UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


ST IA

v.

FCC


99-1149a

D.C. Cir. 2000


*	*	*


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


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.


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 


"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


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


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 


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


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 


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


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


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


[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


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.