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FCC, Brand X near Supreme decision

The course of broadband competition hinges on the U.S. Supreme Court's ruling due out this month.

The future of competition in the broadband market hangs in the balance as the U.S. Supreme court prepares to hand down its decision in a closely watched case that pits the Federal Communications Commission against a small Internet service provider.

The case, FCC v. Brand X, revolves around semantics and a highly technical legal definition of cable Internet.

The FCC has defined cable broadband as an "information service"--a definition that, under FCC guidelines, frees cable companies of regulations that would require operators to share their networks with competitors, including Internet service providers such as California-based Brand X. Brand X argues that cable networks should be regulated like phone lines, which, because they handle telecommunications service, must allow competing services to ride over their network.

The outcome of the Brand X case could set the ground rules for competition in the broadband market for years to come. Though the details of the case are seemingly arcane, the issue could influence how quickly high-speed Internet services come online across the country, what features they will have and how much they will cost--particularly in regions where cable is the only broadband choice for consumers.

ISPs such as Brand X and Earthlink depend on other companies' infrastructure to deliver their services. Some experts say the days of independent ISPs are limited because Internet service has become more tightly integrated with broadband access. In the days of dial-up, Internet service providers were necessary to turn existing phone lines that carried voice calls into lines that also connected users to the Internet. But now that Internet service is bundled into DSL and cable modem services, some argue there is no need for independent ISPs.

"ISPs are a dying breed," said Craig Matthias, a principal analyst at Fairpoint Group. "It doesn't make sense for them to ask the courts to open networks to them when the market doesn't need it. Cable companies and now the phone companies are offering Internet service through their broadband connections."

Naturally, supporters of ISPs and some consumer advocates strongly disagree with that assessment. They argue that ISPs help spur competition to keep prices low for consumers.

"There are still parts of the country where there is only one broadband provider," said Jason Oxman, general counsel for Comptel/ALTS (Association for Local Telecommunication Services), an industry group that represents more than 300 competitive local exchange carriers and ISPs. "And in regions where there is competition, it's a duopoly where cable and phone companies can split the market. This provides no benefit to consumers."

The Supreme Court heard oral arguments in the Brand X case in March. It is expected to hand down its decision sometime in the next two weeks before the justices on the court break for the summer.

Brand X is hoping that the Supreme Court will uphold a ruling by the 9th Circuit Court of Appeals, which will force cable companies to lease their lines to ISPs at a discounted rate. Brand X and other ISPs plan to use those lines to sell competing Internet service to cable broadband customers. If cable companies are not required to share their networks, consumers will pay higher prices and have fewer choices, argues Brand X.

On the other hand, the FCC is hoping that the court overturns the 9th Circuit's decision, which would keep cable broadband unregulated. The FCC argues that if cable companies are exempt from line sharing, they will invest more in their networks and will be more likely to deploy new services quickly.

The FCC has pointed out that this was not the case with phone companies, which are subject to stringent regulation. In the early days of broadband deployment, phone companies did not invest heavily in building DSL networks, because they were afraid of the economic consequences of sharing such an expensive asset with competitors.

Under the previous FCC chairman, Michael Powell, the commission opened a proceeding that would also change the classification of DSL service from a "telecommunications service" to an "information service." The Bell companies, which have complained about the onerous regulations imposed on them for years, fully support these proceedings. But the movement to change the classification of DSL has been stalled as the Brand X case winds its way through the courts.