United States Court of Appeals
FOR THE DISTRICT OF COUMBIA CIRCUIT
Argued January 24, 2000 Decided June 27, 2000
No. 99-1149
State of Iowa and
Iowa Telecommunications and Technology Commission,
Petitioners
v.
Federal Communications Commission and
United States of America,
Respondents
Bell Atlantic Telephone Companies, et al.,
Intervenors
On Petition for Review of an Order of the
Federal Communications Commission
Michael D. Hays argued the cause for petitioners. With
him on the briefs were Kenneth D. Salomon and J.G. Har-
rington.
James M. Carr, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With him on the
briefs were Christopher J. Wright, General Counsel, Daniel
M. Armstrong, Associate General Counsel, and John E. Ingle,
Deputy Associate General Counsel. Catherine G. O'Sullivan
and Nancy C. Garrison, Attorneys, U.S. Department of Jus-
tice, entered appearances.
Donald M. Falk, Michael E. Glover, Edward H. Shakin,
Dan L. Poole, Robert B. McKenna, William F. Maher, Jr.,
Stephen L. Goodman, Richard White Jr., Michael S. Pabian,
David Cosson, Lawrence E. Sarjeant, Linda Kent, Keith
Townsend, John Hunter and Julie Rones were on the brief
for intervenors. L. Marie Guillory and Lawrence W. Katz
entered appearances.
Before: Ginsburg, Sentelle, and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Ginsburg.
Ginsburg, Circuit Judge: The State of Iowa and the Iowa
Telecommunications and Technology Commission (collective-
ly, Iowa) petition for review of a declaratory ruling by the
Federal Communications Commission. The Commission held
that the Iowa Communications Network (ICN) is not a com-
mon carrier and therefore not a "telecommunications carrier"
within the meaning of s 254(h) of the Telecommunications
Act of 1996, 47 U.S.C. s 254(h). Consequently, the ICN is
ineligible for direct universal service support for the discount-
ed telecommunications services it provides to schools, librar-
ies, and rural health care providers. See Federal-State Joint
Board on Universal Service, Declaratory Ruling, 14 F.C.C.R.
3040 (1999) (Declaratory Ruling).
Iowa raises two arguments in its petition for review. First,
Iowa claims the Commission erred by determining that the
ICN is not a common carrier. Second, Iowa claims that
regardless whether the ICN is a common carrier, it is a
"telecommunications carrier" within the meaning of the 1996
Act, and therefore is eligible for direct universal service
support. To the extent the latter claim is not foreclosed by
our recent decision in Virgin Islands Tel. Corp. v. FCC, 198
F.3d 921, 922, 925 (1999) (upholding as reasonable FCC's
position that " 'telecommunications carrier' means essentially
the same as common carrier"), it is foreclosed by the defer-
ence we owe the Commission's reasonable interpretation of
the statute it administers, pursuant to step two of the analysis
in Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).
With respect to Iowa's first claim, however, the Commis-
sion failed to address Iowa's argument that offering services
to all potential customers to whom the carrier, under state
law, may provide services makes the ICN a common carrier
for purposes of the 1996 Act. We therefore grant the petition
for review and remand this matter to the Commission to
consider Iowa's argument in the first instance.
I. Background
The Iowa legislature established the ICN in 1989 to pro-
vide heavily subsidized high-speed telecommunications ser-
vices throughout the state, particularly to areas that may be
underserved by the local exchange carrier. The legislature
did not, however, authorize the ICN to serve everyone in the
state that could use its services; in particular, the ICN may
not provide services to individuals or to most private busi-
nesses. Rather, the ICN may provide service only to "public
and private agencies," Iowa Code s 8D.11(2), defined as
follows:
"Private agency" means an accredited nonpublic school, a
nonprofit institution of higher education eligible for tu-
ition grants, or a hospital licensed pursuant to chapter
135B or a physician clinic to the extent provided in
section 8D.13, subsection 16.
"Public agency" means a state agency, an institution
under the control of the board of regents, the judicial
branch ... a school corporation, a city library, a regional
library ... a county library ... or a judicial district
department of correctional services ..., an agency of the
federal government, or a United States post office which
receives a federal grant for pilot and demonstration
projects.
Iowa Code s 8D.2(4)-(5).
