B.  FCC Decision on Cable Modems

Opts for Less Regulation

 

      Access to the media is a fundamental concept that, in its various manifestations, has presented profound policy and constitutional issues for print, broadcast, cable, and satellite.  These issues are particularly acute when “bottleneck” access to the media is perceived to be controlled by a single gatekeeper as, for example, in the U.S. Supreme Court’s decision upholding cable’s must-carry of broadcast signals.  Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 656-57, 661 (1994).  The most recent controversy regards broadband Internet access via cable modem.  In March 2002, the Federal Communications Commission potentially took a significant step away from regulating this important new communications service.

 

Background

      Residential high-speed, or “broadband,” Internet access is now thought to be available to approximately 75 to 80 percent of homes in the United States, primarily through either cable modem service or digital subscriber line (DSL) services offered by telephone companies (local exchange carriers).  Approximately 11 percent of U.S. households subscribe to these services.  Having invested in major improvements or system upgrades, cable now enjoys a substantial and growing lead over DSL (by a factor of about two to one) in residential subscribers to broadband Internet access service.

      In addition to the cable modem platform, cable operators generally provide their modem subscribers all the services of an Internet service provider, or ISP, for access to the Internet either through a single affiliated or unaffiliated ISP or by giving subscribers a choice among various ISPs.  Providing a multiple-ISP environment, however, may be significantly more costly and difficult for the cable operator.  But with either a single ISP or multiple ISPs, subscribers have “click-through” access to all content and services available on the Internet through their chosen Web browser or that provided with the cable modem service, and can change whatever default first screen the cable operator may provide.

      After a significant period of studying the development of cable modem service, the FCC undertook to determine the appropriate policy and legal framework for this new communications service.  Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, FCC 02-77 (rel. Mar. 15, 2002) (“Cable Modem Declaratory Ruling” or “NPRM”).  The major issues, over which there already had been some litigation, were: (1) the proper statutory classification of cable modem service; and (2) whether a cable operator would be able to exclude a non-affiliated ISP from offering service to its system’s subscribers or would be required to allow non-affiliated ISPs open access to its system.

 

FCC’s Declaratory Ruling

      The FCC is clear about the “overarching principles” rooted in the Commission’s statutory mandates that guide its undertaking in this area.  The Commission’s primary policy goal is to “encourage the ubiquitous availability of broadband to all Americans.”  Id. at para. 4.  Then, “broadband services should exist in a minimal regulatory environment that promotes investment and innovation in a competitive market.”  To this end, the FCC seeks to “remove regulatory uncertainty ... [a]nd limit unnecessary and unduly burdensome regulatory costs.”  Id. at para. 5.  Finally, the FCC recognizes that residential high-speed Internet access is developing over multiple electronic platforms with different technologies and network architectures.

      The Commission therefore “seek[s] to create a rational framework for the regulation of competing services” and wants to “develop an analytical approach that is, to the extent possible, consistent across multiple platforms.”  Id. at para. 6.  Indeed, these Commission goals are identical to those announced just a month earlier in the FCC’s related proceeding concerning broadband Internet access provided over domestic wireline facilities.  Inquiry Concerning Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, Notice of Proposed Rulemaking, FCC 02-42 (rel. Feb. 15, 2002) (“Wireline Broadband NPRM”).

      The Declaratory Ruling begins by noting that there is no clear statutory indication as to how cable modem service should be classified or regulated.  The Commission therefore took solace from the Supreme Court’s recent statement on an analogous issue regarding the characterization of Internet services: When dealing with “technical, complex and dynamic” matters, “agencies have authority to fill gaps where the statutes are silent.”  Cable Modem Declaratory Ruling at para. 32 (quoting National Cable & Telecommunications Ass’n, Inc. v. Gulf Power Co., 122 S. Ct. 782, 789 (2002), citing Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)).

      Cable modem service can be classified as either an “information service” or a “telecommunications service.”  Telecommunications involves “the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.”   The touchstone of an information service, on the other hand, is the “offering of a capability for generating, acquiring, ... or making available information via telecommunications ... but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.”  Cable Modem Declaratory Ruling at para. 34.  To resolve this issue the FCC considered the functions that cable modem service makes available to its end users.

      In doing so, the FCC found that “cable modem service is an offering of Internet access service, which combines the transmission of data with computer processing, information provision, and computer interactivity, enabling end users to run a variety of applications.”  As such, cable modem service is a single, integrated information service.  Id. at para. 38.  Moreover, although cable modem service provides the capabilities it offers “via telecommunications,” the telecommunications component is not separable and cable modem service “is not itself and does not include an offering of telecommunications service to subscribers.”  Id. at para. 39.  And, in considering cable operators’ relationships with ISPs, the FCC determined that cable modem service does not currently provide an offering of telecommunications service to ISPs or other information service providers.  Id. at para. 48.

