Cybertelecom
Cybertelecom
Federal Internet Law & Policy
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Notes: Basic v Enhanced :: Telecom v Info Service Dont be a FOOL; The Law is Not DIY


Computer I

38. It was prior to the development of these very different legal, technological and market circumstances that the Commission initiated its Computer Inquiry line of cases.  In Computer I, the Commission addressed the questions of whether data processing services should be subject to regulation under Title II of the Act, and whether, and under what conditions, all common carriers should be permitted to compete in the market for data processing services.  Finding that the computer data services industry "is one characterized by open competition and relatively free entry," the Commission concluded that it "should not, at this point, assert regulatory authority over data processing as such."   Moreover, the Commission found that allowing common carriers to provide computer data services would likely benefit the public through "new and improved services and lower prices."   Yet the Commission also recognized that common carriers might be able to "favor their own data processing activities by discriminatory services, cross-subsidization, improper pricing of common carrier services, and related anticompetitive practices and activities."   Thus, the Commission required common carriers to furnish data processing services through a separate corporate entity that could not use regulated communications facilities to provide unregulated services.   Finally, the Commission prohibited common carriers from discriminating in favor of their data processing affiliates.
--In Re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, CC Dockets Nos. 95-20, 98-10, NPRM (February 15, 2002) http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-02-42A1.doc



"the Commission distinguished between communications services using computers to perform message or circuit switching, which were regulated, and data processing services, which were left to marketplace competition" Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2d 198, 203, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982).


The Commission defined data processing as the "use of a computer for the processing of information as distinguished from circuit or message- switching." Computer I Tentative Decision, 28 FCC2d at 295. "Message-switching" was defined as "[t]he computer-controlled transmission of messages, between two or more points, via communications wherein the content of the message remains unaltered." Id. at 296. Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 203 n. 6, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)


In Computer II the Commission found it increasingly difficult to distinguish between communications and dataprocessing. Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982) ("It therefore became increasingly difficult to classify terminals and services as either communications or data processing")


 17.  Regulatory forbearance with respect to data processing services made it necessary to distinguish regulated communications services from unregulated data processing services.  Accordingly, in the First Computer Inquiry a set of definitions was adopted to assist in making such determinations.  See 47 CFR s 64.702.  The thrust of this definitional approach was to distinguish between unregulated data processing and permissible carrier utilization of computers by establishing a dichotomy between data processing and message or circuit switching.  We recognized that entities would offer 'hybrid' services combining both communications and data processing functions.  We stated that where message-switching is offered as an incidental feature of an integrated service offering that is primarily data processing, there would be total regulatory forbearance with respect to the entire service.  However, where the package offering is oriented to satisfy the communications or message-switching requirements of the subscriber, and the data processing function is incidental to the message-switching performance, we concluded that the entire integrated service would be treated as a communications service.  We also stated that in making such determinations we would look to whether the service, by virtue of its message-switching capability, has the attributes of the point-to-point services offered by conventional communications common carriers and is basically a substitute therefor.
. . . . .
 22.  As a result of the Dataspeed 40/4 decision, a Supplemental Notice was issued.  We proposed to enlarge the scope of the proceeding to include all processing activities, whether performed at a central location, at the customer's premises, or at intermediate locations within or interconnected with a telecommunications network.  A modified definition of data processing was proposed to render our computer rules applicable to the distributed processing environment and to determinations as to the nature of a carrier's processing activities--regardless of location or system structure.  We proposed that 'data processing' be defined as:

  the electronically automated processing of information wherein: (a) the information content, or meaning, of the input information is in any way transformed, or b) where the output information constitutes a programmed response to input information.

Supplemental Notice at para. 8.  Recognizing that various computer processing functions are performed in the provision of both data processing and communications services, the new definition was structured in a manner so as to focus on processing activities. [FN5]  Under the new definition the determination as to whether a communications or data processing service is being offered would depend on the nature of the processing activity involved.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)


Commission's classification of complex of small machines with communicative capacity to send and receive messages from central computer as "communications" as opposed to "data processing," enabling common carrier to offer service at lower rate, was not improper. International Business Machines Corp. v. FCC, 570 F.2d 452 (2nd Cir. 1972).



 45. Several parties expressed concern that the definitions and concepts we adopted for purposes of this decision be neither fixed nor immutable, and that recognition be accorded the fact that they may change with developing technology. We concur. As was indicated in paragraph 15 of the Tentative Decision, the definitions therein were for purposes 'of providing clarity and precision of definition and application'. They were, as was pointed out, 'for our immediate purposes' and consequently do not apply, nor do we necessarily urge their application, beyond this proceeding and the rules promulgated herein.
--In The Matter Of Regulatory And Policy Problems Presented By The Interdependence Of Computer And Communication Services And Facilities, Docket No. 16979, Final Decision and Order, 1971 WL 22948 (FCC), 21 Rad. Reg. 2d (P & F) 1591 (March 18, 1971) (Computer I).

 15. In our First Report, we noted that before these issues could be resolved, it would be necessary to define as precisely as possible the terms we shall employ so that they could be understood and uniformly applied by all interested parties. In this highly technical and rapidly growing industry, new terms, many of which may overlap in meaning, have proliferated. However useful these terms may be to the data processing community, or any segment thereof, we have concluded that, for our immediate purposes, we need to establish definitions that are as free from ambiguity as language permits. The task of definition is no simple one. This is because computers and communications have become so interdependent and interactive in the transmission and processing of data that sharp delineation of these functions is hardly possible except in somewhat generalized terms. Since our purpose is uniquely that of government regulation, we shall define only those basic terms indispensable to our objective of providing clarity and precision of definition and application. The specific terms which we shall employ are set forth below with their respective definitions:
 (a) Data Processing -- The use of a computer for the processing of information as distinguished from circuit or message-switching. 'Processing' involves the use of the computer for operations which include, inter alia, the functions of storing, retrieving, sorting, merging and calculating data, according to programmed instructions.
 (b) Message-Switching -- The computer-controlled transmission of messages, between two or more points, via communications facilities, wherein the content of the message remains unaltered.1
 (c) Local Data Processing Service -- an offering of data processing wherein communications facilities are not involved in serving the customer.
 (d) Remote Access Data Processing Service -- an offering of data processing wherein communications facilities, linking a central computer to remote customer terminals, provide a vehicle for the transmission of data between such computer and customer terminals.
 (e) Hybrid Service -- an offering of service which combines Remote Access data processing and message-switching to form a single integrated service.
--In The Matter Of Regulatory And Policy Problems Presented By The Interdependence Of Computer And Communication Services And Facilities, Docket No. 16979, Tentative Decision, 28 FCC 291 (April 3, 1970)
 

Hybrid

 6.  When these definitions were adopted, it was recognized that there might be instances where an entity might find it desirable to offer a service which represents a combination of communications and data processing.  Not wishing to foreclose such opportunities, we embodied the regulatory ground rules for such operations in Section 64.702 by defining hybrid services and establishing the conditions under which the offering of such services would be subject to regulation. [FN6]  Where message-switching is offered as an incidental feature of an integrated service offering that is primarily data processing, we stated there would be total regulatory forbearance with respect to the entire service.  Where the package offering is oriented to satisfy the communications or message-switching requirements of the subscriber, and the data processing feature or function is incidental to the message-switching function, we concluded that the entire integrated service would be treated as a communications service.
 7.  The criterion offered here is that of 'incidental.'  Thus, if a service has been found to be hybrid, and the communications portion is 'incidental to the data processing function or purpose,' the service constitutes hybrid data processing.  If the data processing portion is incidental, there is a hybrid communications service.  We also stated that in making such determinations we would look to:  (a) whether the service, by virtue of its message-switching capability has the attributes of the point-to-point services offered by conventional communication common carriers and is basically a substitute therefor; and (b) the extent to which the message-switching feature of the service facilitates or is related to the data processing component.  Thus it was determined that we would look to the facts surrounding a package offering with a view toward determining the primary thrust of the service offered.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)



 86.  We recognize the inadequacy of the hybrid service definitions in the existing rule.71  We have also taken note of the comments by parties to this proceeding which addressed the inadequacy of our treatment of services which would have formerly fallen within the hybrid category.  Since it was generally felt that mutually exclusive categories would result in too rigid a definitional structure, we have retained the 'hybrid' concept through reliance on a primary purpose test.  Section 64.702(a)(4) defines a 'hybrid data processing service' to be the offering of a data processing service which is dependent upon the use of communication facilities.  Section 64.702(b) is a statement of the processing which a carrier may utilize in the provision of a communications service.  This section states:
  Communications common carriers may utilize computer processing, including data processing, in the provision of a communications service; provided, however, that any data processing performed by a carrier as part of a tariffed service must directly relate to and be for the purpose of providing a communication service, or for meeting the carrier's own internal operational and financial management needs.
 87.  Under this section a carrier may perform data processing as part of a communications offering as long as the data processing directly relates to and is for the purpose of providing a communications service or meeting its own in- house needs.  This recognizes that there are legitimate uses of data processing in the provision of a communications service.  Under this structure the need for a 'hybrid communications' category is eliminated.  By stating that carriers may engage in data processing and communications processing in the provision of a communications service, explicit recognition is given to the previous classification of a 'hybrid communications service.'  However, where the data processing performed does not result in the offering of a 'data processing service' (as defined) and, at the same time, is not directly related to or for the purpose of providing a communications service, then a carrier may not engage in such data processing as part of a regulated communications offering.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)


 13.  In commenting on CBEMA's motion TELENET also states its concern over the multiple interpretations that are possible regarding the proposed amendment to Section 64.702 as contained in our original Notice.  With the proposed elimination of the hybrid concept, TELENET states that it appears that the net effect of the proposed amendment would be 'to render not subject to regulation any communications service which contained within it a non-separable data processing function.'17  On the other hand, it states that when the proposed amendment of Section 64.702 is read in conjunction with Paragraph 22 of the Notice, it appears that the Commission 'intends to preclude any hybrid services--to require that carriers eliminate any data processing functions from their current communications offerings, and to prevent data processing service entities from including within their offerings even incidental communications functions.'18  TELENET suggests that any ambiguity be removed with respect to whether hybrid services could be offered under our proposed definition.
 14.  In our Notice we proposed to delete the hybrid concept as a method of classifying services under the present structure of Section 64.702.  Further elaboration may be called for to the extent that uncertainty may exist as to what is being proposed in its place.  As Section 64.702 is currently structured, the processing functions of storing, retrieving, merging, and calculating establish the criteria for determining whether a particular offering constitutes data processing.  Recognizing that these processing functions can be employed in the provision of either data processing or communications services, the new definition is structured in a manner so as to focus on processing activities.19  In addition to proposing a definition for data processing, we have set forth certain processing activities which by their nature would constitute data processing within the meaning of the proposed definition.20  Examples of processing activities which would not fit within the ambit of the data processing definitions, and which, therefore, might be utilized in the provision of either data processing or communications have also been put forth.21  Under this proposed standard it would be inconsistent to talk in terms of a communications service having non-separable data processing functions, since communications and data processing now would be considered mutually exclusive activities.22  The nature of the processing employed would determine whether communications processing or data processing is being engaged in.  To the extent that a carrier is offering a communications service, data processing could not be offered as part of that service except if offered in accordance with the requirements imposed by our maximum separation policy.  With the elimination of the hybrid concept, however, ad hoc determinations may still be necessary, but the specific determination to be made becomes whether the processing activity under consideration constitutes a data processing activity.  To the extent that the processing performed is data processing under our definition, a carrier's offering would be subject to our maximum separation requirements.
-- In re Amendment Of Section 64.702 Of The Commission's Rules And Regulations (Computer Inquiry), Docket No. 20828, Supplemental Notice Of Inquiry And Enlargement Of Proposed Rulemaking, (March 8, 1977)


 6.  Consideration was also given to those 'hybrid service' offerings which combined data processing and message-switching to form a single integrated service.  One question was under what circumstances should a message-switching capability, when offered in combination with data processing services, be treated as a sale of communications for hire subject to regulation.  We stated general principles applicable in determining this question.  Where message- switching is offered as an incidental feature of an integrated service offering that is primarily data processing, we stated there would be total regulatory forebearance with respect to the entire service.  Where the package offering is oriented to satisfy the communications or message-switching requirements of the subscriber, and the data processing feature or function is incidental to the message-switching function, we concluded that the entire integrated service would be treated as a communications service.  We further set forth the criteria for such a determination:  (a) whether the service, by virtue of its message-switching capability, has the attributes of the point-to-point services offered by conventional communication common carriers and is, basically, a substitute therefor; (b) the extent to which the message-switching feature of the service facilitates or is related to the data processing component, or whether such message-switching is essentially independent of such data processing.  Thus we determined that we would look to the facts surrounding a package offering with a view toward determining the primary thrust of the service offered.
. . . . .
 11.  In the original inquiry we posited a set of definitions in order to implement the fundamental regulatory policies we had established.9 The pivotal definition is the one for data processing.  We stated:
  'Data Processing is the use of a computer for the processing of information as distinguished from circuit or message-switching. 'Processing' involves the use of computer for operations which include, inter alia, the functions of storing, retrieving, sorting, merging and calculating data, according to programmed instructions.
The distinction between data processing service and the permissible use of computers by carriers was thus made by establishing a dichotomy between data processing, on one hand, and message and circuit switching on the other.  We then went on to define message-switching as:
  'Message-Switching' is the computer-controlled transmission of messages, between two or more points, via communications facilities, wherein the content of the message remains unaltered.
. . . . .
 13.  When the original rules were adopted, we recognized that there might be instances where an entity might find it desirable to offer a combination of communications and data processing service. We did not wish to foreclose such opportunities for carriers or unregulated entities.  We therefore embodied the regulatory ground rules for such operations in Rule 64.702 by defining hybrid services and the conditions under which they can be offered by carriers or unregulated entities.  For a service to be hybrid, 64.702(a)(5) invokes the condition that remote access data processing and message-switching be combined 'to form a single service.'  Otherwise these would be considered to be separate services.
 14.  Once a service has been found to be hybrid it becomes necessary to further classify it as hybrid data processing or hybrid communications in order to determine whether or not Title II jurisdiction applies.  Subsections 64.702(a)(5)(i) and (ii), respectively, attempt to make this distinction.  The criterion offered here is that of 'incidental.'  Thus if a service has been found to be hybrid, and the communications portion is 'incidental to the data processing function or purpose,' the service can be found to be hybrid data processing.  If the data processing portion is incidental, we have a hybrid communications service.  The unambiguous resolution of this matter is of critical importance in establishing a regulatory boundary since we have ruled that hybrid communications services are subject to our jurisdiction.
-- In re Amendment Of Section 64.702 Of The Commission's Rules And Regulations, Docket No. 20828, Notice Of Inquiry And Proposed Rulemaking, 61 FCC2d 103 (August 9, 1976)

Computer II

These two statutory classifications originated in the late 1970’s, as the Commission developed rules to regulate data-processing services offered over telephone wires. That regime, the “Computer II” rules, distinguished between “basic” service (like telephone service) and “enhanced” service (computer-processing service offered over telephone lines). In re Amendment of Section 64.702 of the Commission’s Rules and Regulations (Second Computer Inquiry), 77 F. C. C. 2d 384, 417–423, ¶¶86–101 (1980) (hereinafter Computer II Order). The Computer II rules defined both basic and enhanced services by reference tohow the consumer perceives the service being offered. --NCTA v. BrandX, No. 04-277, 545 U.S. __, Slip at 4 (S.Ct. June 27, 2005)


2. In 1980, the Commission released its Computer II Order in which it addressed regulatory issues associated with the convergence of telecommunications and "computer and data processing."4   The cornerstone of the decision is that it distinguished between the common carrier offering of basic transmission service, which provides a communications path for the movement of information, and the offering of enhanced services, which then consisted primarily of data processing services.5   Enhanced services are now referred to as "information services" in the 1996 Act and comprise services such as voice mail, e-mail and other Internet services, interactive voice response, audiotext information services, and protocol processing, among others. 6

4 Computer II Order, 77 FCC 2d at 386, para. 2.  The Commission stated that it must promulgate rules addressing this convergence "in the context of rapid technological and market developments affecting communications and data processing services, the ever-increasing reliance upon common carrier transmission facilities in the movement of all kinds of information, and the need to tailor communications-related services to individual user requirements."  Id. at para. 84.
5   Computer II Order, 77 FCC 2d at 28, paras. 92-113.  The Commission stated that 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 para. 5.  See also 47 C.F.R. § 64.702(a).
6  Implementation of the Non-Accounting Safeguards of Section 271 and 272 of the Communications Act of 1934, as amended, CC Docket No. 96-149, First Report and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd 21905, 21955-56, para. 102 (1996) (Non-Accounting Safeguards Order).  To avoid confusion, and to be consistent with the terminology in the Further Notice, we will continue to use the term "enhanced  services" to refer to the restrictions adopted in Computer II.  Further Notice, 13 FCC Rcd at 21549, para. 32.  The Commission has concluded that Congress sought to maintain the basic/enhanced distinction in its definition of "telecommunications services" and "information services," and that "enhanced services" and "information services" should be interpreted to extend to the same functions.  See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd 11501, 11516-17, 11520, 11524,  paras. 33, 39, 45-46 (1998).

-- In re Policy And Rules Concering The Interstate, Interexchange Marketplace/Implementation Of Section 254(G) Of The Communications Act Of 1934, As Amended/In 1998 Biennial Review -- Review Of Customer Premises Equipment And Enhanced Services Unbundling Rules In the Interexchange, Exchange Access and Local Exchange Markets, CC Docket No. 98-183; CC Docket No. 96-61, Report and Order, ¶ 2  (March 31, 2001) <www.fcc.gov/Bureaus/Common_Carrier/Orders/2001/fcc01098.doc>.


"Beginning with the Computer II proceeding in the 1970s, we have distinguished between basic and enhanced communications services. "
--In re Access Charge Reform, NPRM, Third Report and Order, and NOI, CC Docket 96-262 ? 284 (Dec 24, 1996)


We initiated the Computer III proceeding in the summer of 1985 to undertake a broad reexamination of the regulatory framework for enhanced services adopted in Computer II and related proceedings.21  The Phase I Order concluded that, relative to nonstructural safeguards, structural separation requirements for the enhanced service operations of the BOCs and AT & T impose significant costs on the public in decreased efficiency and innovation that outweigh their benefit in limiting the ability of these carriers to engage in anticompetitive behavior.  We retained, however, the two fundamental regulatory categories for telecommunications services established in Computer II:  basic services, which are subject to common carrier regulation under Title II of the Act, and enhanced services, which are not subject to such regulation.22
-- In the Matter of Filing and Review of Open Network Architecture Plans, CC Docket No. 88-2, Phase I, MEMORANDUM OPINION AND ORDER  16 (December 22, 1988)


 10. After Computer I took effect, technological and competitive developments in the telecommunications and computer industries exposed shortcomings in its definitional structure, and in particular its ad hoc approach to evaluating the "hybrid" category.21  In light of such shortcomings, we conducted an extensive examination in the Computer II proceeding to determine the most appropriate regulatory framework for the provision of data processing services by carriers and others.  In the Final Decision, we found that because of technological change and consumer demand, communications and data processing technologies had become so intertwined in new service offerings that it was impossible to draw an "enduring line of demarcation" between them. 22 Accordingly, we adopted a new regulatory definitional scheme with two service categories:  basic and enhanced. 23  We defined basic service as limited to "the common carrier offering of transmission capacity for the movement of information." 24  Data processing, computer memory or storage, and switching techniques can be components of a basic service if they are used solely to facilitate the movement of information.  We further determined to continue to regulate basic services under Title II of the Act, since such services are "wholly traditional common carrier activities." 25
--In the Matters of: Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry);  and Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Thereof Communications Protocols under Section 64.702 of the Commission's Rules and Regulations, CC Docket No. 85-229, Report and Order (June 16, 1986)



"5. In our Final Decision we determined that network services provided to consumers should be classified as either basic or enhanced. Basic transmission services would be regulated under Title II while enhanced services would not."
-- In the Matter of Amendment of Section  64.702 of the Commission's Rules and  Regulations (Second Computer Inquiry),  Docket No. 20828, MO&O, 79 FCC2d 953   p/ 5 (July 22, 1980) (resolving requests for  partial stays of final decision)

5. Although more simplified terminology is employed, this basic/enhanced dichotomy for network services is consistent with the approach taken in the Tentative Decision. We find that basic service is limited to the common carrier offering of transmission capacity for the movement of information, whereas enhanced service combines basic service with computer processing applications that act on the format, content, code, rotocol or similar aspects of the subscriber's transmitted information, or provide the subscriber additional, different, or restructured information,  involve subscriber interaction with stored information.
. . . .
 86.  The structure set forth in the Tentative Decision focused on the separation of common carrier transmission services from those computer services which depend on common carrier services in the transmission of information.  We proposed a resale structure for those computer processing services which would be subject to a regulatory delineation between communications and data processing. A distinction was made between basic common carrier transmission services and enhanced services; enhanced services were to be provided on a resale basis such that the requisite common carrier facilities would be acquired pursuant to tariff.  Moreover a set of definitions was proposed for distinguishing the regulated or non-regulated status of enhanced services based on the communications or data processing nature of the service.
-- In the Matter of Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision (May 2, 1980)



 12.  In the Notices released in this proceeding we proposed to amend  Section 64.702 in light of the technological and market developments that have taken place since the First Computer Inquiry.  In the proposed revisions to Section 64.702 we sought to define data processing positively, in terms of what it is, rather than by exception as had previously been done.  The following definition was proposed in the Supplemental Notice:
  'Data processing' is the electronically automated processing of information wherein:  (a) the information content, or meaning, of the input information is in any way transformed, or (b) where the output information constitutes a programmed 9 response to input information.10
This definition was formulated with two related regulatory objectives in mind:  (1) an objective identification of those use of computers by carriers which require a separate subsidiary, and (2) the stimulation of economic activity in the regulated communications sector by removing ambiguities in the existing definitions.  It was stated that by defining data processing positively a carrier would be able to use computers for any purpose which is not data processing.  All processing activities, whether performed at a central location, at the customer's premises, or at intermediate locations within or interconnected with a telecommunications network would be encompassed within the proposed definition.
 13.  Given this definition certain processing activities would be considered data processing and could not be offered by a carrier except under the maximum separation conditions of Section 64.702. Processing activities which would constitute data processing under this definition were stated to include, among others:
  arithmetic processing--applications include:  general commercial accounting, inventory control, banking and point-of-sale processing, financial and econometric modeling, scientific calculations, etc.
  word processing--applications include:  interactive information retrieval systems, management information systems, text editing, translation, typesetting, etc.
  process control--applications include the use of electronic equipment to monitor and control some process which is occurring on a continuous basis--such as nuclear-powered generating stations, an electric power distribution grid, an automatic machine tool, or a fire detection and control system.
 14.  We also stated that certain processing activities may be involved in the provision of both communications and data processing services without necessarily changing the nature of the communications or data processing service being offered.  Among the processing activities stated to be included in this category were, among others:
  network control and routing--applications include:  message and circuit switching,11 speed and code conversion, pulse format conversion, analog to digital and digital to analog conversion, signal processing,12 and time division multiplexing.
  input/output processing--this category comprises the uses of processing capability resident in a carrier network facility for the purpose of making disparate information sources and receptors compatible with the transmission system and with each other.  Such processing activities include those necessary for formatting, editing, and buffering of information to make it compatible with the electrical characteristics of different transmission media.
 15.  By defining data processing in this manner the 'hybrid service' categories contained in the existing Section 64.702 were deleted, and the offering of communications and data processing, in effect, were established as mutually exclusive activities for regulatory purposes.  As Section 64.702 is currently structured, the processing functions of storing, retrieving, merging, and calculating establish the criteria for determining whether a particular offering constitutes data processing.  Recognizing that these processing functions can be employed in the provision of either data processing or communications services, the new definition was structured in a manner so as to focus on processing activities.13  Under the new definition the determination as to whether a communications or data processing service is being offered would depend on the nature of the processing activity involved.
-- In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)


 61.  Upon review of the comments filed in this proceeding, we have concluded that the definitional structure as proposed in the Notices is an inadequate means of accomplishing our stated objectives.  Moreover, it has become increasingly apparent that any solution to the regulatory concerns raised by the merging of communications and data processing applications, short of a stop-gap measure, must address the structure under which competitive services are provided.  A structure has been set forth under which various communications common carrier services must be provided.  In this regard we distinguish between three categories of services--'voice', 'basic non-voice', and 'enhanced non-voice' services.  We conclude that 'voice' and 'basic non- voice' services are divorced from the communications/data processing controversy.  We require that 'enhanced non-voice' services be provided on a resale basis.  Thus in an interstate 'enhanced non-voice' service, all common carrier transmission facilities are acquired pursuant to tariff.
 62.  Since an 'enhanced non-voice' service by definition subsumes both communications and data processing services, a definitional structure is employed for distinguishing those 'enhanced non-voice' services which are communications services from those which constitute the offering of a data processing service. This definitional structure basically allows a carrier to perform 'data processing' as part of a communications service as long as such processing does not result in a 'data processing service' (as we define it) and directly relates to and is for the purpose of providing a communications service.  We recognize that this will not completely eliminate the need for case-by-case determinations, but it should substantially minimize this need, while providing the marketplace with a greater degree of certainty.
 63.  The structural separation of 'voice' and 'basic non-voice' services from 'enhanced non-voice' services permits us to address in a different manner the cross subsidization and anticompetitive concerns of the maximum separation policy.  A carrier having an ownership interest in transmission facilities used in the provision of interstate voice or 'basic non-voice' services may provide an 'enhanced non-voice' service only through a separate corporate resale entity.  Moreover, subject to certain exemptions, the computer facilities of a carrier (including carriers falling under Section 2(b)(2) of the Act) which are used in the provision of interstate 'voice' or 'basic non-voice' services may not be used for those additional processing requirements necessary for 'enhanced non-voice' services.  These two forms of separation provide an adequate substitute for the existing maximum separation requirements. Accordingly, a resale carrier could provide both communications services and data processing services through its computer facilities.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)


