Broadband Deregulation on Shaky Ground

Posted: 12/2003

Broadband Deregulation on Shaky Ground
Laywers: Cable-Modem Ruling Undercuts Parity Case
By Josh Long

Sue Ashdown, president of the American ISP Association, says a recent court ruling may compel the FCC to think twice about easing the rules requiring the countrys largest local phone companies to open their broadband networks for use by rival Internet providers.

In October, a federal appeals court ruled the FCC had improperly classified cable-modem transmission as an information service, a category subject to fewer regulations than a telecommunications 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.

U.S. cable operators, with nearly twice as many broadband lines as the phone companies had at the end of last year, may be required to open their high-speed networks to rival ISPs such as Earthlink Inc. and Juno Online Services Inc., if the decision is upheld.

Daniel Brenner, senior vice president of law and regulatory policy with the National Cable & Telecommunications Association, says the ruling is flawed. The decision is a strained reading of an earlier Ninth Circuit case to which the three-judge panel felt legally bound, Brenner says. By virtue of the prior decision in AT&T v. City of Portland, the panel felt compelled to characterize cable modem service as a telecommunications service, a legally erroneous conclusion that neither Congress nor any other U.S. court has ever reached.

The ruling is bittersweet for the RBOCs. Arguing for fewer regulations, BellSouth Corp., SBC Communications Inc., Qwest Communications International Inc. and Verizon Communications Inc. have asked regulators to treat them as they do cable companies.

This argument for parity, some lawyers say, is a major premise behind the FCCs push to deregulate wireline broadband services, including DSL. If upheld, the ruling in the U.S. Court of Appeals for the 9th Circuit would undermine the argument for deregulation at a time when the FCC has proposed easing the broadband rules the phone companies must follow, such as making their networks available to competitors on a non-discriminatory basis, these lawyers say.

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.

Jonathan Askin, general counsel with the Association for Local Telecommunications Services, says the Bells must "do an entire regroup on their parity argument."

Bill McCloskey, a spokesman for BellSouth, says the company consistently has argued everyone should be subject to less regulation because there is sufficient competition in the broadband market. The Internet, and, for that matter, cellular service, has thrived because of limited regulation. Economic regulation is crippling this industry, McCloskey says. If cable-modem-based high-speed Internet service has the bulk of the business and we are competing with somewhere around 30 percent of the business, the business is competitive. It is time to drop the regulation.

At the end of last year, there were 11.4 million cable-modem lines in service, compared to 6.5 million asymmetrical DSL lines, according to FCC data.

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 and goals.

Among other objectives, the FCC said it sought to ensure that broadband services exist in a minimal regulatory environment that promotes investment and innovation and develop an analytical framework that is consistent, to the extent possible, across multiple platforms.

The federal court ruling clearly irked FCC Chairman Michael Powell. Powell said in a statement the decision will throw a monkey wrench into the FCCs efforts to develop a vitally important national broadband policy. Christopher Libertelli, senior legal advisor to Powell, says the FCC asked that the full panel of the 9th Circuit review the ruling.

Seeking to overturn a ruling by the threejudge panel, the FCC has requested an appeal in a so-called en banc review. A majority of the courts 27 judges must vote to grant an en banc. If they do, 11 judges, including Chief Judge Mary M. Schroeder, will preside over the case. Judges could rule relatively quickly  a few months or even less  depending on how pressing a case the court deems it.