Telcos Don’t Have to Share
Court Backs FCC’s Stance on Keeping DSL Networks Closed
By Ted Hearn -- Multichannel News, 10/21/2007 6:00:00 PM MT
Washington — A U.S. appeals court last Tuesday refused to overturn the Federal Communications Commission’s ruling in 2005 to deregulate high-speed Internet access service that phone companies offer to consumers.
The ruling, handed down by a three-judge panel of the 3rd U.S. Circuit Court of Appeals in Philadelphia, affirmed the status quo in which neither cable nor phone companies need to share their networks with companies that would also like to provide broadband access.
Cable operators have never had to share their broadband networks, except for Time Warner Cable, in compliance with America Online merger conditions imposed by the Federal Trade Commission in December 2000 for a period of five years.
Phone companies, as dominant telecommunications carriers, had to provide nondiscriminatory access to their networks in a way that allowed unaffiliated Internet-service providers to compete for customers without needing to string wires into every consumer’s home. The rules, for instance, were essential to the growth and success of AOL’s dialup online service.
The court agreed with the FCC that broadband-market conditions were such that forcing AT&T and Verizon Communications to live under open-access rules would impose substantial costs and would deter their investment in network upgrades. Cable operators served 31.5 million and phone companies 26.4 million broadband subscribers as of June, 30 2007, according to Leichtman Research Group.
“I am pleased that the court affirmed the FCC’s decision to remove outdated, decades-old regulations from today’s broadband services,” said FCC chairman Kevin Martin, who inherited a deregulatory broadband policy from by his predecessor, Michael Powell.
Broadband deregulation for phone companies got sidetracked at the FCC because the agency’s authority to shield cable from regulation was in limbo for three years.
In March 2002, the FCC under Powell issued a ruling declaring that cable-modem service is an information service free of network-sharing obligations that applied to phone networks. In June 2005, the Supreme Court backed the FCC’s cable-modem decision, voiding a contrary ruling by a panel of the U.S. Court of Appeals for the 9th Circuit.
After the high court ruling, Martin put phone deregulation on the fast track. In September, the agency released an order in which it said that digital subscriber line service was an information service, just like cable-modem service, and ISPs sharing the network could be booted off after one year had elapsed.
The FCC finding that DSL is an unregulated information service “is based on a reasonable interpretation of the Communications Act,” said Circuit Judge Julio Fuentes in a unanimous opinion joined by Circuit Judge Morton Greenberg and visiting Judge Alan D. Lourie. The FCC’s order was primarily appealed by Time Warner Telecom (which is no relation to Time Warner Cable), EarthLink and the trade association Comptel.
“The court has upheld chairman Martin’s determination to put consumers in charge of the broadband market,” said Walter McCormick, president of the United States Telecom Association, a trade group that includes AT&T, Verizon and hundreds of small carriers. “This was the right decision for Americans and will ensure that these pro-consumer policies remain in place.”
The case can be appealed to the full 3rd Circuit or directly to the U.S. Supreme Court.
“We believe today’s decision is good news for the Bells and other incumbent local telcos as it reduces their regulatory overhang and preserves their increasing broadband parity with cable providers,” said Stifel Nicolaus analysts Blair Levin, David Kaut, and Rebecca Arbogast in a client note.
In addition to not needing to share their networks, cable modem and DSL providers are not required by the FCC to contribute funding to the Universal Service program, a $7 billion fund that subsidizes local phone service in rural America. A federal law, which expires Nov. 1 if not renewed, bars state and local governments from taxing broadband access.
