 FCC Rcd at 902 (¶ 10) (J.A. ).
Chief among the differences is that pulver.com’s Free World Dialup
offering—“a type of directory service”—“neither offer[ed] nor provide[d]
transmission.” Petition for Declaratory Ruling That Pulver.com’s Free
World Dialup Is Neither Telecommunications Nor A Telecommunications
Service, Memorandum Opinion and Order, 19 FCC Rcd 3307, 3312 (¶ 9)
(2004). Thus, in contrast to InterCall’s audio bridge service, the service at
issue in the Pulver.com Order did not even colorably satisfy the statutory
definition of telecommunications. See 47 U.S.C. § 153(50).
B. The FCC Reasonably Determined That
InterCall’s Information Services Were Not
Functionally Integrated With Its Audio Bridging
Service.
muting, recording, erasing, and accessing operator services) with its basic
teleconferencing service. Order, 23 FCC Rcd at 19735 (¶ 13)
(J.A. ). In considering whether those capabilities transformed InterCall’s
conferencing service as a whole from telecommunications to an
information service, the FCC properly applied the standard established in
prior FCC decisions and endorsed by the Supreme Court in Brand X:
50
“whether the transmission capability is ‘sufficiently integrated’ with the
information service capabilities to make it reasonable to describe the two
as a single, integrated offering and classify the entire integrated service as
an information service.” Reconsideration Order, 27 FCC Rcd at 903
(¶ 12) (quoting Prepaid Calling Card Order, 21 FCC Rcd at 7296 (¶ 14),
in turn, quoting Brand X, 545 U.S. at 990) (J.A. ).
Petitioner incorrectly states the Commission’s holding in the InterCall
order and thus focuses on the wrong question: the FCC did not require
conference bridge providers to contribute to the USF “because such service
constitutes a ‘telecommunications service’ as opposed to an ‘information
service.’” Pet. Br. at 2. As noted above, the FCC expressly declined to
resolve — and was not required to resolve — whether InterCall and
similarly situated providers offer a “telecommunications service” or merely
“telecommunications.” As the agency explained, in either event, the
provider must make USF contributions. See Order, 23 FCC Rcd at 10734
(¶ 7) (J.A. ). The agency went on to explain that the add-on features
offered by InterCall in addition to its call-transmission function (the core
“telecommunications” element of its service) did not convert the entire
offering into an “information service” because those additional features did
not create an integrated service that was different from a pure offering of
51
telecommunications. Id. at 10735 (¶ 13) (J.A. ); Reconsideration Order,
27 FCC Rcd at 903 (¶ 12) (J.A. ). Because petitioner misapprehends the
FCC’s actual holding, it makes little effort to refute the well-supported
finding that InterCall’s service offers telecommunications; indeed, as shown
above, petitioner’s own analysis leads to that conclusion.
The Commission reasonably concluded that the enhanced features
InterCall provides in conjunction with its conferencing service are not
“sufficiently integrated” into InterCall’s telecommunications offering to
transform its entire offering into an information service. Order, 23 FCC
Rcd at 10735 (¶ 13) (J.A. ). See Reconsideration Order, 27 FCC Rcd at
903 (¶ 12) (J.A. ). As the Commission explained, the enhancements “do
not alter the fundamental character” of InterCall’s telecommunications
service — the ability of more than two people to communicate with each
other. Id. Indeed, InterCall’s customers can conduct a conference call
“with or without accessing these features.” Id.
The Conference Group also contends that the FCC misapplied the
functional services test by relying on the fact that InterCall’s customers can
conduct a conference call “with or without accessing [the enhanced]
features.” Id. See Pet. Br. at 47-52. Its supporting intervenor, Cisco
Webex, goes further, arguing that consideration of this fact renders the
52
FCC’s order so “vague” that one that cannot tell whether the FCC
formulated an entirely new test — in potential conflict with prior agency
decisions — for determining whether a communications service is an
“information service.” Cisco Webex Br. at 13-14.
