Court Backs Cable in Brand X Case

UPDATED: The Supreme Court ruled today that cable broadband providers do not have to share their lines with independent Internet service providers (ISPs), a victory for the cable industry, which dominates the broadband access market.

In a 6-3 decision, the justices said the Federal Communications
Commission (FCC) was correct in classifying broadband cable modem as a deregulated information service.

Legal experts, such as the firm of Womble Carlyle Sandridge & Rice, said the regulatory treatment of cable service will provide cable operators with stronger leverage to run their broadband networks as
closed, integrated systems, to the extent they elect to do so.

But it could also “effectively limit the ability of consumers to run applications of their choosing, including VoIP services, over cable

The ruling also bodes well for the Baby Bells, which have long grumbled that the rules left them at a disadvantage. “They will now have a strong argument (both at the FCC and on Capitol Hill) that DSL
service bundled with ISP functions should be treated the same way as cable modem services,” the firm wrote in a note about the ruling.

Forrest Miller, group president of SBC, echoed that sentiment in a statement lauding the ruling that upheld the FCC’s light regulatory touch on cable broadband service.

“Consumers benefit when companies can freely negotiate their commercial agreements without the government distorting a highly competitive broadband market,” Miller said. “Investment in broadband networks and the continued development of innovative pricing and service packages for consumers are best realized without the government looking over the shoulder of companies at the negotiating table.”

Miller said the telecom looks forward to working with the FCC to move forward “at full tilt with its nearly four-year-old proceeding to provide the same flexibility to the broadband service of phone companies.”

Independent ISPs won’t see such smooth sailing.

“Today’s ruling is bad news for millions of Americans who are overpaying billions of dollars every year in cable Internet service,” said Mehrdad Saberi, chairman of the California ISP Association. “The interests of American consumers and businesses have been sold out as the FCC and now the court have defined Internet service in such a narrow way that allows cable companies to escape proper regulation. Nearly every innovation in Internet service has come from independent ISPS. Now that source of Internet innovation, consumer choice and affordability is threatened with extinction as cable companies block the benefits of competition.”

Today’s decision dates back to a 2002 ruling by the FCC that cable broadband providers are information services and do not have to share their lines with competing ISPs.

In contrast, incumbent telephone companies, which are classified as
telecommunications services, are required by the FCC to make their networks available to competing dial-up ISPs.

The ruling essentially preserved the status quo on the regulations, which has been a thorn in the side of incumbent telephone providers — the Baby Bells — such as Verizon. They argue that the rules give cable players an unfair advantage in the broadband market.

The original FCC ruling brought an immediate challenge from a Santa Monica, Calif.-based ISP named Brand X. In 2003, the 9th Circuit Court of Appeals overturned the FCC decision in favor of Brand X. The FCC, supported by the Department of Justice, appealed the decision.

“High-speed Internet connections are not telephones,” then FCC Chairman
Michael Powell said when the FCC appealed the 9th Circuit decision. “The 9th Circuit’s decision would have grave consequences for the future and availability of high-speed Internet connections in this country.”

At the March 29 Supreme Court ruling, Paul Cappuccio, general counsel at Time Warner, the nation’s number two cable company, told the justices, “We are offering two products [broadband service and the underlying transmission service] that come together for one product.”

After the hearing, Dave Baker, vice president for law and public policy at EarthLink, said, “Cable companies built their networks using
government-granted monopoly franchises, access to public rights of way and discounted rates for pole attachments.”

Baker added, “Nonetheless, they now dictate what services, devices and
applications companies can offer and consumers can use on those networks.”

Further complicating the issue is a Washington state district court decision that predates the FCC ruling.

In that decision, the court said cable modem service does involve a telecommunications element. The FCC claims its decision is the controlling ruling. The 9th Circuit said law trumps regulation, and the court got there first.

The Consumer Federation of America, along with the American Civil Liberties Union, the Center for Digital Democracy (CDD) and a host of other public advocacy organizations, supported Brand X in its legal battle with the FCC.

The groups fear broadband competition in the United States will be reduced to a duopoly between cable modems and DSL.

“Open communications networks have been at the core of the American economy for centuries. Nondiscriminatory access to transportation and communications networks has always been essential to a thriving economy, whether it was railroads, the telegraph or telecommunications,” the CDD’s Jeff Chester said in March. “In the digital age when communications and commerce converge, open communications networks are even more important.”

Chester added, “The open environment of the Internet was the source of
dynamic innovation in the digital economy in the 1990s when
nondiscriminatory access to telecommunications network was guaranteed.”

Broadband services reach approximately half of all Internet subscribers. Cable broadband providers and incumbent carriers offering DSL dominate the market.

According to the FCC, there are 32.5 broadband connections in the United States with cable leading the pack with 18.6 million subscribers. DSL accounts for 11.4 million connections.

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