 65.  At the time the existing computer rules were adopted the market applications of computer technology were limited to large-scale centralized computer services.  However, large-scale integrated circuitry and microprocessor technology have dramatically altered the manner in which services can be offered.  The market applications of computer processing technology makes the customization of services possible, either through equipment located on the customer's premises or within a carrier's network. For reasons which we discuss later, we believe that, in addressing the regulatory problems which arise as a result of new market applications of computer processing technology, a distinction should be drawn between the services which a carrier provides on a network basis and the provision of customer's-premises equipment which may be used in conjunction with network services to increase the utilization of the common carrier service.  We first look at network services and the need to address the computer processing activities under the carrier's control.
 66.  A regulatory structure must be established which adequately addresses present and foreseeable market applications of computer processing technology. In this regard certain observations can be made with respect to current hybrid services.  The confluence of communications and data processing has developed to such a degree that the possible combinations and permutations of services which can be offered are limited solely by the constraints technology imposes on the processing capabilities of equipment and concomitant software applications.  Augmentation of transmission and switching services by data processing applications is enormously beneficial to communications users. Computer technology and computer programming applications render any limitation of the variety of services available to the user merely a factor of how the information processing applications are structured within the computer equipment attached to a carrier's transmission facilities.  Thus, the nature of these services are determined not by the transmission facilities but, rather, by the specific processing applications offered through equipment attached to the channel of communication.  The implications for the communications sector become readily apparent. A regulatory scheme which limits service that can be provided through computer facilities imposes a limitation on the economic use of the equipment; and, in so doing, imposes an artificial economic barrier to the provision of new and innovative services which may serve to inhibit entry into the communications field.  For the consumer there is the potential deprivation of needed or desired services.  Such may be the impact of our existing computer rules. It would appear more appropriate in light of current market applications to establish a structure under which a computer facility could be used to provide any hybrid service.  This is premised on the need to establish a regulatory scheme which addresses the convergence of communications and data processing in a manner which gives primary consideration to users needs and the availability of adequate services to the public in the data communications market.  The comments of carriers and non-carriers alike amply demonstrate the need for flexibility in tailoring services to meet the individual communication needs of the user. From the user's perspective, what is important is not whether a service is classified as communications or data processing, but that regulation not inhibit the user's ability to acquire needed communications services and facilities in an economic and reasonable fashion.  The comments also point out that to the extent that services must be classified as 'communications' or 'data processing' for regulatory purposes, such a regulatory classification should not result in an artificial structure whereby less flexibility is afforded to tailor a service to individualized user needs.
     67.  After reviewing the comments filed in this proceeding we conclude that a revised definitional structure, standing alone, does not adequately address the issues before us.  In this respect the Notices were too narrowly focused.  While it is possible to concentrate solely on the permissible processing activities that may be engaged in by a carrier as part of a communications service, this by itself is not sufficient.  Continued reliance on a pure definitional approach merely accentuates the controversy over whether communications is incidental to data processing or data processing is incidental to communications.  Such philosophical discussions serve no useful purpose.  It has become more than evident in reviewing the comments that any solution which focuses merely on the definitional boundary between data processing and communications is a short term solution and one which fails to recognize and take advantage of the potential for new and innovative competitive data communications services.  The central issue is the movement of information and the ability of communications common carriers to provide the services necessary for the electronic transmission of information in a manner dictated by the needs of the consumer.  The regulatory problems arising because of the interplay of data processing and communications must be addressed by way of a comprehensive solution and not in terms of stop-gap measures.  This is necessary if there is to be certainty in the marketplace and avoidance of excessive regulatory intervention as to the nature and degree of permissible computer processing engaged in by carriers. Moreover, a comprehensive solution must consider the realities of the marketplace and accommodate computer technology and its market applications within a framework which enables us to carry out the responsibilities entrusted to us by Congress under the Communications Act of 1934, as amended.
     68.  The framework for a consistent and forward looking regulatory policy in this area must focus on the nature of various categories of services and the structure under which they are provided.  This is necessary if our regulatory environment is to accommodate and be in harmony with the ever continuing convergence of communications and data processing market applications.  A regulatory scheme can be adopted which relies in part on a definitional structure for distinguishing regulated communication services from unregulated data processing services and, at the same time, addresses the structure under which certain common carrier communications services are provided.  The vehicle which now makes this possible is the Commission's Resale Decision.58 This decision established the concept of a resale entity as a common carrier under the regulatory scheme of the Communications Act and allowed for flexible communications services to be offered through resale carriers utilizing communications facilities acquired from an 'underlying' carrier.  In essence, it makes it now possible for us to establish a regulatory structure under which a distinction can be made between services where the market applications of computer processing technology do not act as a constraint on the class of service offered and services which are inextricably intertwined in the convergence of communications and data processing such as to affect the nature of the service offered.
     69.  The essence of such a structure requires the division of common carrier communications services into three classes.  Common Carrier communications services can be classified as 'voice', 'basic non-voice', and 'enhanced non-voice' services.  We define these three categories of services as follows:  1)  A voice service is the electronic transmission of the human voice such that one human being can orally converse with another human being.  2)  A 'basic non-voice' service is the transmission of subscriber inputted information or data where the carrier:  (a) electronically converts originating messages to signals which are compatible with a transmission medium, (b) routes these signals through the network to the appropriate destination, (c) maintains signal integrity in the presence of noise and other impairments to transmission, (d) corrects transmission errors, and (e) converts the electrical signals to usable form at the destination.59  3)  An 'enhanced non-voice service' is any non-voice service which is more than the 'basic' service, where computer processing applications are used to act on the form, content, code, protocol, etc., of the inputted information.
     70.  In establishing these three categories of service, computer processing applications employed within a carrier's network in conjunction with 'voice' and 'basic non-voice' services can be performed without restriction on the use of data processing applications utilized within the framework of these two services.60  It is primarily when carriers seek to provide 'enhanced non- voice' service that uncertainty arises as to the nature of the service and whether maximum separation applies.  This is because the category of 'enhanced non-voice' service subsumes both regulated communications and unregulated data processing services.  Yet, it is in this area where the potential is the greatest for the offering of new and innovative competitive communications services.  Within this category the rendering of a communications or a data processing service is primarily a factor of how computer processing applications interact with the user's inputted information, and it is here that the Commission's computer rules have delineated permissible computer processing activity by communications common carriers.
     71.  Our attention, therefore, is focused upon the establishment of a regulatory structure under which carriers can provide 'enhanced non-voice' services free from regulatory constraints as to the communications or data processing nature of the service.  In so doing, we distinguish between the three categories of service, and distinguish between services offered by carriers owning their own transmission facilities and services offered by pure resale carriers who do not own their own facilities but, rather, acquire the necessary transmission facilities from an underlying carrier pursuant to tariff.  We see the separation of 'voice' and 'basic non-voice' services from 'enhanced non-voice' services as being essential to the establishment of an environment conducive to the provision of 'enhanced non-voice' services on a competitive basis. At the heart of this separation is the need to:  a) protect the quality and efficiency of telephone service, b) insure the availability of transparent common carrier transmission facilities to all on an equal basis, and c) minimize the potential for improper cross subsidization and/or anti- competitive behavior.  In order to provide the necessary regulatory safeguards in these areas and still foster a competitive environment where services can be custom tailored to the individual needs of the user, we conclude:  First, communications common carriers owning transmission facilities 61 used in the provision of interstate communications services may directly provide only 'voice' and 'basic non-voice' services. Second, carriers owning such transmission facilities may provide 'enhanced non-voice' services only through a separate corporate entity on a resale basis.  Third, the computer facilities of the underlying carrier which are used in the interstate provision of 'voice' and 'basic non-voice' services may not be used for those computer processing applications associated with 'enhanced non-voice' services and which would render the service more than a 'basic non-voice' service.  In essence, the basic thrust of our regulatory structure is the requirement that interstate 'enhanced non-voice' services be provided on a resale basis where all common carrier transmission facilities necessary for the provision of the 'enhanced non-voice' service are acquired pursuant to tariff.62
     72.  There are significant public interest benefits inherent in this structure which accrue to carriers, consumers, and this Commission alike.  With respect to carriers it provides a regulatory environment conducive to the rendering of new and innovative competitive communications offerings by allowing resale carriers to take full advantage of computer technology and its market applications.  The resale structure allows us to do away with the 'separate facilities' requirement of our maximum separation policy for resale carriers.  Now both communications and data processing services may be provided through the computer facilities of the resale carrier.  A resale carrier need only tariff its communication service while offering a data processing service as a non-tariffed option.  Because the provision of 'enhanced non-voice' services is primarily a factor of the equipment design and programming applications which take place within the equipment attached to the channel of communication, services can be custom tailored to individual user needs. Moreover, this structure is consistent with previous policy determinations in that it does not extend the arm of regulation to unregulated entities providing data processing services.  At a minimum, it allows for the provision of customized communication services in a competitive environment, where new and innovative services can be provided in response to the demands of the marketplace.
     73.  From the Commission's perspective this resale structure enables us to meet our regulatory responsibilities as identified in the First Computer Inquiry, 28 FCC 2d at 302, and minimizes the potential for cross-subsidization and anti-competitive behavior. The marketing of 'enhanced non-voice' services along with the computer equipment and programming used in the provision of such services is isolated from the provision of the underlying more basic common carriage offering.  In classifying that category of services which is inextricably intertwined with the convergence of communications and data processing, and requiring that only a certain class of carriers provide such services, the Commission is afforded flexibility in varying the nature and degree of regulation to be exercised over resale carriers while continuing to enforce the traditional regulatory controls over the underlying carriers providing basic services to the entire population.  Moreover, an environment is created where the licensed transmission facilities of a carrier are available to all providers of 'enhanced' services on the same basis, i.e. in terms of access, interconnection, rates, etc.  The common carrier transmission facility necessary for the provision of an 'enhanced' service becomes a separate part of the service which must be acquired pursuant to applicable tariff by any carrier entity, whether that entity is the resale entity of the underlying carrier, an existing resale carrier, or a new entrant. Since the transmission facilities must be acquired pursuant to tariff, the potential for using the transmission component of the service, to subsidize a new or innovative service is substantially minimized.  The isolation of the transmission component enables any carrier to provide an enhanced non-voice communications service on the same basis, without threat of unfair competitive advantage accruing to a given carrier by virtue of its control over the underlying transmission facilities. The transmission facility would be common to all entities and removed as a competitive element of the service.  Whatever cross-subsidization exists is limited primarily to the competitive portion of the service, i.e., the computer equipment and the marketing and packaging of its processing applications, which could possibly be addressed if need be through the use of accounting procedures which are now undergoing reexamination in our Uniform System of Accounts proceeding.
     74.  This regulatory structure has distinct benefits over the existing manner in which hybrid services are provided.  It is in the 'enhanced non- voice' arena where the existing maximum separation policy may serve to artificially constrain or structure services and the use of carrier computer equipment by requiring that only regulated services be provided via computer equipment used in the provision of such services.63  By separating out those services which must be provided on a 'resale' basis, a structure is provided whereby the concerns which prompted the maximum separation policy are substantially minimized.  It permits 'enhanced' services to be provided under a framework which does not require communications and data processing services to be provided through separate entities with separate equipment.  While this structure does not negate the need to establish a regulatory boundary between communications and data processing services, since both types of service are subsumed within the 'enhanced' non-voice category, it substantially reduces the impact any determination as to the communications or data processing nature of an offering would have on the availability of services to the consumer. Whereas under the existing rules a determination that a particular service constitutes a data processing service would foreclose a carrier from offering the particular service or processing application, under this structure the data processing service could still be offered as a non-tariffed option by the resale carrier.64
     75.  In addition, this structure requires the facilities of the underlying carrier to be transparent to the information transmitted and for a carrier to provide a 'pure transmission' service which forms the basis upon which all 'enhanced' services are provided. This should have the added benefit of minimizing the potential for unnecessary duplication of network systems in order to accommodate a particular service that might otherwise be foreclosed if the transmission facility was conditioned in a manner which would inhibit the provision of the service.  The underlying carrier's transmission facilities become the basic building block upon which computer facilities can be added to perform myriad combinations and permutations of processing activities.
. . . .
     78.  The purpose of a definitional structure is to establish a regulatory boundary between regulated communication offerings and those unregulated computer processing activities which do not result in the offering of a common carrier communication service.  The existing Section 64.702(a) is inadequate in this regard primarily because it was formulated at a time when processing capabilities were limited to large-scale central host computers; its inherent deficiencies rest with the fact that it reflects this environment. For example, in order for a service to be considered 'hybrid' remote access data processing and message switching must be combined to form a 'single integrated service.' In certain situations this determination can be made, but in reality it may simply be a factor of how the offering entity packages the service.66  In addition, the standard for determining whether a service is hybrid data processing or hybrid communications is stated in terms of whether the message switching being performed is 'incidental' to the data processing function or purpose.  While this standard was useful in an environment where processing activities were confined to centralized computers, with the advent of distributed processing, it is insufficient to talk solely in terms of the message switching being 'incidental' to the data processing since the message switching function is an essential component to any distributed processing system.  The regulatory focus should be upon the service being offered and not merely upon performance of a message switching function.  Another deficiency is in the definition of 'data processing.'  'Data processing' is currently defined by distinguishing it from circuit or message switching by essentially delineating the use of a computer for the processing of information for purposes other than message switching as data processing.67 While data processing may be performed as part of a communications service, the current definitions focus more on the presence of various processing functions such as storing, merging, retrieving, etc., than on the use to which they are put.  No attempt is made to distinguish the legitimate uses of data processing as part of a communications service from the provisions of a data processing service.
     79.  With the advent of distributed processing computer processing capabilities can be placed any where within the network. A revised definitional structure is needed to address this environment.  Rather than attempting to artificially construe the present Section 64.702 in a manner suitable to present day offerings, with the prospect of ambiguity and uncertainty, the definitional structure of Section 64.702 should be restructured in a manner which provides carriers with a clearer delineation of permissible processing activity.  Moreover, it is necessary to approach the communications/data processing controversy from a perspective which does not merely identify the presence of a data processing activity but, rather, from a perspective which identifies the regulated or non-regulated nature of the service provided by a carrier.  There are many market applications of data processing which do not result in the provision of a data processing service. For these reasons we are revising the definitional structure of Section 64.702(a), and more clearly stating the extent to which carriers may engage in computer processing applications as part of a regulated communications offering.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)


     8.  Processing activities are characteristically involved in the provision of both communication and data processing services.  Since Section 64.702 only addressed the processing activities which take place within a central computer, we propose to enlarge the scope of Section 64.702 to include all processing activities, whether performed at a central location, at the customer's premises, or at intermediate locations within or interconnected with a telecommunications network.  An appropriately modified definition of data processing must be set forth to take into account the fact that processing activities are not confined solely to a central computer and to render Section 64.702 applicable to determinations as to the nature of a carrier's processing activities--regardless of location or system structure.  We therefore propose to amend Section 64.702(a) and to modify the definition of data processing as proposed in our original Notice as follows:  'Data processing' is the electronically automated processing of information wherein:  (a) the information content, or meaning, of the input information is in any way transformed, or (b) where the output information constitutes a programmed11 response to input information.12

9.  Processing activities which would constitute data processing under this new definition would include, inter alia:

  arithmetic processing--applications include:  general commercial accounting, inventory control, banking and point-of-sale processing, financial and econometric modeling, scientific calculations, etc.;
  word processing--applications include:  interactive information retrieval systems, management information systems, text editing, translation, typesetting, etc.;
  process control--applications include the use of electronic equipment to monitor and control some process which is occurring on a continuing basis--such as nuclear-powered generating stations, an electric power distribution grid, an automatic machine tool, or a fire detection and control system.

Given our new definition, these processing activities would be considered data processing and could not be offered by a carrier except under the maximum separation conditions of Section 64.702.
     10.  The revision of our proposed definition also necessitates a modification of the processing categories listed in paragraph 21 of our Notice.  Two categories were set forth therein as not being within the ambit of our definition of data processing--'network control and routing' and 'input/output processing.'  For purposes of clarification and in order to conform with our new proposed definition, a restatement of these categories is now called for:

  network control and routing--applications include:  message and circuit switching,13 speed and code conversion, pulse format conversion, transmission error detection and correction, analog to digital and digital to analog conversion, signal processing,14 and time division multiplexing.
  input/output processing--this category comprises the uses of processing capability resident in a carrier network facility for the purpose of making disparate information sources and receptors compatible with the transmission system and with each other.  Such processing activities include those necessary for formatting, editing, and buffering of information to make it compatible with the electrical characteristics of different transmission media.

Since these processing activities would not constitute data processing, they could be incorporated into a carrier's communications offering without evoking the constraints imposed by the maximum separation requirements.  Moreover, the utilization of these processing activities in the course of providing either a communications or a data processing service would not necessarily, in or of itself, change the nature of that service.

11  'Programmed,' as used herein, constitutes the means of preordaining a response to given input or stimulus regardless of whether that means is achieved through the use of software, hardware, firmware or fundamental equipment design.
12  The second condition (b) brings services such as process control and proprietary information retrieval within the ambit of the definition of data processing.  In the process control case, a message or other stimulus results in a change of state in the process which is being controlled.  In the proprietary information retrieval case, the arrival of an input message or stimulus--the information request--is operated upon by the processing device and results in an output which is the specific information requested.
13  The categories are meant to include packet switching (and its variations) and time-division circuit switching.  We also would consider permissible those processing activities utilized in the provision of ancillary network services such as automatic call-forwarding, abbreviated dialing, and special announcements.
14  Signal processing comprises the use of processing operations in applications which maintain the information content of an electrical signal. These include signal detection and regeneration and the adaptive equalization of transmission channels.

-- In re Amendment Of Section 64.702 Of The Commission's Rules And Regulations (Computer Inquiry), Docket No. 20828, Supplemental Notice Of Inquiry And Enlargement Of Proposed Rulemaking, (March 8, 1977)



 16.  In the new 64.702(a) we have sought to define data processing positively, in terms of what it is, rather than by exception as we had previously done.  By so doing we expect to achieve two related policy goals:  (1) an objective identification of those uses of computers by carriers which require a separate subsidiary, and (2) the stimulation of economic activity in the regulated communications sector by removing ambiguities in the previous definition.  By defining data processing positively, we can also approach the carriers' role from a different perspective--a carrier may use computers for any purpose which is not data processing.
 17.  Our new definition is written in recognition that any computer 12 has certain basic processing capabilities which include:
  arithmetic computation--the basic operations of count, add, subtract, multiply, and divide
  logical computation--operations which include:  AND, OR NOT, compare, and branch
  storage, retrieval, and transfer--of alphanumeric or graphical data.
These operations may be ordered and combined into a program13 which is capable of achieving very sophisticated results--which may or may not constitute data processing as we have defined it.
 18.  In our new definition we state the generic criterion for identifying the data processing function as:
  'the use of a computer for the purpose of processing information wherein:   (a) the semantic content, or meaning, of input data is in any way transformed, or (b) where the output data constitute a programmed response to input data.'14
In contrast, the generic characteristic of the communications function is that the semantic content of information is not changed at the completion of a given process.  A message entering a network is intended to arrive at its destination unchanged. Several computer operations, such as message and circuit switching, may be required to permit the message to transit the network.  In this process, individual symbols may be processed, as in code conversion and error correction.  Or the message may be accompanied by addressing information, such as dial pulses or message headers, which are used by the communications network for centralized message routing.  The purpose of these computer operations is, nevertheless, the transmission of an unaltered message through a network and they do not constitute a data processing service.
 19.  We now cite some examples of data processing services, or functions, which exist within the context of our new proposed definitions.  At the time of the original Computer Inquiry, the preponderance of data processing applications was addressed to the manipulation of numerical quantities.  There were ubiquitous applications to business and scientific data processing.  These trends continue.  On a lesser scale, there were several non-computational applications of a data processing--to information retrieval, and transaction oriented systems for example.  These applications are much more significant now than in 1971.
 20.  Since data processing applications now encompass a much broader range than previously, it may be useful to accept the concept that the term 'data processing service' comprehends at least three reasonably distinct subclasses, which may be commingled in specific applications:
  arithmetic processing--general commercial accounting, payroll, inventory control, banking and point-of-sale processing, financial and econometric modeling, scientific calculations, etc.
  word processing--a rapidly developing application resulting from advances in mass memory technology and word processing software.  Applications include: interactive information retrieval systems, management information systems, text editing, translation, typesetting, etc.
  process control--the increased reliability and availability of computers is leading to an expansion of applications where a computer is used to monitor and control some process which is occurring continuously--such as a nuclear-powered generating station, an electric power distribution grid, an automatic machine tool, or a fire detection and control system.
Given our new definition, all of these applications would be considered data processing and could not be offered by carriers except under the maximum separation conditions of Section 64.702.
 21.  We also wish to cite those examples of the use of computers by carriers which would not be within the ambit of the definition of data processing. These applications fall into two categories:
  network control and routing--applications include:  Message and circuit switching,15 speed and code conversion, pulse format conversion, error detection and correction, analog to digital and digital to analog conversion, signal processing, 16 and time division multiplexing.
  input/output processing--this category comprises the uses of a computer capability resident in a carrier network facility for the purpose of making disparate computers and terminals compatible with each other.  Typical functions are the formatting, editing, and buffering of data to make it compatible with the electrical characteristics of different transmission media.
 22.  The new definition provides a demarcation between data processing services and communication services.  By so defining data processing, we have deleted the 'hybrid service' concept. Henceforth a service would be characterized as either data processing or communications.  A service or offering would be considered data processing if it meets the data processing criterion set forth in our new definition.  Where such criterion is met a carrier would be required to offer the service subject to our maximum separation policy as enunciated in Section 64.702 of our Rules.  To the extent that a service does not meet the criterion for data processing under our new definition then it would be considered a communications service or offering and subject to regulation under Title II.
 23.  Accordingly, notice is hereby given that we propose to amend Section 64.702 of our Rules as set forth in Appendix A hereto by:  (a) positively defining data processing and deleting the remaining terms and definitions contained in Section 64.702(a), (b) deleting entirely subsections (e), (f) and (g) which deal with hybrid services.17  Since all references to 'hybrid' services are being omitted, we would also delete Section 0.308 of our Rules pertaining to delegation of authority as to hybrid services.

12  By the term computer we mean any device which is capable of performing the functions described herein.
13  We use program in its broadest sense, here.  It includes stored programs which can be altered by a user as well as hard-wired or read only memory (ROM) devices.
14  The second condition (b) brings services such as process control and proprietary information retrieval within the ambit of the definition of data processing (see para. 20 below).  In the process control case, a message or other stimulus results in a change of state in the process which is being controlled.  In the proprietary information retrieval case, the arrival of an input message--the information request--is operated upon by the computer and results in an output which is the specific information requested.
15  These categories are meant to include packet switching (and its variations) and time-division circuit switching.  We also would consider permissible, the use of switching computers to provide ancillary functions such as automatic call-forwarding, abbreviated dialing, restricted dialing, and special announcements.
16  Signal processing comprises the use of computers in applications which maintain the information content of an electrical signal.  These include signal detection and regeneration, and the adaptive equalization of transmission channels.
17  Section 64.702(g) encompasses the discontinuance of hybrid as well as non-hybrid services.  With the deletion of 64.702(g) authorization for the discontinuance of tariffed service offerings must still be obtained pursuant to Section 214 of the Communications Act.

-- In re Amendment Of Section 64.702 Of The Commission's Rules And Regulations, Docket No. 20828, Notice Of Inquiry And Proposed Rulemaking, 61 FCC2d 103 (August 9, 1976)

Bright Line

 97.  Under this scenario, the regulatory demarcation between basic and enhanced services becomes relatively clear-cut.  An enhanced service is any offering over the telecommunications network which is more than a basic transmission service.  In an enhanced service, for example, computer processing applications are used to act on the content, code, protocol, and other aspects of the subcriber's information.33  In these services additional, different, or restructured information may be provided the subscriber through various processing applications performed on the transmitted information, or other actions can be taken by either the vendor or the subscriber based on the content of the information transmitted through editing, formating, etc. Moreover, in an enhanced service the content of the information need not be changed and may simply involve subscriber interaction with stored information. Many enhanced services feature voice or data storage and retrieval applications, such as in a 'mail box' service.34 This is particularly applicable in time-sharing services where the computer facilities are structured in a manner such that the customer or vendor can write its own customized programs and, in effect, use the time-sharing network for a variety of electronic message service applications.  Thus the kinds of enhanced store and forward services that can be offered are many and varied. 35
 98.  As we stated in paragraph 90, supra., the 'voice' category was intended to distinguish traditional telephone service consisting of real time human-to- human oral conversation from other basic and various enhanced services.  At footnote 60 of the Tentative Decision, we stated that we are not foreclosing enhanced processing applications from being performed in conjunction with 'voice' service.  We indicated that 'computer processing applications such as call forwarding, speed calling, directory assistance, itemized billing, traffic management studies, voice encryption, etc., may be used in conjunction with 'voice' service.' Id.  The intent was to recognize that while POTS is a basic service, there are ancillary services directly related to its provision that do not raise questions about the fundamental communications or data processing nature of a given service. Accordingly, we are not here foreclosing telephone companies from providing to consumers optional services to facilitate their use of traditional telephone service.  Any option that changes the nature of such telephone service is subject to the basic/enhanced dichotomy and their respective regulatory schemes.  For example, voice storage or automatic call answering within the network would be enhanced services.  See para. 97, supra. Thus any tariffed optional services must not change the nature of traditional telephone service. 36
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)



 106.  While there is some agreement among the parties as to the appropriateness of distinguishing between basic and enhanced services, there is no consensus that adoption of the proposed definitional scheme for distinguishing the communications/data processing nature of enhanced services would be in the public interest.  Without exception, every element of the definitional structure we proposed was subject to criticism by one party or another, and various changes were suggested for rewording the definition of such terms as 'computer processing,' 'data processing,' 'data processing service,' and 'hybrid data processing.'  Carriers argued that certain definitions should be altered or expanded to make clear that various computer services were communications services; unregulated service vendors found certain definitions too broad and argued that their adoption would result in regulation of data processing services.
 107.  After three attempts40 to delineate a distinction between communications and data processing services and failing to arrive at any satisfactory demarcation point, we conclude that further attempts to so distinguish enhanced services would be ultimately futile, inconsistent with our statutory mandate and contrary to the public interest.  In coming to this conclusion we are convinced that pursuing such a course of action would not accomplish the objectives of this proceeding, i.e., 'to (a) foster a regulatory environment conducive to the stimulation of economic activity in the regulated communications sector with respect to the provision of new and innovative communications-related offerings; and (b) enable the communications user to optimize his use of common carrier communication facilities and services by taking advantage of the ever increasing market applications of computer processing technology.'  Tentative Decision, at para. 59.  It is apparent that, over the long run, any attempt to distinguish enhanced services will not result in regulatory certainty.  At most, reliance on a definitional approach which uses a primary purpose standard is a stop-gap measure, which--even assuming we were able to define the services accurately--would only reflect the differences in these services as they are configured with today's technology.  In a market as vibrant as enhanced services, however, this distinction may miss important new developments.  Thus, the need for ad hoc determinations would continue.  As the market applications of computer technology continue to evolve we believe that attempts to distinguish enhanced services either will fail or result in an unpredictable and inconsistent scheme of regulation.  This is because a definitional structure is not independent of advances in computer technology and its concomitant market applications.  A certain degree of flexibility must be maintained to accommodate these advances.  To the extent flexibility is incorporated into the definitions, there is a corresponding degree of uncertainty.  Thus the boundary line differentiating enhanced communications and data processing services can vacillate, and confidence in decisions made based on that distinction would be diminished.
    108.  In addition to the fact that the record in this proceeding does not support the conclusion that greater regulatory certainty would result by adopting the proposed definitional structure, there are other factors which militate against classifying enhanced services for regulatory purposes.  Such a regulatory scheme would most likely result in the direct or indirect expansion of regulation over currently unregulated vendors of computer services and deprive consumers of increased opportunities to have services tailored to their individual needs.
    109.  To fully appreciate the significance of this, it is helpful to understand the dynamics of the marketplace in light of our current regulatory scheme.  There are literally thousands of unregulated computer service vendors offering competing services connected to the interstate telecommunications network.  The services they provide are many and varied.  The only limitation on the types of services offered are those arising from the constraints of their own entrepreneurial capabilities and, in a very real sense, the implicit requirement that they structure their services so as to avoid crossing a regulatory boundary that would subject them to regulation.  The former recognizes the fact that the potential for new and innovative services is merely a factor of the technical parameters of the computer equipment and the associated applications programs employed; the latter is a consequence of our Resale decision which subjected resale entities providing communications services to Title II regulation, but not vendors of data processing services. The interaction of the implicit requirement to avoid crossing the regulatory boundary and the competitive nature of the enhanced service market is crucial. Even with this barrier we have concluded that the enhanced services market is competitive, GTE-Telenet Merger, 72 FCC 2d 111 (1979). 41  By removing this barrier the entire market for enhanced services should be even more competitive than it has been in the presence of that barrier. In the GTE- Telenet Merger decision at paragraph 141, we discussed several potential entrants, large computer time sharing companies, that faced no barrier to entry other than the necessity to comply with the requirements of Title II.  The record in this proceeding makes clear that even when the Commission's stated policies are in favor of open entry, the very presence of Title II requirements inhibits a truly competitive, consumer responsive market.
    110.  Computer technology is increasingly removing technical limitations as to the types of enhanced services that may be offered.  Yet, a classification scheme which would categorize enhanced services as either communications or data processing inherently limits the types of services that an unregulated entity may offer. The reason for this is clear.  Providers of data processing and other computer services acquire the necessary transmission facilities from communications common carriers pursuant to tariff, and resell this transmission capability as part of their enhanced offering.  At the same time, an entity which acquires the same transmission facilities from a carrier and offers a 'communications' service is presently regulated as a common carrier under Title II of the Act.  See Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities (Resale), Docket No. 20097, 60 FCC 2d 261 (1976), recon. 62 FCC 2d 588 (1977), aff'd AT&T v. FCC, 572 F.2d 17 (2d Cir.), cert. denied, 439 U.S. 875 (1978). Accordingly, a resale entity is regulated as a common carrier only if it is providing a communications service.42
 111.  This has significant public interest implications in terms of the types of services that may be offered and the scope of our regulation.  First, the vendor of unregulated enhanced services may not provide an enhanced 'communications' service.  This means that its services must be artificially structured so as to not come under our regulatory umbrella (the guidelines for which we have already concluded would be less than precise).  To the extent services must be so structured there is a corresponding inability to fully tailor services to consumer needs.  This has the result of artificially restricting the supply of services provided over the telecommunications network.  In the final analysis both individual consumers and society in general bear unnecessary costs where such limitations exist.  This becomes even more troublesome as new markets for enhanced services open and new services open up.  While these services traditionally have been directed at the business sector, increasing attention is being focused on residential markets.43 It is apparent that technology and enterpreneurial incentives are directed toward new markets and new means of serving them.  Thus restrictions on output, which would result from a classification scheme limiting those who wish to avoid the costs and delays of regulation, will increase as these new markets open up.
 112.  The second public interest implication is the increased potential for expansion of regulation over currently unregulated providers of information or data processing services.  We noted in the Tentative Decision, at para. 152, that the tentative conclusion that a resale carrier would be able to offer both regulated and unregulated enhanced services (with the unregulated services offered on a nontariffed basis) carried with it significant regulatory and market implications for presently unregulated firms. A resale carrier could offer any enhanced service, whereas the unregulated vendor of computer services may offer only those enhanced services that are not regulated as 'communications.'  The effect of this is that '. . . the communication common carrier would have tremendous flexibility to provide new and innovative services and to tailor these services to individual user needs, much more so than a currently unregulated entity.  One result may be an indirect forcing of currently unregulated entities to acquire common carrier status in order to obtain the same degree of flexibility afforded a resale common carrier.'  Id. We perceive that the impetus for this to happen will increase as the computer processing applications and technologies continue to evolve and grow.  In addition to increasing the scope of Commission regulation, the specter of potential regulation may impose artificial barriers to entry.  Here also, this effect may grow in significance as technology advances.
 113.  We have gone to great length in this proceeding to build a record which would best enable us to render a decision consistent with the mandate of this Commission as set forth in Section 1 of the Communications Act.  47 U.S.C. 151.  Based on this record, the mandate of this Commission in a rapidly changing technological environment, the market developments resulting from the confluence of technologies, the impossibility of defining at the enhanced level a clear and stable point at which 'communications' becomes 'data processing,' the ever increasing dependence upon common carrier transmission facilities in the movement of information, the need to tailor services to individual user requirements, and the potential for unwarranted expansion of regulation, we conclude that the public interest would not be served by any classification scheme that attempts to distinguish enhanced services based on the communications or data processing nature of the computer processing activity performed.  Accordingly, we conclude that all enhanced computer services should be accorded the same regulatory treatment and that no regulatory scheme could be adopted which would rationally distinguish and classify enhanced services as either communications or data processing.
. . . . .
 116.  From the perspective of the regulator, a major benefit in not classifying services within the enhanced category is that the scope of Commission regulation is focused on those services which are clearly within the contemplation of the Communications Act and which serve as the foundation for all enhanced services.  Moreover, the extent of our regulatory authority is not automatically expanded with advances in technology and the types of enhanced services that can be offered.  Semantic distinctions are avoided as to whether a given service is data processing, information processing, process control, communications processing, or some other category.  As such, the potential for the development of an inconsistent regulatory scheme to accommodate these services is eliminated; all enhanced services are accorded the same regulatory treatment.  To the extent uncertainty creates a regulatory barrier to entry, that barrier is also removed.  With the nonregulation of all enhanced services, FCC regulations will not directly or indirectly inhibit the offering of these services, nor will our administrative processes be interjected between technology and its marketplace applications.  This structure enables us to direct our attention to the regulation of basic services and to assuring nondiscriminatory access to common carrier telecommunications facilities by all providers of enhanced services.
 117.  Service vendors also benefit under this structure. Providers of enhanced services are afforded tremendous flexibility because there is no restriction on the types of services they may provide, except those imposed by the demands of their customers. The boundary between basic and enhanced services raises no such barrier since we believe we have identified a common necessary element in our definition of basic services.  The trend in technology is toward new and innovative enhancements that build upon basic services.  For computer vendors and entrepreneurs the momentum is away from basic communications services, rather than toward it. As a result, the types of enhanced services they may provide is limited only by their entrepreneurial ingenuity and competitive market constraints. Services need not be artificially structured or limited so as to avoid transgressing a regulatory boundary.
 118.  The benefit to consumers is that services which depend on the electronic movement of information can be custom-tailored to individual subscriber needs. Moreover, information systems can be programmed so that users dictate the nature and extent of computer processing applications to be performed on any given amount of information.  As greater flexibility is offered consumers to tailor their services, a broader spectrum of the marketplace can be expected to take advantage of information processing services.  To the extent regulatory barriers to entry are removed and restrictions on services are lifted there is a corresponding potential for greater utilization of the telecommunications network through greater access to new and innovative service by a larger segment of the populace.  Finally, this structure creates the proper economic incentives for vendors to segregate their services such that consumers need pay only for those services necessary for their own information processing requirements.
. . . .
 120.  We have described our repeated unsuccessful efforts to identify a discrete communications component (after the fashion of the First Computer Inquiry) in what we have finally come to label 'enhanced service.'  We are faced with the reality that technology and consumer demand have combined to so overrun the definitions and regulatory scheme of the First Computer Inquiry that today no comparable, minimally enduring line of demarcation can be drawn. In enhanced services, communications and data processing technologies have become intertwined so thoroughly as to produce a form different from any explicitly recognized in the Communications Act.  The forms of the Act should not control either the substance of enhanced service offerings to the public or the manner in which they are made available.
. . . . .
 130.  We appreciate there can be disagreement as to the line we have drawn between basic and enhanced services.  Plausible arguments can be tendered for drawing it elsewhere.  At the margin, some enhanced services are not dramatically dissimilar from basic services or dramatically different from communications as defined in Computer Inquiry I.  But any attempt to draw the line at this margin potentially could subject both the enhanced services providers and us to the prospect of literally hundreds of adjudications over the status of individual service offerings.  We have noted the danger that such proceedings could lead to unpredictable or inconsistent regulatory definitions.  See para. 107 supra.  Such proceedings also could consume a very significant proportion of the resources of this agency.  The requirement to devote significant resources to try to make individual service distinctions would necessarily reduce the resources available for regulating basic services and ensuring non-discriminatory access to common carrier telecommunications facilities.
 131.  We have tried to draw the line in a manner which distinguishes wholly traditional common carrier activities, regulable under Title II of the Act, from historically and functionally competitive activities not congruent with the Act's traditional forms.  We believe that the Communications Act and the jurisprudence which has grown up around it make it plain that Congress intended that substance not form govern the treatment of services within the Act's reach.  We have acted upon the belief by applying traditional Title II regulatory mechanisms to basic services and applying no direct regulatory mechanism for enhanced services.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)

Enhanced Service Provider

47 C.F.R. ' 64.702(a): "For the purpose of this subpart, the term 'enhanced service' shall refer to services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information. Enhanced services are not regulated under Title II of the Act."


