FCC Declares Cable Modem Service an Interstate Information Service and Launches a Rulemaking on Further Policy Implications
On Thursday, March 14, 2002, the Federal Communications Commission declared cable modem service to be an interstate information service which does not involve a separate offering of telecommunications service. The Declaratory Ruling is the result of a long pending inquiry at the FCC and the next step to a final rulemaking. The FCC’s approach promises to create uniform national answers to myriad questions that have dogged the cable industry since it launched high speed Internet over cable.
The cable industry’s rapid roll out of high speed Internet over cable not only spurred the telephone industry to dust off DSL and compete aggressively with cable modems, but also spawned a slew of efforts to regulate cable like telephone. Traditional telephone regulation is predicated upon the ubiquity of a ratepayer-funded common carrier transportation network, with an absence of any significant competitive checks. As a result, telephone companies have long been required to provide nondiscriminatory carriage to unaffiliated third parties. When telcos offer “information services,” or services that combine processed and manipulated data with transport, they are also required to offer “unbundled” transportation to third parties who would like to offer similar enhanced services over the telephone network. It is this arrangement under which multiple ISPs provide “dial-up” Internet access via telephone.
Cable, of course, emerged from a very different environment, in which private risk capital funded development, and federal regulators prevented the imposition of common carrier rules on the new facilities-based competitor. Cable modem service was deployed rapidly as a “cable service” under this framework. Dial-up ISP competitors, competing telephone companies, and ambitious municipalities pursued many efforts over the past few years to impose an “open access” regime on cable operators offering high speed internet. They wanted the transport component unbundled and offered on a “non-discriminatory” basis to third party ISPs. Those efforts led to a judicial cacophony, with the courts uniformly rejecting a role for municipalities in regulating Internet over cable, but adopting quite different theories. One court held (as an FCC Report had suggested) that Internet over cable is a “cable service” exempt from content or common carrier controls. Another court strongly suggested that Internet over cable was a “telecommunications service,” implying the potential for common carrier transport. A third held that Internet over cable was probably an “information service.” A fourth court found Internet over cable to be constitutionally-protected free speech. All of them —including the US Supreme Court in Gulf Power (see CRB Update dated Jan. 16, 2002, “Supreme Court Reverses 11th Circuit in NCTA v. Gulf Power”) — urged the FCC to resolve the conflict.
At the same time, the ILECs have invested heavily in obtaining relief from the regulations preconditioning their right to sell long-distance services on first opening their networks and unbundling transport components for third-party CLEC use. In Congress, the ILECs pressed for passage of the deregulatory Tauzin-Dingell bill in the name of broadband deployment. At the FCC, they pressed for deregulation of DSL, and particularly of the wholesale transport of CLEC and ISP competitors, in the name of leveling the playing field against cable modems. The “Wireline Notice” of Feb. 14, 2002 (see CRB Update of Feb. 15, 2002, “FCC Tentatively Concludes That Telephone-Based High Speed Internet Service Is Not A Telecommunications Service”), reflects ILEC success in capturing momentum to deregulate their broadband offerings.
The FCC’s Decision
Internet Over Cable is an Information Service, not a Cable Service nor a Telecommunications Service.
The FCC’s decision today offers a uniform national answer to the question of how to classify high speed Internet service delivered over a cable system. The FCC classifies high speed Internet access over cable as an “information service.” By federal definition, information services ride on “telecommunications,” a term broadly defined to cover anything that transports a signal from one place to another. In this case, the FCC holds that the cable modem service is a single integrated service that does not include a separate “telecommunications service.” This distinction is critical, because a “telecommunications service” classification would have set the stage for a regulatory regime affording “forced access” or common carriage to third parties. “Telecommunications service” implies an offering of a service to the public, often on a common carrier basis. By drawing this distinction and declaring that Internet over cable is not a telecommunications service, the FCC has eliminated traditional common carrier law as a basis for forced access. Moreover, by confirming that Internet over cable is “interstate,” the FCC has further reinforced barriers to state and local regulation.
No Forced Access for Now
The FCC directly declared that cable operators today have no obligations to carry unaffiliated ISPs under traditional Title II or Title VI regulation. Moreover, it held that, even if its newly announced classification is incorrect, regulatory forbearance is appropriate at the current time. With respect to cable operators within the jurisdiction of the 9th Circuit Court of Appeals, which suggested that cable modem service is a telecommunications service, the FCC tentatively concluded that it should forebear from any regulation of the service.
Significantly, the Commission has not entirely ruled out the potential for subsequent carriage obligations. In its recent Wireline Notice, the Commission tangentially addressed the issue by asking whether it could adopt a carriage rule for ILEC-provided information services under its general “Title I” jurisdiction over wires. In this notice, the FCC keeps similar options open for cable-delivered information services, possibly as an incentive for cable operators to continue to enter into marketplace arrangements for carriage of third party ISPs on negotiated business terms, rather than by regulation. (AOL Time Warner entered into such agreements under specific merger conditions, but Comcast and AT&T have reached such agreements without explicit regulatory compulsion.)
LFAs Are Likely to Have Little Regulatory Authority Over Internet
Although the text of the Rulemaking has not yet been released, the FCC will be seeking comment on various franchising implications of classifying cable modem service as something other than a “cable service.” The FCC tentatively concluded that the Communications Act does not provide a basis for a local franchising authority to impose an additional franchise for the provision of cable modem service. It further suggests that the provision of cable modem service should not affect the rights of cable operators to access the public rights-of-way. With regard to franchise fees, the Commission held that revenue from cable modem services should not be used to calculate cable franchise fees.
Unified Rules for Broadband?
This Cable Modem Notice, along with the parallel Wireline Notice, reflects the Commission’s exploration of a potentially new regulatory regime for broadband services, and a possible turning point with as much significance for cable as the Commission’s earlier Computer Inquiry had for the telephone industry. However, the underlying ambition that it reflects — to define a unified theory with equal applicability to cable and telephone — is more reflective of the ILEC’s desire to handicap cable competitors than it is to properly accommodate the vastly different architectures, businesses, histories, and finances of these respective industries. It is clear to us, from the express terms of the Wireline Notice, from the discussion held today over the Cable Modem Notice, and from our recent discussions with key FCC personnel, that the Commission appreciates these differences. But it remains the task of the cable industry to lay down the record and to help craft the rules that respect these vital differences.
The date for filing comments in the new Rulemaking is unknown at this time. Participation by cable operators in this docket is essential. We invite you to contact us with questions.