Cable firms win Internet access case

updated 7:32 p.m. ET June 27, 2005

WASHINGTON - In a victory for the cable industry, the Supreme Court on Monday said cable companies don’t have to share their lines with rival providers of high-speed Internet service.

The 6-3 decision in the so-called “Brand X” case upholds a Federal Communications Commission ruling that said the cable companies were exempt from the same regulations requiring phone companies to offer access to independent providers. At the time, the FCC said it wanted to encourage cable companies to build their networks to offer broadband services.

In an opinion by Justice Clarence Thomas, the high court said judges should defer to the expertise of the FCC, which concluded in 2002 that limited access is best for the industry.

“The Commission is in a far better position to address these questions than we are,” Thomas wrote.

The FCC and cable companies cheered the ruling. The cable industry said it would further investment, growth and competition in the broadband market.

“It removes the regulatory uncertainty, and for all of us who want to offer high-speed Internet access, it gives us every incentive now to continue investing and continue innovating,” said Kyle McSlarrow, president of the National Cable & Telecommunications Association, the main industry lobbying group.

But consumer advocates said it would lead to higher prices for consumers.

The court’s ruling “threatens to cement the cozy duopoly of cable modem and DSL service that has made a mockery of competition in American broadband markets and prompted hundreds of communities across the country to build their own local networks,” said three consumer groups — the Consumer Federation of America, Consumers Union and the Free Press.

At the center of the case is a Santa Monica-based company in California, Brand X Internet, with about 500 subscribers in the local area. Brand X challenged the FCC and sought access to cable’s fiber optic lines to offer broadband service.

“This is just terrible and the real losers in this decision are consumers, because consumers benefit from choice and competition,” said Brand X president Jim Pickrell. He said his company may be forced out of business.

Brand X runs its traffic over phone lines, but Pickrell may soon lose the discounted rates he gets to use those lines from the phone companies. The FCC is considering petitions to regulate broadband service offered by phone companies via digital subscriber lines, or DSL, as an information service instead of a telecommunications service. Regulation as a telecom service requires the phone companies to offer access to independent providers.

“We’re not going to close today, but it really doesn’t look good,” said Pickrell.

Supreme Court rulings On the final day of its 2004-2005 session, the Supreme Court: Issued split rulings on whether courthouses could display the Ten Commandments. Sent a file-sharing case back to lower court after ruling that the services could be sued for their users' illegal activity. Overturned a lower court ruling that would have required cable Internet firms to open their lines to rival Internet providers. Refused to hear appeals from two journalists who have refused to testify about the leak of an undercover CIA agent's identity. Ruled that an appeals court abused its discretion by reopening the case of a Tennessee death row inmate. Ruled that police cannot be sued for how they enforce restraining orders. Agreed to clarify when evidence collected during improper police searches can be used against a suspect. Said it would consider whether federal employees can sue in federal court for alleged constitutional violations.

Analysts say the ruling will have little immediate impact, but could affect telecom policy in the long term. “This was a very far-reaching decision, taking the courts out of public policy decisions relating to technology,” said Dana Frix, partner in the corporate telecommunications practice at Chadbourne & Parke, who has represented phone and cable companies.

About 22 million homes have cable broadband service, according to industry numbers.

Nationwide, 53 percent of home Internet users have a broadband connection, provided mostly by cable or DSL. About 44 percent of home users have a dial-up connection, according to the latest figures from the Pew Internet & American Life Project.

The FCC voted in March 2002 to exempt cable companies from the strict rules applied to telecommunications companies. The agency said high-speed Internet over cable was an “information service,” making it different from phone service.

But the 9th U.S. Circuit Court of Appeals overturned that decision in 2003, ruling that Internet providers should be allowed to sell their services over the cable companies’ lines.

The cases are National Cable & Telecommunications Association v. Brand X Internet Services, 04-277; FCC v. Brand X Internet Services, 04-281.

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