The Supreme Court Gives a Broadband Boost to Cable

By Rosalind K. Allen (Washington, D.C.)

Broadband defines a family of technologies that provide high-speed and high-capacity Internet access. For consumers, a broadband connection means having Internet capabilities that extend far beyond basic e-mail. State-of-the-art broadband provides instant access to a vast amount of digital content and network services. For example, a single broadband connection to home, work or a personal computer enables consumers to download and view movies, make low-cost telephone calls over the Internet platform or participate in a company-wide training session. Broadband is internationally recognized as key to economic competitiveness, education and health care, prompting President Bush to establish a national goal of making affordable broadband available to all Americans by 2007. Congress and the FCC are also focused on public policy that will spur broadband penetration.

Technological advances over the past decade have created the broadband phenomenon. Most notably, digital conversion of content, as well as the spectrum, telephone lines and cable television facilities that carry that content, has turned all communications into a series of data exchanges. Data is the currency of the Internet, and of course, the past decade has also seen an explosive growth in Internet use. Put these trends together, and we find ourselves in a world where everyone will eventually send and receive all content through the Internet platform. Today, there are two dominant forms of broadband: Digital Subscriber Line (DSL) service, which uses telephone company facilities, and cable modem service. Broadband can also be provided by wireless connections, satellites, electric power lines and, after the completion of the digital transition, television broadcast channels.

The FCC has considered how to best promote wide availability of affordable broadband in a number of recent decisions and open proceedings. The Supreme Court's Brand X decision issued on June 27, 2005, considered and upheld one such decision involving the regulatory framework for cable modem service. The Communications Act breaks down commercial providers of interactive communications services into two basic categories: telecommunications carriers and information service providers. The implications of being placed in one category as opposed to another are substantial.

The Communications Act defines telecommunications as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received" Telecommunications carriers must comply with a number of regulatory mandates set forth in Title II of the Communications Act, such as offering service on a nondiscriminatory basis at just and reasonable rates, designing the underlying network so that it can interconnect with those of other service providers and paying into the universal service fund.¹ An example of a telecommunications service is basic telephone service. An information service is "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications" Information service providers are not subject to Title II or state entry and rate regulation. Instead, information services are subject to minimal federal regulation under the basic public interest principles set forth in Title I of the Communications Act.

Brand X involves the appeal of an FCC decision that declared broadband via cable modem to be an information rather than a telecommunications service. The FCC justified that result by concluding that from the subscriber's perspective, cable modem service is purchased to obtain Internet access (an information service). Any ancillary use of telecommunications facilities to transport digital information to and from the cable modem is inseparable from the Internet access. As a result, the FCC found that a cable company using its facilities to offer high-speed modem service is not required to provide third-party access to its broadband platform, unlike DSL, which is still considered a telecommunications service. The lead plaintiff, Brand X, is an Internet service provider that favored categorizing cable modem service as telecommunications so that cable providers would have an obligation to sell access to the cable modem platform at just, reasonable and nondiscriminatory rates. The lower court ruled in favor of Brand X based on its own earlier decision that cable modem service is best treated as a telecommunications service under the Communications Act.

The Supreme Court overturned the lower court's decision in an opinion that strongly supports deference to the FCC's decision-making in difficult policy matters where the statute is ambiguous and the FCC’s interpretation is reasonable. In this respect, Brand X concludes that the Communications Act lends itself to more than one reasonable interpretation of what it means to offer "telecommunications for a fee directly to the public." Because all information service providers rely on telecommunications to deliver service to subscribers, carving out information services from the much broader class of services that rely on telecommunications, and are offered for a fee directly to the public, is a very complex determination. The Supreme Court found that it was reasonable for the FCC to distinguish information services from telecommunications by focusing on whether the consumer believes he/she is purchasing high-speed Internet access, as opposed to a "stand-alone" capacity to send and receive "ordinary-language" messages with no data processing or storage capabilities. The lower court improperly concluded that its own prior judgment regarding the regulatory status of cable modem service was dispositive. Brand X reaffirms that the expert agency's reasoned and well-supported choice of one potential statutory interpretation as opposed to another takes precedence over a reviewing court's opinion of what might be the "better" interpretation.

Brand X also found that the FCC made a reasonable policy choice in classifying cable modem broadband as an information service despite the fact that the competing DSL service remains a telecommunications service. The Commission may amend its reasoned interpretations provided that any change is adequately justified. Here, the FCC reasonably relied upon changing market conditions to support this first step in what is clearly a larger strategy to deregulate facilities-based information service providers. As Brand X further notes, treating high-speed cable modem as an information service does not open the door to wholesale circumvention of Title II regulation through opportunistic service bundles. If the information service element of a bundle is incidental, then the offering being purchased would remain telecommunications. This analysis does, however, raise some interesting questions about the regulatory status of Internet telephone services, where from the customer's perspective, it is likely that the service being purchased is basic telecommunications capability, with the data processing elements credibly viewed as incidental.

What are the near-term implications of Brand X? Brand X provides strong support for the FCC to pursue an aggressive deregulatory broadband agenda. Chairman Martin has already indicated that he is interested in moving ahead with the pending proposal to declare DSL an information service. That goal may, however, be postponed until a third Republican Commissioner is confirmed; the FCC's two Democrats, Commissioners Copps and Adelstein, have cautioned that promoting broadband deployment must also preserve and enhance competition, consumer protection and an open Internet. Brand X also confirms that even though information services are not subject to Title II regulation, the FCC has authority under Title I of the Communications Act to regulate where required by the public interest, convenience and necessity. Expect those concerned with continuing availability of affordable broadband access to advocate that the FCC exercise its Title I authority to adopt a broadband access requirement. In the wake of Brand X, key members of Congress have indicated a strong interest in working to ensure that as broadband is deregulated, universal service objectives are preserved and strengthened. Finally, the Brand X decision will encourage the FCC to attack issues on a grand scale because a tough victory has been won.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.