March 25, 2005 4:00 AM PST
Broadband scuffle reaches Supreme Court
At stake is whether cable broadband providers must share their lines with rivals--as happens in the phone industry--or whether they should be exempt from such rules. Though seemingly arcane, the issue could influence how quickly high-speed Internet services come online across the country, what features they will have and how much they will cost--particularly in those regions where cable is the only broadband choice for consumers.
The case pits the Federal Communications Commission against Brand X, a Santa Monica, Calif., Internet service provider.
Brand X is hoping for a ruling that will force cable companies to lease their lines at a discounted rate, so the ISP can sell broadband service to its customers. If cable companies are not required to share in this way, Brand X argues, consumers will pay higher prices and have fewer choices. The FCC, on the other hand, will try to make the case that rules hammered out in the phone industry have led to higher prices and slower broadband growth. Keeping cable companies exempt from line-sharing rules will spur investment, and benefit consumers more in the long run.
A California ISP's challenge against the FCC's broadband rules heads to the Supreme Court next week.
The case could force cable companies to open their broadband lines to other ISPs, or it could hand cable and the Baby Bells more control of their networks. This could affect how quickly--and how cheaply--broadband service rolls out.
"I don't think the FCC feels that high regulation in these industries is beneficial to broadband progress overall," said Patrick Mahoney, an analyst at market researcher The Yankee Group.
Though the nation's highest court will not make a formal decision until early summer, the impact could go well beyond Internet services. Cable and phone providers plan to use broadband for more than just letting people surf Web sites faster. It'll be used to feed high-definition television stations, nationwide voice calling and future digital services into peoples' homes. All these services could be affected by the court's ruling.
Tuesday's arguments are expected to highlight wildly divergent views about the impact of forcing cable operators to lease their lines to smaller ISPs such as Brand X.
Critics of open-access rules point to the lesson of the Baby Bells, who were forced to lease their DSL, or digital subscriber line, lines to competitive ISPs as part of the 1996 Telecommunications Act. While the cable industry began pouring money into network upgrades, the Bells pulled back on their improvements, arguing that any investments would be cannibalized by rivals who could lease the lines at rates set by the government.
Advocates of open access argue that the Bells were simply stalling. Once they realized the cable industry had taken a dangerous lead, the phone companies brushed past regulatory concerns and quickly began closing the gap.
For more than two years, the Bells have aggressively marketed their DSL services by dropping subscriptions to as low as $26 a month in some areas. DSL subscriptions have surged, and most major cities can now get service.
The result is a fiercely competitive market that pits cable giants against phone companies, with little room for small fry such as Brand X.
In response to DSL's gains, cable companies have hiked download speeds to as high as 5mbps for standard service, although the higher monthly subscriptions average about $45.
In 2004, broadband subscriptions grew by 8.6 million to a national total of 33.2 million, according to Leichtman Research Group. Cable remains the leader, with about 60 percent of the market, and DSL with most of the rest.
In effect, Brand X will have to argue that competition would have been even fiercer with tough cable regulations in place.
A case of definitions
Legal experts said the case will come down to an interpretation of two words: "telecommunications" and "information."
Phone companies are deemed telecommunications services, making them subject to regulations that require them to share their broadband DSL lines with competitors. Cable companies are defined as information services, which means their broadband networks are not normally subject to line sharing or local regulations. One exception is Time Warner Cable, forced to lease its lines to rivals as a condition of the 2000 merger between parent Time Warner and America Online.
The distinction has had wide-ranging effects on the Baby Bell phone companies--Verizon Communications, SBC Communications, BellSouth and Qwest Communications International--which have argued for many years that the rules are unfair to their DSL businesses. Because the Bells are considered telecommunications services, they
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