OPINION OF THE COURT
NATIONAL CABLE & TELECOMMUNICATIONS ASSN. V.BRAND X INTERNET
SERVICES
545 U. S. ____ (2005)
SUPREME COURT OF THE UNITED STATES
NOS. 04-277 AND 04-281
NATIONAL CABLE & TELECOMMUNICATIONS
ASSOCIATION, et al., PETITIONERS
04–277
v.
BRAND X INTERNET SERVICES et al.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES, PETITIONERS
04–281 v.
BRAND X INTERNET SERVICES et al.
on writs of certiorari to the united states
court of appeals for the ninth circuit
[June 27, 2005]
Justice Thomas delivered
the opinion of the Court.
Title II of the Communications
Act of 1934, 48 Stat. 1064, as amended, 47 U. S. C. §151
et seq., subjects all providers of “telecommunications
servic[e]” to mandatory common-carrier regulation, §153(44). In the
order under review, the Federal Communications Commission concluded
that cable companies that sell broadband Internet service do not
provide “telecommunications servic[e]” as the Communications Act
defines that term, and hence are exempt from mandatory
common-carrier regulation under Title II. We must decide whether
that conclusion is a lawful construction of the Communications Act
under
Chevron U. S. A. Inc. v.
Natural Resources
Defense Council, Inc., 467
U. S. 837 (1984), and the Administrative Procedure Act, 5 U.
S. C. §555
et seq. We hold that it is.
I
The traditional means by which
consumers in the United States access the network of interconnected
computers that make up the Internet is through “dial-up”
connections provided over local telephone facilities. See 345
F. 3d 1120, 1123–1124 (CA9 2003) (cases below);
In re
Inquiry Concerning High-Speed Access to the Internet Over Cable and
Other Facilities, 17 FCC Rcd. 4798, 4802–4803, ¶9 (2002)
(hereinafter
Declaratory Ruling). Using these connections,
consumers access the Internet by making calls with computer modems
through the telephone wires owned by local phone companies. See
Verizon Communications Inc. v.
FCC, 535 U. S. 467, 489–490
(2002) (describing the physical structure of a local telephone
exchange). Internet service providers (ISPs), in turn, link those
calls to the Internet network, not only by providing a physical
connection, but also by offering consumers the ability to translate
raw Internet data into information they may both view on their
personal computers and transmit to other computers connected to the
Internet. See
In re Federal-State Joint Board on
Universal Service, 13 FCC Rcd. 11501, 11531, ¶63 (1998)
(hereinafter
Universal Service Report); P. Huber, M.
Kellogg, & J. Thorne, Federal Telecommunications Law 988 (2d
ed. 1999) (hereinafter Huber); 345 F. 3d, at 1123–1124.
Technological limitations of local telephone wires, however, retard
the speed at which data from the Internet may be transmitted
through end users’ dial-up connections. Dial-up connections are
therefore known as “narrowband,” or slower speed, connections.
“Broadband” Internet service, by
contrast, transmits data at much higher speeds. There are two
principal kinds of broadband Internet service: cable modem service
and Digital Subscriber Line (DSL) service. Cable modem service
transmits data between the Internet and users’ computers via the
network of television cable lines owned by cable companies. See
id., at 1124. DSL service provides high-speed access using
the local telephone wires owned by local telephone companies. See
WorldCom, Inc. v.
FCC, 246 F. 3d 690, 692
(CADC 2001) (describing DSL technology). Cable companies and
telephone companies can either provide Internet access directly to
consumers, thus acting as ISPs themselves, or can lease their
transmission facilities to independent ISPs that then use the
facilities to provide consumers with Internet access. Other ways of
transmitting high-speed Internet data into homes, including
terrestrial- and satellite-based wireless networks, are also
emerging.
Declaratory Ruling 4802, ¶6.
II
At issue in these cases is the
proper regulatory classification under the Communications Act of
broadband cable Internet service. The Act, as amended by the
Telecommunications Act of 1996, 110 Stat. 56, defines two
categories of regulated entities relevant to these cases:
telecommunications carriers and information-service providers. The
Act regulates telecommunications carriers, but not
information-service providers, as common carriers.
Telecommunications carriers, for example, must charge just and
reasonable, nondiscriminatory rates to their customers, 47 U.
S. C. §§201–209, design their systems so that other carriers
can interconnect with their communications networks, §251(a)(1),
and contribute to the federal “universal service” fund, §254(d).
These provisions are mandatory, but the Commission must forbear
from applying them if it determines that the public interest
requires it. §§160(a), (b). 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.
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 to how
the consumer perceives the service being offered.
In particular, the Commission defined “basic
service” as “a pure transmission capability over a communications
path that is virtually transparent in terms of its interaction with
customer supplied information.”
Id., at 420, ¶96. By
“pure” or “transparent” transmission, the Commission meant a
communications path that enabled the consumer to transmit an
ordinary-language message to another point, with no computer
processing or storage of the information, other than the processing
or storage needed to convert the message into electronic form and
then back into ordinary language for purposes of transmitting it
over the network—such as via a telephone or a facsimile.
Id., at 419–420, ¶¶94–95. Basic service was subject to
common-carrier regulation.
Id., at 428, ¶114.
“[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 subscriber’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.
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).
In September 2000, the Commission initiated a
rulemaking proceeding to, among other things, apply these
classifications to cable companies that offer broadband Internet
service directly to consumers. In March 2002, that rulemaking
culminated in the
Declaratory Ruling under review in these
cases. In the
Declaratory Ruling, the Commission concluded
that broadband Internet service provided by cable companies is an
“information service” but not a “telecommunications service” under
the Act, and therefore not subject to mandatory Title II
common-carrier regulation. In support of this conclusion, the
Commission relied heavily on its
Universal Service Report.