The Commission in the Order on review did not apply any new or
modified test, and the hypothetical conflict with prior agency precedent that
Cisco Webex identifies is non-existent. Indeed, the vagueness that Cisco
Webex purports to find in the Order stems from its own misunderstanding
of the Commission’s ruling rather than any lack or clarity or failure by the
agency to sufficiently explain its reasoning. Rather, the Commission’s
observation that InterCall’s customers can conduct a conference call “with
or without accessing [the enhanced] features,” Order, 23 FCC Rcd 10735
(¶ 13) (J.A. ), is simply an application of the longstanding functional
integration standard previously used by the agency. See Cisco Webex Br. at
14 (conceding that language in the Order “could be viewed as a
straightforward application of the existing functional-integration standard.”).
Under the functional integration test, a provider does not create an
integrated information service offering merely by bundling enhanced
functionalities with telecommunications. See Brand X, 545 U.S. at 988;
Prepaid Calling Cards Order, 21 FCC Rcd at 7295 (¶ 14). Telephone service
53
packaged with voice mail, for example, is not an integrated informative
service offering because the telephone company “offers a transparent
transmission path — telephone service — that transmits information
independent of the information storage capabilities provided by voice mail.”
Brand X, 545 U.S. at 998 (emphasis added).
With an integrated information service offering, “[the]
telecommunications input used to provide an information service[s] . . . is not
‘separable from the data-proceeding capabilities of the service.’” Id. at 997
(quoting Cable Modem Order, 17 FCC Rcd at 4823 (¶ 39). It “is instead ‘part
and parcel of [the information service] and is integral to [the information
service’s] other capacities.’” Id. In other words, with an integrated
information service, “the consumer uses the [transmission component] always
in connection with the information-processing capabilities.” Id. at 988, 990
(emphasis added). Thus, it was entirely appropriate for the Commission, in
applying the functional integration test in this case, to consider whether
InterCall’s customers always use the enhanced processing capabilities when
using the conferencing service or whether that customer can “conduct its
conference call with or without accessing [the enhanced] features.” Order,
23 FCC Rcd at 10735 (¶ 13) (J.A. ).
54
In arguing that such consideration was improper, The Conference
Group and Cisco Webex rely upon — but take out of context — the FCC’s
statement in its Cable Modem Order that an offering can be a single
integrated information service “regardless of whether subscribers use all of
the [enhanced] functions provided as part of the service.” Cable Modem
Order, 17 FCC Rcd 4822 (¶ 38) (emphasis added). That reliance is
unavailing. When a customer invariably uses at least some (even if not all) of
the enhanced features of a communications service along with the
transmission component, those enhanced functionalities may be functionally
integrated with the transmission component — as the Commission has
determined with respect to broadband Internet access service. See Brand X,
545 U.S. at 990. But when a customer uses none of those enhanced
functionalities — or, stated differently, when it may use the transmission
component “with or without accessing the[] [enhanced] features,” Order, 23
FCC Rcd at 10735 (¶ 13) (J.A. ); see also Reconsideration Order, 27 FCC
Rcd at 904 (¶ 13) (J.A. ) — the service is pure transmission and the
telecommunications and information service elements are not functionally
integrated.
The Commission’s decision in the Prepaid Calling Cards Order, 21
FCC Rcd 7290, is fully consistent. In that case, the Commission classified
55
certain types of prepaid calling cards — essentially debit cards used to make
ordinary telephone calls — as telecommunications, even though the prepaid
cards at issue in that case included a menu that permitted the user to access
certain types of information, such as sports, weather and entertainment
information. 21 FCC Rcd at 7294 (¶ 11). The Commission held that there
was no functional integration between the information service features and
the use of the telephone calling capability. Id. at 7296 (¶ 15). In making this
determination, the Commission found that “the . . . transmission capability is
completely independent of the various other capabilities that the card makes
available,” pointing out that “an individual may use [the prepaid calling] card
to make a long distance call without . . . accessing the information made
available with the card.” Id. (emphasis added). The Commission made
essentially the same analysis in this case when observed that Intercall’s
customers could use the transmission function of the company’s audio
bridging service “with or without accessing” enhanced services such as
muting, recording, erasing and operator services. Order, 23 FCC Rcd at
10735 (¶ 13) (J.A. ); see also Reconsideration Order, 27 FCC Rcd at 904
(¶ 13) (J.A. ).
The FCC’s conclusion also accords with common sense.
Communications providers should not be able to evade their USF
56
contribution obligations (which hinge on classification of a service as
“telecommunications” or “telecommunications service”) by the simple
expedient of repackaging their offering to include add-ons that customers
need not use in order to access the basic telecommunications function. Here,
petitioner and its intervenor do not seriously dispute that InterCall’s
customers may participate in conference calls without using such features as
muting, recording, erasing, and operator assistance.