“[E]nhanced service,” however, was service in which “computer processing applications [were] used to act on the content, code, protocol, and other aspects of the sub-scriber’s information,” such as voice and data storage services, id., at 420–421, ¶97, as well as “protocol conversion” (i.e., ability to communicate between networks that employ different data-transmission formats), id., at 421– 422, ¶99. By contrast to basic service, the Commission decided not to subject providers of enhanced service, even enhanced service offered via transmission wires, to Title II common-carrier regulation. Id., at 428–432, ¶¶115–123.The Commission explained that it was unwise to subject enhanced service to common-carrier regulation given the “fast-moving, competitive market” in which they were offered. Id., at 434, ¶129.

NCTA v. BrandX, No. 04-277, 545 U.S. __, Slip at 5 (S.Ct. June 27, 2005)


Enhanced services, on the other hand, were described as using computer processing applications to act on the content, code, protocol or other aspects of the subscriber's information.77

77 Id. at 420-21, paras. 97; see also 47 C.F.R. § 64.702(a) (Enhanced services are "services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information.").  Examples of services that the Commission has treated as enhanced include voice mail, e-mail, store-and-forward services, interactive voice response, protocol processing, gateway and audiotext services.  See Bell Operating Companies Joint Petition for Waiver of Computer II Rules, Order, 10 FCC Rcd 13758, 13770-774, App. A (Com. Car. Bur. 1995).

--In Re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, CC Dockets Nos. 95-20, 98-10, NPRM (February 15, 2002) http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-02-42A1.doc


Enhanced services, which are not regulated by the Commission under Title II of the Communications Act, use transmission facilities to deliver services that provide more than a basic transmission offering. Bell Operating Companies' Joint Petition for Waiver of Computer II Rules, Memorandum Opinion & Order, 10 FCC Rcd 1724 n.3 (1995) (Interim Waiver Order); 47 C.F.R. ' 64.702(a). Examples of services the Commission has treated as enhanced include voice mail, E-Mail, fax store-and-forward, interactive voice response, protocol processing, gateway, and audiotext information services. See Bell Operating Companies Joint Petition for Waiver of Computer II Rules, Order, 10 FCC Rcd 13,758, 13,770-13,774, App. A (Com. Car. Bur. 1995) (BOC CEI Plan Approval Order). We note that the Telecommunications Act of 1996 (1996 Act) does not utilize the Commission's basic/enhanced terminology, but instead refers to "telecommunications services" and "information services." Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, codified at 47 U.S.C. '' 151 et seq; see also Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services and 1998 Biennial Regulatory Review -- Review of Computer III and ONA Safeguards and Requirements, CC Docket Nos. 95-20, 98-10, Further Notice of Proposed Rulemaking, FCC 98-8 at & 39 (rel. Jan. 30, 1998) (Computer III Further Notice). The Commission has concluded, however, that Congress sought to maintain the basic/enhanced distinction in its definition of "telecommunications services" and "information services," and that "enhanced services" and "information services" should be interpreted to extend to the same functions. SeeFederal -State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress, FCC 98-67 at && 33, 39, 45-46 (rel. April 10, 1998) (Universal Service Report to Congress).
-- In the matter of 1998 Biennial Regulatory Review -- Review of Customer Premises Equipmentand Enhanced Services Unbundling Rules in the Interexchange, Exchange Accessand Local Exchange Markets, CC Docket No. 98-183, Further Notice of Proposed Rulemaking, para 1, n. 20 (October 9, 1998)

  16.  The basic-enhanced service dichotomy was defined in the Computer II proceeding. 57  In that proceeding, the Commission described "basic" services as those that provide a "pure transmission capability over a communications path that is virtually transparent in terms of its interaction with customer-supplied information." 58  "Enhanced services," on the other hand, provide more than a basic voice transmission offering.  The Commission defines an enhanced service as an unregulated service that employs computer processing applications that:  (1) act on the format, content, code, protocol or similar aspects of a subscriber's transmitted information; (2) provide the subscriber additional, different, or restructured information; or (3) involve subscriber interaction with stored information. 59  Notwithstanding this three-pronged test, the Commission has held that carriers may use some of the processing and storage capabilities within their networks to offer optional tariffed features as "adjunct to basic" services, if the features: (1) are intended to facilitate the use of traditional telephone service; and (2) do not alter the fundamental character of telephone service. 60
  17.  The Commission has consistently categorized a service option or feature as adjunct to basic, and thus subject to Title II regulation, if that option or feature is clearly basic in purpose and use and brings maximum benefit to the public through its incorporation in the network. 61  For example, the Commission has addressed whether access to a database through directory assistance that searches for a listing by name may be offered as an adjunct to basic telephone service.  Because a subscriber using directory assistance retrieves information stored in a telephone company's computer data base, directory assistance appears to fit within the definition of an enhanced service.  The Commission, however, found such access to be adjunct to basic, rather than enhanced service, because directory assistance provides only that information necessary for a subscriber to place a call. 62
  18.  OSD appear to be within the definition of adjunct to basic services, because they are intended to facilitate the use of traditional telephone services for TTY-TTY calls, and do not alter the fundamental character of TTY- TTY telephone service.  The services provided by OSD, including operator assistance with collect and third-party billing, emergency interrupt and busy- line verification, are intended to facilitate the completion of TTY-TTY calls. As discussed above, directory assistance is already classified an adjunct to basic service.  The fact that directory assistance is provided through OSD does not alter the nature of the service, or, consequently, its classification as adjunct to basic service.  We therefore conclude that the services provided through OSD are subject to Title II regulation as adjunct to basic services. 63

57. Amendment of Section 64.702 of the Commission's Rules and Regulations  (Second Computer Inquiry), 77 FCC 2d 384 (1980), recon., 84 FCC 2d 50 (1980), further recon., 88 FCC 2d 512 (1981), aff'd sub nom., Computer and Communications Industry Association v. FCC, 693 F.2d 198 (D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983).
58. 77 FCC 2d at 420.
59. 47 C.F.R. S 64.702(a).
60. See North American Telecommunications Association, Petition for Declaratory Ruling under Section 64.702 of the Commission's Rules Regarding the Integration of Centrex, Enhanced Services, and Customer Premise Equipment, 101 FCC 2d 349, 360-361 (1985) (NATA/Centrex Order); modified on recon. 3 FCC Rcd 4385 (1986).
61. Id. at 359.
62. Id. at 360.  The Commission has also held that electronic directory assistance is an adjunct to basic service because, as with operator-assisted directory assistance, the purpose of the service is to facilitate the placement of telephone calls.  Southwestern Bell Telephone Co., Petition for Waiver of Section 69.4(b) of the Commission's Rules, 5 FCC Rcd 3792, 3793 (Com. Car. Bur. 1990).
63. According to AT&T and MCI, tariffs have been filed with the Commission for all the underlying services that are provided through OSD as required by Section 203(a) of the Communications Act.

--In The Matter Of Establishment Of A Funding Mechanism For Interstate Operator Services For The Deaf, RM 8585, Memorandum Opinion and Order, 11 FCC Rcd. 6808,  (February 21, 1996)


The regulatory treatment of data communications services is governed by the basic-enhanced service dichotomy created in the Computer II proceeding. 4 In that proceeding, the Commission described "basic" services as those that provide a "pure transmission capability over a communications path that is virtually transparent in terms of its interaction with customer-supplied information." 5  "Enhanced services," on the other hand, are not regulated under Title II of the Act, and provide more than a basic voice transmission offering.

"Enhanced services," on the other hand, are not regulated under Title II of the Act, and provide more than a basic voice transmission offering. 6

6. Enhanced services employ computer processing applications that act on the format, content, code, protocol or similar aspects of a subscriber's transmitted information, provide the subscriber additional, different, or restructured information, or involve subscriber interaction with stored information.  See 47 C.F.R. s 64.702(a).

-- In re US West Communications, Inc., Petition for Computer III Waiver, Order, 11 FCC Rcd. 1195  para 2 (Nov 6, 1995)


"Enhanced services" use the telephone network to deliver unregulated services that provide more than a basic voice transmission offering. See  47 C.F.R. S 64.702(a). "Basic services," such as "plain old telephone service" (POTS), are regulated transmission services that are offered under tariff pursuant to Title II of the Communications Act.
-- In the matter of Bell Atlantic Telephone Companies, Offer of Comparably Efficient Interconnection to Providers of Video Dialtone- Related Enhanced Services, 11 FCC Rcd. 985 n 5 (1995)



"Enhanced services" use the telephone network to deliver services that provide more than a basic voice transmission offering. They are contrasted with "basic services," such as "plain old telephone service" (POTS), which are regulated as tariffed services under Title II of the Communications Act. See 47 C.F.R. S 64.702(a);
-- In The Matter Of Computer III Further Remand Proceedings: Bell Operating Company Provision Of Enhanced Services, CC Docket No. 95-20, 10 FCC Rcd. 8360, February 21, 1995 (needs pinpoint cite)


Basic services, such as "plain old telephone service" (POTS), are regulated as tariffed services under Title II of the Communications Act. Enhanced services use the existing telephone network to deliver services that provide more than a basic transmission offering, such as voice mail, E-Mail, electronic store-and-forward, fax store-and-forward, data processing, and gateways to online databases.
-- In The Matter Of Bell Operating Companies' Joint Petition For Waiver Of Computer II Rules, DA 95-36, 10 FCC Rcd. 1724, n. 3 January 11, 1995

"Enhanced" services, on the other hand, provide more than a basic voice transmission offering. The Commission defines an enhanced service as an unregulated service that employs computer processing applications that: (1) act on the format, content, code, protocol or similar aspects of a subscriber's transmitted information; (2) provide the subscriber additional, different, or restructured information; or (3) involve subscriber interaction with stored information phone service; and (4) do not alter the fundamental character of telephone service. See North American Telecommunications Association, Petition for Declaratory Ruling under Section 64.702 of the Commission's Rules Regarding the Integration of Centrex, Enhanced Services, and Customer Premise Equipment, 101 FCC 2d 349, 360-361 (1985) (NATA/Centrex Order); modified on recon. 3 FCC Rcd 4385 (1986).


 10. After Computer I took effect, technological and competitive developments in the telecommunications and computer industries exposed shortcomings in its definitional structure, and in particular its ad hoc approach to evaluating the "hybrid" category.21  In light of such shortcomings, we conducted an extensive examination in the Computer II proceeding to determine the most appropriate regulatory framework for the provision of data processing services by carriers and others.  In the Final Decision, we found that because of technological change and consumer demand, communications and data processing technologies had become so intertwined in new service offerings that it was impossible to draw an "enduring line of demarcation" between them. 22 Accordingly, we adopted a new regulatory definitional scheme with two service categories:  basic and enhanced. 23  We defined basic service as limited to "the common carrier offering of transmission capacity for the movement of information." 24  Data processing, computer memory or storage, and switching techniques can be components of a basic service if they are used solely to facilitate the movement of information.  We further determined to continue to regulate basic services under Title II of the Act, since such services are "wholly traditional common carrier activities." 25
 11. In the Final Decision, we described an enhanced service as "any offering over the telecommunications network which is more than a basic transmission service."26  We revised our Rules to define enhanced services by articulating those functions that we considered to be different from basic service:

[T]he term "enhanced service" shall refer to services, offered over common carrier transmission facilities, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information;  provide the subscriber additional, different or restructured information;  or involve subscriber interaction with stored information. 27

In evaluating the enhanced services market, we determined that it was truly competitive. 28  Because consumers were deriving substantial benefits from this competition, we found that regulation of enhanced services was unwarranted.  We concluded that the basic and enhanced service dichotomy advanced the public interest by promoting regulatory certainty and by comporting with the actual development of the enhanced services industry.  In the Final Decision, we also deregulated the provision of CPE. 29
--In the Matters of: Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry);  and Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Thereof Communications Protocols under Section 64.702 of the Commission's Rules and Regulations, CC Docket No. 85-229, Report and Order (June 16, 1986)


"Enhanced service is any service other than basic service. 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."
--Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 204, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)


 97.  Under this scenario, the regulatory demarcation between basic and enhanced services becomes relatively clear-cut.  An enhanced service is any offering over the telecommunications network which is more than a basic transmission service.  In an enhanced service, for example, computer processing applications are used to act on the content, code, protocol, and other aspects of the subcriber's information.33  In these services additional, different, or restructured information may be provided the subscriber through various processing applications performed on the transmitted information, or other actions can be taken by either the vendor or the subscriber based on the content of the information transmitted through editing, formating, etc. Moreover, in an enhanced service the content of the information need not be changed and may simply involve subscriber interaction with stored information. Many enhanced services feature voice or data storage and retrieval applications, such as in a 'mail box' service.34 This is particularly applicable in time-sharing services where the computer facilities are structured in a manner such that the customer or vendor can write its own customized programs and, in effect, use the time-sharing network for a variety of electronic message service applications.  Thus the kinds of enhanced store and forward services that can be offered are many and varied. 35
 98.  As we stated in paragraph 90, supra., the 'voice' category was intended to distinguish traditional telephone service consisting of real time human-to- human oral conversation from other basic and various enhanced services.  At footnote 60 of the Tentative Decision, we stated that we are not foreclosing enhanced processing applications from being performed in conjunction with 'voice' service.  We indicated that 'computer processing applications such as call forwarding, speed calling, directory assistance, itemized billing, traffic management studies, voice encryption, etc., may be used in conjunction with 'voice' service.' Id.  The intent was to recognize that while POTS is a basic service, there are ancillary services directly related to its provision that do not raise questions about the fundamental communications or data processing nature of a given service. Accordingly, we are not here foreclosing telephone companies from providing to consumers optional services to facilitate their use of traditional telephone service.  Any option that changes the nature of such telephone service is subject to the basic/enhanced dichotomy and their respective regulatory schemes.  For example, voice storage or automatic call answering within the network would be enhanced services.  See para. 97, supra. Thus any tariffed optional services must not change the nature of traditional telephone service. 36
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)



     84.  The definition of 'computer processing' is taken from part (b) of our proposed definition of data processing.70  In addition we define 'data processing' as that processing which acts on the message or information to provide different information than that provided by the subscriber or, without altering the content of the information, results in the provision of additional or restructured subscriber information.  We distinguish between data processing as a computer processing activity and the provision of a 'data processing service.'  For example, data processing which is used for the purpose of transmitting and routing a subscriber message or data information does not result in the provision of a 'data processing service'.  Under subpart (a) of the definition of 'data processing service' the offering of a data processing service results when computer processing capabilities are offered for hire for the purpose of transforming or altering the information content or meaning of information provided by the subscriber.  Part (b) of the definition of 'data processing service' addresses information retrieval services and part (c) addresses various process control operations.
     85.  We recognize that a carrier may perform information retrieval and process control operations in the routing of messages or information in the provision of a communications service.  The mere performance of these operations by a carrier does not necessarily result in the rendering of a data processing service. The emphasis is on the service being offered.  Part (b) of our definition of 'data processing service' focuses upon the presence of a data base within the carriers network to provide an information retrieval service or to store information which is not necessary for the provision of a communications service or a carrier's own internal management needs.  Moreover, a complete prohibition on the use of what may be categorized as 'process control' would deny carriers the legitimate use of computer processing applications such as 'polling' of communication channels and 'automatic call distribution'.  These types of applications are not covered by the phrase 'non- communications' in subsection (c) of the definition of 'data processing service'.  Process control applications which constitute the rendering of a noncommunications process would include such applications as monitoring a nuclear-powered generating station, eleic power distribution grids, automatic machine tools, etc.  Thus, we distinguish between process control applications which monitor the flow, routing, and transmission of a subscriber's messages into and through the communications network, and those process control applications which are not dependent upon, or result from a subscriber initiated message or information.  An example of the former case might be the provision of a security alarm service where a signal is generated at the subscriber's premises and then routed by the carrier to the nearest emergency or security center. An example of the latter situation might be where computer facilities within the carrier's network are monitoring a customer's premises and generating signals which are not dependent upon input from the customer. This latter case of process control constitutes unilateral action by the carrier independent of any message sent by a subscriber, and does not constitute a communications service wherein the carrier is offering to carry subscriber initiated messages or information.  The analogy may be applicable to other services where the service being rendered is actually dependent upon a carrier monitoring a process rather than the transmission of a subscriber initiated message or information.  Such process control applications fall within the ambit of part (c) of the definition of 'data processing service.'
-- In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)

Information Service

(20) Information service

The term ''information service'' means 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 telecommunications service.

47 U.S.C. § 153(20)

Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (codified in scattered sections of 47 U.S.C. §§ 151-170).  This is essentially the same definition of Information Services that was used by the Federal Court in the Modified Final Judgment which broke up AT&T and devised how BOCs would be permitted to operate.  See United States v. AT&T, 552 F.Supp. 131, 179 (DDC 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983), vacated sub nom. United States v. Western Elec. Co., slip op. CA 82-0192 (DDC Apr. 11, 1996) (defining "information services" as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information which may be conveyed via telecommunications .....").



The 1996 Act defines an information service as follows: "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing. Telecommunications Act, 110 Stat. 59, ' 3.


"Information services" are defined in the proposed decree at Section IV(J) as:

the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information which may be conveyed via telecommunications ....

Two distinctly different types of information services fall within this general category: services which would involve no control by AT & T over the content of the information other than for transmission purposes (such as the traditional data processing services), and services in which AT & T would control both the transmission of the information and its content (such as news or entertainment). Because these two types of services raise different concerns, they will be addressed separately.
-- United States v. AT&T, 552 F.Supp. 131, 179 (DDC 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983), vacated sub nom. United States v. Western Elec. Co., slip op. CA 82-0192 (DDC Apr. 11, 1996).


Information-service providers, by contrast, are not subject to mandatory common-carrier regulation under Title II, though the Commission has jurisdiction to impose additional regulatory obligations under its Title I ancillary jurisdiction to regulate interstate and foreign communications, see §§151–161.

NCTA v. BrandX, No. 04-277, 545 U.S. __, Slip at 4 (S.Ct. June 27, 2005)

Telecom Act 1996

     Congress has addressed the burgeoning market for advanced computer services in the Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56, through which it sought to provide a "pro-competitive, de-regulatory national policy framework" designed to promote the "deployment of advanced telecommunications and information technologies to all Americans by opening all telecommunications markets to competition." H.R. Conf. Rep. No. 104-458, at 113 (1996). To that end, the statute maintained significant common carrier obligations on providers of "telecommunications services" but left providers of "information services" subject to much less stringent regulation.
      This distinction tracked a series of prior administrative decisions by the FCC. Beginning in 1980, the FCC distinguished "basic" telecommunications services from "enhanced" information services in the belief that ensuring access to the former would encourage competition in the latter and provide consumers with a wider variety of information services. In the Matter of Section 64.702 of the Comm'n's Rules & Regulations (Second Computer Inquiry), 77 FCC2d 384, 417 (1980). The 1996 law raised the question of whether the new broadband internet technologies qualified as telecommunications services, information services, or a combination of
the two.
--BrandX v FCC, Sec. 1, Opinion page 14756, 9th Circuit Oct 6, 2003

Information Service = ESP

[In re The Implementation of Sections 255 and 251(a)(2) of the Communications Act of 1934, as Enacted by the Telecommunications Act of 1996, WT Docket No. 96-198, Report and Order And Further Notice Of Inquiry,  74 (September 29, 1999); In re The Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, First Report and Order and Notice of Proposed Rulemaking, Docket 96-149, 11 FCCR. 21,905, 13 FCCR. 11,230, 11 FCC Rcd. 21,905, 13 FCC Rcd. 11,230, 5 Communications Reg. (P&F) 696,  102 (December 24, 1996).]

The definitions of the terms “telecommunications service” and “information service” established by the 1996 Act are similar to the Computer II basic- and enhanced-service classifications. “Telecommunications service”—the analog to basic service—is “the offering of telecommunications for a fee directly to the public . . . regardless of the facilities used.” 47 U. S. C. §153(46). “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.” §153(43). “Telecommunications carrier[s]”—those subjected to mandatory Title II common-carrier regulation—are defined as “provider[s] of telecommunications services.” §153(44). And “information service”—the analog to enhanced service—is “the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications . . . .” §153(20).

NCTA v. BrandX, No. 04-277, 545 U.S. __, Slip at 5 (S.Ct. June 27, 2005)


The Act defines an "information service" as "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 telecommunications service." Section 3(20), 47 U.S.C. 153(20). We note that information services consist of all services that the Commission previously considered to be enhanced services under the regulatory structure it had established in the 1980 Computer II proceeding. Amendment of Section 64.702 of the Commission's Rules and Regulations (Computer II), Docket No. 20828, Final Decision, 77 FCC 2d 384, 435 (1980), recon., 84 FCC 2d 50 (1980), further recon., 88 FCC 2d 512 (1981), aff'd sub nom. Computer and Communications Industry Ass'n v. FCC, 693 F.2d 198 (D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983). Enhanced services are defined in section 64.702(a) of the Commission's rules as "services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information," and include, among other things, such services as voice mail, electronic mail, facsimile store-and-forward, interactive voice response, protocol processing, gateway, and audiotext information services.
-- In the matter of the Implementation of Sections 255 and 251(a)(2) of the Communications Act of 1934, as Enacted by the Telecommunications Act of 1996, WT Docket No. 96-198, Report And Order And Further Notice Of Inquiry, 1999 WL 770958 (FCC), 17 Communications Reg. (P&F) 837, ¶ 78 n. 180 (September 29, 1999).
 

Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as amended, CC Docket No. 96-149, First Report and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd 21905, 21955, ? 102 (1996) ("all of the services that the Commission has previously considered to be 'enhanced services' are 'information services'"), Order on Reconsideration, 12 FCC Rcd 2297 (1997), further recon. pending, Second Report and Order, 12 FCC Rcd 15756 (1997), aff'd sub nom. Bell Atlantic Telephone Companies, et al v. FCC, et al., 131 F.3d 1044 (D.C. Cir. 1997).
-- In the matter of the Implementation of Sections 255 and 251(a)(2) of the Communications Act of 1934, as Enacted by the Telecommunications Act of 1996, WT Docket No. 96-198, Report And Order And Further Notice Of Inquiry, 1999 WL 770958 (FCC), 17 Communications Reg. (P&F) 837, ¶ 94 n. 215 (September 29, 1999).
 

We concluded in the Non-Accounting Safeguards Order that, although the text of the Commission's definition of "enhanced services" differs from the 1996 Act's definition of "information services," the two terms should be interpreted to extend to the same functions. We found no basis to conclude that, by using the term "information services," Congress intended a significant departure from the Commission's usage of "enhanced services." We further explained that interpreting "information services" to include all "enhanced services" provides a measure of regulatory stability for telecommunications carriers and ISPs by preserving the definitional scheme under which the Commission exempted certain services from traditional common carriage regulation.
-- In The Matter Of Computer III Further Remand Proceedings: Bell Operating Company Provision Of Enhanced Services, CC Docket No. 95-20, 1998 Biennial Regulatory Review -- Review of Computer III and ONA Safeguards and Requirements, CC Docket No. 98-10, FCC 98-8, Further Notice of Proposed Rulemaking, ¶ 40 (January 30, 1998)

We note that the 1996 Act does not utilize the Commission's basic/enhanced terminology, but instead refers to "telecommunications services" and "information services." We concluded in the Non-Accounting Safeguards Order that, although the text of the Commission's definition of "enhanced services" differs from the 1996 Act's definition of "information services," the two terms should be interpreted to extend to the same functions. We recently issued a report reviewing the Commission's interpretation of the terms "telecommunications services" and "information services." In that report, we concluded that, in the 1996 Act, Congress intended these terms to refer to distinct categories of services and that Congress sought "to maintain the Computer II framework" and the basic/enhanced distinction in its definition of "telecommunications services" and "information services." To avoid confusion in this Further Notice, we will continue to use the terms "basic services" and "enhanced services" to refer to the restrictions adopted in the Computer II proceeding.
-- In the matter of 1998 Biennial Regulatory Review -- Review of Customer Premises Equipment and Enhanced Services Unbundling Rules in the Interexchange, Exchange Access and Local Exchange Markets, CC Docket No. 98-183, Further Notice of Proposed Rulemaking, para 32 (October 9, 1998) (footnote numbering off)



In re Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress,  50 (1998) ("the category of information services was essentially identical to the pre-existing category of enhanced services").


    102. We conclude that all of the services that the Commission has previously considered to be "enhanced services" are "information services." We are persuaded by the arguments advanced by ITAA, CIX, and others, that the differently-worded definitions of "information services" and "enhanced services" can and should be interpreted to extend to the same functions. [FN232] We believe that interpreting "information services" to include all "enhanced services" provides a measure of regulatory stability for telecommunications carriers and ISPs alike, by preserving the definitional scheme under which the Commission exempted certain services from Title II regulation. We agree with ISPs that regulatory certainty and continuity benefits both large and small service providers. [FN233] In sum, we find no basis to conclude that by using the MFJ term "information services" Congress intended a significant departure from the Commission's usage of "enhanced services."
    103. We also find, however, that the term "information services" includes services that are not classified as "enhanced services" under the Commission's current rules. Stated differently, we conclude that, while all enhanced services are information services, not all information services are enhanced services. As noted by U S West, "enhanced services" under Commission precedent are limited to services "offered over common carrier transmission facilities used in interstate communications," whereas "information services" may be provided, more broadly, "via telecommunications." [FN234] Further, we agree with BellSouth and AT&T that live operator telemessaging services that do not involve "computer processing applications" are information services, even though they do not fall within the definition of "enhanced services." [FN235]
    104. We further conclude that, subject to the exceptions discussed below, protocol processing services constitute information services under the 1996 Act. We reject Bell Atlantic's argument that "information services" only refers to services that transform or process the content of information transmitted by an end-user, because we agree with Sprint that the statutory definition makes no reference to the term "content," but requires only that an information service transform or process "information." [FN236] We also agree with ITI and ITAA that an end-to-end protocol conversion service that enables an end-user to send information into a network in one protocol and have it exit the network in a different protocol clearly "transforms" user information. [FN237] We further find that other types of protocol processing services that interpret and react to protocol information associated with the transmission of end-user content clearly "process" such information. Therefore, we conclude that both protocol conversion and protocol processing services are information services under the 1996 Act.
    105. This interpretation is consistent with the Commission's existing practice of treating end-to-end protocol processing services as enhanced services. [FN238] We find no reason to depart from this practice, particularly in light of Congress's deregulatory intent in enacting the 1996 Act. [FN239] Treating protocol processing services as telecommunications services might make them subject to Title II regulation. Because the market for protocol processing services is highly competitive, such regulation is unnecessary to promote competition, and would likely result in a significant burden to small independent ISPs that provide protocol processing services. Thus, policy considerations support our conclusion that end-to-end protocol processing services are information services. [FN240]
    106. We note that, under Computer II and Computer III, we have treated three categories of protocol processing services as basic services, rather than enhanced services, because they result in no net protocol conversion to the end-user. These categories include protocol processing: 1) involving communications between an end-user and the network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users; 2) in connection with the introduction of a new basic network technology (which requires protocol conversion to maintain compatibility with existing CPE); and 3) involving internetworking (conversions taking place solely within the carrier's network to facilitate provision of a basic network service, that result in no net conversion to the end-user). [FN241] We agree with PacTel that analogous treatment should be extended to these categories of "no net" protocol processing services under the statutory regime. [FN242] Because "no net" protocol processing services are information service capabilities used "for the management, control, or operation of a telecommunications system or the management of a telecommunications service," they are excepted from the statutory definition of information service. [FN243] Thus, "no net" protocol conversion services constitute telecommunications services, rather than information services, under the 1996 Act.
    107. We further find, as suggested by PacTel, that services that the Commission has classified as "adjunct-to-basic" should be classified as telecommunications services, rather than information services. [FN244] In the NATA Centrex order, the Commission held that the enhanced services definition did not encompass adjunct-to-basic services. [FN245] Although the latter services may fall within the literal reading of the enhanced service definition, they facilitate establishment of a basic transmission path over which a telephone call may be completed, without altering the fundamental character of the telephone service. Similarly, we conclude that "adjunct-to- basic" services are also covered by the "telecommunications management exception" to the statutory definition of information services, and therefore are treated as telecommunications services under the 1996 Act.
-- In the Matter of the Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, Order on Reconsideration, Docket 96-149, 1997 WL 71143 (FCC), 12 FCCR. 2297, 12 FCC Rcd. 2297, 6 Communications Reg. (P&F) 972,  (Feb 19, 1997)

""Enhanced services" are defined in ? 64.702(a) of our rules:  "For the purposes of this subpart, the term enhanced services shall refer to services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; provide the subscriber additional different, or restructured information; or involve subscriber interaction with stored information."  The 1996 Act defines "information services" as offering the capability for "generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications."  47 U.S.C. ? 153(20). "

In re Access Charge Reform, NPRM, Third Report and Order, and NOI, CC Docket 96-262 ? 284 n 377 (Dec. 24, 1996)

Information Service =/= Telecom Service

The FCC was aware of the relationship that information services providers often have with providers of telecommunications services, but recognized that the two should remain distinguishable. "[W]hen an entity offers transmission incorporating the 'capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information,' it does not offer telecommunications. Rather, it offers an 'information service' even though it uses telecommunications to do so. Id. ¶ 39, at 11520 (emphasis added). Further, the FCC recognized that the architecture of information services would be built on top of existing telecommunications services infrastructure, but, in terms of regulation, would still remain separate for strong policy purposes.

The Internet and other enhanced services have been able to grow rapidly in part because the Commission concluded that enhanced service providers were not common carriers within the meaning of the Act. This policy of distinguishing competitive technologies from regulated services not yet subject to full competition remains viable. Communications networks function as overlapping layers, with multiple providers often leveraging a common infrastructure. As long as the underlying market for provision of transmission facilities is competitive or is subject to sufficient pro- competitive safeguards, we see no need to regulate the enhanced functionalities that can be built on top of those facilities. We believe that Congress, by distinguishing 'telecommunications service' from 'information service,' and by stating a policy goal of preventing the Internet from being fettered by state or federal regulation, endorsed this general approach. Limiting carrier regulation to those companies that provide the underlying transport ensures that regulation is minimized and is targeted to markets where full competition has not emerged. As an empirical matter, the level of competition, innovation, investment, and growth in the enhanced services industry over the past two decades provides a strong endorsement for such an approach.

