7 FCC Red No. 3 Federal Communications Commission Record FCC 92-14 Before the Federal Communications Commission Washington, D.C. 20554 CC Docket No. 90-368 In the Matter of Computer III Remand Proceedings MEMORANDUM OPINION AND ORDER ON RECONSIDERATION Adopted: January 9, 1992; Released: January 24, 1992 By the Commission: I. INTRODUCTION 1. On December 17, 1990, the Commission released a Report and Order1 in this proceeding, which adopted three narrowly focused proposals to reinstate certain Computer III rules that the United States Court of Appeals for the Ninth Circuit had vacated in California v. FCC. 2 BellSouth Corporation (BellSouth) has filed a petition for partial reconsideration of the Report and Order, requesting that we expand the scope of this proceeding to revisit our long-standing classification of protocol processing as an enhanced service.3 We adhere to our conclusion not to reconsider our classification of protocol processing in this proceeding, and deny BellSouth's petition. II. BACKGROUND 2. In the Complller II proceeding,4 the Commission established a regulatory distinction between enhanced ser­ vices, which would be offered on a non-tariffed competi­ tive basis. and basic services, which would be subject to Commission regulation under Title II of the Communica- 1 Computer Ill Remand Proceedings (CC Docket No. 90-368), 5 FCC Red 7719 (1990) (Report and Order). 2 People of the State of California v. FCC, lJ05 F.2d 1217 (9th Cir. 19lJ0). The orders under review were: Amendmetll of Sec­ tions 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry) (CC Docket No. 85-22lJ), 10-1 FCC 2d lJ58 (1986) (Phase I Order). recon., 2 FCC Red 3035 ( llJ87) (Phase I Reconsideration). 2 FCC Red 3072 (1987) (Phase ll Order). 3 Comments and/or replies regarding the BellSouth petition have been filed by ADAPSO. BT Tymnet. Inc., Compuserve Incorporated, Integrated Communications Systems. Inc., Interna­ tional Business Machines Corporation, the NYNEX Telephone Companies. US Sprint Communications Company Limited Part­ nership, and U S West Communications. Inc. 4 Amendment of Section 64.702 of the Commission's Rules and Regulations (Computer ll), 77 FCC 2d 384 (llJ80) (Computer ll Final Decision), modified on recon., 84 FCC 2d 50 ( 1981) (Computer ll Reconsideration), modified on further recon., 88 FCC 2d 512 (1981) (Computer ll Further Reconsideration). aff'd, Computer and Communications Industry Association v. FCC. 693 F.2d lQ8 (D.C. Cir. IQ82), cert. denied, 461 U.S. 938 (1983). 5 See Computer ll Final Decision, 77 FCC 2d at 421-22: 909 tions Act. Under the Computer II regime, AT&T and the BOCs generally were permitted to offer enhanced services only through structurally separate subsidiaries. The Com­ mission concluded that protocol processing was an en­ hanced service. 5 3. In the Computer III proceeding that followed, the Commission permitted AT&T and the BOCs to offer en­ hanced services integrated with their basic offerings. pro­ vided that those carriers complied with certain nonstructural safeguards designed to protect competing enhanced service providers from possible anticompetitive conduct. The Commission also sought comment on, and reaffirmed, the Computer II classification of protocol pro­ cessing as enhanced.6 4. On review, the United States Court of Appeals for the Ninth Circuit in California v. FCC held that the Commission had not adequately justified the decision to replace structural separation with nonstructural safeguards for the BOCs' enhanced service operations. 7 The Court also held that certain Commission preemption decisions had not been sufficiently justified.8 No party briefed the protocol processing classification issue, and the Court did not address that question.q However. the Court vacated the Computer III orders under review. including the order reaffirming the status of protocol processing as enhanced, and remanded the case to the Commission for further proceedings consistent with the Court's opinion. 10 III. THE REMAND PROCEEDING 5. Two months after California v. FCC was decided, the Commission initiated this remand proceeding with the release of the August 6. 