The rights of common carriers and the decision whether to be a common carrier or a non-regulated communications provider.

• Author: Lister, James H.

1. INTRODUCTION

   A new communications venture can sometimes choose between (1) accepting regulation as a common carrier, or (2) avoiding regulation almost entirely by providing service as a private carrier or an enhanced service provider. Because few businesses want to be regulated, the first reaction is often to avoid common carrier status. While the common carrier option does bring with it burdens such as certification and reporting requirements, however, it also entitles the venture to benefits, including interconnection with other carriers and access to unbundled network elements ("UNEs"). Because of these benefits, some communications businesses may find that the best choice is to provide some services as a common carrier and some services on an unregulated basis--a flexible approach specifically permitted under the Telecommunications Act of 1996 ("1996 Act").(1)

   This Article principally addresses the choice between providing service (1) as a non-dominant common carrier, or (2) as an unregulated communications business, such as a private carrier or an enhanced service provider. Unless the new business is formed to acquire an existing incumbent local exchange carrier ("ILEC"), it is unlikely to face dominant common carrier regulation.

2. REGULATORY CLASSIFICATIONS AND DEFINITIONS

   The definitions of "common carrier" and its new synonym "telecommunications carrier" are flexible enough to give providers discretion in structuring many communications services as either common carrier or non-common carrier services. For a service to be a common carrier service under federal law, the provider must (1) hold the service out as being available on standardized terms to the public, i.e., to all potential users of the service, and (2) transmit signals without change in form or content.(2) The Federal Communications Commission ("FCC" or "Commission") applies this test in regulating interstate, international, and sometimes intrastate communications, while the states usually follow this test in determining whether an intrastate service is a common carrier service.

   The first element--holding service out as being available to the public--draws the line between common carriers subject to Title II regulation under the Communications Act of 1934 ("1934 Act") and private carriers subject only to the FCC's rarely used "ancillary" Title I jurisdiction.(3) The second element--transmission "without change in form or content," i.e., "pure transmission"--draws the line between common carriers and providers of "enhanced services" such as Internet access. The FCC has long declined to regulate enhanced service providers, now sometimes called "information service providers," as common carriers.(4)

   The 1996 Act added several new terms, including "telecommunications carrier," equivalent to common carrier, and "information service," which is virtually synonymous with "enhanced service." Under the 1996 Act, a "telecommunications carrier" provides "telecommunications service."(5) "Telecommunications service" is "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."(6) The reference to the public or to classes of the public incorporates the "holding oneself out" element of the traditional common carrier definition. The 1996 Act also incorporates the "pure transmission" element of the traditional common carrier definition, by defining "telecommunications" as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received."(7) Finally, the 1996 Act defines "information services" so as to cover communications in which the form or content of information changes.(8) Consequently, "information services provider" and "enhanced service provider" mean essentially the same thing.

   Telephone companies such as AT&T, MCI WorldCom, and Verizon (formerly Bell Atlantic and GTE) provide common carrier services, although they may also provide non-common carrier services. A railroad that lays a fiber-optic cable along its track and sells its capacity to a few communications providers likely is acting as a private carrier. Internet access companies such as America Online are enhanced service providers.

   There is one more twist to all these definitions. Common carrier status is determined on a service-by-service basis. The same company can simultaneously be a common carrier, a private carrier, and an enhanced service provider. The D.C. Circuit recognized this concept well before passage of the 1996 Act in ruling that "it is at least logical to conclude that one can be a common carrier with regard to some activities but not others."(9) The 1996 Act codified the service-by-service concept by adding to the definition of "telecommunications carrier" a crucial caveat: "A telecommunications carrier shall be treated as a common carrier under this chapter only to the extent that it is engaged in providing telecommunications services."(10)

   For convenience, this Article uses the term "non-common carrier" service to refer to enhanced/information services, private carrier services, and any other service not offered on a common carrier basis. The term "communications provider" refers to companies providing any communications service, whether on a common carrier or non-common carrier basis. Finally, the term "common carrier" refers to any company that provides at least some common carrier service, and so must comply with common carrier regulation as to those services.

   Whether a particular company is a common carrier or a non-common carrier is not always immediately apparent. One way to determine common carrier status is to see whether the company has obtained a license or certificate (sometimes just a "registration") to provide common carrier services from the FCC or a state public utility commission. Another way is to discover whether the communications service provider has filed a tariff with the FCC or (more likely) a state commission. Both the FCC and state commissions periodically publish lists of certified carriers. Not all common carriers comply with the duty to obtain certification or file tariffs, however, and some are not required to do so in any event. Ultimately, a provider satisfies the definition of "common carrier" by providing pure transmission to the public or a substantial portion of it on standardized terms, not by obtaining certification or filing a tariff.(11)

   Finally, another key regulatory classification turns on the distinction between dominant common carriers and non-dominant common carriers.(12) The FCC regulates dominant common carriers, which have substantial market power, far more stringently than it does non-dominant carriers. With few exceptions, the only remaining dominant carriers are ILECs, the traditional monopoly phone companies, such as Verizon, against whom new entrants have begun to make some inroads. Even the largest long-distance company, AT&T, is classified as non-dominant.(13) Most states also use the dominant/non-dominant distinction, although they may have their own terminology, such as "non-competitive services" and "competitive services."(14)

   The difference between dominant and non-dominant carrier regulation is striking, particularly in the area of economic regulation. Dominant carriers are subject to price cap or rate-of-return regulation at the federal level. To change rates, a dominant carrier must file its tariff and may wait up to several weeks before the new prices go into effect.(15) With few exceptions, non-dominant carrier prices are not regulated, and where tariffs are still required changes can be made effective the day after the amendment is filed. The FCC rarely decides to review closely or declare unlawful a provision in a non-dominant carrier tariff; one FCC Commissioner recently noted that it has happened only twice in the many years (more than a decade) since the FCC adopted the dominant/non-dominant classification system.(16)

3. STRUCTURE OF COMMUNICATIONS SERVICES

   The "holding oneself out" element of the definition of common carrier sets up a straightforward choice--offer service on standardized terms and accept common carrier status, or negotiate individually with each buyer (ideally over the specifications of the service as well as price) and claim private carrier status. Where the number of potential buyers is reasonably limited, so that the transaction costs of individualized negotiations are not prohibitive, the choice is very real. Many wholesale level activities, such as the building and provision of service over fiber cables, and some retail activities involving marketing to a relatively small number of large end users (e.g., the provision of high speed data networks) can be structured either way.(17)

   If it finds a common carrier partner, a communications provider can attempt to go further and indirectly serve the retail mass market while asserting private carrier status. The common carrier partner would have the direct relationship with the customers, but it would procure the services it offers the public from the private carrier.

   Although less apparent, similar flexibility exists with respect to the second element of the traditional definition of common carrier services--transmission "without change in form or content." At first glance, one might think this element is less subject to provider discretion. Indeed, if the end user is purchasing a service involving change in form or content (or a store-and-retrieve function such as voice mail), the end user is purchasing an enhanced service.

   The retail sale to the end user is only part of the picture, however. Even if the end user is buying an enhanced service, the communications provider can still attempt to attain common carrier status if it sells to retailers the telecommunications service...