See
Declaratory Ruling 4821–4822, ¶¶36–37 (citing
Universal Service Report or
Report). The
Universal Service Report classified “non-facilities-based”
ISPs—those that do not own the transmission facilities they use to
connect the end user to the Internet—solely as information-service
providers. See
Universal Service Report 11533, ¶67. Unlike
those ISPs, cable companies own the cable lines they use to provide
Internet access. Nevertheless, in the
Declaratory Ruling,
the Commission found no basis in the statutory definitions for
treating cable companies differently from non-facilities-based
ISPs: Both offer “a single, integrated service that enables the
subscriber to utilize Internet access service … and to realize the
benefits of a comprehensive service offering.”
Declaratory
Ruling 4823, ¶38. Because Internet access provides a
capability for manipulating and storing information, the Commission
concluded that it was an information service.
Ibid.
The integrated nature of Internet access and
the high-speed wire used to provide Internet access led the
Commission to conclude that cable companies providing Internet
access are not telecommunications providers. This conclusion, the
Commission reasoned, followed from the logic of the
Universal
Service Report. The
Report had concluded that, though
Internet service “involves data transport elements” because “an
Internet access provider must enable the movement of information
between customers’ own computers and distant computers with which
those customers seek to interact,” it also “offers end users
information-service capabilities inextricably intertwined with data
transport.”
Universal Service Report 11539–11540, ¶80.
ISPs, therefore, were not “offering … telecommunications … directly
to the public,” §153(46), and so were not properly classified as
telecommunications carriers, see
id., at 11540, ¶81. In
other words, the Commission reasoned that consumers use their cable
modems not to transmit information “transparently,” such as by
using a telephone, but instead to obtain Internet access.
The Commission applied this same reasoning to
cable companies offering broadband Internet access. Its logic was
that, like non-facilities-based ISPs, cable companies do not
“offe[r] telecommunications service to the end user, but rather …
merely us[e] telecommunications to provide end users with cable
modem service.”
Declaratory Ruling 4824, ¶41. Though the
Commission declined to apply mandatory Title II common-carrier
regulation to cable companies, it invited comment on whether under
its Title I jurisdiction it should require cable companies to offer
other ISPs access to their facilities on common-carrier terms.
Id., at 4839, ¶72. Numerous parties petitioned for
judicial review, challenging the Commission’s conclusion that cable
modem service was not telecommunications service. By judicial
lottery, the Court of Appeals for the Ninth Circuit was selected as
the venue for the challenge.
The Court of Appeals granted the petitions in
part, vacated the
Declaratory Ruling in part, and remanded
to the Commission for further proceedings. In particular, the Court
of Appeals vacated the ruling to the extent it concluded that cable
modem service was not “telecommunications service” under the
Communications Act. It held that the Commission could not
permissibly construe the Communications Act to exempt cable
companies providing Internet service from Title II regulation. See
345 F. 3d, at 1132. Rather than analyzing the permissibility
of that construction under the deferential framework of
Chevron,
467
U. S. 837, however, the Court of Appeals grounded its holding
in the
stare decisis effect of
AT&T Corp. v.
Portland, 216 F. 3d 871 (CA9 2000). See 345
F. 3d, at 1128–1132.
Portland held that cable modem
service was a “telecommunications service,” though the court in
that case was not reviewing an administrative proceeding and the
Commission was not a party to the case. See 216 F. 3d, at
877–880. Nevertheless,
Portland’s holding, the Court of
Appeals reasoned, overrode the contrary interpretation reached by
the Commission in the
Declaratory Ruling. See 345
F. 3d, at 1130–1131.
We granted certiorari to settle the important
questions of federal law that these cases present. 543 U. S. __
(2004).
III
We first consider whether we
should apply
Chevron’s framework to the Commission’s
interpretation of the term “telecommunications service.” We
conclude that we should. We also conclude that the Court of Appeals
should have done the same, instead of following the contrary
construction it adopted in
Portland.
A
In
Chevron, this Court
held that ambiguities in statutes within an agency’s jurisdiction
to administer are delegations of authority to the agency to fill
the statutory gap in reasonable fashion. Filling these gaps, the
Court explained, involves difficult policy choices that agencies
are better equipped to make than courts. 467 U. S., at 865–866. If
a statute is ambiguous, and if the implementing agency’s
construction is reasonable,
Chevron requires a federal
court to accept the agency’s construction of the statute, even if
the agency’s reading differs from what the court believes is the
best statutory interpretation.
Id., at 843–844, and n.
11.
The
Chevron framework
governs our review of the Commission’s construction. Congress has
delegated to the Commission the authority to “execute and enforce”
the Communications Act, §151, and to “prescribe such rules and
regulations as may be necessary in the public interest to carry out
the provisions” of the Act, §201(b);
AT&T Corp. v.
Iowa Utilities Bd., 525 U. S. 366, 377–378
(1999). These provisions give the Commission the authority to
promulgate binding legal rules; the Commission issued the order
under review in the exercise of that authority; and no one
questions that the order is within the Commission’s jurisdiction.
See
Household Credit Services, Inc. v.
Pfennig,
541 U. S. 232,
238–239 (2004);
United States v.
Mead Corp.,
533 U. S. 218,
231–234 (2001);
Christensen v.
Harris County,
529 U. S. 576,
586–588 (2000). Hence, as we have in the past, we apply the
Chevron framework to the Commission’s interpretation of
the Communications Act. See
National Cable &
Telecommunications Assn., Inc. v.
Gulf Power Co.,
534 U. S. 327,
333–339 (2002);
Verizon, 535 U. S., at 501–502.
Some of the respondents dispute this
conclusion, on the ground that the Commission’s interpretation is
inconsistent with its past practice. We reject this argument.
Agency inconsistency is not a basis for declining to analyze the
agency’s interpretation under the
Chevron framework.
Unexplained inconsistency is, at most, a reason for holding an
interpretation to be an arbitrary and capricious change from agency
practice under the Administrative Procedure Act. See
Motor
Vehicle Mfrs. Assn. of United States, Inc. v.
State Farm
Mut. Automobile Ins. Co., 463 U. S. 29, 46–57
(1983). For if the agency adequately explains the reasons for a
reversal of policy, “change is not invalidating, since the whole
point of
Chevron is to leave the discretion provided by
the ambiguities of a statute with the implementing agency.”
