United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 13, 2001 Decided June 26, 2001
No. 00-1144
Association of Communications Enterprises,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
SBC Communications Inc., et al.,
Intervenors
On Petition for Review of an Order of the
Federal Communications Commission
Charles C. Hunter argued the cause for petitioner. With
him on the briefs was Catherine M. Hannan.
Rodger D. Citron, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With him on the
brief were Christopher J. Wright, General Counsel, John E.
Ingle, Deputy Associate General Counsel, and Laurence N.
Bourne, Counsel. Catherine G. O'Sullivan and Nancy C.
Garrison, Attorneys, U.S. Department of Justice, entered
appearances.
Robert McDonald, Mark L. Evans, Donna N. Lampert,
Mark J. O'Connor, M. Robert Sutherland, Roger K. Toppins,
James D. Ellis, Alfred G. Richter, Dan L. Poole, Robert B.
McKenna, William P. Barr, M. Edward Whelan, III, Mi-
chael E. Glover, Edward Shakin and Lawrence W. Katz
appeared on the brief of intervenors America Online, Inc., et
al.
Before: Williams, Ginsburg, and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Ginsburg.
Ginsburg, Circuit Judge: In order to foster competition in
telecommunication markets, the Telecommunications Act of
1996, 47 U.S.C. ss 151 et seq., requires that an incumbent
local exchange carrier (incumbent or ILEC) "offer for resale
at wholesale rates any telecommunications service that the
carrier provides at retail to subscribers who are not telecom-
munications carriers." 47 U.S.C. s 251(c)(4)(A). The idea is
to enable other carriers to compete with incumbents at the
retail level.
In the Second Report and Order (Order) in CC Docket No.
98-147, Deployment of Wireline Services Offering Advanced
Telecommunications Capability (1999), the Commission de-
termined that the discount-for-resale provision applies when
an incumbent offers digital-subscriber-line (DSL) service to
an end-user but not when it offers DSL service to an internet
service provider (ISP). The Commission maintains that the
latter offering is not made "at retail" because the ISP pack-
ages and ultimately resells the service to end-users. The
petitioner, an association of telecommunications providers,
claims that the Commission's position is contrary to the Act
or, alternatively, unreasonable. Finding no merit in either
claim, we deny the petition for review.
I. Background
In addition to plain old telephone service (POTS), the
ILECs provide various advanced services, foremost among
which is DSL service. (For a description of DSL technology,
see Worldcom, Inc. v. FCC, 246 F.3d 690, 692 (D.C. Cir.
2001).) An ILEC may offer DSL service directly to residen-
tial and business end-users, in which event the ILEC itself
performs such collateral functions as marketing, billing, and
maintenance. In addition, the ILEC may offer DSL service
designed specifically for ISPs (such as America Online), which
package and sell the service to end-users and perform the
marketing and other collateral functions.
At issue in this case is that part of the Second Report and
Order in which the Commission addressed the question
whether the resale requirement of s 251(c)(4)(A) applies to an
ILEC's offering of advanced services. As the Commission
acknowledged, it had previously determined that advanced
services constitute "telecommunications service" and that the
end-users and ISPs to which the ILECs offer such services
are "subscribers who are not telecommunications carriers"
within the meaning of s 251(c)(4)(A). The remaining issue,
therefore, was whether an ILEC's offering of certain ad-
vanced services, including DSL, is made "at retail" so as to
trigger the discount requirement. The Commission ultimate-
ly concluded that
while an incumbent LEC DSL offering to residential and
business end-users is clearly a retail offering designed
for and sold to the ultimate end-user, an incumbent LEC
offering of DSL services to Internet Service Providers as
an input component to the Internet Service Provider's
high-speed Internet service offering is not a retail offer-
ing. Accordingly, ... DSL services designed for and
sold to residential and business end-users are subject to
the discounted resale obligations of section 251(c)(4)....
[H]owever, ... section 251(c)(4) does not apply where
the incumbent LEC offers DSL services as an input
component to Internet Service Providers who combine
the DSL service with their own Internet Service.
The Association of Communication Enterprises (ASCENT)
petitioned for review of this determination, and various tele-
communications and DSL providers intervened on behalf of
the Commission.
II. Analysis
Although ASCENT is by no means precise on the point, we
take it to be making arguments under both step one and step
two of Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984). That
is, the petitioner claims first that the Commission's interpre-
tation of the term "at retail" is inconsistent with the Con-
gress's use of that term and, alternatively, that the Commis-
sion is being unreasonable insofar as it interprets the term as
not including an ILEC's offering of advanced services to an
ISP.
As the Commission states in the Order, and ASCENT does
not dispute, "The Act does not define the term 'at retail' and
the legislative history on section 251(c)(4) provides only mini-
mal clarification of Congress' intentions with regard to the
appropriate definition and application of the term." There-
fore, the Commission invoked the authority of Black's Law
Dictionary (6th ed. 1990) and Webster's Deluxe Unabridged
Dictionary (2d ed. 1987), and construed "retail transactions
[as] necessarily involv[ing] direct sales of a product or service
to the ultimate consumer for her own personal use or con-
sumption."
ASCENT argues that the Commission thereby did violence
to the plain meaning of the phrase "at retail":
[U]nless an ISP is reselling DSL service without sub-
stantial alteration of its form or content ... it is consum-
ing that service in creating the information service it is
selling to the public. Resale is an essential element of a
wholesale transaction; consumption is an integral part of
a retail transaction.
