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Supreme Court to Hear Case on Cable Networks

Posted on: Tuesday, 29 March 2005, 00:00 CST

Mar. 29--In a debate that will shape the future of high speed Internet service, the Supreme Court will hear arguments today to determine whether cable companies must open their networks to competitors.

The court could decide, in effect, how companies can compete to deliver high-speed Internet access to a rapidly growing market and how much choice consumers will have. The case pits the Federal Communications Commission and National Cable & Telecommunications Association, representing cable companies including Comcast Corp. and Time Warner Inc., against Internet service providers like EarthLink Inc. and consumer groups.

At stake are the billions of dollars expected from the emerging new markets such as the Internet-based phone service and digital entertainment that high speed service -- or broadband -- makes possible.

"What I think that this case will decide is just who's going to get the money," said Eric Easton, a telecommunications expert and associate professor of law at the University of Baltimore School of Law.

The heart of the case is a 2002 FCC ruling that classified Internet service provided by cable companies as an information service as opposed to a telecommunications service. That designation meant cable companies were not subject to federal rules that required big telecommunications companies like Verizon Communications Inc. to lease their lines to competitors. Telephone companies also have to let competitors offer Internet service over their high-speed digital subscriber lines (DSL).

Brand X Internet Services LLC, a small California Internet services provider, successfully challenged the FCC ruling in federal court, and that was upheld in October 2003 by the 9th U.S. Circuit Court of Appeals. The FCC and cable industry then appealed to the Supreme Court.

Although the case being argued today focuses on cable access, it has much broader implications. The FCC wants to reclassify phone companies' DSL service the same way. That would allow phone companies to kick off ISPs that now offer broadband access over their lines. The commission has put a proposed DSL ruling on hold until the Supreme Court decides the Brand X case.

Aligned with Brand X are public interest and consumer groups and other Internet providers including EarthLink. Telephone giants, including Verizon, SBC Communications and BellSouth, have joined the cable industry and FCC.

If the FCC wins, and both cable modems and DSL are classified as information services, the industry "would be reduced to a crummy duopoly," said Mark N. Cooper, director of research for the Consumer Federation of America, and one of several public-interest groups that joined Brand X as parties in the case.

Left unregulated, the major cable TV providers would be free to raise prices, could make adjustments that highlight some search engines or Internet sites while hiding others, and would feel no pressure to make investments or roll out new services, supporters of the Brand X position say.

"This case is a battle for the soul of the Internet," said Andrew Jay Schwartzman, president of the Media Access Product and counsel for the Center for Digital Democracy, another of the organizations aligned with Brand X.

The cable industry says a win will be good for consumers: By eliminating marginal players, competition will actually increase, and industry players will have the confidence to invest more money in their networks, said Brian Dietz, vice president of communications for the National Cable & Telecommunications Association in Washington.

Broadband cable is nothing like the conventional telephone business, and not even like the dial-up access service that ISPs still provide, he said. Companies in this sector financed and built their own networks, and shouldn't be forced to grant access to competitors.

"It's our view that forcing legacy telephone-industry regulations on the broadband sector will be a significant deterrent on investments in new technology," Dietz said.

Internet providers say access is essential for their survival, especially as more and more customers trade in their dial-up modems for the high speed service that allows them to send digital pictures and quickly download movies and music. And they also say that that extension of the FCC rule to DSL lines means they would lose the limited capacity they now have to offer consumers high-speed delivery.

Carroll County_based Quantum Internet Services Inc. has flourished for a decade by offering high-speed service mostly to businesses over commercial fiber-optic lines supplied by the phone companies; just 10 percent of its business is over DSL.

A loss in the case "would be a disaster," for niche companies like Quantum as well as consumers and the economy in general, said Kevin Brown, Quantum's founder, president and chief executive officer. "But it would be an enormous win for cable companies and later for the Bell operating companies."

Some experts also question whether a Brand X victory would result in significant choice for consumers. Citing the failure of regulations that require incumbent telephone firms to sell access to their networks to create meaningful competition for local telephone service in most of nation, these experts believe a similar market model would likely fail with broadband, too.

Even as a group, the companies poised to challenge the cable and phone companies will be too small to create consumer-benefiting price competition, and their mere presence could even cause the big players to reduce their capital-spending, said Stan Liebowitz, an Internet expert and professor of economics at the University of Texas/Dallas.

Telecommunications consultant and author Annabel Z. Dodd said that a ruling against Brand X could be disastrous for the long-term development of the Internet in the United States, perhaps even causing it to fall further behind other countries in terms of broadband services, and the business opportunities that can only emerge when these high-speed communications services exist.

The United States is actually well behind many other countries in broadband access. The quarter of U.S. households subscribing to broadband services is well behind such countries as Korea (78.5 percent), Hong Kong (53.7 percent)and neighboring Canada (37.8 percent), according to AllianceBernstein, a New York investment-research firm.

"This case has a broad range of implications," said Dodd, an internationally known consultant and author of the book, "The Essential Guide to Telecommunications."

"It's not only about (broadband) access, but I also has implications for future services such as voice-over-Internet (VOIP) telephony, as well as for the United States' competitive position in information technology worldwide."

The Los Angeles Times, a Tribune Publishing newspaper, contributed to this article.

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Source: The Baltimore Sun, Maryland

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