9th Circuit Decision on Cable Modem Regulatory Classification
The Ninth Circuit Court of Appeals yesterday issued a decision (Brand X Internet Services v. FCC) affirming in part and vacating in part the Federal Communications Commission’s 2002 Declaratory Ruling that found that the delivery of high-speed Internet service over a cable system (“cable modem service”) is an “information service.” Specifically, the Ninth Circuit agreed with the FCC that cable modem service is not a “cable service” but disagreed that it was entirely an “information service.” Instead, the court found that cable modem service is part “telecommunications service” and part “information service.” In many ways, the regulatory ramifications of this decision are not clear at this time. As described below, both court review and additional FCC proceedings will in large part shape the practical implications of the Ninth Circuit’s decision.
Background of the Decision
The dispute over the appropriate regulatory classification of cable modem service has now raged on for over five years. Attempts by local franchising authorities (“LFAs”) to impose “open access” requirements upon cable modem service resulted in several conflicting court decisions in 1999 and 2000. In one of those decisions, the Ninth Circuit reviewed an attempt by Portland, Ore., to impose open access requirements upon an AT&T system in the context of a franchise transfer. In that decision, AT&T v. City of Portland, the Ninth Circuit held that the City could not impose such open access requirements because cable modem service was not a “cable service” as defined by the federal Communications Act, but was in part an “information service” and in part a “telecommunications service” under the statute. Partly in response to this and other conflicting federal court decisions, the FCC conducted an extensive proceeding in order to establish a consistent national regulatory classification for cable modem service. In its March 15, 2002, Declaratory Ruling, the Commission concluded that cable modem service was an interstate “information service” and was not subject to regulation as either a cable service or a telecommunications service.
The Brand X Decision
Several parties appealed the FCC’s Declaratory Ruling to three different circuit courts of appeal, including the Ninth Circuit. The case was then randomly assigned for consolidation at the Ninth Circuit. In the Brand X decision issued yesterday, the Ninth Circuit held that it was bound by its prior decision in AT&T v. City of Portland and, therefore, would not undertake a review of the FCC’s record, analysis or policy decisions. As a result, the FCC Declaratory Ruling did not receive the deference normally accorded an expert agency. Instead, pursuant to the judicial doctrine of stare decisis the court simply stated that it was bound by its holding in Portland that cable modem service is not a cable service, but is part information service and part telecommunications service.
Next Steps in the Process
Recognizing that its decision could trigger numerous competing regulatory claims, the Ninth Circuit specifically refused to address the implications of its decision. Instead, the court stated:
Because the various petitioners’ claims all revolve around the FCC’s central classification decision, which we have vacated, we decline here to consider their remaining claims… leaving them for reconsideration by the FCC on remand.
If the Ninth Circuit’s decision is not reversed, therefore, the FCC will be required to determine the practical regulatory implications of the Ninth Circuit’s decision. In particular, the Commission will address whether cable operators will be required to provide access to competing ISPs. The FCC has previously indicated that it would “forebear” from regulating cable operators in a manner that would impose obligations to carry ISPs or provide access to ISPs under the Communications Act’s common carrier provisions. Similarly, the Commission indicated it favors deregulating the telephone companies’ DSL service such that they would also no longer be required to provide access to competing ISPs.
Chairman Powell has already stated that the FCC will appeal the Ninth Circuit’s Brand X decision. It can be expected that cable operators and perhaps other parties will also appeal the decision. This may include a request for the court to stay the effectiveness of its decision, a request for en banc reconsideration by all of the judges of the Ninth Circuit, or a direct appeal to the Supreme Court.
Immediate Practical Implications
The decision of the Ninth Circuit presents several immediate practical considerations.
- Cable Modem Franchise Fees
The Ninth Circuit’s decision specifically agreed with the FCC that cable modem service is not a “cable service” subject to LFA regulation under cable television franchises. This leaves intact the view of the cable industry that LFAs may not impose a cable franchise fee upon cable modem service revenues.
- ISP Open Access Requests
It can be expected that certain ISPs will promptly send out requests for access to cable operators’ Internet access facilities. Of course, competitive telecommunications providers are subject to no automatic obligation to open their network platforms to third party sharing, despite what some members of the press seem to be reporting. Pending further clarification, the Ninth Circuit has specifically remanded to the FCC the regulatory implications of the Brand X decision and any open access requirements are now subject to an FCC remand decision. Should you receive such ISP access requests you may want to contact CRB to review your response.
- LFA Telecommunications Service Regulation
It is also possible that certain LFAs may assert regulation over the cable modem service pursuant to their alleged jurisdiction to franchise or regulate local telecommunications services. It is also possible that such LFAs may seek telecommunications “franchise fees” separate and apart from their cable television franchise. Once again, we believe that any such attempt to regulate the cable modem service locally—in addition to other legal obstacles—at a minimum, should await the outcome of the FCC’s remand proceeding. Should you receive an LFA notice of such proposed local regulation, you may wish to contact CRB regarding a response.
- Pole Attachment Rates
There should be no impact on pole attachment rental rates for the present. When the Supreme Court upheld the FCC’s jurisdiction over pole attachments for cable modem service in Gulf Power, it held that the FCC was reasonable in deciding that cable modem service was not telecommunications (for pole rent purposes), not formally classifying cable modem services, and in applying the cable rate to cable modem services commingled with cable services. It left open the issue of what rate should apply if the FCC reconsidered its decision that cable modem service was not a telecommunications service. However, while some utilities may claim that pole rents are now in play, it is more likely that the Ninth Circuit decision to vacate the FCC’s classification decision and remand takes us back to the status presented to Supreme Court: the classification decision has not been concluded, and in the meantime the cable rate applies to cable modem service.
- FCC’s Ongoing Proceeding On Cable Modem Service
The decision in Brand X involved the FCC’s regulatory classification of cable modem service, but the Commission has continued to consider other regulatory implications of that decision. In fact, it was expected that the FCC would issue a second order in that proceeding to address issues such as customer service, customer privacy, and universal service. It is likely that the Brand X decision will delay any further Commission order on the regulatory implications of its Declaratory Ruling in order to consider the decision’s effect.
The Ninth Circuit’s Brand X decision will now be subject to further judicial proceedings, and further FCC consideration. Despite the commentary in some national press, there should not be any immediate regulatory impact as a result of this decision. We anticipate both the judicial and agency proceedings will be lengthy and complex. We will keep you advised along the way.
Please contact us with any questions or if you would like a copy of the Brand X decision.