March 25, 2005 4:00 AM PST

Broadband scuffle reaches Supreme Court

Two competing visions of the future of high-speed Internet services will face off before the U.S. Supreme Court on Tuesday, in a closely watched case that could set the rules of the road for broadband competition in America for years to come.

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.

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What's new:
A California ISP's challenge against the FCC's broadband rules heads to the Supreme Court next week.

Bottom line:
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.

More stories on cable broadband

"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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12 comments

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PLEASE. Please, please, please...
...do not uphold cable's monopoly. They have constant price increases and justify with quantity, not quality. If any indutry could use competition, it's cable. Please.
Posted by ordaj (338 comments )
Reply Link Flag
Actually...
Satellite providers are great competition for the cable company. I for one, don't see why a company that invests money in an infrastructure should be forced to share that infrastructure with its competition. I can get satellite TV and Internet, I can get over the air TV and Internet, and there is nothing stopping these industries from coming up with new forms of delivery, such as the power-line proposals that have been release over the past few years. The cable companies are fairly free to raise their rates all they want, because they actually do not have a monopoly. I am surprised you have not already considered satellite. The quality is better, and the price is lower. Check it out.
Posted by David Arbogast (1709 comments )
Link Flag
Not only cable/dsl companies...
"The result is a fiercely competitive market that pits cable giants against phone companies, with little room for small fry such as Brand X."

-We're not only talking about cable companies anymore. This relates to all businesses. Where's room for a small software co. in the midst of Microsoft that corners the market? Or how about a small bookstore? Where does it fit in between B&N and Borders?

We're rehashing the same old story: company A won't play well with company B. In the end those who are in business will tell you that that's how it is - get used to it.

Those of us that use cable/dsl lines will tell you that in the end it's really up to the consumer and what they think is reliable and who is reliable.

I pay more for the dsl and receive slower speeds but I pay the price that I pay for the customer service. To me that is more important than receiving the fastest connection possible.

If these cable/dsl companies realize this they would work together to find a better and faster solution than squabbling over cable lines.

Let the small guy in and see what he has to offer-
If he can't survive then no one really loses anything.
Posted by (1 comment )
Reply Link Flag
Disagree
<<Let the small guy in and see what he has to offer- If he can't survive then no one really loses anything>>

I have to disagree with this statement. The cable companies lose. It is the cable companies that made the investment in the infrastructure, and they are the ones who handle all of the infrastructure maintenance as well. The reason small companies don't have such an infrastructure, is because they cannot [yet] afford to build one. In all likelyhood, they are also unable to pay for the ongoing maintenance and support that they *should* be required to pay if the cable companies are forced to share the lines.

Cable companies lose bandwidth
Cable companies have steady maintenance costs for fewer customers
Cable companies have a diminished ability to deliver quality services as they can no longer maintain complete control of the lines...

I am not suggesting that the regulation is definitely bad... but I strongly disagree that nobody loses. I see no reason why the cable company should spend its resources assisting small struggling businesses who are competing for the same customers. Contrary to some people's accusations, the cable companies do not hold a monopoly. As the FCC reluctantly points out, it didn't really help the phone companies or the Internet to force line sharing in that market.
Posted by David Arbogast (1709 comments )
Link Flag
Customer Service
> I pay more for the dsl and receive slower
> speeds but I pay the price that I pay for
> the customer service. To me that is more
> important than receiving the fastest
> connection possible.

My problem with DSL was the fact that I NEEDED customer service. It went down several times a month, for hours at a time. What was also a problem was the fact that, at the time, Qwest (the hardware supplier) was not the ISP - meaning, that if the problem was related to the phone lines (or the local servers!) that the customer service department of the ISP wouldn't be able to tell me anything about it (and Qwest deflected all DSL inquiries to the ISP if you tried to call THEM about it). Not that anyone was there after 5PM anyway.

Faster speed (10X DSL - I live quite a distance from the CO), lower cost (barely), more dependable (one outage in a year and a half)... AND I can actually talk to the people responsible for every aspect of the internet access.
Posted by Jim Harmon (329 comments )
Link Flag
Sauce for the goose
"What's sauce for the goose is good for the gander."
Remember that? It means that unfairly applying one set of rules to one industry, while exempting another (in this case cable) is unfair. Were it not for the political might of the cable comnpanies,their monopolies would have long been deregulated, subjected to free market conmpetition.
The simple fact is that when the Supreme court determined that ATT should be broken up to allow for competition, they did absolutely the right thing for consumers; long distance service is more ubiquitous and costs 95% LESS than twenty years ago. Allowing competitive use of cable access to the home would not only lower costs drmatically, it would force all competitors to allow "ick and cloose" offerings of entertainment, communication, and other services, like security monitoring, electronic housdehold management, and on and on. That's a real and substantial benefit for consumers. They could expect a full information package of services; HDTV - Cable charges for HDTV service, and the FCC wanted it to be offered and is offered for free by network broadcasters (The top TV markets offer braodcast HDTV for FREE! and cable turns around and charges you for the same signal). Broadband: with competitive access, broadband service prices could decline by up to 70%; there is no economic reason that broadband is priced this high, except for greed, DSL would show similar declines.
The average "full service" cable bill, including broadband, basic cable, and HDTV with the cable company box, is over $100.00 per month!
With competitive access, that could decline by up to 50% or more!
It's no coincidence that cable rates are up over 200% (while long-distance rates are down over 95% due to competition, as noted above)since politically-driven legislation allowing cable monoplolies to exist, was passed.
If the cable companies get to control VOIP(Voice Over Internet Protocol) the opportunity for free or reduced cost local and long distance, communication all over the world just a click away, goes away.
I hope the Supreme Court reflects on the positive good evolving from previous decisions to reduce and eliminate monopolies; in a free market system, competition assures market-reality pricing. Just look at the cost of flying to San Francisco from New York; down over 70% since airline deregulation. There are numerous examples that prove the free market system works. Let's keep pushing for an anti-monopoly, open competition decision from the court. Politics aside, the interests of free markets and consumers must prevail.
Posted by bdennis410 (175 comments )
Reply Link Flag
well said
well said, Barry...you should accompany Brand X to the hearing!
Posted by zshuster (5 comments )
Link Flag
What ever expands broadband the fastest...
Would get my vote. I live 45 minutes from the capital of NY (Albany) and cannot get ANY form of broadband. I have to suffer on a modem. Being a software developer, this really sucks. When they de-regulated cable, the three cable companies in my area all got bought up by Time Warner (great competition huh), leaving a 2 square mile "hole" where the three used to converge. Unfortuantly, Time Warner says there are not enough houses in the hole to warrant them putting in cable. SO I have a crappy satellite TV and a modem.
Posted by TheMidnightCoder (61 comments )
Reply Link Flag
wow
"...there are not enough houses in the hole to warrant them putting in cable. SO I have a crappy satellite TV and a modem. "

You may be the first person I've ever heard that would prefer cable TV to satellite. I for one love my dish. Better picture. Better sound. More channels. Lower price. The ultimate competition for cable.
Posted by David Arbogast (1709 comments )
Link Flag
time warner wants to charge me $25,000 to install cable to my home
I disagree with mostly everyone here.
This is terrible.
What would be the incentive for cable companies
to build more of the system and reach those
homes (like mine) that currently still have
no broadband options. Why would cable companies
actually build anymore if competitors from day 1
would actually make the money from the consumers
and not themselves (who laid out the funds to
build)?
Sheesh
Posted by (11 comments )
Link Flag
 

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