With the health of the data-over-cable business potentially at stake, the U.S. Department of Justice last Tuesday urged the Supreme Court to shield cable operators from paying exorbitant rates to attach their wires to poles and ducts controlled by power and telephone companies.
In a one-hour hearing, Justice Department attorney James Feldman argued that the Telecommunications Act of 1996 gave the Federal Communications Commission the authority to regulate pole rates when cable offers both video programming and Internet access.
"The FCC's construction of the act is entitled to deference," Feldman said.
The FCC — backed by the cable industry — is trying to preserve its rate-setting authority after a panel of the 11th U.S. Circuit Court of Appeals last year agreed with power companies' stance that that they were free to charge unregulated rates to cable operators that offer Internet service.
Were they to lose the pole-rate protections, cable operators fear they would face two stark alternatives: either paying whatever pole owners demand or scaling back their Internet-access ambitions.
"That is the practical effect of this case," National Cable & Telecommunications Association senior vice president of law and regulatory policy Daniel Brenner told reporters last week.
Thomas Steindler — the attorney representing Gulf Power Co. and 14 other utilities — told the court that Congress specifically preserved the FCC's rate-setting authority in cases where cable offers video services, but stripped it when cable facilities are used to provide video programming and Internet access.
Steindler explained that the FCC had rate authority over pole attachments in connection with cable and telecommunications services. But since the agency has never classified whether cable-modem service is a cable or telecommunications service, the agency has no rate-setting power for data-over-cable products.
"The FCC has never made that classification," Steindler said. He acknowledged that if the commission ruled that cable-modem service is a cable service, the agency could regulate cable pole rates and "the game would be over."
Peter Keisler, a lawyer representing the NCTA, said Congress gave the FCC power to regulate "any" pole attachment of a cable system without regard to the services provided.
The power companies were wrong in claiming that Congress intended to remove the FCC's authority once cable entered the Internet business, he added.
"That's just not a plausible reading of the statute," Keisler said.
Eight justices heard the case; Justice Sandra Day O'Connor did not participate. As a result, the Justice Department and cable industry need at least five votes. Under court rules, a tie means the 11th Circuit's decision stands.
The high court is not expected to issue a decision for several months.
THE FCC'S ROLE
Cable operators remain hopeful that the high court will rule that the FCC has general authority over cable pole attachments — and will allow the agency to decide on the regulatory classification of data-over-cable service.
"I think it is clear that the court is not going to be determining what the appropriate regulatory status is of cable-modem service, as some commentators had suggested in advance of this argument," said NCTA president Robert Sachs.
The FCC has a pending notice of inquiry on the regulatory classification for cable-modem service. That proceeding was launched after federal courts handed down conflicting rulings in cases in which local governments attempted to force cable operators to carry competing Internet-service providers.
The FCC is expected to issue a report on that topic later this year or early next year.
The strongest endorsement for cable's position on pole access was probably voiced by Justice Ruth Bader Ginsburg, who said the law did not appear to alter cable's rate protections based on the type of service offered.
"What sense would it make to say, 'Cable company, you go into the Internet business, you are off the pole?' " she asked.
Justice Stephen Breyer suggested that Congress gave the FCC broad power to promote competition, including the authority to set just and reasonable pole rates. He suggested that the power companies might have trouble overcoming that broad policy goal.
In comments that suggested support for the power companies, Justice Antonin Scalia indicated disagreement with cable's argument that the FCC's authority over "any" cable attachment ended any exploration into issues about rates.
He said the court did not know which pole rate would apply — the lower cable rate or the higher telecommunications rate — because the FCC has remained silent on the regulatory classification of cable Internet.
"We are talking about rates here. That's the fighting issue," Scalia said. He indicated that the statutory phrase "any attachment" had to have some boundary because no one seemed to be suggesting that cable could hang "billboards" from poles.
Justice David Souter pressed that point further by saying that the high court was being asked to decide the case in a vacuum created by the FCC's unwillingness to classify cable Internet service.
At one point, Souter said that maybe the court should overturn the 11th Circuit with instructions that the lower court insist that the FCC provide an answer to the classification question. "We should know," he added.
MUCH AT STAKE
Sticking to his point that the FCC's general authority over any cable pole attachment was sufficient, Keisler resisted sending the case back to a lower court or the FCC.
The stakes are high for the cable industry. If the high court decides that federal rate rules don't apply, cable operators will have to pay whatever pole owners demand when MSOs decide to introduce high-speed Internet access in a market.
According to the NCTA, millions of cable subscribers would likely see rates rise by $1.50 per month, and millions more in rural areas — where there are more poles than subscribers — could see rates go up even more.
The trade group said some power companies, in the wake of the 11th Circuit decision, have demanded 500 percent increases over FCC-approved rates.
The power companies — which control 85 percent of the nation's estimated 34 million poles — claim that cable operators are among the largest companies in the country and should not receive regulated rates when incumbent phone companies — which also provide high-speed Internet service — do not.
"These cable companies are not mom-and-pop shops," Steindler told the high court.
After the hearing, Steindler told reporters that cable's claim that utility poles were a bottleneck to the wiring of communities was inaccurate.
"Cable companies can always bury their cable underground. It's more expensive for them to do it, and they don't like to do it, and they yell and scream if they have to pay more money," he said. "When companies like [AOL] Time Warner get into the Internet business, they don't need that subsidy anymore."