218 F.3d 756 (D.C. Cir. 2000)
State of Iowa and Iowa Telecommunications and Technology Commission, Petitionersv.Federal Communications Commission and United States of America, RespondentsBell Atlantic Telephone Companies, et al., Intervenors
No. 99-1149
United States Court of Appeals FOR THE DISTRICT OF COUMBIA CIRCUIT
Argued January 24, 2000Decided June 27, 2000

On Petition for Review of an Order of the Federal Communications Commission
Michael D. Hays argued the cause for petitioners.  With  him on the briefs were Kenneth D. Salomon and J.G. Harrington.
James M. Carr, Counsel, Federal Communications Commission, argued the cause for respondents.  With him on the  briefs were Christopher J. Wright, General Counsel, Daniel  M. Armstrong, Associate General Counsel, and John E. Ingle,  Deputy Associate General Counsel. Catherine G. O'Sullivan  and Nancy C. Garrison, Attorneys, U.S. Department of Justice, entered appearances.
Donald M. Falk, Michael E. Glover, Edward H. Shakin,  Dan L. Poole, Robert B. McKenna, William F. Maher, Jr.,  Stephen L. Goodman, Richard White Jr., Michael S. Pabian,  David Cosson, Lawrence E. Sarjeant, Linda Kent, Keith  Townsend, John Hunter and Julie Rones were on the brief  for intervenors.  L. Marie Guillory and Lawrence W. Katz  entered appearances.
Before:  Ginsburg, Sentelle, and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Ginsburg.
Ginsburg, Circuit Judge:


1
The State of Iowa and the Iowa  Telecommunications and Technology Commission (collectively, 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 common carrier and therefore not a "telecommunications carrier"  within the meaning of § 254(h) of the Telecommunications  Act of 1996, 47 U.S.C. § 254(h).  Consequently, the ICN is  ineligible for direct universal service support for the discounted telecommunications services it provides to schools, libraries, and rural health care providers.  See Federal-State Joint  Board on Universal Service, Declaratory Ruling, 14 F.C.C.R.  3040 (1999) (Declaratory Ruling).


2
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. FCC, 198 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 deference 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).


3
With respect to Iowa's first claim, however, the Commission 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

4
The Iowa legislature established the ICN in 1989 to provide heavily subsidized high-speed telecommunications services throughout the state, particularly to areas that may be  under served 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 businesses.  Rather, the ICN may provide service only to "public  and private agencies," Iowa Code  8D.11(2), defined as  follows:


5
"Private agency" means an accredited nonpublic school, a nonprofit institution of higher education eligible for tuition grants, or a hospital licensed pursuant to chapter135B or a physician clinic to the extent provided in section 8D.13, subsection 16.


6
"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 region allibrary ... a county library ... or a judicial district department of correctional services ..., an agency of the federal government, or a United States post office which receives a federal grant for pilot and demonstration projects.


7
Iowa Code  8D.2(4)-(5).


8
Iowa Code  8D.9 further divides the class of "public and  private agencies" into two subclasses.  First, Certifying  Users, which are institutions of higher education, area education 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.  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 services 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 Certifying User  that requests service.


9
Under § 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 reimbursement or an offset against the carrier's obligation to participate in or contribute to the universal telecommunications  service fund.  47 U.S.C. § 254(h)(1).  "Telecommunications  carrier" is defined as "any provider of telecommunications  services," id.  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  facilities used," id.  153(46).


10
The Commission determined that "telecommunications services" means "only telecommunications provided on a common 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  § 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 that  service.


11
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  Ruling.

II. Analysis

12
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:


13
[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.


14
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).


15
In Midwest Video the Commission had promulgated regulations 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. § 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.


16
In NARUC this court reviewed the Commission's determination that Specialized Mobile Radio Systems (SMRS) providing transmission services were not common carriers.  525  F.2d at 639.  The court announced a test for common carriage 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 wrote:


17
It is not an obstacle to common carrier status that SMR Soffer 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 eligiblesunder 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 practically be of use.


18
Id. at 642.


19
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.


20
Although the Commission expressly recognized in the Declaratory 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 argument 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 whether 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 suitable for the government and educational access channels--is  inconsistent with being a common carrier.


21
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).


22
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 Certifying 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.


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 contemplates reasonable distinctions in the terms and conditions of  service offered to different classes of customers.  See 47  U.S.C. § 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 ground, the Commission's defense is  conclusory:


24
[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.


25
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 conclusion that we must remand this matter for the Commission's  further consideration.

III. Conclusion

26
The Commission failed to address Iowa's argument that the  ICN is a common carrier because it holds out service indiscriminately 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.


27
So ordered.

