FCC SAYS CABLE MODEM SERVICE IS INTERSTATE ‘INFORMATION SERVICE’

Consumer groups assailed FCC’s decision, as did dissenting Comr. Copps, Democrat, who said his fellow commissioners were attempting to usurp power of Congress. He called Cable Bureau’s conclusions “forced analysis” created to justify partisan and deregulatory bent of other commissioners, all Republicans. Copps said: “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.” He said he believed “extraordinarily far-reaching” ruling would “create dangerous uncertainty” in growing market for cable broadband services. Chmn. Powell hotly that, saying this was “not a product of regulatory free will” but that Congress had designed classifications in question in 1996 Telecom Act. “Information service is, as a category, found throughout the statute…, indicating Congress had full cognizance of it as a regulatory category,” he said. While Copps said he would have hoped for “a little more modesty and measured pace,” Powell said there was “nothing hasty” about ruling, saying FCC had been grappling with issue for more than 2 years and Notice of Inquiry on subject had generated 4,204 pages of comments and 1,518 pages of ex parte filings. Powell said some critics simply wanted to paint him and his compatriots as “the bad guys who are looking for a way to make big companies get out of their obligations.”

Media Access Project and Consumer Federation of America (CFA) said they were considering going to court to appeal FCC’s ruling. MAP Assoc. Dir. Harold Feld said FCC was making cable industry “God of Internet access.” FCC adopted “radical policy” that “will undermine the Internet’s open architecture,” said CFA and Center for Digital Democracy (CDD) in joint statement. Groups said FCC had misread will of Congress and its decision would hurt consumers. “Michael Powell’s FCC has struck a deadly blow to the future health of the Internet and has given a great victory to the cable industry lobby,” CDD Exec. Dir. Jeff Chester said, and “cable will now be able to become an even more powerful media gatekeeper.” CFA Research Dir. Mark Cooper said absence of access requirements would allow cable MSOs to “run a price squeeze that stifles innovation on the Internet.” NATOA Exec. Dir. Libby Beaty said that, despite NPRM, FCC already had decided that states and municipalities had no authority to regulate cable modem service. “This is not the end,” she vowed. EarthLink, which just days earlier had reached carriage agreement with AT&T Broadband (CD March 13 p6), said FCC’s decision was “bad law and bad policy.”

In issuing notice, Commission made 3 tentative conclusions: (1) Statutes don’t provide basis for LFAs to impose additional franchise and therefore franchise fees for provision of cable modem service. (2) Provision of cable modem service shouldn’t affect rights of cable operators to have access to public rights-of-way. (3) FCC should exercise its right to forbear from imposing telecom regulation on cable modem service in Western states where 9th U.S. Appeals Court, San Francisco, concluded in Portland, Ore., case that cable modem service was partly telecom service. Green said it was proper to forbear because cable modem service “is still in its early stages of development” and “the public interest would be served by preserving a uniform, nationwide” regulatory regime. FCC said revenue from cable modem service shouldn’t be used to compute franchise fee ceiling, which law limits to 5% of gross revenue cable operators receive from cable services. Cable Bureau’s findings rejected classifying cable modem service as either “cable service” or “telecom service.”

NCTA Pres. Robert Sachs said his industry viewed decision “very positively” and ruling sent “a strong signal” that cable Internet services would be able to develop in environment that “favors competition over regulation and encourages new investment.” Sachs said consumers were likely to see $2 reduction in their monthly bills if Commission concluded that LFAs had no authority to impose franchise fees on cable modem service. That also would leave open question whether consumers would be due rebate of fees already collected. NCTA officials said they saw nothing in decision that would invalidate AOL Time Warner’s obligations to offer multiple ISPs. AOL-TW was required to make that offering under FTC consent decree that allowed merger of AOL and TW. AOL TW spokeswoman said company officials didn’t believe FCC’s decision had any effect on FTC consent decree. “We have no plans to” ask FTC to lift multiple ISP condition, she said, reiterating that AOL-TW was “firmly committed” to offering multiple ISPs to its customers.

