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.