In a decision likely to promote affordable Internet-over-cable service, the Supreme Court ruled last Wednesday that cable operators are entitled to regulated rates for attaching data-transmission wires to utility-controlled poles and conduits.
In a 6-to-2 decision written by Justice Anthony Kennedy, the high court overturned a lower-court ruling that would have forced cable operators that offer Internet access to pay market rates for pole attachments. That could have led to higher cable prices or kept some operators from deploying high-speed-data service.
In his 13-page opinion, Kennedy said the Federal Communications Commission had clear authority to set the rates for any cable pole attachment, regardless of the service offered, in order to insulate cable from paying monopoly rents merely because systems had introduced new products.
"This is our own, best reading of the statute, which we find unambiguous," Kennedy said. "The agency's decision, therefore, to assert jurisdiction over these attachments is reasonable and entitled to our deference."
Various private utility companies, led by Gulf Power Co., argued successfully in a lower court that FCC-set pole rates did not apply under the Pole Attachments Act to cable operators that transmit both Internet data and video programming over the same wire. Gulf Power said the FCC could set rates only when cable operators offered video programming or telecommunications services, but not such information services as Internet access.
If Gulf Power's position were correct, Kennedy said, cable operators would benefit from regulated pole rates only to the extent that they offered video programming. That view of the law, he added, would gut the broad pole-rate setting authority granted to the FCC and serve to defeat Congress's goal of promoting rapid deployment of broadband Internet services.
Joining Kennedy were Chief Justice William Rehnquist and Justices John Paul Stevens, Antonin Scalia, Ruth Bader Ginsburg and Stephen Breyer.
Justices Clarence Thomas and David Souter indicated some level of support on the question of FCC jurisdiction. Nevertheless, they faulted the agency for stepping in to regulate pole rates for data-over-cable service before it had classified the technology as a cable service, a telecommunications service, or something else entirely.
Justice Sandra Day O'Connor did not participate, probably because of a financial conflict of interest.
The decision was one of the biggest court victories in years for the National Cable & Telecommunications Association, which had challenged the April 2000 decision by the 11th U.S. Circuit Court of Appeals.
The high court's ruling eliminated a potential economic risk faced by cable operators attempting to build on their 6.4 million home base of cable-modem subscribers. In the wake of the lower-court decision, some utilities tried to raise pole fees by 500 percent. To foot the bill, operators were eyeing a possible $1.50 surcharge on monthly fees.
CABLE IS PLEASED
The FCC barred the jacked-up pole rates from taking effect while the Supreme Court reviewed the NCTA's appeal.
"At least for now, the electric utilities' effort to either stymie or control the broadband deployment of cable-modem services — to act as a toll booth and collect some extra funds for that deployment — is put to a halt," said John Seiver, an attorney with Cole Raywid & Braverman and the NCTA's co-counsel in the case.
The cable industry was troubled not only by the potential amount of the new pole fees, but also by the fact that millions of dollars would flow to power and phone companies that intend to compete against cable operators for Internet subscribers.
NCTA senior vice president of law and regulatory policy Daniel Brenner hailed the ruling for the protection it would afford cable consumers.
"Today's decision is very good news for consumers," Brenner said. "It means that utility companies cannot charge arbitrarily higher prices for cable attachments to utility poles simply because cable operators provide their customers with high-speed Internet, as well as video services."
McDermott, Will & Emery attorney Tom Steindler, who represented Gulf Power, didn't view the court ruling as a major setback.
"The court's opinion affirms what is already an FCC order. I think it's just a maintenance of the status quo," he said.
Power companies are awaiting the 11th Circuit's decision in a case in which the utilities alleged that the FCC's cable pole rates are too low, said Steindler. If the court's decision results in higher fees, he said, that could take the sting out of last week's Supreme Court defeat.
The Supreme Court's ruling also arrived at a critical time with respect to FCC classification of data-over-cable service, a decision the agency has put off for years. Various sources have said the commission plans in the near future to classify cable-modem service as an information service, and not a cable service.
Had the Supreme Court ruled against the FCC in the pole case — and had the FCC moved forward with classifying Internet-over-cable as an information service — cable operators would have been exposed to paying unregulated pole-attachment fees.
The FCC could have extracted cable from a negative court ruling by classifying Internet access as a cable service, thus keeping it within the purview of the pole-attachment law.
Last week's court ruling means the FCC is free to classify data-over-cable as an information service while retaining the authority to set cable pole rates.
Although chairman Michael Powell didn't refer to the FCC's pending classification action last week, he embraced the court's decision to give the agency a wide berth to set pole rates.
"I am pleased by the Supreme Court's decision upholding the FCC's authority to set rates for attachments to telephone and electric poles," Powell said. "It is important that the court rejected an interpretation … that could have raised the rates consumers pay for high-speed Internet-access services and derailed the broadband revolution."
In his dissent with Souter, Thomas said he would have overturned the 11th Circuit decision and instructed the FCC to classify Internet-over-cable and to spell out the statutory basis for its authority to regulate data-over-cable pole attachments.
The pole law established two rate formulas for pole attachments, Thomas said — one for cable services and one for telecommunications services.
Thomas said the court should not have backed the FCC until the agency had demonstrated that it had permissibly classified cable-modem service as a cable service, a telecommunications service, or one that's not covered by either of its rate formulas. If neccessary, the agency then had to show it could permissibly rely on its general authority to set "just and reasonable" pole rates for cable Internet attachments not covered by the two rate formulas, he said.
"For these reasons, the FCC's attempt to regulate rates for attachments providing commingled cable television and high-speed Internet access while refusing to classify the service provided by these attachments is 'arbitrary, capricious,' and 'not in accordance with law,' " Thomas said.
In his opinion, Kennedy said the FCC's decision to sidestep the classification issue while regulating cable-modem pole attachments under its power to regulate any cable pole attachment was not an atypical move for a regulator.
"Decision-makers sometimes dodge hard questions when easier ones are dispositive and we cannot fault the FCC for taking this approach," Kennedy said.