Id. ¶ 95, 11546 (emphasis added) (footnotes omitted). "Congress intended to maintain a regime in which information service providers are not subject to regulation as common carriers merely because they provide their services 'via telecommunications.'" Id. ¶ 21, at 11511.
-- Vonage v. Minnesota PUC, Civil No. 03-5287, Sec. IV.A. (MJD/JGL) (DMN October 16, 2003)



14.  We recognize that the legal and policy issues associated with classifying Internet access service as either a telecommunications service or an information service under the Act have been raised previously, but not fully resolved, in two Commission proceedings.  Specifically, in 1998, the Commission addressed the status of information services in its Report to Congress on universal service.   In that report, the Commission reaffirmed its understanding that "the categories of 'telecommunications service' and 'information service' in the 1996 Act are mutually exclusive."   The Commission generally concluded that Internet access services  are information services, not telecommunications services.   The Commission recognized, however, that its analysis focused on ISPs as entities procuring inputs from telecommunications service providers.  Thus, classifying Internet access as an information service in this context left open significant questions regarding the treatment of Internet (and information) service providers that own their own transmission facilities and that engage in data transport over those facilities to provide an information service.   In addition, the Commission did not explicitly address the regulatory classification of wireline broadband Internet access services.
-- In Re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, CC Dockets Nos. 95-20, 98-10, NPRM ¶ 14 (February 15, 2002) http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-02-42A1.doc

  77. We adopt our tentative conclusion in the NPRM that the phrases  "telecommunications" and "telecommunications services" have the general meanings set forth in the Act. 173 Many commenters supported this conclusion. 174 Telecommunications services, however, does include services previously classified as adjunct-to-basic. Adjunct-to-basicservices are services which literally meet the definition of enhanced services, now called information services, established under the Commission's rules,175 but which the Commission has determined facilitate the completion of calls through utilization of basic telephone service facilities and are included in the term "telecommunications services."176 Adjunct-to-basic services include such services as call waiting, speed dialing, call forwarding, computer-provided directory assistance, call monitoring, caller identification, call tracing, and repeat dialing.177
  78. We decline to expand the meaning of "telecommunications services"to include information services for purposes of section 255, as urged by some commenters.178 In the NPRM, we recognized that under our interpretation of these terms, some important and widely used services, such as voicemail and electronic mail, would fall outside thescope of section 255 because they are considered information services.179 We conclude, however, that we may not reinterpret the definition of telecommunications services, either for purposes of section 255 only or for all Title II regulation. First, we emphasize that the term "information services" is defined separately in the Act.180 As we noted in the NPRM, there was no indication in the legislative history of the 1996 Act that Congress intendedthese terms to have any different, specialized meaning for purposes of accessibility.181
   79.  Furthermore, in a Report to Congress that was released subsequent to the  NPRM,182 we reiterated the distinction between information services and telecommunications services. Specifically, we found that "Congress intended [that] the categories of 'telecommunications service' and 'information service' to be mutually exclusive, like the definitions of 'basic service' and 'enhanced service' developed in our Computer II proceeding,and the definitions of 'telecommunications' and 'information service' developed in the Modification of Final Judgment that divested the Bell Operating Companies from AT&T."
--Implementation of Sections 255 and 251(a)(2) of the Communications Act of 1934, as Enacted by the Telecommunications Act of 1996, WT Docket No. 96-198, Report And Order And Further Notice Of Inquiry, 1999 WL 770958 (FCC), 17 Communications Reg. (P&F) 837,  ¶ 79 (1999)

"An end-user may utilize a telecommunications service together with an information service, as in the case of Internet access.  In such a case, however, we treat the two services separately:  the first service is a telecommunications service (e.g., the xDSL-enabled transmission path), and the second service is an information service, in this case Internet access."60

60See Frame Relay Order, 10 FCC Rcd at 13722-23, PP 40-46; Report to Congress on Universal Service, at P 60;  CIX Comments (CC Docket No. 98-11) at 15.

In re Deployment of Wireline Services Offering Advanced Telecommunications Capacity, CC Docket No. 98-147, 1998 WL 458500 (FCC), 13 FCCR. 24,012, 13 FCC Rcd. 24,012, Order, ¶ 36 (Aug. 7, 1998).


78. We decline to expand the meaning of "telecommunications services" to include information services for purposes of section 255, as urged by some commenters. In the NPRM, we recognized that under our interpretation of these terms, some important and widely used services, such as voicemail and electronic mail, would fall outside the scope of section 255 because they are considered information services. We conclude, however, that we may not reinterpret the definition of telecommunications services, either for purposes of section 255 only or for all Title II regulation. First, we emphasize that the term "information services" is defined separately in the Act. As we noted in the NPRM, there was no indication in the legislative history of the 1996 Act that Congress intended these terms to have any different, specialized meaning for purposes of accessibility.

79. Furthermore, in a Report to Congress that was released subsequent to the NPRM, we reiterated the distinction between information services and telecommunications services. Specifically, we found that "Congress intended [that] the categories of `telecommunications service' and `information service' to be mutually exclusive, like the definitions of 'basic service' and 'enhanced service' developed in our Computer II proceeding, and the definitions of 'telecommunications' and 'information service' developed in the Modification of Final Judgment that divested the Bell Operating Companies from AT&T." While we decline here to redefine the meaning of telecommunications services, either for purposes of section 255 or more broadly, we do think it is appropriate, as we discuss below, to use ofur ancillary jurisdiction to extend to certain non-telecommunications services accessibility obligations that mirror those under section 255 in order to effectuate Congress' intent that we make telecommunications services accessible.

-- In the matter of the Implementation of Sections 255 and 251(a)(2) of the Communications Act of 1934, as Enacted by the Telecommunications Act of 1996, WT Docket No. 96-198, Report And Order And Further Notice Of Inquiry (September 29, 1999) (footnote numbering off).


13. We conclude, as the Commission did in the Universal Service Order, that the categories of "telecommunications service" and "information service" in the 1996 Act are mutually exclusive. Reading the statute closely, with attention to the legislative history, we conclude that Congress intended these new terms to build upon frameworks established prior to the passage of the 1996 Act. Specifically, we find that Congress intended the categories of "telecommunications service" and "information service" to be mutally exclusive, like the definitions of "basic service" and "enhanced service" developed in our Computer II proceeding, and the definitions of "telecommunications" and "information service" developed in the Modification of Final Judgment that divested the Bell Operating Companies from AT&T. We recognize that the 1996 Act's explicit endorsement of the goals of competition and deregulation represents a significant break from the prior statutory framework. We find generally, however, that Congress intended to maintain a regime in which information service providers are not subject to regulation as common carriers merely because they provide their services "via telecommunications."
. . . . .
43. The language and legislative history of both the House and Senate bills indicate that the drafters of each bill regarded telecommunications services and information services as mutually exclusive categories. The House bill explicitly stated in the statutory text: "The term 'telecommunications service' . . . does not include an information service." The Senate Report stated in unambiguous terms that its definition of telecommunications "excludes those services . . . that are defined as information services." Information service providers, the Report explained, "do not 'provide' telecommunications services; they are users of telecommunications services." Accordingly, the Senate Report stated, the legislation "does not require providers of information services to contribute to universal service." We believe that these statements make explicit the intention of the drafters of both the House and Senate bills that the two categories be separate and distinct, and that information service providers not be subject to telecommunications regulation.
-- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67 ¶¶ 13 & 43 (April 10, 1998).
"Because information services are offered "via telecommunications," they necessarily require a transmission component in order for users to access information.  Accordingly, if we interpreted the statute as breaking down the distinction between information services and telecommunications services, so that some information services were classed as telecommunications services, it would be difficult to devise a sustainable rationale under which all, or essentially all, information services did not fall into the telecommunications service category.   As noted in the previous section, we find strong support in the text and legislative history of the 1996 Act for the view that Congress intended "telecommunications service" and "information service" to refer to separate categories of services." -- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  ¶ 57 (April 10, 1998), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html.

"we clarify that the provision of transmission capacity to Internet access providers and Internet backbone providers is appropriately viewed as 'telecommunications service' or 'telecommunications' rather than 'information service,'"
In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  ¶ 15 (April 10, 1998), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html


The office of Senator Stevens asserts that information services are inherently telecommunications services because information services are offered via "telecommunications."   We observe that ISPs alter the format of  information through computer processing applications such as protocol conversion and interaction with stored data, while the statutory definition of telecommunications only includes transmissions that do not alter the form or content of the information sent. When a subscriber obtains a connection to an Internet service provider via voice grade access to the public switched network, that connection is a telecommunications service and is distinguishable from the Internet service provider's service offering.  The language in section 254(h)(2) also indicates that information services are not inherently telecommunications services. Section 254(h)(2) states that the Commission must enhance access to advanced telecommunications and information services.  If information services were a subset of advanced telecommunications, it would be repetitive to list specifically information services in that subsection.
--Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776 ¶ 789 (1997) (Universal Service Order), as corrected by Federal-State Joint Board on Universal Service, Errata, CC Docket No. 96-45, FCC 97-157 (rel. June 4, 1997), appeal pending in Texas Office of Public Utility Counsel v. FCC and USA, No. 97-60421 (5th Cir. 1997) | Word Perfect | Adobe | Zip |

ESP = enhanced + basic telecom

40.  We conclude that AT&T provides a basic frame relay service (alone or bundled with enhanced protocol processing) that must be offered under tariff. According to the InterSpan Interface Standard, AT&T provides transport of customer data "transparently" across the AT&T frame relay network.64 IDCMA argues (and AT&T does not refute) that the vast majority of AT&T's frame relay customers terminate to, and receive from, the network frame relay data that do not require conversion to frame relay protocol.  Since in these cases AT&T's frame relay service "provides a pure transmission capability in a communication's path," without any protocol conversion, we find that this is a basic service. 65  We again note that six Bell Operating Companies (BOCs) treat frame relay as a basic transport service. 66
  41.  The assertion by AT&T and other commenters that the enhanced protocol conversion capabilities associated with AT&T's InterSpan service bring it within the definition of an enhanced service is beside the point.  Under the Commission's Computer II and Computer III decisions, AT&T must unbundle the basic frame relay service, regardless of whether the InterSpan offering also provides a combined, enhanced protocol conversion and transport service for those customers who require it. 67
  42.  We also reject AT&T's contention that the contamination theory applies to its frame relay service and renders its entire InterSpan service offering an enhanced service.  To date, the Commission has not applied the contamination theory to the services of AT&T or any other facilities-based carrier.  Indeed, the Commission rejected that alternative in Computer III and other proceedings. 68
  43.  The two orders cited by AT&T in support of applying the contamination doctrine to its services are inapposite.  They do not require or even allude to application of the contamination doctrine to AT&T.  The footnote cited by AT&T in the Async/X.25 Waiver Order contains a general definition of VANs. 69 Nothing in the footnote indicates that AT&T is included within the definition of a VAN.  The footnote specifically defines VANs as service providers that acquire common carrier facilities from other carriers, and thus do not own facilities like AT&T.  The second order cited by AT&T is a Commission order approving AT&T's amendment to its CEI plan, which provides customers with basic dial-out capabilities from AT&T's enhanced voice messaging service. 70 This order, however, refutes, rather than supports AT&T's interpretation of the contamination theory.  The order approves the amendment because AT&T satisfies all of the CEI requirements, ensuring interconnection to the underlying basic service. 71  If the contamination theory applied to AT&T, as it argues, AT&T would not have had to satisfy any CEI requirements for the basic service. 72
  44.  Moreover, application of the contamination theory to a facilities-based carrier such as AT&T would allow circumvention of the Computer II and Computer III basic-enhanced framework. AT&T would be able to avoid Computer II and Computer III unbundling and tariffing requirements for any basic service that it could combine with an enhanced service.  This is obviously an undesirable and unintended result. 73
  45.  Thus, in accordance with the Commission's previous decisions, we conclude that the contamination theory does not apply to AT&T, and we do not apply it to AT&T in this order.  AT&T cannot avoid its Computer II and Computer III obligations under the auspices of the contamination doctrine, which applies only to nonfacilities-based service providers.
  46.  AT&T is free to continue its practice of packaging CPE and enhanced protocol processing with the basic frame relay service (purchased under tariff), so long as the underlying basic service is separately offered under tariff.  Thus, AT&T may maintain its flexible approach to offering frame relay services.  AT&T must file a tariff, however, for basic frame relay service within 60 days of the effective date of this order.  We leave the issues of existing AT&T frame relay contracts and the specifics of the required tariff to the tariff-review process.
-- In re Independent Data Communications Manufacturers Association, Inc., DA 95-2190, 1995 WL 613619 (FCC), 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, Order (October 18, 1995) (aka Frame Relay Order).



 81  An Internet access provider, in that respect, is not a novel entity incompatible with the classic distinction between basic and enhanced services, or the newer distinction between telecommunications and information services.  In essential aspect, Internet access providers look like other enhanced -- or information -- service providers.  Internet access providers, typically, own no telecommunications facilities.  Rather, in order to provide those components of Internet access services that involve information transport, they lease lines, and otherwise acquire telecommunications, from telecommunications providers -- interexchange carriers, incumbent local exchange carriers, competitive local exchange carriers, and others.   In offering service to end users, however, they do more than resell those data transport services.  They conjoin the data transport with data processing, information provision, and other computer-mediated offerings, thereby creating an information service.  Since 1980, we have classed such entities as enhanced service providers.  We conclude that, under the 1996 Act, they are appropriately classed as information service providers.
 -- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67 (April 10, 1998).

ESPs vs telecommunications carriers

"A service provided on a common carrier basis is one that is offered to the public on standard terms.  "[A] carrier will not be a common carrier where its practice is to make individualized decisions, in particular cases, whether and on what terms to deal."  National Ass'n of Regulatory Util Comm'rs v. FCC, 525 F.2d 630, 641 (D.C. Cir.) (NARUC I), cert. denied, 425 U.S. 992, 96 S. Ct. 2203, 48 L.Ed.2d 816 (1976).  Basic telephone services are common carrier services because they are offered to all consumers on standardized terms.  Enhanced services, in contract, are not regarded by the FCC as common carrier services, because they are "custom tailor[ed] . . .  to the particularized needs of the [] individual customers."  Computer II Final Decision, 77 FCC2d at 431."
--People of the State of California v. FCC, 905 F.2d 1217, 1240 n. 32 (9th Cir. 1990).



"In Computer II the Commission found that enhanced services are not the kind of  general public offerings this court regarded as common carriage in NARUC I.  Inherent in enhanced service offerings is the ability of vendors to tailor  their services to meet the particularized needs of individual customers. 62  In the Commission's view, this characteristic distinguishes enhanced  services from basic services, which are subject to traditional Title II  regulation...it is reasonable to find that providers of these services generally are not  common carriers because they will "make individualized decisions in particular cases whether and on what terms to serve."" Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 210, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)

"the Commission found that the provision of an enhanced service  is not a common carrier activity and, thus, is outside the scope of Title II."  Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 209, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)
Findings by Federal Communications Commission that combined data processing and communication services plus customer premises equipment were not common-carrier communication activities within this section and that even if some such services could be classified so as to be subject to regulation under this section it was not required to do so, were reasonable, thereby supporting Commission's decision not to subject such services to regulation under this section.  --Computer and Communications Industry Ass'n v. FCC, 693 F.2d 198, 224 U.S. App. D.C. 83, cert. denied, 103 S. Ct. 2109, 461 U.S. 938, 77 L.Ed.2d 313.
Under our framework, Internet service providers are not treated as carriers for purposes of interstate access charges, interconnection rights under section 251, and universal service contribution requirements.  This treatment admittedly provides some benefits to such companies, but it also imposes limitations.  Internet service providers are not entitled under section 251 to purchase unbundled network elements or discounted wholesale services from  incumbent LECs, they are not entitled to federal universal service support for serving high-cost and rural areas, and they are not entitled to reciprocal compensation for terminating local telecommunications traffic.   We make no determination here on the question of whether competitive LECs that serve Internet service providers (or Internet service providers that have voluntarily become competitive LECs) are entitled to reciprocal compensation for terminating Internet traffic.  That issue, which is now before the Commission, does not turn on the status of the Internet service provider as a telecommunications carrier or information service provider.  See Pleading Cycle Established for Comments on Request by ALTS for Clarification of the Commission's Rules Regarding Reciprocal Compensation for Information Service Provider Traffic, Public Notice, CCB/CPD 97-30 (released July 2, 1997).  As we discuss below, the one case in which Internet service providers and carriers enjoy similar treatment is in the provision of certain services to schools and libraries at discounted rates.   In that case, Congress expressly directed the Commission to create "competitively neutral rules" to facilitate "access to advanced telecommunications and information services."   There is no necessary connection between those who contribute to universal service funding and those entitled to receive support.   For example, contributions to the fund are primarily derived from interexchange carriers, but the companies that receive high-cost support are LECs.  Paging providers are required to contribute to universal service, but have limited opportunity to receive support.  We realize that Congress carefully balanced several competing concerns when it crafted the universal service provisions of the 1996 Act.  After reviewing our implementation of those provisions, and considering novel issues such as the status of IP telephony, we believe that we are being faithful to the balance struck by Congress.  - In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  106 (April 10, 1998).

80  "The provision of Internet access service involves data transport elements:  an Internet access provider must enable the movement of information between customers' own computers and the distant computers with which those customers seek to interact.  But the provision of Internet access service crucially involves information-processing elements as well; it offers end users information-service capabilities inextricably intertwined with data transport.   As such, we conclude that it is appropriately classed as an "information service." "
 81  An Internet access provider, in that respect, is not a novel entity incompatible with the classic distinction between basic and enhanced services, or the newer distinction between telecommunications and information services.  In essential aspect, Internet access providers look like other enhanced -- or information -- service providers.  Internet access providers, typically, own no telecommunications facilities.  Rather, in order to provide those components of Internet access services that involve information transport, they lease lines, and otherwise acquire telecommunications, from telecommunications providers -- interexchange carriers, incumbent local exchange carriers, competitive local exchange carriers, and others.   In offering service to end users, however, they do more than resell those data transport services.  They conjoin the data transport with data processing, information provision, and other computer-mediated offerings, thereby creating an information service.  Since 1980, we have classed such entities as enhanced service providers.  We conclude that, under the 1996 Act, they are appropriately classed as information service providers.
82.  Our findings in this regard are reinforced by the negative policy consequences of a conclusion that Internet access services should be classed as "telecommunications."  We have already described some of our concerns about the classification of information service providers generally as telecommunications carriers.   Turning specifically to the matter of Internet access, we note that classifying Internet access services as telecommunications services could have significant consequences for the global development of the Internet.   We recognize the unique qualities of the Internet, and do not presume that legacy regulatory frameworks are appropriately applied to it. commitments with regard to the extent of their liberalization efforts.
 -- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67 (April 10, 1998).

We realize that, as technology evolves, new means of providing telecommunications service may emerge.  Although we conclude that Internet access is not a "telecommunications service," we acknowledge that there may be telecommunications services that can be provisioned through the Internet.  . . . . With respect to the provision of pure transmission capacity to Internet service providers or Internet backbone providers, we have concluded that such provision is telecommunications.
--In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  101 (April 10, 1998).



"We conclude that entities providing pure transmission capacity to Internet access or backbone providers provide interstate "telecommunications."  Internet service providers themselves generally do not provide telecommunications.  In those cases where an Internet service provider owns transmission facilities, and engages in data transport over those facilities in order to provide an information service, we do not currently require it to contribute to universal service mechanisms.  We believe it may be appropriate to reconsider that result, as it would appear in such a case that the Internet service provider is furnishing raw transmission capacity to itself. Finally, we consider the regulatory status of various forms of "phone-to-phone IP telephony" service mentioned generally in the record.  The record currently before us suggests that certain of these services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services."  We do not believe, however, that it is appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual service offerings."  -- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  55 (April 10, 1998).

"The Internet and other enhanced services have been able to grow rapidly in part because the Commission concluded that enhanced service providers were not common carriers within the meaning of the Act.   This policy of distinguishing competitive technologies from regulated services not yet subject to full competition remains viable.  Communications networks function as overlapping layers, with multiple providers often leveraging a common infrastructure.   As long as the underlying market for provision of transmission facilities is competitive or is subject to sufficient pro-competitive safeguards, we see no need to regulate the enhanced functionalities that can be built on top of those facilities.  We believe that Congress, by distinguishing "telecommunications service" from "information service," and by stating a policy goal of preventing the Internet from being fettered by state or federal regulation, endorsed this general approach.   Limiting carrier regulation to those companies that provide the underlying transport ensures that regulation is minimized and is targeted to markets where full competition has not emerged.  As an empirical matter, the level of competition, innovation, investment, and growth in the enhanced services industry over the past two decades provides a strong endorsement for such an approach."  -- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  95 (April 10, 1998).



"Enhanced service providers are obviously not telecommunications carriers to the extent that they "employ computer processing applications that . . .  provide the subscriber additional, different, or restructed information."  See 47 C.F.R. ? 64.702(a)."  In the Matter of The Provision of Interstate and International Enterexchange telecommunications Service via the "Internet" by Non-Tarriffed, Uncertified Entities, Reply Comments of the Interactive Services Association 3 n 6 (June 10, 1996).

"In its Computer III proceedings . . . the FCC reaffirmed its earlier conclusion in the Computer II proceedings that enhanced service were not regulatable under the Communications Act and preempted states from imposing their own regulations on those services. 7 The FCC also preempted state regulators from imposing any additional or different regulatory safeguard requirements on the BOCs including structural separation."  -Robert J. Butler, In the Aftermath of California V. FCC: Computer III remand Proceedings Pose Difficult Policy Choises For the enhanced service Industry, 8 No. 5 Computer Law. 24, 24 (May 1991).

Justification Objectives

The Internet provides citizens of the United States with the ability to communicate across state and national borders in ways undreamed of only a few years ago.  The Internet also is developing into a powerful instrumentality of interstate commerce.  In 1997, we decided that retaining the ESP exemption would avoid disrupting the still-evolving information services industry and advance the goals of the 1996 Act to "preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services."16 This Congressional mandate underscores the obligation and commitment of this Commission to foster and preserve the dynamic market for Internet-related services.  We emphasize the strong federal interest in ensuring that regulation does nothing to impede the growth of the Internet -- which has flourished to date under our "hands off" regulatory approach -- or the development of competition.  We are mindful of the need to address the jurisdictional question at issue here, and the effect the jurisdictional determination may have on inter-carrier compensation for ISP-bound traffic, in a manner that promotes efficient entry by providers of both local telephone and Internet access services, and that, by the same token, does not encourage inefficient entry.

16 Access Charge Reform Order, 12 FCC Rcd at 16134.  See also 47 U.S.C. ? 230(b)(2) ("It is the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.").

----In Re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic, CC Docket No. 96-98, CC Docket No. 99-68, Declaratory Ruling  6 (February 26, 1999)

"The exemption afforded ESPs from interstate access charges in 1983 was intended to be "temporary," designed to avoid unduly burdening the then "fledgling" ESP industry and disrupting the provision of information services to the public" In Re The Provision of Interstate and International Interexchange Telecommunications Service via the "Internet" by Non-Tariffed, Uncertified Entities: Reply comments of the Telecommunications Resellers Association RM No. 8775 at 5 (June 10, 1996) (citing Amendment of Part 69 of the Commission Rules Relating to Enhanced Service Providers, 3 FCC.Rcd 2631, ¶ 2 (1988))
 

 12. In the Computer II proceeding, we sought to maximize benefits for consumers by promoting competition in the provision of enhanced services and CPE.  As in Computer I, we were concerned with the potential for anticompetitive conduct that could result from carrier participation in unregulated markets.  We were particularly concerned that major carriers could use their control over basic services to discriminate against others' competitive services and products.  We were also concerned that these carriers could misallocate costs from unregulated to regulated activities, allowing them to impose unfair burdens on regulated ratepayers and improperly cross-subsidize their competitive offerings.  Accordingly, to guard against such abuses, we required major carriers to provide enhanced services and CPE only through corporate affiliates fully separated from their basic services operations. 30
 13. We did not expect the structural separation requirements to alter the incentives a carrier might have to engage in discrimination or cross- subsidization in enhanced services and CPE markets.  We did expect, however, that structural separation would make such competitive abuses easier to detect and more difficult to accomplish.  Under structural separation, transactions between a business organization's basic services operation and its enhanced services and CPE operations would have to cross corporate boundaries and would be recorded in separate books of account for regulated and unregulated affiliates.  We decided to impose these requirements only if the benefits gained from promoting competition and protecting ratepayers would exceed the costs of complying with structural separation.  On the basis of these considerations, we imposed the structural separation requirements only on AT & T. 31  We construed the 1956 Decree to permit AT & T to offer enhanced services and CPE subject only to the structural separation requirements by finding that such activities were "incidential to the furnishing by AT & T or [its] subsidiaries of common carrier communications services," 32 and thus permissible under the terms of that decree.
--In the Matters of: Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry);  and Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Thereof Communications Protocols under Section 64.702 of the Commission's Rules and Regulations, CC Docket No. 85-229, Report and Order (June 16, 1986)
 

 100.  We believe that our adoption of a differentiation between basic and enhanced services best furthers the public interest because it comports with the actual development of this dynamic industry.  As the market applications of computer technology increase, communications capacity has become the necessary link allowing the technology to function more efficiently and more productively.  Transmission networks have benefitted from some of the productive breakthroughs which this relatively new field has made possible.  As a result, the computer industry and the communications industry are becoming more and more interwoven.  We believe, and the record shows, that this trend will become even more pronounced in the future.  As it does, an increasing number of enhanced services will be developed to meet the need of the marketplace.  Thus, the pressure on a set of administrative rules which fail to recognize the growth in operational sophistication demanded by our nation's economy will be inexorable.
 101.  The distinction we adopt today recognizes that development and indeed should encourage its continuation.  We believe it will do so in several ways. First, it leaves undisturbed the provision of basic service, whether as a building block supporting the provision of enhanced services or by itself. Second, it allows the provider of these basic services to integrate technological advances conducive to the more efficient transmission of information through the network without the threat of a sudden, fundamental change in the regulatory treatment of that service or firm.  Third, it draws a clear and, we believe, sustainable line between basic and enhanced services upon which business entities can rely in making investment and marketing decisions.  Fourth, in conjunction with our decision on the regulatory scheme applicable to such services, it removes the threat of regulation from markets which were unheard of in 1934 and bear none of the important characteristics justifying the imposition of economic regulation by an administrative agency.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)
 

Justification :: Market Power

See also Common Carrier :: Market Power

Justification :: Market Power :: Enhanced Service Provider

The Commission affirmed its Computer I finding that enhanced services should be unregulated on the grounds that the market was competitive. [CII Final ¶ 7, 127-132 (“The market is truly competitive. Experience gained from the competitive evolution of varied market applications of computer technology offered since the First Computer Inquiry compels us to conclude that regulation of enhanced services is simply unwarranted.” ¶ 128)] [CCIA p 207] [CPE Order 2001 ¶ 3, 23 (describing market as truly competitive)] [Access Charge Reform 1996 ¶ 285 (“The Internet access market is also highly competitive and dynamic, with over 2,000 companies offering Internet access as of mid-1996.”)].


38. It was prior to the development of these very different legal, technological and market circumstances that the Commission initiated its Computer Inquiry line of cases.  In Computer I, the Commission addressed the questions of whether data processing services should be subject to regulation under Title II of the Act, and whether, and under what conditions, all common carriers should be permitted to compete in the market for data processing services.  Finding that the computer data services industry "is one characterized by open competition and relatively free entry," the Commission concluded that it "should not, at this point, assert regulatory authority over data processing as such."   Moreover, the Commission found that allowing common carriers to provide computer data services would likely benefit the public through "new and improved services and lower prices."   Yet the Commission also recognized that common carriers might be able to "favor their own data processing activities by discriminatory services, cross-subsidization, improper pricing of common carrier services, and related anticompetitive practices and activities."   Thus, the Commission required common carriers to furnish data processing services through a separate corporate entity that could not use regulated communications facilities to provide unregulated services.   Finally, the Commission prohibited common carriers from discriminating in favor of their data processing affiliates.
--In Re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, CC Dockets Nos. 95-20, 98-10, NPRM (February 15, 2002) http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-02-42A1.doc


3. In the Computer II Order, the Commission determined that it would not serve the public interest to subject enhanced service providers to traditional common carriage regulation under Title II because, among other things, the enhanced services market was "truly competitive." 7

7Computer II Order, 77 FCC 2d at 430-33, paras. 119, 124, 128.

-- In re Policy And Rules Concering The Interstate, Interexchange Marketplace/Implementation Of Section 254(G) Of The Communications Act Of 1934, As Amended/In 1998 Biennial Review -- Review Of Customer Premises Equipment And Enhanced Services Unbundling Rules In the Interexchange, Exchange Access and Local Exchange Markets, CC Docket No. 98-183; CC Docket No. 96-61, Report and Order, ¶ 3 (March 31, 2001) <www.fcc.gov/Bureaus/Common_Carrier/Orders/2001/fcc01098.doc>.