Smiley v.
Citibank (South Dakota), N. A.,
517 U. S. 735,
742 (1996); see also
Rust v.
Sullivan, 500 U. S. 173, 186–187
(1991);
Barnhart v.
Walton, 535 U. S. 212, 226
(2002) (Scalia, J., concurring in part and concurring in judgment).
“An initial agency interpretation is not instantly carved in stone.
On the contrary, the agency … must consider varying interpretations
and the wisdom of its policy on a continuing basis,”
Chevron,
supra, at 863–864, for example, in
response to changed factual circumstances, or a change in
administrations, see
State Farm,
supra, at 59
(Rehnquist, J., concurring in part and dissenting in part). That is
no doubt why in
Chevron itself, this Court deferred to an
agency interpretation that was a recent reversal of agency policy.
See 467 U. S., at 857–858. We therefore have no difficulty
concluding that
Chevron applies.
B
The Court of Appeals declined to
apply
Chevron because it thought the Commission’s
interpretation of the Communications Act foreclosed by the
conflicting construction of the Act it had adopted in
Portland,
supra. See 345 F. 3d, at
1127–1132. It based that holding on the assumption that
Portland’s construction overrode the Commission’s,
regardless of whether
Portland had held the statute to be
unambiguous. 345 F. 3d, at 1131. That reasoning was incorrect.
A court’s prior judicial
construction of a statute trumps an agency construction otherwise
entitled to
Chevron deference only if the prior court
decision holds that its construction follows from the unambiguous
terms of the statute and thus leaves no room for agency discretion.
This principle follows from
Chevron itself.
Chevron established a “presumption that Congress, when it
left ambiguity in a statute meant for implementation by an agency,
understood that the ambiguity would be resolved, first and
foremost, by the agency, and desired the agency (rather than the
courts) to possess whatever degree of discretion the ambiguity
allows.”
Smiley,
supra, at 740–741. Yet allowing
a judicial precedent to foreclose an agency from interpreting an
ambiguous statute, as the Court of Appeals assumed it could, would
allow a court’s interpretation to override an agency’s.
Chevron’s premise is that it is for agencies, not courts,
to fill statutory gaps. See 467 U. S., at 843–844, and n. 11.
The better rule is to hold judicial interpretations contained in
precedents to the same demanding
Chevron step one standard
that applies if the court is reviewing the agency’s construction on
a blank slate: Only a judicial precedent holding that the statute
unambiguously forecloses the agency’s interpretation, and therefore
contains no gap for the agency to fill, displaces a conflicting
agency construction.
A contrary rule would produce anomalous
results. It would mean that whether an agency’s interpretation of
an ambiguous statute is entitled to
Chevron deference
would turn on the order in which the interpretations issue: If the
court’s construction came first, its construction would prevail,
whereas if the agency’s came first, the agency’s construction would
command
Chevron deference. Yet whether Congress has
delegated to an agency the authority to interpret a statute does
not depend on the order in which the judicial and administrative
constructions occur. The Court of Appeals’ rule, moreover, would
“lead to the ossification of large portions of our statutory law,”
Mead,
supra, at 247 (Scalia, J., dissenting), by
precluding agencies from revising unwise judicial constructions of
ambiguous statutes. Neither
Chevron nor the doctrine of
stare decisis requires these haphazard results.
The dissent answers that allowing an agency to
override what a court believes to be the best interpretation of a
statute makes “judicial decisions subject to reversal by Executive
officers.”
Post, at 13 (opinion of Scalia, J.). It does
not. Since
Chevron teaches that a court’s opinion as to
the best reading of an ambiguous statute an agency is charged with
administering is not authoritative, the agency’s decision to
construe that statute differently from a court does not say that
the court’s holding was legally wrong. Instead, the agency may,
consistent with the court’s holding, choose a different
construction, since the agency remains the authoritative
interpreter (within the limits of reason) of such statutes. In all
other respects, the court’s prior ruling remains binding law (for
example, as to agency interpretations to which
Chevron is
inapplicable). The precedent has not been “reversed” by the agency,
any more than a federal court’s interpretation of a State’s law can
be said to have been “reversed” by a state court that adopts a
conflicting (yet authoritative) interpretation of state law.
The Court of Appeals derived a contrary rule
from a mistaken reading of this Court’s decisions. It read
Neal v.
United States, 516 U. S. 284 (1996), to
establish that a prior judicial construction of a statute
categorically controls an agency’s contrary construction. 345
F. 3d, at 1131–1132; see also
post, at 12, n. 11
(Scalia, J., dissenting).
Neal established no such
proposition.
Neal declined to defer to a construction
adopted by the United States Sentencing Commission that conflicted
with one the Court previously had adopted in
Chapman v.
United States, 500 U. S. 453 (1991).
Neal,
supra, at 290–295.
Chapman,
however, had held the relevant statute to be unambiguous. See 500
U. S., at 463 (declining to apply the rule of lenity given the
statute’s clear language). Thus,
Neal established only
that a precedent holding a statute to be unambiguous forecloses a
contrary agency construction. That limited holding accorded with
this Court’s prior decisions, which had held that a court’s
interpretation of a statute trumps an agency’s under the doctrine
of
stare decisis only if the prior court holding
“determined a statute’s
clear meaning.”
Maislin
Industries, U. S., Inc. v.
Primary Steel, Inc.,
497 U. S. 116,
131 (1990) (emphasis added); see also
Lechmere, Inc. v.
NLRB, 502
U. S. 527, 536–537 (1992). Those decisions allow a court’s
prior interpretation of a statute to override an agency’s
interpretation only if the relevant court decision held the statute
unambiguous.