1990. Notice of Proposed Rulemaking. 11 In the Notice. we stated that the effect of the Ninth Circuit's decision vacating the Computer l/I orders under review was. generally. to return the tele­ communications industry and the Commission to a Com­ puter II regime. We noted that in several instances the Court's vacation of the Computer III orders appeared to affect regulatory changes that had not been challenged in the appellate proceedings. Because the legal basis for such regulations did not appear to have been eroded by the Ninth Circuit's action. we determined that expeditious action was possible and warranted to resurrect three of Computer ll Reconsideration, 84 FCC 2d at 60-61. 6 See Amendment of Section 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry) (CC Docket No. 85-229), Notice of Proposed Rulemaking. 50 Fed. Reg. 33581. 33593-33599 (Aug. 20, 1985): Supplemental Notice of Proposed Rulemaking, 51 Fed. Reg. 2-1-110 (Jul. 3, llJ86). Phase I Order. 104 FCC Red at 1092-1109; Phase ll Order, 2 FCC Red 3074-82: Phase ll Reconsideration. 3 FCC Red at 1152-58. - California v. FCC, 905 F.2d at 1238-39. 8 Id., 905 F.2d at 1239--15. 9 The Phase ll Reconsideration is the subject of a separate pending judicial challenge in the Ninth Circuit. Bel/South Corp. v. FCC, Ninth Circuit No. 88-7290. Therefore, the parties that might have been inclined to brief the protocol processing issue apparently assumed that they could brief it in the subsequent review proceeding, BellSouth v. FCC. The Commission's motion to dismiss the BellSouth petition for review is pending before the Court. IO Id., 905 F.2d at 1246. 11 Computer lll Remand Proceedings (CC Docket No. 90-368), 5 FCC Red 5242 (1990) (Notice). FCC 92-14 Federal Communications Commission Record 7 FCC Red No. 3 those Computer III regulatory changes. First, we proposed to reinstate Open Network Architecture (ONA) obligations on the Bell Operating Companies (BOCs). Second, we proposed to permit AT&T to provide collocated enhanced services on an integrated basis pursu­ ant to Computer III nonstructural safeguards. Finally, we proposed to reinstate certain Computer ill decisions re­ garding Network Channel Terminating Equipment. 12 6. We explicitly excluded from this expedited rulemaking other issues raised by the Court's vacation of the three Computer Ill orders. Thus. we reserved for a separate rulemaking proceeding those Computer Ill rules that the Ninth Circuit had specifically addressed. 13 As to the classification of protocol processing, the Commission found that no further action was needed. Specifically, we stated: Because the classification of protocol processing in Computer Ill merely reaffirmed the Commission·s earlier classification of those services. the effect of the vacation order is to restore protocol conversion services to the Computer II status. which also was enhanced. There is thus no need to propose further consideration of this classification issue in this no­ tice.14 7. In the Report and Order, we adopted the three spe­ cific regulatory proposals set forth in the Notice. 15 We also declined the suggestion, urged in comments filed by BellSouth and two other parties. that the Commission expand the scope of this proceeding to revisit the protocol processing issue. 10 We reiterated our position. taken in the Notice, that it was unnecessary to "reexamine the clas­ sification of protocol processing in this proceeding be­ cause the Ninth Circuit's opinion. by vacating certain Computer Ill orders. had no effect on the classification of protocol processing." 1" IV. THE PLEADINGS 8. BellSouth ·s petition for reconsideration of the Report and Order challenges the Commission ·s procedural de­ cision "not to readdress the regulatory classification of protocol processing" in this proceeding. 18 BellSouth ar­ gues that the Commission erred in concluding that the 12 See Notice, 5 FCC Red at 5242 (paras. 1 and 5 & n.15). 5243 ( ~aras. 8-11 ). 1 See Notice, 5 FCC Red at 5242 (para. 6). That proceeding has been commenced. See Computer Ill Remand Proceedings: Bell Operating Company Safeguards: and Tier I Local Exchange Company Safeguards (CC Docket No. 90-623), Notice of Pro­ pose~ Rulemaking, 6 FCC Red 174 ( 1990). 