FCC rule on cable internet service could be headed for the courts: cable operators cheer decision; Democrats, ISPs line up to do battle; Nov. election could prove crucial

Cable World, March 18, 2002 by Richard Cole

The Federal Communications Commission's long-awaited decision declaring high-speed cable Internet access to be an unregulated information service has won accolades from the cable industry, but it's likely to be tested in the courts, Congress and administrative hearings.

Major cable operators paved the way for the ruling with a flurry of deals aimed at showing they will foster competition on their broadband pipeline. Only two days before the FCC acted, AT&T Broadband signed EarthLink to be its first outside ISP, and two weeks earlier Comcast had announced deals with Juno and NetZero. Robert Sachs, president and CEO of the National Cable & Telecommunications Association, points to those deals in supporting the FCC ruling, which he says is viewed "very positively" by the cable industry.

"There is a clear trend here led by the largest companies in this industry to be offering consumers a choice of ISPs," Sachs says, and notes that the FCC will be monitoring that competition.

But critics, including consumer groups and ISPs such as EarthLink itself, have bitterly condemned the decision, saying it will deprive cable customers of the freedom to choose their own ISPs and the services those providers offer.

And local governments are expected to object to the provision that frees Internet services from the 5% franchise fees levied in most communities. Under the ruling, it appears governments and cable operators will not have to refund fees collected in good faith, but they can no longer collect them from cable customers, NCTA attorneys say.

Still, the 3-1 majority led by FCC Chairman Michael K. Powell has now put the burden on its critics to find a way to reverse or modify the decision. Powell's fellow Republican Commissioner Kathleen Abernathy, who is one of the three majority votes, says that while she is concerned about competition, she thinks the industry is moving in the right direction.

"In addition to AOL Time Warner, which offers a choice of ISPs pursuant to merger conditions imposed by the Federal Trade Commission, Comcast and AT&T Broadband have announced agreements under which they will provide consumers with a choice of ISPs, and Cox is conducting technical trials," she noted in her statement.

The lone Democrat on the commission, Michael Copps--a former top aide to U.S. Sen. Fritz Hollings, D-S.C., who is currently chairman of the Senate Commerce Committee--issued a blistering dissent.

"Today we take a gigantic leap down the road of removing core communications services from the statutory frameworks established by Congress, substituting our own judgment for that of Congress and playing a game of regulatory musical chairs by moving technologies and services from one statutory definition to another," Copps said.

On the business side, ISPs see themselves as the victims, fearing that the ruling will allow cable operators to impose onerous conditions and revenue-sharing arrangements on them.

"Today's FCC decision is bad law and bad policy," says Dave Baker, EarthLink's VP for law and public policy. "The FCC fails to make the fundamental distinction between how you treat regulated networks, like cable systems, and unregulated information services, like broadband Internet access, that travel over those networks."

EarthLink is pleased to have relationships with some of the major MSOs, Baker says, but fears that because under this ruling there is no open access requirement it may be shut out of many areas in the country.

The ISPs also chafe under service restrictions cable operators impose--such as limiting the amount of streaming video subscribers can access--and under what some consider a burdensome fee arrangement. Cable operators routinely take more than 60% of the monthly broadband fee and in some cases far more, says Mark Cooper, research director for the Consumer Federation of America.

"The Juno people tell me that cable operators take $50 and they get only $4," Cooper says. "You cannot run a successful Internet service on that kind of money."

Even his organization doesn't believe cable operators need to offer every ISP in the country, Cooper says. But he says they could offer between 16 and 22 ISPs, far more than the three or four that AOL Time Warner and others are rolling out to consumers.

His organization intends to fight final imposition of the ruling by the FCC, Cooper says, and critics may eventually go into court because the decision appears to run contrary to a 9th Circuit U.S. District Court of Appeals ruling in a Portland, Ore., case. NCTA officials concede that, but pointed out that the FCC may have been responding to lower court decisions complaining that there was no national policy on the open-access issue.

"It's our view that they've now created a national policy," says Dan Brenner, NCTA's SVP for law and regulatory policy.

Another hurdle for final implementation of the ruling is dissenting commissioner's Copps's close relationships with Hollings, which, combined with complaints from local communities facing the loss of fees and ISP choice, could lead to legislation aimed at curbing the FCC decision. That would depend on what happens in the Congressional elections this November. While no one is calling the race yet, the Democrats appear to have lost campaign issue No. 1 as the economy improves. If Republicans retake the Senate, Hollings will lose his chairmanship of the Commerce Committee.