Against this background, the Court of Appeals
erred in refusing to apply
Chevron to the Commission’s
interpretation of the definition of “telecommunications service,”
47 U. S. C. §153(46). Its prior decision in
Portland
held only that the
best reading of §153(46) was that cable
modem service was a “telecommunications service,” not that it was
the
only permissible reading of the statute. See 216
F. 3d, at 877–880. Nothing in
Portland held that the
Communications Act unambiguously required treating cable Internet
providers as telecommunications carriers. Instead, the court noted
that it was “not presented with a case involving potential
deference to an administrative agency’s statutory construction
pursuant to the
Chevron doctrine,”
id., at 876;
and the court invoked no other rule of construction (such as the
rule of lenity) requiring it to conclude that the statute was
unambiguous to reach its judgment. Before a judicial construction
of a statute, whether contained in a precedent or not, may trump an
agency’s, the court must hold that the statute unambiguously
requires the court’s construction.
Portland did not do
so.
As the dissent points out, it is not logically
necessary for us to reach the question whether the Court of Appeals
misapplied
Chevron for us to decide whether the Commission
acted lawfully. See
post, at 16–17 (opinion of Scalia,
J.). Nevertheless, it is no “great mystery” why we are reaching the
point here.
Ibid. There is genuine confusion in the lower
courts over the interaction between the
Chevron doctrine
and
stare decisis principles, as the petitioners informed
us at the certiorari stage of this litigation. See Pet. for Cert.
of Federal Communications Commission et al. in No. 04–281,
pp. 19–23; Pet. for Cert. of National Cable & Telecomm.
Assn. et al. in No. 04–277, pp. 22–29. The point has been
briefed. See Brief for Federal Petitioners 38–44; Brief for
Cable-Industry Petitioners 30–36. And not reaching the point could
undermine the purpose of our grant of certiorari: to settle
authoritatively whether the Commission’s
Declaratory
Ruling is lawful. Were we to uphold the
Declaratory
Ruling without reaching the
Chevron point, the Court
of Appeals could once again strike down the Commission’s rule based
on its
Portland decision.
Portland (at least
arguably) could compel the Court of Appeals once again to reverse
the Commission despite our decision, since our conclusion that it
is
reasonable to read the Communications Act to classify
cable modem service solely as an “information service” leaves
untouched
Portland’s holding that the Commission’s
interpretation is not the
best reading of the statute. We
have before decided similar questions that were not, strictly
speaking, necessary to our disposition. See,
e.g.,
Agostini v.
Felton, 521 U. S. 203, 237
(1997) (requiring the Courts of Appeals to adhere to our directly
controlling precedents, even those that rest on reasons rejected in
other decisions);
Roper v.
Simmons, 543 U. S. ___
, ___ (2005) (slip op., at 23–24) (Scalia, J., dissenting)
(criticizing this Court for not reaching the question whether the
Missouri Supreme Court erred by failing to follow directly
controlling Supreme Court precedent, though that conclusion was not
necessary to the Court’s decision). It is prudent for us to do so
once again today.
IV
We next address whether the
Commission’s construction of the definition of “telecommunications
service,” 47 U. S. C. §153(46), is a permissible reading of
the Communications Act under the
Chevron framework.
Chevron established a familiar two-step procedure for
evaluating whether an agency’s interpretation of a statute is
lawful. At the first step, we ask whether the statute’s plain terms
“directly addres[s] the precise question at issue.” 467 U. S., at
843. If the statute is ambiguous on the point, we defer at step two
to the agency’s interpretation so long as the construction is “a
reasonable policy choice for the agency to make.”
Id., at
845. The Commission’s interpretation is permissible at both
steps.
A
We first set forth our
understanding of the interpretation of the Communications Act that
the Commission embraced. The issue before the Commission was
whether cable companies providing cable modem service are providing
a “telecommunications service” in addition to an “information
service.”
The Commission first concluded
that cable modem service is an “information service,” a conclusion
unchallenged here. The Act defines “information service” as “the
offering of a capability for generating, acquiring, storing,
transforming, processing, retrieving, utilizing, or making
available information via telecommunications … .”
§153(20). Cable modem service is an information service, the
Commission reasoned, because it provides consumers with a
comprehensive capability for manipulating information using the
Internet via high-speed telecommunications. That service enables
users, for example, to browse the World Wide Web, to transfer files
from file archives available on the Internet via the “File Transfer
Protocol,” and to access e-mail and Usenet newsgroups.
Declaratory Ruling 4821, ¶37;
Universal Service
Report 11537, ¶76. Like other forms of Internet service, cable
modem service also gives users access to the Domain Name System
(DNS). DNS, among other things, matches the Web page addresses that
end users type into their browsers (or “click” on) with the
Internet Protocol (IP) addresses[
Footnote 1] of the servers containing the Web pages the
users wish to access.
Declaratory Ruling 4821–4822, ¶37.
All of these features, the Commission concluded, were part of the
information service that cable companies provide consumers.
Id., at 4821–4823, ¶¶36–38; see also
Universal Service
Report 11536–11539, ¶¶75–79.
At the same time, the Commission concluded
that cable modem service was not “telecommunications service.”
“Telecommunications service” is “the offering of telecommunications
for a fee directly to the public.” 47 U. S. C. §153(46).
“Telecommunications,” in turn, is defined 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.” §153(43). The Commission
conceded that, like all information-service providers, cable
companies use “telecommunications” to provide consumers with
Internet service; cable companies provide such service via the
high-speed wire that transmits signals to and from an end user’s
computer.
Declaratory Ruling 4823, ¶40. For the
Commission, however, the question whether cable broadband Internet
providers “offer” telecommunications involved more than whether
telecommunications was one necessary component of cable modem
service. Instead, whether that service also includes a
telecommunications “offering” “tur[ned] on the nature of the
functions the
end user is offered,”
id., at 4822,
¶38 (emphasis added), for the statutory definition of
“telecommunications service” does not “res[t] on the particular
types of facilities used,”
id., at 4821, ¶35; see §153(46)
(definition of “telecommunications service” applies “regardless of
the facilities used”).
Seen from the consumer’s point of view, the
Commission concluded, cable modem service is not a
telecommunications offering because the consumer uses the
high-speed wire always in connection with the
information-processing capabilities provided by Internet access,
and because the transmission is a necessary component of Internet
access: “As provided to the end user the telecommunications is part
and parcel of cable modem service and is integral to its other
capabilities.”
