Why 'Brand X’ Matters to Cable

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Washington — So what’s this Brand X case, going before the U.S. Supreme Court on March 29, all about?

Depending on the source, the case is about the future of the Internet, the ability of cable to control use of its network or the Federal Communications Commission’s authority to regulate the communications industry — or, to some, about all three.

Following, in question-and-answer format, is a road map to how the National Cable & Telecommunications Association’s cable-modem case landed in the high court — and what might result.

Q: How did the Brand X case start?

A: To answer this question, one has to go back to AT&T Corp.’s 1998 merger with Tele-Communications Inc. Portland, Ore., refused to transfer the franchise unless AT&T agreed to carry multiple Internet-service providers. AT&T decided to fight Portland, but lost in U.S. District Court. It next sought relief in the 9th U.S. Circuit Court of Appeals.

In June 2000, AT&T won the appeal and the case went no further than the three-judge 9th Circuit panel. But the victory turned out to Pyrrhic, because the 9th Circuit voided Portland’s open-access mandate on the basis that the Oregon city was forcing AT&T to provide a telecommunications service, something prohibited by federal law.

Nevertheless, as a provider of a telecommunications service, AT&T was, in theory, subject to federal open-access requirements. Verizon Communications Inc., for example, used the ruling to sue cable operator Cox Communications Inc. in a Los Angeles federal court, seeking such access.

Q: What happened next?

A: In September 2000, the FCC opened a rulemaking on the classification of cable-modem service. In March 2002, with political control of the FCC shifted to the Republicans, the agency ruled that cable-modem service, contrary to the 9th’s Circuit’s ruling, was purely an interstate information service not covered by the open access rules. The FCC ruling also permitted cable to stop paying franchise fees on modem revenue, which cities say is costing them nearly $500 million a year.

Q: What was the response to the FCC’s ruling?

A: Appeals were filed in at least three appellate courts. Brand X Internet Services, a tiny ISP based in Santa Monica, Calif., filed in the 9th Circuit. The Judicial Panel on Multidistrict Litigation conducted a lottery, as required, to assign the case. The 9th Circuit was selected.

Q: Why was the 9th Circuit’s selection bad luck for cable and the FCC?

A: In deciding the Brand X case, a three-judge panel refused to give the FCC’s information services classification substantive review that the agency would normally deserve. In a 2-1 decision that the full 9th Circuit refused to reconsider, the panel said that its Portland holding that cable modem service is partly a telecommunications service was controlling and kicked the matter back to the FCC.

Q: How did the Supreme Court become involved?

A: The Justice Department, representing the FCC, and the NCTA filed appeals with the high court. Last December, the court agreed to take the case and set oral argument for March 29. The court receives thousands of appeals each year, but dockets only 100 or so. Just getting the court to take the case was important, because it signaled that the FCC and NCTA had raised an issue of national importance.

Q: What are the high court’s options?

A: The court could affirm the 9th Circuit. It could remand the case to the 9th Circuit with instructions that the Portland ruling should not interfere with a substantive review of the FCC’s cable modem order. And it could review the FCC’s order on its own and determine the agency acted reasonably in holding that cable-modem service is an information service, since “cable modem service” is not a defined term in federal telecommunications law.

Q: What result does Brand X seek?

A: It wants the 9th Circuit affirmed, setting the stage for access to cable broadband facilities on nondiscriminatory terms.

Q: What do the FCC and the NCTA seek?

A: They want the court to reverse the 9th Circuit and affirm the FCC’s deregulatory approach to cable broadband, meaning cable companies decide whether to provide customers with multiple ISPs.

Q: What if the Supreme Court affirms the 9th Circuit?

A: All is not lost for the FCC and the NCTA. The FCC has statutory authority to strip away open access requirements on telecommunications service providers, Verizon, SBC Communications Inc. and Qwest Communications International Inc. each have broadband forbearance petitions filed with the FCC. One caveat: the FCC in March 2002 is not the same FCC today.

FCC chairman Michael Powell resigned March 18, replaced the next day by Republican member Kevin Martin. President Bush has to fill Martin’s old commission seat and find a replacement for Republican member Kathleen Abernathy, as she is expected to leave in a few months.

It is unclear how the Martin FCC would treat cable and phone forbearance petitions. The FCC has 15 months to act or the petitions are deemed automatically granted.

Q: Finally, why aren’t open-access rules in effect today?

A: The Ninth Circuit agreed to stay its Brand X decision pending the outcome in the Supreme Court.

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