Data Ruling Helps Blur Definitions

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Fueled by a recent move by federal regulators, the cable industry could be at the dawn of a new era in which almost all oversight occurs in Washington, D.C.

There's the potential for that oversight to be quite minimal, but that depends on how willing people who like to say "Hands Off the Internet" are also willing to say "Hands Off Cable-Provided Internet."

Washington politics being what it is, analysts and others say it's more likely that cable would have to cope with a choppy regulatory environment — one that calls for adapting to the policies of whoever is running the Federal Communications Commission at a given point in time.

The inaugural for the new era came in March, when the FCC classified cable-modem service as an interstate information service.

Critically, the FCC ruled that cable-modem service was not a cable service — the definition that is applied to the delivery of broadcast TV stations and cable networks.

Local governments immediately felt the impact of the agency's decision. The FCC tentatively concluded that cities cannot require a new franchise for cable-modem service. Many cable operators have stopped paying franchise fees on data-derived revenue.

Cities lost out, because federal law grants them authority over cable services, but not information services.

The FCC ruling also has some people wondering about the agency's agenda, not just for cable, but for all facilities-based providers of high-speed Internet access — telephone companies that provide digital subscriber line service, for example.

Historically, information-service providers have not been subject to FCC regulation. The agency preserved that tradition in deeming cable-modem service to be an information service, but the agency is still pondering whether operators need to open their data lines to competing Internet-service providers.

ESCAPE HATCH?

Going forward, a key issue is whether the FCC, in classifying cable-modem service as an information service, has offered cable operators an incentive to escape traditional forms of cable regulation.

Conceivably, cable could do that by placing all voice, video and data services on the cable-modem platform.

Under federal law, a cable system is a cable system if it provides cable service. Put another way, a cable system that offers nothing but information services would no longer be a cable system.

"The way the definition works is that you have to be offering cable service in order to be a cable system," said Nick Miller, an attorney with Miller & Van Eaton, a Washington D.C. firm that represents local governments at the FCC.

Veteran FCC cable regulator William Johnson agreed that a cable system that offered just Internet access would no longer be a cable system.

"That's like a truism, but not very interesting," Johnson said.

The more interesting question, he said, was whether an Internet service provider that streams movies and cable networks — America Online, for example — was itself a cable system.

"If they were offering Internet access which happened to include really high-value content like video, would they then be a cable system?" Johnson said. "If you were doing video using Internet protocol, would that be an information service?"

Johnson seemed to be suggesting that a video-rich AOL service sold to a DSL subscriber could potentially require AOL or the DSL provider — mostly likely a phone company — to obtain a cable franchise.

Calling cable-based video streaming an information service would likely preserve the regulatory status quo for ISPs. But, judging by Johnson's comments, ISPs that offer a type of video streaming that is indistinguishable from traditional broadcast or cable television would need to stay alert to see whether the FCC decides to classify their service as a cable system.

Assuming that the FCC was to classify video streaming as an information service — and that cable operators migrated all video transmission to the Internet — operators would presumably no longer be subject to a host of regulations, including basic-tier regulation, must-carry, leased access, public access and program access.

There's some downside risk for cable.

It's unlikely that federal law would allow the FCC to regulate cable's telephone-pole attachments if traditional cable systems were not involved. And cable operators could run into problems in gaining right-of-way access from cities that are no longer restrained by traditional forms of cable-franchising regulation.

"[Federal cable regulations] would go away, but so would [their] limitations on franchise-authority regulation of cable," said Christopher Cinnamon, an attorney with Cinnamon Mueller, a Chicago firm that represents the American Cable Association. "So we would be off into a less-regulated franchise negotiation."

For National Cable & Telecommunications Association senior vice president of law and regulatory policy Dan Brenner, the issue is presently plagued by too many hypothetical twists to assess whether cable operators are being handed a regulatory carrot to place all services on the cable-modem platform.