Declaratory Ruling 4823, ¶39. The wire is
used, in other words, to access the World Wide Web, newsgroups, and
so forth, rather than “transparently” to transmit and receive
ordinary-language messages without computer processing or storage
of the message. See
supra, at 4 (noting the
Computer
II notion of “transparent” transmission). The integrated
character of this offering led the Commission to conclude that
cable modem service is not a “stand-alone,” transparent offering of
telecommunications.
Declaratory Ruling 4823–4825,
¶¶41–43.
B
This construction passes
Chevron’s first step. Respondents argue that it does not,
on the ground that cable companies providing Internet service
necessarily “offe[r]” the underlying telecommunications used to
transmit that service. The word “offering” as used in §153(46),
however, does not unambiguously require that result. Instead,
“offering” can reasonably be read to mean a “stand-alone” offering
of telecommunications,
i.e., an offered service that, from
the user’s perspective, transmits messages unadulterated by
computer processing. That conclusion follows not only from the
ordinary meaning of the word “offering,” but also from the
regulatory history of the Communications Act.
1
Cable companies in the broadband
Internet service business “offe[r]” consumers an information
service in the form of Internet access and they do so “via
telecommunications,” §153(20), but it does not inexorably follow as
a matter of ordinary language that they also “offe[r]” consumers
the high-speed data transmission (telecommunications) that is an
input used to provide this service, §153(46). We have held that
where a statute’s plain terms admit of two or more reasonable
ordinary usages, the Commission’s choice of one of them is entitled
to deference. See
Verizon, 535 U. S., at 498 (deferring to
the Commission’s interpretation of the term “cost” by reference to
an alternative linguistic usage defined by what “[a] merchant who
is asked about ‘the cost of providing the goods’ ” might
“reasonably” say);
National Railroad Passenger Corporation
v.
Boston & Maine Corp., 503 U. S. 407, 418
(1992) (agency construction entitled to deference where there were
“alternative dictionary definitions of the word” at issue). The
term “offe[r]” as used in the definition of telecommunications
service, 47 U. S. C. §153(46), is ambiguous in this way.
It is common usage to describe
what a company “offers” to a consumer as what the consumer
perceives to be the integrated finished product, even to the
exclusion of discrete components that compose the product, as the
dissent concedes. See
post, at 3 (opinion of Scalia, J.).
One might well say that a car dealership “offers” cars, but does
not “offer” the integrated major inputs that make purchasing the
car valuable, such as the engine or the chassis. It would, in fact,
be odd to describe a car dealership as “offering” consumers the
car’s components in addition to the car itself. Even if it is
linguistically permissible to say that the car dealership “offers”
engines when it offers cars, that shows, at most, that the term
“offer,” when applied to a commercial transaction, is ambiguous
about whether it describes only the offered finished product, or
the product’s discrete components as well. It does not show that no
other usage is permitted.
The question, then, is whether the
transmission component of cable modem service is sufficiently
integrated with the finished service to make it reasonable to
describe the two as a single, integrated offering. See
ibid. We think that they are sufficiently integrated,
because “[a] consumer uses the high-speed wire always in connection
with the information-processing capabilities provided by Internet
access, and because the transmission is a necessary component of
Internet access.”
Supra, at 16. In the telecommunications
context, it is at least reasonable to describe companies as not
“offering” to consumers each discrete input that is necessary to
providing, and is always used in connection with, a finished
service. We think it no misuse of language, for example, to say
that cable companies providing Internet service do not “offer”
consumers DNS, even though DNS is essential to providing Internet
access.
Declaratory Ruling 4810, n. 74, 4822–4823, ¶38.
Likewise, a telephone company “offers” consumers a transparent
transmission path that conveys an ordinary-language message, not
necessarily the data transmission facilities that also “transmi[t]
… information of the user’s choosing,” §153(43), or other physical
elements of the facilities used to provide telephone service, like
the trunks and switches, or the copper in the wires. What cable
companies providing cable modem service and telephone companies
providing telephone service “offer” is Internet service and
telephone service respectively—the finished services, though they
do so using (or “via”) the discrete components composing the end
product, including data transmission. Such functionally integrated
components need not be described as distinct “offerings.”
In response, the dissent argues that the
high-speed transmission component necessary to providing cable
modem service is necessarily “offered” with Internet service
because cable modem service is like the offering of pizza delivery
service together with pizza, and the offering of puppies together
with dog leashes.
Post, at 3–4 (opinion of Scalia, J.).
The dissent’s appeal to these analogies only underscores that the
term “offer” is ambiguous in the way that we have described. The
entire question is whether the products here are functionally
integrated (like the components of a car) or functionally separate
(like pets and leashes). That question turns not on the language of
the 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. As the Commission
has candidly recognized, “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.”
Universal Service Report 11530, ¶60. Because the term
“offer” can sometimes refer to a single, finished product and
sometimes to the “individual components in a package being offered”
(depending on whether the components “still possess sufficient
identity to be described as separate objects,”
post, at
3), the statute fails unambiguously to classify the
telecommunications component of cable modem service as a distinct
offering. This leaves federal telecommunications policy in this
technical and complex area to be set by the Commission, not by
warring analogies.
We also do not share the dissent’s certainty
that cable modem service is so obviously like pizza delivery
service and the combination of dog leashes and dogs that the
Commission could not reasonably have thought otherwise.
Post, at 3–4. For example, unlike the transmission
component of Internet service, delivery service and dog leashes are
not integral components of the finished products (pizzas and pet
dogs). One can pick up a pizza rather than having it delivered, and
one can own a dog without buying a leash. By contrast, the
Commission reasonably concluded, a consumer cannot purchase
Internet service without also purchasing a connection to the
Internet and the transmission always occurs in connection with
information processing. In any event, we doubt that a statute that,
for example, subjected offerors of “delivery” service (such as
Federal Express and United Parcel Service) to common-carrier
regulation would unambiguously require pizza-delivery companies to
offer their delivery services on a common carrier basis.