      In finding that no telecommunications service is included in integrated information services provided to an end user via cable modem, the FCC is consistent with its similar, tentative conclusions in the Wireline Broadband NPRM.  Indeed, the FCC distinguished the contrary dicta of the U.S. Court of Appeals for the Ninth Circuit, treating cable modem service as a telecommunications service, in AT&T v. City of Portland, 216 F.3d 871 (9th Cir. 2000), reached without the Commission’s expertise or comprehensive study.  Cable Modem Declaratory Ruling at paras. 56-58.

      Cable modem service also is not a “cable service” -- that is, “(A) the one-way transmission to subscribers of (i) video programming [programming comparable to that provided by a television broadcast station], or (ii) other programming service, and (B) subscriber interaction, if any, which is required for the selection or use of” such programming.  Id. at para. 60.  The Commission analyzed various components of this statutory definition: one-way transmission, other programming service, subscriber interaction, and the language “or use” added by the 1996 Telecommunications Act.  The Commission concluded that cable modem service is “a service built around Internet access” that “does not have the characteristics required for a cable service.”  Id. at para. 67.

 

FCC’s Notice of Proposed Rulemaking

      The FCC thus concluded that “cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service” to subscribers or ISPs.  Id. at paras. 7, 33.  Thus cable modem service is not subject to the rate regulation or common carrier obligations of a telecommunications service under Title II of the Communications Act, nor can it be regulated as a cable system under Title VI.  Together with the Declaratory Ruling, therefore, the Commission launched a Notice of Proposed Rulemaking to explore, pursuant to its guiding principles, the regulatory implications of its classification of cable modem service as an interstate information service.

      In particular, the FCC now seeks comment on the scope of its Title I ancillary jurisdiction to regulate cable modem service and any constitutional limitations on the exercise of that jurisdiction, as well as the role of state and local franchising authorities in regulating cable modem service.  Perhaps most importantly, “in light of marketplace developments” the FCC questions “whether it is necessary or appropriate at this time to require that cable operators provide unaffiliated ISPs with the right to access cable modem service customers directly” -- that is, provide “multiple ISP access” pursuant to one or more possible open access models.  NPRM at paras. 72, 74 & n.282.

      The Commission specifically asks if a federally mandated system of multiple ISP access would violate the First Amendment rights of cable operators (under what level of scrutiny) or constitute a taking for purposes of the Fifth Amendment.  Id. at paras. 80, 81.

      With respect to marketplace developments, the FCC seeks updated information as to whether the “market will provide consumers a choice of ISPs without government intervention,” whether click-through access can adequately satisfy whatever consumer demand there might be for multiple ISP access, and the cost/benefit trade-offs of a multiple ISP access mandate.  Id. at paras. 84, 86-88.  Significantly, however, the FCC tentatively concludes that it will forbear from enforcing its Title II provisions and common carrier regulations in those jurisdictions subject to the Ninth Circuit’s Portland decision classifying cable modem service as a telecommunications service.  Id. at para. 95.

      Although cable modem service is an interstate information service, the FCC recognized that it is provided over the facilities of cable systems using local, public rights-of-way.  The FCC therefore also seeks comments to clarify the regulatory role of state and local governments as to their possible imposition of multiple ISP access requirements.  Id. at para. 100.  But the Commission tentatively concludes that “our information service classification should not affect the right of cable operators to access rights-of-way as necessary to provide cable modem service or to use their previously franchised systems to provide cable modem service.”  Id. at para.102.

      Moreover, as cable modem service is not a cable service, the FCC indicates local authorities may not assess franchise fees on revenues from cable modem service.  Id. at para.105.  Finally, the FCC notes that its classification of cable modem service has no effect on pole attachments, and that the universal service fund obligations of providers of cable modem service is being considered in the Wireline Broadband NPRM.

      Commissioner Kathleen Abernathy, in her Separate Statement, expressed some concern about cable operators’ potential to suppress competition.  Despite Chairman Michael Powell’s statement that the Commission’s classification decision was based on statute and not the Commission’s own “unconstrained discretion” and “preferred regulatory treatment,” Commissioner Copps’s vigorous Dissenting Statement decried the result that the Declaratory Ruling forces cable modem services into the “generally deregulated information services category” subject only to the FCC’s Title I ancillary jurisdiction.

 

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      In its Declaratory Ruling and NPRM, the FCC has done a commendable job in thoughtfully dealing with the statutory classification issues and then proceeding to comprehensively organize its further inquiry into its appropriate regulatory role consistent with its articulated fundamental guiding principles.  These principles, and the Commission’s approach so far, bode well for a minimal regulatory scheme encouraging the further development of widely available broadband Internet access.  Consumer advocacy groups and other proponents of open access, however, already have challenged the Commission’s Declaratory Ruling in federal court, and the ultimate regulatory status of cable modem (and wireline) broadband Internet access remains in some doubt.

 

--Laurence H. Winer

 

The Media Institute filed comments in response to this NPRM, stating that “mandated multiple ISP access for cable is neither necessary from a practical standpoint, nor appropriate from a constitutional standpoint.”