FCC Clarifies CPNI Rules in Response to the Tenth Circuit's U.S. West v. FCC Decision

On September 7, 2001, the FCC issued its Clarification Order and Second Further Notice of Proposed Rulemaking (the "CPNI Clarification Order" and "Second NPRM"), In the Matter of Implementation of the Telecommunications Act of 1996, Telecommunications Carriers' Use of Customer Proprietary Network Information ("CPNI") and Other Customer Information, CC Docket No. 96-115. The CPNI Clarification Order addresses the status of the FCC's CPNI rules in light of a decision from the U.S. Court of Appeals for the Tenth Circuit in U.S. West v. FCC, 183 F.3d 1224 (10th Cir. 1999), and "explains how parties may obtain customer consent for use of their CPNI."

According to the FCC, CPNI basically consists of "where, when, and to whom a customer places a call, as well as the types of service offerings to which the customer subscribes and the extent to which the service is used." In order to better understand the CPNI Clarification Order, it will be helpful to recap the decisions and proceedings leading up to it. To begin with, the FCC first addressed the CPNI issue in 1996. This was in response to requests for guidance from the telecommunications industry regarding the obligation of carriers under Section 222 of the Federal Telecommunications Act of 1996. Section 222 states generally that "every telecommunications carrier has a duty to protect the confidentiality of proprietary information of, and relating to . . . customers."

The FCC subsequently initiated a rulemaking in an effort to clarify the privacy requirements under Section 222 and, on February 26, 1998, the FCC issued an order (1) addressing the meaning and scope of Section 222 and (2) adopting regulations to implement the CPNI requirements in Section 222 (the "1998 CPNI Order"). In its 1998 CPNI Order, the FCC held that a balance must be maintained between competitive industry interests and consumer privacy interests. In an attempt to maintain that balance, the FCC stated that "customers must be able to control information they view as sensitive and personal from unauthorized use, disclosure, and access by carriers." At the same time, however, the FCC also recognized that "where information is not sensitive . . . Section 222 [47 U.S.C. § 222] permits the free flow of information beyond the customer-carrier relationship, because in this situation, the customer's interest rests more in choosing service with respect to a variety of competitors, thus necessitating competitive access to the information."

As a result, in the 1998 CPNI Order the FCC adopted what it refers to as the "total service approach" and the "notice and opt-in approach" (also referred to sometimes as the "opt-in" approach). The "total service approach" allows a carrier to use, without the customer's prior approval, all "CPNI derived from the complete service that the customer subscribes to from that carrier and its affiliates, for marketing purposes within the existing service relationship." The "notice and opt-in approach" requires carriers to notify a customer of its rights and then "obtain express written, oral or electronic customer approval . . . before a carrier may use CPNI to market services outside the customer's existing service relationship with that carrier."

For example, in U.S. West v. FCC, the Tenth Circuit provided the following illustration of the framework created by the FCC in its 1998 CPNI Order: petitioner [a carrier] could use CPNI obtained through the provision of local service to market other local service products, but not cellular services. Moreover, if the customer subscribes to both local and long-distance services, petitioner could use the CPNI to market either service and could exchange the CPNI between affiliates that provide such services, but petitioner could still not use the CPNI to market cellular services. In addition, the regulations prevent telecommunications carriers from using, without customer approval, CPNI gained from any of the three categories described above to: (1) market customer premises equipment ("CPE") or information services (such as call answering, voice mail, or Internet access services); (2) identify or track customers that call competitors; and (3) regain the business of customers who have switched to another carrier.