2
The Commission’s traditional
distinction between basic and enhanced service, see
supra,
at 4–5, also supports the conclusion that the Communications Act is
ambiguous about whether cable companies “offer” telecommunications
with cable modem service. Congress passed the definitions in the
Communications Act against the background of this regulatory
history, and we may assume that the parallel terms
“telecommunications service” and “information service”
substantially incorporated their meaning, as the Commission has
held. See,
e.g., In re Federal-State Joint Board
on Universal Service, 12 FCC Rcd. 8776, 9179–9180, ¶788 (1997)
(noting that the “definition of enhanced services is substantially
similar to the definition of information services” and that “all
services previously considered ‘enhanced services’ are ‘information
services’ ”);
Commissioner v.
Keystone Consol.
Industries, Inc., 508 U. S. 152, 159
(1993) (noting presumption that Congress is aware of “settled
judicial and administrative interpretation[s]” of terms when it
enacts a statute). The regulatory history in at least two respects
confirms that the term “telecommunications service” is
ambiguous.
First, in the
Computer II
Order that established the terms “basic” and “enhanced”
services, the Commission defined those terms functionally, based on
how the consumer interacts with the provided information, just as
the Commission did in the order below. See
supra, at 4–5.
As we have explained, Internet service is not “ ‘transparent
in terms of its interaction with customer-supplied
information,’ ”
Computer II Order 420, ¶96; the
transmission occurs in connection with information processing. It
was therefore consistent with the statute’s terms for the
Commission to assume that the parallel term “telecommunications
service” in 47 U. S. C. §153(46) likewise describes a “pure”
or “transparent” communications path not necessarily separately
present, from the end user’s perspective, in an integrated
information-service offering.
The Commission’s application of the
basic/enhanced service distinction to non-facilities-based ISPs
also supports this conclusion. The Commission has long held that
“all those who provide some form of transmission services are not
necessarily common carriers.”
Computer II Order 431, ¶122;
see also
id., at 435, ¶132 (“acknowledg[ing] the existence
of a communications component” in enhanced-service offerings). For
example, the Commission did not subject to common-carrier
regulation those service providers that offered enhanced services
over telecommunications facilities, but that did not themselves own
the underlying facilities—so-called “non-facilities-based”
providers. See
Universal Service Report 11530, ¶60.
Examples of these services included database services in which a
customer used telecommunications to access information, such as Dow
Jones News and Lexis, as well as “value added networks,” which
lease wires from common carriers and provide transmission as well
as protocol-processing service over those wires. See
In re
Amendment to Sections 64.702 of the Commission’s Rules and
Regulations (Third Computer Inquiry), 3 FCC Rcd. 1150, 1153,
n. 23 (1988);
supra, at 4 (explaining protocol
conversion). These services “combin[ed] communications and
computing components,” yet the Commission held that they should
“always be deemed enhanced” and therefore not subject to
common-carrier regulation.
Universal Service Report 11530,
¶60. Following this traditional distinction, the Commission in the
Universal Service Report classified ISPs that leased
rather than owned their transmission facilities as pure
information-service providers.
Id., at 11540, ¶81.
Respondents’ statutory arguments conflict with
this regulatory history. They claim that the Communications Act
unambiguously classifies as telecommunications carriers all
entities that use telecommunications inputs to provide information
service. As respondent MCI concedes, this argument would subject to
mandatory common-carrier regulation all information-service
providers that use telecommunications as an input to provide
information service to the public. Brief for Respondent MCI, Inc.
30. For example, it would subject to common-carrier regulation
non-facilities-based ISPs that own no transmission facilities. See
Universal Service Report 11532–11533, ¶66. Those ISPs
provide consumers with transmission facilities used to connect to
the Internet, see
supra, at 2, and so, under respondents’
argument, necessarily “offer” telecommunications to consumers.
Respondents’ position that all such entities are necessarily
“offering telecommunications” therefore entails mandatory
common-carrier regulation of entities that the Commission never
classified as “offerors” of basic transmission service, and
therefore common carriers, under the
Computer II
regime.[
Footnote 2] See
Universal Service Report 11540, ¶81 (noting past
Commission policy);
Computer and Communications Industry
Assn. v.
FCC, 693 F. 2d 198, 209 (CADC 1982)
(noting and upholding Commission’s
Computer II “finding
that enhanced services … are not common carrier services within the
scope of Title II”). We doubt that the parallel term
“telecommunications service” unambiguously worked this abrupt shift
in Commission policy.
Respondents’ analogy between
cable companies that provide cable modem service and
facilities-based enhanced-service providers—that is,
enhanced-service providers who own the transmission facilities used
to provide those services—fares no better. Respondents stress that
under the Computer II rules the Commission regulated such
providers more heavily than non-facilities-based providers. The
Commission required, for example, local telephone companies that
provided enhanced services to offer their wires on a common-carrier
basis to competing enhanced-service providers. See, e.g.,
In re Amendment of Sections 64.702 of the Commission’s
Rules and Regulations (Third Computer Inquiry), 104
F. C. C. 2d 958, 964, ¶4 (1986) (hereinafter Computer
III Order). Respondents argue that the Communications Act
unambiguously requires the same treatment for cable companies
because cable companies also own the facilities they use to provide
cable modem service (and therefore information service).
