On December 16, 2016, the FCC’s Wireline Competition Bureau (“WCB” or “Bureau”) released its much anticipated order on Cisco WebEx LLC’s (“Cisco”) request for review of USAC audit conclusions. Copy of WebEx Order available here. In particular, the Bureau addressed whether certain aspects of Cisco’s web-based, online collaboration service constituted a fully integrated information service or a bundled service with separate telecommunications and information service components. In its order, the WCB reversed USAC’s determinations regarding the nature of the Cisco PSTN Minutes and found that, when used with the Desktop Application, the Cisco PSTN Minutes “are integrated into a single Cisco WebEx information service that is not subject to [direct] universal service contribution requirements.” (NOTE: As with all information services with a telecommunications input, USF may still be indirectly owed to the supplier of the input, but the USF is not borne by the information service provider or its end users based on the full, retail price of the service).
Because the Cisco services at issue included both telecommunications and information service components, the WCB relied on the FCC’s longstanding “functional integration” standard in conducting its classification analysis. In particular, the Bureau cited to the FCC’s analysis in its Open Internet Order wherein the Commission considered both how a service is marketed, as well as the functional nature of the service, in determining the appropriate regulatory classification of broadband Internet access. Using this frame of reference, the Bureau found that the audio stream aspect of Cisco’s service, whether or not PSTN-based, is “directly linked to” and is “being used in conjunction with” the information processing capabilities of the Desktop Application. In other words, the Bureau determined that Cisco PSTN Minutes enhance the capabilities of the Desktop Application and that such capabilities are essential in providing the Company’s collaboration service. In addition, the Bureau examined Cisco’s marketing of the service and noted that customers perceive they are purchasing a fully integrated collaboration service. It also disagreed with USAC’s reliance on post-purchase behavior of customers in this case, noting that while such behavior may be relevant to understanding customer’s perceptions, it is not determinative.
To reach its conclusions the Bureau conducted a highly fact-driven analysis and distinguished the Cisco collaboration service from those considered in prior Commission decisions that turned on application of the “functional integration” test – namely the FCC’s 2006 Prepaid Calling Card Order and both the InterCall and InterCall Reconsideration Orders. In so doing, the Bureau noted that, unlike the features at play in the Prepaid Calling Card Order, the capabilities at issue with Cisco’s service can and are used simultaneously. In addition, the Bureau drew a contrast between the Cisco collaboration service and the additional features of the conferencing services at issue in InterCall because the enhanced features at play with Cisco’s services are native to the Desktop Application, not the Cisco PSTN Minutes.
While this decision is no doubt a win for Cisco and providers of factually analogous web-based, online collaboration services, there remain questions as to the impact of this decision on providers of “seemingly” similar solutions that possess both telecommunications and information service components. On the surface, the Bureau’s WebEx Order appears to be a win for providers of services similar to WebEx, but we caution those who may be inclined to paint with a broad brush and read too much into the ruling — the Devil truly is in the details. Granular facts matter, and as such, each unique service offering that might, potentially qualify as either an information service or separable telecommunications must be evaluated closely before concluding that it will be subjected to classification as the former vs. the latter. An additional factor weighing into the likely effect of the WebEx Order on the marketplace is the potential impact of the incoming Republican-led FCC, which all signs indicate will be pursuing a market-based, deregulatory agenda. In summation, there are many variables at play and each must be carefully considered before business decisions are made based on the signals embodied in the WebEx Order.
Given the complexity and, possibly, limited scope of the WebEx Order, we encourage any impacted client to carefully review the decision in light of their suite of service offerings. Thereafter, we urge clients to contact their attorney to determine whether and the extent to which the WebEx Order impacts their business, both historically and in the future.