Nor does that result change because callers must enter a code (as is
common of any teleconferencing service) in order to participate in a
conference call. Pet. Br. at 50-51. As shown at pages 45-46, that function of
the audio bridge merely facilitates the provision of a basic transmission
service without altering its fundamental character and therefore is not an
enhanced service. NATA Centrex Order, 101 FCC 2d at 359-60. And
because it is not an enhanced service, it cannot alone transform the entire
offering into an information service. Indeed, the Commission has held that
an offering of access to a data base for the purpose of obtaining telephone
numbers (in that case, directory service) may be offered as an adjunct to basic
telephone service, where that service provides only the information necessary
to allow the network place a call to another subscriber. Id. Similarly, the
need for the data base dip for password verification to facilitate the
57
establishment of the transmission path to the bridge is an adjunct to basic
feature that does not transform the whole service into an information service.
In any event, at a minimum, the Commission’s conclusion regarding the basic
character of Intercall’s service offering was well within the agency’s broad
discretion. See Brand X, 545 U.S. at 980-86 (deference due to FCC’s
determinations regarding “information service” and “telecommunications
service”).
58
CONCLUSION
The Court should affirm.Respectfully
submitted,
RENATA B. HESSE
SEAN A. LEV
ACTING ASSISTANT ATTORNEY
GENERAL COUNSEL
GENERAL
PETER KARANJIA
ROBERT B. NICHOLSON
DEPUTY GENERAL COUNSEL
NICKOLAI G. LEVIN
ATTORNEYS
RICHARD K. WELCH
DEPUTY ASSOCIATE GENERAL
UNITED STATES
COUNSEL
DEPARTMENT OF JUSTICE
WASHINGTON, D.C. 20530
/s/ Laurel R. Bergold
LAUREL R. BERGOLD
COUNSEL
FEDERAL COMMUNICATIONS
COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740
December 7, 2012
59
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
THE CONFERENCE GROUP, LLC,
PETITIONER,
v.
NO. 12-1124
F
EDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS.
CERTIFICATE OF COMPLIANCE
Pursuant to the requirements of Fed. R. App. P. 32(a)(7), I hereby
certify that the accompanying Brief for Respondents in the captioned case
contains 12,205 words.
/s/ Laurel R. Bergold
Laurel R. Bergold
Counsel
Federal Communications Commission
Washington, D.C. 20554
(202) 418-1740 (Telephone)
(202) 418-2819 (Fax)
December 7, 2012
12-1124
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
The Conference Group, LLC, Petitioner,
v.
Federal Communications Commission and United States of America,
Respondents.
CERTIFICATE OF SERVICE
I, Laurel R. Bergold, hereby certify that on December 7, 2012, I
electronically filed the foregoing Initial Brief for Respondents with the Clerk
of the Court for the United States Court of Appeals for the D.C. Circuit by
using the CM/ECF system. Participants in the case who are registered
CM/ECF users will be served by the CM/ECF system.
Michael B. Hazzard
Christopher J. Wright
Ross A. Buntrock
*Brita D. Strandberg
Arent Fox LLP
Wiltshire & Grannis LLP
Seventh Floor
1200 18th Street, N.W.
1050 Connecticut Avenue, N.W.
12th Floor
Washington, D.C. 20036-5339
Washington, D.C. 20036
Counsel for: The Conference Group, Counsel for: Cisco WebEx LLC
LLC
Michael E. Glover
Helgi C. Walker
Christopher M. Miller
Elbert Lin
Verizon
Wiley Rein, LLP
1320 North Courthouse Road
1776 K Street, N.W.
Arlington, VA 22201
Washington, D.C. 20006-2359
Counsel for: Verizon
Counsel for: Verizon
Nickolai G. Levin
Robert B. Nicholson
U.S. Department of Justice
Antitrust Division, Appellate Section
Room 3228
950 Pennsylvania Avenue, NW
Washington, D.C. 20530
/s/ Laurel R. Bergold
Edoc Internal Id:
317834
Released On:
Sun, 2012-12-09 19:00
Published On:
December 10 2012
Adopted Date:
Sun, 2012-12-09 19:00
Edoc ID:
DOC-317834