4 Nouce, 5 FCC Red at 5242 n.17. 15 See Report and Order, 5 FCC Red at 7719 (para. 1). 16 See Report and Order, S FCC Red at 7722 (para. 24) & n.57. 17 See Report and Order, 5 FCC Red at 7722 (para. 24). 18 BellSouth Petition at 1. BellSouth's petition is very ambigu­ ous with regard to whether its challenge is to the Commission·s procedural decision to limit the scope of this proceeding, or to the merits of the classification itself. ADAPSO Opposition at 2-3. However. since we expressly did not seek comment on the classification issue in this proceeding, we could not, in any event, rule on the merits of that issue here. See 47 C.F.R. §§ l.412(a), 1.413, 1.415 (requiring notice and opportunity for com- 910 California v. FCC decision vacating certain Computer Ill orders had no effect on the classification of protocol processing as enhanced. 19 In fact, BellSouth had reopened the classification issue in the Computer III proceeding before reaffirming the existing classification on a new record, the Ninth Circuit's vacation of the pertinent Com­ puter Ill orders does not merely reinstate the same Com­ puter II classification. Rather. BellSouth claims the court decision leaves a regulatory void, which the Commission is now obligated to filI. 20 9. BellSouth asserts that by adhering to the identical Computer II classification without affirmatively revisiting the merits of the issue. the Commission impermissibly ignores the new evidence compiled in the intervening Computer III proceeding, the result of which was vacated. 21 In BellSouth's view, the record of intervening technological, market, and regulatory changes developed in the Computer Ill proceeding, as well as unspecified subsequent developments, render the current classification contrary to the public interest.22 10. Opponents of Bel!South's petition argue that the Commission reasonably exercised its inherent discretion to determine the scope of the rulemaking proceedings.23 Those opponents vigorously dispute BellSouth 's assertion that the Commission has declined to address the protocol processing classification, despite new evidence bringing into question the viability of the existing rule. "4 They note that the Commission revisited and reaffirmed the Com­ puter II classification in the Compu1er Ill proceeding, and that the Commission addressed all of the "new" develop­ ments that BellSouth asserts in support of further pro­ ceedings here.25 The opponents assert that because the California v. FCC decision did not address the Computer III analysis of protocol processing. there is no serious reason to question the continued application of Compwer II rules that the Commission reaffirmed in the vacated ment prior to adoption of rules changes). We thus interpret the petition as presenting only a procedural challenge to the scope of this proceeding. 19 BellSouth Petition at 2-6. w Id. 21 Id. at 3. citing Geller v. FCC. 610 F.2d 973 (D.C. Cir. 1979). See also BellSouth Reply at 7. 22 BellSouth Petition at 6-9; BellSouth Reply at 6-9. Three commenters agree generally with BellSouth's conclusion that the record in the vacated Computer Ill proceeding warrants revisiting the protocol processing issue, at least in some forum. See NYNEX Comments at 1-2; US West Comments at l-2; lCS Reply at 1-3. 23 See IBM Comments at 5-6; US Sprint Opposition at 6; BT Tymnet Opposition at 5-6. 24 US Sprint Opposition at 7-9; BT Tymnet Opposition at 8-11; ADAPSO Opposition at 7-10; CompuServe Opposition at 4-7. 25 BT Tymnet Opposition at 8-10; ADAPSO Opposition at 7 FCC Red No. 3 Federal Communications Commission Record FCC 92-14 Computer III orders.26 The opposing parties maintain that the Commission's classification of _protocol processing as enhanced was and remains proper. 2 ' V. DISCUSSION 11. We are not required continually to reopen settled rules.28 In fact, a presumption exists that '"the policies committed to [the agency] by Congress ... will be carried out best if the settled rule is adhered to.'" 29 BellSouth has not demonstrated that either the law or the facts have changed in a way that makes it necessary or desirable to reconsider our classification of protocol processing. 