Because the Commission found that the market for enhanced services is "truly competitive," [41] it believes that market forces will protect the public interest in reasonable rates and availability of  services.  Therefore, in the Commission's view, comprehensive regulation of  enhanced services would not be permissible because it would not be "directed at  protecting or promoting a statutory purpose."  Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 207, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)


 7.  The decision sets forth the regulatory scheme for basic and enhanced services.  The common carrier offering of basic transmission services are communications services and regulated as such under traditional Title II concepts.  Consistent with the determinations made in the First Computer Inquiry, we find that regulation of enhanced services is not required in furtherance of some overall statutory objective.  In fact, the absence of traditional public utility regulation of enhanced services offers the greatest potential for efficient utilization and full exploitation of the interstate telecommunications network Significant public benefits accrue to the Commission's regulatory process, providers of basic and enhanced services, and consumers under this approach.
. . . . .
 127.  We have examined the extensive record in this proceeding to determine whether a comprehensive regulatory scheme for enhanced services is necessary to protect or promote some overall objective of the Communications Act.  We find that it is not. [FN44]  Our decision here is an affirmation of the First Computer Inquiry where we refused to impose regulation upon data processing services, stating:
  In view of all of the foregoing evidence of an effective competitive situation, we see no need to assert regulatory authority over data processing services whether or not such services employ communication facilities in order to link the terminals of the subscribers to centralized computers.  We believe the market for these services will continue to burgeon and flourish best in the existing competitive environment.
  We expect the competitive environment within which data processing services are now being offered to result in substantial public benefit by making available to the public, at reasonable charges, a wider range of existing and new data processing services.  We believe that these expectations will continue to be realized in the free give-and-take of the market place without the need for and possible burden of rules, regulations and licensing requirements. First Computer Inquiry, Tentative Decision, 27 FCC 2d at 297-298.  (emphasis added).
 128.  Nothing has transpired over the past decade which would lead us to alter these conclusions.  On the contrary, we find that our perception of the market environment for these types of services was largely accurate.  If anything, it was overly conservative as to the extent to which market applications of computer processing technology would evolve.  Not only has there been an exponential growth in data information services for business purposes, but, as indicated above, the services are now being directed at residential consumers. The market is truly competitive.  Experience gained from the competitive evolution of varied market applications of computer technology offered since the First Computer Inquiry compels us to conclude that regulation of enhanced services is simply unwarranted. [FN45]
 129.  In our judgment, regulation of enhanced communications services would limit the kinds of services an unregulated vendor could offer, restricting this fast-moving, competitive market. Regulation also would disserve the interest of consumers and the goals of the Communications Act.  Expansion of regulation to cover or threaten to cover services and vendors that have not been regulated can not be sustained in the absence of an overriding statutory purpose.  Even the continuation of regulatory policies when the justification for them no longer exists can not be sustained.  As the U.S. Court of Appeals for the D.C. Circuit recently observed:

  Even assuming that the rules in question initially were justified . . . it is plain that that justification has long since evaporated.  The Commission's general rulemaking power is expressly confined to promulgation of regulations that serve the public interest.  . . . Even a statute depending for its validity upon a premise extant at the time of enactment may become invalid if subsequently that predicate disappears.
Geller v. FCC, 610 F.2d 973 at 980 (D.C. Cir. 1979) (footnote omitted.)  See also HBO v. FCC, supra, That our current regulatory framework is no longer appropriate is clearly demonstrated by the fact that it serves as an artifical barrier to entry preventing many companies from offering other enhanced services as offshoots of their highly competitive data processing services.  Many of these companies are now providing various enhanced services under the Commission's current computer rules free from Title II regulation; but they are, under the Commission's current regulatory approach, prohibited from expanding to other activities which are a natural outgrowth of these services.
. . . . .
 132.  Finally, the nature of enhanced services and their market underscores the reasonableness of our decision.  As indicated, we do not believe these are communications common carrier services within the meaning of Title II.  We acknowledge, of course, the existence of a communications component.  And we recognize that some enhanced services may do some of the same things that regulated communications services did in the past.  On the other side, however, is the substantial data processing component in all these services.  We never have imposed a scheme of regulation over data processing.  Any agency regulatory decision in this area must assess the merits--as we do in this order--of extending regulation to an activity simply because a part of it is subject to the agency's jurisdiction where such regulation would not be necessary to protect or promote some overall statutory purpose.  See HBO v. FCC, supra.  We specifically reject any implication that in not regulating enhanced services under Title II we are abdicating our statutory responsibilities under the Act. FPC v. Texaco, Inc., 417 U.S. 380 (1974). On the contrary, we have specifically concluded that our goals under Section 1 of assuring a '. . . Nationwide . . . wire and radio communications service with adequate facilities at reasonable charges . . .' will be more effectively promoted by relying upon our ancillary regulatory powers with respect to these emerging services.  In exercising these ancillary powers, we can reasonably impose certain separate subsidiary requirements where required.  We can also rely on the direct regulation we retain with respect to the independent provision of basic services.  As we have stated basic services form one component of the charges for enhanced services--the remaining components of which are available from the competitive resources and capabilities of the data processing industry.
-- In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384, ¶ 7 (May 2, 1980) (Computer II Final Decision)


 19. It appears to us that in reaching a decision as to how we are to exercise our discretion, we should look to the basic purpose of regulatory activity in the context of our general national policy, as well as the specific statutory guidelines given this agency. In this country we rely upon the 'free enterprise' system with the maximum possible latitude for individual initiative to enter into any given enterprise and compete for the available business. Our anti-trust laws are designed to prevent restraint of trade. Government intervention and regulation are limited to those areas where there is a natural monopoly, where economies of scale are of such magnitude as to dictate the need for a regulated monopoly, or where such other factors are present to require governmental intervention to protect the public interest because a potential for unfair practices exists.
 20. Applying these standards to the record before us we conclude that the offering of data processing services is essentially competitive and that, except to the limited extent hereinafter set forth, there is no public interest requirement for regulation by government of such activities. Thus, there is ample evidence that data processing services of all kinds are becoming available in larger volume and that there are no natural or economic barriers to free entry into the market for these services. The number of data processing bureaus, time sharing systems, and specialized information services is steadily increasing and there are no indications that any of these markets are threatened with monopolization.
 21. Competition among and between these entities is active and growing because of the varied service requirements of customer prospects. It is estimated that there are more than 800 service bureaus offering data processing services through some 2,000 branch offices. It is also estimated that service bureau annual sales to over 100,000 customers exceed $900 million and will climb to $1.2 billion by 1972. In addition, it is estimated that more than 5,000 data processing companies have sold excess computer time and capacity on their systems, and over 1,000 banks have offered data processing services to their customers, producing revenues ranging from $158 million to $315 million annually. For a relatively small capital investment, a service firm can be formed, computer equipment can be leased, and programmers can be hired. The factors which mark the difference between service bureau success or failure or imaginative innovation, quality programming, and useful service features, rather than the size of the staff or the computing installation. Growing in significance, also, are the specialized subscription services wherein service bureaus cater to the particular needs of various segments of the business world. For example, legal, medical, credit and stock quotation service offerings by data processing organizations are growing in number and complexity. The increasing popularity of time-sharing, wherein several remote users can gain concurrent access to the same central computer, offers a subscriber significant economies in light of the fact that he need not purchase or lease his own system. In 1967, time-sharing constituted a $50 million market, rose to $180 million in 1968, and is projected by some to rise to $900 million by 1972. The foregoing facts plus the existing and growing competition among service bureaus supports the conclusion that the offering of data processing services is open to companies of all sizes.
 22.In view of all of the foregoing evidence of an effective competitive situation, we see no need to assert regulatory authority over data processing services whether or not such services employ communications facilities in order to link the terminals of the subscribers to centralized computers. We believe the market for these services will continue to burgeon and flourish best in the existing competitive environment.
 23. We expect the competitive environment within which data processing services are now being offered to result in substantial public benefit by making available to the public, at reasonable charges, a wider range of existing and new data processing services. We believe that these expectations will continue to be realized in the free give-and-take of the market place without the need for, and possible burden of rules, regulations and licensing requirements. However, if there should develop significant changes in the structure of the data processing industry, or, if abuses emerge which require the exercise of corrective action by the Commission, we shall not hesitate to re-examine the policies set forth herein.
--In The Matter Of Regulatory And Policy Problems Presented By The Interdependence Of Computer And Communication Services And Facilities, Docket No. 16979, Tentative Decision (April 3, 1970)
 

Justification :: Market Power :: Basic Service

"Finally, the partial dissent disagrees with our conclusion that the Commission had “good reasons” to reclassify because, according to the partial dissent, it failed to make “a finding of market power or at least a consideration of competitive conditions.” Concurring & Dissenting Op. at 10. But nothing in the statute requires the Commission to make such a finding. Under the Act, a service qualifies as a “telecommunications service” as long as it constitutes an “offering of telecommunications for a fee directly to the public.” 47 U.S.C. § 153(53). As explained above, supra at 24, when interpreting this provision in Brand X, the Supreme Court held that classification of broadband turns on consumer perception, see 545 U.S. at 990 (explaining that classification depends on what “the consumer perceives to be the integrated finished product”). Nothing in Brand X suggests that an examination of market power or competition in the market is a prerequisite to classifying broadband. True, as the partial dissent notes, the Supreme Court cited the Commission’s findings regarding the level of competition in the market for cable broadband as further support for the agency’s decision to classify cable broadband as an information service. See id. at 1001 (describing the Commission’s conclusion that market conditions supported taking a deregulatory approach to cable broadband service). But citing the Commission’s economic findings as additional support for its approach is a far cry from requiring the Commission to find market power. The partial dissent also cites several Commission decisions in support of the proposition that the Commission has “for nearly four decades made the presence or prospect of competition the touchstone for refusal to apply Title II.” Concurring & Dissenting Op. at 12. All of those cases, however, predate the 1996 Telecommunications Act, which established the statutory test that Brand X considered and that we apply here." [USTA v. FCC Slip 46 DC Cir. 2016]


"The Commission relied in both cases on newly emergent market forces and the exercise of its own ancillary jurisdiction to protect the public interest by  assuring availability of enhanced services and CPE at reasonable prices."  Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 209, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)


"In Computer II the Commission found that the exercise of ancillary  jurisdiction over both enhanced services and CPE was necessary to assure wire  communications services at reasonable rates.  Regulation of enhanced services  was deemed necessary to prevent AT&T from burdening its basic transmission service customers with part of the cost of providing competitive enhanced services." Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 213, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)


15.  In Appendix A we offer for comment a revised version of Section 64.702.  The amended section continues to maintain the fundamental regulatory policies set forth in our original inquiry, namely:  (1) carriers may not offer data processing services except through a separate subsidiary organized in accordance with the separation principles stated in Section 64.702(c), and (2) total regulatory forebearance regarding the offering of data processing services. --In re Amendment Of Section 64.702 Of The Commission's Rules And Regulations, Docket No. 20828, Notice Of Inquiry And Proposed Rulemaking, 61 FCC2d 103 (August 9, 1976)

The Commission's original objective in the Computer Inquiries (initiated pre-Divestiture) was to distinguish computer related services from basic telephone services.  Enhanced services are not regulated under Title II of the Communications Act.  Basic services are regulated. When the FCC created the notion of unregulated enhanced services, the FCC also became concerned that the old Bell System companies would use their control over the network to discriminate in favor of their own service offerings to the detreiment of the offerings of competing Enhanced Service Providers ("ESPs").  To prevent this abuse of network control, Computer II required the RHCs to offer their enhanced services through a separate subsidiary.  This is known as a "structural safeguard." --Henry M. Rivera and Laura Johnson, Patents, Copyrights, Trademarks and Literary Course Handbook: Panel on Developments in Manufacturing and Information/Enhanced Services, 352 PLI/Pat 27, 44-45 (Dec. 3-4, 1992).

Avoid Case by Case Review (Administrative Convenience)

"Alternatively, the Commission found that even if some enhanced services  might be common carrier communications activities within the reach of Title II,  it is not required to identify those services and subject them to Title II  regulation.57  A policy of identifying regulable enhanced services would,  in the Commission's view, be a reversion to the futile Computer I case-by-case  approach that inhibited technological innovation and diverted Commission  resources from more beneficial activities."   -- Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 209, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982)

"We agree with the Commission that even if some enhanced  services could be classified as common carrier communications activities, the  Commission is not required to subject them to Title II regulation where, as  here, it finds that it cannot feasibly separate regulable from nonregulable  services.  To the extent that certain enhanced services could lawfully be  regulated under Title II once they were identified as common carrier services,  we sanction the Commission's forbearance from Title II regulation.  We  emphasize, however, that our sanction is a very narrow one, given in light of  the peculiar nature of the communications and data processing industries and  the alternative regulatory scheme adopted by the Commission."  -- Computer and Communications Industry Association v. Federal Communications Commission, 693 F.2D 198, 210, 224 U.S.APP.D.C. 83 (D.C. Cir. 1982).

Hybrid

    56   We note that the phrase "mixed or hybrid services," as used in the Appropriations Act, does not appear in the text of the 1996 Act.  We understand this term to refer to services in which a provider offers a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information via telecommunications, and as an inseparable part of that service transmits information supplied or requested by the user.
      57   It follows from the statutory analysis set out in Part III.C of this Report that hybrid services are information services, and are not telecommunications services.   Because information services are offered "via telecommunications," they necessarily require a transmission component in order for users to access information.  Accordingly, if we interpreted the statute as breaking down the distinction between information services and telecommunications services, so that some information services were classed as telecommunications services, it would be difficult to devise a sustainable rationale under which all, or essentially all, information services did not fall into the telecommunications service category.   As noted in the previous section, we find strong support in the text and legislative history of the 1996 Act for the view that Congress intended "telecommunications service" and "information service" to refer to separate categories of services.
    58   The Commission has considered the question of hybrid services since Computer I, when it first sought to distinguish "communications" from "data processing."   Computer II provided a framework for classifying such services, under which the offering of enhanced functionality led to a service being treated as "enhanced" rather than "basic."   An offering that constitutes a single service from the end user's standpoint is not subject to carrier regulation simply by virtue of the fact that it involves telecommunications components.   As we have explained above, we find that Congress intended to leave this general approach intact when it adopted the 1996 Act.
      59   This functional approach is consistent with Congress's direction that the classification of a provider should not depend on the type of facilities used.   A telecommunications service is a telecommunications service regardless of whether it is provided using wireline, wireless, cable, satellite, or some other infrastructure.  Its classification depends rather on the nature of the service being offered to customers.  Stated another way, if the user can receive nothing more than pure transmission, the service is a telecommunications service.  If the user can receive enhanced functionality, such as manipulation of information and interaction with stored data, the service is an information service.  A functional analysis would be required even were we to adopt an overlapping definition of "telecommunications service" and "information service."  If we decided that any offering that "included telecommunications" was a telecommunications service, we would need some test to determine whether the transmission component was "included" as part of the service.  Based on our analysis of the statutory definitions, we conclude that an approach in which "telecommunications" and "information service" are mutually exclusive categories is most faithful to both the 1996 Act and the policy goals of competition, deregulation, and universal service.
    60  We recognize that the question may not always be straightforward whether, on the one hand, an entity is providing a single information service with communications and computing components, or, on the other hand, is providing two distinct services, one of which is a telecommunications service.  It is plain, for example, that an incumbent local exchange carrier cannot escape Title II regulation of its residential local exchange service simply by packaging that service with voice mail.   Since Computer II, we have made it clear that offerings by non-facilities-based providers combining communications and computing components should always be deemed enhanced.   But the matter is more complicated when it comes to offerings by facilities-based providers.  We noted recently in the Universal Service Fourth Order on Reconsideration, considering a related question, that "[t]he issue is whether, functionally, the consumer is receiving two separate and distinct services."
-- In re Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress (April 10, 1998) http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html

Contamination Theory

   17. In the Computer III proceedings the Commission reaffirmed its treatment of protocol processing (except for the three exemptions) as an enhanced service. The Commission reasoned, in part, that deciding otherwise would remove the enhanced component of VAN services, thus eliminating their non- carrier status under what is termed the "contamination" theory and subjecting them to Title II regulation.29
   18. Under the contamination theory, VANs that offer enhanced protocol processing services in conjunction with basic transmission services have historically been treated as unregulated enhanced service providers. Under this theory, the enhanced component of their offerings is viewed as "contaminating" the basic component, and as a result, the entire offering is considered enhanced. 30
--In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, ¶ 17-18 (October 18, 1995)


  42.  We also reject AT&T's contention that the contamination theory applies to its frame relay service and renders its entire InterSpan service offering an enhanced service.  To date, the Commission has not applied the contamination theory to the services of AT&T or any other facilities-based carrier.  Indeed, the Commission rejected that alternative in Computer III and other proceedings. 68
  43.  The two orders cited by AT&T in support of applying the contamination doctrine to its services are inapposite.  They do not require or even allude to application of the contamination doctrine to AT&T.  The footnote cited by AT&T in the Async/X.25 Waiver Order contains a general definition of VANs. 69 Nothing in the footnote indicates that AT&T is included within the definition of a VAN.  The footnote specifically defines VANs as service providers that acquire common carrier facilities from other carriers, and thus do not own facilities like AT&T.  The second order cited by AT&T is a Commission order approving AT&T's amendment to its CEI plan, which provides customers with basic dial-out capabilities from AT&T's enhanced voice messaging service. 70 This order, however, refutes, rather than supports AT&T's interpretation of the contamination theory.  The order approves the amendment because AT&T satisfies all of the CEI requirements, ensuring interconnection to the underlying basic service. 71  If the contamination theory applied to AT&T, as it argues, AT&T would not have had to satisfy any CEI requirements for the basic service. 72
  44.  Moreover, application of the contamination theory to a facilities-based carrier such as AT&T would allow circumvention of the Computer II and Computer III basic-enhanced framework. AT&T would be able to avoid Computer II and Computer III unbundling and tariffing requirements for any basic service that it could combine with an enhanced service.  This is obviously an undesirable and unintended result. 73
  45.  Thus, in accordance with the Commission's previous decisions, we conclude that the contamination theory does not apply to AT&T, and we do not apply it to AT&T in this order.  AT&T cannot avoid its Computer II and Computer III obligations under the auspices of the contamination doctrine, which applies only to nonfacilities-based service providers.
  46.  AT&T is free to continue its practice of packaging CPE and enhanced protocol processing with the basic frame relay service (purchased under tariff), so long as the underlying basic service is separately offered under tariff.  Thus, AT&T may maintain its flexible approach to offering frame relay services.  AT&T must file a tariff, however, for basic frame relay service within 60 days of the effective date of this order.  We leave the issues of existing AT&T frame relay contracts and the specifics of the required tariff to the tariff-review process.
-- In re Independent Data Communications Manufacturers Association, Inc., DA 95-2190, 1995 WL 613619 (FCC), 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, Order (October 18, 1995) (aka Frame Relay Order).http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1995/da952190.wp



 106.  While there is some agreement among the parties as to the appropriateness of distinguishing between basic and enhanced services, there is no consensus that adoption of the proposed definitional scheme for distinguishing the communications/data processing nature of enhanced services would be in the public interest.  Without exception, every element of the definitional structure we proposed was subject to criticism by one party or another, and various changes were suggested for rewording the definition of such terms as 'computer processing,' 'data processing,' 'data processing service,' and 'hybrid data processing.'  Carriers argued that certain definitions should be altered or expanded to make clear that various computer services were communications services; unregulated service vendors found certain definitions too broad and argued that their adoption would result in regulation of data processing services.
 107.  After three attempts40 to delineate a distinction between communications and data processing services and failing to arrive at any satisfactory demarcation point, we conclude that further attempts to so distinguish enhanced services would be ultimately futile, inconsistent with our statutory mandate and contrary to the public interest.  In coming to this conclusion we are convinced that pursuing such a course of action would not accomplish the objectives of this proceeding, i.e., 'to (a) foster a regulatory environment conducive to the stimulation of economic activity in the regulated communications sector with respect to the provision of new and innovative communications-related offerings; and (b) enable the communications user to optimize his use of common carrier communication facilities and services by taking advantage of the ever increasing market applications of computer processing technology.'  Tentative Decision, at para. 59.  It is apparent that, over the long run, any attempt to distinguish enhanced services will not result in regulatory certainty.  At most, reliance on a definitional approach which uses a primary purpose standard is a stop-gap measure, which--even assuming we were able to define the services accurately--would only reflect the differences in these services as they are configured with today's technology.  In a market as vibrant as enhanced services, however, this distinction may miss important new developments.  Thus, the need for ad hoc determinations would continue.  As the market applications of computer technology continue to evolve we believe that attempts to distinguish enhanced services either will fail or result in an unpredictable and inconsistent scheme of regulation.  This is because a definitional structure is not independent of advances in computer technology and its concomitant market applications.  A certain degree of flexibility must be maintained to accommodate these advances.  To the extent flexibility is incorporated into the definitions, there is a corresponding degree of uncertainty.  Thus the boundary line differentiating enhanced communications and data processing services can vacillate, and confidence in decisions made based on that distinction would be diminished.
    108.  In addition to the fact that the record in this proceeding does not support the conclusion that greater regulatory certainty would result by adopting the proposed definitional structure, there are other factors which militate against classifying enhanced services for regulatory purposes.  Such a regulatory scheme would most likely result in the direct or indirect expansion of regulation over currently unregulated vendors of computer services and deprive consumers of increased opportunities to have services tailored to their individual needs.
    109.  To fully appreciate the significance of this, it is helpful to understand the dynamics of the marketplace in light of our current regulatory scheme.  There are literally thousands of unregulated computer service vendors offering competing services connected to the interstate telecommunications network.  The services they provide are many and varied.  The only limitation on the types of services offered are those arising from the constraints of their own entrepreneurial capabilities and, in a very real sense, the implicit requirement that they structure their services so as to avoid crossing a regulatory boundary that would subject them to regulation.  The former recognizes the fact that the potential for new and innovative services is merely a factor of the technical parameters of the computer equipment and the associated applications programs employed; the latter is a consequence of our Resale decision which subjected resale entities providing communications services to Title II regulation, but not vendors of data processing services. The interaction of the implicit requirement to avoid crossing the regulatory boundary and the competitive nature of the enhanced service market is crucial. Even with this barrier we have concluded that the enhanced services market is competitive, GTE-Telenet Merger, 72 FCC 2d 111 (1979). 41  By removing this barrier the entire market for enhanced services should be even more competitive than it has been in the presence of that barrier. In the GTE- Telenet Merger decision at paragraph 141, we discussed several potential entrants, large computer time sharing companies, that faced no barrier to entry other than the necessity to comply with the requirements of Title II.  The record in this proceeding makes clear that even when the Commission's stated policies are in favor of open entry, the very presence of Title II requirements inhibits a truly competitive, consumer responsive market.
    110.  Computer technology is increasingly removing technical limitations as to the types of enhanced services that may be offered.  Yet, a classification scheme which would categorize enhanced services as either communications or data processing inherently limits the types of services that an unregulated entity may offer. The reason for this is clear.  Providers of data processing and other computer services acquire the necessary transmission facilities from communications common carriers pursuant to tariff, and resell this transmission capability as part of their enhanced offering.  At the same time, an entity which acquires the same transmission facilities from a carrier and offers a 'communications' service is presently regulated as a common carrier under Title II of the Act.  See Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities (Resale), Docket No. 20097, 60 FCC 2d 261 (1976), recon. 62 FCC 2d 588 (1977), aff'd AT&T v. FCC, 572 F.2d 17 (2d Cir.), cert. denied, 439 U.S. 875 (1978). Accordingly, a resale entity is regulated as a common carrier only if it is providing a communications service.42
 111.  This has significant public interest implications in terms of the types of services that may be offered and the scope of our regulation.  First, the vendor of unregulated enhanced services may not provide an enhanced 'communications' service.  This means that its services must be artificially structured so as to not come under our regulatory umbrella (the guidelines for which we have already concluded would be less than precise).  To the extent services must be so structured there is a corresponding inability to fully tailor services to consumer needs.  This has the result of artificially restricting the supply of services provided over the telecommunications network.  In the final analysis both individual consumers and society in general bear unnecessary costs where such limitations exist.  This becomes even more troublesome as new markets for enhanced services open and new services open up.  While these services traditionally have been directed at the business sector, increasing attention is being focused on residential markets.43 It is apparent that technology and enterpreneurial incentives are directed toward new markets and new means of serving them.  Thus restrictions on output, which would result from a classification scheme limiting those who wish to avoid the costs and delays of regulation, will increase as these new markets open up.
 112.  The second public interest implication is the increased potential for expansion of regulation over currently unregulated providers of information or data processing services.  We noted in the Tentative Decision, at para. 152, that the tentative conclusion that a resale carrier would be able to offer both regulated and unregulated enhanced services (with the unregulated services offered on a nontariffed basis) carried with it significant regulatory and market implications for presently unregulated firms. A resale carrier could offer any enhanced service, whereas the unregulated vendor of computer services may offer only those enhanced services that are not regulated as 'communications.'  The effect of this is that '. . . the communication common carrier would have tremendous flexibility to provide new and innovative services and to tailor these services to individual user needs, much more so than a currently unregulated entity.  One result may be an indirect forcing of currently unregulated entities to acquire common carrier status in order to obtain the same degree of flexibility afforded a resale common carrier.'  Id. We perceive that the impetus for this to happen will increase as the computer processing applications and technologies continue to evolve and grow.  In addition to increasing the scope of Commission regulation, the specter of potential regulation may impose artificial barriers to entry.  Here also, this effect may grow in significance as technology advances.
 113.  We have gone to great length in this proceeding to build a record which would best enable us to render a decision consistent with the mandate of this Commission as set forth in Section 1 of the Communications Act.  47 U.S.C. 151.  Based on this record, the mandate of this Commission in a rapidly changing technological environment, the market developments resulting from the confluence of technologies, the impossibility of defining at the enhanced level a clear and stable point at which 'communications' becomes 'data processing,' the ever increasing dependence upon common carrier transmission facilities in the movement of information, the need to tailor services to individual user requirements, and the potential for unwarranted expansion of regulation, we conclude that the public interest would not be served by any classification scheme that attempts to distinguish enhanced services based on the communications or data processing nature of the computer processing activity performed.  Accordingly, we conclude that all enhanced computer services should be accorded the same regulatory treatment and that no regulatory scheme could be adopted which would rationally distinguish and classify enhanced services as either communications or data processing.
. . . . .
 116.  From the perspective of the regulator, a major benefit in not classifying services within the enhanced category is that the scope of Commission regulation is focused on those services which are clearly within the contemplation of the Communications Act and which serve as the foundation for all enhanced services.  Moreover, the extent of our regulatory authority is not automatically expanded with advances in technology and the types of enhanced services that can be offered.  Semantic distinctions are avoided as to whether a given service is data processing, information processing, process control, communications processing, or some other category.  As such, the potential for the development of an inconsistent regulatory scheme to accommodate these services is eliminated; all enhanced services are accorded the same regulatory treatment.  To the extent uncertainty creates a regulatory barrier to entry, that barrier is also removed.  With the nonregulation of all enhanced services, FCC regulations will not directly or indirectly inhibit the offering of these services, nor will our administrative processes be interjected between technology and its marketplace applications.  This structure enables us to direct our attention to the regulation of basic services and to assuring nondiscriminatory access to common carrier telecommunications facilities by all providers of enhanced services.
 117.  Service vendors also benefit under this structure. Providers of enhanced services are afforded tremendous flexibility because there is no restriction on the types of services they may provide, except those imposed by the demands of their customers. The boundary between basic and enhanced services raises no such barrier since we believe we have identified a common necessary element in our definition of basic services.  The trend in technology is toward new and innovative enhancements that build upon basic services.  For computer vendors and entrepreneurs the momentum is away from basic communications services, rather than toward it. As a result, the types of enhanced services they may provide is limited only by their entrepreneurial ingenuity and competitive market constraints. Services need not be artificially structured or limited so as to avoid transgressing a regulatory boundary.
 118.  The benefit to consumers is that services which depend on the electronic movement of information can be custom-tailored to individual subscriber needs. Moreover, information systems can be programmed so that users dictate the nature and extent of computer processing applications to be performed on any given amount of information.  As greater flexibility is offered consumers to tailor their services, a broader spectrum of the marketplace can be expected to take advantage of information processing services.  To the extent regulatory barriers to entry are removed and restrictions on services are lifted there is a corresponding potential for greater utilization of the telecommunications network through greater access to new and innovative service by a larger segment of the populace.  Finally, this structure creates the proper economic incentives for vendors to segregate their services such that consumers need pay only for those services necessary for their own information processing requirements.
. . . .
 120.  We have described our repeated unsuccessful efforts to identify a discrete communications component (after the fashion of the First Computer Inquiry) in what we have finally come to label 'enhanced service.'  We are faced with the reality that technology and consumer demand have combined to so overrun the definitions and regulatory scheme of the First Computer Inquiry that today no comparable, minimally enduring line of demarcation can be drawn. In enhanced services, communications and data processing technologies have become intertwined so thoroughly as to produce a form different from any explicitly recognized in the Communications Act.  The forms of the Act should not control either the substance of enhanced service offerings to the public or the manner in which they are made available.
. . . . .
 130.  We appreciate there can be disagreement as to the line we have drawn between basic and enhanced services.  Plausible arguments can be tendered for drawing it elsewhere.  At the margin, some enhanced services are not dramatically dissimilar from basic services or dramatically different from communications as defined in Computer Inquiry I.  But any attempt to draw the line at this margin potentially could subject both the enhanced services providers and us to the prospect of literally hundreds of adjudications over the status of individual service offerings.  We have noted the danger that such proceedings could lead to unpredictable or inconsistent regulatory definitions.  See para. 107 supra.  Such proceedings also could consume a very significant proportion of the resources of this agency.  The requirement to devote significant resources to try to make individual service distinctions would necessarily reduce the resources available for regulating basic services and ensuring non-discriminatory access to common carrier telecommunications facilities.
 131.  We have tried to draw the line in a manner which distinguishes wholly traditional common carrier activities, regulable under Title II of the Act, from historically and functionally competitive activities not congruent with the Act's traditional forms.  We believe that the Communications Act and the jurisprudence which has grown up around it make it plain that Congress intended that substance not form govern the treatment of services within the Act's reach.  We have acted upon the belief by applying traditional Title II regulatory mechanisms to basic services and applying no direct regulatory mechanism for enhanced services.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)

Examples of Enhanced Services :: Information Services

"We note that the functions and services associated with Internet access were classed as "information services" under the MFJ. Under that decree, the provision of gateways (involving address translation, protocol conversion, billing management, and the provision of introductory information content) to information services fell squarely within the "information services" definition.   Electronic mail, like other store-and-forward services, including voice mail, was similarly classed as an information service.     Moreover, the Commission has consistently classed such services as "enhanced services" under Computer II. "  --In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  75 (April 10, 1998).

"More generally, though, it would be incorrect to conclude that Internet access providers offer subscribers separate services -- electronic mail, Web browsing, and others -- that should be deemed to have separate legal status, so that, for example, we might deem electronic mail to be a "telecommunications service," and Web hosting to be an "information service."  The service that Internet access providers offer to members of the public is Internet access.   That service gives users a variety of advanced capabilities.  Users can exploit those capabilities through applications they install on their own computers.  The Internet service provider often will not know which applications a user has installed or is using.  Subscribers are able to run those applications, nonetheless, precisely because of the enhanced functionality that Internet access service gives them. "
--In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  79 (April 10, 1998).

Example:  Internet Access Service

When the FCC exercised Title I Ancillary Jurisdiction over Information Services, the jurisdiction was exercised in two ways:

  • Independent Information Services: Jurisdiction exercised, without regulatory obligations, preempting state jurisdiction
  • Telecom Provider Offered Information Services: Jurisdiction exercised over regulated telecom provider offering unregulated information services, implementing obligations on the regulated telecom service, for the benefit of the telecom service's own regulated services and for the benefit of independent information services.

Example:  Internet Access Service Non Facilities Based :: Computer Inquiries

The Computer Inquiries adopted the basic service versus enhanced service dicotomy. As noted, the FCC at that time was influenced by ARPANET technologists as well as Paul Baran. The FCC's basic versus enhanced dicotomy tracked the layered model.


To the contrary, in the context of open network architecture (ONA) elements, for example, the Commission stated that "an otherwise interstate basic service . . . does not lose its character as such simply because it is being used as a component in the provision of a[n enhanced] service that is not subject to Title II."[46] The 1996 Act is consistent with this approach. For example, as amended by the 1996 Act, Section 3(20) of the Communications Act defines "information services" as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications."[47] This definition recognizes the inseparability, for purposes of jurisdictional analysis, of the information service and the underlying telecommunications. Although it concluded in the Universal Service Report to Congress that ISPs do not provide "telecommunications" as defined in the 1996 Act,[48] the Commission reiterated the traditional analysis that ESPs enhance the underlying telecommunications service.[49] Thus, we analyze ISP traffic for jurisdictional purposes as a continuous transmission from the end user to a distant Internet site.

[fn46] See Filing and Review of Open Network Architecture Plans, 4 FCC Rcd 1, 141 (1988) ("when an enhanced service is interstate (that is, when it involves communications or transmissions between points in different states on an end-to-end basis), the underlying basic services are subject to Title II regulation"), aff'd sub nom. People of State of Cal. v. FCC, 3 F.3d 1505 (9th Cir. 1993). See,e.g., Amendment of Section 64.702 of the Commission's Rules and Regulations, 2 FCC Rcd 3072, 3080 (1987) ("carriers must provide efficient nondiscriminatory access to the basic service facilities necessary to support their competitors' enhanced services"); vacated on other grounds sub nom. People of State of Cal. v. FCC, 905 F.2d 1217 (9th Cir. 1990). See alsoBellSouth MemoryCall, 7 FCC Rcd at 1621 (rejecting "two call" argument as applied to interstate call to voice mail apparatus, even though voice mail is an enhanced service).

[fn47] 47 U.S.C. § 153(20) (emphasis added); see also 47 C.F.R. § 64.702(a) (enhanced services are provided "over common carrier transmission facilities used in interstate communications").

[fn48] Universal Service Report to Congress, 13 FCC Rcd at 11536-40. See also Universal Service Order, 12 FCC Rcd at 9180 n.2023.

[fn49] See Universal Service Report to Congress, 13 FCC Rcd at 11540. See also Universal Service Order 12 FCC Rcd at 9180 n.2023 (referencing Amendment of Section 64.702 of the Commission's Rules and Regulations, 2 FCC Rcd 3072, 3080 (1987)).

--In Re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic, CC Docket No. 96-98, CC Docket No. 99-68, Declaratory Ruling ¶ 13 (February 26, 1999)


Although the Commission concluded that ISPs do not appear to offer "telecommunications service" and thus are not "telecommunications carriers" that must contribute to the Universal Service Fund,[45] it has never found that "telecommunications" end where "enhanced" service begins.