U.S. West challenged the FCC's 1998 CPNI Order, arguing to the Tenth Circuit that the "notice and opt-in approach" violated the First and Fifth Amendments of the U.S. Constitution. The Tenth Circuit ultimately sided with U.S. West and held that: (1) CPNI was "commercial speech" for purposes of the First Amendment's free speech clause; (2) the FCC failed to show that its CPNI regulations directly and materially advanced its asserted interests in privacy and increased competition; and (3) the CPNI regulations were not narrowly tailored to further the FCC's asserted interests. With respect to its third finding, the Tenth Circuit held that the FCC's "opt-in" approach was not narrowly tailored because the FCC failed to adequately consider the substantially less restrictive "opt-out" approach advocated by industry members. As the name suggests, an "opt-out" approach is the converse of the FCC's "opt-in"approach. Under an "opt-out" scenario, carriers would be permitted to use CPNI unless a customer affirmatively "opted-out" and provided the carrier with notice.

The FCC's recent CPNI Clarification Order now attempts to address the status of its CPNI rules post-U.S. West v. FCC. In the CPNI Clarification Order, the FCC states its belief that "[t]he court's opinion in U.S. West v. FCC analyzed only the constitutionality of the Commission's interpretation of the customer approval requirement [the ‘opt-in approach']." Thus, the FCC concludes that the Tenth Circuit's "vacatur order applied only to Section 64.2007(c) [47 C.F.R. § 64.2007(c)], the only provision inextricably tied to the opt-in mechanism. The remainder of the Commission's CPNI rules remain in effect."

Of course, the question remains - what does all of this mean to telecommunications carriers? The short answer is, as the FCC states, "we no longer mandate an opt-in mechanism." The long answer is that the CPNI Clarification Order also provides additional requirements and interim guidance to carriers pending resolution of the FCC's Second NPRM on CPNI. Essentially, while the FCC is continuing to seek comments "on the responsibilities of carriers in obtaining consent from customers for the use of CPNI and . . . whether we should adopt opt-in or opt-out consent," it has stated that carriers "may proceed to obtain consent consistent with the notification requirements in Section 64.2007(f) [47 C.F.R. § 64.2007(f)], using an opt-out mechanism or, should they chose to do so, an opt-in mechanism." The notification requirements in Section 64.2007(f) direct telecommunications carriers to provide, prior to any solicitation for customer approval, a "one-time notification to the customer of the customer's right to restrict use of, disclosure of, and access to that customer's CPNI."

In addition, carriers should also be aware that if they choose to use an "opt-out" approach, the CPNI Clarification Order requires that their notifications advise "customers that without any further authorization, the carrier may use the customer's CPNI not only to market to the customer services to which the customer currently subscribes, along with customer premises equipment and information services, and to share the customer's CPNI with any of its telecommunications carrier affiliates that have an existing relationship with the customer, but also to market services to which the customer does not already subscribe . . .[and] also provide a reasonable and convenient means of opting out, such as a detachable reply card, toll-free telephone number or electronic mail address."

The requirements in the CPNI Clarification Order are scheduled to become effective thirty (30) days after publication in the Federal Register. The Federal Register may be accessed online at: www.access.gpo.gov/nara/

This article is intended to provide only a brief overview of the CPNI Clarification Order. It is not intended to address each and every issue or requirement contained therein. As with any legal decision, the CPNI Clarification Order is sure to have wide-ranging implications for different telecommunications carriers. If you have any questions regarding the subject matter of this article or if you would like to obtain an electronic copy of the CPNI Clarification Order, you may contact the author, Elliott S. Cappuccio, through the link provided below.

Elliott S. Cappuccio is an associate in the San Antonio office of Stumpf Craddock Massey & Pulman, P.C. (SCM&P). Mr. Cappuccio practices primarily in the fields of telecommunications law, commercial litigation, and consumer law.

SCM&P is a full-service law firm with practice areas that include, among others: Telecommunications; Internet; Corporate & Venture Structuring; IP Protection; Banking & Bankruptcy; Real Estate; and Commercial & Civil Litigation. In these areas, SCM&P represents CLECs, IXCs, ISPs, ESPs, ASPs, and many other providers and users of telecommunications services, equipment, and bandwidth.

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