U.S. cable companies may be required to open their broadband networks to rival Internet providers such as EarthLink Inc. if a federal appeals courts decision released Monday is upheld.
Yesterday’s decision in the U.S. Court of Appeals for the Ninth Circuit also casts doubt on whether the FCC can vote soon on whether to ease the regulations requiring the regional Bell phone companies to open their broadband networks to rival ISPs.
The federal appeals court in San Francisco ruled the FCC had improperly classified cable-modem transmission as an information service rather than a telecommunications service.
This is an important distinction because cable modem service is subject to fewer regulations than DSL, the broadband technology used by most phone companies. DSL is classified as a telecommunications service, although the FCC last year proposed designating it an information service.
“Considered in its entirety, the 1996 Telecommunications Act compels the conclusion that cable modem contains a telecommunications service component,” Judge Sidney R. Thomas wrote in a concurring opinion.
The case, Brand X Internet Services vs. FCC, has sweeping implications on national broadband policy.
The decision “will throw a monkey wrench into the FCC’s efforts to develop a vitally important national broadband policy,” FCC Chairman Michael Powell said Monday in a statement. Powell said he would direct the agency’s General Counsel to appeal the decision. The FCC could either ask all the judges in the federal appeals court to review the case or file an appeal before the U.S. Supreme Court.
In yesterday’s ruling, a three-judge panel made a decision based on a prior case in the same court that pitted AT&T Corp. vs. the City of Portland. That case concerned whether local franchises had the authority to require AT&T’s former cable operator, TCI, to open its network to competitors. The judges ruled the franchises did not have the authority to impose such a condition, but they classified the transmission of Internet service over a cable network as a telecommunications service as defined by federal law.
The judges “felt they were hamstrung as a result of the prior precedent,” says Andy Lipman, a partner with Swidler Berlin Shereff Friedman. However, if all the judges in the U.S. Court of Appeals for the Ninth Circuit review the FCC case following an appeal, they will not be subject to precedent, the attorney says.
Yesterday’s ruling is bittersweet for the largest phone companies. Arguing for fewer regulations, the four Bell companies – BellSouth Corp., SBC Communications Inc., Qwest Communications International Inc. and Verizon Communications Inc. – have asked regulators to treat them the same as the cable companies.
This argument for parity, lawyers say, is a major premise behind the FCC’s push to deregulate wireline broadband services, including DSL. If Comcast Corp. and the other cable titans are not required to open their networks to rival ISPs, the argument goes, neither should Bells be forced to make their broadband networks available to competitors on a non-discriminatory basis.
Yesterday’s ruling, if upheld, would undermine the argument for deregulation at a time when the FCC has proposed easing the broadband regulations applying to the phone companies.
“[The Bells] got to do an entire regroup on their parity argument,” says Jonathan Askin, general counsel with the Association for Local Telecommunications Services, a group representing phone and Internet companies competing with BellSouth, SBC, Qwest and Verizon.
In February 2002, the FCC tentatively concluded wireline broadband Internet access services, including DSL, should be considered an information service, with a telecommunications component - but not a telecommunications service. In a notice of proposed rulemaking, the FCC said it was guided by a number of principles, which included seeking to “ensure that broadband services exist in a minimal regulatory environment that promotes investment and innovation.”
Last week, FCC sources said the commissioners could vote on the broadband proceeding late this year or early in 2004. It is unknown how yesterday’s ruling will affect the timeline.
“In light of this kind of decision the FCC would be foolish to proceed with radical new theories of deregulation until the Supreme Court clarifies the law in this case,” says Jon Canis, a partner with Kelley, Drye & Warren, a law firm representing phone and Internet companies competing with the Bells.
Christopher Libertelli, senior legal advisor to Chairman Powell, said, “No decision has been made to delay the Wireline Broadband proceeding.”
Advisors to FCC commissioners Kevin Martin, Michael Copps and Kathleen Abernathy did not immediately respond to inquiries Tuesday seeking comment.
Lisa Zaina, senior legal advisor to FCC Commissioner Jonathan Adelstein, says, “We've not discussed the implications of the 9th Circuit decision.”
Lipman says yesterday’s ruling requires the FCC wireline bureau to rethink how it’s going to support its broadband policies. “The wireline broadband initiative turned on parity [treating phone and cable companies equally] and basically the parity argument is now up in the air. At a minimum it is going to require a whole new focus,” he says.
Askin says the FCC still has authority to ease the requirements on the cable and phone companies even if the broadband services are classified as telecommunications services. Limiting the regulations could make it more difficult for small ISPs to provide their customers service if they do not operate their own broadband network. But provisions in the Telecommunications Act of 1996 still would require the phone companies to make their underlying network –most importantly the copper wire extending to a home and business -available to competitors.
