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Tuesday, May 21, 2024 | Back issues
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D.C. Circuit Upholds |FCC’s Rate-Cap System

(CN) - The D.C. Circuit upheld an FCC order capping the fees that local exchange carriers could charge for connecting other carriers' customers to dial-up Internet service.

When a customer accesses the Internet through a modem, the call goes to a local exchange carrier, which typically hands the call off to another carrier. That carrier then connects the customer to an Internet service provider.

The FCC decided to cap the rates that the first carrier paid the second, in order to avoid excessive rates that might distort the markets for Internet and telephone services.

Before the cap system, carriers used a "reciprocal compensation" system to pay each other for connecting customers' calls.

But because the traffic to ISPs flows one way, so did the money.

"It was not long before some [carriers] saw the opportunity to sign up ISPs as customers and collect, rather than pay, compensation because ISP modems do not generally call anyone," the FCC explained.

Thus, the cap system was put in place in 2008 to stop ISP carriers from charging exorbitant fees for dial-up Internet access.

Core Communications, the Public Service Commission of New York and the National Association of Regulatory Utility Commissioners petitioned for review, challenging the agency's power to regulate interstate communications.

They argued that "Congress' specific choice" of the reciprocal system trumps the FCC's general rulemaking authority to impose rate caps. They cited a 2002 D.C. Circuit ruling, which stated that "where both a specific and a general provision cover the same subject, the specific provision controls."

But the three-judge panel said it's "inaccurate" to characterize the provisions as either specific or general.

"That is not the case here," Judge Stephen Williams wrote. "Neither regime is a subset of the other. They intersect, and dial-up Internet traffic falls within that intersection."

The court ruled that it was reasonable for the FCC to apply the rate-cap system to ISP-bound traffic and keep the reciprocal compensation system for all other traffic.

Williams also rejected Core's claim that the FCC's decision violated an earlier court mandate, saying the narrow argument "gives pettifoggery a bad name."

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