We disagree. We think it
improbable that the Communications Act unambiguously freezes in
time the Computer II treatment of facilities-based
information-service providers. The Act’s definition of
“telecommunications service” says nothing about imposing more
stringent regulatory duties on facilities-based information-service
providers. The definition hinges solely on whether the entity
“offer[s] telecommunications for a fee directly to the public,” 47
U. S. C. §153(46), though the Act elsewhere subjects
facilities-based carriers to stricter regulation, see §251(c)
(imposing various duties on facilities-based local telephone
companies). In the Computer II rules, the Commission
subjected facilities-based providers to common-carrier duties not
because of the nature of the “offering” made by those carriers, but
rather because of the concern that local telephone companies would
abuse the monopoly power they possessed by virtue of the
“bottleneck” local telephone facilities they owned. See
Computer II Order 474–475, ¶¶229, 231; Computer III
Order 968–969, ¶12; Verizon, 535 U. S., at 489–490
(describing the naturally monopolistic physical structure of a
local telephone exchange). The differential treatment of
facilities-based carriers was therefore a function not of the
definitions of “enhanced-service” and “basic service,” but instead
of a choice by the Commission to regulate more stringently, in its
discretion, certain entities that provided enhanced service. The
Act’s definitions, however, parallel the definitions of enhanced
and basic service, not the facilities-based grounds on which that
policy choice was based, and the Commission remains free to impose
special regulatory duties on facilities-based ISPs under its Title
I ancillary jurisdiction. In fact, it has invited comment on
whether it can and should do so. See supra, at
7.
In sum, if the Act fails
unambiguously to classify non-facilities-based information-service
providers that use telecommunications inputs to provide an
information service as “offer[ors]” of “telecommunications,” then
it also fails unambiguously to classify facilities-based
information-service providers as telecommunications-service
offerors; the relevant definitions do not distinguish
facilities-based and non-facilities-based carriers. That silence
suggests, instead, that the Commission has the discretion to fill
the consequent statutory gap.
C
We also conclude
that the Commission’s construction was “a reasonable policy choice
for the [Commission] to make” at Chevron’s second step.
467 U. S., at 845.
Respondents argue
that the Commission’s construction is unreasonable because it
allows any communications provider to “evade” common-carrier
regulation by the expedient of bundling information service with
telecommunications. Respondents argue that under the Commission’s
construction a telephone company could, for example, offer an
information service like voice mail together with telephone
service, thereby avoiding common-carrier regulation of its
telephone service.
We need not decide whether a
construction that resulted in these consequences would be
unreasonable because we do not believe that these results follow
from the construction the Commission adopted. As we understand the
Declaratory Ruling, the Commission did not say that any
telecommunications service that is priced or bundled with an
information service is automatically unregulated under Title II.
The Commission said that a telecommunications input used to provide
an information service that is not “separable from the
data-processing capabilities of the service” and is instead “part
and parcel of [the information service] and is integral to [the
information service’s] other capabilities” is not a
telecommunications offering. Declaratory Ruling 4823, ¶39;
see supra, at 16–17.
This construction does not
leave all information service offerings exempt from mandatory Title
II regulation. “It is plain,” for example, that a local telephone
company “cannot escape Title II regulation of its residential local
exchange service simply by packaging that service with voice mail.”
Universal Service Report 11530, ¶60. That is because a
telephone company that packages voice mail with telephone service
offers a transparent transmission path—telephone service—that
transmits information independent of the information-storage
capabilities provided by voice mail. For instance, when a person
makes a telephone call, his ability to convey and receive
information using the call is only trivially affected by the
additional voice-mail capability. Equally, were a telephone company
to add a time-of-day announcement that played every time the user
picked up his telephone, the “transparent” information transmitted
in the ensuing call would be only trivially dependent on the
information service the announcement provides. By contrast, the
high-speed transmission used to provide cable modem service is a
functionally integrated component of that service because it
transmits data only in connection with the further processing of
information and is necessary to provide Internet service. The
Commission’s construction therefore was more limited than
respondents assume.
Respondents answer that cable
modem service does, in fact, provide “transparent” transmission
from the consumer’s perspective, but this argument, too, is
mistaken. Respondents characterize the “information-service”
offering of Internet access as consisting only of access to a cable
company’s e-mail service, its Web page, and the ability it provides
consumers to create a personal Web page. When a consumer goes
beyond those offerings and accesses content provided by parties
other than the cable company, respondents argue, the consumer uses
“pure transmission” no less than a consumer who purchases phone
service together with voice mail.
This argument, we believe,
conflicts with the Commission’s understanding of the nature of
cable modem service, an understanding we find to be reasonable.
When an end user accesses a third-party’s Web site, the Commission
concluded, he is equally using the information service provided by
the cable company that offers him Internet access as when he
accesses the company’s own Web site, its e-mail service, or his
personal Web page. For example, as the Commission found below, part
of the information service cable companies provide is access to DNS
service. See supra, at 15–16. A user cannot reach a
third-party’s Web site without DNS, which (among other things)
matches the Web site address the end user types into his browser
(or “clicks” on with his mouse) with the IP address of the Web
page’s host server. See P. Albitz & C. Liu, DNS and BIND 10
(4th ed. 2001) (For an Internet user, “DNS is a must. … [N]early
all of the Internet’s network services use DNS. That includes the
World Wide Web, electronic mail, remote terminal access, and file
transfer”). It is at least reasonable to think of DNS as a
“capability for … acquiring … retrieving, utilizing, or making
available” Web site addresses and therefore part of the information
service cable companies provide. 47 U. S. C.
§153(20).[Footnote 3]
Similarly, the Internet service provided by cable companies
facilitates access to third-party Web pages by offering consumers
the ability to store, or “cache,” popular content on local computer
servers. See Declaratory Ruling 4810, ¶17, and n. 76.
Cacheing obviates the need for the end user to download anew
information from third-party Web sites each time the consumer
attempts to access them, thereby increasing the speed of
information retrieval. In other words, subscribers can reach
third-party Web sites via “the World Wide Web, and browse their
contents, [only] because their service provider offers the
‘capability for … acquiring, [storing] … retrieving [and] utilizing
… information.’ ” Universal Service Report 11538, ¶76
(quoting 47 U. S. C. §153(20)). “The service that Internet
access providers offer to members of the public is Internet
access,” Universal Service Report 11539, ¶79, not a
transparent ability (from the end user’s perspective) to transmit
information. We therefore conclude that the Commission’s
construction was reasonable.
V
Respondent MCI,
Inc., urges that the Commission’s treatment of cable modem service
is inconsistent with its treatment of DSL service, see
supra, at 3 (describing DSL service), and therefore is an
arbitrary and capricious deviation from agency policy. See 5 U.
