The FCC, in a 3-1 vote, ruled that cable-modem service was an "information service." Distinguishing Internet access from "cable services" or "telecommunications services" means that a handful of large Internet service providers, including AT&T Broadband Internet, do not have to share their independent networks with smaller competitors.
By contrast, telephone companies that provide DSL (digital subscriber lines) and other services must share their infrastructure and provide so-called open access to rivals. Similarly, federal regulators forced AOL to offer open access to rival ISPs as a condition of the AOL-Time Warner merger.
Although consumer groups, Democrats and at least one major Internet service provider blasted the decision, FCC Commissioner Kathleen Abernathy said it would encourage the burgeoning cable industry to develop new technologies--without worrying about the related cost and red tape of government oversight. According to the National Cable & Telecommunications Association (NCTA), a trade group that represents the cable companies, more than 7.2 million customers--17 percent of homes with PCs passed by cable systems--subscribe to high-speed cable service.
"Classifying cable-modem service as an information service will promote our goal of fostering a minimal regulatory environment that promotes investment and permits innovation in this competitive market," Abernathy said Thursday at the FCC's monthly meeting.
In her brief about the decision, Abernathy noted that cable companies were free to forge open-access agreements with rivals, similar to the deal EarthLink and AT&T announced Tuesday for high-speed cable customers in the Boston and Seattle areas. The FCC hopes such deals become increasingly common.
"I also hope that the declaratory ruling we adopt today will provide a blueprint for cable operators that seek to negotiate additional access arrangements with independent ISPs," Abernathy wrote. "By establishing that cable operators may enter into access arrangements with independent ISPs on a private carriage basis, our ruling makes clear that cable operators can provide choice without necessarily subjecting themselves to common carrier regulation."
Representatives from large cable companies, including Comcast and Cox Communications, did not want to comment on the ruling but referred to an NCTA statement. NCTA Chief Executive Robert Sachs hailed the decision.
"The classification of cable-modem service as an ?information service,' and not a telecommunications service, sends a strong signal that cable Internet services will be able to continue to develop in a business environment that favors competition over regulation, and encourages new investment," Sachs said. "The commission traditionally hasn't regulated information services. Given the vigorous competition between cable-modem, digital subscriber line, and satellite-delivered broadband Internet services, a policy of regulatory restraint is particularly appropriate."
Some industry experts see the vote as having ramifications far beyond the cable-modem industry, which is dominated by a handful of large corporations including AT&T, Comcast, Cox and AOL Time Warner. They say Thursday's vote represents a fundamental change in direction in the federal government's philosophy on telecommunications regulation.
According to the Telecommunications Act of 1996, large telephone companies were required to open their networks to rivals--smaller companies that did little more than repackage and resell phone services to consumers. The message of Thursday's ruling is that such resellers aren't necessarily viable competitors--at least in the cable-modem niche--and should invest in their own optical networks and other infrastructure improvements instead of relying on those of bigger companies. The ruling opens the door to eliminating forced open access not only for cable modems but for DSL and telephone access as well.
"If I'm a DSL provider relying on a Baby Bell company to install my lines, and I'm just reselling a service, this FCC does not consider that true competition," said Mark Kersey, broadband industry analyst at La Jolla, Calif.-based research group ARS. "That's a dramatic change from the FCC under (former Chairman) Bill Kennard, which was all about opening the Baby Bells to their competitors. This vote signifies that the FCC is moving away from open access with the Baby Bells as well."
Phone companies greeted Thursday's vote--and the underlying philosophical shift--with applause. They're hopeful that the FCC will soon strike down open-access rules for the phone companies, which must now share their networks with DSL resellers such as EarthLink and Covad Communications.
"Whether it is DSL, cable-modem, satellite or wireless technology, the end product is the same: broadband Internet access service," said Priscilla Hill-Ardoin, senior vice president of San Antonio, Texas-based SBC Communications. "By adopting rules that apply equally to all broadband providers, the FCC has the opportunity to create a unified, nationwide regulatory framework for this country's broadband market. Such a market-based approach not only best promotes competition, but ensures that American consumers and businesses directly benefit from that competition through more choices and better prices."
The FCC also agreed Thursday that local governments could not legally charge a fee for high-speed cable-modem service. By contrast, many local authorities charge a fee of up to 5 percent of cable companies' gross revenue for video programming offered by cable television operators, and some are charging for Internet access.
Critics bash "bad law, bad policy"
The vote came under immediate fire from regulation advocates, including consumer watchdog groups such as the Consumer Federation of America and the Center for Digital Democracy. Those groups and some prominent Democrats say the decision will dramatically increase the cost involved for smaller companies that want to crack the cable-modem market, ultimately resulting in less competition.
"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," said FCC Commissioner Michael Copps, who issued the lone dissenting vote in Thursday's ruling. Copps came to Washington in 1970 on the staff of Sen. Ernest Hollings, a South Carolina Democrat.
"How America deploys broadband is the central infrastructure challenge our country faces," Copps said. "With so much at stake, I would have hoped for a little more modesty and measured pace on our part."
The Washington-based Center for Digital Democracy (CDD) also erupted in anger at the FCC's decision. The nonprofit group has long feared that a shrinking number of media conglomerates is usurping access to the Internet, and it argues for a "digital commons" with open access to ensure that everyone has reasonable and fair access to the Internet.
FCC Chairman "Michael Powell...has struck a deadly blow to the future health of the Internet and has given a great victory to the cable industry lobby," said Jeff Chester, CDD's executive director. "Cable will now be able to become an even more powerful media gatekeeper, controlling much of what will be digitally distributed into U.S. homes."
Mark Cooper, research director of the Washington-based Consumer Federation of America, noted that AT&T's deal with EarthLink earlier this week and a similar agreement between Comcast and Juno demonstrate why reliance on commercial negotiations without an obligation to provide nondiscriminatory access to high-speed Internet service will "destroy innovation."
"Without nondiscriminatory access," Cooper said, "the network owners--cable and telephone companies--will choose who can sell high-speed service to the public. Consumers will only get to select among the small number--at most four--chosen by the network owners. These network owners will also be able to tell the ISPs what they can--and more importantly, cannot--sell, restricting such uses as streaming video and end-user generated content and applications."
Atlanta-based EarthLink, an ISP that has 4.8 million subscribers and is one of the largest resellers of high-speed cable and DSL services, also ripped on the ruling. Dave Baker, vice president for law and public policy at EarthLink, called the FCC's decision "bad law and bad policy."
"The FCC fails to make the fundamental distinction between how you treat regulated networks like cable systems and unregulated information services like broadband Internet access that travel over those networks. Both statute and longstanding FCC precedent draw these distinctions, which the FCC chooses to ignore in today's decision," Baker said.
"The challenge is not just providing more broadband connections, but giving consumers meaningful choices in their broadband providers over those connections," Baker said. "Encouraging broadband deployment does not mean sacrificing consumer choice. Unfortunately, today's FCC decision does just that."