"It's based on such a lot of what-ifs, in terms of the migration of service to an [Internet]-based environment, it would be impossible to predict whether that migration would occur in any significant amount," Brenner said. "Before I would try to give you a regulatory [analysis] that was half-intelligent, I would really want to know the details of the offering."

DEFINE 'CLOSED'

The FCC would have at least one more tough legal call to make, Cinnamon said. Even though a cable system that offered only information services could lose its identity as a cable system, he said, federal law also defines a cable system as facility that offers video programming over a closed set of transmission paths.

"What is fascinating is that as technology develops, what is meant by this closed set of transmission paths?" Cinnamon asked. "There are those that argue 'closed' means it's just wrapped in casing, and it's not wireless."

Were cable operators to offer only information services —with voice, video and data services housed in servers, rather than in headends — their systems would no longer be "closed" in a technical sense, he added.

"In that kind of system, nothing should prevent the customer from going to somebody else's multichannel-video site, paying whatever they need to pay, clicking on the channel they want and getting that video service, too," Cinnamon said. "That moves us away from the 'closed' set of transmission paths to an open video network."

Today, AT&T Broadband and Cox Communications Inc. offer local phone service that is regulated under federal common-carrier rules. But other MSOs, including Time Warner Cable, want to push Internet-protocol telephony as a cost-efficient tool to compete against the Baby Bells.

The FCC has not said whether cable-provided IP telephony is a cable service, an information service or a telecommunications service.

"If the courts or the FCC were sufficiently creative and pro-market in their solutions, they could say that IP telephony on cable systems is just another flavor of information service," Cole, Raywid & Braverman cable attorney Paul Glist said.

A big question, then, would be whether cable operators that offer IP telephony — if it's classified as an information service — would have to shoulder some common-carrier obligations, such as contributing to the universal-service fund. The FCC has yet to rule on that issue.

NOT READY YET

Regulatory questions aside, is cable technology at a stage at which all services could ride on the cable-modem platform?

Precursor Group cable industry analyst Keith Kennebeck, formerly of Strategis Group, said neither IP telephony nor video streaming is ready for primetime.

"The fact is that the standards to do IP telephony are not yet ready," he said.

The cost savings associated with IP telephony are "not developing to be as appealing as one had hoped," he added.

And the use of streaming video as a substitute to traditional TV programming is at least five to 10 years away, Kennebeck said.

"Right now, MPEG [the Moving Picture Expert Group standard] is the ideal format for the digital delivery of video signals," he said. "It's extremely robust, there have been no quality issues with it at all, it works perfectly, and IP is still shaky."

Overbuilders who've struggled to compete against cable companies might want to consider allocating all of their bandwidth to high-speed data.

Until the FCC says otherwise, a cable overbuilder that offered nothing but information services (voice, video and data) would be the most lightly regulated wireline entity under the agency's jurisdiction.

RCN Corp. senior vice president of regulatory and government affairs Scott Burnside has mulled the regulatory issues associated with video streaming. If a cable operator attempted to escape cable regulation at the local and federal levels by switching to video streaming, local governments would likely push back, he said.

"I can't see how right now that content — video streaming — would be considered anything else other than a cable franchise," he said. "When you think about it, there's certainly an argument going the other way. This is still a pretty murky world out there."

RCN, a company formed in the wake of the Telecommunications Act of 1996, has invested billions of dollars to compete with cable, but so far has signed up 487,000 video subscribers and 120,000 high-speed-data subscribers.

Would RCN consider going all data, thus turning its cable network into an unregulated test-bed for the most advanced services on the Internet?

"That is not part of our business plan," said Burnside. "It may very well evolve that way, but we are not sitting around here trying to figure out how to beat the system."

Cable has invested billions in making video programming a push technology, noted Salomon Smith Barney managing director Niraj Gupta, and regulatory incentives aren't yet strong enough to warrant loading all services onto the modem platform.

"I think we are going to have push technology for some time to come," said Gupta, a cable analyst. Even if cable migrated completely to IP to escape regulation, Gupta doubts the FCC or Congress would ultimately allow such a move.

"If you did, you'd probably be regulated anyway," he said.

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