Brand X Ruling Language Makes a Case for Ending Obsolete Telecom Regulatory Regime

Published September 1, 2005

After years of litigation and bureaucratic wrangling, the U.S. Supreme Court has decided cable companies can be exempted from onerous regulations that would force them to share their lines with rival Internet service providers.

The ruling will improve the availability and affordability of high-speed Internet access. But the court in National Cable & Telecommunications Assn., et al. v. Brand X Internet Services resorted to questionable legal reasoning to rescue cable from an outdated regulatory regime that should be abolished.

1930s Regulation Not Fit for Today

By a 6-3 vote, the court upheld the decision of the Federal Communications Commission (FCC) to classify cable broadband as an “information service” rather than a “telecommunications service.” In so doing, the commission exempted cable companies from having to share their networks with Internet service providers who lack lines and other transmission infrastructure of their own.

The FCC’s action was challenged by several Internet service providers, including Brand X and EarthLink, who apparently hoped to gain cable customers by demanding access to their competitors’ cable lines, rather than by investing in their own infrastructure or negotiating access with network owners. But subjecting cable companies to regulations devised in 1934 to increase the availability of basic telephone service would have stalled broadband deployment and triggered higher prices for Internet access.

Cable companies would be less likely to invest in new or upgraded networks if forced to allow rivals to use their lines and equipment. That has been precisely the outcome in recent years of “forced-access” dictates imposed on telephone companies, which now have 30 percent fewer high-speed lines than cable companies.

The forced-access regulations were devised by Congress during the administration of President Franklin D. Roosevelt to promote universal telephone service. But that also helped to secure market power for AT&T. In recent years, the advent of cellular, cable, satellite, and Internet-based services has rendered such regulation obsolete.

Arbitrary Regulatory Distinction

Writing for the court majority, Justice Clarence Thomas characterized the FCC’s treatment of cable Internet service as “a first step in an effort to reshape the way the Commission regulates information-service providers.”

That’s all well and good. Yet the FCC’s distinction between “telecommunications services” and “information services” is, in fact, imprecise and arbitrary–a regulatory invention that has no place in today’s telecommunications market. Thus, while the court’s endorsement of limiting the regulation of cable Internet service is most welcome, its legal reasoning is shaky.

The court majority, in its support of the FCC, construed cable Internet service as a fusion of data processing and transmission functions. As such, cable companies would be exempt from forced-access requirements under the current rules.

But this reasoning raises a simple question: If cable Internet is an “information service,” why is the same type of service provided by telephone lines deemed to be a “telecommunications service” subject to the forced-access requirements?

In fact, as noted in the dissent of Justice Antonin Scalia, cable Internet transmissions are virtually identical to those of regulated telecommunications services: “Since the delivery service provided by cable is downstream from the computer-processing facilities, there is no question that it merely serves as a conduit for the information services that have already been ‘assembled’ by the cable company in its capacity as ISP (Internet service provider).” Thus, “After all is said and done, after all the regulatory cant has been translated, and the smoke of agency expertise blown away, it remains perfectly clear that someone who sells cable-modem service is ‘offering’ telecommunications.”

Indeed, the majority conceded that similar Internet access provided by telephone companies is regulated as a “telecommunications service,” but concluded, “We need not address that argument.”

All of which highlights the vagaries of current telecom law. Or, as Justice Scalia put it, “It is indeed a wonderful new world that the Court creates, one full of promise for administrative-law professors in need of tenure articles and, of course, for litigators.”

The root of such regulatory confusion is quite simple, and the remedy obvious. The confusion results when Congress needlessly attempts to manipulate markets, as it has telecommunications services, and gives regulatory agencies unfettered power to interpret vague statutory language. The remedy is to end the FCC’s authority to regulate telecommunications services and allow the “invisible hand” of market competition to discipline cellular, cable, satellite, and telephone-based telecommunications providers for the common good.

Diane S. Katz ([email protected]) is director of science, environment and technology for the Mackinac Center for Public Policy.