S. C. §706(2)(A). MCI points out that when local telephone
companies began to offer Internet access through DSL technology in
addition to telephone service, the Commission applied its
Computer II facilities-based classification to them and
required them to make the telephone lines used to transmit DSL
service available to competing ISPs on nondiscriminatory,
common-carrier terms. See supra, at 24 (describing
Computer II facilities-based classification of
enhanced-service providers); In re Deployment of Wireline
Services Offering Advanced Telecommunications Capability, 13
FCC Rcd. 24011, 24030–24031, ¶¶36–37 (1998) (hereinafter
Wireline Order) (classifying DSL service as a
telecommunications service). MCI claims that the Commission’s
decision not to regulate cable companies similarly under Title II
is inconsistent with its DSL policy.
We conclude,
however, that the Commission provided a reasoned explanation for
treating cable modem service differently from DSL service. As we
have already noted, see supra, at 9–10, the Commission is
free within the limits of reasoned interpretation to change course
if it adequately justifies the change.[Footnote 4] It has done so here. The traditional reason
for its Computer II common-carrier treatment of
facilities-based carriers (including DSL carriers), as the
Commission explained, was “that the telephone network
[was] the primary, if not exclusive, means through which
information service providers can gain access to their customers.”
Declaratory Ruling 4825, ¶44 (emphasis in original;
internal quotation marks omitted). The Commission applied the same
treatment to DSL service based on that history, rather than on an
analysis of contemporaneous market conditions. See Wireline
Order 24031, ¶37 (noting DSL carriers’ “continuing obligation”
to offer their transmission facilities to competing ISPs on
nondiscriminatory terms).
The Commission in the order
under review, by contrast, concluded that changed market conditions
warrant different treatment of facilities-based cable companies
providing Internet access. Unlike at the time of Computer
II, substitute forms of Internet transmission exist today:
“[R]esidential high-speed access to the Internet is evolving over
multiple electronic platforms, including wireline, cable,
terrestrial wireless and satellite.” Declaratory Ruling
4802, ¶6; see also U. S. Telecom Assn. v. FCC,
290 F. 3d 415, 428 (CADC 2002) (noting Commission findings of
“robust competition … in the broadband market”). The Commission
concluded that “ ‘broadband services should exist in a minimal
regulatory environment that promotes investment and innovation in a
competitive market.’ ” Declaratory Ruling 4802, ¶5.
This, the Commission reasoned, warranted treating cable companies
unlike the facilities-based enhanced-service providers of the past.
Id., at 4825, ¶44. We find nothing arbitrary about the
Commission’s providing a fresh analysis of the problem as applied
to the cable industry, which it has never subjected to these rules.
This is adequate rational justification for the Commission’s
conclusions.
Respondents argue, in effect,
that the Commission’s justification for exempting cable modem
service providers from common-carrier regulation applies with
similar force to DSL providers. We need not address that argument.
The Commission’s decision appears to be a first step in an effort
to reshape the way the Commission regulates information-service
providers; that may be why it has tentatively concluded that DSL
service provided by facilities-based telephone companies should
also be classified solely as an information service. See
In re Appropriate Framework for Broadband Access to the
Internet over Wireline Facilities, 17 FCC Rcd. 3019, 3030, ¶20
(2002). The Commission need not immediately apply the policy
reasoning in the Declaratory Ruling to all types of
information-service providers. It apparently has decided to revisit
its longstanding Computer II classification of
facilities-based information-service providers incrementally. Any
inconsistency between the order under review and the Commission’s
treatment of DSL service can be adequately addressed when the
Commission fully reconsiders its treatment of DSL service and when
it decides whether, pursuant to its ancillary Title I jurisdiction,
to require cable companies to allow independent ISPs access to
their facilities. See supra, at 7, this page. We express
no view on those matters. In particular, we express no view on how
the Commission should, or lawfully may, classify DSL
service.
***
The questions the
Commission resolved in the order under review involve a “subject
matter [that] is technical, complex, and dynamic.” Gulf
Power, 534 U. S., at 339. The Commission is in a far better
position to address these questions than we are. Nothing in the
Communications Act or the Administrative Procedure Act makes
unlawful the Commission’s use of its expert policy judgment to
resolve these difficult questions. The judgment of the Court of
Appeals is reversed, and the cases are remanded for further
proceedings consistent with this opinion.
It is so ordered.
Footnote
1
IP addresses identify
computers on the Internet, enabling data packets transmitted from
other computers to reach them. See Universal Service
Report 11531, ¶62; Huber 985.
Footnote
2
The dissent attempts to
escape this consequence of respondents’ position by way of an
elaborate analogy between ISPs and pizzerias. Post, at 7–8
(opinion of Scalia, J.). This analogy is flawed. A pizzeria
“delivers” nothing, but ISPs plainly provide transmission service
directly to the public in connection with Internet service. For
example, with dial-up service, ISPs process the electronic signal
that travels over local telephone wires, and transmit it to the
Internet. See supra, at 2; Huber 988. The dissent
therefore cannot deny that its position logically would require
applying presumptively mandatory Title II regulation to all
ISPs.
Footnote
3
The dissent claims that
access to DNS does not count as use of the information-processing
capabilities of Internet service because DNS is “scarcely more than
routing information, which is expressly excluded from the
definition of ‘information service.’ ” Post, at 9,
and n. 6 (opinion of Scalia, J.). But the definition of information
service does not exclude “routing information.” Instead, it
excludes “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). The dissent’s argument therefore begs the question
because it assumes that Internet service is a “telecommunications
system” or “service” that DNS manages (a point on which, contrary
to the dissent’s assertion, post, at 9, n. 6, we need
take no view for purposes of this response).
Footnote
4
Respondents vigorously argue
that the Commission’s purported inconsistent treatment is a reason
for holding the Commission’s construction impermissible under
Chevron U. S. A. Inc. v. Natural
Resources Defense Council, Inc., 467
U. S. 837 (1984). Any inconsistency bears on whether the
Commission has given a reasoned explanation for its current
position, not on whether its interpretation is consistent with the
statute.
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