Good News Ahead?

Cable-industry lawyers say that they have a good shot at keeping rival Internet service providers (ISPs) away from their broadband subscribers.

That prediction came last week during oral arguments in a case that could dictate how cable companies operate their lucrative high-speed Internet platforms. Many of the justices' comments indicated they believe that the FCC was well within its authority three years ago when it decided against making cable operators open their broadband lines to other ISPs.

A decision is expected in June. The FCC's 2002 conclusion not to impose ISP open access on cable operators was a “classic example of what an agency does,” said Justice Stephen Breyer, meaning that it creates rules that can be logically defended. “I don't think the court wants to second-guess.”

Four years ago, the FCC decided that cable operators aren't bound by telephone-style rules that have required local Bell phone monopolies to lease portions of their telecommunications capacity to rival companies.

Ailing Chief Justice William Rehnquist, speaking with the aid of an electronic device, pointed out that the 1996 Telecommunications Act, upon which the FCC's cable-modem rule is based, largely ordered the agency to reduce regulatory burdens on the communications business. Consequently, any time the FCC interprets ambiguous portions of the statute, it generally should err on the side of deregulation. “Congress apparently wanted to go in the direction of deregulation here,'” he said.

“It was clear the justices believed the FCC has jurisdiction to decide the cable-modem rules,” said Daniel Brenner, general counsel for the National Cable & Telecommunications Association.

Analysts for investment bank Legg Mason predicted in their synopsis of the argument that the court will defer to the FCC, but they said the ISPs “have a fighting chance,” thanks to a deft presentation by their lawyer, Thomas Goldstein of Washington firm Goldstein & Howe.

The issue of cable Internet access has embroiled the FCC since 1998. That year, the Portland, Ore., City Council ordered AT&T to open local cable Internet lines to rival ISPs as a condition of approving the company's acquisition of the town's Tele-Communications Inc. franchise. AT&T challenged the order, setting off a legal battle over Internet-access rules. When that initial appeal was decided by the federal appeals court in San Francisco two years later, the judges ruled that the 1996 Telecommunications Act obligated the FCC to impose open-access rules on all cable systems.

In an attempt to settle the issue, the FCC ruled in 2002 that it had the authority—but no obligation—to impose access mandates. The FCC said it would not impose any new obligations unless cable operators began interfering with subscribers' ability to navigate the Internet, such as blocking content on rivals' Web sites. In October 2003, the San Francisco court ruled the FCC had wrongly ignored its earlier decision. The FCC then appealed to the high court.

Opening cable Internet lines to rivals has been a top priority for ISPs and consumer advocates because cable broadband is faster than the version offered by phone companies. With a lock on the best high-speed platform available, cable companies will be able to promote in-house content at the expense of competitors', consumer activists warn. In 2004, national broadband subscriptions stood at 33.2 million, with cable holding 60% of the market.

Earthlink and Brand X, along with the largest consumer groups, argue that the FCC was wrong to reject access mandates, because current telecommunications law already obligates cable operators to lease access to competing providers.

Cable operators counter that rivals will have a huge competitive advantage in setting prices for broadband service if they are allowed to piggyback at low cost on the new digital pipeline the cable industry has spent $95 billion constructing. The cable industry drew $10 billion in revenue last year from broadband subscribers.

Deputy Solicitor General Thomas Hungar, arguing on behalf of the FCC, explained that telephone companies are treated differently because they have traditionally been required to lease access to their backroom telecommunications transmission services. Cable faces no such obligation. He also pointed out the FCC is actively rethinking rules that force telephone companies to lease access to their DSL capacity.

Justice Antonin Scalia remained unimpressed. Goldstein, representing independent ISP Brand X, picked up on Scalia's reservations. He argued that cable operators have the means to lease their capacity, although cable-industry lawyers disagreed. Goldstein pointed out that cable services also have the means to lease their telecommunications capacity.

The FCC's rationale for exempting cable from open-access rules, Goldstein maintained, is akin to letting a store evade a ban on selling cigarettes to minors by arguing, “I'm not selling cigarettes. I'm selling a smoking service.”