Iowa Code s 8D.9 further divides the class of "public and
private agencies" into two subclasses. First, Certifying
Users, which are institutions of higher education, area edu-
cation agencies, and certain United States Post Offices, were
required to certify by July 1, 1994 their intention to connect
to the network. Any Certifying User that did not certify its
intention by that date may not use the ICN without specific
legislative authorization. Any Certifying User that did timely
certify its intention to connect to the ICN must receive all its
telecommunications services from the ICN unless it obtains a
waiver based upon certain objective criteria specified in the
statute. See id. s 8D.9(2). Second, Preauthorized Users,
which are all other public and private agencies, may connect
to the ICN at any time without further authorization from the
legislature, and may choose which telecommunications ser-
vices to take from the ICN. Although Iowa points to no
statute requiring that the ICN serve all authorized users, the
parties agree that in practice the ICN will provide service to
any Preauthorized User and to any timely Certifying User
that requests service.
Under s 254(h)(1) of the 1996 Act, a "telecommunications
carrier" must provide services at discounted rates to schools,
libraries, and rural health care providers, and is entitled to
receive from the Commission, in an amount equal to the
aggregate discount given to such entities, either a reimburse-
ment or an offset against the carrier's obligation to partici-
pate in or contribute to the universal telecommunications
service fund. 47 U.S.C. s 254(h)(1). "Telecommunications
carrier" is defined as "any provider of telecommunications
services," id. s 153(44), and "telecommunications service" is
defined as "the offering of telecommunications for a fee
directly to the public, or to such classes of users as to be
effectively available directly to the public, regardless of the
facilities used," id. s 153(46).
The Commission determined that "telecommunications ser-
vices" means "only telecommunications provided on a com-
mon carrier basis." Federal-State Joint Board on Universal
Service, Report & Order, 12 F.C.C.R. 8776, 9177 p 785 (1997).
Therefore, in the Commission's scheme for administering
s 254, a carrier that provides a service on a non-common
carrier basis is not a "telecommunications carrier" and hence
is ineligible for universal service support with respect to that
service.
In response to Iowa's request for a declaratory ruling, the
Commission held that the ICN is not a common carrier. See
14 F.C.C.R. at 3056 p 29. Specifically, the Commission noted
that the primary characteristic of a common carrier is that it
"holds [it]self out to serve indifferently all potential users," id.
at 3050 p 21, and determined that the ICN failed this test for
two reasons: The ICN does not hold itself out to serve all
users, but is instead limited to serving only "public and
private agencies," as defined by the statute law of Iowa, see
id. p p 22, 24-25; and the ICN impermissibly discriminates
among users in the terms upon which it offers service, see id.
at 3051 p 23. Iowa petitions for review of the Declaratory
Ruling.
II. Analysis
Before the Commission, Iowa argued, among other things,
that the ICN is a common carrier because it offers service to
all the users it is authorized by law to serve:
[T]he case law firmly establishes that ICN only need
serve a specified clientele indifferently to qualify as a
common carrier.... [ICN's] customers are determined
by its governing statute, not by the ICN itself. Under
that statute the Legislature designated broad classes of
potential customers and required the ICN to serve all of
the members of those classes.
In its brief to this court, Iowa reiterates this argument and
relies primarily upon two cases for support: FCC v. Midwest
Video Corp., 440 U.S. 689 (1979), and National Ass'n of
Regulatory Util. Comm'rs v. FCC (NARUC), 525 F.2d 630
(D.C. Cir. 1976).
In Midwest Video the Commission had promulgated regu-
lations requiring cable television systems to allocate channels
for public, educational, government, and leased access users.
440 U.S. at 693. Although the regulations required that the
public and leased access channels be open to all potential
users, use of the educational and government access channels
was limited respectively to "local educational authorities" and
the "local government." 47 C.F.R. s 76.254(a)(2)-(3) (1977).
A private organization could not air an educational program
on the educational access channel because it would not come
within the class of users authorized by law. Yet the Supreme
Court held that the access rules, by "transferr[ing] control of
the content of access cable channels from cable operators to
members of the public" had "relegated cable systems, pro
tanto, to common-carrier status." 440 U.S. at 700-01.
In NARUC this court reviewed the Commission's determi-
nation that Specialized Mobile Radio Systems (SMRS) provid-
ing transmission services were not common carriers. 525
F.2d at 639. The court announced a test for common car-
riage that focused primarily upon whether the carrier holds
itself out indiscriminately to serve all to whom it can "legally
and practically be of use." Id. at 640-42. We wrote:
It is not an obstacle to common carrier status that SMRS
offer a service that may be of practical use to only a
fraction of the population, nor that the [FCC's] Order
limits possible subscribers to SMRS services to eligibles
under Sections 89, 91, and 93 of the Regulations. The
key factor is that the operator offer indiscriminate ser-
vice to whatever public its service may legally and prac-
tically be of use.
