Client Alert

FCC Rebuffed on Classification of Cable Modem Services

10/8/2003

In a decision entered October 6, 2003, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit dealt a significant blow to the cable Internet policies of the Federal Communications Commission ("FCC" or "Commission"). Brand X Internet Services v. FCC, Nos. 02-70518, 02-70684, 02-70685 (9th Cir. 2003). Specifically, the panel rejected the Commission's classification of so-called "cable modem" service as an unregulated information service, thereby undermining the Commission's rationale for declining to require cable modem operators to open their facilities to competitors. FCC Chairman Powell announced that the Commission will appeal the panel's decision.

Cable modem service, which gives consumers a high-speed Internet connection over the facilities of their local cable television systems, has sparked a number of controversies about its impact on competition. Notably, non-cable Internet service providers ("ISPs") have argued that cable modem service providers should be required to share their facilities with unaffiliated ISPs, just as local telephone companies are required to interconnect with their competitors. Local telephone companies, in turn, have emphasized the unfairness of requiring them to share their high-speed Internet facilities with competitors while cable modem providers have no comparable obligations to their competition. Finally, some municipalities have taken the position that competitive access to cable modem platforms is within their jurisdiction as local cable franchising authorities.

The FCC has responded to these concerns by working -- albeit slowly -- toward competitive parity for all high-speed Internet access services. Specifically, the Commission has proposed deregulation of telephone company high-speed Internet services and resisted the imposition of access obligations on cable modem providers. The Commission also has taken the position that the FCC -- not municipalities -- has the authority to decide these questions.

As with so many issues in communications law, the FCC's deregulatory initiative is in large part a fight over definitions. If cable modem service is a "cable" service under the Communications Act, then municipalities may have a basis for asserting jurisdiction over that service. If cable modem service is "telecommunications" -- that is, mere transport and switching of communications without change in their form or content -- then common carrier obligations, such as the duty to interconnect with competitors, might apply to the service. If, on the other hand, cable modem service is an unregulated "information" service -- that is, a service that changes the form or content of the communications it carries -- then the FCC has a strong case for its refusal to impose common carrier obligations on providers of that service.

Not surprisingly, the Commission made the definitional choice that best fits its deregulatory policy. The FCC decided in March 2002 that cable modem service is not a cable service subject to municipal regulation. The Commission also decided that "cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service [in a cable modem service]." Simultaneously with this decision, the Commission asked for comment on the regulatory implications of this classification, including whether cable operators can be required to provide access to competing ISPs.

The Commission's classification, however, seemed dubious to many observers. In fact, a three-judge panel of the Ninth Circuit Court of Appeals previously had found, in a decision concerning the City of Portland, Oregon's imposition of access obligations on a local cable modem provider, that cable modem service is not a pure information service but includes a telecommunications element. Specifically, the Ninth Circuit had found that cable modem service includes two elements: "a 'pipeline' (cable broadband instead of telephone lines), and the Internet service transmitted through that pipeline." In the Ninth Circuit's view, the "pipeline" portion of the service is an ordinary telecommunications service, and the Internet access portion of the service is an information service.

In the recent Brand X case, the Ninth Circuit panel was asked to reaffirm this earlier interpretation of cable modem service and overturn the Commission's finding that cable modem Internet access is purely an information service. Arguing against this request, the Commission contended that the court was not bound by the prior interpretation and should reconsider the proper regulatory classification of cable modem service. The panel disagreed, finding that the relevant statutory language is unambiguous and that it is bound by the previous three-judge panel's interpretation. Accordingly, the panel upheld the Commission's finding that cable modem service is not a cable service, but rejected the FCC's finding that the service is an information service and not, in part, a telecommunications service. The panel remanded the "telecommunications/information" question to the FCC for further proceedings.

The Ninth Circuit panel's decision does not end the controversy over competitive access to the cable Internet access platform. Even if the panel's decision is not overturned on appeal, the FCC might, on remand, find an alternative rationale for cable modem deregulation or seek to achieve the same result through exercise of its forbearance authority. In view of the high stakes in this controversy, all affected parties should follow these proceedings closely and participate as appropriate.

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