June 27, 2005 7:54 AM PDT

FAQ: What is Brand X really about?

The U.S. Supreme Court's ruling handed down Monday on FCC v. Brand X is one of the most important involving competition in the broadband market.

In a 6-3 decision led by Justice Clarence Thomas, the court overturned a federal court decision that would force cable companies to share their infrastructure with Internet service providers such as Brand X and EarthLink.

While the decision will have little immediate impact, because it keeps existing Federal Communications Commission rules intact, in years to come it could significantly shape the competitive landscape for broadband services. The case, which pit the FCC and the cable industry against a small California-based Internet service provider called Brand X, revolved around a highly technical legal definition of cable Internet.

The FCC defines cable broadband services in a way that exempts cable providers from many of the regulations that phone companies must follow. As a result, cable companies can refuse to share their networks with competing ISPs. Brand X and other Net service providers argued that cable networks should be like telephone lines, on which any ISP can offer services. Oral arguments before the Supreme Court were heard in March.

What is the Brand X case about?
This case addressed the appropriate classification of cable modem service providers with respect to the Communications Act of 1934 and the Telecommunications Act of 1996. Specifically, the court focused on the question of whether a cable company provides "telecommunications services" or "information services." According to the Telecommunications Act, providers of information services are subject to much less stringent regulations than companies that provide telecommunications services.

What is at stake?
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.

Why does Brand X feel it should have a right to use cable operators' networks?
Brand X argued that cable services are telecommunications services and that cable companies are "common carriers." A common carrier is defined as a company that provides the transmission of communications services to the general public. In the context of telecommunications regulation, common carriers delivering telecommunications services are required to allow other companies, even if they are competitors, to have access to the network at reasonable rates.

Has the "common carrier" concept always been a part of telecommunications law in the United States or has it only been applied since the 1996 Telecommunications Act?
Actually, it was established in the 1934 Communications Act, which is the act that formed the basis of the Federal Communications Commission.

The concept of a common carrier is not exclusive to the telecommunications industry. It is a legal and social concept that dates back centuries. It was developed to ensure that the public retained access to fundamental services that use public rights of way.

Other examples of common carriage include transportation services. For example, a ferry operator under the common carrier concept is free to operate a business transporting people and goods across a river, but because he is using a public waterway, he is required to provide service to everyone. He cannot indiscriminately choose to service some customers and not others. And while the ferry operator can determine the price for his services, the prices must be fair and reasonable.

Throughout the 20th century this concept was applied to telecommunications services to ensure that phone companies, which use public rights of way to string wire and cable, service all customers.

What would be the consumer benefits to classifying cable broadband as a telecommunications service, according to Brand X?
If cable companies are not required to share their networks, Brand X argued, consumers will pay higher prices and have fewer choices. Brand X and its supporters said this is especially true in areas of the country where cable is the only broadband service available.

What was the FCC's argument?
The FCC argued that rules that have applied to 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. This is why the FCC classified cable broadband as an information service.

How is DSL regulated?
DSL--the technology that allows high-speed Internet access over copper phone lines--is classified as a telecommunications service. The Bell phone companies, which have built the vast majority of DSL networks in the United States, are required to share that infrastructure with ISPs such as Brand X, EarthLink and America Online. Competitive local exchange carriers that have built their own DSL networks, such as Covad Communications, are also required to share their networks with competitors.

Has the FCC done anything to change that classification?
Yes, in 2002 the FCC launched a proceeding that would reclassify DSL as an information service. The FCC claims that deregulation of DSL services are necessary for deployment of broadband technology.

One of the major justifications for this move is to "level the playing field" between cable broadband and DSL. Some people argue that the real solution would be to recognize that there is not much difference between cable and telephone services, which would require a complete overhaul of the 1996 Telecommunications Act.

How did this whole legal mess start, anyway? And how did it get all the way to the U.S. Supreme Court?
In the late 1990s when cable operators were first deploying cable modem services, the FCC failed to address the issue of how to classify cable broadband services. However, the silence of the FCC did not stop litigation. In 2000, the Ninth Circuit Court of Appeals was forced to determine the status of cable modem service in the AT&T v. City of Portland case. The court ruled that cable modem services provided a combination of telecommunications services and information services and, therefore, are subject to the regulations imposed by both classifications.

After this decision was handed down, the FCC attempted to clarify the status of cable broadband. Disregarding the finding of the Ninth Circuit, it issued a declaratory ruling stating that cable modem service was an information service and not a telecommunications service. ISPs, like Brand X and EarthLink, objected to the FCC ruling, complaining that such lax regulations would allow cable providers to exclude them from accessing customers over the cable network. They filed suit at the federal level.

The case landed on the docket of the Ninth Circuit. Before the Ninth Circuit, Brand X argued that the court was bound by its previous decision in AT&T v. City of Portland, while the FCC argued that it was not, because the commission had explicitly defined the service in its own ruling. The Ninth Circuit agreed with Brand X and ruled that the court was bound by its previous decision in AT&T v. City of Portland--that cable broadband operators provide a combination of telecommunications services and information services.

After this defeat, the FCC appealed its case to the Supreme Court.

What were the other possible outcomes of the case?
The court could have sent the case back to the Ninth Circuit. Because the Ninth Circuit based its decision in the Brand X case on its previous ruling on AT&T v. City of Portland, the court could have asked the Ninth Circuit to hear the case again based on the merits of the arguments.

Had the Supreme Court upheld the Ninth Circuit's decision, it would essentially have meant that the FCC was wrong to classify cable broadband services as information services. Depending on the language of the decision, this could have resulted in sweeping changes for smaller ISPs. Cable operators would have no longer been able to refuse competing ISPs access to their networks. It also likely would have derailed the FCC's proceedings to reclassify DSL services as information services.

3 comments

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And that's why cable sucks.
If I can choose my local phone company, and even my power company. I should be able to choose who provides cable TV and cable-based internet to my house.

As long as they continue to be closed systems where a single crummy company holds a monopoly, they will contine to suck.

Which is why I say to Sirrus, XM, Verizon, SBC, etc., BRING IT ON.

If they won't open up the cable lines, go around them. Ultimately there will be competition, this just buys the crappy cable companies a little more time before they go out of business.
Posted by TV James (680 comments )
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Cable vs telecom networks
Telecom providers (Bells, etc.) were subisdized by the public for a long period of time because they were given the monopoly on the market. Most of their infrastructure and market was built up through this monopoly. Now that the monopoly has been reversed, it makes sense that they should share their networks for a period of time, until new carriers can establish their own networks.

Cable operators built their own networks. So I don't see why they should be asked to share them.
Posted by (1 comment )
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That's true, BUT
The cable company gets permission to dig up the roads and pavements (side walks) from the body in power at the time. How many times should our roads and pavements be dug up in the name of competition? I think the cable companies would show a better public profile if they were to share and share alike. Thats how friendships are born, out of cooperation, not confontation. It could be mutually beneficial, especially if a good new bit of tech. was to evolve? Live and let live. Don't be greedy!
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