Cable Expects Favorable Data Order

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Cable lobbyists are all but certain that the Federal Communications Commission is no more than a month or two away from handing the industry a victory over proponents of mandatory access to cable's high-speed Internet platform.

But the win could lead to legal challenges and numerous skirmishes with local regulators.

Over the past few years, the cable industry has vigorously campaigned against government-imposed access, and that effort is apparently close to paying off with an FCC ruling that would keep cable-modem service unregulated.

According to various sources, the FCC is planning to conclude that after studying the issue formally since September 2000, data-over-cable is an information service rather than a cable service or a telecommunications service. Under FCC policies adopted since the 1960s, information service providers are not regulated.

Several cable-industry sources and others who track the issue said recent conversations with FCC staff indicate that a consensus had emerged on classifying data-over-cable as an information service.

An FCC spokeswoman declined to comment. Aides to commissioners Kathleen Abernathy, Michael Copps and Kevin Martin last week said they had not seen any Cable Services Bureau recommendation on cable-modem classification.

The cable industry lobbied for Internet access to be classified as a cable service, a move that would bar any government entity from imposing terms. Cable's fallback position was a classification as an information-service provider.

In no circumstance did cable want to be labeled as a telecommunications-service provider and shoulder the open-access requirements imposed on local phone companies.

Officially, the National Cable & Telecommunications Association wasn't prepared to declare victory.

"It would be premature to comment on an FCC decision that has yet to happen," said NCTA spokesman Marc Osgoode Smith.

Andrew Jay Schwartzman, president of the Media Access Project — a public-interest law firm that advocates open access to cable systems — said he believed the FCC would adopt the information-service classification.

"The glimmerings that we get are consistent with that. Conversations with staff and so forth certainly have suggested that," Schwartzman said.

The classification decision is the FCC's first move. At about the same time as it plans to announce its classification decision, the commission is expected to release a notice of proposed rulemaking seeking public comment on the regulatory implications of declaring data-over-cable to be an information service.

Several sources said the FCC's decision to classify data-over-cable as an information service would not sound the official death knell for the open-access debate. That won't occur until the FCC wraps up the planned rulemaking.

But cable-industry lawyers said it was unlikely the FCC would classify cable-modem offerings as an information service, and then give serious thought to imposing open-access requirements on information-service providers for the first time.

If the FCC planned to make such a move, the lawyers said, the agency could have skipped the new rulemaking by classifying data-over-cable as a telecommunications service in the first instance.


Far from insulating cable from hostile government action, the FCC's decision to call cable an information service could spark a new tug of war between cable operators that offer high-speed Internet access and cities that issue local cable franchises.

AT&T Broadband and other cable operators are concerned that because some of their franchise agreements permit the offering of cable services, but not information services, they might be required to obtain a new or a second franchise.

Local regulators said an FCC move to define high-speed data as an information service would cause a flurry of franchise activity. Most local contracts are written to allow governments to regulate cable operators' use of local rights-of-way.

"For some time, cable will have no legal authority to operate [in the public rights-of-way]. Cable will have to be prepared to deal with that," said Bill Marticorena, an attorney with Ruttan & Tucker and adviser to several southern California cities.

Companies can't use rights-of-way without some form of local approval. To do so would represent an illegal gift of public resources for which elected and appointed officials could be sued, Marticorena explained.

Franchise fees are another concern. Cable operators aren't sure whether local governments may impose a franchise fee on information services provided by a cable operator. And if they oppose such levies, they don't know whether a 5 percent cap on gross revenues would apply to revenue derived from cable-modem service.

Cable-industry lawyers are reviewing the recently extended Internet Tax Freedom Act to determine whether that law prohibits the collection of franchise fees on information-service revenues.

Under a deal cable struck with local governments in 1998, when the law was first passed, cable-modem franchise fees were exempt from the moratorium on Internet taxation.

Refunds could also complicate matters. Assuming local governments may not collect franchise fees on information services, some cable operators might be inclined to seek refunds from local governments to recover previous franchise-fee payments on Internet-access revenue.

"That money's been paid and spent. A request for a refund is a pill that will not go down easily," Marticorena said. "Cities will be very, very reluctant to give anything back. If they want communities to get aggressive, this will do it."

Nick Miller, a Washington attorney who has represented dozens of cities at the FCC, said the agencies could avoid setting up a clash between cable operators and cities by classifying cable's Internet-access product as both a cable service and an information service. Miller recently met with FCC officials to advocate that position.

"If the FCC reads the comments of the local governments carefully, I think the local governments would be content to have the commission declare these are information services, provided they didn't preclude the simultaneous treatment of them as cable services," Miller said.


Those issues aside, the FCC's move to segregate cable from a forced-access regime would represent a clear victory that some said was largely attributable to the deregulatory philosophy of FCC chairman Michael Powell.

"Cable dodged a bullet when [President] Bush was elected and Powell became chairman. [Powell] is not going to regulate cable on his watch," said Precursor Group telecom and media analyst Scott Cleland.

By classifying data-over-cable as an unregulated information service, the FCC is effectively requiring unaffiliated Internet-service providers to negotiate private carriage deals with cable MSOs.

EarthLink Inc., the 4.8-million subscriber Atlanta-based ISP, had urged the FCC to classify cable Internet as a telecommunications service, which would have cable operators sharing their high-speed-data lines at regulated rates.

"The conduit has to be open, said EarthLink vice president of law and public policy David Baker. "There has never been any question of that on the telecommunications side. Some folks at the FCC are bending over backwards to avoid calling cable transport a telecommunications service."

EarthLink, which has about 500,000 broadband subscribers, reaches some cable-modem subscribers under a carriage deal it reached with Time Warner Cable in 2000. That deal was struck as Time Warner Inc. was planning to merge with America Online Inc.

Consumer advocates also called on the FCC to open cable's broadband pipe to multiple ISPs to provide consumers with a range of options aside from an MSO-affiliated ISP. Multiple ISPs, they added, would allow consumers to switch providers were there a service interruption to the cable system's affiliated ISP.

"If [the FCC] goes this route, it appears to be a clear effort to find some unregulated space to protect cable's monopoly Internet service. It's just outrageous for the commission to perpetuate that abuse of consumers by artificially placing this service in an unregulated box," said Gene Kimmelman, Washington office co-director of Consumers Union.


FCC action favoring cable is certain to spark litigation. Although Baker declined to say whether EarthLink would sue, Schwartzman indicated his group was ready for a court battle.

"I have no doubt that any decision the commission makes will wind up in court. Clearly, this is not the end of it," he said.

Cable-industry lawyers predicted that MSOs would not legally challenge the FCC's decision to classify data-over-cable as an information service. They also indicated the FCC would postpone a decision on cable-modem classification until after the Supreme Court handed down its decision in the pending pole-attachment case.

Under a lower court decision, cable operators that provide Internet access are not entitled to pay FCC-mandated rates to attach their wires to utility poles and conduits. The lower court said regulated rates covered cable services and telecommunications services, but not information services.

In theory, if the FCC rules that data-over-cable is an information service and the Supreme Court then affirms the lower court's decision, cable operators offering Internet access would have to negotiate pole fees with utilities in 32 states where the FCC has jurisdiction.

The cable industry believes the FCC could reverse a Supreme Court setback by classifying data-over-cable as a cable service, thus maintaining pole-attachment rate protections for cable's Internet providers.

But in the past, FCC officials have said that the agency was not planning to time its decision on the status of cable-modem service to the release of the Supreme Court's ruling in the pole case.