News

Cable Asks High Court for Modem Dereg

3/29/2005 8:23 AM Eastern

The cable industry urged the Supreme Court Tuesday to uphold Federal Communications Commission rules designed to keep cable-modem service deregulated and free from old-style telephone-company access mandates.

The court also heard from the other side -- Internet-service providers that want mandated access to cable’s high-speed platform to ensure that a network owner can’t rob the Internet of innovation and competition by excluding rivals.

Paul T. Cappuccio, executive vice president and general counsel of Time Warner Inc., owner of the second-largest cable company, said the FCC properly determined that when cable lines are used to transmit high-speed data, cable companies are offering an unregulated information service. “I would say that’s entitled to utmost deference,” he added.

Thomas Goldstein, the attorney for Brand X Internet Services, an ISP that successfully appealed the FCC’s 2002 ruling, claimed that federal law classifies cable-modem service as a telecommunications service subject to open-access rules.

The FCC’s ruling, he said, was a “legal error,” which the high court should not endorse.

The case will turn on whether or not the high court concludes that the FCC should enjoy the latitude to shape communications policy to conform with the deregulatory goals of Congress that were established in the Telecommunications Act of 1996. No constitutional issues are involved.

Nevertheless, Justice Antonin Scalia asked a number of pointed questions about whether it was plausible for the FCC to conclude that just because cable offers transmission and content in a combined offering, cable is not offering a telecommunications service. “Have I stopped offering the broadband?” he asked.

Cappuccio insisted that the regulatory classification of cable-modem service hinged on the manner in which it is offered to consumers, not on the manner in which others would like to see it offered.

“It still doesn’t explain to my satisfaction why it’s a different product,” said Scalia, for whom Cappuccio once worked as a clerk.

Department of Justice attorney Thomas Hungar said the FCC’s ruling was a reasonable interpretation of the law and the commission deserved judicial deference on that basis.

Goldstein -- seldom interrupted by the nine justices during his 30-minute time allotment -- outlined his understanding of the statutory scheme laid down by Congress. The law, he said, clearly required cable-modem service to be classified as a telecommunications service, adding that Congress also authorized the FCC to strip away access rules if justified by market conditions.

The flaw in the FCC’s reasoning, Goldstein said, was that a telecommunications-service provider could add an information feature, however marginal to the main product, solely for the purpose of escaping regulation.

In that sense, he added, the law did not authorize the FCC to allow telecommunications-service providers to opt out of the law, or “self-deregulate.”

A few issues highlighted going into the case were not raised at oral argument.

The U.S. Court of Appeals for the Ninth Circuit struck down the FCC’s cable-modem rules without giving the agency’s reasoning substantive review. Some observers thought the high court might remand the case to the Ninth Circuit with instructions to conduct such a review. None of the justices raised the remand issue.

“The justices appeared willing to grapple with the substantive issues themselves, rather than sending the case back to the lower court,” Legg Mason Wood Walker Inc. analyst Blair Levin said.

Levin added that he believed that based on the oral argument, the high court would side with the FCC and cable, although Brand X and the other ISPs had “a fighting chance” to prevail.

The Ninth Circuit reversed the FCC based on a prior decision regarding cable-modem service in which the agency’s rules were not at issue. The administrative-law question of whether the FCC needs to race a party to court in order to gain normal judicial review did not factor into the debate.

The court is expected to issue a ruling by late June or early July.

March