[fn45] Id. at 9180. We confirmed this view in the Universal Service Report to Congress. Universal Service Report to Congress at 13 FCC Rcd 11522-23.

--In Re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic, CC Docket No. 96-98, CC Docket No. 99-68, Declaratory Ruling ¶ 13 (February 26, 1999)


The Commission previously has distinguished between the "telecommunications services component" and the "information services component" of end-to-end Internet access for purposes of determining which entities are required to contribute to universal service.[72] Although the Commission concluded that ISPs do not appear to offer "telecommunications service," and thus are not "telecommunications carriers" that must contribute to the Universal Service Fund, [73] it has never found that "telecommunications" ends where "enhanced" information service begins. To the contrary, in the context of open network architecture (ONA) elements, the Commission stated that "an otherwise interstate basic service . . . does not lose its character as such simply because it is being used as a component in the provision of a[n enhanced] service that is not subject to Title II."[74] Under the definition of information service added by the 1996 Act, an information service, while not a telecommunications service itself, is provided via telecommunications.[75] As explained in the Universal Service Report to Congress, because information services are offered via telecommunications, they necessarily require a transmission component in order for users to access information.[76] We, therefore, analyze ISP traffic as a continuous transmission from the end user to a distant Internet site.

[72] Universal Service Order, 12 FCC Rcd at 9180, 9181.

[73] Id. at 9180. We confirmed this view in the Universal Service Report to Congress. Universal Service Report to Congress, 13 FCC Rcd at 11522.

[74] See Filing and Review of Open Network Architecture Plans, 4 FCC Rcd 1, 141 (1988) ("when an enhanced service is interstate (that is, when it involves communications or transmissions between points in different states on an end-to-end basis), the underlying basic services are subject to Title II regulation.") See, e.g., Amendment of Section 64.702 of the Commission's Rules and Regulations, 2 FCC Rcd 3072, 3080 (1987)("carriers must provide efficient nondiscriminatory access to the basic service facilities necessary to support their competitors's enhanced services. . ." ) See also BellSouth MemoryCall, 7 FCC Rcd at 1621 (rejecting "two call" argument as applied to interstate call to voicemail apparatus, even though voicemail is an enhanced service).

[75] See 47 U.S.C. 153(20) ("Information service" means "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications . . .") (emphasis added); see also 47 C.F.R. ' 64.702(a) (enhanced services are provided "over common carrier transmission facilities used in interstate communications.")

[76] Universal Service Report to Congress, 13 FCC Rcd at 11529.

-- In Re GTE Telephone Operators GTOC Tariff No. 1 GTE Transmittal No. 1148, Memorandum Opinion And Order, CC Docket No. 98-79 ¶ 20 (October 30, 1998), recon. denied (February 26, 1999).


"An end-user may utilize a telecommunications service together with an information service, as in the case of Internet access.  In such a case, however, we treat the two services separately:  the first service is a telecommunications service (e.g., the xDSL-enabled transmission path), and the second service is an information service, in this case Internet access."60

60See Frame Relay Order, 10 FCC Rcd at 13722-23, PP 40-46; Report to Congress on Universal Service, at P 60;  CIX Comments (CC Docket No. 98-11) at 15.
In re Deployment of Wireline Services Offering Advanced Telecommunications Capacity, CC Docket No. 98-147, 1998 WL 458500 (FCC), 13 FCCR. 24,012, 13 FCC Rcd. 24,012, Order, ¶ 36 (Aug. 7, 1998).

FN498 The term "enhanced services," which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. "Enhanced services" are defined in § 64.702(a) of our rules: "For the purposes of this subpart, the term enhanced services shall refer to services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; provide the subscriber additional different, or restructured information; or involve subscriber interaction with stored information." The 1996 Act defines "information services" as offering the capability for "generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications." 47 U.S.C. § 153(20). For purposes of this order, providers of enhanced services and providers of information services are referred to as ISPs.  -- In Re Access Charge Reform, CC Docket No. 96-262, 1997 WL 268841 (FCC), 12 FCCR. 15,982, 12 FCC Rcd. 15,982, 7 Communications Reg. (P&F) 1209, First Report and Order (May 16, 1997)


We are persuaded that the definition of "interLATA service," which is "telecommunications between a point located in a [LATA] and a point located outside such area," [FN115] does not limit the scope of the term to telecommunications services because, as MFS and BellSouth point out, information services are also provided via telecommunications. Elsewhere in this Report and Order, we conclude that "interLATA information services" must include a bundled, interLATA transmission component. [FN116] Thus, interLATA information services are provided via interLATA telecommunications transmissions and, accordingly, fall within the definition of "interLATA service." -- In the Matter of the Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, Order on Reconsideration, Docket 96-149, 1997 WL 71143 (FCC), 12 FCCR. 2297, 12 FCC Rcd. 2297, 6 Communications Reg. (P&F) 972, ¶ 56 (Feb 19, 1997)


284. Beginning with the Computer II proceeding in the 1970s, we have distinguished between basic and enhanced communications services. [FN376] The category of enhanced services, which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. [FN377] In the 1983 Access Charge Reconsideration Order, we decided that, although enhanced service providers (ESPs) may use incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate access charges. [FN378] -- In re Access Charge Reform, CC Docket No. 96-262, Usage of the Public Switched Network by Information Service and Internet Access Providers, CC Docket No. 96-263, 1996 WL 733469 (FCC), 11 FCCR. 21,354, 11 FCC Rcd. 21,354, 5 Communications Reg. (P&F) 604, Notice of Proposed Rulemaking, Third Report and Order, and Notice of Inquiry (December 24, 1996)

FN8. ITJ-America states that an ITJ-Japan subsidiary, ITJ-IT, provides domestic and international value-added services in Japan, including frame relay and internet access via resold private lines. ITJ Ex Parte Presentation (Sept. 20, 1996). Under the framework established in International Services, which the Commission reaffirmed in the Foreign Carrier Entry Order, we limit our market power inquiry to those foreign entities that provide services and facilities in the destination market that are of the type the Commission regulates in the United States as common carriage. The services provided by ITJ-IT via resold IPLs appear to be enhanced within the meaning of Section 64.702(a) of the Commission's rules, and its operations as a value-added service provider are therefore irrelevant for purposes of assessing ITJ-Japan's market power. See Foreign Carrier Entry Order at ¶ 99; see also Regulation of International Common Carrier Services, 7 FCC Rcd 7331 at ¶ 24 (1992), erratum, 8 FCC Rcd 452 (1993) (International Services). - IN RE APPLICATION OF ITJ AMERICA, INC., DA 96-1782, 1996 WL 628003 (FCC), 11 FCCR. 22,264, 11 FCC Rcd. 22,264, 5 Communications Reg. (P&F) 413, Order, Authorization and Certificate (October 29, 1996)

1. On March 8, 1996, pursuant to the requirements established in the Commission's Computer III rulemaking proceeding, [FN1] the Bell Atlantic telephone companies (Bell Atlantic) [FN2] filed *6920 a Comparably Efficient Interconnection (CEI) plan for its Internet Access Service (IAS). [FN3] Under the Computer III regulatory regime, a carrier is permitted to offer unregulated, enhanced services if it files a CEI plan demonstrating that the underlying regulated basic services are available on an equivalent basis to unaffiliated enhanced services providers (ESPs). [FN4] Prior to offering the enhanced service, the carrier must obtain Commission approval of the CEI plan. For the reasons discussed below and subject to the conditions set forth below, we approve Bell Atlantic's CEI plan. -- IN THE MATTER OF BELL ATLANTIC TELEPHONE COMPANIES Offer of Comparably Efficient Interconnection to Providers of Internet Access Services, DA 96-891, CCBPol 96-09, 1996 WL 420198 (FCC), 11 FCCR. 6919, Order (June 6, 1996)

49. The BOC CEI plans and amendments filed pursuant to the Interim Waiver Order, discussed briefly below, are summarized in greater detail in Attachment A to this Order. In general, the enhanced services addressed by the *13766 plans fall into several categories: voicemail, protocol processing, electronic information services (including gateway, on-line data base, and Internet access services), enhanced facsimile services, and voice information services. -- IN THE MATTER OF BELL OPERATING COMPANIES JOINT PETITION FOR WAIVER OF COMPUTER II RULES, DA 95-2264, 1995 WL 637904 (FCC), 10 FCCR. 13,758, 10 FCC Rcd. 13,758, 1 Communications Reg. (P&F) 690, Order (October 31, 1995)

On August 3, 1995, Southwestern Bell Telephone Company (SWBT) filed three Comparably Efficient Interconnection (CEI) Plans for new enhanced services: Internet Access Service; PC Backup and Recovery Service; and Facsimile Service. SWBT states that these enhanced services use only tariffed network services available to other enhanced service providers at the same tariffed rates, and on the same terms and conditions. SWBT requests expedited approval of these plans. SWBT states that Internet Access Service will allow users to access all services available on the Internet including access to information resources, transfer of files, communication via E-mail and other services as they become available. SWBT states that the Internet Access Service will include these individual service offerings: (1) local access, using the Public Switched Telephone Network or dedicated facilities; (2) access to end user enhanced services; (3) access to Help Desk Services; (4) provision of Internet software; and (5) access to Interexchange Internet Access Providers.
-- PLEADING CYCLE ESTABLISHED FOR COMMENTS ON SWBT'S COMPARABLY EFFICIENT INTERCONNECTION PLANS, CCBPol 95-7, 1995 WL 472364 (FCC), 10 FCCR. 10,011, 10 FCC Rcd. 10,011, Public Notice (August 11, 1995)

 4. Several parties have urged that we explicitly recognize that our common carrier regulatory jurisdiction cannot be extended to data processing services, as such.3 Since we are not proposing, at this time, to regulate data processing, as such, a discussion of the extent of our jurisdiction with respect thereto is neither relevant nor necessary for purposes of this Decision and the rules promulgated herein. However, we wish to reiterate that:  ... (If) there should develop significant changes in the structure of the data processing industry, or, if abuses emerge which require the exercise of corrective action by the Commission, we shall not hesitate to re-examine the policies set forth herein. (Tentative Decision, para. 23). --In The Matter Of Regulatory And Policy Problems Presented By The Interdependence Of Computer And Communication Services And Facilities, Docket No. 16979, Final Decision and Order, 1971 WL 22948 (FCC), 21 Rad. Reg. 2d (P & F) 1591 ¶ 4 (March 18, 1971) (Computer I).


 30.It should be made clear that we are not seeking to regulate data processing as such, nor are we attempting to regulate the substance of any carrier's offerings of data processing. Rather, we are limiting regulation to requirements respecting the framework in which a carrier may publicly offer particular non-regulated services, the nature and characteristics of which require separation before predictable abuses are given opportunity to arise. Additionally, the success of our regulatory scheme is dependent upon a uniform application of our safeguards irrespective of the technical legal status of any carrier or the particular geographic community which it serves. --In The Matter Of Regulatory And Policy Problems Presented By The Interdependence Of Computer And Communication Services And Facilities, Docket No. 16979, Final Decision and Order, 1971 WL 22948 (FCC), 21 Rad. Reg. 2d (P & F) 1591 (March 18, 1971) (Computer I).

Example :: Internet Access Service :: Non Facilities Based :: Computer Inquiries :: Exception

"With respect to the provision of pure transmission capacity to Internet service providers or Internet backbone providers, we have concluded that such provision is telecommunications" In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67 ¶ 101 (April 10, 1998)


7. We disagree with PanAmSat's assertion that the Commission has determined that Internet access, by definition, is an enhanced service. [FN9] PanAmSat relies on a series of Common Carrier Bureau decisions on enhanced internet access services to support its proposition. However neither the Commission nor the Common Carrier Bureau has *22471 determined that all internet access services are enhanced services. In the decisions cited by PanAmSat, the applicants had proposed to offer enhanced services as part of the Internet access service. Comsat states that it does not currently have the capability to offer enhanced services and therefore will only offer basic interconnection between Internet carriers and Comsat customers. Comsat does not request and we do not authorize the provision of enhanced services as part of Comsat's proposed Internet access services. - In Re Application of COMSAT Corp., DA 96-1961, 1996 WL 678999 (FCC), 11 FCCR. 22,468, 11 FCC Rcd. 22,468. Order (November 25, 1996)

Example:  Internet Access Service Non Facilities Based :: Computer Inquiries :: Inextricably Intertwined (Stevens Report)

34. An ISP is an entity that provides its customers with the ability to obtain a variety of on-line information through the Internet. However, ISPs typically own no telecommunications facilities. In order to provide those components of Internet access services that involve information transport, ISPs lease lines, and otherwise acquire telecommunications, from telecommunications providers -- LECs, CLECs, IXCs and others.74 ISP's purchase use of analog and digital lines from LECs to connect to their dial-in subscribers. Under one typical arrangement, an ISP customer dials a seven-digit number to reach the ISP server in the same local calling area. To provide transport within its network, the ISP may purchase interexchange telecommunications services from telecommunications carriers, and for transport beyond its network, the ISP either purchases additional interexchange telecommunications from telecommunications carriers, or makes arrangements to interconnect its leased facilities with one or more Internet backbone providers.75 Thus, the information service is provisioned by the ISP "via telecommunications" including interexchange telecommunications although the Internet service itself is an "information service" under section 3(2) of the Act, rather than a telecommunications service.76
74. See Federal - State Joint Board on Universal Service, CC Docket No. 96-45, > Report to Congress, 13 FCC Rcd at 11540, P 81 (1998)(hereinafter SS7FUniversal Service Report to Congress").
75. Id. at 13 FCC Rcd 11532-11533, P 66.
76. Id. at 11536, P73. In fact, a service would not satisfy the definition of "information service" unless it had an underlying "telecommunications" component. Further, the telecommunications inputs underlying Internet services are subject to the universal service contribution mechanism. As the Commission has previously explained, "Companies that are in the business of offering basic interstate telecommunications functionality to end users are 'telecommunications carriers," and therefore are covered under the relevant provisions of > sections 251 and > 254 of the Act. Id. at P105
Deployment of Wireline Services Offiering Advanced Telecommunications Capability, CC Docket No 98-147, Order on Remand, 15 FCC Rcd 385, ¶ 34 (1999).


We find that Internet access services are appropriately classed as information, rather than telecommunications, services.  Internet access providers do not offer a pure transmission path; they combine computer processing, information provision, and other computer-mediated offerings with data transport.  Senators Stevens and Burns suggest that services provided by Internet access providers should be deemed to fall on the telecommunications side of the line.  When an Internet service provider transmits an email message, they maintain, it transmits "information of the user's choosing, without change in the form or content of the information as sent or received." Changes such as the addition of message headers, they argue, are inconsequential:  "If the information chosen by the user has the same form (e.g., typewritten English) and content (e.g., directions to Washington, D.C.) as sent and received, then a 'telecommunication' has occurred." 143 Senator McCain, by contrast, urges that electronic mail, voice mail and Internet access are information services, because they furnish the capabilities to store, retrieve, or generate information.
-- Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd 11501 ¶ 73 (1998).


73   We find that Internet access services are appropriately classed as information, rather than telecommunications, services.  Internet access providers do not offer a pure transmission path; they combine computer processing, information provision, and other computer-mediated offerings with data transport.  Senators Stevens and Burns suggest that services provided by Internet access providers should be deemed to fall on the telecommunications side of the line.  When an Internet service provider transmits an email message, they maintain, it transmits "information of the user's choosing, without change in the form or content of the information as sent or received."  Changes such as the addition of message headers, they argue, are inconsequential:  "If the information chosen by the user has the same form (e.g., typewritten English) and content (e.g., directions to Washington, D.C.) as sent and received, then a 'telecommunication' has occurred."   Senator McCain, by contrast, urges that electronic mail, voice mail and Internet access are information services, because they furnish the capabilities to store, retrieve, or generate information.
    74   In determining whether Internet access providers should be classed as providing information services rather than telecommunications services, the text of the 1996 Act requires us to determine whether Internet access providers merely offer transmission "between or among points selected by the user, of information of the user's choosing, without change in the form or content of the information as sent and received,"  or whether they go beyond the provision of a transparent transmission path to offer end users the "capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information."   For the reasons that follow, we conclude that the latter more accurately describes Internet access service.
    75 We note that the functions and services associated with Internet access were classed as "information services" under the MFJ.  Under that decree, the provision of gateways (involving address translation, protocol conversion, billing management, and the provision of introductory information content) to information services fell squarely within the "information services" definition.   Electronic mail, like other store-and-forward services, including voice mail, was similarly classed as an information service.     Moreover, the Commission has consistently classed such services as "enhanced services" under Computer II.   In this Report, we address the classification of Internet access service de novo, looking to the text of the 1996 Act.  Various commenters have approached this question by inquiring whether specific applications, such as e-mail, available to users with Internet access, constitute ?telecommunications.?   As we explain below, we believe that Internet access providers do not offer subscribers separate services -- electronic mail, Web browsing, and others -- that should be deemed to have separate legal status.  It is useful to examine specific Internet applications, however, in order to understand the nature of the functionality that an Internet access provider offers.
    76   Internet access providers typically provide their subscribers with the ability to run a variety of applications, including World Wide Web browsers, FTP clients,  Usenet newsreaders,  electronic mail clients, Telnet applications,  and others.  When subscribers store files on Internet service provider computers to establish "home pages" on the World Wide Web, they are, without question, utilizing the provider's "capability for . . . storing . . . or making available information" to others.  The service cannot accurately be characterized from this perspective as "transmission, between or among points specified by the user"; the proprietor of a Web page does not specify the points to which its files will be transmitted, because it does not know who will seek to download its files.  Nor is it "without change in the form or content," since the appearance of the files on a recipient's screen depends in part on the software that the recipient chooses to employ.  When subscribers utilize their Internet service provider's facilities to retrieve files from the World Wide Web, they are similarly interacting with stored data, typically maintained on the facilties of either their own Internet service provider (via a Web page "cache") or on those of another.  Subscribers can retrieve files from the World Wide Web, and browse their contents, because their service provider offers the "capability for . . . acquiring, . . . retrieving [and] utilizing . . . information."   Most of the data transport on the Internet relates to the World Wide Web and file transfer.
    77   The same is true when Internet service providers offer their subscribers access to Usenet newsgroup articles.   An Internet service provider receives and stores these articles (in 1996, about 1.2 gigabytes of new material each day)  on its own computer facilities.  Each Internet service provider must choose whether to carry a full newsgroup feed, or only a smaller subset of available newsgroups.  Each Internet service provider must decide how long it will store articles in each newsgroup, and at what point it will delete them as outdated.  A user can then select among the available articles, choosing those that the user will view or read; having read an article, the user may store or forward it; and the user can post articles of his or her own, which will in turn be stored on the facilities of his own Internet service provider and those of every other Internet service provider choosing to carry that portion of the newsgroup feed.  In providing this service, the Internet service provider offers "a capability for generating, acquiring, storing, . . . retrieving . . . and making available information through telecommunications."   Its function seems indistinguishable from that of the database proprietor offering subscribers access to information it maintains on-site; such a proprietor offers the paradigmatic example of an information service.
    78   As noted above, Senators Stevens and Burns state that electronic mail constitutes a telecommunications service.   They note that the provision of a transmission path for the delivery of faxes constitutes telecommunications, and characterize electronic mail as "nothing more or less than a paperless fax."   We have carefully considered this argument, but further analysis leads us to a different result.  Like the World Wide Web and Usenet services described above, electronic mail utilizes data storage as a key feature of the service offering.   The fact that an electronic mail message is stored on an Internet service provider's computers in digital form offers the subscriber extensive capabilities for manipulation of the underlying data.  The process begins when a sender uses a software interface to generate an electronic mail message (potentially including files in text, graphics, video or audio formats).  The sender's Internet service provider does not send that message directly to the recipient.  Rather, it conveys it to a "mail server" computer owned by the recipient?s Internet service provider, which stores the message until the recipient chooses to access it.  The recipient may then use the Internet service provider's facilities to continue to store all or part of the original message, to rewrite it, to forward all or part of it to third parties, or otherwise to process its contents -- for example, by retrieving World Wide Web pages that were hyperlinked in the message.  The service thus provides more than a simple transmission path; it offers users the "capability for . . . acquiring, storing, transforming, processing, retrieving, utilizing, or making available information through telecommunications."
    79   More generally, though, it would be incorrect to conclude that Internet access providers offer subscribers separate services -- electronic mail, Web browsing, and others -- that should be deemed to have separate legal status, so that, for example, we might deem electronic mail to be a "telecommunications service," and Web hosting to be an "information service."  The service that Internet access providers offer to members of the public is Internet access.   That service gives users a variety of advanced capabilities.  Users can exploit those capabilities through applications they install on their own computers.  The Internet service provider often will not know which applications a user has installed or is using.  Subscribers are able to run those applications, nonetheless, precisely because of the enhanced functionality that Internet access service gives them.
    80   The provision of Internet access service involves data transport elements:  an Internet access provider must enable the movement of information between customers' own computers and the distant computers with which those customers seek to interact.  But the provision of Internet access service crucially involves information-processing elements as well; it offers end users information-service capabilities inextricably intertwined with data transport.   As such, we conclude that it is appropriately classed as an "information service."
    81   An Internet access provider, in that respect, is not a novel entity incompatible with the classic distinction between basic and enhanced services, or the newer distinction between telecommunications and information services.  In essential aspect, Internet access providers look like other enhanced -- or information -- service providers.  Internet access providers, typically, own no telecommunications facilities.  Rather, in order to provide those components of Internet access services that involve information transport, they lease lines, and otherwise acquire telecommunications, from telecommunications providers -- interexchange carriers, incumbent local exchange carriers, competitive local exchange carriers, and others.   In offering service to end users, however, they do more than resell those data transport services.  They conjoin the data transport with data processing, information provision, and other computer-mediated offerings, thereby creating an information service.  Since 1980, we have classified such entities as enhanced service providers.  We conclude that, under the 1996 Act, they are appropriately classed as information service providers.
    82   Our findings in this regard are reinforced by the negative policy consequences of a conclusion that Internet access services should be classed as "telecommunications."  We have already described some of our concerns about the classification of information service providers generally as telecommunications carriers.   Turning specifically to the matter of Internet access, we note that classifying Internet access services as telecommunications services could have significant consequences for the global development of the Internet.   We recognize the unique qualities of the Internet, and do not presume that legacy regulatory frameworks are appropriately applied to it.
-- In re Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress (April 10, 1998) http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html


"Since Computer II, we have made it clear that offerings by non-facilities-based providers combining communications and computing components should always be deemed enhanced." 121

121 See, e.g., Computer II Phase II Recon. Order, 3 FCC Rcd at 1153 n. 23; Decreased Regulation of Certain Basic Telecommunications Services, 2 FCC Rcd 645, 648, para. 21 (1987) (Notice of Proposed Rulemaking).]

-- In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  60 (April 10, 1998).

Example:  Internet Access Service Facilities Based :: Internet over Broadband

Classification is Properly Within Agency Delegated Authority(Chevron APA Step One Ambiguous)

"The Commission maintains, however, that Brand X established that the Communications Act is ambiguous with respect to the proper classification of broadband. As the Commission points out, the Court explained that whether a carrier provides a “telecommunications service” depends on whether it makes an “offering” of telecommunications. Brand X, 545 U.S. at 989; see also 47 U.S.C. § 153(53) (“The term ‘telecommunications service’ means the offering of telecommunications for a fee directly to the public....” (emphasis added)). The term “offering,” the Court held, is ambiguous. Brand X, 545 U.S. at 989."[USTA v. FCC Slip 32 DC Cir. 2016]


"the Court focused on the nature of the functions broadband providers offered to end users, not the length of the transmission pathway, in holding that the “offering” was ambiguous. As discussed earlier, the Commission adopted that approach in the Order in concluding that the term was ambiguous as to the classification question presented here: whether the “offering” of broadband internet access service can be considered a telecommunications service. In doing so, the Commission acted in accordance with the Court’s instruction in Brand X that the proper classification of broadband turns “on the factual particulars of how Internet technology works and how it is provided, questions Chevron leaves to the Commission to resolve in the first instance.” 545 U.S. at 991."[USTA v. FCC Slip 32 DC Cir. 2016]


US Telecom next claims that 47 U.S.C. § 230, enacted as part of the Communications Decency Act of 1996, a portion of the Telecommunications Act, “confirms that Congress understood Internet access to be an information service.” US Telecom Pet’rs’ Br. 33. Section 230(b) states that “[i]t is the policy of the United States . . . to promote the continued development of the Internet and other interactive computer services and other interactive media.” 47 U.S.C. § 230(b)(1). In turn, section 230(f) defines an “interactive computer service” “[a]s used in this section” as “any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet.” Id. § 230(f)(2). According to US Telecom, this definition of “interactive computer service” makes clear that an information service “includes an Internet access service.” US Telecom Pet’rs’ Br. 33. As the Commission pointed out in the Order, however, it is “unlikely that Congress would attempt to settle the regulatory status of broadband Internet access services in such an oblique and indirect manner, especially given the opportunity to do so when it adopted the Telecommunications Act of 1996.” 30 FCC Rcd. at 5777 ¶ 386; see Whitman v. American Trucking Ass’ns, 531 U.S. 457, 468 (2001) (“Congress . . . does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.”)." [USTA v. FCC Slip 34-35 DC Cir. 2016]

"the Supreme Court expressly recognized that Congress, by leaving a statutory ambiguity, had delegated to the Commission the power to regulate broadband service." [USTA v. FCC Slip 38 DC Cir. 2016]


Intervenor TechFreedom makes one additional Chevron step two argument. It contends that this case resembles Utility Air Regulatory Group v. EPA, in which the Supreme Court reviewed EPA regulations applying certain statutory programs governing air pollution to greenhouse gases. 134 S. Ct. 2427, 2437 (2014). EPA had “tailored” the programs to greenhouse gases by using different numerical thresholds for triggering application of the programs than those listed in the statute because using “the statutory thresholds would [have] radically expand[ed] those programs.” Id. at 2437–38. Rejecting this approach, the Supreme Court held that because the statute’s numerical thresholds were “unambiguous,” EPA had no “authority to ‘tailor’ [them] to accommodate its greenhouse-gas-inclusive interpretation of the permitting triggers.” Id. at 2446. “[T]he need to rewrite clear provisions of the statute,” the Court declared, “should have alerted EPA that it had taken a wrong interpretive turn.” Id. According to TechFreedom, the Commission’s need to extensively forbear from Title II similarly reveals the “incoherence” of its decision. TechFreedom Intervenor Br. 21.

This case is nothing like Utility Air. Far from rewriting clear statutory language, the Commission followed an express statutory mandate requiring it to “forbear from applying any regulation or any provision” of the Communications Act if certain criteria are met. 47 U.S.C. § 160(a). Nothing in the Clean Air Act gave EPA any comparable authority. Accordingly, the Commission’s extensive forbearance does not suggest that the Order is unreasonable.[USTA v. FCC Slip 41 DC Cir. 2016]

Example :: BIAS :: Facilities Based :: Internet over Broadband :: DSL 1998

Classifying DSL lines used in provisioning Internet over DSL were a telecom service.

See also Stevens Report ¶ 73 (ISDN is basic service)

Example :: BIAS :: Facilities Based :: Internet over Cable (BrandX) :: Inseparable (Powell Doctrine)

"Four years later, the Commission took a different approach when it classified cable modem service—broadband service provided over cable lines—as solely an information service. In re Inquiry Concerning High-Speed Access to the Internet over Cable and Other Facilities (“Cable Broadband Order”), 17 FCC Rcd. 4798, 4823 ¶¶ 39–40 (2002). In its 2002 Cable Broadband Order, the Commission acknowledged that when providing the information service component of broadband—which, according to the Commission, consisted of several distinct applications, including email and online newsgroups, id. at 4822–23 ¶ 38—cable broadband providers transmit information and thus use telecommunications. In the Commission’s view, however, the transmission functioned as a component of a “single, integrated information service,” rather than as a standalone offering. Id. at 4823 ¶ 38. The Commission therefore classified them together as an information service. Id. at 4822–23 ¶¶ 38–40."

The Supreme Court upheld the Commission’s classification of cable modem service in National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967, 986 (2005). Applying the principles of statutory interpretation established in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Court explained that the key statutory term “offering” in the definition of “telecommunications service” is ambiguous. Brand X, 545 U.S. at 989. What a company offers, the Court reasoned, can refer to either the “single, finished product” or the product’s individual components. Id. at 991. According to the Court, resolving that question in the context of broadband service requires the Commission to determine whether the information service and the telecommunications components “are functionally integrated . . . or functionally separate.” Id. That question “turns not on the language of [the Communications Act], but on the factual particulars of how Internet technology works and how it is provided, questions Chevron leaves to the Commission to resolve in the first instance.” Id. Examining the classification at Chevron’s second step—reasonableness—the Court deferred to the Commission’s finding that “the high-speed transmission used to provide [the information service] is a functionally integrated component of that service,” id. at 998, and upheld the order, id. at 1003. Three Justices dissented, arguing that cable broadband providers offered telecommunications in the form of the “physical connection” between their computers and end users’ computers. See id. at 1009 (Scalia, J., dissenting). [USTA v. FCC Slip 13-14 DC Cir. 2016]


Information-service providers, by contrast, are not subject to mandatory common-carrier regulation under Title II, though the Commission has jurisdiction to impose additional regulatory obligations under its Title I ancillary jurisdiction to regulate interstate and foreign communications, see §§151–161. -- NCTA v. BrandX, No. 04-277, 545 U.S. __, Slip at 4 (S.Ct. June 27, 2005)


36. In the Universal Service Report, the Commission found that Internet access service is appropriately classified as an information service, because the provider offers a single, integrated service , Internet access, to the subscriber.* The service combines computer processing, information provision, and computer interactivity with data transport, enabling end users to run a variety of applications. In the Universal Service Report, the Commission concluded that “Internet access providers do not offer subscribers separate services – electronic mail, Web browsing, and others – that should be deemed to have separate legal status.” Rather, the Commission examined specific uses of Internet access in order “to understand the nature of the functionality that an Internet access provider offers.”

* See language above from Steven's Report. The phrase "Single Integrated Service" was not used. The phrased used in the Steven's Report, that the Internet over Cable Order is referring to, is "inextricably intertwined." The Internet over Cable Order says "single integrated service" is what the Steven's Report (the precedent) said, and then adopts that model.

37. The Universal Service Report provides several specific examples of functions that Internet access service providers typically include in their service, including e-mail, newsgroups, and the ability to create a web page that is accessible by other Internet users. In addition, Internet Access service generally includes using the DNS. The DNS is an online data retrieval and directory service. The DNS is a distributed system, where the data may be replicated in multiple, geographically dispersed server systems. The administration of the DNS is hierarchical, and is routinely delegated among a great many independent organizations. It is most commonly used to provide an IP address associated with the domain name (such as www.fcc.gov) of a computer; however, the DNS is also routinely used to perform reverse address-to-name lookups and to identify and locate e-mail servers. In addition, the DNS is flexible and can be enhanced, so that it is capable of supporting new functionality. The DNS constitutes a general purpose information processing and retrieval capability that facilitates the use of the Internet in many ways.