FCC Cable Bureau Chief Kenneth Ferree in news conference later said “the hope and the belief here is that our partners in the states and local governments have the same interest that we do in promoting broadband deployment to everybody and not in enacting artificial regulatory barriers to the service.” But NATOA’s Beaty said her group had “gotten the shaft,” raising possibility that local officials would be among those opposing decision. Ferree said NPRM didn’t address situation in which cable operators offered voice services, saying voice-over-IP (VoIP) was not “within the 4 corners” of notice. Both AT&T Broadband and Cox have started telephony services. Ferree said he hoped for report and order on NPRM before end of 2002.

Telecom Industry ‘Encouraged’

USTA Pres. Walter McCormick said he was “pleased” Commission was working toward “minimal regulation,” but said major work lay ahead. He called on FCC to promote intermodal competition “by making sure that wireline competitors do not remain handicapped by regulations that disadvantage our offering of functionally equivalent” services. Major DSL providers also saw Commission’s ruling as positive sign. By calling both cable and DSL Internet “information service,” Commission moves closer to “putting all broadband services on the same regulatory footing and helping American consumers to realize the benefits of competition,” said Patricia Hill- Ardoin, SBC’s senior vp-FCC. Bob Blau, BellSouth vp-exec. and federal regulatory affairs, said his company “is encouraged and certainly commends the Commission’s effort to re-think the type of regulatory framework that should apply to cable modem and DSL services, and more importantly whether these services need to be regulated at all. They don’t.” Verizon Senior Vp Edward Young said “if cable’s broadband service is not subject to the same regulation as telecommunications, it’s clear that the broadband service offered by other providers should also be freed from this regulation.”

“They [FCC] got it wrong on law and they got it wrong on policy,” said attorney Nicholas Miller, who represents localities: “We will see them in court.” Under 5th Amendment no federal agency has right to give away property belonging to local govt., he said, referring to tentative conclusion in NPRM that provision of cable modem service shouldn’t affect rights of cable operators to access the public rights-of-way (ROW). On other issues affecting local govts., Miller said he was reserving comments until he had opportunity to review FCC reasoning. Expressing disappointment at decision, Derryl Anderson, dir. of Washington Office of Cable TV & Telecom, said local govts. had role to play in ensuring customer service and protecting rights-of-way. As FCC proceeds with rulemaking, Anderson, former NATOA pres., said he hoped local govts. would be given more serious consideration and agency would become more “forward thinking than it is today.”

NATOA Pres. Denise Brady said FCC classification would virtually free cable modem service from any regulatory oversight. While cable was regulated by local franchising authorities and telecom companies by state PUCs, there was no regulatory assignment for information service, she said. “It is one thing to receive customer complaints for cable and to refer telephone complaints to PUCs, but it a whole different matter when there’s no one to refer calls about cable modem service to.” Main concern for localities about FCC ruling concerned maintenance of customer service standards and customer protection, said Brady, who also is deputy dir. of San Francisco Dept. of Telecom & Information Services. On question of rights-of-way access, she said providers of cable, gas and electricity see franchise fees for ROW as normal cost of doing business. In many places, telecom companies also pay fees for occupying ROW, she said, but FCC ruling removes cable modem service from obligation. Ruling would deprive localities of existing source of revenue, especially at time when they are coping with budget shortfalls, Brady said.

FCC didn’t have statutory jurisdiction over public rights-of-way and often has been reversed by courts when it sought to stress authority over it, said David Olson, dir. of Portland (Ore.) City Office of Cable Communications. “If they wish to tread in that direction” it’s okay, he said. Besides its ruling on ROW access, FCC decision will be challenged on variety of fronts, Olson said. Ruling will make Internet closed platform and put it in hands of “a few large cable and telephone companies,” he said.