Cable Modem Case Heads to the Supreme Court

WASHINGTON -- A group of ISPs this week will ask the U.S. Supreme Court to require broadband cable providers to share their networks with competitors, just as incumbent U.S. telecommunications carriers were required to share their DSL networks during the past five years.

U.S. broadband customers would have more choices of providers, and the new competition could drive down prices if the Supreme Court rejects a U.S. Federal Communications Commission attempt to classify cable modem service as an unregulated information service, say the ISPs pushing for cable-sharing rules.

Supporters of the FCC action say broadband adoption in the U.S., hailed by President George Bush and other politicians as an engine of economic growth, would slow if cable providers were forced to share their networks with competing ISPs. Cable providers would have less incentive to improve connection speeds and otherwise upgrade their networks if they have to sell their networks at wholesale prices to competitors, says Dan Brenner, senior vice president for law and regulatory policy at the National Cable and Telecommunications Association (NCTA).

A government effort to determine wholesale prices would put the cable industry in regulatory limbo, Brenner adds. "Practically, how do you get from what we have today to [wholesale pricing] without a heavy-handed government intervention?" he says.

Brand X vs. FCC

The Brand X vs. FCC case--named for Brand X Internet, an ISP that challenged the FCC's cable modem rules--is one of two technology-related cases the Supreme Court will hear Tuesday. In the other case, the court will decide whether the U.S. entertainment industry can sue peer-to-peer software vendors for their users' copyright violations.

The Brand X case is tied to complicated FCC policy focused on how telecom carriers and Internet providers are regulated. The FCC has traditionally required the four large incumbent local telecom carriers, often called the regional Bells, to share parts of their networks with competitors at wholesale prices.

The incumbent Bells inherited large parts of their networks after the breakup of the old AT&T government-sanctioned monopoly in 1984. Congress, in the Telecommunications Act of 1996, required the FCC to establish network-sharing rules, with the goal of increasing competition for local phone service.

The FCC ruled in November 1999 that the incumbent Bells had to share their DSL lines with competitors. The regional Bells argued that DSL and cable modem service should enjoy the same regulatory treatment, and in February 2003, the FCC voted to phase out rules requiring the Bells to share residential DSL lines at discounted rates.

The FCC has taken a different approach with cable modem service, ruling in March 2002 that cable modem service was an information service not subject to the same regulation as telecom services. The FCC suggested then that less regulation would foster the growth of broadband, and by extension, the Internet.

ISPs, including Brand X Internet and Earthlink, appealed the FCC cable modem ruling, and in October 2003, the 9th Circuit Court of Appeals overturned the FCC decision.

Will Competition Benefit Consumers?

Consumer groups, including Consumers Union and the Consumer Federation of America, have weighed in on the Brand X case, saying that additional ISP choices will be good for consumers and will encourage more U.S. residents to adopt broadband.

While some U.S. residents have access to DSL or other broadband services, cable modem service is the most widely available broadband option, says Harvey Reiter, with Stinson Morrison Hecker, a law firm in Washington, D.C., and a lawyer for Brand X Internet. In September, the FCC released a report saying cable modem service controlled more than 75 percent of the U.S. residential and small business broadband market.

"All of the benefits of competition are lost unless you want to deal with the cable company or its affiliate," Reiter says. "The [FCC] itself has said the industry is very concentrated."

Reiter compared cable networks to the monopoly AT&T enjoyed for decades, saying cable companies were granted exclusive rights to offer their service in many U.S. cities. Many U.S. residents still have only one choice of cable provider, he notes.

NCTA disputes Reiter's view of the cable industry. "The telephone companies have a completely different model than the cable industry," says Brian Dietz, vice president for communications at NCTA. "The cable industry built its networks with private dollars. It's different than a government guaranteed monopoly for 100 years."

The Internet line-sharing rules, which originally applied to dial-up service, no longer apply to always-on cable broadband, which doesn't need a separate ISP to connect to the Internet, NCTA officials add. Cable companies, if required to share their networks, would have to spend significant money to allow ISP access, NCTA's Brenner says.

But consumer groups, along with the Center for Digital Democracy, an advocacy group focused on open access to the Internet, have also raised concerns that without open access to cable networks, cable providers could freeze out services such as Internet-based video services that compete with cable, or VoIP (voice over Internet Protocol) service that's not affiliated with the cable provider.

"The Brand X case ... is nothing less than a battle for the soul of the Internet," Jeff Chester, the Center for Digital Democracy's executive director, said in December. "While the cable industry is intent on transforming the Internet into an extension of its tightly controlled cable business, it is critical that we maintain an open, nondiscriminatory platform for the exchange of ideas and information."

NCTA's Brenner, in a media briefing last week, said the concerns about cable providers blocking competing services are a separate issue from the regulatory issues raised in the Brand X case. Earlier this month, the FCC fined a North Carolina telecom for blocking customers from using competing VoIP services over its DSL lines, but Brenner says it's not in cable companies' interest to block services or content.

"There is no market incentive for a company trying to provide a service to make that service unattractive to customers," he says.

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