38. E-mail, newsgroups, the ability for the user to create a web page that is accessible by other Internet users, and the DNS are applications that are commonly associated with Internet access service.[149] Each of these applications encompasses the capability for “generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.” Taken together, they constitute an information service, as defined in the Act.[150] Consistent with the analysis in the Universal Service Report, we conclude that the classification of cable modem service turns on the nature of the functions that the end user is offered. We find that cable modem service is an offering of Internet access service, which combines the transmission of data with computer processing, information provision, and computer interactivity, enabling end users to run a variety of applications.[151] As currently provisioned, cable modem service supports such functions as e-mail, newsgroups, maintenance of the user’s World Wide Web presence, and the DNS.[152] Accordingly, we find that cable modem service, an Internet access service, is an information service. This is so regardless of whether subscribers use all of the functions provided as part of the service, such as e-mail or web-hosting,[153] and regardless of whether every cable modem service provider offers each function that could be included in the service. As currently provisioned, cable modem service is a single, integrated service that enables the subscriber to utilize Internet access service through a cable provider’s facilities and to realize the benefits of a comprehensive service offering.

39. Cable modem service is not itself and does not include an offering of telecommunications service to subscribers. We disagree with commenters that urge us to find a telecommunications service inherent in the provision of cable modem service.[154] Consistent with the statutory definition of information service, cable modem service provides the capabilities described above “via telecommunications.”[155] That telecommunications component is not, however, separable from the data-processing capabilities of the service. As provided to the end user the telecommunications is part and parcel of cable modem service and is integral to its other capabilities.[156]

40. As stated above, the Act distinguishes "telecommunications" from "telecommunications service." The Commission has previously recognized that "[a]ll information services require the use of telecommunications to connect customers to the computers or other processors that are capable of generating, storing, or manipulating information."[157] Although the transmission of information to and from these computers may constitute "telecommunications," that transmission is not necessarily a separate "telecommunications service."[158] We are not aware of any cable modem service provider that has made a stand-alone offering of transmission for a fee directly to the public, or to such classes of users as to be effectively available directly to the public.[159] Further, as we discuss below, there is no Commission requirement that such an offering be made.

41. In the Universal Service Report, the Commission concluded that the Act’s “information service” and “telecommunications service” definitions establish mutually exclusive categories of service: “when an entity offers transmission incorporating the ‘capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information,’ . . . it offers an ‘information service’ even though it uses telecommunications to do so.”[160] The report did not decide the statutory classification issue in those cases where an ISP provides an information service over its own transmission facilities. The Universal Service Report noted that “[o]ne could argue that in such a case the Internet service provider is furnishing raw transmission capacity to itself.”[161] In the case of cable modem service, we do not believe that the fact that cable modem service is provided over the cable operator’s own facilities, without more, necessarily creates a telecommunications service separate and apart from the cable modem service. The cable operator providing cable modem service over its own facilities, as described in the record, is not offering telecommunications service to the end user, but rather is merely using telecommunications to provide end users with cable modem service.[162] Our analysis, like the relevant statutory definitions, focuses instead on the single, integrated information service that the subscriber to cable modem service receives and the nature of the relationships among cable operators and the entities with which they cooperate to provide cable modem service, which is discussed further below.

[149] See 47 U.S.C. § 231(e)(4) (defining the term “Internet access service” to include various functions); Universal Service Report, 13 FCC Rcd at 11537 ¶ 76 (“Internet access providers typically provide their subscribers with the ability to run a variety of applications, including World Wide Web browsers, FTP clients, Usenet newsreaders, electronic mail clients, Telnet applications, and others.” (footnotes omitted)).

[150] See Communications Act § 3(20), 47 U.S.C. § 153(20). Information services do not implement “the management, control, or operation of a telecommunications system or the management of a telecommunications service.”

[151] See AT&T Comments at 21-23; AT&T Reply Comments at 13-14, 33-39; Cox Aug. 15, 2001 Ex Parte at 4-5 n.15.

[152] See AT&T Dec. 18, 2001 Ex Parte, Attachment at 7 (describing behavior of subscribers to AT&T Broadband as including e-mails, web surfing) 9 (“AT&T Broadband . . . Provides DNS . . ..”); Letter from Emily A. Denney, Esq., of Cinnamon Mueller, counsel for ACA, to Ms. Magalie Roman Salas, Secretary, FCC (Jan. 30, 2001) (“BELD Jan. 30, 2002 Ex Parte”) at 1 (describing the cable modem service of the Braintree, Massachusetts, Electric Light Board as follows: “BELD provides its customers information services including email, web hosting, and the BELD homepage, which includes local news, . . .”); Bova Statement of Facts, supra note 31, at 7 (“Enhanced functions such as . . . DNS functions must be performed by CoxCom to enable the subscriber to transmit or receive any information using the cable modem platform to or from anywhere. . . . The current cable modem architecture requires CoxCom to perform these functions as an integral part of its network.” (underlining in original)); Charter Dec. 12, 2001 Ex Parte at 1 (“We have provided at no additional charge web hosting, e-mail, caching, web browser, news server, IP addressing, DNS address translation, . . . security and other functions for accessing or using the Internet.”); Cox Aug. 15 2001 Ex Parte at 5 (“Cox’s cable modem service provides subscribers with a variety of enhanced functions including subscriber browsing and retrieval of files from the World Wide Web, access to other Internet service providers through the Web, use of electronic mail, and access to and interaction with online newsgroups. In addition, . . . the Cox cable modem service provides the subscriber with content such as news, . . . . Cox also provides the subscriber with the ability to customize his or her welcome page . . . and the ability to create ‘homepages’ . . . .”).

[153] In this regard we note that some cable modem service users may choose not to use the e-mail or webhosting, for example, that is provided with their cable modem service. Nearly every cable modem service subscriber, however, accesses the DNS that is provided as part of the service. See Bova Statement of Facts, supra note 31, at 5-7 (listing all the popular applications that use DNS).

[154] Several commenters, for example, appear to claim that there is within cable modem service, as currently offered to retail subscribers, a distinct “telecommunications service,” such as the transmission of data over the cable system between the subscriber and the headend, separate from the web surfing, e-mail, and other functions that comprise cable modem service. See, e.g., ASCENT Comments at 13; OpenNET Comments at 19; WorldCom Comments at 10-11; WorldCom Reply Comments at 12-19. As noted above, supra note 135, EarthLink defines the term “cable modem service” in its Comments to mean “the underlying facilities-based transmission service that is necessary to provide the information service commonly referred to as ‘Internet access’” and concludes that cable modem service, as EarthLink defines it, is a telecommunications service. EarthLink Reply Comments at 9-10. As we have just found, no such separate and distinct service is being offered now.

[155] See 47 U.S.C. § 153(20).

[156] See Implementation of the Non-Accounting Safeguards of Section 271 and 272 of the Communications Act of 1934, as amended, CC Docket No. 96-149, Order on Remand (“Non-Accounting Safeguards Remand”), 16 FCC Rcd 9751, 9770 ¶ 36 (2001).

[157] See id., 16 FCC Rcd at 9751 ¶ 16, 9758-59 ¶ 32 (stating that some parties' "argument ignores the Act's distinction between 'telecommunications' and 'telecommunications service.' . . . . [I]nformation service providers as such are not providing 'telecommunications service' under the Act, and thus are not subject to common carrier regulation."), 9769 ¶ 34 (2001).

[158]See Non-Accounting Safeguards Remand, 16 FCC Rcd at 9755 ¶ 8 (stating that the categories of "telecommunications service" and "information service" are "mutually exclusive”); Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order (“Universal Service Order”), 12 FCC Rcd 8776, 9179-80 ¶¶ 788-90 (1997) (stating that information services are not inherently telecommunications services simply because they are offered via telecommunications).

[159] See Communications Act § 3(46), 47 U.S.C. § 153(46).

[160] See Universal Service Report, 13 FCC Rcd at 11520 ¶ 39. See also Non-Accounting Safeguards Remand, 16 FCC Rcd at 9770 ¶ 36.

[161] See Universal Service Report, 13 FCC Rcd at 11534 ¶ 69.

[162] See id., 13 FCC Rcd at 11521 ¶ 41 (stating that “[w]hen an entity offers subscribers the ‘capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information via telecommunications,’ it does not provide telecommunications; it is using telecommunications.”) (italics added).

Internet over Cable 2002

Example :: Internet Access Service Facilities Based :: Internet over Broadband :: Inseparable (Powell Doctrine) :: Internet over DSL, Wireless 

19. The Act defines "telecommunications" as "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."   Under this definition, an entity provides telecommunications only when it both provides a transparent transmission path and it does not change the form or content of the information.   If this offering is made directly to the public for a fee, it is deemed a "telecommunications service."   On the other hand, "[w]hen an entity offers subscribers the 'capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information via telecommunications,' it does not provide telecommunications, it is using telecommunications."
-- In Re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, CC Dockets Nos. 95-20, 98-10, NPRM ¶ 13 (February 15, 2002) http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-02-42A1.doc


"The Commission first applied this statutory framework to broadband in 1998 when it classified a portion of DSL service—broadband internet service furnished over telephone lines—as a telecommunications service. See In re Deployment of Wireline Services Offering Advanced Telecommunications Capability (“Advanced Services Order”), 13 FCC Rcd. 24,012, 24,014 ¶ 3, 24,029–30 ¶¶ 35– 36 (1998). According to the Commission, the transmission component of DSL—the phone lines that carried the information—was a telecommunications service. Id. at 24,029–30 ¶¶ 35–36. The Commission classified the internet access delivered via the phone lines, however, as a separate offering of an information service. Id. at 24,030 ¶ 36. DSL providers that supplied the phone lines and the internet access therefore offered both a telecommunications service and an information service. " [USTA v. FCC Slip 13 DC Cir. 2016]


"Following Brand X, the Commission classified other types of broadband service, such as DSL and mobile broadband service, as integrated offerings of information services without a standalone offering of telecommunications. See, e.g., In re Appropriate Regulatory Treatment for Broadband Access to the Internet over Wireless Networks (“2007 Wireless Order”), 22 FCC Rcd. 5901, 5901–02 ¶ 1 (2007) (mobile broadband); In re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities (“2005 Wireline Broadband Order”), 20 FCC Rcd. 14,853, 14,863–64 ¶ 14 (2005) (DSL)." [USTA v. FCC Slip 14-15 DC Cir. 2016]

Example:  Internet Access Service Facilities Based :: Internet over Broadband :: Telecom Service (2015 Open Internet)

"the Commission agreed that broadband providers offer email and other services, but simply concluded that “broadband Internet access service is today sufficiently independent of these information services that it is a separate offering.” 2015 Open Internet Order, 30 FCC Rcd. at 5758 ¶ 356." [USTA v. FCC Slip 38 DC Cir. 2016]


USTA v. FCC Slip 24-28 DC Cir. 2015

"With respect to its first conclusion—that consumers perceive broadband as a standalone offering—the Commission explained that broadband providers offer two separate types of services: “a broadband Internet access service,” id. at 5750 ¶ 341, which provides “the ability to transmit data to and from Internet endpoints,” id. at 5755 ¶ 350; and “‘add-on’ applications, content, and services that are generally information services,” id. at 5750 ¶ 341, such as email and cloud-based storage programs, id. at 5773 ¶ 376. It found that from the consumer’s perspective, “broadband Internet access service is today sufficiently independent of these information services that it is a separate offering.” Id. at 5757–58 ¶ 356.

"In support of its conclusion, the Commission pointed to record evidence demonstrating that consumers use broadband principally to access third-party content, not email and other add-on applications. “As more American households have gained access to broadband Internet access service,” the Commission explained, “the market for Internet-based services provided by parties other than broadband Internet access providers has flourished.” Id. at 5753 ¶ 347. Indeed, from 2003 to 2015, the number of websites increased from “approximately 36 million” to “an estimated 900 million.” Id. By one estimate, two edge providers, Netflix and YouTube, “account for 50 percent of peak Internet download traffic in North America.” Id. at 5754 ¶ 349."

"That consumers focus on transmission to the exclusion of add-on applications is hardly controversial. Even the most limited examination of contemporary broadband usage reveals that consumers rely on the service primarily to access thirdparty content. The “typical consumer” purchases broadband to use “third-party apps such as Facebook, Netflix, YouTube, Twitter, or MLB.tv, or . . . to access any of thousands of websites.” Computer & Communications Industry Association Amicus Br. 7. As one amicus succinctly explains, consumers today “pay telecommunications providers for access to the Internet, and access is exactly what they get. For content, they turn to [the] creative efforts . . . of others.” Automattic Amicus Br. 1."

"Indeed, given the tremendous impact third-party internet content has had on our society, it would be hard to deny its dominance in the broadband experience. Over the past two decades, this content has transformed nearly every aspect of our lives, from profound actions like choosing a leader, building a career, and falling in love to more quotidian ones like hailing a cab and watching a movie. The same assuredly cannot be said for broadband providers’ own add-on applications.

"The Commission found, moreover, that broadband consumers not only focus on the offering of transmission but often avoid using the broadband providers’ add-on services altogether, choosing instead “to use their high-speed Internet connections to take advantage of competing services offered by third parties.” 2015 Open Internet Order, 30 FCC Rcd. at 5753 ¶ 347. For instance, two third-party email services, Gmail and Yahoo! Mail, were “among the ten Internet sites most frequently visited during the week of January 17, 2015, with approximately 400 million and 350 million visits respectively.” Id. at 5753 ¶ 348. Some “even advise consumers specifically not to use a broadband provider-based email address[] because a consumer cannot take that email address with them if he or she switches providers.” Id."

"Amici Members of Congress in Support of Respondents provide many more examples of third-party content that consumers use in lieu of broadband provider content, examples that will be abundantly familiar to most internet users. “[M]any consumers,” they note, “have spurned the applications . . . offered by their broadband Internet access service provider, in favor of services and applications offered by third parties, such as . . . news and related content on nytimes.com or washingtonpost.com or Google News; home pages on Microsoft’s MSN or Yahoo!’s ‘my.yahoo’; video content on Netflix or YouTube or Hulu; streaming music on Spotify or Pandora or Apple Music; and on-line shopping on Amazon.com or Target.com, as well as many others in each category.” Members of Congress for Resp’ts Amicus Br. 22."

"In support of its second conclusion—that from the user’s point of view, the standalone offering of broadband service provides telecommunications—the Commission explained that “[u]sers rely on broadband Internet access service to transmit ‘information of the user’s choosing,’ ‘between or among points specified by the user,’” without changing the form or content of that information. 2015 Open Internet Order, 30 FCC Rcd. at 5761 ¶ 361 (quoting 47 U.S.C. § 153(50)); see also id. at 5762–63 ¶ 362. The Commission grounded that determination in record evidence that “broadband Internet access service is marketed today primarily as a conduit for the transmission of data across the Internet.” Id. at 5757 ¶ 354. Specifically, broadband providers focus their advertising on the speed of transmission. For example, the Commission quoted a Comcast ad offering “the consistently fast speeds you need, even during peak hours”; an RCN ad promising the ability “to upload and download in a flash”; and a Verizon ad claiming that “[w]hatever your life demands, there’s a Verizon FiOS plan with the perfect upload/download speed for you.” Id. at 5755 ¶ 351 (alteration in original) (internal quotation marks omitted). The Commission further observed that “fixed broadband providers use transmission speeds to classify tiers of service offerings and to distinguish their offerings from those of competitors.” Id."

"Those advertisements, moreover, “link higher transmission speeds and service reliability with enhanced access to the Internet at large—to any ‘points’ a user may wish to reach.” Id. at 5756 ¶ 352. For example, RCN brags that its service is “ideal for watching Netflix,” and Verizon touts its service as “work[ing] well for uploading and sharing videos on YouTube.” Id. Based on the providers’ emphasis on how useful their services are for accessing third-party content, the Commission found that end users view broadband service as a mechanism to transmit data of their own choosing to their desired destination—i.e., as a telecommunications service.

Example :: BIAS :: Telecom Service :: APA Reasonable

"the Commission agreed that broadband providers offer email and other services, but simply concluded that “broadband Internet access service is today sufficiently independent of these information services that it is a separate offering.” 2015 Open Internet Order, 30 FCC Rcd. at 5758 ¶ 356. US Telecom nowhere challenges that conclusion, and for good reason: the record contains extensive evidence that consumers perceive a standalone offering of transmission, separate from the offering of information services like email and cloud storage. See supra at 25–27." [USTA v. FCC Slip 38 DC Cir. 2016]

Example :: BIAS :: Telecom Service :: APA Reasonable :: Telecom Management Exception

“[The] exception, would seem to apply to [DNS and caching]. DNS, in particular, is scarcely more than routing information . . . .” BrandX. at 1012–13 (Scalia, J., dissenting) 

"In concluding that broadband qualifies as a telecommunications service, the Commission explained that although broadband often relies on certain information services to transmit content to end users, these services “do not turn broadband Internet access service into a functionally integrated information service” because “they fall within the telecommunications system management exception.” Id. at 5765 ¶ 365. The Commission focused on two such services. The first, DNS, routes end users who input the name of a website to its numerical IP address, allowing users to reach the website without having to remember its multidigit address. Id. at 5766 ¶ 366. The second, caching, refers to the process of storing copies of web content at network locations closer to users so that they can access it more quickly. Id. at 5770 ¶ 372. The Commission found that DNS and caching fit within the statute’s telecommunications management exception because both services are “simply used to facilitate the transmission of information so that users can access other services.” Id." [USTA v. FCC Slip 28 DC Cir. 2016]


First, the Commission explained that the Communications Act’s telecommunications management exception encompasses those services that would have qualified as “adjunct-to-basic” under the Computer II regime. 2015 Open Internet Order, 30 FCC Rcd. at 5766–67 ¶ 367 (citing Non-Accounting Safeguards Order, 11 FCC Rcd. at 21,958 ¶ 107). To qualify as an adjunct-to-basic service, a service had to be “‘basic in purpose and use’ in the sense that [it] facilitate[d] use of the network, and . . . [it] could ‘not alter the fundamental character of the [telecommunications service].’” Id. at 5767 ¶ 367 (last alteration in original) (quoting In re North American Telecommunications Ass’n, 101 F.C.C. 2d 349, 359 ¶ 24, 360 ¶ 27 (1985)) (some internal quotation marks omitted). The Commission concluded that DNS and caching satisfy this test because both services facilitate use of the network without altering the fundamental character of the telecommunications service. DNS does so by “allow[ing] more efficient use of the telecommunications network by facilitating accurate and efficient routing from the end user to the receiving party.” Id. at 5768 ¶ 368. Caching qualifies because it “enabl[es] the user to obtain more rapid retrieval of information through the network.” Id. at 5770 ¶ 372 (internal quotation marks omitted). US Telecom does not challenge the applicability of the adjunct-to-basic standard, nor does it give us any reason to believe that the Commission’s application of that standard was unreasonable. See GTE Service Corp. v. FCC, 224 F.3d 768, 772 (D.C. Cir. 2000) (“[W]e will defer to the [Commission’s] interpretation of [the Communications Act] if it is reasonable in light of the text, the structure, and the purpose of [the Communications Act].”).

As to US Telecom’s second point, the Commission justified treating third-party DNS and caching services differently on the ground that when such services are “provided on a stand-alone basis by entities other than the provider of Internet access service[,] . . . there would be no telecommunications service to which [the services are] adjunct.” 2015 Open Internet Order, 30 FCC Rcd. at 5769 ¶ 370 n.1046. Again, US Telecom has given us no basis for questioning the reasonableness of this conclusion. Once a carrier uses a service that would ordinarily be an information service—such as DNS or caching—to manage a telecommunications service, that service no longer qualifies as an information service under the Communications Act. The same service, though, when unconnected to a telecommunications service, remains an information service. [USTA v. FCC Slip 40 DC Cir. 2016]

Example :: BIAS :: Telecom Service :: APA Reasonable :: Changed Decision

"the Commission found it necessary to establish three bright-line rules, the anti- blocking, anti-throttling, and anti-paid-prioritization rules, 2015 Open Internet Order, 30 FCC Rcd. at 5607 ¶ 14, all of which impose per se common carrier obligations by requiring broadband providers to offer indiscriminate service to edge providers, see Verizon, 740 F.3d at 651–52. “[I]n light of Verizon,” the Commission explained, “absent a classification of broadband providers as providing a ‘telecommunications service,’ the Commission could only rely on section 706 to put in place open Internet protections that steered clear of regulating broadband providers as common carriers per se.” 2015 Open Internet Order, 30 FCC Rcd. at 5614 ¶ 42. This, in our view, represents a perfectly “good reason” for the Commission’s change in position." [USTA v. FCC Slip 43 DC Cir. 2016]


"US Telecom raises a distinct arbitrary and capricious argument. It contends that the Commission needed to satisfy a heightened standard for justifying its reclassification. As US Telecom points out, the Supreme Court has held that “the APA requires an agency to provide more substantial justification when ‘its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account.’” Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199, 1209 (2015) (quoting Fox Television, 556 U.S. at 515). “[I]t is not that further justification is demanded by the mere fact of policy change[,] but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.” Fox Television, 556 U.S. at 515–16. Put another way, “[i]t would be arbitrary and capricious to ignore such matters.” Id. at 515.

US Telecom believes that the Commission failed to satisfy the heightened standard because it departed from factual findings it made regarding consumer perception in its 2002 Cable Broadband Order without pointing to any changes in how consumers actually view broadband. According to US Telecom, even in 2002, when the Commission classified broadband as an information service, consumers used broadband primarily as a means to access third-party content and broadband providers marketed their services based on speed. As we have explained, however, although in 2002 the Commission found that consumers perceived an integrated offering of an information service, in the present order the Commission cited ample record evidence supporting its current view that consumers perceive a standalone offering of transmission. See supra at 25–27. It thus satisfied the APA’s requirement that an agency provide a “reasoned explanation . . . for disregarding facts and circumstances that underlay . . . the prior policy.” Fox Television, 556 U.S. at 515–16. Nothing more is required." [USTA v. FCC Slip 47 DC Cir. 2016]


“[E]ven assuming, arguendo, that the facts regarding how [broadband service] is offered had not changed, in now applying the Act’s definitions to these facts, we find that the provision of [broadband service] is best understood as a telecommunications service, as discussed [herein] . . . and disavow our prior interpretations to the extent they held otherwise.” 2015 Open Internet Order, 30 FCC Rcd. at 5761 ¶ 360 n.993.

 

Example: Backbone

72   Our thinking relating to the Internet backbone points up some of the limitations of our current approaches to implementing the universal service provisions of the 1996 Act.  The technology and market conditions relating to the Internet backbone are unusually fluid and fast-moving, and we are reluctant to impose any regulatory mandate that relies on the persistence of a particular market model or market structure in this area.  It may be that the most successful approach in this context, maintaining universal service revenues while avoiding the imposition of inefficient or innovation-discouraging obligations, would look to the actual facilities owners, requiring them to contribute to universal service mechanisms on the revenues they receive.  It is facilities owners that, in a real sense, provide the crucial telecommunications inputs underlying Internet service.  If universal service contribution obligations, in the context of the Internet backbone, were based on facilities ownership rather than end-user revenues, then firms purchasing capacity from the facilities owners would still contribute indirectly, through prices that recover the facilities owners' contributions.  This matter deserves further consideration.
-- In re Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress (April 10, 1998) http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html

 

We realize that, as technology evolves, new means of providing telecommunications service may emerge.  Although we conclude that Internet access is not a "telecommunications service," we acknowledge that there may be telecommunications services that can be provisioned through the Internet.  . . . . With respect to the provision of pure transmission capacity to Internet service providers or Internet backbone providers, we have concluded that such provision is telecommunications.  In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  101 (April 10, 1998).

Example: World Wide Web

"When subscribers store files on Internet service provider computers to establish "home pages" on the World Wide Web, they are, without question, utilizing the provider's "capability for . . . storing . . . or making available information" to others.  The service cannot accurately be characterized from this perspective as "transmission, between or among points specified by the user"; the proprietor of a Web page does not specify the points to which its files will be transmitted, because it does not know who will seek to download its files.  Nor is it "without change in the form or content," since the appearance of the files on a recipient's screen depends in part on the software that the recipient chooses to employ.  When subscribers utilize their Internet service provider's facilities to retrieve files from the World Wide Web, they are similarly interacting with stored data, typically maintained on the facilities of either their own Internet service provider (via a Web page "cache") or on those of another.  Subscribers can retrieve files from the World Wide Web, and browse their contents, because their service provider offers the "capability for . . . acquiring, . . . retrieving [and] utilizing . . . information."   Most of the data transport on the Internet relates to the World Wide Web and file transfer. "
--In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  ¶ 76 (April 10, 1998).
 

Example: USENET

"The same is true when Internet service providers offer their subscribers access to Usenet newsgroup articles.   An Internet service provider receives and stores these articles (in 1996, about 1.2 gigabytes of new material each day)  on its own computer facilities.  Each Internet service provider must choose whether to carry a full newsgroup feed, or only a smaller subset of available newsgroups.  Each Internet service provider must decide how long it will store articles in each newsgroup, and at what point it will delete them as outdated.  A user can then select among the available articles, choosing those that the user will view or read; having read an article, the user may store or forward it; and the user can post articles of his or her own, which will in turn be stored on the facilities of his own Internet service provider and those of every other Internet service provider choosing to carry that portion of the newsgroup feed.  In providing this service, the Internet service provider offers "a capability for generating, acquiring, storing, . . . retrieving . . . and making available information through telecommunications."   Its function seems indistinguishable from that of the database proprietor offering subscribers access to information it maintains on-site; such a proprietor offers the paradigmatic example of an information service."  In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  77 (April 10, 1998).

Example: E-mail

"E-mail, newsgroups, the ability for the user to create a web page that is accessible by other Internet users, and the DNS are applications that are commonly associated with Internet access service. Each of these applications encompasses the capability for “generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.” Taken together, they constitute an information service, as defined in the Act. " [Internet over Cable 2002 para. 38]



"As noted above, Senators Stevens and Burns state that electronic mail constitutes a telecommunications service.   They note that the provision of a transmission path for the delivery of faxes constitutes telecommunications, and characterize electronic mail as "nothing more or less than a paperless fax."   We have carefully considered this argument, but further analysis leads us to a different result.  Like the World Wide Web and Usenet services described above, electronic mail utilizes data storage as a key feature of the service offering.   The fact that an electronic mail message is stored on an Internet service provider's computers in digital form offers the subscriber extensive capabilities for manipulation of the underlying data.  The process begins when a sender uses a software interface to generate an electronic mail message (potentially including files in text, graphics, video or audio formats).  The sender's Internet service provider does not send that message directly to the recipient.  Rather, it conveys it to a "mail server" computer owned by the recipient's Internet service provider, which stores the message until the recipient chooses to access it.  The recipient may then use the Internet service provider's facilities to continue to store all or part of the original message, to rewrite it, to forward all or part of it to third parties, or otherwise to process its contents -- for example, by retrieving World Wide Web pages that were hyperlinked in the message.  The service thus provides more than a simple transmission path; it offers users the "capability for . . . acquiring, storing, transforming, processing, retrieving, utilizing, or making available information through telecommunications."   In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67  78 (April 10, 1998).



 89.  The question has been raised as to the regulatory status of computer message services.  The potential exists for users of certain unregulated services to use a data processing system for store and forward message services (sometimes referred to as computer message services, electronic message services, 'mail-box',73 etc.).  This is particularly applicable to time-sharing services where the computer facilities are structured in a manner such that the customer can write his own program and, in effect, use the time- sharing network for his own store and forward message service needs.  The fact that unregulated, entities may provide transmission services as a part of the unregulated data processing creates the potential for a subscriber to use the unregulated entities computer facilities for service comparable to those obtainable from communication common carriers.
 90.  The fundamental characteristic of a common carrier communications service is the transmission of a subscriber's message through the telecommunications network without alteration of the content of the message in the course of transmission.  An entity offering a communication common carrier service may do so only subject to Title II of the Act and Commission's rules implementing Title II.  There is a distinction, however, between the offering of store and forward message service and the offering of computer capacity which allows the users to perform a host of different functions depending upon the programmed instructions of the user. The offering of a pure store and forward message service has traditionally been subject to regulation under Title II of the Act. The ability to use the computer capacity inherent in a data processing service for the transmission or retrieval of unaltered messages may or may not subject the offering entity to common carrier regulation depending upon the nature of the service. Determinative factors may include: whether the offering entity provides within its facilities or offers to the user the software or programs necessary to use the system on a pure store and forward basis, whether the offering entity solicits subscribers to the service on the basis of the system's store and forward message capabilities,74 or whether the offering entity sanctions directly or indirectly the use of its service for such purposes.  As in the First Computer Inquiry, we rely on competing interests in the market place to bring to the Commission's attention abuses by unregulated entities in the circumvention of Commission policies and guidelines, especially with respect to the offering of a pure store and forward message service.
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Tentative Decision And Further Notice Of Inquiry And Rulemaking, 72 FCC2d 358 (July 2, 1979)


FN498 The term "enhanced services," which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. "Enhanced services" are defined in § 64.702(a) of our rules: "For the purposes of this subpart, the term enhanced services shall refer to services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; provide the subscriber additional different, or restructured information; or involve subscriber interaction with stored information." The 1996 Act defines "information services" as offering the capability for "generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications." 47 U.S.C. § 153(20). For purposes of this order, providers of enhanced services and providers of information services are referred to as ISPs.  -- In Re Access Charge Reform, CC Docket No. 96-262, 1997 WL 268841 (FCC), 12 FCCR. 15,982, 12 FCC Rcd. 15,982, 7 Communications Reg. (P&F) 1209, First Report and Order (May 16, 1997)


284. Beginning with the Computer II proceeding in the 1970s, we have distinguished between basic and enhanced communications services. [376] The category of enhanced services, which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. [377] In the 1983 Access Charge Reconsideration Order, we decided that, although enhanced service providers (ESPs) may use incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate access charges. [378] -- In re Access Charge Reform, CC Docket No. 96-262, Usage of the Public Switched Network by Information Service and Internet Access Providers, CC Docket No. 96-263, 1996 WL 733469 (FCC), 11 FCCR. 21,354, 11 FCC Rcd. 21,354, 5 Communications Reg. (P&F) 604, Notice of Proposed Rulemaking, Third Report and Order, and Notice of Inquiry (December 24, 1996)

US Postal Service offering that used the facilites of Western Union (a title II common carrier) where "a user will prepare its messages in electronic form and transmit them over communications channels to Western Union;s facilites... employing its switching and communications facilities, [it] will then transmit the messages to the appropriate destination post offices . . . for physical delivery by postal employees." .. . ."It is undisputed that ECOM is designed to offer consumers a service whereby information can be transmitted from a point of origination to one or more points of termination by means of electronic communications facilities.  We therefore concluded that ECOM will be a communications service, pursaunt to the statutory definition in Section 3(a) and 3(b) of the Act." -- Request for Declaratory Ruling and Investigation by Graphnet Systems, Incorporated, CC Docket No 79-6, Memorandum Opinion and Order, 73 FCC2d 283 (1979) [It was argued by one party before the FCC that this case establishes that Email is a telecom service.  As can be seen by this small quotation, the FCC is putting the Graphnet service into the category of telegraphs, not email - and telgraphs were title II common carrier services although that classifcation had become essentially irrelevant]

Example: Gateway

"Finally, US Telecom argues that “[t]he statutory context and history confirm the plain meaning of the statutory text.” US Telecom Pet’rs’ Br. 33. According to US Telecom, while the Computer II regime was in effect, the Commission classified “gateway services allowing access to information stored by third parties” as enhanced services, and Congress incorporated that classification into the Communications Act when it enacted the Telecommunications Act’s information/telecommunications service dichotomy. Id. at 33–35. “Those ‘gateways,’” US Telecom insists, “involved the same ‘functions and services associated with Internet access.’” Id. at 34 (quoting In re Federal-State Joint Board on Universal Service, 13 FCC Rcd. 11,501 ¶ 75 (1998)). This argument suffers from a significant flaw: nothing in the Telecommunications Act suggests that Congress intended to freeze in place the Commission’s existing classifications of various services."[USTA v. FCC Slip 35 DC Cir. 2016]


"We note that the functions and services associated with Internet access were classed as "information services" under the MFJ.  Under that decree, the provision of gateways (involving address translation, protocol conversion, billing management, and the provision of introductory information content) to information services fell squarely within the "information services" definition.   Electronic mail, like other store-and-forward services, including voice mail, was similarly classed as an information service.     Moreover, the Commission has consistently classed such services as "enhanced services" under Computer II. "  --In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67   75 (April 10, 1998).


