Court Smiles on Cable Broadband

A U.S. Supreme Court ruling today effectively turns over regulation of broadband cable access to the Federal Communications Commission, which is expected to continue regulating the prices that cable companies pay for gaining access to businesses and homes over utility lines.

The decision was widely considered a victory for cable operators, which are aggressively challenging local phone companies for dominance of the Internet broadband market. The fact that the FCC can regulate the price utilities can charge for access may help keep costs low and ensure the rights of access for the cable companies.

“The Supreme Court ruling has really kept the status quo,” says Susan Lynner, an analyst with Prudential Securities, who specializes in regulatory issues. "This clearly keeps the FCC in the driver's seat of cable/Internet regulatory issues. The decision was anticipated, but you can never be sure until it comes out.”

So what does this mean for cable operators and the equipment companies supplying them? Since this decision merely protects what the FCC has already been doing, it likely won’t result in any new business. Wall Street reacted minimally to the decision.

But longer-term, FCC control means that for the time-being, cable companies will retain the right to gain cheap access via utility lines. This puts cable companies in a good position to roll out broadband access services. (Broadband cable access efforts are detailed in a recent Light Reading report: Cable Networks: A Primer.)

The FCC currently regulates the rates and terms that cable operators must pay, including rates for those offering high-speed Internet service. The FCC had decided cable operators should be charged the same rate, whether using phone and utility space for cable television or the Internet, a decision that utility companies challenged.

The Supreme Court decision overturns a recent decision by a lower court.

The U.S. Court of Appeals for the Eleventh District had ruled in favor of the utilities by stating that the FCC could not regulate prices because the Internet has not been defined either as a cable service or a telecom service. The appeals court also ruled the FCC had no authority to regulate the rates that utilities charge, nor what equipment could be placed on their poles.

While the decision was expected, cable operators were still relieved. If the ruling had gone against the FCC and the cable operators, utility companies might have decided to charge higher cable pole attachment fees, which could have further stifled broadband buildouts.

Also, a ruling in favor of utilities likely would have invited new legislation from congress that would have worked to protect the cable companies from the utilities, says Linner in a research note published today. That would have added to the current regulatory tangle, including pending legislation like the Tauzin-Dingel bill, which is currently awaiting some sort of action in the U.S. House of Representatives (see Last Mile Political Battle Heats Up).

But the argument circles back to the unanswered question of how Internet traffic is classified by the FCC. Is Internet service provided over cable modems a cable service or a telecom service? The FCC is still trying to work that out. Today's decision indicates the Supreme Court wants no part of this debate, reiterating that the FCC will have to come up with an answer.

In the end, the decision is likely to affect broadband consumers positively.

“It reaffirms the precedent that companies (power companies in this case) cannot create unreasonable barriers to entry in getting telecom services to end users,” says Dan Berninger, managing director, pulver.com, a site that publishes reports on insider views on developments surrounding litigation between forces of competition and monopoly in telecommunications. “However, the pro-consumer side here (AOL & T) also has an anti-consumer stance in their unwillingness to allow open access to competitive ISPs on their broadband pipes.”

— Marguerite Reardon, Senior Editor, Light Reading
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