June 27, 2005 10:56 AM PDT
Cable wins Supreme Court battle
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for a privatized, tightly controlled broadband market. Groups such as the Center for Digital Democracy or CDD, which was one of the petitioners in this case, say that the decision leaves the vast majority of broadband households in the United States at the mercy of just two companies--the local cable monopoly or one of four remaining "Baby Bells."
"Today, the Court struck a blow against freedom online," Jeff Chester, CDD's executive director, said in a statement. "The Internet they have bestowed promotes the interest of a few big media companies against the best interests of the public--in the U.S. and globally."
The Consumers Union, a major consumer advocacy group, said by giving cable operators "gatekeeper" status, the percentage of the U.S. population with a broadband connection will continue to lag the rest of the world.
The group noted that the United States has slipped from third in the world to 16th in recent years. And Americans pay 10 to 20 times more on a megabit basis for broadband than the Koreans or Japanese, it said.
"In its action, the agency abandoned a fundamental principle that has applied to all means of communications throughout U.S. history," a Consumers Union representative said.
"It is our view that the FCC clearly abused its discretion in ruling that cable operators should not be constrained in their treatment of independent (Internet service providers)."
Just the beginning?
While this particular court case may have come to a conclusion, experts say the battle over broadband regulation is only just beginning. The Supreme Court's decision has likely paved the way for the FCC to deregulate DSL service as well. The FCC had already opened proceedings on this question a couple of years ago. But not much has been done as the FCC awaited the Supreme Court's decision on cable's classification.
"This decision puts the phone companies in a very strong position to argue for equal treatment," said John Rigovin, former general counsel of the FCC who argued this case before the Ninth Circuit Court and now is a partner at Wilmer Cutler Pickering Hale & Dorr. "I expect they'll argue for a level playing field, which makes a lot of sense. It seems unfair that cable modem service is unregulated and DSL service is highly regulated."
The Supreme Court declined to directly address how DSL should be classified, but in the majority opinion alluded to potential changes to DSL classification.
"The Commission's decision appears to be a first step in an effort to reshape the way the Commission regulates information service providers," said the opinion. "We express no view on how the commission should, or lawfully, may classify DSL."
The phone companies wasted little time in pushing this issue forward for their own benefit.
"This decision confirms the FCC's authority to classify broadband services in a manner that reflects the highly competitive nature of those services," Tom Tauke, executive vice president of public affairs, policy and communications for Verizon said in a statement. "Now, to provide consumers the full benefits of new technology and competition, the FCC and Congress should act promptly to finish the job."
Competitive local exchange carriers, which rely on laws that require phone companies to share their networks, are already gearing up for battle.
"If the FCC tries to do the same thing for DSL, we believe it would be a mistake and something that is not allowed by the statute," said Jason Oxman, general counsel for ALTS/Comptel, an industry group that represents more than 300 competitive phone and Internet providers. "Today's decision only speaks to the cable network. Cable service has a very different regulatory history than phone service, and we hope the FCC will recognize that."
An entirely deregulated broadband market would be bad news for ISPs and other competitive providers, say experts.
"I think it's safe to say that it will continue to be harder and harder to have viable business plan if you don't own the infrastructure," Rigovin said. "The conventional wisdom is that there is already so much competition from different technologies."
Paul Gallant, an analyst with the Stanford Washington Research Group and former legal advisor to former FCC Chairman Michael Powell, said that competitive providers can still survive. He said that even if broadband was entirely deregulated, ISPs could still negotiate deals with cable providers and phone companies.
"Independent ISPs aren't out of the game yet," he said. "But they are going to have to find ways to create more value in their service. Connectivity is not enough."
Comcast, another of the nation's largest cable operators, had no immediate comment and instead deferred to the NCTA's statement on the ruling.
CNET News.com's Ben Charny and Declan McCullagh contributed to this report.
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