"More generally, though, it would be incorrect to conclude that Internet access providers offer subscribers separate services -- electronic mail, Web browsing, and others -- that should be deemed to have separate legal status, so that, for example, we might deem electronic mail to be a "telecommunications service," and Web hosting to be an "information service."  The service that Internet access providers offer to members of the public is Internet access.   That service gives users a variety of advanced capabilities.  Users can exploit those capabilities through applications they install on their own computers.  The Internet service provider often will not know which applications a user has installed or is using.  Subscribers are able to run those applications, nonetheless, precisely because of the enhanced functionality that Internet access service gives them. "  --In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67   79 (April 10, 1998).

Example: Voice Mail

In re Policy And Rules Concering The Interstate, Interexchange Marketplace/Implementation Of Section 254(G) Of The Communications Act Of 1934, As Amended/In 1998 Biennial Review -- Review Of Customer Premises Equipment And Enhanced Services Unbundling Rules In the Interexchange, Exchange Access and Local Exchange Markets, CC Docket No. 98-183; CC Docket No. 96-61, Report and Order,  2 (March 31, 2001) <www.fcc.gov/Bureaus/Common_Carrier/Orders/2001/fcc01098.doc> ("Enhanced services are now referred to as "information services" in the 1996 Act and comprise services such as voice mail, e-mail and other Internet services, interactive voice response, audiotext information services, and protocol processing, among others.")



"Examples of services the Commission has treated as enhanced include voice mail, E-Mail, fax store-and-forward, interactive voice response, protocol processing, gateway, and audiotext information services." In the matter of 1998 Biennial Regulatory Review -- Review of Customer Premises Equipmentand Enhanced Services Unbundling Rules in the Interexchange, Exchange Accessand Local Exchange Markets, CC Docket No. 98-183, Further Notice of Proposed Rulemaking, para 1, n. 20 (October 9, 1998)

 

"We note that the functions and services associated with Internet access were classed as "information services" under the MFJ.  Under that decree, the provision of gateways (involving address translation, protocol conversion, billing management, and the provision of introductory information content) to information services fell squarely within the "information services" definition.   Electronic mail, like other store-and-forward services, including voice mail, was similarly classed as an information service.     Moreover, the Commission has consistently classed such services as "enhanced services" under Computer II. "  --In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67   75 (April 10, 1998).

Example: Fax Store and Forward

"Examples of services the Commission has treated as enhanced include voice mail, E-Mail, fax store-and-forward, interactive voice response, protocol processing, gateway, and audiotext information services." In the matter of 1998 Biennial Regulatory Review -- Review of Customer Premises Equipmentand Enhanced Services Unbundling Rules in the Interexchange, Exchange Accessand Local Exchange Markets, CC Docket No. 98-183, Further Notice of Proposed Rulemaking, para 1, n. 20 (October 9, 1998)

MO&O, Bell Operating Companies Joint Petition for Waiver of Computer II Rules, DA 95-36, 10 FCC Rcd 1724 n.3, 1995 FCC LEXIS 217 **2 (Jan 1995) [electronic store-and-forward is enhanced service]

What's interesting is that paging - a form of CMRS - is also store and forward but is deemed telecom. Second R&O and FNPRM, In the Matter of Implementation of Sections 3(n) and 332 of the Communications Act Regulatory Treatment of Mobile Services, GN Docket No. 93-252, FCC 94-31, 9 FCC Rcd 1411, ¶¶ 57, 100 (Mar. 1994) ("CMRS Second R&O") [paging is store and forward; paging store and forward can be "interconnected"].  

Example :: Electronic White Pages Reverse Look Up

"The Commission has previously found that simple reverse directory service constitutes an enhanced or information service. US West Communications, Inc., Petition for Computer III Waiver, Order, 11 FCC Rcd 1195, 1199 ¶ 28 (Chief, Common Carrier Bur. 1995) (“The NATA Centrex Order concluded that the provision of access to a data base for purposes other than to obtain the information necessary to place a call will generally be found to be an enhanced service. The presumption regarding such services, therefore, is that they are enhanced unless they are shown to be otherwise.”)." [Internet over Cable 2002 n 146]


26. "We conclude that the reverse-search capability offered in conjunction with US West's EWP offering constitutes an enhanced service. ..."
. . . .
  29.  In the instant case, US West has not made such a showing, nor does it seek to argue that its reverse-search capability constitutes a basic service. US West's EWP reverse-search capability on its face meets two of the three characteristics that define an enhanced service because it provides additional information (name and address associated with a telephone number) and involves subscriber interaction with stored information. Satisfying any one of the characteristics would suffice to classify the service as enhanced.
  30.  We are not persuaded by the arguments of Bell Atlantic and SWBT that the primary purpose of the reverse-search capability is to facilitate the placement of a telephone call, making the service adjunct to basic pursuant to the NATA Centrex Order.  While this service enables customers to avoid calling a number without knowledge of the name and address of the called party, the additional information gained through the service -- name and address -- is not actually necessary to make the call.58 Although customers may place a call to a telephone number after obtaining the associated name and address through a reverse-search, commenters have not demonstrated that placement of a telephone call would typically be the immediate next step.59  Thus, we find that the primary purpose for this service is not to facilitate call completion.  We conclude that unlike directory assistance, which the Commission has found adjunct to basic because it provides information necessary to make a call, the reverse-search capability provides additional information that is not necessary to make a call (because the subscriber already has the telephone number) and which could be used for a number of other purposes.
  31.  Because US West's reverse-search capability meets two of the Computer III tests for an enhanced service and does not meet the NATA Centrex Order test for an adjunct to basic service, we therefore conclude that the reverse-search capability offered in conjunction with US West's EWP offering constitutes an enhanced service pursuant to Section 64.702 of our rules.
--In re US West Communications, Inc., Petition for Computer III Waiver, Order, 11 FCC Rcd. 1195  (Nov 6, 1995)

Example: Alarm Monitoring

FN498 The term "enhanced services," which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. "Enhanced services" are defined in § 64.702(a) of our rules: "For the purposes of this subpart, the term enhanced services shall refer to services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; provide the subscriber additional different, or restructured information; or involve subscriber interaction with stored information." The 1996 Act defines "information services" as offering the capability for "generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications." 47 U.S.C. § 153(20). For purposes of this order, providers of enhanced services and providers of information services are referred to as ISPs.  -- In Re Access Charge Reform, CC Docket No. 96-262, 1997 WL 268841 (FCC), 12 FCCR. 15,982, 12 FCC Rcd. 15,982, 7 Communications Reg. (P&F) 1209, First Report and Order (May 16, 1997)



284. Beginning with the Computer II proceeding in the 1970s, we have distinguished between basic and enhanced communications services. [FN376] The category of enhanced services, which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. [FN377] In the 1983 Access Charge Reconsideration Order, we decided that, although enhanced service providers (ESPs) may use incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate access charges. [FN378] -- In re Access Charge Reform, CC Docket No. 96-262, Usage of the Public Switched Network by Information Service and Internet Access Providers, CC Docket No. 96-263, 1996 WL 733469 (FCC), 11 FCCR. 21,354, 11 FCC Rcd. 21,354, 5 Communications Reg. (P&F) 604, Notice of Proposed Rulemaking, Third Report and Order, and Notice of Inquiry (December 24, 1996)

Example: Domain Name System

"In addition, Internet Access service generally includes using the DNS. The DNS is an online data retrieval and directory service. The DNS is a distributed system, where the data may be replicated in multiple, geographically dispersed server systems. The administration of the DNS is hierarchical, and is routinely delegated among a great many independent organizations. It is most commonly used to provide an IP address associated with the domain name (such as www.fcc.gov) of a computer; however, the DNS is also routinely used to perform reverse address-to-name lookups and to identify and locate e-mail servers. In addition, the DNS is flexible and can be enhanced, so that it is capable of supporting new functionality. The DNS constitutes a general purpose information processing and retrieval capability that facilitates the use of the Internet in many ways.... Taken together, they constitute an information service, as defined in the Act." [Internet over Cable 2002 para. 37-38]

But See Open Internet 2015, para 356, 366 (DNS is a telecommunications management function)

Example: Protocol Conversion / Processing

    49   Senators Stevens and Burns urge that transmission services incorporating protocol processing should be treated as telecommunications services, and not information services.  They note that, in enacting the 1996 Act, the conference committee declined to adopt the Senate version of the information services definition, derived from the Commission's definition of enhanced services, which explicitly referred to services that "employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscribers transmitted information."   Rather, the conference committee adopted the House version, which made no explicit reference to protocol processing.  As a result, the fact that a service involves protocol processing, those parties urge, should not lead to its classification as an information service.
    50   The Commission reached a different result in the Non-Accounting Safeguards Order, in which it concluded that the category of information services was essentially identical to the pre-existing category of enhanced services.  The Commission found that those protocol processing services that had qualified as "enhanced" should be treated as "information services," in part because they satisfy the statutory requirement of offering "a capability for . . . transforming [and] processing . . . information via telecommunications."   It noted, however, that certain protocol processing services that result in no net protocol conversion to the end user are classified as basic services; those services are deemed telecommunications services.
    51   Senators Stevens and Burns raise a substantial point.  The conference committee's decision not to adopt language explicitly classifying services employing protocol processing as information services supports the inference that the conferees did not intend that classification.  We note,  however, that the House language, adopted by the conference committee, was derived from the MFJ, and that services employing protocol processing were treated as information services under the MFJ.   Furthermore, as noted above, services offering net protocol conversion appear to fall within the statutory language, because they offer a capability for "transforming [and] processing" information.  In light of these considerations, we recognize that the issue of the regulatory treatment of protocol processing is a difficult one.
    52  We find, however, little to no discussion of this issue in the record.  Accordingly, we do not believe that we have an adequate basis for resolving this matter in this Report.  Moreover, we believe that we need not resolve the issue in order to address the important issues raised by the Appropriations Act.  The regulatory classification of protocol processing is significant to the provision of universal service only to the extent that it affects the appropriate classification of Internet access service and IP telephony.  We find, however, for the reasons explained below, that Internet access services are appropriately classed as information services without regard to our treatment of protocol processing.   Similarly, our discussion of the regulatory status of phone-to-phone IP telephony is not affected by our resolution of the protocol processing issue.   The protocol processing that takes place incident to phone-to-phone IP telephony does not affect the service's classification, under the Commission's current approach, because it results in no net protocol conversion to the end user.   Finally, when a facilities owner provides leased lines to an Internet access or backbone provider, it does not provide protocol processing.
-- In re Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress (April 10, 1998) http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html
 

Protocol Processing: Enhanced Service

In re Policy And Rules Concering The Interstate, Interexchange Marketplace/Implementation Of Section 254(G) Of The Communications Act Of 1934, As Amended/In 1998 Biennial Review -- Review Of Customer Premises Equipment And Enhanced Services Unbundling Rules In the Interexchange, Exchange Access and Local Exchange Markets, CC Docket No. 98-183; CC Docket No. 96-61, Report and Order,  2 (March 31, 2001) <www.fcc.gov/Bureaus/Common_Carrier/Orders/2001/fcc01098.doc> ("Enhanced services are now referred to as "information services" in the 1996 Act and comprise services such as voice mail, e-mail and other Internet services, interactive voice response, audiotext information services, and protocol processing, among others.")


 7. In the Notice, we proposed three alternative regulatory approaches for protocol processing;  however, we conclude in this Order that none of them should be adopted.  Instead, we identify two analyses of technical and market characteristics of protocol processing that lead to disparate regulatory treatments.  Because of the close technical and functional relationships between protocol processing and basic communications, an approach under which protocol processing would be treated as a neutral "adjunct" service could be an appropriate regulatory response. This approach would require that protocol processing be regulated in the same fashion as the underlying service--whether basic or enhanced--with which it is associated in a particular offering. However, as a pragmatic matter, we recognize that protocol processing functions are offered in competitive, unregulated markets, and we seek to avoid the potential for any unnecessary reregulation in such markets.  Furthermore, it appears that the nonstructural safeguards we adopt in this Order for the unseparated provision of enhanced services in general by AT & T and the BOCs may be appropriate for protocol processing as well.  Accordingly, an alternative regulatory treatment may be to retain protocol processing functions in the existing enhanced services definition and subject them to those nonstructural safeguards.  Because these approaches differ from those we proposed in the Notice, and since we wish to have as complete a record as possible before adopting any changes in this area, we defer to the Supplemental Notice any final action on the regulatory treatment of protocol processing. Pending that final action, we maintain the current regulatory status of protocol processing, including the availability of waivers from the structural separation rules for specific protocol conversions.
. . . . .
 20. After reexamining the classification of protocol processing services as enhanced in the Reconsideration Order, we affirmed the Final Decision's conclusion that code and protocol conversion should be classified as enhanced services.  We emphasized that this classification was not intended to restrict carriers from using protocol conversion within their networks for purposes such as multiplexing, security, and network traffic management. 51  However, we concluded that protocol conversion external to a carrier's network could be obtained from an increasing number of alternative non-carrier sources and, accordingly, such conversion should not be offered as a basic service. 52
 21. We revisited the protocol processing issue in our 1983 Protocols Order.53  In that Order, we reaffirmed our conclusion that protocol processing generally should remain an enhanced service, clarified the application of the definition, and expressed a willingness to entertain waiver requests to mitigate what we and many in the industry were beginning to perceive were some of the undesirable consequences of our treatment of protocol conversion. First, we specifically noted that a basic switched service can include protocol processing for the initiation, routing, and termination of calls or data packets.  Such protocol processing functions inherent in call processing may be associated with either basic or enhanced service.54  Second, we acknowledged that literal application of the enhanced service definition could undesirably limit the ability of carriers to introduce new technology. Accordingly, we held ourselves ready to act favorably and expeditiously on petitions for waiver of the Computer II rules to ensure that new technology to implement an existing service can be employed. 55
 22. Third, we indicated that waiver requests to offer "internetworking" protocol conversion 56 with basic services on an unseparated basis would be treated more favorably than requests for other types of protocol processing waivers. 57  We found that a waiver of structural separation for such internetworking operations would be sufficiently narrow that it would have only a minimal impact on the Computer II policies.
 23. Fourth, we found that the appropriate regulatory treatment is less clear for other forms of protocol conversion that carriers might seek to associate with basic service.  We decided to address such questions through ad hoc proceedings in which parties would request waivers of the structural separation requirements.  To govern the waiver process, we established a set of general principles designed to minimize regulatory uncertainty.  We stated that we would grant waiver requests only on the condition that "underlying transparent transmission facilities, which are comparable in price, quality and conditions of service to that built into the offering to be associated with protocols conversion, remain available generally and unencumbered by protocol conversion." 58  We adopted this principle to ensure that if a carrier were to integrate a protocol conversion service with its basic services, it would not limit the availability of underlying basic services to others.  We also stated our intention to focus with particularity on the services at issue in waiver requests.  We sought to ensure that the requests would involve protocol processing alone, as defined in the first clause of section 64.702(a) of our rules, 59 and not information processing or subscriber interaction with stored information, as defined in the second and third clauses of section 64.702(a). 60  Finally, we stated our willingness to act more favorably in considering waiver requests for those protocol processing services that materially improve the performance of the basic network if such improvement cannot be gained by using protocol processing outside the network. 61
--In the Matters of: Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry);  and Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Thereof Communications Protocols under Section 64.702 of the Commission's Rules and Regulations, CC Docket No. 85-229, Report and Order (June 16, 1986)


 99.  A few comments question the legitimacy of not allowing code and protocol conversion as part of a basic service.  While we have concluded that code and protocol conversion are enhancements to a basic service, we recognize that they also increase the utility of the communications channel by allowing disparate terminals to communicate with one another.  Because the universe of terminals that can communicate with one another is larger where such capabilities are offered, arguments can be made that these functions should be allowed as part of a communications service.  We have weighed the relative merits of permitting code and protocol conversion as part of a basic service and affirm our determination in the Tentative Decision, at para. 69, that these capabilities are more appropriately associated with the provision of enhanced services. This conclusion is premised on two factors.  First, there is the likelihood of distorting the regulatory distinction between basic and enhanced services if protocol conversion is performed as part of a basic service.  Second and more significant, however, is the fact that this determination has implications only for those carrier that remain subject to resale structure and the maximum separation policy.  (See discussion in Part D, infra.)  Entities not so subject may offer protocol conversion to all customers regardless of whether it is viewed under our Rules as basic or enhanced.  The most significant effect our decision will have is to require some carriers to offer protocol conversion and like enhancements to their basic services through separate subsidiaries. No compelling evidence has been submitted in this proceeding that this separation will impose significant efficiency losses on the carrier or the public it serves.  If at some future time evidence to the contrary is submitted, we are free to re-examine the public interest ramifications and regulatory implications of allowing a given protocol conversion as part of basic services. 37
--In re Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC2d 384 (May 2, 1980) (Computer II Final Decision)



17. In the Computer III proceedings the Commission reaffirmed its treatment of protocol processing (except for the three exemptions) as an enhanced service. The Commission reasoned, in part, that deciding otherwise would remove the enhanced component of VAN services, thus eliminating their non- carrier status under what is termed the "contamination" theory and subjecting them to Title II regulation.29
18. Under the contamination theory, VANs that offer enhanced protocol processing services in conjunction with basic transmission services have historically been treated as unregulated enhanced service providers. Under this theory, the enhanced component of their offerings is viewed as "contaminating" the basic component, and as a result, the entire offering is considered enhanced. 30
--In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, ¶ 17-18 (October 18, 1995)
            Protocol Processing:  Basic Service

            We note that, under Computer II and Computer III, we have treated three categories of protocol processing services as basic services, rather than enhanced services. These categories include protocol processing: 1) involving communications between an end user and the network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users; 2) in connection with the introduction of a new basic network technology (which requires protocol conversion to maintain compatibility with existing CPE); and 3) involving internetworking (conversions taking place solely within the carrier's network to facilitate provision of a basic network service, that result in no net conversion to the end user). We agree with PacTel that analogous treatment should be extended to these categories of protocol processing services under the statutory regime. Because the listed protocol processing services are information service capabilities used "for the management, control, or operation of a telecommunications system or the management of a telecommunications service," they are excepted from the statutory definition of information service. These excepted protocol conversion services constitute telecommunications services, rather than information services, under the 1996 Act.
            - In the Matter of the Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, Order on Reconsideration, Docket 96-149, 1997 WL 71143 (FCC), 12 FCCR. 2297, 12 FCC Rcd. 2297, 6 Communications Reg. (P&F) 972, ¶ 2 (Feb 19, 1997)

             



                 13.  Under the Commission's Computer II decision, those carriers that own common carrier transmission facilities and provide enhanced services must unbundle basic from enhanced services and offer transmission capacity to other enhanced service providers under the same tariffed terms and conditions under which they provide such services to their own enhanced service operations.   Section 202 of the Act also prohibits a carrier from discriminating unreasonably in its provision of basic services.   In addition, the Commission's Computer III decisions subject certain carriers to further unbundling requirements in offering an enhanced service.
                14. In the Computer III decisions, however, the Commission reaffirmed earlier decisions concluding that three types of protocol processing are not enhanced services within the meaning of the Commission's rules.22 First, the Commission reaffirmed that the enhanced services definition applies only to end-to-end communications between or among subscribers.23 Thus, communications between a subscriber and the network itself (e.g. for call setup, call routing, and call cessation) are not considered enhanced services.24
                15. Second, the Commission determined that protocol conversions necessitated by the introduction of new technology are also outside the ambit of the enhanced services definition. This circumstance arises when innovative basic network technology is introduced into the network in a piecemeal fashion, and conversion equipment is used in the network to maintain compatibility with CPE.25
                16. Third, the Commission reaffirmed that internetworking protocol conversions-those conversions taking place solely within the network that result in no net conversion between users-should be treated as basic services.26 This final exemption applies in situations where a carrier uses the protocol conversions merely to facilitate provision of an overall basic service.27 Thus, in a case where a carrier converts from X.25 to X.75 formatted data at the originating end within the network, and then converts the data back from X.75 to X.25 at the terminating end, the protocol conversion is treated as facilitating a basic X.25 service, rather than enhanced protocol conversion.28 Accordingly, a carrier service providing one of these three exempted forms of protocol conversion is engaged in the provision of a basic service.
            --In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, ¶ 14-16 (October 18, 1995)
             
Protocol Conversion: Basic:  X.25

"The synchronous X.25 interface protocol has traditionally been the most widely recognized protocol used to communicate over packet-switched networks. 5 Much of the existing terminal equipment that customers use to originate and terminate data communications between their computers and other computers, however, historically has not been designed to support the X.25 protocol. This equipment often employs an asynchronous protocol, which is used to originate and terminate traffic over ordinary voice communications lines. Thus, data communicated under asynchronous protocols must be converted to data employing synchronous X.25 protocol in order to be transmitted over a packet-switched network. Moreover, as the number of networking and terminal protocols has increased over time, so has the need to provide conversion among these protocols."
--In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, ¶ 4 (October 18, 1995)

 



The use of packet switching and error control techniques "that facilitate the economical, reliable movement of [such] information [do] not alter the nature of the basic service." 15 Thus, for example, in subsequent decisions the Commission has determined that packet-switched networks following X.25 protocols provide a basic transport service under Commission Rules. 16
--In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, ¶ 11 (October 18, 1995)


 33. As a result of our decision to apply the structural separation requirements to the post-divestiture BOCs' enhanced service offerings, they could not integrate protocol conversion with their basic services unless they obtained waivers from our rules pursuant to the guidelines established in the Protocols Order.  Several BOCs filed petitions asking us for permission to provide various forms of protocol conversion within their basic networks.  In November 1984, we considered the merits of BOC requests to provide an X.25/X.75 84 internetworking protocol conversion interface without structural separation.  We granted these requests 85 and treated this interface as one that is to be offered under tariff in conjunction with the associated basic services.  We acknowledged that the interface would have been used internally in the Bell System network prior to divestiture and, accordingly, would have been an element of basic service at the time that we defined basic service in Computer II.
 34. Subsequently, in the Asynchronous/X.25 Waiver Order, 86 we permitted several BOCs to provide asynchronous/X.25 87 protocol conversion from equipment collocated with their network facilities, as a component of basic, packet-switched, data transport services.  We found that the public interest would be served both by the additional competition the BOCs would provide to existing providers of packet-switched services and by the real efficiencies that such collocation would permit in increased use of the public switched network and in elimination of duplicated facilities.  Accordingly, we granted the BOCs permission to collocate facilities, subject to three express conditions.  First, we required the BOCs to make available to competitors without discrimination the inter-office channels from which the BOCs construct their underlying packet-switched networks.  Second, we required the BOCs to include in tariffs for their underlying packet-switched services an additional network utilization rate element (NURE) to be applied to any user of asynchronous/X.25 conversion, representing the cost, in decreased efficiency, to the underlying basic packet service caused by the integrated enhanced protocol conversion operations.  Third, we required the BOCs to offer end-users access to the protocol conversion offerings of their competitors that is equal to that provided for the BOCs' own such offerings.  As a corollary to this, the BOCs' protocol operations were required to take under tariff the intra-office connections by which they connect with their subscribers. 88
 35. By fulfilling the foregoing conditions, the BOCs would be permitted to install, maintain, and operate their asynchronous/X.25 conversion facilities and their packet-switched facilities in an integrated fashion.  We also established additional conditions that the BOCs would be required to satisfy in order to market their protocol conversion services jointly with basic packet switching. 89
--In the Matters of: Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry);  and Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Thereof Communications Protocols under Section 64.702 of the Commission's Rules and Regulations, CC Docket No. 85-229, Report and Order (June 16, 1986)
 
Protocol Conversion: ATT DataSpeed 40/4

Our recent decision4 regarding American Telephone and Telegraph Company's (AT&T) Dataspeed 40/4 tariff revision (Transmittal No. 12449) illuminated the limited applicability of the present Section 64.702.  The Dataspeed 40.4 offering represented an advancement in the evolution of communications terminal devices used to interact, via a common carrier communications network, with a host computer.
-- In re Amendment Of Section 64.702 Of The Commission's Rules And Regulations (Computer Inquiry), Docket No. 20828, Supplemental Notice Of Inquiry And Enlargement Of Proposed Rulemaking, (March 8, 1977)

Protocol Conversion:  Basic:  Frame Relay

"For the reasons stated below, we conclude that frame relay service is a basic service in accordance with the Commission's Rules and precedent." In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409, ¶ 1 (October 18, 1995)

 



    6. Frame relay is a relatively new, high-speed packet-switching technology used to communicate digital data between, among other things, geographically dispersed local area networks (LANs). In addition, frame relay technology often serves as the intermediary format for data traveling between different computer systems employing different communications protocols.
     7. As the term suggests, frame relay networks communicate "frames" containing digital data. The format of a frame-defined by a specific interface protocol-consists of a beginning "flag," a "header," a variable length data field, a "trailer," and an ending "flag." The header contains routing and congestion control information, while the trailer holds an error control sequence enabling detection of errors within frames. Unlike the slower X.25 packet switching protocol, frame relay switches do not store frames until a positive acknowledgement is received from a destination switch. When a destination switch receives a frame with errors, it simply discards the frame, relying on higher-layer protocols of intelligent customer premises equipment (CPE) to note the omission and take corrective action by rerequesting transmission of the packet. [FN8] This streamlined operation allows frame relay networks to operate at significantly higher speeds than X.25 networks. In a typical frame relay application, a LAN is linked to a device known as a "router" on the customer premises. 9 If the router supports frame relay protocol, it is connected to an access link which carries the frame relay traffic to a central office port. If the router does not support frame relay, a frame relay assembler/disassembler (FRAD) is located on a customer premise between the router and access link to convert the data transmitted from the router to frame relay format. 10 The central office frame relay switch establishes a permanent virtual circuit (PVC) connecting the access link to a communications line linking one switch to another. While the access link may operate at speeds from 56 to over 1,000 kilobits per second (kbs), the data relay rate across the network is limited by the transmission rate of the PVC, which varies according to customer needs and budgets. The customer contracts with the service provider for a specified information transmission rate. If the customer attempts to transmit data at speeds that exceed the agreed-upon rate, the network tries to accommodate the higher rate if capacity is available. If the network is unable either to perform the transmission or temporarily buffer the data, the network discards excess frames beyond the agreed-upon rate. As with frames containing errors, frames discarded in this fashion must be tracked by CPE.
. . . . . .
     29.  Under section 64.702(a) of the Commission's Rules, frame relay service constitutes an enhanced service if it "employ[s] computer processing applications that act on the . . . content . . . of the subscriber's transmitted information, [or] provide[s] the subscriber . . . different, or restructured information."  AT&T contends that modifications to the frame header that occur during network transmission?such as changes in discard eligibility or location code?render the customer data that is delivered to the terminating customer through its frame relay service "different" from the data transmitted by the originating customer.  We disagree.
      30.  Regardless of changes made to the frame header, the customer's data contained within the frame are not modified in any way as they travel through the network and arrive intact.  Moreover, changes to the header information such as the location code, are in some instances responsible for the carriage of the customer's data through the network to the proper termination point and, hence, are part of a basic transmission service.   Accordingly, we conclude that modifications to the frame header, without more, fail to alter the customer's data in a manner that results in the delivery of "different" data to the termination point.
      31.  As discussed above, however, frame relay networks may discard entire frames of customer data if errors are detected in the frame or if the customer's transmission rate exceeds the maximum rate permitted under its agreement.  In contrast to X.25 transmission networks, the customer's CPE, not the network, must detect and compensate for such discards.  Thus, AT&T and others assert that the customer receives "different" or "restructured" information within the meaning of section 64.702 if the network discards eligible frames in frame relay networks.
     32.  We conclude, however, that this is a misreading of the Rule.  The functionality that AT&T relies on to argue that the data are "different" is designed to facilitate the overall transparency and efficiency of the frame relay service.  Ultimately the data on the receiving end is the same as what is transmitted.  Thus, discarding data is not a "service" rendered to a customer within the meaning of section 64.702.
     33.  It is important to note that the only frames that are normally discard eligible (other than frames containing errors) are those transmitted in excess of the contracted-for data rate.  Thus, the network normally delivers frames at the agreed-upon data rate without omission.  It is only when the customer exceeds the agreed-upon rate that frames may be discarded, and only then if excess capacity is unavailable.  Thus, the discard feature of frame relay networks allows the network to deliver unaltered customer data at rates exceeding minimum, contracted-for transmission rates.  The use of such a feature to facilitate the economical, reliable movement of information in this manner does not alter the nature of the basic service.   Nor do we view this difference between existing basic packet-switched services (such as AT&T's ACCUNET Packet Service) and frame relay technology as sufficient to justify disparate treatment under Commission Rules.  As a result, we conclude that the discard feature does not render the frame relay service an enhanced service under the Commission's rules.
     34.  We, therefore, find that frame relay service offers a transmission capability that is virtually transparent in terms of its interaction with customer-supplied data.  The service is designed to transport customer data transparently through the network, and the service is already provided pursuant to tariff in this manner by all but one of the BOCs.   Accordingly, we decline to conclude that frame relay is an enhanced service.
     35.  The provision of frame relay as a basic service, and the availability of basic digital services in general, are consistent with policies established in Computer II and Computer III, and is in the public interest.  Treating frame relay as a basic service provides competitive access to the underlying basic service of facilities-based carriers who are often better able to implement new communications technologies.  This access allows competing enhanced service providers to more easily enter and compete in the market for such technologies.  Thus, under the Computer II and Computer III decisions, competitive access has promoted the public interest by accelerating the development of emerging technologies such as frame relay.
. . . . .
    40.  We conclude that AT&T provides a basic frame relay service (alone or bundled with enhanced protocol processing) that must be offered under tariff.  According to the InterSpan Interface Standard, AT&T provides transport of customer data "transparently" across the AT&T frame relay network.   IDCMA argues (and AT&T does not refute) that the vast majority of AT&T's frame relay customers terminate to, and receive from, the network frame relay data that do not require conversion to frame relay protocol.  Since in these cases AT&T's frame relay service "provides a pure transmission capability in a communication's path," without any protocol conversion, we find that this is a basic service.   We again note that six Bell Operating Companies (BOCs) treat frame relay as a basic transport service.
      41.  The assertion by AT&T and other commenters that the enhanced protocol conversion capabilities associated with AT&T's InterSpan service bring it within the definition of an enhanced service is beside the point.  Under the Commission's Computer II and Computer III decisions, AT&T must unbundle the basic frame relay service, regardless of whether the InterSpan offering also provides a combined, enhanced protocol conversion and transport service for those customers who require it.
--In The Matter Of Independent Data Communications Manufacturers Association, Inc., Petition for Declaratory Ruling That AT&T's InterSpan Frame Relay Service Is a Basic Service; DA 95-2190, MO&O, 1995 WL 613619, 10 FCCR. 13,717, 10 FCC Rcd. 13,717, 1 Communications Reg. (P&F) 409 (October 18, 1995)
 
 

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