Ruling deals blow to cable giants
Must open networks should decision stand
Cable giants including Comcast Corp. and AOL Time Warner Inc. could face new pressure from regulators to open their high-speed Internet services to rival providers as a result of a ruling by federal judges in San Francisco yesterday.
It appeared likely, however, that the ruling by a three-judge panel would be appealed to the full Ninth Circuit Court of Appeals, and possibly to the US Supreme Court.
The ruling involves the question of whether cable companies must allow independent Internet service providers such as America Online, Earthlink, and smaller local companies to rent cable lines to serve their own customers -- just as telephone companies like Verizon Communications Inc. must do.
Locally, Comcast has made "open access" agreements voluntarily with Earthlink and two small Internet service providers, Galaxy Internet Services Inc. of Newton and Net1Plus of Leominster. Neither company, however, has emerged as significant competition for Comcast, which has more than 450,000 high-speed Net subscribers in New England and is the largest broadband Net provider in the United States.
The Ninth Circuit panel ruled that the Federal Communications Commission was wrong when it decided in March 2002 that cable modem service is an "information service" not subject to federal price or service regulation, not a "telecommunications service" for which the FCC and state regulators can set standards.
While they offer virtually identical service to consumers, albeit at slightly slower speeds, phone-based broadband Net services such as digital subscriber lines, or DSL, are treated by the FCC as a telecom service that can be regulated, including mandating open access for other ISPs. The disparity between cable and DSL regulation helps cable companies avoid "open access" mandates that could enable more people to buy an AOL or Earthlink service package that used cable lines.
Yesterday's ruling "helps to safeguard the open nature of the Internet and the broadband means by which consumers access it," said US Representative Edward J. Markey of Malden, the top-ranking Democrat on the House telecommunications and Internet subcommittee. If it survives appeal, he said, "entrepreneurs and information providers who are unaffiliated with the cable operator or telephone company will now have a fighting, free-market chance to offer goods and services to broadband consumers without undue discrimination from the owner of the wire."
"Cable modem users deserve choice in high-speed Internet providers, and today's ruling is a big step toward finally affording them that choice," said Dave Baker, vice president of law and public policy for EarthLink. The Atlanta company has about 1 million broadband customers and 3.9 million dial-up customers, and has increased its broadband subscriber count by over 65 percent in the past year by selling service over Comcast and Baby Bell DSL networks.
AOL Time Warner Inc. had no immediate comment. The media giant is in the odd position of owning both an online service, AOL, that has long clamored for open access to cable networks, as well as the nation's second-largest cable TV operation, Time Warner Cable, which has generally opposed open-access mandates.
Comcast referred questions to the National Cable Television Association, whose spokesman, Brian Dietz, said: "Today's ruling is one step in a long process." He had no further comment.
The ruling in Brand X Internet Services vs. FCC turned on a narrow issue, with judges concluding that they were bound by an earlier ruling in the same circuit -- which it made before the FCC acted last year -- that cable modem services are a hybrid of telecom and information services that are therefore partially subject to regulations, including open-access requirements. That case involved a challenge by AT&T Broadband, which owns systems later bought by Comcast, to open-access rules required by the city of Portland, Ore.
Judge Diarmuid F. O'Scannlain, one of three judges in the case and an appointee of President Ronald Reagan, wrote: "I concur in the court's opinion only because I believe our court's precedent compels it." O'Scannlain said it was a "strange result" to have a court dictating to the FCC how it should act "within its area of expertise," but said the court's ruling in the Portland case "in essence beat the FCC to the punch" and dictated what policy the FCC had to adopt.
Andrew McBride, an attorney for Verizon, said that while the phone giant backs the Ninth Circuit decision in the current case, "It's a very narrow, technical legal ruling. I doubt this will be the last judicial word." McBride added that Verizon thinks that as a matter of broader policy both cable modem and DSL services should be largely deregulated, because of strong competition between them. Shares of Earthlink rose nearly 5 percent, or 39 cents, to $8.28. Comcast closed unchanged at $32.43. AOL Time Warner rose 20 cents to $15.59, while Verizon, SBC, and BellSouth all rose by less than 1 percent. Peter J. Howe can be reached at howe@globe.com.
