Brand X Ruling Offers Multiple Scenarios


A U.S. Supreme Court ruling later this year on the regulatory status of cable-modem service is unlikely to be the last word in a regulatory debate on third-party access to cable-data facilities that started building momentum in 1998.

At issue in the National Cable & Telecommunications Association vs. Brand X Internet Services case is mainly whether the Federal Communications Commission properly classified cable-modem service as an unregulated information service -- a ruling endorsed by the cable industry.

But the U.S. Court of Appeals for the Ninth Circuit disagreed, saying that cable-modem service is a regulated telecommunications service subject to open-access rules for competing high-speed-data providers unless the FCC grants cable waivers.

Going into the March 29 oral arguments on cable's and the FCC’s appeal of the Ninth Circuit’s ruling, Legg Mason Wood Walker Inc. analyst Blair Levin indicated that “the cable and telecom industries are more likely to win, but it’s unclear how quickly that outcome would arrive.”

He outlined at least three possible scenarios.

• The Supreme Court could uphold the FCC, in which case cable companies are winners, as well as the Baby Bell phone companies, which want the same hands-off policy the FCC granted cable in March 2002.

But Levin said the commission would likely invoke its “ancillary authority” to establish some regulatory ground rules for broadband-network providers -- for instance, perhaps a rule banning the blocking of competing voice-over-Internet-protocol traffic. And he indicated that FCC reliance on that authority “was uncharted territory and could meet court resistance.”

• The Supreme Court could remand the case, ordering the Ninth Circuit to review the FCC’s ruling on the merits -- something the lower court rejected based on the need to follow circuit precedent. A remand would trigger a new litigation cycle.

Levin called that outcome “not necessarily bad news for cable, as it would retain, through the litigation, its unregulated [modem] status.” But a remand would not be good for the Bells because their quest for deregulation of digital-subscriber-line service would likely cause the FCC and Congress to postpone deregulatory moves.

• The Supreme Court could uphold the Ninth Circuit. In that case, the cable industry could file waivers seeking FCC removal of open-access requirements. An FCC so inclined could approve cable petitions simply by not acting within the 15-month statutory deadline.

“Thus, in this case, agency inaction would lead to deregulation. Although this would be an available legal option to get around an adverse Supreme Court opinion, it would generally be viewed as unseemly, as we do not believe the [FCC] is likely to use this loophole,” Levin said.