Although ASCENT correctly asserts, per Black's, that
"wholesale" entails a "sale ... to one who intends to resell,"
there is no justification for ASCENT's claim that a product
"substantially altered" in form or content is by definition
"consumed." To use ASCENT's own example, an automobile
manufacturer that converts raw steel into motor vehicles can
reasonably be said to purchase its steel "wholesale" notwith-
standing that it substantially alters that steel before selling
its finished goods on the retail auto market. See Black's
(sale for "further sale or processing" not a sale at "retail")
(emphasis added).
ASCENT's other textual arguments, namely, that the Com-
mission has "attempt[ed] to write into the text of Section
251(c)(4) certain exemptions" and that it has "undermine[d]
the viability of resale as a means of competing in the local
telecommunications market," beg the question at issue:
s 251(c)(4)(A) applies and the discount requirement comes
into play only if a particular offering is in fact "at retail."
The same is true of ASCENT's makeweight argument that
the Commission has usurped the authority of the states to set
wholesale rates under 47 U.S.C. s 252(d)(3), which likewise
applies only to services offered "at retail" under s 251(c)(4).
Because the Congress did not itself resolve the present
issue, we turn to ASCENT's arguments under Chevron step
two that the Commission's interpretation of the Act is unrea-
sonable. Here ACSENT argues that the Commission imper-
missibly ignored record evidence and its own precedent indi-
cating that ISPs are indistinguishable from end-users.
Initially ASCENT complains that, because DSL services
are offered indifferently to all pursuant to a tariff, even an
ILEC's offering that is tailored to the needs of ISPs is
available likewise to any end-user that can use them. Such
an offering requires the purchaser to make term and volume
commitments, and does not include customary retail func-
tions, such as marketing, billing, and maintenance. The
petitioner suggests that large, corporate end-users with the
requisite need and the ability to perform those functions for
themselves might take the service. That mere possibility,
however, does not invalidate the Commission's interpretation
of the statute. If in the future an ILEC's offering designed
for and sold to ISPs is shown actually to be taken by end-
users to a substantial degree, then the Commission might
need to modify its regulation to bring its treatment of that
offering into alignment with its interpretation of "at retail,"
but that is a case for another day.*
ASCENT turns next to possible inconsistencies between
the Commission's approach in the Order under review and in
a prior proceeding. In particular, the petitioner seizes upon
the Commission's earlier statement that "the services inde-
pendent public payphone providers [IPPPs] obtain from in-
cumbent LECs are telecommunications services that incum-
bent LECs provide 'at retail to subscribers who are not
telecommunication carriers' and that such services should be
available at wholesale rates to telecommunications carriers."
Local Competition Order, 11 F.C.C.R. 15,499 at p 876 (1996).
ASCENT maintains that for present purposes an IPPP is
indistinguishable from an ISP in that it purchases, bundles,
and then resells to end-users a telephone service -- in the
case of IPPPs it is POTS -- and that the Commission is
therefore unjustified in treating the IPPP but not the ISP as
an end-user.
This argument has force, but it cannot carry the day for
two reasons: First, the analogy between an ISP and an IPPP
is not so close; the POTS an ILEC sells to an IPPP is the
same POTS that the IPPP sells to end-users, whereas the
DSL service it sells an ISP is distinct because it does not
include the collateral functions the ISP performs for end-
users. Second, just two paragraphs earlier in the same
order, the Commission had determined that offerings of
exchange access services tailored for interexchange carriers
__________
* ASCENT further argues in its reply brief that the Order, by
seeming to remove from the ambit of s 251(c)(4)(A) "any DSL
service offering provided to any ISP, regardless of the terms of the
offering," impermissibly delegates authority to ILECs -- the regu-
lated entities -- to determine what offers are outside the discount-
for-resale requirement. Because this argument does not appear in
ASCENT's initial brief, the Commission did not have an opportuni-
ty to address it, nor shall we. See Coalition for Noncommercial
Media v. FCC, 249 F. 3d 1005, 1010 (D.C. Cir. 2001).
(IXCs) are not subject to s 251(c)(4) in part because those
services "are designed for, and sold to, IXCs as an input
component to the IXC's own retail services," namely long
distance services. Id. at p 874. In the Order now under
review the Commission marshaled its treatment of IXCs as
the most relevant precedent. ASCENT does not now distin-
guish that treatment in any meaningful way, but attributes it
to the Commission's rationale that exchange access services,
which IXCs purchase, are used primarily by telecommunica-
tions carriers. That does not confront the Commission's
independent rationale that IXCs supply their own service to
end-users -- as do ISPs. In any event, if there is tension
between the Commission's treatment of IXCs and IPPPs, its
resolution is not now before us; it is enough for our purposes
that the Commission in the present Order treated ISPs like
IXCs, regardless how it treated IPPPs in a prior order.
ASCENT's remaining points are less weighty. First it
contends the Commission previously had rejected the sugges-
tion that volume-based discounts or the absence of various
retail functions take an offering outside the reach of
s 251(c)(4). Id. at p 951; Application of BellSouth Corp., 13
F.C.C.R. 539 at p 220 (1997). In those instances, however,
the Commission did not address offerings specifically de-
signed for customers other than end-users. Second,
ASCENT points out that the Commission has treated ISPs as
end-users for other purposes. That is of no moment if the
Commission was reasonable, as we have seen that it was, in
treating them as resellers whose purchases from ILECs are
not made "at retail" for the purposes of s 251(c)(4)(A). In
sum, having considered ASCENT's objections, we find the
Commission's Order in all respects reasonable.
III. Conclusion
For the foregoing reasons, the petition for review is
Denied.