— The cable bar has a new motto: Losing never felt so good.
For the second time in three years, a three-judge panel of the U.S. Court of Appeals for the 9th Circuit has said cable-modem service, the cable industry's cash cow, is legally in part a telecommunications service.
Theoretically, that means cable operators could be required to open their lines to competing Internet-service providers (ISPs) — a mandate cable has been trying to avoid since 1998, when America Online Inc. started an open-access crusade in response to AT&T Corp.'s acquisition of Tele-Communications Inc.
The court ruling seemed like a cable defeat — and ISPs treated it that way.
"Cable-modem users deserve choice in high-speed Internet providers. Today's ruling is a big step towards finally affording them that choice," said David Baker, vice president of law and public policy for EarthLink Inc.
But the reality is that the legal process in court and at the Federal Communications Commission could drag on for so many years that ISPs like EarthLink have virtually no near-term hope of plugging into cable systems on a no-questions-asked basis.
That's why the cable legal establishment wasn't crying buckets over the 9th Circuit ruling. Cable lawyers knew that unless Congress were to intervene, litigation could include one or more trips to the U.S. Supreme Court covering a period of several years.
Even if the high court were to embrace the telecommunications-service classification, the FCC would have the power to drain that ruling of any meaning by using statutory forbearance authority to deny open access to cable Internet facilities.
ISPs can win every court case but still end up losers.
After the courts have issued the last word on classification, an appeal of the FCC's use of its forbearance authority could trigger yet another multiyear litigation cycle that leads all the way to the Supreme Court.
"Few things are as messed up as telecom and Internet classifications," said Scott Cleland, a telecom and media analyst with Precursor (formerly Precursor Group).
Immediately after last Monday's decision, segments of the major media propounded the idea that cable must now carry unaffiliated ISPs at just and reasonable rates, and that the ruling spelled unavoidable disaster for FCC chairman Michael Powell's minimalist approach to regulating cable-modem service.
Sachs: it's unresolved
But National Cable & Telecommunications Association president Robert Sachs asserted that no ISP could legally demand access.
He pledged the NCTA's support behind Powell's decision to appeal the ruling.
"Contrary to reports on the case which you may have already seen, we believe the issues raised in Monday's decision are far from resolved," Sachs told reporters last Wednesday at NCTA headquarters. "We think the regulatory status of cable-modem service will not be settled for some time."
Cox Communications Inc. spokeswoman Laura Oberhelman said the No. 4 cable company hadn't ordered technicians to retrofit its system to accommodate a wave of ISP access demands as a result of the 9th Circuit's ruling.
"It's business as usual for us," she said.
The FCC has 45 days to file an appeal for a full review from all of the San Francisco-based 9th Circuit's judges — a request which would automatically stay the panel's ruling.
Alternatively, it can appeal to the Supreme Court.
Blair Levin, a cable analyst with Legg Mason, called the ruling "not a positive for cable" but ruled out intrusive federal broadband regulation of cable.
"In short, even if the ruling stands, we expect the FCC to play the forbearance card to avoid putting significant obligations on cable," Levin said in a note to clients.
Although the FCC under Powell would likely use forbearance authority, an agency under Democratic FCC member Michael Copps clearly would not.
In a speech last Thursday, Copps noted that the FCC has tentatively concluded to use its forbearance authority to circumvent a court ruling that cable-modem service was partly a telecommunications service.
"How's that for chutzpah?" said Copps, who used the remainder of the speech to support FCC adoption of network neutrality safeguards on cable companies that offer high-speed data services.
Copps's outlook appeared to raise the stakes for cable on the outcome of next November's presidential election. A Democratic-controlled FCC could embrace the telecommunications service classification and refuse to forbear.
Cable and FCC sources both observed that the FCC's initial decision to adopt a hands-off policy toward cable-modem service came under Democratic FCC chairman William Kennard.
"You never can tell, but I believe that that past [deregulatory] policy would support a forbearance policy should it come to that, and we are a long way from that," said Daniel Brenner, NCTA's senior vice president of law and regulatory policy.
March '02 standard
The genesis of last Monday's ruling in Brand X Internet Services vs. FCC
was the agency's March 2002 declaratory ruling that cable-modem service was neither a cable service nor a telecommunications service, but purely an interstate information service as those three terms are defined in federal communications law. The FCC barely regulates information services, including ISPs.
The FCC ruling snubbed a June 2000 decision by a 9th Circuit panel in an appeal AT&T brought against Portland, Ore., which had refused to transfer TCI's cable franchise unless AT&T Broadband agreed to accommodate multiple ISPs.
The panel held that cable-modem service was not a cable service, but both an information service and a telecommunications service. It voided Portland's open-access ordinance, saying the city did not have the authority to require a cable-service provider to offer a telecommunications service as a condition of a franchise transfer.
By lottery, the 9th Circuit was assigned to review the FCC's March 2002 decision in an appeal brought by seven parties, including Brand X, a small ISP based in Santa Monica, Calif.
Without devoting a single word to the FCC's analysis in classifying cable-modem service as exclusively an information service, the 9th Circuit panel vacated the agency's order because it clashed with the Portland
decision. Under 9th Circuit rules, the Brand X
panel was bound to honor the holding in Portland
If the appeal had been heard by another court, the FCC's analysis would not have been ignored. Neither the 9th Circuit, sitting en banc, nor the Supreme Court would be bound by the Portland
Circuit Judge Diarmuid F. O'Scannlain said although he felt compelled to affirm Portland
, he was troubled that the tradition of obeying precedent gave such short shrift to an expert agency like the FCC. Quoting Justice Antonin Scalia, O'Scannlain called the outcome "positively bizarre."
"Regardless of one's view of the wisdom of the FCC's declaratory ruling, it cannot be denied that our holding today effectively stops a vitally important policy debate in its tracks, at least until the Supreme Court reverses us or Congress decides to act," O'Scannlain said in his opinion.
NCTA outside counsel Howard Symons said the Brand X
case was "quite vulnerable on appeal because really the merits of the FCC's decision have never been considered by any judges."
The most identifiable loser in the open-access debate continues to be local franchise authorities.
Both the FCC and the 9th Circuit agree that cable-modem service is not a cable service.
As as result, the FCC has barred cities from collecting franchise fees on cable-modem revenue. Lawsuits filed by Portland other localities to impose open-access requirements have cost all local governments hundreds of millions of dollars in revenues they were collecting prior to the litigation.
"The net effect of this decision is that it deprives local governments of their constitutional right to charge cable monopolies, which should not be exempt from paying fair rent for the use of public property," Donald Borut, executive director of the National League of Cities, said in a statement.
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