RealTime IT News

Court Refuses to Review FCC Modem Rule

The Federal Communications Commission has been dealt a setback after a federal court declined to hear an FCC appeal over how it classifies cable broadband providers.

The Wednesday ruling, by the Ninth Circuit Court of Appeals, means the cable industry may no longer be able to call its cable modems an information service, which frees it from the telephone line-sharing rules that rival ISPs, such as dial-up and DSL providers, have to follow.

Baby Bell phone companies are currently seeking greater deregulation of their broadband services, hoping to gain to gain the status of being an information service. But Wednesday's decision may indicate the court supports the current regulatory obligations of wireline providers.

The FCC must now decide whether to appeal the decision to the United States Supreme Court or rewrite its rules for broadband deployment so that cable broadband providers are subject to the same rules as ISPs that use phone lines to deliver their service.

The case involved a 2002 decision by the FCC that said cable modems are an "information service" and not subject to the same line access rules as dial-up Internet service providers as well as broadband providers via DSL.

"I am disappointed that the Court declined to address the merits of the Commission's policy that was carefully developed over the past several years," said FCC Chairman Michael Powell in a statement. This decision "prolongs uncertainty to the detriment of consumers. That is why we will study our options and explore how to continue to advance broadband deployment for all Americans."

The cable industry also expressed disappointment over the decision.

"We will urge the FCC to seek U.S. Supreme Court review," said Dan Brenner, senior vice president for law and regulatory policy for the National Cable and Telecommunications Association (NCTA). Brenner predicted "if and when the Ninth Circuit's decision is given a full substantive review by the Supreme Court, it will be reversed."

An FCC spokesperson told internetnews.com the agency won't make a decision to appeal until it has had time to fully consider its options. The decision by the Ninth Circuit Court of Appeals will become effective in seven days unless the FCC or the cable industry convinces the court to postpone its ruling. Both parties have 90 days to decide whether to seek Supreme Court review.

In a research note issued Thursday, former FCC staff attorney Blair Levin, and current telcom senior analyst for Legg Mason, said: "Although we believe it is very likely that the FCC ultimately will decline to impose the full set of common-carrier obligations on cable broadband service, today's news adds to a cloud of uncertainty for cable broadband, and has some potential fallout for the Bells."

Legg Mason predicted, "The cable industry will certainly appeal, and we expect that the FCC will seek to as well."

Another FCC option would be to "forbear" from regulating telecommunications services. The 1996 Telecommunications Act gives the agency the authority to back away from regulating where it can prove the regulations would do more harm than good.

Several years ago, the FCC tentatively concluded that even if cable broadband is ruled a telecommunications service, it should forbear from regulating them. No final ruling has been issued by the FCC.

"We believe that even if the court's decision goes into effect, there will not be immediate application of any common-carrier rules to the cable broadband services while the Supreme Court review decision is being made," the Legg Mason report states. "More likely, a company seeking, for example, access to the cable network would file an enforcement action at the FCC, which would then defer acting until it undertook some proceeding to decide how and whether to apply telecom rules to cable modem service."

In March of 2002, the FCC declared cable broadband modem service an interstate information service. The decision had the effect of exempting cable broadband from regulation by the FCC and state public utility commissions.

The FCC also said cable broadband providers did not have to offer high speed transmission services to competing Internet service providers on a non-discriminatory basis. At the time of the FCC's ruling, Powell said the agency's decision would encourage greater broadband deployment.

The decision was immediately controversial with Internet service providers (ISPs) who deliver broadband over the Bell's digital subscriber line services (DSL). The Bells argued the rule put them at a competitive disadvantage since they are required to open their networks and facilities.

Consumer groups also backed the case of the traditional ISPs, saying opening cable networks to other ISPs would increase competition.

On October 6, the Ninth Circuit in San Francisco