12. First, with regard to changes in the law. we believe the Ninth Circuit's vacation order in California v. FCC had no direct impact upon the Commission's existing classification of protocol processing as an enhanced ser­ vice. 30 Under established law, the vacation of existing rules has the effect of automatically reinstating preexisting ones.31 Here. the Ninth Circuit opinion was simply silent with respect to our longstanding classification of protocol processing as enhanced. Thus, the Computer II classifica­ tion, which we reaffirmed in Computer Ill, was not af­ fected by California v. FCC. 13. Second. BellSouth provides no factual justification to support revisiting our protocol processing classification. BellSouth's primary contentions are that new evidence developed since Computer II shows: ( 1) that protocol pro­ cessing is not a stand-alone service but rather plays a vital role in the integrated delivery of packet switching service: and (2) that the application of ONA pricing parity rules to protocol processing is not cost-effective for users of BOC-provided protocol processing services, particularly those associated with the ~rovision of multiplexed inter­ connection arrangements.3 As BellSouth concedes.33 the Commission addressed. in substance. both of these conten­ tions in the course of retaining the current classification in the Computer Ill proceeding.34 The decision in Califor­ nia v. FCC provides no indication that our analysis there was in error. Beyond the Compwer Ill record. BellSouth notes only the possibility that it may present unspecified "additional 'new evidence'" based upon subsequent exper­ ience.35 14. BellSouth has failed to show that either the legal or the factual underpinnings of the Commission's regulatory classification of protocol processing have eroded. In the 8-10. 26 See BT Tymnet Comments at 7-8; IBM Comments at 5 & n.8. 20 BT Tymnet Opposition at 12-15; US Sprint Opposition at 7-IJ; IBM Comments at 2--1, 7-9; CompuServe Opposition at 6-7; ADAPSO Opposition at 10. 28 See, e.g., United Church of Christ v. FCC, !JI 1 F.2d 813. 818 (D.C. Cir. 1990); NRDC v. Thomas, 838 F.2d 122-1. 12-llJ (D.C. Cir.), cert. denied, -188 U.S. 888 (1988). 29 Motor Vehicle Manufacturers Association v. State Farm Mu­ tual, -163 U.S. 21J, -11--12 (1983). quoting Atchison T. & S.F.R. Co. v. Wichita Bd. of Trade, 412 U.S. 80-0, 807-08 (l!J73). 30 See Notice, 5 FCC Red at 5242 n.16; Report and Order, 5 FCC Red at 7722 (para. 24). 31 See, e.g., Action on Smoking and Health v. CAB. 713 F.2d 795. 797 (D.C. Cir. 1983); Abington Memorial Hospital v. Heck­ ler, 750 F.2d 242, 2-14 (3d Cir. 1984). 32 BellSouth Petition at 7-9; BellSouth Reply at 7-IJ. 33 See BellSouth Reply at 7. 911 absence of such a showing, we decline to rev1s1t m this proceeding our long-standing classification of protocol processing as an enhanced service. VI. ORDERING CLAUSE 15. IT IS HEREBY ORDERED that pursuant to Sec­ tions 1, 4(i). 4(j), 201, 202, and 205 of the Communica­ tions Act of 1934, 47 U.S.C. §§ 151, 154(i), 154(j). 201, 202, 205, the Petition for Partial Reconsideration filed by BellSouth Corporation IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Donna R. Searcy Secretary 34 In fact. by the time of the Phase II Reconsideration in Computer Ill, most of the "new evidence" Bell South alludes to had already been addressed. In the Phase II Reconsideration, which denied reconsideration of our decision in the Phase ll Order to retain the existing protocol processing classification. we stated: We agree with those parties who observe that many of the arguments of the petitioners are not new. Arguments such as those related to ... the unitary nature of protocol processing and communications, constraints on the introduction of new !e.g., digitall technology (such as lSDN and fast packet switching) ... . the effects of specific CEI/ONA requirements on competition .. . have been thoroughly considered in previous orders in this proceeding. Phase fl Reconsideration. 3 FCC Red at 1153-54. 3S BellSouth Reply at 8.