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Unpacking the Brand X Decision
[June 27, 2005]

Unpacking the Brand X Decision

The Brand X decision was handed down by the U.S. Supreme Court today.

TMCnet Communications and Broadband Columnist

The much-anticipated and rather technical Brand X decision was handed down by the U.S. Supreme Court today and, as far as impact goes, it did not disappoint.

In a 6-3 decision, the high court upheld the FCC's 2002 declaratory ruling in which it classified cable broadband service as a deregulated "information service" instead of a "telecommunications service" under the Telecommunications Act of 1996.

The FCC, according to a news release, said that its declaratory ruling would promote broadband deployment, which should result in better quality services, lower prices and more choices for consumers.

The net effect of the Supreme Court's decision is that cable companies are not obligated to provide open access of their lines to Internet service provider (ISP) competitors.

Whether the decision will have a positive impact on the marketplace depends on who you talk to.

For some, the decision was tantamount to driving small ISPs out of business, thus creating monopolies that will drive the prices of broadband higher and higher.

"It's a terrible decision," Brand X owner Jim Pickrell told TMCnet."It's bad for consumers and it is bad business . . . [Brand X is] effectively locked out . . . It's an end to competition in broadband and telephone . . . For us it's a disaster."

Pickrell added that the U.S. will fall further behind other countries in providing broadband access to its citizens.

"We're falling behind," said a frustrated Pickrell, noting that the cost of broadband in Japan is half of what it costs us in the United States.Not surprisingly, Pickrell said, a greater percentage of Japanese citizens have broadband access than those in the U.S.

At the other end of the spectrum are Senator John Ensign (R-Nev.) and Carol Mattey, a former FCC deputy chief of the Wireline and Competition Bureau.

"It is my hope that Congress can build on the Supreme Court's decision today on Brand X by updating our nation's communications laws," Ensign, who is reportedly redrafting the Telecommunications Act of 1996, said in a statement."It is time that these laws reflect the sweeping changes technology has brought to this critical sector of our economy.Revising the communications laws will remove barriers to innovation.Consumers will benefit from exciting new technologies that get to the marketplace faster and at lower prices."

Mattey, who is currently a director in Deloitte and Touche's U.S. Technology, Media & Telecommunications Regulatory Consulting Practice, said that the decision provides financial incentive to the cable and telephone companies who are building the infrastructure to offer broadband services.

"The ISPs aren't spending $95 billion [like] cable companies [are] to convert to digital," Mattey told TMCnet.

Mattey agreed, however, that, as a result of the Court's decision maintaining the status quo, some small companies could go out of business.

"The end result may be that some small ISPs will fall by the wayside; that may be how it shakes out," Mattey said, noting that "large ISPs have better bargaining positions."

Mattey said that consumers will benefit through the offering of broadband services through "two or three or four pipes" into the home.

"If you create three pipes, the consumers are going to benefit from competition amongst three different providers," Mattey said.

In addition to the decision being a win for the cable companies, telecoms are also viewing the Brand X decision positively.

Indeed, Verizon issued a statement today in which it called upon the FCC to deregulate the telecoms' DSL broadband services in the same way that the cable's broadband access has been by the Supreme Court.

Specifically, telecoms are hoping that the FCC will no longer require them to share their DSL lines with ISP competitors.

"This decision confirms the FCC's authority to classify broadband services in a manner that reflects the highly competitive nature of those services," said Tom Tauke, Verizon executive vice president of public affairs, policy and communications, in a statement."Now, to provide consumers with the full benefits of new technology and competition, the FCC and Congress should act promptly to finish the job.The Commission should update its rules to ensure that all broadband services, including those offered by Verizon and other telephone companies, are not subject to old policies that ignore consumer needs in this changing marketplace."

Additional Analysis

There are several other intriguing aspects of the Brand X decision.

First, Mattey told TMCnet that, by deferring to the FCC's declaratory ruling, the court's decision may relieve some of the burden on Congress to hastily rewrite some portions of the Telecommunications Act of 1996.

For example, the FCC can rely in the Brand X decision as precedent in the event that it decides to similarly deregulate DSL services offered by the Telcos.

Additionally, the court clearly stated that the FCC is free to impose targeted regulations on ISPs.

"One of the issues that the FCC has struggled with is if it [decides] that something is classified an ISP, is it completely free of regulation or is it free to offer targeted regulation," Mattey said."Can you mandate 911 or access for the disabled?"

The Supreme Court held that the FCC can, indeed, use its discretion to impose targeted regulations on ISPs.


Ted Glanzer is assistant editor for TMCnet. For more articles by Ted Glanzer, please visit:

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