Id. at 642.
Both Midwest Video and NARUC can be read as approving
the general rule that a carrier offering its services only to a
legally defined class of users may still be a common carrier if
it holds itself out indiscriminately to serve all within that
class. That is precisely Iowa's argument.
Although the Commission expressly recognized in the De-
claratory Ruling that the ICN's customer base is restricted
by state law rather than by the carrier's own choice, see 14
F.C.C.R. at 3053 p 25, it did not respond to this argument.
Before this court, the Commission first claims that the argu-
ment was not clearly enough presented before the agency to
elicit an answer. True it is that the State did not cite cases
before the agency, but it clearly made the argument--as is
evident in the passage quoted in the first paragraph of this
part of our opinion. The Commission's only substantive
response is that Midwest Video and the other cases cited by
Iowa involved the provision of a specialized service that
"necessarily limited the class of customers that the carrier
would serve." This response fails to address the issue wheth-
er a legal prohibition upon serving some potential customers
to whom the service would be of use--in Midwest Video, for
example, those capable of producing video programming suit-
able for the government and educational access channels--is
inconsistent with being a common carrier.
We are not suggesting that Midwest Video or NARUC or
the other cases Iowa cites require a decision in Iowa's favor.
Rather, our point is that the Commission's failure to address
Iowa's argument requires that we remand this matter for the
Commission's further consideration. See, e.g., Frizelle v.
Slater, 111 F.3d 172, 177 (D.C. Cir. 1997) (remanding where
agency "did not respond to two ... arguments, which do not
appear frivolous on their face and could affect the [agency's]
ultimate disposition"); AT&T Corp. v. FCC, 86 F.2d 242, 247
(D.C. Cir. 1997) (remanding where Commission "completely
failed to address" argument raised in ex parte letter).
The Commission also ruled that the ICN is not a common
carrier because it impermissibly discriminates among users in
the terms of service it offers. The Commission identified
three distinct forms of discrimination: (1) Certifying Users
but not Preauthorized Users must take all or none of their
telecommunications services from the ICN; (2) some Certify-
ing Users may receive waivers of the all-or-none requirement;
and (3) those that did not timely certify, as well as all
potential users that are not public or private agencies, are
excluded entirely from using the ICN. Declaratory Ruling,
14 F.C.C.R. at 3051 p 23.
In its opening brief to this court, Iowa pointed out that
common carriers typically treat different classes of customers
differently, and that the Communications Act itself contem-
plates reasonable distinctions in the terms and conditions of
service offered to different classes of customers. See 47
U.S.C. s 201(b) ("communications ... may be classified into
... such [ ] classes as the Commission may decide to be just
and reasonable, and different charges may be made for the
different classes of communications"). In its responsive brief,
the Commission reiterated but did not meaningfully argue its
first and second grounds for saying that the ICN unduly
discriminates. We therefore follow the Commission's lead in
focusing exclusively upon the third form of discrimination.
See SEC v. Banner Fund Int'l, 211 F.3d 602, 613-14 (D.C.
Cir. 2000) (declining to address "asserted but unanalyzed"
argument not developed after being challenged by adverse
party). Even as to that ground, the Commission's defense is
conclusory:
[W]hile common carriers may permissibly engage in
some discrimination among classes of users ... [the]
exclus[ion of] entire classes of potential users from its
customer base simply because they do not fit the Iowa
Code's definition of a private or public agency ... is
irreconcilable with well-established principles of common
carriage.
Moreover, as the Commission conceded at oral argument, this
claim of discrimination raises precisely the same question as
the Commission's first reason for denying the ICN common
carrier status: Whether holding out service only to the class
of users authorized by law to receive it is inconsistent with
being a common carrier. Therefore, discrimination of the
sort here claimed is not an independent basis for denying the
ICN's common carrier status, and does not alter our conclu-
sion that we must remand this matter for the Commission's
further consideration.
III. Conclusion
The Commission failed to address Iowa's argument that the
ICN is a common carrier because it holds out service indis-
criminately to all the users it is authorized by law to serve.
Therefore, we grant the petition for review and remand this
case for further consideration by the Commission.
So ordered.