Dollars And Sense: Brand X, Broadband And The Satellite Sector

by Owen D. Kurtin

The June launch of Wildblue Communication’s broadband service preceded by only a few weeks a major legal milestone that promises to preserve broadband from burdensome regulation and enable it to develop. Since broadband has been the industry’s El Dorado for so long, and since satellite broadband service is in its infancy compared to terrestrial service, legal developments in terrestrial broadband concern the satellite sector. The U.S. Supreme Court’s decision in FCC v. Brand X Internet Services (Brand X) on June 27, 2005 signals that legacy analog regulation will not be allowed to impede the broadband revolution. Although the decision concerns terrestrial cable modem service particularly, the implications for satellite and other terrestrial broadband services such as Voice over Internet Protocol (VoIP) and Digital Subscriber Line (DSL) are just as great.

The Brand X case decided whether cable modem service should be regulated as voice telephone service, called "Telecommunications Service" under Title II of the 1934 Communications Act, as amended by the 1996 Telecommunications Act (collectively, the Act); or as "Information Service." The stakes were high: companies offering Telecommunications Service are considered "common carriers" by the Act. Pursuant to Title II, common carriers are required to offer service to any member of the general public. They are required to interconnect with other carriers when in the public interest and must charge rates that are "just and reasonable" and non-discriminatory. They must also contribute to the Universal Service Fund, a type of excise tax imposed by the Federal Communications Commission (FCC) to aid development of Telecommunications Service in rural and economically disadvantaged communities.

By contrast, services classified as Information Service are not regulated as Telecommunications Service. The distinction dates from the 1960s, when, in a series of administrative proceedings called the "Computer Inquiries," the FCC established a distinction between "basic" services, those in which the transmitted information was not processed or altered in transmission, which would be subject to common carrier regulation; and "enhanced" services, in which processing altered the transmission, which would be exempt from common carrier regulation. The Act preserves the distinction, separately defining Telecommunications Service, which corresponds with "basic services" and Information Service, which corresponds with "enhanced services." The former is subject to common carrier regulation; the latter is not.

The rise of the Internet as a medium of mass communication has stressed the distinctions made by the Act between Telecommunications Service and Information Service. Since the development of the World Wide Web and browser software made it accessible to the mass market, the Internet has been treated as Information Service by the FCC; the Internet’s dramatic growth is in some measure attributable to the lack of burdensome regulation imposed upon it. However, in the new broadband world, Telecommunications Service and Information Service providers offer services in each others’ core domains increasingly indistinguishable from their pre-Internet analogs, and specifically marketed to the public as such. VoIP as a replacement telephone service is the most obvious example.

A prior circuit court decision held that cable modem service was Telecommunications Service and that the networks should be forced to grant open access to competitors. In 2002, in the "Cable Modem Declaratory Ruling," the FCC cast its vote the other way, ruling that cable modem service was "Information Service," therefore not Telecommunications Service and not subject to common carrier regulation. In 2003, in Brand X Internet Services v. FCC, the same circuit court, following its prior decision, decided that the FCC erred in classifying cable modem service as Information Service and held again that the service was Telecommunications Service.

The Supreme Court’s decision accomplished a number of things. First, it reversed the circuit court decision and held that cable modem service is Information Service and not Telecommunications Service. Any construction of cable modem service as subject to burdensome common carrier regulation is eliminated. The Court was clearly not impressed with arguments that common carrier regulation should be imposed because the service may be functionally indistinguishable from services that are subject to Title II regulation.

Secondly, the Court explicitly upheld the right and jurisdiction of the FCC to implement regulations pursuant to the Act that it is charged with administering, so long as the regulations are "reasonable." Since the FCC has consistently favored an unregulated Internet, the affirmation of FCC authority is likely to favor unregulated broadband service across all platforms. Toward the end of its decision, the Supreme Court hinted that the FCC will likely construe other broadband services as Information Service, with similar deregulatory implications, and in fact the FCC issued a decision shortly after Brand X to treat DSL as Information Service. As industry and consumers move to a broadband platform, legacy regulation is likely to wither.

Owen D. Kurtin is a partner in the New York office of law firm Brown Raysman Millstein Felder & Steiner LLP and a member of the firm’s Technology, Media & Communications and Corporate Departments. He may be reached at +1.212.895.2000 or by e-mail at [email protected].